TIDMHIK
RNS Number : 1427M
Hikma Pharmaceuticals Plc
21 August 2013
PRESS RELEASE
Hikma delivers exceptionally strong first half results with 20%
revenue growth and 156% increase in adjusted EPS
Raising Group guidance to around 20% revenue growth for the full
year, with a positive outlook for all businesses
London, 21 August 2013 - Hikma Pharmaceuticals PLC ("Hikma")
(LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY), the fast growing
multinational pharmaceutical group, today reports its interim
results for the six months ended 30 June 2013.
H1 2013 highlights
Group
-- Group revenue increased by 19.9% to $638.3 million. Full year
Group guidance raised to around 20% revenue growth
-- Group adjusted operating margin rose to 29.6%, up from 15.7%,
reflecting significant improvement in Generics and Injectables
margins
-- Profit attributable to shareholders increased by 82.1% to
$73.6 million. On an adjusted basis, profit attributable to
shareholders rose 157.2% to $121.2 million
-- Net cash flow from operating activities increased by $88.9 million to $136.0 million
-- Continued new product introductions across all countries and
markets - launched 63 products and received 65 product
approvals
-- Increase in the interim dividend to 7.0 cents per share, up
from 6.0 cents in the first half of 2012, plus a special dividend
of 3.0 cents per share that reflects the exceptional performance of
the Generics business
Branded
-- Branded revenue grew 3.2%, or 8.7% in constant currency. The
Branded business remains on track for around 11% full year revenue
growth in constant currency
-- Branded adjusted operating profit grew by 10.6%, with adjusted operating margin of 22.6%
Injectables
-- Global Injectablesrevenue grew 9.5%, with adjusted operating
margin of 28.6%, driven by strong performances in the US and
Europe
-- The Injectables business remains on track to deliver low
double-digit revenue growth for the full year
Generics
-- Generics revenue increased by 136.6% to $132.0 million and
full year Generics revenue guidance raised to $230 million,
reflecting exceptionally strong doxycycline sales
-- Generics operating profit of $49.4 million, after non-recurring costs of $32.8 million
Said Darwazah, Chief Executive Officer of Hikma, said:
"The Group has made an excellent start to this year and all of
our businesses are performing well.
In the MENA region, our strategic focus on higher value products
and operational efficiencies is delivering improved profitability.
Our global Injectables business continues to deliver good growth in
revenue and a significant improvement in profitability. In
particular, we are benefitting from strong demand for our products
in the US and new product launches.
The Generics business is benefiting from exceptional sales of
doxycycline and generated strong profitability in the first half of
the year. This is enabling us to more than offset the impact of the
ongoing remediation at our Eatontown facility and is providing
excellent cash flow for the Group.
Overall, the Group is performing well and I am very pleased to
be able to raise our Group guidance to around 20% revenue growth
for the full year."
Group financial highlights
Summary P&L H1 2013 H1 2012 Change
$ million
----------------------------------------- -------- -------- --------
Revenue 638.3 532.3 +19.9%
----------------------------------------- -------- -------- --------
Gross profit 353.3 234.1 +50.9%
----------------------------------------- -------- -------- --------
Gross margin 55.3% 44.0% +11.3pp
----------------------------------------- -------- -------- --------
Operating profit 144.0 75.1 +91.8%
----------------------------------------- -------- -------- --------
Adjusted operating profit ([1])
(,) ([2]) 189.1 83.7 +125.8%
----------------------------------------- -------- -------- --------
Adjusted operating margin 29.6% 15.7% +13.9pp
----------------------------------------- -------- -------- --------
EBITDA([3]) 182.6 103.7 +76.1%
----------------------------------------- -------- -------- --------
Profit attributable to shareholders 73.6 40.4 +82.1%
----------------------------------------- -------- -------- --------
Adjusted profit attributable to
shareholders(1, 2) 121.2 47.1 +157.2%
----------------------------------------- -------- -------- --------
Adjusted basic earnings per share
(cents) 61.6 24.1 +155.9%
----------------------------------------- -------- -------- --------
Dividend per share (cents) 7.0 6.0 +16.7%
----------------------------------------- -------- -------- --------
Special dividend per share (cents) 3.0 -- --
----------------------------------------- -------- -------- --------
Net cash flow from operating activities 136.0 47.1 +189.0%
----------------------------------------- -------- -------- --------
Enquiries
Hikma Pharmaceuticals PLC
Susan Ringdal, VP Corporate Strategy and Investor Relations +44
(0)20 7399 2760/ +44 7776 477050
Lucinda Henderson, Investor Relations Manager +44 (0)20 7399
2765/ +44 7818 060211
FTI Consulting
Ben Atwell/ Julia Phillips/ Matthew Cole +44 (0)20 7831 3113
About Hikma
Hikma Pharmaceuticals PLC is a fast growing pharmaceutical group
focused on developing, manufacturing and marketing a broad range of
both branded and non-branded generic and in-licensed products.
Hikma's operations are conducted through three businesses:
"Branded", "Injectables" and "Generics" based primarily in the
Middle East and North Africa ("MENA") region, where it is a market
leader, the United States and Europe. In 2012, Hikma achieved
revenues of $1,108.7 million and profit attributable to
shareholders of $100.3 million.
A presentation for analysts and investors will be held today at
09:30 at FTI Consulting, Holborn Gate, 26 Southampton Buildings,
London WC2A 1PB. To join via conference call please dial: +44 (0)
203 139 4830 or 0808 237 0030 (UK toll free) and use participant
PIN code: 93232833#. Alternatively you can listen live via our
websiteat www.hikma.com. A recording of both the meeting and the
call will be available on the Hikma website. Video interviews of
Said Darwazah, CEO and Khalid Nabilsi, CFO are available at
www.hikma.com. The contents of this website do not form part of
this interim management report.
Interim management report
The interim management report set out below summarises the
performance of Hikma's three main business segments, Branded,
Injectables and Generics, for the six months ended 30 June
2013.
Group revenue by business segment (%)
H1 2013 H1 2012
------------- -------- --------
Branded 40.2% 46.7%
------------- -------- --------
Injectables 38.6% 42.3%
------------- -------- --------
Generics 20.7% 10.5%
------------- -------- --------
Others 0.5% 0.5%
------------- -------- --------
Group revenue by region (%)
H1 2013 H1 2012
---------------- -------- --------
MENA 45.9% 56.0%
---------------- -------- --------
US 46.6% 36.1%
---------------- -------- --------
Europe and ROW 7.5% 7.9%
---------------- -------- --------
Branded
H1 2013 highlights:
-- Branded revenue increased by 3.2%, or 8.7% in constant currency
-- Branded adjusted operating profit increased by 10.6%, with
adjusted operating margin of 22.6%, up from 21.1%
-- 34 products launched and two new in-license agreements signed
Branded revenue increased by 3.2% in the first half of 2013 to
$256.8 million, compared with $248.8 million in the first half of
2012. On a constant currency basis, Branded revenue was $270.5
million, up 8.7%. During the period, we continued to focus on
prioritising higher value strategic products through enhanced sales
and marketing activities across our MENA markets. We also worked on
driving operational efficiencies in our local manufacturing
facilities.
Our Egyptian business had an excellent first half, with revenue
growth of around 14%, despite the significant depreciation of the
Egyptian pound against the US dollar, which depreciated by around
11% during the first half of 2013. This reflects our continued
emphasis on higher value products and the contribution from new
product launches. These factors should also drive performance in
the second half and, whilst the situation in Egypt has escalated in
recent weeks, we have confidence in our experienced local
management team and their strong track record of managing the
business through disruptions.
During the period, we completed the acquisition of the Egyptian
Company for Pharmaceutical and Chemical Industries ("EPCI") for an
aggregate cash consideration of $20.5 million. We have fully
integrated EPCI's sales and marketing team and are upgrading their
manufacturing facility. We expect EPCI's excellent product
portfolio and specialised manufacturing capabilities to drive
significant growth in our Egyptian business over the medium
term.
In Algeria, we experienced slower than expected sales in the
first half due to the timing of orders and lower sales of certain
products that had an exceptionally good performance in the first
half of 2012. We believe we are well positioned to achieve strong
growth in the second half driven by new product launches and
increased demand for our product portfolio. We expect to deliver
double-digit revenue growth in Algeria for the full year. In
anticipation of continued strong demand in Algeria in the coming
years, we began the expansion of our general formulation facility
in the first half, which will enable us to meet growing demand and
strengthen our competitive position in the Algerian market.
In Saudi Arabia, we are implementing our strategy to improve
profitability by reducing low margin tender sales and focusing on
the promotion of higher margin, more strategic products.
Profitability is improving and we are expecting good top line
growth in the second half, driven by more targeted sales and
marketing efforts and new product launches.
In Sudan, we made a very strong start to the year, benefitting
from our local manufacturing facility and new product
registrations. We have more than offset the significant impact of
the currency devaluation that took place in Sudan in June 2012. In
Iraq, we are delivering strong growth following the appointment of
an additional distributor in 2012. Our business in Jordan has also
performed well, benefitting from a greater focus on higher value
products and the sales force restructuring done in 2012.
During the first half of 2013, the Branded business launched a
total of 34 products across all markets, including 12 new compounds
and 20 new dosage forms and strengths. The Branded business also
received 38 regulatory approvals across the region.
Revenue from in-licensed products increased from $89.2 million
to $93.9 million in the first half. In-licensed products
represented 36.6% of Branded revenue, compared with 35.8% in the
first half of 2012. We signed two new licensing agreements for
innovative oral products during the first half of 2013, which will
support our continued focus on growing our portfolio of higher
value products in growing therapeutic areas.
Branded gross profit grew by 8.1% to $129.8 million in the first
half of 2013 and gross margin was 50.5%, compared with 48.3% in the
first half of 2012. The improvement in gross margin primarily
reflects a favourable product mix during the period, with a focus
on higher value products and a reduction in low margin tender
sales.
Operating profit in the Branded business increased by 8.3% to
$51.3 million, compared with $47.4 million in the first half of
2012. Adjusted operating margin was 22.6%, compared with 21.1% in
the first half of 2012, after excluding the amortisation of
intangibles of $4.8 million and other non-recurring costs of $2.0
million.
Excluding the impact of adverse currency movements, adjusted
operating margin was 23.1%. This improvement in margin reflects our
success in driving higher margin sales, restructuring our sales and
marketing teams and improved operational efficiencies. This has
enabled us to absorb continued inflationary pressure in the region
and other disruptions to our business related to the Arab
Spring.
