TIDMHIK
RNS Number : 2201S
Hikma Pharmaceuticals Plc
16 March 2016
PRESS RELEASE
Hikma delivers a strong performance in Branded and Injectables
and makes excellent strategic progress in US Generics, transforming
the future prospects of the Group
Group revenue expected to be in the range of $2.0 billion to
$2.1 billion in 2016, with continuing momentum into 2017
London, 16 March 2016 - Hikma Pharmaceuticals PLC ("Hikma",
"Group") (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY) (rated Ba1
Moody's / BB+ S&P , both stable), the fast growing
multinational pharmaceutical group, today reports its preliminary
results for the year ended 31 December 2015.
Financial highlights
-- Following an exceptionally strong year in 2014, Group revenue
was $1,440 million, down 3%, or up 2% in constant currency(1)
-- Group gross margin was in line with 2014 at 56.8%, reflecting
good cost control across all business segments
-- Core operating profit(2) was $409 million, down 4%, or up 4%
in constant currency, with strong profitability in Injectables and
Branded offsetting expected declines in Generics
-- Strong net operating cash flow of $366 million, despite a
lower contribution from specific market opportunities in the
Generics business
-- Group profit attributable to shareholders was $252 million,
down 9%, or up 2% in constant currency
-- Proposed final dividend of 21 cents per share (32 cents per
share for the full year), in line with the total dividend paid in
2014
-- 2016 Group revenue expected to be in the range of $2.0
billion to $2.1 billion in constant currency, reflecting strong
growth across all three business segments and the consolidation of
ten months of revenue from Roxane
Strategic highlights
-- Successful execution of the Group's growth strategy across all three business segments
-- Launched 92 products and received 220 approvals, expanding
and enhancing our global product portfolio
-- Swift integration of Bedford, delivering new high value
products for US Injectables, including three new product launches;
on track to achieve target of 20 launches by 2017
-- Transformational acquisition of Roxane brings significant
scale and growth opportunities to the US business, adding a broad
portfolio and large, differentiated pipeline
-- Acquisition of EUP strengthens our capabilities in oncology and injectables in Egypt
-- Balance sheet strengthened through inaugural bond issue,
raising $500 million, and new $1.2 billion revolving credit
facility, providing financial flexibility to support future
growth
Summary financial results 2015 2014 Change Constant
$ million currency
change
------------------------------- ------ ------ ------- ----------
Revenue 1,440 1,489 -3% +2%
------------------------------- ------ ------ ------- ----------
Gross profit 818 851 -4% +1%
------------------------------- ------ ------ ------- ----------
Core operating profit(2) 409 427 -4% +4%
------------------------------- ------ ------ ------- ----------
EBITDA(3) 454 474 -4% +4%
------------------------------- ------ ------ ------- ----------
Core EBITDA(4) 466 485 -4% +4%
------------------------------- ------ ------ ------- ----------
Profit attributable
to shareholders 252 278 -9% +2%
------------------------------- ------ ------ ------- ----------
Core profit attributable
to shareholders(5) 286 299 -4% +7%
------------------------------- ------ ------ ------- ----------
Basic earnings per share
(cents) 126.6 140.4 -10% -
------------------------------- ------ ------ ------- ----------
Core basic earnings
per share (cents)(5) 143.7 151.0 -5% -
------------------------------- ------ ------ ------- ----------
Dividend per share (cents)(6) 32.0 32.0 0% -
------------------------------- ------ ------ ------- ----------
Net cash flow from operating
activities 366 425 -14% -
------------------------------- ------ ------ ------- ----------
Said Darwazah, Chairman and Chief Executive Officer of Hikma,
said:
"Following an exceptional 2014, our Branded and Injectables
businesses performed strongly in 2015 and we made excellent
strategic progress in US Generics, transforming the future
prospects of the Group.
Our businesses in MENA are performing very well. We achieved
excellent growth in our key markets in 2015 whilst continuing to
invest in our pipeline to support future growth. In Europe, we made
significant investments in our injectable manufacturing
capabilities, utilising equipment transferred from the Ben Venue
site. In the US, Bedford is now well integrated and the pace of new
injectables launches is accelerating.
The integration of the acquisition of Roxane, which closed at
the end of February, will be a key focus this year and will
transform our non-injectables business in the US, adding
complementary and well differentiated products, an attractive
pipeline, proven R&D capabilities and greater overall
scale.
We have taken important strategic steps this year. Our focus in
the short term will be on integrating Roxane and delivering high
value, differentiated product launches. From 2017, we expect the
benefits from the investments that we have made in recent years -
in R&D, M&A, co-development partnerships and licensing
agreements - to accelerate. We have an exciting pipeline across our
business segments that will drive accelerated and sustainable
future growth."
Enquiries
Hikma Pharmaceuticals PLC
Susan Ringdal
VP Corporate Strategy and +44 (0)20 7399 2760/
Director of Investor Relations +44 7776 477050
Zeena Murad
+44 (0) 207 399 2768/
Investor Relations Manager +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 2015, Hikma achieved
revenues of $1,440 million and profit attributable to shareholders
of $252 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 Said Darwazah, Chairman and CEO, 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 2015.
Group revenue by business segment
$ million 2015 2014
------------- ---------- ----------
Branded 570 40% 551 37%
------------- ---- ---- ---- ----
Injectables 710 49% 713 47%
------------- ---- ---- ---- ----
Generics 151 10% 216 15%
------------- ---- ---- ---- ----
Others 9 1% 9 1%
------------- ---- ---- ---- ----
Group revenue by region
$ million 2015 2014
------------ ---------- ----------
MENA 656 46% 633 43%
------------ ---- ---- ---- ----
US 697 48% 763 51%
------------ ---- ---- ---- ----
Europe and
ROW 87 6% 93 6%
------------ ---- ---- ---- ----
Branded
2015 highlights:
-- Branded revenue up 3% to $570 million, or up 13% in constant currency
-- Double digit growth in constant currency in Egypt, the GCC
and Morocco and an excellent recovery in Algeria
-- Branded core operating profit up 6% to $118 million, up 34% in constant currency
-- Branded core operating margin was 20.7%, or 24.0% in constant currency
-- Expecting the Branded business to perform in line with
historical trends in 2016, on a constant currency basis
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Summary financial highlights - Branded
$ million 2015 2014 Change Constant
currency
change
-------------------------- ------ ------ ------- ----------
Revenue 570 551 +3% +13%
-------------------------- ------ ------ ------- ----------
Gross profit 277 267 +4% +18%
-------------------------- ------ ------ ------- ----------
Gross margin 48.6% 48.5% +0.1pp +2.2pp
-------------------------- ------ ------ ------- ----------
Core operating profit(7) 118 111 +6% +34%
-------------------------- ------ ------ ------- ----------
Core operating margin(8) 20.7% 20.1% +0.6pp +3.9pp
-------------------------- ------ ------ ------- ----------
Branded revenue increased by 13% in 2015, before the impact of
adverse movements in the Algerian dinar, Moroccan dirham, Tunisian
dinar, Egyptian pound and Sudanese pound against the US dollar. On
a statutory basis, Branded revenue increased by 3% to $570 million,
compared with $551 million in 2014. Through a continued focus on
strategic, higher value products and new product launches, we
achieved double digit growth, on a constant currency basis, in each
of our top markets - Algeria, Egypt, the GCC and Morocco.
In Algeria, revenue increased by 24%, or 54% in constant
currency, following the restructuring we undertook in 2014. Our
Egyptian business grew by 18% in constant currency, reflecting
successful recent product launches, including one product for which
Hikma was the first supplier on the market. In the GCC, which
includes Saudi Arabia and the UAE, revenue increased by 14%, driven
by the prioritisation of strategic products, stronger distribution
capabilities, and the broadening of our customer base, with an
increased focus on institutions. Revenue in Morocco also grew in
the double digits in constant currency, driven by new product
launches and an enhanced focus on strategic products. These strong
performances more than offset lower sales in Iraq and Libya, where
political disruptions persist, and in Sudan, which continues to
suffer from hyperinflation.
