TIDMHIK
RNS Number : 1023H
Hikma Pharmaceuticals Plc
11 March 2015
PRESS RELEASE
Hikma delivers an excellent performance in 2014 with Group
revenue growth of 9% and basic EPS up 30%
London, 11 March 2015 - 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 2014.
2014 highlights
Group
-- Group revenue increased by 9% to $1,489 million, driven by strong growth in Injectables
-- Profit attributable to shareholders increased by 31% to $278
million. On an adjusted basis, profit attributable to shareholders
rose 9% to $299 million
-- Basic EPS increased 30% to 140.4 cents per share and adjusted
EPS increased by 9% to 151.0 cents per share
-- Net cash flow from operating activities increased by $88 million to $425 million
-- Proposed final dividend of 15.0 cents per share (22.0 cents
per share for the full year), plus a special dividend of 6.0 cents
per share (10.0 cents per share for the full year), making a total
combined dividend for the year of 32.0 cents per share
-- Expecting 2015 Group revenue growth of around 6% in constant currency
-- Adverse exchange rate movements since the beginning of
2015([1]) could impact full year Group revenue by around 3%, or
$45 million, should current exchange rates prevail
Branded
-- Branded revenue of $551 million, in line with 2013 and up 1% in constant currency
-- Good performance across most MENA markets was offset by
restructuring in Algeria and political disruptions in Iraq and
Libya
-- Branded adjusted operating profit decreased by 18% to $111
million, with an adjusted operating margin of 20.1%, reflecting the
impact from disrupted markets and foreign exchange losses
-- Expecting 2015 Branded revenue growth in the low-teens and an
improvement in adjusted operating margin of around 200 basis
points, on a constant currency basis
Injectables
-- Global Injectables revenue increased by 33% to $713 million
-- Excellent performance in the US, with revenue up 51%, driven
by strong underlying growth enhanced by specific market
opportunities
-- Adjusted operating margin of 37.2%, up from 31.0% in 2013,
reflecting a good performance from higher value products and
operational efficiencies
-- Acquisition of assets of Bedford Laboratories and Ben Venue
significantly strengthens our global Injectables business
-- Following the extremely strong performance in 2014, expecting
to maintain Injectables revenue at the same level in 2015, with a
robust adjusted operating margin of around 35%
Generics
-- Generics revenue of $216 million, down 19%, reflecting strong
underlying growth from the re-launch of legacy products and the
expected decline in sales from specific market opportunities
-- Generics adjusted operating profit of $113 million, compared
with $166 million in 2013, with an adjusted operating margin of
52.3%, compared with 61.9% in 2013
-- Expecting Generics revenue of around $200 million in 2015,
reflecting the continued decline in certain market opportunities,
largely offset by a strong contribution from new product
launches
Said Darwazah, Chairman and Chief Executive Officer of Hikma,
said:
"The Group delivered an excellent performance in 2014. During
the year, we achieved strong underlying growth, enhanced by
specific market opportunities. With the acquisition of the Bedford
and Ben Venue assets, continued new product launches and our strong
market positions in the US, MENA and Europe, Hikma remains well
placed for future growth.
Our global Injectables business was the key growth driver this
year, demonstrating the attractiveness of our product portfolio in
the US, the strength of our sales team and the benefits of our
flexible manufacturing capabilities. We are excited to have
completed the Bedford acquisition and we are rapidly integrating
the Bedford assets, which will be a key contributor to sustainable
long term growth for the Injectables business.
We performed well in most of our MENA businesses this year and
we are confident that the Branded business can deliver a much
stronger performance in 2015. Our Generics business continues to
perform well and the investments we are making to launch new
products and develop our future pipeline will help to sustain this
performance.
I am pleased with the results we achieved in 2014 and I am
confident in the outlook for 2015 and beyond."
Group financial highlights
Summary P&L 2014 2013 Change
$ million
----------------------------------------- ------ ------ -------
Revenue 1,489 1,365 +9%
----------------------------------------- ------ ------ -------
Gross profit 851 764 +11%
----------------------------------------- ------ ------ -------
Gross margin 57.2% 56.0% +1.2
----------------------------------------- ------ ------ -------
Operating profit 402 352 +14%
----------------------------------------- ------ ------ -------
Adjusted operating profit([2]) 427 413 +3%
----------------------------------------- ------ ------ -------
Adjusted operating margin 28.7% 30.3% -1.6
----------------------------------------- ------ ------ -------
EBITDA([3]) 474 427 +11%
----------------------------------------- ------ ------ -------
Adjusted EBITDA(2.3) 485 463 +5%
----------------------------------------- ------ ------ -------
Profit attributable to shareholders 278 212 +31%
----------------------------------------- ------ ------ -------
Adjusted profit attributable to
shareholders(1) 299 274 +9%
----------------------------------------- ------ ------ -------
Adjusted profit attributable to
shareholders margin(1) 20.1% 20.1% -
----------------------------------------- ------ ------ -------
Basic earnings per share (cents) 140.4 107.6 +30%
----------------------------------------- ------ ------ -------
Adjusted basic earnings per share
(cents) (1) 151.0 139.1 +9%
----------------------------------------- ------ ------ -------
Dividend per share (cents) 22.0 20.0 +10%
----------------------------------------- ------ ------ -------
Special dividend per share (cents) 10.0 7.0 +43%
----------------------------------------- ------ ------ -------
Total dividend per share (cents) 32.0 27.0 +19%
----------------------------------------- ------ ------ -------
Net cash flow from operating activities 425 337 +26%
----------------------------------------- ------ ------ -------
Enquiries
Hikma Pharmaceuticals PLC
Susan Ringdal, VP Corporate Strategy and Director of Investor
Relations +44 (0)20 7399 2760/ +44 7776 477050
Lucinda Baker, Deputy Director of Investor Relations +44 (0)20
7399 2765/ +44 7818 060211
Zeena Murad, Investor Relations Manager
+44 (0) 207 399 2768/ +44 7771 665277
FTI Consulting
Ben Atwell/ Matthew Cole +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 2014, Hikma achieved
revenues of $1,489 million and profit attributable to shareholders
of $278 million.
A presentation for analysts and investors will be held today at
09:30 UK time at FTI Consulting, 200 Aldersgate, Aldersgate Street,
London EC1A 4HD. To join via conference call please dial: +44 (0)
203 003 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. A
video interview of Khalid Nabilsi, CFO is available at
www.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 2014.
Group revenue by business segment (%)
2014 2013
------------- ----- -----
Branded 37% 41%
------------- ----- -----
Injectables 48% 39%
------------- ----- -----
Generics 15% 20%
------------- ----- -----
Group revenue by region (%)
2014 2013
---------------- ----- -----
MENA 43% 47%
---------------- ----- -----
US 51% 46%
---------------- ----- -----
Europe and ROW 6% 7%
---------------- ----- -----
Branded
2014 highlights:
-- Branded revenue of $551 million, in line with 2013, and an
increase of 1% in constant currency
-- Branded adjusted operating profit decreased by 18%, with an
adjusted operating margin of 20.1%, down from 24.4%
-- 59 product launches and six new in-license agreements signed
Branded revenue decreased by 1% in 2014 to $551 million,
compared with $554 million in 2013. On a constant currency basis,
Branded revenue was $561 million, up 1%. We grew strongly in most
markets through our continued focus on strategic, higher value
products and new product launches, although this was offset by
lower sales in Algeria, due to restructuring, and in Iraq and Libya
due to the political disruptions.
Saudi Arabia and the other GCC markets grew in the mid-teens,
from good demand for recent product launches and actions we took to
enhance both our sales and marketing and distribution structures.
Our Egyptian business had an excellent year, with revenue growth of
around 11%, or 14% in constant currency, reflecting a strong focus
on strategic products and successful new product launches. Growth
in most other markets, including Jordan and Tunisia, was strong,
although sales in Iraq and Libya were lower due to ongoing
political disruptions. Morocco delivered good growth in local
currency driven by new product launches and a strengthened sales
and marketing function, which more than offset the adverse impact
from government-mandated price cuts.
In Algeria, sales were significantly lower than in 2013 due to
the restructuring of our business and operations, as previously
highlighted in our interim results. We have upgraded our management
team in Algeria across all key functions and the business is
already benefitting from the implementation of better operational
processes, including a re-organisation of the sales and marketing
function. We expect the Algerian business to deliver good revenue
growth in 2015.
During 2014, the Branded business launched a total of 59
products across all markets, including five new compounds and eight
new dosage forms and strengths. The Branded business also received
176 regulatory approvals across the region.
Revenue from in-licensed products increased from $210 million to
$219 million in 2014, reflecting strong demand for key products.
In-licensed products represented 40% of Branded revenue compared
with 38% in 2013. We signed six new licensing agreements for
innovative products during 2014, which will help us to grow our
portfolio of higher value products in growing therapeutic
categories.
Branded gross profit fell by 3% to $267 million in 2014 and
gross margin was 48.5%, compared with 49.8% in 2013, reflecting the
mix of sales during the year. Operating profit decreased by 18% to
$102 million, compared with $124 million in 2013. Adjusted
operating profit decreased by 18% to $111 million. Adjusted
operating margin was 20.1%, down from 24.4% in 2013. The lower
margin reflects the reduction in gross margin combined with
continued investment in sales and marketing, a significant increase
in transactional foreign exchange losses and a higher doubtful debt
expense in disrupted markets.
On a constant currency basis, we expect Branded revenue to grow
in the low-teens in 2015, driven by strong underlying market
growth, our focus on strategic products, an improved performance in
Algeria and the strength of our sales and marketing teams. Adjusted
operating margin is expected to improve by around 200 basis points,
driven by revenue growth and operational leverage. Taking into
account exchange rate movements since the beginning of 2015, and
assuming these rates prevail, we would expect reported Branded
revenue growth in the high single digits and a slight improvement
in adjusted operating margin.
Injectables
2014 highlights:
-- Injectables revenue grew by 33% to $713 million, with an
adjusted operating margin of 37.2%, up from 31.0%
-- Excellent performance in US Injectables, with revenue up 51%,
reflects our success in capturing specific market opportunities
-- Acquisition of Bedford and Ben Venue assets strengthens our
portfolio and pipeline for future growth
Injectables revenue by region
2014 2013
---------------- ----- -----
US 77% 68%
---------------- ----- -----
MENA 13% 17%
---------------- ----- -----
Europe and ROW 10% 15%
---------------- ----- -----
Revenue in our global Injectables business increased by 33% to
$713 million, compared with $536 million in 2013.
US Injectables revenue grew by $185 million, or 51%, to $548
million. This excellent performance reflects strong underlying
growth and our success in capturing specific market opportunities.
We benefitted from our focus on improving the mix of sales, with
our higher value products delivering strong performances in 2014.
In 2015, we expect increasing competition for a number of these
products, however, good demand across our broad product portfolio
should enable us to sustain underlying revenue. We also expect the
contribution from certain specific market opportunities to continue
in 2015.
In 2014, MENA Injectables revenue was $90 million, a decrease of
3% compared with $93 million in 2013. Whilst revenue grew in most
of our markets, this was offset by lower than expected sales in
Algeria. During the year we restructured our MENA sales teams to
increase the resources dedicated to injectable products and we
expect this to drive stronger growth going forward.
In Europe, revenue decreased by 7% to $75 million, reflecting a
shift in contract manufacturing from European to US customers. Own
drug sales continued to grow steadily, with strong volumes more
than offsetting double-digit price erosion. In October 2014, we
received a warning letter from the US Food and Drug Administration
("FDA") relating to an inspection of our Portuguese facility in
March 2014. We do not believe that the warning letter will impact
the manufacturing or distribution of the products manufactured at
this facility and we do not expect the remediation costs to be
material. We have dedicated significant management time to
addressing the issues raised by the FDA and we are working hard to
bring the facility back into compliance as quickly as possible.
Injectables gross profit increased by 53% to $431 million,
compared with $282 million in 2013. Gross margin increased
significantly to 60.4%, compared with 52.6% in 2013. This reflects
extremely strong sales from certain market opportunities in the US,
a good performance from other higher value products and efficient
management of manufacturing overhead.
Operating profit increased by 68% to $260 million. Adjusted
operating profit increased by 60% to $265 million. Adjusted
operating margin increased from 31.0% to 37.2%. This excellent
margin improvement reflects the increase in gross margin and was
achieved whilst making investments across the business, including a
significant increase in R&D spend and the expansion of our US
sales team.
During 2014, the Injectables business launched a total of 16
products across all markets, including six new compounds and eight
new dosage forms and strengths. The Injectables business also
received a total of 83 regulatory approvals across all regions and
markets, namely 31 in MENA and 52 in Europe. We signed three new
licensing agreements during 2014, adding innovative injectable
products to our portfolio.
A key contributor to future growth for our Injectables business
will be the acquisition of Bedford Laboratories ("Bedford"), which
we acquired on 15 July 2014 for an upfront cash consideration of
$225 million. The assets acquired include a 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. We have begun the process of transferring
an initial tranche of around 20 of Bedford's products to our global
manufacturing facilities in the US, Germany and Portugal (all
manufacturing at the Ben Venue site ceased in December 2013) and we
will begin re-launching these products towards the end of 2015. In
2017, we expect to have all 20 of the products back on the market,
generating revenue of around $150 million.
On 17 September 2014, we acquired 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 was paid. We are using the QDC and
Bedford's strong R&D team to expedite the transfer and
reactivation of Bedford's products. The four manufacturing sites
remain dormant, but we have begun the process of transferring
equipment, including lyophilisers and filling lines, to our other
global manufacturing facilities in the US and Europe to support our
future growth plans.
Following the extremely strong performance in 2014, which
included the benefit from a number of higher value products, we
expect to maintain Injectables revenue at the same level in 2015.
This will be supported by strong performances across our
geographies and a continued benefit from specific market
opportunities in the US. We expect a robust adjusted operating
margin of around 35%, even after the slight dilution from Bedford
R&D costs.
Generics
2014 highlights:
-- Generics revenue of $216 million
-- Adjusted operating profit of $113 million, with an adjusted operating margin of 52.3%
Generics revenue was $216 million, compared to $268 million in
2013. The continued re-launch of legacy products during 2014 drove
good growth in underlying sales. As expected, the specific market
opportunities that contributed to the very strong performance in
2013 gradually declined over the course of the year due to
increased competition.
Generics gross profit was $150 million, compared with $206
million in 2013, and gross margin was 69.4%, compared with 76.9% in
2013, reflecting the change in the mix of revenue. Operating profit
was $113 million, compared with $127 million in 2013. On an
adjusted basis, operating profit was $113 million, compared with
$166 million in 2013, which excludes the adverse impact of
remediation-related and other exceptional costs of $39 million in
2013. Adjusted operating margin was 52.3% in 2014, compared with
61.9% in 2013.
During 2014, the Generics business received a total of four
product approvals. This included a New Drug Application ("NDA") for
colchicine 0.6mg capsules, which was approved by the US FDA under
Section 505(b)(2) of the US Federal Food Drug and Cosmetic Act and
launched in September 2014. Following this approval and our
subsequent launch, Takeda Pharmaceuticals U.S.A., Inc. ("Takeda")
filed a motion for a preliminary injunction and was granted a
temporary restraining order restricting us from manufacturing and
distributing the product while the court considered this motion. In
November 2014, Takeda's motion was denied, but the restraining
order remained in place pending their subsequent appeal, which was
denied on 9 January 2015.([4]) Immediately following the Court's
decision in January, Hikma re-entered the market with its
colchicine product marketed under the brand name Mitigare(TM) , as
well as an authorised generic of Mitigare(TM) . At the same time,
Prasco Laboratories launched an authorised generic of Takeda's
colchicine product, Colcrys. Whilst the litigation process severely
disrupted our initial launch and sales plans, we expect demand for
our colchicine products to increase gradually over the course of
the year.
We currently expect the Generics business to deliver revenue of
around $200 million in 2015, reflecting the continued decline in
certain market opportunities, largely offset by a strong
contribution from new product launches.
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 $9 million in 2014, compared with $7 million in 2013.
These other businesses delivered an operating loss of $5 million in
2014, compared with a loss of $9 million in 2013.
Group
Group revenue increased by 9% to $1,489 million in 2014. Group
gross profit increased by 11% to $851 million, compared with $764
million in 2013. Group gross margin was 57.2%, compared with 56.0%,
reflecting strong margins in our Injectables and Generics
businesses.
Group operating expenses grew by 9% to $449 million, compared
with $412 million in 2013. Excluding the amortisation of intangible
assets (excluding software) and exceptional items([5]) , Group
operating expenses grew by 21% to $424 million. The paragraphs
below address the Group's main operating expenses in turn.
Sales and marketing expenses were $171 million, or 11% of
revenue, compared with $160 million and 12% of revenue in 2013. The
growth in sales and marketing costs primarily reflects continued
investment in our sales teams and promotional activities in MENA
and an increase in sales expenses in the US, including the
expansion of our sales team through the Bedford acquisition.
General and administrative expenses increased by $34 million to
$185 million in 2014. Excluding exceptional items, these expenses
increased by $24 million, or 16%, to $174 million and represented
12% of revenue in 2014, compared with 11% in 2013. The increase in
expenses is principally due to investments we have made to
strengthen key business functions in the US, increased doubtful
debt provisions for disrupted markets in MENA and higher
consultancy and legal fees across the Group.
Group R&D expenditure was $55 million in 2014, compared with
$39 million in 2013, reflecting a continued focus on developing a
strong product pipeline across our businesses. Part of the increase
relates to the cost of transferring Bedford products to our
manufacturing facilities. These costs will be ongoing as we
transfer additional products over the next two years. We invested a
further $24 million in product acquisitions and partnership
agreements. This has been capitalised on the balance sheet. Through
the Bedford acquisition, we acquired a further $123 million of
product related intangible assets, which have also been capitalised
on the balance sheet. Total R&D and product related
investments, including the Bedford intangibles, represented 14% of
Group revenue in 2014.
Other net operating expenses reduced by $24 million to $38
million. Excluding exceptional items, these expenses increased by
$13 million, primarily reflecting an increase in foreign exchange
losses related to the Euro, the Algerian dinar and the Sudanese
pound and an increase in slow moving inventory provisions.
Operating profit for the Group increased by 14% to $402 million
in 2014. Group operating margin increased to 27.0%, compared with
25.8% in 2013. On an adjusted basis, Group operating profit
increased by $14 million, or 3%, to $427 million and operating
margin was 28.7% compared with 30.3% in 2013.
Research & Development([6])
The Group's product portfolio continues to grow as a result of
our product development efforts. During 2014, we launched 11 new
compounds. The Group's portfolio now stands at 582 compounds in
1,672 dosage forms and
strengths.([7]) We manufacture and/or sell 78 of these compounds under licence from the licensor.
Across all businesses and markets, a total of 75 products were
launched during 2014. In addition, the Group received 263
approvals.
To ensure the continuous development of our product pipeline, we
submitted 417 regulatory filings in 2014 across all regions and
markets. As of 31 December 2014, we had a total of 888 pending
approvals across all regions and markets. At 31 December 2014, we
had a total of 198 new products under development.
Products
pending
approval
Products as at 31
Total marketed approved December
products Products launched in 2014 in 2014 2014
------------- ----------------------- -------------------------------------------- --------------- ---------------
Total pending
Total launches Total approvals
Dosage New dosage across approvals across
forms and forms and all across all all
Compounds strengths New compounds strengths countries([8]) countries(8) countries(8)
------------- ---------- ----------- -------------- ----------- --------------- --------------- ---------------
Branded 376(7) 1,123(7) 5 8 59 176 426
Injectables 182 483 6 8 16 83 427
Generics 24 66 - - - 4 35
Group 582 1,672 11 16 75 263 888
Results from associated companies
In 2014, we recognised a loss from associated companies of $6
million, which primarily relates to our minority interest in
Unimark Remedies Limited ("Unimark"). During the year, we received
our first approval for a product developed by Unimark for our US
Generics business. We will continue to leverage this relationship
to support our future pipeline development.
Net finance expense
Net finance expense was $34 million, broadly in line with $35
million in 2013. In 2015, we expect a net finance expense of around
$40 million, reflecting the annualisation of the cost of financing
the Bedford acquisition completed in July 2014 and expected debt
restructuring costs.
