REG - Hikma Pharmaceutical - Final Results
22/02/2024 07:00
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RNS Number : 0128E Hikma Pharmaceuticals Plc 22 February 2024
Hikma delivers strong 2023 performance and a positive outlook for 2024
London, 22 February 2024 - Hikma Pharmaceuticals PLC ('Hikma' or 'Group'), the
multinational pharmaceutical company, today reports its audited results for
the year ended 31 December 2023.
Riad Mishlawi, Chief Executive Officer of Hikma, said:
"Hikma delivered strong growth and made significant progress in 2023. All
three of our businesses grew, delivering double digit Group revenue and
operating profit growth with an impressive core EBITDA margin of 28%. Our
results demonstrate momentum across each of our three businesses, with new
product launches and partnerships continuing to expand our portfolio,
including into more complex areas such as oncology.
Hikma has a resilient portfolio of diversified global businesses that are
expanding to meet growing regional needs for a broad range of essential
medicines. In 2023 we continued to invest for the future, strengthening our
infrastructure and working closely with our customers. We have also evolved
our strategy, focusing on execution and leveraging our leading market
positions. I am excited about the many growth opportunities across all three
of our businesses, which underpin my confidence for the future."
Reported results (statutory) 2023 2022 Change Constant currency(1)
$ million $ million change
Revenue 2,875 2,517 14% 15%
Operating profit 367 282 30% 34%
Profit attributable to shareholders 190 188 1% 7%
Cashflow from operating activities 608 530 15% -
Basic earnings per share (cents) 86 84 2% 8%
Total dividend per share (cents) 72 56 29% -
Core results(2) (underlying) 2023 2022 Change Constant currency(1)
$ million $ million change
Core revenue 2,875 2,517 14% 15%
Core operating profit 707 596 19% 20%
Core EBITDA(3) 811 695 17% 17%
Core profit attributable to shareholders 492 406 21% 23%
Core basic earnings per share (cents) 223 181 23% 25%
Double digit revenue and profit growth
· Group revenue up 14% reflecting growth across all three businesses
· Core operating profit up 19% at a margin of 24.6%, driven by
improving profitability in our Branded and Generics businesses. Reported
operating profit up 30%, reflecting higher 2022 impairment charges, but after
including the 2023 impact of a $129 million provision to cover the expected
settlement amount for all opioid related cases in North America
· Group core EBITDA up 17% to $811 million at a margin of 28.2%
· Core profit attributable to shareholders up 21% and reported profit
attributable to shareholders up 1%
· Cashflow from operating activities up 15% to $608 million primarily
reflecting growth in operating profit
· $149 million invested in R&D (2022: $144 million), growing our
pipeline of complex and specialty products
· Strong balance sheet with low leverage at 1.2x net debt to core
EBITDA (31 December 2022: 1.5x)
· Full-year dividend of 72 cents per share, up from 56 cents per share
in 2022. The Board intends to progressively increase Hikma's dividend, with a
payout ratio in the range of 30% to 40% reflecting confidence in the long-term
growth prospects for the Group
Growth in all three businesses
· Injectables(4): revenue up 6% reflecting growth in all three
geographies. Injectables core operating profit increased by 2% with a core
operating margin of 36.9% (2022: 38.3%). Revenue and operating losses in our
503B compounding business are now reported in our Others segment(4)
· Branded: revenue up 3% (up 6% in constant currency) reflecting a good
performance across the majority of our markets, offsetting the impact of
halting our operations in Sudan. Core operating profit growth of 16% and a
core operating margin of 23.8% (2022: 21.1%)
· Generics: revenue up 39% and core operating profit up 86% with a core
operating margin of 20.5% (2022: 15.3%), reflecting good recovery in the base
business and strong contribution from the authorised generic of sodium oxybate
Strategic updates
· Riad Mishlawi appointed CEO in September 2023, with Dr Bill Larkins
appointed President of Injectables
· Added differentiated products to our MENA portfolio and enhanced our
pipeline through a series of exclusive licensing agreements
· Expanded our Injectables capacity, adding new lines and technologies
· Strengthened our contract manufacturing pipeline in Generics with
several new contract wins
· Completed the acquisition of part of the Akorn business through a
bankruptcy process for $98 million, including manufacturing equipment and
portfolio and pipeline products that will support our US businesses
· Halted operations in Sudan, which represented less than 3% of Group
revenue in 2022, as a result of the ongoing conflict in the country. This
resulted in $83 million of impairment and costs
2024 Group outlook
· Group revenue growth in the range of 4% to 6%
· Group core operating profit in the range of $660 million to $700
million
Further information:
A pre-recorded presentation will be available at www.hikma.com
(http://www.hikma.com) at 07:00 GMT. Hikma will also hold a live Q&A
webinar at 12:00pm GMT, and a recording will be made available on the
Company's website.
A link to register for the webinar can be found at the following link:
https://www.lsegissuerservices.com/spark/HikmaPharmaceuticals/events/dab4c916-711a-4167-82ae-d842bd1e7366
For further information please contact Deepa Jadeja - djadeja@hikma.com
(mailto:djadeja@hikma.com) .
Hikma (Investors):
Susan Ringdal +44 (0)20 7399 2760/ +44 (0)7776 477050
EVP, Strategic Planning and Global Affairs
Guy Featherstone +44 (0)20 3892 4389/ +44 (0)7795 896738
Associate Director, Investor
Relations
Layan Kalisse +44 (0)20 7399 2788/ +44 (0)7970 709912
Senior Associate, Investor Relations
Teneo (Press):
Charles Armitstead / Rob
Yates +44 (0)7703 330 269/
+44 (0)7715 375443
About Hikma:
Hikma helps put better health within reach every day for millions of people
around the world. For more than 45 years, we've been creating high-quality
medicines and making them accessible to the people who need them.
Headquartered in the UK, we are a global company with a local presence across
North America, the Middle East and North Africa (MENA) and Europe, and we use
our unique insight and expertise to transform cutting-edge science into
innovative solutions that transform people's lives. We're committed to our
customers, and the people they care for, and by thinking creatively and acting
practically, we provide them with a broad range of branded and non-branded
generic medicines. Together, our 9,100 colleagues are helping to shape a
healthier world that enriches all our communities. We are a leading licensing
partner, and through our venture capital arm, are helping bring innovative
health technologies to people around the world. For more information, please
visit: www.hikma.com (http://www.hikma.com)
Hikma Pharmaceuticals PLC (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY)
(LEI:549300BNS685UXH4JI75) (rated BBB-/stable S&P, BBB-/positive Fitch)
STRATEGIC REVIEW
In 2023, we continued to deliver on our purpose of making high quality
medicines accessible to those that need them. All three of our businesses
grew, driven by new launches, partnerships and a focus on delivering more from
our existing portfolio. Riad Mishlawi was appointed CEO during the year and
under this new leadership, and with a refreshed, ambitious strategic focus, we
are well placed for our next chapter of growth.
Good growth in all three businesses
At a group level, revenue increased 14% versus the prior year, with an
increase in core operating profit of 19%. We delivered Group core EBITDA of
$811 million at a margin of 28.2%.
Injectables
Our global Injectables business, which manufactures and supplies generic
injectables medicines to hospitals across North America, Europe and MENA, grew
revenue in 2023 by 6% at a core operating margin of 36.9%. We are the third
largest generic injectable company by volume in the US(5) and have a portfolio
of over 150 products. During the year, Dr Bill Larkins was appointed to run
this business, following Riad Mishlawi's appointment as Group CEO.
We continued to launch new products across our markets, including 17 in the US
and we were able to supply into shortage situations in the US and key European
markets, leveraging the breadth of our portfolio. We experienced some supply
and capacity constraints in the third quarter that are now fully resolved. New
high speed lines in New Jersey and Portugal became fully operational during
the second half of the year, strengthening our ability to capture growth
opportunities going forward.
In Europe, as well as stepping into shortage situations, we are pleased with
the continued progress in our newer markets. In MENA, we are performing very
well, with our in-licenced biosimilar products and our own generic injectables
both contributing to growth and helping us to offset the impact of halting of
operations in Sudan.
Reflecting our intention to drive growth in 503B compounding, we have
reallocated this business to the 'Others' segment. This reallocation will help
to ensure a clear focus on its development as we continue to build this
business over the next few years.
Branded
Our Branded business, which supplies branded generics and in-licensed patented
products across the MENA region, grew revenue 3% and achieved an impressive
23.8% core operating margin. We have also recently become the second largest
pharmaceutical company in the MENA region by sales(6).
These strong results were achieved despite the difficult decision to halt
operations in Sudan in April due to the ongoing conflict. We also faced some
currency headwinds due to the devaluation of the Egyptian Pound. Excluding
this, on a constant currency basis, Branded revenue growth was 6%. The
strong margin performance reflects the improvement in product mix as we launch
and grow products used to treat chronic illnesses, with a noteworthy
performance from our oncology portfolio.
Generics
Generics, which supplies oral and other non‑injectable generic and specialty
products to the US retail market, had an exceptionally strong year, growing
revenue 39% in 2023 at a core operating margin of 20.5%.
Our performance, particularly at the profit level, was driven by sales of the
authorised generic of sodium oxybate, which we launched at the start of the
year. The initial high gross margin for this product was lower in the second
half and will reduce again in 2024 due to the terms of our settlement
agreement. Generics' base business saw an easing of the significant price
erosion experienced in 2022, as well as good contract wins across the
portfolio. We have also launched several new products.
We continue to invest in our specialty portfolio and in 2023 saw good momentum
for Kloxxado, our 8mg naloxone nasal spray. Contract manufacturing is also
increasingly important to our Generics strategy and we had good contract wins
during the year which will provide a steady revenue contribution and leverage
our Columbus manufacturing facility.
Our growth strategy
Following the appointment of Riad Mishlawi as CEO, we have evolved our
strategy to enhance our focus on making the most of available opportunities
while driving continued operational efficiencies. Our strategic focus is
centred around three core pillars: Strive for excellence, Diversify and
differentiate and People and responsibility.
Strive for excellence: We already have a broad product portfolio, strong
commercial capabilities, high-quality manufacturing facilities and an
extensive network of global partners. We want to leverage these strengths to
make sure we are capturing all the opportunities available to us. As we
grow, we will continue to expand our manufacturing capabilities, optimise
operational efficiencies and invest in new technologies. We will also
leverage our capacity for contract manufacturing. We will maximise the
potential of our products by deploying a more targeted commercial approach
with customers to ensure we make full use of our world class portfolio.
Diversify and differentiate: Expanding our portfolio across our businesses and
global markets continues to be a fundamental priority. Although generic
medicine prices erode as competition increases, our pipeline of new products
enables us to mitigate this while also benefitting our customers. We are
expanding our R&D capabilities and investing in new projects to ensure
that our pipeline reflects the future needs of our customers. This is
complemented by strategic partnerships and acquisitions that bring complex
products we are not able to develop in-house and enable us to partner with
others to bring novel products to market. We also see potential to expand
selectively into adjacent markets and businesses, for example via our sterile
compounding business in the US, or portfolio expansion in Canada and new
countries in Europe.
People and responsibility: Our people are the cornerstone of our company and
without them, our products wouldn't be developed and launched, our plants
wouldn't run and our customers wouldn't receive the vital medicines they need.
Our culture is one of progress and belonging and we are cultivating this to
help empower our people to find the best way of bringing success to Hikma and
fulfilling the needs of our customers. From recruiting and retaining the
best talent, to providing the best training we can, as well as fostering a
workplace where everyone feels included and can perform at their best, our
people will remain a central strength of Hikma.
This year, a new Leadership Council has been formed, to provide support to our
Executive Committee and improve communications among leaders at every level of
our organisation. This council is made up of twelve senior leaders across
various disciplines and geographies.
Our broader responsibility agenda will now be embedded within our corporate
strategy. While we have always been guided by acting responsibly, this
should go hand-in-hand with how we go to market. Access to medicine, for
example, is a material sustainability topic, and is central to our purpose.
