TIDMHIK
RNS Number : 4315V
Hikma Pharmaceuticals Plc
07 August 2020
London, 7 August 2020 - Hikma Pharmaceuticals PLC ('Hikma' or
'Group'), the multinational pharmaceutical company, today reports
its interim results for the six months ended 30 June 2020.
Highlights:
Core results(1) (underlying) Constant currency(2)
$ million H1 2020 H1 2019 Change change
------------------------------- ---------- -------- ------- ---------------------
Core revenue 1,132 1,043 9% 9%
Core operating profit 284 246 15% 16%
Core profit attributable to
shareholders 205 176 16% 18%
Core basic earnings per share
(cents)(3) 85.3 72.7 17% 18%
------------------------------- ---------- -------- ------- ---------------------
Reported results (statutory) Constant currency(2)
$ million H1 2020 H1 2019 Change change
---------- -------- -------
Revenue 1,132 1,047 8% 8%
Operating profit 297 238 25% 26%
Profit attributable to shareholders 212 185 15% 16%
Cashflow from operating activities 292 187 56% -
Basic earnings per share (cents)(3) 87.6 76.4 15% 16%
Interim dividend per share (cents)(3) 16.0 14.0 14% -
--------------------------------------- ---------- -------- ------- ---------------------
Response to COVID-19
-- Health and well-being of all employees has been greatest priority through the pandemic
-- Supply chain fully maintained, providing our customers with critical drugs
-- Manufacturing sites remained open with operations enhanced to support increase in demand
Financial highlights
-- Core Group revenue up 9%, reflecting growth in all three businesses
-- Core operating profit up 15%, driven by a strong performance in Injectables
-- Significant increase in cashflow from operating activities to $292 million, up 56%
-- Continued investment in R&D with growing pipeline of complex products
-- Healthy balance sheet maintained, with net debt of $511
million and low leverage at 0.8x net debt to core EBITDA(4,5)
-- Repaid $500 million Eurobond due in April and issued new $500 million Eurobond in July
-- Announced interim dividend of 16 cents per share, up from 14 cents per share in H1 2019
Strategic and business highlights
-- Injectables: Delivered double digit core revenue growth,
driven by increased demand for COVID-19 related products in the US
and EU
-- Generics: Maintained core operating margin, supported by a
better than expected performance from new launches
-- Branded: Achieved a strong performance in our tier one MENA
markets resulting in 6% growth in core operating profit in constant
currency
-- 78 new products launched across our markets
-- Signed a non-exclusive supply agreement with Gilead Sciences,
Inc. to manufacture remdesivir for injection
-- Repurchased 12.8 million shares from Boehringer Ingelheim,
representing approximately 5.3% of issued share capital
Revised 2020 outlook
-- Injectables revenue now expected to be between $950 million
and $980 million, with core operating margin in the range of 38% to
40%
-- Generics revenue now expected to be in the range of $720
million to $760 million and core operating margin to be around 21%
(including assumed launch of generic Advair Diskus(R) in H2)
-- Branded revenue expected to grow in the mid-single digits in constant currency
Siggi Olafsson, Chief Executive Officer of Hikma, said:
"We have delivered strong first half results, which are ahead of
our initial expectations and reflect good progress in each of our
three businesses. These results are a testament to the steadfast
commitment of our people, who are working hard to ensure high
quality and affordable medicines are available to patients
throughout the COVID-19 pandemic. Our performance demonstrates the
breadth and resilience of our portfolio, as well as the vital role
of the generic medicines we supply. We have a positive outlook for
each of our three businesses and look forward to the second half
with confidence."
Further information:
An analyst presentation will be available at www.hikma.com at
0800 BST this morning and management with host a Q&A for
sellside analysts at 0930 BST. A recording of the Q&A will be
made available on the website. For further information please
contact Tiina Lugmayer - Tiina@hikma.uk.com.
Hikma (Investors):
Susan Ringdal
EVP, Strategic Planning and Global +44 (0)20 7399 2760/ +44 (0)7776
Affairs 477050
Guy Featherstone +44 (0)20 3892 4389/ +44 (0)7795
Senior Investor Relations Manager 896738
Layan Kalisse +44 (0)20 7399 2788/ +44 (0)7970
Investor Relations Analyst 709912
Teneo (Press):
Charles Armitstead / Camilla Cunningham +44 (0)7703 330 269/ +44 (0)7464 982 426
About Hikma:
Hikma helps put better health within reach every day for
millions of people in more than 50 countries around the world. For
more than 40 years, we've been creating high-quality medicines and
making them accessible to the people who need them. Headquartered
in the UK, we are a global company with a local presence across the
United States (US), the Middle East and North Africa (MENA) and
Europe, and we use our unique insight and expertise to transform
cutting-edge science into innovative solutions that transform
people's lives. We're committed to our customers, and the people
they care for, and by thinking creatively and acting practically,
we provide them with a broad range of branded and non-branded
generic medicines. Together, our 8,600 colleagues are helping to
shape a healthier world that enriches all our communities. We are a
leading licensing partner, and through our venture capital arm, are
helping bring innovative health technologies to people around the
world. For more information, please visit: www.hikma.com
Hikma Pharmaceuticals PLC (LSE: HIK) (NASDAQ Dubai: HIK) (OTC:
HKMPY) (LEI:549300BNS685UXH4JI75) (rated BBB-/stable S&P and
Ba1/stable Moody's)
Response to COVID-19
Hikma makes hundreds of important and affordable medicines that
save lives and improve the health of millions of people every day.
This has never been more important. As the COVID-19 pandemic
continues to impact people and communities around the world, the
health and safety of our people, and the millions who count on our
medicines remain our top priority.
We are fully committed to providing our customers and their
patients the quality medicines they need and have prioritised the
manufacture of medicines that have been in highest demand, such as
respiratory, pain, anaesthetics and sedatives. Where necessary, we
have been operating at the highest capacity possible under the
circumstances to meet the increased demand we have experienced.
Due to the nature of our business, our manufacturing sites are
already very hygienic, or sterile where required, and staff in
those facilities follow a strict hygiene regime. However, we are
regularly undertaking additional levels of cleaning in all of our
facilities and offices as a further precautionary measure.
We have been proactively managing our inventory and stock
levels, transportation options and the availability of raw
materials and component parts. We continue to work closely with our
supplier networks and have not encountered any supply chain issues
to date.
Our long-standing commitment to our local communities remains
strong and we have been providing funding, medicine donations, food
and other essentials.
We are grateful to our teams across Hikma for their commitment
to the needs of front-line hospitals, doctors, pharmacists and
patients during this very difficult time. This is a complex
situation which we are continually monitoring, and we are committed
to the health of our people, and the needs of our customers.
Business and financial review
The business and financial review set out below summarises the
performance of the Group and our three main business segments,
Injectables, Generics and Branded, for the six months ended 30 June
2020.
Group
$ million Constant
currency
H1 2020 H1 2019 Change change
Revenue 1,132 1,047 8% 8%
--------- -------- ------- ----------
Core revenue 1,132 1,043 9% 9%
--------- -------- ------- ----------
Gross profit 602 548 10% 10%
--------- -------- ------- ----------
Core gross profit 602 544 11% 10%
--------- -------- ------- ----------
Core gross margin 53.2% 52.2% 1.0pp 0.8pp
--------- -------- ------- ----------
Operating profit 297 238 25% 26%
--------- -------- ------- ----------
Core operating profit 284 246 15% 16%
--------- -------- ------- ----------
Core operating margin 25.1% 23.6% 1.5pp 1.6pp
--------- -------- ------- ----------
EBITDA 328 297 10% 11%
--------- -------- ------- ----------
Core EBITDA 328 288 14% 15%
--------- -------- ------- ----------
Group core revenue grew 9% to $1,132 million (2019: $1,043
million). Group core gross profit grew 11% to $602 million (H1
2019: $544 million), reflecting growth in all three businesses and
particularly the strong performance from Injectables. Group core
gross margin was 53.2% (H1 2019: 52.2%).
Group operating expenses were $305 million (H1 2019: $310
million). Excluding adjustments related to the amortisation of
intangible assets (other than software) of $21 million (H1 2019:
$17 million) and net income from exceptional items of $34 million
(H1 2019: $5 million), Group core operating expenses were $318
million (H1 2019: $298 million).
Selling, general and administrative (SG&A) expenses were
$251 million (H1 2019: $237 million). Excluding the amortisation of
intangible assets (other than software) and exceptional items, core
SG&A expenses were $229 million (H1 2019: $216 million), up 6%,
in part related to higher legal and professional fees. The impact
of COVID-19 on SG&A expenses was broadly neutral with related
increases in employee benefits offset by lower marketing and travel
costs.
Research and development (R&D) expenses were $62 million (H1
2019: $72 million). Excluding exceptional items, (6) core R&D
expenses were $62 million (H1 2019: $58 million). This reflects
increased investment in R&D programmes across our businesses,
as we build our pipeline of more complex products.
Other net operating income was $6 million (H1 2019: $(1) million
expense). Excluding exceptional items,(7) core other net operating
expenses were $29 million (H1 2019: $24 million), which primarily
comprised inventory related provisions and foreign exchange-related
costs.
The Group reported operating profit of $297 million (H1 2019:
$238 million). Excluding the impact of amortisation (other than
software) and exceptional items, core operating profit increased by
15% to $284 million (H1 2019: $246 million) and core operating
margin was 25.1% (H1 2019: 23.6%).
