Hikma Pharmaceuticals Plc Half-year Report

Data : 09/08/2019 @ 08:00
Fonte : UK Regulatory (RNS & others)
Titolo : Hikma Pharmaceuticals Plc (HIK)
Quotazione : 1884.5  -16.5 (-0.87%) @ 17:35
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Hikma Pharmaceuticals Plc Half-year Report

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RNS Number : 4805I

Hikma Pharmaceuticals Plc

09 August 2019

London, 9 August 2019 - Hikma Pharmaceuticals PLC (Hikma, Group) (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY) (LEI: 549300BNS685UXH4JI75) (rated Ba1/stable Moody's and BB+/positive S&P), the multinational pharmaceutical company, today reports its interim results for the six months ended 30 June 2019.

H1 2019 core(1) results summary

   --   Group core revenue of $1,043 million, up 7% 
   --   Group core operating profit of $246 million, up 15% 
   --   Core basic earnings per share of 72.7 cents, up 18% 

-- Raising full year expectations for Generics and now expect Injectables to be towards the higher end of our previous full year guidance range

H1 2019 reported results summary

   --   Group revenue of $1,047 million, up 7% 
   --   Group operating profit of $238 million, up 37% 
   --   Cashflow from operating activities of $187 million (H1 2018: $185 million) 
   --   Net debt of $361 million (December 2018: $361 million) and low leverage ratios maintained 
   --   Basic earnings per share of 76.4 cents, up 74% 
   --   Interim dividend increased 17% to 14 cents per share 

Strategic highlights

   --   Appointed new Chief Scientific Officer, strengthening our R&D capabilities 
   --   Launched 37 new products across all markets, expanding our global product portfolio 
   --   Signed 7 product licensing agreements for the US and MENA 
   --   Entered into long-term supply agreement with Civica Rx for essential injectable products 

Siggi Olafsson, Chief Executive Officer of Hikma, said:

"All of our businesses are performing well. We are delivering more from our unique and diversified business model, leading market positions and high-quality operations to drive strong organic growth. Our good half-year financial results demonstrate the breadth and resilience of our marketed portfolio, successful pipeline launches and actions we've taken to reduce costs and increase efficiencies. During the first half, we continued to focus on pipeline development. We increased investment in our R&D programmes, added new products through partnerships and strengthened our R&D team.

I am very pleased with our first half performance, and the increase in our full year guidance reflects our confidence for the remainder of the year."

Summary financials

 
 Core results                                                       Constant 
                                    H1 2019     H1 2018             currency 
                                   $million    $million   Change      change 
 Core revenue                         1,043         979       7%          7% 
                                 ----------  ----------  -------  ---------- 
 Core operating profit                  246         214      15%         15% 
                                 ----------  ----------  -------  ---------- 
 Core EBITDA(2)                         288         252      14%         14% 
                                 ----------  ----------  -------  ---------- 
 Core profit attributable to 
  shareholders                          176         148      19%         20% 
                                 ----------  ----------  -------  ---------- 
 Core basic earnings per share 
  (cents)                              72.7        61.4      18%         19% 
                                 ----------  ----------  -------  ---------- 
 
 
 Reported results                                                         Constant 
                                          H1 2019     H1 2018             currency 
                                         $million    $million   Change      change 
 Revenue                                    1,047         979       7%          8% 
                                       ----------  ----------  -------  ---------- 
 Operating profit                             238         174      37%         37% 
                                       ----------  ----------  -------  ---------- 
 EBITDA                                       297         230      29%         30% 
                                       ----------  ----------  -------  ---------- 
 Profit attributable to shareholders          185         106      75%         75% 
                                       ----------  ----------  -------  ---------- 
 Basic earnings per share (cents)            76.4        44.0      74%         75% 
                                       ----------  ----------  -------  ---------- 
 

Enquiries

Hikma Pharmaceuticals PLC

 
 Susan Ringdal 
  EVP, Strategic Planning and Global    +44 (0)20 7399 2760/ +44 7776 
  Affairs                                477050 
 Lucinda Baker                          +44 (0)20 7399 2765/ +44 7818 
  Director, Investor Relations           060211 
 

FTI Consulting

 
 Ben Atwell/Andrew Ward    +44 (0)20 3727 1000 
 

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 8,400 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.

A presentation for analysts and investors will be held today at 09:30 UK time at FTI Consulting, 200 Aldersgate, Aldersgate Street, London EC1A 4HD. To join via conference call please dial: +44 (0) 20 3936 2999 or +1 646 664 1960, access code: 706288. Alternatively, the results presentation and a webcast recording of the event will be available at https://webcast.openbriefing.com/hikma-9819/.

Business and financial review

The business and financial review set out below summarises the performance of the Group and the three main business segments, Injectables, Generics and Branded, for the six months ended 30 June 2019.

Group

 
                                                                            Constant 
                                           H1 2019      H1 2018             currency 
                                         $ million    $ million   Change      change 
 Revenue                                     1,047          979       7%          8% 
                                       -----------  -----------  -------  ---------- 
 Core revenue                                1,043          979       7%          7% 
                                       -----------  -----------  -------  ---------- 
 Gross profit                                  548          490      12%         12% 
                                       -----------  -----------  -------  ---------- 
 Core gross profit                             544          495      10%         11% 
                                       -----------  -----------  -------  ---------- 
 Core gross margin                           52.2%        50.6%    1.6pp       1.5pp 
                                       -----------  -----------  -------  ---------- 
 Operating profit                              238          174      37%         37% 
                                       -----------  -----------  -------  ---------- 
 Core operating profit                         246          214      15%         15% 
                                       -----------  -----------  -------  ---------- 
 Core operating margin                       23.6%        21.9%    1.7pp       1.6pp 
                                       -----------  -----------  -------  ---------- 
 Profit attributable to shareholders           185          106      75%         75% 
                                       -----------  -----------  -------  ---------- 
 Core profit attributable to 
  shareholders                                 176          148      19%         20% 
                                       -----------  -----------  -------  ---------- 
 Basic earnings per share (cents)             76.4         44.0      74%         75% 
                                       -----------  -----------  -------  ---------- 
 Core basic earnings per share 
  (cents)                                     72.7         61.4      18%         19% 
                                       -----------  -----------  -------  ---------- 
 

Group revenue was $1,047 million in H1 2019. Group core revenue grew 7% to $1,043 million (H1 2018: $979 million) reflecting strong sales of our in-market products and new product launches. Group core gross profit increased 10% to $544 million (H1 2018: $495 million), primarily due to the strong growth of the Generics business. Group core gross margin was 52.2% (H1 2018: 50.6%).

Group operating expenses were $310 million (H1 2018: $316 million). Excluding $12 million of adjustments related to the amortisation of intangible assets other than software of $17 million (H1 2018: $15 million) and net income from exceptional items of $5 million (H1 2018: net expense $20 million), core Group operating expenses were $298 million (H1 2018: $281 million).

Selling, general and administrative (SG&A) expenses were $237 million (H1 2018: $225 million). Excluding the amortisation of intangible assets other than software and exceptional items,(3) SG&A expenses grew 3% to $216 million (H1 2018: $209 million), primarily due to the cost of strengthening our corporate functions during the course of 2018.

Research and development (R&D) expenses were $72 million (H1 2018: $63 million). Excluding exceptional items, (4) core R&D expenses were $58 million (H1 2018: $47 million). This reflects increased investment in our Generics and Injectables R&D programmes as we build our pipeline of higher-value and complex products. Core R&D expense was 6% of Group core revenue (H1 2018: 5%).

Other net operating expenses were $1 million in H1 2019. Excluding exceptional items,(5) core other net operating expenses were $24 million (H1 2018: $25 million), which primarily comprised inventory provisions.

Group reported operating profit was $238 million (H1 2018: $174 million). Excluding the impact of amortisation (other than software) and exceptional items, core Group operating profit increased by 15% to $246 million (H1 2018: $214 million) and core operating margin was 23.6% (H1 2018: 21.9%), reflecting a strong improvement in the profitability of the Generics business.

Group core revenue by business segment

 
 $ million        H1 2019      H1 2018 
 Injectables      428   41%   410   42% 
               ------  ----  ----  ---- 
 Generics         368   35%   332   34% 
               ------  ----  ----  ---- 
 Branded          242   23%   232   24% 
               ------  ----  ----  ---- 
 Others             5    1%     5     - 
               ------  ----  ----  ---- 
 Total          1,043         979 
               ------  ----  ----  ---- 
 

Group core revenue by region

 
 $ million           H1 2019      H1 2018 
 MENA                301   29%   281   29% 
                  ------  ----  ----  ---- 
 US                  685   66%   640   65% 
                  ------  ----  ----  ---- 
 Europe and ROW       57    5%    58    6% 
                  ------  ----  ----  ---- 
 Total             1,043         979 
                  ------  ----  ----  ---- 
 

Injectables

 
 $ million                                               Constant 
                                                         currency 
                          H1 2019   H1 2018    Change      change 
 Revenue                      432       410        5%          7% 
                         --------  --------  --------  ---------- 
 Core revenue                 428       410        4%          6% 
                         --------  --------  --------  ---------- 
 Gross profit                 258       256        1%          1% 
                         --------  --------  --------  ---------- 
 Core gross profit            254       256      (1)%           - 
                         --------  --------  --------  ---------- 
 Core gross margin          59.3%     62.4%   (3.1)pp     (3.4)pp 
                         --------  --------  --------  ---------- 
 Operating profit             160       160         -          1% 
                         --------  --------  --------  ---------- 
 Core operating profit        167       173      (3)%        (3)% 
                         --------  --------  --------  ---------- 
 Core operating margin      39.0%     42.2%   (3.2)pp     (3.6)pp 
                         --------  --------  --------  ---------- 
 

In H1 2019, global Injectables core revenue increased by 4% to $428 million (H1 2018: $410 million). In constant currency, global Injectables revenue was up 7%.

US Injectables core revenue was $317 million, up 3% (H1 2018: $308 million), reflecting the resilience of our broad product portfolio. Strong demand for our in-market products and recent launches more than offset increased competition on some products and reduced sales of certain market shortage products.

MENA Injectables revenue was $60 million, up 18% (H1 2018: $51 million). In constant currency, MENA Injectables revenue was up 20% reflecting a good performance across our markets, particularly in Saudi Arabia and Egypt. European Injectables revenue was $51 million (H1 2018: $51 million). Before the depreciation of the euro against the US dollar, European Injectables revenue grew 6% to $54 million, reflecting continued growth in our own products and contract manufacturing sales.

Injectables core gross profit was $254 million (H1 2018: $256 million). Core gross margin decreased to 59.3% (H1 2018: 62.4%), primarily reflecting a change in the product mix in the US. Core operating profit, which excludes the amortisation of intangible assets other than software and exceptional items,(6) was $167 million (H1 2018: $173 million). Core operating margin was 39.0%, down from 42.2% in H1 2018, primarily reflecting the lower gross margin. We expect core operating margin to be lower in the second half, reflecting a change in the product mix in the US and increased sales in MENA.

During H1 2019, the Injectables business launched 4 products in the US, 10 in MENA and 8 in Europe. We submitted 73 filings to regulatory authorities across all markets and signed a number of licensing agreements to add more complex products to our pipeline in the US.

Given the strong performance of the business in the first half, we now expect the Injectables results to be towards the higher end of our expectations for the full year. We now expect Injectables revenue to be in the range of $870 million to $900 million and core operating margin to now be in the range of 36% to 38%.

Generics

 
 $ million                H1 2019   H1 2018   Change 
 Revenue                      368       332      11% 
                         --------  --------  ------- 
 Gross profit                 168       117      44% 
                         --------  --------  ------- 
 Gross margin               45.7%     35.2%   10.5pp 
                         --------  --------  ------- 
 Operating profit              88         6   1,367% 
                         --------  --------  ------- 
 Core operating profit         71        30     137% 
                         --------  --------  ------- 
 Core operating margin      19.3%      9.0%   10.3pp 
                         --------  --------  ------- 
 

Generics revenue increased 11% to $368 million (H1 2018: $332 million) as strong demand for our differentiated in-market products and recent launches more than offset price erosion.

Generics gross profit increased by 44% to $168 million (H1 2018: $117 million) and Generics gross margin increased to 45.7% (H1 2018: 35.2%). This reflects higher volumes and an improvement in the product mix, as well as a significant reduction in overhead costs due to the consolidation of our manufacturing facilities in 2018 and increased manufacturing efficiencies.

Generics operating profit increased to $88 million (H1 2018: $6 million) and Generics core operating profit, which excludes the amortisation of intangible assets other than software and exceptional items,(7) increased to $71 million (H1 2018: $30 million). This reflects the significant increase in gross profit which more than offset increased investment in R&D. Core operating margin was 19.3% (H1 2018: 9.0%). We expect the margin to be slightly lower in the second half, reflecting increased price erosion and higher legal and R&D expenses.

During H1 2019, the Generics business launched two products and we are continuing to focus on pipeline development. As previously announced, we initiated a repeat clinical endpoint study for generic Advair Diskus(R) in 2018. The study is progressing well and we remain on track to submit a response to the FDA with the new clinical data before the end of 2019.

As a result of the strong performance in the first half, we now expect Generics revenue to be in the range of $690 million to $720 million for the full year. We also now expect core operating margin to be in the range of 16% to 18% for 2019.

Branded

 
 $ million                H1 2019   H1 2018    Change    Constant 
                                                         currency 
                                                           change 
 Revenue                      242       232        4%          6% 
                         --------  --------  --------  ---------- 
 Gross profit                 120       116        3%          5% 
                         --------  --------  --------  ---------- 
 Gross margin               49.6%     50.0%   (0.4)pp     (0.2)pp 
                         --------  --------  --------  ---------- 
 Operating profit              31        42     (26)%       (24)% 
                         --------  --------  --------  ---------- 
 Core operating profit         49        45        9%         11% 
                         --------  --------  --------  ---------- 
 Core operating margin      20.2%     19.4%     0.8pp       0.9pp 
                         --------  --------  --------  ---------- 
 

On a reported basis, Branded revenue was $242 million, up 4% (H1 2018: $232 million). On a constant currency basis, Branded revenue grew 6% to $246 million.

In our largest markets, Saudi Arabia and Egypt, our business delivered double-digit revenue growth, reflecting strong demand for our marketed portfolios and new product launches. A strong performance across most of our MENA markets more than offset lower sales in Algeria as a result of an economic slowdown, and some delayed shipments from Jordan following a warehouse fire.

During H1 2019, the Branded business launched 13 products and submitted 48 filings to regulatory authorities. During 2019, we have continued to add innovative products to our pipeline through partnerships, including agreements signed with Melinta Therapeutics for oral and intravenous formulations of their novel antibiotic, Baxdela(TM) (delafloxacin), with Gideon Richter PLC for their novel antipsychotic, cariprazine, and with Faes Farma for their Bilazten. Revenue from in-licensed products represented 36% of Branded revenue (H1 2018: 38%).

Branded gross profit was $120 million, up 3% and gross margin was 49.6% (H1 2018: 50.0%). In constant currency, gross profit increased by 5% and gross margin was 49.6% (H1 2018: 50.0%) reflecting revenue growth and a favourable product mix.

Core operating profit, which excludes the amortisation of intangibles and exceptional items,(8) was $49 million (H1 2018: $45 million), and core operating margin was 20.2% (H1 2018: 19.4%). In constant currency, core operating profit grew 11% and core operating margin was 20.3%, up 90 basis points. This improvement in profitability reflects the improvement in gross profit and stable operating costs.

As anticipated, we expect Branded revenue to be higher in the second half of the year and we continue to expect full year Branded revenue growth in constant currency to be in the mid-single digits.

Other businesses

Other businesses, which is primarily comprised of Arab Medical Containers, a manufacturer of plastic specialised medicinal sterile containers, International Pharmaceuticals Research Centre, which conducts bio-equivalency studies, Hikma Emerging Markets and Asia Pacific FZ LLC and the chemicals division of Hikma Pharmaceuticals LLC (Jordan) contributed revenue of $5 million (H1 2018: $5 million). These other businesses made an operating loss of $1 million (H1 2018: $(1) million).

Research and development

The Group's product portfolio continues to grow due to our product development efforts. During H1 2019, we had 37 new launches and received 75 approvals.

To ensure the continuous development of our product pipeline, we submitted 122 regulatory filings.

 
                H1 2019 submissions(9)   H1 2019 approvals(10)   H1 2019 launches(11) 
 Generics                            1                       3                      2 
               -----------------------  ----------------------  --------------------- 
 Injectables 
           US                        5                       5                      4 
         MENA                       30                      12                     10 
       Europe                       38                      12                      8 
               -----------------------  ----------------------  --------------------- 
 Branded                            48                      43                     13 
               -----------------------  ----------------------  --------------------- 
 Total                             122                      75                     37 
               -----------------------  ----------------------  --------------------- 
 

Net finance expense

Core net finance expense was $22 million (H1 2018: $24 million), primarily due to an increase in interest income and prepayments of long-term loans in the second half of 2018. The adoption of IFRS 16 in H1 2019, which required the recognition of additional leases on the balance sheet at 30 June 2019, resulted in additional finance expense of around $1 million.

Finance expense is expected to be slightly higher in the second half and we continue to expect net finance expense to be around $50 million for the full year.

Profit before tax

Group profit before tax was $226 million (H1 2018: $141 million). Core profit before tax was $225 million (H1 2018: $189 million).

Tax

Group tax expense was $41 million (H1 2018: $32 million). Excluding the tax impact of exceptional items, core Group tax expense was $49 million in H1 2019 (H1 2018: $38 million). The core effective tax rate was 21.8% (H1 2018: 20.1%).

We continue to expect the core effective tax rate to be around 21% for the full year in 2019.

Profit attributable to shareholders

Profit attributable to shareholders was $185 million (H1 2018: $106 million). Core profit attributable to shareholders increased by 19% to $176 million (H1 2018: $148 million).

Earnings per share

Basic earnings per share was 76.4 cents (H1 2018: 44.0 cents). Core basic earnings per share increased by 18% to 72.7 cents (H1 2018: 61.4 cents). Core diluted earnings per share increased by 18% to 72.4 cents (H1 2018: 61.2 cents).

Dividend

The Board is recommending an interim dividend of 14 cents per share (approximately 12 pence per share) for H1 2019 (H1 2018: 12 cents per share), an increase of 17%. The interim dividend will be paid on 23 September 2019 to eligible shareholders on the register at the close of business on 23 August 2019. The ex-dividend date is 22 August 2019 and the final date for currency elections is 9 September 2019.

Net cash flow, working capital and net debt

The Group generated operating cash flow of $187 million in H1 2019 (H1 2018: $185 million). Group working capital days were up 9 days to 231 days, primarily driven by increased inventory levels.

Capital expenditure was $48 million (H1 2018: $53 million). In the US, around $12 million was spent upgrading our equipment and adding new technologies for our Generics and Injectables businesses. Around $23 million was spent on our facilities in MENA, primarily in Algeria, Egypt, Jordan and Saudi Arabia. A further $13 million was spent in Europe, expanding our manufacturing facilities in Portugal, where we recently completed construction of our new high containment operation (HCO), which has begun commercial production. We now expect Group capital expenditure for the full year to be around $120 million, at the lower end of our previous guidance range.

The Group's net debt (excluding co-development agreements and contingent liabilities) stood at $361 million at 30 June 2019 (31 December 2018: $361 million).(12) An increase in the Group's cash balance at 30 June 2019 offset the impact from the adoption of IFRS 16, which required the Group to recognise additional lease liabilities of $46 million at June 2019. We continue to have a very strong balance sheet with a net debt to core EBITDA(13) ratio of 0.62.

Balance sheet

Net assets at 30 June 2019 were $1,844 million (31 December 2018: $1,697 million). Net current assets reduced to $375 million (31 December 2018: $775 million), due to the reclassification of the Eurobond of $500 million from long-term liabilities to current liabilities.

