Hikma Pharmaceuticals Regulatory News (HIK)

London, 7 August 2020 - Hikma Pharmaceuticals PLC ('Hikma' or 'Group'), the multinational pharmaceutical company, today reports its interim results for the six months ended 30 June 2020.

Highlights:

Response to COVID-19

· Health and well-being of all employees has been greatest priority through the pandemic

· Supply chain fully maintained, providing our customers with critical drugs

· Manufacturing sites remained open with operations enhanced to support increase in demand

Financial highlights

· Core Group revenue up 9%, reflecting growth in all three businesses

· Core operating profit up 15%, driven by a strong performance in Injectables

· Significant increase in cashflow from operating activities to $292 million, up 56%

· Continued investment in R&D with growing pipeline of complex products

· Healthy balance sheet maintained, with net debt of $511 million and low leverage at 0.8x net debt to core EBITDA4,5

· Repaid $500 million Eurobond due in April and issued new $500 million Eurobond in July

· Announced interim dividend of 16 cents per share, up from 14 cents per share in H1 2019

Strategic and business highlights

· Injectables: Delivered double digit core revenue growth, driven by increased demand for COVID-19 related products in the US and EU

· Generics: Maintained core operating margin, supported by a better than expected performance from new launches

· Branded: Achieved a strong performance in our tier one MENA markets resulting in 6% growth in core operating profit in constant currency

· 78 new products launched across our markets

· Signed a non-exclusive supply agreement with Gilead Sciences, Inc. to manufacture remdesivir for injection

· Repurchased 12.8 million shares from Boehringer Ingelheim, representing approximately 5.3% of issued share capital

Revised 2020 outlook

· Injectables revenue now expected to be between $950 million and $980 million, with core operating margin in the range of 38% to 40%

· Generics revenue now expected to be in the range of $720 million to $760 million and core operating margin to be around 21% (including assumed launch of generic Advair Diskus® in H2)

· Branded revenue expected to grow in the mid-single digits in constant currency

Siggi Olafsson, Chief Executive Officer of Hikma, said:

"We have delivered strong first half results, which are ahead of our initial expectations and reflect good progress in each of our three businesses. These results are a testament to the steadfast commitment of our people, who are working hard to ensure high quality and affordable medicines are available to patients throughout the COVID-19 pandemic. Our performance demonstrates the breadth and resilience of our portfolio, as well as the vital role of the generic medicines we supply. We have a positive outlook for each of our three businesses and look forward to the second half with confidence."

Further information:

An analyst presentation will be available at www.hikma.com at 0800 BST this morning and management with host a Q&A for sellside analysts at 0930 BST. A recording of the Q&A will be made available on the website. For further information please contact Tiina Lugmayer - Tiina@hikma.uk.com.

Hikma (Investors):

Teneo (Press):

Charles Armitstead / Camilla Cunningham +44 (0)7703 330 269/ +44 (0)7464 982 426

About Hikma:

Hikma helps put better health within reach every day for millions of people in more than 50 countries 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 8,600 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 and Ba1/stable Moody's) 

Response to COVID-19

Hikma makes hundreds of important and affordable medicines that save lives and improve the health of millions of people every day. This has never been more important. As the COVID-19 pandemic continues to impact people and communities around the world, the health and safety of our people, and the millions who count on our medicines remain our top priority.

We are fully committed to providing our customers and their patients the quality medicines they need and have prioritised the manufacture of medicines that have been in highest demand, such as respiratory, pain, anaesthetics and sedatives. Where necessary, we have been operating at the highest capacity possible under the circumstances to meet the increased demand we have experienced.

Due to the nature of our business, our manufacturing sites are already very hygienic, or sterile where required, and staff in those facilities follow a strict hygiene regime. However, we are regularly undertaking additional levels of cleaning in all of our facilities and offices as a further precautionary measure.

We have been proactively managing our inventory and stock levels, transportation options and the availability of raw materials and component parts. We continue to work closely with our supplier networks and have not encountered any supply chain issues to date.

Our long-standing commitment to our local communities remains strong and we have been providing funding, medicine donations, food and other essentials.

We are grateful to our teams across Hikma for their commitment to the needs of front-line hospitals, doctors, pharmacists and patients during this very difficult time. This is a complex situation which we are continually monitoring, and we are committed to the health of our people, and the needs of our customers.