Group core revenue by business segment
$ million H1 2020 H1 2019
Injectables 485 43% 428 41%
------ ---- ------ ----
Generics 369 33% 368 35%
------ ---- ------ ----
Branded 275 24% 242 23%
------ ---- ------ ----
Others 3 0% 5 1%
------ ---- ------ ----
Total 1,132 1,043
------ ---- ------ ----
Group core revenue by region
$ million H1 2020 H1 2019
US 716 63% 685 66%
------ ---- ------ ----
MENA 351 31% 301 29%
------ ---- ------ ----
Europe and ROW 65 6% 57 5%
------ ---- ------ ----
Total 1,132 1,043
------ ---- ------ ----
Injectables
$ million Constant
currency
H1 2020 H1 2019 Change change
Revenue 485 432 12% 13%
-------- -------- ------- ----------
Core revenue 485 428 13% 14%
-------- -------- ------- ----------
Gross profit 290 258 12% 13%
-------- -------- ------- ----------
Core gross profit 290 254 14% 15%
-------- -------- ------- ----------
Core gross margin 59.8% 59.3% 0.5pp 0.7pp
-------- -------- ------- ----------
Operating profit 192 160 20% 21%
-------- -------- ------- ----------
Core operating profit 204 167 22% 23%
-------- -------- ------- ----------
Core operating margin 42.1% 39.0% 3.1pp 3.3pp
-------- -------- ------- ----------
Injectables core revenue increased by 13% to $485 million (2019:
$428 million). In constant currency, Injectables core revenue grew
by 14%.
US Injectables core revenue grew 10% to $347 million (H1 2019:
$317 million), reflecting strong demand for our in-market products,
particularly those used in the treatment of COVID-19. These sales,
as well as growth from recent launches, more than offset increased
competition on certain products and lower demand as a result of a
slow down in elective surgeries.
MENA Injectables revenue was $75 million, up 25% (H1 2019: $60
million). In constant currency, MENA Injectables revenue increased
by 23%, reflecting good demand across our portfolio and continued
growth of our biosimilar products.
European Injectables revenue was $63 million, up 24% (H1 2019:
$51 million). In constant currency, European Injectables revenue
increased by 27%, reflecting a good performance from new launches,
an increase in demand related to COVID-19 and higher demand for
contract manufacturing.
Injectables core gross profit increased by 14% to $290 million
(H1 2019: $254 million) and core gross margin increased to 59.8%
(H1 2019: 59.3%), primarily reflecting the change in product mix in
the US and increased opportunities to capture additional market
share by leveraging our broad portfolio and flexible
manufacturing.
Injectables core operating profit, which excludes the
amortisation of intangible assets (other than software) and
exceptional items,(8) was $204 million (H1 2019: $167 million).
Core operating margin was 42.1% (H1 2019: 39.0%), reflecting the
increase in gross profit and stable operating expenses.
During H1 2020, the Injectables business launched 6 products in
the US, 17 in MENA and 18 in Europe. We submitted 150 filings to
regulatory authorities across all markets. This primarily reflects
our efforts to expand our EU portfolio and register products in new
EU markets. We further developed our portfolio through new
licensing agreements, including an exclusive licensing and
distribution agreement for the MENA region with Sun Pharmaceuticals
for ILUMYA(TM) , an innovative biologic product.
In recent years, we have invested significantly to expand our
Injectables manufacturing capacity and to improve our capabilities.
During the period, we announced that we have received US FDA
approval for the first product from our new high containment
facility in Portugal, which can now begin to supply the US
market.
This increased manufacturing capacity is enabling us to better
supply the US and EU markets with both our own products and those
of our third party contract manufacturing customers. In particular,
we have signed a non-exclusive supply agreement with Gilead
Sciences, Inc. to manufacture remdesivir for injection. Remdesivir
is an investigational drug that has been granted conditional
marketing authorisation in the EU and emergency use authorisation
in the US for the treatment of COVID-19.
We now expect our Injectables business to deliver revenue of
between $950 million and $980 million, reflecting our strong
performance in the first half of the year and expectations for
continued demand for COVID-19 related products. We expect core
operating margin to be in the range of 38% to 40%.
Generics
$ million H1 2020 H1 2019 Change
Revenue 369 368 0%
-------- -------- -------
Core revenue 369 368 0%
-------- -------- -------
Gross profit 178 168 6%
-------- -------- -------
Core gross profit 178 168 6%
-------- -------- -------
Core gross margin 48.2% 45.7% 2.5pp
-------- -------- -------
Operating profit 102 88 16%
-------- -------- -------
Core operating profit 72 71 1%
-------- -------- -------
Core operating margin 19.5% 19.3% 0.2pp
-------- -------- -------
Generics revenue was $369 million (H1 2019: $368 million). We
saw good demand for our in-market products and had a better than
expected contribution from new launches in the period, including
the first-to-market generic launch of everolimus tablets (a generic
version of Zortress(R) ). We also saw some additional demand
related to COVID-19. This was offset by increased competition on
certain other products.
Generics core gross profit grew 6% to $178 million (H1 2019:
$168 million) and core gross margin increased to 48.2% (H1 2019:
45.7%). This improvement was primarily a result of a change in
product mix.
Generics operating profit increased to $102 million (H1 2019:
$88 million) and Generics core operating profit, which excludes the
amortisation of intangible assets (other than software) and
exceptional items,(9) increased by 1% to $72 million (H1 2019: $71
million). Exceptional items include a $34 million impairment
reversal of specific product related intangibles related to the
Columbus business, which reflects a better than expected
performance of certain marketed products. Core operating margin
increased to 19.5% (H1 2019: 19.3%), reflecting the improvement in
gross profit, which was largely offset by higher legal fees and
inventory related provisions.
During H1 2020, we launched 3 products from our R&D
pipeline. Our launches included generic Zortress(R) and generic
Afinitor(R) , which have performed well to date. As previously
announced, we successfully invalidated six US patents as asserted
by Amarin for their Vascepa(R) capsules. We also received US FDA
approval for our generic Vascepa(R) and continue to evaluate our
options for launch. Our submission for generic Advair Diskus(R)
remains under review by the US FDA and we expect to receive a
response and launch in the second half of the year.
We now expect Generics revenue to be in the range of $720
million to $760 million and core operating margin to be around 21%
for the full year. Our guidance includes $20 million to $40 million
from generic Advair Diskus(R) , which we continue to expect to
launch in the second half of the year. If we do not launch generic
Advair Diskus(R) in 2020, we would now expect the core operating
margin for the Generics business to be between 17% and 19%.
Branded
$ million Constant
currency
H1 2020 H1 2019 Change change
Revenue 275 242 14% 13%
-------- -------- -------- ----------
Core revenue 275 242 14% 13%
-------- -------- -------- ----------
Gross profit 133 120 11% 9%
-------- -------- -------- ----------
Gross margin 48.4% 49.6% (1.2)pp (1.8)pp
-------- -------- -------- ----------
Operating profit 46 31 48% 52%
-------- -------- -------- ----------
Core operating profit 51 49 4% 6%
-------- -------- -------- ----------
Core operating margin 18.5% 20.2% (1.7)pp (1.2)pp
-------- -------- -------- ----------
On a reported basis, Branded revenue was $275 million, up 14%
(H1 2019: $242 million). On a constant currency basis, Branded
revenue increased 13%.
Our largest markets, Saudi Arabia and Egypt, performed well,
reflecting good demand for our marketed products. Algeria delivered
a strong performance, recovering from lower sales in 2019 due to
political and economic disruptions. We also delivered a good
performance across most of our other MENA markets and saw a good
contribution from new launches. While we did see some disruptions
across our MENA markets related to COVID-19, including a reduction
in demand for pharmacy products such as anti-infectives, this was
offset by an overall resilient performance from the broader
portfolio.
During H1 2020, the Branded business launched 34 products and
submitted 43 filings to regulatory authorities. Several of these
launches were carried out virtually, with much of our promotional
activity moving away from in-person interaction during the period
due to social distancing measures. Revenue from in-licensed
products represented 46% of Branded revenue (H1 2019: 36%),
reflecting a pull-forward of demand for certain products.
Branded gross profit was $133 million, up 11% (H1 2019: $120
million) and gross margin was 48.4% (H1 2019: 49.6%). In constant
currency, gross profit increased by 9% and gross margin was 47.8%
(H1 2019: 49.6%). The decline in gross margin primarily reflects a
change in product mix.
Core operating profit, which excludes the amortisation of
intangibles (other than software) and exceptional items,(10) was
$51 million, up 4% (H1 2019: $49 million), and core operating
margin was 18.5% (H1 2019: 20.2%). This margin reduction reflects
lower gross margin, foreign exchange losses and a slight increase
in operating expenses. In constant currency, core operating profit
grew 6% and core operating margin was 19.0% (H1 2019: 20.2%).
As anticipated, we continue to expect full year Branded revenue
growth of mid-single digits in constant currency.
Other businesses
Other businesses primarily comprise Arab Medical Containers, a
manufacturer of plastic specialised medicinal sterile containers,
International Pharmaceuticals Research Centre (IPRC), which
conducts bio-equivalency studies and Hikma Emerging Markets and
Asia Pacific FZ LLC. These businesses contributed revenue of $3
million (H1 2019: $5 million), reflecting the temporary closure of
IPRC due to COVID-19. These other businesses made zero operating
profit in the period (H1 2019: $(1) million loss). This slight
improvement in profitability is primarily due to the 2019 closure
of our emerging markets division as we focus on our core markets,
in line with our strategy.