On a constant currency basis, we continue to expect Branded
revenue growth of around 11% for the full year and a slight
improvement in adjusted operating margin. On a reported basis,
taking into account exchange rate movements since the beginning of
2013, we expect Branded revenue growth to be around 7% this year,
with margins in line with 2012.
Injectables
H1 2013 highlights:
-- Global Injectables revenue grew by 9.5% to $246.6 million
-- Excellent performance in US Injectables, up 21.1%, driven by
new launches and price improvements
-- Significant improvement in Injectables adjusted operating margin to 28.6%, up from 22.7%
Injectables revenue by region
H1 2013 H1 2012
---------------- -------- --------
US 67.1% 60.7%
---------------- -------- --------
MENA 16.3% 22.9%
---------------- -------- --------
Europe and ROW 16.6% 16.4%
---------------- -------- --------
Revenue in our global Injectables business increased by 9.5% to
$246.6 million, compared with $225.2 million in the first half of
2012.
US Injectables revenue grew by $28.8 million, or 21.1%, to
$165.4 million. This excellent performance reflects our success in
driving new product launches and price improvements. Our ability to
maintain supply and our strong quality track record continue to be
key competitive advantages.
In the MENA region, Injectables revenue decreased by 22.3% to
$40.1 million, compared with $51.6 million in the first half of
2012. This primarily reflects the timing of tenders in Algeria and
Saudi Arabia, a strategic reduction in low margin tender sales and
a difficult comparator period. We are expecting strong growth in
the second half across our MENA markets, driven in part by the
shipping of tenders won at the end of the first half. However, a
delay in product registrations means that MENA Injectables revenue
for the full year will be broadly in line with last year.
Revenue in our European Injectables business grew by 10.6% to
$41.1 million. Growth was driven by recent product launches and
continuing demand for contract manufacturing. We successfully
offset double-digit price erosion with strong volume growth.
Injectables gross profit increased by 26.9% to $124.6 million,
compared with $98.2 million in the first half of 2012. Gross margin
increased significantly to 50.5%, compared with 43.6% in the first
half of 2012. This reflects pricing improvements, new product
launches and significant overhead reductions at our Cherry Hill
facility.
Operating profit increased by 37.5% to $65.6 million. Adjusted
operating profit increased by 37.9% to $70.6 million. Adjusted
operating margin increased from 22.7% to 28.6%. This excellent
margin expansion reflects the improvement in gross margin and
operating efficiencies. It was also achieved despite higher R&D
expenditure, which will continue to increase in the second half of
the year.
We remain focussed on strengthening our global Injectables
product portfolio, with a particular emphasis on more
differentiated products. In January, we received a 505(b)2 approval
for phenylephrine injection, which we re-launched in February. We
are investing in a dedicated R&D line at our Portuguese
facility that will help us to accelerate our internal product
development. We are also focussed on expanding our portfolio
through partnerships and product acquisitions. Our ability to add
higher value, more differentiated products to our portfolio will be
a key driver of growth for our global Injectables business.
During the first half of 2013, the Injectables business launched
a total of 29 products across all markets, including 8 new
compounds and 12 new dosage forms and strengths. The Injectables
business also received a total of 26 regulatory approvals across
all regions and markets, namely 8 in MENA, 15 in Europe and 3 in
the US. During the period, we also signed a licensing agreement
with Theravance for Vibativ(R), an anti-infective product for the
MENA region.
We expect our global Injectables business to continue to perform
well in 2013 and we reiterate our guidance of low double-digit
revenue growth for the full year.
Generics
H1 2013 highlights:
-- Generics revenue increased by 136.6% to $132.0 million on strong doxycycline sales
-- Operating profit increased to $49.4 million, after $32.8
million of remediation and other one-off costs([4])
Generics revenue was $132.0 million, compared to $55.8 million
in the first half of 2012. This is due to exceptionally strong
revenue from doxycycline and includes only a limited contribution
from the rest of our portfolio. The ongoing remediation work at our
Eatontown facility has slowed the re-introduction of products and
we are having to rebuild our market position.
Generics gross profit was $99.4 million, compared with $15.2
million in the first half of 2012, and gross margin was 75.3%,
compared with 27.3% in the first half of 2012. Operating profit was
$49.4 million and operating margin was 37.4%, compared with an
operating loss of $3.3 million in the first half of 2012.
Excluding the impact of non-recurring remediation and other
one-off costs of $32.8 million, adjusted operating profit was $82.2
million and adjusted operating margin was 62.3% in the first half
of 2013, compared with an adjusted operating loss of $3.3 million
in the first half of 2012.
Doxycycline revenue has been exceptionally strong, leading us to
raise our Generics revenue guidance from around $200 million to
around $230 million for 2013. We expect reported operating margin
to be above 30% for the full year, after remediation costs of
around $30 million and other one-off costs of around $15 million.
Visibility for 2014 remains limited at this stage. The remediation
of the Eatontown facility remains our priority and we continue to
expect to complete the remediation work by the end of the year.
Other businesses
Other businesses, which primarily comprise Arab Medical
Containers, a manufacturer of plastic specialised packaging,
International Pharmaceuticals Research Centre, which conducts
bio-equivalency studies, and the chemicals division of Hikma
Pharmaceuticals Limited, contributed revenue of $2.9 million,
compared with $2.5 million in the first half of 2012.
These other businesses delivered an operating loss of $2.9
million in the first half of 2013, compared with a loss of $2.0
million in the first half of 2012.
Group
Group revenue increased by 19.9% to $638.3 million in the first
half of 2013. Group gross profit increased by 50.9% to $353.3
million, compared with $234.1 million in the first half of 2012.
Group gross margin was 55.3%, compared with 44.0% in the first half
of 2012, reflecting the significant gross margin improvement of the
Generics and global Injectables businesses.
Group operating expenses grew by 31.6% to $209.3 million,
compared with $159.0 million in the first half of 2012. Excluding
the amortisation of intangible assets (excluding software) of $7.1
million and exceptional items([5]) of $38.0 million, adjusted Group
operating expenses grew by 9.2% to $164.2 million. The paragraphs
below address the Group's main operating expenses in turn.
Sales and marketing expenses were $77.7 million, or 12.2% of
revenue, compared with $74.1 million and 13.9% of revenue in the
first half of 2012. Strong Generics revenue growth, which did not
require incremental sales and marketing costs, offset an increase
in wages and employee benefits in the MENA region.
General and administrative expenses increased by $10.9 million,
or 19.5%, to $66.8 million in the first half of 2013. The increase
in expenses primarily reflects an increase in employee benefits
related to the exceptional performance of the US business this
year, as well as increased IT costs.
Group R&D expenditure was $19.5 million in the first half of
2013, compared with $17.1 million in the first half of 2012. An
increase in spend for the Branded and Injectables businesses has
more than offset a reduction in R&D expenditure for the
Generics business. Total investment in R&D represented 3.1% of
Group revenue, compared with 3.2% in the first half of 2012. We
expect increased investment in R&D in the second half of 2013,
as we continue to focus on new product development, particularly
for the Injectables business.
Other net operating expenses increased by $33.3 million to $45.2
million. Excluding exceptional items, the increase was $2.5
million, primarily reflecting an increase in provisions for
slow-moving items.
Operating profit for the Group increased by 91.8% to $144.0
million in the first half of 2013. Group operating margin increased
to 22.6%, compared with 14.1% in the first half of 2012. On an
adjusted basis, Group operating profit increased by $105.4 million,
or 125.8%, to $189.1 million and operating margin increased to
29.6%, up from 15.7% in the first half of 2012.
Research & Development([6])
The Group's product portfolio continues to grow as a result of
our in-house product development efforts. During the first half of
2013, we launched 20 new compounds, expanding the Group portfolio
to 685 compounds in 1,626 dosage forms and strengths.([7]) We
manufacture and/or sell 94 of these compounds under license from
the originator.
Across all businesses and markets, a total of 63 products were
launched during the first half of 2013. In addition, the Group
received 65 approvals.
Products
Products pending
approved approval
Products launched in in H1 2013 as at 30
Total marketed products H1 2013 June 2013
------------- -------------------------- --------------------------------------------- ------------- -------------
Total
pending
approvals
across all
countries(8)
181
Total Total 177
New dosage launches approvals
Dosage forms across across 21
forms and New and all all
Compounds strengths compounds strengths countries([8]) countries(8) 379
-------------
Branded 493(7) 1,246(7) 12 20 34 38
Injectables 186 374 8 12 29 26
Generics 6 6 0 0 0 1
Group 685 1,626 20 32 63 65
To ensure the continuous development of our product pipeline, we
submitted 111 regulatory filings in the first half of 2013 across
all regions and markets. As of 30 June 2013, we had a total of 379
pending approvals across all regions and markets and a total of 205
products under development.
Investments in associates
During 2011, Hikma acquired a minority interest in Unimark
Remedies Limited ("Unimark") in India for a cash consideration of
$33.6 million. Unimark manufactures active pharmaceutical
ingredients ("API") and API intermediates. Unimark has been
impacted by a decline in prices in its API manufacturing business
and is in the process of restructuring its corporate debt. During
the period, we incurred an impairment charge of $15 million in
respect of our investment. We believe that Unimark will be able to
successfully manage its current issues and we continue to
collaborate with Unimark in the development of a portfolio of
products for the US market.
Net finance expense
The Group's net debt position at 30 June 2013 was $357.0
million, down from $406.5 million at 31 December 2012, and $473.0
million at 30 June 2012. Despite the reduction in total debt during
the period, net finance expense increased to $17.0 million,
compared with $16.7 million in the first half of 2012. The increase
relates to the early repayment of long term loans in the first half
of 2013. We now expect net finance expense to be around $38 million
for the full year.
Profit before tax
Profit before tax for the Group increased by 92.9% to $111.6
million, compared with $57.8 million in the first half of 2012.
Adjusted profit before tax increased by 158.1% to $171.7
million.
Tax
The Group incurred a tax expense of $35.1 million, compared with
$15.0 million in the first half of 2012. The effective tax rate was
31.5%. Excluding the impact of the non-cash impairment charge in
respect of Unimark, the effective tax rate was 27.7% in the first
half of 2013, compared with 25.9% in the first half of 2012. The
increase in the tax rate is mainly attributable to the increased
profitability in higher tax jurisdictions. We now expect the full
year effective tax rate to be around 24%, excluding the impact of
the impairment charge related to our investment in Unimark.