Business and financial review

The business and financial review set out below summarises the performance of the Group and our three main business segments, Injectables, Generics and Branded, for the six months ended 30 June 2020.

Group

Group core revenue grew 9% to $1,132 million (2019: $1,043 million). Group core gross profit grew 11% to $602 million (H1 2019: $544 million), reflecting growth in all three businesses and particularly the strong performance from Injectables. Group core gross margin was 53.2% (H1 2019: 52.2%).

Group operating expenses were $305 million (H1 2019: $310 million). Excluding adjustments related to the amortisation of intangible assets (other than software) of $21 million (H1 2019: $17 million) and net income from exceptional items of $34 million (H1 2019: $5 million), Group core operating expenses were $318 million (H1 2019: $298 million).

Selling, general and administrative (SG&A) expenses were $251 million (H1 2019: $237 million). Excluding the amortisation of intangible assets (other than software) and exceptional items, core SG&A expenses were $229 million (H1 2019: $216 million), up 6%, in part related to higher legal and professional fees. The impact of COVID-19 on SG&A expenses was broadly neutral with related increases in employee benefits offset by lower marketing and travel costs.

Research and development (R&D) expenses were $62 million (H1 2019: $72 million). Excluding exceptional items,6 core R&D expenses were $62 million (H1 2019: $58 million). This reflects increased investment in R&D programmes across our businesses, as we build our pipeline of more complex products.

Other net operating income was $6 million (H1 2019: $(1) million expense). Excluding exceptional items,7 core other net operating expenses were $29 million (H1 2019: $24 million), which primarily comprised inventory related provisions and foreign exchange-related costs.

The Group reported operating profit of $297 million (H1 2019: $238 million). Excluding the impact of amortisation (other than software) and exceptional items, core operating profit increased by 15% to $284 million (H1 2019: $246 million) and core operating margin was 25.1% (H1 2019: 23.6%).

Group core revenue by business segment

Group core revenue by region

Injectables

Injectables core revenue increased by 13% to $485 million (2019: $428 million). In constant currency, Injectables core revenue grew by 14%.

US Injectables core revenue grew 10% to $347 million (H1 2019: $317 million), reflecting strong demand for our in-market products, particularly those used in the treatment of COVID-19. These sales, as well as growth from recent launches, more than offset increased competition on certain products and lower demand as a result of a slow down in elective surgeries.

MENA Injectables revenue was $75 million, up 25% (H1 2019: $60 million). In constant currency, MENA Injectables revenue increased by 23%, reflecting good demand across our portfolio and continued growth of our biosimilar products.

European Injectables revenue was $63 million, up 24% (H1 2019: $51 million). In constant currency, European Injectables revenue increased by 27%, reflecting a good performance from new launches, an increase in demand related to COVID-19 and higher demand for contract manufacturing.

Injectables core gross profit increased by 14% to $290 million (H1 2019: $254 million) and core gross margin increased to 59.8% (H1 2019: 59.3%), primarily reflecting the change in product mix in the US and increased opportunities to capture additional market share by leveraging our broad portfolio and flexible manufacturing.

Injectables core operating profit, which excludes the amortisation of intangible assets (other than software) and exceptional items,8 was $204 million (H1 2019: $167 million). Core operating margin was 42.1% (H1 2019: 39.0%), reflecting the increase in gross profit and stable operating expenses.

During H1 2020, the Injectables business launched 6 products in the US, 17 in MENA and 18 in Europe. We submitted 150 filings to regulatory authorities across all markets. This primarily reflects our efforts to expand our EU portfolio and register products in new EU markets. We further developed our portfolio through new licensing agreements, including an exclusive licensing and distribution agreement for the MENA region with Sun Pharmaceuticals for ILUMYATM, an innovative biologic product.

In recent years, we have invested significantly to expand our Injectables manufacturing capacity and to improve our capabilities.  During the period, we announced that we have received US FDA approval for the first product from our new high containment facility in Portugal, which can now begin to supply the US market.

This increased manufacturing capacity is enabling us to better supply the US and EU markets with both our own products and those of our third party contract manufacturing customers. In particular, we have signed a non-exclusive supply agreement with Gilead Sciences, Inc. to manufacture remdesivir for injection. Remdesivir is an investigational drug that has been granted conditional marketing authorisation in the EU and emergency use authorisation in the US for the treatment of COVID-19.

