REG - Hikma Pharmaceutical - Half-year Report
04/08/2022 07:00
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RNS Number : 8513U Hikma Pharmaceuticals Plc 04 August 2022
Hikma's diversified business delivers resilient H1 performance
Strong Injectables and Branded growth helps to offset challenging environment
in Generics
London, 4 August 2022 - Hikma Pharmaceuticals PLC ('Hikma' or 'Group'), the
multinational pharmaceutical company, today reports its interim results for
the six months ended 30 June 2022.
Said Darwazah, Executive Chairman and Chief Executive Officer of Hikma,
said:
"Hikma's resilient first half performance is a testament to the strength of
our core underlying business, supported by the breadth and depth of our
portfolio and capabilities. Double digit profit growth in our Injectables and
Branded businesses has helped to offset a decline in Generics caused by
industry-wide competitive pressures. Our increasingly differentiated
portfolio, market leading positions, unique manufacturing footprint and the
strength of our customer relationships form a strong foundation for further
progress and we are confident in our outlook for the future. We expect to
maintain good momentum in Branded and Injectables and for Generics to return
to growth in 2023."
Group H1 highlights:
Reported results (statutory) H1 2022(1) H1 2021(1) Change Constant currency(2)
$ million change
Revenue 1,213 1,216 (0)% 1%
Operating profit 239 326 (27)% (26)%
Profit attributable to shareholders 173 248 (30)% (30)%
Cashflow from operating activities 169 224 (25)% -
Basic earnings per share (cents)(3) 76.2 107.4 (29)% (29)%
Interim dividend per share (cents) 19.0 18.0 6% -
Core results(4) (underlying) H1 2022 H1 2021 Change Constant currency(2)
$ million change
Revenue 1,213 1,216 (0)% 1%
Core operating profit 296 309 (4)% (3)%
Core profit attributable to shareholders 209 223 (6)% (6)%
Core basic earnings per share (cents)(3) 92.1 96.5 (5)% (4)%
Resilient first half performance
· Group revenue flat - strong performance in Injectables and Branded
offseting impact of weaker pricing in Generics
· Stable reported gross margin of 50.4%, reflecting positive product mix
· Core operating profit down 4% to $296 million reflecting lower profit in
Generics. Reported operating profit down 27%, primarily reflecting a high
comparative in H1 2021 due to an impairment reversal
· Good cashflow from operating activities of $169 million while maintaining
healthy inventory to ensure continuity of supply
· Maintained comfortable leverage with net debt(5) to EBITDA(6) of 1.7x at
30 June 2022 (31 December 2021 0.6x), having completed the acquisitions of
Custopharm and the Canadian assets of Teligent and a buyback of $300 million
shares during the period
· Interim dividend of 19 cents per share
Strong performance in Injectables and Branded partially offsets decline in
Generics
· Global Injectables revenue grew strongly, up 9%, driven by the US base
business, the Custopharm and Teligent acquisitions, and a good performance in
Europe. Injectables core operating profit increased by 12% and core operating
margin expanded to 38.8%
· Branded achieved good growth in several key markets, with revenue up 6%.
An improved product mix drove growth in core operating profit of 16% and core
operating margin of 21.8%
· Generics was impacted by the highly competitive environment in the US and
slower than expected ramp up of recent launches, resulting in an 18% fall in
revenue and core operating margin of 17.6%
Strategic progress positions business for future growth
· Successfullly completed the acquisitions of Custopharm and Teligent's
Canadian assets
· Expanded our European footprint through entry into the French injectables
market
· Investing in local injectables manufacturing in MENA to support growing
product portfolio
· Benefited from strong demand for our oncology products in Algeria
supported by our continued investment in local manufacturing
· Strong contribution from chronic medications - driving 80% of Branded
revenue growth in H1
· Continued investment in commercial capabilities to support development of
growing speciality portfolio and more resilient growth opportunities in
Generics
Outlook for full year 2022
· Injectables - we continue to expect revenue growth to be in the mid to
high-single digits and core operating margin to be between 36% to 37%
· Branded - we now expect revenue to grow in the low-single digits on a
reported basis. On a constant currency basis, we expect Branded revenue to
grow in the mid-single digits. We expect core operating profit to be more
evenly split across the year
· Generics - we now expect revenue to be in the range of $650 million to
$675 million and core operating margin to be between 15% to 16%
Further information:
A pre-recorded presentation will be available at www.hikma.com
(http://www.hikma.com) at 07:00 BST. Hikma will also hold a live Q&A
conference call at 10:30am BST, and a recording will be made available on the
Company's website.
To join via conference call please dial:
United Kingdom: 0800 640 6441
United Kingdom (local): 020 3936 2999
All other locations: +44 20 3936 2999
Access code: 155618
For further information please contact Tiina Lugmayer - tlugmayer@hikma.com
(mailto:tlugmayer@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 / Camilla Cunningham +44 (0)7703 330269/
+44 (0)7464 982426
About Hikma:
Hikma helps put better health within reach every day for millions of people
around the world. For more than 40 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
the United States (US), 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 8,700 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
(https://nam04.safelinks.protection.outlook.com/?url=https%3A%2F%2Fc212.net%2Fc%2Flink%2F%3Ft%3D0%26l%3Den%26o%3D2531421-1%26h%3D3823969217%26u%3Dhttp%253A%252F%252Fwww.hikma.com%252F%26a%3Dwww.hikma.com&data=02%7C01%7Csweiss%40Hikma.com%7C4a35048c8c764c63c86308d70efbac9e%7C178c1a723d3c40afbaa754615303bcdc%7C0%7C1%7C636994346427346162&sdata=lHZaoOb0u30Y6re6yfLW1Ar4vvBS%2FnjEUNdB00TBaTI%3D&reserved=0)
Hikma Pharmaceuticals PLC (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY)
(LEI:549300BNS685UXH4JI75) (rated BBB-/stable S&P and Ba1/stable Moody's)
STRATEGIC REVIEW
At Hikma, by creating high-quality products and making them accessible to
those who need them, we are helping to shape a healthier world that enriches
all our communities. Our broad and diversified portfolio, excellent
manufacturing footprint and commitment to quality, coupled with the
ever-growing need for healthcare globally, puts us in a position of strength.
The breadth and diversity of our business is demonstrated by our world-class
Injectables business with state-of-the-art manufacturing capabilities, a
broad, profitable product portfolio and a market leading position in the US,
where we are the second largest supplier of generic sterile injectables by
volume(7). In MENA, we are a top-four pharmaceutical company(8) with a strong
brand and extensive local manufacturing facilities in attractive, growing
markets. Our high-quality Generics business is delivering a solid operating
margin despite the current challenging pricing environment. Continued
investment in our portfolio of speciality products will strengthen and
diversify the Generics business to underpin future growth.
Strong growth in Injectables with expanding growth opportunities
Our Injectables business delivered strong growth, with revenues up 9% in the
first half of 2022. Organic revenues grew by 5%(9), with further growth coming
from the integration of the Custopharm and Teligent acquisitions during the
half.
In the US, we are benefiting from more normalised demand following the impact
of the pandemic, and from new product launches. Our portfolio now has more
than 130 products. We also continued to leverage the flexibility and quality
of our manufacturing capabilities to address market shortages, strengthening
our customer relationships and reaffirming us as a supplier of choice.
In Europe and Rest of World (ROW)(10), we grew revenue from our own products
and contract manufacturing and benefited from a contribution from the Teligent
acquisition in Canada.
We are gradually building our Canadian business, focusing on establishing
relationships with customers and the regulator, Health Canada, and by
introducing new products. We currently market 29 products in Canada, with more
in the pipeline. We are already playing an important role in helping alleviate
drug shortages in the Canadian market by leveraging our US business to import
key US FDA-approved products.
In the MENA region, our Injectables revenues declined slightly on a reported
basis primarily due to weaker sales in Lebanon and Iraq. This was mostly
offset by successful new launches, as well as good performance of our
biosimilar products as we continue to launch into new markets and grow our
market share.
Good performance across several MENA markets is driving further progress in
Branded
Our Branded business continues to benefit from our established presence in the
region, with our 23 manufacturing plants, 2,000 strong experienced salesforce
and a broad portfolio of our own and in-licenced products. Strong revenue
growth in the first half was driven by good performance across most of our
markets as we benefit from an increasingly diversified portfolio of high-value
treatments. Algeria, Morocco and Iraq performed particularly well in the first
half. While we have been impacted by weaker currencies, particularly in Egypt,
our momentum in our underlying business remains strong, enabling us to grow
revenue in both reported and constant currency.
We are focused on key chronic diseases such as diabetes, multiple sclerosis
and cancer and in the first half c.80% of our revenue growth came from
products in these chronic disease areas. We are increasing our share in the
diabetes market and are now one of the top ten players(11) in this therapeutic
area driven by our strong performance in Saudi Arabia, Algeria and Iraq. We
are also establishing a stronghold in multiple sclerosis treatment with growth
in sales of our dimethyl fumarate product in Saudi Arabia, Algeria and
Tunisia.
Continued efficiencies helping to partially offset the impact of a weak
pricing environment in Generics
Our Generics business has delivered lower revenue and profit in the first half
due to the intense competitive environment in the US market, which is driving
low-double digit price erosion and mid-single digit volume erosion. We are
also experiencing a slower than expected ramp up of recent launches as a
result of competition, including for icosapent and generic Advair Diskus(®).
By focusing on cost management and operating efficiencies, we delivered a
solid operating margin. Over the medium-term, we have a well-diversified
pipeline of new products and we are focused on improving our product mix with
an emphasis on more complex and specialty products that will improve the
resilience of the business.
A diversified business well positioned for future growth
We invested 6% of revenue in R&D in the first half. We are committed to
ensuring we have a differentiated portfolio that is fit for the future and are
focused on looking for opportunities to add more differentiated and higher
value products through R&D and business development opportunities. This is
key to our growth plans and we are pleased with the ongoing progress our teams
are making.
Our R&D teams are performing well. We have more than 260(12) products in
the pipeline across our businesses, with a focus on being in the therapeutic
areas where we have the most experience and see the most value, such as
oncology, immunology, CNS and respiratory. Our pipeline is not reliant on any
single product, but aims to continue to build on our portfolio breadth, which
in turns brings both growth and resilience.
We also continued to enter new partnerships and build on existing ones,
leveraging our strong capabilities to increase patients' access to high-value
products. During the first half, we strengthened our strategic partnership
with Celltrion in MENA, signing two exclusive agreements for biosimilars - for
the commercialisation of Yuflyma(TM), the first adalimumab biosimilar with a
high concentration, low-volume and citrate-free formulation, and for
Remsima(®) subcutaneous, the first subcutaneous formulation of infliximab.
These agreements complement and strengthen our growing biosimilar portfolio in
the region.
Investing in capacity and expanding our manufacturing capabilities is also key
to accommodate our growing portfolio. We consistently invest between 5% and 7%
of sales on capital expenditure. Today, we have 32 manufacturing plants
supporting a broad portfolio of c.700 products. These investments, as well as
our quality culture, differentiate us from our peers and provide us with the
flexibility to capture local market opportunities, ensuring we maintain a good
supply of our medicines to customers and patients across our markets. In the
first half of 2022, we invested $63 million in capital expenditure across the
Group, with a focus on our Injectables business, where we continue to add
capacity - we installed lyophilisation capabilities in Egypt and Morocco,
progressed with our Algerian plant, which we expect to be operational in 2024,
and added new filling and packaging lines in the US.
We also continued to grow through entering new markets and adjacencies. In the
first half, we had a good contribution in Injectables from Canada, following
the acquisition of the Canadian assets of Teligent. We have also entered
France and have ambitions to be a top player in this large European market.
We have continued to make progress with our compounding business in the US,
which supplies compounded sterile medicines to hospitals. We are increasing
state licences as we proceed with the careful rollout of this important
business.
Acting Responsibly
Improving access to more affordable medicine is at the core of our business;
we use our capabilities and global reach to produce high-quality medicines and
make them available to the people who need them. Our broad product portfolio
and pipeline enables this, and in the first half, we continued to broaden our
portfolio and grow our R&D pipeline, while also investing into new lines
and capabilities at our plants.
But our efforts go beyond our core business. Across our locations, we are
making medicines more accessible to vulnerable populations through local
outreach, medicine donations and disease awareness initiatives.
We are also pleased with the progress we are making when it comes to the
environment. At the start of the year, we put in place a carbon emissions
reduction target and have various emissions reduction initiatives in place
across the business. We are also increasingly looking at our Scope 3
emissions, with our procurement and sustainability teams working closely with
our suppliers to better understand the impact of our supply chain.
Our employees are at the core of our responsibility strategy - we shape and
share an inclusive culture where everyone can thrive and has access to the
tools to be at their best.
We are a business founded on delivering better health and doing so at the
highest levels of quality, while acting responsibly in all that we do. This
not only benefits our communities and patients, but also helps us recruit the
best people to take the business forward.
Outlook for full year 2022 and beyond
For Injectables, we continue to expect revenue growth to be in the mid to
high-single digits and core operating margin to be between 36% to 37%. This
reflects the strength of our underlying business, supported by our broad
product portfolio and flexible manufacturing capabilities, as well as the
contribution from recent acquisitions, which will help us more than offset an
expected increase in costs in the second half due to inflation.
Looking forward, we expect Injectables revenue growth to accelerate over the
medium term driven by our investment in adjacent growth areas such as
compounding, our entry into new markets and our ongoing commercial, R&D
and manufacturing strength.
For Branded, given the strong performance in the first half, we now expect
revenue to grow in the low-single digits on a reported basis. On a constant
currency basis, we expect Branded revenue to grow in the mid-single digits. We
expect core operating profit to be more evenly split across the year. This is
an upgrade from our previous guidance of mid-single digit revenue growth,
excluding the impact of 2021 hyperinflation.
We are confident that revenue growth in our Branded business will accelerate
over the medium term driven by our expanding portfolio and focus on chronic
medications, combined with our manufacturing, R&D and commercial expertise
in the MENA region.
For Generics, given the persistent challenges of the US generics market, we
now expect revenue to be in the range of $650 million to $675 million, down
from $710 million to $750 million, and core operating margin to be between 15%
to 16%, down from around 20%.
We expect our Generics business to return to growth in 2023, driven by new
launches including Ryaltris(TM) and generic Xyrem(®).
We expect Group core net finance expense to be around $68 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 $140 million to $160
million.
Impact of inflation on the Group
Across the Group, the effects of the global inflationary environment are
increasingly impacting our business. While we have been managing this where we
can by keeping a tight control on costs and looking at operating efficiencies,
we expect to see an increase in costs due to inflation in the second half of
the year and this has been reflected in our guidance.
Board and management changes
During the first half of the year, we have seen continued evolution of the
Board and management team. On 25 April, Dr Pamela Kirby, Chair of the
Remuneration Committee, stepped down from her role, handing her
responsibilities to Nina Henderson.
On 24 June, Siggi Olafsson left his role as CEO of Hikma to pursue another
opportunity and Said Darwazah, Hikma's Executive Chairman and former CEO,
resumed all CEO responsibilities. Siggi left Hikma on a strong footing,
having worked hard to drive strategic momentum across all our businesses,
especially during the challenging days of the pandemic.
The Board, assisted by an external agency, has commenced a search for a new
CEO, and will take its time in ensuring the right individual is chosen to take
Hikma forward. In the meantime, Said brings significant experience and a deep
knowledge of Hikma, providing important strategic continuity.
FINANCIAL REVIEW
The financial review set out below summarises the performance of the Group and
our three main business segments: Injectables, Branded and Generics, for the
six months ended 30 June 2022.
Group
$ million H1 2022 H1 2021 Change Constant currency
change
Revenue 1,213 1,216 (0)% 1%
Gross profit 611 616 (1)% (1)%
Core gross profit 623 616 1% 1%
Core gross margin 51.4% 50.7% 0.7pp 0.1pp
Operating profit 239 326 (27)% (26)%
Core operating profit 296 309 (4)% (3)%
Core operating margin 24.4% 25.4% (1.0)pp (0.3)pp
EBITDA 346 358 (3)% (3)%
Group revenue was flat, as a strong performance from our Injectables and
Branded businesses offset a decline in Generics. Core gross margin increased
slightly, with the product mix in our Injectables and Branded businesses more
than compensating for a decline in Generics gross margin.
Group operating expenses were $372 million (H1 2021: $290 million). Excluding
adjustments related to the amortisation of intangible assets (other than
software) of $43 million (H1 2021: $29 million) and expenditure from other
items of $2 million (H1 2021: $46 million income), Group core operating
expenses were $327 million (H1 2021: $307 million).
Selling, general and administrative (SG&A) expenses were $299 million (H1
2021: $261 million). Excluding the amortisation of intangible assets (other
than software) of $43 million, core SG&A expenses were $256 million (H1
2021: $232 million), with the increase reflecting enhanced commercial
activities in MENA and our investment in sales and marketing in Generics as we
move to a more specialty product offering.
Core and reported research and development (R&D) expenses were $69 million
(H1 2021: $59 million), representing 6% of revenue (H1 2021: 5%), in line with
our target for annual investment in R&D.
Other net operating expenditure was $1 million (H1 2021: $30 million net
income). Excluding other adjustments(13), core other net operating income was
$1 million (H1 2021: $16 million net expense). This reflects income from
product disposals and legal settlements, as well as a lower impact from
currency headwinds when compared to the prior period.
The reductions in core operating profit by 4% and core operating margin to
24.4% were primarily driven by the decline in Generics, but partially offset
by the performance of Injectables and Branded.
Group revenue by business segment
$ million H1 2022 H1 2021
Injectables 538 44% 492 41%
Branded 339 28% 319 26%
Generics 330 27% 400 33%
Others 6 1% 5 0%
Total 1,213 1,216
Group revenue by region
$ million H1 2022 H1 2021
US 691 57% 718 59%
MENA 414 34% 396 33%
Europe and ROW 108 9% 102 8%
Total 1,213 1,216
Injectables
$ million H1 2022 H1 2021 Change Constant currency change
Revenue 538 492 9% 11%
Gross profit 297 273 9% 9%
Core gross profit 309 273 13% 13%
Core gross margin 57.4% 55.5% 1.9pp 1.1pp
Operating profit 178 175 2% (1)%
Core operating profit 209 187 12% 10%
Core operating margin 38.8% 38.0% 0.8pp (0.5)pp
Our largest business, Injectables, performed strongly in the first half, with
both our own products and the recent acquisitions of Custopharm and the
Canadian assets of Teligent contributing to the growth in both revenue and
core operating profit. Organic growth was 5%(14).
US Injectables revenue was up 14% to $361 million (H1 2021: $318 million),
reflecting a good contribution from our broad product portfolio and recent
launches, as well as a contribution from Custopharm, which we closed in April.
Europe and Rest of World (ROW)(15) Injectables revenue was up 4% to $101
million (H1 2021: $97 million). In constant currency, Europe and ROW
Injectables revenue increased by 15%, reflecting good demand across our
portfolio of own products, including recent launches, and a contribution from
the Canadian Teligent acquisition.
In MENA, Injectables revenue was $76 million, down 1% (H1 2021: $77 million),
or up 1% in constant currency. This was primarily due to weaker sales in
Lebanon and Iraq, which was partially offset by successful new launches, as
well as good performance of our biosimilar products as we continue to launch
into new markets and grow our existing market share. We expect performance to
be weighted towards the second half of the year.
Injectables core gross profit and margin increased due to an improvement in
product mix and the contribution from recent acquisitions, which more than
offset an increase in costs due to inflation.
The increase in Injectables core operating profit, which excludes the
amortisation of intangible assets (other than software) and other
adjustments(16), was driven by the strengthening in gross margin, which more
than offset an increase in operating expenses reflecting higher R&D and
sales and marketing spend as we invest for future growth and enter new markets
and adjacencies such as France, Canada and our new sterile compounding
business in the US.
During H1 2022, the Injectables business launched two products in the US,
seven in MENA and 29 in Europe and ROW. We submitted 28 filings to regulatory
authorities across all markets. We further developed our portfolio through new
licensing agreements.
For Injectables, we continue to expect revenue growth to be in the mid to
high-dingle digits and core operating margin to be between 36% to 37%.
Branded
$ million H1 2022 H1 2021 Change Constant currency change
Revenue 339 319 6% 9%
Gross profit 174 153 14% 15%
Core gross profit 174 153 14% 15%
Gross margin 51.3% 48.0% 3.3pp 2.7pp
Operating profit 70 59 19% 31%
Core operating profit 74 64 16% 27%
Core operating margin 21.8% 20.1% 1.7pp 3.2pp
The Branded business had a strong first half, with revenue up 6%, driven by a
good performance across our markets.
Branded core and reported gross profit grew 14% and margin improved by three
percentage points, reflecting an improvement in product mix, driven by good
demand for our growing oncology portfolio and products used to treat chronic
illnesses, such as diabetes and multiple sclerosis, as well as our successful
promotion of new launches.
Branded core operating profit, which excludes the amortisation of intangibles
(other than software)(17), grew strongly, primarily reflecting the improvement
in gross profit, which more than offset the negative impact of foreign
exchange related to currency devaluation in North Africa.