Outlook

We now expect full year Injectables revenue to be in the range of $870 million to $900 million and core operating margin to be in the range of 36% to 38%.

Given the strong performance of the Generics business in H1 2019, we now expect Generics revenue for the full year to be in the range of $690 million to $720 million. We now expect core operating margin to be in the range of 16% to 18%.

We expect Branded revenue to be higher in the second half of the year and we continue to expect full year Branded revenue growth in constant currency to be in the mid-single digits.

Responsibility statement

We confirm that to the best of our knowledge:

-- the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union and as issued by the International Accounting Standards Board, and;

   --   the interim results announcement includes a fair review of the information required by: 

a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the enterprise during that period; and any changes in the related party transactions described in the last annual report that could do so.

The Board

The Board of Directors that served during all or part of the six-month period to 30 June 2019 and their respective responsibilities can be found on the 'Our global leadership team' section of Hikma's website.

By order of the Board

 
 Sigurdur Olafsson          Khalid Nabilsi 
 
  Chief Executive Officer    Chief Financial Officer 
  8 August 2019              8 August 2019 
 

Cautionary statement

This interim results announcement has been prepared solely to provide additional information to the shareholders of Hikma and should not be relied on by any other party or for any other purpose.

Definitions

We use a number of non-IFRS measures to report and monitor the performance of our business. Management uses these adjusted numbers internally to measure our progress and for setting performance targets. We also present these numbers, alongside our reported results, to external audiences to help them understand the underlying performance of our business. Our core numbers may be calculated differently to other companies.

Adjusted measures are not substitutable for IFRS results and should not be considered superior to results presented in accordance with IFRS.

Core results

Reported results represent the Group's overall performance. However, these results can include one-off or non-cash items 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. Our core results exclude the exceptional items and other adjustments set out in note 4.

 
 Group operating profit                      H1 2019     H1 2018 
                                            $million    $million 
 Core operating profit                           246         214 
                                          ----------  ---------- 
 R&D costs                                      (14)        (15) 
                                          ----------  ---------- 
 Jordan warehouse fire                          (15)           - 
                                          ----------  ---------- 
 Proceeds from legal claim                        32           - 
                                          ----------  ---------- 
 Contingent consideration adjustment               7           - 
                                          ----------  ---------- 
 MENA severance and restructuring costs          (5)           - 
                                          ----------  ---------- 
 Integration costs                                 4        (10) 
                                          ----------  ---------- 
 Intangible assets amortisation other 
  than software                                 (17)        (15) 
                                          ----------  ---------- 
 Reported operating profit                       238         174 
                                          ----------  ---------- 
 

Constant currency

As the majority of our business is conducted in the US, we present our results in US dollars. For both our Branded and Injectable businesses, a proportion of their sales are denominated in a currency other than the US dollar. In order to illustrate the underlying performance of these businesses, we include information on our results in constant currency.

Constant currency numbers in H1 2019 represent reported H1 2019 numbers re-stated using average exchange rates in H1 2018, excluding price increases in the business which resulted from the devaluation of currencies.

EBITDA

EBITDA is earnings before interest, tax, depreciation, amortisation and impairment charges.

 
 EBITDA 
  $ million                                   H1 2019   H1 2018 
 Reported operating profit                        238       174 
                                             --------  -------- 
 Depreciation, amortisation and impairment         59        56 
                                             --------  -------- 
 Reported EBITDA                                  297       230 
                                             --------  -------- 
 R&D costs                                         14        15 
                                             --------  -------- 
 Jordan warehouse fire                             15         - 
                                             --------  -------- 
 Proceeds from legal claim                       (32)         - 
                                             --------  -------- 
 Contingent consideration adjustment              (7)         - 
                                             --------  -------- 
 MENA severance and restructuring costs             5         - 
                                             --------  -------- 
 Integration costs                                (4)         7 
                                             --------  -------- 
 Core EBITDA                                      288       252 
                                             --------  -------- 
 

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 multiplied by 365, divided by trailing 12 months Group revenue.

Group net debt

We believe Group net debt is a useful measure of the strength of the Group's financing position. Group net debt is calculated as Group total debt less Group total cash, including restricted cash. Group total debt excludes co-development agreements and contingent liabilities.

 
 Group net debt 
  $ million                              Jun-19   Dec-18 
 Short-term financial debts(14)           (591)     (75) 
                                        -------  ------- 
 Long-term financial debts                 (40)    (539) 
                                        -------  ------- 
 Long-term lease liabilities               (64)     (23) 
                                        -------  ------- 
 Total debt                               (695)    (637) 
                                        -------  ------- 
 Cash and cash equivalents, including 
  restricted cash                           334      276 
                                        -------  ------- 
 Net debt                                 (361)    (361) 
                                        -------  ------- 
 

Forward-looking statements

This announcement contains certain statements which are, or may be deemed to be, "forward-looking statements" which are prospective in nature with respect to Hikma's expectations and plans, strategy, management objectives, future developments and performance, costs, revenues and other trend information. All statements other than statements of historical fact may be forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of forward looking words such as "intends", "believes", "anticipates", "expects", "estimates", "forecasts", "targets", "aims", "budget", "scheduled" or words or terms of similar substance or the negative thereof, as well as variations of such words and phrases or statements that certain actions, events or results "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved.

By their nature, forward-looking statements are based on current expectations and projections about future events and are therefore subject to assumptions, risks and uncertainties that are beyond Hikma's ability to control or estimate precisely and which could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Where included, such statements have been made by or on behalf of Hikma in good faith based upon the knowledge and information available to the Directors on the date of this announcement. Accordingly, no assurance can be given that any particular expectation will be met and Hikma's shareholders are cautioned not to place undue reliance on the forward-looking statements. Forward-looking statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future.

Other than in accordance with its legal or regulatory obligations (including under the Market Abuse Regulation ((EU) No. 596/2014) and the UK Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority), Hikma does not undertake to update the forward looking statements contained in this announcement to reflect any changes in events, conditions or circumstances on which any such statement is based or to correct any inaccuracies which may become apparent in such forward looking statements. Except as expressly provided in this announcement, no forward looking or other statements have been reviewed by the auditors of Hikma. All subsequent oral or written forward-looking statements attributable to the Hikma or any of its members, directors, officers or employees or any person acting on their behalf are expressly qualified in their entirety by the cautionary statement above.

Past share performance cannot be relied on as a guide to future performance. Nothing in this announcement should be construed as a profit forecast.

Neither the content of Hikma's website nor any other website accessible by hyperlinks from Hikma's website are incorporated in, or form part of, this announcement.

Principal risks and uncertainties

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. The principal risks facing the company are not expected to change materially in the second six months of the financial year. They are described below and in detail in the 2018 annual report on pages 58-60.

The Board recognises that certain risk factors that influence the principal risks are outside of the control of management. The risks related to a UK withdrawal from the European Union (Brexit) are regularly assessed. Our cross-functional reviews continue to assess that the exposure for Hikma is low and manageable. We continue to monitor the situation as it develops to prepare for any impacts on our business.

The Board is satisfied that these risks are being managed appropriately and consistently within the risk appetite. The set of principal risks should not be considered as an exhaustive list of all the risks the Group faces.

 
            Principal risks   What does the risk cover? 
 1. Inorganic                 Identifying, accurately pricing and/or realising expected 
  growth                       benefits from acquisitions or divestments, licensing, 
                               or other business development activities 
                             -------------------------------------------------------------- 
 2. Product pipeline          Identifying, developing and registering new products 
                               that meet market needs and are aligned with Hikma's 
                               strategy to provide continuous source of future growth 
                             -------------------------------------------------------------- 
 3. Organisational            Developing, maintaining and adapting organisational 
  development                  structures, management processes and controls, and 
                               talent pipeline to enable effective delivery by the 
                               business in the face of rapid and constant internal 
                               and external change 
                             -------------------------------------------------------------- 
 4. Industry earnings         The commercial viability of the industry and business 
                               model we operate may change significantly as a result 
                               of political action, economic factors, societal pressures, 
                               regulatory interventions or changes to participants 
                               in the value chain of the industry 
                             -------------------------------------------------------------- 
 5. Product quality           Maintaining compliance with current Good Practices 
  and safety                   for Manufacturing (cGMP), Laboratory (cGLP), Distribution 
                               (cGDP) and Pharmacovigilance (GVP) by staff, by Contract 
                               Development and Manufacturing Organisations (CDMOs), 
                               by party logistics providers, or any other third party 
                               that is involved in these processes 
                             -------------------------------------------------------------- 
 6. Supply chain              Maintaining continuity of supply of finished product 
  and API                      and managing cost, quality and appropriate oversight 
                               of third parties in our supply chain, including risk 
                               to maintain the quality and availability of API supplies 
                             -------------------------------------------------------------- 
 7. Crisis response           Preparedness, response, continuity and recovery from 
  and continuity               crisis events such as natural catastrophe, economic 
  management                   turmoil, operational issues, political crisis, regulatory 
                               intervention 
                             -------------------------------------------------------------- 
 8. Ethics and                Maintaining a culture underpinned by ethical decision 
  compliance                   making, and implementing internal controls to ensure 
                               staff and third parties comply with our Code of Conduct, 
                               associated policies and procedures, as well as all 
                               applicable legislation 
                             -------------------------------------------------------------- 
 9. Reputation                Building and maintaining trusting and successful partnerships 
                               with our many stakeholders relies on sustaining our 
                               reputation as one of our most valuable assets 
                             -------------------------------------------------------------- 
 10. Financial                Effectively managing income, expenditure, assets and 
  control and reporting        liabilities, liquidity, exchange rates, tax uncertainty, 
                               debtor and associated activities, and in reporting 
                               accurately, in a timely manner and in compliance with 
                               statutory requirements and accounting standards 
                             -------------------------------------------------------------- 
 11. Information,             Ensuring integrity, confidentiality and resilience 
  technology and               of data, securing information stored and/or processed 
  infrastructure               internally or externally, maintaining and developing 
                               technology systems that enable business processes, 
                               and in ensuring infrastructure supports the organisation 
                               effectively 
                             -------------------------------------------------------------- 
 12. Legal, regulatory        Complying with laws and regulations and their application, 
  and intellectual             managing litigation, governmental investigations, sanctions, 
  property                     contractual terms and conditions and adapting to their 
                               changes while preserving shareholders values and business 
                               integrity and reputation 
                             -------------------------------------------------------------- 
 

[1] Core results throughout the document are presented to show the underlying performance of the Group, excluding the exceptional items and other adjustments set out in note 4. Core results are a non-IFRS measure and a reconciliation to reported IFRS measures is provided on page 12

2 EBITDA is earnings before interest, tax, depreciation, amortisation and impairment charge; EBITDA is a non-IFRS measure and a reconciliation to reported IFRS measures is provided on page 13

3 In H1 2019, exceptional items comprised integration costs of $4 million

4 In H1 2019, Hikma incurred $14 million of R&D costs related to a repeat clinical endpoint study for generic Advair Diskus(R) (H1 2018: $15 million). See note 4 for further information

5 In H1 2019, exceptional items comprised proceeds from a legal claim of $32 million, costs related to a warehouse fire at one of our Jordan facilities of $15 million and a contingent consideration adjustment of $7 million

6 Exceptional items comprised integration and other costs of $4 million. Refer to note 4 for further information

(7) In H1 2019, exceptional items comprised expenses of $14 million related to a repeat clinical endpoint study for generic Advair Diskus(R) , $6 million of costs related to a warehouse fire at one of our Jordan facilities and proceeds from a legal claim of $32 million. Refer to note 4 for further information

8 Exceptional items comprised expenses of $9 million related to a warehouse fire in one of our Jordan facilities and $5 million of severance and restructuring costs. Refer to note 4 for further information

9 Submissions for new products, including Marketing Authorisations, NDA, ANDA and 505(b)2 by country, in H1 2019

1(0) New products (approvals, technical approvals and tentative approvals) by country, approved in H1 2019

(11) New products launched in H1 2019

1(2) 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 in the interim financial statements

1(3) Calculated using core EBITDA for the twelve months ended 30 June 2019

1(4) Includes short-term lease liabilities

Independent review report to Hikma Pharmaceuticals PLC

Report on the unaudited interim condensed consolidated financial statements

Our conclusion

We have reviewed Hikma Pharmaceuticals PLC's unaudited interim condensed consolidated financial statements (the "interim financial statements") in the interim press release of Hikma Pharmaceuticals PLC for the six month period ended 30 June 2019. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

   --    the condensed consolidated balance sheet as at 30 June 2019; 

-- the condensed consolidated income statement and condensed consolidated statement of comprehensive income for the period then ended;

   --    the condensed consolidated cash flow statement for the period then ended; 
   --    the condensed consolidated statement of changes in equity for the period then ended; and 
   --    the explanatory notes to the interim financial statements. 

The interim financial statements included in the interim press release have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The interim press release, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim press release in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the interim press release based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the interim press release and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

8 August 2019

Hikma Pharmaceuticals PLC

Condensed consolidated income statement

 
                                         H1 2019              H1 2019              H1 2019         H1 2018       H1 2018         H1 2018 
                                            Core          Exceptional             Reported    Core results   Exceptional        Reported 
                                         results                items              results   (Restated)(1)         items         results 
                                                            and other                                          and other   (Restated)(1) 
                                                          adjustments                                        adjustments 
                                                                (note                                              (note 
                                                                   4)                                                 4) 
                       Note                   $m                   $m                   $m              $m            $m              $m 
                                     (Unaudited)          (Unaudited)          (Unaudited)     (Unaudited)   (Unaudited)     (Unaudited) 
                             -------------------  -------------------  -------------------  --------------  ------------  -------------- 
 
 Revenue                                   1,043                    4                1,047             979             -             979 
 Cost of sales                             (499)                    -                (499)           (484)           (5)           (489) 
                             -------------------  -------------------  -------------------  --------------  ------------  -------------- 
 Gross profit                                544                    4                  548             495           (5)             490 
                             -------------------  -------------------  -------------------  --------------  ------------  -------------- 
 Selling, general 
  and administrative 
  expenses(2)                              (216)                 (21)                (237)           (209)          (16)           (225) 
 Research and 
 development 
 expenses                                   (58)                 (14)                 (72)            (47)          (16)            (63) 
 Other operating 
 (expenses)/income, 
  net                                       (24)                   23                  (1)            (25)           (3)            (28) 
                             -------------------  -------------------  -------------------  --------------  ------------  -------------- 
 Total operating 
  expenses                                 (298)                 (12)                (310)           (281)          (35)           (316) 
                             -------------------  -------------------  -------------------  --------------  ------------  -------------- 
 Operating profit       3                    246                  (8)                  238             214          (40)             174 
 Finance income                                3                   12                   15               2             -               2 
 Finance expense                            (25)                    -                 (25)            (26)           (8)            (34) 
 Gain/(loss) from 
  investment at fair 
  value                                        1                    -                    1             (1)             -             (1) 
 Loss from 
  investment 
  divestiture                                  -                  (3)                  (3)               -             -               - 
                             -------------------  -------------------  -------------------  --------------  ------------  -------------- 
 Profit before tax                           225                    1                  226             189          (48)             141 
 Tax                    5                   (49)                    8                 (41)            (38)             6            (32) 
                             -------------------  -------------------  -------------------  --------------  ------------  -------------- 
 Profit for the 
  half-year                                  176                    9                  185             151          (42)             109 
                             -------------------  -------------------  -------------------  --------------  ------------  -------------- 
 Attributable to: 
 Non-controlling 
  interests                                    -                    -                    -               3             -               3 
 Equity holders 
  of the parent                              176                    9                  185             148          (42)             106 
                             -------------------  -------------------  -------------------  --------------  ------------  -------------- 
                                             176                    9                  185             151          (42)             109 
                             -------------------  -------------------  -------------------  --------------  ------------  -------------- 
 Earnings per share 
  (cents) 
 Basic                                      72.7                                      76.4            61.4                          44.0 
 Diluted                                    72.4                                      76.1            61.2                          43.8 
 

(1)Restatement represents IFRS 15 reclassification adjustment for customer payments of $10 million reclassed from Sales & Marketing expenses to revenue. The reclassification impact was finalised and correctly reported for the financial statements prepared for the year ended 31 December 2018.

(2) Beginning in 2019, Sales & Marketing 'S&M' and General & Administrative 'G&A' expenses are reported under one line item. In H1 2018, S&M and G&A were $120 million & $115 million respectively.

On this page and throughout this financial information 'H1 2019' refers to the half-year of the six months ended 30 June 2019, 'H1 2018' refers to the half-year of the six months ended 30 June 2018.

Hikma Pharmaceuticals PLC

Condensed consolidated statement of comprehensive income

 
                                    H1 2019        H1 2019       H1 2019        H1 2018        H1 2018       H1 2018 
                               Core results    Exceptional      Reported   Core results    Exceptional      Reported 
                                                     items       results                         items       results 
                                                 and other                                   and other 
                                               adjustments                                 adjustments 
                                                     (note                                       (note 
                                                        4)                                          4) 
                                         $m             $m            $m             $m             $m            $m 
                                (Unaudited)    (Unaudited)   (Unaudited)    (Unaudited)    (Unaudited)   (Unaudited) 
                              -------------  -------------  ------------  -------------  -------------  ------------ 
 
 Profit for the half-year 
 Other Comprehensive 
  Income                                176              9           185            151           (42)           109 
 Items that may be 
 reclassified 
 subsequently 
 to the consolidated 
  income statement, 
 net of tax: 
    Currency translation 
     gain/(loss)                         13              -            13           (22)              -          (22) 
                              -------------  -------------  ------------  -------------  -------------  ------------ 
 Total comprehensive 
  income for the half-year              189              9           198            129           (42)            87 
                              =============  =============  ============  =============  =============  ============ 
 Attributable to: 
 Non-controlling interests                1              -             1              1              -             1 
 Equity holders of the 
  parent                                188              9           197            128           (42)            86 
                              -------------  -------------  ------------  -------------  -------------  ------------ 
                                        189              9           198            129           (42)            87 
                              -------------  -------------  ------------  -------------  -------------  ------------ 
 

Hikma Pharmaceuticals PLC

Condensed consolidated balance sheet

 
                                                             30 June                 31 December 
                                                                2019                        2018 
                                                                  $m                          $m 
                                                         (Unaudited)                   (Audited) 
                                                 -------------------  -------------------------- 
                                           Note 
 Non-current assets 
 Goodwill                                                        281                         279 
 Other intangible assets                                         520                         487 
 Property, plant and equipment                                   862                         870 
 Right-of-use assets                                              50                           - 
 Investment in associates and joint 
  ventures                                                        12                          11 
 Deferred tax assets                                             134                         125 
 Financial and other non-current assets     7                     48                          57 
                                                 -------------------  -------------------------- 
                                                               1,907                       1,829 
                                                 -------------------  -------------------------- 
 Current assets 
 Inventories                                8                    579                         528 
 Income tax receivable                                            50                          74 
 Trade and other receivables                9                    693                         731 
 Cash and cash equivalents                                       322                         276 
 Collateralised and restricted cash                               12                           - 
 Other current assets                       10                    43                          59 
                                                 -------------------  -------------------------- 
                                                               1,699                       1,668 
                                                 -------------------  -------------------------- 
 Total assets                                                  3,606                       3,497 
                                                 ===================  ========================== 
 Current liabilities 
 Short-term financial debts                 13                   588                          74 
 Trade and other payables                   11                   405                         465 
 Income tax provision                                             70                          68 
 Other provisions                                                 23                          23 
 Other current liabilities                  12                   238                         263 
                                                 -------------------  -------------------------- 
                                                               1,324                         893 
                                                 -------------------  -------------------------- 
 Net current assets                                              375                         775 
                                                 -------------------  -------------------------- 
 Non-current liabilities 
 Long-term financial debts                  13                    40                         539 
 Leases liabilities                                               64                          23 
 Deferred tax liabilities                                         16                          16 
 Other non-current liabilities              14                   318                         329 
                                                 -------------------  -------------------------- 
                                                                 438                         907 
                                                 -------------------  -------------------------- 
 Total liabilities                                             1,762                       1,800 
                                                 ===================  ========================== 
 Net assets                                                    1,844                       1,697 
                                                 ===================  ========================== 
 
