Better health.
Within reach.
Every day.
© Hikma Pharmaceuticals PLC
Annual Report 2021
Welcome to our 2021 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.
See how our strategy helps
us shape a healthier world
on page 6
Strategic report
2 What we do
4 Executive Chairman’s statement
6 Chief Executive Officer’s strategic review
10
12 Stakeholder engagement
18 Our markets
20 Our business model
22 Our progress
Investment case
Business and financial review
24 Group overview
26 Injectables
28 Generics
30 Branded
32 Group performance
Sustainability
37 Acting responsibly
50 TCFD
Risk management
54 Risk management
64 Compliance
Corporate governance
67 Message from our Executive Chairman
68 Corporate governance at a glance
70 Board of Directors
72 Executive Committee
74 Governance report
80 Committee reports
89 Remuneration report
111 Directors’ report
Financial statements
116 Independent auditors’ report
124 Consolidated financial statements
129 Notes to the consolidated financial statements
180 Company financial statements
182 Notes to the Company financial statements
Shareholder information
187 Shareholder information
188 Principal Group Companies and Advisers
Cover image
Samantha Roe is a recent
graduate of Ohio University
with a BS in Chemistry and a
minor in Biological Sciences.
Samantha joined Hikma in
May 2019 and is a scientist
in the Analytical Research
& Development department,
where she helps to develop
new generic drug products.
Samantha is a member of
the R&D 5S Team, which
is focused on optimising
workplace efficiency and
productivity, and has
recently become the
Columbus site leader
for the Corporate Social
Responsibility programme.
Financial highlights
Change
vs 2020
Change
vs 2020
Revenue
Operating profit
$2,553m +9% $582m +1%
Core1 operating profit
EBITDA2
$632m +12% $727m
Profit to shareholders
Basic earnings per share
$421m
(2)% 182.3c
Core basic earnings per share3
Dividend per share
194.8c
+13% 54.0c
+9%
0%
+8%
Non-financial highlights
Instructor-led learning hours
for our people
47,000
Established a target to reduce our
Scope 1 and 2 GHG emissions by
25% by 20304
25%
See how we performed in
our Business and financial
review on page 24.
We act responsibly,
advancing health and
wellbeing, empowering
our people, protecting the
environment and building
trust through quality in
everything we do. Read
more on page 36.
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 of the Group consolidated financial statements. A reconciliation from core to reported operating profit is included within the
Consolidated income statement in the Financial statements
2. EBITDA is earnings before interest, tax, depreciation, amortisation, assets write-down and impairment charges. EBITDA is a non-IFRS measure,
see page 34 for a reconciliation to reported IFRS results
3. Core basic earnings per share is reconciled to basic earnings per share in Note 15 of the Group consolidated financial statements
4. Committed to reducing Scope 1 and Scope 2 greenhouse gas emissions by 25% by 2030, using a 2020 baseline year
Hikma Pharmaceuticals PLC Annual Report 2021
1
STRATEGIC REPORT
What we do
We bring patients across the US, MENA and Europe
a broad range of generic, specialty and branded
pharmaceutical products.
Our markets
Our business segments
c.8,700
Employees
32
7
Manufacturing plants
R&D centres
670+
Products
US
c.2,000
employees
MENA
c.5,650
employees
Europe & ROW
c.1,050
employees
Injectables
We supply hospitals across our
markets with generic injectables,
supported by our manufacturing
facilities in the US, Europe and
MENA. In the US, we have broadened
our product offering to include
compounded sterile injectables.
Generics
We supply oral and other
non-injectable generic and
specialty branded products in the
US retail market, leveraging our
state-of-art manufacturing facility
in Columbus, Ohio.
Branded
We supply branded generics and
in-licensed patented products from
our local manufacturing facilities to
retail and hospital customers across
the MENA region.
US
MENA
Our large manufacturing facilities in the
United States (US) supply generic and
specialty products across a broad range
of therapeutic areas, including respiratory,
oncology and pain management. We also
have three R&D facilities to support
sustainable growth.
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 rest of the world
(ROW)
Our injectable manufacturing facilities in
Portugal, Germany and Italy have 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.
59%
Group core revenue
(2020: 60%)
33%
Group core revenue
(2020: 33%)
8%
Group core revenue
(2020: 7%)
Segmental revenue
Branded
$669m
(2020: $613m)
Generics
$820m
(2020: $744m)
Injectables
$1,053m
(2020: $977m)
Other
$11m
(2020: $7m)
2
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3
STRATEGIC REPORT
Executive Chairman’s statement
We operate with one driving purpose: to put
better health within reach every day.
Said Darwazah
Executive Chairman
Executing on our purpose
The pandemic has presented challenges for us, for
our customers and, most critically, for patients.
Remaining focused on our purpose – to put better
heath within reach, every day – we have navigated
these challenges successfully.
Since the outset of the pandemic, we have been
committed to making sure patients have the medicines
they need, when they need them. We have listened to
our customers – healthcare professionals, hospitals,
pharmacists, wholesalers – and have responded
quickly and effectively to their rapidly changing
demands, leveraging the breadth of our portfolio
and the quality and flexibility of our US, Europe and
MENA-based manufacturing facilities.
At the same time, we have continued to strengthen
our operations so that we can better serve our
customers. We have placed an enhanced focus on our
procurement practices, carefully managed inventory
levels and engaged regularly with our suppliers.
Throughout the pandemic, our people have shown
an unwavering commitment to serving patient needs,
despite the many challenges that were presented. We
care for our employees and have worked hard to make
sure that they are benefitting from a strong culture and
inclusive work environment and that they have
attractive development opportunities.
Generating returns for our shareholders
Hikma has once again delivered a strong financial
performance in 2021, growing revenue, expanding core
operating margin and generating strong cash flow.
Group core basic earnings per share in 2021 grew
by 13%. Return on invested capital1 was 17.1%,
demonstrating our efficiency at allocating capital
and generating value.
This growth is consistent with our long track record of
creating value for our shareholders. Over the last ten
years to 31 December 2021, we have delivered a total
shareholder return of 313%, compared with 94% for the
FTSE 100 and 177% for FTSE 350 healthcare companies.
We remain committed to our consistent dividend
payments and are pleased to confirm a final dividend
of 36 cents per share for 2021. Combined with the
interim dividend of 18 cents per share, this represents
a 8% increase in the total dividend for 2021.
Reinforcing our commitment to quality
At Hikma, we continue to stress the importance of
quality and reliability. Quality underpins our business
in different ways, be it the medicines we deliver to our
customers, the facilities and processes we have in
place to create and sell those medicines, as well as
the quality of our people.
We have built our reputation on manufacturing
high-quality medicines, and it is important we ensure
that quality remains at the core of what we do. We
maintain this quality focus through a variety of means,
including internal quality culture campaigns, ongoing
quality audits of our manufacturing sites and key
suppliers run by our Quality team, continuous
monitoring and improvement of quality metrics and
the provision of reports to the Executive Committee
by the Hikma Quality Council.
In 2021 we introduced a new Code of Conduct, with
quality at its centre. Our Code calls on us to adhere to
the highest ethical standards and to maintain the trust
1. Return on invested capital is calculated as core operating profit
after interest and tax divided by invested capital (calculated as
total equity plus net debt)
I am immensely
proud of how our
people have
continued to deliver
on our purpose in
the face of ongoing
disruption from the
pandemic
17.1%
Return on invested
capital1
of our colleagues, customers and ultimately the
patients we serve.
Our responsibility
We are focused on putting better health within reach
for patients, but our approach to operating responsibly
goes beyond this. We work hard to ensure we are also
helping our communities in other ways: through
medicine and food donations, our work in supporting
education or helping in crisis situations. We also closely
track our impact on the environment, and for the first
time this year have introduced a target to reduce our
carbon emissions. The ‘Acting responsibly’ section
of this report, on pages 37 to 49 provides more
information on all of our work on these areas, with
some case studies demonstrating what we are doing.
Board evolution
Looking to 2022 and Board composition, Pamela Kirby
will not stand for re-election to the Board at our Annual
General Meeting in April. Pam joined the Board in 2014
and assumed the role of Remuneration Committee
Chair in 2016. On behalf of the Board, I extend our
heartfelt appreciation to Pam for her steady and
thoughtful counsel during her tenure.
Nina Henderson will take over as Remuneration
Committee Chair. Nina joined the Board in 2016 and
will bring extensive executive management and board
experience to this important role.
Driving future growth
Hikma has three strong businesses, an extensive
product portfolio and a broad footprint of high-quality,
flexible manufacturing facilities, all of which contribute
to the good market positions we hold. We are now
looking to build on this, with a focus on increasingly
complex and specialised medicines, and capitalising
on the growth opportunities that best benefit our
customers and all our stakeholders. Importantly, in
2021, we made great strategic progress on this, with
acquisitions and business development opportunities
adding to the growth potential. We have a strategy
in place which is delivering results, as demonstrated
by our strong financial performance in 2021, and
I look forward to keeping you updated as we continue
to grow.
4
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5
STRATEGIC REPORT
Chief Executive Officer’s strategic review
We have delivered another strong financial
performance through the successful execution
of our strategy, and we are investing for the future.
Siggi Olafsson
Chief Executive Officer
The past year has been one of continued progress
for Hikma. We have launched important products
across our markets, developed our portfolio and
pipeline and achieved consistency and reliability of
supply in a market that has continued to be impacted
by the pandemic.
While delivering for patients today, we have also
invested for the future, ensuring we are well placed to
continue to thrive and deliver on our purpose over the
long term. Crucially, we are doing this while acting
responsibly, making a positive impact on the
communities in which we operate as well as minimising
our impact on the environment.
Strategic progress
In early 2018, I set out strategic priorities for the Group
– to deliver more from our foundation, to build a
portfolio that anticipates future health needs and to
inspire and enable our people.
Since then, we have made excellent progress against
all three priorities. Each of our businesses as well as
our Group functions are on a stronger footing today
and we are well placed as we look towards our next
chapter of growth.
Deliver
Better health.
Within reach.
Every day.
B
u
i
l
d
Inspire
Deliver more from a strong foundation
Our KPIs:
– Core revenue
– Core operating profit
– Return on invested capital
Build a portfolio that anticipates future health needs
Our KPIs:
– Core revenue from new products launched
Our strategy
continues to deliver
good financial
results and we were
pleased to grow
revenue 9% and
core operating
profit 12% in 2021
Inspire and enable our people
Our KPIs:
– Employee enablement
– Employee engagement
To find out more see ‘Our progress’ on page 22.
Strong financial performance
We grew Group revenue 9% in 2021, to $2,553 million
and Group core operating profit was $632 million, an
increase of 12% on 2020. This impressive performance
was also reflected in our cash flow, with cash flow from
operating activities up 38% to $638 million.
We were able to invest in acquisitions and business
development opportunities while also maintaining
a strong balance sheet, exiting the year with gearing
of 0.6x net debt to core EBITDA.
Our Injectables business achieved good growth in
2021 across all our regions. Thanks to the breadth of
our portfolio, extensive and flexible manufacturing
facilities and our resilient supply chain, this remains
a strong, differentiated business. In the US, we
continue to play a leading role in supplying hospitals
with the medicines they need and are the second
largest supplier of generic injectables by volume, with
our portfolio of over 120 products. Since December,
we are also supplying hospitals with compounded
pharmaceutical products out of our new sterile
compounding facility in Dayton, New Jersey.
We remain focused on having a portfolio fit for the
future, with ongoing new launches, and are also
building our portfolio and pipeline through acquisition
and partnership, including licensing two new
biosimilars for the US.
We already have experience commercialising
biosimilars in MENA, where these products
contributed to our growth in 2021. We are seeing
good growth in Europe, as we increase supply of
our own products, and enter new markets, such
as France. We have also benefitted from valuable
contract manufacturing opportunities, leveraging
our extensive lyophilisation capacity in Portugal.
Our Generics business has seen significant revenue
growth and margin expansion in recent years. Since
I joined in February 2018, we have grown Generics
revenue at a CAGR of 6% and, through our
continuous focus on optimising our cost base and
driving operating efficiencies, our margins are now
some of the highest in the industry. While the US
generic market remains highly competitive, as
evidenced by accelerating price erosion, we are
demonstrating our ability to more than offset
competitive pressures through our strong commercial
and manufacturing capabilities and the successful
execution of our pipeline.
In 2021, we added seven new products to our Generics
portfolio, including generic Advair Diskus® and our
novel naloxone nasal spray, Kloxxado™, an important
new treatment for reversing the effects of opioid
overdose. These two products are great examples
of the more complex generic and specialty branded
medicines that we are prioritising and producing
from our state-of-the-art manufacturing facility
in Columbus, Ohio.
In our Branded business, we have continued to
strengthen our market position across the region.
Our strategy of tiering these markets – focusing
investment in markets with the highest potential – is
paying off, with two of our Tier One markets – Algeria
and Egypt – performing strongly in 2021, more than
offsetting changes in the tender market in Saudi Arabia
during the year. Our business in Algeria is benefitting
from new product launches and a new oral oncology
plant – the first of its kind in Algeria. We are also seeing
good growth in our other markets such as Morocco,
Jordan and UAE.
Partnerships are of particular importance to our
Branded business and we continued to sign new
licensing agreements in 2021, strengthening our
pipeline of innovative products for our MENA markets.
We have also built on our in-house R&D efforts and
our pipeline of our own branded generics.
To find out more see ‘Business and financial review’
on pages 24 to 34.
6
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7
STRATEGIC REPORT
Partnerships
are integral to
Hikma’s strategy.
2021 saw
continued
momentum as we
entered into new
partnerships and
built on existing
ones in each of
our businesses
Chief Executive Officer’s strategic review
continued
Strategic priorities
Adding differentiated products
through R&D and BD
As we look ahead, we are building a differentiated
portfolio that anticipates future health needs. This
ambition is being realised as we add complex and
specialty products to our portfolio and pipeline and
is fundamental to ensuring we continue to grow.
Our R&D efforts are focussed on developing products
where there is a patient need. In 2021, we spent 6% of
revenue on R&D, in line with our target of 6% to 7%. We
also strengthened our R&D capabilities, expanding our
R&D network with the development of a new site for
complex injectables in Warren, New Jersey, and we will
be adding R&D capabilities through the acquisition of
Custopharm1, the generic injectables business.
Partnerships are integral to Hikma’s strategy. In 2021,
we entered into new partnerships and built on existing
ones in each of our businesses. Some of these
opportunities will contribute in the near term, while
others will help to drive future growth. The biosimilar
deals we signed with Bio-Thera and Gedeon Richter
will enable us to bring important complex injectable
medicines to the US in the medium term.
Selected deals signed in 2021:
April
AFT Pharmaceuticals for
Combogesic® IV in the US
Melinta Therapeutics for Vabomere®
and Orbactiv® in MENA
August
September
Bio-Thera Solutions for ustekinumab
(biosimilar to Stelara®) in the US
FAES Farma for Bilastine
tablets in the US
November
Almirall for Finjuve™
in MENA
December
Gedeon Richter for
denosumab (biosimilars to Prolia®
and Xgeva®) in the US
Investing in new technologies
and capabilities
In 2021, we continued to expand our manufacturing
capacity and enhance existing facilities to stay at the
forefront of manufacturing excellence. We invested in
new filling lines, expanded warehousing and enhanced
capabilities across our operational footprint. We also
invested in a new facility in Dayton, New Jersey which
will carry out sterile compounding activities for our
Injectables business. With this new facility, our focus
on quality and our deep relationships with hospitals in
the US, we will be able to satisfy a growing need for
ready-to-administer formats of medicines.
Utilising our balance sheet
We are deploying our balance sheet to build our
growth prospects. In 2021 we announced the
acquisition of Custopharm, which will expand our
portfolio of marketed products, bring promising new
pipeline opportunities, and expand our R&D
capabilities. Post year-end, we announced our
expansion into Canada with the acquisition of
Teligent’s Canadian assets. Our teams will continue to
assess opportunities as they arise to ensure we are
deploying our capital in line with our strategy and
delivering long-term value to our shareholders.
Building our culture of progress
and belonging
Hikma is an inclusive place to work, underpinned by
our strong culture of progress and belonging and our
values: innovative, caring and collaborative.
Throughout 2021, we worked to reinforce our values
and ensure they are reflected in our strategy, practices
and policies. Shaping our culture and equipping our
people with the right tools to be at their best continues
to be of absolute importance. To this end, we evolved
our Diversity, Equity and Inclusion Committee, which
supports diversity and inclusion initiatives, such as
our new employee resource groups programme,
and continued to invest in upskilling our people
through a number of hybrid learning and
development programmes.
In a year when our people continued to adapt and
stepped up to keep our business operational, our
strong culture enabled us to be resilient, perform at
our best and provided us with the opportunity to
explore new ways of working together both internally
and with our partners and customers.
You can find more information on how we train and
retain the best talent in the ‘Acting responsibly’ section
of this report on page 42.
0.6x
Net debt to EBITDA
Conclusion
2021 has been another year of growth for Hikma, as
well as one of advancing our future ambition. With our
expansion into compounding and securing a future
entry into the US biosimilar market, we are continuing
to ensure we remain a top Injectables business in the
US, whilst also expanding our presence in Europe and
MENA. For our Generics business, we are taking strides
forward in differentiating our portfolio, with specialty,
marketed products such as Kloxxado™, and complex
generics such as generic Advair Diskus®. Our Branded
business continues to deliver consistent growth,
leveraging our well-established presence, reputation
and expertise in the MENA region.
I am excited about how far we have come in the past
few years, and by the opportunities we have for the
future, as we continue to put better health within reach
in 2022 and beyond.
We have a duty
to act responsibly:
for our people,
patients,
communities and
the planet
Long-term,
sustainable growth
By executing on R&D, establishing strong partnerships,
expanding our specialty portfolio and building our
compounding business, we will further diversify and
transform our business in order to achieve the next
phase of growth.
As we do this, we must also ensure we are operating
responsibly in all aspects of what we do. We have
identified four focus areas where we can drive positive
impact: advancing health and wellbeing, empowering
our people, protecting the environment and we
building trust through quality in everything we do.
We have a responsibility for our customers and their
patients, who rely on our important medicines every
day. Our mission to advance health and wellbeing also
applies to the broader wellbeing of the communities in
which we operate and it extends to ensuring that our
own people are empowered by an inclusive culture
where everyone can thrive.
We are committed to protecting the environment,
are assessing our environmental impact and
understanding how we can minimise it. I am very
pleased that the Board has approved a new target to
reduce our greenhouse gas emissions by 25% by 2030,
compared to a 2020 baseline.
How we are acting responsibly
Advancing health and wellbeing
Empowering our people
Protecting the environment
Building trust through quality
in everything we do
To find out more see ‘Acting responsibly’
on pages 37 to 49.
8
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9
1. Subject to FTC approval
STRATEGIC REPORT
Investment case
A strong business model with significant opportunities
to further enhance our portfolio to drive growth and
deliver value for shareholders.
Solid platform for growth
Increasingly diverse portfolio
and pipeline
– Broad portfolio of over 670 high-quality products across
three businesses
– Agile supply chain, flexible manufacturing and leading
technical capabilities
– Leading supplier of both generic injectable and non-injectable
products in the US, the largest pharmaceutical market globally
– Leading market position in MENA (4th largest pharmaceutical
company by sales) and a growing presence in Europe
– Trusted partner known for our commitment to quality and reliability
of supply
– Growing presence in underserved, niche areas with an increased
focus on specialty and complex products, which offer less
competition and potential for further margin growth
– Developing portfolio of biosimilars for the US market
– Focus on higher-value therapeutic areas such as respiratory, CNS
and oncology
– Continued investment in R&D, new partnerships, strategic
acquisitions and geographic expansion into certain markets
Excellent financial discipline with
a strong balance sheet and robust
cash generation
– Good cash flow generation, with $638 million operating cash flow in
2021 and low leverage of 0.6x net debt/core EBITDA2
– Disciplined approach to cash management and acquisitions
– Strong balance sheet that provides financial flexibility to support
future growth
Revenue by segment
Injectables .......... $1,053m
Generics .................$820m
Branded ..................$669m
Other ........................... $11m
Revenue by geography
US ................................. 59%
MENA............................ 33%
Europe & ROW.............. 8%
Hikma is focused on
delivering growth
over the long term
7
R&D centres
280+
products in our pipeline
$638m
operating cash flow
6%
R&D spend as % of revenue
19+
products added in 2021 through business development
25%
operating cash flow/revenue
Proven track record of
delivering value for shareholders
and a clear vision for growth
– Group revenue CAGR1 of 7% and core EBITDA2 CAGR of 10%
since 2018
– TSR3 of 313% over the last ten years
– Progressively increasing dividend
1 Compound annual growth rate (CAGR) is a measure of mean annual return
2 Core EBITDA is earnings before interest, tax, depreciation, amortisation, assets
write-down and impairment charges/reversals. EBITDA is a non-IFRS measure,
see page 34 for a reconciliation to reported IFRS results
3 Total shareholder return (TSR) is the performance of Hikma shares including
dividends paid
7%
313%
Group revenue growth at a three-year CAGR
TSR over the last ten years
10
Hikma Pharmaceuticals PLC Annual Report 2021
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11
STRATEGIC REPORT
Stakeholder engagement
For more than 40 years, we have transformed people’s
lives by making high-quality medicines more
accessible to the patients that need them.
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 Group for the benefit of all its
stakeholders. Over the next few pages we set
out how 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 Group:
– likely consequences of any decision in the
long term: the strategic overview on pages
4 to 9
– the impact of the Group’s operations on the
environment: the Acting responsibly section
on pages 44 to 47
– the aim of the Group to maintain a reputation
for high standards of business conduct: the
sections of the strategic report related to
product quality and safety on page 61 and
the Compliance, Responsibility and Ethics
Committee report on pages 87 to 88
– the need to act fairly as between members of
the Group: the corporate governance report
on pages 66 to 114
Strong 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.
Developing strong relationships with our stakeholders
has never been more important, particularly during the
uncertainty caused by the COVID-19 pandemic. Our
teams have worked hard to stay connected to all of
our stakeholders, including the patients who use our
medicines, healthcare professionals, our customers,
our employees and the wider community.
At Hikma, we are
committed to
acting in the best
interest of all our
stakeholders
Patients and healthcare
professionals
Employees
refer to Acting responsibly page 37
Customers
Communities
refer to Acting responsibly page 37
Government
and regulators
Suppliers
Investors
refer to Investment case page 10
12
Hikma Pharmaceuticals PLC Annual Report 2021
6%
of revenue spent on
core R&D to improve
access to high-
quality, affordable
medicines
Patients and
healthcare professionals
Employees
Our purpose is to put better health within reach, every
day for healthcare professionals (HCPs) and their
patients. We engage with doctors, clinicians and
pharmacists to better understand their needs, helping
them treat the patients they serve.
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?
Patients and HCPs 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 Group
– Our commercial teams meet regularly with doctors and
hospital clinicians to better understand their needs and
keep them informed about our products
– 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 disease 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
– The Compliance, Responsibility and Ethics Committee is
responsible for direct oversight of the Group’s approach to
ethical issues associated with HCPs
– Our management teams present to the Board at least once
per year, providing updates on the needs of patients and
healthcare providers across our markets
Outcomes and actions
– Launched Reagila® in MENA through our partnership
with Gedeon Richter, the first product in the region that is
proven to address both positive and negative symptoms
of schizophrenia
– Launched KloxxadoTM (naloxone hydrochloride) nasal
spray 8mg in the US, an important treatment for reversing
opioid overdose
– In MENA, we regularly update HCPs with the most recent
studies and product information. In 2021, we returned to
in-person meetings
– Established a compounding business in the US to fill a
market need and provide ready-to-administer drug
products which help improve the speed and safety of
patient care
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 they are empowered to drive innovation and are
committed to caring for customers, patients and communities
around the world.
How we engage across the Group
– We offer 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 Group Environmental, Health
and Safety Policy Statement. We also have local policies and
procedures in place
– We conduct regular employee surveys and use this
feedback to improve our performance and culture
– We have an active internal communications programme to
keep employees engaged and informed on Group strategy,
progress and development
– We established the Diversity, Equity and Inclusion
Committee to continue to create a culture where everyone
feels they belong
How we engage at Board level
– Nina Henderson has Board level responsibility for employee
engagement. She reports on employee issues as required
during Board or Committee business. A report on her
activities is included on page 67
– The Board receives regular reports on communications
activities with employees, the bi-annual employee
engagement survey and events or feedback that are
reported by the Chief Executive Officer
Outcomes and actions
– Hosted a virtual global leadership conference for the
top 160 Hikma leaders
– Established a Diversity, Equity and Inclusion
Committee, which is comprised of members from
the Executive Committee
– Established guidelines to create Employee Resource
Groups (ERGs)
– Launched a new leadership programme designed to
improve leadership effectiveness and capabilities for our
people managers, thereby strengthening employee
enablement and increasing engagement. With 150 people
managers through this programme in 2021, it will be rolled
out annually to cover all target employees
Hikma Pharmaceuticals PLC Annual Report 2021
13
STRATEGIC REPORT
Stakeholder engagement
continued
Customers
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.
172
Products launched
across our markets
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 needed to meet their requirements.
How we engage across the Group
– We have commercial, 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
– Commercial leads present to the Board at least once
a year providing updates on our customer relationships
and how we are meeting customer needs
– 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
– Launched 172 products across our markets
– Continued to work closely with our customers
to understand their needs
Delivering for our
customers
When our customers need us, we’re right there
within reach – ready to react quickly and
collaboratively to meet their needs. By being
highly responsive, anticipating needs and
infusing every interaction with professionalism
and respect, we are creating strong and lasting
partnerships that benefit everyone – especially
the hospitals, doctors and patients who rely on
our medicines.
Our customers can truly lean on us for
high-quality medicines and excellent service.
This has been especially true during the
challenges of the global pandemic where we
continued to provide uninterrupted access
to urgently needed medicines for treating
COVID-19 and many other medical conditions.
We recently launched a new marketing
campaign across US trade and social media
channels to distinguish Hikma by illustrating
how customers can “Lean on Us” at all times for
our unwavering commitment to them and the
patients they serve. Ultimately, our commitment
and passion for the greater good will always be
what drives us forward.
$3.2
million of medicines
donated in 2021
Communities and
environment
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 are a responsible and sustainable company
and have a duty of care towards our communities
and the environment.
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 to medicines
– strengthen educational infrastructures
– support local communities and people in need
– minimise our environmental impact
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 need,
supports our long-term, sustainable growth, while positively
impacting society.
We also strive to minimise our environmental impacts and are
committed to making our operations more energy efficient.
How we engage across the Group
– 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, supporting education and
assisting refugees and low-income groups
– We have an internal cross-functional working group who
meet on a regular basis to progress our understanding on
climate-related risks and opportunities and are working to
achieve our greenhouse gas emissions reduction target
How we engage at Board level
– The Board of Directors have overarching oversight of our
ESG strategy
– Our Executive Vice President of Business Operations, who
reports directly into our CEO, leads our ESG reporting as
well as our internal cross-functional working group
integrating TCFD into our business. More information on our
sustainability efforts can be found on page 36 to 52 and on
our corporate governance and our management of ESG
issues on page 67
Outcomes and actions
– As part of Hikma’s Black Employee Advisory Board’s
community outreach for underserved and
underrepresented communities, the team launched a
programme to develop STEM (Science, Technology,
Engineering and Math) talent in primary schools in the US
– Donated 50,000 doses of injectable naloxone to help
expand non-profit access to a life-saving treatment for
reversing opioid overdoses
– Established a target to reduce our Scope 1 and 2
greenhouse gas emissions by 25% by 2030, using a 2020
baseline year
Employees caring for
our communities
Our employees care deeply about helping
people, through our medicines and through
community engagement to help those in
need. Across our locations Hikma employees
volunteer to help their neighbours in many
ways – by raising money, donating food and
medicines, and supporting education initiatives.
Through our Black Employees Advisory Board in
the US, we launched a pilot programme in 2021
to introduce STEM education to young students
in underserved communities. STEM stands for
science, technology, engineering and math
education, disciplines and skills vital to
workforce development and higher earning
career opportunities. In the US, women and
minorities are often underrepresented in
STEM-related jobs.
Students who participated in Hikma’s 12-week
STEM programme learned how to design, build
and fly their own electric drones. Teachers
helped the students develop new technical and
problem-solving skills. The programme also
helped students to build confidence and
explore new opportunities for personal growth.
Students and their parents had high praise for
the programme.
Plans are underway to expand Hikma’s STEM
programme to underserved neighbourhoods in
several Ohio and New Jersey communities with
Hikma facilities.
14
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
15
STRATEGIC REPORT
Stakeholder engagement
continued
Government and regulators
Suppliers
Our industry 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), MENA health
authorities and other regulatory agencies across
our markets.
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 the social and ethical standards we require
are upheld.
32
Manufacturing plants
Why is it important to engage with this
group and what do they expect from us?
Our regulators expect us to:
Why is it important to engage with this
group and what do they expect from us?
Our suppliers want us to:
– adhere to regulatory requirements
– maintain high-quality manufacturing facilities
– provide safe and effective medicines
– uphold high ethical standards
– operate in a responsible and sustainable manner
– work collaboratively to build strong relationships
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 Group
– 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, MENA
health authorities and other regulatory agencies across
our markets
– We work closely with local governments 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 quality and safety and legal,
regulatory and intellectual property
Outcomes and actions
– Engaged regularly with the different regulatory bodies
and have a strong quality track record
– Supported the FDA in their training efforts by hosting
a virtual training session at our Columbus site for over
50 participants
– Engaged with the FDA Drug Shortage Office to partner on
long-term solutions for addressing US drug shortages
– Engaged on policy and legislative consultation as a member
of the Association of Accessible Medicines
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 Group
– 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 fundamental standards
on human rights and modern slavery
– We conduct initial and periodic due diligence to assess
third-party risks
– We are measuring and reporting on the greenhouse gas
(GHG) emissions originating from our supplier base
– We have started to measure the sustainability profile of our
supplier base
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 pandemic-
related disruption
– The Board oversees the Group’s risk programme and
receives reports on relevant issues, which include a specific
principal risk for API and third-party risk management
– The Compliance, Responsibility and Ethics Committee is
responsible for direct oversight of the Group’s approach to
ethical issues associated with suppliers
Outcomes and actions
– Our long-term relationships with our suppliers have allowed
us to ensure continuity of supply to our customers during
the COVID-19 pandemic
– 96% of our supplier base has been assessed as part of our
third-party risk management
– Started measuring GHG emissions originating from our
supplier base, which is reported on page 46
– Initiated a collaboration with EcoVadis, a leader in
sustainability ratings, to assess our main suppliers
In 2021, we hosted a series
of meet the management
events to showcase our three
business segments
14
Investor conferences
attended
Investors
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 investors want 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 Group
– 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 (AGM)
– 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 14
conferences and met with 136 investors in 2021
– We hosted a series of meet the management virtual events
to increase access to our senior leadership team for the
investment community
16
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
17
STRATEGIC REPORT
Our markets
Evolving demographic
and market trends
Global context
The global pharmaceutical market continued to grow in 2021. The social,
demographic and economic dynamics within the pharmaceutical industry are
changing rapidly. The pandemic has prompted an acceleration in many of the key
trends shaping the industry, creating opportunities for generic pharmaceutical
companies. The need for more affordable healthcare solutions is driving an increase
in generic penetration – the global generic prescription market is forecast to grow at
a CAGR of around 3.8% over the next five years1.
Global generics prescription market1
($billion)
2026
2021
$99
$82
1. Evaluate Pharma, World Preview 2021, Outlook to 2026, July 2021
2. United Nations, Global Issues, Ageing available at https://www.un.org/en/global-issues/ageing
3. WHO, Noncommunicable diseases available at https://www.who.int/news-room/fact-sheets/detail/
noncommunicable-diseases
4. AAM, The U.S. Generic & Biosimilar Medicines Savings Report, October 2021
5. IQVIA, US Pharmaceutical Trends, Issues and Outlook for NACDS TSE, August 2021
6. IQVIA, Assessing the Global Burden of Post-COVID-19 Conditions, December 2021
7. McKinsey & Company, An inflection point for biosimilars, June 2021
Key trends
CHANGING DEMOGRAPHICS
A growing population and a rise in life expectancy
worldwide is leading to increased demand for
healthcare. According to the United Nations, 16% of
the world population is expected to be aged over 65
by 20502. This rapid shift in demographics, as well as
changing lifestyles, is contributing to an increase in
noncommunicable diseases (NCDs), mainly
cardiovascular disease, cancer, respiratory disease
and diabetes3. Almost 70% of deaths worldwide are
caused by NCDs. This growing epidemic poses
challenges for global economies and threatens to
overwhelm health systems3.
Strategic response
We are committed to improving patients’ access to
high-quality, affordable medicines. We are
continuously investing in our manufacturing sites
to enable us to meet current and future needs of
patients worldwide. In MENA, we have a large sales,
marketing and support team that dedicate their time
to meet with doctors, clinicians and pharmacists to
better understand their needs. In the US, we have
strong relationships with our customers. Our
discussions with them help inform our pipeline
decisions in an effort to bring them the products
most in need.
Key trends
PRICING AND ACCESS
The need for more affordable healthcare has never
been more important as countries navigate the
economic impact of the pandemic. Governments are
looking to increase patient access to high-quality,
affordable medicines and this need for more
cost-effective healthcare is driving an increase in
generic penetration. In the US, 90% of prescriptions
filled are for generic medicines, while generics
represent only 3% of healthcare spending. Over the
last ten years, the US healthcare system has saved
nearly $2.4 trillion by using generic medicines4.
Strategic response
Generic medicines play an important role in helping
alleviate pressures on global healthcare budgets. As
a company whose purpose is to put better health
within reach, every day, we are committed to
increasing patients’ access to more affordable
healthcare. In 2021, we launched 172 products across
our markets and our continuous investment in R&D
and manufacturing capabilities enables us to meet
patients’ growing demand.
Find out more about our
access to medicine on page 38.
Key trends
THE IMPACT OF COVID-19
The COVID-19 pandemic has impacted the lives
of millions of people and communities around the
world, creating significant uncertainties. Patients
were cautious to enter hospitals, causing a
significant diagnostic gap. There were c.1 billion
missed diagnostic visits in 2020, which represents
a 20% decline on total expected diagnostic visits in
a normal year5. Missed visits have had a direct impact
on prescription utilisation and elective procedures.
While the pharmaceutical industry has shown great
agility during the COVID-19 pandemic, it also raised
concerns around the resilience of supply chains.
This has prompted calls for local API and
intermediate production and some countries,
such as the US, are also looking to increase local
production of finished goods.
The pandemic continues to impact and shape
the global healthcare sector today. A large number
of COVID-19 patients have a range of persisting
health conditions that are having a longer term
effect on their central nervous, cardiovascular and
respiratory systems6.
Key trends
GROWTH IN BIOSIMILAR UPTAKE
Biosimilars are gaining more momentum as adoption
in the US improves. It is estimated that global
biosimilar sales were over $15 billion in 2020, a 56%
annual growth rate since 2015. The market is
expected to continue its double-digit growth,
reaching more than $30 billion by 20257.
Biosimilar uptake varies by country. Europe makes
up half of the market by value and there are more
than 60 products approved. In the US, the FDA has
published new guidance on interchangeability,
providing greater clarity for developing companies.
This has helped recently launched biosimilars
achieve a rapid uptake compared to previous years.
As the regulatory environment continues to evolve in
the US, and in China and Japan, we expect to see an
increase in biosimilar adoption7.
Strategic response
The pandemic demonstrated the vital role of the
healthcare industry, particularly the generics
sector. At the start of the pandemic, we were
operating at full capacity, prioritising the
manufacture of products that were in highest
demand, whilst continuing to maintain supply
across our broader portfolio.
While there is still volatility in the market, we are
focused on ensuring that our flexible, high-quality
manufacturing capabilities and resilient supply chain
can continue to underpin our ability to provide a
consistent supply of medicines to our customers.
As part of our strategy and to mitigate supply risk,
we continue to qualify alternate sources of raw
materials. By growing our portfolio, we will also
ensure we have the products our patients need.
16%
of the world
population is
expected to be
over the age of
65 by 20502
56%
annual growth rate of
the global biosimilar
market since 20157
Strategic response
Tapping into the growth of the biosimilar market in
the US has been an area of focus for Hikma. We are
leveraging our established commercial capabilities
in the US to build a highly complementary portfolio
of biosimilar products through licensing. In 2021, we
signed an agreement with Bio-Thera Solutions for
ustekinumab, a proposed biosimilar to Stelara®, and
with Gedeon Richter for denosumab, a proposed
biosimilar referencing Prolia® and Xgeva®. In MENA,
through our partnership with Celltrion, we have
launched three biosimilar products in the MENA
region: Remsima®, Truxima® and Herzuma®.
18
Hikma Pharmaceuticals PLC Annual Report 2021
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19
STRATEGIC REPORT
Our business model
Our diversified business model allows us to
respond to the many opportunities and risks
we face, while delivering 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 24
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 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, R&D,
manufacturing and distribution capabilities
across our markets focused on quality
and efficiency.
The value we create
Patient benefits
We provide patients across our markets with
high-quality and affordable medicines.
670+
Products
670+
Products
Offer a broad product portfolio
We offer a broad and differentiated portfolio
of more than 670 products. It includes
high-quality generic and branded generic
medicines and a growing number of
in-licensed and specialty 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 and support staff 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
(2020: 6%)
Manufacture and maintain quality
Our extensive and high-quality
manufacturing capabilities are at the heart
of what we do. We have 32 plants across the
Group that supply our global markets with a
broad range of injectable and non-injectable
products, including 13 US FDA-inspected
plants and 12 EMA-inspected plants.
32
manufacturing plants
13
US FDA-inspected
plants
12
EMA-inspected
plants
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 2020 score
Shareholder returns
We have a long history of creating value
for our shareholders.