In 2023 we continued to increase the size of our medicine donation programme,
donating $4.9 million worth of medicine (calculated using COGS), signifying
our ambition to continue to expand disaster relief, support for vulnerable
populations and emergency response. Managing our use of energy and water is
important for minimising our impact on the environment and also ensures we are
operating as efficiently as possible. We also continue to engage our
procurement community and key suppliers to elevate awareness of relevant
sustainability themes. Our outreach included suppliers that make up around 45%
of Hikma's Scope 3 footprint. Finally, our focus on trust and quality is
central to being a reliable supplier and minimising the risks around us.
Across all of our sustainability topics, we work to ensure we are aligned with
evolving regulations and reporting requirements.
Board change
Patrick Butler will step down as a Non-Executive Director, from close of
business on 29 February 2024. This follows the disclosure in our 2022 Annual
Report that, after standing down as Senior Independent Director and Chair of
the Nomination and Governance Committee at the 2023 AGM, Patrick would stay on
the Board as a non-independent, Non-Executive Director for up to one year, to
aid the transition to a new CEO and support the transition of responsibilities
to Victoria Hull as Hikma's new Senior Independent Director, stepping down no
later than the AGM in 2024.
Subsequent event
On 1 February 2024, the Group reached an agreement in principle to resolve
the opioid related cases brought against Hikma Pharmaceuticals USA Inc. by US
states, their subdivisions, and tribal nations. These cases represent the vast
majority of cases brought against Hikma related to the manufacture and sale of
prescription opioid medications. The agreed upon settlement is not an
admission of wrongdoing or legal liability. The Group booked a total provision
of $129 million to cover the expected settlement amount for all related cases
in North America. The provision is considered an adjusting post balance sheet
event and is recognised in the consolidated financial statements for the year
ended 31 December 2023.
2024 Outlook
We are confident that our strategy will continue to deliver growth in 2024.
We expect Group revenue to grow in the range of 4% to 6% and for core
operating profit to be in the range of $660 million to $700 million. This is
supported by all three of our businesses.
We expect Injectables revenue to grow in the range of 6% to 8%. We expect core
operating margin to be in the range of 36% to 37%. We will leverage our
increased capacity to capture growth opportunities, launch new products across
our markets and continue to build momentum in new markets.
We expect Branded revenue to grow in the mid to high single-digits in constant
currency, or low-single digits on a reported basis, and for reported core
operating profit to be broadly in line with 2023. Our focus on building our
portfolio of medicines used for chronic illnesses will continue to drive
further momentum in this business.
We expect Generics revenue to grow in the range of 3% to 5%. We expect core
operating margin to be in the mid-teens. We expect to deliver a good
performance from our base business, supported by new launches and the
continued strong performance of the authorised generic of sodium oxybate,
albeit at a reduced margin due to the royalties payable. While these higher
royalties will create a profit headwind, our outlook demonstrates the
robustness of this business.
We expect Group core net finance expense to be around $91 million and the core
effective tax rate to be in the range of 22% to 23%.
We expect Group capital expenditure to be in the range of $160 million to $180
million.
FINANCIAL REVIEW
The financial review set out below summarises the reported and core(7)
performance of the Hikma Group and our three main business segments,
Injectables, Branded and Generics for the year ended 31 December 2023.
Group
2023 2022 Change Constant currency
$ million $ million change
Revenue 2,875 2,517 14% 15%
Gross profit 1,390 1,238 12% 13%
Gross margin 48.3% 49.2% (0.9)pp (0.9)pp
Core gross profit 1,407 1,265 11% 12%
Core gross margin 48.9% 50.3% (1.4)pp (1.2)pp
Operating profit 367 282 30% 34%
Operating margin 12.8% 11.2% 1.6pp 1.9pp
Core operating profit 707 596 19% 20%
Core operating margin 24.6% 23.7% 0.9pp 1.0pp
Core EBITDA 811 695 17% 17%
Core EBITDA margin 28.2% 27.6% 0.6pp 0.5pp
Group revenue was up 14% reflecting growth in all three business. Group gross
margin declined slightly primarily driven by shifting product and geographic
mix in the Injectables business.
Group operating expenses were $1,023 million (2022: $956 million). Excluding
adjustments related to the amortisation of intangible assets (other than
software) of $88 million (2022: $92 million) and exceptional items and other
adjustments of $235 million (2022: $195 million), Group core operating
expenses were $700 million (2022: $669 million).
Selling, general and administrative (SG&A) expenses were $767 million
(2022: $615 million). This includes a provision of $129 million related to an
agreement in principle and provisions to resolve outstanding opioid-related
cases in North America, which is considered an exceptional item. Core SG&A
expenses were $544 million (2022: $509 million), up 7%, primarily reflecting
investment in sales and marketing in the US and MENA.
Research and development (R&D) expenses were $149 million (2022: $144
million), representing 5% of Group core revenue (2022: 6%), as we continue to
invest in adding more complex and differentiated products to our pipeline and
expanding our portfolios across our markets.
Other net operating expenses were $75 million (2022: $192 million) primarily
reflecting the impairment charge related to halting our operations in Sudan.
Core other net operating expenses were $4 million (2022: $11 million),
primarily comprising foreign exchange-related costs.
The increase in core operating profit by 19% and core operating margin to
24.6% were driven by the strong performance of both Generics and Branded.
Reported operating profit grew 30%, reflecting lower reported operating profit
in 2022 resulting from higher 2022 impairment charges, but after including the
2023 impact of a $129 million provision to cover the expected settlement
amount for all opioid related cases in North America.
Group revenue by business segment
2023 2022
$ million $ million
Injectables 1,203 42% 1,140 45%
Branded 714 25% 691 27%
Generics 937 33% 672 27%
Others(8) 21 1% 14 1%
Total 2,875 2,517
Group revenue by region
2023 2022
$ million $ million
North America(9) 1,749 61% 1,433 57%
MENA 909 32% 866 34%
Europe and ROW(9) 217 8% 218 9%
Total 2,875 2,517
Injectables
2023 2022(10) Change Constant currency change
$ million $ million
Revenue 1,203 1,140 6% 6%
Gross profit 655 625 5% 5%
Gross margin 54.4% 54.8% (0.4)pp (0.3)pp
Core gross profit 657 651 1% 1%
Core gross margin 54.6% 57.1% (2.5)pp (2.4)pp
Operating profit 358 354 1% 2%
Operating margin 29.8% 31.1% (1.3)pp (1.0)pp
Core operating profit 444 437 2% 2%
Core operating margin 36.9% 38.3% (1.4)pp (1.2)pp
Injectables revenue grew 6% in 2023, reflecting good growth in all three
geographies, benefitting from the breadth of our global portfolio and advanced
manufacturing capabilities. This helped to fully offset loss of sales from
halting our operations in Sudan.
In North America(11) we are benefiting from good demand for our broad product
portfolio, including for products in short supply, recent launches and a full
contribution from the acquisitions of Custopharm and Teligent's Canadian
assets. This more than offset increased competition on certain products.
In Europe and rest of the world (ROW) we are delivering good growth across all
of our markets, benefitting from our growing portfolio of products as well as
our short supply chain and lead times, enabling us to respond to shortages in
Germany. We continue to make progress in new markets including France, Spain
and the UK.
In MENA we achieved strong growth driven by good demand for our portfolio
across most of our markets, including for our biosimilar products as we
continue to launch into new markets.
Core gross profit grew 1% to $657 million and core gross margin was 54.6%,
reflecting changes in geographic and product mix and some inflationary
pressure.
Injectables operating profit, which includes a $14 million impairment charge
and costs related to halting our operations in Sudan, grew 1%. Injectables
core operating profit grew 2% and core operating margin was 36.9%. This
reflects the change in gross profit, offset by good control of costs.
During the year, the Injectables business had 28 launches in North America, 25
in MENA and 67 in Europe and ROW. We submitted 55 filings to regulatory
authorities across all markets. We further developed our portfolio through new
licensing agreements.
Branded
2023 2022 Change Constant currency change
$ million $ million
Revenue 714 691 3% 6%
Gross profit 351 350 0% 2%
Gross margin 49.2% 50.7% (1.5)pp (1.8)pp
Core gross profit 366 350 5% 8%
Core gross margin 51.3% 50.7% 0.6pp 0.6pp
Operating profit 95 136 (30)% (24)%
Operating margin 13.3% 19.7% (6.4)pp (5.7)pp
Core operating profit 170 146 16% 19%
Core operating margin 23.8% 21.1% 2.7pp 2.6pp
Our Branded business grew revenue 3% on a reported basis and 6% in constant
currency. This reflects a good performance across most of our markets,
enabling us to fully offset the loss of sales resulting from halting our
operations in Sudan. We also saw strong demand for medicines focused on
chronic illnesses, particularly our growing oral oncology portfolio.
Core gross profit grew and core gross margin improved to 51.3%, reflecting an
improvement in product mix, driven by our focus on building a portfolio of
treatments for chronic illnesses.
Reported operating profit, which includes a $69 million impairment charge and
cost in relation to halting our operations in Sudan, declined 30%. Core
operating profit grew 16% and core operating margin expanded to 23.8%. This
reflects the improvement in core gross profit, which more than offset the
negative foreign exchange impact related to the currency devaluation in Egypt.
On a reported basis, operating profit was down due to the impairment we took
on our Sudanese business where we are unable to operate due to the ongoing
conflict.
During the year, the Branded business had 32 launches and submitted 47 filings
to regulatory authorities. Revenue from in-licensed products represented 29%
of Branded revenue (2022: 29%)(12).
Generics
2023 2022 Change
$ million $ million
Revenue 937 672 39%
Gross profit 387 265 46%
Gross margin 41.3% 39.4% 1.9pp
Core gross profit 387 266 45%
Core gross margin 41.3% 39.6% 1.7pp
Operating profit 147 (117) 226%
Operating margin 15.7% (17.4)% 33.1pp
Core operating profit 192 103 86%
Core operating margin 20.5% 15.3% 5.2pp
Revenue in our Generics business grew 39% in 2023, driven by good volume
growth in our base business, an improved pricing environment, and an
exceptionally strong contribution from the launch of the authorised generic of
sodium oxybate.
The increase in Generics core gross profit and margin expansion to 41.3% was
primarily a result of improved product mix and the strong profitability of the
authorised generic of sodium oxybate in the first six months of the year.
Royalties payable on this product increased in the second half due to the
terms of our settlement agreement.
Generics core operating profit was up 86%, reflecting growth in gross profit.
This strong profit contribution enabled us to invest back into this business,
particularly in sales and marketing, as we continue to build our specialty
business, and in R&D. Core operating margin was 20.5%.
In 2023, the Generics business launched five products and submitted five
filings to regulatory authorities.
Other businesses
Other businesses, which now includes our 503B compounding business, as well as
Arab Medical Containers (AMC), a manufacturer of plastic specialised medicinal
sterile containers, and International Pharmaceuticals Research Centre (IPRC),
which conducts bio-equivalency studies, contributed revenue of $21 million in
2023 (2022: $14 million(13)) with an operating loss of $9 million (2022: $6
million loss). We are making good progress in growing our compounding business
and continue to invest in building our manufacturing and commercial
capabilities.
Research and development
Our investment in R&D and business development enables us to continue
expanding the Group's product portfolio. During 2023, we had 157 new
launches and received 128 approvals. To ensure the continuous development of
our product pipeline, we submitted 107 regulatory filings.
2023 submissions(14) 2023 approvals(14) 2023 launches(14)
Injectables 55 87 120
North America 27 31 28
MENA 21 23 25
Europe & ROW 7 33 67
Branded 47 37 32
Generics 5 4 5
Total 107 128 157
Net finance expense
2023 2022 Change Constant currency change
$ million $ million
Finance income 7 29 (76)% (76)%
Finance expense 95 81 17% 18%
Net finance expense 88 52 69% 70%
Core finance income 7 3 133% 133%
Core finance expense 90 77 17% 17%
Core net finance expense 83 74 12% 12%
Core net finance expense increased to $83 million (2022: $74 million),
reflecting the increase in interest rates during 2023.
We expect core net finance expense to be around $91 million in 2024(15).
Profit before tax
Reported profit before tax increased to $281 million (2022: $233 million),
primarily due to the good growth in all three businesses, partially offset by
the opioid legal settlement provision. Excluding exceptional items and other
adjustments, core profit before tax was $626 million (2022: $520 million), up
20%.