During H1 2022, the Branded business launched 13 products and submitted 24
filings to regulatory authorities. Revenue from in-licensed products
represented 36% of Branded revenue (H1 2021: 41%).
Given the strong performance in the first half, we now expect Branded revenue
to grow in the low single-digits on a reported basis. On a constant currency
basis, we expect Branded revenue to grow in the mid-single digits. We expect
core operating profit to be more evenly split across the year.
Generics
$ million H1 2022 H1 2021 Change
Revenue 330 400 (18)%
Gross profit 137 188 (27)%
Core gross profit 137 188 (27)%
Gross margin 41.5% 47.0% (5.5)pp
Operating profit 36 134 (73)%
Core operating profit 58 100 (42)%
Core operating margin 17.6% 25.0% (7.4)pp
The decline in Generics revenue was driven by the challenging competitive
environment in the US. We experienced sustained low double-digit price and
mid-single digit volume erosion through the first half, and a slower than
expected ramp up in recent launches.
Generics core and reported gross profit decline and margin reduction to 41.5%
was primarily a result of the impact of price and volume erosion.
Generics core operating profit, which excludes the amortisation of intangible
assets (other than software) and impairment charge adjustments(18 ) decreased
primarily due to the reduced gross margin and an increase in sales and
marketing costs as we continued to develop our commercial capabilities as we
build our speciality business.
During H1 2022, we launched two products from our R&D pipeline.
We are taking considerable steps to lower costs and drive efficiencies, which
will enable us to maintain operating margin in the high teens and to better
position the business for future growth.
Given the persistent challenges of the US generics market, we now expect
Generics revenue to be in the range of $650 million to $675 million and core
operating margin to be between 15% to 16%.
Other businesses
Other businesses primarily comprise Arab Medical Containers (AMC), a
manufacturer of plastic specialised medicinal sterile containers and
International Pharmaceuticals Research Centre (IPRC), which conducts
bio-equivalency studies. These businesses contributed revenue of $6 million
(H1 2021: $5 million) with an operating profit of $2 million (H1 2021: $1
million).
Research and development
Our investment in R&D and business development is core to our strategy and
enables us to continue expanding the Group's product portfolio. During H1
2022, we had 53 new launches and received 69 approvals. To ensure the
continuous development of our product pipeline, we submitted 54 regulatory
filings.
H1 2022 submissions(1)(9) H1 2022 approvals(19) H1 2022 launches(19)
Injectables 28 41 38
US 6 5 2
MENA 8 10 7
Europe and ROW 14 26 29
Generics 2 3 2
Branded 24 25 13
Total 54 69 53
Net finance expense
H1 2022 H1 2021 Change Constant currency change
Finance income 13 30 (57)% (57)%
Finance expense 35 37 (5)% (3)%
Net finance expense 22 7 214% 228%
Core finance income 1 1 0% 0%
Core finance expense 33 25 32% 36%
Core net finance expense 32 24 33% 38%
On a reported basis, net finance expense was $22 million (H1 2021: $7
million). This comprised $13 million finance income and $35 million finance
expense. Excluding other adjustments(20), core net finance expense was $32
million (H1 2021: $24 million). This comprised $1 million finance income and
$33 million finance expense. The increase compared with H1 2021 reflects the
rising interest rate environment, combined with increased borrowing due to the
acquisitions of Custopharm and Teligent's Canadian assets.
We now expect core net finance expense to be around $68 million for the full
year.
Profit before tax
Reported profit before tax was $215 million (H1 2021: $319 million). Core
profit before tax was $262 million (H1 2021: $285 million), reflecting the
overall group performance, combined with the increase in finance expense due
to an increase in net debt and interest rates.
Tax
The Group incurred a reported tax expense of $41 million (H1 2021: $71
million). Excluding the tax impact of other adjustments, the Group core tax
expense was $52 million in H1 2022 (H1 2021: $62 million). The core effective
tax rate for H1 2022 was 19.8% (H1 2021: 21.8%). We continue to expect the
Group´s core effective tax rate to be around 22% to 23% for the full year.
Profit attributable to shareholders
Profit attributable to shareholders was $173 million (H1 2021: $248 million).
Excluding the amortisation of intangible assets (other than software) and
other adjustments(21), core profit attributable to shareholders decreased by
6% to $209 million (H1 2021: $223 million).
Earnings per share
H1 2022 H1 2021 Change Constant currency change
Basic earnings per share (cents) 76.2 107.4 (29)% (29)%
Core basic earnings per share (cents) 92.1 96.5 (5)% (5)%
Diluted earnings per share (cents) 75.9 106.9 (29)% (29)%
Core diluted earnings per share (cents) 91.7 96.1 (5)% (4)%
Weighted average number of Ordinary Shares for the purposes of basic earnings 227 231 (2)% -
('m)
Weighted average number of Ordinary Shares for the purposes of diluted 228 232 (2)% -
earnings ('m)
The decrease in earnings per share reflects the performance of the Group,
which was partially offset by the impact of the Group's buy back of 12.5
million ordinary shares in the first half of 2022.
Dividend
The Board is recommending an interim dividend of 19 cents per share
(approximately 16 pence per share) (H1 2021: 18 cents per share). The interim
dividend will be paid on 19 September 2022 to eligible shareholders on the
register at the close of business on 19 August 2022.
Net cash flow, working capital and net debt
The Group generated operating cash flow of $169 million (H1 2021: $224
million). This reflects the decline in reported operating profit and an
increase in inventories.
Group working capital days were 261 at 30 June 2022. Compared to the position
on 31 December 2021, Group working capital days increased by 23 days from 238
days, as we replenished inventory to ensure continuity of supply. When
compared to 30 June 2021 working capital days reduced by five days.
Cash capital expenditure was $63 million (H1 2021: $65 million). In the US,
$23 million was spent upgrading equipment, expanding packaging areas and
adding new technologies at our Cherry Hill, Dayton and Columbus sites. In
MENA, $29 million was spent primarily on adding new injectables manufacturing
capabilities in Morocco and Algeria. In Europe, we spent $10 million, adding
new high speed liquid filling lines in Portugal as well as upgrading equipment
in Italy and expanding warehousing in Germany. We now expect Group capital
expenditure to be around $140 million to $160 million in 2022.
The Group's total debt was $1,551 million at 30 June 2022 (31 December 2021:
$846 million). Total debt increased primarily to finance the acquisitions of
Custopharm and Teligent's Canadian assets.
The Group's cash balance was $371 million (31 December 2021: $426 million).
The Group's net debt (excluding co-development and earnout payments, acquired
contingent liabilities and contingent consideration) was $1,180 million at 30
June 2022 (31 December 2021: $420 million)(22). We continue to have a very
strong balance sheet with a net debt to EBITDA ratio of 1.7x.
Net assets
Net assets at 30 June 2022 were $2,191 million (31 December 2021: $2,467
million). The reduction is due to the share buyback carried out during the
first half and an increase in our borrowing. Net current assets increased to
$1,134 million (31 December 2021: $1,078 million).
Responsibility statement
We confirm that to the best of our knowledge:
These interim financial statements for the six months ended 30 June 2022 have
been prepared in accordance with: (a) the Disclosure Guidance and Transparency
Rules sourcebook of the UK's Financial Conduct Authority; and (b) IAS 34
(Interim financial reporting), as contained in UK-adopted International
Financial Reporting Standards (IFRS), as issued by the International
Accounting Standards Board (IASB). The interim financial statements should be
read in conjunction with the annual consolidated financial statements for the
year ended 31 December 2021.
The interim results announcement includes a fair review of the information
required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication
of important events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial statements;
and a description of the principal risks and uncertainties for the remaining
six months of the financial year; and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the enterprise during that period; and any changes in the
related party transactions described in the last annual report that could do
so.
By order of the Board
Said Darwazah Khalid Nabilsi
Executive Chairman and Chief Executive Officer Chief Financial Officer
3 August 2022 3 August 2022
The Board
The Board of Directors that served during all or part of the six-month period
to 30 June 2022 and their respective responsibilities can be found on the
Leadership team section of www.hikma.com (http://www.hikma.com) .
Cautionary statement
This interim results 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. To provide a more complete
picture of the Group's performance to external audiences, we provide,
alongside our reported results, core results, which are a non-IFRS measure.
Our core results exclude the other adjustments set out in Note 5.
Group operating profit H1 2022 H1 2021
$million $million
Core operating profit 296 309
Unwinding of acquisition related inventory step-up (12) -
Intangible assets amortisation other than software (43) (29)
Impairment charges/(reversals) of product related intangibles (2) 46
Reported operating profit 239 326
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 H1 2022 represent reported H1 2022 numbers
translated using H1 2021 exchange rates, excluding price increases in the
business resulting from the devaluation of currencies and excluding the impact
from hyperinflation accounting. Lebanon and Sudan are considered
hyperinflationary economies, therefore the spot exchange rate as at 30 June
2022 was used to translate the results of these operations into US dollars.
EBITDA
EBITDA is earnings before interest, tax, depreciation, amortisation,
impairment charges/reversals and other items.
EBITDA H1 2022 H1 2021
$ million
Reported operating profit 239 326
Depreciation 44 44
Amortisation 49 34
Unwinding of acquisition related inventory step-up 12 -
Impairment charges/(reversals) 2 (46)
EBITDA 346 358
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 trailing 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
financial position. Group net debt is calculated as Group total debt less
Group total cash. Group total debt excludes co-development and earnout
payments, acquired contingent liabilities and contingent consideration.
Group net debt Jun-22 Dec-21
$ million
Short-term financial debts (128) (112)
Short-term lease liabilities (9) (9)
Long-term financial debts (1,340) (651)
Long-term lease liabilities (74) (74)
Total debt (1,551) (846)
Cash 371 426
Net debt (1,180) (420)
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 "intends",
"believes", "anticipates", "expects", "estimates", "forecasts", "targets",
"aims", "budget", "scheduled" 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 "may", "could", "should",
"would", "might" or "will" 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. 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 Market Abuse Regulation ((EU) No. 596/2014) 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. 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 the cautionary
statement above. 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 in the last six
months although the impacts of global inflationary pressures and supply chain
challenges are being closely monitored. The principal risks are set out in the
2021 annual report on pages 54 - 63. 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.
Principal risks What does the risk cover?
Industry dynamics The commercial viability of the industry and business model we operate may
change significantly as a result of political action, economic factors,
societal pressures, regulatory interventions or changes to participants in the
value chain of the industry.
Product pipeline Selecting, developing and registering new products that meet market needs and
are aligned with Hikma's strategy to provide a continuous source of future
growth.