313%
Total shareholder return over last ten years
Sustainable business
We act responsibly, advancing health and
wellbeing, empowering our people,
protecting the environment and building
trust through quality in everything we do.
– Our employees completed 47,000
instructor-led learning hours
– Established a target to reduce our Scope 1
and 2 greenhouse gas emissions by 25%
by 2030, using a 2020 baseline year
Find out more about our key
performance indicators on page 22
Find out more about how we are
managing risk on page 54
20
Hikma Pharmaceuticals PLC Annual Report 2021
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21
STRATEGIC REPORT
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
Core1 revenue
($m)
Core1 operating profit
($m)
Return on invested capital3
(%)
$2,553m
$632m
17.1%
2,553
2,341
2,203
2,076
1,936
508
460
386
632
566
18.6
15.1
17.0
16.2
17.1
2017
2018 2019 2020 2021
2017
2018 2019 2020 2021
2017
2018 2019 2020 2021
Description
Total annual core revenue
generated across all businesses
Core operating profit
Why is it a KPI?
2021
performance
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
Group core revenue increased
by 9% reflecting good performance
from all three business segments,
supported by strong recent
product launches
The increase in core operating
profit was driven by good revenue
growth across all three business
segments and strong growth in
Generics profitability
Core operating profit after tax
divided by invested capital
(calculated as total equity plus
net debt4)
This measures our efficiency in
allocating capital to businesses
and projects
The increase in return on invested
capital reflects the improvement in
core operating profit, primarily
driven by a strong step up in
Generics profitability, lower total
debt and strong cash flow
Link to
remuneration
R
R 2
R
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
2. Core operating profit is measured before R&D costs when used as one of the performance criteria for determining the Executive Directors’ remuneration
3. See reconciliation on page 34
4. Group net debt is calculated as Group total debt less Group total cash. Group total debt excludes co-development agreements and contingent liabilities
Find out more about
our strategy on page 6
Find out more about how we
are managing risk on page 54
Find out more about our
remuneration on page 89
Build a portfolio that
anticipates future needs
Core revenue from new
product launches
(%)
9%
Inspire and enable our people
Employee enablement
(%)
Employee engagement
(%)
64%
2020 score1
73%
2020 score1
Percentage of core revenue contribution
from products launched in 2021 and the
second half of 2020
This measures our ability to extract
value from our global product pipeline
In 2021, revenue from new product
launches was 9% of Group core revenue,
up from 7% in 2020. This reflects the strong
contribution from new launches in Generics
and good contribution from Injectable
and Branded launches. This shows good
progress towards achieving our goal of 10%
of revenue from new launches by 2023
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
1. Hikma runs a global employee engagement survey every two years. As such, we do not
have the enablement and engagement percentages for reporting purposes this year.
In 2021, we conducted an accountability index survey to measure the level of action
planning conducted by managers post the last all-employee engagement survey.
It showed an 18 point improvement in the accountability index score when compared
to 2020
22
Hikma Pharmaceuticals PLC Annual Report 2021
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23
STRATEGIC REPORT
Business and financial review
I am pleased with our performance in 2021, with
growth in all three businesses. We have continued
to launch new products while benefitting from the
breadth of our portfolio.
Reported results (statutory)
Strong 2021 performance
Revenue
Operating profit
Profit attributable
to shareholders
Cash flow from
operating activities
Basic earnings per
share (cents)2
Total dividend per
share (cents)
2021
$million
2020
$million
Change
2,553
2,341
582
579
9%
1%
421
431
(2)%
Constant
currency1
change
7%
3%
2%
– Group revenue up 9%, reflecting a good performance from all
three businesses
– Core operating profit up 12%, driven by a further step up in
Generics margin
– Core profit attributable to shareholders up 10%
– Reported profit attributable to shareholders down 2% and basic
EPS was flat
638
464
38%
–
– Strong cashflow from operating activities, up 38% to $638 million
182.3
182.6
0%
4%
of complex and specialty products
– Continued to invest 6% of revenue in R&D, with a growing pipeline
54.0
50.0
8%
–
and low leverage at 0.6x net debt to core EBITDA5,6
– Maintained healthy balance sheet, with net debt4 of $420 million
– Full year dividend of 54 cents per share, up from 50 cents per share
Core results3 (underlying)
in 2020
Core revenue
2021
$million
2020
$million
2,553
2,341
Core operating profit
632
566
Constant
currency1
change
7%
15%
Change
9%
12%
Core profit attributable
to shareholders
Core basic earnings
per share (cents)2
450
408
10%
15%
194.8
172.9
13%
17%
1 Constant currency numbers in 2021 represent reported 2021 numbers translated using
2020 exchange rates, excluding price increases in the business resulting from the
devaluation of the Sudanese pound and excluding the impact from hyperinflation
accounting. In 2021 Lebanon and Sudan were considered hyperinflationary economies,
therefore the spot exchange rate as at 31 December 2021 was used to translate the
results of these operations into US dollars
In June 2020, Hikma purchased 12.8 million ordinary shares from Boehringer Ingelheim,
which are being held in treasury
2
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 33
4 Group net debt is calculated as Group total debt less Group total cash, including
restricted cash. Group net debt is a non-IFRS measure. See page 34 for a reconciliation
of Group net debt to reported IFRS figures
5 Core EBITDA is earnings before interest, tax, depreciation, amortisation, assets
write-down and impairment charges/reversals. EBITDA is a non-IFRS measure, see
page 34 for a reconciliation to reported IFRS results
6 Net debt to core EBITDA is calculated as Group net debt divided by core EBITDA and is
considered a useful measure of the Group’s financing decision
7 Subject to FTC approval
24
Hikma Pharmaceuticals PLC Annual Report 2021
Continued momentum, with growth in all
three businesses
– Injectables: Good revenue growth across all three geographies,
including in the US following a strong 2020. Injectables core
operating profit grew 5%, with a strong operating margin of 37.5%
– Generics: 10% revenue growth and core operating margin
improvement of 300 bps to 24.6%, reflecting a good performance
from recently launched products
– Branded: Revenue grew 9% reflecting a good contribution from
products used to treat chronic illnesses and core operating margin
was 18.7%, down from 20.6% in 2020. Excluding the impact of
currency and hyperinflation, revenue grew 5% and core operating
margin was stable
Further portfolio expansion and increased investment
to support growth
– Launched generic Advair Diskus® in April and are gradually growing
market share, but expect competition to intensify in 2022
– Expansion of specialty product offering in the US, including the
launch of KloxxadoTM 8mg naloxone nasal spray
– Positioning for future growth in Injectables with the signing of two
US biosimilar agreements, the acquisition of Custopharm7, the
launch of a new US compounding business and post year-end
expansion into Canada through acquisition of Teligent assets
– Further complex medicines added to Branded portfolio, including
eight oral oncology products in Algeria
Khalid Nabilsi
Chief Financial Officer
Group
Group revenue grew 9% reflecting growth in each of
our three businesses. Group gross margin reduced
slightly, primarily due to a shift in product mix in our
Injectables and Branded businesses.
Group operating expenses were $719 million (2020:
$622 million). Excluding adjustments related to the
amortisation of intangible assets (other than software)
of $73 million (2020: $42 million) and net income from
exceptional items of $23 million (2020: $67 million),
Group core operating expenses were $669 million
(2020: $647 million).
Selling, general and administrative (SG&A) expenses
were $561 million (2020: $509 million). Excluding the
amortisation of intangible assets (other than software)
and exceptional items, core SG&A expenses were
$488 million (2020: $464 million), up 5%, reflecting
good control of costs while increasing spend in certain
areas such as sales and marketing for specialty
products in the Generics business and a gradual
return to pre-COVID marketing activities in our
Branded business.
Research and development (R&D) expenses were $143
million (2020: $137 million). This reflects an increase in
the second half as the Group focused on the future
pipeline. Core R&D was 6% of Group core revenue, in
line with our strategy.
Other net operating expenses were $15 million (2020:
$26 million income). Excluding exceptional items1, core
other net operating expenses were $38 million (2020:
$44 million), which primarily comprised foreign
exchange-related costs.
The improvement in core operating margin to 24.8%
was primarily driven by the good performance in the
Generics business.
1 Exceptional items comprised a $60 million impairment reversal of
product related intangibles, a $24 million charge of product related
intangibles and a $13 million intangible assets write-down.
Amortisation of intangible assets (other than software) was $73
million. Refer to Note 6 of the Group consolidated financial
statements for further information
Hikma Pharmaceuticals PLC Annual Report 2021
25
STRATEGIC REPORT
Business and financial review
continued
Injectables
We supply hospitals across our markets with generic
injectables, supported by our manufacturing facilities
in the US, Europe and MENA. In the US, we have
broadened our product offering to include
compounded sterile injectables.
Financial highlights
Revenue
Core revenue
Gross profit
Core gross profit
Core gross margin
Operating profit
Core operating profit
Core operating margin
2021
$million
1,053
1,053
581
581
2020
$million
Change
Constant
currency change
977
977
563
563
8%
8%
3%
3%
6%
6%
2%
2%
55.2%
57.6%
(2.4)pp
(1.9)pp
351
395
354
377
(1)%
5%
1%
6%
37.5%
38.6%
(1.1)pp
0.3pp
Core revenue ($m)
Core revenue by region ($m)
2020
2021
Core operating margin (%)
2020
2021
977
1,053
38.6
37.5
1,053
US ......................................................................................691 (66%)
MENA................................................................................. 180 (17%)
Europe............................................................................... 182 (17%)
Injectables revenue grew 8% in 2021, benefitting from
our broad portfolio, geographic spread, flexible
manufacturing capabilities and new launches across
our regions.
Core gross profit grew 3% to $581 million and gross
margin declined to 55.2%, reflecting a normalisation in
product mix following the strong demand for COVID-19
related products in 2020.
US Injectables revenue grew 4% to $691 million (2020:
$662 million), reflecting a good performance from new
launches while maintaining demand for our broad
product portfolio.
MENA Injectables revenue was $180 million, up 13% on
a reported basis and 4% on a constant currency basis
(2020: $160 million). This growth reflects a strong
performance across most of our markets and good
demand for our growing biosimilar portfolio where
we continue to grow the market by increasing patient
access. This more than offset temporary disruptions
in some markets.
European Injectables revenue was $182 million,
up 17% (2020: $155 million). In constant currency,
European Injectables revenue increased by 13%.
This reflects a good performance from our own
products, recent launches and continued demand
for contract manufacturing.
Injectables core operating profit, which excludes the
amortisation of intangible assets (other than software)1
grew 5% and core operating margin was 37.5%,
compared with 38.6% in 2020. In constant currency,
core operating profit grew 7% and core operating
margin remained largely stable, reflecting good control
of costs.
During the year, the Injectables business launched 15
products in the US, 29 in MENA and 34 in Europe. We
submitted 93 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 to enter the US biosimilar market.
Outlook for 2022
We expect Injectables
revenue to grow in
the low to mid-single
digits. We expect core
operating margin to
be in the range of 35%
to 37%.
We are benefitting
from strong
commercial
capabilities across
our markets and
flexible, high-
quality operations
26
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
27
1 Exceptional items comprised a $10 million impairment of product related intangibles and a $1 million intangible assets write-down. Amortisation of intangible assets (other than software)
was $33 million. Refer to Note 6 of the Group consolidated financial statements for further information
STRATEGIC REPORT
Business and financial review
continued
Generics
We supply oral and other
non-injectable generic
and specialty branded
products in the US retail
market, leveraging our
state-of-art manufacturing
facility in Columbus, Ohio.
Financial highlights
Revenue
Core revenue
Gross profit
Core gross profit
Core gross margin
Operating profit
Core operating profit
Core operating margin
2021
$million
2020
$million
820
820
388
388
47.3%
217
202
24.6%
744
744
329
341
45.8%
203
161
21.6%
Change
10%
10%
18%
14%
1.5pp
7%
25%
3.0pp
Core revenue ($m)
Core operating margin (%)
2020
2021
744
820
2020
2021
21.6
24.6
The good revenue growth in our Generics business,
up 10% in 2021, was primarily driven by a strong
performance from recently launched products,
which more than offset increased price erosion.
Generics core gross profit growth and margin
expansion was primarily due to product mix, with
good demand for profitable recent launches.
of the expansion of our specialty business, this was
partially offset by good control of other operating
expenses. For the year, Generics core operating
margin was 24.6%, ahead of our guidance of 22%
to 24%.
In 2021, the Generics business launched seven products
and submitted five files to regulatory authorities.
We delivered a strong improvement in Generics core
operating profit, which excludes the amortisation of
intangible assets (other than software) and exceptional
items1, mostly due to the improvement in gross profit.
While sales and marketing spend increased as a result
Outlook for 2022
We expect Generics
revenue to grow in the
range of 8% to 10%.
We expect core
operating margin to
be in the range of 24%
to 25%.
We are delivering
strong operating
profit expansion,
benefitting from
recently launched
products
28
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
29
1 Exceptional items comprised a $60 million impairment reversal of
product related intangibles and a $14 million impairment charge of
product related intangibles and a $1 million intangible assets
write-down. Amortisation of intangible assets (other than software)
was $30 million. Refer to Note 6 of the Group consolidated financial
statements for further information
STRATEGIC REPORT
Business and financial review
continued
Branded
We supply branded generics
and in-licensed patented
products from our local
manufacturing facilities to
retail and hospital customers
across the MENA region.
Financial highlights
Revenue
Core revenue
Gross profit
Core gross profit
Core gross margin
Operating profit
Core operating profit
Core operating margin
Core revenue ($m)
Core operating margin (%)
2020
2021
613
669
2020
2021
20.6
18.7
2021
$million
2020
$million
Change
Constant
currency change
669
669
328
328
613
613
307
307
49.0%
50.1%
104
125
120
126
18.7%
20.6%
9%
9%
7%
7%
(1.1)pp
(13)%
(1)%
(1.9)pp
5%
5%
0%
0%
(2.0)pp
(7)%
5%
0.0pp
Outlook for 2022
We expect Branded
revenue in 2022 to
be in line with 2021.
Excluding the impact
of hyperinflation in
2021, we expect
Branded revenue
to grow in the
mid-single digits.
Sudanese pound. In constant currency, core operating
margin was stable.
During the year, the Branded business launched 87
products and submitted 144 filings to regulatory
authorities. Revenue from in-licensed products
represented 36% of Branded revenue (2020: 37%).
Our growth is
increasingly coming
from medicines
used to treat
chronic illness
Our Branded business continued to deliver growth in
2021, with revenue up 9%, which includes the impact
of hyperinflation. In constant currency, revenue grew
5%, with a good performance across our markets,
particularly in Algeria, where we saw the benefits of our
new oncology plant and in Egypt, where we benefitted
from strong demand for our chronic treatments. Our
chronic treatments also saw good demand in our retail
business in Saudi Arabia, which partially offset lower
demand in the government tender business. Other
markets, including Jordan, UAE and Morocco grew
strongly. Across the region we benefitted from our
focussed commercial efforts, a responsive supply
chain and the breadth of our portfolio.
Core gross profit grew 7% and, on a constant currency
basis, core gross profit was flat primarily due to an
increase in slow-moving inventory resulting from
pandemic-related demand fluctuations. Core gross
margin contracted slightly to 49.0%.
Core operating profit, which excludes the amortisation
of intangibles (other than software) and exceptional
items1, fell 1%. In constant currency, core operating
profit grew 5% as higher investment in R&D and
increased sales and marketing spend due to activities
returning to pre-COVID levels was offset by good
control of G&A costs. Core operating margin
decreased primarily due to devaluation of the
1 Exceptional items comprised a $11 million intangible assets
write-down. Amortisation of intangible assets (other than software)
was $10 million. Refer to Note 6 of the Group consolidated financial
statements for further information
30
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
31
STRATEGIC REPORT
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 $11 million in 2021 (2020: $7 million) with an operating
profit of $2 million (2020: $nil).
Research and development
Our investment in R&D and business development enables us to
continue expanding the Group’s product portfolio. During 2021, we
had 172 new launches and received 243 approvals. To ensure the
continuous development of our product pipeline, we submitted
242 regulatory filings.
2021 submissions1
2021 approvals1
2021 launches1
Injectables
US
MENA
Europe
Generics
Branded
Total
93
13
24
56
5
144
242
114
12
66
36
5
124
243
78
15
29
34
7
87
172
Profit before tax
Reported profit before tax decreased to $544 million (2020: $558
million), primarily reflecting an increase in the amortisation of
intangibles (other than software), from $42 million to $73 million, due
to new product launches. Excluding the amortisation of intangibles
(other than software) and exceptional items3, core profit before tax
was $578 million (2020: $522 million), up 11%, reflecting the strong
performance of our three business segments.
Tax
The Group incurred a reported tax expense of $124 million (2020:
$128 million) and a reported effective tax rate of 22.8% (2020: 22.9%).
Excluding exceptional items, Group core tax expense was $129 million
(2020: $115 million). The core effective tax rate increased slightly to
22.3% (2020: 22.0%), 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 2022.
Profit attributable to shareholders
Profit attributable to shareholders was $421 million (2020:
$431 million). Core profit attributable to shareholders increased
by 11% to $450 million (2020: $408 million).
Earnings per share
2021
2020
Change
Constant
currency
change
Net finance expense
Basic earnings per share
(cents)
182.3
182.6
0%
4%
2021
2020
Change
Constant
currency
change
Core basic earnings per share
(cents)
194.8
172.9
13%
17%
Finance income
Finance expense
Net finance expense
Core finance income
Core finance expense
Core net finance expense
30
69
39
1
56
55
47
69
22
9
54
45
0%
13%
0%
13%
–
–
4%
17%
4%
17%
–
–
On a reported basis, net finance expense was $39 million (2020:
$22 million). This comprised $30 million finance income and
$69 million finance expense. Excluding exceptional items2, core net
finance expense was $55 million (2020: $45 million). This comprised
$1 million finance income and $56 million finance expense. The
increase compared with 2020 in part reflects a drop in interest
income over the course of 2021 due to a reduction in interest rates,
and a slight increase in expenses related to the refinancing of our
revolving credit facility.
We expect core net finance expense to be around $55 million in 2022.
Diluted earnings per share
(cents)
Core diluted earnings
per share (cents)
Weighted average number
of Ordinary Shares for
the purposes of basic
earnings (‘m)
Weighted average number
of Ordinary Shares for
the purposes of diluted
earnings (‘m)
180.7
181.1
0%
4%
193.1
171.4
13%
17%
231
236
233
238
–
–
–
–
The increase in core earnings per share reflects the strong
performance of the Group and the value for shareholders created
by the Group’s buy back of 12.8 million ordinary shares in the first half
of 2020.
Dividend
The Board is recommending a final dividend of 36 cents per share
(approximately 26 pence per share) (2020: 34 cents per share)
bringing the total dividend for the full year to 54 cents per share
(approximately 40 pence per share) (2020: 50 cents per share).
The proposed dividend will be paid on 28 April 2022 to eligible
shareholders on the register at the close of business on 18 March
2022, subject to approval at the Annual General Meeting on
25 April 2022.
Net cash flow, working capital and net debt
The Group generated strong operating cash flow of $638 million
(2020: $464 million). This change primarily reflects the good
performance of the Group, combined with a focussed effort to
optimise inventories following COVID-19 related stocking in 2020.
The resultant decrease in inventory days drove an improvement in
working capital days, which decreased by 26 days to 238 days.
Capital expenditure was $145 million (2020: $172 million). In the US,
$56 million was spent upgrading equipment and adding new
technologies for our Generics and Injectables businesses, including
our new compounding facility in Dayton, New Jersey. In MENA, $66
million was spent on strengthening and expanding manufacturing
capabilities. In Europe, we spent $23 million on strengthening our
capabilities. We expect Group capital expenditure to be in the range
of $160 million to $180 million in 2022.
The Group’s total debt decreased to $846 million at 31 December
2021 (31 December 2020: $932 million). This decrease primarily
reflects our strong cash flow generation, which enabled a reduction in
short-term borrowing, while we maintained the repayment schedule
of long-term loans.
During the year, we upsized, amended and extended our revolving
credit facility (RCF), effective as of January 2022, allowing us the
flexibility to pursue strategic opportunities. The RCF remained
undrawn at year end.
The Group’s cash balance at 31 December 2021 was $426 million
(2020: $327 million).
The Group’s net debt (excluding co-development agreements and
contingent liabilities) was $420 million at 31 December 2021 (31
December 2020: $605 million). We continue to have a strong balance
sheet, with a net debt to core EBITDA ratio of 0.6x (31 December
2020: 0.9x).
On 24 February 2022, the Group announced a share buyback
programme of up to $300 million to be executed during 2022. This
takes into account the strength of our balance sheet and low leverage
ratio while maintaining the financial flexibility needed to invest in the
business and pursue inorganic growth opportunities.
Balance sheet
Net assets at 31 December 2021 were $2,467 million (31 December
2020: $2,148 million). Net current assets were $1,078 million
(31 December 2020: $894 million).
Outlook
For Injectables, as the COVID-19 volatility continues to ease and we
see a gradual return of elective surgeries, we expect for revenue to
grow in the low to mid-single digits, supported by new product
launches. We expect core operating margin to be in the range of 35%
to 37%. Our guidance does not include a contribution from
Custopharm, which remains subject to FTC approval.
For Generics, we expect revenue to grow in the range of 8% to 10%
and for core operating margin to be in the range of 24% to 25%. This
reflects a good contribution from new and recent launches, which we
expect will more than offset an acceleration in price erosion. Our
guidance assumes a mid-year launch of sodium oxybate.
For Branded, we expect revenues in 2022 to be in line with 2021.
Excluding the impact from hyperinflation in 2021, we expect Branded
revenue to grow in the mid-single digits.
We expect Group core net finance expense to be around $55 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 $160 million
to $180 million.
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.
Group operating profit
Core operating profit
Intangible assets write-down
Jordan warehouse fire incident
GxA inventory related provisions
MENA severance and restructuring costs
Net impairment reversal of product
related intangibles
Intangible assets amortisation other
than software
Reported operating profit
2021
$million
632
(13)
–
–
–
36
(73)
582
2020
$million
566
–
11
(15)
(3)
62
(42)
579
1 New products submitted, approved and launched by country in 2021
2 Exceptional items comprised $29 million non-cash finance income related to the remeasurement of contingent consideration related to the Generics business and $13 million non-cash
finance expense related to the unwinding and remeasurement of contingent consideration related to the Generics business
3 Exceptional items comprised a $60 million impairment reversal of product related intangibles, a $24 million impairment charge of product related intangibles, a $13 million intangible
assets write-down and $16 million net finance income due to the remeasurement of contingent consideration. Amortisation of intangible assets (other than software) was $73 million.
Refer to Note 6 of the Group consolidated financial statements for further information
32
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
33
STRATEGIC REPORT
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 2021 represent reported 2021 numbers
translated using 2020 exchange rates, excluding price increases in
the business resulting from the devaluation of the Sudanese pound
and excluding the impact from hyperinflation accounting.
EBITDA
EBITDA is earnings before interest, tax, depreciation, amortisation,
assets write-down and impairment charges/reversals.
EBITDA
Reported operating profit
Depreciation, amortisation, assets write-
down and impairment charges/reversals
Reported EBITDA
Exceptional items:
Jordan warehouse fire incident
Assets write off – inventory-related
provisions
MENA severance and restructuring costs
Core EBITDA
2021
$ million
582
2020
$ million
579
145
727
–
–
–
727
91
670
(11)
12
3
674
Working capital days
We believe Group working capital days provide 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
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
31 Dec 2021
$ million
31 Dec 2020
$ million
(112)
(9)
(651)
(74)
(846)
426
(420)
(158)
(10)
(692)
(72)
(932)
327
(605)
ROIC
ROIC is calculated as core operating profit after interest and
tax divided by invested capital (calculated as total equity plus
net debt). This measures our efficiency in allocating capital to
profitable investments.
ROIC
Core operating profit
Total tax
Core operating profit before tax
Net debt
Equity
Invested capital
ROIC
2021
$ million
2020
$ million
632
(137)
495
420
2,467
2,887
17.1%
566
(121)
445
605
2,148
2,753
16.2%
34
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
35
STRATEGIC REPORT
Sustainability
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
37 Acting responsibly
38 Advancing health and wellbeing
42 Empowering our people
44 Protecting the environment
48 Building trust through quality in everything we do
50 Aligning with the Task Force for Climate-related
Financial Disclosures (TCFD)
Businesses have a crucial role to play as stewards for future
generations. At Hikma, we strive to put better health within reach,
every day and make a difference to people’s lives. We have a duty to
act responsibly: for our people, patients, communities and the planet.
That is why we have identified four focus areas where we can drive
positive impact. We advance health and wellbeing; we empower our
people; we protect the environment; and we build trust through
quality in everything we do.
This Acting responsibly section in the Annual Report provides a glance
at some of our sustainability efforts. A more comprehensive overview
can be found in our Sustainability Report 2021 to be published in the
second quarter of 2022.
Acting responsibly at Hikma
Advancing heath and wellbeing
p38
Providing better healthcare and supporting
our communities
– Access to medicines
– Corporate social responsibility
• Providing better health
• Supporting education
• Helping people in need
Empowering our people
p42
Shaping an inclusive culture where everyone can thrive
– Recruitment, retention and promotion
– Diversity, equity and inclusion
– Ensuring health and safety
Protecting the environment
p44
Minimising our impact on the planet
– Reduction of greenhouse gas emissions (GHG)
– Sustainable supply chain
– Water management
– Waste management
Building trust through quality in everything we do p50
Upholding ethical standards and acting with integrity
– Ethics and compliance
– Product quality and safety
– Corporate governance
36
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
37
STRATEGIC REPORT
Acting Responsibly
continued
Providing better healthcare
and supporting our
communities
to support our partners including Direct Relief,
Dispensary of Hope, Americares, the Brother’s Brother
Foundation, the National Children’s Cancer Society,
Save the Children and others. During the year, we
donated $3.2 million of medicine (value based on cost
of goods). Our medicine donations in 2020 were higher
than 2021 due mainly to our response to the medical
emergency following the explosion in Beirut, Lebanon.
Advancing health
and wellbeing
Access to medicines
We consider access to medicine to be one of our
highest sustainability priorities. As a generics
pharmaceutical company, we are in the business of
making medicines both affordable and accessible
across our geographies, which is consistent with our
purpose to put better health within reach, every day.
Across the MENA region, where we have a broad local
manufacturing presence and are the fourth largest
company in region according to sales, we develop,
produce and distribute important medicines, making
sure that underserved populations have access to the
medicines they need, when they need them.
In the US, where we are a top-10 generics company, we
are a proud member of the Association for Accessible
Medicines (AAM), an advocacy group that advances
access to generic medicines. Through this partnership,
along with our generic peer companies, we strive to get
safe, effective and less costly medicines into the hands
of patients across the US who need them.
In Europe, we have three manufacturing sites, sell our
products in several countries and continue to expand.
Our broad portfolio of medicines, frequent new
product launches and focus on expanding our product
pipeline allow us to increase access to medicines in
each of the countries in which we operate.
Medicine donations
We have an active medicine donation programme,
through which we provide direct support to those
people and communities that need it most: including
low-income groups, displaced persons, children with
life-threatening illnesses, and patients without
sufficient medical coverage. During 2021, we continued
As a generics
pharmaceutical
company, we are in
the business of
making medicines
both affordable and
accessible across
our geographies
Medicine donations
(COGS)$m
4.1
3.1
3.2
2019
2020
2021
Addressing medicine shortages
Hikma’s broad portfolio and flexible manufacturing
capabilities enable us to quickly respond to urgent
needs for important medicines, especially when critical
shortages exist. In the US, we work closely with the US
Food and Drug Administration (FDA) to anticipate and
address shortages of vital medicines. We have done
this consistently throughout the pandemic by altering
our manufacturing schedules to prioritise production
of medicines in short supply that hospitals need for
treating their most seriously ill COVID-19 patients.
Hikma has played a leading role in addressing US drug
shortages, launching more than 20 medicines into
shortage situations in recent years and receiving an
award from the FDA for our efforts.
During the year, we donated
$3.2m
of medicine (value based on cost of goods).
Corporate social responsibility
We work across three focus areas to address
socio-economic hardships and to provide relief
to those most in need.
Providing better health: We work to address
unmet healthcare needs by conducting community
outreach and providing in-kind medicine donations
to patients in need.
Supporting education: We are committed to
providing our people and communities with
opportunities to realise their full potential through
continuous learning and development.
Hikma employee volunteering in 2021
More than:
4,700
volunteers
Nearly:
8,300
hours of volunteering
Helping people in need: We believe in supporting
the communities we live and work in through local
non-profit sponsorships and empowering our
employees to support our neighbours in need.
Engaging communities across:
13
countries
We address
socio-economic
hardships and
provide relief to
those most in
need across
our geographies
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STRATEGIC REPORT
Acting Responsibly
continued
Providing better health
Global breast cancer
awareness campaign
Our annual campaign engages
employees and raises awareness about
the value of early detection and
treatment. As part of our campaign, we
offer employees self-screening training,
educational lectures and facilitated
appointments with doctors. We also
extended our support to various
organisations, providing financial
donations and material support to
hospitals and charities in the US, Jordan,
Morocco, Sudan and Egypt.
More than
$85,000
donated to the US National Breast
Cancer Foundation and the King Hussein
Cancer Foundation in Jordan
Supporting education
Partnering with the United
Nations High Commissioner
for Refugees (UNHCR) to
strengthen access to higher
education for refugees
In 2021, we partnered with the UNHCR to
support their DAFI (Albert Einstein German
Academic Refugee Initiative) scholarship
programme with the goal of providing higher
education scholarships and internship
opportunities for 40 refugees in Jordan, Egypt
and Algeria.
This programme supports the UNHCR objective
of increasing the proportion of young refugees
enrolled in higher education programmes from
3% to 15% by 2030.
60
Held self screening training sessions for
60 women in Portugal
270
Organised online and in-person public awareness
campaigns across MENA, with 270 attendees
135
Provided free mammogram screening for
135 women in Jordan, Egypt and Sudan
Helping people in need
Strengthening food
security in our
communities
We continue to address food shortages
caused by overstretched support
systems and situations of poverty,
organising extensive meal donation
activities in several locations.
950
Meals donated to low-income families
by partnering with local Jordanian
charities Taalof Alkhair and Tkiyet
Um Ali.
115,000
Meals donated across local banks and
pantry partners in the US.
5,000
Distributed food packages to more than
5,000 people in need in Algeria, Egypt,
Morocco, Saudi Arabia, Iraq, Lebanon,
Sudan and Tunisia.
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STRATEGIC REPORT
Acting Responsibly
continued
Empowering
our people
Our people are at
the heart of our
culture of progress
and belonging
Shaping an inclusive culture
where everyone can thrive
Our people are at the heart of our culture of progress
and belonging. We have taken actions in several areas
to empower our people.
Recruitment, retention
and promotion
We support our employees through their journey at
Hikma by providing a conducive environment for them
to learn and grow. During the pandemic, we continued
to focus on learning and development, providing
hybrid (virtual and face-to-face) programmes. We
increased our focus on leadership development
through bespoke programmes that align with our
new cultural values.
We are taking a number of steps to ensure we recruit
the best talent, including partnering with various
universities and enhancing our recruitment criteria.
As part of these efforts, we are also seeking to recruit
more diverse talent. In 2021, we recruited 37% women
and 63% men. We will continue these efforts in 2022.
Voluntary and involuntary turnover – 2021
Impact on employee learning and development: iLearn platform
Total:
13%
12%
Turnover (men)
14%
Turnover (women)
13,000
Video-based learning hours
completed
6,000
Reading hours completed
47,000
Instructor led learning hours
delivered for 35% of our
employees
3,821
Active learners
Diversity, equity and inclusion
In 2020, we established the Diversity, Equity and Inclusion (DEI) Committee, led
by three Executive Committee members, in order to ensure we continue to create
a culture where everyone feels they belong. In the US, we established our first
employee resource group: the Black Employees Advisory Board. Continuing on
the work done in 2020, in 2021, the DEI Committee developed guidelines to create
Employee Resource Groups (ERGs) and an additional ERG was created: the Hikma
Women’s Network. Both ERGs will assist with ensuring a more inclusive culture where
all employees can thrive.
Ensuring health and safety
Employee health and safety
In order to emphasise the importance of employee
health and safety, in 2021 we updated our Group
Environmental Health and Safety Policy Statement
and had it issued by our CEO. The statement reaffirms
our commitment to employee health and safety.
COVID-19
During 2021, Hikma continued to take measures to
protect our employees during the COVID-19 pandemic.
We monitored and adjusted our mitigation strategies
as new information and guidance became available.
We provided our employees with vaccination information
and encouraged them to get vaccinated when eligible.
We hosted vaccination clinics for employees and their
families at some of our larger facilities.
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STRATEGIC REPORT
Acting Responsibly
continued
Protecting the
environment
Minimising our impact
on the planet
We are improving the way we monitor our
environmental impacts, strengthening the
oversight and management of our energy
consumption, emissions, water and waste.
We also continue to pursue actions to
improve our energy efficiency and have
developed an emissions reduction target
for Scope 1 and 2 emissions.
Greenhouse gas emissions:
Scope 1 and 2
During the 2021 reporting period, our measured Scope
1 and 2 emissions (market-based) were 116,779 tonnes
of carbon dioxide equivalent (tCO2e). This marks a
decrease between 2020 and 2021 of 19%, due largely
to our continued investment in renewable energy and
improved efficiencies. Using the location-based
method, our Scope 1 and 2 emissions reduced by 8%
between 2020 and 2021.
Our reporting of Scope 1 and 2 emissions has been
prepared in accordance with our regulatory obligation
to report greenhouse gas (GHG) emissions pursuant
to the Companies Act (Directors’ Report) and Limited
Liability Partnerships (Energy and Carbon Report)
Regulations 2018 which implement the government’s
policy on Streamlined Energy and Carbon Reporting.
128,277
We have put in
place a target to
reduce our Scope 1
and 2 GHG
124,812
emissions by 25%
by 2030, using a
2020 baseline
GHG emissions (tCO2e)
144,899
116,799
2018
2019
2020
2021
Scope 1
Scope 2
Energy consumption (MWh)
Scope 1 – Combustion of fuel and
operation of facilities
Scope 2 (market-based) – Electricity
Total Scope 1 and 2 emissions
(market-based)
2021
2020
40,450
76,328
47,372
97,527
116,779
144,899
Scope 2 (location-based) – Electricity
90,031
94,949
– 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 tCO2
– 2020 data has been revised due to improved data availability, quality
and accuracy
Electricity
Fuels1
2021
Rest of
the world
177,856
201,641
UK
116
–
Total
177,972
201,641
2020
Rest of
the world
223,634
217,644
UK
129
871
Total
223,763
218,514
1 Natural gas and transportation fuels (petrol and diesel). Reported fuel use in 2020 for the UK is an estimate that was developed based on
employee headcount. The 2021 disclosure is based on actual data for which there was no reported fuel consumption generated out of the UK.
116,779 tCO2e
Scope 1 and 2 emissions (market-based) total.
Between 2020 and 2021, a decrease of
19%
GHG emissions breakdown by source (market-based)
2020
2021
0k
30k
60k
90k
120k
150k
Natural gas combustion (Scope 1)
LPG/Propane combustion (Scope 1)
Purchased electricity – standard (Scope 2)
Diesel and petrol combustion (including for vehicle-use)
Refrigerants (Scope 1)
Purchased electricity – renewable (Scope 2)
In Tunisia, we
installed our first
combined cooling,
heat and power
(CCHP) system,
helping to reduce
costs and
emissions at our
locations there
Emissions intensity: revenue ($m)1
Scope 1 and 2 emissions
(market-based)/revenue
Scope 1 and 2 emissions
(location-based)/revenue
2021
2020
45.7
61.9
51.1
60.8
1 Emissions intensity is calculated using Group-wide revenue ($m)
– Revenue 2020: 2,341
– Revenue 2021: 2,553
Our UK office
The Group operates one location within the United
Kingdom, where we are listed, which is an office
building that is managed by a third party. During the
year, the UK site consumed 116,392 kWh (2020: 128,654
kWh) of energy, which is equivalent to 25 tCO2e.
The energy consumption is measured by meter
readings provided by the managing agent and relates
to electricity used for heating, cooling and general
office power. The Group does not provide transport
within the UK other than via private hire vehicles for
which consumption data is not available. During the
year, the UK site was assessed by an independent
expert for the potential to improve energy efficiency,
and recommendations were provided for actions to be
undertaken in the future.
Proportion of Group emissions derived
from the United Kingdom and offshore area
UK
0.02%
Measures to improve efficiency and reduce
our carbon footprint
We continue to improve the energy efficiency of our
operations. As part of our efforts to reduce our GHG
emissions from our sites in the USA, we supported the
generation of 35,000 MWh of clean energy generated
in the US in 2021 through the acquisition of Renewable
Energy Certificates (RECs). Those acquired Renewable
Energy Certificates were certified under Green-e
Renewable Energy Standard for Canada and the
United States v3.5 ensuring strong compliance with
standards, quality assurance and proper oversight.
Also, in Germany, Italy, Portugal and Sudan, we procure
a portion of our electricity from renewable sources.
In Tunisia, we installed our first combined cooling, heat
and power (CCHP) system, helping to reduce costs
and emissions at our locations there. In other locations
such as Egypt and Morocco, we continued our roll-out
of more efficient light emitting diode (LED) fixtures. In
locations including Jordan and Tunisia, we installed
building management systems (BMS) which provide
economic and sustainability benefits.
Target
We have put in place a target to reduce our Scope 1
and 2 GHG emissions by 25% by 2030, using a 2020
baseline. The target was developed using the absolute
contraction approach and is in line with the Paris
Climate Agreement’s well-below 2°C scenario.
Our approach to achieve the target
We are committed to achieving our emissions
reduction target while continuing to deliver on our
strategy and grow the business.
