REG - Hikma Pharmaceutical - Half-year Report <Origin Href="QuoteRef">HIK.L</Origin> - Part 2
24/08/2016 07:07
- Part 2: For the preceding part double click ID:nRSX9654Ha
(Audited)
Continuing operations
Revenue 3 882 - 882 709 - 709 1,440 - 1,440
Cost of sales 3 (433) (24) (457) (309) - (309) (622) - (622)
Gross profit 3 449 (24) 425 400 - 400 818 - 818
Sales and marketing expenses (88) (18) (106) (75) (6) (81) (156) (16) (172)
General and administrative expenses (95) (35) (130) (80) (6) (86) (180) (20) (200)
Research and development expenses (57) - (57) (20) - (20) (36) - (36)
Other operating expenses (net) (33) 22 (11) (21) 2 (19) (37) 8 (29)
Total operating expenses (273) (31) (304) (196) (10) (206) (409) (28) (437)
Operating profit 3 176 (55) 121 204 (10) 194 409 (28) 381
Loss/impairment of associates 8 - - - (2) - (2) (2) (7) (9)
Finance income 2 - 2 1 - 1 3 - 3
Finance expense (31) (9) (40) (23) - (23) (55) (2) (57)
Profit before tax 147 (64) 83 180 (10) 170 355 (37) 318
Tax 5 (37) 13 (24) (37) 2 (35) (67) 3 (64)
Profit for the period/year 110 (51) 59 143 (8) 135 288 (34) 254
Attributable to:
Non-controlling interests 1 - 1 1 - 1 2 - 2
Equity holders of the parent 109 (51) 58 142 (8) 134 286 (34) 252
110 (51) 59 143 (8) 135 288 (34) 254
Earnings per share (cents)
Basic 7 48.2 25.7 71.4 67.3 143.7 126.6
Diluted 7 47.8 25.4 71.0 67.0 142.3 125.4
On this page and throughout this interim financial information "H1 2016" refers to the six months ended 30 June 2016, "H1
2015" refers to the six months ended 30 June 2015 and "FY 2015" refers to the year ended 31 December 2015
Consolidated statement of comprehensive income
H12016 H12015 FY2015
$m (Unaudited) $m (Unaudited) $m (Audited)
Profit for the period/year 59 135 254
Other Comprehensive Income
Items that may be reclassified subsequently to income statement , net of tax:
Cumulative effect of change in fair value of available for sale investments 1 - -
Exchange difference on translation of foreign operations (16) (40) (67)
Total comprehensive income for the period/year 44 95 187
Attributable to:
Non-controlling interests - 1 (2)
Equity holders of the parent 44 94 189
44 95 187
Consolidated Balance Sheet
Note 30 June2016 30 June2015 31 December2015
$m $m $m
(Unaudited) (Unaudited) (Audited)
Non-current assets
Intangible assets 1,759 585 607
Property, plant and equipment 982 504 507
Investment in associates and joint ventures 8 7 14 7
Deferred tax assets 128 64 70
Financial and other non-current assets 60 43 46
2,936 1,210 1,237
Current assets
Inventories 9 496 280 251
Income tax asset 8 16 3
Trade and other receivables 10 671 484 488
Collateralised and restricted cash 6 5 40
Cash and cash equivalents 247 490 553
Other current assets 11 139 22 25
1,567 1,297 1,360
Total assets 4,503 2,507 2,597
Current liabilities
Bank overdrafts and loans 14 158 165 115
Obligations under finance leases 1 1 1
Trade and other payables 12 322 234 276
Income tax provision 86 64 75
Other provisions 28 25 28
Other current liabilities 13 271 107 97
866 596 592
Net current assets 701 701 768
Non-current liabilities
Long-term financial debts 14 892 589 590
Obligations under finance leases 21 23 22
Deferred tax liabilities 34 23 21
Derivative financial instruments - 1 -
Other non-current liabilities 15 290 1 20
1,237 637 653
Total liabilities 2,103 1,233 1,245
Net assets 2,400 1,274 1,352
Equity
Share capital 16 40 35 35
Share premium 282 281 282
Own shares (1) (1) (1)
Other reserves 2,064 941 1,021
Equity attributable to equity holders of the parent 2,385 1,256 1,337
Non-controlling interests 15 18 15
Total equity 2,400 1,274 1,352
Statement of Change in Equity
Merger and Revaluation reserves$m Translation reserves$m Retained earnings$m Total reserves$m Sharecapital$m Sharepremium$m Ownshares$m Total equity attributable to equity shareholders of the parent$m Non-controlling interests$m Total equity$m
Balance at 1 January 2015 (Audited) 38 (98) 942 882 35 281 (1) 1,197 19 1,216
Profit for the period - - 134 134 - - - 134 1 135
Currency translation loss - (40) - (40) - - - (40) - (40)
Total comprehensive income for the period - (40) 134 94 - - - 94 1 95
Total transactions with owners, recognised directly in equity
Cost of equity settled employee share schemes - - 7 7 - - - 7 - 7
Dividends on ordinary shares (note 6) - - (42) (42) - - - (42) (2) (44)
Balance at 30 June 2015 (Unaudited) 38 (138) 1,041 941 35 281 (1) 1,256 18 1,274
Balance at 1 January 2015 (Audited) 38 (98) 942 882 35 281 (1) 1,197 19 1,216
Profit for the year - - 252 252 - - - 252 2 254
Currency translation loss - (63) - (63) - - - (63) (4) (67)
Total comprehensive income for the year - (63) 252 189 - - - 189 (2) 187
Total transactions with owners, recogniseddirectly in equity
Issue of equity shares - - - - - 1 - 1 - 1
Cost of equity settled employee share schemes - - 15 15 - - - 15 - 15
Deferred tax arising on share based payments - - (1) (1) - - - (1) - (1)
Dividends on ordinary shares (note 6) - - (64) (64) - - - (64) (2) (66)
Balance at 31 December 2015 (Audited) 38 (161) 1,144 1,021 35 282 (1) 1,337 15 1,352
Profit for the period - - 58 58 - - - 58 1 59
Cumulative effect of change in fair value of available for sale investments - - 1 1 - - - 1 - 1
Currency translation loss - (15) - (15) - - - (15) (1) (16)
Total comprehensive income for the period - (15) 59 44 - - - 44 - 44
Total transactions with owners, recogniseddirectly in equity
Issue of equity shares 1,039 - - 1,039 5 - - 1,044 - 1,044
Cost of equity settled employee share schemes - - 10 10 - - - 10 - 10
Dividends on ordinary shares (note 6) - - (50) (50) - - - (50) (1) (51)
Acquisition of subsidiaries - - - - - - - - 1 1
Balance at 30 June 2016 (Unaudited) 1,077 (176) 1,163 2,064 40 282 (1) 2,385 15 2,400
Consolidated Statement of Cash Flow
Note H1 2016 H1 2015 FY 2015
$m (Unaudited) $m (Unaudited) $m (Audited)
Net cash from operating activities 17 99 125 366
Investing activities
Purchases of property, plant and equipment (55) (37) (82)
Proceeds from disposal of property, plant and equipment - 2 31
Purchase of intangible assets (42) (16) (55)
Proceeds from disposal of intangible assets 23 - -
Investment in financial and other non-current assets (11) - -
Available for sale investments - - (1)
Investments measured at fair value - (20) (20)
Acquisition of subsidiary undertakings, net of cash acquired (597) - -
Finance income 1 1 3
Acquisition related amounts held in escrow account - - (38)
Net cash used in investing activities (681) (70) (162)
Financing activities
Increase in collateralised and restricted cash 1 3 6
Proceeds from issue of long term financial debts 334 505 529
Repayment of long-term financial debts (24) (65) (91)
Increase/(decrease) in short-term borrowings 47 (222) (270)
Dividends paid (50) (42) (64)
Dividends paid to non-controlling shareholders of subsidiaries (1) (2) (2)
Interest paid (30) (18) (49)
Proceeds from issue of new shares - - 1
Proceeds from co-development and earnout payment agreement, net 3 - 17
Net cash generated from financing activities 280 159 77
Net (decrease)/increase in cash and cash equivalents (302) 214 281
Cash and cash equivalents at beginning of period/year 553 280 280
Foreign exchange translation movements (4) (4) (8)
Cash and cash equivalents at end of period/year 247 490 553
Notes to the Interim Financial Statements
1. General information
These condensed interim financial statements do not comprise statutory accounts within the meaning of section 434 of the
Companies Act 2006. Statutory accounts for the year ended 31 December 2015, which were prepared under International
Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board and IFRS as adopted by the EU,
have been filed with the Registrar of Companies. The auditor's report on those accounts was unqualified, did not draw
attention to any matters by way of emphasis and did not contain any statement under Section 498 (2) or (3) of the Companies
Act 2006.