During 2015, the Branded business launched a total of 54
products across all markets, including one new compound and two new
dosage forms and strengths. The Branded business also received 139
regulatory approvals across the region.
Revenue from in-licensed products increased from $219 million to
$225 million in 2015, representing 40% of Branded revenue, in line
with 2014. We signed three new licensing agreements for innovative
products during 2015, which will help us to grow our portfolio of
higher value products in growing therapeutic categories.
One of the licensing agreements signed during the year was with
Vitabiotics, the UK's largest nutraceutical and vitamin company.
Under the terms of the agreement, Hikma has the exclusive rights to
register, market, distribute, and sell five of Vitabiotics' leading
specialist products in 15 of its MENA markets. In addition, we have
the exclusive rights to market, distribute and sell the full
Vitabiotics product range in five of these markets. Our large sales
and marketing teams are well positioned to drive strong demand for
Vitabiotics' rich portfolio of products, which include some of the
fastest growing supplements in the UK and eight brand leaders.
Branded gross profit increased by 4% to $277 million in 2015 and
gross margin was 48.6%, compared to 48.5% in 2014. The benefit of a
more favourable product mix, the strong recovery in Algeria and
good control of costs were offset by the net impact of exchange
rates.
Core operating profit, which excludes the amortisation of
intangibles of $8 million and exceptional severance costs of $5
million, increased by 6% to $118 million, or 34% in constant
currency basis. Core operating margin was 20.7%, or 24.0% in
constant currency, up from 20.1% in 2014. This margin improvement
primarily reflects careful management of operating expenses during
the year.
In 2016, we expect the Branded business to perform in line with
historical trends, on a constant currency basis. We expect revenue
growth to be driven by strong underlying market growth, our focus
on strategic products and the strength of our sales and marketing
teams. Improvement in the Branded core operating margin is expected
to be driven by revenue growth and operational leverage.
Injectables
2015 highlights:
-- Global Injectables revenue of $710 million, in line with 2014
and guidance; in constant currency, Injectables revenue was up
3%
-- Core operating margin increased to 43.9%, from 37.2% in 2014,
well ahead of guidance, through a combination of a favourable
product mix, better cost control and operating leverage
-- Launched first three Bedford products and expecting a further nine Bedford launches in 2016
-- Successfully resolved US FDA Warning Letter at Portuguese facility
-- Expecting mid to high-single digit revenue growth in 2016 and
core operating margin to return to a more normalised level of
around 36%
Summary financial highlights - Injectables
$ million 2015 2014 Change Constant
currency
change
-------------------------- ------ ------ ------- ----------
Revenue 710 713 0% +3%
-------------------------- ------ ------ ------- ----------
Gross profit 449 431 +4% +6%
-------------------------- ------ ------ ------- ----------
Gross margin 63.2% 60.4% +2.8pp +1.7pp
-------------------------- ------ ------ ------- ----------
Core operating profit(7) 312 265 +18% +19%
-------------------------- ------ ------ ------- ----------
Core operating margin(8) 43.9% 37.2% +6.8pp +5.8pp
-------------------------- ------ ------ ------- ----------
Injectables revenue by region
2015 2014
------------ ---------- ----------
US 546 77% 548 77%
------------ ---- ---- ---- ----
MENA 92 13% 90 12%
------------ ---- ---- ---- ----
Europe and
ROW 72 10% 75 11%
------------ ---- ---- ---- ----
Total 710 713
------------ ---- ---- ---- ----
In 2015, our global Injectables revenue was $710 million, in
line with our expectations following the extremely strong
performance in the prior year, when revenue increased by 33%,
driven in part by specific market opportunities. In constant
currency, global Injectables revenue increased by 3%.
US Injectables revenue was $546 million, in line with 2014.
During the year, we benefited from our broad product portfolio and
the continuation of certain specific market opportunities. The
impact of increased competition for some of our existing products
was offset by new product launches. Bedford is now well integrated
into our global Injectables business and we are ahead of schedule
with the technical transfer of the former Bedford products to our
manufacturing sites. Three of the approvals received during the
year were for former Bedford products, demonstrating the strength
of our R&D and regulatory capabilities, and we are confident
that we will achieve our target of 20 Bedford product launches by
the end of 2017.
In November 2015, we sold the Ben Venue manufacturing facilities
in Bedford, Ohio to Xellia Pharmaceuticals. The Ben Venue site
included four manufacturing plants and a Quality and Development
Centre ("QDC") with a team of R&D scientists. We have retained
the QDC and Bedford's strong R&D team to expedite the technical
transfer and reactivation of Bedford's products. We have also
transferred equipment, including lyophilisers and filling lines, to
our other global manufacturing facilities in the US and Europe to
support our future growth plans.
MENA Injectables revenue increased by 2% to $92 million, or by
14% in constant currency. Strong growth in Algeria, Saudi Arabia
and Egypt more than offset declines in Iraq and Sudan. We have
enhanced our focus on sales and marketing for injectable products
in MENA and expanded our dedicated Injectables team.
In September 2015, we agreed to acquire EIMC United
Pharmaceuticals ("EUP"), strengthening our oncology and injectables
capabilities in Egypt. The acquisition was completed in February
2016. EUP brings an attractive portfolio in these two important
growth areas for Hikma, with the potential to add around 50
products by 2020. It also adds a manufacturing facility in Egypt
with both oral and injectables lines. We will leverage our
established market position in Egypt and large sales and marketing
team to maximise the potential of EUP.
European Injectables revenue decreased by 4% to $72 million and
increased by 15% in 2015 in constant currency. Higher demand for
certain products and new contract manufacturing business
contributed to the strong performance. In 2015, we expanded our EU
registration teams and our sales and marketing capabilities in
order to cover new European markets. These efforts are expected to
start generating sales in 2016.
In November 2015, we received a letter from the US Food and Drug
Administration ("FDA") closing out the Warning Letter received in
October 2014 in respect of the manufacturing plant in Portugal.
This demonstrates that the corrective actions taken in response to
the Warning Letter were fully reviewed and accepted by the US
FDA.
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Injectables gross profit increased by 4% to $449 million in
2015, compared with $431 million in 2014. Gross margin increased to
63.2%, compared with 60.4% in 2014. This reflects continued strong
sales from certain market opportunities in the US, a good
performance from other higher value products and efficient
management of manufacturing overhead.
Core operating profit, which excludes the gain from the sale of
the Ben Venue site, related hibernation costs, proceeds from legal
claims and the amortisation of intangible assets other than
software, increased by 18% to $312 million in 2015. Core operating
margin increased to 43.9%, up from 37.2% in 2014. The strong
improvement in core operating margin reflects operational leverage
resulting from good control of sales and marketing and general and
administrative expenses and better management of inventories. The
improvement also reflects lower R&D expenses, as $23 million of
R&D expenses related to the technical transfer of the former
Bedford products was capitalised on the balance sheet, in line with
our accounting policies.
During 2015, the Injectables business launched a total of 37
products across all markets, including six new compounds and 10 new
dosage forms and strengths. The Injectables business also received
a total of 79 regulatory approvals across all regions and markets,
namely 39 in MENA, 26 in Europe and 14 in the US. We also signed
one new licensing agreements during 2015.
We expect Injectables revenue growth to be in the mid- to
high-single digits in 2016, with competition on marketed products
being more than offset by new product launches from our R&D,
business development and Bedford pipelines. We expect core
operating margin to return to a more normalised level of around
36%, primarily due to a change in product mix and an increase in
R&D expenses.