We have taken significant steps in 2021 to reduce our
Scope 1 and 2 emissions. Our purchase of RECs in the
US provided substantial Scope 2 emissions reductions
for 2021. Our preferred approach for Scope 2 emissions
reductions is to contribute to the growth of the
renewable energy capacity of the grid. We will be
exploring such opportunities in 2022 and onwards.
In addition to our actions towards achieving our Scope
1 and 2 emissions target, we will focus in 2022 on
identifying opportunities to make a meaningful impact
on our Scope 3 emissions.
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STRATEGIC REPORT
Acting Responsibly
continued
We conducted an
in-depth analysis of
our supply chain to
understand the size
of our Scope 3
footprint
Methodology for Scope 1 and 2
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. Due
to this boundary, joint ventures with less than 50%
holding are not included as we do not have operational
control. We have adopted a materiality threshold of 5%
for GHG reporting purposes.
In some cases, where data is missing, it has been
estimated using the following methodology: using data
from one year prior to the month to be estimated or
previous year as proxy, calculate an average daily
consumption over that period and applying that to the
number of days within the month to be estimated.
GHG emissions: Scope 3
We conducted an in-depth analysis of our supply chain
to understand the size of our Scope 3 footprint and
performed a relevance assessment to identify the
most material and relevant categories with the support
of an external partner.
In line with Greenhouse Gas Protocol technical
guidance for calculating Scope 3 emissions, we use
a combination of a spend-based method and,
wherever possible, an average-data method leveraging
respectively Exiobase 3.4 and Ecoinvent 3.7.1
databases. Our methodology incorporates supplier
location, inflation and currency rates in order to
increase the accuracy of our reporting.
GHG emissions, Scope 3 (tCO2e)
The GHG sources that constituted our operational
boundary for Scope 1 and 2 are:
Scope 1:
– Natural gas combustion
– Diesel combustion
– Petrol combustion
– LPG/Propane combustion
– Vehicle emissions
– Refrigerants
Scope 2:
– Purchased electricity – standard
– Purchased electricity – renewable
For most relevant categories, as reflected below, full
year 2021 Scope 3 emissions are estimated, at 837,227
tCO2e and have been externally verified.
Scope 3 emissions for these categories represent 88%
of all Hikma emissions to manufacture, promote and
distribute its products.
Other Scope 3 categories were either not significant
enough for reporting or not applicable.
Moving forward, we will be looking at engaging with our
supplier base to obtain supplier specific or product
level emissions data to improve our Scope 3 data
quality and identify opportunities to reduce our
carbon footprint.
Scope 3 category
Category description
tCO2e
Verification level
1
2
3
4
Purchase of goods and services
742,987
Limited assurance
Capital goods
Fuel- and energy-related activities
(FERA) (not included in Scope 1 or
Scope 2)
Upstream transportation
and distribution
27,694
Limited assurance
39,166 Reasonable assurance
27,380 Limited assurance
Total
837,227
Verification of Scope 1 and 2 and
FERA emissions data
Limited assurance of specific
Scope 3 categories
For external assurance of the remaining three Scope 3
categories (Purchase of goods and services, Capital
goods and Upstream transportation and distribution),
we worked with an external third party, Sievo Oy, to
assess our carbon footprint for these categories.
Sievo has contracted EY under a ‘limited assurance
engagement’, as defined by International Standards
on Assurance Engagements 3000 (ISAE 3000) to
report on the methodology and the emission factors
used behind ‘CO2 Analytics’ tool (the Tool) as of
21 January 2022 (all together the ‘Emission
Information’). The full assurance statement can
be found at www.hikma.com/sustainability.
Carbon Credentials Energy Services Ltd (Carbon
Intelligence) 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
2021 company Annual Report and accounts to
a reasonable level of assurance in relation to
ISO 14064-3 Greenhouse gases.
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)
Scope 3 emissions
– Fuel- and energy-related activities (not included
in Scope 1 or Scope 2)
Carbon Intelligence concludes with reasonable
assurance, using the ISO 14064-3 standard, 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. The full verification statement can
be found here www.hikma.com/sustainability.
Water and waste management
We have programmes and practices in place to
manage water and waste and we comply with all
relevant laws and regulations in this regard.
The use of water is critical for the pharmaceutical
manufacturing process. In 2021, we conducted a water
screening exercise with external consultants to identify
water-related risks in the short, medium and long term.
The analysis included 20 manufacturing sites across 11
countries and, using various evaluation tools such as
the World Resources Institute Aqueduct and World
Wildlife Fund Water Risk Filter, assessed risks at each
location. The study also included a general climate
analysis, whereby we assessed how water-related risks
might be affected by climate change in the medium
and long term. Through the analysis, we identified
which sites had the greatest exposure to water
scarcity. In 2022, we will work with relevant sites to
improve understanding of how water is withdrawn,
used and discharged from them and this knowledge
will help us identify water conservation opportunities.
We are also improving the way in which we monitor
and manage our waste, and are actively measuring
the amount of hazardous and non-hazardous waste
generated through our operations.
More information about water and waste management
will be included in our 2021 Sustainability Report.
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STRATEGIC REPORT
Acting Responsibly
continued
Building trust
through quality in
everything we do
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
Upholding ethical
standards and acting
with integrity
Ethics and compliance
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.
In 2021, we implemented RiskRate, an automated
third-party risk management system through which
all new third-party suppliers to the Group are entered
and monitored through the Group’s third-party risk
management programme. We also established a
stand-alone global Non-Retaliation Policy to reaffirm
Hikma’s commitment to open-door communication
and the protection of individuals who raise issues and
concerns in good faith.
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 seventh 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. Our
ESG rating in 2021 was 3.2, placing us in the 69th percentile as compared to
industry peers that are listed in the index. Our aim is to continue improving our
management of ESG issues.
The Board of
Directors have
overarching
oversight of our
ESG strategy
Product quality and safety
Ensuring quality is inherent in every step we take in
developing and manufacturing our medicines. Each
of our pharmaceutical ingredients and finished doses
undergo multiple, thorough quality testing and
inspection. The Quality team is a global team tasked
with undertaking ongoing quality audits around the
world in our manufacturing sites.
The health and safety of our patients is at the heart of
what we do. We operate a rigorous pharmacovigilance
system to prevent patient harm and to promote the
safe and effective use of our products.
We have globally aligned processes to detect, evaluate
and communicate any change to the benefit-risk ratio
of our products and to implement timely corrective
and preventative actions.
We conduct our pharmacovigilance activities globally
across the whole lifespan of our products, complying
with all local regulations and safety reporting timelines.
This year, our FTSE4Good Index
score was
3.2
placing us in the 69th percentile as
compared to other industry peer members.
Pharmacovigilance is monitored at the highest levels
of our business and is included in our Enterprise Risk
Management framework, which is overseen by the
Executive Committee and the Board on a regular basis.
To ensure our pharmacovigilance system is achieving
its objectives, we monitor our worldwide compliance
metrics every month. These are recorded in monthly
operational reports and reviewed in global and
regional pharmacovigilance meetings.
Corporate governance
In 2021, we conducted a Group-wide review of our
environmental, social and governance (ESG) strategy.
As part of this review, we re-examined which ESG
issues are of greatest importance to Hikma as well as
our key stakeholders. These issues will be described
in more detail in our 2021 Sustainability Report.
While certain elements of our ESG strategy are
governed by various board committees, our Board
of Directors have overarching oversight of our ESG
strategy including environmental aspects and TCFD
strategy and reporting.
Our Executive Vice President (EVP) of Business
Operations, who reports directly into our CEO, leads
our ESG reporting as well as our internal cross-
functional working group integrating TCFD into our
business. Our CSR strategy is governed by the
Compliance, Responsibility and Ethics Committee.
More information on our corporate governance and
our management of ESG issues can be found on
page 68.
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STRATEGIC REPORT
Aligning with the TCFD
Aligning with the TCFD
We are continuously aligning our internal
processes and public disclosures with the
Task Force for Climate-related Financial
Disclosures (TCFD).
In accordance with Listing Rule LR 9.8.6 (8) we are
including disclosures that are consistent with the
TCFD Recommendations, recognising that we will
continue to improve our implementation of the
recommendations, especially in the area of strategy
resilience and the improvement of metrics and
targets. This section summarises our progress as of
31 December 2021 against the four TCFD categories
which include:
Governance: our governance structure to provide
effective oversight over our climate-related risks
and opportunities
Strategy: our evaluation of the actual and potential
impacts of climate-related risks and opportunities on
our business, strategy, and financial planning over the
short, medium, and long term
Risk management: how we identify, assess, and
manage climate-related risks
Metrics and targets: our progress on setting metrics
and targets to assess and manage our material
climate-related risks and opportunities
Governance
Board level oversight
Our Board of Directors retains overarching oversight
of our TCFD strategy including our climate-related
risks and opportunities. We are planning to conduct
additional Board training in 2022.
Management level leadership
At the management level, we bring together the
expertise of many senior leaders from across our
organisation given the diverse nature of our climate-
related risks and opportunities. Our Executive Vice
President (EVP) of Business Operations, who reports
directly into our CEO, leads our internal cross-
functional working group integrating TCFD
recommendations into our business. As Chair of this
working group, she drives progress in understanding
Hikma’s climate-related risks and opportunities,
bringing together the relevant expertise and provides
updates directly to the Board as a whole. Our TCFD
working group meets on a regular basis with external
consultant support with the objective to progress our
understanding of Hikma’s climate-related risks and
opportunities and to take appropriate action.
We used a mixture
of qualitative and
quantitative
modelling to
understand how
climate-related
risks and
opportunities may
change under
different climate
futures
Strategy
Climate-related risks and opportunities
and their impact
With the assistance of third-party climate expertise,
Hikma undertook an identification and assessment
project to better understand the top climate-related
risks and opportunities that could be significant to
Hikma’s business. The following were selected for
further modelling of their financial impact based on
strategic importance to Hikma, correlation with other
projects and initiatives and granular data availability
for modelling.
Physical risks
– Impact of storms and flooding on our facilities
and operations
Transition risks
– Impact of carbon pricing on the raw materials costs
of some of our most energy intensive inputs such as
APIs and packaging
– Changes in investor preferences around ESG
impacting our market valuation
Opportunities
Our exposure to energy pricing changes was reviewed.
Alongside this energy modelling, we reviewed various
strategic opportunities to reduce our energy risk and
reduce our carbon impact by changing our energy mix,
setting an energy strategy, and reducing our overall
demand through efficiencies. We will continue to work
on our transition plan in 2022.
Methodology
We used a mixture of qualitative and quantitative
modelling to understand how these risks and
opportunities may change under different climate
futures as well as three different time horizons. We
used the Bank of England’s reference climate scenarios
to understand the potential future physical differences
in climate driven by temperature changes, outlined in
the Representative Concentration Pathways (RCP).
Also, we have used the Shared Socioeconomic
Pathways (SSPs). Through this exercise we were able to
better understand the potential financial impacts of
the identified climate risks and opportunities, which
will be input into our strategic planning.
The results of our
financial impact
assessment
determine that
climate change is
not expected to
have a material
impact on the
Group’s viability in
the longer-term
Resilience of Hikma’s strategy
From our financial impact modelling we were able to understand how certain areas of our business could be
impacted by climate change. The table below summarises the key insights from our financial impact modelling
conducted this year for the five risks and opportunities.
Carbon pricing impacts on our supply chain
Energy pricing changes and our energy strategy
We looked at projected carbon pricing in several
regions under different climate scenarios, and the
potential pass-on cost that could occur within our
supply chain inflating our costs. As APIs and
packaging materials are some of our most energy
and carbon intensive procured goods, it is these
materials that would likely be impacted the most
by the introduction of carbon prices and therefore
formed the basis of our modelling.
We have a sustainable procurement programme in
place to better understand the carbon impacts of the
goods and services we procure. As a key mitigation,
we intend to engage with our main materials suppliers
to understand their goals to reduce carbon, move to
renewable energy and increase energy efficiencies in
their production. Through supplier engagement, we
anticipate we can partly mitigate the impact of carbon
pricing pass-on in the future.
While energy costs to our business make up only
approximately 1% of total costs, energy is highly
linked to our sustainability strategy and our continued
efforts to reduce our impact on the environment;
particularly through energy efficiency and moving to
renewable energy.
We modelled multiple opportunities to understand
how we mitigate and enhance our energy strategy over
time, including different energy mixes in our different
regions and achievement of different energy efficiency
goals. This modelling work will provide input into our
energy transition plan.
Investor preference change
Physical impacts on our facilities
Investor preferences around ESG credentials are
changing. We modelled the potential impact on our
market valuation, from shifting investor allocations
away from assets which do not meet ESG requirements
and from decreasing ESG benchmark ratings.
Hikma is already engaging and communicating with
investors on ESG-related matters including climate.
By ensuring we continue to strengthen and
communicate our climate and sustainability ambitions
and performance, this risk is mitigated. See our Acting
responsibly section, page 37, for more information on
our performance this year.
Given our geographical spread across many regions
we have varying levels of exposure to physical risks of
climate change in our different locations.
The modelling of increasing risk of storms and flood
causing damage to our facilities, as well as disruption
to our operations, show that we have limited direct
exposure to these acute risks in a future 1.5°C and
well-below 2°C world. However, as the risk increases
under a business-as-usual scenario where global
warming exceeds 3°C there is some potential risk for
our facilities.
With the insights from our modelling and
understanding that these risks are not significant to
our sites at this stage, we will continue to engage with
our operational facilities teams in the highest risk
regions to ensure our business continuity and recovery
processes are fit for purpose. The insights of this
analysis were used in the stress testing for the
longer-term viability assessment (see page 63).
Summary findings
The results of our financial impact assessment show that climate change is not expected to have a material impact
on the Group’s viability in the longer term. The longer-term is considered to be a time period of three years. This is
in line with the timeframe used in the longer-term viability assessment (see page 63). We recognise that climate-
related risks will continue to develop over a significantly longer period and assess that Hikma will be able to adapt
its strategy and respond appropriately to any such risks that may threaten to have a material impact on the Group.
We will continue to use the insights outlined above over the coming year to strengthen our monitoring metrics and
understand where we need to improve our mitigation controls.
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STRATEGIC REPORT
Aligning with the TCFD
continued
Risk management
Metrics and targets
We will continue to
build on our
climate-related risk
identification and
modelling by
working with key
stakeholders
Metrics to assess climate-related risks
and opportunities
We have taken steps to understand the financial
impacts of some of our material risks and
opportunities. The next steps are to improve the
metrics by which we monitor these risks and capture
opportunities, and the effectiveness of our controls.
We also continue to improve our environmental
metrics in relation to emissions, energy, water, and
waste management.
The Remuneration Committee determined the
CEO’s performance target for 2021 which ensures
that clear progress is being made with respect to
the development and execution of the Group’s
Environmental, Social and Governance strategy, which
includes the Group’s climate-related programmes. This
also includes the identification of climate-related risks
and opportunities and the management thereof.
Disclosures of Scope 1 and 2 targets
An overview of our emissions targets, our carbon
footprint and metrics on our energy consumption can
be found in the Protecting the environment section of
our Annual Report, see pages 44.
Process for identifying and assessing
climate-related risks
We identify and assess climate related risks using
a range of approaches. We conducted a risk
identification and assessment exercise as part of
the enterprise risk management process with all risk
owners across the business. The outcomes of this
review fed in to the TCFD Working Group’s assessment
of the most relevant climate-related risks for Hikma.
We engaged external experts to support the TCFD
Working Group to identify and assess climate-related
risks using climate science data and known pathways.
We use three timeframes to review and assess the
likelihood and impacts of our climate risks and
impacts. The first timeframe was for a period of
three years, aligned with the longer-term viability
assessment (see page 63). We also considered how
climate-related risks might impact the Group further
into the future.
Process for managing climate-related risks
and integration of risk management
processes
Climate-related risks are identified, assessed, and
managed by teams across the organisation depending
on the nature of the risk. Our risk management
framework (see page 54-61) provides a structure for
significant risks to be escalated and integrated into
our enterprise risk management process. In 2021 we
also established the TCFD Working Group, a cross-
functional team to consolidate assessments on this
emerging risk area.
Examples of how climate-related risks are managed
and integrated into existing risk management
activities include:
– Longer term viability assessment: environment and
climate change related risks included in the scenario
modelling (see page 63)
– Crisis and continuity management programme:
site assessments of physical risks and controls
(see page 60)
Looking forward to the coming year, environment and
climate change will continue to be a focus area and will
continue to be part of the enterprise risk management
framework (see page 54-61). We will continue to build
on our risk identification and modelling by working with
key stakeholders across our business to understand
existing risk mitigation controls and processes in
place. Where we identify any control gaps or areas
of improvement, we will build clear action plans
and ownership to drive this forward to ensure our
long-term resilience.
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STRATEGIC REPORT
Risk management
In 2021, our risk assessments
informed our decision-making
on prioritisation and allocation
of resources across the Group
In this section
55 Risk management framework
56 Risk management activities
58 Principal risks and uncertainties
62 Going concern
63 Longer-term viability
Effective
management of risk
and opportunity is
fundamental for the
long-term success
for the Group
Risk management framework
Risk context
Our purpose is to put better health within reach, every
day for healthcare professionals and their patients.
We bring patients across the US, MENA and Europe
a broad range of generic, specialty and branded
pharmaceutical products.
The future is uncertain and it carries risk and
opportunity for our business. These risks and
opportunities may be related to our strategy and
delivery of our objectives, the activities and processes of
the organisation, the expectations of our stakeholders,
or our key relationships and dependencies.
Find out more about the internal and external context
for risk management for the Group in the ‘CEO’s
strategic review’ (pages 6–9), ‘Our markets’ (pages
18–19) and ‘Our business model’ (pages 20–21).
Risk strategy
Effective management of risk and opportunity is
fundamental for the 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. The framework delivers
a thorough view of our risk exposure to inform
our decision-making and enable the alignment,
effectiveness and efficiency of our strategic, tactical,
operational and compliance processes. The approach
ensures we fulfil our obligations and provides assurance
that our activities are appropriately controlled.
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 and guides management decision-making
across the Group. The risk appetite is reviewed twice
a year at Board-level and is monitored by management
on an ongoing basis.
1. Full committee terms of reference are available on www.hikma.com
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 responsibilities1.
Internal audit provides independent assurance of the
Group’s internal control environment. For more details
on our internal audit approach see page 83.
The ERM office enables and drives the implementation
of effective risk management practices through the
organisation, guides global risk owners in assessing
and reporting their risks, coordinates emerging risk
assessments, and establishes partnerships across
the organisation to promote and develop a responsible
risk culture.
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, tactical, operational and
compliance related opportunities and risks.
As part of the risk governance framework, senior
executives are assigned responsibility for specific
principal risks. These 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.
Risk management occurs across the organisation
Complementary management structures provide assurance over our risk management and internal control through standards, accountability,
oversight, independent and external assessments.
Front-line
management
Compliance
and control
Executive
accountability
Independent
assurance
Board
oversight
Operational activity
Corporate Compliance
Quality Compliance
Executive Committee
Internal audit
Board of Directors
Group Risk Office
Global risk owners
External consultants
Audit Committee
Management reviews
Financial Compliance
Other compliance
teams
External consultants
External audit
CREC
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STRATEGIC REPORT
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 across the organisation.
The ERM office coordinates regular risk assessments
to review management of risks we already know about,
and to identify, analyse and evaluate new and
emerging risks.
These assessments are consolidated through 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.
Risk management in practice
Recognising risk as the effect of uncertainty on
objectives, our ability to manage risk enables delivery
of our objectives. To ensure our assessments and
management of risk are action-oriented we categorise
our risks considering not just significance of risk
exposure, but also the opportunity for management
action, described in the ‘Risk response decision-
making’ section below.
Examples of our risk management in practice are seen
in the ‘Hikma Egypt CCM engagement’ and ‘Hikma
Morocco risk assessment’ case studies on the next page.
Emerging risks
Emerging risks are those that are newly identified and
have the potential to become significant risks for the
Group, those that may already be well known but that
are rapidly changing, or those that are developing over
Risk response decision-making
In our risk assessments we analyse our current risk
exposure (given the controls we already have in
place) and the opportunity for further management
action to mitigate the risk.
Risks with higher risk exposure and opportunity
for further management action are categorised as
‘Priority focus’.
Risks with higher risk exposure but without
reasonable opportunity for further management
action are ‘Closely monitor’ risks.
Risks assessed as having lower risk exposure are
either ‘Improve’ if there are reasonable actions that
management can take, or ‘Continue to operate’ if
no additional actions are considered necessary.
This approach helps guide our decision-making for
risk response, prioritisation, and allocation of
resources across the Group.
e
r
u
s
o
p
x
e
k
s
i
R
Risk management
activities in 2021
Reviewed the risk
management framework,
risk appetite, and
principal risks
Monitored enterprise-wide
key risk indicators aligned to
risk appetite to assess risk
exposure
Developed long-term
climate related risk scenario
models
Enhanced business
continuity management for
all manufacturing facilities
Refined scenario modelling
approach for significant risk
events based on principal
and emerging risks
a longer term that 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 the risks and opportunities
recognising these 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 2022
In addition to core activities, in 2022 we will further
embed our crisis and continuity management
processes to strengthen our organisational resilience,
with a focus on reviewing and integrating our IT
Continuity and Disaster Recovery capabilities.
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 Task Force on Climate-
related Financial Disclosures (see pages 50–52 for
more details).
In line with good practice, we will conduct an
independent external assessment of our risk
management programme to provide assurance to
management and the Board.
Closely monitor
Priority focus
Continue to operate
Improve
Opportunity for further management action
Risk management
activities occur at
all levels of the
organisation
Case study: Hikma Egypt CCM engagement
Our Crisis and Continuity Management (CCM)
Programme is designed to develop and embed
capabilities across all parts of Hikma for key CCM
disciplines: Crisis Management, Business Continuity
(including IT Continuity and Disaster Recovery), and
Emergency Response.
Country and site engagements coordinated by the
CCM Programme provide local management teams
with a structured approach to focus on this risk
management activity with access to internal and
external subject matter expertise, and the opportunity
to share good practice across the Group.
The CCM engagement with Hikma Egypt was one of
many such projects completed in 2021 and followed
a tried and tested project plan.
After initial kick off with the General Manager and
senior leadership team members, local and
programme subject matter experts for each of the
CCM disciplines reviewed existing arrangements,
assessed changes in the organisation and business
priorities, and updated processes and procedures.
All locations, business activities, departments and
key dependencies were considered.
The culmination of the engagement were CCM
workshops and exercises that provided training
for local management in handling various types
of disruption.
Case study: Hikma Morocco
risk assessment
Aligned to the Group-level enterprise risk
management process, cross-functional country-
level risk assessments are conducted periodically.
The ERM Office partners with Compliance to
coordinate these engagements and provide
support to local leadership teams in identifying,
analysing and evaluating risks, and to connect
with regional and Group functions for support
and expertise.
The engagement with Hikma Morocco was
one of many projects completed in 2021. The
project was delivered with a hybrid on-site and
remote support.
Through local functional risk workshops and
senior management reviews the understanding
of the risks facing Hikma Morocco was enhanced
and risk response decisions taken for ‘Priority
focus’ and ‘Improve’ risks.
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STRATEGIC REPORT
Risk management
continued
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 input from executive
management. Through this assessment, the Board has determined that the principal risks facing the Group have not materially changed over
the year and that there are no new principal risks to be added. The set of principal risks should not be considered as an exhaustive list of all the
risks the Group faces. Certain risk factors are outside the control of management.
The Board recognises that the principal risks are dynamic and that management of these risks must be continuous as the risk environment
changes. The Board is satisfied that the principal risks are being managed appropriately and consistently with the target risk appetite.
Effectively managing these risks is directly linked to the performance of our strategic KPIs (see pages 22–23) and the delivery of the strategic
priorities outlined on pages 6–9. Our principal risks are set out below with examples of management actions that help to control the risk; the
actions described do not include all actions taken by management.
Industry dynamics
Risk description
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.
– Growth and expansion in existing markets and by entering new geographic areas eg Canada and France
– Capital investment in the countries in which we operate to ensure continued market access eg sterile
injectable 503B compounding business in the US, Algeria oral oncology
– Development of capacity and diversification of capability through differentiated technology
– Collaboration with external partners for development and in-licensing partnerships
– Continuous alignment of commercial and R&D organisations to identify market opportunities and meet
demand through internal portfolio
– Active product life cycle and pricing management
– 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
Product pipeline
Risk description
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.
– Invested in R&D with development of existing facilities, including a new R&D site for complex injectables in
Warren, New Jersey
– Developed R&D expertise to develop complex generic products
– Established dedicated in-house laboratory and developed external partnerships to mitigate extractables and
leachables for container closure systems risk profile in line with developing regulatory requirements
– Bolstered pipeline through business development deals and established strategic partnerships to introduce
new technologies in our regions
– Recruited new talent (eg Head of Development in MENA) and developed internal capabilities (eg clinical
expertise, injectable formulation)
Organisational development
Risk description
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.
– Advanced our Diversity, Equity and Inclusion programme with global and local initiatives
– Launched global leadership development programmes to support our growth and the evolution of our culture
– Strengthened teams with key talent appointed to fill strategic regional and global positions, including
development of change management capability
– Advanced our succession management process to improve our resilience in key positions
– Globalised our talent acquisition process
– Continued to create flexible working environments in response to COVID-19 challenges to support our
employees and their families
– Continued to drive standardisation of HR processes through Group-wide human capital management system
– Continued to deploy enhanced learning materials to support employees through the organisation-wide
learning management system
Reputation
Risk description
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.
– Internal and external monitoring and management of issues that may impact reputation
– External communications initiatives
– Investor and analyst engagement activities
– Established working group to integrate environment and climate-related matters into the business
– Conducted financial impact analysis of climate-related risks and opportunities (see page 51)
– Developed comprehensive Acting Responsibly framework (see pages 37–49)
– Established and developed strategic industry and community partnerships
– Deployed internal communication programmes to support employee engagement
Ethics and compliance
Risk description
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.
– Updated Code of Conduct and various Corporate Compliance policies, including Conflict of interest,
Speak Up, Third party due diligence, and Non-retaliation
– Strengthened Compliance leadership team, including US Compliance Officer role
– Active participation in international anti-corruption initiatives, including the Partnering Against
Corruption Initiative (PACI) and the Business 20 Anti-Corruption Working Group (see page 48)
Information and cyber security, technology and infrastructure
Risk description
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.
– Strengthened IT leadership team and rolled out new operating model
– Continual assessment and enhancement of cyber controls to support business strategy and
changing threat landscape
– Initiated a strategic IT continuity and disaster recovery programme to validate resilience
– Developed management of Segregation of Duty structure for Financial systems in line with
business requirements
– Launched implementation of enhanced Global QMS to mitigate legacy application risk
Legal, regulatory and intellectual property
Risk description
Management actions
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
– Continued to manage complex litigation activity related to the manufacture, sale and distribution of
opioid products
– Developed and updated policies and procedures in response to changes in the risks facing the Group,
including the protection and security of personal data, the registration and maintenance of IP assets, and
compliance with economic sanctions, export controls and trade restrictions
– Provided oversight on pricing committees assessing price increase to ensure thorough assessment
of business needs
– Implemented controls and procedures to address risk of IP litigation in jurisdictions where Hikma markets
its products
– Internal communication and training to raise awareness, ensure understanding and build a compliance culture
across the organisation
– Ongoing assessment and monitoring of general litigation activity in the US pharmaceutical environment
– Engaged external counsel for independent specialist advice
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STRATEGIC REPORT
Risk management
continued
Principal risks and uncertainties continued
Inorganic growth
Risk description
Management actions
Identifying, accurately pricing and
realising expected benefits from
acquisitions or divestments,
licensing, or other business
development activities.
– Maintained a healthy pipeline of opportunities to achieve Hikma growth strategy
– Entered the US biosimilar market via licensing deals with Gedeon Richter and Bio-Thera
– 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
– Extensive Board engagement to review 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
Risk description
Management actions
Maintaining availability of supply,
quality and competitiveness of API
purchases and ensuring proper
understanding and control of
third-party risks.
– Maintained rigorous selection and qualification process for new API suppliers
– Strong focus on building long-term supply contracts and strategic partnerships
– Continued to secure API supply continuity for high-value products through qualification of alternate suppliers,
stocking strategies and supply chain modelling
– Strengthened alignment with R&D and commercial teams to support scale up of API requirements for
product launches
– Increased sourcing capabilities and presence in key API markets to secure access to capacity and innovation
– Third party due diligence process for onboarding and continuous monitoring of third-parties fully automated
Crisis response and business continuity
Risk description
Management actions
Preparedness, response, continuity
and recovery from disruptive events,
such as natural catastrophe,
economic turmoil, operational
issues, pandemic, political crisis,
and regulatory intervention.
– Responded to disruptive events with values-led decision-making and prioritising the protection of the health
and safety of our employees and patients
– Embedded our crisis and continuity management (CCM) programme
– Standardised business impact analysis and updated business continuity plans for all manufacturing sites
– Aligned IT Continuity and Disaster Recovery and CCM programmes
– Continued crisis management training to employees across the organisation to develop our resilience capability
– Established a CCM community of practice to develop expertise across the Hikma network
Product quality and safety
Risk description
Management actions
Maintaining compliance with current
Good Practices for Manufacturing
(cGMP), Laboratory (cGLP),
Compounding (cGCP), Distribution
(cGDP) and Pharmacovigilance
(cGVP) by staff, and ensuring
compliance is maintained by
all relevant third parties involved
in these processes.
– 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
– Facilities maintained as inspection-ready for assessment by relevant regulators
– Continuously improved documented procedures and conducted 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
– Strengthened teams to respond to changing PV requirements, particularly in MENA
– Upgraded global product portfolio system to improve access to accurate and timely product information
Financial control and reporting
Risk description
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.
– Strengthened leadership team with key appointments, including US CFO, MENA Finance Director, and Head
of Financial Compliance
– Initiated source to pay transformation project to digitise source to contract and procure to pay processes
– Mitigated segregation of duty risks with roll out of access control module and standardised authority matrix
– Introduced data mining methods to enhance financial compliance monitoring activities
– Automated additional finance processes, including Order to cash, Making Tax Digital
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STRATEGIC REPORT
Risk management
continued
Severe but
plausible downside
risk scenarios
are used to test
the viability of
the Group
Financial covenants are suspended while the Group
retains its investment grade status from two rating
agencies1. Nevertheless, the covenants are monitored
and the Group was in compliance on 31 December
2021 and expects to remain in compliance with those
covenants for the year ending in December 2022 even
in the severe but plausible downside scenarios. As of
31 December 2021 the Group’s investment grade rating
was affirmed by S&P and Fitch.
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.
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 refinance 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 18-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.
Going concern and longer-term
viability
In accordance with the UK Corporate Governance
Code provisions 4.28–31 and other regulatory
disclosure requirements, Going concern and longer-
term viability assessments are provided.
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 18–19).
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 2021):
– net cash flow from operating activities was
$638 million
– overall net debt was $420 million (0.6 times
core EBITDA)
– available borrowing capacity is $1,086 million of
committed undrawn long-term (see Note 28 of the
Group consolidated financial statements on page
160). These facilities are well-diversified across the
subsidiaries of the Group and are with a number of
financial institutions
Our assessments
show that Hikma is
resilient to
downside risk
scenarios
– Scenario 7: Climate change (ER): Disruption through
extreme weather events was assessed with storms
and flooding events impacting certain facilities
resulting in property damage and business
interruption (see also our disclosures related to
climate change on pages 50–52)
– Scenario 8: Information and cyber security,
technology and infrastructure (PR): Cyber attacks
impacting endpoints and ERP systems were
modelled with potential loss of sales, general business
interruption, and response and remediation costs
Longer-term viability analysis
The consequences of each of these severe but
plausible 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 the ‘CEO’s strategic
review’ (pages 6–9), ‘Our markets’ (pages 18–19),
and ‘Our business model’ (pages 20–21).
Longer-term viability
Viability period
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 2024.
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),
assessments of longer-term emerging risks (ER),
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.
The following hypothetical severe but plausible
multi-event risk scenarios were assessed.
Longer-term viability scenarios
– Scenario 1: Industry dynamics (PR): Significant
adverse changes to the pricing environment
including price erosion over and above business plan
assumptions were considered in addition to currency
devaluation effects for various MENA markets
– Scenario 2: Product pipeline (PR): Significant
and extensive delays to strategic product launches
were assessed, in particular for complex and
specialty products
– Scenario 3: Ethics and compliance (PR): The
implications of a systemic failure of the corporate
compliance programme leading to a regulator
investigation were explored, including reputational
impact, fines and legal fees, loss of sales, remediation
expenses, and additional compliance costs
– Scenario 4: Product quality and safety (PR):
A prolonged regulator-imposed restriction of a
major US FDA-inspected manufacturing plant was
modelled factoring in loss of sales, remediation
expenses, as well as reduction to operating costs
– Scenario 5: Crisis response and business continuity
(PR): Escalation and development of situations of
political and social instability in MENA markets were
assessed with loss of sales recognised
– Scenario 6: API and third-party risk management
(PR): Significant disruptions to our raw and
packaging materials supply chain were modelled,
as well as increased import tariffs and global
inflationary pressures
62
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63
1. Fitch, Moody’s and S&P or any of their affiliates or successors.
STRATEGIC REPORT
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
Principal risks
– Our diversified business model allows us to respond
to 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
– Our business model, pages 20–21
– Risk management, pages 54–63
Environmental
matters
– We are committed to making our operations more energy
efficient and environmentally responsible
– We are improving the way we monitor our impacts,
– Protecting the environment, pages 44–47
– GHG emissions reduction target, page 45
– Climate-related risks and opportunities and their
pursuing projects that reduce our footprint
impact, pages 50–52
– We have put in place a target to reduce our Scope 1 and 2
GHG emissions by 25% by 2030, using a 2020 baseline
– We are aligning our internal processes and our
public disclosures are consistent with the Task
Force on Climate-related Financial Disclosures
(TCFD recommendations
– Board-level oversight of environmental sustainability
– 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.8,700 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
– Stakeholder engagement: Employees, page 13
– Empowering our people, pages 42–43
– Code of Conduct1
– Upholding ethical standards and acting with
integrity, pages 48–49
– Group Environmental, Health and Safety
Policy Statement1
– Principal risk: Organisational development,
page 58
– Stakeholder engagement, pages 12–17
– Advancing health and wellbeing, pages 38–41
– Addressing drug shortages in the US1
– Animal testing position1
– Principal risk: Reputation, page 59
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
– Upholding ethical standards and acting with
integrity, pages 48–49
– Modern slavery act policy statement1
– Use of products in capital punishment1
– Principal risk: Reputation, page 59
– 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
– Upholding ethical standards and acting with
integrity, pages 48–49
– Code of Conduct1
– Principal risk: Ethics and compliance, page 59
– Compliance, Responsibility and Ethics
Committee report, pages 87–88
Non-financial KPIs
– We monitor the position, performance and impact of
Hikma across a wide range of financial and non-financial
KPIs. Non-financial KPIs are used to measure progress
towards our strategic priorities (pages 22–23), our
exposure to risks (pages 58-61), 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
– Voluntary and involuntary turnover, page 42
– GHG emissions reduction target, page 45
– Minimising our impact on the planet, pages 44–47
– Employees enablement and engagement,
page 23
– Audit Committee report, pages 83–86
– Compliance, Responsibility and Ethics
Committee report, pages 87–88
The Strategic report was approved by the Board of Directors and signed on its behalf by:
Sigurdur Olafsson
Chief Executive Officer
23 February 2022
1. Our public policies, codes and statements are available on www.hikma.com
64
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65
STRATEGIC REPORT
Corporate governance
Chair overview
During the year,
we reviewed our
governance approach,
made enhancements,
and confirmed the
strength of our existing
arrangements.
In this section
67 Chair overview
68 Corporate governance at a glance
70 Leadership
74 Structure
80 Nomination and Governance Committee
83 Audit Committee
87 Compliance, Responsibility and Ethics Committee
89 Remuneration Committee
93 Remuneration policy summary
96 Annual report on remuneration
111 Directors’ report
66
Hikma Pharmaceuticals PLC Annual Report 2021
by the Board, we launched our sterile injectable compounding
business in the US, which will bring the high-quality systems of a
major pharmaceutical manufacturer to the niche compounding
market. Overall, the Board is confident that the Group is well
positioned to continue to deliver on our pipeline and improve
patients’ access to high-quality, affordable medicines.
During 2020, following engagement with our colleagues and a thorough
review of our culture by the Board, we introduced a new set of corporate
values which focused on being caring, innovative, and collaborative.
These values build on my father’s vision of Hikma as a company with
high ethical standards, where our people thrive in a supportive
environment. The majority of the Board met and worked with my father,
and so have first-hand experience of how he wanted to develop our
culture. In the Boardroom, we are reminded of our values regularly
and are guided by them when making decisions such as acquiring
Custopharm (being innovative), supporting our team in Lebanon during
the country’s challenging period (caring), and the nature of relations
between the Board and the Executive Committee (collaborative). During
2021, the Executive team undertook significant efforts to promote these
values throughout the organisation. The team and the Chief Executive
Officer presented to the Board updates on progress and feedback from
colleagues throughout the year. Further details are available on page 8.
Strong governance and strategy
ESG
Early in 2021, we determined that our Board of Directors would have
overarching oversight of our ESG strategy including environmental
aspects and TCFD strategy and reporting. This builds upon the work
of our board committees that have responsibility for certain elements
of our ESG work streams. The Chief Executive Officer has
fundamentally reviewed and enhanced the Group’s ESG strategy with
a particular emphasis on the Group’s emissions and impact on the
environment. Further information is available in our new and
enhanced disclosures on pages 36 to 52.
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 Chief
Executive Officer and has been developed to ensure that we comply
with social distancing requirements.
This year’s activities included participation in:
– a site visit to the Columbus facility and meetings with employees
– the 2021 Global Leadership Conference which included c.160 of the
Group’s leaders
– Chief Executive Officer virtual briefings to all colleagues
Nina formally reports to the Board on her findings at each
meeting 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 needs and perspectives of our customers, suppliers,
employees, investors and the communities in which we operate.
Further details are available on pages 12 to 17. If there are any matters
that you wish to discuss, please do not hesitate to contact me.
Said Darwazah
Executive Chairman
Hikma Pharmaceuticals PLC Annual Report 2021
67
Said Darwazah
Executive Chairman
Dear Shareholders
The past year has involved steady progress in the development of the
Board and the governance of our organisation, including undertaking
a full board evaluation process with an external expert. The process
ensured that the Board assessed and challenged its approach to ensure
we obtain the maximum value from our Board meetings. We have
made several enhancements as a result, and I am pleased to report
that our overall approach to governance continues to be effective.
Board practices
The continuation of the COVID-19 pandemic has resulted in further
development of our Board practices. Whilst the Board continues to
operate effectively in a virtual environment, we managed to bring the
members together for two meetings in the second half of the year. We
have found that in person meetings have significant benefits in terms of
social cohesion, innovation and development. At the same time, virtual
meetings have significant benefits in terms of time efficiency, availability
and focus. As we move forward, the Board will operate in a hybrid
environment bringing together the benefits of both of these approaches.
Board and Committee composition
Over the last few years we have brought several new Directors onto
the Board, said goodbye to Independent Directors of longer tenure,
and transitioned the Chairs of the Audit Committee and Nomination
and Governance Committee. Accordingly, during 2021, we have not
made any changes to our Board.
Dr. Pamela Kirby, our chair of the Remuneration Committee, has
decided not to seek re-election at the Annual General Meeting.
I would like to thank Pam for her dedicated and thoughtful leadership
of the Committee. Nina Henderson has kindly agreed to lead the
Committee going forward.
As we move into 2022, we will be looking to take steps to refresh the
Board and prepare for further succession. During this exercise, we will
be cognisant of our gender diversity target (see page 81 for further
details). As has been our practice for several years, we desire for new
Directors to have time to understand the culture, history, and
operations of Hikma before undertaking additional responsibilities.
Culture and strategy
The Board reviewed and approved management’s plans for several
strategic initiatives during the year, including the expansion of our
pipeline through investments in biosimilars and the acquisition of
Custopharm. We further approved management’s proposal to expand
the capacity of our specialist injectables business. In the second half
of 2021, we conducted our annual strategic review, in which we
confirmed our progress and assessed several new opportunities. At
the end of the year, following two years of oversight and development
GOVERNANCE
Corporate governance
At a glance
Highlights 2021
Priorities 2022
– Undertook a full interview-based Board evaluation with
– Seeking to increase independent representation on the Board
Independent Audit
– Consider succession for the Committee chairs and additional
– Developed the medium-term succession plan for Non-Executive
responsibilities
Directors and Executive management
– Making further progress towards achieving our gender
– Embedded and strengthened the Board and Committee changes
diversity target
made in 2020
– Implementing changes to our governance structure in an orderly
– Moved to a hybrid meeting approach, gaining the benefits of both
and considered manner
in-person and virtual arrangements
Experience
The percentage of the Board with direct experience in the
following areas:
Geographical experience
Pharmaceutical
Manufacturing
Sales
Commercial
100%
Global
80%
80%
90%
US
MENA
Europe
Regulatory and political
100%
UK
100%
90%
50%
90%
70%
Listed environment
Finance
Strategy and risk
Business ethics and integrity
Human resources
Governance
Country of origin
Iceland
UK
USA
Ireland
Jordan
100%
100%
100%
80%
90%
100%
68
Hikma Pharmaceuticals PLC Annual Report 2021
Attendance
Directors
Said Darwazah
Siggi Olafsson
Mazen Darwazah
Pat Butler1
Ali Al-Husry
Dr Pamela Kirby
John Castellani
Nina Henderson
Cynthia Flowers
Douglas Hurt
Meetings attended
(9 scheduled and 2 unscheduled)
11/11
11/11
11/11
10/11
11/11
11/11
11/11
11/11
11/11
11/11
%
100%
100%
100%
91%
100%
100%
100%
100%
100%
100%
1. Pat Butler was unable to attend one meeting called at very short notice. A time had
been chosen to achieve maximum attendance and, unfortunately, it meant at least
one Director would not be available.
Time
Corporate governance
Financial performance
Performance and operations
Risk
Strategy and acquisitions
2021
10%
13%
11%
5%
60%
2020
13%
14%
30%
12%
31%
2021
2020
Composition
Diversity (as at 31 December 2021)
February
2022
February
2021
Board
Executive Committee
Executive Chairman and Chief Executive Officer
Other Executive Directors
Non-Independent NED
Independent NED
20%
10%
10%
60%
20%
10%
10%
60%
2022
2021
Women
Men
3 (30%)
7 (70%)
Women
Men
3 (27%)
8 (73%)
Independent Director tenure (as at 23 February 2022)
Minority Ethnic1
White
3 (30%)
7 (70%)
Minority Ethnic1
White
7 (64%)
4 (36%)
0—3 years
4—6 years
7—9 years
Number
2
2
2
%
33%
33%
33%
Executive Committee reports2
Group
Women
Men
22 (31%)
50 (69%)
Women
Men
2,978 (35%)
5,613 (65%)
Minority Ethnic1, 3
White
43 (60%)
29 (40%)
1. Minority Ethnic data relates to colleagues who identify with one of the relevant
categories under the Parker Review data collection exercise
2. People reporting to members of the Executive Committee
3. Data from Hikma’s US operations only
Hikma Pharmaceuticals PLC Annual Report 2021
69
GOVERNANCE
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, 64
EXECUTIVE CHAIRMAN
SIGGI OLAFSSON, 53
CHIEF EXECUTIVE OFFICER
MAZEN DARWAZAH, 63
EXECUTIVE VICE CHAIRMAN, PRESIDENT OF MENA
JOHN CASTELLANI, 71
INDEPENDENT NON-EXECUTIVE DIRECTOR
NINA HENDERSON, 71
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:
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 extensive leadership roles at Hikma.
Qualifications: Industrial Engineering degree from
Purdue University, MBA from INSEAD.
Other appointments: Chairman of the Queen
Rania Foundation and Chairman of Royal
Jordanian Airlines. Vice Chairman of Capital Bank,
Jordan. Board Member of INSEAD, and Dash
Ventures Limited.
Experience: Siggi has significantly enhanced the
leadership and strategy of the Group since joining
as Chief Executive Officer in 2018. 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.
Experience: Mazen has led and expanded our
business in MENA region and is a Group-level
strategic ambassador in his role as Vice Chairman.
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: None.
Other appointments: Senator in the Jordanian
Senate. Trustee of Birzeit University and King’s
Academy. Member of the HM King Abdullah
Economic Policy Council.
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 Johns 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.
Business ethics and integrity
Commercial
Finance
Governance
Human resources
Listed environment
Manufacturing
Pharmaceutical
Regulatory and political
Sales
Strategy and risk
A
C
N
R
A
C
R
A
N
R
A
C
N
R
PATRICK BUTLER, 61
SENIOR INDEPENDENT DIRECTOR
ALI AL-HUSRY, 64
NON-EXECUTIVE DIRECTOR
DR PAMELA KIRBY, 68
INDEPENDENT NON-EXECUTIVE DIRECTOR
CYNTHIA FLOWERS, 62
INDEPENDENT NON-EXECUTIVE DIRECTOR
DOUGLAS HURT, 65
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 and Mischon de Raya PLC. Director
of The Ardonagh Group Limited and Res Media
Limited. 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.
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.
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. 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. and G1 Therapeutics
Inc., where she chairs the Compensation
Committee. 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 Partnerships PLC and British
Standards Institution. Senior independent director
of Countryside 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/
70
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71
GOVERNANCE
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 70.
Joined: 1985
Nationality: Jordanian
For further biographical details
please see page 70.
Joined: 2001
Nationality: Jordanian
Role: Khalid is responsible for Group finance,
including reporting and capital management.
Khalid has held several financial positions during
21 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 21 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 37 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
Programme 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 Programme.
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 is responsible for the Business
Operations division which includes Risk, IT, ESG,
and Digital and Business Improvement. In addition,
Henriette assumes the overall responsibility of
Hikma Ventures, Hikma’s venture capital fund.
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: Law Degree from the University
of Copenhagen. Master of Laws from the University
of Edinburgh.
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/
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73
GOVERNANCE
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) published
in July 2018 and the Markets Law of the Dubai Financial Services
Authority (the Markets Law). The report on pages 67 to 114 describes
how the Board has applied the Main Principles of the UK Code and
Markets Law throughout the year ended 31 December 2021. 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. Throughout the year and up until the date of this report, Hikma
was in compliance with the UK Code other than in respect of the
Executive Chairman position, the degree of direct engagement with
the workforce regarding executive remuneration (which is discussed
in the Remuneration report on page 90), and the Chief Executive
Officer’s pension contribution level being slightly less than 5% above
the general workforce (which is discussed in the Remuneration report
on page 90). The Board considers that the areas of non-compliance
are likely to continue for the medium-term. 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.
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 valuable 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
2021 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 discharge 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
c.16 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
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. The Chief
Executive Officer makes strategic proposals and reports on
operational developments to the Board.
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.
Non-Executive Directors
Independence
The Board 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
Flowers 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, having held 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 2021
are included in the Chair’s statement on page 67.
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 regularly 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.
The Executive Chairman works with the Chief Executive Officer
and the Senior Independent Director to develop the priorities and
agenda for the Board and its Committees, to agree action points
and minutes arising from meetings, and formulate appropriate
responses to governance matters such as succession, effectiveness
and regulatory developments.
As the Chairman is active in the strategic leadership of the business,
Hikma maintains a balance of independence through placing a
greater emphasis on the role of the Senior Independent Director
(SID). The SID is actively involved in the agenda setting process
working together with the Chief Executive Officer and consulting with
the Executive Chairman. The SID takes responsibility for working with
the Company Secretary on matters around Board process and
non-executive succession. Additionally, the SID works with the
Executive Chairman to review and agree the action points and
minutes arising from meetings, to ensure that meetings maintain
focus on independent oversight, and to formulate appropriate
responses to governance matters such as Board information,
effectiveness and the Board’s response to regulatory developments.
The Chief Executive Officer works with the Executive Chairman in
matters such as strategy, addressing points raised by the Board and
its Committees, developing plans for executive succession, and the
Company’s culture. The Chief Executive Officer engages with other
Directors as required in the delivery of his role. The Chief Executive
Officer facilitates and guides the Board’s discussions on matters
relating to business development, capital expenditure, operational
performance, and organisational development.
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75
GOVERNANCE
Structure
UK Governance Code continued
The Board holds approximately nine scheduled meetings a year and
also meets as required. The Board agenda comprises matters from
the regular cycle of work (eg Annual Report, budgeting, results
announcements and dividend), ad hoc matters arising from action
points, the implementation of strategy (eg business development
and acquisitions) and regulatory, risk, and operational developments.
The Executive Chairman, Senior Independent Director and Chief
Executive Officer work together to agree the agenda for meetings,
the action points arising, and in leading Board meetings on
different topics.
In the light of the suggestions contained in the 2021 report on the
Board’s effectiveness, during the year the Board introduced some
changes to the way Board meetings work. Board meetings are now
typically divided into three parts:
– The first part of the meeting is conducted without management
present. The Executive Chairman provides an overview of the
meeting business to be considered by the Board. The Chief
Executive Officer outlines matters of importance in terms of the
operational developments of the Group and the meeting business.
The Executive Chairman and Senior Independent Director lead
discussions regarding governance matters
– For the second part of the meeting, the Executive Committee
members join to present subject areas for which they are
responsible, to ensure wider awareness of matters of importance
to the Group and to assist with their personal development and
succession planning
– The final part of the meeting occurs without management, it
provides the Board’s Committees and Director responsible for
employee engagement with an opportunity to report on their work
and for Directors to privately discuss and consider matters arising
from the second part of the meeting
The Company Secretary attends for the entirety of Board and
Committee meetings to ensure that records are retained and advice
is provided as required. The Company Secretary does not attend
meetings of the Independent Directors or meetings between the
Executive Chairman and the Independent Directors, which occur at
least twice a year.
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 on a bi-annual basis.
Further information on the Group’s activities that relate to culture is
available on page 8.
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.
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
Nominations and Governance Committee 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 70 to 71.
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 78 to 110. 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.com).
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77
GOVERNANCE
Structure
Committee overview
Nomination and
Governance Committee
Audit Committee
Compliance, Responsibility
and Ethics Committee
Remuneration Committee
2021 highlights
2021 highlights
2021 highlights
2021 highlights
– Undertook an externally assisted, interview and observation based
– Planned for the succession of the senior statutory auditor
– Engaged with our Group-wide review of our environmental and
– Monitored progress against performance targets, including the milestones
Board evaluation
– Continued to monitor developments arising from the internal
CSR strategy
for the business plan
– Considered the key aspects of the medium-term succession plan for
audit programme
– Continued to monitor ABC compliance developments and our speak
– Developed ESG performance targets for the CEO
Non-Executive Directors
– Reviewed the new plan for executive succession and assessment of
executive capabilities and development
– Reviewed plans for managing distributable reserves
– Reviewed further enhancements to our risk programme
2022 priorities
2022 priorities
up programme
– Continued to enhance the linkage between employees and executive
– Completed third-party due diligence process across remaining
compensation matters
geographies
– Benchmarked executive compensation including reviewing regional
– Reviewed the Group’s data protection arrangements following the Board’s
variations to structure
request that the Committee assume responsibility for this area
– Considered management’s proposals to further enhance our cross-border
trade procedures
2022 priorities
2022 priorities
– Seek additional independent representation on the Board
– Induction of the new senior statutory auditor
– Assist with the delivery of the ethical and social responsibility aspects of
– Review the remuneration policy and its alignment with the Group’s strategy
– Seek to further enhance gender diversity at the Board
– Monitoring and enhancing our risk and internal audit programmes
– Review the roles and responsibilities of Independent Directors including
– Continuously improving our disclosures
the chairing of Committees
– Further develop the plan for succession of Executive Directors
– Review Board structure and plan for succession of the Committee Chairs
and additional responsibilities of Independent Directors
our ESG programme
and business environment
– Continue to monitor our reporting lines and business integrity processes
– Monitor progress against the ESG targets for the Executive Directors
– Review the delivery of process enhancements across our programmes
– Manage the transition to a new Committee chair
Allocation of time
Allocation of time
Allocation of time
Allocation of time
Corporate governance
Independence
Skills and experience
Succession
50%
17%
11%
22%
Corporate governance
External audit
Financial performance
Forecast and accounting
Internal audit
Risk
3%
16%
24%
24%
19%
14%
41%
ABC programme
Anti-trust, AML and trade sanctions 20%
14%
Corporate governance
25%
ESG and CSR
Wider employee issues
Corporate governance
Developing practices
Setting executive remuneration
17%
15%
33%
35%
Members and attendance
Member
Pat Butler (Chair)
Mazen Darwazah
Nina Henderson
Cynthia Flowers
Douglas Hurt
Meetings
3/3
3/3
3/3
3/3
3/3
Attendance
100%
100%
100%
100%
100%
Members and attendance
Member
Douglas Hurt (Chair)
Pat Butler
Dr Pamela Kirby
John Castellani
Nina Henderson
Cynthia Flowers
Meetings
4/4
4/4
4/4
4/4
4/4
4/4
Attendance
100%
100%
100%
100%
100%
100%
Members and attendance
Member
John Castellani (Chair)
Siggi Olafsson
Mazen Darwazah
Pat Butler1
Dr Pamela Kirby
Nina Henderson
Douglas Hurt
Meetings
4/4
4/4
4/4
3/4
4/4
4/4
4/4
Attendance
100%
100%
100%
75%
100%
100%
100%
Members and attendance
Member
Dr Pamela Kirby (Chair)
Pat Butler
John Castellani
Nina Henderson
Cynthia Flowers
Douglas Hurt
1. Pat Butler was unable attend the meeting due to a pre-arranged commitment.
Meetings
4/4
4/4
4/4
4/4
4/4
4/4
Attendance
100%
100%
100%
100%
100%
100%
The full Committee report is on pages 80 to 82.
The full Committee report is on pages 83 to 86.
The full Committee report is on pages 87 to 88.
The full Committee report is on pages 89 to 110.
Please visit our website for more information on Committees: www.hikma.com/investors/corporate-governance/key-committees
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GOVERNANCE
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 69 and 81). I am pleased to report that
the NGC confirms that the Board continues to operate effectively
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 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 development
of biosimilars, healthcare business development activity, crisis
management, 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, if required to facilitate an orderly transfer of
responsibilities, the next Annual General Meeting (AGM) of the
Company following the ninth anniversary of their appointment. Their
appointments are formally reviewed after three years and at six years
a more rigorous review process is undertaken.
Other than Dr Pamela Kirby, each member of the Board will stand for
election or re-election at the 2022 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 their external commitments 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
and Senior Independent Director
Dear Shareholders
I am writing to you in my roles as the Senior Independent Director and
Chair of the Nomination and Governance Committee (NGC). In these
roles, I help steer the development of the Group’s governance and
succession arrangements.
Succession
The Committee oversees succession for both executives and
Independent Directors. In terms of executives, the Committee
is responsible for the Executive Directors and for ensuring that
appropriate arrangements are in place for senior positions below
Board level.
Executive
During 2021, the Board reviewed and updated the succession plan
and talent development framework that seeks to ensure that we have
arrangements to manage executive succession. The medium-term
plans have been discussed and developed taking into account views
from a wide range of stakeholders within Hikma. These plans were
presented to and discussed by the whole Board.
In terms of succession for Executive Directors, the Committee has
considered the potential for medium-term change, taking into
account the assessment of internal talent, and has the necessary
relationships with executive recruitment specialists. As a result, the
Committee considers it is well positioned.
Independent
During 2019 and 2020 we welcomed two new directors and in late
2020 we transitioned the Senior Independent Director role and chairs
of the Audit Committee and NGC. These changes have allowed us to
use 2021 to develop a new plan for the succession of Independent
Directors over the medium term. Dr Pamela Kirby is standing down at
the Annual General Meeting and I will reach nine years’ service in
2023. Accordingly, we will be looking to find candidates to increase
the level of independent representation on the Board during the
course of 2022. During this process, the NGC will be mindful of the
Board’s commitment to have at least 33% Directors identifying as
women. The NGC will also review the additional commitments of
Directors in terms of Committee Chairs and other responsibilities with
a view to ensuring a smooth transition of responsibilities. The Board
considers it is important for those undertaking these additional
responsibilities to have sufficient time to build experience of Hikma
and relationships with relevant colleagues in advance.
In terms of succession for the chairing of Board Committees, I am
pleased to report that Nina Henderson has kindly agreed to continue
Pam’s thoughtful leadership of the Remuneration Committee.
Diversity
The Board 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.
Hikma’s inclusive workplace welcomes
different cultures, perspectives, and
experiences from across the globe
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 69 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, for more information
please see pages 8 and 13. This diversity policy is included in our
Code of Conduct and communicated to all employees. Further detail
on employee diversity is provided on page 69.
The Group’s talent acquisition policies for the three most senior staff
grades require a balanced list of candidates that ensures diversity.
Ethnicity
The Board considers that it has demonstrated strong ethnic diversity
since the formation of Hikma and has three Directors identifying as
Minority Ethnic representing 30% of the Board, including the
Executive Chairman. Accordingly, the Board has achieved and
wholeheartedly supports and adopts the Parker recommendation
to have at least one Director identifying as minority ethnic.
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. The Board
has adopted the Hampton-Alexander target to achieve at least 33%
of Board members identifying as women. The processes to enhance
the level of independent representation on the Board during the
course of 2022 will take into account the 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
structure of the Board, Board Governance Manual, and compliance
with the UK Governance Code and supporting governance guidance.
Evaluation and performance
During 2021, we undertook a full, externally moderated interview
and observations-based Board evaluation with Independent Audit
Limited (IAL). IAL were appointed following a competitive tender
process during 2020. Our previous provider of board evaluation
services had worked with us for circa nine years and the Board
considered it was an appropriate point to refresh our approach. IAL
do not perform any other consultancy services for the Group.
As part of the refreshment of our approach to Board evaluation, we
have adopted the ‘Principles of Good Practice for listed companies
using external Board reviewers’ which were published by the
Corporate Governance Institute in January 2021. We confirm that IAL
have adopted the ‘Code of Practice for Board reviewers’ and that we
have agreed with IAL the description of the Board evaluation process
detailed on this page and the disclosures which reflect opinions
attributed to IAL. IAL started working with the Board in 2021 and have
not provided any other services to Hikma prior to this. In discharging
their duties, several Independent Directors have engaged with IAL as
part of the evaluation work undertaken by other companies and
organisations where they have a governance role.
Process
The most recent evaluation process was coordinated by the Senior
Independent Director at the request of the Executive Chairman.
IAL observed the conduct of one meeting of the Board and each
Committee and conducted a private interview with each Director,
the Company Secretary, and selected members of management.
Based on the observations and feedback. IAL produced a report
which they discussed with the Senior Independent Director and
Company Secretary and, subsequently, with the Executive Chairman.
As a result of these meetings, the Senior Independent Director and
Company Secretary prepared a note for the Board which detailed
a proposed response to the points raised. IAL provided their
feedback on the response note. IAL’s full report and the response
note were subsequently reviewed by the full Board in a meeting
with only Board members, IAL’s representative, and the Company
Secretary present. Further to that meeting, the responses to the
points raised (see the table on this page) were refined and agreed
at a subsequent Board meeting.
The results of the 2021 evaluation process formed part of the
Executive Chairman’s appraisal of the overall effectiveness of the
Board and its members and the assessment of the Executive
Chairman’s performance by the other members of the Board.
Additionally, during the period between assessments, the Directors
suggest and promote improvements as they arise.
Results
Our response to the issues raised in the 2021 Board evaluation
report are:
Observations
Action taken
Facilitating
discussion
IAL noted that
there may be
opportunities for
more extensive
Board discussion
by making
adjustments to
the way in which
information is
shared and
meetings are
structured.
The Board adopted IAL’s recommendation
that there should be more opportunity for
discussions without management present.
Additionally, the Board restructured its
meetings into three parts and requested that
Executive Committee members attend the
information sharing part of the new meeting
structure (which is detailed on pages 75 and
76). This ensures that executives are aware of
the key issues that may affect their Group-
level responsibilities and the Board believes
this makes for a fuller and more informed
discussion and strengthens the relationship
between Directors and management.
The Board adopted IAL’s recommendations
that board time without management should
be adjusted so that they chiefly take place at
the beginning and the end of the meeting.
The Board considered that the Chief Executive
Officer’s highly informative briefing did not
require a written submission as to do so could
reduce the free flowing and informative nature
of the report and, nevertheless, any important
matters were documented in the minutes.
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GOVERNANCE
Nomination and Governance Committee
Letter from the Chair continued
Audit Committee
Letter from the Chair
Observations
Action taken
The Board reviewed the positioning of meeting
business and concluded that the Executive
Chairman should lead the first part of the
meeting where the key discussions are held
on matters related to governance, major
strategic initiatives, and finance. The Board
considers the Chairman’s leadership in the
first part of the meeting ensures that
discussions are appropriately framed and
directors have an opportunity to discuss
aspects without management.
The Board has adapted its agenda to make
clear whether items require approval, input or
are for information only. This has ensured that
less meeting time is spent on matters that are
for information only and the material is
available in advance. The Board considers that
management’s highly informative and
comprehensive papers and presentations
significantly add to the processes for making
decisions and developing ideas and, therefore,
has not significantly altered the processes
related to presenting and positioning matters
for approval or input. All presentations include
an appropriate opportunity for questioning.
The Board has reviewed its governance
disclosure and enhanced the description of
the roles of the Chairman, Chief Executive
Officer, and Senior Independent Director and
the explanation of the way in which meetings
are conducted through the ‘Applied
Governance’ section on pages 75 and 76.
Positioning and
summarising
IAL observed
some meeting
items being
positioned and
summarised by
the presenters
Presentation and
purpose
IAL observed that
improvements
could be made to
the positioning of
papers, defining
their purpose
and setting out
the issues that
the Board may
choose to focus
on in its
discussions.
Furthermore, this
would give an
opportunity to
reduce the length
of management
presentations
Governance
disclosure
IAL observed that
the governance
disclosure in the
Annual Report
could more fully
explain the
conduct of Board
meetings and the
roles of relevant
parties
The evaluation process has helped us
recognise strengths and make further
enhancements
Conclusions and actions
In relation to the most recent assessment exercise, the Board has
reviewed its approach and made modifications where it believes that
additional value can be obtained and has enhanced the disclosure of
its governance arrangements (see pages 75 and 76 for further details).
Additionally, the Board considered that it continued to operate
effectively with particular strengths in the following areas:
– the strategic leadership of the Executive Chairman
– the effective relationship between Executive Chairman and the
Chief Executive Officer
– the commitment to doing the right things
– the energy and dedication of the executive management team and
Board Directors
– our approaches to setting and monitoring risk appetite
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 and
commentary received through the board evaluation process. 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 the relevant Directors be
recommended to shareholders for re-election at the 2022 AGM.
For and on behalf of the Nomination and Governance Committee.
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 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. The next
Board evaluation exercise will be undertaken during 2022 and
reported in the following Annual Report.
Patrick Butler
Chair, Nomination and Governance Committee
23 February 2022
Distributable reserves
The Committee is aware that the FRC is encouraging organisations to
provide greater clarity on their distributable reserves position. During
the year, management re-assessed the Group’s distributable reserves
in line with FRC guidance. The Committee has reviewed and
approved the distributable reserves disclosure in the financial
statements (see page 181 for further details).
The Committee has also reviewed a proposal by management to
convert the Group’s merger reserve (which was created when the
business listed in 2005 and as a result of the acquisition of the
Columbus facility in 2016) into further distributable reserves. This
merger reserve reduction process has been undertaken by several
other listed companies. It is an ordinary course legal procedure
undertaken with guidance from our legal advisers and subject to
shareholder approval at the Annual General Meeting and the
approval of the Court. It should result in the Company’s distributable
reserves increasing significantly in excess of the current dividend
requirements, thereby creating greater flexibility for the future.
Shareholders will find further details of the merger reserve reduction
in the AGM notice on pages 6 to 7.
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.
EY assess each facility and the Group’s major processes over a
three-year period. For major sites, assessments are more frequent.
Management is required to respond to findings within a short time
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 Committee monitored progress with the internal
audit programme for 2021 and reviewed and approved the plan for
2022. EY and management work closely together to deliver the
internal audit plan, develop action plans for points raised, and ensure
that the Committee receives appropriate and timely information. The
Committee is pleased with the progress and commitment of
management and the internal auditors.
During the year, 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.
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 a key audit partner in 2017 before subsequently
becoming the senior statutory auditor in May 2019. Mr Phillips has
served the maximum time allowed on the audit of Hikma and will
hand over his responsibilities to Mr Nigel Comello. Mr Comello is a
partner in the audit practice of PwC who was selected following
internal assessments by PwC. Following a briefing by PwC regarding
the selection process, the Committee reviewed and approved the
appointment. The Committee welcomes Mr Comello to the role and
thanks Mr Phillips for his dedicated service.
Douglas Hurt
Chair, Audit Committee
Dear Shareholders
I am pleased to report that the Committee has had another year
of solid progress in its oversight of the matters delegated to it by
the Board.
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 systems of internal controls and risk management, and the
internal and external audit process.
Ensuring resilience and clear reporting
Pandemic impacts
The COVID-19 pandemic continued to create challenging conditions
in 2021, which required a high level of adaptability and resilience from
our financial reporting and external audit teams. The Committee is
pleased to report that all the relevant processes under its oversight
have continued to operate in an effective manner during the
pandemic. We recognise that we owe a lot to the commitment of our
colleagues and their strong relationships with internal and external
auditors and advisers.
In terms of the impacts of the pandemic on our financial performance,
we have continued to experience changes to the mix of products
required by hospitals and patients. The Group has performed well
throughout the pandemic and at the end of the financial year had
undrawn committed financing facilities in excess of $1,000 million.
The viability statement and going concern assumptions have been
critically reviewed and the Group is in a strong financial position.
Verification
During the year, management reviewed the mechanisms to enhance
the assurance process related to the qualitative disclosures in the
Annual Report (beyond the audit, adviser review and internal review
processes). As a result, the qualitative disclosures have been
reviewed by our internal teams who are responsible for each section
of the Annual Report and who have provided additional verification
and support material in respect of each material statement of fact.
This enhancement assisted the Committee in its determination
that the report and accounts taken as a whole are fair, balanced
and understandable.
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GOVERNANCE
Audit Committee
Letter from the Chair continued
Effectiveness
During the year, the Committee reviewed the work of PwC and
concluded that they provide an effective audit, have constructive
relationships with the relevant parties and that Mr Phillips provided
clear and constructive leadership to the audit team. As part of this
review the Committee examined the following areas:
Fees
Auditor’s fee ($m)
$3.5m
– Audit quality and technical capabilities: the Committee considered
that the auditors undertook an effective and in-depth assessment
and verification exercise in respect of the financial statements and
associated disclosures for the year ended 31 December 2021 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. The Committee’s
policy on the provision of non-audit services is that all such
proposed services require the approval of the Committee in
advance of an instruction. The Committee is satisfied that the
auditors are independent
– 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
and, where appropriate, further strengthened. 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 and the review of the interim financial statements. The
Committee has discretion to grant exceptions to this policy where it
considers that exceptional circumstances exist and that
independence can be maintained, whilst having due regard to the
FRC’s ethical standards for auditors. The Committee’s approval
is required to instruct PwC to perform non-audit services. PwC
provided assurance services related to the interim review and other
audit related assurance work with a value of $200,000 (2020:
$210,000). In 2020, PwC provided services related to the bond
offering totalling $208,000, but no such services were provided in
2021. 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 sixth report that they have audited. PwC rotated
the Senior Statutory Auditor in 2019 and, as noted earlier on this page,
a further rotation will occur in 2022. This follows the Chair of the Audit
Committee being transferred to Douglas Hurt in December 2020. 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.
PwC
1 Jan –
31 Dec 2021
5.7%
1 Jan –
31 Dec 2020
12.0%
94.3%
$3.3m
88.0%
$0.2m
$2.8m
$0.4m
Audit related fees
Other non-audit services
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 the 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 commercial 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.
In respect of the most recent assessment, the scenarios took into
account the Group’s principal risks, management’s view on current
significant risks, and longer-term emerging risks which are detailed in
the viability disclosure on page 63.
The Committee reviewed the outcomes from the scenario analysis
and concluded that the Group could reasonably respond to the
challenges and ensure the continued survival of the business. The
impact of a scenario (involving several risk events) has consistently
been manageable for the Group, while acknowledging that it may
result in a short-term set back. The Directors considered the going
concern position as detailed on page 62. 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 63, 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 2024. See page 63
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: As
in previous years, management undertook the impairment test
exercise in respect of each of the four Cash Generating Units (CGU)
and the Group’s other intangible assets. In respect of the Branded,
Injectables and Generics business divisions that constitute three of
the CGUs, no new impairment indicators were identified and,
therefore, management concluded that the existing headroom
continued to be sufficient. In respect of the Generic Advair Diskus®
CGU, management had recommended an impairment reversal of
$46 million at the half year review and subsequently instructed an
external party to assess the fair value of the CGU less the cost of
sale. Following this valuation, management concluded that no
further adjustment was required. The review of product related
intangibles resulted in an impairment charge of $23 million and an
impairment reversal of $14 million. The Committee reviewed
management’s approach and recommendations and concluded
that the proposals were appropriate.
– 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
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.
– 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 $44 million and in
reviewing the deferred tax assets in key markets which amounted
to $183 million. 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 Liability: Following receipt of a notification from HMRC
in the UK confirming that the Company is not a beneficiary of state
aid, the Group no longer holds a contingent liability relating to
associated UK and EU litigation. The Committee reviewed and
concurred with the conclusion
– Hyperinflationary economies: The Group operates in Lebanon and
Sudan which have experienced inflation in excess of 100% over a
three-year period and, therefore, are considered to be
hyperinflationary economies in accordance with IAS 29. In
accordance with the International Financial Reporting Standards
the financial statements for the relevant entities have been restated
to reflect the current purchasing power using the official exchange
rate of those economies resulting in a reduction to the Group’s net
income of circa $10 million and an increase in the Group’s revenue
of circa $43 million. The Committee reviewed and approved
management’s approach to ascertaining the financial impact of this
event in accordance with the accounting standard
– Cloud based software: In response to the IFRIC April 2021 agenda
decisions regarding cloud computing arrangement customisation
and configuration costs treatment. Management undertook an
assessment of the Group’s software-related intangible assets and
concluded that circa $13 million of assets should be expensed as a
cost instead of being capitalised. The Committee concurred that
the amount was not material to the prior year results and that it
should be treated as an exceptional item in the current year
Understanding the key judgemental
matters
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 a report from the
Reporting Committee, which comprises representatives from finance,
investor relations, risk, communications and governance, following
their comprehensive review of the Annual Report. The Reporting
Committee’s work is supported by divisional and functional heads,
as required. The Reporting Committee’s activities include:
– initiating the review process for the Annual Report significantly
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 2021 Annual Report is fair, balanced and
understandable and has recommended the adoption of the Report
and Accounts to the Board.
Reporting controls
Hikma’s key controls and risk management systems relating to
the financial reporting process include the enterprise resource
planning system, the external audit at subsidiary and Group levels,
the processes in the ‘Fair, balanced and understandable’ and
‘Verification’ sections described earlier in this letter, 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.
Managing risk and uncertainty
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
and we have decided that no adjustments were required in the year
under review. The Board and management have also reviewed the
appetite for those principal risks and have concluded that it remains
appropriate. After a review of those risks that present a greater
potential risk in the near term, the Board received additional
information on the Group’s data security initiatives. Further
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GOVERNANCE
Membership of the Committee
The Committee comprises solely of Independent Directors all of
whom have relevant financial experience. I am considered by the
Board to have significant recent and relevant financial experience
chiefly related to my work with other audit committees, having been
a finance director of another listed entity and having held senior
financial positions in other entities. Biographical details of the
Committee members can be found pages 70 to 71. The Board is
satisfied that the Committee has the resources and expertise to
fulfil its responsibilities.
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
23 February 2022
Audit Committee
Letter from the Chair continued
information regarding the Group’s risk management activities
is available in the Risk management section on pages 54 to 63.
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, where appropriate, approved by the Board
– a defined process for controlling capital expenditure which is
detailed in the governance framework
The Board is satisfied that Hikma’s systems for internal control 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 59 to 61). 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 and non-financial controls
– External auditor: the regular and confidential dialogue with the
external auditor
Compliance, Responsibility and Ethics Committee
Letter from the Chair
Integrity, quality and community
Anti-bribery and corruption
ABC programme
Our ABC compliance programme continues to perform in a highly
effective manner. The ABC programme has strong support from the
Board, the CREC and the Chief Executive Officer. The Chief
Compliance Officer reports to the Chief Counsel and has direct
access to the 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
completed the roll out of new third-party due diligence processes
across all our major areas of operation. Where relevant, appropriate
action has been taken.
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 2021, management reviewed and updated
the Code of Conduct to ensure that it remains appropriate, relevant
and easily understood. The changes were reviewed and endorsed by
the Committee and approved by the Board.
Speak up
The Committee has reviewed the speak up procedures and reports
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
Group-wide reporting software and a communications system
provided by an independent third party. This system ensures that
colleagues can report confidentially or 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 all relevant matters considered by their Committee to
the next Board meeting. Speak up matters are reported and
considered as part of this process.
John Castellani
Chair, Compliance, Responsibility and Ethics
Committee
Dear Shareholders
During 2021, the Compliance, Responsibility and Ethics Committee
(CREC) continued to promote and oversee our commitments to
business integrity, quality, communities and ethical conduct.
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.
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
Corporate Social Responsibility
The Committee oversaw, encouraged and supported the corporate
social responsibility programme which is so clearly linked to our
founder’s desire to improve lives, particularly through health,
educational and development opportunities for the least privileged.
Our social responsibility report provides a detailed assessment of our
key efforts which is available on pages 36 to 53.
Ethical issues
The Committee oversaw Hikma’s response to ethical issues arising
during the year. There are no matters to report.
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GOVERNANCE
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.
Auditing and Monitoring
The Committee receives regular updates on the internal auditing
and monitoring programme conducted by the Hikma Compliance
team. In addition, the Committee retains independent third parties
to conduct periodic audits of the compliance programme and
related activities.
Doing the right thing and ensuring
compliance
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
were updated and then reviewed by the Committee during 2021.
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
23 February 2022
88
Hikma Pharmaceuticals PLC Annual Report 2021
– Increasing the weighting of the financial targets thereby increasing
the objectivity in the determination of awards and making the
outcome more proportionate to the shareholder experience
– Limiting salary increases to the level of the local workforce thereby
ensuring fairness and clarity for our employees. Additionally, this
ensures that increases are limited to a sustainable level for the
entire business.
During 2022, we will be applying our existing policy and reviewing its
effectiveness and areas for improvement.
Aligning outcomes
Performance outcome
The financial targets that the Committee established for the directors
for 2021 were very stretching. The Group revenue target was
$2,529 million (2020: $2,299 million) and the core operating profit
before R&D target was $785 million (2020: $667 million). These targets
have increased by 18% and 31% over the last two years. In respect of
the performance outcome for 2021, you will see from the performance
tables on pages 100 to 105 that the revenue and profit outcomes were
around the level of our challenging expectations.
The strategic elements of the performance targets for 2021 related to
our approach to Environmental, Social and Governance (ESG) issues
and our plans for ensuring leadership succession. Both of these
elements are core to Hikma’s ability to continue to deliver its strategic
plans and create value for society.
During 2021, the Board requested that the Chief Executive Officer
define the Group’s ESG strategy with a particular emphasis on the
Group’s emissions and impact on the environment. The project has
been completed successfully. We have established and tested where
we are with our current arrangements, modelled our climate impact,
approved a longer-term target for the reduction of greenhouse gas
emissions and developed plans to deliver that target. The exercise
enabled the Group to identify opportunities to reduce its greenhouse
gas emissions by 19% compared to the prior year. As we move
forward, the opportunities for further reductions will become more
challenging and must be delivered whilst growing the business
resulting in significant effort being required to achieve a 25%
reduction (from the level in 2020) by 2030. The Committee has
determined the performance level for this target as Maximum.
In relation to leadership succession, the Chief Executive Officer has
developed solid succession plans for each role at the Executive
Committee and identified and ranked the mission critical roles,
including assessing internal talent. The ability of the Company to
deliver its operational performance and strategic projects over the
longer term will be dependent on the continued strength of its
leadership team. This work is critical to the future of the Group and
the Committee. Excellent progress has been made and, therefore,
the Committee has rated the performance as Above Target.
Overall, the financial performance has been assessed as close to the
target level and the strategic performance as above target, resulting
in an overall performance determination slightly above the target
level. The Committee noted that the Company has performed
strongly in terms of Total Shareholder Return (TSR) since the Chief
Executive Officer joined in 2018, but the TSR performance has
declined somewhat during the year under review. The Committee
reviewed the bonus outcomes for colleagues across the organization
and noted that the trend was for bonuses to be reduced slightly year
on year. Accordingly, the Committee considers that the remuneration
policy has operated successfully in that: there is alignment between
the amounts paid to Executive Directors and the wider workforce; the
longer-term strategy is on target; and the short-term shareholder
experience is aligned with the performance outcome. Therefore, the
Hikma Pharmaceuticals PLC Annual Report 2021
89
Pamela Kirby
Chair, Remuneration Committee
Dear Shareholders
I am pleased to present our 2021 Remuneration Report. I have
decided not to stand for re-election to the Board of Hikma at the 2022
AGM, consequently I will cease my role as Chair of the Committee at
that point. I am delighted that Nina Henderson has agreed to lead
the Committee going forward. Nina and I have worked closely on
remuneration issues over a number of years and I am pleased that
I will leave the Committee in good hands.
Remuneration Policy
The policy for the remuneration of Executive Directors provides
a salary, benefits and pension sufficient to be market competitive.
This approach is adopted across the organisation in order to align
the entire culture of Hikma. The policy focuses the Executive
Directors on the incentive opportunity available from the Executive
Incentive Plan (EIP) which chiefly requires the delivery of annual
financial performance targets. These targets apply to the Group
bonus scheme in which all colleagues participate and, therefore,
ensure clarity for our employees and builds further on the cultural
alignment objective. The financial targets derive from the Group’s
five-year business plan and, therefore, require the delivery of the
Group’s medium-term strategy which ensures that the shareholder
experience and pay outcome are aligned, predictable and
proportional. The targets are set above both the prior year outturn
and the prior year target ensuring that longer-term financial
performance is delivered and builds further on the proportionality
objective. Further information on the rationale for the targets is
available on page 98.
The EIP, which applies to the top two levels of management, diverges
slightly from the bonus scheme that operates for more junior
employees. The divergence enables the Company to reduce the
prior year awards of senior management if performance is not
sufficiently maintained in the current year. This operates through
the establishment of forfeiture performance levels such as those
detailed on pages 100 to 105. Additionally, for executive directors
only, a clawback policy applies to all awards which ensures that
behavioural and reputational risks are mitigated. These measures
ensure that the emergence of material risks to the Group are reflected
in pay outcomes.
Our remuneration policy was adopted in 2014. The changes
made since that point have been in response to points raised
by investors and the governance community as well as our
enhanced understanding of how the arrangements align colleagues
to deliver value:
– Reducing the overall number of targets for each director thereby
enhancing clarity and ensuring simplicity
GOVERNANCE
The Committee is regularly briefed on the wider employee pay
policies and practices throughout the Group, including 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 2021 AGM (further information is available on page 92)
shareholders were supportive of the 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. Comments
received on the Company’s remuneration policy will be taken into
consideration in the remuneration policy review that is due in 2022
and will be reported to shareholders next year.
Discretion
The Committee oversees the application of discretion in accordance
with the Remuneration Policy. 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
23 February 2022
Remuneration Committee
Letter from the Chair continued
Committee has not adjusted the quantitative outcome of the
performance metrics.
Future performance targets
As noted earlier in this letter, we believe the current approach to
performance targets is delivering and, therefore, we are continuing
with our existing approach to financial targets. They will continue to
represent at least 80% of the overall performance outcome and the
budget for 2022 (which was approved by the Board in December
2021) has been used to determine target level of performance.
In relation to the strategic targets, the Executive Chairman will
continue to have a Return on Invested Capital target because this
reflects the long-term nature of his role. The Chief Executive Officer
and Executive Vice Chairman are responsible for delivering strategic
priorities and, therefore, their strategic targets are linked to the
continued delivery of our ESG programme (see pages 37 to 52 for
further details).
Pension contribution
Hikma’s pension contributions for Executive Directors are aligned
with the workforce contribution of c.10% of salary, other than in
respect of the Chief Executive Officer who receives a contribution
of 14.1% of his current salary. The Chief Executive Officer’s pension
contribution has been frozen resulting in it reducing from 15% of
salary over the last two years. The Committee will seek to align
this pension contribution with the wider workforce in the event
of a change of the position holder. The benchmarking information
received by the Committee confirms that the contribution level is
at the lower end of expectations for this position.
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 requested an exercise to provide further information on
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 3.5%
which takes into account that his total package is significantly below
our US peers and a c. 3.5% increase being the average increase for
the Group’s workforce. The Vice Chairman’s salary was increased by
3.5% in line with the approach across the Group and the salary
benchmarking data.
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 bi-annual employee cultural survey, which is
conducted by an external organisation.
The Committee reviews the pay proposals in terms of salary
increments and performance pay for employees at a jurisdictional
and Group level. The maximum salary increment for an executive
director is set by reference to the salary increment for the jurisdiction
of operation and the wider employee bonus pool is determined by
reference to performance against the same financial metrics that
apply to the Executive Directors. In terms of pay gaps, the Committee
notes that the Company’s peers typically have a pay ratio of 1:100
(employees:CEO total pay) or more whereas the Company’s position
is c. 1:28 (2021 total pay: $187,444 for UK/Group employees:
$5,307,358 for the Chief Executive Officer). Accordingly, the
Committee considers that the approaches to pay for the workforce
and Executive Directors are aligned and, therefore, do not require
significant additional explanation.
90
Hikma Pharmaceuticals PLC Annual Report 2021
Remuneration dashboard
TSR and total executive pay
Over the last ten years, Hikma has performed strongly against its
UK peers in Hikma’s index (FTSE 100) and sector (FTSE 350
Pharmaceuticals & Biotechnology segment, a relatively small group
of companies that are mainly focused on developing new medicines).
Value of executive holdings
Hikma’s Executive Directors have substantial equity interests,
which strongly aligns their long-term interests with shareholders.
Average total pay to
Executive Directors ($m)
TSR from 1 January 2012
Executive Director
shareholding value ($m)
Share price
($)
6.0
4.9
4.3
4.3
4.3
4.6
3.3
3.2
3.7
6
5
4
3
2
1
0
1.7
600
500
400
300
200
100
0
2012
2013 2014 2015 2016 2017 2018 2019 2020 2021
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.
800
700
600
500
400
300
200
100
0
782
26.40 34.43
591
680
30.03
33.37
30.74
23.29
561
21.89
551
470
523
15.30
347
2014
2015
2016 2017
2018
2019 2020 2021
40
35
30
25
20
15
10
5
0
Executive Director shareholding
Share price (as at year-end in US dollars)
Shareholder approval
Annual report on remuneration (23 April 2021 AGM)
Votes available
Votes cast
For
Against
Withheld4
230,771,404
177,078,354
90.4%
9.6%
1,198,566
Strong TSR performance since Siggi Olafsson’s appointment
Annual report on remuneration (30 April 2020 AGM)
200
150
100
50
0
-50
-100
141.66%
40.65%
(62.42%)
(83.58%)
20
Feb 18
20
Aug 18
20
Feb 19
20
Aug 19
20
Feb 20
20
Aug 20
20
Feb 21
20
Aug 21
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
242,543,355
199,924,407
95.16%
4.84%
2,894,616
Remuneration Policy (30 April 2020 AGM)
Votes available
Votes cast
For
Against
Withheld4
242,543,355
199,924,378
95.5%
4.5%
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
Hikma Pharmaceuticals PLC Annual Report 2021
91
GOVERNANCE
Remuneration Committee
continued
Remuneration and performance summary
This report (on pages 92 to 110) complies with The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008
(as amended).
Performance components
Sales
Core operating profit before R&D
Share price
Dividend
Employee compensation
Shareholder implementation approval
Shareholder policy approval
Total remuneration
2020
$2,341 million
$703 million
2,518p
50 cents
$560 million
95.16%
95.5%
9%
10%
-12%
8%
4%
2021
$2,553 million
$775 million
2,219p
54 cents
$583 million
90.4%
N/A
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
Pensions
Said Darwazah
Siggi Olafsson
Mazen Darwazah
Other benefits
Said Darwazah
Siggi Olafsson
Mazen Darwazah
2020 ($000)
2021 ($000)
4,060
3,719
3,227
13%
43%
12%
4,585
5,307
3,809
15%
56%
1%
2020 ($000)
2021 ($000)
1,018
1,133
717
1,855
2,252
1,297
1,047
0
1,064
69
170
56
70
163
93
0%
3%
5%
-15%
-16%
-5%
80%
N/A
60%
0%
-6%
4%
-21%
-77%
-29%
1,018
1,167
753
1,568
1,895
1,232
1,875
2,047
1,700
69
160
58
55
38
66
0%
4%
4%
-3%
-4%
-5%
38%
146%
5%
0%
3%
5%
0%
0%
0%
2022 ($000)
(estimate)
5,252
8,262
3,863
2022 ($000)
(estimate)
1,018
1,208
780
1,527
1,812
1,169
2,583
5,039
1,787
69
165
61
55
38
66
1. Salary: The average rise for salaries across Hikma in 2021 was 3.5%
2. Bonus: The bonus figure comprises Elements A and C of the EIP. See page 95 for further explanation. The 2022 estimate presumes target performance
3. Share awards vested: 2021 figures represent Element B of the 2019 EIP and Element C of the 2018 EIP exercised during that year. 2022 is an estimation of the value of Element B of the
2020 EIP and Element C of the 2019 EIP that are to vest in that year, using 31 December 2021 vesting percentages, share prices and exchange rates
Non-Executive Directors’ fees
Non-Executives
2020 (£000)
2021 (£000)
Non-Executive Directors’ average total fee1
97.1
8%
104.6
3%
2022 (£000)
(estimate)
107.6
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 109. 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
92
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
93
GOVERNANCE
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.
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 2021
and the potential available for 2022 (dependent upon performance).
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:
Said Darwazah
– Financial metrics: At least 80% of the performance award, with specific targets based on the budget that is approved prior to the performance
Fixed
Elements A & C
Element B
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
2022
Threshold
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
A
B
C
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
Treatment under the
remuneration regulations
Cash bonus
Share award
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. Following
cessation of employment of an Executive Director, the Company’s policy is that the Director must hold for a period of two years the lower
of the shares held on cessation of employment or shares equivalent to 300% of the final, annualised salary.
In relation to disclosure of performance targets:
– Prior year (2021): full details of the previous year’s performance targets, their level of satisfaction and the resulting performance remuneration
are disclosed on pages 100 to 105
– Future year (2022): the nature and weighting of future performance targets are disclosed on page 98.
Malus and clawback provisions apply.
Target
Maximum
Equity
growth
Actual
2021
Siggi Olafsson
2022
Threshold
Target
Maximum
Equity
growth
2021
Actual
Mazen Darwazah
2022
Threshold
Target
Maximum
Equity
growth
2021
Actual
1,142
53%
1,142
31%
1,142
22%
1,142
18%
1,142
31%
1,411
54%
1,411
32%
1,411
23%
1,411
19%
1,365
30%
905
54%
905
32%
905
22%
905
19%
877
30%
254
12%
2,159
1,018
28%
763
35%
1,527
41%
2,545
49%
2,817
45%
1,568
42%
1,000
2,000
3,687
1,527
29%
2,291
37%
3,734
4,000
5,214
6,250
5,000
6,000
7,000
8,000
Total remuneration $000
1,024
27%
3,000
Fixed
Elements A & C
Element B
302
12%
2,619
906
35%
1,812
41%
3,020
48%
3,359
45%
1,895
42%
1,208
27%
1,217
27%
4,431
1,812
29%
2,718
36%
4,477
6,243
7,488
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
585
35%
1,169
41%
1,949
48%
2,169
45%
1,232
42%
195
12%
1,685
780
27%
792
27%
2,854
1,169
29%
1,754
36%
2,901
4,023
4,828
94
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
95
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 2022 illustration, the bonus would be paid and the share awards be granted in 2023.
The share awards would vest two or three years later). Please note that the Remuneration and performance summary on page 92 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)
GOVERNANCE
Annual report on remuneration
Annual report on remuneration
The information presented on pages 96 to 110 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 2020 and 2021
compared with the percentage change in the average of each of those components of pay for employees (excluding the Executive Directors).
Salary
Benefits
Bonus
2021
2020
Percentage
change
from 2020
(from 2019)
2021
2020
Percentage
change
from 2020
(from 2019)
2021
2020
Percentage
change
from 2020
(from 2019)
Executive Chairman
$1,018,000 $1,018,000 0.0% (0.0%) $55,465
$70,323 -21.1% (-15.6%) $1,568,281 $1,879,388 -16.6% (-1.3%)
CEO
$1,166,990 $1,133,000 3.0% (3.0%) $37,930
$163,231 -76.8% (-72.3%) $1,895,381 $2,141,419 -11.5% (5.2%)
Vice Chairman
$753,144
$717,155 5.0% (0.0%) $65,166
$92,892
-29.8% (0.7%) $1,232,175 $1,312,176
-6.1% (-1.1%)
Pat Butler
Ali Al-Husry
$145,469
$149,730 -2.8% (2.0%)
$0
$0
0.0% (0.0%)
$118,405
$112,298 5.4% (3.5%)
$728
$2,002 -63.6% (-39.7%)
Dr Pamela Kirby
$145,469
$137,966
5.4% (2.9%)
$0
$0
0.0% (0.0%)
John Castellani
$145,469
$137,966
5.4% (2.9%)
$8,747
$12,443 -29.7% (-23.9%)
Nina Henderson
$145,469
$137,966
5.4% (2.9%)
$8,556
$12,170 -29.7% (-17.8%)
Cynthia Flowers
$131,937
$125,132 5.4% (76.9%)
$5,568
$7,813
-28.7% (0.0%)
Douglas Hurt
$159,001
$85,560 85.8% (0.0%)
$0
0.0% (0.0%)
$0
$0
$0
$0
$0
$0
$0
$0 0.0% (0.0%)
$0 0.0% (0.0%)
$0 0.0% (0.0%)
$0 0.0% (0.0%)
$0 0.0% (0.0%)
$0 0.0% (0.0%)
$0 0.0% (0.0%)
Employees ($m)
Number of employees
$318
8,703
$306
3.9% (2.0%)
8,681
0.3% (1.2%)
8,703
$105
8,681
6.7% (1.0%)
$61
$56
8.9% (0.0%)
0.3% (1.2%)
8,703
8,681
0.3% (1.2%)
Average per employee
$35,160
$35,249 -0.3% (0.8%) $12,065
$12,095
-0.2% (-0.2%)
$6,435
$6,451
-0.2% (-1.2%)
Average per UK/PLC
employee
$129,295
$111,370 16.1% (1.3%)
$4,218
$9,234 -54.3% (34.8%)
$44,681
$37,887
17.9% (5.7%)
Hikma’s pay review, which took effect from 1 January 2021, awarded average percentage increases in wages and salaries of 3.5% (2020: 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 2021 were broadly similar to those in the previous year (2020: unchanged).
UK gender and CEO pay ratios
Hikma has 35 employees in the UK (who work for the Group holding company) 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 gender data. The ratio of total CEO pay to the average Group employee is 28:1 using a simple
average methodology. 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 2021 and 2020 on remuneration of Hikma’s employees and major distributions
to shareholders.
Distribution expense
Employee remuneration
Distributions to shareholders1
2021
2020
% change
from 2020
to 2021
$583 million
$560 million
4.1%
$120 million
$477 million
-74.8%
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
$0
$112
Employee cost and average executive pay ($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
62,622
48,186
4.3
5.9
4.9
4.3
4.3
4.6
3.7
3.2
2014
2015
2016
2017
2018
2019
2020
2021
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)
Pat Butler
John Castellani
Nina Henderson
Cynthia Flowers
Douglas Hurt
Meetings
4/4
4/4
4/4
4/4
4/4
4/4
Attendance
100%
100%
100%
100%
100%
100%
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 the Human Capital department with
broad benchmarking and incentive operation advice that related to employees below Board level. 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 $39,383 (2020: $90,929), 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 the year, the Committee instructed Mercer to undertake a region specific
benchmarking exercise for which a fee of $8,000 (2020: $8,000) was paid. Mercer are a recognised expert in the region in question.
Policy implementation 2021
Policy deviation
During 2021, 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 90) for commentary on salaries. The application of benefits and pension is unchanged.
Executive Director
Executive Chairman
Chief Executive Officer
Individual
Said Darwazah
Siggi Olafsson
Executive Vice Chairman
Mazen Darwazah
Salary
2022
2021
$1,018,000
$1,018,000
$1,207,834
$1,166,990
$779,504
$753,013
Change
%
0.00%
3.50%
3.50%
96
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Hikma Pharmaceuticals PLC Annual Report 2021
97
GOVERNANCE
Annual report on remuneration
continued
Executive Incentive Plan (EIP)
For 2022, the Committee has determined that the performance criteria for the Executive Directors will be:
Area
Description
Weight
Rationale
Financial Group/divisional
revenue
40%
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 22 of the Strategic report for the detail on this target.
Group/divisional
core operating
profit before R&D
40%
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.
Strategic Strategic deliverables
20%
Please see page 22 of the Strategic report for the detail on this target.
The targets are designed to ensure that the Executive Directors deliver the ESG strategy and target
to reduce Greenhouse Gas emissions by 25% by 2030 that is detailed on pages 22 and 23 of this
report. 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 (applicable to EIP from
2020 to 2022)
Elements
A
Cash bonus
B
Deferred shares
C
Restricted shares
Total
Forfeiture
Below minimum
Minimum
Target
Maximum
0%
0%
0%
0%
25%
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 2021 financial year for each Executive
Director, together with comparative figures for 2020.
Director
Year
Salary $
Benefits $
Bonus
(EIP Elements
A and C) $
Shares Vested
(EIP Element B) $
Pension $
Total $
Total Fixed $
Total Variable $
Said Darwazah
2021
1,018,000
55,465
1,568,281
1,875,447
68,926
4,586,119
1,142,391
3,433,728
Siggi Olafsson
2021
1,166,990
37,930
1,895,381
2,047,007
160,050
5,307,358
1,364,970
3,942,388
2020
1,018,000
70,323
1,855,055
0
68,946
3,012,324
1,157,269
1,855,055
2020
1,133,000
163,231
2,252,369
0
169,950
3,718,550
1,466,181
2,252,369
Mazen Darwazah
2021
2020
753,144
717,155
65,166
1,232,175
1,294,742
58,484
3,403,710
876,793
2,526,917
92,892
1,297,238
508,838
55,765
2,671,888
865,812
1,806,076
The EIP performance criteria for 2021 are detailed on pages 100 to 105.
Benefits
Said Darwazah received transportation benefits of $40,303 (2020: $55,216) and medical benefits of $15,162 (2020: $15,107). Siggi Olafsson
received transportation benefits of $19,992 (2020: $19,992), housing benefits of $nil (2020: $110,903) related to his stay in the UK and medical
benefits of $17,938 (2020: $32,336). Mazen Darwazah received transportation benefits of $35,064 (2020: $64,603) and medical benefits of $30,102
(2020: $28,289). 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. 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 has been deducted from the 2021 payment. Hikma Pharmaceuticals PLC does not and has not operated a defined benefit scheme.
Additional Information
The following additional information is available in the Remuneration Committee’s report:
– Director and average employee compensation change: please see page 97
– Relative performance and spend on pay: please see page 91
– AGM voting: please see page 92
Vested share awards
During 2021, the following share awards vested for the Executive Directors. The total shares vested in 2021 are summarised in the following three tables.
EIP
Under the EIP, performance criteria must be met before an award is granted. There are three award types under the EIP which are treated in the
following manner in respect of the table above:
– Element A – a cash bonus that is payable immediately and attributed to the earnings for the performance year
– Element B – an award of shares that vests two years after grant subject to there being no forfeiture events and is attributed to the earnings
in respect of the year in which it vests (i.e. two years after being granted)
– Element C – an award of shares that vests three years after grant and, due to their being no further performance requirements, is attributed
to the earnings for the performance year in the same manner as Element A
The tables below detail share awards (Elements B and C) vesting during the year ended 31 December 2021. Whilst these shares vested during
2021, they are attributed to earnings as detailed in the paragraph above.
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 £21.94 and was $1.386 to £1 under Element C
Siggi Olafsson — 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
2. Share price on vesting was £21.94 and was $1.386 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 shares3
61,666
Nil
Nil
Nil
61,666
$1,875,447
67,307
Nil
Nil
Nil
67,307
$2,047,007
42,572
12,042
Nil
Nil
54,614
$1,700,169
98
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99
3. Share prices on vesting were £21.94 and £23.84 and there were $1.386 and $1.413 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 $498,437 in relation to Said Darwazah, $544,042
in relation to Siggi Olafsson, and $582,439 ($344,108 in relation to Element B and $238,331 for Element C) in relation to Mazen Darwazah.
GOVERNANCE
Annual report on remuneration
continued
2021 Performance outcome: Executive Chairman (audited)
Readers are directed to the commentary on business performance that is included in the Chair’s letter on pages 89 to 90.
The following table sets out the performance conditions and targets for 2021 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 22 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 22 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 timeframe. See page 22 of the Strategic
report for further detail on the performance related to this target.
Strategic
Return on Invested
Capital (ROIC)
Weighting
45%
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%
$1,770 million
Target -10%
$2,276 million
Target
$2,529 million
Target +10%
$2,782 million
Core revenue of
$2,553 million
Target to
maximum
118.9% of salary
45%
Target -30%
$550 million
Target -10%
$707 million
Target
$785 million
Target +10%
$864 million
COP before R&D
of $775 million
Threshold to
target
102.4% of salary
10%
Target -32%
11.0%
Target -10%
14.6%
Target 16.2%
Target +10%
17.8%
ROIC of 17.1%
Target to
maximum
33.3% of salary
Total
100%
Unacceptable Acceptable
Good
Excellent
254.6%
The above performance results in
performance remuneration under
the EIP as follows (audited):
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%
100.6%
$1,023,958
$1,018,000
150%
100.6%
$1,023,958
100%
400%
53.5%
$544,323
254.7%
$2,592,239
Cash now
(February 2022)
Shares in 2 years
from February
2022
Shares in 3 years
from February
2022
All shares vesting are
subject to a holding
period after vesting.
These shares may
not be sold until 5
years after grant.
100
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101
GOVERNANCE
Annual report on remuneration
continued
2021 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 89 to 90.
The following table sets out the performance conditions and targets for 2021 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 22 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 22 of the Strategic report for further detail on the performance related to this target.
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%
$1,770 million
Target -10%
$2,276 million
Target
$2,529 million
Target +10%
$2,782 million
Core revenue of
$2,553 million
Target to
maximum
105.7% of salary
40%
Target -30%
$550 million
Target -10%
$707 million
Target
$785 million
Target +10%
$864 million
COP before R&D
of $775 million
Threshold to
target
91.0% of salary
Strategic
Environmental, Social,
and Governance
Strategy
During 2021, the Board requested that the Chief Executive Officer fundamentally review the
Group’s ESG strategy with a particular emphasis on the Group’s emissions and impact on the
environment (further commentary is available on page 89).
10%
Committee assessment of the longer term corporate targets for
improving the Group’s emissions and environmental performance
and the medium term strategy for delivering those targets.
Leadership succession
and development
The ability of the Company to deliver its operational performance and strategic projects over the
longer term will be dependent on the continued strength of its leadership team. The Board
requested that the Chief Executive Officer develop plans for succession for the top leadership
roles and the mission critical roles, including assessing internal talent and creating development
plans (further commentary is available on page 89).
10%
Committee assessment of the succession plans for the Group
that were presented to the Board in December 2021.
Current status
ascertained.
Responsible long-term
targets approved.
Strategic plan delivered.
Succession plans for all
Executive Committee
roles and identification
of mission critical roles.
Maximum
determined by
the Committee
40.0% of salary
Above target
determined by
the Committee
30.0% of salary
Total
100%
Unacceptable Acceptable
Good
Excellent
266.7%
The above performance results in
performance remuneration under
the EIP as follows (audited):
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%
104.3%
$1,217,183
$1,166,990
150%
104.3%
$1,217,183
100%
400%
58.1%
$678,198
266.7%
$3,112,564
Cash now
(February 2021)
Shares in 2 years
from February
2022
Shares in 3 years
from February
2022
All shares vesting are
subject to a holding
period after vesting.
These shares may
not be sold until 5
years after grant.
102
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103
GOVERNANCE
Annual report on remuneration
continued
2021 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 89 to 90.
The following table sets out the performance conditions and targets for 2021 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
MENA revenue
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 22 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 22 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 2021. See pages 30 and 31
of the Business and financial review for further detail on this target.
MENA COP before R&D 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 2021. To
align the approach with the Group target, R&D and Group costs have been removed from the
measurements of this target. See pages 30 and 31 of the Business and financial review for further
detail on this target.
Strategic
Environmental, Social,
and Governance
Strategy
During 2021, the Board requested that the Vice Chairman fundamentally review the Group’s ESG
strategy for the MENA region with a particular emphasis on the division’s emissions and impact
on the environment (further commentary is available on page 89).
Weighting
25%
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%
$1,770 million
Target -10%
$2,276 million
Target
$2,529 million
Target +10%
$2,782 million
Core revenue of
$2,553 million
Target to
maximum
66.1% of salary
25%
Target -30%
$550 million
Target -10%
$707 million
Target
$785 million
Target +10%
$864 million
COP before R&D
of $775 million
Threshold to
target
56.9% of salary
Target -23%
$624 million
Target -10%
$730 million
Target
$811 million
Target +10%
$892 million
MENA revenue of
$807 million
Threshold to
target
36.2% of salary
Target -30%
$145 million
Target -10%
$186 million
Target
$207 million
Target +10%
$228 million
MENA COP before R&D
of $209 million
Target to
maximum
39.6% of salary
15%
15%
10%
Committee assessment of the longer-term corporate targets
for improving the MENA region emissions and environmental
performance and the medium-term strategy for delivering
those targets.
Current status
ascertained.
Responsible long-term
targets approved.
Strategic deliver plan
delivered.
Maximum
determined by
the Committee
40.0% of salary
Succession plans for all
MENA region roles and
identification of mission
critical roles.
Above target
determined by
the Committee
30.0% of salary
Leadership succession
and development
The ability of the Company to deliver its operational performance and strategic projects over the
longer term will be dependent on the continued strength of its leadership team. The Board
requested that the Vice Chairman develop plans for succession for the top leadership roles and
the mission critical roles in the MENA region, including assessing internal talent and creating
development plans (further commentary is available on page 89).
10%
Committee assessment of the succession plans for the MENA
region that were presented to the Board in December 2021.
Total
100%
Unacceptable Acceptable
Good
Excellent
268.8%
The above performance results in
performance remuneration under
the EIP as follows (audited):
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%
105.2%
$792,237
$753,013
150%
105.2%
$792,237
100%
400%
58.4%
$439,938
268.8%
$2,024,412
Cash now
(February 2022)
Shares in 2 years
from February
2022
Shares in 3 years
from February
2022
All shares vesting are
subject to a holding
period after vesting.
These shares may
not be sold until 5
years after grant.
104
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105
GOVERNANCE
Annual report on remuneration
continued
Outstanding share awards (audited)
The applicable share prices for Hikma during the period under review were:
Hikma continued to operate the EIP in 2021. 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
EIP Element C
EIP Element B
EIP Element C
EIP Element B
EIP Element C
EIP Element C
First Year
Award (EIP C
Equivalent)
EIP Element B
EIP Element C
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
Conditional
award
Conditional
award
Said Darwazah
Total
Siggi Olafsson
Total
Mazen Darwazah
Total
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
25-Feb-21
25-Feb-23
116% of salary
34,827
$1,182,028
25-Feb-21
25-Feb-24
66% of salary
19,830
$673,028
167,745
(2020: 174,754)
$4,602,222
(2020: $4,124,176)
12-Mar-19
12-Mar-22
87% of salary
42,676
$952,965
12-Mar-19
12-Mar-22
150% of salary
72,000
$1,607,760
27-Feb-20
27-Feb-22
122% of salary
53,148
$1,345,709
27-Feb-20
27-Feb-23
72% of salary
31,426
$795,709
25-Feb-21
25-Feb-23
124% of salary
41,527
$1,409,434
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
25-Feb-21
25-Feb-23
115% of salary
24,319
$825,379
25-Feb-21
25-Feb-24
66% of salary
13,903
$471,859
116,560
(2020: 132,952)
$3,201,170
(2020: $3,021,663)
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 100 to 105
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 face value (30-day average price) in respect of awards
granted in 2019 was $22.33 (£17.63p), 2020 $25.32 (£19.30p), and 2021 $33.94 (£25.25p). 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
Date
1 January 2021
31 December 2021
2021 Range (low to high)
23 February 2022
Market price
(Closing price)
2,518p
2,219p
2,186p to 2,690p
2,013p
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 2011:
Type of plan
Discretionary Share Plans (5% Limit)
Granted in a
rolling ten-year
period
Granted during
the year
3.66%
0.38%
Director share interests (audited)
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
Effective
Hikma shares
Personal
Shares
(incl. connected
people)
Total
shareholding
22.32%
13,393,875
650,070
14,043,945
11.61%
8.25%
6,965,543
1,248,850
8,214,393
4,952,513
1,162,811
6,115,324
Director
Said Darwazah
Siggi Olafsson
Mazen Darwazah4
Ali Al-Husry5
Pat Butler
Dr Pamela Kirby
John Castellani
Nina Henderson
Cynthia Flowers
Douglas Hurt
Ownership requirements
Total
Scheme Interests
Total
Percentage
of salary
Number
of shares
Requirement
fulfilled?
Shares
owned3
EIP subject to
performance
(Element B)
EIP subject to
service
(Element C)
Share
interests
300%
300%
300%
101,707
116,952
75,245
Yes
Yes
Yes
14,043,945
55,513
8,214,393
6,115,324
81,996
94,675
57,312
85,749
14,211,690
170,938
321,126
59,248
8,330,953
6,115,324
3,875
4,817
3,500
7,100
1,100
1,500
3,875
4,817
3,500
7,100
1,100
1,500
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
There have been no changes in the interests of the Directors in the shares of Hikma between 31 December 2021 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 2021 of £22.19p and foreign
exchange rate of $1.353 to £1 on the same date.
25-Feb-21
25-Feb-24
74% of salary
24,836
$842,934
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
265,613
(2020: 266,557)
$6,954,511
(2020: $6,205,108)
The following table sets out details of the Directors’ shareholdings in Hikma and, where there are shareholding requirements, whether these
have been met:
106
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
107
GOVERNANCE
Annual report on remuneration
continued
Director share interests (audited) 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
Douglas Hurt
Said Darwazah
Siggi Olafsson
Mazen Darwazah
Nina Henderson
Mazen Darwazah
Date
Event
2-Mar-21
Market Purchase of Shares
12-Mar-21
Vesting of 2018 EIP Element B. Retained all shares
12-Mar-21
Vesting of 2018 EIP Element B. Retained some shares
12-Mar-21
Vesting of 2018 EIP Element B. Retained all shares
17-Mar-21
Market purchase of shares
17-May-21
Vesting of 2018 EIP Element C. Retained all shares
Number of shares
1,500
61,666
35,513
42,572
1,600
12,042
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
167,745
265,613
116,560
—
—
—
—
—
Share interests with performance
measures
Vested but
unexercised
Yes
81,996
94,675
57,312
—
No
85,749
170,938
59,248
—
—
—
—
—
Total shareholder return
During the last ten years, 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 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
Dec 18
Dec 19
Dec 20
Dec 21
Hikma Pharmaceuticals PLC
FTSE 100
FTSE 350/Pharmaceuticals & Biotechnology
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
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
Said Darwazah — Executive Chairman
Siggi Olafsson — Chief Executive Officer
Total
Bonus as
% max1
Share awards as
% max2
$4,586,119
$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
62%
73%
74%
88%
0%
71%
98%
100%
100%
80%
67%
77%
78%
90%
0%
68%
98%
70%
62%
50%
Total
$5,307,358
$3,718,549
$4,121,724
$5,260,957
N/A
N/A
N/A
N/A
N/A
N/A
Bonus as
% max1
Share awards as
% max2
65%
80%
78%
89%
N/A
N/A
N/A
N/A
N/A
N/A
70%
83%
82%
91%
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 (audited)
During the year, the Executive Directors reviewed the fees paid to Non-Executive Directors. The conclusion of the review was that the base fee
should be increased by 3.4% to £90,500 (2021: £87,500) and the other fees should remain unchanged (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:
Fee (all elements)
£000
Taxable benefits1
£000
Total
£000
Name
Board position
Robert Pickering2
Independent 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 Flowers
Independent Director
Douglas Hurt
Audit Committee Chair
2021
–
107.5
107.5
87.5
–
107.5
107.5
97.5
117.5
2020
103.8
116.7
107.5
87.5
43.8
107.5
107.5
97.5
66.7
2021
–
0.0
0.0
0.5
–
6.5
6.3
4.1
0.0
2020
0.0
0.0
0.0
1.6
8.8
9.7
9.5
6.1
0.0
2021
–
107.5
107.5
88.0
–
114.0
113.8
101.6
117.5
2020
103.8
116.7
107.5
89.1
52.5
117.2
117.0
103.6
66.7
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. Douglas Hurt joined the Board on 1 May 2020 and became
Chair of the Audit Committee on 1 December 2020
108
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
109
GOVERNANCE
Annual report on remuneration
continued
Directors’ report
Executive Director
Said Darwazah
Siggi Olafsson
Mazen Darwazah
12 months
12 months
12 months
Company notice period Contract date
Unexpired term of contract
Potential termination payment
1 July 2007
Rolling contract
12 months’ salary and benefits
20 February 2018 Rolling contract
12 months’ salary and benefits
– Related party transactions: Note 38 to the Group financial
25 May 2006
Rolling contract
12 months’ salary and benefits
Payments to past Directors (audited)
There were no payments to past Directors during the financial year.
Payments for loss of office (audited)
There were no payments for loss of office during the financial year.
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:
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 Flowers
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 and Mazen Darwazah received fees of $4,100 (2020: $4,100), and $20,700 (2020: $19,250),
respectively, relating to external appointments which are detailed in their Director profiles on page 70. The process for controlling external
commitments is described in the governance statement on page 76.
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
23 February 2022
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 2021. 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 35
– Long-term incentive schemes: Directors’ remuneration report,
page 107
statements, page 175
– Going concern statement: Risk management report, page 62
– Long-term viability statement: Risk management report, page 63
– Names and biographical details of the Directors: corporate
governance report, pages 70 and 71
– Independence of Non-Executive Directors: corporate governance
report, page 75
– Directors’ share interests: Directors’ remuneration report, pages 89
and 110
– Greenhouse gas emissions: Sustainability report, pages 44 to 52
– Financial instruments and risk: Note 29 to the Group financial
statements, pages 161 to 167
– Stakeholder and S.172 Statement, pages 12 to 17
– corporate governance statement including the applicable
governance code: pages 74 and 76
– internal control and risk management systems for the financial
reporting process: pages 85 and 86
– composition and operation of the administrative, management
and supervisory bodies and committees: pages 70 to 73
– diversity policy and its application: pages 69 and 81
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
Reference
Page 112
None
See Note 37 on pages
172 to 174
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 140 and 141.
Results
Hikma’s reported profit for the year in 2021 was $420 million
(2020: $431 million).
Dividend
The Board is recommending a final dividend of 36 cents per share
(approximately 26 pence per share) (2020: 34 cents per share)
bringing the total dividend for the full year to 54 cents per share
(approximately 40 pence per share) (2020: 50 cents per share,
approximately 36 pence per share). The proposed dividend will be
paid on 28 April 2022 to eligible shareholders on the register at the
close of business on 28 March 2022, subject to approval at the
Annual General Meeting on 25 April 2022.
Creditor payment policy
Hikma’s policy, which is also applied by all subsidiaries and will
continue in respect of the 2022 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 2021 were
equivalent to 76 days’ purchases (2020: 91 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
$4.0 million (2020: $6.8 million):
Type of donation
Local charities serving communities
in which Hikma operates
Amount
donated in
2020 ($)
Amount
donated in
2021 ($)
2,731,248
763,155
Medical (donations in kind)
4,068,232
3,188,896
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
None
Political donations and expenditure
nil
nil
Total
6,799,480
3,952,051
Hikma’s policy prohibits the payment of political donations and
expenditure within the meaning of the Act.
None
None
None
None
110
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
111
Arrangements by which shareholders have
agreed to waive current or future dividends
See Note 31 on pages
167 and 168
Controlling shareholder agreements and
associated obligations
Hikma does not
have any controlling
shareholders within
the meaning of the
Listing Rules
GOVERNANCE
Directors’ report
continued
Research and development
Hikma’s investment in research and development (R&D) during
2021 represented 5.6% of Group revenue (2020: 5.9%). Further
details on Hikma’s R&D activities can be found on pages 8, 10, 18, 19,
21, 23 and 32.
Interest
The interest capitalised during the year under review was $nil
(2020: $nil). The tax impact related to the capitalised interest was $nil
(2020: $nil).
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, Said Darwazah, Siggi Olafsson, Mazen
Darwazah, Patrick Butler, Ali Al-Husry, John Castellani, Nina
Henderson, Cynthia Flowers and Douglas Hurt 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.
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 67. 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 12 to 17.
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 31 to the
Group financial statements on pages 167 and 168. 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 2021:
Type
Shares
Nominal value
In issue
Issued during
the year
10 pence
244,331,288
999,108
During 2021, Hikma issued Ordinary Shares solely pursuant to the
exercise of options under the 2005 Long Term Incentive Plan, 2009
Management Incentive Plan, 2018 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.
During 2020, the Company purchased 12,833,233 Shares from
Boehringer Ingelheim (the ‘Treasury Shares’). The Treasury Shares are
held in treasury and, accordingly, do not receive dividends and do not
exercise voting rights.
Share buyback
At the Annual General Meeting (AGM) on 23 April 2021, 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 2022 or the 2022 AGM,
which is scheduled for 25 April 2022.
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:
Share issuance
At the AGM on 23 April 2021, the Directors were authorised to issue
relevant securities up to an aggregate nominal amount of £8,111,072
and to be empowered to allot equity securities for cash on a
non-pre-emptive basis up to an aggregate nominal amount of
£1,216,660 at any time up to the earlier of the date of the 2022 AGM or
30 June 2022. The Directors propose to renew these authorities at the
2022 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, and in relation to the
merger reserve reduction that is subject to shareholder approval at
the AGM, 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 172 to 174. Any Shares held by
the Hikma Pharmaceuticals Employee Benefit Trust (EBT) and are
detailed in Note 31 to the Group financial statements on page 168.
The EBT has waived its right to vote on any shares it holds and also
to its entitlement to a dividend. Other than the shares held by the
EBT 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 Monday, 25 April 2022, 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.
Name of shareholder
Darhold Limited2
Number of shares
Percentage held1
60,000,000
25.92%
Capital Group International
11,385,712
Wellington Management Group LLP
11,556,882
BlackRock Group
11,573,836
4.92%
4.99%
5.00%
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 107 for details of their interests in Darhold Limited
Since the year end, BlackRock Group notified the Company that
their holding had increased to 11,844,039 representing 5.10% of
the voting capital.
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
On 17 January 2022, Hikma announced that it has agreed to acquire
the Canadian assets of Teligent Inc. (Teligent). The acquisition marks
Hikma’s expansion into Canada and includes a portfolio of 25 sterile
injectable products, three in-licenced ophthalmic products and a
pipeline of seven additional products, four of which are approved by
Health Canada.
The transaction was completed on 2 February 2022 and Hikma
paid cash consideration of $46 million. Due to the proximity of
the completion of the transactions to the date of issuance of the
consolidated financial statements, the initial valuation for the
business combination and net assets acquired is in progress. It is
expected that most of the consideration paid is attributable to
product related intangible assets and around $2 million for
working capital.
On 23 February 2022, the Board authorised management to
undertake a share buyback with a value of up to $300 million.
Further details are available in the announcement of the
preliminary results which was to be made on 24 February 2022.
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GOVERNANCE
Directors’ Responsibilities Statement
Financial statements
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 UK-adopted
international accounting standards and the 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 International Financial Reporting
Standards issued by the International Accounting Standards Board
(IFRSs as issued by 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 applicable UK-adopted international accounting
standards 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
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 list in the Directors’
report confirm that, to the best of their knowledge:
– the Group financial statements, which have been prepared in
accordance with UK-adopted international accounting standards
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,
and financial position 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).
– make judgements and accounting estimates that are reasonable
On behalf of the Board
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 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.
Said Darwazah
Executive Chairman
23 February 2022
Sigurdur Olafsson
Chief Executive Officer
23 February 2022
The Directors are also 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.
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.
We deliver accurate,
high-quality and
timely information
to all stakeholders
with the utmost
integrity and efficiency.
In this section
116
Independent auditors’ report
124 Consolidated financial statements
129 Notes to the Consolidated financial statements
180 Company financial statements
182 Notes to the Company financial statements
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115
FINANCIAL STATEMENTS
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.
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.
‘Reorganisation of holding companies under Hikma Pharmaceuticals
PLC’ is a new key audit matter this year. ‘Tax including completeness
and valuation of provisions for uncertain tax positions’ and ‘Impact
of COVID-19’, which were key audit matters last year, are no longer
included because of the reduced level of judgement in respect of
uncertain tax positions following simplification of Hikma’s tax
structure in 2019 and further clarity on the treatment of certain tax
matters; and due to the insignificant impact of COVID-19 on business
performance and control environment, and the audit process due to
well established ways of remote working. Otherwise, the key audit
matters below are consistent with last year.
Independent auditors’ report to the members
of Hikma Pharmaceuticals PLC
Report on the audit of the financial statements
Our audit approach
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 2021 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 UK-adopted international accounting standards;
– 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 2021; the consolidated income statement
and the 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 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 IFRSs as issued
by the IASB
As explained in note 2 to the financial statements, the Group, in
addition to applying UK-adopted international accounting standards,
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.
To the best of our knowledge and belief, we declare that non-audit
services prohibited by the FRC’s Ethical Standard were not provided.
Other than those disclosed in Note 7, we have provided no non-audit
services to the Company or its controlled undertakings in the period
under audit.
Overview
Audit scope
– Our audit included full scope audits of four components, specified
procedures on specific financial statement line items of one
additional component, central audit procedures on specific
financial statement line items of two components and audit
procedures performed centrally over specific material balances at
locations around the Group. Full scope components account for
72% of consolidated revenue, 73% of the adjusted profit measure
we use as a basis for determining materiality and 79% of
consolidated total assets.
– This year we have also specifically set out our consideration of the
impact of climate change on the audit which is further explained
below. As explained in the Sustainability Report, the Group is clearly
mindful of its impact on the environment and is focussed on ways to
reduce climate related impacts. In planning and executing our audit
we have considered the Group’s risk assessment process and this,
together with discussions with our own sustainability specialists,
provided us with a good understanding of the potential impact of
climate change on the financial statements. Based on this, we
understand that the key impact to the Group could be a potential
increase in input costs for energy intensive supplies like APIs and
packaging materials due to carbon pricing. This would most likely
impact the financial statement line items and estimates associated
with future cash flows since the impact of climate change is
expected to become more notable in the medium to long term.
The key areas impacted include valuation of goodwill and
intangible assets and recoverability of the Group’s deferred tax
assets. We note that management’s assessment is that the impact
on Hikma is immaterial, nevertheless, while auditing the estimates
associated with the forecasts, we have challenged management
on reflecting the impact of climate change and any climate change
related commitments in the cash flows. We have not identified
any matters as part of this work which contradict the disclosures
in the Annual Report or lead to any material adjustments to the
financial statements.
Key audit matters
– Valuation of goodwill and intangible assets (Group)
– Valuation and accuracy of gross to net rebate and return
adjustments in the US (Group)
– Reorganisation of holding companies under Hikma Pharmaceuticals
PLC (Company)
Materiality
– Overall Group materiality: $25 million (2020: $24 million) based
on approximately 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 (2020: $21.6 million) based
on 1% of total assets, capped based on overall Group materiality.
– Performance materiality: $18.75 million (2020: $18 million) (Group)
and $16.2 million (2020: $16.2 million) (Company).
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117
FINANCIAL STATEMENTS
Independent auditors’ report to the members
of Hikma Pharmaceuticals PLC
continued
Valuation of goodwill and intangible assets (Group)
Valuation and accuracy of gross to net rebate and return 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
At 31 December 2021, the Group had goodwill of $285 million (31 December
2020: $289 million) and intangible assets of $607 million (31 December 2020:
$587 million) comprising product-related intangible assets, software and other
identified intangible assets such as marketing rights, customer relationships
and trademarks.
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 conclude that management’s determination of four CGUs in 2021
is reasonable.
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, Generic 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. These reversal considerations are relevant to the
Generics and Generic Advair Diskus® CGUs in particular due to the impairment
recorded in 2017 in relation to these CGUs.
During 2021, no impairment has been recorded on a CGU level. Impairment
of $23 million was recorded in respect of product related intangibles; a
further impairment of $1 million was recorded in respect of other intangible
assets. An impairment reversal of $60 million has been recorded on individual
marketed product related intangibles, including $46 million in respect of
Generic Advair Diskus®.
Refer to the Audit Committee review of areas of significant judgement on
pages 84-85, significant accounting policies (note 2), critical accounting
judgements and key sources of estimation uncertainty (note 3) and goodwill
and other intangible assets (note 16) in the Group financial statements.
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 completeness and 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 and
climate change impact considerations);
– 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;
– Our internal 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 the Generic
Advair Diskus® CGU 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; and
– For the Generic Advair Diskus® CGU and intangible asset valuation,
we challenged management’s weighting of scenarios within the
valuation model based on the expected impact of competition and
regulatory updates.
Based on our work we determined our own sensitivities and applied these
to management’s models for each of the four CGUs.
We found management’s conclusions on the CGUs and indefinite-lived
intangible asset impairment assessments to be reasonable, although the
headroom on the Generic Advair Diskus® CGU is more sensitive to the key
assumptions around growth and discount rates. Additional disclosures have
been included by management in accordance with IAS 36. We conclude the
analyses performed and disclosed in note 16 of the Group financial
statements are reasonable. We also validated the appropriateness of the
related disclosures in notes 2 and 3 of the Group financial statements.
We also tested management’s impairment indicators assessment for finite life
intangible assets and found this to be reasonable.
For impairment reversal considerations, we audited management’s
assessment of impairment reversal indicators both at the CGU level
(Generics and Generic Advair Diskus®) and at the individual intangible asset
level taking into account the conditions in the US generics market and factors
relating to Generic Advair Diskus® and consulted with our internal 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 Board approved business plan.
Based on our procedures, we concluded it was appropriate to reverse $60
million of impairment on specific marketed products which showed discrete
and sustained recovery in performance. We consider management’s position
on not reversing impairment of the Generics CGU to be reasonable based on
key judgements disclosed in note 3 to the Group financial statements.
Management is required to make estimates in respect of revenue recognition
and specifically, the level of returns and indirect rebates that will be realised
against the Group’s revenue.
Working alongside our US component team, we considered the
Group’s processes for making judgements in this area and performed
the following procedures:
These estimates are complex, material to the financial statements and require
significant estimation by Directors to establish an appropriate provision, hence
the reason for inclusion as an area of focus. The significant estimates relate to
revenue recognition through indirect rebates and returns in the US for which
the Group recorded revenue deductions for the year ended 31 December 2021
of $211 million (2020: $174 million).
– Assessed the revenue recognition policy and tested the operating
effectiveness of certain applicable controls in place around this process;
– Tested 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;
– Performed analytical procedures over channel inventory for major
Chargebacks and direct rebates are no longer considered a significant risk due
to the lower level of estimation compared to the other categories of provision
and to the limited number of misstatements in previous years on this category.
The Directors have determined a provision of $196 million to be necessary
at 31 December 2021 (2020: $154 million) in respect of indirect rebates and
returns. Refer to the Audit Committee review of areas of significant judgement
on pages 84-85, 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 27) in the Group
financial statements.
wholesalers for which data was obtained from a third party service provider;
– Developed an independent expectation or tested management’s process
for the largest elements of the provisions as at 31 December 2021 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 the provisions. We compared this expectation to the
actual provision 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’ provisions in the
current year’s results.
Based on the procedures performed, we did not identify any material
differences between our independent expectations and the provisions
recorded. We also evaluated the disclosures in note 2, note 3, note 21 and
note 27 of the Group financial statements which we considered appropriate.
Reorganisation of holding companies under Hikma Pharmaceuticals PLC (Company)
Key audit matter
How our audit addressed the key audit matter
In the current year, the holding company structure under Hikma
Pharmaceuticals PLC was simplified by liquidating two downstream holding
companies and transferring the net assets up to the Company by way of a
dividend of $2,179 million primarily via a non-cash intercompany transfer.
Following this, the Company wrote down its investment in the intermediate
holding subsidiary by $2,222 million. The net impact of the restructuring on
the Company was a loss of $43 million with an equivalent decrease in
distributable reserves.
Refer to investment in subsidiaries (note 4) and profit for the year (note 12)
in the Company financial statements.
We inspected the Board minutes for the subsidiaries being liquidated
to confirm that the members have resolved to liquidate the companies.
We also inspected the Board minutes for the subsidiary paying the dividend
to confirm the dividend was appropriately approved.
We understood the transaction that was being undertaken and confirmed
the treatment was in accordance with the accounting policies and
accounting standards. We also verified the journal entries for the liquidation
and the dividend payment.
We agree with management’s write-down of the Company’s investment in
the intermediate holding company following the Company’s receipt of the
net assets of the underlying holdings as a dividend, as this represents a valid
trigger for impairment.
In addition to auditing the accounting entries, we considered the impact
on distributable reserves with support from our internal experts to help us
validate the impact of the restructuring on the distributable reserves of
Company. We did not identify any issues in this regard.
Based on the procedures performed we did not identify any material
adjustments from the reorganisation.
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FINANCIAL STATEMENTS
Independent auditors’ report to the members
of Hikma Pharmaceuticals PLC
continued
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 2021, Hikma Pharmaceuticals
PLC had in total 57 subsidiaries and one joint venture as part of 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 balance sheet prepared under
Group accounting policies which are in compliance with IFRSs. We
requested component teams in the US (Hikma USA), Jordan (Hikma
Jordan) and 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 carried out by the Group
engagement team. We also requested our component team in
Portugal to perform specified procedures over specific balances in
Hikma Portugal. Additionally, procedures were carried out by the
Group audit team over specific balances in Hikma International
Ventures Limited and Hikma International Pharmaceuticals; and,
other procedures were performed centrally on the consolidation,
taxation and specific material 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 at the planning,
execution and completion stages including increasing the
involvement from senior team members from both sides. We have
attended meetings with local management alongside our component
auditors, reviewed selected working papers for all financially
significant and material components, attended component audit
clearance meetings as part of the interim and year end audit work,
and performed other forms of oversight as considered necessary
depending on the significance of the component and the extent
of accounting and audit issues arising. Full scope components
account for 72% of consolidated revenue, 79% of consolidated
total assets and 73% 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
How we determined it
Financial statements – Group
Financial statements – Company
$25 million (2020: $24 million).
Approximately 5% of profit before tax after
adjusting for all exceptional items and other
adjustments except for amortisation of intangible
assets other than software
$21.6 million (2020: $21.6 million).
1% of total assets, but capped at $21.6 million based
on overall Group materiality
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.
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 focus for the Company is the
payment of dividends and servicing of debt.
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 $5 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% (2020: 75%) of overall materiality, amounting to $18.75 million (2020: $18 million) for the Group financial
statements and $16.2 million (2020: $16.2 million) for the Company financial statements.
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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) (2020: $1.2 million) and $1.2 million (Company audit) (2020:
$1.075 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 covenant 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 Directors’ 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,
which includes reporting based on the Task Force on Climate-related
Financial Disclosures (TCFD) recommendations. 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
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 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 Directors’ report
In our opinion, based on the work undertaken in the course of the
audit, the information given in the Strategic report and Directors’
report for the year ended 31 December 2021 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 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 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.
Hikma Pharmaceuticals PLC Annual Report 2021
121
FINANCIAL STATEMENTS
Independent auditors’ report to the members
of Hikma Pharmaceuticals PLC
continued
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.
Irregularities, including fraud, are instances of non-compliance with
laws and regulations. We design procedures in line with our
responsibilities, outlined above, 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 patent protection, product safety (including but not limited
to the United States Food and Drug Administration regulations),
competition and antitrust laws, pricing practices and 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 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
and return provisions and valuation of intangible assets (see related
key audit matters above); 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.
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 six years, covering the years ended 31 December 2016 to
31 December 2021.
Other matter
In due course, as required by the Financial Conduct Authority
Disclosure Guidance and Transparency Rule 4.1.14R, these financial
statements will form part of the ESEF-prepared annual financial
report filed on the National Storage Mechanism of the Financial
Conduct Authority in accordance with the ESEF Regulatory Technical
Standard (‘ESEF RTS’). This auditors’ report provides no assurance
over whether the annual financial report will be prepared using the
single electronic format specified in the ESEF RTS.
Darryl Phillips
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
23 February 2022
122
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
123
FINANCIAL STATEMENTS
Consolidated income statement
For the year ended 31 December 2021
Consolidated statement of
comprehensive income
For the year ended 31 December 2021
Revenue
Cost of sales
Gross profit/(loss)
Selling, general and administrative expenses
Net impairment loss on financial assets
Research and development expenses
Other operating expenses
Other operating income
Total operating (expenses)/income
Operating profit/(loss)
Finance income
Finance expense
Gain from investment at fair value through profit and
loss (FVTPL)
Results from joint venture
Profit/(loss) before tax
Tax
Profit/(loss) for the year
Attributable to:
Non-controlling interests
Equity holders of the parent
Earnings per share (cents)
Basic
Diluted
2021
Exceptional
items and other
adjustments
(Note 6)
$m
–
–
–
(73)
–
–
(37)
60
(50)
(50)
29
(13)
–
–
(34)
5
(29)
–
(29)
(29)
2021
Core
results
$m
2,553
(1,252)
1,301
(488)
–
(143)
(40)
2
(669)
632
1
(56)
–
1
578
(129)
449
(1)
450
449
194.8
193.1
Note
4
9
9
5
10
11
12
32
15
15
2021
Reported
results
$m
2,553
(1,252)
1,301
(561)
–
(143)
(77)
62
(719)
582
30
(69)
–
1
544
(124)
420
(1)
421
420
2020
Core
results
$m
2,341
(1,128)
1,213
(464)
(2)
(137)
(47)
3
(647)
566
9
(54)
1
–
522
(115)
407
(1)
408
407
182.3
180.7
172.9
171.4
2020
Exceptional
items and other
adjustments
(Note 6)
2020
Reported
results
$m
–
(12)
(12)
(45)
–
–
(7)
77
25
13
38
(15)
–
–
36
(13)
23
–
23
23
$m
2,341
(1,140)
1,201
(509)
(2)
(137)
(54)
80
(622)
579
47
(69)
1
–
558
(128)
430
(1)
431
430
182.6
181.1
Profit for the year
Other comprehensive income
Items that may subsequently be reclassified to the consolidated income statement, net of tax:
Currency translation 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 other comprehensive income for the year
Total comprehensive income for the year
Attributable to:
Non-controlling interests
Equity holders of the parent
Note
26
19
2021
Reported
results
$m
420
2020
Reported
results
$m
430
(22)
(1)
14
(9)
411
2
409
411
39
(1)
2
40
470
2
468
470
124
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
125
FINANCIAL STATEMENTS
Consolidated balance sheet
At 31 December 2021
Consolidated statement
of changes in equity
For the year ended 31 December 2021
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Investments in joint ventures
Deferred tax assets
Financial and other non-current assets
Current assets
Inventories
Income tax receivable
Trade and other receivables1
Collateralised and restricted cash
Cash and cash equivalents
Other current assets1
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 earnings
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Note
2021
$m
2020 (restated)1
$m
16
16
17
33
18
13
19
20
21
22
23
24
33
25
26
27
28
33
13
30
31
32
285
607
1,072
74
10
183
47
2,278
695
60
816
–
426
97
2,094
4,372
112
9
468
57
31
339
1,016
1,078
651
74
24
140
889
1,905
2,467
42
282
(60)
2,189
2,453
14
2,467
289
587
1,009
59
9
221
39
2,213
757
36
700
4
323
102
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
1. In 2021, prepayments have been reclassified under other current assets which were previously classified under trade and other receivables, and hence at 31 December 2020 numbers have been restated
reflecting $56 million reclassification from trade and other receivables to other current assets. Had this reclassification been applied at 1 January 2020, these line items would have been restated by
$49 million. (see Notes 21 and 23)
The consolidated financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, on pages 124 to 179 were approved by the Board of
Directors on 23 February 2022 and signed on its behalf by:
Said Darwazah
Executive Chairman
23 February 2022
Sigurdur Olafsson
Chief Executive Officer
Merger and
revaluation
reserves1
$m
57
Translation
reserve
$m
(235)
Total other
reserves
$m
(178)
Retained
earnings
$m
1,972
Share
capital
$m
41
Share
premium
$m
282
Equity
attributable
to equity
shareholders
of the parent
$m
2,117
Non-
controlling
interests
$m
12
62
369
62
–
–
–
62
–
–
–
119
48
–
(3)
–
–
–
45
–
–
–
–
–
–
36
36
–
–
–
(199)
–
–
–
–
–
(25)
(25)
–
–
–
–
–
36
98
–
–
–
(80)
48
–
(3)
–
–
(25)
20
–
–
–
2
(1)
–
370
27
(109)
(368)
1,892
373
14
3
(2)
1
–
389
29
(1)
(120)
2,189
–
–
–
–
–
–
–
–
41
–
–
–
–
–
–
–
–
1
–
42
–
–
–
–
–
–
–
–
282
–
–
–
–
–
–
–
–
–
–
282
431
2
(1)
36
468
27
(109)
(368)
2,135
421
14
–
(2)
1
(25)
409
29
–
(120)
2,453
(1)
–
–
3
2
–
(1)
–
13
(1)
–
–
–
–
3
2
–
–
(1)
14
Total
equity
$m
2,129
430
2
(1)
39
470
27
(110)
(368)
2,148
420
14
–
(2)
1
(22)
411
29
–
(121)
2,467
Balance at 1 January 2020
Profit for the year2
Change in fair value of
investments at FVTOCI (Note 19)
Remeasurement of post-
employment benefit obligations
(Note 26)
Currency translation 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 31)
Balance at 31 December 2020
and 1 January 2021
Profit for the year2
Change in fair value of
investments at FVTOCI (Note 19)
Realisation of revaluation reserve
Remeasurement of post-
employment benefit obligations
(Note 26)
Tax arising on remeasurement of
post-employment benefit
obligations
Currency translation 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 2021
164
(224)
(60)
1. Merger and revaluation reserves mainly relates to Columbus business acquisition in 2016
2. A net Impairment reversal of $48 million has been allocated from retained earnings to the merger and revaluation reserves in relation to Columbus business acquisition intangible assets (2020: $62 million)
(Notes 6 and 16)
126
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
127
FINANCIAL STATEMENTS
Consolidated cash flow statement
For the year ended 31 December 2021
Notes to the consolidated
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
Purchase of intangible assets
Proceeds from sale of investment at FVTOCI
Additions of investments at FVTOCI
Proceeds from investment divestiture
Contingent consideration paid
Interest income received
Investment related amounts released from/(held in) escrow account
Net cash outflow from investing activities
Cash flow from financing activities
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 increase/(decrease) 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
34
14
22
2021
$m
767
(131)
2
638
(145)
(84)
5
(3)
1
(17)
2
3
(238)
10
(45)
383
(431)
(31)
(120)
(1)
(50)
–
–
(2)
(287)
113
323
(10)
426
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)
(298)
(117)
442
(2)
323
1. Adoption of new and revised standards
The following revised Standards and Interpretations have been issued
and are effective for annual periods beginning on 1 January 2021. The
Group has not early adopted any other standard, interpretation or
amendment that has been issued but is not yet effective.
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.
— Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16
The Group’s previously published consolidated financial statements were
prepared in accordance with:
(i) IFRS in conformity with the requirements of the Companies Act 2006
and the applicable legal requirements of the Companies Act 2006. In
addition to complying with IFRS in conformity with the requirements
of the Companies Act 2006, 2020 financial statements also comply
with IFRS adopted pursuant to Regulation (EC) No. 1606/2002 as it
applies in the European Union
(ii) IFRS as issued by the International Accounting Standards Board (IASB)
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 12 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. 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 outlook. Having assessed the principal
risks, the Directors considered it appropriate to adopt the going concern
basis of accounting in preparing the consolidated financial statements.
(see page 62).
Financial covenants are suspended while the Group retains its
investment grade status from two rating agencies1. Nevertheless, the
covenants are monitored and the Group was in compliance on 31
December 2021 and expects to remain in compliance with those
covenants for the year ending in December 2022 even in the severe but
plausible downside scenarios. As of 31 December 2021 the Group’s
investment grade rating was affirmed by S&P and Fitch.
1. Rating agencies: means each of Fitch, Moody’s and S&P or any of their affiliates or successors
The amendments provide temporary reliefs which address the financial
reporting effects when an interbank offered rate (IBOR) is replaced with
an alternative nearly risk-free interest rate (RFR). The amendments
include the following practical expedient: A practical expedient to require
contractual changes, or changes to cash flows that are directly required
by the reform, to be treated as changes to a floating interest rate,
equivalent to a movement in a market rate of interest.
These amendments had no significant impact on the consolidated
financial statements of the Group. The Group intends to use the practical
expedients in future periods if they become applicable.
— IFRIC agenda decision – Configuration and customisation costs in a
Cloud Computing Arrangement
The March 2021 IFRS Interpretation Committee update included an
agenda decision on configuration and customisation costs in a cloud
computing arrangement involving Software as a Service (SaaS). The
agenda decision included guidance on how entities should account for
such configuration and customisation costs.
The Group has adopted the IFRIC update as a change in accounting
policy. The impact relating to prior year was not material and therefore
the application was not retrospectively applied and was recognised in the
current year consolidated income statement as exceptional item (Notes
6, 9 and 16).
2. Significant accounting policies
General information
Hikma Pharmaceuticals PLC is a public limited liability company
incorporated and domiciled in United Kingdom under the Companies Act
2006. The address of the registered office is given on page 188.
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.
Basis of preparation
Hikma Pharmaceuticals PLC’s consolidated financial statements have
been prepared in accordance with:
(i) UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards.
On 31 December 2020, IFRS as adopted by the European Union at
that date was brought into UK law and became UK-adopted
International Accounting Standards, with future changes being
subject to endorsement by the UK Endorsement Board. The Group
transitioned to UK-adopted International Accounting Standards in its
consolidated financial statements on 1 January 2021. This change
constitutes a change in accounting framework. However, there is no
impact on recognition, measurement or disclosure in the period
reported as a result of the change in framework
(ii) IFRS as issued by the International Accounting Standards Board (IASB)
128
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
129
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
2. Significant accounting policies continued
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.
Interests acquired in entities are consolidated from the date the Group
acquires control and interests sold are de-consolidated from the date
control ceases.
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.
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.
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 (i.e. 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.
Investments 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.
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.
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.
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.
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.
2. Significant accounting policies continued
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.
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 2021 at which date the
prevailing rates were 436.28 Sudanese pound per US dollar and
1,507.5 Lebanese pound per US dollar. Any gain or loss on net monetary
asset/liability is recognised in the consolidated income statement. The
effect of inflation 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 the 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.
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 27 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 Notes 21 and 27 for rebates
sensitivity analysis).
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FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
2. Significant accounting policies continued
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 allocate the transaction price
to the original goods and the related free goods. Revenue for free goods is
recognised when they are transferred to the customer and a contract
liability is recognised for the performance obligations that will be satisfied
in the future.
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). 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 26)
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 of assets are depreciated on a straight-line basis at the
following depreciation rates:
Buildings
Machinery and Equipment
Vehicles
4% to 50%
20% to 33%
13% to 50%
— 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 the IBR 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 (ie 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 within 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.
Uncertain tax position
In line with IFRIC 23, 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.
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 and to improve comparability of our
consolidated financial statements to external audiences, we provide,
alongside our reported results, core results, which are a non-IFRS
measure. 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.
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 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, impairment charge/reversal of intangible
assets excluding software and finance income and expense resulting
from remeasurement and unwinding of contingent consideration and
co-development earnout payment agreement financial liabilities.
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
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:
Customer relationships
Product related intangibles
Trade names
Marketing rights
Software
10%
5% to 33%
10%
7% to 33%
10% to 33%
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FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
2. Significant accounting policies continued
Other identified intangibles are:
2. Significant accounting policies continued
The Group’s goodwill and intangible assets are tested as follows:
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 and in-licensed products recognised through
acquisitions and partnerships are amortised over their useful
economic lives once the asset is ready for use
(ii) In process product files recognised on acquisition are amortised
over the useful economic life once the asset is ready for use
(c) Purchased software: is amortised over the useful economic life when
the asset is ready for use
(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 of
acquisition
(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%
8% 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, plant and equipment
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).
The recoverable amount is the higher of fair value less costs to sell and
value in use (VIU). 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 amortisation, 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.
(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 when net realisable value is lower than cost,
and for slow moving and short dated inventory.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank, cash in hand and
highly liquid investments with maturities within three months or less.
Money market deposits comprise investment in funds at FVTPL that
are subject to insignificant risk of changes in fair value and can be readily
converted into cash.
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FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
2. Significant accounting policies continued
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 measurement
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 23.
(ii) Financial assets at FVTOCI
The Group’s investments held by its venture capital subsidiaries are
stated at FVTOCI with no recycling of cumulative gains or losses upon
de-recognition. Investments in unlisted shares are measured at cost
minus any impairment and adjusted for observable price changes in
orderly transactions for the identical or a similar investment of the same
issuer under level 3 valuation. For investments in listed shares, fair value
is readily determinable under level 1 valuation, see Notes 19 and 29.
(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 financial assets 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.
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 payments
based on future sales of certain products
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 27 and 30)
(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.
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.
2. Significant accounting policies continued
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.
Own shares
— The Group provides finance to the trustee of the Employee Benefit
Trust (EBT) which is Link Market Service Trustee Limited to purchase
shares to satisfy long-term commitments arising from the employee
share plan operated by the Company. These shares are deducted
from equity. (Note 31)
— Treasury shares and any direct expenses associated with them are
recognised at cost and deducted from equity. No gain or loss is
recognised in the consolidated income statement on the purchase,
sale, issue or cancellation of the Group’s own equity instruments.
(Note 31)
Cash dividend
The Company recognises a liability to pay a dividend when the
distribution is authorised and no longer at the discretion of the Company.
In accordance with the laws of the United Kingdom, a final dividend is
recognised when it is approved by the majority of shareholders and an
interim dividend is recognised when it is paid.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds
received, net of direct issue costs.
3. Critical accounting judgements and key
sources of estimation uncertainty
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, and Notes 21 and 27 for
sensitivity analysis.
Goodwill and intangible assets – impairment testing
CGUs (Note 16)
Testing for impairment of goodwill and other assets included within a
cash generating unit (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. The existing valuation headroom above the carrying
value of the 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 estimates
— Estimating a five-year business plan for the purposes of forecasting
free cash flows involves forecasting appropriate sales and operating
expenses taking into consideration 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
— Estimating an appropriate terminal growth rate beyond the forecast
period
Product related intangibles (Note 16)
Valuing intangible assets upon initial recognition as at the acquisition
date and testing for impairment require the following judgements
and estimates:
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 Notes 2 and 16 for more details
Critical estimates
— 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
Contingent consideration (Notes 27, 29 and 30)
The determination of the fair value of contingent consideration is based
on discounted cash flows. The critical estimates and judgements taken
into consideration for contingent consideration fair valuation are the
same as applied for forecasting revenue of launched and pipeline
products described in ‘Product related intangibles’ above. (See Note 29
for sensitivity analysis)
136
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
137
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
3. Critical accounting judgements and key
sources of estimation uncertainty continued
Taxation (Notes 12 and 13)
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.
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.
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 in line with IFRIC 23 principles. 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.
Contingent liabilities
Legal 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
Tax contingent liabilities
Due to the Group operating across a number of different tax jurisdictions,
it is subject to periodic challenge by local tax authorities on a range of tax
matters arising in the normal course of business. These challenges
generally include transfer pricing arrangements, other international tax
matters and the judgemental interpretation of local tax legislation.
4. Revenue from contracts with customers
Business and geographical markets
The following tables provide an analysis of the Group’s reported revenue by segment and geographical market, irrespective of the origin of the
goods/services:
Year ended 31 December 2021
United States
Middle East and North Africa
Europe and rest of the world
United Kingdom
Year ended 31 December 2020
United States
Middle East and North Africa
Europe and rest of the world
United Kingdom
The top selling markets in 2021 are as below:
United States
Saudi Arabia
Egypt
Injectables
$m
691
Generics
$m
820
180
176
6
1,053
Injectables
$m
662
160
149
6
977
–
–
–
820
Generics
$m
744
–
–
–
744
Branded
$m
–
661
8
–
669
Branded
$m
–
605
8
–
613
Others
$m
–
6
5
–
11
Others
$m
–
5
2
–
7
2021
$m
1,511
218
127
1,856
Total
$m
1,511
847
189
6
2,553
Total
$m
1,406
770
159
6
2,341
2020
$m
1,406
223
118
1,747
In 2021, included in revenue arising from the Generics and Injectables segments are sales the Group made to two wholesalers in the US accounting for
equal to or greater than 10% of the Group’s revenue on an individual basis of $402 million (16% of Group revenue) and $341 million (13% of Group revenue),
in 2020: $333 million (14% of Group revenue) and $274 million (12% of Group revenue).
The following table provides contract balances related to revenue:
Trade receivables (Note 21)
Contract assets (Note 23)
Contract liabilities (Note 27)
2021
$m
781
–
213
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 relate to returns and free goods provisions.
138
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
139
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
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 sales
Gross profit
Total operating expenses
Segment result
Generics
Revenue
Cost of sales
Gross profit
Total operating expenses
Segment result
Branded
Revenue
Cost of sales
Gross profit
Total operating expenses
Segment result
Others¹
Revenue
Cost of sales
Gross profit
Total operating expenses
Segment result
2021
Exceptional
items and other
adjustments
(Note 6)
$m
–
–
–
(44)
(44)
2021
Exceptional
items and other
adjustments
(Note 6)
$m
–
–
–
15
15
2021
Exceptional
items and other
adjustments
(Note 6)
$m
–
–
–
(21)
(21)
2021
Exceptional
items and other
adjustments
(Note 6)
$m
–
–
–
–
–
2021
Core
results
$m
1,053
(472)
581
(186)
395
2021
Core
results
$m
820
(432)
388
(186)
202
2021
Core
results
$m
669
(341)
328
(203)
125
2021
Core
results
$m
11
(6)
5
(3)
2
2021
Reported
results
$m
1,053
(472)
581
(230)
351
2021 Reported
results
$m
820
(432)
388
(171)
217
2021
Reported
results
$m
669
(341)
328
(224)
104
2021
Reported
results
$m
11
(6)
5
(3)
2
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
Exceptional
items and other
adjustments
(Note 6)
$m
–
–
–
–
–
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
Core
results
$m
7
(5)
2
(2)
–
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
2020
Reported
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
Results from joint venture
Profit/(loss) before tax
Tax
Profit/(loss) for the year
Attributable to:
Non-controlling interests
Equity holders of the parent
2021
Exceptional
items and other
adjustments
(Note 6)
$m
(50)
2021
Core
results
$m
724
2021
Reported
results
$m
674
(92)
632
1
(56)
–
1
578
(129)
449
(1)
450
449
–
(50)
29
(13)
–
–
(34)
5
(29)
–
(29)
(29)
(92)
582
30
(69)
–
1
544
(124)
420
(1)
421
420
2020
Core
results
$m
664
(98)
566
9
(54)
1
–
522
(115)
407
(1)
408
407
1. Unallocated corporate expenses mainly comprise employee costs, third-party professional fees and IT expenses
The following table provides an analysis of the Group non-current assets2 by geographic area:
United States
Middle East and North Africa
Jordan
Others
Europe and rest of the world
Portugal
Others
United Kingdom
2020
Exceptional
items and other
adjustments
(Note 6)
$m
13
2020
Reported
results
$m
677
–
13
38
(15)
–
–
36
(13)
23
–
23
23
2021
$m
1,083
365
321
686
136
52
188
81
(98)
579
47
(69)
1
–
558
(128)
430
(1)
431
430
2020
$m
995
356
307
663
137
55
192
94
2. Non-current assets exclude investments in joint ventures, deferred tax assets, and financial and other non-current assets
2,038
1,944
140
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141
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
6. Exceptional items and other adjustments
Exceptional items and other adjustments are disclosed separately in the consolidated income statement to assist in the understanding of the Group’s
core performance.
2021
Generics
$m
Injectables
$m
Branded
$m
Unallocated
$m
Total
$m
Exceptional items
Intangible assets write-down
Exceptional items
Other adjustments
Impairment reversal of product related intangibles
Impairment of product related intangibles
Intangible assets amortisation other than software
Remeasurement of contingent consideration
Unwinding and remeasurement of contingent consideration
and other financial liability
Exceptional items and other adjustments included in profit before tax
Tax effect
Impact on profit for the year
Other operating expenses
Other operating income
Other operating expenses
SG&A
Finance income
Finance expense
Tax
(1)
(1)
60
(14)
(30)
–
–
15
(1)
(1)
–
(10)
(33)
–
–
(11)
(11)
–
–
(10)
–
–
(44)
(21)
–
–
–
–
–
29
(13)
16
(13)
(13)
60
(24)
(73)
29
(13)
(34)
5
(29)
Exceptional items have been recognised in accordance with our accounting policy outlines in Note 2, the details are presented below:
Exceptional items
— Intangible assets write-down: $13 million write-down of software representing prior year impact of the application of the IFRIC April 2021 agenda
decisions regarding cloud computing arrangement customisation and configuration costs treatment. The Group has adopted the IFRIC update as
a change in accounting policy. The impact relating to prior year was not material and therefore the application was not retrospectively applied and
was recognised in the current year consolidated income statement as exceptional item (Note 1)
Other adjustments
— Impairment reversal of product related intangibles: $60 million impairment reversal mainly related to generic Advair Diskus® intangible asset as a
result of launching the product following FDA approval in April 2021 following an amendment submitted to its Abbreviated New Drug Application
in January 2021 (Note 16)
— Impairment of product related intangibles: $24 million impairment charge of different product related intangibles due to a decline in performance
and forecasted profitability (Note 16)
— Intangible assets amortisation other than software of $73 million
— Remeasurement of contingent consideration finance income of $29 million represents the income resulting from the valuation of the liabilities
associated with the future contingent payments in respect of contingent consideration recognised through business combinations (Notes 27, 29
and 30)
— Unwinding and remeasurement of contingent consideration and other financial liability finance expense of $13 million represents the expense resulting
from the unwinding and the valuation of the liabilities associated with the future contingent payments in respect of contingent consideration recognised
through business combinations and the financial liability in relation to the co-development earnout payment agreement (Notes 27, 29 and 30)
6. Exceptional items and other adjustments continued
In the previous year, exceptional items and other adjustments were related to the following:
2020
Generics
$m
Injectables
$m
Branded
$m
Unallocated
$m
Total
$m
Exceptional Items
Jordan warehouse fire incident
MENA severance and restructuring costs
Assets write off – PPE Impairment
Assets write off – Inventory Related Provision
Exceptional items
Other adjustments
Impairment of product related intangibles
Impairment reversal of product related intangibles
Intangible assets amortisation other than software
Remeasurement of contingent consideration
Unwinding and remeasurement of contingent consideration
and other financial liability
Other operating income
SG&A
Other operating expenses
Cost of sales
Other operating expenses
Other operating income
SG&A
Finance income
Finance expense
Exceptional items and other adjustments including in profit before tax
Tax expenses associated with previously unrecognised deferred tax assets Tax
Tax effect
Impact on profit for the year
Tax
4
–
(3)
(12)
(11)
(4)
66
(9)
–
–
42
–
–
–
–
–
–
–
(23)
–
–
(23)
7
(3)
–
–
4
–
–
(10)
–
–
(6)
–
–
–
–
–
–
–
–
38
(15)
23
11
(3)
(3)
(12)
(7)
(4)
66
(42)
38
(15)
36
(3)
(10)
23
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
— 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
reflected 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 was expected to expire before launch and has been written off.
In addition, $3 million of property, plant and equipment was written off (Notes 9 and 17)
— Tax expense 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
Other adjustments
— Impairment reversal of product related intangibles: $66 million impairment reversal in respect of specific product related intangibles in the Generics
segment which reflected a better than expected performance of certain marketed products acquired through business combination (Note 16)
— Impairment charge of product related intangibles of $4 million
— Intangible assets amortisation other than software of $42 million
— Remeasurement of contingent consideration finance income of $ 38 million represents the income resulting from the valuation of the liabilities
associated with the future contingent payments in respect of contingent consideration recognised through business combinations (Notes 27, 29
and 30)
— Unwinding and remeasurement of contingent consideration and other financial liability finance expense of $15 million represents the expense
resulting from the unwinding and the valuation of the liabilities associated with the future contingent payments in respect of contingent
consideration recognised through business combinations and the financial liability in relation to the co-development earnout payment agreement
(Notes 27, 29 and 30)
142
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143
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
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 services2
Other non-audit fees
Total audit and non-audit fees
1. Amounts have been restated to reflect final amounts billed in relation to 2020
2. Assurance services relate to review procedures in respect to the interim financial information
In 2020, non-audit fees of $0.2 million were charged relating to a bond offering.
2021
$m
1.4
1.9
3.3
0.2
–
3.5
20201
$m
1.0
1.9
2.9
0.2
0.2
3.3
A description of the work of the Audit Committee is set out in the Audit Committee report on pages 83 to 86 and includes an explanation of how
auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor.
8. Staff costs
The average monthly number of employees (including Executive Directors) was:
Production
Sales, general and administration
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
2021
Number
4,924
3,273
506
8,703
2021
$m
407
38
15
9
29
22
41
22
2020
Number
4,918
3,282
481
8,681
2020
$m
392
39
14
9
27
21
36
22
583
560
9. Other operating income/expenses
Other operating expense
Impairment charge of intangible assets
Intangible assets write-down
Impairment charge of property, plant and equipment
Loss on disposal/damage of property, plant and equipment
Forex and net monetary hyperinflation losses, net
Others
2021
Exceptional
items and other
adjustments
(Note 6)
$m
24
2021
Core
results
$m
–
–
1
1
36
2
40
13
–
–
–
–
37
2021
Reported
results
$m
24
13
1
1
36
2
77
2020
Exceptional
items and other
adjustments
(Note 6)
$m
4
2020
Core
results
$m
11
–
3
2
30
1
47
–
3
–
–
–
7
2020
Reported
results
$m
15
–
6
2
30
1
54
Exceptional items and other adjustments comprise $24 million impairment charge in relation to certain product related intangible assets and $13 million
write-down of software representing prior year impact of the application of the IFRIC April 2021 agenda decisions regarding cloud computing
arrangement customisation and configuration costs treatment. In 2020, exceptional items and other adjustments comprised $4 million impairment
charge in relation to certain product related intangible assets in addition to $3 million write off of property, plant and equipment (Notes 6, 16 and 17).
Other operating income
Impairment reversal of intangible assets
Others
2021
Exceptional
items and other
adjustments
(Note 6)
$m
60
–
60
2021
Core
results
$m
–
2
2
2021
Reported
results
$m
60
2
62
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
Exceptional items and other adjustments represent $60 million (2020: $66 million) impairment reversal in relation to certain product related intangible
assets (Notes 6 and 16).
In 2020, the other operating income of $14 million mainly comprised $11 million for insurance compensation related to a fire incident.
10. Finance income
Interest income
Remeasurement of contingent consideration
(Notes 27, 29 and 30)
Other finance income
2021
Exceptional
items and other
adjustments
(Note 6)
$m
–
2021
Core
results
$m
1
–
–
1
29
–
29
2021
Reported
results
$m
1
29
–
30
2020
Exceptional
items and other
adjustments
(Note 6)
$m
–
2020
Core
results
$m
7
–
2
9
38
–
38
2020
Reported
results
$m
7
38
2
47
144
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
145
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
11. Finance expense
12. Tax continued
Interest on bank overdrafts and loans
Interest on Eurobond
Unwinding and remeasurement of contingent consideration
and other financial liabilities (Notes 27, 29 and 30)
Other bank charges
Lease accretion of interest
12. Tax
Current tax:
Foreign tax
Adjustment to prior year
Deferred tax (Note 13)
Current year
Adjustment to prior year
2021
Exceptional
items and other
adjustments
(Note 6)
$m
–
–
13
–
–
13
2021
Core
results
$m
21
18
–
13
4
56
2021
Reported
results
$m
21
18
13
13
4
69
2020
Exceptional
items and other
adjustments
(Note 6)
$m
–
–
15
–
–
15
2020
Core
results
$m
22
15
–
13
4
54
2021
Exceptional
items and other
adjustments
(Note 6)
$m
2021
Core
results
$m
2021
Reported
results
$m
2020
Exceptional
items and other
adjustments
(Note 6)
$m
2020
Core
results
$m
114
(13)
20
8
129
(7)
–
2
–
(5)
107
(13)
22
8
124
99
1
19
(2)
115
(2)
3
12
–
13
2020
Reported
results
$m
22
15
15
13
4
69
2020
Reported
results
$m
97
2
31
(2)
128
UK corporation tax is calculated at 19.0% (2020: 19.0%) of the estimated assessable profit made in the UK for the year.
The Group incurred a tax expense of $124 million (2020: $128 million). The effective tax charge rate is 22.8% (2020: 22.9%). 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.
The charge for the year can be reconciled to profit before tax per the consolidated income statement as follows:
Profit before tax
Tax at the UK corporation tax rate of 19% (2020: 19.00%)
Profits taxed at different rates
Permanent differences:
– Non-deductible expenditure
– Other permanent differences
– Research and development benefit
State and local taxes
Temporary differences:
– Rate change tax losses and other deductible temporary differences for which no benefit is recognised
– Exceptional tax charge associated with previously unrecognised tax losses (Note 6)
Change in provision for uncertain tax positions
Unremitted earnings
Prior year adjustments
Tax expense for the year
2021
$m
544
104
7
5
2
(6)
7
5
–
2
3
(5)
124
2020
$m
558
106
7
7
–
(3)
8
6
3
(8)
4
(2)
128
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 research and development.
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 change in provision for uncertain tax positions relates to the provisions the Group holds in the event a revenue authority successfully takes an
adverse view of the positions adopted by the Group in 2021 and primarily relates to transfer pricing adjustment. As at the consolidated balance sheet
date, the Group held an aggregate provision in the sum of $44 million (2020: $43 million) for uncertain tax positions. The Group released $nil in 2021
(2020: $8 million) due to the statute of limitations and released $7 million (2020: $4 million) following settlements with no final tax adjustments
required by the relevant tax authorities. This was offset by new provisions and updates of $9 million booked in 2021 (2020: $4 million). The currency
exchange differences for the year is a $1 million reduction to the aggregate provision. In 2022, up to $4 million could be released due to the statute of
limitation and settlements. If all areas of uncertainty were audited and all areas resulted in 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 the estimated tax
provision reported in a prior period’s consolidated financial statements. This category also includes adjustments to the tax returns (favourable) against
which an adverse uncertain tax position has been booked and included under “change in provision for uncertain tax positions” above.
Publication of tax strategy
In line with the UK requirement for large UK businesses to publish their tax strategy, the Group’s tax strategy has been made available on the
Group’s website.
146
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147
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
13. Deferred tax
14. Dividends
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:
As at 31 December
Amounts recognised as distributions to equity holders in the year:
Deferred tax liabilities
Deferred tax assets
The below table represents the deferred tax movement in 2021:
1 January 2021
Credit/(charge) to income
Currency translation (loss) and hyperinflation impact
At 31 December 2021
The below table represents the deferred tax movement in 2020:
1 January 2020
Credit/(charge) to income
Currency translation (loss) and hyperinflation impact
At 31 December 2020
Product
related
provision
$m
111
(17)
–
94
Product
related
provision
$m
96
15
–
111
Intangible
assets
$m
76
–
1
77
Intangible
assets
$m
99
22
(1)
76
Other
provisions
and accruals
$m
18
(6)
Unremitted
earnings
$m
(11)
3
–
12
–
(8)
Other
provisions
and accruals
$m
20
Unremitted
earnings
$m
(7)
(1)
(1)
18
(4)
–
(11)
2021
$m
(24)
183
159
Others
$m
(4)
(10)
(2)
(16)
Others
$m
15
(17)
(2)
(4)
2020
$m
(31)
221
190
Total
$m
190
(30)
(1)
159
Total
$m
223
(29)
(4)
190
The Group has a potential deferred tax asset of $234 million (2020: $258 million), of which $183 million (2020: $221 million) has been recognised.
No deferred tax asset has been recognised on gross temporary differences totalling $208 million (2020: $171 million) mainly due to the unpredictability
of the related future profit streams. $194 million (2020: $168 million) of these gross temporary differences relate to losses, of which $186 million are UK
losses that don’t expire. No deferred tax is recognised against the losses due to significant uncertainty regarding future taxable income forecasts in the
relevant jurisdictions. $3 million of non-UK losses are expected to expire in 2022. The remaining $14 million represent other unrecognised gross short
term temporary differences that relate to multiple jurisdictions.
During the year a reduction in the deferred tax liability has been recognised on temporary differences relating to the unremitted earnings of overseas
subsidiaries of $3 million (2020: addition of $4 million). No deferred tax liability has been recognised on the remaining unremitted earnings of
$207 million (2020: $239 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.
The Group has adjusted the classification of $11 million to better reflect the nature of deferred tax balances, this has been included in the current year
movement under “credit/(charge) to income” and did not result in any impact on the consolidated balance sheet. Deferred taxes on intangible assets
relate to differences between the tax deductions and the book deductions for intangible assets.
Paid in
2021
$m
78
42
120
Paid in
2020
$m
72
37
109
Final dividend for the year ended 31 December 2020 of 34.0 cents (31 December 2019: 30.0 cents) per share
Interim dividend during the year ended 31 December 2021 of 18.0 cents (31 December 2020: 16.0 cents) per share
The proposed final dividend for the year ended 31 December 2021 is 36.0 cents (2020: 34.0 cents).
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 25 April 2022 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 2021 (231,498,055), the unrecognised
liability is $83 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 potentially
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.
2021
Exceptional
items and other
adjustments
(Note 6)
$m
2021
Core
results
$m
2021
Reported
results
$m
2020
Exceptional
items and other
adjustments
(Note 6)
$m
2020
Core
results
$m
2020
Reported
results
$m
Earnings for the purposes of basic and diluted EPS being
net profit attributable to equity holders of the parent
450
(29)
421
408
23
431
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 year after deducting Treasury shares and shares held by the Employee Benefit Trust (EBT). Treasury shares have no right to receive
dividends and the trustees have waived their rights to dividends on the shares held by the EBT.
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 potentially Ordinary Shares:
Share-based awards
Weighted average number of Ordinary Shares for the purposes of diluted EPS
2021
Number
m
231
2
233
2020
Number
m
236
2
238
1. Weighted average number of ordinary shares has been calculated by the weighted average number of shares in issue during the year after deducting Treasury shares and shares held by the EBT
(Note 31)
Basic
Diluted
2021
Core
EPS
Cents
194.8
193.1
2021
Reported
EPS
Cents
182.3
180.7
2020
Core
EPS
Cents
172.9
171.4
2020
Reported
EPS
Cents
182.6
181.1
148
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149
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
16. Goodwill and other intangible assets
16. Goodwill and other intangible assets continued
The changes in the carrying value of goodwill and other intangible assets for the years ended 31 December 2021 and 31 December 2020 are as follows:
Cost
Balance at 1 January 2020
Additions
Disposals
Translation adjustments
Balance at 1 January 2021
Write-down
Additions
Reclassification
Translation adjustments
Balance at 31 December 2021
Accumulated amortisation and impairment
Balance at 1 January 2020
Charge for the year
Disposals
Impairment reversal
Impairment charge
Translation adjustments
Balance at 1 January 2021
Write-down
Charge for the year
Impairment reversal
Impairment charge
Translation adjustments
Balance at 31 December 2021
Carrying amount
At 31 December 2021
At 31 December 2020
Goodwill
$m
Product-related
intangibles
$m
Software
$m
Other identified
intangibles
$m
690
1,033
Total
$m
2,054
36
(14)
12
184
16
–
5
8
–
–
1,041
–
14
3
(2)
147
12
(14)
–
145
(14)
11
–
–
(660)
(29)
–
66
(5)
(1)
(629)
–
(59)
60
(23)
1
(75)
(10)
14
–
(10)
–
(81)
1
(11)
–
–
–
(77)
(14)
–
–
–
(3)
(94)
–
(14)
–
(1)
2
(1,220)
(53)
14
66
(15)
(4)
(1,212)
1
(84)
60
(24)
3
–
–
7
697
–
–
–
(4)
693
(408)
–
–
–
–
–
(408)
–
–
–
–
–
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
2020
$m
173
116
289
2021
$m
170
115
285
205
2,088
–
58
(3)
(3)
(14)
83
–
(9)
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.
Branded, Injectables and Generics CGUs
Details related to the discounted cash flow models used in the impairment tests of the Branded, Injectables and Generics CGUs are as follows:
1,056
142
257
2,148
Valuation basis
Key assumptions
Determination of assumptions
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
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
Establishing the launch date and probability of a successful product approval for pipeline products
Terminal growth rates are based on the Group’s experience in its markets
Discount rates for each CGU are derived from specific regions/countries
Period of specific projected cash flows
5 years, to which a terminal growth rate is then applied
Terminal growth rate and discount rate
Terminal
growth rate (perpetuity)
Pre-tax
discount rate
2021
2.4%
2.1%
2.3%
2020
2.4%
2.1%
2.3%
2021
15.4%
10.2%
9.9%
2020
16.6%
11.1%
12.7%
(408)
(650)
(91)
(107)
(1,256)
285
289
406
412
51
64
150
111
892
876
Branded
Injectables
Generics
Of the total intangible assets other than goodwill, $132 million (2020: $252 million) are under development and not yet subject to amortisation.
150
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151
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
16. Goodwill and other intangible assets continued
16. Goodwill and other intangible assets continued
The Group performed its annual goodwill and CGU impairment test for the Branded, Injectables and Generics. The Group’s model is a VIU model
based on the discounted value of the best estimates derived from 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 would
result 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 headroom1 still exists under reasonable changes in key assumptions. Specifically, an evaluation of the CGUs was made
assuming an increase of two percentage points 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 two percentage points and in all cases sufficient headroom exists.
Climate-related matters: The Group monitors the development of climate related risks. At the current time, climate change is not expected to have a
material impact on the consolidated financial statements (see page 50). The Group conducted a sensitivity for the potential impact of climate change,
specifically assuming disruption through extreme weather events, such scenario had minimal impact on the recoverable values of all CGUs.
1. Headroom is defined as the excess of the recoverable value, over the carrying value of a CGU
Generic Advair Diskus® CGU
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.
As per the Group policy, the launching of generic Advair Diskus® following FDA approval in April 2021 of an amendment submitted to its Abbreviated
New Drug Application in January 2021 was considered as an indicator for an impairment reversal assessment. As a result, the Group evaluated the
generic Advair Diskus® CGU recoverable amount based on fair value less cost to sell (FVLCS) model, being the higher value compared to VIU.
The evaluation resulted in a reversal of impairment of $46 million bringing the revised carrying value to $160 million. This valuation methodology uses
significant inputs which are not based on observable market data, therefore this valuation technique is classified as a level 3 valuation. Details relating
to the discounted cash flow model used for the generic Advair Diskus® impairment test are as follows:
Valuation basis
Key assumptions
FVLCS
Sales growth rates, informed by pricing and volume assumptions
Profit margins and profit margin growth rates
Useful life
Discount rates
Product-related intangible assets
In-Process Research and Development (IPR&D)
IPR&D consists of pipeline products of $6 million mainly related to Generics CGU of $5 million with immaterial amounts allocated to the Branded and
Injectables CGUs. At 31 December 2020, IPR&D balance was $170 million mainly related to generic Advair Diskus® of $138 million which was launched
during the year and transferred to product rights. 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 $9 million (2020: $4 million)
Product rights
Product rights consists of marketed products of $400 million (2020: $242 million) mainly related to generic Advair Diskus®.
Whenever impairment indicators are identified for definite life intangible assets, Hikma reconsiders the asset’s estimated economic benefit, 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 discount rate that reflects the risk factors associated with the cash flows and the CGUs under which
these products sit. 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 2021,
the result of this testing was an impairment charge of $14 million (2020: $1 million) related to different products due to declines in performance and
forecasted profitability, and an impairment reversal of $60 million (2020: $66 million) comprising $46 million related to the generic Advair Diskus®
intangible asset and $14 million for other products related to the Generics CGU due to improved performance.
The Group performed sensitivity analysis over the valuation of the generic Advair Diskus® intangible asset. The sensitivity analysis assumed an
increase of two percentage points in the discount rate or a 10% decline in the projected cash flows, applying those sensitivities would result in
an impairment charge against the generic Advair Diskus® intangible asset of approximately $11 million and $16 million, respectively.
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 2021, there was no impairment of software (2020: $10 million).
Determination of assumptions
Probability weighted average of different possibilities on sales growth rates, informed by conversion rates
from the branded products and competitor entries
In 2021, the Group recorded a $13 million write-down of software previously capitalised as a result of application of the IFRIC April 2021 agenda
decisions regarding cloud computing arrangement customisation and configuration costs treatment.
Margins reflect past experience, adjusted for expected changes in the future
Useful life reflects management best estimate of the product’s expected economic benefit
Discount rate is derived from the specific region/country in which the CGU operates
Period of specific projected cash flows
5 years
Useful life
Post-tax discount rate
15 years
8%
The Group performed sensitivity analysis over the valuation of the generic Advair Diskus® CGU. The sensitivity analysis assumed an increase of two
percentage points in the discount rate or a 10% decline in the projected cash flows. Applying those sensitivities would result in an impairment charge
against the generic Advair Diskus® CGU of approximately $13 million and $17 million, respectively.
Other identified intangibles
Other identified intangibles comprise customer relationships, trade names and marketing rights of $150 million (2020: $111 million). The increase during
the year represent payments made to third parties in relation to marketing rights and licensing agreements. Following a review of impairment indicators
for other identified intangibles as at 31 December 2021, there was an impairment charge of $1 million (2020: $nil).
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) 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.
152
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153
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
17. Property, plant and equipment
18. Investments in joint ventures
Cost
Balance at 1 January 2020
Additions
Disposals
Transfers
Translation adjustment
Balance at 1 January 2021
Additions
Disposals
Transfers
Translation adjustment
Balance at 31 December 2021
Accumulated depreciation and impairment
Balance at 1 January 2020
Charge for the year
Disposals
Impairment
Translation adjustment
Balance at 1 January 2021
Charge for the year
Disposals
Impairment
Translation adjustment
Balance at 31 December 2021
Carrying amount
At 31 December 2021
At 31 December 2020
Land and buildings
$m
597
Machinery and
equipment
$m
685
Vehicles, fixtures
and equipment
$m
125
Projects under
construction1
$m
233
6
(4)
28
9
636
18
(3)
28
(3)
676
(199)
(18)
4
(2)
(4)
(219)
(15)
3
(1)
1
20
(34)
83
7
761
17
(10)
39
(11)
796
(420)
(36)
32
(4)
(6)
(434)
(39)
8
–
7
8
(7)
3
1
130
7
(6)
8
(1)
138
(96)
(17)
7
–
(1)
(107)
(17)
7
–
–
(231)
(458)
(117)
445
417
338
327
21
23
(13)
(728)
–
–
–
–
(13)
–
10
–
–
(3)
268
242
(71)
43
(6)
(11)
(773)
(71)
28
(1)
8
(809)
1,072
1,009
1. Accumulated depreciation and impairment balance at 1 January 2020 of $13 million within projects under construction relates to previous years impairment charges
Land is not subject to depreciation.
As at 31 December 2021, the Group had pledged property, plant and equipment with a carrying value of $8 million (2020: $9 million) as collateral
for various long-term loans. This amount includes specific items in the net property, plant and equipment of the Group’s businesses in Tunisia
(2020: Tunisia).
Depreciation of $50 million (2020: $57 million) is included in the cost of sales, $16 million (2020: $10 million) in selling general and administrative
expenses and $5 million (2020: $4 million) in research and development expenses.
As at 31 December 2021, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting
to $33 million (2020: $60 million).
As at 31 December 2021, the Group booked an impairment charge of $1 million (2020: $6 million impairment charge, $3 million was considered
as exceptional item related to property, plant and equipment write off) (Notes 6 and 9).
Total
$m
1,640
170
(45)
–
17
1,782
146
(29)
–
(18)
1,881
The Group’s share in Hubei Haosun Pharmaceutical Co Ltd (China) was 49% at 31 December 2021 (31 December 2020: 49%) with an investment
balance of $10 million at 31 December 2021 (31 December 2020: $9 million) and share of the profit for the year ended 31 December 2021 of $1 million
(2020: $nil).
Below table represent investment in joint ventures movement during the year.
Balance at 1 January
Group's share of profit of joint ventures
Liquidation of HikmaCure
Balance at 31 December
For the year ended
31 December 2021
$m
9
For the year ended
31 December 2020
$m
11
1
–
10
–
(2)
9
Summarised financial information in respect of the Group’s interests in Hubei Haosun Pharmaceuticals Co Ltd is set out below:
136
–
(114)
–
255
104
(10)
(75)
(3)
271
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
19. Financial and other non-current assets
Investments at FVTOCI
Other non-current assets
As at
31 December 2021
$m
24
As at
31 December 2020
$m
19
(6)
18
9
(2)
17
8
For the year ended
31 December 2021
$m
8
For the year ended
31 December 2020
$m
6
1
1
2021
$m
36
11
47
1
–
As at 31 December
2020
$m
25
14
39
Investments at FVTOCI include eight investments through the Group’s venture capital arm, Hikma International Ventures and Developments LLC and
Hikma Ventures Limited, which are not held for trading and which the Group has irrevocably elected at initial recognition to recognise in this category.
During the year, the venture arm sold one of its investments, invested in two new companies and increased investment in four ventures. One of the
investments is a listed company with a readily determinable fair value that falls under level 1 valuation (Note 29). Its value is measured at the share price
market value. The other investments are unlisted shares without readily determinable fair values that fall under level 3 valuation (Note 29), their 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.
In 2021, total change in fair value was a gain of $14 million (2020: $2 million) recognised in the other comprehensive income.
Other non-current assets mainly represent long term receivables and a sublease arrangement in the US.
154
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Hikma Pharmaceuticals PLC Annual Report 2021
155
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
20. Inventories
Finished goods
Work-in-progress
Raw and packing materials
Goods in transit
Spare parts
Provision against Inventory1
As at 31 December
2020
$m
283
95
394
44
33
(92)
757
2021
$m
245
92
373
24
38
(77)
695
1. The cost of inventory related provision recognised as an expense in the cost of sales in the consolidated income statement was $48 million (2020: $57 million).
Inventories are stated net of provision as follows:
Provisions against inventory in 2021
Provisions against inventory in 2020
21. Trade and other receivables
Gross trade receivables
Chargebacks and other allowances
Related allowance for expected credit loss
Net trade receivables
VAT and sales tax recoverable
Other receivables
Net trade and other receivables1
As at
1 January
$m
92
85
Additions
$m
48
57
Utilisation
$m
(62)
(50)
Translation
adjustments
$m
(1)
As at
31 December
$m
77
–
92
As at 31 December
2020 (restated)1
$m
973
2021
$m
1,107
(275)
(51)
781
32
3
816
(256)
(55)
662
35
3
700
21. Trade and other receivables continued
Trade receivables are stated net of provisions for chargebacks and expected credit loss allowance as follows:
Chargebacks and other allowances
Expected credit loss allowance
Chargebacks and other allowances
Expected credit loss allowance
As at
31 December
2020
$m
256
55
311
As at
31 December
2019
$m
280
55
335
Additions,
net
$m
2,160
–
2,160
Additions,
net
$m
1,865
2
1,867
Translation
adjustments
$m
–
As at
31 December
2021
$m
275
(1)
(1)
51
326
Translation
adjustments
$m
–
(1)
(1)
As at
31 December
2020
$m
256
55
311
Utilisation
$m
(2,141)
(3)
(2,144)
Utilisation
$m
(1,889)
(1)
(1,890)
More details on the Group’s policy for credit and concentration risk are provided in Note 29.
At 31 December 2021, the provision balance relating to chargebacks was $201 million (2020: $184 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 (2020: 40 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 $5 million (2020: $5million), and if the overall chargeback rate of 55% (2020: 55%) increases/decreases
by one percentage point the provision would increase/decrease by $4 million (2020: $3 million).
At 31 December 2021 the provision balance relating to customer rebates was $55 million (2020: $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 ten basis point
increase/decrease in the rebates rate of 6.5% (2020: 7.8%) would increase/decrease this provision by approximately $1 million (2020: $1 million).
22. Cash and cash equivalents
As at 31 December
2020
$m
85
2021
$m
155
249
22
426
203
35
323
1. In 2021, prepayments have been reclassified under other current assets which were previously classified under trade and other receivables, and hence at 31 December 2020 numbers have been restated
reflecting $56 million reclassification from trade and other receivables to other current assets. Had this reclassification been applied at 1 January 2020, these line items would have been restated by $49 million.
(see Note 23)
The fair value of receivables is estimated to be not significantly different from the respective carrying amounts.
Cash at banks and on hand
Time deposits
Money market deposits
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.
Money market deposits comprise investment in funds at FVTPL that are subject to insignificant risk of changes in fair value and can be readily
converted into cash that fall under level 1 valuation (Note 29).
156
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157
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
23. Other current assets
26. Other provisions
Prepayments1
Investment at FVTPL
Others
As at 31 December
2020 (restated)1
$m
56
24
22
102
2021
$m
65
24
8
97
Other provisions represent the end of service indemnity provisions for employees of certain Group subsidiaries including some immaterial amounts
for 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 $2 million (2020: $1 million).
Movements on the provision for end of service indemnity:
1. In 2021, prepayments have been reclassified under other current assets which were previously classified under trade and other receivables, and hence the 2020 numbers have been restated reflecting
$56 million reclassification from trade and other receivables to other current assets. Had this reclassification been applied at 1 January 2020, these line items would have been restated by $49 million.
(see Note 21)
1 January
Additions
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 (Note 29).
Others balance at 31 December 2021, mainly represents compensation due from suppliers in relation to inventory price adjustment. The balance at
31 December 2020 mainly represents insurance compensation receivable of $10 million which was received during the year (Note 6), compensation
due from suppliers in relation to inventory price adjustment of $5 million and revenue contract asset of $3 million.
24. Short-term financial debts
Bank overdrafts
Import and export financing
Short-term loans
Current portion of long-term loans (Note 28)
The weighted average interest rates incurred are as follows:
Bank overdrafts
Bank loans (including the non-current bank loans)
Eurobond1
Import and export financing2
1. The Eurobond effective interest rate includes unwinding of discount amount and upfront fees
2. Import and export financing represents short-term financing for the ordinary trading activities of the Group
25. Trade and other payables
Trade payables
Accrued expenses
Other payables
The fair value of payables is estimated to be not significantly different from the respective carrying amounts.
As at 31 December
2020
$m
3
67
47
41
158
2020
%
4.25
3.04
4.17
5.70
2021
$m
3
58
3
48
112
2021
%
3.21
2.83
3.58
6.39
As at 31 December
2020
$m
279
2021
$m
262
194
12
468
175
16
470
Remeasurement of post-employment benefit obligations
Utilisation
At 31 December
27. Other current liabilities
Contract liability
Co-development and earnout payment (Notes 29 and 30)
Acquired contingent liability (Note 30)
Contingent consideration (Notes 29 and 30)
Indirect rebate and other allowances
Others
2021
$m
28
11
2
(10)
31
2020
$m
23
10
1
(6)
28
As at 31 December
2020
$m
162
2021
$m
213
2
15
12
80
17
339
2
18
13
74
21
290
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 2021, the provision balance relating to returns was $193 million (2020: $154 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 1.74% (2020: 1.47%) 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 $11 million (2020: $8 million).
Contract liabilities
Contract liabilities
As at
31 December 2020
$m
162
Additions
$m
132
Utilisation
$m
(81)
As at
31 December 2021
$m
213
As at
31 December 2019
$m
142
Additions
$m
127
Utilisation
$m
(107)
As at
31 December 2020
$m
162
During the year ended 31 December 2021, $8 million (2020: $8 million) revenue was recognised from transferring free goods to the customers.
Indirect rebates and other allowances: mainly represent rebates granted to healthcare authorities and other parties under contractual arrangements
with certain indirect customers.
At 31 December 2021 the provision balance relating to the indirect rebates was $56 million (2020: $55 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 ten-basis point
increase/decrease in rebates rate of 2.1% (2020: 2.7%) would increase/decrease this provision by approximately $3 million (2020: $2 million).
158
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
159
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
28. Long-term financial debts
Long-term loans
Long-term borrowings (Eurobond)
Less: current portion of long-term loans (Note 24)
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
Moroccan dirham
Tunisian dinar
As at 31 December
2020
$m
242
2021
$m
207
492
(48)
651
48
44
37
524
23
22
1
699
620
44
10
13
9
3
–
699
491
(41)
692
41
48
44
36
522
21
21
733
642
54
13
14
9
–
1
733
The loans are held at amortised cost.
Long-term loans amounting to $0.5 million (31 December 2020: $1 million) are secured on certain property, plant and equipment.
Major arrangements entered into by the Group 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 matured on January 2021 and the remaining $870 million matures on 24 December 2023. At 31 December 2021 the
facility has an outstanding balance of $nil (2020: $nil) and a $870 million unused available limit (2020: $1,000 million). On 29 December 2021 the
facility agreement has been increased to $1,150 million available for 5 years till Jan 2027 effective from 4 January 2022 with an extension options for
additional 2 years. 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 have commenced on 15 March 2021. The loan was used for general corporate
purposes. The facility matures on 15 December 2027
c) Hikma issued a $500 million (carrying value at 31 December 2021 of $492 million, and fair value at 31 December 2021 of $515 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
d) An eight-year $200 million loan facility 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 2021. The facility matures on 15 September 2028 and can be used for general
corporate purposes
29. 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. A loan or receivable is considered impaired when there is no
reasonable expectation of recovery, or when a debtor fails to make a contractual payment for a specific period which varies based on the type of
debtor and the market in which they operate.
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 2021, the Group’s largest two customers in the MENA region represented 5.6% of Group revenue (2020: 6.2%),
4.3% from one customer in Saudi Arabia (2020: 4.1%), and 1.3% from one customer in Egypt (2020: 2.1% from a customer in Saudi Arabia). At
31 December 2021, the amount of receivables due from all customers based in Saudi Arabia was $102 million (2020: $78 million) and the amount of
receivables due from all customers based in Egypt was $57 million (2020: $42 million).
During the year ended 31 December 2021, three key US wholesalers represented 38% of Group revenue (2020: 35%). The amount of receivables due
from all US customers at 31 December 2021 was $332 million (2020: $285 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.
The following table provides a summary of the age of trade receivables (Note 21):
At 31 December 2021
Expected credit loss rate
Gross trade receivables as at
31 December 2021
Related allowance for expected credit loss
Chargebacks and other allowances
Net trade receivables
At 31 December 2020
Expected credit loss rate
Gross trade receivables as at
31 December 2020
Related allowance for expected credit loss
Chargebacks and other allowances
Net trade receivables
Not past due on
the reporting
date
Less than 90
days
Between 91 and
180 days
Between 181 and
360 days
Over one year
Past due
$m
0.01%
$m
0.05%
$m
11.1%
$m
14.3%
$m
53.4%
910
–
(275)
635
72
–
–
72
9
(1)
–
8
28
(4)
–
24
88
(46)
–
42
Past due
Not past due on
the reporting
date
Less than 90
days
Between 91 and
180 days
Between 181 and
360 days
Over one year
$m
0.01%
$m
4.0%
$m
5.9%
$m
12.5%
$m
57.6%
780
–
(256)
524
75
(3)
–
72
17
(1)
–
16
16
(2)
–
14
85
(49)
–
36
Total
$m
4.7%
1,107
(51)
(275)
781
Total
$m
5.7%
973
(55)
(256)
662
160
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
161
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
29. Financial policies for risk management and their objectives continued
29. 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 (Notes 24 and 28), lease liabilities (Note 33),
net of cash and cash equivalents (Note 22) and collateralised and restricted cash. Group net debt excludes co-development and earnout payments,
acquired contingent liabilities and contingent consideration (Notes 27 and 30).
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 2021, the Group’s gearing ratio (total debt/equity) was 34% (2020: 43%). The decrease in the Group’s gearing ratio is due to the
increase in the Group total equity as a result of the profits generated during the year and the decrease of the total debts.
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 2021. 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.
At 31 December 2021, the Lebanese pound rate was 1,507.5 per US dollar, and the Sudanese pound rate was 436.28 per US dollar.
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 pound1
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 pound2
2021
0.880
436.280
138.719
3.750
0.739
0.709
15.655
115.080
9.280
2.887
Period-end rates
2020
0.824
120.000
132.212
3.750
0.731
0.709
15.664
103.200
8.905
2.705
1,507.500
1,507.500
2021
0.845
–¹
Average rates
2020
0.876
–¹
135.097
126.799
3.750
0.727
0.709
15.634
3.750
0.779
0.709
15.745
109.805
106.770
8.992
2.802
–2
9.502
2.812
–2
1. In both years, Sudan has been a hyperinflationary economy and Sudanese operations were translated using the period end rate
2. In both years, Lebanon has been a hyperinflationary economy and Lebanese operations were translated using the period end rate
2021
Functional currency of entity:
– Jordanian dinar
– Euro
– Algerian dinar
– Saudi riyal
– Sudanese pound
– Egyptian pound
– Tunisian dinar
– Moroccan dirham
– Lebanese pound
1. Others include Saudi riyal, Jordanian dinar and Pound sterling
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
US dollar
$m
241
30
(2)
7
(31)
(12)
1
(5)
–
229
US dollar
$m
279
32
(5)
7
(26)
(14)
1
(4)
(4)
–
266
Net foreign currency financial assets/(liabilities)
Others¹
$m
Japanese yen
$m
Euro
$m
21
–
–
(10)
–
1
3
(4)
–
11
(6)
–
–
–
–
–
–
–
–
(6)
17
–
–
–
–
–
5
–
5
27
Net foreign currency financial assets/(liabilities)
Others¹
$m
Japanese yen
$m
Euro
$m
12
–
–
(5)
–
–
1
(5)
(1)
3
5
(6)
–
–
–
–
–
–
–
–
–
(6)
7
–
–
–
–
–
2
–
3
2
14
162
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
163
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
29. Financial policies for risk management and their objectives continued
29. 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 $26 million translational increase/decrease on the
Group results.
The following financial assets/liabilities are presented at their fair value:
Fair value measurements
At 31 December 2021
Financial Assets
Investments at FVTPL (Note 23)
Money market deposit (Note 22)
Investments in listed companies at FVTOCI (Note 19)
Investments in unlisted shares at FVTOCI (Note 19)
Total financial assets
Financial Liabilities
Co-development and earnout payment liabilities (Note 27 and 30)
Contingent consideration liability resulting from the acquisition of the Columbus business
(Note 27 and 30)
Total financial liabilities
Fair value measurements
At 31 December 2020
Financial Assets
Investments at FVTPL (Note 23)
Money market deposit (Note 22)
Investments in unlisted shares at FVTOCI (Note 19)
Total financial assets
Financial Liabilities
Co-development and earnout payment liabilities (Note 27 and 30)
Contingent consideration liability resulting from the acquisition of the Columbus business
(Note 27 and 30)
Total financial liabilities
Level 1
Level 2
Level 3
Total
24
22
14
–
60
–
–
–
–
–
–
–
–
–
–
–
–
–
22
22
4
70
74
24
22
14
22
82
4
70
74
Level 1
Level 2
Level 3
Total
24
35
–
59
–
–
–
–
–
–
–
–
–
–
–
25
25
5
89
94
24
35
25
84
5
89
94
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 2021
Total
$m
Floating rate
$m
Fixed rate
$m
As at 31 December 2020
Total
$m
Floating rate
$m
672
83
–
91
–
271
763
83
271
704
82
–
146
–
238
850
82
238
An interest rate sensitivity analysis assumes an instantaneous one percentage point change in interest rates in all currencies from their levels at
31 December 2021, with all other variables held constant. Based on the composition of the Group’s net debt portfolio as at 31 December 2021,
a one percentage point increase/decrease in interest rates would result in $2 million decrease/increase in net finance cost per year (2020: $1 million
increase/decrease).
As at 31 December 2021, $0.05 million (2020: $47 million) of the Group’s utilised debt portfolio as well as $1,243 million (2020: $1,314 million) of the
Group’s unutilised debt facilities, have USD LIBOR as the benchmark interest rate. The unutilised debt facilities mainly relate to:
— The Group’s syndicated revolving credit facility of $870 million (2020: $1,000 million) (Note 28)
— The International Finance Corporation loan of $200 million (2020: $200 million) (Note 28)
— Other smaller facilities
The Group has not identified any other IBOR exposures that are expected to be impacted by IBOR reform. Discussions on IBOR transitioning is
ongoing with counterparties, while monitoring the market developments surrounding the IBOR reform.
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 approximate to their fair value because of the short maturity of these instruments
— Long-term loans –loans with variable rates are re-priced in response to any changes in market rates and so management considers their carrying
values to be not significantly different from their fair values
Loans with fixed rates relate mainly to:
— $500 million (carrying value at 31 December 2021 of $492 million, and fair value at 31 December 2021 of $515 million) Eurobond accounted for at
amortised cost. The fair value is determined with reference to a quoted price in an active market as at the balance sheet date (a level 1 fair value)
(Note 28)
— A ten-year $150 million loan from the International Finance Corporation with outstanding balance of $127 million (fair value at 31 December 2021 of
$127 million). Fair value is estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities of such loans (a level 2 fair value)
— Receivables and payables – the fair values of receivables and payables are estimated to not be significantly different from the respective
carrying amounts
Management classifies items that are recognised at fair value based on the level of the inputs used in their fair value determination as described below:
— Level 1: Quoted prices in active markets for identical assets or liabilities
— Level 2: Inputs that are observable for the asset or liability
— Level 3: Inputs that are not based on observable market data
164
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
165
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
29. Financial policies for risk management and their objectives continued
29. Financial policies for risk management and their objectives continued
The following table presents the changes in Level 3 items for the year ended 31 December 2021 and the year ended 31 December 2020:
1 January 2020
Settled
Remeasurement of contingent consideration and other financial liability recognised in finance income
Unwinding of contingent consideration and other financial liability recognised in finance expense
Additions
Change in investments at FVTOCI
Balance at 31 December 2020 and 1 January 2021
Settled
Remeasurement of contingent consideration and other financial liability recognised in finance income
Unwinding of contingent consideration and other financial liability recognised in finance expense
Change in fair value of investments at FVTOCI
Additions
Sale of investment at FVTOCI
Balance at 31 December 2021
Financial
assets
$m
18
Financial
liabilities
$m
178
–
–
–
5
2
25
–
–
–
24
3
(30)
22
(61)
(38)
15
–
–
94
(4)
(29)
13
–
–
–
74
Contingent consideration liability represents contractual liability to make payments to third parties in the form of milestone payments that depend on
the achievement of certain US FDA approval milestones; and payments based on future sales of certain products. These liabilities were recognised as
part of the Columbus business acquisition.
The critical areas of estimates in relation to the valuation of the contingent consideration are the probabilities assigned to reaching the success-based
milestones and management’s estimate of future sales. The valuation for the payments that are based on future sales is based on a discounted cash
flow model applied to projected future sales for a period of 15 years using a post-tax discount rate of 8%. The key assumption used for this valuation is
the sales projections informed by pricing and volume assumptions which were determined using probability weighted average of different possibilities
on sales growth rates. The valuation for milestone payment is based on 100% probability of success-based milestone discounted using discount rate
of 6.9%.
If the future sales were 5% higher or lower, the fair value of the contingent consideration will increase/decrease by $4 million (2020: $4 million) (Notes
27 and 30).
If the probability assigned to reaching the success-based milestones were 5% lower, the fair value of the contingent consideration will decrease by
$1 million (2020: $1 million) (Notes 27 and 30).
Liquidity risk
2021
Interest-bearing long-term loans and borrowings¹ (Note 28)
Interest-bearing short-term loans and borrowings¹ (Note 24)
Interest-bearing overdrafts¹ (Note 24)
Interest-bearing import and export loans¹ (Note 24)
Interest bearing finance lease¹ (Note 33)
Trade payables and accruals (Note 25)
Co-development and earnout payment1 (Notes 27 and 30)
Acquired contingent liability (Notes 27 and 30)
Contingent consideration1 (Notes 27 and 30)
1. As these are interest-bearing liabilities, expected interest expense have been included in the balance
Less than one
year
$m
(70)
One to five
years
$m
(710)
More than five
years
$m
(23)
(3)
(3)
(60)
(12)
(456)
(2)
(15)
(12)
–
–
–
(36)
–
(3)
(38)
(49)
(633)
(836)
–
–
–
(71)
–
–
(30)
(27)
(151)
Total
$m
(803)
(3)
(3)
(60)
(119)
(456)
(5)
(83)
(88)
(1,620)
2020
Interest-bearing long-term loans and borrowings¹ (Note 28)
Interest-bearing short-term loans and borrowings¹ (Note 24)
Interest-bearing overdrafts¹ (Note 24)
Interest-bearing import and export loans¹ (Note 24)
Interest bearing finance lease¹ (Note 33)
Trade payables and accruals (Note 25)
Co-development and earnout payment1 (Notes 27 and 30)
Acquired contingent liability (Notes 27 and 30)
Contingent consideration1 (Notes 27 and 30)
Less than one
year
$m
(64)
One to five
years
$m
(728)
More than five
years
$m
(42)
(47)
(2)
(69)
(10)
(454)
(2)
(18)
(13)
–
–
–
(49)
–
(3)
(46)
(72)
(679)
(898)
–
–
–
(49)
–
–
(27)
(26)
(144)
Total
$m
(834)
(47)
(2)
(69)
(108)
(454)
(5)
(91)
(111)
(1,721)
1. As these are interest-bearing liabilities, expected interest expense have been included in the balance
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 2021, the Group had undrawn facilities of $1,413 million (2020: $1,549 million). Of these facilities, $1,086 million (2020: $1,232 million)
were committed long term facilities.
30. Other non-current liabilities
Contingent consideration (Note 27 and 29)
Acquired contingent liability (Note 27)
Co-development and earnout payment (Notes 27 and 29)
Others
2021
$m
58
68
2
12
140
As at 31 December
2020
$m
76
80
3
5
164
Contingent consideration and acquired contingent liabilities represent contractual liabilities to make payments to third parties in the form of
milestone payments that depend on the achievement of certain US FDA approval milestones; and payments based on future sales of certain
products. These liabilities were recognised as part of the Columbus business acquisition (see Note 29 for sensitivity analysis). In 2021, $14 million
(2020: $15 million) of this balance was reclassified to other current liabilities.
31. Share capital
Issued and fully paid – included in shareholders’ equity:
Ordinary Shares of 10p each
Number
244,331,288
2021
$m
42
As at 31 December
2020
$m
41
Number
243,332,180
At 31 December 2021, of the issued share capital, 12,833,233 (2020: 12,833,233) are held as Treasury shares, nil (2020: 40,831) shares are held in the
Employee Benefit Trust (EBT) and 231,498,055 (2020: 230,458,116) shares are in free issue.
Own Shares
Treasury Shares
Hikma holds 12,833,233 as Treasury shares related to the Share buyback of its own shares previously held by Boehringer Ingelheim GmbH (BI) for
£23.00/share ($28.76/share). The voting rights attached to the Treasury shares are not capable of exercise. The market value of the Treasury shares
held at 31 December 2021 was $385 million (2020: $442 million). The book value of the Treasury shares at 31 December 2021 are $368 million
(2020: $368 million).
166
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
167
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
31. Share capital continued
Shares held in EBT
EBT of Hikma holds nil (2020: 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 2021 was $nil (2020: $1 million). The book value of the
retained own shares at 31 December 2021 are $nil (2020: $1 million). During the year, the Ordinary Shares held in the EBT were used to satisfy long-
term commitments arising from the employee share plans operated by the Company.
32. Non-controlling interests
At 1 January
Share of losses
Dividends paid
Currency translation and hyperinflation movement
At 31 December
33. Right-of-use assets and lease liabilities
The carrying amounts of right-of-use assets recognised and the movements during the year:
As at 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 and 1 January 2021
Additions
Lease buyout
Depreciation expense
As at 31 December 2021
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
2021
$m
13
(1)
(1)
3
14
Buildings
$m
43
Vehicles
$m
6
Machinery and
Equipment
$m
1
19
(4)
(1)
(7)
50
27
(4)
(7)
66
6
–
–
(4)
8
4
–
(4)
8
–
–
–
–
1
–
–
(1)
–
2021
$m
82
32
5
(36)
83
9
74
2020
$m
12
(1)
(1)
3
13
Total
$m
50
25
(4)
(1)
(11)
59
31
(4)
(12)
74
2020
$m
68
24
4
(14)
82
10
72
33. Right-of-use assets and lease liabilities continued
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
At 31 December 2021, lease liabilities included optional extension periods amounting to $39 million (2020: $13 million).
The following are the amounts recognised in the consolidated income statement:
Depreciation expense of right-of-use assets
Impairment of right-of-use assets
Interest expense on lease liabilities
Expense relating to short-term leases
Total amount recognised in the consolidated income statement
34. Cash generated from operating activities
Profit before tax
Adjustments for:
Depreciation, amortisation, impairment charges/reversals and write-down of:
Property, plant and equipment
Intangible assets
Right of Use of Assets
Gain from investment at FVTPL
Loss on disposal/damage of property, plant and equipment
Movement in provisions
Cost of equity-settled employee share scheme
Finance income
Interest and bank charges
Results from joint venture
Foreign exchange loss and net monetary hyperinflation impact
Changes in 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 flow from operating activities
2021
$m
2020
$m
9
7
7
6
3
2
49
83
2021
$m
(12)
–
(5)
(1)
(18)
2021
$m
544
72
61
12
–
1
2
29
(30)
69
1
36
(166)
27
38
14
62
(5)
767
10
6
6
24
4
2
30
82
2020
$m
(11)
(1)
(4)
(1)
(17)
2020
$m
558
77
2
12
(1)
2
4
27
(47)
69
–
30
(47)
(14)
(180)
6
41
(14)
525
168
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
169
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
35. Reconciliation of net cash flow to movement in net debt
36. Contingent liabilities continued
Below table represent a reconciliation of net cash flow to movement in net debt:
Interest-bearing loans and borrowings (Notes 24 and 28)
Balance at 1 January
Proceeds from issue of long-term financial debts
Proceeds from issue of short-term financial debts
Repayment of long-term financial debts
Repayment of short-term financial debts
Amortisation of upfront fees
Foreign exchange translation movements
Balance at 31 December
Lease liabilities (Note 33)
Balance at 1 January
New leases
Repayment of lease liabilities
Balance at 31 December
Total Debt
Cash and cash equivalents (Note 22)
Collateralised and restricted cash
Net debt
36. Contingent liabilities
2021
$m
850
10
383
(45)
(431)
3
(7)
763
82
32
(31)
83
846
(426)
–
420
2020
$m
617
1,543
430
(1,372)
(367)
–
(1)
850
68
24
(10)
82
932
(323)
(4)
605
— Numerous complaints have been filed with respect to Hikma's sales, and distribution, or manufacture of opioid products. Those complaints now
total approximately 682 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, and Canadian provincial 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. At this point, management does not believe sufficient evidence exists to make
any provision for this
— In November 2020, Amarin Pharmaceuticals filed a patent infringement lawsuit against Hikma in the United States District Court for the District of
Delaware (No. 20-cv-1630) alleging that Hikma’s sales and distribution of its generic icosapent ethyl product infringes three Amarin patents that
describe certain methods of using icosapent ethyl. Amarin sought an injunction barring Hikma from selling its generic product as well as unspecified
damages. Hikma’s product is not approved for the patented methods but rather is approved only for a different indication not covered by any valid
patents. In January 2022 the court dismissed the lawsuit against Hikma, and as of this writing Amarin has not sought to appeal the court’s dismissal.
Hikma denies the allegations and will vigorously defend against them if necessary. Management does not believe sufficient evidence exists to make
any provision for these issues
Tax
In 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
could have been affected by the outcome of this decision and had estimated the maximum potential liability to be approximately $2.4 million.
In 2021, formal letters of confirmations were received from HMRC that confirmed that Hikma is not a beneficiary of State Aid in accordance with the
European Commission’s decision and the UK’s Controlled Foreign Company legislation. Following HMRC’s confirmation, Hikma no longer requires a
contingent liability in this regard.
Guarantees and letters of credit
A contingent liability existed at the balance sheet date in respect of external guarantees and letters of credit totalling $45 million (31 December 2020:
$41 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 $10 million (2020: $8 million) for a 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.
— 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. At this point, management does not believe sufficient evidence exists to make any provision for this
— 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. At this point, management does not believe sufficient evidence exists to make any provision for this
— 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 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. At this point, management does not believe sufficient evidence exists
to make any provision for this
170
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
171
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
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.
The cost of the EIP of $20 million (2020: $18 million) has been recorded in the consolidated income statement as part of selling, general and
administrative expenses 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 the Black-Scholes methodology for nil-cost options.
The weighted average share price for 2021 is $32.60 (2020: $30.24).
The details of fair value of the outstanding shares are shown below:
Details of the outstanding grants under this plan are shown below:
Year 2021
Beginning balance
2021
grants
25 Feb
–
2021
grants
25 Feb
–
2020
2020
grants
grants
27 Feb
27 Feb
184,355 550,745
2019
2019
grants
grants
17 May
12 March
216,834 280,529
2019
grants
12 March
313,288
2018
grants
16 May
140,484
2017
grants
13 Apr
50,107
2016
grants
11 May
13,171
2016
grants
17 March
51,350
2015
grants
Total
10 April Number
1,812,875
12,012
Granted during the year
157,644 432,098
Exercised during the year
Expired during the year
–
–
–
(8,370)
–
–
–
–
–
(16,496) (205,463)
(22,796)
(11,371)
–
–
–
Outstanding at 31 December
157,644
423,728
184,355
511,453
– 280,529
Exercisable at 31 December
–
–
–
–
Weighted average remaining
contractual life (years)
2.15
1.15
1.16
0.16
–
–
–
0.19
–
–
–
–
–
–
(313,288)
(126,273)
–
–
–
–
–
–
–
–
–
– 589,742
–
–
(661,520)
(42,537)
50,107
50,107
13,171
13,171
51,350
51,350
12,012 1,698,560
12,012
140,851
–
14,211
14,211
6.38
5.36
4.36
4.21
3.28
0.56
Year 2020
Beginning balance
Granted during the year
Exercised during the year
Outstanding at 31 December
Exercisable at 31 December
Weighted average remaining
contractual life (years)
2020
grants
27 Feb
–
2020
grants
27 Feb
–
2019
grants
17 May
2019
grants
12 March
246,076 280,529
2019
2018
grants
grants
12 March
16 May
313,288 503,460
2017
grants
13 Apr
196,918
184,355
561,994
–
–
(11,249)
(29,242)
–
–
–
–
–
–
(362,976)
(146,811)
(5,000)
2016
grants
11 May
18,171
–
2016
grants
17 March
51,350
2015
grants
10 April
24,024
Total
Number
1,633,816
–
–
–
746,349
(12,012) (567,290)
184,355 550,745
216,834 280,529
313,288
140,484
50,107
–
–
–
–
–
26,982
50,107
13,171
13,171
51,350
51,350
12,012
1,812,875
12,012
153,622
EIP 1
EIP 3 B
EIP 3 C
EIP 4
EIP 5 B
EIP 5 C
EIP 6 B
EIP 6 C
EIP7 B
EIP7 C
EIP8
EIP9
EIP 10 B
EIP 10 C
EIP 11 B
EIP 11 C
Date of
grant
Number
granted
10/04/2015
17/03/2016
17/03/2016
11/05/2016
13/04/2017
13/04/2017
16/05/2018
16/05/2018
12/03/2019
12/03/2019
17/05/2019
12/03/2019
27/02/2020
27/02/2020
25/02/2021
25/02/2021
338,808
242,608
206,267
165,553
428,528
184,741
440,231
113,456
313,288
208,529
246,076
72,000
561,994
184,355
432,098
157,644
The estimated
fair value of
each share
option granted
$
32.78
The share price
at grant date
$
33.24
Expected
dividend yield
%
0.81%
26.21
26.21
31.69
23.52
23.29
18.45
18.14
21.00
20.63
21.41
20.63
24.10
23.70
32.17
31.71
26.98
26.98
32.15
23.98
23.98
19.09
19.09
21.75
21.75
22.18
21.75
24.91
24.91
33.09
33.09
0.71%
0.71%
0.73%
0.97%
0.97%
1.71%
1.71%
1.79%
1.79%
1.79%
1.79%
1.67%
1.67%
1.43%
1.43%
2.16
1.16
0.38
1.19
0.19
7.38
6.36
5.36
5.21
4.28
1.80
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 outstanding grants under this plan are shown below:
Year 2021
Outstanding at 1 January
2021 grants 2020 grants 2019 grants 2018 grants
16 May
Number
17,445
17 May
Number
394,263
27 Feb
Number
377,913
25 Feb
Number
–
2017 grants 2016 grants 2015 grants 2014 grants 2013 grants
17 May
Number
3,013
19 May
Number
36,990
11 June
Number
5,890
14 May
Number
8,854
11 May
Number
8,254
Total
Number
852,622
Granted during the year
341,422
–
–
–
–
–
–
Exercised during the year
(1,376)
(4,118)
(363,799)
(3,922)
(1,106)
(1,564)
(1,209)
Expired during the year
(2,559)
(15,546)
(30,464)
(325)
–
13,198
13,198
35,884
35,884
–
6,690
6,690
–
7,645
7,645
–
–
–
5,890
5,890
–
341,422
(1,325)
(378,419)
–
(48,894)
1,688
1,688
766,731
70,995
Outstanding at 31 December
337,487
358,249
Exercisable at 31 December
–
–
Weighted average remaining
contractual life (years)
1.15
0.16
–
–
–
6.38
5.38
4.36
3.37
2.45
1.38
1.04
172
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
173
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
37. Share-based payments continued
38. Related parties
Year 2020
Outstanding at 1 January
Granted during the year
Exercised during the year
Expired during the year
2020 grants
27 Feb
Number
–
381,546
2019 grants
17 May
Number
2018 grants
16 May
Number
408,243 400,870
2017 grants
19 May
Number
36,990
2016 grants 2015 grants
14 May
Number
8,854
11 May
Number
8,254
2014 grants
11 June
Number
5,890
2013 grants
17 May
Number
3,013
Total
Number
872,114
–
–
(776)
(6,832) (376,560)
(2,857)
(7,148)
(6,865)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
381,546
(384,168)
(16,870)
Outstanding at 31 December
377,913
394,263
17,445
36,990
8,254
8,854
5,890
3,013
852,622
Weighted average remaining contractual life
(years)
1.16
0.38
7.38
6.38
5.36
4.37
3.45
2.38
1.24
The cost of the MIP of $9 million (2020: $9 million) has been recorded in the consolidated income statement as part of selling, general and
administrative expenses, 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 the Black-Scholes methodology for nil-cost options.
The weighted average share price for 2021 is $32.60 (2020: $30.24).
The details of fair value of the outstanding shares are shown below:
MIP 5
MIP 6
MIP 7
MIP 8
MIP 9
MIP 10
MIP 11
MIP 12
MIP 13
The exercise price of the share award is $nil.
Date of
grant
Number
granted
17/05/2013
11/06/2014
14/05/2015
11/05/2016
19/05/2017
16/05/2018
17/05/2019
27/02/2020
25/02/2021
252,482
225,904
145,918
196,373
273,724
443,288
436,107
381,546
341,422
The estimated
fair value of
each share
option granted
$
14.61
27.73
32.17
31.73
22.09
18.45
21.41
24.10
32.17
The share price
at grant date
$
14.93
Expected
dividend yield
%
1.10
28.33
32.63
32.20
22.54
19.09
22.18
24.91
33.09
0.71
0.71
0.73
1.01
1.71
1.79
1.67
1.43
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 2021, the Group entered into the following transactions with related parties:
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 24.56% (2020: 24.66%) of the share capital and 25.92% (2020: 26.03%)
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.
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 (2020: 49%). During the year, total direct purchases from Haosun were $nil million (2020: $1.1 million). At 31 December 2021,
the amount owed from the Group to Haosun amounted to $nil (2020: $0.1 million). In addition, in certain countries the Group purchases from Haosun
indirectly. During the year total indirect purchases from Haosun were $0.7 million (2020: $1.1 million).
Labatec Pharma (Labatec): is a related party of the Group because Labatec is owned by the family of two Directors of Hikma. During the year, total
Group sales to Labatec amounted to $2 million (2020: $3 million), and total Group purchases amounted to $0.5 million (2020: $0.6 million). As at the
year end, the amount owed by Labatec to the Group was $0.6 million (2020: $0.7 million).
Al Tibbi: is a related party of the Group because it is jointly controlled by a direct relation of a senior executive member of the Group and Dash
Ventures, in which two Directors of the Group have a controlling interest. During the year ended 31 December 2020, the Group requested that Al Tibbi
provide patient referral services in response to COVID measures in Jordan. Total transactions with Al Tibbi was $0.03 million (2020: $0.4 million) and
the amount owed by the Group to Al Tibbi was $nil (2020: $0.2 million).
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 89 to 110.
Short-term employee benefits
Share-based payments
Post-employment benefits
Other benefits
2021
$m
18.0
12.9
0.1
0.6
31.6
2020
$m
19.9
11.1
0.3
0.7
32.0
174
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
175
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
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
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 for Importation Co. LLC
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
Algeria
Algeria
Algeria
China
Canada
Egypt
Egypt
Egypt
Egypt
Germany
Germany
Ireland
Italy
Jersey
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Zone d'Activité 16/15 Staoueli, Algeria
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
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
100%
100%
98%
99%
100%
100%
–
100%
100%
100%
100%
–
100%
100%
100%
100%
98%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
100%
Ownership %
Ordinary shares
At 31 December
2021
99%
Owned by the Group
Ownership%
Ordinary shares
At 31 December
2020
99%
97%
100%
100%
49%
97%
100%
100%
49%
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
Specialised for Pharmaceutical Industries LLC
Jordan
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
100%
100%
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*
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
Hikma Care for Medicines and Medical Supplies Company
Palestine
West Bank Al Birah, Ramallah
Hikma Pharmaceuticals
Hikma Slovakia s.r.o
Hikma Espana S.L
Pharma Ixir Co. Ltd
Savannah Pharmaceutical Industries Co. Ltd
Eurohealth International S.A.R.L.1
APM Tunisie S.A.R.L.
STE D'Industriee Pharmaceutique Ibn Al Baytar*
STE Hikma Pharma Tunisie
STE Medicef
Palestine
West Bank Al Birah, Ramallah
Slovakia
Spain
Sudan
Sudan
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
Switzerland
Rue des Battoirs 7, 1205 Genève, Switzerland
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
2021
51%
Owned by the Group
Ownership %
Ordinary shares
At 31 December
2020
51%
100%
100%
100%
100%
67%
94%
100%
100%
100%
51%
100%
100%
100%
51%
100%
100%
99%
100%
–2
100%
100%
100%
100%
100%
67%
94%
100%
100%
100%
51%
100%
100%
100%
51%
100%
100%
99%
100%
100%
100%
176
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
177
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
continued
39. Subsidiaries and joint venture continued
40. Defined contribution retirement benefit plan
Company’s name
Hikma Emerging Markets and Asia Pacific FZ-LLC3
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
Hikma (Maple) Limited
United Arab
Emirates
United Arab
Emirates
United Kingdom
Hikma Acquisitions (UK) Limited*1
United Kingdom
Hikma Holdings (UK) Limited*
Hikma UK Limited*2
Hikma Ventures Limited1
Hikmacure Limited*
West-Ward Holdings Limited*
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Hikma Pharmaceuticals International Limited*
United Kingdom
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
1 New Burlington Place, London, W1S 2HR,
United Kingdom
1 New Burlington Place, London, W1S 2HR,
United Kingdom
1 New Burlington Place, London, W1S 2HR,
United Kingdom
1 New Burlington Place, London, W1S 2HR,
United Kingdom
1 New Burlington Place, London, W1S 2HR,
United Kingdom
1 New Burlington Place, London, W1S 2HR,
United Kingdom
1 New Burlington Place, London, W1S 2HR,
United Kingdom
1 New Burlington Place, London, W1S 2HR,
United Kingdom
Ownership %
Ordinary shares
At 31 December
2021
100%
Owned by the Group
Ownership %
Ordinary shares
At 31 December
2020
100%
100%
100%
–
–
–
100%
100%
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
Hikma Intelligence Limited
United Kingdom 1 New Burlington Place, London, W1S 2HR,
100%
100%
Eurohealth (U.S.A.) Inc
Hikma Speciality USA, Inc.
Hikma Labs Inc.
West-Ward Columbus Inc.
Hikma Injectables USA, Inc.
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
United States
United States
Corporation Trust Company of Nevada 701 S Carson
Street Suite 200, Carson City, NV 89701, 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
Hikma France
Hikma Cali Inc. (Delaware)
United States
200 Connell Drive, 4th Floor Berkeley Heights, NJ 07922
France
Tour Cb21 16 Place de l'Iris, Courbevoie 92400
United States
Corporation Trust Center, 1209 Orange Street,
Wilmington DE 19801, United States
1. Owned by PLC ‘the Company’
2. In 2021, STE Hikma Pharma Tunisie was merged into STE D'Industriee Pharmaceutique Ibn Al Baytar
3. In 2021, Hikma UK Limited became fully owned by Hikma Pharmaceuticals PLC, following a Group reorganisation
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
–
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 (Note 18).
The Group’s subsidiaries principally operate in trading pharmaceuticals products and associated goods and services, except for Sofia Travel and
Tourism subsidiary which coordinates employees travel arrangements. Companies marked (*) were incorporated as holding companies.
The Group 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 2021 were $0.3 million (2020: $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 2021 were $3.2 million (2020: $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 2021 were $0.5 million (2020: $0.5 million).
Hikma Pharmaceuticals USA Inc.: (401 (k) Retirement Plan)
Hikma Pharmaceuticals USA Inc. has 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 (2020: $19,500), 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 2021 were $10 million (2020: $9 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.
41. Subsequent events
Teligent Inc. acquisition
On 17 January 2022, Hikma announced that it has agreed to acquire the Canadian assets of Teligent Inc. (Teligent). The acquisition marks Hikma’s
expansion into Canada and includes a portfolio of 25 sterile injectable products, three in-licenced ophthalmic products and a pipeline of seven
additional products, four of which are approved by Health Canada.
The transaction was completed on 2 February 2022 and Hikma paid a cash consideration of $46 million. Due to the proximity of the completion of the
transaction to the date of issuance of the consolidated financial statements, the initial valuation for the business combination and net assets acquired
is in progress. It is expected that most of the consideration paid is attributable to product related intangible assets and around $2 million is attributable
to working capital.
Share buyback
On 24 February 2022, Hikma announced a share buyback programme of up to $300 million to be executed during 2022. The buyback has been sized
to maintain balance sheet efficiency whilst leaving significant headroom for continued investment opportunities. The Buyback reflects the Group’s
strong cash generation, balance sheet strength and the Board’s confidence in the future growth prospects of the business. It is worth noting that since
31 December 2021, the Company has received intercompany dividends which increased the retained earnings balance available for distribution after
year-end.
178
Hikma Pharmaceuticals PLC Annual Report 2021
Hikma Pharmaceuticals PLC Annual Report 2021
179
FINANCIAL STATEMENTS
Company statement
of changes in equity
For the year ended 31 December 2021
Balance at 1 January 2020
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 and 1 January 2021
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 2021
Share
capital
$m
41
Share
premium
$m
282
Merger
reserve
$m
1,746
Retained
earnings
$m
1,365
–
–
–
–
–
41
–
–
–
1
–
42
–
–
–
–
–
–
–
–
–
–
282
1,746
–
–
–
–
–
–
–
–
–
–
282
1,746
483
483
27
(109)
(368)
1,398
150
150
29
(1)
(120)
1,456
Total
$m
3,434
483
483
27
(109)
(368)
3,467
150
150
29
–
(120)
3,526
At 31 December 2021, the Company had retained earnings available for distribution in excess of $320 million, which is determined with reference to the
Companies Act 2006 and to guidance issued by the Institute of Chartered Accountants in England and Wales in 2017.
Company balance sheet
At 31 December 2021
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Investments in subsidiaries
Due from subsidiaries
Current assets
Trade and other receivables1
Due from subsidiaries
Cash and cash equivalents
Other current assets1
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
Finance lease obligations
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Profit for the year
Retained earnings
Equity shareholders’ funds
Note
2021
$m
2020 (restated)1
$m
3
4
5
5
7
6
8
9
9
8
11
12
1
7
15
3,288
34
3,345
10
88
222
28
348
3,693
2
18
21
12
53
295
105
–
9
114
167
3,526
42
282
1,746
150
1,306
3,526
2
9
27
3,332
100
3,470
14
49
156
30
249
3,719
2
29
21
12
64
185
129
48
11
188
252
3,467
41
282
1,746
483
915
3,467
1. In 2021, prepayments have been reclassified under other current assets which were previously classified under trade and other receivables, and hence the 2020 numbers have been restated reflecting
$6 million reclassification from trade and other receivables to other current assets. Had this reclassification been applied at 1 January 2020, these line items would have been restated by $3 million.
(see Note 6)
The financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, on pages 180 to 186 were approved by the Board of Directors on
23 February 2022 and signed on its behalf by:
Said Darwazah
Executive Chairman
23 February 2021
Sigurdur Olafsson
Chief Executive Officer
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181
FINANCIAL STATEMENTS
Notes to the Company
financial statements
For the year ended 31 December 2021
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 2021 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 is 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. Testing for impairment requires making estimates for the valuation of the investments.
Intercompany receivables 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 general approach in calculating expected credit loss. At the reporting date, all outstanding balances were
considered to have low credit risk, therefore, an operational simplification was applied when assessing expected credit loss on a twelve-month period basis.
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.
3. Intangible assets
Cost
Balance at 1 January 2020
Additions
Disposals1
Balance at 1 January 2021
Additions
Write-down
Disposals1
Balance at 31 December 2021
Accumulated amortisation and impairment
Balance at 1 January 2020
Charge for the year
Impairment
Balance at 1 January 2021
Charge for the year
Balance at 31 December 2021
Carrying amount
At 31 December 2021
At 31 December 2020
1. Disposals represent software sold to subsidiaries
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
Liquidation of subsidiaries
Ending balance
Software
$m
Total
$m
39
11
(10)
40
3
(5)
(7)
31
(6)
(2)
(5)
(13)
(3)
(16)
15
27
39
11
(10)
40
3
(5)
(7)
31
(6)
(2)
(5)
(13)
(3)
(16)
15
27
2021
$m
3,332
2,179
(2,223)
3,288
2020
$m
3,331
1
–
3,332
The movement during the year represent reorganisation of the Group structure through transfer/liquation of certain holding companies, specifically
liquidation of Hikma Acquisitions (UK) Limited and addition of Hikma UK Limited (see Note 39 of the Group consolidated financial statements).
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183
FINANCIAL STATEMENTS
Notes to the Company financial statements
continued
5. Due from subsidiaries
Non-current
Hikma Pharmaceuticals LLC
Hikma Pharmaceuticals USA Inc.
Hikma Emerging Markets and Asia Pacific FZ-LLC
Hikma UK Limited
Hikma MENA FZE
Current
Hikma Pharma GmbH
Hikma Pharmaceuticals USA Inc.
Hikma MENA FZE
Hikma Pharma S.A.E
Promopharm
Al Jazeera Pharmaceuticals Industries JPI
Hikam 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.
6. Other current assets
Investments at FVTPL
Prepayments1
As at 31 December
2020
$m
40
8
5
4
43
100
As at 31 December
2020
$m
1
31
–
2
–
–
1
7
7
49
2021
$m
30
–
4
–
–
34
2021
$m
1
51
10
2
2
8
1
7
6
88
As at 31 December
2020 (restated)1
$m
24
6
30
2021
$m
24
4
28
1. In 2021, prepayments have been reclassified under other current assets which were previously classified under trade and other receivables, and hence the 2020 numbers have been restated reflecting
$6 million reclassification from trade and other receivables to other current assets. Had this reclassification been applied at 1 January 2020, these line items would have been restated by $3 million
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 valuation as they are based on quoted prices in active
markets. (see Note 29 of the of the Group consolidated financial statements)
7. Cash and cash equivalents
Cash at banks and on hand
Time deposits
As at 31 December
2020
$m
11
2021
$m
15
207
222
145
156
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
Hikma MENA FZE
Current
Hikma Investment LLC
Hikma Farmaceutica S.A
Hikma Pharma Limited
Hikma UK Limited
Hikma Pharmaceuticals LLC
Other
9. Financial debts
As at 31 December
2020
$m
48
2021
$m
–
–
48
As at 31 December
2020
$m
17
2021
$m
–
5
1
1
10
1
18
4
3
1
2
2
29
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 matured on January 2021 and the remaining $870 million matures on 24 December 2023. At 31 December 2021
the facility has an outstanding balance of $nil (2020: $nil) and a $870 million unused available limit (2020: $1,000 million). On 29 December 2021
the facility agreement has been increased to $1,150 million available for 5 years till Jan 2027 effective from 4 January 2022 with an extension options for
additional two years. This facility is available in two tranches, the first for Hikma Pharmaceuticals PLC $760 million and the second is for Hikma Finance
USA LLC $390 million and both tranches can be used for general corporate purposes.
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 have commenced on 15 March 2021. The loan was used for general corporate
purposes. The facility matures on 15 December 2027.
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 2021. The facility matures on 15 September 2028 (Note 28) of the Group
consolidated financial statements.
The weighted average interest rates incurred by the Group are disclosed in Note 24 of the of the Group consolidated financial statements.
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185
FINANCIAL STATEMENTS
Notes to the Company financial statements
continued
Shareholder information
10. Staff costs
Hikma Pharmaceuticals PLC currently has an average of 35 employees (2020: 35 employees) (excluding Executive Directors); total compensation paid
to them amounted to $10 million (2020: $12 million), of which salaries and bonuses comprise an amount of $7 million (2020: $8 million) the remaining
balance of $3 million (2020: $4 million) mainly represents national insurance contributions and other employee benefits.
11. Share capital
Issued and fully paid – included in shareholder's equity:
Ordinary Shares of 10p each
Number
244,331,288
As at 31 December
2020
$m
41
Number
243,332,180
2021
$m
42
At 31 December 2021, of the issued share capital, 12,833,233 (2020: 12,833,233) are held as Treasury shares, nil (2020: 40,831) shares are held in the
Employee Benefit Trust (EBT) and 231,498,055 (2020: 230,458,116) shares are in free issue (Note 31) of the Group consolidated financial statements.
12. Profit for the year
The net profit in the Company for the year is $150 million (2020: $483 million). Included in the net profit for the year is an amount of $2,401 million
(2020: $510 million) dividends income offset by $2,223 million write-off of investments in subsidiaries mainly as a result of the reorganisation of the
Group structure (Note 4). 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.
13. Contingent liabilities
A contingent liability existed at the balance sheet date for a standby letter of credit totalling $10 million (2020: $8 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.
In addition, the Company guaranteed Hikma Finance USA LLC $500 million, 3.25%, five year Eurobond issued in July 2020 (Note 28 of the Group
consolidated financial statements) and guaranteed Hikma Pharmaceuticals USA Inc. contingent consideration related to the Columbus business
acquisition (Note 27 and 30 of the Group consolidated financial statements). It’s not probable that any of the guaranteed entities will default on the
guaranteed obligations.
2022 financial calendar
17 March
18 March
25 April
28 April
4 August*
17 August*
18 August*
2021 final dividend ex-dividend date
2021 final dividend record date
Annual General Meeting
2021 final dividend paid to shareholders
2022 interim results and interim
dividend announced
2022 interim dividend ex-dividend date
2022 interim dividend record date
16 September*
2022 interim dividend paid to shareholders
* Provisional dates
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 0371 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 pound sterling or Jordanian dinar.
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.
Website
Press releases, the share price and other information on the Group
are available on Hikma’s website www.hikma.com.
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.
Hikma’s website is www.hikma.com and the registered office is
1 New Burlington Place, London W1S 2HR.
Telephone number + 44 (0)20 7399 2760.
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187
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: uk-investors@hikma.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
188
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1 New Burlington Place
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