TIDMHIK
RNS Number : 4896Z
Hikma Pharmaceuticals Plc
15 March 2017
PRESS RELEASE
Hikma delivers a solid financial performance in 2016 and makes
significant strategic progress
Strong growth in revenue and core operating profit in constant
currency
London, 15 March 2017 - 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 2016. The financial results include the
consolidation of ten months of Roxane Laboratories (now West-Ward
Columbus).
2016 financial highlights
-- Group revenue of $1,950 million, up 35% and up 39% in constant currency(1)
-- Group core(2) operating profit of $419 million, up 2% and up
14% in constant currency, reflecting strong growth in Injectables
and Branded profitability, partially offset by a lower contribution
from the Generics business and a step-up in R&D investment
across the Group to support sustainable growth
-- Group reported operating profit of $302 million, down 21% and
down 9% in constant currency, reflecting a significant increase in
intangible amortisation and exceptional items in 2016
-- Group core basic earnings per share of 118.5 cents, down 18%
and down 5% in constant currency following the issuance of 40
million additional shares in February 2016 in relation to the
West-Ward Columbus acquisition
-- Proposed final dividend of 22 cents per share, and full year
dividend of 33 cents per share, up from 32 cents per share for the
full year in 2015
-- Group revenue in 2017 expected to be around $2.2 billion in constant currency
2016 strategic highlights
-- Completed West-Ward Columbus acquisition, making significant
progress with integration and cost synergies
-- Completed acquisition of EUP, strengthening our position in the fast-growing Egyptian market
-- Launched 206 products in different dosages and strengths and
received 343 approvals for products in different dosage forms and
strengths, expanding and enhancing our global product portfolio
-- Launched 9 Bedford products by the end of 2016 and on track
to achieve our target of 20 Bedford launches by the end of 2017
Said Darwazah, Chairman and Chief Executive Officer of Hikma,
said:
"We made significant strategic progress in 2016. The acquisition
of West-Ward Columbus is transforming our Generics business and the
Group as a whole. This is our largest acquisition to date and the
integration process has been both challenging and exciting. We
expect the Generics business to achieve significant growth in
revenue and profitability in the coming years as we focus on
pipeline execution and portfolio optimisation.
Our global Injectables business delivered excellent growth in
revenue and operating profit in 2016, at the same time as we more
than doubled our R&D investment to underpin the long-term
growth potential for this business. In the MENA, our reported
results were impacted by the devaluation of the Egyptian pound in
November 2016. However, our strategic focus on higher value
products, combined with tight cost control, drove significant
growth in operating profit in constant currency and a meaningful
margin expansion.
Our business today is stronger than ever. We are well positioned
across our markets, with a large and differentiated portfolio and
pipeline and we are confident in the future prospects of the
Group."
Summary financials
Core results Growth
-------------------------- ---------- ----------------- ----------
Constant
2016 currency 2015
$million $ $million
-------------------------- ---------- ---------- ----- ----------
Core revenue 1,950 +39% +35% 1,440
-------------------------- ---------- ---------- ----- ----------
Core operating profit 419 +14% +2% 409
-------------------------- ---------- ---------- ----- ----------
Core EBITDA(3) 493 +16% +6% 466
-------------------------- ---------- ---------- ----- ----------
Core profit attributable
to shareholders 276 +11% -3% 286
-------------------------- ---------- ---------- ----- ----------
Core basic earnings
per share (cents) 118.5 -5% -18% 143.7
-------------------------- ---------- ---------- ----- ----------
Reported results Growth
-------------------------- ---------- ----------------- ----------
Constant
2016 currency 2015
$million $ $million
-------------------------- ---------- ---------- ----- ----------
Revenue 1,950 +39% +35% 1,440
-------------------------- ---------- ---------- ----- ----------
Operating profit 302 -9% -21% 381
-------------------------- ---------- ---------- ----- ----------
EBITDA 473 +15% +4% 454
-------------------------- ---------- ---------- ----- ----------
Profit attributable
to shareholders 155 -22% -38% 252
-------------------------- ---------- ---------- ----- ----------
Basic earnings per share
(cents) 66.5 -34% -47% 126.6
-------------------------- ---------- ---------- ----- ----------
Enquiries
Hikma Pharmaceuticals PLC
Susan Ringdal, VP Corporate Strategy +44 (0)20 7399 2760/
and Director of Investor Relations +44 7776 477050
Lucinda Baker, Deputy Director +44 (0)20 7399 2765/
of Investor Relations +44 7818 060211
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:
"Injectables", "Generics" and "Branded", based primarily in the
Middle East and North Africa ("MENA") region, the United States and
Europe. In 2016, Hikma achieved revenue of $1,950 million and
profit attributable to shareholders of $155 million.
A presentation for analysts and investors will be held today at
09:30 UK time at Etc. Venues, 155 Bishopsgate, Liverpool St, London
EC2M 3YD. To join via conference call please dial: +44 (0) 20 3003
2666 or 0808 109 0700 (UK toll free). Alternatively you can listen
live via our website at www.hikma.com. A recording of both the
meeting and the call will be available on the Hikma website. The
contents of 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, Injectables,
Generics and Branded, for the year ended 31 December 2016.
Group revenue by business segment
$ million 2016 2015
------------- ---------- ----------
Injectables 781 40% 710 49%
------------- ---- ---- ---- ----
Generics 604 31% 151 10%
------------- ---- ---- ---- ----
Branded 556 29% 570 40%
------------- ---- ---- ---- ----
Others 9 - 9 1%
------------- ---- ---- ---- ----
Group revenue by region
$ million 2016 2015
------------ ------------ ----------
MENA 641 33% 656 46%
------------ ------ ---- ---- ----
US 1,211 62% 697 48%
------------ ------ ---- ---- ----
Europe and
ROW 98 5% 87 6%
------------ ------ ---- ---- ----
Injectables
2016 highlights:
-- Global Injectables revenue of $781 million, up 10% from 2015 and up 11% in constant currency
-- Strong core operating margin of 43.5%, even with a significant increase in R&D spend
-- Launched 9 Bedford products by the end of 2016 and on target
to launch a total of 20 Bedford products by the end of 2017
-- Expect Injectables revenue to be in the range of $800 million
to $825 million in 2017 and core operating margin to be in the high
30s after a further step-up in R&D investment
$ million 2016 2015 Change Constant
currency
change
----------------------- ------ ------ ------- ----------
Revenue 781 710 +10% +11%
----------------------- ------ ------ ------- ----------
Gross profit 505 449 +12% +14%
----------------------- ------ ------ ------- ----------
Gross margin 64.7% 63.2% +1.5pp +1.5pp
----------------------- ------ ------ ------- ----------
Core operating profit 340 312 +9% 11%
----------------------- ------ ------ ------- ----------
Core operating margin 43.5% 43.9% -0.4pp -
----------------------- ------ ------ ------- ----------
Injectables revenue by region
$ million 2016 2015
------------ ---------- ----------
US 607 78% 546 77%
------------ ---- ---- ---- ----
MENA 91 12% 92 13%
------------ ---- ---- ---- ----
Europe and
ROW 83 10% 72 10%
------------ ---- ---- ---- ----
Total 781 710
------------ ---- ---- ---- ----
In 2016, global Injectables revenue grew by 10% to $781 million.
In constant currency, global Injectables revenue increased by
11%.
Of this total, US Injectables revenue was $607 million, up 11%
from $546 million in 2015. This strong growth reflected good demand
across our broad product portfolio and new product launches,
including former Bedford products, which more than offset increased
competition on other products.
During 2016, MENA Injectables revenue was $91 million, compared
with $92 million in 2015. In constant currency, revenue increased
by 5%, reflecting good growth in most markets, which more than
compensated for lower revenue in Algeria. In February 2016, we
completed the acquisition of EIMC United Pharmaceuticals (EUP) in
Egypt, adding a local injectables manufacturing facility and
significantly enhancing our oncology business.
European Injectables revenue was $83 million in 2016, up 15% and
up 17% in constant currency, reflecting strong growth in sales of
our own products and good demand for our contract manufacturing
services.
Injectables gross profit increased to $505 million in 2016,
compared with $449 million in 2015. Gross margin increased to
64.7%, compared with 63.2% in 2015. The continued strong gross
margin reflects a favourable product mix in the US due to the
contribution from higher value products, an improvement in the
sales mix in the MENA and operating efficiencies in Europe.
Core operating profit, which excludes the amortisation of
intangible assets other than software and exceptional items, was
$340 million in 2016, up from $312 million in 2015. Core operating
margin was 43.5%, compared with 43.9% in 2015. The continued
strength of the core operating margin is a result of the strong
gross margin and operational efficiencies across the business. This
margin was achieved even with a significant increase in R&D
expense in 2016 as we invest in building our global injectables
pipeline.
During 2016, the Injectables business launched a total of 79
products in different dosages and strengths across all markets,
including 13 new products. The Injectables business also received a
total of 127 regulatory approvals for products in different dosages
and strengths across all regions and markets, 52 in the MENA, 54 in
Europe and 21 in the US.
We expect the Injectables business to deliver continued growth
in 2017, with strong demand across our global portfolio and new
product launches more than offsetting the impact of increased
competition. We expect Injectables revenue to be in the range of
$800 million to $825 million. We expect core operating margin to be
in the high 30s in 2017, which assumes a further step-up in R&D
investment.
Generics
2016 highlights:
-- Generics revenue of $604 million, up from $151 million in
2015, primarily reflecting the consolidation of ten months of
West-Ward Columbus
-- Core operating profit of $35 million, in line with the most
recent guidance, compared with $46 million in 2015, due to an
anticipated reduction in the contribution from the legacy business
and higher sales and marketing costs
-- Good progress with the West-Ward Columbus integration,
achieving cost savings of over $35 million
-- Continue to expect Generics revenue of around $800 million in
2017 and a significant improvement in core operating profit
$ million 2016 2015 Change
----------------------- ------ ------ --------
Revenue 604 151 +300%
----------------------- ------ ------ --------
Core Gross profit 228 89 +156%
----------------------- ------ ------ --------
Core gross margin 37.7% 58.9% -21.2pp
----------------------- ------ ------ --------
Core operating profit 35 46 -24%
----------------------- ------ ------ --------
Core operating margin 5.8% 30.5% -24.7pp
----------------------- ------ ------ --------
Generics revenue was $604 million in 2016. Our legacy Generics
business contributed revenue of $130 million compared with $151
million in 2015. As expected, this was due to lower revenue from
certain products and the required divestment of products in
connection with the West-Ward Columbus acquisition, partially
offset by steady growth in colchicine sales.
Following completion of the acquisition on 29 February 2016,
West-Ward Columbus contributed revenue of $474 million. This was
below our expectations at the start of year, primarily due to
delays in new product launches. It also reflects slower than
expected volume growth from marketed products.
Generics gross profit was $196 million in 2016, compared with
$89 million in 2015. Excluding the impact of exceptional items,
core gross profit was $228 million. Gross margin was 32.5%, and
core gross margin was 37.7%, compared with 58.9% in 2015. The
margin decline reflects the less favourable sales mix of the legacy
business in 2016 and the high overhead costs of West-Ward
Columbus.
Core Generics operating profit was $35 million in 2016, compared
with $46 million in 2015, in line with our most recent guidance and
after achieving over $35 million of cost savings. Core operating
margin was 5.8%, compared with 30.5% in 2015, reflecting the lower
gross margin, increased sales and marketing expenses and the high
operating costs of the West-Ward Columbus business.
The Generics business reported an operating loss of $14 million
in 2016 after the amortisation of intangible assets of $16 million
and exceptional items of $33 million. The exceptional items
primarily related to the West-Ward Columbus acquisition, comprising
inventory-related adjustments of $27 million, integration and other
costs of $9 million and the net gain from the divestment of certain
legacy Generics products of $18 million. In addition, it reflects
an adjustment of $15 million associated with the impairment and
write-down of intangible assets related to co-development
agreements entered into by our legacy business.
During 2016, the Generics business launched 18 new products in
different dosages and strengths and received 18 approvals for
products in different dosages and strengths. The Generics business
also signed new licensing agreements for 4 new products.
We continue to expect revenue for the Generics business to be
around $800 million in 2017, with an improvement in the mix of
sales and new product launches more than offsetting the impact of
increased competition on the marketed portfolio and a reduction in
contract manufacturing revenue. Certain new launches are expected
to contribute around 15% of Generics revenue in 2017, primarily
generic Advair, which is assumed to be launched in the second half
of the year.
We expect the profitability of the Generics business to
significantly improve in 2017, driven by new product launches, an
enhanced mix of sales and a continued focus on operating
efficiencies.
Branded
2016 highlights:
-- Branded revenue of $556 million, down 2% and up 5% in constant currency
-- Gross profit up 2% and up 13% in constant currency
-- Core operating profit of $112 million, down 5%, reflecting a
negative impact of $42 million from adverse currency movements,
primarily due to the devaluation of the Egyptian pound in November
2016
-- Core operating profit up 31% in constant currency due an
improvement in sales mix and tight cost control
-- Core operating margin was 20.1% and 25.7% in constant currency, up 5.0 percentage points
-- Expect Branded revenue growth in constant currency to be in the mid-single digits in 2017
$ million 2016 2015 Change Constant
currency
change
----------------------- ------ ------ ------- ----------
Revenue 556 570 -2% +5%
----------------------- ------ ------ ------- ----------
Gross profit 282 277 +2% +13%
----------------------- ------ ------ ------- ----------
Gross margin 50.7% 48.6% +2.1pp +3.6pp
----------------------- ------ ------ ------- ----------
Core operating profit 112 118 -5% +31%
----------------------- ------ ------ ------- ----------
Core operating margin 20.1% 20.7% -0.6pp +5.0pp
----------------------- ------ ------ ------- ----------
Branded revenue increased by 5% in 2016, before the impact of
adverse movements in the Egyptian pound, Sudanese pound, Algerian
dinar, Tunisian dinar and Moroccan dirham against the US dollar. On
a reported basis, Branded revenue decreased by 2% to $556 million,
compared with $570 million in 2015. The growth on a constant
currency basis reflected a good performance across most of our
markets as we focus on higher value products and pipeline
execution. This was partially offset by a slowdown in the Gulf
Cooperation Council (GCC) markets.
In our key markets of Algeria and Egypt, our businesses
performed extremely well, delivering strong double-digit constant
currency growth. This was driven by underlying market growth, an
improvement in the sales mix and new product launches. In the GCC,
which includes Saudi Arabia and the UAE, revenue was lower than in
2015, primarily due to economic uncertainty in the region which has
slowed market growth.
During 2016, the Branded business launched a total of 109
products in different dosages and strengths across all markets,
including 19 new products. The Branded business also received 198
regulatory approvals across the region for products in different
dosages and strengths.
Revenue from in-licensed products represented 39% of Branded
revenue, compared with 40% in 2015. We launched 51 new in-licensed
products during 2016, including 3 respiratory products and a number
of OTC products licensed from Vitabiotics, which will help us to
grow our portfolio of higher value products in key therapeutic
categories.
On a reported basis, Branded gross profit increased by 2% to
$282 million and gross margin was 50.7%, compared with 48.6% in
2015. In constant currency, gross profit increased by $36 million,
or 13% and gross margin increased to 52.2%. This strong growth in
profitability reflects an improvement in the mix of sales, through
our focus on higher value products and tight cost control.
Core operating profit, which excludes the amortisation of
intangibles of $8 million, decreased by 5% to $112 million and core
operating margin was 20.1%, down from 20.7% in 2015. This primarily
reflects a foreign exchange loss of $17 million, mainly as a result
of the revaluation of the Group's monetary assets and liabilities
in Egypt following the devaluation of the Egyptian pound against
the US dollar after the floating of the Egyptian pound on 3
November 2016.
In constant currency, core operating profit grew by 31% and core
operating margin increased to 25.7%. This significant improvement
in profitability is primarily due to the increase in gross profit,
as well as tight control of operating expenses, improved inventory
management and the benefit of restructuring measures undertaken in
recent years.
In 2017, we expect Branded revenue to grow in the mid-single
digits in constant currency, driven by underlying market growth and
our focus on strategic products. Taking into account exchange rate
movements since the beginning of 2017, and assuming these rates
prevail, we would expect reported Branded revenue to grow in the
low-single digits and core operating margin to be broadly in line
with 2016. This adverse currency impact is primarily due to the
devaluation of the Egyptian pound against the US dollar by
approximately 46%.(4)
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 2016, in line with 2015. These other
businesses made an operating loss of $2 million, compared with an
operating loss of $5 million in 2015.
Group
Group revenue increased by 35% to $1,950 million in 2016 after
the consolidation of ten months of revenue from West-Ward Columbus.
Group gross profit was $986 million and core gross profit was
$1,018 million, up from $818 million in 2015. Group gross margin
was 50.6% and core gross margin was 52.2%, compared with 56.8% in
2015.
Group operating expenses increased by 57% to $684 million,
compared with $437 million in 2015. Core Group operating expenses,
excluding the amortisation of intangible assets other than software
and exceptional items, increased by 46% to $599 million compared
with $409 million in 2015. This increase was principally due to the
consolidation of ten months of West-Ward Columbus, as well as an
increase in R&D expenditure across the Group and a foreign
exchange loss as a result of the devaluation of the Egyptian pound
against the US dollar during 2016.
In 2016, amortisation of intangible assets other than software
was $37 million, compared with $16 million in 2015. The increase
primarily resulted from the acquisition of West-Ward Columbus.
Exceptional items included within operating expenses were $48
million, compared with $12 million in 2015. In 2016, exceptional
items comprised acquisition and integration costs of $36 million,
the net gain on divestment of certain legacy Generics products of
$18 million, impairment and write down of property, plant and
equipment and intangible assets of $34 million and the release of a
contingent liability of $4 million. The paragraphs below address
the Group's main operating expenses in turn.
Sales and marketing expenses were $221 million compared with
$172 million in 2015. Excluding the amortisation of intangible
assets other than software, sales and marketing expenses were $184
million, or 9% of revenue compared with $156 million, or 11% of
revenue in 2015. The increase of $28 million was primarily due to
the consolidation of West-Ward Columbus and the increased sales and
promotional costs related to the branded salesforce we established
in the US from July 2015.
General and administrative expenses increased by $44 million to
$244 million in 2016. Excluding exceptional items, related to the
acquisition and integration costs, G&A expenses increased by
$28 million, or 16%, primarily due to the consolidation of
West-Ward Columbus.
We have significantly increased our R&D investment from $36
million in 2015 to $150 million in 2016. Excluding exceptional
items core R&D expense was $126 million. Around half of the
Group's R&D expense was incurred in the development of our
differentiated pipeline for the Generics business and we expect
this investment to increase in 2017. R&D spend for the
Injectables business was also higher in 2016 and will continue to
grow as we increase our investment in new product development.
An additional $13 million of product-related investment was
capitalised on the balance sheet in 2016. This related to the
transfer of the Bedford products to our facilities and to product
development investments with third party partners, primarily in the
US where we are focusing on new therapeutic areas. The combined
core R&D expense and product-related investment for the Group
was $139 million (7% of Group revenue) compared with $71 million
(5% of Group revenue) in 2015. We expect Group R&D expense to
be around $170 million in 2017.
Other net operating expenses were $69 million in 2016, compared
with $29 million in 2015. Excluding exceptional items of $12
million related to impairment losses, the divestment of certain
products, and the release of a contingent liability, these expenses
were $81 million in 2016, up from $37 million in 2015. The increase
was due to a foreign exchange loss as a result of the devaluation
of the Egyptian pound and to the consolidation of the West-Ward
Columbus business.
Group operating profit decreased by 21% from $381 million to
$302 million in 2016. Excluding the impact of amortisation and
exceptional items, core Group operating profit increased by 2% to
$419 million and core operating margin was 21.5% compared with
28.4% in 2015. This primarily reflects the lower contribution from
certain products in the Generics business, the consolidation of
West-Ward Columbus and higher R&D investment across the
Group.
Research & Development(5)
The Group's product portfolio continues to grow as a result of
our product development efforts. During 2016, we launched 34 new
compounds. The Group's portfolio now stands at 707 compounds in
2,181 dosages and strengths.(6) We manufacture and/or sell 94 of
these compounds under licence from the licensor.
Across all businesses and markets, a total of 206 products were
launched during 2016. In addition, the Group received 343
approvals.
To ensure the continuous development of our product pipeline, we
submitted 188 regulatory filings in 2016 across all regions and
markets. As of 31 December 2016, we had a total of 971 pending
approvals across all regions and markets. At 31 December 2016, we
had a total of 396 new products under development.
Products
pending
approval
Products as at
Total marketed Products launched approved 31 December
products in 2016 in 2016 2016
------------- ------------------------- -------------------------------------------- ------------- -------------
Total
Total Total pending
Dosage New dosage launches approvals approvals
forms forms across across across
and and all all all
Compounds strengths New compounds strengths countries(7) countries(7) countries(7)
------------- ---------- ------------- -------------- ------------- ------------- ------------- -------------
Branded 397 1,235 19 38 109 198 280
Injectables 201 571 13 23 79 127 620
Generics 109 375 2 3 18 18 71
Group 707 2,181 34 64 206 343 971
Net finance expense
In 2016, net finance expense was $92 million. Excluding non-cash
expenses resulting from the remeasurement of contingent
liabilities, net finance expense was $60 million, up from $52
million in 2015. This primarily reflects the increased interest and
financing fees as a result of the West-Ward Columbus acquisition
which was completed in February 2016 as well as the interest paid
on the $500 million 4.25% Eurobond which was issued in April
2015.
In 2017, we expect Group net finance expense to be around $60
million. In addition, we expect non-cash expenses resulting from
the remeasurement of contingent liabilities to be around $20
million.
Profit before tax
Profit before tax for the Group was $210 million in 2016, down
from $318 million in 2015. Core profit before tax was $359 million,
in line with 2015.
Tax
The Group incurred a tax expense of $52 million, compared with
$64 million in 2015. Excluding the tax impact of exceptional items,
core Group tax expense was $80 million in 2016, compared with $67
million in 2015. The core effective tax rate was 22.3%, compared
with 18.9% in 2015. The increase in the effective tax rate reflects
increased earnings in higher tax jurisdictions, particularly in the
US. We expect the effective tax rate in 2017 to be around 26%.
Profit attributable to shareholders
Profit attributable to shareholders decreased by 38% to $155
million, compared with $252 million in 2015. Core profit
attributable to shareholders decreased by 3% to $276 million,
compared with $286 million in 2015.
Earnings per share
Earnings per share was impacted by the issuance of 40 million
new shares to Boeringher Ingelheim on 29 February 2016 as part of
the consideration for the West-Ward Columbus acquisition, as well
as the reduction in profit attributable to shareholders in 2016
compared with 2015. Basic earnings per share decreased by 47% to
66.5 cents in 2016, compared to 126.6 cents in 2015. Core basic
earnings per share decreased by 18% to 118.5 cents, compared with
143.7 cents in 2015. Core diluted earnings per share decreased by
17% to 117.9 cents, compared with 142.3 cents in 2015.
Dividend
The Board is recommending a final dividend of 22 cents per share
(approximately 18 pence per share) for 2016, bringing the total
dividend for the full year to 33 cents per share (approximately 27
pence) for 2016, a slight increase from the total dividend of 32
cents per share paid in 2015. The proposed dividend will be paid on
25 May 2017 to shareholders on the register on 7 April 2017,
subject to approval at the Annual General Meeting on 19 May
2017.
Net cash flow, working capital and net debt
The Group generated operating cash flow of $293 million in 2016,
compared with $366 million in 2015. Excluding acquisition and
integration costs related to the West-Ward Columbus acquisition,
Group operating cash flow was $329 million in 2016, a decrease of
10% from $366 million in 2015. This primarily reflects an
investment in working capital following the acquisition of
West-Ward Columbus. Group working capital days were 240 days at
December 2016, up from 177 days at December 2015.(8) This primarily
reflects the consolidation of West-Ward Columbus, which has higher
working capital days, and an increase in inventory levels in the US
and the MENA at the end of the year. We expect to achieve an
improvement in Group working capital days in 2017.
Capital expenditure was $122 million, compared with $82 million
in 2015. Of this, around $76 million was spent in the US to expand
the manufacturing capacity and capabilities of our Injectables and
Generics businesses. In the MENA, around $30 million was spent to
maintain and upgrade our equipment and facilities across a number
of markets. The remaining $16 million was spent in Europe,
expanding our Injectables manufacturing capacity for lyophilised
and oncology products. We expect Group capital expenditure to be
around $160 million in 2017.
The Group's net debt(9) (excluding co-development agreements and
contingent liabilities) stood at $697 million at the end of
December 2016, compared with $135 million at the end of December
2015. On 29 February 2016, we completed the acquisition of
West-Ward Columbus and the net cash consideration of $575 million
(net of certain working capital and other adjustments) was paid to
Boehringer Ingelheim. In addition, 40 million new shares were
issued to Boehringer Ingelheim at a price of 1881p, bringing the
combined net consideration paid at closing to $1.6 billion, using
the USD:GBP exchange rate of 1.3879:1. Post completion, further
adjustments to the cash consideration have been made which reduced
the total consideration to $1.5 billion. Should certain targets be
met, further payments could be triggered.(10) The cash
consideration was funded through a combination of cash and the
utilisation of the Group's existing debt facilities.
Balance sheet
Net assets at 31 December 2016 were $2,411 million, compared to
$1,352 million at 31 December 2015. The significant increase in net
assets reflects the consolidation of the West-Ward Columbus
business. Net current assets were $530 million, compared to $768
million at 31 December 2015.
During the period, shareholder equity was negatively impacted by
an unrealised foreign exchange translation loss of $90 million,
primarily reflecting movements in the Egyptian pound, Sudanese
pound, Algerian dinar, Tunisian dinar and Moroccan dirham against
the US dollar and the translation of net assets denominated in
these currencies.
Summary and outlook
The Group delivered a solid performance in 2016 whilst making
excellent strategic progress, including the transformational
acquisition of West-Ward Columbus.
We expect the Injectables business to deliver continued growth
in 2017, with strong demand across our global portfolio and new
product launches more than offsetting the impact of increased
competition. We expect Injectables revenue to be in the range of
$800 million to $825 million. We expect core operating margin to be
in the high 30s in 2017, which assumes a step-up in R&D
investment.
We continue to expect revenue for the Generics business to be
around $800 million in 2017, with an improvement in the mix of
sales and new product launches more than offsetting the impact of
increased competition on the marketed portfolio and a reduction in
contract manufacturing revenue. Certain new launches are expected
to contribute around 15% of Generics revenue in 2017, primarily
generic Advair, which is assumed to be launched in the second half
of the year. We expect the profitability of the Generics business
to significantly improve in 2017, driven by new product launches,
an enhanced mix of sales and a continued focus on operating
efficiencies.
In 2017, we expect Branded revenue to grow in the mid-single
digits in constant currency, driven by underlying market growth and
our focus on strategic products. Taking into account exchange rate
movements since the beginning of 2017, and assuming these rates
prevail, we would expect reported Branded revenue to grow in the
low-single digits and core operating margin to be broadly in line
with 2016. This adverse currency impact is primarily due to the
devaluation of the Egyptian pound against the US dollar.
Overall, we expect Group revenue in 2017 to be around $2.2
billion in constant currency.
Responsibility statement
The responsibility statement below has been prepared in
connection with company's full annual report for the year ended 31
December 2016. 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 that 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
14 March 2017
Cautionary statement
This preliminary announcement has been prepared solely to
provide additional information to the shareholders of Hikma and
should not be relied on by any other party or for any other
purpose.
Forward looking statements
This announcement contains certain statements which are, or may
be deemed to be, "forward looking statements" which are prospective
in nature with respect to Hikma's expectations and plans, strategy,
management objectives, future developments and performance, costs,
revenues and other trend information. 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.
By their nature, forward looking statements are based on current
expectations and projections about future events and are therefore
subject to assumptions, risks and uncertainties that are beyond
Hikma's ability to control or estimate precisely and which could
cause actual results or events to differ materially from those
expressed or implied by the forward looking statements. Where
included, such statements have been made by or on behalf of Hikma
in good faith based upon the knowledge and information available to
the Directors on the date of this announcement. Accordingly, no
assurance can be given that any particular expectation will be met
and Hikma's shareholders are cautioned not to place undue reliance
on the forward-looking statements. 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.
Other than in accordance with its legal or regulatory
obligations (including under the Market Abuse Regulation ((EU) No.
596/2014) and the UK Listing Rules and the Disclosure and
Transparency Rules of the Financial Conduct Authority), Hikma does
not undertake to update the forward looking statements contained in
this announcement to reflect any changes in events, conditions or
circumstances on which any such statement is based 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. Past share performance cannot be relied on as a
guide to future performance. Nothing in this announcement should be
construed as a profit forecast.
Neither the content of Hikma's website nor any other website
accessible by hyperlinks from Hikma's website are incorporated in,
or form part of, this announcement.
Principal risks and uncertainties
During the year, the Board conducted a robust assessment of all
the principal risks in the businesses, looking in detail at the
nature and scale of the risks being taken and the mitigation
approaches. The Board considers that it is possible that more than
one principal risk could escalate at any one point in time. The
Board is satisfied that these risks are being managed appropriately
and consistently with the target risk appetite. The Group faces
risks and uncertainties that could have a material impact on its
earnings and ability to trade in the future. These principal risks
are set out below, although the contents of this table are not
deemed as an exhaustive list of all the risks and uncertainties the
Group faces.