The condensed interim financial statements for the six months to 30 June 2016, with comparative figures for the six months
to 30 June 2015, is unaudited and does not constitute statutory accounts. However, the auditor, PricewaterhouseCoopers LLP
who was appointed on 12 May 2016, has carried out a review of the condensed interim financial statements and their report
in respect of the six months to 30 June 2016 is set out in the Independent review report. The comparative figures for the
year to 31 December 2015 do not constitute the Company's statutory accounts for the year. Those accounts have been reported
on by the Company's previous auditors, Deloitte LLP, and delivered to the Registrar of Companies. The report of the
previous auditor was unqualified, did not include a reference to any matters to which the auditor drew attention by way of
emphasis without qualifying their report and did not contain statements under Section 498 (2) or (3) of the Companies Act
2006.
2. Accounting policies
The unaudited condensed interim financial statements for the six months ended 30 June 2016 has been prepared using the same
accounting policies and on a basis consistent with the audited financial statements of Hikma Pharmaceuticals PLC (the
'Group') for the year ended 31 December 2015.
Adoption of new and revised standards
The following new and revised Standards and Interpretations have been adopted in the current year. Their adoption has not
had any significant impact on the amounts reported in these financial statements, however, may impact the accounting for
future transactions and arrangements.
Amendments to IAS 19 Defined benefit plans
Amendments to IFRS 11 Joint arrangements on acquisition of an interest in a joint operation
Amendments to IAS 16 and IAS38 Property, plant and equipment' and Intangible assets, on depreciation and amortisation
Amendments to IAS 16 and IAS41 Property, plant and equipment and Agriculture, regarding bearer plants
IFRS 14 Regulatory deferral accounts
Amendments to IAS 27 Separate financial statements on the equity method
Amendments to IAS 10 and IAS28 Investment entities applying the consolidation exception
Amendments to IAS 1 Presentation of financial statements on the disclosure initiative
Annual improvements 2012
Annual improvements 2014
At the date of authorisation of these interim financial statements, the following Standards and Interpretations which have
not been applied in these financial statements were in issue but not yet effective:
IFRS 10 and IAS28 (amendments) Consolidated financial statements and Investments in associates and joint ventures
IFRS 15 Revenue from contracts with customers
IFRS 9 Financial Instruments
Basis of preparation
The currency used in the preparation of the accompanying condensed interim financial statements is the US Dollar ($) as the
majority of the Group's business is conducted in US Dollars.
These condensed interim financial statements for the six months ended 30 June 2016 have been prepared in accordance with
the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, "Interim financial reporting", as
adopted by the European Union and as issued by the International Accounting Standards Board (IASB). The condensed interim
financial statements should be read in conjunction with the annual financial statements for the year ended 31 December
2015, which have been prepared in accordance with IFRSs issued by the International Accounting Standards Board (IASB) and
the IFRSs adopted by the European Union.
Taxes on income for interim periods are accrued using the effective tax rate that would be applicable to expected total
annual earnings.
The same accounting policies, presentation and method of computation are followed in the condensed interim financial
statements as has been applied in the Group's latest annual audited financial statements.
There have been no changes to the accounting standards in the current year that have materially impacted the Group
financial statements.
Accounting Estimates
The preparation of the interim financial statements requires management to make judgments, estimates and assumptions that
affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.
Actual results may differ from these estimates.
In preparing these condensed interim financial statements, the significant judgments made by management in applying the
Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the
consolidated financial statements for the year ended 31 December 2015, except as discussed below.
Business combinations
Due to the acquisition of the West-Ward Columbus business in the first half of 2016, the use of the acquisition method of
accounting had a significant impact on the Group's consolidated interim financial statements (which are disclosed as
provisional as allowed under IFRS 3 (R)). The Group's consolidated interim financial statements reflect the acquired
business from the date the acquisition has been completed, 29 February 2016. Using the acquisition method of accounting
requires the acquired assets and assumed liabilities to be recorded as of the acquisition date at their respective fair
values. Any excess of the purchase consideration over the estimated fair values of acquired net identified assets is
recorded as goodwill in the balance sheet and is allocated to an appropriate cash-generating unit. The fair value of
acquired assets and assumed liabilities is determined using valuation techniques. Estimating the fair value assigned to
each class of acquired assets and assumed liabilities is based on expectations and assumptions, in particular in relation
to the expected cash flows of products already being marketed, the cash flows and probability of success of products
currently being developed, potential market participant synergies, the discount rate and the remaining useful life of those
assets identified. Some elements of the consideration are contingent based upon assumptions and estimations of future sales
and probability of success. The assumptions used have been deemed reasonable by management.
