TIDMHIK
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
(END) Dow Jones Newswires
August 09, 2019 02:00 ET (06:00 GMT)
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