We now expect our Injectables business to deliver revenue of between $950 million and $980 million, reflecting our strong performance in the first half of the year and expectations for continued demand for COVID-19 related products. We expect core operating margin to be in the range of 38% to 40%.

Generics

Generics revenue was $369 million (H1 2019: $368 million). We saw good demand for our in-market products and had a better than expected contribution from new launches in the period, including the first-to-market generic launch of everolimus tablets (a generic version of Zortress®). We also saw some additional demand related to COVID-19. This was offset by increased competition on certain other products.

Generics core gross profit grew 6% to $178 million (H1 2019: $168 million) and core gross margin increased to 48.2% (H1 2019: 45.7%). This improvement was primarily a result of a change in product mix.

Generics operating profit increased to $102 million (H1 2019: $88 million) and Generics core operating profit, which excludes the amortisation of intangible assets (other than software) and exceptional items,9 increased by 1% to $72 million (H1 2019: $71 million). Exceptional items include a $34 million impairment reversal of specific product related intangibles related to the Columbus business, which reflects a better than expected performance of certain marketed products. Core operating margin increased to 19.5% (H1 2019: 19.3%), reflecting the improvement in gross profit, which was largely offset by higher legal fees and inventory related provisions.

During H1 2020, we launched 3 products from our R&D pipeline. Our launches included generic Zortress® and generic Afinitor®, which have performed well to date. As previously announced, we successfully invalidated six US patents as asserted by Amarin for their Vascepa® capsules. We also received US FDA approval for our generic Vascepa® and continue to evaluate our options for launch. Our submission for generic Advair Diskus® remains under review by the US FDA and we expect to receive a response and launch in the second half of the year.

We now expect Generics revenue to be in the range of $720 million to $760 million and core operating margin to be around 21% for the full year. Our guidance includes $20 million to $40 million from generic Advair Diskus®, which we continue to expect to launch in the second half of the year. If we do not launch generic Advair Diskus® in 2020, we would now expect the core operating margin for the Generics business to be between 17% and 19%. 

Branded

On a reported basis, Branded revenue was $275 million, up 14% (H1 2019: $242 million). On a constant currency basis, Branded revenue increased 13%.

Our largest markets, Saudi Arabia and Egypt, performed well, reflecting good demand for our marketed products. Algeria delivered a strong performance, recovering from lower sales in 2019 due to political and economic disruptions. We also delivered a good performance across most of our other MENA markets and saw a good contribution from new launches. While we did see some disruptions across our MENA markets related to COVID-19, including a reduction in demand for pharmacy products such as anti-infectives, this was offset by an overall resilient performance from the broader portfolio.

During H1 2020, the Branded business launched 34 products and submitted 43 filings to regulatory authorities. Several of these launches were carried out virtually, with much of our promotional activity moving away from in-person interaction during the period due to social distancing measures. Revenue from in-licensed products represented 46% of Branded revenue (H1 2019: 36%), reflecting a pull-forward of demand for certain products.

Branded gross profit was $133 million, up 11% (H1 2019: $120 million) and gross margin was 48.4% (H1 2019: 49.6%). In constant currency, gross profit increased by 9% and gross margin was 47.8% (H1 2019: 49.6%). The decline in gross margin primarily reflects a change in product mix.

Core operating profit, which excludes the amortisation of intangibles (other than software) and exceptional items,10 was $51 million, up 4% (H1 2019: $49 million), and core operating margin was 18.5% (H1 2019: 20.2%). This margin reduction reflects lower gross margin, foreign exchange losses and a slight increase in operating expenses. In constant currency, core operating profit grew 6% and core operating margin was 19.0% (H1 2019: 20.2%).

As anticipated, we continue to expect full year Branded revenue growth of mid-single digits in constant currency.

Other businesses

Other businesses primarily comprise Arab Medical Containers, a manufacturer of plastic specialised medicinal sterile containers, International Pharmaceuticals Research Centre (IPRC), which conducts bio-equivalency studies and Hikma Emerging Markets and Asia Pacific FZ LLC. These businesses contributed revenue of $3 million (H1 2019: $5 million), reflecting the temporary closure of IPRC due to COVID-19. These other businesses made zero operating profit in the period (H1 2019: $(1) million loss). This slight improvement in profitability is primarily due to the 2019 closure of our emerging markets division as we focus on our core markets, in line with our strategy.

Research and development

Our investment in R&D and business development enables us to continue expanding the Group's product portfolio. During H1 2020, we had 78 new launches and received 79 approvals.

To ensure the continuous development of our product pipeline, we submitted 193 regulatory filings.

Net finance expense

Reported net finance expense was $23 million (H1 2019: $10 million). Core net finance expense was $19 million (H1 2019: $22 million) primarily due to a reduction in interest rates across our markets.

We continue to expect core net finance expense to be around $47 million in 2020.

Profit before tax

Reported profit before tax was $274 million (H1 2019: $226 million). Core profit before tax was $265 million (H1 2019: $225 million), reflecting the strong performance of our three business segments.

Tax

The Group incurred a tax expense of $62 million (H1 2019: $41 million). Excluding the tax impact of exceptional items, the Group core tax expense was $60 million in H1 2020 (H1 2019: $49 million). The core effective tax rate for H1 2020 was 22.6% (H1 2019: 21.8%). We continue to expect the Group´s core effective tax rate to be around 22% to 23% for the full year.

Profit attributable to shareholders

Profit attributable to shareholders was $212 million (H1 2019: $185 million). Core profit attributable to shareholders increased by 17% to $205 million (H1 2019: $176 million).

Earnings per share

Basic earnings per share was 87.6 cents (H1 2019: 76.4 cents). Core basic earnings per share increased by 17% to 85.3 cents (H1 2019: 72.7 cents) and core diluted earnings per share increased by 17% to 84.8 cents (H1 2019: 72.4 cents).

Dividend

The Board is recommending an interim dividend of 16 cents per share (approximately 12 pence per share) (H1 2019: 14 cents per share). The interim dividend will be paid on 21 September 2020 to eligible shareholders on the register at the close of business on 21 August 2020.

Net cash flow, working capital and net debt

The Group generated operating cash flow of $292 million (H1 2019: $187 million). Group working capital days were down 4 days to 227 days, primarily driven by strong sales in the US.

Cash capital expenditure was $66 million (H1 2019: $48 million). In the US, $38 million was spent upgrading equipment and adding new technologies for our Generics and Injectables businesses. In MENA, $22 million was spent strengthening and expanding manufacturing capabilities. In Europe, we spent $6 million, expanding our facilities in Portugal. We expect Group capital expenditure to be around $120 million in 2020 - the lower end of our previous guidance range.

The Group's total debt increased to $927 million at 30 June 2020 (31 December 2019: $685 million). This increase reflects the full utilisaton of the Group´s $150 million International Finance Corporation facility and its purchase of 12.8 million ordinary shares from Boehringer Ingelheim (BI) for $371 million, in connection with BI´s disposal of its 16% stake in Hikma, which was paid for through a combination of cash and existing facilities.

During the period, the Group used its revolving credit facility to repay its $500 milion Eurobond, which came due in April. Post the period-end, the Group issued a new five year $500 million Eurobond, which carries an annual coupon of 3.25%.

The Group's cash balance was $416 million (31 December 2019: $443 million). The Group's net debt was $511 million at 30 June 2020 (31 December 2019: $242 million).12 We continue to have a very strong balance sheet with a net debt to core EBITDA ratio of 0.8x.

Balance sheet

Net assets at 30 June 2020 were $1,900 million (31 December 2019: $2,129 million), reflecting the impact of the share buy back in the period. Net current assets increased to $808 million (31 December 2019: $377 million) due to a change in the debt maturity profile as a result of the repayment of the Eurobond during the period.

Outlook for 2020

We now expect our Injectables business to deliver revenue of between $950 million and $980 million for the full year, reflecting our strong performance in the first half of the year and expectations for continued demand for COVID-19 related products. This compares with previous guidance of low to mid-single digit growth, We now expect core operating margin to be in the range of 38% to 40%, up from our previous guidance of 35% to 37%.

We now expect Generics revenue to be in the range of $720 million to $760 million, up from $700 million to $750 million, and core operating margin to be around 21% for the full year, up from 20%. Our guidance includes $20 million to $40 million from generic Advair Diskus®, which we continue to expect to launch in the second half of the year. If we do not launch generic Advair Diskus® in 2020, we now expect the core operating margin for the Generics business to be between 17% and 19%, up from 16% to 18%. 

We continue to expect Branded revenue to grow in the mid-single digits in constant currency in 2020.

We expect Group net finance expense to be around $47 million in 2020 and the core effective tax rate to be around 22% to 23%. We expect Group capital expenditure to be around $120 million.