Generics
2015 highlights:
-- Generics revenue of $151 million, in line with recent
guidance and down 30% on 2014, reflecting the expected decline in
specific market opportunities
-- Generics core operating profit of $46 million, with a core operating margin of 30.5%
-- Agreed to acquire Roxane Laboratories, transforming our prospects for the Generics business
-- Expecting 2016 revenue in the range of $640 million to $670
million, including ten months of contribution from Roxane and
taking into account the divestiture of certain legacy products
associated with the acquisition
of Roxane. Core Generics operating margin is expected to be in the low double digits
-- Continue to expect 2017 Roxane revenues in the range of $700
million to $750 million and Roxane EBITDA margin of around 35% over
the medium term
Summary financial highlights - Generics
$ million 2015 2014 Change
-------------------------- ------ ------ --------
Revenue 151 216 -30%
-------------------------- ------ ------ --------
Gross profit 89 150 -41%
-------------------------- ------ ------ --------
Gross margin 58.9% 69.4% -10.5pp
-------------------------- ------ ------ --------
Core operating profit(7) 46 113 -59%
-------------------------- ------ ------ --------
Core operating margin(8) 30.5% 52.3% -21.8pp
-------------------------- ------ ------ --------
Generics revenue was $151 million, in line with our most recent
guidance and down 30% compared to $216 million in 2014. As
expected, the specific market opportunity that contributed to the
very strong performance in 2014 continued to decline significantly
during the course of 2015 due to increased competition. This was
partially offset by strong volume growth in the legacy
portfolio.
In January 2015, we launched colchicine 0.6mg capsules under the
brand name Mitigare, alongside an authorised generic for Mitigare.
By July, we had established a nationwide salesforce and sales began
to build gradually in the second half of the year, albeit more
slowly than our initial expectations. We are confident that
colchicine sales will continue to grow in 2016 given our ability to
significantly improve managed care access, pharmacy shelf stock and
physician and patient awareness.
Generics gross profit was $89 million, compared with $150
million in 2014, and gross margin was 58.9%, compared with 69.4% in
2014, as a result of the continued decline in revenue from specific
market opportunities. Core operating profit was $46 million,
compared with $113 million in 2014 and core operating margin was
30.5% in 2015, compared with 52.3% in 2014. In addition to the
continued decline in revenue from specific market opportunities,
higher sales and marketing spend related to the establishment of a
branded salesforce contributed to the decline in core operating
margin.
During 2015, the Generics business launched one new compound and
one new dosage form and strength, and received two product
approvals. The Generics business also signed new licensing
agreements for 19 new products.
On 29 February 2016, following the satisfaction of the remaining
conditions to closing including shareholder approval and the
divestiture of three products from our legacy Generics business
(representing approximately $20 million in revenue in 2015), we
completed the Roxane acquisition.
The acquisition of Roxane transforms Hikma's position, scale and
potential in the US generics market, establishing Hikma as the
sixth largest company by revenue(9) . It adds significant breadth
to our US portfolio, bringing 88 highly differentiated products in
specialised and niche segments of the market, including oncology,
respiratory, extended release and controlled substances. It also
enhances our pipeline, adding 89 R&D projects, including 57
Paragraph IV products, 13 of which are first-to-file opportunities.
The acquisition strengthens our ability to drive sustainable
long-term growth, adding Roxane's highly experienced R&D team
with a successful track record of bringing new and differentiated
products to market as well as a best-in-class manufacturing
facility and technological capabilities. We have planned
extensively for the integration of Roxane and are working to
swiftly integrate it within our US Generics business.
2016 revenue for the combined Generics business is expected to
be in the range of $640 million to $670 million, including ten
months of contribution from Roxane and taking into account the
divestiture of certain legacy
products. Core Generics operating margin is expected to be in the low double digits.
We expect Roxane's full year revenue in 2016 to be below $650
million as previously disclosed, with increased competition on the
current marketed portfolio partially offset by revenue from recent
and planned new product launches. Roxane's revenues are then
expected to increase to between $700 million to $750 million in
2017 as new product launches accelerate. We continue to expect
Roxane's EBITDA margin to reach around 35% over the medium-term.
This high level of profitability will be achieved through the
launch of certain high value products and specific cost savings,
which are expected to be in the range of $35 million to $45 million
by 2017. We continue to expect the acquisition to be slightly
dilutive to core earnings per share ("EPS") in 2016 and strongly
accretive to core EPS thereafter.
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 2015, unchanged from 2014. These other
businesses had an operating loss of $5 million in 2015, also
unchanged from 2014.
Group
Group revenue was $1,440 million in 2015, down 3% from 2014.
Group gross profit decreased by 4% to $818 million, compared with
$851 million in 2014. Group gross margin was 56.8% compared with
57.2% in 2014.
Group operating expenses declined by 3% to $437 million,
compared with $449 million in 2014. Excluding the amortisation of
intangible assets (other than software) and exceptional items,
Group operating expenses declined by 4% to $409 million compared
with $424 million in 2014. In 2015, amortisation of intangible
assets other than software was $16 million, compared to $14 million
in 2014. In 2015, exceptional items included within operating
expenses were $12 million, compared to $11 million in 2014, and
included acquisition and integration costs related to the Roxane
transaction, severance costs and non-recurring hibernation costs at
the Ben Venue site, offset by a gain from the sale of the Ben Venue
site and a successful litigation settlement. The paragraphs below
address the Group's main operating expenses in turn.
Sales and marketing expenses were $172 million, or 12% of
revenue, compared with $171 million and 11% of revenue in 2014. An
increase in marketing expenses related to the establishment of a
nationwide branded salesforce in the US was offset by a reduction
in marketing expenses in the MENA region and lower supply related
penalties.
General and administrative expenses increased by $15 million to
$200 million in 2015. Excluding exceptional severance costs in the
MENA region and acquisition and integration related expenses,
G&A expenses increased by $6 million, or 3%, primarily due to
an increase in employee benefits.
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In 2015, we continued to invest in R&D across our three
businesses to drive future growth. Group R&D expenditure was
$36 million in 2015, compared with $55 million in 2014. An
additional $35 million was invested in the technical transfer of
the former Bedford products to our facilities and other product
acquisitions and was capitalised on the balance sheet. In total,
R&D and product-related investment represented $71 million (5%
of Group revenue) during the period, compared to $79 million (5% of
Group revenue) in 2014. In 2016, we expect Group R&D expense to
increase to around $150 million due to the consolidation of Roxane
and its high levels of R&D spend.
Other net operating expenses decreased by $9 million to $29
million. Excluding exceptional items, these expenses decreased by
$1 million primarily reflecting better inventory management and a
decrease in foreign exchange losses, partly offset by the
additional costs of maintaining the Ben Venue manufacturing
facility that was acquired in the second half of 2014.
Core Group operating profit decreased by 4% to $409 million in
2015 and operating margin was 28.4% compared with 28.7% in
2014.
Research & Development(10)
The Group's product portfolio continues to grow as a result of
our product development efforts. During 2015, we launched 8 new
compounds. The Group's portfolio now stands at 588 compounds in
1,681 dosage forms and
strengths.(11) We manufacture and/or sell 76 of these compounds under licence from the licensor.
Across all businesses and markets, a total of 92 products were
launched during 2015. In addition, the Group received 220
approvals.
To ensure the continuous development of our product pipeline, we
submitted 505 regulatory filings in 2015 across all regions and
markets. As of 31 December 2015, we had a total of 1,250 pending
approvals across all regions and markets. At 31 December 2015, we
had a total of 144 new products under development.
Products
pending
approval
Products as at
Total marketed Products launched approved 31 December
products in 2015 in 2015 2015
------------- ----------------------- -------------------------------------------- --------------- ---------------
Total
Total Total pending
Dosage launches approvals approvals
forms New dosage across across across
and New forms all all all
Compounds strengths compounds and strengths countries(12) countries(12) countries(12)
------------- ---------- ----------- ----------- --------------- -------------- --------------- ---------------
Branded 377 1,125 1 2 54 139 524
Injectables 185 488 6 10 37 79 666
26 68
Generics 1 * 1 * 1 2 60
Group 588 1,681 8 13 92 220 1,250
Results from associated companies
In 2015, we recognised a loss from associated companies of $2
million related to our minority interest in Unimark Remedies
Limited ("Unimark"). In addition, we impaired the remaining
investment balance related to Unimark by taking an impairment
charge of $7 million. In 2016, we are divesting our interest in
Unimark to satisfy US FTC requirements related to closing the
Roxane transaction for minimal value.
Net finance expense
Net finance expense amounted to $54 million in 2015, up from $34
million in 2014. The increase is mainly attributed to the interest
paid on the $500 million 4.25% Eurobond issued in April 2015. In
2016, we expect the Group's net finance expense to be around $62
million, reflecting increased interest expense and financing fees
related to Roxane. In addition, we expect to incur other non-cash
expenses resulting from the revaluation of the fair value of future
royalty payments.
Profit before tax
Core profit before tax decreased by 8% to $355 million, compared
with $387 million in 2014.
Tax
The Group incurred a tax expense of $64 million, compared with
$80 million in 2014. The effective tax rate was 20.1%, compared
with 22.1% in 2014. The reduction in the effective tax rate
reflects increased earnings in lower taxed jurisdictions, combined
with lower earnings in the US. In 2016, the effective tax rate is
expected to be around 25%. This is expected to return closer to
2014 levels over the medium term.
Profit attributable to shareholders
Profit attributable to shareholders decreased by 9% to $252
million, compared to $278 million in 2014. Core profit attributable
to shareholders decreased by 4% to $286 million in 2015, compared
to $299 million in 2014.
Earnings per share
Basic earnings per share decreased by 10% to 126.6 cents in
2015, compared to 140.4 cents in 2014. Core basic earnings per
share decreased by 5% to 143.7 cents, compared with 151.0 cents in
2014. Core diluted earnings per share decreased by 5% to 142.3
cents, compared with 149.5 cents in 2014.
Dividend
The Board is recommending a final dividend of 21 cents per share
(approximately 14.6 pence) for 2015, bringing the total dividend
for the full year to 32 cents per share (approximately 22.3 pence
per share), in line with total dividend paid in 2014. The proposed
dividend will be paid on 19 May 2016 to shareholders on the
register on 8 April 2016, subject to approval at the Annual General
Meeting on 12 May 2016.
Net cash flow, working capital and net debt
The Group generated operating cash flow of $366 million in 2015,
down $59 million from $425 million in 2014. This reflects the lower
contribution from specific market opportunities for the Generics
business and higher working capital investments in the US. Working
capital days were 177 days in 2015, in line with 2014 levels.
Capital expenditure was $82 million, compared with $91 million
in 2014. Of this, $40 million was spent in MENA to upgrade and
maintain our equipment and facilities across a number of markets.
The remaining $42 million was spent in the US and Europe, primarily
to expand our Injectables manufacturing capacity, including the
installation of equipment from Ben Venue. In 2016, we expect Group
capital expenditure to be around $200 million including Roxane.
The Group's net debt (excluding co-development agreements) stood
at $135 million at the end of 2015, compared to $274 million at the
end of 2014. In April 2015, we strengthened our financing
capabilities with the issuance of a $500 million Eurobond due April
2020. The proceeds were partially used to refinance existing debt
facilities, including Bedford bridge loan of $225 million.
On 29 February 2016, the acquisition of Roxane closed and the
net cash consideration of $575 million (net of certain working
capital and other adjustments) was paid to Boehringer. In addition,
40,000,000 new shares were issued to Boehringer at a price of
1881p, bringing the combined net consideration paid at closing to
approximately $1.6 billion, using the US:GBP exchange rate of
1.3879:1. The cash consideration was funded through a combination
of cash and the utilisation of the Group's existing debt
facilities. Should certain further targets be met, further payments
could be triggered.
Balance sheet
Net assets as at 31 December 2015 totalled $1,352 million,
compared to $1,216 million in 2014. Net current assets increased to
$768 million, compared to $172 million in 2014.
During the period, shareholder equity was negatively impacted by
an unrealised foreign exchange translation loss of $67 million,
primarily reflecting movements in the Euro, the Algerian dinar,
Moroccan dirham, Egyptian pound and the Sudanese pound against the
US dollar and the translation of net assets denominated in these
currencies.
Summary and outlook
The Group performed well in 2015, and made excellent strategic
progress. The Branded business remains well positioned to continue
the strong performance achieved in 2015. In 2016, we expect the
Branded business to perform in line with historical trends, on a
constant currency basis, driven by strong underlying market growth,
our focus on strategic products and the strength of our sales and
marketing teams. Improvement in the Branded core operating margin
is expected to be driven by revenue growth and operational
leverage.
We expect Injectables revenue growth in the mid- to high-single
digits in 2016, with competition on marketed products being more
than offset by new product launches from our R&D, business
development and Bedford pipelines. We expect core operating margin
to return to a more normalised level of around 36%, due primarily
to a change in product mix and higher R&D expenses.
(MORE TO FOLLOW) Dow Jones Newswires
March 16, 2016 03:02 ET (07:02 GMT)
2016 revenue for the combined Generics is expected to be in the
range of $640 million to $670 million, including ten months of
contribution from Roxane and taking into account the divestiture of
certain legacy products. Core Generics operating margin is expected
to be in the low double digits.
We expect Roxane's full year revenue in 2016 to be below $650
million, increasing to between $700 million to $750 million in
2017, as previsouly disclosed. We expect Roxane's EBITDA margin to
reach around 35% over the medium-term. This high level of
profitability will be achieved through the launch of high value
products and cost savings, which are expected to be in the range of
$35 million to $45 million by 2017. We continue to expect the
acquisition to be slightly dilutive to core earnings per share
("EPS") as we integrate the business in 2016 and strongly accretive
to core EPS thereafter.
Overall, we are expecting Group revenue in 2016 to be in the
range of $2.0 to $2.1 billion including the contribution of ten
months of revenue from Roxane, with continuing momentum into
2017.
Our statutory results in 2016 will be impacted by a number of
exceptional, non-cash and other charges including the amortisation
of intangible assets, an inventory step up, the revaluation of the
fair value of future royalty payments and one-off acquisition and
integration costs. In aggregate, these charges are currently
expected to impact statutory net income by around $115 million.
Responsibility statement
The responsibility statement below has been prepared in
connection with company's full annual report for the year ended 31
December 2015. 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
15 March 2016
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.
Principal risks and uncertainties
The Board has resolved that the principal risks and
uncertainties facing the Group are:
Risk Description Mitigation and
control
-------------------------------------- ----------------------------------------------------------------------- -------------------------------------------------------------
* Product 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 * The 11 FDA approved facilities are regularly assessed
resulting in liability by the regulator
and reputational issues
o Regulatory action
that could result * Documented procedures are continuously improved and
in the closure of staff receive training on those procedures on a
facilities and consequential regular basis
loss of opportunity
and potential failure
to supply obligations * Global quality issues team with extensive experience
o Delayed or denied of implementing corrective action when issues arise
approvals for new
products
o Product recalls * Global product liability insurance and crisis
management team
* Adopt a "quality by design" approach for all of our
manufacturing facilities
* Continued environment and health certifications
-------------------------------------- ----------------------------------------------------------------------- -------------------------------------------------------------
* 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
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* 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
* Utilizing supply chain models to maintain adequate
API levels
* 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
-------------------------------------- ----------------------------------------------------------------------- -------------------------------------------------------------
* MENA & Emerging Markets * 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 * Strong regulatory team that proactively monitors
possible regulatory changes
* Building and nurturing local business relationships
whilst upholding the highest ethical standards
* Monitoring and reviewing economic developments
-------------------------------------- ----------------------------------------------------------------------- -------------------------------------------------------------
* New Product Pipeline * 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
* Expansive global product portfolio with increased
focus on high value products
* Experienced internal regulatory teams developing
products and overseeing joint venture activities
* Product related acquisitions (e.g. acquisition of
Roxane)
* Third party pharmaceutical product specialists are
assisting in the development of manufacturing
processes for new generic products where the patent
has recently expired
* Strong R&D teams that are assisted centrally in the
implementation and management of projects
-------------------------------------- ----------------------------------------------------------------------- -------------------------------------------------------------
* Industry earnings * The dynamics of the generic pharmaceutical industry * Operating in wide range of countries, products and
includes numerous volatile elements such as therapeutic areas
regulatory interventions, drug approval patterns,
competitor strategies and pricing that are difficult
to anticipate and may affect profitability * Diversification of manufacturing capability and
capacity
* Active product life cycle and pricing management in
the MENA region
* Identify market opportunities and develop appropriate
pricing strategies whilst responsibly applying price
charges in the US
-------------------------------------- ----------------------------------------------------------------------- -------------------------------------------------------------
* 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, compliance and commercial and utilize
emerging markets. There is risk of misjudging key multiple valuation approaches in assessing target
elements of an acquisition or failing to integrate acquisition value
the assets, particularly where they are distressed
* Executive Committee reviews and tests major
* An acquisition of a large-scale target may entail acquisitions before they are considered by the Board
financing-related risks and operating expenses and
significantly increase the Group's leverage if
financed with debt * The Board is willing and has demonstrated its ability
to refuse acquisitions where it considers the price
is too high
* Dedicated integration project teams are assigned for
the acquisition, which are led by the business head
responsible for proposing the opportunity
* A variety of funding options are available to the
Group to finance acquisitions
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-------------------------------------- ----------------------------------------------------------------------- -------------------------------------------------------------
* Compliance * The pharmaceutical industry and certain MENA markets * Board level - Compliance, Responsibility and Ethics
are considered to be higher risk in relation to sales committee
practices. Improper conduct by employees could
seriously damage the reputation and licence to do
business * Code of Conduct approved by the Board, translated
into 7 languages and signed by all employees
* ABC compliance programme monitored by the CREC
* 2,200 employees received ABC compliance training in
2014
* Sales and marketing and other ABC compliance policies
and procedures are created, updated and rolled out
* Active participation in international anti-corruption
intiatives (e.g. PACI, UN Global Compact)
-------------------------------------- ----------------------------------------------------------------------- -------------------------------------------------------------
* 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
* Where it is economic and possible to do so, the Group
hedges its exchange rate and interest rate exposure
* Management obtains external advice to help manage tax
exposures and has upgraded internal tax control
systems
-------------------------------------- ----------------------------------------------------------------------- -------------------------------------------------------------
* Legal, intellectual property an * The Group is exposed to a variety of legal, IP and * Expert internal departments that enhance policies,
d regulatory regulatory risks similar to most relevant major processes, embed compliance culture, raise awareness
international industries such as litigation, and train staff
investigations, sanctions and potential business
disruptions
* First class expert external advice is procured to
provide independent services and ensure highest
standards
* Board of Directors and management provide leadership
and take action as necessary
-------------------------------------- ----------------------------------------------------------------------- -------------------------------------------------------------
* Information technology * If information and data are not adequately secured * Utilise appropriate levels of industry-standard
and protected (data security, access controls), this information security solutions for critical systems
could result in:
* Continue to stay abreast of cyber-risk activity and
o Increased internal/ where necessary, implement changes to combat this
external security
threats
o Compliance and reputational * Improved alignment between IT and business strategy
damages
o Regulatory and legal
litigation in case
of failure to manage
personal data
o Reduced information
accountability due
to limited sensitive
data access controls
-------------------------------------- ----------------------------------------------------------------------- -------------------------------------------------------------
* Organizational Growth * The fast growing pace of the organization carries the * Keeping our organization structures and
inherent risk to maintaining adequate talent accountabilities under review, and maintaining the
acquisition strategies, organizational structure and flexibility to make changes smoothly as requirements
or/management processes that serve the changing needs change
of the organization. In turn, this may affect other
risks within the company
* Employ HR programs that attract, manage and develop
talent within the organization
* Continuously upgrade management processes that meet
so that they become and remain the standard of global
company of our size
-------------------------------------- ----------------------------------------------------------------------- -------------------------------------------------------------
* Reputational * Reputational risk inescapably arises as a by-product * Monitor the internal and external sources that might
(MORE TO FOLLOW) Dow Jones Newswires
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of other risk and from taking intricate business signal reputational issues
decisions. However, we view our reputation as one of
our most valuable asset, as risks facing our
reputation may affect our ability to conduct core * Sustain corporate responsibility and ethics through
business operations. transparent reporting and compliance with global best
practices (e.g. GHG emissions, UN Global Compact)
* Respond quickly and conscientiously to any issue that
threatens our reputation, and maintain access to
world class expertise that can help us in this
respect.
-------------------------------------- ----------------------------------------------------------------------- -------------------------------------------------------------
(1) Constant currency numbers in 2015 represent statutory 2015
numbers re-stated using average exchange rates in 2015
(2) Before the amortisation of intangible assets other than
software and exceptional items included in operating profit, as set
out in note 4 to the financial information; previously referred to
as adjusted operating profit
(3) Earnings before interest, tax, depreciation and
amortisation. EBITDA is stated before impairment charges and share
of results from associated companies
(4) EBITDA before exceptional items
(5) Before the exceptional items and other adjustments as set
out in note 4 to the financial information.
(6) In 2014, Hikma paid a total combined dividend of 32.0 cents
per share, comprised of a full year dividend of 22.0 cents per
share and a special dividend of 10.0 cents per share
7Before the amortisation of intangible assets other than
software and exceptional items included in operating profit, as set
out in note 4 to the financial information; previously referred to
as adjusted operating profit.
8Before the amortisation of intangible assets other than
software and exceptional items included in operating profit, as set
out in note 4 to the financial information; previously referred to
as adjusted operating margin
(9) IMS Healthcare, MAT sales value December 2015, adjusted to
reflect recent M&A activity
(10) 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
(11) Totals include 71 dermatological and cosmetic compounds in
282 dosage forms and strengths that are only sold in Morocco.
