Better health.
Within reach.
Every day.
© Hikma Pharmaceuticals PLC
Annual Report 2020
Welcome to our 2020 Annual Report
Our performance
Hikma puts
better health
within reach,
every day.
By creating high-quality
products and making them
accessible to those who need
them we are helping to shape
a healthier world that enriches
all our communities.
Investment case
Strategic report
2 What we do
Executive Chairman’s statement
4
6 Chief Executive Officer’s statement
9
10 Our response to COVID-19
12 Our strategy
14 Our progress
16 Our markets
18 Our business model
20 Stakeholder engagement
Business and financial review
26 Group overview
28
Injectables
30 Generics
32 Branded
34 Group performance
Sustainability
38 Sustainability
Risk management
52 Risk management
60 Compliance
Corporate governance
63 Message from our Executive Chairman
64 Corporate governance at a glance
66 Board of Directors
68 Executive Committee
70 Governance report
74 Committee reports
90 Remuneration report
105 Directors’ report
Financial statements
110 Independent auditors’ report
118 Consolidated financial statements
123 Notes to the consolidated
financial statements
171 Company financial statements
173 Notes to the Company
financial statements
Shareholder information
179 Shareholder information
180 Principal Group Companies
and Advisers
4 Executive Chairman’s
statement
We are delivering results and investing
in the future to drive sustainable
long-term growth and create value
for stakeholders.
26 Business and
financial review
Achieved strong organic growth
over our three business segments.
6 Chief Executive
Officer’s statement
The resilience and commitment
of our people in a challenging year
enabled us to maintain supply
of vital medicines for patients.
Deliver
Better health.
Within reach.
Every day.
B
u
i
l
d
Inspire
12 Our strategy
Our purpose is to make healthcare
more accessible by delivering on
our three strategic priorities.
38 Sustainability
We have a duty of care towards
patients, communities, our people
and the environment.
62 Corporate
governance
The Board has continued to deliver
strong governance and strategic
oversight in a challenging
environment.
Revenue
($m)
$2,341m
+6%
Core1 operating profit
($m)
$566m
+11%
Operating profit
($m)
$579m
+17%
EBITDA2
($m)
$670m
+13%
Profit to shareholders
($m)
Basic earnings per share
(cents)
$431m
(11)%
182.6c
(9)%
Core basic earnings per share3
(cents)
Dividend per share
(cents)
172.9c
+15%
50c
+14%
1. Core results are presented to show the underlying performance of the Group, excluding the exceptional
items and other adjustments set out in Note 6 in the Notes to the consolidated financial statements.
A reconciliation from core to reported operating profit is included within the Consolidated income
statement in the Financial statements
EBITDA is earnings before interest, tax, depreciation, amortisation and impairment charges.
EBITDA is a non-IFRS measure, see page 36 for a reconciliation to reported IFRS results
2.
3. Core basic earnings per share is reconciled to basic earnings per share in Note 15 in the Notes
to the consolidated financial statements
Hikma Pharmaceuticals PLC Annual Report 2020
1
What we do
We develop, manufacture and market a
broad range of generic pharmaceutical
products across the US, MENA and Europe.
We are also a leading licensing partner.
c.8,600
employees
31
manufacturing plants
in 11 countries
7
R&D centres
780+
products
Our markets
US
c.1,900
employees
MENA
c.5,700
employees
Europe & ROW
c.1,000
employees
Our business segments
Segmental core revenue
Injectables $977m (2019: $890m)
Generics $744m (2019: $719m)
Branded $613m (2019: $583m)
Other $7m (2019: $11m)
% Group core revenue
US 60% (2019: 61%)
MENA 33% (2019: 33%)
Europe & ROW 7% (2019: 6%)
US
Our large manufacturing facilities in the United States (US) – one
for injectables and one for non-injectables – supply products across
a broad range of therapeutic areas, including respiratory, oncology
and pain management. We also have two dedicated R&D facilities
to support sustainable growth.
MENA
We sell branded generics and in-licensed patented products
across the Middle East and North Africa (MENA). We have
manufacturing facilities in seven countries, including US FDA-
inspected plants in Jordan and Saudi Arabia. Around 2,000 sales
representatives and support staff market our brands to healthcare
professionals across 18 markets.
Europe and the rest of the world (ROW)
We have injectable manufacturing facilities in Portugal, Germany and
Italy, with a range of capabilities including dedicated capacity for oncology
and cephalosporins. These facilities supply injectable products to the
US and MENA and a growing number of markets in Europe.
Injectables
Our Injectables business develops
and manufactures generic injectable
products. Our products are sold
across our markets and are primarily
used in hospitals.
Generics
Our Generics business develops
and manufactures oral and other
non-injectable generic products.
Our products are sold in the
US retail market.
Branded
Our Branded business develops
and manufactures branded generics
and markets and sells in-licensed
patented products in MENA. Our
products are sold in the retail and
hospital markets.
2
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
3
Executive Chairman’s statement
At Hikma we focus on quality and
reliability in everything we do.
Said Darwazah
Executive Chairman
Importance of our purpose
Hikma’s purpose to put better health within
reach, every day drives us to bring important,
quality and affordable medicines to people
who need them. In 2020, the COVID-19
pandemic truly galvanised this mission. I am
proud of the role we have played, along with
many others in the pharmaceutical industry,
in coming together to help healthcare
professionals and healthcare systems
manage the disease.
Throughout this challenging year, we
prioritised the health and safety of our
employees and I would like to thank them
all for their continued hard work and
dedication during these challenging times.
Our employees are driven by our purpose,
meaning they have continued to make an
important and meaningful impact not only in
the fight against COVID-19, but in continuing
to provide a reliable supply of the important
medicines needed by all our customers and
patients around the world.
Quality and reliability
A founding principle of Hikma is the
importance we place on quality and
reliability. Our customers trust us to deliver
high-quality and affordable medicines when
they need them. In recent years we have
invested significantly to ensure we maintain
this quality and reliability as we grow.
One example of this investment is our new
high-containment facility in Portugal,
which proved vital in fulfilling demand
for our Injectables products this year.
We responded quickly at the outset of the
pandemic, adapting our ways of working to
adopt social distancing at our facilities. All
of our plants were operating at the highest
capacity possible under the circumstances
as our people worked overtime to meet the
surge in demand. Through these efforts,
we ensured that as many of our geographies
went into lockdown, Hikma’s high-quality
products continued to reach customers
and patients around the world.
4
Hikma Pharmaceuticals PLC Annual Report 2020
Communities and our responsibility
to give back
Fulfilling our purpose of putting better health
within reach every day is not only about
providing medicines. We have a strong
legacy of supporting the communities in
which we live and work, and in 2020 these
efforts were particularly important.
In the US, our teams worked together to
make food donations, tackling the issue
of food security brought about by the
pandemic. Together we helped provide more
than 600,000 meals through our food bank
partnerships in Ohio and New Jersey, where
our key operational centres are located.
In Beirut, following the terrible explosion in
August, we were on the ground immediately,
delivering medicines, which we donated to
hospital groups in the region. We also worked
with the charity Anera in Lebanon to help
provide specialised medicine to nearly 100
children suffering from sickle cell disease.
You can read more about our community
outreach and stakeholder considerations
on pages 23 and 39-43 of this report.
Our culture and our people
In 2020 we introduced our new corporate
culture programme anchored on the twin
pillars of progress and belonging, and
powered by three core values: innovation,
collaboration and caring. These values
guide our behaviours and help foster an
environment where everyone is appreciated
and can do their best work.
We conducted a company-wide employee
survey, for which we had a 90% response
rate. The results show our engagement
scores improving, highlighting the pride
that employees have in working for Hikma.
We value diversity in our workforce, and we
are implementing policies and programmes,
to ensure that we are the inclusive and
inspiring place to work that our founder set
out to establish.
We have established the Diversity Equity
and Belonging (DEB) Task Force, a sub-
committee of the Executive Committee,
to oversee the adoption of a more inclusive
approach to employee recruitment, retention
and promotion. In the US we have
established the Black Employees Advisory
Board, an employee-led initiative to enhance
our diversity, equity and belonging goals.
Corporate governance
Our CEO, Siggi Olafsson, has been in the role
for three years now and I am delighted with
the progress we have made since he joined.
Siggi has energised the business, helped us
build on our strong foundations, and not
lost sight of the important qualities and
principles upon which Hikma was founded.
This year we have seen continued evolution
of the Board, with the appointment in May
of Douglas Hurt, who has taken on the role
of Chair of the Audit Committee, and the
departure in June of Dr Jochen Gann, who
made a valuable contribution to Hikma
during his tenure. More recently Robert
Pickering, who joined the Board in 2011
and served as Senior Independent Director
from 2014, stepped down. Robert has been
a tremendous asset to Hikma and provided
invaluable counsel over the past ten years,
for which I am deeply grateful.
Further detail on the activities of the Board
and its Committees are set out in the
Corporate governance section of this report
on pages 62-108.
Financial performance and
shareholder returns
Hikma performed well in 2020 with good
revenue growth and an improvement in core
profitability.
The business has cemented its strength in
the debt capital markets, with the raising of a
new $500 million Eurobond in July, following
the repayment of our previous bond in April.
Furthermore, during the year we achieved
investment grade status from two ratings
agencies – an accomplishment which
reflects the quality of the business.
In June, Boehringer Ingelheim (BI) exited
entirely from its strategic stake in Hikma,
and we took this unique opportunity to utilise
our balance sheet strength and repurchase
a portion of BI’s holding. The purchase
highlights the Board’s conviction in the
continued success of Hikma and its
long-term growth prospects. Our strong
balance sheet enabled us to comfortably
undertake this transaction whilst maintaining
continued financial flexibility.
We remain committed to paying a dividend
to our shareholders. Acknowledging the
strong financial performance in 2020, as well
as our robust balance sheet, the Board has
recommended a final dividend of 34 cents
per share. Combined with the interim
divided of 16 cents per share, this represents
a 14% increase in the total dividend for the
full year in 2020, to 50 cents per share
(approximately 36 pence per share), up from
44 cents per share (approximately 34 pence
per share) in 2019.
Future prospects
The strategy we set out when Siggi joined
Hikma in 2018 is delivering results. A focus
on the foundation has helped deliver
a strong performance this year, and our
pipeline is expanding as we continue
to invest in R&D to drive future growth.
Our people and culture are vital to our
success and we continue to focus on
the importance of a diverse and energised
workforce. I would like to thank all of
our employees, as well as our customers,
suppliers, shareholders and other
stakeholders as we look forward to
continued success in 2021.
I would like to
thank all of
our employees,
as well as our
customers,
suppliers,
shareholders
and other
stakeholders as
we look forward
to continued
success in 2021.
Our values
To foster a culture of progress and
belonging, we have three core values:
Innovation
We keep learning, inspire others
and find a better way
Collaboration
We keep it simple, deliver
together and take ownership
Caring
We make a difference, do the
right thing and respect others
Find out more about our values on page 25.
Hikma Pharmaceuticals PLC Annual Report 2020
5
Chief Executive Officer’s statement
Our aim is to be a trusted and reliable
partner, putting better health
within reach, every day.
Siggi Olafsson
Chief Executive Officer
We faced a year of challenges and
opportunities in 2020. I am enormously
proud of how adaptive and resilient our
employees were in the face of a global
pandemic and am grateful for their
unwavering commitment to maintaining
the supply of vital medicines for patients
across our markets.
I would like to thank every one of our
employees for their hard work during this
challenging time.
Operating in challenging times
When the impact of the pandemic began to
be felt around the world, we reacted quickly,
taking early measures not only to safeguard
our employees, but also to ensure
consistency of supply of critical medicines.
We set up response teams at group, regional
and local levels, to ensure consistent
communication. Those of our employees
who could work from home did so. Our
operations teams adjusted our shift
schedules and introduced social distancing
protocols that enabled us to keep our plants
operational. Meanwhile, our procurement
team worked tirelessly with our suppliers
to manage and prevent any potential issues
in our ability to deliver finished products.
As a result of our early actions, we were able
to supply our customers with vital medicines,
ensuring that we delivered on our purpose of
putting better health within reach, every day.
Whilst we saw strong demand for certain
products used in the treatment of COVID-19
patients, we also remained focused on
our broader portfolio, continuing to make
high-quality and affordable medicines
accessible, to enable people with other
conditions to live their lives.
Our Injectables business
played a key role in the early
response to the pandemic.
Executing on our strategy
Our strategy is focused on three pillars:
Deliver more from
a strong foundation
Build a portfolio that
anticipates future
health needs
Inspire and enable
our people
Building on our strong foundation
When we set out our strategy in 2018, we
highlighted the importance of Hikma’s strong
foundation and it is through our focus on
this that we have been able to meet the
challenges presented in 2020.
Our Injectables business played a key role
in the early response to the pandemic. In
the US, many of our established respiratory,
pain, anaesthetic and sedative products
were in high demand in intensive care wards,
as hospitals managed a significant number
of ventilated COVID-19 patients.
In Europe, we further expanded our
manufacturing facilities and won important
contract manufacturing business, including
for the manufacture of remdesivir, one of the
key drugs to be used to treat patients with
COVID-19. In MENA our injectable biosimilar
products continued to perform well as we
launched into new markets.
Our Generics business now has a core
operating margin percentage in the low
twenties. We have expanded our profitability
significantly in recent years, from 4% in 2017,
and I have the team to thank for this
achievement. We ensured we were in
constant touch with our customers as we
focused on reinforcing these relationships
through an emphasis on maintaining high
service levels. We have also continued to
leverage our manufacturing flexibility,
enabling us to adjust production to meet
demand, whilst also limiting backorders.
Our Branded business has once again
delivered good revenue growth in constant
currency and stable margin despite some
COVID-19 pandemic-related disruptions.
We benefited from our strategic focus on
our Tier 1 markets, with good performances
in Algeria, Egypt and Saudi Arabia. I am
thankful to the team for navigating the
market environment, adapting our ways
of working and ensuring that our strong
presence in the MENA region is maintained.
Expanding the portfolio
During 2020, we continued to launch
new products and grow our pipeline. Our
Generics business had six launches in the
year, including generic Zortress®, where
we launched as the only available generic.
We also accelerated our launch of icosapent
ethyl capsules, following receipt of US FDA
approval and a favourable court ruling in
the year. We launched with limited quantities
and expect to increase our supply over the
course of 2021. We were pleased to receive
approval for generic Advair Diskus® at the
end of the year. We have temporarily paused
the launch of this product while the FDA
reviews an amendment to the application.
For more information on generic Advair
Diskus® please see page 31 of this report.
Our Injectables and Branded business have
also strengthened and delivered on their
pipelines. The Injectables team added 77
products to our global portfolio and signed
new licensing deals. In the US we launched
propofol during the year, an important
product in the treatment of COVID-19
patients. In MENA we agreed to licence and
distribute Sun Pharma’s ILUMYATM, an
innovative biologic injectable product for
the treatment of psoriasis, strengthening
our biotechnology and dermatology
portfolio. Meanwhile the Branded team has
continued to launch new products, including
Reagila® (cariprazine), a medicine licensed
from Gedeon Richter, used in the treatment
of schizophrenia and other mental illnesses.
Several of our launches were carried out
virtually, with much of our promotional
activity moving away from in-person
interaction during the period due to social
distancing measures.
Championing our people
Our talented and dedicated employees
are the lifeblood of Hikma, and critical to
our strategy is the recruitment and retention
of the best talent. I firmly believe that having
a culture which engages and energises our
people results in a stronger business.
As set out in the Chairman’s statement,
we have worked on our culture and values
during 2020. This has been an important
project for Hikma and I am excited by the
evolution that has taken place. We are
committed to building a culture of progress
and belonging, where everyone at Hikma
can do their best work.
6
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
7
Chief Executive Officer’s statement
continued
Investment case
In 2020 we
refreshed Hikma’s
values, and now
have the twin pillars
of progress and
belonging at the
heart of our culture.
Positioned well for the future
The Group performed well in 2020 and we
have started 2021 in a strong position. I am
excited about the opportunities ahead for
each of our three businesses. The Branded
business has demonstrated its resilience
and adaptability, which we will leverage
in 2021 as we introduce new products to
the market. Our Injectables business is
an established top three player in the US,
and continues to show significant growth
in Europe and MENA. For Generics, we have
a strong pipeline of opportunities ahead
and look forward to building on the strong
2020 performance.
I am profoundly aware of the important
impact Hikma has in improving the lives of
millions of people around the world, and the
communities in which we operate. I would
like to thank all of our stakeholders, including
employees, customers, partners and
shareholders, who collectively enable us
to put better health within reach, every day.
Delivering a strong financial
performance
By executing our strategy, in 2020 core
Group revenue grew 6% to $2.3 billion and
core Group operating profit grew 11% to
$566 million. This strength was also reflected
in our cash flow, with a net operating cash
flow of $464 million.
As a result of this good cash performance,
and accounting for our capital investments
made during the year, as well as the share
buyback, we exited the year with a robust
balance sheet, and gearing of 0.9x net debt
to core EBITDA.
Operating responsibly
Hikma is committed to providing better
health, supporting education and helping
people in need.
We have several charitable partnerships
across our markets, including with Save the
Children and the Prince’s Trust, through
which we support the education of young
people in need.
We are undertaking a review of our impacts
around Environmental, Social and
Governance (ESG) issues in 2021. As a part
of this, we are working to understand better
our impact on the environment, and to align
our environmental disclosure and internal
processes with the recommendations of
the Task Force on Climate-related Financial
Disclosures (TCFD). This will ensure effective
management of climate-related issues within
our business as we work to both adapt to a
changing environment and limit our negative
environmental impact where we can.
You can read more about the initiatives in
place in the Sustainability section of this
report, on pages 38-51.
We have a track record of creating value
for our stakeholders. By focusing on our
strategic priorities and leveraging our
strengths, we can build upon our success.
Unique and
diversified
business
model
Our business is uniquely positioned,
with three main business segments.
We have a broad and diversified
product portfolio and a growing
pipeline of new medicines, that are
sold in the retail and hospital markets.
Strong market
position
Commitment
to quality
We are the third largest generic
injectable manufacturer and a
top ten generic company in the US.
In MENA, we are one of the largest
pharmaceutical companies with
very strong brand awareness.
We have built our reputation on
manufacturing high-quality medicines.
Quality is embedded in our people,
our relationships and our thinking.
Our excellent track record of regulatory
compliance has made us the partner of
choice for our customers and patients.
Revenue by segment
Injectables $977m
Generics $744m
Branded $613m
Other $7 million
Revenue by region
US $1,406m
MENA $770m
Europe & ROW $165m
Top 10
generic company
in the US
#3
largest generic
injectable
manufacturer
#5
largest
pharmaceutical
company
in MENA
30+
US FDA inspections of Hikma
facilities over the last five
years. We have a strong
quality record
+1
added new high containment
plant in Portugal following
successful FDA inspection
Large and
growing
pipeline
We have a large and growing pipeline,
with an increasing proportion of
differentiated and complex products.
We complement our internal R&D
with partnerships and M&A.
500+
products in our pipeline
30
US products under
development or submitted
are classified as complex
Strong balance
sheet and cash
generation
We consistently generate strong cash
flow. Our disciplined approach to cash
management and acquisitions ensures
we maintain a strong balance sheet
and gives us the financial flexibility
to support future growth.
$464m
operating
cash flow
52%
free cash flow/
core operating
profit1
0.9x
net debt/
core EBITDA
1. Free cash flow is defined as net cash inflow from operating activities less
purchases of property, plant and equipment
8
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
9
Our response to COVID-19
As the COVID-19 pandemic continues to
impact people and communities around
the world, the health and safety of our people
and the millions who count on our medicines
remains our top priority.
Business response
to COVID-19
We are fully committed to providing our customers and their
patients the medicines they need. Since the onset of the
pandemic in early 2020 we have prioritised the manufacture
of medicines that have been in highest demand, such as
respiratory, pain, anaesthetics and sedatives. We have
been operating at the highest capacity possible under
the circumstances to meet the increased demand.
Our manufacturing sites operate to a high standard of
hygiene and, in some cases where required, under sterile
conditions. In addition, we have implemented measures
recommended by health authorities to minimise risk
including additional levels of cleaning, enhanced ventilation
and installation of protective barriers.
We are always proactively managing our inventory and stock
levels, transportation options and the availability of raw
materials and component parts. Through 2020 we worked
closely with our supplier networks to ensure business
continuity and maintained higher inventory levels to ensure
continuity of supply.
We did see some impact on our sales and marketing teams
in MENA, where our operations were impacted by social
distancing measures. In response, we moved to virtual
detailing of doctors, and hosted well-attended webinars.
We have also seen a reduction in demand for products
used in elective surgeries as these procedures have been
put on hold while the treatment of COVID-19 is prioritised.
In the MENA region, our anti-infectives products have seen
lower demand this year as social distancing measures have
reduced the prevalence of illness in communities.
While we did see some COVID-19 pandemic-related
challenges, the business performed well in the year and we
did not put any employees on furlough or make redundancies
as a result of the pandemic, nor did we receive any
government support.
Our long-standing commitment to our local communities
remains strong and we have been providing funding,
medicine donations, food and other essentials, with
examples provided here, and later in this report.
Protecting our employees
We are committed to the health and safety of our employees.
When the World Health Organization declared the COVID-19
outbreak a public health emergency of international concern
in January, we established a Group Incident Response Team
to keep our employees well informed.
During the various containment and closure measures put
in place around the world, our staff who were able to work
from home did so. Our IT teams worked hard to ensure all
remote-working employees were enabled to do so. We also
put in place workshops and courses to help employees with
managing worry, anxiety and stress related to the pandemic.
For those in our plants, recognised as essential workers,
we increased cleaning and changed work practices to
maximise social distancing. Local response teams addressed
suspected and confirmed cases among our employees and
took action to identify close contacts and coordinate actions
to protect the remaining site population. To demonstrate our
appreciation for the extraordinary hard work and dedication
of our essential workers, we provided increases in monthly pay
during some of the most challenging months of the pandemic.
Find out more about our protection of employees in the
sustainability section on page 46 and in the risk report on page 54
84%
of employees surveyed
thought Hikma responded
effectively to the
COVID-19 pandemic
Hikma has a legacy
of supporting the
communities in which
we live and work
Supporting food security
Hikma and its employees made food donations in our
communities through several initiatives including our US
matching donation campaign, distributing meal vouchers
in Morocco, and shipping meals to those
in need in Jordan and Portugal.
Ensuring food security has become more essential during
the pandemic, and we remain passionate about assisting
those in need in our communities.
Find out more about our food donation activities on page 43
600,000
Hikma and its employees
donated more than 600,000 meals
to our communities through
several initiatives including our
US matching donation campaign
Generic medicines: a hidden hero
in the fight against COVID-19
The generics sector this year has been a vital, if often less visible, partner
in the fight against COVID-19. Our people have worked tirelessly throughout
the year to continue to supply hospitals and healthcare professionals with
the priority medicines needed for treating seriously ill patients.
The treatment of COVID-19 can involve the administration of a wide
range of medicines supplied by the generics sector. Our reliable supply
of products such as respiratory medicines, anaesthetics, sedatives and
anti-infectives has been crucial in ensuring patients can be intubated,
ventilated and medicated when treating the most severe aspects of
this illness.
Hikma has also been able to leverage its flexible manufacturing facilities
to partner with other companies in producing vital drugs, such as remdesivir.
We are proud of the role generics have played in responding to this
global health crisis.
Hikma responds to
COVID-19 shortage
with launch of propofol
injectable emulsion
May 2020
10
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
11
Our strategy
Our strategy is to make better health
more accessible by delivering more from
our strong foundation, building our portfolio
and inspiring and enabling our people.
Our strategy
Deliver
Better health.
Within reach.
Every day.
B
u
i
l
d
Inspire
Deliver more
from a strong
foundation
Build a portfolio
that anticipates future
health needs
Inspire
and enable
our people
Strategic review
Management conducts a review of our strategy on an annual basis in
partnership with the Board. The comprehensive approach assesses
‘our progress’, ‘our markets’ and ‘our business model’ to identify and
analyse strategic risks and opportunities over the short and long term.
We have a unique business
model, a differentiated footprint
and a strong commitment to
quality. We are building and
enhancing these assets to
drive sustainable growth.
Our focus is on:
– Growing our existing business
– Controlling costs and improving
processes
– Building customer relationships
– Enhancing our operations
– Ensuring full quality compliance
Our KPIs:
– Core revenue
– Core operating profit
– Return on invested capital
Today’s pipeline is tomorrow’s
product. We are investing in our
pipeline to meet the future needs
of patients and increase access
to high-quality medicines.
Our focus is on:
– Building portfolio momentum
– Investing in specialised
products and technologies
– Improving speed to market
Our KPIs:
– Core revenue from new
products launched
of pipeline
– Partnering to bring innovative
products to market
Our people are delivering
our strategy. Our strong brand
and clear purpose support
a culture that enables us to
achieve our goals.
Our focus is on:
– Developing behavioural
competencies and talent
– Building a strong culture
of progress and belonging
– Embedding our values of
innovation, collaboration
and caring
– Promoting diversity, equity
and belonging
Our KPIs:
– Employee enablement
– Employee engagement
Find out more about our
key performance indicators
see page 14
12
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
13
Our progress
We are delivering on our strategy and
measuring our performance with key
performance indicators (KPIs).
Strategic
priority
KPI
Deliver more from
a strong foundation
Core revenue
($m)
Core operating profit
($m)
Return on invested capital2
(%)
$2,341m
$566m
16.2%
2,341
2,203
1,950 1,936
2,076
566
508
460
419
386
18.6
17.0
16.2
15.1
10.6
2016 2017
2018 2019 2020
2016 2017
2018 2019 2020
2016 2017
2018 2019 2020
Description
Total annual core revenue
generated across all businesses
Core operating profit
Why is it a KPI?
This measures our ability to
maximise value from our current
product portfolio across our global
markets and generate revenue from
new launches
This measures our ability to grow
revenue and maintain quality
while delivering efficiencies and
ensuring cost control
Core operating profit after tax
divided by invested capital
(calculated as total equity plus
net debt)
This measures our efficiency in
allocating capital to businesses
and projects
2020
performance
Group core revenue increased
by 6% reflecting good demand
for our in-market products and
new product launches
The increase in core operating
profit was driven by good revenue
growth across all three business
segments and growth in profit of our
Generics and Injectables businesses
Return on invested capital
remained strong at 16.2%. This was
slightly lower than 2019, reflecting
the adverse impact of foreign
exchange on core operating profit
Link to
remuneration
R
1
R
R
1. As one of the performance criteria for determining the Executive Directors’ remuneration, core operating profit is measured before R&D costs
2. See reconciliation on page 36
14
Hikma Pharmaceuticals PLC Annual Report 2020
Find out more about
our strategy on page 12
Find out more about how we
are managing risk on page 52
Find out more about our
remuneration on page 90
Build a portfolio that
anticipates future needs
Core revenue from new product
launches
(%)
7%
Inspire and enable our people
Employee enablement
(%)
Employee engagement
(%)
Percentage of core revenue contribution
from products launched in 2020 and the
second half of 2019
This measures our ability to extract
value from our global product pipeline
In 2020, revenue from new product
launches was 7% of Group core revenue,
up from 4% in 2019. This reflects the
better than expected contribution from
new launches in Generics and good
contribution from Injectable launches
64%
(20181: 65%)
73%
(20181: 69%)
Global employee enablement score
Global employee engagement score
This measures whether people find their
work fulfilling and rewarding and whether
they feel supported to achieve their full
potential
This measures people’s pride in working
for Hikma, their willingness to recommend
Hikma as an employer and their desire
to stay long term
Our employee enablement score
decreased by 1%, compared to our 2018
survey. We are working to improve
employee enablement across our
organisation. In 2020 we introduced our
new culture framework and refreshed our
values. We are implementing new initiatives
to promote our values and enable
employees to do their best work
Employee engagement improved by
4 percentage points since 2018. This
reflects increased communication and
collaboration across the Group, particularly
around addressing employee concerns
in relation to COVID-19
1. In 2019, we conducted an all-employee global culture survey, which produced qualitative results. We did not carry out
our usual data driven all-employee survey, and therefore we do not have the enablement and engagement percentages
for reporting purposes for 2019
Hikma Pharmaceuticals PLC Annual Report 2020
15
Our markets
Evolving demographic and market
trends continue to drive growth.
The global pharmaceutical market has been shaped by key trends in
recent years, including demographic shifts, evolving competitive and
market dynamics and increased pressure on healthcare budgets. Our
strategic priorities and business model allow us to capture opportunities
and overcome challenges in a rapidly changing industry.
Key trend
Changing demographics
The world’s population continues
to grow and is ageing rapidly. It is
expected to increase by 2 billion
people by 2050. The number
of people aged 65 and older
is expected to double over this
period and to make up 16% of
the population2,3. This ageing
population, as well as a change in
lifestyles, is leading to an increase
in chronic non-communicable
diseases, such as heart disease,
cancer and diabetes4.
Global generics market1
($ billion)
2025
2020
$277
$232
Strategic response
We are committed to improving
patients’ access to high-quality,
affordable medicines. Our teams
meet with healthcare
professionals regularly to better
understand their needs. We invest
around 6% to 7% of our Group
revenue in R&D to develop a
pipeline and portfolio of products
that meet the healthcare needs
of our patients.
Global context
The COVID-19 pandemic has impacted the lives of billions of people
and their communities around the world. As countries went into
lockdown, people were faced with new challenges and economies saw
a slowdown in growth. At the same time, the industry continues to adjust
to changing demographics, evolving supply chains and shifting market
and competitive dynamics.
The global pharmaceutical market continues to grow and access to
affordable healthcare has never been more important. The market share
of generic medicines is expected to grow at a CAGR between 3.5% and
4% over the next five years1.
IQVIA Forecast Link, 2020
1.
2. United Nations, world population ageing highlights, 2020
3. United Nations, world population prospects, 2019
4. WHO, global health and ageing
5. CPhI Annual Report 2020: postulating the post COVID pharma paradigm
6. Fitch Solutions, trends shaping the post-COVID-19 pharmaceuticals & healthcare market, 2020
7. Association for Accessible Medicines, 2020 generic drug & biosimilars, access & savings in the US report
8. FDA, generic competition and drug prices available at https://www.fda.gov/about-fda/center-drug-evaluation-and-research-cder/
generic-competition-and-drug-prices
9. Amazon launches online pharmacy in challenge to traditional retailers, available at https://www.ft.com
10. IQVIA, biosimilars in the United States 2020-2024, October 2020
11. IQVIA, complex generics: charting a new path
16
Hikma Pharmaceuticals PLC Annual Report 2020
Key trend
Changing supply chain
Key trend
Pricing and access
Key trend
Evolving competitive
environment
Key trend
Biosimilars and
complex generics
In recent years, higher demand
for healthcare, primarily driven
by an ageing population and
chronic illnesses, led to increased
pressures on budgets. In addition,
COVID-19 has caused a global
economic downturn, accelerating
the need for governments to put in
place cost containment measures
to maintain sustainable healthcare
budgets6.
The need for more affordable
healthcare solutions will result
in higher utilisation of generic
medicines. In the US, 90% of
prescriptions filled are for
generic medicines, accounting
for only 20% of prescription
drug spending7. In 2020, generics
played an important role in the
fight against COVID-19. Generic
substitution is increasingly
encouraged as a solution.
The generic industry is highly
competitive. This, coupled with
portfolio rationalisation and quality
issues, can cause occasional
shortages of critical medicines.
New organisations and distribution
channels with refreshed business
models have started to emerge,
in part to help alleviate drug
shortages and increase patients’
access to medicine. These include
Civica Rx, a not-for-profit
organisation with the purpose of
reducing drug shortages in the US
by creating a consistent and
reliable supply of medicines. More
recently, Amazon has launched
an online delivery service for
prescription medicines9.
The pharmaceutical supply chain
is a global and integrated network
developed over many decades.
The COVID-19 pandemic has
raised questions about the
resilience and vulnerability
of supply chains. As a result,
onshoring, which seeks to
strengthen domestic capabilities,
is becoming an increasingly
common theme as governments
look to de-risk their supply chains.
In the pharmaceutical sector, both
Europe and the US are looking to
increase focus on domestic
manufacturing of critical active
pharmaceutical ingredients (APIs)
and certain finished products.
As a result, shifts in the global
pharmaceutical supply chain are
beginning to take place, with an
increasing need to have multiple
sources of supply across different
geographies to mitigate shortages.
This is still at a very nascent stage,
however, and dependence on
imported raw materials will remain
high for the foreseeable future
in order to maintain affordable
pricing and reliable supply5.
Strategic response
We have global manufacturing and
distribution sites. Over the past 10
years, Hikma has made significant
investments in building its US and
EU manufacturing capabilities.
We currently operate state-of-the-
art manufacturing facilities in
Cherry Hill (NJ), Columbus (OH),
and Portugal which produce the
majority of the injectable and
generic medicines.
In 2020, through stocking
strategies and supply chain
modelling, we maintained
continuity of API supply. We are
constantly evaluating
opportunities to qualify alternate
sources to mitigate supply risk.
Strategic response
Generic medicines are part of the
solution to rising healthcare costs.
At Hikma, we are committed to
increasing patients’ access to
more affordable healthcare. As a
member of the Association for
Accessible Medicines in the US, we
are active in advocating for policy
solutions that will further increase
the utilisation of generic medicines
at the state and federal levels.
In 2020, we launched 154 new
products across our markets.
When there are two generics on
the market, the average price of a
product will drop by around 50%8,
accelerating as more generics
enter the market.
Find out more about our
suppliers on page 24.
Find out more about how we respond
to patients on page 21.
Strategic response
Our teams continuously monitor
the competitive environment and
its evolving dynamics. We have
a broad product portfolio,
high-quality operations and a
steady stream of new product
launches across our markets,
which help us to be resilient to
the changing landscape.
We work closely with all of our
customers to better understand
their needs and build strong
relationships. Hikma is increasingly
recognised as a reliable partner
to customers. In 2019, we formed
a partnership with Civica Rx and
are supplying them with essential
injectable products, in line with
our mission to make high-quality
healthcare available to those who
need it.
Despite being available in Europe
and other parts of the world for
some time, the development and
approval of biosimilars has been
slower in the US. However, this
is beginning to shift and we have
seen a steady acceleration of
physician acceptance in the past
two years. Biosimilar products
launched in 2019 are achieving
a higher uptake in their first year
compared to those launched in
previous years, with market share
expected to reach around 50% to
60% in the second year10. These
trends are tracking closely to what
is seen in Europe. The biosimilar
market in the US is growing and
presents a number of
opportunities – sales are expected
to reach $80 billion over the next
five years10.
Complex generics are also
becoming an area of focus. As the
market becomes saturated with
commodity generics, companies
are looking to differentiate their
portfolios and deliver more value
to patients by developing complex
generics. This requires significant
development expertise and
regulatory pathways are still
unclear11.
Strategic response
Through our partnership with
Celltrion, we have launched three
biosimilar products in MENA –
Remsima®, Truxima® and
Herzuma®. Our strong commercial
capabilities and breadth of reach
in the region has enabled us to
enhance patient access to these
important treatments. As the US
biosimilar market evolves, we are
evaluating the market opportunity
and potential entry points.
One of Hikma’s key strategic
priorities is to build a portfolio
of products that meets the future
needs of healthcare professionals
and their patients. We do this
through investment in internal
R&D, which is increasingly focused
on complex products – 30
products under development or
submitted in the US are classified
as complex. We also look for
opportunities to add complex
products through licensing
agreements.
Hikma Pharmaceuticals PLC Annual Report 2020
17
Our business model
Our diversified business model allows us to
respond to the many opportunities and risks we
face, while delivering value for our stakeholders.
Better health. Within reach. Every day.
Our resources
What we do
Our business segments
Injectables
Generics
Branded
See our business and financial review
on page 26
Financial
Investment in R&D, manufacturing facilities,
partnerships and M&A enables us to expand
our product portfolio, technical capabilities
and operations.
People
We have a highly skilled, diverse and
effective workforce. Through continuous
investment in the development of our
people and by hiring new talent, we secure
our future.
Values
Our refreshed values promote a culture
that is innovative, collaborative and caring,
ensuring the sustainability of our business.
Relationships
Strong relationships with regulators and
health authorities across all our markets,
and successful collaborations with
industry partners, enable us to achieve
our shared objectives.
Capabilities
We have extensive commercial,
manufacturing and distribution operations
across our markets focused on quality
and efficiency.
Offer a broad product portfolio
We offer a broad and differentiated portfolio of
more than 780 products. It includes high-
quality generic and branded generic medicines
and a growing number of in-licensed products.
780+
Products
Market across geographies
We distribute our products in our markets
through experienced sales and marketing
teams. In the MENA region, around 2,000
representatives market our brands to doctors
and pharmacists, while our sales teams in
the US and Europe sell to a broad range of
customers, including the leading wholesalers,
pharmacy chains, governments and hospital
purchasing organisations.
c. 2,000
sales representatives
market our products
across MENA
Develop and innovate
We are building a pipeline of products to meet
the evolving needs of patients and healthcare
professionals through investments in internal
R&D, partnerships and strategic acquisitions.
6%
Group revenue
invested in core R&D
(2019: 6%)
Manufacture and maintain quality
Our extensive and high-quality
manufacturing capabilities are at the heart
of what we do. We have 31 plants across the
Group that supply our global markets with a
broad range of injectable and non-injectable
products, including 12 US FDA-inspected
plants and 12 EMA-inspected plants.
31
manufacturing plants
12
US FDA-inspected
plants
12
EMA-inspected
plants
The value we create
Patient benefits
We provide patients across our markets
with high-quality and affordable medicines.
780+
Products
Employee engagement
By focusing on the engagement and
development of our people, we provide
long and rewarding careers for our
talented and diverse workforce.
73%
Employee engagement score
Shareholder returns
We have a long history of creating value
for our shareholders.
257%
Total shareholder return
over last ten years
Sustainable business
By acting responsibly and with integrity,
we are benefiting the communities
in which we operate.
– Founding member of the Partnering
Against Corruption Initiative
– Member of the United Nations
Global Compact and FTSE4Good
Find out more about our key
performance indicators on page 14
Find out more about how we are
managing risk on page 52
18
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
19
Stakeholder engagement
Engaging our stakeholder groups and
considering their needs is a top priority.
In a year that posed many challenges due
to the COVID-19 pandemic, we remained
focused on our relationships with our
stakeholders. Our teams have worked harder
than ever to ensure customers, healthcare
professionals and the patients they care for
get the medicines and support they need,
while at the same time focusing on our strong
and diverse network of partners, who enable
us to maintain a consistent supply of
essential medicines. Continuous
engagement with all our stakeholders is key
to driving the long-term sustainable growth
of our business. It allows us to better
understand their needs and informs our
day-to-day commercial and operational
decisions, as well as our long-term
investments in our business and our people.
Stakeholders and the Board
The Board of Hikma considers its duties to
shareholders and the wider community at
each Board and Committee meeting and
is particularly aware of its duty to promote
the success of the Company for the benefit
of all its stakeholders. Over the next few
pages we discuss the way that we engage
with our key stakeholders and build
consideration of stakeholder issues into
our decision making, in accordance with
Section 172 of the Companies Act 2006.
The Board is responsible for the entire
Annual Report and, therefore, directs
readers to the following pages in relation
to the stakeholder and non-stakeholder
elements of its duty to promote the
success of the Company:
– likely consequences of any decision in
the long term – the strategic overview
on pages 4 to 8
– the impact of the Company’s operations
on the environment – the sustainability
report on pages 38 to 51
– the desirability of the company
maintaining a reputation for high
standards of business conduct – the
sections of the strategic report related
to product quality and safety on page
58 and the compliance, responsibility
and ethics committee report on pages 81
to 82
– the need to act fairly as between
members of the Company – the
corporate governance report on
pages 62 to 71
Find out more about Stakeholder
engagement and our approach to S172.
Employees
CEO statement
Investors
How we create value
Governance
Corporate governance
Environment
Sustainability
High standards of conduct
Sustainability
Community
Sustainability
Long term
Our strategy
Risk management
Viability statement
Governance
6-8
9
62-108
48-51
44
39-43
12-13
52-59
59
62-108
Patients and
healthcare
professionals
Who is this stakeholder group?
Our purpose is to put better health within reach, every day for healthcare
professionals and their patients. We engage with doctors, clinicians and
pharmacists to better understand their needs, helping them treat the patients
they serve.
Why is it important to engage with this group
and what do they expect from us?
Patients and healthcare professionals need us to:
– consistently provide a broad portfolio of products
– improve access to high-quality, affordable medicines
It is essential that we align our commercial activities, operations and
R&D efforts to the changing needs of patients and HCPs.
How we engage across the Company
– Our commercial teams meet regularly with doctors and hospital clinicians
to better understand their needs and keep them informed about our product
offering and latest clinical data
– In MENA, we run regular forums bringing together key opinion leaders,
doctors and global research institutes to share knowledge and raise
awareness of healthcare trends and disease management
– We meet with patient advocacy groups for diseases such as multiple
sclerosis, cardiovascular and diabetes
How we engage at Board level
– The Board receives regular reports from the Chief Executive Officer
which include feedback from patients and healthcare professionals
and an in-depth review of our manufacturing quality programme
– The Compliance, Responsibility and Ethics Committee is responsible for
direct oversight of the Company’s approach to ethical issues associated
with HCPs
Outcomes and actions
– We worked closely with HCPs throughout the COVID-19 pandemic,
prioritising the manufacture of medicines in highest demand including
respiratory, pain, anaesthetics, sedatives and other support medications
– In 2020, we conducted COVID-19 awareness campaigns to assist
patients, doctors and pharmacists in MENA to understand risks and
public health guidance
Supporting healthcare
professionals and patients
It is important that we ensure healthcare professionals (HCPs)
have the support they need to care for their patients, particularly
during challenging times. In MENA, we have a large sales,
marketing and support team that dedicate their time to meet with
doctors, clinicians and pharmacists. In 2020, our teams were able
to respond quickly to the challenges posed by social distancing
restrictions and were able to find new ways to reach healthcare
providers across the region.
We hosted over 50 well attended webinars with both international
and local speakers, which reached doctors and healthcare
professionals across the entire MENA region. These were aimed
at increasing knowledge about COVID-19 and sharing experiences
and information about dealing with different therapeutic areas
during this time. In addition, our teams helped facilitate access
between HCPs and their patients by rolling out disinfectant
campaigns and safety kits.
20
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
21
Stakeholder engagement
continued
Customers
Employees
Communities
Government &
regulators
Who is this stakeholder group?
Our customers are our business partners and we are committed to providing
them with a consistent and reliable supply of high-quality medicines. We work
closely with Group Purchasing Organisations (GPOs), hospitals, healthcare
professionals, retailers, wholesalers and others to build strong relationships
and enhance service levels.
Why is it important to engage with this group
and what do they expect from us?
Customers need us to:
– offer a broad product portfolio
– have a consistent and reliable supply of medicines
– maintain service levels
Our commercial teams work closely with our different customers to understand
their needs, reduce drug shortages and ensure we invest in the products,
manufacturing capacity and capabilities to meet their requirements.
How we engage across the Company
– We have commercial and sales and marketing teams dedicated to our varied
customer groups in the US, MENA, and Europe
– Our customer discussions inform our pipeline decisions, in an effort to bring
them the products most in need
How we engage at Board level
– As part of its strategic review process, the Board reviews information on
the generic pharmaceutical customer landscape
– The Board periodically receives industry updates from leading external
professional groups
Outcomes and actions
– We worked closely with our customers to understand their needs during
the height of the pandemic and focused on maintaining continuity of supply
of our broad product portfolio
– In the US, we shifted manufacturing schedules and ramped up production
of fentanyl 50ml vials, the dosage strength needed by hospitals to prepare
infusion bags for ventilator patients, and dexamethasone tablets to meet
increased demand
– We launched 154 products across our markets in 2020, some of which are
used for COVID-19 patients
– In 2020, we saw an improvement in providing customers the products
they need with faster turnaround times, by working together and
improving processes
Who is this stakeholder group?
Our employees have always been at the heart of everything we do.
As the driving force behind Hikma’s growth and success, our people
are our most valuable asset.
Why is it important to engage with this group
and what do they expect from us?
Our employees expect us to:
– support them and provide development and growth opportunities
– protect their health and safety
– foster a diverse and inclusive culture
The passion and commitment of our people to our purpose and values is
key to delivering our brand promise and supports our growth plans. One of
our key strategic priorities is to build a culture that inspires and enables our
people, one in which our colleagues are empowered to drive innovation and
are committed to caring for customers, patients and communities around
the world.
How we engage across the Company
– We offer continuous learning and development opportunities for our people.
Hikma Academy serves as a training hub through which we can coordinate
and optimise learning and development activities
– Our Group-wide principles for ensuring employee health and safety are
outlined in our OHSEE Policy statement. We also have local policies and
procedures in place
– We conduct regular employee surveys and use this feedback to address
opportunities and improve performance and culture
– We have an active internal communications programme to keep employees
engaged and informed on Company strategy, progress and development
How we engage at Board level
– Nina Henderson leads the Board’s response to employee engagement
requirements. Nina reports on employee issues in each Board meeting and
as required during Board or Committee business. A report on her activities
is included on page 63
– The Board receives regular reports on communications activities with
employees, the annual employee engagement survey and events or
feedback that are reported by the Chief Executive
Outcomes and actions
– We launched an online learning initiative, iLearn, providing employees
with access to a wide range of learning materials in different languages
to further their professional and personal development
– We established a Black Employees Advisory Board in the US, an employee-
led initiative to enhance diversity, equity and belonging
– In 2020, we hosted a virtual global leadership conference for the top 160
Hikma leaders
– We increased dialogue with employees through frequent live calls hosted
by the CEO and members of management
– We are implementing initiatives to promote diversity, equity and belonging
– We improved employee engagement by four points overall; 82% of
employees felt our communications and response to employee concerns
in relation to COVID-19 were very effective
Who is this stakeholder group?
Our vision is to create a healthier world that enriches all our communities
by developing high-quality medicines and making them accessible to those
who need them. We invest in our communities through three focus areas:
– providing better health
– supporting education
– helping people in need
Why is it important to engage with this group
and what do they expect from us?
Our communities value our efforts to:
– improve healthcare quality and access through donations and support
– strengthen educational infrastructures
– support local communities and people in need
Since its inception, Hikma has been dedicated to transforming people’s
lives by providing the medicines they need and supporting the communities
where we live and work. Making positive contributions to the communities
where we operate, and providing assistance to those in most need, supports
our long-term, sustainable growth, while positively impacting society.
We also strive to minimise our environmental impacts in the communities where
we operate and are committed to making our operations more energy efficient.
How we engage across the Company
– We have developed collaborative partnerships and programmes to promote
positive change and address the needs of our communities. These initiatives
include increasing access to medicine through donations, supporting
education and assisting refugees and low-income groups
How we engage at Board level
– The Compliance, Responsibility and Ethics Committee is responsible for
direct oversight of the Company’s sustainability and corporate social
responsibility (CSR) programme. The Committee receives bi-annual reports
on the Company’s activities and reviews the Company’s sustainability
strategy on an annual basis. The Committee reports its activities to the
Board, which also receives regular updates, including on sustainability
matters, from the Chief Executive
Outcomes and actions
– In 2020, we increased our in-kind medicine donations to people in need
– We provided more than 600,000 meals to people in need in the US
through a matching donation campaign to support local food banks
– We contributed to the Lebanon appeal for the immediate needs of children
and families in the aftermath of the explosion in Beirut
Who is this stakeholder group?
Our business is highly-regulated and we must operate in accordance with
a wide range of industry and government policies and regulations including
those of the US Food and Drug Administration (FDA), the European
Medicines Agency (EMA) and the regulatory bodies in each of our markets.
Why is it important to engage with this group
and what do they expect from us?
Our regulators expect us to:
– adhere to regulatory requirements
– maintain high-quality manufacturing facilities
– provide safe and effective medicines
Quality is in everything we do and has been since our inception. We need
to ensure that our quality systems operate in full compliance with the
requirements of international agencies as well as domestic regulatory bodies.
How we engage across the Company
– We have strong internal regulatory and quality teams who ensure our
quality systems operate in full compliance with the regulatory requirements
of the FDA, the EMA, and the regulatory bodies of our other markets
– We work closely with local government and regulatory bodies to ensure
current and proposed regulations and policies support patients’ needs
and our operations
How we engage at Board level
– The Board receives regular reports on relations with regulators, particularly
from a manufacturing quality and product approval perspective, and
receives an update on legal matters at each meeting
– The Board oversees the Group’s risk programme and receives reports
on relevant issues, which include specific principal risks covering
product pipeline, product quality and safety and legal, regulatory
and intellectual property
Outcomes and actions
– We regularly engage with the different regulatory bodies and have a strong
quality track record. Due to COVID-19, the FDA conducted a paper-based
inspection of our new high containment facility in Portugal, which resulted
in no observations and the plant was approved
– The FDA approved our facilities in Portugal and Germany based on local
authority cGMP inspections and the mutual recognition agreement between
the FDA and EMA
– In 2020, we hosted 25 new FDA investigators at our Columbus facility for
training purposes
22
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
23
Stakeholder engagement
continued
Suppliers
Investors
Who is this stakeholder group?
We have an extensive global network of suppliers who provide us with the
products needed for us to deliver our medicines. We actively engage with our
suppliers to ensure our principles of human rights and high-quality standards
are upheld.
Who is this stakeholder group?
We maintain regular contact with investors to ensure they have a strong
understanding of our business. Our investors are largely global institutions
and include both equity and debt holders.
Why is it important to engage with this group
and what do they expect from us?
Our suppliers want us to:
– uphold high ethical standards
– operate in a responsible and sustainable manner
– work collaboratively to build strong relationships
Our suppliers are critical to our business, and their products and expertise
support us in the delivery of high-quality medicines to patients around the
world. Working together and building strong relationships not only enables
us to deliver on our brand promise but it also ensures we have a sustainable
and resilient supply chain.
Operating responsibly and ethically is vital to our long-term success, and
we work with our suppliers to ensure the social and ethical standards we
require are upheld.
How we engage across the Company
– We conduct quality audits prior to on-boarding any new API supplier
and on a regular basis for our current supplier base
– We ask our suppliers to commit to upholding the principles of our Code
of Conduct, including our standards on human rights and modern slavery
– We conduct initial and periodic due diligence to assess third party risks and
to reinforce adherence to our principles
How we engage at Board level
– The Board receives updates on supplier issues as part of its review of
operational matters, such as consideration of API supply restrictions
resulting from COVID-19 related disruption
– The Board oversees the Group’s risk programme and receives reports on
relevant issues, which includes a specific principal risk for API and third party
risk management
– The Compliance, Responsibility and Ethics Committee is responsible for
direct oversight of the Company’s approach to ethical issues associated
with suppliers
Outcomes and actions
– We build long-term relationships with our suppliers. This has allowed us to
ensure continuity of supply to our customers during the COVID-19 pandemic
– We implemented online quality audits to protect our employees during
the pandemic in their work to qualify new API sources and audit our
existing suppliers
– We rolled out new third-party due diligence process in the US and will
expand the roll out to MENA and other geographies in 2021 to reinforce
our supplier qualification process and reduce our risk exposure
Why is it important to engage with this group
and what do they expect from us?
Our investors expect us to:
– deliver sustainable long-term value
– effectively communicate our long-term strategy, financial and operational
performance and growth drivers
– meet industry and global standards for good environmental, social and
governance (ESG) practices
We ensure our investors have an in-depth understanding of our operations,
financial performance, growth drivers and ESG efforts. The Board receives
regular updates and feedback on these activities. This helps ensure that the
views of our investors are considered in the Board’s decision-making.
How we engage across the Company
– We maintain regular contact with our shareholders through a comprehensive
investor relations (IR) programme of conferences, roadshows and meetings
– We maintain regular dialogue with our debt holders and rating agencies
– We communicate our strategy and financial performance through regular
financial reporting and investor events, such as the Annual General Meeting
– A targeted external communications programme ensures we are informing
key audiences on our strategic progress and impact on our communities
How we engage at Board level
– The Board receives regular updates on the IR programme, including investor
feedback from the AGM, IR meetings and investor perception studies
– The Executive Directors are informed of investor engagement activities
on a regular basis
– The Non-Executive Directors make themselves available to meet with
investors as required in the conduct of their responsibilities (eg as Chair of
a committee) and are available to shareholders at the AGM to answer related
questions
Outcomes and actions
– We maintained regular contact with our analysts and investors to give
business updates. We attended 13 conferences and met with 158 investors
in 2020
– Since March, all of our investor interaction has been virtual and we are
now integrating virtual engagement into our longer term IR programme
– In June 2020, Boehringer Ingelheim, one of Hikma’s large shareholders,
sold its entire holding in the Group. We took the opportunity to invest in
our business and bought back 12.8 million shares, which are held in treasury.
We reached out to our investor base, both current and potential investors,
to ensure they understood the strategic rationale
Ensuring continuity
of supply
The impact we have on people’s lives is far-reaching and it is
important we ensure reliable supply of our medicines to our
customers. At Hikma, our teams have shown tremendous
commitment and contribution to ensure that both patients and
communities have access to the medicines they depend on. In
2020, our procurement team maintained direct contact with our
suppliers to understand the disruptions on their operations as a
result of the COVID-19 pandemic. We have put in place inventory
strategies and worked closely with our suppliers to maintain
the necessary levels of inventory needed for the production
of important medicines. In addition, our team implemented
online solutions for auditing and monitoring API sources, until
onsite audits can be performed again, to mitigate exposure
to risk and maintain the safety of our auditing teams.
Building a strong culture
Having the right culture, one that supports our vision and enables
our strategy is critical to achieving long-term success. It is key for our
employees to feel empowered and enabled and we are doing more
to promote collaboration and communication across the organisation.
Over the last two years, through surveys, conferences and direct
employee engagement, we listened and collected feedback from
employees to understand what we do well and how we need to
evolve. In 2020, we were able to bring together our top 160 leaders
virtually for the third annual Global Leadership Conference and
introduced our new culture framework and refreshed values.
We also introduced monthly Group-wide calls hosted by the CEO
and members of management to ensure we maintain employee
engagement and celebrate successes.
Our ambition at Hikma is to create a culture of progress and
belonging, where everyone feels they can do their best work.
To support this, we are implementing new initiatives to promote
our values of innovation, collaboration and caring.
24
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
25
Business and financial review
Business and
financial review
Strong financial performance
Summary financial results
– Core Group revenue up 6%, reflecting growth in all three businesses
– Core operating profit up 11%, driven by strong growth in profit of
Generics and Injectables
– Strong cashflow from operating activities of $464 million, whilst
Core results3 (underlying)
Core revenue
Core operating profit
2020
$ million
2019
$ million
Change
Constant
currency4
change
2,341
2,203
566
508
6%
11%
6%
17%
maintaining higher inventory levels to ensure continuity of supply
during the COVID-19 pandemic
Core profit attributable to
shareholders
408
364
12%
20%
– Continued investment in R&D of 6% of revenue, with growing
pipeline of complex products
Core basic earnings per share
(cents)5
172.9
150.4
15%
23%
– Healthy balance sheet, with net debt1 of $605 million and low
leverage at 0.9x net debt to core EBITDA2
– Full year dividend of 50 cents per share, up from 44 cents per share
in 2019
Ongoing strategic progress
– Leveraged our strong foundation to meet increased demand for
essential medicines used in the treatment of COVID-19, whilst
continuing to maintain supply across our broader portfolio
– Continued to expand our portfolio of differentiated products –
launched 154 new products across our markets, including icosapent
ethyl capsules
– Received US FDA approval for generic Advair Diskus® and expect
to resume launch as soon as the US FDA completes their priority
review of the outstanding Prior Approval Supplement (PAS)
– Focused on building a culture of progress and belonging that
engages and enables our employees
Continued momentum, with growth in all
three businesses
– Injectables: Achieved double digit core operating profit growth
reflecting the breadth of our product portfolio and the quality
and flexibility of our manufacturing facilities
– Generics: Delivered significant improvement in core operating
margin, driven by the strength of new launches, a good performance
from in-market products, process efficiencies and our enhanced
focus on customer service levels
– Branded: Achieved good growth in revenue, with a strong recovery
in Algeria, while core operating profit declined due to the negative
impact of foreign exchange
26
Hikma Pharmaceuticals PLC Annual Report 2020
Reported results (statutory)
Revenue
Operating profit
Profit attributable to
shareholders
Cashflow from operating
activities
2020
$ million
2019
$ million
Change
Constant
currency4
change
2,341
2,207
579
493
6%
17%
6%
23%
431
486
(11)%
(5)%
Basic earnings per share (cents)5
182.6
200.8
Total dividend per share (cents)5
50.0
44.0
464
472
(2)%
(9)%
14%
–
(3)%
–
1. Group net debt is calculated as Group total debt less Group total cash, including
2.
restricted cash. Group net debt is a non-IFRS measure. See page 36 for a reconciliation
of Group net debt to reported IFRS figures
Core EBITDA is earnings before interest, tax, depreciation, amortisation and impairment
charges/reversals. EBITDA is a non-IFRS measure, see page 36 for a reconciliation to
reported IFRS results
3. Core results throughout the document are presented to show the underlying
performance of the Group, excluding the exceptional items and other adjustments
set out in Note 6 of the Group consolidated financial statements. Core results are a
non-IFRS measure and a reconciliation to reported IFRS measures is provided on page 35
4. Constant currency numbers in 2020 represent reported 2020 numbers translated
using 2019 exchange rates, excluding price increases in the business resulting from
the devaluation of currencies and excluding the impact from hyperinflation accounting.
In 2020 Lebanon and Sudan were considered hyperinflationary economies, therefore
the spot exchange rate as at 31 December 2020 was used to translate the results of
these operations into US dollars
5. In June 2020, Hikma purchased 12.8 million ordinary shares from Boehringer Ingelheim,
which are being held in treasury. Earnings per share is calculated using the weighted
average number of shares outstanding during the period. Dividend per share is
calculated using the number of shares in issue at 31 December 2020
We performed well in 2020 and I am pleased
with the growth in each of our businesses.
The broad portfolio has played an important role,
and our pipeline is delivering growth.
Khalid Nabilsi
Chief Financial Officer
Group revenue was $2,341 million in 2020.
Group core revenue grew 6% to $2,341 million
(2019: $2,203 million), reflecting growth in
each of our three businesses. Group core
gross profit1 grew 11% to $1,213 million (2019:
$1,095 million), as a result of the growth
in revenue across all business segments
and particularly the strong performance in
Generics and Injectables. Group core gross
margin was 51.8% (2019: 49.7%).
Group operating expenses were $622 million
(2019: $595 million). Excluding adjustments
related to the amortisation of intangible
assets (other than software) of $42 million
(2019: $34 million) and net income from
exceptional items of $67 million (2019:
$26 million), Group core operating expenses
were $647 million (2019: $587 million).
Selling, general and administrative (SG&A)
expenses were $509 million (2019:
$494 million). Excluding the amortisation
of intangible assets (other than software)
and exceptional items, core SG&A expenses
were $464 million (2019: $453 million), up
2%. The increase was primarily due to higher
employee benefits. The impact of COVID-19
on SG&A expenses was broadly neutral
with related increases in employee benefits
offset by lower marketing and travel costs.
Research and development (R&D) expenses
were $137 million (2019: $150 million).
Excluding exceptional items, core R&D
expenses were $137 million (2019: $126
million). This reflects increased investment in
our Injectables R&D programme, as we build
our pipeline of complex products. Core R&D
was 6% of Group core revenue.
Other net operating income1 was $26 million
(2019: $49 million income). Excluding
exceptional items2, core other net operating
expenses were $44 million (2019: $8 million
expense), primarily due to foreign exchange
losses of $30 million as a result of significant
foreign exchange movements in Sudan in
the second half of the year, and $10 million
of IT-related impairments.
The Group reported operating profit of
$579 million (2019: $493 million). Excluding
the impact of amortisation (other than
software) and exceptional items, core
operating profit increased by 11% to
$566 million (2019: $508 million) and core
operating margin was 24.2% (2019: 23.1%).
1. Beginning in 2020, inventory related provisions are
reported under the cost of sales line item for both 2020
and 2019 comparatives. In the 2019 audited financial
statements, inventory related provisions were included
in other operating income/(expenses). The reason for
reclassification is to be in line with industry practice.
The effect of the adjustment on the operating profit
is shown in Note 2 of the Group consolidated financial
statements
2. In 2020, exceptional items comprised a $62 million net
impairment reversal of product related intangibles
related to the Generics business, proceeds from an
insurance claim related to a warehouse fire at one
of our facilities in Jordan of $11 million and $3 million
related to PPE impairment on our generic Advair
Diskus®. Refer to Note 6 of the Group consolidated
financial statements for further information
Hikma Pharmaceuticals PLC Annual Report 2020
27
Business and financial review
continued
Injectables
Our Injectables business develops
and manufactures generic injectable
products, which are sold globally
and primarily used in hospitals.
Core revenue ($m)
Injectables core revenue by region ($m)
2019
2020
890
977
2020
2019
Core operating margin (%)
2019
2020
38.0
38.6
977
890
US
MENA
Europe and ROW
662 (67.7%)
160 (16.4%)
155 (15.9%)
US
MENA
Europe and ROW
636 (71.4%)
146 (16.4%)
108 (12.2%)
Outlook for 2021
We expect Injectables revenue grow in the mid-single digits. We expect core operating margin
to be in the range of 37% to 38%.
was 38.6% (2019: 38.0%), reflecting the
improvement in gross profit, slightly offset
by an increase in R&D investment and the
impact of adverse foreign exchange
movements of around $9 million, primarily
related to the Sudanese pound. In constant
currency, Injectables core operating profit
grew 14%, and core operating margin
expanded by 1.6 percentage points.
During the year, the Injectables business
launched 10 products in the US, 34 in MENA
and 33 in Europe. We submitted 230 filings
to regulatory authorities across all markets.
This primarily reflects our efforts to expand
our European portfolio and register products
in new European markets. We also signed
new licensing deals, including an agreement
with Sun Pharmaceuticals for ILUMYA™ and
with Sesen Bio for Vicineum™.
In 2021, we expect Injectables revenue to
grow in the mid-single digits, reflecting
continued demand for COVID-19 related
products, particularly in the first half, and a
gradual return of elective surgeries over the
course of the year. We expect core operating
margin to be in the range of 37% to 38%.
Financial highlights
$ million
Revenue
Core revenue
Gross profit
Core gross profit
Core gross margin
Operating profit
Core operating profit
Change
Constant
currency change
2020
977
977
563
563
2019
894
890
509
505
9%
10%
11%
11%
57.6%
56.7%
0.9pp
354
377
320
338
11%
12%
9%
9%
10%
11%
1.1pp
13%
14%
Core operating margin
38.6%
38.0%
0.6pp
1.6 pp
1. Amortisation of intangible assets (other than software) was $23 million. Refer to Note 6 of the Group consolidated
financial statements for further information
While we saw considerable variability in
demand for our injectable products over
the course of 2020 due to the COVID-19
pandemic, we were able to leverage our
broad product portfolio, new launches and
the flexibility of our manufacturing
operations to meet changing customer
needs and drive growth in Injectables
revenue and profitability.
Injectables core revenue increased by 10% to
$977 million (2019: $890 million). In constant
currency, Injectables core revenue grew by 9%.
US Injectables core revenue grew 4% to
$662 million (2019: $636 million), reflecting
good demand for certain products used in
the treatment of COVID-19, which, along with
the strength of the broader portfolio and
new product launches, more than offset the
impact of a decline in elective surgeries.
MENA Injectables core revenue was
$160 million, up 10% on both a reported and
constant currency basis (2019: $146 million).
This growth reflects an increase in demand
for COVID-19 related products and
continued growth of our biosimilar products
as we increase our market share and
continue to launch into new markets.
European Injectables core revenue was
$155 million, up 44% (2019: $108 million).
In constant currency, European Injectables
revenue increased by 41%. This reflects a
strong performance from our broad portfolio
and new launches, particularly in Italy and
Germany, as well as good demand for
contract manufacturing, including our supply
agreement with Gilead to manufacture
remdesivir for injection.
Injectables core gross profit increased by 11%
to $563 million (2019: $505 million) and
core gross margin increased to 57.6% (2019:
56.7%), primarily reflecting revenue growth
across all regions and an improvement in
product mix in Europe and MENA.
Injectables core operating profit, which
excludes the amortisation of intangible
assets (other than software)1 was $377 million
(2019: $338 million). Core operating margin
Revenue
$977m
+9%
28
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
29
Business and financial review
continued
Generics
Our Generics business develops
and manufactures oral and other
non-injectable generic products.
Our products are sold in the US
retail market.
Core revenue ($m)
Core operating margin (%)
2019
2020
719
2019
17.2
744
2020
21.6
Outlook for 2021
We expect Generics revenue to be in the
range of $770 million to $810 million and
core operating margin to be around 20%.
In 2021, we expect Generics revenue to be
in the range of $770 million to $810 million.
We expect core operating margin to be
around 20%, reflecting increasing sales
and marketing espenses, as we build our
branded portfolio, and higher R&D costs.
In December, we received US FDA approval
for our generic Advair Diskus® and initiated
launch. In January 2021, we temporarily
paused the launch of this product in order to
process an amendment to our Abbreviated
New Drug Application (ANDA). This is
classified as a Prior Approval Supplement
(PAS) and needs to be reviewed by the FDA
before we can introduce our product to the
market. The PAS reflects enhanced packaging
controls to meet new industry standards
adopted since the initial submission of the
ANDA application and does not affect the
approved status of our ANDA. The FDA has
granted this supplement priority status.
Financial highlights
$ million
Revenue
Gross profit
Core gross profit
Core gross margin
Operating profit
Core operating profit
Core operating margin
2020
744
329
341
2019
719
295
300
45.8%
41.7%
203
161
151
124
21.6%
17.2%
Change
3%
12%
14%
4.1pp
34%
30%
4.4pp
1. Exceptional items comprised a $62 million net impairment reversal of product related intangibles related to the Generics
business, $15 million related to inventory related provision write down and PPE impairment for generic Advair Diskus®
and $4 million related to proceeds from an insurance claim related to a warehouse fire at one of our facilities in Jordan.
Amortisation of intangible assets (other than software) was $9 million. Refer to Note 6 of the Group consolidated financial
statements for further information
Our Generics business grew revenue and
expanded profitability in 2020, supported by
a strong contribution from new launches and
good demand for our differentiated portfolio.
We saw a slight increase in demand during
the first half and then again towards the
end of the year for certain COVID-19 related
products. Throughout the year, our teams
worked hard to ensure we maintained a
high level of service for our customers.
Generics revenue grew 3% to $744 million
(2019: $719 million). A better than expected
contribution from new launches, as well as
the strength of our differentiated portfolio
more than offset an acceleration of price
erosion in the second half of the year.
Generics core gross profit grew 14% to
$341 million (2019: $300 million) and core
gross margin increased to 45.8% (2019: 41.7%).
This primarily reflected an improvement in the
product mix as a result of both good demand
for certain in-market products as well as the
performance from new launches.
Generics core operating profit, which
excludes the amortisation of intangible
assets (other than software) and exceptional
items1, increased by 30% to $161 million
(2019: $124 million). Core operating margin
increased to 21.6% (2019: 17.2%). This
significant improvement in profitability
reflects the increase in core gross profit
combined with process efficiencies.
In 2020, the Generics business launched six
products and submitted six files to regulatory
authorities. Launches included rufinamide,
generic Afinitor® and generic Zortress®, for
which we remain the sole generic in the
market. During the year, we demonstrated
our ability to challenge patents and obtain
approvals for complex products. We received
US FDA approval for icosapent ethyl
capsules in May and following a successful
court ruling, we launched the product in
November. Our ability to supply the market
with this product is constrained at the
moment due to limited availability of the
active pharmaceutical ingredient and we are
working hard to improve supply quantities
over the course of 2021.
Revenue
$744m
+3%
30
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
31
Business and financial review
continued
Branded
Our Branded business develops and
manufactures branded generics and
markets and sells in-licensed patented
products in MENA. Our products are
sold in the retail and hospital markets
Core revenue ($m)
Core operating margin (%)
2019
2020
583
2019
613
2020
22.1
20.6
Outlook for 2021
We expect Branded revenue to grow in
the mid-single digits in constant currency
in 2021.
Our Branded business had another good
year. We overcame challenges posed by
COVID-19, quickly switching our sales and
marketing teams onto virtual platforms and
ensuring that our plants across the region
could continue to operate safely. Our
approach of tiering our markets continued
to deliver success, with our Tier 1 countries
– Algeria, Saudi Arabia and Egypt – all
performing well, especially Algeria, which
recovered strongly following a more
challenging 2019. We saw a reduction in
demand for certain products, including
anti-infectives, resulting from the pandemic,
which was more than offset by a growth in
sales in our broader portfolio.
Branded revenue was $613 million (2019:
$583 million), up 5% on both a reported and
constant currency basis.
Branded core gross profit was $307 million,
up 7% (2019: $287 million) and core gross
margin was 50.1% (2019: 49.2%). In constant
currency, core gross profit increased by 6%.
The improvement in gross margin reflects an
improvement in the product mix.
During the year, the Branded business
launched 71 products and submitted 141
filings to regulatory authorities. Revenue
from in-licensed products represented
37% of Branded revenue (2019: 37%).
We expect Branded revenue to grow in
the mid-single digits in constant currency
in 2021.
Core operating profit, which excludes the
amortisation of intangibles (other than
software) and exceptional items1, was
$126 million, down 2% (2019: $129 million),
and core operating margin was 20.6% (2019:
22.1%). The decline reflects an increased
expense of $22 million resulting from
significant foreign exchange movements,
primarily in Sudan. In constant currency,
core operating profit grew 11% and core
operating margin expanded by 1.2
percentage points. The significant margin
expansion in constant currency primarily
reflects the improvement in gross profit
and good control of costs.
Financial highlights
$ million
Revenue
Gross profit
Core gross profit
Core gross margin
Operating profit
Core operating profit
Change
Constant
currency change
2020
613
307
307
2019
583
281
287
5%
9%
7%
50.1%
49.2%
0.9pp
120
126
105
129
14%
(2)%
5%
8%
6%
0.1pp
30%
11%
1.2pp
Core operating margin
20.6%
22.1%
(1.5)pp
1.
In 2020, exceptional items comprised proceeds from an insurance claim related to a warehouse fire at one of our facilities
in Jordan of $7 million and $3 million of severance and restructuring costs. Amortisation of intangible assets (other than
software) was $10 million. Refer to Note 6 of the Group consolidated financial statements for further information
Revenue
$613m
+5%
32
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
33
Business and financial review
continued
Other businesses
Other businesses, which primarily
comprises Arab Medical Containers (AMC),
a manufacturer of plastic specialised
medicinal sterile containers and International
Pharmaceuticals Research Centre (IPRC),
which conducts bio-equivalency studies,
contributed revenue of $7 million in 2020
(2019: $11 million) with an operating profit
of zero (2019: zero). This reduction in
revenue is due to disruptions at IPRC
in the first half of the year as a result
of the COVID-19 pandemic.
Research and development
Our investment in R&D and business development enables us to continue expanding the
Group’s product portfolio. During 2020, we had 154 new launches and received 201
approvals.
To ensure the continuous development of our product pipeline, we submitted 377 regulatory
filings.
2020 submissions1
2020 approvals1
2020 launches1
Injectables
US
MENA
Europe
Generics
Branded
Total
15
55
160
6
141
377
16
41
25
8
111
201
10
34
33
6
71
154
Net finance expense
Core net finance expense was $45 million
(2019: $45 million). On a reported basis, net
finance expense was $22 million (2019: zero),
which reflects non-cash net income of
$23 million resulting from the remeasurement
of the contingent consideration related to
the Generics business.
Profit attributable to shareholders
Profit attributable to shareholders was
$431 million (2019: $486 million). The decline
reflects the utilisation in 2019 of previously
unrecognised tax losses and deferred tax
benefits. Core profit attributable to
shareholders increased by 12% to $408
million (2019: $364 million).
We expect core net finance expense to be
around $50 million in 2021.
Profit before tax
Core profit before tax was $522 million (2019:
$465 million), up 12%, reflecting the strong
performance of our three business
segments. Reported profit before tax was
$558 million (2019: $491 million).
Tax
The Group incurred a reported tax expense
of $128 million (2019: $4 million) and an
effective tax rate of 22.9% (2019: 0.8%). This
follows the utilisation in 2019 of previously
unrecognised tax losses and deferred tax
benefits recognised upon the internal
reorganisation of intangible assets. Excluding
exceptional items, Group core tax expense
was $115 million (2019: $100 million). The core
effective tax rate increased slightly to 22.0%
(2019: 21.5%), primarily due to a change in the
earnings mix.
We expect the Group core effective tax rate
to be in the range of 22% to 23% in 2021.
Earnings per share
Basic earnings per share was 182.6 cents
(2019: 200.8 cents). Core basic earnings per
share increased by 15% to 172.9 cents (2019:
150.4 cents) and core diluted earnings per
share increased by 14% to 171.4 cents (2019:
149.8 cents).
Dividend
The Board is recommending a final dividend
of 34 cents per share (approximately 24
pence per share) (2019: 30 cents per share)
bringing the total dividend for the full year
to 50 cents per share (approximately 36
pence per share) (2019: 44 cents per share).
The proposed dividend will be paid on 26
April 2021 to eligible shareholders on the
register at the close of business on 19 March
2021, subject to approval at the Annual
General Meeting on 23 April 2021.
1. New products submitted, approved and launched by
country in 2020
Group operating profit
$ million
Core operating profit
R&D costs
Jordan warehouse fire
incident
Proceeds from legal claim
Contingent consideration
adjustment
MENA severance and
restructuring costs
Integration costs
Net impairment reversal
of product related
intangibles
Intangible assets
amortisation other than
software
Assets write off
2020
566
–
11
–
–
(3)
–
2019
508
(24)
(13)
32
7
(7)
4
62
20
(42)
(15)
(34)
–
Reported operating profit
579
493
Balance sheet
Net assets at 31 December 2020 were
$2,148 million (31 December 2019:
$2,129 million). Net current assets were
$894 million (31 December 2019: $377 million)
primarily due to a change in the debt
maturity profile as a result of the repayment
of the Eurobond during the period and
an increase in inventory levels.
Legal proceedings
In October 2020, Hikma received a voluntary
request for information from the US Federal
Trade Commission requesting information
related to its investigation into whether
Amarin Pharma, Inc. has engaged in, or is
engaging in, anticompetitive practices or
unfair methods of competition relating to the
drug Vascepa®. Hikma has also received a
subpoena duces tecum from the State of New
York, Office of the Attorney General, seeking
information relevant and material to an
investigation related to Amarin Pharma, Inc.
We are cooperating with all such demands.
Definitions
We use a number of non-IFRS measures to
report and monitor the performance of our
business. Management uses these adjusted
numbers internally to measure our progress
and for setting performance targets. We
also present these numbers, alongside
our reported results, to external audiences
to help them understand the underlying
performance of our business. Our core
numbers may be calculated differently
to other companies.
Adjusted measures are not substitutable for
IFRS results and should not be considered
superior to results presented in accordance
with IFRS.
Core results
Reported results represent the Group’s
overall performance. However, these results
can include one-off or non-cash items which
are excluded when assessing the underlying
performance of the Group. To provide a more
complete picture of the Group’s performance
to external audiences, we provide, alongside
our reported results, core results, which are a
non-IFRS measure. Our core results exclude
the exceptional items and other adjustments
set out in Note 6 of the Group consolidated
financial statements.
Net cash flow, working capital and
net debt
The Group generated strong operating cash
flow of $464 million (2019: $472 million). The
slight decline versus 2019 reflects higher
Group working capital days – up 62 days to
264 days – as a result of a strategic decision
to maintain higher inventory levels to ensure
continuity of supply for customers during the
pandemic.
Capital expenditure was $172 million (2019:
$119 million), ahead of expectations. As the
market outlook improved through the
second half of the year, we proceeded with
several projects to expand and enhance our
capabilities. In the US, $89 million was spent
upgrading equipment and adding new
technologies for our Generics and
Injectables businesses. In MENA, $67 million
was spent on strengthening and expanding
manufacturing capabilities. In Europe, we
spent $16 million on strengthening our
capabilities, including finalising our new
high containment facility. We expect Group
capital expenditure to be in the range of
$140 million to $160 million in 2021.
The Group’s total debt increased to
$932 million at 31 December 2020
(31 December 2019: $685 million). This
increase primarily reflects the full utilisation
of the Group’s $150 million 2017 International
Finance Corporation (IFC) facility. During
the year, the Group signed a new $200 million
lFC loan facility which, along with the Group’s
revolving credit facility, was undrawn at
year end.
The Group cemented its strength in the
debt capital markets, with the raising of a
new 3.25% coupon $500 million Eurobond
in July, following the repayment of our
previous bond in April. During the year,
we also achieved investment grade status,
an accomplishment which demonstrates
the quality of the business.
The Group’s cash balance at 31 December
2020 was $327 million (2019: $443 million).
This decrease is primarily related to the
purchase of 12.8 million ordinary shares from
Boehringer Ingelheim (BI) for $375 million, in
connection with BI´s disposal of its 16% stake
in Hikma, which was settled through a
combination of cash and existing facilities.
The Group’s net debt (excluding co-
development agreements and contingent
liabilities) was $605 million at 31 December
2020 (31 December 2019: $242 million). This
increase primarily reflects the purchase of
shares from BI, as outlined above. We have
maintained a comfortable level of leverage
with a net debt to core EBITDA ratio of 0.9x.
34
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
35
Business and financial review
continued
Constant currency
As the majority of our business is conducted
in the US, we present our results in US
dollars. For both our Branded and Injectable
businesses, a proportion of their sales are
denominated in a currency other than the
US dollar. In order to illustrate the underlying
performance of these businesses, we
include information on our results in
constant currency.
Constant currency numbers in 2020
represent reported 2020 numbers
translated using 2019 exchange rates,
excluding price increases in the business
resulting from the devaluation of currencies
and excluding the impact from hyperinflation
accounting. In 2020 Lebanon and Sudan
were considered hyperinflationary
economies, therefore the spot exchange rate
as at 31 December 2020 was used to
translate the results of these operations into
US dollars.
EBITDA
EBITDA is earnings before interest, tax,
depreciation, amortisation and impairment
charges/reversals.
EBITDA
$ million
Reported operating
profit
Depreciation,
amortisation and
impairment charges/
reversals
Reported EBITDA
Exceptional items:
R&D costs
Jordan warehouse fire
incident
Assets write off
Proceeds from legal
claim
Contingent
consideration
adjustment
MENA severance and
restructuring costs
Integration costs
2020
2019
579
493
91
670
99
592
–
(11)
12
–
–
3
–
24
13
–
(32)
(7)
7
(4)
Core EBITDA
674
593
Working capital days
We believe Group working capital days
provides a useful measure of the Group’s
working capital management and liquidity.
Group working capital days are calculated as
Group receivable days plus Group inventory
days, less Group payable days. Group
receivable days are calculated as Group
trade receivables x 365, divided by 12
months Group revenue. Group inventory
days are calculated as Group inventory x 365
divided by 12 months Group cost of sales.
Group payable days are calculated as Group
trade payables x 365, divided by 12 months
Group cost of sales.
Group net debt
We believe Group net debt is a useful
measure of the strength of the Group’s
financing position. Group net debt is
calculated as Group total debt less Group
total cash. Group total debt excludes
co-development agreements and contingent
liabilities.
Group net debt
$ million
Short-term financial
debts
Short-term leases
liabilities
Long-term financial
debts
Long-term leases
liabilities
Total debt
Cash, cash equivalents
and restricted cash
Net debt
Dec-20
Dec-19
(158)
(569)
(10)
(9)
(692)
(48)
(72)
(59)
(932)
(685)
327
443
(605)
(242)
ROIC
ROIC is calculated as core net operating
profit after tax (NOPAT) divided by invested
capital (calculated as total equity plus net
debt). This measures our efficiency in
allocating capital to profitable investments.
ROIC
$ million
Core operating profit
Tax
Core NOPAT
Net debt
Equity
Invested capital
2020
566
2019
508
(121)
(104)
445
605
2,148
2,753
404
242
2,129
2,371
ROIC
16.2% 17.0%
Outlook for 2021
Group
We expect to benefit from our
continued investment in R&D across
our businesses and we will look to fill
pipeline gaps through business
development
Injectables
We expect Injectables revenue to grow
in the mid-single digits. We expect
core operating margin to be in the
range of 37% to 38%.
Generics
We expect Generics revenue to be in
the range of $770 million to $810 million
and core operating margin to be
around 20%.
Branded
We expect Branded revenue to grow in
the mid-single digits in constant
currency.
Net finance expense, tax and
capital expenditure
We expect Group net finance expense
to be around $50 million and the core
effective tax rate to be in the range of
22% to 23%. We expect Group capital
expenditure to be in the range of
$140 million to $160 million.
36
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
37
Sustainability
Sustainability
Supporting patients
and communities
We have a duty of care towards patients,
communities, our people and the environment.
We are a responsible and sustainable company,
and use our business to promote positive change.
In this section
39 Supporting patients and communities
44 Operating responsibly and ethically
46 Enabling our people
48 Monitoring and minimising
our environmental impact
The challenges that arose
in 2020, particularly as
a result of the COVID-19
pandemic, made our
support for patients
and communities more
important than ever.
We work across three
focus areas to address
socio-economic hardships
and to provide relief to
those most in need.
Our community engagement focus areas:
Working to address unmet healthcare
needs through community outreach
and medicine donations
Find out more on page 40
Providing
better health
Enabling students to realise their full
potential by addressing learning needs
and developing infrastructure
Find out more on page 42
Supporting
education
Extending support to those in our
communities that need it most
Helping people
in need
Find out more on page 43
38
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
39
Sustainability
continued
Providing
better health
We provide essential
medicines and support to
underserved people and to
those facing crisis situations
2020
2019
2018
$1.4m
$3.1m
$4.1m
Addressing unmet
healthcare needs through
our medicine donation
programme
Through our medicine donation programme, we direct support to
those that need it most; including low-income groups, displaced
persons, children with life-threatening illness, and patients without
sufficient medical coverage.
During 2020, we strengthened our existing relationships with our
partners including Direct Relief, Dispensary of Hope, Americares,
and the National Children’s Cancer Society. We also established
new partnerships with Save the Children and others to ensure
our donations of essential medicines continue into the future.
Responding to the
medical emergency
following the Beirut
explosion
The explosion that tore through Beirut on August 4 resulted
in the tragic loss of hundreds of lives and widespread
devastation of homes and public infrastructure.
We responded immediately and worked alongside our
partners to provide critical medicines and basic necessities
to those most affected.
$2.3m
in medicine and healthcare
resources donated
to hospitals and the
Lebanese government
2,129
essential shelter kits
distributed by Save
the Children supported
by Hikma donations
6,000
treatments of
hydroxyurea donated
through Anera to
support treatments for
chronic conditions
Photo: Tom Nicholson/Save the Children
Facilitating medical
consultations for more
than 180,000 people
in Jordan
In response to the COVID-19 pandemic and the need to
ensure patients are well informed, we supported the Jordanian
Ministry of Health and digital health company Altibbi in the
development of a National Coronavirus Hotline, enabling
330 participating doctors to provide medical consultations
to more than 180,000 patients.
Our response:
Responding to medical
needs resulting from
the floods in Sudan
We took urgent action to assist those in need following the
extreme floods that took place in Sudan in September.
The flooding affected more than 800,000 people and was
amongst the most severe to be recorded in the region. In
response, we donated essential medicines, funded provision
of meals for people in need, and provided insecticides.
330
participating doctors provided
medical consultations to more
than 180,000 patients
26,000
people impacted by donations
of essential medicine
330
families provided with essential meals
5,200
families provided with insecticides
to protect against the spread
of mosquito-borne diseases
40
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
41
Sustainability
continued
Supporting
education
Our aim is to improve
learning conditions
and provide support to
students and teachers
Supporting back to
school activities
Provided 5,700
students with career
advice through our
partnership with
Careervillage.org
Delivered essential
school supplies
to 350 students in
Portugal
Completed
infrastructure
projects in two
Sudanese schools,
impacting 1,500
students
Extended computer
coding courses to
300 young people in
Jordan through the
local NGO, Hello
World Kids
Supporting the
Transforming
Refugee Education
towards Excellence
(TREE) programme
TREE is a teacher training and development
programme that aims to improve the quality
of education for Syrian refugees in Jordan.
The programme enables educators to more
effectively address the trauma and unique
learning needs of displaced children by
incorporating psychosocial support and
emotional learning approaches for students.
The aim is to provide training and support for
1,350 educators who in turn will help more than
745,000 students through the programme.
TREE is an initiative of Save the Children and
the MIT Abdul Latif Jameel World Education
Lab (J-WEL), in cooperation with the Jordanian
Ministry of Education, Community Jameel and
Dubai Cares.
TREE helps teachers address
the trauma and unique
learning needs of Syrian
refugee students in Jordan
$100,000
provided to support
TREE in 2020
126
educators received
training and support
for dealing with
student trauma
60
training sessions
provided
to educators
We are thrilled
about our new
partnership
with Hikma. They
are strengthening
a ground-breaking
programme that
provides crucial
assistance to
teachers in
Jordan and the
refugee children
they teach.
Kevin Watkins
Save the Children CEO
Helping people
in need
We organise efforts to
support low-income groups,
displaced persons and other
marginalised communities
The economic impacts of the
pandemic placed immense strain
on the most vulnerable segments
of our societies. In response, we
have focused much of our outreach
towards providing basic necessities
to those most affected.
To help address the extreme food shortages caused
by overstretched support systems, we organised
extensive meal donation activities in several locations.
USA
600,000 meals
Distributed more than
600,000 meals to food banks
and pantries
Egypt
3,700 people
Collaborated with the
Egyptian Food Bank
to provide meals to
3,700 people
Portugal
380 families
Organised an employee
donation campaign
to support 380 low-income
families
Jordan
2,900 people
Worked alongside
Taalof Alkhair to donate
food to 2,900 people
42
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
43
Sustainability
continued
Operating responsibly
and ethically
Hikma is committed to
upholding the highest
ethical standards in
the conduct of its global
business operations,
which is grounded in
our values of caring,
innovation, and
collaboration.
Our values serve as the foundation for a
strong governance framework that is
fundamental to our long-term organisational
success. Our Code of Conduct sets out
behaviours we expect from our employees
as we conduct our business, and provides an
overview of our legal, regulatory, and ethical
requirements. Our Code provides guidance
to our employees and partners on the ethics
of Hikma’s business activities through the
identification and discussion of various risks
associated with our business. In addition to
our Code, we have also developed policies
and procedures designed to help employees
and third parties put these behaviours into
practice. Hikma employees, officers and
directors are trained on the Code of Conduct
as part of their induction and are provided
refresher training on a periodic basis.
Through our global compliance programme
we have adopted internal controls and
management processes to ensure the
responsible and ethical conduct of our
business. This includes compliance with
all relevant global and local laws, codes
and regulations wherever we operate.
We believe in transparency and promote a
culture that encourages employees to raise
any concerns about potential violation of laws
and regulations, or any other behaviours or
incidents that do not comply with our Code
of Conduct. In addition, our speak up line
provides both internal and external
stakeholders a resource to use to raise
concerns about suspected misconduct
confidentially. All cases received are reviewed
by our Legal and Compliance teams, and
investigated, as appropriate, by Legal and
Compliance personnel. Substantiated
violations of our Code of Conduct, or other
policies and procedures are addressed
through our disciplinary procedures.
Our Compliance, Responsibility and Ethics
Committee provides oversight of our global
compliance programme and the
management of associated risks, including
bribery and corruption. We have a zero-
tolerance policy for bribery and corruption
at Hikma. As a publicly listed company on the
London Stock Exchange (LSE), we are subject
to the regulations of the UK Listing Authority.
We also comply with the UK Bribery Act 2010
and the US Foreign Corrupt Practices Act, as
well as global anti-corruption standards and
local anti-bribery and corruption laws.
Founding member of
the Partnering Against
Corruption Initiative (PACI)
Hikma is a founding member of the Partnering Against
Corruption Initiative (PACI), a cross-industry collaborative effort
established through the World Economic Forum dedicated to
promoting compliance and eliminating corruption. We are also
members of the Business 20 (B20) Anti-Corruption Working
Group. The B20 represents the business voice of the G20 group
of governments and the Anti-Corruption Working Group has a
mandate to help companies improve their ethical conduct.
Maintaining our
membership of the
FTSE4Good Index
For the sixth consecutive year, we maintained our membership of
the FTSE4Good Index Series – an index of LSE-listed companies
that demonstrate strong Environmental, Social and Governance
(ESG) practices as measured against globally recognised
standards. The FTSE4Good evaluates companies’ effectiveness
in addressing issues such as human rights, anti-corruption,
environmental performance, health and safety, and community
engagement. Their assessments are used by a wide variety of
market participants to develop responsible investment funds
and other products.
This year, our score increased from 3.0 to 3.5, which improved our
ranking as compared to other member companies from the 57th
to the 78th percentile. We continue to score above the averages
for both healthcare and pharmaceuticals sectors in all three ESG
categories. Our aim is to continue improving our management
of ESG issues, with a focus on strengthening our environmental
performance and disclosure in 2021.
This year, our FTSE4Good
Index score increased from
3.0 to 3.5
which improved our ranking as
compared to other member
companies from the 57th
to the 78th percentile
44
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
45
Sustainability
continued
Enabling our
people
Our people are our most
valuable asset. We
adapted health and safety
measures to address the
unprecedented challenges
of the COVID-19 pandemic
and continued expanding
our global learning and
development programme
by providing more readily
accessible digital
resources to all employees.
Ensuring health and safety
In response to the pandemic, it was essential for us to take measures that protect
the safety of our employees while maintaining continuity of our manufacturing
operations and supply of medicines.
Some of the actions taken to effectively
manage employee safety include:
Maintained multiple
channels of communication
for employees to receive
timely information, updates
and advice regarding
health and safety issues.
Adapted work schedules
to reduce interaction and
strengthen social distancing
between departments and
shifts, and instituted
restrictions on travel and
in-person meetings in line with
public health authority
guidelines.
Distributed personal protective
equipment to all employees
and implemented screening
measures including daily health
checks and temperature
monitoring.
As part of the We Are Hikma
campaign, we established
webinars and online resources
for employees on themes
related to mental wellbeing,
stress management and
general awareness.
Learning and
development
Our digital learning platforms empower all our employees to
pursue personalised learning objectives. These platforms have
also been fundamental in ensuring accessibility to continued
learning as we adapted to new work from home guidelines.
+40,000
digital learning assets available to employees
Online video courses taught by experts in
business, technology and digital skills
31%
Employee
usage rate
17k
Number of
employee
learning hours
41k
Number of
courses viewed
by employees
Online books, audio books and technical
skills training
22%
Employee
usage rate
3.8k
Number of
employee
learning hours
47k
Number of
pages viewed
by employees
Our objectives going forward:
– improve the adoption rate of online resources
– develop Arabic language content
– introduce blended learning programmes that combine
online materials with instructor-led learning activities
Breast
cancer
awareness
Our annual campaign
engages employees and
raises awareness about
the value of early detection
and treatment.
As part of our campaign,
we offered employees
self-screening training,
educational lectures and
facilitated appointments
with doctors. We also
distributed educational
materials, and donated
encouragement cards and
kits of hope to hundreds
of breast cancer patients
worldwide.
45
patients received
support kits through
our partnership with
the US National Breast
Cancer Foundation
80
women received
self-screening
training in Portugal
520
employees in
MENA attended
virtual awareness
sessions
Diversity, equity
and belonging
Hikma celebrates diversity and prides itself on a culture
of inclusion. We uphold the sixth principle of the United
Nations Global Compact on the elimination of discrimination
in the workplace. We hire on merit and are committed to
employing and engaging talented people irrespective of
their race, gender, religion, sexual orientation, age, marital
status, national origin, present or past history of mental
or physical disability and any other factors not related to
a person’s ability to perform a role.
During the year, we conducted focus groups and peer-to-
peer discussions to evaluate opportunities to strengthen
our culture of belonging. We established an employee-led
initiative – the Black Employees Advisory Board in the US –
and a Diversity, Equity and Belonging Task Force to direct
a more inclusive approach to employee recruitment,
retention and promotion.
46
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
47
Sustainability
continued
Monitoring and minimising
our environmental impact
We are committed to
making our operations
more energy efficient and
environmentally
responsible.
This statement has been prepared in
accordance with our regulatory obligation
to report greenhouse gas (GHG) emissions
pursuant to the Companies (Directors’
Report) and Limited Liability Partnerships
(Energy and Carbon Report) Regulations
2018, which implement the UK government’s
policy on Streamlined Energy and Carbon
Reporting. Our emissions have been verified
to a reasonable level of assurance by an
external third party according to the
ISO 14064-3 standard.
We continue to achieve progress with
our environmental performance. We are
improving the way we monitor our impacts,
pursuing projects that reduce our footprint
and aligning with the recommendations
of the Task Force for Climate-Related
Disclosures (TCFD). More information on our
environmental performance and disclosure
is available in the sustainability section of
hikma.com.
We measure our environmental impacts
through several metrics which we continue
to refine and expand, including:
– direct fuel usage (Scope 1)
– electricity consumption (Scope 2)
– renewable energy generation and usage
– water consumption
Our performance
Overall, our GHG emissions for scope 1 and 2 decreased by 0.4% year-on-year. We continue to invest in energy efficiency projects
and renewable energy systems at multiple sites, and are adopting hybrid and electric vehicles where feasible. Since 2017, our reported
GHG emissions of direct fuel usage and electricity consumption have decreased by 4%.
Greenhouse gas emissions, tonnes of carbon dioxide
equivalent (tCO2e): 2017-2020
129,259
128,277
124,812
124,371
2017
2018
2019
2020
129,259
128,277
124,812
124,371
Scope 1 – direct combustion
of fuel and operation of
facilities
Scope 2 – electricity
consumption
Total scope 1 and 2
emissions (location-based)
36,839
38,404
39,089
41,397
92,421
89,873
85,723
82,974
129,259 128,277
2017
124,812 124,371
2018
2019
2020
Scope 1
Scope 2
2017
2018
2019
2020
Scope 1
Scope 2
Year-on-year change by emission source
2017
2018
2019
2020
0k
10k
20k
30k
40k
50k
60k
70k
80k
90k
100k
110k
120k
130k
Natural gas combustion
Petrol combustion
Vehicle emissions
Diesel combustion
LPG/Propane combustion
Refrigerants
Electricity
Verification statement: Reasonable assurance
Carbon Credentials Energy Services Ltd has been contracted by
Hikma Pharmaceuticals PLC for the independent third-party
verification of direct and indirect carbon dioxide equivalent emissions
(CO2e) as provided in the 2020 Company Annual Report and Accounts
to a reasonable level of assurance. Verified emissions by scope include:
Scope 1 Emissions
– combustion of gaseous fuels (natural gas, diesel, petrol and LPG)
– fugitive refrigerant gases
Scope 2 Emissions
– purchased electricity consumption (location and market-based)
Carbon Intelligence concludes with reasonable assurance that the
GHG assertion is materially correct, is a fair representation of the GHG
emissions data and information and is prepared in accordance with
the relevant criteria.
Data notes:
— We quantify and report our organisational GHG emissions in alignment with the
World Resources Institute’s Greenhouse Gas Protocol Corporate Accounting and
Reporting Standard and in alignment with the Scope 2 Guidance. We consolidate our
organisational boundary according to the operational control approach, which includes
all our facilities. We have adopted a materiality threshold of 10% for GHG reporting
purposes. Non-manufacturing facilities with less than 150 staff, including our UK office
are not included as they fall below our materiality threshold. Joint ventures with less
than 50% holding are not included as we do not have operational control. Emissions are
reported from sites which represent 87% of total employees. Estimates of the emissions
generated by offices that are below our materiality threshold are available in the
sustainability section of hikma.com.
— Emissions from the consumption of electricity are reported in tCO2e. However, since the
International Energy Agency emission factors for electricity currently account for carbon
dioxide emissions only, part of these emissions are in tonnes of carbon dioxide (tCO2).
— Reported data from previous years are revised as we continue to improve the quality
of our data collection and analysis.
— More details about our environmental performance metrics, including market-based
scope 2 emissions, are available in the sustainability section of hikma.com.
48
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Hikma Pharmaceuticals PLC Annual Report 2020
49
Sustainability
continued
Our renewable
energy capacity
We continue to invest in renewable energy
infrastructure to reduce our footprint and
long-term overhead costs. We currently
have solar photovoltaic systems in four
locations – three in Jordan and one in
Portugal. We also purchase electricity
generated by renewables in Portugal and
Sudan. This is reflected in our market-based
emissions available in the sustainability
section of hikma.com.
Water consumption
Measuring water consumption enables us to more effectively manage our environmental
impacts. The figures below indicate our cubic metre consumption by region. Information about
water treatment, waste management and indirect emissions can be found in the sustainability
section of hikma.com.
Water consumption by region, cubic metres (m3): 2020
US
MENA
452,000
240,000
Europe & ROW
327,000
9%
of our electricity
consumption is derived
from renewable sources
m3
Improving energy efficiency
Tunisia
The installation of a co-generation
heat and power system for
our sites in Tunisia improves
the efficiency of steam use,
enabling a 30% decrease
in electricity consumption.
Portugal
The installation of a heat
thermal recovery system in
Portugal saves approximately
480,000 kilowatt-hours (kWh)
of energy per year.
LED lighting
We continued our roll-out of
more efficient light emitting
diode (LED) fixtures, improving
efficiency across eight sites
with annual energy savings
of over 300,000 kWh.
Columbus
At our site in Columbus, USA,
we upgraded steam boiler
burners, saving an estimated
466,000 kWh of electricity
in 2020.
Climate impact identification
and materiality assessment
We are undertaking a full assessment
of the material climate-related risks and
opportunities that have the potential
to impact our business. We are using the
industry standard risk and opportunities
framework published by CDP (formerly the
Carbon Disclosure Project) as a foundation
for the assessment.
Our TCFD disclosures
We are aligning our internal processes and
public disclosures with the Taskforce on
Climate-related Financial Disclosures (TCFD)
recommendations. We have summarised our
progress to date in this section.
Governance
To ensure that sustainability topics are
considered at the highest level of decision
making, they have been placed under the
remit of our Compliance Responsibility and
Ethics Committee (CREC). This includes
reviewing and guiding our sustainability
strategy and tracking our progress towards
sustainability-related goals, including
climate change.
Strategy
Hikma aims to manage its impact on the
environment in a responsible manner, to
adapt our organisation to climate change
and to avoid adverse impacts.
In order to achieve this, we are assessing
our impact on the environment and the
potential impact of climate change scenarios
on our organisation. In 2020 a cross-
functional team that included employees
from across regions and disciplines worked
together to assess our climate-related risks
and developed the scenario models that
were used in our longer-term viability
assessments (see page 59).
In 2021, further work is planned to refine
our environmental priorities and incorporate
TCFD recommendations into our business
operations.
Risk management
We assess climate-related risks through
our emerging risk management process.
The process involves engaging with external
experts, scenario modelling and connecting
to existing interrelated risk mitigation
programmes. The approach helps to ensure
appropriate management attention is
provided to this developing area.
Further information on our principal risks,
enterprise risk management framework
and emerging risk process can be found
on pages 52 to 59.
Metrics and targets
We are developing metrics and targets
to measure our climate impact and assess
climate-related risks and opportunities.
These metrics will enable us to analyse
current and historical periods.
Details of our energy usage, water
consumption and carbon emissions
can be found on pages 48 to 50.
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51
Risk management
Risk
management
In 2020, our risk management framework
provided structure and stability in an environment
challenged by the COVID-19 pandemic
In this section
53 Risk management framework
54 Risk management activities
55 Principal risks and uncertainties
59 Going concern
59 Longer-term viability
Risk appetite
The Board determines the nature and extent
of the principal risks it is willing to take and
communicates this through the Group risk
appetite. The risk appetite outlines expected
management strategies and details limits
and tolerances on risk exposure for each
of the principal risks. It forms the foundation
of the ERM framework, guides management
decision-making across the Group and is
reviewed and updated annually.
Risk governance
The Board has ultimate responsibility for the
Group’s approach to risk management and
internal control. On behalf of the Board, the
Audit Committee oversees risk management
for the Group as part of its responsibilities
for internal control.
The Audit Committee reviews the material
risks facing the Group, considering different
sources of assurance, including executive
management, internal audit and external
audit. The Chair of the Audit Committee
is a standing member of the Compliance,
Responsibility and Ethics Committee
(CREC) ensuring connection between
the Board committees with risk oversight
responsibilities 1.
Internal audit provides independent
assurance of the Group’s internal control
environment. For more details on our internal
audit approach see pages 77 and 78.
The ERM office enables and drives the
implementation of effective risk
management practices and partners with
global risk owners in assessing and reporting
their risks, and through coordination of
emerging risk assessments.
Compliance and control functions with
professional expertise in managing risk
in specialist areas are in place across the
organisation.
The CEO and Executive Committee have
direct ownership of risk management for
the Group. Risk management accountability
is fully embedded within their executive
responsibilities and includes assessments
of strategic opportunities and risks.
As part of the risk governance framework,
senior executives are assigned global
risk owner responsibility for specific
principal risks.
Global risk owners coordinate risk
management activities across the
organisation with support from management
teams to ensure risk exposure is managed
appropriately and in line with the risk appetite.
1. Full committee terms of reference are available
on www.hikma.com
Risk management framework
Risk context
We develop, manufacture and market a
broad range of generic pharmaceutical
products across the US, MENA and Europe.
We are also a leading licensing partner.
Risks are inherent in our business. They may
be related to our strategy and delivery of our
objectives, the fundamental activities and
processes of the organisation, meeting the
expectations of our stakeholders, or arise
through key relationships and dependencies.
Find out more about the internal and
external context for risk management for
the Group in ‘Our strategy’ (pages 12 and 13),
‘Our markets’ (pages 16 and 17) and ‘Our
business model’ (pages 18 and 19).
Risk strategy
Effective management of risk is fundamental
to delivering long-term success for the
Group. We operate an Enterprise Risk
Management (ERM) framework to ensure
that we are comprehensive and structured
in our approach. This framework delivers
a thorough view on our risk exposure to
inform our decision-making and enable
the alignment, effectiveness and efficiency
of our strategic, tactical, operational and
compliance processes. This approach
ensures we fulfil our obligations and
provides assurance that our activities
are appropriately controlled.
Risk management responsibilities
Board of Directors
Internal audit
ERM office
Global risk owners
– Determine principal risks
– Define and communicate the
Group risk appetite
– Ensure overall effectiveness
of the risk management
framework
– Review risk management
key outcomes
– Evaluate strategic risks and
opportunities
– Provides independent
assurance of the Group’s
internal control environment
– Enable and drive effective
risk management practices
– Partner with global risk owners
in risk assessment and
reporting
– Coordinate emerging risk
assessments
– Implement effective risk
management practices to
assess and manage risks
across the organisation
– Report on risk exposure and
risk management status
Audit Committee
CEO and Executive Committee
Compliance and control functions
Management teams
– Review the effectiveness
of internal controls and risk
management systems
– Review risk and assurance
reports from executive
management, internal audit
and external audit
– Consider risks highlighted by
the CREC
– Review regular risk and
assurance reports to ensure
Group operates within risk
appetite
– Take enterprise view of risk
exposure, consider inter-
relation of risks and evaluate
emerging risks
– Make decisions on prioritisation
for risk response
– Assess strategic opportunities
and risks
– Develop, implement and
– Manage risks and risk mitigation
monitor compliance to Group
and functional policies and
procedures
– Identify and analyse
emerging risks
activities
– Implement and monitor Group
and functional policies and
procedures, and other internal
controls
– Identify and analyse
emerging risks
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53
Risk management
continued
Risk management activities
Risk management activities occur at all
levels of the organisation. The risk
governance framework provides structure
for these activities to ensure consistency of
approach, alignment to the risk appetite and
monitoring of our risk exposure. The ERM
office coordinates regular risk assessments
to review management of existing risks,
and to identify new and emerging risks (see
below). These assessments are consolidated
through a process coordinated by the
ERM office and reported to the Executive
Committee by the global risk owners.
Summarised reports and key outcomes are
reviewed by the Audit Committee and Board.
In addition to the core reporting processes
described, a range of key risk management
activities occurred during the year.
Emerging risks
Emerging risks are those that are new and
may develop into a significant risk, those that
are known but are rapidly changing, or those
that are developing over the long term and
may have significant impact on our ability
to achieve our objectives. Emerging risks are
often driven by forces outside our control.
Although emerging risks may be mitigated
by existing control frameworks, they need
to be assessed to determine if any aspects
fall outside current processes or if the
controls in place may become inadequate
as the risk develops.
Our approach involves establishing
cross-functional teams to assess strategic,
tactical, operational and compliance risks
and opportunities recognising these risks
may develop over an extended timeframe.
The risk assessment methods deployed
vary and may involve engaging with external
experts, scenario modelling, engagement
with existing risk mitigation programmes,
and development of risk mitigation and
control strategies that will be sustainable
over the longer term.
Priorities for 2021
In addition to core activities, in 2021 we
will continue to roll out our upgraded
crisis response and business continuity
management processes to strengthen
our organisational resilience.
We will continue to develop partnerships
between compliance and control functions
to bring greater assurance for the Group.
We will further develop our emerging risk
assessment processes, including a focus on
emerging climate-related risks alongside our
alignment with the recommendations from
the Taskforce on Climate-related Financial
Disclosures. See page 51 for more details.
Key risk management
activities in 2020
Reviewed the risk management
framework, risk appetite, and
principal risks
Developed scenario modelling
approach for stress testing and
sensitivity analysis of significant risk
events based on principal risks (see
longer-term viability assessment on
page 59)
Monitored enterprise-wide key
risk indicators aligned to risk
appetite to assess risk exposure
Enhanced elements of insurance
programme through integrated
assessment of risk exposures and
control environment
Established crisis and continuity
management programme to embed
organisational resilience framework
Brexit
With the withdrawal of the UK from the
European Union’s single market and customs
union on 31 December 2020, we are
monitoring for any implications arising for our
business as the new arrangements under the
EU-UK Trade and Cooperation Agreement
come in to force.
Our cross-functional reviews continue to
assess that the exposure for the Group is
low and manageable. We have a small
footprint in the UK and limited dependence
on movement of people, goods, services
and capital between the UK and Europe.
Risk
management
in practice
COVID-19 brought unprecedented
public health, crisis management and
business continuity challenges to the
world and our organisation. As the
pandemic developed during the year,
our risk management capabilities were
brought to the fore.
Our response involved rapid stand
up of cross-functional incident
management teams at group, region,
country and site levels, connected to
the Executive Committee and the Board.
These teams shared common principles
of putting the health and safety of our
employees and patients first, open and
transparent communication, and values
and evidence-based decision making
aligned to requirements from authorities.
As a result of our efforts Hikma
established effective safety measures for
our employees, maintained operations
to deliver essential medicines, and
continued to meet the needs and
expectations of our stakeholders.
Our risk management processes brought
structure, alignment and consistency
to our response. With our continuous
improvement mindset, we have
enhanced our organisational resilience
through various initiatives, including
general training.
To find out more see ‘Our response
to COVID-19’ on pages 10 and 11.
c.8,000
Employees trained on crisis
management principles
Principal risks and uncertainties
The Group faces risks from a range of sources that could have a material impact on our financial commitments and ability to trade in the future.
The Board has performed a robust assessment of the principal risks for the Group considering our risk context and with input from executive
management. Effectively managing these risks is directly linked to the performance of our strategic KPIs and the delivery of the strategic
priorities outlined on pages 12–15. Our principal risks are set out below with examples of management actions that help to control the risk.
The Board recognises that certain risk factors are outside the control of management. The Board is satisfied that the principal risks are being
managed appropriately and consistently with the target risk appetite. The set of principal risks should not be considered as an exhaustive list
of all the risks the Group faces, and the management actions described do not include all actions taken.
Industry dynamics
What does the risk cover?
Management actions
The commercial viability of the
industry and business model we
operate may change significantly as
a result of political action, economic
factors, societal pressures,
regulatory interventions or changes
to participants in the value chain
of the industry.
– Continuous improvement in annual strategic reviews, business planning, budgeting and forecasting
processes to enable and drive efficient and effective execution of strategy
– Growth and expansion in existing markets with new products and in new therapeutic areas
– Portfolio management programmes to focus on strategic products that support revenue, profit and
margin targets
– Development of capacity and diversification of capability through differentiated technology
– Capital investment in the countries in which we operate to ensure continued market access
– Active product life cycle and pricing management
– Continuous alignment of commercial and R&D organisations to identify market opportunities and meet
demand through internal portfolio
– Collaboration with external partners for development and in-licensing partnerships
– Leveraging the quality, reliability and flexibility of our manufacturing facilities for partnerships (such as
contract manufacturing)
– Working with a broad range of customers and expanding our relationships to cover new customers
and purchasing models, eg Civica Rx in the US
Product pipeline
What does the risk cover?
Management actions
Selecting, developing and
registering new products that meet
market needs and are aligned with
Hikma’s strategy to provide a
continuous source of future growth.
– Selection process for new pipeline products with commercial teams established and operating effectively
– Optimised and standardised management of pipeline development cycle
– Continuous improvement of strategic oversight of pipeline delivery through dedicated global project
management office
– Bolstered pipeline through business development deals
– Developed strategic planning tool to manage the pipeline projects aligning commercial, finance, regulatory,
legal, and R&D
– Established strategic partnerships to introduce new technologies in our regions to expand the pipeline
– Recruited new talent and developed internal capabilities
– Developed programme to improve utilisation of R&D sites to optimise internal network capabilities
– Established R&D procurement function to improve management of sourcing, quality and reliability
for R&D projects
Organisational development
What does the risk cover?
Management actions
Developing, maintaining and
adapting organisational structures,
management processes and
controls, and talent pipeline to
enable effective delivery by the
business in the face of rapid and
constant internal and external
change.
– Strengthened teams with key talent appointed to fill strategic regional and global positions
– Implemented a new grading structure and initiated standardisation of job descriptions across the organisation
– Drove standardisation of HR processes through Group-wide human capital management system and
establishment of shared services hubs
– Established flexible working approaches to support and enable employees as a result of disruption from the
COVID-19 pandemic
– Deployed variety of enhanced learning materials to support employees through the organisation-wide
learning management system
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Risk management
continued
Principal risks and uncertainties continued
Reputation
Legal, regulatory and intellectual property
What does the risk cover?
Management actions
What does the risk cover?
Management actions
Building and maintaining trusted and
successful partnerships with our
stakeholders relies on developing
and sustaining our reputation as one
of our most valuable assets.
– Coordinated COVID-19 pandemic communication programme to enable delivery of key messages
to employees and external stakeholders using different channels and platforms
– Internal and external monitoring and management of issues that may impact reputation (including
complex business and stakeholder environment related to drug pricing, and the manufacture, sale
and distribution of opioid products)
– Established and developed strategic industry and community partnerships
– Deployed internal communication programmes to support employee engagement
Ethics and compliance
What does the risk cover?
Management actions
Maintaining a culture underpinned by
ethical decision making, with appropriate
internal controls to ensure staff and third
parties comply with our Code of
Conduct, associated policies and
procedures, as well as all applicable
legislation.
– Board-level oversight from the Compliance, Responsibility and Ethics Committee (see page 81)
– Code of Conduct approved by the Board and delivered to all employees
– Automated third-party due diligence and oversight programme implemented
– Policies and procedures developed to ensure compliance with new laws and regulations, including
US pharmaceutical pricing transparency, California Consumer Privacy Act
– Active participation in international anti-corruption initiatives
– Updated compliance programmes eg to adapt to COVID-19 pandemic related restrictions on salesforce
access to healthcare professionals, data privacy, and other areas
Information and cyber security, technology and infrastructure
What does the risk cover?
Management actions
Ensuring the integrity, confidentiality,
availability and resilience of data,
securing information stored and/or
processed internally or externally from
cyber and non-cyber threats,
maintaining and developing technology
systems that enable business processes,
and ensuring infrastructure supports the
organisation effectively.
– Industry-standard information security solutions and best practice processes adopted and adapted
for local and Group requirements
– Tailored Group-wide information security framework continuously enhanced to account for increase
and changes in cyber risk
– Cyber security metrics defined to monitor the evolving threats and update controls
– Employee communication initiatives increased with greater emphasis on general and targeted risk areas
(eg phishing awareness)
– Group-wide programme established to coordinate strategic remediation of cyber audit findings
– Board conducted a deep dive review of the information security programme (see page 75)
– New Chief Information Officer appointed
– Continued roll-out of enterprise-wide standardisation initiative incorporating data management and
access control
Complying with laws and regulations,
and their application. Managing
litigation, governmental
investigations, sanctions,
contractual terms and conditions
and adapting to their changes while
preserving shareholder value,
business integrity and reputation.
– Continuous assessment of developments in legal and regulatory frameworks and impact on the organisation
– Developed and updated policies and procedures in response to changes in the risks facing the Group
– Internal communication and training to raise awareness, ensure understanding and build a compliance culture
across the organisation
– Delivered new training programmes covering antitrust, international sanctions and the failure to prevent the
facilitation of tax evasion
– Managing complex litigation activity related to the manufacture, sale and distribution of opioid products
– Provided oversight on pricing committees assessing price increase to ensure thorough assessment of
business needs
– Ongoing assessment and monitoring of general litigation activity in US pharmaceutical environment
– External counsel engaged for the provision of independent specialist advice
– Controls and procedures implemented to address risk of potential IP litigation in jurisdictions where Hikma
markets its products
Inorganic growth
What does the risk cover?
Management actions
Identifying, accurately pricing and
realising expected benefits from
acquisitions or divestments,
licensing, or other business
development activities.
– Continuous improvement of procedures for target identification, valuation, due diligence, transaction
execution and integration
– Aligned business development practices across the businesses
– Extensive due diligence of each acquisition in partnership with external support in order to strategically
identify, value, and execute transactions
– The Board spends a significant amount of time reviewing major acquisitions proposed by the Executive
Committee to ensure strategic alignment
– Post-acquisition performance (financial and non-financial) monitored closely to ensure integration and
delivery on business plan
– Post-transaction reviews highlight opportunities to improve effectiveness of processes
Active pharmaceutical ingredient (API) and third-party risk management
What does the risk cover?
Management actions
Maintaining availability of supply,
quality and competitiveness of API
purchases and ensuring proper
understanding and control of
third-party risks.
– Applied rigorous selection process for API suppliers and focus on building long-term supply contracts
and strategic partnerships
– Continued to implement strategy for continuity of API supply for high-value products through alternative
API suppliers, stocking strategies, and supply chain modelling
– Ensured continuity of supply for our products through collaboration with suppliers to absorb COVID-19
pandemic-related disruptions
– Developed capabilities of vertically integrated plant in Jordan to synthesise selected strategic APIs
– Implemented enhanced third-party due diligence process to reinforce vendor qualification process
– Enhanced management of inventory levels to increase resilience of our supply chain
– Established remote audit and monitoring process for API third-party suppliers due to travel constraints
Crisis response and business continuity
What does the risk cover?
Management actions
Preparedness, response, continuity
and recovery from disruptive events,
such as natural catastrophe,
economic turmoil, operational
issues, pandemic, political crisis, and
regulatory intervention.
– Coordinated activation, structure and processes for COVID-19 incident response teams. See ‘Our response
to COVID-19’ on pages 10 and 11 for more details.
– Established crisis and continuity management programme to continue implementation of organisational
resilience framework
– Rolled out crisis management training to c.8,000 employees to develop capability across the Group
– Corporate insurance programme alignment to ensure appropriate coverage of high-impact, low-
likelihood events
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Risk management
continued
Principal risks and uncertainties continued
Product quality and safety
What does the risk cover?
Management actions
Maintaining compliance with current Good
Practices for Manufacturing (cGMP),
Laboratory (cGLP), Distribution (cGDP) and
Pharmacovigilance (cGVP) by staff, and
ensuring compliance is maintained by all
relevant third parties involved in these
processes.
– Hikma Quality Council provides oversight and shares best practice across the Group
– Quality and safety culture driven throughout the organisation by global initiatives, and regularly
reinforced by communication from senior executives
– Board conducted a deep dive review of the corporate quality programme and results of quality
compliance audits
– Global implementation of quality systems that ensure valid consistent manufacturing processes
leading to the production of quality products
– Facilities maintained as inspection-ready for assessment by relevant regulators
– Documented procedures continuously improved and regular staff training
– Oversaw cGMP compliance of third parties supplying APIs, raw materials, packaging components
and other services
– Maintained environment and health certifications and drove continuous improvements
– Continuous monitoring of the safety of products to detect any change to risk-benefit
– Global pharmacovigilance programme in place supported by globalised systems
Financial control and reporting
What does the risk cover?
Management actions
Effectively managing income, expenditure,
assets and liabilities, liquidity, exchange
rates, tax uncertainty, debtor and associated
activities, and in reporting accurately, in a
timely manner and in compliance with
statutory requirements and accounting
standards.
– Enhanced financial control procedures and increased proportion of automated controls
– Continued oversight and control by the financial compliance monitoring programme to ensure
adherence to Group accounting policies
– Improved reporting efficiency and reduced reporting timeframes with new systems and tools
– Enhanced budgeting and forecasting processes with new systems and tools
– Introduced a more flexible hedging strategy to mitigate currency and interest rate exposure risks
– Strengthened and restructured Global tax team
– Continued automation of banking processes to minimise risk of fraud and reduce human error
Risk management is fundamental
to our long-term success
Going concern and longer-
term viability
Assessment of position and prospects
The Group’s current and forecast financial
positions are used to assess the going
concern position and longer-term viability.
The position and prospects of the Group
are assessed at Executive Committee
meetings and at the end of the financial year.
The assessments consider strategic and
operational updates, principal and emerging
risks, financial reporting and forecasting
from the Chief Financial Officer, and through
the development of a business plan. The
business plan takes into account our current
position, specific risks and uncertainties
facing the business and known changes
to our organisation and business model.
The Executive Committee assesses the
future strategic positioning of Hikma as
a company in the context of the changing
macroeconomic and healthcare
environment. Aspects of this analysis are
shown in ‘Global context’ and ‘Key trends’
(see pages 16 and 17).
These various assessments are presented to
the Audit Committee and Board of Directors
for independent scrutiny of management’s
assumptions and modelling approach.
The Board also receives regular updates
on operational, strategic and financial
matters from executives.
Financial position
The going concern and longer-term viability
assessments are based on the financial
position (as at 31 December 2020):
– net cash flow from operating activities
was $464 million
– overall net debt was $605 million1
(0.9 times core EBITDA)
– available borrowing capacity is $1,286
million of committed undrawn long-term
and short-term banking facilities, including
unutilised import and export financing
limits. These facilities are well-diversified
across the subsidiaries of the Group and
are with a number of financial institutions
Future prospects
The Group’s base case forecasts take into
account reasonable possible changes in
trading performance, including those that
may arise related to the COVID-19 pandemic,
facility renewal sensitivities, and maturities
of long-term debt.
1. At 31 December 2020, there were two covenants in
place on the Group’s revolving and banking facilities
with which the Group was in compliance. The Group
also expects to be in compliance in the future.
Assumptions
Financial modelling for the business plan and
the going concern and viability assessments
is subject to assumptions related to:
– launch and commercialisation of
new products
– market share and product demand rates
– maintenance of certain product prices
– political and social stability
– ability to re-finance existing debt on similar
terms
– ability to increase operational efficiency
and reduce central costs
– effective tax rate being within the current
guidance range
Going concern
For the purposes of assessing the going
concern position the base case and a
forecast including severe but plausible
downside risks were analysed over the
12-month period from the date of signing
the financial statements.
The analysis shows that Hikma is well-placed
to manage its business and financial risks
successfully despite current uncertainties
and confirms that the going concern basis
should be used in preparing the financial
statements.
Longer-term viability
Viability period
In accordance with the UK Corporate
Governance Code, the longer-term viability
of the Group is assessed for a period longer
than for the going concern analysis. The
longer-term viability assessment was
conducted for a period of three years, ending
on 31 December 2023. This is the timeframe
for acquisitions and business development
opportunities to become integrated into
our business, and for pipeline products
to contribute as marketed products. Our
forecasts are more accurate in the near term
than in the long term and this limitation also
applies to our viability assessments.
Stress testing, modelling and sensitivity
analysis
Management developed severe but plausible
multi-event risk scenarios that could impact
the business adversely. The Group’s strategic
objectives, principal risks (PR) and
assessments of longer-term emerging risks
(ER) together with management input,
real-world examples and the financial
modelling assumptions listed above were
used to design the scenarios. Realistic but
extremely severe adjustments were further
applied for sensitivity analysis.
– Significant adverse changes to the pricing
environment (PR: industry dynamics)
– Major underperformance of the pipeline
to deliver strategic new products (PR:
product pipeline)
– Regulator investigation into systemic
failure of corporate compliance
programme (PR: ethics and compliance)
– Prolonged regulator-imposed restriction of
a major US FDA-inspected manufacturing
plant (PR: product quality and safety)
– Escalation of political or social instability
in MENA markets (PR: crisis response
and business continuity)
– Disruption to API supply and increased
import tariffs (PR: API and third-party
risk management)
– Changing regulatory requirements and
disruption through extreme weather
events (ER: climate change)
– Cyber attacks impacting endpoints and
ERP systems (PR: information and cyber
security, technology and infrastructure)
The consequences of each of these
multi-event risk scenarios were modelled
independently over the forecast period
and the impacts on EBITDA, ability to meet
our debt obligations, and cash flow were
determined.
The assessment shows that although the
scenarios are severe they do not threaten
the viability of Hikma. Headroom was
comfortably maintained throughout the
viability period for each of the multi-event
risk scenarios.
The assessment and analysis did not rely
on management actions that could be taken
in the circumstances to reduce the impact
and consequences of the risk events.
Such actions, the ongoing implementation
of the ERM programme, and investment
in infrastructure and change initiatives
are anticipated to continue to enhance
organisational resilience and support
longer-term viability.
The outcome of these various quantitative
and qualitative assessments leads
management to believe that Hikma is
resilient to downside risk scenarios. This is
largely as a result of our financial position
(in particular our strong balance sheet and
low levels of debt) and is supported by the
fact that our business is well-diversified
through geographic spread, product
diversity, and large customer and supplier
base. Further details are provided in ‘Our
markets’ (page 16), ‘Our business model’
(page 18) and ‘Our strategy’ (page 12).
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Compliance
Non-financial disclosures
The table below summarises our position on matters relevant to the Non-Financial Reporting Directive, in line with the requirements of Sections
414CA and 414CB of the Companies Act 2006. All references made are to publicly accessible information.
Summary
Further information and policies
Summary
Further information and policies
Our business model
– Our diversified business model allows us to respond to
– Our business model, pages 18 and 19
Principal risks
the many opportunities and risks we face, while
delivering value for our stakeholders
– Our risk management framework is designed to ensure
we take a comprehensive view of risk. This includes
financial and non-financial risks that may impact our
business and stakeholders
– Risk management, pages 52 to 59
Environmental
matters
– We are committed to making our operations more energy
– Monitoring and minimising our environmental
efficient and environmentally responsible
impacts, pages 48 to 51
– We are improving the way we monitor our impacts,
– Climate impact identification and materiality
pursuing projects that reduce our footprint
assessment, page 51
– We are aligning our internal processes and public
disclosure with the Taskforce on Climate-related
Financial Disclosures (TCFD) recommendations
– Board-level oversight of environmental sustainability
through the Compliance, Responsibility and Ethics
Committee (CREC)
– Environmental matters are incorporated in our risk
management framework
Employees
– Our employees have always been at the heart of
everything we do. As the driving force behind Hikma’s
growth and success, our people are our most valuable
asset
– We are committed to investing in the development of
our workforce and in protecting their health and safety.
We have c.8,600 employees across the US, MENA,
Europe and ROW
Social matters
– In all of our markets, we work to meet social needs locally
and improve lives. We have developed programmes
in key areas to address social challenges:
• providing better health
• supporting education
• helping people in need
– Where our activities relate to other social matters, we
seek to understand the perspective of all stakeholders,
determine our role and make clear our position based
on our values and purpose
1. Our public policies, codes and statements are available on www.hikma.com
– Stakeholder engagement: Employees, page 22
– Operating responsibly and ethically, page 44
– Code of Conduct1
– Enabling our people, page 46
– Occupational health, safety, environment and
energy policy1
– Principal risk: Organisational development,
page 55
– Stakeholder engagement, pages 20 to 25
– Supporting patients and communities, page 39
– Addressing drug shortages in the US1
– Animal testing position1
– Principal risk: Reputation, page 56
Respect for
human rights
Anti-bribery
and corruption
– We respect and uphold the principles of the Universal
Declaration of Human Rights both within Hikma and
across our value chain
– We object in the strongest possible terms to the
use of any of our products for the purpose of
capital punishment
– Our Compliance, Responsibility and Ethics Committee
(CREC) leads our efforts to strengthen anti-bribery and
corruption (ABC) policies and manage associated risks
– As a publicly-listed company on the London Stock
Exchange (LSE), we abide by the regulations of the
UK Listing Authority. We operate in compliance with the
UK Bribery Act 2010, the Foreign Corrupt Practices Act
(FCPA) as well as local laws and regulations
– Operating responsibly and ethically, page 44
– Modern slavery act policy statement1
– Use of products in capital punishment1
– Principal risk: Reputation, page 56
– Operating responsibly and ethically, page 44
– Code of Conduct1
– Principal risk: Ethics and compliance, page 56
– Compliance, Responsibility and Ethics Committee
report, page 81
Non-financial KPIs
– We monitor the position, performance and impact of
– Environmental matters: Greenhouse gas emissions,
Hikma across a wide range of financial and non-financial
KPIs. Non-financial KPIs are used to measure progress
towards our strategic priorities (pages 14 and 15), our
exposure to risks (page 52), and are in place in other
areas throughout the organisation as part of Hikma’s
long-term sustainable growth strategy and our
commitment to helping people and improving
the communities in which we operate
page 49
– Employees: Engagement and Enablement, page 15
– Audit Committee report, page 77
– Compliance, Responsibility and Ethics Committee
report, page 81
The Strategic report was approved by the Board of Directors and signed on its behalf by:
Sigurdur Olafsson
Chief Executive Officer
24 February 2021
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61
Corporate governance
Chair overview
Corporate
governance
During the year, we continued to
adapt our governance practices
to the changing environment.
In this section
63 Chair overview
64 Corporate governance at a glance
66 Leadership
70 Structure
74 Nomination and Governance Committee
77 Audit Committee
81 Compliance, Responsibility and Ethics Committee
83 Remuneration Committee
87 Remuneration policy summary
90 Annual report on remuneration
105 Directors’ report
The Board has continued to deliver strong governance
and strategic oversight in a challenging environment
Dear Shareholders
I am very pleased to be able to report on
the strong performance of the Board during
2020. While the COVID-19 pandemic posed
many challenges for the Group, the Board
was able to respond swiftly and flexibly in
order to maintain its strong oversight and
leadership of the Group.
Board practices
The calibre of our directors and excellent
relationships around the Boardroom have
ensured that we have operated in a very
effective manner in a largely virtual
environment. Earlier in the year, we significantly
increased the frequency of our Board meetings
as we oversaw Hikma’s initial response to the
pandemic. As we moved into the second half
of the year, we conducted our first virtual
strategic review. This will ensure that we are
well positioned to continue to deliver on our
pipeline and improve patients’ access to high
quality, affordable medicines.
Share buyback
In the first half of the year, the Board decided
to undertake a significant share buyback as
part of Boehringer Ingelheim’s (BI) disposal
of their strategic stake in Hikma. Further
commentary on the strategic aspects of the
buyback is available on page 5. In terms of
Hikma’s governance, the disposal brings our
shareholder agreement with BI to an end and
results in a more diverse shareholder base.
Dr Jochen Gann left the Board on completion
of the disposal and I would like to thank him
for his valuable contribution.
Board and Committee composition
During 2020, we wished Robert Pickering
well following his decision to retire from the
Board on 18 December 2020. As Senior
Independent Director and Chair of the
Nomination and Governance Committee,
Robert has greatly assisted with directing our
governance and succession arrangements
and leaves the Group well positioned. Robert
has been a great friend to Hikma and me
personally. We wish him well for the future.
Following Robert’s retirement and as
previously announced, Pat Butler stepped
into Robert’s role. Pat and I have worked well
together in his time as Chair of the Audit
Said Darwazah
Executive Chairman
Committee and I am looking forward to
working with him more closely as we further
develop our governance arrangements.
Earlier in the year, we welcomed Douglas
Hurt to the Board. Douglas brings a wealth
of experience, particularly in relation to
operational and financial management,
reporting, risk and leadership of audit
committees. Douglas became our Audit
Committee Chair on 1 December 2020,
having undertaken an induction and
handover process during the year.
With the above changes, we have completed
the implementation of our near-term
succession plan. Whilst we consider it is
unlikely that further changes will be made in
the short term, we will review the succession
arrangements during 2021 and make
adjustments to ensure that we are well
placed for the medium term.
Culture and strategy
Our response to the COVID-19 pandemic
highlighted the strength of Hikma’s culture
and the dedication, teamwork and level of
personal sacrifice our people were willing to
make to ensure that we continued to deliver
essential medicines. During 2020, we
introduced a new set of corporate values –
innovative, caring and collaborative – and
a new cultural framework of Progress and
Belonging. These refreshed values and new
framework build upon our history and will
assist us in delivering our strategic objectives
by fully engaging our employees. Further
details are available on page 5.
During the year, we also undertook an
assessment of our organisational strength
in order to evaluate our ability to deliver
our strategic plans. We have strong teams
in place and are confident that the passion
and commitment of our employees will
enable us to deliver on our objectives.
Nina Henderson is our independent Board
member who helps ensure that employee
perspectives are considered when
undertaking Board and Committee business
and, outside of our Executive Directors,
ensuring that the Board is visible amongst
our colleagues. The engagement programme
has been sponsored internally by the CEO
and has been developed to ensure that we
comply with social distancing requirements.
This year’s activities included participation in:
– attended the Columbus facility and met
with employees
– virtual Global Leadership Conference
– CEO virtual briefings to all colleagues
Nina formally reports to the Board on her
findings at each meeting and provides us
with the benefit of her insights as we
consider formal business, such as during
the grading structure review, employee
engagement survey and during
remuneration considerations.
Stakeholders
The Board undertakes significant efforts to
understand and take account of the desires
and perspectives of our patients, suppliers,
employees, investors and the communities
in which we operate. Further details are
available on pages 20 to 24. If there are any
matters that you wish to discuss, please
do not hesitate to contact me.
Said Darwazah
Executive Chairman
62
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
63
Corporate governance
At a glance
Highlights 2020
Priorities 2021
– Developed practices to ensure socially-distanced, but strong
– Undertake a full interview-based external Board evaluation
– Develop the medium-term succession plan
– Review the implementation of the Board and Committee changes
made in 2020
governance
– Smooth implementation of changes to the responsibilities of
Independent Directors in terms of committee chairs and the
Senior Independent Director position
– Reviewed our approach to Board evaluation and developed a
new programme for 2021
– Increased the proportion of independent representation on
the Board
– Reviewed the Group’s strategic plans and response to the changing
healthcare environment
– Implemented recommendations arising from the recent externally
facilitated Board evaluation
50%
70%
90%
90%
100%
Experience
The percentage of the Board with direct experience in the
following areas:
Geographical experience
Business ethics and integrity
80%
MENA
Listed environment
100%
UK
Europe
US
Multinational
Country of origin
Iceland
UK
Manufacturing
Sales
Finance
Governance
Commercial
Pharmaceutical
Human resources
Regulatory and political
Strategy and risk
80%
80%
100%
100%
90%
100%
90%
100%
100%
64
Hikma Pharmaceuticals PLC Annual Report 2020
USA
Ireland
Jordan
0—3 years
4—6 years
Attendance
Directors
Said Darwazah
Siggi Olafsson
Mazen Darwazah1
Robert Pickering
Ali Al-Husry
Pat Butler2
Dr Pamela Kirby
Dr Jochen Gann3
John Castellani4
Nina Henderson
Cynthia Schwalm
Douglas Hurt5
Meetings attended
(8 scheduled and 8 unscheduled)
16/16
16/16
15/16
16/16
16/16
15/16
16/16
8/9
15/16
16/16
16/16
10/10
%
100%
100%
94%
100%
100%
94%
100%
89%
94%
100%
100%
100%
1. Mazen Darwazah was unable to attend one meeting due to a conflict with his executive
responsibilities
2. Pat Butler was unable to attend one meeting due to a medical procedure
3. Dr Jochen Gann was unable to attend one meeting because of a commitment to his
executive responsibilities with his main employer. Additionally he was excused from
attending three meetings due to a conflict of interest. Dr Jochen Gann retired from the
Board on 25 June 2020
4. The Company scheduled several additional Board meetings as a result of the response
to the COVID-19 pandemic. As a result, some meetings were arranged at times when
100% attendance could not be achieved. John Castellani was unable to attend one
meeting due to previous commitments
5. Douglas Hurt joined the Board on 1 May 2020
Composition
Time
Corporate governance
Financial performance
Performance and operations
Risk
Strategy and acquisitions
2020
13%
14%
30%
12%
31%
2019
14%
20%
22%
14%
30%
2020
2019
Diversity (as at 31 December 2020)
Board
Executive Committee
Executive Chairman and Chief Executive Officer
Other Executive Directors
Non-Independent NED
Independent NED
20%
10%
10%
60%
18%
9%
18%
55%
February
2020
February
2019
Women
Men
3 (30%)
7 (70%)
Women
Men
3 (27%)
8 (73%)
2020
2019
BAME1
White
3 (30%)
7 (70%)
BAME1
White
7 (64%)
4 (36%)
Executive Committee reports2
Group
Independent Director tenure (as at 24 February 2021)
Number
2
4
%
33%
67%
Women
Men
18 (27%)
49 (73%)
Women 3,108 (35%)
5,795 (65%)
Men
BAME1
White
40 (60%)
27 (40%)
BAME1, 3
White3
Prefer not to say3
816 (39%)
1,219 (58%)
57 (3%)
1. BAME: refers to people who identify themselves as either Black, Asian or Minority Ethnic
2. People reporting to members of the Executive Committee
3. Data from Hikma’s US operations only
Hikma Pharmaceuticals PLC Annual Report 2020
65
Leadership
Board of Directors
C
C
N
A
C
R
A
C
N
R
Committees
A Audit Committee
C Compliance, Responsibility and
Ethics Committee
N Nomination and Governance Committee
R Remuneration Committee
SAID DARWAZAH, 63
EXECUTIVE CHAIRMAN
SIGGI OLAFSSON, 52
CHIEF EXECUTIVE OFFICER
MAZEN DARWAZAH, 62
EXECUTIVE VICE CHAIRMAN, PRESIDENT OF MENA
JOHN CASTELLANI, 70
INDEPENDENT NON-EXECUTIVE DIRECTOR
NINA HENDERSON, 70
INDEPENDENT NON-EXECUTIVE DIRECTOR
Chair
Appointed: 1 July 2007 | Joined Hikma: 1981
Nationality: Jordanian
Appointed: 20 February 2018 | Joined Hikma: 2018
Nationality: Icelandic
Appointed: 8 September 2005 |
Joined Hikma: 1985 | Nationality: Jordanian
Appointed: 1 March 2016 | Joined Hikma: 2016
Nationality: American
Appointed: 1 October 2016 | Joined Hikma: 2016
Nationality: American
Board experience:
Board experience:
Board experience:
Board experience:
Board experience:
Experience: Said served as Chief Executive Officer
from July 2007 to February 2018 and has served
as Chair since May 2014. Said has over 40 years of
experience in numerous leadership roles at Hikma.
Under Said’s leadership, Hikma has expanded into
the US and become a leading player in injectables
and the MENA region.
Qualifications: Industrial Engineering degree from
Purdue University, MBA from INSEAD.
Other appointments: Chairman of the Queen
Rania Foundation and Chairman of Royal Jordanian
Airlines. Director of the Central Bank of Jordan and
Dash Ventures Limited.
Experience: Siggi has a wealth of international
experience in the pharmaceutical industry, having
held senior roles with Actavis Pharma Inc., Pfizer
Inc. and Omega Farma. Siggi served as President
and CEO of Global Generic Medicines at Teva
Pharmaceuticals.
Qualifications: MS in Pharmacy (Cand Pharm)
from the University of Iceland, Reykjavik.
Other appointments: Trustee of the American-
Scandinavian foundation.
Experience: Mazen has led and expanded the
MENA region at Hikma. Since listing, he has Group
level responsibility in his role as Executive Vice
Chairman and executive responsibility for leading
Hikma’s unique MENA business.
Qualifications: BA in Business Administration from
the Lebanese American University, Advanced
Management Plan from INSEAD.
Other appointments: Vice Chairman of the
Capital Bank of Jordan. Trustee of the St. Louis
College of Pharmacy, Birzeit University and King’s
Academy. Member of the HM King Abdullah
Economic Policy Council.
A
C
N
R
A
C
R
Experience: John was President and Chief
Executive Officer of Pharmaceutical Research and
Manufacturers of America (PhRMA) and Business
Roundtable. During his career John has also held
senior positions with Burson-Marsteller, Tenneco,
and General Electric.
Qualifications: BSc in Biology from Union College
Schenectady, New York.
Other appointments: Vice Chairman of the
Johns Hopkins Medicine National Capital Region
Executive Governance Committee. Director of
5th Port. Trustee of The John Hopkins Medical
System Sibley Memorial Hospital, Washington, DC.
Member of the Advisory Board of RSR Partners.
Experience: Nina assumed Board-level
responsibility for employee engagement in January
2019. Nina was Corporate VP of Bestfoods and
President of Bestfoods Grocery prior to its
acquisition by Unilever. During a 30-year career
with Bestfoods, and its predecessor company CPC
International, she held a wide variety of Global and
North American executive general management and
marketing positions. Nina has served as a director
of Royal Dutch Shell, AXA Financial, The Equitable
Companies, DelMonte, Pactiv and Walter Energy.
Qualifications: Honours graduate and BSc from
Drexel University.
Other appointments: Non-Executive Director of
CNO Financial Group Inc and IWG PLC, Vice Chair
of the Board of Drexel University, Director of the
Foreign Policy Association and Visiting Nurse
Service of New York, Inc.
A
N
R
A
C
N
R
Board experience
Business ethics and integrity
Commercial
Finance
Governance
Human resources
Listed environment
Manufacturing
Pharmaceutical
Regulatory and political
Sales
Strategy and risk
PATRICK BUTLER, 60
INDEPENDENT NON-EXECUTIVE DIRECTOR
ALI AL-HUSRY, 63
NON-EXECUTIVE DIRECTOR
DR PAMELA KIRBY, 67
INDEPENDENT NON-EXECUTIVE DIRECTOR
CYNTHIA SCHWALM, 61
INDEPENDENT NON-EXECUTIVE DIRECTOR
DOUGLAS HURT, 64
INDEPENDENT NON-EXECUTIVE DIRECTOR
PETER SPEIRS
COMPANY SECRETARY
Appointed: 1 April 2014 | Joined Hikma: 2014
Nationality: Irish
Appointed: 14 October 2005 | Joined Hikma: 1981
Nationality: Jordanian
Appointed: 1 December 2014 | Joined Hikma: 2014
Nationality: British
Appointed: 1 June 2019 | Joined Hikma: 2019
Nationality: American
Appointed: 1 May 2020 | Joined Hikma: 2020
Nationality: British
Appointed: 2 April 2012 | Joined Hikma: 2010
Nationality: British
Board experience:
Board experience:
Board experience:
Board experience:
Board experience:
Experience: Pat was Senior Director at McKinsey
& Co. During 25 years at McKinsey, he focused on
strategic, financial and structuring advice to large
corporations. Pat qualified in the audit and tax
practice of Arthur Andersen.
Qualifications: Chartered accountant. First-class
honours degree in Commerce and postgraduate
diploma in Accounting and Corporate Finance
from University College Dublin.
Other appointments: Chairman of Aldermore
Group PLC. Director of The Ardonagh Group
Limited and Res Media Limited. Governor of the
British Film Institute. Trustee of the Resolution
Foundation.
Experience: Ali held various management and
leadership roles within Hikma before stepping into
an advisory role in 1995, when he founded Capital
Bank of Jordan, focusing on commercial and
investment banking. Ali served as Chief Executive
Officer of Capital Bank until 2007.
Qualifications: Mechanical Engineering degree
from the University of Southern California, MBA
from INSEAD.
Other appointments: Director of Endeavour
Jordan, Microfund for Women, Capital Bank of
Jordan, and DASH Ventures Limited. Chairman
of Alcazar Energy.
Experience: Dr Kirby was Chief Executive Officer
of Quintiles Transnational Corp, and held senior
executive positions at F Hoffmann-La Roche and
AstraZeneca. Previously, Dr Kirby chaired Scynexis,
was Senior Independent Director of Informa and
held non-executive positions with Smith & Nephew
and Novo Nordisk.
Qualifications: First-class BSc degree in
Pharmacology, and Clinical Pharmacology PhD
from the University of London.
Other appointments: Director of DCC PLC and
Reckitt Benckiser Group PLC. Supervisory Board
Member of Akzo Nobel NV. Non-Executive Director
of King’s Health Partnership.
Experience: Cynthia was President and CEO
of the North American divisions of the global
pharmaceutical companies Ipsen and Eisai, and
also held leadership positions at Amgen and
Johnson & Johnson. Cynthia is a non-executive
director of Caladrius Biosciences Inc., Kadman
Group, and G1 Therapeutics Inc., where she chairs
the Compensation Committee.
Qualifications: Cynthia holds a BSN from the
University of Delaware and Executive MBA from
Wharton School at the University of Pennsylvania.
Other appointments: Non-executive Director of
Caladrius Biosciences Inc., Kadmon Group,
Nanoform Finaland Oyj and G1 Therapeutics Inc.,
where she chairs the Compensation Committee.
Cynthia chairs the Launch Excellence Committee
at Kadmon Group. Member of an angel investment
group associated with the University
of North Carolina.
Experience: Douglas was the Finance Director of
IMI PLC. Prior to this, he held a number of senior
finance and general management positions at
GlaxoSmithKline PLC, previously having worked at
Price Waterhouse. His career has included several
years working in the US as a Chief Financial Officer
and significant experience in European businesses
as an Operational and Regional Managing Director.
Qualifications: Chartered Accountant, MA (Hons)
in Economics from Cambridge University
Other appointments: Non-executive Director
and chair of the Audit Committee of Vesuvius PLC,
Countryside Properties PLC and British Standards
Institution. Senior independent director of
Countrywide and Vesuvius.
Role: Peter is responsible for advising on
governance, executive remuneration, and listing
related matters. Peter joined Hikma as Deputy
Secretary and previously held roles with Barclays
and Pool Re.
Qualifications: Fellow of the Chartered
Governance Institute. Law degree from the
University of East Anglia.
Find detailed Directors’ biographies at:
www.hikma.com/about/leadership/
66
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67
Leadership
Executive Committee
SIGGI OLAFSSON
CHIEF EXECUTIVE OFFICER
MAZEN DARWAZAH
EXECUTIVE VICE CHAIRMAN, PRESIDENT OF MENA
KHALID NABILSI
CHIEF FINANCIAL OFFICER
Joined: 2018
Nationality: Icelandic
For further biographical details
please see page 66.
Joined: 1985
Nationality: Jordanian
For further biographical details
please see page 66.
Joined: 2001
Nationality: Jordanian
Role: Khalid is responsible for Group finance,
including reporting and capital management.
Khalid has held several financial positions during
20 years with Hikma, including VP Finance.
Qualifications: Certified Public Accountant.
MBA from the University of Hull.
BASSAM KANAAN
EXECUTIVE VICE PRESIDENT, CORPORATE
DEVELOPMENT AND M&A
MAJDA LABADI
EXECUTIVE VICE PRESIDENT, ORGANISATIONAL
DEVELOPMENT
RIAD MISHLAWI
PRESIDENT, INJECTABLES
Joined: 2001
Nationality: Jordanian
Joined: 1985
Nationality: Jordanian
Joined: 1990
Nationality: Lebanese
Role: Bassam has Group level responsibility for
strategic development, acquisitions and alliances.
Bassam has held several executive positions
during 20 years with Hikma, including Chief
Financial Officer.
Qualifications: US Certified Public Accountant and
Chartered Financial Analyst. BA from Claremont
McKenna. International Executive MBA from
Kellogg/Recanati Schools of Management.
Role: Majda has Group level responsibility for
human resources. Majda has held several
executive positions during 36 years with Hikma,
including VP Injectables and VP MENA Operations.
Qualifications: BA from the American University
of Beirut. Master’s degree from Hochschule
Fur Okonomie, Germany. Advanced Management
Program at INSEAD.
Role: Riad is responsible for all aspects of the
Injectables division globally. Riad has significant
pharmaceutical and operational experience
from leadership roles at Hikma and Watson
Pharmaceuticals.
Qualifications: BSc in Engineering and a MS
in Engineering and Management from George
Washington University.
HUSSEIN ARKHAGHA
CHIEF COUNSEL
Joined: 2001
Nationality: Jordanian
Role: Hussein established the global legal
department and sets its strategic direction. Prior to
his appointment as Chief Counsel, he held several
positions at Hikma, including Head Legal/MENA,
Head of Shareholders’ Department and Head of
Tax.
Qualifications: Hussein is a qualified lawyer in
Jordan and holds a Master’s degree in International
Business Law from the University of Manchester,
under the UK Chevening Scholarship Program.
SHAHIN FESHARAKI
CHIEF SCIENTIFIC OFFICER
BRIAN HOFFMANN
PRESIDENT, GENERICS
HENRIETTE NIELSEN
EXECUTIVE VICE PRESIDENT, BUSINESS
OPERATIONS
SUSAN RINGDAL
EXECUTIVE VICE PRESIDENT, STRATEGIC
PLANNING AND GLOBAL AFFAIRS
Joined: 2019
Nationality: American
Joined: 2009
Nationality: American
Joined: 2018
Nationality: Danish
Joined: 2005
Nationality: American
Role: Shahin is responsible for all research and
development activities in Hikma and has a
strategic responsibility for enhancing Hikma’s
product pipeline.
Role: Brian is responsible for all aspects of the
Generics division in the US. Brian has significant
strategic and operational experience from
leadership roles at Hikma and prior consulting roles.
Qualifications: PhD in Pharmaceutical
Technology from the University of Mumbai,
and BSc in Pharmacy and MS in Experimental
Pharmacology from Pune University.
Qualifications: BA in Business Administration
from Boston University. MBA from the University
of Chicago.
Role: Henriette leads the Group’s legal,
compliance, risk, IT, business improvement,
pharmacovigilance and digital functions.
Qualifications: Law Degree from the University
of Copenhagen. Master of Laws from the University
of Edinburgh.
Role: Susan is responsible for strategic planning,
investor relations, communications, corporate
affairs and business intelligence. Prior to joining
Hikma, Susan worked for Alliance Unichem and
Morgan Stanley.
Qualifications: BA in History from Cornell
University. MBA from London Business School.
The full biographies of Hikma’s Executive
Committee can be found on the Hikma website:
www.hikma.com/about/leadership/
68
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69
Structure
UK Governance Code
Code Compliance
The Board is committed to the standards of corporate governance
set out in the UK Corporate Governance Code (the UK Code) adopted
in January 2019 and the Markets Law of the Dubai Financial Services
Authority (the Markets Law). The report on pages 63 to 108 describes
how the Board has applied the Main Principles of the UK Code and
Markets Law throughout the year ended 31 December 2020. The UK
Code is available at www.frc.org.uk. The Board considers that this
Annual Report provides the information shareholders need to
evaluate how we have complied with our current obligations under
the UK Code and Markets Law.
The Board acknowledges that Said Darwazah holding the position
of Chairman and Chief Executive Officer until February 2018 and,
since that point, Executive Chairman, requires explanation under
the UK Code. Other than the Executive Chairman position, the
degree of direct engagement with the workforce regarding executive
remuneration (which is discussed in the Remuneration report on
page 84), and the Chief Executive Officer’s pension contribution level
being 5% above the general workforce (which is discussed in the
Remuneration report on page 84), throughout the year and up until
the date of this report, Hikma was in full compliance with the UK
Code. Should shareholders require any further information relating to
these matters, questions may be directed to the Company Secretary.
Chair
Role
The Executive Chairman leads the Board of Directors of the Company
in maximising the return for all shareholders. The Executive Chairman
guides, oversees, and engages with the Chief Executive Officer in
setting and delivering the strategic vision for the Company and
optimising the Company’s long-term potential.
Rationale
The Board acknowledges that Said Darwazah’s position as Executive
Chairman, having previously served as Chief Executive Officer, and
his tenure as a Director are departures from the UK Code.
The Executive Chairman role was created in February 2018, following
the appointment of Siggi Olafsson as Chief Executive Officer.
Previously, Said Darwazah was the Chairman and Chief Executive
Officer. The change of roles and appointment of a Chief Executive
Officer has caused a reduction in Said’s executive responsibilities,
whilst still retaining his strategic input. The Board considers that the
transfer of responsibilities from Said to Siggi has been very successful
and that the Chief Executive Officer has been fully empowered by
the Executive Chairman. The Board considers it is important to retain
corporate memory, important relationships and the family culture
of the organisation. Therefore, it is essential to retain Said Darwazah’s
services in a strategic capacity.
The Board consulted shareholders prior to Said’s appointment as
Chairman and Chief Executive Officer in May 2014 and following the
change to the position of Executive Chairman in February 2018. The
Independent Non-Executive Directors met as a group twice during
2020 to review the Board structure and concluded that the Executive
Chairman role should continue.
The Board is focused on the commercial success of Hikma and
believes that continuing the position of Executive Chairman for a
period of time is the best way to achieve success for Hikma, because:
– Continuity of strategy: Said Darwazah has been a driving force
behind the strategic success of the business since 2007 and the
Board believes that it is important for the continued success of
the Group that he remains in a strategic role
– Executive Chairman’s role: the Executive Chairman position is
highly visible inside and outside Hikma, acting as an ambassador
with business partners and adviser to the organisation
– Business partners: a significant number of Hikma’s key political
and commercial relationships across the MENA region are built
on the long-term trust and respect for the Darwazah family where
the role of the Executive Chairman remains key
The Board continues to operate the following enhanced controls:
– Governance structure review: the Independent Directors meet
at least bi-annually in a private session chaired by the Senior
Independent Director. This meeting includes consideration
of the appropriateness of the governance structure, the division
of responsibilities between the Executive Chairman and the
Chief Executive Officer and safeguards for shareholders
– Committee Chair roles: the Chairs of the Board Committees and
the Director responsible for employee engagement, undertake a
significant amount of work in the oversight of their responsibilities
– Transparency and engagement: Hikma has always had the highest
regard for shareholders, with several of the original investors from
before listing still investing and supporting Hikma today. Over the
circa 15 years since flotation Hikma has maintained the highest
standards of shareholder engagement, which reflects the
importance placed in maintaining strong investor relations and
governance
– Senior Independent Director role: the Senior Independent
Director has joint responsibility, with the Executive Chairman,
for setting the Board agenda, agreeing action points and the
minutes of the meetings
Said Darwazah is non-executive chairman of Royal Jordanian Airlines
(RJ). During 2020, RJ ceased to have a Chief Executive Officer
resulting in Said undertaking authorisation duties to ensure that RJ
management had authority to operate. The additional time
commitment was minimal, Said’s role remained non-executive and
no employee benefits were received as a result. The Board reviewed
Said’s external commitments, including his role with RJ, and
concluded that they did not affect his ability to fulfil his
responsibilities to Hikma.
Executive
Chief Executive Officer
The members of Hikma’s Executive Committee report to the Chief
Executive Officer, who reports to the Executive Chairman. The Chief
Executive Officer chairs the Executive Committee, which develops
strategic initiatives and ensures the delivery of the approved strategy
and performance of the Company.
Executive Vice Chairman
When required, the Executive Vice Chairman acts as alternate to
the Executive Chairman and is an alternative point of contact and
sounding board for management and the Directors.
The Chief Executive Officer is responsible for ensuring that
operational and strategic matters are presented to the Board,
including the annual strategic review which feeds into the
development of the five year business plan and budget for the
following year. The Chief Executive Officer ensures that the Board
receives regular updates on progress with the budget and delivery
of longer-term strategic projects.
The Board receives regular reports at each meeting on cultural
matters both from the director responsible for employee engagement
and the Chief Executive Officer. The Chief Executive Officer reports
the results of the employee opinion survey each year. Further
information on the Group’s activities that relate to culture is available
on pages 5, 7 and 25. These activities have been reported to the
Board and reflect the comments received from the Directors.
Commitment and interests
The Nomination and Governance Committee considers the
commitment of all Directors both in terms of dedication to the role
and their time availability. In order to ensure an appropriate balance
of skills and diversity across the Boardroom, the Committee has
made accommodations to the Board calendar to maximise availability
and has acknowledged that there are times when this may mean that
full attendance may not be achieved. The Committee considers that
Hikma gains more from high-quality Directors than it loses from
occasional situations where full attendance cannot be achieved.
During the year, in response to the COVID-19 pandemic, a significant
number of Board meetings were added to the schedule at relatively
short notice. There were occasions where the Directors could not
make those meetings because a time had to be determined to
ensure the highest possible attendance while being able to conduct
business in a timely manner. Having reviewed commitment and
attendance during the year, the Committee has concluded that all
Directors are fully dedicated, commit an appropriate amount of time
to their roles, and are readily available at short notice.
The Committee monitors the external appointments of Directors from
both an availability and conflict of interest perspective, while noting
that experiences with other organisations can enhance a Director’s
ability to perform the role. Directors must obtain prior approval before
accepting additional external appointments. The Board and NGC
consider that the Directors’ external commitments do not negatively
impact their ability to perform their roles and that any significant
appointments have been explained in the Annual Report. The outside
interests of Directors are detailed on pages 66 to 67.
Committees
The Board has appointed four Board Committees to assist with
the delivery of the Board’s responsibilities. The reports of those
Committees are available on pages 72 to 104. The Chair of each
Committee engages with stakeholders as is necessary in the conduct
of the Committee’s business. The Chairs are available to answer
shareholders’ questions at the AGM and by direct correspondence
through the Company Secretary (cosec@hikma.uk.com).
Non-Executive Directors
Independence
The Board rigorously reviewed and considered the independence
of each Non-Executive Director during the year as part of the annual
corporate governance review, which included consideration of
progressive refreshment of the Board. The Board considers Pat
Butler, Dr Pamela Kirby, John Castellani, Nina Henderson, Cynthia
Schwalm and Douglas Hurt to be independent. These individuals
provide extensive experience of international pharmaceutical,
financial, corporate governance and regulatory matters and were
not associated with Hikma prior to joining the Board.
The Board does not view Ali Al-Husry as an Independent Director
due to the length of his association with Hikma, holding an executive
position with Hikma prior to listing and his involvement with Darhold
Limited, Hikma’s largest shareholder. However, he continues to bring
to the Board broad corporate finance experience, in-depth awareness
of the Group’s history, and a detailed knowledge of the MENA region,
which is an important and specialist part of the Group’s business.
Senior Independent Director
The Senior Independent Director responsibilities include:
– involvement in setting the Board agenda, action points and the
minutes
– leading the Board in matters of Board composition, effectiveness
and evaluation, particularly in relation to the performance of the
Executive Chairman
– providing a communication channel between the Executive
Chairman and Independent Directors
– leading the Independent Directors on their assessment of the
appropriateness of the governance structure and safeguards for
shareholders
– acting as an alternate point of contact for shareholders and
maintaining contact with principal investors and representative
bodies
Employee engagement
This Director-level role is responsible for ensuring, where appropriate,
that employee perspectives are taken into account in the Board’s
decision-making processes.
Nina Henderson has undertaken the employee engagement role
since January 2019 and further details on her activities during 2020
are included in the Chair’s statement on page 63.
Company Secretary
The Company Secretary reports to the Executive Chairman and
supports each Board member in the delivery of their duties and
specific responsibilities.
The role profiles are reviewed annually and detailed on the Hikma
website at www.hikma.com/investors/corporate-governance/
board-roles-and-responsibilities/
Applied Governance
The Board has a well developed and broad system of governance
which includes detailed procedures that are set out in the Board
Governance Manual, extensive Group Policies and a secure
communications system. The Board has clearly established
responsibilities in the matters reserved which ensures a regular cycle
of work and that management are clear when additional oversight and
approval is required. After each meeting, action points are agreed with
the Chair, Senior Independent Director and Chief Executive Officer
and a timeframe is established for dealing with the matters raised.
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71
Structure
Committee overview
Nomination and
Governance Committee
Audit Committee
Compliance, Responsibility
and Ethics Committee
Remuneration Committee
2020 highlights
2020 highlights
2020 highlights
2020 highlights
– Identified and inducted a new Independent Director
– Implemented an orderly transition of the Senior Independent Director
and the Audit and NGC Committee Chair roles
– Implemented our plan for the orderly transition of the Committee Chair
– Reviewed the approach to enterprise risk management and considered
the risk control environment, including in-depth, Board-level reviews of
principal risks related to IT and quality
– Reviewed and enhanced the Group’s governance arrangements, including
all committee terms of reference and the Company’s Articles of Association
– Enhanced our processes for ensuring the report is fair, balanced and
understandable with additional independent verification activities
– Continued to promote our commitment to integrity
– Reviewed the alignment of the grading structure with employee
– Rolled out new third-party due diligence process in the US and are
currently rolling it out further in MENA
performance incentives
– Reviewed performance remuneration targets and determined outcomes
– Reviewed and approved a new CSR policy which forms part of our
– Instructed and considered the benchmarking of the executive directors
Environmental, Social and Governance (ESG) framework
compensation, including specific data from regional operations
– Continued to enhance colleagues’ awareness of our programmes through
– Considered the impact of remuneration governance developments,
– Reviewed the Board evaluation process and selected a new independent
– Assessed the impact of multiple adverse event scenarios on our business
virtual training
particularly in relation to the impact of the COVID-19 pandemic
third party to undertake the process
– Continued delivery of uninterrupted financial reporting, assurance and risk
management during the pandemic
2021 priorities
2021 priorities
2021 priorities
2021 priorities
– Undertake an externally assisted, interview based Board evaluation
– Consider the key aspects of the medium-term succession plan for
Non-Executive Directors
– Continue to develop the plan for executive succession and assessment
of executive capabilities and development
– Review the internal financial policies for treasury and reporting
– Extend the management reporting elements of the auditor performance
review process
– Keep under review the point at which an audit tender exercise may
be appropriate
– Continue to monitor the Group’s distributable reserves
– Undertake a review of our ESG strategy
– Develop the ESG performance targets following a review of our
– Continue to monitor ABC compliance developments and our
whistleblowing programme
– Continue third-party due diligence process across remaining geographies
– Review the Group’s data protection arrangements following the Board’s
request that the Committee assume responsibility for this area
ESG strategy and milestones
– Monitor progress against performance targets, including the milestones
for the business plan
– Continue to enhance the linkage between employees and executive
compensation matters
Allocation of time
Allocation of time
Allocation of time
Allocation of time
Corporate governance
Independence
Skills and experience
Succession
44%
17%
17%
22%
Corporate governance
External audit
Financial performance
Forecast and accounting
Internal audit
Risk
10%
21%
18%
12%
18%
21%
26%
ABC operations
Anti-trust, AML and trade sanctions 10%
26%
Corporate governance
38%
Sustainability
Wider employee issues
Corporate governance
Developing practices
Setting executive remuneration
20%
27%
26%
27%
Members and attendance
Member
Pat Butler (Chair)1
Robert Pickering2
Mazen Darwazah
Nina Henderson
Cynthia Schwalm
Douglas Hurt3
Meetings
4/4
4/4
4/4
4/4
4/4
3/3
Attendance
100%
100%
100%
100%
100%
100%
1. Pat Butler became the Committee Chair on 1 December 2020. Robert Pickering
was the Chair prior to this point
Members and attendance
Member
Douglas Hurt (Chair)1
Pat Butler2
Robert Pickering3
Dr Pamela Kirby
John Castellani
Nina Henderson
Cynthia Schwalm
Meetings
3/3
4/5
5/5
5/5
5/5
5/5
5/5
Attendance
100%
80%
100%
100%
100%
100%
100%
2. Robert Pickering retired from the Board on 18 December 2020 and ceased to be
1. Douglas Hurt joined the Committee on 1 May 2020 and became Committee Chair
a member from that date
3. Douglas Hurt joined the Committee on 1 May 2020
on 1 December 2020
2. Pat Butler was unable to attend one meeting due to a medical procedure
3. Robert Pickering retired from the Board on 18 December 2020 and ceased to be
a member from that date
Members and attendance
Member
John Castellani (Chair)
Siggi Olafsson
Mazen Darwazah
Pat Butler1
Dr Pamela Kirby
Nina Henderson
Douglas Hurt2
Meetings
4/4
4/4
4/4
3/4
4/4
4/4
2/2
Attendance
100%
100%
100%
75%
100%
100%
100%
Members and attendance
Member
Dr Pamela Kirby (Chair)
Robert Pickering1
Pat Butler2
John Castellani
Nina Henderson
Cynthia Schwalm
Douglas Hurt3
Meetings
5/5
5/5
4/5
5/5
5/5
5/5
3/3
Attendance
100%
100%
80%
100%
100%
100%
100%
1. Pat Butler was unable to attend one meeting due to a medical procedure
2. Douglas Hurt joined the Committee on 1 May 2020
1. Robert Pickering retired from the Board on 18 December 2020 and ceased to be a
member from that date
2. Pat Butler was unable to attend one meeting due to a medical procedure
3. Douglas Hurt joined the Committee on 1 May 2020
The full Committee report is on pages 74 to 76.
The full Committee report is on pages 77 to 80.
The full Committee report is on pages 81 to 82.
The full Committee report is on pages 83 to 104.
Please visit our website for more information on Committees: www.hikma.com/investors/corporate-governance/key-committees
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73
Nomination and Governance Committee
Letter from the Chair
Balance
During the year, the NGC reviewed the composition of the Board.
This review included consideration of the skills and attributes of
each member, the balance between constructive challenge and
empowerment of the executive, the results of the recent Board
evaluation exercise and the current and desired level of diversity
in the Boardroom (see page 65). I am pleased to report that the
NGC confirms that the Board continues to operate in a highly
effective manner and that each member is valued for the experience
and skills that they bring.
Skills and experience
The NGC continues to believe that a longer induction period is
desirable for new Independent Directors to allow for building
understanding of the business and, where succession for a
Committee Chair is taking place, the transfer of knowledge and
relationships associated with the particular committee. Additionally,
the Board believes it is important for all Directors to have significant
international experience at an executive level, a challenging yet
consensual style, and the highest level of integrity. The Committee
regularly considers whether there may be gaps in fulfilling the specific
and in-depth experience that the Board requires as a whole, which
focuses on the following areas:
– strategy, culture and leadership
– business environment in both the US and the MENA region
– pharmaceutical manufacturing and distribution
– development of new healthcare capabilities
– listing regulations, investor perceptions and governance
Hikma supports Directors in their continued professional
development. As the Directors are highly experienced, their training
needs tend to be related to either ensuring awareness of changes
in the business, political and regulatory environments, or bespoke
training and mentoring on particular areas for development.
Therefore, Hikma financially supports specific training requests and
ensures that Directors are briefed by internal and external advisers
on a regular basis. During the year, the Board received briefings on
matters such as the pharmaceutical competitive environment, the
impact of COVID-19 on healthcare, investor perceptions, business
intelligence, capital markets and listing related developments.
Tenure
The Committee’s policy on tenure is that the Independent Non-
Executive Directors are normally expected to serve for a period of
nine years or the next Annual General Meeting (AGM) of the Company
following the ninth anniversary as of their appointment. Their
appointments are formally reviewed after three years and at six years
a more rigorous review process is undertaken.
As in previous years, each member of the Board will stand for election
or re-election at the 2021 AGM. The position of each Director was
closely reviewed during the year as part of the consideration of
succession arrangements, independence issues, the bi-annual
governance structure reviews, the Board and Committee evaluation
processes and the ongoing dialogue between the Executive
Chairman and the Senior Independent Director.
Time commitment
The NGC continues to review the external commitments of each
Director with a view to ensuring that the benefits of the additional
experience from the external commitment are not outweighed by
reductions in the commitment to the Company. The Directors achieve
excellent attendance and spend significant time delivering their
responsibilities. Accordingly, the NGC considers that there is currently
an appropriate balance. The Committee will continue to monitor
the situation.
Patrick Butler
Chair, Nomination and Governance Committee
Dear Shareholders
This is the first time that I am writing to you as the Senior Independent
Director and Chair of the Nomination and Governance Committee
(NGC). I would like to thank Robert Pickering, my predecessor, who
has done an excellent job in steering the development of the Group’s
governance arrangements over the last six years. The NGC is well
positioned and ready to meet the challenges ahead of us as we
continue to develop and enhance the Group’s governance and
succession arrangements.
Succession
Executive
We have made good progress on further developing and
documenting our arrangements for executive succession. The
medium-term plans have been discussed and we have reviewed
the process by which executive appointments are made. This builds
on the work that we undertook in the previous year assessing each
member of the Executive Committee and creating succession and
development plans accordingly.
Independent
During 2020, Douglas Hurt joined the Board, bringing with him a
wealth of financial and auditing experience. This has ensured that
we could smoothly transition the Audit Committee responsibilities
to him over the course of the year. Robert Pickering has transferred
his previous responsibilities to me and retired from the Board in
December 2020.
The changes that we made in 2020, combined with the appointment
of Cynthia Schwalm in 2019 and other appointments in recent years,
ensure that there are relatively few near-term non-executive
succession requirements. The NGC will develop a new plan for
the succession of independent directors over the medium term.
The NGC oversaw the development of an induction programme
for Douglas Hurt. Whilst the movement restrictions arising from
the pandemic have led to some in-person elements being deferred,
Douglas received briefings from the auditors, Company Secretary,
Chief Executive Officer, Chief Financial Officer and members of the
Executive Committee. Once movement restrictions have been lifted,
arrangements will be made for Douglas to visit operating facilities
and hold in person discussions with relevant management.
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Hikma Pharmaceuticals PLC Annual Report 2020
Hikma’s inclusive workplace
welcomes different cultures,
perspectives, and experiences
from across the globe
Diversity
The Board has approved Hikma’s diversity policy, which applies to
the whole Group, including the Board. Hikma’s objective is to continue
to ensure that it has an inclusive workplace that welcomes different
cultures, perspectives, and experiences from across the globe.
Hikma is committed to employing and engaging talented people,
irrespective of their race, colour, religion, age, sex, sexual orientation,
marital status, national origin, present or past history of mental or
physical disability and any other factors not related to a person’s
ability to perform the relevant role.
One of the three pillars of the Group’s strategy is to ‘inspire and enable
our people’. The Group’s policy and approach to diversity, succession
and appointments are a core part of this pillar. The Board monitors the
diversity metrics which are detailed on page 65 and uses these as a
reference point when considering the level of achievement against
its diversity objective (detailed above). Hikma has successful
empowerment and talent development programmes to help all
employees make the most of their potential. This diversity policy is
included in our Code of Conduct and communicated to all employees.
Further detail on employee diversity is provided on page 65.
Ethnicity
The Board considers that it has demonstrated strong ethnic diversity
since the formation of Hikma and has three Directors identifying as
BAME representing 30% of the Board, including the Executive
Chairman. Accordingly, the Board wholeheartedly supports and adopts
the Parker recommendation to have at least one Director of colour.
Gender
Since its founding, Hikma has actively promoted gender diversity
across its operations. The NGC was pleased to be able to improve
gender diversity in the Boardroom over the past few years, including
through the recent appointment of Cynthia Schwalm. The Board has
adopted the Hampton-Alexander target to achieve at least 33%
female Board representation. The new medium-term succession
plan will take into account the strong desire to achieve this target.
Governance review
As in previous years, the NGC undertook the annual review of the
Group’s governance arrangements in conjunction with the Company
Secretary. This year the exercise included a thorough review of
the Company’s Articles of Association (which are being put to
shareholders for approval at the AGM), terms of reference of each
Board Committee, and the indemnity provisions for each Director.
Evaluation and performance
The most recent, externally moderated, evaluation exercise
commenced in December 2019 and concluded in April 2020.
During the latter part of 2020, the Company Secretary and I reviewed
the Board evaluation process and undertook an exercise to assess
the Board evaluation market. As a result, Independent Audit, an
external specialist, were appointed to undertake a full, interview-
based evaluation exercise. The interviews will take place in 2021 to
conduct as many as possible in person and allow the recent changes
to the responsibilities of certain Independent Directors to become
more embedded.
Process
The most recent evaluation process was coordinated by the Senior
Independent Director at the request of the Executive Chairman.
Lintstock, a London-based advisory firm, led the exercise with
an anonymous thematic review questionnaire. Lintstock reported
independently to the Executive Chairman and the Senior
Independent Director. The results were also discussed by the Board
and relevant action points were agreed (see the table on this page).
The results of the 2020 evaluation process formed part of the
Executive Chairman’s appraisal of the overall effectiveness of the
Board and its members. Additionally, during the period between
assessments, the Directors suggest and promote improvements
as they arise.
Results
Progress on previously disclosed action points
Observations
Action taken
Drive for
expansion
Succession
planning
During the year, the Chief Executive Officer
led a strategic review which involved an
assessment of the base business and analysis
of the expansion opportunities available
that best meet Hikma’s ambitions. The Board
reviewed and approved the new strategy.
During 2020, the Board implemented the
changes to the responsibilities of Independent
Directors, including the appointment of an
additional Director. The succession plan for
Executive Directors has been reassessed.
Risk management During the year, the Board received an
Meeting
efficiency
in-depth overview of the way in which quality
risk is managed within Hikma and continued
to receive regular reports on action taken
to mitigate information security risk.
The Board has been very impressed by the
presentations made by the Chief Executive
Officer and the executive team, providing
commentary at the point of receipt. Meeting
efficiency will be assessed further at the
next evaluation.
Hikma Pharmaceuticals PLC Annual Report 2020
75
Nomination and Governance Committee
Letter from the Chair continued
Audit Committee
Letter from the Chair
During the year, I met separately with the Independent Directors,
the Chairman and the Chief Executive Officer in order to undertake
an assessment of the performance of the Board. We concluded that
the Board continues to operate highly effectively and that a significant
number of enhancements have been made over the recent period,
particularly since the Chief Executive Officer joined in February 2018.
We considered that the main area for further development was in our
succession arrangements, which is progressing well. Accordingly, we
were satisfied that we did not need to undertake further enhancement
work at this stage and look forward to the forthcoming interview-
based evaluation. The next externally moderated Board evaluation
exercise will be undertaken in the first half of 2021 and reported in the
following Annual Report.
Conclusions and actions
In relation to the most recent assessment exercise, the Board
considered that it continued to operate effectively with particular
strengths in the following areas:
– the focus of the Chief Executive Officer on operational performance
and delivery of the Group’s strategy
– the strategic review held in October was considered to be a
significant success with several enhancements embraced by
Directors
– interaction and atmosphere providing for good, healthy discussions
and challenges
– Non-Executive Directors providing support and constructive
challenge to management
– oversight of risk management and advancement of the risk agenda
Executive Chairman’s appraisal
The Executive Chairman and I meet regularly to discuss matters
including the performance of the Board and how his role helps
deliver and enhance that performance. This builds on discussions
that I hold with the Independent Directors which occur bi-annually.
The Executive Chairman’s performance is also reviewed by the
Remuneration Committee as part of the determination of
performance-based compensation.
Director appraisal
The Executive Chairman, having taken into account the comments
from the Board evaluation and discussions with the Senior
Independent Director and Chief Executive Officer, reviewed the
performance of each of the Directors during the year and concluded
that each Director contributes effectively to the Board, brings
particular areas of skill and experience that ensure the Board as a
whole has the right capabilities, and devotes sufficient time to their
role. The NGC has concluded that each Director be recommended
to shareholders for re-election at the 2021 AGM.
For and on behalf of the Nomination and Governance Committee.
Patrick Butler
Chair, Nomination and Governance Committee
24 February 2021
A fresh approach to
evaluating the Board will be
undertaken in 2021
Ensuring high quality
financial reporting in
a challenging time
Douglas Hurt
Chair, Audit Committee
Dear Shareholders
I am pleased to present my first letter to you. I succeeded Pat Butler
as Chair of the Committee in December 2020 and I would like to thank
Pat for his contribution and diligent leadership of the Committee over
the last few years.
During the year, the Committee continued to play a key role in
assisting the Board in its oversight of financial reporting, forecasting
and auditing matters. The Committee’s activities included reviewing
and monitoring the integrity of the Group’s financial information,
the Group’s system of internal controls and risk management, and
the internal and external audit process.
Chair transition
Since joining the Board in May, I have completed a comprehensive
induction programme, albeit that it had to be held virtually. I have
had the opportunity to work alongside Pat Butler for seven months
in which time I have built relationships with our key stakeholders in
finance, risk and internal and external audit. I look forward to building
on the strong foundation of oversight and challenge established by
the Audit Committee under Pat’s chairmanship.
Pandemic impacts
The COVID-19 pandemic has created some of the most challenging
conditions that the world has experienced for some time. Whilst
Hikma has been fortunate to have weathered the storm well, it has
posed particular challenges to our financial and auditing teams.
The Committee is pleased to report that the processes under its
oversight have continued to operate in an effective manner during
the pandemic and with the move to remote working. We recognise
that we owe a lot to the commitment of colleagues and their strong
relationships with internal and external auditors and advisers.
As a Group that manufactures and distributes generic
pharmaceuticals, we have experienced changing demand for our
products as a result of the pandemic. We have increased supplies
of products necessary for ventilated COVID-19 patients in intensive
care units and experienced reduced demand for products used
for elective surgeries. The Group has continued to perform well
throughout the pandemic and at the end of the financial year had
undrawn committed financing facilities in excess of $1,000m.
The viability statement and going concern assumptions have been
critically reviewed and the Group is in a strong financial position.
Enhanced verification
During the year, the Committee asked management to consider
mechanisms to further enhance (beyond the audit, adviser review
and internal review processes) the assurance process as regards
the qualitative disclosures in the Annual Report.
As a result, the qualitative disclosures have been reviewed by our legal
advisers, who have been provided with additional verification and
support material in respect of these disclosures. This enhancement
assisted the Committee in its determination that the report and
accounts taken as a whole are fair, balanced and understandable.
Distributable reserves
The Committee is aware that the FRC is encouraging organisations
to provide greater clarity on their distributable reserves position.
Accordingly, the Committee instructed management to re-assess
the Group’s distributable reserves in line with FRC guidance and the
impact of the share buyback which occurred during the year. While
the Committee is satisfied that the Group has adequate distributable
reserves, it has requested management to enhance our audited
disclosures of distributable reserves in 2021.
Internal audit
The internal audit of Hikma is performed by Ernst & Young (EY),
who report directly to the Chair of the Committee. There is a regular
programme of interaction between EY and the Committee which
is detailed in the table overleaf.
EY assess each facility and major processes over a three-year period.
For major sites, assessments are more frequent. Management
is required to respond to findings within a short period, complete all
process improvements within two years and ensure at least 80% of
high-risk findings are resolved within six months. The Committee has
received reports on the findings of the programme and is pleased to
report that management has responded appropriately to any new
findings and has made good progress in delivering its plans for
enhancements that have previously been identified.
During the year, the impact of the COVID-19 pandemic necessitated
increased remote working. For a short period of time the internal audit
programme had to be placed on hold. However, EY and management
worked closely together to create a new programme which ensured
that as much of the scheduled work as possible could be undertaken
virtually. The plan was reviewed and approved by the Committee.
While the overall programme continues to experience some delays
to some assessments that require site visits, the programme for 2021
is designed to ensure that all key deliverables will be on track by the
end of the year. The Committee is pleased with the progress and
commitment of management and the internal auditors.
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Hikma Pharmaceuticals PLC Annual Report 2020
77
Audit Committee
Letter from the Chair continued
During 2020, the Committee continued to monitor the performance
and independence of the internal auditors in accordance with the
policies that have been established. The Committee concluded
that EY continue to perform an effective internal audit programme
and remain independent. The Committee considers that EY bring
significant pharmaceutical and MENA market experience which is
complemented by the experience of other third party experts
where required.
May
August
The Committee Chair meets EY
in order to undertake a
thorough review of the internal
audit findings to date and
management responses
EY report their initial findings
to the full Committee. The
Committee meets with EY
without management present
November
December
The Committee Chair meets EY
to review the full year findings
and plan for the following year’s
activities
EY present full-year findings and
plan for the following year to the
Committee. The Committee
meets with EY without
management present
External audit
The external audit was undertaken by PricewaterhouseCoopers LLP
(PwC) and has been since their appointment in May 2016. PwC were
appointed following a competitive tender process. Mr Darryl Phillips
was appointed as the senior statutory auditor in May 2019.
Effectiveness
During the year, the Committee reviewed the work of PwC and
concluded that they provide an effective audit, have constructive
relationships with the relevant parties and that Mr Phillips provided
clear and constructive leadership to the audit team. As part of this
review the Committee examined the following areas:
– Audit quality and technical capabilities: the Committee considered
that the auditors undertook an effective and in-depth assessment
and verification exercise and that the level of expertise PwC brought
to bear was high. The Committee provides feedback on the
auditor’s performance as part of the regular meetings with them
without management present, takes into account the reports and
analysis of the Financial Reporting Council, and believes that there
is an open and appropriately challenging relationship between the
audit leadership team, the Audit Committee and management
– Independence: the Committee regularly reviews the independence
safeguards of the auditors and remains satisfied that auditor
independence has not been compromised. During 2020, in one
territory in the MENA region, PwC supported the preparation of
local statutory accounts. PwC reported that the service involved
administrative typing and drafting of the local statutory financial
statements, but not any management decision-making or
bookkeeping and the service did not relate or have a direct impact
on the Group audit. PwC subsequently identified this service as a
breach of the FRC’s Ethical Standard and the Committee’s policy
on non-audit work and confirmed that this service has now ceased.
The Group auditors and Group management have subsequently
strengthened the controls to prevent any recurrence and provided
additional training and guidance to the Group’s finance and audit
teams. The Committee is satisfied that this has not compromised
the auditors’ professional judgment or the audit report. The
Committee made clear to the auditors and management that it did
not expect any non-audit services to occur without prior approval.
– Challenge and judgement: the Committee considers that PwC
provide significant challenge to the management team which results
in the Company’s position being fully considered and supported
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Hikma Pharmaceuticals PLC Annual Report 2020
and, where appropriate, adjusted. The Committee believes that
PwC has demonstrated well considered and clear sighted judgement
in the matters on which it has provided opinion and has been open
to an appropriate level of challenge and debate.
– Non-audit fees: the Committee’s policy is that the external auditors
should not undertake any work outside the scope of their annual
audit. The Committee has discretion to grant exceptions to this
policy where it considers that exceptional circumstances exist and
that independence can be maintained, having due regard to the
FRC’s ethical standards for auditors. The Committee’s approval
is required to instruct PwC’s services. PwC provided assurance
services related to the bond offering with a value of $208,000 and
work related to the interim review and other audit related assurance
work with a value of $210,000. These services
are within the ordinary course of services provided by the auditor.
The Committee confirms that the statutory audit services for the
financial year under review were conducted in compliance with the
Competition and Markets Authority Order, and a competitive audit
tender process was undertaken in 2015.
Audit tendering
PwC were appointed as auditors in May 2016, therefore, the current
Annual Report is the fifth report that they have audited. PwC rotated
the Senior Statutory Auditor in 2019. Additionally the chair of the
Audit Committee was transferred to Douglas Hurt during 2020 and
the Committee considers it is prudent to allow time for one significant
change to become embedded before embarking on another. In
accordance with the audit tendering guidelines, the Committee
confirms that it is not expecting to undertake a tender exercise until
2025. The Committee will keep the situation under review and report
to shareholders accordingly.
Fees
Auditor’s fee ($m)
$3.2m
PwC
1 Jan –
31 Dec 2020
12%
1 Jan –
31 Dec 2019
7%
88%
$2.8m
100%
$0.4m
93%
$2.7m
$0.2m
Audit related fees
Tax services
Other non-audit services
Non-audit related fees
Reporting
Position and prospects
During the year, management undertook an annual review of its
strategic direction and an extensive assessment of the Group’s
short-term and medium-term prospects which are included in the
budget for the following year and five-year business plan, respectively.
Management presented and received the Board’s approval and
commentary on the full strategy, budget and business plan. Having
taken account of how the business has responded to the challenges
of the pandemic environment, the business plan, principal risks and
uncertainties facing the Group and other relevant information,
the Committee has concluded that the Group continues to have
attractive prospects for the future.
Going concern and longer-term viability
The Group has a selection of scenarios with severe but plausible
downside assumptions based upon the Group’s principal risks and
uncertainties. Each year, management models the impact of these
scenarios occurring as part of the going concern and viability analysis.
The impact of a single event has consistently been manageable for the
Group, while acknowledging that it may result in short-term set backs.
The Committee requested that management consider the
implications of several stress events occurring at the same time.
Management developed updated models that included multi-event
scenarios. The Committee assessed these, as well as low likelihood
situations of the scenarios occurring at the same time, and concluded
that the Group could reasonably be considered as being able to
respond to the challenges and ensure the continued survival of the
business.
The Directors considered the going concern position as detailed
on page 59. Having reviewed and challenged the downside
assumptions, forecasts and mitigation strategy of management,
the Directors believe that the Group is adequately placed to manage
its business and financing risks successfully. The Directors have a
reasonable expectation that the Group has adequate resources
to continue in operational existence for a period of at least 12 months
from the date of signing the financial statements. Therefore, the
Directors continue to adopt the going concern basis in preparing
the financial statements.
The Directors, having considered the longer-term viability assessment
as detailed on page 59, confirm that they have a reasonable
expectation that Hikma will be able to continue in operation and meet
its liabilities as they fall due and over the viability period which ends
on 31 December 2023. See page 59 for further details.
Significant matters
As part of its work reviewing the financial performance of the Group
and the report of the auditors, the Audit Committee considered
and discussed the following important financial matters:
– Goodwill and intangible assets - valuations and disclosures:
The Committee reviewed and approved some enhancements and
clarifications made to the Group’s policy for reviewing impairment
reversals. In determining whether or not any impairment reversal
was required for the Generics CGU, the Committee carefully
considered management’s judgement that the initial events that
triggered the impairment made in 2017 still existed, namely pricing
pressures in the market, the increasing number of generic products
and delays to approvals of more complex products. The Committee
concurred with management and in addition concurred with the
judgement that what headroom now exists above the carrying value
of the CGU’s assets has predominantly been created by the launch
of new products that were not reflected in the Group’s plans at the
time that the original impairment was made, and as such did not
reflect a reversal of the initial triggering events. The Committee also
challenged management’s models for deriving the value in use for
the generic Advair Diskus CGU and agreed that while no impairment
was required, additional disclosures around the sensitivity of the
headroom to changes in the assumptions should be made. The
Committee reviewed management’s assessment of the values of
certain product intangibles and concurred with the $5m
impairment and a separate $66m impairment reversal and their
presentation between core and non-core operations within the
consolidated income statement.
– Revenue recognition: The Committee reviewed the Group’s policies
for revenue recognition and the application of those policies by
management. The Committee reviewed the model applied by
management to arrive at the chargebacks, which estimates the
‘in-channel’ inventories held by wholesalers and the chargeback
Understanding our financial
and qualitative reporting
rate being the difference between the contracted price with indirect
customers and the wholesaler’s invoice price. Similar reviews were
undertaken of the deductions to revenue made for customer
rebates, returns and indirect non-customer and government
rebates. The Committee also agreed the disclosures around these
year-end estimates and the sensitivity of the estimates to changes
in assumptions.
– Exceptional items: Exceptional items for 2020 were chiefly related to
a $62 million net impairment reversal of product related intangibles
related to the Columbus business in the Generics segment,
proceeds from an insurance claim related to a warehouse fire at
one of our facilities in Jordan of $11 million, ($15) million asset write
off, intangible asset amortisation other than software amortisation
of ($42m) and $23m related to the unwinding and remeasurement
of contingent consideration and other financial liabilities. The
Committee reviewed the treatment of these items
– Taxation: Hikma’s worldwide operations are highly integrated and
involve a number of cross-border supply chains, which results in
judgement being required to estimate the potential tax liabilities
in different jurisdictions. During the year, the Committee and Board
received presentations from the Head of Tax regarding the potential
direction of tax planning activities and enhancements to the
resources available to the department, the control environment
for operational effectiveness and reporting. The Committee took
advice from professional services firms and management in
assessing the reasonableness of the Group’s provisions for
uncertain tax positions which amounted to $43m and in reviewing
the deferred tax assets in key markets. The Committee reviewed
the appropriateness of the disclosures in the Annual Report, and
reviewed and approved the Group’s tax strategy statement,
which is available on the Company’s website
– Contingent consideration: The Committee reviewed management’s
assessment of the fair value of the contingent consideration
payable as future milestones and royalties and the disclosures of
the movements in the balance between the consolidated income
statement and consolidated cash flow statement. The assessment
resulted in a contingent liability of $89m. The critical estimate and
assumptions taken into consideration for this assessment are
described in Notes 28, 30 and 31 to the group financial statements
on pages 151 and 153 to 158
Fair, balanced and understandable
Hikma is committed to clear and transparent disclosure and seeks
to continuously improve the clarity of its reporting. At the request of
the Board, the Audit Committee considers whether Hikma’s Annual
Report is fair, balanced and understandable and that the narrative
section of the report is consistent with the financial information. The
Committee’s assessment is underpinned by the report from external
counsel regarding the assurance activities for qualitative statements
(see page 77) and a comprehensive review conducted by the
Hikma Pharmaceuticals PLC Annual Report 2020
79
Audit Committee
Letter from the Chair continued
Compliance, Responsibility and Ethics Committee
Letter from the Chair
Ensuring continued
management of risk
and uncertainty
Reporting Committee, which consists of the leads for finance,
investor relations, risk, communications and governance, and
is supported by divisional and functional heads, as required.
The Reporting Committee’s activities include:
Internal control
The Board confirms that it is ultimately responsible for ensuring
that Hikma’s systems of internal controls and risk management
remain effective.
The key elements of our internal control framework are as follows:
– a documented and disseminated reporting structure with clear
policies, procedures, authorisation limits, segregation of duties
and delegated authorities
– written policies and procedures for material functional areas
with specific responsibility allocated to individual managers
– a comprehensive system of internal financial reporting that includes
regular comparison of results against budget and forecast and
a review of KPIs, each informed by management commentary
– an established process for reviewing the financial performance
and providing support to Hikma companies and associates together
with direct support from Hikma’s finance function
– annual budgets, updated forecasts and medium-term business
plans for Hikma that identify risks and opportunities and that are
reviewed and approved by the Board
– initiating the review process for the Annual Report significantly
– a defined process for controlling capital expenditure which is
before the year-end, considering external developments, issuing
guidance to contributors and identifying areas for improvement
– obtaining input from external advisers, including the auditors,
designers, corporate brokers and public relations advisers
– undertaking several multi-functional reviews of the disclosures
as a whole prior to the publication of the Annual Report to ensure
consistency and accuracy across the document as a whole
– overseeing an extensive verification process to ensure the accuracy
of disclosures
Each member of the Audit Committee and the Reporting Committee
is satisfied that the 2020 Annual Report is fair, balanced and
understandable and has recommended the adoption of the Report
and Accounts to the Board. While the Committee assesses the
whole report for this analysis, in respect of the year under review
it has paid particular attention to the potential impacts of changes
in the operating environment arising from the COVID-19 pandemic.
Further information is available on pages 10, 11, 16 and 21.
Reporting controls
Hikma’s key controls and risk management systems relating to the
financial reporting process include the external audit at subsidiary
and group-levels, the processes in the ‘Fair, balanced and
understandable’ and ‘Enhanced verification’ (page 77) sections, the
review of the financial statements and disclosures that is undertaken
by the Executive Committee, and detailed internal financial control
processes necessitating the verification of financial records at a local,
regional and Group level.
Risk management and internal control
Risk management
The Committee has continued to receive reports on the operation
of the Group’s enterprise risk management framework which includes
the material controls and programme for enhancing the Group’s
mitigation efforts. As in previous years, management and the Board
have undertaken a thorough assessment of the Group’s emerging
risks as well as the annual review of the principal risks. The Committee
and the Board have considered the principal risks facing the Group
which we have decided to maintain unchanged. The Board and
management have also reviewed the appetite for those principal risks
and has concluded that it remains appropriate. After review by the
Committee, the Board received additional information on the Group’s
data security initiatives and the key controls and monitoring
processes for our quality framework. Further information regarding
the Group’s risk management activities is available in the risk report
on pages 52 to 59.
80
Hikma Pharmaceuticals PLC Annual Report 2020
detailed in the governance framework
The Board is satisfied that Hikma’s systems for internal control to
accord with the FRC’s guidance, and have been in place throughout
the year under review and up to the date of approval of the Annual
Report and Accounts. The Board reviews the effectiveness of these
systems at least annually as part of the processes for the annual
report and risk management. The Board has not identified any
material weaknesses. In making this assessment, the Board takes into
account:
– Risk management: the Enterprise Risk Management framework
that provides a structure for risk management activities to occur at
all levels of the organisation, including management of the principal
risks and uncertainties (detailed on pages 55 to 58). Risk reporting
processes ensure the Executive Committee and the Board are
engaged in the design and implementation of new control initiatives
and provide oversight of existing programmes
– Internal audit: the Committee receives regular reports from the
internal auditors and other third-party experts who review relevant
parts of the Group business operations, assess Hikma’s processes,
identify areas for improvement, monitor progress,
and undertake their own assessment of the risks facing Hikma
– Financial performance: Hikma’s financial performance and
forecasting reports are reviewed by the Board to aid the
understanding of the underlying performance of the business,
deviations from expectations and management’s operational
challenges and responses
– Ethics: the business integrity and ethics procedures and controls
that are led by the Compliance, Responsibility and Ethics
Committee (CREC). To ensure consistency and awareness between
these Committees’ responsibilities, the Audit Committee Chair
is a standing member of the CREC
– Governance: the Board and Group-level controls and processes
that make up our approach to governance that is led by the
Nomination and Governance Committee and includes all
appropriate financial controls and matters reserved
– External auditor: the regular and confidential dialogue with the
external auditor
As Chair of the Audit Committee, I remain available to shareholders
and stakeholders should they wish to discuss any matters within
this report or under the Committee’s area of responsibility whether
at the AGM or by writing to the Company Secretary.
Douglas Hurt
Chair, Audit Committee
24 February 2021
Committed to integrity,
quality and community
Commitment to integrity
The Committee and the Board are very proud of Hikma’s commitment
to high standards of business integrity. It includes the Board’s
long-standing zero-tolerance of bribery and corruption which has
been demonstrated in numerous instances, including being a
founding member of the World Economic Forum’s Partnering Against
Corruption Initiative.
Code of Conduct
The Committee continues to oversee the development and
promotion of Hikma’s Code of Conduct, which embodies the
important moral and ethical values that are critical to the Group’s
success. The Code guides all the Committee’s activities and is the
key reference point for all our employees. During 2020, we undertook
a programme of remote training on the updated Code of Conduct
to ensure that our colleagues were reminded of our principles and
clearly understood changes in emphasis. This helps build upon the
in-depth training that is provided to new joiners.
Speak up
The Committee has reviewed the speak up procedures and reporting
during the year and remains satisfied that the process continues
to operate effectively. The procedures, which include a committee
of senior and independent corporate employees that undertake
proportionate investigations and implement corrective action,
are appropriate and effective.
The Committee continued to receive regular reports on issues
identified through the Group-wide speak up arrangements, which
include confidential reporting lines that report directly to the
previously mentioned Investigations Committee. The programme
includes a Group-wide reporting software and communications
system provided by an independent third party. This system ensures
that colleagues can report in anonymity. The overall level of reports
is within the normal range for an organisation of our size.
The Chair of the Audit Committee is a standing member of the CREC
and vice versa, which ensures that any relevant issues are considered
by the right people within our governance structure. Both Committee
chairs report to the next Board Meeting all relevant matters
considered by the Committee. Speak-up matters are reported
and considered as part of this process.
Hikma Pharmaceuticals PLC Annual Report 2020
81
John Castellani
Chair, Compliance, Responsibility and Ethics Committee
Dear Shareholders
The Compliance, Responsibility and Ethics Committee (CREC) has
continued to promote and oversee our commitments to business
integrity, quality, communities and ethical conduct. While 2020 has
presented its own challenges for our communities and colleagues,
we have made good progress.
This report focuses on the matters that the Committee addressed
during the year. Further details related to the structure of our ABC
compliance and integrity programme are available on our website.
At a senior level, our compliance, CSR and legal teams have remained
unchanged during the year. Therefore, we have focused on delivering
our established work programmes, many of which stretch over more
than one year, as we seek to continuously improve the systems that
we have created.
Anti-bribery and corruption
ABC programme
Our ABC compliance programme continues to perform in a highly
effective manner. The Chief Compliance Officer has brought the
benefit of significant experience which has been used to assess our
existing arrangements, enhance them where we can and add new
systems to take our programme to the next level.
The ABC programme has strong support from the Board, the CREC
and the Chief Executive Officer. The Chief Compliance Officer reports
to a member of the Executive Committee.
I am pleased to update you on our progress with our programme to
assess the ABC practices of our suppliers. During the year, we rolled
out new third-party due diligence processes in the US and are
currently rolling it out further in MENA to reinforce our supplier
qualification process and reduce our risk exposure. We are planning
to further extend this across our other geographies in 2021. Where
relevant, appropriate action has been taken.
Compliance, Responsibility and Ethics Committee
Letter from the Chair continued
Remuneration Committee
Letter from the Chair
Training
During the year, we continued with our training programmes for
the Code of Conduct, ABC, anti-money laundering and related
matters. The programmes have been developed with assistance
from external experts and are provided to employees virtually
through their personalised corporate training portal. Our training
programmes include worked examples and tests to ensure and
enhance understanding. The Board has fully supported the
training programmes and has undertaken the aspects that apply
to all colleagues.
Regulations
Anti-trust, anti-money laundering (AML) and trade sanctions
The Chief Counsel oversees Hikma’s compliance with the anti-trust,
AML and trade sanctions legislation, amongst other matters. The Chief
Counsel has created procedures for the management of these matters
which have been reviewed and approved by the CREC. The Chief
Counsel reports to the CREC on relevant matters that arise, including
pertinent changes to the regulatory landscape. The legal team has
developed a training programme on anti-trust, AML, prevention
of tax evasion and trade sanctions, which has been undertaken
by colleagues whose roles require training or awareness.
Criminal Finances Act
The Chief Counsel is responsible for ensuring compliance with
the Criminal Finances Act. The CREC has approved procedures
that have been recommended by the Chief Counsel and reviewed
those procedures at appropriate intervals. The procedures are
designed to respond to the requirements of the prevention of tax
evasion legislation from the UK Government. Hikma’s processes and
procedures in this regard are proportionate to its risk of facilitating
tax evasion, which is relatively low. Hikma is steadfast in applying
the principles of the UK tax evasion legislation across its businesses
and will continue to oversee matters of compliance.
Data protection
The Chief Counsel is responsible for Hikma’s data protection
policies which are designed to ensure compliance with relevant
legislation. The policies were considered by the Board at the point
of implementation of the General Data Protection Regulation and,
following the delegation of oversight to the CREC, will be reviewed
by the Committee during 2021.
Ethics
Modern slavery
Hikma is committed to ensuring that modern slavery in the form
of forced or compulsory labour and human trafficking does not
take place in any of its businesses or supply chains across the
globe. Key measures in support of this goal include:
– training Hikma staff on labour standards and how to recognise
and respond to any incidences of modern slavery
– undertaking periodic analysis of any modern slavery risk in
Hikma’s businesses and supply chains
– carrying out appropriate due diligence
– engaging with supply chain partners and the operational part
of our business if and when any issues arise
Doing the right thing and
ensuring compliance
Delivering value in
uncertain conditions
Sustainability
The Committee oversaw, encouraged and supported the
sustainability programme which is so clearly linked to our founder’s
desire to improve lives, particularly through educational and
development opportunities for the least privileged. Our Sustainability
report is contained on pages 38 to 51.
During the year, the team proposed a new management level policy
for our CSR activities across the Group. The Committee provided
feedback to the team which was taken into account and resulted in
further developments to the policy which the CREC has also approved.
During 2021, the Board and the CREC will undertake a review of
our environmental, social and governance framework with a view
to considering new medium-term priorities. We will report to
shareholders in due course.
Ethical issues
The Committee oversaw Hikma’s response to ethical issues arising
during the year. There are no matters to report.
I am available at any time to discuss with shareholders any matter
of concern.
For and on behalf of the Compliance, Responsibility and Ethics
Committee.
John Castellani
Chair, Compliance, Responsibility and Ethics Committee
24 February 2021
Dr Pamela Kirby
Chair, Remuneration Committee
Dear Shareholders
I am pleased to present our 2020 Remuneration Report which
describes our Remuneration framework and how it aligns with our
business strategy. In addition, it covers the decisions made by the
Committee as a result of business performance and the intended
Remuneration arrangements for the future.
Last year, we undertook a full review of our Remuneration policy,
which was well supported by our investors. Shareholders will recall
that we maintained the core elements of our remuneration policy
with a few enhancements to reflect the direction of the regulatory
landscape. Maintaining our position provided clarity and simplicity
to our employees, directors and stakeholders, who understand the
policy and how it fits within the culture of Hikma. We simplified the
performance targets to a maximum of three per director in order
that the outcomes are predictable for all stakeholders. We focused
outcomes on financial performance which is readily measurable
and reflects the risks and rewards of the Company’s performance.
The Committee considers that over the last few years the performance
outcomes have provided a strong correlation with the organisation’s
performance (including TSR) and the quantum of consideration is
proportionally in line with the comparators in the policy.
Accordingly, this year has been focused on setting targets to ensure
that we deliver our strategy in a manner that best suits the changing
environment, considering remuneration governance developments,
and reviewing the sector and geographic information to ensure that
our relative position remains in line with market practice.
Group performance
While the pandemic created a challenging environment for everyone
during 2020, Hikma continued to perform strongly. We have delivered
our responsibilities to society (please see the COVID-19 response,
below), while also delivering strong financial performance (please see
our performance against our Key Performance Indicators on page 14).
The Group is in a strategically strong position, having acquired an
injectable compounding facility (further details below), maintained
our commitment to high-quality manufacturing, ensured excellent
service standards, launched several new products, and implemented
new business partnering activities (eg manufacturing remdesivir for
Gilead Sciences, Inc.). This excellent performance is reflected in
our total return to shareholders, where we have outperformed our
generic peer groups by 54% (Hikma versus US mid-cap generics)
and 41% (Hikma versus large-cap pharmaceuticals) during 2020
(see ‘TSR Compared to Peers’ on page 85).
G
O
V
E
R
N
A
N
C
E
COVID-19 response
Throughout this pandemic, the Group has continued to respond to the
need for significant increases in demand for certain essential products,
particularly those which are used by intensive care units to treat
patients suffering from acute symptoms. Elsewhere, we experienced
considerable reductions in demand for products related to elective
surgeries. This has put considerable stress on the organisation,
particularly in the areas of manufacturing, distribution and, most
importantly, our people. Hikma had to make significant adjustments
to its manufacturing and raw material supply processes to ensure
that the priorities of hospitals could be met and those who use our
products could continue to receive a secure supply of essential
medicines. We had to run our facilities at near maximum output at
a time when our people were fearful of the impact of the pandemic.
The Chief Executive Officer provided exemplary leadership of the
Group, ensuring that our colleagues received the support they
needed, that their family commitments could be prioritised and that
those working in our facilities below the senior management level had
their additional commitment recognised during the highly uncertain
early stages of the crisis through additional compensation. This
ensured that we were able to continue to provide patients with our
products and that the Group delivered strong financial performance.
When the Committee set the Chief Executive Officer’s strategic target
(representing 20% of the performance remuneration outcome) for
2020, the COVID-19 pandemic was in its infancy and the potential
impact on our business and the world was not clear. Accordingly, as
the impact of the COVID-19 pandemic became clearer in March 2020,
the Committee decided to include the response to the pandemic
within the strategic target so that the Chief Executive Officer could
focus on addressing the challenges that the pandemic created,
as described above. The response to the COVID-19 pandemic
represented half of the strategic target and the Committee considered
the Chief Executive Officer’s performance to be outstanding.
The existing part of the Chief Executive Officer’s strategic target
remained unchanged. The target focused on specific strategic
deliverables which ensure the growth of the business over the
medium term. A significant part of these deliverables related to
bringing new products to market. During 2020, we expanded our
product portfolio from circa 690 to circa 780 products, an increase
of 13% in one year. Additionally, the Chief Executive Officer has
identified and progressed expansion opportunities which are in
82
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
83
Remuneration Committee
Letter from the Chair continued
the early stages of development. The Chief Executive Officer did
an exemplary job in delivering these strategic enhancements whilst
successfully dealing with the matters arising from the COVID-19
pandemic. Accordingly, the Committee considered that the strategic
target was delivered at the highest level.
Performance remuneration
The Committee has determined the performance remuneration for
the Executive Directors at a level which is between target and
maximum, as detailed in the performance summaries on pages 94
to 99. This determination reflects the excellent absolute and relative
performance, the performance remuneration paid across the Group,
the benchmarking information received (further information is
provided below) and the delivery of the Group’s responsibilities to
society, as detailed in the sections entitled ‘Group performance’
and ‘COVID-19 response’, above.
The Committee is aware of the importance of ensuring that the
performance remuneration of the Executive Directors reflects wider
issues, such as the experience of our colleagues, customers and
patients. The Group increased the number of colleagues during 2020,
did not put colleagues on furlough or make them redundant as a
result of the pandemic, continued to pay dividends in accordance
with shareholders’ expectations, and did not receive any associated
governmental support. Throughout the year, and particularly during
the peaks of the pandemic, Hikma ensured that customers and
patients received the medicines they needed.
Environmental, Social and Governance (ESG)
The Chief Executive Officer presented a strategic review of the
Group’s approach to Environmental, Social and Governance (ESG)
matters in February 2021. The Board considered that, whilst the
Group has undertaken significant work on ESG matters over a number
of years and made good progress, a renewed focus was required
to refine and develop the Group’s ESG strategy and ambitions and
ensure that these are aligned with and well integrated into the Group’s
overall strategy and operations. Accordingly, the Remuneration
Committee determined that the Chief Executive Officer’s strategic
performance target for 2021 should ensure that clear progress is
being made with respect of the development and execution of the
new ESG strategy. Further details will be made available in the next
annual report.
Pension contribution
Hikma’s pension contributions for Executive Directors are aligned
with the workforce contribution of circa 10% of salary, other than in
respect of the Chief Executive Officer who receives a contribution
of 14.6% of his joining salary (ie it is not being increased in absolute
terms). The Committee has considered the guidance from external
organisations regarding the alignment of pension contributions with
the wider workforce, the pension contribution levels for executives
in comparable companies and the importance of complying with
contractual obligations. In light of these considerations, the
Committee considers that the best course for the Company is to
maintain the current mechanism in respect of Siggi Olafsson and seek
to align the position in the event of a change in the position holder.
Salaries
The Committee undertook a benchmarking exercise during the year,
which took into account the normal, size adjusted market data from
the FTSE 100 and global pharmaceutical market. Additionally, the
Committee instructed an additional exercise to consider market
practices in the MENA region. Having considered the market data and
packages of the executive directors, the Committee determined that
the Executive Chairman was well positioned against his peers and,
accordingly, no increase was required. In relation to the Chief Executive
Officer, the Committee approved an increase of 3% which takes into
account that his total package is significantly below our US peers and
a 3% increase being the average increase for the Group’s workforce.
The Vice Chairman’s salary was increased by 5% because his prime
responsibilities relate to the MENA region and the benchmarking
undertaken by an expert in this region demonstrated a significant gap
in the salary positioning. Additionally, 5% was the average increase
in salary across our MENA markets and the Committee was aware
of his salary having remained unchanged since 2017.
Wider employee context
The Committee does not directly consult employees on the
remuneration aspects contained in this report, but receives regular
updates on employee feedback through the work of the Director
responsible for employee engagement, the Group human capital
department and the employee cultural survey, which is conducted
by an external organisation. During 2020, in addition to the matters
addressed in ‘COVID-19 response’ (above), the Committee oversaw
the implementation of a new grading structure designed to recognise
the importance of each role to the organisation.
The Committee is regularly briefed on the wider employee pay
policies and practices throughout the Group and uses this
information to provide context to the direction of its compensation
decisions. This work includes the internal Living Wage report and
the level of pay in each one of our jurisdictions, which takes account
of the cost of living. We continue to be fully committed to provide
a Living Wage to all our employees.
Engagement
At the 2020 AGM (further information is available on page 85),
shareholders were supportive of both the remuneration policy and
report on remuneration. The Committee has not sought to implement
policy changes or made significant adjustments to the Executive
Directors’ compensation. Accordingly, the Committee did not conduct
any one to one shareholder engagement activity during the year.
Discretion
The Committee oversees the application of discretion in accordance
with the Remuneration Policy. Other than extending the Chief
Executive Officer’s strategic target to include the response to the
COVID-19 pandemic, the Committee has not applied this discretion
during the year under review.
I remain open to discussion with shareholders should there be any
matters that they wish to raise directly.
Dr Pamela Kirby
Chair, Remuneration Committee
24 February 2021
Remuneration dashboard
TSR and total executive pay
During 2020, Hikma performed strongly against its UK peers in
Hikma’s index (FTSE 100) and sector (FTSE 350 Pharmaceuticals
& Biotechnology segment, a relatively small group of companies
that are mainly focused on developing new medicines).
Value of executive holdings
Hikma’s Executive Directors have substantial equity interests,
which strongly aligns their long-term interests with shareholders.
Average total pay to
Executive Directors ($m)
TSR from 1 January 2011
Executive Director
shareholding value ($m)
Share price
($)
6.0
4.9
4.3
4.3
4.3
3.3
3.2
3.7
6
5
4
3
2
1
0
1.7
1.4
600
500
400
300
200
100
0
2011
2012 2013 2014 2015 2016 2017 2018 2019 2020
Average Executive Director pay
Hikma Pharmaceuticals PLC TSR
FTSE 100 TSR
FTSE 350 Pharmaceuticals & Biotechnology TSR
Generic pharmaceutical peers
Hikma operates within a sub-set of the pharmaceutical industry
that focuses on generic medicines, mainly in the US market. Hikma
requires access to the US generic pharmaceutical environment
to recruit its specialised and extensive talent pool. The Committee
viewed Hikma’s strong relative performance since Siggi Olafsson
joined in February 2018 as an important factor in determining the
Executive Directors’ performance awards.
40
35
30
25
20
15
10
5
0
800
700
600
500
400
33.37
30.74
23.29
561
21.89
551
782
26.40 34.43
591
19.81
470
300
331
523
15.30
347
200
100
0
2013
2014
2015 2016 2017
2018 2019 2020
Executive Director shareholding
Share price (as at year-end in US dollars)
Shareholder approval
Annual report on remuneration (30 April 2020 AGM)
Votes available
Votes cast
For
Against
Withheld4
242,543,355
199,924,407
95.16%
4.84%
2,894,616
Strong TSR performance since Siggi Olafsson’s appointment
Annual report on remuneration (17 May 2019 AGM)
200
150
100
50
0
-50
-100
169.8%
17.5%
(52.0%)
(91.0%)
20
Feb 18
20
Aug 18
20
Feb 19
20
Aug 19
20
Feb 20
20
Aug 20
31
Dec 20
Hikma
Large Cap Specialty/Generics1
CEEMEA Healthcare2
US Mid Cap Generics
and Injectables3
1. Large Cap Specialty/Generics includes Teva, Viatris and Perrigo
2. CEEMEA Healthcare includes KRKA, Aspen, Adcock and Gedeon
3. US Mid Cap Generics and Injectables includes Amneal, Amphastar, Lannett,
Advanz and Mallinckrodt
Votes available
Votes cast
For
Against
Withheld4
242,013,996
198,171,484
96.12%
3.88%
5,346
Remuneration Policy (30 April 2020 AGM)
Votes available
Votes cast
For
Against
Withheld4
242,543,355
199,924,378
95.50%
4.50%
2,894,646
4. Under the Companies Act 2006 votes ‘Withheld’ are not a valid vote and, therefore,
are discounted when considering approval at a general meeting
84
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
85
Remuneration Committee
continued
Remuneration and performance summary
Remuneration and performance summary continued
This report (on pages 83 to 104) complies with The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013.
Non-Executive Directors’ fees
Performance components
Sales
Core operating profit before R&D
Share price
Dividend
Employee compensation
Shareholder implementation approval
Shareholder policy approval
Total remuneration
Executive Director
Said Darwazah
Siggi Olafsson
Mazen Darwazah
Components
Salary1
Said Darwazah
Siggi Olafsson
Mazen Darwazah
Bonus2
Said Darwazah
Siggi Olafsson
Mazen Darwazah
Share awards vested3
Said Darwazah
Siggi Olafsson
Mazen Darwazah
Pensions4
Said Darwazah
Siggi Olafsson
Mazen Darwazah
Other benefits
Said Darwazah
Siggi Olafsson
Mazen Darwazah
2019
$2,203m
$634m
1,991p
44 cents
$520m
96.12%
N/A
6%
11%
26%
14%
8%
2020
$2,341m
$703m
2,518p
50 cents
$560m
95.16%
95.5%
2019 ($000)
2020 ($000)
4,448
4,121
2,937
-9%
-10%
10%
4,060
3,719
3,227
18%
49%
21%
2019 ($000)
2020 ($000)
1,018
1,100
717
1,879
2,141
1,312
1,404
0
760
64
290
56
83
590
92
0%
3%
0%
-1%
5%
-1%
-25%
N/A
40%
8%
-41%
0%
-16%
-72%
1%
1,018
1,133
717
1,855
2,252
1,297
0%
3%
5%
-18%
-22%
-13%
1,047
103%
0
1,064
69
170
56
70
163
93
N/A
77%
0%
-6%
5%
0%
0%
0%
2021 ($000)
(estimate)
4,807
5,557
3,915
2021 ($000)
(estimate)
1,018
1,167
753
1,527
1,750
1,130
2,123
2,317
1,880
69
160
59
70
163
93
1. Salary: The average rise for salaries across Hikma in 2020 was 3% but was 5% across the MENA region
2. Bonus: The bonus figure comprises Elements A and C of the EIP. See page 89 for further explanation. The 2021 estimate presumes target performance
3. Share awards vested: 2020 figures represent Element B of the 2018 EIP and Element C of the 2017 EIP exercised during that year. 2021 is an estimation of the value of Element B
of the 2019 EIP and Element C of the 2018 EIP that are to vest in that year, using 31 December 2020 vesting percentages, share prices and exchange rates
4. Pension: Said Darwazah and Mazen Darwazah participate in the same pension plan as Jordanian employees, their country of employment. Siggi Olafsson was entitled to a pension
contribution of 15% of salary in 2018; however, $125,014 of this liability was paid in 2019. Additionally, an over payment of $4,950 was made in 2020 which will be reflected in the
contribution in 2021
Non-Executives
Non-Executive Directors’ average total fee1
2019 (£000)
88.2
2020 (£000)
10%
97.1
8%
2021 (£000)
(estimate)
104.6
1. NED fees: The average Non-Executive Director’s fee includes basic fee, Committee membership fee, fees for specific additional responsibilities, and Committee Chair fees.
A full breakdown of fees on page 103. The average fee changes reflect the handover of Committee responsibilities and retirement and appointment of Non-Executive Directors
Remuneration Policy Summary
The Directors’ Remuneration Policy (the Policy) is summarised below. It is also detailed in full on pages 79 to 84 of the 2019 Annual Report and
can also be found on the website at: www.hikma.com/investors/corporate-governance/key-committees/remuneration-committee/. The Policy
was approved at the AGM held on 30 April 2020. The Policy took effect from this date and may operate for up to three years.
Fixed elements
Base salary
Benefits
Pension
Fixed elements
Variable elements – Executive Incentive
Plan (EIP)
Element A – cash bonus
Element B – deferred shares
Element C – restricted shares
Total remuneration
Purpose and link to strategy
Operation
Base salary
Provides a base level of remuneration to support
recruitment and retention of Directors with the
necessary experience and expertise to deliver the
Group’s strategy.
Benefits
An appropriate package of market competitive benefits
to ensure executives are rewarded and focused.
Salaries are set with reference to: pay increases for the general workforce
acting as an upper limit unless exceptional circumstances exist; salaries in
peer companies from the pharmaceutical sector and UK listed companies;
Company performance; and affordability.
Benefits may include, but are not limited to: healthcare; school fees; company
cars; life insurance; relocation where it is required by the Company; and tax
equalisation where the director becomes tax resident in a jurisdiction as
a result of the role.
Pension
An appropriate level of pension contribution to ensure
executives are provided with a retirement standard
commensurate with their role.
The Company operates defined contribution arrangements in its main
operational jurisdictions and executives participate in these arrangements.
A cash supplement in lieu of pension may be paid provided that the total
pension payment does not exceed the maximum opportunity.
s
t
n
e
m
e
e
d
e
x
i
F
l
86
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
87
Remuneration Committee
continued
Executive Incentive Plan (EIP)
Performance awards that incentivise Directors to deliver annual financial performance targets and certain key strategic deliverables, with
the majority of awards made in shares to ensure that medium-term performance is delivered.
The Remuneration Committee sets annual performance targets for awards under the EIP, in accordance with the rules of the EIP. Annual
performance metrics are based on:
– Financial metrics: At least 80% of the performance award, with specific targets based on the budget that is approved prior to the performance
period. The precise targets will be determined by the Committee on an annual basis
– Strategic deliverables: Up to 20% of the performance award is based on the delivery of specific, subjective targets that are set by the
Committee in order to ensure that key milestones in the Company’s strategy are delivered
At the end of each year the Committee determines the level of performance for the prior year. Based on the performance, the Committee makes
the following awards:
Element
Maximum award
% of salary
Payout
mechanism
Vesting period
Risks after award
Additional requirements
150%
Cash bonus
Immediate
– Clawback
None
Treatment under the
remuneration regulations
Cash bonus
Share award
150%
100%
Deferred
Shares
2 years
Restricted
Shares
3 years
– Forfeiture
– Clawback
– Share price
– Employed
– Clawback
– Share price
– Employed
All shares vesting are subject
to a holding period after
vesting. These shares may
not be sold until 5 years
after grant.
Bonus1 deferred
in shares
A
B
C
1. The Regulations require Element C to be included in the ’Bonus’ component for reporting purposes, although it is an award of shares that will vest three years after grant
A holding requirement applies to Elements B and C ensuring that shares may not be sold until five years from the point of grant.
In relation to disclosure of performance targets:
– Prior years (2020): full details of the previous year’s performance targets, their level of satisfaction and the resulting performance remuneration
are disclosed on pages 94 to 99
– Future year (2021): the nature and weighting of future performance targets are disclosed on page 92
Malus and clawback provisions apply.
Illustration of policy
The following charts show the value of each of the main elements of the compensation package provided to the Executive Directors during 2020
and the potential available for 2021 (dependent upon performance).
Said Darwazah
2021
Threshold
Target
Maximum
Equity
growth
Actual
2020
Siggi Olafsson
2021
Threshold
Target
Maximum
Equity
growth
Actual
2020
Mazen Darwazah
2021
Threshold
Target
Maximum
Equity
growth
Actual
2020
1,157
53%
1,157
31%
1,157
22%
1,157
18%
1,157
28%
1,490
56%
1,490
34%
1,490
24%
1,490
20%
1,466
29%
904
55%
904
32%
904
23%
904
19%
866
29%
Fixed
Elements A & C
Element B
764
35%
1,527
41%
2,545
49%
2,882
46%
1,855
44%
255
12%
2,176
1,018
27%
3,702
1,527
29%
2,291
36%
4,194
1,182
28%
5,229
6,330
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Total remuneration $000
Fixed
Elements A & C
Element B
292
11%
2,657
1,167
26%
875
33%
1,750
40%
2,917
47%
3,339
45%
2,252
44%
4,407
1,750
28%
2,625
35%
5,127
1,409
27%
6,157
7,454
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Total remuneration $000
Fixed
Elements A & C
Element B
565
34%
1,130
41%
1,883
48%
2,118
45%
1,297
43%
188
11%
1,657
753
27%
825
28%
2,787
1,130
29%
1,695
36%
2,988
3,917
4,717
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Total remuneration $000
The following notes are applicable to the above calculations:
– Salary, benefits and pension comprise ‘Fixed’ remuneration
– Elements A and C of the EIP comprise the bonus and; Element B comprises the share award. Elements A, B and C of the EIP are made in
the year after the performance is achieved (eg for the 2021 illustration, the bonus would be paid and the share awards be granted in 2022.
The share awards would vest two or three years later). Please note that the Remuneration and performance summary on page 86 uses share
awards vesting (ie actual shares received, not those granted) during the period in order to make clear the difference between potential
remuneration and what the executive director receives in practice
– ‘Equity growth’ presumes a 50% increase in the value of shares granted under the EIP in respect of that year and that the executive remains
in place for the holding period (ie the award vests)
88
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
89
Annual report on remuneration
Annual report on remuneration
The information presented on the pages 90 to 104 has been audited by PwC, as indicated.
Director and average employee compensation change
The table below shows the percentage change in the Chief Executive Officer’s (CEO) salary, benefits and bonus between 2019 and 2020
compared with the percentage change in the average of each of those components of pay for employees (excluding the Executive Directors).
Salary
Benefits
Bonus
2020
2019
Percentage
change
2020
2019
Percentage
change
2020
2019
Percentage
change
Executive Chairman
$1,018,000 $1,018,464
CEO
$1,133,000 $1,100,000
Vice Chairman
$717,155
$717,155
0.0%
3.0%
0.0%
$70,323
$83,278
-15.6% $1,855,055 $1,879,388
$163,231
$590,291
-72.3% $2,252,369 $2,141,419
$92,892
$92,271
0.7% $1,297,238 $1,312,176
Robert Pickering
$133,206
$134,054
-0.6%
Pat Butler
Ali Al-Husry
Dr Pamela Kirby
Dr Jochen Gann
John Castellani
Nina Henderson
$149,730
$146,821
$112,298 $108,520
$137,966
$134,054
2.0%
3.5%
2.9%
$0
$0
$0
$0
0.0%
0.0%
$2,002
$3,319
-39.7%
$0
$0
$56,149 $108,520
-48.3%
$11,237
$8,554
$137,966
$134,054
$137,966
$134,054
2.9%
2.9%
$12,443
$16,342
-23.9%
$12,170
$14,810
-17.8%
Cynthia Schwalm
$125,132
$70,729
76.9%
$7,813
Douglas Hurt
Employees ($m)
Number of employees
$85,560
$306
8,681
$0
$300
8,578
Average per employee
$35,249
$34,973
Average per UK employee
$111,370
$109,979
0.0%
2.0%
1.2%
0.8%
1.3%
$0
$0
$104
8,578
$0
$105
8,681
$12,095
$12,124
$9,234
$6,851
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$56
8681
$56
8,578
$6,451
$6,528
$37,887
$35,839
0.0%
31.4%
0.0%
0.0%
1.0%
1.2%
-0.2%
34.8%
-1.3%
5.2%
-1.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
1.2%
-1.2%
5.7%
Hikma’s pay review, which took effect from 1 January 2020, awarded average percentage increases in wages and salaries of 3.0% for existing
employees (with certain exceptions for jurisdictions experiencing very high inflation). The nature and level of benefits to employees in the year
ended 31 December 2020 were broadly similar to those in the previous year. Hikma has not disclosed the average pay of employees in the
parent company as there are too few employees and there is significant variance in roles and responsibilities. Accordingly, no additional
disclosure would provide meaningful comparison.
UK gender and CEO pay ratios
Hikma has circa 30 employees in the UK and, as a result, is exempt from gender pay and average employee: CEO pay disclosure requirements.
The small number of employees and significant diversity of roles and seniority in the UK results in significant challenges in obtaining comparable
data. Hikma is committed to paying fairly and not discriminating on gender or other grounds.
Relative importance of spend on pay
The following table sets out the total amount spent in 2020 and 2019 on remuneration of Hikma’s employees and major distributions to
shareholders.
Distribution expense
Employee remuneration
Distributions to shareholders1
2020
2019
% change
from 2019
to 2020
$560m
$520m
7.7%
$477m
$97m
391.8%
1. The Company purchased 12.8 million shares during 2020 at a cost of $368 million, which is included in the distributions to shareholders in accordance with the regulations. Those shares
are held in treasury and do not receive dividends
90
Hikma Pharmaceuticals PLC Annual Report 2020
Employee cost and average executive pay ($m)
Executive Director pay
($m)
Average employee cost
($)
6
5
4
3
2
1
0
50,355
55,762
55,862
53,727
53,625
53,796
48,186
4.3
45,139
3.3
5.9
4.9
4.3
4.3
3.7
3.2
2013
2014
2015
2016
2017
2018
2019
2020
60,000
50,000
40,000
30,000
20,000
10,000
0
Executive Director pay
Average employee cost
Committee membership and attendance
Members and attendance
Member
Dr Pamela Kirby (Chair)
Robert Pickering1
Pat Butler2
John Castellani
Nina Henderson
Cynthia Schwalm
Douglas Hurt3
Meetings
5/5
5/5
4/5
5/5
5/5
5/5
3/3
Attendance
100%
100%
80%
100%
100%
100%
100%
1. Robert Pickering retired from the Board and, accordingly, ceased to be a member of the Committee on 18 December 2020
2. Pat Butler was unable to attend one meeting due to a medical procedure
3. Douglas Hurt joined the Committee on 1 May 2020
Advice and support
The Committee seeks the assistance of senior management (Chief Executive Officer, EVP Organisational Development, Group Total Reward
Director and Company Secretary) on matters relating to policy, performance and remuneration, but ensures that no officer or employee takes
part in discussions relating to their own remuneration or benefits.
Willis Towers Watson (WTW) continued to provide independent advice to the Committee, at the Committee’s request, in relation to market
practice, UK corporate governance best practice, and incentive plan target setting. WTW also provided support to our human capital
department. A policy fee structure is in place for the provision of advice and is used to determine a quote for each project before it is
undertaken. The total fees for advice to the Committee during the year were $90,929 (2019: $94,284), which were determined in accordance
with a pre-agreed fee matrix applied to a schedule of regular projects which are undertaken by WTW. For ad hoc projects, an estimate is
provided based on the specification for the work. The Committee reviewed the performance of WTW during the year and fees received,
concluding that WTW remained independent and continued to provide high-quality service. WTW were appointed by the Committee in 2016
following a competitive tender process. WTW adheres to the Remuneration Consultants Group Code of Conduct. During 2020, the Committee
instructed Mercer to undertake a region specific benchmarking exercise for which a fee of $8,000 was paid. Mercer are a recognised expert
in the region in question.
Policy implementation 2020
Policy deviation
During 2020, the Committee has not deviated from the remuneration policy approved by shareholders at the AGM on 30 April 2020.
Salaries, benefits and pension
Please see the Chair’s letter (page 84) for commentary on salaries. The application of benefits and pension is unchanged.
Executive Director
Executive Chairman
CEO
Individual
Said Darwazah
Siggi Olafsson
Executive Vice Chairman
Mazen Darwazah
Salary
2021
2020
$1,018,000
$1,018,000
$1,166,990
$1,133,000
$753,013
$717,155
Hikma Pharmaceuticals PLC Annual Report 2020
Change
%
0%
3%
5%
91
Annual report on remuneration
continued
Executive Incentive Plan (EIP)
For 2021, the Committee has determined that the performance criteria for the Executive Directors will be:
Area
Description
Weight
Rationale
Financial Revenue
40%
Core operating
profit before R&D
40%
Strategic Strategic deliverables
20%
Historically, the pricing of generic pharmaceutical products has decreased with time. The
Committee is cognisant that this could lead to declining revenue over the longer term, which
could ultimately result in a declining business overall. By ensuring that a significant proportion of
performance remuneration is based on revenue, the Committee is able to ensure that the Executive
Directors are focused on mitigating pricing declines by maximising the potential of the in-market
portfolio, launching new products, and developing the pipeline.
Please see page 14 of the Strategic report for the detail on this target.
Ultimately, core operating profit is a key measure of value to Hikma’s shareholders. Given the highly
competitive business environment in which Hikma operates, the Executive Directors must focus
continuously on optimising Hikma’s cost base. The Committee wants the Executive Directors to
deliver an optimised cost base without putting at risk the longer-term prospects of the business
by underinvesting in R&D. Therefore, R&D costs have been excluded from this criterion.
Please see page 14 of the Strategic report for the detail on this target.
The targets are designed to ensure that the Executive Directors deliver the strategic plan that was
approved by the Board during 2020 and the ESG strategy that was presented in February 2021.
Further details will be disclosed on measurement.
Disclosed on measurement
The Remuneration Committee is of the opinion that the disclosure of high-level forward-looking targets provides shareholders with an awareness of
direction and outcomes but, given the commercial sensitivity arising in relation to the detailed financial and strategic targets used for the EIP, disclosing
precise targets for the EIP in advance would not be in shareholders’ interests. This avoids the risk of Hikma inadvertently providing a profit forecast or giving
our international competitors access to sensitive information or an unfair advantage. Actual targets, performance achieved and awards made are published
at the end of the performance period so shareholders can fully assess the basis for any pay-outs under the EIP.
Structure
Forfeiture
Below minimum
Minimum
Target
Maximum
Elements
A
Cash bonus
B
Deferred shares
C
Restricted shares
Total
0%
0%
25%
0%
0%
25%
100%
100%
0%
0%
25%
50%
150%
150%
100%
0% award + forfeit 50% outstanding
Element B
0% award
75% award
250% award
400% award
Single total figure (audited)
The following table shows a single total figure of remuneration in respect of qualifying services for the 2020 financial year for each Executive
Director, together with comparative figures for 2019.
Director
Year
Salary $
Benefits $
Pension $
Total Fixed $
Bonus
(EIP Elements
A & C) $
Shares Vested
(EIP Element B) $
Total Variable $
Total $
Said Darwazah
2020
1,018,000
2019
1,018,464
70,323
83,278
68,946
1,157,269
1,855,055
0
1,855,055
3,012,324
64,152
1,166,254
1,879,388
1,403,652
3,283,040
4,448,934
Siggi Olafsson
2020
1,133,000
163,231
169,950
1,466,181
2,252,369
2019
1,100,000
590,291
290,014
1,980,305
2,141,419
0
0
2,252,369
3,718,550
2,141,419
4,121,724
Mazen Darwazah
2020
2019
717,155
717,155
92,892
92,271
55,765
865,812
1,297,238
508,838
1,806,076
2,671,888
55,583
865,009
1,312,176
759,804
2,071,980
2,936,989
The EIP performance criteria for 2020 are detailed on pages 94 to 99.
Benefits
Said Darwazah received transportation benefits of $55,216 (2019: $68,176) and medical benefits of $15,107 (2019: $15,102). Siggi Olafsson
received housing benefits of $110,903 (2019: $123,800) related to his stay in the UK, transportation benefits of $19,992 (2019: $20,000), medical
benefits of $32,336 (2019: $39,105), and taxation benefits of $0 (2019: $407,386) to ensure he was not disadvantaged by UK taxation only
to the extent that his UK taxation increased his US taxation. Mazen Darwazah received transportation benefits of $64,603 (2019: $64,604)
and medical benefits of $28,289 (2019: $27,667). Social security payments made in Jordan, that are required to be paid by Jordanian law,
are not considered to be a benefit.
Pension
Said Darwazah and Mazen Darwazah participate in the Hikma Pharmaceutical Defined Contribution Retirement Benefit Plan (the Jordan Benefit
Plan) on the same basis as other employees located in Jordan. Under the Jordan Benefit Plan, Hikma matches employee contributions made,
up to a maximum of 10% of applicable salary. Participants become entitled to all of Hikma’s contributions once they have been employed for ten
years. Before that point, there is a staggered scale which starts at three years of employment. Said Darwazah and Mazen Darwazah have served
for in excess of ten years and receive their benefits under the Jordan Benefit Plan because they are over 60 years of age. Siggi Olafsson was
entitled to a pension contribution of 15% of salary in 2018; however, a contribution of only $16,500 was made to his 401K plan in the US. In order
to correct the under payment, an additional payment of $125,014 was made in 2019 in lieu of the contractual liability for 2018. In respect of 2020,
Siggi was due to receive a pension contribution of $165,000 which represented 14.6% of his salary. However, a calculation error was made
resulting in an overpayment of $4,950 which will be deducted from the 2021 payment. Hikma Pharmaceuticals PLC does not and has not
operated a defined benefit scheme. The Executive Directors do not receive personal pension contributions from Hikma.
Additional Information
The following additional information is available in the Remuneration Committee’s report:
– Director and average employee compensation change: please see page 90
– Relative performance and spend on pay: please see page 85
– AGM voting: please see page 85
Vested share awards
During 2020, the following share awards vested for the Executive Directors. The total shares vested in 2020 are summarised in the following
two tables.
EIP
In respect of the awards that vested, under the EIP, performance criteria must be met before grant and the full award vests, providing there
have been no forfeiture events. The tables below details all share awards vesting during the year ended 31 December 2020. In accordance with
the Regulations, awards vesting under Element C of the EIP are treated as bonus in the performance year in which they were earned. Therefore,
the Element C awards shown below were included in the bonus figure for the year ended 31 December 2016. Whereas the EIP B is treated as
being earned in the year in which it vests and, therefore, is included in the Share awards vested figures for the year ended 31 December 2020.
Said Darwazah — EIP
Maximum number of shares capable of vesting — Element B
Maximum number of shares capable of vesting — Element C
Forfeiture
Vesting price
Number of vested shares
Total value of vested shares1
1. Share price on vesting was £22.77 and was $1.2623 to £1 under Element C
Mazen Darwazah — EIP
Maximum number of shares capable of vesting — Element B
Maximum number of shares capable of vesting — Element C
Forfeiture
Vesting price
Number of vested shares
Total value of vested shares2
Nil
36,438
Nil
Nil
36,438
$1,047,328
16,953
19,318
Nil
Nil
36,271
$1,064,090
2. Share prices on vesting were £24.60 and £22.77 and there were $1.2201 and $1.2623 to £1 under Element B and Element C, respectively
Share price appreciation
The increase in value of the above awards from the point of grant to the point of vesting was $171,630 in relation to Said Darwazah and $277,051
in relation to Mazen Darwazah.
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93
Annual report on remuneration
continued
2020 Performance outcome: Executive Chairman (audited)
Readers are directed to the commentary on business performance that is included in the Chair’s letter on pages 83 and 84.
The following table sets out the performance conditions and targets for 2020 and their level of satisfaction:
Performance condition
Performance level
Achievement
Application
Section
Financial
Description
Rationale and measurement
Core revenue
Core Operating Profit
(COP) before R&D
Historically, the pricing of generic pharmaceutical products has decreased with time. The
Committee is cognisant that this could lead to declining revenue over the longer term, which
could ultimately result in a declining business overall. By ensuring that a significant proportion
of performance remuneration is based on revenue, the Committee is able to ensure that the
Executive Directors are focused on mitigating pricing declines by maximising the potential
of the in-market portfolio, launching new products, and developing the pipeline. See page 14
of the Strategic report for further detail on the performance related to this target.
Ultimately, COP is a key measure of value to Hikma’s shareholders. Given the highly competitive
business environment in which Hikma operates, the Executive Directors must focus
continuously on optimising Hikma’s cost base. The Committee wants the Executive Directors
to deliver an optimised cost base without putting at risk the longer-term prospects of the
business by underinvesting in R&D. Therefore, R&D costs have been excluded from this criterion.
See page 14 of the Strategic report for further detail on the performance related to this target.
Hikma invests significant capital to expand its product portfolio and pipeline and improving
its high-quality manufacturing capabilities. Over the longer term, these activities ensure that
margins can be maintained through manufacturing more complex/specialty products and
capturing greater market share, respectively. The extensive range of capital investments have
various timeframes for delivering new capabilities and enhancing Hikma’s competitive position.
The performance of previous and existing projects is monitored by the Board on a project by
project basis. ROIC provides a Group-level method of assessing the time and cost to deliver
projects and their ultimate returns over a one-year time frame. See page 14 of the Strategic
report for further detail on the performance related to this target.
Strategic
Return on Invested
Capital (ROIC)
Weighting
40%
Forfeiture
0% salary awarded
Minimum
75% of salary
awarded
Target
250% of salary
awarded
Target -30%
$1,610m
Target -10%
$2,069m
Target
$2,299m
Maximum
400% of salary
awarded
Target +10%
$2,529m
Results
Achievement
% of salary
Core revenue of
$2,341
Target to
maximum
111.0% of salary
40%
Target -30%
$467m
Target -10%
$601m
Target
$667m
Target +10%
$734m
COP before R&D of
$703m
Target to
Maximum
132.2% of salary
20%
Target -40%
9%
Target -26%
11%
Target
15%
Target +47%
22%
ROIC of 16.2%
Target to
maximum
55.1% of salary
Total
100%
Unacceptable Acceptable
Good
Excellent
298.3%
The above performance results
in performance remuneration
under the EIP as follows:
Participant
Calculation
Receive
Executive
EIP Element
Salary
Maximum
potential
(% of salary)
Application
% of salary
Value of bonus/shares Receive
Notes
A
B
C
Executive
Chairman
Total
150%
116.1%
1,182,028
$1,018,000
150%
116.1%
1,182,028
100%
400%
66.1%
673,028
298.3%
$3,037,084
The information in the above tables has been audited by PwC
Cash now
(February 2021)
Shares in
2 years from
February 2021
Shares in
3 years from
February 2021
All shares vesting are
subject to a holding
period after vesting.
These shares may
not be sold until 5
years after grant.
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95
Annual report on remuneration
continued
2020 Performance outcome: Chief Executive Officer (audited)
Readers are directed to the commentary on business performance that is included in the Chair’s letter on pages 83 and 84.
The following table sets out the performance conditions and targets for 2020 and their level of satisfaction:
Performance condition
Performance level
Achievement
Application
Section
Financial
Description
Rationale and measurement
Core revenue
Core Operating Profit
(COP) before R&D
Historically, the pricing of generic pharmaceutical products has decreased with time.
The Committee is cognisant that this could lead to declining revenue over the longer term, which
could ultimately result in a declining business overall. By ensuring that a significant proportion
of performance remuneration is based on revenue, the Committee is able to ensure that the
Executive Directors are focused on mitigating pricing declines by maximising the potential
of the in-market portfolio, launching new products, and developing the pipeline. See page 14
of the Strategic report for further detail on the performance related to this target.
Ultimately, COP is a key measure of value to Hikma’s shareholders. Given the highly competitive
business environment in which Hikma operates, the Executive Directors must focus
continuously on optimising Hikma’s cost base. The Committee wants the Executive Directors
to deliver an optimised cost base without putting at risk the longer-term prospects of the
business by underinvesting in R&D. Therefore, R&D costs have been excluded from this criterion.
See page 14 of the Strategic report for further detail on the performance related to this target.
During the 2019 strategic review, the Board approved significant investment in new product
launches and expansion into new business areas. The strategic target focused on the delivery
of these elements. As the COVID-19 pandemic struck, the Chief Executive Officer’s strategic
target was expanded to include managing the challenges that arose and ensuring that the Group
continued to supply essential medicines (further commentary is available on page 83).
Strategic
Business Development
and the COVID-19
pandemic response
Weighting
40%
Forfeiture
0% salary awarded
Minimum
75% of salary
awarded
Target
250% of salary
awarded
Maximum
400% of salary
awarded
Results
Achievement
% of salary
Target -30%
$1,610m
Target -10%
$2,069m
Target $2,299m Target +10%
$2,529m
Core revenue of
$2,341m
Target to
maximum
111.0% of salary
40%
Target -30%
$467m
Target -10%
$601m
Target $667m Target +10%
$734m
COP before R&D of
$703m
Target to
Maximum
132.2% of salary
20%
Committee assessment of the:
— delivery of the product pipeline and business expansion plans;
and
— response to the operational and commercial challenges of the
COVID-19 pandemic
Maximum
determined by
the Committee
80% of salary
Product portfolio
increased by 13% in
one year and delivered
new business projects.
Excellent organisational
response to the
COVID-19 pandemic
Total
100%
Unacceptable Acceptable
Good
Excellent
323.2%
The above performance results
in performance remuneration
under the EIP as follows:
Participant
Calculation
Receive
Executive
EIP Element
Salary
Maximum
potential
(% of salary)
Application
% of salary
Value of bonus/shares Receive
Notes
A
B
C
Chief
Executive
Officer
Total
150%
124.4%
$1,409,434
$1,133,000
150%
124.4%
$1,409,434
100%
400%
74.4%
$842,934
323.2%
$3,661,802
The information in the above tables has been audited by PwC
Cash now
(February 2021)
Shares in
2 years from
February 2021
Shares in
3 years from
February 2021
All shares vesting are
subject to a holding
period after vesting.
These shares may
not be sold until 5
years after grant.
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97
Annual report on remuneration
continued
2020 Performance outcome: Executive Vice Chairman (audited)
Readers are directed to the commentary on business performance that is included in the Chair’s letter on pages 83 and 84.
The following table sets out the performance conditions and targets for 2020 and their level of satisfaction:
Performance condition
Performance level
Achievement
Application
Section
Financial
Description
Rationale and measurement
Core revenue
Core Operating Profit
(COP) before R&D
Strategic
MENA revenue before
R&D
MENA COP before
R&D
Historically, the pricing of generic pharmaceutical products has decreased with time.
The Committee is cognisant that this could lead to declining revenue over the longer term,
which could ultimately result in a declining business overall. By ensuring that a significant
proportion of performance remuneration is based on revenue, the Committee is able to ensure
that the Executive Directors are focused on mitigating pricing declines by maximising the
potential of the in-market portfolio, launching new products, and developing the pipeline.
See page 14 of the Strategic report for further detail on this target.
Ultimately, COP is a key measure of value to Hikma’s shareholders. Given the highly competitive
business environment in which Hikma operates, the Executive Directors must focus
continuously on optimising Hikma’s cost base. The Committee wants the Executive Directors
to deliver an optimised cost base without putting at risk the longer-term prospects of the
business by underinvesting in R&D. Therefore, R&D costs have been excluded from this criterion.
See page 14 of the Strategic report for further detail on this target.
The Executive Director is responsible for this region. The Committee considered financial
metrics to be the best method of ensuring delivery of the strategy that could be measured
in an objective manner that is readily understandable by investors. Measured by target MENA
revenue compared to audited MENA revenue for the year ended 31 December 2020. See pages
32 and 33 of the Business and financial review for further detail on this target.
The Executive Director is responsible for this region. The Committee considered financial
metrics to be the best method of ensuring delivery of the Board-approved strategy that could
be measured in an objective manner that is readily understandable by investors. Measured
by target MENA COP compared to audited MENA COP for the year ended 31 December 2020.
To align the approach with the Group target, R&D and Group costs have been removed from the
measurments of this target. See pages 32 and 33 of the Business and financial review for further
detail on this target.
Weighting
40%
Forfeiture
0% salary awarded
Minimum
75% of salary
awarded
Target
250% of salary
awarded
Target -30%
$1,610m
Target -10%
$2,069m
Target
$2,299m
Maximum
400% of salary
awarded
Target +10%
$2,529m
Results
Achievement
% of salary
Core revenue
of $2,341m
Target to
maximum
111.0% of salary
40%
Target -30%
$467m
Target -10%
$601m
Target
$667m
Target +10%
$734m
COP before R&D
of $703m
Target to
Maximum
132.2% of salary
10%
Target -30%
$541m
Target -10 %
$695m
Target
$773m
Target +10%
$850m
MENA revenue
of $762m
Threshold to
Target
22.5% of salary
10%
Target -30%
$140m
Target -10%
$180m
Target
$200m
Target +10%
$220m
MENA COP
of $207m
Target to
maximum
30.3% of salary
Total
100%
Unacceptable Acceptable
Good
Excellent
296.0%
The above performance results
in performance remuneration
under the EIP as follows:
Participant
Calculation
Receive
Executive
EIP Element
Salary
Maximum
potential
(% of salary)
Application
% of salary
Value of bonus/shares Receive
Notes
A
B
C
Executive
Vice Chairman
Total
150%
115.1%
$825,379
$717,155
150%
115.1%
$825,379
100%
400%
65.8%
$471,859
296.0%
$2,122,617
The information in the above tables has been audited by PwC
Cash now
(February 2021)
Shares in
2 years from
February 2021
Shares in
3 years from
February 2021
All shares vesting are
subject to a holding
period after vesting.
These shares may
not be sold until 5
years after grant.
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99
Annual report on remuneration
continued
Hikma continued to operate the EIP in 2020. The outstanding share awards under the EIP in respect of each of the Executive Directors are:
Participant
Director
Scheme description1
Type of interest
Date
of award
Date of vesting
Basis of award
Shares (max)
Face value2
Share scheme
Quantum
Dilution
In accordance with the guidelines set out by the Investment Association, Hikma can issue a maximum of 10% of its issued share capital
in a rolling ten-year period to employees under all its share plans and a maximum of 50% of this (representing 5% of issued share capital)
for discretionary share plans. The following table summarises the current level of dilution resulting from Hikma’s share plans since 2010:
12-Mar-19
12-Mar-21
135% of salary
61,666
$1,377,010
12-Mar-19
12-Mar-22
85% of salary
38,862
$867,778
27-Feb-20
27-Feb-22
117% of salary
47,169
$1,194,310
27-Feb-20
27-Feb-23
67% of salary
27,057
$685,078
174,754
(2019: 136,966)
$4,124,176
(2019: $3,616,558)
12-Mar-19
12-Mar-21
137% of salary
67,307
$1,502,965
12-Mar-19
12-Mar-22
87% of salary
42,676
$952,965
Type of plan
Discretionary Share Plans (5% Limit)
Granted in a
rolling ten-year
period
Granted during
the year
3.70%
0.46%
Director share interests
Said Darwazah, Mazen Darwazah and Ali Al-Husry are directors and shareholders of Darhold Limited. Darhold holds 60,000,000 Ordinary
Shares in Hikma. The table below breaks down their shareholdings in Hikma by shares effectively owned through Darhold and shares held
personally or by connected people. The cancellation and issuance of shares in Darhold and Hikma, as well as changes in the number of
Hikma shares held by Darhold, can lead to a degree of variation in the ‘Effective Hikma shares’.
Director
Said Darwazah
Mazen Darwazah1
Ali Al-Husry2
Darhold
Interest in
Darhold
22.29%
11.59%
8.24%
Effective
Hikma shares
13,372,394
6,954,372
4,944,570
Personal
Shares
(incl. connected
people)
Total
shareholding
588,404
13,960,798
1,194,236
8,148,608
1,162,811
6,107,381
12-Mar-19
12-Mar-22
150% of salary
72,000
$1,607,760
1. Mazen Darwazah holds his shares in Darhold Limited through a family trust
2. Ali Al-Husry holds his shares in Hikma and Darhold Limited through a family trust
27-Feb-20
27-Feb-22
122% of salary
53,148
$1,345,709
The information in the table above has been audited by PwC
EIP Element B
EIP Element C
EIP Element B
EIP Element C
EIP Element B
EIP Element C
First Year
Award (EIP C
Equivalent)
EIP Element B
EIP Element C
EIP Element C
EIP Element B
EIP Element C
EIP Element B
EIP Element C
Conditional
award
Conditional
award
Conditional
award
Conditional
award
Conditional
award
Conditional
award
Conditional
award
Conditional
award
Conditional
award
Conditional
award
Conditional
award
Conditional
award
Conditional
award
Conditional
award
Said Darwazah
Total
Siggi Olafsson
Total
Mazen Darwazah
Total
27-Feb-20
27-Feb-23
72% of salary
31,426
$795,709
266,557
(2019: $181,983)
$6,205,108
(2019: 4,805,223)
16-May-18
16-May-21
23% of salary
12,042
$167,097
12-Mar-19
12-Mar-21
133% of salary
42,572
$950,634
12-Mar-19
12-Mar-22
83% of salary
26,514
$592,056
27-Feb-20
27-Feb-22
117% of salary
32,993
$835,377
27-Feb-20
27-Feb-23
67% of salary
18,831
$476,499
132,952
(2019: 117,399)
$3,021,663
(2019: $3,099,895)
1. The performance criteria for Elements B and C of the EIP are assessed before a grant is considered. Additionally, Element B is subject to forfeiture criteria for the first two years after grant,
which are detailed each year as part of the next year’s EIP performance criteria on pages 94 to 99
2. The face value is the value at the point of grant which is the 30-day average to the 31 December of the performance year. The actual value received by Executive Directors under the share
incentive arrangements is dependent upon the share price of Hikma at the time of vesting, the satisfaction of performance criteria and the non-occurrence of forfeiture events (EIP
Element B only)
3. The minimum value of the awards at vesting will be the share price on the day of vesting multiplied by the number of shares vesting. If the Executive Director leaves employment
during the vesting period, the normal position is that zero shares vest. If all the forfeiture conditions occur in each year of the vesting period under Element B only, zero shares will vest.
The weighting of each forfeiture condition has a proportional impact on the vesting percentage under Element B only
The information in the table above has been audited by PwC
The applicable share prices for Hikma during the period under review were:
Date
1 January 2020
31 December 2020
2020 Range (low to high)
24 February 2021
Market price
(Closing price)
2,001p
2,518p
1,596p to 2,768p
2,423p
The following table sets out details of the Directors’ shareholdings in Hikma and, where there are shareholding requirements, whether these
have been met:
Director
Said Darwazah
Siggi Olafsson
Mazen Darwazah4
Ali Al-Husry5
Pat Butler
Dr Pamela Kirby
John Castellani
Nina Henderson
Cynthia Schwalm
Douglas Hurt
Robert Pickering6
Dr Jochen Gann6
Ownership requirements
Total
Scheme Interests
Total
Percentage
of salary
300%
300%
300%
Number
of shares
88,709
98,730
62,493
Requirement
fulfilled?
Shares
owned3
EIP subject to
performance
(Element B)
EIP subject to
service
(Element C)
Share
interests
Yes
Yes
Yes
13,960,798
20,000
8,148,608
6,107,381
108,835
120,455
75,565
65,919
14,135,552
146,102
286,557
57,387
8,281,560
6,107,381
3,875
4,817
3,500
5,500
1,100
0
10,000
0
3,875
4,817
3,500
5,500
1,100
0
10,000
0
3. Including shares effectively owned through Darhold as per the table above
4. Mazen Darwazah holds his shares in Darhold Limited through a family trust, in which he has a beneficial interest
5. Ali Al-Husry holds his shares in Hikma and Darhold Limited through a family trust, in which he has a beneficial interest
6. Robert Pickering and Dr Jochen Gann retired from the Board on 18 December 2020 and 25 June 2020, respectively
There have been no changes in the interests of the Directors in the shares of Hikma between 31 December 2020 and the date of this report. The share price used to calculate whether
the shareholding requirements have been met is the price on 31 December 2020 of £25.18p and foreign exchange rate of $1.37 to £1 on the same date
The information in the above tables has been audited by PwC
100
Hikma Pharmaceuticals PLC Annual Report 2020
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101
Annual report on remuneration
continued
Director share interests continued
The following table sets out the changes in the share interests of Directors during the year under review and up to the date of this report.
Other than as detailed in the table, the Directors’ share interests in Hikma did not change during the period.
Director
Cynthia Schwalm
Said Darwazah
Mazen Darwazah
Mazen Darwazah
Date
Event
23-Mar-20
Market purchase of shares
14-Apr-20
Vesting of 2017 EIP Element C. Retained all shares
14-Apr-20
Vesting of 2017 EIP Element C. Retained all shares
18-May-20
Vesting of 2018 EIP Element B. Retained all shares
The information in the table above has been audited by PwC
No. Shares
1,100
36,438
19,318
16,953
Scheme interests
The following table sets out details of the ‘scheme interests’ of the Directors. Element B and C of the EIP have been included because they have
service conditions in excess of one year.
Director
Said Darwazah
Siggi Olafsson
Mazen Darwazah
All other directors
Type of interest
Shares
Share options
174,754
266,557
132,952
—
—
—
—
—
Share interests with performance
measures
Vested but
unexercised
Yes
108,835
120,455
75,565
—
No
65,919
146,102
57,387
—
—
—
—
—
Total shareholder return
During 2020, Hikma performed strongly against its UK peers in Hikma’s index (FTSE 100) and sector (FTSE 350 Pharmaceuticals &
Biotechnology segment, a relatively small group of companies that are mainly focused on developing new drugs). The Remuneration Committee
has chosen these comparators because it uses executive compensation benchmarking data from the FTSE 100 and the pharmaceutical
industry when considering compensation for the Executive Directors.
500
400
300
200
100
0
-100
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
Dec 18
Dec 19
Dec 20
Hikma Pharmaceuticals PLC
FTSE 100
FTSE 350/Pharmaceuticals & Biotechnology – SEC
Remuneration table
The following table sets out the total remuneration, including amounts vesting under short-term and long-term incentive plans, for each
financial period in respect of the Directors holding the positions of Executive Chairman and Chief Executive Officer. The total figures for the
financial years 2017 and 2016 are higher than would otherwise be the case due to a change of incentive plan. In accordance with the Regulations,
the 2017 and 2016 totals include LTIPs vesting during the relevant period (which were granted three years before) and Element C of the EIP which
was granted in respect of the relevant period. The Regulations require Element C to be treated in a similar way to the annual bonus, although it
is an award of shares that will vest three years after grant. The final LTIP awards vested in 2017 and, therefore, do not impact the Share Awards
percentage for 2018 onwards.
Year
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
Said Darwazah — Executive Chairman
Siggi Olafsson — Chief Executive Officer
Total
Bonus as
% max1
Share awards as
% max2
$4,059,653
$4,448,934
$4,501,217
$3,538,646
$6,308,238
$7,316,042
$5,056,255
$3,956,836
$3,296,000
$2,629,000
$1,965,000
73%
74%
88%
0%
71%
98%
100%
100%
80%
80%
100%
77%
78%
90%
0%
68%
98%
70%
62%
50%
67%
49%
Total
$3,718,549
$4,121,724
$5,260,957
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Bonus as
% max1
Share awards as
% max2
80%
78%
89%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
83%
82%
91%
N/A%
N/A%
N/A%
N/A%
N/A%
N/A%
N/A%
N/A%
1. The ‘Bonus as % max’ column comprises cash under Element A of the EIP paid immediately and shares under Element C of the EIP that are released three years after grant
2. The ‘Share awards as % max’ column includes Element B of the EIP, shares that vest in two years from the date of grant provided that the executive remains in employment and forfeiture
events have not occurred
Non-Executive Directors
During the year, the Executive Directors reviewed the fees paid to Non-Executive Directors. The conclusion of the review was that the fees
should remain unchanged (base fee of £87,500, committee membership fee of £10,000 and committee chair and additional responsibility fees
of £10,000 (Audit chair £20,000)). The base fee was last increased in 2020 and other elements were last increased in 2019. The table below
details the fees paid to Non-Executive Directors during the year under review and the prior year. Certain Directors joined, retired or changed
roles during the periods and their fees have been pro-rated for time served in the relevant position:
Name
Board position
Robert Pickering2
Non-Executive Director
Pat Butler2
Senior Independent Director
Dr Pamela Kirby
Remuneration Committee Chair
Ali Al-Husry
Non-Executive Director
Dr Jochen Gann
Non-Executive Director
John Castellani
CRE Committee Chair
Nina Henderson
Independent Director and
Employee Engagement Lead
Cynthia Schwalm2
Non-Executive Director
Douglas Hurt
Audit Committee Chair
Fee (all
elements)
£000
2020
Taxable
benefits1
£000
103.8
116.7
107.5
87.5
43.8
107.5
107.5
97.5
66.7
0.0
0.0
0.0
1.6
8.8
9.7
9.5
6.1
0.0
Fee (all
elements)
£000
2019
Taxable
benefits
£000
105.0
115.0
105.0
85.0
85.0
105.0
105.0
55.4
0.0
0.0
0.0
0.0
2.6
6.7
12.8
11.6
0.0
0.0
Total
£000
103.8
116.7
107.5
89.1
52.5
117.2
117.0
103.6
66.7
Total
£000
105.0
115.0
105.0
87.6
91.7
117.8
116.6
55.4
0.0
1.
‘Taxable benefits’ includes certain accommodation expenses for Non-Executive Directors that are wholly related to their attendance at Board meetings and are in accordance with
normal Hikma expense policy. These expenses are treated as taxable benefits by the UK authorities and, where appropriate, the above figure includes the corresponding tax contribution
2. Pro-rated fees in respect of time served and position changes. Robert Pickering served as Senior Independent Director until 1 December 2020 and retired from the Board on 18 December
2020. Pat Butler served as Audit Committee chair until 1 December 2020, when he became the Senior Independent Director. Cynthia Schwalm joined the Board on 1 June 2019. Douglas
Hurt joined the Board on 1 May 2020 and became Chair of the Audit Committee on 1 December 2020
The information in the table above has been audited by PwC
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103
Annual report on remuneration
continued
Directors’ report
Payments to past Directors
There were no payments to past Directors during the financial year. The information in this paragraph has been audited by PwC.
Payments for loss of office
There were no payments for loss of office during the financial year. The information in this paragraph has been audited by PwC.
Terms of appointment and service
Service contracts
The details of the service contracts of the Executive Directors of Hikma in force at the end of the year under review, which have not changed
during the year and are available for inspection at Hikma’s registered office at 1 New Burlington Place, London W1S 2HR, were:
Executive Director
Said Darwazah
Siggi Olafsson
Mazen Darwazah
Company
notice period
12 months
12 months
12 months
Contract date
1 July 2007
Unexpired
term of contract
Potential termination payment
Rolling contract
12 months’ salary and benefits
20 February 2018 Rolling contract
12 months’ salary and benefits
25 May 2006
Rolling contract
12 months’ salary and benefits
The Executive Directors are not appointed for a specified term and, therefore, do not have an outstanding term that requires disclosure.
Letters of appointment
The Non-Executive Directors have letters of appointment with Hikma, not service contracts, which are available for inspection at Hikma’s
registered office at 1 New Burlington Place, London W1S 2HR. Appointments are made for a period of 36 months and then reviewed.
Non-Executive Director
Ali Al-Husry
Pat Butler
Dr Pamela Kirby
John Castellani
Nina Henderson
Cynthia Schwalm
Douglas Hurt
Date of appointment
14 October 2005
1 April 2014
1 December 2014
1 March 2016
1 October 2016
1 June 2019
1 May 2020
Notice payment
1 month
1 month
1 month
1 month
1 month
1 month
1 month
Hikma complies with the UK Corporate Governance Code requirement that all directors be subject to annual election by shareholders.
External appointments
Hikma recognises that Executive Directors may be invited to take up non-executive directorships or public sector and not-for-profit
appointments, and that these can broaden the experience, network and knowledge of the Director, from which Hikma can benefit. Executive
Directors may accept external appointments as long as they do not lead to a conflict of interest and are allowed to retain any fees. During the
year under review, Said Darwazah, Siggi Olafsson and Mazen Darwazah received fees of $4,100 (2019: $4,100), $nil (2019: $38,105) and $19,250
(2019: $25,000), respectively, relating to external appointments which are detailed in their Director profiles on page 66. The process for
controlling external commitments is described in the governance statement on page 74.
Closing statement
We have continued to develop our approach to remuneration reporting this year and the Committee hopes that this has aided your
understanding of our Remuneration Policy and practices. Please do not hesitate to contact me if you have any questions or observations.
For and on behalf of the Remuneration Committee
Dr Pamela Kirby
Chair of the Remuneration Committee
24 February 2021
Report of the Directors to shareholders and
stakeholders
The Directors submit their report together with the audited financial
statements for the year ended 31 December 2020. This report forms
the management report for the purposes of the Disclosure and
Transparency Rules. Readers are asked to cross refer to the other
sections of the Annual Report to the extent necessary to meet
Hikma’s reporting obligations as follows (statements that are not
applicable have been excluded):
– Likely future developments of Hikma: Strategic report and the
Business and financial review, pages 1 to 61
– Long-term incentive schemes: Directors’ remuneration report,
page 100
– Related party transactions: Note 38 to the Group financial
statements, page 166
– Going concern statement: Risk management report, page 59
– Long-term viability statement: risk management report, page 59
– Names and biographical details of the Directors: corporate
governance report, pages 66 and 67
– Independence of Non-Executive Directors: corporate governance
report, page 71
– Directors’ share interests: Directors’ remuneration report, pages 101
and 102
– Greenhouse gas emissions: Sustainability report, page 49
– Financial instruments and risk: Note 30 to the Group financial
statements, pages 153 to 158
– Stakeholder and S.172 Statement, pages 20 to 24
For the purposes of Listing Rule 9.8.4, shareholders are directed in
accordance with the following table to notes in the Group financial
Statements:
Item
Interest capitalised and associated tax relief
Publication of unaudited financial
information
Details of long-term incentive schemes
Waiver of emoluments by Directors
Allotment of securities for cash, including by
major subsidiaries
Controlling entities/parent undertakings of
Hikma
Contracts of significance with a material
interest of a director or controlling
shareholders
Services provided to Hikma by controlling
shareholders
Reference
This page
None
See Note 37 on
pages 162 to 165
None
None
None
None
None
Arrangements by which shareholders have
agreed to waive current or future dividends
See Note 32 on
page 158
Controlling shareholder agreements and
associated obligations
Hikma does not
have any controlling
shareholders within
the meaning of the
Listing Rules
Principal activity
The principal activities of Hikma are the development, manufacture
and marketing of a broad range of generic, branded and in-licensed
pharmaceutical products. Hikma’s pharmaceutical operations are
conducted through three business segments: Injectables, Generics,
and Branded. The majority of Hikma’s operations are in the MENA
region, the US and Europe. Hikma does not have overseas branches
within the meaning of the Companies Act 2006 (the Act).
Hikma’s net sales, gross profit and segmental results are shown
by business segment in Note 5 to the Group financial statements
on pages 134 and 135.
Results
Hikma’s reported profit for the year in 2020 was $431 million
(2019: $486 million).
Dividend
The Board is recommending a final dividend of 34 cents per share
(approximately 24 pence per share) (2019: 30 cents per share)
bringing the total dividend for the full year to 50 cents per share
(approximately 36 pence per share) (2019: 44 cents per share,
approximately 34 pence per share). The proposed dividend will
be paid on 26 April 2021 to eligible shareholders on the register
at the close of business on 19 March 2021, subject to approval
at the Annual General Meeting on 23 April 2021.
Creditor payment policy
Hikma’s policy, which is also applied by all subsidiaries and will continue
in respect of the 2021 financial year, is to settle terms of payment with
all suppliers when agreeing the terms of each transaction and to ensure
that we abide by those terms of payment. Trade creditors of Hikma at
31 December 2020 were equivalent to 91 days’ purchases (2019: 99
days), based on Group trade payables multiplied by 365, divided by
trailing 12 months Group cost of goods sold.
Donations
During the year Hikma made charitable donations of approximately
$6.8 million (2019: $5.3 million):
Type of donation
Local charities serving communities
in which Hikma operates
Amount
donated in
2019 ($)
Amount
donated in
2020 ($)
2,169,549
2,731,248
Medical (donations in kind)
3,131,996
4,068,232
Political donations and expenditure
nil
nil
Total
5,301,545
6,799,480
Hikma’s policy prohibits the payment of political donations and
expenditure within the meaning of the Act.
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105
Directors’ report
continued
Research and development
Hikma’s investment in research and development (R&D) during 2020
represented 5.9% of Group revenue (2019: 5.7%). Further details on
Hikma’s R&D activities can be found on pages 7, 9, 13, 15, 17 and 34.
Interest
The interest capitalised during the year under review was $nil
(2019: $nil). The tax impact related to the capitalised interest was $nil
(2019: $nil).
Streamlined Energy and Carbon Reporting
The Group operates one site within the United Kingdom which is
an office within a building that is managed by a third party. During
the year, the UK site consumed 128,654 kWh (2019: 164,658 kWh)
of energy, which is equivalent to 29,994 kg of carbon dioxide
(2019: 38,388 kg). This is equivalent to 3,675 kWh per employee
(2019: 4,450 kWh). The energy consumption is measured by meter
readings provided by the managing agent and relates to electricity
and gas used for heating, cooling and general office power. Where
there are gaps in the data provided by the managing agent,
consumption has been modelled using the proportional consumption
from data available from prior periods. The Group does not provide
transport within the UK other than via private hire vehicles for
which consumption data is not available. During 2021, the UK site
is to be assessed by an independent expert for the potential to
improve energy efficiency.
Significant contracts
Due to the nature of Hikma’s business, members of Hikma are party
to agreements that could alter or be terminated upon a change
of control of Hikma following a takeover. However, none of these
agreements is individually deemed to be significant in terms of
its potential impact on the business of Hikma taken as a whole.
The Directors are not aware of any agreements between Hikma
and its Directors or employees that provide for compensation for
loss of office or employment that occurs because of a takeover bid.
There are no persons, with whom Hikma has contractual or other
arrangements, who are deemed to be essential to the business
of Hikma.
Directors
It is the Board’s policy that all Directors should retire and, should
the Director wish to continue in office, seek election or re-election
on an annual basis. Accordingly, Douglas Hurt will seek election,
and Said Darwazah, Siggi Olafsson, Mazen Darwazah, Patrick Butler,
Ali Al-Husry, Dr Pamela Kirby, John Castellani, Nina Henderson and
Cynthia Schwalm will seek re-election at the AGM.
Indemnities and insurance
Hikma maintains an appropriate level of Directors’ and Officers’
insurance. The Directors benefit from qualifying third-party
indemnities made by Hikma that were in force during the year and as
at the date of this report. These indemnities are uncapped in amount
in relation to losses and liabilities which Directors may incur to third
parties in the course of the performance of their duties. During the
year, the Directors’ indemnities were reviewed and updated to bring
them into line with current practice. The changes were not material.
Auditors
Each person who was a Director of Hikma at the date when this report
was approved confirms that:
– so far as the Director is aware, there is no relevant audit information
of which Hikma’s auditors are unaware
– the Director has taken all the steps that he or she ought to have
taken as a Director to make himself or herself aware of any relevant
audit information and to establish that Hikma’s auditors are aware
of that information
This confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Companies Act 2006.
Employee engagement
Nina Henderson undertook the employee engagement activities,
as described on page 63. Hikma continued to operate its existing
employee engagement mechanisms which include intra-Group
communications, social networking, an open door policy for
legitimate union representatives and the operation of share incentive
arrangements. Hikma does not discriminate against a potential
employee on grounds of disability and will make reasonable
adjustments to employ and develop disabled people.
Stakeholder engagement
Further information on the Board’s engagement with stakeholders
is detailed on pages 20 to 24.
Equity
Capital structure
Details of the issued share capital, together with movements in the
issued share capital during the year, can be found in Note 32 to the
Group financial statements on page 180. Hikma has one class of
Ordinary Shares of 10 pence each (Shares) which carries no right to
fixed income. Each share carries the right to one vote at general
meetings of Hikma.
As at 31 December 2020:
Type
Shares
Nominal value
In issue
Issued during
the year
10 pence
243,332,180
1,013,006
During 2020, Hikma issued Ordinary Shares solely pursuant to the
exercise of options under the 2005 Long Term Incentive Plan, 2009
Management Incentive Plan and 2014 Executive Incentive Plan.
There are no specific restrictions on the size of a holding or on the
transfer of shares, which are both governed by the general provision
Hikma’s Articles of Association (the Articles) and prevailing legislation.
The Directors are not aware of any agreements between holders of
Hikma’s shares that may have resulted in restrictions on the transfer
of securities or on voting rights. No person has any special rights with
regard to the control of Hikma’s share capital and all issued shares are
fully paid. Hikma placed 12,833,233 shares into treasury during the
year under review.
Share buyback
At the Annual General Meeting (AGM) on 30 April 2020, shareholders
gave the Directors authority to purchase shares from the market up
to an amount equal to 10% of Hikma’s issued share capital at that
time. This authority expires at the earlier of 30 June 2021 or the 2021
AGM, which is scheduled for 23 April 2021. The Directors have used
this authority during the year to purchase 12,833,233 shares from
Boehringer Ingelheim (the ‘Treasury Shares’) when they disposed
of their entire shareholding and are proposing to renew this authority
at the 2021 AGM. These Treasury Shares are held in treasury and,
accordingly, do not receive dividends and do not exercise voting rights.
Share issuance
At the AGM on 30 April 2020, the Directors were authorised to issue
relevant securities up to an aggregate nominal amount of £8,077,634
and to be empowered to allot equity securities for cash on a
non-pre-emptive basis up to an aggregate nominal amount of
£1,211,645 at any time up to the earlier of the date of the 2021 AGM or
30 June 2021. The Directors propose to renew these authorities at the
2021 AGM for a further year. In the year ahead, other than in respect
of Hikma’s obligations to satisfy rights granted to employees under
its various share-based incentive arrangements, the Directors have
no present intention of issuing any additional share capital of Hikma.
Details of the employee share schemes are set out in Note 37 to
the Group financial statements on pages 162 to 165. Shares are also
held by the Hikma Pharmaceuticals Employee Benefit Trust (EBT) and
are detailed in Note 32 to the Group financial statements on page 158.
The EBT has waived its right to vote on the shares it holds and also to
its entitlement to a dividend. Other than the shares held by the EBT
and the Treasury Shares, no other shareholder has waived the right
to a dividend.
Annual General Meeting
The AGM of Hikma will be held at Hikma Offices, 5th floor, 1 New
Burlington Place, London W1S 2HR on Friday, 23 April 2021, starting
at 1.00 p.m. and arrangements are in place for virtual attendance.
The Notice convening the meeting is given in a separate document
accompanying this document, and includes a commentary on the
business of the AGM, explains how shareholders can take part either
in person or virtually, and notes to help shareholders exercise their
rights at the meeting.
Hikma provides for the vote on each resolution to be by poll rather
than by show of hands. This provides for greater transparency and
allows the votes of all shareholders to be counted, including those
cast by proxy. The level of proxies lodged for each resolution is
projected onto a screen as each resolution is put to the meeting.
A ‘vote withheld’ explanation is included in the Notice.
The powers of the Directors are determined by the Articles, the UK
Code and other relevant UK legislation. The Articles give the Directors
the power to appoint and remove Directors. The power to issue and
allot shares contained in the Articles is subject to shareholder
approval at each AGM. The Articles, which are available on the website,
may only be amended by special resolution of the shareholders.
Article of association
The Company reviewed its Articles during the year with a view to
bringing the Articles into line with best practice, such as enhancing
the procedures for virtual general meetings. The Company is
proposing to adopt new Articles at the 2021 AGM and
has summarised the material changes in the Notice of Meeting.
Substantial shareholdings
As at the date of this document, Hikma had been notified pursuant to
sections 89A to 89L of the Financial Services and Markets Act 2000
and Rule 5 of the Disclosure and Transparency Rules of the UKLA of
the following interests in the voting rights attaching to the share
capital of Hikma:
Number of shares
Percentage held1
Name of shareholder
Darhold Limited2
Capital Group International
60,000,000
23,275,396
Wellington Management Group LLP
11,556,882
BlackRock Group
11,551,161
26.04%
10.10%
5.01%
5.01%
1. The percentages detailed relate to voting rights in the Company. Therefore, the Treasury
Shares and shares held by the EBT have been excluded from the denominator for this
calculation
2. Said Darwazah, Mazen Darwazah and Ali Al-Husry, each being a Director and
shareholder of Hikma, are shareholders and non-executive directors of Darhold Limited.
See page 101 for details of their interests in Darhold Limited
There have been no changes in substantial shareholdings notified
to Hikma since the year-end.
Pre-emptive issue of shares
During the year under review, and in the period since the date of
Hikma’s Initial Public Offering on 1 November 2005, Hikma did not
issue any shares pursuant to an authority given by shareholders at
an AGM to issue shares for cash on a non-pre-emptive basis, other
than in respect of the placing undertaken on 17 January 2008.
Post balance sheet events
There have been no post balance sheet events.
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107
Directors’ Responsibilities Statement
Financial statements
Directors’ confirmations
The Directors consider that the annual report and accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the group’s and
company’s position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed in
Directors’ report confirm that, to the best of their knowledge:
– the group financial statements, which have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and,
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
and IFRSs issued by IASB, give a true and fair view of the assets,
liabilities, financial position and profit of the group;
– the company financial statements, which have been prepared
in accordance with United Kingdom Accounting Standards,
comprising FRS 101, give a true and fair view of the assets, liabilities,
financial position and profit of the company; and
– the Annual Report and financial statements includes a fair review
of the development and performance of the business and the
position of the group and company, together with a description
of the principal risks and uncertainties that it faces.
Electronic communications
Hikma’s preference is to communicate through Hikma’s website,
rather than in paper form. Shareholders are encouraged to visit
the website to access Hikma’s Annual Reports and half-year and
final results presentations. Shareholders who wish to receive paper
communications can elect to do so through Hikma’s registrars,
Link Asset Services (www.hikmashares.com).
On behalf of the Board
Said Darwazah
Executive Chairman
24 February 2021
Sigurdur Olafsson
Chief Executive Officer
24 February 2021
Directors’ responsibilities statement
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have prepared
the group financial statements in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006. Additionally, the Financial Conduct Authority’s
Disclosure Guidance and Transparency Rules require the Directors
to prepare the group financial statements in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
and company financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law). In preparing the group financial
statements, the Directors have also elected to comply with IFRSs,
issued by the International Accounting Standards Board (IASB).
Under company law, Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the group and company and of the profit or
loss of the group for that period. In preparing the financial statements,
the Directors are required to:
– select suitable accounting policies and then apply them
consistently;
– state whether for the group and company, international accounting
standards in conformity with the requirements of the Companies
Act 2006 and, for the group, international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union and IFRSs issued by IASB have been
followed for the group financial statements and United Kingdom
Accounting Standards, comprising FRS 101 have been followed
for the company financial statements, subject to any material
departures disclosed and explained in the financial statements;
– make judgements and accounting estimates that are reasonable
and prudent; and
– prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the group and company will
continue in business
The Directors are also responsible for safeguarding the assets of
the group and company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the group’s and
company’s transactions and disclose with reasonable accuracy at
any time the financial position of the group and company and enable
them to ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act 2006 and, as
regards the group financial statements, Article 4 of the IAS Regulation.
The Directors are responsible for the maintenance and integrity of
the company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Financial
statements
We deliver accurate, high-quality
and timely information to all stakeholders
with the utmost integrity and efficiency.
In this section
110
Independent auditors’ report
118 Consolidated financial statements
123 Notes to the Consolidated financial statements
171 Company financial statements
173 Notes to the Company financial statements
108
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109
Independent auditors’ report to the members
of Hikma Pharmaceuticals PLC
Report on the audit of the financial statements
Opinion
In our opinion:
– Hikma Pharmaceuticals PLC’s Group financial statements and
Company financial statements (the “financial statements”) give a
true and fair view of the state of the Group’s and of the Company’s
affairs as at 31 December 2020 and of the Group’s profit and the
Group’s cash flows for the year then ended;
– the Group financial statements have been properly prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006;
– the Company financial statements have been properly prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising
FRS 101 “Reduced Disclosure Framework”, and applicable law); and
– the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006.
We have audited the financial statements, included within the
Annual Report, which comprise: the consolidated and Company
balance sheets as at 31 December 2020; the consolidated income
statement and consolidated statement of comprehensive income,
the consolidated cash flow statement, and the consolidated and
Company statements of changes in equity for the year then ended;
and the notes to the consolidated and Company financial statements,
which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Separate opinion in relation to international financial
reporting standards adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union
As explained in note 1 to the financial statements, the Group, in
addition to applying international accounting standards in conformity
with the requirements of the Companies Act 2006, has also applied
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union.
In our opinion, the Group financial statements have been properly
prepared in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union.
Separate opinion in relation to IFRSs as issued
by the IASB
As explained in note 1 to the financial statements, the Group, in
addition to applying international accounting standards in conformity
with the requirements of Companies Act 2006, has also applied
international financial reporting standards (IFRSs) as issued by the
International Accounting Standards Board (IASB).
In our opinion, the Group financial statements have been properly
prepared in accordance with IFRSs as issued by the IASB.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities
for the audit of the financial statements section of our report. We
believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as
applicable to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
During the period, we identified that one PwC team in the Middle East
was involved in supporting the preparation of the local statutory
financial statements for the financial year ended 31 December 2019
on behalf of Hikma. The team provided administrative services in
connection with the preparation of local statutory financial
statements for which no fee was sought nor obtained. The service
has completed and was limited to two sets of local statutory accounts
which did not fall within the scope of the Group audit. Administrative
typing and drafting of statutory financial statements is prohibited
by the FRC’s Ethical Standard. We confirm that, based on our
assessment of this breach, the nature and scope of the service
and the subsequent actions taken, the provision of the service has
not affected our professional judgement and the audit report and
therefore we remained independent for the purposes of the audit.
Other than the matter referred to above, to the best of our knowledge
and belief, we declare that non-audit services prohibited by the FRC’s
Ethical Standard were not provided to the Group.
Other than those disclosed in note 7 to the financial statements,
we have provided no non-audit services to the Group in the period
under audit.
Our audit approach
Overview
Audit scope
– Our audit included full scope audits of four components, central
audit procedures on specific financial statement line items of one
component and audit procedures performed centrally over the
consolidation and specific material balances at other locations
around the world. Full scope components account for 73% of
consolidated revenue, 75% of the adjusted profit measure we
use as a basis for determining materiality and 76% of consolidated
total assets.
Key audit matters
– Valuation and presentation and disclosure of goodwill and
intangible assets (Group)
– Valuation and accuracy of gross to net rebate, returns and
chargeback adjustments in the US (Group)
– Tax including completeness and valuation of provisions
for uncertain tax positions (Group)
– Impact of COVID-19 (Group and Company)
Materiality
– Overall Group materiality: $24 million (2019: $21.5 million) based
on 5% of profit before tax after adjusting for all exceptional items
and other adjustments except for amortisation of intangible assets
other than software.
– Overall Company materiality: $21.6 million (2019: $19.4 million) based
on 1% of total assets, capped at 90% of overall Group materiality.
– Performance materiality: $18 million (Group) and $16.2 million
(Company).
The scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements.
Capability of the audit in detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined in the Auditors’ responsibilities for the audit
of the financial statements section, to detect material misstatements
in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud,
is detailed below.
Based on our understanding of the Group and industry, we identified
that the principal risks of non-compliance with laws and regulations
related to product safety (including but not limited to the regulations
set out by the United States Food and Drug Administration
regulations), competition and antitrust laws, pricing and practices
legislation, tax legislation and anti-bribery and corruption legislation
(including but not limited to the Foreign Corrupt Practices Act), and
we considered the extent to which non-compliance might have a
material effect on the financial statements. We also considered those
laws and regulations that have a direct impact on the preparation
of the financial statements such as the Companies Act 2006 and
Listing Rules of the Financial Conduct Authority (FCA). We evaluated
management’s incentives and opportunities for fraudulent
manipulation of the financial statements (including the risk of override
of controls), and determined that the principal risks were related to
posting inappropriate journal entries to manipulate financial results
and management bias in accounting estimates. The Group
engagement team shared this risk assessment with the component
auditors so that they could include appropriate audit procedures in
response to such risks in their work. Audit procedures performed by
the Group engagement team and/or component auditors included:
– discussions with management and the Group’s legal counsels,
including consideration of known or suspected instances of
non-compliance with laws and regulations and fraud;
– assessment of matters reported on the Group’s whistleblowing
hotline and results of management’s investigation of such matters;
– challenging assumptions made by management in its significant
accounting estimates particularly in relation to estimation of rebate,
chargeback and return reserves, valuation of intangible assets,
and recognition and measurement of litigation and contingent
liabilities and uncertain tax provisions (see related key audit
matters below); and
– identifying and testing journal entries, in particular any journal
entries posted with unusual account combinations, journals posted
by senior management, journals posted and reviewed by the same
individual and consolidation journals.
There are inherent limitations in the audit procedures described
above. We are less likely to become aware of instances of non-
compliance with laws and regulations that are not closely related
to events and transactions reflected in the financial statements.
Also, the risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery
or intentional misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional
judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest
effect on: the overall audit strategy; the allocation of resources in
the audit; and directing the efforts of the engagement team. These
matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Impact of COVID-19 is a new key audit matter this year. Otherwise,
the key audit matters below are consistent with last year.
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111
Independent auditors’ report to the members
of Hikma Pharmaceuticals PLC
continued
Valuation and presentation and disclosure of goodwill and intangible assets (Group)
Valuation and accuracy of gross to net rebate, returns and chargeback adjustments in the US (Group)
Key audit matter
How our audit addressed the key audit matter
Key audit matter
How our audit addressed the key audit matter
Management is required to make estimates in respect of revenue recognition
and specifically the level of chargebacks, returns, rebates and other revenue
deductions that will be realised against the Group’s revenue.
We, alongside our US Component team, considered the Group’s processes
for making judgements in this area and performed the following procedures:
— Assessed the revenue recognition policy and applicable controls in place
These estimates are material to the financial statements, hence the reason
for inclusion as an area of focus. The largest of these estimates relates to
revenue recognition through chargebacks, rebates and returns in the US.
Hikma USA recorded revenue deductions for the year ended 31 December
2020 of $2,142 million (2019: $2,235 million).
We focused on this area as chargebacks, returns, rebates and the deductions
from gross revenue are complex, material and because establishing an
appropriate reserve requires significant estimation by the Directors.
The Directors have determined a reserve of $442 million for Hikma USA to
be necessary at 31 December 2020 (2019: $442 million). Refer to the Audit
Committee’s review of significant matters on page 79, significant accounting
policies (note 2), critical accounting judgements and key sources of
estimation uncertainty (note 3), trade and other receivables (note 21) and
other current liabilities (note 28) in the Group financial statements.
around this process;
— Tested controls over validation and approval of payment claims;
— Tested chargebacks, returns, and rebates payments and credit memos
throughout the year by agreeing selected transactions back to the
underlying source documentation including customer claims and payment
information;
— Confirmed channel inventory with major wholesalers or performed
alternative procedures where confirmations were not received;
— Developed an independent expectation of the largest elements
of the reserves at 31 December 2020 using assumptions and inputs based
on contracted prices and rebate terms, historical rebates, discounts,
validated channel inventory levels, and invoices received or payments
made, as applicable, subsequent to year-end to validate reserves.
We compared this expectation to the actual accrual recognised by
the Group; and,
— Considered the historical accuracy of the Group’s estimates in previous
years and the effect of any adjustments to prior years’ accruals in the
current year’s results.
Based on the procedures performed, we did not identify any material
differences between our independent expectations and the reserves
recorded. We also evaluated the disclosures in Note 2, Note 3, Note 21
and Note 28 which we considered appropriate.
At 31 December 2020, the Group had goodwill of $289 million and intangible
assets of $587 million (31 December 2019: $282 million and $552 million,
respectively) comprising product-related intangible assets, software and
other identified intangible assets.
These are contained within four cash generating units (CGUs): Generics,
generic Advair Diskus®, Branded and Injectables. All CGUs containing
goodwill and indefinite-lived intangible assets must be tested for impairment
annually and finite-life intangible assets are tested when there is an
indication of impairment. An impairment is booked when the carrying value
exceeds the recoverable amount. Judgement is required in assessing
whether an impairment trigger event has happened and there is significant
estimation uncertainty in respect of calculating the recoverable value of
CGUs and assets to determine whether an impairment charge should be
booked. Impairment was determined to be a significant risk for the Generics,
generics Advair Diskus® and Branded CGUs.
Additionally, the Group must consider whether there are indicators of
impairment reversal at each reporting date. Such indicators are usually
the opposite of the indicators of impairment that previously gave rise to the
impairment and there is judgement involved in assessing the existence of
these impairment reversal indicators. Once indicators for impairment reversal
are identified, the determination of recoverable values requires significant
estimation on the part of management in determining the higher of the value
in use (VIU) and fair value less costs to dispose (FVLCTD) for the relevant
individual assets or CGUs. The reversal cannot be so large as to cause the
carrying value of an asset to exceed the lower of (i) the asset’s current
recoverable amount; and (ii) the carrying amount that would have been
determined if no impairment loss had been recognised previously, adjusted
for subsequent depreciation or amortisation.
These reversal considerations are relevant to the Generics and generic
Advair Diskus® CGUs due to the impairment recorded in 2017 in relation to
these CGUs.
During 2020, no impairment has been recorded on a CGU level. Impairment
of $5 million was recorded in respect of product related intangibles and
$10 million in respect of software. Also, an impairment reversal of $66 million
has been recorded on individual marketed product related intangibles.
Refer to the Audit Committee’s review of significant matters on page 79,
significant accounting policies (note 2), critical accounting judgements and
key sources of estimation uncertainty (note 3) and goodwill and intangible
assets (note 16) in the Group financial statements.
We assessed the determination of the CGUs identified for the impairment
calculation by considering the CGUs previously used as well as from our
understanding of the business as it develops and how it is monitored.
We concluded that management’s determination of four CGUs in 2020
is reasonable.
With support from our internal valuations experts we performed the following
procedures:
— Understood management’s process for forecasting cash flows;
— Evaluated the appropriateness of the methodology used in the relevant
impairment models;
— Tested the accuracy of the models as well as the underlying data used in
the models, including reconciling the cash flows to the Board approved
plan (which includes the impact of COVID-19);
— Evaluated the significant assumptions used by management in determining
future cash flows, including cash flow growth or decline, pricing and
profitability, timing and probability of regulatory success for key products,
and impact of COVID-19;
— Our valuations experts assessed the reasonableness
of the valuation methodology, discount rates, long term growth
rate and mathematical accuracy. We also compared management forecasts
to analyst consensus cash flows for the Generics, Injectables and Branded
businesses and challenged management where there were significant
differences;
— Performed a retrospective comparison of forecasted revenues
and costs to actual past performance including challenging management
to produce additional analysis on a constant currency basis;
— For the generic Advair Diskus® CGU, we challenged management’s
impairment model based on the expected impact of recent regulatory
updates and the resulting delay in launch by getting them to include a
probability of no launch in their model.
Based on our work above we determined our own sensitivities and applied
these to management’s models. Where the sensitised VIU models showed
limited headroom or some contradictory evidence we obtained recent market
transactional data to form a view on a FVLCTD basis.
We found management’s conclusions on the CGUs and indefinite-lived
intangible assets impairment assessment to be reasonable, although the
headroom on the generic Advair Diskus® CGU is more sensitive to the key
assumptions around growth rates, discount rates and terminal values.
Additional disclosures have been included by management in accordance
with IAS 36. We conclude the analyses performed and disclosed in note 16
are appropriate. We validated the appropriateness of the related disclosures
in notes 2, 3 and 16 of the financial statements.
We also tested management’s impairment indicators assessment for finite
life intangible assets and noted no issues.
For impairment reversal considerations, we tested management’s assessment
of impairment reversal indicators both at the CGU level (Generics and generic
Advair Diskus®) and individual intangible assets level taking into account the
conditions in the US generics market (at a CGU and product level) and factors
relating to generic Advair Diskus® and consulted with our technical
accounting experts on the accounting judgements involved. Where indicators
for impairment reversal were identified, we tested management’s cash flow
models for recoverable value in line with our testing over the CGU level models
and agreed the cash flows to the business plan. Based on our procedures,
we concluded it was appropriate to reverse $66 million of impairment on
specific marketed product related intangibles which showed discrete and
sustained recovery in performance. We believe management’s position
on not reversing impairment on the Generics and generic Advair Diskus®
CGUs to be supportable.
112
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113
Independent auditors’ report to the members
of Hikma Pharmaceuticals PLC
continued
Tax including completeness and valuation of provisions for uncertain tax positions (Group)
Key audit matter
How our audit addressed the key audit matter
The Group operates across many jurisdictions due to its geographic spread,
resulting in complex cross-border tax arrangements. As a result, it is subject
to periodic challenges by local tax authorities on a range of tax matters
during the normal course of business including transaction related tax
matters and transfer pricing arrangements leading to uncertain tax positions.
Judgement is required in assessing the outcome, and in estimating the level
of provisions required, in respect of uncertain tax positions (UTPs). As of
31 December 2020, the Group has recorded provisions of $43 million in
respect of uncertain tax positions (2019: $54 million).
Refer to the Audit Committee’s review of significant matters
on page 79, significant accounting policies (note 2), critical accounting
judgements and key sources of estimation uncertainty (note 3) and tax
(note 12) in the Group financial statements.
In conjunction with our UK, US and international tax specialists, we evaluated
and assessed the potential uncertainties and challenged management’s
judgements and estimation of the amount of tax provisions booked against
the uncertain positions.
In understanding and evaluating management’s judgements relating to the
level of provisioning for uncertain tax positions, and through discussions with
management, we (including component teams, where relevant) assessed:
— the status of ongoing, and outcome of previous, tax authority audits;
— the integrity of management’s detailed analysis and calculations of
provisions recorded, amounting to $43 million;
— the evidence provided by management to support its assumptions
underpinning uncertain tax positions at 31 December 2020;
— completeness of exposures for periods open to challenge and
understanding new areas of enquiry from tax authorities; and,
— developments in the tax environment and external tax advice received
by the Group.
Based on the procedures performed, we have not identified any issues
with the completeness or valuation of management’s provisions for UTPs
and consider the level of provisioning to be acceptable.
Impact of COVID-19 (Group and Company)
Key audit matter
How our audit addressed the key audit matter
COVID-19 has had a significant impact on most businesses during 2020
and this continues into 2021. The Directors have considered the impact
of COVID-19 on the Group’s operations throughout the Annual Report
but specifically seen on page 10.
Although COVID-19 did not have a material impact on the financial
statements, we have performed additional procedures in our audit work
in order to adequately respond to risks related to COVID-19. The main areas
that we considered included, but were not limited to:
— Any potential impairment of assets (see separate KAM above for
consideration of work on impairment of Goodwill and intangible assets).
Consideration of other impairment is considered to the right;
— Going concern and whether COVID-19 affected the ability of the Group
and Company to prepare the financial statements on a going concern
basis;
— Management’s ways of working, including the operation of controls. A large
number of employees working remotely and using technology enabled
working practices. For example, this has meant virtual review meetings,
and electronic review processes (in place of hardcopy reviews); and
— PwC’s ways of working, including but not limited to impact of travel
restrictions on our plans for component oversight and other physical
aspects of the audit e.g. inventory counts.
We have considered the impact of COVID-19 in the following key areas:
— We challenged management on the need for impairment in respect of
the remaining assets (other than goodwill and intangible assets and fixed
assets included within CGUs). In respect of non-quoted investments
carried at fair value, we obtained evidence to support management’s
position that COVID-19 has not adversely impacted the future potential
of these investments such that an impairment is needed. Also, we have
challenged management, with the help of our component teams, on the
level of provisioning for accounts receivables (expected credit losses)
and inventories. No material issues have been noted in these areas;
— As part of our work over the going concern and viability assessment,
we have considered the impact of COVID-19 on future cash flows. Note
that we have assessed going concern as a normal risk area for Hikma
and COVID-19 did not result in a change in our risk assessment due to the
insignificant impact on the financial statements. See ‘Conclusions relating
to going concern’ section below for details of the procedures performed
and our conclusions in respect of going concern; and
— Where we relied on controls, we ensured beforehand that the change
in management’s ways of working did not impact the effectiveness
of the controls.
We also changed our way of working in response to COVID-19. Due to physical
access restrictions and health and safety concerns, our US component
team performed some of their inventory count observations using virtual
technology tools. We have discussed the procedures and results of these
with our US component team and reviewed their working papers and
consider the procedures to be adequate and appropriate.
We increased the oversight of our component teams, using video
conferencing and remote workpaper reviews to satisfy ourselves as to the
appropriateness of audit work performed at the significant and material
components.
Overall, we have been cognisant of the impact of COVID-19 on all areas
of the financial statements and our audit plan. We have performed audit
procedures to respond to all the risks in an appropriate way.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial statements
as a whole, taking into account the structure of the Group and the
Company, the accounting processes and controls, and the industry
in which they operate.
Procedures were performed prior to year-end to evaluate component
auditor procedures and controls, and oversight discussions were
undertaken by senior team members with component auditors,
to refine the audit approach and ensure sufficient oversight of
component auditors. As at 31 December 2020, Hikma
Pharmaceuticals PLC had in total 65 entities (subsidiaries) in the
Group. These entities may operate solely in one segment but more
commonly operate across two. Each territory (component) submits
a Group reporting package to Hikma’s central accounting team
including its Income Statement and Statement of Financial Position
prepared under Group accounting policies which are in compliance
with IFRSs. We requested component teams in the US (Hikma USA),
Jordan (Hikma Jordan), Algeria (Hikma Algeria) to audit reporting
packages of certain entities in these territories and report the results
of their full scope audit work to us. This work was supplemented
by a full scope audit of Hikma Pharmaceuticals PLC, central audit
procedures performed over specific balances in Hikma International
Ventures Limited and procedures performed centrally including
the consolidation, taxation and testing of certain component
auditor balances not covered by component auditors. Due to
travel restrictions as a result of COVID-19, we have not been able
to perform component oversight visits. Nevertheless, we have
accordingly increased the frequency of communication with our
component teams through conference calls both at the planning and
execution stages including increasing the involvement from senior
team members from both sides. We have attended meetings with
local management alongside our component auditors, reviewed
working papers for all components including those components
which are not significant or material, attended component audit
clearance meetings as part of interim and year-end audit work, and
engaged in other forms of communication as considered necessary
depending on the significance of the component and the extent
of accounting and audit issues arising. Full scope components
account for 73% of consolidated revenue, 76% of consolidated
total assets and 75% of the adjusted profit measure we used
as a basis for determining materiality.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to
determine the scope of our audit and the nature, timing and extent
of our audit procedures on the individual financial statement line items
and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
$24 million (2019: $21.5 million).
$21.6 million (2019: $19.4 million).
Financial statements – Group
Financial Statements - Company
How we determined it
5% of profit before tax after adjusting for all
exceptional items and other adjustments
except for amortisation of intangible assets other
than software
Rationale for benchmark applied The Group’s principal measure of earnings is core
profit. Management believes that it reflects the
underlying performance of the Group and is
a more meaningful measure of the Group’s
performance. We took the equivalent reported
measure into account in determining our
materiality but did not add back certain non-core
items unless we deemed them to be non-recurring
in nature. Our materiality would have been higher
if we had adjusted for all non-core items.
1% of total assets, but capped at $21.6 million based
on 90% of overall Group materiality.
The Company holds the Group’s investments and
performs treasury functions on behalf of the Group.
The strength of the balance sheet is the key measure
of financial health that is important to shareholders,
since the primary concern for the Company is the
payment of dividends and the servicing of debt.
However, due to the Company being a component
of the Group, we have capped Company materiality
at 90% of overall Group materiality.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range
of materiality allocated across components was between $3 million and $21.6 million. Certain components were audited to a local statutory
audit materiality that was also less than our overall Group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature
and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our
performance materiality was 75% of overall materiality, amounting to $18 million for the Group financial statements and $16.2 million for
the Company financial statements.
114
Hikma Pharmaceuticals PLC Annual Report 2020
Hikma Pharmaceuticals PLC Annual Report 2020
115
Independent auditors’ report to the members
of Hikma Pharmaceuticals PLC
continued
In determining the performance materiality, we considered a number
of factors – the history of misstatements, risk assessment and
aggregation risk and the effectiveness of controls – and concluded
that an amount at the upper end of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above $1.2 million (Group
audit) (2019: $1 million) and $1.08 million (Company audit) (2019:
$1 million) as well as misstatements below those amounts that,
in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the Directors’ assessment of the Group’s and
the Company’s ability to continue to adopt the going concern basis
of accounting included:
– agreeing the underlying cash flow projections to board approved
forecasts, assessing how these forecasts are compiled, and
assessing the accuracy of management’s forecasts;
– evaluating the key assumptions within management’s forecasts;
– considering liquidity and available financial resources;
– considering compliance with covenants in the current year and
ability to comply with these at each future covenants reporting
date in the going concern period;
– assessing whether the plausible downside scenario prepared by
management appropriately considered the principal risks facing
the business; and
– evaluating the feasibility of management’s mitigating actions in
the plausible downside scenario.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s
and the Company’s ability to continue as a going concern for a period
of at least twelve months from when the financial statements are
authorised for issue.
In auditing the financial statements, we have concluded that the
Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
However, because not all future events or conditions can be
predicted, this conclusion is not a guarantee as to the Group’s and
the Company’s ability to continue as a going concern.
In relation to the Company’s reporting on how they have applied the
UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the Directors’ statement in the financial
statements about whether the Directors considered it appropriate
to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with
respect to going concern are described in the relevant sections
of this report.
Reporting on other information
The other information comprises all of the information in the Annual
Report other than the financial statements and our auditors’ report
thereon. The Directors are responsible for the other information.
Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion
or, except to the extent otherwise explicitly stated in this report,
any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit,
or otherwise appears to be materially misstated. If we identify an
apparent material inconsistency or material misstatement, we are
116
Hikma Pharmaceuticals PLC Annual Report 2020
required to perform procedures to conclude whether there is a
material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We have
nothing to report based on these responsibilities.
With respect to the Strategic report and the Directors’ report, we also
considered whether the disclosures required by the UK Companies
Act 2006 have been included.
Based on our work undertaken in the course of the audit, the
Companies Act 2006 requires us also to report certain opinions
and matters as described below.
Strategic report and the Directors’ report
In our opinion, based on the work undertaken in the course of the
audit, the information given in the Strategic report and the Directors’
report for the year ended 31 December 2020 is consistent with the
financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the Group and
Company and their environment obtained in the course of the audit,
we did not identify any material misstatements in the Strategic report
and the Directors’ report.
Directors’ Remuneration
In our opinion, the part of the Annual report on remuneration to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the Directors’ statements in
relation to going concern, longer-term viability and that part of the
corporate governance statement relating to the Company’s
compliance with the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities with respect
to the corporate governance statement as other information are
described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate
governance statement, included within the Corporate governance
report is materially consistent with the financial statements and our
knowledge obtained during the audit, and we have nothing material
to add or draw attention to in relation to:
– The Directors’ confirmation that they have carried out a robust
assessment of the emerging and principal risks;
– The disclosures in the Annual Report that describe those principal
risks, what procedures are in place to identify emerging risks and
an explanation of how these are being managed or mitigated;
– The Directors’ statement in the financial statements about whether
they considered it appropriate to adopt the going concern basis
of accounting in preparing them, and their identification of any
material uncertainties to the Group’s and Company’s ability to
continue to do so over a period of at least twelve months from
the date of approval of the financial statements;
– The Directors’ explanation as to their assessment of the Group’s
and Company’s prospects, the period this assessment covers
and why the period is appropriate; and
– The Directors’ statement as to whether they have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of its
assessment, including any related disclosures drawing attention
to any necessary qualifications or assumptions.
Our review of the Directors’ statement regarding the longer-term
viability of the Group was substantially less in scope than an audit
and only consisted of making inquiries and considering the Directors’
process supporting their statement; checking that the statement
is in alignment with the relevant provisions of the UK Corporate
Governance Code; and considering whether the statement is
consistent with the financial statements and our knowledge and
understanding of the Group and Company and their environment
obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we
have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
– The Directors’ statement that they consider the Annual Report,
taken as a whole, is fair, balanced and understandable, and provides
the information necessary for the members to assess the Group’s
and Company’s position, performance, business model and
strategy;
– The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems; and
– The section of the Annual Report describing the work of the Audit
Committee.
We have nothing to report in respect of our responsibility to report
when the Directors’ statement relating to the Company’s compliance
with the Code does not properly disclose a departure from a relevant
provision of the Code specified under the Listing Rules for review
by the auditors.
Responsibilities for the financial statements
and the audit
Responsibilities of the Directors for the financial
statements
As explained more fully in the Directors’ responsibilities statement,
the Directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for
being satisfied that they give a true and fair view. The Directors
are also responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible
for assessing the Group’s and the Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Group or the Company
or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that
includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
Our audit testing might include testing complete populations of
certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number
of items for testing, rather than testing complete populations.
We will often seek to target particular items for testing based on their
size or risk characteristics. In other cases, we will use audit sampling
to enable us to draw a conclusion about the population from which
the sample is selected.
A further description of our responsibilities for the audit of the
financial statements is located on the FRC’s website at: www.frc.org.
uk/auditorsresponsibilities. This description forms part of our
auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for
the Company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do
not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or
into whose hands it may come save where expressly agreed by our
prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
– we have not obtained all the information and explanations we
require for our audit; or
– adequate accounting records have not been kept by the Company,
or returns adequate for our audit have not been received from
branches not visited by us; or
– certain disclosures of Directors’ remuneration specified by law are
not made; or
– the Company financial statements and the part of the Annual
report on remuneration to be audited are not in agreement with
the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were
appointed by the members on 11 May 2016 to audit the financial
statements for the year ended 31 December 2016 and subsequent
financial periods. The period of total uninterrupted engagement
is five years, covering the years ended 31 December 2016 to
31 December 2020.
Darryl Phillips
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
24 February 2021
Hikma Pharmaceuticals PLC Annual Report 2020
117
Consolidated income statement
Consolidated income statement
For the year ended 31 December 2020
For the year ended 31 December 2020
Revenue
Cost of sales¹
Gross profit/(loss)
Selling, general and administrative expenses
Net impairment loss on financial assets
Research and development expenses
Other operating income/(expenses), net¹
Total operating (expenses)/income
Operating profit/(loss)
Finance income
Finance expense
Gain from investment at fair value through profit
and loss (FVTPL)
Loss from investment divestiture
Profit before tax
Tax
Profit for the year
Attributable to:
Non-controlling interests
Equity holders of the parent
Earnings per share (cents)
Basic
Diluted
2020
Core
results
$m
2,341
Note
4
(1,128)
1,213
(464)
(2)
(137)
(44)
(647)
566
9
(54)
1
–
522
(115)
407
(1)
408
407
172.9
171.4
9
5
10
11
12
33
15
15
2020
Exceptional
items and other
adjustments
(Note 6)
$m
–
(12)
(12)
(45)
–
–
70
25
13
38
(15)
–
–
36
(13)
23
–
23
23
2020
Reported
results
$m
2,341
2019
Core
results
$m
2,203
(1,140)
(1,108)
1,201
(509)
(2)
(137)
26
1,095
(453)
–
(126)
(8)
(622)
(587)
579
47
(69)
1
–
558
(128)
430
(1)
431
430
508
7
(52)
2
–
465
(100)
365
1
364
365
2019
Exceptional
items and other
adjustments
(Note 6)
$m
4
(11)
(7)
2019
Reported
results
$m
2,207
(1,119)
1,088
(41)
(494)
–
(24)
57
(8)
(15)
60
(15)
–
(4)
26
96
122
–
122
122
–
(150)
49
(595)
493
67
(67)
2
(4)
491
(4)
487
1
486
487
182.6
150.4
181.1
149.8
200.8
200.0
1. Inventory related provisions have been reclassified under the cost of sales line item in order to align with industry practice. Previously the costs were reflected in other operating income/(expenses), net
and hence the 2019 numbers have consequently been restated. See Note 2 for more details
118
118
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Consolidated statement of
Consolidated statement of
comprehensive income
comprehensive income
For the year ended 31 December 2020
For the year ended 31 December 2020
Profit for the year
Other comprehensive income
Items that may subsequently be reclassified to the consolidated income statement, net of tax:
Currency translation gain and hyperinflation movement
Items that will not subsequently be reclassified to the consolidated income statement, net of tax:
Remeasurement of post-employment benefit obligations
Change in investments at fair value through other comprehensive income (FVTOCI)
Total comprehensive income for the year
Attributable to:
Non-controlling interests
Equity holders of the parent
Financial statements
Note
27
19
2020
Reported
results
$m
430
2019
Reported
results
$m
487
39
(1)
2
470
2
468
470
20
–
(2)
505
2
503
505
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Hikma Pharmaceuticals PLC Annual Report 2020
119
119
Consolidated balance sheet
Consolidated balance sheet
At 31 December 2020
At 31 December 2020
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Investment in joint ventures
Deferred tax assets
Financial and other non-current assets
Current assets
Inventories
Income tax receivable
Trade and other receivables
Collateralised and restricted cash
Cash and cash equivalents
Other current assets
Total assets
Current liabilities
Short-term financial debts
Lease liabilities
Trade and other payables
Income tax payable
Other provisions
Other current liabilities
Net current assets
Non-current liabilities
Long-term financial debts
Lease liabilities
Deferred tax liabilities
Other non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings¹
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Note
16
16
17
34
18
13
19
20
21
22
23
24
25
34
26
27
28
29
34
13
31
32
33
2020
$m
289
587
1,009
59
9
221
39
2019
$m
282
552
912
50
11
243
32
2,213
2,082
757
36
756
4
323
46
1,922
4,135
158
10
470
72
28
290
1,028
894
692
72
31
164
959
1,987
2,148
41
282
(80)
1,892
2,135
13
2,148
568
79
719
1
442
39
1,848
3,930
569
9
473
82
23
315
1,471
377
48
59
20
203
330
1,801
2,129
41
282
(179)
1,973
2,117
12
2,129
1. Beginning in 2020, own shares are deducted from retained earnings. At 31 December 2019, own shares of $(1) million were included in other reserves (Note 32)
The consolidated financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, on pages 118 to 170 were approved by the Board of
Directors on 24 February 2021 and signed on its behalf by:
Said Darwazah
Director
24 February 2021
Sigurdur Olafsson
Chief Executive Officer
120
120
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Consolidated statement
Consolidated statement
of changes in equity
of changes in equity
For the year ended 31 December 2020
For the year ended 31 December 2020
Financial statements
Merger and
revaluation
reserves
$m
Translation
reserve
$m
Own shares
$m
Total other
reserves
$m
Retained
earnings
$m
Share
capital
$m
Share
premium
$m
Equity
attributable
to equity
shareholders
of the parent
$m
Non-
controlling
interests
$m
Total
equity
$m
Balance at 1 January 2019 as adjusted¹
Profit for the year²
Change in investments at FVTOCI
(Note 19)
Currency translation gain and
hyperinflation movement
Total comprehensive income for the year
Total transactions with owners,
recognised directly in equity
Cost of equity-settled employee share
scheme (Note 37)
Exercise of employees share scheme
Dividends paid (Note 14)
Balance at 31 December 2019 and
1 January 2020
Reclassification³
Balance at 1 January 2020 as adjusted
Profit for the year²
Change in investments at FVTOCI
(Note 19)
Remeasurement of post-employment
benefit obligations (Note 27)
Currency translation gain and
hyperinflation movement
Total comprehensive income for the year
Total transactions with owners,
recognised directly in equity
Cost of equity-settled employee share
scheme (Note 37)
Dividends paid (Note 14)
Share buyback (Note 32 and 38)
Balance at 31 December 2020
38
20
–
–
20
–
(1)
–
57
–
57
62
–
–
–
62
–
–
–
119
(254)
–
–
19
19
–
–
–
(235)
–
(235)
–
–
–
36
36
–
–
–
(199)
(1)
–
–
–
–
–
–
–
(1)
1
–
–
–
–
–
–
–
–
–
–
(217)
20
–
19
39
–
(1)
–
(179)
1
(178)
62
–
–
1,582
466
(2)
–
464
24
–
(97)
1,973
(1)
1,972
369
2
(1)
36
98
–
370
–
–
–
(80)
27
(109)
(368)
1,892
40
–
–
–
–
–
1
–
41
–
41
–
–
–
–
–
–
–
–
41
282
–
–
–
–
–
–
–
282
–
282
–
–
–
–
–
–
–
–
282
1,687
486
(2)
19
503
24
–
(97)
2,117
–
2,117
431
2
(1)
36
468
12
1
1,699
487
–
1
2
(2)
20
505
–
–
(2)
12
–
12
24
–
(99)
2,129
–
2,129
(1)
430
–
–
3
2
2
(1)
39
470
27
(109)
(368)
2,135
–
(1)
–
13
27
(110)
(368)
2,148
1. The Group adopted IFRIC 23 as of 1 January 2019. The impact of adoption was a decrease of $2 million of the amount previously held for uncertain tax positions which was credited to retained earnings
(Note 3)
2. A net Impairment reversal of $62 million (2019: $20 million) has been allocated from retained earnings to the merger and revaluation reserves in relation to the Generics segment (Note 6 and 16)
3. Beginning in 2020, own shares are deducted from retained earnings. At 31 December 2019, own shares of $(1) million were separately presented in other reserves (Note 32)
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Hikma Pharmaceuticals PLC Annual Report 2020
121
121
Consolidated cash flow statement
Consolidated cash flow statement
For the year ended 31 December 2020
For the year ended 31 December 2020
Notes to the consolidated
Notes to the consolidated
financial statements
financial statements
Financial statements
Cash flows from operating activities
Cash generated from operations
Income taxes paid
Income taxes received
Net cash inflow from operating activities
Cash flow from investing activities
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of intangible assets
Increase in investment in financial and other non-current assets
Proceeds from sale of investment at FVTOCI
Additions of investments at FVTOCI
Acquisition of business undertakings net of cash acquired
Proceeds from investment divestiture
Contingent consideration (paid)/received
Interest income received
Investment related amounts held in escrow account
Net cash outflow from investing activities
Cash flow from financing activities
Increase in collateralised and restricted cash
Proceeds from issue of long-term financial debts
Repayment of long-term financial debts
Proceeds from short-term borrowings
Repayment of short-term borrowings
Repayment of lease liabilities
Dividends paid
Dividends paid to non-controlling shareholders of subsidiaries
Interest and bank charges paid
Share buyback
Commitment fees received related to the share buyback
Payment to co-development and earnout payment agreement
Net cash outflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign exchange translation movements
Cash and cash equivalents at end of year
Note
35
2020
$m
525
(68)
7
464
(172)
–
(52)
–
–
(5)
–
2
(60)
7
(3)
(283)
–
1,543
(1,372)
430
(367)
(14)
(109)
(1)
(39)
(375)
7
(1)
2019
$m
580
(125)
17
472
(119)
2
(67)
(1)
12
(5)
(8)
2
27
6
–
(151)
(1)
19
(11)
267
(273)
(12)
(97)
(2)
(44)
–
–
(1)
(298)
(155)
(117)
442
(2)
323
166
276
–
442
1. Adoption of new and revised standards
The following revised Standards and Interpretations have been issued
and are effective on annual periods beginning on or after 1 January 2020.
These amendments had no impact on the consolidated financial
statements of the Group but may impact the accounting for future
transactions and arrangements.
IFRS 3 (Amendments)
Business Combinations
IFRS 7 (Amendments)
Financial Instruments: Disclosures
IFRS 9 (Amendments)
Financial Instruments
IFRS 16 (Amendments)
Leases
IAS 1 (Amendments)
Presentation of Financial Statements
IAS 8 (Amendments)
IAS 39 (Amendments)
Accounting Policies, Changes in
Accounting Estimates and Errors
Financial Instruments:
Recognition and Measurement
Conceptual Framework for Financial Reporting
2. Significant accounting policies
General information
Hikma Pharmaceuticals PLC is a public limited liability company
incorporated and domiciled in England and Wales under the Companies
Act 2006. The address of the registered office is given on page 180.
The Group’s principal activities are the development, manufacturing,
marketing and selling of a broad range of generic, branded and in-
licensed pharmaceutical products in solid, semi-solid, liquid and
injectable final dosage forms.
Reclassification of 2019 financial statements
Beginning in 2020, inventory related provisions are reported under the cost
of sales line item for both 2020 and 2019 comparatives. In 2019 audited
financial statements, inventory related provisions were included in other
operating income/(expenses), net line item. The reason for reclassification
is to be in line with industry practice. The effect of the adjustment on the
operating profit was as follows:
2019 results as
previously reported
$m
(1,059)
Adjustment
$m
(60)
Adjusted 2019
reported results
$m
(1,119)
1,148
(60)
1,088
Cost of Sales
Gross Profit
Other operating
income/(expenses), net
Operating Profit
The consolidated financial statements have been prepared under the
historical cost convention, except for the revaluation to fair value of
certain financial assets and liabilities.
The accounting policies included in this note have been applied
consistently other than where new policies have been adopted.
The Group’s previously published consolidated financial statements
were also prepared in accordance with IFRSs issued by the IASB and also
in accordance with IFRSs adopted for use in the European Union.
The presentational and functional currency of Hikma Pharmaceuticals
PLC is the US dollar as the majority of the Company’s business is
conducted in US dollars.
Going concern
The Directors believe that the Group is well diversified due to its geographic
spread, product diversity and large customer and supplier base. Taking into
account the Group’s current position and its principal risks for a period
longer than twelve months from the date of signing the consolidated
financial statement, a going concern analysis has been prepared using
realistic scenarios applying a severe but plausible downside which shows
sufficient liquidity headroom and compliance with our debt covenants.
Therefore, the Directors believe that the Group and its subsidiaries are
adequately placed to manage its business and financing risks successfully,
despite the current uncertain economic and political outlook. Having
reassessed the principal risks, the Directors considered it appropriate to
adopt the going concern basis of accounting in preparing the consolidated
financial statements. (See page 59)
Basis of consolidation
The consolidated financial statements incorporate the results of Hikma
Pharmaceuticals PLC (the Company) and entities controlled by the
Company (together the Group). Control is achieved when the Group is
exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its power over
the investee.
The consolidated financial statements include:
—
—
the assets and liabilities, results and cash flows of the Company
and its subsidiaries, (entities that are controlled by the Group,
through the power of governing the financial and operating policies
to obtain benefits from its activities)
the Group’s share of the results and net assets of joint ventures
All subsidiaries and the Company financial statements consolidated are
made up to 31 December each year.
(11)
493
60
–
49
493
Interests acquired in entities are consolidated from the date the Group
acquires control and interests sold are de-consolidated from the date
control ceases.
122
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Basis of preparation
Hikma Pharmaceuticals PLC’s consolidated financial statements are
prepared in accordance with:
(i) International accounting standards in conformity with the
requirements of the Companies Act 2006 (‘IFRS’) and the applicable
legal requirements of the Companies Act 2006. In addition to
complying with international accounting standards in conformity with
the requirements of the Companies Act 2006, the consolidated
financial statements also comply with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union
(ii) International Financial Reporting Standards as issued by the
International Accounting Standards Board (IASB).
Goodwill is capitalised as a separate item in the case of subsidiaries and as
part of the cost of investment in the case of joint ventures and associates.
Transactions and balances between subsidiaries are eliminated and no
profit before tax is taken on sales between subsidiaries until the products
are sold to customers outside the Group.
Transactions with non-controlling interests are recorded directly in equity.
Deferred tax relief on unrealised intra-group profit is accounted for only
to the extent that it is considered recoverable.
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123
123
Notes to the consolidated financial statements
Notes to the consolidated financial statements continued
continued
Financial statements
2. Significant accounting policies continued
Business combinations
The acquisition of subsidiaries is accounted for using the acquisition
method. All identifiable assets, liabilities and contingent liabilities
acquired are measured at fair value on the acquisition date. All
acquisition related costs are recognised in the consolidated income
statement as incurred.
The consideration is measured at the aggregate fair values of assets given,
liabilities incurred or assumed, and equity instruments issued by the Group
in exchange for control of the acquiree, at the acquisition date. Where
applicable, this consideration may include the fair value of assets or
liabilities resulting from a contingent consideration arrangement.
Contingent consideration classified as an asset or liability is a financial
instrument and, within the scope of IFRS 9 ‘Financial Instruments’, is
measured at fair value, with changes in fair value recognised in the
consolidated income statement in line with IFRS 9.
Subsequent changes to those fair values can only affect the
measurement of goodwill, where they occur during the ‘measurement
period’ and are as a result of additional information becoming available
about facts and circumstances that existed at the acquisition date. All
other changes are dealt with in accordance with relevant IFRSs. This will
usually mean that changes in the fair value of consideration are
recognised in the consolidated income statement.
Where a business combination is achieved in stages, the Group’s
previously-held interests in the acquired entity are remeasured to fair
value at the acquisition date (ie the date the Group attains control).
The resulting gain or loss, if any, is recognised in the consolidated
income statement.
Goodwill arising on acquisition is recognised as an asset and initially
measured at cost, being the excess of the aggregate of consideration, non-
controlling interest and fair value of previously held equity interest over the
fair values of the identifiable net assets acquired. If, after reassessment, the
Group’s interest in the net fair value of the acquiree’s identifiable assets,
liabilities and acquired contingent liabilities exceeds the cost of the
consideration, the excess is recognised immediately in the consolidated
income statement.
The non-controlling interest in the acquiree is initially measured at the
non-controlling interest’s proportion of the net fair value of the assets,
liabilities and acquired contingent liabilities recognised.
If the initial accounting for a business combination is incomplete by the
end of the reporting period in which the combination occurs, the Group
reports provisional amounts for the items for which the accounting is
incomplete. Those provisional amounts are adjusted during the
measurement period, or additional assets or liabilities are recognised,
to reflect new information obtained about facts and circumstances that
existed as of the acquisition date that, if known, would have affected the
amounts recognised as of that date.
The measurement period is the period from the date of acquisition
to the date the Group obtains complete information about facts and
circumstances that existed as of the acquisition date and is subject
to a maximum of one year.
Investment in joint ventures
Joint ventures are entities that the Group has the ability to exercise joint
control over their economic activities and net assets.
The results and assets and liabilities of joint ventures are incorporated
in these consolidated financial statements using the equity method of
accounting, where the investments are carried in the consolidated
balance sheet at cost as adjusted for post-acquisition changes in the
Group’s share of the net assets of the joint venture, less any impairment
in the value of individual investments. Losses of a joint venture in excess
of the Group’s interest in that joint venture (which includes any long-
term interests that, in substance, form part of the Group’s net investment
in the joint venture) are recognised only to the extent that the Group has
incurred legal or constructive obligations or made payments on behalf of
the joint venture.
Any excess of the cost of acquisition over the Group’s share of the net
fair value of the identifiable assets, liabilities and acquired contingent
liabilities of the joint venture recognised at the date of acquisition is
recognised as goodwill.
The goodwill is included within the carrying amount of the investment
and is assessed for impairment as part of that investment. Any
impairment charges are recognised immediately in the consolidated
income statement.
Where a Group entity transacts with a joint venture of the Group, profits
and losses are eliminated to the extent of the Group’s interest in the
relevant joint venture. The aggregate of Group’s share of profit or losses
after tax of joint ventures is shown on the face of the consolidated
income statement below operating profit and represents profit after tax.
Foreign currencies
Foreign currency transactions, being transactions denominated in a
currency other than an individual Group entity’s functional currency, are
translated into the relevant functional currencies of individual Group
entities at average rates for the relevant monthly accounting periods,
which approximate to actual rates. Monetary assets and liabilities arising
from foreign currency transactions are retranslated at exchange rates
prevailing at the reporting date. Exchange gains and losses on loans
and on short-term foreign currency borrowings and deposits are
included within finance income and expense. Exchange differences on
all other foreign currency transactions are recognised in operating profit
in the individual Group entity’s accounting records. Non-monetary items
arising from foreign currency transactions are not retranslated in the
individual Group entity’s accounting records. In the Consolidated
Financial Statements, income and expense items for Group entities with
a functional currency other than US dollars are translated into US dollars
at average exchange rates, which approximate to actual rates, for the
relevant accounting periods. Assets and liabilities are translated at the
US dollar exchange rates prevailing at the reporting date.
Exchange differences arising on consolidation are recognised in the
consolidated statement of other comprehensive income. On the
disposal of foreign operation entities, the accumulated foreign
exchange gains/losses are reclassified from OCI to the consolidated
income statement.
124
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2. Significant accounting policies continued
Hyperinflationary economies
In hyperinflationary economies, when translating the results of
operations into US dollars, assets, liabilities, income statement and
equity accounts are translated at the rate prevailing on the balance
sheet date. In territories where there are restrictions on the free access
to foreign currency or multiple exchange rates, the applicable rates of
exchange are regularly reviewed. Lebanon and Sudan were considered
to be hyperinflationary economies in the year ended 31 December 2020
at which date the prevailing rates were 120.00 Sudanese pound per
US dollar and 1,507.5 Lebanese pound per US dollar (see Note 30 for
the rates in hyperinflationary economies). Gain or loss on net monetary
asset/liability is recognised in the consolidated income statement.
Inflation effect on non-monetary asset/liability is recognised in other
comprehensive income within equity.
Revenue recognition
Under IFRS 15 revenue is recognised in the consolidated income
statement when control of the goods or services are transferred to the
customer at an amount that reflects the consideration to which the
Group expects to be entitled in exchange for those goods and services.
The point at which control passes is determined by each customer
arrangement, but generally occurs on delivery to the customer.
The Group manufactures certain medicines on behalf of some
customers. The revenue from providing contract manufacturing services
is recognised when these medicines are approved by the quality control
department. There is no alternative use of these medicines and also the
Group has enforceable right to payments once these medicines are
quality approved.
The Group has generally concluded that it acts as principal in its revenue
arrangements because it typically controls the goods before the transfer
to customer.
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,
returns and price adjustments. The methodology and assumptions used
to estimate rebates and returns are monitored and adjusted regularly in
light of contractual and historical information.
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 Group does not expect to have any contracts where the period
between the transfer of the promised goods or services to the customer
and payment by the customer exceeds one year. As a consequence,
the Group does not adjust any of the transaction prices for the time value
of money.
Variable consideration
The ultimate net selling price is calculated using variable consideration
estimates for certain gross to net adjustments.
Chargebacks
The provision for chargebacks is the most significant and complex
estimate used in the recognition of revenue. In the US, the Group sells
its products directly to wholesale distributors, generic distributors, retail
pharmacy chains and mail-order pharmacies. The Group also sells its
products indirectly to independent pharmacies, managed care
organisations, hospitals, and group purchasing organisations, collectively
referred to as ‘indirect customers’. The Group enters into agreements
with its indirect customers to establish pricing for certain products.
The indirect customers then independently select a wholesaler from
which they purchase the products at agreed-upon prices. The Group will
provide credit to the wholesaler for the difference between the agreed-
upon price with the indirect customer and the wholesaler’s invoice price.
This credit is called a chargeback. The provision for chargebacks is based
on historical sell-through levels by the Group’s wholesale customers to
the indirect customers, and estimated wholesaler inventory levels.
As sales are made to large wholesale customers, the Group continually
monitors the reserve for chargebacks and makes adjustments when it
believes that actual chargebacks may differ from estimated reserves
(see Note 21 for chargebacks sensitivity analysis).
Returns
The Group has a product return policy that allows customers to return
the product within a specified period prior to and subsequent to the
expiration date. Provisions for returns are recognised as a reduction of
revenue in the period in which the underlying sales are recognised.
The Group estimates its provision for returns based on historical
experience, representing management’s best estimate. While such
experience has enabled reasonable estimations in the past, history may
not always be an accurate indicator of future returns. The Group
continually monitors the provisions for returns and makes adjustments
when it believes that actual product returns may differ from established
reserves (see Note 28 for return sensitivity analysis).
Rebates
In the US, rebates are granted to wholesaler distributors and direct
customers. Rebates are also granted to healthcare authorities and under
contractual arrangements with certain indirect customers. Products sold
in the US are covered by various programmes (such as Medicaid) under
which products are sold at a discount.
The Group estimates its provision for rebates based on current
contractual terms and conditions as well as historical experience,
changes to business practices and credit terms. While such experience
has enabled reasonable estimations in the past, history may not always
be an accurate indicator of future rebate liabilities. The Group continually
monitors the provisions for rebates and makes adjustments when it
believes that actual rebates may differ from established reserves. All
rebates are recognised in the period in which the underlying sales are
recognised as a reduction of revenue (see Note 21 and 28 for rebates
sensitivity analysis).
Performance obligation
Free goods
Free goods are issued to certain customers as an alternative to
discounts. Under IFRS 15 these free goods give rise to a separate
performance obligation, which requires management to estimate
the transaction price to be allocated to the separate performance
obligations and to recognise a contract liability for the performance
obligations that will be satisfied in the future.
The Group then recognises revenue for the free goods when they are
transferred to the customer.
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125
125
Notes to the consolidated financial statements
Notes to the consolidated financial statements continued
continued
Financial statements
2. Significant accounting policies continued
Share-based payments
At the Company’s discretion and subject to the achievement of Group
and personal performance criteria in the prior year, employees (including
Executive Directors) of the Group receive performance based
remuneration in the form of share-based payments, whereby employees
render their services in exchange for shares or rights over shares (equity-
settled transactions) under either the 2014 Executive Incentive Plans
(EIP) or the 2009 and 2018 Management Incentive Plan (MIP) and the
2007 Long-Term Incentive Plan (LTIP), noting that the last grant was
made in 2014). Refer to Note 37 for more details.
IFRS 2 ‘Share-Based Payments’ requires an expense to be recognised
when the Group buys goods or services in exchange for shares or
rights over shares (share-based payments) or in exchange for other
equivalent assets.
The cost of share-based payments’ transactions with employees is
measured by reference to the fair value at the date at which the share-
based payments are granted. The fair value of the EIP and MIP are
determined based on Black-Scholes methodology for nil-cost options
using the share price as at the date of grant discounted by dividend
yield. No account is taken of any performance conditions.
The cost of share-based payments is recognised, together with a
corresponding increase in equity, on a straight-line basis over the year of
performance and the vesting period after the grant date based on the
Group’s estimate of cost of equity instruments that will eventually vest.
The Group revises its estimate of the number of equity instruments
expected to vest and the impact of the revision of the original estimates,
if any, is recognised in the consolidated income statement, such that the
cumulative expense reflects the revised estimate, with a corresponding
adjustment to equity reserves.
The dilutive effect of outstanding share-based payments is reflected as
additional share dilution in the computation of diluted earnings per share.
Retirement benefit costs
—
Payments made to defined contribution retirement benefit
schemes are charged as an expense as they fall due. Payments
made to state-managed retirement benefit schemes are dealt with
as payments to defined contribution schemes where the Group’s
obligations under the schemes are equivalent to those arising in a
defined contribution retirement benefit scheme (Note 40).
In certain countries and entities, the Group has post-employment
defined benefit plans. Accordingly, valuations of the obligations
under those plans are carried out and any changes in net liability
due to actuarial valuations and changes in assumptions are taken
as re-measurement gains or losses in other comprehensive
income. Changes in the present value of the defined benefit
obligations resulting from plan amendments or curtailments are
recognised immediately in the consolidated income statement as
past service costs.
End of service payments are provided for based on employees’
final salaries and allowances and their cumulative years of service
(Note 27).
—
—
Dividend income
Income from investments is recognised when the shareholders’ rights
to receive payment have been established.
Leases
In accordance with IFRS 16, the Group applies a single recognition and
measurement approach for all leases, except for short-term leases and
leases of low-value assets. The Group recognises lease liabilities to make
lease payments and right-of-use assets representing the right to use the
underlying assets:
—
Right-of-use assets: The Group recognises right-of-use assets at
the commencement date of the lease (i.e. the date the underlying
asset is available for use). Right-of-use assets are measured at cost,
less any accumulated depreciation and impairment losses, and
adjusted for any remeasurement of lease liabilities. The cost of
right-of-use assets includes the amount of lease liabilities recognised,
initial direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Unless the
Group is reasonably certain of obtaining ownership of a leased
asset at the end of the lease term, the recognised right-of-use
assets are depreciated on a straight-line basis over the shorter
of its estimated useful life and the lease term. Right-of-use assets
are subject to impairment.
Right of use of assets are depreciated on a straight-line basis at the
following depreciation rates:
Buildings
Machinery and Equipment
Vehicles
4% to 50%
25% to 50%
20% to 33%
—
—
Lease liabilities: at the commencement date of the lease, the Group
recognises lease liabilities measured at the present value of lease
payments to be made over the lease term. The lease payments
include fixed payments (including in-substance fixed payments),
less any lease incentives receivable, variable lease payments that
depend on an index or a rate, and amounts expected to be paid
under residual value guarantees. The lease payments also include
the exercise price of a purchase option, payments for optional
extension periods and payments of penalties for terminating a
lease when these options are reasonably certain to be exercised by
the Group. The discount rate used to calculate the lease liabilities is
the incremental borrowing rate (IBR). The Group estimates it using
observable inputs (such as market interest rates) when available
and is required to make certain entity-specific estimates (such as
the subsidiary’s stand-alone credit profile)
Short-term leases and leases of low-value assets: the Group
applies the short-term lease recognition exemption to its short-
term leases of machinery and equipment (i.e. those leases that
have a lease term of 12 months or less from the commencement
date and do not contain a purchase option). It also applies the
lease of low-value assets recognition exemption to leases of office
equipment that are considered of low value (i.e. below $5,000).
Lease payments on short term leases and leases of low-value
assets are recognised as an expense on a straight-line basis over
the lease term.
2. Significant accounting policies continued
Taxes
The Group provides for income tax according to the laws and regulations
prevailing in the countries where the Group operates. Furthermore, the
Group computes and records deferred tax assets and liabilities
according to IAS 12 ‘Income Taxes’.
The tax expense represents the sum of the current tax in the current
period and deferred tax.
Current Income Tax
Current income tax assets and liabilities are measured at the amount
expected to be recovered from or paid to the taxation authorities within
one year.
The current tax incurred in the period is based on taxable profit for the
year and prior year movement accounted for in the current year. Taxable
profit differs from net profit as reported in the consolidated income
statement because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Group’s tax incurred is calculated using
tax rates that have been enacted or substantively enacted by the
consolidated balance sheet date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities in the
consolidated financial statements and the corresponding tax bases used
in the computation of taxable profit and is accounted for using the
consolidated balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary differences
will reverse. To the extent the temporary difference arises from goodwill
or from the initial recognition (other than in a business combination) of
other assets and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit, no deferred tax is provided.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries, and interests in joint ventures,
except where the Group is able to control the reversal of the temporary
difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply in
the period when the liability is settled, or the asset is realised. Deferred
tax is charged or credited in the consolidated income statement, except
when it relates to items charged or credited directly to equity, in which
case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and
liabilities on a net basis.
The carrying amount of deferred tax assets is reviewed at each
consolidated balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all
or part of the asset to be recovered.
Exceptional items and other adjustments
We use a number of non-IFRS measures to report and monitor the
performance of our business. Management uses these adjusted
numbers internally to measure our progress and for setting performance
targets. We also present these numbers, alongside our reported results,
to external audiences to help them understand the underlying
performance of our business. Our adjusted numbers may be calculated
differently to other companies.
Adjusted measures are not substitutable for IFRS numbers and should
not be considered superior to results presented in accordance with IFRS.
Core results
Reported results represent the Group’s overall performance. However,
these results can include one-off or non-cash items that mask the
underlying performance of the Group. To provide a more complete
picture of the Group’s performance to external audiences, we provide,
alongside our reported results, core results, which are a non-IFRS
measure. Reconciliation between core and reported results are provided
in our consolidated financial statements.
Our core results exclude the exceptional items and other adjustments
set out in Note 6 in the notes to the consolidated financial statements.
Exceptional items
Exceptional items represent adjustments for costs and profits which
management believes to be exceptional in nature by virtue of their size or
incidence, or have a distortive effect on current year earnings, such as costs
associated with business combinations, one-off gains and losses on
disposal of businesses assets, reorganisation costs, write-down and
impairment charges/reversal on assets and impairment of goodwill, and
any exceptional items related to tax such as significant tax benefit/expense
associated with previously unrecognised deferred tax assets/ liabilities.
Other adjustments
These include amortisation of intangibles excluding software and finance
income and expense resulting from remeasurement of contingent
consideration and co-development earnout payment agreement,
financial liability and asset.
Both exceptional items and other adjustments are excluded from core
results to improve comparability of our consolidated financial
statements, consistent with our industry peers. We represent and
discuss our Group and segmental financials reconciled between
reported and core results. This presentation allows for full visibility and
transparency of our financials so that shareholders are able to clearly
assess the performance factors of the Group.
The basis of determining exceptional items and other adjustments did
not change from the prior year.
Intangible assets
An intangible asset is recognised if all the below conditions are met:
—
—
—
it is identifiable
it is probable that the expected future economic benefits
that are attributable to the asset will flow to the Group
the cost of the asset can be measured reliably
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Notes to the consolidated financial statements
Notes to the consolidated financial statements continued
continued
Financial statements
2. Significant accounting policies continued
Other identified intangibles
The probability of expected future economic benefits is assessed using
reasonable and supportable assumptions that represent management’s
best estimate of the set of economic conditions that will exist over the
useful life of the asset. The assets are amortised on a straight-line basis
on the following amortisation rates:
(d) Customer relationships: represent the value attributed to the long-
term relationships held with existing customers that the group
acquired on business combinations. Customer relationships are
amortised over their useful economic life.
(e) Trade names: are amortised over their useful lives from the date
10%
of acquisition.
5% to 33%
(f) Marketing rights: are amortised over their useful lives commencing
in the year in which the rights first generate sales.
Property, plant and equipment
Property, plant and equipment have been stated at cost on acquisition
and are depreciated on a straight-line basis except for land at the
following depreciation rates:
Buildings
Machinery and equipment
Vehicles, fixtures and equipment
2% to 33%
5% to 25%
3% to 33%
A unit of production method of depreciation is applied to operations in
their start-up phase, as this reflects the expected pattern of consumption
of the future economic benefits embodied in the assets. When these assets
are fully utilised, a straight-line method of depreciation is applied.
Projects under construction are not depreciated until construction has
been completed and assets are considered ready for use.
Any additional costs that extend the useful life of property, plant and
equipment are capitalised.
Whenever the recoverable amount of an asset is impaired, the carrying
value is reduced to the recoverable amount and the impairment loss is
taken to the consolidated income statement. Projects under
construction are carried at cost, less any recognised impairment loss.
Depreciation of these assets, on the same basis as other property assets,
commences when the assets are ready for their intended use.
The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in the consolidated
income statement.
Impairment of property, plant and equipment and
intangible assets
At the same time each year, the Group carries out an impairment review
for goodwill and intangible assets that are not yet ready for use. At the year
end, the Group reviews the carrying amounts of its property, plant and
equipment and intangible assets that are subject to depreciation and
amortisation to determine whether there is any indication that those
assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated to determine the extent of
the impairment loss (if any).
Customer relationships
Product related intangibles
Trade names
Marketing rights
Software
10%
7% to 33%
5% to 33%
Judgement is used to assess the degree of certainty attached to the flow
of future economic benefits that are attributable to the use of the asset
on the basis of the evidence available at the time of initial recognition,
giving greater weight to external evidence.
Expenditures on research and development activities are charged to
the consolidated income statement, except only when the criteria for
recognising an internally generated intangible asset is met, which is
usually when approval from the relevant regulatory authority is
considered probable.
Also, the Group engages with third-party research and development
companies to develop products on its behalf. Substantial payments
made to such third parties to fund research and development efforts
are recognised as intangible assets if the capitalisation criteria for an
intangible asset are met, which typically is when licence fees and certain
milestone payments are made, all other payments are charged to the
consolidated income statement.
Principal intangible assets are:
(a) Goodwill: arising in a business combination and is recognised as
an asset at the date that control is acquired (the acquisition date).
Goodwill is measured as the excess of the sum of the consideration
transferred, the amount of any non-controlling interest in the acquiree
and the fair value of the acquirer’s previously held equity interest (if any)
in the entity over the net of the acquisition-date fair value of the
identifiable assets, liabilities and acquired contingent liabilities.
If, after reassessment, the Group’s interest in the fair value of
the acquiree’s identifiable net assets exceeds the sum of the
consideration transferred, the amount of any non-controlling interest
in the acquiree and the fair value of the acquirer’s previously held
equity interest in the acquiree (if any), the excess is recognised
immediately in the consolidated income statement as a bargain
purchase gain.
On disposal of a subsidiary, the attributable amount of goodwill is
included in the determination of any profit or loss on disposal in the
consolidated income statement.
(b) Product related intangibles:
(i) product files recognised on acquisition are amortised over the
useful economic life once the asset is ready for use
(ii) Product files and in-licensed products recognised through
acquisitions and partnerships are amortised over their useful
economic lives once the asset is ready for use.
(c) Purchased software: is amortised over the useful economic life when
the asset is ready for use.
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2. Significant accounting policies continued
The recoverable amount is the higher of fair value less costs to sell and
value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows
have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit (CGU)) is
estimated to be less than its carrying amount, the carrying amount of the
asset (or CGU) is reduced to its recoverable amount. An impairment loss
is recognised immediately in the consolidated income statement.
When an impairment loss for the asset, other than goodwill,
subsequently reverses, the carrying amount of the asset is increased to
the revised estimate of its recoverable amount. However, the increased
carrying amount should not exceed the carrying amount that would have
been determined had there been no impairment in prior years. A reversal
of an impairment loss is recognised immediately in the consolidated
income statement.
For assets excluding goodwill, an assessment is made at each reporting
date to determine whether there is an indication that previously
recognised impairment losses no longer exist or have decreased. If such
indication exists, the Group estimates the assets’ or CGU’s recoverable
amounts. A previously recognised impairment loss is reversed only if
there has been a sustained and discrete change in the assumptions and
indicators used to determine the asset’s recoverable amount since the
last impairment loss was recognised. The reversal is limited so that the
carrying amount of the asset does not exceed its recoverable amount,
nor exceed the carrying amount that would have been determined, net
of depreciation and amortization, had no impairment loss been
recognised for the asset in prior years. Such reversal is recognised in the
consolidated income statement. In line with IAS 36, previously
recognised impairment losses on goodwill are not reversed. see Note 16.
The Group’s goodwill and intangible assets are tested as follows;
(a) Goodwill is allocated to each of the Group’s cash-generating units.
These cash-generating units are tested for impairment annually, or
more frequently when there is an indication that the unit may be
impaired. If the recoverable amount of the cash-generating unit is
less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated
to the unit and then to the other assets of the unit pro-rata on the
basis of the carrying amount of each asset in the unit. An impairment
loss recognised for goodwill is not reversed in a subsequent period.
The assumptions used and sensitivity analysis in the impairment
tests are set out in Note 16.
(b) Intangible assets that are not yet ready for use are not subject to
amortisation and are tested annually for impairment or more
frequently if events or changes in circumstances indicate that they
might be impaired. Other intangible assets are tested for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
Inventories
Inventories are stated at the lower of cost and net realisable value.
Purchased products are stated at acquisition cost including all additional
attributable costs incurred in bringing each product to its present
location and condition. The costs of own-manufactured products
comprise direct materials and, where applicable, direct labour costs and
any overheads that have been incurred in bringing the inventories to
their present location and condition. In the consolidated balance sheet,
inventory is primarily valued at historical cost determined on a moving
average basis, and this value is used to determine the cost of sales in the
consolidated income statement. Net realisable value represents the
estimated selling price in the ordinary course of business, less all
estimated costs necessary to make the sale. Inventory related provisions
are made for net realisable value lower than cost, slow moving and short
dated inventory.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and
highly liquid investments with maturities within three months or less.
Money market deposits comprise investment in funds that are subject
to insignificant risk of changes in fair value and can be readily converted
into cash.
Financial instruments
Financial assets and financial liabilities are recognised on the Group’s
consolidated balance sheet when the Group becomes a party to the
contractual provisions of the instrument.
Financial assets
The Group classifies its financial assets in the following measurements
categories:
(i) Financial assets at FVTPL
Listed shares, debt instruments and investment portfolios held by the
Group that are traded in an active market are classified as being financial
assets at FVTPL and are stated at fair value. Gains and losses arising from
changes in fair value are recognised in the consolidated Income
Statement, see Note 24.
(ii) Financial assets at FVTOCI
The Group’s investments in unlisted shares through its venture capital
are stated at FVTOCI with no recycling of cumulative gains or losses
upon de-recognition. These investments are measured at cost minus
any impairment, and adjusted for observable price changes in orderly
transactions for the identical or a similar investment of the same issuer,
see Note 19.
(iii) Financial assets at amortised cost
Trade receivables, loans, and other receivables that have fixed or
determinable payments that are not quoted in an active market are
classified as ‘Financial assets at amortised cost’. These receivables are
measured at amortised cost using the effective interest method, less any
impairment. Interest income is recognised by applying the effective
interest rate, except for short-term receivables when the recognition of
interest would be immaterial.
In order for a financial asset to be classified and measured at amortised
cost, it needs to give rise to cash flows that are solely payments of
principal and interest (SPPI) on the principal amount outstanding.
This assessment is referred to as the SPPI test and is performed at
an instrument level.
The Group’s business model for managing financial assets refers to how
it manages its financial assets in order to generate cash flows. The
business model determines whether cash flows will result from collecting
contractual cash flows, selling the financial assets, or both. Financial
assets classified and measured at amortised cost are held within a
business model with the objective to hold financial assets in order to
collect contractual cash flows while financial assets classified and
measured as FVTPL are held within a business model with the objective
of both holding to collect contractual cash flows and selling.
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Notes to the consolidated financial statements
Notes to the consolidated financial statements continued
continued
Financial statements
A financial liability is derecognised when the obligation under the liability
is discharged or cancelled or expires. When an existing financial liability is
replaced by another from the same lender on substantially different
terms, or the terms of an existing liability are substantially modified,
such an exchange or modification is treated as the derecognition of
the original liability and the recognition of a new liability. The difference
in the respective carrying amounts is recognised in the consolidated
income statement.
Provisions
Provisions are recognised when the Group has a present obligation (legal
or constructive) as a result of a past event, it is probable that an outflow
of resources will be required to settle the obligations and a reliable
estimate can be made of the amount of the obligation.
Restructuring provisions
Restructuring provisions are recognised only when the Group has a
constructive obligation, which is when:
(i) There is a detailed formal plan that identifies the business or part of the
business concerned, the location and number of employees affected,
the detailed estimate of the associated costs, and the timeline;
(ii) The employees affected have been notified of the plan’s main features
Own shares
—
The Group provides finance to the trustee of the Employee Benefit
Trust (EBT) which is Link Market Service Trustee Limited. Own shares
are deducted from equity. These shares are held to be used to satisfy
long-term commitments arising from the employee share plan
operated by the Company. (Note 32)
Treasury shares and any direct expenses associated with it are
recognised at cost and deducted from equity. No gain or loss is
recognised in consolidated income statement on the purchase, sale,
issue or cancellation of the Group’s own equity instruments. (Note 32)
—
Cash dividend
The Company recognises a liability to pay a dividend when the distribution
is authorised and the distribution is no longer at the discretion of the
Company. In accordance with the laws of the United Kingdom, a final
dividend is binding on the Company when it is approved by the
shareholders and an interim dividend obtains this status when it is
approved by the Board of Directors.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds
received, net of direct issue costs.
2. Significant accounting policies continued
The effective interest method is a method of calculating the amortised
cost of a debt instrument and of allocating interest income over the
relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash receipts (including all fees and points
paid or received that form an integral part of the effective interest rate,
transaction costs and other premiums or discounts) through the
expected life of the debt instrument, or, where appropriate, a shorter
period, to the net carrying amount on initial recognition.
Income is recognised on an effective interest basis for debt instruments
other than those financial assets classified as at FVTPL.
For trade receivables and contract assets, the Group applies a simplified
approach in calculating expected credit loss. Therefore, the Group does
not track changes in credit risk, but instead recognises a loss allowance
based on lifetime expected credit losses at each reporting date. The
Group has established a provision matrix that is based on its historical
credit loss experience, adjusted for forward-looking factors specific to
the debtors and the economic environment.
Financial liabilities
Financial liabilities are classified in two categories: financial liabilities
‘at FVTPL’ or ‘financial debts‘ representing loans and borrowings.
The classification depends on the nature and purpose of the financial
liabilities and is determined at the time of initial recognition.
(i) Financial liabilities at FVTPL
The Group currently has two financial liabilities at FVTPL as below:
—
—
co-development and earn out payment agreements with third
parties where the Group earns milestone payments reflecting the
achievement of research and development; and commercialisation
milestones. Those payments are recognised as financial liabilities
once received
contingent consideration arising from the Columbus business
acquisition represent contractual liabilities to make payments to
third parties in the form of milestone payments that are dependent
on the achievement of certain US FDA approval milestones; and
royalty payments based on future sales of certain products that are
currently under development
Financial liabilities at FVTPL are revalued at the end of each reporting
period to represent the value of expected future cash outflows and the
difference is presented as finance cost/income. These financial liabilities
are currently booked under other non-current liabilities and other
current liabilities in the consolidated balance sheet. (Note 28 and 31)
(ii) Financial debts
Financial debts are initially measured at fair value, net of transaction
costs and subsequently measured at amortised cost using the effective
interest method, with interest expense recognised on an effective
interest method.
The effective interest method is used for calculating the amortised cost
of a financial liability and of allocating interest expense over the relevant
period. The calculation of effective interest rate is the rate that exactly
discounts estimated future cash payments through the expected life of
the financial liability, or, where appropriate, a shorter period, to the net
carrying amount on initial recognition.
3. Critical accounting judgements and
key sources of estimation uncertainty
Acquired intangible assets (Note 16)
Valuing intangible assets upon initial recognition as at the acquisition date
and testing for impairment require the following judgements and estimates:
In the application of the Group’s accounting policies, which are
described in Note 2, the Directors are required to make judgements and
estimates about the carrying amounts of assets and liabilities that are
not readily apparent from other sources. The estimates are based on
historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if
the revision affects only that period or in the period of the revision and
future periods if the revision affects both current and future periods.
The Group’s Directors believe that the following accounting policies that
involve Directors’ judgements and estimates are the most critical to
understanding and evaluating the Group’s financial results.
Revenue recognition estimate (Notes 4 and 5)
The Group’s revenue recognition policies require Directors to make
estimates of the net selling price, which is made complicated due to
chargebacks, product returns and rebates. These arrangements vary by
product arrangement and buying group. Refer to Note 2 for more details
on each of the underlying estimates.
Impairment and reversal (Note 16)
Testing for impairment of goodwill and other assets included within a
cash generating units (CGU) to establish the appropriate valuation of the
CGU. The valuation used for comparison to the carrying value of the net
assets of the CGU requires the following key judgements and estimates:
Critical judgement
— Determination of the CGU
—
For reversal assessment of the Generics CGU, the Group assessed
the events that indicated the impairment booked in 2017 and
concluded that such indicators still existed, namely pricing pressures
in the market, the increasing number of generic products and delays
to approvals of more complex products. Existing headroom of
Generics CGU has predominantly been created by marketed and
pipeline products that were not reflected in the Group's plans at the
time that the original impairment was booked, and as such did not
reflect a reversal of the initial impairment indicators.
Critical estimate
—
Estimating a five-year business plan for purposes of forecasting
free cash flows which involves forecasting appropriate sales and
operating expenses taking into considerations both internal and
external information
Estimating future capital expenditures and working capital
requirements over the five-year period
Estimating a discount rate that appropriately reflects the Group’s
weighted average cost of capital as adjusted for specific risk
premiums reflecting risks inherent in achieving the projected
future cash flows
Estimate an appropriate terminal growth rate beyond the
forecast period
—
—
—
Critical judgement
—
For pipeline products, establishing the launch date and probability
of a successful product approval are critical judgements
— Determining whether an impairment indication has occurred for
intangible assets. In such case the Group first assesses the
qualitative factors to determine whether it is more likely than not
that the fair value of the intangible asset is less than its carrying
amount as a basis for determining whether it is necessary to
perform a quantitative impairment test
For previously impaired assets, an assessment is made at each
reporting date to determine whether there is an indication that
previously recognised impairment losses no longer exist or have
decreased, if such indication exists, the Group estimates the asset’s
or CGU’s recoverable amount. Refer to Note 2 and 16 for more details
—
Critical estimate
—
Estimating revenue forecasts (including market size,
estimated expected market share, number of competitors
and net selling prices)
Estimating the expected economic useful lives of the product-
related intangibles
Estimating the sales and the allocation of marketing, research and
development and other operating costs to the individual product-
related intangibles
Estimating a contributory asset charge (on working capital, fixed
assets and workforce)
Estimating a discount rate and specific risk premiums
The key assumptions used to determine the recoverable amount
for the different CGUs, including a sensitivity analysis, are disclosed
and further explained in Note 16
—
—
—
—
—
Contingent consideration (Notes 28, 30 and 31)
The determination of the fair value of contingent consideration is based
on discounted cash flows. The critical estimate and assumptions taken
into consideration for contingent consideration fair valuation are the
same as described in ‘Acquired intangibles assets’ above. (See Note 30
for sensitivity analysis).
Taxation (Notes 12 and 13)
Critical judgements in applying the Group’s accounting policies
The following are the critical tax related judgements, apart from those
involving estimations (which are dealt with separately below), that
management have made in the process of applying the Group’s
accounting policies and that have the most significant effect on the
amounts recognised in the consolidated financial statements:
Recognition of deferred tax assets (Note 13)
The recognition of deferred tax assets is based on the current forecast
of taxable profits arising in the jurisdiction in which the deferred tax asset
arises. A deferred tax asset is recognised to the extent that there are
forecast taxable profits within a reasonable period.
This exercise is reviewed each year and, to the extent forecasts change,
an adjustment to the recognised deferred tax asset may be made.
Recognition of deferred tax assets is driven by the Group’s ability to
utilise the deferred tax asset which is reliant on forecast taxable profits
arising in the jurisdiction in which losses are incurred.
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Notes to the consolidated financial statements
Notes to the consolidated financial statements continued
continued
Financial statements
3. Critical accounting judgements and
key sources of estimation uncertainty
continued
Key sources of estimation uncertainty
The Group has made the following key assumptions concerning the future,
or other key sources of estimation uncertainty in the reporting period that
may have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year.
Tax audit risk
In common with most international organisations, the Group is subject
to audit from revenue authorities from time to time. Where an outflow of
funds is believed to be probable and a reliable estimate of the outcome
of the dispute can be made, management provides for its best estimate
of the liability. These estimates take into account the specific
circumstances of each dispute and relevant external advice, are
inherently judgemental and could change substantially over time as new
facts emerge and each dispute progresses. Hikma continues to invest in
its financial systems to ensure the quality of the Group’s financial data
which reduces the risk of an adverse revenue authority audit.
Furthermore, Hikma continues to believe that it has made adequate
provision for the liabilities likely to arise from open assessments and
audits. Where open issues exist, the ultimate liability for such matters
may vary from the amounts provided and is dependent upon the
outcome of negotiations with the relevant tax authorities or, if necessary,
litigation proceedings.
Other risks
In addition to tax audits, the Group faces other potential tax risks that
could affect the sustainability of the Group’s effective tax rate. The main
risks are noted below. Hikma regularly takes professional advice to
ensure the risks mentioned below are appropriately analysed and
managed with any ultimate potential liability being adequately provided.
Transfer pricing risk
The transfer pricing risk can arise from a difference in view over the
pricing of cross-border, intercompany product sales and services and of
sales of assets. The standard by which most authorities, and the Group,
assess the transfer price is whether it is set at arm’s length. An upward
adjustment by the tax authority of one territory will not necessarily result
in the downward adjustment by the other territory, potentially leading to
an increased estimated tax cost through a mismatch of tax deductions
and taxable income, as well as a potential increase arising out of a rate
arbitrage. The Group has considered the risk in detail and has provided
for potential tax adjustments so does not believe that any adjustment
will materially impact the rate going forward.
Valuation risk
As part of a reorganisation following the Columbus business acquisition in
2016 and the 2019 business restructuring, certain assets and liabilities were
transferred intra-Group with external valuations obtained. If these
valuations are successfully challenged by relevant tax authorities, it could
adversely impact the tax recorded on the reorganisation.
Sensitivity (Note 12)
Where an uncertain tax position arises, the Group will assess what the
probable outcome will be, assuming the relevant tax authority has full
knowledge of the situation. Where it is assessed that an exposure will give
rise to an uncertain tax position, a provision is booked for the best estimate
of the liability. Hikma continues to re-evaluate existing uncertain positions
to determine if a change in facts and circumstances has occurred that
would make it necessary to adjust.
IFRIC 23
IFRIC 23 ‘Uncertainty over income tax treatments’ was issued in June
2017. The interpretation clarifies that if it is considered probable that a tax
authority will accept an uncertain tax treatment, the tax charge should
be calculated on that basis. If it is not considered probable, the effect of
the uncertainty should be estimated and reflected in the tax charge. In
assessing the uncertainty, it is assumed that the tax authority will have
full knowledge of all information related to the matter.
The Group adopted IFRIC 23 as of 1 January 2019 and reassessed the
effect of uncertainty where applicable. The impact of adoption on the
beginning balance in 2019 of the amount previously held for uncertain
tax position was a decrease of $2 million.
Contingent liabilities
The promotion, marketing and sale of pharmaceutical products and
medical devices is highly regulated and the operations of market
participants, such as Hikma, are closely supervised by regulatory
authorities and law enforcement agencies, including the FDA and the
US Department of Justice. As a result, the Group is subject to certain
investigations by governmental agencies, as well as other various legal
proceedings considered typical to its business relating to employment,
product liability and commercial disputes. (see Note 36).
The critical areas of judgement in relation to contingent liabilities are
as follows:
—
—
—
a possible obligation depending on whether some uncertain future
event occurs in relation to legal proceedings and/or governmental
agencies investigations
a present obligation but payment is not probable where Hikma
denies having engaged in conduct that would give rise to liability
with respect to these civil suits and is vigorously pursuing defence
of legal proceedings
a present obligation but the amount cannot be measured reliably
4. Revenue from contracts with customers
Business and geographical markets
The following table provides an analysis of the Group’s reported sales by segment and geographical market, irrespective of the origin of the
goods/services:
Injectables
Generics
Branded
$m
662
160
149
6
977
Injectables
$m
640
146
101
7
894
$m
744
–
–
–
744
Generics
$m
719
–
–
–
719
Year ended 31 December 2020
United States
Middle East and North Africa
Europe and rest of the world
United Kingdom
Year ended 31 December 2019
United States
Middle East and North Africa
Europe and Rest of the World
United Kingdom
The top selling markets in 2020 are as below:
United States
Saudi Arabia
Egypt
$m
–
605
8
–
613
Others
$m
–
5
2
–
7
Branded
$m
Others
$m
–
567
16
–
583
–
6
5
–
11
2020
$m
1,406
223
118
1,747
In 2020, included in revenue arising from the Generics and Injectables segments are sales the Group made to two wholesalers in the US of
approximately $607 million (2019: $594 million). Each of these customers accounted for equal to or greater than 10% of Group’s revenue in
the period on an individual basis.
The following table provide contract balances related to revenue:
Trade receivables (Note 21)
Contract assets (Note 24)
Contract liabilities (Note 28)
2020
$m
662
3
162
Trade receivables are non-interest bearing and typical credit terms in the US range from 30 to 90 days, in Europe 30 to 120 days, and in MENA 180 to
360 days.
Contract liabilities mainly relates to returns provisions and free goods balance.
Total
$m
1,406
770
159
6
2,341
Total
$m
1,359
719
122
7
2,207
2019
$m
1,359
204
114
1,677
2019
$m
637
–
142
132
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133
133
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Financial statements
5. Business segments
5. Business segments continued
For management reporting purposes, the Group is organised into three principal operating divisions – Injectables, Generics and Branded. These divisions
are the basis on which the Group reports its segmental information.
Core operating profit, defined as ‘segment result’, is the principal measure used in the decision-making and resource allocation process of the chief
operating decision maker, who is the Group’s Chief Executive Officer.
Information regarding the Group’s operating segments is reported below:
Injectables
Revenue
Cost of sales1
Gross profit
Total operating expenses1
Segment result
Generics
Revenue
Cost of sales1
Gross profit
Total operating expenses1
Segment result
Branded
Revenue
Cost of sales1
Gross profit
Total operating expenses1
Segment result
2020
Exceptional
items and other
adjustments
(Note 6)
$m
–
–
–
(23)
(23)
2020
Exceptional
items and other
adjustments
(Note 6)
$m
–
(12)
(12)
54
42
2020
Exceptional
items and other
adjustments
(Note 6)
$m
–
–
–
(6)
(6)
2020
Core
results
$m
977
(414)
563
(186)
377
2020
Core
results
$m
744
(403)
341
(180)
161
2020
Core
results
$m
613
(306)
307
(181)
126
2020
Reported
results
$m
977
(414)
563
(209)
354
2020
Reported
results
$m
744
(415)
329
(126)
203
2020
Reported
results
$m
613
(306)
307
(187)
120
2019
Exceptional items
and other
adjustments
(Note 6)
$m
4
–
4
(22)
(18)
2019
Exceptional items
and other
adjustments
(Note 6)
$m
–
(5)
(5)
32
27
2019
Exceptional items
and other
adjustments
(Note 6)
$m
–
(6)
(6)
(18)
(24)
2019
Core
results
$m
890
(385)
505
(167)
338
2019
Core
results
$m
719
(419)
300
(176)
124
2019
Core
results
$m
583
(296)
287
(158)
129
2019
Reported
results
$m
894
(385)
509
(189)
320
2019
Reported
results
$m
719
(424)
295
(144)
151
2019
Reported
results
$m
583
(302)
281
(176)
105
1. Inventory related provisions have been reclassified under the cost of sales line item in order to align with industry practice. Previously the costs were reflected in other operating income/(expenses), net
and hence the 2019 numbers have consequently been restated. See Note 2 for more details
Others¹
Revenue
Cost of sales
Gross profit
Total operating expenses
Segment result
2020
Exceptional
items and other
adjustments
(Note 6)
$m
–
–
–
–
–
2020
Core
results
$m
7
(5)
2
(2)
–
1. Others mainly comprises Arab Medical Containers LLC and International Pharmaceutical Research Center LLC
Group
Segment result
Unallocated expenses¹
Operating profit/(loss)
Finance income
Finance expense
Gain from investment at FVTPL
Loss from investment divestiture
Profit before tax
Tax
Profit for the year
Attributable to:
Non-controlling interests
Equity holders of the parent
2020
Exceptional
items and other
adjustments
(Note 6)
$m
13
2020
Core
results
$m
664
(98)
566
9
(54)
1
–
522
(115)
407
(1)
408
407
–
13
38
(15)
–
–
36
(13)
23
–
23
23
2020
Reported
results
$m
7
(5)
2
(2)
–
2020
Reported
results
$m
677
(98)
579
47
(69)
1
–
558
(128)
430
(1)
431
430
2019
Exceptional
items and other
adjustments
(Note 6)
$m
–
–
–
–
–
2019
Exceptional
items and other
adjustments
(Note 6)
$m
(15)
–
(15)
60
(15)
–
(4)
26
96
122
–
122
122
2019
Core
results
$m
11
(8)
3
(3)
–
2019
Core
results
$m
591
(83)
508
7
(52)
2
–
465
(100)
365
1
364
365
2019
Reported
results
$m
11
(8)
3
(3)
–
2019
Reported
results
$m
576
(83)
493
67
(67)
2
(4)
491
(4)
487
1
486
487
1. In 2020, unallocated corporate expenses mainly comprise employee costs, third-party professional fees and software impairments while in 2019, unallocated corporate expenses mainly comprise
employee costs, third-party professional fees, IT and travel expenses
134
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135
135
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Financial statements
6. Exceptional items and other adjustments
6. Exceptional items and other adjustments continued
Exceptional items and other adjustments are disclosed separately in the consolidated income statement to assist in the understanding of the Group’s
core performance.
2020
Generics
$m
Injectables
$m
Branded
$m
Others
$m
Unallocated
$m
Total
$m
Exceptional Items
Jordan warehouse fire incident
MENA severance and restructuring costs
Assets write off – PPE Impairment
Other operating (expense)/income
SG&A
Other operating (expense)/income
Assets write off – inventory related provisions
Cost of sales
Impairment reversal of product related intangibles, net
Other operating (expense)/income
Exceptional items
Other adjustments
4
–
(3)
(12)
62
51
–
–
–
–
–
–
7
(3)
–
–
–
4
Intangible assets amortisation other than software
SG&A
(9)
(23)
(10)
Unwinding and remeasurement of contingent consideration
and other financial liabilities, net
Finance expense
Exceptional items and other adjustments including in profit before tax
Tax expenses associated with previously unrecognised deferred tax assets Tax
Tax effect on exceptional items and other adjustments
Tax
Impact on profit for the year
–
42
–
–
42
–
(23)
–
–
–
(6)
–
–
(23)
(6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11
(3)
(3)
(12)
62
55
–
(42)
23
23
(3)
23
36
(3)
(10)
(10)
10
23
Exceptional items have been recognised in accordance with our accounting policy outlines in Note 2, the details are presented below:
Exceptional items
—
Jordan warehouse fire incident: In 2020, Hikma recognised $11 million for insurance compensation related to a fire incident which took place in 2019
at one of Hikma’s Jordan facilities. The Group received part of the insurance compensation of $4 million in 2019 and $1 million in March 2020
— MENA severance and restructuring costs: of $3 million related to one-off organisational restructuring in MENA that started in 2019 and finished
—
—
—
in 2020
Assets write off: In December 2020, Hikma submitted to the FDA a Prior Approval Supplement (PAS) relating to generic Advair Diskus®. The
amendment reflects enhanced packaging controls to meet new industry standards adopted since the initial submission of its ANDA application. As a
result, the launch has been temporarily paused and inventory amounting to $12 million is expected to expire before launch and has been written off.
In addition, $3 million of property, plant and equipment was written off (Notes 9, 17)
Impairment reversal of product related intangibles, net: $66 million net impairment reversal in respect of specific product related intangibles in
the Generics segment which reflects a better than expected performance of certain marketed products acquired through business combination
offset by $4 million impairment charge (Note 16)
Tax (expense) benefit associated with previously unrecognised deferred tax assets: A prior year adjustment to the tax expense associated with
previously unrecognised deferred tax assets of $3 million arose as a tax return to provision adjustment
In previous year, exceptional items and other adjustments were related to the following:
Exceptional Items
R&D cost
Jordan warehouse fire incident
Jordan warehouse fire incident
Proceeds from legal claim
Contingent consideration adjustment
MENA severance and restructuring costs
Integration costs
Loss from investment divestiture
2019
R&D
Cost of sales
Other operating (expense)/income
Other operating (expense)/income
Other operating (expense)/income
SG&A
Revenue
Other expenses
Impairment reversal of product related intangibles, net
Other operating (expense)/income
Exceptional items
Other adjustments
Generics
$m
Injectables
$m
Branded
$m
Others
$m
Unallocated
$m
Total
$m
(24)
(5)
(1)
32
7
–
–
–
20
29
–
–
–
–
–
–
4
–
–
4
–
(6)
(1)
–
–
(7)
–
–
–
(14)
–
–
–
–
–
–
–
(4)
–
(4)
–
–
–
–
–
–
–
–
–
–
(24)
(11)
(2)
32
7
(7)
4
(4)
20
15
Intangible assets amortisation other than software
SG&A
(2)
(22)
(10)
–
–
(34)
Unwinding and remeasurement of contingent consideration,
financial liability and asset, net
Finance income/(expense)
Exceptional items and Other adjustments including in profit before tax
Tax benefit associated with previously unrecognised deferred tax assets
Tax
Tax benefit associated with the internal reorganisation of intangible assets
Tax
Tax effect on exceptional items and other adjustments
Tax
Impact on profit for the year
–
27
–
–
–
27
–
(18)
–
–
–
–
(24)
–
–
–
–
(4)
–
–
–
45
45
49
48
(1)
45
26
49
48
(1)
(18)
(24)
(4)
141
122
136
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—
—
—
R&D cost: Hikma incurred $24 million of research and development costs related to a repeat clinical endpoint study for generic Advair Diskus®.
The study was completed in November 2019. The study and certain additional information was submitted to the US FDA for their review. In
December 2020, Hikma has received the US FDA approval
Jordan warehouse fire incident: During 2019, a fire broke out in a warehouse at one of Hikma's Jordan facilities which serves the Generics and
Branded segments. Production was halted for a period of time and inventory was damaged. The associated loss was $17 million, mainly
comprising damaged inventory and the cost to remediate property, plant and equipment. Up to 31 December 2019, the Group has received part
of the insurance compensation of $4 million related to the fire incident resulting in a net exceptional expense of $13 million
Proceeds from legal claim: Hikma received compensation proceeds of $32 million in relation to a litigation matter with an external party where
one of Hikma's product's sales were halted by a temporary restraining order and an injunction. The litigation was resolved in Hikma's favour and
a payment was received from the plaintiff representing lost profit over the affected time period
— Contingent consideration adjustment: The contingent consideration adjustment of $7 million relates to a change in estimate of the amount
of expected contingent payments Hikma was entitled to receive under the terms of the Columbus acquisition agreement.
— MENA severance and restructuring costs: of $7 million related to one-off organisational restructuring in MENA
—
Integration costs: A provision of $4 million in relation to integration costs of the Columbus business and the consolidation of the distribution
centre in the US was released. This was previously provided for in 2018 as exceptional items
Loss from investment divestiture: $4 million loss from divestiture of Medlac investment
Impairment reversal of product related intangibles, net: $21 million impairment reversal of product related intangibles related to specific product
related assets in Generics segment offset by $1 million impairment charge
Tax (expense) benefit associated with previously unrecognised deferred tax assets: The Group has benefitted $49 million from the utilisation of
previously unrecognised deferred tax assets following the internal reorganisation of intangible assets (Note 12)
Tax benefit associated with the internal reorganisation of intangible assets: The Group has recorded a $48 million tax benefit associated with the
internal reorganisation of intangible assets (Note 12)
—
—
—
—
Other adjustments
Remeasurement of contingent consideration, financial liability and asset represents the net difference resulting from the valuation of the liabilities
and assets associated with the future contingent payments and receivables in respect of contingent consideration recognised through business
combinations and the financial liability in relation to the co-development earnout payment agreement (Notes 10,11, 28 and 31). The remeasurement
is included in finance income and expense.
Intangible assets amortisation other than software of $42 million (2019: $34 million).
7. Audit remuneration
The Group auditor’s remuneration on a worldwide basis is as below:
Fees to the auditor for the audit of the annual accounts
Fees to the auditor and its associates for the audit of the Group's subsidiaries
Total audit fees
Audit related assurance services¹
Other non-audit fees
Total audit and non-audit fees
1. Assurance services relate to review procedures in respect to the interim financial information
2. Amounts have been restated to reflect final amounts billed in relation to 2019
2020
$m
0.9
1.9
2.8
0.2
0.2
3.2
20192
$m
0.8
1.9
2.7
0.2
–
2.9
In 2020 non-audit fees of $0.2m were charged relating to bond offering. In 2019 nominal non-audit fees were charged relating to assurance engagement in
connection with a statement of completeness of sales packaging brought to market in Germany.
A description of the work of the Audit Committee is set out in the Audit Committee report on pages 77 to 80 and includes an explanation of how
auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor.
Hikma Pharmaceuticals PLC Annual Report 2020
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137
137
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Financial statements
8. Staff costs
The average monthly number of employees (including Executive Directors) is:
Production
Sales and marketing
General and administrative
Research and development
Aggregate remuneration comprised:
Wages, salaries and bonuses
Social security costs
Post-employment benefits
End of service indemnity
Share-based payments (Note 37)
Car and housing allowances
Health insurance
Other costs and employee benefits
2020
Number
4,918
2,232
1,050
481
8,681
2019
Number
4,818
2,180
1,130
450
8,578
2020
$m
2019
$m
392
356
39
14
9
27
21
36
22
36
14
13
24
21
34
22
560
520
9. Other operating income/expense
Other operating expense¹
Impairment charge on intangible assets
Impairment charge on property, plant and equipment
Loss on disposal/damage of property, plant and equipment
Forex and net monetary hyperinflation losses, net
Others
2020
Exceptional
items and other
adjustments
2020
Reported
(Note 6)
results
2019
Exceptional
items and other
adjustments
(Note 6)
2019
Core
results
2019
Reported
results
$m
4
3
–
–
–
7
$m
15
6
2
30
1
54
$m
2
–
–
4
5
11
$m
1
–
3
–
–
4
$m
3
–
3
4
5
15
2020
Core
results
$m
11
3
2
30
1
47
1. Inventory related provisions have been reclassified under the cost of sales in order to align with industry practice. Previously the costs were reflected in other operating income/(expenses),net line item
and hence the 2019 numbers have consequently been restated. See Note 2 for more details
Exceptional items represent $4 million impairment charge in relation to certain marketed products acquired through business combination in addition
to $3 million write off of property, plant and equipment (Note 6, 16 and 17).
Other operating income
Impairment reversal on intangible assets
Others
2020
Exceptional
items and other
adjustments
(Note 6)
$m
66
11
77
2020
Core
results
$m
–
3
3
2020
Reported
results
$m
66
14
80
2019
Exceptional
items and other
adjustments
(Note 6)
$m
21
40
61
2019
Core
results
$m
–
3
3
2019
Reported
results
$m
21
43
64
In 2020, the other operating income of $14 million mainly comprised $11 million for insurance compensation related to a fire incident (see Note 6). In
2019, the other operating income of $43 million mainly comprised $32 million related to a litigation matter with an external party, which was concluded
in Hikma’s favour and $7 million related to a change in estimate of the amount of expected contingent payments Hikma was entitled to receive under
the terms of the Columbus acquisition agreement.
Exceptional items represent $66 million impairment reversal in relation to certain marketed products acquired through business combination (Note 6,
and 16).
138
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10. Finance income
Interest income
Remeasurement of contingent consideration
and financial liability and assets (Note 28 and 31)
Net foreign exchange gain
Other finance income
11. Finance expense
Interest on bank overdrafts and loans
Interest on Eurobond
Unwinding of contingent consideration and
other financial liabilities (Note 28 and 31)
Other bank charges
Lease accretion of interest
Other finance expense
12. Tax
Current tax:
UK corporation
Foreign tax
Adjustment to prior year
Deferred tax (Note 13)
Current year
Adjustment to prior year
2020
Exceptional
items and other
adjustments
(Note 6)
$m
–
38
–
–
38
2020
Exceptional
items and other
adjustments
(Note 6)
$m
–
–
15
–
–
–
15
2020
Core
results
$m
7
–
–
2
9
2020
Core
results
$m
22
15
–
13
4
–
54
2020
Reported
results
$m
7
38
–
2
47
2020
Reported
results
$m
22
15
15
13
4
–
69
2019
Exceptional
items and other
adjustments
(Note 6)
$m
–
2019
Core
results
$m
6
–
1
–
7
60
–
–
60
2019
Exceptional
items and other
adjustments
(Note 6)
$m
–
–
15
–
–
–
15
2019
Core
results
$m
10
22
–
13
4
3
52
2020
Exceptional
items and other
adjustments
(Note 6)
$m
2020
Core
results
$m
2020
Reported
results
$m
2019
Exceptional
items and other
adjustments
(Note 6)
$m
2019
Core
results
$m
–
99
(1)
19
(2)
115
–
(2)
3
12
–
13
–
97
2
31
(2)
128
16
73
–
2
9
100
32
(3)
–
(125)
–
(96)
2019
Reported
results
$m
6
60
1
–
67
2019
Reported
results
$m
10
22
15
13
4
3
67
2019
Reported
results
$m
48
70
–
(123)
9
4
UK corporation tax is calculated at 19.0% (2019: 19.0%) of the estimated assessable profit made in the UK for the year.
The Group incurred a tax expense of $128 million (2019: $4 million). The effective tax charge rate is 22.9% (2019: 0.8%). The reported effective tax rate is
higher than the statutory rate primarily due to the earnings mix.
Taxation for all jurisdictions is calculated at the rates prevailing in the respective jurisdiction.
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139
139
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Financial statements
12. Tax continued
13. Deferred tax
The charge for the year can be reconciled to profit before tax per the consolidated income statement as follows:
Certain deferred tax assets and liabilities have been appropriately offset. The following is the analysis of the deferred tax balances (after offset) for
financial reporting purposes:
Profit before tax
Tax at the UK corporation tax rate of 19.0% (2019: 19.0%)
Profits taxed at different rates
Permanent differences
– Non-deductible expenditure
– Rate differential on unrealised intercompany profits on inventory sales
– Other permanent differences
– R&D benefit
State and local taxes
Temporary differences
– Rate change tax losses and other deductible temporary differences for which no benefit is recognised
– Exceptional tax expenses/(benefit) associated with previously unrecognised tax losses (Note 6)
– Exceptional tax (benefit) associated with the internal reorganisation of intangible assets (Note 6)
Change in provision for uncertain tax positions
Unremitted earnings
Prior year adjustments
Tax expense for the year
2020
$m
558
106
7
7
–
–
(3)
8
6
3
–
(8)
4
(2)
128
2019
$m
491
93
3
4
1
2
(2)
7
2
(49)
(48)
(14)
(4)
9
4
Profits taxed at different tax rates relates to profits arising in overseas jurisdictions where the tax rate differs from the UK statutory rate.
Permanent differences relate to items which are non-taxable or for which no tax relief is ever likely to be due. The major items are expenses and
income disallowed where they are covered by statutory exemptions, foreign exchange differences in some territories and statutory reliefs such as R&D.
In 2020, the R&D benefit is now presented in a separate line item due to its increasing relevance to the effective tax rate. The comparative figures were
reclassified to match the 2020 disclosure (in 2019, the R&D benefit of $2 million was split equally between the non-taxable income and the non-
deductible expenditure line items).
Rate change tax losses and other deductible temporary differences for which no benefit is recognised includes items for which it is not possible to
book deferred tax and comprise mainly unrecognised tax losses.
The exceptional tax benefit associated with previously unrecognised tax losses is a result of the internal reorganisation of intangible assets during 2019.
The exceptional tax benefit associated with the 2019 internal reorganisation of intangible assets is mainly due to a higher amortisable base resulting in
a higher estimated future tax deduction.
The change in provision for uncertain tax positions relates to the provisions the Group holds in the event of a revenue authority successfully taking an
adverse view of the positions adopted by the Group in 2020 and primarily relates to a transfer pricing adjustment. As at the consolidated balance sheet
date, the Group held an aggregate provision in the sum of $43 million (2019: $53 million) in respect of liabilities likely to arise from estimation uncertainties.
Hikma released $8 million in 2020 (2019: $9 million) due to the statute of limitations and released $4 million (2019: $12 million) following settlements. This
was offset by new provisions and updates of $4 million booked in 2020 (2019: $7 million). The currency exchange differences for the year is a $2 million
reduction to the aggregate provision. In 2021, up to $7 million could be released primarily on the same grounds. If all areas of uncertainty were audited and
all areas resulted with an adverse outcome, management does not believe any material additional tax would be payable beyond what is provided.
Prior year adjustments include differences between the tax liability recorded in the tax returns submitted for previous years and estimated tax
provision reported in a prior period’s consolidated financial statements. This category also includes adjustments (favourable or adverse) in respect of
uncertain tax positions.
Publication of tax strategy
In line with the UK requirement for large UK businesses to publish their tax strategy, Hikma’s tax strategy has been made available on the Group’s website.
140
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Deferred tax liabilities
Deferred tax assets
As at 31 December
2019
$m
(20)
2020
$m
(31)
221
190
243
223
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting years.
1 January 2019
Credit/(charge) to income
At 31 December 2019
Tax losses
$m
3
–
3
Deferred R&D
costs
$m
1
(1)
–
Other short-term
temporary
differences¹
$m
117
Amortisable
assets
$m
(11)
Fixed assets
$m
(2)
(3)
114
126
115
(8)
(10)
Share-based
payments
$m
1
–
1
Total
$m
109
114
223
The classification of the ending balances as of 31 December 2019 has been amended to enable more clarity and now presents more relevant categories
as shown below. The reconciliation between the categories used in 2019 and in 2020 is as follows:
Product related provision
Intangible assets
Other provisions and accruals
Unremitted earnings
Others
At 31 December 2019 and 1 January 2020
Tax losses
$m
–
Deferred R&D
costs
$m
–
Other short-term
temporary
differences
$m
96
–
–
–
3
3
–
–
–
–
–
–
20
(7)
5
114
Amortisable
assets
$m
Fixed assets
$m
–
99
–
–
16
115
–
–
–
–
(10)
(10)
Share-based
payments
$m
–
–
–
–
1
1
The below table represents the deferred tax movement in 2020 following the updated presentation:
1 January 2020
Credit/(charge) to income
Currency translation (loss) and hyperinflation impact
At 31 December 2020
Product
related
provision
$m
96
15
–
111
Intangible
assets
$m
99
Other
provisions
and accruals
$m
20
Unremitted
earnings
$m
(7)
(22)
(1)
76
(1)
(1)
18
(4)
–
(11)
Others
$m
15
(17)
(2)
(4)
Total
$m
96
99
20
(7)
15
223
Total
$m
223
(29)
(4)
190
1. The other deferred taxes on short-term temporary differences in 2019 primarily relate to chargebacks and product returns in the US of $51 million, inventory related provisions in the US of $18 million and
the unrealised intercompany profits of $17 million
The Group has a potential deferred tax asset of $258million (2019: $281 million), of which $221 million (2019: $243 million) has been recognised.
No deferred tax asset has been recognised on gross temporary differences totalling $171 million (2019: $170 million) mainly due to the unpredictability
of the related future profit streams. $168 million (2019: $161 million) of these gross temporary differences relate to losses on which no deferred tax is
recognised. In 2020 $nil million (2019: $92 million) of losses can no longer be carried forward under UK tax rules.
During 2020 an additional deferred tax liability has been recognised on temporary differences relating to the unremitted earnings of overseas
subsidiaries of $4 million (2019: $3 million). No deferred tax liability has been recognised on the remaining unremitted earnings of $239 million (2019:
$236 million), as the Group is able to control the timing of the reversal of these temporary differences and it is probable that they will not reverse in the
foreseeable future.
Deferred taxes on intangible assets relate to differences between the tax deductions and book deductions for intangible assets in the Group. The
credit to income in 2019 mainly arose as a result of the internal reorganisation of intangible assets which generated a higher amortisable base and
therefore resulting in a higher estimated future tax deduction.
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Hikma Pharmaceuticals PLC Annual Report 2020
141
141
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Financial statements
14. Dividends
16. Goodwill and other intangible assets
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2019 of 30.0 cents (31 December 2018: 26.0 cents) per share
Interim dividend during the year ended 31 December 2020 of 16.0 cents (31 December 2019: 14.0 cents) per share
Paid in
2020
$m
72
37
109
Paid in
2019
$m
63
34
97
The proposed final dividend for the year ended 31 December 2020 is 34.0 cents (2019: 30.0 cents).
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 23 April 2021 and has not been included as a
liability in these consolidated financial statements. Based on the number of shares in free issue at 31 December 2020 (230,458,116), the unrecognised
liability is $78 million.
15. Earnings per share (EPS)
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the parent by the weighted average number of Ordinary Shares.
Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders by the weighted average number of the Ordinary Shares outstanding
during the year plus the weighted average number of Ordinary Shares that would be issued on conversion of all dilutive potential Ordinary Shares into
Ordinary Shares. The number of Ordinary Shares used for the basic and diluted calculations is shown in the table below. Core basic earnings per share
and core diluted earnings per share are intended to highlight the core results of the Group before exceptional items and other adjustments.
2020
Exceptional
items and other
adjustments
(Note 6)
$m
2020
Core
results
$m
2020
Reported
results
$m
2019
Exceptional
items and other
adjustments
(Note 6)
$m
2019
Core
results
$m
2019
Reported
results
$m
Earnings for the purposes of basic and diluted EPS being
net profit attributable to equity holders of the parent
408
23
431
364
122
486
Basic earnings per share has been calculated by dividing the profit attributable to shareholders by the weighted average number of shares in issue
during the period after deducting shares held by the Employee Benefit Trust (EBT) and Treasury shares. The trustees have waived their rights to
dividends on the shares held by the EBT and Treasury shares have no right to receive dividends.
The numbers of shares used in calculating basic and diluted earnings per share are reconciled below:
Number of shares
Weighted average number of Ordinary Shares for the purposes of basic EPS1
Effect of dilutive potential Ordinary Shares:
Share-based awards
Weighted average number of Ordinary Shares for the purposes of diluted EPS
2020
Number
m
236
2
238
2019
Number
m
242
1
243
1. Weighted average number of ordinary shares has been calculated by the weighted average number of shares in issue during the period after deducting shares held by the EBT and Treasury shares (Note 32)
2020
Core
EPS
Cents
172.9
171.4
2020
Reported
EPS
Cents
182.6
181.1
2019
Core
EPS
Cents
150.4
149.8
2019
Reported
EPS
Cents
200.8
200.0
Basic
Diluted
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The changes in the carrying value of goodwill and other intangible assets for the years ended 31 December 2020 and 31 December 2019 are as follows:
Product-related
Goodwill
$m
intangibles
$m
Software
$m
Other identified
intangibles
$m
Cost
Balance at 1 January 2019
Additions
Translation adjustments
Balance at 1 January 2020
Additions
Disposals
Translation adjustments
Balance at 31 December 2020
Accumulated Amortisation & Impairment
Balance at 1 January 2019
Charge for the year
Impairment reversal
Impairment charge
Translation adjustments
Balance at 1 January 2020
Charge for the year
Disposals
Impairment reversal
Impairment charge
Translation adjustments
Balance at 31 December 2020
Carrying amount
At 31 December 2020
At 31 December 2019
687
–
3
690
–
–
7
697
(408)
–
–
–
–
(408)
–
–
–
–
–
1,015
17
1
1,033
8
–
–
1,041
(658)
(21)
21
(2)
–
(660)
(29)
–
66
(5)
(1)
(408)
(629)
289
282
412
373
130
18
(1)
147
12
(14)
–
145
(66)
(10)
–
(1)
2
(75)
(10)
14
–
(10)
–
(81)
64
72
Total
$m
1,962
89
3
2,054
36
(14)
12
130
54
–
184
16
–
5
205
2,088
(64)
(13)
(1,196)
(44)
–
–
–
(77)
(14)
–
–
–
(3)
(94)
111
107
21
(3)
2
(1,220)
(53)
14
66
(15)
(4)
(1,212)
876
834
Goodwill
Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (CGUs) that are expected to benefit from that
business combination. The carrying amount of goodwill has been allocated as follows:
Branded
Injectables
Total
As at 31 December
2019
$m
168
2020
$m
173
116
289
114
282
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Hikma Pharmaceuticals PLC Annual Report 2020
143
143
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Financial statements
16. Goodwill and other intangible assets continued
16. Goodwill and other intangible assets continued
In accordance with the Group policy, goodwill is tested annually for impairment during the fourth quarter or more frequently if there are indicators that
goodwill may be impaired.
Details related to the discounted cash flow models used in the impairment tests of the CGUs are as follows:
Valuation basis
Key assumptions
Value in use (VIU)
Sales growth rates, informed by pricing and volume assumptions
Profit margins and profit margin growth rates for marketed and pipeline products
Expected launch dates for pipeline products
Terminal growth rates
Discount rates
Determination of assumptions
Growth rates are internal forecasts based on both internal and external market information,
informed by historical experience and management’s best estimates of the future
Margins reflect past experience, adjusted for expected changes in the future
Terminal growth rates are based on the Group’s experience in its markets
Discount rates for CGU are derived from specific regions/countries, risk adjusted where appropriate
Period of specific projected cash flows
5 years, to which a terminal growth rate is then applied
Terminal growth rate and discount rate
Branded
Injectables
Generics
generic Advair Diskus®
Terminal
growth rate (perpetuity)
Pre-tax
discount rate
2020
2.4%
2.1%
2.3%
–¹
2019
2.8%
1.9%
1.6%
–¹
2020
16.6%
11.1%
12.7%
13.7%
2019
18.0%
13.0%
15.0%
17.7%
1. generic Advair Diskus® is expected to have a useful life of 11 years, as the asset is not in use, it is not currently being amortised
CGUs: The Group performed its annual goodwill and CGU impairment for the Branded, Injectables, Generics and generic Advair Diskus® CGUs.
The Group’s model is a VIU model based on the discounted value of the best estimates of the key assumptions to arrive at the recoverable value.
This value is then compared to the carrying value of the CGU to determine whether an impairment is required. In addition, the Group models
sensitivities on the VIU amounts calculated to determine whether reasonable changes in key assumptions could lead to a potential impairment.
If such reasonable changes results in an impairment, then in accordance with IAS36 these are disclosed below. For the Branded, Injectables and
Generics CGUs the Group has determined that sufficient headroom2 still exists under reasonable change scenarios. Specifically, an evaluation of the
CGUs was made assuming an increase of 2% in the discount rate, or a 10% decline in the projected cash flows, or a 5% decline in the projected cash
flows in the terminal year, or reducing the terminal growth rate by 2% and in all cases sufficient headroom exists.
The Group evaluated generic Advair Diskus® as a separate CGU, mainly due to its distinct assets and liabilities and its ability to generate largely
independent cash flows. The generic Advair Diskus® VIU was calculated using a probability weighted average of three scenarios.
In December 2020, the Group received FDA approval of generic Advair Diskus®. Launch has been temporarily paused while the FDA reviews an
amendment to the application, classified as a Prior Approval Supplement (PAS). The PAS does not affect the status of the Abbreviated New Drug
Application (ANDA) for generic Advair Diskus® The amendment reflects enhanced packaging controls to meet new industry standards adopted since
the initial submission of the ANDA application.
As of 31 December 2020, the Group performed sensitivity analysis over the valuation of the generic Advair Diskus® CGU. The sensitivity analysis
assumed a further delay of three months to the projected launch date and a 15% reduction in the projected cash flows from lower conversion rates
from the branded product and earlier competitor entries, which assumptions eroded the $26m of headroom. A further reduction of the cash flows by
an additional 10% would imply an impairment of about $10m. As per the Group’s policy, whilst approval has been obtained, generic Advair Diskus® has
not been launched, meaning that none of the previously identified indicators of impairment have reversed.
As at 31 December 2020, the Group had entered into contractual commitments for the acquisition of intangible assets of $nil million (2019: $5 million).
2. Headroom is defined as the excess of the value in use, over the carrying value of a CGU
Product-related intangible assets
In-Process Research and Development (IPR&D)
IPR&D consists of pipeline products of $170 million (2019: $182 million) mainly relating to generic Advair Diskus® of $138 million and Generics of
$25 million CGUs with immaterial amounts allocated to the Branded and Injectables CGUs. These intangibles are not in use and accordingly,
no amortisation has been charged against them. The Group performs an impairment review of IPR&D assets annually. The result of this test
was an impairment charge of $4 million (2019: $2 million).
Product rights
Whenever impairment indicators are identified for definite life intangible assets, Hikma reconsiders the asset’s estimated life, calculates the value of the
individual assets or asset group’s cash flows and compares such value against the individual asset’s or asset group’s carrying amount. If the carrying amount
is greater, the Group records an impairment loss for the excess of book value over the valuation which is based on the discounted cash flows by applying
an appropriate pre-tax WACC rate that reflects the risk factors associated with the cash flows and the CGUs under which these products sit. The more
significant estimates and assumptions inherent in the estimate of the value in use of identifiable intangible assets include all assumptions associated
with forecasting product profitability. Furthermore, if there is an indication that previously recognised impairment losses no longer exist or have decreased,
the Group estimates the assets’ recoverable amounts. A previously recognised impairment loss is reversed only if there has been a sustained and discrete
change in the assumptions and indicators used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal
is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been
determined, net of depreciation and amortisation, had no impairment loss been recognised for the asset in prior years. As at 31 December 2020, the result
of this testing was an impairment charge of $1 million (2019: $nil) and an impairment reversal of $66 million (2019: $21 million) related to specific product
related assets (Generics segment) due to improved performance and forecasted profitability, as a result of events including, but not limited to, improved
commercial terms, favorable market conditions and the speed of regulatory approvals.
A net reversal of $62 million was considered as an exceptional item related to product related intangibles acquired through a business combination
(Note 6 and 9).
Software
Software intangibles mainly represent the Enterprise Resource Planning solutions that are being implemented in different operations across the Group
in addition to other software applications. The software has an average estimated useful life that varies from three to ten years.
In 2020, the Group recorded an impairment charge of $10 million related to software (2019: $1 million).
Other identified intangibles
The Group has performed an impairment indicators on other identified intangibles and did not identify any issues.
Customer relationships
Customer relationships represent the value attributed to existing direct customers that the Group acquired on the acquisition of subsidiaries.
The customer relationships have an average estimated useful life of 15 years.
Trade names
Trade names were mainly recognised on the acquisition of Hikma Germany GmbH (Germany) and Promopharm with estimated useful lives of ten years.
Marketing rights
Marketing rights are amortised over their useful lives commencing in the year in which the rights are ready for use with estimated useful lives varying
from two to ten years.
144
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145
145
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Financial statements
17. Property, plant and equipment
18. Investments in joint ventures
Cost
Balance at 1 January 2019
Additions
Disposals
Transfers
Translation adjustment
Balance at 1 January 2020
Additions
Disposals
Transfers
Translation adjustment
Balance at 31 December 2020
Accumulated depreciation & impairment
Balance at 1 January 2019
Charge for the year
Disposals
Translation adjustment
Balance at 1 January 2020
Charge for the year
Disposals
Impairment
Translation adjustment
Balance at 31 December 2020
Carrying amount
At 31 December 2020
At 31 December 2019
Land is not subject to depreciation.
Land and buildings
$m
560
Machinery and
equipment
$m
625
Vehicles, fixtures
and equipment
$m
117
Projects under
construction
$m
231
7
(10)
34
6
597
6
(4)
28
9
636
(189)
(16)
6
–
(199)
(18)
4
(2)
(4)
(219)
417
398
12
(3)
48
3
685
20
(34)
83
7
761
(391)
(30)
2
(1)
(420)
(36)
32
(4)
(6)
(434)
327
265
7
(4)
3
2
125
8
(7)
3
1
130
(80)
(18)
3
(1)
(96)
(17)
7
–
(1)
(107)
23
29
88
–
(85)
(1)
233
136
–
(114)
–
255
(13)
–
–
–
(13)
–
–
–
–
(13)
242
220
Total
$m
1,533
114
(17)
–
10
1,640
170
(45)
–
17
1,782
(673)
(64)
11
(2)
(728)
(71)
43
(6)
(11)
(773)
1,009
912
As at 31 December 2020, the Group had pledged property, plant and equipment with a carrying value of $9 million (2019: $8 million) as collateral
for various long-term loans. This amount includes both specific items around the Group and the net property, plant and equipment of the Group’s
businesses in Tunisia (2019: Tunisia).
Depreciation of $57 million (2019: $48 million) is included in the cost of sales, $10 million (2019: $12 million) in selling general and administrative
expenses and $4 million (2019: $4 million) in research and development expenses.
As at 31 December 2020, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to
$60 million (2019: $21 million).
As at 31 December 2020, the Group booked an impairment charge of $6 million (2019: $nil), impairment charge of $3 million was considered as
exceptional item related to property, plant and equipment write off (Note 6 and 9).
The Group’s share in Hubei Haosun Pharmaceutical Co Ltd (China) was 49% at 31 December 2020 (31 December 2019: 49%) with an investment
balance of $9 million at 31 December 2020 (31 December 2019: $9 million). The Group’s share of the results of Hubei Haosun Pharmaceutical Co Ltd
is $nil (2019: $nil).
In 2017, Hikma and MIDROC Group agreed not to proceed with the HikmaCure Limited joint venture and to liquidate it. As part of the liquidation
process the joint venture granted two loans of $2 million each to the Group and MIDROC Group. In 2020, the liquidation process progressed and the
loans were settled against the initial investment amounts, liquidation is expected to be finalised in 2021.
Total investment in joint ventures including Hubei Haosun Pharmaceuticals Co Ltd and HikmaCure adds up to $9 million (2019: $11 million).
Balance at 1 January
Liquidation of HikmaCure
Balance at 31 December
For the year ended 31 December 2020
For the year ended 31 December 2019
Joint
ventures
$m
11
(2)
9
Total
$m
11
(2)
9
Joint
ventures
$m
11
–
11
Total
$m
11
–
11
Summarised financial information in respect of the Group’s interests in Hubei Haosun Pharmaceuticals Co Ltd is set out below:
Total assets
Total liabilities
Net assets
Group's share of net assets of joint ventures
Total revenue
Net profit
Group's share of profit of joint ventures
As at
31 December 2020
$m
19
(2)
17
8
As at
31 December 2019
$m
17
(2)
15
7
For the
year ended
31 December 2020
$m
6
For the
year ended
31 December 2019
$m
5
1
–
1
–
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Hikma Pharmaceuticals PLC Annual Report 2020
147
147
Financial statements
As at 31 December
2019
$m
637
2020
$m
662
58
35
1
756
49
31
2
719
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
19. Financial and other non-current assets
21. Trade and other receivables
Investments at FVTOCI
Other non-current assets
As at 31 December
2019
$m
18
2020
$m
25
14
39
14
32
Trade receivables
Prepayments
VAT and sales tax recoverable
Employee advances
Investments at FVTOCI include investments in 11 venture-backed start-up companies through the Group’s venture capital arm, Hikma International
Ventures and Developments LLC and Hikma Ventures Limited. During 2020, the venture arm invested $3 million in a new company, and increased
investment in existing ventures by $2 million. These investments are unlisted shares without readily determinable fair values that fall under level 3
valuation (Note 30), its value is measured at cost minus any impairment, and adjusted for observable price changes in orderly transactions for the
identical or a similar investment of the same issuer.
Other non-current assets mainly represent long term receivables and a sublease arrangement in US. In 2019 the amount mainly represented inventory
that was expected not to be sold within one year.
20. Inventories
Finished goods
Work-in-progress
Raw and packing materials
Goods in transit
Spare parts
Provision against Inventory1
2020
$m
283
95
394
44
33
(92)
757
As at 31 December
2019
$m
224
94
279
27
29
(85)
568
Inventories are stated net of provisions as follows:
Provisions against inventory in 2020
Provisions against inventory in 2019
As at
1 January
$m
85
72
Additions
$m
57
60
Utilisation
$m
(50)
(47)
As at
31 December
$m
92
85
The fair value of receivables is estimated to be equal to the carrying amount.
Trade receivables are stated net of provisions for chargebacks and expected credit loss allowance as follows:
Chargebacks and other allowances
Expected credit loss allowance1
1. Includes additions of $5 million and release of $2 million
As at
31 December
2019
$m
280
55
335
Additions/
(Releases), net
$m
1,865
2
Utilisation
$m
(1,889)
(1)
1,867
(1,890)
Translation
adjustments
$m
–
As at
31 December
2020
$m
256
(1)
(1)
55
311
More details on the Group’s policy for credit and concentration risk are provided in Note 30.
At 31 December 2020, the provision balance relating to chargebacks was $184 million (2019: $179 million) within what management believes is a reasonable
range for the provision of $181 million to $185 million. The key inputs and assumptions included in calculating this provision are estimations of ‘in channel’
inventory at the wholesalers (including processing lag) of 40 days (2019: 38 days) and the estimated chargeback rates as informed by average historical
chargeback credits adjusted for expected chargeback levels for new products and estimated future sales trends. Based on the conditions existing at the
balance sheet date an increase/decrease in the estimate of in channel inventory by 1 day increases/ decreases the provision by $5million and if the overall
chargeback rate of 55% increases/decreases by one percentage point the provision would increase/ decrease by $3 million.
At 31 December 2020 the provision balance relating to customer rebates was $57 million (2019: $88 million) within what management believes is a
reasonable range for the provision of $55 million to $57 million. The key inputs and assumptions included in calculating this provision are historical
relationships of rebates and payments to revenue, past payment experience, estimate of ‘in channel’ inventory at the wholesalers and estimated future
trends. Based on the conditions existing at the balance sheet date, a one percentage point increase/decrease in the rebates rate of 7.8% would
increase/decrease this provision by approximately $7 million.
1. The cost of inventory related provisions recognised as an expense in the cost of sales in the consolidated income statement was $57 million (2019: $60 million)
22. Collateralised and restricted cash
Collateralised and restricted cash amounted to $4 million (2019: $1 million) and mainly represent investment related amounts held in an escrow
account in relation to the US business (2019: mainly represent restricted cash retained against short-term bank transactions granted to the Group’s
Sudanese and Algerian operations).
23. Cash and cash equivalents
Cash at banks and on hand
Time deposits
Money market deposits
As at 31 December
2019
$m
94
2020
$m
85
203
35
323
309
39
442
Cash and cash equivalents include highly liquid investments with maturities of three months or less which are convertible to known amounts of cash
and are subject to insignificant risk of changes in value.
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149
148
148
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Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Financial statements
24. Other current assets
Investment at FVTPL
Others
As at 31 December
2019
$m
23
2020
$m
24
22
46
16
39
Investment at FVTPL represents the agreement the Group entered into with an asset management firm in 2015 to manage a $20 million portfolio
of underlying debt instruments. The investment comprises a portfolio of assets that are managed by an asset manager and is measured at fair value;
any changes in fair value go through the consolidated income statement. These assets are classified as level 1 as they are based on quoted prices in
active markets.
Others balance at 31 December 2020, mainly represent insurance compensation receivable of $10 million (Note 6) and revenue contract asset of $3 million.
25. Short-term financial debt
Bank overdrafts
Import and export financing
Short-term loans
Current portion of long-term loans (Note 29)¹
As at 31 December
2019
$m
6
2020
$m
3
67
47
41
158
52
2
509
569
2019
%
5.35
5.82
4.25
6.17
1 At April 2020, the Group settled a $500 million five-year Eurobond that was issued in 2015. The Group used the revolving credit facility (refer to Note 29) to settle the outstanding Eurobond
The weighted average effective interest rates incurred are as follows:
Bank overdrafts
Bank loans (including the non-current bank loans)
Eurobond2
Import and export financing3
2020
%
4.25
3.04
4.17
5.70
2. In 2020, the Eurobond effective interest comprised the 4.25% 2015 $500 million Eurobond settled in April 2020, and the 3.25% $500 million Eurobond issued in July. Noting that the Eurobond effective
interest rate includes unwinding of discount amount and upfront fees
3. Import and export financing represents short-term financing for the ordinary trading activities of the Group
26. Trade and other payables
Trade payables
Accrued expenses
Other payables
The fair value of payables are estimated to be equal to the carrying amount.
As at 31 December
2019
$m
286
2020
$m
279
175
16
470
173
14
473
150
150
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27. Other provisions
Other provisions represent the end of service indemnity provisions for employees of certain Hikma Group subsidiaries including some defined benefit
plans. This provision is calculated based on relevant laws in the countries where each Group company operates, in addition to their own policies.
For defined benefit plans changes in net liability due to actuarial valuations and changes in assumptions resulted in remeasurement loss of $1 million
(2019: $nil).
Movements on the provision for end of service indemnity:
1 January
Additions
Remeasurement of post-employment benefit obligations
Utilisation
At 31 December
28. Other current liabilities
Contract liabilities
Co-development and earnout payment (Note 30 and 31)
Supply manufacturing agreement
Acquired contingent liability (Note 31)
Contingent consideration (Note 30 and 31)
Indirect rebate and other allowances
Others
2020
$m
23
10
1
(6)
28
2019
$m
23
6
–
(6)
23
As at 31 December
2019
$m
142
2020
$m
162
2
–
18
13
74
21
290
1
5
15
63
61
28
315
Contract liabilities: the Group allows customers to return products within a specified period prior to and subsequent to the expiration date. In addition,
free goods are issued to customers as sale incentives, reimbursement of agreed upon expenses incurred by the customer or as compensation for
expired or returned goods.
At 31 December 2020, the provision balance relating to returns was $154 million (2019: $116 million) within what management believes is a reasonable
range for the provision of $153 million to $156 million. The key assumptions included in calculating this provision are estimations of revenue estimated
to be subject to returns and the estimated returns rate of 1.47% (2019: 1.3%) as informed by both historical return rates and consideration of specific
factors like product dating and expiration, new product launches, entrance of new competitors, and changes to contractual terms. Based on the
conditions existing at the balance sheet date, a ten basis point increase/decrease in the returns and allowances rate would increase/decrease this
provision by approximately $8 million.
Contract liabilities
As at
31 December 2019
$m
142
Additions
$m
127
Utilisation
$m
(107)
As at
31 December
2020
$m
162
Supply manufacturing agreement: the balance held in 2019 is related to the acquisition of the Columbus business, the Group entered into supply and
manufacturing contracts with the seller, Boehringer Ingelheim.
Indirect rebate and other allowances: mainly represents rebates granted to healthcare authorities and other parties under contractual arrangements
with certain indirect customers.
At 31 December 2020, provision balance relating to the indirect rebates was $55 million (2019: $42 million) within what management believes is a
reasonable range for the provision of $53 million to $56 million. Included within this balance are provisions for non-customer rebates of $14 million and
government rebates of $31 million. The key inputs and assumptions included in calculating this provision are historical relationships of rebates and
payments to revenue, past payment experience, estimate of ‘in channel’ inventory at the wholesalers and estimated future trends. Based on the
conditions existing at the balance sheet date, a one percentage point increase/decrease in rebates rate of 2.7% would increase/decrease this provision
by approximately $20 million.
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151
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Financial statements
29. Long-term financial debt
Long-term loans
Long-term borrowings (Eurobond)
Less: current portion of long-term loans (Note 25)
Long-term financial loans
Breakdown by maturity:
Within one year
In the second year
In the third year
In the fourth year
In the fifth year
In the sixth year
Thereafter
Breakdown by currency:
US dollar
Euro
Jordanian dinar
Algerian dinar
Saudi riyal
Tunisian dinar
As at 31 December
2019
$m
57
2020
$m
242
491
(41)
692
41
48
44
36
522
21
21
733
500
(509)
48
509
12
12
15
6
2
1
557
642
508
54
13
14
9
1
733
16
12
20
-
1
557
The loans are held at amortised cost.
Long-term loans amounting to $1 million (31 December 2019: $1 million) are secured on certain property, plant and equipment.
Major arrangements entered by the Group during the year were:
a) A syndicated revolving credit facility of $1,175 million was entered into on 27 October 2015. From the $1,175 million, $175 million matured on
24 December 2019, $130 million mature in January 2021 and the remaining $870 million was renewed until December 2023. At 31 December 2020
the facility has an outstanding balance of $nil (2019: $nil) and a $1,000 million unused available limit (2019: $1,000 million). The facility can be used
for general corporate purposes
b) A ten-year $150 million loan from the International Finance Corporation was entered into on 21 December 2017. There was full utilisation of the loan
since April 2020. Quarterly equal repayments of the long-term loan will commence on 15 March 2021. The loan was used for general corporate
purposes. The facility matures on 15 December 2027
c) At April 2020, the Group settled a $500 million five-year Eurobond that was issued in 2015
d) Hikma issued a $500 million (carrying value of $491 million, and fair value of $521 million) 3.25%, five-year Eurobond on 9 July 2020 with a rating
of (BBB-/Ba1) which is due in July 2025. The proceeds of the issuance were $494 million which were used for general corporate purposes
e) An eight-year $200 million loan from the International Finance Corporation and Managed Co-lending Portfolio program was entered into on
26 October 2020. There was no utilisation of the loan as of December 2020. The facility matures on 15 September 2028 and can be used for general
corporate purposes
At 31 December 2020, there were two covenants in place on the Group's revolving and banking facilities with which the Group was in compliance.
The Group also expects to be in compliance in the future.
152
152
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30. Financial policies for risk management and their objectives
Credit and concentration of risk
The Group’s principal financial assets are cash and cash equivalents, trade and other receivables, and investments.
The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the consolidated balance sheet are net of allowances
for expected credit loss, chargebacks, and other allowances. A provision for impairment is made based on expected credit losses which are estimated
based on previous experience, current events and forecasts of future conditions.
The credit risk on liquid investments is limited because the counterparties are banks with high credit ratings assigned by international
credit-rating agencies.
In line with local market practice, customers in the MENA region are offered relatively long payment terms compared to customers in Europe and the
US. During the year ended 31 December 2020, the Group’s largest two customers in the MENA region represented 6.2% of Group revenue, 4.1% from
one customer in Saudi Arabia, and 2.1% from another customer in Saudi Arabia. At 31 December 2020, the amount of receivables due from all
customers based in Saudi Arabia was $78 million (2019: $70 million).
During the year ended 31 December 2020, three key US wholesalers represented 35% of Group revenue (2019: 37%). The amount of receivables due
from all US customers at 31 December 2020 was $285 million (2019: $280 million).
The Group manages this risk through the implementation of stringent credit policies, procedures and certain credit insurance agreements.
Trade receivable exposures are managed locally in the operating units where they arise. Credit limits are set as deemed appropriate for the customer,
based on a number of qualitative and quantitative factors related to the creditworthiness of a particular customer. The Group is exposed to a variety
of customers ranging from government-backed agencies and large private wholesalers to privately owned pharmacies, and the underlying local
economic risks vary across the Group. Typical credit terms in the US range from 30 to 90 days, in Europe 30 to 120 days, and in MENA 180 to 360 days.
Where appropriate, the Group endeavours to minimise risk by the use of trade finance instruments such as letters of credit and insurance.
Trade receivables aged over one year increased compared to 31 December 2019, this reflects increased trade receivables due from governments and
public sectors which carry lower credit risk.
The following table provides a summary of the age of trade receivables (Note 21):
At 31 December 2020
Expected credit loss rate
Total trade receivables as at
31 December 2020
Related allowance for expected credit loss
Chargebacks and other allowances
Net receivables
AAtt 3311 DDeecceemmbbeerr 22001199
Expected credit loss rate
Total trade receivables as at
31 December 2019
Related allowance for expected credit loss
Chargebacks and other allowances
Net receivables
Not past due on
the reporting
Less than 90
Between 91 and
Between 181 and
Over one
Past due
date
$m
0%
780
–
(256)
524
days
$m
4%
75
(3)
–
72
180 days
$m
6%
360 days
$m
13%
17
(1)
–
16
16
(2)
–
14
year
$m
58%
85
(49)
–
36
Past due
Not past due on
the reporting
date
$m
0%
Less than 90
days
$m
0%
Between 91 and
180 days
$m
0%
788
–
(280)
508
71
–
–
71
12
–
–
12
Between 181 and
Over one
360 days
$m
14%
28
(4)
–
24
year
$m
70%
73
(51)
–
22
Total
$m
6%
973
(55)
(256)
662
Total
$m
6%
972
(55)
(280)
637
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153
153
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Financial statements
30. Financial policies for risk management and their objectives continued
30. Financial policies for risk management and their objectives continued
Market risk
The Group is exposed to foreign exchange and interest rate risks. The Group’s objective is to reduce, where it is appropriate to do so, fluctuations
in earnings and cash flow associated with changes in interest rates and foreign currency rates. Management actively monitors these exposures
to manage the volatility relating to these exposures by entering into a variety of derivative financial instruments, if needed.
Capital risk management
The Group manages its capital and monitors its liquidity to have reasonable assurance that the Group will be able to continue as a going concern and
deliver its growth strategy objectives, whilst reducing its cost of capital and maximising the return to shareholders through the optimisation of the debt
and equity mix. The Group regularly reviews the capital structure by considering the level of available capital and the short to medium-term strategic
plans concerning future capital spend, as well as the need to meet dividends, banking covenants, and borrowing ratios.
The Group defines capital as equity plus net debt which includes long and short-term financial debts (Note 25 and 29), lease liabilities (Note 34), net of
cash and cash equivalents (Note 23) and collateralised and restricted cash (Note 22). Group net debt excludes co-development and earnout
payments, acquired contingent liabilities and contingent consideration (Notes 28 and 31).
During the year, the Group continued its strategy of obtaining debt financing at both the Group level and at the operating entities level. This enables
the Group to borrow at competitive rates and to build relationships with local, regional and international banks and is therefore deemed to be the most
effective means of raising finance, while maintaining the balance between borrowing cost, asset and liability management, and consolidated balance
sheet currency risk management.
In order to monitor the available net funds, management reviews financial capital reports on a monthly basis, in addition to the continuous review by
the Group treasury function.
At 31 December 2020, the Group’s gearing ratio (total debt/equity) was 43% (2019: 32%). The increase in the Group’s gearing ratio is due to the share
buyback which resulted in a reduction in equity and an increase in borrowing in order to finance the share buyback (Note 32).
Cash management
The Group manages the deployment of cash balances to predefined limits approved by the Board of Directors under the cash/risk management
policy. Per the policy, the Group’s excess cash should be held with highly rated global and regional financial institutions. The aim of the policy is to
mitigate the risk of holding cash in certain currencies, countries and financial institutions, through a specific threshold. The Group reviews the policy
periodically to meet its risk appetite.
Foreign exchange risk and currency risk
The Group uses the US dollar as its reporting currency and is therefore exposed to foreign exchange movements primarily in the Euro, Algerian dinar,
Sudanese pound, Japanese yen, Egyptian pound, Tunisian dinar, Lebanese pound and Moroccan dirham. Consequently, where possible, the Group
enters into various contracts, which change in value as foreign exchange rates change, to hedge against the risk of movement in foreign denominated
assets and liabilities. Due to the lack of open currency markets, the Algerian dinar, the Sudanese pound, the Tunisian dinar, the Moroccan dirham and
the Egyptian pound cannot be hedged at reasonable cost. Where possible, the Group uses financing facilities denominated in local currencies to
mitigate the risks. The Jordanian dinar and the Saudi riyal had no impact on the consolidated income statement as those currencies are pegged
against the US dollar.
Lebanon and Sudan were considered to be hyperinflationary economies in the year ended 31 December 2020. When translating their results
of operations into US dollars, assets, liabilities, income statement and equity accounts are translated at the rate prevailing on the balance sheet date.
For the Lebanese pound, the rate at 31 December 2020 was 1,507.5 Lebanese pound per US dollar. For Sudanese pound, the official exchange rate as
at 31 December 2020 was 55.275 Sudanese pound per US dollar, however due to lack of exchangeability of foreign currencies in Sudan during 2020 the
Group has determined the rate of 120.0 instead of the official rate for translating Sudanese operations, being the rate to which the Group had access to
settle certain transactions at the end of the reporting period through the legal exchange mechanism with the Sudanese government.
Currency risks, as defined by IFRS 7, arise on account of financial instruments being denominated in a currency that is other than the functional
currency of an entity and being of a monetary nature.
The currencies that have a significant impact on the Group accounts and the exchange rates used are as follows:
US dollar /Euro
US dollar /Sudanese pound ¹
US dollar /Algerian dinar
US dollar /Saudi riyal
US dollar /Pound sterling
US dollar /Jordanian dinar
US dollar /Egyptian pound
US dollar /Japanese yen
US dollar /Moroccan dirham
US dollar /Tunisian dinar
US dollar /Lebanese pound
2020
0.8239
120.000
132.2116
3.7495
0.7313
0.7090
15.6643
103.200
8.9048
2.7047
1,507.5000
Period-end rates
2019
0.8915
45.2284
119.1468
3.7495
0.7551
0.7090
15.9770
109.0193
9.5932
2.7988
1,507.5000
2020
0.8760
–¹
126.7988
3.7495
0.7792
0.7090
15.7452
106.770
9.5017
2.8124
–2
Average rates
2019
0.8936
–¹
119.3798
3.7495
0.7833
0.7090
16.7280
108.6500
9.6176
2.9360
1,507.5000
1. In both years, Sudan has been a hyperinflationary economy and Sudanese operations were translated using period end rate
2. In 2020, Lebanon has been a hyperinflationary economy and Lebanese operations were translated using period end rate
2020
Functional currency of entity:
– Jordanian dinar
– Euro
– Algerian dinar
– Saudi riyal
– Sudanese pound
– Egyptian pound
– Tunisian dinar
– Moroccan dirham
– Lebanese pound
– US dollar
1. Others include Saudi riyal, Jordanian dinar and Pound sterling
2019
Functional currency of entity:
– Jordanian dinar
– Euro
– Algerian dinar
– Saudi riyal
– Sudanese pound
– Egyptian pound
– Tunisian dinar
– Moroccan dirham
– Lebanese pound
– US dollar
1. Others include Saudi riyal, Jordanian dinar and Pound sterling
US dollar
$m
Net foreign currency financial assets/(liabilities)
Others¹
Euro
$m
$m
Japanese yen
$m
279
32
(5)
7
(26)
(14)
1
(4)
(4)
–
266
US dollar
$m
151
26
(4)
29
(2)
(11)
(1)
(4)
(3)
–
181
12
–
–
(5)
–
–
1
(5)
(1)
3
5
(6)
–
–
–
–
–
–
–
–
–
(6)
7
–
–
–
–
–
2
–
3
2
14
Net foreign currency financial assets/(liabilities)
Others¹
$m
Japanese yen
$m
Euro
$m
21
–
(1)
(2)
–
–
2
(5)
–
1
16
(5)
–
–
(1)
–
–
–
–
–
–
(6)
13
–
–
–
–
–
1
–
(4)
1
11
154
154
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155
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Financial statements
30. Financial policies for risk management and their objectives continued
30. Financial policies for risk management and their objectives continued
A sensitivity analysis based on a 10% movement in foreign exchange rates would result in a $28 million translational increase/decrease on the
Group results.
The Group sets certain limits on liquid funds per currency (other than the US dollar) and per country.
Interest rate risk
Financial liabilities
Interest-bearing loans and borrowings
Lease liabilities
Financial assets
Cash and cash equivalents
Fixed rate
$m
As at 31 December 2020
Total
$m
Floating rate
$m
Fixed rate
$m
As at 31 December 2019
Total
$m
Floating rate
$m
704
82
146
–
850
82
513
68
104
–
617
68
–
238
238
–
348
348
An interest rate sensitivity analysis assumes an instantaneous 1% change in interest rates in all currencies from their levels at 31 December 2020, with
all other variables held constant. Based on the composition of the Group’s net debt portfolio as at 31 December 2020, a 1% increase/decrease in
interest rates would result in $1 million decrease/increase in net finance cost per year (2019: $2 million increase/decrease).
As at 31 December 2020, approximately 5% ($47 million) of the Group’s utilised debt portfolio as well as $1,314million of the Group’s unutilised debt facilities,
have USD LIBOR as the benchmark interest rate. the unutilised debt facilities relates to the Group’s syndicated revolving credit facility of $1,000 million.
The Group has no outstanding interest rate hedges. The replacement of benchmark interest rates such as LIBOR and other interbank offered rates (IBORs)
is a priority for global regulators and is expected to be largely completed in 2021. Further amendments (Phase 2) were issued on 27 August 2020 and the
Group will apply these in 2021. We are currently in the process of fully identifying the Group’s USD LIBOR exposure, and we are following the market
developments surrounding LIBOR's replacement.
Fair value of financial assets and liabilities
The fair value of financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale.
The following financial assets/liabilities are presented at their carrying value which approximates to their fair value:
—
—
— Cash at bank and on hand, time deposit and collateralised and restricted cash – due to the short-term maturities of these financial instruments
and given that generally they have negligible credit risk, management considers the carrying amounts to be not significantly different from their
fair values
Short-term loans and overdrafts approximates to their fair value because of the short maturity of these instruments
Long-term loans –loans with variable rates are re-priced in response to any changes in market rates and so management considers the carrying
amount to be not significantly different from their fair market value
Loans with fixed rates relate mainly to the $500 million (carrying value of $491 million, and fair value of $521 million) Eurobond accounted through
amortised cost. The fair value is determined with reference to a quoted price in an active market as at the balance sheet date (Note 29). For the
remaining fixed loans exposures, fair value is estimated by discounting future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining maturities of such loans
Receivables and payables – the fair values of receivables and payables are estimated to be not significantly different from the respective
carrying amounts
—
—
Management classifies items that are recognised at fair value based on the level of inputs used in their fair value determination as described below:
—
—
—
Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Inputs that are observable for the asset or liability
Level 3: Inputs that are not based on observable market data
Financial assets and liabilities that fall under Level 1 are:
Investment at FVTPL amounted to $24 million (Note 24)
—
— Money market deposit (Note 23)
Financial assets and liabilities that fall under Level 3 are:
The following table presents the changes in Level 3 items for the year ended 31 December 2020 and the year ended 31 December 2019:
1 January 2019
Received/settled, net
Remeasurement through income statement
Additions
Fair value adjustments recognised in equity
Balance at 31 December 2019 and 1 January 2020
Settled
Remeasurement through income statement
Additions
Fair value adjustments recognised in equity
Balance at 31 December 2020
Financial
assets
$m
49
(40)
7
4
(2)
18
–
–
5
2
25
Financial
liabilities
$m
214
(1)
(35)
–
–
178
(61)
(23)
–
–
94
The remeasurement through the income statement is included within the finance income/expense in the consolidated income statement.
The critical areas of judgement and estimates in relation to the contingent consideration are the probabilities assigned to reaching the success-based
milestones and management’s estimate of future sales (Note 28 and 31).
If the future sales were 5% higher or lower, the fair value of the contingent consideration will increase/decrease by $4 million (Note 28 and 31).
If the probability assigned to reaching the success-based milestones were 5% higher or lower, the fair value of the contingent consideration will
increase/decrease by $1 million (Note 28 and 31).
Liquidity risk
2020
Cash and cash equivalents
Trade receivables
Interest-bearing long term loans and borrowings¹
Interest-bearing short term loans and borrowings¹
Interest-bearing overdrafts¹
Interest-bearing import and export loans¹
Interest bearing finance lease¹
Trade payables and accruals
2019
Cash and cash equivalents
Trade receivables
Interest-bearing long term loans and borrowings¹
Interest-bearing short term loans and borrowings¹
Interest-bearing overdrafts¹
Interest-bearing import and export loans¹
Interest bearing finance lease¹
Trade payables and accruals
Less than one
year
$m
323
One to five
years
$m
–
More than five
years
$m
–
662
(64)
(47)
(2)
(69)
(10)
(454)
339
–
(728)
–
–
–
(49)
–
(777)
–
(42)
–
–
–
(49)
–
(91)
Less than one
year
$m
442
One to five
years
$m
–
More than five
years
$m
–
637
(522)
(2)
(2)
(57)
(9)
(459)
28
–
(48)
–
–
–
(52)
–
(100)
–
(3)
–
–
–
(26)
–
(29)
Total
$m
323
662
(834)
(47)
(2)
(69)
(108)
(454)
(529)
Total
$m
442
637
(573)
(2)
(2)
(57)
(87)
(459)
(101)
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157
— Co-development and earnout payment liabilities (Note 28 and 31)
— Contingent consideration liability resulting from the acquisition of the Columbus business (Notes 28 and 31)
—
Investment at FVTOCI (Note 19)
1. As these are interest bearing liabilities, expected interest expense have been included in the balance
156
156
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Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Financial statements
30. Financial policies for risk management and their objectives continued
33. Non-controlling interests
The Group regularly monitors all cash, cash equivalents and debt to maintain liquidity needs, this is done by analysing debt headroom and expected
cash flows. The Group seeks to be proactive in its liquidity management to avoid any adverse liquidity effect.
At 31 December 2020, the Group had undrawn facilities of $1,549 million (2019: $1,544 million). Of these facilities, $1,286 million (2019: $1,230 million)
were committed and the remainder were uncommitted.
31. Other non-current liabilities
Contingent consideration (Note 28 and 30)
Acquired contingent liability (Note 28)
Co-development and earnout payment (Note 28 and 30)
Others
As at 31 December
2019
$m
111
2020
$m
76
80
3
5
164
83
3
6
203
Contingent consideration and acquired contingent liability represent contractual liability to make payments to third parties in the form of milestone
payments that depend on the achievement of certain US FDA approval milestones; and royalty payments based on future sales of certain products that
are currently under development. These liabilities were recognised as part of the Columbus business acquisition. In 2020, $15 million (2019: $78 million) of
this balance was reclassified to other current liabilities (See Note 30 for sensitivity analysis).
32. Share capital
Issued and fully paid – included in shareholders’ equity:
At 31 December
Number
243,332,180
2020
$m
41
Number
242,319,174
2019
$m
41
At 31 December 2020, of the issued share capital, 12,833,233 are held as Treasury shares, 40,831 shares are held in the Employee Benefit Trust (EBT)
and 230,458,116 shares are in free issue.
Own Shares
Treasury Shares
On 23 June 2020, Hikma bought back 12,833,233 of its own shares previously held by Boehringer Ingelheim GmbH (BI) for £23.00/share ($28.76/share).
These shares are held as ‘treasury shares’. The voting rights attached to the treasury shares are not capable of exercise. Hikma also received a commitment
fee of 2% of the aggregate value of the buyback shares acquired at the buyback price from BI. Hikma paid £295 million ($369 million) for the share buyback
and received £5.9 million ($7.3 million) from BI for the commitment fees. Hikma also incurred $6 million of transaction costs related to legal fees, financial
advisory fees and UK stamp duty bringing the total book value to $368 million, the market value at 31 December 2020 was $442 million. The buyback and
related transaction costs and commitment fee were accounted for as equity transactions.
Shares held in EBT
EBT of Hikma holds 40,831 (2019: 40,831) Ordinary Shares in the Company. The trustee of the EBT is Apex Financial Services (Trust Company) Limited
an independent trustee. The market value of the Ordinary Shares held in the EBT at 31 December 2020 was $1 million (2019: $1 million). The book value
of the retained own shares at 31 December 2020 are $0.6 million (2019: $0.6 million). The Ordinary Shares held in the EBT will be used to satisfy long-
term commitments arising from the employee share plans operated by the Company.
158
158
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At 1 January
Share of (losses)/profits
Dividends paid
Currency translation gain
At 31 December
34. Leases
The carrying amounts of right-of-use assets recognised and the movements during the year:
As at 1 January 2019
Additions/Adjustments
Depreciation expense
As at 31 December 2019 and 1 January 2020
Additions
Sub-lease reclassification to financial and other non-current assets (Note 19)
Impairment charge
Depreciation expense
As at 31 December 2020
The carrying amounts of lease liabilities and the movements during the year:
As at 1 January
Additions
Accretion of interest
Payments
As at 31 December
Current
Non-current
The maturity analysis of lease liabilities:
Breakdown by maturity:
Within one year
In the second year
In the third year
In the fourth year
In the fifth year
In the sixth year
Thereafter
2020
$m
12
(1)
(1)
3
13
Buildings
$m
50
Vehicles
$m
3
Machinery and
Equipment
$m
2
(1)
(6)
43
19
(4)
(1)
(7)
50
5
(2)
6
6
–
–
(4)
8
–
(1)
1
–
–
–
–
1
2020
$m
68
24
4
(14)
82
10
72
2020
$m
10
6
6
24
4
2
30
82
2019
$m
12
1
(2)
1
12
Total
$m
55
4
(9)
50
25
(4)
(1)
(11)
59
2019
$m
72
4
4
(12)
68
9
59
2019
$m
9
8
6
5
23
3
14
68
At 31 December 2020, lease liabilities included optional extension periods amounting to $13 million (2019: $8 million).
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159
159
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Financial statements
34. Leases continued
The following are the amounts recognised in the consolidated income statement:
Depreciation expense of right-of-use assets
Impairment charge on right-of-use assets
Interest expense on lease liabilities
Expense relating to short-term leases
Total amount recognised in the consolidated income statement
35. Net cash generated from operating activities
Profit before tax
Adjustments for:
Depreciation, amortisation, impairment, and write-down of:
Property, plant and equipment
Intangible assets
Right of Use of Assets
Gain from investment at FVTPL
Loss from investment divestiture
Loss on disposal/damage of property, plant and equipment
Movement on provisions
Cost of equity-settled employee share scheme
Finance income
Interest and bank charges
Foreign exchange loss and net monetary hyperinflation impact
Cash flow before working capital
Change in trade and other receivables
Change in other current assets
Change in inventories
Change in trade and other payables
Change in other current liabilities
Change in other non-current liabilities
Cash generated from operations
2020
$m
(11)
(1)
(4)
(1)
(17)
2020
$m
558
77
2
12
(1)
–
2
4
27
(47)
69
30
733
(47)
(14)
(180)
6
41
(14)
525
2019
$m
(9)
–
(4)
(1)
(14)
2019
$m
491
64
26
9
(2)
4
3
–
24
(66)
67
4
624
21
(2)
(25)
(6)
50
(82)
580
160
160
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36. Contingent liabilities
Guarantees and letters of credit
A contingent liability existed at the balance sheet date in respect of external guarantees and letters of credit totalling $41 million (31 December 2019:
$40 million) arising in the normal course of business. No provision for these liabilities has been made in these consolidated financial statements.
A contingent liability existed at the balance sheet date for a standby letter of credit totalling $8 million (2019: $9 million) for potential stamp duty obligation
that may arise for repayment of a loan by intercompany guarantors. It’s not probable that the repayment will be made by the intercompany guarantors.
Legal proceedings
The Group is involved in a number of legal proceedings in the ordinary course of its business, including actual or threatened litigation and actual or
potential government investigations relating to employment matters, product liability, commercial disputes, pricing, sales and marketing practices,
infringement of IP rights, the validity of certain patents and competition laws.
Most of the claims involve highly complex issues. Often these issues are subject to substantial uncertainties and, therefore, the probability of a loss,
if any, being sustained and/or an estimate of the amount of any loss is difficult to ascertain. It is the Group’s policy to accrue for amounts related to
these legal matters if it is probable that a liability has been incurred and an amount is reasonably estimable. Unless specifically identified below that
a provision has been taken, the Group does not believe sufficient evidence exists at this point to make any provision.
—
—
—
In 2018, the Group received a civil investigative demand from the US Department of Justice requesting information related to products, pricing
and related communications. In 2017, the Group received a subpoena from a US state attorney general and a subpoena from the US Department
of Justice. Hikma denies having engaged in any conduct that would give rise to liability with respect to these demands but is cooperating with all
such demands. Management does not believe sufficient evidence exists at this point to make any provision for this currently.
Starting in 2016, several complaints have been filed in the United States on behalf of putative classes of direct and indirect purchasers of generic
drug products, as well as several individual direct purchasers opt-out plaintiffs (including two products). These complaints, which allege that the
defendants engaged in conspiracies to fix, increase, maintain and/or stabilise the prices of the generic drug products named, have been brought
against Hikma and various other defendants. The plaintiffs generally seek damages and injunctive relief under federal antitrust law and damages
under various state laws. Hikma denies having engaged in conduct that would give rise to liability with respect to these civil suits and is vigorously
pursuing defense of these cases. Management does not believe sufficient evidence exists at this point to make any provision for this currently.
Starting in June 2020, several complaints have been filed in the United States on behalf of putative classes of direct and indirect purchasers of
Xyrem® against Hikma and other defendants. These complaints allege that the Jazz Pharmaceuticals PLC and its subsidiaries entered into
unlawful reverse payment agreements with each of the defendants, including Hikma, in settling patent infringement litigation over Xyrem®. The
plaintiffs in these lawsuits seek treble damages and a permanent injunction. Hikma denies having engaged in conduct that would give rise to
liability with respect to these lawsuits and is vigorously pursuing defence of these cases. Management does not believe sufficient evidence exists
at this point to make any provision for this currently.
— Numerous complaints have been filed with respect to Hikma's sales and distribution of opioid products. Those complaints now total
approximately 661 in number. These lawsuits have been filed against distributors, branded pharmaceuticals manufacturers, pharmacies,
hospitals, generic pharmaceuticals manufacturers, individuals, and other defendants by a number of cities, counties, states, other governmental
agencies and private plaintiffs in both state and federal courts. Most of the federal cases have been consolidated into a multidistrict litigation in
the Northern District of Ohio. These cases assert in general that the defendants allegedly engaged in improper marketing and distribution of
opioids and that defendants failed to develop and implement systems sufficient to identify suspicious orders of opioid products and prevent the
abuse and diversion of such products. Plaintiffs seek a variety of remedies, including restitution, civil penalties, disgorgement of profits, treble
damages, attorneys' fees and injunctive relief. Hikma denies having engaged in conduct that would give rise to liability with respect to these civil
suits and is vigorously pursuing defense of these cases. Management does not believe sufficient evidence exists at this point to make any
provision for this currently.
In October 2020, Hikma received a voluntary request for information from the US Federal Trade Commission requesting information related to its
investigation into whether Amarin Pharma, Inc. has engaged in, or is engaging in, anticompetitive practices or unfair methods of competition relating
to the drug Vascepa®. In October 2020, Hikma also received a subpoena duces tecum from the State of New York, Office of the Attorney General,
seeking information relevant and material to an investigation related to Amarin Pharma, Inc. Hikma is cooperating with all such demands.
In March 2020, Hikma entered into an agreement settling a patent litigation between it and Micro Labs USA Inc. Hikma initiated the lawsuit against
Micro Labs in the U.S. District Court for the District of Delaware after Micro Labs submitted a Paragraph IV Notice Letter advising that it has submitted
an Abbreviated New Drug Application to the U.S. Food and Drug Administration seeking authorization from the FDA to manufacture, use or sell a
generic version of Mitigare® colchicine 0.6 mg capsules in the United States. The specific terms of the settlement agreement are confidential.
—
—
Tax
On 25 April 2019, the European Commission released its decision that certain tax exemptions offered by the UK authorities could constitute State Aid
and where this is the case, the relevant tax will need to be paid to the UK tax authorities. The UK Government has subsequently appealed against this
decision. In common with other UK headquartered international companies whose arrangements were in line with current UK CFC legislation, Hikma
may be affected by the outcome of this decision and has estimated the maximum potential liability to be approximately $2.4 million. Hikma has also
filed it’s own appeal at the CJEU and is in correspondence with HMRC. To data, based on management’s understanding of legislation and professional
advice taken on the matter, management does not believe that a provision is warranted.
Hikma Pharmaceuticals PLC | Annual Report 2020
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161
161
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Financial statements
37. Share-based payments
37. Share-based payments continued
Executive incentive plan
The 2014 Executive Incentive Plan (EIP) was approved by shareholders at the 2014 Annual General Meeting. The EIP is a combined cash bonus
(element A), deferred shares (element B) and restricted shares (element C) scheme. Under the EIP, the Company makes grants of conditional awards
under elements B and C to the Executive Directors and senior executives of the Group. Awards under all elements are dependent on the achievement
of individual and Group KPIs over one year prior to grant. The shares awarded under element B are not released for a period of two years during which
they are subject to forfeiture conditions. The shares awarded under element C are not released for a period of three years, but are not subject to a
forfeiture condition. Members of the Executives Committee must retain 100% of the shares received from elements B and C for a period of five years
from the date of grant.
2020
grants
27 Feb
2020
grants
27 Feb
2019
grants
17 May
2019
grants
2019
grants
12 March 12 March
2018
grants
7 June
2018
grants
16 May
2017
grants
11 May
2016
grants
11 May
2016
grants
17 March
2015
grants
10 April
Total
Number
–
184,355
–
561,994
–
–
(11,249)
(29,242)
246,076
280,529 313,288
–
–
–
–
–
–
–
503,460
–
(362,976)
196,918
–
(146,811)
51,350
–
–
18,171
–
(5,000)
13,171
1,633,816
24,024
–
746,349
(12,012) (567,290)
1,812,875
12,012
Outstanding at 31 December
184,355
550,745
216,834
280,529 313,288
– 140,484
50,107
51,350
Exercisable at 31 December
–
–
–
–
–
–
26,982
50,107
13,171
51,350
12,012
153,622
2.16
1.16
0.38
1.19
0.19
–
7.38
6.36
5.36
5.21
4.28
1.80
2019
grants
2019
grants
17 May
–
2019
grants
12 March 12 March
–
246,076 280,529 313,288
–
2018
grants
7 June
28,818
–
–
–
246,076 280,529
–
–
313,288
–
–
(28,818)
2018
2017
grants
grants
16 May
11 May
553,741 548,046
–
(50,281) (351,128)
196,918
– 36,630
–
– 503,460
–
2016
grants
11 May
30,115
–
2016
grants
17 March
212,403
–
(11,944) (161,053)
51,350
18,171
51,350
18,171
Total
Number
1,397,147
2015
grants
10 April
24,024
–
839,893
– (603,224)
24,024 1,633,816
130,175
24,024
Year 2020
Beginning balance
Granted during the year
Exercised during the year
Weighted average remaining
contractual life (years)
Year 2019
Beginning balance
Granted during the year
Exercised during the year
Outstanding at 31 December
Exercisable at 31 December
Weighted average remaining
contractual life (years)
The cost of the EIP of $18 million (2019: $15 million) has been recorded in the consolidated income statement as part of general and administrative
and sales and marketing expenses.
The fair value per share is the face value of shares on the date of grant less the present value of dividends expected to be paid during the vesting
period. Valuation is based on Black-Scholes methodology for nil-cost options.
The weighted average share price for 2020 is $30.24 (2019: $23.24).
EIP 1
EIP 2
EIP 3 B
EIP 3 C
EIP 4
EIP 5 B
EIP 5 C
EIP 6 B
EIP 6 C
EIP 7
EIP7 B
EIP7 C
EIP8
EIP9
EIP10 B
EIP10 C
Date of
grants
Number
granted
10/04/2015
338,808
15/05/2015
118,000
17/03/2016
242,608
17/03/2016
206,267
11/05/2016
13/04/2017
13/04/2017
16/05/2018
16/05/2018
07/06/2018
12/03/2019
165,553
428,528
184,741
440,231
113,456
28,818
313,288
12/03/2019
208,529
17/05/2019
246,076
12/03/2019
72,000
27/02/2020
27/02/2020
561,994
184,355
The estimated
fair value of
each share
option granted
$
32.78
The share price
at grant date
$
33.24216
32.42
26.21
26.21
31.69
23.52
23.29
18.45
18.14
17.89
21.00
20.63
21.41
20.63
24.10
23.703
33.11449
26.97918
26.97918
32.15333
23.97771
23.97771
19.09082
19.09082
18.83410
21.75408
21.75408
22.17868
21.75408
24.91051
24.91051
1.38
2.20
1.20
–
8.38
7.36
6.36
6.21
5.28
4.63
The exercise price of the share award is $nil.
Management incentive plan
The 2009 Management Incentive Plan (MIP) was approved by shareholders at the 2010 Annual General Meeting and the 2018 MIP was approved by
shareholders at the 2018 annual general meeting. Under the MIP, the Company makes grants of conditional awards to management across the Group
below senior management level. Awards are dependent on the achievement of individual and Group KPIs over one year and are then subject to a two-
year holding period.
Details of the grants under the plan are shown below:
Year 2020
Outstanding at 1 January
Granted during the year
Exercised during the year
Expired during the year
2020 grants
27 Feb
Number
–
2019 grants
17 May
Number
408,243
381,546
(776)
(2,857)
–
(6,832)
(7,148)
Outstanding at 31 December
377,913
394,263
–
(376,560)
(6,865)
17,445
2018 grants
16 May
Number
400,870
2017 grants
19 May
Number
36,990
2016 grants
11 May
Number
8,254
–
2015 grants
14 May
Number
8,854
2014 grants
11 June
Number
5,890
2013 grants
17 May
Number
3,013
–
Total
Number
872,114
381,546
–
–
–
–
–
–
–
–
–
–
–
36,990
8,254
8,854
5,890
3,013
–
–
(384,168)
(16,870)
852,622
162
162
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Hikma Pharmaceuticals PLC Annual Report 2020
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Weighted average remaining
contractual life (years)
1.16
0.38
7.38
6.38
5.36
4.37
3.45
2.38
1.24
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163
163
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Financial statements
37. Share-based payments continued
Year 2019
Outstanding at 1 January
Granted during the year
Exercised during the year
Expired during the year
Outstanding at 31 December
Weighted average remaining
contractual life (years)
2019 grants
17 May
Number
–
436,107
(4,189)
(23,675)
408,243
2018 grants
16 May
Number
2017 grants
19 May
Number
436,362 238,466
–
(22,666) (200,631)
(12,826) (845)
400,870 36,990
2016 grants
11 May
Number
8,254
–
–
–
8,254
2015 grants
14 May
Number
10,563
–
(1,709)
–
8,854
2014 grants
11 June
Number
8,149
–
(2,259)
–
5,890
–
2013 grants
17 May
Number
4,787
–
Total
Number
706,581
436,107
(1,774) (233,228)
(37,346)
–
3,013
872,114
1.38
8.38
7.39
6.36
5.37
4.45
3.38
4.97
The cost of the MIP of $9 million (2019: $9 million) has been recorded in the consolidated income statement as part of general and administrative,
sales and marketing, cost of sales and research and development expenses.
The fair value per share is the face value of shares on the date of grant less the present value of dividends expected to be paid during the vesting
period. Valuation is based on Black-Scholes methodology for nil-cost options.
The weighted average share price for 2020 is $30.24 (2019: $23.24).
MIP 1
MIP 2
MIP 3
MIP 4
MIP 5
MIP 6
MIP 7
MIP 8
MIP 9
MIP 10
MIP 11
MIP 12
Date of
grants
Number
granted
19/03/2009
28/03/2010
11/05/2011
18/05/2012
17/05/2013
11/06/2014
11/05/2015
11/05/2016
19/05/2017
16/05/2018
17/05/2018
27/02/2020
340,000
147,561
356,894
412,056
252,482
225,904
145,918
196,373
273,724
443,288
436,107
381,546
The estimated
fair value of
each share
option granted
$
4.89
9.15
12.96
9.47
14.61
27.73
32.17
31.73
22.09
18.45
21.41
24.10
The share price
at grant date
$
5.11
Expected
dividends
yield
%
1.47
9.36
13.23
9.72
14.93
28.33
32.63
32.20
22.54
19.09
22.18
24.91
1.15
1.00
1.29
1.10
0.71
0.71
0.73
1.01
1.71
1.79
1.67
The exercise price of the share award is $nil.
Long-term incentive plan
The 2007 long-term incentive plan (LTIP) was approved by shareholders at the 2007 Annual General Meeting and the last grant was made under the LTIP
during the year ended 31 December 2014. The LTIP is settled by equity instruments, with 15 separate grant dates. Under the LTIP, conditional awards and
$nil cost options were granted which vest after three years’ subject to a total shareholder return (TSR), revenue growth, earnings per share and return on
invested capital performance conditions. The TSR condition measures the Group’s TSR relative to a comparator group of other pharmaceutical companies.
The TSR vesting schedule dictates that 20% of awards vest for median performance and 100% for upper quartile performance with pro-rata vesting in
between these points. No awards vest for performance, which is below the median.
37. Share-based payments continued
Details of the grants under the plan are shown below:
Date of grants
3-Dec-2014
11-Jun-2014
29-May-2014
3-Apr-2014
6-Nov-2013
17-May-2013
16-Mar-2012
18-Mar-2011
22-Mar-2010
19-May-2009
19-Mar-2009
29-Apr-2008
10-Sep-2007
23-Apr-2007
2-Apr-2007
The estimated
fair value of
each share
option granted
$
23.28
The share price
at grant date
$
31.39
23.47
22.67
23.25
15.18
11.00
8.65
9.00
6.97
3.89
2.94
5.46
4.70
4.47
4.33
28.62
27.63
27.73
19.41
14.92
11.43
11.74
9.00
6.67
5.11
9.22
8.28
7.69
7.46
Number
granted
5,899
151,429
109,000
89,727
20,802
470,683
547,780
646,054
730,253
200,000
920,000
700,000
150,000
466,000
160,000
Expected
volatility
25.40%
25.40%
27.00%
26.00%
26.00%
26.40%
30.31%
37.04%
37.18%
38.98%
38.98%
31.47%
34.64%
34.64%
34.64%
Expected
dividend
yield
Risk-free
interest rate
0.71%
0.71%
0.73%
0.72%
0.89%
1.10%
1.14%
1.11%
1.20%
1.22%
1.47%
0.08%
0.08%
0.08%
0.08%
1.28%
1.28%
1.15%
1.17%
0.89%
0.45%
0.67%
1.65%
1.88%
1.92%
1.88%
4.50%
5.00%
5.45%
5.40%
All long-term incentive plans have ten years’ contractual life and vest after three years. The estimated fair value of each share option granted
in the LTIP was calculated by applying the Monte Carlo simulation methodology. For awards made from 2011, 50% of the award is subject to a TSR
performance condition which was valued by applying the Monte Carlo simulation methodology, the remaining 50% of the award is subject to financial
metrics which are valued by applying the Black-Scholes model. For further details, see the Remuneration Committee report.
The exercise price of the share award is $nil.
Further details on the number of shares outstanding are as follows:
Year 2020
Outstanding at 1 January
Exercised during the year
Expired during the year
Outstanding at 31 December
Year 2019
Outstanding at 1 January
Exercised during the year
Expired during the year
Outstanding at 31 December
Exercisable at 31 December
Weighted average remaining contractual life (years)
2014
grants
11 June
Number
14,220
(11,774)
(2,446)
–
2014
grants
11 June
Number
19,470
(4,347)
(903)
14,220
14,220
4.45
2013
grants
17 May
Number
21,275
(18,424)
(2,851)
–
2013
grants
17 May
Number
26,630
(4,637)
(718)
21,275
21,275
3.38
2012
grant
16 March
Number
–
–
–
–
2012
grant
16 March
Number
22,220
(6,030)
(16,190)
–
–
–
Total
Number
35,495
(30,198)
(5,297)
–
Total
Number
68,320
(15,014)
(17,811)
35,495
35,495
4.30
No costs for LTIPs were recognised in the consolidated income statement (2019: $nil credited to profit and loss).
The weighted average share price for 2020 is $30.24 (2019: $23.24).
164
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165
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
38. Related parties
Transactions between Hikma Pharmaceuticals PLC (Hikma) and its subsidiaries (together, the Group) have been eliminated on consolidation and are
not disclosed in this Note. Transactions between the Group and its joint ventures and other related parties are disclosed below.
Trading transactions:
During the year ended 31 December 2020, the Group entered into the following transactions with related parties:
Boehringer Ingelheim GmbH (BI): was previously a related party of Hikma as until 22 June 2020 it owned 16.5% of the share capital of Hikma, controlled
11.8% of the voting capital of Hikma and had the right to appoint an independent Director of Hikma. The independent Director appointed by BI was also
a senior executive of BI.
On 22 June 2020, BI announced its intention to exit in full its investment in Hikma. BI sold all of its stake (40 million ordinary shares) in Hikma, Hikma
bought back 12.8 million shares on 23 June 2020 and holds them in treasury (Note 32). As of 31 December 2020, BI did not hold any shares in Hikma.
On 25 June 2020, following the BI divestiture, the independent Director appointed by BI on Hikma’s board resigned with immediate effect in
accordance with the shareholder agreement between Hikma and BI.
The Group total sales to BI during the year amounted to $62.2 million (2019: $64.7 million) and the Group total purchases from BI during the year
amounted to $1 million (2019: $1 million). As at the year end, the amount owed from BI to the Group was $12 million (2019: $7.3 million). Additionally,
balances arising from the acquisition of the Columbus business from BI relating to contingent consideration are disclosed in Notes 24, 28 and 31.
Darhold Limited (Darhold): is a related party of Hikma because three Directors of Hikma jointly constitute the majority of Directors and shareholders
(with immediate family members) in Darhold and because Darhold owns 24.66% (2019: 24.76%) of the share capital and 26.03% (2019: 24.76%) voting
capital of Hikma. Other than dividends (as paid to all shareholders), there were no transactions between the Group and Darhold Limited during the year.
HikmaCure Limited (HikmaCure): is a related party of Hikma because HikmaCure is a 50:50 joint venture (JV) with MIDROC Pharmaceuticals Limited
(MIDROC). In 2017, Hikma and MIDROC Group agreed not to proceed with the HikmaCure joint venture and to liquidate it. As part of the liquidation
process the joint venture granted two loans of $2 million each to the Group and MIDROC Group. In 2020, the liquidation process progressed and the
loans were settled against the initial investment amounts, liquidation is expected to be finalised in 2021.
HMS Holdings SAL (HMS): is a related party of Hikma because HMS is owned by the family of two Directors of Hikma and HMS held 1,350,000 Ordinary
Shares (0.55% of the share capital and 0.59% of the voting capital) in Hikma until 13 May 2020 when it disposed of the entire holding. Other than the
final dividend for 2019 (as paid to all eligible shareholders on 7 May 2020), there were no transactions between the Group and HMS during the year.
Hubei Haosun Pharmaceutical Co. Ltd (Haosun): is a related party of Hikma because the Group holds a non-controlling interest of 49% in the joint
venture (JV) with Haosun (2019: 49%). During 2020, total purchases from Haosun were $1 million (2019: $3 million). At 31 December 2020, the amount
owed from Haosun to the Group amounted to $nil (2019: $0.2 million) and the amount owed from the Group to Haosun amounted to $0.1 million
(2019: $nil).
Labatec Pharma (Labatec): is a related party of the Group because Labatec is owned by the family of two Directors of Hikma. During 2020, total Group
sales to Labatec amounted to $3 million (2019: $2 million), and total Group purchases amounted to $0.6 million (2019: $0.3 million). As at the year end,
the amount owed by Labatec to the Group was $0.7 million (2019: $0.4 million).
Al Tibbi; is a related party of the Group because its jointly controlled by a direct relation to a senior executive member of the Group and Dash Ventures,
in which two Directors of the Group have a controlling interest, During 2020, the Group requested that Al Tibbi provide patient referral services in
response to COVID measures in Jordan. Total transactions with Al Tibbi was $0.4 million (2019: $nil) and the amount owed by the Group to Al Tibbi
was $0.2 million (2019: $nil).
Remuneration of key management personnel
The remuneration of the key management personnel (comprising the Executive Directors, Non-Executive Directors and the senior management as set
out in the Governance report) of the Group is set out below in aggregate for each of the categories specified in IAS 24 ‘Related Party Disclosures’.
Further information about the remuneration of the individual Directors is provided in the audited part of the Remuneration Committee report on pages
83 to 104.
Short-term employee benefits
Share-based payments
Post-employment benefits
Other benefits
2020
$m
19.9
11.1
0.3
0.7
32.0
2019
$m
16.3
9.5
0.2
0 .8
26.8
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39. Subsidiaries and joint ventures
The subsidiaries and joint venture of Hikma Pharmaceuticals PLC are as follows:
Company’s name
Al Jazeera Pharmaceutical Industry S.A.R.L
Incorporated in
Algeria
Address of the registered office
Zone d'Activité, Propriété N° 379 Section N° 04 Staoueli,
Algeria
Algeria
Zone d'Activité 16/15 Staoueli, Algeria
Algerie Industrie Mediterraneene Du Medicament
S.A.R.L.
Hikma Pharma Algeria S.A.R.L.
SPA Al Dar Al Arabia pour la Fabrication de
Médicaments
Hubei Haosun Pharmaceutical Co Ltd
Hikma Canada Limited
Hikma Pharma S.A.E
Hikma Pharmaceuticals Industries S.A.E
Hikma Specialised Pharmaceuticals (S.A.E)
Hikma Importation Co. LLC
Algeria
Algeria
China
Canada
Egypt
Egypt
Egypt
Egypt
Hikmacure Pharmaceuticals Share Company
Ethiopia
Hikma Pharma GmbH
Thymoorgan Pharmazie GmbH
Hikma Finance (Ireland) Limited
Hikma Italia S.p.A
Hikma Pharma Limited* 1
Arab Medical Containers LLC
Arab Pharmaceutical Manufacturing PSC
Future Pharmaceutical Industries LLC
Hikma International Pharmaceuticals LLC (Exempt)
Hikma International Ventures and Development LLC
(Exempt)
Hikma Investment LLC*
Hikma Pharmaceuticals LLC
Hikma United Renewable Energy
Germany
Germany
Ireland
Italy
Jersey
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Zone d'Activité 16/15 Staoueli, Algeria
Zone d’Activité El Boustane N° 78, Sidi Abdellah,
Al Rahmania, Algeria
No 20 Juxian Road, Gedian Economic and Technology
Development Area, Hubei, China
Blaney McMurtry LLP, Suite 15000
2 Queen Street , Toronto ON M5C 3G5
12 El-Esraa Street, El-Mohandeseen, Lebanon Square,
Giza, Egypt
16 Ahmed Hosny Street, First Zone, Naser City,
Cairo, Egypt
10 D, 11 D, Industrial Zone, Badr City, Cairo, Egypt
16 Ahmed Hosny Street, First Zone, Naser City,
Cairo, Egypt
Addis Ababa, Bole Sub City, Kebele 16, Woreda,
Ethiopia
Lochhamer Strasse 13, 82152, Martinsried, Germany
Schiffgraben 23, DE-38690, Goslar, OT Vienenburg,
Germany
2 Grand Canal Square, Grand Canal Harbour, Dublin 2,
Ireland
Viale Certosa 10, 27100, Pavia, Italy
47 Esplanade, St Helier, JE1 0BD, Jersey
P.O. Box 80, Sahab Industrial Estate, 11512, Jordan
Al Buhaira – Salt, P.O. Box 42, Jordan
P.O. Box 80, Sahab Industrial Estate, 11512, Jordan
122 Queen Zain AlSharaf Street, Bayader Wadi Al-Seer,
Amman, Jordan
Bayader Wadi Al-Seer, Industrial Area, Saleem Bin Al-
Hareth Street, Building 21, P.O. Box 182400, Amman,
11118, Jordan
Bayader Wadi Al-Seer, Industrial Area, Saleem Bin Al-
Hareth Street, Building 21, P.O. Box 182400, Amman,
11118, Jordan
Bayader Wadi Al-Seer, Industrial Area, Saleem Bin Al-
Hareth Street, Building 21, P.O. Box 182400, Amman,
11118, Jordan
Bayader Wadi Al-Seer, Industrial Area, Saleem Bin Al-
Hareth Street, Building 21, P.O. Box 182400, Amman,
11118, Jordan
Financial statements
Ownership%
Ordinary shares
At 31 December
2020
99%
Owned by the Group
Ownership%
Ordinary shares
At 31 December
2019
99%
97%
100%
100%
49%
100%
100%
100%
98%
100%
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
97%
100%
100%
49%
100%
100%
100%
98%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The Group’s subsidiaries principally operate in trading pharmaceuticals products and associated goods and services. Companies marked (*) were
incorporated as holding companies.
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167
167
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
39. Subsidiaries and joint venture continued
39. Subsidiaries and joint venture continued
Company’s name
International Pharmaceutical Research Centre LLC
Incorporated in
Jordan
Address of the registered office
P.O. Box 963166, Amman, 11196, Jordan
Sofia Travel and Tourism
Jordan
Specialised for Pharmaceutical Industries LLC
Jordan
Mustafa Semreen Complex Building No. 29, Jamal
Qaytoqa Street, Bayader Wadi Al-Seer, Amman, Jordan
Bayader Wadi Al-Seer, Industrial Area, Saleem Bin Al-
Hareth Street, Building 21, P.O. Box 182400, Amman,
11118, Jordan
Hikma Pharmaceuticals Co. Ltd., Almaty (Kazakhtan)
Representative Office
Kazakhstan
Apt. 1, House 7, Building-28, “Keremet” Microdistrict,
Bostandykskiy District, Almaty,A15C8X2, Kazakhstan
Al Jazeera Pharmaceutical Industries Ltd
KSA
P.O. Box 106229
11666 Riyadh, Saudi Arabia
Hikma Liban S.A.R.L.
Société de Promotion Pharmaceutique du Maghreb
(Promopharm S.A.)
Hikma Pharma Benelux B.V
Hikma Farmaceutica, (Portugal) S.A
Lifotec Farmaceutica S.G.P.S S.A*
Hikma Shefaa for Pharmaceuticals and Medical
Supplies PSC
Lebanon
Morocco
Saria Building, Ground Floor, Embassies Street, Bir
Hassan, Beirut, Lebanon
Zone Industrielle du Sahel, Rue N. 7, Had Soualem,
Province de Settat, Morocco
Netherlands
Nieuwe Steen 36, 1625 HV, Hoorn, Netherlands
Portugal
Portugal
Estrada Rio Da Mo no.8, 8a, 8B-Fervenca, 2705-906,
Terugem SNT, Portugal
Estrada Nacional 9, Fervença, São João das Lampas e
Terrugem, Sintra, Portugal
Palestine
West Bank Al Birah, Ramallah
Hikma Pharmaceuticals
Hikma Slovakia s.r.o
Hikma Espana S.L
Pharma Ixir Co. Ltd
Palestine
Slovakia
Spain
Sudan
Savannah Pharmaceutical Industries Co. Ltd
Sudan
West Bank Al Birah, Ramallah
Seberíniho 1
821 03 Bratislava, Slovakia
CALLE MALDONADO, 4 – BJ D
28006, MADRID Spain
Riyad Area, Obied Khatim Street, P.O. Box 10461,
Block No. 21, House No. 420, Khartoum, Sudan
Riyad Area, Obied Khatim Street, P.O. Box 10461,
Block No. 21, House No. 420, Khartoum, Sudan
Eurohealth International S.A.R.L.1
Switzerland
Rue des Battoirs 7, 1205 Genève, Switzerland
APM Tunisie S.A.R.L.
STE D'Industriee Pharmaceutique Ibn Al Baytar*
STE Hikma Pharma Tunisie
STE Medicef
Tunisia
Tunisia
Tunisia
Tunisia
Impasse N°4-Energie Solaire, Zone Industrielle La
Charguia 1, Tunis-Carthage, 2035, Tunisia
11 Rue 8610 Charguia 1-2035 Tunis-Carthage, Tunisia
Impasse N°4-Energie Solaire, Zone Industrielle La
Charguia 1, Tunis-Carthage 2035, Tunisia
Avenue Habib Bourguiba, Sidi Thabet, 2020 Ariana,
Tunisia
Ownership%
Ordinary shares
At 31 December
2020
51%
Owned by the Group
Ownership%
Ordinary shares
At 31 December
2019
51%
100%
100%
100%
100%
67%
94%
100%
100%
100%
51%
100%
100%
100%
51%
100%
100%
99%
100%
100%
100%
100%
100%
100%
100%
67%
94%
100%
100%
100%
51%
100%
100%
–
51%
100%
100%
99%
100%
100%
100%
Financial statements
Ownership%
Ordinary shares
At 31 December
2020
100%
Owned by the Group
Ownership%
Ordinary shares
At 31 December
2019
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
–
100%
100%
100%
100%
100%
100%
100%
Company’s name
Hikma Emerging Markets and Asia Pacific FZ-
LLC1
Incorporated in
United Arab
Emirates
Address of the registered office
Premises 202-204, Floor 2, Building 26, Dubai,
United Arab Emirates
Hikma International Trading Limited1
Hikma MENA FZE*1
United Arab
Emirates
United Arab
Emirates
The Oberoi Centre, Level 15, Business Bay, P.O. Box
36282, Dubai, United Arab Emirates
The Oberoi Centre, Level 15, Business Bay, P.O. Box
36282, Dubai, United Arab Emirates
Hikma (Maple) Limited
United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Hikma Acquisitions (UK) Limited*1
United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Hikma Holdings (UK) Limited*
United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Hikma UK Limited*
Hikma Ventures Limited1
Hikmacure Limited*
United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
West-Ward Holdings Limited*
United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Hikma Pharmaceuticals International Limited*
United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Hikma Iintelligence Limited
Eurohealth (U.S.A.) Inc
Hikma Speciality USA, Inc.
Hikma Labs Inc.
United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
United States
200 Connell Drive, 4th Floor Berkeley Heights, NJ 07922
United States
200 Connell Drive, 4th Floor Berkeley Heights, NJ 07922
United States
Corporation Trust Company of Nevada 701 S Carson Street
Suite 200, Carson City, NV 89701, United States
West-Ward Columbus Inc.
United States
Hikma Injectables, Inc.
United States
Corporation Trust Center 1209 Orange Street, Wilmington,
New Castle DE 19802, United States
Corporation Trust Center 1209 Orange Street, Wilmington,
New Castle DE 19802, United States
Hikma Pharmaceuticals USA Inc.
United States
200 Connell Drive, 4th Floor Berkeley Heights, NJ 07922
Hikma Finance USA LLC
United States
200 Connell Drive, 4th Floor Berkeley Heights, NJ 07922
1. Owned by PLC ‘the company’
The investments in subsidiaries are all stated at cost in Hikma Pharmaceuticals PLC and are consolidated in line with IFRS 10.
The investments in joint ventures are accounted for using the equity method in the Group (Note 18).
The Group’s subsidiaries principally operate in trading pharmaceuticals products and associated goods and services. Companies marked (*) were
incorporated as holding companies.
168
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169
169
Notes to the consolidated financial statements
continued
Notes to the consolidated financial statements continued
Company balance sheet
Company balance sheet
At 31 December 2020
At 31 December 2020
Financial statements
40. Defined contribution retirement benefit plan
Hikma Pharmaceuticals PLC has defined contribution retirement plans in four of its subsidiaries: Hikma Pharmaceuticals PLC – United Kingdom,
Hikma Pharmaceuticals Limited (Jordan), Arab Pharmaceutical Manufacturing Co and Hikma Pharmaceuticals USA Inc.. The details of each
contribution plan are as follows:
Hikma Pharmaceuticals PLC
Hikma Pharmaceuticals PLC currently has a defined contribution pension plan available for staff working in the United Kingdom whereby Hikma
Pharmaceuticals PLC contributes 10% of basic salary. Employees are immediately entitled to 100% of the contributions. Hikma Pharmaceuticals PLC
contributions for the year ended 31 December 2020 were $0.3 million (2019: $0.3 million).
Hikma Pharmaceuticals LLC
Hikma Pharmaceuticals LLC currently has an employee savings plan whereby Hikma Pharmaceuticals LLC fully matches employees’ contributions,
which are fixed at 10% of basic salary. Employees are entitled to 100% of Hikma Pharmaceuticals LLC contributions after three years of employment
with the Company. Hikma Pharmaceuticals LLC contributions for the year ended 31 December 2020 were $3 million (2019: $3 million).
Arab Pharmaceutical Manufacturing PSC
Arab Pharmaceuticals Manufacturing PSC currently has an employee savings plan whereby Arab Pharmaceuticals Manufacturing PSC fully matches
employees’ contributions, which are fixed at 10% of basic salary. Employees are entitled to 100% of Arab Pharmaceuticals Manufacturing PSC contributions
after three years of employment with the Company. Arab Pharmaceuticals Manufacturing PSC contributions for the year ended 31 December 2020 were
$0.5 million (2019: $0.6 million).
Hikma Pharmaceuticals USA Inc.: (401 (k) Retirement Plan)
Hikma Pharmaceuticals USA Inc. had a 401(k)-defined contribution plan, which allows all eligible employees to defer a portion of their income through
contributions to the plan. Eligible employees can begin contributing to the Plan after being employed for 90 days. Employees can defer up to 95% of
their eligible income into the Plan, not to exceed $19,500 (2019: $19,000), not including catch-up contributions available to eligible employees as
outlined by the Internal Revenue Service. The company matches the employees’ eligible contribution dollar-for-dollar on the first 6% of eligible pay
contributed to the Plan. Employer contributions vest 50% after two years of service and 100% after three years of service. Employees are considered to
have completed one year of service for the purposes of vesting upon the completion of 1,000 hours of service at any time during a plan year. Employer
contributions to the Plan for the year ended 31 December 2020 were $8.9 million (2019: $8.7 million). The assets of this Plan are held separately from
those of the Group. The only obligation of the Group with respect to this Plan is to make specified contributions.
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Investments in subsidiaries
Due from subsidiaries
Current assets
Trade and other receivables
Due from subsidiaries
Cash and cash equivalents
Other current assets
Total assets
Current liabilities
Other payables
Due to subsidiaries
Short-term financial debts
Other current liabilities
Net current assets
Non-current liabilities
Long-term financial debts
Due to subsidiaries
Lease liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves¹
Profit for the year
Retained earnings¹
Equity attributable to equity holders of the parent
Note
3
4
5
5
7
6
8
9
9
8
11
12
13
2020
$m
2
9
27
3,332
100
3,470
20
49
156
24
249
3,719
2
29
21
12
64
185
129
48
11
188
252
3,467
41
282
1,746
483
915
3,467
2019
$m
2
11
33
3,331
383
3,760
10
87
176
24
297
4,057
3
32
500
16
551
(254)
–
59
13
72
623
3,434
41
282
1,746
470
895
3,434
1. Beginning in 2020, own shares are deducted from retained earnings. At 31 December 2019, own shares of $(1) million were included in other reserves
The financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, on pages 171 to 178 were approved by the Board of Directors on
24 February 2021 and signed on its behalf by:
Said Darwazah
Director
24 February 2021
Sigurdur Olafsson
Chief Executive Officer
170
170
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171
171
Company statement
Company statement
of changes in equity
of changes in equity
For the year ended 31 December 2020
For the year ended 31 December 2020
Balance at 31 December 2018 and 1 January 2019
Profit for the year
Total comprehensive income for the year
Cost of equity settled employee share scheme
Exercise of employees share scheme
Dividends paid
Balance at 31 December 2019 and 1 January 2020
Reclassification¹
Balance at 1 January 2020 as adjusted
Profit for the year
Total comprehensive income for the year
Cost of equity settled employee share scheme
Dividends paid
Share buyback
Balance at 31 December 2020
Share
capital
$m
40
–
–
1
–
41
–
41
–
–
–
–
–
41
Share
premium Own shares
$m
(1)
$m
282
Merger
reserve
$m
1,746
Retained
earnings
$m
970
–
–
–
–
282
–
282
–
–
–
–
–
282
–
–
–
–
(1)
1
–
–
–
–
–
–
–
–
–
–
–
1,746
–
1,746
–
–
–
–
–
1,746
Total
$m
3,037
470
470
24
–
(97)
3,434
–
3,434
483
483
27
(109)
(368)
470
470
24
(1)
(97)
1,366
(1)
1,365
483
483
27
(109)
(368)
1,398
3,467
1. Beginning in 2020, own shares are deducted from retained earnings. At 31 December 2019, own shares of $(1) million were separately presented in other reserves
172
172
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Notes to the Company financial statements
Notes to the Company
For the year ended 31 December 2020
financial statements
For the year ended 31 December 2020
Financial statements
1. Adoption of new and revised standards
The nature of the impact on the Company of new and revised standards is the same as for the Group. Details are given in Note 1 of the Group
consolidated financial statements.
2. Significant accounting policies
Basis of accounting
These financial statements, for the year ended 31 December 2020 have been prepared in accordance with FRS 101.
As permitted by FRS 101, the Company has taken advantage of the following exemptions from the requirements of IFRS as below:
—
—
—
—
—
—
—
—
—
Paragraph 10(d) of IAS 1 ‘Presentation of Financial Statements’ (statement of cash flows)
Paragraph 16 of IAS 1 ‘Presentation of Financial Statements’ (statement of compliance with all IFRS)
Paragraph 38A of IAS 1 ‘Presentation of Financial Statements’ (requirements for minimal of two primary statements, including cash flow statements)
Paragraph 45B and 46 to 52 of IAS 1 ‘Presentation of Financial Statements’ (Share based payment)
Paragraph 111 of IAS 1 ‘Presentation of Financial Statements’ (cash flow statement information)
IFRS 7 financial instruments disclosure
Paragraph 17 of IAS 24 ‘Related Parties Disclosures’
Paragraph 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’
IAS 7 ‘Statement of cash flows’
No individual profit and loss account is prepared as provided by section 408 of the Companies Act 2006.
The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same as those set out
in Note 2 of the Group consolidated financial statements with the addition of the policies noted below.
Investments in subsidiaries are stated at cost less, where appropriate, provision for impairment.
The carrying value of investments are reviewed for impairment when there is an indication that the investment might be impaired. Any provision
resulting from an impairment review is charged to the Company income statement.
Intercompany receivable are classified as financial assets at amortised cost and are measured at amortised cost using the effective interest method
less any impairment.
The Company applies a simplified approach in calculating expected credit loss. Therefore, the Company does not track changes in credit risk, but
instead recognises a loss allowance based on lifetime expected credit losses at each reporting date. The Company has established a provision matrix
that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
Equity-settled employee share schemes are accounted for in accordance with IFRS 2 ‘Share based payment’. The current charge relating to the
subsidiaries’ employees is recharged to subsidiary companies.
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173
173
Notes to the Company financial statements
continued
Notes to the Company financial statements continued
3. Intangible assets
Cost
Balance at 1 January 2019
Additions
Balance at 1 January 2020
Additions
Disposals (charged to subsidiaries)
Balance at 31 December 2020
Amortisation
Balance at 1 January 2019
Charge for the year
Impairment
Balance at 1 January 2020
Charge for the year
Impairment
Balance at 31 December 2020
Carrying amount
At 31 December 2020
At 31 December 2019
Details of useful lives are included in Note 16 of the Group consolidated financial statements.
4. Investments in subsidiaries
The details of Investment in subsidiaries are mentioned in Note 39 of the Group consolidated financial statements.
The following table provides the movement of the investments in subsidiaries:
Beginning balance
Additions to subsidiaries
Ending balance
Software
$m
27
12
39
11
(10)
40
(4)
(1)
(1)
(6)
(2)
(5)
(13)
27
33
Total
$m
27
12
39
11
(10)
40
(4)
(1)
(1)
(6)
(2)
(5)
(13)
27
33
2020
$m
3,331
1
3,332
2019
$m
3,328
3
3,331
5. Due from subsidiaries
Non-current assets
Hikma MENA FZE
Hikma Pharmaceuticals LLC
Hikma Pharmaceuticals USA Inc.
Hikma Emerging Markets and Asia Pacific FZ-LLC
Hikma UK Limited
Current assets
Hikma Pharma-GmbH
Hikma MENA FZE
Hikma Pharmaceuticals USA Inc.
Hikma Pharma S.A.E
Hikma Farmaceutica, (Portugal) S.A.
Hikma Pharmaceuticals International Limited
Hikma Emerging Markets and Asia Pacific FZ-LLC
Others
The Company does not expect any material credit losses from inter group receivables.
Financial statements
2020
$m
43
40
8
5
4
100
2020
$m
1
–
31
2
–
1
7
7
49
2019
$m
–
–
343
6
34
383
2019
$m
–
33
38
1
3
2
7
3
87
174
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175
Notes to the Company financial statements
continued
Notes to the Company financial statements continued
Financial statements
6. Other current assets
Investments at FVTPL
Others
2020
$m
24
–
24
2019
$m
23
1
24
Investment at FVTPL: represents the agreement the Group entered into with an asset management firm in 2015 to manage a $20 million portfolio
of underlying debt instruments. The investment comprises a portfolio of assets that are managed by an asset manager and is measured at fair value;
any changes in fair value go through the income statement. These assets are classified as level 1 as they are based on quoted prices in active markets.
7. Cash and cash equivalents
Cash at banks and on hand
Time deposits
2020
$m
11
145
156
2019
$m
13
163
176
Cash and cash equivalents include highly liquid investments with maturities of three months or less which are convertible to known amounts of cash
and are subject to insignificant risk of changes in value.
8. Due to subsidiaries
Non-current liabilities
Hikma MENA FZE
Current liabilities
Hikma Investment LLC
Hikma Farmaceutica, (Portugal) S.A.
Hikma Pharma Limited
Hikma UK Limited
Hikma Pharmaceuticals LLC
Other
2020
$m
48
48
2020
$m
17
4
3
1
2
2
29
2019
$m
59
59
2019
$m
17
–
2
1
11
1
32
9. Financial debts
A syndicated revolving credit facility of $1,175 million was entered into on the 27 of October 2015. From the $1,175 million, $175 million matured on
24 December 2019, $130 million mature in January 2021 and the remaining $870 million was renewed until December 2023. At 31 December 2020 the
facility has an outstanding balance of $nil (2019: $nil) and a $1,000 million unused available limit (2019: $1,000 million). The facility can be used for
general corporate purposes (Note 29) of the Group consolidated financial statements.
A ten-year $150 million loan from the International Finance Corporation was entered into on 21 December 2017. There was full utilisation of the loan as
of April 2020. Quarterly equal repayments of the long-term loan will commence on 15 March 2021. The loan was used for general corporate purposes.
The facility matures on 15 December 2027 (Note 29) of the Group consolidated financial statements. In April 2020, the Group settled a $500 million
five-year Eurobond that was issued in 2015 (Note 29) of the Group consolidated financial statements.
An eight-year $200 million loan from the International Finance Corporation and Managed Co-lending Portfolio program was entered into on
26 October 2020. There was no utilisation of the loan as of December 2020. The facility matures on 15 September 2028 (Note 29) of the Group
consolidated financial statements.
10. Staff costs
Hikma Pharmaceuticals PLC currently has an average of 35 employees (2019: 37 employees) (excluding Executive Directors); total compensation paid
to them amounted to $12 million (2019: $10 million), of which salaries and bonuses comprise an amount of $8 million (2019: $8 million) the remaining
balance of $4 million (2019: $2 million) mainly represents national insurance contributions and other employee benefits.
11. Share capital
Issued and fully paid – included in shareholder's equity:
At 31 December
Number
243,332,180
2020
$m
41
Number
242,319,174
2019
$m
41
At 31 December 2020, of the issued share capital, 12,833,233 are held as Treasury shares, 40,831 shares are held in the Employee Benefit Trust (EBT)
and 230,458,116 shares are in free issue (Note 32) of the Group consolidated financial statements.
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Notes to the Company financial statements
continued
Notes to the Company financial statements continued
Shareholder information
12. Share premium
Balance at 31 December 2020
13. Profit for the year
Share premium
$m
282
The net profit in the Company for the year is $483 million (2019: $470 million). Included in the net profit for the year is an amount of $510 million (2019:
$509 million) representing dividends received. The remaining income statement components largely represent general and administrative expenses
and net financing expenses. Audit fees for the Company are disclosed in Note 7 of the Group consolidated financial statements.
14. Contingent liabilities
2021 financial calendar
18 March
19 March
23 April
26 April
6 August*
2020 final dividend ex-dividend date
2020 final dividend record date
Annual General Meeting
2020 final dividend paid to shareholders
2021 interim results and interim
dividend announced
19 August*
2021 interim dividend ex-dividend date
20 August*
2021 interim dividend record date
20 September*
2021 interim dividend paid to shareholders
A contingent liability existed at the balance sheet date for a standby letter of credit totalling $8 million (2019: $9 million) for potential stamp duty obligation
that may arise for repayment of a loan by intercompany guarantors. It’s not probable that the repayment will be made by the intercompany guarantors.
* Provisional dates
In addition, the Company guaranteed Hikma Finance USA LLC $500million, 3.25%, five year Eurobond issued in July 2020 (Note 29 of the Group
consolidated financial statements) and guaranteed Hikma Pharmaceuticals USA Inc. contingent consideration related to the Columbus business
acquisition (Note 28 and 31 of the Group consolidated financial statements). It’s not probable that any of the guaranteed entities will default on the
guaranteed obligations.
Shareholding enquiries
Enquiries or information concerning existing shareholdings should
be directed to Hikma’s registrars, Link Registrars either:
– in writing to Shareholder Services, Link Group, 10th Floor,
Central Square, 29 Wellington Street, Leeds LS1 4DL
– by telephone from within the UK on 0871 664 0300
– by telephone from outside the UK on +44 371 664 0300 or
– by email – enquiries@linkgroup.co.uk
Dividend payments – currency
Hikma declares dividends in US dollars. Unless you have elected
otherwise, you will receive your dividend in US dollars. Shareholders
can opt to receive the dividend in pounds sterling or Jordanian dinars.
The Registrar retains records of the dividend currency for each
shareholder and only changes them at the shareholder’s request.
If you wish to change the currency in which you receive your dividend
please contact the Registrars.
Dividend payments – bank transfer
Shareholders who currently receive their dividend by cheque can
request a dividend mandate form from the Registrar and have their
dividend paid direct into their bank account on the same day as the
dividend is paid. The tax voucher is sent direct to the shareholder’s
registered address.
Dividend payments – international payment system
If you are an overseas shareholder, the Registrar is now able to pay
dividends in several foreign currencies for an administrative charge
of £5.00, which is deducted from the payment. Contact the Registrar
for further information.
Share listings
London Stock Exchange
Hikma’s Ordinary Shares of 10 pence each (Shares) are admitted to
the Official List of the London Stock Exchange. They are listed under
EPIC − HIK, SEDOL − B0LCW08 GB and ISIN – GB00B0LCW083.
Further information on this market, its trading systems and current
trading in Hikma’s shares can be found on the London Stock
Exchange website www.londonstockexchange.com.
Global Depository Receipts
Hikma also has listed Global Depository Receipts (GDRs)
on the Nasdaq Dubai. They are listed under EPIC – HIK and ISIN –
US4312882081. Further information on the Nasdaq Dubai, its trading
systems and current trading in Hikma’s GDRs can be found on the
website www.nasdaqdubai.com.
American Depository Receipts (ADR)
Hikma has an ADR programme for which BNY Mellon acts as
Depository. One ADR equates to two shares. ADR are traded as
a Level 1 (OTC) programme under the symbol HKMPY. Enquiries
should be made to:
BNY Mellon Shareowner Services
PO Box 358516
Pittsburgh, PA 15252-8516
Tel: +1 201 680 6825
Tel: +1 888 BNY ADRS (toll-free within the US)
E-mail: shrrelations@bnymellon.com
Shareholder fraud
The Financial Conduct Authority has issued a number of warnings
to shareholders regarding boiler room scams. Shareholders may
have received unsolicited phone calls or correspondence concerning
investment matters. These are typically from overseas based ‘brokers’
who target UK shareholders, offering to sell them what often turn out
to be worthless or high-risk shares in US or UK investments. These
operations are commonly known as boiler rooms. These brokers can
be very persistent and extremely persuasive. Shareholders are
advised to be very cautious of unsolicited advice, offers to buy shares
at a discount or offers of free company reports. If you receive any
unsolicited investment advice:
– obtain the correct name of the person and organisations
– check they are authorised by the FCA by looking the firm up on
www.fca.org.uk/register
– report the matter to the FCA either by calling 0800 111 6768 or visit
www.fca.org.uk/consumers
– if the caller persists, hang up
Details of the share dealing facilities sponsored by Hikma are included
in Hikma’s mailings and are on Hikma’s website.
Website
Press releases, the share price and other information on the Group
are available on Hikma’s website www.hikma.com.
Hikma’s website is www.hikma.com and the registered office is
1 New Burlington Place, London W1S 2HR.
Telephone number + 44 207 399 2760.
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Principal Group Companies and Advisers
Hikma Pharmaceuticals PLC
Registered in England and Wales number 5557934
Registered office:
1 New Burlington Place
London W1S 2HR
UK
Telephone: +44 (0)20 7399 2760
E-mail: investors@hikma.uk.com
Hikma Pharmaceuticals USA Inc.
200 Connell Drive
Berkeley Heights
New Jersey 07922
US
Telephone: +1 908 673 1030
Hikma Pharmaceuticals LLC
21 Saleem Bin Hareth Street
P.O. Box 182400
11118 Amman
Jordan
Telephone: +962 6 5802900
Hikma Farmacêutica (Portugal) S.A.
Estrada Rio Da Mo no. 8
8A, 8B – Fervença
2705 – 906 Terrugem SNT
Portugal
Telephone: +351 21 9608410
Advisers
Auditors
PwC LLP
1 Embankment Place
London WC2N 6RH
UK
Brokers
Citigroup Global Markets Limited
Canada Square
London E14 5LB
UK
Morgan Stanley & Co. International PLC
25 Cabot Square Canary Wharf
London E14 4QA
UK
Registrars
Link Group, 10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
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1 New Burlington Place
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