REG - Hikma Pharmaceutical - Half-year Report <Origin Href="QuoteRef">HIK.L</Origin> - Part 2
17/08/2017 07:06
- Part 2: For the preceding part double click ID:nRSQ2208Oa
compliance audits· Third parties
undergo ABC due diligence prior to engagement
Financial
· The Group is exposed to a variety of financial risks similar to most major international manufacturers such as liquidity, exchange rates, tax uncertainty and debtor default. In addition, most of the other risks could have a financial impact on the Group, including risks related to pipeline, goodwill, etc. · Extensive financial control procedures have been implemented and are assessed annually as part of the internal audit programme· A network of banking partners is maintained for lending and deposits· Management monitors debtor payments and
takes precautionary measures where necessary· Where it is economic and possible to do so, the Group hedges its exchange rate and interest rate exposure· Management obtains external advice to help manage tax exposures and has upgraded internal tax
control systems· Continuous review and oversight of the Group's business plan
Legal, intellectual property and regulatory
· The Group is exposed to a variety of legal, IP and regulatory risks similar to most relevant major international industries such as changes in laws, regulations and their application, litigation, governmental investigations, sanctions, contractual terms and conditions and potential business disruptions · Expert internal departments that enhance policies, processes, embed compliance culture, raise awareness · Train staff and provide terms to mitigate or lower contractual risks where possible· First class expert external advice is procured to
provide independent services and ensure highest standards· Board of Directors and executive management provide leadership and take action
Information technology
· If information and data are not adequately secured and protected (data security, access controls), this could result in:· Increased internal/ external security threats· Compliance and reputational damages· Regulatory and legal litigation · Utilise appropriate levels of industry-standard information security solutions for critical systems· Continue to stay abreast of cyber-risk activity and, where necessary, implement changes to combat this· Improved alignment between IT and
business strategy· Working with third party consultants on implementing a robust Group-wide information security programme· Development of a Group-wide information security policy· Strengthening global IT department through appointment of
experienced talent
Human Resources and Organisational growth
· Changes in employment laws, currency fluctuations and inflation pose constant risks. The fast growth of the organisation poses risks to management processes, structures and talent that serve the changing needs of the organisation. In turn, this may affect other risks · Employ HR programmes that attract, manage and develop talent within the organisation· Keeping our organisation structures and accountabilities under review, and maintaining the flexibility to make changes smoothly as requirements change·
Continuously upgrade management processes and structures so that they become and remain at the standards of a global company
Reputational
· Reputational risk inescapably arises as a · Monitor the internal and external sources that might signal reputational issues· Sustain corporate responsibility and ethics through transparent reporting and compliance with global best practices (e.g. GHG emissions, UN Global Compact)·
by-product of other risks and from taking complex business decisions. However, we view our reputation as one of our most valuable assets, as risks facing our reputation may affect our ability to conduct core business operations Strengthening communication and corporate affairs capabilities· Sustained corporate social responsibility activities that are aligned across the Group· Establishing partnerships and programmes to limit misuse of Hikma products
1Core results are presented to show the underlying performance of the Group, excluding amortisation of intangible assets
other than software and the exceptional items set out in note 4
2Earnings before interest, tax, depreciation and amortisation and other exceptional items set out in note 4
3Constant currency numbers in H1 2017 represent reported H1 2017 numbers re-stated using average exchange rates in H1 2016.
A summary of the exchange rates used is provided on page 10
4Including all dosage forms and strengths, across all markets
5On 30 June 2017, the Egyptian pound had devalued against the US dollar from its peg of 8.8 EGP:USD prior to 3 November
2016 to 18.1 EGP:USD (source: Central Bank of Egypt)
6The agreement does not include the Egyptian market for Alogliptin
7With the exception of Saudi Arabia, UAE and Egypt
8In H1 2016, exceptional items comprised acquisition, integration and other costs of $39 million, the net gain on
divestment of certain legacy Generics products of $18 million and the release of a contingent liability of $4 million.