Tax
The Group incurred a reported tax expense of $89 million (2022: $42 million)
and a reported effective tax rate of 31.7% (2022: 18.0%). Excluding
exceptional items and other adjustments, Group core tax expense was $131
million (2022: $111 million). The core effective tax rate was 20.9% (2022:
21.3%).
We expect the Group core effective tax rate to be in the range of 22% to 23%
in 2024.
Profit attributable to shareholders
Profit attributable to shareholders was $190 million (2022: $188 million).
Core profit attributable to shareholders increased by 21% to $492 million
(2022: $406 million).
Earnings per share
2023 2022 Change Constant currency change
Basic earnings per share (cents) 86 84 2% 8%
Core basic earnings per share (cents) 223 181 23% 25%
Diluted earnings per share (cents) 85 84 2% 8%
Core diluted earnings per share (cents) 221 180 23% 25%
Weighted average number of Ordinary Shares for the purposes of basic earnings 220,862,103 223,728,472 - -
Weighted average number of Ordinary Shares for the purposes of diluted 222,368,714 224,908,809 - -
earnings
The increase in core earnings per share reflects the increase in profit
attributable to shareholders as a result of the strong performance in all
three businesses.
Dividend
The Board is recommending a final dividend of 47 cents per share (2022: 37
cents per share) bringing the total dividend for the full year to 72 cents per
share (2022: 56 cents per share). This equates to a payout ratio of around
32%, which is above our historical range of 20% to 30%. We intend to
progressively increase our dividend, with a payout ratio in the range of 30%
to 40%, reflecting the Board's confidence in the long-term growth prospects
for the Group. The proposed dividend will be paid on 3 May 2024 to eligible
shareholders on the register at the close of business on 22 March 2024,
subject to approval at the Annual General Meeting on 25 April 2024.
Net cash flow, working capital and net debt
The Group generated operating cash flow of $608 million (2022: $530 million).
This change primarily reflects the increase in operating profit.
Group working capital days were 243 at 31 December 2023. Compared to the
position on 31 December 2022, Group working capital days decreased by 8 days
from 251 days, due primarily to an improvement in receivable days.
Capital expenditure was $169 million (2022: $138 million). In the US, $46
million was spent on upgrades, new technologies and capacity expansion across
our Cherry Hill, Dayton, and Columbus sites. In MENA, $96 million was spent
strengthening and expanding manufacturing capabilities, including two ongoing
greenfield Injectables production sites in Algeria and Morocco, expanding our
site in Algeria and a new land purchase in Saudi Arabia. In Europe, we spent
$27 million enhancing our manufacturing capabilities, including new filling
lines in Portugal and Italy and adding lyophilisation capacity in Portugal. We
expect Group capital expenditure to be in the range of $160 million to $180
million in 2024.
The Group's total debt was $1,191 million at 31 December 2023 (31 December
2022: $1,283 million).
The Group's cash balance at 31 December 2023 was $215 million (31 December
2022: $270 million).
The Group's net debt (excluding co-development agreements and contingent
liabilities) was $976 million at 31 December 2023 (31 December 2022: $1,013
million). We continue to have a healthy balance sheet, with a net debt to core
EBITDA ratio of 1.2x (31 December 2022: 1.5x).
Balance sheet
Net assets at 31 December 2023 were $2,209 million (31 December 2022: $2,148
million). Net current assets were $761 million (31 December 2022: $922
million).
The Board
The Board of Directors that served during the twelve-month period to 31
December 2023 and their respective responsibilities can be found on the
Leadership team section of www.hikma.com (http://www.hikma.com) .
Cautionary statement
This preliminary announcement has been prepared solely to provide additional
information to the shareholders of Hikma and should not be relied on by any
other party or for any other purpose.
Definitions
We use a number of non-IFRS measures to report and monitor the performance of
our business. Management uses these adjusted numbers internally to measure our
progress and for setting performance targets. We also present these numbers,
alongside our reported results, to external audiences to help them understand
the underlying performance of our business. Our core numbers may be calculated
differently to other companies.
Adjusted measures are not substitutable for IFRS results and should not be
considered superior to results presented in accordance with IFRS.
Core results
Reported results represent the Group's overall performance. However, these
results can include one-off or non-cash items which are excluded when
assessing the underlying performance of the Group. Our core results exclude
the exceptional items and other adjustments set out in Note 5 in this release.
Group gross profit 2023 2022
$million $million
Core gross profit 1,407 1,265
Provision against inventory related to halted operations in Sudan (17) -
Unwinding of acquisition related inventory step-up - (27)
Reported gross profit 1,390 1,238
Group operating profit 2023 2022
$million $million
Core operating profit 707 596
Provision related to expected North America opioid legal settlement (129) -
Impairment and cost related to halted operations in Sudan (83) -
Intangible assets amortisation other than software (88) (92)
Reorganisation costs - (14)
Impairment of property, plant and equipment and right-of-use-assets (8) (80)
Impairment of intangible assets (32) (101)
Unwinding of acquisition related inventory step-up - (27)
Reported operating profit 367 282
Constant currency
As the majority of our business is conducted in the US, we present our results
in US dollars. For both our Branded and Injectable businesses, a proportion
of their sales are denominated in a currency other than the US dollar. In
order to illustrate the underlying performance of these businesses, we include
information on our results in constant currency.
Constant currency numbers in 2023 represent reported 2023 numbers translated
using 2022 exchange rates, excluding price increases in the business resulting
from the devaluation of the Egyptian and Sudanese pound and excluding the
impact from hyperinflation accounting.
Core EBITDA
Core EBITDA is earnings before interest, tax, depreciation, amortisation,
impairment charges and unwinding of acquisition related inventory step-up,
adjusted for exceptional items and other adjustments.
2023 2022
$ million $ million
Reported operating profit 367 282
Depreciation and impairment charges/reversals in relation to property, plant 110 157
and equipment
Amortisation and impairment charges/reversals in relation to intangible assets 131 202
Depreciation and impairment charges/reversals in relation to right-of-use 18 13
assets
Unwinding of acquisition related inventory step-up - 27
Provision related to expected North America opioid legal settlement 129 -
Provision against inventory related to halted operations in Sudan 17 -
Impairment charge on financial assets 29 -
Impairment charge on other current assets 2 -
Cost from halted operations in Sudan 8 -
Reorganisation costs - 14
Core EBITDA 811 695
Working capital days
We believe Group working capital days provides a useful measure of the Group's
working capital management and liquidity. Group working capital days are
calculated as Group receivable days plus Group inventory days, less Group
payable days. Group receivable days are calculated as Group trade
receivables x 365, divided by 12 months Group revenue. Group inventory days
are calculated as Group inventory x 365, divided by 12 months Group cost of
sales. Group payable days are calculated as Group trade payables x 365,
divided by 12 months Group cost of sales.
Group net debt
We believe Group net debt is a useful measure of the strength of the Group's
financing position. Group net debt is calculated as Group total debt less
Group total cash. Group total debt excludes co-development agreements and
contingent liabilities.
Group net debt 31 Dec 2023 31 Dec 2022
$ million $ million
Short-term financial debts (150) (139)
Short-term leases liabilities (11) (9)
Long-term financial debts (975) (1,074)
Long-term leases liabilities (55) (61)
Total debt (1,191) (1,283)
Cash and cash equivalents 205 270
Restricted cash 10 -
Net debt (976) (1,013)
Forward looking statements
This announcement contains certain statements which are, or may be deemed to
be, "forward looking statements" which are prospective in nature with respect
to Hikma's expectations and plans, strategy, management objectives, future
developments and performance, costs, revenues and other trend information.
All statements other than statements of historical fact may be forward-looking
statements. Often, but not always, forward-looking statements can be
identified by the use of forward looking words such as "aims", "anticipates",
"believes", "budget", "estimates", "expects", "forecasts", "goals", "intends",
"objectives", "outlook", "plan", "project", "risks", "seek" "scheduled",
"targets" or words or terms of similar substance or the negative thereof, as
well as variations of such words and phrases or statements that certain
actions, events or results "could", "may", "might", "probably", "should",
"will" or "would" be taken, occur or be achieved.
By their nature, forward looking statements are based on current expectations
and projections about future events and are therefore subject to assumptions,
risks and uncertainties that are beyond Hikma's ability to control or estimate
precisely and which could cause actual results or events to differ materially
from those expressed or implied by the forward looking statements. In
particular, these include statements relating to future actions, product
authorisations, future performance or results of current and anticipated
products, sales efforts, expenses, the outcome of contingencies such as legal
proceedings, dividend payments and financial results. Where included, such
statements have been made by or on behalf of Hikma in good faith based upon
the knowledge and information available to the Directors on the date of this
announcement. Accordingly, no assurance can be given that any particular
expectation will be met and Hikma's shareholders are cautioned not to place
undue reliance on the forward-looking statements. Forward looking statements
contained in this announcement regarding past trends or activities should not
be taken as a representation that such trends or activities will continue in
the future.
Other than in accordance with its legal or regulatory obligations (including
under the UK Market Abuse Regulation and the UK Listing Rules and the
Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority), Hikma does not undertake to update the forward looking statements
contained in this announcement to reflect any changes in events, conditions or
circumstances on which any such statement is based or to correct any
inaccuracies which may become apparent in such forward looking statements.
Except as expressly provided in this announcement, no forward looking or other
statements have been reviewed by the auditors of Hikma. Any forward looking
statement above and all subsequent oral or written forward looking statements
attributable to Hikma or any of its members, directors, officers or employees
or any person acting on their behalf are expressly qualified in their entirety
by this cautionary statement. Past share performance cannot be relied on as a
guide to future performance. Nothing in this announcement should be construed
as a profit forecast.
Neither the content of Hikma's website nor any other website accessible by
hyperlinks from Hikma's website are incorporated in, or form part of, this
announcement.
Principal risks and uncertainties
The Group faces risks from a range of sources that could have a material
impact on our financial commitments and ability to trade in the future. The
principal risks are determined via robust assessment considering our risk
context by the Board of Directors with input from executive management. The
principal risks facing the company have not materially changed over the year,
although the risks and uncertainties of operating in the complex and diverse
MENA region were highlighted by the conflict in Sudan, ongoing economic
challenges in Egypt, and raised geopolitical tensions. In contrast, the
agreement in principle to resolve the majority of the opioid related cases
brought against the company has reduced exposure to litigation. The principal
risks are set out in the 2023 annual report on pages 71 - 74, which will be
available in March 2024. The Board recognises that certain risk factors that
influence the principal risks are outside of the control of management. The
Board is satisfied that the principal risks are being managed appropriately
and consistently with the target risk appetite. The set of principal risks
should not be considered as an exhaustive list of all the risks the Group
faces.
(1) Constant currency numbers in 2023 represent reported 2023 numbers
translated using 2022 exchange rates, excluding price increases in the
business resulting from the devaluation of the Egyptian and Sudanese pound and
excluding the impact from hyperinflation accounting.
(2) Core results throughout the document are presented to show the underlying
performance of the Group, excluding the exceptional items and other
adjustments set out in Note 5 of this release. Core results are a non-IFRS
measure and a reconciliation to reported IFRS measures is provided on page 15.
(3) Core EBTIDA is earnings before interest, tax, depreciation, amortisation,
impairment charges and unwinding of acquisition related inventory step-up,
adjusted for exceptional items and other adjustments. Core EBITDA is a
non-IFRS measure, see page 16 for a reconciliation to reported IFRS results.
(4) During 2023, the Group has revised its Injectables operating segment.
Previously, the 503B compounding business was reported under the Injectables
segment and is now included within the Others segment. 503B compounding
business' 2022 revenue of $1 million and operating loss of $9 million have
therefore been reclassified to the Others segment. 2023 Others revenue was $21
million (2022: $14 million) with an operating loss of $9 million (2022: $6
million loss).
(5) IQVIA MAT December 2023, generic injectable volumes by eaches, excluding
branded generics and Becton Dickinson.
(6) Based on internal analysis by Hikma using IQVIA MIDAS(®) Monthly value
sales data for Kuwait, KSA, UAE, Jordan, Lebanon, Egypt, Tunisia, Algeria and
Morocco, MAT Dec 2023, reflecting estimates of real-world activity. Copyright
IQVIA. All rights reserved.