Going concern
The Directors have considered the going concern position of the Company during the period and the period end as they have
in previous years. The Directors believe that the Group is well diversified due to its geographic spread, product diversity
and large customer and supplier base. The Group operates in the relatively defensive generic pharmaceuticals industry which
the Directors expect to be less affected by economic downturns compared to other industries.
The Group's overall net debt position was $819 million (30 June 2015: $283 million and 31 December 2015: $135 million). Net
cash from operating activities in H1 2016 was $99 million (H1 2015: $125 million and FY 2015: $366 million). The Group has
$1,015 million (30 June 2015: $824 million and 31 December 2015: $1,374 million) of undrawn short term and long term
banking facilities, in addition to $173 million (30 June 2015: $170 million and 31 December 2015: $205 million) of
unutilised import and export financing limits. These facilities are well diversified across the subsidiaries of the Group
and are with a number of financial institutions. The Group's forecasts, taking into account reasonable possible changes in
trading performance, facility renewal sensitivities, maturities of long-term debt and the purchase of West-Ward Columbus,
show that the Group should be able to operate well within the levels of its facilities and their related covenants. The
Group closed the acquisition of West-Ward Columbus on 29 February 2016, with a total consideration of $1,725 million (note
21).
After making enquiries, the Directors believe that the Group is adequately placed to manage its business and financing
risks successfully despite the current uncertain economic and political outlook. Having reassessed the principal risks, the
directors considered it appropriate to adopt the going concern basis of accounting in preparing the interim financial
information.
3. Business and geographical segments
For management purposes, the Group is currently organised into three principal operating divisions - Branded, Injectables
and Generics. These divisions are the basis on which the Group reports its segmental information.
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.
The following is an analysis of the Group's revenue and results by reportable segment for the period ended 30 June 2016:
Six months ended
30 June 2016 (Unaudited)
Branded Injectables Generics Others Group
$m $m $m $m $m
Revenue 264 357 257 4 882
Cost of sales (130) (132) (192) (3) (457)
Gross profit 134 225 65 1 425
Core segment result 55 146 8 - 209
Exceptional items:
- Integration and other costs - - (7) - (7)
- Gain from sale of assets, net - - 18 - 18
- Inventory related adjustments - - (20) - (20)
- Release of contingent liability - 4 - - 4
Intangible amortisation other than software (4) (6) (8) - (18)
Segment result 51 144 (9) - 186
Core Unallocated corporate expenses (33)
Exceptional items:
- Acquisition related costs (32)
Unallocated corporate expenses (65)
Core operating profit 176
Operating profit 121
Finance income 2
Finance expense (40)
Profit before tax 83
Tax (24)
Profit for the period 59
Attributable to:
Non-controlling interest 1
Equity holders of the parent 58
59
Generics segment includes West-Ward Columbus results and Injectables segment include EUP results.
"Others" mainly comprise Arab Medical Containers LLC, International Pharmaceutical Research Center LLC and the chemicals
division of Hikma Pharmaceuticals LLC (Jordan).
Unallocated corporate expenses are primarily made up of employee costs, professional and consultation fees.
Segment assets and liabilities 30 June 2016 (Unaudited) Branded Injectables Generics Corporate and Others Group
$m $m $m $m $m
Additions to property, plant and equipment (cost) 9 20 19 1 49
Acquisition of business property,plant and equipment (net book value) (note 21) - 11 453 - 464
Additions to intangible assets (cost) 1 15 14 4 34
Intangible assets arising on acquisition (note 21) - 34 1,120 - 1,154
Total property, plant and equipment and intangible assets (net book value) 459 598 1,648 36 2,741
Depreciation 11 9 11 1 32
Amortisation (including software) 4 8 9 - 21
Investment in associates and joint ventures - - - 7 7
Balance sheet
Total assets 1,123 947 2,279 154 4,503
Total liabilities 519 434 998 152 2,103
Six months ended
30 June 2015 (Unaudited)
Branded Injectables Generics Others Group
$m $m $m $m $m
Revenue 282 344 79 4 709
Cost of sales (146) (129) (31) (3) (309)
Gross profit 136 215 48 1 400
Core segment result 58 146 33 (3) 234
Exceptional items:
- Severance costs (5) - - - (5)
- Proceeds from legal claims - 2 - - 2
Intangible amortisation other than software (4) (2) - - (6)
Segment result 49 146 33 (3) 225
Core Unallocated corporate expenses (30)
Exceptional items:
- Acquisition related costs (1)
Unallocated corporate expenses (31)
Core operating profit 204
Operating profit 194
Loss of associates (2)
Finance income 1
Finance expense (23)
Profit before tax 170
Tax (35)
Profit for the period 135
Attributable to:
Non-controlling interest 1
Equity holders of the parent 134
135
"Others" mainly comprise Arab Medical Containers LLC, International Pharmaceutical Research Center LLC and the chemicals
division of Hikma Pharmaceuticals LLC (Jordan).
