TIDMHIK
RNS Number : 2716Q
Hikma Pharmaceuticals Plc
25 February 2021
London, 25 February 2021 - Hikma Pharmaceuticals PLC ('Hikma' or
'Group'), the multinational pharmaceutical company, today reports
its preliminary audited results for the year ended 31 December
2020.
Highlights:
Core results(1) (underlying) Constant currency(2)
$ million 2020 2019 Change change
------------------------------- ------- ------ ------- ---------------------
Core revenue 2,341 2,203 6% 6%
Core operating profit 566 508 11% 17%
Core profit attributable to
shareholders 408 364 12% 20%
Core basic earnings per share
(cents)(3) 172.9 150.4 15% 23%
------------------------------- ------- ------ ------- ---------------------
Reported results (statutory) Constant currency(2)
$ million 2020 2019 Change change
------- ------ -------
Revenue 2,341 2,207 6% 6%
Operating profit 579 493 17% 23%
Profit attributable to shareholders 431 486 (11)% (5)%
Cashflow from operating activities 464 472 (2)% -
Basic earnings per share (cents)(3) 182.6 200.8 (9)% (3)%
Total dividend per share (cents)(3) 50.0 44.0 14% -
------------------------------------- ------- ------ ------- ---------------------
Strong financial performance
-- Core Group revenue up 6%, reflecting growth in all three businesses
-- Core operating profit up 11%, driven by strong growth in profit of Generics and Injectables
-- Strong cashflow from operating activities of $464 million,
whilst maintaining higher inventory levels to ensure continuity of
supply during the COVID-19 pandemic
-- Continued investment in R&D of 6% of revenue, with growing pipeline of complex products
-- Healthy balance sheet, with net debt(4) of $605 million and
low leverage at 0.9x net debt to core EBITDA(5)
-- Full year dividend of 50 cents per share, up from 44 cents per share in 2019
Ongoing strategic progress
-- Leveraged our strong foundation to meet increased demand for
essential medicines used in the treatment of COVID-19, whilst
continuing to maintain supply across our broader portfolio
-- Continued to expand our portfolio of differentiated products
- launched 154 new products across our markets, including icosapent
ethyl capsules
-- Received US FDA approval for generic Advair Diskus(R) and
expect to resume launch as soon as the US FDA completes their
priority review of the outstanding Prior Approval Supplement
(PAS)
-- Focused on building a culture of progress and belonging that engages and enables our employees
Continued momentum, with growth in all three businesses
-- Injectables: Achieved double digit core operating profit
growth reflecting the breadth of our product portfolio and the
quality and flexibility of our manufacturing facilities
-- Generics: Delivered significant improvement in core operating
margin, driven by the strength of new launches, a good performance
from in-market products, process efficiencies and our enhanced
focus on customer service levels
-- Branded: Achieved good growth in revenue, with a strong
recovery in Algeria, while core operating profit declined due to
the negative impact of foreign exchange
2021 outlook
-- Injectables revenue growth in the mid-single digits, with
core operating margin in the range of 37% to 38%
-- Generics revenue in the range of $770 million to $810 million
and core operating margin of around 20%
-- Branded revenue expected to grow in the mid-single digits in constant currency
Siggi Olafsson, Chief Executive Officer of Hikma, said:
"Thanks to our strong foundation, flexible and high-quality
manufacturing capabilities, robust supply chain and the unwavering
dedication of our people to our purpose, Hikma was able to play a
critical role in the pandemic. We responded rapidly to the changing
needs of healthcare providers, supplying essential medicines used
to treat COVID-19 patients, while continuing to provide the
critical medicines our patients need every day.
Our response to the pandemic demonstrates the resilience of our
business, which enabled us to deliver a strong financial
performance and continued progress against our longer-term
strategic objectives. We achieved good revenue growth in all our
businesses and an improvement in core profitability. We expanded
our portfolio with successful new launches and new partnership
agreements, enhanced our manufacturing capabilities and continued
to focus on the development of a more diverse, energised and
engaged workforce. These achievements leave us well positioned for
future growth and we look forward to continued success in
2021."
Further information:
An analyst presentation will be available at www.hikma.com at
08:00 GMT this morning and management with host a Q&A for
sell-side analysts at 10:00 GMT. 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,
BBB-/stable Fitch and Ba1/stable Moody's)
Financial review
The financial review set out below summarises the performance of
the Hikma Group and our three main business segments, Injectables,
Generics and Branded, for the year ended 31 December 2020.
Group
Constant
2020 2019 currency
$ million $ million Change change
Revenue 2,341 2,207 6% 6%
------------ ----------- ------- ----------
Core revenue 2,341 2,203 6% 6%
------------ ----------- ------- ----------
Gross profit(6) 1,201 1,088 10% 10%
------------ ----------- ------- ----------
Core gross profit 1,213 1,095 11% 11%
------------ ----------- ------- ----------
Core gross margin 51.8% 49.7% 2.1pp 2.0pp
------------ ----------- ------- ----------
Operating profit 579 493 17% 23%
------------ ----------- ------- ----------
Core operating profit 566 508 11% 17%
------------ ----------- ------- ----------
Core operating margin 24.2% 23.1% 1.1pp 2.2pp
------------ ----------- ------- ----------
Group revenue was $2,341 million in 2020. Group core revenue
grew 6% to $2,341 million (2019: $2,203 million), reflecting growth
in each of our three businesses. Group core gross profit grew 11%
to $1,213 million (2019: $1,095 million), as a result of the growth
in revenue across all business segments and particularly the strong
performance in Generics and Injectables. Group core gross margin
was 51.8% (2019: 49.7%).
Group operating expenses were $622 million (2019: $595 million).
Excluding adjustments related to the amortisation of intangible
assets (other than software) of $42 million (2019: $34 million) and
net income from exceptional items of $67 million (2019: $26
million), Group core operating expenses were $647 million (2019:
$587 million).
Selling, general and administrative (SG&A) expenses were
$509 million (2019: $494 million). Excluding the amortisation of
intangible assets (other than software) and exceptional items, core
SG&A expenses were $464 million (2019: $453 million), up 2%.
The increase was primarily due to higher employee benefits. 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 $137 million
(2019: $150 million). Excluding exceptional items, core R&D
expenses were $137 million (2019: $126 million). This reflects
increased investment in our Injectables R&D programme, as we
build our pipeline of complex products. Core R&D was 6% of
Group core revenue.
Other net operating income(7) was $26 million (2019: $49 million
income). Excluding exceptional items(8) , core other net operating
expenses were $44 million (2019: $8 million expense), primarily due
to foreign exchange losses of $30 million as a result of
significant foreign exchange movements in Sudan in the second half
of the year, and $10 million of IT-related impairments.
The Group reported operating profit of $579 million (2019: $493
million). Excluding the impact of amortisation (other than
software) and exceptional items, core operating profit increased by
11% to $566 million (2019: $508 million) and core operating margin
was 24.2% (2019: 23.1%).
Group core revenue by business segment
$ million 2020 2019
Injectables 977 42% 890 40%
------ ---- ------ ----
Generics 744 32% 719 33%
------ ---- ------ ----
Branded 613 26% 583 26%
------ ---- ------ ----
Others 7 0% 11 1%
------ ---- ------ ----
Total 2,341 2,203
------ ---- ------ ----
Group core revenue by region
$ million 2020 2019
US 1,406 60% 1,355 61%
------ ---- ------ ----
MENA 770 33% 719 33%
------ ---- ------ ----
Europe and ROW 165 7% 129 6%
------ ---- ------ ----
Total 2,341 2,203
------ ---- ------ ----
Injectables
$ million Constant
currency
2020 2019 Change change
Revenue 977 894 9% 9%
------ ------ ------- ----------
Core revenue 977 890 10% 9%
------ ------ ------- ----------
Gross profit 563 509 11% 10%
------ ------ ------- ----------
Core gross profit 563 505 11% 11%
------ ------ ------- ----------
Core gross margin 57.6% 56.7% 0.9pp 1.1pp
------ ------ ------- ----------
Operating profit 354 320 11% 13%
------ ------ ------- ----------
Core operating profit 377 338 12% 14%
------ ------ ------- ----------
Core operating margin 38.6% 38.0% 0.6pp 1.6 pp
------ ------ ------- ----------
While we saw considerable variability in demand for our
injectable products over the course of 2020 due to the COVID-19
pandemic, we were able to leverage our broad product portfolio, new
launches and the flexibility of our manufacturing operations to
meet changing customer needs and drive growth in Injectables
revenue and profitability.
Injectables core revenue increased by 10% to $977 million (2019:
$890 million). In constant currency, Injectables core revenue grew
by 9%.
US Injectables core revenue grew 4% to $662 million (2019: $636
million), reflecting good demand for certain products used in the
treatment of COVID-19, which, along with the strength of the
broader portfolio and new product launches, more than offset the
impact of a decline in elective surgeries.
MENA Injectables core revenue was $160 million, up 10% on both a
reported and constant currency basis (2019: $146 million). This
growth reflects an increase in demand for COVID-19 related products
and continued growth of our biosimilar products as we increase our
market share and continue to launch into new markets.
European Injectables core revenue was $155 million, up 44%
(2019: $108 million). In constant currency, European Injectables
revenue increased by 41%. This reflects a strong performance from
our broad portfolio and new launches, particularly in Italy and
Germany, as well as good demand for contract manufacturing,
including our supply agreement with Gilead to manufacture
remdesivir for injection.
Injectables core gross profit increased by 11% to $563 million
(2019: $505 million) and core gross margin increased to 57.6%
(2019: 56.7%), primarily reflecting revenue growth across all
regions and an improvement in product mix in Europe and MENA.
Injectables core operating profit, which excludes the
amortisation of intangible assets (other than software)(9) was $377
million (2019: $338 million). Core operating margin was 38.6%
(2019: 38.0%), reflecting the improvement in gross profit, slightly
offset by an increase in R&D investment and the impact of
adverse foreign exchange movements of around $9 million, primarily
related to the Sudanese pound. In constant currency, Injectables
core operating profit grew 14%, and core operating margin expanded
by 1.6 percentage points.
During the year, the Injectables business launched 10 products
in the US, 34 in MENA and 33 in Europe. We submitted 230 filings to
regulatory authorities across all markets. This primarily reflects
our efforts to expand our European portfolio and register products
in new European markets. We also signed new licensing deals,
including an agreement with Sun Pharmaceuticals for ILUMYA(TM) and
with Sesen Bio for Vicineum(TM).
In 2021, we expect Injectables revenue to grow in the mid-single
digits, reflecting continued demand for COVID-19 related products,
particularly in the first half, and a gradual return of elective
surgeries over the course of the year. We expect core operating
margin to be in the range of 37% to 38%.