(7) Core results throughout the document are presented to show the underlying
performance of the Group, excluding the exceptional items and other
adjustments set out in Note 5 of the consolidated financial statements set out
in this release. Core results are a non-IFRS measure and a reconciliation to
reported IFRS measures is provided on page 15.
(8) During 2023, the Group has revised its injectables operating segment.
Previously, the 503B compounding business was reported under the Injectables
segment and is now included within the Others segment. 503B compounding
business' 2022 revenue of $1 million and operating loss of $9 million have
therefore been reclassified to the Others segment.
(9) Canada is now included in North America (previously in Europe and Rest of
World). Canada's 2022 sales of $18 million have therefore been reclassified to
North America.
(10) During 2023, the Group has revised its Injectables operating segment.
Previously, the 503B compounding business was reported under the Injectables
segment and is now included within the Others segment. 503B compounding
business' 2022 revenue of $1 million and operating loss of $9 million have
therefore been reclassified to the Others segment.
(11) Canada is now included in North America (previously in Europe and ROW).
Canada's 2022 sales of $18 million have therefore been reclassified to North
America.
(12) Hikma now owns the rights for three products that were previously
under-licensed. Revenue from these products have been excluded from this
calculation
(13) During 2023, the Group has revised its Others operating segment.
Previously, the 503B compounding business was reported under the Injectables
segment and is now included within the Others segment. 503B compounding
business' 2022 revenue of $1 million and operating loss of $9 million have
therefore been reclassified to the Others segment.
(14) Pipeline projects submitted, approved and launched by country in 2023.
(15) Based on the composition of the Group's net debt portfolio as at 31
December 2023, a one percentage point increase/decrease in interest rates
would result in $3 million decrease/increase in net finance cost per year
(2022: $4 million increase/decrease).
Hikma Pharmaceuticals PLC
Consolidated income statement
For the year ended 31 December 2023
2023 2023 2023 2022 2022 2022
Core
Exceptional items and other adjustments
Reported
Core
Exceptional
Reported
results
(Note 5)
results
results
items and
results
other
adjustments
(Note 5)
Note $m $m $m $m $m $m
Revenue 3 2,875 - 2,875 2,517 - 2,517
Cost of sales (1,468) (17) (1,485) (1,252) (27) (1,279)
- Gross profit/(loss) 1,407 (17) 1,390 1,265 (27) 1,238
Selling, general and administrative expenses (544) (223) (767) (509) (106) (615)
Impairment loss on financial assets, net (3) (29) (32) (5) - (5)
Research and development expenses (149) - (149) (144) - (144)
Other operating expenses (9) (71) (80) (25) (181) (206)
Other operating income 5 - 5 14 - 14
- Total operating expenses (700) (323) (1,023) (669) (287) (956)
- Operating profit/(loss) 4 707 (340) 367 596 (314) 282
Finance income 7 - 7 3 26 29
Finance expense (90) (5) (95) (77) (4) (81)
Gain/(loss) from investment at fair value through profit or loss (FVTPL) 2 - 2 (2) - (2)
Gain from investment divestiture, net - - - - 5 5
- Profit/(loss) before tax 626 (345) 281 520 (287) 233
Tax 6 (131) 42 (89) (111) 69 (42)
- Profit/(loss) for the year 495 (303) 192 409 (218) 191
Attributable to:
Non-controlling interests 3 (1) 2 3 - 3
- Equity holders of the parent 492 (302) 190 406 (218) 188
- Earnings per share (cents)
Basic 8 223 86 181 84
Diluted 8 221 85 180 84
Hikma Pharmaceuticals PLC
Consolidated statement of comprehensive income
For the year ended 31 December 2023
2023 2023 2023 2022 2022 2022
Core
Exceptional items and other adjustments
Reported
Core
Exceptional
Reported
results
(Note 5)
results
results
items and
results
other
adjustments
(Note 5)
$m $m $m $m $m $m
- Profit/(loss) for the year 495 (303) 192 409 (218) 191
- Other comprehensive income/(expense)
- Items that may subsequently be reclassified to the consolidated income
statement:
Currency translation and hyperinflation movement (3) - (3) (87) - (87)
Deferred tax on currency translation 1 - 1 - - -
Reclassification of translation gain on disposal of subsidiary - - - - (8) (8)
- Items that will not subsequently be reclassified to the consolidated
income statement:
Change in investments at fair value through other comprehensive income (13) - (13) (8) - (8)
(FVTOCI)
- Total other comprehensive expense for the year (15) - (15) (95) (8) (103)
- Total comprehensive income/(expense) for the year 480 (303) 177 314 (226) 88
Attributable to:
Non-controlling interests 2 - 2 - - -
- Equity holders of the parent 478 (303) 175 314 (226) 88
480 (303) 177 314 (226) 88
Hikma Pharmaceuticals PLC
Consolidated balance sheet
At 31 December 2023
2023 2022
Note $m $m
- Non-current assets
Goodwill 9 388 389
Other intangible assets 9 712 735
Property, plant and equipment 10 1,096 1,024
Right-of-use assets 45 57
Investment in joint venture 10 10
Deferred tax assets 226 192
Financial and other non-current assets 103 65
2,580 2,472
- Current assets
Inventories 891 776
Income tax receivable 49 32
Trade and other receivables 11 824 809
Cash and cash equivalents 205 270
Other current assets 120 110
Assets classified as held for sale/distribution 11 2
2,100 1,999
- Total assets 4,680 4,471
- Current liabilities
Short-term financial debts 12 150 139
Lease liabilities 11 9
Trade and other payables 568 476
Income tax payable 74 73
Provisions 13 152 32
Other current liabilities 384 348
1,339 1,077
- Net current assets 761 922
- Non-current liabilities
Long-term financial debts 14 975 1,074
Lease liabilities 55 61
Deferred tax liabilities 25 19
Provisions 13 7 -
Other non-current liabilities 70 92
1,132 1,246
- Total liabilities 2,471 2,323
- Net assets 2,209 2,148
- Equity
Share capital 40 40
Share premium 282 282
Other reserves (282) (265)
Translation reserve related to assets classified as held for distribution - (14)
Retained earnings 2,158 2,092
- Equity attributable to equity holders of the parent 2,198 2,135
Non-controlling interests 11 13
- Total equity 2,209 2,148
Hikma Pharmaceuticals PLC
Consolidated statement of changes in equity
For the year ended 31 December 2023
Share Share Other reserves Translation reserve related to assets classified as held for distribution Retained earnings Equity attributable to equity holders of the parent Non-controlling interests Total
capital
premium
equity
Merger and revaluation reserves Translation reserve Capital redemption reserve Total other reserves
Note $m $m $m $m $m $m $m $m $m $m $m
Balance at 1 January 2022 42 282 164 (224) - (60) - 2,189 2,453 14 2,467
Profit for the year - - - - - - - 188 188 3 191
Change in investments at fair value through other comprehensive income - - - - - - - (8) (8) - (8)
(FVTOCI)
Currency translation and hyperinflation movement - - - (84) - (84) - - (84) (3) (87)
Reclassification of translation gains on disposal of subsidiary - - - (8) - (8) - - (8) - (8)
Total comprehensive income for the year - - - (92) - (92) - 180 88 - 88
Transfer of merger reserve - - (129) - - (129) - 129 - - -
Issue of Ordinary Bonus Share 1,746 - - - - - - (1,746) - - -
Cancellation of Ordinary Bonus Share (1,746) - - - - - - 1,746 - - -
Cost of equity-settled employee share scheme - - - - - - - 22 22 - 22
Dividends paid 7 - - - - - - - (125) (125) (3) (128)
Ordinary Shares purchased and cancelled (2) - - - 2 2 - (300) (300) - (300)
Shares buyback transaction cost - - - - - - - (3) (3) - (3)
Other comprehensive income accumulated in equity related to assets classified - - - 14 - 14 (14) - - - -
as held for distribution
Acquisition of subsidiaries - - - - - - - - - 2 2
Balance at 31 December 2022 and 1 January 2023 40 282 35 (302) 2 (265) (14) 2,092 2,135 13 2,148
Profit for the year - - - - - - - 190 190 2 192
Change in investments at fair value through other comprehensive income - - - - - - - (13) (13) - (13)
(FVTOCI)
Currency translation and hyperinflation movement - - - (3) - (3) - - (3) - 1
Deferred tax on currency translation - - - - - - - 1 1 - 1
Total comprehensive income for the year - - - (3) - (3) - 178 175 2 177
Cost of equity-settled employee share scheme - - - - - - - 25 25 - 25
Dividends paid 7 - - - - - - - (137) (137) (4) (141)
Other comprehensive income accumulated in equity related to assets no longer - - - (14) - (14) 14 - - - -
classified as held for distribution1
Balance at 31 December 2023 40 282 35 (319) 2 (282) - 2,158 2,198 11 2,209
1. Translation reserve related to assets
classified as held for distribution was reclassified to other reserves as the
liquidation of Pharma Ixir Co. Ltd, one of the subsidiaries in Sudan, is no
longer expected to be completed within twelve months because of the ongoing
conflict in the country.
Hikma Pharmaceuticals PLC
Consolidated cash flow statement
For the year ended 31 December 2023
2023 2022
Note $m $m
- Cash flows from operating activities
Cash generated from operations 15 737 585
Income taxes paid (131) (103)
Income taxes received 2 48
- Net cash inflow from operating activities 608 530
- Cash flow from investing activities
Purchase of property, plant and equipment (169) (138)
Proceeds from disposal of property, plant and equipment 18 1
Purchase of intangible assets (35) (87)
Proceeds from disposal of intangible assets - 9
Additions to investments at FVTOCI (27) (15)
Proceeds from sale of investment at FVTOCI 1 -
Acquisition of businesses, net of cash acquired 16 (98) (373)
Advance payment related to non-financial assets (23) -
Cash loss on disposal of subsidiary - (1)
Payments of contingent consideration liability (7) (6)
Interest income received 7 3
- Net cash outflow from investing activities (333) (607)
- Cash flow from financing activities
Proceeds from issue of long-term financial debts 778 1,401
Repayment of long-term financial debts (841) (962)
Proceeds from short-term financial debts 437 380
Repayment of short-term financial debts (467) (363)
Repayment of lease liabilities (10) (9)
Dividends paid 7 (137) (125)
Distributions to non-controlling interests (4) (3)
Interest and bank charges paid (82) (68)
Increase in restricted cash (10) -
Revolving credit facility upfront fees paid - (5)
Share buyback - (300)
Share buyback transaction costs - (3)
- Payments of co-development and earnout payment agreement (1) (1)
- Net cash outflow from financing activities (337) (58)
- Net decrease in cash and cash equivalents (62) (135)
Cash and cash equivalents at beginning of year 270 426
- Foreign exchange translation movements (3) (21)
Cash and cash equivalents at end of year 205 270
Hikma Pharmaceuticals PLC
Notes to the consolidated financial statements
1. Accounting policies
General information
Hikma Pharmaceuticals PLC is a public limited liability company incorporated
and domiciled in the United Kingdom under the Companies Act 2006.
The Group's principal activities are the development, manufacturing, marketing
and selling of a broad range of generic, branded generic and in-licensed
patented pharmaceutical products in solid, semi-solid, liquid and injectable
final dosage forms.
Basis of preparation
Hikma Pharmaceuticals PLC's consolidated financial statements have been
prepared in accordance with UK-adopted International Accounting Standards and
with the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards. The consolidated financial statements also
fully comply with the International Financial Reporting Standards as issued by
the International Accounting Standards Board ("IFRS Accounting Standards").
The consolidated financial statements have been prepared under the historical
cost convention, except for the revaluation to fair value of certain financial
assets and liabilities.
The accounting policies included in this note have been applied consistently
other than where new policies have been adopted.
The Group's previously published consolidated financial statements were also
prepared in accordance with UK-adopted international accounting standards, the
requirements of the Companies Act 2006, and were fully compliant with the IFRS
Accounting Standards as issued by the IASB.
The presentational currency of the Group's consolidated financial statements
is the US dollar as the majority of the Group's business is conducted in US
dollars.
The financial information does not constitute the Company's statutory accounts
for the years to 31 December 2023 or 2022 but is derived from those accounts.