Profit before tax
Profit before tax for the Group increased by 21% to $362
million, compared with $298 million in 2013. Adjusted profit before
tax increased by 3% to $387 million.
Tax
The Group incurred a tax expense of $80 million, compared with
$82 million in 2013. The effective tax rate was 22%, compared with
28% in 2013. The reduction in the effective tax rate reflects
increased profitability in jurisdictions that have a lower tax
rate. In 2015, we expect the effective tax rate to be between 21%
and 23%.
Profit attributable to shareholders
The Group's profit attributable to shareholders increased by 31%
to $278 million in 2014. Adjusted profit attributable to
shareholders increased by 9% to $299 million.
Earnings per share
Basic earnings per share increased by 30% to 140.4 cents,
compared with 107.6 cents in 2013. Diluted earnings per share
increased by 30% to 139.0 cents, compared with 107.1 cents in 2013.
Adjusted diluted earnings per share was 149.5 cents, an increase of
8% over 2013.
Dividend
The Board of Directors of Hikma ("Board") has recommended a
final dividend of 15.0 cents per share (approximately 9.9 pence per
share) for 2014, which brings the dividend for the full year to
22.0 cents per share (approximately 14.6 pence per share), an
increase of 10% compared with 2013. In addition, the Board has
recommended a special final dividend of 6.0 cents per share
(approximately 4.0 pence per share), which brings the full year
special dividend to 10.0 cents per share (approximately 6.6 pence
per share). The combined total dividend for the year is 32.0 cents
per share (approximately 21.2 pence per share), up 19% from 27.0
cents per share in 2013. This distribution to shareholders comes
after the allocation of capital to debt repayment and capital
expenditure.
The proposed final dividend and final special dividend will be
paid on 21 May 2015 to eligible shareholders on the register of
Hikma at the close of business on 17 April 2015, subject to
approval by shareholders at Hikma's Annual General Meeting. The
ex-dividend date is 16 April 2015 and the final date for currency
elections is 8 May 2015.
Net cash flow, working capital and net debt
The Group generated operating cash flow of $425 million in 2014,
up $88 million from $337 million in 2013. This strong improvement
in operating cash flow reflects the significant increase in
profitability. Working capital days decreased by 21 days from 198
days in 2013 to 177 days in 2014, reflecting strong cash collection
and inventory management.
Capital expenditure was $91 million, compared with $59 million
in 2013. Of this, $60 million was spent in MENA, to upgrade and
maintain our equipment and facilities across a number of markets.
The remaining $31 million was spent in the US and Europe, primarily
to expand our Injectables manufacturing capacity, including the
installation of a pre-filled syringe line. In 2015, we expect
capital expenditure to be around $100 million to $115 million.
In July 2014, we completed the acquisition of Bedford. The
upfront cash consideration of $225 million was financed through a
new debt facility. Whilst this increased the Group's total debt,
the Group's overall net debt position of $274 million at 31
December 2014 was broadly in line with the position of $267 million
at 31 December 2013, reflecting strong cash flow generation in
2014.
Balance sheet
During the period, shareholder equity was negatively impacted by
an unrealised foreign exchange translation loss of $52 million,
primarily reflecting movements in the Euro, the Algerian dinar and
the Sudanese pound against the US dollar and the translation of net
assets denominated in these currencies.
Summary and outlook
The Group delivered an excellent overall performance in 2014,
with a 9% increase in revenue and a 30% increase in basic earnings
per share. We have made a good start to 2015 and we are expecting
Group revenue growth of around 6% for the full year on a constant
currency basis. Adverse movements in exchange rates against the US
dollar since the beginning of 2015 could reduce reported Group
revenue by 3%, or $45 million, if the current exchange rates
prevail.
In 2015, the Branded business, on a constant currency basis, is
expected to deliver revenue growth in the low-teens, driven by
continued strong growth in the underlying markets, our focus on
strategic products, improved sales in Algeria and the strength of
our sales and marketing teams. Adjusted operating margin is
expected to improve by around 200 basis points, driven by revenue
growth and continuous improvements in operational efficiency.
Taking into account exchange rate movements since the beginning of
2015, and assuming these rates prevail, we would expect reported
Branded revenue growth in the high single digits and a slight
improvement in adjusted operating margin.
Following the extremely strong performance in 2014, which
included the benefit from a number of higher value products, we
expect to maintain Injectables revenue at the same level in 2015.
This will be supported by strong performances across our
geographies and a continued benefit from specific market
opportunities in the US. We expect a robust adjusted operating
margin of around 35%, even after slight dilution from Bedford
R&D costs.
We currently expect the Generics business to deliver revenue of
around $200 million in 2015, reflecting the continued decline in
certain market opportunities, partially offset by a strong
contribution from new product launches. We are continuing to
develop our Generics product portfolio through the re-introduction
of products, investing in our R&D pipeline and targeted
M&A.
We have a very strong balance sheet, which gives us the
financial capacity to pursue acquisition opportunities across our
businesses. In 2015, our focus will remain on strengthening our
product portfolio and pipeline, building our manufacturing and
product development capabilities, enhancing our sales and marketing
activities and expanding our geographic footprint. These
investments will ensure we continue our strong track record of
growth and give us confidence in the outlook for the medium
term.
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. Whilst a new bridge loan facility, which was
used to finance the cash consideration of $225 million for the
Bedford acquisition in July, increased the Group's total debt, the
Group's overall net debt position of $274 million at 31 December
2014 was broadly in line with the position of $267 million at 31
December 2013, reflecting strong cash flow generation in 2014.
Operating cash flow in 2014 was $425 million (2013: $337 million).
The Group has $839 million (2013: $234 million) of undrawn short
term and long term banking facilities, in addition to $180 million
(2013: $142 million) of unutilised import and export financing
limits. 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 2014. 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;
-- 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: and
-- The annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to access the company's performance,
business model and strategy.
By order of the Board
Said Darwazah Khalid Nabilsi
Chief Executive Officer Chief Financial Officer
11 March 2015
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 2014
Note 2014 2013
$m $m
--------------- ---------------
Continuing operations
Revenue 3 1,489 1,365
Cost of sales 3 (638) (601)
--------------- ---------------
Gross profit 3 851 764
--------------- ---------------
Sales and marketing expenses (171) (160)
General and administrative
expenses (185) (151)
Research and development
expenses (55) (39)
Other operating expenses
(net) (38) (62)
--------------- ---------------
Total operating expenses (449) (412)
Adjusted operating profit 427 413
Exceptional items:
- Acquisition related costs 4 (11) -
- Severance costs 4 - (1)
- Plant remediation costs 4 - (24)
- Impairment losses 4 - (10)
- Other claims provisions 4 - (11)
Other adjustments:
Intangible amortisation* 4 (14) (15)
------------------------------- ---------- ----- --- --------------- ---------------
Operating profit 3 402 352
Associated companies
-share of results (6) (3)
-exceptional impairment
of investment - (16)
Finance income 4 2
Finance expense (38) (37)
--------------- ---------------
Profit before tax 362 298
Tax 5 (80) (82)
--------------- ---------------
Profit for the year 282 216
=============== ===============
Attributable to:
Non-controlling interests 4 4
Equity holders of the parent 278 212
--------------- ---------------
282 216
=============== ===============
Earnings per share (cents)
Basic 7 140.4 107.6
=============== ===============
Diluted 7 139.0 107.1
=============== ===============
Adjusted basic 7 151.0 139.1
=============== ===============
Adjusted diluted 7 149.5 138.4
=============== ===============
* Intangible amortisation comprises the amortisation of
intangible assets other than software.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013
$m $m
-------------- --------------
PROFIT FOR THE YEAR 282 216
Items that may be reclassified subsequently
to the income statement:
Cumulative effect of change in fair value
of financial derivatives 1 3
Exchange difference on translation of
foreign operations (53) 3
-------------- --------------
Total comprehensive income for the year 230 222
============== ==============
Attributable to:
Non-controlling interests 3 5
Equity holders of the parent 227 217
-------------- --------------
230 222
============== ==============
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2014
Note 2014 2013
Non-current assets $m $m
-------------------- -------------------
Intangible assets 602 447
Property, plant and equipment 514 443
Investment in associates and joint
ventures 16 22
Deferred tax assets 67 86
Financial and other non-current
assets 39 34
1,238 1,032
-------------------- -------------------
Current assets
Inventories 8 273 276
Income tax asset 10 4
Trade and other receivables 9 439 439
Collateralised and restricted cash 8 7
Cash and cash equivalents 280 168
Other current assets 3 3
1,013 897
-------------------- -------------------
Total assets 2,251 1,929
==================== ===================
Current liabilities
Bank overdrafts and loans 393 159
Obligations under finance leases 1 1
Trade and other payables 10 248 241
Income tax provision 65 65
Other provisions 25 20
Other current liabilities 11 109 100
841 586
-------------------- -------------------
Net current assets 172 311
-------------------- -------------------
Non-current liabilities
Long-term financial debts 12 145 263
Obligations under finance leases 23 19
Deferred tax liabilities 25 26
Derivative financial instruments - 1
Other non-current liabilities 1 -
194 309
-------------------- -------------------
Total liabilities 1,035 895
==================== ===================
Net assets 1,216 1,034
==================== ===================
Equity
Share capital 13 35 35
Share premium 281 281
Own shares (1) (3)
Other reserves 882 704
-------------------- -------------------
Equity attributable to equity holders
of the parent 1,197 1,017
Non-controlling interests 19 17
-------------------- -------------------
Total equity 1,216 1,034
==================== ===================
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2014
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
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 and
1 January
2014 38 (46) 712 704 35 281 (3) 1,017 17 1,034
Profit
for the
year - - 278 278 - - - 278 4 282
Cumulative
effect
of change
in fair
value of
financial
derivatives - - 1 1 - - - 1 - 1
Currency
translation
(loss) - (52) - (52) - - - (52) (1) (53)
Total
comprehensive
income
for the
year - (52) 279 227 - - - 227 3 230
Cost of
equity-
settled
employee
share scheme - - 8 8 - - - 8 - 8
Exercise
of equity
settled
employee
share scheme - - (2) (2) - - 2 - - -
Dividends
on ordinary
shares
(Note 6) - - (55) (55) - - - (55) (1) (56)
------------- ------------ ------------- ----------- ------------ ---------- --------- ------------- -------------------- -----------
Balance
at 31 December
2014 38 (98) 942 882 35 281 (1) 1,197 19 1,216
------------- ------------ ------------- ----------- ------------ ---------- --------- ------------- -------------------- -----------
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013
Note $m $m
------------------- -------------------
Net cash from operating activities 14 425 337
INVESTING ACTIVITIES
Purchases of property, plant and equipment (91) (59)
Proceeds from disposal of property,
plant and equipment 1 1
Purchase of intangible assets (27) (16)
Proceeds from disposal of intangible 1 -
assets
Acquisition of interest in joint ventures - (3)
Investment in financial and other
non-current assets (5) (22)
Acquisition of business undertakings
net of cash acquired (225) (18)
Finance income 4 2
------------------- -------------------
Net cash used in investing activities (342) (115)
------------------- -------------------
FINANCING ACTIVITIES
Decrease in collateralised and restricted
cash (1) (5)
Increase in long-term financial debts 5 7
Repayment of long-term financial debts (121) (117)
Increase/(decrease) in short-term
borrowings 241 (34)
Increase in obligations under finance
leases - 1
Dividends paid (55) (39)
Dividends paid to non-controlling
shareholders of subsidiaries (1) (3)
Purchase of own shares - (4)
Interest paid (38) (37)
Proceeds from issue of new shares - 2
------------------- -------------------
Net cash generated by/(used in) financing
activities 30 (229)
------------------- -------------------
Net increase/(decrease) in cash and
cash equivalents 113 (7)
Cash and cash equivalents at beginning
of year 168 177
Foreign exchange translation movements (1) (2)
------------------- -------------------
Cash and cash equivalents at end of
year 280 168
=================== ===================
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 2014
or 2013, but is derived from those accounts. Statutory accounts for
2013 have been delivered to the Registrar of Companies and those
for 2014 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 to 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 2014 and 31 December 2013 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.
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 title and risk of loss
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.
Amendments to IFRS 10, IFRS 12 and Investment entities
IAS 27
Amendments to IAS 36 Recoverable amount disclosures for
Non-Financial assets
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
IFRS 11 Joint arrangements
IFRS 14 Regulatory deferral accounts
IAS 16 and IAS 38 (amendments) Property, plant and equipment
and intangible assets
IAS 16 and IAS 41 (amendments) Property, plant and equipment
and agriculture
IFRS 15 Revenue from contracts with customers
(impact to be evaluated)
IAS 19 (amendments) Employee benefits
IAS 27 (amendments) Investment Entities
IFRS 10 and IAS 28 (amendments) Sales or contribution of assets
between an investor and it associate
/ Joint venture
Annual improvements to IFRSs: 2010
- 2012
Annual improvements to IFRSs: 2011
- 2013
Annual improvements to IFRSs: 2012
- 2014 Cycle
Except as noted above the directors do not expect that the
adoption of the Standards and Interpretations listed above will
have a material impact on the financial statements of the Group in
future periods.
2. Going concern
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. Whilst a new bridge loan facility, which was
used to finance the cash consideration of $225 million for the
Bedford acquisition in July, increased the Group's total debt, the
Group's overall net debt position of $274 million at 31 December
2014 was broadly in line with the position of $267 million at 31
December 2013, reflecting strong cash flow generation in 2014.
Operating cash flow in 2014 was $425 million (2013: $337 million).