Organisational development Developing, maintaining and adapting organisational structures, management
processes and controls, and talent pipeline to enable effective delivery
by the business in the face of rapid and constant internal and external
change.
Reputation Building and maintaining trusted and successful partnerships with our
stakeholders relies on developing and sustaining our reputation as one
of our most valuable assets.
Ethics and compliance Maintaining a culture underpinned by ethical decision making, with
appropriate internal controls to ensure staff and third parties comply with
our Code of Conduct, associated policies and procedures, as well
as all applicable legislation.
Information and cyber security, technology and infrastructure Ensuring the integrity, confidentiality, availability and resilience of data,
securing information stored and/or processed internally or externally
from cyber and non-cyber threats, maintaining and developing technology
systems that enable business processes, and ensuring infrastructure supports
the organisation effectively.
Legal, regulatory and intellectual property Complying with laws and regulations, and their application. Managing
litigation, governmental investigations, sanctions, contractual terms and
conditions and adapting to their changes while preserving shareholder value,
business integrity and reputation.
Inorganic growth Identifying, accurately pricing and realising expected benefits from
acquisitions or divestments, licensing, or other business development
activities.
Active pharmaceutical ingredient (API) and third-party risk management Maintaining availability of supply, quality and competitiveness of API
purchases and ensuring proper understanding and control of third-party risks.
Crisis response and business continuity Preparedness, response, continuity and recovery from disruptive events, such
as natural catastrophe, economic turmoil, operational issues, pandemic,
political crisis, and regulatory intervention.
Product quality and safety Maintaining compliance with current Good Practices for Manufacturing (cGMP),
Laboratory (cGLP), Compounding (cGCP), Distribution (cGDP) and
Pharmacovigilance (cGVP) by staff, and ensuring compliance is maintained by
all relevant third parties involved in these processes.
Financial control and reporting Effectively managing income, expenditure, assets and liabilities, liquidity,
exchange rates, tax uncertainty, debtor and associated activities, and in
reporting accurately, in a timely manner and in compliance with statutory
requirements and accounting standards.
1 Throughout this document, H1 2022 refers to the six months ended 30 June
2022 and H1 2021 refers to the six months ended 30 June 2021
2 Constant currency numbers in H1 2022 represent reported H1 2022 numbers
translated using H1 2021 exchange rates, excluding price increases in the
business resulting from the devaluation of currencies and excluding the impact
from hyperinflation accounting. Lebanon and Sudan are considered
hyperinflationary economies, therefore the spot exchange rates as at 30 June
2022 were used to translate the results of these operations into US dollars
3 During the first half, Hikma bought back 12.5 million shares as a result of
the $300 million share buyback announced on 24 February 2022, 11 April 2022
and 11 May 2022
( )
(4) Core results throughout the document are presented to show the underlying
performance of the Group, excluding other adjustments set out in Note 5. Core
results are a non-IFRS measure and a reconciliation to reported IFRS measures
is provided on page 16
5 Group net debt is calculated as Group total debt less Group total cash.
Group net debt is a non-IFRS measure. See page 17 for a reconciliation of
Group net debt to reported IFRS figures
6 EBITDA is earnings before interest, tax, depreciation, amortisation,
impairment and other items. EBITDA is a non-IFRS measure, see page 16 for a
reconciliation to reported IFRS results. For the purposes of the leverage
calculation, EBITDA is calculated for trailing twelve months ended 30 June
2022
7 Source: IQVIA MAT through June 2022, generic injectable volumes by eaches,
excluding branded generics.
8 Source: IQVIA Midas MAT March 2022 for Algeria, Egypt, Jordan, Kuwait,
Lebanon, Morocco, Saudi Arabia, Tunisia, UAE. USD sales
9 This excludes revenue contribution from Custopharm of $15 million and
Teligent's Canadian assets of $7 million
1(0) Following our entry into Canada, we now report revenues from this market
under 'Europe and Rest of World' Injectables
1(1) IQVIA Midas MAT May 2022 for Algeria, Egypt, Jordan, Kuwait, Lebanon,
Morocco, Saudi Arabia, Tunisia, UAE
1(2) Pipeline as at 30 June 2022. Includes products for US Injectables,
Generics and Branded top five markets (Algeria, KSA, Morocco, Jordan and
Egypt)
1(3) In H1 2022, other adjustments comprised a $2 million impairment of
product related intangible assets. In H1 2021 comprised a $46 million
impairment reversal of product related intangibles. Refer to Note 5 for
further information
1(4) This excludes revenue contribution from Custopharm of $15 million and
Teligent's Canadian assets of $7 million
1(5) Following our entry into Canada, we now report revenues from this market
under 'Europe and Rest of World' Injectables
1(6) In H1 2022, adjustments comprised amortisation of intangible assets other
than software of $19 million and unwinding of acquisition related inventory
step-up of $12 million. In H1 2021, adjustments comprised amortisation of
intangible assets other than software of $12 million. Refer to Note 5 for
further information
1(7) In H1 2022, amortisation of intangible assets other than software was $4
million. In H1 2021, amortisation of intangible assets other than software was
$5 million. Refer to Note 5 for further information
( )
(( 1 ))8 In H1 2022, adjustment comprised a $2 million impairment of product
related intangibles and amortisation of intangible assets other than software,
of $20 million. In H1 2021, adjustments comprised a $46 million impairment
reversal of product related intangibles and amortisation of intangible assets
other than software of $12 million. Refer to Note 5 for further information
1(9) New products submitted, approved and launched by country in H1 2022
2(0) In H1 2022, other adjustments comprised $12 million related to the
remeasurement of contingent consideration and $2 million related to the
unwinding of contingent consideration and other financial liability. In H1
2021, other adjustments comprised $29 million related to the remeasurement of
contingent consideration and $12 million related to the unwinding and
remeasurement of contingent consideration and other financial liability. Refer
to Note 5 for further information
2(1) In H1 2022, other adjustments comprised $47 million of other adjustments
included in operating profit and $11 million tax effect. In H1 2021, other
adjustments comprised $34 million of other adjustments included in operating
profit and $9 million tax effect. Refer to Note 5 for further information
2(2) Group net debt is a non-IFRS measure that includes long and short-term
financial debts (Note 15), lease liabilities and net of cash. Group net debt
excludes co-development and earnout payments, acquired contingent liabilities
and contingent consideration (Note 14 and 16). See page 17 for a
reconciliation of Group net debt to reported IFRS results
Independent review report to Hikma Pharmaceuticals PLC
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Hikma Pharmaceuticals PLC's condensed consolidated interim
financial statements (the "interim financial statements") in the interim
results press release of Hikma Pharmaceuticals PLC for the 6 month period
ended 30 June 2022 (the "period").
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 UK adopted International Accounting
Standard 34, 'Interim Financial Reporting', International Accounting Standard
34 'Interim Financial Reporting' as issued by the International Accounting
Standards Board (IASB) and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
· the condensed consolidated interim balance sheet as at 30 June
2022;
· the condensed consolidated interim income statement and condensed
consolidated interim statement of comprehensive income for the period then
ended;
· the condensed consolidated interim cash flow statement for the
period then ended;
· the condensed consolidated interim 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 interim results press release
of Hikma Pharmaceuticals PLC have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting' and as
issued by the International Accounting Standards Board (IASB) and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' (ISRE) issued by the Financial
Reporting Council 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 interim results press
release and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the interim financial
statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with this ISRE. However, future events or
conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The interim results 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 interim results press release in
accordance with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority. In preparing the interim
results press release, including the interim financial statements, the
directors are responsible for assessing the group's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either intend
to liquidate the group or to cease operations, or have no realistic
alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the interim results press release based on our review. Our
conclusion, including our Conclusions relating to going concern, is based on
procedures that are less extensive than audit procedures, as described in the
Basis for conclusion paragraph of this report. 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.
PricewaterhouseCoopers LLP
Chartered Accountants
H1 2022 H1 2022 H1 2022 H1 2021 H1 2021 H1 2021
Core
Exceptional items and other adjustments
Reported results
Core
Exceptional items and other adjustments
Reported results
results
(Note 5)
results
(Note 5)
Note $m (Unaudited) $m (Unaudited) $m (Unaudited) $m (Unaudited) $m (Unaudited) $m (Unaudited)
Revenue 3 1,213 - 1,213 1,216 - 1,216
Cost of sales (590) (12) (602) (600) - (600)
Gross profit/(loss) 623 (12) 611 616 - 616
Selling, general and administrative expenses (256) (43) (299) (232) (29) (261)
Net impairment loss on financial assets (3) - (3) - - -
Research and development expenses (69) - (69) (59) - (59)
Other operating expenses (17) (2) (19) (18) - (18)
Other operating income 18 - 18 2 46 48
Total operating (expenses)/income (327) (45) (372) (307) 17 (290)
Operating profit/(loss) 4 296 (57) 239 309 17 326
Finance income 1 12 13 1 29 30
Finance expense (33) (2) (35) (25) (12) (37)
Loss from investment at fair value through profit and loss (FVTPL) (2) - (2) - - -
Profit/(loss) before tax 262 (47) 215 285 34 319
Tax 6 (52) 11 (41) (62) (9) (71)
Profit/(loss) for the half-year 210 (36) 174 223 25 248
Attributable to:
Non-controlling interests 1 - 1 - - -
Equity holders of the parent 209 (36) 173 223 25 248
210 (36) 174 223 25 248
Earnings per share (cents)
Basic 92.1 76.2 96.5 107.4
Diluted 91.7 75.9 96.1 106.9
London
3 August 2022
Hikma Pharmaceuticals PLC
Condensed consolidated interim income statement
Hikma Pharmaceuticals PLC
Condensed consolidated interim statement of comprehensive income
H1 2022 H1 2021
Reported results
Reported results
Note $m (Unaudited) $m (Unaudited)
Profit for the half-year 174 248
Other Comprehensive Income
Items that may subsequently be reclassified to the consolidated income
statement, net of tax:
Currency translation and hyperinflation movement (68) (31)
Effect of change in fair value of hedging financial derivatives (1) -
Items that will not subsequently be reclassified to the consolidated income
statement, net of tax:
Change in investments at fair value through other comprehensive income 9 (8) -
(FVTOCI)
Total other comprehensive income for the half-year (77) (31)
Total comprehensive income for the half-year 97 217
Attributable to:
Non-controlling interests (1) -
Equity holders of the parent 98 217
97 217
Hikma Pharmaceuticals PLC
Condensed consolidated interim balance sheet
30 June 31 December
2022
2021
Note $m $m
(Unaudited)
(Audited)
Non-current assets
Goodwill 8 394 285
Other intangible assets 8 857 607
Property, plant and equipment 1,059 1,072
Right-of-use assets 73 74
Investment in joint ventures 10 10
Deferred tax assets 151 183
Financial and other non-current assets 9 59 47
2,603 2,278
Current assets
Inventories 765 695
Income tax receivable 62 60
Trade and other receivables 10 831 816
Cash and cash equivalents 11 371 426
Other current assets 12 113 97
Assets classified as held for distribution 2 -
2,144 2,094
Total assets 4,747 4,372
Current liabilities
Short-term financial debts 15 128 112
Lease liabilities 9 9
Trade and other payables 13 428 468
Income tax payable 66 57
Other provisions 31 31
Other current liabilities 14 348 339
1,010 1,016
Net current assets 1,134 1,078
Non-current liabilities
Long-term financial debts 15 1,340 651
Lease liabilities 74 74
Deferred tax liabilities 24 24
Other non-current liabilities 16 108 140
1,546 889
Total liabilities 2,556 1,905
Net assets 2,191 2,467
Equity
Share capital 19 41 42
Share premium 282 282
Other reserves (240) (60)
Translation reserve related to assets held for distribution (14) -
Retained earnings 2,107 2,189
Equity attributable to equity holders of the parent 2,176 2,453
Non-controlling interests 15 14
Total equity 2,191 2,467
The condensed consolidated interim financial information of Hikma
Pharmaceuticals PLC for the six-months period ended 30 June 2022 were approved
by the Board of Director of the Company on 3 August 2022.
Said
Darwazah
Mazen Darwazah
Executive Chairman
Executive Vice Chairman
Hikma Pharmaceuticals PLC
Condensed consolidated interim statement of changes in equity
Merger and revaluation reserves Translation reserve Capital redemption reserve Total other reserves Translation reserve related to assets held for distribution(2) Retained earnings Share Share Equity attributable to equity shareholders of the parent Non-controlling interests Total
capital
premium
equity
Note $m $m $m $m $m $m $m $m $m $m $m
Balance at 1 January 2021 119 (199) - (80) - 1,892 41 282 2,135 13 2,148
Profit for the half-year 46 - - 46 - 202 - - 248 - 248
Currency translation and hyperinflation movement - (31) - (31) - - - - (31) - (31)
Total comprehensive income for the half-year 46 (31) - 15 - 202 - - 217 - 217
Total transactions with owners, recognised
directly in equity
Cost of equity-settled employee share scheme - - - - - 16 - - 16 - 16
Dividends paid 7 - - - - - (78) - - (78) - (78)
Balance at 30 June 2021 (unaudited) 165 (230) - (65) - 2,032 41 282 2,290 13 2,303
Balance at 31 December 2021 (audited) and 1 January 2022 164 (224) - (60) - 2,189 42 282 2,453 14 2,467
Profit for the half-year - - - - - 173 - - 173 1 174
Change in the fair value of investments at FVTOCI - - - - - (8) - - (8) - (8)
Effect of change in fair value of hedging financial derivatives - - - - - (1) - - (1) - (1)
Currency translation and hyperinflation movement - (66) - (66) - - - - (66) (2) (68)
Total comprehensive income for the half-year - (66) - (66) - 164 - - 98 (1) 97
Total transactions with owners, recognised directly in equity
Transfer of merger reserve(1) 19 (129) - - (129) - 129 - - - - -
Issue of Ordinary Bonus Share 19 - - - - - (1,746) 1,746 - - - -
Cancellation of Ordinary Bonus Share 19 - - - - - 1,746 (1,746) - - - -
Cost of equity-settled employee share scheme - - - - - 10 - - 10 - 10
Deferred tax arising on share based payments - - - - - 1 - - 1 - 1
Dividends paid 7 - - - - - (83) - - (83) - (83)
Ordinary Shares purchased and cancelled 19 - - 1 1 - (300) (1) - (300) - (300)
Shares buyback transaction cost 19 - - - - - (3) - - (3) - (3)
Other comprehensive income accumulated in equity related to assets held for - 14 - 14 (14) - - - - - -
distribution(2)
Acquisition of subsidiaries - - - - - - - - - 2 2
Balance at 30 June 2022 (unaudited) 35 (276) 1 (240) (14) 2,107 41 282 2,176 15 2,191
1. $129 million of the merger reserve balance which relates to Columbus
business acquisition was transferred to retained earnings as a result of the
capitalisation of the Company's merger reserve (Note 19).
2.Translation reserve related to assets held for distribution represent
cumulative translation loss recognised in other comprehensive income
attributable to equity holders of the parent in relation to Pharma Ixir Co.
Ltd which is currently under liquidation.
Hikma Pharmaceuticals PLC
Condensed consolidated interim cash flow statement
H1 H1
2022
2021
Note $m (Unaudited) $m (Unaudited)
Cash flows from operating activities
Cash generated from operations 17 213 312
Income taxes paid (44) (88)
Net cash inflow from operating activities 169 224
Cash flow from investing activities
Purchases of property, plant and equipment (63) (65)
Purchase of intangible assets (56) (29)
Proceeds from disposal of intangible assets 6 -
Addition of investments at FVTOCI (14) (1)
Acquisition of subsidiary undertakings net of cash acquired (373) -
Proceeds from investment divestiture - 1
Interest income received 1 1
Acquisition related amounts held in escrow account (4) -
Payments of contingent consideration liability (3) -
Milestone payments of acquired contingent liability - (11)
Net cash outflow from investing activities (506) (104)
Cash flow from financing activities
Proceeds from issue of long-term financial debts 950 3
Repayment of long-term financial debts (254) (21)
Proceeds from short-term borrowings 183 219
Repayment of short-term borrowings (165) (202)
Repayment of lease liabilities (4) (7)
Dividends paid 7 (83) (78)
Interest and bank charges paid (27) (25)
Revolving credit facility upfront fees paid (5) -
Share buyback (300) -
Share buyback transaction cost (3) -
Payment to co-development and earnout payment agreement (1) (1)
Net cash inflow/(outflow) from financing activities 291 (112)
Net (decrease)/increase in cash and cash equivalents (46) 8
Cash and cash equivalents at beginning of the half-year 426 323
Foreign exchange translation movements (9) (9)
Cash and cash equivalents at end of the half-year 11 371 322
Hikma Pharmaceuticals PLC
Notes to the condensed consolidated interim financial statements
1. General information
Hikma Pharmaceuticals PLC is a public limited liability company incorporated
and domiciled in England and Wales under the Companies Act 2006. The
registered office address is 1 New Burlington Place, London W1S 2HR, UK.
The Group's principal activities are the development, manufacturing, marketing
and selling of a broad range of generic, branded and in-licensed
pharmaceuticals products in solid, semi-solid, liquid and injectable final
dosage forms.
2. Accounting policies
Basis of preparation
The unaudited condensed consolidated interim financial statements (financial
statements) for the six months ended 30 June 2022 have been prepared on a
going concern basis in accordance with UK-adopted International Accounting
Standard 34, 'Interim Financial Reporting' (IAS 34), IAS 34 as issued by the
International Accounting Standards Board (IASB), and the Disclosure Guidance
and Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The accounting policies adopted in the preparation of the financial statements
are consistent with those followed in the
preparation of the Group's annual consolidated financial statements for the
year ended 31 December 2021, with the exception of changes in estimates that
are required in determining the provision for income taxes in accordance with
IAS 34 at 30 June 2022.
The interim report does not include all of the notes of the type normally
included in an annual financial report. Accordingly, this report is to be read
in conjunction with the annual report for the year ended 31 December 2021,
which has been prepared in accordance with:
i) UK-adopted International Accounting Standards and with
the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards
ii) IFRS as issued by the International Accounting Standards
Board (IASB)
The financial information does not constitute statutory accounts as defined in
section 435 of the Companies Act 2006. A copy of the statutory accounts for
2021 has been delivered to the Registrar of Companies. The auditors' 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. These interim financial statements have been reviewed,
not audited.
The currency used in the presentation of the accompanying financial statements
is the US dollar ($) as most of the Group's business is conducted in US
dollars.
New standards interpretations and amendments adopted by the Group
The following revised Standards and Interpretations have been issued and are
effective for annual periods beginning on 1 January 2022. The Group has not
early adopted any other standard, interpretation or amendment that has been
issued but is not yet effective.
New standards interpretations and amendments adopted by the Group continued
IAS 16 (Amendments) Property, Plant and Equipment: proceeds before intended use
IFRS 3 (Amendments) Reference to the conceptual framework
IAS 37 (Amendments) Onerous contracts - cost of fulfilling a contract
Annual improvements to IFRS standards 2018-2020 • Improvements to IFRS 9 Financial Instruments
• Improvements to IFRS 16 Leases
These amendments had no significant impact on the interim financial statements
of the Group but may impact the accounting for future transactions and
arrangements.
Going concern
The Directors have considered the going concern position of the Group at 30
June 2022. The Directors believe that the Group is well diversified due to its
geographic spread, product diversity and large customer and supplier base. The
Group's business activity, together with the factors likely to affect its
future development, performance and position are set out in this Interim
Results Press Release. The Interim Results Press Release also includes a
summary of the financial position, cash flow and borrowing facilities.
At 30 June 2022 the Group had undrawn long term committed banking facilities
of $658 million. The Group's total debt at 30 June 2022 was $1,551 million
while the Group's cash and cash equivalents at 30 June 2022 balance was $371
million making the net debt(1) $1,180 million. The Group's net debt¹ to
trailing EBITDA of 715 million ratio was 1.7x at 30 June 2022. Taking into
account the Group's current position and its principal risks for a period of
at least 12 months from the date of this results announcement , a going
concern analysis has been prepared using realistic scenarios applying a severe
but plausible downside considering the principal risks facing the business
including delays to the pipeline, lower sales of newly launched products,
increased price erosion impacting existing products, increased inflationary
risks, and disruption in certain MENA markets, which shows sufficient
liquidity headroom. Therefore, the Directors believe that the Group and its
subsidiaries are 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 have concluded it is
appropriate to adopt the going concern basis of accounting in preparing the
interim financial information and there is no material uncertainty requiring
disclosure in this regard.
Financial covenants are suspended while the Group retains its investment grade
status from two rating agencies(2). Nevertheless, the covenants are monitored
and the Group was in compliance on 30 June 2022 and expects to remain in
compliance with those covenants in the period to 31 December 2023 even in the
event of severe but plausible downside scenarios. As of 30 June 2022, the
Group's investment grade rating was affirmed by S&P and Fitch
1. Group net debt is a non-IFRS measure that includes long and
short-term financial debts (Note 15), lease liabilities, net of cash and cash
equivalents. Group net debt excludes co-development and earnout payments,
acquired contingent liabilities and contingent consideration (Notes 14 and 16)
2. Rating agencies: means each of Fitch, Moody's and S&P or any of
their affiliates or successors
3. Revenue from contracts with customers
Business and geographical markets
The following table provides an analysis of the Group's sales by segment and
geographical market, irrespective of the origin of the goods/services:
Branded Injectables Generics Others Total
H1 2022 (unaudited) $m $m $m $m $m
United States - 361 330 - 691
Middle East and North Africa 335 76 - 3 414
Europe and Rest of the World 4 97 - 3 104
United Kingdom - 4 - - 4
339 538 330 6 1,213
Branded Injectables Generics Others Total
H1 2021 (unaudited) $m $m $m $m $m
United States - 318 400 - 718
Middle East and North Africa 316 77 - 3 396
Europe and Rest of the World 3 95 - 2 100
United Kingdom - 2 - - 2
319 492 400 5 1,216
The top selling markets are shown below:
H1 2022 H1 2021
$m $m
(Unaudited) (Unaudited)
United States 691 718
Saudi Arabia 115 114
Algeria 70 52
Egypt 65 66
941 950
In H1 2022, included in revenue arising from the Generics and Injectables
segments are sales the Group made to two wholesalers in the US accounting for
equal to or greater than 10% of the Group's revenue on an individual basis of
$167 million (14% of Group revenue) and $158 million (13% of Group revenue),
in H1 2021: $186 million (15% of Group revenue) and $149 million (12% of Group
revenue).
4. Business segments
For management reporting purposes, the Group is organised into three principal
operating divisions - Injectables, Generics and Branded. These divisions
are the basis on which the Group reports its segmental information.
Core operating profit/(loss), 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:
Injectables H1 2022 H1 2022 H1 2022 Reported H1 2021 H1 2021 H1 2021 Reported
Core
Exceptional items and other adjustments
results (Unaudited)
Core
Exceptional items and other adjustments
results (Unaudited)
results (Unaudited)
(Note 5) (Unaudited)
results (Unaudited)
(Note 5) (Unaudited)
$m $m $m $m $m $m
Revenue 538 - 538 492 - 492
Cost of sales (229) (12) (241) (219) - (219)
Gross profit/(loss) 309 (12) 297 273 - 273
Total operating expenses, net (100) (19) (119) (86) (12) (98)
Segment result 209 (31) 178 187 (12) 175
Branded H1 2022 H1 2022 H1 2022 Reported H1 2021 H1 2021 H1 2021 Reported
Core
Exceptional items and other adjustments
results (Unaudited)
Core
Exceptional items and other adjustments
results (Unaudited)
results (Unaudited)
(Note 5) (Unaudited)
results (Unaudited)
(Note 5) (Unaudited)
$m $m $m $m $m $m
Revenue 339 - 339 319 - 319
Cost of sales (165) - (165) (166) - (166)
Gross profit 174 - 174 153 - 153
Total operating expenses (100) (4) (104) (89) (5) (94)
Segment result 74 (4) 70 64 (5) 59
Generics H1 2022 H1 2022 H1 2022 Reported H1 2021 H1 2021 H1 2021 Reported
Core
Exceptional items and other adjustments
results (Unaudited)
Core
Exceptional items and other adjustments
results (Unaudited)
results (Unaudited)
(Note 5) (Unaudited)
results (Unaudited)
(Note 5) (Unaudited)
$m $m $m $m $m $m
Revenue 330 - 330 400 - 400
Cost of sales (193) - (193) (212) - (212)
Gross profit 137 - 137 188 - 188
Total operating expenses, net (79) (22) (101) (88) 34 (54)
Segment result 58 (22) 36 100 34 134
Others(1) H1 2022 H1 2022 H1 2022 Reported H1 2021 H1 2021 H1 2021 Reported
Core
Exceptional items and other adjustments
results (Unaudited)
Core
Exceptional items and other adjustments
results (Unaudited)
results (Unaudited)
(Note 5) (Unaudited)
results (Unaudited)
(Note 5) (Unaudited)
$m $m $m $m $m $m
Revenue 6 - 6 5 - 5
Cost of sales (3) - (3) (3) - (3)
Gross profit 3 - 3 2 - 2
Total operating expenses (1) - (1) (1) - (1)
Segment result 2 - 2 1 - 1
1. Others mainly comprises Arab Medical Containers LLC and International
Pharmaceutical Research Center LLC.
Group H1 2022 H1 2022 H1 2022 H1 2021 H1 2021 H1 2021
Core
Exceptional items and other adjustments
Reported
Core
Exceptional items and other adjustments
Reported
results (Unaudited)
(Note 5) (Unaudited)
results
results (Unaudited)
(Note 5) (Unaudited)
results
(Unaudited)
(Unaudited)
$m $m $m $m $m $m
Segment result 343 (57) 286 352 17 369
Unallocated expenses(1) (47) - (47) (43) - (43)
Operating profit/(loss) 296 (57) 239 309 17 326
Finance income 1 12 13 1 29 30
Finance expense (33) (2) (35) (25) (12) (37)
Loss from investment at FVTPL (2) - (2) - - -
Profit/(loss) before tax 262 (47) 215 285 34 319
Tax (52) 11 (41) (62) (9) (71)
Profit/(loss) for the half-year 210 (36) 174 223 25 248
Attributable to:
Non-controlling interests 1 - 1 - - -
Equity holders of the parent 209 (36) 173 223 25 248
210 (36) 174 223 25 248
1. Unallocated corporate expenses mainly comprise employee costs,
third-party professional fees, IT, and travel expenses.
5. Exceptional items and other adjustments
Exceptional items and other adjustments are disclosed separately in the
condensed consolidated income statement to assist in the understanding of the
Group's core performance.
H1 2022 Generics Injectables Branded Unallocated Total
$m $m $m $m $m
Exceptional Items - - - - -
- - - - -
Other adjustments
Unwinding of acquisition related inventory step-up Cost of sales - (12) - - (12)
Impairment of product related intangible assets Other operating expenses (2) - - - (2)
Intangible assets amortisation other than software Selling, general and administrative expenses (20) (19) (4) - (43)
Remeasurement of contingent consideration Finance income - - - 12 12
Unwinding of contingent consideration and other financial liability Finance expense - - - (2) (2)
Exceptional items and other adjustments included in profit before tax (22) (31) (4) 10 (47)
Tax effect Tax 11
Impact on profit for the half-year (36)
Other adjustments:
- 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 Teligent Inc. assets
acquisition ($10 million and $2 million, respectively) (Note 20).
- Impairment of product related intangible assets of $2 million relates
to impairment charge of specific product related intangible assets due to
discontinuation.
- Intangible assets amortisation other than software of $43 million.
- Remeasurement of contingent consideration 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 (Notes 14 and 16).
- Unwinding of contingent consideration and other financial liability
finance expense represents the expense resulting from the unwinding and 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 (Notes 14 and 16).
The tax effect represents the tax effect on pre-tax other adjustments which is
calculated based on the applicable tax rate in each jurisdiction.
H1 2021 Generics Injectables Branded Unallocated Total
$m $m $m $m $m
Exceptional Items - - - - -
Other adjustments
Impairment reversal of product related intangibles Other operating income 46 - - - 46
Intangible assets amortisation other than software Selling, general and administrative expenses (12) (12) (5) - (29)
Remeasurement of contingent consideration Finance income - - - 29 29
Unwinding and remeasurement of contingent consideration and other financial Finance expense - - - (12) (12)
liability
Exceptional items and other adjustments included in profit before tax 34 (12) (5) 17 34
Tax effect Tax (9)
Impact on profit for the half-year 25
In H1 2021 other adjustments related to the following:
- $46 million impairment reversal in respect of generic Advair
Diskus®️ intangible asset as a result of launching the product following
FDA approval in April 2021 of an amendment submitted to its Abbreviated New
Drug Application in January 2021.
- Intangible assets amortisation other than software of $29 million.
- Remeasurement of contingent consideration finance income represented
the income resulting from the valuation of the liabilities associated with the
future contingent payments in respect of contingent consideration recognised
through business combinations (Notes 14 and 16).
- Unwinding and remeasurement of contingent consideration and other
financial liability finance expense represented the expense resulting from the
unwinding and 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 (Notes 14 and 16).
The tax effect represented 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
The Group incurred a tax expense of $41 million (H1 2021: $71 million). The
reported effective tax rate for H1 2022 is 19.1% (H1 2021: 22.3%),
representing the best estimate of the average annual effective tax rate
expected for the full year on a legal entity basis, applied to the pre-tax
income for H1 2022 and adjusted for the tax effect of any discrete items
recorded in the same period.
The application of tax law and practice is subject to some uncertainty and
amounts are provided where the likelihood of a cash outflow is probable.
The effective tax rate is broadly in line with the UK tax rate of 19%.
During 2021, the OECD published a framework for the introduction of a global
minimum effective tax rate of 15%, applicable to large multinational groups.
On 20 July 2022, HM Treasury released draft legislation to implement these
'Pillar 2' rules with effect for accounting periods beginning on or after 31
December 2023. The Group is reviewing these draft rules to understand any
potential impact.
7. Dividends
H1 2022 H1 2021
$m $m
(Unaudited) (Unaudited)
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2021 of 36 cents (2020: 34 83 78
cents) per share
83 78
The proposed interim dividend for the H1 2022 is 19 cents (H1
2021: 18 cents) per share.
The proposed interim dividend will be paid on 20 September 2022 to eligible
shareholders on the register at the close of business on 20 August 2022.
Based on the number of shares in issue at 30 June 2022 of 220,113,304 the
total proposed interim dividends amount is $42 million.
8. Goodwill and other intangible assets
The changes in the carrying value of goodwill and other intangible assets for
the periods ended 30 June 2022 and 31 December 2021 are as follows:
Goodwill Other intangible assets Total
Product-related intangible assets Software Other identified intangibles
$m $m $m $m $m
Cost
Balance at 1 January 2021 697 1,041 145 205 2,088
Write-down - - (14) - (14)
Additions - 14 11 58 83
Reclassification - 3 - (3) -
Translation adjustments (4) (2) - (3) (9)
Balance at 31 December 2021 693 1,056 142 257 2,148
Additions - 42 - 11 53
Acquisition of subsidiaries 120 251 - - 371
Disposals - (3) - - (3)
Translation adjustments (11) (2) (2) (5) (20)
Balance at 30 June 2022 802 1,344 140 263 2,549
Accumulated Amortisation and Impairment
Balance at 1 January 2021 (408) (629) (81) (94) (1,212)
Write-down - - 1 - 1
Charge for the year - (59) (11) (14) (84)
Impairment reversal - 60 - - 60
Impairment charge - (23) - (1) (24)
Translation adjustments - 1 - 2 3
Balance at 31 December 2021 (408) (650) (91) (107) (1,256)
Charge for the period - (36) (6) (7) (49)
Impairment charge - (2) - - (2)
Disposals - 3 - - 3
Translation adjustments - 2 1 3 6
Balance at 30 June 2022 (408) (683) (96) (111) (1,298)
Carrying amount
At 30 June 2022 394 661 44 152 1,251
At 31 December 2021 285 406 51 150 892
The current period intangible assets from acquisition of subsidiaries relating
to the acquisition of Custopharm Topco Holdings, Inc., are set out in Note 20.
The current period product related additions mainly relate to the acquisition
of the Canadian assets of Teligent Inc (Note 20).
During the period, the Group performed a review of its CGUs and other
intangible assets, considering whether any indicators of impairment or
impairment reversal existed at 30 June 2022 in the context of IAS 36. As a
result, an impairment charge of $2 million in respect of specific product
related intangible assets within the Generics CGU was recognised due to
discontinuation.
9. Financial and other non-current assets
30 June 31 December
2022
2021
$m $m
(Unaudited) (Audited)
Investments at FVTOCI 42 36
Other non-current assets 17 11
59 47
Investments at FVTOCI include investments through the Group's venture capital
arm, Hikma International Ventures and Development LLC and Hikma Ventures
Limited, which are not held for trading and which the Group has irrevocably
elected at initial recognition to recognise in this category.
During the period, the venture arm invested in five new companies and
increased investment in two ventures.
One of the investments is a listed company with a readily determinable fair
value that falls under level 1 valuation (Note 18). Its value is measured at
the share price market value. The other investments are unlisted shares
without readily determinable fair values that fall under level 3 valuation
(Note 18), their fair value is measured based on observable price changes in
orderly transactions for the identical or a similar investment of the same
issuer.
During the period, total change in fair value was a net loss of $8 million (H1
2021: $nil) recognised in other comprehensive income.
Other non-current assets balance at 30 June 2022, mainly represent long term
receivables, a sublease arrangement in US and upfront fees on a syndicated
revolving credit facility. At 31 December 2021, the balance mainly represent
long term receivables and a sublease arrangement in the US.
10. Trade and other receivables
30 June 31 December
2022
2021
$m $m
Gross trade receivables 1,130 1,107
Chargebacks and other allowances (295) (275)
Related allowance for expected credit loss (51) (51)
Net trade receivables 784 781
VAT and sales tax recoverable 44 32
Other receivables 3 3
Net trade and other receivables 831 816
The fair value of receivables is estimated to be not significantly different
from the respective carrying amounts.
11. Cash and cash equivalents
30 June 31 December
2022
2021
$m $m
(Unaudited) (Audited)
Cash at banks and on hand 276 155
Time deposits 72 249
Money market deposits 23 22
371 426
Cash and cash equivalents include highly liquid investments with maturities of
three months or less which are convertible to known amounts of cash and are
subject to insignificant risk of changes in value.
Money market deposits comprise investment in funds at FVTPL that are subject
to insignificant risk of changes in fair value and can be readily converted
into cash that fall under level 1 valuation (Note 18).
12. Other current assets
30 June 31 December
2022
2021
$m $m
(Unaudited) (Audited)
Prepayments 80 65
Investment at FVTPL 22 24
Others 11 8
113 97
Investments at FVTPL represents the agreement the Group entered into with an
asset management firm in 2015 to manage a $20 million portfolio of underlying
debt instruments. The investment comprises a portfolio of assets that are
managed by an asset manager and is measured at fair value; any changes in fair
value go through the condensed consolidated income statement. These assets are
classified as level 1 valuation (Note 18) as they are based on quoted prices
in active markets.
Others mainly represents compensation due from suppliers in relation to
inventory price adjustment.
13. Trade and other payables
30 June 31 December
2022
2021
$m $m
(Unaudited) (Audited)
Trade payables 255 262
Accrued expenses 160 194
Other payables 13 12
428 468
The fair value of payables is estimated to be not significantly different from
the respective carrying amounts.
14. Other current liabilities
30 June 31 December
2022
2021
$m $m
(Unaudited) (Audited)
Contract liabilities 199 213
Co-development and earnout payment (Note 16 and 18) 2 2
Acquired contingent liability (Note 16) 9 15
Contingent consideration (Note 16 and 18) 25 12
Indirect rebates and other allowances 85 80
Others 28 17
348 339
Contract liabilities: the Group allows customers to return products within a
specified period prior to and subsequent to the expiration date. In addition,
free goods are issued to customers as sale incentives, reimbursement of agreed
upon expenses incurred by the customer or as compensation for expired or
returned goods.
Indirect rebates and other allowances: mainly represents rebates granted to
healthcare authorities and other parties under contractual arrangements with
certain indirect customers.
15. Financial debts
Short-term financial debts
30 June 31 December
2022
2021
$m $m
(Unaudited) (Audited)
Bank overdrafts 5 3
Import and export financing(1) 70 58
Short-term loans 1 3
Current portion of long-term loans 52 48
128 112
1.Import and export financing represents short-term financing for the ordinary
trading activities of the Group.
Long-term financial debts
30 June 31 December
2022
2021
$m $m
(Unaudited) (Audited)
Long-term loans 898 207
Long-term borrowings (Eurobond) 494 492
Less: current portion of long-term loans (52) (48)
Long-term financial loans 1,340 651
Breakdown by maturity:
Within one year 52 48
In the second year 35 44
In the third year 32 37
In the fourth year 522 524
In the fifth year 736 23
In the sixth year 14 22
Thereafter 1 1
1,392 699
The loans are held at amortised cost.
Major arrangements entered into by the Group:
a) A syndicated revolving credit facility of $1,175 million was entered
into on 27 October 2015. On 29 December 2021, $1,150 million of the initial
$1,175 million were renewed (effective 4 January 2022) until January 2027 with
an extension option of 2 years. At 30 June 2022 the facility has an
outstanding balance of $710 million (2021: $nil) and a $440 million unused
available limit (2021: $870 million). The utilised facility was used to
finance acquisitions and for other general corporate purposes.
b) A ten-year $150 million loan from the International Finance Corporation
was entered into on 21 December 2017. There was full utilisation of the loan
in April 2020. Quarterly equal repayments of the long-term loan commenced on
15 March 2021 with an outstanding balance at 30 June 2022 of $118 million
(fair value of $118 million). The loan was used for general corporate
purposes. The facility matures on 15 December 2027.
c) A $500 million (carrying value of $494 million, and fair value of $475
million) 3.25%, five-year Eurobond was issued on 9 July 2020 with a rating of
BBB- (S&P & Fitch) which is due in July 2025. The proceeds of the
issuance were used for general corporate purposes.
d) An eight-year $200 million loan facility from the International Finance
Corporation and Managed Co-lending Portfolio program was entered into on 26
October 2020. There was no utilisation of the loan as of 30 June 2022. The
facility matures on 15 September 2028 and can be used for general corporate
purposes.
Interbank Offered Rates (IBORs) Reform
As at 30 June 2022, approximately 46% ($710 million) of the Group's utilised
debt portfolio as well as $762 million of the Group's unutilised debt
facilities, have USD LIBOR as the benchmark interest rate. The unutilised
debt facilities relate mainly to the Group's syndicated revolving credit
facility and the $200 million IFC loan. The Group has not identified any other
significant IBOR exposures that are expected to be impacted by IBOR reform.
The Group is monitoring the market developments surrounding the IBOR reform.
To date the Group has identified the need to amend the credit facilities which
reference USD LIBOR to be replaced with alternative reference rate that is
expected to be economically equivalent to USD LIBOR.
16. Other non-current liabilities
30 June 31 December
2022
2021
$m $m
(Unaudited) (Audited)
Contingent consideration (Note 14 and 18) 32 58
Acquired contingent liability (Note 14) 70 68
Co-development and earnout payment (Note 14 and 18) 2 2
Others 4 12
108 140
Contingent consideration and acquired contingent liability represent
contractual liabilities to make payments to third parties in the form of
milestone payments that depend on the achievement of certain US FDA approval
milestones, and royalty payments based on future sales of certain products.
These liabilities were recognised as part of the Columbus business
acquisition. The current portion of these liabilities are recognised in other
current liabilities (Note 14).
17. Cash generated from operating activities
H1 H1
2022
2021
$m (Unaudited) $m (Unaudited)
Profit before tax 215 319
Adjustments for:
Property, plant and equipment depreciation 39 39
Intangible assets amortisation and impairment charges/(reversals), net 51 (12)
Right-of-use of assets depreciation 5 5
Unwinding of acquisition related inventory step-up 12 -
Loss from investment at FVPTL 2 -
Movement in provisions - 1
Gains on disposal of intangible assets (6) -
Cost of equity-settled employee share scheme 10 16
Finance income (13) (30)
Finance expense 35 37
Foreign exchange loss and net monetary hyperinflation impact 8 16
Changes in working capital:
Change in trade and other receivables (7) (63)
Change in other current assets (25) 11
Change in inventories (78) 11
Change in trade and other payables (19) (60)
Change in other current liabilities (16) 22
Cash flow from operating activities 213 312
18. Fair value of financial assets and liabilities
The fair value of financial assets and liabilities is included at the amount
at which the instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale.