The auditors have reported on those accounts and their report (i) was
unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006 in respect of the accounts for the year to 31 December 2023
or 31 December 2022.
Adoption of new and revised standards
The following new and revised standards and interpretations have been issued
and are effective for annual periods beginning on 1 January 2023.
IFRS 17 (New Standard) Insurance Contracts
IAS 1 (Amendments) Presentation of Financial Statements and IFRS Practice Statement 2 Making
Materiality Judgements - disclosure of accounting policies
IAS 8 (Amendments) Accounting Policies, Changes in Accounting Estimates and Errors - definition
of accounting estimates
IAS 12 (Amendments) Income Taxes - deferred tax related to assets and liabilities arising from a
single transaction
IAS 12 (Amendments) Income Taxes - International Tax Reform - Pillar Two Model Rules
IAS 1 amendments had an impact on the Group's disclosures of accounting
policies, but did not impact the measurement, recognition or presentation of
the consolidated financial statements. The other new and revised standards and
interpretations had no significant impact on the consolidated financial
statements but may impact the accounting for future transactions and
arrangements.
The standards and interpretations that had been issued but were not mandatory
for annual reporting periods ending on 31 December 2023 were not early
adopted. The Group doesn't expect any significant impact from applying these
standards and interpretations.
Exceptional items and other adjustments
We use a number of non-IFRS measures to report and monitor the performance of
our business. Management uses these adjusted numbers internally to measure our
progress and for setting performance targets. We also present these numbers,
alongside our reported results, to external audiences to help them understand
the underlying performance of our business. Our adjusted numbers may be
calculated differently to other companies.
Adjusted measures are not substitutable for IFRS numbers and should not be
considered superior to results presented in accordance with IFRS Accounting
Standards.
Core results
Reported results represent the Group's overall performance. However, these
results can include one-off or non-cash items that mask the underlying
performance of the Group. To provide a more complete picture of the Group's
performance and to improve comparability of our consolidated financial
statements to external audiences, we provide, alongside our reported results,
core results, which are a non-IFRS measure. We represent and discuss our Group
and segmental financials reconciled between reported and core results. This
presentation allows for full visibility and transparency of our financials so
that shareholders are able to clearly assess the performance factors of the
Group.
Core results mainly exclude:
- Amortisation of intangible assets other than software
- Impairment charge/reversal of intangible assets and property, plant
and equipment
- Finance income and expense resulting from remeasurement and unwinding
of contingent consideration and co-development earnout payment agreement
financial liabilities
- Exceptional items which management believes to be exceptional in
nature by virtue of their size or incidence, or have a distortive effect on
current year earnings, such as costs associated with business combinations,
one-off gains and losses on disposal of businesses, legal expenses,
reorganisation costs and any exceptional items related to tax such as
significant tax benefit/expense associated with previously unrecognised
deferred tax assets/liabilities
Our core results exclude the exceptional items and other adjustments set out
in Note 5 in the Notes to the consolidated financial statements.
Intangible assets
Intangible assets are measured at cost, less any accumulated amortisation and
impairment losses.
The assets other than goodwill are amortised on a straight-line basis and the
amortisation expense is recognised in the selling, general and administrative
expenses.
Judgement is used to assess the degree of certainty attached to the flow
of future economic benefits that are attributable to the use of the asset
on the basis of the evidence available at the time of initial recognition,
giving greater weight to external evidence.
Expenditures on research and development activities are charged to
the consolidated income statement, except only when the criteria for
recognising an internally generated intangible asset is met, which
is usually when approval from the relevant regulatory authority is
considered probable.
Also, the Group engages with third-party research and development companies to
develop products on its behalf. Substantial payments made to such third
parties to fund research and development efforts are recognised as intangible
assets if the capitalisation criteria for an intangible asset are met,
typically when licences are acquired and certain milestones are met. All other
expenditures are charged to the consolidated income statement.
Principal intangible assets are:
(a) Goodwill
(b) Product related intangibles:
(i) Product files and in-licensed products recognised through acquisitions
and partnerships are amortised over their useful economic lives once the asset
is ready for use
(ii) In-process product files recognised on acquisition are amortised over
the useful economic life once the asset is ready for use
(c) Purchased software: is amortised over the useful economic life when the
asset is ready for use
(d) Other identified intangibles are:
(e) Customer relationships: represent the value attributed to the long-term
relationships held with existing customers that the Group acquired on business
combinations. Customer relationships are amortised over their useful economic
lives
(f) Trade names: are amortised over their useful lives from the date
of acquisition
(g) Marketing rights: are amortised over their useful lives commencing
in the year in which the rights first generate sales
2. Going concern
The Directors believe that the Group is well diversified due to its geographic
spread, product diversity and large customer and supplier base. Taking into
account the Group's current position and its principal risks for a period
longer than 12 months from the date of signing the consolidated financial
statement, a going concern analysis has been prepared using realistic
scenarios applying a severe but plausible downside which shows sufficient
liquidity headroom. Therefore, the Directors believe that the Group and its
subsidiaries are adequately placed to manage their business and financing
risks successfully, despite the current uncertain economic outlook. Having
assessed the principal risks, the Directors considered it appropriate to adopt
the going concern basis of accounting in preparing the consolidated financial
statements.
Financial covenants are suspended while the Group retains its investment grade
status from two rating agencies(1). As of 31 December 2023, the Group's
investment grade rating was affirmed by S&P and Fitch.
1. Rating agencies: means each of Fitch, Moody's and S&P or any of their
affiliates or successors
3. Revenue
Business and geographical markets
The following tables provide an analysis of the Group's reported revenue by
segment and geographical market, irrespective of the origin of the
goods/services:
Injectables Generics Branded Others Total
Year ended 31 December 2023 $m $m $m $m $m
North America 808 937 - 4 1,749
Middle East and North Africa 195 - 703 11 909
Europe and rest of the world 189 - 11 6 206
United Kingdom 11 - - - 11
1,203 937 714 21 2,875
Injectables(2) Generics Branded Others(2) Total
Year ended 31 December 2022 (revised) $m $m $m $m $m
North America(1) 778 672 - 1 1,451
Middle East and North Africa 178 - 681 7 866
Europe and rest of the world 176 - 10 6 192
United Kingdom 8 - - - 8
1,140 672 691 14 2,517
1. Canada is now included in North America (previously in Europe and rest of
world). Canada's 2022 revenue of $18 million has therefore been reclassified
to North America
2. During 2023, the Group has revised its Injectables operating segment.
Previously, the 503B compounding business was reported under the Injectables
segment and is now included within the Others segment. 503B compounding
business 2022 revenue of $1 million has therefore been reclassified to the
Others segment
The top selling markets are shown below:
2023 2022
$m $m
United States 1,726 1,433
Saudi Arabia 261 240
Algeria 189 132
Egypt 93 115
2,269 1,920
In 2023, included in revenue arising from the Generics and Injectables
segments are sales the Group made to three wholesalers in the US, each
accounting for equal to or greater than 10% of the Group's revenue: $370
million (13% of Group revenue), $365 million (13% of Group revenue) and $278
million (10% of Group revenue). In 2022, revenue included sales made to three
wholesalers: $361 million (14% of Group revenue), $330 million (13% of Group
revenue) and $251 million (10% of Group revenue), respectively.
The following table provides contract balances related to revenue:
2023 2022
$m $m
Net trade receivables (Note 11) 789 777
Contract and refund liabilities 179 193
Trade receivables are non-interest bearing and typical credit terms range from
30 to 90 days in the US, 30 to 120 days in Europe and 180 to 360 days
in MENA.
Contract and refund liabilities mainly relate to returns and free goods
provisions.
4. Business segments
For management reporting purposes, the Group is organised into three principal
operating divisions - Injectables, Branded and Generics. These divisions are
the basis on which the Group reports its segmental information.
Core operating profit, defined as 'segment result', is the principal measure
used in the decision-making and resource allocation process of the
chief operating decision maker, who is the Group's Chief Executive Officer.
Information regarding the Group's operating segments is reported below:
2023 2023 2023 2022 2022 2022
Core
Exceptional items and other adjustments
Reported
Core
Exceptional
Reported
results
(Note 5)
results
results
items and
results
(revised)(2)
other
(revised)(2)
adjustments
(Note 5)
Injectables $m $m $m $m $m $m
Revenue 1,203 - 1,203 1,140 - 1,140
Cost of sales (546) (2) (548) (489) (26) (515)
Gross profit 657 (2) 655 651 (26) 625
Total operating expenses (213) (84) (297) (214) (57) (271)
Segment result 444 (86) 358 437 (83) 354
2023 2023 2023 2022 2022 2022
Core
Exceptional items and other adjustments
Reported
Core
Exceptional
Reported
results
(Note 5)
results
results
items and
results
other
adjustments
(Note 5)
Branded $m $m $m $m $m $m
Revenue 714 - 714 691 - 691
Cost of sales (348) (15) (363) (341) - (341)
Gross profit 366 (15) 351 350 - 350
Total operating expenses (196) (60) (256) (204) (10) (214)
Segment result 170 (75) 95 146 (10) 136
2023 2023 2023 2022 2022 2022
Core
Exceptional items and other adjustments
Reported
Core
Exceptional
Reported
results
(Note 5)
results
results
items and
results
other
adjustments
(Note 5)
Generics $m $m $m $m $m $m
Revenue 937 - 937 672 - 672
Cost of sales (550) - (550) (406) (1) (407)
Gross profit 387 - 387 266 (1) 265
Total operating expenses (195) (45) (240) (163) (219) (382)
Segment result 192 (45) 147 103 (220) (117)
2023 2023 2023 2022 2022 2022
Core
Exceptional items and other adjustments
Reported
Core
Exceptional
Reported
results
(Note 5)
results
results
items and
results
(revised)(2)
other
(revised)(2)
adjustments
(Note 5)
Others¹ $m $m $m $m $m $m
Revenue 21 - 21 14 - 14
Cost of sales (24) - (24) (15) - (15)
Gross profit (3) - (3) (1) - (1)
Total operating expenses (6) - (6) (5) - (5)
Segment result (9) - (9) (6) - (6)
1. Others mainly comprises Arab Medical Containers LLC, International
Pharmaceutical Research Centre LLC and the 503B compounding business
2. During 2023, the Group has revised its Injectables
operating segment. Previously, the 503B compounding business was reported
under the Injectables segment and is now included within the Others segment.
The 503B compounding business 2022 revenue of $1 million and operating loss of
$9 million have therefore been reclassified to the Others segment
2023 2023 2023 2022 2022 2022
Core
Exceptional items and other adjustments
Reported
Core
Exceptional
Reported
results
(Note 5)
results
results
items and
results
other
adjustments
(Note 5)
Group $m $m $m $m $m $m
Segments' results 797 (206) 591 680 (313) 367
Unallocated expenses¹ (90) (134) (224) (84) (1) (85)
Operating profit/(loss) 707 (340) 367 596 (314) 282
Finance income 7 - 7 3 26 29
Finance expense (90) (5) (95) (77) (4) (81)
Gain/(loss) from investment at fair value through profit or loss (FVTPL) 2 - 2 (2) - (2)
Gain from investment divestiture, net - - - - 5 5
Profit/(loss) before tax 626 (345) 281 520 (287) 233
Tax (131) 42 (89) (111) 69 (42)
Profit/(loss) for the year 495 (303) 192 409 (218) 191
Attributable to:
Non-controlling interests 3 (1) 2 3 - 3
Equity holders of the parent 492 (302) 190 406 (218) 188
1. In 2023, unallocated expenses mainly comprise provision for legal
settlements (Notes 5, 13 and 18), employee costs, third-party professional
fees, IT and travel expenses
The following table provides an analysis of the Group's non-current assets(2)
by geographic area:
2023 2022
(restated)(4)
$m $m
North America 1,301 1,305
US 36 37
Canada(3) 1,337 1,342
Middle East and North Africa
Jordan 348 349
Algeria 104 85
Morocco 89 76
Saudi Arabia 71 51
Others 75 97
687 658
Europe and rest of the world
Portugal 147 133
Germany 42 40
Others(3) 47 22
236 195
United Kingdom 11 20
2,271 2,215
2. Non-current assets exclude deferred tax assets, investments at FVTOCI,
restricted cash and other financial assets
3. Canada is now included in North America (previously in Europe and rest of
the world). Canada's 2022 non-current assets of $37 million have therefore
been reclassified to North America
4. 2022 numbers have been restated to add investment in joint venture to the
relevant geographical area
5. Exceptional items and other adjustments
Exceptional items and other adjustments are disclosed separately in the
consolidated income statement to assist in the understanding of the
Group's core performance. Exceptional items and other adjustments have been
recognised in accordance with our accounting policy outlined in Note 1, the
details are presented below:
Injectables Branded Generics Unallocated Total
$m $m $m $m $m
Impairment and cost in relation to halted operations in Sudan ___(1) (14) (69) - - (83)
Provision for legal settlements SG&A - - - (129) (129)
Intangible assets amortisation other than software SG&A (47) (6) (35) - (88)
Impairment charge on intangible assets Other operating expenses (18) - (9) (5) (32)
Impairment charge on right-of-use assets and property, plant and equipment Other operating expenses (7) - (1) - (8)
Remeasurement of contingent consideration and other financial liability Finance expense - - - (2) (2)
Unwinding of contingent consideration and other financial liability Finance expense - - - (3) (3)
Exceptional items and other adjustments included in profit before tax (86) (75) (45) (139) (345)
Tax effect Tax 42
Impact on profit for the year (303)
Non-controlling interest (1)
Equity holders of the parent (302)
1. The impact on the consolidated income statement line items is shown below.
- Impairment and costs in relation to halted operations in Sudan: In
April 2023, violent conflict erupted in the Sudanese capital of Khartoum. The
conflict has since been escalating in other areas of the country. The Group
has evaluated the effect on the carrying values of the Group's assets, and as
a consequence, a loss of $76m was recognised to reflect the fall in the
recoverable amount of the assets listed below. A further $7 million of
employee benefits, hyperinflation and other expenses from the halted
operations have been classified as exceptional items on the basis that no
revenue was generated from those assets.
Injectables Branded Generics Unallocated Total
$m $m $m $m $m
Provision against inventory Cost of sales (2) (15) - - (17)
Impairment charge on financial assets Net impairment loss on financial assets (12) (17) - - (29)
Impairment charge on intangible assets Other operating expenses - (3) - - (3)
Impairment charge on property, plant and equipment Other operating expenses - (25) - - (25)
Impairment charge on other current assets Other operating expenses - (2) - - (2)
Cost from halted operations in Sudan SG&A - (6) - - (6)
Cost from halted operations in Sudan Other operating expenses - (1) - - (1)
(14) (69) - - (83)
- Provision for legal settlements: On 1 February 2024, the Group reached an
agreement in principle to resolve the vast majority of the opioid related
cases brought against Hikma Pharmaceuticals USA Inc. by US states, their
subdivisions, and tribal nations. The agreed upon settlement is not an
admission of wrongdoing or legal liability. The Group booked a total provision
of $129 million to cover the expected settlement amount for all related cases
in North America (Notes 13 and 18)
- Intangible assets amortisation other than software of $88 million (Note 9)
- Impairment charge on intangible assets: $32 million mainly comprise $11
million in relation to product related intangible assets as a result of the
decline in performance and forecasted profitability and $16 million marketing
rights due the termination of business development contracts. Additionally, $5
million of impairment charge relates to software (Notes 9)
- Impairment charge on property, plant and equipment and right-of-use assets:
$8 million of impairment charge mainly relates to a leased property with no
future plans of utilisation (Notes 10)
- Remeasurement of contingent consideration and other financial liability: $2
million represents the finance expense resulting from the valuation of the
liabilities associated with the future contingent payments in respect of
contingent consideration recognised through business combinations and the
financial liability in relation to the co-development earnout payment
agreement
- Unwinding of contingent consideration and other financial liability: $3
million represents the finance expense resulting from the unwinding of
contingent consideration recognised through business combinations and the
financial liability in relation to the co-development earnout payment
agreement
Tax effect
- The tax effect represents the tax effect on pre-tax exceptional items and
other adjustments which is calculated based on the applicable tax rate in each
jurisdiction
In the previous year, exceptional items and other adjustments were related to
the following:
Injectables Branded Generics Unallocated Total
$m $m $m $m $m
Gain from investment divestiture, net - - - 5 5
Reorganisation costs SG&A (2) (2) (9) (1) (14)
Impairment charge on property, plant and equipment and right-of-use assets Other operating expenses (4) - (76) - (80)
Impairment charge on intangible assets Other operating expenses (8) - (93) - (101)
Intangible assets amortisation other than software SG&A (43) (8) (41) - (92)
Unwinding of acquisition related inventory step-up Cost of sales (26) - (1) - (27)
Remeasurement of contingent consideration Finance income - - - 26 26
Unwinding of contingent consideration and other financial liability Finance expense - - - (4) (4)
Exceptional items and other adjustments included in profit before tax (83) (10) (220) 26 (287)
Tax effect Tax 69
Impact on profit for the year (218)
- Gain from investment divestiture: represents $8 million from
reclassification of translation gains previously included in other
comprehensive income and the $3 million loss on disposal of Hikma Liban
S.A.R.L.
- Reorganisation costs: $14 million of reorganisation costs relate to a
one-off global restructuring to align staffing levels with current business
conditions.
- Impairment charge on property, plant and equipment and right-of-use
assets: $80 million of impairment charge relates to excess capacity and the
rationalisation of the R&D pipeline associated production lines mainly in
the Generics CGU, in addition to the impairment of generic Advair Diskus® CGU
related property, plant and equipment (Notes 10)
- Impairment charge on intangible assets: $101 million impairment charge
mainly relates to the generic Advair Diskus® CGU, other product related
intangible assets and marketing rights mainly resulting from decline in
performance and forecasted profitability and the rationalisation of the
R&D pipeline in the Generics CGU (Notes 9)
- Intangible assets amortisation other than software: $92 million
intangible assets amortisation other than software
- Unwinding of acquisition related inventory step-up: $27 million
unwinding of acquisition related inventory step-up reflects the unwinding of
the fair value uplift of the inventory acquired as part of Custopharm Topco
Holdings, Inc. business combination and the Teligent Inc. Canadian assets
acquisition ($25 million and $2 million, respectively)
- Remeasurement of contingent consideration: $26 million finance income
represents the income resulting from the valuation of the liabilities
associated with the future contingent payments in respect of contingent
consideration recognised through business combinations
- Unwinding of contingent consideration and other financial liability:
$4 million finance expense represents the expense resulting from the unwinding
of contingent consideration recognised through business combinations and the
financial liability in relation to the co-development earnout payment
agreement
Tax effect
- The tax effect represents the tax effect on pre-tax exceptional items
and other adjustments which is calculated based on the applicable tax rate in
each jurisdiction
6. Tax
2023 2023 2023 2022 2022 2022
Core
Exceptional items and other adjustments
Reported
Core
Exceptional
Reported
results
(Note 5)
results
results
items and
results
other
adjustments
(Note 5)
$m $m $m $m $m $m
Current tax
Current year 117 (2) 115 121 (16) 105
Adjustment to prior years (1) - (1) (1) - (1)
Deferred tax
Current year 11 (40) (29) (5) (53) (58)
Adjustment to prior year 4 - 4 (4) - (4)
131 (42) 89 111 (69) 42
UK corporation tax is calculated at 23.5% blended rate (2022: 19.0%).
The Group incurred a tax expense of $89 million (2022: $42 million), the
reported and core effective tax rates are 31.7% and 20.9% respectively (2022:
18.0% and 21.3% respectively). The reported effective tax rate is higher than
the statutory rate due to the exceptional items related to Sudan.
Taxation for all jurisdictions is calculated at the rates prevailing in the
respective jurisdiction.
The charge for the year can be reconciled to profit before tax per the
consolidated income statement as follows:
2023 2022
$m $m
Profit before tax 281 233
Tax at the UK corporation tax rate of 23.5% (2022: 19.00%) 66 44
Profits taxed at different rates (21) 4
Permanent differences:
- Non-deductible expenditure 3 3
- Other permanent differences 2 2
- Research and development benefit (3) (5)
State and local taxes 2 (2)
Temporary differences:
- Rate change, tax losses and other deductible temporary differences for (3) (5)
which no benefit is recognised
Impact of the halted operations in Sudan 32 -
Change in uncertain tax positions 9 10
Unremitted earnings (1) (4)
Prior year adjustments 3 (5)
Tax expense for the year 89 42
Profits taxed at different tax rates relate to profits arising in overseas
jurisdictions where the tax rate differs from the UK statutory rate. Permanent
differences relate to items which are non-taxable or for which no tax relief
is ever likely to be due. The major items are expenses and income disallowed
where they are covered by statutory exemptions, foreign exchange differences
in some territories and statutory reliefs such as research and development.
The exceptional costs associated with the halted operations in Sudan mainly
comprise tax on permanent differences of $24 million and unrecognised deferred
tax assets of $12 million on the basis that the Group does not consider it
probable that tax deductions can be realised on these temporary differences
for local tax purposes.
Rate change, tax losses and other deductible temporary differences for which
no benefit is recognised include items for which it is not appropriate to
recognise deferred tax.
The change in the uncertain tax positions relates to the balance the Group
holds in the event a revenue authority successfully takes an adverse view of
the positions adopted by the Group in 2023 and prior years. As at 31 December
2023, the Group's uncertain tax positions amounted to $59 million (2022: $50
million). The Group released $13 million in 2023 (2022: $3 million) primarily
due to the resolution of some audits with the relevant tax authorities and
released $nil (2022: $2 million) following closure of tax audit with no final
tax adjustments required by the relevant tax authorities, this was offset by
new provisions and updates of $22 million booked in 2023 (2022: $15 million)
arising from new and ongoing tax audits. There was no impact from the currency
exchange difference in 2023 (2022: $1 million reduction to the aggregate
balance). If all areas of uncertainty were audited and all areas resulted in
an adverse outcome, management does not believe any material additional tax
would be payable beyond what is provided.
Prior year adjustments include differences between the tax liability recorded
in the tax returns submitted for previous years and the estimated tax
provision reported in a prior year's consolidated financial statements. This
category also includes adjustments to the tax returns against which an adverse
uncertain tax position has been booked and included under 'change in uncertain
tax positions' above.
Publication of tax strategy
In line with the UK requirement for large UK businesses to publish their tax
strategy, the Group's tax strategy has been made available on the Group's
website.
Global minimum tax - Pillar Two
Pillar Two legislation has been enacted, or substantively enacted, in certain
jurisdictions where the Group operates. The legislation will be effective for
the Group's financial year beginning 1 January 2024. The Group is in scope of
the enacted or substantively enacted legislation and has performed an
assessment of the Group's potential exposure to Pillar Two income taxes for
the year ending on 31 December 2024.
The assessment of the potential exposure to Pillar Two income taxes is based
on the most recent information available regarding the financial performance
of the constituent entities in the Group. Based on the assessment, the Group
has identified potential exposure to Pillar Two income taxes in respect of
profits earned in the UAE. The potential exposure comes from the constituent
entities (mainly operating subsidiaries) in these jurisdictions where the
expected Pillar Two effective tax rate is below 15%. Starting in 2024, the
Group's core effective tax rate guidance reflects Pillar Two impact which
contributed to an increase of 2 to 3 percentage points. Further factors such
as the proportion of profit before tax, revenues, costs, and foreign currency
exchange rates have been considered in the guidance for the core effective tax
rate in 2024.
The Group is continuing to assess the impact of the Pillar Two income taxes
legislation on its future financial performance.
Tax contingent liabilities
Due to the Group operating across a number of different tax jurisdictions, it
is subject to periodic challenge by local tax authorities on a range of tax
matters arising in the normal course of business. These challenges generally
include transfer pricing arrangements, other international tax matters and the
judgemental interpretation of local tax legislation.
A tax contingent liability is not provided for and disclosed if:
- tax payments are not probable in the future on challenges by tax
authorities; or
- it is a present tax obligation, but the amount cannot be measured
reliably
7. Dividends
Paid in Paid in
2023
2022
$m $m
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2022 of 37 cents (31 December 82 83
2022: 36 cents) per share
Interim dividend during the year ended 31 December 2023 of 25 cents (31 55 42
December 2022: 19 cents) per share
137 125
The proposed final dividend for the year ended 31 December 2023 is 47 cents
(2022: 37 cents).
