TIDMHIK
RNS Number : 1402I
Hikma Pharmaceuticals Plc
03 August 2023
Hikma delivers strong H1 performance and raises Generics
guidance
Growth in all three businesses and across all geographies
London, 3 August 2023 - Hikma Pharmaceuticals PLC and its
subsidiaries ('Hikma' or 'Group'), the multinational pharmaceutical
company, today reports its interim results for the six months ended
30 June 2023.
Said Darwazah, Executive Chairman and Chief Executive Officer of
Hikma, said:
"Our strong first half performance reflects growth across all
three of Hikma's businesses and geographies.
Across our global operations we have continued to strengthen our
businesses and processes, including adding to, and enhancing our
manufacturing capabilities. Our investments in R&D have yielded
several new product launches and pipeline expansion, broadening our
differentiated product portfolio. We continue to win important new
contracts and expand in new markets, all of which are enabling
Hikma to make more medicines accessible to the healthcare providers
and patients who need them most.
I am especially delighted that Riad Mishlawi has been appointed
as Hikma's new CEO, effective 1(st) September 2023. He has an
excellent record of delivering business expansion and profitable
growth and has been a close colleague for many years. I look
forward to continuing working together and capturing the
significant opportunities available to Hikma."
Group H1 highlights:
Reported results (statutory) Constant currency(2)
$ million H1 2023(1) H1 2022(1) Change change
------------- ----------- -------
Revenue 1,427 1,213 18% 19%
Operating profit 245 239 3% 7%
Profit attributable to shareholders 131 173 (24)% (18)%
Net cash inflow from operating
activities 222 169 31% -
Basic earnings per share (cents) 59.3 76.2 (22)% (16)%
Interim dividend per share (cents) 25 19 32% -
------------------------------------- ------------- ----------- ------- ---------------------
Core results(3) (underlying) Constant currency(2)
$ million H1 2023 H1 2022 Change change
------------------------------- ---------- -------- ------- ---------------------
Revenue 1,427 1,213 18% 19%
Core operating profit 401 296 35% 39%
Core profit attributable to
shareholders 284 209 36% 41%
Core basic earnings per share
(cents) 128.5 92.1 40% 45%
------------------------------- ---------- -------- ------- ---------------------
Strong first half performance
-- Group revenue up 18% with strong growth in all three business
segments
-- Reported gross margin of 50.1%, reflecting favourable product
mix
-- Core operating profit up 35% to $401 million, reflecting H1
weighting of Generics and Branded
-- Good net cash inflow from operating activities, up 31% to
$222 million
-- Robust balance sheet with net debt(4) to core EBITDA(5) of
1.3x at 30 June 2023 (31 December 2022 1.5x)
-- Interim dividend of 25 cents per share, up 32%
Growth in all three businesses
-- Global Injectables revenue growth of 9%, reflecting a good
top-line performance in all markets, including full period
contribution from recent acquistion. Core operating profit margin
of 36.6%
-- Branded had a strong first half with 11% revenue growth and
41% core operating profit growth, reflecting a good performance
across our markets and the early fulfilment of some tenders
-- Generics revenue growth of 39% and core operating profit
growth of 110%, reflecting a stronger than expected performance
across the base portfolio and our six month exclusivity for the
authorised generic of sodium oxybate
Strategic updates
-- Riad Mishlawi, President of Injectables, appointed CEO from
1(st) September 2023
-- Expanding Injectables capacity, adding new high speed lines
to our New Jersey and Portugal facilities
-- Launched 73 new products across all three businesses
-- Strengthened our contract manufacturing pipeline in Generics
with new contract wins
-- Acquired a selection of assets from Akorn in July for $98
million, including manufacturing equipment and portfolio and
pipeline products that will support our businesses in the US
-- Reinforced our position as one of the leading providers of
oncology medicines in MENA, launching nine oral oncology products
across the region
-- Halted operations in Sudan, which represented less than 3% of
Group revenue in 2022, as a result of the ongoing conflict in the
country. This resulted in $92 million of impairment and costs in H1
2023
Outlook for full year 2023
-- Injectables - we continue to expect revenue growth of between
7% and 9% and for core operating margin to be between 36% and
37%
-- Branded - we continue to expect Branded revenue growth to be
in the mid to high-single digits in constant currency. On a
reported basis, reflecting the continued devaluation of the
Egyptian pound, we expect Branded revenue and core operating profit
to be broadly in line with 2022
-- Generics - we now expect revenue growth of close to 30%, up
from our previous guidance of revenue growth close to 20%, and for
core operating margin to be between 18% and 20%, up from 16% to
18%
-- We now expect Group core net finance expense to be around $83
million, up from $78 million and the core effective tax rate to be
in the range of 22% to 23%
-- We expect Group capital expenditure to be in the range of
$140 million to $160 million
Further information:
A pre-recorded presentation will be available at www.hikma.com
at 07:00 BST. Hikma will also hold a live Q&A conference call
at 09:30am BST, and a recording will be made available on the
Company's website.
To join via conference call please dial:
United Kingdom (toll free): +44 800 358 1035
United Kingdom (local): +44 20 4587 0498
Access code: 317158
For further information please contact Tiina Lugmayer -
tlugmayer@hikma.com .
Hikma (Investors):
Susan Ringdal
EVP, Strategic Planning and Global +44 (0)20 7399 2760/ +44 (0)7776
Affairs 477050
Guy Featherstone +44 (0)20 3892 4389/ +44 (0)7795
Associate Director, Investor Relations 896738
Layan Kalisse +44 (0)20 7399 2788/ +44 (0)7970
Senior Associate, Investor Relations 709912
Teneo (Press):
Charles Armitstead / Rob Yates +44 (0)7703 330269/ +44 (0)7715 375443
About Hikma:
Hikma helps put better health within reach every day for
millions of people around the world. For more than 45 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 North America, 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 8,700
colleagues are helping to shape a healthier world that enriches all
our communities. We are a leading licensing partner, and through
our venture capital arm, are helping bring innovative health
technologies to people around the world. For more information,
please visit: www.hikma.com
Hikma Pharmaceuticals PLC (LSE: HIK) (NASDAQ Dubai: HIK) (OTC:
HKMPY) (LEI:549300BNS685UXH4JI75) (rated BBB-/stable S&P and
Ba1/stable Moody's)
STRATEGIC REVIEW
During the first half of 2023, Hikma has continued to grow, with
our purpose of putting better health within reach, every day at the
forefront of our strategy. We are a top three provider of generic
sterile injectables by volume in the US(6) ; we are the third
largest pharmaceutical company in the MENA region(7) and we are the
twelfth largest supplier of non-injectable generic medicines in the
US(8) .
We are launching more products and investing in our
manufacturing capabilities, our R&D pipeline and in our people
to ensure that we can provide customers across our geographies with
the medicines they need.
Injectables
Our global Injectables business has had a positive start to the
year across our geographies. We have launched 52 products across
our markets, enhanced our pipeline and are adding capacity to
ensure we are well positioned to capture opportunities and ensure
our customers' needs are met.
In North America(9) , our US portfolio grew to over 150 products
during the first half. Having announced our 100(th) product in
2019, this important milestone demonstrates both the pace with
which we are bringing products to market and the increased scale of
our portfolio, which we are delivering through R&D,
partnerships and acquisitions. The breadth of our product offering
is a core strength for Hikma and essential to offset the impact of
competition in this market.
In MENA we have grown the business, managing to offset the
currency headwinds experienced in Egypt, as well as the halted
operations in Sudan, which has resulted in impairment and cost
charges of $92 million, $15 million of which is related to the
Injectables business. Our key markets are performing very well,
with strong growth from our biosimilar products and recent
launches.
In Europe our agile supply chain is supporting growth in Germany
and Italy and enabling us to address shortage situations and we are
making good progress building our presence in our newer markets,
including France and Spain.
Branded
The momentum in our Branded business continues, with strong
performances across our MENA markets as we continue to grow through
the sale of medications used to treat chronic illnesses, with oral
oncology products, as well as cardiovascular and central nervous
system medications performing particularly well.
This strong performance and the early fulfilment of tenders more
than offset foreign exchange headwinds, particularly in Egypt, and
the loss of revenues resulting from the halting of operations in
Sudan, which has resulted in impairment and cost charges of $92
million, $77 million of which is related to the Branded business.
The timing of tenders, as well as the phasing of R&D spend and
other operating costs, means that for the full year, revenue and
operating profit will be weighted towards the first half.
Generics
Our Generics business had an excellent first half, as the
competitive pressures experienced in 2022 began to ease. We have
seen a reduction in price erosion and we have been able to increase
volumes across the portfolio. With our state-of-the-art
manufacturing facility in Columbus Ohio, strong customer
relationships and reputation for quality, as well as our broad
portfolio, we are addressing market disruptions and winning awards
for new business across our product portfolio. We launched an
authorised generic of Xyrem(R) (sodium oxybate) in January and are
pleased with the strong performance to date. Despite an increase in
competition, we expect to continue to benefit from this new launch
in the second half, albeit at a reduced margin.
We remain focused on strengthening our Generics business and
continued to gradually grow revenue from our specialty portfolio,
gaining traction with our 8mg naloxone nasal spray, Kloxxado, which
is used to reverse drug overdoses. We are also building our CMO
offering and have won some key long-term contracts that leverage
the quality and capabilities of our Columbus facility.
Investing in future growth
We have been investing for growth in the first half of 2023,
enhancing our R&D pipeline and strengthening our manufacturing
capabilities through targeted capex. Our new high speed injectable
filling line in New Jersey has started production and will ramp up
gradually through the remainder of the year, with a second new high
speed line in Portugal following later this year. In July, through
acquisitions relating to the Akorn bankruptcy process, we have
enhanced our manufacturing capabilities and portfolio of products,
including expanding our nasal spray capacity, and added new ANDAs
for both Injectables and Generics.
Acting responsibly
We have continued to progress our responsibility agenda in the
first half. We are advancing health and wellbeing through the
provision of vital generic medicines and have been launching more
products, including 73 across our markets in the first half. We are
also spearheading disease awareness programmes, with events such as
the Hikma Cancer Network, in collaboration with MD Anderson, which
brought together key opinion leaders and doctors from across the
MENA region to discuss current trends in oncology treatments.
Our environmental efforts ensure we are continuing to make
progress towards our emissions reduction target. We are in the
early stages of assessing how we can better manage water
stress.
We are focused on empowering our most important asset, our
people. This not only encompasses recruitment and retention of the
best talent, but ensuring we foster a culture of progress and
belonging for all our employees. We are committed to diversity,
equity and inclusion and as part of this, have in place a target to
increase the number of women in the leadership team (Executive
Committee and senior direct reports) from 29% (at 31 December 2022)
to 40% by the end of 2025.
Finally, we are building trust through quality in everything we
do. We are committed to the highest ethical standards and are a
signatory of the United Nations Global Compact. Our customers also
rely on our products to be of the highest quality and this is built
into our mindset and is a key reason behind our success.
Outlook for full year 2023
For Injectables, we continue to expect revenue growth of between
7% and 9% and for core operating margin to be between 36% and 37%.
This reflects the breadth of our portfolio and ability to launch
new products as well as our growing geographic reach.
For Branded, we continue to expect Branded revenue growth to be
in the mid to high-single digits in constant currency, reflecting
strong growth across our markets, which should more than offset the
halting of operations in Sudan. On a reported basis we expect
revenue and core operating profit to be broadly in line with 2022.
This assumes a headwind of approximately $50 million resulting from
the devaluation of the Egyptian pound. Revenue and core operating
profit will be weighted towards H1 due to the early fulfilment of
government tenders and the phasing of R&D and other operating
expenses.
For Generics - we now expect revenue growth of close to 30% and
for core operating margin to be between 18% and 20%. This reflects
continued strong performance from our base business as well as the
expectation of a stronger second half contribution from the
authorised generic Xyrem(R) . This also assumes an increase in
R&D and sales and marketing expenses in the second half of the
year.
We now expect Group core net finance expense to be around $83
million, up from $78 million and the core effective tax rate to be
in the range of 22% to 23%. We expect Group capital expenditure to
be in the range of $140 million to $160 million.
FINANCIAL REVIEW
The financial review set out below summarises the performance of
the Group and our three main business segments: Injectables,
Branded and Generics, for the six months ended 30 June 2023.
Group
$ million Constant
currency
H1 2023 H1 2022 Change change
Revenue 1,427 1,213 18% 19%
--------- -------- ------- ----------
Gross profit 715 611 17% 19%
--------- -------- ------- ----------
Core gross profit 733 623 18% 20%
--------- -------- ------- ----------
Core gross margin 51.4% 51.4% 0.0pp 0.1pp
--------- -------- ------- ----------
Operating profit 245 239 3% 7%
--------- -------- ------- ----------
Core operating profit 401 296 35% 39%
--------- -------- ------- ----------
Core operating margin 28.1% 24.4% 3.7pp 4.1pp
--------- -------- ------- ----------
EBITDA 387 346 12% 15%
--------- -------- ------- ----------
Core EBITDA 451 346 30% 33%
--------- -------- ------- ----------
Group revenue grew 18%, with all three businesses performing
well and particularly strong growth in Generics where the base
business has seen an improvement following the challenging market
conditions of 2022, as well as a good performance from recently
launched authorised generic of Xyrem(R) . Core gross margin was
flat, as good margin performance for Generics and Branded was
offset by the effect of product and geographic mix in
Injectables.
Group operating expenses were $470 million (H1 2022: $372
million). Excluding exceptional items and other adjustments of $138
million (H1 2022: $2 million charge), including amortisation of
intangible assets (other than software) of $43 million (H1 2022:
$43 million) , Group core operating expenses were $332 million (H1
2022: $327 million).
Selling, general and administrative (SG&A) expenses were
$304 million (H1 2022: $299 million). Excluding the amortisation of
intangible assets (other than software) of $43 million (H1 2022:
$43 million) and a $1 million exceptional charge related to Sudan
costs, core SG&A expenses were $260 million (H1 2022: $256
million), with the slight increase reflecting continued investment
in sales and marketing as we grow our Generics specialty
business.
Core and reported research and development (R&D) expenses
were $64 million (H1 2022: $69 million), representing 4.5% of
revenue (H1 2022: 6%), with increased spend expected in the second
half.
Other net operating expenditure was $56 million (H1 2022: $1
million). This comprised a $57 million other operating expense and
$1 million of other operating income. Excluding exceptional items
and other adjustments(10) , core other net operating expense was $4
million (H1 2022: $1 million net income). This comprised a $5
million other operating expense and $1 million of other operating
income.
The increases in core operating profit of 35% and core operating
margin to 28.1% were primarily driven by the strong performance of
both Generics and Branded in the first half.
Group revenue by business segment
$ million H1 2023 H1 2022
Injectables 585 41% 538 44%
---------------- ---- ------ ----
Branded 375 26% 339 28%
---------------- ---- ------ ----
Generics 460 32% 330 27%
---------------- ---- ------ ----
Others 7 1% 6 1%
---------------- ---- ------ ----
Total 1,427 1,213
---------------- ---- ------ ----
Group revenue by region
$ million H1 2023 H1 2022
North America(11) 848 59% 698 58%
-------------- ---- ---------- ----
MENA 468 33% 414 34%
-------------- ---- ---------- ----
Europe and ROW(11) 111 8% 101 8%
-------------- ---- ---------- ----
Total 1,427 1,213
-------------- ---- ---------- ----
Injectables
$ million Constant
currency
H1 2023 H1 2022 Change change
Revenue 585 538 9% 9%
-------- -------- -------- ----------
Gross profit 319 297 7% 8%
-------- -------- -------- ----------
Core gross profit 322 309 4% 5%
-------- -------- -------- ----------
Core gross margin 55.0% 57.4% (2.4)pp (2.6)pp
-------- -------- -------- ----------
Operating profit 168 178 (6)% (5)%
-------- -------- -------- ----------
Core operating profit 214 209 2% 3%
-------- -------- -------- ----------
Core operating margin 36.6% 38.8% (2.2)pp (2.3)pp
-------- -------- -------- ----------
Injectables revenue grew 9% in the first half, with good growth
in all three geographies.
North America(11) Injectables revenue grew 5% to $388 million
(H1 2022: $368 million). Increasing competition was more than
offset by a full contribution from the acquisitions of Custopharm
and Teligent's Canadian assets as well as new launches.
Europe and Rest of World (ROW) Injectables revenue grew 10% to
$103 million (H1 2022: $94 million). In constant currency, Europe
and ROW Injectables revenue increased by 10%, reflecting good
demand across our portfolio, including recent launches. Our short
supply chain and lead times in Europe are enabling us to address
shortage situations, particularly in Germany.
In MENA, Injectables revenue was $94 million, up 24% (H1 2022:
$76 million), or 28% in constant currency. This was primarily due
to the continued strong performance of our biosimilar portfolio. We
also benefitted from the early fulfilment of tenders.
Injectables core gross profit grew 4% while the margin
contracted primarily due to higher costs due to inflation and
increased competition in the US, which was partially offset by a
good contribution from recent acquisitions.
Injectables core operating profit, which excludes the
amortisation of intangible assets (other than software) and
exceptional items(12) , grew 2% and core operating margin was
36.6%, down from 38.8% in H1 2022, primarily reflecting the change
in gross margin, as well as forex losses and an increase in R&D
spend as we invest in future growth opportunities. On a reported
basis, the halting of operations in Sudan has resulted in an
impairment charge of $15 million related to the Injectables
business.
During H1 2023, the Injectables business launched 11 products in
North America, 18 in MENA and 26 in Europe and ROW. We submitted 20
filings to regulatory authorities across all markets. We further
developed our portfolio through new licensing agreements.
Branded
$ million Constant
currency
H1 2023 H1 2022 Change change
Revenue 375 339 11% 15%
-------- -------- ------- ----------
Gross profit 184 174 6% 11%
-------- -------- ------- ----------
Core gross profit 199 174 14% 20%
-------- -------- ------- ----------
Core gross margin 53.1% 51.3% 1.8pp 2.2pp
-------- -------- ------- ----------
Operating profit 24 70 (66)% (54)%
-------- -------- ------- ----------
Core operating profit 104 74 41% 51%
-------- -------- ------- ----------
Core operating margin 27.7% 21.8% 5.9pp 6.8pp
-------- -------- ------- ----------
The Branded business performed very well in the first half, with
revenue up 11%, driven by a good performance across our markets as
well as the early fulfilment of some tenders in our larger markets.
Our oncology products had a particularly good performance and the
strategy of focusing on treatments for chronic illnesses continues
to be a growth and margin driver.
Branded reported and core gross profit grew and core gross
margin improved by 1.8 percentage points, reflecting an improved
product mix, driven by our growing portfolio of oncology medicines,
and the timing of tenders.
Branded core operating profit, which excludes the amortisation
of intangibles (other than software) and exceptional items(13) ,
grew 41%, reflecting the timing of tenders and the phasing of
certain operating costs towards the second half. This strong
performance more than offset the negative impact of foreign
exchange related to currency devaluation in Egypt. Due to the
ongoing conflict in Sudan, where we are unable to operate, we have
taken an impairment on this business, resulting in the reduced
reported operating profit of $24 million.
During H1 2023, the Branded business launched 18 products and
submitted 16 filings to regulatory authorities. Revenue from
in-licensed products represented 34% of Branded revenue (H1 2022:
36%).
Generics
$ million H1 2023 H1 2022 Change
Revenue 460 330 39%
-------- -------- -------
Gross profit 209 137 53%
-------- -------- -------
Core gross profit 209 137 53%
-------- -------- -------
Gross margin 45.4% 41.5% 3.9pp
-------- -------- -------
Operating profit 97 36 169%
-------- -------- -------
Core operating profit 122 58 110%
-------- -------- -------
Core operating margin 26.5% 17.6% 8.9pp
-------- -------- -------
Generics revenue has grown significantly in the first half of
2023 due to a strong performance from the base business, both in
terms of volumes and a lower level of price erosion, as well as a
good performance from the launch of the authorised generic of
Xyrem(R) (sodium oxybate).
The increase in Generics core and reported gross profit and
gross margin expansion to 45.4% was primarily due to the
improvement in product mix and the strong profitability of sodium
oxybate in the first six months. Royalties payable on sodium
oxybate will increase in the second half.
Generics core operating profit, which excludes the amortisation
of intangible assets (other than software) and impairment charge
adjustments(14) , increased primarily due to the good gross profit
and lower R&D spend due to phasing, which more than offset
higher sales and marketing costs as we continued to develop our
commercial capabilities as we build our speciality business.
During H1 2022, we launched three products from our R&D
pipeline.
Other businesses
Other businesses primarily comprise Arab Medical Containers
(AMC), a manufacturer of plastic specialised medicinal sterile
containers and International Pharmaceuticals Research Centre
(IPRC), which conducts bio-equivalency studies. These businesses
contributed revenue of $7 million (H1 2022: $6 million) with an
operating profit of $2 million (H1 2022: $2 million).
Research and development
Our investment in R&D and business development is core to
our strategy and enables us to continue expanding the Group's
product portfolio. During H1 2023, we had 73 new launches and
received 64
approvals. To ensure the continuous development of our product
pipeline, we submitted 38 regulatory filings.
H1 2023 submissions(15) H1 2023 approvals(15) H1 2023 launches(15)
Injectables 20 44 52
------------------------ ---------------------- ---------------------
North America 11 18 11
------------------------ ---------------------- ---------------------
MENA 9 11 18
------------------------ ---------------------- ---------------------
Europe 0 15 26
------------------------ ---------------------- ---------------------
Generics 2 0 3
------------------------ ---------------------- ---------------------
Branded 16 20 18
------------------------ ---------------------- ---------------------
Total 38 64 73
------------------------ ---------------------- ---------------------
Net finance expense
Constant
currency
H1 2023 H1 2022 Change change
Finance income 3 13 (77)% (81)%
---------------- ---------------- ------- ----------
Finance expense 46 35 31% 31%
---------------- ---------------- ------- ----------
Net finance expense 43 22 95% 97%
---------------- ---------------- ------- ----------
Core finance income 3 1 200% 153%
---------------- ---------------- ------- ----------
Core finance expense 44 33 33% 33%
---------------- ---------------- ------- ----------
Core net finance expense 41 32 28% 29%
---------------- ---------------- ------- ----------
On a reported basis, net finance expense was $43 million (H1
2022: $22 million). This comprised $3 million finance income and
$46 million finance expense. Excluding exceptional items and other
adjustments(16) , core net finance expense was $41 million (H1
2022: $32 million). This comprised $3 million finance income and
$44 million finance expense. The increase compared with H1 2022
reflects higher average debt utilisation in H1 2023 compared to H1
2022 as well as higher interest rates during the period.
We now expect core net finance expense to be around $83 million
for the full year.
Profit before tax
Reported profit before tax was $202 million (H1 2022: $215
million). Core profit before tax was $360 million (H1 2022: $262
million), reflecting the overall group performance.
Tax
The Group incurred a reported tax expense of $71 million (H1
2022: $41 million). Excluding the tax impact of exceptional items
and other adjustments, the Group core tax expense was $76 million
in H1 2023 (H1 2022: $52 million)(17) . The core effective tax
rate(18) for H1 2023 was 21.1% (H1 2022: 19.8%). This is due to the
phasing of earnings. We continue to expect the Group's core
effective tax rate to be around 22% to 23% for the full year.
Profit attributable to shareholders
Profit attributable to shareholders was $131 million (H1 2022:
$173 million). Excluding the amortisation of intangible assets
(other than software) and other adjustments(19) , core profit
attributable to shareholders increased by 36% to $284 million (H1
2022: $209 million).
Earnings per share
Constant
currency
H1 2023 H1 2022 Change change
Basic earnings per share (cents) 59.3 76.2 (22)% (16)%
-------- -------- ------- ----------
Core basic earnings per share
(cents) 128.5 92.1 40% 45%
-------- -------- ------- ----------
Diluted earnings per share (cents) 59.0 75.9 (22)% (16)%
-------- -------- ------- ----------
Core diluted earnings per share
(cents) 127.9 91.7 39% 45%
-------- -------- ------- ----------
Weighted average number of Ordinary
Shares for the purposes of basic
earnings ('m) 221 227 (3)% -
-------- -------- ------- ----------
Weighted average number of Ordinary
Shares for the purposes of diluted
earnings ('m) 222 228 (3)% -
-------- -------- ------- ----------
The increase in core earnings per share reflects the performance
of the Group and a reduction in shares in issue following the 2022
buy back of 12.5 million ordinary shares.
Dividend
In order to rebalance the distribution of dividends more evenly
over the course of the year, our interim dividend, on an ongoing
basis, will be calculated at approximately 45% of the prior year's
full-year dividend, while maintaining our dividend policy of a
pay-out ratio of 20% to 30% of core profit attributable to
shareholders. The Board is, therefore, recommending an interim
dividend of 25 cents per share (H1 2022: 19 cents per share). The
interim dividend will be paid on 15 September 2023 to eligible
shareholders on the register at the close of business on 11 August
2023.
Net cash flow, working capital and net debt
The Group generated operating cash flow of $222 million (H1
2022: $169 million). This reflects the increase in core operating
profit, which was partially offset by higher investment in working
capital related to strong growth in the MENA region.
Group working capital days were 255 at 30 June 2023. Compared to
the position on 31 December 2022, Group working capital days
increased by 4 days from 251 days.
Cash capital expenditure was $84 million (H1 2022: $63 million).
In the US, $21 million was spent on upgrades, new technologies and
capacity expansion across our Cherry Hill, Dayton, and Columbus
sites. In MENA, $49 million was spent strengthening and expanding
manufacturing capabilities, including our two ongoing greenfield
Injectables production sites in Algeria and Morocco and a new land
purchase in Saudi Arabia. In Europe, we spent $14 million enhancing
our manufacturing capabilities, including the installation of new
filling lines in Portugal and Italy. We continue to expect Group
capital expenditure to be around $140 million to $160 million in
2023.
The Group's total debt was $1,312 million at 30 June 2023 (31
December 2022: $1,283 million).
The Group's cash balance was $272 million (31 December 2022:
$270 million). The Group's net debt was $1,040 million at 30 June
2023 (31 December 2022: $1,013 million)(20) . We continue to have a
very strong balance sheet with a net debt to core EBITDA ratio of
1.3x (31 December 2022 1.5x).
Net assets
Net assets at 30 June 2023 were $2,202 million (31 December
2022: $2,148 million). Net current assets increased to $961 million
(31 December 2022: $922 million).
Responsibility statement
The directors confirm that these condensed interim financial
statements have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and that the
interim management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months 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
-- material related-party transactions in the first six months
and any material changes in the related-party transactions
described in the last annual report.
The maintenance and integrity of the Hikma Pharmaceuticals PLC
website is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that might have occurred to the interim financial
statements since they were initially presented on the website.
By order of the Board
Said Darwazah Mazen Darwazah
Executive Chairman and Chief Executive Executive Vice Chairman and President
Officer of MENA
2 August 2023 2 August 2023
The Board of Directors that served during all or part of the
six-month period to 30 June 2023 and their respective
responsibilities can be found on the Leadership team section of
www.hikma.com .
Cautionary statement
This interim results announcement has been prepared solely to
provide additional information to the shareholders of Hikma and
should not be relied on by any other party or for any other
purpose.
Definitions
We use a number of non-IFRS measures to report and monitor the
performance of our business. Management uses these adjusted numbers
internally to measure our progress and for setting performance
targets. We also present these numbers, alongside our reported
results, to external audiences to help them understand the
underlying performance of our business. Our core numbers may be
calculated differently to other companies.
Adjusted measures are not substitutable for IFRS results and
should not be considered superior to results presented in
accordance with IFRS.
Core results
Reported results represent the Group's overall performance.
However, these results can include one-off or non-cash items which
are excluded when assessing the underlying performance of the
Group. To provide a more complete picture of the Group's
performance to external audiences, we provide, alongside our
reported results, core results, which are a non-IFRS measure. Our
core results exclude the other adjustments and exceptional items
set out in Note 5.
Group operating profit H1 2023 H1 2022
$million $million
Core operating profit 401 296
--------------- -----------------
Impairment and cost related to halted (92) -
operations in Sudan
--------------- -----------------
Intangible assets amortisation other
than software (43) (43)
--------------- -----------------
Impairment charges (21) (2)
--------------- -----------------
Unwinding of acquisition related inventory
step-up - (12)
--------------- -----------------
Reported operating profit 245 239
--------------- -----------------
Profit attributable to shareholders H1 2023 H1 2022
$million $million
Core profit attributable to shareholders 284 209
--------------- -----------------
Impairment and cost related to halted (92) -
operations in Sudan
--------------- -----------------
Intangible assets amortisation other
than software (43) (43)
--------------- -----------------
Impairment charges (21) (2)
--------------- -----------------
Unwinding of acquisition related inventory
step-up - (12)
--------------- -----------------
Remeasurement of contingent consideration - 12
--------------- -----------------
Unwinding of contingent consideration
and other financial liability (2) (2)
--------------- -----------------
Tax effect 5 11
--------------- -----------------
Reported profit attributable to shareholders 131 173
--------------- -----------------
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 currencies 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 2023 represent reported H1 2023
numbers translated using H1 2022 exchange rates, excluding price
increases in the business resulting from the devaluation of
currencies and excluding the impact from hyperinflation accounting.
Sudan is considered a hyperinflationary economy, therefore the spot
exchange rate as at 30 June 2023 was used to translate the results
of this operation into US dollars.
EBITDA
EBITDA is earnings before interest, tax, depreciation,
amortisation, and impairment of property, plant and equipment and
intangible assets and other items.
EBITDA
$ million H1 2023 H1 2022
Reported operating profit 245 239
-------- --------
Depreciation 48 44
-------- --------
Amortisation 48 49
-------- --------
Unwinding of acquisition related
inventory step-up - 12
-------- --------
Impairment charges/(reversals) 46 2
-------- --------
EBITDA 387 346
-------- --------
Impairment on financial assets 42 -
-------- --------
Provision against inventories 18 -
-------- --------
Impairment charge on other current 2 -
assets
-------- --------
Cost from halted operations in Sudan 2 -
-------- --------
Core EBITDA 451 346
-------- --------
Core EBITDA for the twelve months ending 30 June 2023, which is
used in the calculation of net debt to EBITDA was $798 million.
Working capital days
We believe Group working capital days provides a useful measure
of the Group's working capital management and liquidity. Group
working capital days are calculated as Group receivable days plus
Group inventory days, less Group payable days. Group receivable
days are calculated as Group trade receivables x 365, divided by
trailing 12 months Group revenue. Group inventory days are
calculated as Group inventory x 365 divided by trailing 12 months
Group reported cost of sales. Group payable days are calculated as
Group trade payables x 365, divided by trailing 12 months Group
reported cost of sales(21) .
Group net debt
We believe Group net debt is a useful measure of the strength of
the Group financial position. Group net debt includes long and
short-term financial debts (Note 14), lease liabilities, net of
cash and cash equivalents (Note 11).
Group net debt
$ million Jun-23 Dec-22
Short-term financial debts (211) (139)
--------------- -----------------
Short-term lease liabilities (10) (9)
--------------- -----------------
Long-term financial debts (1,032) (1,074)
--------------- -----------------
Long-term lease liabilities (59) (61)
--------------- -----------------
Total debt (1,312) (1,283)
--------------- -----------------
Cash 272 270
--------------- -----------------
Net debt (1,040) (1,013)
--------------- -----------------
Forward looking statements
This announcement contains certain statements which are, or may
be deemed to be, "forward looking statements" which are prospective
in nature with respect to Hikma's expectations and plans, strategy,
management objectives, future developments and performance, costs,
revenues and other trend information. All statements other than
statements of historical fact may be forward-looking statements.
Often, but not always, forward-looking statements can be identified
by the use of forward looking words such as "intends", "believes",
"anticipates", "expects", "estimates", "forecasts", "targets",
"aims", "budget", "scheduled" or words or terms of similar
substance or the negative thereof, as well as variations of such
words and phrases or statements that certain actions, events or
results "may", "could", "should", "would", "might" or "will" be
taken, occur or be achieved.
By their nature, forward looking statements are based on current
expectations and projections about future events and are therefore
subject to assumptions, risks and uncertainties that are beyond
Hikma's ability to control or estimate precisely and which could
cause actual results or events to differ materially from those
expressed or implied by the forward looking statements. Where
included, such statements have been made by or on behalf of Hikma
in good faith based upon the knowledge and information available to
the Directors on the date of this announcement. Accordingly, no
assurance can be given that any particular expectation will be met
and Hikma's shareholders are cautioned not to place undue reliance
on the forward-looking statements. Forward looking statements
contained in this announcement regarding past trends or activities
should not be taken as a representation that such trends or
activities will continue in the future.
Other than in accordance with its legal or regulatory
obligations (including under the Market Abuse Regulation ((EU) No.