Further details of the exceptional items are provided in note 4
9Products are defined as pharmaceutical compounds sold by the Group. New compounds are defined as pharmaceutical compounds
being introduced for the first time during the period and existing compounds being introduced into a new segment. We are
presenting details of the Group's product portfolio and pipeline to provide additional information in respect of the size
and make-up of the marketed portfolio which is generating revenue and the pipeline opportunity which will drive future
revenue growth
10Group 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 trailing 12 months Group revenue. Group
inventory days are calculated as Group inventory x 365, divided by trailing 12 months Group cost of sales. Group payable
days are calculated as Group trade payables x 365, divided by trailing 12 months Group cost of sales. We believe Group
working capital days provides a useful measure of the Group's working capital management and liquidity
11Group net debt is calculated as Group total debt less Group total cash. Group total debt excludes co-development
agreements and contingent liabilities. We believe Group net debt is a useful measure of the strength of the Group's
financing position
12Exchange rates are sourced from the Central Bank of the relevant country for the Algerian dinar, Egyptian pound, Moroccan
dirham, Sudanese Pound and Tunisian dinar and from Bloomberg for the Euro, British pound and Japanese yen
INDEPENDENT REVIEW REPORT TO HIKMA PHARMACEUTICALS PLC
Report on the consolidated interim financial statements
Our conclusion
We have reviewed Hikma Pharmaceuticals PLC's consolidated interim financial statements (the "interim financial statements")
in the Press Release of Hikma Pharmaceuticals PLC for the six month period ended 30 June 2017. Based on our review, nothing
has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material
respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
What we have reviewed
The interim financial statements comprise:
· the consolidated balance sheet as at 30 June 2017;
· the consolidated income statement and consolidated statement of comprehensive income for the period then ended;
· the consolidated statement of cash flow for the period then ended;
· the consolidated statement of changes in equity for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Press Release have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and as issued by the International
Accounting Standards Board and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union and as issued by the International Accounting Standards Board.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the Directors
The Press Release, including the interim financial statements, is the responsibility of, and has been approved by, the
Directors. The Directors are responsible for preparing the Press Release in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the Press Release based on our review.
This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in
writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board
for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK)
and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might
be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Press Release and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
16 August 2017
(a) The maintenance and integrity of the Hikma Pharmaceuticals PLC website is the responsibility of the Directors; the
work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the consolidated interim financial statements since they were
initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of interim financial statements may
differ from legislation in other jurisdictions.
Hikma Pharmaceuticals PLC
Consolidated income statement
H1 H1 H1 H1 H1 H1 FY FY FY
2017 2017 2017 2016 2016 2016 2016 2016 2016
Core results Exceptional items and other adjustments (note 4) Reported results Core results Exceptional items and other adjustments (note 4) Reported results Core results Exceptional items and other adjustments (note 4) Reported results
Note $m $m $m $m $m $m $m $m $m
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) (Audited) (Audited)
Continuing operations
Revenue 3 895 - 895 882 - 882 1,950 - 1,950
Cost of sales 3 (439) (2) (441) (433) (24) (457) (932) (32) (964)
Gross profit 456 (2) 454 449 (24) 425 1,018 (32) 986
Sales and marketing expenses (92) (25) (117) (88) (18) (106) (184) (37) (221)
General and administrative
expenses (106) (1) (107) (95) (35) (130) (208) (36) (244)
Research and development
expenses (60) (3) (63) (57) - (57) (126) (24) (150)
Other operating expenses (net) (22) (32) (54) (33) 22 (11) (81) 12 (69)
Total operating expenses (280) (61) (341) (273) (31) (304) (599) (85) (684)
Operating profit 3 176 (63) 113 176 (55) 121 419 (117) 302
Finance income 2 29 31 2 - 2 3 9 12
Finance expense (30) (14) (44) (31) (9) (40) (63) (41) (104)
Profit before tax 148 (48) 100 147 (64) 83 359 (149) 210
Tax 5 (38) 8 (30) (37) 13 (24) (80) 28 (52)
Profit for the period/year 110 (40) 70 110 (51) 59 279 (121) 158
Attributable to:
Non-controlling interests 1 - 1 1 - 1 3 - 3
Equity holders of the parent 109 (40) 69 109 (51) 58 276 (121) 155
110 (40) 70 110 (51) 59 279 (121) 158
Earnings per share (cents)
Basic 7 45.4 28.8 48.2 25.7 118.5 66.5
Diluted 7 45.2 28.6 47.8 25.4 117.9 66.2
On this page and throughout this interim financial information "H1 2017" refers to the six months ended 30 June 2017, "H1
2016" refers to the six months ended 30 June 2016 and "FY 2016" refers to the year ended 31 December 2016.
Hikma Pharmaceuticals PLC
Consolidated statement of comprehensive income
H1 H1 FY
2017 2016 2016
$m $m $m
(Unaudited) (Unaudited) (Audited)
Profit for the period/year 70 59 158
Other Comprehensive Income
Items that may be reclassified subsequently to the income statement, net of tax:
Effect of change in investment designated at fair value 1 1 1
Exchange difference on translation of foreign operations 19 (16) (90)
Total comprehensive income for the period/year 90 44 69
Attributable to:
Non-controlling interests 1 - -
Equity holders of the parent 89 44 69
90 44 69
Hikma Pharmaceuticals PLC
Consolidated balance sheet
30 June 30 June 31 December
2017 2016 2016
$m $m $m
(Unaudited) (Unaudited) (Audited)
Note
Non-current assets
Goodwill 686 689 682
Other Intangible assets 1,000 1,070 1,037
Property, plant and equipment 982 982 969
Investment in associates and joint ventures 7 7 7
Deferred tax assets 183 128 172
Financial and other non-current assets 8 68 60 48
2,926 2,936 2,915
Current assets
Inventories 9 507 496 459
Income tax receivable 2 8 2
Trade and other receivables 10 669 671 759
Collateralised and restricted cash 3 6 7
Cash and cash equivalents 244 247 155
Other current assets 11 41 139 66
1,466 1,567 1,448
Total assets 4,392 4,503 4,363
Current liabilities
Bank overdrafts and loans 14 111 158 117
Trade and other payables 12 327 322 343
Income tax provision 89 86 112
Other provisions 27 28 27
Other current liabilities 13 218 272 319
772 866 918
Net current assets 694 701 530
Non-current liabilities
Long-term financial debts 14 747 892 721
Obligations under finance leases 21 21 21
Deferred tax liabilities 16 34 15
Other non-current liabilities 15 384 290 277
1,168 1,237 1,034
Total liabilities 1,940 2,103 1,952
Net assets 2,452 2,400 2,411
Equity
Share capital 40 40 40
Share premium 282 282 282
Own shares (1) (1) (1)
Other reserves 2,119 2,064 2,075
Equity attributable to equity holders of the parent 2,440 2,385 2,396
Non-controlling interests 12 15 15
Total equity 2,452 2,400 2,411
Hikma Pharmaceuticals PLC
Consolidated statement of changes in equity
Merger and Revaluation reserves Translation reserves Retained earnings Total reserves Share capital Share premium Own shares Total equity attributable to equity shareholders of the parent Non-controlling interests Total equity
$m $m $m $m $m $m $m $m $m $m
Balance at 1 January 2016
(Audited) 38 (161) 1,144 1,021 35 282 (1) 1,337 15 1,352
Profit for the period - - 58 58 - - - 58 1 59
Effect of change in
investment designated at fair
value - - 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, recognised
directly in equity
Issue of equity shares for
acquisition of a subsidiary 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
Balance at 1 January 2016
(Audited) 38 (161) 1,144 1,021 35 282 (1) 1,337 15 1,352
Profit for the year - - 155 155 - - - 155 3 158
Effect of change in
investment designated
at fair value - - 1 1 - - - 1 - 1
Currency translation loss - (87) - (87) - - - (87) (3) (90)
Total comprehensive
income for the year - (87) 156 69 - - - 69 - 69
Total transactions with
owners, recognised
directly in equity
Issue of equity shares for
acquisition of a subsidiary 1,039 - - 1,039 5 - - 1,044 - 1,044
Cost of equity-settled
employee share schemes - - 22 22 - - - 22 - 22
Deferred tax arising on
share-based payments - - 1 1 - - - 1 - 1
Dividends on ordinary
shares (note 6) - - (77) (77) - - - (77) (1) (78)
Acquisition of subsidiaries - - - - - - - - 1 1
Balance at 31
December 2016 (Audited) 1,077 (248) 1,246 2,075 40 282 (1) 2,396 15 2,411
Profit for the period - - 69 69 - - - 69 1 70
Effect of change in
investment designated
at fair value - - 1 1 - - - 1 - 1
Currency translation gain - 19 - 19 - - - 19 - 19
Total comprehensive
income for the period - 19 70 89 - - - 89 1 90
Total transactions with
owners, recognised
directly in equity
Cost of equity-settled
employee share schemes - - 12 12 - - - 12 - 12
Dividends on ordinary
shares (note 6) - - (53) (53) - - - (53) (2) (55)
Adjustment arising from
change in non-controlling
Interests* - - (4) (4) - - - (4) (2) (6)
Balance at 30 June 2017
(Unaudited) 1,077 (229) 1,271 2,119 40 282 (1) 2,440 12 2,452
* During the period, the Group acquired the remaining stake in Ibn Al Baytar bringing the total ownership to 100%. This was
completed in April 2017.
Hikma Pharmaceuticals PLC
Consolidated cash flow statement
H1 H1 FY
2017 2016 2016
Note $m $m $m
(Unaudited) (Unaudited) (Audited)
Net cash from operating activities 16 225 99 293
Investing activities
Purchases of property, plant and equipment (47) (55) (122)
Proceeds from disposal of property, plant and equipment - - 1
Purchase of intangible assets (28) (42) (68)
Proceeds from disposal of intangible assets - 23 24
Investment in financial and other non-current assets - (11) (11)
Investment in available-for-sale investments (2) - (6)
Acquisition of business undertakings, net of cash acquired* 1 (597) (515)
Finance income 1 1 2
Net cash used in investing activities (75) (681) (695)
Financing activities
Decrease/(increase) in collateralised and restricted cash 4 1 (4)
Proceeds from issue of long-term financial debts 85 334 471
Repayment of long-term financial debts (60) (24) (326)
Proceeds from short-term borrowings 236 215 345
Repayment of short-term borrowings (242) (168) (337)
Dividends paid (53) (50) (77)
Dividends paid to non-controlling shareholders of subsidiaries (2) (1) (1)
Interest paid (27) (30) (54)
Purchase of non-controlling interest in subsidiary (6) - -
Proceeds from co-development and earnout payment agreement, net 2 3 2
Net cash (used in)/ generated from financing activities (63) 280 19
Net increase / (decrease) in cash and cash equivalents 87 (302) (383)
Cash and cash equivalents at beginning of period/year 155 553 553
Foreign exchange translation movements 2 (4) (15)
Cash and cash equivalents at end of period/year 244 247 155
*During the period, the Group received a $1 million payment from Boehringer Ingelheim in respect of the price adjustment
receivable related to the West-Ward Columbus acquisition.
HIKMA PHARMACEUTICALS PLC
Notes to the interim financial statements
1. General information
These consolidated 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 2016, 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 consolidated interim financial statements for the six
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