TIDMHIK
RNS Number : 0731C
Hikma Pharmaceuticals Plc
12 March 2014
PRESS RELEASE
Hikma delivers an excellent performance in 2013 with Group
revenue growth of 23% and EPS up 111%
Hikma expects continued growth in 2014
London, 12 March 2014 - Hikma Pharmaceuticals PLC ("Hikma",
"Group") (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY), the fast
growing multinational pharmaceutical group, today reports its
preliminary results for the year ended 31 December 2013.
2013 highlights
Group
-- Group revenue increased by 23% to $1,365 million, driven by
strong underlying growth and doxycycline sales
-- Group adjusted operating margin rose to 30.3%, up from 17.5%,
reflecting significant improvement in Generics and Injectables
margins
-- Profit attributable to shareholders increased by 112% to $212
million. On an adjusted basis, profit attributable to shareholders
rose 128% to $274 million
-- Basic EPS increased 111% to 107.6 cents per share
-- Net cash flow from operating activities increased by $153 million to $337 million
-- New product introductions continued across all countries and
markets - launched 104 products and received 241 new product
approvals
-- Proposed final dividend of 13.0 cents per share, plus a
special dividend of 4.0 cents per share, making a full year
dividend of 20.0 cents per share and a total special dividend for
the year of 7.0 cents per share
Branded
-- Branded revenue grew 5%, and 8% in constant currency, in line with guidance
-- Branded adjusted operating profit grew by 9% to $135 million,
with a significant improvement in adjusted operating margin, up 100
basis points to 24.4%
Injectables
-- Global Injectablesrevenue increased by 14%, driven by a
strong performance in the US, up 23%
-- Adjusted operating margin of 31.0%, up from 26.2% in 2012,
reflecting pricing improvements, new product launches and
operational efficiencies
Generics
-- Generics revenue increased by158% to $268 million, reflecting
very strong doxycycline sales
-- Generics operating profit of $127 million, after
remediation-related and other exceptional costs of $39 million
Said Darwazah, Chief Executive Officer of Hikma, said:
"The Group had an excellent year, with all of our businesses
delivering a strong performance and improved profitability.
In the MENA region, our focus on improving the product mix,
enhancing our sales activities and driving manufacturing
efficiencies delivered good growth and better profitability. Our
global Injectables business continued to perform very well,
particularly in the US, where we are maximising the potential of
our portfolio and further improving margins. Our continued
investment in our product pipeline and focus on operational
excellence will help to sustain future growth.
Our Generics business delivered very strong revenue, driven
primarily by doxycycline, and generated significant cash flow. This
enabled us to cover the costs of remediating our Eatontown facility
and further strengthen the Group balance sheet as we continue to
look at acquisition opportunities across our businesses.
Overall, I am very pleased with the results we achieved in 2013
and confident about the prospects for 2014."
Group financial highlights
Summary P&L 2013 2012 Change
$ million
----------------------------------------- ------ ------ -------
Revenue 1,365 1,109 +23%
----------------------------------------- ------ ------ -------
Gross profit 764 504 +52%
----------------------------------------- ------ ------ -------
Gross margin 56.0% 45.4% +10.6
----------------------------------------- ------ ------ -------
Operating profit 352 167 +111%
----------------------------------------- ------ ------ -------
Adjusted operating profit([1])
(,) ([2]) 413 194 +113%
----------------------------------------- ------ ------ -------
Adjusted operating margin 30.3% 17.5% +12.8
----------------------------------------- ------ ------ -------
EBITDA[3] 427 226 +89%
----------------------------------------- ------ ------ -------
Adjusted EBITDA1,2,3 463 240 +93%
----------------------------------------- ------ ------ -------
Profit attributable to shareholders 212 100 +112%
----------------------------------------- ------ ------ -------
Adjusted profit attributable to
shareholders(1, 2) 274 120 +128%
----------------------------------------- ------ ------ -------
Basic earnings per share (cents) 107.6 51.1 +111%
----------------------------------------- ------ ------ -------
Adjusted basic earnings per share
(cents) (1, 2) 139.1 61.4 +127%
----------------------------------------- ------ ------ -------
Dividend per share (cents) 20.0 16.0 +25%
----------------------------------------- ------ ------ -------
Special dividend per share (cents) 7.0 -- --
----------------------------------------- ------ ------ -------
Total dividend per share (cents) 27.0 16.0 +69%
----------------------------------------- ------ ------ -------
Net cash flow from operating activities 337 184 +83%
----------------------------------------- ------ ------ -------
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/ Matthew Cole/ Julia Phillips +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 2013, Hikma achieved
revenues of $1,365 million and profit attributable to shareholders
of $212 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: 59706264#. Alternatively you can listen live via our
website at 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
atwww.hikma.com. The contents of the website do not form part of
this preliminary results announcement.
Business and financial review
The business and financial review set out below summarises the
performance of Hikma's three main business segments, Branded,
Injectables and Generics, for the year ended 31 December 2013.
Group revenue by business segment (%)
2013 2012
------------- ----- -----
Branded 41% 48%
------------- ----- -----
Injectables 39% 42%
------------- ----- -----
Generics 20% 9%
------------- ----- -----
Others 0% 1%
------------- ----- -----
Group revenue by region (%)
2013 2012
---------------- ----- -----
MENA 47% 56%
---------------- ----- -----
US 46% 36%
---------------- ----- -----
Europe and ROW 7% 8%
---------------- ----- -----
Branded
2013 highlights:
-- Branded revenue increased by 5%, and 8% in constant currency, in line with guidance
-- Branded adjusted operating profit increased by 9%, with an
adjusted operating margin of 24.4%, up from 23.4%
-- 69 product launches and 4 new in-license agreements
Branded revenue increased by 5% in 2013 to $554 million,
compared with $529 million in 2012. On a constant currency basis,
Branded revenue was $570 million, up 8%, reflecting good
performances across key markets. Although our decision to cut low
margin tender sales impacted revenue, this strategy has helped to
drive improved profitability. Across all of our MENA markets, we
are benefiting from our increased focus on higher value, strategic
products, enhanced sales and marketing activities and operational
efficiencies.
Our Egyptian business achieved steady revenue growth, despite
the political instability during the year and the significant
depreciation in the Egyptian pound against the US dollar of around
12%. On a constant currency basis, revenue growth in Egypt was
around 20%. This reflects a stronger focus on strategic, high
margin products and our continued emphasis on driving value rather
than volume growth through new product launches. This business was
strengthened by the acquisition of the Egyptian Company for
Pharmaceuticals and Chemical Industries ("EPCI") in January 2013
for an aggregate cash consideration of $21 million. This
acquisition added a number of strategic products, including several
cephalosporins and ophthalmics, and a sales force of more than 130
people.
In Algeria, revenue growth of 6% was driven by our broad product
portfolio and new product launches. We continued to strengthen our
business in Algeria, increasing the volume of products that we
manufacture locally and enhancing our local R&D capabilities,
which drove an increase in product submissions over the year. Our
business in Saudi Arabia delivered strong growth in the private
market in 2013, however, our decision to significantly reduce low
margin tender sales meant that overall revenue was slightly lower
than in 2012. This strategy has strengthened the overall business,
with double-digit revenue growth in the second half, and our strong
pipeline of new product launches is expected to support good growth
in 2014.