Research and development
Our investment in R&D and business development enables us to
continue expanding the Group's product portfolio. During H1 2020,
we had 78 new launches and received 79 approvals.
H1 2020 submissions(11) H1 2020 approvals(11) H1 2020 launches(11)
Injectables
------------------------ ---------------------- ---------------------
US 3 5 6
------------------------ ---------------------- ---------------------
MENA 14 17 17
------------------------ ---------------------- ---------------------
Europe 133 6 18
------------------------ ---------------------- ---------------------
Generics 0 7 3
------------------------ ---------------------- ---------------------
Branded 43 44 34
------------------------ ---------------------- ---------------------
Total 193 79 78
------------------------ ---------------------- ---------------------
To ensure the continuous development of our product pipeline, we
submitted 193 regulatory filings.
Net finance expense
Reported net finance expense was $23 million (H1 2019: $10
million). Core net finance expense was $19 million (H1 2019: $22
million) primarily due to a reduction in interest rates across our
markets.
We continue to expect core net finance expense to be around $47
million in 2020.
Profit before tax
Reported profit before tax was $274 million (H1 2019: $226
million). Core profit before tax was $265 million (H1 2019: $225
million), reflecting the strong performance of our three business
segments.
Tax
The Group incurred a tax expense of $62 million (H1 2019: $41
million). Excluding the tax impact of exceptional items, the Group
core tax expense was $60 million in H1 2020 (H1 2019: $49 million).
The core effective tax rate for H1 2020 was 22.6% (H1 2019: 21.8%).
We continue to expect the Group's core effective tax rate to be
around 22% to 23% for the full year.
Profit attributable to shareholders
Profit attributable to shareholders was $212 million (H1 2019:
$185 million). Core profit attributable to shareholders increased
by 17% to $205 million (H1 2019: $176 million).
Earnings per share
Basic earnings per share was 87.6 cents (H1 2019: 76.4 cents).
Core basic earnings per share increased by 17% to 85.3 cents (H1
2019: 72.7 cents) and core diluted earnings per share increased by
17% to 84.8 cents (H1 2019: 72.4 cents).
Dividend
The Board is recommending an interim dividend of 16 cents per
share (approximately 12 pence per share) (H1 2019: 14 cents per
share). The interim dividend will be paid on 21 September 2020 to
eligible shareholders on the register at the close of business on
21 August 2020.
Net cash flow, working capital and net debt
The Group generated operating cash flow of $292 million (H1
2019: $187 million). Group working capital days were down 4 days to
227 days, primarily driven by strong sales in the US.
Cash capital expenditure was $66 million (H1 2019: $48 million).
In the US, $38 million was spent upgrading equipment and adding new
technologies for our Generics and Injectables businesses. In MENA,
$22 million was spent strengthening and expanding manufacturing
capabilities. In Europe, we spent $6 million, expanding our
facilities in Portugal. We expect Group capital expenditure to be
around $120 million in 2020 - the lower end of our previous
guidance range.
The Group's total debt increased to $927 million at 30 June 2020
(31 December 2019: $685 million). This increase reflects the full
utilisaton of the Group's $150 million International Finance
Corporation facility and its purchase of 12.8 million ordinary
shares from Boehringer Ingelheim (BI) for $371 million, in
connection with BI's disposal of its 16% stake in Hikma, which was
paid for through a combination of cash and existing facilities.
During the period, the Group used its revolving credit facility
to repay its $500 milion Eurobond, which came due in April. Post
the period-end, the Group issued a new five year $500 million
Eurobond, which carries an annual coupon of 3.25%.
The Group's cash balance was $416 million (31 December 2019:
$443 million). The Group's net debt was $511 million at 30 June
2020 (31 December 2019: $242 million).(12) We continue to have a
very strong balance sheet with a net debt to core EBITDA ratio of
0.8x.
Balance sheet
Net assets at 30 June 2020 were $1,900 million (31 December
2019: $2,129 million), reflecting the impact of the share buy back
in the period. Net current assets increased to $808 million (31
December 2019: $377 million) due to a change in the debt maturity
profile as a result of the repayment of the Eurobond during the
period.
Outlook for 2020
We now expect our Injectables business to deliver revenue of
between $950 million and $980 million for the full year, reflecting
our strong performance in the first half of the year and
expectations for continued demand for COVID-19 related products.
This compares with previous guidance of low to mid-single digit
growth, We now expect core operating margin to be in the range of
38% to 40%, up from our previous guidance of 35% to 37%.
We now expect Generics revenue to be in the range of $720
million to $760 million, up from $700 million to $750 million, and
core operating margin to be around 21% for the full year, up from
20%. Our guidance includes $20 million to $40 million from generic
Advair Diskus(R) , which we continue to expect to launch in the
second half of the year. If we do not launch generic Advair
Diskus(R) in 2020, we now expect the core operating margin for the
Generics business to be between 17% and 19%, up from 16% to
18%.
We continue to expect Branded revenue to grow in the mid-single
digits in constant currency in 2020.
We expect Group net finance expense to be around $47 million in
2020 and the core effective tax rate to be around 22% to 23%. We
expect Group capital expenditure to be around $120 million.
Responsibility statement
We confirm that to the best of our knowledge:
-- the condensed consolidated set of financial statements has
been prepared in accordance with IAS 34 Interim Financial Reporting
as adopted by the European Union and as issued by the International
Accounting Standards Board, and;
-- the interim results announcement includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the
financial year; and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the enterprise
during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
By order of the Board
Sigurdur Olafsson Khalid Nabilsi
Chief Executive Officer Chief Financial Officer
6 August 2020 6 August 2020
The Board
The Board of Directors that served during all or part of the
six-month period to 30 June 2020 and their respective
responsibilities can be found on the Leadership team section of
www.hikma.com .
Cautionary statement
This interim results 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.
Definitions
We use a number of non-IFRS measures to report and monitor the
performance of our business. Management uses these adjusted numbers
internally to measure our progress and for setting performance
targets. We also present these numbers, alongside our reported
results, to external audiences to help them understand the
underlying performance of our business. Our core numbers may be
calculated differently to other companies.
Adjusted measures are not substitutable for IFRS results and
should not be considered superior to results presented in
accordance with IFRS.
Core results
Reported results represent the Group's overall performance.
However, these results can include one-off or non-cash items which
are excluded when assessing the underlying performance of the
Group. To provide a more complete picture of the Group's
performance to external audiences, we provide, alongside our
reported results, core results, which are a non-IFRS measure. Our
core results exclude the exceptional items and other adjustments
set out in Note 4.
Group operating profit H1 2020 H1 2019
$million $million
Core operating profit 284 246
---------- ----------
R&D costs - (14)
---------- ----------
Jordan warehouse fire incident 1 (15)
---------- ----------
Proceeds from legal claim - 32
---------- ----------
Contingent consideration adjustment - 7
---------- ----------
MENA severance and restructuring costs (1) (5)
---------- ----------
Integration costs - 4
---------- ----------
Intangible assets amortisation other
than software (21) (17)
---------- ----------
Impairment reversal of product related 34 -
intangibles
---------- ----------
Reported operating profit 297 238
---------- ----------
Constant currency
As the majority of our business is conducted in the US, we
present our results in US dollars. For both our Branded and
Injectable businesses, a proportion of their sales are denominated
in a currency other than the US dollar. In order to illustrate the
underlying performance of these businesses, we include information
on our results in constant currency.
Constant currency numbers in H1 2020 represent reported H1 2020
numbers re-stated using H1 2019 exchange rates.
EBITDA
EBITDA is earnings before interest, tax, depreciation,
amortisation and impairment charges/reversals.
EBITDA
$ million H1 2020 H1 2019
Reported operating profit 297 238
-------- --------
Depreciation 38 36
-------- --------
Amortisation 26 23
-------- --------
Impairment charges/reversals (33) -
-------- --------
EBITDA 328 297
-------- --------
Exceptional items:
-------- --------
Research and development costs - 14
-------- --------
Jordan warehouse fire incident (1) 15
-------- --------
Proceeds from legal claim - (32)
-------- --------
Contingent consideration adjustment - (7)
-------- --------
MENA severance and restructuring
costs 1 5
-------- --------
Integration costs - (4)
-------- --------
Core EBITDA 328 288
-------- --------
Working capital days
We believe Group working capital days provides a useful measure
of the Group's working capital management and liquidity. 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 net debt
We believe Group net debt is a useful measure of the strength of
the Group's financing position. Group net debt is calculated as
Group total debt less Group total cash. Group total debt excludes
co-development agreements and acquired contingent liabilities.
Group net debt
$ million Jun-20 Dec-19
Short-term financial debts (129) (569)
------- -------
Short-term leases liabilities (9) (9)
------- -------
Long-term financial debts (730) (48)
------- -------
Long-term leases liabilities (59) (59)
------- -------
Total debt (927) (685)
------- -------
Cash, cash equivalents and restricted
cash 416 443
------- -------
Net debt (511) (242)
------- -------
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 Guidance 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 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
The Group faces risks from a range of sources that could have a
material impact on our financial results and ability to trade in
the future. The principal risks are determined via robust
assessment considering our risk context by the Board of Directors
with input from executive management. The longer term consequences
of the COVID-19 pandemic remain uncertain; however the principal
risks for the company have not materially changed in the last six
months and remain as they are set out in the 2019 annual report on
pages 47 - 50. The Board recognises that certain risk factors that
influence the principal risks are outside of the control of
management. The Board is satisfied that the principal risks are
being managed appropriately and consistently with the target risk
appetite. The set of principal risks should not be considered as an
exhaustive list of all the risks the Group faces.
(1) Core results throughout the document are presented to show
the underlying performance of the Group, excluding the exceptional
items and other adjustments set out in Note 4. Core results are a
non-IFRS measure and a reconciliation to reported IFRS measures is
provided on page 13
2 Constant currency numbers in H1 2020 represent reported H1
2020 numbers re-stated using H1 2019 exchange rates
3 Earnings per share is calculated using the weighted average
number of shares outstanding during the period. Interim dividend
per share is calculated using the number of shares in issue at 30
June 2020
4 EBITDA is earnings before interest, tax, depreciation,
amortisation and impairment charges/reversals. EBITDA is a non-IFRS
measure, see page 13 for a reconciliation to reported IFRS
results
5 Calculated using core EBITDA for the twelve months ended 30
June 2020
(6) In H1 2020 there were no exceptional R&D expenses. In H1
2019, Hikma incurred $14 million of R&D costs related to a
repeat clinical endpoint study for generic Advair Diskus(R) . See
Note 4 for further information
7 In H1 2020, exceptional items comprised a $34 million
impairment reversal of product related intangibles related to the
Columbus business in the Generics segment. Refer to Note 4 for
further information
8 Exceptional items comprised amortisation of intangible assets
other than software amounting to $12m. Refer to Note 4 for further
information
(9) Exceptional items comprised a $34 million impairment
reversal of product related intangibles related to the Columbus
business, as well as the amortisation of intangible assets other
than software, which amounted to $4 million. Refer to Note 4 for
further information
(10) In H1 2020, exceptional items comprised amortisation of
intangible assets other than software of $5 million, as well as
MENAseverance costs of $1 million, offset by insurance compensation
related to the Jordan warehouse fire incident of $1 million. Refer
to Note 4 for further information
1 (1) New products submitted, approved and launched by country
in H1 2020
(12) Group net debt is a non-IFRS measure that includes long and
short-term financial debts (Note 14), lease liabilities, net of
cash and cash equivalents and collateralised and restricted cash.
Group net debt excludes co-development and earnout payments,
acquired contingent liabilities and contingent consideration (Notes
13 and 15). See page 14 for a reconciliation of Group net debt to
reported IFRS results
Independent review report to Hikma Pharmaceuticals PLC
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Hikma Pharmaceuticals PLC's condensed
consolidated interim financial statements (the "interim financial
statements") in the Interim Results Press Release of Hikma
Pharmaceuticals PLC for the 6 month period ended 30 June 2020.
Based on our review, nothing has come to our attention that causes
us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and as issued by the
International Accounting Standards Board and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the condensed consolidated balance sheet as at 30 June 2020;
-- the condensed consolidated income statement and condensed
consolidated statement of comprehensive income for the period then
ended;
-- the condensed consolidated cash flow statement for the period then ended;
-- the condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Results
Press Release have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and as issued by the International Accounting
Standards Board and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union and as issued by the
International Accounting Standards Board.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Results Press Release, including the interim
financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the Interim Results Press Release in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Results Press Release based on
our review. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Results Press Release and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
6 August 2020
Hikma Pharmaceuticals PLC
Condensed consolidated income statement
H1 2020 H1 2020 H1 2020 H1 2019 H1 2019 H1 2019
Core Exceptional Reported Core Exceptional Reported
results items results results items results
and other and other
adjustments adjustments
(note (note
4) 4)
Note $m (Unaudited) $m (Unaudited) $m (Unaudited) $m (Unaudited) $m (Unaudited) $m (Unaudited)
------------------- -------------------- ------------------- ----------------- -------------------- ------------------
Revenue 1,132 - 1,132 1,043 4 1,047
Cost of sales (530) - (530) (499) - (499)
------------------- ------------------- ----------------- ------------------
Gross profit 602 - 602 544 4 548
------------------- -------------------- ------------------- ----------------- -------------------- ------------------
Selling, general
and administrative
expenses (229) (22) (251) (216) (21) (237)
Research and
development
expenses (62) - (62) (58) (14) (72)
Net impairment
reversals on
financial
assets 2 - 2 - - -
Other operating
income/(expenses),
net (29) 35 6 (24) 23 (1)
------------------- -------------------- ------------------- ----------------- -------------------- ------------------
Total operating
(expenses)/income (318) 13 (305) (298) (12) (310)
------------------- -------------------- ------------------- ----------------- -------------------- ------------------
Operating
profit/(loss) 3 284 13 297 246 (8) 238
Finance income 5 - 5 3 12 15
Finance expense (24) (4) (28) (25) - (25)
Gain from
investment
at fair value
through
profit and loss
(FVTPL) - - - 1 - 1
Loss from
investment
divestiture - - - - (3) (3)
------------------- -------------------- ------------------- ----------------- -------------------- ------------------
Profit before tax 265 9 274 225 1 226
Tax 5 (60) (2) (62) (49) 8 (41)
Profit for the
half-year 205 7 212 176 9 185
=================== ==================== =================== ================= ==================== ==================
Attributable to:
Non-controlling
interests - - - - - -
Equity holders
of the parent 205 7 212 176 9 185
------------------- -------------------- ------------------- ----------------- -------------------- ------------------
205 7 212 176 9 185
=================== ==================== =================== ================= ==================== ==================
Earnings per share
(cents)
Basic 85.3 87.6 72.7 76.4
Diluted 84.8 87.2 72.4 76.1
On this page and throughout this financial information 'H1 2020'
refers to the half-year of the six months ended 30 June 2020. 'H1
2019' refers to the half-year of the six months ended 30 June
2019.
Hikma Pharmaceuticals PLC
Condensed consolidated statement of comprehensive income
H1 2020 H1 2020 H1 2020 H1 2019 H1 2019 H1 2019
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 (Unaudited) (Unaudited) $m (Unaudited) $m (Unaudited) (Unaudited) $m (Unaudited)
---------------------- ------------------------ ------------------- -------------------- ----------------------- -------------------
Profit for the
half-year 205 7 212 176 9 185
Other
Comprehensive
Income
Items that may
be reclassified
subsequently
to the
consolidated
income
statement,
net of tax:
Currency
translation
(loss)/gain (13) - (13) 13 - 13
Total
comprehensive
income for the
half-year 192 7 199 189 9 198
====================== ======================== =================== ==================== ======================= ===================
Attributable
to:
Non-controlling
interests (1) - (1) 1 - 1
Equity holders
of the parent 193 7 200 188 9 197
------------------------ ------------------- -------------------- ----------------------- -------------------
192 7 199 189 9 198
====================== ======================== =================== ==================== ======================= ===================
Hikma Pharmaceuticals PLC
Condensed consolidated balance sheet
30 June 31 December
2020 2019
Note $m $m
(Unaudited) (Audited)
------------------- --------------------------
Non-current assets
Goodwill 280 282
Other intangible assets 7 570 552
Property, plant and equipment 924 912
Right-of-use assets 46 50
Investment in associates and joint
ventures 11 11
Deferred tax assets 234 243
Financial and other non-current
assets 8 27 32
2,092 2,082
------------------- --------------------------
Current assets
Inventories 9 684 568
Income tax receivable 81 79
Trade and other receivables 10 656 719
Collateralised and restricted
cash 3 1
Cash and cash equivalents 413 442
Other current assets 11 41 39
1,878 1,848
------------------- --------------------------
Total assets 3,970 3,930
=================== ==========================
Current liabilities
Short-term financial debts 14 129 569
Leases liabilities 9 9
Trade and other payables 12 425 473
Income tax provision 117 82
Other provisions 24 23
Other current liabilities 13 366 315
1,070 1,471
------------------- --------------------------
Net current assets 808 377
------------------- --------------------------
Non-current liabilities
Long-term financial debts 14 730 48
Leases liabilities 59 59
Deferred tax liabilities 22 20
Other non-current liabilities 15 189 203
1,000 330
------------------- --------------------------
Total liabilities 2,070 1,801
=================== ==========================
Net assets 1,900 2,129
=================== ==========================
Equity
Share capital 18 41 41
Share premium 282 282
Other reserves (156) (179)
Retained earnings(1) 1,723 1,973
------------------- --------------------------
Equity attributable to equity holders of the parent 1,890 2,117
Non-controlling interests 10 12
------------------- --------------------------
Total equity 1,900 2,129
=================== ==========================
1. Beginning in 2020, own shares are deducted from retained
earnings. At 31 December 2019, own shares of $(1) million were
included in other reserves (Note 18)
Hikma Pharmaceuticals PLC
Condensed consolidated statement of changes in equity
Merger Translation Own Total Retained Share Share Equity Non-controlling Total
and revaluation reserves shares other earnings capital premium attributable interests equity
reserves reserves to equity
shareholders
of the
parent
$m $m $m $m $m $m $m $m $m $m
----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------- ----------------------- --------------------
Balance at
1 January
2019(1) 38 (254) (1) (217) 1,582 40 282 1,687 12 1,699
Profit for
the half-year - - - - 185 - - 185 - 185
Currency translation
gain - 12 - 12 - - - 12 1 13
Total comprehensive
income for
the half-year - 12 - 12 185 - - 197 1 198
----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------- ----------------------- --------------------
Total transactions
with owners,
recognised
directly
in equity
Cost of
equity-settled
employee share
scheme - - - - 13 - - 13 - 13
Dividends
on ordinary
shares (Note
6) - - - - (63) - - (63) (1) (64)
Balance at
30 June 2019(1)
(unaudited) 38 (242) (1) (205) 1,717 40 282 1,834 12 1,846
======================= ======================= ======================= ======================= ======================= ======================= ======================= ========================= ======================= ====================
Balance at
31 December
2019 (audited)
and 1 January
2020 57 (235) (1) (179) 1,973 41 282 2,117 12 2,129
Reclassification(3) - - 1 1 (1) - - - - -
----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------- ----------------------- --------------------
Balance at
1 January
2020 as adjusted 57 (235) - (178) 1,972 41 282 2,117 12 2,129
Profit for
the half-year(2) 34 - - 34 178 - - 212 - 212
Currency translation
loss - (12) - (12) - - - (12) (1) (13)
----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------- ----------------------- --------------------
Total comprehensive
income for
the half-year 34 (12) - 22 178 - - 200 (1) 199
----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------- ----------------------- --------------------
Total transactions
with owners,
recognised
directly
in equity
Cost of
equity-settled
employee share
scheme - - - - 14 - - 14 - 14
Dividends
on ordinary
shares (Note
6) - - - - (73) - - (73) (1) (74)
Share buyback
(Note 18,
Note 20) - - - - (367) - - (367) - (367)
Current income
tax arising
from Share
buyback - - - - (1) - - (1) - (1)
Balance at
30 June 2020
(unaudited) 91 (247) - (156) 1,723 41 282 1,890 10 1,900
======================= ======================= ======================= ======================= ======================= ======================= ======================= ========================= ======================= ====================
1.The Group adopted IFRIC 23 as of 1 January 2019. The impact of
adoption was a decrease of $2 million of the amount previously held
for uncertain tax positions which was credited to retained
earnings
2. An Impairment reversal of $34 million has been allocated from
retained earnings to the merger and revaluation reserves in
relation to the Generics segment (Notes 4 and 7)
3. Beginning in 2020, own shares are deducted from retained
earnings. At 31 December 2019, own shares of $(1) million were
separately presented in other reserves (Note 18)
Hikma Pharmaceuticals PLC
Condensed consolidated cash flow statement
H1 H1
2020 2019
Note $m (Unaudited) $m (Unaudited)
----------------- ------------------
Cash flows from operating activities
Cash generated from operations 16 311 211
Income taxes paid (19) (41)
Income taxes received - 17
Net cash inflow from operating activities 292 187
Cash flow from investing activities
Purchases of property, plant and equipment (66) (48)
Proceeds from disposal of property, plant
and equipment - 3
Purchase of intangible assets (35) (34)
Change in investment in financial and
other non-current assets - 1
Proceeds from sale of investment at FVTOCI - 12
Additions of investments at FVTOCI (3) (3)
Acquisition of business undertakings net
of cash acquired - (8)
Proceeds from investment divestiture 2 2
Contingent consideration receipt - 20
Interest income received 5 2
Investment related amounts held in escrow
account (3) -
Net cash outflow from investing activities (100) (53)
Cash flow from financing activities
Increase in collateralised and restricted
cash 1 (12)
Proceeds from issue of long-term financial
debts 700 6
Repayment of long-term financial debts (507) (6)
Proceeds from short-term borrowings 156 152
Repayment of short-term borrowings (101) (138)
Repayment of lease liabilities (7) (3)
Dividends paid (73) (63)
Dividends paid to non-controlling shareholders
of subsidiaries (1) (1)
Interest and bank charges paid (24) (25)
Share buyback (371) -
Commitment fees received related to shares
buyback 7 -
Net cash outflow from financing activities (220) (90)
Net (decrease) / increase in cash and
cash equivalents (28) 44
Cash and cash equivalents at beginning
of the half-year 442 276
Foreign exchange translation movements (1) 2
Cash and cash equivalents at end of the
half-year 413 322
================= ==================
Hikma Pharmaceuticals PLC
Notes to the condensed consolidated interim financial
statements
1. General information
Hikma Pharmaceuticals PLC is a public limited liability company
incorporated and domiciled in England and Wales under the Companies
Act 2006. The registered office address is 1 New Burlington Place,
London W1S 2HR, UK.
The Group's principal activities are the development,
manufacturing, marketing and selling of a broad range of generic,
branded and in-licensed pharmaceuticals products in solid,
semi-solid, liquid and injectable final
dosage forms.
The information for the year ended 31 December 2019 does not
constitute statutory accounts as defined in section 435 of the
Companies Act 2006. A copy of the statutory accounts for 2019 have
been delivered to the Registrar of Companies. The auditors' report
on those accounts was unqualified, did not draw attention to any
matters by way of emphasis and did not contain any statement under
Section 498 (2) or (3) of the Companies Act 2006.
2. Accounting policies
The unaudited condensed consolidated interim financial
statements (financial statements) for the six months ended 30 June
2020 have been prepared using the same accounting policies
including policies that involve Directors' judgments and estimates
and on a basis consistent with the audited consolidated financial
statements of Hikma Pharmaceuticals PLC for the year ended 31
December 2019.
Basis of preparation
The currency used in the presentation of the accompanying
financial statements is the US dollar ($) as most of the Group's
business is conducted in US dollars.
These financial statements for the six months ended 30 June 2020
have been prepared in accordance with the Disclosure and
Transparency Rules sourcebook of the Financial Conduct Authority
and with IAS 34, 'Interim financial reporting', as adopted by the
EU and as issued by the IASB. The financial statements should be
read in conjunction with the annual consolidated financial
statements for the year ended 31 December 2019, which have been
prepared in accordance with International Financial Reporting
Standards (IFRS) issued by the IASB and the IFRS adopted by the
EU.
New standards interpretations and amendments adopted by the
Group
The accounting policies adopted in the preparation of the
financial statements are consistent with those followed in the
preparation of the Group's annual consolidated financial statements
for the year ended 31 December 2019, except for the adoption of new
standards effective as of 1 January 2020.
The Group has not early adopted any standard, interpretation or
amendment that has been issued but is not yet effective.
Several amendments and interpretations apply for the first time
in 2020, but do not have an impact on the financial statements of
the Group.
Going concern
The Directors have considered the going concern position of the
Group at 30 June 2020. The Directors believe that the Group is well
diversified due to its geographic spread, product diversity and
large customer and supplier base.
The Group's business activity, together with the factors likely
to affect its future development, performance and position are set
out in the Interim Results Press Release. The Interim Results Press
Release also includes a summary of the financial position, cash
flow and borrowing facilities.
At 30 June 2020 the Group had undrawn facilities of $779
million. The Group's total debt at 30 June 2020 was $927 million
while the Group's cash at 30 June 2020 balance was $416 million
making the net debt(1) $511 million. The Group's net debt(1) to
core EBITDA ratio was 0.8x at 30 June 2020 and post period-end, the
Group issued a 5 year $500 million Eurobond with a coupon rate of
3.25%, which can be used for general corporate purposes including
debt prepayment, further increasing headroom available on undrawn
facilities. Taking into account the Group's current position and
its principal risks for a period of up to 18 months, a going
concern analysis has been prepared using realistic scenarios
applying a severe but plausible downside which shows sufficient
liquidity headroom and compliance with our debt covenants.
On the basis of the above considerations, 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 interim financial
information.
(1) Group net debt is a non-IFRS measure that includes long and
short-term financial debts (Note 14), lease liabilities, net of
cash and cash equivalents and collateralised and restricted cash.
Group net debt excludes co-development and earnout payments,
acquired contingent liabilities and contingent consideration (Notes
13 and 15)
3. Business and geographical segments
For management reporting purposes, the Group is organised into
three principal operating divisions - Injectables, Generics and
Branded. These divisions are the basis on which the Group reports
its segmental information.
Core 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:
H1 2020 H1 2020 H1 2020 H1 2019 H1 2019 H1 2019
Core Exceptional Reported Core Exceptional Reported
results items and results results items and results
(Unaudited) other (Unaudited) (Unaudited) other (Unaudited)
adjustments adjustments
(note (note
4) 4)
Injectables (Unaudited) (Unaudited)
$m $m $m $m $m $m
------------- -------------- ------------- ------------- -------------- -------------
Revenue 485 - 485 428 4 432
Cost of sales (195) - (195) (174) - (174)
-------------- ------------- ------------- -------------- -------------
Gross profit 290 - 290 254 4 258
------------- -------------- ------------- ------------- -------------- -------------
Total operating
expenses (86) (12) (98) (87) (11) (98)
------------- -------------- ------------- ------------- -------------- -------------
Segment result 204 (12) 192 167 (7) 160
============= ============== ============= ============= ============== =============
H1 2020 H1 2020 H1 2020 H1 2019 H1 2019 H1 2019
Core Exceptional Reported Core Exceptional Reported
results items and results results items and results
(Unaudited) other (Unaudited) (Unaudited) other (Unaudited)
adjustments adjustments
(note (note
4) 4)
Generics (Unaudited) (Unaudited)
$m $m $m $m $m $m
------------- -------------- ------------- ------------- -------------- -------------
Revenue 369 - 369 368 - 368
Cost of sales (191) - (191) (200) - (200)
-------------- ------------- ------------- -------------- -------------
Gross profit 178 - 178 168 - 168
------------- -------------- ------------- ------------- -------------- -------------
Total operating
expenses (106) 30 (76) (97) 17 (80)
------------- -------------- ------------- ------------- -------------- -------------
Segment result 72 30 102 71 17 88
============= ============== ============= ============= ============== =============
H1 2020 H1 2020 H1 2020 H1 2019 H1 2019 H1 2019
Core Exceptional Reported Core Exceptional Reported
results items and results results items and results
(Unaudited) other (Unaudited) (Unaudited) other (Unaudited)
adjustments adjustments
(note (note
4) 4)
Branded (Unaudited) (Unaudited)
$m $m $m $m $m $m
------------- ------------- ------------- ----------------- ------------- -------------
Revenue 275 - 275 242 - 242
Cost of sales (142) - (142) (122) - (122)
------------- ------------- ----------------- ------------- -------------
Gross profit 133 - 133 120 - 120
------------- ------------- ------------- ----------------- ------------- -------------
Total
operating
expenses (82) (5) (87) (71) (18) (89)
------------- ------------- ------------- ----------------- ------------- -------------
Segment
result 51 (5) 46 49 (18) 31
============= ============= ============= ================= ============= =============
H1 2020 H1 2020 H1 2020 H1 2019 H1 2019 H1 2019
Core Exceptional Reported Core Exceptional Reported
results items and results results items and results
(Unaudited) other (Unaudited) (Unaudited) other (Unaudited)
adjustments adjustments
(note (note
4) 4)
Others(1) (Unaudited) (Unaudited)
$m $m $m $m $m $m
------------- ------------- ------------- ----------------- ------------- -------------
Revenue 3 - 3 5 - 5
Cost of sales (2) - (2) (3) - (3)
------------- ------------- ----------------- ------------- -------------
Gross profit 1 - 1 2 - 2
------------- ------------- ------------- ----------------- ------------- -------------
Total
operating
expenses (1) - (1) (3) - (3)
------------- ------------- ------------- ----------------- ------------- -------------
Segment
result - - - (1) - (1)
============= ============= ============= ================= ============= =============
1. Others mainly comprises Arab Medical Containers LLC,
International Pharmaceutical Research Center LLC, Hikma Emerging
Markets and Asia Pacific FZ LLC
H1 2020 H1 2020 H1 2020 H1 2019 H1 2019 H1 2019
Core Exceptional Reported Core Exceptional Reported
results items and results results items and results
(Unaudited) other adjustments (Unaudited) (Unaudited) other (Unaudited)
(note adjustments
4) (Unaudited) (note
4)
Group (Unaudited)
$m $m $m $m $m $m
------------ --------------------- ------------ ------------ ------------ ---------------
Segment result 327 13 340 286 (8) 278
--------------------- ------------ ------------ ------------ ---------------
Unallocated
expenses(1) (43) - (43) (40) - (40)
------------ --------------------- ------------ ------------ ---------------
Operating profit 284 13 297 246 (8) 238
------------ --------------------- ------------ ------------ ------------ ---------------
Finance income 5 - 5 3 12 15
Finance expense (24) (4) (28) (25) - (25)
Gain from
investment
at FVTPL - - - 1 - 1
Loss from
investment
divestiture - - - - (3) (3)
Profit before
tax 265 9 274 225 1 226
------------ --------------------- ------------ ------------ ------------ ---------------
Tax (60) (2) (62) (49) 8 (41)
Profit for the
half-year 205 7 212 176 9 185
============ ===================== ============ ============ ============ ===============
Attributable
to:
Non-controlling
interests - - - - - -
Equity holders
of the parent 205 7 212 176 9 185
------------ --------------------- ------------ ------------ ------------ ---------------
205 7 212 176 9 185
============ ===================== ============ ============ ============ ===============
1. In H1 2020, unallocated corporate expenses mainly comprise
employee costs and third-party professional fees while in H1 2019,
unallocated corporate expenses mainly comprise employee costs,
third-party professional fees and travel expenses
The following table provides an analysis of the Group's reported
sales by segment and geographical market, irrespective of the
origin of the goods/services:
Branded Injectables Generics Others Total
Half-year 2020 (unaudited) $m $m $m $m $m
------------- ------------------ ------------- ------------- -------------
United States - 347 369 - 716
Middle East and North
Africa 273 75 - 3 351
Europe and Rest of the
World 2 61 - - 63
United Kingdom - 2 - - 2
275 485 369 3 1,132
============= ================== ============= ============= =============
Branded Injectables Generics Others Total
Half-year 2019 (unaudited) $m $m $m $m $m
------------- ------------------ ------------- ------------- -------------
United States - 321 368 - 689
Middle East and North
Africa 238 60 - 3 301
Europe and Rest of the
World 4 48 - 2 54
United Kingdom - 3 - - 3
242 432 368 5 1,047
============= ================== ============= ============= =============
The top selling markets are shown below:
H1 2020 H1 2019
$m $m
--------------- ---------------
(Unaudited) (Unaudited)
--------------- ---------------
United States 716 689
Saudi Arabia 113 90
Egypt 58 56
887 835
=============== ===============
In H1 2020, included in revenue arising from the Generics and
Injectables segments are sales the Group made to three wholesalers
in the US of approximately $412 million (H1 2019: $409 million).
Each of these customers accounted for equal to or greater than 10%
of Group's revenue in the period on an individual basis.
4. Exceptional items and other adjustments
Exceptional items and other adjustments are disclosed separately
in the condensed consolidated income statement to assist in
understanding the Group's core performance.
H1 2020 H1 2019
$m (Unaudited) $m (Unaudited)
----------------- -----------------
Exceptional items
R&D cost - (14)
Jordan warehouse fire incident 1 (15)
Proceeds from legal claim - 32
Impairment reversal of product related intangibles 34 -
Contingent consideration adjustment - 7
MENA severance and restructuring costs (1) (5)
Integration costs - 4
Loss from investment divestiture - (3)
-----------------
Exceptional items 34 6
Other adjustments
Amortisation of intangible assets other than software (21) (17)
Remeasurement of contingent consideration, financial liability and asset,
net (4) 12
Exceptional items and other adjustments 9 1
Tax effect (2) 8
----------------- -----------------
Impact on profit for the half-year 7 9
================= =================
Exceptional items:
- In H1 2020, Hikma received $1 million of insurance
compensation related to a fire incident which took place in 2019 at
one of Hikma's Jordan facilities. This is included in other
operating (expenses)/income. To date, the total related insurance
compensation received is $5 million, and the Group expects to
receive final insurance compensation in H2 2020
- $34 million impairment reversal in respect of specific product
related intangibles in the Columbus business (Generics segment)
which reflects a better than expected performance of certain
marketed products (Note7). This is included in other operating
(expenses)/income. In 2019, there was a net impairment reversal of
$20 million in product related intangibles for similar reasons
- MENA severance and restructuring costs of $1 million related
to one-off organisational restructuring in MENA that started in
2019 and are included in selling, general and administrative
expenses (SG&A). Management expects to incur further costs in
H2 2020
In H1 2019, exceptional items related to the following:
- Hikma incurred $14 million of research and development costs
related to a repeat clinical endpoint study for generic Advair
Diskus(R)
- During the period, a fire broke out in a warehouse at one of
Hikma's Jordan facilities. Production was halted for a period of
time and inventory was damaged. The associated loss was $15
million, mainly comprised of damaged inventory and the cost to
remediate property, plant and equipment. These costs are included
in other operating (expenses)/income
- Hikma received compensation proceeds of $32 million in
relation to a litigation matter with an external party which was
concluded in Hikma's favour. Such amounts are included in other
operating (expenses)/income
- The contingent consideration adjustment relates to a change in
estimate of the amount of expected contingent payments Hikma was
entitled to receive under the terms of the Columbus acquisition
agreement
- MENA severance and restructuring costs of $5 million related
to one-off restructuring activities in MENA and are mainly included
in SG&A
- A provision of $4 million in relation to integration costs of
the Columbus business and the consolidation of the distribution
centre in the US was released
- $3 million loss from divestiture of Medlac investment
Other adjustments:
- Amortisation of intangible assets other than software is
included in selling, general and administrative expenses
- The remeasurement of contingent consideration represents the
net difference resulting from the valuation of the liabilities
associated with the future contingent payments in respect of the
Columbus business acquisition and the financial liability in
relation to the co-development earnout payment agreement (Notes 13
and 15). The remeasurement is included in finance
expense/income
5. Tax
The Group incurred a tax expense of $62 million (H1 2019: $41
million). The reported effective tax rate for H1 2020 is 22.6% (H1
2019: 18.1%), representing the best estimate of the average annual
effective tax rate expected for the full year on a legal entity
basis, applied to the pre-tax income for H1 2020 and adjusted for
the tax effect of any discrete items recorded in the same
period.
The higher reported rate in H1 2020 is due to the favourable tax
benefits of exceptional items in H1 2019 as well as the difference
in the earnings mix between H1 2020 and H1 2019.
The application of tax law and practice is subject to some
uncertainty and amounts are provided where the likelihood of a cash
outflow is probable.
6. Dividends
H1 2020 H1 2019
$m $m
------------ -----------------
(Unaudited) (Unaudited)
------------ -----------------
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2019 of 30 cents (2018: 26 cents)
per share 73 63
73 63
============ =================
The proposed interim dividend for the H1 2020 is 16 cents (H1
2019: 14 cents) per share.
The proposed interim dividend will be paid at 21 September 2020
to eligible shareholders on the register at the close of business
on 21 August 2020.
Based on the number of shares in issue at 30 June 2020 of
230,410,559, the unrecognised liability is $37 million.
7. Other intangible assets
The Group's impairment testing of cash generating units (CGUs)
and intangible assets is based on value in use calculations. The
key assumptions used to determine the recoverable amounts for the
different CGUs and other intangible assets were disclosed in the
annual consolidated financial statements for the year ended 31
December 2019 and management considers that these assumptions
remain supportable at 30 June 2020 and reflect its best
estimates.
During the period, the Group performed a review of its CGUs and
other intangibles assets, considering whether any indicators of
impairment or impairment reversal existed at 30 June 2020 in the
context of IAS 36. As a result, an impairment reversal of $34
million in respect of specific product related intangibles within
the Generics CGU was recognised, primarily due to an increased
future profitability forecast, sustained and consistent better
performance through the first half of 2020 (Note 4). In addition,
an impairment charge of $1 million related to software was
recognised. No other indicators of impairment or impairment
reversal were identified.
Other intangible assets increased by $18 million during the
period. This was as a result of the $34 million impairment reversal
discussed above and $11 million of additions, offset by
amortisation of $26 million and the software impairment charge of
$1 million referenced above.
8. Financial and other non-current assets
30 June 31 December
2020 2019
$m $m
------------ ------------
(Unaudited) (Audited)
------------ ------------
Investments at FVTOCI 21 18
Other non-current assets 6 14
------------ ------------
27 32
============ ============
Investments at FVTOCI include investments in eight
venture-backed start-up companies through the Group's venture
capital arm, Hikma International Ventures and Developments LLC and
Hikma Ventures Limited. During H1 2020, the venture arm invested
$2M in a new company, and increased investment in existing ventures
by $1 million.
These investments are unlisted shares without readily
determinable fair values that fall under level 3 valuation (Note
17), its value is measured at cost minus any impairment, and
adjusted for observable price changes in orderly transactions for
the identical or a similar investment of the same issuer.
Other non-current assets mainly represent sublease arrangement
in US. In 2019 the amount mainly represented inventory that was
expected not to be sold within one year.
9. Inventories
During H1 2020, the Group wrote down $25 million (H1 2019: $34
million) of inventories. In H1 2019, $10 million of the write down
related to inventory damaged in the Jordan warehouse fire incident
(Note 4) . This expense is included in other operating expenses in
the condensed consolidated income statement.
10. Trade and other receivables
30 June 31 December
2020 2019
$m $m
------------------ ------------------
(Unaudited) (Audited)
------------------ ------------------
Trade receivables 560 637
Prepayments 66 49
VAT and sales tax recoverable 28 31
Employee advances 2 2
656 719
================== ==================
The fair value of trade and other receivables is estimated to be
equal to their carrying amounts.
11. Other current assets
30 June 31 December
2020 2019
$m $m
------------------- -------------------
(Unaudited) (Audited)
------------------- -------------------
Investment at FVTPL 23 23
Others 18 16
41 39
=================== ===================
Investments at FVTPL represent the agreement that the Group
entered into with an asset management firm in 2015 to manage a $20
million portfolio of underlying debt instruments. The investment
comprises a portfolio of assets that are managed by an asset
manager and is measured at fair value; any changes in fair value go
through the income statement. This financial asset is classified as
Level 1 as it uses quoted prices in active markets.
12. Trade and other payables
30 June 31 December
2020 2019
$m $m
------------------ ------------------
(Unaudited) (Audited)
------------------ ------------------
Trade payables 272 286
Accrued expenses 141 173
Other payables 12 14
------------------ ------------------
425 473
================== ==================
The fair values of payables are estimated to be equal to their
carrying amounts.
13. Other current liabilities
30 June 31 December
2020 2019
$m $m
------------------- -------------------
(Unaudited) (Audited)
------------------- -------------------
Contract liability 171 142
Co-development and earnout payments (note
15) 1 1
Supply manufacturing agreement 3 5
Acquired contingent liabilities (note
15) 24 15
Contingent consideration (note 15) 72 63
Indirect rebates and other allowances 68 61
Others 27 28
366 315
=================== ===================
Contract liability: the Group allows customers to return
products within a specified period prior to and subsequent to the
expiration date. In addition, free goods are issued to customers as
sale incentives, reimbursement of agreed upon expenses incurred by
the customer or as compensation for expired or returned goods.
Supply manufacturing agreement: as part of the acquisition of
the Columbus business, the Group entered into supply and
manufacturing contracts with the seller, Boehringer Ingelheim.
Indirect rebates and other allowances: mainly represent rebates
granted to healthcare authorities and other parties under
contractual arrangements with certain indirect customers.
14. Financial debts
Short-term financial debts
30 June 31 December
2020 2019
$m $m
------------ -------------------
(Unaudited) (Audited)
------------ -------------------
Bank overdrafts 8 6
Import and export financing(1) 99 52
Short-term loans 1 2
Current portion of long-term loans 21 509
129 569
============ ===================
1.Import and export financing represents short-term financing
for the ordinary trading activities of the Group
Long-term financial debts
30 June 31 December
2020 2019
$m $m
-------------------- --------------------
(Unaudited) (Audited)
-------------------- --------------------
Long-term loans 751 57
Long-term borrowings (Eurobond) - 500
Less: current portion of long-term loans (21) (509)
Long-term financial loans 730 48
==================== ====================
Breakdown by maturity:
Within one year 21 509
In the second year 583 12
In the third year 37 12
In the fourth year 29 15
In the fifth year 26 6
In the Sixth year 23 2
Thereafter 32 1
751 557
==================== ====================
The loans are held at amortised cost.
Major arrangements entered into by the Group:
a) At April 2020, the Group settled a $500 million five-year Eurobond that was issued in 2015
b) A syndicated revolving credit facility of $1,175 million was
entered into on the 27 of October 2015. $1,000 million of this
facility matures on 24 December 2021 and the remaining $175 million
matured on 24 December 2019. At 30 June 2020, the facility had a
withdrawn balance of $550 million (2019: $nil) and a $450 million
unused available limit (2019: $1,000 million). The facility was
mainly used to settle the outstanding Eurobond
c) A ten-year $150 million loan from the International Finance
Corporation was entered into on 21 December 2017. There was full
utilisation of the loan as of April 2020. Quarterly equal
repayments of the long-term loan will commence on 15 March 2021.
The loan will be used for general corporate purposes. The facility
matures on 15 December 2027
Hikma issued a $500 million 3.25%, five-year Eurobond on the 9th
of July with a rating of (BBB-/Ba1) and maturing in July 2025. The
proceeds of the issuance were $494 million. The proceeds are
intended to be used for general corporate purposes (Note 21).
15. Other non-current liabilities
30 June 31 December
2020 2019
$m $m
------------------ -------------------
(Unaudited) (Audited)
------------------ -------------------
Contingent consideration 106 111
Acquired contingent liabilities 74 83
Co-development and earnout payments 3 3
Others 6 6
189 203
================== ===================
Contingent consideration and acquired contingent liabilities
represent contractual liabilities to make payments to third parties
in the form of milestone payments that depend on the achievement of
certain US FDA approval milestones and royalty payments based on
future sales of certain products that are currently under
development.
16. Net cash generated from operating activities
H1 H1
2020 2019
$m (Unaudited) $m (Unaudited)
----------------- ------------------
Profit before tax 274 226
Adjustments for:
Depreciation, amortisation, impairment and write-down of:
Property, plant and equipment 34 32
Intangible assets (7) 23
Right-of-use of assets 4 4
Gain from investment at FVTPL - (1)
Loss from investment divestiture - 3
Gain on disposal of property, plant and equipment - 3
Movement in provisions 1 -
Cost of equity-settled employee share scheme 14 13
Finance income (5) (14)
Interest and bank charges 27 25
Foreign exchange loss 4 1
Cash flow before working capital 346 315
Change in trade and other receivables 53 41
Change in other current assets 1 (4)
Change in inventories (111) (48)
Change in trade and other payables (15) (66)
Change in other current liabilities 55 (28)
Change in other non-current liabilities (18) 1
Cash generated from operations 311 211
================= ==================
17. Fair value of financial assets and liabilities
The fair value of financial assets and liabilities is included
at the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a forced
or liquidation sale.
The following financial assets/liabilities are presented at
their carrying values which approximates to their fair values:
-- Cash at bank and on hand, time deposits and collateralised
and restricted cash - due to the short-term maturities of these
financial instruments and given that generally they have negligible
credit risk, management considers their carrying amounts to be not
significantly different from their fair values
-- Short-term loans and overdrafts - approximates to their fair
values because of the short maturity of these instruments
-- Long-term loans-loans with variable rates are re-priced in
response to any changes in market rates and so management considers
their carrying values to be not significantly different from their
fair values
-- Loans with fixed rates relate to the $500 million Eurobond
accounted for at amortised cost. The fair value is determined with
reference to its quoted price in an active market on the condensed
consolidated balance sheet date (Note 14)
-- Receivables and payables - the fair values of receivables and
payables are estimated to be equal to their respective carrying
amounts
Management classifies items that are recognised at fair value
based on the level of the inputs used in their fair value
determinations as described below:
-- Level 1: Quoted prices in active markets for identical assets or liabilities
-- Level 2: Inputs that are observable for the asset or liability
-- Level 3: Inputs that are not based on observable market data
Financial assets and liabilities that fall under Level 1
are:
-- Investments at FVTPL which amounted to $23 million (Note 11)
-- Money market deposits
Financial assets and liabilities that fall under Level 3
are:
-- Co-development and earnout payment liabilities (Notes 13 and 15)
-- Contingent consideration liability resulting from the
acquisition of the Columbus business was recognised at cost as of
the acquisition date and subsequently revalued at the end of each
reporting period using the present value of milestone payments and
royalty payments based on a weighted average of related
probabilities of achieving certain milestones. The movement is
presented as a finance cost/income
These financial liabilities are presented in other non-current
liabilities and other current liabilities in the consolidated
balance sheet.
The critical areas of judgment in relation to the contingent
consideration liability are the probabilities assigned to reaching
the success-based milestones and management's estimate of future
sales.
If the future sales were 5% higher or lower, the fair value of
the contingent consideration liability would increase or decrease
by $6 million.
If the probability assigned to reaching the success-based
milestones were 5% higher or lower, the fair value of the
contingent consideration liability would increase or decrease by $4
million (Notes 13 and 15)
-- Investments at FVTOCI (Note 8)
The following table presents the changes in Level 3 items for H1
2020 and the year ended 31 December 2019:
Financial asset Financial liability
$m $m
Balance at 1 January 2019 49 214
---------------------------------------------- ---------------- --------------------
Received/settled (40) (1)
Remeasurement through income statement 7 (35)
Additions 4 -
Fair value adjustments recognised in equity (2) -
---------------- --------------------
Balance at 31 December 2019 18 178
============================================== ================ ====================
Additions 3 -
Remeasurement through income statement - 4
Balance at 30 June 2020 21 182
============================================== ================ ====================
The remeasurement through the income statement is included
within the finance expense in the condensed consolidated income
statement.
18. Share Capital
31 December 2019
30 June 2020 (Unaudited) (audited)
--------------------------- -----------------------
Number of shares $m Number of shares $m
--------------------- ---- ----------------- ----
At end of the period/year
(ordinary shares
of 10p each) 243,284,623 41 242,319,174 41
===================== ==== ================= ====
At 30 June 2020, of the issued share capital, 12,833,233 are
held as Treasury shares, 40,831 shares are held in the Employee
Benefit Trust (EBT) and 230,410,559 shares are in free issue.
Own shares
- Treasury shares
On 23 June 2020, Hikma bought back 12,833,233 of its own shares
previously held by Boehringer Ingelheim GmbH (BI) for
GBP23.00/share ($28.76/share). These shares are held as 'treasury
shares'. The voting rights attached to the treasury shares are not
capable of exercise.
Hikma also received a commitment fee of 2% of the aggregate
value of the buyback shares acquired at the buyback price from BI.
Hikma paid GBP295 million ($369 million) for the share buyback and
received GBP5.9 million ($7.3 million) from BI for the commitment
fees and incurred related income tax of $1.4 million. Hikma also
incurred $5.6 million of transaction costs related to legal fees,
financial advisory fees and UK stamp duty. The buyback and related
transaction costs and commitment fee were accounted for as equity
transactions.
- Shares held in EBT
40,831 shares are held in the EBT; the trustee of the EBT is
Link Market Apex Financial Services (Trust Company) Limited, an
independent trustee. The Ordinary Shares held in the EBT will be
used to satisfy long-term commitments arising from the employee
share plans operated by the Company.
19. Contingent liabilities
Guarantees and letters of credit
A contingent liability existed at the balance sheet date in
respect of external guarantees and letters of credit totalling $46
million (31 December 2019: $40 million) arising in the normal
course of business. No provision for these liabilities has been
made in these financial statements.
A contingent liability existed at the balance sheet date in
respect of a standby letter of credit totalling $9 million (31
December 2019: $9 million) for a potential stamp duty obligation
that may arise for repayment of a loan by intercompany guarantors.
It's not probable that the repayment will be made by the
intercompany guarantors.
Legal
The Group is involved in a number of legal proceedings in the
ordinary course of its business. It is the Group's policy to accrue
for amounts related to these legal proceedings if it is probable
that a liability has been incurred and an amount can be reasonably
estimated. Management does not believe sufficient evidence exists
at this point to make any provision with respect to the following
matters:
In 2018, the Group received a civil investigative demand from
the US Department of Justice requesting information related to
products, pricing and related communications. In 2017, the Group
received a subpoena from a US state attorney general and a subpoena
from the US Department of Justice. Hikma denies having engaged in
any conduct that would give rise to liability with respect to these
demands but is cooperating with all such demands.
Starting in 2016, several complaints have been filed in the
United States on behalf of individual plaintiffs and putative
classes of direct and indirect purchasers and third-party payors of
generic drug products. These complaints, which allege that the
defendants engaged in conspiracies to fix, increase, maintain
and/or stabilise prices of generic drug products named, have been
brought against Hikma and various other defendants. The plaintiffs
generally seek damages and injunctive relief under federal
antitrust law and damages under various states laws.
Hikma denies having engaged in conduct that would give rise to
liability with respect to these civil suits and is vigorously
pursuing defence of these cases.
Numerous complaints have been filed with respect to Hikma's
sales and distribution of opioid products. These complaints now
approximate 685. These lawsuits have been filed against
distributors, branded pharmaceuticals manufacturers, pharmacies,
hospitals, generic pharmaceuticals manufacturers, individuals, and
other defendants by a number of cities, counties, states, other
governmental agencies and private plaintiffs in both state and
federal courts. Most of the federal cases have been consolidated
into a multidistrict litigation in the Northern District of Ohio.
These cases assert in general that the defendants allegedly engaged
in improper marketing and distribution of opioids and that
defendants failed to develop and implement systems sufficient to
identify suspicious orders of opioid products and prevent the abuse
and diversion of such products. Plaintiffs seek a variety of
remedies, including restitution, civil penalties, disgorgement of
profits, treble damages, attorneys' fees and injunctive relief.
Hikma denies having engaged in conduct that would give rise to
liability with respect to these civil suits and is vigorously
pursuing defence of these cases.
In 2020, a number of complaints have been filed in the United
States on behalf of putative classes of direct and indirect
purchasers of generic drugs against Jazz and the generic companies
that settled their cases with Jazz Pharmaceuticals in relation to
the product Sodium Oxybate. These complaints allege that the
defendants engaged in anti-competitive settlements and deprived the
US market from earlier Generic entries. Hikma denies having engaged
in conduct that would give rise to liability with respect to these
civil suits and is vigorously pursuing defence of these cases.
Tax
In April 2019, the European Commission released its decision
that certain tax exemptions offered by the UK authorities could
constitute State Aid and where this is the case, the relevant tax
will need to be paid to the UK tax authorities. The UK Government
has subsequently appealed against this decision. In common with
other UK headquartered international companies whose arrangements
were in line with current UK CFC legislation, Hikma may be affected
by the outcome of this decision and has estimated the maximum
potential liability to be approximately $3 million. Hikma has been
in correspondence with HMRC and is awaiting their further
deliberations on the matter.
Based on management's understanding of legislation and
professional advice taken on the matter, management does not
believe that a provision is warranted.
20. Related party balances and transactions
Boehringer Ingelheim GmbH (BI) was previously a related party of
Hikma as it owned 16.5% of the share capital of Hikma, controlled
11.8% of the voting capital of Hikma and had the right to appoint
an independent director of Hikma. The independent director
appointed by BI was also a senior executive of BI.
At 22 June 2020, BI announced its intention to exit in full its
investment in Hikma. BI sold all of its stake (40 million ordinary
shares) in Hikma, Hikma bought back 12.8 million shares on 23 June
2020 and holds them in treasury (Note 18). As of 30 June 2020, BI
did not hold any shares in Hikma.
At 25 June 2020, following the BI divestiture, the independent
director appointed by BI on Hikma's board resigned with immediate
effect in accordance with the shareholder agreement between Hikma
and BI.
The Group's total sales to BI amounted to $29.3 million (H1
2019: $31.5 million) and the Group's total purchases from BI
amounted to $nil (H1 2019: $0.5 million). At 30 June 2020, the
amount owed from BI to the Group was $10 million (31 December 2019:
$7.3 million). Additionally, balances arising from the acquisition
of the Columbus business from BI relating to contingent
consideration are disclosed in Notes 13 and 15.
Other than that, no significant transactions between the Group
and its associates and other related parties were undertaken during
the half-year. Any transactions between the Company and its
subsidiaries have been eliminated on consolidation.
21. Subsequent events
Hikma issued a $500 million 3.25%, five-year Eurobond on the 9th
of July with a rating of (BBB-/Ba1) which is due in July 2025. The
proceeds of the issuance were $494 million. The proceeds are
intended to be used for general corporate purposes.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BCGDIDUGDGGL
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