The Group has $839 million (2013: $234 million) of undrawn
short-term and long-term banking facilities, in addition to $180
million (2013: $142 million) of unutilised import and export
financing limits. 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 2014:
Year ended
31 December 2014 Branded Injectables Generics Others Group
$m $m $m $m $m
-------- ----------------- --------------- ----------- -----------
Revenue 551 713 216 9 1,489
Cost of sales (284) (282) (66) (6) (638)
-----------
Gross profit 267 431 150 3 851
-------- ----------------- --------------- ----------- -----------
Adjusted segment result 111 265 113 (5) 484
-Exceptional items:
Intangible amortisation* (9) (5) - - (14)
------------------------------- -------- ----------------- --------------- ----------- -----------
Segment result 102 260 113 (5) 470
-------- ----------------- --------------- ----------- -----------
Adjusted unallocated corporate
expenses (57)
Exceptional items:
- Acquisition related expenses (11)
------------------------------- -------- ----------------- --------------- ----------- -----------
Unallocated corporate expenses (68)
Adjusted operating profit 427
------------------------------- -------- ----------------- --------------- ----------- -----------
Operating profit 402
Associated companies
-Share of results (6)
Finance income 4
Finance expense (38)
-----------
Profit before tax 362
Tax (80)
Profit for the year 282
-----------
Attributable to:
Non-controlling interest 4
Equity holders of the parent 278
282
===========
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, professional fees, travel expenses and donations.
Segment assets and
liabilities Corporate
2014 Branded Injectables Generics and others Group
$m $m $m $m $m
--------------- ------------------- -------------- ------------------- -----------------
Additions to property,
plant and equipment
(cost) 48 31 8 2 89
Acquisition of
subsidiaries'
property, plant and
equipment (net book
value) - 53 - - 53
Additions to
intangible
assets 4 16 4 1 25
Intangible assets
arising
on acquisition - 174 - - 174
Total property, plant
and equipment and
intangible
assets (net book
value) 511 528 70 7 1,116
Depreciation and
impairment 22 18 7 2 49
Amortisation and
impairment
(including software) 10 13 - - 23
Investment in
associates
and joint ventures - - - 16 16
Balance sheet
Total assets 1,123 770 175 183 2,251
=============== =================== ============== =================== =================
Total liabilities 481 405 92 57 1,035
=============== =================== ============== =================== =================
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 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
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
subsidiaries'
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:
2014 2013
$m $m
------------- -------------
Middle East and North Africa 633 638
United States 763 631
Europe and Rest of the
World 89 89
United Kingdom 4 7
------------- -------------
1,489 1,365
============= =============
The top selling markets were as below:
2014 2013
$m $m
------------- -------------
United States 763 631
Saudi Arabia 146 132
Algeria 86 125
995 888
============= =============
Generics and Injectables revenue were $216 million and $713
million, respectively (2013: $268 million and $536 million)
including strong sales of doxycycline and glycopyrrolate. Included
in revenues arising from the Generics and Injectables segments are
revenues of approximately $221 million (2013: $172 million) which
arose from the Group's largest customer which is located in the
US.
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
------------------------------------ ----------------------------------
2014 2013 2014 2013
$m $m $m $m
----------------- ----------------- ---------------- ----------------
Middle East and North Africa 606 624 1,202 1,255
Europe 141 156 195 217
United States 368 163 648 437
United Kingdom 55 3 206 20
1,170 946 2,251 1,929
================= ================= ================ ================
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.
2014 2013
$m $m
------------------ -----------------
Acquisition related costs (11) -
Other Costs:
Severance costs - (1)
Plant remediation costs - (24)
Impairment losses - (10)
Other claims provisions - (11)
------------------ ---------------------
Exceptional items included in
operating profit (11) (46)
Impairment of investment in associates - (16)
------------------ ---------------------
Exceptional items included in
profit (11) (62)
Other adjustments: Intangible
amortisation * (14) (15)
------------------ ---------------------
Exceptional items and intangible
amortisation (25) (77)
Tax effect 4 15
------------------ ---------------------
Impact on profit for the year (21) (62)
================== =====================
* Intangible amortisation comprises the amortisation of intangible assets other than software.
Acquisition-related expenses
Acquisition-related expenses are costs incurred in acquiring
Bedford Laboratories (See note 16).
Acquisition-related expenses are included in the unallocated
corporate expenses and mainly comprise third party consulting
services, legal and professional fees.
In previous periods exceptional items related to the
following:
Other costs
Severance expenses in 2013 related to restructuring of
management teams in MENA.
Plant remediation costs were related to the write-down of
inventory of some products and costs that were incurred for
compliance work at our Eatontown facility in response to
observations made by the US FDA. Remediation costs were included in
other operating expenses.
Impairment losses were related to the write off of intangible
product rights of $8 million, in addition to the write off of
certain property, plant and equipment of $2 million. Impairment of
intangible assets was included in research and development.
Impairment of fixed assets was included in other operating
expenses.
Other claims provisions related to the Group's best estimate of
the ultimate settlement amount of claims outstanding in 2013 and
was 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. During 2013
the Group recognised an impairment charge of $16 million in respect
of Unimark.
5. Tax
2014 2013
$m $m
------------------ ----------------
Current tax:
Foreign tax 82 123
Adjustments to prior year (9) -
Deferred tax 7 (41)
80 82
================== ================
UK corporation tax is calculated at 21.5% (2013: 23.25%) of the
estimated assessable profit made in the UK for the year.
The effective tax rate for the Group is 22.1% (2013: 27.7%).
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:
2014 2013
$m $m
-------------- ----------------
Profit before tax: 362 298
-------------- ----------------
Tax at the UK corporation tax rate
of 21.5% (2013: 23.25%) 78 69
Profits taxed at different rates (1) 3
Permanent differences 8 7
Temporary differences for which no
benefit is recognised 4 3
Adjustments to prior year (9) -
Tax expense for the year 80 82
============== ================
6. Dividends
2014 2013
$m $m
----------------- -----------------
Amounts recognised as distributions to
equity holders in the year:
Final dividend for the year ended 31
December 2013 of 13.0 cents (2012: 10.0
cents) per share 25 19
Interim dividend for the year ended 31
December 2014 of 7.0 cents (2013: 7.0
cents) per share 14 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 2014 of 4.0 cents (2013:
3.0 cents) per share 8 6
55 39
================= =================
The proposed final dividend for the year ended 31 December 2014
is 15.0 cents (2013:13.0 cents) per share plus a special dividend
of 6.0 cents (2013: 4.0 cents) per share that reflect the
exceptional performance of the generics and injectables businesses
during the year. This brings the full year dividend to 22.0 cents
(2013: 20.0 cents) per share plus a special full year dividend of
10.0 cents (2013: 7.0 cents) per share.
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting on 14 May 2015 and has
not been included as a liability in these financial statements.
Based on the number of shares in issue at 31 December 2014
(198,632,000), the unrecognised liability is $42 million.
