Better health.
Within reach.
Every day.
© Hikma Pharmaceuticals PLC
Annual Report 2022
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.
Discover how our purpose drives
everything we do on page 6
Strategic report
2
4
What we do
Executive Chairman and Chief Executive Officer’s
statement
Delivering on our purpose
Our strategy
6
8
10 Our business model
12
Investment case
14 Our progress
16 Our markets
18
Stakeholder engagement
Business and financial review
24 Group overview
26
Injectables
28 Branded
30 Generics
32 Group performance
Sustainability
38 Acting responsibly at Hikma
52 Aligning with the TCFD recommendations
Risk management
60 Risk management
67 Going concern and longer-term viability
70 Non-financial disclosures
Corporate governance
Executive Chairman’s overview
74
76 Corporate governance at a glance
78 Board of Directors
80 Executive Committee
81
86 Committee reports
109 Annual report on remuneration
125 Other statutory disclosures
Corporate governance report
Financial statements
132
Independent auditors’ report
140 Consolidated financial statements
145 Notes to the consolidated financial statements
193 Company financial statements
195 Notes to the Company financial statements
Shareholder information
200 Shareholder information
Financial highlights
Revenue
$2,517m
(1)% 2021: $2,553m
Operating profit
Core1 operating profit
$282m $596m
(6)% 2021: $632m
(52)% 2021: $582m
Profit to shareholders
Core profit to shareholders
$188m
(55)% 2021: $421m
$406m
(10)% 2021: $450m
Basic earnings per share
Core basic earnings per share2
83.9c
(54)% 2021: 182.3c
181.3c
(7)% 2021: 194.8c
Dividend per share
56c
4% 2021: 54c
Non-financial highlights
Value of our donated medicines
Reduction in our Scope 1 and 2
GHG emissions since 20203
$4.3m
15%
Front cover image
Nuno Lopes is based at our Portugal facility and joined
Hikma in April 2021 as a warehouse technician. Nuno was
part of the initial team at Hikma Portugal’s new and largest
centralised warehouse and is one of eight employees
supporting its operations.
For more information visit
www.hikma.com
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. Core basic earnings per share is reconciled to basic earnings per share in Note 15 of the
Group consolidated financial statements
3. We have committed to reducing Scope 1 and Scope 2 greenhouse gas emissions by 25%
by 2030, using a 2020 baseline year. See page 46 for further details
1
Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
What we do
We bring patients across North America, MENA and
Europe a broad range of generic, specialty and branded
pharmaceutical products.
Our markets
US
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.
MENA
We sell branded generics and in-licensed
patented products across the Middle East
and North Africa (MENA). We have
manufacturing facilities in seven countries,
including US FDA-inspected plants in Jordan
and Saudi Arabia. Around 2,000 sales
representatives and support staff market our
brands to healthcare professionals across
18 markets.
Europe and Rest of 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 North
America, MENA and a growing number of
markets in Europe.
Group core revenue
Group core revenue
Group core revenue
57%
c.2,000
Employees
34%
c.5,600
Employees
9%
c.1,200
Employees
Employees
Manufacturing plants
R&D centres
c.8,800
32
8
Products
760+
Our business segments
Injectables
We supply hospitals across our markets with
generic injectable products, supported by
our manufacturing facilities in the US, Europe
and MENA.
Branded
We supply branded generics and in-licensed
patented products from our local
manufacturing facilities to retail and hospital
customers across the MENA region.
Generics
We supply oral and other non-injectable
generic and specialty products to the
US retail market, leveraging our state-of-the-
art manufacturing facility in Columbus, Ohio.
Global reach
Segmental revenue
UK
1
4
3
US
Portugal
3
1
Germany
1
Italy
3
Tunisia
Morocco
2
5
2
Jordan
Algeria
4
1
Egypt
3
1
3
1
KSA
Sudan
3
$2,517m
Manufacturing plants
R&D hubs
Corporate HQ
2
Injectables
Branded
$1,141m
$691m
2021: $1,053m
2021: $669m
Generics
$672m
Other
$13m
2021: $820m
2021: $11m
3
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Executive Chairman and Chief Executive Officer’s
statement
Our diversified business
model enabled a resilient
core performance in 2022
as we continued to deliver
on our purpose.”
Increasing access to medicines
Hikma was founded 45 years ago to increase
access to affordable medicines.
Our vision, ‘to shape a healthier world that
enriches all our communities’, acts as our
guide, while our purpose, ‘putting better
health within reach, every day’, is our reason
for existing. As Hikma develops and grows,
we strive to deliver on our vision and purpose
to have a positive impact on the world by
making medicines more accessible and
more affordable.
Financial performance
The Group saw a slight revenue decline of
1% versus 2021, with a reduction in core
operating profit of 6%. At a divisional level,
we saw a variation in performance with the
effect of severe industry-wide competitive
pressures in Generics partially offset by
good growth from our larger Injectables
and Branded businesses. On a reported
basis, Group operating profit declined 52%,
primarily related to impairments in the
Generics business. For more information,
please refer to page 31 of this report.
Injectables revenue grew 8%, with core
operating profit up 8%. This is a high-quality
global operation with multiple levers for
growth. In the US, we benefitted from recent
launches, including 12 during 2022, as well
as the contribution from the Custopharm
acquisition. In MENA we are investing in local
manufacturing for our own products, and
our biosimilar partnerships continue to be
successful. In Europe and ROW, we are
benefitting from a growing portfolio and
our ability to respond to market shortages
in Germany. Our business in Canada is also
performing well following the acquisition
of Teligent’s Canadian assets.
Our MENA-based Branded business
delivered a good overall performance while
absorbing currency headwinds in our North
African markets, with revenue growth of 3%
and core operating profit up 17%. Our growth
4
was driven by strong demand for medicines
focused on chronic illnesses, including our
growing oral oncology portfolio. We also saw
a normalisation in demand for anti-infectives,
following some reductions in prior years due
to the COVID-19 pandemic.
flexibility and efficiency. This means sharing
our engineering expertise across our plants,
leveraging our ability to supply our markets
from across our operational base, and
ensuring the manufacture of our broad
portfolio can adapt to meet changing demand.
Our Generics business was impacted by the
intense competitive environment in the US,
which drove low double-digit price erosion
and mid single-digit volume erosion. We also
had a limited introduction of new products
and a slower than expected ramp-up of
recent launches. These factors resulted in
a reduction in revenue of 18% and a decline
in core operating profit of 49%. Despite these
challenges and thanks, in part, to the focus
we have put on improving efficiencies in
recent years, we delivered a core operating
margin of 15.3%, in line with our guidance,
with core operating profit of $103 million.
Looking ahead, we are focused on building
a more diversified product portfolio, with
an increased share of specialty products.
Like many other businesses, we have also
had to navigate the challenges of operating
in a volatile macroeconomic environment.
We experienced an increase in costs due
to inflation, including higher shipping,
utilities and employee benefits costs. We
were also impacted by a rise in interest rates.
Through operating efficiencies, we were
able to absorb these increases to a large
degree, minimising their overall impact
and demonstrating the strength and
resilience of our underlying business.
Strategic progress
Our strategy, based on the three pillars
outlined on pages 8 and 9 of this report,
supports Hikma’s position as a global
generics pharmaceutical company with a
growing, differentiated product portfolio
and a leading position in our key markets.
Injectables is delivering more from its strong
foundation by focusing on optimising our
global operational footprint to increase
We have continued to invest in increasing
capacity, with new high-speed lines being
added in Portugal and New Jersey and
construction is underway for new Injectables
plants in Algeria and Morocco. We have a
new R&D leadership structure that is focused
on adding more complex products to our
portfolio. We are establishing our new sterile
compounding business in the US and while
in its infancy now, this business is set to be
an important contributor to Hikma in the
future as we establish ourselves as a leading
compounder in this market. We continue to
make good strategic progress in our MENA
Injectables business. In 2022, we signed new
licensing deals with Celltrion Healthcare and
Junshi Biosciences for biosimilar and biologic
products. Finally, we continue to expand in
Europe, with our entry into France, and in
Canada. We expect these markets to be an
important growth driver in the years ahead.
Branded has benefitted from our strong
local presence and the tiering structure
we introduced in 2018, where we focus on
our markets with the highest value and
opportunity for growth. We saw good
progress in most markets in 2022 and our
flexible and local manufacturing facilities
and broad portfolio allowed us to be
nimble and adapt quickly to evolving
demand. I was delighted when we became
the third largest pharmaceutical company
in MENA in 20221 – up from the fourth largest
in 2021 and our ambition is to keep growing.
We are focusing our R&D on specialty and
chronic disease areas, and continue to value
the importance of partnerships, as well as
selling our own products.
1.
IQVIA Midas MAT September 2022 for Algeria, Egypt,
Jordan, Kuwait, Lebanon, Morocco, Saudi Arabia, Tunisia,
UAE. US dollar sales.
Revenue – 2022
Core operating profit – 20221
Injectables
Branded
Generics
Total
45% ($1,141m)
27% ($691m)
27% ($672m)
$2,517m
Injectables
Branded
Generics
63%
22%
15%
1. Core operating profit is $596 million. Before unallocated corporate costs of $84 million
and operating profit from Other business of $3 million, core operating profit contribution
from business segments is $677 million
Our Generics business has continued to
build its specialty portfolio of higher barrier
to entry products and dosage forms that
are more insulated from pricing pressure.
By achieving a better balance between
traditional generics and more durable
products, the business will be on a stronger
footing for the future. We have a state-of-the-
art manufacturing facility in Columbus,
Ohio, and we will increasingly leverage its
capabilities and quality record for strategic
contract manufacturing to help improve
the resilience of the business.
Financial returns
We generated good cashflow in 2022, which
has enabled a final dividend of 37 cents per
share. Combined with the interim dividend
of 19 cents per share, this represents a 4%
increase in the total dividend for 2022. While
our financial performance in 2022 lagged our
longer-term track record, we are confident
in our return to growth in 2023 supported
by recent launches and good momentum
in all our businesses.
Acting responsibly
We have identified four focus areas that guide
our approach to sustainability: advancing
health and wellbeing; empowering our
people; protecting the environment; and
building trust through quality in everything
we do.
For our customers and their patients, we help
to advance health and wellbeing by launching
new products, such as oral oncology products
in Algeria which are bringing new treatment
options, and ensuring availability of existing
treatments. We work closely with hospitals,
pharmacies and buying groups across our
markets to ensure their needs are met.
We also engage with our communities, a
practice which is ingrained in how Hikma
does business across its locations and you
can read much more on the projects we
undertake and the impact we have on pages
42 and 43 of this report.
We are all too aware of the threat of climate
change and we are making good progress
towards achieving our target of reducing
Scope 1 and 2 emissions by 25% by 2030.
We are also focusing on better understanding
our Scope 3 emissions, so that we can begin
to make improvements in this important area.
You can read more about our environmental
progress and how this links to remuneration
on pages 46 and 96 of this report.
The strategic bedrock to all three of the
businesses is our people. Culture has been
an important focus for us since inception.
Throughout the year, I have enjoyed visiting
our sites around the world and seeing how
our culture of progress and belonging is
embodied in how our people are living our
values: innovative, caring and collaborative.
What does this mean in practice? Pages 6
and 7 of this report gives examples of how
these values directly translate into our
purpose. Culture is forged in our history.
Many of our staff have been with us for
decades, and this corporate memory can be
passed on to our newer recruits. We are one
global company united by a simple vision and
this has been the case since the business
was founded 45 years ago.
Our culture also results in a quality mindset.
In this industry, failures in quality systems can
put lives at risk. We care greatly about what
we do, demonstrated by the relentless focus
on quality at our plants, whether it be through
the number of quality professionals, the high
levels of automation in the plants, or the
rigorous levels of testing that our finished
products go through. Our facilities are
maintained as ready for regulator inspection.
We also have a global pharmacovigilance
programme in place to continually monitor
the safety of our products.
Governance and leadership
I have enjoyed stepping back temporarily
into the CEO role following the departure
of Siggi Olafsson in mid-2022. Siggi played
an important role in Hikma’s strategic
advancements in recent years and I would
again like to thank him and wish him well
for the future. The search for a new CEO
is ongoing and an update will be provided
when an appointment is made.
We have a strong independent Board, and
I was delighted to welcome three female
Non-Executive Directors in 2022, each of
whom will bring fresh thinking and leadership
to Hikma.
Looking forward
I am confident and very excited about
Hikma’s future.
We have a strategy that will drive growth and,
most importantly, a strategy that will keep
bringing access to critical medicines to the
people who need them most. We have a
strong foundation, and while we have faced
some industry headwinds in the US, Hikma’s
diversified business has provided a level of
resilience. The portfolio continues to grow
and become more specialised. Our people
are the living embodiment of our culture
and I am always amazed by the commitment
to getting the job done.
I look forward to keeping you updated on
our progress.
Said Darwazah
Executive Chairman and Chief Executive
Officer
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Delivering on our purpose
How our values
enable us to increase
access to medicines
We are collaborative
Our vision is of a healthier world that enriches
all our communities. It is important that we
ensure healthcare professionals (HCPs) have
the support and tools they need to care for
their patients. In MENA, specialist teams
meet and collaborate with doctors, clinicians
and pharmacists regularly to improve disease
awareness, healthcare standards and access
to quality medical care in the region.
In 2022, we launched Hiyat Hilweh, a new
disease awareness campaign in Arabic to
reach HCPs and patients in MENA. Through
this platform we are able to raise awareness
and share knowledge and experiences about
the most prevalent chronic lifestyle diseases
in the region, while also promoting tips to
alleviate the burden of these diseases on
our communities and improve patient
quality of life.
6
We are innovative
Our business was founded on thinking
innovatively and this is as relevant today as
it was then, particularly in this fast-changing
world. To continue growing and delivering on
our purpose of putting better health within
reach, every day, we need to turn new ideas
into real actions that drive change.
Our new 503B compounding business is a
great example of how we used our decades of
expertise in manufacturing sterile injectables
to provide hospitals with the medicines they
need. Sterile compounding is the process of
combining, mixing, or altering ingredients to
create medications in ready-to-administer
formats tailored to the needs of healthcare
providers. It is an important specialised
approach to drug manufacturing that serves
a critical role in patient care.
In late 2020, we acquired a facility in Dayton,
New Jersey, with the objective of creating a
state-of-the -art sterile compounding facility
that not only meets but exceeds US-FDA
requirements in this industry. Since then, our
engineering and quality teams applied their
knowledge of sterile injectable manufacturing
to develop a dedicated site for sterile
compounding that is FDA-compliant and
scaled to improve productivity and quality
control. As a result, Hikma’s 503B
compounding business is uniquely positioned
to bring pharmaceutical manufacturing
standards to an industry that has faced quality
issues in the past, helping to meet a growing
need within the US healthcare system.
We are caring
We have a duty of care towards our
customers, patients and communities around
the world. Since inception, we have been
dedicated to transforming people’s lives by
providing the medicine and support they
need every day.
We have a medicine donation programme
to support people and communities that are
struggling to access the medicines they
need. This year, we took urgent action to help
patients impacted by the war in Ukraine. Our
teams acted quickly when they learned that
two children, Nikita and Camilla, were in need
of our Everolimus 5mg medicine. Everolimus
can be used to treat tuberous sclerosis
complex, a rare genetic disease that causes
benign tumours to grow in certain parts of
the body. We manufacture this product in our
high containment facility in Columbus, Ohio.
Through our partnership with Direct Relief,
we donated quantities of Everolimus and
other medicines to meet the needs of these
children and the people of Ukraine.
7
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Our strategy
Together we are building a leading generics
and specialty pharmaceutical company
where everyone can thrive.
Our vision
To shape a healthier
world that enriches all
our communities
Our purpose
To help put better
health within reach,
every day
Our values
Innovative, caring
and collaborative
e a n d v a l ues
s
o
u r p
Our visio n, p
Deliver
Our three strategic pillars
Our approach
KPIs
– Enhance and expand manufacturing capabilities
– Core revenue
Deliver more
from a strong
foundation
and capacity
– Maintain our unwavering commitment
to quality
– Improve operations and processes to increase
efficiency and responsiveness
– Build customer relationships
– Core operating profit
– Return on invested capital
Our
strategy
Build
Build a portfolio
that anticipates
future health
needs
– Build a portfolio of more differentiated,
higher barrier to entry products
– Core revenue from new
products launched
– Address health needs in our local markets
– Partner to bring innovative products
to market
A
c
tin
g responsibly
Advancing health
and wellbeing
Empowering
our people
Protecting the
environment
Building trust
through quality in
everything we do
Inspire
Inspire and
enable our
people
– Build a strong culture of progress and belonging
that attracts and retains talented employees
– Empower our people by promoting diversity, equity
and inclusion
– Employee enablement
– Employee engagement
Find out more about our
key performance indicators
on page 14
Find out more about our
risks on page 60
8
9
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Our business model
Our diversified business model allows us to
respond to the many opportunities and threats
we face, while delivering for our stakeholders.
Better health within reach every day
Our business segments
Our resources
What we do
Financial
Investment in R&D, manufacturing facilities,
partnerships and M&A collectively enable 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 future of our business.
Relationships
Strong relationships with regulators,
customers and health authorities
across all our markets, and successful
collaborations with industry partners,
enable us to deliver on our purpose.
Capabilities
We have extensive commercial,
R&D, manufacturing and distribution
capabilities across our markets,
focused on quality and efficiency.
Injectables
Generics
Branded
10
Offer a broad product portfolio
We offer a broad and differentiated portfolio of
more than 760 products. It includes high-quality
generic and branded generic medicines, and a
growing number of in-licensed, specialty and
compounded products.
Market across geographies
We distribute our products 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 wholesalers, pharmacy chains, governments
and hospital purchasing organisations.
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.
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.
The value we create
Patient benefits
We provide patients across our markets with
high-quality and affordable medicines.
760+
Products
Employee enablement
By focusing on the development of our people,
we provide long and rewarding careers for our
talented and diverse workforce.
8
Average training hours annually per employee
Shareholder returns
We have a long history of creating value for
our shareholders.
196%
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.
11
Local manufacturing capabilities in 11 countries,
ensuring reliability and security of supply
Find out more about our key
performance indicators on page 14
11
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic 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 760 high-quality products across
– Growing presence in specialty and complex products,
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 (3rd largest pharmaceutical
company by sales) and a growing presence in Europe
which offer less competition and more potential for further
margin growth
– Developing portfolio of biosimilars for the US and MENA
markets
– Focus on higher-value therapeutic areas such as
cardiovascular, central nervous system (CNS) and oncology
– Continued investment in R&D, new partnerships, strategic
– Trusted partner known for our commitment to quality and
acquisitions and geographic expansion into certain markets
Excellent financial discipline with
a strong balance sheet and robust
cash generation
Proven track record of delivering
value for shareholders and a clear
vision for growth
– Good cash flow generation, with $530 million operating cash
flow in 2022 and low leverage of 1.5x net debt/core EBITDA1
– Disciplined approach to cash management and acquisitions
– Strong balance sheet that provides financial flexibility to
support future growth
– Group revenue compound annual growth rate (CAGR) of 5%
and core EBITDA1 CAGR of 8% since 2017
– TSR2 of 196% over the last ten years
– Progressively increasing dividend
reliability of supply
Revenue by segment
Injectables
Branded
Generics
Other
$1,141m
$691m
$672m
$13m
Revenue by region
US
MENA
Europe & ROW
57%
34%
9%
8
R&D centres
6%
R&D spend as %
of revenue
200+
Projects in our pipeline
20+
Products added through
business development
$530m
Operating cash flow
21%
Operating cash
flow / revenue
5%
Group revenue growth
at a five-year CAGR
196%
TSR over the last
ten years
182
Launches in 2022
across our markets
1. EBITDA is earnings before interest, tax, depreciation, amortisation, assets write-down,
impairment charges/reversals and unwinding of acquisition related inventory step-up.
Core EBITDA is adjusted for exceptional items. EBITDA is a non-IFRS measure,
see page 34 for a reconciliation to reported IFRS results
2. Total shareholder return (TSR) is the performance of Hikma shares including
dividends paid
12
13
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Our progress
We are delivering on our strategy
and measuring our performance with
key performance indicators (KPIs).
Strategic
priority
Deliver more from
a strong foundation
KPI
Core1 revenue
($m)
Core1 operating profit
($m)
Return on invested capital3
(%)
$2,517m
$596m
14.9%
2,553 2,517
2,341
2,203
2,076
632
596
566
508
460
18.6
17.0
16.2
17.1
14.9
2018 2019 2020 2021 2022
2018
2019 2020 2021 2022
2018 2019 2020 2021 2022
Description
Total annual core revenue
generated across all businesses
Core operating profit
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
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
Why is it a KPI?
2022
performance
Group core revenue down by 1%
reflecting strong performance from
Injectables and Branded
businesses, which helped offset a
decline in Generics
The decrease in core operating
profit was driven by lower profits
in Generics, partially offset by
good performance in Injectables
and Branded
The decrease in return on invested
capital reflects the reduction in
core operating profit driven by lower
Generics profitability and higher
debt due to recent acquisitions
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
Build a portfolio that
anticipates future needs
Inspire and enable
our people
Core revenue from new
product launches
(%)
6%
Employee enablement
(%)
Employee engagement
(%)
64%
2020 score*
73%
2020 score*
Percentage of core revenue contribution
from products launched in 2022 and the
second half of 2021
This measures our ability to extract
value from our global product pipeline
In 2022, revenue from new launches was
6% of Group core revenue, down from 9%
in 2021. The decrease reflects a lower
contribution from Generics new launches
compared to the previous period, where
we had an exceptionally high contribution.
We achieved good contribution from
Injectable and Branded launches
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
*
Hikma aims to run a global employee survey every two years. The last full employee survey was run in 2020. In 2021,
we conducted an accountability index survey to measure the visibility of management action to address areas
identified in the last all-employee survey. It showed an 18 point improvement in the accountability index score when
compared to 2020. In 2022 we took the decision to delay the scheduled all-employee survey until 2023. As such,
we are reporting the enablement and engagement percentages from 2020. To find out more about our engagement
and enablement activities for our employees, refer to the stakeholder engagement on page 19 and empowering our
people on page 44
14
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Our markets
Understanding global healthcare
in an evolving world.
Global pharmaceutical outlook
Social, economic and political dynamics are changing rapidly,
shaping the pharmaceutical market today and the outlook for the
future. The effects of the COVID-19 pandemic are still being felt,
with resultant macroeconomic instability and uncertainty, but one
constant is the ongoing and growing need for healthcare, driven by
long-term demographic trends and changing lifestyles. The global
pharmaceutical market is expected to reach $1.8 trillion in 2026,
growing at a CAGR between 3% and 6%1.
Where we operate
Our commitment to our vision of shaping
a healthier world is as important as ever
to the millions of people we serve. We
operate across three geographies –
North America, Middle East and North
Africa (MENA) and Europe.
The US is our largest market. It is the
largest generics market in the world2
and is expected to continue growing1.
Patent expiries of branded drugs and
government’s focus on increasing access
to more affordable healthcare will drive
an increase in generic uptake. In the US,
generics and biosimilars represent 91%
of prescriptions filled and account for
only 18% of prescription drug spending3.
MENA is our second largest region.
While it is a very complex operating
environment, being highly fragmented
with different regulatory procedures,
we are experienced in navigating these
complexities and delivering growth.
The MENA pharmaceutical market
provides a lot of potential, which is
expected to be driven by a rapidly
growing population and an increase in
prevalence of lifestyle diseases, with
diabetes, cancer and cardiovascular
diseases on the rise in the region4. As
demand increases, generic medicines
share is expected to grow as governments
will increasingly focus on ways to improve
access to healthcare4, including looking
for more affordable medicines.
In Europe, where we are gradually
growing our presence and entering new
markets, there is an increase in demand
for generic medicines, particularly as
governments look to maintain more
sustainable healthcare budgets. Generic
products make up around 70% of
dispensed medicines in the region
and account for less than 30% of
pharmaceutical spending5.
Here, we outline the key trends that we
believe are having the most impact on
the generics pharmaceutical markets
where we operate, and how we are
responding to these.
IQVIA, The Global Use of Medicines 2022, Outlook to 2026, January 2022
1.
2. KPMG, Generics 2030
3. AAM, The U.S. Generic & Biosimilar Medicines Savings Report, September 2022
4. DUPHAT, available at https://duphat.ae/the-opportunity-for-generic-drugs-in-the-mena-region/
5. Medicines for Europe, Removing barriers to equitable access for timely competition
6. United Nations, available at https://bit.ly/3XwYTt5
7.
WHO, available at http://bit.ly/3D7gGz1
8. WHO, available at http://bit.ly/3XvzYpY
9. International Monetary Fund, World Economic Outlook, Countering the Cost-of-Living Crisis, October 2022
10. Rock Health, available at http://bit.ly/3QXFP4K
Find out more about our approach to identify,
analyse and evaluate strategic and emerging risks on page 60
An ageing population and
changing lifestyles
The world’s population continues to grow
and is ageing rapidly. According to the United
Nations’ projections, it is expected to
increase by two billion people to reach 9.7
billion by 20506, with the number of people
aged 60 or over expected to double to reach
2.1 billion7. At the same time, changing
lifestyles are leading to an increase in
noncommunicable diseases (NCDs), mainly
cardiovascular disease, cancer, respiratory
disease and diabetes. Almost 74% of deaths
worldwide are caused by NCDs8. All of this is
leading to an increasing need for affordable
healthcare solutions.
The impact of global economic
uncertainty on access to
healthcare
The cost-of-living crisis, tightening financial
conditions, geopolitical tension and the
lingering impact from the COVID-19
pandemic is leading to a slow down in
economic growth. The IMF forecasts that
global growth will have declined to 3% in
2022, down from 6% in 20219. These factors,
as well as rising inflation, are impacting the
pharmaceutical industry. Many companies
are experiencing higher costs of raw
materials, freight and utilities.
This, coupled with the increase in demand
for healthcare, is putting pressure on
governments’ healthcare budgets. As a result,
the need for more cost-effective healthcare
is driving an increase in generic penetration.
Evolving competitive landscape
The generic industry is highly competitive
and experiences volatility. In the US,
buyer concentration, a higher number
of competitors and an acceleration in the
FDA’s generic drug approval process has
led to increased competition in 2022. As a
result, there has been an increase in pricing
pressures, particularly in the retail generic
(non-injectable) market.
In MENA, we are seeing an increase in local
competition. Many countries are promoting
local production through incentives and
import restrictions. Local manufacturers
may be given preferential treatment in
government tenders or faster approval
times for new products.
Innovation to improve patient care
There is an increasing trend towards digital
health as a way of improving the quality of
patient care. Through innovation, companies
are looking for tools that enable data
collection and analysis to improve health
outcomes, as well as tools that will help
develop a more personalised healthcare
approach. Digital health investment
increased from $8.2 billion in 2019 to
$29.1 billion in 202110.
9.7 billion
estimated global population in 2050,
two billion higher than today
182
6%
products launched in 2022 across
our markets
of revenue spent on R&D to ensure
we remain competitive
$29 billion
investment in digital health in 202110
Strategic response
Our extensive and global portfolio, high-
quality manufacturing operations and strong
commercial relationships ensure we are
well positioned to meet the evolving needs
of patients.
One of Hikma’s key strategic pillars is building
a portfolio that meets the current and future
needs of patients. We do this through
investment in internal R&D and through
business development opportunities. In
MENA for example, we have been focusing
our R&D efforts on developing treatments for
fast-growing chronic illnesses. Today, chronic
medications make up around 56% of our
Branded portfolio, up from 43% in 2016.
Strategic response
Like many businesses, we have felt the
effects of an increasingly challenging
macroeconomic environment. Most notably,
we have seen inflation in shipping costs,
utilities and employee benefits and have
been impacted by rising interest rates.
Through a tight control of costs and a focus
on operating efficiencies, we have been able
to manage these challenges while remaining
committed to our purpose. Increasing access
to affordable healthcare is at the heart of
everything we do and, in 2022, we continued
to expand our product portfolio, with 182
new launches across our markets.
Strategic response
To offset price erosion and increased
competition, it is important that we continue
to enhance the differentiation and complexity
of our product pipeline and that we
successfully launch new products. Across the
Group, we are adding products with higher
barriers to entry including specialty, 505(b)
(2), patent protected, inhalation, nasal and
biosimilar products.
In MENA, we are an established player
with global expertise and a local presence.
We have an extensive local manufacturing
footprint and are building new injectable
manufacturing facilities in Algeria and
Morocco to better serve our patients.
Strategic response
Through our venture capital arm, Hikma
Ventures (HV), we invest globally in emerging
companies in the digital health space. These
companies offer innovative solutions that
have the potential to transform patient care.
Since it was founded in 2015, HV has invested
in 18 emerging digital health and drug delivery
companies, including six investments
completed in 2022. Also in 2022, HV made
its first investment in a biotech company.
These investments are aligned with our
Acting Responsibly framework, through
which we ensure we are focusing on
‘advancing health and wellbeing’.
Find out more about our
access to medicine on page 40
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Stakeholder engagement
Our vision is of a healthier world that enriches
all of our communities. For more than 40 years,
we have been dedicated to transforming people’s
lives by providing the medicine and support that
they need every day.
In a fast-changing world, our commitment to our vision
is as important as ever, not only for Hikma but also the
millions of people we serve around the world. To ensure
we continue delivering on our vision and purpose, it is
important we build strong engagement with all of our
stakeholders. This 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.
Our teams continue to work 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.
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. Through case studies,
we have outlined how groups of stakeholders were taken into
consideration in Board decisions.
Patients and healthcare
professionals
Employees
refer to Acting responsibly page 38
Customers
Communities
refer to Acting responsibly page 38
Government
and regulators
Suppliers
Investors
refer to Investment case page 12
18
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?
Why is it important to engage with this group and what do they
expect from us?
Patients and HCPs need us to:
Our employees 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 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. In 2022, the MENA management team provided the
Board with an update on the outlook for the MENA pharmaceutical
market, which reaffirmed their strategy of focusing on building a portfolio
of chronic treatments to address market needs
Outcomes and actions
– Hosted scientific symposia in MENA for building greater awareness
about diseases that could lead to better detection, diagnosis and
treatment to help improve patient outcomes.
– In 2022, we launched a digital disease awareness initiative called Hiyat
Hilweh
– Launched RyaltrisTM, seasonal allergic rhinitis nasal spray, in the US
– In response to feedback from HCPs, we are helping to meet a growing
need for ready-to-administer drugs which can help improve the speed
and safety of patient care through our new compounding business in
the US
– Helped alleviate drug shortages in Canada by leveraging our US
business to import key US FDA-approved products
– 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 values is key to
delivering our purpose 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 are committed to empowering our people by offering ongoing
training and diverse learning experiences that are accessible and
engaging. Our goal is to support career growth and lifelong learning
for all employees
– 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 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 (DEI) 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 75
– The Board receives regular reports on communications activities with
employees, including employee surveys and events or feedback that are
reported by the Chief Executive Officer
Outcomes and actions
– Launched the Hikma Women’s Network as part of our DEI initiative,
which brings together women from across the organisation to share
multicultural experiences to help thrive in the workplace
– Focused on improving employee enablement and engagement through
our leadership programme
– The CEO and management team maintain regular engagement with
employees through calls, town hall meetings and our internal
communication programme to keep them informed on business updates
and to answer questions they have
6%
of revenue spent on core R&D
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Stakeholder engagement
continued
Customers
Communities
Our customers are our business partners and we are committed to
providing them with a consistent and reliable supply of high-quality
medicines. We work closely with Group Purchasing Organisations
(GPOs), hospitals, healthcare professionals, retailers, wholesalers
and others to build strong relationships and enhance service levels.
Why is it important to engage with this group and what do they
expect from us?
Customers need us to:
– offer a broad product portfolio
– have a consistent and reliable supply of medicines
– maintain service levels
Our commercial teams work closely with our different customers to
understand their needs, reduce drug shortages and ensure we invest in
the products, manufacturing capacity and capabilities 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
– Continued to build our portfolio to address specific growing healthcare
needs and therapeutic areas. In 2022 we had 182 new launches across
our markets
– Continued to work closely with our customers to understand
their needs and improve service levels
– Prioritised the manufacture and supply of key medicines in short supply,
including amoxicillin
– Expanded distribution of naloxone in the US to help address the opioid
overdose epidemic
182
New launches across our
markets
20
Investing for future growth
Stakeholders considered
Our teams continuously assess business development and M&A
opportunities to ensure we are deploying our capital, in line with
our strategy, and delivering long-term value to our stakeholders, in
particular our shareholders, the patients we serve and healthcare
professionals.
Following discussions with management over 2021 and 2022, the
Board approved and completed two acquisitions that are not only
highly complementary to our Injectables business, but also enable
us to increase patients’ access to medicine.
How the Board made its decision
In order to assist the Board with its decision, management presented
detailed due diligence reports providing background on both
acquisitions, including financial information, strategic rationale, market
opportunity and integration plans. The Board was mindful of the
increased workload on employees but was confident that management
would monitor this and make adjustments where necessary.
On 2 February 2022, we completed the acquisition of Teligent’s
Canadian sterile injectable assets. This expanded Hikma’s presence
in the highly attractive Canadian injectables market. In addition,
on 21 April 2022, following approval from the US Federal Trade
Commission, we closed the acquisition of Custopharm Inc. in the US.
This brought with it a portfolio of marketed products, promising new
pipeline opportunities and expanded our Injectables R&D capabilities.
Long-term implications
By adding products and strengthening our pipeline through these
acquisitions, we are able to better serve the growing needs of
hospitals, doctors and patients. We are already delivering on this.
Since completing the Teligent Canadian asset acquisition, we stepped
in to help alleviate drug shortages in the Canadian market by
leveraging our US business to import key US FDA-approved products.
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 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 work internally on a regular basis to progress our understanding of
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 Strategic Planning and Global Affairs,
who reports directly into our CEO, leads our ESG efforts as well as our
internal cross-functional working group integrating TCFD requirements
into our business. More information on our sustainability efforts can be
found on page 38 to 57 and on our corporate governance and our
management of ESG issues on page 51
Outcomes and actions
– Increased medicine donations from $3.2 million in 2021 to $4.3 million
in 2022 (value based on cost of goods)
– Worked with Direct Relief to provide critical medicines to Ukraine
– Provided malaria medications to more than 2,800 people in Sudan
in response to extreme floods
– Achieved a 15% reduction in Scope 1 and 2 GHG emissions since 2020
$4.3m
in medicine donations in 2022
Committed to increasing access
to medicine
Stakeholders considered
We are proud of the important role we play in manufacturing and
providing affordable, high-quality medicines to treat a growing
number of illnesses and conditions. Our customers, healthcare
professionals (HCPs) and patients look to us to meet their evolving
needs and ensure reliable access to medicines.
Our extensive manufacturing footprint and our commitment to
manufacturing flexibility gives us the ability to respond quickly to
emergent situations and provide HCPs and patients with high-quality
medicines when they most need them. Each year, management and
the Board review our capital expenditure plans, taking into
consideration the local needs of our markets and evaluating where
Hikma can add value. Our capital expenditure goes towards both
upgrading our equipment and expanding our footprint.
In MENA, we are reinforcing our strong commercial presence with
local manufacturing operations, reducing supply chain complexities
and providing local hospitals with direct and rapid access to essential
medicines. We are currently constructing two new injectable
manufacturing facilities in Morocco and Algeria.
Long-term implications
The construction of these two new facilities will enable us to improve
access to essential injectable medicines in Algeria and Morocco.
As a local company with global expertise, we can serve our customers
more efficiently and work closer with them to develop solutions for
their needs.
21
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Stakeholder engagement
continued
Government and regulators
Suppliers
Investors
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 goods and services needed for us to deliver our medicines.
We actively engage with our suppliers to ensure the social and ethical
standards we require are upheld.
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?
Why is it important to engage with this group and what do we expect
from them?
Why is it important to engage with this group and what do they
expect from us?
Our regulators expect us to:
We want our suppliers to:
Our investors 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 in shaping US generic pharmaceutical policies and legislation
as a member of the Association of Accessible Medicines trade
association
– Launched an outreach programme to build closer relationships with key
members of Congress and their staff and hosted tours of our Columbus
facility with US representative for Ohio, Joyce Beatty, and Senator
Sherrod Brown to showcase our extensive US manufacturing capabilities
– Our Generics and Injectables leadership teams met with the
Department of Health and Human Services and its various offices to
explore opportunities to supply the government with stockpiles of
essential US-made medicines from Hikma’s portfolio
– Regularly meet with governing bodies and industry regulators in MENA
to understand the unmet healthcare needs in key markets and ensure
our product portfolio addresses them
32
Manufacturing plants
22
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 purpose 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 build local sourcing and procurement presence in our key supplier
markets to secure preferred access to capacity, innovation and pricing
– We share our Supplier Code of Conduct, which sets out the standards
we expect from all our suppliers, including fundamental standards on
human rights, modern slavery and our sustainability expectations
– We conduct initial and periodic due diligence to assess third-party risks
and run sustainability assessments through EcoVadis to understand
areas of improvement
– We measure and report on the greenhouse gas (GHG) emissions
originating from our supplier base
– We engage with our suppliers to understand their commitments and
efforts to reduce GHG emissions as well as their impact on our emissions
How we engage at Board level
– The Board receives updates on supplier issues as part of its review of
operational matters
– 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 and ethics and compliance
– 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
– In 2022, we launched an updated Supplier Code of Conduct which sets
out the high-quality standards we expect from our partners and
suppliers, especially on sustainability matters
– We developed a better understanding of the sustainability performance
of our supplier base and the impact our relationship has on our scope 3
GHG emissions
– 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, meetings and site visits
– 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 met with 104 investors in 2022
– We hosted a site visit at our Injectables manufacturing facility in
Portugal, which serves as a global hub for the Injectables business
– In 2022, our Remuneration Committee Chair and Senior Independent
Director met with several of our largest shareholders to present the
proposed Remuneration policy and address queries. Hikma’s
sustainability strategy was also discussed
104
Investors met with in 2022
Consulting on a new remuneration policy
How we engaged
Engagement took place from September to November with key
stakeholders, including shareholders, employees and institutional
investor bodies, to help shape our new remuneration policy. Our
Remuneration Committee Chair, Nina Henderson, and Senior
Independent Director, Patrick Butler, met with our largest
shareholders, representing 48% of the voting rights of our issued
share capital, and proxy advisory agencies to explain the proposed
changes to our Remuneration policy and continued a dialogue as
the policy evolved, including consultation with key institutional
investor bodies to gain their insights and feedback.
The views of management were also sought to ensure the proposed
changes to variable reward structures were fit for purpose and well
understood, as part of a fair and consistent reward package.
How this influenced decisions
During consultations, shareholders were supportive of the proposed
changes to the remuneration policy (including the quantum). The
common key considerations raised were:
– to keep the structure simple by limiting the number of metrics used
– the importance of building in environmental and diversity metrics, and
– ensuring the targets are sufficiently stretching
Taking into account the views expressed, the Committee limited the
number of metrics used for the Long Term Incentive Plan to four
clearly defined areas, with 20% weighted to ESG measures, and
ensured that the target-setting process is robust based on stretching
business plans.
Shareholders also took the opportunity to discuss general business
updates with the Board members, including understanding their view
and progress on CEO succession.
Long-term implications
The new Remuneration policy aligns remuneration with our strategy for
the long-term success of Hikma. The policy avoids paying out more than
we consider necessary and aligns with our culture and broader reward
framework. It allows us to offer a reward package that will continue to
attract, retain and motivate quality leaders. We remain committed to
engagement with our shareholders to ensure an open and transparent
dialogue on the issue of executive remuneration at Hikma.
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Business and financial review
I am pleased with the
Group’s resilient underlying
performance in 2022,
demonstrating the benefit
of our diversified business
model.”
Reported results1 (statutory)
Revenue
Operating profit
EBITDA3
Profit attributable to
shareholders
Cashflow from operating
activities
Basic earnings per share
(cents)
Total dividend per share
(cents)
Core results4 (underlying)
Core revenue
Core operating profit
Core EBITDA3
Core profit attributable to
shareholders
Core basic earnings per share
(cents)
2022
$ million
2021
$ million
Change
Constant
currency2
change
2,517
2,553
(1)%
0%
282
680
582
727
(52)%
(47)%
(6)%
(3)%
188
421
(55)%
(49)%
530
638
(17)%
–
83.9
182.3
(54)%
(47)%
56
54
4%
–
2022
$ million
2021
$ million
Change
2,517
2,553
596
694
632
727
(1)%
(6)%
(5)%
Constant
currency2
change
0%
(1)%
(1)%
181.3
194.8
(7)%
(2)%
1. 2022 reported results include non-cash exceptional items related to impairments
– further information can be found below
2. Constant currency numbers in 2022 represent reported 2022 numbers translated
using 2021 exchange rates, excluding price increases in the business resulting from
the devaluation of the Sudanese pound and excluding the impact from
hyperinflation accounting
3. EBTIDA is earnings before interest, tax, depreciation, amortisation, assets write-down,
impairment charges/reversals and unwinding of acquisition related inventory step-up.
Core EBITDA is adjusted for exceptional items. EBITDA is a non-IFRS measure, see page
34 for a reconciliation to reported IFRS results
4. 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
5. 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 position
24
Diversified business model underpins resilient
core performance
– Group revenue down 1% – a good performance from Injectables
and Branded, offset by the effect of severe competitive pressures
in Generics and foreign exchange headwinds in MENA
– Core operating profit down 6%, reflecting the significant reduction
in Generics profit and the impact of inflation. Reported operating
profit down 52%, reflecting impairment charges totalling $181 million
primarily related to changes in our longer-term expectations for
generic Advair Diskus® and excess respiratory production capacity
resulting from the rationalisation of our R&D pipeline
– Core profit attributable to shareholders down 10% and reported
profit attributable to shareholders down 55%
– Cashflow from operating activities down 17% to $530 million
primarily reflecting the reduction in core operating profit and
an increase in inventories to ensure continuity of supply
– 6% of revenue invested in R&D, supporting a growing pipeline
of complex and specialty products
– Maintained a healthy balance sheet. Following acquisitions and
share buyback, leverage remained low at 1.5x net debt to core
EBITDA3,5, (31 December 2021: 0.6x)
– Full-year dividend of 56 cents per share, up from 54 cents per share
in 2021
Khalid Nabilsi
Chief Financial Officer
Strong strategic progress, including geographic
expansion, focus on new products
– Injectables growth driven by acquisitions, new launches and
expansion into new geographies and partnerships:
– Successfully completed and integrated the acquisitions of
Custopharm Inc. in the US and Teligent’s assets in Canada
– Signed further deals for our growing biosimilar portfolio in MENA,
including for ustekinumab and Vegzelma® with Celltrion
– Increased European presence with entry into France
– Branded continuing to benefit from tiering structure, with ongoing
opportunities to grow market share:
– Hikma now third largest MENA pharmaceutical company
by sales, up from fourth largest in 20216
– Strong contribution from high-value chronic medications
– Expanding our Generics specialty portfolio and strengthening
operations:
– Broadening portfolio with focus on higher barrier to entry
specialty products, including the launch of Ryaltris® nasal spray
– Streamlining our business, including restructuring our cost base
– Further investment in our commercial capabilities to support
a growing specialty portfolio
406
450
(10)%
(4)%
Continued momentum in Injectables and Branded
partially offset Generics decline
– Injectables: revenue up 8% including contributions from acquisitions
and a good performance in Europe. Injectables core operating profit
increased by 8% with a core operating margin of 37.5%
– Branded: revenue up 3% (7% in constant currency) reflecting a good
contribution across most markets which offset foreign exchange
headwinds. Continued product mix improvements drove core
operating profit growth of 17% and a core operating margin of 21.1%
– Generics: revenue declined 18%, driven by significant price and
volume erosion, introduction of fewer new products and a slower
than expected ramp-up of recent launches. Core operating profit
declined to $103 million and core operating margin was 15.3%
Group
Group revenue was down 1% reflecting a weaker performance in
Generics, partially offset by good growth in Injectables and Branded.
Group gross margin reduced slightly, due to the decline in Generics
gross margin which was partially offset by the improvement in product
mix in Injectables and Branded.
Group operating expenses were $956 million (2021: $719 million).
Excluding adjustments related to the amortisation of intangible assets
(other than software) of $92 million (2021: $73 million) and exceptional
items of $195 million (2021: $23 million net income), Group core
operating expenses were $669 million (2021: $669 million).
Selling, general and administrative (SG&A) expenses were $615 million
(2021: $561 million). Excluding the amortisation of intangible assets
(other than software) and exceptional items, core SG&A expenses
were $509 million (2021: $488 million), up 4%, primarily due to an
increase in spend in Injectables related to the consolidation of recent
acquisitions, an increase in investment as we enter new and adjacent
markets, and an increase in shipping costs due to inflation.
Research and development (R&D) expenses were $144 million (2021:
$143 million), representing 6% of Group core revenue (2021: 6%), in line
with our strategy.
Other net operating expenses were $192 million (2021: $15 million)
reflecting impairment charges totalling $181 million primarily related
to changes in our longer-term expectations for generic Advair Diskus®
and excess respiratory production capacity resulting from the
rationalisation of our R&D pipeline. Excluding exceptional items7, core
other net operating expenses were $11 million (2021: $38 million),
primarily reflecting foreign exchange-related costs which were partially
offset by income from product disposals and legal settlements.
The reduction in core operating profit by 6% and core operating margin
to 23.7% were primarily driven by the decline in Generics, which was
partially offset by the good performance in Injectables and Branded.
6. IQVIA Midas MAT September 2022 for Algeria, Egypt, Jordan, Kuwait, Lebanon, Morocco,
7.
Saudi Arabia, Tunisia, UAE. USD sales
In 2022, exceptional items comprised a $80 million impairment charge on PPE and
right-of-use-assets and a $101 million impairment charge on intangible assets. In 2021,
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. Refer to Note 6 of the Group consolidated financial
statements for further information
25
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Business and financial review
continued
We supply hospitals across our markets with generic
injectable products, supported by our manufacturing
facilities in the US, Europe and MENA.
Injectables
26
Financial highlights
Revenue
Core revenue
Gross profit
Core gross profit
Core gross margin
Operating profit
Core operating profit
Core operating margin
2022
$ million
2021
$ million
Change
Constant
currency change
1,141
1,141
617
643
1,053
1,053
581
581
56.4%
55.2%
345
428
37.5%
351
395
37.5%
8%
8%
6%
11%
1.2pp
(2)%
8%
10%
10%
7%
11%
0.3pp
(3)%
8%
0.0pp
(1.0)pp
Injectables revenue grew 8% in 2022, 10%
in constant currency, benefitting from our
broad portfolio and new launches as well
as a good contribution from the acquisitions
of Custopharm Inc. in the US and Teligent’s
Canadian assets. Organic revenue growth was
2% reported and 4%1 in constant currency.
currency basis, revenue was up 2%, reflecting
the impact of hyperinflation on 2021 revenue.
Excluding this impact, we saw good
underlying growth driven by demand across
our portfolio, particularly our growing
biosimilar portfolio, as we continue to launch
into new markets.
US Injectables revenue grew 10% to $761
million (2021: $691 million), reflecting $53
million sales contribution from the
Custopharm acquisition, which closed in
April, as well as a good contribution from
our broad portfolio and recent launches.
Europe and ROW Injectables revenue was
$202 million, up 11% (2021: $182 million).
In constant currency, Europe and ROW
Injectables revenue increased by 20%. We
are benefitting from good demand across
most of our markets, particularly in Germany,
and a $17 million contribution from the
acquisition of Teligent’s Canadian assets.
MENA Injectables revenue was $178 million,
down 1% (2021: $180 million) primarily due
to the impact of foreign exchange headwinds
in our North African markets. On a constant
Core gross profit grew 11% to $643 million and
core gross margin was 56.4%, reflecting an
improvement in product mix, which more than
offset an increase in costs due to inflation.
Injectables core operating profit, which
excludes the amortisation of intangible
assets (other than software)2 grew 8% and
core operating margin was 37.5%. This
reflects the increase in gross profit which
more than offset higher R&D in the US as
we build a pipeline of complex products,
an increase in sales and marketing costs to
support our expansion into Europe, spending
on the establishment of our new sterile
compounding business in the US, spend
related to the integration of recent
acquisitions, as well as an increase in
costs due to inflation, including for
shipping and utilities.
Core revenue
2022
2021
$1,141m
$1,053m
$1,141m
Core operating margin
Core revenue by region
2022
2021
37.5%
37.5%
US
Europe & ROW
MENA
$761m (67%)
$202m (18%)
$178m (15%)
During the year, the Injectables business
had 12 launches in the US, 41 in MENA and
47 in Europe and ROW. We submitted 149
filings to regulatory authorities across all
markets. This reflects the ongoing expansion
of our European portfolio. We also signed
new licensing deals, including three new
biosimilars for the MENA market.