596/2014) and the UK Listing Rules and the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority), Hikma does
not undertake to update the forward looking statements contained in
this announcement to reflect any changes in events, conditions or
circumstances on which any such statement is based or to correct
any inaccuracies which may become apparent in such forward looking
statements. Except as expressly provided in this announcement, no
forward looking or other statements have been reviewed by the
auditors of Hikma. All subsequent oral or written forward looking
statements attributable to Hikma or any of its members, directors,
officers or employees or any person acting on their behalf are
expressly qualified in their entirety by the cautionary statement
above. Past share performance cannot be relied on as a guide to
future performance. Nothing in this announcement should be
construed as a profit forecast.
Neither the content of Hikma's website nor any other website
accessible by hyperlinks from Hikma's website are incorporated in,
or form part of, this announcement.
Principal risks and uncertainties
The Group faces risks from a range of sources that could have a
material impact on our financial 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 have not materially changed in the last six months,
although the conflict in Sudan and the economic challenges in Egypt
have highlighted the risks and uncertainties of operating in the
complex and diverse MENA region. The principal risks are set out in
the 2022 annual report on pages 63 - 66. The Board recognises that
certain risk factors that influence the principal risks are outside
of the control of management. The Board is satisfied that the
principal risks are being managed appropriately and consistently
with the target risk appetite. The set of principal risks should
not be considered as an exhaustive list of all the risks the Group
faces.
Principal risks What does the risk cover?
Industry dynamics The commercial viability of the industry and business
model we operate may change significantly as a result
of geopolitical events, macroeconomic factors, local
political action, societal pressures, regulatory interventions
or changes to participants in the value chain of the
industry.
----------------------------------------------------------------
Product pipeline Selecting, developing and registering new products
that meet market needs and are aligned with Hikma's
strategy to provide a continuous source of future growth.
----------------------------------------------------------------
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.
----------------------------------------------------------------
Reputation Building and maintaining trusted and successful partnerships
with our stakeholders relies on developing and sustaining
our reputation as one of our most valuable assets.
----------------------------------------------------------------
Ethics and compliance Maintaining a culture underpinned by ethical decision
making, with appropriate internal controls to ensure
that employees, representatives, and our third parties
comply with our Code of Conduct, associated policies
and procedures, as well as applicable laws and regulations
of the relevant jurisdictions.
----------------------------------------------------------------
Information and Ensuring the integrity, confidentiality, availability
cyber security, and resilience of data, securing information stored
technology and and/or processed internally or externally from cyber
infrastructure and non-cyber threats, maintaining and developing technology
systems that enable business processes, and ensuring
infrastructure supports the organisation effectively.
----------------------------------------------------------------
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 shareholder value, business
integrity and reputation.
----------------------------------------------------------------
Inorganic growth Identifying, accurately pricing and realising expected
benefits from acquisitions or divestments, licensing,
or other business development activities.
----------------------------------------------------------------
Active pharmaceutical Maintaining availability of supply, quality and competitiveness
ingredient (API) of API purchases and ensuring proper understanding
and third-party and control of third-party risks.
risk management
----------------------------------------------------------------
Crisis and continuity Developing, maintaining and adapting capabilities and
management processes to anticipate, prepare for, respond and adapt
to sudden disruptions and gradual change, including
natural catastrophe, economic turmoil, cyber events,
operational issues, pandemic, political crisis, and
regulatory intervention.
----------------------------------------------------------------
Product quality Maintaining compliance with current Good Practices
and safety for Manufacturing (cGMP), Laboratory (cGLP), Compounding
(cGCP), Distribution (cGDP) and Pharmacovigilance (cGVP)
by staff, and ensuring compliance is maintained by
all relevant third parties involved in these processes.
----------------------------------------------------------------
Financial control Effectively managing income, expenditure, assets and
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.
----------------------------------------------------------------
[1] Throughout this document, H1 2023 refers to the six months
ended 30 June 2023 and H1 2022 refers to the six months ended 30
June 2022
2 Constant currency numbers in H1 2023 represent reported H1
2023 numbers translated using H1 2022 exchange rates, excluding
price increases in the business resulting from the devaluation of
currencies and excluding the impact from hyperinflation accounting.
Sudan is considered a hyperinflationary economy, therefore the spot
exchange rate as at 30 June 2023 was used to translate the results
of this operation into US dollars
(3) Core results throughout the document are presented to show
the underlying performance of the Group, excluding exceptionals and
other adjustments set out in Note 5. Core results are a non-IFRS
measure and a reconciliation to reported IFRS measures is provided
on page 15
4 Group net debt is calculated as Group total debt less Group
total cash. Group net debt is a non-IFRS measure that includes long
and short-term financial debts (Note 14), lease liabilities, net of
cash and cash equivalents (Note 11). See page 16 for a
reconciliation of Group net debt to reported IFRS figures
(5) EBITDA is earnings before interest, tax, depreciation,
amortisation, impairment of property, plant and equipment and
intangible assets and other items. EBITDA is a non-IFRS measure.
For the purposes of the leverage calculation, EBITDA is calculated
for trailing twelve months ended 30 June 2023. See page 16 for a
reconciliation to reported IFRS results and trailing twelve months
EBITDA
6 IQVIA MAT May 2023, generic injectable volumes by eaches,
excluding branded generics and Becton Dickinson
7 IQVIA MIDAS Pharma Index MAT May-2023. It does not include hospital or tender business
8 IQVIA MAT May 2023, non-injectable generic products only
(Prasco and Gilead excluded from top 15)
(9) Canada is now included in North America (previously in
Europe and Rest of World). Canada's 2022 sales of $7 million have
therefore been reclassified to North America
(10) In H1 2023, exceptional items and other adjustments
comprised a $21 million impairment charge related to product
related intangibles and marketing rights and $30 million of
impairment charges related to the halting of operations in Sudan.
In H1 2022 comprised a $2 million impairment of product related
intangible assets. Refer to Note 5 for further information
1 (1) Canada is now included in North America (previously in
Europe and Rest of World). Canada's 2022 sales of $7 million have
therefore been reclassified to North America
[1] (2) In H1 2023, exceptional items and other adjustments
comprosed amortisation of intangible assets other than software of
$23 million,$15 million impairment and cost charge related to
halted operations in Sudan and an $8 million impairtment charge
relating to product related intangibles. H1 2022 comprised
amortisation of intangible assets other than software of $19
million and unwinding of acquisition related inventory step-up of
$12 million. Refer to Note 5 for further information
[1] (3) In H1 2023, excpetional items and other adjustments
comprised amortisation of intangible assets other than software was
$3 million,a $77 million impairment and cost charge related to
halted operations in Sudan. In H1 2022, amortisation of intangible
assets other than software was $4 million. Refer to Note 5 for
further information
([1]) 4 In H1 2023, exceptional items and other adjustments
comprised a $17 million impairment of product related intangibles
and amortisation of intangible assets other than software, of $8
million. H1 2022 comprised a $2 million impairment of product
related intangibles and amortisation of intangible assets other
than software, of $20 million. Refer to Note 5 for further
information
[1] (5) New products submitted, approved and launched by country
in H1 2023
[1] (6) In H1 2023, exceptional items and other other
adjustments comprised $2 million related to the unwinding of
contingent consideration and other financial liability. H1 2022
comprised a $12 million income related to the remeasurement of
contingent consideration and $2 million expense related to the
unwinding of contingent consideration and other financial
liability. Refer to Note 5 for further information
[1] (7) Refer to Note 6 for futher information
[1] (8) Core effective tax rate is calculated as core tax
expense as a percentage of core profit before tax
[1] (9) In H1 2023, exceptional items and other adjustments
comprised $158 million of other adjustments included in operating
profit and $5 million tax effect. In H1 2022, exceptional items and
other adjustments comprised $47 million of other adjustments
included in operating profit and $11 million tax effect. Refer to
Note 5 for further information
2 (0) See page 16 for a reconciliation of Group net debt to
reported IFRS results
2 (1) Trailing 12 months Group revenue is calculated as Group
revenue for the 12 months ending 30 June 2023 which equates to
$2,731 million. Trailing 12 months Group reproted cost of sales is
calculated as Group reported cost of sales for the 12 months ending
30 June 2023 which equates to $1,389 million
Independent review report to Hikma Pharmaceuticals PLC
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Hikma Pharmaceuticals PLC's condensed
consolidated interim financial statements (the "interim financial
statements") in the Interim Results Press Release of Hikma
Pharmaceuticals PLC for the 6 month period ended 30 June 2023 (the
"period").
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 UK adopted
International Accounting Standard 34, 'Interim Financial
Reporting', International Accounting Standard 34 'Interim Financial
Reporting' as issued by the International Accounting Standards
Board (IASB) and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
-- the Condensed consolidated interim balance sheet as at 30 June 2023;
-- the Condensed consolidated interim income statement and the
Condensed consolidated interim statement of comprehensive income
for the period then ended;
-- the Condensed consolidated interim statement of changes in equity for the period then ended;
-- the Condensed consolidated interim cash flow statement for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Results
Press Release of Hikma Pharmaceuticals PLC have been prepared in
accordance with UK adopted International Accounting Standard 34,
'Interim Financial Reporting' and as issued by the International
Accounting Standards Board (IASB) and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the
United Kingdom ("ISRE (UK) 2410"). A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Results Press Release and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on
the review procedures performed in accordance with ISRE (UK) 2410.
However, future events or conditions may cause the group to cease
to continue as a going concern.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Results Press Release, including the interim
financial statements, is the responsibility of, and has been
approved by the directors. The directors are responsible for
preparing the Interim Results Press Release in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority. In preparing the Interim
Results Press Release, including the interim financial statements,
the directors are responsible for assessing the group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Results Press Release based on
our review. Our conclusion, including our Conclusions relating to
going concern, is based on procedures that are less extensive than
audit procedures, as described in the Basis for conclusion
paragraph of this report. 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.
PricewaterhouseCoopers LLP
Chartered Accountants
London
2 August 2023
Hikma Pharmaceuticals PLC
Condensed consolidated interim income statement
H1 2023
Exceptional
items H1 2022
and other Exceptional items
H1 2023 adjustments H1 2023 H1 2022 and other
Core (Note Reported Core adjustments H1 2022
results 5) results results (Note 5) Reported results
Note $m (Unaudited) $m (Unaudited) $m (Unaudited) $m (Unaudited) $m (Unaudited) $m (Unaudited)
--------------------- --------------------- --------------------- --------------------- --------------------- ---------------------
Revenue 3 1,427 - 1,427 1,213 - 1,213
Cost of sales (694) (18) (712) (590) (12) (602)
--------------------- ---------------------
Gross
profit/(loss) 733 (18) 715 623 (12) 611
--------------------- --------------------- --------------------- --------------------- --------------------- ---------------------
Selling, general and
administrative
expenses (260) (44) (304) (256) (43) (299)
Net impairment loss on
financial assets (4) (42) (46) (3) - (3)
Research and
development
expenses (64) - (64) (69) - (69)
Other operating
expenses (5) (52) (57) (17) (2) (19)
Other operating
income 1 - 1 18 - 18
--------------------- --------------------- --------------------- --------------------- ---------------------
Total operating
(expenses) (332) (138) (470) (327) (45) (372)
Operating
profit/(loss) 4 401 (156) 245 296 (57) 239
Finance income 3 - 3 1 12 13
Finance expense (44) (2) (46) (33) (2) (35)
(Loss) from
investment
at fair value
through
profit and loss
(FVTPL) - - - (2) - (2)
--------------------- --------------------- --------------------- --------------------- --------------------- ---------------------
Profit/(loss)
before
tax 360 (158) 202 262 (47) 215
Tax 6 (76) 5 (71) (52) 11 (41)
Profit/(loss)
for
the half-year 284 (153) 131 210 (36) 174
===================== ===================== ===================== ===================== ===================== =====================
Attributable to:
Non-controlling
interests - - - 1 - 1
Equity holders
of
the parent 284 (153) 131 209 (36) 173
--------------------- --------------------- --------------------- --------------------- --------------------- ---------------------
284 (153) 131 210 (36) 174
===================== ===================== ===================== ===================== ===================== =====================
Earnings per
share
(cents)
Basic 128.5 59.3 92.1 76.2
Diluted 127.9 59.0 91.7 75.9
Hikma Pharmaceuticals PLC
Condensed consolidated interim statement of comprehensive
income
H1 2023 H1 2022
Reported Reported
results results
$m $m
Note (Unaudited) (Unaudited)
---------------------- -----------------------
Profit for the half-year 131 174
Other Comprehensive Income
Items that may subsequently be reclassified to the
consolidated income statement, net of
tax:
Currency translation and hyperinflation movement - (68)
Effect of change in fair value of hedging financial
derivatives - (1)
Items that will not subsequently be reclassified to
the consolidated income statement:
Change in investments at fair value through other
comprehensive income (FVTOCI) 8 (5) (8)
Total other comprehensive income for the half-year (5) (77)
---------------------- -----------------------
Total comprehensive income for the half-year 126 97
====================== =======================
Attributable to:
Non-controlling interests - (1)
Equity holders of the parent 126 98
---------------------- -----------------------
126 97
====================== =======================
Hikma Pharmaceuticals PLC
Condensed consolidated interim balance sheet
30 June 31 December
2023 2022
$m $m
Note (Unaudited) (Audited)
--------------------- --------------------
Non-current assets
Goodwill 390 389
Other intangible assets 694 735
Property, plant and equipment 1,032 1,024
Right-of-use assets 55 57
Investment in joint ventures 10 10
Deferred tax assets 200 192
Financial and other non-current
assets 8 62 65
2,443 2,472
--------------------- --------------------
Current assets
Inventories 9 859 776
Income tax receivable 25 32
Trade and other receivables 10 880 809
Cash and cash equivalents 11 272 270
Other current assets 12 140 110
Assets classified as held for distribution - 2
2,176 1,999
--------------------- --------------------
Total assets 4,619 4,471
===================== ====================
Current liabilities
Short-term financial debts 14 211 139
Lease liabilities 10 9
Trade and other payables 505 476
Income tax payable 73 73
Other provisions 30 32
Other current liabilities 13 386 348
1,215 1,077
--------------------- --------------------
Net current assets 961 922
--------------------- --------------------
Non-current liabilities
Long-term financial debts 14 1,032 1,074
Lease liabilities 59 61
Deferred tax liabilities 26 19
Other non-current liabilities 15 85 92
1,202 1,246
--------------------- --------------------
Total liabilities 2,417 2,323
===================== ====================
Net assets 2,202 2,148
===================== ====================
Equity
Share capital 40 40
Share premium 282 282
Other reserves (279) (265)
Translation reserve related to assets
held for distribution - (14)
Retained earnings 2,146 2,092
--------------------- --------------------
Equity attributable to equity holders
of the parent 2,189 2,135
Non-controlling interests 13 13
--------------------- --------------------
Total equity 2,202 2,148
===================== ====================
The condensed consolidated interim financial information of
Hikma Pharmaceuticals PLC for the six-month period ended 30 June
2023 was approved by the Board of Directors of the Company on 2
August 2023.
Said Darwazah Mazen Darwazah
Executive Chairman and CEO Executive Vice Chairman
Hikma Pharmaceuticals PLC
Condensed consolidated interim statement of changes in
equity
Translation
reserve Equity
related attributable
to assets to equity
held shareholders
Share Share for Retained of the Non-controlling Total
capital premium Other reserves distribution earnings parent interests equity
--------------------------------------------------
Merger
and Capital Total
revaluation Translation redemption other
reserves reserve reserve reserves
Note $m $m $m $m $m $m $m $m $m $m $m
-------------- -------- ------------ ------------ ----------- --------- ---------------- ----------------- ------------- --------------------- --------------
Balance at 31
December 2021
(audited)
and 1 January
2022 42 282 164 (224) - (60) - 2,189 2,453 14 2,467
Profit for the
half-year - - - - - - - 173 173 1 174
Change in the
fair
value of
investments
at FVTOCI - - - - - - - (8) (8) - (8)
Effect of change
in fair value
of
hedging
financial
derivatives - - - - - - - (1) (1) - (1)
Currency
translation
and
hyperinflation
movement - - - (66) - (66) - - (66) (2) (68)
-------------- -------- ------------ ------------ ----------- --------- ---------------- ----------------- ------------- --------------------- --------------
Total
comprehensive
income for the
half-year - - - (66) - (66) - 164 98 (1) 97
-------------- -------- ------------ ------------ ----------- --------- ---------------- ----------------- ------------- --------------------- --------------
Total
transactions
with owners,
recognised
directly in
equity
Transfer of
merger
reserve - - (129) - - (129) - 129 - - -
Issue of
Ordinary
Bonus Share 1,746 - - - - - - (1,746) - - -
Cancellation of
Ordinary Bonus
Share (1,746) - - - - - - 1,746 - - -
Cost of
equity-settled
employee share
scheme - - - - - - - 10 10 - 10
Deferred tax
arising
on share based
payments - - - - - - - 1 1 - 1
Dividends paid 7 - - - - - - - (83) (83) - (83)
Ordinary Shares
purchased and
cancelled (1) - - - 1 1 - (300) (300) - (300)
Shares buyback
transaction
cost - - - - - - - (3) (3) - (3)
Other
comprehensive
income
accumulated
in equity
related
to assets held
for
distribution - - - 14 - 14 (14) - - - -
Acquisition of
subsidiaries - - - - - - - - - 2 2
Balance at 30
June 2022
(unaudited) 41 282 35 (276) 1 (240) (14) 2,107 2,176 15 2,191
============== ======== ============ ============ =========== ========= ================ ================= ============= ===================== ==============
Balance at 31
December 2022
(audited)
and 1 January
2023 40 282 35 (302) 2 (265) (14) 2,092 2,135 13 2,148
Profit for the
half-year - - - - - - - 131 131 - 131
Change in the
fair
value of
investments
at FVTOCI - - - - - - - (5) (5) - (5)
-------------- -------- ------------ ------------ ----------- --------- ---------------- ----------------- ------------- --------------------- --------------
Total
comprehensive
income for the
half-year - - - - - - - 126 126 - 126
-------------- -------- ------------ ------------ ----------- --------- ---------------- ----------------- ------------- --------------------- --------------
Total
transactions
with owners,
recognised
directly in
equity
Cost of
equity-settled
employee share
scheme - - - - - - - 10 10 - 10
Dividends paid 7 - - - - - - - (82) (82) - (82)
Other
comprehensive
income
accumulated
in equity
related
to assets no
longer
held for
distribution(1) - - - (14) - (14) 14 - - - -
Balance at 30
June 2023
(unaudited) 40 282 35 (316) 2 (279) - 2,146 2,189 13 2,202
============== ======== ============ ============ =========== ========= ================ ================= ============= ===================== ==============
1. Translation reserve related to assets held for distribution
was reclassified to other reserves as the liquidation of Pharma
Ixir Co. Ltd, one of the subsidiaries in Sudan, is no longer
expected to be completed within twelve months because of the
ongoing conflict in the country.
Hikma Pharmaceuticals PLC
Condensed consolidated interim cash flow statement
H1 H1
2023 2022
$m $m
Note (Unaudited) (Unaudited)
-------------------- --------------------
Cash flows from operating activities
Cash generated from operations 16 288 213
Income taxes paid (67) (44)
Income taxes received 1 -
Net cash inflow from operating activities 222 169
Cash flow from investing activities
Purchases of property, plant and equipment (84) (63)
Purchase of intangible assets (23) (56)
Proceeds from disposal of intangible assets - 6
Addition of investments at FVTOCI (5) (14)
Proceeds from disposal of investment at FVTOCI 1 -
Acquisition of subsidiary undertakings net of cash acquired - (373)
Advance payment related to acquisition (10) -
Acquisition related amounts held in escrow account - (4)
Payments of contingent consideration liability (1) (3)
Interest income received 3 1
Net cash outflow from investing activities (119) (506)
Cash flow from financing activities
Proceeds from issue of long-term financial debts 537 950
Repayment of long-term financial debts (546) (254)
Proceeds from short-term borrowings 281 183
Repayment of short-term borrowings (243) (165)
Repayment of lease liabilities (5) (4)
Dividends paid 7 (82) (83)
Interest and bank charges paid (39) (27)
Revolving credit facility upfront fees paid - (5)
Share buyback - (300)
Share buyback transaction cost - (3)
Payment to co-development and earnout payment agreement (1) (1)
Net cash (outflow)/inflow from financing activities (98) 291
Net increase/(decrease) in cash and cash equivalents 5 (46)
Cash and cash equivalents at beginning of the half-year 270 426
Foreign exchange translation movements (3) (9)
Cash and cash equivalents at end of the half-year 11 272 371
==================== ====================
Hikma Pharmaceuticals PLC
Notes to the condensed consolidated interim financial
statements
1. General information
Hikma Pharmaceuticals PLC is a public limited liability company
incorporated and domiciled in England and Wales under the Companies
Act 2006. The registered office address is 1 New Burlington Place,
London W1S 2HR, UK.
The Group's principal activities are the development,
manufacturing , marketing and selling of a broad range of generic,
branded and in-licensed pharmaceuticals products in solid,
semi-solid, liquid and injectable final dosage forms.
2. Basis of preparation and accounting policies
The unaudited condensed consolidated interim financial
statements (financial statements) for the six months ended 30 June
2023 have been prepared on a going concern basis in accordance with
UK-adopted International Accounting Standard 34 'Interim Financial
Reporting' (IAS 34), IAS 34 as issued by the International
Accounting Standards Board (IASB), and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
The interim report does not include all of the notes of the type
normally included in an annual financial report. Accordingly, this
report is to be read in conjunction with the annual report for the
year ended 31 December 2022, which has been prepared in accordance
with:
i) UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards
ii) IFRS as issued by the International Accounting Standards Board (IASB)
The financial information does not constitute statutory accounts
as defined in section 435 of the Companies Act 2006. A copy of the
statutory accounts for 2022 has 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. These interim financial statements have been
reviewed, not audited.
The currency used in the presentation of the accompanying
financial statements is the US dollar ($) as most of the Group's
business is conducted in US dollars.
The accounting policies adopted in the preparation of the
financial statements are consistent with those followed in the
preparation of the Group's annual consolidated financial statements
for the year ended 31 December 2022 and the adoption of the new and
amended standards set out below, with the exception of changes in
estimates that are required in determining the provision for income
taxes in accordance with IAS 34 at 30 June 2023.
New standards, interpretations and amendments
The following revised Standards and Interpretations have been
issued and are effective for annual periods beginning on 1 January
2023. The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective .
2. Basis of preparation and accounting policies continued
New standards, interpretations and amendments continued
IFRS 17 (New Standard) Insurance Contracts (including the
June 2020 amendments to IFRS 17)
---------------------------------- -------------------------------------------
IAS 1 (Amendments) Presentation of Financial Statements
- Classification of liabilities as
current or non-current
---------------------------------- -------------------------------------------
IAS 1 and IFRS Practice Statement Presentation of Financial Statements
2 (Amendments) - Disclosure of Accounting Policies
---------------------------------- -------------------------------------------
Accounting Policies, Changes in Accounting
Estimates and Errors - Definition of
IAS 8 (Amendments) Accounting Estimates
---------------------------------- -------------------------------------------
Income Taxes - Deferred Tax related
to Assets and Liabilities arising from
IAS 12 (Amendments) a Single Transaction
---------------------------------- -------------------------------------------
These standards and amendments had no significant impact on the
interim financial statements of the Group but may impact the
accounting for future transactions and arrangements.
Going concern
The Directors have considered the going concern position of the
Group at 30 June 2023. 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 this Interim Results Press
Release. The Interim Results Press Release also includes a summary
of the financial position, cash flow and borrowing facilities.
At 30 June 2023 the Group had undrawn long term committed
banking facilities of $1,300 million. The Group's total debt at 30
June 2023 was $1,312 million while the Group's cash and cash
equivalents at 30 June 2023 was $272 million making the net debt
$1,040 million. The Group's net debt to trailing core EBITDA of
$798 million ratio was 1.3x at 30 June 2023 (31 December 2022:
1.5x). Taking into account the Group's current position and its
principal risks for a period of at least 12 months from the date of
this results announcement , a going concern assessment has been
prepared using realistic scenarios, and applying a severe but
plausible downside considering the principal risks facing the
business including delays to the pipeline, lower sales of newly
launched products, increased price erosion impacting existing
products, increased inflationary risks, and disruption in certain
MENA markets. This assessment demonstrated sufficient liquidity
headroom.. Therefore, 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 have
concluded it is appropriate to adopt the going concern basis of
accounting in preparing the interim financial information and there
is no material uncertainty requiring disclosure in this regard.
Financial covenants are suspended while the Group retains its
investment grade status from two rating agencies (1) .
Nevertheless, the covenants are monitored and the Group was in
compliance on 30 June 2023 and expects to remain in compliance with
those covenants in the period to 31 December 2024 even in the event
of severe but plausible downside scenarios. As of 30 June 2023, the
Group's investment grade rating was affirmed by S&P and
Fitch.
1. Rating agencies: means each of Fitch, Moody's and S&P or
any of their affiliates or successors
3. Revenue from contracts with customers
Business and geographical markets
The following table provides an analysis of the Group's sales by
segment and geographical market, irrespective of the origin of the
goods/services:
Injectables Generics Branded Others Total
H1 2023 (unaudited) $m $m $m $m $m
------------ --------- -------- ------- ------
North America 388 460 - - 848
Middle East and North
Africa 94 - 370 4 468
Europe and Rest of
the World 98 - 5 3 106
United Kingdom 5 - - - 5
585 460 375 7 1,427
============ ========= ======== ======= ======
Injectables Generics Branded Others Total
H1 2022 (unaudited) $m $m $m $m $m
------------ --------- -------- ------- ------
North America(1) 368 330 - - 698
Middle East and North
Africa 76 - 335 3 414
Europe and Rest of
the World(1) 90 - 4 3 97
United Kingdom 4 - - - 4
538 330 339 6 1,213
============ ========= ======== ======= ======
1. Canada is now included in North America (previously in Europe
and Rest of World). Canada's 2022 sales of $7 million have
therefore been reclassified to North America.
The top selling markets are shown below:
H1 2023 H1 2022
$m $m
(Unaudited) (Unaudited)
------------------ ------------------
United States 837 691
Saudi Arabia 146 115
Algeria 111 70
Egypt 43 65
1,137 941
================== ==================
In H1 2023, revenue arising from the Generics and Injectables
segments included sales the Group made to two wholesalers in the
US, each accounting for equal to or greater than 10% of the Group's
revenue: $187 million (13% of Group revenue) and $175 million (12%
of Group revenue). In H1 2022, revenue included sales made to two
wholesalers $167 million (14% of Group revenue) and $158 million
(13% of Group revenue).
4. Business segments
For management reporting purposes, the Group is organised into
three principal operating divisions - Injectables, Generics and
Branded. These divisions are the basis on which the Group reports
its segmental information.
Core operating profit/(loss), 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.
4. Business segments continued
Information regarding the Group's operating segments is reported
below:
Injectables H1 2023 H1 2022
Exceptional Exceptional
items and items and
H1 2023 other adjustments H1 2023 H1 2022 other adjustments H1 2022
Core (note Reported Core (note Reported
results 5) results results 5) results
$m $m $m $m $m $m
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ---------------------- ------------ ------------ ---------------------- ------------
Revenue 585 - 585 538 - 538
Cost of sales (263) (3) (266) (229) (12) (241)
Gross
profit/(loss) 322 (3) 319 309 (12) 297
Total
operating
expenses (108) (43) (151) (100) (19) (119)
---------------------- ------------ ------------ ------------
Segment result 214 (46) 168 209 (31) 178
============ ====================== ============ ============ ====================== ============
Generics H1 2023 H1 2022
Exceptional Exceptional
items and items and
H1 2023 other adjustments H1 2023 H1 2022 other adjustments H1 2022
Core (note Reported Core (note Reported
results 5) results results 5) results
$m $m $m $m $m $m
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ---------------------- ------------ ------------ ---------------------- ------------
Revenue 460 - 460 330 - 330
Cost of sales (251) - (251) (193) - (193)
Gross profit 209 - 209 137 - 137
Total
operating
expenses (87) (25) (112) (79) (22) (101)
---------------------- ------------ ------------ ------------
Segment result 122 (25) 97 58 (22) 36
============ ====================== ============ ============ ====================== ============
Branded H1 2023 H1 2022
Exceptional Exceptional
items and items and
H1 2023 other adjustments H1 2023 H1 2022 other adjustments H1 2022
Core (note Reported Core (note Reported
results 5) results results 5) results
$m $m $m $m $m $m
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ---------------------- ------------ ------------ ---------------------- ------------
Revenue 375 - 375 339 - 339
Cost of sales (176) (15) (191) (165) - (165)
Gross
profit/(loss) 199 (15) 184 174 - 174
Total
operating
expenses (95) (65) (160) (100) (4) (104)
------------ ------------ ------------
Segment result 104 (80) 24 74 (4) 70
============ ====================== ============ ============ ====================== ============
Others(1) H1 2023 H1 2022
Exceptional Exceptional
items and items and
H1 2023 other adjustments H1 2023 H1 2022 other adjustments H1 2022
Core (note Reported Core (note Reported
results 5) results results 5) results
$m $m $m $m $m $m
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ---------------------- ------------ ------------ ---------------------- ------------
Revenue 7 - 7 6 - 6
Cost of
sales (4) - (4) (3) - (3)
Gross
profit 3 - 3 3 - 3
Total
operating
expenses (1) - (1) (1) - (1)
------------ ------------ ------------
Segment
result 2 - 2 2 - 2
============ ====================== ============ ============ ====================== ============
1 . Others mainly comprises Arab Medical Containers LLC and
International Pharmaceutical Research Center LLC.
4. Business segments continued
Group H1 2023 H1 2022
Exceptional Exceptional
items and items and
H1 2023 other H1 2023 H1 2022 other H1 2022
Core adjustments Reported Core adjustments Reported
results (note 5) results results (note 5) results
$m $m $m $m $m $m
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- ------------- ------------- --------------
Segment result 442 (151) 291 343 (57) 286
Unallocated
expenses(1) (41) (5) (46) (47) - (47)
Operating
profit/(loss) 401 (156) 245 296 (57) 239
------------- ------------- ------------- ------------- ------------- --------------
Finance income 3 - 3 1 12 13
Finance expense (44) (2) (46) (33) (2) (35)
Loss from
investment
at FVTPL - - - (2) - (2)
Profit/(loss)
before
tax 360 (158) 202 262 (47) 215
Tax (76) 5 (71) (52) 11 (41)
Profit/(loss)
for
the half-year 284 (153) 131 210 (36) 174
============= ============= ============= ============= ============= ==============
Attributable to:
Non-controlling
interests - - - 1 - 1
Equity holders
of the parent 284 (153) 131 209 (36) 173
------------- ------------- ------------- ------------- ------------- --------------
284 (153) 131 210 (36) 174
============= ============= ============= ============= ============= ==============
1. Unallocated corporate expenses mainly comprise employee
costs, third-party professional fees, IT, and travel expenses.
5. Exceptional items and other adjustments
Exceptional items and other adjustments are disclosed separately
in the condensed consolidated income statement to assist in the
understanding of the Group's core performance.
H1 2023 Injectables Generics Branded Unallocated Total
$m $m $m $m $m
------------------- ---------- --------- ------------------- -------
Exceptional items and other
adjustments
Impairment and
cost
in relation to
halted
operations in
Sudan -(2) (15) - (77) - (92)
Intangible
assets
amortisation
other than
software SG&A (23) (17) (3) - (43)
Impairment Other operating
charges expenses (8) (8) - (5) (21)
Unwinding of
contingent
consideration
and other
financial
liability Finance expense - - - (2) (2)
Exceptional
items and
other
adjustments
included
in profit
before tax (46) (25) (80) (7) (158)
------------------- ---------- --------- ------------------- -------
Tax effect Tax 5
-------
Impact on
profit for
the half-year (153)
=======
2. The impact on the income statement line items is shown
below.
- Impairment and costs in relation to halted operations in
Sudan: In April 2023, violent conflict erupted in the Sudanese
capital of Khartoum. The conflict has since been escalating in
other areas of the country. The Group has evaluated the effect on
the carrying values of the Group's assets, and as a consequence, a
loss of $90m was recognised to reflect the fall in the recoverable
amount of the assets listed below. A further $2 million of employee
benefits and other expenses from the halted operations have been
classified as exceptional items.
Injectables Generics Branded Unallocated Total
$m $m $m $m $m
------------------- ------------------- ------------------- ------------------- ------------------
Provision
against Cost of
inventory sales (3) - (15) - (18)
Impairment Net
charge impairment
on loss on
financial financial
assets assets (12) - (30) - (42)
Impairment
charge
on Other
intangible operating
assets expenses - - (3) - (3)
Impairment
charge
on
property,
plant Other
and operating
equipment expenses - - (25) - (25)
Impairment
charge
on other Other
current operating
assets expenses - - (2) - (2)
Cost from
halted
operations
in Sudan SG&A - - (1) - (1)
Cost from
halted Other
operations operating
in Sudan expenses - - (1) - (1)
(15) - (77) - (92)
------------------- ------------------- ------------------- ------------------- ------------------
5. Exceptional items and other adjustments continued
- Intangible assets amortisation other than software of $43
million.
- Impairment charges: mainly comprise $14 million in relation to
product related intangible assets and marketing rights as a result
of the decline in performance and forecasted profitability as well
as the termination of a business development contract, in addition
to $5 million related to software.
- Unwinding of contingent consideration and other financial
liability finance expense represents the unwinding of contingent
consideration recognised through business combinations and the
financial liability in relation to the co-development earnout
payment agreement.
The tax effect represents the tax effect on pre-tax exceptional
items and other adjustments which is calculated based on the
applicable tax rate in each jurisdiction.
H1 2022 Injectables Generics Branded Unallocated Total
$m $m $m $m $m
------------------- ------------------- ------------------- ------------------- -------
Exceptional
items and
other
adjustments
Unwinding of
acquisition
related
inventory Cost of
step-up sales (12) - - - (12)
Impairment of
product
related Other
intangible operating
assets expenses - (2) - - (2)
Intangible
assets
amortisation
other than
software SG&A (19) (20) (4) - (43)
Remeasurement
of contingent Finance
consideration income - - - 12 12
Unwinding of
contingent
consideration
and other
financial Finance
liability expense - - - (2) (2)
Exceptional items and
other adjustments included
in profit before tax (31) (22) (4) 10 (47)
------------------- ------------------- ------------------- ------------------- -------
Tax effect Tax 11
-------
Impact on profit for
the half-year (36)
=======
- Unwinding of acquisition related inventory step-up reflected
the unwinding of the fair value uplift of the inventory acquired as
part of Custopharm Topco Holdings, Inc. business combination and
Teligent Inc. assets acquisition ($10 million and $2 million,
respectively).
- Impairment of product related intangible assets of $2 million
related to impairment charge of specific product related intangible
assets due to discontinuation.
- Intangible assets amortisation other than software of $43 million.
- Remeasurement of contingent consideration finance income
represented the income resulting from the valuation of the
liabilities associated with the future contingent payments in
respect of contingent consideration recognised through business
combinations.
- Unwinding of contingent consideration and other financial
liability finance expense represented the unwinding and the
valuation of the liabilities associated with the future contingent
payments in respect of contingent consideration recognised through
business combinations and the financial liability related to the
co-development earnout payment agreement.
The tax effect represented the tax effect on pre-tax exceptional
items and other adjustments which is calculated based on the
applicable tax rate in each jurisdiction.
6. Tax
The Group incurred a tax expense of $71 million (H1 2022: $41
million). The reported effective tax rate for H1 2023 is 35.1% (H1
2022: 19.1%), representing the best estimate of the average annual
effective tax rate expected for the full year on a legal entity
basis, applied to the pre-tax income for H1 2023 and adjusted for
the tax effect of any discrete items recorded in the same
period.
The reported effective tax rate for the Group is higher than the
same period of last year primarily as a result of the impairment
charge in relation to the situation in Sudan. This is in addition
to the difference in earnings mix of H1 2023 compared to the prior
period.
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.
On 20 June 2023, Finance (No.2) Act 2023 was substantively
enacted in the UK, introducing a global minimum effective tax rate
of 15% (Pillar Two). The legislation implements a domestic top-up
tax and a multinational top-up tax, effective for accounting
periods starting on or after 31 December 2023. The Group is
continuing to assess the potential impact, and has applied the
exception under IAS 12 to the accounting for deferred taxes related
to Pillar Two.
7. Dividends
H1 2023 H1 2022
$m $m
(Unaudited) (Unaudited)
----------------- ----------------
Amounts recognised as distributions to equity
holders in the period:
Final dividend for the year ended 31 December
2022 of 37 cents (2021: 36 cents) per share 82 83
82 83
================= ================
The proposed interim dividend for the H1 2023 is 25 cents (H1
2022: 19 cents) per share.
The proposed interim dividend will be paid on 15 September 2023
to eligible shareholders on the register at the close of business
on 11 August 2023 and has not been included as a liability in these
condensed consolidated interim financial statements.
Based on the number of shares in issue at 30 June 2023 of
220,988,500 the total proposed interim dividends amount is $55
million.
8. Financial and other non-current assets
30 June 31 December
2023 2022
$m $m
(Unaudited) (Audited)
------------ ---------------------
Investments at FVTOCI 41 42
Other non-current assets 21 23
62 65
============ =====================
Investments at FVTOCI include investments through the Group's
venture capital arm, Hikma International Ventures and Development
LLC and Hikma Ventures Limited, which are not held for trading and
which the Group has irrevocably elected at initial recognition to
recognise in this category.
During the period, the venture arm sold one of its investments,
invested in two new ventures and increased investment in two
existing ones.
The total portfolio as at 30 June 2023 includes two investments
in listed companies with a readily determinable fair value that
falls under level 1 valuation (Note 17). Their values are measured
based on quoted prices in active markets . The other investments
are unlisted shares without readily determinable fair values that
fall under level 3 valuation (Note 17), their fair value is
measured based on observable price changes in orderly transactions
for an identical or a similar investment of the same issuer.
During the period, total change in fair value was a net loss of
$5 million (H1 2022: net loss of $8 million) recognised in other
comprehensive income.
Other non-current assets balance at 30 June 2023 and 31 December
2022 mainly represent long term receivables, a sublease arrangement
in US and upfront fees on a syndicated revolving credit
facility
9. Inventories
30 June 31 December
2023 2022
$m $m
(Unaudited) (Audited)
---------------------- ------------
Finished goods 287 284
Work-in-progress 130 103
Raw and packing materials 479 412
Goods in transit 25 25
Spare parts 46 42
Provision against inventory(1) (108) (90)
859 776
====================== ============
1. The cost of inventory related provision recognised as an
expense in the cost of sales in the condensed consolidated income
statement was $41 million (H1 2022: $28 million).
The increase in the provision against inventory is mainly driven
by the provision related to Sudan
(Note 5).
10. Trade and other receivables
30 June 31 December
2023 2022
$m $m
(Unaudited) (Audited)
---------------------- ----------------------
Gross trade receivables 1,264 1,128
Chargebacks and other allowances (321) (298)
Related allowance for expected credit loss (97) (53)
---------------------- ----------------------
Net trade receivables 846 777
VAT and sales tax recoverable 34 32
Net trade and other receivables 880 809
====================== ======================
The fair value of receivables is estimated to be not
significantly different from the respective carrying amounts.
The increase in the related allowance for expected credit loss
is mainly driven by the impairment of trade and other receivables
related to Sudan (Note 5).
11. Cash and cash equivalents
30 June 31 December
2023 2022
$m $m
(Unaudited) (Audited)
--------------------- ---------------------
Cash at banks and on hand 113 159
Time deposits 159 110
Money market deposits - 1
272 270
===================== =====================
Cash and cash equivalents include highly liquid investments with
maturities of three months or less which are convertible to known
amounts of cash and are subject to insignificant risk of changes in
value.
12. Other current assets
30 June 31 December
2023 2022
$m $m
(Unaudited) (Audited)
---------------------- ----------------------
Prepayments 85 74
Investment at FVTPL 22 22
Others 33 14
140 110
====================== ======================
Investments at FVTPL comprise a portfolio of debt instruments
that are managed by an asset manager and are measured at fair
value; any changes in fair value are recognised in the condensed
consolidated
income statement. These assets are classified as level 1 as they
are based on quoted prices in active markets (Note 17).
Others balance at 30 June 2023 mainly represents compensation
due from suppliers in relation to inventory price adjustments of
$15 million (31 December 2022: $8 million) and advance payment
related to an acquisition (note 20) of $10 million (31 December
2022: nil).
13. Other current liabilities
30 June 31 December
2023 2022
$m $m
(Unaudited) (Audited)
------------ ----------------------
Contract and refund liabilities 192 193
Co-development and earnout payment (Note
15 and 17) 2 2
Acquired contingent liability (Note 15) 8 7
Contingent consideration (Note 15 and
17) 26 24
Indirect rebate and other allowances 137 101
Others 21 21
386 348
============ ======================
Contract and refund liabilities : 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 rebates and other allowances : mainly represent rebates
granted to healthcare authorities and other parties under
contractual arrangements with certain indirect customers.
14. Financial debts
Short-term financial debts
30 June 31 December
2023 2022
$m $m
(Unaudited) (Audited)
------------ ------------
Bank overdrafts 6 11
Import and export financing (1) 106 62
Short-term loans 1 2
Current portion of long-term loans 98 64
211 139
============ ============
1. Import and export financing represents short-term financing
for the ordinary trading activities of the Group.
Long-term financial debts
30 June 31 December
2023 2022
$m $m
(Unaudited) (Audited)
------------ ------------
Long-term loans 634 644
Long-term borrowings (Eurobond) 496 494
Less: current portion of long-term loans (98) (64)
Long-term financial loans 1,032 1,074
============ ============
Breakdown by maturity:
Within one year 98 64
In the second year 94 65
In the third year 581 553
In the fourth year 79 52
In the fifth year 276 401
In the sixth year 2 1
Thereafter - 2
1,130 1,138
============ ============
The loans are held at amortised cost.
14. Financial debts continued
Major loan arrangements include:
a) $1,150 million syndicated revolving credit facility that
matures on 04 January 2028 with an extension option of one year. At
30 June 2023, the facility had an outstanding balance of $85
million (31 December 2022: $278 million) and an unutilised amount
of $1,065 million (31 December 2022: $872 million). The facility
can be used for general corporate purposes.
b) $96 million outstanding balance at 30 June 2023 (31 December
2022: $108 million) with a fair value of $88 million (31 December
2022: $98 million) related to a ten-year $150 million loan from the
International Finance Corporation that has been fully utilised
since April 2020. Quarterly equal repayments of the loan commenced
on 15 March 2021. The loan was used for general corporate purposes.
The facility matures on 15 December 2027.
c) A $500 million (carrying value of $496 million at 30 June
2023 (31 December 2022: $494 million) and fair value of $474
million (31 December 2022: $466 million)) 3.25%, five-year Eurobond
was issued on 9 July 2020 with a rating of BBB- (S&P &
Fitch) which is due in July 2025. The proceeds of the issuance were
used for general corporate purposes.
d) An eight-year $200 million loan facility from the
International Finance Corporation and Managed Co-lending Portfolio
program. There was no utilisation of the loan as of June 2023 (31
December 2022: no utilisation). The facility matures on 15
September 2028 and can be used for general corporate purposes.
e) A five-year $400 million syndicated loan facility entered
into on 13 October 2022. The outstanding balance at 30 June 2023 is
$392 million (31 December 2022: $190 million) with a fair value of
$392 million (31 December 2022: $190 million). The facility matures
on 13 October 2028 and was used for general corporate purposes.
15. Other non-current liabilities
30 June 31 December
2023 2022
$m $m
(Unaudited) (Audited)
------------------- -------------------
Contingent consideration (Note 13 and
17) 16 18
Acquired contingent liability (Note 13) 63 69
Co-development and earnout payment (Note
13 and 17) 1 1
Others 5 4
85 92
=================== ===================
Contingent consideration and acquired contingent liabilities
represent contractual liabilities to make payments to third parties
in the form of milestone payments that depend on the achievement of
certain US FDA approval milestones; and payments based on future
sales of certain products. These liabilities were recognised as
part of the Columbus business acquisition in 2016. The current
portion of these liabilities are recognised in other current
liabilities (Note 13).
16. Cash generated from operating activities
H1 H1
2023 2022
$m $m
(Unaudited) (Unaudited)
-------------------- --------------------
Profit before tax 202 215
Adjustments for depreciation, amortisation, net impairment
charges/reversals and write-down
of:
Property, plant and equipment 68 39
Intangible assets 69 51
Right-of-use of assets 5 5
Unwinding of acquisition related inventory step-up - 12
Loss from investments at FVPTL - 2
Gains on disposal of intangible assets - (6)
Cost of equity-settled employee share scheme 10 10
Finance income (3) (13)
Finance expense 46 35
Foreign exchange loss and net monetary hyperinflation impact 6 8
Changes in working capital:
Change in trade and other receivables (75) (7)
Change in other current assets (20) (25)
Change in inventories (86) (78)
Change in trade and other payables 32 (19)
Change in other current liabilities 37 (16)
Change in other provision (1) -
Change in other non-current liabilities (5) -
Change in other non-current assets 3 -
Cash flow from operating activities 288 213
==================== ====================
17. Fair value of financial assets and liabilities
The fair value of financial assets and liabilities is included
at the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a forced
or liquidation sale.
The following financial assets/liabilities are presented at
their carrying values which approximates to their fair value:
-- Cash at bank and on hand and time deposit - 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 be not significantly different from their
fair values
-- Receivables and payables - the fair values of receivables and
payables are estimated to not be significantly different from the
respective carrying amounts
-- Short-term loans and overdrafts approximate to their fair
value because of the short maturity of these instruments
-- Long-term loans - loans with variable rates are re-priced in
response to any changes in market rates and so management considers
their carrying values to be not significantly different from their
fair values
17. Fair value of financial assets and liabilities continued
Loans with fixed rates relate mainly to:
-- $500 million (carrying value at 30 June 2023 of $496 million,
and fair value at 30 June 2023 of $474 million) Eurobond accounted
for at amortised cost. The fair value is determined with reference
to a quoted price in an active market as at the balance sheet date
(a level 1 fair value)
-- A ten-year $150 million loan from the International Finance
Corporation with outstanding balance of $96 million (fair value at
30 June 2023 of $88 million). Fair value is estimated by
discounting future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities of such loans (a
level 2 fair value)
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
-- Level 3 : Inputs that are not based on observable market data
The following financial assets/liabilities are presented at
their fair value:
Fair value measurements Level 1 Level 2 Level 3 Total
At 30 June 2023 (unaudited)
--------------------------------- ------------------ ------------------ ------------------ -----------------
Financial Assets
Investments at FVTPL (Note 12) 22 - - 22
Investments in listed companies
at
FVTOCI (Note 8) 4 - - 4
Investments in unlisted shares
at FVTOCI
(Note 8) - - 37 37
Total financial assets 26 - 37 63
--------------------------------- ------------------ ------------------ ------------------ -----------------
Financial Liabilities
Co-development and earnout
payment
liabilities (Note 13 and 15) - - 3 3
Contingent consideration
liability
(Note 13 and 15) - - 42 42
Total financial liabilities - - 45 45
--------------------------------- ------------------ ------------------ ------------------ -----------------
Fair value measurements Level 1 Level 2 Level 3 Total
At 31 December 2022 (audited)
--------------------------------- ------------------ ------------------ ------------------ -----------------
Financial Assets
Investments at FVTPL (Note 12) 22 - - 22
Money market deposit (Note 11) 1 - - 1
Investments in listed companies
at
FVTOCI (Note 8) 4 - - 4
Investments in unlisted shares
at FVTOCI
(Note 8) - - 38 38
Total financial assets 27 - 38 65
--------------------------------- ------------------ ------------------ ------------------ -----------------
Financial Liabilities
Co-development and earnout
payment
liabilities (Note 13 and 15) - - 3 3
Contingent consideration
liability
(Note 13 and 15) - - 42 42
Total financial liabilities - - 45 45
--------------------------------- ------------------ ------------------ ------------------ -----------------
The following table presents the changes in Level 3 items for H1
2023, and the year ended 31 December 2022:
17. Fair value of financial assets and liabilities continued
Financial Financial
asset liability
$m $m
Balance at 1 January 2022 (audited) 22 74
Settled - (7)
Remeasurement of contingent consideration and other financial
liability recognised in finance income - (26)
Unwinding of contingent consideration and other financial
liability recognised in finance expense - 4
Change in fair value of investments in 1 -
unlisted shares at FVTOCI
Additions 15 -
Balance at 31 December 2022 and 1 January
2023 (audited) 38 45
=================================================================== ========== ===========
Settled - (2)
Unwinding of contingent consideration and other financial
liability recognised in finance expense - 2
Change in fair value of investments in (4) -
unlisted shares at FVTOCI
Additions 5 -
Sale of investment in unlisted share at (2) -
FVTOCI
Balance at 30 June 2023 (unaudited) 37 45
=================================================================== ========== ===========
Investments in unlisted shares at FVTOCI represent investments
made through the Group's venture capital arm and are measured at
cost minus any impairment and adjusted for observable price changes
in orderly transactions for the identical or a similar investment
of the same issuer under level 3 valuation.
Contingent consideration liability represents contractual
liability to make payments to third parties in the form of
milestone payments that depend on the achievement of certain US FDA
approval milestones; and payments based on future sales of certain
products. These liabilities were recognised as part of the Columbus
business acquisition in 2016.
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
Guarantees and letters of credit
A contingent liability existed at the balance sheet date in
respect of external guarantees and letters of credit totalling $63
million (31 December 2022: $55 million) arising in the normal
course of business. No provision for these liabilities has been
made in these financial statements.
A contingent liability existed at the balance sheet date for a
potential stamp duty obligation of $14 million (31 December 2022:
$14 million) that may arise for a repayment of a loan by
intercompany guarantors. It is not probable that the repayment will
be made by the intercompany guarantors.
19. Contingent liabilities continued
Legal proceedings
The Group is involved in a number of legal proceedings in the
ordinary course of its business, including actual or threatened
litigation and actual or potential government investigations
relating to employment matters, product liability, commercial
disputes, pricing, sales and marketing practices , infringement of
IP rights, the validity of certain patents and competition
laws.
Most of the claims involve highly complex issues. Often these
issues are subject to substantial uncertainties and, therefore, the
probability of a loss, if any, being sustained and/or an estimate
of the amount of any loss is difficult to ascertain. It is the
Group's policy to provide for amounts related to these legal
matters if it is probable that a liability has been incurred and an
amount is reasonably estimable.
- Starting in 2016, several complaints have been filed in the
United States on behalf of putative classes of direct and indirect
purchasers of generic drug products, as well as several individual
direct purchasers opt-out plaintiffs. These complaints, which
allege that the defendants engaged in conspiracies to fix,
increase, maintain and/or stabilise the prices of the generic drug
products named, have been brought against certain Group entities
and various other defendants. The plaintiffs generally seek damages
and injunctive relief under federal antitrust law and damages under
various state laws. The Group denies having engaged in conduct that
would give rise to liability with respect to these civil
suits and is vigorously pursuing defence of these cases. At this
point, the Group does not believe sufficient evidence exists to
make any provision .
- Starting in June 2020, several complaints have been filed in
the United States on behalf of both individual plaintiffs and
putative classes of direct and indirect purchasers of Xyrem(R)
against certain Group entities and other defendants. Currently
twelve such cases are assigned to multi-district litigation in the
Northern District of California. These complaints allege that Jazz
Pharmaceuticals PLC and its subsidiaries entered into unlawful
reverse payment agreements with each of the defendants, including
Hikma, in settling patent infringement litigation over Xyrem(R).
The plaintiffs in these lawsuits seek treble damages and a
permanent injunction. The Group denies having engaged in conduct
that would give rise to liability with respect to these lawsuits
and is vigorously pursuing defence of these cases. At this point,
the Group does not believe sufficient evidence exists to make any
provision .
19. Contingent liabilities continued
- Numerous complaints have been filed against certain Group
entities with respect to the manufacture of opioid products. Those
complaints now total approximately 903 in number. These types of
lawsuits have been filed against distributors, branded
pharmaceuticals manufacturers, pharmacies, hospitals, generic
pharmaceuticals manufacturers, individuals, and other defendants by
a number of cities, counties, states, other governmental agencies
and private plaintiffs in both state and federal courts. Seven
cases have been filed in Canadian courts; two of these were settled
or tentatively settled for a total of less than $0.2 million and
five remain. Most of the federal cases have been consolidated into
a multidistrict litigation (MDL) in the Northern District of Ohio.
These cases assert in general that the defendants allegedly engaged
in improper marketing and distribution of opioids and that
defendants failed to develop and implement systems sufficient to
identify suspicious orders of opioid products and prevent the abuse
and diversion of such products. Plaintiffs seek a variety of
remedies, including restitution, civil penalties, disgorgement of
profits, treble damages, attorneys' fees and injunctive relief.
From time to time, we also receive subpoenas or requests for
information from government entities seeking information related to
Hikma's sale, distribution, or manufacture of opioid products. The
Group denies having engaged in conduct that would give rise to
liability with respect to these civil suits and is vigorously
pursuing defence of these cases. Hikma has also agreed to enter
into mediation with representatives of the Plaintiffs' Executive
Committee in the federal MDL. A group of state Attorneys General
may join that mediation. At this point, other than the amounts
described above the Group does not believe sufficient evidence
exists to make any provision .
- In November 2020, Amarin Pharmaceuticals filed a patent
infringement lawsuit against certain Group entities in the United
States District Court for the District of Delaware (No. 20-cv-1630)
alleging that Hikma's sales and distribution of its generic
icosapent ethyl product infringes three Amarin patents that
describe certain methods of using icosapent ethyl. Amarin sought an
injunction barring Hikma from selling its generic product as well
as unspecified damages. Hikma's product is not approved for the
patented methods but rather is approved only for a different
indication not covered by any valid patents. In January 2022 the
court dismissed the lawsuit, and Amarin has appealed the court's
ruling. The Group denies the allegations and will vigorously defend
against them if necessary. The Group does not believe sufficient
evidence exists to make any provision.
20. Subsequent event
On 5 July 2023, Hikma closed a transaction to acquire assets, as
part of a Chapter 7 bankruptcy process, of Akorn Operating Company
LLC and its affiliates (collectively, "Akorn") for a total cash
consideration of $98 million. The acquisition includes a portfolio
of pharmaceutical products, property, plant and equipment .
Due to the proximity of the completion of the transaction to the
date of issuance of the consolidated condensed interim financial
statements, the accounting and initial valuation considerations are
still in progress.
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END
IR DDGDIUDGDGXD
(END) Dow Jones Newswires
August 03, 2023 02:00 ET (06:00 GMT)
Hikma Pharmaceuticals (LSE:HIK)
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