REG - Hikma Pharmaceutical - Interim Results <Origin Href="QuoteRef">HIK.L</Origin> - Part 3
19/08/2015 07:00
- Part 3: For the preceding part double click ID:nRSS4236Wb
3.7495 3.7495 3.7495
USD/British Pound 0.6361 0.5866 0.6437 0.6562 0.5991 0.6068
USD/Jordanian Dinar 0.7090 0.7090 0.7090 0.7090 0.7090 0.7090
USD/Egyptian Pound 7.6278 7.1633 7.1582 7.5700 7.0274 7.0972
USD/Japanese Yen 122.7400 101.5480 119.9500 120.2700 102.5001 105.8700
USD/Moroccan Dirham 9.7228 8.1805 9.0154 9.3910 8.4116 9.0155
USD/Tunisian Dinar 1.9406 1.6866 1.8612 1.9380 1.6126 1.7001
Principal risks and uncertainties
The Group's business faces risks and uncertainties which could have a significant effect on its financial condition,
results of operation or future performance and could cause actual results to differ materially from expected and historical
results.
Risk Description Mitigation and control
· Manufacturing quality · Situations resulting in poor manufacturing quality of products have the potential to lead to:- Harm to end users resulting in liability and reputational issues- Regulatory action that could result in the closure of facilities and consequential loss of opportunity and potential failure to supply obligations- Delayed or denied approvals for new products- Product recalls · Global quality programme which leads the manufacturing processes in all sites· The 11 FDA approved facilities are regularly assessed by the regulator·
Documented procedures are continuously improved and staff receive training on those procedures on a regular basis· Global quality issues team with extensive
experience of implementing corrective action when issues arise· Global product liability insurance and crisis management team· Adopt a "quality by design"
approach for all of our manufacturing facilities
· API sourcing · API and raw materials represent one of the Group's largest cost components· As is typical in the pharmaceuticals industry, a significant proportion of the Group's API requirements is provided by a small number of API suppliers· There is a risk that it will not be possible to secure or maintain adequate levels of API supplies in the future· Regulatory approval of a new supplier can be lengthy and supplies may be disrupted if the Group is forced to replace a supplier which failed to meet applicable regulatory standards or terminated its arrangements with the Group · Maintaining alternative API suppliers for each of the Group's products, where possible· API suppliers are carefully selected and the Group endeavours to build
long-term partnerships with exclusive supply· The Group has a dedicated plant in Jordan which can synthesise API, where appropriate
· Political and social · Hikma operates in MENA and emerging markets which have historically higher levels of political and social instability which can result in an inability to conduct business in those markets for a substantial period of time · Geographic diversity reduces the impact of issues arising in one jurisdiction· Extensive experience of operating in these environments and developing
opportunities from change· Contingency plans in place to transfer manufacture if key sites are affected
· Product concentration · A significant proportion of Group profits derive from a relatively small portfolio of higher margin products· Prices of these products are subject to market and regulatory forces, which are often difficult to predict· Prices can change suddenly, which could lead to significant fluctuations in profitability and uncertainty about the level of rebates to suppliers · Internal marketing and business development departments monitor and assess the market for arising opportunities· Expansive product portfolio · Experienced
internal regulatory teams developing products and overseeing joint venture activities· Product related acquisitions (e.g. Bedford laboratories in 2014)· Third
party pharmaceutical product specialists are assisting in the development of manufacturing processes for new generic products where the patent has recently expired
· Acquisitions · The Group strategy is to pursue value adding acquisitions to expand the product portfolio, acquire manufacturing capabilities and expand in existing and emerging markets. There is risk of misjudging key elements of an acquisition or failing to integrate the assets, particularly where they are distressed· An acquisition of a large-scale may entail financing-related risks and operating expenses and significantly increase the Group's leverage if financed with debt · The mergers and acquisitions team undertake extensive due diligence of each acquisition, including legal, financial and compliance· Executive Committee reviews
and tests major acquisitions before they are considered by the Board· The Board is willing and has demonstrated its ability to refuse acquisitions where it considers
the price is too high· Dedicated integration project teams are assigned for the acquisition, which are led by the business head responsible for proposing the
opportunity· Following the acquisition of a target, the finance team, the management team and the Audit Committee closely monitor its financial and non-financial
performance· A variety of funding options are available to the Group to finance acquisitions
· Conduct · The pharmaceutical industry and certain MENA markets are considered to be higher risk in relation to sales practices. Improper conduct by employees could seriously damage the reputation and licence to do business · Code of Conduct approved by the Board, translated into 7 languages and signed by all employees· ABC compliance programme monitored by the CREC· 2,200
employees received ABC compliance training in 2014· Sales and marketing and other ABC compliance policies and procedures are created, updated and rolled out
· Financial · The Group is exposed to a variety of financial risks similar to most major international manufacturers such as liquidity, exchange rates, tax uncertainty and debtor default · Extensive financial control procedures have been implemented and are assessed annually as part of the internal audit programme· A network of banking partners is
maintained for lending and deposits· Management monitors debtor payments and takes action where necessary· Expert external advice is procured to test and enhance
processes and ensure compliance· Where it is economic and possible to do so, the Group hedges its exchange rate and interest rate exposure
· Legal, intellectual property and regulatory · The Group is exposed to a variety of legal, IP and regulatory risks similar to most relevant major international industries such as litigation, investigations, sanctions and potential business disruptions · Expert internal departments that enhance policies, processes, embed compliance culture, raise awareness and train staff· First class expert external advice is
procured to provide independent services and ensure highest standards· Board of Directors and management provide leadership and take action as necessary
· Information technology · If information and data are not adequately secured and protected (data security, access controls), this could result in:- Increased internal/ external security threats- Compliance and reputational damages- Regulatory and legal litigation in case of failure to manage personal data- Reduced information accountability due to limited sensitive data access controls · Utilise appropriate levels of industry-standard information security solutions for critical systems· Continue to stay abreast of cyber-risk activity and where
necessary, implement changes to combat this
1 Constant currency numbers in H1 2015 represent reported H1 2015 numbers re-stated using average exchange rates in H1
2014
2 IMS Healthcare, MAT sales value May 2015, adjusted to reflect recent M&A activity
3 Before the amortisation of intangible assets (excluding software) and exceptional items, as set out in note 4 to the
condensed set of financial statements
4 Earnings before interest, tax, depreciation and amortisation. EBITDA is stated before impairment charges and share of
results from associated companies
5 The acquisition is subject to shareholder and regulatory approval
6 Further details regarding the acquisition terms are provided in Hikma's announcement dated 28 July 2015
7 IMS Healthcare, MAT May 2015, adjusted to reflect recent M&A activity
8 In H1 2015, amortisation of intangible assets (excluding software) was $6 million compared with $7 million in H1 2014.
In H1 2015, exceptional items included within operating expenses were $4 million compared with $1 million in H1 2014
9 Products are defined as pharmaceutical compounds sold by the Group. New compounds are defined as pharmaceutical
compounds not yet launched by the Group and existing compounds being introduced into a new segment
10 Totals include 71 dermatological and cosmetic compounds in 282 dosage forms and strengths that are only sold in
Morocco
11 Totals include all compounds and formulations that are either launched or approved or pending approval across all
markets, as relevant
12 The total dividend in H1 2014 comprised an interim dividend of 7.0 cents per share and a special dividend of 4.0 cents
per share to reflect the exceptionally strong market opportunities captured by the US businesses in H1 2014
13 Based on an agreed issue price for the new Hikma shares of £23.50 per share and the US:GBP exchange rate of 1.56:1
This information is provided by RNS
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