(12) Totals include all compounds and formulations that are
either launched or approved or pending approval across all markets,
as relevant
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2015 2015 2014 2014 2014
Core Exceptional Statutory Core Exceptional Statutory
results items results results items results
and other and
adjustments other
adjustments
(note (note
4) 4)
Note $m $m $m $m $m $m
================== ===== ========= ============= ========== ========= ============= ==========
Continuing
operations
Revenue 3 1,440 - 1,440 1,489 - 1,489
Cost of sales 3 (622) - (622) (638) - (638)
================== ===== ========= ============= ========== ========= ============= ==========
Gross profit 3 818 - 818 851 - 851
================== ===== ========= ============= ========== ========= ============= ==========
Sales and
marketing
expenses (156) (16) (172) (157) (14) (171)
General and
administrative
expenses (180) (20) (200) (174) (11) (185)
Research
and development
expenses (36) - (36) (55) - (55)
Other operating
expenses
(net) (37) 8 (29) (38) - (38)
================== ===== ========= ============= ========== ========= ============= ==========
Total operating
expenses (409) (28) (437) (424) (25) (449)
================== ===== ========= ============= ========== ========= ============= ==========
Operating
profit 3 409 (28) 381 427 (25) 402
================== ===== ========= ============= ========== ========= ============= ==========
Loss/impairment
of associates (2) (7) (9) (6) - (6)
Finance income 3 - 3 4 - 4
Finance expense (55) (2) (57) (38) - (38)
================== ===== ========= ============= ========== ========= ============= ==========
Profit before
tax 355 (37) 318 387 (25) 362
================== ===== ========= ============= ========== ========= ============= ==========
Tax 5 (67) 3 (64) (84) 4 (80)
================== ===== ========= ============= ========== ========= ============= ==========
Profit for
the year 288 (34) 254 303 (21) 282
================== ===== ========= ============= ========== ========= ============= ==========
Attributable
to:
Non-controlling
interests 2 - 2 4 - 4
================== ===== ========= ============= ========== ========= ============= ==========
Equity holders
of the parent 286 (34) 252 299 (21) 278
================== ===== ========= ============= ========== ========= ============= ==========
288 (34) 254 303 (21) 282
Earnings
per share
(cents)
Basic 7 143.7 126.6 151.0 140.4
Diluted 7 142.3 125.4 149.5 139.0
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2014
$m $m
Profit for the year 254 282
Items that may be reclassified
subsequently to the income statement:
Cumulative effect of change in
fair value of financial derivatives - 1
Exchange difference on translation
of foreign operations (67) (53)
========================================== ===== =====
Total comprehensive income for
the year 187 230
========================================== ===== =====
Attributable to:
Non-controlling interests (2) 3
Equity holders of the parent 189 227
========================================== ===== =====
187 230
======================================== ===== =====
CONSOLIDATED BALANCE SHEET
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AT 31 DECEMBER 2015
2015 2014
Note $m $m
Non-current assets
Intangible assets 607 602
Property, plant and equipment 507 514
Investment in associates and
joint ventures 7 16
Deferred tax assets 70 67
Financial and other non-current
assets 46 39
================================== ===== ====== ======
1,237 1,238
================================== ===== ====== ======
Current assets
Inventories 8 251 273
Income tax asset 3 10
Trade and other receivables 9 488 439
Collateralised and restricted
cash 40 8
Cash and cash equivalents 553 280
Other current assets 25 3
================================== ===== ====== ======
1,360 1,013
================================== ===== ====== ======
Total assets 2,597 2,251
================================== ===== ====== ======
Current liabilities
Bank overdrafts and loans 115 393
Obligations under finance leases 1 1
Trade and other payables 10 276 248
Income tax provision 75 65
Other provisions 28 25
Other current liabilities 11 97 109
================================== ===== ====== ======
592 841
================================== ===== ====== ======
Net current assets 768 172
================================== ===== ====== ======
Non-current liabilities
Long-term financial debts 12 590 145
Obligations under finance leases 22 23
Deferred tax liabilities 21 25
Other non-current liabilities 13 20 1
================================== ===== ====== ======
653 194
================================== ===== ====== ======
Total liabilities 1,245 1,035
================================== ===== ====== ======
Net assets 1,352 1,216
================================== ===== ====== ======
Equity
Share capital 14 35 35
Share premium 282 281
Own shares (1) (1)
Other reserves 1,021 882
================================== ===== ====== ======
Equity attributable to equity
holders of the parent 1,337 1,197
Non-controlling interests 15 19
================================== ===== ====== ======
Total equity 1,352 1,216
================================== ===== ====== ======
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2015
Merger Translation Retained Total Share Share Own Total Non-controlling Total
and reserves earnings reserves capital premium shares equity interests equity
Revaluation $m $m $m $m $m $m attributable $m $m
reserves to equity
$m shareholders
of the
parent
$m
=============== =========== =========== ======== ======== ======= ======= ====== ============ =============== ======
Balance
at 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 and
1 January
2015 38 (98) 942 882 35 281 (1) 1,197 19 1,216
Profit
for the
year - - 252 252 - - - 252 2 254
Currency
translation
Loss - (63) - (63) - - - (63) (4) (67)
================ =========== =========== ======== ======== ======= ======= ====== ============ =============== ======
Total
comprehensive
income
for the
year - (63) 252 189 - - - 189 (2) 187
Issue of
equity
shares - - - - - 1 - 1 - 1
Cost of
equity-settled
employee
share scheme - - 15 15 - - - 15 - 15
Deferred
tax arising
on share-based
payments - - (1) (1) - - - (1) - (1)
Dividends
on ordinary
shares
(Note 6) - - (64) (64) - - - (64) (2) (66)
================ =========== =========== ======== ======== ======= ======= ====== ============ =============== ======
Balance
at 31 December
2015 38 (161) 1,144 1,021 35 282 (1) 1,337 15 1,352
================ =========== =========== ======== ======== ======= ======= ====== ============ =============== ======
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2014
Note $m $m
======================================== ===== ====== ======
Net cash from operating activities 15 366 425
======================================== ===== ====== ======
Investing activities
Purchases of property, plant and
equipment (82) (91)
Proceeds from disposal of property,
plant and equipment 4 31 1
Purchase of intangible assets (55) (27)
Proceeds from disposal of intangible
assets - 1
Investment in financial and other
non-current assets - (5)
Investment in available for sale (1) -
investments
Investments designated at fair (20) -
value
Acquisition of business undertakings
net of cash acquired - (225)
Finance income 3 4
Acquisition related amounts held
in escrow account 18 (38) -
======================================== ===== ====== ======
Net cash used in investing activities (162) (342)
======================================== ===== ====== ======
Financing activities
Increase/(decrease) in collateralised
and restricted cash 6 (1)
Increase in long-term financial
debts 529 5
Repayment of long-term financial
debts (91) (121)
(Decrease)/increase in short-term
borrowings (270) 241
Dividends paid (64) (55)
Dividends paid to non-controlling
shareholders of subsidiaries (2) (1)
Interest paid (49) (38)
Proceeds from issue of new shares 1 -
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Proceeds from co-development and 17 -
earnout payment agreement
======================================== ===== ====== ======
Net cash generated by financing
activities 77 30
======================================== ===== ====== ======
Net increase in cash and cash
equivalents 281 113
Cash and cash equivalents at beginning
of year 280 168
Foreign exchange translation movements (8) (1)
======================================== ===== ====== ======
Cash and cash equivalents at end
of year 553 280
======================================== ===== ====== ======
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 2015
or 2014, but is derived from those accounts. Statutory accounts for
2014 have been delivered to the Registrar of Companies and those
for 2015 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 2015 and 31 December 2014 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 ($).
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 IAS Recoverable Amount Disclosures
36 for Non-Financial Assets
====================== =================================
Amendments to IAS Novation of Derivatives and
39 Continuation of Hedge Accounting
====================== =================================
IFRIC 21 Levies
====================== =================================
Amendments to IAS Offsetting Financial Assets
32 and Financial Liabilities
====================== =================================
IFRS 11 (Amendments) Accounting for Acquisitions
of Interests in Joint Operations
====================== =================================
Annual improvements
to IFRSs: 2011 - 2013
====================== =================================
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
====================== ===================================================
IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation
(amendments) and Amortisation
====================== ===================================================
IAS 16 and IAS 41 Agriculture: Bearer Plants
(amendments)
====================== ===================================================
IFRS 15 Revenue from Contracts with Customers
====================== ===================================================
IAS 19 (amendments) Defined Benefit Plans: Employees Contributions
====================== ===================================================
IAS 27 (amendments) Equity Method in Separate Financial Statements
====================== ===================================================
IFRS 10 and IAS 28 Sale or Contribution of Assets between an
(amendments) Investor and it Associate or Joint venture
====================== ===================================================
Annual improvements
to IFRSs: 2010 - 2012
====================== ===================================================
Annual improvements
to IFRSs: 2012 - 2014
Cycle
====================== ===================================================
IAS 1 (Amendments) Disclosure Initiative
====================== ===================================================
IFRS 10, IFRS 12 and Investment Entities: Applying the Consolidation
IAS 28 (Amendments) Exemption
====================== ===================================================
IFRS 16 Leases
====================== ===================================================
IAS 12 (Amendments) Recognition of deferred tax assets for unrealised
losses
====================== ===================================================
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, except that IFRS 9 will
impact both the measurement and disclosures of financial
instruments and IFRS 15 may have an impact on revenue recognition
and related disclosures. Beyond the information above, it is not
practicable to provide a reasonable estimate of the effects of IFRS
9, IFRS 15 and IFRS 16 until a detailed review has been
completed.
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 insulated from wider economic
conditions.
