Interim Results

RNS Number : 1427M
Hikma Pharmaceuticals Plc
21 August 2013
 



 

PRESS RELEASE                                                                        

 

 

 

Hikma delivers exceptionally strong first half results with 20% revenue growth and 156% increase in adjusted EPS

 

Raising Group guidance to around 20% revenue growth for the full year, with a positive outlook for all businesses

 

London, 21 August 2013 - Hikma Pharmaceuticals PLC ("Hikma") (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY), the fast growing multinational pharmaceutical group, today reports its interim results for the six months ended 30 June 2013.

H1 2013 highlights

Group

·      Group revenue increased by 19.9% to $638.3 million.  Full year Group guidance raised to around 20% revenue growth

·      Group adjusted operating margin rose to 29.6%, up from 15.7%, reflecting significant improvement in Generics and Injectables margins

·      Profit attributable to shareholders increased by 82.1% to $73.6 million.  On an adjusted basis, profit attributable to shareholders rose 157.2% to $121.2 million

·      Net cash flow from operating activities increased by $88.9 million to $136.0 million

·      Continued new product introductions across all countries and markets - launched 63 products and received 65 product approvals

·      Increase in the interim dividend to 7.0 cents per share, up from 6.0 cents in the first half of 2012, plus a special dividend of 3.0 cents per share that reflects the exceptional performance of the Generics business

Branded

·      Branded revenue grew 3.2%, or 8.7% in constant currency.  The Branded business remains on track for around 11% full year revenue growth in constant currency

·      Branded adjusted operating profit grew by 10.6%, with adjusted operating margin of 22.6%

Injectables

·      Global Injectablesrevenue grew 9.5%, with adjusted operating margin of 28.6%, driven by strong performances in the US and Europe

·      The Injectables business remains on track to deliver low double-digit revenue growth for the full year

Generics

·      Generics revenue increased by 136.6% to $132.0 million and full year Generics revenue guidance raised to $230 million, reflecting exceptionally strong doxycycline sales

·      Generics operating profit of $49.4 million, after non-recurring costs of $32.8 million

 

Said Darwazah, Chief Executive Officer of Hikma, said:

"The Group has made an excellent start to this year and all of our businesses are performing well. 

In the MENA region, our strategic focus on higher value products and operational efficiencies is delivering improved profitability.  Our global Injectables business continues to deliver good growth in revenue and a significant improvement in profitability.  In particular, we are benefitting from strong demand for our products in the US and new product launches. 

The Generics business is benefiting from exceptional sales of doxycycline and generated strong profitability in the first half of the year.  This is enabling us to more than offset the impact of the ongoing remediation at our Eatontown facility and is providing excellent cash flow for the Group.

Overall, the Group is performing well and I am very pleased to be able to raise our Group guidance to around 20% revenue growth for the full year."

Group financial highlights

Summary P&L

$ million

H1 2013

 

H1 2012

 

Change

Revenue

638.3

532.3

+19.9%

Gross profit

353.3

234.1

+50.9%

Gross margin

55.3%

44.0%

+11.3pp





Operating profit

144.0

75.1

+91.8%





Adjusted operating profit [1], [2]

189.1

83.7

+125.8%

Adjusted operating margin

29.6%

15.7%

+13.9pp





EBITDA[3]

182.6

103.7

+76.1%





Profit attributable to shareholders

73.6

40.4

+82.1%





Adjusted profit attributable to shareholders1, 2

121.2

47.1

+157.2%





Adjusted basic earnings per share (cents)

61.6

24.1

+155.9%





Dividend per share (cents)

7.0

6.0

+16.7%





Special dividend per share (cents)

3.0

--

--





Net cash flow from operating activities

136.0

47.1

+189.0%

 

Enquiries

Hikma Pharmaceuticals PLC                                                              

Susan Ringdal, VP Corporate Strategy and Investor Relations                   +44 (0)20 7399 2760/ +44 7776 477050

Lucinda Henderson, Investor Relations Manager                                         +44 (0)20 7399 2765/ +44 7818 060211

 

FTI Consulting                                                                                      

Ben Atwell/ Julia Phillips/ Matthew Cole                                                        +44 (0)20 7831 3113

 

About Hikma

Hikma Pharmaceuticals PLC is a fast growing pharmaceutical group focused on developing, manufacturing and marketing a broad range of both branded and non-branded generic and in-licensed products.  Hikma's operations are conducted through three businesses: "Branded", "Injectables" and "Generics" based primarily in the Middle East and North Africa ("MENA") region, where it is a market leader, the United States and Europe.  In 2012, Hikma achieved revenues of $1,108.7 million and profit attributable to shareholders of $100.3 million. 

 

A presentation for analysts and investors will be held today at 09:30 at FTI Consulting, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB.  To join via conference call please dial: +44 (0) 203 139 4830 or 0808 237 0030 (UK toll free) and use participant PIN code: 93232833#.  Alternatively you can listen live via our websiteat www.hikma.com.  A recording of both the meeting and the call will be available on the Hikma website.  Video interviews of Said Darwazah, CEO and Khalid Nabilsi, CFO are available at www.hikma.com.  The contents of this website do not form part of this interim management report.

 

Interim management report

The interim management report set out below summarises the performance of Hikma's three main business segments, Branded, Injectables and Generics, for the six months ended 30 June 2013.

 

 

Group revenue by business segment (%)


H1 2013

H1 2012

Branded

40.2%

46.7%

Injectables

38.6%

42.3%

Generics

20.7%

10.5%

Others

0.5%

0.5%

 

Group revenue by region (%)


H1 2013

H1 2012

MENA

45.9%

56.0%

US

46.6%

36.1%

Europe and ROW

7.5%

7.9%

 

Branded

H1 2013 highlights:

•      Branded revenue increased by 3.2%, or 8.7% in constant currency

•      Branded adjusted operating profit increased by 10.6%, with adjusted operating margin of 22.6%, up from 21.1%

•      34 products launched and two new in-license agreements signed

 

Branded revenue increased by 3.2% in the first half of 2013 to $256.8 million, compared with $248.8 million in the first half of 2012.  On a constant currency basis, Branded revenue was $270.5 million, up 8.7%.  During the period, we continued to focus on prioritising higher value strategic products through enhanced sales and marketing activities across our MENA markets.  We also worked on driving operational efficiencies in our local manufacturing facilities.

 

Our Egyptian business had an excellent first half, with revenue growth of around 14%, despite the significant depreciation of the Egyptian pound against the US dollar, which depreciated by around 11% during the first half of 2013. This reflects our continued emphasis on higher value products and the contribution from new product launches.  These factors should also drive performance in the second half and, whilst the situation in Egypt has escalated in recent weeks, we have confidence in our experienced local management team and their strong track record of managing the business through disruptions.

 

During the period, we completed the acquisition of the Egyptian Company for Pharmaceutical and Chemical Industries ("EPCI") for an aggregate cash consideration of $20.5 million.  We have fully integrated EPCI's sales and marketing team and are upgrading their manufacturing facility.  We expect EPCI's excellent product portfolio and specialised manufacturing capabilities to drive significant growth in our Egyptian business over the medium term.

 

In Algeria, we experienced slower than expected sales in the first half due to the timing of orders and lower sales of certain products that had an exceptionally good performance in the first half of 2012.  We believe we are well positioned to achieve strong growth in the second half driven by new product launches and increased demand for our product portfolio.  We expect to deliver double-digit revenue growth in Algeria for the full year. In anticipation of continued strong demand in Algeria in the coming years, we began the expansion of our general formulation facility in the first half, which will enable us to meet growing demand and strengthen our competitive position in the Algerian market. 

 

In Saudi Arabia, we are implementing our strategy to improve profitability by reducing low margin tender sales and focusing on the promotion of higher margin, more strategic products.  Profitability is improving and we are expecting good top line growth in the second half, driven by more targeted sales and marketing efforts and new product launches.

 

In Sudan, we made a very strong start to the year, benefitting from our local manufacturing facility and new product registrations.  We have more than offset the significant impact of the currency devaluation that took place in Sudan in June 2012.  In Iraq, we are delivering strong growth following the appointment of an additional distributor in 2012.  Our business in Jordan has also performed well, benefitting from a greater focus on higher value products and the sales force restructuring done in 2012. 

 

During the first half of 2013, the Branded business launched a total of 34 products across all markets, including 12 new compounds and 20 new dosage forms and strengths.  The Branded business also received 38 regulatory approvals across the region.

 

Revenue from in-licensed products increased from $89.2 million to $93.9 million in the first halfIn-licensed products represented 36.6% of Branded revenue, compared with 35.8% in the first half of 2012.  We signed two new licensing agreements for innovative oral products during the first half of 2013, which will support our continued focus on growing our portfolio of higher value products in growing therapeutic areas. 

 

Branded gross profit grew by 8.1% to $129.8 million in the first half of 2013 and gross margin was 50.5%, compared with 48.3% in the first half of 2012.  The improvement in gross margin primarily reflects a favourable product mix during the period, with a focus on higher value products and a reduction in low margin tender sales. 

 

Operating profit in the Branded business increased by 8.3% to $51.3 million, compared with $47.4 million in the first half of 2012.  Adjusted operating margin was 22.6%, compared with 21.1% in the first half of 2012, after excluding the amortisation of intangibles of $4.8 million and other non-recurring costs of $2.0 million.

 

Excluding the impact of adverse currency movements, adjusted operating margin was 23.1%.  This improvement in margin reflects our success in driving higher margin sales, restructuring our sales and marketing teams and improved operational efficiencies.  This has enabled us to absorb continued inflationary pressure in the region and other disruptions to our business related to the Arab Spring. 

 

On a constant currency basis, we continue to expect Branded revenue growth of around 11% for the full year and a slight improvement in adjusted operating margin.  On a reported basis, taking into account exchange rate movements since the beginning of 2013, we expect Branded revenue growth to be around 7% this year, with margins in line with 2012. 