The following financial assets/liabilities are presented at their carrying
values which approximates to their fair value:
· Cash at bank and on hand and time deposit- due to the short-term
maturities of these financial instruments and given that generally they have
negligible credit risk, management considers the carrying amounts to be not
significantly different from their fair values
· Short-term loans and overdrafts approximate to their fair value
because of the short maturity of these instruments
· Long-term loans - loans with variable rates are re-priced in response
to any changes in market rates and so management considers their carrying
values to be not significantly different from their fair values
Loans with fixed rates relate mainly to:
· $500 million (carrying value at 30 June 2022 of $494 million, and
fair value at 30 June 2022 of $475 million) Eurobond accounted for at
amortised cost. The fair value is determined with reference to a quoted price
in an active market as at the balance sheet date (Note 15)
· A ten-year $150 million loan from the International Finance
Corporation with outstanding balance of $118 million (fair value at 30 June
2022 of $118 million). Fair value is estimated by discounting future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities of
such loans (a level 2 fair value)
· Receivables and payables - the fair values of receivables and
payables are estimated to not be significantly different from the respective
carrying amounts
Management classifies items that are recognised at fair value based on the
level of the inputs used in their fair value determination as described below:
· Level 1: Quoted prices in active markets for identical assets or
liabilities
· Level 2: Inputs that are observable for the asset or liability
· Level 3: Inputs that are not based on observable market data
The following financial assets/liabilities are presented at their fair value:
Fair value measurements Level 1 Level 2 Level 3 Total
At 30 June 2022
Financial Assets
Investments at FVTPL (Note 12) 22 - - 22
Money market deposit (Note 11) 23 - - 23
Investments in listed companies at FVTOCI (Note 9) 5 - - 5
Investments in unlisted shares at FVTOCI (Note 9) - - 37 37
Total financial assets 50 - 37 87
Financial Liabilities
Co-development and earnout payment liabilities (Note 14 and 16) - - 4 4
Contingent consideration liability resulting from the acquisition of the - - 57 57
Columbus business (Note 14 and 16)
Hedging financial derivatives - 1 - 1
Total financial liabilities - 1 61 62
Fair value measurements Level 1 Level 2 Level 3 Total
At 31 December 2021
Financial Assets
Investments at FVTPL (Note 12) 24 - - 24
Money market deposit (Note 11) 22 - - 22
Investments in listed companies at FVTOCI (Note 9) 14 - - 14
Investments in unlisted shares at FVTOCI (Note 9) - - 22 22
Total financial assets 60 - 22 82
Financial Liabilities -
Co-development and earnout payment liabilities (Note 14 and 16) - - 4 4
Contingent consideration liability resulting from the acquisition of the - - 70 70
Columbus business (Note 14 and 16)
Total financial liabilities - - 74 74
The following table presents the changes in Level 3 items for H1 2022, and the
year ended 31 December 2021:
Financial asset Financial liability
$m $m
Balance at 1 January 2021 25 94
Settled - (4)
Remeasurement of contingent consideration and other financial liability - (29)
recognised in finance income
Unwinding of contingent consideration and other financial liability recognised - 13
in finance expense
Change in fair value of investments at FVTOCI 24 -
Additions 3 -
Sale of investment at FVTOCI (30) -
Balance at 31 December 2021 and 1 January 2022 22 74
Settled - (3)
Remeasurement of contingent consideration and other financial liability - (12)
recognised in finance income
Unwinding of contingent consideration and other financial liability recognised - 2
in finance expense
Change in fair value of investments at FVTOCI 1 -
Additions 14 -
Balance at 30 June 2022 37 61
The critical areas of estimates in relation to the valuation of the contingent
consideration are the probabilities assigned to reaching the success-based
milestones and management's estimate of future sales. The valuation for the
payments that are based on future sales is based on a discounted cash flow
model applied to projected future sales for a period of 5 years using a
post-tax discount rate of 8.1%. The key assumption used for this valuation is
the sales projections informed by pricing and volume assumptions. The
valuation for milestone payment is based on 100% probability of success-based
milestone discounted using a discount rate of 4.7%.
If the future sales were 5% higher, the fair value of the contingent
consideration will increase by $2 million (H1 2021: $5 million) and if they
were 5% lower the contingent consideration will decrease by $3 million (H1
2021: $5 million). (Notes 14 and 16).
If the probability assigned to reaching the success-based milestones were 5%
lower, the fair value of the contingent consideration will decrease by $1
million (H1 2021: $1 million) (Notes 14 and 16).
19. Share capital
Issued and fully paid - included in shareholders' equity:
Number of shares $m
31 December 2021 and 1 January 2022 (audited) 244,331,288 42
Exercise of employees share scheme 1,114,919 -
Ordinary Shares purchased and cancelled (12,499,670) (1)
Issue of Ordinary Bonus Share 1 1,746
Cancellation of Ordinary Bonus Share (1) (1,746)
30 June 2022 (unaudited) 232,946,537 41
At 30 June 2022, of the issued share capital, 12,833,233 (2021: 12,833,233)
are held as Treasury shares and 220,113,304 (2021: 231,498,055) shares are in
free issue.
Bonus Share issuance and cancellation
As a result of the establishment of the Hikma Pharmaceuticals PLC (Company) as
the ultimate parent company of the Hikma Pharmaceuticals PLC Group, and the
Company's acquisition of Columbus business in 2016, a merger reserve of $1,746
million was recorded on the Company's balance sheet. This merger reserve did
not form part of the Company's distributable reserves.
At the 20 May 2022 Extraordinary General Meeting (EGM), the Board approved the
capitalisation of the merger reserve and the issuance of a Bonus Share with a
$1,746 million nominal value. This share was subsequently cancelled through a
capital reduction, creating $1,746 million of distributable reserves to the
Company.
Share buyback programme
During the period, the Group executed a share buyback programme of $300
million. A total of 12,499,670 shares were purchased and cancelled. The Group
incurred $3 million of transaction cost directly attributable to the share
buyback which was recognised in equity.
Treasury Shares
At 30 June 2022, the Group holds 12,833,233 as Treasury shares (31 December
2021: 12,833,233). The voting rights attached to these Treasury shares are not
capable of exercise.
20. Acquisitions
Custopharm Topco Holdings, Inc.
On 21 April 2022, the Group acquired 100% of the issued share capital of
Custopharm Topco Holdings, Inc. for a cash consideration of $373 million on a
debt and cash-free basis from Water Street Healthcare Partners (Water Street),
following approval from the US Federal Trade Commission.
Custopharm Topco Holdings, Inc. is the parent of five companies including two
companies with 16% and 10% non-controlling interests' ownership.
The net assets acquired in the transaction and the goodwill are provisional
pending the final valuation of those assets.
The assets and liabilities recognised as a result of the acquisition are as
follows:
$m
Product related intangible assets (Note 8) 251
Property, Plant and Equipment 1
Inventories, net 34
Trade receivables, net 31
Cash and cash equivalents 19
Trade and other payables (6)
Other current liabilities (9)
Deferred tax liabilities (47)
Net identifiable assets acquired 274
Add: goodwill 120
Net assets acquired 394
Less: non-controlling interests (2)
Total consideration 392
Satisfied by:
Cash consideration 392
Less: Cash and cash equivalents acquired (19)
Net cash outflow arising from acquisition 373
20. Acquisitions continued
The goodwill arising represents the synergies that will be obtained by
integrating Custopharm and its R&D capabilities, adding an experienced
team with a proven ability to develop and commercialise complex sterile
injectable products into the existing business and increasing the scale of the
Injectables business. Goodwill will not be deductible for tax purposes.
For the non-controlling interests, the Group recognised the proportion of the
net identifiable assets and liabilities.
Acquisition related costs amounted to $2 million (2021: $2 million) are
included in the selling, general and administrative expenses in the condensed
consolidated interim income statement.
The fair value of acquired trade receivables is $31 million. The gross
contractual amount for trade receivables due is $55 million, none of which is
expected to be uncollectible. Chargebacks and other allowances are deducted
from the gross amount to arrive at the trade receivables balance of $31
million.
The business was acquired on 21 April 2022 and contributed $15 million
revenue, $4 million reported loss and $9 million core profit (excluding
amortisation of intangible assets and the unwinding of the inventory step-up
resulting from the fair valuation of those assets) for the period.
If the acquisition had occurred on the first day of the financial year, the
acquisition would have contributed approximately $43 million to Group revenue,
$16 million reported loss and $18 million core profit (excluding amortisation
of intangible assets and the unwinding of the inventory step-up resulting from
the fair valuation of those assets).
Teligent asset acquisition
On 17 January 2022, Hikma announced that it has agreed to acquire the Canadian
assets of Teligent Inc. (Teligent), the transaction was completed on 2
February 2022 and Hikma paid a cash consideration of $46 million.
The acquisition was assessed under the optional concentration test in IFRS 3
and was determined to be an asset acquisition, since substantially all the
fair value of the gross assets acquired is concentrated in a group of similar
identifiable assets namely Intangible assets - Product rights, with
significantly the same risk characteristics, as they relate to mature products
with similar profit margins and distribution channels (Note 8).
21. Related party balances and transactions
No significant transactions between the Group and its associates and other
related parties were undertaken during the half-year. Any transactions between
the Company and its subsidiaries have been eliminated on consolidation.
22. Contingent liabilities
Guarantees and letters of credit
A contingent liability existed at the balance sheet date in respect of
external guarantees and letters of credit totalling $47 million (31 December
2021: $45 million) arising in the normal course of business. No provision for
these liabilities has been made in these financial statements.
A contingent liability existed at the balance sheet date for a potential stamp
duty obligation of $10 million (31 December 2021: $10 million) that may arise
for a repayment of a loan by intercompany guarantors. It is not probable that
the 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.
Starting in 2016, several complaints have been filed in the United States on
behalf of putative classes of direct and indirect purchaser of generic drug
products, as well as several individual direct purchasers opt-out plaintiffs.
These complaints, which allege that the defendants engaged in conspiracies to
fix, increase, maintain and/or stabilise the prices of the generic drug
products named, have been brought against certain Group entities and various
other defendants. The plaintiffs generally seek damages and injunctive relief
under federal antitrust law and damages under various state laws. The Group
denies having engaged in conduct that would give rise to liability with
respect to these civil suits and is vigorously pursuing defense of these
cases. 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 putative classes of direct and indirect purchasers of Xyrem®
against certain Group entities and other defendants. These complaints allege
that Jazz Pharmaceuticals PLC and its subsidiaries entered into unlawful
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 and a permanent injunction. The Group denies
having engaged in conduct that would give rise to liability with respect to
these lawsuits and is vigorously pursuing defence of these cases. At this
point, the Group does not believe sufficient evidence exists to make any
provision.
Numerous complaints have been filed against certain Group entities with
respect to the manufacture of opioid products. Those complaints now total
approximately 841 in number. These lawsuits have been filed against
distributors, branded pharmaceuticals manufacturers, pharmacies, hospitals,
generic pharmaceuticals manufacturers, individuals, and other defendants by a
number of cities, counties, states, other governmental agencies and private
plaintiffs in both state and federal courts. Seven cases have been filed in
Canadian courts. Most of the federal cases have been consolidated into a
multidistrict litigation in the Northern District of Ohio. These cases assert
in general that the defendants allegedly engaged in improper marketing and
distribution of opioids and that defendants failed to develop and implement
systems sufficient to identify suspicious orders of opioid products and
prevent the abuse and diversion of such products. Plaintiffs seek a variety of
remedies, including restitution, civil penalties, disgorgement of profits,
treble damages, attorneys' fees and injunctive relief. The Group denies having
engaged in conduct that would give rise to liability with respect to these
civil suits and is vigorously pursuing defense of these cases. 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 as of the
date of this results announcement , Amarin has stated that it intends to
appeal the court's dismissal. The Group denies the allegations and will
vigorously defend against them if necessary. The Group does not believe
sufficient evidence exists to make any provision.
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