Unallocated corporate expenses are primarily made up of employee costs, professional fees, and travel expenses.
Segment assets and liabilities 30 June 2015 (Unaudited) Branded Injectables Generics Corporate and Others Group
$m $m $m $m $m
Additions to property, plant and equipment (cost) 15 4 5 - 31
Remeasurement of property, plant and equipment * - (1) - - (1)
Additions to intangible assets (cost) 2 9 3 2 16
Remeasurement of Intangible assets * - (8) - - (8)
Total property, plant and equipment and intangible assets (net book value) 491 511 80 7 1,089
Depreciation 12 8 4 1 25
Amortisation (including software) 4 4 - - 8
Investment in associates and joint ventures - - - 14 14
Balance sheet
Total assets 1,173 832 159 343 2,507
Total liabilities 494 389 79 271 1,233
271
1,233
* Further to Bedford Laboratories ("Bedford") acquisition in 2014, a reduction of $8 million was made to the provisional
goodwill recognised on the acquisition of Bedford as a result of the adjustment to inventory, property plant and equipment
and deferred tax made prior to the end of the measurement period on 15 July 2015.
Year ended31 December 2015 (Audited) Branded Injectables Generics Others Group
$m $m $m $m $m
Revenue 570 710 151 9 1,440
Cost of sales (293) (261) (62) (6) (622)
Gross profit 277 449 89 3 818
Core segment result 118 312 46 (5) 471
Exceptional items:
- Integration costs - - (2) - (2)
- Severance costs (5) (1) - - (6)
- Proceeds from legal claims - 2 - - 2
- Gain from sale of assets,net - 6 - - 6
Intangible amortisation other than software (8) (8) - - (16)
Segment result 105 311 44 (5) 455
Core Unallocated corporate expenses (62)
Exceptional items:
- Acquisition related costs (12)
Unallocated corporate expenses (74)
Core operating profit 409
Operating profit 381
Loss/impairment of associates (9)
Finance income 3
Finance expense (57)
Profit before tax 318
Tax (64)
Profit for the year 254
Attributable to:
Non-controlling interest 2
Equity holders of the parent 252
254
"Others" mainly comprise Arab Medical Containers LLC, International Pharmaceutical Research Center LLC and the chemicals
division of Hikma Pharmaceuticals LLC (Jordan).
Unallocated corporate expenses are primarily made up of employee costs, professional fees, travel expenses and donations.
Segment assets and liabilities
31 December 2015 (Audited)
Branded Injectables Generics Corporate and Others Group
$m $m $m $m $m
Additions to property, plant and equipment (cost) 24 39 15 7 85
Remeasurement of property, plant and equipment * - (1) - - (1)
Additions to intangible assets 5 41 8 2 56
Remeasurement of Intangible assets * - (8) - - (8)
Total property, plant and equipment and intangible assets (net book value) 478 532 81 23 1,114
Depreciation and impairment 22 19 8 2 51
Amortisation and impairment (including software) 9 11 1 1 22
Investment in associates and joint ventures - - - 7 7
Balance sheet
Total assets 1,108 829 165 495 2,597
Total liabilities 453 397 309 86 1,245
* Further to Bedford Laboratories ("Bedford") acquisition in 2014, a reduction of $8 million was made to the provisional
goodwill recognised on the acquisition of Bedford as a result of the adjustment to inventory, property, plant and equipment
and deferred tax made prior to the end of the measurement period on 15 July 2015.
The following table provides an analysis of the Group's sales by geographical market, irrespective of the origin of the
goods/services:
H1 2016 H1 2015 FY 2015
$m $m $m
(Unaudited) (Unaudited) (Audited)
Middle East and North Africa 304 322 656
United States 529 344 697
Europe and Rest of the World 47 40 82
United Kingdom 2 3 5
882
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