TIDMHIK
RNS Number : 5697P
Hikma Pharmaceuticals Plc
20 August 2014
PRESS RELEASE
Hikma delivers excellent first half results with 16% revenue
growth and 44% increase in adjusted EPS
London, 20 August 2014 - 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 2014.
H1 2014 highlights
Group
-- Group revenue increased by 16% to $738 million, driven by the
very strong performance of our Injectables business in the first
half
-- Group adjusted operating margin rose to 33.2%, up from 29.6%,
reflecting a higher Injectables margin
-- Profit attributable to shareholders increased by 132% to $169
million. On an adjusted basis, profit attributable to shareholders
rose 44% to $176 million
-- Basic EPS increased 130% to 85.4 cents per share
-- Net cash flow from operating activities increased by $64 million to $200 million
-- Completed the acquisition of assets of Bedford Laboratories
("Bedford") in July 2014 and agreed to acquire substantially all of
the assets of the Ben Venue manufacturing site, significantly
enhancing the long term strength of our global Injectables
business
-- Continued to build our global product portfolio through new
product introductions across all countries and markets - launched
49 products and received 140 product approvals
-- Interim dividend of 7.0 cents per share, in line with the first half of 2013
-- Declared a special dividend of 4.0 cents per share,
reflecting the exceptionally strong market opportunities captured
by our US businesses in the first half of 2014
Branded
-- Good performances across most markets, with strong growth in
key markets such as Egypt and Saudi Arabia
-- Lower than expected sales in Algeria due to restructuring and
in Sudan, Iraq and Libya due to escalating political
disruptions
-- Branded revenue grew by 1% and adjusted operating profit
decreased by 9%, with adjusted operating margin of 20.8%, compared
with 23.0% in the first half of 2013
-- Branded business is now expected to deliver low single digit
revenue growth for the full year, resulting in an adjusted
operating margin below full year 2013
Injectables
-- Global Injectables revenue grew 41%, with an adjusted operating margin of 41.0%
-- Excellent performance in the first half, driven by strong
underlying growth in the US, enhanced by specific market
opportunities
-- Continue to expect Injectables revenue growth above 20% for
the full year, reflecting the weighting of sales towards the first
half, and adjusted operating margin of around 35% for the full
year, before the slight dilution from Bedford
Generics
-- Continued benefit from specific market opportunities and the
re-introduction of products drove Generics revenue of $128 million,
a decrease of only 3%
-- Generics adjusted operating profit was $79 million compared
with $82 million in the first half of 2013, with an adjusted
operating margin of 61.7%
-- We now expect full year revenue to be around $200 million,
with an adjusted operating margin of above 45%
Said Darwazah, Chief Executive Officer of Hikma, said:
"I am very pleased with our first half results, which reflect
strong underlying performances in our businesses and our success in
capturing a number of specific market opportunities.
In the MENA region, our focus on new, higher value products is
delivering good results in key markets. Whilst this is being offset
by weakness in other markets this year, our businesses across the
region remain well positioned to drive future growth. Our
Injectables business delivered an excellent performance, as we
captured a number of attractive market opportunities. I am
delighted we have acquired the Bedford assets, which will add
products, R&D capabilities and capacity to support future
growth for the global Injectables business. Our Generics business
is performing extremely well and we are working hard to strengthen
the product portfolio and pipeline.
Over the past eighteen months the Group has generated
significant cash flows and our strong balance sheet is enabling us
to make strategic investments across our businesses. Overall, the
Group is benefiting from our diversified business model and I am
pleased to be reiterating our Group guidance of around 5% revenue
growth for the full year."
Group financial highlights
Summary P&L H1 2014 H1 2013 Change
$ million
----------------------------------------- -------- -------- -------
Revenue 738 638 +16%
----------------------------------------- -------- -------- -------
Gross profit 441 353 +25%
----------------------------------------- -------- -------- -------
Gross margin 59.8% 55.3% +4.5pp
----------------------------------------- -------- -------- -------
Operating profit 236 143 +65%
----------------------------------------- -------- -------- -------
Adjusted operating profit ([1]) 245 189 +30%
----------------------------------------- -------- -------- -------
Adjusted operating margin 33.2% 29.6% +3.6pp
----------------------------------------- -------- -------- -------
EBITDA([2]) 269 182 +48%
----------------------------------------- -------- -------- -------
Profit attributable to shareholders 169 73 +132%
----------------------------------------- -------- -------- -------
Adjusted profit attributable to
shareholders(1) 176 122 +44%
----------------------------------------- -------- -------- -------
Basic earnings per share (cents) 85.4 37.1 +130%
----------------------------------------- -------- -------- -------
Adjusted basic earnings per share
(cents) (1) 88.9 61.9 +44%
----------------------------------------- -------- -------- -------
Dividend per share (cents) 7.0 7.0 --
----------------------------------------- -------- -------- -------
Special dividend per share (cents) 4.0 3.0 +33%
----------------------------------------- -------- -------- -------
Total dividend per share (cents) 11.0 10.0 +10%
----------------------------------------- -------- -------- -------
Net cash flow from operating activities 200 136 +47%
----------------------------------------- -------- -------- -------
Enquiries
Hikma Pharmaceuticals PLC
Susan Ringdal, VP Corporate Strategy and Director of Investor
Relations +44 (0)20 7399 2760/+44 7776 477050
Lucinda Henderson, Deputy Director of Investor Relations +44
(0)20 7399 2765/+44 7818 060211
FTI Consulting
Ben Atwell/ Matthew Cole/ Julia Phillips +44 (0)20 3727 1000
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, 200 Aldersgate, Aldersgate Street London
EC1A 4HD. To join via conference call please dial: +44 (0) 20 3003
2666 or 0808 109 0700 (UK toll free). 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. 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
2014.
Group revenue by business segment (%)
H1 2014 H1 2013
------------- -------- --------
Branded 35% 40%
------------- -------- --------
Injectables 47% 39%
------------- -------- --------
Generics 17% 21%
------------- -------- --------
Others 1% 0%
------------- -------- --------
Group revenue by region (%)
H1 2014 H1 2013
---------------- -------- --------
MENA 40% 46%
---------------- -------- --------
US 54% 47%
---------------- -------- --------
Europe and ROW 6% 7%
---------------- -------- --------
Branded
H1 2014 highlights:
-- Branded revenue increased by 1% and adjusted operating margin was 20.8%
-- Disruptions in some markets are limiting growth this year but
the underlying businesses remain strong
-- Continued investment in sales and marketing, R&D and
manufacturing capacity across our markets will drive future
growth
Branded revenue increased by 1% in the first half of 2014 to
$259 million, compared with $257 million in the first half of 2013.
The net effect of individual currency movements in the MENA region
during the period was minimal and therefore Branded revenue on a
constant currency basis was $259 million, in line with reported
revenue. Across our businesses, we are focusing on improving the
product mix towards strategic, higher value products and enhancing
the promotion of new product launches. Strong revenue growth in
markets such as Egypt and Saudi Arabia was offset primarily by
lower than expected sales in markets such as Algeria and Sudan. We
expect to deliver stronger growth in the second half of the
year.
Our Egyptian business had an excellent first half, with revenue
growth of around 15%. This reflects strong demand for existing
products combined with continued momentum in new product launches.
Saudi Arabia and Morocco also delivered excellent growth, driven by
demand for products launched in 2013 and in the first half of 2014.
Morocco is also benefiting from the restructuring of the sales and
marketing function, which is more than offsetting the impact of
Government mandated price cuts on certain products.
In Algeria, we delivered lower sales in the first half, compared
to the first half of 2013. This is a result of actions we took to
restructure our distribution arrangements and better manage our
credit risk. Whilst this is impacting reported revenue in 2014, we
continue to see strong demand for our products in the market, which
we expect will drive improved sales in 2015. We have also upgraded
our management team in Algeria across key functions in order to
strengthen the business going forward. Sudan, Iraq and Libya all
achieved lower than expected sales in the first half. In Sudan, due
to the limited availability of foreign currency reserves, we
restricted shipments of our products during the period. Whilst we
have since resumed shipping, sales will be lower than expected for
the full year in 2014. Political disruptions in Iraq and Libya
further impacted sales.
During the first half of 2014, the Branded business launched a
total of 37 products across all markets, including 3 new compounds
and 8 new dosage forms and strengths. The Branded business also
received 94 regulatory approvals across the region.
Revenue from in-licensed products increased from $95 million to
$106 million in the first half. In-licensed products represented
41% of Branded revenue, compared with 37% in the first half of
2013. We signed 4 new licensing agreements for innovative oral
products during the first half of 2014, which will support our
continued focus on growing our portfolio of higher value products
in growing therapeutic areas.
Branded gross profit of $129 million and gross margin of 49.8%
were in line with the first half of 2013, reflecting a sustained
improvement in the product mix. Operating profit in the Branded
business of $49 million was slightly below the $53 million achieved
in the first half of 2013. Adjusted operating margin was 20.8%,
compared with 23.0% in the first half of 2013, after excluding the
amortisation of intangibles of $5 million. The lower margin
reflects a significant increase in investment in sales and
marketing, primarily reflecting increased promotional activities in
core markets. This strategic investment will support future growth
in key therapeutic categories, enhance our relationships with key
customers and enable more focused promotion of new products.
We expect the Branded business to deliver stronger growth in the
second half of 2014. However, we have lowered our full year revenue
expectations for Algeria and Sudan and we also expect the
disruptions in Iraq and Libya to further impact sales this year.
Overall, we now expect the Branded business to deliver low single
digit revenue growth for the full year, resulting in an adjusted
operating margin below full year 2013.
Injectables
H1 2014 highlights:
-- Global Injectables revenue grew by 41% to $346 million, with
adjusted operating margin of 41.0%, up from 28.5%
-- Excellent performance in US Injectables, up 62%, reflects our
success in capturing specific market opportunities
-- Acquisition of Bedford assets will strengthen the portfolio
and drive revenue and profitability over the medium and longer
term
Injectables revenue by region
H1 2014 H1 2013
---------------- -------- --------
US 77% 67%
---------------- -------- --------
MENA 12% 16%
---------------- -------- --------
Europe and ROW 11% 17%
---------------- -------- --------
Revenue in our global Injectables business increased by 41% to
$346 million, compared with $246 million in the first half of
2013.
US Injectables revenue grew by $103 million, or 62%, to $268
million. This excellent performance reflects strong underlying
growth and our success in capturing specific market opportunities.
Our quality track record and high customer service levels also
continue to be key competitive advantages.
In MENA, Injectables revenue of $40 million was in line with the
first half of 2013. Growth across the majority of our markets was
primarily offset by lower sales in Algeria. We are expecting full
year revenue for MENA Injectables to be slightly ahead of 2013. In
Europe, revenue decreased by 7% to $38 million, with double-digit
growth in own drugs being offset by a reduction in contract
manufacturing services as we reallocated capacity to produce for
the US market.
Injectables gross profit increased by 73% to $215 million,
compared with $124 million in the first half of 2013. Gross margin
increased significantly to 62.1%, compared with 50.4% in the first
half of 2013. This reflects exceptionally strong sales from certain
market opportunities in the US, a focus on higher value products
and tight control of overhead costs across our manufacturing
facilities.
Operating profit increased by 122% to $140 million. Adjusted
operating profit increased by 103% to $142 million. Adjusted
operating margin increased from 28.5% to 41.0%. This excellent
margin expansion reflects the increase in gross margin.
During the first half of 2014, the Injectables business launched
a total of 12 products across all markets, including 7 new
compounds and 7 new dosage forms and strengths. The Injectables
business also received a total of 46 regulatory approvals across
all regions and markets, namely 20 in MENA and 26 in Europe.
On 15 July 2014, we completed the acquisition of assets of
Bedford Laboratories ("Bedford"), a member of the Boehringer
Ingelheim Group of Companies. The total consideration payable of up
to $300 million comprised an upfront cash payment of $225 million
and further contingent cash payments of up to $75 million, subject
to the achievement of performance-related milestones over a period
of five years. The assets acquired will significantly enhance our
global Injectables business, adding a large portfolio of 82
products, a strong R&D and business development pipeline and a
number of employees across key business functions such as R&D
and sales and marketing. In addition, Hikma signed an agreement on
24 July 2014 to acquire substantially all of the assets of the Ben
Venue Laboratories ("Ben Venue") manufacturing facility in Bedford,
Ohio. The Ben Venue site includes four manufacturing plants and a
Quality and Development Centre ("QDC") with excellent capabilities.
No incremental consideration is payable in relation to the
acquisitions of the Ben Venue site.
The first step towards integrating the acquisition will be to
transfer an initial tranche of around 20 of Bedford's products to
our existing global manufacturing facilities in the US, Germany and
Portugal (all manufacturing at the Ben Venue site was ceased in
December 2013). We expect to re-launch these products by 2017,
leveraging the QDC and Bedford's strong R&D team to expedite
the transfer and reactivation of these products. In the short term,
we will transfer certain modern, advanced equipment, including
lyophilisers and filling lines, to our other global manufacturing
facilities in the US and Europe to enhance our current
manufacturing capacity and capabilities. The acquisition of the
site is expected to be completed in the second half of 2014,
subject to customary approvals in the United States.
We are reiterating our guidance of revenue growth above 20% for
the full year and adjusted operating margin around 35%, prior to
the impact of the Bedford acquisition. We continue to expect that
specific market opportunities, which have been strong contributors
in the first half, will not continue through the second half of the
year. As previously communicated, we expect slight dilution from
the Bedford acquisition in 2014 and 2015, with strong accretion
thereafter.
Generics
H1 2014 highlights:
-- Generics revenue of $128 million
-- Adjusted operating profit of $79 million, with an adjusted operating margin of 61.7%
Generics revenue was $128 million, compared to $132 million in
the first half of 2013. The specific market opportunities that
drove very strong growth in 2013 continued into the first half and
we also benefited from an increase in revenue from re-launched
products. Our portfolio of marketed products is growing and we are
gradually re-building market share.
Generics gross profit was $95 million, compared with $99 million
in the first half of 2013, and gross margin was 74.2%, compared
with 75.0% in the first half of 2013. Operating profit was $78
million, compared with $49 million in the first half of 2013, which
reflected the adverse impact of non-recurring plant remediation and
other costs of $33 million. On an adjusted basis, operating profit
of $79 million in the first half of 2014, was broadly in line with
$82 million in the first half of 2013. Adjusted operating margin
was 61.7%, compared with 62.1% in the first half of 2013.
Due to the strength of revenue in the first half of 2014, we now
expect full year revenue for the Generics business to be around
$200 million, with an adjusted operating margin of above 45%. The
weighting of revenue and profitability to the first half reflects
our expectation that specific market opportunities will slowdown in
the second half of the year. Going forward, our strategic focus
will continue to be on broadening our Generics product portfolio
through the re-introduction of products, investing in our R&D
pipeline and targeted M&A.
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 $5 million, compared with $3 million in the first half
of 2013.
These other businesses delivered an operating loss of $3 million
in the first half of 2014, in line with a loss of $3 million in the
first half of 2013.
Group
Group revenue increased by 16% to $738 million, compared with
$638 million in the first half of 2013. Group gross profit
increased by 25% to $441 million and Group gross margin was 59.8%,
compared with 55.3% in the first half of 2013, reflecting the
significant increase in the gross margin of the global Injectables
businesses.
Group operating expenses decreased by 2% to $205 million,
compared with $210 million in the first half of 2013. Excluding the
amortisation of intangible assets (excluding software) and
exceptional items,([3]) adjusted Group operating expenses grew by
20% to $196 million, compared with $164 million. The paragraphs
below address the Group's main operating expenses in turn.
Sales and marketing expenses were $91 million, or 12% of
revenue, compared with $78 million and 12% of revenue in the first
half of 2013. The growth in sales and marketing costs reflects
higher investment in our MENA sales teams to drive product
promotion in the Branded business, higher employee benefits and
other related sales expenses.
General and administrative expenses increased by $10 million, or
15%, to $77 million in the first half of 2014. The increase in
expenses primarily reflects higher employee benefits related to the
very strong performance of our US businesses this year and the
strengthening of our corporate teams across key business functions,
as well as higher consultancy costs.
Group R&D expenditure was $19 million in the first half of
2014, compared with $20 million in the first half of 2013,
reflecting a continued focus on developing a strong product
pipeline across our businesses. We invested a further $14 million
in new product acquisitions and partnership agreements, which has
been capitalised on the balance sheet. Total R&D and product
related investment represented 4% of Group revenue, compared with
3% in the first half of 2013. We expect investment in R&D to
increase slightly in the second half of 2014, as we continue to
focus on new product development across the Group.
Other net operating expenses reduced by $27 million to $18
million. Excluding exceptional items, these expenses increased by
$3 million, primarily reflecting an increase in foreign exchange
losses.
Operating profit for the Group increased by 65% to $236 million
in the first half of 2014. Group operating margin increased to
32.0%, compared with 22.4% in the first half of 2013. On an
adjusted basis, Group operating profit increased by $56 million, or
30%, to $245 million and operating margin increased to 33.2%, up
from 29.6% in the first half of 2013.
Research & Development([4])
The Group's product portfolio continues to grow as a result of
our in-house product development efforts. During the first half of
2014, we launched 10 new compounds, expanding the Group portfolio
to 702 compounds in 1,687 dosage forms and strengths.([5]) We
manufacture and/or sell 95 of these compounds under license from
the originator.
Across all businesses and markets, a total of 49 products were
launched during the first half of 2014. In addition, the Group
received 140 approvals.
Products
pending
Products approval
Total marketed Products launched in H1 approved as at 30
products 2014 in H1 2014 June 2014
------------- -------------------------- ------------------------------------------- -------------- --------------
Total
launches Total Total pending
Dosage New dosage across approvals approvals
forms forms and all across all across all
Compounds and strengths New compounds strengths countries(6]) countries(6) countries(6)
------------- ---------- -------------- -------------- ----------- -------------- -------------- --------------
Branded 485(5) 1,246 3 8 37 94 420
Injectables 197 386 7 7 12 46 296
Generics 20 55 - - - - 36
Group 702 1,687 10 15 49 140 752
To ensure the continuous development of our product pipeline, we
submitted 199 regulatory filings in the first half of 2014 across
all regions and markets. As of 30 June 2014, we had a total of 752
pending approvals across all regions and markets and a total of 297
products under development.
Results from associated companies
During the first half of 2014, we recognised a loss from
associated companies of $2 million related to our minority interest
in Unimark Remedies Limited ("Unimark").
Net finance expense
Net finance expense during the period was $15 million, compared
with $17 million in the first half of 2013, reflecting lower
borrowings in the period. Following the acquisition of the Bedford
assets, completed on 15 July 2014, borrowings will be higher in the
second half and 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 97% to $219
million, compared with $111 million in the first half of 2013.
Adjusted profit before tax increased by 45% to $228 million.
Tax
The Group incurred a tax expense of $48 million, compared with
$35 million in the first half of 2013. The effective tax rate was
21.9%, compared with 31.5% in the first half of 2013. The reduction
in the effective tax rate reflects increased profitability in lower
tax jurisdictions. We now expect the full year effective tax rate
to be around 25%.
Profit attributable to equity holders of the parent
The Group's profit attributable to equity holders of the parent
increased by 132% to $169 million in the first half of 2014.
Adjusted profit attributable to equity holders of the parent
increased by 44% to $176 million.
Earnings per share
Basic earnings per share increased by 130% to 85.4 cents,
compared with 37.1 cents in the first half of 2013. Diluted
earnings per share increased by 129% to 84.5 cents, compared with
36.9 cents in the first half of 2013. Adjusted diluted earnings per
share was 88.0 cents, an increase of 43% over the first half of
2013.
Dividend
The Board has declared an interim dividend of 7.0 cents per
share (approximately 4.2 pence per share), in line with 7.0 cents
per share for the first half of 2013. In addition, the Board has
declared a special dividend of 4.0 cents per share (approximately
2.4 pence per share), reflecting the exceptionally strong
performances of our US businesses in the first half of 2014. ([7])
The interim dividend and the special dividend will be paid on 26
October 2014 to eligible shareholders on the register at the close
of business on 29 August 2014. The ex-dividend date is 27 August
2014 and the final date for currency elections is 12 September
2014.
Net cash flow, working capital and net debt
The Group generated operating cash flow of $200 million in the
first half of 2014, up $64 million from $136 million in the first
half of 2013. The significant improvement in operating cash flow
was achieved through the strong performance of the US Injectables
and Generics businesses. Working capital days decreased by 7 days
to 198 days in the first half of 2014, compared with 205 days in
the first half of 2013.
Capital expenditure was $31 million, compared with $26 million
in the first half of 2013. Around $21 million was spent in MENA to
maintain and upgrade our equipment and facilities across a number
of markets. The remaining $10 million was spent in the US and
Europe, primarily to expand our Injectables manufacturing capacity,
including the installation of a pre-filled syringe line.
Group net debt decreased from $267 million at 31 December 2013
to $175 million at 30 June 2014. This reflects the Group's strong
cash generation in the first half of 2014.
On 15 July 2014, we completed the acquisition of Bedford. The
upfront cash consideration of $225 million was financed through a
new debt facility. A further $75 million of contingency payments
will be paid, subject to performance-related milestones, over the
next five years.
Balance sheet
During the period, shareholder equity was negatively impacted by
an unrealised foreign exchange loss of $7 million, primarily
reflecting adverse movements in the Egyptian Pound, Algerian dinar,
Euro and Moroccan dirham against the US dollar and the revaluation
of net assets denominated in these currencies.
Summary and outlook
We delivered an excellent performance in the first half of 2014,
with a 16% increase in revenue and a 44% increase in adjusted basic
earnings per share, once again benefitting from our diversified
business model.
We continue to expect the Group to deliver full year revenue
growth of around 5% in 2014.
We expect the Branded business to deliver low single digit
revenue growth for the full year, with adjusted operating margin
below full year 2013. We expect the global Injectables business to
deliver above 20% revenue growth in 2014 and adjusted operating
margin of around 35%, prior to the impact of the Bedford
acquisition. The Bedford acquisition is expected to be slightly
dilutive in 2014 and 2015, with strong accretion thereafter. We
expect the Generics business to achieve revenue of around $200
million in 2014, with an adjusted operating margin of above
45%.
Unallocated costs are expected to be around $65 million,
including around $15 million of transaction and integration costs.
Financing expense is expected to be around $38 million and the
effective tax rate is expected to be around 25%.
Overall, we are very pleased with the performance of the Group
in the first half of 2014 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.
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
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' gives a
true and fair view of the assets and liabilities, financial
position and profit or loss of the issuer, or the undertakings
included in the consolidation as a whole as required by DTR
4.2.4R;
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
19 August 2014
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
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.
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
2014 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 18. 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 2014 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
19 August 2014
Hikma Pharmaceuticals PLC
Condensed Consolidated Income Statement
H1 H1 FY
Note 2014 2013 2013
$m (Unaudited) $m (Unaudited) $m (Audited)
--------------- --------------- -------------
Continuing operations
Revenue 3 738 638 1,365
Cost of sales 3 (297) (285) (601)
--------------- --------------- -------------
Gross profit 3 441 353 764
Sales and marketing costs (91) (78) (160)
General and administrative
expenses (77) (67) (151)
Research and development costs (19) (20) (39)
Other operating expenses (net) (18) (45) (62)
--------------- --------------- -------------
Total operating expenses (205) (210) (412)
Adjusted operating profit 245 189 413
Exceptional items
- Acquisition related expenses 4 (1) - -
- Severance expenses 4 - (1) (1)
- Plant remediation costs 4 (1) (19) (24)
- Impairment losses 4 - (9) (10)
- Other claims provisions 4 - (10) (11)
Intangible amortisation* 4 (7) (7) (15)
--------------------------------- ----- ---- --------------- --------------- -------------
Operating profit 3 236 143 352
Associated companies
-share of results 8 (2) - (3)
-exceptional impairment of
investment 8 - (15) (16)
Finance income 1 1 2
Finance expense (16) (18) (37)
Profit before tax 219 111 298
Tax 5 (48) (35) (82)
--------------- --------------- -------------
Profit for the period/year 171 76 216
--------------- --------------- -------------
Attributable to:
Non-controlling interests 2 3 4
Equity holders of the parent 169 73 212
--------------- --------------- -------------
171 76 216
=============== =============== =============
Earnings per share (cents)
Basic 7 85.4 37.1 107.6
=============== =============== =============
Diluted 7 84.5 36.9 107.1
=============== =============== =============
Adjusted basic 7 88.9 61.9 139.1
=============== =============== =============
Adjusted diluted 7 88.0 61.6 138.4
=============== =============== =============
On this page and throughout this interim financial information
"H1 2014" refers to the six months ended 30 June 2014, "H1 2013"
refers to the six months ended 30 June 2013 and "FY 2013" refers to
the year ended 31 December 2013.
* Intangible amortisation comprises the amortisation of
intangible assets other than software.
Hikma Pharmaceuticals PLC
Condensed Consolidated Statement of Comprehensive Income
H1 H1 FY
2014 2013 2013
$m (Unaudited) $m (Unaudited) $m (Audited)
--------------- --------------- -------------
Profit for the period/year 171 76 216
Items that may be reclassified subsequently
to profit or loss:
-Cumulative effect of change in fair
value of financial derivatives - 3 3
-Exchange difference on translation
of foreign operations (7) (13) 3
---------------
Total comprehensive income for the
period/year 164 66 222
=============== =============== =============
Attributable to:
Non-controlling interests 2 3 5
Equity holders of the parent 162 63 217
--------------- --------------- -------------
164 66 222
=============== =============== =============
Hikma Pharmaceuticals PLC
Condensed Consolidated Balance Sheet
30 June 30 June 31 December
Note 2014 2013 2013
Non-current assets $m (Unaudited) $m (Unaudited) $m (Audited)
--------------- --------------- -------------
Intangible assets 444 435 447
Property, plant and equipment 447 424 443
Investment in associates and
joint ventures 8 20 23 22
Deferred tax assets 92 49 86
Financial and other non-current
assets 38 11 34
1,041 942 1,032
--------------- --------------- -------------
Current assets
Inventories 9 309 273 276
Trade and other receivables 10 418 389 439
Collateralised and restricted
cash 7 5 7
Cash and cash equivalents 282 120 168
Other current assets 6 3 7
1,022 790 897
--------------- --------------- -------------
Total assets 2,063 1,732 1,929
=============== =============== =============
Current liabilities
Bank overdrafts and loans 13 203 172 159
Obligations under finance leases 1 2 1
Trade and other payables 11 219 196 241
Income tax provision 58 30 65
Other provisions 20 12 20
Other current liabilities 12 109 89 100
610 501 586
--------------- --------------- -------------
Net current assets 412 289 311
--------------- --------------- -------------
Non-current liabilities
Long-term financial debts 13 237 288 263
Obligations under finance leases 23 19 19
Deferred tax liabilities 25 25 26
Derivative financial instruments 1 1 1
286 333 309
--------------- --------------- -------------
Total liabilities 896 834 895
=============== =============== =============
Net assets 1,167 898 1,034
=============== =============== =============
Equity
Share capital 35 35 35
Share premium 281 280 281
Own shares (3) - (3)
Other reserves 836 566 704
--------------- --------------- -------------
Equity attributable to equity holders
of the parent 1,149 881 1,017
Non-controlling interests 18 17 17
--------------- --------------- -------------
Total equity 1,167 898 1,034
=============== =============== =============
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
19 August 2014
Hikma Pharmaceuticals PLC
Condensed Statement of Changes in Equity
Total
equity
attributable
Merger Share to equity
and shareholders
Revaluation Translation Retained Total capital Share Own of the Non-controlling Total
reserves reserves earnings reserves premium shares parent interests equity
$m $m $m $m $m $m $m $m $m $m
------------ ------------ --------- --------- -------- -------- ------- ------------- ---------------- -------
Balance
at 1
January
2013
(Audited) 38 (48) 529 519 35 279 - 833 15 848
Profit
for the
period - - 73 73 - - - 73 3 76
Cumulative
effect
of change
in fair
value
of financial
derivatives - - 3 3 - - - 3 - 3
Currency
translation
loss - (13) - (13) - - - (13) - (13)
------------ ------------ --------- --------- -------- -------- ------- ------------- ---------------- -------
Total
comprehensive
income
for the
period - (13) 76 63 - - - 63 3 66
Issue
of equity
shares - - - - - 1 - 1 - 1
Cost
of equity
settled
employee
share
schemes - - 3 3 - - - 3 - 3
Dividends
on ordinary
shares
(note
6) - - (19) (19) - - - (19) (1) (20)
---------
Balance
at 30
June
2013
(Unaudited) 38 (61) 589 566 35 280 - 881 17 898
============ ============ ========= ========= ======== ======== ======= ============= ================ =======
Balance
at 1
January
2013
(Audited) 38 (48) 529 519 35 279 - 833 15 848
Profit
for the
year - - 212 212 - - - 212 4 216
Cumulative
effect
of change
in 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
schemes - - 7 7 - - - 7 - 7
Dividends
on ordinary
shares
(note
6) - - (39) (39) - - - (39) (3) (42)
Balance
at 31
December
2013
(Audited) 38 (46) 712 704 35 281 (3) 1,017 17 1,034
============ ============ ========= ========= ======== ======== ======= ============= ================ =======
Profit
for the
period - - 169 169 - - - 169 2 171
Currency
translation
loss - (7) - (7) - - - (7) - (7)
Total
comprehensive
income
for the
period - (7) 169 162 - - - 162 2 164
Cost
of equity
settled
employee
share
schemes - - 4 4 - - - 4 - 4
Dividends
on ordinary
shares
(note
6) - - (34) (34) - - - (34) (1) (35)
Balance
at 30
June
2014
(Unaudited) 38 (53) 851 836 35 281 (3) 1,149 18 1,167
============ ============ ========= ========= ======== ======== ======= ============= ================ =======
Hikma Pharmaceuticals PLC
Condensed Consolidated Statement of Cash Flow
H1 H1 FY
2014 2013 2013
Note $m (Unaudited) $m (Unaudited) $m (Audited)
-------------------------- -------------------- --------------
Net cash from operating activities 14 200 136 337
Investing activities
Purchases of property, plant and
equipment (43) (27) (59)
Proceeds from disposal of property,
plant and equipment - 1 1
Purchase of intangible assets (13) (3) (16)
Acquisition of interest in joint
venture - - (3)
Investment in financial and other
non-current assets (4) - (22)
Acquisition of subsidiary undertakings,
net of cash acquired - (18) (18)
Finance income 1 1 2
-------------------- -------------------- ------------------
Net cash used in investing
activities (59) (46) (115)
Financing activities
Increase in collateralised and
restricted cash - (4) (5)
Increase in long-term financial
debts 5 7 7
Repayment of long-term financial
debts (31) (91) (117)
Increase/(decrease) in short-term
borrowings 45 (20) (34)
Increase/(decrease) in obligations
under finance leases 4 (1) 1
Dividends paid (34) (19) (39)
Dividends paid to non-controlling shareholders
of subsidiaries (1) (2) (3)
Purchase of own shares - - (4)
Interest paid (16) (18) (37)
Proceeds from issue of new shares - 2 2
-------------------- ------------------
Net cash used in financing
activities (28) (146) (229)
Net increase/(decrease) in cash
and cash equivalents 113 (56) (7)
Cash and cash equivalents at beginning
of period/year 168 177 177
Foreign exchange translation
movements 1 (1) (2)
Cash and cash equivalents at end
of period/year 282 120 168
==================== ==================== ==================
Hikma Pharmaceuticals PLC
Notes to the condensed set of financial statements
1. General information
The financial information for the year ended 31 December 2013
does not constitute statutory accounts within the meaning of
Section 434 of the Companies Act 2006. Statutory accounts for the
year ended 31 December 2013, 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 2014 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 2013 which are prepared in accordance
with IFRSs as adopted by the European Union.
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 in is conducted 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 19 August 2014.
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 $473.2 million of undrawn facilities as at 30 June
2014. Of the undrawn facilities, $325.1 million were committed.
These facilities are well diversified across the subsidiaries of
the Group with a number of financial institutions.
We continue to expect the short-term facilities to be renewed
upon maturity. In addition the Group maintained cash and cash
equivalents of $282 million as at 30 June 2014. 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.
On 15 July 2014 Hikma announced that it had completed its
acquisition of assets of the US generic injectables business,
Bedford Laboratories ("Bedford") from Ben Venue Laboratories, Inc.
("Ben Venue"), a member of the Boehringer Ingelheim Group of
Companies. The total consideration for the acquisition is up to
$300 million comprised of an upfront cash payment of $225 million
which was paid on 15 July 2014 and contingent cash payments of up
to $75 million, subject to the achievement of performance-related
milestones over a period of five years from closing the
transaction. Moreover, on 24 July 2014 Hikma announced that it had
agreed with Ben Venue to acquire substantially all of the assets of
their generic injectables manufacturing site in Bedford, Ohio. The
acquisition is pursuant to the exclusivity arrangement entered into
with Ben Venue on 28 May 2014. No incremental consideration will be
payable in relation to Hikma's acquiring the Ben Venue
manufacturing site.
This upfront consideration of $225 million was financed by a
bridge loan facility undertaken in July 2014.
Although the current economic conditions may affect short-term
demand for our products, and place pressure on customers and
suppliers who 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 has been 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 may impact the accounting for future transactions
and arrangements.
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
Amendments to IFRS 10, IFRS Investment entities
12 and IAS 27
Amendments to IAS 36 Recoverable amount disclosures
for Non-Financial assets
Amendments to IAS 39 Novation of Derivatives and
continuation of hedge accounting
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):
IFRIC 21 Levies
Amendments to IAS 19 Defined benefit plan: Employee
contribution
Annual improvements to IFRSs 2010-12 Cycle (Dec 2013)
Annual improvements to IFRSs 2011-12 Cycle (Dec 2013)
IFRS 9 Financial instruments
IFRS 14 Regulatory deferral accounts
Amendments to IFRS 11 Accounting for acquisitions
of interest in joint operations
Amendments to IAS 16 and Clarification of acceptable
IAS 38 Methods of depreciation and
amortisation
IAS24 Related Party Disclosures
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.
In addition to the above, IFRS 15: Revenue from contracts with
customers has also been issued but is not yet effective. IFRS 15
addresses recognition of revenue from customer contracts and
impacts the amounts and timing of the recognition of such revenue.
The Group is yet to assess the impact of IFRS 15 on the
consolidated financial statements.
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 2014
(unaudited) Branded Injectables Generics Others Group
$m $m $m $m $m
------------------ ------------------ ---------------- ---------------- ----------------
Revenue 259 346 128 5 738
Cost of sales (130) (131) (33) (3) (297)
Gross profit 129 215 95 2 441
------------------ ------------------ ---------------- ---------------- ----------------
Adjusted segment result 54 142 79 (3) 272
Exceptional items
:
- Plant remediation
costs - - (1) - (1)
Intangible
amortisation* (5) (2) - - (7)
------------------------ ------------------ ------------------ ---------------- ---------------- ----------------
Segment result 49 140 78 (3) 264
================== ================== ================ ================ ================
Adjusted Unallocated corporate
expenses (27)
Exceptional items
:
- Acquisition related
expenses (1)
------------------------ ------------------ ------------------ ---------------- ---------------- ----------------
Unallocated corporate
expenses (28)
----------------
Adjusted operating
profit 245
------------------------ ------------------ ------------------ ---------------- ---------------- ----------------
Operating profit 236
----------------
Associated companies
- Share of results (2)
Finance income 1
Finance expense (16)
----------------
Profit before tax 219
Tax (48)
----------------
Profit for the period 171
================
Attributable to:
Non-controlling
interest 2
Equity holders of
the parent 169
171
================
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 cost, professional fees, donations and travel
expenses.
30 June 2014 (Unaudited)
Corporate
Branded Injectables Generics and Others Group
$m $m $m $m $m
--------------- ------------------ ---------------- ----------------- -------------
Additions to property,
plant and equipment (cost) 19 10 2 - 31
Additions to intangible
assets (cost) 3 6 1 - 10
Total property, plant
and equipment and
intangible
assets (net book value) 519 314 52 6 891
Depreciation 12 7 4 1 24
Amortisation (including
software) 5 4 - - 9
Interest in associated
companies - - - 20 20
Balance sheet
Total assets 1,266 583 136 78 2,063
=============== ================== ================ ================= =============
Total liabilities 567 202 47 80 896
=============== ================== ================ ================= =============
Six months ended
30 June 2013 (unaudited)
Branded Injectables Generics Others Group
$m $m $m $m $m
---------------- ------------------ ---------------- ---------------- ---------------
Revenue 257 246 132 3 638
Cost of sales (127) (122) (33) (3) (285)
Gross profit 130 124 99 - 353
---------------- ------------------ ---------------- ---------------- ---------------
Adjusted segment
result 59 70 82 (3) 208
Exceptional items
:
- Severance expenses (1) - - - (1)
- Plant remediation
costs - - (19) - (19)
- Impairment losses - (5) (4) - (9)
- Other claims provision - - (10) - (10)
Intangible amortisation* (5) (2) - - (7)
--------------------------- ---------------- ------------------ ---------------- ---------------- ---------------
Segment result 53 63 49 (3) 162
================ ================== ================ ================ ===============
Unallocated corporate
expenses (19)
---------------
Adjusted Operating
Profit 189
--------------------------- ---------------- ------------------ ---------------- ---------------- ---------------
Operating profit 143
---------------
Impairment of investment in
associates (15)
Finance income 1
Finance expense (18)
---------------
Profit before tax 111
Tax (35)
---------------
Profit for the period 76
===============
Attributable to:
Non-controlling interest 3
Equity holders of
the parent 73
76
===============
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, and travel expenses.
30 June 2013 (Unaudited)
Corporate
Branded Injectables Generics and Others Group
$m $m $m $m $m
--------------- ----------------- ---------------- ---------------- -------------
Additions to property,
plant and equipment (cost) 12 12 2 - 26
Acquisition of subsidaries'
property, plant and equipment
(net book value) 6 - - - 6
Additions to intangible
assets (cost) 1 4 - - 5
Intangible assets arising
on acquisition 19 - - - 19
Total property, plant
and equipment and intangible
assets (net book value) 510 293 50 6 859
Depreciation 10 7 4 1 22
Amortisation and impairment
(including software) 5 7 4 - 16
Interest in associated
companies - - - 23 23
Balance sheet
Total assets 1,050 492 142 48 1,732
=============== ================= ================ ================ =============
Total liabilities 553 175 51 55 834
=============== ================= ================ ================ =============
Year ended
31 December 2013
(Audited)
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 expenses (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 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.
31 December 2013 (Audited)
Corporate
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 ventures - - - 22 22
Balance sheet
Total assets 1,138 592 141 58 1,929
=============== ================= ================ ================ =============
Total liabilities 551 259 25 60 895
=============== ================= ================ ================ =============
The following table provides an analysis of the Group's sales by
geographical market, irrespective of the origin of the
goods/services:
H1 2014 H1 2013 FY 2013
$m $m $m
------------------- ------------------- ---------------
(Unaudited) (Unaudited) (Audited)
------------------- ------------------- ---------------
Middle East and North Africa 296 293 638
United States 396 297 631
Europe and Rest of the World 45 45 89
United Kingdom 1 3 7
738 638 1,365
=================== =================== ===============
The top selling markets were as below:
H1 2014 H1 2013 FY 2013
$m $m $m
-------------------- ---------------------- ---------------
(Unaudited) (Unaudited) (Audited)
-------------------- ---------------------- ---------------
United States 396 297 631
Saudi Arabia 68 61 132
Algeria 40 51 125
504 409 888
==================== ====================== ===============
Included in revenues arising from the Generics and Injectables
segments are revenues of approximately $121 million (30 June 2013:
$82 million and 31 December 2013: $172 million) which arose from
the Group's largest customer which is located in the United
States.
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.
H1 2014 H1 2013 FY 2013
$m $m $m
---------------- --------------- ------------------
Acquisition related expenses (1) - -
Other Costs:
Severance expenses - (1) (1)
Plant remediation costs (1) (19) (24)
Impairment losses - (9) (10)
Other claims provisions - (10) (11)
Exceptional items included in operating
profit (2) (39) (46)
Impairment of investment in associates - (15) (16)
Exceptional items included in profit (2) (54) (62)
Intangible amortisation* (7) (7) (15)
---------------- --------------- ------------------
Exceptional items and intangible
amortisation (9) (61) (77)
Tax effect 2 12 15
---------------- --------------- ------------------
Impact on profit for the period/
year (7) (49) (62)
================ =============== ==================
*Intangible amortisation comprises the amortisation of
intangible assets other than software.
Acquisition related expenses are costs incurred from acquiring
Bedford Laboratories
(See note 18).
Plant remediation costs represent the remainder of 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.
In previous periods exceptional items relate to the
following:
Other costs
Severance expenses in 2013 related to restructuring of
management teams in MENA.
Impairment losses are related to the write off of intangible
product rights (30 June 2013: $7 million and 31 December 2013: $8
million), in addition to the write off of certain property, plant
and equipment (30 June 2013: $2 million and 31 December 2013: $2
million). 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. In May 2014
they completed the restructuring of their corporate debt.
During 2013 we recognised an impairment charge of $16 million
(30 June 2013: $15 million) in respect of Unimark.
5. Tax
H1 2014 H1 2013 FY 2013
$m $m $m
-------------------- -------------------- ------------------
(Unaudited) (Unaudited) (Audited)
-------------------- -------------------- ------------------
Current tax:
Foreign tax 54 40 123
Prior year adjustments - (1) -
Deferred tax (6) (4) (41)
48 35 82
==================== ==================== ==================
Tax for the six month period is charged at 21.9% (H1 2013:
31.5%; FY 2013: 27.7%).
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 2014 H1 2013 FY 2013
$m $m $m
------------------- ------------------- --------------
(Unaudited) (Unaudited) (Audited)
------------------- ------------------- --------------
Amounts recognised as distributions
to equity holders in the period:
Final dividend for the year ended
31 December 2013 of 13.0 cents
(2012: 7.5 cents) per share 26 19 19
Interim dividend for the year ended
31 December 2013 of 7.0 cents per
share - - 14
Special final dividend for the
year ended 31 December 2013 of
4.0 cents (2012: nil) per share 8 - -
Special interim dividend for the
year ended 31 December 2013 of
3.0 cents (2012: nil) per share - - 6
34 19 39
=================== =================== ==============
The proposed interim dividend for the period ended 30 June 2014
is 7.0 cents (30 June 2013: 7.0 cents and 31 December 2013: 13.0
cents) per share plus a special dividend of 4.0 cents per share (30
June 2013: 3.0 cents and 31 December 2013: 4.0 cents).
Based on the number of shares in issues at 30 June 2014
(198,561,000), the unrecognised liability is $21,842,000.
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 2014 H1 2013 FY 2013
$m $m $m
------------------- ------------------- -----------------
(Unaudited) (Unaudited) (Audited)
------------------- ------------------- -----------------
Earnings for the purposes of basic
and diluted earnings per share being
net profit attributable to equity
holders of the parent 169 73 212
=================== =================== =================
Exceptional items 2 54 62
Intangible amortisation* 7 7 15
Tax effect of adjustments (2) (12) (15)
Adjusted earnings for the purposes
of adjusted basic and diluted earnings
per share being adjusted net profit
attributable to equity holders of
the parent 176 122 274
=================== =================== =================
Number Number Number
Number of shares: m m m
Weighted average number of Ordinary
Shares for the purposes of basic
earnings per share 198 197 197
Effect of dilutive potential Ordinary
Shares :
Share-based awards 2 1 1
Weighted average number of Ordinary
Shares for the purposes of diluted
earnings per share 200 198 198
=================== =================== =================
H1 2014 H1 2013 FY 2013
Earnings Earnings Earnings
per share per share per share
Cents Cents Cents
------------------- ------------------- -----------------
Basic 85.4 37.1 107.6
Diluted 84.5 36.9 107.1
Adjusted basic 88.9 61.9 139.1
Adjusted diluted 88.0 61.6 138.4
*Intangible amortisation comprises the amortisation of
intangible assets other than software.
8. Investments in associates and joint ventures
A loss of $2 million, representing the Group's share of the
result of Unimark Remedies Limited and Hubei Haosun Pharmaceutical
Co., Ltd, is included in the condensed consolidated income
statement.
For the period ended For the period ended For the year ended
30 June 2014 30 June 2013 31 December 2013
Joint Joint Joint
Ventures Associates Total Ventures Associates Total Ventures Associates Total
$m $m $m $m $m $m $m $m $m
Balance
at 1
January 3 19 22 - 38 38 - 38 38
Additions - - - - - - 3 - 3
Share of
loss - (2) (2) - - - - (3) (3)
Impairment
of
investment
(see note
4) - - - - (15) (15) - (16) (16)
Balance
at end
of
period/year 3 17 20 - 23 23 3 19 22
9. Inventories
30 June 30 June 31 December
2014 2013 2013
$m $m $m
-------------------
(Unaudited) (Unaudited) (Audited)
-------------------
Finished goods 87 80 77
Work-in-progress 38 36 30
Raw and packing materials 169 139 149
Goods in transit 15 18 20
309 273 276
===================
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
2014 2013 2013
$m $m $m
(Unaudited) (Unaudited) (Audited)
Trade receivables 358 338 385
Prepayments 47 39 40
VAT and sales tax recoverable 9 9 11
Interest receivable - 1 -
Employee advances 4 2 3
418 389 439
11. Trade and other payables
30 June 30 June 31 December
2014 2013 2013
$m $m $m
(Unaudited) (Unaudited) (Audited)
Trade payables 122 101 120
Accrued expenses 82 79 105
Other payables 15 16 16
219 196 241
Other payable includes employee provident fund liability of $4
million (30 June 2013: $5 million and 31 December 2013:$5 million),
which represents mainly outstanding contributions to the Hikma
Pharmaceuticals Ltd (Jordan) retirement benefit plan, on which the
fund receives 5% interest.
Dividends payable to the previous shareholders of Arab
Pharmaceutical Manufacturing Company of $3 million (30 June 2013:
$2 million and 31 December 2013: $2 million) are also included in
other payables.
12. Other current liabilities
30 June 30 June 31 December
2014 2013 2013
$m $m $m
----------------- ------------------
(Unaudited) (Unaudited) (Audited)
----------------- ------------------
Deferred revenue* 56 41 47
Return and free goods provision 28 27 29
Other provisions 25 21 24
109 89 100
================= ==================
* The Group's revenue recognition policy is to defer revenue
until a reliable measurement can be made.
13. Current and non-current financial debts
Short-term financial debts
30 June 30 June 31 December
2014 2013 2013
$m $m $m
(Unaudited) (Unaudited) (Audited)
Bank overdrafts 25 8 6
Import and export financing 114 94 89
Short-term loans 3 3 4
Current portion of long-term
loans 61 67 60
203 172 159
Long-term financial debts
30 June 30 June 31 December
2014 2013 2013
$m $m $m
------------------ ------------------
(Unaudited) (Unaudited) (Audited)
------------------ ------------------
Long-term loans 298 355 323
Less: current portion of loans (61) (67) (60)
Long-term financial loans 237 288 263
Breakdown by maturity:
Within one year 61 67 60
In the second year 63 61 61
In the third year 61 60 60
In the fourth year 41 58 51
In the fifth year 62 39 76
Thereafter 10 70 15
298 355 323
14. Net cash from operating activities
H1 H1 FY
2014 2013 2013
$m (Unaudited) $m (Unaudited) $m (Audited)
Profit before tax 219 111 298
Adjustments for:
Depreciation, amortisation and
impairment of:
Property, plant and equipment 24 22 49
Intangible assets 9 16 26
Investment in associate - 15 16
Movement on provisions - 1 9
Cost of equity-settled employee
share schemes 4 4 7
Losses on disposal of Property,
plant and equipment 1 - -
Finance income (1) (1) (2)
Interest and bank charges 16 18 37
Results from associates 2 - 3
Cash flow before working capital 274 186 443
Change in trade and other receivables 19 (63) (110)
Change in inventories (35) (2) (2)
Change in trade and other payables (6) 5 35
Change in other current liabilities 8 42 56
Change in other non- current
liabilities - - (1)
Cash generated by operations 260 168 421
Income tax paid (60) (32) (84)
Net cash generated from operating
activities 200 136 337
15. 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 28.8% at 30 June 2014 (30 June 2013: 28.9%
and 31 December 2013: 28.9%).
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 Hikma Pharmacutical PLC board members are also board members of
Capital Bank - Jordan. Total cash balances at Capital Bank - Jordan
were $22.3 million (30 June 2013: $2 million and 31 December 2013:
$17.2 million). Facilities granted by Capital Bank to the Group
amounted to $4.6 million at 30 June 2014 (30 June 2013: $3.4
million and 31 December 2013: $4.7 million). Interest income and
expense are at market rates.
Jordan International Insurance Company: is a related party of
the Group because one board member of the 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 $0.1 million (30 June 2013: $0.3 million and 31
December 2013: $0.2 million). The Group's insurance expense for
Jordan International Insurance Company contracts in the period was
$0.2 million (30 June 2013: $0.2 million and 31 December 2013: $0.2
million). The amounts due to Jordan International Insurance Company
at 30 June 2014 were $0.1 million (30 June 2013: $nil and 31
December 2013: $0.1 million).
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 $0.2 million (30 June 2013:
$0.2 million and 31 December 2013: $0.4 million). At 30 June 2014,
the amount owed from Labatec Pharma to the Group was $0.1 million
(30 June 2013: Owed from $0.4 million and 31 December 2013:
$nil).
Jordan Resources & Investments Company: is a related party
of the Group because three board members of the group are
shareholders in the firm. During the period fees of $nil were paid
for training services provided (30 June 2013: $0.1 million and 31
December 2013: $0.2 million).
Arab Bank: is a related party of the group because one senior
management member in Hikma Pharmaceutical PLC is also a board
member of Arab Bank PLC. Total cash balances at Arab Bank were
$76.0 million (30 June 2013: $34.7 and 31 December 2013: $51.5
million). Facilities granted by Arab Bank to the Group amounted to
$161.0 million (30 June 2013: $179.2 million and 31 December 2013:
$169.4 million). Interest expense/income is at market rates.
HikmaCure: The Group held 50:50 joint venture ("JV") agreement
with MIDROC Pharmaceuticals Limited. The JV is called HikmaCure.
Hikma and MIDROC invested in HikmaCure in equal proportions and
have committed to provide up to $22 million each in cash of which
$3 million has been paid in previous periods.
Unimark: The Group held a non-controlling interest of 23.1% in
the Indian company Unimark Remedies Limited ("Unimark") at 30 June
2014 (30 June 2013: 23.1% and 31 Decemeber 2013: 23.1%). During the
period the Group paid an amount of $0.1 million in relation to a
products development agreement (30 June 2013: $nil and 31 December
2013: $3 million).
Haosun:The Group held a non-controlling interest of 30.1% in
Hubei Haosun Pharmaceutical Co., Ltd ("Haosun") at 30 June 2014 (30
June 2013: 30.1% and 31 December 2013: 30.1%). During the period
total purchases from Haosun were $nil (30 June 2013: $nil and 31
December 2013: $0.2 million).
16. Contingent Liabilities
The integrated nature of the Group's worldwide operations,
involving significant investment in research and strategic
manufacturing at a limited number of locations, with consequential
cross-border supply routes into numerous end-markets, gives rise to
complexity and delay in negotiations with revenue authorities as to
the profits on which individual Group companies are liable to tax.
Disagreements with, and between, revenue authorities as to
intra-Group transactions, in particular the price at which goods
and services should be transferred between Group companies in
different tax jurisdictions, has the potential to produce
conflicting claims from revenue authorities as to the profits to be
taxed in individual territories.
The promotion, marketing and sale of pharmaceutical products and
medical devices is highly regulated and the operations of market
participants, such as Hikma, are closely supervised by regulatory
authorities and law enforcement agencies, including the FDA and the
US Department of Justice. As a result the Group is subject to
certain ongoing investigations by governmental agencies as well as
other various legal proceedings considered typical to its business
relating to employment, product liability and commercial
disputes.
17. Foreign exchange rates
Period end rates Average rates
30 June 30 June 31 December
2014 2013 2013 H1 2014 H1 2013 FY 2013
USD/EUR 0.7325 0.7685 0.7263 0.7293 0.7614 0.7529
USD/Sudanese
Pound 5.9666 5.5785 5.9755 5.9666 5.6544 5.6988
USD/Algerian
Dinar 79.2555 80.0232 78.1082 78.5767 78.4885 79.3595
USD/Saudi Riyal 3.7495 3.7495 3.7495 3.7495 3.7495 3.7495
USD/British Pound 0.5866 0.6572 0.6064 0.5991 0.6473 0.6390
USD/Jordanian
Dinar 0.7090 0.7090 0.7090 0.7090 0.7090 0.7090
USD/Egyptian
Pound 7.1633 7.0294 6.9586 7.0274 6.8311 6.8861
USD/Japanese
Yen 101.5480 99.1710 105.2188 102.5001 95.5219 97.4659
USD/Moroccan
Dirham 8.1805 8.5614 8.1069 8.4116 8.8315 8.3517
USD/Tunisian
Dinar 1.6866 1.6548 1.6467 1.6126 1.5949 1.6253
18. Subsequent events
On 15 July 2014 Hikma announced that it had completed its
acquisition of assets of the US generic injectables business,
Bedford Laboratories ("Bedford") from Ben Venue Laboratories, Inc.
("Ben Venue"), a member of the Boehringer Ingelheim Group of
Companies. The total consideration for the acquisition is up to
$300 million comprised of an upfront cash payment of $225 million
which was paid on 15 July 2014 and contingent cash payments of up
to $75 million, subject to the achievement of performance-related
milestones over a period of five years from closing the
transaction. Moreover, on 24 July 2014 Hikma announced that it had
agreed with Ben Venue to acquire substantially all of the assets of
their generic injectables manufacturing site in Bedford, Ohio. The
acquisition is pursuant to the exclusivity arrangement entered into
with Ben Venue on 28 May 2014. No incremental consideration will be
payable in relation to Hikma's acquiring the Ben Venue
manufacturing site.
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
requirements and manufacturing or develop the Group's of quality across
standards (often referred products all manufacturing
to as 'Current Good > Delayed or denied facilities
Manufacturing Practices' approvals for the introduction > Strong global compliance
or cGMP) of new products function that oversees
> Product complaints compliance across
or recalls the Group
> Bans on product sales > Remuneration and
or importation reward structure that
> Disruptions to operations helps retain experienced
> Plant closure personnel
> Potential for litigation > Continuous staff
training and know-how
exchange
> On-going development
of standard operating
procedures
Regulation changes
> Unanticipated legislative > Restrictions on the > Strong oversight
and regulatory actions, sale of one or more of local regulatory
developments and changes of our products environments to help
affecting the Group's > Restrictions on our anticipate potential
operations and products ability to sell our changes
products at a profit > Local operations
> Unexpected additional in all of our key
costs required to produce, markets
market or sell our products > Representation and/or
> Increased compliance affiliation with local
costs industry bodies
> Diverse geographical
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 across all of our
> Lack of approval investments in R&D, markets
and acceptance of manufacturing and sales > Highly qualified
new products by physicians, and marketing sales and marketing
patients and other teams across all markets
key decision-makers > A diversified product
> Inability to confirm pipeline with 752
safety, efficacy, products pending approval,
convenience and/or covering a broad range
cost-effectiveness of therapeutic areas
of our products as > A systematic commitment
compared to competitive to quality that helps
products to secure approval
> Inability to participate and acceptance of
in tender sales new products and mitigate
potential safety issues
Product safety
> Unforeseen product > Interruptions to revenue > Diversification
safety issues for flow of product portfolio
marketed products, > Costs of recall, potential across key markets
particularly in respect for litigation and therapies
of in-licensed products > Reputational damage > Working with stakeholders
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 > Experienced and
new products or compounds sales and increase profitability successful in-house
for development for the Group R&D team, with specifically
> Lower return on investment targeted product development
in research and development pathways
> 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
or other co-operation > Revenue interruptions existing in-licensing
agreements with third > Failure to recoup partners
parties sales and marketing > Experienced legal
> Fraudulent activities and business development team capable of negotiating
by third parties (vendors, costs robust agreements
partners, etc.) > Negative actions by with our partners
various regulatory bodies > Continuous development
(e.g. US SEC, UK Serious of new partners for
Fraud Office, etc.) licensing 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 including that performed
products or businesses the acquisitions were by the Group Compliance
acquired intended to create function, undertaken
> Adverse impact on as part of any acquisition
our business, financial process
condition and results > Track record of
of operations acquisitions and subsequent
> Significant transaction business integration
and integration costs > Human resources
could adversely impact personnel focussed
our financial results on managing employee
> Post acquisition discovery integration following
of fraudulent activity 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
pressure in increasingly internal R&D, in-licensing
commoditised markets and 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 suppliers of active
from approved sources new products ingredients
> Inability to procure > Inability to market > Long-term relationships
active ingredients existing products as with reliable raw
on commercially viable planned material suppliers
terms > Lost revenue streams > Corporate auditing
> Inability to procure on short notice team continuously
the quantities of > Reduced service levels monitors regulatory
active ingredients and damage to customer compliance of API
needed to meet market relationships suppliers
requirements > Inability to supply > Focus on improving
finished product to service levels and
our customers in a timely optimising our supply
fashion chain
Economic and political and unforeseen events
> The failure of control, > Disruptions to manufacturing > Geographic diversification,
a change in the economic and marketing plans with 26 manufacturing
conditions (including > Lost revenue streams facilities and sales
the Middle East, North > Inability to market in more than 50 countries
Africa and the Eurozone), or supply products > Product diversification,
political environment with 702 products
or sustained civil and 1,687 dosage strengths
unrest in any particular and forms
market or country > Strong track record
> Unforeseen events in crisis management
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 the > Reputational damage > Use of top-tier
Group or the Group external legal firms
as a whole in all jurisdictions
> 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 Algerian, and financial results where possible
Egyptian, European, upon translation into > Foreign currency
Moroccan, Sudanese US dollars borrowing
and Tunisian currencies > Matching foreign
currency revenues
to in-jurisdiction
costs
Interest rate risk
> Volatility in interest > Fluctuating impact > Optimisation of
rates on profits before taxation fixed 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
> Concentration of > Risk of bad debt or sales invoices
significant trade default > Group Credit policy
balances with key limiting credit exposures
customers in the MENA > Use of various financial
region and the US instruments such as
letters of credit,
factoring and credit
insurance arrangements
Liquidity Risk
> Insufficient free > Reduced liquidity > Continual evaluation
cash flow and borrowings and working capital of headroom and borrowing
headroom funds > Committed debt facilities
> Inability to meet > Diversity of institution,
short-term working capital subsidiary and geography
needs and, therefore, of borrowings
to execute our long
term strategic plans
Tax
> Changes to tax laws > Negative impact on > Close observation
and regulations in the Group's effective of any intended or
any of the markets tax rate proposed changes to
in which we operate > Costly compliance tax rules, both in
requirements 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
condensed set of financial statements
([2]) Earnings before interest, tax, depreciation and
amortisation. EBITDA is stated before impairment charges and share
of results from associated companies
[3] In H1 2014, amortisation of intangible assets (excluding
software) was $7 million compared with $7 million in H1 2013. In H1
2014, exceptional items included within operating expenses were $2
million compared with $39 million in H1 2013
[4] 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
[5] Totals include 123 dermatological and cosmetic compounds in
401 dosage forms and strengths that are only sold in Morocco
[6] Totals include all compounds and formulations that are
either launched or approved or pending approval across all markets,
as relevant
[7] In the first half of 2013 the Board paid a special dividend
of 3.0 cents per share, which reflected the exceptional performance
of the Generics business in the first half of 2013
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LKLLFZVFFBBX
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