The proposed final dividend is subject to approval by shareholders at the
Annual General Meeting on 25 April 2024 and has not been included as a
liability in these consolidated financial statements. Based on the number of
shares in free issue at 31 December 2023 (221,081,371), the final dividend
would be $104 million.
8. Earnings per share (EPS)
Basic EPS is calculated by dividing the profit attributable to equity holders
of the parent by the weighted average number of Ordinary Shares in free issue
during the year after deducting Treasury shares. Treasure shares have no right
to receive dividends.
Diluted EPS is calculated after adjusting the weighted average number of
Ordinary Shares used in the basic EPS calculation for the conversion of all
potentially dilutive Ordinary Shares.
Core basic and diluted EPS are intended to highlight the core results of the
Group before exceptional items and other adjustments.
2023 2023 2023 2022 2022 2022
Core
Exceptional items and other adjustments
Reported
Core
Exceptional
Reported
results
(Note 5)
results
results
items and
results
other
adjustments
(Note 5)
$m $m $m $m $m $m
Profit attributable to equity holders of the parent 492 (302) 190 406 (218) 188
The number of shares used in calculating basic and diluted EPS is reconciled
below:
2023 2022
Weighted average number of Ordinary Shares in free issue Number Number
Basic EPS 220,862,103 223,728,472
Effect of potentially dilutive Ordinary Shares:
Share-based awards 1,506,611 1,180,336
Diluted EPS 222,368,714 224,908,809
2023 2023 2022 2022
Core
Reported Core
Reported
EPS
EPS
EPS
EPS
Cents Cents Cents Cents
Basic 223 86 181 84
Diluted 221 85 180 84
9. Goodwill and other intangible assets
The changes in the carrying value of goodwill and other intangible assets for
the years ended 31 December 2023 and 31 December 2022 are as follows:
Goodwill Other intangible assets
Product-related intangibles Software Other identified intangibles Total
$m $m $m $m $m
Cost
Balance at 1 January 2022 693 1,056 142 257 2,148
Additions - 48 1 36 85
Disposals - - - (3) (3)
Translation adjustments (15) (5) (2) (5) (27)
Acquisition of subsidiaries 119 251 - - 370
Balance at 31 December 2022 and 1 January 2023 797 1,350 141 285 2,573
Additions - 10 1 33 44
Disposals - - (4) (3) (7)
Translation adjustments (1) (1) - 2 -
Business combination (Note 16) - 63 - - 63
Balance at 31 December 2023 796 1,422 138 317 2,673
Accumulated Amortisation and Impairment
Balance at 1 January 2022 (408) (650) (91) (107) (1,256)
Charge for the year - (75) (8) (17) (100)
Impairment charge - (72) (1) (29) (102)
Translation adjustments - 4 2 3 9
Balance at 31 December 2022 and 1 January 2023 (408) (793) (98) (150) (1,449)
Charge for the year - (73) (8) (15) (96)
Disposals - - 4 3 7
Impairment charge - (13) (5) (17) (35)
Translation adjustments - 1 - (1) -
Balance at 31 December 2023 (408) (878) (107) (180) (1,573)
Carrying amount
At 31 December 2023 388 544 31 137 1,100
At 31 December 2022 389 557 43 135 1,124
Of the total intangible assets other than goodwill, $152 million (2022: $89
million) are not yet available for use.
Goodwill
Goodwill is allocated from the acquisition date to the CGUs that are expected
to benefit from the synergies of the business combination. The carrying amount
of goodwill has been allocated as follows:
As at 31 December
2023 2022
$m $m
Injectables 228 229
Branded 160 160
Total 388 389
In accordance with the Group policy, goodwill is tested annually for
impairment during the fourth quarter or more frequently if there are
indicators that goodwill may be impaired. The impairment test was performed by
calculating the recoverable amount of the CGUs to which the goodwill is
allocated, based on discounted cash flows by applying an appropriate discount
rate that reflects the risk factors associated with the cash flows under which
these CGUs sit. These values are then compared to the carrying value of the
CGUs to determine whether an impairment is required.
Details related to the discounted cash flow models used in the impairment
tests of the CGUs under which the goodwill is allocated are as follows:
Valuation basis, terminal growth rate and discount rate Valuation basis Terminal growth rate (perpetuity) Discount rate
2023 2022 2023 2022
Injectables VIU 2.5% 1.6% 12.6% 12.0% Pre−tax
Branded VIU 2.5% 2.2% 17.4% 17.7% Pre−tax
Key assumptions Projected cash flows based on:
Sales growth rates, informed by pricing and volume assumptions
Profit
margin
s and
profit
margin
growth
rates
for
market
ed and
pipeli
ne
produc
ts
Expect
ed
launch
dates
for
pipeli
ne
produc
ts
Termin
al
growth
rates
Discou
nt
rates
Determination of assumptions Growth rates are internal forecasts based on both internal and external market
information, informed by historical experience and management's best estimates
of the future
Margin
s
reflec
t past
experi
ence,
adjust
ed for
expect
ed
change
s in
the
future
Establ
ishing
the
launch
date
and
probab
ility
of a
succes
sful
produc
t
approv
al
for
pipeli
ne
produc
ts
Termin
al
growth
rates
are
based
on the
Group'
s
experi
ence
in its
market
s
Discou
nt
rates
for
each
CGU
are
derive
d from
specif
ic
region
s/coun
tries
Period of specific projected cash flows 5 years
The valuation did not result in any impairment for the CGUs and indicated that
sufficient headroom exists even under reasonable changes in key assumptions.
The Group monitors the development of climate related risks and assessed the
qualitative and quantitative impact which is not expected to have a material
impact on the consolidated financial statements nor the recoverable amount of
the CGUs.
Product-related intangible assets
Product rights not yet available for use
Product rights not yet available for use amounts to $75 million (2022: $22
million), no amortisation has been charged against them. The Group performs an
impairment review of these assets annually. The result of this test was an
impairment charge of $3 million in the Generics segment mainly due to the high
risk of obtaining regulatory approval for a certain product (2022: $8 million
in the Injectables segment).
Product rights
Product rights consists of marketed products of $469 million (2022: $535
million) which includes one product in the injectables CGU of $129 million
(2022: $140 million) that has a remaining useful life of twelve years (2022:
thirteen years), in addition to generic Advair Diskus® of $87 million (2022:
$97 million) that has a remaining useful life of eight years (2022: nine
years). The product rights have an average estimated useful life of twelve
years.
The Group performs impairment indicators assessment for definite life
intangible assets, if any indicator exists, the Group reconsiders the asset's
estimated economic benefit, calculates the recoverable value of the individual
assets or asset group's cash flows and compares such value against the
individual asset's or asset group's carrying amount. If the carrying amount
is greater, the Group records an impairment loss for the excess of book value
over the recoverable value. As at 31 December 2023, the result of this testing
was an impairment charge of $10 million (2022: $64 million).
Software
Software intangibles mainly represent the Enterprise Resource Planning
solutions that are being implemented in different operations across the Group
in addition to other software applications, of which $1 million is not yet
available for use (2022: $9 million). The software has an average estimated
useful life that varies from three to ten years.
Following a review of impairment indicators for software as at 31 December
2023, an impairment charge of $5 million was recognised (2022: $1 million).
Other identified intangibles
Other identified intangibles comprise marketing rights, customer relationships
and trade names of $137 million (2022: $135 million) of which $76 million
represent assets not yet available for use (2022: $58 million). The Group
performs an impairment review of other identified intangible assets that are
not yet available for use annually, and performs impairment indicators
assessment for assets in use. The result of this test was an impairment charge
of $17 million mainly in the Injectables and Generics segments due to the
discontinuation of certain marketing rights (2022: $29 million).
Marketing rights
Marketing rights are amortised over their useful lives commencing in the year
in which the rights are ready for use with estimated useful lives varying from
two to ten years.
Customer relationships
Customer relationships represent the value attributed to existing direct
customers that the Group acquired on the acquisition of subsidiaries.
The customer relationships have an average estimated useful life of fifteen
years.
Trade names
Trade names were mainly recognised on the acquisition of Hikma Germany GmbH
(Germany) with estimated useful lives of ten years.
10. Property, plant and equipment
Land and buildings Machinery and equipment Vehicles, fixtures and equipment Projects under construction Total
$m $m $m $m $m
Cost
Balance at 1 January 2022 676 796 138 271 1,881
Additions 4 16 7 114 141
Disposals (1) (10) (3) (1) (15)
Transfers 74 35 11 (120) -
Acquisition of subsidiaries - 1 - - 1
Transfer to assets classified as held for distribution (2) - - - (2)
Translation adjustment (26) (19) (8) (2) (55)
Balance at 31 December 2022 and 1 January 2023 725 819 145 262 1,951
Additions 31 20 7 112 170
Disposals (15) (10) (9) - (34)
Transfers 43 63 6 (112) -
Business combination (Note 16) 25 3 - 8 36
Transfer to assets classified as held for sale (11) - - - (11)
Translation adjustment (1) (1) (1) 2 (1)
Balance at 31 December 2023 797 894 148 272 2,111
Accumulated depreciation and impairment
Balance at 1 January 2022 (231) (458) (117) (3) (809)
Charge for the year (21) (47) (12) - (80)
Disposals 1 9 3 - 13
Impairment - (16) - (61) (77)
Translation adjustment 8 13 5 - 26
Balance at 31 December 2022 and 1 January 2023 (243) (499) (121) (64) (927)
Charge for the year (23) (49) (12) - (84)
Disposals - 7 9 - 16
Impairment (14) (8) (1) (3) (26)
Translation adjustment 2 3 1 - 6
Balance at 31 December 2023 (278) (546) (124) (67) (1,015)
Carrying amount
At 31 December 2023 519 348 24 205 1,096
At 31 December 2022 482 320 24 198 1,024
Land is not subject to depreciation.
As at 31 December 2023, the Group had pledged property, plant and equipment
with a carrying value of $nil (2022: $8 million) as collateral for various
long-term loans. In 2022, the amount included specific items in the net
property, plant and equipment of the Group's businesses in Tunisia.
As at 31 December 2023, the Group had entered into contractual commitments for
the acquisition of property, plant and equipment amounting to $52 million
(2022: $40 million).
During the year ended 31 December 2023, $2 million of borrowing costs have
been capitalised (2022: $ urn:newsml:reuters.com:*:nil).
As at 31 December 2023, the Group booked an impairment charge of $26 million
mainly in relation to Sudan exposure (Notes 5). In 2022, the Group booked an
impairment charge of $77 million. $61 million of the impairment charge is in
respect of the excess capacity and the rationalisation of the R&D pipeline
associated production lines in the Generics CGU, in addition to $16 million of
impairment of generic Advair Diskus® CGU related property, plant and
equipment (Notes 5).
11. Trade and other receivables
As at 31 December
2023 2022
$m $m
Gross trade receivables 1,222 1,128
Chargebacks and other allowances (352) (298)
Expected credit loss allowance (81) (53)
Net trade receivables 789 777
VAT and sales tax recoverable 35 32
Net trade and other receivables 824 809
The fair value of receivables is estimated to be not significantly different
from the respective carrying amounts.
Trade receivables are stated net of provisions for chargebacks, other
allowances and expected credit loss allowance as follows:
As at Additions, net Utilisation Translation adjustments Acquisition of subsidiaries As at
31 December 2022 and 1 January 2023
31 December 2023
$m $m $m $m $m $m
Chargebacks and other allowances 298 2,560 (2,505) (1) - 352
Expected credit loss allowance 53 32 (4) - - 81
351 2,592 (2,509) (1) - 433
As at Additions, net Utilisation Translation adjustments Acquisition of subsidiaries As at
31 December 2021 and 1 January 2022
31 December 2022
$m $m $m $m $m $m
Chargebacks and other allowances 275 2,344 (2,346) - 25 298
Expected credit loss allowance 51 5 - (3) - 53
326 2,349 (2,346) (3) 25 351
The increase in the allowance for expected credit loss is mainly driven by the
impairment of trade and other receivables related to Sudan exposure (Note 5).