 
   Equity 
 Share capital                                                    40                          40 
 Share premium                                                   282                         282 
 Other reserves                                                (205)                       (217) 
 Retained earnings                                             1,715                       1,580 
                                                 -------------------  -------------------------- 
 Equity attributable to equity holders 
  of the parent                                                1,832                       1,685 
 Non-controlling interests                                        12                          12 
                                                 -------------------  -------------------------- 
 Total equity                                                  1,844                       1,697 
                                                 ===================  ========================== 
 

Hikma Pharmaceuticals PLC

Condensed consolidated statement of changes in equity

 
                        Merger   Translation      Own      Total   Retained     Share     Share         Equity   Non-controlling    Total 
                           and      reserves   shares      other   earnings   capital   premium   attributable         interests   equity 
                   Revaluation                          reserves                                     to equity 
                      reserves                                                                    shareholders 
                                                                                                        of the 
                                                                                                        parent 
                            $m            $m       $m         $m         $m        $m        $m             $m                $m       $m 
 Balance at 
  1 January 
  2018(1)                   38         (227)      (1)      (190)      1,354        40       282          1,486                14    1,500 
 
 Profit for 
  the half-year              -             -        -          -        106         -         -            106                 3      109 
 Currency 
  translation 
  loss                       -          (20)        -       (20)          -         -         -           (20)               (2)     (22) 
                  ------------  ------------  -------  ---------  ---------  --------  --------  -------------  ----------------  ------- 
 Total 
 comprehensive 
 income for 
  the half-year              -          (20)        -       (20)        106         -         -             86                 1       87 
                  ------------  ------------  -------  ---------  ---------  --------  --------  -------------  ----------------  ------- 
 
 Total 
 transactions 
 with 
 owners, 
 recognised 
 directly in 
  equity 
 Cost of 
 equity-settled 
 employee share 
  scheme                     -             -        -          -         12         -         -             12                 -       12 
 Dividends on 
  ordinary 
 shares (note 
  6)                         -             -        -          -       (55)         -         -           (55)               (2)     (57) 
 Balance at 
  30 June 2018 
 (unaudited)                38         (247)      (1)      (210)      1,417        40       282          1,529                13    1,542 
                  ============  ============  =======  =========  =========  ========  ========  =============  ================  ======= 
 
 Balance at 
  31 December 
 2018 (audited)             38         (254)      (1)      (217)      1,580        40       282          1,685                12    1,697 
 
 Profit for 
  the half-year              -             -        -          -        185         -         -            185                 -      185 
 Currency 
  translation 
  gain                       -            12        -         12          -         -         -             12                 1       13 
                  ------------  ------------  -------  ---------  ---------  --------  --------  -------------  ----------------  ------- 
 Total 
 comprehensive 
 income for 
  the half-year              -            12        -         12        185         -         -            197                 1      198 
 
 Total 
 transactions 
 with 
 owners, 
 recognised 
 directly in 
  equity 
 Cost of equity 
  settled 
 employee share 
  scheme                     -             -        -          -         13         -         -             13                 -       13 
 Dividends on 
  ordinary 
 shares (note 
  6)                         -             -        -          -       (63)         -         -           (63)               (1)     (64) 
 Balance at 
  30 June 
 2019 
  (unaudited)               38         (242)      (1)      (205)      1,715        40       282          1,832                12    1,844 
                  ============  ============  =======  =========  =========  ========  ========  =============  ================  ======= 
 
 

(1)The Group adopted IFRS 9 and IFRS 15 from 1 January 2018. The impact of IFRS 9 was $3 million and of IFRS 15 was $25 million.

Hikma Pharmaceuticals PLC

Condensed consolidated cash flow statement

 
                                                                                             H1                     H1 
                                                                                           2019                   2018 
                                                                  Note                       $m                     $m 
                                                                                    (Unaudited)            (Unaudited) 
                                                                        =======================  ===================== 
 Cash flows from operating activities 
 
 Cash generated from operations                                    15                       211                    206 
 Income tax paid                                                                           (41)                   (21) 
 Income taxes received                                                                       17                      - 
 
 Net cash inflow from operating activities                                                  187                    185 
 
 Cash flow from investing activities 
 Purchases of property, plant and equipment                                                (48)                   (53) 
 Proceeds from disposal of property, plant and equipment                                      3                      - 
 Purchase of intangible assets                                                             (34)                   (16) 
 Proceeds from disposal of intangible assets                                                  -                      1 
 Cash paid in investment in joint ventures                                                    -                    (4) 
 Change in investment in financial and other non-current assets                               1                    (1) 
 Proceeds from sale of investment at fair value through other 
 comprehensive 
 income                                                                                      12                      - 
 Additions of investment at fair value through other 
  comprehensive income                                                                      (3)                    (2) 
 Acquisition of business undertakings, net of cash acquired                                 (8)                   (14) 
 Proceeds from investment divestiture                                                         2                      - 
 Contingent consideration receipt                                                            20                     35 
 Interest income received                                                                     2                      1 
                                                                        -----------------------  --------------------- 
 Net cash outflow from investing activities                                                (53)                   (53) 
 
 Cash flow from financing activities 
 (Increase)/decrease in collateralised and restricted cash                                 (12)                      3 
 Proceeds from issue of long-term financial debts                                             6                     87 
 Repayment of long-term financial debts                                                     (6)                  (149) 
 Proceeds from short-term borrowings                                                        152                    174 
 Repayment of short-term borrowings                                                       (138)                  (171) 
 Repayment of lease liabilities                                                             (3)                      - 
 Dividends paid                                                                            (63)                   (55) 
 Dividends paid to non-controlling shareholders of subsidiaries                             (1)                    (2) 
 Interest paid                                                                             (25)                   (24) 
 Payment from co-development and earnout payment agreement, net                               -                    (1) 
                                                                        -----------------------  --------------------- 
 Net cash outflow from financing activities                                                (90)                  (138) 
 
 Net increase /(decrease) in cash and cash equivalents                                       44                    (6) 
 Cash and cash equivalents at beginning of the half-year                                    276                    227 
 Foreign exchange translation movements                                                       2                    (1) 
                                                                        =======================  ===================== 
 Cash and cash equivalents at end of the half-year                                          322                    220 
                                                                        =======================  ===================== 
 

Hikma Pharmaceuticals PLC

Notes to the condensed consolidated interim financial statements

1. General information

Hikma Pharmaceuticals PLC is a public limited liability company incorporated and domiciled in England and Wales under the Companies Act 2006. The registered office address is 1 New Burlington Place, London W1S 2HR, UK.

The Group's principal activities are the development, manufacturing, and marketing of a broad range of branded and non-branded generic pharmaceuticals products across the US, the Middle East and North Africa (MENA) and Europe. Hikma is also a leading licensing partner.

The information for the year ended 31 December 2018 does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. A copy of the statutory accounts for 2018 have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain any statement under Section 498 (2) or (3) of the Companies Act 2006.

2. Accounting policies

The unaudited interim condensed consolidated financial statements (financial statements) for the six months ended 30 June 2019 have been prepared using the same accounting policies and on a basis consistent with the audited consolidated financial statements of Hikma Pharmaceuticals PLC for the year ended 31 December 2018, except for the adoption of new standards effective from 1 January 2019.The Group has not opted for the early-adoption of any standard, interpretation or amendment that has been issued but not yet effective.

Basis of preparation

The currency used in the preparation of the accompanying condensed consolidated financial statements is the US dollar ($) as the majority of the Group's business is conducted in US dollars.

These condensed consolidated financial statements for the six months ended 30 June 2019 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting', as adopted by the EU and as issued by the IASB. The condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2018, which have been prepared in accordance with IFRSs issued by the IASB and the IFRSs adopted by the EU.

Adoption of new and revised standards

The Group applied, for the first time, IFRS 16 'Leases' and IFRIC 23 'Uncertainty over income tax treatments'. Several other amendments and interpretations apply for the first time in 2019, but do not have an impact on the condensed consolidated financial statements of the Group.

IFRS 16

IFRS 16 was issued in January 2016 and it replaces IAS 17 'Leases', IFRIC 4 'Determining whether an arrangement contains a lease', SIC-15 'Operating leases-lncentives' and SIC-27 'Evaluating the substance of transactions involving the legal form of a lease'.

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees - leases of 'low-value' assets (e.g. personal computers) and short-term leases (i.e. leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee recognises a liability for the present value of future lease payments (i.e. the lease liability) and a corresponding asset representing the right to use the underlying asset during the lease term (i.e. the right-of-use asset). Lessees are required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees are also required to remeasure the lease liability upon the occurrence of certain events (e.g. a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments).

The lessee generally recognises the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17.

IFRS 16 is effective for annual periods beginning on or after 1 January 2019.

Early application is permitted. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard's transition provisions permit certain reliefs.

The Group has adopted IFRS 16, applying modified retrospective approach on 1 January 2019, and recognised right-of-use assets of $57 million (including $10 million reclassed from property, plant, and equipment previously recognised as assets held under finance lease and offsetting accrued rent of $3 million) and lease liabilities of $50 million, (note 20).

IFRIC 23

IFRIC 23 'Uncertainty over income tax treatments' was issued in June 2017. The interpretation clarifies that if it is considered probable that a tax authority will accept an uncertain tax treatment, the tax charge should be calculated on that basis. If it is not considered probable, the effect of the uncertainty should be estimated and reflected in the tax charge. In assessing the uncertainty, it is assumed that the tax authority will have full knowledge of all information related to the matter.