Profit attributable to equity holders of the parent
The Group's profit attributable to equity holders of the parent
increased by 82.1% to $73.6 million in the first half of 2013.
Adjusted profit attributable to equity holders of the parent
increased by 157.2% to $121.2 million.
Earnings per share
Basic earnings per share increased by 81.2% to 37.4 cents,
compared with 20.6 cents in the first half of 2012. Diluted
earnings per share increased by 80.9% to 37.0 cents, compared with
20.4 cents in the first half of 2012. Adjusted diluted earnings per
share was 60.9 cents, an increase of 155.5% over the first half of
2012.
Dividend
The Board has declared an interim dividend of 7.0 cents per
share (approximately 4.5 pence per share), compared to 6.0 cents
per share for the first half of 2012. In addition, the Board has
declared a special dividend of 3.0 cents (approximately 1.9 pence
per share), which reflects the exceptional performance of the
Generics business in the first half. The interim dividend and the
special dividend will be paid on 7 October 2013 to eligible
shareholders on the register at the close of business on 6
September 2013. The ex-dividend date is 4 September 2013 and the
final date for currency elections is 13 September 2013.
Net cash flow, working capital and net debt
The Group generated operating cash flow of $136.0 million in the
first half of 2013, up $88.9 million from $47.1 million in the
first half of 2012. The significant improvement in operating cash
flow was achieved through strong growth in profitability while
maintaining our focus on working capital management. Working
capital days were unchanged at 207 days.
Capital expenditure was $25.6 million, compared with $26.1
million in the first half of 2012. Around $13 million was spent in
MENA, principally to maintain our manufacturing facilities across
the region and to upgrade our recently acquired facility in Egypt.
Around $10 million was spent in the US, primarily at our facility
in Cherry Hill.
The Group made an acquisition in Egypt in January 2013,
acquiring EPCI for a total consideration of $20.5 million of which
$18.5 million was paid and $2.0 million was deferred.
Group net debt decreased from $406.5 million at 31 December 2012
to $357.0 million at 30 June 2013. This reflects the strong
performance of the Group in the first half of 2013, which enabled
us to make an early repayment of long term loans.
Balance sheet
During the period, shareholder equity was negatively impacted by
unrealised foreign exchange losses of $13.4 million, primarily
reflecting adverse movements in the Egyptian pound and the Algerian
dinar against the US dollar and the revaluation of net assets
denominated in these currencies.
Summary and outlook
We delivered a strong performance across our businesses in the
first half of 2013, with a 19.9% increase in revenue and a 155.9%
increase in adjusted basic earnings per share.
We now expect the Group to deliver full year revenue growth of
around 20%.
We are expecting stronger sales in the MENA region in the second
half and we continue to expect our Branded business, on a constant
currency basis, to deliver revenue growth of around 11% for the
full year and a slight improvement in adjusted operating margin. On
a reported basis, taking into account exchange rate movements since
the beginning of 2013, we expect Branded revenue growth to be
around 7% for the full year, with margins in line with 2012.
We expect the strong performance of our global Injectables
business will be sustained in the second half of the year and we
reiterate our guidance of low double-digit revenue growth.
Doxycycline revenue has been exceptionally strong, leading us to
raise our Generics revenue guidance from around $200 million to
around $230 million for 2013. We expect reported operating margin
to be above 30% for the full year, after remediation and other
one-off costs of around $45 million. Visibility for 2014 remains
limited at this stage. The remediation of the Eatontown facility
remains our priority and we continue to expect to complete the
remediation work by the end of the year.
Overall, we are pleased with the performance of the Group in the
first half of 2013 and we are confident in the outlook for the
remainder of the year, as well as the Group's medium and long term
growth prospects.
Going concern statement
As set out in note 2 to the condensed financial statements, the
Directors are satisfied that the Group has sufficient resources to
continue in operation for the foreseeable future, a period of not
less than twelve months from the date of this report. Accordingly,
they continue to adopt the going concern basis in preparing the
condensed financial statements.
Responsibility statement
The Board confirms that to the best of its knowledge:
a) The condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting';
b) The interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months including their impact on the financial
statements and description of principal risks and uncertainties for
the remaining six months of the year); and
c) The interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein which have had or could have a
material financial effect on the financial position of the Group
during the period).
By order of the Board
Said Darwazah Khalid Nabilsi
Chief Executive Officer Chief Financial Officer
20 August 2013
Cautionary statement
This interim management report has been prepared solely to
provide additional information to shareholders to assess the
Group's strategies and the potential for those strategies to
succeed. It should not be relied on by any other party or for any
other purpose.
Forward looking statements
Certain statements in this announcement are forward-looking
statements - using words such as "intends", "believes",
"anticipates" and "expects". Where included, these have been made
by the Directors in good faith based on the information available
to them up to the time of their approval of this announcement. By
their nature, forward-looking statements are based on assumptions
and involve inherent risks and uncertainties that could cause
actual results or events to differ materially from those expressed
or implied by the forward-looking statements, and should be treated
with caution. These risks, uncertainties or assumptions could
adversely affect the outcome and financial effects of the plans and
events described in this announcement. 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. You should not place undue
reliance on forward-looking statements, which speak as only of the
date of the approval of this announcement.
Except as required by law, the Company is under no obligation to
update or keep current the forward-looking statements contained in
this announcement or to correct any inaccuracies which may become
apparent in such forward-looking statements.
INDEPENDENT REVIEW REPORT TO HIKMA PHARMACEUTICALS PLC
We have been engaged by Hikma Pharmaceuticals PLC (the
'Company') to review the condensed set of financial statements in
the half-yearly financial report for the six months ended 30 June
2013 which comprises the condensed consolidated income statement,
the condensed consolidated statement of comprehensive income, the
condensed consolidated balance sheet, the condensed consolidated
statement of changes in equity, the condensed consolidated cash
flow statement and related notes 1 to 16. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
Company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, 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 Ireland) 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.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2013 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
20 August 2013
Hikma Pharmaceuticals PLC
Condensed consolidated income statement
H1 H1 FY
Note 2013 2012 2012
$000
Continuing operations $000 (Unaudited) $000 (Unaudited) (Audited)
----------------- -------------------- -----------------
Revenue 3 638,300 532,260 1,108,721
Cost of sales 3 (285,012) (298,180) (607,603)
----------------- -------------------- -----------------
Gross profit 3 353,288 234,080 501,118
Sales and marketing costs (77,709) (74,084) (152,763)
General and administrative expenses (66,808) (55,893) (124,560)
Research and development costs (19,547) (17,097) (34,019)
Other operating expenses (net) (45,205) (11,937) (23,002)
----------------- -------------------- -----------------
Total operating expenses (209,269) (159,011) (334,344)
Adjusted operating profit 189,098 83,730 193,835
Exceptional items
- Acquisition and integration
related expenses 4 (429) (2,276) (3,131)
- Severance expenses 4 (464) - (4,469)
- Plant remediation costs 4 (18,980) - (6,787)
- Impairment losses 4 (7,800) - -
- Other claims provisions 4 (10,300) - -
Intangible amortisation* 4 (7,106) (6,385) (12,674)
--------------------------------------- ----- ----------------- -------------------- -----------------
Operating profit 3 144,019 75,069 166,774
Share of results of associated
companies 8 (80) (50) 892
Impairment of investment in associates 8 (15,000) - -
Finance income 619 355 1,266
Finance expense (17,590) (17,039) (35,717)
Other expenses (net) (382) (491) (1,174)
Profit before tax 111,586 57,844 132,041
Tax 5 (35,123) (14,976) (24,826)
----------------- -------------------- -----------------
Profit for the period/year 76,463 42,868 107,215
----------------- -------------------- -----------------
Attributable to:
Non-controlling interests 2,881 2,468 6,895
Equity holders of the parent 73,582 40,400 100,320
----------------- -------------------- -----------------
76,463 42,868 107,215
================= ==================== =================
Earnings per share (cents)
Basic 7 37.4 20.6 51.1
================= ==================== =================
Diluted 7 37.0 20.4 50.6
================= ==================== =================
Adjusted basic 7 61.6 24.1 61.4
================= ==================== =================
Adjusted diluted 7 60.9 23.8 60.8
================= ==================== =================
On this page and throughout this interim financial information
"H1 2013" refers to the six months ended 30 June 2013, "H1 2012"
refers to the six months ended 30 June 2012 and "FY 2012" refers to
the year ended 31 December 2012.
* Intangible amortisation comprises the amortisation of
intangible assets other than software.
Hikma Pharmaceuticals PLC
Condensed consolidated statement of other comprehensive
income
H1 H1 FY
2013 2012 2012
$000 (Unaudited) $000 (Unaudited) $000 (Audited)
------------------- ------------------ ---------------
Profit for the period/year 76,463 42,868 107,215
Items that may be reclassified
subsequently to profit or loss:
-Cumulative effect of change in
fair value of available for sale
investments (6) (19) (23)
-Cumulative effect of change in
fair value of financial derivatives 2,428 (1,625) (2,120)
-Exchange difference on translation
of foreign operations (13,002) (29,375) (26,547)
Total comprehensive income for
the period/year 65,883 11,849 78,525
=================== ================== ===============
Attributable to:
Non-controlling interests 3,245 (1,847) 1,585
Equity holders of the parent 62,638 13,696 76,940
------------------- ------------------ ---------------
65,883 11,849 78,525
=================== ================== ===============
Hikma Pharmaceuticals PLC
Condensed consolidated balance sheet
30 June 30 June 31 December
Note 2013 2012 2012
$000 (Unaudited) $000 (Unaudited) $000 (Audited)
------------------ ----------------- ------------------
Non-current assets
Intangible assets 435,294 426,684 433,049
Property, plant and equipment 423,879 413,410 419,943
Interests in associated companies 8 23,257 37,395 38,337
Deferred tax assets 49,210 34,839 45,772
Financial and other non-current
assets 11,134 11,564 11,044
942,774 923,892 948,145
------------------ ----------------- ------------------
Current assets
Inventories 9 272,987 271,862 272,231
Income tax asset 1,134 915 1,016
Trade and other receivables 10 389,479 343,949 328,147
Collateralised and restricted
cash 5,307 6,637 1,756
Cash and cash equivalents 119,007 114,379 176,510
Other current assets 2,112 1,722 2,307
790,026 739,464 781,967
------------------ ----------------- ------------------
Total assets 1,732,800 1,663,356 1,730,112
================== ================= ==================
Current liabilities
Bank overdrafts and loans 171,904 180,166 192,879
Obligations under finance leases 1,995 17,149 3,480
Trade and other payables 11 196,124 175,214 194,805
Income tax provision 30,124 15,179 23,029
Other provisions 11,882 10,508 10,664
Other current liabilities 88,832 54,867 42,097
500,861 453,083 466,954
------------------ ----------------- ------------------
Net current assets 289,165 286,381 315,013
------------------ ----------------- ------------------
Non-current liabilities
Long-term financial debts 12 287,975 393,842 372,488
Obligations under finance leases 19,476 2,861 15,891
Deferred tax liabilities 25,157 22,514 22,921
Derivative financial instruments 1,442 3,526 4,008
334,050 422,743 415,308
------------------ ----------------- ------------------
Total liabilities 834,911 875,826 882,262
================== ================= ==================
Net assets 897,889 787,530 847,850
================== ================= ==================
Equity
Share capital 35,229 35,063 35,091
Share premium 280,492 278,528 279,116
Own shares (82) (120) (86)
Other reserves 565,299 461,324 518,532
------------------ ----------------- ------------------
Equity attributable to equity
holders of the parent 880,938 774,795 832,653
Non-controlling interests 16,951 12,735 15,197
------------------ ----------------- ------------------
Total equity 897,889 787,530 847,850
================== ================= ==================
Hikma Pharmaceuticals PLC
Condensed consolidated balance sheet
The financial statements of Hikma Pharmaceuticals PLC,
registered number 5557934, were approved by the Board of Directors
and signed on its behalf by:
Said Darwazah Mazen Darwazeh
Director Director
20 August 2013
Hikma Pharmaceuticals PLC
Condensed consolidated statement of changes in equity
Total
equity
attributable
to
equity
shareholders
of
Merger Revaluation Translation Retained Total Share Share Own the Non-controlling Total
reserve reserves reserves earnings reserves capital premium shares parent interests equity
$000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000
Balance
at 1
January
2012
(Audited) 33,920 3,904 (27,569) 455,544 465,799 34,904 278,094 (2,222) 776,575 22,059 798,634
Profit
for
the
period - - - 40,400 40,400 - - - 40,400 2,468 42,868
Cumulative
effect
of change
in fair
value
of available
for
sale
investments - - - (19) (19) - - - (19) - (19)
Cumulative
effect
of change
in fair
value
of financial
derivatives - - - (1,625) (1,625) - - - (1,625) - (1,625)
Realisation
of revaluation
reserve - (91) - 91 - - - - - - -
Currency
translation
loss - - (25,060) - (25,060) - - - (25,060) (4,315) (29,375)
Total
comprehensive
income
for
the
period - (91) (25,060) 38,847 13,696 - - - 13,696 (1,847) 11,849
Issue
of equity
shares - - - - - 159 434 - 593 - 593
Purchase
of own
shares - - - - - - - (147) (147) - (147)
Cost
of equity
settled
employee
share
schemes - - - 3,675 3,675 - - - 3,675 - 3,675
Exercise
of equity
settled
employee
share
scheme - - - (2,249) (2,249) - - 2,249 - - -
Deferred
tax
arising
on share-based
payments - - - (18) (18) - - - (18) - (18)
Dividends
on ordinary
shares
(note
6) - - - (14,746) (14,746) - - - (14,746) (301) (15,047)
Adjustment
arising
from
change
in
non-controlling
interests - - - (4,833) (4,833) - - - (4,833) (7,176) (12,009)
Balance
at 30
June
2012
(Unaudited) 33,920 3,813 (52,629) 476,220 461,324 35,063 278,528 (120) 774,795 12,735 787,530
================ ================= ================== =============== ============= ============= =============== ============ ============== ================== ===============
Balance
at 1
January
2012
(Audited) 33,920 3,904 (27,569) 455,544 465,799 34,904 278,094 (2,222) 776,575 22,059 798,634
Profit
for
the
year - - - 100,320 100,320 - - - 100,320 6,895 107,215
Cumulative
effect
of change
in fair
value
of available
for
sale
investments - - - (23) (23) - - - (23) - (23)
Cumulative
effect
of change
in fair
value
of financial
derivatives - - - (2,120) (2,120) - - - (2,120) - (2,120)
Realisation
of revaluation
reserve - (181) - 181 - - - - - - -
Currency
translation
loss - - (21,237) - (21,237) - - - (21,237) (5,310) (26,547)
Total
comprehensive
income
for
the
period - (181) (21,237) 98,358 76,940 - - - 76,940 1,585 78,525
Issue
of equity
shares - - - - - 187 1,022 - 1,209 - 1,209
Purchase
of own
shares - - - - - - - (158) (158) - (158)
Cost
of equity
settled
employee
share
schemes - - - 7,961 7,961 - - - 7,961 - 7,961
Exercise
of equity
settled
employee
share
scheme - - - (2,294) (2,294) - - 2,294 - - -
Deferred
tax
arising
on share-based
payments - - - 98 98 - - - 98 - 98
Current
tax
arising
on share-based
payments - - - 1,411 1,411 - - - 1,411 - 1,411
Dividends
on ordinary
shares
(note
6) - - - (26,550) (26,550) - - - (26,550) (1,271) (27,821)
Adjustment
arising
from
change
in
non-controlling
interests - - - (4,833) (4,833) - - - (4,833) (7,176) (12,009)
Balance
at 31
December
2012
(Audited) 33,920 3,723 (48,806) 529,695 518,532 35,091 279,116 (86) 832,653 15,197 847,850
================ ================= ================== =============== ============= ============= =============== ============ ============== ================== ===============
Profit
for
the
period - - - 73,582 73,582 - - - 73,582 2,881 76,463
Cumulative
effect
of change
in fair
value
of available
for
sale
investments - - - (6) (6) - - - (6) - (6)
Cumulative
effect
of change
in fair
value
of financial
derivatives - - - 2,428 2,428 - - - 2,428 - 2,428
Realisation
of revaluation
reserve - (91) - 91 - - - - - - -
Currency
translation
loss - - (13,366) - (13,366) - - - (13,366) 364 (13,002)
Total
comprehensive
income
for
the
period - (91) (13,366) 76,095 62,638 - - - 62,638 3,245 65,883
Issue
of equity
shares - - - - - 138 1,376 - 1,514 - 1,514
Purchase
of own
shares - - - - - - - (106) (106) - (106)
Cost
of equity
settled
employee
share
schemes - - - 3,981 3,981 - - - 3,981 - 3,981
Exercise
of equity
settled
employee
share
scheme - - - (110) (110) - - 110 - - -
Deferred
tax
arising
on share-based
payments - - - (26) (26) - - - (26) - (26)
Dividends
on ordinary
shares
(note
6) - - - (19,716) (19,716) - - - (19,716) (1,909) (21,625)
Issue
of equity
shares
of subsidiary - - - - - - - - - 418 418
Balance
at 30
June
2013
(Unaudited) 33,920 3,632 (62,172) 589,919 565,299 35,229 280,492 (82) 880,938 16,951 897,889
================ ================= ================== =============== ============= ============= =============== ============ ============== ================== ===============
Hikma Pharmaceuticals PLC
Condensed consolidated cash flow statement
Note H1 H1 FY
2013 2012 2012
$000
$000 (Unaudited) $000 (Unaudited) (Audited)
-------------------- -------------------- -----------------
Net cash from operating activities 13 136,020 47,071 182,161
Investing activities
Purchases of property, plant and
equipment (26,954) (29,340) (51,405)
Proceeds from disposal of property,
plant and equipment 1,759 417 989
Purchase of intangible assets (2,575) (27,582) (38,783)
Proceeds from disposal of
intangible
assets 105 143 255
Investment in financial and other
non-current assets (96) 495 151
Acquisition of subsidiary
undertakings,
net of cash acquired (18,240) (6,207) (11,978)
Payments of costs directly
attributable
to acquisitions 4 (429) (1,519) (1,519)
Finance income 619 348 1,266
-------------------- -------------------- -----------------
Net cash used in investing
activities (45,811) (63,245) (101,024)
Financing activities
(Increase)/decrease in
collateralised
and restricted cash (3,551) (4,041) 839
Increase in long-term financial
debts 6,818 99,885 151,997
Repayment of long-term financial
debts (90,648) (50,034) (124,183)
(Decrease)/increase in short-term
borrowings (19,704) 35,961 52,390
Decrease in obligations under
finance
leases (1,252) (1,215) (2,122)
Dividends paid (19,684) (14,717) (26,550)
Dividends paid to non-controlling
shareholders (1,909) (301) (1,271)
Interest paid (18,565) (15,938) (34,188)
Proceeds from issue of new shares 1,409 446 1,051
Proceeds from non-controlling interest
for capital increase in subsidiary 418 - -
Acquisition of non-controlling
interest
in subsidiary - (12,009) (12,009)
-------------------- -------------------- -----------------
Net cash (used in)/from financing
activities (146,668) 38,037 5,954
Net (decrease)/increase in cash and
cash equivalents (56,459) 21,863 87,091
Cash and cash equivalents at
beginning
of period/year 176,511 94,715 94,715
Foreign exchange translation
movements (1,045) (2,199) (5,296)
Cash and cash equivalents at end
of period/year 119,007 114,379 176,510
==================== ==================== =================
Hikma Pharmaceuticals PLC
Notes to the condensed set of financial statements
(unaudited)
1. General information
The financial information for the year ended 31 December 2012
does not constitute statutory accounts within the meaning of
Section 434 of the Companies Act 2006. Statutory accounts for the
year ended 31 December 2012, which were prepared under
International Financial Reporting Standards (IFRSs) issued by the
International Accounting Standards Board, have been filed with the
Registrar of Companies. The auditor's report on those accounts was
unqualified, did not draw attention to any matters by way of
emphasis and did not contain any statement under Section 498 (2) or
(3) of the Companies Act 2006.
2. Accounting policies
The unaudited condensed set of financial statements for the six
months ended 30 June 2013 have been prepared using the same
accounting policies and on a basis consistent with the audited
financial statements of Hikma Pharmaceuticals PLC (the 'Group') for
the year ended 31 December 2012 which are prepared in accordance
with IFRSs as adopted by the European Union.
Dynamic market changes can generate uncertainty as to the
ultimate net selling price of a pharmaceutical product and
therefore revenue cannot always be measured reliably at the point
when the product is supplied or made available to external
customers. The Company has therefore expanded its revenue
recognition policy as shown below; this had no impact on revenue
recognised in prior periods.