 

 

Injectables

H1 2013 highlights:

·      Global Injectables revenue grew by 9.5% to $246.6 million

·      Excellent performance in US Injectables, up 21.1%, driven by new launches and price improvements

·      Significant improvement in Injectables adjusted operating margin to 28.6%, up from 22.7%

 

Injectables revenue by region


H1 2013

H1 2012

US

67.1%

60.7%

MENA

16.3%

22.9%

Europe and ROW

16.6%

16.4%

 

Revenue in our global Injectables business increased by 9.5% to $246.6 million, compared with $225.2 million in the first half of 2012.

 

US Injectables revenue grew by $28.8 million, or 21.1%, to $165.4 million.  This excellent performance reflects our success in driving new product launches and price improvements.  Our ability to maintain supply and our strong quality track record continue to be key competitive advantages.

 

In the MENA region, Injectables revenue decreased by 22.3% to $40.1 million, compared with $51.6 million in the first half of 2012.  This primarily reflects the timing of tenders in Algeria and Saudi Arabia, a strategic reduction in low margin tender sales and a difficult comparator period.  We are expecting strong growth in the second half across our MENA markets, driven in part by the shipping of tenders won at the end of the first half.  However, a delay in product registrations means that MENA Injectables revenue for the full year will be broadly in line with last year.

 

Revenue in our European Injectables business grew by 10.6% to $41.1 million.  Growth was driven by recent product launches and continuing demand for contract manufacturing.  We successfully offset double-digit price erosion with strong volume growth.

 

Injectables gross profit increased by 26.9% to $124.6 million, compared with $98.2 million in the first half of 2012.  Gross margin increased significantly to 50.5%, compared with 43.6% in the first half of 2012.  This reflects pricing improvements, new product launches and significant overhead reductions at our Cherry Hill facility.

 

Operating profit increased by 37.5% to $65.6 million.  Adjusted operating profit increased by 37.9% to $70.6 million.  Adjusted operating margin increased from 22.7% to 28.6%.  This excellent margin expansion reflects the improvement in gross margin and operating efficiencies.  It was also achieved despite higher R&D expenditure, which will continue to increase in the second half of the year.

 

We remain focussed on strengthening our global Injectables product portfolio, with a particular emphasis on more differentiated products.  In January, we received a 505(b)2 approval for phenylephrine injection, which we re-launched in February.  We are investing in a dedicated R&D line at our Portuguese facility that will help us to accelerate our internal product development.  We are also focussed on expanding our portfolio through partnerships and product acquisitions.  Our ability to add higher value, more differentiated products to our portfolio will be a key driver of growth for our global Injectables business.

 

During the first half of 2013, the Injectables business launched a total of 29 products across all markets, including 8 new compounds and 12 new dosage forms and strengths.  The Injectables business also received a total of 26 regulatory approvals across all regions and markets, namely 8 in MENA, 15 in Europe and 3 in the US.  During the period, we also signed a licensing agreement with Theravance for Vibativ®, an anti-infective product for the MENA region.

 

We expect our global Injectables business to continue to perform well in 2013 and we reiterate our guidance of low double-digit revenue growth for the full year. 

 

 

Generics

H1 2013 highlights:

·      Generics revenue increased by 136.6% to $132.0 million on strong doxycycline sales

·      Operating profit increased to $49.4 million, after $32.8 million of remediation and other one-off costs[4]

 

Generics revenue was $132.0 million, compared to $55.8 million in the first half of 2012.  This is due to exceptionally strong revenue from doxycycline and includes only a limited contribution from the rest of our portfolio.  The ongoing remediation work at our Eatontown facility has slowed the re-introduction of products and we are having to rebuild our market position.

 

Generics gross profit was $99.4 million, compared with $15.2 million in the first half of 2012, and gross margin was 75.3%, compared with 27.3% in the first half of 2012.  Operating profit was $49.4 million and operating margin was 37.4%, compared with an operating loss of $3.3 million in the first half of 2012. 

 

Excluding the impact of non-recurring remediation and other one-off costs of $32.8 million, adjusted operating profit was $82.2 million and adjusted operating margin was 62.3% in the first half of 2013, compared with an adjusted operating loss of $3.3 million in the first half of 2012. 

 

Doxycycline revenue has been exceptionally strong, leading us to raise our Generics revenue guidance from around $200 million to around $230 million for 2013.  We expect reported operating margin to be above 30% for the full year, after remediation costs of around $30 million and other one-off costs of around $15 million.  Visibility for 2014 remains limited at this stage.  The remediation of the Eatontown facility remains our priority and we continue to expect to complete the remediation work by the end of the year. 

 

 

Other businesses

Other businesses, which primarily comprise Arab Medical Containers, a manufacturer of plastic specialised packaging, International Pharmaceuticals Research Centre, which conducts bio-equivalency studies, and the chemicals division of Hikma Pharmaceuticals Limited, contributed revenue of $2.9 million, compared with $2.5 million in the first half of 2012. 

 

These other businesses delivered an operating loss of $2.9 million in the first half of 2013, compared with a loss of $2.0 million in the first half of 2012.

 

 

Group

Group revenue increased by 19.9% to $638.3 million in the first half of 2013.  Group gross profit increased by 50.9% to $353.3 million, compared with $234.1 million in the first half of 2012.  Group gross margin was 55.3%, compared with 44.0% in the first half of 2012, reflecting the significant gross margin improvement of the Generics and global Injectables businesses

 

Group operating expenses grew by 31.6% to $209.3 million, compared with $159.0 million in the first half of 2012.  Excluding the amortisation of intangible assets (excluding software) of $7.1 million and exceptional items[5] of $38.0 million, adjusted Group operating expenses grew by 9.2% to $164.2 million.  The paragraphs below address the Group's main operating expenses in turn.

 

Sales and marketing expenses were $77.7 million, or 12.2% of revenue, compared with $74.1 million and 13.9% of revenue in the first half of 2012.  Strong Generics revenue growth, which did not require incremental sales and marketing costs, offset an increase in wages and employee benefits in the MENA region.

 

General and administrative expenses increased by $10.9 million, or 19.5%, to $66.8 million in the first half of 2013.  The increase in expenses primarily reflects an increase in employee benefits related to the exceptional performance of the US business this year, as well as increased IT costs.

 

Group R&D expenditure was $19.5 million in the first half of 2013, compared with $17.1 million in the first half of 2012.  An increase in spend for the Branded and Injectables businesses has more than offset a reduction in R&D expenditure for the Generics business.  Total investment in R&D represented 3.1% of Group revenue, compared with 3.2% in the first half of 2012.  We expect increased investment in R&D in the second half of 2013, as we continue to focus on new product development, particularly for the Injectables business.

 

Other net operating expenses increased by $33.3 million to $45.2 million.  Excluding exceptional items, the increase was $2.5 million, primarily reflecting an increase in provisions for slow-moving items.

 

Operating profit for the Group increased by 91.8% to $144.0 million in the first half of 2013.  Group operating margin increased to 22.6%, compared with 14.1% in the first half of 2012.  On an adjusted basis, Group operating profit increased by $105.4 million, or 125.8%, to $189.1 million and operating margin increased to 29.6%, up from 15.7% in the first half of 2012. 

 

 

Research & Development[6] 

The Group's product portfolio continues to grow as a result of our in-house product development efforts.  During the first half of 2013, we launched 20 new compounds, expanding the Group portfolio to 685 compounds in 1,626 dosage forms and strengths.[7]  We manufacture and/or sell 94 of these compounds under license from the originator.

 

 

 

 

Across all businesses and markets, a total of 63 products were launched during the first half of 2013.  In addition, the Group received 65 approvals. 

 


Total marketed products

Products launched in H1 2013

 

Products approved in H1 2013

Products pending approval as at 30 June 2013


Compounds

Dosage forms and strengths

New compounds

New dosage forms and strengths

Total launches across all countries[8]

Total approvals across all countries8

Total pending approvals across all countries8

 

 

181

 

177

 

21

 

379








Branded

4937

1,2467

12

20

34

38








Injectables

186

374

8

12

29

26








Generics

6

6

0

0

0

1








Group

685

1,626

20

32

63

65








 

To ensure the continuous development of our product pipeline, we submitted 111 regulatory filings in the first half of 2013 across all regions and markets.  As of 30 June 2013, we had a total of 379 pending approvals across all regions and markets and a total of 205 products under development.

 

 

Investments in associates

During 2011, Hikma acquired a minority interest in Unimark Remedies Limited ("Unimark") in India for a cash consideration of $33.6 million.  Unimark manufactures active pharmaceutical ingredients ("API") and API intermediates.  Unimark has been impacted by a decline in prices in its API manufacturing business and is in the process of restructuring its corporate debt.  During the period, we incurred an impairment charge of $15 million in respect of our investment.  We believe that Unimark will be able to successfully manage its current issues and we continue to collaborate with Unimark in the development of a portfolio of products for the US market. 

 

 

Net finance expense

The Group's net debt position at 30 June 2013 was $357.0 million, down from $406.5 million at 31 December 2012, and $473.0 million at 30 June 2012.  Despite the reduction in total debt during the period, net finance expense increased to $17.0 million, compared with $16.7 million in the first half of 2012.  The increase relates to the early repayment of long term loans in the first half of 2013.  We now expect net finance expense to be around $38 million for the full year.

 

 

Profit before tax

Profit before tax for the Group increased by 92.9% to $111.6 million, compared with $57.8 million in the first half of 2012.  Adjusted profit before tax increased by 158.1% to $171.7 million.

 

 

Tax

The Group incurred a tax expense of $35.1 million, compared with $15.0 million in the first half of 2012.  The effective tax rate was 31.5%.  Excluding the impact of the non-cash impairment charge in respect of Unimark, the effective tax rate was 27.7% in the first half of 2013, compared with 25.9% in the first half of 2012.  The increase in the tax rate is mainly attributable to the increased profitability in higher tax jurisdictions.  We now expect the full year effective tax rate to be around 24%, excluding the impact of the impairment charge related to our investment in Unimark.

 

 

Profit attributable to equity holders of the parent

The Group's profit attributable to equity holders of the parent increased by 82.1% to $73.6 million in the first half of 2013.  Adjusted profit attributable to equity holders of the parent increased by 157.2% to $121.2 million.

 

 

Earnings per share

Basic earnings per share increased by 81.2% to 37.4 cents, compared with 20.6 cents in the first half of 2012.  Diluted earnings per share increased by 80.9% to 37.0 cents, compared with 20.4 cents in the first half of 2012.  Adjusted diluted earnings per share was 60.9 cents, an increase of 155.5% over the first half of 2012.

 

 

Dividend

The Board has declared an interim dividend of 7.0 cents per share (approximately 4.5 pence per share), compared to 6.0 cents per share for the first half of 2012.  In addition, the Board has declared a special dividend of 3.0 cents (approximately 1.9 pence per share), which reflects the exceptional performance of the Generics business in the first half.  The interim dividend and the special dividend will be paid on 7 October 2013 to eligible shareholders on the register at the close of business on 6 September 2013.  The ex-dividend date is 4 September 2013 and the final date for currency elections is 13 September 2013.

 

 

Net cash flow, working capital and net debt

The Group generated operating cash flow of $136.0 million in the first half of 2013, up $88.9 million from $47.1 million in the first half of 2012.  The significant improvement in operating cash flow was achieved through strong growth in profitability while maintaining our focus on working capital management.  Working capital days were unchanged at 207 days. 

Capital expenditure was $25.6 million, compared with $26.1 million in the first half of 2012.  Around $13 million was spent in MENA, principally to maintain our manufacturing facilities across the region and to upgrade our recently acquired facility in Egypt.  Around $10 million was spent in the US, primarily at our facility in Cherry Hill.

The Group made an acquisition in Egypt in January 2013, acquiring EPCI for a total consideration of $20.5 million of which $18.5 million was paid and $2.0 million was deferred.

Group net debt decreased from $406.5 million at 31 December 2012 to $357.0 million at 30 June 2013.  This reflects the strong performance of the Group in the first half of 2013, which enabled us to make an early repayment of long term loans.

 

Balance sheet

During the period, shareholder equity was negatively impacted by unrealised foreign exchange losses of $13.4 million, primarily reflecting adverse movements in the Egyptian pound and the Algerian dinar against the US dollar and the revaluation of net assets denominated in these currencies.

 

 

Summary and outlook

We delivered a strong performance across our businesses in the first half of 2013, with a 19.9% increase in revenue and a 155.9% increase in adjusted basic earnings per share. 

 

We now expect the Group to deliver full year revenue growth of around 20%.

 

We are expecting stronger sales in the MENA region in the second half and we continue to expect our Branded business, on a constant currency basis, to deliver revenue growth of around 11% for the full year and a slight improvement in adjusted operating margin.  On a reported basis, taking into account exchange rate movements since the beginning of 2013, we expect Branded revenue growth to be around 7% for the full year, with margins in line with 2012. 

 

We expect the strong performance of our global Injectables business will be sustained in the second half of the year and we reiterate our guidance of low double-digit revenue growth.

 

Doxycycline revenue has been exceptionally strong, leading us to raise our Generics revenue guidance from around $200 million to around $230 million for 2013.  We expect reported operating margin to be above 30% for the full year, after remediation and other one-off costs of around $45 million.  Visibility for 2014 remains limited at this stage.  The remediation of the Eatontown facility remains our priority and we continue to expect to complete the remediation work by the end of the year.

 

Overall, we are pleased with the performance of the Group in the first half of 2013 and we are confident in the outlook for the remainder of the year, as well as the Group's medium and long term growth prospects. 

 

 

Going concern statement

As set out in note 2 to the condensed financial statements, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than twelve months from the date of this report.  Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

 

 

Responsibility statement

The Board confirms that to the best of its knowledge:

 

a)    The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

 

b)    The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months including their impact on the financial statements and description of principal risks and uncertainties for the remaining six months of the year); and

 

c)     The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein which have had or could have a material financial effect on the financial position of the Group during the period).

 

 

 


By order of the Board

 

 

Said Darwazah                                                                                                                       Khalid Nabilsi
Chief Executive Officer                                                                                                         Chief Financial Officer

 

20 August 2013

 


 

 

Cautionary statement

This interim management report has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed.  It should not be relied on by any other party or for any other purpose.

 

 

Forward looking statements

Certain statements in this announcement are forward-looking statements - using words such as "intends", "believes", "anticipates" and "expects".  Where included, these have been made by the Directors in good faith based on the information available to them up to the time of their approval of this announcement.  By their nature, forward-looking statements are based on assumptions and involve inherent risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements, and should be treated with caution.  These risks, uncertainties or assumptions could adversely affect the outcome and financial effects of the plans and events described in this announcement.  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.  You should not place undue reliance on forward-looking statements, which speak as only of the date of the approval of this announcement.

 

Except as required by law, the Company is under no obligation to update or keep current the forward-looking statements contained in this announcement or to correct any inaccuracies which may become apparent in such forward-looking statements.

 

 

INDEPENDENT REVIEW REPORT TO HIKMA PHARMACEUTICALS PLC

 

We have been engaged by Hikma Pharmaceuticals PLC (the 'Company') to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 16. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, 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 Ireland) 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.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

 

 20 August 2013

 

 

Hikma Pharmaceuticals PLC

Condensed consolidated income statement

 


Note


H1
2013


H1
2012


FY
2012

Continuing operations



$000 (Unaudited)


$000 (Unaudited)


$000 (Audited)

Revenue

3


       638,300


       532,260


 1,108,721

Cost of sales

3


     (285,012)


     (298,180)


  (607,603)

Gross profit

3


       353,288


       234,080


    501,118

Sales and marketing costs



       (77,709)


      (74,084)


  (152,763)

General and administrative expenses



       (66,808)


       (55,893)


  (124,560)

Research and development costs



       (19,547)


       (17,097)


    (34,019)

Other operating expenses (net)



       (45,205)


       (11,937)


    (23,002)

Total operating expenses



     (209,269)


     (159,011)


  (334,344)

Adjusted operating profit



       189,098


         83,730


    193,835

Exceptional items








 - Acquisition and integration related expenses

4


            (429)


         (2,276)


      (3,131)

 - Severance expenses

4


            (464)


                   -


      (4,469)

 - Plant remediation costs

4


       (18,980)


                   -


      (6,787)

 - Impairment losses

4


         (7,800)


                   -


                -

 - Other claims provisions

4


       (10,300)


                   -


                -

Intangible amortisation*

4


         (7,106)


        (6,385)


    (12,674)

Operating profit

3


       144,019


         75,069


    166,774

Share of results of associated companies

8


       (80)


              (50)


           892

Impairment of investment in associates

8


(15,000)


                -


        -

Finance income



              619


              355


        1,266

Finance expense



       (17,590)


       (17,039)


    (35,717)

Other expenses (net)



            (382)


            (491)


      (1,174)

Profit before tax



       111,586


         57,844


    132,041

Tax

5


       (35,123)


       (14,976)


    (24,826)

Profit for the period/year



76,463


         42,868


    107,215

Attributable to:








Non-controlling interests



           2,881


          2,468


        6,895

Equity holders of the parent



         73,582


         40,400


    100,320




76,463


         42,868


    107,215

Earnings per share (cents)








Basic

7


             37.4


            20.6


          51.1

Diluted

7


             37.0


             20.4


          50.6

Adjusted basic

7


             61.6


             24.1


          61.4

Adjusted diluted

7


            60.9


             23.8


          60.8

 

 

On this page and throughout this interim financial information "H1 2013" refers to the six months ended 30 June 2013, "H1 2012" refers to the six months ended 30 June 2012 and "FY 2012" refers to the year ended 31 December 2012.

 

* Intangible amortisation comprises the amortisation of intangible assets other than software.

 

 

 

 

Hikma Pharmaceuticals PLC

Condensed consolidated statement of other comprehensive income

 




H1
2013


H1
2012


FY
2012




$000 (Unaudited)


$000 (Unaudited)


$000 (Audited)

Profit for the period/year



         76,463


         42,868


     107,215

Items that may be reclassified subsequently to profit or loss:
















 -Cumulative effect of change in fair value of available for sale investments



                (6)


              (19)


           (23)

 -Cumulative effect of change in fair value of  financial derivatives



          2,428


         (1,625)


      (2,120)

 -Exchange difference on translation of foreign operations



       (13,002)


       (29,375)


    (26,547)









Total comprehensive income for the period/year



65,883


11,849


78,525

Attributable to:








Non-controlling interests



           3,245


         (1,847)


         1,585

Equity holders of the parent



62,638


         13,696


     76,940




65,883


         11,849


     78,525

 

Hikma Pharmaceuticals PLC

Condensed consolidated balance sheet

 

 


Note


30 June
2013


30 June
2012


31 December
2012




$000 (Unaudited)


$000 (Unaudited)


$000 (Audited)

Non-current assets








Intangible assets



       435,294


       426,684


        433,049

Property, plant and equipment



       423,879


       413,410


        419,943

Interests in associated companies

8


         23,257


         37,395


          38,337

Deferred tax assets



         49,210


         34,839


          45,772

Financial and other non-current assets



         11,134


         11,564


          11,044




942,774


923,892


948,145

Current assets








Inventories

9


       272,987


       271,862


        272,231

Income tax asset



           1,134


              915


            1,016

Trade and other receivables

10


       389,479


       343,949


        328,147

Collateralised and restricted cash



           5,307


           6,637


            1,756

Cash and cash equivalents



       119,007


       114,379


        176,510

Other current assets



           2,112


           1,722


            2,307




790,026


739,464


781,967

Total assets



1,732,800


1,663,356


1,730,112

Current liabilities








Bank overdrafts and loans



       171,904


       180,166


        192,879

Obligations under finance leases



           1,995


         17,149


            3,480

Trade and other payables

11


       196,124


       175,214


        194,805

Income tax provision



         30,124


         15,179


          23,029

Other provisions



         11,882


         10,508


          10,664

Other current liabilities



         88,832


         54,867


          42,097




500,861


453,083


466,954

Net current assets



289,165


286,381


315,013

Non-current liabilities








Long-term financial debts

12


       287,975


       393,842


        372,488

Obligations under finance leases



         19,476


           2,861


          15,891

Deferred tax liabilities



         25,157


         22,514


          22,921

Derivative financial instruments



           1,442


           3,526


            4,008




334,050


422,743


415,308

Total liabilities



834,911


875,826


882,262

Net assets



897,889


787,530


847,850

Equity








Share capital



         35,229


         35,063


          35,091

Share premium



       280,492


       278,528


        279,116

Own shares



              (82)


            (120)


              (86)

Other reserves



       565,299


       461,324


        518,532

Equity attributable to equity holders of the parent



       880,938


       774,795


        832,653

Non-controlling interests



         16,951


         12,735


          15,197

Total equity



       897,889


       787,530


        847,850

            

 

Hikma Pharmaceuticals PLC

Condensed consolidated balance sheet

 

The financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, were approved by the Board of Directors and signed on its behalf by:  

 

 

Said Darwazah                                                   Mazen Darwazeh

Director                                                               Director                                                      

 

 

 

 

 

20 August 2013

 

Hikma Pharmaceuticals PLC

Condensed consolidated statement of changes in equity

 


Merger reserve
$000


Revaluation reserves
$000


Translation reserves
$000


Retained earnings
$000


Total
reserves
$000


Share
 capital
$000


Share premium
$000


Own
 shares
$000


Total equity attributable to equity shareholders of the parent
$000


Non-controlling interests
$000


Total
 equity
$000

Balance at 1 January 2012 (Audited)

 33,920


  3,904


 (27,569)


 455,544


 465,799


  34,904


 278,094


 (2,222)


 776,575


  22,059


  798,634

Profit for the period

           -  


              -  


                 -  


     40,400


   40,400


           -  


              -  


           -  


   40,400


         2,468


    42,868

Cumulative effect of change in fair value of available for sale investments

           -  


              -  


                 -  


         (19)


        (19)


           -  


              -  


           -  


         (19)


                 -  


           (19)

Cumulative effect of change in fair value of  financial derivatives

           -  


              -  


                 -  


    (1,625)


   (1,625)


           -  


              -  


           -  


    (1,625)


                 -  


      (1,625)

Realisation of revaluation reserve

           -  


             (91)


                 -  


            91


          -  


           -  


              -  


           -  


          -  


                 -  


            -  

Currency translation loss

           -  


              -  


      (25,060)


              -  


 (25,060)


           -  


              -  


           -  


  (25,060)


       (4,315)


   (29,375)

Total comprehensive income for the period

           -  


             (91)


      (25,060)


     38,847


   13,696


           -  


              -  


           -  


   13,696


       (1,847)


      11,849

Issue of equity shares

           -  


              -  


                 -  


              -  


          -  


       159


         434


           -  


        593


                 -  


         593

Purchase of own shares

           -  


              -  


                 -  


              -  


          -  


            -  


              -  


    (147)


       (147)


                 -  


         (147)

Cost of equity settled employee share schemes

           -  


              -  


                 -  


       3,675


     3,675


            -  


              -  


           -  


     3,675


                 -  


      3,675

Exercise of equity settled employee share scheme

           -  


              -  


                 -  


       (2,249)


      (2,249)


            -  


              -  


      2,249


          -  


                 -  


            -  

Deferred tax arising on share-based payments

           -  


              -  


                 -  


         (18)


        (18)


            -  


              -  


           -  


         (18)


                 -  


           (18)

Dividends on ordinary shares (note 6)

           -  


              -  


                 -  


  (14,746)


(14,746)


            -  


              -  


           -  


  (14,746)


          (301)


    (15,047)

Adjustment arising from change in non-controlling interests

           -  


              -  


                 -  


    (4,833)


   (4,833)


            -  


              -  


           -  


    (4,833)


       (7,176)


    (12,009)

Balance at 30 June 2012 (Unaudited)

 33,920


   3,813


 (52,629)


 476,220


 461,324


  35,063


 278,528


    (120)


 774,795


   12,735


  787,530

Balance at 1 January 2012 (Audited)

 33,920


  3,904


 (27,569)


 455,544


 465,799


  34,904


 278,094


 (2,222)


 776,575


  22,059


  798,634

Profit for the year

           -  


              -  


                 -  


   100,320


 100,320


            -  


              -  


           -  


 100,320


        6,895


    107,215

Cumulative effect of change in fair value of available for sale investments

           -  


              -  


                 -  


         (23)


        (23)


            -  


              -  


           -  


         (23)


                 -  


          (23)

Cumulative effect of change in fair value of  financial derivatives

           -  


              -  


                 -  


    (2,120)


   (2,120)


            -  


              -  


           -  


    (2,120)


                 -  


      (2,120)

Realisation of revaluation reserve

           -  


           (181)


                 -  


          181


          -  


            -  


              -  


           -  


          -  


                 -  


            -  

Currency translation loss

          -  


              -  


     (21,237)


              -  


 (21,237)


            -  


              -  


           -  


  (21,237)


       (5,310)


   (26,547)

Total comprehensive income for the period

           -  


           (181)


      (21,237)


     98,358


   76,940


            -  


              -  


           -  


   76,940


         1,585


    78,525

Issue of equity shares

           -  


              -  


                 -  


              -  


        -  


       187


      1,022


           -  


     1,209


                 -  


       1,209

Purchase of own shares

           -  


              -  


                 -  


              -  


          -  


            -  


              -  


    (158)


       (158)


                 -  


         (158)

Cost of equity settled employee share schemes

           -  


              -  


                 -  


       7,961


     7,961


            -  


              -  


           -  


     7,961


                 -  


       7,961

Exercise of equity settled employee share scheme

           -  


              -  


                 -  


    (2,294)


  (2,294)


            -  


              -  


   2,294


          -  


                 -  


            -  

Deferred tax arising on share-based payments

               -  


              -  


                 -  


            98


          98


            -  


              -  


           -  


          98


                 -  


           98

Current tax arising on share-based payments

           -  


              -  


                 -  


       1,411


      1,411


            -  


              -  


           -  


       1,411


                 -  


        1,411

Dividends on ordinary shares (note 6)

           -  


              -  


                 -  


  (26,550)


 (26,550)


            -  


              -  


           -  


  (26,550)


       (1,271)


    (27,821)

Adjustment arising from change in non-controlling interests

           -  


              -  


                 -  


    (4,833)


   (4,833)


            -  


              -  


           -  


    (4,833)


       (7,176)


    (12,009)

Balance at 31 December 2012 (Audited)

 33,920


  3,723


 (48,806)


 529,695


 518,532


  35,091


  279,116


      (86)


 832,653


   15,197


  847,850

Profit for the period

           -  


              -  



     73,582


   73,582


            -  


              -  


           -  


   73,582


         2,881


    76,463

Cumulative effect of change in fair value of available for sale investments

           -  


              -  


                 -  


           (6)


          (6)


            -  


              -  


           -  


           (6)


                 -  


            (6)

Cumulative effect of change in fair value of  financial derivatives

           -  


              -  


                 -  


       2,428


     2,428


            -  


              -  


           -  


     2,428


                 -  


      2,428

Realisation of revaluation reserve

           -  


             (91)


                 -  


            91


          -  


            -  


              -  


           -  


          -  


                 -  


            -  

Currency translation loss

           -  


              -  


      (13,366)


              -  


 (13,366)


            -  


              -  


           -  


  (13,366)


            364


    (13,002)

Total comprehensive income for the period

           -  


             (91)


      (13,366)


     76,095


   62,638


            -  


              -  


           -  


   62,638


         3,245


    65,883

Issue of equity shares

           -  


              -  


                 -  


              -  


          -  


       138


      1,376


           -  


      1,514


                 -  


        1,514

Purchase of own shares

           -  


              -  


                 -  


              -  


          -  


            -  


              -  


    (106)


       (106)


                 -  


         (106)

Cost of equity settled employee share schemes

           -  


              -  


                 -  


       3,981


     3,981


            -  


              -  


           -  


     3,981


                 -  


       3,981

Exercise of equity settled employee share scheme

           -  


              -  


                 -  


       (110)


      (110)


            -  


              -  


      110


          -  


                 -  


            -  

Deferred tax arising on share-based payments

           -  


              -  


                 -  


         (26)


       (26)


            -  


              -  


           -  


         (26)


                 -  


          (26)

Dividends on ordinary shares (note 6)

           -  


              -  


                 -  


  (19,716)


 (19,716)


            -  


              -  


           -  


   (19,716)


       (1,909)


    (21,625)

Issue of equity shares of subsidiary

           -  


              -  


                 -  


              -  


          -  


            -  


              -  


           -  


          -  


            418


          418

Balance at 30 June 2013 (Unaudited)

 33,920


  3,632


 (62,172)


 589,919


 565,299


  35,229


 280,492


      (82)


880,938


   16,951


  897,889

 

 

 

 

Hikma Pharmaceuticals PLC

Condensed consolidated cash flow statement

 

 

 


Note


H1
2013


H1
2012


FY
2012




$000 (Unaudited)


$000 (Unaudited)


$000 (Audited)

Net cash from operating activities

13


       136,020


         47,071


    182,161

Investing activities








Purchases of property, plant and equipment



       (26,954)


       (29,340)


    (51,405)

Proceeds from disposal of property, plant and equipment



           1,759


              417


           989

Purchase of intangible assets



         (2,575)


       (27,582)


    (38,783)

Proceeds from disposal of intangible assets



              105


              143


           255

Investment in financial and other non-current assets



              (96)


              495


           151

Acquisition of subsidiary undertakings, net of cash acquired



       (18,240)


         (6,207)


    (11,978)

Payments of costs directly attributable to acquisitions

4


            (429)


         (1,519)


      (1,519)

Finance income



              619


              348


        1,266

Net cash used in investing activities



       (45,811)


       (63,245)


  (101,024)

Financing activities








(Increase)/decrease in collateralised and restricted cash



         (3,551)


         (4,041)


           839

Increase in long-term financial debts



           6,818


         99,885


    151,997

Repayment of long-term financial debts



       (90,648)


       (50,034)


  (124,183)

(Decrease)/increase in short-term borrowings



       (19,704)


         35,961


      52,390

Decrease in obligations under finance leases



         (1,252)


         (1,215)


      (2,122)

Dividends paid



       (19,684)


       (14,717)


    (26,550)

Dividends paid to non-controlling shareholders



         (1,909)


            (301)


      (1,271)

Interest paid



       (18,565)


       (15,938)


    (34,188)

Proceeds from issue of new shares



           1,409


              446


        1,051

Proceeds from non-controlling interest for capital increase in subsidiary

              418


                   -  


                -  

Acquisition of non-controlling interest in subsidiary



                   -  


       (12,009)


    (12,009)

Net cash (used in)/from financing activities



     (146,668)


         38,037


        5,954

Net (decrease)/increase in cash and cash equivalents



       (56,459)


         21,863


      87,091

Cash and cash equivalents at beginning of period/year



       176,511


         94,715


      94,715

Foreign exchange translation movements



         (1,045)


         (2,199)


      (5,296)

Cash and cash equivalents at end of period/year



      119,007


       114,379


    176,510

 

 

Hikma Pharmaceuticals PLC

Notes to the condensed set of financial statements (unaudited)

 

 

1.      General information

               

The financial information for the year ended 31 December 2012 does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2012, which were prepared under International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board, have been filed with the Registrar of Companies. The auditor's report on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain any statement under Section 498 (2) or (3) of the Companies Act 2006.