The Group adopted IFRIC 23 as of 1 January 2019. The impact of adoption was not material to the provisions previously held for uncertain tax position.

Going concern

The Directors have considered the going concern position of the Group during the half-year and at the half-year end as they have in previous years. The Directors believe that the Group is well diversified due to its geographic spread, product diversity and large customer and supplier base.

The Group's business activity, together with the factors likely to affect its future development, performance and position are set out in the Interim Results Press Release. The Interim Results Press Release also includes a summary of the financial position, cash flow and borrowing facilities.

After making enquiries, the Directors believe that the Group is adequately placed to manage its business and financing risks successfully, despite the current uncertain economic and political outlook. Having reassessed the principal risks, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the interim financial information.

3. Business and geographical segments

For management reporting purposes, the Group is organised into three principal operating divisions - Injectables, Generics and Branded. These divisions are the basis on which the Group reports its segmental information.

Core operating profit, defined as segment result, is the principal measure used in the decision-making and resource allocation process of the chief operating decision maker, who is the Group's Chief Executive Officer.

Information regarding the Group's operating segments is reported below:

 
                          H1 2019           H1 2019        H1 2019          H1 2018           H1 2018          H1 2018 
                             Core       Exceptional       Reported             Core       Exceptional         Reported 
                          results             items        results          results             items          results 
                      (Unaudited)         and other    (Unaudited)      (Unaudited)         and other      (Unaudited) 
                                        adjustments                   (Restated)(1)       adjustments 
                                              (note                                             (note 
                                     4) (Unaudited)                                    4) (Unaudited) 
                                                                                                         (Restated)(1) 
 Injectables 
                               $m                $m             $m               $m                $m               $m 
                    -------------  ----------------  -------------  ---------------  ----------------  --------------- 
 Revenue                      428                 4            432              410                 -              410 
 Cost of sales              (174)                 -          (174)            (154)                 -            (154) 
                    -------------  ----------------  -------------  ---------------  ----------------  --------------- 
 Gross profit                 254                 4            258              256                 -              256 
                    -------------  ----------------  -------------  ---------------  ----------------  --------------- 
 Total operating 
  expenses                   (87)              (11)           (98)             (83)              (13)             (96) 
                    -------------  ----------------  -------------  ---------------  ----------------  --------------- 
 Segment result               167               (7)            160              173              (13)              160 
                    -------------  ----------------  -------------  ---------------  ----------------  --------------- 
 

(1) Restatement represents IFRS 15 reclassification adjustment for customer payments of $4 million reclassed from Sales & Marketing expenses to revenue. The reclassification impact was finalised and correctly reported for the financial statements prepared for the year ended 31 December 2018.

 
                          H1 2019           H1 2019        H1 2019          H1 2018           H1 2018          H1 2018 
                             Core       Exceptional       Reported             Core       Exceptional         Reported 
                          results             items        results          results             items          results 
                      (Unaudited)         and other    (Unaudited)      (Unaudited)         and other      (Unaudited) 
                                        adjustments                   (Restated)(1)       adjustments    (Restated)(1) 
                                              (note                                             (note 
                                     4) (Unaudited)                                    4) (Unaudited) 
 Generics 
                               $m                $m             $m               $m                $m               $m 
                    -------------  ----------------  -------------  ---------------  ----------------  --------------- 
 Revenue                      368                 -            368              332                 -              332 
 Cost of sales              (200)                 -          (200)            (210)               (5)            (215) 
                    -------------  ----------------  -------------  ---------------  ----------------  --------------- 
 Gross profit                 168                 -            168              122               (5)              117 
                    -------------  ----------------  -------------  ---------------  ----------------  --------------- 
 Total operating 
  expenses                   (97)                17           (80)             (92)              (19)            (111) 
                    -------------  ----------------  -------------  ---------------  ----------------  --------------- 
 Segment result                71                17             88               30              (24)                6 
                    -------------  ----------------  -------------  ---------------  ----------------  --------------- 
 

(1) Restatement represents IFRS 15 reclassification adjustment for customer payments of $6 million reclassed from Sales & Marketing expenses to revenue. The reclassification impact was finalised and correctly reported for the financial statements prepared for the year ended 31 December 2018.

 
                              H1 2019           H1 2019        H1 2019        H1 2018           H1 2018        H1 2018 
                                 Core       Exceptional       Reported           Core       Exceptional       Reported 
                              results             items        results        results             items        results 
                          (Unaudited)         and other    (Unaudited)    (Unaudited)         and other    (Unaudited) 
                                            adjustments                                     adjustments 
                                                  (note                                           (note 
                                         4) (Unaudited)                                  4) (Unaudited) 
 Branded 
                                   $m                $m             $m             $m                $m             $m 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 Revenue                          242                 -            242            232                 -            232 
 Cost of sales                  (122)                 -          (122)          (116)                 -          (116) 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 Gross profit                     120                 -            120            116                 -            116 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 Total operating 
  expenses                       (71)              (18)           (89)           (71)               (3)           (74) 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 Segment result                    49              (18)             31             45               (3)             42 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 
 
                              H1 2019           H1 2019        H1 2019        H1 2018           H1 2018        H1 2018 
                                 Core       Exceptional       Reported           Core       Exceptional       Reported 
                              results             items        results        results             items        results 
                          (Unaudited)         and other    (Unaudited)    (Unaudited)         and other    (Unaudited) 
                                            adjustments                                     adjustments 
                                                  (note                                           (note 
                                         4) (Unaudited)                                  4) (Unaudited) 
 Others 
                                   $m                $m             $m             $m                $m             $m 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 Revenue                            5                 -              5              5                 -              5 
 Cost of sales                    (3)                 -            (3)            (4)                 -            (4) 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 Gross profit                       2                 -              2              1                 -              1 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 Total operating 
  expenses                        (3)                 -            (3)            (2)                 -            (2) 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 Segment result                   (1)                 -            (1)            (1)                 -            (1) 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 

'Others' mainly comprises Arab Medical Containers LLC, International Pharmaceutical Research Center LLC, Hikma Emerging Markets and Asia Pacific FZ LLC and the chemicals division of Hikma Pharmaceuticals LLC (Jordan).

 
                              H1 2019           H1 2019        H1 2019        H1 2018           H1 2018        H1 2018 
                                 Core       Exceptional       Reported           Core       Exceptional       Reported 
                              results             items        results        results             items        results 
                          (Unaudited)         and other    (Unaudited)    (Unaudited)         and other    (Unaudited) 
                                            adjustments                                     adjustments 
                                                  (note                                           (note 
                                         4) (Unaudited)                                  4) (Unaudited) 
 Group 
                                   $m                $m             $m             $m                $m             $m 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 Segment result                   286               (8)            278            247              (40)            207 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 Unallocated expenses            (40)                 -           (40)           (33)                 -           (33) 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 Operating profit                 246               (8)            238            214              (40)            174 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 Finance income                     3                12             15              2                 -              2 
 Finance expense                 (25)                 -           (25)           (26)               (8)           (34) 
 Gain/(loss) from 
  investment 
  at fair value                     1                 -              1            (1)                 -            (1) 
 Loss from investment 
  divestiture                       -               (3)            (3)              -                 -              - 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 Profit before tax                225                 1            226            189              (48)            141 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 Tax                             (49)                 8           (41)           (38)                 6           (32) 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 Profit for the 
  half-year                       176                 9            185            151              (42)            109 
                        =============  ================  =============  =============  ================  ============= 
 
 Attributable to: 
 Non-controlling 
  interests                         -                 -              -              3                 -              3 
 Equity holders of the 
  parent                          176                 9            185            148              (42)            106 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
                                  176                 9            185            151              (42)            109 
                        -------------  ----------------  -------------  -------------  ----------------  ------------- 
 

Unallocated corporate expenses mainly comprises of employee costs, third party professional fees and travel expenses.

The following table provides an analysis of the Group's sales by segment and geographical market, irrespective of the origin of the goods/services:

 
                                 Branded   Injectables   Generics   Others   Total 
 Half-year 2019 (unaudited)           $m            $m         $m       $m      $m 
                                --------  ------------  ---------  -------  ------ 
 United States                         -           321        368        -     689 
 Middle East and North Africa        238            60          -        3     301 
 Europe and Rest of the World          4            48          -        2      54 
 United Kingdom                        -             3          -        -       3 
                                --------  ------------  ---------  -------  ------ 
                                     242           432        368        5   1,047 
                                ========  ============  =========  =======  ====== 
 
                                 Branded   Injectables   Generics   Others   Total 
 Half-year 2018 (unaudited)           $m            $m         $m       $m      $m 
                                --------  ------------  ---------  -------  ------ 
 United States                         -           308        332        -     640 
 Middle East and North Africa        228            51          -        2     281 
 Europe and Rest of the World          4            51          -        2      57 
 United Kingdom                        -             -          -        1       1 
                                --------  ------------  ---------  -------  ------ 
                                     232           410        332        5     979 
                                ========  ============  =========  =======  ====== 
 
 

The top selling markets are shown below:

 
                       H1 2019      H1 2018 
                            $m           $m 
                   -----------  ----------- 
                   (Unaudited)  (Unaudited) 
                   -----------  ----------- 
United States              689          640 
Saudi Arabia                90           76 
Egypt                       56           42 
                           835          758 
                   ===========  =========== 
 

Included in revenue arising from the Generics and Injectables segments is revenue of approximately $161 million (H1 2018: $152 million), which arose from the Group's largest customer, located in the United States.

4. Exceptional items and other adjustments

Exceptional items are disclosed separately in the condensed consolidated income statement to assist in understanding the Group's core performance.

 
                                                   H1 2019       H1 2018 
                                                        $m            $m 
                                               (Unaudited)   (Unaudited) 
                                              ------------  ------------ 
 Exceptional items 
 R&D cost                                             (14)          (15) 
 Jordan warehouse fire                                (15)             - 
 Proceeds from legal claim                              32             - 
 Contingent consideration adjustment                     7             - 
 MENA severance and restructuring costs                (5)             - 
 Integration costs                                       4          (10) 
 Loss from investment divestiture                      (3)             - 
 Exceptional items                                       6          (25) 
 
 Other adjustments 
 Intangible assets amortisation other than 
  software                                            (17)          (15) 
 Remeasurement of contingent consideration, 
  net                                                   12           (8) 
 Exceptional items and other adjustments                 1          (48) 
 Tax effect                                              8             6 
                                              ------------  ------------ 
 Impact on profit for the half-year                      9          (42) 
                                              ------------  ------------ 
 

Exceptional items:

-- Hikma incurred $14 million (H1 2018: $15 million) of research and development costs related to a repeat clinical endpoint study for generic Advair Diskus(R).

-- During the period, a fire broke out in a warehouse at one of Hikma's Jordan facilities. Production was halted for a period of time and inventory was damaged. The associated loss was $15 million, mainly comprised of damaged inventory and the cost to remediate property, plant and equipment. These costs are included in other operating expenses. The Group expects to receive an insurance compensation in H2 2019. At this point in time, it is not possible to reliably determine and measure the insurance recovery amount.

-- Hikma received compensation proceeds of $32 million in relation to a litigation matter with an external party which was concluded in Hikmas favour. Such amounts are included in other operating income.

-- The contingent consideration adjustment relates to a change in estimate of the amount of expected contingent payments Hikma was entitled to receive under the terms of the Columbus acquisition agreement.

-- MENA severance and restructuring costs of $5 million related to one-off restructuring activities in MENA and are mainly included in SG&A.

-- Release of $4 million integration costs (in relation to the Columbus business) which was previously provided for in 2018 as exceptional items.

   --     $3 million loss from divestiture of Medlac investment (Note 17). 

In H1 2018, additional exceptional items related to the following:

-- In H1 2018, Hikma incurred $15 million of R&D costs related to a repeat clinical endpoint study for generic Advair Diskus(R).

-- Integration costs were incurred in relation to the acquisition of the Columbus business and the planned closure of Eatontown, of which $5 million are included in cost of sales, $1 million in SG&A expenses, $1 million in R&D and $3 million in other operating expenses.

Other adjustments:

The remeasurement of contingent consideration represents the net difference resulting from the valuation of the liabilities associated with the future contingent payments in respect of the Columbus business acquisition and the financial liability in relation to the co-development earnout payment agreement (note 7,12 and 14). The remeasurement is included in finance expense/income.

5. Tax

The Group incurred a tax expense of $41 million (H1 2018: $32 million). The reported effective tax rate for H1 2019 is 18.1% (H1 2018: 22.7%), representing the best estimate of the average annual effective tax rate expected for the full year on a legal entity basis, applied to the pre-tax income for H1 2019 and adjusted for the tax effect of any discreet items recorded in the same period.

The decrease in the reported tax rate in H1 2019 was due to the recognition of a tax benefits associated with previously unrecognised temporary differences and favourable tax treatment on proceeds received from a legal claim (note 4).

The application of tax law and practice is subject to some uncertainty and amounts are provided where the likelihood of a cash outflow is probable.

6. Dividends

 
                                                      H1 2019       H1 2018 
                                                           $m            $m 
                                                 ------------  ------------ 
                                                  (Unaudited)   (Unaudited) 
                                                 ------------  ------------ 
 
 Amounts recognised as distributions to 
  equity holders in the period: 
 Final dividend for the year ended 31 December 
  2018 of 26 cents (2017: 23 cents) per share              63            55 
 
                                                           63            55 
                                                 ============  ============ 
 
 

The proposed interim dividend for the H1 2019 is 14 cents (H1 2018: 12 cents) per share.

The proposed interim dividend will be paid on 23 September 2019 to eligible shareholders on the register at the close of business on 23 August 2019.

Based on the number of shares in issue at 30 June 2019 of 242,265,327, the unrecognised liability is $34 million.

7. Financial and other non-current assets

 
                                                 30 June   31 December 
                                                    2019          2018 
                                                      $m            $m 
                                            ------------  ------------ 
                                             (Unaudited)     (Audited) 
                                            ------------  ------------ 
 Investments at fair value through other 
  comprehensive income (FVTOCI)                       18            27 
 Other non-current assets                             30            30 
                                            ------------  ------------ 
                                                      48            57 
                                            ------------  ------------ 
 

Investments at FVTOCI: include investments in seven venture capital companies through the Group's venture capital arm Hikma International Ventures and Developments LLC and Hikma Ventures Limited. During H1 2019, the Group sold one of its investments for $12 million and invested in a new venture.

Other non-current assets: mainly comprises inventory not expected to be sold within one year.

8. Inventories

During H1 2019, the Group wrote down $34 million (H1 2018: $27 million) of inventories, $10 million relates to inventory damaged in the Jordan warehouse fire incident (note 4). This expense is included in other operating expenses in the condensed consolidated income statement.

9. Trade and other receivables

 
                                      30 June   31 December 
                                         2019          2018 
                                           $m            $m 
                                 ------------  ------------ 
                                  (Unaudited)     (Audited) 
                                 ------------  ------------ 
 Trade receivables                        610           654 
 Prepayments                               52            57 
 VAT and sales tax recoverable             27            17 
 Employee advances                          4             3 
                                 ------------  ------------ 
                                          693           731 
                                 ============  ============ 
 

The fair value of trade and other receivables is estimated to be equal to the carrying amounts.

10. Other current assets

 
                                                30 June   31 December 
                                                   2019          2018 
                                                     $m            $m 
                                           ------------  ------------ 
                                            (Unaudited)     (Audited) 
                                           ------------  ------------ 
 Investment at fair value through profit 
  or loss (FVTPL)                                    22            21 
 Price adjustment receivable                          7            20 
 Others                                              14            18 
                                                     43            59 
                                           ============  ============ 
 

Investments at FVTPL: represents the agreement that the Group entered into with an asset management firm in 2015 to manage a $20 million portfolio of underlying debt instruments. The investment comprises a portfolio of assets that are managed by an asset manager and is measured at fair value; any changes in fair value go through the income statement. This financial asset is classified as Level 1 as it uses quoted prices in active markets.

Price adjustment receivable: represents the current portion of the contingent receivable in relation to the Columbus business acquisition, whereby as part of the acquisition, the Group will be reimbursed for certain contingent payments in respect of milestones and other conditions based on future events. During H1 2019, the Group received the balance of the $20 million receivables outstanding at 31 December 2018 (2018: $45 million) in cash, and recognised additional $7 million receivable (note 4).

11. Trade and other payables

 
                         30 June   31 December 
                            2019          2018 
                              $m            $m 
                    ------------  ------------ 
                     (Unaudited)     (Audited) 
                    ------------  ------------ 
 Trade payables              248           263 
 Accrued expenses            148           185 
 Other payables                9            17 
                    ------------  ------------ 
                             405           465 
                    ============  ============ 
 

The fair values of payables are estimated to be equal to the carrying amounts.

Other payables principally comprise a liability of $2 million (31 December 2018: $7 million) related to an employees' provident fund representing outstanding contributions to Hikma Pharmaceuticals Ltd (Jordan) retirement benefit plan, on which the fund receives 3.5% interest.

12. Other current liabilities

 
                                             30 June   31 December 
                                                2019          2018 
                                                  $m            $m 
                                        ------------  ------------ 
                                         (Unaudited)     (Audited) 
                                        ------------  ------------ 
 Contract liability                              152           151 
 Indirect rebate and other allowances             60            65 
 Co-development and earnout payment                2             2 
 Supply manufacturing agreement                    9            18 
 Lease liabilities                                 3             1 
 Others                                           12            26 
                                        ------------  ------------ 
                                                 238           263 
                                        ------------  ------------ 
 

Contract liability: the Group allows customers to return products within a specified period prior to and subsequent to the expiration date. In addition, free goods are issued to customers as sale incentives, reimbursement of agreed upon expenses incurred by the customer or as compensation for expired or returned goods.

Indirect rebate and other allowances: represents rebates granted to healthcare authorities and other parties under contractual arrangements with certain customers.

13. Financial debts

Short-term financial debts

 
                                           30 June   31 December 
                                              2019          2018 
                                                $m            $m 
                                      ------------  ------------ 
                                       (Unaudited)     (Audited) 
                                      ------------  ------------ 
 Bank overdrafts                                 8             - 
 Import and export financing                    63            58 
 Short-term loans                                6             7 
 Current portion of long-term loans            511             9 
                                               588            74 
                                      ============  ============ 
 

Import and export financing represents short-term financing for the ordinary trading activities of the Group.

Long-term financial debts

 
                                                 30 June              31 December 
                                                    2019                     2018 
                                                      $m                       $m 
                                            ------------  ----------------------- 
                                             (Unaudited)                (Audited) 
                                            ------------  ----------------------- 
 
 Long-term loans                                      52                       51 
 Long-term borrowings (Eurobond)                     499                      497 
 Less: current portion of long-term loans          (511)                      (9) 
                                            ------------  ----------------------- 
 Long-term financial loans                            40                      539 
                                            ============  ======================= 
 
 Breakdown by maturity: 
 Within one year                                     511                        9 
 In the second year                                    9                      509 
 In the third year                                     9                        8 
 In the fourth year                                   12                        8 
 In the fifth year                                     5                        9 
 Thereafter                                            5                        5 
                                            ------------  ----------------------- 
                                                     551                      548 
                                            ============  ======================= 
 

The loans are held at amortised cost.

Included in the table above are the following major arrangements entered into by the Group:

a) A $500 million (carrying value of $499 million, and fair value of $502 million) 4.25% Eurobond due in April 2020 with the rating of (BB+/Ba1). The proceeds were used to refinance existing debt and to finance part of the cash consideration of the Columbus business acquisition.

b) A syndicated revolving credit facility of $1,175 million was entered into on 27 October 2015. The facility has an outstanding balance of $nil at 30 June 2019, (with a fair value of $nil) (2018: $nil with a fair value of $nil) and $1,175 million unused available limit (2018: $1,175 million). Of this amount $1,000 million of the facility matures on 24 December 2021 and the remainder matures on 24 December 2019. The facility can be used for general corporate purposes.

c) A ten-year $150 million loan from the International Finance Corporation was entered into on 21 December 2017. There was no utilisation of the loan as at 30 June 2019. Quarterly equal repayments of the long-term loan will commence on 15 March 2021. The loan will be used in MENA and in other World Bank countries of operation for its general corporate purposes. The facility matures on 15 December 2027.