Generics
$ million 2020 2019 Change
Revenue 744 719 3%
------ ------ -------
Gross profit 329 295 12%
------ ------ -------
Core gross profit 341 300 14%
------ ------ -------
Core gross margin 45.8% 41.7% 4.1pp
------ ------ -------
Operating profit 203 151 34%
------ ------ -------
Core operating profit 161 124 30%
------ ------ -------
Core operating margin 21.6% 17.2% 4.4pp
------ ------ -------
Our Generics business grew revenue and expanded profitability in
2020, supported by a strong contribution from new launches and good
demand for our differentiated portfolio. We saw a slight increase
in demand during the first half and then again towards the end of
the year for certain COVID-19 related products. Throughout the
year, our teams worked hard to ensure we maintained a high level of
service for our customers.
Generics revenue grew 3% to $744 million (2019: $719 million). A
better than expected contribution from new launches, as well as the
strength of our differentiated portfolio more than offset an
acceleration of price erosion in the second half of the year.
Generics core gross profit grew 14% to $341 million (2019: $300
million) and core gross margin increased to 45.8% (2019: 41.7%).
This primarily reflected an improvement in the product mix as a
result of both good demand for certain in-market products as well
as the performance from new launches.
Generics core operating profit, which excludes the amortisation
of intangible assets (other than software) and exceptional
items(10) , increased by 30% to $161 million (2019: $124 million).
Core operating margin increased to 21.6% (2019: 17.2%). This
significant improvement in profitability reflects the increase in
core gross profit combined with process efficiencies.
In 2020, the Generics business launched six products and
submitted six files to regulatory authorities. Launches included
rufinamide, generic Afinitor(R) and generic Zortress(R) , for which
we remain the sole generic in the market. During the year, we
demonstrated our ability to challenge patents and obtain approvals
for complex products. We received US FDA approval for icosapent
ethyl capsules in May and following a successful court ruling, we
launched the product in November. Our ability to supply the market
with this product is constrained at the moment due to limited
availability of the active pharmaceutical ingredient and we are
working hard to improve supply quantities over the course of
2021.
In December, we received US FDA approval for our generic Advair
Diskus(R) and initiated launch. In January 2021, we temporarily
paused the launch of this product in order to process an amendment
to our Abbreviated New Drug Application (ANDA). This is classified
as a Prior Approval Supplement (PAS) and needs to be reviewed by
the FDA before we can introduce our product to the market. The PAS
reflects enhanced packaging controls to meet new industry standards
adopted since the initial submission of the ANDA application and
does not affect the approved status of our ANDA. The FDA has
granted this supplement priority status.
In 2021, we expect Generics revenue to be in the range of $770
million to $810 million. We expect core operating margin to be
around 20%, reflecting increasing sales and marketing expenses, as
we build our branded portfolio, and higher R&D costs.
Branded
$ million Constant
currency
2020 2019 Change change
Revenue 613 583 5% 5%
------ ------ -------- ----------
Gross profit 307 281 9% 8%
------ ------ -------- ----------
Core gross profit 307 287 7% 6%
------ ------ -------- ----------
Core gross margin 50.1% 49.2% 0.9pp 0.1pp
------ ------ -------- ----------
Operating profit 120 105 14% 30%
------ ------ -------- ----------
Core operating profit 126 129 (2)% 11%
------ ------ -------- ----------
Core operating margin 20.6% 22.1% (1.5)pp 1.2pp
------ ------ -------- ----------
Our Branded business had another good year. We overcame
challenges posed by COVID-19, quickly switching our sales and
marketing teams onto virtual platforms and ensuring that our plants
across the region could continue to operate safely. Our approach of
tiering our markets continued to deliver success, with our Tier 1
countries - Algeria, Saudi Arabia and Egypt - all performing well,
especially Algeria, which recovered strongly following a more
challenging 2019. We saw a reduction in demand for certain
products, including anti-infectives, resulting from the pandemic,
which was more than offset by a growth in sales in our broader
portfolio.
Branded revenue was $613 million (2019: $583 million), up 5% on
both a reported and constant currency basis.
Branded core gross profit was $307 million, up 7% (2019: $287
million) and core gross margin was 50.1% (2019: 49.2%). In constant
currency, core gross profit increased by 6%. The improvement in
gross margin reflects an improvement in the product mix.
Core operating profit, which excludes the amortisation of
intangibles (other than software) and exceptional items(11) , was
$126 million, down 2% (2019: $129 million), and core operating
margin was 20.6% (2019: 22.1%). The decline reflects an increased
expense of $22 million resulting from significant foreign exchange
movements, primarily in Sudan. In constant currency, core operating
profit grew 11% and core operating margin expanded by 1.2
percentage points. The margin expansion in constant currency
primarily reflects the improvement in gross profit and good control
of costs.
During the year, the Branded business launched 71 products and
submitted 141 filings to regulatory authorities. Revenue from
in-licensed products represented 37% of Branded revenue (2019:
37%).
We expect Branded revenue to grow in the mid-single digits in
constant currency in 2021.
Other businesses
Other businesses, which primarily comprises Arab Medical
Containers (AMC), a manufacturer of plastic specialised medicinal
sterile containers and International Pharmaceuticals Research
Centre (IPRC), which conducts bio-equivalency studies, contributed
revenue of $7 million in 2020 (2019: $11 million) with an operating
profit of zero (2019: zero). This reduction in revenue is due to
disruptions at IPRC in the first half of the year as a result of
the COVID-19 pandemic.
Research and development
Our investment in R&D and business development enables us to
continue expanding the Group's product portfolio. During 2020, we
had 154 new launches and received 201 approvals.
2020 submissions(12) 2020 approvals 2020 launches(12)
(12)
Injectables
--------------------- --------------- ------------------
US 15 16 10
--------------------- --------------- ------------------
MENA 55 41 34
--------------------- --------------- ------------------
Europe 160 25 33
--------------------- --------------- ------------------
Generics 6 8 6
--------------------- --------------- ------------------
Branded 141 111 71
--------------------- --------------- ------------------
Total 377 201 154
--------------------- --------------- ------------------
To ensure the continuous development of our product pipeline, we
submitted 377 regulatory filings.
Net finance expense
Core net finance expense was $45 million (2019: $45 million). On
a reported basis, net finance expense was $22 million (2019: zero),
which reflects non-cash net income of $23 million resulting from
the remeasurement of the contingent consideration related to the
Generics business.
We expect core net finance expense to be around $50 million in
2021.
Profit before tax
Core profit before tax was $522 million (2019: $465 million), up
12%, reflecting the strong performance of our three business
segments. Reported profit before tax was $558 million (2019: $491
million).
Tax
The Group incurred a reported tax expense of $128 million (2019:
$4 million) and an effective tax rate of 22.9% (2019: 0.8%). This
follows the utilisation in 2019 of previously unrecognised tax
losses and deferred tax benefits recognised upon the internal
reorganisation of intangible assets. Excluding exceptional items,
Group core tax expense was $115 million (2019: $100 million). The
core effective tax rate increased slightly to 22.0% (2019: 21.5%),
primarily due to a change in the earnings mix.
We expect the Group core effective tax rate to be in the range
of 22% to 23% in 2021.
Profit attributable to shareholders
Profit attributable to shareholders was $431 million (2019: $486
million). The decline reflects the utilisation in 2019 of
previously unrecognised tax losses and deferred tax benefits. Core
profit attributable to shareholders increased by 12% to $408
million (2019: $364 million).
Earnings per share
Basic earnings per share was 182.6 cents (2019: 200.8 cents).
Core basic earnings per share increased by 15% to 172.9 cents
(2019: 150.4 cents) and core diluted earnings per share increased
by 14% to 171.4 cents (2019: 149.8 cents).
Dividend
The Board is recommending a final dividend of 34 cents per share
(approximately 24 pence per share) (2019: 30 cents per share)
bringing the total dividend for the full year to 50 cents per share
(approximately 36 pence per share) (2019: 44 cents per share). The
proposed dividend will be paid on 26 April 2021 to eligible
shareholders on the register at the close of business on 19 March
2021, subject to approval at the Annual General Meeting on 23 April
2021.
Net cash flow, working capital and net debt
The Group generated strong operating cash flow of $464 million
(2019: $472 million). The slight decline versus 2019 reflects
higher Group working capital days - up 62 days to 264 days - as a
result of a strategic decision to maintain higher inventory levels
to ensure continuity of supply for customers during the
pandemic.
Capital expenditure was $172 million (2019: $119 million), ahead
of expectations. As the market outlook improved through the second
half of the year, we proceeded with several projects to expand and
enhance our capabilities. In the US, $89 million was spent
upgrading equipment and adding new technologies for our Generics
and Injectables businesses. In MENA, $67 million was spent on
strengthening and expanding manufacturing capabilities. In Europe,
we spent $16 million on strengthening our capabilities, including
finalising our new high containment facility. We expect Group
capital expenditure to be in the range of $140 million to $160
million in 2021.
The Group's total debt increased to $932 million at 31 December
2020 (31 December 2019: $685 million). This increase primarily
reflects the full utilisation of the Group's $150 million 2017
International Finance Corporation (IFC) facility. During the year,
the Group signed a new $200 million lFC loan facility which, along
with the Group's revolving credit facility, was undrawn at year
end.
The Group cemented its strength in the debt capital markets,
with the raising of a new 3.25% coupon $500 million Eurobond in
July, following the repayment of our previous bond in April. During
the year, we also achieved investment grade status, an
accomplishment which demonstrates the quality of the business.
The Group's cash balance at 31 December 2020 was $327 million
(2019: $443 million). This decrease is primarily related to the
purchase of 12.8 million ordinary shares from Boehringer Ingelheim
(BI) for $375 million, in connection with BI's disposal of its 16%
stake in Hikma, which was settled through a combination of cash and
existing facilities.
The Group's net debt (excluding co-development agreements and
contingent liabilities) was $605 million at 31 December 2020 (31
December 2019: $242 million). This increase primarily reflects the
purchase of shares from BI, as outlined above. We have maintained a
comfortable level of leverage with a net debt to core EBITDA ratio
of 0.9x.
Balance sheet
Net assets at 31 December 2020 were $2,148 million (31 December
2019: $2,129 million). Net current assets were $894 million (31
December 2019: $377 million) primarily due to a change in the debt
maturity profile as a result of the repayment of the Eurobond
during the period and an increase in inventory levels.
Outlook for 2021
We expect Injectables revenue to grow in the mid-single digits .
We expect core operating margin to be in the range of 37% to
38%.
We expect Generics revenue to be in the range of $770 million to
$810 million and core operating margin to be around 20%.
We expect Branded revenue to grow in the mid-single digits in
constant currency.