Outlook for 2023
For Injectables, we expect revenue to
grow between 7% and 9% and for core
operating margin to be between 36% and
37%. This reflects our broad portfolio and
flexible manufacturing capabilities across
our geographies, supported by new
product launches.
We grew in all our markets,
benefitting from new
launches, entering new
geographies and the
integration of our
acquisitions.”
1. This excludes revenue contribution from Custopharm of
$53 million and Teligent’s Canadian assets of $17 million
2. Exceptional items comprised a $4 million impairment
charge on PPE and right-of-use assets, a $26 million
unwinding of acquisition related inventory step-up,
a $8 million impairment charge on intangible assets
and reorganisation costs of $2 million. Amortisation of
intangible assets (other than software) was $43 million.
In 2021, exceptional items comprised a $10 million
impairment of product related intangibles and a
$1 million intangible assets write-down. 2021
amortisation of intangible assets (other than software)
was $33 million. Refer to Note 6 of the Group
consolidated financial statements for further information
27
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Business and financial review
continued
We supply branded generics and in-licensed
patented products from our local manufacturing
facilities to retail and hospital customers across
the MENA region.
Branded
2022
$ million
2021
$ million
Change
Constant
currency change
691
691
350
350
669
669
328
328
50.7%
49.0%
136
146
21.1%
104
125
18.7%
3%
3%
7%
7%
1.7pp
31%
17%
2.4pp
7%
7%
12%
12%
2.3pp
57%
38%
5.5pp
During the year, the Branded business
had 79 launches and submitted 193 filings
to regulatory authorities. Revenue from
in-licensed products represented 35%
of Branded revenue (2021: 36%).
Outlook for 2023
For Branded, we expect mid to high
single-digit constant currency revenue
growth, driven by our expanding portfolio
and focus on chronic medications.
Another year of good
growth and margin
progression as we increase
our focus on chronic
medications.”
Financial highlights
Revenue
Core revenue
Gross profit
Core gross profit
Core gross margin
Operating profit
Core operating profit
Core operating margin
Our Branded business grew revenue 3%
in 2022, which includes the impact of
hyperinflation and foreign exchange
headwinds. In constant currency, revenue
grew 7%, with a good performance across
most of our markets, particularly Algeria,
Saudi Arabia and Iraq.
Reported and core gross profit grew 7%
and, on a constant currency basis, reported
and core gross profit grew 12%, reflecting an
improvement in product mix, driven by our
growing portfolio of oncology and chronic
medications, as well as new launches.
Core operating profit, which excludes the
amortisation of intangibles (other than
software) and exceptional items1 grew 17%
and core operating margin expanded to
21.1%. This reflects the improvement in
gross profit and good control of sales and
marketing costs, which more than offset
an increase in R&D and G&A costs, as well as
the negative impact of currency devaluation
in our North African markets.
28
Core revenue
Core operating margin
2022
2021
$691m
2022
$669m
2021
21.1%
18.7%
1. Exceptional items comprise reorganisations costs of
$2 million. Amortisation of intangible assets (other
than software) was $8 million. 2021 exceptional items
comprised a $11 million intangible assets write-down.
2021 amortisation of intangible assets (other than
software) was $10 million. Refer to Note 6 of the Group
consolidated financial statements for further information
29
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Business and financial review
continued
We supply oral and other non-injectable generic
and specialty branded products in the US retail
market, leveraging our state-of-the-art
manufacturing facility in Columbus, Ohio.
Generics
Financial highlights
Revenue
Core revenue
Gross profit
Core gross profit
Core gross margin
Operating profit
Core operating profit
Core operating margin
On a reported basis, Generics made an
operating loss of $(117) million due to
impairment charges related to changes in our
longer-term expectations for generic Advair
Diskus® and excess respiratory production
capacity resulting from the rationalisation
of our R&D pipeline.
In 2022, the Generics business launched
three products and submitted seven filings
to regulatory authorities.
Outlook for 2023
For Generics, we expect to grow in the low
double-digits and for core operating margin
to be between 16% and 18%. This reflects
contribution from new launches supported
by our commercial strength.
Revenue in our Generics business declined
18% in 2022, driven by the challenging
competitive environment in the US, with
limited introduction of new products and
a slower than expected ramp up of recent
launches to help offset this. We experienced
sustained low double-digit price erosion
as well as related mid single-digit
volume erosion.
The decline in Generics core gross profit
and margin reduction to 39.6% was primarily
a result of the impact of price and volume
erosion.
Generics core operating profit, which
excludes the amortisation of intangible
assets (other than software) and exceptional
items1, declined 49% due to the reduction in
gross profit, as well as an increase in sales
and marketing costs as we continue to build
out the commercial capabilities necessary for
our expanding specialty business. Through
tight control of costs elsewhere and by driving
efficiencies, core operating margin was 15.3%.
2022
$ million
2021
$ million
672
672
265
266
39.6%
(117)
103
820
820
388
388
47.3%
217
202
Change
(18)%
(18)%
(32)%
(31)%
(7.7)pp
(154)%
(49)%
15.3%
24.6%
(9.3)pp
We were impacted by a
challenging competitive
environment in the US, but
delivered a solid mid-teens
margin and will return to
growth in 2023.”
30
Core revenue
Core operating margin
2022
2021
$672m
2022
$820m
2021
15.3%
24.6%
1. Exceptional items comprised a $76 million impairment
charge on PPE and right-of-use assets, $1 million
unwinding of acquisition related inventory step-up,
a $93 million impairment charge on intangible assets
and reorganisation costs of $9 million. Amortisation of
intangible assets (other than software) was $41 million.
2021 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.
2021 amortisation of intangible assets (other than
software) was $30 million. Refer to Note 6 of the Group
consolidated financial statements for further information
31
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic 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 $13 million in 2022 (2021: $11 million) with an operating
profit of $3 million (2021: $2 million).
Research and development
Our investment in R&D and business development enables us to
continue expanding the Group’s product portfolio. During 2022,
we had 182 new launches and received 270 approvals. To ensure the
continuous development of our product pipeline, we submitted 349
regulatory filings.
2022 submissions1
2022 approvals1
2022 launches1
100
12
41
47
79
3
182
Constant
currency
change
0%
10%
18%
Injectables
US
MENA
Europe & ROW
Branded
Generics
Total
Net finance expense
149
14
77
58
193
7
349
129
15
59
55
136
5
270
2022
2021
Change
Finance income
Finance expense
Net finance expense
Core finance income
Core finance expense
Core net finance expense
29
81
52
3
77
74
30
69
39
(3)%
17%
33%
1
200% 300%
56
55
38%
35%
29%
24%
On a reported basis, net finance expense was $52 million (2021:
$39 million). This comprised $29 million finance income and
$81 million finance expense. Excluding exceptional items2, core net
finance expense was $74 million (2021: $55 million). This comprised
$3 million finance income and $77 million finance expense. The
increase primarily reflects the rising interest rate environment and
increased borrowing due to the acquisitions of Custopharm Inc.
and Teligent’s Canadian assets.
We expect core net finance expense to be around $78 million in 20233.
Profit before tax
Reported profit before tax decreased to $233 million (2021: $544
million), primarily due to the impairment in the Generics business.
Excluding the amortisation of intangibles (other than software) and
exceptional items4, core profit before tax was $520 million (2021:
$578 million), down 10%.
Tax
The Group incurred a reported tax expense of $42 million (2021:
$124 million) and a reported effective tax rate of 18.0% (2021: 22.8%).
The decrease is due to the change in earnings mix, primarily as a
result of the impairment in the Generics business in the US. Excluding
exceptional items, Group core tax expense was $111 million (2021:
$129 million). The core effective tax rate decreased marginally to
21.3% (2021: 22.3%).
We expect the Group core effective tax rate to be in the range of
22% to 23% in 2023.
Profit attributable to shareholders
Profit attributable to shareholders was $188 million (2021: $421 million).
Core profit attributable to shareholders decreased by 10% to
$406 million (2021: $450 million).
Earnings per share
Basic earnings per share
(cents)
Core basic earnings per share
(cents)
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)
2022
2021
Change
Constant
currency
change
83.9
182.3
(54)%
(47)%
181.3
194.8
(7)%
(1)%
83.6
180.7
(54)%
(47)%
180.4
193.1
(7)%
0%
224
231
225
233
–
–
–
–
The decrease in core earnings per share reflects the decline in profit
attributable to shareholders as a result of the weaker performance in
Generics, slightly offset by the value for shareholders created by the
Group’s buyback of 12.5 million Ordinary Shares in the first half of 2022.
Dividend
The Board is recommending a final dividend of 37 cents per share
(2021: 36 cents per share) bringing the total dividend for the full year
to 56 cents per share (2021: 54 cents per share). The proposed
dividend will be paid on 5 May 2023 to eligible shareholders on the
register at the close of business on 24 March 2023, subject to
approval at the Annual General Meeting on 28 April 2023.
Net cash flow, working capital and net debt
The Group generated operating cash flow of $530 million (2021:
$638 million). This change primarily reflects the lower operating profit
from our Generics business, as well as an increase in inventories to
ensure continuity of supply.
Group working capital days were 251 at 31 December 2022. Compared
to the position on 31 December 2021, Group working capital days
increased by 13 days from 238 days, as we increased our inventory.
Capital expenditure was $138 million (2021: $145 million). In the US,
$46 million was spent upgrading equipment and adding new lines
and technologies for our Injectables business, including enhancing
our new compounding facility in Dayton, New Jersey. Our Generics
business primarily focused on replacement and necessary upgrades.
In MENA, $72 million was spent strengthening and expanding
manufacturing capabilities, including two ongoing greenfield
Injectables production sites in Algeria and Morocco. In Europe, we
spent $20 million enhancing our manufacturing capabilities, including
the installation of new filling lines in Portugal and Italy. We expect
Group capital expenditure to be in the range of $140 million to
$160 million in 2023.
The Group’s total debt increased to $1,283 million at 31 December
2022 (31 December 2021: $846 million). This increase primarily
reflects funding the acquisitions of Custopharm Inc. and Teligent’s
Canadian assets.
The Group’s cash balance at 31 December 2022 was $270 million
(31 December 2021: $426 million).
The Group’s net debt (excluding co-development agreements and
contingent liabilities) was $1,013 million at 31 December 2022
(31 December 2021: $420 million), reflecting the increase in total debt
and the share buyback. We continue to have a healthy balance sheet,
with a net debt to core EBITDA ratio of 1.5x (31 December 2021: 0.6x).
Balance sheet
Net assets at 31 December 2022 were $2,148 million (31 December
2021: $2,467 million). Net current assets were $922 million
(31 December 2021: $1,078 million). The decline reflects the increase
in the Group’s total debt and reduction in cash, primarily due to
acquisitions and the purchase of 12.5 million of our own shares
resulting from the $300 million share buyback announced in
February 2022.
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.
Our core results exclude the exceptional items and other adjustments
set out in Note 6 of the Group consolidated financial statements.
Group gross profit
Core gross profit
Unwinding of acquisition related
inventory step-up
Reported gross profit
Group operating profit
Core operating profit
Intangible assets write-down
Net impairment reversal of product
related intangibles
Intangible assets amortisation other
than software
Reorganisation costs
Impairment of property, plant and
equipment and right-of-use-assets
Impairment of intangible assets
Unwinding of acquisition related
inventory step-up
Reported operating profit
2022
$ million
1,265
(27)
1,238
2022
$ million
596
–
–
(92)
(14)
(80)
(101)
(27)
282
2021
$ million
1,301
–
1,301
2021
$ million
632
(13)
36
(73)
–
–
–
–
582
1. Pipeline projects submitted, approved and launched by country in 2022
2. Exceptional items comprised $26 million non-cash finance income related to remeasurement of contingent consideration and a $4 million non-cash finance expense related to
the unwinding of contingent consideration and other financial liability
3. Based on the composition of the Group’s net debt portfolio as at 31 December 2022, a one percentage point increase/decrease in interest rates would result in $4 million decrease/
increase in net finance cost per year (2021: $2 million increase/decrease)
4. Exceptional items comprised a $5 million net gain from investment divestiture, $14 million of reorganisation costs, a $80 million impairment charge on PPE and right-of-use assets,
a $27 million cost related to unwinding of acquisition related inventory step-up, a $101 million impairment charge on intangible assets, $26 million non-cash finance income related to
remeasurement of contingent consideration and a $4 million non-cash finance expense related to the unwinding of contingent consideration and other financial liability. Amortisation
of intangible assets (other than software) was $92 million. Refer to Note 6 of the Group consolidated financial statements for further information
32
33
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic 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 2022 represent reported 2022 numbers
translated using 2021 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, impairment charges/reversals and and unwinding
of acquisition related inventory step-up. Core EBITDA is adjusted for
exceptional items.
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
Net debt
31 Dec 2022
$ million
31 Dec 2021
$ million
(139)
(9)
(1,074)
(61)
(1,283)
270
(1,013)
(112)
(9)
(651)
(74)
(846)
426
(420)
EBITDA
Reported operating profit
Adjustments for depreciation,
amortisation, net impairment charges/
reversals and write-down of:
Property, plant and equipment
Intangible assets
Right-of-use assets
Unwinding of acquisition related
inventory step-up
Reported EBITDA
Exceptional items:
Reorganisation costs
Core EBITDA
2022
$ million
282
2021
$ million
582
ROIC
ROIC is calculated as core operating profit after tax divided by
invested capital (calculated as total equity plus net debt). This
measures our efficiency in allocating capital to profitable
investments.
157
202
13
26
680
14
694
72
61
12
–
727
–
727
ROIC
Core operating profit
Total tax
Core operating profit before tax
Net debt
Equity
Invested capital
ROIC
2022
$ million
2021
$ million
596
(124)
472
1,013
2,148
3,161
14.9%
632
(137)
495
420
2,467
2,887
17.1%
Working capital days
We believe Group working capital days provides a useful measure of
the Group’s working capital management and liquidity. Group working
capital days are calculated as Group receivable days plus Group
inventory days, less Group payable days. Group receivable days are
calculated as Group trade receivables x 365, divided by 12 months
Group revenue. Group inventory days are calculated as Group
inventory x 365, divided by 12 months Group cost of sales. Group
payable days are calculated as Group trade payables x 365, divided
by 12 months Group cost of sales.
34
35
Hikma Pharmaceuticals PLC | Annual Report 2022Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Sustainability 38 Acting responsibly
44
Empowering our people
46 Protecting the environment
40 Advancing health and wellbeing
50 Building trust through quality
in everything we do
52 Aligning with the Task Force
for Climate-related Financial
Disclosures (TCFD)
Image
An employee at our Columbus, Ohio facility
putting the final touches to the Fette 2090i
turret die installation, preparing for upcoming
tableting operations.
36
Hikma Pharmaceuticals PLC | Annual Report 2022
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Acting responsibly at Hikma
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.
At Hikma, we continue to progress
our sustainability agenda across all
facets of our organisation. As we
strive to put better health within
reach, every day, we have a duty to
act responsibly for our patients,
people, communities and the planet.
We have identified four focus
areas that guide our approach to
sustainability and to Environmental,
Social and Governance (ESG)
issues. We advance health and
wellbeing; we empower our people;
we protect the environment; and
we build trust through quality in
everything we do.
This section outlines how we
address our most material ESG
issues and highlights some of the
major activities, milestones and
achievements made throughout the
year. More information on
sustainability and ESG will be
provided in our upcoming
Sustainability Report 2022.
For more information visit
www.hikma.com/sustainability
38
Advancing health
and wellbeing
Empowering
our people
Protecting the
environment
Building trust
through quality in
everything we do
Providing better healthcare and
supporting our communities
Shaping an inclusive culture
where everyone can thrive
Minimising our impact on
the planet
Upholding ethical standards
and acting with integrity
– Access to medicines
– Corporate social
responsibility
• Providing better health
• Supporting education
• Helping people in need
– Recruitment, retention
– Reduction of greenhouse gas
and promotion
– Diversity, equity and
inclusion
– Ensuring health and safety
emissions (GHG)
– Sustainable supply chain
– Water management
– Waste management
– Ethics and compliance
– Product quality and safety
– Corporate governance
$4.3m
value of our donated
medicines
8
15%
8
Average hours of training
annually per employee
Reduction achieved in our
Scope 1 and 2 emissions since
the 2020 base year
Maintaining membership in the
FTSE4Good for eight
consecutive years
Read more on page 41
Read more on page 45
Read more on page 46
Read more on page 51
39
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Acting responsibly at Hikma
continued
As a supplier of generic pharmaceuticals, we are in
the business of making medicines more affordable
and accessible across our geographies.
Access to medicine remains a cornerstone
of our sustainability agenda.
Through these relationships, along with our
generic peer companies, we ensure safe,
effective and less costly medicines are
available for patients who need them.
From Europe, we supply all of our markets
with sterile injectable products produced in
our facilities in Portugal, Germany and Italy. In
2022, we expanded our production capacity
in Portugal, enabling us to increase volumes
and add new products to our portfolio. We
are also expanding our commercial sales
presence within the continent in markets
including France and Spain.
Our broad global portfolio and growing
pipeline enables us to address a range of
market needs. We provide medicines to nine
countries identified by the Access to
Medicine Foundation (the Foundation) as
having ‘an urgent need for better access to
medicine.’ Within these markets, we
manufacture and/or sell a range of medicines
that treat critical diseases and conditions.
Medicine donations
Through our medicine donations programme,
we channel direct support to people and
communities in most need. These include
low-income groups, displaced persons,
patients without sufficient medical coverage
and vulnerable segments of the population.
In 2022, we updated our medicine donation
policies in Europe, enabling us to respond
more effectively to urgent donation requests
made by our partners and others. During the
year, we worked alongside partners such as
Direct Relief to provide critical medicines to
Ukraine as well as elsewhere around the
world. Our medicine donations increased
from $3.2 million in 2021 to $4.3 million in
2022 (value based on cost of goods).
Access to medicines
Our purpose is to put better health, within
reach, every day, and we do this by producing
high-quality medicines and making them
accessible to those who need them. Access
to medicine remains a cornerstone of our
sustainability agenda and we are committed
to improving accessibility and affordability
across our geographies.
In MENA, we are now the third largest
pharmaceutical company according to sales
(up from fourth in 2021)1 and we continue to
expand our local manufacturing capacity to
ensure patients have access to critical
medicine throughout the region. During 2022
we enhanced our capabilities and expanded
our sites in Jordan, Saudi Arabia and Sudan,
enabling us to better meet local demand,
including for oncology products, and ensure
reliability of supply for critical chronic
treatments. In addition, we are strengthening
our sterile injectable manufacturing
capabilities in the region by building new
plants in Morocco and Algeria. Having a local
presence will help reduce supply chain
complexities and enables us to provide
hospitals with direct and more rapid access
to essential injectable medicines.
In the US, Hikma is a top-three supplier of
generic injectable medicines to hospitals2,
and a leading provider of oral solid, liquid and
nasal generic medicines distributed to
patients through pharmacies and health
benefits programmes. We are recognised as
one of the leading US domestic producers of
generic medicines with R&D, manufacturing
and distribution facilities in New Jersey, Ohio
and California. We consistently work to
enable broader patient access to generic
medicines through our membership in and
support of key trade associations and
advocacy groups.
1.
IQVIA Midas MAT September 2022 for Algeria, Egypt,
Jordan, Kuwait, Lebanon, Morocco, Saudi Arabia, Tunisia,
UAE. USD sales
2. IQVIA MAT December 2022, generic injectable volumes
by eaches, excluding branded generics and Becton
Dickinson
Advancing health
and wellbeing
Providing better healthcare
and supporting our
communities
40
Adapting to crisis situations
and medicine shortages
In several of our markets, socio-economic
and political circumstances presented a
need for us to adapt and respond. In
countries such as Yemen, Lebanon, Libya
and Sudan, we worked to maintain a secure
supply of medicines. This involved
restructuring distribution models and
adapting to the needs of the market and
our local partners.
In the US, we continue to work with the Food
and Drug Administration (FDA) to anticipate
and address shortages of vital medicines.
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.
Collaborating with the Access
to Medicine Foundation
Our aim is to ensure vulnerable people
around the world receive access to the
critical medicines they need, and in this
context, we began engaging with the
Foundation in 2022 to leverage their
expertise and further enhance our approach
to accessibility.
We worked alongside the Foundation as
part of their Generic Medicine Manufacturers
Research Programme to evaluate the role
of generic manufacturers in increasing
access to medicine in low and middle
income countries (LMICs). We also
collaborated with industry peers and
partners to share perspectives on global
health security and effective multi-
stakeholder approaches to improving
access to medicine. We will continue to
collaborate with the Foundation to identify
opportunities that expand access to
essential health products in LMICs.
Medicine donations
(COGS)$m
2022
2021
2020
$4.3m
$3.2m
$4.1m
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Acting responsibly at Hikma
continued
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.
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.
4,060 volunteers
7,825 volunteering hours
13 countries with community
outreach campaigns
Providing better health
Responding to crises
to improve access to
healthcare
In response to extreme floods in Sudan,
Hikma worked alongside the Chamber of
Industry in the city of Managil to provide
malaria medications to more than
2,800 people.
Following the destruction caused by
Hurricane Ian in the US, we directed funds to
support emergency responders. The funds
were used to purchase medical supplies,
mobile medical units and portable
power stations.
In response to the ongoing conflict in Ukraine,
we partnered with Direct Relief and
contributed to their provision of 890 tonnes
of medical aid ranging from field medic packs
to diabetes and cancer medications.
Supporting breast
cancer awareness
Our global Breast Cancer Campaign helps
to spread awareness, screening and
testing to women around the world.
Supporting education
Strengthening access
to higher education
for refugees
Through our ongoing partnership with the UN
Refugee Agency (UNHCR) and their Albert
Einstein German Academic Refugee Initiative
(DAFI) scholarship programme, we are
helping to provide higher education
scholarships and internship opportunities for
40 refugees in Jordan, Egypt and Algeria.
We also hosted 20 DAFI students and alumni
at the Samih Darwazah Memorial Centre in
our new Jordan office, providing an inspiring
and educational experience for all attendees.
Description: Algeria, Interview with DAFI graduate
Credit: © UNHCR/Russell Fraser
Establishing the Dr Samih
Darwazah Lecture Hall
and Computer Lab
The construction and launch of the Dr Samih
Darwazah Lecture Hall and Computer Lab at
the School of Pharmacy in the University of
Jordan will provide more resources, space
and learning capabilities for more than 500
students every year.
+7,000
women received free
breast examinations
in MENA
100
employees received
pre-screening through
mobile mammography
units in Portugal
and Tunisia
+60,000
Raising awareness about breast
cancer detection, prevention
and treatment for more than
60,000 women in Jordan
Helping people in need
190,000
Providing more than 190,000 free
meals to people across MENA, US
and Europe
42
Hikma Pharmaceuticals PLC | Annual Report 2022
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Acting responsibly at Hikma
continued
We empower our people by nurturing a culture of
progress and belonging that enables our people to
thrive. We continue to focus on retaining and recruiting
high-calibre talent, enhancing the skills and potential
of our employees and taking steps to promote
diversity, equity and inclusion.
Empowering
our people
Shaping an inclusive culture
where everyone can thrive
Recruitment, retention
and promotion
Our people are our most valuable asset, and
our focus in 2022 was to advance employee
engagement and to promote more inclusive
learning and development opportunities in
order to retain high-calibre talent.
In 2022, we took measures to improve the
reach and inclusivity of employee learning
opportunities. We expanded our library of
online resources, introducing structured
curriculums for various business functions.
We also focused on improving accessibility to
training across locations and employee levels
by introducing curriculums in more languages
and offering courses that improve digital
skills. We expanded learning opportunities in
subjects including leadership, management
and career development in order to drive
upward mobility. We also diversified the
opportunities that we provide for employees,
from technical subject areas to behavioural,
soft skills and collaborative training. These
actions contributed to a year-on-year
increase in active users across all of our
learning platforms from 3,820 in 2021 to
4,400 in 2022.
In 2022, our employees received an annual
average of eight learning hours. Our aim is to
remain above our minimum threshold of six
hours, and to maintain our average of eight
learning hours per employee.
In 2022, our focus was to advance employee
engagement and to promote more inclusive
learning and development opportunities.”
8
Average learning hours
per employee
4,400
active users across learning
platforms (2021: 3,820)
Diversity, equity and inclusion
We continued to advance Diversity, equity
and inclusion (DEI) across our global
operations in 2022, furthering Hikma’s
commitment to a culture of progress and
belonging that provides all employees with
opportunities for personal and professional
growth. We believe in fostering an inclusive
workplace where all employees feel they
belong, and as they grow and develop,
so does Hikma.
We are championing DEI in many different
ways, we surveyed our US employees about
their DEI experiences and are now taking
actions to address areas of improvement.
55,000
Instructor-led learning hours
for 35% of our employees
(2021: 47,000)
8,400
Video-based learning hours
completed (2021: 13,000)
To build knowledge and DEI engagement,
we launched annual employee diversity
awareness training. In addition, we continued
building our network of Employee Resource
Groups (ERGs) by strengthening our Black
Employees Advisory Board and Hikma
Women’s Network. We are taking steps to
launch new ERGs in the year ahead.
Ensuring health and safety
We continue to prioritise the health and
safety of our people. Our Group
Environmental Health and Safety policy
statement, updated in 2021, strengthened
and standardised our approach to ensuring
the wellbeing of our employees globally.
Going forward, we aim to strengthen the
processes and procedures that we have in
place to ensure our employee safety.
We have achieved certification for ISO
45001 Occupational Health and Safety
Management Systems in most of our facilities
in MENA and our objective is to continue
attaining this certification in other
locations as well.
44
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Acting responsibly at Hikma
continued
We are committed to making our operations greener
and to improving our environmental performance.
Protecting the
environment
Minimising our impact
on the planet
We are making significant progress towards
achieving our target.
Compared to our base year (2020), our Scope
1 and 2 emissions decreased by 15% in 2022.
These reductions were achieved largely
through the expansion of green electricity
procurement in all of our European facilities
and through investments in renewable
energy infrastructure and other initiatives
to improve energy efficiency across our sites.
Excluding purchased RECs from our
emission reduction target
We value the contributions of our RECs
purchases in supporting the renewable
energy sector and infrastructure where we
operate. As these RECs purchases do not
provide additionality or permanence to the
renewables sector and infrastructure and
therefore do not provide us with a permanent
solution to our emissions impact, we have not
included them in our calculation of the total
emissions reduction achieved in 2022 as it
relates to our emissions reduction target. We
do, however, consider RECS an effective tool
to impact our emissions while we consider
longer-term strategies that will provide more
additionality and permanence to the sector.
In 2023, we have plans to undertake further
energy use assessments at our largest sites
to identify the potential for further emission
reductions. This will help to inform a
comprehensive review of our longer-term
emission reduction target, which we will
also undertake during the year.
Our Scope 1 and 2 greenhouse
gas emissions
In 2022, our Scope 1 and 2 emissions
(market-based) measured 123,144 tonnes
of carbon dioxide equivalent (tCO2e), a
decrease of 9% compared to 2021.
During the year, we enhanced capacity for
solar energy generation in our Portugal site,
increasing to more than 388 MWh. We
expanded use of light-emitting diode (LED)
lighting in facilities across Algeria, Egypt,
Jordan, Saudi Arabia and Tunisia. We
achieved Leadership in Energy and
Environmental Design (LEED) certification
for our new head office in Amman, Jordan,
ensuring that we maintain a high standard
of energy efficiency and management of
resources. In addition, we continued to invest
in building management systems to improve
how we monitor and manage consumption
during manufacturing processes.
For the second consecutive year, we further
reduced our carbon footprint by purchasing
35,000 MWh of Renewable Energy
Certificates (RECs) in the US, representing
a reduction of 14,671 tCO2e. The RECs 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. Including the purchase of RECs,
we reduced our overall Scope 1 and Scope 2
emissions (market-based) by 25% compared
to our base year (2020).
Our Scope 1 and 2 emissions
reduction target
In 2021, we 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.
GHG emissions1 (tCO2e)
Scope 1 – Combustion of fuel and operation of facilities
Scope 2 (market-based) – Electricity
Total Scope 1 and 2 emissions (market-based)
Year-on-year change in Scope 1 and 2 emissions (market-based)
Change in Scope 1 and 2 emissions (market-based) since base year 2020
Scope 2 (location-based) – Electricity
1. We have not included RECs in our calculation of the total emission reduction achieved in 2022 as it relates to our emission reduction target.
2. Emissions for 2021 have been restated by +3% as we continue to improve our monitoring and analysis of environmental metrics.
2020
47,372
97,527
20212
43,042
92,069
2022
43,012
80,132
144,899
135,111
123,144
N/A
N/A
(7%)
(7%)
(9%)
(15%)
94,949
84,708
81,579
GHG emissions
(tCO2e)
2022
20211
2020
43,012
43,042
47,372
Scope 1
Scope 2
Energy consumption (MWh)
80,132
92,069
97,527
123,144
135,111
144,899
Electricity
Fuels
2020
Rest of
the world
Total
223,634
223,763
217,644
218,514
UK
129
871
20213
Rest of
the world
Total
209,778
209,903
2022
Rest of
the world
Total
215,109
215,225
UK
116
209,646
210,528
882
216,554
217,436
UK
125
882
3. Energy consumption for 2021 has been restated by +3% as we continue to improve our monitoring and analysis of environmental metrics.
GHG emissions (tCO2e) – Renewable Energy Certificate (REC) purchase
Emissions impact of RECs
Scope 2 (market-based) – Electricity
Scope 2 (market-based) – Electricity including RECs
Scope 1 – Combustion of fuel and operation of facilities
Total Scope 1 and 2 emissions (market-based) including RECs
Year-on-year change in Scope 1 and 2 emissions (market-based) including RECs
Change in Scope 1 and 2 emissions (market-based) since base year including RECs
Emissions intensity: revenue4 ($m)
Scope 1 and 2 emissions (market-based) / revenue
Scope 1 and 2 emissions (location-based) / revenue
4. Emissions intensity is calculated using Group-wide revenue ($m)
– Revenue 2020: 2,341
– Revenue 2021: 2,553
– Revenue 2022: 2,517
2022
(14,670)
80,132
65,462
43,012
108, 474
(10%)
(25%)
2020
61.9
60.8
20212
47.1
50.0
2022
43.1
49.5
46
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Acting responsibly at Hikma
continued
UK emissions
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
998 MWh (2021: 1,007 MWh) of energy, which
is equivalent to 202 tCO2e.
The energy consumption is measured by
meter readings provided by the managing
agent and relates to electricity and gas used
for heating, cooling and general office power.
The Group does not provide transport within
the UK other than via private hire vehicles for
which consumption data is not available.
Proportion of Group emissions
derived from the United Kingdom
and offshore area
UK
0.16%
Methodology for Scope 1 and 2
emissions data
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, as described in the GHG Protocol
Reporting Standard. This includes all our
facilities and locations where we have
operational control.
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 reporting in this Annual Report, we have
used data from January to September of
2022 and conducted an uplifting exercise to
estimate quantities for October to December
2022. More information on this methodology
can be found on our website. Our
Sustainability Report, published later in 2023,
will contain updated emissions and
environmental data for full-year 2022.
We continue to refine and improve how we
monitor and manage our emissions. In this
context, we have restated our 2021 emissions,
which are now 3% higher than what was
originally reported in our Sustainability
Report 2021. More information on this
restatement can be found here www.hikma.
com/sustainability.
Our emissions calculation contains no
material omissions, as determined by the
reasonable level of assurance received on
this data. In some cases, where any month’s
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 apply that to the number of days within
the month to be estimated.
GHG emissions: Scope 3
We have been working on refining and
improving the quality of our Scope 3 carbon
calculations, which we first disclosed in 2021.
As part of ongoing improvements to our
emissions calculation methodology, our 2021
Scope 3 emissions have been restated from
837,227 to 736,681 tCO2e.
In 2022, we also introduced two Scope 3
categories to our reporting scope which
are material to our business: Business Travel
(Category 6) and Employee Commuting
(Category 7). The associated tables and
charts highlight our emissions by category as
well as year-on-year trends where available.
Increases between 2021 and 2022 were
driven by an increase in sourcing of raw
materials to build more resilience within our
supply chain and to support our growth.
During 2022, we began to engage with
suppliers to better understand their
commitment to carbon emission reduction
and identify opportunities to reduce our
Scope 3 footprint. Through our partnership
with the global sustainability ratings agency,
EcoVadis, we continue to improve visibility
and understanding of emissions associated
with our value chain. Moving forward,
we will be accelerating our supplier
engagement process.
Assurance of Scope 1, 2 and 3
emissions data
EcoAct was engaged by Hikma to provide
independent third-party reasonable
verification of its direct (Scope 1) and indirect
(Scope 2 and selected Scope 3) GHG
emissions, as detailed in this report. Based on
the data and information provided by Hikma
and the processes and procedures followed,
it is EcoAct’s verification opinion that the
following GHG emissions totals are fairly
stated and free from material error.
Verified emissions by EcoAct 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 – Emissions including
Scope 3 Category 3: Fuel & Energy Related
Activities not included in Scope 1 or Scope
2 (FERA), Category 5: Waste generated in
operations (including water), and Category
7: Employee commuting.
For external assurance of the remaining
Scope 3 categories (Category 1: Purchase
of goods and services, Category 2: Capital
goods, Category 4: Upstream transportation
and distribution, and Category 6: Business
Travel), we worked with an external third
party, Sievo Oy, to assess our carbon
footprint for these categories. Sievo has
contracted Ernst & Young (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.
The full verification statements can be found
here www.hikma.com/sustainability.
We continue to refine and improve how we monitor
and manage our emissions”
GHG emissions, Scope 3 (tCO2e)
Scope 3
category
Category
description
1
2
3
4
5
6
7
Purchase of goods and services1
Capital goods1
Fuel & energy related activities not included in Scope 1 or Scope 22
Upstream transportation and distribution1
Waste generated in operations (including water)2
Business travel1
Employee commuting2
Total3
tCO2e
2021
tCO2e
2022
649,232
745,492
35,588
33,550
16,127
2,184
N/A
N/A
45,177
34,361
20,309
3,926
1,291
7,881
736,681
858,437
1. Limited assurance of the Sievo Oy CO2 analytics module and methodology by EY. The full assurance statement can be found at www.hikma.com/sustainability
2. Reasonable assurance of the data through EcoAct. The full assurance statement can be found at www.hikma.com/sustainability
3. Total for 2021 excludes Categories 6 and 7 as these were not part of our reporting boundary at the time
GHG emissions, Scope 3
(tCO2e)
2022
2021
745,492
649,232
34,357
3,926
7,881
45,177
20,309
1,291
858,433
736,681
33,550
2,184
35,588
16,127
Purchase of goods and services
Capital goods
Fuel- and energy-related activities (FERA)
Upstream transportation and distribution
Waste generated in operations (including water)
Business travel
Employee commuting
consume water. We also continue to improve
the way in which we monitor and manage our
waste. We 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 2022
Sustainability Report.
Sustainable supply chain
In 2022, we launched a dedicated Supplier
Code of Conduct, which sets out the
standards we expect from all our suppliers,
including fundamental standards on human
rights, modern slavery and sustainability.
Through our partnership with EcoVadis,
we are improving our understanding of the
sustainability of our supplier base, including
suppliers that make up 39% of our annual
spend. Working with EcoVadis in 2022, we
have begun to identify potential
sustainability-related risks in our supply
chain. In addition, we have completed
several supplier engagement meetings with
key suppliers to address the risks flagged
during our sustainability assessment and
gain insight into their commitments regarding
carbon emissions reduction. These actions
are helping us to better understand our
Scope 3 emissions.
Moving forward, we will be accelerating
supplier engagement to enhance our
understanding of the sustainability of our
supplier base, raise awareness around GHG
emissions, and work to identify opportunities
to reduce our Scope 3 footprint.
Water and waste management
The use of water and the management of
waste are critical for the pharmaceutical
manufacturing process and we have policies
and practices in place to ensure we manage
both effectively and in compliance with laws
and regulations.
Following our assessment of water-related
risks across all of our locations in 2021, we
began a deep dive analysis for our facilities
located in water-scarce areas, starting with
Jordan. Through this study, we identified
opportunities across our multiple facilities
in Jordan to improve how we monitor and
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Acting responsibly at Hikma
continued
All that we do is underpinned by our
commitment to the highest standards
of quality. We believe in building trust
by acting with integrity and upholding
high ethical standards.
Building trust
through quality
in everything
we do
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. This is grounded in our
values: innovative, caring, and collaborative.
Our values serve as the foundation for our
strong governance framework. Our Code
of Conduct (Code) 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.
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. In addition to our
Code, we have also developed policies and
procedures designed to help employees and
third parties put these behaviours into
practice. 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 2022, we completed the implementation of
the automated third-party risk management
system, RiskRate, through which all existing
and new third-parties with whom we do
business are entered and monitored
continuously for potential risks. The
third-party risk management programme
uses a set of risk evaluation criteria to place
third parties into high, medium and low-risk
categories. High-risk third parties are subject
to enhanced due-diligence processes.
The health and safety of our patients
is at the heart of what we do.”
Product quality and safety
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.
Pharmacovigilance is monitored at the
highest levels of our business and is included
in our enterprise risk management process,
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
pharmacovigilance meetings.
Our marketed products (either manufactured
by Hikma or outsourced through partners)
comply with Current Good Manufacturing
Practices (CGMPs). We implement quality
oversight on our suppliers, partners and
sub-licensors to ensure that these
stakeholders are in full compliance with
regulatory standards and Hikma
requirements. Quality Agreements are in
place to focus on the compliance to CGMPs
and define each party’s responsibilities.
Risk-based CGMP audits are also conducted
on suppliers by our global quality team and
other reputable third-party consultants.
3.2
This year, our FTSE4Good
Index score was 3.2, placing
us in the 64th percentile
compared to other industry
peer members
Governance of sustainability
The Board of Directors have overarching
oversight of our ESG strategy. This builds
upon the work of our board committees that
have responsibility for certain elements of
our ESG work streams. Our Executive Vice
President of Strategic Planning and Global
Affairs, who is a member of the Executive
Committee and reports directly to the CEO,
leads on the implementation of this strategy.
We have also established various executive-
level committees to ensure effective
management and oversight of our most
material ESG topics.
We conducted a materiality assessment in
2021 to prioritise ESG issues with the greatest
importance to our business and our
Maintaining our
membership of the
FTSE4Good Index
For the eighth 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 and disclosing
stakeholders. We continue to align our ESG
strategy to these priorities and focus on those
issues that we determine to be most relevant.
Our aim is to continue refining our materiality
assessments and to strengthen how ESG
issues are managed at a management level,
and across functions.
The Board of Directors
have overarching oversight
of our ESG strategy.”
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.
In 2022, we maintained our ESG score of 3.2,
placing us in the 64th percentile compared
to industry peers that are listed in the index.
We continue to improve how we address and
disclose information about our most relevant
ESG topics.
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Aligning with the TCFD recommendations
We are including disclosures that are consistent with
the Task Force for Climate-related Financial Disclosures
(TCFD) recommendations.
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 metrics and targets.
We considered the TCFD’s All Sector Guidance. This section summarises our progress as of 31 December 2022 against the four TCFD pillars
and 11 recommendations. We are fully aligned to nine and partially aligned to two recommendation(s), as set out in the table on page 56–57.
Governance
Board level oversight
Our Board of Directors has overarching
oversight of our TCFD strategy, including our
climate-related risks and opportunities. In
2022, we conducted an externally facilitated
ESG workshop for our Board that was also
attended by our Executive Committee.
The aim of the workshop was to improve the
Board’s understanding of ESG related issues
in preparation for setting ESG related
performance measures and targets in the
proposed Remuneration Policy. The
workshop also raised awareness of key topics
within Hikma’s Acting Responsibly framework
see pages 38 and 39.
The Board has ultimate responsibility for
the Group’s approach to risk management
and internal control. The Audit Committee
oversees risk management and internal
control activities with delegated authority
from the Board. Twice a year, the Audit
Committee is provided an update on
principal and emerging risks and environment
and climate-related matters are included in
the scope of these updates.
Management level leadership
Our TCFD working group, with senior
managers from Group Risk Management,
Procurement, Finance, Sustainability and
Investor Relations, is leading our internal
cross-functional efforts to integrate the
TCFD recommendations into our business.
Our Executive Vice President (EVP) of
Strategic Planning and Global Affairs, who
reports directly into our CEO, leads these
internal cross-functional efforts. The working
group, which we started in 2021, meets on
a regular basis with external consultant
support, with the objective of progressing our
understanding of the materiality of Hikma’s
climate-related risks and opportunities and
developing action plans.
Board
Overarching oversight of TCFD strategy
Executive Committee
Leadership of TCFD alignment and implementation
TCFD working group
Senior leaders in Finance, Risk, Sustainability,
Procurement, Legal, and Investor Relations,
implement TCFD
Site
management
teams
Finance team
Risk
management team
Sustainability
management team
Investor relations team
Crisis and continuity management
52
In addition, our crisis and business continuity
teams work closely with members of the
TCFD working group and provide valuable
insight into the potential impact of climate-
related risks on our operations.
In 2023, we will work to enhance the
frequency and scope of our reporting of
climate-related progress to the Board,
supported by the Executive Committee and
TCFD working group. In general, we will focus
on strengthening the governance of ESG,
including climate change, at all levels of the
organisation.
Strategy
CSA methodology
In order to identify Hikma’s climate-related
risks and opportunities over the short,
medium and long-term, we have undertaken,
with third party support, a Climate Scenario
Analysis (CSA) and financial impact
assessment.
The CSA assessed a range of potential
climate risks and opportunities across
different climate scenarios and time horizons
using reference climate scenarios, as outlined
in the Representative Concentration
Pathways (RCP) and the Shared
Socioeconomic Pathways (SSPs). These
scenarios were characterised as Low Carbon/
Early Transition (1.5°C), Low Carbon/Late
Transition (2°C) and High Carbon/No
Additional Action (4°C).
Through this analysis, the following climate-
related risks and opportunities were selected
for further modelling (see pages 54 to 55 for
details):
– Carbon pricing impacts on our supply
chain
– Physical impacts on our facilities
– Water stress
– Investor preference change
– Energy pricing changes and our energy
strategy
We then considered the materiality of these
climate-related risks.
Resilience of our strategy
For the time horizon to 2030, we measured
the financial impact of these risks to be
immaterial under both the Low Carbon/Late
Transition and High Carbon/No Additional
Action scenarios. While the potential
financial impact was higher in the Low
Carbon/Early Transition scenario, we
assigned a low probability to this scenario.
For the time horizon to 2050, the financial
impact of these risks and opportunities
increases, especially in the Low Carbon
scenarios. Given that the assumptions in
these scenarios do not consider mitigating
actions on the part of Hikma, our suppliers,
or governments, for example, and cover time
horizons well beyond our current business
planning, we determined that these risks
currently do not have a material financial
impact on the Group.
In 2023, we will refresh our findings from the
2021/2022 CSA. We recognise that climate-
related risks will continue to develop over a
significantly longer period and believe that we
will be able to adapt our strategy and respond
appropriately to emerging climate-related
risks that could have a material impact on the
Group in the future. Where we identify any
areas for improvement, we will build clear
action plans and ownership to address these
gaps and ensure our long-term resilience.
Risk management
Process for identifying and assessing
climate-related risks
We identify and assess climate-related risks
using a range of approaches. We periodically
conduct risk identification and assessment
exercises as part of the enterprise risk
management process with all risk owners
across the business (see pages 60–61 for
details on our risk processes). The outcomes
of these reviews feed into the TCFD Working
Group’s assessment of the most relevant
climate-related risks for Hikma. The TCFD
working group monitors relevant current
and emerging regulation, market risks,
reputational risks and acute and chronic
physical risks. Although technology risks
(substitution of existing products by lower
emissions options) and legal litigation risks
are currently not deemed relevant in relation
to climate change impacting Hikma, they are
continuously monitored.
In 2022, we engaged a different third party
to review our CSA work conducted thus far
and our efforts to align with the TCFD
recommendations. The conclusion of this
review was that Hikma’s current CSA process
has strong alignment to the TCFD CSA
Technical Guidance, has a well-developed
TCFD response and clear year-on-year
improvement, with clear management
processes in place to assess climate risk,
and that we conducted a robust CSA exercise
to identify risks, using public data and
projections. In 2022, we updated our flood
risk modelling to include key suppliers in
our supply chain and we developed our
initial qualitative water stress model. In 2023,
we will reassess our other CSA work and
continue to build our water stress model.
Integrating 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 60) provides a structure for significant
risks to be escalated and integrated into
our enterprise risk management process.
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 68)
– Crisis and business continuity
management programme: site
assessments of physical risks and controls
()see page 65)
– TCFD alignment is considered as part
of the Reputation Principal Risk.
– In addition, climate change occurrence
is monitored as an Emerging risk.
CSA outcomes
The following climate-related risks and
opportunities were selected for further
modelling based on their strategic
importance to Hikma, and data availability
for modelling. The CSA process helped us
better understand the potential financial
impacts of these risks and opportunities,
which will be considered in our strategic
planning where relevant.
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Aligning with the TCFD recommendations
continued
Physical risks (Acute) Physical impacts on our facilities
Focal question: What would be the impact
of extreme storms and extreme flooding
on our facilities and operations?
scenario where global warming exceeds
3°C there is some potential risk for our
facilities.
Why is it important?
Given our geographical spread across
many regions we have varying levels of
exposure to physical risks of climate
change in our different locations. Our
analysis of the physical impact of climate
change on our facilities focused on the
impact of storms and floods.
The impact of storms
Scenario: NOAA and Bank of England Early
Action Scenario (1.5°C, based off NGFS
Net-Zero 2050, Late Action Scenario (2°C,
based off NGFS Delayed Transition), No
Additional Action Scenario (4°C, based off
NGFS Current Policies)
Timeframe: Baseline out to 2050
Methodology
We used data from the ThinkHazard
database, the National Hurricane Centre
and the National Oceanic and Atmospheric
Administration portal to determine
climate- risk exposure baselines. A
financial impact matrix was developed
with degrees of asset and inventory loss
or damage, and the length of operational
shutdown was assumed based on the
qualitative and quantitative narrative for
each storm category as they aligned to
the Saffir-Simpson Hurricane Wind Scale.
Impact
The modelling of the increasing risk of
storms causing damage to our facilities, as
well as disruption to our operations, shows
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 No Additional Action
The impact of floods
Scenario: IPCC RCP4.5 (~2.4°C), IPCC
RCP8.5 (4°C)
Timeframe: Baseline and 2050
Methodology
Hikma sites and key supplier sites were
screened for both pluvial and coastal flood
risk using the Aqueduct Flood Hazard
Maps. In addition, a 15 km radius around
Hikma sites was screened for indirect
pluvial flooding risk.
The initial screening was run at the least
likely, but most impactful, return period
(1 in 1000 year flood). For sites taken
through to the next stage, the models were
run at decreasing return periods (1 in 500
year, 1 in 100 year, 1 in 50 year) to find the
lowest return period that produces an
impact. Financial modelling was conducted
using asset value and potential disruption
to a site. The financial impact was
determined using the following data:
financial impact = inventory cost + asset
damage + (internal) operational disruption
+ (external) operational disruption.
Impact
No material financial impact was detected
from flooding in the scenarios used.
Mitigation of extreme weather events
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.
Physical risk (Chronic) Water stress – assessment in progress
Focal question: Are our activities
geographically exposed to water stress?
Scenario: IPCC SSP2 RCP4.5, SSP2
RCP8.5 and SSP3 RCP8.5
Timeframe: 2030 and 2040
Why is it important?
Given that water is a vital ingredient in our
products, as well as in our manufacturing
processes, we consider water stress a risk.
Water stress occurs when demand exceeds
the available amount of good quality water
during a certain period.
Methodology
In 2022, we qualitatively modelled water
stress. We used a radius of 10 km of our
locations as well as for our key suppliers,
using the Aqueduct Model database. The
model divided water demand over water
supply to determine a % of water stress.
Impact
The exposure ratings showed us that some
of our sites are in areas experiencing water
stress in our baseline scenarios and future
projections.
Continuation
In 2023, we will continue to analyse to what
extent these exposure ratings have an
impact on our sites now and in the future
and if mitigation actions are required.
Transition risk (Market) Carbon
pricing impacts on our supply chain
Focal question: What would be the
impact of carbon pricing on raw materials
costs?
Scenario: NGFS Net-Zero 2050 (1.5°C),
NGFS Delayed Transition (2°C)
Timeframes: Baseline out to 2050
Why is it important?
We looked at projected carbon pricing
in different regions and the potential
pass-on costs that could occur within
our supply chain, increasing our overall
Group costs. As Active Pharmaceutical
Ingredients (APIs) and packaging
materials are some of our most energy-
and carbon-intensive sourced
commodities, these materials would likely
be most impacted, resulting in increased
raw material costs and lower profit
margins for Hikma.
Methodology
We started our analysis by creating a
packaging baseline by multiplying the
weights of our materials (eg vials, bottles)
by Eco-Invent emission factors. This
baseline, for both spend (in US dollars)
and net emissions, was combined with
our growth projections.
Impact
Taking into account the quantitative
findings of the financial modelling, the
low likelihood of certain assumptions
and the potential for mitigating actions,
we determined that carbon pricing
impacts on our supply chain are not
material at this stage.
Mitigation
In addition, we see opportunities to
mitigate this risk over the period. We
routinely look at ways to manage our
procurement costs and offset price
increases. We have a sustainable
procurement programme in place to
better understand the carbon impact
of the goods and services we purchase.
As a key mitigation strategy, we intend
to engage with our key material suppliers
to understand their carbon reduction
objectives, and the activities they are
undertaking to move to renewable
energy and increase energy efficiency
in their operations. Through supplier
engagement, we expect to be able to
partially mitigate the impact of carbon
cost pass-through in the future.
Transition risk (Reputation)
Investor preference change
Focal question: How might changes in
investor preferences around ESG impact
our market valuation?
Scenario and timeframe: Due to lack of
publicly available scenarios addressing
investing in ESG assets, Hikma created
an investment model with differing
assumptions for an Early Action (smooth)
transition, Late Action (disruptive)
transition and No Action scenarios.
Why is it important?
As key stakeholders, investors are
increasingly evaluating companies on
their performance against ESG metrics.
Methodology
We modelled the potential impact on
our market valuation, from investor
allocations shifting away from assets
which do not meet ESG requirements and
from decreasing ESG benchmark ratings.
Mitigation
Hikma currently engages and
communicates 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.
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.”
Transition risk (Technology) and Opportunity (Energy Source)
Energy pricing changes and our energy strategy
Focal question: What might be our
exposure to energy pricing changes?
Scenario: NGFS Net-Zero 2050 (1.5°C),
NGFS Delayed Transition (2°C)
Timeframes: Baseline out to 2050
Why is it important?
We modelled multiple scenarios to
understand how we can mitigate changes
in energy prices and enhance our energy
strategy over time. In addition to pricing
sensitivities, we considered different
energy mixes in our different regions
and achievement of different energy
efficiency goals.
Methodology
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.
Impact
Hikma’s energy costs may change due
to energy pricing volatility driven by grid
decarbonisation. At the same time, different
energy opportunities could help reduce
exposure to energy pricing change, as well
as the impact on Hikma’s carbon footprint.
Mitigation
In addition, we are also reviewing various
strategic opportunities to reduce our
energy risk and carbon impact by changing
our energy mix, setting an energy strategy,
and reducing our overall demand through
efficiencies. In 2022, we continued to
monitor our energy use as well as our
progress against our emissions reduction
target. We continued to develop our energy
transition plan to meet that target, and
we will continue to do so in 2023.
Metrics and targets
Metrics to assess climate-related risks
and opportunities
We are measuring and managing our carbon
footprint including Scope 1, Scope 2 and
Scope 3 as well as our use of renewable
electricity (either purchased or generated
on-site), our energy consumption and our
emissions intensity. Also, we measure and
manage our water consumption, water
discharge and our water treatment, and our
hazardous and non-hazardous waste
generation and management. These metrics
are helping us better understand and monitor
the impact of these risks.
We are disclosing our environmental
sustainability data including historical data
and calculation methodologies in our
Sustainability section, page 46–49.
In addition, as part of our Principal Risk
management, we are monitoring our
performance against external ESG ratings.
We have also linked progress towards our
climate-related programmes to executive
remuneration. Included in the Vice-
Chairman’s performance target for 2022 was
the responsibility to review the Group’s ESG
strategy for the MENA region with a particular
emphasis on the division’s emissions and
impact on the environment. In 2023, the
Remuneration Committee will tie executive
remuneration to interim GHG emission
reduction and water management targets.
In 2023, we will reassess the findings of our
2021/2022 exercise on climate-related risks
and the financial impact thereof and we will
continue to develop and improve the metrics
by which we monitor these risks and capture
opportunities, as well as the effectiveness
of our controls.
Disclosures of Scope 1 and 2 targets
Hikma put in place a target to reduce Scope 1
and 2 GHG emissions by 25% by 2030, using
a 2020 baseline. An overview of our progress
against our emissions reduction target and
metrics on our energy consumption can be
found on page 46-47.
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Aligning with the TCFD recommendations
continued
Compliance statement
Governance
Summary
Alignment
Action in 2023
a) Describe the board’s oversight
of climate-related risks and
opportunities
The Board has ultimate responsibility for the
Group’s approach to risk management and
internal control and receives updates on a
regular basis. Climate-related risks are considered
to be an emerging risks on our risk register.
b) Describe management’s role in
assessing and managing
climate-related risks and
opportunities
Our TCFD working group leads an internal
cross-functional effort to integrate the TCFD
recommendations into our business. These
efforts are overseen by our EVP Strategic
Planning and Global Affairs, who sits on the
Executive Committee.
Aligned
Aligned
Reference
Page 52
There is an opportunity to improve
on the effective use of metrics to
monitor climate-related issues by
the Board, Executive Committee
and TCFD working group.
A newly established Environmental
Committee chaired by two members
of the Executive Committee will
oversee our climate-related action
plans.
Page 51
Strategy
Summary
Alignment
Action in 2023
a) Describe the climate-related risks
and opportunities the organization
has identified over the short,
medium, and long term
Through our climate scenario analysis (CSA), we
identified potential climate-related risks related
to carbon pricing, energy pricing, water stress,
physical impacts on our facilities and investor
preference changes. A detailed description of
these risks can be found on page 54–55.
Aligned
We will consult with external experts
to support the continued
assessment of climate-related risks
and opportunities using climate
science databases and scenarios.
b) Describe the impact of climate-
related risks and opportunities
on the organisation’s business,
strategy, and financial planning.
For the time horizon to 2030, we consider the
financial impact of our climate-related risks to
be immaterial.
Aligned
We will increasingly incorporate
climate-related risks and
opportunities into our strategy,
operations and planning. Working
with our operational teams and third
parties in 2023. we will enhance our
management of emissions, water
and waste.
Reference
Page
54–55
Page 53
c) Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-
related scenarios, including a 2°C
or lower scenario.
The results of our CSA show that climate change
is not expected to have a material impact on the
Group’s current strategy or financial viability for
the time horizon to 2030 and under the most likely
climate scenarios. The results of our climate
scenario modelling analysis (CSA) can be found
on page 54–55.
Aligned
In 2023, we will refresh our financial
impact modelling and will continue
to assess the materiality of climate
change impact to Hikma’s
operations.
Page 53
Risk management
a) Describe the organisation’s
processes for identifying and
assessing climate-related risks.
b) Describe the organisation’s
processes for managing
climate-related risks.
c) Describe how processes for
identifying, assessing and
managing climate-related risk are
integrated into the organization’s
overall risk management
Metrics and Targets
Summary
Alignment
Action in 2023
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 served as input to
the TCFD Working Group’s assessment of the
most relevant climate-related risks for Hikma.
Aligned
As part of the enterprise risk
management process, we will
continue to assess on a regular basis
the most relevant climate-related
risks for Hikma.
Reference
Page 53
Climate-related risks are identified, assessed,
and managed by teams across the organization.
Hikma’s risk management framework provides
a structure for significant risks to be escalated
and integrated into the enterprise risk
management process.
The risk governance framework provides structure
to ensure consistency of approach, alignment to
the risk appetite and monitoring of our risk
exposure across the organisation. We regularly
review TCFD alignment as part of our enterprise
risk management process, where climate change
is characterized as an Emerging Risk.
Aligned
In 2023, we will refresh climate-
related risks and the financial impact
thereof.
Page 53
Aligned
As part of the enterprise risk
management process, we will
continue to assess on a regular basis
the most relevant climate-related
risks for Hikma.
Page 52
Summary
Alignment
Action in 2023
a) Disclose the metrics used by the
organization to assess climate-
related risks and opportunities
in line with its strategy and risk
management process.
Metrics used to assess our climate-related risks
and opportunities include Scope 1, 2 and 3
emissions, electricity consumption, emissions
intensity, water consumption and waste
generation. For more details, see page 46–49.
Aligned
We will continue to strengthen our
monitoring metrics and mitigation
controls over the coming year.
Reference
Page
46–49
b) Disclose Scope 1, Scope 2 and
if appropriate, Scope 3 GHG
emissions and the related risk
Energy consumption is highly linked to Hikma’s
sustainability strategy. We are actively working to
reduce our energy consumption, and therefore
our GHG emissions, while at the same time
growing our business and manufacturing
footprint. Any increase in energy costs or the
introduction of carbon pricing present potential
risks to our business. Details of our GHG
emissions in 2022 (Scope 1, Scope 2 and a
number of Scope 3 categories) can be found
on page 47, 49.
Partially
Aligned
We will continue to take action to
improve our measurement,
monitoring and reduction of Scope
1,2 and 3 emissions. We will continue
to analyse Scope 3 categories that
are relevant but not yet calculated.
Page
47, 49
c) Describe the targets used by the
organization to manage climate-
related risks and opportunities and
performance against targets
We are targeting to reduce our Scope 1 and 2 GHG
emissions by 25% by 2030, using a 2020 baseline.
In 2022, we did not have interim targets and we
did not have targets related to Scope 3.
Partially
aligned
In 2023, interim targets will be
adopted and linked to executive
remuneration.
Page 123
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60 Risk management framework
61
Risk management activities
62 Case study: Managing impacts
of inflation
63 Principal risks and uncertainties
67 Going concern and longer-term
viability
70 Non-financial disclosures
Risk
management
Image
Our operator in Portugal loading
vials into the packaging machine.
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59
Strategic report
Risk management
In 2022, risk management and internal control
drove simplification and increased confidence
in risk response strategies.
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
North America, MENA and Europe a broad
range of generic, specialty and branded
pharmaceutical products.
The future is uncertain and carries risks for
our business. These risks may be threats or
opportunities related to our strategy and
delivery of our goals, our activities and
processes, 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 ‘Our strategy’ (on pages 8–9), ‘Our
business model’ (on pages 10–11) and ‘Our
markets’ (on pages 16–17).
Risk strategy
Effective management of risk 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 enables a thorough
view of our risk exposure to be developed
which informs our decision-making and
enhances 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.
Risk governance
The Board has ultimate responsibility for
the Group’s approach to risk management
and internal control. The Audit Committee
oversees risk management and internal
control activities with delegated authority
from the Board.
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)
to ensure connection between the Board
Committees with primary 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 89.
The Group risk management function
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 connections and partnerships
across the organisation to promote and
develop a responsible risk culture.
Compliance and internal control functions
with professional expertise in managing risk
and internal control in specialist areas are
in place across the organisation.
The Executive Chairman and 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 threats and opportunities.
As part of the risk governance framework,
senior executives are assigned responsibility
for specific principal risks. These global risk
owners coordinate risk management
1. Full committee terms of reference are available on
www.hikma.com
Risk management and internal control 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 internal control
Executive
accountability
Independent
assurance
Board
oversight
Corporate Compliance
Operational activity
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
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 activities
Risk management activities occur at all levels
of the organisation. The ERM framework
provides structure for these activities to
ensure consistency of approach, alignment
to the risk appetite and monitoring of our
risk exposure across the Group.
The Group risk management function
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 Group risk
management function and reported to
the Executive Committee by the global
risk owners.
Compliance and internal control functions,
and internal audit, also conduct regular
formalised risk assessments in relation to
their mandates.
Summarised reports and key outcomes of
risk assessments are reviewed as appropriate
by management teams, the Audit Committee
and Board.
In addition to the core reporting processes
described, various other risk management
activities occurred during the year.
Risk management in practice
Our ability to effectively manage risk enables
delivery of our objectives. To ensure we are
action-oriented in managing threats and
opportunities we categorise our risks
considering significance of exposure and
the opportunity for management action.
An example of our risk management in
practice is seen in the ‘Managing impacts
of inflation’ case study on the next page.
Strategic risks
Group level strategic risk assessments are
conducted by the Executive Committee
and Board of Directors with a formal review
on an annual basis to consider threats and
opportunities related to our strategy from
internal and external perspectives and over
various time horizons.
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 are rapidly
changing, or those that are developing over a
longer term that may have significant impact
on our ability to achieve our objectives.
Often driven by forces outside our control,
emerging risks may be mitigated by existing
control frameworks but are assessed to
determine if any aspects fall outside current
processes or if the controls in place may
become inadequate as the risk develops.
We will further develop sustainability and
climate-related risk assessments alongside
our alignment with the recommendations
from the Task Force on Climate-related
Financial Disclosures (see pages 52–57
for more details).
Risk management and
internal control activities
in 2022
Reviewed the risk management
framework, risk appetite, principal
and emerging risks
Monitored enterprise-wide key risk
indicators aligned to risk appetite
to assess risk exposure
Commissioned an independent
assessment of the enterprise risk
management programme
Refined scenario modelling
approach for significant risk events,
including climate-related threats
Conducted fraud risk assessment
exercise across the Group
Developed and rolled out
enhanced standardised financial
controls framework
Our approach involves establishing
cross-functional teams to assess the threats
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 new risk mitigation and
control strategies that will be sustainable
over the longer term.
We scan for emerging risks in a wide array
of domains, including macroeconomic,
geopolitical, social, technological and
regulatory. We focus our emerging risk
assessments and monitoring according
to likelihood, impact and velocity.
Independent assessment of risk
management programme
In 2022, an independent assessment of the
Hikma ERM programme was performed by an
external consulting firm, Satarla. The exercise
was requested by the Audit Committee, in line
with good practice, to evaluate our approach
to ensure it is suitable for our organisation,
and to identify opportunities to make
improvements. The review assessed that
the ERM activities are sufficient to meet the
regulatory requirements of the Financial
Reporting Council and are aligned with the
guidelines and principles from international
standards and best practice. Opportunities to
enhance the ERM programme were suggested
to further the ERM maturity level and these
are being incorporated into the strategic plan
for the Group risk management function.
Internal control activities
Compliance and internal control functions
across the Group continued to develop and
manage internal control systems, frameworks
and processes for their areas of focus as part
of risk mitigation strategies, to meet internal
and external expectations, and to ensure
compliance with regulator requirements.
Priorities for 2023
In 2023 we will further strengthen the
quantitative analyses that support enterprise
risk management assessments and continue
to strengthen our internal control systems,
frameworks and processes.
We will continue to develop connections and
partnerships between compliance and
internal control functions, and external groups
to bring greater assurance for the Group.
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Risk management
continued
Case study:
Managing impacts
of inflation
The impacts of global inflationary
pressures were felt by Hikma in 2022
in multiple categories including logistics,
energy, wages, and raw and packaging
materials.
Drivers and consequences
– Logistics: the compounding effects of
various acute and ongoing disruptions
including, the COVID-19 pandemic,
conflict in Ukraine, constraints in global
sea freight capacity and increases in fuel
prices have led to significant pressure
on logistics timelines and costs. The
extended lead times for pharmaceutical
goods requires significant and
coordinated advance planning internally
and with our business partners.
– Energy: electricity and fuel costs
increased significantly in certain
European countries due to the conflict in
Ukraine and other geopolitical dynamics.
– Wages: as the global cost-of-living
crisis developed, Hikma, like many
organisations around the world faced
pressures to attract and retain key
talent.
– Raw and packaging materials (RPM):
in general for our direct purchasing
overall and at higher rates for certain
specific categories of goods (eg
excipients and packaging) as various
factors, including those listed above,
affected our suppliers.
Risk management response
We maintain tight control over our costs
through our established management
processes, including our rigorous
budgeting and financial planning and
analysis activities.
To manage the additional challenges
posed by inflation in 2022, key functions
were connected to consolidate our
understanding of the drivers and
consequences.
Internal and external sources were used
to model the impact of inflation on various
spend categories to inform our forecasts.
The teams accelerated existing tactical
programmes to reduce exposure, and
developed new strategies to increase
longer-term resilience.
Example actions we took
– Logistics: Developed long-term
relationships with freight forwarders and
shipping companies to secure capacity.
– Logistics: Monitored global events to
assess the potential impact on our
suppliers’ lead times, diligently updating
our systems and adjusting delivery
schedules.
– Energy: Continued to drive efforts to
reduce energy consumption, progress
opportunities to generate energy on-site
and shift to more renewable sources of
energy that are anticipated to be less
exposed to global inflationary pressures.
– Wages: Ensured regular review and
monitoring of our overall employee value
proposition to mitigate the threat to
attraction and retention.
– RPM: Identified goods that are critical to
our manufacturing process to ensure we
have adequate safety stocks to mitigate
supply constraints.
– RPM: Continued efforts to build strong
and trusted relationships with existing
and new suppliers. In doing so, we were
better able to weather the effects of
inflation and maintain continuity of
supply despite reactionary buying
behaviours in the market.
– RPM: Developed data analytics
processes to assess year-on-year
evolution of purchasing prices for all
procurement coded items. Measured
and reported on a regular basis to inform
decision-making and update our costing
process to factor in known or expected
price increases.
– RPM: Continued to secure dual sourcing
for API and extended the programme to
include excipients, glass and other items
to strengthen supply continuity and
create competitive advantage.
Outcome
Through these and various other actions we
were able to absorb much of the increase
in costs, minimising the impact on our
business and demonstrating the strength
and resilience of our underlying business.
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 and
emerging 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 within the target
risk appetite.
Effectively managing these risks is directly linked to the performance
of our strategic KPIs (see pages 14–15) and the delivery of the strategic
priorities outlined on pages 8–9. 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.
– Continued growth and expansion in existing markets and new geographic areas
– Developed increased capacity and diversified through differentiated technology (eg addition of high-speed
lines in Portugal and New Jersey, construction of Injectables plants in Algeria and Morocco)
– Collaboration with external partners for development and in-licensing partnerships, including complex
and differentiated areas (eg biosimilars in MENA)
– 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.
– Reorganised R&D teams within business segments to improve alignment with business
– Incorporated projects from Custopharm and Teligent Canadian asset acquisition to our pipeline
– Continued to manage extractables and leachables for container closure systems risk profile in line with
developing regulatory requirements through dedicated in-house laboratory and external partnerships
– Bolstered pipeline through business development deals and established strategic partnerships to introduce
new technologies in our regions
– Continued to develop R&D expertise to develop complex generic products
– Continued to leverage dedicated bioequivalence facility (IPRC) to support projects
– Continued to develop synergies with Hikma Chemicals for supply of API for R&D
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.
– Implemented succession plans following departure of executives through reorganisation, restructuring
and regular communication
– Continued to advance our diversity, equity and inclusion programme with global and local initiatives
– Further standardised HR processes through Group-wide human capital management system
– Improved existing portfolio of learning solutions and introduced new learning paths for professional and
mid-management employees
– Continued our efforts to upscale leadership capabilities within senior management and first line managers
through delivery of leadership development programmes
– Developed a Guided Employee Development programme focused on the development of high-potential
talent to be rolled out in the MENA region
–
We continued to build strong and trusted relationships
with our suppliers to help us weather the effects of
inflation and maintain continuity of supply.”
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Risk management
continued
Reputation
Inorganic growth
Risk description
Management actions
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.
– Managed internal and external communications related to CEO transition
– Internal and external monitoring and management of issues that may impact reputation
– Leveraged our digital communication channels to engage external and internal stakeholders
– Engaged on a regular basis with investors and analysts, including the attendance of conferences,
hosting meetings with management and investor relations, and a site visit to our facility in Portugal
– Deployed internal communication programmes to support employee engagement
– Communicated our Acting Responsibly framework throughout the organisation (see pages 38–51)
– Developing wider organisational ESG Governance structure, including establishment of dedicated
cross-functional committees
– Cross-functional working group continued to integrate environment and climate-related matters into
the business
– Continued to develop understanding of climate-related risks and opportunities (see pages 53–55)
– Established and developed strategic industry and community partnerships
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.
– Established continuous risk monitoring of existing third parties
– Updated and refreshed various Corporate and local Compliance policies and procedures, including Travel
and Entertainment, HCP interactions, Conflict of interest, Speak-Up, and Third party risk management
– Strengthened Compliance department through continued development, training, and certifications
– Prepared for International Organization for Standardization (ISO) certifications, including those related to:
anti-bribery, whistleblowing management, and effective compliance management
– Continued participation in international anti-corruption initiatives, including the Partnering Against
Corruption Initiative (PACI) and the Business 20 Anti-Corruption Working Group
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
– 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
– Successfully integrated the acquisition of Custopharm in the USA and Teligent’s Canadian assets
– Continued to grow our biosimilar portfolio in MENA and the USA
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
– Continued to secure API supply continuity through qualification of alternate sources (internal or external)
and stocking strategies
– Proactively managed inventory levels to avoid disruptions in supply chain and mitigate impact from inflation
(eg strategic buy, increased inventory level)
– Continuous focus on building long-term supply contracts and strategic partnerships
– Increased local presence in key API markets (eg China and India) for R&D and commercial sourcing to secure
preferred access to capacity and innovation
– Realigned R&D procurement team by business segments to increase focus, alignment and speed
– Fully automated due diligence screening process for onboarding and continuous monitoring of third parties
– Launched a dedicated global Supplier Code of Conduct
– Assessing our main suppliers on sustainability performance through partnership with global ratings agency
Information and cyber security, technology and infrastructure
Risk description
Management actions
Crisis and continuity management
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.
– Continual assessment and enhancement of cyber controls to support business strategy and changing threat
landscape, and in response to cyber security events detected that are related to Hikma
– Established strategic IT continuity and disaster recovery programme
– Strengthened security operations capabilities and expanded monitoring tools and systems
– Expanded security team and partner services
– Updated Global Information Security Policy and standards
– Conducted information security incident response exercise aligned with Group Crisis Response team
Legal, regulatory and intellectual property
Risk description
Management actions
Complying with laws and regulations,
and advising on their application.
Managing litigation, governmental
investigations, sanctions,
contractual terms and conditions
and adapting to their changes while
preserving shareholder values,
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, including those related to dealing in shares and securities
by employees, Persons Discharging Managerial Responsibility (PDMRs), directors and others; and the
appointment of directors and officers to the Board of Hikma PLC subsidiaries
– Provided oversight on pricing committees assessing price changes to ensure thorough assessment of
business needs
– Implemented controls and procedures to address risk of IP litigation in jurisdictions where Hikma markets
its products
– Continued to implement internal communication and training to raise awareness, ensure understanding and
maintain a compliant culture across the organisation, including training on anti-trust and competition laws
– Ongoing assessment and monitoring of general litigation activity in the US pharmaceutical environment
– Engaged external counsel for independent specialist advice
– Reviewed adherence to government pricing disclosure obligations in the US market
Developing, maintaining and
adapting capabilities and processes
to anticipate, prepare for, respond
and adapt to sudden disruptions
and gradual change, including
natural catastrophe, economic
turmoil, cyber events, operational
issues, pandemic, political crisis,
and regulatory intervention.
– Responded to disruptive events with values-led decision-making, prioritising the protection of the health
and safety of our employees and patients
– Continued to embed our crisis and continuity management (CCM) programme
– Reviewed and refreshed business impact analyses and business continuity plans for all manufacturing sites,
incorporating assessments of climate-change related threats
– Coordinated IT Continuity and Disaster Recovery assessments at all manufacturing sites and key IT locations
– Reviewed and upgraded site emergency response arrangements and capabilities across our facilities
– Delivered instructor-led training to employees across the organisation to develop our resilience capability
– Continued to develop a CCM community of practice to develop expertise across the Hikma network
– Developed regional subject matter experts to identify and coordinate multi-site enhancement initiatives
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Risk management
continued
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
– Continuous monitoring and assessment of potential contaminants in drug products (eg nitrosamines,
penicillins, non-penicillin beta-lactams, monobactams)
– 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 GMP services
– 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 pharmacovigilance requirements, particularly in MENA
– Consolidated pharmacovigilance and medical affairs departments to bring together relevant expertise
– Fully integrated global product database with hikma.com to provide accurate and timely product information
– Continued to provide governance through cross-functional Drug Safety Committee
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 reporting
accurately, in a timely manner
and in compliance with statutory
requirements and accounting
standards.
– Initiated transformation project to automate order to cash
– Completed automation of various finance processes, including financial statements close (for the US) and
credit management
– Embedded data mining methods to enhance financial compliance monitoring activities
– Conducted enterprise-wide fraud risk assessment exercise
– Developed and rolled out enhanced standardised minimum standard set of controls for finance and related
processes
– Developed enhanced CAPEX monitoring and approval processes
Severe but
plausible downside
risk scenarios
are used to test
the viability of
the Group
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 ‘Our markets’ (see pages 16–17).
These various assessments are presented to the
Audit Committee and Board of Directors for
independent scrutiny of management’s assumptions
and modelling approach. The Board also receives
regular updates on operational, strategic and financial
matters from executives.
Financial position
The going concern and longer-term viability
assessments are based on the financial position
(as at 31 December 2022):
– net cash flow from operating activities was
$530 million
– overall net debt was $1,013 million (1.5 times
core EBITDA)
– available borrowing capacity is $1,311 million of
committed undrawn long-term facilities (see Note
29 of the Group consolidated financial statements
on page 175). These facilities are well-diversified
across the subsidiaries of the Group and are with
a number of financial institutions
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
2022 and expects to remain in compliance with those
covenants for the year ending in December 2023 even
in the severe but plausible downside scenarios. As of
31 December 2022 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 various
inflationary effects, currency volatility, 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 a
period longer than 12 months 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.
66
1. Fitch, Moody’s and S&P or any of their affiliates or successors
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Risk management
continued
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 2025.
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 reviewed and
assessed.
Longer-term viability scenarios
– Scenario 1: Industry dynamics (PR): Significant
levels of price erosion over and above business plan
assumptions
– Scenario 2: Product pipeline (PR): Significant
and extensive delays to strategic product launches
were assessed, with particularly severe assumptions
for 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 and remediation
expenses, as well as reduction to operating costs
– Scenario 5: Crisis and continuity management (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
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 52–57)
– Scenario 8: Information and cyber security,
technology and infrastructure (PR): Impacts
of a cyber attack affecting 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
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 bases.
Further details are provided in the ‘Our Strategy’
(pages 8–9), ‘Our business model’ (pages 10–11),
and ‘Our markets’ (pages 16–17).
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Strategic report
Risk management
continued
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 10–11
Social matters
– Risk management, pages 60–66
Environmental
matters
– We are committed to making our operations more energy
efficient and environmentally responsible
– We continue to improve the way we monitor our impacts,
– Protecting the environment, pages 46–49
– GHG emissions reduction target, page 46
– Climate-related risks and opportunities and
pursuing projects that reduce our environmental
footprint
their impact, pages 53–55
– Supplier Code of Conduct1
– 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
– We promote environmental sustainability in our
supply chain
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.8,800 employees across North
America, MENA, Europe and ROW
– Stakeholder engagement: Employees, page 19
– Empowering our people, pages 44–45
– Code of Conduct1
– Upholding ethical standards and acting with
integrity, pages 50–51
– Group Environmental, Health and Safety
Policy Statement1
– Principal risk: Organisational development,
page 63
1. Our public policies, codes and statements are available on www.hikma.com
Respect for
human rights
Anti-bribery
and corruption
– 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
– We respect and uphold the principles of the Universal
Declaration of Human Rights both within Hikma and
across our value chain
– We object in the strongest possible terms to the use
of any of our products for the purpose of capital
punishment
– Our Compliance, Responsibility and Ethics Committee
(CREC) leads our efforts to strengthen anti-bribery and
corruption (ABC) policies and manage associated risks
– As a publicly-listed company on the London Stock
Exchange (LSE), we abide by the regulations of the
UK Listing Authority. We operate in compliance with the
UK Bribery Act 2010, the Foreign Corrupt Practices Act
(FCPA) as well as local laws and regulations
– Stakeholder engagement, pages 18–23
– Advancing health and wellbeing, pages 40–43
– Addressing drug shortages in the US1
– Animal testing position1
– Principal risk: Reputation, page 64
– Upholding ethical standards and acting with
integrity, pages 50–51
– Code of Conduct1
– Supplier Code of Conduct1
– Modern slavery act policy statement1
– Use of products in capital punishment1
– Principal risk: Reputation, page 64
– Upholding ethical standards and acting with
integrity, pages 50–51
– Code of Conduct1
– Supplier Code of Conduct1
– Principal risk: Ethics and compliance, page 64
– Compliance, Responsibility and Ethics
Committee report, pages 93–94
– GHG emissions reduction target, page 46
– Minimising our impact on the planet, pages 46–49
– Employees enablement and engagement, page 15
– Audit Committee report, pages 89–92
– Compliance, Responsibility and Ethics
Committee report, pages 93–94
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 14–15), our
exposure to risks (pages 63-66), 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
The Strategic report was approved by the Board of Directors and signed on its behalf by:
Said Darwazah
Executive Chairman and Chief Executive Officer
22 February 2023
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Corporate
governance
74
Executive Chairman’s overview
76 Corporate governance at a glance
78
81
Leadership
Corporate governance
86 Nomination and Governance
Committee
89 Audit Committee
93 Compliance, Responsibility and
Ethics Committee
95 Remuneration Committee
99 Director’s remuneration policy
109 Annual report on remuneration
125 Other statutory disclosures
Image
Production Technician at our
Columbus Ohio facility donned in
appropriate personnel protective
equipment (PPE) during a cleaning/
sanitisation routine of a cleanroom.
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Hikma Pharmaceuticals PLC | Annual Report 2022
73
GovernanceHikma Pharmaceuticals PLC | Annual Report 2022
Executive Chairman’s overview
We are committed to high standards
of transparency in corporate governance
reporting and work hard as a Board to
provide strong and stable leadership,
supported by our corporate governance
framework.
Said Darwazah
Executive Chairman and
Chief Executive Officer
Dear Shareholders
2022 has been an eventful year for our Board.
Strong performances in our Injectables and
Branded businesses, including the completion
of two strategic acquisitions, were offset by
the impact of challenging market conditions
on our Generics business. There were changes
to our Board composition, including the
resignation of our Chief Executive Officer
(CEO). The Board has worked hard to provide
strong and stable leadership throughout
the year to ensure our overall approach
to corporate governance continues to
be effective, supported by our corporate
governance framework.
CEO succession
As of 24 June 2022, Siggi Olafsson stood
down as CEO and from Hikma’s Board of
Directors. On behalf of the Board, I would
like to thank Siggi for his leadership and the
progress he made driving strategic
momentum across our businesses. In order
to ensure continuity in the delivery of Hikma’s
strategy, the Board agreed that I, as Executive
Chairman and former CEO, would step in
and assume all CEO responsibilities on a
temporary basis while the Board initiated a
search to identify and appoint a new CEO.
We are proud of our Board
diversity. 45% of our Board
are women and 27% are
from minority ethnic
backgrounds.
The search for a new CEO is ongoing and
an update will be provided when an
appointment is made. Further detail on the
CEO search process is included on page 86.
Board and Committee
composition
As planned, we took steps in 2022 to refresh
the Board and prepare for future succession.
Following the retirement of Dr Pamela Kirby
at the conclusion of our Annual General
Meeting (AGM) in 2022, Nina Henderson
became Chair of the Remuneration
Committee. Nina is an experienced member
of Hikma’s Remuneration Committee, having
served as a member since 2016. Nina is also
Remuneration Committee Chair for IWG PLC
and Chair of the Human Resource
Compensation Committee for CNO Financial
Inc. (NYSE).
We were also delighted to welcome Laura
Balan, Victoria Hull and Dr Deneen Vojta as
Independent Non-Executive Directors during
the course of October and November 2022.
This resulted in a number of changes to our
committee memberships; the Audit
Committee welcomed Laura and Victoria as
members; the Compliance, Responsibility
and Ethics Committee welcomed Deneen as
a member; the Nomination and Governance
Committee welcomed Victoria and Deneen
as members; and the Remuneration
Committee welcomed Laura as a member.
Together these new appointments bring
refreshed insights to the Board and its
Committees, strengthening our knowledge
of the global healthcare industry, investor
sentiment, the UK listed environment and
M&A. As has been our practice for several
years, we aim to give new Directors time
to understand the culture, history and
operations of Hikma before undertaking
additional responsibilities, so in line with our
plans for the future composition of the Hikma
Board, Victoria will be appointed Senior
Independent Director and assume the role
of Chair of the Nomination and Governance
Committee, following the AGM in April 2023.
Board diversity
When making new appointments to the
Board in 2022, the Board was mindful of
shareholder feedback following our AGM
in 2022 where we received significant votes
against (defined as above 20% under the
UK Corporate Governance Code (the Code))
resolution 8 for the re-election of Patrick
Butler, Senior Independent Director and
Chair of the Nomination and Governance
Committee. The Board understood that the
level of significant votes against resolution 8
was because the level of women represented
on the Board fell from 30% to 22% at the
conclusion of the 2022 AGM, significantly
below the gender diversity target set by the
Hampton-Alexander Review and our own
Board gender diversity target. The reduction
in women represented on the Board followed
the retirement of Dr Pamela Kirby at the 2022
AGM, which the Board had previously
envisaged would happen in 2023, and had
accordingly based its succession planning
on an expected retirement date in 2023.
During the year, the Board, assisted by its
Nomination and Governance Committee,
accelerated our plans to raise the level of
women represented on the Board. The
appointments of Laura, Victoria and Deneen
bring the level of women represented on our
Board to 45%, exceeding the new gender
diversity target set by the Listing Rules and
ahead of the FCA’s implementation timetable
for years beginning on or after 1 April 2022.
As a Board we have always taken diversity
seriously, and in December 2022 we
refreshed our Board Diversity Policy to bring
our targets in line with the gender and ethnic
diversity targets set by the Listing Rules, the
FTSE Women Leaders Review and the Parker
Employee engagement
For engagement with the workforce, as
defined under provision 5 of the Code, Nina
Henderson is our designated Independent
Non-Executive Board member. Nina
undertakes an active programme of
engagement each year which 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 is organised by the CEO and Nina
formally reports to the Board on her findings
at each meeting.
This year’s activities included participation in:
– Attendance at the Injectables leadership
team meeting in March, held in Cherry Hill,
NJ. The visit was organised by Riad
Mishlawi. This provided an opportunity
to meet with a cross functional team,
brainstorm strategic opportunities, and
meet new employees
– Attendance at the HR leadership team
meetings in June, held in Amman, Jordan.
The visit was organised by Majda Labadi
and provided an opportunity to discuss
performance evaluations, change
management and talent development
– A site visit to the Columbus, OH
manufacturing facility to meet with
employees in August. This visit was
organised by Brian Hoffman and provided
an opportunity to discuss the Generics
business with employees and, at
management’s request, participate in
Town Halls with employees from sales,
marketing, manufacturing and research
and development
– Meetings with employee resource groups
focused on gender in Amman (Jordan),
Cherry Hill (NJ) and Columbus (OH) and an
African American group in Cherry Hill (NJ)
The above activities enabled Nina to
communicate with employees on
remuneration matters where appropriate.
Further detail on our employee engagement
activities, is included in our section 172
statement on pages 18 to 23.
Stakeholder engagement
During the course of 2022, the Board
undertook a detailed shareholder
consultation exercise to gain shareholder
feedback and input on the proposed
Remuneration Policy. The shareholder
consultation exercise was led by our
Remuneration Committee Chair, Nina
Henderson, and supported by our Senior
Independent Director, Patrick Butler. Nina
and Patrick met with our largest shareholders,
representing 48% of the voting rights of our
issued share capital, and proxy advisory
agencies. The aim of the shareholder
consultation was to explain the proposed
Remuneration Policy and gain shareholder
perspective and input. The proposed
Remuneration Policy will be put to
shareholders for approval at our AGM in April
2023. Further details on the shareholder
consultation exercise and the proposed
Remuneration Policy are included on pages
23 and 95.
In addition to the shareholder consultation
on the Remuneration Policy, the Board
undertakes significant efforts to understand
and take account of the needs and
perspectives of all of our stakeholders,
including customers, suppliers, employees,
investors and the communities in which we
operate. Further detail including examples
of the outcomes and actions of those
stakeholder engagement activities, is
included in our section 172 statement on
pages 18 to 23. Information on our Supplier
Code of Conduct is included on page 93.
On behalf of the Board, we look forward to
leading the business on delivering our
strategy for the benefit of all stakeholders
in 2023. Fundamental to that delivery is our
focus on continuing to operate effective
corporate governance practices.
Said Darwazah
Executive Chairman and Chief Executive
Officer
Review. We are proud to report that we meet
the targets set for gender and ethnic diversity
at the Board and will meet the target for a
senior Board position to be held by a woman
following the AGM in April 2023, when
Victoria Hull will be appointed as Senior
Independent Director. As part of the review
of our Board Diversity Policy, the Board
agreed to report early against the new
diversity disclosures under the Listing Rules,
with further detail included on pages 77 and
127. The Board Diversity Policy is available on
our website at www.hikma.com.
We acknowledge that diversity targets should
be set beyond the Boardroom, and have
adopted the voluntary target set by the
FTSE Women Leaders Review, to increase
the gender diversity of the leadership team
(Executive Committee and senior direct
reports) from 29% (at 31 December 2022)
to a minimum of 40% women by the end
of 2025. We are pleased to report that our
Remuneration Committee have integrated
this target into the performance measures
for our proposed Remuneration Policy, further
detail is included on pages 123 and 124.
Board practices
2022 saw the return of regular in person
meetings for the Board and its Committees.
During 2022 we met in person for four of
our eight scheduled meetings, recognising
significant benefits in terms of social
cohesion, innovation, development and also
as a conscious effort for the important
process of onboarding our new directors.
For our other four scheduled meetings and
for all additional/unscheduled meetings,
we met virtually or with a hybrid approach
of in person and virtual and saw significant
benefits in terms of time efficiency,
availability and focus. We intend that the
Board will continue to operate a hybrid
approach to meetings for the foreseeable
future, bringing together the benefits of
each of these approaches.
ESG
Early in 2021, we determined that our Board
of Directors would have overarching oversight
of our ESG strategy and associated reporting.
This builds upon the work of our Board
Committees that have responsibility for
certain elements of our ESG work streams.
Further information on our ESG strategy and
disclosures is available on pages 37 to 57.
Our Remuneration Committee has adopted
performance measures relating to
Greenhouse Gas emissions and water usage
in the proposed Remuneration Policy for
Executive Directors (the proposed
Remuneration Policy), further detail is
included on pages 123 and 124.
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
Corporate governance at a glance
Key Board activities in 2022
Strategy review
– Approved the launch of our sterile injectable
compounding business in the US, bringing the
high-quality systems of a major pharmaceutical
manufacturer to the niche compounding market
– Built on our strategic partnership with Celltrion,
including signing exclusive licensing
arrangements to commercialise YuflymaTM
(adalimumab) and CT-P43 (ustekinumab) in all
of our MENA markets. These arrangements
strengthen our offering of biosimilar and
innovative biologic products and help us
increase patients’ access to important medicines
– Completed the acquisitions of Custopharm and
the Canadian assets of Teligent, enhancing our
R&D capabilities, product portfolio and pipeline,
and strengthening our presence in the US and
Canadian injectables markets
– Oversaw further investment in our speciality
business and the development of our leading
position as one of the largest US providers of
nasally administered medicines
ESG focus
– Participated in an externally facilitated ESG
workshop to review Hikma’s material ESG
priorities and explore ways to advance our
progress in these areas in preparation for setting
ESG related performance measures and targets
in the proposed Remuneration Policy. The
workshop also raised awareness of key topics
within Hikma’s Acting Responsibly framework
(Hikma’s approach to ESG), further information
is included on pages 37 to 57
Board refreshment and succession planning
– Commenced the search for a new CEO, following
the departure of Siggi Olafsson, appointing Said
Darwazah on an interim basis until a permanent
successor was identified
– Appointed three Non-Executive Directors,
increasing independent representation on
the Board from 60%1 to 73%2 and female
representation from 30%1 to 45%2
– Agreed the timing for the transition of
responsibilities and succession of Victoria Hull
as Senior Independent Director and Chair of
the Nomination and Governance Committee
following our AGM in April 2023
– Appointed Nina Henderson as Remuneration
Committee Chair from the conclusion of the
AGM in 2022, following the retirement of Dr
Pamela Kirby
Performance review
– Revised our Generics forecasts as a result of
the impact of challenging market conditions
and provided updates to our stakeholders
Financial projects
– Completed the $300 million share buyback
programme to reduce the share capital of Hikma
– Completed the re-organisation of Hikma’s
balance sheet to convert the non-distributable
merger reserve of $1,746 million to distributable
reserves, making it available for future dividend
payments and potential share buybacks
1. At 31 December 2021
2. At 31 December 2022
Attendance
Directors
Said Darwazah
Siggi Olafsson¹
Mazen Darwazah
Patrick Butler
Ali Al-Husry
Dr Pamela Kirby²
John Castellani
Nina Henderson
Cynthia Flowers
Douglas Hurt
Laura Balan³
Victoria Hull4
Dr Deneen Vojta4
Meetings attended
(8 scheduled and 1 unscheduled)
9/9
2/2
9/9
9/9
9/9
1/1
9/9
9/9
9/9
9/9
3/3
2/2
2/2
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
1. Siggi Olafsson stood down as CEO and retired from the Board on 24 June 2022
2. Dr Pamela Kirby retired from the Board and relevant Committees on 25 April 2022
3. Laura Balan joined the Board on 1 October 2022
4. Victoria Hull and Dr Deneen Vojta joined the Board on 1 November 2022
Board agenda allocation of time
Corporate governance
Financial performance
Performance and operations
Risk
Strategy and acquisitions
2022
2021
2022
9%
14%
30%
3%
44%
2021
10%
13%
11%
5%
60%
Diversity by gender and ethnicity (as at 31 December 2022)
Board
Executive Committee
Board experience
Board priorities for 2023
Board composition
Women
Men
5 (45%)
6 (55%)
Women
Men
2 (22%)
7 (78%)
Percentage of the Board with direct experience in the following areas:
– Complete the induction programmes for our new Non-Executive Directors
– Complete the search for a new CEO and prepare for the handover of
responsibilities. Further detail on the CEO search process is included
on page 86
– Review governance structure once the new CEO is in post to ensure it
remains robust and the proper division of responsibilities once the roles
of Chair and CEO are no longer combined
– Implement agreed actions from the 2022 Board evaluation. Further detail
on the Board evaluation is included on page 88
– Plan our annual strategic review meeting, ensuring it includes opportunities
for Board development and employee engagement
Pharmaceutical
Manufacturing
Sales
Commercial
Regulatory and political
Listed environment
Finance
91%
73%
55%
91%
100%
100%
100%
Executive Chairman and Chief Executive Officer
Other Executive Directors
Non-Independent NED
Independent NED
31 December
2022
after 2023
AGM
9%
9%
9%
73%
9%
9%
18%
64%
2022
After 2023 AGM
Minority ethnic1
White1
3 (27%)
8 (73%)
Minority ethnic1
White1
6 (67%)
3 (33%)
Combined Executive Committee
and senior direct reports2
In compliance with Provision 11 of the Code, when excluding the Chairman,
the Independent Non-Executive Directors represent 80% of the Board as at
31 December 2022 and 70% of the Board after the AGM in April 2023 once
Patrick Butler is no longer considered independent under the Code.
Women
Men
22 (29%)
53 (71%)
Board geographical experience
Independent Director tenure (as at 31 December 2022)
Executive Committee senior
direct reports2
Group
Strategy and risk
82%
Global
Business ethics and integrity
Governance
73%
91%
US
MENA
Cybersecurity
55%
Europe
ESG
76
64%
UK
91%
82%
36%
82%
64%
0—3 years
4—6 years
7—9 years
Number
4
2
2
%
50%
25%
25%
Women
Men
20 (30%)
46 (70%)
Women
Men
3,058 (35%)
5,745 (65%)
Hikma subsidiary company directors
As required by the Companies Act 2006, the composition of our subsidiary
company boards is 46 men and 11 women.
1. Relates to Board and Executive Committee members who identify with one of the
relevant categories under Listing Rule 9, Annex 2
2. People reporting to members of the Executive Committee (excluding administrative roles)
77
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
Leadership – Board of Directors
1
4
2
5
3
6
C
N
A
C
R
A
C
N
R
A
C
N
R
7
10
8
11
A
N
R
A
N
9
12
A
C
N
R
C
N
A
R
1. Said Darwazah
Executive Chairman and Chief Executive Officer
2. Mazen Darwazah
Executive Vice Chairman, President of MENA
3. Patrick Butler
Senior Independent Director
Appointed: 1 July 2007
Joined Hikma: 1981
Nationality: Jordanian
Appointed: 8 September 2005
Joined Hikma: 1985
Nationality: Jordanian
Experience: Said served as Chief Executive Officer
from July 2007 to February 2018 and as Executive
Chairman since May 2014. Said was Chairman and
Chief Executive of Hikma’s group holding company
from 1994 to 2003 and Minister of Health for the
Hashemite Kingdom of Jordan from 2003 to 2006.
Said has over 40 years of experience in extensive
leadership roles at Hikma.
Experience: Mazen is responsible for the strategic
and operational direction of the business across
the MENA region. During his 38 years of service at
Hikma, Mazen has held an extensive range of
positions within the Group. He has previously
served as the President of the Jordanian
Association of Manufacturers of Pharmaceuticals
and Medical Appliances.
Qualifications: Industrial Engineering degree from
Purdue University, MBA from INSEAD.
Other appointments: Chairman of Royal Jordanian
Airlines and Dead Sea Touristic & Real Estate
Investments. Vice Chairman of Capital Bank,
Jordan. Board member of INSEAD and Dash
Ventures Limited.
Qualifications: BA in Business Administration from
the Lebanese American University, Advanced
Management Plan from INSEAD.
Other appointments: Senator in the Jordanian
Senate. Trustee of Birzeit University and King’s
Academy. Member of HM King Abdullah’s Economic
Policy Council.
4. Ali Al-Husry
Non-Executive Director
Appointed: 14 October 2005
Joined Hikma: 1981
Nationality: Jordanian
Experience: Ali joined Hikma as Director of Hikma
Pharma Limited and held various management and
leadership roles within the Group, before stepping
into an advisory role in 1995. Ali brings great
financial experience to the Board as well as an
in-depth knowledge of the MENA region and Hikma
Pharmaceuticals. Ali was a founder of Capital Bank,
Jordan, and served as CEO of Capital Bank, Jordan
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, Jordan, and
DASH Ventures Limited.
5. John Castellani
Independent Non-Executive Director
Appointed: 1 March 2016
Nationality: American
Experience: John brings experience of the
pharmaceutical and biotechnical sectors, business
ethics, and political and regulatory knowledge to
the Board. John was President and Chief Executive
Officer of Pharmaceutical Research and
Manufacturers of America (PhRMA) from 2010 to
2015. Prior to that he was President and Chief
Executive of Business Roundtable, an association
of leading US company chief executives. 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: Director of 5th Port.
A Audit Committee
C Compliance, Responsibility and Ethics Committee
N Nomination and Governance Committee
R Remuneration Committee
Chair
78
Appointed: 1 April 2014 as Non-Executive Director
(Senior Independent Director from December 2020)
Nationality: Irish
Experience: Patrick brings experience of strategy
implementation, integrating acquisitions,
performance improvement and detailed financial
knowledge, gained through his executive and
non-executive career. Patrick was a Senior Director
at McKinsey & Co for 25 years, where he focused on
advising large corporations in the EU, US and MENA
on strategic, acquisition and organisational issues.
Patrick has previously served as a Non-Executive
Director of Bank of Ireland Group PLC and was a
partner at The Resolution Group.
Qualifications: Chartered Accountant and a Fellow
of the Institute of Chartered Accountants in Ireland.
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. Non-Executive Director of The
Ardonagh Group Limited and Res Media Limited.
Trustee of the Resolution Foundation.
6. Nina Henderson
Independent Non-Executive Director
Appointed: 1 October 2016 (Employee Engagement
from 2019)
Nationality: American
Experience: Nina brings extensive experience of
manufacturing and distribution, marketing,
remuneration committee and stakeholder
engagement, gained through her executive and
non-executive career. Nina was Corporate VP of
Bestfoods and President of Bestfoods Grocery
prior to its acquisition by Unilever. During a 30-year
career with Bestfoods, she held a wide variety of
Global and North American executive general
management and marketing positions. Nina has
previously 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 and
Remuneration Committee Chair of CNO Financial
Group Inc and IWG PLC. Director of the Foreign
Policy Association, St. Christopher’s Hospital for
Children and VNS Health. Commissioner of the
Smithsonian National Portrait Gallery. Vice Chair
of the Board of Trustees, Drexel University.
7. Cynthia Flowers
Independent Non-Executive Director
8. Douglas Hurt
Independent Non-Executive Director
Appointed: 1 June 2019
Nationality: American
Appointed: 1 May 2020
Nationality: British
9. Laura Balan
Independent Non-Executive Director
Appointed: 1 October 2022
Nationality: Romanian and British
Experience: Cynthia brings detailed knowledge of
the pharmaceutical and biotechnical sectors and
healthcare practitioner experience to the Board.
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. For nearly a decade Cynthia served on
the Women’s Leadership Advisory Board at Harvard
University’s Kennedy School of Government.
Qualifications: BSN from the University of Delaware
and Executive MBA from Wharton School at the
University of Pennsylvania.
Other appointments: Non-Executive Director of
Lisata Therapeutics Inc. Non-Executive Director and
Remuneration Committee Chair of G1 Therapeutics
Inc. Member of an angel investment group
associated with the University of North Carolina.
10. Victoria Hull
Independent Non-Executive Director
Appointed: 1 November 2022
Nationality: British
Experience: Victoria has extensive senior executive
experience across a broad range of business, legal,
commercial and governance matters and strong
international experience. In her executive career,
Victoria was an Executive Director and General
Counsel of Invensys plc and Telewest
Communications plc. Victoria is a solicitor and
began her career at Clifford Chance LLC. Victoria
also served as Senior Independent Director of Ultra
Electronics plc and Non-Executive Director of RBG
Holdings PLC.
Qualifications: Solicitor, LLB (Hons) in Law from the
University of Southampton.
Other appointments: Non-Executive Director and
Chair of the Remuneration Committee of Network
International Holdings plc, Alphawave IP Group plc
and IQE plc.
Experience: Douglas brings significant financial
experience, having served as Finance Director of
IMI PLC from 2006 to 2015. 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. Douglas previously
served as Senior Independent Director and
Chairman of the Audit Committee of Tate & Lyle plc
and as Chairman of Countryside Partnerships PLC.
Qualifications: Chartered Accountant and a Fellow
of the ICAEW, MA (Hons) in Economics from
Cambridge University.
Other appointments: Senior Independent Director
and Chair of the Audit Committee of Vesuvius PLC.
Non-Executive Director and Chair of the Audit
Committee of BSI.
11. Dr Deneen Vojta
Independent Non-Executive Director
Appointed: 1 November 2022
Nationality: American
Experience: Deneen is a healthcare executive with
extensive experience in clinical medicine, scientific
research, and care delivery. Deneen was the
Executive Vice President for Research and
Development for UnitedHealth Group (UHG) and
Founder and CEO of MYnetico which was then
acquired by UHG. She also served as Chief Medical
Officer of ARIA Health Care System and Health
Partners of Philadelphia. In 2022, Deneen was
named a Modern Healthcare’s Top Innovator, in
2014, she was an Emmy® Award winner and in 2013,
a CES® Innovation Design & Engineering Innovation
Honoree.
Qualifications: MD from theTemple University
School of Medicine and BS in Behavioral
Neuroscience from the University of Pittsburgh.
Other appointments: President of Health Solutions
and Innovation at TurningPoint Healthcare
Solutions. Non-Executive Director of Sensei
Biotherapeutics. Member of the governance boards
of Children’s Minnesota and Workit Health, and
advisory board of The Center for Health Incentives
& Behavioral Economics at Penn Medicine.
Experience: Laura brings a deep understanding of
international business, the pharmaceutical industry
globally, key sector trends and dynamics. Laura
is a recently retired partner of The Capital Group
Companies, the US investment manager, where
she was an investment analyst for 17 years, covering
the European healthcare and pharmaceutical
industries. Prior to this, Laura held associate and
analyst roles at The Goldman Sachs Group Inc,
where she focused on European healthcare and
pharmaceutical investment research.
Qualifications: CFA Charterholder, BA (Hons)
in International Business from the Academy of
Economic Studies in Bucharest, Romania.
Other appointments: Trustee of the Charter
Schools Educational Trust.
12. Hussein Arkhagha
Chief Counsel and Company Secretary
Appointed: 15 June 2022
Joined Hikma: 2001
Nationality: Jordanian
Role: Hussein was appointed as Company
Secretary in June 2022. He is responsible for
advising on governance and listing related matters.
Hussein is a member of the Executive Committee
and holds the role of Chief Counsel at Hikma.
Hussein established the global legal department
and aligned its mission and strategy with those of
Hikma. Hussein is a key member of the team that
prepared for Hikma’s IPO, in addition to Hikma’s
major acquisitions. Prior to his appointment as
Chief Counsel, he held several positions at Hikma,
including Head of Legal/MENA, Head of
Shareholders’ Department and Head of Tax.
Hussein currently leads the Legal and Intellectual
Property Department, in addition to Company
Secretarial, Compliance, Medical Affairs and
Pharmacovigilance.
Qualifications: Hussein is a qualified lawyer and
holds a Master’s degree in International Business
Law from the University of Manchester, under the
UK Chevening Scholarship Programme.
Find detailed Directors’ biographies at:
www.hikma.com/about/leadership/
79
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
Leadership – Executive Committee
Corporate governance
1
4
7
2
5
8
3
6
9
1. Said Darwazah
Executive Chairman and Chief Executive Officer
2. Mazen Darwazah
Executive Vice Chairman, President of MENA
3. Hussein Arkhagha
Chief Counsel and Company Secretary
Joined: 1981
Nationality: Jordanian
Joined: 1985
Nationality: Jordanian
Joined: 2001
Nationality: Jordanian
For further biographical details
please see page 78.
For further biographical details
please see page 78.
For further biographical details
please see page 79.
4. Khalid Nabilsi
Chief Financial Officer
Joined: 2001
Nationality: Jordanian
5. Brian Hoffmann
President, Generics
Joined: 2009
Nationality: American
Role: Khalid was appointed as Chief Financial
Officer in 2011 and is responsible for Group finance,
including reporting and capital management.
Khalid has held several leadership positions within
Hikma’s financial functions during 22 years with
Hikma, including VP Finance.
Qualifications: Certified Public Accountant.
MBA from the University of Hull.
Role: Brian has served as President of Hikma’s
Generics business since 2015. Brian has significant
strategic and operational experience from
leadership roles at Hikma and prior pharmaceutical
and consulting roles.
Qualifications: BA in Business Administration
from Boston University. MBA from the University
of Chicago Booth School of Business.
8. Riad Mishlawi
President, Injectables
Joined: 1990
Nationality: Lebanese
Role: Riad was appointed as President of Hikma’s
Injectables business in 2011 and 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.
7. Majda Labadi
Executive Vice President, Organisational
Development
Joined: 1985
Nationality: Jordanian
Role: Majda was appointed as EVP, Organisational
Development in 2009 and has Group level
responsibility for human resources. Majda has held
several executive positions during 38 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.
The full biographies of Hikma’s Executive
Committee can be found on the Hikma website:
www.hikma.com/about/leadership/
80
6. Bassam Kanaan
Executive Vice President, Corporate Development
and M&A
Joined: 2001
Nationality: Jordanian
Role: Bassam was appointed EVP, Corporate
Development and M&A in 2014 and has Group level
responsibility for strategic development,
acquisitions and alliances. He also has oversight
of the IT function and Hikma Ventures. Bassam has
held several executive positions during 21 years
with Hikma, including Chief Financial Officer in the
period from 2001 to 2012. Bassam played a leading
role in preparing for Hikma’s IPO in 2005 and in its
subsequent M&A activity.
Qualifications: US Certified Public Accountant and
Chartered Financial Analyst. BA from Claremont
McKenna. International Executive MBA from
Kellogg/Recanati Schools of Management.
9. Susan Ringdal
Executive Vice President, Strategic Planning and
Global Affairs
Joined: 2005
Nationality: American
Role: Susan has served as EVP, Strategic Planning
and Global Affairs since 2012 and is responsible
for strategic planning, investor relations,
communications, ESG, corporate affairs and
business intelligence. Prior to joining Hikma, Susan
worked for Alliance Unichem and Morgan Stanley.
Qualifications: BA in History from Cornell
University. MBA from London Business School.
UK Corporate Governance Code compliance
Hikma is committed to high standards of
corporate governance and we work hard to
ensure compliance with the Principles and
Provisions of the UK Corporate Governance
Code (the Code) published in July 2018 and
the Markets Law of the Dubai Financial
Services Authority (the Markets Law). The
report on pages 72 to 129 describes how the
Board has applied the Code and Markets Law
throughout the year ended 31 December
2022. The Board considers that this Annual
Report provides the information shareholders
need to evaluate how we have complied with
our current obligations under the Code and
Markets Law. Except as referred to in the
following section on the Executive Chairman,
Hikma has complied with all relevant
Principles and Provisions of the Code
throughout the year.
Executive Chairman
Provision 9 of the Code states that the chair
should be independent on appointment
when assessed against the circumstances
set out in Provision 10. The roles of chair and
chief executive should not be exercised by
the same individual. A chief executive should
not become chair of the same company. If,
exceptionally, this is proposed by the board,
major shareholders should be consulted
ahead of appointment. The board should set
out its reasons to all shareholders at the time
of the appointment and also publish these on
the company website.
Provision 19 of the Code states that the chair
should not remain in post beyond nine years
from the date of their first appointment to
the board.
The Board acknowledges that Said
Darwazah’s position as Executive Chairman
and CEO and his overall tenure as Director
are departures from Provisions 9 and 19 of the
Code. Each point is discussed in turn below:
– Joint role of Executive Chairman and CEO:
since the resignation of Siggi Olafsson as
CEO on 24 June 2022, the Board agreed
that Said Darwazah, as former CEO, would
step in and assume all CEO responsibilities
while the Board initiated a search to
identify and appoint a new CEO. This is a
temporary measure designed to ensure
continued drive and delivery of Hikma’s
strategy until a new CEO is appointed.
Recognising the importance of robust
governance arrangements during this time,
we reviewed our delegated authorities
to ensure that no one individual had
unfettered powers of decision-making.
On appointment of a new CEO, Said will
relinquish all CEO responsibilities and
resume the role of Executive Chairman,
which will return the Hikma Board to a clear
division of roles. Further detail on the CEO
search process can be found on page 86
– Executive Chairman and tenure: the
Executive Chairman role was created in
February 2018, following the appointment
of Siggi Olafsson as CEO. Previously, Said
Darwazah was the Chairman and CEO.
The Board considers that it is important
to retain corporate memory, important
relationships and the culture of the
organisation. Therefore, it is valuable to
retain Said’s services in a strategic capacity.
The Board consulted shareholders prior to
Said’s appointment as Executive Chairman
and CEO 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 during 2022 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 for the
following reasons:
– Continuity of strategy: Said 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.
The Executive Chairman’s role is to
develop the Group’s strategy in
conjunction with the CEO. The division
of responsibilities for our Executive
Chairman and CEO are available on
our website at www.hikma.com
– Executive Chairman’s role: the
Executive Chairman position is highly
visible inside and outside Hikma,
providing leadership to the Board and
management of the Company, acting as
an ambassador with business partners
and advisers to the organisation
– Business partners: a significant number
of Hikma’s key political and commercial
relationships across the MENA region,
Asia and some continental European
countries are built on the long-term trust
and respect for the Darwazah family
such that the role of the Executive
Chairman remains key
81
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
Corporate governance report
continued
Governance
UK Corporate Governance Code compliance
continued
Independence
Culture
The Board continues to operate the following
enhanced controls:
– Governance structure review: the
Independent Non-Executive 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 CEO and safeguards
for shareholders
– Senior Independent Director role: the
Senior Independent Director has an
enhanced role at Hikma, taking joint
responsibility, with the Executive
Chairman, for setting the Board agenda,
agreeing action points and the minutes
of the meetings
– 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.17
years since flotation Hikma has maintained
the highest standards of shareholder
engagement, which reflects the
importance placed in maintaining strong
investor relations and governance
The Board considers that the role of
Executive Chairman is 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.
2022 AGM voting result
Provision 4, significant votes against an AGM
resolution: at the AGM held on 25 April 2022
(2022 AGM), Hikma received significant votes
(defined as above 20%) against resolution 8
for the re-election of Patrick Butler, Senior
Independent Director and Chair of the
Nomination and Governance Committee.
Following feedback from shareholders prior
to the 2022 AGM, the Board understood
that the level of significant votes against
resolution 8 was because the level of female
representation on the Board fell from 30%
to 22% at the conclusion of the 2022 AGM,
significantly below the gender diversity target
set by the Hampton-Alexander Review and
our own Board diversity target. The reduction
in female representation followed the
retirement of Dr Pamela Kirby at the 2022
AGM, which the Board had previously
anticipated would happen in 2023, therefore
it could not have been foreseen and had
based its succession planning accordingly.
In accordance with the requirements of
Provision 4 of the Code:
– We provided additional information in our
announcement of the AGM voting result on
25 April 2022, including feedback received
from shareholders to understand the
reasons behind the result and the actions
we intended to take
– On 30 September 2022, we provided a
further update within the six-month period
prescribed by Provision 4 the Code on the
actions taken since the 2022 AGM
– We included a final summary on pages 74
to 75 of this Annual Report on the impact
the shareholder feedback had on the
Board, including the appointments made
to the Board during 2022 and the updates
to our Board Diversity Policy in line with the
new diversity related targets included in
the Listing Rules. Further detail on the
Board appointments made during 2022
and the updated Board Diversity Policy is
available on pages 74 to 75 and 86 to 87.
The new diversity disclosure under the
Listing Rules is available on page 127.
The Board Diversity Policy is available
on our website at www.hikma.com
The Board reviews the independence of each
of its Non-Executive Directors during the year
as part of the annual corporate governance
review, which includes consideration of
progressive refreshment of the Board. We are
committed to ensuring that the Board
comprises a majority of independent
Non-Executive Directors, who objectively
challenge management, balanced against
continuity on the Board. This is also important
to meet the independence requirements of
the Board Committees. The Board considers
John Castellani, Nina Henderson, Cynthia
Flowers, Douglas Hurt, Laura Balan, Victoria
Hull and Dr Deneen Vojta to be independent.
These individuals have extensive experience
of international pharmaceutical, financial,
corporate governance and regulatory
matters, bring strong independent oversight,
continue to demonstrate independence and
were not associated with Hikma prior to
joining the Board.
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 our founder’s vision
of Hikma as a company with high ethical
standards, where our people thrive in a
supportive environment. In the Boardroom,
we are reminded of our values regularly and
are guided by them when making decisions
and engaging with the Executive Committee
and employees.
Indicators of culture reviewed by the Board
and its Committees:
– reviewing the volume and nature of
whistleblowing reports and outcome of
any investigations
– internal audit reports and findings, as
attitudes to regulators and internal audit
can give an early indication of potential
culture-related issues
– feedback reports on workforce
engagement activities
– reviewing and monitoring compliance
with our Code of Conduct
– receiving reports from the Compliance,
Responsibility and Ethics Committee
– reviewing the results of our employee
surveys
Further information on the Group’s activities
that relate to culture is available on pages 5
to 7 and 44 and 45.
With effect from the AGM in 2023, the Board
will no longer view Patrick Butler as an
Independent Director. This is due to his total
service with Hikma reaching nine years in
April 2023, which Provision 10 of the Code
identifies as a circumstance likely to impair
or could appear to impair independence.
Following the AGM in 2023 and to preserve
the independence of our Board, Patrick will
step down as Senior Independent Director,
Chair of the Nomination and Governance
Committee and will step down as a member
of any Board Committee requiring fully
independent membership under the Code.
The Board has asked Patrick to stay on the
Board as a non-independent, Non-Executive
Director for one further year, stepping down
no later than the AGM in 2024 to allow time
to aid the transition to a new CEO and to fully
support the transition of responsibilities as
Senior Independent Director and Chair of the
Nomination and Governance Committee to
Victoria Hull. The Board also believes Patrick
continues to bring a number of benefits to
the Board and our shareholders:
– bringing stability and cohesion to the
Board during this transitional time as we
induct three new Non-Executive Directors
and conclude the search for a CEO
– remaining very active in his role, taking
initiative and posing challenging questions
to management
– despite no longer being considered
independent under the Code, Patrick
continues to conduct himself with
independent thought and judgement,
provides constructive challenge to
management and has no conflicts
of interest
The Board does not view Ali Al-Husry as
an Independent Director, this is 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.
82
83
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022
Corporate governance report – committee overview
Nomination and
Governance Committee
Audit Committee
Compliance, Responsibility
and Ethics Committee
Remuneration Committee
2022 highlights
2022 highlights
2022 highlights
2022 highlights
– Appointed three new Non-Executive Directors to the Board,
– Completed the induction of the new senior statutory auditor
increasing female representation at the Board to 45%
– Agreed our timeline for the succession of the Senior Independent
Director and Chair of the Nomination and Governance Committee
– Continued to monitor developments arising from the internal audit
programme
– Engaged an external party to undertake an independent
– Updated our Board Diversity Policy available on our website at
assessment of the Enterprise Risk Management programme
www.hikma.com
– Early adoption of the new diversity related disclosures and targets
under the Listing Rules
– Conducted a formal fraud risk assessment and approved the launch
of a formal fraud prevention programme to prepare for upcoming
changes in relation to Audit and Corporate Governance reform
2023 priorities
2023 priorities
– Continued to monitor and obtain independent reports on ABC
compliance developments, our speak up programme, reporting
lines and business integrity
– Implemented all recommendations following an external review of
the ABC programme
– Undertook a detailed review of our Remuneration policy
– Undertook a shareholder consultation exercise on the proposed
Remuneration Policy with our largest shareholders, representing
48% of the voting rights of our issued share capital, and proxy
advisory agencies
– Updated our approach to international trade sanctions
– Agreed on the introduction of new performance measures in
– Continued delivering process enhancements
– Monitored the delivery of ethical and social responsibility aspects
of our CSR programme
2023 priorities
relation to ESG and financial performance
– Reviewed the approach to compensating senior management
and the wider employee population
2023 priorities
– Manage the transition to a new Committee Chair and oversee the
induction programmes for our new Non-Executive Directors
– Complete the CEO search, monitor the transition of responsibilities
– Monitor developments and review processes and procedures to
prepare for upcoming changes in relation to Audit and Corporate
Governance reform
– Assist with the delivery of the ethical and social responsibility
– Implementation of the proposed Remuneration Policy, subject to
aspects of our ESG programme
shareholder approval
– Appoint a new Chief Compliance Officer (CCO) following the
– Subject to shareholder approval of the plan rules, grant awards
to the new CEO and ensure a thorough induction
– Monitor and enhance our risk and internal audit programmes
departure of our previous CCO at the end of 2022
– Manage the induction of new Committee members
– Manage the induction of new Committee members
– Review the delivery of process enhancements across our
under our new share plans, whilst ensuring effective
communications to employees
programmes
– Monitoring new performance measures in relation to ESG and
– Induction of new Committee members
financial performance
Allocation of time
Allocation of time
Allocation of time
Allocation of time
Corporate governance
Independence
Skills and experience
Succession
21%
20%
8%
51%
Corporate governance
External audit
Financial reporting
Internal audit
Risk and internal control
4%
23%
36%
12%
25%
ABC governance
61%
Anti-trust, AML and trade sanctions
4%
Corporate governance
ESG and CSR
13%
22%
Wider employee issues
Corporate governance
Developing practices
Setting executive remuneration
10%
18%
44%
28%
Members and attendance
Members and attendance
Members and attendance
Members and attendance
Member
Patrick Butler (Chair)1
Mazen Darwazah
Nina Henderson
Cynthia Flowers
Douglas Hurt
Victoria Hull2
Dr Deneen Vojta2
Meetings attended
(4 scheduled and
2 unscheduled)
6/6
6/6
6/6
6/6
6/6
1/1
1/1
Attendance
100%
100%
100%
100%
100%
100%
100%
1. Patrick Butler will step down as Chair of the Nomination and Governance Committee with
effect from the close of the 2023 AGM to preserve the independence of the role of Chair
of the Committee
2. Victoria Hull and Dr Deneen Vojta joined the Board and the Nomination and Governance
Committee on 1 November 2022
Member
Douglas Hurt (Chair)
Patrick Butler¹
Dr Pamela Kirby2
John Castellani
Nina Henderson
Cynthia Flowers
Laura Balan³
Victoria Hull4
Meetings attended
(4 scheduled and
1 unscheduled)
5/5
5/5
1/1
5/5
5/5
5/5
1/1
1/1
Attendance
100%
100%
100%
100%
100%
100%
100%
100%
1. Patrick Butler will step down as a member of the Audit Committee with effect from the
close of the 2023 AGM to preserve the independence of the Committee under the Code
2. Dr Pamela Kirby stood down from the Board and the Audit Committee on 25 April 2022
3. Laura Balan joined the Board and the Audit Committee on 1 October 2022
4. Victoria Hull joined the Board and the Audit Committee on 1 November 2022.
Member
John Castellani (Chair)
Siggi Olafsson¹
Mazen Darwazah
Patrick Butler
Dr Pamela Kirby2
Nina Henderson3
Douglas Hurt
Dr Deneen Vojta4
Meetings
attended
5/5
2/2
5/5
5/5
1/1
4/5
5/5
2/2
Attendance
100%
100%
100%
100%
100%
80%
100%
100%
1. Siggi Olafsson stood down from the Board and the Compliance, Responsibility and
Ethics Committee on 24 June 2022.
2. Dr Pamela Kirby stood down from the Board and the Compliance, Responsibility and
Ethics Committee on 25 April 2022
3. Nina Henderson was unable to attend one meeting due to a pre-existing commitment
4. Dr Deneen Vojta joined the Board and the Compliance, Responsibility and Ethics
Committee on 1 November 2022
Member
Nina Henderson (Chair)
Dr Pamela Kirby1
Patrick Butler2, 3
John Castellani2
Cynthia Flowers2
Douglas Hurt
Laura Balan4
Meetings attended
(6 scheduled and
5 unscheduled)
11/11
2/2
10/11
10/11
10/11
11/11
2/2
Attendance
100%
100%
91%
91%
91%
100%
100%
1. Dr Pamela Kirby stood down from the Board and as Chair of the Remuneration
Committee on 25 April 2022
2. Patrick Butler, John Castellani and Cynthia Flowers were unable to attend one
unscheduled meeting due to a pre-existing commitment
3. Patrick Butler will step down as a member of the Remuneration Committee with effect
from the close of the 2023 AGM to preserve the independence of the Committee under
the Code
4. Laura Balan joined the Board and the Remuneration Committee on 1 October 2022
The full Committee report is on pages 86 to 88.
The full Committee report is on pages 89 to 92.
The full Committee report is on pages 93 to 94.
The full Committee report is on pages 95 to 124.
Please visit our website to view the terms of reference for our Committees: www.hikma.com
84
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Nomination and Governance Committee
(operational leadership, people and teams, strategic leadership).
At the same time we undertook a leadership assessment of the
Executive Committee which, building on similar processes in earlier
years, highlighted internal candidates. Shortlisted internal candidates
from this process went through the same detailed interviews with
Directors on the specialist subjects as the external candidates. By
February 2023, the Board was in the final stages of its deliberations, we
anticipate that we will be in a position to provide an update very soon.
Independent
Non-Executive Directors and SID succession: During 2022 we
welcomed three new Independent Non-Executive Directors to the
Board. Laura Balan, Victoria Hull and Dr Deneen Vojta bring new
perspectives and insights to the Board, strengthening our knowledge
of the global healthcare industry, investor sentiment, the UK listed
environment and M&A. Victoria Hull will be appointed SID and assume
the role of Chair of the NGC, following the AGM in April 2023 when I
will step down as SID, Chair of the NGC and as a member of any Board
Committee requiring fully independent membership under the Code.
For the reasons set out on page 83, the Board has asked me to stay on
as a non-independent, Non-Executive Director for one further year,
stepping down no later than the AGM in 2024.
Committee changes: We transitioned the chair of the Remuneration
Committee to Nina Henderson, following the retirement of Dr Pamela
Kirby at the conclusion of our AGM in 2022. Nina is an experienced
member of Hikma’s Remuneration Committee, having served as a
member since 2016. Nina is also Remuneration Committee Chair for
IWG PLC and Chair of the Human Resource Compensation Committee
for CNO Financial Inc. (NYSE).
We made a number of changes to our committee memberships
following the appointment of our new Non-Executive Directors; the
Audit Committee welcomed Laura and Victoria as members; the
Compliance, Responsibility and Ethics Committee welcomed Deneen
as a member; the Nomination and Governance Committee welcomed
Victoria and Deneen as members; and the Remuneration Committee
welcomed Laura as a member.
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. 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 Directors to have significant
international experience at an executive level, a challenging yet
Letter from the Chair
Patrick Butler
Chair, Nomination and
Governance Committee
and Senior Independent
Director
Dear Shareholders
I am writing to you in my role as the Senior Independent Director (SID)
and Chair of the Nomination and Governance Committee (NGC or
the Committee). In these roles, I help steer the development of the
Group’s governance and succession arrangements.
I will reach nine years’ service with Hikma at the 2023 AGM and will
stand down from the roles of SID and Chair of the NGC following that
meeting. The Board has asked me to stay on as a non-independent,
Non-Executive Director for one further year, stepping down no later
than the 2024 AGM. This will allow time to support the transition to
a new CEO and to fully support the transition of responsibilities as
SID and Chair of the NGC to Victoria Hull, further detail is included
on page 83. I am delighted that Victoria has agreed to be appointed
as SID and Chair of the NGC following the 2023 AGM. Victoria and
I have worked together closely since her appointment to the Board
in November 2022 and I am pleased that I will be leaving the roles
of SID and Chair of the NGC in safe hands.
Succession
The Committee oversees succession for both Executive and
Non-Executive Directors. Below Board level, the Committee is
responsible for ensuring that appropriate arrangements are in place
for senior positions, including the Executive Committee.
Executive
As of 24 June 2022, Siggi Olafsson stood down as CEO and from
Hikma’s Board of Directors. The Board agreed that Said Darwazah,
former CEO, would step in and assume all CEO responsibilities on
an interim basis to ensure continuity and minimise disruption to
the business, while a search was initiated to identify and appoint
a permanent CEO.
The NGC appointed Heidrick & Struggles, an independent search firm
with no other connection to Hikma or any of our Directors, to assist in
identifying suitable candidates. Heidrick & Struggles also assisted with
the search for Independent Non-Executive Directors in 2022.
A structured timetable was adopted for the process, with regular
updates and discussions with the NGC and Board held throughout.
A person specification was developed with Heidrick & Struggles which
was shared with and approved by all Board members. We then agreed
a long list of external candidates which, following separate individual
meetings with me, Said Darwazah, John Castellani, Cynthia Flowers
and Douglas Hurt, was distilled to a short list for more detailed
interviews with groupings of Directors on specialist subjects
86
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 attended an externally facilitated ESG
workshop to improve the Board’s understanding of ESG related issues
in preparation for setting environmental performance measures and
targets under the proposed Remuneration Policy. Further detail on
the environmental performance measures and targets is set out on
pages 123 and 124. The Board also received briefings on matters such
as the pharmaceutical competitive environment, healthcare business
development activity, investor perceptions, market sentiment,
cybersecurity, business intelligence, capital markets and listing
related developments. We also refreshed our induction programme
for Non-Executive Directors to support our newly appointed Directors
during their first year with Hikma. This included briefings on key issues
facing the Board, allocating time to discuss environmental initiatives
with our ESG team, cybersecurity with our Chief Information Officer
and Global Infrastructure team and diversity with our Women’s
Empowerment Group. We also made a number of minor updates to
strengthen our underlying policies and procedures.
Tenure
We anticipate that the Independent Non-Executive Directors will
generally 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 again at six years.
Each member of the Board will stand for election or re-election at the
2023 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 SID.
Hikma’s inclusive workplace
welcomes different cultures,
perspectives and experiences
from across the globe.
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. No new external commitments were taken on by the
Directors during the reporting period.
Diversity
During the year, the NGC approved an update to the Board Diversity
Policy, to take account of the new diversity related disclosures and
targets under the Listing Rules. Additional disclosures in line with the
new diversity disclosures and targets under the Listing Rules are
summarised on page 77 and included in the prescribed format under
the Listing Rules on page 127. Hikma supports the recommendations
of the Parker Review and the FTSE Women Leaders Review and has
adopted the targets set out by both reviews. The Board Diversity
Policy is available at www.hikma.com.
The Board also approved the Group 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 attracting, retaining and developing 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. This diversity policy is included in
our Code of Conduct and communicated to all employees.
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 77 and uses these as a
reference point when considering the level of achievement against its
diversity objectives. Hikma has successful empowerment and talent
development programmes to help all employees make the most of
their potential, for more information please see pages 44 and 45.
Further detail on employee diversity is provided on page 77.
The Group’s talent acquisition policies for the three most senior
staff grades require a balanced list of candidates to support our
diversity goals.
Ethnicity
The Board considers that it has demonstrated strong ethnic diversity
since the formation of Hikma and has three Directors from ethnic
minority backgrounds, representing 27% of the Board, including
the Executive Chairman. Accordingly, the Board has achieved and
wholeheartedly supports and adopts the Parker Review
recommendation and target set by the new diversity related
disclosures under the Listing Rules 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 in 2022, with women now
representing 45% of the Board. The Board has adopted the targets
set by the FTSE Women Leaders Review and new diversity related
disclosures under the Listing Rules to achieve at least 40% of Board
members identifying as women. The Board also adopted the voluntary
target set by the FTSE Women Leaders Review, to increase the gender
diversity of the leadership team (Executive Committee and senior
direct reports) to a minimum of 40% women by the end of 2025.
Our Remuneration Committee has integrated these targets into
the performance measures for the proposed Remuneration Policy,
further detail is included on pages 123 and 124.
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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 as a group at least twice
a year 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 and CEO, having taken into account the
comments from the Board evaluation and discussions with the SID,
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 2023 AGM.
For and on behalf of the Nomination and Governance Committee.
Patrick Butler
Chair, Nomination and Governance Committee
22 February 2023
Nomination and Governance Committee
continued
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
In line with the Code we undertake a formal and rigorous annual
evaluation of performance of the Board, its Committees, the
Chairman and individual Directors. We operate a three-year cycle of
external evaluation in year one, followed by internal evaluations in years
two and three. Our last external evaluation took place in 2021, so in
2022, Hikma engaged Lintstock Ltd to facilitate our internal evaluation
of Board performance. Lintstock is an advisory firm that specialises in
Board reviews, and had no pre-existing connections, beyond
conducting board reviews, with Hikma.
Process
The first stage of the exercise involved Lintstock engaging with key
stakeholders, in order to set the context for the review and to tailor
the scope to the specific circumstances of Hikma. With the exception
of our three newly appointed Directors, all Directors then completed
an online survey addressing the performance of the Board, its
Committees and the Executive Chairman.
As well as addressing core aspects of Board and Committee
performance in 2022, the exercise had a particular focus on the
following areas:
– the quality of the 2022 Board strategy session, including the
quality of materials, discussions and the articulation of conclusions
and next steps
– the clarity of Hikma’s strategy, the metrics used to track progress,
and the Board’s focus on both organic and inorganic growth
opportunities
– the understanding of key stakeholder groups, including
shareholders, customers, governments, regulators, patients and
suppliers
– the incorporation of ESG considerations into Board discussions and
decision-making
– the Board’s tracking of external developments including competitor
activity, technological evolution, regulatory and legislative changes,
as well as macroeconomic and geopolitical events
Outcome
Lintstock’s report was discussed at a Board meeting in early 2023.
As a result of the review, the Board reflected on the key points
raised, lessons learned and agreed the following priorities and
actions for 2023:
– complete the CEO selection process and ensure a successful
integration of the new CEO, in order to work effectively with the
Board and the broader business
– continue to engage with our shareholders ahead of the 2023 AGM,
particularly in relation to the proposed Remuneration Policy
– complete the inductions for our Non-Executive Directors
appointed in 2022
– review succession planning processes for the Board and senior
management
– strengthen our Board strategy sessions to develop, amongst a
number of topics, our ESG strategy and inject wider additional
stakeholder perspectives
88
Audit Committee
Letter from the Chair
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 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.
Verification
The qualitative disclosures in the Annual Report (beyond the audit,
adviser review and internal review processes) 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 process
assisted the Committee in its determination that the report and
accounts taken as a whole are fair, balanced and understandable.
Distributable reserves
The Committee is aware that the Financial Reporting Council (FRC)
is encouraging organisations to provide greater clarity on their
distributable reserves position. During the year, management
re-assessed the Company’s distributable reserves in line with FRC
guidance, reflecting the impact of converting the Group’s merger
reserve (which was created when Hikma listed in 2005 and as a
result of the acquisition of the Columbus facility in 2016) into
further distributable reserves and the impact of the share buyback
undertaken. The Committee has reviewed and approved the
distributable reserves disclosure in the financial statements
(see page 194 for further details).
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 an agreed time
period and ensure mitigation or remediation of all high risk findings
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 2022 and reviewed and approved the plan for
2023. 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.
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 reviewed the results of an assessment of the quality
of the internal audit function, obtained from a wide spectrum of
management feedback and 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 Nigel Comello
was appointed as the senior statutory auditor in May 2022. The
Committee recommends the re-appointment of PwC for 2023.
We believe the independence and objectivity of the external auditor
and the effectiveness of the audit process are safeguarded and
strong. The Company has complied with the Statutory Audit Services
Order for the financial year under review.
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 Comello provided
clear and constructive leadership to the audit team. As part of this
review the Committee examined the following areas:
– Audit quality and technical capabilities: the Committee
considered that the auditors undertook an effective and in-depth
assessment and verification exercise in respect of the financial
statements and associated disclosures for the year ended 31
December 2022 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 FRC, including the Audit Quality Inspection Supervision
report, and believes that there is an open and appropriately
challenging relationship between the audit leadership team, the
Committee and management. Management also conducts a formal
review of audit quality and effectiveness using a survey where
feedback is provided by Committee members and management.
The key outcomes are summarised and considered by the
Committee in their assessment of the auditor.
– 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 clearsighted judgement in the matters on which it has provided
opinion and has been open to an appropriate level of challenge and
debate. An example of PwC’s professional scepticism and
challenge, as noted by the Committee, include their in-depth audit
and challenge of the assumptions used in the impairment review
exercise where PwC challenged the cash flow forecasts, discount
rates and terminal growth assumptions.
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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 developed a number of 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 were used to design the scenarios.
Realistic but extremely severe adjustments were further applied for
sensitivity analysis. Further details on the assumptions and scenarios
are provided on pages 67 and 68.
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 an adverse 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 67. 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 longer than 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 68, 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 2025.
Audit Committee – Letter from the Chair
continued
– 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 meaning that non-audit fees
will be capped at 70% of the average audit fees paid in the previous
three consecutive financial years. 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 $210,000 (2021:
$200,000). These services are within the ordinary course of
services provided by the auditor.
The Committee confirms that the statutory audit services for the
financial year under review were conducted in compliance with the
Competition and Markets Authority Order, and a competitive audit
tender process was undertaken in 2015.
Audit tendering
PwC were appointed as auditors in May 2016, therefore, the current
Annual Report is the seventh report that they have audited. PwC
rotated the Senior Statutory Auditor in 2019 and 2022. This followed
the Chair of the 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.
Auditor’s fee
$3.9m
PwC
1 Jan –
31 Dec 2022
5.3%
1 Jan –
31 Dec 2021
5.7%
Audit related fees
Other non-audit services
94.7%
$3.7m
$0.2m
94.3%
$3.4m
$0.2m
Ensuring the integrity of financial
reporting and providing oversight
of our systems for internal control
and risk management.
90
Significant matters
As part of its work reviewing the financial accounts of the Group and
the report of the auditors, the Committee considered and discussed
the following important financial matters:
– Impairment review: as in previous years, management undertook
the impairment test exercise in respect of property, plant and
equipment and intangible assets. In respect of the Generic Advair
Diskus® CGU, management had recommended an impairment
charge of $75 million ($59 million was allocated to intangible assets
and $16 million to property, plant and equipment on a pro-rata
basis). The review of property plant and equipment resulted in an
additional impairment charge of $61 million mainly due to excess
capacity and the rationalisation of the R&D pipeline associated
production lines in the Generics CGU. The review of the individual
product related and marketing rights intangible assets resulted
in an impairment charge of $42 million. The Committee reviewed
management’s approach and recommendations and concluded
that the proposals were appropriate.
– Valuation of acquired intangibles in respect of the acquisition of
Custopharm Inc and the Canadian assets of Teligent Inc: the
Committee reviewed and challenged management’s judgements
and estimates of the acquisition accounting of Custopharm Inc. and
the Canadian assets of Teligent Inc. The valuation exercises were
performed by third-party experts.
– 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 $50 million and in
reviewing the deferred tax assets in key markets which amounted
to $192 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 at www.hikma.com.
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 Company Secretariat,
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 external and
internal 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 2022 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.
Risk management and internal control
The Board is ultimately responsible for ensuring that Hikma’s systems
of internal controls and risk management remain effective.
Risk management
The Committee has continued to receive reports on the operation
of the Group’s Enterprise Risk Management (ERM) framework which
includes the material controls and programme for enhancing the
Group’s risk management 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 information security initiatives. Further
information regarding the Group’s risk management activities is
available in the Risk management section on pages 58 to 66.
An independent expert assessment of the Hikma ERM programme
was performed by an external consulting firm, Satarla. The exercise
was requested by the Committee, in line with good practice, to
evaluate our approach to ensure it is suitable for our organisation,
and to identify opportunities to make improvements. The review
confirmed that the ERM activities were sufficient to meet the
regulatory requirements of the FRC and are aligned with the
guidelines and principles from international standards and best
practice. Opportunities to enhance the ERM programme were
suggested to further the ERM maturity level and these have been
incorporated into the strategic plan for the risk management function.
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Audit Committee – Letter from the Chair
continued
Internal control
The Board is ultimately responsible for ensuring that Hikma’s systems
of internal controls and risk management processes are effective
and has delegated responsibility for reviewing their effectiveness
to the Committee.
During the year, the result of the BEIS consultation on restoring trust
in audit and corporate governance was published. Hikma’s Group
Financial Compliance function took steps to prepare for the expected
upcoming regulation, and associated UK Corporate Governance Code
changes to be formalised by the FRC. Group Financial Compliance
assessed the control environment at Hikma in view of the consultation
outcome, and proposed steps to further formalise the internal control
environment including financial, IT and related operational controls.
Further, a formal fraud risk assessment was conducted; the result
of which was shared with management and the Committee along
with recommendations. A formal fraud prevention and detection
programme will be launched during 2023, building on existing
practices and policies.
Following the consultations by BEIS and the FRC on Audit Committee
standards, Group Financial Compliance will support the Committee in
the preparation of an Audit and Assurance Policy, that will satisfy the
anticipated requirements of both consultation documents, on selection
of external auditors and assessing assurance in terms of quality and
coverage as obtained by various sources internally and externally.
Management is awaiting further guidance and regulation and will
expand the scope of work undertaken in 2022 where necessary.
Meanwhile, management and the Committee will receive regular
updates on potential programme developments, as well as the results
of internal assurance of controls from Group Financial Compliance.
In addition to the aforementioned, 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, financial
compliance control testing outcomes as well as risk management.
The Board has not identified any material weaknesses. In making
this assessment, the Board takes into account:
– 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.
– Group financial compliance: the Committee receives regular
reports from Group Financial Compliance, who review relevant
parts of the finance function and operational processes, based
on a risk based testing plan. The team assesses Hikma’s processes,
identifies areas for improvement, and monitors remediation
progress.
– Risk management: the ERM framework provides a structure for risk
management activities to occur at all levels of the organisation,
including management of principal risks and uncertainties (detailed
on pages 60 to 66). 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.
– 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.
Membership of the Committee
The Committee comprises solely of Independent Non-Executive
Directors, who as a whole, have competence relevant to Hikma’s
business and the industry in which it operates. 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 78 and 79. 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
22 February 2023
Compliance, Responsibility and Ethics Committee
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 CEO. The Chief Compliance Officer reports
to the Chief Counsel and has direct access to the Committee.
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 approach to 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 of
Conduct guides all the Committee’s activities and is the key reference
point for all our employees. Hikma’s Code of Conduct is available at
www.hikma.com/about/ethics-and-compliance/code-of-conduct.
Supplier Code of Conduct
In 2022 Hikma introduced a Supplier Code of Conduct which sets
out the standards we expect from all our suppliers. As an initial step,
we have distributed the Supplier Code of Conduct to our existing
suppliers for awareness and are sharing it as part of the on-boarding
process for any new supplier. The Supplier Code of Conduct is
available at www.hikma.com/about/suppliers.
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 and anonymously. 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.
Letter from the Chair
John Castellani
Chair, Compliance,
Responsibility and
Ethics Committee
Dear Shareholders
During 2022, 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 Anti-Bribery
and Corruption (ABC) compliance and integrity programme are
available on our website at www.hikma.com.
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:
– launching a global supplier code of conduct which requires our
suppliers and third parties who represent or conduct business
on behalf of Hikma to comply with all applicable laws, rules,
regulations, and ethical standards, including with respect to forced
or compulsory labour and human trafficking
– partnering with EcoVadis, a leader in sustainability ratings, to
implement a platform to assess our main supplier base for any
risk of modern slavery or human rights abuses
– training Hikma staff on labour standards and how to recognise
and respond to any incidences of modern slavery
– carrying out appropriate due diligence
– an anonymous speak up line to empower Hikma employees,
consultants and suppliers to report potential issues of
modern slavery
– engaging with supply chain partners and the operational part of
our business if and when any risk of modern slavery is identified
Hikma’s modern slavery statement is available at www.hikma.com.
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 sustainability report provides a detailed assessment of our key
efforts which is available on pages 37 to 45.
Ethical issues
The Committee oversaw Hikma’s response to ethical issues arising
during the year. There are no matters to report.
92
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
Compliance, Responsibility and Ethics Committee
continued
Remuneration Committee
Training
During the year, we continued with our training programmes for the
Code of Conduct, ABC, speak up, anti-money laundering, Criminal
Finances Act, General Data Protection Regulation (GDPR), antitrust
and related matters, both virtually and in person. 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.
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 prevention of tax evasion legislation across
its businesses and will continue to oversee matters of compliance.
Auditing and monitoring
The Committee receives regular updates on the monitoring
programme conducted by the Hikma Compliance team. In addition,
the Committee retains independent third parties to conduct periodic
and recurring audits of our governance and transparency and the
compliance programme and related activities.
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 GDPR and were updated by the Committee
during 2021.
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, among 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.
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
22 February 2023
Doing the right thing by
conducting business with
integrity and transparency
and in accordance with the law.
94
Letter from the Chair
Nina Henderson
Chair, Remuneration
Committee
Dear Shareholders
On behalf of the Board, I am pleased to be writing to you as Chair of the
Remuneration Committee for the first time and present the Remuneration
Committee’s Report for the financial year ended 31 December 2022. The
Report is split into the following sections:
i. this Annual Statement which contains a summary of the proposed
updates to our Directors’ Remuneration Policy and the remuneration
decisions made during the year.
ii. the new 2023 Directors’ Remuneration Policy (the 2023 Policy) that,
if approved by shareholders, will take effect from the date of the
2023 AGM.
iii. the Annual Report on the implementation of the current Policy in the
year ended 31 December 2022 and implementation of the new policy
for the next financial year.
At the 2023 AGM, in addition to the voting resolutions on the
Remuneration Report and Remuneration Policy, there will be a
resolution asking shareholders to approve the new 2023 Long-Term
Incentive Plan (LTIP) and deferred bonus plan rules.
Remuneration Policy Review
The primary focus of 2022 has been the review of the Remuneration Policy
to ensure that the incentive structure is appropriate for the next three years.
To meet the future needs of Hikma’s business, the incentive structure
must reward performance linked to business plan delivery as well as retain
and attract an appropriate calibre of executive talent recognising the
highly competitive nature of the global pharmaceutical industry.
The review process began in early 2022 with design principles and
progress discussed in Committee meetings during the year. The
Committee approved the proposed design of the incentive structure at
the end of the year after having reviewed feedback from the shareholder
consultation process undertaken. Management were also consulted on
the Policy, as part of the process, but final approval of the Policy was made
by the Committee, thereby avoiding a conflict of interest.
Incentive structure
The fundamental incentive structure of Hikma’s current Remuneration
Policy has remained unchanged since the adoption of the Executive
Incentive Plan (EIP) in 2014. In the years since the EIP was introduced,
Hikma has grown significantly now generating revenues from a broader
product portfolio compared to a significant concentration of revenue on
a smaller number of products that existed in 2014. Concurrently, Hikma’s
geographic penetration has expanded. Hikma is now a complex set of
businesses operating in highly competitive segments across international
markets with 57% of 2022 revenues emanating from the United States
(the global hub of the pharmaceutical industry).
Hikma’s business plan is to deliver long term sustainable growth through
new products, new business lines and initiatives that will require multiple
years to implement and commercialise.
In conducting the remuneration policy review, a range of alternative
designs were considered. The EIP has been focused on assessing
performance over one year only and is not designed to enable the long
term performance measurement that is needed to support the future
business plan.
The proposed 2023 Policy focuses on two separate incentive plans which
will enable pay for performance recognising actions and investments that
will span multiple years to produce results:
– Annual bonus – performance measured over one year with 50% of any
earned bonus deferred into an award over shares for a period of 3 years.
Maximum opportunity of 200% of base salary.
– LTIP – a performance share plan (PSP) with performance measured
over 3 years. An additional holding period of two years will apply post
vesting. Maximum opportunity of 300% of base salary.
The design increases the maximum total incentive opportunity from 400%
of salary, under the EIP, to 500% of salary under the proposed 2023 Policy.
This increase in opportunity recognises the lengthened timescales and
weighting on long-term performance compared to our existing policy.
The maximum limits have been considered to enable Hikma to attract and
retain Executive Directors and compete with significantly higher incentive
multiples found in the US market which influence compensation levels
in the global pharmaceutical sector.
In addition, the proposed 2023 Policy design:
– increases the proportion of total incentive opportunity that is weighted
towards long-term performance and reduces the proportion that is paid
out in cash
– reduces on-target annual bonus opportunity from 62.5% of maximum
to 50% of maximum
– increases the annual deferral period from 2 years to 3 years
– expands the triggers covered under our malus and clawback policy
Further details on the proposed changes to Policy can be found on pages
99–108.
As part of the Policy review, we also considered the performance
measures and targets to ensure they are appropriately stretching and
supported Hikma’s strategy. In summary, the proposed incentive
structure:
– introduces diversity and climate measures into both the annual bonus
and LTIP
– increases the focus on alignment with shareholders through the
introduction of EPS and relative TSR measures in the LTIP
– aligns long term incentive outcomes with delivering new products,
a key part of Hikma’s business plan for ensuring long term growth,
by introducing a target for revenue for new business.
Further details can be found in the implementation section of this letter
and pages 123 and 124 of the remuneration report.
Shareholder consultation
In formulating the proposed 2023 policy, we undertook an extensive
shareholder consultation exercise with our major shareholders (which
accounted for 48% of the issued share capital) together with investor
bodies. We are grateful for the valuable feedback provided and delighted
that the investors we spoke to were strongly supportive of the longer-term
focus and the greater alignment of the management team’s rewards with
those of shareholders.
Further information on Hikma’s approach to engaging with shareholders
can be found on Page 23.
As a Committee, we will continue to engage with shareholders and
institutional investor bodies in the development of our reward programs.
We will continue to emphasise our focus on strengthening our pay for
performance culture with the objective of creating long-term sustainable
shareholder value.
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
Remuneration Committee
continued
Performance outcome
The Injectables, Branded and Generics business segments provide the
Group with a portfolio capable of meeting market place volatility. During
2022 the macroeconomic headwinds of inflation, interest rate rises and
currency movements resulted in significantly higher expenses versus
budget and compared to 2021. Concurrently the Generics business
experienced a challenging year. The Injectables and Branded segments
partly offset the financial performance of the Generics business.
As a result of the Generics challenges the Group financial performance
was Revenue $2,517m and EBIT (before R&D) $740m which were 95% and
93% of target respectively.
When Said Darwazah was appointed to undertake the dual role of
Executive Chairman and Chief Executive Officer (CEO), on the departure
of Siggi Olafsson, he was asked by the Board to work with the President
of the Generics business to ensure it is appropriately structured for future
success. Restructuring during 2022 resulted in reducing the Generics
annual cost base by $8m and this, together with business development
plans identified, puts this business segment in a good place for future
growth. The Committee therefore assessed the Executive Chairman
and CEO as being on target for performance related to this measure.
This when combined with the financial outcome resulted in a total
incentive payout of 150.6% of base salary (254.7% in 2021).
The Executive Vice Chairman is responsible for managing the MENA
business. The 2022 performance of this business was one of the strongest
parts of the Group as demonstrated by Hikma becoming the third largest
pharmaceutical company in MENA during 2022. It generated Revenues
of $862m and EBIT (before R&D) of $227m which were 101% and 105%
of target.
During 2022 the Board wanted the Executive Vice Chairman to focus on
a number of environmental initiatives. Over the year the MENA business
identified opportunities for on-site renewable energy generation in KSA
and Morocco, changes to the electricity supply for the business in Sudan
(which will result in a major reduction in diesel usage from January 2023)
and a number of initiatives in Tunisia, KSA and Egypt to reduce scope 1
emissions. These will result in savings of 1.5m kWh and 300,000 litres of
diesel in 2023. As a result of these initiatives the Committee assessed
performance as being between target and maximum on the ESG measure.
The total 2022 incentive payment for the Executive Vice Chairman was
220% (268.8% in 2021). Further details of the calculation of the incentive
outcomes for the Executive Chairman and CEO as well as the Executive
Vice Chairman can be found on pages 114-117 of this report.
The Committee reviewed the trend for colleagues across the organisation
and noted that bonuses were generally lower than in 2021 and therefore
there was alignment between the Executive Directors and the wider
workforce.
Former CEO leaving arrangements
Hikma’s former CEO, Siggi Olafsson, resigned to pursue other
opportunities. Under the Rules of the EIP all unvested shares were
forfeited and the pension was treated in line with the pension plan rules
for a normal leaver.
The Executive Chairman, Said Darwazah became CEO without any
additional remuneration being paid.
Salaries
As part of the policy review the Committee undertook a benchmarking
exercise during the year comparing Executive Director Compensation
to appropriate FTSE and global pharmaceutical peers. The Committee
also noted the salary adjustments that have been applied to the wider
workforce for 2023, which represented an average increase of 4%.
Having considered the market data, the wider employee increases and
the proposed changes in the new Remuneration Policy, the Committee
determined that the base salary for the Chairman and CEO should remain
unchanged and that the Executive Vice Chairman should receive a pay
increase of 3.5% increasing base pay to $806,787 ($779,504 in 2022).
96
Implementation of the new Policy in 2023
Subject to approval of the proposed Policy at the 2023 AGM, we intend
to make incentive awards as follows.
Operation of the 2023 bonus
The 2023 annual bonus will continue to be determined based on
performance measures weighted at 80% financial and 20% strategic
deliverables, the same weighting that was used for the EIP. The financial
element will focus on revenue and profit, and the strategic element will
be a combination of strategic and ESG measures.
Fifty percent of any bonus payment for Executive Directors will be paid
in cash. The remaining 50% will be deferred into shares for a period of
three years. Maximum bonus for both Executive Directors will be 200%
of base salary.
Further details on our approach can be found on page 123.
LTIP awards to be made in 2023
The maximum award for both Executive Directors will be 300% of base
salary.
The performance conditions would be measured from 1 January 2023
and include:
– relative TSR against a FTSE 50 – 150 peer group excluding investment
trusts (20% weighting)
– business development and portfolio expansion (30% weighting)
– cumulative EPS (30% weighting)
– ESG measures (20% weighting)
Wider employee context
The Committee does not directly consult employees on the remuneration
aspects contained in this report, however, in my additional role as the
Director responsible for employee engagement, I visited a number of
Hikma’s sites during 2022 and held meetings with employees for feedback.
Specifically, I visited the Columbus, Ohio, Cherry Hill and New Jersey
manufacturing sites and met with sales, marketing, manufacturing and
R&D managers. I also participated in town hall sessions with employees.
Throughout 2022, I met with employee resource groups focused on
gender diversity in Jordan, Cherry Hill and Columbus as well as an African
American group in Cherry Hill. Further details of employee engagement
can be found on pages 19 and 75.
The Committee is briefed on the wider employee pay policies and
practices throughout the Group, including the internal Living Wage and
the level of pay in each one of our jurisdictions, which takes account of the
cost of living. During 2022 salary adjustments were made to employees
in a number of locations as a result of changes in the rate of inflation and
devaluation of currencies. We continue to be fully committed to providing
a Living Wage to all our employees.
Discretion
The Committee oversees the application of discretion in accordance with
the Remuneration Policy. The Committee has not applied any discretion
in the year under review.
We thank our investors for their constructive input during the development
of the proposed 2023 Policy. We look forward to receiving shareholder
support for this new policy and the approval of the 2022 Remuneration
Report.
I remain open to discussion with shareholders should there be any matters
that they wish to raise directly.
Nina Henderson
Chair, Remuneration Committee
22 February 2023
Remuneration dashboard
TSR and total executive pay
Value of executive holdings
Over a ten year period, Hikma has performed strongly against the
FTSE 100 index and sector (FTSE 350 Pharmaceuticals & Biotechnology
segment, a relatively small group of companies that are mainly focused
on developing new medicines). The table below shows the alignment
of executive pay to TSR performance.
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 2013
Executive Director
shareholding value ($m)
Share price
($)
6
5
4
3
2
1
0
6.0
4.9
600
500
4.3
4.3
4.3
4.6
4.3
400
3.3
3.2
3.7
300
200
100
0
800
700
600
500
400
300
200
100
0
33.37
23.29
561
34.43
26.40
782
21.89
591
523
15.30
551
347
30.03
680
18.75
422
40
35
30
25
20
15
10
5
0
2013
2014 2015 2016 2017 2018 2019 2020 2021 2022
2015
2016
2017
2018
2019
2020
2021
2022
Average Executive Director pay
Hikma Pharmaceuticals PLC TSR
FTSE 100 TSR
FTSE 350 Pharmaceuticals & Biotechnology TSR
Executive Director shareholding
Share price (as at year-end in US dollars)
Generic pharmaceutical peers
Shareholder approval
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.
Strong TSR performance since 2018
350
300
250
200
150
100
50
0
81%
9%
(37%)
(56%)
Annual report on remuneration (25 April 2022 AGM)
Votes available
Votes cast
For
Against
Withheld
173,217,681
173,211,901
91.1%
8.9%
5,780
Annual report on remuneration (23 April 2021 AGM)
Votes available
Votes cast
For
Against
Withheld
2018
2019
2020
2021
2022
Hikma
Large Cap Specialty/Generics1
CEEMEA Healthcare2
US Mid Cap Generics and Injectables3
Remuneration Policy (30 April 2020 AGM)
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
4. Under the Companies Act 2006 votes ‘Withheld’ are not a valid vote and, therefore,
are discounted when considering approval at a general meeting
Votes available
Votes cast
For
Against
Withheld4
230,771,404
177,078,354
90.4%
9.6%
1.198,566
242,543,355
199,924,378
95.5%
4.5%
2,896,646
97
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
Remuneration Committee
continued
Remuneration Policy
Remuneration and performance summary
Reference in this section to the ‘Regulations’ refers to the Large and Medium-sized Companies and Group (Accounts and Reports)
(Amendment) Regulations 2013, with which this report complies
Directors Remuneration Policy
Non-Executive Directors’ fees
Performance components
Sales
Core Operating profit (before R&D)
Share price
Dividend
Employee compensation
Shareholder implementation approval
Shareholder policy approval
Total remuneration
2021
$2,553 million
$775 million
2022
-1 %
-5 %
$2,517 million
$740 million
2,219p
-30 %
54 cents
$583 million
4 %
2 %
90.4%
N/A
1,552p
56 cents
$593 million
91.1%
N/A
Executive Director
Said Darwazah
Mazen Darwazah
Siggi Olafsson
Components
Salary1
Said Darwazah
Mazen Darwazah
Siggi Olafsson4
Bonus2
Said Darwazah
Mazen Darwazah
Siggi Olafsson
Share awards vested3
Said Darwazah
Mazen Darwazah
Siggi Olafsson4
Pensions
Said Darwazah
Mazen Darwazah
Siggi Olafsson4
Other benefits
Said Darwazah
Mazen Darwazah
Siggi Olafsson4
2021 ($000)
2022 ($000)
4,585
3,809
5,307
-4 %
-7 %
-3 %
4,413
3,530
5,168
-25 %
-29%
–
2021 ($000)
2022 ($000)
1,018
753
1,167
1,568
1,232
1,895
1,875
1,700
2,047
69
58
160
55
65
38
0 %
4 %
-48 %
-39 %
-15 %
–
24 %
-5 %
118 %
-1 %
9 %
-48 %
-2 %
-52 %
-47 %
1,018
780
603
949
1,048
–
2,324
1,608
4,462
68
63
83
54
31
20
0%
3.5%
–
7%
-23%
–
-50 %
-50 %
–
0 %
3 %
–
0 %
0 %
–
2023 ($000)
(estimate)
3,319
2,519
–
2023 ($000)
(estimate)
1,018
807
–
1,018
807
–
1,161
809
–
68
65
–
54
31
–
1. Salary: The average rise for salaries across Hikma in 2022 was 4%
2. Bonus: The bonus figure comprises Elements A and C of the EIP. See page 111 for further explanation. The 2023 estimate presumes target performance on the proposed 2023 Policy.
3. Share awards vested: 2022 figures represent Element B of the 2020 EIP and Element C of the 2019 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 2022 vesting percentages, share prices and exchange rates.
4. Siggi Olafsson stepped down from the Board on 24 June 2022
Non-Executives
2021 ($000)
2022 ($000)
Non-Executive Directors’ average total fee1
148
-37%
93.2
62%
2023 ($000)
(estimate)
151
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 is shown on page 121. The average fee changes reflect the handover of Committee responsibilities and retirement and appointment of Non-Executive Directors
This section of the Report sets out our new Directors’ Remuneration Policy (the 2023 Policy). The 2023 Policy will, subject to shareholder
approval, become formally effective from the 2023 Annual General Meeting (AGM) on 28 April 2023 and apply to the remuneration of Directors
for the 2023 financial year. It is intended that the 2023 Policy will apply for a period of three years from 1 January 2023.
Core Principles
The Remuneration Committee (the Committee) aims to ensure that the remuneration for the Executive Directors:
– Aligns rewards with the experience of shareholders
– Has sufficient flexibility to recruit, motivate and retain the high calibre executives needed to drive the business forward in all the markets
in which it operates
– Focuses on long-term sustainable performance
– Rewards the successful delivery of Hikma’s strategy in line with its core values
Rationale
The 2023 Policy is designed to:
– Incorporate an element of longer-term performance and investor focused metrics, aligning executive remuneration more closely with
the shareholder experience and the successful delivery of Hikma’s strategy
– Align Hikma’s remuneration structure with peers
– Provide more flexibility to recruit US based executives if needed
– Focus on measures that are central to creating long-term shareholder value
– Include ESG specific measures
– Be bolstered with stretching targets and a robust target setting process
Changes
The changes are shown below:
Variable pay
We recognise the need to have an incentive structure that supports the developed business that Hikma is today, incentivises management
to perform over the longer-term and achieve the stretching business plan and is a recognisable incentive structure externally that has the ability
to attract and retain an appropriate calibre of executive in the competitive global pharmaceutical talent pool within which Hikma operates.
As a result, we are proposing to move away from the Executive Incentive Plan (EIP) and introduce a new incentive structure that supports our
business going forward. The proposed 2023 Policy focuses on two separate incentive plans:
– Annual bonus – performance measured over one year with 50% of any earned bonus deferred into an award for shares for a period of 3 years.
Maximum opportunity of 200% of base salary.
– LTIP – a performance share plan (PSP) with performance measured over 3 years. An additional holding period of two years will apply post
vesting. Maximum opportunity of 300% of base salary.
The change increases the maximum incentive opportunity from 400% of salary under the EIP, to 500% of salary under the 2023 Policy.
This increase in opportunity recognises the lengthened timescales and weightings on long-term performance compared to the current policy.
The proposed quantum has been carefully considered to enable Hikma to attract and retain future Executive Directors in the context of the
significantly higher incentive multiples found in the US market which particularly influences pay in the global pharmaceutical sector.
A summary table setting out the differences between our current remuneration policy and the 2023 Policy can be found in Appendix 2
of the AGM Notice of Meeting.
Malus and clawback triggers
In line with best practice, we are enhancing malus and clawback provisions to include:
– an unreasonable failure to protect the interests of employees and customers
– a breach of any restrictive, confidentiality or non disparagement covenants or other similar undertakings, whether contained in the
employment contract and/or settlement agreement and/or any other agreement between the company and the Executive Director
98
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
Remuneration Policy
continued
The 2023 Policy is presented below
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Not applicable.
Whilst there is no maximum
salary, any increase will generally
be no higher than the average
increase for the wider workforce.
A higher increase may be made
for example where there is a
material change in role or
responsibilities, promotion, where
there needs to be an adjustment
to reflect an individuals increased
experience in the role, when pay
is materially behind market
competitive levels, or in
exceptional circumstances, with
the rationale clearly explained in
the next report to shareholders.
Not applicable.
The value of benefit is based on
the cost to the Company and
there is no predetermined
maximum limit. The range and
value of the benefits offered
are reviewed periodically.
Fixed Remuneration
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.
Base salaries for Executive
Directors are reviewed annually
by the Committee and changes,
if any, normally take effect from
1 January.
Salaries are set with reference to:
– pay increases for the general
workforce
– salaries in peer companies
from the global pharmaceutical
sector and UK listed
companies
– company performance and
affordability
Salaries for individuals who are
recruited or promoted to the
Board may be (but are not
required to be) set below market
levels at the time of appointment,
with the intention of bringing the
base salary levels in line with the
market as the individual becomes
established in their role.
Benefits may include, but are
not limited to:
– healthcare
– school fees
– company cars/transport (or
cash allowance)
– life insurance
– relocation: when relocation
is required by the Company
– tax equalisation: where the
director becomes tax resident
in a jurisdiction as a result of
the role and to the extent that
additional taxes are paid and
related advisory fees.
As the Company operates
internationally it may be
necessary for the Committee to
provide special benefits or
allowances, for example (but not
limited to) benefits customarily
included in the country where
the Executive Director resides.
These would be disclosed to
shareholders in the annual report
on remuneration for the year in
which the benefit or allowances
were paid.
Pension (or cash allowance)
An appropriate level of pension
contribution to ensure executives
are provided with a retirement
standard commensurate with
their role, whilst being in line with
the wider workforce.
Not applicable.
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 the total
pension payment does not
exceed the maximum
opportunity.
The maximum pension cash
allowance (or pension
contribution as appropriate)
in line with the predominant
pension contribution made
for the wider global workforce
which is currently 10% of salary.
Performance Related Variable Remuneration
Short – Term Incentives
To provide alignment between
the successful delivery of the
short-term annual strategic
business priorities and reward.
Maximum of 200% of salary
Executive Directors are eligible to
participate in an Annual Bonus
Plan under which annual bonus is
earned subject to the
achievement of performance
over the financial year against
targets set by the Committee at
the start of each financial year.
No bonus is payable for
performance below threshold
level, 25% for threshold and up
to 50% of maximum pays out
for on-target performance.
Half of any bonus will normally
be deferred into an award over
shares, typically for a period of
three years. Dividend equivalents
may be accrued on deferred
shares based on dividends paid
to shareholders during the
vesting period. These may accrue
either in cash or shares on a
reinvestment basis.
Malus and clawback provisions
apply.
Performance measures and
weightings are reviewed annually
to ensure they continue to
support the achievement of
the Company’s key strategic
priorities.
Annual bonus financial targets
are set with reference to internal
plans and analyst consensus
forecasts.
Details of the performance
measures for 2023 are shown
on page 123.
The Committee has discretion
to adjust formulaic outcomes if
they are not considered to be
representative of the overall
financial performance of the
Group. Any adjustments applied
will be explained in the relevant
annual report on remuneration.
100
101
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
Remuneration Policy
continued
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
The maximum face value of
awards relating to a financial year
of the Company will be 300%
of base salary.
Performance is measured over
three financial years.
Performance measures for the
2023 award are EPS, business
development and portfolio
expansion, TSR and ESG,
applying 30%, 30%, 20% and
20% respectively. Further details
are on page 124.
The Committee will set
appropriate performance
measures for future years.
LTIP targets are set with reference
to a range of relevant reference
points which may include internal
plans and analysts’ consensus
forecasts.
The Committee has discretion
to adjust formulaic outcomes if
they are not considered to be
representative of the overall
financial performance of the
Group. Any adjustments applied
will be explained in the relevant
annual report on remuneration.
Not applicable.
Not applicable.
Long-Term Incentive Plan (LTIP)
To incentivise and reward
participants over the long-term
for sustained delivery of the
business strategy and
shareholder value.
Provides longer term alignment
with the shareholder experience.
Shareholding policy
To provide alignment between
the interests of Executive
Directors and shareholders
over the longer term.
Performance share awards may
be granted. In usual
circumstances awards vest after
a three-year period, subject to
the achievement of performance
targets measured over three
financial years.
Normally, vested shares are
subject to a holding period of
two years (shares may be sold at
vesting to satisfy any tax-related
liabilities).
25% of the award value will vest
for threshold performance and
62.5% of the award value will
vest for target performance.
Dividend equivalents may be
accrued on the shares earned
from LTIP awards based on
dividends paid to shareholders
during the vesting period. In line
with the LTIP rules, dividend
equivalents may also accrue
during any applicable post-
vesting holding period. These
may accrue either in cash or
shares on a reinvestment basis.
Malus and clawback provisions
apply.
In-employment shareholding
policy
Shareholding guidelines for all
Executive Directors will be at
least 300% of salary.
Executive Directors are expected
to build up their shareholding
guideline within a 5-year period
from their date of appointment
to the Board.
Post-cessation shareholding
policy
All Executive Directors will be
required to hold the lower of
(i) their shareholding at the date
of termination of employment;
or (ii) shares equivalent to the
minimum share ownership
guideline at that date, for a period
of two years post-employment.
Notes to the Remuneration Policy table
Malus and clawback
Annual bonus and LTIP awards are subject to malus and clawback provisions that protect the Company and shareholders. Under these
provisions (including a deferred element) the Committee can reduce or cancel awards under the annual bonus and LTIP that have not yet
vested (malus) and recover the value of an award that has vested or been paid (clawback). Malus can be applied to an alternative unvested
award to satisfy the clawback of a vested award.
The Committee may apply malus and/or clawback to annual bonus and LTIP awards in circumstances which include (without limitation):
– a material misstatement in the published results of the Group or one of its members
– an error in assessing any applicable performance condition or target and/or the number of shares subject to an award
– the assessment of any applicable performance condition or target and/or the number of shares subject to an award being based
on inaccurate or misleading information
– gross misconduct on the part of the Executive Director concerned
– an unreasonable failure to protect the interests of employees or customers of the Group
– a breach by the Executive Director concerned of any restrictive, confidentiality or non-disparagement covenants or other similar
undertakings contained in any agreement between the Company and the Executive Director
– where, as a result of an appropriate review of accountability, the Committee determines that the Executive Director has caused wholly or
in part a material loss for the Group as a result of (i) reckless, negligent or wilful actions or omissions; or (ii) inappropriate values or behaviour
– a Group member being censured by a regulatory body or suffers, in the Committee’s opinion, a significant detrimental impact on its
reputation
– the Company or entities representing a material proportion of the Group becomes insolvent or otherwise suffers a corporate failure
– participant having deliberately misled management, the Board, or the investor community
All of these malus and clawback provisions are applicable to annual bonus and LTIP awards. The following table summarises the normal
application of malus and clawback in respect of the incentive plans:
Application to
annual bonus
Cash bonus
Deferred share award
Application to LTIP
Three-year vesting period
Two-year holding period
Service contracts
The Committee’s policy for service contracts is:
Clawback available for three years from date of payment
Malus/clawback available for five years from date of award
Malus/clawback available for six years from date of award
– a maximum 12-month notice period applies. The Committee may in exceptional circumstances arising on recruitment allow a longer notice
period, which would in any event reduce to 12 months following the first year of employment
– there are no contractual arrangements that would:
– constitute liquidated damages clauses
– guarantee a pension with limited or no abatement on severance or early retirement
– provide for compensation for loss of office or employment that occurs because of a takeover bid
Service contracts can be viewed by shareholders either at the AGM or at the Company’s offices. The Company Secretary will make
arrangements upon request.
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
Remuneration Policy
continued
Recruitment remuneration
The Committee’s normal approach to internal and external recruitment is to pay no more than is necessary to attract candidates
of the appropriate calibre and experience needed for the role from the international market in which the Company competes.
The Committee will have regard to guidelines and shareholder sentiment regarding one-off or enhanced short-term or long-term incentive
payments made on recruitment and the appropriateness of any performance measures associated with an award.
The table below summarises the adjustments to the 2023 Policy with respect to recruitment of Executive Directors. Other than these potential
adjustments, other package elements would be in accordance with the main 2023 Policy elements.
Component
Policy
Maximum level
of variable
remuneration
Share buy-outs/
replacement awards
In exceptional circumstances, solely for the year of recruitment, the maximum level of variable remuneration
available may be increased by 150% of salary to 650%.
The Committee’s policy is to not provide share buy-outs as a matter of course. However, should the Committee
determine that the individual circumstances of recruitment justify the provision of a buy-out, any awards will
have regard to the terms and value of the arrangements that will be forfeited on cessation of a Director’s previous
employment and will be calculated taking into account the following:
– the proportion of the performance period completed on the date of the Director’s cessation of employment
– the performance conditions attached to the vesting of these incentives and the likelihood of them being
satisfied
– any other terms and conditions having a material effect on their value (lapsed value)
Any such compensation will be subject to clawback if the Director leaves the Company voluntarily within a fixed
time period determined by the Committee.
Where possible, the Committee will use existing share-based plans to grant such awards. However, in the event
that these are not appropriate, the Committee retains the discretion to use the exception in Listing Rule 9.4.2
for the purpose of making an award to compensate the individual for amounts forfeited upon leaving a previous
employer.
Payment for loss of office
When considering termination payments, the Remuneration Committee takes account of the best interests of Hikma and the individual’s
circumstances, including the reasons for termination, contractual obligations and the rules governing certain items of remuneration
(e.g., incentive plan rules). The Remuneration Committee will ensure that there are no unjustifiable payments for failure on termination of
employment. On an Executive Director ceasing to hold office, the Company will announce an out-going Executive Director’s remuneration
arrangements in accordance with applicable legal requirements.
LTIP
Component
General
Approach
Application of Remuneration Committee discretion
The Company may make additional payments where such
payments are made in good faith in discharge of an existing
legal obligation (including statutory payments that are
required in any relevant jurisdiction) or by way of damages
for breach of such an obligation; by way of settlement or
compromise of any claim arising in connection with the
termination of an Executive Director’s office or employment;
for agreeing to non-compete, non-solicitation and
confidentiality clauses; for insurance cover for a specified
period following the termination date, outplacement
services, legal fees or repatriation assistance.
Discretion to make payments in lieu of notice.
The Committee’s policy in relation to leavers can be
summarised as follows:
– the Committee will honour Executive Directors’
contractual entitlements
– if a contract is to be terminated, the Committee
will determine such mitigation as it considers fair
and reasonable in each case
– If, in the normal course of events, the Executive
Director works their notice period (12 months for
existing Executive Directors) they will receive
contractual compensation payments and
benefits during this time
– in the event of the termination of an executive’s
contract and Hikma requesting the executive to
cease working immediately, the Company may
make a payment in lieu of notice equivalent to
salary, pension entitlements and value of other
benefits and, on a discretionary basis and only
where it is in Hikma’s interest, a pro-rated
performance related bonus
– in the event of termination for gross misconduct,
neither notice nor payment in lieu of notice will
be given and the executive will cease to perform
services immediately
Component
Approach
Application of Remuneration Committee discretion
Annual bonus
Under the rules of the Annual Bonus Plan there is
no entitlement to a bonus payment if termination
occurs before the normal bonus payment date
but the Committee may exercise its discretion
to pay a bonus depending on the circumstances
of the departure. If any bonus is payable it will
be made in such proportions of cash and shares,
and subject to such deferral arrangements, as
the Committee may determine and will usually be
time pro-rated to take account of the proportion
of the financial year that has elapsed on the date
the Executive Director ceases active service.
Annual bonus
(deferred shares)
The treatment of unvested deferred bonus awards
on the cessation of employment is governed by the
rules of the Deferred Bonus Plan:
The Committee may use its discretion to:
– determine an entitlement to a bonus payment
– determine that an Executive Director is treated as
ceasing employment on the day they give or
receive notice
– disapply time pro-rating for a good leaver when
determining any bonus payment
– determine any applicable deferral arrangements.
An explanation will be provided to shareholders of the
basis of any application of discretion.
Deferred bonus awards held by a ‘good leaver’1 will
normally vest and be released at the usual time, but the
Committee may use its discretion to accelerate vesting
and release of awards.
An explanation will be provided to shareholders of the
basis of any application of discretion.
Where an Executive Director is determined to be a ‘good
leaver’1 awards will normally vest and be released at the
usual time, subject to the relevant performance targets,
and pro-rated for time served during the performance
period. However, the Committee may use its discretion
to disapply time pro-rating.
An explanation will be provided to shareholders on the
basis of any application of discretion.
– Unvested deferred bonus awards held by a ‘good
leaver’1 will vest on the normal vesting date unless
the Committee exercises its discretion to allow
vesting to be accelerated to the date of cessation
of employment or another date
– If the relevant individual ceases employment by
reason of limb b) or c) of the definition of ‘good
leaver’1, the Committee may decide that their
deferred bonus awards will, instead of vesting,
be exchanged for equivalent awards over another
company’s shares
– If an individual is not a ‘good leaver’, any unvested
deferred bonus awards will lapse
– Special rules apply in the case of death
– Save as summarised above, awards will continue
to be subject to their original terms, including
malus, clawback and holding periods, but the
Committee has discretion to accelerate the
release of awards for leavers.
The treatment of LTIP awards on the cessation of
employment is governed by the rules of the Long
Term Incentive Plan:
– Awards held by a ‘good leaver’1 will normally vest,
to the extent determined by the Committee under
the rules and time pro-rated to take account of
the proportion of the performance period that
has elapsed, on the normal vesting date, unless
the Committee exercises its discretion to allow
vesting to be accelerated to the date of cessation
of employment or another date and/or to disapply
time pro-rating
– If the relevant individual ceases employment by
reason of limb b) or c) of the definition of ‘good
leaver’1, the Committee may decide that their LTIP
awards will, instead of vesting, be exchanged for
equivalent awards over another company’s shares
– If an individual is not a ‘good leaver’, any unvested
LTIP awards will lapse
– Special rules apply in the case of death.
– Save as summarised above awards will continue
to be subject to their original terms, including
malus, clawback and holding periods, but the
Committee has discretion to accelerate the
release of awards for leavers.
104
105
1. An individual will be treated as a ‘good leaver’ under the rules of the Deferred Bonus Plan and the Long-Term Incentive Plan if the termination of their employment is because of
a. ill-health, injury or disability to satisfaction of Committee;
b. the employing company ceasing to be under the control of the Company;
c. a transfer of the undertaking, or part of the undertaking, in which the participant works to a person which is neither under the control of the Company nor a Group company; or
d. any other reason at the discretion of the Committee.
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
The Committee will use its discretion to treat the
calculation of unvested share awards differently if there
are good reasons for doing so.
NEDs do not participate in the Group’s pension or incentive arrangements. The annual fees payable to newly recruited NEDs will follow the
policy for fees payable to existing NEDs, whose fees comprise:
Differences between the policies for Executive Directors and employees, consideration of shareholder views and consideration of
conditions elsewhere in the Group
Employees were not directly consulted on the executive remuneration policy. All employees receive a salary, pension, and medical insurance
on a similar basis to the Executive Directors. Additionally, all employees participate in a cash bonus scheme, which is similar to the cash element
of the annual bonus. The Committee reviews detailed internal and summary benchmarking data and is satisfied that the level of remuneration
is proportionate across the HR grades. Further information is available on page 95 regarding how the Committee takes account of shareholder
views when developing and implementing the remuneration policy, with further information on page 23.
Remuneration Policy table for the Chair and Non-Executive Directors
Non-Executive Directors’ (NEDs) fees are set by the Board under the direction of the Executive Directors having considered the:
– pay practice in FTSE and sector peers
– extensive travel required to undertake the role
– significant guidance and support required from the NEDs
Component
Basic fee
Committee
membership fee
Committee
Chair/employee
engagement fee
Expenses
Approach
Application of Remuneration Committee discretion
An underlying fee for undertaking the duties of a Director of
Hikma, chiefly relating to Board, strategy, and shareholder
meetings. Provides a level of fees to support recruitment
and retention of NEDs with the necessary experience.
A composite fee for taking additional responsibilities in
relation to Committee membership. Usually, NEDs are
members of at least three committees.
The Committee Chairs undertake additional responsibilities
in leading a committee and are expected to act as a sounding
board for the executive that reports to the relevant committee.
The Director responsible for employee engagement receives
a similar fee due to the additional requirements of that role.
The chairmanship fee is paid in addition to the membership fee.
The Company pays expenses incurred wholly in relation to
the position of NEDs and ensures that Directors do not incur
a tax liability as a result. The Company retains discretion to
provide for an allowance structure as an alternative to the
latter payment.
Whilst there is no maximum, the practice is to remain within
the parameters of FTSE peers.
Remuneration Policy
continued
Change in control
Component
Approach
Application of Remuneration Committee discretion
The Committee will use its discretion to treat the
calculation of bonuses differently if there are good reasons
for doing so.
Annual bonus
LTIP
The treatment of bonus is governed by the rules
of the Annual Bonus Plan and the Deferred Bonus
Plan. The Committee may determine that bonus
awards for the year during which the change of
control occurs may either continue to be determined
on the basis of the whole year or may be pro-rated
to the date of the change of control.
Any unvested deferred bonus awards will normally
vest early on the relevant corporate event.
The treatment of unvested LTIP awards is governed
by the rules of the Long Term Incentive Plan. Any
unvested LTIP awards will normally vest early on the
relevant corporate event to the extent determined
by the Committee in accordance with the rules of
the LTIP, having regard to performance assessed on
such basis as the Committee considers appropriate
in the circumstances and (unless the Committee
decides otherwise) time pro-rating.
Vested awards subject to a holding period will be
released early.
Legacy arrangements
The Committee reserves the right to make any remuneration payments and/or payments for loss of office, including the exercise of any
discretions available to it in connection with such payments (notwithstanding that they are not in line with this policy), where the terms
of payment were agreed:
– before the date the Company’s first Remuneration Policy came into effect
– before this policy was approved and implemented, provided that the terms of the payment were consistent with the Remuneration Policy
in force at the time they were agreed
– at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment is not
in consideration for the individual becoming a Director of the Company
Details of any such payments will be set out in the applicable annual report on remuneration as they arise.
For these purposes “payments” includes the Committee satisfying awards of variable remuneration and, in relation to an award over shares,
the terms of the payment are “agreed” at the time the award is granted.
Remuneration Committee discretion
The Committee retains discretion in the operation and administration of the Remuneration Policy, noting that no material changes will be made
to the advantage of the Executive Directors without obtaining shareholder approval. Any use of discretion and how it was exercised will be
disclosed, where relevant, in the annual report on remuneration.
This includes (but is not limited to) the following:
– the Executive Directors’ participation in the Company’s incentive plans
– the timing of awards including grant, vesting and release dates
– the form and size of awards and vesting levels within the limits set out in this policy
– the performance measures and weighting for annual bonus and LTIP awards within the terms set out in this policy
– the adjustment of formulaic outcomes of incentive awards where the outcomes are not reflective of overall Company performance or aligned
with shareholder and/or wider stakeholder experience
– the settlement of any share awards in cash in exceptional circumstances where permitted by the relevant share plan rules
– the determination of good leaver status and treatment of unvested awards in line with this policy and incentive plan rules
– the extent to which malus and clawback should apply to any award
– the treatment of awards in the case of a change of control, including the vesting level of LTIP awards or if awards will, instead of vesting early,
be exchanged for, or replaced with, equivalent awards over shares in another company
– the treatment of awards in the case of a demerger or certain other corporate events including a rights issue, corporate restructuring or the
issue of special dividends, in which circumstances the Committee may, if it considers that the relevant event would materially affect the value
of the Company’s shares, adjust deferred bonus and LTIP awards or decide that they will vest and be released early
– the amendment or replacement of performance measures and targets where it reasonably considers it appropriate to do so, provided that
the amended conditions are not materially less challenging
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
Remuneration Policy
continued
Annual report on remuneration
Illustrations of application of Remuneration Policy
The following charts show the potential available for 2023 (dependent upon performance) for Executive Directors under the new policy.
Annual report on remuneration
Said Darwazah
2023
Minimum
Target
Maximum
Equity
growth
Mazen Darwazah
2023
Minimum
Target
Maximum
Equity
growth
Fixed pay
Annual Bonus
LTIP
LTIP – share price
appreciation
1,174
100%
1,174
29%
1,174
19%
1,174
15%
1,174
1,018
25%
2,036
33%
2,036
26%
1,909
47%
4,101
3,054
49%
3,054
39%
6,264
1,527
20%
7,791
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Total remuneration $000
Fixed pay
Annual Bonus
LTIP
LTIP – share price
appreciation
919
100%
919
28%
919
19%
919
15%
919
807
25%
1,614
33%
1,614
26%
1,513
47%
3,239
2,420
49%
2,420
39%
4,952
1,210
20%
6,162
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
The scenarios in the graphs are as follows:
– fixed pay includes salary, benefits, and pension. The numbers are based on the base salary for 2022, the cost of transportation and medical
benefits provided and a pension contribution of 10% of base salary.
– annual bonus is shown as a maximum percentage of base salary, with minimum, target and maximum performance shown as 0%, 50% and
100% respectively.
– LTIP is shown as a maximum of base salary, with minimum, target and maximum performance shown as 0%, 62.5% and 100% respectively.
– share price appreciation has been calculated as a 50% increase in the value of the LTIP between the date of grant and vesting
– no dividend accrual has been incorporated in the values relating to the LTIP
Shareholders were consulted during the process and details of the consultation and points considered are included in the Chair letter on page
95 and the engagement with shareholders found on page 23.
The Committee considered the operation of the remuneration policy in terms of the Corporate Governance Code as follows:
Clarity: the Committee regularly engages with shareholders, their representative bodies and management to explain the approach to
executive pay.
Simplicity: the rationale, structure and strategic alignment of each element of pay has been explained in the remuneration policy.
Risk: there is an appropriate balance between fixed and variable pay together with objectives that ensure there is alignment with long-term
shareholder interests. This alignment is further strengthened under the new 2023 Policy.
Director and average employee compensation change (audited)
The table below shows the percentage change in the Executive Chairman and CEO’s Salary , benefits and bonus for the three years between
2019 and 2022 compared with the percentage change in the average of each of those components of pay for employees (excluding the
Executive Directors).
Director and average employee
compensation
change – salary
Salary
Benefits
Bonus
Average percentage change
Average percentage change
Average percentage change
2019-2020
2020-2021
2021-2022
2019-2020
2020-2021
2021-2022
2019-2020
2020-2021
2021-2022
Said Darwazah
Siggi Olafsson
Mazen Darwazah
Patrick Butler1
Ali Al-Husry1
Pamela Kirby1
John Castellani1
Nina Henderson1
Cynthia Flowers1
Douglas Hurt1
Laura Balan1,2
Victoria Hull1,2
Deneen Vojta1,2
Employees
Average per Employee
Average per the listed
parent Company Employee
0.0%
3.0%
0.0%
2.0%
3.5%
2.9%
2.9%
2.9%
76.9%
–
–
–
–
0.0%
0.0%
-15.6%
-21.1%
-3.0%
-1.3%
-16.6%
-39.5%
3.0%
-48.3%
-72.3%
-76.8%
-48.4%
5.0%
-2.8%
5.4%
5.4%
5.4%
5.4%
5.4%
85.8%
–
–
–
3.5%
0.7%
-29.8%
-51.8%
-8.2%
-7.6%
-71.0%
-8.2%
-2.8%
-7.9%
-8.4%
–
–
–
0.0%
0.0%
0.0%
-39.7%
-63.6% -100.0%
0.0%
0.0%
0.0%
-23.9%
-29.7%
134.8%
-17.8%
-29.7%
-40.9%
0.0%
-28.7%
-24.5%
0.0%
0.0%
0.0%
–
–
–
–
–
–
–
–
–
5.2%
-1.1%
-11.5% -100.0%
-6.1%
-15.0%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.0%
0.8%
3.9%
3.7%
2.8%
1.7%
1.0%
6.7%
-0.2%
-0.2%
2.7%
8.3%
0.0%
-1.2%
8.9%
0.2%
-9.8%
-2.9%
1.3%
16.1%
11.5%
34.8%
-54.3%
-39.2%
5.7%
17.9%
-16.2%
1. Non Executive Directors do not participate in the EIP.
2. These Non Executive Directors joined during 2022 and therefore there is no change in salary or benefits.
Hikma’s pay review, which took effect from 1 January 2023, awarded average percentage increases in wages and salaries of 4% (2022 3.5%)
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 2022 were broadly similar to those in the previous year (2021: unchanged).
UK gender and CEO pay ratios
Hikma Plc has 26 employees (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 makes meaningful
gender pay comparisons in the UK difficult. The ratio of total CEO pay to the average Group employee is 23:1 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 2022 on remuneration of Hikma’s employees and major distributions to
shareholders.
Distribution expense
Employee
Distributions to shareholders 1
2021
2022
$583 million
$593 million
$120 million
$125 million
% change
from 2021
to 2022
1.7%
4 %
1. The Company purchased 12,499,670 shares during 2022 at a cost of $303 million, which is excluded from the distributions to shareholders in accordance with the regulations. Those
Predictability: the pay opportunity under different performance scenarios is set out in the illustration above.
shares are held in treasury and do not receive dividends.
Proportionality: executives are incentivised under the EIP to achieve stretching annual targets. Additionally, the new 2023 Policy builds in
stretching targets over three-year performance periods. The Committee assess performance holistically and the end of each performance
period against underlying business results together with internal and external context.
Alignment with culture: Hikma’s purpose and values can be reinforced under the strategic objectives under the EIP and under both the annual
bonus and LTIP of the new 2023 Policy.
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
Annual report on remuneration
continued
Employee cost and average executive pay ($m)
Executive Director pay
($m)
Average employee cost
($)
A description of the EIP structure applicable for 2020-2022 is provided in full on pages 79 to 84 of the 2019 Annual Report. A description can
also be found on the website at www.hikma.com/investors/corporate-governance/key-committees/remuneration-committee. This policy was
approved at the AGM held on 30 April 2020 and took effect from this date.
6
5
4
3
2
1
0
50,355
55,762
55,862
53,727
53,625
53,796
62,622
62,932
60,000
50,000
5.9
4.9
4.3
4.3
3.7
3.2
4.6
4.4
40,000
2015
2016
2017
2018
2019
2020
2021
2022
Executive Director pay
Average employee cost
Committee membership and attendance
Members and attendance
Member
Dr Pam Kirby (retired 25 April 2022)
Nina Henderson (Chair appointed 25 April 2022)
Pat Butler ¹
John Castellani ¹
Cynthia Flowers ¹
Douglas Hurt
Laura Balan (appointed 1 October 2022)
30,000
20,000
10,000
0
Meetings
2/2
11/11
10/11
10/11
10/11
11/11
2/2
Attendance
100%
100%
91%
91%
91%
100%
100%
1. Pat Butler, John Castellani and Cynthia Flowers were unable to attend one unscheduled meeting due to pre-existing commitments.
Advice and support
The Committee seeks the assistance of senior management (Executive Chairman and CEO, EVP Organizational Development, VP Total Reward
and Company Secretary) on matters relating to policy, performance and remuneration but ensures that no director takes part in discussions
relating to their own remuneration or benefits.
Willis Towers Watson (WTW) continue to provide independent advice to the Committee in relation to market practice, UK corporate governance
best practice, incentive plan review and target setting. The total fees for advice to the Committee during the year, including the detailed review
of the Policy that was undertaken in 2022, were$ 285,234 (2021: $39,383). WTW were appointed by the Committee in 2016 following a
competitive tender process. WTW adheres to the Remuneration Consultants Group Code of Conduct. They charge their fees on a time
spent basis.
The Committee is satisfied that WTW team providing remuneration advice do not have connections with Hikma that may impair their
independence.
Fixed elements
Base salary
Benefits
Pension
Variable elements – Executive Incentive
Plan (EIP)
Element A – cash bonus
Element B – deferred shares
Element C – restricted shares
Total remuneration
Performance awards that incentivise Directors to deliver annual financial performance targets and certain key strategic deliverables, with the
majority of awards made in shares to ensure that medium-term performance is delivered.
The Committee sets annual performance targets for awards under the EIP, in accordance with the rules of the EIP. Annual performance metrics
are based on:
– Financial metrics: At least 80% of the performance award, with specific targets based on the budget that is approved prior to the
performance period. The precise targets will be determined by the Committee on an annual basis
– Strategic deliverables: Up to 20% of the performance award is based on the delivery of specific, subjective targets that are set by the
Committee in order to ensure that key milestones in the Company’s strategy are delivered
At the end of each year the Committee determines the level of performance for the prior year. Based on the performance, the Committee makes
the following awards:
Element
Maximum award
% of salary
Payout
mechanism
Vesting period
Risks after award
Additional requirements
150%
Cash bonus
Immediate
– Clawback
None
Treatment under the
remuneration regulations
Cash bonus
Share award
150%
100%
Deferred
Shares
2 years
Restricted
Shares
3 years
– Forfeiture
– Clawback
– Share price
– Employed
– Clawback
– Share price
– Employed
All shares vesting are subject
to a holding period after
vesting. These shares may
not be sold until 5 years
after grant.
Bonus1 deferred
in shares
A
B
C
1. The Regulations require Element C to be included in the ’Bonus’ component for reporting purposes, although it is an award of shares that will vest three years after grant
A holding requirement applies to Elements B and C ensuring that shares may not be sold until five years from the point of grant. 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 (2022): full details of the previous year’s performance targets, their level of satisfaction and the resulting performance remuneration
are disclosed on pages 114 to 117
– Future year (2023): the nature and weighting of future performance targets under the new 2023 Policy, are disclosed on pages 123 and 124.
During the year the Committee instructed Mercer to conduct a region specific benchmarking exercise for which a fee of $6,000 (2021:$8,000)
was paid. Mercer are a recognised expert in the region in question.
Malus and clawback provisions apply.
Except as disclosed on page 81 Hikma has complied with all the relevant principles and provisions of the UK Corporate Governance Code
throughout the year.
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Annual report on remuneration
continued
Salaries, benefits and pension
Please see Chair’s letter (page 96) for commentary on salaries. The application of benefits remains unchanged and pensions are aligned with
the wider workforce under the proposed 2023 Policy.
Executive Director
Individual
Executive Chairman/CEO
Said Darwazah
Executive Vice Chairman
Mazen Darwazah
Salary
2023
2022
$1,018,000
$1,018,000
$ 806,787
$ 779,504
Change
%
0%
3.5%
Single total figure (audited)
The following table shows a single figure of remuneration¹ in respect of qualifying services for the 2022 financial year, together with the
comparable figures for 2021.
Director
Said Darwazah
Year
Salary
Benefits
Bonus (EIP
elements A
and C)
Shares
vested (EIP
element B)2
Pension
Total
Total fixed
Total
variable
2022
1,018,000
53,798
948,544
1,313,964
67,772 3,402,078
1,139,570 2,262,508
2021
1,018,000
55,465
1,568,281
1,875,447
68,946 4,586,139
1,142,411 3,443,728
Siggi Olafsson 3
2022
603,132
19,563
–
1,480,518
82,500
2,185,713
705,195
1,480,518
2021
1,166,990
37,930
1,895,381
2,047,007
160,050 5,307,358
1,364,970 3,942,388
Mazen Darwazah
2022
779,584
31,410
1,047,776
919,070
62,626 2,840,466
873,620 1,966,846
2021
753,144
65,166
1,232,175
1,294,742
58,484
3,403,711
876,794
2,526,917
1 All figures are in (USD)
2 Share price at vesting date was $ 27.9 ( £ 20.83 and foreign exchange rate of $ 1.34 to 1 £ )
3 Siggi Olafsson stepped down from the Board on 24 June 2022
The EIP performance criteria are detailed on pages 114 – 117
Benefits (audited)
Said Darwazah received transportation benefits of $34,922 (2021: $40,303) and medical benefits of $18,877 (2021: $15,162). Siggi Olafsson
received transportation benefits of $11,662 (2021: $19,992) and medical benefits of $8,500 (2021: $17,938). Mazen Darwazah received
transportation benefits of $12,534 (2021: $35,064) and medical benefits of $18,876 (2021: $30,102). Social security payments made in Jordan,
that are required to be paid by Jordanian law, are not considered to be a benefit.
Pension (audited)
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 2022,
Siggi Olafsson received a pension contribution of $82,500. Hikma Pharmaceuticals PLC does not and has not operated a defined benefit
scheme
Vested share awards (audited)
During 2022, the following share awards vested for Executive Directors. The total shares vested in 2022 are summarized in the following
three tables.
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 2022. Whilst these shares vested during
2022, they are attributed to earnings as detailed in the paragraph above.
Said Darwazah — EIP
Maximum number of shares capable of vesting – Element B1
Maximum number of shares capable of vesting – Element C2
Forfeiture
Vesting price
Number of vested shares
Total value of vested shares
Siggi Olafsson — EIP
Maximum number of shares capable of vesting – Element B1
Maximum number of shares capable of vesting – Element C2
Maximum number of shares capable of vesting – Element C2
Forfeiture
Vesting price
Number of vested shares
Total value of vested shares
Mazen Darwazah — EIP
Maximum number of shares capable of vesting – Element B1
Maximum number of shares capable of vesting – Element C2
Forfeiture
Vesting price
Number of vested shares
Total value of vested shares
47,169
38,862
Nil
Nil
86,031
$2,324,253
53,148
42,676
72,000
Nil
Nil
167,824
$4,461,731
32,993
26,514
Nil
Nil
59,507
$1,608,350
Policy deviation
During 2022, the Committee has not deviated from the remuneration policy approved by shareholders at the AGM on 30 April 2020 .
1. Share price at vesting date was $ 27.9 ( £ 20.83 and foreign exchange rate of $ 1.34 to 1 £ )
2. Share price at vesting date was $ 26.0 ( £ 19.84 and foreign exchange rate of $ 1.31 to 1 £ )
112
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Annual report on remuneration
continued
2022 Performance outcome: Executive Chairman and CEO (audited)
Readers are directed to the commentary on business performance that is included in the Chair’s letter on pages 95 to 96.
The following table sets out the performance conditions and targets for 2022 and their level of satisfaction:
Performance condition
Performance level
Achievement
Application
Section
Financial
Description
Rationale and measurement
Core revenue
Core Operating Profit
(COP) before R&D
Historically, the pricing of generic pharmaceutical products has decreased with time. The
Committee is cognisant that this could lead to declining revenue over the longer term, which
could ultimately result in a declining business overall. By ensuring that a significant proportion
of performance remuneration is based on revenue, the Committee is able to ensure that the
Executive Directors are focused on mitigating pricing declines by maximising the potential
of the in-market portfolio, launching new products, and developing the pipeline. See page 14
of the Strategic report for further detail on the performance related to this target.
Ultimately, COP is a key measure of value to Hikma’s shareholders. Given the highly competitive
business environment in which Hikma operates, the Executive Directors must focus
continuously on optimising Hikma’s cost base. The Committee wants the Executive Directors to
deliver an optimised cost base without putting at risk the longer-term prospects of the business
by underinvesting in R&D. Therefore, R&D costs have been excluded from this criterion. See
page 14 of the Strategic report for further detail on the performance related to this target.
Hikma invests significant capital to expand its product portfolio and pipeline and improving
its high-quality manufacturing capabilities. Over the longer term, these activities ensure that
margins can be maintained through manufacturing more complex/specialty products and
capturing greater market share, respectively. The extensive range of capital investments have
various timeframes for delivering new capabilities and enhancing Hikma’s competitive position.
The performance of previous and existing projects is monitored by the Board on a project by
project basis. ROIC provides a Group-level method of assessing the time and cost to deliver
projects and their ultimate returns over a one-year timeframe. See page 14 of the Strategic
report for further detail on the performance related to this target.
Strategic
Return on Invested
Capital (ROIC)
Weighting
40%
Forfeiture
0% salary awarded
Minimum
75% of salary
awarded
Target
250% of salary
awarded
Maximum
400% of salary
awarded
Results
Achievement
% of salary
Target -30%
$1,854M
Target -10%
$2,385M
Target
$2,649M
Target +10%
$2,914M
Core revenue of
$2,517M
Minimum to
target
65.1%
40%
Target -30%
$557 million
Target -10%
$716 million
Target
$796 million
Target +10%
$876 million
COP before R&D
of $740 million
Minimum to
target
50.8%
10%
Target -30%
11.4%
Target -10%
14.7%
Target
16.3%
Target +10%
17.9%
ROIC of 14.9%
Minimum to
target
9.7%
Review of Generics
cost structure
The Board requested that the Executive Chairman and CEO work with the President of the
Generics business to review the cost structure of the business to ensure that it is appropriate
for the future (further commentary is available on page 96).
10%
Committee assessment of the achievement for reviewing the
US Generic business cost and structures
Current status
ascertained
Target
25%
Total
100%
Unacceptable Acceptable
Good
Excellent
150.6%
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%
57.4%
$584,158
$1,018,000
150%
57.4%
$584,158
100%
400%
35.8%
$364,386
150.6%
$1,532,702
Cash now
(February 2023)
Shares in 2 years
from February
2023
Shares in 3 years
from February
2023
All shares vesting are
subject to a holding
period after vesting.
These shares may
not be sold until 5
years after grant.
114
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Annual report on remuneration
continued
2022 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 95 to 96.
The following table sets out the performance conditions and targets for 2022 and their level of satisfaction:
Performance condition
Performance level
Achievement
Application
Section
Financial
Strategic
Total
Description
Rationale and measurement
Core revenue
Core Operating Profit
(COP) before R&D
MENA revenue
MENA COP
before R&D
Historically, the pricing of generic pharmaceutical products has decreased with time. The
Committee is cognisant that this could lead to declining revenue over the longer term, which
could ultimately result in a declining business overall. By ensuring that a significant proportion
of performance remuneration is based on revenue, the Committee is able to ensure that the
Executive Directors are focused on mitigating pricing declines by maximising the potential
of the in-market portfolio, launching new products, and developing the pipeline. See page 14
of the Strategic report for further detail on this target.
Ultimately, COP is a key measure of value to Hikma’s shareholders. Given the highly competitive
business environment in which Hikma operates, the Executive Directors must focus
continuously on optimising Hikma’s cost base. The Committee wants the Executive Directors to
deliver an optimised cost base without putting at risk the longer-term prospects of the business
by underinvesting in R&D. Therefore, R&D costs have been excluded from this criterion. See
page 14 of the Strategic report for further detail on this target.
The Executive Director is responsible for this region. The Committee considered financial
metrics to be the best method of ensuring delivery of the strategy that could be measured in an
objective manner that is readily understandable by investors. Measured by target MENA revenue
compared to audited MENA revenue for the year ended 31 December 2022. See pages 28 and 29
of the Business and financial review for further detail on this target.
The Executive Director is responsible for this region. The Committee considered financial
metrics to be the best method of ensuring delivery of the Board-approved strategy that could
be measured in an objective manner that is readily understandable by investors. Measured
by target MENA COP compared to audited MENA COP for the year ended 31 December 2022.
To align the approach with the Group target, R&D and Group costs have been removed from
the measurements of this target. See pages 28 and 29 of the Business and financial review for
further detail on this target.
Environmental, Social,
and Governance
Strategy
During 2022, the Board requested that the Vice Chairman lead the implementation of a number
of environmental initiatives in the MENA region. These included identifying opportunities for
on-site renewable energy, identifying and implementing scope 1 greenhouse gas emission
initiatives, finalization of photovoltaic project for Jordan in order to support scope 2 reductions
and piloting a water saving project in Jordan. Further commentary is available on page 96.
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%
$1,854m
Target -10%
$2,384m
Target
$2,649m
Target +10%
$2,914m
Core revenue of
$2,517m
Minimum to
target
40.7%
25%
Target -30%
$557m
Target -10%
$716m
Target
$796m
Target +10%
$876m
COP before R&D
of $740m million
Minimum to
target
31.7%
15%
15%
Target -23%
$596 million
Target -10%
$766 million
Target
$851 million
Target +10%
$936 million
MENA revenue of
$862m million
Target to
maximum
40.4%
Target -30%
$151 million
Target -10%
$194 million
Target
$216 million
Target +10%
$238 million
MENA COP before R&D
of $227 million
Target to
maximum
48.8%
20%
Committee assessment of the achievements for improving the
MENA region emissions and environmental performance based on
the objectives set
Achievements against
objectives reviewed
Target to max
58.4%
100%
Unacceptable Acceptable
Good
Excellent
220%
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%
85.57%
$666,994
$779,504
150%
85.57%
$666,994
100%
400%
48.85%
$380,782
220%
$1,714,770
Cash now
(February 2023)
Shares in 2 years
from February
2023
Shares in 3 years
from February
2023
All shares vesting are
subject to a holding
period after vesting.
These shares may
not be sold until 5
years after grant.
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
Annual report on remuneration
continued
Outstanding share awards (audited)
Hikma continued to operate the EIP in 2022. 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
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
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
25-Feb-22
25-Feb-24
101% of salary
34,652
$1,023,967
25-Feb-22
25-Feb-25
53% of salary
18,420
$544,311
134,786
(2021: 167,745)
$4,108,412
(2021: $4,602,222)
27-Feb-20
27-Feb-23
0% of salary
Lapsed
$795,709
25-Feb-21
25-Feb-23
0% of salary
Lapsed
$1,409,434
25-Feb-21
25-Feb-24
0% of salary
Lapsed
$842,934
25-Feb-22
25-Feb-24
0% of salary
Lapsed
$1,217,194
25-Feb-22
25-Feb-25
74% of salary
Lapsed
678,202
–
(2021: 265,613)
$ 4,943,473
(2021: $6,954,511)
27-Feb-20
27-Feb-23
67% of salary
18,831
$476,800
25-Feb-21
25-Feb-23
115% of salary
24,319
$825,386
25-Feb-21
25-Feb-24
66% of salary
13,903
$471,868
25-Feb-22
25-Feb-24
102% of salary
26,812
$792,295
25-Feb-22
25-Feb-25
56% of salary
14,844
$438,640
98,709
(2021: 116,560)
$3,004,989
(2021: $3,201,170)
Said Darwazah
Total
Siggi Olafsson
Total
Mazen Darwazah
Total
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 114 to 117
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 2020 $25.32 (£19.30p), and 2021 $33.94 (£25.25p), and 2022 $29.55(£22.20). The actual value received by Executive Directors under the share incentive arrangements is
dependent upon the share price of Hikma at the time of vesting, the satisfaction of performance criteria and the non-occurrence of forfeiture events (EIP Element B only)
3. The minimum value of the awards at vesting will be the share price on the day of vesting multiplied by the number of shares vesting. If the Executive Director leaves employment during
the vesting period, the normal position is that zero shares vest. If all the forfeiture conditions occur in each year of the vesting period under Element B only, zero shares will vest.
The weighting of each forfeiture condition has a proportional impact on the vesting percentage under Element B only
The applicable share prices for Hikma during the period under review were:
Date
1 January 2022
31 December 2022
2022 Range (low to high)
22 February 2023
Market price
(Closing price)
2,189p
1,552p
1,191p to 2,191p
1,753.5p
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 2013:
Type of plan
Discretionary Share Plans (5% Limit)
Granted in a
rolling ten-year
period
Granted during
the year
3.98%
0.47%
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
22.33%
13,400,924
736,101
14,137,025
11.25%
8.26%
6,752,547
1,308,357
8,060,904
4,955,119
1,162,811
6,117,930
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
The following table sets out details of the Directors’ shareholdings in Hikma as at 31 December 2022 and, where there are shareholding
requirements, whether these have been met:
Ownership requirements
Total
Scheme Interests
Total
Director
Said Darwazah
Siggi Olafsson6
Mazen Darwazah4
Ali Al-Husry5
Pat Butler
Dr Pamela Kirby6
John Castellani
Nina Henderson
Cynthia Flowers
Douglas Hurt
Laura Balan
Victoria Hull
Deneen Vojta
Percentage
of salary
Number
of shares
Requirement
fulfilled?
300%
300%
300%
162,831
96,455
124,673
Yes
Yes
Yes
Shares
owned3
EIP subject to
performance
(Element B)
EIP subject to
service
(Element C)
Share
interests
14,137,025
69,479
65,307
14,271,811
223,337
8,060,904
6,117,930
3,875
4,817
3,500
7,100
1,100
3,000
–
–
–
–
51,131
–
223,337
47,578
8,159,613
6,117,930
3,875
4,817
3,500
7,100
1,100
3,000
–
–
–
3. Including shares effectively owned through Darhold as per the table above
4. Mazen Darwazah holds his shares in Darhold Limited through a family trust, in which he has a beneficial interest
5. Ali Al-Husry holds his shares in Hikma and Darhold Limited through a family trust, in which he has a beneficial interest
6. The shareholding shown is as at the date they ceased to be a Director
There have been no changes in the interests of the Directors in the shares of Hikma between 31 December 2022 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 2022 of £15.52p and
foreign exchange rate of $1.209 to £1 on the same date.
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
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
Said Darwazah
Said Darwazah
Siggi Olafsson
Siggi Olafsson
Siggi Olafsson
Mazen Darwazah
Mazen Darwazah
Douglas Hurt
Date
Event
Number of shares
28-Feb-22
Vesting of 2020 EIP Element B. Retained all shares
11-Mar-22
Vesting of 2019 EIP Element C. Retained all shares
28-Feb-22
Vesting of 2020 EIP Element B. Retained some shares
11-Mar-22
Vesting of 2019 EIP Element C. Retained some shares
11-Mar-22
Vesting of 2019 EIP Element C. Retained some shares
28-Feb-22
Vesting of 2020 EIP Element B. Retained all shares
11-Mar-22
Vesting of 2019 EIP Element C. Retained all shares
3-Mar-22
Market Purchase of Shares
47,169
38,862
53,148
42,676
72,000
32,993
26,514
1,500
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
134,786
—
98,709
—
—
—
—
—
Share interests with performance
measures
Vested but
unexercised
Yes
69,479
—
51,131
—
No
65,307
—
47,578
—
—
—
—
—
Total shareholder return
During the last ten years, Hikma has performed strongly against the FTSE 100 index 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
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
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 CEO. 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
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
Said Darwazah — Executive Chairman
Siggi Olafsson — Chief Executive Officer
Total
Bonus as
% max1
Share awards as
% max2
$3,402,078
$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
37%
62%
73%
74%
88%
0%
71%
98%
100%
100%
38%
67%
77%
78%
90%
0%
68%
98%
70%
62%
Total
$2,185,713
$5,307,358
$3,718,549
$4,121,724
$5,260,957
N/A
N/A
N/A
N/A
N/A
Bonus as
% max1
Share awards as
% max2
0%
65%
80%
78%
89%
N/A
N/A
N/A
N/A
N/A
0%
70%
83%
82%
91%
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 remain unchanged at £90,500 but the annual fees for the Remuneration Committee Chair increased to £20,000 (2022 £10,000),
Nomination and Governance Committee Chair to £15,000 (2022 £10,000) and the Compliance, Responsibility and Ethics Committee Chair
to £15,000 (2022 £10,000). It was also decided that a Senior Independent Director fee would be introduced of £15,000 per annum. The fee
increases took effect from 1 January 2023.
These fee increases followed a benchmarking marking exercise under taken by Willis Towers Watson to ensure that Non-Executive Director
remuneration was in line with market practice.
Fee (all elements)
$000
Taxable benefits1
$000
Total
$000
Name
Pat Butler
Board position
Senior Independent Director
Dr Pamela Kirby2
Remuneration Committee Chair
Ali Al-Husry
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
Laura Balan2
Victoria Hull2
Independent Director
Independent Director
Deneen Vojta2
Independent Director
2022
132.63
44.95
108.63
132.63
140.19
120.63
144.64
30.30
20.20
20.20
2021
145.44
145.44
118.38
145.44
145.44
131.91
158.97
0.0
0.0
0.0
2022
2021(restated)3
2022
2021 (restated)3
0.82
00
00
18.85
7.52
7.01
00
00
0.21
2.58
0.66
0.0
7.12
6.50
10.30
7.51
0.43
0.0
0.0
0.0
133.45
44.95
108.63
151.49
147.72
127.64
144.64
30.30
20.41
22.78
146.33
145.44
128.02
154.23
159.37
142.07
159.54
0.0
0.0
0.0
1.
‘Taxable benefits’ includes certain accommodation expenses for Non-Executive Directors that are wholly related to their attendance at Board meetings and are in accordance with
normal Hikma expense policy. These expenses are treated as taxable benefits by the UK authorities and, where appropriate, the above figure excludes the corresponding tax contribution
which will be adjusted during year 2023.
2. Pro-rated fees in respect of time served and position changes. Dr Pamela Kirby served as Chair of the Remuneration Committee until 25 April 2022 and retired from the Board on that date.
Nina Henderson was appointed in her place..
3. The amount of taxable benefits has been restated by $23.54 as a correction from previous year.
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Annual report on remuneration
continued
Payments to past Directors (audited)
There were no payments made to past Directors during 2022.
Payments for loss of office (audited)
There were no payments for loss of office during the financial year (including for Siggi Olafsson leaving the Company).
Terms of appointment and service
Service contracts
The details of the service contracts of the Executive Directors of Hikma in force at the end of the year under review, which have not changed
during the year and are available for inspection at Hikma’s registered office at 1 New Burlington Place, London W1S 2HR, were:
Executive Director
Said Darwazah
Mazen Darwazah
Company notice period Contract date
Unexpired term of contract
Potential termination payment
12 months
12 months
1 July 2007
Rolling contract
12 months’ salary and benefits
25 May 2006
Rolling contract
12 months’ salary and benefits
The Executive Directors are not appointed for a specified term and, therefore, do not have an outstanding term that requires disclosure.
Letters of appointment
The Non-Executive Directors have letters of appointment with Hikma, not service contracts, which are available for inspection at Hikma’s
registered office at 1 New Burlington Place, London W1S 2HR. Appointments are made for a period of 36 months and then reviewed.
Non-Executive Director
Ali Al-Husry
Pat Butler
John Castellani
Nina Henderson
Cynthia Flowers
Douglas Hurt
Laura Balan
Victoria Hull
Deneen Votja
Date of appointment
14 October 2005
1 April 2014
1 March 2016
1 October 2016
1 June 2019
1 May 2020
1 October 2022
1 November 2022
1 November 2022
Notice period
1 month
1 month
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 election or annual re-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 (2021: $4,100), and $0 respectively (2021: $20,700),
respectively, relating to external appointments which are detailed in their Director profiles on page 78.
Implementation of proposed 2023 Policy
In February 2023, the Remuneration Committee reviewed the base salaries for Executive Directors and agreed a 3.5% increase for the Executive
Vice Chairman, effective 1 January 2023.
The salary of the Executive Vice Chairman was increased in 2023 to $806,786 (2022: $779,504) to become $806,786 (2022: $779,504),
other benefits of 2023 $31,410 (2022: $31,410) and pension $64,811 (2022: $62,626)
Annual bonus design for year ending 31 December 2023
Subject to shareholder approval of the proposed 2023 Policy the measures and targets for the annual bonus plan will be reviewed annually
by the Committee and those agreed for 2023 are:
Area
Description
Rationale
Financial
Group/Division
Revenue
Historically, the pricing of generic pharmaceutical products has decreased with
time. The Committee recognizes that this could lead to declining revenue over
the longer term, which could ultimately result in a declining business overall.
By ensuring that a significant proportion of performance remuneration is based
on revenue, the Committee is able to ensure that the Executive Directors are
focused on mitigating pricing declines by maximising the potential of the in-
market portfolio, launching new products, and developing the pipeline. Please
see page 14 of the Strategic report for the detail on this target
Weighting1
Executive
Chairman
and CEO
Executive
Vice
Chairman
30%
32%
Group Core/
Divisional EBIT
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.
50%
48%
Strategic
CEO onboarding
Reduction in
Scope 1 and 2
emissions
Development of
MENA business
Gender diversity
ESG
The Executive Chairman and CEO has been asked by the Board to ensure
that the new CEO, when appointed, is effectively on-boarded so that they are
fully effective in the role as quickly as possible. In addition, he has been asked
to work with the new CEO to ensure the Executive Committee structure is
appropriate and succession plans are in place.
To ensure continued focus on Hikma’s commitment to reduce scope 1 and 2
GHG emissions by 25% by 2030 (see page 46). The Committee has set a target
reduction of 17% for 2023 from the 2020 base (excluding RECs). The Committee
has set 15% reduction for threshold and a 19% reduction for the maximum.
To ensure that the MENA business has the production capability to meet its
business plans the Committee has set the Executive Vice Chairman the target
of ensuring that the feasibility and all government approvals for expansion of
Hikma’s facility in KSA are completed by the end of 2023.
The Committee wants the MENA business, which currently has a lower
participation of women in management positions than the rest of the Group,
to focus on plans to meet the 3-year gender diversity goal which are set for
the 2023 LTIP award. It has therefore set the Executive Vice Chairman a target
of increasing the number of women in management positions by 9% in 2023.
The Committee has set a threshold of no change and a 17% increase to qualify
for the maximum achievement.
To ensure continued focus on Hikma’s commitment to reduce scope 1 and 2
GHG emissions by 25% by 2030 (see page 46). The Committee has set the
Executive Vice Chairman a target for the completion of energy audits in two
MENA countries together with action plans for achieving reductions by the
end of 2023.
10%
10%
–
–
–
–
7.5%
7.5%
–
5%
1. The financial weightings for the Executive Vice Chairman are 12% Group Revenue,18% Core EBIT, 20% MENA Revenue and 30% MENA Core EBIT
The Committee has discretion to adjust the pay out to reflect the underlying business performance and any other relevant factors. Details
of the financial targets for the year ended 31 December 2023 will be disclosed retrospectively in next year’s annual report on remuneration,
by which time the Board will no longer deem them commercially sensitive.
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Annual report on remuneration
continued
Other statutory disclosures
Long term incentive awards to be made in year ending 31 December 2023
Subject to Shareholder approval of the new 2023 Policy, the Committee intends to issue a Performance Share Plan (PSP) award to the Executive
Directors. Under the new 2023 Policy long-term incentive measures will be reviewed annually by the Committee and will be designed to drive
Hikma business strategy and align with the delivery of value to shareholders. It is proposed that the following targets will be set for the 2023
award and measure over the period 1 January 2023 to 31 December 2025:
Measure
Rationale
Weighting
Threshold
Target
Maximum
Core compound EPS growth
for 1 January 2023 to 31 December 2025
Percentage of revenue from
new business over 3 years
Relative TSR performance compared to
FTSE 50-150 (excluding investment trusts)
Percentage of females on the Executive
Committee and their direct reports
Alignment with shareholders return
Developing revenue from new business is a
key element of Hikma’s business plan.
Alignment with shareholders return
Increase the diversity of management
Achieve good water management
at all Hikma’s sites in MENA
Hikma has significant operations in water
stressed countries in MENA.
30%
5%
8%
11%
30%
13%
16%
19%
20%
Median
–
Upper
quartile
10%
30%
35%
40%
10% The following tasks have been set:
– establishing water management
systems and process, collecting
and analysing robust data on
water usage,
– identifying gaps and
opportunities for efficient water
use and setting water efficiency
targets.
– By the end of H1 2024, targets
should be set for sites in Jordan,
Algeria, Egypt and KSA, and
progress made against these
targets by the end of 2025.
– By the end of 2025, targets
should be set for all other
MENA sites.
It is proposed that a PSP share award of 300% is made to the Executive Directors subject to the measures in the above table.
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
Nina Henderson
Chair of the Remuneration Committee
22 February 2023
Directors’ report and Strategic report
The Directors’ report and Strategic report for the year ended
31 December 2022 comprise pages 72 to 129 and pages 1 to 71.
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):
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, Branded
and Generics. The majority of Hikma’s operations are in the MENA
region, North America and Europe. Hikma does not have overseas
branches within the meaning of the Companies Act 2006 (the Act).
– Likely future developments of Hikma: Strategic report and the
Business and financial review, pages 1 to 36
– Related party transactions: Note 39 to the Group financial
Hikma’s net sales, gross profit and segmental results are shown
by business segment in Note 5 to the Group financial statements
on pages 156 and 157.
statements, page 189
– Going concern statement: Risk management report, page 67
– Longer-term viability statement: Risk management report, page 68
– Greenhouse gas emissions: Sustainability report, pages 46 to 49
– Financial instruments and risk: Notes 2 and 29 to the Group
financial statements, pages 151 and 175
– Stakeholder and S.172 Statement, pages 18 to 23
For the purposes of Listing Rule 9.8.4, shareholders are directed in
accordance with the following table to notes in the consolidated
financial Statements:
Item
Interest capitalised and associated tax relief
Publication of unaudited financial
information
Reference
None
None
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
See Note 38 on pages
187 and 188
None
None
None
None
None
Arrangements by which shareholders have
agreed to waive current or future dividends
See Note 31 on
page 181
Controlling shareholder agreements and
associated obligations
Hikma does not
have any controlling
shareholders within
the meaning of the
Listing Rules
Results
Hikma’s reported profit attributable to shareholders of Hikma
Pharmaceuticals PLC for the year in 2022 was $188 million
(2021: $421 million).
Dividend
The Board is recommending a final dividend of 37 cents per share
(2021: 36 cents per share) bringing the total dividend for the full year
to 56 cents per share (2021: 54 cents per share). The proposed
dividend will be paid on 5 May 2023 to eligible shareholders on the
register at the close of business on 24 March 2023, subject to approval
at the Annual General Meeting on 28 April 2023.
Creditor payment policy
Hikma’s policy, which is also applied by all subsidiaries and will
continue in respect of the 2023 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 2022 were equivalent to 83 days’
purchases (2021: 76 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 over $5.0 million
(2021: $4.0 million):
Type of donation
Local charities serving communities
in which Hikma operates
Amount
donated in
2022 ($)
Amount
donated in
2021 ($)
1,022,963
763,155
Medical (donations in kind)
4,326,648
3,188,896
Political donations and expenditure
nil
nil
Total
5,349,611
3,952,051
Hikma’s policy prohibits the payment of political donations and
expenditure within the meaning of the Act.
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Other statutory disclosures
continued
Research and development
Hikma’s investment in research and development (R&D) during 2022
represented 5.7% of Group revenue (2021: 5.6%). Further details on
Hikma’s R&D activities can be found on pages 10 to 17.
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, Mazen Darwazah, Patrick
Butler, Ali Al-Husry, John Castellani, Nina Henderson, Cynthia Flowers
and Douglas Hurt will seek re-election at the AGM and Laura Balan,
Victoria Hull and Deneen Vojta will seek 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 signing 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 they ought to have taken as
a Director to make themself 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 is the designated Non-Executive Director to engage
with the workforce under the Code and undertook the employee
engagement activities, as described on page 75. 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 in our Section 172 Statement on pages 18 to 23.
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 page 181. 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 2022:
Type
Nominal value
In issue
Issued
during
the year
Cancelled
during
the year
Shares
10 pence
233,069,085
1,237,467
12,499,670
During 2022, Hikma issued 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.
Share buyback
At the Annual General Meeting (AGM) on 25 April 2022, 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 2023 or the 2023 AGM,
which is scheduled for 28 April 2023. During 2022 12,499,670 Ordinary
Shares were purchased and cancelled.
During 2020, the Company purchased 12,833,233 Ordinary 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 issuance
At the AGM on 25 April 2022, the Directors were authorised to issue
relevant securities up to an aggregate nominal amount of £8,144,559
and to be empowered to allot equity securities for cash on a non-pre-
emptive basis up to an aggregate nominal amount of £1,221,683 at any
time up to the earlier of the date of the 2023 AGM or 30 June 2023.
The Directors propose to renew these authorities at the 2023 AGM
for a further year. In the year ahead, other than in respect of Hikma’s
obligations to satisfy rights granted to employees under its various
share-based incentive arrangements, the Directors have no present
intention of issuing any additional share capital of Hikma.
Details of the employee share schemes are set out in Note 38 to
the Group financial statements on pages 187 and 188. The Hikma
Pharmaceuticals Employee Benefit Trust (EBT) holds no shares.
The EBT has waived its right to vote on any shares it holds and also
to its entitlement to a dividend. Other than the EBT and the Treasury
Shares, no other shareholder has waived the right to a dividend.
Diversity disclosures pursuant to Listing Rule 9.8.6R
In April 2022, the UK Financial Conduct Authority (FCA) published its final rules to increase the disclosure of diversity on listed company boards
and executive committees. This requires listed companies to disclose in a prescribed format information on the diversity of their board and
executive committee. The Listing Rules (to which Hikma is subject) have been amended to require disclosure of the prescribed information and
the new requirement applies to financial years beginning on or after 1 April 2022. The FCA has, however, asked listed companies to report earlier
on a voluntary basis. The below information has therefore been disclosed on a voluntary basis.
The Listing Rules require listed companies to state whether they have met certain targets on board diversity. The information in the table below
is at 31 December 2022, which is the date selected as the reference date within Hikma’s accounting period. The targets set out in the Listing
Rules are that:
1. at least 40% of the individuals on its board of directors are women;
2. at least one of the following senior positions on its board of directors is held by a woman (the chair, SID, CEO or CFO); and
3. at least one individual on its board of directors is from a minority ethnic background.
As at the reference date, the Board of Hikma meets targets 1 and 3 and has a disclosed succession plan in place to meet target 2 with effect from
the close of our AGM in April 2023.
Gender diversity
Men
Women
Not specified/prefer not to say
Ethnic background diversity
White British or other White (including minority-white groups)
Mixed/Multiple ethnic groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group, including Arab
Not specified/prefer not to say
Number
of Board
members
Percentage
of the Board
6
5
–
55%
45%
–
Number of
senior positions
on the Board
(CEO, CFO,
SID and Chair)¹
2
–
–
Number
in Executive
Management
Percentage
of Executive
Management
7
2
–
78%
22%
–
Number
of Board
members
8
–
–
–
3
–
Percentage
of the Board
73%
–
–
–
27%
–
Number of
senior positions
on the Board
(CEO, CFO,
SID and Chair)¹
Number
in Executive
Management
1
–
–
–
1
–
3
–
–
–
6
–
Percentage
of Executive
Management
33%
–
–
–
67%
–
Between 31 December 2022 and 22 February 2023, being the date at which this report is approved, there have been no changes in the
composition of the Board or Executive Management. Each member of the Board or Executive Management has confirmed their gender
and ethnic background to the Company Secretary and the above data has been collated from those records.
1. The roles of CEO & Chair are currently held by one individual and the CFO is not appointed to the Board
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Other statutory disclosures
continued
Annual General Meeting
The AGM of Hikma will be held at Sofitel St James, 6 Waterloo Place,
London SW1Y 4AN on Friday, 28 April 2023, starting at 11.00 am
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.
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:
Name of shareholder
Darhold Limited2
Number of Shares
Percentage held1
60,000,000
Wellington Management Group LLP
11,556,882
BlackRock Group
12,337,844
27.24%
5.25%
5.60%
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 119
for details of their interests in Darhold Limited
Between 31 December 2022 and 22 February 2023, BlackRock Group
notified the Company that their holding had decreased to 11,968,104
Shares representing 5.42% 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.
Directors’ confirmations
The Directors consider that the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s and
Company’s position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed in 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).
On behalf of the Board
Said Darwazah
Executive Chairman and Chief
Executive Officer
22 February 2023
Mazen Darwazah
Executive Vice Chairman
22 February 2023
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
– make judgements and accounting estimates that are reasonable
and prudent; and
– prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group and Company will
continue in business
The Directors are responsible for safeguarding the assets of the
Group and Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are 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.
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Governance
We deliver accurate, high-quality and
timely information to all stakeholders
with the utmost integrity and efficiency.
Financial
statements
Image
Our qualified inspector at our
Portugal facility loading vials onto
one of our automated inspection
machines.
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Independent auditors’ report to the members
of Hikma Pharmaceuticals PLC
Report on the audit of the financial statements
Opinion
In our opinion:
– Hikma Pharmaceuticals PLC’s group financial statements and
company financial statements (the “financial statements”) give a
true and fair view of the state of the group’s and of the company’s
affairs as at 31 December 2022 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
as applied in accordance with the provisions of the Companies
Act 2006;
– the company financial statements have been properly prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, including 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 2022; the Consolidated income statement,
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.
Our audit approach
Overview
Audit scope
– Our audit included full scope audits of five components, an audit of
specific financial statement line items of one additional component
and audit procedures performed centrally over certain specific
material balances at locations around the group. Full scope
components account for 78% of consolidated revenue and 74%
of core profit before tax.
Key audit matters
– Recoverability of the carrying values of the GxA and Generics cash
generating units and certain in-development programmes (group)
– Valuation and accuracy of gross to net rebate and returns
adjustments in the US (group)
– Valuation of acquired intangibles (identified as part of the purchase
price allocation exercise) in respect of the Custopharm Inc
acquisition (group)
– Carrying value of investments in subsidiaries (company)
Materiality
– Overall group materiality: US$25 million (2021: US$25 million) based
on approximately 5% of core profit before tax.
– Overall company materiality: US$22.5 million (2021: US$21.6 million)
based on 1% of total assets, capped at approximately 90% of overall
group materiality.
– Performance materiality: US$18.75 million (2021: US$18.75 million)
(group) and US$16.875 million (2021: US$16.2 million) (company).
The scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements.
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.
The valuation of acquired intangibles (identified as part of the
purchase price allocation exercise) in respect of the Custopharm Inc.
acquisition (group) and the carrying value of investments in
subsidiaries (company) are new key audit matters this year.
Reorganisation of holding companies under Hikma Pharmaceuticals
PLC (company), which was a key audit matter last year, is no longer
included because the corporate restructuring was finalised in 2021.
Otherwise, the key audit matters below are consistent with last year.
Recoverability of the carrying values of the GxA and Generics cash generating units and
certain in-development programmes (Group)
Key audit matter
How our audit addressed the key audit matter
At 31 December 2022, the Group had goodwill of $389 million (31 December
2021: $285 million) and intangible assets of $735 million (31 December 2021:
$607 million), comprising product-related intangible assets, software and other
identified intangible assets such as marketing rights, customer relationships
and trademarks.
These are contained within four cash generating units (CGUs): Generics,
Generic Advair Diskus®, Branded and Injectables. Goodwill in relation to
Generics and Generic Advair Diskus® has been fully impaired in prior years,
the remaining balance relates to Branded and Injectables only.
CGUs containing goodwill and in-development intangible assets (principally
product rights and marketing rights relating to the Group’s product pipeline)
must be assessed annually for impairment (or earlier if there are indicators of
impairment identified prior to that annual assessment). All other assets held
are reviewed for impairment when an impairment indicator has been identified.
In the current year, management has downgraded its expectations for the
US generics business in the latest five year business plan (‘5YBP’) due to
accelerating price erosion in the US generics market, slower than expected
ramp up of recent launches, and delayed launches of key pipeline products.
Also, the performance of generic Advair Diskus (GxA) has been below previous
expectations since its launch in Q2 2021. Accordingly, as there are indicators of
impairment for both the Generics and GxA CGUs management has performed
detailed impairment assessments for these CGUs. Management’s assessment
concluded that the Generics CGU was not impaired and an impairment of
$75 million was recorded in respect of the GxA CGU split across product related
intangibles (IP) of $59 million and property plant and equipment of $16 million.
Due to the rationalisation of the R&D pipeline in the Generics CGU and the
decline in performance and forecasted profitability of certain other intangible
assets, management performed a detailed impairment assessment of the
related assets and recorded an additional impairment for intangible assets
of $42 million and $61 million for property, plant and equipment.
An impairment charge is recognised when the carrying value of the CGU or
in-development intangible asset exceeds its recoverable amount. There is
significant estimation uncertainty in calculating the recoverable amount of
CGUs and in-development intangible assets, including management’s view of
future cash flow forecasts, external market conditions, such as future pricing
and profitability, useful economic life, timing and probability of regulatory
success, and the most appropriate discount rate, and accordingly represents
an area of heightened risk.
Refer to the Audit Committee review of areas of significant judgement on page
91, 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 in relation to the Generic and GxA CGUs:
– 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 5YBP and assessing the possible impact of
climate change;
– Evaluated the reasonableness of the significant assumptions used by
management in determining future cash flows, including cash flow growth
or decline, pricing and profitability, useful economic life, timing and
probability of regulatory success for key products;
– We challenged management’s forecast launch dates, pricing and market
assumptions by comparing them to historical data, available third party
market data and available regulatory correspondence;
– We compared management forecasts to analyst consensus cash flows
and challenged management where there were significant differences;
– Our internal valuations experts assessed the reasonableness of the
valuation methodology, discount rates and long term growth rates;
– Performed a retrospective comparison of forecasted revenues and costs
to actual past performance; and
– Performed various sensitivity analyses on significant assumptions to
understand the resulting impact on the impairment charge or headroom
available.
We performed the following procedures in relation to the in-development
programmes:
– Obtained an understanding of the in-development programmes and
management’s decision to discontinue the programmes (including
consideration of alternative use of the underlying assets);
– Tested the completeness and accuracy of the carrying amount of the
programmes;
– Evaluate management’s accounting treatment and the appropriateness
of the impairment in line with IAS 36.
Based on our procedures we consider management’s key inputs and
assumptions to be within a reasonable range and the overall impairment
charge to be reasonable.
We reviewed management’s disclosures in the Annual Report in respect of
the critical accounting judgements and key sources of estimation uncertainty
in note 3 and sensitivity analyses performed in note 16 and consider these
to be appropriate. We considered the presentation and classification of the
impairment charges as exceptional and other adjustments in 2022 as
acceptable in the context of the nature and magnitude of the charge itself,
giving consideration to the Group’s policy for exceptional items.
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Independent auditors’ report to the members
of Hikma Pharmaceuticals PLC
continued
Valuation and accuracy of gross to net rebate and returns adjustments in the US (Group)
Carrying amount of investments in subsidiaries (company)
Key audit matter
How our audit addressed the key audit matter
Key audit matter
How our audit addressed the key audit matter
Management is required to make estimates in respect of revenue recognition,
specifically the level of returns and rebates that will be realised against the
Group’s revenue. The Group recorded revenue deductions for the year ended
31 December 2022 of $2,391 million (2021: $2,450 million) and determined
reserves for customer rebates of $49 million, indirect rebates of $55 million
and returns of $168 million.
These estimates are complex, material to the financial statements and require
significant estimation by management to establish an appropriate reserve.
Refer to the Audit Committee review of areas of significant judgement,
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.
We have considered the Group’s processes for making judgements in this
area and performed the following procedures:
– Assessed the revenue recognition policy and applicable controls in place
around this process;
– Tested controls over the validation and approval of payment claims;
– Tested returns, 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
wholesalers for which data is obtained from a third party service provider;
– Confirmed channel inventory with major wholesalers or performed
alternative procedures where confirmations were not received;
– Developed an independent expectation or tested management’s process
for the largest elements of the reserves at 31 December 2022 using
assumptions and inputs based on contracted prices and rebate terms,
historical rebates, discounts, validated channel inventory levels, and
invoices received or payments made, as applicable, subsequent to
year-end to validate reserves. We compared this expectation to the actual
accrual recognised by the Group; and
– Considered the historical accuracy of the Group’s estimates in previous
years and the effect of any adjustments to prior years’ accruals in the
current year’s results.
Based on the procedures performed, we did not identify any material
differences from testing management’s process or between our independent
expectations and the reserves recorded. We also evaluated the disclosures
in Note 2, Note 3, Note 21 and Note 27 which we considered appropriate.
Valuation of acquired intangibles (identified as part of the purchase price allocation exercise) in respect of the
Custopharm Inc acquisition (Group)
Key audit matter
How our audit addressed the key audit matter
During the year, the Group acquired 100% of the issued share capital of
Custopharm Topco Holdings, Inc. for cash consideration of $373 million.
We performed the following audit procedures in relation to the valuation
of the acquired intangibles:
IFRS 3: Business Combinations requires assets and liabilities acquired in
business combinations to be recognised at their fair value, with the difference
between the consideration paid and the fair value of net assets recognised as
goodwill. A provisional purchase price allocation exercise to value the net assets
acquired has been performed by management assisted by an external expert.
Product related intangible assets were valued at $251 million. The valuation of
the acquired intangible assets was underpinned by key assumptions requiring
high levels of estimation and judgement such as cash flow forecasts including
the probability of success, the timing of launch and forecast sales and costs
assumptions.
– Obtained and reviewed the sale and purchase agreement (SPA) to gain
an understanding of the key terms of the acquisition;
– Deployed our valuations experts and we engaged with management
and with management’s third party experts to assess the methodology
employed for calculating the fair values of the product related intangible
assets and the appropriateness of the key assumptions used, including
auditing cash flow forecasts and discount rates;
– Verified that the material fair value adjustments were consistent with the
accounting standard requirements; and
– Reviewed management’s analysis of the acquired entity’s accounting
policies and the Group’s accounting policies and noted no material
differences.
Based on the evidence obtained, we did not identify any indication that
the fair value adjustments identified by management were inappropriate
or that material fair value adjustments were omitted from management’s
assessment.
The investment in subsidiaries of $3,296m (2021: $3,288m) are accounted for
at cost less impairment in the Company balance sheet at 31 December 2022.
We performed the following audit procedures in relation to the carrying
amount of investments in subsidiaries:
Investments in subsidiaries are accounted for at cost less provision for
impairment in the company balance sheet. Investments are tested for
impairment if impairment indicators exist. If such indicators exist, the
recoverable amounts of investments in subsidiaries are estimated in order to
determine the extent of the impairment loss, if any. Any such impairment loss
is recognised in the income statement.
The impairment assessment was identified as a key audit matter given the size
of the underlying investment carrying values at 31 December 2022. Impairment
indicators were identified in connection with certain investments in subsidiaries
due to the carrying value of investments exceeding the net assets of the
underlying subsidiaries. As a result, the recoverable amount of the investments
are determined, being the higher of fair value less cost of disposal or the value
in use, in order to determine the headroom, if any. The determination of the
recoverable amount requires the application of management judgement and
estimates, particularly in determining the key assumptions to be applied in
preparing cash flow projections.
– We evaluated management’s assessment whether any indicators of
impairment existed by comparing the carrying values of investments
in subsidiaries with the net assets of the underlying subsidiaries at
31 December 2022;
– For investments where the net assets were lower than the carrying values,
we assessed their recoverable value by reference to the value in use of
the investments compared to their carrying values at 31 December 2022.
Where applicable, we verified that the recoverable values of investments
were consistent with the recoverable values of the related CGUs tested for
goodwill impairment purposes, leveraging the audit work undertaken as
part of the Group audit.
– We separately evaluated the difference between the carrying value of the
company’s investments in subsidiaries and the Group’s market
capitalisation.
Based on the procedures performed, we noted no material issues arising
from our work.
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, including oversight discussions undertaken by senior
team members, were performed prior to year-end to refine the audit
approach and evaluate component auditor procedures and controls.
As at 31 December 2022, Hikma Pharmaceuticals PLC had 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 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 instructed component teams in the US,
Jordan, Saudi Arabia and Algeria to audit reporting packages of
certain entities in these territories and report to us the results of
their full scope audit work. We also requested our component team
in Portugal to perform an audit over specific balances. In addition
to instructing and reviewing the reporting from our component audit
teams, we conducted file reviews and participated in key meetings
with local management both remotely and in person. We had regular
dialogue with component teams throughout the year and performed
site visits to the US, Jordan and Portugal. In addition to the work
performed by our component teams, central audit procedures were
performed by the group engagement team including a full scope audit
of Hikma Pharmaceuticals PLC and certain specific material balances
not covered by component auditors. The group consolidation,
financial statement disclosures and corporate functions were also
audited by the group engagement team. This included our work
over taxation, goodwill and acquired intangible assets and major
transactions. Taken together, audit work over the full scope
components and central procedures performed covered
approximately 78% of the group’s revenue and 74% of the group’s core
profit before tax. In addition to the audit of full scope components,
we further perform disaggregated analytical review procedures over
certain of the group’s smaller and lower risk components that were not
directly included in our group audit scope. This provided the evidence
we needed for our opinion on the consolidated financial statements
taken as a whole.
The impact of climate risk on our audit
As explained in the Sustainability Report, the Group is 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 to identify and model
the potential impact of climate change on the financial statements
and further engaged with our own sustainability experts. Based on
this, we understand that the key impact to the Group could be a
potential increase in input costs for energy intensive supplies such
as APIs and packaging materials due to carbon pricing. This would
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 currently
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 particularly in the context of the
Group’s target to reduce scope 1 and 2 emissions by 25% by 2030.
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.
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.
134
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Independent auditors’ report to the members
of Hikma Pharmaceuticals PLC
continued
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
US$25 million (2021: US$25 million).
US$22.5 million (2021: US$21.6 million).
Financial statements – Group
Financial statements – Company
How we determined it
Based on approximately 5% of core profit
before tax
1% of total assets, capped at approximately 90%
of overall Group materiality
Rationale for benchmark applied The Group’s principal measure of earnings is core
results. Management believes that it reflects the
underlying performance of the Group and is a
meaningful measure of the Group’s performance
to stakeholders. In the prior year, 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. We refined our
benchmark in the current year to be consistent
with how management assesses performance
of the business.
Total assets is used as the benchmark as the
Company’s principal activity is to hold the Group’s
investments and perform treasury functions on
behalf of the Group.
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 $9.5 million and $22.5 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% (2021: 75%) of overall materiality, amounting to US$18.75 million (2021: US$18.75 million) for the group financial
statements and US$16.875 million (2021: US$16.2 million) for the company financial statements.
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)
(2021: $1.2 million) and $1.2 million (company audit) (2021: $1.2 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.
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 2022 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.
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.
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:
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections
of this report.
Reporting on other information
The other information comprises all of the information in the Annual
Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information.
Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion
or, except to the extent otherwise explicitly stated in this report,
any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit,
or otherwise appears to be materially misstated. If we identify an
apparent material inconsistency or material misstatement, we are
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.
– 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.
136
137
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial 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 and company 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 counsel,
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 and returns reserves, valuation of intangible assets, and
recognition and valuation of acquired intangible assets in respect
of the Custopharm Inc. acquisition (see related key audit matters
below); and
– identifying and testing journal entries, in particular any journal
entries posted with unusual account combinations, unexpected
or unauthorised users, 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 seven years, covering the years ended 31 December 2016 to
31 December 2022.
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.
Nigel Comello
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
22 February 2023
138
139
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Consolidated income statement
For the year ended 31 December 2022
Consolidated statement of
comprehensive income
For the year ended 31 December 2022
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
Operating profit/(loss)
Finance income
Finance expense
Loss from investment at fair value
through profit and loss (FVTPL)
Results from joint venture
Gain from investment divestiture1
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
NNoottee
4
9
9
5
10
11
12
32
15
15
2022
Exceptional items
and other
adjustments
(Note 6)
$m
−
2022 Reported
results
$m
2,517
(27)
(27)
(106)
−
−
(181)
−
(287)
(314)
26
(4)
−
−
5
(287)
69
(218)
−
(218)
(1,279)
1,238
(615)
(5)
(144)
(206)
14
(956)
282
29
(81)
(2)
−
5
233
(42)
191
3
188
2021
Exceptional items
and other
adjustments
(Note 6)
$m
−
−
−
(73)
−
−
(37)
60
(50)
(50)
29
(13)
−
−
−
(34)
5
(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
83.9
83.6
194.8
193.1
2022
Core
results
$m
2,517
(1,252)
1,265
(509)
(5)
(144)
(25)
14
(669)
596
3
(77)
(2)
−
−
520
(111)
409
3
406
181.3
180.4
2021
Reported
results
$m
2,553
(1,252)
1,301
(561)
−
(143)
(77)
62
(719)
582
30
(69)
−
1
−
544
(124)
420
(1)
421
182.3
180.7
1. Represents $8 million from reclassification of translation gains previously included in other comprehensive income and the $3 million loss on disposal of Hikma Liban S.A.R.L.
Note
26
19
Profit for the year
Other comprehensive income
Items that may subsequently be
reclassified to the consolidated income
statement:
Currency translation and hyperinflation
movement
Reclassification of translation gains on
disposal of subsidiary1
Items that will not subsequently be
reclassified to the consolidated income
statement, net of tax2:
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
2022
Exceptional items
and other
adjustments
(Note 6)
$m
(218)
2022
Core
results
$m
409
2022
Reported results
$m
191
2021
Exceptional items
and other
adjustments
(Note 6)
$m
(29)
2021
Core
results
$m
449
2021
Reported results
$m
420
(87)
−
−
(8)
(95)
314
−
314
314
−
(8)
−
−
(87)
(8)
−
(8)
(8)
(103)
(226)
−
(226)
(226)
88
−
88
88
(22)
−
(1)
14
(9)
440
2
438
440
−
−
−
−
−
(29)
−
(29)
(29)
(22)
−
(1)
14
(9)
411
2
409
411
1. $8 million translation reserve gains attributable to equity holders of the parent was recognised in the consolidated income statement on disposal of Hikma Liban S.A.R.L.
2. In 2022, there was no tax on other comprehensive income items. In 2021, the tax amount was $1 million related to remeasurement of post-employment benefit
140
140
Hikma Pharmaceuticals PLC | Annual Report 2022
Hikma Pharmaceuticals PLC | Annual Report 2022
141
141
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Consolidated balance sheet
At 31 December 2022
Consolidated statement
of changes in equity
For the year ended 31 December 2022
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Investment in joint ventures
Deferred tax assets
Financial and other non-current assets
Current assets
Inventories
Income tax receivable
Trade and other receivables
Cash and cash equivalents
Other current assets
Assets classified as held for distribution
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
Translation reserve related to assets held for distribution
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Note
16
16
17
33
18
13
19
20
21
22
23
24
33
25
26
27
28
33
13
30
31
32
2022
$m
389
735
1,024
57
10
192
65
2021
$m
285
607
1,072
74
10
183
47
2,472
2,278
776
32
809
270
110
2
1,999
4,471
139
9
476
73
32
348
1,077
922
1,074
61
19
92
1,246
2,323
2,148
40
282
(265)
(14)
2,092
2,135
13
2,148
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
The consolidated financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, on pages 140 to 192 were approved by the
Board of Directors on 22 February 2023 and signed on its behalf by:
Said Darwazah
Executive Chairman and CEO
22 February 2023
Mazen Darwazah
Executive Vice Chairman
Merger and
revaluation
reserves1
$m
119
Translation
reserve
$m
(199)
Capital
redemption
reserve
$m
−
Note
Translation
reserve
related to
assets held
for
distribution2
$m
−
Total
other
reserves
$m
(80)
Share
capital
$m
41
Share
premium
$m
282
Balance at 1 January 2021
Profit for the year
Change in fair value of
investments at FVTOCI
Realisation of revaluation
reserve
19
Remeasurement of post-
employment benefit obligations
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
38
14
19
31
31
31
38
14
31
Exercise of employees share
scheme
Dividends paid
Balance at 31 December 2021
and 1 January 2022
Profit for the year
Change in fair value of
investments at FVTOCI
Currency translation and
hyperinflation movement
Reclassification of translation
gains on disposal of subsidiary1
Total comprehensive income
for the year
Total transactions with owners,
recognised directly in equity
Transfer of merger reserve2
Issue of Ordinary Bonus Share
Cancellation of Ordinary
Bonus Share
Cost of equity-settled employee
share scheme
Dividends paid
Ordinary Shares purchased
and cancelled
Share buyback transaction costs
Other comprehensive income
accumulated in equity related to
assets held for distribution3
Acquisition of subsidiaries
Balance at 31 December 2022
48
−
(3)
−
−
−
−
−
−
−
−
(25)
45
(25)
−
−
−
−
−
−
164
(224)
−
−
−
−
−
(129)
−
−
−
−
−
−
−
−
(84)
(8)
(92)
−
−
−
−
−
−
−
−
−
35
14
−
(302)
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
2
−
−
−
2
48
−
(3)
−
−
(25)
20
−
−
−
(60)
−
−
(84)
(8)
(92)
(129)
−
−
−
−
2
−
14
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
Retained
earnings
$m
1,892
373
14
3
(2)
1
−
389
29
(1)
(120)
−
−
−
−
−
−
−
−
1
−
2,189
188
42
−
(8)
−
−
180
129
−
−
−
−
−
(1,746)
1,746
1,746
(1,746)
22
(125)
(300)
(3)
(14)
−
−
−
−
−
(2)
−
−
−
Equity
attributable
to equity
shareholders
of the parent
$m
2,135
Non-
controlling
interests
$m
13
Total
equity
$m
2,148
421
(1)
420
14
−
(2)
1
(25)
409
−
−
−
−
3
2
14
−
(2)
1
(22)
411
29
−
29
−
(120)
2,453
188
(8)
−
(1)
−
(121)
14 2,467
3
−
191
(8)
(84)
(3)
(87)
(8)
88
−
−
−
22
(125)
(300)
(3)
−
−
−
−
−
−
−
−
(8)
88
−
−
−
22
(3)
(128)
−
−
−
2
(300)
(3)
−
2
−
−
−
−
−
−
−
−
−
−
282
−
−
−
−
−
−
−
−
−
−
−
−
−
−
142
142
Hikma Pharmaceuticals PLC | Annual Report 2022
Hikma Pharmaceuticals PLC | Annual Report 2022
143
143
1. $8 million translation reserve gains attributable to equity holders of the parent was recognised in the consolidated income statement in relation to Hikma Liban S.A.R.L. disposal
2. $129 million of the merger reserve balance which relates to Columbus business acquisition was transferred to retained earnings as a result of the capitalisation of the Company’s merger reserve (Note 31)
3. Translation reserve related to assets held for distribution represent cumulative translation loss recognised in other comprehensive income attributable to equity holders of the parent in relation to
Pharma Ixir Co. Ltd which is currently under liquidation
(265)
(14) 2,092
40
282
2,135
13
2,148
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Consolidated cash flow statement
For the year ended 31 December 2022
NNoottee
34
Cash flows from operating activities
Cash generated from operations
Income taxes paid
Income taxes received
Net cash inflow from operating activities
Cash flow from investing activities
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of intangible assets
Proceeds from disposal of intangible assets
Proceeds from sale of investment at FVTOCI
Additions of investments at FVTOCI
Acquisition of subsidiary undertakings net of cash acquired
36
Proceeds from investment divestiture
Cash loss on disposal of subsidiary
Payments of contingent consideration liability
Milestone payments of acquired contingent liability
Interest income received
Acquisition related amounts 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
Revolving credit facility upfront fees paid
Share buyback
Share buyback transaction costs
Payment to co-development and earnout payment agreement
Net cash outflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign exchange translation movements
Cash and cash equivalents at end of year
14
31
22
2022
$m
585
(103)
48
530
(138)
1
(87)
9
−
(15)
(373)
−
(1)
(6)
−
3
−
2021
$m
767
(131)
2
638
(145)
−
(84)
−
5
(3)
−
1
−
(6)
(11)
2
3
(607)
(238)
1,401
(962)
380
(363)
(9)
(125)
(3)
(68)
(5)
(300)
(3)
(1)
(58)
(135)
426
(21)
270
10
(45)
383
(431)
(31)
(120)
(1)
(50)
−
−
−
(2)
(287)
113
323
(10)
426
Notes to the consolidated
financial statements
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 2022.
IAS 16 (Amendments)
Property, Plant and Equipment: proceeds
before intended use
IFRS 3 (Amendments)
Reference to the conceptual framework
IAS 37 (Amendments)
Annual improvements to
IFRS standards 2018-2020
Onerous contracts − cost of fulfilling a
contract
– Improvements to IFRS 9 Financial
Instruments
– Improvements to IFRS 16 Leases
These amendments had no significant impact on the consolidated
financial statements of the Group but may impact the accounting for
future transactions and arrangements.
The standards and interpretations that had been issued but were not
mandatory for annual reporting periods ending on 31 December 2022
were not early adopted. The Group doesn’t expect any significant
impact from applying these standards and interpretations.
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 201.
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.
(ii) IFRS as issued by the International Accounting Standards Board
(IASB)
The consolidated financial statements have been prepared under the
historical cost convention, except for the revaluation to fair value of
certain financial assets and liabilities.
The accounting policies included in this note have been applied
consistently other than where new policies have been adopted.
The Group’s previously published consolidated financial statements
were also prepared in accordance with UK-adopted international
accounting standards, the requirements of the Companies Act 2006,
and the IFRS as issued by the 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 67).
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 at
31 December 2022. The Group expects to remain in compliance with
those covenants for the going concern analysis period even in the
severe but plausible downside scenarios. As of 31 December 2022,
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
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
has power over the investee, exposure, or rights, to variable returns
from its involvement with the investee and has the ability to affect
those returns through its power.
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)
– 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.
144
144
Hikma Pharmaceuticals PLC | Annual Report 2022
Hikma Pharmaceuticals PLC | Annual Report 2022
145
145
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Notes to the consolidated financial statements
continued
2. Significant accounting policies continued
Business combinations
The acquisition of subsidiaries is accounted for using the acquisition
method. All identifiable assets, liabilities and contingent liabilities
acquired are measured at fair value on the acquisition date. All
acquisition related costs are recognised in the consolidated income
statement as incurred.
The consideration is measured at the aggregate fair values of assets
given, liabilities incurred or assumed, and equity instruments issued by
the Group in exchange for control of the acquiree, at the acquisition date.
Where applicable, this consideration may include the fair value of assets
or liabilities resulting from a contingent consideration arrangement.
Contingent consideration classified as an asset or liability is a financial
instrument and, within the scope of IFRS 9 ‘Financial Instruments’, is
measured at fair value, with changes in fair value recognised in the
consolidated income statement in line with IFRS 9.
Subsequent changes to those fair values can only affect the
measurement of goodwill, where they occur during the ‘measurement
period’ and are as a result of additional information becoming available
about facts and circumstances that existed at the acquisition date. All
other changes are dealt with in accordance with relevant IFRSs. This
will usually mean that changes in the fair value of consideration are
recognised in the consolidated income statement.
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 any 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 gain 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
146
146
Hikma Pharmaceuticals PLC | Annual Report 2022
includes any long-term interests that, in substance, form part of the
Group’s net investment in the joint venture) are recognised only to the
extent that the Group has incurred legal or constructive obligations or
made payments on behalf of the joint venture.
Any excess of the cost of acquisition over the Group’s share of the net
fair value of the identifiable assets, liabilities and acquired contingent
liabilities of the joint venture recognised at the date of acquisition is
recognised as goodwill. The goodwill is included within the carrying
amount of the investment and is assessed for impairment as part of
that investment. Any impairment charges are recognised immediately
in the consolidated income statement.
The aggregate of the 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.
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 the rates of the transactions dates. 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 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
2022. At 31 December 2022, the prevailing rate for Sudanese pound
was 583.34 per US dollar (2021: 436.28). For Lebanon, the Group
disposed of the subsidiary Hikma Liban S.A.R.L. on 8 November 2022
using the prevailing rate at that date which was 30,300 Lebanese
pound per US dollar (2021: 1,507.5).
Any gain or loss on net monetary assets and liabilities is recognised in
the consolidated income statement. The effect of hyperinflation on
non-monetary assets and liabilities is recognised in other
comprehensive income within equity.
2. Significant accounting policies continued
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 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
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.
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).
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 when the free goods are
due but not yet transferred to the customer.
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 38 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.
Hikma Pharmaceuticals PLC | Annual Report 2022
147
147
Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Notes to the consolidated financial statements
continued
2. Significant accounting policies continued
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 41)
– 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
– 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 (i.e. those leases that have a lease term
of 12 months or less from the commencement date and do not
contain a purchase option). It also applies the lease of low-value
assets recognition exemption to leases of office equipment that are
considered of low value (i.e. below $5,000). Lease payments on
short-term leases and leases of low-value assets are recognised as
an expense on a straight-line basis over the lease term
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.
2. Significant accounting policies continued
Exceptional items and other adjustments
Core results mainly exclude:
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.
– Amortisation of intangible assets other than software
– Impairment charge/reversal of intangible assets and property, plant
and equipment
– Finance income and expense resulting from remeasurement,
unwinding of contingent consideration and co-development earnout
payment agreement financial liabilities
– Exceptional items 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
Our core results exclude the exceptional items and other adjustments
set out in Note 6 in the Notes to the consolidated financial statements.
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 and the amortisation is recognised in the selling,
general and administrative expenses.
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 are when licences are acquired
and certain milestones are met, all other expenditures are charged to
the consolidated income statement.
Intangible assets are measured at cost, less any accumulated
amortisation and impairment losses.
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Notes to the consolidated financial statements
continued
2. Significant accounting policies continued
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
Other identified intangibles are:
(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 lives
(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
Details of the intangible assets useful lives are included in Note 16.
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.
The normal expected useful lives of the major categories of Property,
plant and equipment are:
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 of disposal
(FVLCD) and value in use (VIU). The FVLCD valuation uses inputs that
are not based on observable market data, and therefore falls under
level 3 fair valuation. This valuation calculation is measured by
discounting post-tax projected cash flows of the relevant asset or cash
generating unit (CGU), applying a post-tax discount rate adjusted
where appropriate for specific asset related or market risk.
In assessing VIU, 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 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.
20 to 50 years
The Group’s goodwill and intangible assets are tested as follows:
Buildings
Machinery and equipment
Vehicles, fixtures and equipment
3 to 20 years
3 to 13 years
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.
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(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.
2. Significant accounting policies continued
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 banks and on hand, short-
term highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of
changes in value. These would typically have maturities within three
months or less from date of acquisition and are held for the purpose of
meeting short-term cash commitments rather than for investment or
other purposes. Cash equivalents include time deposits and money
market deposits.
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 received payments on certain research and
development milestones. In return for receiving such milestone
payments, the Group has agreed to pay the contracting parties a
certain percentage of future sales of those products
– 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
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Notes to the consolidated financial statements
continued
2. Significant accounting policies continued
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. (Notes 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.
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.
Treasury shares
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
and may have a significant risk resulting in a material adjustment to the
carrying amounts of assets and liabilities within the next financial year.
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, which together are
considered to be a critical estimates that may have a significant risk of
resulting in a material adjustment.
These arrangements vary by product arrangement and buying group.
Refer to Notes 21 and 27 for sensitivity analysis.
Chargebacks
Critical estimates
The key inputs and assumptions included in calculating this provision
are estimations of ‘in channel’ inventory at the wholesalers (including
processing lag), estimated chargeback rates as informed by average
historical chargeback credits adjusted for expected chargeback levels
for new products, changes to pricing and estimated future sales trends
(including customer mix). Refer to Note 21 for sensitivity analysis.
Returns
Critical estimates
The key assumptions included in calculating this provision are
estimations of the product shelf life, returns rate for revenue subject to
returns, 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. Refer to Note 21 for sensitivity analysis.
Rebates
Critical estimates
The key inputs and assumptions included in estimating this provision
are the historical relationship between contractual rebate payments to
revenue, past payment experience, changes to pricing and sales levels,
estimation of ‘in channel’ inventory at the wholesalers and retail
pharmacies and estimated future sales trends (including customer
mix). Refer to Notes 21 and 27 for sensitivity analysis.
3. Critical accounting judgements and key
sources of estimation uncertainty continued
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:
– The Group evaluated generic Advair Diskus® as a separate CGU,
mainly due to its distinct assets and liabilities and its ability to
generate largely independent cash flows
– The Group allocated Custopharm Topco Holdings, Inc. associated
goodwill to the Injectables CGU reflecting the integration of the
business, as Custopharm Topco Holdings, Inc. will not be able to
generate cash inflows that are independent from the injectables CGU.
The valuation of the Custopharm net assets acquired and the
goodwill are provisional (Note 36).
Critical estimates
– Estimating a five-year business plan for the purposes of forecasting 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 and marketing rights intangible assets (Note 16)
Valuing intangible assets upon initial recognition as at the acquisition date
and testing for impairment require the following judgements and estimates:
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
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 discount rate and specific risk premiums
Based on the annual impairment trigger assessment and impairment
test for product related and marketing rights intangible assets, the
Group have not identified any material impairment on an individual
asset basis, that may have significant risk resulting in a material
adjustment to their carrying amounts within the next financial year.
Therefore, no sensitivity analysis was performed.
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)
Taxation (Notes 12 and 13)
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 and transfer pricing audit risk
In common with most international organisations, the Group is subject
to tax and transfer pricing audits from tax 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 in line with IFRIC 23
principles. These estimates take into account the specific
circumstances of each dispute and relevant external advice, and are
inherently judgemental in nature and could change substantially over
time as new facts emerge and each dispute progresses. The Group
regularly takes professional advice to ensure the risks are appropriately
analysed and managed with any ultimate potential liability being
adequately provided, and continues to invest in its financial systems to
improve the quality of the Group’s financial data which reduces the risk
of an adverse tax authority audit.
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Notes to the consolidated financial statements
continued
3. Critical accounting judgements and key
sources of estimation uncertainty continued
As at 31 December 2022, the Group’s uncertain tax positions amounted
to $50 million (2021: $44 million) (Note 12), while it is not practical to
provide a sensitivity analysis due to the number of uncertain tax
positions held and the number of jurisdictions to which these relate,
the Group reviews material uncertain tax positions on an individual
basis and believes that it has accounted for an adequate provision for
the liabilities likely to arise from open assessments and audits and
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.
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.
Contingent liabilities
The promotion, marketing and sale of pharmaceutical products and
medical devices is highly regulated and the operations of market
participants, such as the Group, 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 which may result in a possible
obligation depending on whether some uncertain future event occurs in
relation to legal proceedings and/or governmental agencies investigations.
It is the Group’s policy to provide for amounts related to these legal
matters if it is probable that a liability has been incurred and an amount
is reasonably estimable.
A contingent liability is not provided for and disclosed in Note 37 if:
– payment is not probable where the Group denies having engaged in
conduct that would give rise to liability with respect to these civil
suits and is vigorously pursuing defence of legal proceedings, or
– it is a present obligation but the amount cannot be measured reliably
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 2022
United States
Middle East and North Africa
Europe and rest of the world
United Kingdom
Year ended 31 December 2021
United States
Middle East and North Africa
Europe and rest of the world
United Kingdom
The top selling markets are as below:
United States
Saudi Arabia
Algeria
Egypt
Injectables
$m
761
Generics
$m
672
Branded
$m
−
178
194
8
1,141
Injectables
$m
691
180
176
6
1,053
−
−
−
672
Generics
$m
820
−
−
−
820
681
10
−
691
Branded
$m
−
661
8
−
669
Others
$m
−
7
6
−
13
Others
$m
−
6
5
−
11
2022
$m
1,433
240
132
115
1,920
Total
$m
1,433
866
210
8
2,517
Total
$m
1,511
847
189
6
2,553
2021
$m
1,511
218
112
127
1,968
In 2022, included in revenue arising from the Generics and Injectables segments are sales the Group made to three wholesalers in the US, each
accounting for equal to or greater than 10% of the Group’s revenue: $361 million (14% of Group revenue), $330 million (13% of Group revenue) and
$251 million (10% of Group revenue). In 2021, sales to these wholesalers were $402 million (16% of Group revenue), $341 million (13% of Group
revenue) and $230 million (9% of Group revenue), respectively.
The following table provides contract balances related to revenue:
Net trade receivables (Note 21)
Contract and refund liabilities (Note 27)
2022
$m
777
193
2021
$m
781
213
Trade receivables are non-interest bearing and typical credit terms range from 30 to 90 days in the US, 30 to 120 days in Europe and 180 to 360 days
in MENA.
Contract and refund liabilities relate to returns and free goods provisions.
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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, Branded and Generics. These
divisions are the basis on which the Group reports its segmental information. (See business and financial review section on page 24 for more
details on the business segments performance)
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/(loss)
Total operating expenses
Segment result
Branded
Revenue
Cost of sales
Gross profit/(loss)
Total operating expenses
Segment result
Generics
Revenue
Cost of sales
Gross profit/(loss)
Total operating expenses
Segment result
Others¹
Revenue
Cost of sales
Gross profit/(loss)
Total operating expenses
Segment result
2022
Exceptional items
and other
adjustments
(Note 6)
$m
−
(26)
(26)
(57)
(83)
2022
Exceptional items
and other
adjustments
(Note 6)
$m
−
−
−
(10)
(10)
2022
Core results
$m
1,141
(498)
643
(215)
428
2022
Core results
$m
691
(341)
350
(204)
146
2022
Exceptional items
and other
adjustments
(Note 6)
$m
−
(1)
(1)
(219)
(220)
2022
Core results
$m
672
(406)
266
(163)
103
2022
Exceptional items
and other
adjustments
(Note 6)
$m
−
2022
Core results
$m
13
(6)
7
(4)
3
−
−
−
−
2022
Reported
results
$m
1,141
(524)
617
(272)
345
2022
Reported
results
$m
691
(341)
350
(214)
136
2022
Reported
results
$m
672
(407)
265
(382)
(117)
2022
Reported
results
$m
13
(6)
7
(4)
3
2021
Exceptional items
and other
adjustments
(Note 6)
$m
−
−
−
(44)
(44)
2021
Exceptional items
and other
adjustments
(Note 6)
$m
−
−
−
(21)
(21)
2021
Exceptional items
and other
adjustments
(Note 6)
$m
−
−
−
15
15
2021
Core results
$m
1,053
(472)
581
(186)
395
2021
Core results
$m
669
(341)
328
(203)
125
2021
Core results
$m
820
(432)
388
(186)
202
2021
Exceptional items
and other
adjustments
(Note 6)
$m
−
2021
Core results
$m
11
(6)
5
(3)
2
−
−
−
−
2021
Reported
results
$m
1,053
(472)
581
(230)
351
2021
Reported
results
$m
669
(341)
328
(224)
104
2021
Reported
results
$m
820
(432)
388
(171)
217
2021
Reported
results
$m
11
(6)
5
(3)
2
1. Others mainly comprises Arab Medical Containers LLC and International Pharmaceutical Research Centre LLC
Group
Segment result
Unallocated expenses¹
Operating profit/(loss)
Finance income
Finance expense
Loss from investment at FVTPL
Results from joint venture
Gain from investment divestiture
Profit/(loss) before tax
Tax
Profit/(loss) for the year
Attributable to:
Non-controlling interests
Equity holders of the parent
2022
Exceptional items
and other
adjustments
(Note 6)
$m
(313)
2022
Core results
$m
680
2022
Reported
results
$m
367
2021
Core results
$m
724
2021
Exceptional items
and other
adjustments
(Note 6)
$m
(50)
(84)
596
3
(77)
(2)
−
−
520
(111)
409
3
406
(1)
(314)
26
(4)
−
−
5
(287)
69
(218)
−
(218)
(85)
282
29
(81)
(2)
−
5
233
(42)
191
3
188
(92)
632
1
(56)
−
1
−
578
(129)
449
(1)
450
−
(50)
29
(13)
−
−
−
(34)
5
(29)
−
(29)
2021
Reported
results
$m
674
(92)
582
30
(69)
−
1
−
544
(124)
420
(1)
421
1. Unallocated corporate expenses mainly comprise employee costs, third-party professional fees, IT and travel expenses
The following table provides an analysis of the Group non-current assets2 by geographic area:
United States
Middle East and North Africa
Jordan
Algeria
Others
Europe and rest of the world
Portugal
Others
United Kingdom
2022
$m
2021
(restated)3
$m
1,305
1,140
349
85
224
658
133
89
222
20
365
69
252
686
136
52
188
24
2,205
2,038
2. Non-current assets exclude investments in joint ventures (Note 18), deferred tax assets (Note 13), and financial and other non-current assets (Note 19)
3. 2021 numbers have been restated to reflect the allocation of goodwill to the relevant operational countries by reclassifying $57 million from the United Kingdom to the United States. Previously, this
goodwill was allocated to the holding companies in the United Kingdom
156
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial 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. Exceptional items have been recognised in accordance with our accounting policy outlined in Note 2, the details are
presented below:
Injectables
$m
Branded
$m
Generics
$m
Unallocated
$m
Total
$m
Exceptional items and other adjustments
Gain from investment divestiture
Reorganisation costs
2022
SG&A
Impairment charge on property, plant and equipment and right-of-use assets Other operating expenses
Impairment charge on intangible assets
Other operating expenses
Intangible assets amortisation other than software
Unwinding of acquisition related inventory step-up
Remeasurement of contingent consideration
Unwinding of contingent consideration and other financial liability
SG&A
Cost of sales
Finance income
Finance expense
−
(2)
(4)
(8)
(43)
(26)
−
−
−
(2)
−
−
(8)
−
−
−
−
(9)
(76)
(93)
(41)
(1)
−
−
Exceptional items and other adjustments included in profit before tax
(83)
(10)
(220)
Tax effect
Impact on profit for the year
Tax
5
(1)
−
−
−
−
26
(4)
26
5
(14)
(80)
(101)
(92)
(27)
26
(4)
(287)
69
(218)
Exceptional items and other adjustments
– Gain from investment divestiture: represents $8 million from reclassification of translation gains previously included in other comprehensive
income and the $3 million loss on disposal of Hikma Liban S.A.R.L.
– Reorganisation costs: $14 million of reorganisation costs relate to a one-off global restructuring to align staffing levels with current business
conditions. Management expects to finish the restructuring in 2023
– Impairment charge on property, plant and equipment and right-of-use assets: $80 million of impairment charge relates to excess capacity and
the rationalisation of the R&D pipeline associated production lines mainly in the Generics CGU, in addition to the impairment of generic Advair
Diskus® CGU related property, plant and equipment (Notes 9, 16, 17 and 34)
– Impairment charge on intangible assets: $101 million impairment charge mainly relates to the generic Advair Diskus® CGU, other product related
intangible assets and marketing rights mainly resulting from decline in performance and forecasted profitability and the rationalisation of the
R&D pipeline in the Generics CGU (Notes 9, 16 and 36)
– Intangible assets amortisation other than software: $92 million intangible assets amortisation other than software
– Unwinding of acquisition related inventory step-up: $27 million unwinding of acquisition related inventory step-up reflects the unwinding of the
fair value uplift of the inventory acquired as part of Custopharm Topco Holdings, Inc. business combination and the Teligent Inc. Canadian
assets acquisition ($25 million and $2 million, respectively) (Note 36)
– Remeasurement of contingent consideration finance income 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 of contingent consideration and other financial liability finance expense 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)
Tax effect
– The tax effect represents the tax effect on pre-tax exceptional items and other adjustments which is calculated based on the applicable tax rate
in each jurisdiction
6. Exceptional items and other adjustments continued
In the previous year, exceptional items and other adjustments were related to the following:
Exceptional items and other adjustments
Intangible assets write-down
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
2021
Injectables
$m
Branded
$m
Generics
$m
Unallocated
$m
Total
$m
Other operating expenses
Other operating income
Other operating expenses
SG&A
Finance income
Finance expense
Tax
(1)
−
(10)
(33)
−
−
(11)
−
−
(10)
−
−
(44)
(21)
(1)
60
(14)
(30)
−
−
15
−
−
−
−
29
(13)
16
(13)
60
(24)
(73)
29
(13)
(34)
5
(29)
Exceptional items and other adjustments
– Intangible assets write-down: $13 million write-down of software represented year 2020 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 year 2020 was not material and therefore the application was not retrospectively
applied and was recognised in 2021 consolidated income statement as an exceptional item
– 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: $73 million intangible assets amortisation other than software
– Remeasurement of contingent consideration finance income of $29 million represented the income resulting from the valuation of the liabilities
associated with the future contingent payments in respect of contingent consideration recognised through business combinations (Notes 27,
29 and 30)
– Unwinding and remeasurement of contingent consideration and other financial liability finance expense of $13 million represented 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)
Tax effect
– The tax effect represented the tax effect on pre-tax exceptional items and other adjustments which is calculated based on the applicable tax
rate in each jurisdiction
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159
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial 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
Total audit and non-audit fees
1. Amounts have been restated to reflect final amounts billed in relation to 2021
2. Assurance services relate to review procedures in respect to the interim financial information
2022
$m
1.4
2.3
3.7
0.2
3.9
20211
$m
1.4
2.0
3.4
0.2
3.6
A description of the work of the Audit Committee is set out in the Audit Committee report on pages 89 to 92 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 38)
Car and housing allowances
Health insurance
Other costs and employee benefits
2022
Number
5,071
3,234
530
8,835
2022
$m
411
37
16
20
22
22
42
23
2021
Number
4,924
3,273
506
8,703
2021
$m
407
38
15
9
29
22
41
22
593
583
9. Other operating income/expenses
Other operating expense
Impairment charge
Intangible assets write-down
Loss on disposal/damage of property, plant and equipment
Forex and net monetary hyperinflation losses, net
Others
2022
Exceptional
items and other
adjustments
(Note 6)
$m
181
2022
Core results
$m
1
2022 Reported
results
$m
182
2021
Core results
$m
1
2021
Exceptional
items and other
adjustments
(Note 6)
$m
24
2021 Reported
results
$m
25
−
1
20
3
25
−
−
−
−
−
1
20
3
181
206
−
1
36
2
40
13
−
−
−
37
13
1
36
2
77
Impairment charges of $182 million primarily related to excess capacity due to the rationalisation of the Generics R&D pipeline and associated
production lines in addition to the impairment of generic Advair Diskus CGU (Notes 6, 16, 17, 34 and 36). In 2021, the impairment charge of $25
million mainly related to certain product related intangible assets.
Other operating income
Gain from disposal of property, plant and equipment
Gain from disposal of intangible assets
Impairment reversal of intangible assets
Others
2022
Exceptional
items and other
adjustments
(Note 6)
$m
−
2022
Core results
$m
1
2022 Reported
results
$m
1
2021
Core results
$m
−
6
−
7
14
−
−
−
−
6
−
7
14
−
−
2
2
2021
Exceptional
items and other
adjustments
(Note 6)
$m
−
−
60
−
60
2021 Reported
results
$m
−
−
60
2
62
In 2021, $60 million impairment reversal mainly related to generic Advair Diskus® CGU (Notes 6 and 16).
10. Finance income
Interest income
Remeasurement of contingent consideration
(Notes 27 and 30)
2022
Exceptional
items and other
adjustments
(Note 6)
$m
−
2022
Core results
$m
3
2022 Reported
results
$m
3
2021
Core results
$m
1
2021
Exceptional
items and other
adjustments
(Note 6)
$m
−
2021 Reported
results
$m
1
−
3
26
26
26
29
−
1
29
29
29
30
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161
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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 and 30)
Other bank charges
Lease accretion of interest
Net foreign exchange loss
12. Tax
Current tax
Current year
Adjustment to prior years
Deferred tax (Note 13)
Current year
Adjustment to prior year
2022
Exceptional
items and other
adjustments
(Note 6)
$m
−
2022
Core results
$m
37
2022 Reported
results
$m
37
2021
Core results
$m
21
2021
Exceptional
items and other
adjustments
(Note 6)
$m
−
2021 Reported
results
$m
21
18
−
11
4
7
77
−
4
−
−
−
4
18
4
11
4
7
81
18
−
13
4
−
56
−
13
−
−
−
13
18
13
13
4
−
69
2022
Exceptional
items and other
adjustments
(Note 6)
$m
2022
Core results
$m
2022 Reported
results
$m
2021
Core results
$m
2021
Exceptional
items and other
adjustments
(Note 6)
$m
2021 Reported
results
$m
121
(1)
(5)
(4)
111
(16)
−
(53)
−
(69)
105
(1)
(58)
(4)
42
114
(13)
20
8
129
(7)
−
2
–
(5)
107
(13)
22
8
124
UK corporation tax is calculated at 19.0% (2021: 19.0%).
The Group incurred a tax expense of $42 million (2021: $124 million), the effective tax rate is 18.0% (2021: 22.8%). The reported effective tax rate is
lower than the statutory rate due to the change in earnings mix, primarily as a result of the impairment in the Generics business in the US.
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 19.0% (2021: 19.0%)
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
Change in uncertain tax positions
Unremitted earnings
Prior year adjustments
Tax expense for the year
2022
$m
233
44
4
3
2
(5)
(2)
(5)
10
(4)
(5)
42
2021
$m
544
104
7
5
2
(6)
7
5
2
3
(5)
124
Profits taxed at different tax rates relate 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 include items for which it is not appropriate
to recognise deferred tax.
The change in the uncertain tax positions relates to the balance the Group holds in the event a revenue authority successfully takes an adverse
view of the positions adopted by the Group in 2022 and prior years, and primarily relates to transfer pricing adjustment. As at 31 December 2022,
the Group’s uncertain tax positions amounted to $50 million (2021: $44 million). The Group released $3 million in 2022 (2021: $ nil million) due to
the statute of limitations and released $2 million (2021: $7 million) following closure of tax audit with no final tax adjustments required by the
relevant tax authorities, this was offset by new provisions and updates of $15 million booked in 2022 (2021: $9 million) arising from new and
ongoing tax audits. $3 million of the reported balance is no longer considered as uncertain tax position (2021: $nil million) and had no impact on
the consolidated income statement. The currency exchange difference for the year is a $1 million reduction (2021: $1 million reduction) to the
aggregate balance. In 2023, no provision is expected to be released due to the statute of limitation or 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 year’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 uncertain tax positions’ above.
Global minimum tax
During 2021, the OECD published a framework for the introduction of a global minimum effective tax rate of 15%, applicable to large multinational
groups. On 20 July 2022, HM Treasury released draft legislation to implement these ‘Pillar 2’ rules with effect for accounting periods beginning on
or after 31 December 2023. The Group is reviewing these draft rules to understand any potential impact.
US Section 174 Update
Effective 1 January 2022, section 174 rules in the US require taxpayers to capitalise and amortise specific research or experimental expenditures
over a period of five years (attributable to domestic research) or 15 years (attributable to foreign research). Previously, such expenditures were
deducted in the year paid or incurred.
Implementation of UAE Corporation Tax Law and application of IAS 12 Income Taxes
On 9 December 2022, the UAE Ministry of Finance released Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses to
enact a Federal corporate tax regime in the UAE. The Corporate Tax regime will become effective for accounting periods beginning on or after 1
June 2023. Generally, UAE businesses will be subject to a 9% corporate tax rate, while a rate of 0% will apply to taxable income not exceeding a
particular threshold to be prescribed by way of a Cabinet Decision (expected to be AED 375,00 based on information released by the Ministry of
Finance). On the other hand, no Corporate Tax shall be imposed on a Qualifying Free Zone Person/Entity.
However, there are a number of significant decisions that are yet to be finalised by way of a Cabinet Decision, including the threshold mentioned
above, that are critical for entities to determine their tax status and the amount of tax due. Therefore, pending such important decisions by the
Cabinet, the Group has determined that the Law was not practically operational as at 31 December 2022, and so not enacted or substantively
enacted from the perspective of IAS 12 – Income Taxes. The Group shall continue to monitor the timing of the issuance of these critical Cabinet
Decisions to determine its tax status and the applicability of IAS 12 – Income Taxes. The Group is currently in the process of assessing the possible
impact on its financial statements, both from current and deferred tax perspective, once the Law becomes substantively enacted.
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.
162
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163
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Notes to the consolidated financial statements
continued
13. Deferred tax
14. Dividends
Deferred tax assets and liabilities have been offset where it is appropriate to do so. The following is the analysis of the deferred tax balances (after
offset) for financial reporting purposes:
As at 31 December
2021
$m
(24)
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2021 of 36 cents (31 December 2020: 34 cents) per share
Interim dividend during the year ended 31 December 2022 of 19 cents (31 December 2021: 18 cents) per share
Paid in
2022
$m
83
42
125
Paid in
2021
$m
78
42
120
Deferred tax liabilities
Deferred tax assets
The table below represents the deferred tax movement in 2022:
1 January 2022
Credit/(charge) to income
Acquisition of subsidiary
Currency translation and hyperinflation impact
At 31 December 2022
Product
related
provision
$m
94
(5)
(5)
(1)
83
Intangible
assets
$m
77
Other provisions
and accruals
$m
12
Unremitted
earnings
$m
(8)
21
(53)
1
46
3
1
−
16
4
−
−
(4)
The table below represents the deferred tax movement in 2021:
1 January 2021
Credit/(charge) to income
Currency translation and hyperinflation impact
At 31 December 2021
Product
related
provision
$m
111
(17)
−
94
Intangible
assets
$m
76
Other provisions
and accruals
$m
18
Unremitted
earnings
$m
(11)
−
1
77
(6)
−
12
3
−
(8)
2022
$m
(19)
192
173
Others
$m
(16)
39
11
(2)
32
Others
$m
(4)
(10)
(2)
(16)
183
159
Total
$m
159
62
(46)
(2)
173
Total
$m
190
(30)
(1)
159
The Group has a potential deferred tax asset of $246 million (2021: $234 million), of which $192 million (2021: $183 million) has been recognised.
No deferred tax asset has been recognised on gross temporary differences totalling $223 million (2021: $208 million) mainly due to the
unpredictability of the related future profit streams. $195 million (2021: $194 million) of these gross temporary differences relate to losses, of which
$189 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. $1 million of non-UK losses are expected to expire in 2023. The remaining $28 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 $4 million (2021: reduction of $3 million). No deferred tax liability has been recognised on the remaining unremitted
earnings of $294 million (2021: $207 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.
Other deferred taxes mainly relate to property, plant and equipment as well as the difference between book and tax bases in relation to the
research and development expenditures. The current year increase is driven by the effect of change in US tax law (section 174), whereby the tax
base of certain research and development expenditures were capitalised and amortised over a period of time, thereby resulting in a deferred tax
asset. Moreover, the impairment of certain property, plant and equipment within the US Generics business has also resulted in an increase in
deferred tax assets.
The proposed final dividend for the year ended 31 December 2022 is 37 cents (2021: 36 cents).
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 28 April 2023 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 2022 (220,235,852), the final
dividend would be $81 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
potentially dilutive 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.
2022
Exceptional
items and other
adjustments
(Note 6)
$m
2022
Core results
$m
2022
Reported
results
$m
2021
Core results
$m
2021
Exceptional
items and other
adjustments
(Note 6)
$m
2021
Reported
results
$m
Earnings for the purposes of basic and diluted EPS being
net profit attributable to equity holders of the parent
406
(218)
188
450
(29)
421
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. Treasury shares have no right to receive dividends.
The numbers of shares used in calculating basic and diluted earnings per share are reconciled below:
Number of shares
Weighted average number of Ordinary Shares for the purposes of basic EPS¹
Effect of potentially dilutive Ordinary Shares:
Share-based awards
Weighted average number of Ordinary Shares for the purposes of diluted EPS
2022
Number
m
224
1
225
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 (Note 31)
Basic
Diluted
2022
Core
EPS
Cents
181.3
180.4
2022
Reported
EPS
Cents
83.9
83.6
2021
Core
EPS
Cents
194.8
193.1
2021
Number
m
231
2
233
2021
Reported
EPS
Cents
182.3
180.7
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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 2022 and 31 December 2021 are as follows:
Goodwill
Other intangible assets
CGUs
Details related to the discounted cash flow models used in the impairment tests of the CGUs are as follows:
Cost
Balance at 1 January 2021
Write-down
Additions
Reclassification
Translation adjustments
Balance at 1 January 2022
Additions
Disposals
Translation adjustments
Acquisition of subsidiaries (Note 36)
Balance at 31 December 2022
Accumulated amortisation and impairment
Balance at 1 January 2021
Write-down
Charge for the year
Impairment reversal
Impairment charge
Translation adjustments
Balance at 1 January 2022
Charge for the year
Impairment charge
Translation adjustments
Balance at 31 December 2022
Carrying amount
At 31 December 2022
At 31 December 2021
Product
related
intangible
assets
$m
Other
identified
intangibles
$m
Software
$m
Total
$m
$m
697
−
−
−
(4)
693
−
−
(15)
119
797
1,041
−
14
3
(2)
1,056
48
−
(5)
251
1,350
(408)
(629)
−
−
−
−
−
(408)
−
−
−
(408)
389
285
−
(59)
60
(23)
1
(650)
(75)
(72)
4
(793)
557
406
145
(14)
11
−
−
142
1
−
(2)
−
141
(81)
1
(11)
−
−
−
(91)
(8)
(1)
2
(98)
43
51
205
2,088
−
58
(3)
(3)
(14)
83
−
(9)
257
2,148
36
(3)
(5)
−
285
(94)
−
(14)
−
(1)
2
(107)
(17)
(29)
3
85
(3)
(27)
370
2,573
(1,212)
1
(84)
60
(24)
3
(1,256)
(100)
(102)
9
(150)
(1,449)
135
150
1,124
892
Of the total intangible assets other than goodwill, $115 million (2021: $132 million) are under development and not yet subject to amortisation.
The addition of product related intangible assets during the year mainly relates to the acquisition of the Canadian assets of Teligent Inc (Note 36).
Goodwill
Goodwill represents the excess of the aggregate of consideration, non-controlling interest and any fair value of previously held equity interest over
the fair value of the identifiable net assets acquired (including acquired contingent liabilities). Goodwill is allocated at acquisition to the CGUs that
are expected to benefit from that business combination. The goodwill of $119 million arising from the acquisition of Custopharm Topco Holdings,
Inc. has been allocated to the Injectables CGU reflecting the integration of the business, as Custopharm Topco Holdings, Inc. will not be able to
generate cash inflows that are independent from the injectables CGU (Note 36).
The carrying amount of goodwill has been allocated as follows:
Branded
Injectables
Total
2022
$m
160
229
389
As at 31 December
2021
$m
170
115
285
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.
Valuation basis, terminal
growth rate and discount rate
Branded
Injectables
Generics
Generic Advair Diskus®
Terminal
growth rate
(perpetuity)
2022
2.2%
1.6%
2.1%
–¹
Valuation basis
VIU
VIU
FVLCD
FVLCD
2021
2.4%
2.1%
2.3%
–¹
Discount rate
2022
17.7%
12.0%
9.1%
9.1%
2021
15.4%
10.2%
8.0%
8.0%
Pre−tax
Pre−tax
Post−tax
Post−tax
Key assumptions
Projected cash flows based on:
– Sales growth rates, informed by pricing and volume assumptions
– Profit margins and profit margin growth rates for marketed and pipeline products
– Expected launch dates for pipeline products
Terminal growth rates
Discount rates
Determination of
assumptions
Growth rates are internal forecasts based on both internal and external market information, informed by historical
experience and management’s best estimates of the future
Margins reflect past experience, adjusted for expected changes in the future
Establishing the launch date and probability of a successful product approval for pipeline products
Terminal growth rates and useful lives 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
1. generic Advair Diskus® has a remaining useful life of 14 years (2021: 15 years)
The Group performed its annual goodwill and CGU impairment test by calculating the recoverable amount based on 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.
These values are then compared to the carrying value of the CGUs to determine whether an impairment is required. In addition, the Group models
sensitivities on the recoverable 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 assuming zero terminal growth rate and in all cases
sufficient headroom exists.
The Group evaluated generic Advair Diskus® as a separate CGU, mainly due to its distinct assets and liabilities and its ability to generate largely
independent cash flows.
The Group evaluated the generic Advair Diskus® CGU recoverable amount based on a FVLCD model, being the higher value compared to VIU.
The evaluation resulted in an impairment of $75 million ($59 million was allocated to intangible assets and $16 million to property, plant and
equipment on a pro-rata basis (Note 17)) due to the decline in performance and forecasted profitability, bringing the revised carrying value to
$75 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.
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 a further
impairment charge against the generic Advair Diskus® CGU of approximately $4 million and $7 million, respectively.
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 52). The Group conducted a sensitivity for the potential impact of climate
change; such a scenario had a minimal impact on the recoverable amount of all CGUs.
1. Headroom is defined as the excess of the recoverable amount, over the carrying value of a CGU
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Notes to the consolidated financial statements
continued
16. Goodwill and other intangible assets continued
17. Property, plant and equipment
Product-related intangible assets
In-Process Research and Development (IPR&D)
IPR&D consists of pipeline products of $22 million mainly related to the injectables CGU. 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 $8 million in the Injectables CGU mainly due to the discontinuation of certain products (2021: $9 million in the Injectables CGU).
Product rights
Product rights consists of marketed products of $533 million (2021: $400 million) includes one product in the Injectables CGU of $140 million,
in addition to generic Advair Diskus® of $97 million (2021: $173 million). The product rights have an average estimated useful life of 12 years.
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 2022, the result of this testing was an impairment charge of $64 million (2021: $14 million impairment charge and
$60 million impairment reversal) of which $59 million related to the generic Advair Diskus® intangible asset (2021: $46 million reversal) due to
decline in performance and forecasted profitability and the remaining amount of $5 million is related to the Generics CGU.
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.
Following a review of impairment indicators for software as at 31 December 2022, there was an impairment charge of $1 million (2021: $nil).
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.
Other identified intangibles
Other identified intangibles comprise customer relationships, trade names and marketing rights of $138 million (2021: $150 million). The increase
during the year represents 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 2022, there was an impairment charge of $29 million in the Generics CGU
mainly due to the discontinuation and decline in performance and forecasted profitability of certain marketing rights contracts (2021: $1 million).
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.
Cost
Balance at 1 January 2021
Additions
Disposals
Transfers
Translation adjustment
Balance at 1 January 2022
Additions
Disposals
Transfers
Acquisition of subsidiaries (Note 36)
Transfers to assets classified as held for distribution
Translation adjustment
Balance at 31 December 2022
Accumulated depreciation and impairment
Balance at 1 January 2021
Charge for the year
Disposals
Impairment
Translation adjustment
Balance at 1 January 2022
Charge for the year
Disposals
Impairment
Translation adjustment
Balance at 31 December 2022
Carrying amount
At 31 December 2022
At 31 December 2021
Land is not subject to depreciation.
Land
and buildings
Machinery and
equipment
Vehicles, fixtures
and equipment
Projects under
construction
$m
636
18
(3)
28
(3)
676
4
(1)
74
−
(2)
(26)
725
(219)
(15)
3
(1)
1
(231)
(21)
1
−
8
$m
761
17
(10)
39
(11)
796
16
(10)
35
1
−
(19)
819
(434)
(39)
8
−
7
(458)
(47)
9
(16)
13
$m
130
7
(6)
8
(1)
138
7
(3)
11
−
−
(8)
145
(107)
(17)
7
−
−
(117)
(12)
3
−
5
(243)
(499)
(121)
482
445
320
338
24
21
$m
255
104
(10)
(75)
(3)
271
114
(1)
(120)
−
−
(2)
262
(13)
−
10
−
−
(3)
−
−
(61)
−
(64)
198
268
Total
$m
1,782
146
(29)
−
(18)
1,881
141
(15)
−
1
(2)
(55)
1,951
(773)
(71)
28
(1)
8
(809)
(80)
13
(77)
26
(927)
1,024
1,072
As at 31 December 2022, the Group had pledged property, plant and equipment with a carrying value of $8 million (2021: $8 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.
As at 31 December 2022, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to
$40 million (2021: $33 million).
As at 31 December 2022, the Group booked an impairment charge of $77 million (2021: $1 million). $61 million of the impairment charge is in
respect of the excess capacity and the rationalisation of the R&D pipeline associated production lines in the Generics CGU, in addition to
$16 million of impairment of generic Advair Diskus® CGU related property, plant and equipment (Notes 6, 9 and 16).
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Notes to the consolidated financial statements
continued
18. Investments in joint ventures
The Group’s share in Hubei Haosun Pharmaceutical Co., Ltd. was 49% at 31 December 2022 (31 December 2021: 49%) with an investment balance of
$10 million at 31 December 2022 (31 December 2021: $10 million) and share of the profit for the year ended 31 December 2022 of $nil (2021: $1 million).
The table below represents investment in joint ventures movement during the year.
Balance at 1 January
Group’s share of profit of joint ventures
Balance at 31 December
2022
$m
10
−
10
As at 31 December
2021
$m
9
1
10
20. Inventories
Finished goods
Work-in-progress
Raw and packing materials
Goods in transit
Spare parts
Provision against Inventory1
2022
$m
284
103
412
25
42
(90)
776
As at 31 December
2021
$m
245
92
373
24
38
(77)
695
Summarised financial information in respect of the Group’s interests in Hubei Haosun Pharmaceutical Co., Ltd. is set out below:
1. The cost of inventory related provision recognised as an expense in the cost of sales in the consolidated income statement was $42 million (2021: $48 million)
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
2022
$m
23
(5)
18
9
As at 31 December
2021
$m
24
(6)
18
9
For the
year ended
31 December
2022
$m
5
1
−
For the
year ended
31 December
2021
$m
8
1
1
2022
$m
42
23
65
As at 31 December
2021
$m
36
11
47
Investments at FVTOCI include investments through the Group’s venture capital arm, Hikma International Ventures and Development LLC and
Hikma Ventures Limited, which are not held for trading and which the Group has irrevocably elected at initial recognition to recognise in this
category. During the year, the venture arm invested in six new companies and increased investment in two existing ventures.
Most of the investments are unlisted shares without readily determinable fair values that fall under level 3 valuation (Note 29). Their fair value is
measured based on observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
One investment 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.
During the year, total change in fair value was a net loss of $8 million (2021: $14 million gain) recognised in other comprehensive income.
Other non-current assets mainly represent long-term receivables, a sublease arrangement in the US and upfront fees on a syndicated revolving
credit facility. At 31 December 2021, the balance mainly represents long-term receivables and a sublease arrangement in the US.
Inventories are stated net of provision as follows:
Provisions against inventory in 2022
Provisions against inventory in 2021
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 receivables
As at 1 January
$m
77
92
Additions
$m
42
48
Utilisation
$m
(27)
(62)
Translation
adjustments
$m
(2)
(1)
As at 31
December
$m
90
77
As at 31 December
2021
$m
1,107
(275)
(51)
781
32
3
816
2022
$m
1,128
(298)
(53)
777
32
−
809
The fair value of receivables is estimated to be not significantly different from the respective carrying amounts.
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
2021
$m
275
51
326
As at
31 December
2020
$m
256
55
311
Additions, net
$m
2,344
5
2,349
Utilisation
$m
(2,346)
−
(2,346)
Translation
adjustments
$m
−
Acquisition of
subsidiaries
$m
25
(3)
(3)
−
25
Additions, net
$m
2,160
−
2,160
Utilisation
$m
(2,141)
(3)
(2,144)
Translation
adjustments
$m
−
(1)
(1)
As at
31 December
2022
$m
298
53
351
As at
31 December
2021
$m
275
51
326
More details on the Group’s policy for credit and concentration risk are provided in Note 29.
At 31 December 2022, the provision balance relating to chargebacks was $204 million (2021: $201 million). The key inputs and assumptions included
in calculating this provision are estimations of ‘in channel’ inventory at the wholesalers (including processing lag) of 36 days (2021: 40 days), estimated
chargeback rates as informed by average historical chargeback credits adjusted for expected chargeback levels for new products, changes to pricing
and estimated future sales trends (including customer mix). 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 (2021: $5million), and if the overall chargeback rate of 57%
(2021: 55%) increases/decreases by one percentage point the provision would increase/decrease by $4 million (2021: $4 million).
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Notes to the consolidated financial statements
continued
21. Trade and other receivables continued
25. Trade and other payables
At 31 December 2022, the provision balance relating to customer rebates was $49 million (2021: $55 million). The key inputs and assumptions
included in calculating this provision are the historical relationship between contractual rebate payments to revenue, past payment experience,
changes to pricing and sales levels, estimation of ‘in channel’ inventory at the wholesalers and retail pharmacies and estimated future sales trends
(including customer mix). Based on the conditions existing at the balance sheet date, a ten basis point increase/decrease in the rebates rate of
5.7% (2021: 6.5%) would increase/decrease this provision by approximately $1 million (2021: approximately $1 million).
Trade payables
Accrued expenses
Other payables
22. Cash and cash equivalents
Cash at banks and on hand1
Time deposits
Money market deposits
As at 31 December
2021
$m
155
2022
$m
159
110
1
270
249
22
426
1. In 2022, cash at banks includes $62 million placed in interest bearing accounts
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).
23. Other current assets
Prepayments
Investment at FVTPL
Others
As at 31 December
2021
$m
65
2022
$m
74
22
14
110
24
8
97
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 balances mainly represent compensation due from suppliers in relation to inventory price adjustment.
As at 31 December
2021
$m
262
194
12
468
2022
$m
291
171
14
476
The fair value of payables is estimated to be not significantly different from the respective carrying amounts.
26. Other provisions
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, the actuarial valuations performed did not result in any change in the net liability
(2021: Loss of $2 million).
Movements on the provision for end of service indemnity:
1 January
Additions
Remeasurement of post-employment benefit obligations
Utilisation
At 31 December
27. Other current liabilities
Contract and refund liabilities
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
2022
$m
31
8
−
(7)
32
2021
$m
28
11
2
(10)
31
As at 31 December
2021
$m
213
2022
$m
193
2
7
24
101
21
348
2
15
12
80
17
339
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
Import and export financing1
Short-term loans
1. Import and export financing represents short-term financing for the ordinary trading activities of the Group
As at 31 December
2021
$m
3
58
3
48
112
2021
%
3.21
6.39
2.10
2022
$m
11
62
2
64
139
2022
%
4.78
5.87
4.20
Contract and refund liabilities: The Group allows customers to return products within a specified period prior to and subsequent to the expiration
date. In addition, free goods are issued to customers as sale incentives, reimbursement of agreed upon expenses incurred by the customer or as
compensation for expired or returned goods.
At 31 December 2022, the provision balance relating to returns was $168 million (2021: $193 million). The key assumptions included in calculating
this provision are estimations of the product shelf life, estimations of revenue estimated to be subject to returns and the estimated returns rate of
1.78% (2021: 1.74%) 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 $9 million (2021: $11 million).
Contract and refund liabilities
Contract and refund liabilities
As at 31
December 2021
$m
213
Additions
$m
50
Utilisation
$m
(76)
Translation
Adjustment
$m
(2)
Acquisition of
subsidiaries
$m
8
As at 31
December
2022
$m
193
As at 31
December
2020
$m
162
Additions
$m
132
Utilisation
$m
(81)
Translation
Adjustment
$m
−
As at 31
December 2021
$m
213
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Notes to the consolidated financial statements
continued
27. Other current liabilities continued
28. Long-term financial debts continued
During the year ended 31 December 2022, $15 million (2021: $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 2022, the provision balance relating to the indirect rebates was $55 million (2021: $56 million). The key inputs and assumptions
included in calculating this provision are the historical relationship between contractual rebate payments to revenue, past payment experience,
changes to pricing and sales levels, estimation of ‘in channel inventory at the wholesalers and retail pharmacies and estimated future sales trends
(including customer mix). Based on the conditions existing at the balance sheet date, a ten-basis point increase/decrease in rebates rate of 3.1%
(2021: 2.1%) would increase/decrease this provision by approximately $2 million (2021: $3 million).
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
2021
$m
207
2022
$m
644
494
(64)
1,074
64
65
553
52
401
1
2
1,138
492
(48)
651
48
44
37
524
23
22
1
699
1,068
620
31
16
16
−
6
1
44
10
13
9
3
−
1,138
699
The loans are held at amortised cost.
Long-term loans amounting to $1 million (31 December 2021: $0.5 million) are secured on certain property, plant and equipment.
Major loan arrangements include:
a) $1,150 million syndicated revolving credit facility that matures on 04 January 2027 with two extension options of one year each, one of the
extension options was exercised in January 2023 which increased the maturity until January 2028. At 31 December 2022, the facility had an
outstanding balance of $278 million (2021: $nil) and an unutilised amount of $872 million (2021: $870 million). The facility can be used for
general corporate purposes
b) $108 million outstanding balance at 31 December 2022 (fair value of $98 million) related to a ten-year $150 million loan from the International
Finance Corporation that has been fully utilised since April 2020. Quarterly equal repayments of the loan commenced on 15 March 2021. The
loan was used for general corporate purposes. The facility matures on 15 December 2027
c) A $500 million (carrying value of $494 million, and fair value of $466 million) 3.25%, five-year Eurobond was issued on 9 July 2020 with a rating
of BBB- (S&P & Fitch) which is due in July 2025. The proceeds of the issuance were used for general corporate purposes
d) An eight-year $200 million loan facility from the International Finance Corporation and Managed Co-lending Portfolio program. There was no
utilisation of the loan as of December 2022. The facility matures on 15 September 2028 and can be used for general corporate purposes
e) A five-year $400 million syndicated loan facility entered into on 13 October 2022. The facility is partially utilised, with an outstanding balance at
31 December 2022 of $190 million (fair value of $190 million) and an unutilised amount of $210 million. The facility matures on 13 October 2028
and can be used for general corporate purposes
The weighted average interest rates incurred are as follows:
Bank loans (including the current bank loans)
Eurobond1
1. The Eurobond effective interest rate includes unwinding of discount amount and upfront fees
2022
%
2.96
3.69
2021
%
2.83
3.58
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.
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 2022, the Group’s largest two customers in the MENA region represented 6.9% of Group revenue
(2021: 5.6%), 5.3% from one customer in Saudi Arabia (2021: 4.3%), and 1.6% from one customer in Egypt (2021: 1.3%). At 31 December 2022, the
amount of receivables due from all customers based in Saudi Arabia was $139 million (2021: $102 million) and the amount of receivables due from
all customers based in Egypt was $41 million (2021: $57 million).
During the year ended 31 December 2022, three key US wholesalers represented 37% of Group revenue (2021: 38%). The amount of receivables
due from all US customers at 31 December 2022 was $325 million (2021: $332 million).
The Group manages this risk through the implementation of stringent credit policies, procedures and certain credit insurance agreements.
Trade receivable exposures are monitored consistently as 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 2022
Expected credit loss rate
Gross trade receivables as at 31 December 2022
Related allowance for expected credit loss
Chargebacks and other allowances
Net trade receivables
Not past due on
the reporting
date
$m
0.01%
Less than 90
days
$m
0.11%
Between 91 and
180 days
$m
5.93%
Between 181
and 360 days
$m
5.99%
Over one year
$m
57.1%
Past due
905
−
(298)
607
94
−
−
94
20
(1)
−
19
19
(1)
−
18
90
(51)
−
39
Total
$m
4.7%
1,128
(53)
(298)
777
174
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175
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial 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
Past due
The currencies that have a significant impact on the Group accounts and the exchange rates used are as follows:
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
Not past due on
the reporting
date
$m
0.01%
910
−
(275)
635
Less than 90
days
$m
0.05%
Between 91 and
180 days
$m
11.1%
Between 181 and
360 days
$m
14.3%
Over one year
$m
53.4%
72
−
−
72
9
(1)
−
8
28
(4)
−
24
88
(46)
−
42
Total
$m
4.7%
1,107
(51)
(275)
781
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, while 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). 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 2022, the Group’s gearing ratio (total debt/equity) was 60% (2021: 34%). The increase in the Group’s gearing ratio is due to higher
debt utilisation used primarily to finance the acquisitions of Custopharm and the Teligent’s Inc. Canadian assets, as well as lower equity due to the
share buyback carried out in the first half of the year.
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 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 2022. At 31 December 2022, the prevailing
rate for Sudanese pound was 583.34 per US dollar (2021: 436.28). For Lebanon, the Group disposed of the subsidiary Hikma Liban S.A.R.L. on 8
November 2022 using the prevailing rate at that date which was 30,300 Lebanese pound per US dollar (2021: 1,507.5).
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.
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
2022
0.934
583.342
137.202
3.750
0.827
0.709
24.702
131.270
10.448
3.110
30,300
Year-end rates
2021
0.880
436.280
138.719
3.750
0.739
0.709
15.655
115.080
9.280
2.887
1,507.5
2022
0.950
–¹
141.850
3.750
0.809
0.709
19.240
131.594
10.176
3.104
–2
Average rates
2021
0.845
–¹
135.097
3.750
0.727
0.709
15.634
109.805
8.992
2.802
–2
1. In both years, Sudan has been a hyperinflationary economy and Sudanese operations were translated using the year end rate
2. On 8 November 2022, the Group disposed of the subsidiary Hikma Liban S.A.R.L. using the prevailing rate at that date which was 30,300 Lebanese pound per US dollar. In 2021, Lebanon has been a
hyperinflationary economy and Lebanese operations were translated using the period end rate
22002222
Functional currency of entity:
– Jordanian dinar
– Euro
– Algerian dinar
– Saudi riyal
– Sudanese pound
– Egyptian pound
– Tunisian dinar
– Moroccan dirham
– Canadian dollar
– US dollar
1. Others include Saudi riyal, Jordanian dinar and Pound sterling
22002211
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
US dollar
$m
Net foreign currency financial assets/(liabilities)
Others¹
Euro
$m
$m
Japanese yen
$m
166
42
(11)
12
(40)
(17)
(1)
(7)
1
−
145
US dollar
$m
241
30
(2)
7
(31)
(12)
1
(5)
−
229
12
−
−
(11)
1
(4)
4
(5)
−
(11)
(14)
(6)
−
−
−
−
−
−
−
−
−
(6)
12
−
−
−
1
−
9
−
−
6
28
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
176
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Hikma Pharmaceuticals PLC | Annual Report 2022
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177
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial 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 $15 million (2021: $26 million) movement in foreign
exchange loss/gain on the Group results.
The following financial assets/liabilities are presented at their fair value:
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
Interest-bearing cash and cash equivalents
Fixed rate
$m
As at 31 December 2022
Total
$m
Floating rate
$m
Fixed rate
$m
As at 31 December 2021
Total
$m
Floating rate
$m
638
70
−
575
−
173
1,213
70
672
83
91
−
763
83
173
−
271
271
An interest rate sensitivity analysis assumes an instantaneous one percentage point change in interest rates in all currencies from their levels
at 31 December 2022, with all other variables held constant. Based on the composition of the Group’s net debt portfolio as at 31 December 2022,
a one percentage point increase/decrease in interest rates would result in $4 million decrease/increase in net finance cost per year (2021:
$2 million increase/decrease).
During 2022, the Group completed the transitioning of most of its USD Libor loans to Term SOFR. As at 31 December 2022, $0.06 million (2021:
$0.05 million) of the Group’s utilised debt portfolio, as well as $93 million (2021: $1,243 million) of the Group’s unutilised debt facilities have USD
LIBOR as the benchmark interest rate.
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:
– Cash at banks and on hand and time deposit – due to the short-term maturities of these financial instruments and given that generally they
have negligible credit risk, management considers the carrying amounts to be not significantly different from their fair values
– 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 2022 of $494 million, and fair value at 31 December 2022 of $466 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 $108 million (fair value at 31 December 2022 of
$98 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
Fair value measurements
At 31 December 2022
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 (Note 27 and 30)
Total financial liabilities
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 (Note 27 and 30)
Total financial liabilities
Level 1
Level 2
Level 3
Total
22
1
4
−
27
−
−
−
−
−
−
−
−
−
−
−
−
−
−
38
38
3
42
45
22
1
4
38
65
3
42
45
Level 1
Level 2
Level 3
Total
24
22
14
−
60
−
−
−
−
−
−
−
−
−
−
−
−
−
22
22
4
70
74
24
22
14
22
82
4
70
74
The following table presents the changes in Level 3 items for the year ended 31 December 2022 and the year ended 31 December 2021:
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 and 1 January 2022
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
Balance at 31 December 2022
Financial
assets
$m
25
Financial
liabilities
$m
94
−
−
−
24
3
(30)
22
−
−
−
1
15
38
(4)
(29)
13
−
−
−
74
(7)
(26)
4
−
−
45
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 eight years (2021: nine years) using a post-tax discount rate of 9.1%.
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 payments is based on 100% probability
of success and is discounted using a rate of 4.9%.
178
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179
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Notes to the consolidated financial statements
continued
29. Financial policies for risk management and their objectives continued
30. Other non-current liabilities
During the year, the contingent consideration liability decreased by $28 million mainly resulting from remeasurement of the liability due to a
decrease in the projected future sales.
If the future sales were 10% higher or lower, the fair value of the contingent consideration will increase/decrease by $4 million (2021: $8 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 (2021: $1 million) (Notes 27 and 30).
Contingent consideration (Note 27 and 29)
Acquired contingent liability (Note 27)
Co-development and earnout payment (Notes 27 and 29)
Others
22002222
$$mm
18
69
1
4
92
As at 31 December
2021
$m
58
68
2
12
140
Liquidity risk
Undiscounted cash flows for financial liabilities
2022
Interest-bearing long-term loans and borrowings (Note 28)
Interest-bearing short-term loans and borrowings (Note 24)
Interest-bearing overdrafts (Note 24)
Interest-bearing import and export loans (Note 24)
Interest bearing lease liabilities (Note 33)
Trade payables and accruals (Note 25)
Co-development and earnout payment (Notes 27 and 30)
Acquired contingent liability (Notes 27 and 30)
Contingent consideration (Notes 27 and 30)
Undiscounted cash flows for financial liabilities
2021
Interest-bearing long-term loans and borrowings (Note 28)
Interest-bearing short-term loans and borrowings (Note 24)
Interest-bearing overdrafts (Note 24)
Interest-bearing import and export loans (Note 24)
Interest bearing lease liabilities (Note 33)
Trade payables and accruals (Note 25)
Co-development and earnout payment (Notes 27 and 30)
Acquired contingent liability (Notes 27 and 30)
Contingent consideration (Notes 27 and 30)
Less than one
year
$m
(103)
One to five
years
$m
(1,203)
More than five
years
$m
(3)
(2)
(12)
(64)
(10)
(462)
(4)
(7)
(26)
(690)
−
−
−
(27)
−
(1)
(26)
(18)
(1,275)
−
−
−
(52)
−
−
(43)
(6)
(104)
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
(1,309)
(2)
(12)
(64)
(89)
(462)
(5)
(76)
(50)
(2,069)
Total
$m
(803)
(3)
(3)
(60)
(119)
(456)
(5)
(83)
(88)
(1,620)
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 2022, the Group had undrawn facilities of $1,592 million (2021: $1,413 million). Of these facilities, $1,311 million (2021: $1,086 million)
were committed long-term facilities.
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). The current portion
of these liabilities are recognised in other current liabilities (Note 27).
31. Share capital
Issued and fully paid – included in shareholders’ equity:
31 December 2021 and 1 January 2022
Exercise of employees share scheme
Ordinary Shares purchased and cancelled
Issue of Ordinary Bonus Share
Cancellation of Ordinary Bonus Share
As at 31 December 2022
Number
244,331,288
1,237,467
(12,499,670)
1
(1)
233,069,085
$m
42
−
(2)
1,746
(1,746)
40
At 31 December 2022, of the issued share capital, 12,833,233 (2021: 12,833,233) are held as Treasury shares and 220,235,852 (2021: 231,498,055)
shares are in free issue.
Bonus Share issuance and cancellation
As a result of the establishment of the Hikma Pharmaceuticals PLC (Company) as the ultimate parent company of Hikma Pharmaceuticals PLC
Group, and the Company’s acquisition of the Columbus business in 2016, a merger reserve of $1,746 million was recorded on the Company’s
balance sheet. This merger reserve did not form part of the Company’s distributable reserves.
At the 20 May 2022 Extraordinary General Meeting (EGM), the Board approved the capitalisation of the merger reserve and the issuance of a
Bonus Share with a $1,746 million nominal value. This share was subsequently cancelled through a capital reduction, creating $1,746 million of
distributable reserves to the Company.
Share buyback programme
During the year, the Group executed a share buyback programme of $300 million. A total of 12,499,670 shares were purchased and cancelled.
The Group incurred $3 million of transaction costs directly attributable to the share buyback which was recognised in equity.
Treasury Shares
At 31 December 2022, the Group holds 12,833,233 as Treasury shares (2021: 12,833,233). The voting rights attached to these Treasury shares are
not capable of exercise.
180
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181
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Notes to the consolidated financial statements
continued
32. Non-controlling interests
At 1 January
Share of profit/(losses)
Dividends paid
Acquisition of subsidiaries
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:
2022
$m
14
3
(3)
2
(3)
13
As at 1 January 2021
Additions
Lease buyout
Depreciation expense
As at 31 December 2021 and 1 January 2022
Additions
Adjustments1
Impairment
Depreciation expense
As at 31 December 2022
The carrying amounts of lease liabilities and the movements during the year:
As at 1 January
Additions
Accretion of interest
Adjustments1
Settlements
As at 31 December
Current
Non-current
1. Adjustments arise from a change in the expected exercise of optional extension period
Buildings
$m
50
Vehicles
$m
8
Machinery and
Equipment
$m
1
27
(4)
(7)
66
4
(9)
(3)
(7)
51
4
−
(4)
8
1
−
−
(3)
6
−
−
(1)
−
−
−
−
−
−
2022
$m
83
5
4
(9)
(13)
70
9
61
2021
$m
13
(1)
(1)
−
3
14
Total
$m
59
31
(4)
(12)
74
5
(9)
(3)
(10)
57
2021
$m
82
32
5
−
(36)
83
9
74
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
22002222
$$mm
9
8
7
5
3
3
35
70
At 31 December 2022, lease liabilities included optional extension periods amounting to $17 million on a discounted basis (2021: $26 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, net impairment charges/reversals and write-down of:
Property, plant and equipment
Intangible assets
Right-of-use of assets
Unwinding of acquisition related inventory step-up
Reclassification of translation gains on disposal of subsidiary
Loss from investment at FVTPL
Loss on disposal/damage of property, plant and equipment
Gain on disposal of intangible assets
Cost of equity-settled employee share scheme
Finance income
Finance expense
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 provision
Change in other non-current liabilities
Change in other non-current assets
Cash flow from operating activities
22002222
$$mm
(10)
(3)
(4)
(2)
(19)
2022
$m
233
157
202
13
26
(5)
2
−
(6)
22
(29)
81
−
20
4
(19)
(102)
16
(16)
1
(6)
(9)
585
2021
$m
9
7
7
6
3
2
49
83
2021
$m
(12)
−
(5)
(1)
(18)
2021
$m
544
72
61
12
-
−
-
1
−
29
(30)
69
1
36
(166)
27
38
14
62
2
(5)
−
767
182
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183
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Notes to the consolidated financial statements
continued
35. Reconciliation of movement in net debt
36. Acquisitions continued
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
Adjustments1
Repayment of lease liabilities
Balance at 31 December
Total debt
Cash and cash equivalents (Note 22)
Net debt
1. Adjustments arise from a change in the expected exercise of optional extension periods
36. Acquisitions
2022
$m
763
1,401
380
(962)
(363)
2
(8)
1,213
83
5
(9)
(9)
70
1,283
(270)
1,013
2021
$m
850
10
383
(45)
(431)
3
(7)
763
82
32
−
(31)
83
846
(426)
420
Custopharm Topco Holdings, Inc.
On 21 April 2022, the Group acquired 100% of the issued share capital of Custopharm Topco Holdings, Inc. for a cash consideration of $373 million
on a debt and cash-free basis from Water Street Healthcare Partners (Water Street), following approval from the US Federal Trade Commission.
Custopharm Topco Holdings, Inc. is the parent of five companies including two companies with 16% and 10% non-controlling interests’ ownership.
The net assets acquired in the transaction and the goodwill are provisional. The assets and liabilities recognised as a result of the acquisition are
as follows:
Product related intangible assets (Note 16)
Property, plant and equipment (Note 17)
Inventories
Trade receivables, net of chargebacks and other allowances
Cash and cash equivalents
Trade and other payables
Other current liabilities
Deferred tax liabilities (Note 13)
Net identifiable assets acquired
Add: goodwill (Note 16)
Net assets acquired
Less: non-controlling interests
Total consideration
Satisfied by:
Cash consideration
Less: Cash and cash equivalents acquired
Net cash outflow arising from acquisition
$m
251
1
34
31
19
(6)
(9)
(46)
275
119
394
(2)
392
392
(19)
373
The goodwill arising represents the synergies obtained by integrating Custopharm and its R&D capabilities, adding an experienced team with
a proven ability to develop and commercialise complex sterile injectable products into the existing business and increasing the scale of the
Injectables business. Goodwill is allocated to the Injectables CGU and is not deductible for tax purposes.
For the non-controlling interests, the Group recognised the proportion of the net identifiable assets and liabilities.
Acquisition related costs of $2 million (2021: $2 million) are included in the selling, general and administrative expenses in the consolidated
income statement.
The fair value of acquired trade receivables is $31 million. The gross contractual amount for trade receivables due is $55 million. Chargebacks and
other allowances are deducted from the gross amount to arrive at the trade receivables balance of $31 million.
The business was acquired on 21 April 2022 and contributed $53 million revenue, $26 million reported loss and $19 million core profit for the year
(excluding $20 million amortisation and impairment of intangible assets, in addition to $25 million related to the unwinding of the inventory step-
up). An $8 million impairment charge was recognised as a result of discontinuation of an IPR&D product. The decision to discontinue this product
was made post acquisition due to the launch of an existing recently approved product (Note 6).
If the acquisition had occurred on the first day of the financial year, the acquisition would have contributed approximately $81 million to Group
revenue, $16 million reported loss and $29 million core profit (excluding amortisation and impairment of intangible assets and the unwinding of
the inventory step-up resulting from the fair valuation of those assets).
Teligent asset acquisition
On 2 February 2022, the Group completed the acquisition of the Canadian assets of Teligent Inc. (Teligent) and paid a cash consideration of
$46 million.
The acquisition was assessed under the optional concentration test in IFRS 3 and was determined to be an asset acquisition, as substantially all
the fair value of the gross assets acquired is concentrated in a group of similar identifiable assets. The assets acquired are substantially
concentrated in Intangible assets (product rights), with significantly the same risk characteristics, as they relate to mature products with similar
profit margins and distribution channels (Note 16).
37. Contingent liabilities
Guarantees and letters of credit
A contingent liability existed at the balance sheet date in respect of external guarantees and letters of credit totalling $55 million (31 December 2021:
$45 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 standby letters of credit totalling $14 million (2021: $10 million) for potential stamp duty
obligations that may arise from the repayment of loans by intercompany guarantors. It’s not probable that any 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.
184
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185
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Notes to the consolidated financial statements
continued
37. Contingent liabilities continued
38. Share-based payments
Most of the claims involve highly complex issues. Often these issues are subject to substantial uncertainties and, therefore, the probability of a
loss, if any, being sustained and/or an estimate of the amount of any loss is difficult to ascertain. It is the Group’s policy to provide for amounts
related to these legal matters if it is probable that a liability has been incurred and an amount is reasonably estimable.
– Starting in 2016, several complaints have been filed in the United States on behalf of putative classes of direct and indirect purchaser of generic
drug products, as well as several individual direct purchasers opt-out plaintiffs. These complaints, which allege that the defendants engaged in
conspiracies to fix, increase, maintain and/or stabilise the prices of the generic drug products named, have been brought against certain Group
entities and various other defendants. The plaintiffs generally seek damages and injunctive relief under federal antitrust law and damages under
various state laws. The Group denies having engaged in conduct that would give rise to liability with respect to these civil suits and is vigorously
pursuing defence of these cases. At this point, the Group does not believe sufficient evidence exists to make any provision.
– Starting in June 2020, several complaints have been filed in the United States on behalf of both individual plaintiffs and putative classes of
direct and indirect purchasers of Xyrem® against certain Group entities and other defendants. Currently twelve such cases are assigned to
multi-district litigation in the Northern District of California, and one case is in California state court. 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. The Group
denies having engaged in conduct that would give rise to liability with respect to these lawsuits and is vigorously pursuing defence of these
cases. At this point, the Group does not believe sufficient evidence exists to make any provision.
– Numerous complaints have been filed against certain Group entities with respect to the manufacture of opioid products. Those complaints now
total approximately 837 in number. These lawsuits have been filed against distributors, branded pharmaceuticals manufacturers, pharmacies,
hospitals, generic pharmaceuticals manufacturers, individuals, and other defendants by a number of cities, counties, states, other
governmental agencies and private plaintiffs in both state and federal courts. Seven cases have been filed in Canadian courts; two of these were
settled or tentatively settled for a total of less than 200,000 US$ and five remain. Most of the federal cases have been consolidated into a
multidistrict litigation (MDL) in the Northern District of Ohio. These cases assert in general that the defendants allegedly engaged in improper
marketing and distribution of opioids and that defendants failed to develop and implement systems sufficient to identify suspicious orders of
opioid products and prevent the abuse and diversion of such products. Plaintiffs seek a variety of remedies, including restitution, civil penalties,
disgorgement of profits, treble damages, attorneys’ fees and injunctive relief. From time to time, we also receive subpoenas or requests for
information from government entities seeking information related to Hikma’s sale, distribution, or manufacture of opioid products. The Group
denies having engaged in conduct that would give rise to liability with respect to these civil suits and is vigorously pursuing defence of these
cases. Hikma is in the process of finalising a settlement with the State of New Mexico in litigation brought against Hikma and others in New
Mexico state court. Hikma has also agreed to enter into mediation with representatives of the Plaintiffs’ Executive Committee in the federal
MDL. At this point, other than the amounts described above the Group does not believe sufficient evidence exists to make any provision.
– In November 2020, Amarin Pharmaceuticals filed a patent infringement lawsuit against certain Group entities in the United States District Court
for the District of Delaware (No. 20-cv-1630) alleging that Hikma’s sales and distribution of its generic icosapent ethyl product infringes three
Amarin patents that describe certain methods of using icosapent ethyl. Amarin sought an injunction barring Hikma from selling its generic
product as well as unspecified damages. Hikma’s product is not approved for the patented methods but rather is approved only for a different
indication not covered by any valid patents. In January 2022 the court dismissed the lawsuit, and Amarin has appealed the court’s ruling. The
Group denies the allegations and will vigorously defend against them if necessary. The Group does not believe sufficient evidence exists to
make any provision.
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 $13 million (2021: $20 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 2022 is $20.19 (2021: $32.60).
Details of the outstanding grants under this plan are shown below:
2022
grants
25 Feb
2022
grants
25 Feb
2021
grants
25 Feb
2021
grants
25 Feb
2020
grants
27 Feb
2020
grants
27 Feb
2019
grants
12 March
2018
grants
16 May
2017
grants
13 Apr
2016
grants
11 May
2016
grants
17 March
2015
grants
Total
10 April Number
Year 2022
Beginning balance
−
−
157,644
423,728
184,355
511,453 280,529
14,211
50,107
13,171
51,350
12,012 1,698,560
Granted during the year
176,937 524,858
−
−
−
−
−
Exercised during the year
(13,423)
(31,389)
(12,130)
(25,899)
(13,060) (510,815) (280,529)
Forfeited during the year
(37,375)
(71,521)
(36,410)
(63,745)
(37,257)
(638)
Outstanding at 31 December
126,139
421,948
109,104 334,084
134,038
Exercisable at 31 December
−
5,502
−
4,756
−
−
−
−
14,211
14,211
−
(6,920)
−
43,187
43,187
−
−
−
−
−
−
−
701,795
− (894,165)
− (246,946)
13,171
13,171
51,350
12,012 1,259,244
51,350
12,012
144,189
5.38
4.36
3.36
3.21
2.28
1.16
−
−
−
−
−
−
−
2.16
1.15
1.15
0.15
0.16
Weighted average remaining
contractual life (years)
Year 2021
Beginning balance
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 December
Exercisable at 31 December
Weighted average remaining
contractual life (years)
−
−
184,355 550,745 280,529
140,484
50,107
13,171
51,350
12,012
1,812,875
157,644 432,098
−
−
−
(8,370)
−
−
−
−
(16,496)
(22,796)
−
−
−
−
(126,273)
−
−
−
−
−
−
−
−
−
−
− 589,742
− (661,520)
−
(42,537)
157,644
423,728
184,355
511,453 280,529
14,211
50,107
−
−
−
−
−
14,211
50,107
13,171
13,171
51,350
51,350
12,012 1,698,560
12,012
140,851
2.15
1.15
1.16
0.16
0.19
6.38
5.36
4.36
4.21
3.28
0.56
Fair value of each share $
The share price at grant date $
25.00
26.14
25.38
26.14
Expected dividends yield %
1.50%
1.50%
31.71
33.09
1.43%
32.17
33.09
1.43%
23.70
24.91
1.67%
24.10
24.91
1.67%
20.63
21.75
1.79%
18.45
19.09
1.71%
23.52
23.98
31.69
32.15
0.97%
0.73%
26.21
26.98
0.71%
32.78
33.24
0.81%
186
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187
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Notes to the consolidated financial statements
continued
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.
The cost of the MIP of $9 million (2021: $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 2022 is $20.19 (2021: $32.60).
Details of the outstanding grants under this plan are shown below:
2022
grants
25 Feb
2021
grants
25 Feb
2020
grants
27 Feb
2019
grants
17 May
2018
grants
16 May
2017
grants
19 May
2016
grants
11 May
2015
grants
14 May
2014
grants
11 June
2013
grants
17 May
13,198
35,884
6,690
7,645
5,890
1,688
−
(300)
−
12,898
12,898
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
35,884
35,884
6,690
6,690
7,645
7,645
5,890
5,890
1,688
1,688
Total
Number
766,731
396,630
(343,302)
(110,919)
709,140
87,118
Year 2022
Outstanding at 1 January
Granted during the year
Exercised during the year
Expired during the year
−
337,487
358,249
396,630
−
−
(5,647)
(14,815)
(322,540)
(43,188)
(32,022)
(35,709)
Outstanding at 31 December
347,795
290,650
Exercisable at 31 December
3,725
12,698
−
−
−
−
−
−
−
−
−
−
1.15
0.15
5.38
4.38
3.36
2.37
1.45
0.38
1.03
39. Related parties
Transactions between Hikma Pharmaceuticals PLC (Hikma) and its subsidiaries (together, the Group) have been eliminated on consolidation and
are not disclosed in this Note. Transactions between the Group and its joint venture and other related parties are disclosed below.
Trading transactions:
During the year ended 31 December 2022, 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 25.74% (2021: 24.56%) of the share capital and 27.24%
(2021: 25.92%) of the 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.: is a related party of Hikma because the Group holds a non-controlling interest of 49% in the joint venture
(JV) with Haosun (2021: 49%). During the year, total direct purchases from Haosun were $0.6 million (2021: $nil). At 31 December 2022, the amount
owed from the Group to Haosun amounted to $0.2 million (2021: $nil). In addition, in certain countries the Group purchases from Haosun
indirectly. During the year total indirect purchases from Haosun were $1.1 million (2021: $0.7 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 (2021: $2 million), and total Group purchases amounted to $1 million (2021: $0.5 million).
At 31 December 2022, the amount owed by Labatec to the Group was $0.4 million (2021: $0.6 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 95 to 124.
Weighted average remaining
contractual life (years)
Year 2021
Outstanding at 1 January
Granted during the year
Exercised during the year
Expired during the year
Outstanding at 31 December
Exercisable at 31 December
Weighted average remaining
contractual life (years)
−
377,913
394,263
17,445
36,990
8,254
8,854
5,890
3,013
852,622
341,422
−
−
−
−
−
−
(1,376)
(4,118)
(363,799)
(3,922)
(1,106)
(1,564)
(1,209)
(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
Short-term employee benefits
Share-based payments
Post-employment benefits
Other benefits
337,487
358,249
−
−
1.15
0.16
-
−
−
6.38
5.38
4.36
3.37
2.45
1.38
1.04
2022
$m
13.3
7.2
–
0.5
21.0
2021
$m
18.0
12.9
0.1
0.6
31.6
Fair value of each share $
The share price at grant date $
Expected dividends yield %
25.38
26.14
1.50
32.17
33.09
1.43
24.10
24.91
1.67
21.41
22.18
1.79
18.45
19.09
1.71
22.09
22.54
1.01
31.73
32.20
0.73
32.17
32.63
0.71
27.73
28.33
0.71
14.61
14.93
1.10
188
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189
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Notes to the consolidated financial statements
continued
40. 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.1
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 Italia S.p.A
Hikma Pharma Limited*2
Arab Medical Containers LLC
Arab Pharmaceutical Manufacturing PSC
Hikma International Pharmaceuticals LLC (Exempt)
Hikma International Ventures and Development LLC
(Exempt)
Hikma Investment LLC*
Hikma Pharmaceuticals LLC
Italy
Jersey
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Hikma Pharmaceuticals LLC (Jordan) (FREE ZONE)
Jordan
International Pharmaceutical Research Centre LLC
Sofia Travel and Tourism
Specialised for Pharmaceutical Industries LLC
Jordan
Jordan
Jordan
Algeria
Algeria
Algeria
China
Canada
Egypt
Egypt
Egypt
Egypt
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
Germany
Germany
Lochhamer Strasse 13, 82152, Martinsried, Germany
Schiffgraben 23, DE-38690, Goslar, OT Vienenburg,
Germany
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
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
Al-Mushatta − Al Qastal Free Zone
P.O. Box 182400 11118 Amman, Jordan
P.O. Box 963166, Amman, 11196, 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, ‘Kereme’ Microdistrict,
Bostandykskiy District, Almaty,A15C8X2, Kazakhstan
Al Jazeera Pharmaceutical Industries Ltd
KSA
P.O. Box 106229
11666 Riyadh, Saudi Arabia
Hikma Liban S.A.R.L.
Société de Promotion Pharmaceutique du Maghreb
(Promopharm S.A.)
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
Hikma Pharma Benelux B.V
Netherlands
Nieuwe Steen 36, 1625 HV, Hoorn, Netherlands
Ownership %
Ordinary Shares
At 31 December
2022
99%
Owned by the Group
Ownership%
Ordinary Shares
At 31 December
2021
99%
97%
100%
100%
49%
100%
100%
100%
98%
99%
100%
100%
100%
100%
100%
100%
100%
100%
97%
100%
100%
49%
100%
100%
100%
98%
99%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
40. Subsidiaries and joint ventures continued
Company’s name
Hikma Farmaceutica, (Portugal) S.A
Incorporated in
Portugal
Address of the registered office
Estrada Rio Da Mo no.8, 8a, 8B-Fervenca, 2705-906,
Terugem SNT, Portugal
Lifotec Farmaceutica S.G.P.S S.A*
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.2
APM Tunisie S.A.R.L.
STE D'Industrie Pharmaceutique Ibn Al Baytar*3
STE Medicef
Hikma Emerging Markets and Asia Pacific FZ-LLC
Hikma International Trading Limited2
Hikma MENA FZE*2
Hikma UK Limited*
Palestine
Slovakia
Spain
Sudan
Sudan
West Bank Al Birah, Ramallah
Seberíniho 1
821 03 Bratislava, Slovakia
CALLE MALDONADO, 4 – BJ D
28006, MADRID Spain
Riyad Area, Obied Khatim Street, P.O. Box 10461,
Block No. 21, House No. 420, Khartoum, Sudan
Riyad Area, Obied Khatim Street, P.O. Box 10461,
Block No. 21, House No. 420, Khartoum, Sudan
Switzerland
Rue des Battoirs 7, 1205 Genève, Switzerland
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
Avenue Habib Bourguiba, Sidi Thabet, 2020 Ariana,
Tunisia
United Arab
Emirates
United Arab
Emirates
United Arab
Emirates
Premises 202-204, Floor 2, Building 26, Dubai,
United Arab Emirates
The Oberoi Centre, Level 15, Business Bay,
P.O. Box 36282, Dubai, United Arab Emirates
The Oberoi Centre, Level 15, Business Bay,
P.O. Box 36282, Dubai, United Arab Emirates
United Kingdom 1 New Burlington Place, London, W1S 2HR,
United Kingdom
Hikma Ventures Limited2
United Kingdom 1 New Burlington Place, London, W1S 2HR,
United Kingdom
West-Ward Holdings Limited*
United Kingdom 1 New Burlington Place, London, W1S 2HR,
United Kingdom
Hikma Pharmaceuticals International Limited*
United Kingdom 1 New Burlington Place, London, W1S 2HR,
United Kingdom
100%
100%
Hikma Intelligence Limited
United Kingdom 1 New Burlington Place, London, W1S 2HR,
100%
51%
100%
100%
−
100%
−
94%
100%
100%
51%
100%
100%
100%
100%
67%
94%
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
1900 Arlingate Lane, Columbus, Ohio 43228
United States
1809 Wilson Road, Columbus, Ohio 43228
United States
1809 Wilson Road, Columbus, Ohio 43228
United States
36 Stults Road, Dayton, New Jersey 08810
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)
TACCA, LLC
Pytrione LLC
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
United States
1902 Wright Place, Carlsbad, California 92008
United States
1902 Wright Place, Carlsbad, California 92011
Hikma Services India Private Limited
India
502/503, Matharu Arcade, Subhash Road
Vile Parle East, Mumbai, Maharashtra – 4000 57
1. The investments in joint ventures are accounted for using the equity method (Note 18)
2. Owned by PLC ‘the Company’
3. In 2021, STE Hikma Pharma Tunisie was merged into STE D'Industrie Pharmaceutique Ibn Al Baytar
Ownership %
Ordinary Shares
At 31 December
2022
100%
Owned by the Group
Ownership%
Ordinary Shares
At 31 December
2021
100%
100%
51%
100%
100%
100%
51%
100%
100%
99%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
−
90%
84%
100%
100%
51%
100%
100%
100%
51%
100%
100%
99%
100%
100%
100%
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 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.
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Notes to the consolidated financial statements
continued
Company balance sheet
At 31 December 2022
41. Defined contribution retirement benefit plan
The Group has defined contribution retirement plans in four of its subsidiaries: Hikma Pharmaceuticals PLC – United Kingdom, Hikma
Pharmaceuticals Limited (Jordan), Arab Pharmaceutical Manufacturing PSC 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 2022 were $0.3 million (2021: $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 2022 were $3.4 million (2021: $3.2
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 2022 were $0.5 million (2021: $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 $20,500 (2021: $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 2022 were $9 million (2021: $10 million). The assets of
this plan are held separately from those of the Group. The only obligation of the Group with respect to this plan is to make specified contributions.
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Investments in subsidiaries
Due from subsidiaries
Financial and other non-current assets
Current assets
Trade and other receivables
Due from subsidiaries
Cash and cash equivalents
Other current assets
Total assets
Current liabilities
Other payables
Due to subsidiaries
Short-term financial debts
Lease liabilities
Other current liabilities
Net current assets
Non-current liabilities
Long-term financial debts
Lease liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Profit for the year
Retained earnings
Equity shareholders’ funds
Note
3
4
5
6
5
7
8
9
10
10
12
13
2022
$m
1
5
14
2021
$m
1
7
15
3,296
3,288
82
4
34
−
3,402
3,345
358
82
64
29
533
3,935
2
21
39
2
15
79
454
465
5
470
549
10
88
222
28
348
3,693
2
18
21
−
12
53
295
105
9
114
167
3,386
3,526
40
282
2
266
2,796
3,386
42
282
1,746
150
1,306
3,526
The financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, on pages 193 to 199 were approved by the Board of
Directors on 22 February 2023 and signed on its behalf by:
Said Darwazah
Executive Chairman and CEO
22 February 2023
Mazen Darwazah
Executive Vice Chairman
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Company statement
of changes in equity
For the year ended 31 December 2022
Balance at 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
−
−
−
1
−
−
−
−
−
−
Balance at 31 December 2021 and 1 January 2022
42
282
Profit for the year
Total comprehensive income for the year
Cost of equity settled employee share scheme
Dividends paid
Ordinary Shares purchased and cancelled
Share buyback transaction costs
Issue of Ordinary Bonus Share
Cancellation of Ordinary Bonus Share
Balance at 31 December 2022
−
−
−
−
(2)
−
1,746
(1,746)
40
−
−
−
−
−
−
−
−
282
Share
capital Share premium
$m
282
$m
41
Capital
redemption
reserve Merger reserve
$m
1,746
$m
−
Total other
reserves
$m
1,746
Retained
earnings
$m
1,398
−
−
−
−
−
−
−
−
−
−
2
−
−
−
2
−
−
−
−
−
−
−
−
−
−
1,746
1,746
−
−
−
−
−
−
−
−
−
−
2
−
(1,746)
(1,746)
−
−
−
2
150
150
29
(1)
(120)
1,456
266
266
22
(125)
(300)
(3)
−
1,746
3,062
Total
$m
3,467
150
150
29
−
(120)
3,526
266
266
22
(125)
(300)
(3)
−
−
3,386
At 31 December 2022, the Company had retained earnings available for distribution in excess of $2,040 million (2021: $320 million), which is
determined with reference to the Companies Act 2006 and to the guidance issued by the Institute of Chartered Accountants in England and
Wales in 2017. The increase in the distributable reserve during the year resulted from the capitalisation of the merger reserve and the issuance
of a Bonus Share with a $1,746 million nominal value which was subsequently cancelled through a capital reduction, creating $1,746 million of
distributable reserves to the Company (see Note 12).
For the proposed final dividend for the year ended 31 December 2022, see Note 14 to the Group consolidated financial statements.
Notes to the Company
financial statements
For the year ended 31 December 2022
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 to the Group
consolidated financial statements.
2. Significant accounting policies
Basis of accounting
These financial statements, for the year ended 31 December 2022 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 IFRS 2 ‘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 to 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 profit and loss. Testing for impairment requires making estimates for the valuation of the investments.
Trade receivables acquired from subsidiaries through an intercompany factoring arrangement and intercompany receivables are classified as
financial assets at amortised cost, and are measured at amortised cost using the effective interest method less any expected credit loss. 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, the general approach using a 12-month probability of default was applied when assessing expected credit loss on a
12-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.
There are no critical judgements and estimates involved in applying the above accounting policies, that may have a significant risk of resulting in
a material adjustment to the carrying amount of assets and liabilities within the next financial year.
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Notes to the Company financial statements
continued
3. Intangible assets
Cost
Balance at 1 January 2021
Additions
Write-down
Disposals1
Balance at 1 January 2022
Balance at 31 December 2022
Accumulated amortisation and impairment
Balance at 1 January 2021
Charge for the year
Balance at 1 January 2022
Charge for the year
Balance at 31 December 2022
Carrying amount
At 31 December 2022
At 31 December 2021
1. Disposals represent software sold to subsidiaries
Details of useful lives are included in Note 16 to the Group consolidated financial statements.
4. Investments in subsidiaries
5. Due from subsidiaries
Software
$m
Non-current
40
3
(5)
(7)
31
31
(13)
(3)
(16)
(1)
(17)
14
15
Hikma UK Limited
Hikma MENA FZE
Hikma Pharmaceuticals LLC
Hikma Emerging Markets and Asia Pacific FZ-LLC
Less: provision for expected credit loss
Current
Hikma Pharmaceuticals USA Inc.
Al Jazeera Pharmaceuticals Industries JPI
Hikma Emerging Markets and Asia Pacific FZ-LLC
Hikma MENA FZE
Arab Pharmaceutical Manufacturing PSC
Hikma Pharma S.A.E
Société de Promotion Pharmaceutique du Maghreb (Promopharm S.A.)
Others
Less: provision for expected credit loss
The details of Investment in subsidiaries are mentioned in Note 40 to the Group consolidated financial statements.
6. Trade and other receivables
The following table provides the movement of the investments in subsidiaries:
Beginning balance
Additions to subsidiaries
Liquidation of subsidiaries
Ending balance
2022
$m
3,288
8
−
3,296
2021
$m
3,332
2,179
(2,223)
3,288
The movement in prior year represented reorganisation of the Group structure through transfer/liquidation of certain holding companies,
specifically liquidation of Hikma Acquisitions (UK) Limited and addition of Hikma UK Limited.
As at 31 December
2021
$m
−
−
30
4
−
34
As at 31 December
2021
$m
51
8
7
10
−
2
2
8
−
88
2022
$m
47
22
13
4
(4)
82
2022
$m
55
13
7
3
3
1
1
6
(7)
82
2022
$m
358
2021
$m
10
Trade and other receivables
During the year, trade and other receivables balance increased due to receivables acquired from the US subsidiary, Hikma Pharmaceuticals USA
Inc., through an intercompany factoring arrangement that came into effect on January 1, 2022. The credit risk associated with these acquired
receivables is similar to that of the Group’s US receivables since it relates to the same credit portfolio and customers.
7. Cash and cash equivalents
Cash at banks and on hand
Time deposits
As at 31 December
2021
$m
15
207
222
2022
$m
9
55
64
Cash and cash equivalents include highly liquid investments with maturities of three month or less which are convertible to known amounts of
cash and are subject to insignificant risk of changes in value.
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Notes to the Company financial statements
continued
8. Other current assets
Investments at FVTPL
Prepayments
Revolving credit facility upfront fees
As at 31 December
2021
$m
24
4
−
28
2022
$m
22
6
1
29
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 to the Group consolidated financial statements).
9. Due to subsidiaries
Current
Hikma Pharmaceuticals LLC
Hikma Farmaceutica, (Portugal) S.A
Other
10. Financial debts
Financial debts include:
As at 31 December
2021
$m
10
5
3
18
2022
$m
14
4
3
21
a) $1,150 million syndicated revolving credit facility that matures on 4 January 2027 with two extension options of one year each, one of the
extension options was exercised in January 2023 which increased the maturity until January 2028. At 31 December 2022, the facility had an
outstanding balance of $278 million (2021: $nil) and an unutilised amount of $872 million (2021: $870 million). This facility is available in two
tranches: one tranche of $760 million for Hikma Pharmaceuticals PLC, of which $210 million was utilised (2021: $nil), and a second tranche of
$390 million for Hikma Finance USA LLC, of which $68 million was utilised (2021: $nil). This facility can be used for general corporate purposes
b) $108 million outstanding balance at 31 December 2022 (fair value of $98 million) related to a ten-year $150 million loan from the International
Finance Corporation that has been fully utilised since April 2020. Quarterly equal repayments of the loan commenced on 15 March 2021. The
loan was used for general corporate purposes. The facility matures on 15 December 2027
c) An eight-year $200 million loan facility from the International Finance Corporation and Managed Co-lending Portfolio program. There was no
utilisation of the loan as of 31 December 2022. The facility matures on 15 September 2028 and can be used for general corporate purposes
d) A five-year $400 million syndicated loan facility entered into on 13 October 2022. The facility is partially utilised, with an outstanding balance at
31 December 2022 of $190 million (fair value of $190 million) and an unutilised amount of $210 million. This facility is available in two tranches:
one tranche of $250 million for Hikma Pharmaceuticals PLC, of which $190 million was utilised (2021: $nil), and a second unutilised tranche of
$150 million for Hikma Finance USA LLC. The facility matures on 13 October 2028 and can be used for general corporate purposes
The weighted average interest rates incurred by the Group are disclosed in Notes 24 and 28 to the of the Group consolidated financial statements.
During 2022, the Company completed the transitioning of most of its USD Libor loans to Term SOFR. As at 31 December 2022, $nil million (2021:
$nil million) of the Company’s utilised debt portfolio as well as $5 million (2021: $1,080 million) of the Company’s unutilised debt facilities have
USD LIBOR as the benchmark interest rate.
11. Staff costs
Hikma Pharmaceuticals PLC currently has an average of 30 employees (2021: 35 employees) (excluding Executive Directors); total compensation
paid to them amounted to $7 million (2021: $10 million), of which salaries and bonuses were $5 million (2021: $7 million), the remaining balance of
$2 million (2021: $3 million) mainly represents national insurance contributions and other employee benefits.
12. Share capital
Issued and fully paid – included in shareholders’ equity:
31 December 2021 and 1 January 2022
Exercise of employees share scheme
Ordinary Shares purchased and cancelled
Issue of Ordinary Bonus Share
Cancellation of Ordinary Bonus Share
As at 31 December 2022
Number
244,331,288
1,237,467
(12,499,670)
1
(1)
233,069,085
$m
42
−
(2)
1,746
(1,746)
40
At 31 December 2022, of the issued share capital, 12,833,233 (2021: 12,833,233) are held as Treasury shares and 220,235,852 (2021: 231,498,055)
shares are in free issue. See Note 31 to the Group consolidated financial statements.
Bonus Share issuance and cancellation
As a result of the establishment of the Hikma Pharmaceuticals PLC (Company) as the ultimate parent company of the Hikma Pharmaceuticals
PLC Group, and the Company’s acquisition of Columbus business in 2016, a merger reserve of $1,746 million was recorded on the Company’s
balance sheet. This merger reserve did not form part of the Company’s distributable reserves.
At the 20 May 2022 Extraordinary General Meeting (EGM), the Board approved the capitalisation of the merger reserve and the issuance of a
Bonus Share with a $1,746 million nominal value. This share was subsequently cancelled through a capital reduction, creating $1,746 million of
distributable reserves to the Company.
Share buyback programme
During the year, the Group executed a share buyback programme of $300 million. A total of 12,499,670 shares were purchased and cancelled.
The Group incurred $3 million of transaction costs directly attributable to the share buyback which was recognised in equity.
13. Profit for the year
The net profit in the Company for the year is $266 million. Included in the net profit for the year is dividend income of $276 million. 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 to the Group consolidated financial statements.
The net profit in the Company for the prior year was $150 million. Included in the net profit was an amount of $2,401 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 represented general and administrative expenses and net financing expenses.
14. Contingent liabilities
A contingent liability existed at the balance sheet date for standby letters of credit totalling $14 million (2021: $10 million) for potential stamp duty
obligations that may arise from the repayment of loans by intercompany guarantors. It’s not probable that any 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 to the Group
consolidated financial statements). The Company has also guaranteed Hikma Pharmaceuticals USA Inc. contingent consideration related to the
Columbus business acquisition (Note 27 and 30 to the Group consolidated financial statements). It’s not probable that any of the guaranteed
entities will default on the guaranteed obligations.
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Hikma Pharmaceuticals PLC | Annual Report 2022 Hikma Pharmaceuticals PLC | Annual Report 2022Financial Statements
Shareholder information
2023 financial calendar
23 March
24 March
28 April
5 May
3 August*
10 August*
11 August*
2022 final dividend ex-dividend date
2022 final dividend record date
Annual General Meeting
2022 final dividend paid to shareholders
2023 interim results and interim
dividend announced
2023 interim dividend ex-dividend date
2023 interim dividend record date
15 September*
2023 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 – shareholderenquiries@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 (ADRs)
Hikma has an ADR programme for which BNY Mellon acts as
Depository. One ADR equates to two shares. ADRs are traded as
a Level 1 (OTC) programme under the symbol HKMPY. Enquiries
should be made to:
BNY Mellon Shareowner Services
PO Box 43006
Providence RI 02940-3078
Overnight Correspondence:
BNY Mellon Shareowner Services
150 Royall St., Suite 101
Canton, MA 02021
Tel: +1 201 680 6825 (international)
Tel: +1 888-269-2377 (toll-free within the US)
E-mail: shrrelations@cpushareownerservices.com
www.mybnymdr.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.
200
Shareholder information
continued
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
Al-Bayader
King Adbullah The Second Street
Facing Al-Ahli Club
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
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
UK
Brokers
Citigroup Centre
33 Canada Square
Canary Wharf
London E14 5LB
UK
Morgan Stanley & Co. International PLC
25 Cabot Square
Canary Wharf
London E14 4QA
UK
Registrars
Link Group, 10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
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Hikma Pharmaceuticals PLC | Annual Report 2022 © Hikma Pharmaceuticals PLC
1 New Burlington Place
London W1S 2HR
UK
T +44 (0)20 7399 2760
www.hikma.com