REG - Hikma Pharmaceutical - Half-year Report
03/08/2023 07:00
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RNS Number : 1402I Hikma Pharmaceuticals Plc 03 August 2023
Hikma delivers strong H1 performance and raises Generics guidance
Growth in all three businesses and across all geographies
London, 3 August 2023 - Hikma Pharmaceuticals PLC and its subsidiaries
('Hikma' or 'Group'), the multinational pharmaceutical company, today reports
its interim results for the six months ended 30 June 2023.
Said Darwazah, Executive Chairman and Chief Executive Officer of Hikma,
said:
"Our strong first half performance reflects growth across all three of Hikma's
businesses and geographies.
Across our global operations we have continued to strengthen our businesses
and processes, including adding to, and enhancing our manufacturing
capabilities. Our investments in R&D have yielded several new product
launches and pipeline expansion, broadening our differentiated product
portfolio. We continue to win important new contracts and expand in new
markets, all of which are enabling Hikma to make more medicines accessible to
the healthcare providers and patients who need them most.
I am especially delighted that Riad Mishlawi has been appointed as Hikma's new
CEO, effective 1(st) September 2023. He has an excellent record of delivering
business expansion and profitable growth and has been a close colleague for
many years. I look forward to continuing working together and capturing the
significant opportunities available to Hikma."
Group H1 highlights:
Reported results (statutory) H1 2023(1) H1 2022(1) Change Constant currency(2)
$ million change
Revenue 1,427 1,213 18% 19%
Operating profit 245 239 3% 7%
Profit attributable to shareholders 131 173 (24)% (18)%
Net cash inflow from operating activities 222 169 31% -
Basic earnings per share (cents) 59.3 76.2 (22)% (16)%
Interim dividend per share (cents) 25 19 32% -
Core results(3) (underlying) H1 2023 H1 2022 Change Constant currency(2)
$ million change
Revenue 1,427 1,213 18% 19%
Core operating profit 401 296 35% 39%
Core profit attributable to shareholders 284 209 36% 41%
Core basic earnings per share (cents) 128.5 92.1 40% 45%
Strong first half performance
· Group revenue up 18% with strong growth in all three business segments
· Reported gross margin of 50.1%, reflecting favourable product mix
· Core operating profit up 35% to $401 million, reflecting H1 weighting of
Generics and Branded
· Good net cash inflow from operating activities, up 31% to $222 million
· Robust balance sheet with net debt(4) to core EBITDA(5) of 1.3x at 30
June 2023 (31 December 2022 1.5x)
· Interim dividend of 25 cents per share, up 32%
Growth in all three businesses
· Global Injectables revenue growth of 9%, reflecting a good top-line
performance in all markets, including full period contribution from recent
acquistion. Core operating profit margin of 36.6%
· Branded had a strong first half with 11% revenue growth and 41% core
operating profit growth, reflecting a good performance across our markets and
the early fulfilment of some tenders
· Generics revenue growth of 39% and core operating profit growth of 110%,
reflecting a stronger than expected performance across the base portfolio and
our six month exclusivity for the authorised generic of sodium oxybate
Strategic updates
· Riad Mishlawi, President of Injectables, appointed CEO from 1(st)
September 2023
· Expanding Injectables capacity, adding new high speed lines to our New
Jersey and Portugal facilities
· Launched 73 new products across all three businesses
· Strengthened our contract manufacturing pipeline in Generics with new
contract wins
· Acquired a selection of assets from Akorn in July for $98 million,
including manufacturing equipment and portfolio and pipeline products that
will support our businesses in the US
· Reinforced our position as one of the leading providers of oncology
medicines in MENA, launching nine oral oncology products across the region
· Halted operations in Sudan, which represented less than 3% of Group
revenue in 2022, as a result of the ongoing conflict in the country. This
resulted in $92 million of impairment and costs in H1 2023
Outlook for full year 2023
· Injectables - we continue to expect revenue growth of between 7% and 9%
and for core operating margin to be between 36% and 37%
· Branded - we continue to expect Branded revenue growth to be in the mid
to high-single digits in constant currency. On a reported basis, reflecting
the continued devaluation of the Egyptian pound, we expect Branded revenue and
core operating profit to be broadly in line with 2022
· Generics - we now expect revenue growth of close to 30%, up from our
previous guidance of revenue growth close to 20%, and for core operating
margin to be between 18% and 20%, up from 16% to 18%
· We now expect Group core net finance expense to be around $83 million, up
from $78 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
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 09:30am BST, and a recording will be made available on the
Company's website.
To join via conference call please dial:
United Kingdom (toll free): +44 800 358 1035
United Kingdom (local): +44 20 4587 0498
Access code: 317158
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 / Rob
Yates +44 (0)7703 330269/
+44 (0)7715 375443
About Hikma:
Hikma helps put better health within reach every day for millions of people
around the world. For more than 45 years, we've been creating high-quality
medicines and making them accessible to the people who need them.
Headquartered in the UK, we are a global company with a local presence across
North America, the Middle East and North Africa (MENA) and Europe, and we use
our unique insight and expertise to transform cutting-edge science into
innovative solutions that transform people's lives. We're committed to our
customers, and the people they care for, and by thinking creatively and acting
practically, we provide them with a broad range of branded and non-branded
generic medicines. Together, our 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
During the first half of 2023, Hikma has continued to grow, with our purpose
of putting better health within reach, every day at the forefront of our
strategy. We are a top three provider of generic sterile injectables by
volume in the US(6); we are the third largest pharmaceutical company in the
MENA region(7) and we are the twelfth largest supplier of non-injectable
generic medicines in the US(8).
We are launching more products and investing in our manufacturing
capabilities, our R&D pipeline and in our people to ensure that we can
provide customers across our geographies with the medicines they need.
Injectables
Our global Injectables business has had a positive start to the year across
our geographies. We have launched 52 products across our markets, enhanced
our pipeline and are adding capacity to ensure we are well positioned to
capture opportunities and ensure our customers' needs are met.
In North America(9), our US portfolio grew to over 150 products during the
first half. Having announced our 100(th) product in 2019, this important
milestone demonstrates both the pace with which we are bringing products to
market and the increased scale of our portfolio, which we are delivering
through R&D, partnerships and acquisitions. The breadth of our product
offering is a core strength for Hikma and essential to offset the impact of
competition in this market.
In MENA we have grown the business, managing to offset the currency headwinds
experienced in Egypt, as well as the halted operations in Sudan, which has
resulted in impairment and cost charges of $92 million, $15 million of which
is related to the Injectables business. Our key markets are performing very
well, with strong growth from our biosimilar products and recent launches.
In Europe our agile supply chain is supporting growth in Germany and Italy and
enabling us to address shortage situations and we are making good progress
building our presence in our newer markets, including France and Spain.
Branded
The momentum in our Branded business continues, with strong performances
across our MENA markets as we continue to grow through the sale of medications
used to treat chronic illnesses, with oral oncology products, as well as
cardiovascular and central nervous system medications performing particularly
well.
This strong performance and the early fulfilment of tenders more than offset
foreign exchange headwinds, particularly in Egypt, and the loss of revenues
resulting from the halting of operations in Sudan, which has resulted in
impairment and cost charges of $92 million, $77 million of which is related to
the Branded business. The timing of tenders, as well as the phasing of
R&D spend and other operating costs, means that for the full year, revenue
and operating profit will be weighted towards the first half.
Generics
Our Generics business had an excellent first half, as the competitive
pressures experienced in 2022 began to ease. We have seen a reduction in
price erosion and we have been able to increase volumes across the
portfolio. With our state-of-the-art manufacturing facility in Columbus
Ohio, strong customer relationships and reputation for quality, as well as our
broad portfolio, we are addressing market disruptions and winning awards for
new business across our product portfolio. We launched an authorised generic
of Xyrem(®) (sodium oxybate) in January and are pleased with the strong
performance to date. Despite an increase in competition, we expect to
continue to benefit from this new launch in the second half, albeit at a
reduced margin.