Revenue recognition
Revenue is recognised in the consolidated income statement when
goods or services are supplied or made available to external
customers against orders received and when the significant risks
and rewards of ownership have passed.
Revenue represents the amounts receivable after the deduction of
discounts, value added tax, other sales taxes, allowances given,
provisions for chargebacks and accruals for estimated future
rebates and returns. The methodology and assumptions used to
estimate rebates and returns are monitored and adjusted regularly
in light of contractual and historical information.
If the ultimate net selling price cannot be reliably measured,
revenue recognition is deferred until a reliable measurement can be
made. Deferred revenue is included in other current liabilities in
the consolidated balance sheet
Basis of preparation
The currency used in the preparation of the accompanying
condensed set of financial statements is the US Dollar ($) as the
majority of the Group's business is conducted in US Dollars.
The Group's condensed set of financial statements included in
this half- yearly financial report have been prepared in accordance
with International Accounting Standards 34 'Interim Financial
Reporting' as adopted by the European Union. They were approved by
the Board on 20 August 2013.
Taxes on income for interim periods are accrued using the tax
rate that would be applicable to expected total annual
earnings.
Going concern
The Group has $757.9 million of banking facilities of which
$265.3 million were undrawn as at 30 June 2013. Of the undrawn
facilities, $125.6 million was committed. These facilities are well
diversified across the operating subsidiaries of the Group with a
number of financial institutions.
About 50% of the Group's short-term and undrawn long-term
facilities are of a committed nature.
We continue to expect the short-term facilities to be renewed
upon maturity. In addition the Group maintained cash and cash
equivalent of $119 million as at 30 June 2013. The Group's
forecasts, taking into account reasonable possible changes in
trading performance, facility renewal sensitivities and maturities
of long-term debt, show that the Group should be able to operate
within the levels of its facilities.
Although the current economic conditions may affect short-term
demand for our products, as well as placing pressure on customers
and suppliers which may face liquidity issues, the Group's
geographic spread, product diversity, large customer and supplier
base substantially mitigate these risks.
In addition, the Group operates in the relatively defensive
generic pharmaceuticals industry which we expect to be less
affected compared to other industries that are subject to greater
cyclical changes.
After making enquiries, the Directors believe that the Group is
adequately placed to manage its business and financing risks
successfully despite the current uncertain economic outlook.
Accordingly, they continue to adopt the going concern basis in
preparing the half-yearly set of condensed financial statement.
Changes in accounting policies
The same accounting policies, presentation and method of computation are followed in the condensed
set of financial statements as applied in the Group's latest annual audited financial statements.
Adoption of new and revised standards
The following new and revised Standards and Interpretations have
been adopted in the current year. Their adoption has not had any
significant impact on the amounts reported in these financial
statements but, with the exception of the amendment to IFRS 1 and
IFRIC 20, may impact the accounting for future transactions and
arrangements
IAS 1 - Amendments Presentation of Items of Other
Comprehensive Income
IFRS 13 - Fair Value measurement New fair value disclosures required
for financial instruments, including
certain IFRS 7 disclosures
Annual Improvements 2009-2011 Minor amendments for IAS 1 changes
cycle on minimum comparative information.
Also clarified a measure of
segment assets and liabilities
is only required if such amounts
are regularly provided to the
chief operating decision maker
Amendment to IFRS 1 Severe Hyper inflation and Removal
of fixed Dates for First-time
Adopters
Amendment to IAS 12 Deferred tax: Recovery of underlying
Assets
Amendment to IFRS 1 Government loans
Amendment to IFRS 7 - Disclosures Offsetting of Financial Assets
and Financial Liabilities
IAS 19 (revised 2011) Employee benefits
IFRIC 20 Stripping Costs in the Production
Phase of a Surface Mine
At the date of authorisation of these financial statements, the
following Standards and Interpretations
which have not been applied in these financial statements were
in issue but not yet effective (and in some cases had not yet been
adopted by the EU):
Amendments to IFRS 10, IFRS Added disclosure requirements
12, and IAS 27 - Investment for entities becoming, or ceasing
Entities to be, investment entities,
as defined in IFRS 10.
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other
Entities
IAS 27 (revised 2011) Separate Financial Statements
IAS 28 (revised 2011) Investment in Associates and
Joint Ventures
Amendments to IAS 32 Offsetting Financial Assets
and Financial Liabilities
The Directors do not expect that the adoption of the standards
listed above will have a material impact on the financial
statements of the Group in future periods.
3. Business and geographical segments
For management purposes, the Group is currently organised into
three operating divisions - Branded, Injectables and Generics.
These divisions represent the Group's reportable segments under
IFRS 8 and are the basis on which the Group reports its primary
segment information.
Segment information about these businesses is presented
below.
Six months ended
30 June 2013 (Unaudited)
Branded Injectables Generics Others Group
$000 $000 $000 $000 $000
---------------- ------------------ ---------------- ---------------- -------------
Revenue 256,825 246,579 131,959 2,937 638,300
Cost of sales (127,010) (121,985) (32,594) (3,423) (285,012)
---------------- ------------------ ---------------- ---------------- -------------
Gross profit 129,815 124,594 99,365 (486) 353,288
Adjusted segment
result 58,140 70,625 82,190 (2,901) 208,054
Exceptional items
:
- Severance costs (464) - - - (464)
- Plant remediation
costs - - (18,980) - (18,980)
- Impairment losses (1,500) (2,800) (3,500) - (7,800)
- Other claims provisions - - (10,300) - (10,300)
Intangible amortisation* (4,827) (2,261) (18) - (7,106)
---------------------------- ---------------- ------------------ ---------------- ---------------- -------------
Segment result 51,349 65,564 49,392 (2,901) 163,404
================ ================== ================ ================ =============
Adjusted Unallocated corporate
expenses (18,956)
Exceptional items
:
- Acquisition related
expenses (429)
---------------------------- ---------------- ------------------ ---------------- ---------------- -------------
Unallocated corporate
expenses (19,385)
-------------
Adjusted operating
profit 189,098
---------------------------- ---------------- ------------------ ---------------- ---------------- -------------
Operating profit 144,019
-------------
Share of results of associated
companies (80)
Impairment of investment in
associates (15,000)
Finance income 619
Finance expense (17,590)
Other expenses (net) (382)
-------------
Profit before tax 111,586
Tax (35,123)
-------------
Profit for the period 76,463
=============
Attributable to:
Non-controlling interest 2,881
Equity holders of
the parent 73,582
76,463
=============
Segment result is defined as operating profit for each
segment.
*Intangible amortisation comprises the amortisation of
intangible assets other than software.
"Others" mainly comprise Arab Medical Containers Ltd,
International Pharmaceutical Research Center Ltd and the chemicals
division of Hikma Pharmaceuticals Ltd (Jordan).
Unallocated corporate expenses are primarily made up of employee
costs, professional fees and travel expenses.
Segment assets and
liabilities
30 June 2013 (Unaudited)
Corporate
Branded Injectables Generics and Others Group
$000 $000 $000 $000 $000
----------------- ----------------- ---------------- ----------------- ------------
Additions to property,
plant and equipment
(cost) 12,409 11,441 1,550 240 25,640
Acquisition of subsidaries'
property, plant and
equipment (net book
value) 6,334 - - - 6,334
Additions to intangible
assets (cost) 1,218 3,650 470 117 5,455
Intangible assets
arising on acquisition 18,925 - - - 18,925
Total property, plant
and equipment and
intangible assets
(net book value) 509,769 292,693 50,273 6,438 859,173
Depreciation 10,536 6,651 3,684 684 21,556
Amortisation and Impairment
(including software) 5,268 6,534 3,620 137 15,558
Interest in associated
companies - - - 23,257 23,257
Balance sheet
Total assets 1,050,544 492,585 142,474 47,197 1,732,800
================= ================= ================ ================= ============
Total liabilities 554,427 174,476 50,914 55,094 834,911
================= ================= ================ ================= ============
Six months ended
30 June 2012 (Unaudited)
Branded Injectables Generics Others Group
$000 $000 $000 $000 $000
------------ -------------- ------------ ------------ -------------
Revenue 248,821 225,215 55,768 2,456 532,260
Cost of sales (128,691) (127,035) (40,560) (1,894) (298,180)
Gross profit 120,130 98,180 15,208 562 234,080
------------ -------------- ------------ ------------ -------------
Adjusted segment
result 52,554 51,211 (3,291) (2,042) 98,432
Exceptional items
:
- Integration related
expenses* (601) (1,675) - - (2,276)
Intangible amortisation** (4,521) (1,846) (18) - (6,385)
--------------------------- ------------ -------------- ------------ ------------ -------------
Segment result 47,432 47,690 (3,309) (2,042) 89,771
============ ============== ============ ============ =============
Unallocated corporate
expenses (14,702)
-------------
Adjusted Operating
Profit 83,730
--------------------------- ------------ -------------- ------------ ------------ -------------
Operating profit 75,069
-------------
Share of results of associated
companies (50)
Finance income 355
Finance expense (17,039)
Other expenses (net) (491)
-------------
Profit before tax 57,844
Tax (14,976)
-------------
Profit for the period 42,868
=============
Attributable to:
Non-controlling interest 2,468
Equity holders of
the parent 40,400
42,868
=============
Segment result is defined as operating profit for each
segment.
*See note 4
**Intangible amortisation comprises the amortisation of
intangible assets other than software.
"Others" mainly comprise Arab Medical Containers Ltd,
International Pharmaceutical Research Center Ltd and the chemicals
division of Hikma Pharmaceuticals Ltd (Jordan).
Unallocated corporate expenses are primarily made up of employee
costs, office costs, professional fees, and travel expenses.