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 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:
2014 2013
$m $m
------------------ -----------------
Earnings for the purposes of basic and diluted
earnings per share being net profit attributable
to equity holders of the parent 278 212
================== =================
Exceptional items (see note 4) 11 62
Intangible amortisation* 14 15
Tax effect of adjustments (4) (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 299 274
==================
*Intangible amortisation comprises the amortisation
of intangible assets other than software.
Number Number
Number of shares 'm 'm
Weighted average number of Ordinary Shares
for the purposes of basic earnings per share 198 197
Effect of dilutive potential Ordinary Shares:
Share-based awards 2 1
Weighted average number of Ordinary Shares
for the purposes of diluted earnings per
share 200 198
2014 2013
Earnings Earnings
per share per share
Cents Cents
Basic 140.4 107.6
Diluted 139.0 107.1
Adjusted basic 151.0 139.1
Adjusted diluted 149.5 138.4
8. Inventories
As at 31 December
2014 2013
$m $m
Finished goods 60 77
Work-in-progress 33 30
Raw and packing materials 159 149
Goods in transit 21 20
273 276
Goods in transit includes inventory held at third parties whilst
in transit between Group companies.
9. Trade and other receivables
As at 31 December
2014 2013
$m $m
Trade receivables 384 385
Prepayments 42 40
VAT and sales tax recoverable 12 11
Employee advances 1 3
439 439
10. Trade and other payables
As at 31 December
2014 2013
$m $m
Trade payables 129 120
Accrued expenses 105 105
Other payables 14 16
248 241
11. Other current liabilities
As at 31 December
2014 2013
$m $m
Deferred revenue 46 47
Return and free goods provision 35 29
Other provisions 28 24
109 100
12. Long-term financial debts
As at 31 December
2014 2013
$m $m
Total loans 209 323
Less: current portion of loans (64) (60)
Long-term financial loans 145 263
Breakdown by maturity:
Within one year 64 60
In the second year 65 61
In the third year 51 60
In the fourth year 13 51
In the fifth year 9 76
Thereafter 7 15
209 323
Breakdown by currency:
US Dollar 173 280
Euro 6 10
Jordanian Dinar 4 5
Algerian Dinar 13 21
Egyptian Pound 8 5
Tunisian Dinar 5 2
209 323
The loans are held at amortised cost.
13. Share capital
Issued and fully paid - included
in shareholders' equity:
2014 2013
Number Number
'm $m 'm $m
At 1 January 198 35 197 35
Issued during the year 1 - 1 -
At 31 December 199 35 198 35
14. Net cash from operating activities
2014 2013
$m $m
Profit before tax 362 298
Adjustments for:
Depreciation, amortisation, and impairment
of:
Property, plant and equipment 49 49
Intangible assets 23 26
Investment in associate - 16
Loss on disposal of property, plant and
equipment 1 -
Gain on disposal of intangible assets (1) -
Movement on provisions 5 9
Cost of equity-settled employee share scheme 8 7
Finance income (4) (2)
Finance expense 38 37
Results from associates 6 3
Cash flow before working capital 487 443
Change in trade and other receivables (16) (110)
Change in inventories 2 (2)
Change in trade and other payables 24 35
Change in other current liabilities 7 56
Change in other non-current liabilities - (1)
Cash generated by operations 504 421
Income tax paid (79) (84)
Net cash generated from operating activities 425 337
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 28.8% at the end of 2014 (2013:
28.9%). 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
one Hikma Pharmaceuticals PLC board member is also a board member
of Capital Bank - Jordan. Total cash balances at Capital Bank -
Jordan were $5.7 million (31 December 2013: $17.2 million).
Facilities granted by Capital Bank to the Group amounted to $nil
(31 December 2013: $4.7 million). Interest expense/income is within
market rate.
Arab Bank: is a related party of the Group because one senior
management member in Hikma Pharmaceuticals PLC is also a board
member of Arab Bank PLC. Total cash balances at Arab Bank were
$90.4 million (31 December 2013: $51.5 million). Facilities granted
by Arab Bank to the Group amounted to $115.0 million (31 December
2013: $169.4 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 $0.1 million (2013: $0.2 million). The Group's insurance
expense for Jordan International Insurance Company contracts in the
year 2014 was $0.1 million (2013: $0.4 million). The amounts due to
Jordan International Insurance Company at the year-end were $nil
(2013: Due to $0.1 million).
Labatec Pharma: is a related party of the Group because it is
owned by Mr. Samih Darwazah. During 2014, the Group total sales to
Labatec Pharma amounted to $0.5 million (2013: $0.4 million). At 31
December 2014, the amount owed from Labatec Pharma to the Group was
$0.1 million (2013: Owed from $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 2014 fees of $nil (2013: $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 2014 fees of $0.1 million (2013: $0.2 million)
were paid. At 31 December 2014 the amount owed to American
University of Beirut from the Group amounted to $nil (2013: owed
$0.1 million).
HikmaCure: The Group held 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
$2.5 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 31
December 2014 (31 December 2013: 23.1%). During 2014, the Group
paid an amount of $2.5 million in relation to a products
development agreement (31 December 2013: $3.0 million).
Haosun: The Group held a non-controlling interest of 30.1% in
Hubei Haosun Pharmaceutical Co., Ltd ("Haosun") at 31 December 2014
(31 December 2013: 30.1%). During 2014 the total purchases from
"Haosun" were $1.0 million (31 December 2013: $0.2 million).
16. Acquisition of a business
On 15 July 2014 Hikma announced that it had completed its
acquisition 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 consideration for the acquisition comprised of an upfront cash
payment of $225 million which was paid on 15 July 2014 and
contingent cash payments, subject to the achievement of
performance-related milestones over a period of five years from
closing the transaction.
Hikma acquired Bedford's large product portfolio of 82 products,
intellectual property rights, inventories, a strong R&D and
business development pipeline and a number of employees across key
business functions.
On 17 September 2014 Hikma completed the acquisition of all the
assets of Ben Venue generics 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 was payable in relation to Hikma's
acquiring the Ben Venue manufacturing site.
The net assets acquired in the transaction and the provisional
goodwill arising are set out below:
Provisional
Net assets acquired fair value
$m
Product related intangibles 123 a
Inventories 15 b
Tangible fixed assets 53 c
Deferred taxes liabilities (13) d
Net assets acquired 178
Goodwill 51
Total consideration 229
Discharged by:
Cash 225
Deferred consideration 4
229
Cashflows:
Cash consideration 225
Net cash outflow arising on acquisition 225
a. Product related intangibles principally represent product files owned by Bedford.
b. Inventory acquired included raw materials (consisting of
chemicals and components) and finished goods.
c. The property, plant and equipment acquired have been valued
by a third party expert at current market values.
d. Taxable temporary differences associated with the tangible
asset acquired have been identified by reference to IAS 12 "income
tax".
The goodwill arising represents synergies that will be obtained
through increasing the scale of Hikma's injectables business.
Goodwill recognised is expected to be non-deductable for income
tax purposes.
The revenue and net loss from the date of the acquisition that
is included in the Group's consolidated statement of comprehensive
income for the year amounted to $7 million and $9 million,
respectively.
17. Foreign exchange currencies
Period end rates Average rates
2014 2013 2014 2013
USD/EUR 0.8226 0.7263 0.7523 0.7529
USD/Sudanese Pound 6.2696 5.9755 6.0277 5.6988
USD/Algerian Dinar 87.9245 78.1082 80.6145 79.3595
USD/Saudi Riyal 3.7495 3.7495 3.7495 3.7495
USD/British Pound 0.6437 0.6064 0.6068 0.6390
USD/Jordanian Dinar 0.7090 0.7090 0.7090 0.7090
USD/Egyptian Pound 7.1582 6.9586 7.0972 6.8861
USD/Japanese Yen 119.9500 105.2188 105.8700 97.4659
USD/Moroccan Dirham 9.0154 8.1069 9.0155 8.3517
USD/Tunisian Dinar 1.8612 1.6467 1.7001 1.6253
The Jordanian Dinar and Saudi Riyal have no impact on the
consolidated income statement as those currencies are currently
pegged to the US Dollar.
Principal risks and uncertainties
The Board has resolved that the principal risks and
uncertainties facing the Group are:
Risk Description Mitigation and control
* Manufacturing quality * Situations resulting in poor manufacturing quality of * Global quality programme which leads the
products have the potential to lead to: manufacturing processes in all sites
o Harm to end users resulting * The 11 FDA approved facilities are regularly assessed
in liability and reputational by the regulator
issues
o Regulatory action that could
result in the closure of facilities * Documented procedures are continuously improved and
and consequential loss of staff receive training on those procedures on a
opportunity and potential regular basis
failure to supply obligations
o Delayed or denied approvals
for new products * Global quality issues team with extensive experience
o Product recalls of implementing corrective action when issues arise
* Global product liability insurance and crisis
management team
* API sourcing * API and raw materials represent one of the Group's * Maintaining alternative API suppliers for each of the
largest cost components Group's products, where possible
* As is typical in the pharmaceuticals industry, a * API suppliers are carefully selected and the Group
significant proportion of the Group's API endeavours to build long-term partnerships with
requirements is provided by a small number of API exclusive supply
suppliers
* The Group has a dedicated plant in Jordan which can
* There is a risk that it will not be possible to synthesise API, where appropriate
secure or maintain adequate levels of API supplies in
the future
* Regulatory approval of a new supplier can be lengthy
and supplies may be disrupted if the Group is forced
to replace a supplier which failed to meet applicable
regulatory standards or terminated its arrangements
with the Group
* Political and social * Hikma operates in MENA and emerging markets which * Geographic diversity reduces the impact of issues
have historically higher levels of political and arising in one jurisdiction
social instability which can result in an inability
to conduct business in those markets for a
substantial period of time * Extensive experience of operating in these
environments and developing opportunities from change
* Contingency plans in place to transfer manufacture if
key sites are affected
* Product concentration * A significant proportion of Group profits derive from * Internal marketing and business development
a relatively small portfolio of higher margin departments monitor and assess the market for arising
products opportunities
* Prices of these products are subject to market and * Expansive product portfolio
regulatory forces, which are often difficult to
predict
* Experienced internal regulatory teams developing
products and overseeing joint venture activities
* Prices can change suddenly, which could lead to
significant fluctuations in profitability and
uncertainty about the level of rebates to suppliers * Product related acquisitions (e.g. Bedford
laboratories in 2014)
* Third party pharmaceutical product specialists are
assisting in the development of manufacturing
processes for new generic products where the patent
has recently expired
* Acquisitions * The Group strategy is to pursue value adding * The mergers and acquisitions team undertake extensive
acquisitions to expand the product portfolio, acquire due diligence of each acquisition, including legal,
manufacturing capabilities and expand in existing and financial and compliance
emerging markets. There is risk of misjudging key
elements of an acquisition or failing to integrate
the assets, particularly where they are distressed * Executive Committee reviews and tests major
acquisitions before they are considered by the Board
* An acquisition of a large-scale target may entail
financing-related risks and operating expenses and * The Board is willing and has demonstrated its ability
significantly increase the Group's leverage if to refuse acquisitions where it considers the price
financed with debt is too high
* Dedicated integration project teams are assigned for
the acquisition, which are led by the business head
responsible for proposing the opportunity
* Following the acquisition of a target, the finance
team, the management team and the Audit Committee
closely monitor its financial and non-financial
performance
* A variety of funding options are available to the
Group to finance acquisitions
* Conduct * The pharmaceutical industry and certain MENA markets * Code of Conduct approved by the Board, translated
are considered to be higher risk in relation to sales into 7 languages and signed by all employees
practices. Improper conduct by employees could
seriously damage the reputation and licence to do
business * ABC compliance programme monitored by the CREC
* 2,200 employees received ABC compliance training in
2014
* Financial * The Group is exposed to a variety of financial risks * Extensive financial control procedures have been
similar to most major international manufacturers implemented and are assessed annually as part of the
such as liquidity, exchange rates, tax uncertainty internal audit programme
and debtor default
* A network of banking partners is maintained for
lending and deposits
* Management monitors debtor payments and takes action
where necessary
* Expert external advice is procured to test and
enhance processes and ensure compliance
* Where it is economic and possible to do so, the Group
hedges its exchange rate and interest rate exposure
[1] Based on the spot rates on 28 February 2015 of the Algerian
dinar, the Egyptian pound, the Moroccan dirham, the Sudanese pound
and the Tunisian dinar against the US dollar
([2]) Before the amortisation of intangible assets (excluding
software) and exceptional items, as set out in note 5 to the
financial information
([3]) Earnings before interest, tax, depreciation and
amortisation. EBITDA is stated before impairment charges and share
of results from associated companies.
[4] Takeda and Elliot Associates also filed a motion for summary
judgement against the US FDA and Hikma, as intervener defendant,
claiming that the FDA's approval of Mitigare(TM) without a Colcrys
reference or related patent certifications violated the
Administrative Procedure Act and that such approval was arbitrary
and capricious. On 12 January 2015, these motions were denied by
the US District Court and Takeda and Elliot filed for an
appeal.
[5] In 2014, amortisation of intangible assets (excluding
software) was $14 million (2013: $15 million). In 2014, exceptional
items included within operating expenses were $11 million (2013:
$46 million) and related to the Bedford acquisition.
[6] Products are defined as pharmaceutical compounds sold by the
Group. New compounds are defined as pharmaceutical compounds being
introduced for the first time during the period and existing
compounds being introduced into a new segment.
[7] Totals include 71 dermatological and cosmetic compounds in
282 dosage forms and strengths that are only sold in Morocco.
[8] Totals include all compounds and formulations that are
either launched or approved or pending approval across all markets,
as relevant.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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