Risk and description Mitigation and control
------------------------------------------------------------------ ------------------------------------------------------------
Product quality
--------------------------------------------------------------------------------------------------------------------------------
* Situations resulting in poor manufacturing and * Global implementation of quality systems that
processes quality of products have the potential to guarantee valid consistent manufacturing processes
lead to: leading to the production of quality products
* Product efficacy and safety issues affecting patients * The 11 FDA approved facilities are regularly assessed
and manufacturing personnel resulting in liability by the regulator
and reputational issues
* Documented procedures are continuously improved and
* Regulatory action that could result in the closure of staff receive training on those procedures on a
facilities and consequential loss of opportunity and regular basis
potential failure to supply obligations
* Continued environment and health certifications
* Delayed or denied approvals for new products
* Product recalls
------------------------------------------------------------------ ------------------------------------------------------------
API sourcing
--------------------------------------------------------------------------------------------------------------------------------
* API and raw materials represent one of the Group's * Maintaining alternative API suppliers for each of the
largest cost components. As is typical in the Group's products, where possible
pharmaceuticals industry, a significant proportion of
the Group's API requirements is provided by a small
number of API suppliers * API suppliers are carefully selected and the Group
endeavours to build long-term supply contracts
* There is a risk that it will not be possible to
secure or maintain adequate levels of API supplies in * The Group has a dedicated plant in Jordan that can
future synthesise strategic injectable APIs and difficult to
procure injectable APIs where appropriate
* Regulatory approval of a new supplier can be lengthy
and supplies may be disrupted if the Group is forced * Utilising supply chain models to maintain adequate
to replace a supplier which failed to meet applicable API levels
regulatory standards or terminated its arrangements
with the Group
------------------------------------------------------------------ ------------------------------------------------------------
MENA & emerging markets
--------------------------------------------------------------------------------------------------------------------------------
* Hikma operates in the MENA and emerging markets which * Geographic diversity reduces the impact of issues
have high levels of political and social instability arising in one jurisdiction with extensive experience
as well as economic and regulatory fluctuations that of operating in these environments and developing
can result in a wide variety of business disruptions opportunities
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, analysing and reacting to economic
developments, on short, medium and long term bases
------------------------------------------------------------------ ------------------------------------------------------------
New product pipeline
--------------------------------------------------------------------------------------------------------------------------------
* A sizeable proportion of Group revenues and profits * Internal marketing and business development
derive from a number of strategic products. Failure departments monitor and assess the market for arising
to maintain a healthy product pipeline will affect opportunities
the ability of the Group to generate business and
limits the ability to provide differentiated products
to patients and customers * Expansive global product portfolio with increased
focus on high value and differentiated products
* Experienced internal regulatory teams developing
products and overseeing joint venture activities
* Product related acquisitions (e.g. acquisition of
West-Ward Columbus)
* Third party pharmaceutical product specialists in
addition to strong R&D teams are assisting in the
development of manufacturing processes for new
generic products. Both are assisted centrally in the
implementation and management of projects
* Launched a product portfolio/pipeline management
platform and project management office with improved
alignment across the Group
* Defined and reviewed clear product strategies that
set product development priorities
------------------------------------------------------------------ ------------------------------------------------------------
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
* Compliantly identify market opportunities and develop
appropriate pricing strategies whilst responsibly
applying price changes 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 utilise
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 major acquisitions before
* An acquisition of a large-scale target may entail 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
or risk 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
------------------------------------------------------------------ ------------------------------------------------------------
ABC Compliance
--------------------------------------------------------------------------------------------------------------------------------
* The pharmaceutical industry and certain MENA and * Board level - Compliance, Responsibility and Ethics
emerging markets are considered to be higher risk in Committee (CREC)
relation to sales practices. Improper conduct by
employees could seriously damage the reputation and
licence to do business * Code of Conduct approved by the Board, translated
into seven languages and signed by all employees
* ABC compliance programme monitored by the CREC
* Over 5,000 employees have received ABC compliance
training
* Sales and marketing and other ABC compliance policies
and procedures are created, updated and rolled out
and are subject to regular audits
* Active participation in international anti-corruption
initiatives (e.g. PACI, UN Global Compact)
* Strengthening US compliance operations in line with
business expansion
* Conducting legally privileged internal compliance
audits
------------------------------------------------------------------ ------------------------------------------------------------
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. In addition, most of the other
risks could have a financial impact on the Group
* A network of banking partners is maintained for
lending and deposits
* Management monitors debtor payments and takes
precautionary measures 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 and regulatory
--------------------------------------------------------------------------------------------------------------------------------
* The Group is exposed to a variety of legal, IP and * Expert internal departments that enhance policies,
regulatory risks similar to most relevant major processes, embed compliance culture, raise awareness
international industries such as changes in laws,
regulations and their application, litigation,
governmental investigations, sanctions, contractual * Train staff and provide terms to mitigate or lower
terms and conditions and potential business contractual risks where possible
disruptions
* First class expert external advice is procured to
provide independent services and ensure highest
standards
* Board of Directors and executive management provide
leadership and take action
------------------------------------------------------------------ ------------------------------------------------------------
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,
* Increased internal/ external security threats where necessary, implement changes to combat this
* Compliance and reputational damages * Improved alignment between IT and business strategy
* Regulatory and legal litigation * Working with third party consultants on implementing
a robust Group-wide information security programme
------------------------------------------------------------------ ------------------------------------------------------------
Human Resources and Organisational growth
--------------------------------------------------------------------------------------------------------------------------------
* Changes in employment laws, currency fluctuations and * Employ HR programmes that attract, manage and develop
inflation pose constant risks. The fast growth of the talent within the organisation
organisation poses risks to management processes,
structures and talent that serve the changing needs
of the organisation. In turn, this may affect other * Keeping our organisation structures and
risks accountabilities under review, and maintaining the
flexibility to make changes smoothly as requirements
change
* Continuously upgrade management processes so that
they become and remain at the standards of a global
company
------------------------------------------------------------------ ------------------------------------------------------------
Reputational
--------------------------------------------------------------------------------------------------------------------------------
* Reputational risk inescapably arises as a by-product * Monitor the internal and external sources that might
of other risks and from taking complex business signal reputational issues
decisions. However, we view our reputation as one of
our most valuable assets, 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)
* Strengthening communication and corporate affairs
capabilities
* Establishing partnerships and programmes to limit
misuse of Hikma products
------------------------------------------------------------------ ------------------------------------------------------------
(1) Constant currency numbers in 2016 represent reported 2016
numbers re-stated using average exchange rates in 2015
(2) Core results are presented to show the underlying
performance of the Group, excluding amortisation of intangible
assets other than software and the exceptional items set out in
note 5
(3) Earnings before interest, tax, depreciation and amortisation
and other exceptional items set out in note 5
(4) On 3 March 2017, the Egyptian pound had devalued against the
US dollar from its peg of 8.8 EGP:USD prior to 3 November 2016 to
16.2 EGP:USD (www.oanda.com)
(5) 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. We are presenting
details of the Group's product portfolio and pipeline to provide
additional information in respect of the size and make-up of the
marketed portfolio which is generating revenue and the pipeline
opportunity which will drive future revenue growth
(6) Totals include 71 dermatological and cosmetic compounds in
282 dosage forms and strengths that are only sold in Morocco
(7) Totals include all compounds and formulations that are
either launched or approved or pending approval across all markets,
as relevant
(8) Group working capital days are calculated as Group
receivable days plus Group inventory days, less Group payable days.
Group receivable days are calculated as Group trade receivables x
365, divided by trailing 12 months Group revenue. Group inventory
days are calculated as Group inventory x 365, divided by trailing
12 months Group cost of sales. Group payable days are calculated as
Group trade payables x 365, divided by trailing 12 months Group
cost of sales. We believe Group working capital days provides a
useful measure of the Group's working capital management and
liquidity
(9) Group net debt is calculated as Group total debt less Group
total cash. Group total debt excludes co-development agreements and
contingent liabilities. We believe Group net debt is a useful
measure of the strength of the Group's financing position
(10) Further detail regarding the West-Ward Columbus acquisition
is provided in note 17
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 DECEMBER 2016
2016 2016 2016 2015 2015 2015
Core Exceptional Reported Core Exceptional Reported
results items results results items results
and other and other
adjustments adjustments
(note (note
4) 4)
Note $m $m $m $m $m $m
---------------------------- ----- --------- ------------- --------- --------- ------------- ---------
Continuing operations
Revenue 3 1,950 - 1,950 1,440 - 1,440
Cost of sales 3 (932) (32) (964) (622) - (622)
---------------------------- ----- --------- ------------- --------- --------- ------------- ---------
Gross profit 3 1,018 (32) 986 818 - 818
---------------------------- ----- --------- ------------- --------- --------- ------------- ---------
Sales and marketing
expenses (184) (37) (221) (156) (16) (172)
General and administrative
expenses (208) (36) (244) (180) (20) (200)
Research and development
expenses (126) (24) (150) (36) - (36)
Other operating
expenses (net) (81) 12 (69) (37) 8 (29)
---------------------------- ----- --------- ------------- --------- --------- ------------- ---------
Total operating
expenses (599) (85) (684) (409) (28) (437)
---------------------------- ----- --------- ------------- --------- --------- ------------- ---------
Operating profit 3 419 (117) 302 409 (28) 381
---------------------------- ----- --------- ------------- --------- --------- ------------- ---------
Loss/impairment
of associates - - - (2) (7) (9)
Finance income 3 9 12 3 - 3
Finance expense (63) (41) (104) (55) (2) (57)
---------------------------- ----- --------- ------------- --------- --------- ------------- ---------
Profit before tax 359 (149) 210 355 (37) 318
---------------------------- ----- --------- ------------- --------- --------- ------------- ---------
Tax 5 (80) 28 (52) (67) 3 (64)
---------------------------- ----- --------- ------------- --------- --------- ------------- ---------
Profit for the
year 279 (121) 158 288 (34) 254
---------------------------- ----- --------- ------------- --------- --------- ------------- ---------
Attributable to:
Non-controlling
interests 3 - 3 2 - 2
---------------------------- ----- --------- ------------- --------- --------- ------------- ---------
Equity holders
of the parent 276 (121) 155 286 (34) 252
---------------------------- ----- --------- ------------- --------- --------- ------------- ---------
279 (121) 158 288 (34) 254
Earnings per share
(cents)
---------------------------- ----- --------- ------------- --------- --------- ------------- ---------
Basic 7 118.5 66.5 143.7 126.6
Diluted 7 117.9 66.2 142.3 125.4
---------------------------- ----- --------- ------------- --------- --------- ------------- ---------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2016
2016 2015
$m $m
--------------------------------------------- ----- -----
Profit for the year 158 254
Other Comprehensive Income
Items that may be reclassified subsequently
to the income statement, net of
tax:
Effect of change in investment designated 1 -
at fair value
Exchange difference on translation
of foreign operations (90) (67)
---------------------------------------------- ----- -----
Total comprehensive income for the
year 69 187
---------------------------------------------- ----- -----
Attributable to:
Non-controlling interests - (2)
Equity holders of the parent 69 189
---------------------------------------------- ----- -----
69 187
--------------------------------------------- ----- -----
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2016
2016 2015
Note $m $m
Non-current assets
Intangible assets 1,719 607
Property, plant and equipment 969 507
Investment in associates and
joint ventures 7 7
Deferred tax assets 172 70
Financial and other non-current
assets 48 46
================================== ===== ======= =======
2,915 1,237
================================== ===== ======= =======
Current assets
Inventories 8 459 251
Income tax asset 2 3
Trade and other receivables 9 759 488
Collateralised and restricted
cash 7 40
Cash and cash equivalents 155 553
Other current assets 66 25
================================== ===== ======= =======
1,448 1,360
================================== ===== ======= =======
Total assets 4,363 2,597
================================== ===== ======= =======
Current liabilities
Bank overdrafts and loans 117 115
Trade and other payables 10 343 276
Income tax provision 112 75
Other provisions 27 28
Other current liabilities 11 319 98
================================== ===== ======= =======
918 592
================================== ===== ======= =======
Net current assets 530 768
================================== ===== ======= =======
Non-current liabilities
Long-term financial debts 12 721 590
Obligations under finance leases 21 22
Deferred tax liabilities 15 21
Other non-current liabilities 13 277 20
================================== ===== ======= =======
1,034 653
================================== ===== ======= =======
Total liabilities 1,952 1,245
================================== ===== ======= =======
Net assets 2,411 1,352
================================== ===== ======= =======
Equity
Share capital 14 40 35
Share premium 282 282
Own shares (1) (1)
Other reserves 2,075 1,021
================================== ===== ======= =======
Equity attributable to equity
holders of the parent 2,396 1,337
---------------------------------- ----- ------- -------
Non-controlling interests 15 15
================================== ===== ======= =======
Total equity 2,411 1,352
================================== ===== ======= =======
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2016
Merger Translation Retained Total Share Share Own Total Non-controlling Total
and reserves earnings reserves capital premium shares equity interests equity
Revaluation attributable
reserves to equity
shareholders
of the
parent
$m $m $m $m $m $m $m $m $m $m
---------------- ------------ ------------ --------- --------- -------- -------- ------- ------------- ---------------- -------
Balance at
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
Total
transactions
with
owners,
recognised
directly
in equity
Issue of
equity shares
(note 14) - - - - - 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 and
1 January
2016 38 (161) 1,144 1,021 35 282 (1) 1,337 15 1,352
Profit for
the year - - 155 155 - - - 155 3 158
Effect of
change in
investment
designated
at fair value - - 1 1 - - - 1 - 1
Currency
Translation
Loss - (87) - (87) - - - (87) (3) (90)
---------------- ------------ ------------ --------- --------- -------- -------- ------- ------------- ---------------- -------
Total
comprehensive
income for
the year - (87) 156 69 - - - 69 - 69
---------------- ------------ ------------ --------- --------- -------- -------- ------- ------------- ---------------- -------
Total
transactions
with
owners,
recognised
directly
in equity
Issue of
equity shares
for
acquisition
of a subsidiary
(note 14,17) 1,039 - - 1039 5 - - 1,044 - 1,044
Cost of
equity-settled
employee
share scheme - - 22 22 - - - 22 - 22
Deferred
tax arising
on
share-based
payments - - 1 1 - - - 1 - 1
Dividends
on ordinary
shares (note
6) - - (77) (77) - - - (77) (1) (78)
Acquisition
of subsidiaries
(note 17) - - - - - - - - 1 1
---------------- ------------ ------------ --------- --------- -------- -------- ------- ------------- ---------------- -------
Balance at
31
December
2016 1,077 (248) 1,246 2,075 40 282 (1) 2,396 15 2,411
---------------- ------------ ------------ --------- --------- -------- -------- ------- ------------- ---------------- -------
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEARED 31 DECEMBER 2016
2016 2015
Note $m $m
======================================== ===== ======= =======
Net cash from operating activities 15 293 366
======================================== ===== ======= =======
Investing activities
Purchases of property, plant and
equipment (122) (82)
Proceeds from disposal of property,
plant and equipment 4 1 31
Purchase of intangible assets (68) (55)
Proceeds from disposal of intangible
assets 4 24 -
Investment in financial and other (11) -
non-current assets
Investment in available for sale
investments (6) (1)
Investments designated at fair
value - (20)
Acquisition of business undertakings (515) -
net of cash acquired
Finance income 2 3
Acquisition related amounts held
in escrow account - (38)
======================================== ===== ======= =======
Net cash used in investing activities (695) (162)
======================================== ===== ======= =======
Financing activities
(Decrease)/increase in collateralised
and restricted cash (4) 6
Proceeds from issue of long-term
financial debts 471 529
Repayment of long-term financial
debts (326) (91)
Proceeds from short-term borrowings 345 325
Repayment of short-term borrowings (337) (595)
Dividends paid (77) (64)
Dividends paid to non-controlling
shareholders of subsidiaries (1) (2)
Interest paid (54) (49)
Proceeds from issue of new shares - 1
Proceeds from co-development and
earnout payment agreement, net 2 17
======================================== ===== ======= =======
Net cash generated by financing
activities 19 77
======================================== ===== ======= =======
Net (decrease)/increase in cash
and cash equivalents (383) 281
Cash and cash equivalents at beginning
of year 553 280
Foreign exchange translation movements (15) (8)
======================================== ===== ======= =======
Cash and cash equivalents at end
of year 155 553
======================================== ===== ======= =======
Notes to the Consolidated Financial Statements
The company is a public listed company, listed at the London
stock exchange and incorporated and domiciled in the UK (registered
number 5557934), the address is 13 Hanover Square, London, W1S 1HW,
United Kingdom.
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 2016
or 2015, but is derived from those accounts. Statutory accounts for
2015 have been delivered to the Registrar of Companies and those
for 2016 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 2016 and 31 December 2015 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 statements
The following new and revised Standards and Interpretations have
been adopted in the current year. Their adoption has not had any
significant impact on the amounts reported in these financial
statements but may impact the accounting for future transactions
and arrangements.
IFRS 11 (Amendments) Accounting for Acquisitions of
Interests in Joint Operations
--------------------- --------------------------------------
Amendments IFRS Regulatory deferral accounts
14
--------------------- --------------------------------------
IAS 19 (Amendments) Defined Benefit Plans: Employees
Contributions
--------------------- --------------------------------------
IAS 16 and IAS Clarification of Acceptable Methods
38 (Amendments) of Depreciation and Amortisation
--------------------- --------------------------------------
IAS 27 (Amendments) Equity Method in Separate Financial
Statements
--------------------- --------------------------------------
IFRS 10 and IAS Sale or contribution of Assets
28 (Amendments) between an Investor and it Associate
or
Joint Venture
--------------------- --------------------------------------
IAS 1 (Amendments) Disclosure Initiative
--------------------- --------------------------------------
Annual improvements
2010-2012
--------------------- --------------------------------------
Annual improvements
2012-2014
--------------------- --------------------------------------
The following Standards and Interpretations have not been
applied in these financial statements because while in issue, are
not yet effective (and in some cases, had not yet been adopted by
the EU):
IFRS 9 Financial Instruments
-------------------- --------------------------------------
IFRS 15 Revenue from Contracts with Customers
-------------------- --------------------------------------
IFRS 10, IFRS 12 Investment Entities: Applying
and IAS 28 the Consolidation Exemption
(Amendments)
-------------------- --------------------------------------
IFRS 16 Leases
-------------------- --------------------------------------
IAS 12 (Amendments) Recognition of deferred tax assets
for unrealised losses
-------------------- --------------------------------------
IFRS 9 will impact both the measurement and disclosure of
financial instruments, IFRS 15 may have an impact on revenue
recognition and related disclosure, and IFRS 16 will impact leased
assets and financial liabilities and related disclosures.
Until a detailed review is completed; the directors do not find
it practical to provide a reasonable estimate of the effects of the
above listed IFRS on the financials statements of the Group in the
future periods.
2. Going Concern
The Directors have considered the going concern position of the
Company during the period and the period end as they have in
previous years. The Directors believe that the Group is well
diversified due to its geographic spread, product diversity and
large customer and supplier base. The Group operates in the
relatively defensive generic pharmaceuticals industry which the
Directors expect to be less affected by economic downturns compared
to other industries.
The Group's overall net debt position was $697 million (31
December 2015: $135 million). Net cash from operating activities in
FY 2016 was $293 million (FY 2015: $366 million). The Group has
$1,109 million (December 2015: $1,374 million) of undrawn short
term and long term banking facilities, in addition to $180 million
(31 December 2015: $205 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,
maturities of long--term debt and the purchase of West--Ward
Columbus, 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. Having reassessed the principal risks, the directors
considered it appropriate to adopt the going concern basis of
accounting in preparing the financial statements.
3. Segmental reporting
For management purpose 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.
Operating profit, defined as segment result, is the principal
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:
Branded 2016 2016 2016 2015 2015 2015
Core Exceptional Reported Core Exceptional Reported
results items results results items results
and other and other
adjustments adjustments
(note (note
4) 4)
Year ended 31 December $m $m $m $m $m $m
2016
------------------------ --------- ------------- --------- --------- ------------- ---------
Revenue 556 - 556 570 - 570
Cost of sales (274) - (274) (293) - (293)
------------------------ --------- ------------- --------- --------- ------------- ---------
Gross profit 282 - 282 277 - 277
------------------------ --------- ------------- --------- --------- ------------- ---------
Total operating
expenses (170) (8) (178) (159) (13) (172)
Segment result 112 (8) 104 118 (13) 105
------------------------ --------- ------------- --------- --------- ------------- ---------
Injectables 2016 2016 2016 2015 2015 2015
Core Exceptional Reported Core Exceptional Reported
results items results results items results
and other and other
adjustments adjustments
(note (note
4) 4)
Year ended 31 December $m $m $m $m $m $m
2016
------------------------ --------- ------------- --------- --------- ------------- ---------
Revenue 781 - 781 710 - 710
Cost of sales (276) - (276) (261) - (261)
------------------------ --------- ------------- --------- --------- ------------- ---------
Gross profit 505 - 505 449 - 449
------------------------ --------- ------------- --------- --------- ------------- ---------
Total operating
expenses (165) (28) (193) (137) (1) (138)
Segment result 340 (28) 312 312 (1) 311
------------------------ --------- ------------- --------- --------- ------------- ---------
Injectables segment includes EUP results.
Generics 2016 2016 2016 2015 2015 2015
Core Exceptional Reported Core Exceptional Reported
results items results results items results
and other and other
adjustments adjustments
(note (note
4) 4)
Year ended 31 December $m $m $m $m $m $m
2016
------------------------ --------- ------------- --------- --------- ------------- ---------
Revenue 604 - 604 151 - 151
Cost of sales (376) (32) (408) (62) - (62)
------------------------ --------- ------------- --------- --------- ------------- ---------
Gross profit 228 (32) 196 89 - 89
------------------------ --------- ------------- --------- --------- ------------- ---------
Total operating
expenses (193) (17) (210) (43) (2) (45)
Segment result 35 (49) (14) 46 (2) 44
------------------------ --------- ------------- --------- --------- ------------- ---------
Generics segment includes West-Ward Columbus results.
Others 2016 2016 2016 2015 2015 2015
Core Exceptional Reported Core Exceptional Reported
results items results results items results
and other and other
adjustments adjustments
(note (note
4) 4)
Year ended 31 December $m $m $m $m $m $m
2016
------------------------ --------- ------------- --------- --------- ------------- ---------
Revenue 9 - 9 9 - 9
Cost of sales (6) - (6) (6) - (6)
------------------------ --------- ------------- --------- --------- ------------- ---------
Gross profit 3 - 3 3 - 3
------------------------ --------- ------------- --------- --------- ------------- ---------
Total operating
expenses (5) - (5) (8) - (8)
Segment result (2) - (2) (5) - (5)
------------------------ --------- ------------- --------- --------- ------------- ---------
"Others" mainly comprise Arab Medical Containers Ltd,
International Pharmaceutical Research Centre Ltd and the chemicals
division of Hikma Pharmaceuticals Ltd (Jordan).
Group 2016 2016 2016 2015 2015 2015
Core Exceptional Reported Core Exceptional Reported
results items results results items results
and other and other
adjustments adjustments
(note (note
4) 4)
Year ended 31 December $m $m $m $m $m $m
2016
------------------------ --------- ------------- --------- --------- ------------- ------------
Revenue 1,950 - 1,950 1,440 - 1,440
Cost of sales (932) (32) (964) (622) - (622)
------------------------ --------- ------------- --------- --------- ------------- ------------
Gross profit 1,018 (32) 986 818 - 818
------------------------ --------- ------------- --------- --------- ------------- ------------
Total operating
expenses (533) (53) (586) (346) (16) (362)
------------------------ --------- ------------- --------- --------- ------------- ------------
Segment result 485 (85) 400 472 (16) 456
------------------------ --------- ------------- --------- --------- ------------- ------------
Unallocated expenses (66) (32) (98) (63) (12) (75)
Operating profit 419 (117) 302 409 (28) 381
------------------------ --------- ------------- --------- --------- ------------- ------------
Loss/impairment
of associates - - - (2) (7) (9)
Finance income 3 9 12 3 - 3
Finance expense (63) (41) (104) (55) (2) (57)
------------------------ --------- ------------- --------- --------- ------------- ------------
Profit before tax 359 (149) 210 355 (37) 318
------------------------ --------- ------------- --------- --------- ------------- ------------
Tax (80) 28 (52) (67) 3 (64)
------------------------ --------- ------------- --------- --------- ------------- ------------
Profit for the
year 279 (121) 158 288 (34) 254
------------------------ --------- ------------- --------- --------- ------------- ------------
Attributable to:
Non-controlling
interests 3 - 3 2 - 2
------------------------ --------- ------------- --------- --------- ------------- ------------
Equity holders
of the parent 276 (121) 155 286 (34) 252
------------------------ --------- ------------- --------- --------- ------------- ------------
279 (121) 158 288 (34) 254
------------------------ --------- ------------- --------- --------- ------------- ------------
Unallocated corporate expenses are primarily made up of employee
costs, professional fees, travel expenses, donations, and
acquisition related expenses.
Branded Injectables Generics Corporate Group
and
others
Segment assets and liabilities $m $m $m $m $m
2016
------------------------------- ------- ----------- -------- --------- ------
Additions to property,
plant and equipment (cost) 14 38 56 10 118
Acquisition of business
property plant and equipment
(note 17) - 11 447 - 458
Additions to intangible
assets 1 40 28 3 72
Acquisition of business
intangible assets (note
17) - 34 1,130 - 1,164
Total property, plant
and equipment and intangible
assets (net book value) 397 576 1667 48 2,688
Depreciation and impairment
of property, plant and
equipment 21 28 26 3 78
Amortisation, impairment
and write-down of intangible
assets (including software) 10 26 32 - 68
Investment in associates
and joint ventures - - - 7 7
Balance sheet
------------------------------- ------- ----------- -------- --------- ------
Total assets 1,019 880 2,306 158 4,363
------------------------------- ------- ----------- -------- --------- ------
Total liabilities 475 404 1,015 58 1,952
------------------------------- ------- ----------- -------- --------- ------
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* - (1) - - (1)
Additions to intangible
assets 5 41 8 2 56
Remeasurement of intangible
assets* - (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
------------------------------- ------- ----------- -------- --------- ------
* Further to Bedford Laboratories ("Bedford") acquisition in
2014, a reduction of $8 million was made to the provisional
goodwill recognised on the acquisition of Bedford as a result of
the adjustment to inventory, property, plant and equipment and
deferred tax made prior to the end of the measurement period on 15
July 2015.
The following table provides an analysis of the Group's sales by
geographical market, irrespective of the origin of the
goods/services:
2016 2015
$m $m
============================= ====== =====
United States 1,211 697
Middle East and North Africa 641 656
Europe and Rest of the World 95 82
United Kingdom 3 5
----------------------------- ------ -----
1,950 1,440
============================= ====== =====
The top selling markets were as below:
2016 2015
$m $m
============== ====== ====
United States 1,211 697
Saudi Arabia 143 162
Algeria 115 113
============== ====== ====
1,469 972
============== ====== ====
Included in revenues arising from the Generics and Injectables
segments are revenues of approximately $253 million (2015: $173
million) which arose from the Group's largest customer which is in
the United States.
4. Exceptional items and other adjustments
Exceptional items and other adjustments are disclosed separately
in the consolidated income statement to assist in the understanding
of the Group's core performance.
2016 2015
Exceptional items $m $m
============================================ ======= ======
Acquisition, integration and other
costs (41) (14)
Gain from sale of assets, net 18 6
Inventory related adjustments (27) -
Release of contingent liability 4 -
Impairment of property plant and
equipment (10) -
Impairment of product related intangible
assets (6) -
Write- down of product related intangible
assets (18) -
Severance costs - (6)
Proceeds from legal claims - 2
============================================ ======= ======
Exceptional items included in operating
profit (80) (12)
Impairment of investment in associates - (7)
============================================ ======= ======
Exceptional items included in profit (80) (19)
-------------------------------------------- ------- ------
Other adjustments
Intangible amortisation other than
software (37) (16)
Remeasurement of contingent consideration,
financial liability and assets, net (32) (2)
============================================ ======= ======
Exceptional items and other adjustments (149) (37)
-------------------------------------------- ------- ------
Tax effect 28 3
============================================ ======= ======
Impact on profit for the year (121) (34)
============================================ ======= ======
Exceptional items:
-- Acquisition, integration and other costs are incurred in
relation to the acquisition of West-Ward Columbus which was
completed on 29 February 2016. Acquisition related expenses are
included in the unallocated corporate expenses, while integration
and other expenses are included in the general and administrative
expense and cost of sales respectively. Acquisition related
expenses mainly comprise third party consulting services, legal and
professional fees, other costs represent severance and retention
payments paid.
-- Gain from sale of assets relates to the divestiture of
certain products, and is included in other operating income.
-- Inventory related adjustments reflect the amortisation of the
fair value uplift of the inventory acquired as part of West-Ward
Columbus acquisition, and are included in cost of sales.
-- Release of contingent liability is due to not achieving
certain performance-related milestones in respect of a previous
acquisition, and is included in other operating income.
-- Impairment loss of property, plant and equipment relates to
the write-off of machinery and equipment as a result of previous
acquisition, and is included in other operating expenses.
-- Impairment of products-related intangible assets has been
included in the research and development expenses.
-- Write-down of products related intangible assets relates to
the write-down of certain of research and devlopment elements
associated with the co-development agreements entered into with
third parties since 2011 and has been included in the research and
development expenses.
Other adjustments:
-- Remeasurement of contingent consideration, financial
liability and assets arising from acquisition represents the net
difference resulting from the valuation of the liabilities and
assets associated with the future contingent payments in respect to
West-Ward Columbus acquisition (note 17) in addition to the
financial liability in relation to the co-development earnout
payment agreement (note 13).
In previous periods exceptional items and other adjustments are
related to the following:
-- Acquisition and integration related costs were incurred in
relation to the acquisition of West-Ward Columbus, which was closed
on 29 February 2016. Acquisition related expenses were included in
the unallocated corporate expenses, while integration related
expenses were included in the general and administrative expense.
Acquisition related expenses mainly comprise third party consulting
services, legal and professional fees.
-- Gain from sale of the assets related to the sale of Bedford
manufacturing facilities to Xellia Pharmaceuticals for a cash
consideration of $30 million was included in other operating
income. The gain is net of hibernation costs related to the
assets.
-- Severance costs related to restructuring of management teams
mainly in MENA and were included in general and administrative
expenses.
-- Proceeds from legal claims refer to cash received in
settlement of an indemnification claim in the US, which was
included in other operating income.
-- Impairment of investment in associates represented the
impairment of the remaining investment balance related to Unimark
Remedies limited. Hikma's share in Unimark Remedies Limited has
been divested during 2016 for minimal value.
-- Remeasurement of the financial liability in relation to the
co-development earnout payment agreement represent the difference
resulting from the valuation of the liabilities associated with the
future earnout payments to be made (note 13).
5. Tax
2016 2015
--------------------------
$m $m
-------------------------- ---- ----
Current tax:
Foreign tax 115 68
Adjustments to prior year 2 (1)
Deferred tax:
Current year (57) (5)
Adjustments to prior year (8) 2
-------------------------- ---- ----
Tax 52 64
-------------------------- ---- ----
UK corporation tax is calculated at 20.0% (2015: 20.3%) of the
estimated assessable profit made in the UK for the year.
The Group incurred a tax expense of $52 million (2015: $64
million). The effective tax rate is 24.8%, (2015: 20.1%). The
increase in the effective tax rate reflects increased earnings in
higher taxed jurisdictions, particularly in the US where the
federal corporate tax rate is 35.0%.
Taxation for all 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:
2016 2015
------------------------------------
$m $m
------------------------------------ ------ ------
Profit before tax 210 318
Tax at the UK corporation tax rate
of 20.0% (2015: 20.3%) 42 64
Profits taxed at different rates 13 (16)
Permanent differences
- non-taxable income (17) (17)
- non-deductible expenditures 13 6
- adjustment on intercompany stock (14) 4
- Other (1) (1)
State and local taxes 2 1
Temporary differences for which no
benefit is recognised 13 11
Change in provision for uncertain
tax positions 5 11
Unremitted earnings 2 -
Prior year adjustments (6) 1
------------------------------------ ------ ------
Tax expense for the year 52 64
------------------------------------ ------ ------
The format of the 2016 tax reconciliation has been expanded to
clarify the reconciling items. For consistency, we have
re-classified the 2015 comparatives using the same methodology.
Profit taxed at different tax rates relates to profits arising
in overseas jurisdictions where the tax rate differs from the UK
statutory rate.
Permanent differences relate to items which are non-taxable or
no tax relief is ever likely to be due. The major items are
differences in GAAP between IFRS and local territory GAAP, expenses
and income disallowed where they are covered by statutory
exemptions, foreign exchange differences in some territories and
statutory reliefs such as R&D and manufacturing tax
credits.
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.
The change in provision for uncertain provisions relates to the
provisions the Group takes in the event of a revenue authority
successfully taking an adverse view of the positions adopted by the
Group in 2016 and primarily relates to a transfer pricing
adjustment.
Changes in deferred tax arise where a difference arises in the
timing of the tax and accounting treatment of items.
Prior year adjustments include differences between the tax
liability recorded in the tax returns submitted for previous years
and estimated tax provision reported in a prior period's financial
statements. This category also includes adjustments (favourable or
adverse) in respect of uncertain tax positions following agreement
of the tax returns with the relevant tax authorities.
6. Dividends on ordinary shares
2016 2015
$m $m
----------------------------------------------- ----- -----
Amounts recognised as distributions to
equity holders in the year:
Final dividend for the year ended 31 December
2015 of 21.0 cents (2014: 15.0 cents) per
share 51 30
Interim dividend for the year ended 31
December 2016 of 11.0 cents (2015: 11.0)
per share 26 22
Special final dividend for the year ended
31 December 2014 of 6.0 cents - 12
----------------------------------------------- ----- -----
77 64
----------------------------------------------- ----- -----
The proposed final dividend for the year ended 31 December 2016
is 22.0 cents (2015: 21.0 cents).
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting on 19 May 2017 and has
not been included as a liability in these financial statements.
Based on the number of shares in issue at 31 December 2016
(239,955,000), the unrecognised liability is $53 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 reported and core earnings used is also set out below:
2016 2016 2016 2015 2015 2015
Core Exceptional Reported Core Exceptional Reported
results items results results items results
and other and other
adjustments adjustments
(note (note
4) 4)
$m $m $m $m $m $m
------------------------- --------- ------------- --------- --------- ------------- ---------
Earnings for the
purposes of basic
and
diluted earnings
per share being net
profit
attributable to equity
holders of the parents 276 (121) 155 286 (34) 252
------------------------- --------- ------------- --------- --------- ------------- ---------
Number Number
Number of shares 'm 'm
----------------------------------------------- ------------ -------
Weighted average number of Ordinary Shares
for the purposes of basic earnings per share 233 199
Effect of dilutive potential Ordinary
Shares:
Share-based awards 1 2
----------------------------------------------- ------------ -------
Weighted average number of Ordinary Shares
for the purposes of diluted earnings per
share 234 201
----------------------------------------------- ------------ -------
2016 2016 2015 2015
Core earnings Reported Core earnings Reported
per share earnings per share earnings
per share per share
cents cents cents cents
--------- -------------- ----------- -------------- -----------
Basic 118.5 66.5 143.7 126.6
--------- -------------- ----------- -------------- -----------
Diluted 117.9 66.2 142.3 125.4
--------- -------------- ----------- -------------- -----------
8. Inventories
As at 31 December
-------------------
2016 2015
--------------------------
$m $m
-------------------------- --------- --------
Finished goods 120 55
Work-in-progress 73 33
Raw and packing materials 229 144
Goods in transit 18 11
Spare parts 19 8
-------------------------- --------- --------
459 251
-------------------------- --------- --------
9. Trade and other receivables
As at 31 December
-------------------
2016 2015
------------------------------
$m $m
------------------------------ --------- --------
Trade receivables 699 432
Prepayments 44 39
VAT and sales tax recoverable 14 15
Employee advances 2 2
759 488
------------------------------ --------- --------
10. Trade and other payables
As at 31 December
-------------------
2016 2015
-----------------
$m $m
----------------- --------- --------
Trade payables 172 139
Accrued expenses 157 122
Other payables 14 15
343 276
----------------- --------- --------
Other payables mainly include employees' provident fund
liability of $5 million (31 December 2015: $5 million), which
mainly represents the outstanding contributions to the Hikma
Pharmaceuticals Ltd (Jordan) retirement benefit plan, on which the
fund receives 3.5% interest.
11. Other current liabilities
As at 31 December
-------------------
2016 2015
---------------------------------------
$m $m
--------------------------------------- --------- --------
Deferred revenue 13 16
Return and free goods provision 109 49
Co-development and earnout payment 4 3
Contingent consideration and liability 123 -
Finance lease obligations 1 1
Others 69 29
--------------------------------------- --------- --------
319 98
--------------------------------------- --------- --------
12. Long-term financial debts
As at 31 December
----- -----------
2016 2015
-----------------------------------------
$m $m
----------------------------------------- ----- -----------
Long-term loans 270 141
Long-term borrowings (Eurobond) 495 494
Less: current portion of long term loans (44) (45)
----------------------------------------- ----- -----------
Long-term financial loans 721 590
----------------------------------------- ----- -----------
Breakdown by maturity:
Within one year 44 45
In the second year 29 35
In the third year 171 20
In the fourth year 519 17
In the fifth year 2 513
Thereafter - 5
----------------------------------------- ----- -----------
765 635
----------------------------------------- ----- -----------
Breakdown by currency:
US Dollar 746 589
Euro 1 3
Algerian Dinar 2 6
Saudi Riyal 1 1
Egyptian Pound 13 33
Tunisian Dinar 2 3
----------------------------------------- ----- -----------
765 635
----------------------------------------- ----- -----------
The loans are held at amortised cost.
Long term loans amounting to $3 million (2015: $8 million) are
secured.
13. Other non-current liabilities
As at 31 December
-------------------
2016 2015
---------------------------------------
$m $m
--------------------------------------- --------- --------
Contingent consideration and liability 226 -
Supply manufacturing agreement 33 -
Co-development and earnout payment 14 18
Others 4 2
277 20
--------------------------------------- --------- --------
Contingent consideration and liability: In respect to note 11,
the non-current portion of the year-end balance is $146 million
related to the contingent consideration and another $80 million
related to the opening balance sheet contingent liability.
Supply Manufacturing Agreement: As part of the acquisition of
West-Ward Columbus, the Group entered into supply and manufacturing
contracts with Boehringer.
Co-development and earnout payment agreement: In respect to note
11, the non-current portion of the year-end balance is $14
million.
14. Share capital
Issued and fully paid - included in shareholders' equity:
2016 2015
------- ----- ---------- -----
Number $m Number 'm $m
'm
------------------------ ------- ----- ---------- -----
At 1 January 200 35 199 35
Issued during the
year (ordinary shares
of 10p each) 41 5 1 -
------------------------ ------- ----- ---------- -----
At 31 December 241 40 200 35
------------------------ ------- ----- ---------- -----
15. Net cash from operating activities
2016 2015
----------------------------------------------
$m $m
----------------------------------------- ------- ------
Profit before tax 210 318
Adjustments for:
Depreciation, amortisation,
impairment and write down of:
Property, plant and equipment 78 51
Intangible assets 68 22
Investment in associates - 7
Gain on disposal of property,
plant and equipment - (11)
Gain on disposal of intangible
assets (note 4) (18) -
Movement on provisions (1) 3
Cost of equity-settled employee
share scheme 22 15
Finance income (12) (3)
Interest and bank charges 102 57
Results from associates - 2
Foreign exchange loss* 19 -
Release of contingent Liability (4) -
---------------------------------------------- ------- ------
Cash flow before working capital 464 461
---------------------------------------------- ------- ------
Change in trade and other receivables (128) (78)
Change in other current assets 1 (1)
Change in inventories (32) 4
Change in trade and other payables 46 28
Change in other current liabilities 15 3
Change in other non-current liabilities 3 -
---------------------------------------------- ------- ------
Cash generated by operations 369 417
---------------------------------------------- ------- ------
Income tax paid (76) (51)
---------------------------------------------- ------- ------
Net cash generated from operating
activities 293 366
---------------------------------------------- ------- ------
* The presentation of 2016 has been amended to show the foreign
exchange loss in a separate line item. We have not restated the
2015 comparatives in this respect on the basis that it is only a
disclosure as the amount was immaterial and embedded in the net
cash generated from operating activities.
16. 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:
Boehringer Ingelheim GmbH ('BI'): is a related party of Hikma
because BI owns 16.7% (2015: 0.0%) of the share capital of Hikma,
controls 11.7% (2015: 0.0%) of the voting capital of Hikma, has the
right to appoint a director of Hikma and a senior executive of BI
holds a directorship of Hikma. During the year, the Group total
sales to BI amounted to $90.1 million (2015: $nil) and the Group
total purchases from BI amounted to $10.3 million. As at the year
end, the amount owed from BI to the Group was $45.2 million (2015:
$nil). Additionally, balances arising from the acquisition of
West-Ward Columbus from BI relating to contingent consideration and
purchase price adjustments which are outstanding are disclosed in
note 17.
Capital Bank, Jordan ('Capital Bank'): is a related party of
Hikma because one director of Hikma is a director, the founder and
former Chief Executive Officer of Capital Bank. At the year end,
total cash balance at Capital Bank was $11.3 million (2015: $9.4
million) and utilisation of facilities granted by Capital Bank to
the Group amounted to $8.3 million (2015: $nil). The interest
expense/income is within market rate.
Darhold Limited ('Darhold'): is a related party of Hikma because
three directors of Hikma jointly constitute the majority of
directors and shareholders (with immediate family members) in
Darhold and because Darhold owns 25.00% (2015: 29.06%) of the share
and voting capital of Hikma.
Other than dividends (as paid to all shareholders), there were
no transactions between the Group and Darhold Limited during the
year.
HikmaCure Limited ('HikmaCure'): is a related part of Hikma
because HikmaCure is a 50:50 joint venture (JV) with MIDROC
Pharmaceuticals Limited ('MIDROC'). Hikma and MIDROC invested 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
(2015: $2.5 million).
Hubei Haosun Pharmaceutical Co., Ltd ('Haosun'): is a related
part of Hikma because the Group holds a non-controlling interest of
30.1% (2015: 30.1%) in Haosun. During 2016, total purchases from
Haosun were $0.4 million (2015: $0.6 million). At 31 December 2016,
the amount owed from Hubei Haosun Pharmaceutical to the Group
amounted to $1.7 million (2015: $nil).
Labatec Pharma ('Labatec'): is a related party of the Group
because Labatec is owned by the family of two directors of Hikma.
During 2016, total Group sales to Labatec amounted to $1.4 million
(2015: $0.9 million). As at the year end, the amount owed by
Labatec to the Group was $0.3 (2015: $0.2 million).
17. Acquisition of a business
During the year, Hikma acquired two businesses: West-Ward
Columbus and EUP.
West-Ward Columbus
On 28 July 2015 Hikma announced that it had agreed to acquire
West-Ward Columbus, from Boehringer Ingelheim (Boehringer).WestWard
Columbus is a well-established US specialty generics company with a
highly differentiated product portfolio and best-in-class R&D
capabilities.
The acquisition of West-Ward Columbus will transform Hikma's
position and scale in the US generics market, expand the
manufacturing capacity and technological capabilities, add
significant breadth to Hikma's US portfolio, create sustainable
long-term growth potential.
On 29 February 2016, Hikma completed the acquisition of
West-Ward Columbus. The total fair value of the consideration was
$1,725 million comprising of net cash consideration of $575 million
(net of certain working capital and other adjustments); 40 million
Ordinary Shares issued to Boehringer based on Hikma's share price
of GBP18.81 and the US: GBP exchange rate of 1.3879:1 (representing
an estimated 16.71 per cent. of Hikma issued share capital
immediately following the issuance); a contingent consideration of
$224 million based on future performance; and a purchase price
adjustment of $118 million reflecting further working capital
adjustments as well as amounts receivable from Boehringer in
respect of milestones and other conditions.
The goodwill arising represents the sustainable long-term
growth, the addition of West-Ward's Columbus experienced R&D
team with a successful track record of bringing new and
differentiated products to market, the possibility to launch
additional pipeline products including those to launch beyond 2020
(future potential unidentified assets) and expected synergies not
attributable to intangible assets.
The net assets acquired in the transaction and the goodwill
arising have been valued by a third party expert as set out
below.
Fair
value
Net assets acquired $m
Trade and other receivables 170 a
Inventories 200 b
Other Current Assets 4
Intangible assets 723 c
Property, plant and equipment 447 d
Deferred tax assets 60
Trade and other payables (34)
Other current liabilities (85)
Deferred tax liabilities (15)
Other non current liabilities (152) e
Net assets acquired 1,318
------------------------------------ -------
Goodwill 407
------------------------------------ -------
Total consideration 1,725
------------------------------------ -------
Discharged by:
Cash consideration 575
Issuance of share 1,044
Contingent consideration 224 f
Adjustment to purchase price (118) g
------------------------------------ -------
1,725
------------------------------------ -------
Cash consideration 575
------------------------------------ -------
Cash and cash equivalents acquired -
------------------------------------ -------
a. Trade and other receivables include a prepayment related to
the Transitional Service Agreement between the Group and
Boehringer.
The fair value of trade and other receivables is $170 million
and includes trade receivables with a fair value of $158 million.
The gross contractual amount for trade receivables due is $158
million.
b. Inventories have been valued as follows:
-- Raw materials at the current replacement cost.
-- Finished goods and work in process at the estimated selling
prices less a cost to dispose of and complete, less a reasonable
profit attributable to the selling effort, this results in an
inventory step-up amounted to $27 million (note 4).
c. Intangible assets represent:
-- Fair value of "marketed products" which present the outcome
of the R&D efforts, material and formulas. The Multi Period
Excess Earnings Method ("MEEM") of the Income Approach has been
used to value those products. Useful lives of 9 -14 years have been
determined.
-- Fair value of products in various stages of development
("Pipeline Products"). The Multi Period Excess Earnings Method
("MEEM") of the Income Approach has been used to value those
products. Useful lives of 7 -15 years have been determined.
d. The Property, plant and equipment acquired have been valued
by a third party expert at current market values on the basis of
Fair Value as defined in IFRS 13 and in accordance with IFRS 3
Business Combinations.
e. As part of the acquisition, Hikma assumed a contingent
liability related to the co-development with a third party of two
specific products that includes payments for milestones and
royalties dependent on the net sales (see note 13). These
contingent liabilities were recorded as opening balance sheet
liabilities based on a probability weighted present value amount at
the time of the acquisition.
Subsequent to the acquisition, $10 million of such milestones
were paid. In addition, concurrent with the acquisition, Hikma
entered into supply and manufacturing contracts with
Boehringer.
f. As part of the acquisition of West-Ward Columbus, Hikma
agreed to pay Boehringer contingent consideration of $220 million
representing a probability weighted present value of potential
liabilities related to two specific products subject to the
achievement of certain US FDA approval milestones, royalties for
each calendar quarter in the first year that certain conditions
exist. Additionally, there was also $4 million contingent
consideration in relation to retention bonus and special advance
payments. Subsequent to the acquisition, $23 million were paid of
such milestones and special payments.
g. A purchase price adjustment of $118 million reflecting
further working capital adjustments as well amounts receivable from
Boehringer in respect of milestones and other conditions.
Goodwill recognised is expected to be non-deductible for income
tax purposes.
The revenue and core operating profit of West-Ward Columbus from
the date of the acquisition, included in the Group's consolidated
statement of comprehensive income for the year amounted to $477
million and $34 million, respectively. These numbers exclude
acquisition, integration, and other costs amounting to $41 million,
the amortisation of the fair value uplift of the inventory of $27
million, and the intangible amortisation of $ 15 million.
EUP
On 8 September 2015 Hikma announced that it had agreed to
acquire 97.73% of the share capital of EUP from a consortium of
shareholders. EUP is a pharmaceutical manufacturing company
specialising in oncology products. The acquisition of EUP will
strengthen Hikma's position in the large and fast growing Egyptian
market, add an attractive portfolio and pipeline in the key
strategic areas of oncology and injectables, add a manufacturing
facility in Egypt, with both oral and injectable lines, and
leverage Hikma's established market position in Egypt and strong
sales and marketing team.
On closing the transaction on Feb 17th 2016, the total fair
value of the consideration is deemed to be $38 million. $34 million
is cash consideration and the balance of $4 million has been
treated as a financial liability and deemed consideration in
accordance with IAS 32 Financial Instruments: Presentation and IFRS
3 revised (2008): Business Combinations.
The goodwill arising represents the synergies that will be
obtained by integrating EUP into the existing business.
The net assets acquired in the transaction and the goodwill
arising have been valued by a third party expert as set out
below.
Fair
value
Net assets acquired $m
Cash and cash equivalents 1
Inventories 1
Intangible Assets 21 a
Property, plant and equipment 11 b
Financial debt (1)
Income tax provision (1)
Other current liabilities (2)
Deferred tax liability (6)
Net assets acquired 24
----------------------------------------- -------
Non-controlling interest 1
----------------------------------------- -------
Goodwill 13
----------------------------------------- -------
Total consideration 38
----------------------------------------- -------
Discharged by:
Cash 34
Deferred consideration 4
----------------------------------------- -------
38
----------------------------------------- -------
Cash consideration 34
Cash and cash equivalents acquired (1)
----------------------------------------- -------
Net cash outflow arising on acquisition 33
----------------------------------------- -------
a. Product rights relating to product licenses and approvals
have been valued based on the type of rights acquired. A discounted
cash flow approach has been taken based on excess earnings by
product group, applying a discount rate applicable for any market
participant. The product rights have been valued using a model that
reflects a market participant point of view, where assumptions were
built based on the expected market performance for these products
irrespective of the acquirer's identity.
b. The property, plant and equipment acquired have been valued
by a third party expert at current market value.
The non-controlling interests have been recognised as a
proportion of net assets acquired.
Goodwill recognised is expected to be non-deductible for income
tax purposes.
The revenue and core operating loss of EUP from the date of the
acquisition that is included in the Group's consolidated statement
of comprehensive income for the year amounted to $4 million and $3
million, respectively.
Full period impact on acquisitions
If the acquisition of West--Ward Columbus and EUP had been
completed on the first day of the financial year, the Group's
revenues for the period would have been approximately $2,057
million and the Group's profit attributable to equity holders of
the parent would have been approximately $154 million. The
appropriate additional contribution by entity for the period from
the beginning of the year up to the acquisition date is illustrated
in the table below:
Effect Effect
on Group's on Group's
revenues profit/(loss)
-------------------
$m $m
------------------- ----------- --------------
West-Ward Columbus 107 1
EUP - (2)
------------------- ----------- --------------
107 (1)
------------------- ----------- --------------
18. Foreign exchange currencies
Period-end Average rates
rates
------------------ ------------------
2016 2015 2016 2015
-------------------- -------- -------- -------- --------
USD/EUR 0.9500 0.9168 0.9053 0.9006
USD/Sudanese Pound 15.9490 9.6600 12.0919 9.6600
USD/Algerian Dinar 110.5274 107.1317 109.4432 100.4033
USD/Saudi Riyal 3.7495 3.7495 3.7495 3.7495
USD/British Pound 0.8077 0.6754 0.7432 0.6540
USD/Jordanian Dinar 0.7090 0.7090 0.7090 0.7090
USD/Egyptian Pound 18.2482 7.8309 10.1112 7.7160
USD/Japanese Yen 116.8907 120.3800 116.8907 121.0700
USD/Moroccan Dirham 10.0699 9.8476 9.7920 9.8008
USD/Tunisian Dinar 2.3386 2.0321 2.1482 1.9623
-------------------- -------- -------- -------- --------
The Jordanian Dinar and Saudi Riyal have no impact on the
consolidated income statement as those currencies are currently
pegged to the US Dollar.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SFSSEIFWSESD
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