14. Other non-current liabilities

 
                                           30 June           31 December 
                                              2019                  2018 
                                                $m                    $m 
                                      ------------  -------------------- 
                                       (Unaudited)             (Audited) 
                                      ------------  -------------------- 
 
 Contingent consideration                      195                   204 
 Contingent liability                          109                   109 
 Supply manufacturing agreement                  4                     4 
 Co-development and earnout payment              4                     7 
 Others                                          6                     5 
                                               318                   329 
                                      ============  ==================== 
 

Contingent consideration and contingent liability: represents a contractual liability to make payments to thirds parties in the form of milestone payments that depend on the achievement of certain US FDA approval milestones; and royalty payments based on future sales of certain products that are currently under development.

15. Cash generated from operations

 
                                                             H1 2019       H1 2018 
                                                                  $m            $m 
                                                         (Unaudited)   (Unaudited) 
                                                        ------------  ------------ 
 
 Profit before tax                                               226           141 
  Adjustments for: 
  Depreciation, amortisation, impairment 
   and write-down of: 
       Property, plant and equipment and right-of-use 
        assets                                                    36            36 
       Intangible assets                                          23            21 
 (Gain)/loss from investment at fair value 
  through profit or loss                                         (1)             1 
 Loss from investment divestiture                                  3             - 
 Loss on disposal of property, plant and                           3             - 
  equipment 
 Movement on provisions                                            -             1 
 Cost of equity-settled employee share scheme                     13            12 
 Finance income                                                 (14)           (2) 
 Interest and bank charges                                        25            34 
 Foreign exchange loss                                             1             1 
 Cash flow before working capital                                315           245 
 Change in trade and other receivables                            41            13 
 Change in other current assets                                  (4)           (3) 
 Change in inventories                                          (48)          (51) 
 Change in trade and other payables                             (66)             4 
 Change in other current liabilities                            (28)           (2) 
 Change in other non-current liabilities                           1             - 
                                                        ------------  ------------ 
 Cash generated from operations                                  211           206 
                                                        ------------  ------------ 
 
 

16. Fair value of financial assets and liabilities

The fair value of financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following financial assets/liabilities are presented at their carrying values which approximates their fair values:

-- cash and cash equivalents and collateralised and restricted cash - due to the short-term maturities of these financial instruments and given that generally they have negligible credit risk, management considers the carrying amounts to not be significantly different from their fair values;

-- short-term loans and overdrafts - approximates the carrying amount because of the short maturity of these instruments;

-- long-term loans - loans with variable rates are re-priced in response to any changes in market rates and so management considers the carrying amounts to not be significantly different from their fair market values;

-- loans with fixed rates relate to the $500 million Eurobond accounted for at amortised cost. The fair value is determined with reference to the quoted price in an active market on the balance sheet date (note 13);

-- receivables and payables - the fair values of receivables and payables are estimated to be equal to the respective carrying amounts; and

   --     lease liabilities - are valued at the present value of the lease payments. 

Management classifies items that are recognised at fair value based on the level of the inputs used in their fair value determination as described below:

   --     Level 1: quoted prices in active markets for identical assets or liabilities; 
   --     Level 2: inputs that are observable for the asset or liability; and 
   --     Level 3: inputs that are not based on observable market data. 

Financial assets and liabilities that fall under Level 1 are:

   --     investments at FVTPL which amounted to $22 million (note 10). 

Financial assets and liabilities that fall under Level 3 are:

   --     co-development and earnout payment liabilities (note 12 and 14); 

-- contingent consideration asset and liability resulting from the acquisition of the Columbus business (note 10,12 and 14); and

   --     investments at FVTOCI (note 7). 

The following table presents the changes in Level 3 items for H1 2019 and the year ended 31 December 2018:

 
 
                                              Financial     Financial 
                                                  asset     liability 
                                                     $m            $m 
 Balance at 1 January 2018(1)                        83           190 
-----------------------------------------  ------------  ------------ 
 Received/settled                                  (45)           (2) 
 Additions                                            4             - 
 Remeasurement through income statement               -            26 
 Fair value adjustments recognised                    7             - 
  in equity 
----------------------------------------   ------------  ------------ 
 Balance at 31 December 2018                         49           214 
=========================================  ------------  ------------ 
 Received                                          (33)             - 
 Additions                                            9             - 
 Remeasurement through income statement               -          (13) 
-----------------------------------------  ------------  ------------ 
 Balance at 30 June 2019                             25           201 
=========================================  ============  ============ 
 

(1)The impact of IFRS 9 was $16 million.

The remeasurement through the income statement is included within the finance expense in the condensed consolidated income statement.

The critical areas of judgment in relation to the contingent liability are the probabilities assigned to reaching the success-based milestones and management's estimate of future sales.

If the future sales were 5% higher or lower, the fair value of the contingent liability will increase/decrease by $6 million.

If the probability assigned to reaching the success-based milestones were 5% higher or lower, the fair value of the contingent liability will increase/decrease by $5 million.

17. Business combinations

Acquisition and selling of Medlac Pharma

On 2 January 2019, the Group acquired 100% of the share capital of Medlac Pharma Italy Co Ltd (Medlac), an injectable manufacturing company in Vietnam. As part of the consideration the Group paid an initial upfront payment of $8 million. On 29 April 2019, the Group sold Medlac back to the original seller for a consideration of $5 million, resulting in a loss of $3 million (Note 4).

18. Related party balances and transactions

No significant transactions between the Group and its associates and other related parties were undertaken during the half-year. Any transactions between the Company and its subsidiaries have been eliminated on consolidation.

19. Contingent liabilities

A contingent liability existed at the balance sheet date in respect of external guarantees and letters of credit totalling $45 million (31 December 2018: $44 million) arising in the normal course of business. No provision for these liabilities has been made in these condensed consolidated interim financial statements.

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 is still cooperating with all such demands, and management still does not believe that sufficient evidence exists at this point to make any provision.

A contingent liability existed at the balance sheet date in respect to a standby letter of credit totalling to $9 million (31 December 2018: $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.

On April 25, 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 calculated the maximum potential liability to be approximately $12 million. Hikma is reviewing the details of the decision and assessing any impact upon the Company's tax position. Based on management's understanding of legislation and professional advice taken on the matter, management does not believe that a provision is warranted.

20. New standards, interpretations and amendments adopted by the Group

IFRS 16 Leases

The effect of the adoption of IFRS 16 as at 1 January 2019 (increase/(decrease)) is as follows:

 
                                   1 January 
                                        2019 
                                          $m 
                                  ---------- 
 Assets 
 Right-of-use assets                      57 
 Property, plant and equipment          (10) 
                                  ---------- 
 Total assets                             47 
                                  ---------- 
 
 Liabilities 
 Accrued rent                            (3) 
 Lease liabilities                        50 
                                  ---------- 
 Total liabilities                        47 
                                  ---------- 
 

In H1 2019, the impact of applying IFRS 16 on the condensed consolidated income statement is:

   --     increase in depreciation expense of $4 million. 
   --     increase in interest expense of $1 million. 
   --     decrease in rental expense of $5 million. 
   a)   Nature of the effect of adoption of IFRS 16 

The Group has lease contracts for various items of buildings and vehicles. Before the adoption of IFRS 16, the Group classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease. A lease was classified as a finance lease if it transferred substantially all the risks and rewards incidental to ownership of the leased asset to the Group; otherwise it was classified as an operating lease. Finance leases were capitalised at the commencement of the lease at the inception date at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments were apportioned between interest (recognised as finance costs) and a reduction of the lease liability. In an operating lease, the leased property was not capitalised and the lease payments were recognised as rent expense in the income statement on a straight-line basis over the lease term. Any prepaid rent and accrued rent were recognised under 'prepayments' and 'trade' and other payables, respectively. Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The standard provides specific transition requirements and practical expedients, which have been applied by the Group.

   --     Leases previously classified as finance leases 

The Group did not change the initial carrying amounts of recognised assets and liabilities at the date of initial application for leases previously classified as finance leases (i.e. the right-of-use assets and lease liabilities equal the lease assets and liabilities recognised under IAS 17). The requirements of IFRS 16 was applied to these leases from 1 January 2019.

   --     Leases previously accounted for as operating leases 

The Group recognised right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. The right-of-use assets were recognised based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognised. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application.

The Group also applied the available practical expedients wherein it:

   --     used a single discount rate to a portfolio of leases with reasonably similar characteristics 

-- relied on its assessment of whether leases are onerous immediately before the date of initial application

-- applied the short-term leases exemptions to leases with lease term that ends within 12 months at the date of initial application.

-- excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application.

-- used hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

Based on the foregoing, as at 1 January 2019:

-- right-of-use assets of $57 million were recognised and presented separately in the balance sheet. This includes the lease assets recognised previously under finance leases of $10 million that were reclassified from property, plant and equipment.

   --     additional lease liabilities of $50 million were recognised. 

-- accrued rent including trade and other payables of $3 million related to previous operating leases were derecognised.

   b)   Summary of new accounting policies 

Set out below are the new accounting policies of the Group upon adoption of IFRS 16, which have been applied from the date of initial application:

   --     Right-of-use assets 

The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain or obtaining ownership of leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.

   --     Lease Liabilities 

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments), less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate.

In calculating the present value of the lease payment, the Group uses the incremental borrowing rate at the lease commencement date, if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

   --     Short-term leases and leases of low-value assets 

The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e. those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (i.e. below $5,000). A lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

   --     Significant judgement in determining the lease term of contracts with renewal options 

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

IR BIGDISGGBGCI

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August 09, 2019 02:00 ET (06:00 GMT)

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