30 June 2012 (Unaudited)
Corporate
Branded Injectables Generics and Others Group
$000 $000 $000 $000 $000
---------------- ----------------- --------------- ----------------- ------------
Additions to property,
plant and equipment
(cost) 14,636 9,198 2,045 197 26,076
Additions to intangible
assets (cost) 1,972 24,404 4,762 - 31,138
Total property, plant
and equipment and
intangible assets
(net book value) 513,725 267,755 51,023 7,591 840,094
Depreciation 11,351 5,905 3,438 391 21,085
Amortisation (including
software) 5,071 2,290 162 92 7,615
Interest in associated
companies - - - 37,395 37,395
Balance sheet
Total assets 1,013,755 402,575 189,657 57,369 1,663,356
================ ================= =============== ================= ============
Total liabilities 567,572 233,649 28,450 46,155 875,826
================ ================= =============== ================= ============
31 December 2012
(Audited)
Branded Injectables Generics Others Group
$000 $000 $000 $000 $000
-------------- --------------- -------------- -------------- ---------------
Revenue 528,854 470,030 103,679 6,158 1,108,721
Cost of sales (271,508) (251,302) (80,339) (4,454) (607,603)
Gross profit 257,346 218,728 23,340 1,704 501,118
-------------- --------------- -------------- -------------- ---------------
Adjusted segment
result 123,634 122,952 (13,511) (3,338) 229,737
Exceptional items
:
- Integration related
expenses (701) (2,430) - - (3,131)
- Severance expenses (2,527) (1,380) (562) - (4,469)
- Plant remediation
costs - - (6,787) - (6,787)
Intangible amortisation* (9,029) (3,614) (31) - (12,674)
-------------------------- -------------- --------------- -------------- -------------- ---------------
Segment result 111,377 115,528 (20,891) (3,338) 202,676
============== =============== ============== ============== ===============
Unallocated corporate
expenses (35,902)
-------------------------- -------------- --------------- -------------- -------------- ---------------
Adjusted operating
profit 193,835
-------------------------- -------------- --------------- -------------- -------------- ---------------
Operating profit 166,774
---------------
Share of results of associated
companies 892
Finance income 1,266
Finance expense (35,717)
Other expenses (net) (1,174)
---------------
Profit before tax 132,041
Tax (24,826)
---------------
Profit for the period 107,215
===============
Attributable to:
Non-controlling interest 6,895
Equity holders of
the parent 100,320
107,215
===============
Segment result is defined as operating profit for each
segment.
*Intangible amortisation comprises the amortisation of
intangible assets other than software.
"Others" mainly comprise Arab Medical Containers Ltd,
International Pharmaceutical Research Center Ltd and the chemicals
division of Hikma Pharmaceuticals Ltd (Jordan).
Unallocated corporate expenses are primarily made up of employee
costs, office costs, professional fees, donations, and travel
expenses.
Corporate
Branded Injectables Generics and Others Group
$000 $000 $000 $000 $000
---------------- ----------------- ---------------- ----------------- -----------
Additions to property,
plant and equipment
(cost) 26,071 16,916 5,193 1,661 49,841
Additions to intangible
assets 1,886 35,738 7,056 - 44,680
Total property, plant
and equipment and
intangible assets
(net book value) 503,858 281,588 61,129 6,417 852,992
Depreciation 21,120 12,944 6,710 1,585 42,359
Amortisation (including
software) 9,937 5,750 160 185 16,032
Interest in associated
companies - - - 38,337 38,337
Balance sheet
Total assets 1,050,373 481,001 135,214 63,524 1,730,112
================ ================= ================ ================= ===========
Total liabilities 574,526 252,054 5,751 49,931 882,262
================ ================= ================ ================= ===========
The following table provides an analysis of the Group's sales by
geographical market, irrespective of the origin of the
goods/services:
H1 2013 H1 2012 FY 2012
$000 $000 $000
----------------- ---------------- ----------------
(Unaudited) (Unaudited) (Audited)
----------------- ---------------- ----------------
Middle East and North Africa 293,145 297,992 619,185
United States 297,334 192,363 399,877
Europe and Rest of the World 44,866 38,425 80,992
United Kingdom 2,955 3,480 8,667
----------------- ---------------- ----------------
638,300 532,260 1,108,721
================= ================ ================
Included in revenues arising from the Generics and Injectables
segments are revenues of approximately $82,144,000 which arose from
the Group's largest customer which is located in the US. In prior
periods the Group's largest customer was located in Saudi Arabia
and the Branded and Injectables segments included revenue arising
from this customer of $54,365,000 and $103,971,000 for the periods
ended 30 June 2012 and 31 December 2012, respectively.
4. Exceptional items and intangible amortisation
Exceptional items are defined as those items that are material
in nature or amount and are non-recurring; those are disclosed
separately in the condensed consolidated income statement to assist
in the understanding of the Group's underlying performance.
H1 2013 H1 2012 FY 2012
$000 $000 $000
----------- -------------- ----------------
Acquisition and integration related
expenses* (429) (2,276) (3,131)
Other Costs:
Severance expenses (464) - (4,469)
Plant remediation costs (18,980) - (6,787)
Impairment losses (7,800) - -
Other claims provisions (10,300) - -
----------- -------------- ----------------
Exceptional items including in
operating profit (37,973) (2,276) (14,387)
Impairment of investment in associates (15,000) - -
----------- -------------- ----------------
Exceptional items (52,973) (2,276) (14,387)
Intangible amortisation** (7,106) (6,385) (12,674)
----------- -------------- ----------------
Exceptional items and intangible
amortisation (60,079) (8,661) (27,061)
Tax effect 12,438 1,931 6,852
----------- -------------- ----------------
Impact on profit for the period/
year (47,641) (6,730) (20,209)
=========== ============== ================
* H1 2012 exceptional figures have been represented to conform
with the FY2012 and H1 2013 presentation.
**Intangible amortisation comprises the amortisation of
intangible assets other than software.
Acquisition and integration related expenses
During the period, the Group incurred $429,000 in acquisition
costs related to the acquisition of the Egyptian Company for
Pharmaceuticals & Chemical Industries "EPCI" (see note 15).
In previous periods, acquisition and integration-related
expenses were costs incurred in the integration of MSI, Promopharm,
and Savanna.
Acquisition-related expenses are included in the unallocated
corporate expenses while integration-related expenses are included
in segment results. Acquisition-related expenses mainly comprise
third party consulting services, legal and professional fees.
Acquisition cost of $429,000 (H1 2012: $1,519,000 and FY 2012:
$1,519,000) have been classified as investing activities in the
cash flow statement relating to the cash outflow in respect of
these costs in the period.
Other costs
Severance expenses related to restructuring of management teams
across all three operating regions.
Plant remediation costs represent costs incurred for compliance
work at our Eatontown facility in response to observations made by
the US FDA.
Impairment losses are related to the write off of intangible
product rights, in addition to the write off of certain property,
plant and equipment. Impairment of intangible assets is included in
research and development expenses and impairment of fixed assets is
included in other operating expenses.
Other claims provisions relate to the Group's best estimate of
the ultimate settlement amount of claims outstanding in the current
period and is included in other operating expenses.
Impairment of investment in associates
During 2011, Hikma acquired a minority interest in Unimark
Remedies Limited ("Unimark") in India for a cash consideration of
$33.6 million. Unimark manufactures active pharmaceutical
ingredients ("API") and API intermediates. Unimark has been
impacted by a decline in prices in its API manufacturing business
and is in the process of restructuring its corporate debt. During
the period, we incurred an impairment charge of $15 million in
respect of our investment. We believe that Unimark will be able to
successfully manage its current issues and we continue to
collaborate with Unimark in the development of a portfolio of
products for the US market.
5. Tax
H1 2013 H1 2012 FY 2012
$000 $000 $000
---------------- ----------------- -------------
(Unaudited) (Unaudited) (Audited)
---------------- ----------------- -------------
Current tax:
Foreign tax 40,350 14,969 30,535
Prior year adjustments (1,129) 397 4,703
Deferred tax (4,098) (390) (10,412)
35,123 14,976 24,826
================ ================= =============
Tax for the six month period is charged at 31.5% (H1 2012:
25.9%; FY 2012: 18.8%).
The application of tax law and practice is subject to some
uncertainty and amounts are provided in respect of this. Issues are
raised during the course of regular tax audits and, although the
outcome of open items cannot be predicted, no material adverse
impact on results is expected from such issues.
6. Dividends
H1 2013 H1 2012 FY 2012
$000 $000 $000
----------------- ----------------- ----------
(Unaudited) (Unaudited) (Audited)
----------------- ----------------- ----------
Amounts recognised as distributions
to equity holders in the period:
Final dividend for the year ended
31 December 2012 of 10.0 cents
(2011: 7.5 cents) per share 19,716 14,746 14,746
Interim dividend for the year ended
31 December 2012 of 6.0 cents per
share - - 11,804
----------------- ----------------- ----------
19,716 14,746 26,550
================= ================= ==========
The proposed interim dividend for the period ended 30 June 2013
is 7.0 cents (30 June 2012: 6.0 cents) per share plus a special
dividend of 3.0 cents per share that reflects the exceptional
performance of the Generics business.
Based on the number of shares in issue at 30 June 2013
(197,696,000), the unrecognised liability is $19,770,000.
7. Earnings per share
Earnings per share is calculated by dividing the profit
attributable to equity holders of the parent by the weighted
average number of ordinary shares. The number of ordinary shares
used for the basic and diluted calculations are shown in the table
below. Adjusted basic earnings per share and adjusted diluted
earnings per share are intended to highlight the adjusted results
of the Group before exceptional items and intangible amortisation*.
A reconciliation of the basic and adjusted earnings used is also
set out below:
H1 2013 H1 2012* FY 2012
$000 $000 $000
----------------- ----------------- ---------------
(Unaudited) (Unaudited) (Audited)
----------------- ----------------- ---------------
Earnings for the purposes of basic and diluted
earnings per share being net profit attributable
to equity holders of the parent 73,582 40,400 100,320
================= ================= ===============
Exceptional items* 52,973 2,276 14,387
Intangible amortisation** 7,106 6,385 12,674
Tax effect of adjustments (12,438) (1,931) (6,852)
Adjusted earnings for the purposes of adjusted
basic and diluted earnings per share being
adjusted net profit attributable to equity
holders of the parent 121,223 47,130 120,529
================= ================= ===============
Number Number Number
Number of shares: '000 '000 '000
Weighted average number of Ordinary Shares
for the purposes of basic earnings per share 196,943 195,954 196,348
Effect of dilutive potential Ordinary Shares
:
Share-based awards 2,157 1,819 1,951
----------------- ----------------- ---------------
Weighted average number of Ordinary Shares
for the purposes of diluted earnings per
share 199,100 197,773 198,299
================= ================= ===============
H1 2013 H1 2012 FY 2012
Earnings Earnings Earnings
per share per share per share
Cents Cents Cents
----------------- ----------------- ---------------
Basic 37.4 20.6 51.1
----------------- ----------------- ---------------
Diluted 37.0 20.4 50.6
----------------- ----------------- ---------------
Adjusted basic 61.6 24.1 61.4
----------------- ----------------- ---------------
Adjusted diluted 60.9 23.8 60.8
----------------- ----------------- ---------------
* See note 4
** Intangible amortisation comprises the amortisation of
intangible assets other than software.
8. Interests in associated companies
For the For the
period period For the
ended ended year ended
30 June 30 June 31 December
2013 2012 2012
$000 $000 $000
----------------- ------------------- ------------------------
Balance at beginning of period/year 38,337 37,445 37,445
Share of (loss)/income of associates (80) (50) 892
Impairment (15,000) - -
Balance at end of period/year 23,257 37,395 38,337
================= =================== ========================
9. Inventories
30 June 30 June 31 December
2013 2012 2012
$000 $000 $000
--------------- --------------- ---------------------
(Unaudited) (Unaudited) (Audited)
--------------- --------------- ---------------------
Finished goods 79,435 84,129 87,663
Work-in-progress 35,979 41,097 30,011
Raw and packing materials 139,262 130,952 135,571
Goods in transit 18,311 15,684 18,986
272,987 271,862 272,231
=============== =============== =====================
Goods in transit include inventory held at third parties whilst
in transit between Group companies.
10. Trade and other receivables
30 June 30 June 31 December
2013 2012 2012
$000 $000 $000
----------------- ----------------- -------------------------------
(Unaudited) (Unaudited) (Audited)
----------------- ----------------- -------------------------------
Trade receivables 337,656 314,999 294,048
Prepayments 39,053 19,984 22,758
Value added tax recoverable 8,847 5,968 8,439
Interest receivable 658 433 579
Employee advances 3,265 2,565 2,323
----------------- ----------------- -------------------------------
389,479 343,949 328,147
================= ================= ===============================
11. Trade and other payables
30 June 30 June 31 December
2013 2012 2012
$000 $000 $000
---------------- ---------------- ------------------------
(Unaudited) (Unaudited) (Audited)
---------------- ---------------- ------------------------
Trade payables 101,376 108,626 110,600
Accrued expenses 78,980 52,176 69,734
Employees' provident fund * 4,954 4,779 5,863
VAT and sales tax payables 1,039 1,291 560
Dividends payable ** 2,971 2,525 2,074
Social security withholdings 2,109 1,587 1,709
Income tax withholdings 2,833 2,492 2,862
Other payables 1,862 1,738 1,403
---------------- ---------------- ------------------------
196,124 175,214 194,805
================ ================ ========================
* The employees' provident fund liability represents mainly
outstanding contributions to the Hikma Pharmaceuticals Ltd (Jordan)
retirement benefit plan, on which the fund receives 5%
interest.
** Dividends payable includes $1,863,000 (30 June 2012:
$2,009,000 and 31 December 2012: $1,889,000) due to the previous
shareholders of Arab Pharmaceutical Manufacturing Company.
12. Long-term financial debts
30 June 30 June 31 December
2013 2012 2012
$000 $000 $000
--------------- --------------- ---------------------
(Unaudited) (Unaudited) (Audited)
--------------- --------------- ---------------------
Long-term loans 355,203 474,978 460,997
Less: current portion of loans (67,228) (81,136) (88,509)
--------------- --------------- ---------------------
Long-term financial loans 287,975 393,842 372,488
=============== =============== =====================
Breakdown by maturity:
Within one year 67,228 81,136 88,509
In the second year 60,782 80,976 79,794
In the third year 60,055 75,569 79,513
In the fourth year 57,981 83,127 77,923
In the fifth year 38,636 53,369 47,644
Thereafter 70,521 100,801 87,614
355,203 474,978 460,997
=============== =============== =====================
13. Net cash from operating activities
Note H1 H1 FY
2013 2012 2012
$000 (Unaudited) $000 (Unaudited) $000 (Audited)
--------------------- ------------------ -----------------
Profit before tax 111,586 57,844 132,041
Adjustments for:
Depreciation, amortisation
and impairment of:
Property, plant and
equipment 21,556 21,085 42,359
Intangible assets 15,558 7,615 16,032
Loss on disposal of property,
plant and equipment 6 93 349
Loss on disposal of intangible
assets - 38 67
Movement on provisions 1,238 1,109 1,266
Movement on deferred income (36) (37) (62)
Cost of equity-settled employee
share schemes 3,981 3,675 7,961
Payments of costs directly
attributable
to acquisitions 4 429 1,519 1,519
Finance income (619) (348) (1,266)
Interest and bank charges 17,590 17,033 35,717
Results from associates 80 50 (892)
Impairment of associates 15,000 - -
Cash flow before working capital 186,369 109,676 235,091
Change in trade and other
receivables (63,375) (30,799) (20,759)
Change in other current assets 351 2,610 2,259
Change in inventories (2,049) (47,751) (42,305)
Change in trade and other payables 4,949 11,164 21,914
Change in other current liabilities 41,824 16,427 10,429
Cash generated by operations 168,069 61,327 206,629
Income tax paid (32,049) (14,256) (24,468)
Net cash generated from operating
activities 136,020 47,071 182,161
===================== ================== =================
14. Related party balances
Transactions between the Company and its subsidiaries have been
eliminated on consolidation and are not disclosed in this note.
Transactions between the Group and its associate and other related
parties are disclosed below.
Trading transactions:
During the period, Group companies entered into the following
transactions with related parties:
Darhold Limited: is a related party of the Group because it is
one of the major shareholders of Hikma Pharmaceuticals PLC with an
ownership percentage of 28.9% at 30 June 2013 (30 June 2012: 29.0%
and 31 December 2012: 29.0%).
Other than dividends (as paid to all shareholders), there were
no transactions between the Group and Darhold Limited during the
period.
Capital Bank - Jordan: is a related party of the Group because
two board members of the Bank were also board members of Hikma
Pharmaceuticals PLC. Total cash balances at Capital Bank - Jordan
were $2,037,000 (30 June 2012: $2,991,000 and 31 December 2012:
$2,977,000). Loans and overdrafts from the Capital Bank to the
Group outstanding at 30 June 2013 amounted to $3,433,000 (30 June
2012: $8,448,000 and 31 December 2012: $Nil). Interest income and
expense are within market rates.
Jordan International Insurance Company: is a related party of
the Group because one board member of the insurance company is also
a board member of Hikma Pharmaceuticals PLC. Total insurance
premiums paid by the Group to Jordan International Insurance
Company during the period were $257,000 (H1 2012: $1,797,000 and FY
2012: $3,423,000). The Group's insurance expense for Jordan
International Insurance Company contracts in the period was
$187,000 (H1 2012: $2,715,000 and FY 2012: $2,806,000). The amounts
due to Jordan International Insurance Company at 30 June 2013 were
$20,000 (30 June 2012: $577,000 and 31 December 2012:
$154,000).
Mr. Yousef Abd Ali: is a related party of the Group because he
holds a non-controlling interest in Hikma Leban SARL in Lebanon of
33%. The amount owed to Mr. Yousef by the Group as at 30 June 2013
was $150,000 (30 June 2012: $150,000 and 31 December 2012:
$150,000).
Labatec Pharma SA: is a related party of the Group because it is
owned by Mr. Samih Darwazah. During the period the Group total
sales to Labatec Pharma amounted to $171,000 (H1 2012: $215,000 and
FY 2012: $282,000) and the Group total purchases from Labatec
Pharma amounted to $Nil (H1 2012: $1,396,000 and FY 2012:
$1,179,000). At 30 June 2013 the amount owed from Labatec Pharma to
the Group was $365,000 (30 June 2012: owed from the Group $892,000
and 31 December 2012: owed to the Group $211,000).
King and Spalding: is a related party of the Group because a
partner of the firm is a board member and company secretary of
West-Ward. King and Spalding is an outside legal counsel firm that
handles general legal matters for West-Ward. During the period fees
of $5,000 (H1 2012: $45,000 and FY 2012: $45,000) were paid for
legal services provided.
Jordan Resources & Investments Company: is a related party
of the Group because three board members of Hikma Pharmaceuticals
PLC are shareholders in the firm. During the period fees of $88,000
were paid for training services provided (H1 2012: $Nil and FY
2012: $151,000).
American University of Beirut: is a related party of the Group
because one board member of Hikma Pharmaceuticals PLC is also a
trustee of the University. During the period fees of $96,000 (H1
2012: $36,000 and FY 2012: $125,000) were paid for training
services provided. At 30 June 2013 the amount owed from American
University of Beirut to the Group was $7,000 (30 June 2012 and 31
December 2012: $Nil).
Arab Bank: is a related party of the Group because during the
period one member of Hikma Pharmaceuticals PLC's Senior Management
has become a board member of the Arab bank. Total cash balances at
the Arab Bank were $34,711,000 (30 June 2012: $18,169,000 and 31
December 2012: $75,681,000). Loans and overdrafts from the Arab
Bank to the Group outstanding at 30 June 2013 amounted to
$179,165,000 (30 June 2012: $175,029,000 and 31 December 2012:
$187,081,000). Interest income and expense are within market
rates.
15. Acquisition of a subsidiary
On 22 January 2013, Hikma acquired 100% of the Egyptian Company
for Pharmaceuticals & Chemical Industries ("EPCI"). Hikma paid
cash consideration of $18,500,000 and deferred consideration of
$2,000,000. The main purpose of the acquisition was to strengthen
Hikma's position in the large and fast growing Egyptian market.
The fair value of assets acquired included: property plant and
equipment of $6,334,000, intangible assets of $9,655,000, and
goodwill of $9,270,000 and other net assets and liabilities of
($4,759,000).
The goodwill arising represents the synergies that will be
obtained by integrating EPCI into the existing business.
The Group's condensed consolidated income statement includes
related acquisition costs amounting to $429,000 recorded within
general and administrative expenses.
The impact of this acquisition on the Group's revenues and
profits is immaterial.
16. Foreign exchange rates
Period end rates Average rates
-------------------------------- ----------------------------
30 June 30 June 31 December H1 2013 H1 2012 FY
2013 2012 2012 2012
-------- -------- ------------ -------- -------- --------
USD/EUR 0.7685 0.7950 0.7565 0.7614 0.7704 0.7775
USD/Sudanese Pound 5.5785 5.3135 5.9988 5.6544 2.9727 4.3346
USD/Algerian Dinar 80.0232 78.8770 78.0915 78.4885 75.4000 77.5551
USD/Saudi Riyal 3.7495 3.7495 3.7495 3.7495 3.7495 3.7495
USD/British Pound 0.6572 0.6403 0.6185 0.6473 0.6340 0.6309
USD/Jordanian
Dinar 0.7090 0.7090 0.7090 0.7090 0.7090 0.7090
USD/Egyptian Pound 7.0294 6.0790 6.3654 6.8311 6.0533 6.0864
USD/Japanese Yen 99.1710 79.5406 85.9013 95.5219 79.7230 79.8155
USD/Moroccan Dirham 8.5614 8.7514 8.4838 8.8315 8.8542 8.6458
USD/Tunisian Dinar 1.6548 1.5865 1.5506 1.5949 1.5375 1.5686
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.
Operational risks
Risk Potential impact Mitigation
------------------------------- ----------------------------------------- ----------------------------------
Compliance with regulatory requirements
--------------------------------------------------------------------------------------------------------------
> Failure to comply > Delays in supply or > Commitment to maintain
with applicable regulatory an inability to market the highest levels of
requirements and or develop the Group's quality across all manufacturing
manufacturing standards products facilities
(often referred to > Delayed or denied approvals > Strong global compliance
as 'Current Good for the introduction of function that oversees
Manufacturing Practices' new products compliance across the
or cGMP) > Product complaints or Group
recalls > Remuneration and reward
> Bans on product sales structure that helps
or importation retain experienced personnel
> Disruptions to operations > Continuous staff training
> Plant closure and know-how exchange
> Potential for litigation > On-going development
of standard operating
procedures
------------------------------- ----------------------------------------- ----------------------------------
Regulation changes
--------------------------------------------------------------------------------------------------------------
> Unanticipated legislative > Restrictions on the > Strong oversight of
and regulatory actions, sale of one or more of local regulatory environments
developments and our products to help anticipate potential
changes affecting > Restrictions on our changes
the Group's operations ability to sell our products > Local operations in
and products at a profit all of our key markets
> Unexpected additional > Representation and/or
costs required to produce, affiliation with local
market or sell our products industry bodies
> Increased compliance > Diverse geographical
costs and therapeutic business
model
------------------------------- ----------------------------------------- ----------------------------------
Commercialisation of new products
--------------------------------------------------------------------------------------------------------------
> Delays in the receipt > Slowdown in revenue > Experienced regulatory
of marketing approvals, growth from new products teams able to accelerate
the authorisation > Inability to deliver submission processes
of price and re-imbursement a positive return on investments across all of our markets
> Lack of approval in R&D, manufacturing > Highly qualified sales
and acceptance of and sales and marketing and marketing teams across
new products by physicians, all markets
patients and other > A diversified product
key decision-makers pipeline with 379 compounds
> Inability to confirm pending approval, covering
safety, efficacy, a broad range of therapeutic
convenience and/or areas
cost-effectiveness > A systematic commitment
of our products as to quality that helps
compared to competitive to secure approval and
products acceptance of new products
> Inability to participate and mitigate potential
in tender sales safety issues
------------------------------- ----------------------------------------- ----------------------------------
Product safety
--------------------------------------------------------------------------------------------------------------
> Unforeseen product > Interruptions to revenue > Diversification of
safety issues for flow product portfolio across
marketed products, > Costs of recall, potential key markets and therapies
particularly in respect for litigation > Working with stakeholders
of in-licensed products > Reputational damage to understand issues
as they arise
> Strong quality, compliance
and pharmacovigilance
teams capable of addressing
issues and providing
solutions
------------------------------- ----------------------------------------- ----------------------------------
Product development
--------------------------------------------------------------------------------------------------------------
> Failure to secure > Inability to grow sales > Experienced and successful
new products or compounds and increase profitability in-house R&D team, with
for development for the Group specifically targeted
> Lower return on investment product development pathways
in research and development > Continually developing
and multi-faceted approach
to new product development
> Strong business development
team
> Track record of building
in-licensed brands
> Position as licensee
of choice for our key
MENA geography
------------------------------- ----------------------------------------- ----------------------------------
Co-operation with Third parties
--------------------------------------------------------------------------------------------------------------
> Inability to renew > Loss of products from > Investment in long-term
or extend in-licensing our portfolio relationships with existing
or other co-operation > Revenue interruptions in-licensing partners
agreements with third > Failure to recoup sales > Experienced legal team
parties and marketing and business capable of negotiating
development costs robust agreements with
our partners
> Continuous development
of new partners for licensing
and co-operation
> Diverse revenue model
with in-house R&D capabilities
------------------------------- ----------------------------------------- ----------------------------------
Integration of acquisitions
--------------------------------------------------------------------------------------------------------------
> Difficulties in > Inability to obtain > Extensive due diligence
integrating any technologies, the advantages that the undertaken as part of
products or businesses acquisitions were intended any acquisition process
acquired to create > Track record of acquisitions
> Adverse impact on our and subsequent business
business, financial condition integration
and results of operations > Human resources personnel
> Significant transaction focussed on managing
and integration costs employee integration
could adversely impact following acquisitions
our financial results > Close monitoring of
acquisition and integration
costs
------------------------------- ----------------------------------------- ----------------------------------
Increased competition
--------------------------------------------------------------------------------------------------------------
> New market entrants > Loss of market share > On-going portfolio
in key geographies > Decreasing revenues diversification, differentiation
> On-going pricing on established portfolio and renewal through internal
pressure in increasingly R&D, in-licensing and
commoditised markets product acquisition
> Continuing focus on
expansion of geographies
and therapeutic areas
------------------------------- ----------------------------------------- ----------------------------------
Disruptions in the manufacturing supply chain
--------------------------------------------------------------------------------------------------------------
> Inability to procure > Inability to develop > Alternate approved
active ingredients and/or commercialise new suppliers of active ingredients
from approved sources products > Long-term relationships
> Inability to procure > Inability to market with reliable raw material
active ingredients existing products as planned suppliers
on commercially viable > Lost revenue streams > Corporate auditing
terms on short notice team continuously monitors
> Inability to procure > Reduced service levels regulatory compliance
the quantities of and damage to customer of API suppliers
active ingredients relationships > Focus on improving
needed to meet market > Inability to supply service levels and optimising
requirements finished product to our our supply chain
customers in a timely
fashion
------------------------------- ----------------------------------------- ----------------------------------
Economic and political and unforeseen events
--------------------------------------------------------------------------------------------------------------
> The failure of > Disruptions to manufacturing > Geographic diversification,
control, a change and marketing plans with 26 manufacturing
in the economic conditions > Lost revenue streams facilities and sales
(including the Middle > Inability to market in more than 40 countries
East, North Africa or supply products > Product diversification,
and the Eurozone), with 685 products and
political environment 1,626 dosage strengths
or sustained civil and forms
unrest in any particular > Strong track record
market or country in crisis management
> Unforeseen events
such as fire or flooding
could cause disruptions
to manufacturing
or supply
------------------------------- ----------------------------------------- ----------------------------------
Litigation
--------------------------------------------------------------------------------------------------------------
> Commercial, product > Financial impact on > In-house legal counsel
liability and other Group results from adverse with relevant jurisdictional
claims brought against resolution of proceedings experience
a company within > Reputational damage
the Group or the
Group as a whole
------------------------------- ----------------------------------------- ----------------------------------
Financial risks
Risk Impact Mitigation
---------------------------- ---------------------------------- ------------------------------
Foreign exchange risk
------------------------------------------------------------------------------------------------
> Exposure to foreign > Fluctuations in the > Entering into currency
exchange movements, Group's net asset values derivative contracts
primarily in the and financial results where possible
European, Algerian, upon translation into > Foreign currency borrowing
Sudanese and Egyptian US dollars > Matching foreign currency
currencies revenues to in-jurisdiction
costs
---------------------------- ---------------------------------- ------------------------------
Interest rate risk
------------------------------------------------------------------------------------------------
> Volatility in interest > Fluctuating impact on > Optimisation of fixed
rates profits before taxation and variable rate debt
as a proportion of our
total debt
> Use of interest rate
swap agreements
---------------------------- ---------------------------------- ------------------------------
Credit Risk
------------------------------------------------------------------------------------------------
> Inability to recover > Reduced working capital > Clear credit terms
trade receivables funds for settlement of sales
> Concentration of > Risk of bad debt or invoices
significant trade default > Group Credit policy
balances with key limiting credit exposures
customers in the > Use of various financial
MENA region and the instruments such as letters
US of credit, factoring
and credit insurance
arrangements
---------------------------- ---------------------------------- ------------------------------
Liquidity Risk
------------------------------------------------------------------------------------------------
> Insufficient free > Reduced liquidity and > Continual evaluation
cash flow and borrowings working capital funds of headroom and borrowing
headroom > Inability to meet short-term > Committed debt facilities
working capital needs > Diversity of institution,
and, therefore, to execute subsidiary and geography
our long term strategic of borrowings
plans
---------------------------- ---------------------------------- ------------------------------
Tax
------------------------------------------------------------------------------------------------
> Changes to tax > Negative impact on the > Close observation of
laws and regulations Group's effective tax any intended or proposed
in any of the markets rate changes to tax rules,
in which we operate > Costly compliance requirements both in the UK and in
other key countries where
the Group operates
> Specialised department
that structures compliant,
tax effective solutions
---------------------------- ---------------------------------- ------------------------------
([1]) Before the amortisation of intangible assets (excluding
software) and exceptional items, as set out in note 4 to the
condensed set of financial statements
[2] Adjusted profit and adjusted profit attributable to
shareholders in H1 2012 have been re-classified to reflect the
classification of certain exceptional items on a consistent basis
with the treatment in H1 2013, as set out in note 4 to the
condensed set of financial statements
([3]) Earnings before interest, tax, depreciation and
amortisation. EBITDA is stated before impairment charges and share
of results from associated companies
[4] Remediation costs of $19.0 million include inventory
write-downs, failure to supply penalties and consulting services.
Other one-off costs of $13.8 million include impairment losses and
other claims provisions as set out in note 4 of the condensed set
of financial statements.
[5] In H1 2013, amortisation of intangible assets (excluding
software) was $7.1 million compared with $6.4 million in H1 2012.
In H1 2013, exceptional items included within operating expenses
were $38.0 million compared with $2.3 million in H1 2012
[6] 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
[7] Totals include 123 dermatological and cosmetic compounds in
401 dosage forms and strengths that are only sold in Morocco
[8] Totals include all compounds and formulations that are
either launched or approved or pending approval across all markets,
as relevant
This information is provided by RNS
The company news service from the London Stock Exchange
END
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