Responsibility statement

We confirm that to the best of our knowledge:

· the condensed consolidated set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union and as issued by the International Accounting Standards Board, and;

· the interim results announcement includes a fair review of the information required by:

a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the enterprise during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

The Board

The Board of Directors that served during all or part of the six-month period to 30 June 2020 and their respective responsibilities can be found on the Leadership team section of www.hikma.com.

Cautionary statement

This interim results 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 4.

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 H1 2020 represent reported H1 2020 numbers re-stated using H1 2019 exchange rates.

EBITDA

EBITDA is earnings before interest, tax, depreciation, amortisation 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 trailing 12 months Group revenue.

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 acquired 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 "intends", "believes", "anticipates", "expects", "estimates", "forecasts", "targets", "aims", "budget", "scheduled" 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 "may", "could", "should", "would", "might" or "will" 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. 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 Market Abuse Regulation ((EU) No. 596/2014) 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. 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 the cautionary statement above. 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 results 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 longer term consequences of the COVID-19 pandemic remain uncertain; however the principal risks for the company have not materially changed in the last six months and remain as they are set out in the 2019 annual report on pages 47 - 50. 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 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 4. Core results are a non-IFRS measure and a reconciliation to reported IFRS measures is provided on page 13

2 Constant currency numbers in H1 2020 represent reported H1 2020 numbers re-stated using H1 2019 exchange rates

3 Earnings per share is calculated using the weighted average number of shares outstanding during the period. Interim dividend per share is calculated using the number of shares in issue at 30 June 2020

4 EBITDA is earnings before interest, tax, depreciation, amortisation and impairment charges/reversals. EBITDA is a non-IFRS measure, see page 13 for a reconciliation to reported IFRS results

5 Calculated using core EBITDA for the twelve months ended 30 June 2020

6 In H1 2020 there were no exceptional R&D expenses. In H1 2019, Hikma incurred $14 million of R&D costs related to a repeat clinical endpoint study for generic Advair Diskus®. See Note 4 for further information

7 In H1 2020, exceptional items comprised a $34 million impairment reversal of product related intangibles related to the Columbus business in the Generics segment. Refer to Note 4 for further information

8 Exceptional items comprised amortisation of intangible assets other than software amounting to $12m. Refer to Note 4 for further information

9 Exceptional items comprised a $34 million impairment reversal of product related intangibles related to the Columbus business, as well as the amortisation of intangible assets other than software, which amounted to $4 million. Refer to Note 4 for further information

10 In H1 2020, exceptional items comprised amortisation of intangible assets other than software of $5 million, as well as MENAseverance costs of $1 million, offset by insurance compensation related to the Jordan warehouse fire incident of $1 million. Refer to Note 4 for further information

11 New products submitted, approved and launched by country in H1 2020

12 Group net debt is a non-IFRS measure that includes long and short-term financial debts (Note 14), lease liabilities, net of cash and cash equivalents and collateralised and restricted cash. Group net debt excludes co-development and earnout payments, acquired contingent liabilities and contingent consideration (Notes 13 and 15). See page 14 for a reconciliation of Group net debt to reported IFRS results

Independent review report to Hikma Pharmaceuticals PLC

Report on the condensed consolidated interim financial statements

We have reviewed Hikma Pharmaceuticals PLC's condensed consolidated interim financial statements (the "interim financial statements") in the Interim Results Press Release of Hikma Pharmaceuticals PLC for the 6 month period ended 30 June 2020. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and as issued by the International Accounting Standards Board and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

The interim financial statements comprise:

· the condensed consolidated balance sheet as at 30 June 2020;

· the condensed consolidated income statement and condensed consolidated statement of comprehensive income for the period then ended;

· the condensed consolidated cash flow statement for the period then ended;

· the condensed consolidated statement of changes in equity for the period then ended; and

· the explanatory notes to the interim financial statements.

The interim financial statements included in the Interim Results Press Release have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and as issued by the International Accounting Standards Board and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as issued by the International Accounting Standards Board.

The Interim Results Press Release, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Results Press Release in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Interim Results Press Release based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, 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.

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Interim Results Press Release and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

6 August 2020

Hikma Pharmaceuticals PLC

Condensed consolidated income statement

On this page and throughout this financial information 'H1 2020' refers to the half-year of the six months ended 30 June 2020. 'H1 2019' refers to the half-year of the six months ended 30 June 2019.