In Morocco, we received our first approvals for Hikma products
in the second half of 2013 and these products have recently been
launched. This enlarged portfolio, combined with the actions we
have taken to strengthen our sales team in Morocco and upgrade our
manufacturing operations, will enable us to deliver a strong
performance in 2014. Our businesses in Jordan and Tunisia performed
well this year and in Iraq we delivered particularly strong growth,
benefiting from the appointment of a new distributor in 2012. In
Sudan, our local manufacturing facility and new product
registrations are driving strong growth.
As well as continuing to invest in our existing MENA markets, we
are actively looking at opportunities to enter new markets. In
September 2013, we began our expansion into sub-Saharan Africa when
we signed a 50:50 joint venture agreement with MIDROC
Pharmaceuticals Limited, a member of Sheikh Mohammed Hussein Al
Amoudi's MIDROC Group, to enter the Ethiopian pharmaceutical
market. The joint venture will establish local manufacturing and
will market and distribute pharmaceutical products in Ethiopia.
During 2013, the Branded business launched a total of 69
products across all markets, including 16 new compounds and 27 new
dosage forms and strengths. The Branded business also received 140
regulatory approvals across the region.
Revenue from in-licensed products increased from $195 million to
$210 million in 2013, reflecting strong demand for key products.
In-licensed products represented 38% of Branded revenue compared
with 37% in 2012. We signed 4 new licensing agreements for
innovative oral products during 2013, which will support our
continued focus on growing our portfolio of higher value products
in growing therapeutic categories.
Branded gross profit grew by 7% to $276 million in 2013 and
gross margin was 49.8%, compared with 48.6% in 2012.
The improvement in gross margin primarily reflects good control
of overhead costs as well as a favourable product mix, achieved
through our focus on higher value products, and a reduction in low
margin tender sales. Lower raw material prices, due to the benefits
of economies of scale and movements in the Japanese yen against the
US dollar, also contributed to the margin improvement.
Operating profit in the Branded business increased by 12% to
$124 million, compared with $111 million in 2012. Adjusted
operating margin was 24.4%, up 100 basis points from 23.4% in 2012,
after excluding the amortisation of intangibles of $10 million and
other non-recurring severance costs of $1 million. The margin
improvement is a result of our success in driving higher margin
sales, combined with enhanced sales and marketing activities and
operational efficiencies. These actions have enabled us to absorb
wage inflation across the MENA region and disruptions related to
the Arab Spring.
On a constant currency basis, we expect Branded revenue growth
of around 10% in 2014, driven by strong market fundamentals in MENA
and the investment we have been making to develop our product
portfolio and increase capacity. Following the significant
improvement in adjusted operating margin that we delivered in 2013,
we expect margins in 2014 to remain stable.
Injectables
2013 highlights:
-- Injectables revenue grew by 14% to $536 million
-- US Injectables delivered an excellent performance, reflecting
our increasingly strong competitive position
-- Significant improvement in Injectables adjusted operating
margin, up from 26.2% to 31.0%
Injectables revenue by region
2013 2012
---------------- ----- -----
US 68% 63%
---------------- ----- -----
MENA 17% 20%
---------------- ----- -----
Europe and ROW 15% 17%
---------------- ----- -----
Revenue in our global Injectables business increased by 14% to
$536 million, compared with $470 million in 2012.
US Injectables revenue grew by $67 million, or 23%, to $363
million. This excellent performance reflects our success in
securing price increases, shifting the product mix and launching
new products. Our strong quality track record has helped to
strengthen our competitive position in the US market and enhance
our customer relationships. We expect our broad product portfolio,
including higher value, more differentiated products, to drive
continued strong growth in the US.
In Europe, Injectables revenue was $81 million, up 4% from $78
million in 2012. We continue to successfully offset double-digit
price erosion with strong volume growth and new product launches.
During the year, demand for contract manufacturing remained strong.
Revenue in our MENA Injectables business decreased by 4% to $92
million, compared with $96 million in 2012, primarily due to lower
tender sales in 2013. However, due to the change in product mix, we
achieved double-digit growth in profitability. We expect this
business to deliver a stronger performance in 2014 as a result of
enhancing our Injectables sales teams in the MENA and increasing
our R&D investment.
Injectables gross profit increased by 29% to $282 million,
compared with $219 million in 2012. Gross margin increased
significantly to 52.6%, compared with 46.6% in 2012. This reflects
our efforts to maximise the potential of existing products and
optimise pricing, favourable market conditions in the US and strong
operational management.
Operating profit of the Injectables business increased by 34% to
$155 million. Adjusted operating profit increased by 35% to $166
million. Adjusted operating margin increased from 26.2% to 31.0%.
This excellent margin expansion reflects the improvement in gross
margin, greater operating efficiencies and tight control of costs.
It was also achieved despite a significant increase in R&D
expenditure, which is expected to increase further in 2014. Our
ability to add higher value, more differentiated products to our
portfolio will be a key driver of growth in 2014 and beyond.
During 2013, the Injectables business launched a total of 35
products across all markets, including 10 new compounds and 16 new
dosage forms and strengths. The Injectables business also received
a total of 89 regulatory approvals across all regions and markets,
namely 56 in MENA, 28 in Europe and 5 in the US. We signed 9 new
licensing agreements during 2013, adding innovative injectable
products to our US, MENA and European portfolios.
In 2014, we expect our global Injectables business to continue
to perform well due to our higher value product mix and attractive
market opportunities. We are expecting revenue growth above 20% and
an improvement in adjusted operating margin.
Generics
2013 highlights:
-- Generics revenue increased by 158% to $268 million,
reflecting very strong doxycycline sales
-- Operating profit increased to $127 million, after $39 million
of remediation-related and other exceptional costs
Generics revenue was $268 million, compared to $104 million in
2012. This mostly reflects very strong sales of doxycycline and
includes only a limited contribution from the rest of our
portfolio, which we began to slowly re-introduce over the course of
the year. We expect doxycycline revenue to decrease in 2014 due to
increased competition in the US doxycycline market.
Generics gross profit was $206 million, compared with $26
million in 2012, and gross margin was 76.9%, compared with 25.0% in
2012. Operating profit was $127 million and operating margin was
47.4%, compared with an operating loss of $21 million in 2012.
Excluding the impact of remediation-related and other exceptional
costs of $39 million, adjusted operating profit was $166 million
and adjusted operating margin was 61.9% in 2013, compared with an
adjusted operating loss of $14 million in 2012.
During 2013, the Generics business received a total of 12
product approvals, including 4 new compounds. These products will
be manufactured in our US Food and Drug Administration ("US FDA")
approved facilities in Jordan.
Our Eatontown facility underwent extensive remediation work in
2013 and was re-inspected by the US FDA in February 2014. The
inspection went well and we are awaiting the US FDA's formal
feedback on the regulatory status of the facility.
Having spent considerable time on the remediation of our
Eatontown facility and reviewed the strategic potential of our
Generics business, we believe there are an increasing number of
attractive market opportunities and it is our intention to pursue
these. To this end, we acquired several products during 2013,
focusing on niche areas such as transdermals and dermatologicals.
In 2014, we will continue to look for further product acquisitions,
alongside re-introducing our product portfolio and re-building our
market position.
We expect the Generics business to deliver revenue of around
$170 million in 2014, which assumes a significant reduction in
doxycycline sales. We expect an adjusted operating margin of above
25%.
Other businesses
Other businesses, which primarily comprise Arab Medical
Containers, a manufacturer of plastic specialised medicinal sterile
containers, International Pharmaceuticals Research Centre, which
conducts bio-equivalency studies, and the API manufacturing
division of Hikma Pharmaceuticals Limited Jordan, contributed
revenue of $7 million in 2013, compared with $6 million in 2012.
These other businesses delivered an operating loss of $9 million in
2013, compared with a loss of $3 million in 2012.
Group
Group revenue increased by 23% to $1,365 million in 2013. Group
gross profit increased by 52% to $764 million, compared with $504
million in 2012. Group gross margin was 56.0%, compared with 45.4%,
reflecting the significant gross margin improvement of the Generics
business, as well as good margin improvements in our global
Injectables and Branded businesses.
Group operating expenses grew by 22% to $412 million, compared
with $337 million in 2012. Excluding the amortisation of intangible
assets (excluding software) of $15 million and exceptional items[4]
of $46 million, adjusted Group operating expenses grew by 13% to
$351 million. The paragraphs below address the Group's main
operating expenses in turn.
Sales and marketing expenses were $160 million, or 12% of
revenue, compared with $150 million and 14% of revenue in 2012. The
decline as a percentage of revenue reflects strong Generics revenue
growth, which did not require incremental sales and marketing
costs. The absolute increase in sales and marketing expenses
reflects our investment in product promotion in MENA and increases
to wages and employee benefits across the MENA region.
General and administrative expenses increased by $28 million, or
23%, in 2013. This reflects an increase in employee benefits
related to the exceptional performance of the Group this year, an
increase in the provision for end of service contracts to reflect
new employment policies and higher fees for consultants and other
professional services.
We continued to grow our investment in R&D, which increased
by 15% to $39 million. We invested a further $37 million in new
product acquisitions and partnership agreements, which has been
capitalised on the balance sheet. We expect to increase our
investment in R&D and new product acquisitions in 2014 as a key
driver of future growth.
Other operating expenses (net) increased by $32 million to $62
million. Excluding exceptional items of $37 million[5] which
related largely to the remediation of our Eatontown facility,
operating expenses increased by $2 million.
Operating profit for the Group increased by 111% to $352 million
in 2013. Group operating margin increased to 25.8%, compared with
15.1% in 2012. On an adjusted basis, Group operating profit
increased by $219 million, or 113%, to $413 million and operating
margin increased to 30.3%, up from 17.5% in 2012.
Research & Development[6]
The Group's product portfolio continues to grow as a result of
our in-house product development efforts. During 2013, we launched
26 new compounds. The Group's portfolio now stands at 710 compounds
in 1,679 dosage forms and strengths.[7] We manufacture and/or sell
95 of these compounds under-license from the licensor.
Across all businesses and markets, a total of 104 products were
launched during 2013. In addition, the Group received 241
approvals.
Products
pending
approval
Products as at 31
Total marketed approved December
products Products launched in 2013 in 2013 2013
------------- ----------------------- -------------------------------------------- --------------- ---------------
Total launches Total Total pending
Dosage New dosage across approvals approvals
forms and forms and all across all across
Compounds strengths New compounds strengths countries[8] countries8 all countries8
------------- ---------- ----------- -------------- ----------- --------------- --------------- ---------------
Branded 4997 1,2567 16 27 69 140 406
Injectables 200 379 10 16 35 89 279
Generics 11 44 0 0 0 12 49
Group 710 1,679 26 43 104 241 734
To ensure the continuous development of our product pipeline, we
submitted 389 regulatory filings in 2013 across all regions and
markets. As of 31 December 2013, we had a total of 734 pending
approvals across all regions and markets. At 31 December 2013, we
had a total of 265 new products under development.
Share of results of associated companies
During 2011, Hikma acquired a minority interest in Unimark
Remedies Limited ("Unimark") in India for a cash consideration of
$34 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. In 2013, we incurred
an impairment charge of $16 million in respect of our investment
and a further $3 million charge in respect of our share of
operating losses for the year. Going forward, we expect that
Unimark will be able to successfully manage these issues.
Net finance expense
The Group's net debt position at 31 December 2013 was $267
million, down from $405 million at 31 December 2012. The reduction
in total debt resulted in a decrease in net finance expense to $35
million, compared with $37 million in 2012. The decrease in net
finance expense was partially offset by an early repayment fee on a
long term loan. In 2014, we expect a net finance expense of around
$35 million, reflecting an increase in local loans and additional
working capital financing.
Profit before tax
Profit before tax for the Group increased by 126% to $298
million, compared with $132 million in 2012. Adjusted profit before
tax increased by 136% to $375 million.
Tax
The Group incurred a tax expense of $82 million, compared with
$25 million in 2012. The effective tax rate was 28%. Excluding the
impact of the non-cash impairment charge in respect of Unimark, the
effective tax rate was 26%, compared with 19% in 2012. The increase
in the tax rate is mainly attributable to the increased
profitability in higher tax jurisdictions. In 2014, we expect the
effective tax rate to be between 26% and 27%.
Profit attributable to shareholders
The Group's profit attributable to shareholders increased by
112% to $212 million in 2013. Adjusted profit attributable to
shareholders increased by 128% to $274 million.
Earnings per share
Basic earnings per share increased by 111% to 107.6 cents,
compared with 51.1 cents in 2012. Diluted earnings per share
increased by 112% to 107.1 cents, compared with 50.6 cents in 2012.
Adjusted diluted earnings per share was 138.4 cents, an increase of
128% over 2012.
Dividend
The Board of Hikma ("Board") has recommended a final dividend of
13.0 cents per share (approximately 7.8 pence per share) for 2013,
which will make a dividend for the full year of 20.0 cents per
share (approximately 12.0 pence per share), an increase of 25%
compared with 2012. In addition, the Board has recommended a
special final dividend of 4.0 cents per share (approximately 2.4
pence per share), which makes a special full year dividend of 7.0
cents per share (approximately 4.2 pence per share). This makes a
total dividend for the year of 27.0 cents per share (approximately
16.2 pence per share). This distribution to shareholders comes
after the allocation of capital to plant remediation costs, debt
repayment and capital expenditure.
The proposed final dividend and final special dividend will be
paid on 22 May 2014 to eligible shareholders on the register of
Hikma at the close of business on 25 April 2014, subject to
approval by shareholders at Hikma's Annual General Meeting. The
ex-dividend date is 23 April 2014 and the final date for currency
elections is 9 May 2014.
Net cash flow, working capital and net debt
The Group generated operating cash flow of $337 million in 2013,
up $153 million from $184 million in 2012. This significant
improvement in operating cash flow reflects the significant
increase in profitability. Working capital days increased by 4 days
from 194 days in 2012 to 198 days in 2013.
Capital expenditure was $59 million, compared with $51 million
in 2012. Of this, $33 million was spent in MENA, principally to
maintain our manufacturing facilities across the region and to
upgrade our recently acquired facility in Egypt. The remainder was
spent in the US, primarily to add capacity at our Injectables
facility, and in Europe for the installation of a new injectables
production line and a dedicated R&D line.
The Group made an acquisition in Egypt in January 2013,
acquiring EPCI for a total consideration of $21 million of which
$19 million was paid during the year and $2 million was
deferred.
In 2013, the Group made product-related investments of $37
million, compared with $31 million in 2012. These investments
included advance payments made to acquire products and
product-related technologies for the US and MENA, which were
capitalised on the balance sheet.[9] They also include an agreement
with Unilife for the supply of pre-filled syringes.
Group net debt decreased from $405 million at 31 December 2012,
to $267 million at 31 December 2013. This reflects the strong
performance of the Group in 2013, which enabled us to make an early
repayment of long term loans.
Balance sheet
During the period, shareholder equity was positively impacted by
an unrealised foreign exchange gain of $3 million, primarily
reflecting positive movements in the Euro and Moroccan dinar,
partially offset by an adverse movement in the Egyptian pound
against the US dollar and the revaluation of net assets denominated
in these currencies.
Summary and outlook
The Group delivered a strong performance across our businesses
in 2013, with a 23% increase in revenue and a 111% increase in
basic earnings per share.
We have made a good start to 2014 and expect to deliver Group
revenue growth of around 5% this year. This is expected despite the
anticipated reduction in doxycycline sales in 2014.
On a constant currency basis, we expect Branded revenue growth
of around 10% in 2014, driven by strong market fundamentals in MENA
and the investment we have been making to develop our product
portfolio and increase capacity. Following the significant
improvement in adjusted operating margin that we delivered in 2013,
we expect margins in 2014 to remain stable.
In 2014, we expect our global Injectables business to continue
to perform well. Due to our higher value product mix and attractive
market opportunities, we are expecting revenue growth above 20% and
an improvement in adjusted operating margin. The Generics business
is expected to deliver revenue of around $170 million in 2014,
which assumes a significant reduction in doxycycline sales. We
expect Generics adjusted operating margin of above 25%.
Overall, we are pleased with the performance of the Group in
2013 and remain confident in our medium and long term growth
prospects.
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.
Going concern statement
The Directors of Hikma ("Directors") believe that the Group is
well diversified due to its geographic spread, product diversity
and large customer and supplier base. The Group operates in the
relatively defensive generic pharmaceuticals industry which the
Directors expect to be less affected by economic downturns compared
to other industries. The Group has reduced its year end net debt
position to $267 million (2012: $405 million), following strong
cash generation from operations. Operating cash flow in 2013 was
$337 million (2012: $184 million). The Group has $376 million
(2012: $313 million) of undrawn banking facilities. These
facilities are well diversified across the subsidiaries of the
Group and are with a number of financial institutions. 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
well within the levels of its facilities and their related
covenants.
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 and political
outlook. The Directors have a reasonable expectation that the Group
has adequate resources to continue in operational existence for the
foreseeable future. The Directors therefore continue to adopt the
going concern basis in preparing the financial statements.
Responsibility statement
The responsibility statement below has been prepared in
connection with company's full annual report for the year ended 31
December 2013. Certain parts thereof are not included within this
announcement.
We confirm to the best of our knowledge:
-- The financial statements, prepared in accordance with
International Financial Reporting Standards as adopted by the EU,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the company and the undertakings
included in the consolidation taken as a whole; and
-- The business and financial review, which is incorporated into
the strategic report, includes a fair review of the development and
performance of the business and the position of the company and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties they face.
By order of the Board
Said Darwazah Khalid Nabilsi
Chief Executive Officer Chief Financial Officer
11 March 2014
Cautionary statement
This preliminary announcement has been prepared solely to
provide additional information to the shareholders of Hikma 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
This announcement may contain statements which are, or may be
deemed to be, "forward looking statements" which are prospective in
nature. All statements other than statements of historical fact may
be forward-looking statements. Often, but not always,
forward-looking statements can be identified by the use of forward
looking words such as "intends", "believes", "anticipates",
"expects", "estimates", "forecasts", "targets", "aims", "budget",
"scheduled" or words or terms of similar substance or the negative
thereof, as well as variations of such words and phrases or
statements that certain actions, events or results "may", "could",
"should", "would", "might" or "will" be taken, occur or be
achieved.
Where included, such statements have been made by Hikma in good
faith based on the information available to it up to the time of
the approval of this announcement. By their nature, forward looking
statements are based on current expectations, assumptions and
projections about future events and therefore 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 and a variety of factors, many of which are
beyond Hikma's control, could cause actual results to differ
materially from those projected or implied in any forward-looking
statements. 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, Hikma 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. Except as expressly
provided in this announcement, no forward looking or other
statements have been reviewed by the auditors of Hikma. All
subsequent oral or written forward looking statements attributable
to the Hikma or any of its members, Directors, officers or
employees or any person acting on their behalf are expressly
qualified in their entirety by the cautionary statement above.
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2013
Note 2013 2012*
$m $m
---------------- --------------
Continuing operations
Revenue 3 1,365 1,109
Cost of sales 3 (601) (605)
---------------- --------------
Gross profit 3 764 504
---------------- --------------
Sales and marketing costs (160) (150)
General and administrative
expenses (151) (123)
Research and development
costs (39) (34)
Other operating expenses
(net) (62) (30)
---------------- --------------
Total operating expenses (412) (337)
Adjusted operating profit 413 194
Exceptional items:
- Acquisition and integration
related expenses 4 - (3)
- Severance costs 4 (1) (4)
- Plant remediation costs 4 (24) (7)
- Impairment losses 4 (10) -
- Other claims provisions 4 (11) -
Intangible amortisation** 4 (15) (13)
-------------------------------------------- ----- --- ---------------- --------------
Operating profit 3 352 167
Associated companies
-share of results (3) 1
-exceptional impairment (16)
of investment -
Finance income 2 1
Finance expense (37) (38)
Other income expense (net) - 1
---------------- --------------
Profit before tax 298 132
Tax 5 (82) (25)
---------------- --------------
Profit for the year 216 107
================ ==============
Attributable to:
Non-controlling interests 4 7
Equity holders of the parent 212 100
---------------- --------------
216 107
================ ==============
Earnings per share (cents)
Basic 7 107.6 51.1
================ ==============
Diluted 7 107.1 50.6
================ ==============
Adjusted basic 7 139.1 61.4
================ ==============
Adjusted diluted 7 138.4 60.8
================ ==============
* Certain comparative figures have been represented to conform
with the 2013 presentation.
** Intangible amortisation comprises the amortisation of
intangible assets other than software.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2013
2013 2012
$m $m
-------------- ---------------
PROFIT FOR THE YEAR 216 107
Items that may be reclassified subsequently
to the income statement:
Cumulative effect of change in fair value
of financial derivatives 3 (2)
Exchange difference on translation of
foreign operations 3 (26)
-------------- ---------------
Total comprehensive income for the year 222 79
============== ===============
Attributable to:
Non-controlling interests 5 1
Equity holders of the parent 217 78
-------------- ---------------
222 79
============== ===============
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2013
Note 2013 2012
Non-current assets $m $m
------------------- --------------------
Intangible assets 447 433
Property, plant and equipment 443 420
Investment in associates and joint
ventures 22 38
Deferred tax assets 86 46
Financial and other non-current
assets 34 11
1,032 948
------------------- --------------------
Current assets
Inventories 8 276 272
Income tax asset 4 1
Trade and other receivables 9 439 328
Collateralised and restricted cash 7 2
Cash and cash equivalents 168 177
Other current assets 3 2
897 782
------------------- --------------------
Total assets 1,929 1,730
=================== ====================
Current liabilities
Bank overdrafts and loans 159 193
Obligations under finance leases 1 3
Trade and other payables 10 241 195
Income tax provision 65 23
Other provisions 20 11
Other current liabilities 11 100 42
586 467
------------------- --------------------
Net current assets 311 315
------------------- --------------------
Non-current liabilities
Long-term financial debts 12 263 372
Obligations under finance leases 19 16
Deferred tax liabilities 26 23
Derivative financial instruments 1 4
309 415
------------------- --------------------
Total liabilities 895 882
=================== ====================
Net assets 1,034 848
=================== ====================
Equity
Share capital 13 35 35
Share premium 281 279
Own shares (3) -
Other reserves 704 519
------------------- --------------------
Equity attributable to equity holders
of the parent 1,017 833
Non-controlling interests 17 15
------------------- --------------------
Total equity 1,034 848
=================== ====================
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 Darwazah
Director Director
11 March 2014
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2013
Total
equity
attributable
Merger to equity
and Own shareholders
Revaluation Translation Retained Total Share Share shares of the Non-controlling Total
reserves reserves earnings reserves capital premium parent interests equity
$m $m $m $m $m $m $m $m $m $m
------------- ------------- ------------- ---------- ------------ ---------- ------- ------------- -------------------- ---------
Balance
at 1 January
2012 38 (28) 456 466 35 278 (2) 777 22 799
Profit
for the
year - - 100 100 - - - 100 7 107
Cumulative
effect
of change
in fair
value of
financial
derivatives - - (2) (2) - - - (2) - (2)
Currency
translation
loss - (20) - (20) - - - (20) (6) (26)
------------- ------------- ------------- ---------- ------------ ---------- ------- ------------- -------------------- ---------
Total comprehensive
income
for the
year - (20) 98 78 - - - 78 1 79
Issue of
equity
shares - - - - - 1 - 1 - 1
Cost of
equity
settled
employee
share scheme - - 8 8 - - - 8 - 8
Exercise
of equity
settled
employee
share scheme - - (2) (2) - - 2 - - -
Current
tax arising
on share-based
payments - - 1 1 - - - 1 - 1
Dividends
on ordinary
shares
(Note 6) - - (27) (27) - - - (27) (1) (28)
Adjustment
arising
from change
in
non-controlling
interests - - (5) (5) - - - (5) (7) (12)
------------- ------------- ------------- ---------- ------------ ---------- ------- ------------- -------------------- ---------
Balance
at 31 December
2012 and
1 January
2013 38 (48) 529 519 35 279 - 833 15 848
Profit
for the
year - - 212 212 - - - 212 4 216
Cumulative
effect
of change
in fair
value of
financial
derivatives - - 3 3 - - - 3 - 3
Currency
translation
gain - 2 - 2 - - - 2 1 3
Total comprehensive
income
for the
year - 2 215 217 - - - 217 5 222
Issue of
equity
shares - - - - - 2 - 2 - 2
Own shares
acquired - - - - - - (3) (3) - (3)
Cost of
equity
settled
employee
share scheme - - 7 7 - - - 7 - 7
Dividends
on ordinary
shares
(Note 6) - - (39) (39) - - - (39) (3) (42)
Balance
at 31 December
2013 38 (46) 712 704 35 281 (3) 1,017 17 1,034
============= ============= ============= ========== ============ ========== ======= ============= ==================== =========
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER
2013
2013 2012
Note $m $m
-------------------- --------------------
Net cash from operating activities 14 337 184
INVESTING ACTIVITIES
Purchases of property, plant and
equipment (59) (51)
Proceeds from disposal of property,
plant and equipment 1 1
Purchase of intangible assets (16) (38)
Acquisition of interest in joint (3) -
ventures
Investment in financial and other (22) -
non current assets
Acquisition of subsidiary undertakings
net of cash acquired (18) (12)
Payments of costs directly attributable
to acquisitions 4 - (2)
Finance income 2 1
-------------------- --------------------
Net cash used in investing activities (115) (101)
-------------------- --------------------
FINANCING ACTIVITIES
(Increase)/decrease in collateralised
and restricted cash (5) 1
Increase in long-term financial debts 7 152
Repayment of long-term financial
debts (117) (124)
(Decrease)/Increase in short-term
borrowings (34) 52
Increase/(Decrease) in obligations
under finance leases 1 (2)
Dividends paid (39) (27)
Dividends paid to non-controlling
shareholders of subsidiaries (3) (1)
Purchase of own shares (4) -
Interest paid (37) (36)
Proceeds from issue of new shares 2 1
Acquisition of non-controlling interest
in subsidiary - (12)
-------------------- --------------------
Net cash (used in)/ generated by
financing activities (229) 4
-------------------- --------------------
Net (Decrease)/ increase in cash
and cash equivalents (7) 87
Cash and cash equivalents at beginning
of year 177 95
Foreign exchange translation movements (2) (5)
-------------------- --------------------
Cash and cash equivalents at end
of year 168 177
==================== ====================
1. Accounting policies
Basis of preparation
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2013
or 2012, but is derived from those accounts. Statutory accounts for
2012 have been delivered to the Registrar of Companies and those
for 2013 will be delivered following the Company's annual general
meeting. The auditors have reported on those accounts; their
reports were unqualified, did not draw attention any matters by way
of emphasis without qualifying their report and did not contain
statements under S498 (2) or (3) of the Companies Act 2006. Hikma
Pharmaceuticals PLC's consolidated financial statements are
prepared in accordance with International Financial Reporting
Standards (IFRSs) issued by the International Accounting Standards
Board. The financial statements have also been prepared in
accordance with IFRSs adopted for use in the European Union and
therefore comply with Article 4 of the EU IAS Regulation. The
financial statements have been prepared under the historical cost
convention, except for the revaluation to market of certain
financial assets and liabilities. The preliminary announcement is
based on the Company's financial statements. The Group's previously
published financial statements were also prepared in accordance
with International Financial Reporting Standards. These
International Financial Reporting Standards have been subject to
amendment and interpretation by the International Accounting
Standards Board and the financial statements presented for the
years ended 31 December 2013 and 31 December 2012 have been
prepared in accordance with those revised standards. Unless stated
otherwise these policies are in accordance with the revised
standards that have been applied throughout the year and prior
years presented in the financial statements. The presentational and
functional currency of Hikma Pharmaceuticals PLC is the US Dollar
as the majority of the Company's business is conducted in US
Dollars (USD).
Revenue recognition
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 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.
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, however may impact the
accounting for future transactions and arrangements.
IFRS 7 Offsetting Financial Assets and Financial
Liabilities
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other
Entities
IFRS 13 Fair Value Measurement
IAS 1 Presentation of Items of Other Comprehensive
Income
IAS 19 (revised 2011) Employee Benefits
IAS 27 (revised 2011) Separate Financial Statements
IAS 28 (revised 2011) Investments in Associates
Annual Improvements to IFRSs 2009-2011 Minor amendments
Cycle
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):
IFRS 9 Financial Instruments
Amendments to IFRS 10, 12 and IAS27 Added disclosure requirements
- Investment entities for entities becoming, or ceasing
to be, investment entities, as
defined in IFRS 10
Amendments to IAS 19 Defined Benefit Plans: Employee
Contributions
Amendments to IAS 32 Offsetting Financial Assets and
Financial Liabilities
Amendments to IAS 36 Recoverable Amount Disclosures
for Non-Financial Assets
Amendments to IAS 39 Novation of Derivatives and Continuation
of Hedge Accounting
IFRIC 21 Levies
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.
2. Going concern
The Directors believe that the Group is well diversified due to
its geographic spread, product diversity and large customer and
supplier base. The Group operates in the relatively defensive
generic pharmaceuticals industry which the Directors expect to be
less affected compared to other industries.
The Group has reduced its year end net debt position to $ 267
million (2012: $405 million) following strong cash generation from
operations. Operating cash flow in 2013 was $337 million (2012:
$184 million). The Group has $376 million (2012: $313 million) of
undrawn banking facilities. These facilities are well diversified
across the subsidiaries of the Group and are with a number of
financial institutions. 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 well within the levels of its
facilities and their related covenants. 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 and political outlook. The Directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future. The
Directors therefore continue to adopt the going concern basis in
preparing the financial statements
3. Segmental reporting
For management purposes, the Group is currently organised into
three principal operating divisions - Branded, Injectables and
Generics. These divisions are the basis on which the Group reports
its segmental information.
The Group discloses underlying operating profit as the measure
of segmental result, as this is the measure used in the
decision-making and resource allocation process of the chief
operating decision maker, who is the Group's Chief Executive
Officer.
Information regarding the Group's operating segments is reported
below.
The following is an analysis of the Group's revenue and results
by reportable segment in 2013:
Year ended
31 December 2013 Branded Injectables Generics Others Group
$m $m $m $m $m
---------- ----------------- --------------- ----------- -----------
Revenue 554 536 268 7 1,365
Cost of sales (278) (254) (62) (7) (601)
Gross profit 276 282 206 - 764
---------- ----------------- --------------- ----------- -----------
Adjusted segment result 135 166 166 (9) 458
Exceptional items:
- Severance costs (1) - - - (1)
- Plant remediation costs - - (24) - (24)
- Impairment losses - (6) (4) - (10)
- Other claims provisions - - (11) - (11)
Intangible amortisation* (10) (5) - - (15)
----------------------------- ---------- ----------------- --------------- ----------- -----------
Segment result 124 155 127 (9) 397
========== ================= =============== =========== ===========
Unallocated corporate
expenses (45)
----------------------------- ---------- ----------------- --------------- ----------- -----------
Adjusted operating profit 413
----------------------------- ---------- ----------------- --------------- ----------- -----------
Operating profit 352
Associated companies
-Share of results (3)
-exceptional impairment
of investment (16)
Finance income 2
Finance expense (37)
-----------
Profit before tax 298
Tax (82)
Profit for the year 216
-----------
Attributable to:
Non-controlling interest 4
Equity holders of the
parent 212
216
===========
Segment result is defined as operating profit for each
segment.
* Intangible amortisation comprises the amortisation on
intangible assets other than software.
"Others" mainly comprises 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.
Segment assets and
liabilities Corporate
2013 Branded Injectables Generics and others Group
$m $m $m $m $m
--------------- ------------------ -------------- ------------------- ----------------
Additions to property,
plant and equipment
(cost) 25 31 10 - 66
Acquisition of
subsidaries'
property, plant and
equipment (net book
value) 6 - - - 6
Additions to intangible
assets 3 13 2 - 18
Intangible assets arising
on acquisition 20 - - - 20
Total property, plant
and equipment and
intangible
assets (net book value) 519 314 51 6 890
Depreciation and
impairment 22 17 8 2 49
Amortisation and
impairment
(including software) 10 12 4 - 26
Investment in associates
and joint venutres - - - 22 22
Balance sheet
Total assets 1,138 592 141 58 1,929
=============== ================== ============== =================== ================
Total liabilities 551 259 25 60 895
=============== ================== ============== =================== ================
The following is an analysis of the Group's revenue and results
by reportable segment in 2012:
Year ended
31 December 2012 Branded Injectables Generics Others Group
$m $m $m $m $m
-------------- ------------------ --------------- ----------- -----------
Revenue 529 470 104 6 1,109
Cost of sales (272) (251) (78) (4) (605)
Gross profit 257 219 26 2 504
------------- ------------------ --------------- ----------- -----------
Adjusted segment result 124 123 (14) (3) 230
Exceptional items:
- Integration related
expenses (1) (2) - - (3)
- Severance expenses (3) (1) - - (4)
- Plant remediation
costs - - (7) - (7)
Intangible amortisation* (9) (4) - - (13)
------------------------- ------------- ------------------ --------------- ----------- -----------
Segment result 111 116 (21) (3) 203
============= ================== =============== =========== ===========
Unallocated corporate
expenses (36)
------------------------- ------------- ------------------ --------------- ----------- -----------
Adjusted operating
profit 194
------------------------- ------------- ------------------ --------------- ----------- -----------
Operating profit 167
Share of results of
associated
companies 1
Finance income 1
Finance expense (38)
Other expense (net) 1
-----------
Profit before tax 132
Tax (25)
-----------
Profit for the year 107
===========
Attributable to:
Non-controlling interest 7
Equity holders of the
parent 100
-----------
107
===========
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.
Segment assets and
liabilities Corporate
2012 Branded Injectables Generics and others Group
$m $m $m $m $m
--------------- ------------------ -------------- ------------------- ---------------
Additions to property,
plant and equipment
(cost) 26 17 5 2 50
Additions to intangible
assets 2 35 7 - 44
Total property, plant
and equipment and
intangible
assets (net book value) 504 282 61 6 853
Depreciation 21 13 7 2 43
Amortisation (including
software) 10 6 - - 16
Interests in associated
companies - - - 38 38
Balance sheet
Total assets 1,050 481 135 64 1,730
=============== ================== ============== =================== ===============
Total liabilities 574 252 6 50 882
=============== ================== ============== =================== ===============
The following table provides an analysis of the Group's sales by
geographical market, irrespective of the origin of the
goods/services:
2013 2012
$m $m
------------- --------------
Middle East and North Africa 638 619
United States 631 400
Europe and Rest of the
World 89 81
United Kingdom 7 9
------------- --------------
1,365 1,109
============= ==============
The top selling markets were as below:
2013 2012
$m $m
------------- --------------
United States 631 400
Saudi Arabia 132 125
Algeria 125 121
888 646
============= ==============
Generics revenue was $268 million (2012: $104 million). This
mostly reflects very strong sales of doxycycline and includes only
a limited contribution from the rest of our portfolio. Included in
revenues arising from the Generics and Injectables segments are
revenues of approximately $172 million (2012: 86 million) 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, the Branded and Injectables segments included revenue
arising from this customer of $101 million and $104 million for the
periods ended 31 December 2013 and 31 December 2012
respectively.
The following is an analysis of the total non-current assets
excluding deferred tax and financial instruments and an analysis of
total assets by the geographical area in which the assets are
located:
Total non current
assets excluding
deferred tax and
financial instruments Total assets as
as at 31 December at 31 December
------------------------------------ -----------------------------------
2013 2012 2013 2012
$m $m $m $m
----------------- ----------------- ---------------- -----------------
Middle East and North Africa 624 601 1,255 1,157
Europe 156 145 217 191
United States 163 156 437 373
United Kingdom 3 - 20 9
946 902 1,929 1,730
================= ================= ================ =================
4. Exceptional items and intangible amortisation
Exceptional items are disclosed separately in the consolidated
income statement to assist in the understanding of the Group's
underlying performance.
2013 2012
$m $m
--------------------- ----------------
Acquisition and integration related
expenses - (3)
Other Costs:
Severance expenses (1) (4)
Plant remediation costs (24) (7)
Impairment losses (10) -
Other claims provisions (11) -
--------------------- -------------------
Exceptional items included in
operating profit (46) (14)
Impairment of investment in associates (16) -
--------------------- -------------------
Exceptional items included in
profit (62) (14)
Intangible amortisation * (15) (13)
--------------------- -------------------
Exceptional items and intangible
amortisation (77) (27)
Tax effect 15 7
--------------------- -------------------
Impact on profit for the year (62) (20)
===================== ===================
* Intangible amortisation comprises the amortisation of intangible assets other than software.
Acquisition and integration related expenses
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 costs of $Nil (2012: $2 million) have been
classified as investing activities in the cash flow statement.
Other costs
Severance expenses in 2013 related to restructuring of
management teams in MENA (2012: across all three operating
regions).
Plant remediation costs represent write-down of inventory of
some products and ongoing costs incurred for compliance work at our
Eatontown facility in response to observations made by the US FDA.
Remediation costs are included in other operating expenses.
Impairment losses are related to the write off of intangible
product rights of $8 million (2012: $Nil), in addition to the write
off of certain property, plant and equipment of $2 million (2012:
$Nil). Impairment of intangible assets is included in research and
development. 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
$34 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 year, we
incurred an impairment charge of $16 million in respect of our
investment. We expect that Unimark will be able to successfully
manage its current issues.
5. Tax
2013 2012
$m $m
---------------- ----------------
Current tax:
Foreign tax 123 30
Adjustments to prior year - 5
Deferred tax (41) (10)
82 25
================ ================
UK corporation tax is calculated at 23.25% (2012: 24.5%) of the
estimated assessable profit made in the UK for the year.
The effective tax rate for the Group is 27.7% (2012:18.8%).
Taxation for other jurisdictions is calculated at the rates
prevailing in the respective jurisdiction.
The charge for the year can be reconciled to profit before tax
per the consolidated income statement as follows:
2013 2012
$m $m
---------------- ----------------
Profit before tax: 298 132
---------------- ----------------
Tax at the UK corporation tax rate
of 23.25% (2012: 24.5%) 69 32
Profits taxed at different rates 3 (17)
Permanent differences 7 3
Temporary differences for which no
benefit is recognised 3 2
Adjustment to Prior year - 5
Tax expense for the year 82 25
================ ================
The movement in deferred tax in the period is due to short-term
timing differences.
6. Dividends
2013 2012
$m $m
----------------- -------------------
Amounts recognised as distributions to
equity holders in the year:
Final dividend for the year ended 31
December 2012 of 10.0 cents (2011: 7.5
cents) per share 19 15
Interim dividend for the year ended 31
December 2013 of 7.0 cents (2012: 6.0
cents) per share 14 12
Special Interim dividend for the year
ended 31 December 2013 of 3.0 cents (2012:
Nil) per share 6 -
39 27
================= ===================
The proposed final dividend for the year ended 31 December 2013
is 13.0 cents (2012:10.0 cents) per share plus a special dividends
of 4.0 cents (2012: Nil) per share that reflect the exceptional
performance of the generics business during the year, bringing the
total dividend for the year to 20.0 cents (2012:16.0 cents) per
share plus a special dividend of 7.0 cents (2012: Nil) per
share.
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting on 15 May 2014 and has
not been included as a liability in these financial statements.
Based on the number of shares in issue at 31 December 2013
(197,747,000), the unrecognised liability is $34 million.
7. Earnings per share
Earnings per share are 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 is 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
(excluding software). A reconciliation of the basic and adjusted
earnings used is also set out below:
2013 2012
$m $m
------------------ -----------------
Earnings for the purposes of basic and diluted
earnings per share being net profit attributable
to equity holders of the parent 212 100
================== =================
Exceptional items (see note 4) 62 14
Intangible amortisation* 15 13
Tax effect of adjustments (15) (7)
Adjusted earnings for the purposes of adjusted
basic and diluted earnings per share being
adjusted net profit attributable to equity
holders of the parent 274 120
================== =================
Number Number
Number of shares 'm 'm
Weighted average number of Ordinary Shares
for the purposes of basic earnings per share 197 196
Effect of dilutive potential Ordinary Shares:
Share-based awards 1 2
Weighted average number of Ordinary Shares
for the purposes of diluted earnings per
share 198 198
2013 2012
Earnings Earnings
per share per share
Cents Cents
Basic 107.6 51.1
Diluted 107.1 50.6
Adjusted basic 139.1 61.4
Adjusted diluted 138.4 60.8
*Intangible amortisation comprises the amortisation of
intangible assets other than software.
8. Inventories
As at 31 December
2013 2012
$m $m
Finished goods 77 88
Work-in-progress 30 30
Raw and packing materials 149 135
Goods in transit 20 19
276 272
Goods in transit includes inventory held at third parties whilst
in transit between Group companies.
9. Trade and other receivables
As at 31 December
2013 2012
$m $m
Trade receivables 385 294
Prepayments 40 23
Value added tax recoverable 11 8
Interest receivable - 1
Employee advances 3 2
439 328
10. Trade and other payables
As at 31 December
2013 2012
$m $m
Trade payables 120 110
Accrued expenses 105 70
Employees' provident fund * 5 6
VAT and sales tax payables 1 1
Dividends payable ** 2 2
Social security withholdings 3 2
Income tax withholdings 4 3
Other payables 1 1
241 195
* The employees' provident fund liability mainly represents the
outstanding contributions due to the Hikma Pharmaceuticals Ltd
(Jordan) retirement benefit plan, on which the fund receives 5%
interest.
** Dividends payable includes $2 million (2012: $2 million) due
to the previous shareholders of APM.
11. Other current liabilities
As at 31 December
2013 2012
$m $m
Deferred revenue 51 1
Return and free goods provision 29 30
Other provisions 20 11
100 42
12. Long-term financial debts
As at 31 December
2013 2012
$m $m
Total loans 323 461
Less: current portion of loans (60) (89)
Long-term financial loans 263 372
Breakdown by maturity:
Within one year 60 89
In the second year 61 78
In the third year 60 80
In the fourth year 51 78
In the fifth year 76 48
Thereafter 15 88
323 461
Breakdown by currency:
US Dollar 280 406
Euro 10 13
Jordanian Dinar 5 6
Algerian Dinar 21 29
Egyptian Pound 5 4
Tunisian Dinar 2 3
323 461
The loans are held at amortised cost.
13. Share capital
Issued and fully paid
- included in
shareholders'
equity:
2013 2012
Number Number
'm $m 'm $m
At 1 January 197 35 196 35
Issued during the year 1 - 1 -
At 31 December 198 35 197 35
14. Net cash from operating activities
2013 2012
Note $m $m
Profit before tax 298 132
Adjustments for:
Depreciation, amortisation, and impairment
of:
Property, plant and equipment 49 43
Intangible assets 26 16
Investment in associate 16 -
Movement on provisions 9 1
Cost of equity-settled employee share scheme 7 8
Payments of costs directly attributable
to acquisitions 4 - 2
Finance income (2) (1)
Interest and bank charges 37 38
Results from associates 3 (1)
Cash flow before working capital 443 238
Change in trade and other receivables (110) (21)
Change in other current assets - 2
Change in inventories (2) (42)
Change in trade and other payables 35 22
Change in other current liabilities 56 10
Change in other non-current liabilities (1) -
Cash generated by operations 421 209
Income tax paid (84) (25)
Net cash generated from operating activities 337 184
15. Related parties
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 associates and other related
parties are disclosed below.
Trading transactions:
During the year, Group companies entered into the following
transactions with related parties:
Darhold Limited: is a related party of the Group because it is
considered one of the major shareholders of Hikma Pharmaceuticals
PLC with an ownership percentage of 28.9% at the end of 2013 (2012:
29.0%). Further details on the relationship between Mr. Samih
Darwazah, Mr. Said Darwazah, Mr. Mazen Darwazah and Mr. Ali
Al-Husry, and Darhold Limited are given in the Directors'
Report.
Other than dividends (as paid to all shareholders), there were
no transactions between the Group and Darhold Limited in the
year.
Capital Bank - Jordan: is a related party of the Group because
two Hikma Pharmaceuticals PLC board members are also board members
of Capital Bank - Jordan. Total cash balances at Capital Bank -
Jordan were $17.2 million (31 December 2012: $3.0 million).
Facilities granted by Capital Bank to the Group amounted to $4.7
million (31 December 2012: $Nil). Interest expense/income is within
market rate.
Arab Bank: During the year one member of Hikma Pharmaceuticals
PLC senior management member became a board member of Arab Bank
PLC. Total cash balances at Arab Bank were $51.5 million (31
December 2012: $75.7 million). Facilities granted by Arab Bank to
the Group amounted to $169.4 million (31 December 2012: $187.1
million). Interest expense/income is within market rate.
Jordan International Insurance Company:is a related party of the
Group because one Board member of the Company is also a Board
member at Hikma Pharmaceuticals PLC. Total insurance premiums paid
by the Group to Jordan International Insurance Company during the
year were $0.2 million (2012: $3.4 million). The Group's insurance
expense for Jordan International Insurance Company contracts in the
year 2013 was $0.2 million (2012: $2.8 million). The amounts due to
Jordan International Insurance Company at the year-end were $0.1
million (2012: Due to $0.2 million).
Mr. Yousef Abd Ali: is a related party of the Group because he
holds a non-controlling interest in Hikma Lebanon of 33%, the
amount owed from Mr. Yousef by the Group as at 31 December 2013 was
$Nil (due to in 2012: $0.2 million).
Labatec Pharma: is a related party of the Group because it is
owned by Mr. Samih Darwazah. During 2013, the Group total sales to
Labatec Pharma amounted to $0.4 million (2012: $0.3 million) and
the Group total purchases from Labatec Pharma amounted to $Nil
(2012: $1.2 million). At 31 December 2013, the amount owed from
Labatec Pharma to the Group was $Nil (2012: Owed from $0.2
million).
King and Spalding: is a related party of the Group because a
partner of the firm is a Board member and the company secretary of
West-Ward. King and Spalding is an outside legal counsel firm that
handles general legal matters for West-Ward. During 2013 fees of
$Nil (2012: $0.1 million) were paid for legal services
provided.
Jordan Resources & Investments Company:is a related party of
the Group because three Board members of the Group are shareholders
in the firm. During 2013 fees of $0.2 million (2012: $0.2 million)
were paid for training services provided.
American University of Beirut:is a related party of the Group
because one Board member of the Group is also a trustee of the
University. During 2013 fees of $0.1 million (2012: $0.1 million)
were paid for training services provided. At 31 December 2013 the
amount owed to American University of Beirut from the Group
amounted to $0.1 million (2012: owed to $Nil).
HikmaCure: During 2013, the Group signed a 50:50 joint venture
("JV") agreement with MIDROC Pharmaceuticals Limited. The JV is
called HikmaCure. Hikma and MIDROC will invest in HikmaCure in
equal proportions and have committed to provide up to $22 million
each in cash of which $3 million has been paid during the year.
Unimark: The Group held a non-controlling interest of 23.1% in
the Indian company Unimark remedies Limited ("Unimark") at 31
December 2013 (2012: 23.1%). During 2013 the Group amount of $3
million in relation to products development agreement.
Haosun: The Group held a non-controlling interest of 30.1% in
Hubei Haosun Pharmaceutical Co., Ltd ("Haosun") at 31 December 2013
(2012: 30.1%). During 2013 the total purchases from "Haosun" was
$0.2 million (2012: $0.3 million)
16. 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 $19 million and deferred consideration of $2
million. 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 million, intangible assets of $10 million, goodwill
of $10 million and other net liabilities of $6 million.
The goodwill arising represents the synergies that will be
obtained by integrating EPCI into the existing business.Goodwill
recognised is expected to be non deductible for income tax
purposes.
The impact of this acquisition on the Group's revenues and pro
ts is immaterial.
17. Foreign exchange currencies
Period end rates Average rates
2013 2012 2013 2012
USD/EUR 0.7263 0.7565 0.7529 0.7775
USD/Sudanese Pound 5.9755 5.9988 5.6988 4.3346
USD/Algerian Dinar 78.1082 78.0915 79.3595 77.5551
USD/Saudi Riyal 3.7495 3.7495 3.7495 3.7495
USD/British Pound 0.6064 0.6185 0.6390 0.6309
USD/Jordanian Dinar 0.7090 0.7090 0.7090 0.7090
USD/Egyptian Pound 6.9586 6.3654 6.8861 6.0864
USD/Japanese Yen 85.9013 85.9013 79.8155 79.8155
USD/Moroccan Dirham 8.1069 8.4838 8.3517 8.6458
USD/Tunisian Dinar 1.6467 1.5506 1.6253 1.5686
The Jordanian Dinar and Suadi Riyal have no impact on the
consolidated income statement as those currencies are pegged to the
US Dollar.
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 734 products
> 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
> Fraudulent activities development costs robust agreements with
by third parties > Negative actions by our partners
(vendors, partners, various regulatory bodies > Continuous development
etc.) (e.g. US SEC, UK Serious of new partners for licensing
Fraud Office, etc.) and co-operation
> Diverse revenue model
with in-house R&D capabilities
> Due diligence by the
Group Compliance function
on potential vendors,
partners and other third
parties
Integration of acquisitions
> Difficulties in > Inability to obtain > Extensive due diligence,
integrating any technologies, the advantages that the including that performed
products or businesses acquisitions were intended by the Group Compliance
acquired to create function, undertaken
> Adverse impact on our as part of any acquisition
business, financial condition process
and results of operations > Track record of acquisitions
> Significant transaction and subsequent business
and integration costs integration
could adversely impact > Human resources personnel
our financial results focussed on managing
> Post acquisition discovery employee integration
of fraudulent activity following acquisitions
by the business acquired > 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 50 countries
East, North Africa or supply products > Product diversification,
and the Eurozone), with 710 products and
political environment 1,679 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 > Use of top-tier external
the Group or the legal firms in all jurisdictions
Group as a whole > Management team with
extensive experience
of the generics industry
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
Algerian, Egyptian, upon translation into > Foreign currency borrowing
European, Moroccan, US dollars > Matching foreign currency
Sudanese and Tunisian revenues to in-jurisdiction
currencies 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
> Regular use of top
professional advisory
firms
([1]) Before the amortisation of intangible assets (excluding
software) and exceptional items, as set out in note 4 to the
financial information
[2] Adjusted profit and adjusted profit attributable to
shareholders in 2012 have been re-classified to reflect the
classification of certain exceptional items on a consistent basis
with the treatment in 2013, as set out in note 4 to the financial
information
([3]) Earnings before interest, tax, depreciation and
amortisation. EBITDA is stated before impairment charges for
intangible and fixed assets
[4] In 2013, amortisation of intangible assets (excluding
software) was $15 million (2012: $13 million). In 2013, exceptional
items included within operating expenses were $46 million (2012:
$14 million)
[5] In 2013, exceptional items included within other operating
expenses (net) were $37 million (2012: $7 million)
[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
[9] In 2013, $14 million (2012: $31 million) of the
product-related investments were capitalised within intangible
assets and $23 million (2012: $0 million) were capitalised within
non-current assets on the balance sheet
This information is provided by RNS
The company news service from the London Stock Exchange
END
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