We remain focused on strengthening our Generics business and continued to
gradually grow revenue from our specialty portfolio, gaining traction with our
8mg naloxone nasal spray, Kloxxado, which is used to reverse drug overdoses.
We are also building our CMO offering and have won some key long-term
contracts that leverage the quality and capabilities of our Columbus
facility.
Investing in future growth
We have been investing for growth in the first half of 2023, enhancing our
R&D pipeline and strengthening our manufacturing capabilities through
targeted capex. Our new high speed injectable filling line in New Jersey has
started production and will ramp up gradually through the remainder of the
year, with a second new high speed line in Portugal following later this year.
In July, through acquisitions relating to the Akorn bankruptcy process, we
have enhanced our manufacturing capabilities and portfolio of products,
including expanding our nasal spray capacity, and added new ANDAs for both
Injectables and Generics.
Acting responsibly
We have continued to progress our responsibility agenda in the first half.
We are advancing health and wellbeing through the provision of vital generic
medicines and have been launching more products, including 73 across our
markets in the first half. We are also spearheading disease awareness
programmes, with events such as the Hikma Cancer Network, in collaboration
with MD Anderson, which brought together key opinion leaders and doctors from
across the MENA region to discuss current trends in oncology treatments.
Our environmental efforts ensure we are continuing to make progress towards
our emissions reduction target. We are in the early stages of assessing how
we can better manage water stress.
We are focused on empowering our most important asset, our people. This not
only encompasses recruitment and retention of the best talent, but ensuring we
foster a culture of progress and belonging for all our employees. We are
committed to diversity, equity and inclusion and as part of this, have in
place a target to increase the number of women in the leadership team
(Executive Committee and senior direct reports) from 29% (at 31 December 2022)
to 40% by the end of 2025.
Finally, we are building trust through quality in everything we do. We are
committed to the highest ethical standards and are a signatory of the United
Nations Global Compact. Our customers also rely on our products to be of the
highest quality and this is built into our mindset and is a key reason behind
our success.
Outlook for full year 2023
For Injectables, we continue to expect revenue growth of between 7% and 9% and
for core operating margin to be between 36% and 37%. This reflects the
breadth of our portfolio and ability to launch new products as well as our
growing geographic reach.
For Branded, we continue to expect Branded revenue growth to be in the mid to
high-single digits in constant currency, reflecting strong growth across our
markets, which should more than offset the halting of operations in Sudan.
On a reported basis we expect revenue and core operating profit to be broadly
in line with 2022. This assumes a headwind of approximately $50 million
resulting from the devaluation of the Egyptian pound. Revenue and core
operating profit will be weighted towards H1 due to the early fulfilment of
government tenders and the phasing of R&D and other operating expenses.
For Generics - we now expect revenue growth of close to 30% and for core
operating margin to be between 18% and 20%. This reflects continued strong
performance from our base business as well as the expectation of a stronger
second half contribution from the authorised generic Xyrem(®). This also
assumes an increase in R&D and sales and marketing expenses in the second
half of the year.
We now expect Group core net finance expense to be around $83 million, up from
$78 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.
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 2023.
Group
$ million H1 2023 H1 2022 Change Constant currency
change
Revenue 1,427 1,213 18% 19%
Gross profit 715 611 17% 19%
Core gross profit 733 623 18% 20%
Core gross margin 51.4% 51.4% 0.0pp 0.1pp
Operating profit 245 239 3% 7%
Core operating profit 401 296 35% 39%
Core operating margin 28.1% 24.4% 3.7pp 4.1pp
EBITDA 387 346 12% 15%
Core EBITDA 451 346 30% 33%
Group revenue grew 18%, with all three businesses performing well and
particularly strong growth in Generics where the base business has seen an
improvement following the challenging market conditions of 2022, as well as a
good performance from recently launched authorised generic of Xyrem(®). Core
gross margin was flat, as good margin performance for Generics and Branded was
offset by the effect of product and geographic mix in Injectables.
Group operating expenses were $470 million (H1 2022: $372 million). Excluding
exceptional items and other adjustments of $138 million (H1 2022: $2 million
charge), including amortisation of intangible assets (other than software) of
$43 million (H1 2022: $43 million), Group core operating expenses were $332
million (H1 2022: $327 million).
Selling, general and administrative (SG&A) expenses were $304 million (H1
2022: $299 million). Excluding the amortisation of intangible assets (other
than software) of $43 million (H1 2022: $43 million) and a $1 million
exceptional charge related to Sudan costs, core SG&A expenses were $260
million (H1 2022: $256 million), with the slight increase reflecting continued
investment in sales and marketing as we grow our Generics specialty
business.
Core and reported research and development (R&D) expenses were $64 million
(H1 2022: $69 million), representing 4.5% of revenue (H1 2022: 6%), with
increased spend expected in the second half.
Other net operating expenditure was $56 million (H1 2022: $1 million). This
comprised a $57 million other operating expense and $1 million of other
operating income. Excluding exceptional items and other adjustments(10), core
other net operating expense was $4 million (H1 2022: $1 million net income).
This comprised a $5 million other operating expense and $1 million of other
operating income.
The increases in core operating profit of 35% and core operating margin to
28.1% were primarily driven by the strong performance of both Generics and
Branded in the first half.
Group revenue by business segment
$ million H1 2023 H1 2022
Injectables 585 41% 538 44%
Branded 375 26% 339 28%
Generics 460 32% 330 27%
Others 7 1% 6 1%
Total 1,427 1,213
Group revenue by region
$ million H1 2023 H1 2022
North America(11) 848 59% 698 58%
MENA 468 33% 414 34%
Europe and ROW(11) 111 8% 101 8%
Total 1,427 1,213
Injectables
$ million H1 2023 H1 2022 Change Constant currency change
Revenue 585 538 9% 9%
Gross profit 319 297 7% 8%
Core gross profit 322 309 4% 5%
Core gross margin 55.0% 57.4% (2.4)pp (2.6)pp
Operating profit 168 178 (6)% (5)%
Core operating profit 214 209 2% 3%
Core operating margin 36.6% 38.8% (2.2)pp (2.3)pp
Injectables revenue grew 9% in the first half, with good growth in all three
geographies.
North America(11) Injectables revenue grew 5% to $388 million (H1 2022: $368
million). Increasing competition was more than offset by a full contribution
from the acquisitions of Custopharm and Teligent's Canadian assets as well as
new launches.
Europe and Rest of World (ROW) Injectables revenue grew 10% to $103 million
(H1 2022: $94 million). In constant currency, Europe and ROW Injectables
revenue increased by 10%, reflecting good demand across our portfolio,
including recent launches. Our short supply chain and lead times in Europe
are enabling us to address shortage situations, particularly in Germany.
In MENA, Injectables revenue was $94 million, up 24% (H1 2022: $76 million),
or 28% in constant currency. This was primarily due to the continued strong
performance of our biosimilar portfolio. We also benefitted from the early
fulfilment of tenders.
Injectables core gross profit grew 4% while the margin contracted primarily
due to higher costs due to inflation and increased competition in the US,
which was partially offset by a good contribution from recent acquisitions.
Injectables core operating profit, which excludes the amortisation of
intangible assets (other than software) and exceptional items(12), grew 2% and
core operating margin was 36.6%, down from 38.8% in H1 2022, primarily
reflecting the change in gross margin, as well as forex losses and an increase
in R&D spend as we invest in future growth opportunities. On a reported
basis, the halting of operations in Sudan has resulted in an impairment charge
of $15 million related to the Injectables business.
During H1 2023, the Injectables business launched 11 products in North
America, 18 in MENA and 26 in Europe and ROW. We submitted 20 filings to
regulatory authorities across all markets. We further developed our portfolio
through new licensing agreements.
Branded
$ million H1 2023 H1 2022 Change Constant currency change
Revenue 375 339 11% 15%
Gross profit 184 174 6% 11%
Core gross profit 199 174 14% 20%
Core gross margin 53.1% 51.3% 1.8pp 2.2pp
Operating profit 24 70 (66)% (54)%
Core operating profit 104 74 41% 51%
Core operating margin 27.7% 21.8% 5.9pp 6.8pp
The Branded business performed very well in the first half, with revenue up
11%, driven by a good performance across our markets as well as the early
fulfilment of some tenders in our larger markets. Our oncology products had a
particularly good performance and the strategy of focusing on treatments for
chronic illnesses continues to be a growth and margin driver.
Branded reported and core gross profit grew and core gross margin improved by
1.8 percentage points, reflecting an improved product mix, driven by our
growing portfolio of oncology medicines, and the timing of tenders.
Branded core operating profit, which excludes the amortisation of intangibles
(other than software) and exceptional items(13), grew 41%, reflecting the
timing of tenders and the phasing of certain operating costs towards the
second half. This strong performance more than offset the negative impact of
foreign exchange related to currency devaluation in Egypt. Due to the
ongoing conflict in Sudan, where we are unable to operate, we have taken an
impairment on this business, resulting in the reduced reported operating
profit of $24 million.
During H1 2023, the Branded business launched 18 products and submitted 16
filings to regulatory authorities. Revenue from in-licensed products
represented 34% of Branded revenue (H1 2022: 36%).
Generics
$ million H1 2023 H1 2022 Change
Revenue 460 330 39%
Gross profit 209 137 53%
Core gross profit 209 137 53%
Gross margin 45.4% 41.5% 3.9pp
Operating profit 97 36 169%
Core operating profit 122 58 110%
Core operating margin 26.5% 17.6% 8.9pp
Generics revenue has grown significantly in the first half of 2023 due to a
strong performance from the base business, both in terms of volumes and a
lower level of price erosion, as well as a good performance from the launch of
the authorised generic of Xyrem(®) (sodium oxybate).
The increase in Generics core and reported gross profit and gross margin
expansion to 45.4% was primarily due to the improvement in product mix and the
strong profitability of sodium oxybate in the first six months. Royalties
payable on sodium oxybate will increase in the second half.
Generics core operating profit, which excludes the amortisation of intangible
assets (other than software) and impairment charge adjustments(14), increased
primarily due to the good gross profit and lower R&D spend due to phasing,
which more than offset higher sales and marketing costs as we continued to
develop our commercial capabilities as we build our speciality business.
During H1 2022, we launched three products from our R&D pipeline.
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 $7 million
(H1 2022: $6 million) with an operating profit of $2 million (H1 2022: $2
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
2023, we had 73 new launches and received 64
approvals. To ensure the continuous development of our product pipeline, we
submitted 38 regulatory filings.
H1 2023 submissions(15) H1 2023 approvals(15) H1 2023 launches(15)
Injectables 20 44 52
North America 11 18 11
MENA 9 11 18
Europe 0 15 26
Generics 2 0 3
Branded 16 20 18
Total 38 64 73
Net finance expense
H1 2023 H1 2022 Change Constant currency change
Finance income 3 13 (77)% (81)%
Finance expense 46 35 31% 31%
Net finance expense 43 22 95% 97%
Core finance income 3 1 200% 153%
Core finance expense 44 33 33% 33%
Core net finance expense 41 32 28% 29%
On a reported basis, net finance expense was $43 million (H1 2022: $22
million). This comprised $3 million finance income and $46 million finance
expense. Excluding exceptional items and other adjustments(16), core net
finance expense was $41 million (H1 2022: $32 million). This comprised $3
million finance income and $44 million finance expense. The increase compared
with H1 2022 reflects higher average debt utilisation in H1 2023 compared to
H1 2022 as well as higher interest rates during the period.
We now expect core net finance expense to be around $83 million for the full
year.
Profit before tax
Reported profit before tax was $202 million (H1 2022: $215 million). Core
profit before tax was $360 million (H1 2022: $262 million), reflecting the
overall group performance.
Tax
The Group incurred a reported tax expense of $71 million (H1 2022: $41
million). Excluding the tax impact of exceptional items and other adjustments,
the Group core tax expense was $76 million in H1 2023 (H1 2022: $52
million)(17). The core effective tax rate(18) for H1 2023 was 21.1% (H1 2022:
19.8%). This is due to the phasing of earnings. 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 $131 million (H1 2022: $173 million).
Excluding the amortisation of intangible assets (other than software) and
other adjustments(19), core profit attributable to shareholders increased by
36% to $284 million (H1 2022: $209 million).
Earnings per share
H1 2023 H1 2022 Change Constant currency change
Basic earnings per share (cents) 59.3 76.2 (22)% (16)%
Core basic earnings per share (cents) 128.5 92.1 40% 45%
Diluted earnings per share (cents) 59.0 75.9 (22)% (16)%
Core diluted earnings per share (cents) 127.9 91.7 39% 45%
Weighted average number of Ordinary Shares for the purposes of basic earnings 221 227 (3)% -
('m)
Weighted average number of Ordinary Shares for the purposes of diluted 222 228 (3)% -
earnings ('m)
The increase in core earnings per share reflects the performance of the Group
and a reduction in shares in issue following the 2022 buy back of 12.5 million
ordinary shares.
Dividend
In order to rebalance the distribution of dividends more evenly over the
course of the year, our interim dividend, on an ongoing basis, will be
calculated at approximately 45% of the prior year's full-year dividend, while
maintaining our dividend policy of a pay-out ratio of 20% to 30% of core
profit attributable to shareholders. The Board is, therefore, recommending an
interim dividend of 25 cents per share (H1 2022: 19 cents per share). The
interim dividend will be paid on 15 September 2023 to eligible shareholders on
the register at the close of business on 11 August 2023.
Net cash flow, working capital and net debt
The Group generated operating cash flow of $222 million (H1 2022: $169
million). This reflects the increase in core operating profit, which was
partially offset by higher investment in working capital related to strong
growth in the MENA region.
Group working capital days were 255 at 30 June 2023. Compared to the position
on 31 December 2022, Group working capital days increased by 4 days from 251
days.
Cash capital expenditure was $84 million (H1 2022: $63 million). In the US,
$21 million was spent on upgrades, new technologies and capacity expansion
across our Cherry Hill, Dayton, and Columbus sites. In MENA, $49 million was
spent strengthening and expanding manufacturing capabilities, including our
two ongoing greenfield Injectables production sites in Algeria and Morocco and
a new land purchase in Saudi Arabia. In Europe, we spent $14 million enhancing
our manufacturing capabilities, including the installation of new filling
lines in Portugal and Italy. We continue to expect Group capital expenditure
to be around $140 million to $160 million in 2023.
The Group's total debt was $1,312 million at 30 June 2023 (31 December 2022:
$1,283 million).
The Group's cash balance was $272 million (31 December 2022: $270 million).
The Group's net debt was $1,040 million at 30 June 2023 (31 December 2022:
$1,013 million)(20). We continue to have a very strong balance sheet with a
net debt to core EBITDA ratio of 1.3x (31 December 2022 1.5x).
Net assets
Net assets at 30 June 2023 were $2,202 million (31 December 2022: $2,148
million). Net current assets increased to $961 million (31 December 2022: $922
million).
Responsibility statement
The directors confirm that these condensed interim financial statements have
been prepared in accordance with UK adopted International Accounting Standard
34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct Authority and that
the interim management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8, namely:
· an indication of important events that have occurred during the first
six months 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
· material related-party transactions in the first six months and any
material changes in the related-party transactions described in the last
annual report.
The maintenance and integrity of the Hikma Pharmaceuticals PLC website is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept
no responsibility for any changes that might have occurred to the interim
financial statements since they were initially presented on the website.
By order of the Board
Said Darwazah Mazen Darwazah
Executive Chairman and Chief Executive Officer Executive Vice Chairman and President of MENA
2 August 2023 2 August 2023
The Board of Directors that served during all or part of the six-month period
to 30 June 2023 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 and exceptional items set out
in Note 5.
Group operating profit H1 2023 H1 2022
$million $million
Core operating profit 401 296
Impairment and cost related to halted operations in Sudan (92) -
Intangible assets amortisation other than software (43) (43)
Impairment charges (21) (2)
Unwinding of acquisition related inventory step-up - (12)
Reported operating profit 245 239
Profit attributable to shareholders H1 2023 H1 2022
$million $million
Core profit attributable to shareholders 284 209
Impairment and cost related to halted operations in Sudan (92) -
Intangible assets amortisation other than software (43) (43)
Impairment charges (21) (2)
Unwinding of acquisition related inventory step-up - (12)
Remeasurement of contingent consideration - 12
Unwinding of contingent consideration and other financial liability (2) (2)
Tax effect 5 11
Reported profit attributable to shareholders 131 173
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 currencies 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 2023 represent reported H1 2023 numbers
translated using H1 2022 exchange rates, excluding price increases in the
business resulting from the devaluation of currencies and excluding the impact
from hyperinflation accounting. Sudan is considered a hyperinflationary
economy, therefore the spot exchange rate as at 30 June 2023 was used to
translate the results of this operation into US dollars.
EBITDA
EBITDA is earnings before interest, tax, depreciation, amortisation, and
impairment of property, plant and equipment and intangible assets and other
items.
EBITDA H1 2023 H1 2022
$ million
Reported operating profit 245 239
Depreciation 48 44
Amortisation 48 49
Unwinding of acquisition related inventory step-up - 12
Impairment charges/(reversals) 46 2
EBITDA 387 346
Impairment on financial assets 42 -
Provision against inventories 18 -
Impairment charge on other current assets 2 -
Cost from halted operations in Sudan 2 -
Core EBITDA 451 346
Core EBITDA for the twelve months ending 30 June 2023, which is used in the
calculation of net debt to EBITDA was $798 million.
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 trailing 12 months Group
reported cost of sales. Group payable days are calculated as Group trade
payables x 365, divided by trailing 12 months Group reported cost of
sales(21).
Group net debt
We believe Group net debt is a useful measure of the strength of the Group
financial position. Group net debt includes long and short-term financial
debts (Note 14), lease liabilities, net of cash and cash equivalents (Note
11).
Group net debt Jun-23 Dec-22
$ million
Short-term financial debts (211) (139)
Short-term lease liabilities (10) (9)
Long-term financial debts (1,032) (1,074)
Long-term lease liabilities (59) (61)
Total debt (1,312) (1,283)
Cash 272 270
Net debt (1,040) (1,013)
Forward looking statements
This announcement contains certain statements which are, or may be deemed to
be, "forward looking statements" which are prospective in nature with respect
to Hikma's expectations and plans, strategy, management objectives, future
developments and performance, costs, revenues and other trend
information. All statements other than statements of historical fact may be
forward-looking statements. Often, but not always, forward-looking statements
can be identified by the use of forward looking words such as "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 conflict in Sudan and the economic challenges in Egypt
have highlighted the risks and uncertainties of operating in the complex and
diverse MENA region. The principal risks are set out in the 2022 annual report
on pages 63 - 66. 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 geopolitical events, macroeconomic
factors, local political action, 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 that employees, representatives, and
our third parties comply with our Code of Conduct, associated policies
and procedures, as well as applicable laws and regulations of the relevant
jurisdictions.
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 and continuity management Developing, maintaining and adapting capabilities and processes to anticipate,
prepare for, respond and adapt to sudden disruptions and gradual change,
including natural catastrophe, economic turmoil, cyber events, 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 2023 refers to the six months ended 30 June
2023 and H1 2022 refers to the six months ended 30 June 2022
2 Constant currency numbers in H1 2023 represent reported H1 2023 numbers
translated using H1 2022 exchange rates, excluding price increases in the
business resulting from the devaluation of currencies and excluding the impact
from hyperinflation accounting. Sudan is considered a hyperinflationary
economy, therefore the spot exchange rate as at 30 June 2023 was used to
translate the results of this operation into US dollars
(3) Core results throughout the document are presented to show the underlying
performance of the Group, excluding exceptionals and 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 15
4 Group net debt is calculated as Group total debt less Group total cash.
Group net debt is a non-IFRS measure that includes long and short-term
financial debts (Note 14), lease liabilities, net of cash and cash equivalents
(Note 11). See page 16 for a reconciliation of Group net debt to reported IFRS
figures
(5) EBITDA is earnings before interest, tax, depreciation, amortisation,
impairment of property, plant and equipment and intangible assets and other
items. EBITDA is a non-IFRS measure. For the purposes of the leverage
calculation, EBITDA is calculated for trailing twelve months ended 30 June
2023. See page 16 for a reconciliation to reported IFRS results and trailing
twelve months EBITDA
6 IQVIA MAT May 2023, generic injectable volumes by eaches, excluding branded
generics and Becton Dickinson
7 IQVIA MIDAS Pharma Index MAT May-2023. It does not include hospital or
tender business
8 IQVIA MAT May 2023, non-injectable generic products only (Prasco and Gilead
excluded from top 15)
(9) Canada is now included in North America (previously in Europe and Rest of
World). Canada's 2022 sales of $7 million have therefore been reclassified
to North America
(10) In H1 2023, exceptional items and other adjustments comprised a $21
million impairment charge related to product related intangibles and marketing
rights and $30 million of impairment charges related to the halting of
operations in Sudan. In H1 2022 comprised a $2 million impairment of product
related intangible assets. Refer to Note 5 for further information
1(1) Canada is now included in North America (previously in Europe and Rest of
World). Canada's 2022 sales of $7 million have therefore been reclassified
to North America
1 (2) In H1 2023, exceptional items and other adjustments comprosed
amortisation of intangible assets other than software of $23 million,$15
million impairment and cost charge related to halted operations in Sudan and
an $8 million impairtment charge relating to product related intangibles. H1
2022 comprised amortisation of intangible assets other than software of $19
million and unwinding of acquisition related inventory step-up of $12 million.
Refer to Note 5 for further information
1 (3) In H1 2023, excpetional items and other adjustments comprised
amortisation of intangible assets other than software was $3 million,a $77
million impairment and cost charge related to halted operations in Sudan. In
H1 2022, amortisation of intangible assets other than software was $4 million.
Refer to Note 5 for further information
( )
(( 1 ))4 In H1 2023, exceptional items and other adjustments comprised a $17
million impairment of product related intangibles and amortisation of
intangible assets other than software, of $8 million. H1 2022 comprised a $2
million impairment of product related intangibles and amortisation of
intangible assets other than software, of $20 million. Refer to Note 5 for
further information
1 (5) New products submitted, approved and launched by country in H1 2023
( )
1 (6) In H1 2023, exceptional items and other other adjustments comprised $2
million related to the unwinding of contingent consideration and other
financial liability. H1 2022 comprised a $12 million income related to the
remeasurement of contingent consideration and $2 million expense related to
the unwinding of contingent consideration and other financial liability. Refer
to Note 5 for further information
1 (7) Refer to Note 6 for futher information
( )
1 (8) Core effective tax rate is calculated as core tax expense as a
percentage of core profit before tax
1 (9) In H1 2023, exceptional items and other adjustments comprised $158
million of other adjustments included in operating profit and $5 million tax
effect. In H1 2022, exceptional items and other adjustments comprised $47
million of other adjustments included in operating profit and $11 million tax
effect. Refer to Note 5 for further information
2(0) See page 16 for a reconciliation of Group net debt to reported IFRS
results
2(1) Trailing 12 months Group revenue is calculated as Group revenue for the
12 months ending 30 June 2023 which equates to $2,731 million. Trailing 12
months Group reproted cost of sales is calculated as Group reported cost of
sales for the 12 months ending 30 June 2023 which equates to $1,389 million
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 2023 (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 2023;
· the Condensed consolidated interim income statement and the Condensed
consolidated interim statement of comprehensive income for the period then
ended;
· the Condensed consolidated interim statement of changes in equity for
the period then ended;
· the Condensed consolidated interim cash flow statement 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' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). 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 ISRE (UK) 2410. 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
London
2 August 2023
Hikma Pharmaceuticals PLC
Condensed consolidated interim income statement
H1 2023 H1 2023 H1 2023 H1 2022 H1 2022 H1 2022
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 1,427 - 1,427 1,213 - 1,213
Cost of sales (694) (18) (712) (590) (12) (602)
Gross profit/(loss) 733 (18) 715 623 (12) 611
Selling, general and administrative expenses (260) (44) (304) (256) (43) (299)
Net impairment loss on financial assets (4) (42) (46) (3) - (3)
Research and development expenses (64) - (64) (69) - (69)
Other operating expenses (5) (52) (57) (17) (2) (19)
Other operating income 1 - 1 18 - 18
Total operating (expenses) (332) (138) (470) (327) (45) (372)
Operating profit/(loss) 4 401 (156) 245 296 (57) 239
Finance income 3 - 3 1 12 13
Finance expense (44) (2) (46) (33) (2) (35)
(Loss) from investment at fair value through profit and loss (FVTPL) - - - (2) - (2)
Profit/(loss) before tax 360 (158) 202 262 (47) 215
Tax 6 (76) 5 (71) (52) 11 (41)
Profit/(loss) for the half-year 284 (153) 131 210 (36) 174
Attributable to:
Non-controlling interests - - - 1 - 1
Equity holders of the parent 284 (153) 131 209 (36) 173
284 (153) 131 210 (36) 174
Earnings per share (cents)
Basic 128.5 59.3 92.1 76.2
Diluted 127.9 59.0 91.7 75.9
Hikma Pharmaceuticals PLC
Condensed consolidated interim statement of comprehensive income
H1 2023 H1 2022
Reported results
Reported results
Note $m $m
(Unaudited) (Unaudited)
Profit for the half-year 131 174
Other Comprehensive Income
Items that may subsequently be reclassified to the consolidated income
statement, net of tax:
Currency translation and hyperinflation movement - (68)
Effect of change in fair value of hedging financial derivatives - (1)
Items that will not subsequently be reclassified to the consolidated income
statement:
Change in investments at fair value through other comprehensive income 8 (5) (8)
(FVTOCI)
Total other comprehensive income for the half-year (5) (77)
Total comprehensive income for the half-year 126 97
Attributable to:
Non-controlling interests - (1)
Equity holders of the parent 126 98
126 97
Hikma Pharmaceuticals PLC
Condensed consolidated interim balance sheet
30 June 31 December
2023
2022
Note $m $m
(Unaudited)
(Audited)
Non-current assets
Goodwill 390 389
Other intangible assets 694 735
Property, plant and equipment 1,032 1,024
Right-of-use assets 55 57
Investment in joint ventures 10 10
Deferred tax assets 200 192
Financial and other non-current assets 8 62 65
2,443 2,472
Current assets
Inventories 9 859 776
Income tax receivable 25 32
Trade and other receivables 10 880 809
Cash and cash equivalents 11 272 270
Other current assets 12 140 110
Assets classified as held for distribution - 2
2,176 1,999
Total assets 4,619 4,471
Current liabilities
Short-term financial debts 14 211 139
Lease liabilities 10 9
Trade and other payables 505 476
Income tax payable 73 73
Other provisions 30 32
Other current liabilities 13 386 348
1,215 1,077
Net current assets 961 922
Non-current liabilities
Long-term financial debts 14 1,032 1,074
Lease liabilities 59 61
Deferred tax liabilities 26 19
Other non-current liabilities 15 85 92
1,202 1,246
Total liabilities 2,417 2,323
Net assets 2,202 2,148
Equity
Share capital 40 40
Share premium 282 282
Other reserves (279) (265)
Translation reserve related to assets held for distribution - (14)
Retained earnings 2,146 2,092
Equity attributable to equity holders of the parent 2,189 2,135
Non-controlling interests 13 13
Total equity 2,202 2,148
The condensed consolidated interim financial information of Hikma
Pharmaceuticals PLC for the six-month period ended 30 June 2023 was approved
by the Board of Directors of the Company on 2 August 2023.
Said
Darwazah
Mazen Darwazah
Executive Chairman and
CEO Executive Vice
Chairman
Hikma Pharmaceuticals PLC
Condensed consolidated interim statement of changes in equity
Share Share Other reserves Translation reserve related to assets held for distribution Retained earnings Equity attributable to equity shareholders of the parent Non-controlling interests Total
capital
premium
equity
Merger and revaluation reserves Translation reserve Capital redemption reserve Total other reserves
Note $m $m $m $m $m $m $m $m $m $m $m
Balance at 31 December 2021 (audited) and 1 January 2022 42 282 164 (224) - (60) - 2,189 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 - - (129) - - (129) - 129 - - -
Issue of Ordinary Bonus Share 1,746 - - - - - - (1,746) - - -
Cancellation of Ordinary Bonus Share (1,746) - - - - - - 1,746 - - -
Cost of equity-settled employee share scheme - - - - - - - 10 10 - 10
Deferred tax arising on share based payments - - - - - - - 1 1 - 1
Dividends paid 7 - - - - - - - (83) (83) - (83)
Ordinary Shares purchased and cancelled (1) - - - 1 1 - (300) (300) - (300)
Shares buyback transaction cost - - - - - - - (3) (3) - (3)
Other comprehensive income accumulated in equity related to assets held for - - - 14 - 14 (14) - - - -
distribution
Acquisition of subsidiaries - - - - - - - - - 2 2
Balance at 30 June 2022 (unaudited) 41 282 35 (276) 1 (240) (14) 2,107 2,176 15 2,191
Balance at 31 December 2022 (audited) and 1 January 2023 40 282 35 (302) 2 (265) (14) 2,092 2,135 13 2,148
Profit for the half-year - - - - - - - 131 131 - 131
Change in the fair value of investments at FVTOCI - - - - - - - (5) (5) - (5)
Total comprehensive income for the half-year - - - - - - - 126 126 - 126
Total transactions with owners, recognised directly in equity
Cost of equity-settled employee share scheme - - - - - - - 10 10 - 10
Dividends paid 7 - - - - - - - (82) (82) - (82)
Other comprehensive income accumulated in equity related to assets no longer - - - (14) - (14) 14 - - - -
held for distribution(1)
Balance at 30 June 2023 (unaudited) 40 282 35 (316) 2 (279) - 2,146 2,189 13 2,202
1. Translation reserve related to assets held for distribution was
reclassified to other reserves as the liquidation of Pharma Ixir Co. Ltd, one
of the subsidiaries in Sudan, is no longer expected to be completed within
twelve months because of the ongoing conflict in the country.
Hikma Pharmaceuticals PLC
Condensed consolidated interim cash flow statement
H1 H1
2023
2022
Note $m $m
(Unaudited) (Unaudited)
Cash flows from operating activities
Cash generated from operations 16 288 213
Income taxes paid (67) (44)
Income taxes received 1 -
Net cash inflow from operating activities 222 169
Cash flow from investing activities
Purchases of property, plant and equipment (84) (63)
Purchase of intangible assets (23) (56)
Proceeds from disposal of intangible assets - 6
Addition of investments at FVTOCI (5) (14)
Proceeds from disposal of investment at FVTOCI 1 -
Acquisition of subsidiary undertakings net of cash acquired - (373)
Advance payment related to acquisition (10) -
Acquisition related amounts held in escrow account - (4)
Payments of contingent consideration liability (1) (3)
Interest income received 3 1
Net cash outflow from investing activities (119) (506)
Cash flow from financing activities
Proceeds from issue of long-term financial debts 537 950
Repayment of long-term financial debts (546) (254)
Proceeds from short-term borrowings 281 183
Repayment of short-term borrowings (243) (165)
Repayment of lease liabilities (5) (4)
Dividends paid 7 (82) (83)
Interest and bank charges paid (39) (27)
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 (outflow)/inflow from financing activities (98) 291
Net increase/(decrease) in cash and cash equivalents 5 (46)
Cash and cash equivalents at beginning of the half-year 270 426
Foreign exchange translation movements (3) (9)
Cash and cash equivalents at end of the half-year 11 272 371
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. Basis of preparation and accounting policies
The unaudited condensed consolidated interim financial statements (financial
statements) for the six months ended 30 June 2023 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 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 2022,
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
2022 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.
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 2022 and the adoption of the new and amended standards
set out below, 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 2023.
New standards, interpretations and amendments
The following revised Standards and Interpretations have been issued and are
effective for annual periods beginning on 1 January 2023. The Group has not
early adopted any other standard, interpretation or amendment that has been
issued but is not yet effective.
2. Basis of preparation and accounting policies continued
New standards, interpretations and amendments continued
IFRS 17 (New Standard) Insurance Contracts (including the June 2020 amendments to IFRS 17)
IAS 1 (Amendments) Presentation of Financial Statements - Classification of liabilities as
current or non-current
IAS 1 and IFRS Practice Statement 2 (Amendments) Presentation of Financial Statements - Disclosure of Accounting Policies
IAS 8 (Amendments) Accounting Policies, Changes in Accounting Estimates and Errors - Definition
of Accounting Estimates
IAS 12 (Amendments) Income Taxes - Deferred Tax related to Assets and Liabilities arising from a
Single Transaction
These standards and 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 2023. 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 2023 the Group had undrawn long term committed banking facilities
of $1,300 million. The Group's total debt at 30 June 2023 was $1,312 million
while the Group's cash and cash equivalents at 30 June 2023 was $272 million
making the net debt $1,040 million. The Group's net debt to trailing core
EBITDA of $798 million ratio was 1.3x at 30 June 2023 (31 December 2022:
1.5x). 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 assessment has been prepared using realistic
scenarios, and 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. This assessment demonstrated sufficient liquidity headroom..
Therefore, the Directors believe that the Group is adequately placed to manage
its business and financing risks successfully, despite the current uncertain
economic and political outlook. Having reassessed the principal risks, the
Directors 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(1). Nevertheless, the covenants are monitored
and the Group was in compliance on 30 June 2023 and expects to remain in
compliance with those covenants in the period to 31 December 2024 even in the
event of severe but plausible downside scenarios. As of 30 June 2023, the
Group's investment grade rating was affirmed by S&P and Fitch.
1. Rating agencies: means each of Fitch, Moody's and S&P or any of their
affiliates or successors
3. Revenue 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:
Injectables Generics Branded Others Total
H1 2023 (unaudited) $m $m $m $m $m
North America 388 460 - - 848
Middle East and North Africa 94 - 370 4 468
Europe and Rest of the World 98 - 5 3 106
United Kingdom 5 - - - 5
585 460 375 7 1,427
Injectables Generics Branded Others Total
H1 2022 (unaudited) $m $m $m $m $m
North America(1) 368 330 - - 698
Middle East and North Africa 76 - 335 3 414
Europe and Rest of the World(1) 90 - 4 3 97
United Kingdom 4 - - - 4
538 330 339 6 1,213
1. Canada is now included in North America (previously in Europe and Rest of
World). Canada's 2022 sales of $7 million have therefore been reclassified to
North America.
The top selling markets are shown below:
H1 2023 H1 2022
$m $m
(Unaudited) (Unaudited)
United States 837 691
Saudi Arabia 146 115
Algeria 111 70
Egypt 43 65
1,137 941
In H1 2023, revenue arising from the Generics and Injectables segments
included sales the Group made to two wholesalers in the US, each accounting
for equal to or greater than 10% of the Group's revenue: $187 million (13% of
Group revenue) and $175 million (12% of Group revenue). In H1 2022, revenue
included sales made to two wholesalers $167 million (14% of Group revenue) and
$158 million (13% 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.
4. Business segments continued
Information regarding the Group's operating segments is reported below:
Injectables H1 2023 H1 2023 H1 2023 Reported H1 2022 H1 2022 H1 2022 Reported
Core
Exceptional items and other adjustments
results
Core
Exceptional items and other adjustments
results
results
(note 5)
$m
results
(note 5)
$m
$m
$m
(Unaudited)
$m
$m
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Revenue 585 - 585 538 - 538
Cost of sales (263) (3) (266) (229) (12) (241)
Gross profit/(loss) 322 (3) 319 309 (12) 297
Total operating expenses (108) (43) (151) (100) (19) (119)
Segment result 214 (46) 168 209 (31) 178
Generics H1 2023 H1 2023 H1 2023 Reported H1 2022 H1 2022 H1 2022 Reported
Core
Exceptional items and other adjustments
results
Core
Exceptional items and other adjustments
results
results
(note 5)
$m
results
(note 5)
$m
$m
$m
(Unaudited)
$m
$m
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Revenue 460 - 460 330 - 330
Cost of sales (251) - (251) (193) - (193)
Gross profit 209 - 209 137 - 137
Total operating expenses (87) (25) (112) (79) (22) (101)
Segment result 122 (25) 97 58 (22) 36
Branded H1 2023 H1 2023 H1 2023 Reported H1 2022 H1 2022 H1 2022 Reported
Core
Exceptional items and other adjustments
results
Core
Exceptional items and other adjustments
results
results
(note 5)
$m
results
(note 5)
$m
$m
$m
(Unaudited)
$m
$m
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Revenue 375 - 375 339 - 339
Cost of sales (176) (15) (191) (165) - (165)
Gross profit/(loss) 199 (15) 184 174 - 174
Total operating expenses (95) (65) (160) (100) (4) (104)
Segment result 104 (80) 24 74 (4) 70
Others(1) H1 2023 H1 2023 H1 2023 Reported H1 2022 H1 2022 H1 2022 Reported
Core
Exceptional items and other adjustments
results
Core
Exceptional items and other adjustments
results
results
(note 5)
$m
results
(note 5)
$m
$m
$m
(Unaudited)
$m
$m
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Revenue 7 - 7 6 - 6
Cost of sales (4) - (4) (3) - (3)
Gross profit 3 - 3 3 - 3
Total operating expenses (1) - (1) (1) - (1)
Segment result 2 - 2 2 - 2
1. Others mainly comprises Arab Medical Containers LLC and International
Pharmaceutical Research Center LLC.
4. Business segments continued
Group H1 2023 H1 2023 H1 2023 Reported H1 2022 H1 2022 H1 2022 Reported
Core
Exceptional items and other adjustments
results
Core
Exceptional items and other adjustments
results
results
(note 5)
$m
results
(note 5)
$m
$m
$m
(Unaudited)
$m
$m
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Segment result 442 (151) 291 343 (57) 286
Unallocated expenses(1) (41) (5) (46) (47) - (47)
Operating profit/(loss) 401 (156) 245 296 (57) 239
Finance income 3 - 3 1 12 13
Finance expense (44) (2) (46) (33) (2) (35)
Loss from investment at FVTPL - - - (2) - (2)
Profit/(loss) before tax 360 (158) 202 262 (47) 215
Tax (76) 5 (71) (52) 11 (41)
Profit/(loss) for the half-year 284 (153) 131 210 (36) 174
Attributable to:
Non-controlling interests - - - 1 - 1
Equity holders of the parent 284 (153) 131 209 (36) 173
284 (153) 131 210 (36) 174
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 2023 Injectables Generics Branded Unallocated Total
$m $m $m $m $m
Exceptional items and other adjustments
Impairment and cost in relation to halted operations in Sudan -(2) (15) - (77) - (92)
Intangible assets amortisation other than software SG&A (23) (17) (3) - (43)
Impairment charges Other operating expenses (8) (8) - (5) (21)
Unwinding of contingent consideration and other financial liability Finance expense - - - (2) (2)
Exceptional items and other adjustments included in profit before tax (46) (25) (80) (7) (158)
Tax effect Tax 5
Impact on profit for the half-year (153)
2. The impact on the income statement line items is shown below.
- Impairment and costs in relation to halted operations in Sudan: In April
2023, violent conflict erupted in the Sudanese capital of Khartoum. The
conflict has since been escalating in other areas of the country. The Group
has evaluated the effect on the carrying values of the Group's assets, and as
a consequence, a loss of $90m was recognised to reflect the fall in the
recoverable amount of the assets listed below. A further $2 million of
employee benefits and other expenses from the halted operations have been
classified as exceptional items.
Injectables Generics Branded Unallocated Total
$m $m $m $m $m
Provision against inventory Cost of sales (3) - (15) - (18)
Impairment charge on financial assets Net impairment loss on financial assets (12) - (30) - (42)
Impairment charge on intangible assets Other operating expenses - - (3) - (3)
Impairment charge on property, plant and equipment Other operating expenses - - (25) - (25)
Impairment charge on other current assets Other operating expenses - - (2) - (2)
Cost from halted operations in Sudan SG&A - - (1) - (1)
Cost from halted operations in Sudan Other operating expenses - - (1) - (1)
(15) - (77) - (92)
5. Exceptional items and other adjustments continued
- Intangible assets amortisation other than software of $43 million.
- Impairment charges: mainly comprise $14 million in relation to product
related intangible assets and marketing rights as a result of the decline in
performance and forecasted profitability as well as the termination of a
business development contract, in addition to $5 million related to software.
- Unwinding of contingent consideration and other financial liability
finance expense represents the unwinding of contingent consideration
recognised through business combinations and the financial liability in
relation to the co-development earnout payment agreement.
The tax effect represents the tax effect on pre-tax exceptional items and
other adjustments which is calculated based on the applicable tax rate in each
jurisdiction.
H1 2022 Injectables Generics Branded Unallocated Total
$m $m $m $m $m
Exceptional items and 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 SG&A (19) (20) (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 (31) (22) (4) 10 (47)
Tax effect Tax 11
Impact on profit for the half-year (36)
- Unwinding of acquisition related inventory step-up reflected 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).
- Impairment of product related intangible assets of $2 million related
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 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.
- Unwinding of contingent consideration and other financial liability
finance expense represented 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 related to the co-development earnout payment agreement.
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 $71 million (H1 2022: $41 million). The
reported effective tax rate for H1 2023 is 35.1% (H1 2022: 19.1%),
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 2023 and adjusted for the tax effect of any discrete items
recorded in the same period.
The reported effective tax rate for the Group is higher than the same period
of last year primarily as a result of the impairment charge in relation to the
situation in Sudan. This is in addition to the difference in earnings mix of
H1 2023 compared to the prior 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.
On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK,
introducing a global minimum effective tax rate of 15% (Pillar Two). The
legislation implements a domestic top-up tax and a multinational top-up tax,
effective for accounting periods starting on or after 31 December 2023. The
Group is continuing to assess the potential impact, and has applied the
exception under IAS 12 to the accounting for deferred taxes related to Pillar
Two.
7. Dividends
H1 2023 H1 2022
$m $m
(Unaudited) (Unaudited)
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2022 of 37 cents (2021: 36 82 83
cents) per share
82 83
The proposed interim dividend for the H1 2023 is 25 cents (H1
2022: 19 cents) per share.
The proposed interim dividend will be paid on 15 September 2023 to eligible
shareholders on the register at the close of business on 11 August 2023 and
has not been included as a liability in these condensed consolidated interim
financial statements.
Based on the number of shares in issue at 30 June 2023 of 220,988,500 the
total proposed interim dividends amount is $55 million.
8. Financial and other non-current assets
30 June 31 December
2023
2022
$m $m
(Unaudited) (Audited)
Investments at FVTOCI 41 42
Other non-current assets 21 23
62 65
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 sold one of its investments, invested in
two new ventures and increased investment in two existing ones.
The total portfolio as at 30 June 2023 includes two investments in listed
companies with a readily determinable fair value that falls under level 1
valuation (Note 17). Their values are measured based on quoted prices in
active markets. The other investments are unlisted shares without readily
determinable fair values that fall under level 3 valuation (Note 17), their
fair value is measured based on observable price changes in orderly
transactions for an identical or a similar investment of the same issuer.
During the period, total change in fair value was a net loss of $5 million (H1
2022: net loss of $8 million) recognised in other comprehensive income.
Other non-current assets balance at 30 June 2023 and 31 December 2022 mainly
represent long term receivables, a sublease arrangement in US and upfront fees
on a syndicated revolving credit facility
9. Inventories
30 June 31 December
2023
2022
$m $m
(Unaudited) (Audited)
Finished goods 287 284
Work-in-progress 130 103
Raw and packing materials 479 412
Goods in transit 25 25
Spare parts 46 42
Provision against inventory(1) (108) (90)
859 776
1. The cost of inventory related provision recognised as an expense in the
cost of sales in the condensed consolidated income statement was $41 million
(H1 2022: $28 million).
The increase in the provision against inventory is mainly driven by the
provision related to Sudan
(Note 5).
10. Trade and other receivables
30 June 31 December
2023
2022
$m $m
(Unaudited) (Audited)
Gross trade receivables 1,264 1,128
Chargebacks and other allowances (321) (298)
Related allowance for expected credit loss (97) (53)
Net trade receivables 846 777
VAT and sales tax recoverable 34 32
Net trade and other receivables 880 809
The fair value of receivables is estimated to be not significantly different
from the respective carrying amounts.
The increase in the related allowance for expected credit loss is mainly
driven by the impairment of trade and other receivables related to Sudan (Note
5).
11. Cash and cash equivalents
30 June 31 December
2023
2022
$m $m
(Unaudited) (Audited)
Cash at banks and on hand 113 159
Time deposits 159 110
Money market deposits - 1
272 270
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.
12. Other current assets
30 June 31 December
2023
2022
$m $m
(Unaudited) (Audited)
Prepayments 85 74
Investment at FVTPL 22 22
Others 33 14
140 110
Investments at FVTPL comprise a portfolio of debt instruments that are managed
by an asset manager and are measured at fair value; any changes in fair value
are recognised in the condensed consolidated
income statement. These assets are classified as level 1 as they are based on
quoted prices in active markets (Note 17).
Others balance at 30 June 2023 mainly represents compensation due from
suppliers in relation to inventory price adjustments of $15 million (31
December 2022: $8 million) and advance payment related to an acquisition (note
20) of $10 million (31 December 2022: nil).
13. Other current liabilities
30 June 31 December
2023
2022
$m $m
(Unaudited) (Audited)
Contract and refund liabilities 192 193
Co-development and earnout payment (Note 15 and 17) 2 2
Acquired contingent liability (Note 15) 8 7
Contingent consideration (Note 15 and 17) 26 24
Indirect rebate and other allowances 137 101
Others 21 21
386 348
Contract and refund 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 represent rebates granted to
healthcare authorities and other parties under contractual arrangements with
certain indirect customers.
14. Financial debts
Short-term financial debts
30 June 31 December
2023
2022
$m $m
(Unaudited) (Audited)
Bank overdrafts 6 11
Import and export financing(1) 106 62
Short-term loans 1 2
Current portion of long-term loans 98 64
211 139
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
2023
2022
$m $m
(Unaudited) (Audited)
Long-term loans 634 644
Long-term borrowings (Eurobond) 496 494
Less: current portion of long-term loans (98) (64)
Long-term financial loans 1,032 1,074
Breakdown by maturity:
Within one year 98 64
In the second year 94 65
In the third year 581 553
In the fourth year 79 52
In the fifth year 276 401
In the sixth year 2 1
Thereafter - 2
1,130 1,138
The loans are held at amortised cost.
14. Financial debts continued
Major loan arrangements include:
a) $1,150 million syndicated revolving credit facility that matures on 04
January 2028 with an extension option of one year. At 30 June 2023, the
facility had an outstanding balance of $85 million (31 December 2022: $278
million) and an unutilised amount of $1,065 million (31 December 2022: $872
million). The facility can be used for general corporate purposes.
b) $96 million outstanding balance at 30 June 2023 (31 December 2022: $108
million) with a fair value of $88 million (31 December 2022: $98 million)
related to a ten-year $150 million loan from the International Finance
Corporation that has been fully utilised since April 2020. Quarterly equal
repayments of the loan commenced on 15 March 2021. The loan was used for
general corporate purposes. The facility matures on 15 December 2027.
c) A $500 million (carrying value of $496 million at 30 June 2023 (31
December 2022: $494 million) and fair value of $474 million (31 December 2022:
$466 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. There was no utilisation
of the loan as of June 2023 (31 December 2022: no utilisation). The facility
matures on 15 September 2028 and can be used for general corporate purposes.
e) A five-year $400 million syndicated loan facility entered into on 13
October 2022. The outstanding balance at 30 June 2023 is $392 million (31
December 2022: $190 million) with a fair value of $392 million (31 December
2022: $190 million). The facility matures on 13 October 2028 and was used for
general corporate purposes.
15. Other non-current liabilities
30 June 31 December
2023
2022
$m $m
(Unaudited) (Audited)
Contingent consideration (Note 13 and 17) 16 18
Acquired contingent liability (Note 13) 63 69
Co-development and earnout payment (Note 13 and 17) 1 1
Others 5 4
85 92
Contingent consideration and acquired contingent liabilities 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 payments based on future sales of certain products. These
liabilities were recognised as part of the Columbus business acquisition in
2016. The current portion of these liabilities are recognised in other current
liabilities (Note 13).
16. Cash generated from operating activities
H1 H1
2023
2022
$m $m
(Unaudited) (Unaudited)
Profit before tax 202 215
Adjustments for depreciation, amortisation, net impairment charges/reversals
and write-down of:
Property, plant and equipment 68 39
Intangible assets 69 51
Right-of-use of assets 5 5
Unwinding of acquisition related inventory step-up - 12
Loss from investments at FVPTL - 2
Gains on disposal of intangible assets - (6)
Cost of equity-settled employee share scheme 10 10
Finance income (3) (13)
Finance expense 46 35
Foreign exchange loss and net monetary hyperinflation impact 6 8
Changes in working capital:
Change in trade and other receivables (75) (7)
Change in other current assets (20) (25)
Change in inventories (86) (78)
Change in trade and other payables 32 (19)
Change in other current liabilities 37 (16)
Change in other provision (1) -
Change in other non-current liabilities (5) -
Change in other non-current assets 3 -
Cash flow from operating activities 288 213
17. 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
· Receivables and payables - the fair values of receivables and
payables are estimated to not be significantly different from the respective
carrying amounts
· 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
17. Fair value of financial assets and liabilities continued
Loans with fixed rates relate mainly to:
· $500 million (carrying value at 30 June 2023 of $496 million, and
fair value at 30 June 2023 of $474 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 (a level 1 fair value)
· A ten-year $150 million loan from the International Finance
Corporation with outstanding balance of $96 million (fair value at 30 June
2023 of $88 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)
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 2023 (unaudited)
Financial Assets
Investments at FVTPL (Note 12) 22 - - 22
Investments in listed companies at FVTOCI (Note 8) 4 - - 4
Investments in unlisted shares at FVTOCI (Note 8) - - 37 37
Total financial assets 26 - 37 63
Financial Liabilities
Co-development and earnout payment liabilities (Note 13 and 15) - - 3 3
Contingent consideration liability (Note 13 and 15) - - 42 42
Total financial liabilities - - 45 45
Fair value measurements Level 1 Level 2 Level 3 Total
At 31 December 2022 (audited)
Financial Assets
Investments at FVTPL (Note 12) 22 - - 22
Money market deposit (Note 11) 1 - - 1
Investments in listed companies at FVTOCI (Note 8) 4 - - 4
Investments in unlisted shares at FVTOCI (Note 8) - - 38 38
Total financial assets 27 - 38 65
Financial Liabilities
Co-development and earnout payment liabilities (Note 13 and 15) - - 3 3
Contingent consideration liability (Note 13 and 15) - - 42 42
Total financial liabilities - - 45 45
The following table presents the changes in Level 3 items for H1 2023, and the
year ended 31 December 2022:
17. Fair value of financial assets and liabilities continued
Financial Financial
asset
liability
$m $m
Balance at 1 January 2022 (audited) 22 74
Settled - (7)
Remeasurement of contingent consideration and other financial liability - (26)
recognised in finance income
Unwinding of contingent consideration and other financial liability recognised - 4
in finance expense
Change in fair value of investments in unlisted shares at FVTOCI 1 -
Additions 15 -
Balance at 31 December 2022 and 1 January 2023 (audited) 38 45
Settled - (2)
Unwinding of contingent consideration and other financial liability recognised - 2
in finance expense
Change in fair value of investments in unlisted shares at FVTOCI (4) -
Additions 5 -
Sale of investment in unlisted share at FVTOCI (2) -
Balance at 30 June 2023 (unaudited) 37 45
Investments in unlisted shares at FVTOCI represent investments made through
the Group's venture capital arm and are measured at cost minus any impairment
and adjusted for observable price changes in orderly transactions for the
identical or a similar investment of the same issuer under level 3 valuation.
Contingent consideration liability represents contractual liability to make
payments to third parties in the form of milestone payments that depend on the
achievement of certain US FDA approval milestones; and payments based on
future sales of certain products. These liabilities were recognised as part of
the Columbus business acquisition in 2016.
18. 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.
19. 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 $63 million (31 December
2022: $55 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 $14 million (31 December 2022: $14 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.
19. Contingent liabilities continued
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 purchasers 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 defence 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 both individual plaintiffs and putative classes of
direct and indirect purchasers of Xyrem® against certain Group entities and
other defendants. Currently twelve such cases are assigned to multi-district
litigation in the Northern District of California. 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.
19. Contingent liabilities continued
- Numerous complaints have been filed against certain Group entities
with respect to the manufacture of opioid products. Those complaints now total
approximately 903 in number. These types of 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; two of these were settled or tentatively settled for a total
of less than $0.2 million and five remain. Most of the federal cases have been
consolidated into a multidistrict litigation (MDL) 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. From time to time, we also receive subpoenas or requests for
information from government entities seeking information related to Hikma's
sale, distribution, or manufacture of opioid products. The Group denies having
engaged in conduct that would give rise to liability with respect to these
civil suits and is vigorously pursuing defence of these cases. Hikma has also
agreed to enter into mediation with representatives of the Plaintiffs'
Executive Committee in the federal MDL. A group of state Attorneys General may
join that mediation. At this point, other than the amounts described above the
Group does not believe sufficient evidence exists to make any provision.
- In November 2020, Amarin Pharmaceuticals filed a patent infringement
lawsuit against certain Group entities in the United States District Court for
the District of Delaware (No. 20-cv-1630) alleging that Hikma's sales and
distribution of its generic icosapent ethyl product infringes three Amarin
patents that describe certain methods of using icosapent ethyl. Amarin sought
an injunction barring Hikma from selling its generic product as well as
unspecified damages. Hikma's product is not approved for the patented methods
but rather is approved only for a different indication not covered by any
valid patents. In January 2022 the court dismissed the lawsuit, and Amarin has
appealed the court's ruling. 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.
20. Subsequent event
On 5 July 2023, Hikma closed a transaction to acquire assets, as part of a
Chapter 7 bankruptcy process, of Akorn Operating Company LLC and its
affiliates (collectively, "Akorn") for a total cash consideration of $98
million. The acquisition includes a portfolio of pharmaceutical products,
property, plant and equipment.
Due to the proximity of the completion of the transaction to the date of
issuance of the consolidated condensed interim financial statements, the
accounting and initial valuation considerations are still in progress.
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