We expect Group net finance expense to be around $50 million and
the core effective tax rate to be in the range of 22% to 23%. We
expect Group capital expenditure to be in the range of $140 million
to $160 million.
The Board
The Board of Directors that served during all or part of the
twelve-month period to 31 December 2020 and their respective
responsibilities can be found on the Leadership team section of
www.hikma.com .
Cautionary statement
This preliminary announcement has been prepared solely to
provide additional information to the shareholders of Hikma and
should not be relied on by any other party or for any other
purpose.
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 5 of the Group consolidated financial
statements.
Group operating profit 2020 2019
$million $million
Core operating profit 566 508
---------- ----------
R&D costs - (24)
---------- ----------
Jordan warehouse fire incident 11 (13)
---------- ----------
Proceeds from legal claim - 32
---------- ----------
Contingent consideration adjustment - 7
---------- ----------
MENA severance and restructuring costs (3) (7)
---------- ----------
Integration costs - 4
---------- ----------
Net impairment reversal of product related
intangibles 62 20
---------- ----------
Intangible assets amortisation other
than software (42) (34)
---------- ----------
Assets write off (15) -
---------- ----------
Reported operating profit 579 493
---------- ----------
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 2020 represent reported 2020
numbers translated using 2019 exchange rates, excluding price
increases in the business resulting from the devaluation of
currencies and excluding the impact from hyperinflation accounting.
In 2020 Lebanon and Sudan were considered hyperinflationary
economies, therefore the spot exchange rate as at 31 December 2020
was used to translate the results of these operations into US
dollars.
EBITDA
EBITDA is earnings before interest, tax, depreciation,
amortisation and impairment charges/reversals.
EBITDA
$ million 2020 2019
Reported operating profit 579 493
----- -----
Depreciation, amortisation and
impairment charges/reversals 91 99
----- -----
Reported EBITDA 670 592
----- -----
Exceptional items:
----- -----
R&D costs - 24
----- -----
Jordan warehouse fire incident (11) 13
----- -----
Assets write off 12 -
----- -----
Proceeds from legal claim - (32)
----- -----
Contingent consideration adjustment - (7)
----- -----
MENA severance and restructuring
costs 3 7
----- -----
Integration costs - (4)
----- -----
Core EBITDA 674 593
----- -----
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 12
months Group revenue. Group inventory days are calculated as Group
inventory x 365 divided by 12 months Group cost of sales. Group
payable days are calculated as Group trade payables x 365, divided
by 12 months Group cost of sales.
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 contingent liabilities.
Group net debt
$ million 31 Dec 2020 31 Dec 2019
Short-term financial debts (158) (569)
------------ -------------
Short-term leases liabilities (10) (9)
------------ -------------
Long-term financial debts (692) (48)
------------ -------------
Long-term leases liabilities (72) (59)
------------ -------------
Total debt (932) (685)
------------ -------------
Cash, cash equivalents and restricted
cash 327 443
------------ -------------
Net debt (605) (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 UK Market Abuse Regulation 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 commitments 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. Despite the challenging
environment caused by the COVID-19 pandemic, the principal risks
facing the company have not materially changed over the year and
they are set out in the 2020 annual report on pages 55 - 58, which
will be available on 17 March 2021. 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 5 of the Group
consolidated financial statements. Core results are a non-IFRS
measure and a reconciliation to reported IFRS measures is provided
on page 12
(2) Constant currency numbers in 2020 represent reported 2020
numbers translated using 2019 exchange rates, excluding price
increases in the business resulting from the devaluation of
currencies and excluding the impact from hyperinflation accounting.
In 2020 Lebanon and Sudan were considered hyperinflationary
economies, therefore the spot exchange rate as at 31 December 2020
was used to translate the results of these operations into US
dollars
(3) In June 2020, Hikma purchased 12.8 million ordinary shares
from Boehringer Ingelheim, which are being held in treasury.
Earnings per share is calculated using the weighted average number
of shares outstanding during the period. Dividend per share is
calculated using the number of shares in issue at 31 December
2020.
(4) Group net debt is calculated as Group total debt less Group
total cash, including restricted cash. Group net debt is a non-IFRS
measure. See page 13 for a reconciliation of Group net debt to
reported IFRS figures
(5) Core 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
(6) Beginning in 2020, inventory related provisions are reported
under the cost of sales line item for both 2020 and 2019
comparatives. In the 2019 audited financial statements, inventory
related provisions were included in other operating
income/(expenses). The reason for reclassification is to be in line
with industry practice. The effect of the adjustment on the
operating profit is shown in Note 1 of the Group consolidated
financial statements .
(7) Beginning in 2020, inventory related provisions are reported
under the cost of sales line item for both 2020 and 2019
comparatives. In the 2019 audited financial statements, inventory
related provisions were included in other operating
income/(expenses). The reason for reclassification is to be in line
with industry practice. The effect of the adjustment on the
operating profit is shown in Note 1 of the Group consolidated
financial statements .
(8) In 2020, exceptional items comprised a $62 million net
impairment reversal of product related intangibles related to the
Generics business, proceeds from an insurance claim related to a
warehouse fire at one of our facilities in Jordan of $ 11 million
and $ 3 million related to PPE impairment on our generic Advair
Diskus(R) .
Refer to Note 5 of the Group consolidated financial statements for further information
(9) Amortisation of intangible assets (other than software) was
$23 million. Refer to Note 5 of the Group consolidated financial
statements for further information
(10) Exceptional items comprised a $62 million net impairment
reversal of product related intangibles related to the Generics
business, $15 million related to inventory related provision write
down and PPE impairment for generic Advair Diskus(R) and $4 million
related to proceeds from an insurance claim related to a warehouse
fire at one of our facilities in Jordan . Amortisation of
intangible assets (other than software) was $9 million. Refer to
Note 5 of the Group consolidated financial statements for further
information
(11) In 2020, exceptional items comprised proceeds from an
insurance claim related to a warehouse fire at one of our
facilities in Jordan of $7 million and $3 million of severance and
restructuring costs. Amortisation of intangible assets (other than
software) was $10 million. Refer to Note 5 of the Group
consolidated financial statements for further information
(12) New products submitted, approved and launched by country in
2020
Hikma Pharmaceuticals PLC
Consolidated income statement
For the year ended 31 December 2020
2020 2020 2020 2019 2019 2019
Core Exceptional Reported Core Exceptional Reported
results items results results items results
and other and other
adjustments adjustments
(Note (Note
5) 5)
Note $m $m $m $m $m $m
-------------------- --------------------- ------------------ --------------------- --------------------- ---------------------
Revenue 3 2,341 - 2,341 2,203 4 2,207
Cost of sales(1) (1,128) (12) (1,140) (1,108) (11) (1,119)
-------------------- --------------------- ------------------ --------------------- --------------------- ---------------------
Gross profit/(loss) 1,213 (12) 1,201 1,095 (7) 1,088
-------------------- --------------------- ------------------ --------------------- --------------------- ---------------------
Selling, general
and administrative
expenses (464) (45) (509) (453) (41) (494)
Net impairment loss
on financial
assets (2) - (2) - - -
Research and
development
expenses (137) - (137) (126) (24) (150)
Other operating
income/(expenses),
net(1) (44) 70 26 (8) 57 49
-------------------- --------------------- ------------------ --------------------- --------------------- ---------------------
Total operating
(expenses)/income (647) 25 (622) (587) (8) (595)
-------------------- --------------------- ------------------ --------------------- --------------------- ---------------------
Operating
profit/(loss) 4 566 13 579 508 (15) 493
-------------------- --------------------- ------------------ --------------------- --------------------- ---------------------
Finance income 9 38 47 7 60 67
Finance expense (54) (15) (69) (52) (15) (67)
Gain from
investment
at fair value
through
profit and loss
(FVTPL) 1 - 1 2 - 2
Loss from
investment
divestiture - - - - (4) (4)
-------------------- --------------------- ------------------ --------------------- --------------------- ---------------------
Profit before tax 522 36 558 465 26 491
-------------------- --------------------- ------------------ --------------------- --------------------- ---------------------
Tax 6 (115) (13) (128) (100) 96 (4)
-------------------- --------------------- ------------------ --------------------- --------------------- ---------------------
Profit for the year 407 23 430 365 122 487
-------------------- --------------------- ------------------ --------------------- --------------------- ---------------------
Attributable to:
Non-controlling
interests (1) - (1) 1 - 1
Equity holders of
the parent 408 23 431 364 122 486
-------------------- --------------------- ------------------ --------------------- --------------------- ---------------------
407 23 430 365 122 487
-------------------- --------------------- ------------------ --------------------- --------------------- ---------------------
Earnings per share
(cents) 8
-------------------- --------------------- ------------------ --------------------- --------------------- ---------------------
Basic 172.9 182.6 150.4 200.8
Diluted 171.4 181.1 149.8 200.0
-------------------- --------------------- ------------------ --------------------- --------------------- ---------------------
(1) Inventory related provisions have been reclassified under
the cost of sales line item in order to align with industry
practice. Previously the costs were reflected in other operating
income/(expenses), net and hence the 2019 numbers have consequently
been restated. See Note 1 for more details
Hikma Pharmaceuticals PLC
Consolidated statement of comprehensive income
For the year ended 31 December 2020
2020 2019
Reported Reported
results results
$m $m
--------------------- ---------------------
Profit for the year 430 487
Other comprehensive income
Items that may subsequently be reclassified
to the consolidated income statement, net
of tax:
Currency translation gain and hyperinflation
movement 39 20
Items that will not subsequently be reclassified
to the consolidated income statement, net
of tax:
Remeasurement of post-employment benefit
obligations (1) -
Change in investments at fair value through
other comprehensive income (FVTOCI) 2 (2)
--------------------- ---------------------
Total comprehensive income for the year 470 505
--------------------- ---------------------
Attributable to:
Non-controlling interests 2 2
Equity holders of the parent 468 503
--------------------- ---------------------
470 505
--------------------- ---------------------
Hikma Pharmaceuticals PLC
Consolidated balance sheet
At 31 December 2020
2020 2019
Note $m $m
------------------- -------------------
Non-current assets
Goodwill 9 289 282
Other intangible assets 9 587 552
Property, plant and equipment 1,009 912
Right-of-use assets 59 50
Investment in joint ventures 9 11
Deferred tax assets 221 243
Financial and other non-current
assets 39 32
2,213 2,082
------------------- -------------------
Current assets
Inventories 757 568
Income tax receivable 36 79
Trade and other receivables 10 756 719
Collateralised and restricted
cash 4 1
Cash and cash equivalents 323 442
Other current assets 46 39
------------------- -------------------
1,922 1,848
------------------- -------------------
Total assets 4,135 3,930
------------------- -------------------
Current liabilities
Short-term financial debts 11 158 569
Lease liabilities 10 9
Trade and other payables 470 473
Income tax payable 72 82
Other provisions 28 23
Other current liabilities 290 315
------------------- -------------------
1,028 1,471
------------------- -------------------
Net current assets 894 377
------------------- -------------------
Non-current liabilities
Long-term financial debts 12 692 48
Lease liabilities 72 59
Deferred tax liabilities 31 20
Other non-current liabilities 164 203
------------------- -------------------
959 330
------------------- -------------------
Total liabilities 1,987 1,801
------------------- -------------------
Net assets 2,148 2,129
------------------- -------------------
Equity
Share capital 14 41 41
Share premium 282 282
Other reserves (80) (179)
Retained earnings(1) 1,892 1,973
------------------- -------------------
Equity attributable to equity
holders of the parent 2,135 2,117
------------------- -------------------
Non-controlling interests 13 12
------------------- -------------------
Total equity 2,148 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 14)
Hikma Pharmaceuticals PLC
Consolidated statement of changes in equity
For the year ended 31 December 2020
Merger Translation Own Total Retained Share Share Equity Non-controlling Total
and revaluation reserve 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
as adjusted(1) 38 (254) (1) (217) 1,582 40 282 1,687 12 1,699
Profit for the
year(2) 20 - - 20 466 - - 486 1 487
Change in
investments
at FVTOCI - - - - (2) - - (2) - (2)
Currency translation
gain and
hyperinflation
movement - 19 - 19 - - - 19 1 20
Total comprehensive
income for the
year 20 19 - 39 464 - - 503 2 505
---------------------- -------------------- ------------- -------------------- ------------------- ------------------- ------------------- ---------------------- -------------------------- -------------------------
Total transactions
with owners,
recognised directly
in equity
Cost of
equity-settled
employee share
scheme - - - - 24 - - 24 - 24
Exercise of
employees share
scheme (1) - - (1) - 1 - - - -
Dividends paid
(Note 7) - - - - (97) - - (97) (2) (99)
Balance at 31
December 2019
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
year(2) 62 - - 62 369 - - 431 (1) 430
Change in
investments
at FVTOCI - - - - 2 - - 2 - 2
Remeasurement
of post-employment
benefit obligations - - - - (1) - - (1) - (1)
Currency translation
gain and
hyperinflation
movement - 36 - 36 - - - 36 3 39
Total comprehensive
income for the
year 62 36 - 98 370 - - 468 2 470
Total transactions
with owners,
recognised directly
in equity
Cost of
equity-settled
employee share
scheme - - - - 27 - - 27 - 27
Dividends paid
(Note 7) - - - - (109) - - (109) (1) (110)
Share buyback
(Note 14) - - - - (368) - - (368) - (368)
---------------------- -------------------- ------------- -------------------- ------------------- ------------------- ------------------- ---------------------- -------------------------- -------------------------
Balance at 31
December 2020 119 (199) - (80) 1,892 41 282 2,135 13 2,148
---------------------- -------------------- ------------- -------------------- ------------------- ------------------- ------------------- ---------------------- -------------------------- -------------------------
(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) A net Impairment reversal of $62 million (2019: $20 million)
has been allocated from retained earnings to the merger and
revaluation reserves in relation to the Generics segment (Note 5
and 9)
(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 14)
Hikma Pharmaceuticals PLC
Consolidated cash flow statement
For the year ended 31 December 2020
2020 2019
Note $m $m
-------------------------- --------------------------
Cash flows from operating activities
Cash generated from operations 13 525 580
Income taxes paid (68) (125)
Income taxes received 7 17
-------------------------- --------------------------
Net cash inflow from operating activities 464 472
-------------------------- --------------------------
Cash flow from investing activities
Purchases of property, plant and
equipment (172) (119)
Proceeds from disposal of property,
plant and equipment - 2
Purchase of intangible assets (52) (67)
Increase in investment in financial
and other non-current assets - (1)
Proceeds from sale of investment
at FVTOCI - 12
Additions of investments at FVTOCI (5) (5)
Acquisition of business undertakings
net of cash acquired - (8)
Proceeds from investment divestiture 2 2
Contingent consideration (paid)/received (60) 27
Interest income received 7 6
Investment related amounts held in
escrow account (3) -
-------------------------- --------------------------
Net cash outflow from investing activities (283) (151)
-------------------------- --------------------------
Cash flow from financing activities
(Increase) in collateralised and
restricted cash - (1)
Proceeds from issue of long-term
financial debts 1,543 19
Repayment of long-term financial
debts (1,372) (11)
Proceeds from short-term borrowings 430 267
Repayment of short-term borrowings (367) (273)
Repayment of lease liabilities (14) (12)
Dividends paid (109) (97)
Dividends paid to non-controlling
shareholders of subsidiaries (1) (2)
Interest and bank charges paid (39) (44)
Share buyback (375) -
Commitment fees received related
to the share buyback 7 -
Payment to co-development and earnout
payment agreement (1) (1)
Net cash outflow from financing activities (298) (155)
-------------------------- --------------------------
Net (decrease)/increase in cash and
cash equivalents (117) 166
-------------------------- --------------------------
Cash and cash equivalents at beginning
of year 442 276
Foreign exchange translation movements (2) -
-------------------------- --------------------------
Cash and cash equivalents at end
of year 323 442
-------------------------- --------------------------
Hikma Pharmaceuticals PLC
Notes to the consolidated financial statements
1. Accounting policies
General information
Hikma Pharmaceuticals PLC is a public limited liability company
incorporated and domiciled in England and Wales under the Companies
Act 2006.
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.
Basis of preparation
Hikma Pharmaceuticals PLC's consolidated financial statements
are prepared in accordance with:
(i) International accounting standards in conformity with the
requirements of the Companies Act 2006 ('IFRS') and the applicable
legal requirements of the Companies Act 2006. In addition to
complying with international accounting standards in conformity
with the requirements of the Companies Act 2006, the consolidated
financial statements also comply with international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union
(ii) International Financial Reporting Standards as issued by
the International Accounting Standards Board (IASB)
The consolidated financial statements have been prepared under
the historical cost convention, except for the revaluation to fair
value of certain financial assets and liabilities.
The accounting policies included in this note have been applied
consistently other than where new policies have been adopted.
The Group's previously published consolidated financial
statements were also prepared in accordance with IFRSs issued by
the IASB and also in accordance with IFRSs adopted for use in the
European Union.
The presentational and functional currency of Hikma
Pharmaceuticals PLC is the US dollar as the majority of the
Company's business is conducted in US dollars.
The financial information does not constitute the Company's
statutory accounts for the years to 31 December 2020 or 2019 but is
derived from those accounts.
Adoption of new and revised standards
The following revised Standards and Interpretations have been
issued and are effective on annual periods beginning on or after 1
January 2020. These amendments had no impact on the consolidated
financial statements of the Group but may impact the accounting for
future transactions and arrangements.
IFRS 3 (Amendments) Business Combinations
-------------------- ------------------------------------------
IFRS 7 (Amendments) Financial Instruments: Disclosures
-------------------- ------------------------------------------
IFRS 9 (Amendments) Financial Instruments
-------------------- ------------------------------------------
IFRS 16 (Amendments) Leases
-------------------- ------------------------------------------
IAS 1 (Amendments) Presentation of Financial Statements
-------------------- ------------------------------------------
IAS 8 (Amendments) Accounting Policies, Changes in Accounting
Estimates and Errors
-------------------- ------------------------------------------
IAS 39 (Amendments) Financial Instruments: Recognition and
Measurement
-------------------- ------------------------------------------
Conceptual Framework for Financial Reporting
----------------------------------------------------------------
Reclassification of 2019 financial statements
Beginning in 2020, inventory related provisions are reported
under the cost of sales line item for both 2020 and 2019
comparatives. In 2019 audited financial statements, inventory
related provisions were included in other operating
income/(expenses), net line item. The reason for reclassification
is to be in line with industry practice. The effect of the
adjustment on the operating profit was as follows:
2019 results Adjustment Adjusted
as previously 2019 reported
reported results
$m $m $m
------------------------------------ --------------- ----------- ---------------
Cost of Sales (1,059) (60) (1,119)
------------------------------------ --------------- ----------- ---------------
Gross Profit 1,148 (60) 1,088
------------------------------------ --------------- ----------- ---------------
Other operating income/(expenses),
net (11) 60 49
------------------------------------ --------------- ----------- ---------------
Operating Profit 493 - 493
------------------------------------ --------------- ----------- ---------------
Exceptional items and other adjustments
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 adjusted numbers may be
calculated differently to other companies.
Adjusted measures are not substitutable for IFRS numbers 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 that
mask 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. Reconciliation between core and reported
results are provided in our consolidated financial statements.
Our core results exclude the exceptional items and other
adjustments set out in Note 5 in the notes to the consolidated
financial statements.
Exceptional items
Exceptional items represent adjustments for costs and profits
which management believes to be exceptional in nature by virtue of
their size or incidence, or have a distortive effect on current
year earnings, such as costs associated with business combinations,
one-off gains and losses on disposal of businesses assets,
reorganisation costs, write-down and impairment charges/reversal on
assets and impairment of goodwill, and any exceptional items
related to tax such as significant tax benefit/expense associated
with previously unrecognised deferred tax assets/ liabilities.
Other adjustments
These include amortisation of intangibles excluding software and
finance income and expense resulting from remeasurement of
contingent consideration and co-development earnout payment
agreement, financial liability and asset.
Both exceptional items and other adjustments are excluded from
core results to improve comparability of our consolidated financial
statements, consistent with our industry peers. We represent and
discuss our Group and segmental financials reconciled between
reported and core results. This presentation allows for full
visibility and transparency of our financials so that shareholders
are able to clearly assess the performance factors of the
Group.
The basis of determining exceptional items and other adjustments
did not change from the prior year.
2. Going concern
The Directors believe that the Group is well diversified due to
its geographic spread, product diversity and large customer and
supplier base. Taking into account the Group's current position and
its principal risks for a period longer than twelve months from the
date of signing the consolidated financial statement, 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.
Therefore, the Directors believe that the Group and its
subsidiaries are 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 consolidated financial
statements.
3. Revenue from contracts with customers
Business and geographical markets
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:
Injectables Generics Branded Others Total
Year ended 31 December 2020 $m $m $m $m $m
------------------------------ ------------ --------- -------- ------- ------
United States 662 744 - - 1,406
Middle East and North Africa 160 - 605 5 770
Europe and rest of the world 149 - 8 2 159
United Kingdom 6 - - - 6
------------------------------ ------------ --------- -------- ------- ------
977 744 613 7 2,341
------------------------------ ------------ --------- -------- ------- ------
Injectables Generics Branded Others Total
Year ended 31 December 2019 $m $m $m $m $m
------------------------------ ------------ --------- -------- ------- ------
United States 640 719 - - 1,359
Middle East and North Africa 146 - 567 6 719
Europe and rest of the world 101 - 16 5 122
United Kingdom 7 - - - 7
------------------------------ ------------ --------- -------- ------- ------
894 719 583 11 2,207
------------------------------ ------------ --------- -------- ------- ------
The top selling markets in 2020 are as below:
2020 2019
$m $m
--------------- ------- -------
United States 1,406 1,359
Saudi Arabia 223 204
Egypt 118 114
--------------- ------- -------
1,747 1,677
--------------- ------- -------
In 2020, included in revenue arising from the Generics and
Injectables segments are sales the Group made to two wholesalers in
the US of approximately $607 million (2019: $594 million). Each of
these customers accounted for equal to or greater than 10% of
Group's revenue in the period on an individual basis.
The following table provide contract balances related to
revenue:
2020 2019
$m $m
----------------------------- -------------- --------------
Trade receivables (Note 10) 662 637
Contract assets 3 -
Contract liabilities 162 142
----------------------------- -------------- --------------
Trade receivables are non-interest bearing and typical credit
terms in the US range from 30 to 90 days, in Europe 30 to 120 days,
and in MENA 180 to 360 days.
Contract liabilities mainly relate to returns provision and free
goods balance.
4 . Business 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:
Injectables 2020 2020 2020 2019 2019 2019
Core Exceptional Reported Core Exceptional Reported
results items results results items results
and other and other
adjustments adjustments
(Note (Note
5) 5)
$m $m $m $m $m $m
--------- ------------- ---------- --------- ------------- ----------
Revenue 977 - 977 890 4 894
Cost of sales (1) (414) - (414) (385) - (385)
--------- ------------- ---------- --------- ------------- ----------
Gross profit 563 - 563 505 4 509
--------- ------------- ---------- --------- ------------- ----------
Total operating expenses
(1) (186) (23) (209) (167) (22) (189)
--------- ------------- ---------- --------- ------------- ----------
Segment result 377 (23) 354 338 (18) 320
--------- ------------- ---------- --------- ------------- ----------
Generics 2020 2020 2020 2019 2019 2019
Core Exceptional Reported Core Exceptional Reported
results items results results items results
and other and other
adjustments adjustments
(Note (Note
5) 5)
$m $m $m $m $m $m
--------- ------------- ---------- --------- ------------- ----------
Revenue 744 - 744 719 - 719
Cost of sales (1) (403) (12) (415) (419) (5) (424)
--------- ------------- ---------- --------- ------------- ----------
Gross profit 341 (12) 329 300 (5) 295
--------- ------------- ---------- --------- ------------- ----------
Total operating expenses
(1) (180) 54 (126) (176) 32 (144)
--------- ------------- ---------- --------- ------------- ----------
Segment result 161 42 203 124 27 151
--------- ------------- ---------- --------- ------------- ----------
(1) Inventory related provisions have been reclassified under
the cost of sales line item in order to align with industry
practice. Previously the costs were reflected in other operating
income/(expenses), net and hence the 2019 numbers have consequently
been restated. See Note 1 for more details
Branded 2020 2020 2020 2019 2019 2019
Core Exceptional Reported Core Exceptional Reported
results items results results items results
and other and other
adjustments adjustments
(Note (Note
5) 5)
$m $m $m $m $m $m
--------- ------------- ---------- --------- ------------- ----------
Revenue 613 - 613 583 - 583
Cost of sales (1) (306) - (306) (296) (6) (302)
--------- ------------- ---------- --------- ------------- ----------
Gross profit 307 - 307 287 (6) 281
--------- ------------- ---------- --------- ------------- ----------
Total operating expenses
(1) (181) (6) (187) (158) (18) (176)
--------- ------------- ---------- --------- ------------- ----------
Segment result 126 (6) 120 129 (24) 105
--------- ------------- ---------- --------- ------------- ----------
(1) Inventory related provisions have been reclassified under
the cost of sales line item in order to align with industry
practice. Previously the costs were reflected in other operating
income/(expenses), net and hence the 2019 numbers have consequently
been restated. See Note 1 for more details
Others (2) 2020 2020 2020 2019 2019 2019
Core Exceptional Reported Core Exceptional Reported
results items results results items results
and other and other
adjustments adjustments
(Note (Note
5) 5)
$m $m $m $m $m $m
--------- ------------- ---------- --------- ------------- ----------
Revenue 7 - 7 11 - 11
Cost of sales (5) - (5) (8) - (8)
--------- ------------- ---------- --------- ------------- ----------
Gross profit 2 - 2 3 - 3
--------- ------------- ---------- --------- ------------- ----------
Total operating expenses (2) - (2) (3) - (3)
--------- ------------- ---------- --------- ------------- ----------
Segment result - - - - - -
--------- ------------- ---------- --------- ------------- ----------
(2) Others mainly comprises Arab Medical Containers LLC and
International Pharmaceutical Research Center LLC
Group 2020 2020 2020 Reported 2019 2019 2019 Reported
Core Exceptional results Core Exceptional results
results items and results items
other and other
adjustments adjustments
(Note (Note
5) 5)
$m $m $m $m $m $m
--------- ----------------- -------------- --------- -------------------------- --------------
Segment result 664 13 677 591 (15) 576
--------- ----------------- -------------- --------- -------------------------- --------------
Unallocated
expenses
(3) (98) - (98) (83) - (83)
--------- ----------------- -------------- --------- -------------------------- --------------
Operating
profit/(loss) 566 13 579 508 (15) 493
--------- ----------------- -------------- --------- -------------------------- --------------
Finance income 7 38 45 7 60 67
Finance expense (52) (15) (67) (52) (15) (67)
Gain/(loss) from
investment
at FVTPL 1 - 1 2 - 2
Loss from
investment
divestiture - - - - (4) (4)
--------- ----------------- -------------- --------- -------------------------- --------------
Profit before
tax 522 36 558 465 26 491
--------- ----------------- -------------- --------- -------------------------- --------------
Tax (115) (13) (128) (100) 96 (4)
--------- ----------------- -------------- --------- -------------------------- --------------
Profit for the
year 407 23 430 365 122 487
========= ================= ============== ========= ========================== ==============
Attributable to:
Non-controlling
interests (1) - (1) 1 - 1
Equity holders
of the
parent 408 23 431 364 122 486
--------- ----------------- -------------- --------- -------------------------- --------------
407 23 430 365 122 487
--------- ----------------- -------------- --------- -------------------------- --------------
(3) I n 2020, unallocated corporate expenses mainly comprise
employee costs, third-party professional fees and software
impairments while in 2019, unallocated corporate expenses mainly
comprise employee costs, third-party professional fees, IT and
travel expenses
5. Exceptional items and other adjustments
Exceptional items and other adjustments are disclosed separately
in the consolidated income statement to assist in the understanding
of the Group's core performance.
2020 Generics Injectables Branded Others Unallocated Total
$m $m $m $m $m $m
------------------------- ------------------- --------- ------------ -------- ------- ------------ ------
Exceptional Items
Jordan warehouse Other operating
fire incident (expense)/income 4 - 7 - - 11
MENA severance
and restructuring
costs SG&A - - (3) - - (3)
Assets write off Other operating
- PPE Impairment (expense)/income (3) - - - - (3)
Assets write off
- inventory related
provisions Cost of sales (12) - - - - (12)
Impairment reversal
of product related Other operating
intangibles, net (expense)/income 62 - - - - 62
Exceptional items 51 - 4 - - 55
---------------------------------------------- --------- ------------ -------- ------- ------------ ------
Other adjustments
Intangible assets
amortisation other
than software SG&A (9) (23) (10) - - (42)
Unwinding and
remeasurement
of contingent
consideration
and other financial
liabilities, net Finance expense - - - - 23 23
------------------------- ------------------- --------- ------------ -------- ------- ------------ ------
Exceptional items and other
adjustments including in profit
before tax 42 (23) (6) - 23 36
---------------------------------------------- --------- ------------ -------- ------- ------------ ------
Tax expenses associated
with previously
unrecognised deferred
tax assets Tax - - - - (3) (3)
Tax effect on
exceptional items
and other adjustments Tax - - - - (10) (10)
------------------------- ------------------- --------- ------------ -------- ------- ------------ ------
Impact on profit
for the year 42 (23) (6) - 10 23
---------------------------------------------- --------- ------------ -------- ------- ------------ ------
Exceptional items have been recognised in accordance with our
accounting policy outlines in Note 1, the details are presented
below :
Exceptional items
- Jordan warehouse fire incident: In 2020, Hikma recognised $11
million for insurance compensation related to a fire incident which
took place in 2019 at one of Hikma's Jordan facilities. The Group
received part of the insurance compensation of $4 million in 2019
and $1 million in March 2020
- MENA severance and restructuring costs: of $3 million related
to one-off organisational restructuring in MENA that started in
2019 and finished in 2020
- Assets write off: In December 2020, Hikma submitted to the FDA
a Prior Approval Supplement (PAS) relating to generic Advair
Diskus(R). The amendment reflects enhanced packaging controls to
meet new industry standards adopted since the initial submission of
its ANDA application. As a result, the launch has been temporarily
paused and inventory amounting to $12 million is expected to expire
before launch and has been written off. In addition, $3 million of
property, plant and equipment was written off
- Impairment reversal of product related intangibles, net: $66
million net impairment reversal in respect of specific product
related intangibles in the Generics segment which reflects a better
than expected performance of certain marketed products acquired
through business combination offset by $4 million impairment charge
(Note 9)
- Tax (expense) benefit associated with previously unrecognised
deferred tax assets: A prior year adjustment to the tax expense
associated with previously unrecognised deferred tax assets of $3
million arose as a tax return to provision adjustment
In previous year, exceptional items and other adjustments were
related to the following:
2019 Generics Injectables Branded Others Unallocated Total
$m $m $m $m $m $m
------------------------- ------------------------- --------- ------------ -------- ------- ------------ ------
Exceptional Items
R&D cost R&D (24) - - - - (24)
Jordan warehouse
fire incident Cost of sales (5) - (6) - - (11)
Jordan warehouse Other operating
fire incident (expense)/income (1) - (1) - - (2)
Proceeds from legal Other operating
claim (expense)/income 32 - - - - 32
Contingent consideration Other operating
adjustment (expense)/income 7 - - - - 7
MENA severance
and restructuring
costs SG&A - - (7) - - (7)
Integration costs Revenue - 4 - - - 4
Loss from investment
divestiture Other expenses - - - (4) - (4)
Impairment reversal
of product related Other operating
intangibles, net (expense)/income 20 - - - - 20
Exceptional items 29 4 (14) (4) - 15
---------------------------------------------------- --------- ------------ -------- ------- ------------ ------
Other adjustments
Intangible assets
amortisation other
than software SG&A (2) (22) (10) - - (34)
Unwinding and
remeasurement
of contingent
consideration,
financial liability
and asset, net Finance income/(expense) - - - - 45 45
------------------------- ------------------------- --------- ------------ -------- ------- ------------ ------
Exceptional items and Other
adjustments including in profit
before tax 27 (18) (24) (4) 45 26
---------------------------------------------------- --------- ------------ -------- ------- ------------ ------
Tax benefit associated
with previously
unrecognised deferred
tax assets Tax - - - - 49 49
Tax benefit associated
with the internal
reorganisation
of intangible assets Tax - - - - 48 48
Tax effect on
exceptional
items and other
adjustments Tax - - - - (1) (1)
------------------------- ------------------------- --------- ------------ -------- ------- ------------ ------
Impact on profit
for the year 27 (18) (24) (4) 141 122
---------------------------------------------------- --------- ------------ -------- ------- ------------ ------
- R&D cost: Hikma incurred $24 million of research and
development costs related to a repeat clinical endpoint study for
generic Advair Diskus(R). The study was completed in November 2019.
The study and certain additional information was submitted to the
US FDA for their review. In December 2020, Hikma has received the
US FDA approval
- Jordan warehouse fire incident: During 2019, a fire broke out
in a warehouse at one of Hikma's Jordan facilities which serves the
Generics and Branded segments. Production was halted for a period
of time and inventory was damaged. The associated loss was $17
million, mainly comprising damaged inventory and the cost to
remediate property, plant and equipment. Up to 31 December 2019,
the Group has received part of the insurance compensation of $4
million related to the fire incident resulting in a net exceptional
expense of $13 million
- Proceeds from legal claim: Hikma received compensation
proceeds of $32 million in relation to a litigation matter with an
external party where one of Hikma's product's sales were halted by
a temporary restraining order and an injunction. The litigation was
resolved in Hikma's favour and a payment was received from the
plaintiff representing lost profit over the affected time
period
- Contingent consideration adjustment: The contingent
consideration adjustment of $7 million 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 $7 million related
to one-off organisational restructuring in MENA
- Integration costs: 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. This was previously
provided for in 2018 as exceptional items
- Loss from investment divestiture: $4 million loss from
divestiture of Medlac investment
- Impairment reversal of product related intangibles, net: $21
million impairment reversal of product related intangibles related
to specific product related assets in Generics segment offset by $1
million impairment charge
- Tax (expense) benefit associated with previously unrecognised
deferred tax assets: The Group has benefitted $49 million from the
utilisation of previously unrecognised deferred tax assets
following the internal reorganisation of intangible assets (Note
6)
- Tax benefit associated with the internal reorganisation of
intangible assets: The Group has recorded a $48 million tax benefit
associated with the internal reorganisation of intangible assets
(Note 6)
Other adjustments
Remeasurement of contingent consideration, financial liability
and asset represents the net difference resulting from the
valuation of the liabilities and assets associated with the future
contingent payments and receivables in respect of contingent
consideration recognised through business combinations and the
financial liability in relation to the co-development earnout
payment agreement. The remeasurement is included in finance income
and expense .
Intangible assets amortisation other than software of $42
million (2019: $34 million)
6. Tax
2020 2020 2020 2019 2019 2019
Core Exceptional Reported Core Exceptional Reported
results items and results results items and results
other adjustments other adjustments
(Note 5) (Note 5)
$m $m $m $m $m $m
---------------- ------------------------------ ---------------- --------------- --------------------------- ---------------
Current tax:
UK
corporation - - - 16 32 48
Foreign tax 99 (2) 97 73 (3) 70
Adjustment to
prior year (1) 3 2 - - -
Deferred tax
Current year 19 12 31 2 (125) (123)
Adjustment to
prior year (2) - (2) 9 - 9
---------------- ------------------------------ ---------------- --------------- --------------------------- ---------------
115 13 128 100 (96) 4
---------------- ------------------------------ ---------------- --------------- --------------------------- ---------------
UK corporation tax is calculated at 19.0% (2019: 19.0%) of the
estimated assessable profit made in the UK for the year .
The Group incurred a tax expense of $128 million (2019: $4
million). The effective tax charge rate is 22.9% (2019: 0.8%). The
reported effective tax rate is higher than the statutory rate
primarily due to the earnings mix.
Taxation for all jurisdictions is calculated at the rates
prevailing in the respective jurisdiction.
The charge for the year can be reconciled to profit before tax
per the consolidated income statement as follows:
2020 2019
$m $m
----- -----
Profit before tax 558 491
Tax at the UK corporation tax rate of 19.0% (2019: 19.0%) 106 93
Profits taxed at different rates 7 3
Permanent differences
- Non-deductible expenditure 7 4
- Rate differential on unrealised intercompany profits on inventory sales - 1
- Other permanent differences - 2
- R&D benefit (3) (2)
State and local taxes 8 7
Temporary differences
- Rate change tax losses and other deductible temporary differences for which no benefit is
recognised 6 2
- Exceptional tax expenses/(benefit) associated with previously unrecognised tax losses (Note
5) 3 (49)
- Exceptional tax (benefit) associated with the internal reorganisation of intangible assets
(Note 5) - (48)
Change in provision for uncertain tax positions (8) (14)
Unremitted earnings 4 (4)
Prior year adjustments (2) 9
Tax expense for the year 128 4
----- -----
Profits taxed at different tax rates relates to profits arising
in overseas jurisdictions where the tax rate differs from the UK
statutory rate .
Permanent differences relate to items which are non-taxable or
for which no tax relief is ever likely to be due. The major items
are expenses and income disallowed where they are covered by
statutory exemptions, foreign exchange differences in some
territories and statutory reliefs such as R&D. In 2020, the
R&D benefit is now presented in a separate line item due to its
increasing relevance to the effective tax rate. The comparative
figures were reclassified to match the 2020 disclosure (in 2019,
the R&D benefit of $2 million was split equally between the
non-taxable income and the non-deductible expenditure line
items).
Rate change tax losses and other deductible temporary
differences for which no benefit is recognised includes items for
which it is not possible to book deferred tax and comprise mainly
unrecognised tax losses .
The exceptional tax benefit associated with previously
unrecognised tax losses is a result of the internal reorganisation
of intangible assets during 2019 .
The exceptional tax benefit associated with the 2019 internal
reorganisation of intangible assets is mainly due to a higher
amortisable base resulting in a higher estimated future tax
deduction .
The change in provision for uncertain tax positions relates to
the provisions the Group holds in the event of a revenue authority
successfully taking an adverse view of the positions adopted by the
Group in 2020 and primarily relates to a transfer pricing
adjustment. As at the consolidated balance sheet date, the Group
held an aggregate provision in the sum of $43 million (2019: $53
million) in respect of liabilities likely to arise from estimation
uncertainties. Hikma released $8 million in 2020 (2019: $9 million)
due to the statute of limitations and released $4 million (2019:
$12 million) following settlements. This was offset by new
provisions and updates of $4 million booked in 2020 (2019: $7
million). The currency exchange differences for the year is a $2
million reduction to the aggregate provision. In 2021, up to $7
million could be released primarily on the same grounds. If all
areas of uncertainty were audited and all areas resulted with an
adverse outcome, management does not believe any material
additional tax would be payable beyond what is provided.
Prior year adjustments include differences between the tax
liability recorded in the tax returns submitted for previous years
and estimated tax provision reported in a prior period's
consolidated financial statements. This category also includes
adjustments (favourable or adverse) in respect of uncertain tax
positions.
Publication of tax strategy
In line with the UK requirement for large UK businesses to
publish their tax strategy, Hikma's tax strategy has been made
available on the Group's website.
7. Dividends
Paid in Paid in
2020 2019
$m $m
-------- --------
Amounts recognised as distributions to equity
holders in the year:
Final dividend for the year ended 31 December
2019 of 30.0 cents (31 December 2018: 26.0 cents)
per share 72 63
Interim dividend during the year ended 31 December
2020 of 16.0 cents (31 December 2019: 14.0 cents)
per share 37 34
-------- --------
109 97
-------- --------
The proposed final dividend for the year ended 31 December 2020
is [34.0] cents (2019: 30.0 cents).
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting on 23 April 2021 and has
not been included as a liability in these consolidated financial
statements. Based on the number of shares in free issue at 31
December 2020 (230,458,116), the unrecognised liability is $78
million.
8. Earnings per share (EPS)
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the parent by the weighted
average number of Ordinary Shares. Diluted EPS is calculated by
dividing the profit attributable to ordinary equity holders by the
weighted average number of the Ordinary Shares outstanding during
the year plus the weighted average number of Ordinary Shares that
would be issued on conversion of all dilutive potential Ordinary
Shares into Ordinary Shares. The number of Ordinary Shares used for
the basic and diluted calculations is shown in the table below.
Core basic earnings per share and core diluted earnings per share
are intended to highlight the core results of the Group before
exceptional items and other adjustments.
2020 2020 2020 2019 2019 2019
Core Exceptional Reported Core Exceptional Reported
results items results results items results
and other and other
adjustments adjustments
(Note (Note
5) 5)
$m $m $m $m $m $m
--------- ------------- ---------- --------- ------------- ----------
Earnings for the
purposes of basic
and diluted EPS
being net profit
attributable to
equity holders
of the parent 408 23 431 364 122 486
--------- ------------- ---------- --------- ------------- ----------
Basic earnings per share has been calculated by dividing the
profit attributable to shareholders by the weighted average number
of shares in issue during the period after deducting shares held by
the Employee Benefit Trust (EBT) and Treasury shares. The trustees
have waived their rights to dividends on the shares held by the
EBT, and Treasury shares have no right to receive dividends.
The numbers of shares used in calculating basic and diluted
earnings per share are reconciled below:
2020 2019
Number Number
Number of shares m m
------- -------
Weighted average number of Ordinary Shares for the purposes of basic EPS(1) 236 242
Effect of dilutive potential Ordinary Shares:
Share-based awards 2 1
------- -------
Weighted average number of Ordinary Shares for the purposes of diluted EPS 238 243
------- -------
(1) Weighted average number of ordinary shares has been
calculated by the weighted average number of shares in issue during
the period after deducting shares held by the EBT and Treasury
shares (Note 14)
2020 2020 2019 2019
Core Reported Core Reported
EPS EPS EPS EPS
Cents Cents Cents Cents
--------- ------ ---------- ------ ----------
Basic 172.9 182.6 150.4 200.8
--------- ------ ---------- ------ ----------
Diluted 171.4 181.1 149.8 200.0
--------- ------ ---------- ------ ----------
9. Goodwill and other intangible assets
The changes in the carrying value of goodwill and other
intangible assets for the years ended 31 December 2020 and 31
December 2019 are as follows:
Goodwill Product-related Software Other Total
intangibles identified
intangibles
$m $m $m $m $m
--------- ---------------- --------- ------------- ---------
Cost
Balance at 1 January
2019 687 1,015 130 130 1,962
Additions - 17 18 54 89
Translation adjustments 3 1 (1) - 3
--------------------------- --------- ---------------- --------- ------------- ---------
Balance at 1 January
2020 690 1,033 147 184 2,054
--------------------------- --------- ---------------- --------- ------------- ---------
Additions - 8 12 16 36
Disposals - - (14) - (14)
Translation adjustments 7 - - 5 12
--------------------------- --------- ---------------- --------- ------------- ---------
Balance at 31 December
2020 697 1,041 145 205 2,088
--------------------------- --------- ---------------- --------- ------------- ---------
Accumulated Amortisation
& Impairment
Balance at 1 January
2019 (408) (658) (66) (64) (1,196)
Charge for the year - (21) (10) (13) (44)
Impairment reversal - 21 - - 21
Impairment charge - (2) (1) - (3)
Translation adjustments - - 2 - 2
--------------------------- --------- ---------------- --------- ------------- ---------
Balance at 1 January
2020 (408) (660) (75) (77) (1,220)
--------------------------- --------- ---------------- --------- ------------- ---------
Charge for the year - (29) (10) (14) (53)
Disposals - - 14 - 14
Impairment reversal - 66 - - 66
Impairment charge - (5) (10) - (15)
Translation adjustments - (1) - (3) (4)
--------------------------- --------- ---------------- --------- ------------- ---------
Balance at 31 December
2020 (408) (629) (81) (94) (1,212)
--------------------------- --------- ---------------- --------- ------------- ---------
Carrying amount
--------------------------- --------- ---------------- --------- ------------- ---------
At 31 December 2020 289 412 64 111 876
--------------------------- --------- ---------------- --------- ------------- ---------
At 31 December 2019 282 373 72 107 834
--------------------------- --------- ---------------- --------- ------------- ---------
Goodwill
Goodwill acquired in a business combination is allocated at
acquisition to the cash generating units (CGUs) that are expected
to benefit from that business combination. The carrying amount of
goodwill has been allocated as follows:
As at 31 December
--------------------
2020 2019
$m $m
--------- ---------
Branded 173 168
Injectables 116 114
--------- ---------
Total 289 282
--------- ---------
In accordance with the Group policy, goodwill is tested annually
for impairment during the fourth quarter or more frequently if
there are indicators that goodwill may be impaired.
Details related to the discounted cash flow models used in the
impairment tests of the CGUs are as follows:
Valuation basis Value in use (VIU)
------------------------------ ---------------------------------------------------------------------- ------
Key assumptions Sales growth rates, informed by pricing and
volume assumptions
Profit margins and profit margin growth rates
for marketed and pipeline products
Expected launch dates for pipeline products
Terminal growth rates
Discount rates
------------------------------ ---------------------------------------------------------------------- ------
Determination of assumptions Growth rates are internal forecasts based on both
internal and external market information, informed
by historical experience and management's best
estimates of the future
Margins reflect past experience, adjusted
for expected changes in the future
Terminal growth rates are based on the Group's
experience in its markets
Discount rates for CGU are derived from
specific regions/countries, risk adjusted
where appropriate
Period of specific 5 years, to which a terminal
projected cash flows growth rate is then applied
------------------------------ ----------------------------------- --------------------- ------------------
Terminal growth rate Terminal Pre-tax
and discount rate growth discount
rate (perpetuity) rate
----------------------------------- --------------------- ------------------
2020 2019 2020 2019
----------------------------------- ------------ ------- ---------- ------
Branded 2.4% 2.8% 16.6% 18.0%
Injectables 2.1% 1.9% 11.1% 13.0%
Generics 2.3% 1.6% 12.7% 15.0%
generic Advair Diskus(R) -(1) -(1) 13.7% 17.7%
------------------------------------------------------------------ ------------ ------- ---------- ------
(1) generic Advair Diskus(R) is expected to have a useful life
of 11 years, as the asset is not in use, it is not currently being
amortised
CGUs: The Group performed its annual goodwill and CGU impairment
for the Branded, Injectables, Generics and generic Advair Diskus(R)
CGUs. The Group's model is a VIU model based on the discounted
value of the best estimates of the key assumptions to arrive at the
recoverable value. This value is then compared to the carrying
value of the CGU to determine whether an impairment is required. In
addition, the Group models sensitivities on the VIU amounts
calculated to determine whether reasonable changes in key
assumptions could lead to a potential impairment. If such
reasonable changes results in an impairment, then in accordance
with IAS36 these are disclosed below. For the Branded, Injectables
and Generics CGUs the Group has determined that sufficient headroom
(2) still exists under reasonable change scenarios. Specifically,
an evaluation of the CGUs was made assuming an increase of 2% in
the discount rate, or a 10% decline in the projected cash flows, or
a 5% decline in the projected cash flows in the terminal year, or
reducing the terminal growth rate by 2% and in all cases sufficient
headroom exists.
The Group evaluated generic Advair Diskus(R) as a separate CGU,
mainly due to its distinct assets and liabilities and its ability
to generate largely independent cash flows. The generic Advair
Diskus(R) VIU was calculated using a probability weighted average
of three scenarios.
In December 2020, the Group received FDA approval of generic
Advair Diskus(R). Launch has been temporarily paused while the FDA
reviews an amendment to the application, classified as a Prior
Approval Supplement (PAS). The PAS does not affect the status of
the Abbreviated New Drug Application (ANDA) for generic Advair
Diskus(R) The amendment reflects enhanced packaging controls to
meet new industry standards adopted since the initial submission of
the ANDA application.
As of 31 December 2020, the Group performed sensitivity analysis
over the valuation of the generic Advair Diskus(R) CGU. The
sensitivity analysis assumed a further delay of three months to the
projected launch date and a 15% reduction in the projected cash
flows from lower conversion rates from the branded product and
earlier competitor entries, which assumptions eroded the $26m of
headroom. A further reduction of the cash flows by an additional
10% would imply an impairment of about $10m. As per the Group's
policy, whilst approval has been obtained, generic Advair Diskus(R)
has not been launched, meaning that none of the previously
identified indicators of impairment have reversed.
As at 31 December 2020, the Group had entered into contractual
commitments for the acquisition of intangible assets of $nil
million (2019: $5 million).
(2) Headroom is defined as the excess of the value in use, over
the carrying value of a CGU
Product-related intangible assets
In-Process Research and Development (IPR&D)
IPR&D consists of pipeline products of $170 million (2019:
$182 million) mainly relating to generic Advair Diskus(R) of $138
million and Generics of $25 million CGUs with immaterial amounts
allocated to the Branded and Injectables CGUs. These intangibles
are not in use and accordingly, no amortisation has been charged
against them. The Group performs an impairment review of IPR&D
assets annually. The result of this test was an impairment charge
of $4 million (2019: $2 million).
Product rights
Whenever impairment indicators are identified for definite life
intangible assets, Hikma reconsiders the asset's estimated life,
calculates the value of the individual assets or asset group's cash
flows and compares such value against the individual asset's or
asset group's carrying amount. If the carrying amount is greater,
the Group records an impairment loss for the excess of book value
over the valuation which is based on the discounted cash flows by
applying an appropriate pre-tax WACC rate that reflects the risk
factors associated with the cash flows and the CGUs under which
these products sit. The more significant estimates and assumptions
inherent in the estimate of the value in use of identifiable
intangible assets include all assumptions associated with
forecasting product profitability. Furthermore, if there is an
indication that previously recognised impairment losses no longer
exist or have decreased, the Group estimates the assets'
recoverable amounts. A previously recognised impairment loss is
reversed only if there has been a sustained and discrete change in
the assumptions and indicators used to determine the asset's
recoverable amount since the last impairment loss was recognised.
The reversal is limited so that the carrying amount of the asset
does not exceed its recoverable amount, nor exceed the carrying
amount that would have been determined, net of depreciation and
amortisation, had no impairment loss been recognised for the asset
in prior years. As at 31 December 2020, the result of this testing
was an impairment charge of $1 million (2019: $nil) and an
impairment reversal of $66 million (2019: $21 million) related to
specific product related assets (Generics segment) due to improved
performance and
forecasted profitability, as a result of events including, but
not limited to, improved commercial terms, favorable market
conditions and the speed of regulatory approvals.
A net reversal of $62 million was considered as an exceptional
item related to product related intangibles acquired through a
business combination (Note 5).
Software
Software intangibles mainly represent the Enterprise Resource
Planning solutions that are being implemented in different
operations across the Group in addition to other software
applications. The software has an average estimated useful life
that varies from three to ten years.
In 2020, the Group recorded an impairment charge of $10 million
related to software (2019: $1 million)
Other identified intangibles
The Group has performed an impairment indicators on other
identified intangibles and did not identify any issues.
Customer relationships
Customer relationships represent the value attributed to
existing direct customers that the Group acquired on the
acquisition of subsidiaries. The customer relationships have an
average estimated useful life of 15 years.
Trade names
Trade names were mainly recognised on the acquisition of Hikma
Germany GmbH (Germany) and Promopharm with estimated useful lives
of ten years.
Marketing rights
Marketing rights are amortised over their useful lives
commencing in the year in which the rights are ready for use with
estimated useful lives varying from two to ten years.
10. Trade and other receivables
As at 31 D ecember
---------------------
2020 2019
$m $m
------------------------------- ---------- ---------
Trade receivables 662 637
Prepayments 58 49
VAT and sales tax recoverable 35 31
Employee advances 1 2
------------------------------- ---------- ---------
756 719
------------------------------- ---------- ---------
The fair value of receivables is estimated to be equal to the
carrying amounts.
Trade receivables are stated net of provisions for chargebacks
and expected credit loss allowance as follows:
As at 31 Additions/ Utilisation Translation As at 31
December (Releases), adjustments December
2019 net $m 2020
$m $m $m $m
-------------------- ---------- ------------- ------------ ------------- ----------
Chargebacks and
other allowances 280 1,865 (1,889) - 256
Expected credit
loss allowance(1) 55 2 (1) (1) 55
-------------------- ---------- ------------- ------------ ------------- ------------
335 1,867 (1,890) (1) 311
-------------------- ---------- ------------- ------------ ------------- ------------
(1) Includes additions of $5 million and release of $2
million
At 31 December 2020, the provision balance relating to
chargebacks was $184 million (2019: $179 million) within what
management believes is a reasonable range for the provision of $181
million to $185 million. The key inputs and assumptions included in
calculating this provision are estimations of 'in channel'
inventory at the wholesalers (including processing lag) of 40 days
(2019: 38 days) and the estimated chargeback rates as informed by
average historical chargeback credits adjusted for expected
chargeback levels for new products and estimated future sales
trends. Based on the conditions existing at the balance sheet date
an increase/decrease in the estimate of in channel inventory by 1
day increases/ decreases the provision by $5million and if the
overall chargeback rate of 55% increases/decreases by one
percentage point the provision would increase/decrease by $3
million.
At 31 December 2020 the provision balance relating to customer
rebates was $57 million (2019: $88 million) within what management
believes is a reasonable range for the provision of $55 million to
$57 million. The key inputs and assumptions included in calculating
this provision are historical relationships of rebates and payments
to revenue, past payment experience, estimate of 'in channel'
inventory at the wholesalers and estimated future trends. Based on
the conditions existing at the balance sheet date, a one percentage
point increase/decrease in the rebates rate of 7.8% would
increase/decrease this provision by approximately $7 million.
11. Short-term financial debts
As at 31 December
--------------------
2020 2019
$m $m
------------------------------------------ --------- ---------
Bank overdrafts 3 6
Import and export financing 67 52
Short-term loans 47 2
Current portion of long-term loans (Note
12) (1) 41 509
------------------------------------------ --------- ---------
158 569
------------------------------------------ --------- ---------
(1) At April 2020, the Group settled a $500 million five-year
Eurobond that was issued in 2015. The Group used the revolving
credit facility (refer to Note 12) to settle the outstanding
Eurobond
2020 2019
% %
----------------------------------------- ----- -----
The weighted average effective interest
rates paid are as follows:
Bank overdrafts 4.25 5.35
Bank loans (including the non-current
bank loans) 3.04 5.82
Eurobond(2) 4.17 4.25
Import and export financing (3) 5.70 6.17
----------------------------------------- ----- -----
(2) In 2020, the Eurobond effective interest comprised the 4.25%
2015 $500 million Eurobond settled in April 2020, and the 3.25%
$500 million Eurobond issued in July. Noting that the Eurobond
effective interest rate includes unwinding of discount amount and
upfront fees
(3) Import and export financing represents short-term financing
for the ordinary trading activities of the Group
12.Long-term financial debts
As at 31 December
2020 2019
$m $m
------------------------------------------ --------- ---------
Long-term loans 242 57
Long-term borrowings (Eurobond) 491 500
Less: current portion of long-term loans
(Note 11) (41) (509)
------------------------------------------ --------- ---------
Long-term financial loans 692 48
------------------------------------------ --------- ---------
Breakdown by maturity:
Within one year 41 509
In the second year 48 12
In the third year 44 12
In the fourth year 36 15
In the fifth year 522 6
In the sixth year 21 2
Thereafter 21 1
------------------------------------------ --------- ---------
733 557
------------------------------------------ --------- ---------
Breakdown by currency:
US dollar 642 508
Euro 54 16
Jordanian dinar 13 12
Algerian dinar 14 20
Saudi riyal 9 -
Tunisian dinar 1 1
------------------------------------------ --------- ---------
733 557
------------------------------------------ --------- ---------
The loans are held at amortised cost.
Long-term loans amounting to $1 million (31 December 2019: $1
million) are secured on certain property, plant and equipment.
Major arrangements entered by the Group during the year
were:
a) A syndicated revolving credit facility of $1,175 million was
entered into on 27 October 2015. From the $1,175 million, $175
million matured on 24 December 2019, $130 million mature in January
2021 and the remaining $870 million was renewed until December
2023. At 31 December 2020 the facility has an outstanding balance
of $nil (2019: $nil) and a $1,000 million unused available limit
(2019: $1,000 million). The facility can be used for general
corporate purposes
b) 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 since April 2020. Quarterly equal
repayments of the long-term loan will commence on 15 March 2021.
The loan was used for general corporate purposes. The facility
matures on 15 December 2027
c) At April 2020, the Group settled a $500 million five-year
Eurobond that was issued in 2015
d) Hikma issued a $500 million (carrying value of $491 million,
and fair value of $521 million) 3.25%, five-year Eurobond on 9 July
2020 with a rating of (BBB-/Ba1) which is due in July 2025. The
proceeds of the issuance were $494 million which were used for
general corporate purposes
e) An eight-year $200 million loan from the International
Finance Corporation and Managed Co-lending Portfolio program was
entered into on 26 October 2020. There was no utilisation of the
loan as of December 2020. The facility matures on 15 September 2028
and can be used for general corporate purposes
At 31 December 2020, there were two covenants in place on the
Group's revolving and banking facilities with which the Group was
in compliance. The Group also expects to be in compliance in the
future.
13. Net cash generated from operating activities
2020 2019
$m $m
------- ------
Profit before tax 558 491
Adjustments for:
Depreciation, amortisation, impairment, and
write-down of:
Property, plant and equipment 77 64
Intangible assets 2 26
Right of Use of Assets 12 9
Gain from investment at FVTPL (1) (2)
Loss from investment divestiture - 4
Loss on disposal/damage of property, plant and
equipment 2 3
Movement on provisions 4 -
Cost of equity-settled employee share scheme 27 24
Finance income (47) (66)
Interest and bank charges 69 67
Foreign exchange loss and net monetary hyperinflation
impact 30 4
------------------------------------------------------- ------- ------
Cash flow before working capital 733 624
------------------------------------------------------- ------- ------
Change in trade and other receivables (47) 21
Change in other current assets (14) (2)
Change in inventories (180) (25)
Change in trade and other payables 6 (6)
Change in other current liabilities 41 50
Change in other non-current liabilities (14) (82)
------------------------------------------------------- ------- ------
Cash generated from operations 525 580
------------------------------------------------------- ------- ------
14. Share capital
Issued and fully paid - included in shareholders' equity:
2020 2019
------------------ -------------------
Number $m Number $m
---------------- ------------ ---- ------------- ----
At 31 December 243,332,180 41 242,319,174 41
---------------- ------------ ---- ------------- ----
At 31 December 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 230,458,116 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. Hikma also incurred $6 million of
transaction costs related to legal fees, financial advisory fees
and UK stamp duty bringing the total book value to $368 million,
the market value at 31 December 2020 was $442 million. The buyback
and related transaction costs and commitment fee were accounted for
as equity transactions.
Shares held in EBT
EBT of Hikma holds 40,831 (2019: 40,831) Ordinary Shares in the
Company. The trustee of the EBT is Apex Financial Services (Trust
Company) Limited an independent trustee. The market value of the
Ordinary Shares held in the EBT at 31 December 2020 was $1 million
(2019: $1 million). The book value of the retained own shares at 31
December 2020 are $0.6 million (2019: $0.6 million). 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.
15. 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 $41
million (31 December 2019: $40 million) arising in the normal
course of business. No provision for these liabilities has been
made in these consolidated financial statements.
A contingent liability existed at the balance sheet date for a
standby letter of credit totalling $8 million (2019: $9 million)
for 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 Proceedings
The Group is involved in a number of legal proceedings in the
ordinary course of its business, including actual or threatened
litigation and actual or potential government investigations
relating to employment matters, product liability, commercial
disputes, pricing, sales and marketing practices, infringement of
IP rights, the validity of certain patents and competition
laws.
Most of the claims involve highly complex issues. Often these
issues are subject to substantial uncertainties and, therefore, the
probability of a loss, if any, being sustained and/or an estimate
of the amount of any loss is difficult to ascertain. It is the
Group's policy to accrue for amounts related to these legal matters
if it is probable that a liability has been incurred and an amount
is reasonably estimable. Unless specifically identified below that
a provision has been taken, the Group does not believe sufficient
evidence exists at this point to make any provision.
- 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. Management does
not believe sufficient evidence exists at this point to make any
provision for this currently.
- Starting in 2016, several complaints have been filed in the
United States on behalf of putative classes of direct and indirect
purchasers of generic drug products, as well as several individual
direct purchasers opt-out plaintiffs (including two products).
These complaints, which allege that the defendants engaged in
conspiracies to fix, increase, maintain and/or stabilise the prices
of the 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 state laws. Hikma denies having engaged in conduct that
would give rise to liability with respect to these civil suits and
is vigorously pursuing defense of these cases. Management does not
believe sufficient evidence exists at this point to make any
provision for this currently.
- Starting in June 2020, several complaints have been filed in
the United States on behalf of putative classes of direct and
indirect purchasers of Xyrem(R) against Hikma and other defendants.
These complaints allege that the Jazz Pharmaceuticals PLC and its
subsidiaries entered into unlawful reverse payment agreements with
each of the defendants, including Hikma, in settling patent
infringement litigation over Xyrem(R). The plaintiffs in these
lawsuits seek treble damages and a permanent injunction. Hikma
denies having engaged in conduct that would give rise to liability
with respect to these lawsuits and is vigorously pursuing defence
of these cases. Management does not believe sufficient evidence
exists at this point to make any provision for this currently.
- Numerous complaints have been filed with respect to Hikma's
sales and distribution of opioid products. Those complaints now
total approximately 661 in number. 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 defense of these cases. Management does not
believe sufficient evidence exists at this point to make any
provision for this currently.
- In October 2020, Hikma received a voluntary request for
information from the US Federal Trade Commission requesting
information related to its investigation into whether Amarin
Pharma, Inc. has engaged in, or is engaging in, anticompetitive
practices or unfair methods of competition relating to the drug
Vascepa(R). In October 2020, Hikma also received a subpoena duces
tecum from the State of New York, Office of the Attorney General,
seeking information relevant and material to an investigation
related to Amarin Pharma, Inc. Hikma is cooperating with all such
demands.
- In March 2020, Hikma entered into an agreement settling a
patent litigation between it and Micro Labs USA Inc. Hikma
initiated the lawsuit against Micro Labs in the U.S. District Court
for the District of Delaware after Micro Labs submitted a Paragraph
IV Notice Letter advising that it has submitted an Abbreviated New
Drug Application to the U.S. Food and Drug Administration seeking
authorization from the FDA to manufacture, use or sell a generic
version of Mitigare(R) colchicine 0.6 mg capsules in the United
States. The specific terms of the settlement agreement are
confidential.
Tax
On 25 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 $2.4 million. Hikma has
also filed it's own appeal at the CJEU and is in correspondence
with HMRC. To data, based on management's understanding of
legislation and professional advice taken on the matter, management
does not believe that a provision is warranted.
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END
FR SEAEELEFSEDE
(END) Dow Jones Newswires
February 25, 2021 02:00 ET (07:00 GMT)
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