At 31 December 2023, the provision balance relating to chargebacks was $236
million (2022: $204 million). The key inputs and assumptions included in
calculating this provision are estimations of 'in channel' inventory at the
wholesalers (including processing lag) of 39 days (2022: 36 days), estimated
chargeback rates as informed by average historical chargeback credits adjusted
for expected chargeback levels for new products, changes to pricing and
estimated future sales trends (including customer mix). Based on the
conditions existing at the balance sheet date, an increase/decrease in the
estimate of in channel inventory by 1 day increases/decreases the provision by
$6 million (2022: $5 million), and if the overall chargeback rate of 57%
(2022: 57%) increases/decreases by one percentage point, the provision would
increase/decrease by $4 million (2022: $4 million).
At 31 December 2023, the provision balance relating to customer rebates was
$49 million (2022: $49 million). The key inputs and assumptions included in
calculating this provision are the historical relationship between contractual
rebate payments to revenue, past payment experience, changes to pricing and
sales levels, estimation of 'in channel' inventory at the wholesalers and
retail pharmacies and estimated future sales trends (including customer mix).
Based on the conditions existing at the balance sheet date, a ten-basis point
increase/decrease in the rebates rate of 4.9% (2022: 5.7%) would
increase/decrease this provision by approximately $1 million (2022:
approximately $1 million).
12. Short-term financial debts
As at 31 December
2023 2022
$m $m
Bank overdrafts 2 11
Import and export financing(1) 44 62
Short-term loans - 2
Current portion of long-term loans (Note 14) 104 64
150 139
2023 2022
% %
The weighted average interest rates incurred are as follows:
Bank overdrafts 13.34 4.78
Import and export financing 7.10 5.87
Short-term loans 4.75 4.20
1. Import and export financing represents short-term financing for the
ordinary trading activities of the Group
13. Provisions
End of service indemnity Legal Total
$m $m $m
Balance at 1 January 2022 31 - 31
Additions 8 - 8
Utilisations (7) - (7)
Balance at 31 December 2022 and 1 January 2023 32 - 32
Additions 3 129 132
Utilisations (5) - (5)
Balance at 31 December 2023 30 129 159
2023 2022
$m $m
Due within one year 152 32
Due after more than one year 7 -
159 32
Provision for end of service indemnity relates to employees of certain Group
subsidiaries and includes some immaterial amounts for defined benefit plans.
This provision is calculated based on relevant laws in the countries where
each Group company operates, in addition to their own policies. For defined
benefit plans, the actuarial valuations performed in 2023 did not result in
any change in the net liability (2022: $nil)
Legal provision is related to the expected settlement amount for legal
matters, of which $7 million is expected to be settled after more than one
year (Notes 5 and 18).
14. Long-term financial debts
As at 31 December
2023 2022
$m $m
Long-term loans 582 644
Long-term borrowings (Eurobond) 497 494
Less: current portion of long-term loans (Note 12) (104) (64)
Long-term financial loans 975 1,074
Breakdown by maturity:
Within one year 104 64
In the second year 604 65
In the third year 100 553
In the fourth year 208 52
In the fifth year 59 401
In the sixth year 4 1
Thereafter - 2
1,079 1,138
Breakdown by currency:
US dollar 1,002 1,068
Euro 21 31
Jordanian dinar 13 16
Algerian dinar 29 16
Saudi riyal - -
Moroccan dirham 11 6
Tunisian dinar 3 1
1,079 1,138
The loans are held at amortised cost.
None of the long-term loans were secured on certain property, plant and
equipment (31 December 2022: $1 million).
Major loan arrangements include:
a) $1,150 million syndicated revolving credit facility that matures on 4
January 2029. At 31 December 2023, the facility had an outstanding balance of
$nil (2022: $278 million) and an unutilised amount of $1,150 million (2022:
$872 million). The facility can be used for general corporate purposes
b) A $500 million 3.25%, five-year Eurobond with a rating of BBB- (S&P
& Fitch) that matures on 9 July 2025. At 31 December 2023, the facility
had an outstanding balance of $497 million (2022: $494 million) and a fair
value of $481 million (2022: $466 million). The proceeds were used for general
corporate purposes
c) A $400 million five-year syndicated loan facility that matures on 13
October 2027. At 31 December 2023, the facility had an outstanding balance of
$315 million (2022: $190 million) and a fair value of $315 million (2022: $190
million). The proceeds were used for general corporate purposes
d) A $200 million eight-year loan facility from the International Finance
Corporation and Managed Co-lending Portfolio program that matures on 15
September 2028. At 31 December 2023, the facility had an outstanding balance
of $100 million (2022: no utilisation) and a fair value of $100 million (2022:
$nil), the remaining $100 million has an availability period until March 2024.
The facility can be used for general corporate purposes
e) A $150 million ten-year loan facility from the International Finance
Corporation that matures on 15 December 2027. At 31 December 2023, the
facility had an outstanding balance of $86 million (2022: $108 million) and a
fair value of $80 million (2022: $98 million). The proceeds were used for
general corporate purposes
2023 2022
% %
The weighted average interest rates incurred are as follows:
Bank loans (including the current bank loans) 5.76 2.96
Eurobond1 3.68 3.69
1. The Eurobond effective interest rate includes unwinding of discount amount
and upfront fees
15. Cash generated from operating activities
2023 2022
$m $m
Profit before tax 281 233
Adjustments for depreciation, amortisation and impairment charges of:
Property, plant and equipment 110 157
Intangible assets 131 202
Right-of-use of assets 18 13
Unwinding of acquisition related inventory step-up - 26
Reclassification of translation gains on disposal of subsidiary - (5)
(Gain)/loss from investment at fair value through profit or loss (FVTPL) (2) 2
Gain on disposal of intangible assets - (6)
Cost of equity-settled employee share scheme 25 22
Finance income (7) (29)
Finance expense 95 81
Foreign exchange loss and net monetary hyperinflation impact 6 20
Changes in working capital:
Change in trade and other receivables (24) 4
Change in other current assets (9) (19)
Change in inventories (115) (102)
Change in trade and other payables 88 16
Change in other current liabilities 13 (16)
Change in provisions 127 1
Change in other non-current assets 5 (9)
Change in other non-current liabilities (5) (6)
Cash flow from operating activities 737 585
16. Business combination
Akorn Operating Company LLC (Akorn)
On 5 July 2023, the Group completed the acquisition of the assets of Akorn as
part of a Chapter 7 Bankruptcy process, and paid cash consideration of
$98 million. This acquisition has been accounted for as a business
combination in accordance with the requirements of IFRS 3 'business
combination'.
The net assets acquired in the transaction are provisional. The identifiable
assets and liabilities recognised as a result of this acquisition are as
follows:
$m
Product related intangible assets (Note 9) 63
Property, Plant and Equipment (Note 10) 36
Inventories 2
Other current liabilities (3)
Net assets acquired 98
Total consideration 98
Satisfied by:
Cash consideration 98
Net cash outflow arising from acquisition 98
Product related intangible assets comprise product rights of $36 million and
IPR&D of $27 million. $19 million of product rights are expected to be
ready for use following the finalisation of the technology transfer process.
Property, plant and equipment mainly included land and buildings of $25
million, and machinery and equipment of $11 million, of which the Group has
disposed of $15 million of land and buildings, and $3 million of machinery and
equipment, no gain/loss has been recognised as a result of these disposals. At
31 December 2023, $11 million of land and buildings has been classified as
held for sale.
Other liabilities mainly comprise technology transfer costs. No goodwill arose
as a result of this acquisition.
Akorn did not contribute to the revenue and profit before tax of the Group in
2023 as the contributions are expected to flow after the finalisation of the
technology transfer process.
17. Contingent liabilities
Standby letters of credit and letters of guarantee
A contingent liability existed at the balance sheet date in respect of standby
letters of credit and letters of guarantee totalling $55 million (2022: $55
million) arising in the normal course of business. No provision for these
liabilities has been made in these consolidated financial statements.
A contingent liability existed at the balance sheet date for standby letters
of credit totalling $14 million (2022: $14 million) for potential stamp duty
obligations that may arise from the repayment of loans by intercompany
guarantors. It's not probable that any repayment will be made by the
intercompany guarantors.
Legal proceedings
The Group is involved in a number of legal proceedings in the ordinary course
of its business, including actual or threatened litigation and actual or
potential government investigations relating to employment matters, product
liability, commercial disputes, pricing, sales and marketing practices,
infringement of IP rights, the validity of certain patents and competition
laws.
Most of the claims involve highly complex issues. Often these issues are
subject to substantial uncertainties and, therefore, the probability of a
loss, if any, being sustained and/or an estimate of the amount of any loss is
difficult to ascertain. It is the Group's policy to provide for amounts
related to these legal matters if it is probable that a liability has been
incurred and an amount is reasonably estimable.
The Group currently intends to vigorously defend against these proceedings.
From time to time, however, the Group may settle or otherwise resolve these
matters on terms and conditions that it believes to be in its best interest.
- Starting in 2016, several complaints have been filed in the United
States on behalf of putative classes of direct and indirect purchasers of
generic drug products, as well as several individual direct purchasers opt-out
plaintiffs and third-party payors of generic drug products. These complaints,
which now number thirty-two allege that more than forty generic pharmaceutical
defendants including the Group entities engaged in conspiracies to fix,
increase, maintain and/or stabilise the prices and market shares of the
generic drug products named between approximately 2010 and 2016. The
plaintiffs seek treble damages, which can be significantly higher than the
profits Hikma made on the named drug products, and equitable injunctive relief
under federal and state antitrust and consumer protection laws. The lawsuits
have been consolidated in a multidistrict litigation (MDL) court in the United
States District Court for the Eastern District of Pennsylvania (In re Generic
Pharmaceuticals Pricing Antitrust Litigation, No. 2724, (E.D. Pa.)). At this
point, the Group does not believe sufficient evidence exists to make any
provision.
- Starting in June 2020, several complaints have been filed in the
United States on behalf of both individual plaintiffs and putative classes of
direct and indirect purchasers, as well as third party payors of Xyrem®
against certain Group entities and other defendants. Currently, most of these
cases have been consolidated in an MDL court in the United States District
Court for the Northern District of California (In re Xyrem (Sodium Oxybate)
Antitrust Litigation, No.2966, (N.D. Cal)). These complaints allege that Jazz
Pharmaceuticals PLC and its subsidiaries entered into unlawful "pay-for-delay"
reverse payment agreements with each of the defendants, including Hikma, in
settling patent infringement litigation over Xyrem®. The plaintiffs in these
lawsuits seek treble damages, which can be significantly higher than the
profits Hikma makes from selling the generic version of Xyrem®, and equitable
injunctive relief under federal and state antitrust and consumer protection
laws. A trial has been scheduled to start on October 28, 2024 in the MDL
matter. At this point, the Group does not believe sufficient evidence exists
to make any provision.
- In November 2020, Amarin Pharmaceuticals filed a patent infringement
lawsuit against certain Group entities in the United States District Court for
the District of Delaware (No. 20-cv-1630) alleging that Hikma's sales and
distribution of its generic icosapent ethyl product infringes three Amarin
patents that describe certain methods of using icosapent ethyl. Amarin sought
an injunction barring Hikma from selling its generic product as well as
unspecified damages. Hikma's product is not approved for the patented methods
but rather is approved only for a different indication not covered by any
valid patents. In January 2022 the court dismissed the lawsuit, and Amarin has
appealed the court's ruling to the United States Court of Appeals for the
Federal Circuit. Briefing on the appeal has been completed but no oral
argument has been scheduled. The Group does not believe sufficient evidence
exists to make any provision.
18. Subsequent event
On 1 February 2024, the Group reached an agreement in principle to resolve
the vast majority of the opioid related cases brought against Hikma
Pharmaceuticals USA Inc. by US states, their subdivisions, and tribal nations.
These cases relate to the manufacture and sale of prescription opioid
medications. The agreed upon settlement is not an admission of wrongdoing or
legal liability.
The Group booked a total provision of $129 million to cover the expected
settlement amount for all related cases in North America. The provision is
considered an adjusting post balance sheet event and is recognised as an
exceptional item in the consolidated financial statements for the year ended
31 December 2023 (Notes 5 and 13).
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