The Group's overall net debt position was $135 million at 31
December 2015 compared to $274 million in December 2014. Operating
cash flow in 2015 was $366 million, compared to $425 million in
2014. The Group has $1,374 million of undrawn short term and long
term banking facilities, compared to $839 million in 2014, in
addition to $205 million of unutilised import and export financing
limits compared to $180 million in 2014. 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, maturities of long-term debt, and
the acquisition of Roxane, show that the Group should be able to
operate well within the levels of its facilities and their related
covenants. The acquisition of Roxane has been financed through a
combination of cash reserves, and utilization of the Group's
existing debt facilities.
During the year the Group agreed to purchase Roxane from
Boehringer Ingelheim, the transaction was closed on 29 February
2016. In addition to the payment of $575 million in cash, the
transaction was also financed by the issue of 40 million shares,
increasing the issued capital of the Company by 20%. Adjusting for
the Roxane acquisition, our net debt at 31 December 2015 would have
been $710 million.
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 principle measure used in
decision-making and resource allocation by the chief operating
decision maker, who is the Group's Chief Executive Officer.
Information regarding the Group's operating segments is reported
below.
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The following is an analysis of the Group's revenue and results
by reportable segment in 2015:
Branded Injectables Generics Others Group
Year ended 31 December $m $m $m $m $m
2015
=========================== ======= =========== ======== ====== ======
Revenue 570 710 151 9 1,440
Cost of sales (293) (261) (62) (6) (622)
=========================== ======= =========== ======== ====== ======
Gross profit 277 449 89 3 818
--------------------------- ------- ----------- -------- ------ ------
Core segment result 118 312 46 (5) 471
Exceptional items:
- Integration costs - - (2) - (2)
- Severance costs (5) (1) - - (6)
- Proceeds from legal
claims - 2 - - 2
- Gain from sale
of assets, net - 6 - - 6
Intangible amortisation
other than software (8) (8) - - (16)
--------------------------- ------- ----------- -------- ------ ------
Segment result 105 311 44 (5) 455
--------------------------- ------- ----------- -------- ------ ------
Core unallocated corporate
expenses (62)
Exceptional items:
- Acquisition related
expenses (12)
--------------------------- ------- ----------- -------- ------ ------
Unallocated corporate
expenses (74)
--------------------------- ------- ----------- -------- ------ ------
Core operating profit 409
--------------------------- ------- ----------- -------- ------ ------
Operating profit 381
Loss/impairment of
associates (9)
Finance income 3
Finance expense (57)
=========================== ======= =========== ======== ====== ======
Profit before tax 318
Tax (64)
=========================== ======= =========== ======== ====== ======
Profit for the year 254
=========================== ======= =========== ======== ====== ======
Attributable to:
Non-controlling interest 2
Equity holders of
the parent 252
=========================== ======= =========== ======== ====== ======
254
=========================== ======= =========== ======== ====== ======
Segment result is defined as operating profit for each
segment.
"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.
Branded Injectables Generics Corporate Group
and
others
Segment assets and liabilities $m $m $m $m $m
2015
=============================== ======= =========== ======== ========= ======
Additions to property,
plant and equipment
(cost) 24 39 15 7 85
Remeasurement of property,
plant and equipment
(note 17) - (1) - - (1)
Additions to intangible
assets 5 41 8 2 56
Remeasurement of Intangible
assets (note 17) - (8) - - (8)
Total property, plant
and equipment and intangible
assets (net book value) 478 532 81 23 1,114
Depreciation and impairment 22 19 8 2 51
Amortisation and impairment
(including software) 9 11 1 1 22
Investment in associates
and joint ventures - - - 7 7
Balance sheet
------------------------------- ------- ----------- -------- --------- ------
Total assets 1,108 829 165 495 2,597
--------------------------------- ------- ----------- -------- --------- ------
Total liabilities 453 397 309 86 1,245
================================= ======= =========== ======== ========= ======
The following is an analysis of the Group's revenue and results
by reportable segment in 2014:
Branded Injectables Generics Others Group
Year ended 31 December $m $m $m $m $m
2014
=========================== ======= =========== ======== ====== ========
Revenue 551 713 216 9 1,489
Cost of sales (284) (282) (66) (6) (638)
=========================== ======= =========== ======== ====== ========
Gross profit 267 431 150 3 851
--------------------------- ------- ----------- -------- ------ --------
Core segment result 111 265 113 (5) 484
Exceptional items:
Intangible amortisation
other than software (9) (5) - - (14)
--------------------------- ------- ----------- -------- ------ --------
Segment result 102 260 113 (5) 470
--------------------------- ------- ----------- -------- ------ --------
Core unallocated corporate
expenses (57)
Exceptional items:
- Acquisition related
expenses (11)
=========================== ======= =========== ======== ====== ========
Unallocated corporate
expenses (68)
--------------------------- ------- ----------- -------- ------ --------
Core operating profit 427
--------------------------- ------- ----------- -------- ------ --------
Operating profit 402
Loss from associates (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.
"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.
Branded Injectables Generics Corporate Group
and
others
Segment assets and $m $m $m $m $m
liabilities 2014
============================== ======= =========== ======== ========= ======
Additions to property,
plant and equipment
(cost) 48 31 8 2 89
Acquisition of business'
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
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(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 table provides an analysis of the Group's sales by
geographical market, irrespective of the origin of the
goods/services:
2015 2014
$m $m
============================= ====== ======
Middle East and North Africa 656 633
United States 697 763
Europe and Rest of the World 82 89
United Kingdom 5 4
============================== ====== ======
1,440 1,489
============================= ====== ======
The top selling markets were as below:
2015 2014
$m $m
============== ==== ====
United States 697 763
Saudi Arabia 162 146
Algeria 113 86
=============== ==== ====
972 995
============== ==== ====
Included in revenues arising from the Generics and Injectables
segments are revenues of approximately $173 million (2014: $221
million) which arose from the Group's largest customer which is
located in the United States.
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 Total assets
assets excluding as at 31 December
deferred tax
and financial
instruments
as at 31 December
==================== ====================
2015 2014 2015 2014
=============================
$m $m $m $m
============================= ========= ========= ========= =========
Middle East and North Africa 577 606 1,174 1,202
Europe 135 141 146 195
United States 390 368 811 648
United Kingdom 63 55 466 206
============================= ========= ========= ========= =========
1,165 1,170 2,597 2,251
============================= ========= ========= ========= =========
4. Exceptional items and other adjustments
Exceptional items are disclosed separately in the consolidated
income statement to assist in the understanding of the Group's
underlying performance.
2015 2014
Exceptional items $m $m
========================================= ===== =====
Acquisition and integration related
costs (14) (11)
Severance costs (6) -
Proceeds from legal claims 2 -
Gain from sale of assets, net 6 -
========================================= ===== =====
Exceptional items included in operating
profit (12) (11)
Impairment of investment in associates (7) -
========================================= ===== =====
Exceptional items included in profit (19) (11)
------------------------------------------ ----- -----
Other adjustments
Intangible amortisation other than
software (16) (14)
Co-development and earnout payment (2) -
agreement finance cost (note 13)
========================================= ===== =====
Exceptional items and other adjustments (37) (25)
Tax effect 3 4
========================================== ===== =====
Impact on profit for the year (34) (21)
========================================== ===== =====
Exceptional items:
-- Acquisition and integration related expenses are costs
incurred in relation to the acquisition of Roxane laboratories Inc.
and Boehringer Ingelheim (together "Roxane "), which was closed on
29 February 2016. Acquisition related expenses are included in the
unallocated corporate expenses, while integration related expenses
are included in segment results. Acquisition related expenses
mainly comprise third party consulting services, legal and
professional fees.
-- Severance expenses in 2015 related to restructuring of management teams mainly in MENA.
-- Proceeds from legal claims refers to cash received in
settlement of an indemnification claim in the US.
-- Gain from sale of the assets related to the sale of Bedford
manufacturing facilities to Xellia Pharmaceuticals for a cash
consideration of $30 million. The gain is net of hibernation costs
related to the assets.
-- Impairment of investment in associates represents the
impairment of the remaining investment balance related to Unimark
Remedies limited. Hikma's share in Unimark Remedies Limited is
being divested during 2016.
Other adjustments:
-- Co-development and earnout payment agreement finance cost
represents the difference resulting on remeasurement of the fair
value of the liability associated with the future earnout payments
to be made in relation to the agreement. (note 13)
In previous periods exceptional items related to the
following:
Acquisition related expenses were costs incurred from acquiring
Bedford Laboratories, these expenses were included in the
unallocated corporate expenses and mainly comprise third party
consulting services, legal and professional fees.
5. Tax
2015 2014
=============================
$m $m
============================= ==== ====
Current tax:
Foreign tax 68 82
Adjustments to prior year 1 (9)
Deferred tax (5) 7
============================== ==== ====
64 80
============================= ==== ====
UK corporation tax is calculated at 20.2% (2014: 21.5%) of the
estimated assessable profit made in the UK for the year.
The Group incurred a tax expense of $64 million, compared with
$80 million in 2014. The effective tax rate is 20.1%, (2014:
22.1%). The reduction in the effective tax rate reflects increased
earnings in lower taxed jurisdictions, combined with lower earnings
in the US. In 2016, the effective tax rate is expected to be around
25%. This is expected to return closer to 2014 levels over the
medium term.
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:
2015 2014*
======================================
$m $m
====================================== ===== =====
Profit before tax 318 362
--------------------------------------- ----- -----
Tax at the UK corporation tax rate
of 20.2% (2014: 21.5%) 64 78
Profits taxed at different rates (13) 12
Permanent differences (11) (37)
Temporary differences for which no
benefit is recognised 11 13
Change in provision for uncertain tax
positions 11 20
State and local taxes 1 3
Prior year adjustments 1 (9)
======================================= ===== =====
Tax expense for the year 64 80
======================================= ===== =====
*The format of the 2015 tax reconciliation has been expanded to
clarify the reconciling items. For consistency, we have
re-classified the 2014 tax reconciliation using the same
methodology.
Further details of the elements of the tax reconciliation are
described below:
Profits taxed at different rates refer to non-UK profits taxed
at statutory rates different from the UK statutory rate.
Permanent differences relate principally to income which is not
subject to tax due to statutory exemptions.
Temporary differences for which no benefit is recognised
includes items on which it is not possible to book deferred tax and
comprise mainly of the impact of creating/(utilising) unrecognised
temporary differences.
Prior year adjustments include amounts settled with tax
authorities which differ from the amounts previously provided.
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6. Dividends
2015 2014
=========================================
$m $m
========================================= ==== ====
Amounts recognised as distributions
to equity holders in the year:
Final dividend for the year ended 31
December 2014 of 15.0 cents (2013: 13.0
cents) per share 30 25
Interim dividend for the year ended
31 December 2015 of 11.0 cents (2014:
7.0 cents) per share 22 14
Special final dividend for the year
ended 31 December 2014 of 6.0 cents
(2013: 4.0 cents) per share 12 8
Special Interim dividend for the year
ended 31 December 2015 of nil (2014:
4.0 cents) per share - 8
========================================== ==== ====
64 55
========================================= ==== ====
The proposed final dividend for the year ended 31 December 2015
is 21.0 cents (2014: 15.0 cents plus 6.0 cents as a special
dividend) per share. This brings the full year dividend to 32.0
cents (2014: 22.0 cents plus 10.0 cents as a special dividend).
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting on 12 May 2016 and has
not been included as a liability in these financial statements.
Based on the number of shares in issue at 31 December 2015
(199,421, 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. Core basic earnings per share and Core diluted earnings per
share are intended to highlight the Core results of the Group
before exceptional items and other adjustments. A reconciliation of
the basic and core earnings used is also set out below:
2015 2014
==============================================
$m $m
============================================== ==== ====
Earnings for the purposes of basic
and diluted earnings per share being
net profit attributable to equity
holders of the parent 252 278
Exceptional items (note 4) 19 11
Other adjustments:
-Intangible amortisation other than
software (note 4) 16 14
-Co-development and earnout payment 2 -
agreement finance cost (note 4)
Tax effect of adjustments (note 4) (3) (4)
------------------------------------------------ ---- ----
Core earnings for the purposes of
Core basic and diluted earnings per
share being adjusted net profit attributable
to equity holders of the parent 286 299
================================================ ==== ====
Number Number
Number of shares 'm 'm
====================================== ====== ======
Weighted average number of Ordinary
Shares for the purposes of basic
earnings per share 199 198
Effect of dilutive potential Ordinary
Shares:
Share-based awards 2 2
======================================= ====== ======
Weighted average number of Ordinary
Shares for the purposes of diluted
earnings per share 201 200
======================================= ====== ======
2015 2014
Earnings Earnings
per share per share
Cents Cents
============= =========== ===========
Basic 126.6 140.4
=============== =========== ===========
Diluted 125.4 139.0
=============== =========== ===========
Core basic 143.7 151.0
=============== =========== ===========
Core diluted 142.3 149.5
=============== =========== ===========
8. Inventories
As at 31 December
===================
2015 2014
==========================
$m $m
========================== ========= ========
Finished goods 55 60
Work-in-progress 33 33
Raw and packing materials 152 159
Goods in transit 11 21
=========================== ========= ========
251 273
========================== ========= ========
Goods in transit includes inventory held at third parties whilst
in transit between Group companies.
9. Trade and other receivables
As at 31 December
===================
2015 2014
==============================
$m $m
============================== ========= ========
Trade receivables 432 384
Prepayments 39 42
VAT and sales tax recoverable 15 12
Employee advances 2 1
------------------------------- --------- --------
488 439
============================== ========= ========
10. Trade and other payables
As at 31 December
===================
2015 2014
=================
$m $m
================= ========= ========
Trade payables 139 129
Accrued expenses 122 105
Other payables 15 14
================== ========= ========
276 248
Other payables mainly include employees' provident fund
liability of $5 million (31 December 2014: $5 million), which
mainly represents the outstanding contributions to the Hikma
Pharmaceuticals Ltd (Jordan) retirement benefit plan, on which the
fund receives 5% interest.
11. Other current liabilities
As at 31 December
2015 2014
$m $m
Deferred revenue 16 46
Return and free goods provision 49 35
Others* 32 28
97 109
*The others balance above includes rebate liabilities across the
Group.
12. Long-term financial debts
As at 31 December
2015 2014
$m $m
Long-term loans 141 209
Long-term borrowings (Eurobond) 494 -
Less: current portion of loans (45) (64)
Long-term financial loans 590 145
Breakdown by maturity:
Within one year 45 64
In the second year 35 65
In the third year 20 51
In the fourth year 17 13
In the fifth year 513 9
Thereafter 5 7
635 209
Breakdown by currency:
US Dollar 589 173
Euro 3 6
Jordanian Dinar - 4
Algerian Dinar 6 13
Saudi Riyal 1 -
Egyptian Pound 33 8
Tunisian Dinar 3 5
635 209
The loans are held at amortised cost.
13. Other non-current liabilities
Co-development and earnout payment agreement
The liability mainly relates to the fair value of future
payments on a co-development and earnout agreement. Through this
agreement, milestone payments dependent on successful clinical
development of defined products are received by the Group. In
return of receiving such milestone payments, the Group has agreed
to pay the contracting party a certain percentage of future sales
of those products. As at 31 December 2015, the liability associated
with these earnout payments was adjusted to reflect the present
value of the expected future cash outflows and the difference is
presented as a financing cost.
14. Share capital
Issued and fully paid - included in shareholders' equity:
2015 2014
Number 'm $m Number 'm $m
At 1 January 199 35 198 35
Issued during the year 1 - 1 -
At 31 December 200 35 199 35
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