 

2.      Accounting policies

 

The unaudited condensed set of financial statements for the six months ended 30 June 2013 have been prepared using the same accounting policies and on a basis consistent with the audited financial statements of Hikma Pharmaceuticals PLC (the 'Group') for the year ended 31 December 2012 which are prepared in accordance with IFRSs as adopted by the European Union.

 

Dynamic market changes can generate uncertainty as to the ultimate net selling price of a pharmaceutical product and therefore revenue cannot always be measured reliably at the point when the product is supplied or made available to external customers.  The Company has therefore expanded its revenue recognition policy as shown below; this had no impact on revenue recognised in prior periods.

 

Revenue recognition

Revenue is recognised in the consolidated income statement when goods or services are supplied or made available to external customers against orders received and when the significant risks and rewards of ownership have passed.

Revenue represents the amounts receivable after the deduction of discounts, value added tax, other sales taxes, allowances given, provisions for chargebacks and accruals for estimated future rebates and returns. The methodology and assumptions used to estimate rebates and returns are monitored and adjusted regularly in light of contractual and historical information.

 

If the ultimate net selling price cannot be reliably measured, revenue recognition is deferred until a reliable measurement can be made.  Deferred revenue is included in other current liabilities in the consolidated balance sheet

 

Basis of preparation

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

The Group's condensed set of financial statements included in this half- yearly financial report have been prepared in accordance with International Accounting Standards 34 'Interim Financial Reporting' as adopted by the European Union.  They were approved by the Board on 20 August 2013.

Taxes on income for interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

 

Going concern

The Group has $757.9 million of banking facilities of which $265.3 million were undrawn as at 30 June 2013. Of the undrawn facilities, $125.6 million was committed. These facilities are well diversified across the operating subsidiaries of the Group with a number of financial institutions.

 

About 50% of the Group's short-term and undrawn long-term facilities are of a committed nature.

We continue to expect the short-term facilities to be renewed upon maturity. In addition the Group maintained cash and cash equivalent of $119 million as at 30 June 2013. The Group's forecasts, taking into account reasonable possible changes in trading performance, facility renewal sensitivities and maturities of long-term debt, show that the Group should be able to operate within the levels of its facilities.

Although the current economic conditions may affect short-term demand for our products, as well as placing pressure on customers and suppliers which may face liquidity issues, the Group's geographic spread, product diversity, large customer and supplier base substantially mitigate these risks.

In addition, the Group operates in the relatively defensive generic pharmaceuticals industry which we expect to be less affected compared to other industries that are subject to greater cyclical changes.

After making enquiries, the Directors believe that the Group is adequately placed to manage its business and financing risks successfully despite the current uncertain economic outlook. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly set of condensed financial statement.

 

Changes in accounting policies

 


The same accounting policies, presentation and method of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements.

 

           Adoption of new and revised standards

 

The following new and revised Standards and Interpretations have been adopted in the current year. Their adoption has not had any significant impact on the amounts reported in these financial statements but, with the exception of the amendment to IFRS 1 and IFRIC 20, may impact the accounting for future transactions and arrangements

 

IAS 1 - Amendments

Presentation of Items of Other Comprehensive Income

IFRS 13 - Fair Value measurement

New fair value disclosures required for financial instruments, including certain IFRS 7 disclosures

Annual Improvements 2009-2011 cycle

Minor amendments for IAS 1 changes on minimum comparative information. Also clarified a measure of segment assets and liabilities is only required if such amounts are regularly provided to the chief operating decision maker

Amendment to IFRS 1

Severe Hyper inflation and Removal of fixed Dates for First-time Adopters

Amendment to IAS 12

Deferred tax: Recovery of underlying Assets

Amendment to IFRS 1

Government loans

Amendment to IFRS 7 - Disclosures

Offsetting of Financial Assets and Financial Liabilities

IAS 19 (revised 2011) 

Employee benefits

IFRIC 20

Stripping Costs in the Production Phase of  a Surface Mine

 

 

At the date of authorisation of these financial statements, the following Standards and Interpretations                    which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

 

        

Amendments to IFRS 10, IFRS 12, and IAS 27 - Investment Entities

Added disclosure requirements for entities becoming, or ceasing to be, investment entities, as defined in IFRS 10.

IFRS 10

Consolidated Financial Statements

IFRS 11

Joint Arrangements

IFRS 12

Disclosure of Interests in Other Entities

IAS 27 (revised 2011) 

Separate Financial Statements

IAS 28 (revised 2011)

Investment in Associates and Joint Ventures

Amendments to IAS 32

Offsetting Financial Assets and Financial Liabilities

 

 

The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group in future periods.

  

3.      Business and geographical segments

For management purposes, the Group is currently organised into three operating divisions - Branded, Injectables and Generics. These divisions represent the Group's reportable segments under IFRS 8 and are the basis on which the Group reports its primary segment information.

Segment information about these businesses is presented below.

 

Six months ended











30 June 2013 (Unaudited)













Branded


Injectables


Generics


Others


Group



$000


$000


$000


$000


$000

Revenue


  256,825


     246,579


   131,959


       2,937


   638,300

Cost of sales


(127,010)


  (121,985)


  (32,594)


    (3,423)


(285,012)

Gross profit


   129,815


     124,594


     99,365


       (486)


   353,288

Adjusted segment result


     58,140


       70,625


     82,190


    (2,901)


   208,054

Exceptional items :











 - Severance costs


       (464)


                 -  


               -  


               -  


       (464)

 - Plant remediation costs


               -  


                 -  


  (18,980)


               -  


  (18,980)

 - Impairment losses


    (1,500)


       (2,800)


    (3,500)


               -  


    (7,800)

 - Other claims provisions


               -  


                 -  


  (10,300)


               -  


  (10,300)

Intangible amortisation*


    (4,827)


      (2,261)


         (18)


               -  


    (7,106)

Segment result


    51,349


      65,564


     49,392


    (2,901)


   163,404












Adjusted Unallocated corporate expenses








  (18,956)

Exceptional items :











 - Acquisition related expenses










       (429)

Unallocated corporate expenses










  (19,385)

Adjusted operating profit










189,098

Operating profit










   144,019

Share of results of associated companies








  (80)

Impairment of investment in associates








(15,000)

Finance income










          619

Finance expense










  (17,590)

Other expenses (net)










       (382)

Profit before tax










   111,586

Tax










  (35,123)

Profit for the period










     76,463

Attributable to:











Non-controlling interest










       2,881

Equity holders of the parent










     73,582











     76,463

Segment result is defined as operating profit for each segment.

*Intangible amortisation comprises the amortisation of intangible assets other than software.

 

"Others" mainly comprise Arab Medical Containers Ltd, International Pharmaceutical Research Center Ltd and the chemicals division of Hikma Pharmaceuticals Ltd (Jordan).

Unallocated corporate expenses are primarily made up of employee costs, professional fees and travel expenses.

 

 

Segment assets and liabilities











30 June 2013 (Unaudited)













Branded


Injectables


Generics


Corporate and Others


Group



$000


$000


$000


$000


$000

Additions to property, plant and equipment (cost)


     12,409


       11,441


       1,550


           240


     25,640

Acquisition of subsidaries' property, plant and equipment (net book value)


       6,334


                -  


               -  


                -  


       6,334

Additions to intangible assets (cost)

       1,218


         3,650


          470


           117


       5,455

Intangible assets arising on acquisition


     18,925


                -  


               -  


                -  


     18,925

Total property, plant and equipment and intangible assets (net book value)


   509,769


     292,693


     50,273


        6,438


   859,173

Depreciation


     10,536


         6,651


       3,684


           684


     21,556

Amortisation and Impairment (including software)


       5,268


         6,534


       3,620


           137


     15,558

Interest in associated companies


                -  


                -  


               -  


      23,257


     23,257

Balance sheet











Total assets


1,050,544


     492,585


   142,474


     47,197


1,732,800

Total liabilities


   554,427


     174,476


     50,914


     55,094


   834,911

 

 

Six months ended











30 June 2012 (Unaudited)
























Branded


Injectables


Generics


Others


Group



$000


$000


$000


$000


$000

Revenue


   248,821


     225,215


     55,768


       2,456


   532,260

Cost of sales


(128,691)


  (127,035)


  (40,560)


    (1,894)


(298,180)

Gross profit


   120,130


       98,180


     15,208


          562


   234,080

Adjusted segment result


     52,554


       51,211


    (3,291)


    (2,042)


     98,432

Exceptional items :











 - Integration related expenses*


       (601)


       (1,675)


           -


           -


    (2,276)

Intangible amortisation**


    (4,521)


       (1,846)


(18)


           -


    (6,385)

Segment result


     47,432


       47,690


    (3,309)


    (2,042)


     89,771












Unallocated corporate expenses









   

  (14,702)

Adjusted Operating Profit










     83,730

Operating profit










     75,069

Share of results of associated companies








         (50)

Finance income










          355

Finance expense










  (17,039)

Other expenses (net)










       (491)

Profit before tax










    57,844

Tax










  (14,976)

Profit for the period










     42,868

Attributable to:











Non-controlling interest










       2,468

Equity holders of the parent










     40,400











     42,868

 

 

Segment result is defined as operating profit for each segment.

 

*See note 4

 **Intangible amortisation comprises the amortisation of intangible assets other than software.

 

"Others" mainly comprise Arab Medical Containers Ltd, International Pharmaceutical Research Center Ltd and the chemicals division of Hikma Pharmaceuticals Ltd (Jordan).

Unallocated corporate expenses are primarily made up of employee costs, office costs, professional fees, and travel expenses.

 

 

30 June 2012 (Unaudited)













Branded


Injectables


Generics


Corporate and Others


Group



$000


$000


$000


$000


$000

Additions to property, plant and equipment (cost)


     14,636


         9,198


       2,045


           197


     26,076

Additions to intangible assets (cost)


       1,972


       24,404


       4,762


                -  


     31,138

Total property, plant and equipment and intangible assets (net book value)


   513,725


     267,755


     51,023


        7,591


   840,094

Depreciation


     11,351


         5,905


       3,438


           391


     21,085

Amortisation (including software)


       5,071


         2,290


          162


             92


       7,615

Interest in associated companies


               -  


                -  


              -  


      37,395


     37,395

Balance sheet











Total assets


1,013,755


     402,575


   189,657


      57,369


1,663,356

Total liabilities


   567,572


     233,649


     28,450


      46,155


   875,826

 

 

 

           











31 December 2012 (Audited)













Branded


Injectables


Generics


Others


Group



$000


$000


$000


$000


$000

Revenue


   528,854


     470,030


   103,679


       6,158


  1,108,721

Cost of sales


(271,508)


   (251,302)


  (80,339)


    (4,454)


  (607,603)

Gross profit


   257,346


     218,728


     23,340


       1,704


     501,118

Adjusted segment result


   123,634


     122,952


  (13,511)


    (3,338)


     229,737

Exceptional items :











 - Integration related expenses


       (701)


       (2,430)


             -


             -


      (3,131)

- Severance expenses


    (2,527)


       (1,380)


       (562)


             -


      (4,469)

 - Plant remediation costs


             -


              -


    (6,787)


             -


(6,787)

Intangible amortisation*


    (9,029)


       (3,614)


         (31)


             -


    (12,674)

Segment result


   111,377


     115,528


  (20,891)


    (3,338)


     202,676












Unallocated corporate expenses










    (35,902)

Adjusted operating profit










193,835

Operating profit










     166,774

Share of results of associated companies








            892

Finance income










         1,266

Finance expense










    (35,717)

Other expenses (net)










      (1,174)

Profit before tax










     132,041

Tax










    (24,826)

Profit for the period










     107,215

Attributable to:











Non-controlling interest










         6,895

Equity holders of the parent










     100,320











     107,215

 

 

 

Segment result is defined as operating profit for each segment.

 

 

*Intangible amortisation comprises the amortisation of intangible assets other than software.

 

"Others" mainly comprise Arab Medical Containers Ltd, International Pharmaceutical Research Center Ltd and the chemicals division of Hikma Pharmaceuticals Ltd (Jordan).

Unallocated corporate expenses are primarily made up of employee costs, office costs, professional fees, donations, and travel expenses.

 

 

 



Branded


Injectables


Generics


Corporate and Others


Group



$000


$000


$000


$000


$000

Additions to property, plant and equipment (cost)


     26,071


       16,916


       5,193


        1,661


     49,841

Additions to intangible assets


       1,886


       35,738


       7,056


                -  


     44,680

Total property, plant and equipment and intangible assets (net book value)


   503,858


     281,588


     61,129


        6,417


   852,992

Depreciation


     21,120


       12,944


       6,710


        1,585


     42,359

Amortisation (including software)


      9,937


         5,750


          160


          185


     16,032

Interest in associated companies


               -  


                -  


               -  


      38,337


     38,337

Balance sheet











Total assets


1,050,373


     481,001


   135,214


      63,524


1,730,112

Total liabilities


   574,526


     252,054


       5,751


      49,931


   882,262

 

 

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

 








H1 2013


H1 2012


FY 2012


$000


$000


$000


(Unaudited)


(Unaudited)


(Audited)

Middle East and North Africa

        293,145


       297,992


       619,185

United States

        297,334


       192,363


       399,877

Europe and Rest of the World

          44,866


         38,425


         80,992

United Kingdom

            2,955


           3,480


           8,667


        638,300


       532,260


    1,108,721

 

 

 

       

Included in revenues arising from the Generics and Injectables segments are revenues of approximately $82,144,000 which arose from the Group's largest customer which is located in the US. In prior periods the Group's largest customer was located in Saudi Arabia and the Branded and Injectables segments included revenue arising from this customer of $54,365,000 and $103,971,000 for the periods ended 30 June 2012 and 31 December 2012, respectively. 

 

 

4.      Exceptional items and intangible amortisation

 

Exceptional items are defined as those items that are material in nature or amount and are non-recurring; those are disclosed separately in the condensed consolidated income statement to assist in the understanding of the Group's underlying performance.










H1 2013


H1 2012


FY 2012



$000


$000


$000

Acquisition and integration related expenses*


      (429)


   (2,276)


    (3,131)

 

Other Costs:







Severance expenses


      (464)


             -  


    (4,469)

Plant remediation costs


 (18,980)


             -  


    (6,787)

Impairment losses


   (7,800)


             -  


               -  

Other claims provisions


 (10,300)


             -  


               -  

Exceptional items including in operating profit


(37,973)


(2,276)


(14,387)

 

Impairment of investment in associates


(15,000)


-


-

Exceptional items


 (52,973)


   (2,276)            


  (14,387)

Intangible amortisation**


   (7,106)


   (6,385)


  (12,674)

Exceptional items and intangible amortisation


 (60,079)


   (8,661)


  (27,061)

Tax effect


    12,438


      1,931


       6,852

Impact on profit for the period/ year


 (47,641)


   (6,730)


  (20,209)

 

* H1 2012 exceptional figures have been represented to conform with the FY2012 and H1 2013 presentation.

**Intangible amortisation comprises the amortisation of intangible assets other than software.

Acquisition and integration related expenses

During the period, the Group incurred $429,000 in acquisition costs related to the acquisition of the Egyptian Company for Pharmaceuticals & Chemical Industries "EPCI" (see note 15).

In previous periods, acquisition and integration-related expenses were costs incurred in the integration of MSI, Promopharm, and Savanna.

Acquisition-related expenses are included in the unallocated corporate expenses while integration-related expenses are included in segment results. Acquisition-related expenses mainly comprise third party consulting services, legal and professional fees.

Acquisition cost of $429,000 (H1 2012: $1,519,000 and FY 2012: $1,519,000) have been classified as investing activities in the cash flow statement relating to the cash outflow in respect of these costs in the period.

Other costs

Severance expenses related to restructuring of management teams across all three operating regions.

Plant remediation costs represent costs incurred for compliance work at our Eatontown facility in response to observations made by the US FDA.

Impairment losses are related to the write off of intangible product rights, in addition to the write off of certain property, plant and equipment. Impairment of intangible assets is included in research and development expenses and impairment of fixed assets is included in other operating expenses.

Other claims provisions relate to the Group's best estimate of the ultimate settlement amount of claims outstanding in the current period and is included in other operating expenses.

 

Impairment of investment in associates

During 2011, Hikma acquired a minority interest in Unimark Remedies Limited ("Unimark") in India for a cash consideration of $33.6 million. Unimark manufactures active pharmaceutical ingredients ("API") and API intermediates. Unimark has been impacted by a decline in prices in its API manufacturing business and is in the process of restructuring its corporate debt. During the period, we incurred an impairment charge of $15 million in respect of our investment. We believe that Unimark will be able to successfully manage its current issues and we continue to collaborate with Unimark in the development of a portfolio of products for the US market.

 

5.     Tax                                                                                                                                                                  



H1 2013


H1 2012


FY 2012



$000


$000


$000



(Unaudited)


(Unaudited)


(Audited)

Current tax:







    Foreign tax


         40,350


         14,969


      30,535

    Prior year adjustments


         (1,129)


              397


        4,703

Deferred tax


         (4,098)


            (390)


    (10,412)



         35,123


         14,976


      24,826

 

Tax for the six month period is charged at 31.5% (H1 2012: 25.9%; FY 2012: 18.8%).

 

The application of tax law and practice is subject to some uncertainty and amounts are provided in respect of this. Issues are raised during the course of regular tax audits and, although the outcome of open items cannot be predicted, no material adverse impact on results is expected from such issues.

 

 

6.      Dividends                                                                                                                                                              

          


H1 2013


H1 2012


FY 2012



$000


$000




(Unaudited)


(Unaudited)


(Audited)

Amounts recognised as distributions to equity holders in the period:







Final dividend for the year ended 31 December 2012 of 10.0 cents (2011: 7.5 cents) per share


        19,716


       14,746


   14,746

Interim dividend for the year ended 31 December 2012 of 6.0 cents per share


                -  


                -  


   11,804



        19,716


       14,746


   26,550

  

The proposed interim dividend for the period ended 30 June 2013 is 7.0 cents (30 June 2012: 6.0 cents) per share plus a special dividend of 3.0 cents per share that reflects the exceptional performance of the Generics business. 

Based on the number of shares in issue at 30 June 2013 (197,696,000), the unrecognised liability is $19,770,000.                                                                                                                                      

 

7.       Earnings per share

Earnings per share is calculated by dividing the profit attributable to equity holders of the parent by the weighted average number of ordinary shares. The number of ordinary shares used for the basic and diluted calculations are shown in the table below. Adjusted basic earnings per share and adjusted diluted earnings per share are intended to highlight the adjusted results of the Group before exceptional items and intangible amortisation*. A reconciliation of the basic and adjusted earnings used is also set out below:










H1 2013


H1 2012*


FY 2012



$000


$000


$000



(Unaudited)


(Unaudited)


(Audited)

Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent


         73,582


        40,400


     100,320

Exceptional items*


        52,973


           2,276


       14,387

Intangible amortisation**


           7,106


           6,385


       12,674

Tax effect of adjustments


       (12,438)


         (1,931)


      (6,852)

Adjusted earnings for the purposes of adjusted basic and diluted earnings per share being adjusted net profit attributable to equity holders of the parent


       121,223


         47,130


     120,529



Number


Number


Number

Number of shares:


'000


'000


'000

Weighted average number of Ordinary Shares for the purposes of basic earnings per share


       196,943


       195,954


     196,348

Effect of dilutive potential Ordinary Shares :







Share-based awards


           2,157


           1,819


         1,951

Weighted average number of Ordinary Shares for the purposes of diluted earnings per share


       199,100


       197,773


     198,299



H1 2013


H1 2012


FY 2012



 Earnings per share


Earnings per share


Earnings per share



Cents


Cents


Cents

Basic


             37.4


             20.6


           51.1

Diluted


             37.0


             20.4


           50.6

Adjusted basic


             61.6


             24.1


           61.4

Adjusted diluted


             60.9


             23.8


           60.8

 

* See note 4

** Intangible amortisation comprises the amortisation of intangible assets other than software.

 

8.      Interests in associated companies

 



For the period ended 30 June 2013


For the period ended 30 June 2012


For the year ended 31 December 2012



$000


$000


$000

Balance at beginning of period/year


         38,337


         37,445


             37,445

Share of (loss)/income of associates


             (80)


             (50)


                  892

Impairment


      (15,000)


                  -  


                       -  

Balance at end of period/year


         23,257


         37,395


             38,337

 

9.      Inventories



30 June
2013


30 June
2012


31 December
2012



$000


$000


$000



(Unaudited)


(Unaudited)


(Audited)

Finished goods


         79,435


         84,129


               87,663

Work-in-progress


         35,979


         41,097


               30,011

Raw and packing materials


       139,262


       130,952


             135,571

Goods in transit


         18,311


         15,684


               18,986



       272,987


       271,862


             272,231

 

Goods in transit include inventory held at third parties whilst in transit between Group companies.

 

10.      Trade and other receivables


30 June
2013


30 June
2012


31 December
2012


$000


$000


$000


(Unaudited)


(Unaudited)


(Audited)

Trade receivables

       337,656


       314,999


                     294,048

Prepayments

         39,053


         19,984


                       22,758

Value added tax recoverable

           8,847


           5,968


                         8,439

Interest receivable

              658


              433


                            579

Employee advances

           3,265


           2,565


                         2,323


       389,479


       343,949


                     328,147

 

 

 

11.      Trade and other payables


30 June
2013


30 June
2012


31 December
2012


$000


$000


$000


(Unaudited)


(Unaudited)


(Audited)

Trade payables

       101,376


       108,626


              110,600

Accrued expenses

         78,980


         52,176


                69,734

Employees' provident fund *

           4,954


           4,779


                  5,863

VAT and sales tax payables

           1,039


           1,291


                     560

Dividends payable **

           2,971


           2,525


                  2,074

Social security withholdings

           2,109


           1,587


                  1,709

Income tax withholdings

           2,833


           2,492


                  2,862

Other payables

           1,862


           1,738


                  1,403


       196,124


       175,214


              194,805

 

 

* The employees' provident fund liability represents mainly outstanding contributions to the Hikma Pharmaceuticals Ltd (Jordan) retirement benefit plan, on which the fund receives 5% interest.

 

** Dividends payable includes $1,863,000 (30 June 2012: $2,009,000 and 31 December 2012: $1,889,000) due to the previous shareholders of Arab Pharmaceutical Manufacturing Company.

 

 12.      Long-term financial debts


30 June
2013


30 June
2012


31 December
2012


$000


$000


$000


(Unaudited)


(Unaudited)


(Audited)

Long-term loans

       355,203


       474,978


             460,997

Less: current portion of loans

       (67,228)


       (81,136)


             (88,509)

Long-term financial loans

       287,975


       393,842


             372,488

 

Breakdown by maturity:






Within one year

         67,228


         81,136


               88,509

In the second year

         60,782


         80,976


               79,794

In the third year

         60,055


         75,569


               79,513

In the fourth year

         57,981


         83,127


               77,923

In the fifth year

         38,636


         53,369


               47,644

Thereafter

         70,521


       100,801


               87,614


       355,203


       474,978


             460,997

 

13.   Net cash from operating activities

 


Note


H1
2013


H1
2012


FY
2012




$000 (Unaudited)


$000 (Unaudited)


$000 (Audited)

Profit before tax



        111,586


         57,844


      132,041

       Adjustments for:








       Depreciation, amortisation and impairment of:








                 Property, plant and equipment



          21,556


         21,085


        42,359

                 Intangible assets



          15,558


           7,615


        16,032

Loss on disposal of property, plant and equipment



                   6


                93


             349

Loss on disposal of intangible assets



                    -  


                38


               67

Movement on provisions



            1,238


           1,109


          1,266

Movement on deferred income



               (36)


              (37)


            (62)

Cost of equity-settled employee share schemes



            3,981


           3,675


          7,961

Payments of costs directly attributable to acquisitions

4


               429


           1,519


          1,519

Finance income



             (619)


            (348)


       (1,266)

Interest and bank charges



          17,590


         17,033


        35,717

Results from associates



           80


                50


          (892)

Impairment of associates



15,000


-


-

Cash flow before working capital



        186,369


       109,676


      235,091

Change in trade and other receivables



        (63,375)


       (30,799)


     (20,759)

Change in other current assets



               351


           2,610


          2,259

Change in inventories



          (2,049)


       (47,751)


     (42,305)

Change in trade and other payables



            4,949


         11,164


        21,914

Change in other current liabilities



          41,824


         16,427


        10,429

Cash generated by operations



       168,069


         61,327


      206,629

       Income tax paid



        (32,049)


       (14,256)


     (24,468)

Net cash generated from operating activities



        136,020


         47,071


      182,161

 

                    

14.     Related party balances

Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associate and other related parties are disclosed below.

Trading transactions:

During the period, Group companies entered into the following transactions with related parties:

Darhold Limited: is a related party of the Group because it is one of the major shareholders of Hikma Pharmaceuticals PLC with an ownership percentage of 28.9% at 30 June 2013 (30 June 2012: 29.0% and 31 December 2012: 29.0%).

Other than dividends (as paid to all shareholders), there were no transactions between the Group and Darhold Limited during the period.

Capital Bank - Jordan: is a related party of the Group because two board members of the Bank were also board members of Hikma Pharmaceuticals PLC. Total cash balances at Capital Bank - Jordan were $2,037,000 (30 June 2012: $2,991,000 and 31 December 2012: $2,977,000). Loans and overdrafts from the Capital Bank to the Group outstanding at 30 June 2013 amounted to $3,433,000 (30 June 2012: $8,448,000 and 31 December 2012: $Nil). Interest income and expense are within market rates.

Jordan International Insurance Company: is a related party of the Group because one board member of the insurance company is also a board member of Hikma Pharmaceuticals PLC. Total insurance premiums paid by the Group to Jordan International Insurance Company during the period were $257,000 (H1 2012: $1,797,000 and FY 2012: $3,423,000). The Group's insurance expense for Jordan International Insurance Company contracts in the period was $187,000 (H1 2012: $2,715,000 and FY 2012: $2,806,000). The amounts due to Jordan International Insurance Company at 30 June 2013 were $20,000 (30 June 2012: $577,000 and 31 December 2012: $154,000).

Mr. Yousef Abd Ali: is a related party of the Group because he holds a non-controlling interest in Hikma Leban SARL in Lebanon of 33%. The amount owed to Mr. Yousef by the Group as at 30 June 2013 was $150,000 (30 June 2012: $150,000 and 31 December 2012: $150,000).

Labatec Pharma SA: is a related party of the Group because it is owned by Mr. Samih Darwazah. During the period the Group total sales to Labatec Pharma amounted to $171,000 (H1 2012: $215,000 and FY 2012: $282,000) and the Group total purchases from Labatec Pharma amounted to $Nil (H1 2012: $1,396,000 and FY 2012: $1,179,000). At 30 June 2013 the amount owed from Labatec Pharma to the Group was $365,000 (30 June 2012: owed from the Group $892,000 and 31 December 2012: owed to the Group $211,000).

King and Spalding: is a related party of the Group because a partner of the firm is a board member and company secretary of West-Ward. King and Spalding is an outside legal counsel firm that handles general legal matters for West-Ward. During the period fees of $5,000 (H1 2012: $45,000 and FY 2012: $45,000) were paid for legal services provided.

Jordan Resources & Investments Company: is a related party of the Group because three board members of Hikma Pharmaceuticals PLC are shareholders in the firm. During the period fees of $88,000 were paid for training services provided (H1 2012: $Nil and FY 2012: $151,000).

American University of Beirut: is a related party of the Group because one board member of Hikma Pharmaceuticals PLC is also a trustee of the University. During the period fees of $96,000 (H1 2012: $36,000 and FY 2012: $125,000) were paid for training services provided. At 30 June 2013 the amount owed from American University of Beirut to the Group was $7,000 (30 June 2012 and 31 December 2012: $Nil).

Arab Bank: is a related party of the Group because during the period one member of Hikma Pharmaceuticals PLC's Senior Management has become a board member of the Arab bank. Total cash balances at the Arab Bank were $34,711,000 (30 June 2012: $18,169,000 and 31 December 2012: $75,681,000). Loans and overdrafts from the Arab Bank to the Group outstanding at 30 June 2013 amounted to $179,165,000 (30 June 2012: $175,029,000 and 31 December 2012: $187,081,000). Interest income and expense are within market rates.

 

15.    Acquisition of a subsidiary

On 22 January 2013, Hikma acquired 100% of the Egyptian Company for Pharmaceuticals & Chemical Industries ("EPCI"). Hikma paid cash consideration of $18,500,000 and deferred consideration of $2,000,000. The main purpose of the acquisition was to strengthen Hikma's position in the large and fast growing Egyptian market.

The fair value of assets acquired included: property plant and equipment of $6,334,000, intangible assets of $9,655,000, and goodwill of $9,270,000 and other net assets and liabilities of ($4,759,000).

The goodwill arising represents the synergies that will be obtained by integrating EPCI into the existing business.

The Group's condensed consolidated income statement includes related acquisition costs amounting to $429,000 recorded within general and administrative expenses.

The impact of this acquisition on the Group's revenues and profits is immaterial.

            

16.      Foreign exchange rates


Period end rates


Average rates


30 June 2013


30 June 2012


31 December 2012


H1 2013


H1 2012


FY

2012

USD/EUR

0.7685


0.7950


0.7565


0.7614


0.7704


0.7775

USD/Sudanese Pound

5.5785


5.3135


5.9988


5.6544


2.9727


4.3346

USD/Algerian Dinar

80.0232


78.8770


78.0915


78.4885


75.4000


77.5551

USD/Saudi Riyal

3.7495


3.7495


3.7495


3.7495


3.7495


3.7495

USD/British Pound

0.6572


0.6403


0.6185


0.6473


0.6340


0.6309

USD/Jordanian Dinar

0.7090


0.7090


0.7090


0.7090


0.7090


0.7090

USD/Egyptian Pound

7.0294


6.0790


6.3654


6.8311


6.0533


6.0864

USD/Japanese Yen

99.1710


79.5406


85.9013


95.5219


79.7230


79.8155

USD/Moroccan Dirham

8.5614


8.7514


8.4838


8.8315


8.8542


8.6458

USD/Tunisian Dinar

1.6548


1.5865


1.5506


1.5949


1.5375


1.5686

 

 

Principal risks and uncertainties

The Group's business faces risks and uncertainties which could have a significant effect on its financial condition, results of operation or future performance and could cause actual results to differ materially from expected and historical results.

 

Operational risks

Risk

Potential impact

Mitigation

Compliance with regulatory requirements

>      Failure to comply with applicable regulatory requirements and manufacturing standards (often referred to as 'Current Good Manufacturing Practices' or cGMP)

>      Delays in supply or an inability to market or develop the Group's products

>      Delayed or denied approvals for the introduction of new products

>      Product complaints or recalls

>      Bans on product sales or importation

>      Disruptions to operations

>      Plant closure

>      Potential for litigation

 

>      Commitment to maintain the highest levels of quality across all manufacturing facilities

>      Strong global compliance function that oversees compliance across the Group

>      Remuneration and reward structure that helps retain experienced personnel

>      Continuous staff training and know-how exchange

>      On-going development of standard operating procedures

Regulation changes

>      Unanticipated legislative and regulatory actions, developments and changes affecting the Group's operations and products

>      Restrictions on the sale of one or more of our products 

>      Restrictions on our ability to sell our products at a profit

>      Unexpected additional costs required to produce, market or sell our products

>      Increased compliance costs

 

>      Strong oversight of local regulatory environments to help anticipate potential changes

>      Local operations in all of our key markets

>      Representation and/or affiliation with local industry bodies

>      Diverse geographical and therapeutic business model

Commercialisation of new products

>      Delays in the receipt of marketing approvals, the authorisation of price and re-imbursement

>      Lack of approval and acceptance  of new products by physicians, patients and other key decision-makers

>      Inability to confirm safety, efficacy, convenience and/or  cost-effectiveness of our products as compared to competitive products

>      Inability to participate in tender sales

>      Slowdown in revenue growth from new products

>      Inability to deliver a positive return on investments in R&D, manufacturing and sales and marketing

 

>      Experienced regulatory teams able to accelerate submission  processes across all of our markets

>      Highly qualified sales and marketing teams across all markets

>      A diversified product pipeline with 379 compounds pending approval, covering a broad range of therapeutic areas

>      A systematic commitment to quality that helps to secure approval and acceptance of new products and mitigate potential safety issues

Product safety

>      Unforeseen product safety issues for marketed products, particularly in respect of in-licensed products

>      Interruptions to revenue flow

>      Costs of recall, potential for litigation

>      Reputational damage

>      Diversification of product portfolio across key markets and therapies

>      Working with stakeholders to understand issues as they arise

>      Strong quality, compliance and pharmacovigilance teams capable of addressing issues and providing solutions

Product development

>      Failure to secure new products or compounds for development

>      Inability to grow sales and increase profitability for the Group

>      Lower return on investment in research and development

 

>      Experienced and successful in-house R&D team, with specifically targeted product development pathways

>      Continually developing  and multi-faceted approach to new product development

>      Strong business development team

>      Track record of building in-licensed brands

>      Position as licensee of choice for our key MENA geography

Co-operation with Third parties

>      Inability to renew or extend in-licensing or other co-operation  agreements  with third parties

>      Loss of products from our portfolio

>      Revenue interruptions

>      Failure to recoup sales and marketing and business development costs

 

 

>      Investment in long-term relationships with existing in-licensing partners

>      Experienced legal team capable of negotiating robust agreements with our partners

>      Continuous development of new partners for licensing and co-operation

>      Diverse revenue model with in-house R&D capabilities

Integration of acquisitions

>      Difficulties in integrating any technologies, products or businesses acquired

>      Inability to obtain the advantages that the acquisitions were intended to create

>      Adverse impact on our business, financial condition and results of operations

>      Significant transaction and integration costs could adversely impact our financial results

>      Extensive due diligence undertaken as part of any acquisition process

>      Track record of acquisitions and subsequent business integration

>      Human resources personnel focussed on managing employee integration following acquisitions

>      Close monitoring of acquisition and integration costs

Increased competition

>      New market entrants in key geographies

>      On-going pricing pressure in increasingly commoditised markets

 

>      Loss of market share

>      Decreasing revenues on established portfolio

 

>      On-going portfolio diversification, differentiation and renewal through internal R&D, in-licensing and product acquisition

>      Continuing focus on expansion of geographies and therapeutic areas

Disruptions in the manufacturing supply chain

>      Inability to procure active ingredients from approved sources

>      Inability to procure active ingredients on commercially viable terms

>      Inability to procure the quantities of active ingredients  needed to meet market requirements

>      Inability to develop and/or commercialise new products

>      Inability to market existing products as planned

>      Lost  revenue streams on short notice

>      Reduced service levels and damage to customer relationships

>      Inability to supply finished product to our customers in a timely fashion

 

 

>      Alternate approved suppliers of  active ingredients

>      Long-term relationships with reliable raw material suppliers

>      Corporate auditing team continuously monitors regulatory compliance of API suppliers

>      Focus on improving service levels and optimising our supply chain

Economic and political and unforeseen events

>      The failure of control, a change in the economic conditions (including the Middle East, North Africa and the Eurozone), political environment or sustained civil unrest in any particular market or country

>      Unforeseen events such as fire or flooding could cause disruptions to manufacturing or supply

>      Disruptions to manufacturing and marketing plans

>      Lost revenue streams

>      Inability to market or supply products

>      Geographic diversification, with 26 manufacturing facilities and sales in more than 40 countries

>      Product diversification, with 685 products and 1,626 dosage strengths and forms

>      Strong track record in crisis management

 

Litigation

>      Commercial, product liability and other claims brought against a company within the Group or the Group as a whole

>      Financial impact on Group results from adverse resolution of proceedings

>      Reputational damage

>      In-house legal counsel with relevant jurisdictional experience

 

 

Financial risks

Risk

Impact

Mitigation

Foreign exchange risk

>      Exposure to foreign exchange movements, primarily in the European, Algerian, Sudanese and Egyptian currencies

>      Fluctuations in the Group's net asset values and financial results upon translation into US dollars

>      Entering into currency derivative contracts where possible

>      Foreign currency borrowing

>      Matching foreign currency revenues to in-jurisdiction costs 

Interest rate risk

>      Volatility in interest rates

>      Fluctuating impact on profits before taxation

>      Optimisation of fixed and variable rate debt as a proportion of our total debt

>      Use of interest rate swap agreements

Credit Risk

>      Inability to recover trade receivables

>      Concentration of significant trade balances with key customers in the MENA region and the US

 

>      Reduced working capital funds

>      Risk of bad debt or default

>      Clear credit terms for settlement of sales invoices

>      Group Credit policy limiting credit exposures

>      Use of various financial instruments such as letters of credit, factoring and credit insurance arrangements

Liquidity Risk

>      Insufficient free cash flow and borrowings headroom

>      Reduced liquidity and working capital funds

>      Inability to meet short-term working capital needs and, therefore, to execute our long term strategic plans

>      Continual evaluation of headroom and borrowing

>      Committed debt facilities

>      Diversity of institution, subsidiary and geography of borrowings

 

Tax

>      Changes to tax laws and regulations in any of the markets in which we operate

>      Negative impact on the Group's effective tax rate

>      Costly compliance requirements

>      Close observation of any intended or proposed changes to tax rules, both in the UK and in other key countries where the Group operates

>      Specialised department that structures compliant, tax effective solutions

 

 



[1] Before the amortisation of intangible assets (excluding software) and exceptional items, as set out in note 4 to the condensed set of financial statements

[2] Adjusted profit and adjusted profit attributable to shareholders in H1 2012 have been re-classified to reflect the classification of certain exceptional items on a consistent basis with the treatment in H1 2013, as set out in note 4 to the condensed set of financial statements

[3] Earnings before interest, tax, depreciation and amortisation.  EBITDA is stated before impairment charges and share of results from associated companies

[4] Remediation costs of $19.0 million include inventory write-downs, failure to supply penalties and consulting services. Other one-off costs of $13.8 million include impairment losses and other claims provisions as set out in note 4 of the condensed set of financial statements.

[5] In H1 2013, amortisation of intangible assets (excluding software) was $7.1 million compared with $6.4 million in H1 2012.  In H1 2013, exceptional items included within operating expenses were $38.0 million compared with $2.3 million in H1 2012

[6] Products are defined as pharmaceutical compounds sold by the Group.  New compounds are defined as pharmaceutical compounds not yet launched by the Group and existing compounds being introduced into a new segment

[7] Totals include 123 dermatological and cosmetic compounds in 401 dosage forms and strengths that are only sold in Morocco

[8] Totals include all compounds and formulations that are either launched or approved or pending approval across all markets, as relevant


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
QRFBBLLLXVFLBBE
UK 100

Latest directors dealings