Hikma Pharmaceuticals PLC

Condensed consolidated statement of comprehensive income

Hikma Pharmaceuticals PLC

Condensed consolidated balance sheet

1. Beginning in 2020, own shares are deducted from retained earnings. At 31 December 2019, own shares of $(1) million were included in other reserves (Note 18)

Hikma Pharmaceuticals PLC

Condensed consolidated statement of changes in equity

1.The Group adopted IFRIC 23 as of 1 January 2019. The impact of adoption was a decrease of $2 million of the amount previously held for uncertain tax positions which was credited to retained earnings

2. An Impairment reversal of $34 million has been allocated from retained earnings to the merger and revaluation reserves in relation to the Generics segment (Notes 4 and 7)

3. Beginning in 2020, own shares are deducted from retained earnings. At 31 December 2019, own shares of $(1) million were separately presented in other reserves (Note 18)

Hikma Pharmaceuticals PLC

Condensed consolidated cash flow statement

Hikma Pharmaceuticals PLC

Notes to the condensed consolidated interim financial statements

1. General information

Hikma Pharmaceuticals PLC is a public limited liability company incorporated and domiciled in England and Wales under the Companies Act 2006. The registered office address is 1 New Burlington Place, London W1S 2HR, UK.

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.

The information for the year ended 31 December 2019 does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. A copy of the statutory accounts for 2019 have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain any statement under Section 498 (2) or (3) of the Companies Act 2006.

2. Accounting policies

The unaudited condensed consolidated interim financial statements (financial statements) for the six months ended 30 June 2020 have been prepared using the same accounting policies including policies that involve Directors' judgments and estimates and on a basis consistent with the audited consolidated financial statements of Hikma Pharmaceuticals PLC for the year ended 31 December 2019.

Basis of preparation

The currency used in the presentation of the accompanying financial statements is the US dollar ($) as most of the Group's business is conducted in US dollars.

These financial statements for the six months ended 30 June 2020 have been prepared in accordance with the Disclosure and Transparency Rules sourcebook of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting', as adopted by the EU and as issued by the IASB. The financial statements should be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2019, which have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the IASB and the IFRS adopted by the EU.

New standards interpretations and amendments adopted by the Group

The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2019, except for the adoption of new standards effective as of 1 January 2020.

The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. 

Several amendments and interpretations apply for the first time in 2020, but do not have an impact on the financial statements of the Group.

Going concern

The Directors have considered the going concern position of the Group at 30 June 2020. The Directors believe that the Group is well diversified due to its geographic spread, product diversity and large customer and supplier base.

The Group's business activity, together with the factors likely to affect its future development, performance and position are set out in the Interim Results Press Release. The Interim Results Press Release also includes a summary of the financial position, cash flow and borrowing facilities.

At 30 June 2020 the Group had undrawn facilities of $779 million. The Group's total debt at 30 June 2020 was $927 million while the Group's cash at 30 June 2020 balance was $416 million making the net debt1 $511 million. The Group's net debt1 to core EBITDA ratio was 0.8x at 30 June 2020 and post period-end, the Group issued a 5 year $500 million Eurobond with a coupon rate of 3.25%, which can be used for general corporate purposes including debt prepayment, further increasing headroom available on undrawn facilities. Taking into account the Group's current position and its principal risks for a period of up to 18 months, a going concern analysis has been prepared using realistic scenarios applying a severe but plausible downside which shows sufficient liquidity headroom and compliance with our debt covenants.

On the basis of the above considerations, the Directors believe that the Group is adequately placed to manage its business and financing risks successfully, despite the current uncertain economic and political outlook. Having reassessed the principal risks, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the interim financial information.

1Group net debt is a non-IFRS measure that includes long and short-term financial debts (Note 14), lease liabilities, net of cash and cash equivalents and collateralised and restricted cash. Group net debt excludes co-development and earnout payments, acquired contingent liabilities and contingent consideration (Notes 13 and 15)

3. Business and geographical 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, International Pharmaceutical Research Center LLC, Hikma Emerging Markets and Asia Pacific FZ LLC

1. In H1 2020, unallocated corporate expenses mainly comprise employee costs and third-party professional fees while in H1 2019, unallocated corporate expenses mainly comprise employee costs, third-party professional fees and travel expenses

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 are shown below: