Hikma Pharmaceuticals Regulatory News (HIK)

Hikma delivers another year of profitable growth in 2021 and announces share buyback

London, 24 February 2022 - Hikma Pharmaceuticals PLC ('Hikma' or 'Group'), the multinational pharmaceutical company, today reports its preliminary audited results for the year ended 31 December 2021.

Siggi Olafsson, Chief Executive Officer of Hikma, said:

"Hikma delivered strong financial results in 2021, marking another successful year of solid growth and continued strategic momentum. Our operational strength and high quality standards ensured our ability to provide customers with a consistent supply of essential medicines in a challenging environment. I am grateful to Hikma colleagues around the world for their steadfast commitment to helping the millions of patients who rely on our medicines every day.

As we look to 2022 and beyond, I am most excited about how we are continuing to build and evolve our portfolio with important investments and new partnerships. Our Injectables business is now supplying US hospitals with sterile compounded pharmaceutical products, has expanded into Canada, and is set to grow further with the acquisition of Custopharm1 and our expansion into US biosimilars. Our Generics business is bringing more complex and specialty products to market, launching KloxxadoTM and generic Advair Diskus® in 2021, and with additional product launches planned for this year. Our Branded business is delivering consistent growth, with an increased focus on medications to treat chronic illnesses. We have an exciting platform that will drive continued growth and progress in the year ahead."

Highlights:

Strong 2021 performance

· Group revenue up 9%, reflecting a good performance from all three businesses

· Core operating profit up 12%, driven by a further step up in Generics margin

· Core profit attributable to shareholders up 10%

· Reported profit attributable to shareholders down 2% and basic EPS was flat

· Strong cashflow from operating activities, up 38% to $638 million

· Continued to invest 6% of revenue in R&D, with a growing pipeline of complex and specialty products

· Maintained healthy balance sheet, with net debt5 of $420 million and low leverage at 0.6x net debt to core EBITDA6, 7

· Full year dividend of 54 cents per share, up from 50 cents per share in 2020

Continued momentum, with growth in all three businesses

· Injectables: Good revenue growth across all three geographies, including in the US following a strong 2020. Injectables core operating profit grew 5%, with a strong operating margin of 37.5%

· Generics: 10% revenue growth and core operating margin improvement of 300 bps to 24.6%, reflecting a good performance from recently launched products

· Branded: Revenue grew 9%, reflecting a good contribution from products used to treat chronic illnesses and core operating margin was 18.7%, down from 20.6% in 2020. Excluding the impact of currency and hyperinflation, revenue grew 5% and core operating margin was stable

Further portfolio expansion and increased investment to support growth

· Launched generic Advair Diskus® in April and are gradually growing market share, but expect competition to intensify in 2022

· Expansion of specialty product offering in the US, including the launch of KloxxadoTM 8mg naloxone nasal spray

· Positioning for future growth in Injectables with the signing of two US biosimilar agreements, the acquisition of Custopharm8, the launch of a new US compounding business and post year-end expansion into Canada through acquisition of Teligent assets

· Further complex medicines added to Branded portfolio, including eight oral oncology products in Algeria

Share buyback

· Announcing a share buyback programme of up to $300 million to be executed during 2022

· Hikma's strategic focus remains unchanged, prioritising the creation of further shareholder value through investing in organic and inorganic growth

· Buyback reflects the Group's strong cash generation, balance sheet strength and the Board's confidence in the future growth prospects of the business

· The buyback has been sized to maintain balance sheet efficiency whilst leaving significant headroom for continued investment opportunities

New environmental target

· Announcing new target to reduce Hikma's greenhouse gas emissions by 25% by 2030

2022 outlook

· Injectables revenue growth in the low to mid-single digits, with core operating margin in the range of 35% to 37%

· Generics revenue growth in the range of 8% to 10% and core operating margin in the range of 24% to 25%

· Branded revenue expected to be in line with 2021. Excluding the impact of hyperinflation in 2021, expect Branded revenue to grow in the mid-single digits

Further information:

A pre-recorded presentation will be available at www.hikma.com at 07:00 GMT. Hikma will also hold a live Q&A conference call at 9:30am GMT, and a recording will be made available on the Company's website.

To join via conference call please dial:

United Kingdom: 0800 640 6441

United Kingdom (local): 020 3936 2999

All other locations: +44 20 3936 2999

Access code: 446040

For further information please contact Tiina Lugmayer - tlugmayer@hikma.com.

Hikma (Investors):

Teneo (Press):

Charles Armitstead +44 (0)7703 330 269

About Hikma:

Hikma helps put better health within reach every day for millions of people around the world. For more than 40 years, we've been creating high-quality medicines and making them accessible to the people who need them. Headquartered in the UK, we are a global company with a local presence across the United States (US), the Middle East and North Africa (MENA) and Europe, and we use our unique insight and expertise to transform cutting-edge science into innovative solutions that transform people's lives. We're committed to our customers, and the people they care for, and by thinking creatively and acting practically, we provide them with a broad range of branded and non-branded generic medicines. Together, our 8,700 colleagues are helping to shape a healthier world that enriches all our communities. We are a leading licensing partner, and through our venture capital arm, are helping bring innovative health technologies to people around the world. For more information, please visit: www.hikma.com

Hikma Pharmaceuticals PLC (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY) (LEI:549300BNS685UXH4JI75) (rated BBB-/stable S&P, BBB-/stable Fitch)

STRATEGIC REVIEW

Throughout 2021 we have been driven by our purpose of putting better health within reach, every day. This is evident in the products we have launched, the investments we have made and the ongoing supply of important medicines across the geographies in which we operate.

Strategic progress across the Group

Our Injectables business saw good growth in 2021 across all our regions. Thanks to the breadth of our portfolio, flexible global manufacturing facilities and our resilient supply chain, this is a strong and differentiated business. In the US, we continue to play a leading role in supplying hospitals with the medicines they need and are now a top two supplier of generic injectable medicines by volume, with a portfolio of over 120 products. Since December, we are also supplying hospitals with compounded pharmaceutical products out of our new sterile compounding facility in Dayton, New Jersey.

We remain focussed on having a portfolio fit for the future, with ongoing new launches, and have made exciting progress this year building our portfolio and pipeline through acquisition and partnership, including for biosimilars in the US.

We already have experience commercialising biosimilars in MENA, where these products contributed to our growth in 2021. We are achieving good growth in Europe, as we increase supply of our own products and enter new markets, such as France. We have also benefitted from valuable contract manufacturing opportunities, leveraging our extensive lyophilisation capacity in Portugal.

Our Generics business delivered strong revenue growth and margin expansion in 2021, as we have focussed on important new launches, optimised the cost base and drove operating efficiencies.

We added several products to our Generics portfolio in 2021, including the launches of generic Advair Diskus® and our novel naloxone nasal spray, Kloxxado™. These important product launches demonstrate our move towards more complex generic medicines and specialty branded products. In total we launched seven products while also continuing to invest in our state-of-the art manufacturing facility in Columbus, Ohio. Our local presence in the US enabled us to respond quickly to customer needs and minimise supply disruptions arising from challenges related to the COVID-19 pandemic.

In our Branded business, we have continued to strengthen our market position and we are now ranked the fourth largest pharmaceutical company in the MENA region, by sales. The strategy of tiering the markets is delivering. Our Algeria business saw particularly good growth as we launched new products, including from our new oral oncology plant, the first local Algerian facility producing oral oncology products. We are also seeing good growth in our other markets, including Jordan, Morocco and UAE. Our continued focus on building a portfolio of high-value treatments for chronic illnesses is driving revenue growth, enhancing our market position and strengthening our customer relationships.

Investing in R&D, new technologies and capabilities and deploying our balance sheet

We continue to invest in R&D to develop products where we see a patient need. In 2021, we spent 6% of revenue on R&D, in line with our target of 6% to 7%. We also strengthened our R&D capabilities, including adding a new site for complex injectables in Warren, New Jersey.

Throughout the year, we continued to expand our manufacturing capacity, and enhance existing facilities to stay at the forefront of manufacturing excellence. We invested in a new facility in Dayton, New Jersey, which will carry out sterile compounding activities for our Injectables business. With our focus on quality and our deep relationships with hospitals in the US, we will be able to satisfy a growing need for ready-to-administer formats of medicines. In addition to this, we also invested in new filling lines, expanded warehousing and enhanced capabilities across our operational footprint.

Partnerships are also integral to Hikma's strategy. 2021 saw continued momentum as we entered into new partnerships and built on existing ones in each of our businesses. Some of these opportunities will contribute in the near term, while others will help to drive future growth. The biosimilar deals we signed with Bio-Thera and Gedeon Richter will enable us to bring important complex injectable medicines to the US in the medium term.

We are also leveraging our balance sheet to deliver attractive inorganic growth opportunities. In 2021, as part of the growth plans for our Injectables business, we announced the acquisition of Custopharm, which remains subject to FTC approval. Upon closing, this will bring an existing portfolio of differentiated products and additional pipeline products and enhanced R&D capabilities. Post year-end, we announced our expansion in Canada with the acquisition of Teligent's Canadian assets. Our teams will continue to assess opportunities as they arise to ensure we are deploying our capital in line with our strategy and delivering long-term value to our shareholders.

Capital allocation priorities and share buyback

Alongside our 2018 capital markets day, the Board set out its capital allocation priorities which have guided our deployment of cash flows over recent years. These priorities remain unchanged

1. Reinvesting for growth

2. Building long-term partnerships

3. M&A in-line with strategy

4. Maintaining a consistent dividend pay-out

Hikma has also maintained a strong balance sheet underpinned by strong free cash flow generation. The Board is today announcing a share buyback of up to $300 million which will balance the maintenance of an efficient balance sheet whilst retaining substantial flexibility for continued investment and M&A.

Caring for our people

Hikma is an inclusive place to work, underpinned by our strong culture of progress and belonging and our values: innovative, caring and collaborative.

Throughout 2021, we worked to reinforce our values and ensure they are reflected in our strategy, practices and policies. Shaping our culture and equipping our people with the right tools to be at their best continues to be of absolute importance. We evolved our Diversity, Equity and Inclusion Committee, which supports diversity and inclusion initiatives, such as our new employee resource groups programme, and continued to invest in upskilling our people through a number of hybrid learning and development programmes.

In a year where our people continued to adapt and stepped up to keep our plants operational, our strong culture of progress and belonging enabled us to be resilient, perform at our best and provided us with the opportunity to explore new ways of working together both across the business and with our partners and customers.

Acting responsibly

Underpinning all of this, we are ensuring we operate responsibly in all aspects of what we do. First and foremost, we have a responsibility for our customers and their patients, who rely on our important medicines every day; but our mission to advance health and wellbeing also extends to the broader wellbeing of the communities in which we operate. It extends to ensuring that our own people are empowered by an inclusive culture where everyone can thrive, and to understanding and minimising our impact on the environment. We have spent time assessing this impact and understanding how we can minimise it, and are pleased that the Board has approved a new target to reduce our greenhouse gas emissions by 25% by 2030, compared to a 2020 baseline. Finally, operating responsibly extends to building trust and ensuring quality in all that we do, by upholding ethical standards and acting with integrity.

Outlook

Our strategy continues to deliver results and we are pleased with the progress made to date, which is reflected in this strong set of results. Looking at 2022, the business is well positioned to continue to grow, benefitting from our broad portfolio and pipeline, as well as our high-quality operations.

For Injectables, as the COVID-19 volatility continues to ease and we see a gradual return of elective surgeries, we expect for revenue to grow in the low to mid-single digits, supported by new product launches. We expect core operating margin to be in the range of 35% to 37%. Our guidance does not include a contribution from Custopharm, which remains subject to FTC approval.

For Generics, we expect revenue to grow in the range of 8% to 10% and for core operating margin to be in the range of 24% to 25%. This reflects a good contribution from new and recent launches, which we expect will more than offset an acceleration in price erosion. Our guidance assumes a mid-year launch of sodium oxybate.

For Branded, we expect revenues in 2022 to be in line with 2021. Excluding the impact from hyperinflation in 2021, we expect Branded revenue to grow in the mid-single digits.

We expect Group core net finance expense to be around $55 million and the core effective tax rate to be in the range of 22% to 23%.

We expect Group capital expenditure to be in the range $160 million to $180 million.

FINANCIAL REVIEW

The financial review set out below summarises the reported and core9 performance of the Hikma Group and our three main business segments, Injectables, Generics and Branded, for the year ended 31 December 2021 .

Group

Group revenue grew 9% reflecting growth in each of our three businesses. Group gross margin reduced slightly, primarily due to a shift in product mix in our Injectables and Branded businesses.

Group operating expenses were $719 million (2020: $622 million). Excluding adjustments related to the amortisation of intangible assets (other than software) of $73 million (2020: $42 million) and net income from exceptional items of $23 million (2020: $67 million), Group core operating expenses were $669 million (2020: $647 million).

Selling, general and administrative (SG&A) expenses were $561 million (2020: $509 million). Excluding the amortisation of intangible assets (other than software) and exceptional items, core SG&A expenses were $488 million (2020: $464 million), up 5%, reflecting good control of costs while increasing spend in certain areas such as sales and marketing for specialty products in the Generics business and a gradual return to pre-COVID marketing activities in our Branded business.

Research and development (R&D) expenses were $143 million (2020: $137 million). This reflects an increase in the second half as the Group focussed on the future pipeline. Core R&D was 6% of Group core revenue, in line with our strategy.

Other net operating expenses were $15 million (2020: $26 million income). Excluding exceptional items10, core other net operating expenses were $38 million (2020: $44 million), which primarily comprised foreign exchange-related costs.

The improvement in core operating margin to 24.8% was primarily driven by the good performance in the Generics business.

Group core revenue by business segment

Group core revenue by region

Injectables

Injectables revenue grew 8% in 2021, benefitting from our broad portfolio, geographic spread, flexible manufacturing capabilities and new launches across our regions.

US Injectables revenue grew 4% to $691 million (2020: $662 million), reflecting a good performance from new launches while maintaining demand for our broad product portfolio.

MENA Injectables revenue was $180 million, up 13% on a reported basis and 4% on a constant currency basis (2020: $160 million). This growth reflects a strong performance across most of our markets and good demand for our growing biosimilar portfolio where we continue to grow the market by increasing patient access. This more than offset temporary disruptions in some markets.

European Injectables revenue was $182 million, up 17% (2020: $155 million). In constant currency, European Injectables revenue increased by 13%. This reflects a good performance from our own products, recent launches and continued demand for contract manufacturing.

Core gross profit grew 3% to $581 million and gross margin declined to 55.2%, reflecting a normalisation in product mix following the strong demand for COVID-19 related products in 2020.

Injectables core operating profit, which excludes the amortisation of intangible assets (other than software)11 grew 5% and core operating margin was 37.5%, compared with 38.6% in 2020. In constant currency, core operating profit grew 7% and core operating margin remained largely stable, reflecting good control of costs.

During the year, the Injectables business launched 15 products in the US, 29 in MENA and 34 in Europe. We submitted 93 filings to regulatory authorities across all markets. This primarily reflects our efforts to expand our European portfolio and register products in new European markets. We also signed new licensing deals, including to enter the US biosimilar market.

In 2022, we expect Injectables revenue to grow in the low to mid-single digits. We expect core operating margin to be in the range of 35% to 37%.

Generics

The good revenue growth in our Generics business, up 10% in 2021, was primarily driven by a strong performance from recently launched products, which more than offset increased price erosion.

Generics core gross profit growth and margin expansion was primarily due to product mix, with good demand for profitable recent launches.

We delivered a strong improvement in Generics core operating profit, which excludes the amortisation of intangible assets (other than software) and exceptional items12, mostly due to the improvement in gross profit. While sales and marketing spend increased as a result of the expansion of our specialty business, this was partially offset by good control of other operating expenses. For the year, Generics core operating margin was 24.6%, ahead of our guidance of 22% to 24%.

In 2021, the Generics business launched seven products and submitted five files to regulatory authorities.

In 2022, we expect Generics revenue to grow in the range of 8% to 10%. We expect core operating margin to be in the range of 24% to 25%.

Branded

Our Branded business continued to deliver growth in 2021, with revenue up 9%, which includes the impact of hyperinflation. In constant currency, revenue grew 5%, with a good performance across our markets, particularly in Algeria, where we saw the benefits of our new oncology plant, and in Egypt, where we benefitted from strong demand for our chronic treatments. Our chronic treatments also saw good demand in our retail business in Saudi Arabia, which partially offset lower demand in the government tender business. Other markets, including Jordan, UAE and Morocco grew strongly. Across the region we benefitted from our focussed commercial efforts, a responsive supply chain and the breadth of our portfolio.

Core gross profit grew 7% and, on a constant currency basis, core gross profit was flat primarily due to an increase in slow-moving inventory resulting from pandemic-related demand fluctuations. Core gross margin contracted slightly to 49.0%.

Core operating profit, which excludes the amortisation of intangibles (other than software) and exceptional items13, fell 1%. In constant currency, core operating profit grew 5% as higher investment in R&D and increased sales and marketing spend due to activities returning to pre-COVID levels was offset by good control of G&A costs. Core operating margin decreased primarily due to devaluation of the Sudanese pound. In constant currency, core operating margin was stable.

During the year, the Branded business launched 87 products and submitted 144 filings to regulatory authorities. Revenue from in-licensed products represented 36% of Branded revenue (2020: 37%).

We expect Branded revenue in 2022 to be in line with 2021. Excluding the impact of hyperinflation in 2021, we expect Branded revenue to grow in the mid-single digits.

Other businesses

Other businesses, which primarily comprises Arab Medical Containers (AMC), a manufacturer of plastic specialised medicinal sterile containers, and International Pharmaceuticals Research Centre (IPRC), which conducts bio-equivalency studies, contributed revenue of $11 million in 2021 (2020: $7 million) with an operating profit of $2 million (2020: $nil).

Research and development

Our investment in R&D and business development enables us to continue expanding the Group's product portfolio. During 2021, we had 172 new launches and received 243 approvals. To ensure the continuous development of our product pipeline, we submitted 242 regulatory filings.

Net finance expense

On a reported basis, net finance expense was $39 million (2020: $22 million). This comprised $30 million finance income and $69 million finance expense. Excluding exceptional items15, core net finance expense was $55 million (2020: $45 million). This comprised $1 million finance income and $56 million finance expense. The increase compared with 2020 in part reflects a drop in interest income over the course of 2021 due to a reduction in interest rates, and a slight increase in expenses related to the refinancing of our revolving credit facility.

We expect core net finance expense to be around $55 million in 2022.

Profit before tax

Reported profit before tax decreased to $544 million (2020: $558 million), primarily reflecting an increase in the amortisation of intangibles (other than software), from $42 million to $73 million, due to new product launches. Excluding the amortisation of intangibles (other than software) and exceptional items16, core profit before tax was $578 million (2020: $522 million), up 11%, reflecting the strong performance of our three business segments.

Tax

The Group incurred a reported tax expense of $124 million (2020: $128 million) and a reported effective tax rate of 22.8% (2020: 22.9%). Excluding exceptional items, Group core tax expense was $129 million (2020: $115 million). The core effective tax rate increased slightly to 22.3% (2020: 22.0%), primarily due to a change in the earnings mix.

We expect the Group core effective tax rate to be in the range of 22% to 23% in 2022.

Profit attributable to shareholders

Profit attributable to shareholders was $421 million (2020: $431 million). Core profit attributable to shareholders increased by 11% to $450 million (2020: $408 million).

Earnings per share

The increase in core earnings per share reflects the strong performance of the Group and the value for shareholders created by the Group's buy back of 12.8 million ordinary shares in the first half of 2020.

Dividend

The Board is recommending a final dividend of 36 cents per share (approximately 26 pence per share) (2020: 34 cents per share) bringing the total dividend for the full year to 54 cents per share (approximately 40 pence per share) (2020: 50 cents per share). The proposed dividend will be paid on 28 April 2022 to eligible shareholders on the register at the close of business on 18 March 2022, subject to approval at the Annual General Meeting on 25 April 2022.

Net cash flow, working capital and net debt

The Group generated strong operating cash flow of $638 million (2020: $464 million). This change primarily reflects the good performance of the Group, combined with a focussed effort to optimise inventories following COVID-19 related stocking in 2020. The resultant decrease in inventory days drove an improvement in working capital days, which decreased by 26 days to 238 days.

Capital expenditure was $145 million (2020: $172 million). In the US, $56 million was spent upgrading equipment and adding new technologies for our Generics and Injectables businesses, including our new compounding facility in Dayton, New Jersey. In MENA, $66 million was spent on strengthening and expanding manufacturing capabilities. In Europe, we spent $23 million on strengthening our capabilities. We expect Group capital expenditure to be in the range of $160 million to $180 million in 2022.

The Group's total debt decreased to $846 million at 31 December 2021 (31 December 2020: $932 million). This decrease primarily reflects our strong cash flow generation which enabled a reduction in short-term borrowing, while we maintained the repayment schedule of long-term loans.

During the year, we upsized, amended and extended our revolving credit facility (RCF), effective as of January 2022, allowing us the flexibility to pursue strategic opportunities. The RCF remained undrawn at year end.

The Group's cash balance at 31 December 2021 was $426 million (2020: $327 million).

The Group's net debt (excluding co-development agreements and contingent liabilities) was $420 million at 31 December 2021 (31 December 2020: $605 million). We continue to have a strong balance sheet, with a net debt to core EBITDA ratio of 0.6x (31 December 2020: 0.9x).

Today we are also announcing a share buyback programme of up to $300 million to be executed during 2022. This takes into account the strength of our balance sheet and low leverage ratio while maintaining the financial flexibility needed to invest in the business and pursue inorganic growth opportunities.

Balance sheet

Net assets at 31 December 2021 were $2,467 million (31 December 2020: $2,148 million). Net current assets were $1,078 million (31 December 2020: $894 million).

The Board

The Board of Directors that served during the twelve-month period to 31 December 2021 and their respective responsibilities can be found on the Leadership team section of www.hikma.com.

Cautionary statement

This preliminary announcement has been prepared solely to provide additional information to the shareholders of Hikma and should not be relied on by any other party or for any other purpose.

Definitions

We use a number of non-IFRS measures to report and monitor the performance of our business. Management uses these adjusted numbers internally to measure our progress and for setting performance targets. We also present these numbers, alongside our reported results, to external audiences to help them understand the underlying performance of our business. Our core numbers may be calculated differently to other companies.

Adjusted measures are not substitutable for IFRS results and should not be considered superior to results presented in accordance with IFRS.

Core results

Reported results represent the Group's overall performance. However, these results can include one-off or non-cash items which are excluded when assessing the underlying performance of the Group. To provide a more complete picture of the Group's performance to external audiences, we provide, alongside our reported results, core results, which are a non-IFRS measure. Our core results exclude the exceptional items and other adjustments set out in Note 5 of the Group consolidated financial statements.

Constant currency

As the majority of our business is conducted in the US, we present our results in US dollars. For both our Branded and Injectable businesses, a proportion of their sales are denominated in a currency other than the US dollar. In order to illustrate the underlying performance of these businesses, we include information on our results in constant currency.

Constant currency numbers in 2021 represent reported 2021 numbers translated using 2020 exchange rates, excluding price increases in the business resulting from the devaluation of the Sudanese pound and excluding the impact from hyperinflation accounting.

EBITDA

EBITDA is earnings before interest, tax, depreciation, amortisation, assets write-down and impairment charges/reversals.

Working capital days

We believe Group working capital days provides a useful measure of the Group's working capital management and liquidity. Group working capital days are calculated as Group receivable days plus Group inventory days, less Group payable days. Group receivable days are calculated as Group trade receivables x 365, divided by 12 months Group revenue. Group inventory days are calculated as Group inventory x 365, divided by 12 months Group cost of sales. Group payable days are calculated as Group trade payables x 365, divided by 12 months Group cost of sales.

Group net debt

We believe Group net debt is a useful measure of the strength of the Group's financing position. Group net debt is calculated as Group total debt less Group total cash. Group total debt excludes co-development agreements and contingent liabilities.

Forward looking statements

This announcement contains certain statements which are, or may be deemed to be, "forward looking statements" which are prospective in nature with respect to Hikma's expectations and plans, strategy, management objectives, future developments and performance, costs, revenues and other trend information. All statements other than statements of historical fact may be forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of forward looking words such as "aims", "anticipates", "believes", "budget", "estimates", "expects", "forecasts", "goals", "intends", "objectives", "outlook", "plan", "project", "risks", "seek" "scheduled", "targets" or words or terms of similar substance or the negative thereof, as well as variations of such words and phrases or statements that certain actions, events or results "could", "may", "might", "probably", "should", "will" or "would" be taken, occur or be achieved.

By their nature, forward looking statements are based on current expectations and projections about future events and are therefore subject to assumptions, risks and uncertainties that are beyond Hikma's ability to control or estimate precisely and which could cause actual results or events to differ materially from those expressed or implied by the forward looking statements. In particular, these include statements relating to future actions, product authorisations, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, dividend payments and financial results. Where included, such statements have been made by or on behalf of Hikma in good faith based upon the knowledge and information available to the Directors on the date of this announcement. Accordingly, no assurance can be given that any particular expectation will be met and Hikma's shareholders are cautioned not to place undue reliance on the forward-looking statements. Forward looking statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future.

Other than in accordance with its legal or regulatory obligations (including under the UK Market Abuse Regulation and the UK Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority), Hikma does not undertake to update the forward looking statements contained in this announcement to reflect any changes in events, conditions or circumstances on which any such statement is based or to correct any inaccuracies which may become apparent in such forward looking statements. Except as expressly provided in this announcement, no forward looking or other statements have been reviewed by the auditors of Hikma. Any forward looking statement above and all subsequent oral or written forward looking statements attributable to Hikma or any of its members, directors, officers or employees or any person acting on their behalf are expressly qualified in their entirety by this cautionary statement. Past share performance cannot be relied on as a guide to future performance. Nothing in this announcement should be construed as a profit forecast.

Neither the content of Hikma's website nor any other website accessible by hyperlinks from Hikma's website are incorporated in, or form part of, this announcement.

Principal risks and uncertainties

The Group faces risks from a range of sources that could have a material impact on our financial commitments and ability to trade in the future. The principal risks are determined via robust assessment considering our risk context by the Board of Directors with input from executive management. The principal risks facing the company have not materially changed over the year and they are set out in the 2021 annual report on pages 54 - 63, which will be available on 16 March 2022. The Board recognises that certain risk factors that influence the principal risks are outside of the control of management. The Board is satisfied that the principal risks are being managed appropriately and consistently with the target risk appetite. The set of principal risks should not be considered as an exhaustive list of all the risks the Group faces.

1 Subject to FTC approval

2 Constant currency numbers in 2021 represent reported 2021 numbers translated using 2020 exchange rates, excluding price increases in the business resulting from the devaluation of the Sudanese pound and excluding the impact from hyperinflation accounting. In 2021 Lebanon and Sudan were considered hyperinflationary economies, therefore the spot exchange rate as at 31 December 2021 was used to translate the results of these operations into US dollars

3 In June 2020, Hikma purchased 12.8 million ordinary shares from Boehringer Ingelheim, which are being held in treasury

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 5 of the Group consolidated financial statements. Core results are a non-IFRS measure and a reconciliation to reported IFRS measures is provided on page 14

5 Group net debt is calculated as Group total debt less Group total cash, including restricted cash. Group net debt is a non-IFRS measure. See page 15 for a reconciliation of Group net debt to reported IFRS figures

6 Core EBITDA is earnings before interest, tax, depreciation, amortisation, assets write-down and impairment charges/reversals. EBITDA is a non-IFRS measure, see page 15 for a reconciliation to reported IFRS results

7 Net debt to core EBITDA is calculated as Group net debt divided by core EBITDA and is considered a useful measure of the Group's financing decision

8 Subject to FTC approval

9 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 5 of the Group consolidated financial statements. Core results are a non-IFRS measure and a reconciliation to reported IFRS measures is provided on page 14

10 Exceptional items comprised a $60 million impairment reversal of product related intangibles, a $24 million charge of product related intangibles and a $13 million intangible assets write-down. Amortisation of intangible assets (other than software) was $73 million. Refer to Note 5 of the Group consolidated financial statements for further information

11 Exceptional items comprised a $10 million impairment of product related intangibles and a $1 million intangible assets write-down. Amortisation of intangible assets (other than software) was $33 million. Refer to Note 5 of the Group consolidated financial statements for further information

12 Exceptional items comprised a $60 million impairment reversal of product related intangibles and a $14 million impairment charge of product related intangibles and a $1 million intangible assets write-down. Amortisation of intangible assets (other than software) was $30 million. Refer to Note 5 of the Group consolidated financial statements for further information

13 Exceptional items comprised a $11 million intangible assets write-down. Amortisation of intangible assets (other than software) was $10 million. Refer to Note 5 of the Group consolidated financial statements for further information

14 New products submitted, approved and launched by country in 2021

15 Exceptional items comprised $29 million non-cash finance income related to the remeasurement of contingent consideration related to the Generics business and $13 million non-cash finance expense related to the unwinding and remeasurement of contingent consideration related to the Generics business

16 Exceptional items comprised a $60 million impairment reversal of product related intangibles, a $24 million impairment charge of product related intangibles, a $13 million intangible assets write-down and $16 million net finance income due to the remeasurement of contingent consideration. Amortisation of intangible assets (other than software) was $73 million. Refer to Note 5 of the Group consolidated financial statements for further information

Hikma Pharmaceuticals PLC

Consolidated income statement

For the year ended 31 December 2021

Hikma Pharmaceuticals PLC

Consolidated statement of comprehensive income

For the year ended 31 December 2021

Hikma Pharmaceuticals PLC

Consolidated balance sheet

At 31 December 2021

1. In 2021, prepayments have been reclassified under other current assets which were previously classified under trade and other receivables, and hence at 31 December 2020 numbers have been restated reflecting $56 million reclassification from trade and other receivables to other current assets. Had this reclassification been applied at 1 January 2020, these line items would have been restated by $49 million. (Note 10)

Hikma Pharmaceuticals PLC

Consolidated statement of changes in equity

For the year ended 31 December 2021

1. Merger and revaluation reserves mainly relates to Columbus business acquisition in 2016

2. A net Impairment reversal of $48 million has been allocated from retained earnings to the merger and revaluation reserves in relation to Columbus business acquisition intangible assets (2020: $62 million) (Notes 5 and 9)

Hikma Pharmaceuticals PLC

Consolidated cash flow statement

For the year ended 31 December 2021

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

1. 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 Group's principal activities are the development, manufacturing, marketing and selling of a broad range of generic, branded and in-licensed pharmaceuticals products in solid, semi-solid, liquid and injectable final dosage forms.

Basis of preparation

Hikma Pharmaceuticals PLC's consolidated financial statements have been prepared in accordance with:

(i) UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 January 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework

(ii) IFRS as issued by the International Accounting Standards Board (IASB)

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 prepared in accordance with:

(i) IFRS in conformity with the requirements of the Companies Act 2006 and the applicable legal requirements of the Companies Act 2006. In addition to complying with IFRS in conformity with the requirements of the Companies Act 2006, 2020 financial statements also comply with IFRS adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union

(ii) IFRS as issued by the International Accounting Standards Board (IASB)

The presentational and functional currency of Hikma Pharmaceuticals PLC is the US dollar as the majority of the Company's business is conducted in US dollars.

Adoption of new and revised standards

The following revised Standards and Interpretations have been issued and are effective for annual periods beginning on 1 January 2021. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

- Interest Rate Benchmark Reform - Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR). The amendments include the following practical expedient: A practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest.

These amendments had no significant impact on the consolidated financial statements of the Group. The Group intends to use the practical expedients in future periods if they become applicable.

- IFRIC agenda decision - Configuration and customisation costs in a Cloud Computing Arrangement

The March 2021 IFRS Interpretation Committee update included an agenda decision on configuration and customisation costs in a cloud computing arrangement involving Software as a Service (SaaS). The agenda decision included guidance on how entities should account for such configuration and customisation costs.

The Group has adopted the IFRIC update as a change in accounting policy. The impact relating to prior year was not material and therefore the application was not retrospectively applied and was recognised in the current year consolidated income statement as exceptional item (Notes 5 and 9).

Exceptional items and other adjustments

We use a number of non-IFRS measures to report and monitor the performance of our business. Management uses these adjusted numbers internally to measure our progress and for setting performance targets. We also present these numbers, alongside our reported results, to external audiences to help them understand the underlying performance of our business. Our adjusted numbers may be calculated differently to other companies.

Adjusted measures are not substitutable for IFRS numbers and should not be considered superior to results presented in accordance with IFRS.

Core results

Reported results represent the Group's overall performance. However, these results can include one-off or non-cash items that mask the underlying performance of the Group. To provide a more complete picture of the Group's performance and to improve comparability of our consolidated financial statements to external audiences, we provide, alongside our reported results, core results, which are a non-IFRS measure. We represent and discuss our Group and segmental financials reconciled between reported and core results. This presentation allows for full visibility and transparency of our financials so that shareholders are able to clearly assess the performance factors of the Group.

Our core results exclude the exceptional items and other adjustments set out in Note 5 in the Notes to the consolidated financial statements.

Exceptional items

Exceptional items represent adjustments for costs and profits which management believes to be exceptional in nature by virtue of their size or incidence, or have a distortive effect on current year earnings, such as costs associated with business combinations, one-off gains and losses on disposal of businesses assets, reorganisation costs and any exceptional items related to tax such as significant tax benefit/expense associated with previously unrecognised deferred tax assets/liabilities.

Other adjustments

These include amortisation, impairment charge/reversal of intangible assets excluding software and finance income and expense resulting from remeasurement and unwinding of contingent consideration and co-development earnout payment agreement financial liabilities.

Intangible assets

An intangible asset is recognised if all the below conditions are met:

- it is identifiable

- it is probable that the expected future economic benefits that are attributable to the asset will flow to the Group

- the cost of the asset can be measured reliably

The probability of expected future economic benefits is assessed using reasonable and supportable assumptions that represent management's best estimate of the set of economic conditions that will exist over the useful life of the asset. The assets are amortised on a straight-line basis on the following amortisation rates:

Judgement is used to assess the degree of certainty attached to the flow of future economic benefits that are attributable to the use of the asset on the basis of the evidence available at the time of initial recognition, giving greater weight to external evidence.

Expenditures on research and development activities are charged to the consolidated income statement, except only when the criteria for recognising an internally generated intangible asset is met, which is usually when approval from the relevant regulatory authority is considered probable.

Also, the Group engages with third-party research and development companies to develop products on its behalf. Substantial payments made to such third parties to fund research and development efforts are recognised as intangible assets if the capitalisation criteria for an intangible asset are met, which typically is when licence fees and certain milestone payments are made, all other payments are charged to the consolidated income statement.

Principal intangible assets are:

(a) Goodwill: arising in a business combination and is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer's previously held equity interest (if any) in the entity over the net of the acquisition-date fair value of the identifiable assets, liabilities and acquired contingent liabilities. If, after reassessment, the Group's interest in the fair value of the acquiree's identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer's previously held equity interest in the acquiree (if any), the excess is recognised immediately in the consolidated income statement as a bargain purchase gain.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of any profit or loss on disposal in the consolidated income statement

(b) Product related intangibles:

(i) Product files and in-licensed products recognised through acquisitions and partnerships are amortised over their useful economic lives once the asset is ready for use 

(ii) In process product files recognised on acquisition are amortised over the useful economic life once the asset is ready for use

(c) Purchased software: is amortised over the useful economic life when the asset is ready for use 

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 life

(e) Trade names: are amortised over their useful lives from the date of acquisition 

(f) Marketing rights: are amortised over their useful lives commencing in the year in which the rights first generate sales

2. 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.

Financial covenants are suspended while the Group retains its investment grade status from two rating agencies1. Nevertheless, the covenants are monitored and the Group was in compliance on 31 December 2021 and expects to remain in compliance with those covenants for the year ending in December 2022 even in the severe but plausible downside scenarios. As of 31 December 2021, the Group's investment grade rating was affirmed by S&P and Fitch.

1.Rating agencies: means each of Fitch, Moody's and S&P or any of their affiliates or successors

3. Revenue from contracts with customers

Business and geographical markets

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

The top selling markets in 2021 are as below:

In 2021, included in revenue arising from the Generics and Injectables segments are sales the Group made to two wholesalers in the US accounting for equal to or greater than 10% of the Group's revenue on an individual basis of $402 million (16% of Group revenue) and $341 million (13% of Group revenue), in 2020: $333 million (14% of Group revenue) and $274 million (12% of Group revenue).

The following table provides contract balances related to revenue:

Trade receivables are non-interest bearing and typical credit terms in the US range from 30 to 90 days, in Europe 30 to 120 days, and in MENA 180 to 360 days.

Contract liabilities mainly relate to returns and free goods provisions.

4. Business segments

For management reporting purposes, the Group is organised into three principal operating divisions - Injectables, Generics and Branded. These divisions are the basis on which the Group reports its segmental information.

Core operating profit, 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:

1.Others mainly comprises Arab Medical Containers LLC and International Pharmaceutical Research Center LLC

2.Unallocated corporate expenses mainly comprise employee costs, third-party professional fees and IT expenses

The following table provides an analysis of the Group non-current assets1 by geographic area:

1.Non-current assets exclude investments in joint ventures, deferred tax assets, and financial and other non-current assets

5. 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 outlines in Note 1, the details are presented below:

Exceptional items

- Intangible assets write-down: $13 million write-down of software representing prior year impact of the application of the IFRIC April 2021 agenda decisions regarding cloud computing arrangement customisation and configuration costs treatment. The Group has adopted the IFRIC update as a change in accounting policy. The impact relating to prior year was not material and therefore the application was not retrospectively applied and was recognised in the current year consolidated income statement as exceptional item (Note 1)

Other adjustments

- Impairment reversal of product related intangibles: $60 million impairment reversal mainly related to generic Advair Diskus® intangible asset as a result of launching the product following FDA approval in April 2021 following an amendment submitted to its Abbreviated New Drug Application in January 2021 (Note 9)

- Impairment of product related intangibles: $24 million impairment charge of different product related intangibles due to a decline in performance and forecasted profitability (Note 9)

- Intangible assets amortisation other than software of $73 million

- Remeasurement of contingent consideration finance income of $29 million represents the income resulting from the valuation of the liabilities associated with the future contingent payments in respect of contingent consideration recognised through business combinations

- Unwinding and remeasurement of contingent consideration and other financial liability finance expense of $13 million represents the expense resulting from the unwinding and the valuation of the liabilities associated with the future contingent payments in respect of contingent consideration recognised through business combinations and the financial liability in relation to the co-development earnout payment agreement

In the previous year, exceptional items and other adjustments were related to the following:

Exceptional items

- Jordan warehouse fire incident: In 2020, Hikma recognised $11 million for insurance compensation related to a fire incident which took place in 2019 at one of Hikma's Jordan facilities 

- MENA severance and restructuring costs: of $3 million related to one-off organisational restructuring in MENA that started in 2019 and finished in 2020 

- Assets write off: In December 2020, Hikma submitted to the FDA a Prior Approval Supplement (PAS) relating to generic Advair Diskus®. The amendment reflected enhanced packaging controls to meet new industry standards adopted since the initial submission of its ANDA application. As a result, the launch has been temporarily paused and inventory amounting to $12 million was expected to expire before launch and has been written off. In addition, $3 million of property, plant and equipment was written off

- Tax expense associated with previously unrecognised deferred tax assets: A prior year adjustment to the tax expense associated with previously unrecognised deferred tax assets of $3 million arose as a tax return to provision adjustment

Other adjustments

- Impairment reversal of product related intangibles: $66 million impairment reversal in respect of specific product related intangibles in the Generics segment which reflected a better than expected performance of certain marketed products acquired through business combination (Note 9)

- Impairment charge of product related intangibles of $4 million

- Intangible assets amortisation other than software of $42 million

- Remeasurement of contingent consideration finance income of $ 38 million represents the income resulting from the valuation of the liabilities associated with the future contingent payments in respect of contingent consideration recognised through business combinations

- Unwinding and remeasurement of contingent consideration and other financial liability finance expense of $15 million represents the expense resulting from the unwinding and the valuation of the liabilities associated with the future contingent payments in respect of contingent consideration recognised through business combinations and the financial liability in relation to the co-development earnout payment agreement

6. Tax

UK corporation tax is calculated at 19.0% (2020: 19.0%) of the estimated assessable profit made in the UK for the year.

The Group incurred a tax expense of $124 million (2020: $128 million). The effective tax charge rate is 22.8% (2020: 22.9%). The reported effective tax rate is higher than the statutory rate primarily due to the earnings mix.

Taxation for all jurisdictions is calculated at the rates prevailing in the respective jurisdiction. 

The charge for the year can be reconciled to profit before tax per the consolidated income statement as follows: