Annual Report (ESEF) • Mar 17, 2022
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W ithin rea ch . E v e r y d a y. Welcome to our 2 02 1 Annual Repor t Strategic report 2 What we d o 4 Executive Ch airman’ s statement 6 Chief Exec utive O ce r’s str ategi c review 10 Inve st me nt c as e 12 Stak eholder engagement 18 Our mark ets 20 Our b usine ss mo del 22 Our progress Business and nancial revi ew 24 Grou p over vie w 26 I njectables 28 Generics 30 Brande d 32 Group performance Sustainabilit y 37 Acting responsibly 50 TCF D Risk managemen t 54 Risk management 6 4 Compliance Corporate governance 67 Me ss age from o ur Exe cutive Ch airman 68 Cor por ate governan ce at a glan ce 70 B oard of D irec tor s 72 E xecutive Committee 74 Governance report 80 C ommittee repor ts 89 Remuneration report 111 Directors’ repor t Financial statements 116 Indep endent audit ors’ repor t 12 4 Conso lidated nancial statements 12 9 N otes to th e cons olidate d nancia lsta tement s 18 0 Company nancial statements 18 2 Note s to the Co mpany nan cialst atement s Sharehold er information 18 7 Shareholder informa tion 18 8 Pr incipal G roup C ompa nies an dAdvis ers By c r e a t i n g h ig h- q ua l it y pr od uctsa n d m a k i n g them acce s sible to those who ne e d them we a r e he l pi ng t o s ha pe a he a l t h i er w or l d th a t e n ri ch es a l lou r co m m u ni ti es. Se e howour s tr ateg y help s us shap e a he althie r worl d onpa ge 6 Hi km a puts bet t er h ealth within rea ch e v e r y d a y. Cover i mage Sama ntha Ro e is a rec ent gr aduate of O hio Uni versi t y with a B S in Che mist r y and a minor i n Biological Sciences. Sama ntha join ed Hik ma in May 2019 a nd is a sc ientis t inthe A naly tic al Re se arch &Developmen t department, whe re she he lps to deve lop new ge ner ic drug p rodu ct s. Samantha is a member of theR &D 5S Team, which isfo cuse d on opt imising workplace eciency a nd productivit y , and has rec entlyb ec ome th e Col umbus s ite lea der forth eCor por ate So cial Responsibility programme. Hik ma Ph arm ace utic al s PLC Annual Report 2021 1 STRATE GIC REPORT Our performance Se e howwe p er for med in ourBusines s and nancial revie w on pag e 24. We ac t resp ons ibly, advancing heal th and wellbeing, emp owering ourp eop le, prote ct ing the environ ment and bui lding trust through quality in ever y thin g we do. Re ad moreo n page 3 6. Financial highlights Change vs 2020 Change vs 2020 Revenue Operating prot $2 ,55 3 m +9% $5 82m +1 % Core 1 operating prot EBITDA 2 $6 3 2m +1 2 % $ 7 2 7m +9% Prot to shareholders Basic earnings per share $ 4 2 1m (2)% 182 . 3 c 0% Core basic earnings per share 3 Dividend per share 194 . 8 c + 13% 5 4 .0 c +8% Non-nancial highlights Instructor-led learning hours forourpeople Established a target to reduce our Scope 1 and 2 GHG emissions by 25% by 2030 4 4 7 , 000 2 5% 1. Cor e resu lts a re pre se nted to s how th e und erl ying p er for man ce of th e Gro up, excl uding t he exce pti onal i tems an d oth er adj ust ment s set o ut inNot e 6 of the G rou p cons oli date d nan cial s tate ment s. A r eco ncil iatio n fro m core t o rep or ted o per ati ng pro t is in clu ded w ithi n the Consolidated income statement in the Financia l statements 2. EBI TDA is e arni ngs b efore i ntere st , tax , de pre ciati on, am or ti sati on, a ss ets w rite -d own an d impa irme nt char ges . EBI TDA is a n on-I FRS m eas ure, se epag e 34 f or are conc iliat ion to r epo r ted IF RS re sult s 3. Cor e bas ic ear ning s per s hare i s rec onci led to b asi c ear nings p er sh are in N ote 15 of t he Gr oup co nso lida ted n anci al st atem ents 4. C ommi tte d to re duc ing Sc ope 1 a nd Sc op e 2 gre enho use g as em iss ion s by 25% by 20 30, us ing a 20 20 ba sel ine ye ar 2 Hik ma Ph arm ace utic al s PLC Annual Report 2021 Wh at w e do W e br in g pat ie n ts ac ro ss th e US, MENA a nd E uro pe abr oa d ra ng e ofg ene r ic, s pec i al t y an d br and ed phar maceut ical produc ts . Our markets US c. 2 , 000 employees Europe & R OW c. 1 ,0 5 0 employees MENA c. 5 ,65 0 employees US Our large manu fac turing f aciliti es in the United State s (US ) suppl y gener ic and spe cialt y pro duct s acros s a broa d range ofther apeu tic areas , including re spirator y, onco log y and pain man agement. We als o have three R&D f aciliti es to supp or t sust ainable grow th . MENA We sell br ande d gener ics an d in-licens ed patented pro duc ts acro ss th e Middle Ea st and Nor th Afric a (MENA) . We have manuf act uring f aciliti es in seve n countri es, including US FDA-inspe cte d plants in J ordan and Sau di Arabia . Around 2,0 00 s ales repre sentati ves and supp or t s ta market our bran ds to health care p rofes sionals a cros s 18markets . Europe and rest of the world (ROW ) Our inje ct able ma nufac tur ing fac ilitie s in Por tuga l, Ger many and Italy have a ra nge ofcap abilitie s including de dic ated cap acit y for oncology and cephalosporins. These fac ilities sup plyinje ct able pro duct s to the US and MENA an d a growing numbe r of markets inEurope. 59 % Gr oup c ore r evenu e (2020: 60%) 3 3% Gr oup c ore r evenu e (2020: 33 % ) 8% Gr oup c ore r evenu e (2020: 7% ) Hik ma Ph arm ace utic al s PLC Annual Report 2021 3 STRATE GIC REPORT c. 8 , 70 0 Employees 32 Manufacturi ng pla nts 7 R&D centres 670 + Produ cts Our business segments Segmental revenue Injectables We su pply hospitals acr os s our mark ets with generic injectables, suppor ted b y our manufacturing facilities in t he US, Eu rope and MENA. In the US, we ha ve broadened our product oering t o incl ude compounded sterile injectables . G eneric s We su pply oral and other non-i njectable generic and specialtybr anded products in the USre tail mark et, leveraging ou r state-of -art manufacturing facility inColum bus, Ohio. Brande d We su pply branded generics and in- licensed paten ted products from our local manufacturing facil ities to retai l and hospital custome rs across the MENA regi on. Injec tables $ 1, 0 5 3m (2020: $977m ) Branded $ 6 69m (2020: $613m ) Gene rics $ 8 20 m (2020: $7 4 4m) Othe r $11m (2020: $7m ) 4 Hik ma Pha rma ceu tic als PL C Annual Repor t 2021 E x ecutive Chair man’ s st atement Executing on o ur purpose The pa ndemic has p res ented challeng es for us , for ourcus tomers a nd, mos t critic ally , for pati ents. Remaining fo cuse d on our pur pos e – to put bet ter heath wi thin reach, ever y day – we have navigated these challen ges successf ully . Since the o uts et of the pan demic, we have b een commit te d to making sure patient s have the medic ines they ne ed, whe n they ne ed them . We have listened to our cus tomers – h ealth care profe s sionals, h ospit als, pharma cist s, whol es alers – an d have respon ded quickly an d eec tively to th eir rapidl y changing demand s, lever aging the bre adth of o ur por t folio andthe qua lit y and exibilit y of o ur US, Europe and MENA-bas ed man ufac tur ing fac ilitie s. At the same t ime, we have continue d to streng the n ourop eratio ns so that we c an bet ter s er ve our custom ers . We have placed an enh anced fo cus on o ur proc urement pr act ices , caref ully manage d inventory levels and en gaged re gularly wi th our suppli ers. Throug hout th e pandemi c, our p eopl e have shown anunwavering com mitment to ser ving patient ne eds , des pite the many challeng es that were p rese nted. We care fo r our employe es and have wor ked hard to mak e sure that they are b enet ting f rom a stro ng culture and inclusive wo rk environment an d that they have attrac tive de velopment opportunities. W e oper at e wi t h one dr ivi n g pur pos e :to p ut bett er h ea lt h wi th in r e ac h e ve r y da y . Said Darwaz ah Exe cutive Chairm an Hik ma Ph arm ace utic al s PLC Annual Report 2021 5 STRATE GIC REPORT I am immensely proud of how o ur pe op le have continue d to deliver on our purp ose in the face of ongoing disruption from the pandemic 1 7. 1 % Retu rn on investe d capital Generating returns for our shareholders Hikma has on ce again de livered a s trong nancial per for mance in 20 21, growing reve nue, expanding c ore ope rating margin an d gener ating stron g cash ow. Group c ore basic e arnings p er share in 202 1 grew by13% . Return o n invested c apit al 1 w a s 1 7. 1 % , demonstrating our eciency at allocatin g capital andgener ating value. This grow th is c onsis tent with our lon g track re cord of creating valu e for our share holde rs. O ver the las t ten years to 3 1 De cembe r 2021, we h ave delivered a total shareho lder retur n of 313 %, co mpared w ith 94% for the F TSE 100 and 1 7 7% for F TSE 3 50 healt hcare c ompanie s. We remain commit te d to our consis tent divide nd payment s and are ple ase d to conrm a nal div idend of 36 ce nts per s hare for 202 1. Combin ed wit h the interim divid end of 18 ce nts per sh are, this repre sents a8% incre ase in the tot al dividen d for 202 1. Reinforcing our co mmitment to qualit y At Hikma, we continue to s tres s the imp or tan ce of qualit y and re liabilit y . Q ualit y unde rpins o ur busine s s in dierent ways , be it th e medicin es we de liver to our custom ers , the fa cilitie s and proc es se s we have in place to cre ate and sell th ose me dicine s, as well a s thequalit y of o ur peo ple. We have built our repu tation on m anufac turing high-qu alit y medic ines, a nd it is impo r tant we ensure that qualit y remains at th e core of what we do. We maintain this quali ty fo cus thro ugh a vari ety of m eans, including interna l qualit y culture c ampaign s, ongoing qualit y audit s of our manuf ac turing site s and key supplie rs run by our Q ualit y team, c ontinuous monitor ing and improveme nt of qualit y metric s and the provis ion of repo r ts to the E xecut ive Commit te e bythe Hikma Q ualit y Co uncil. In 202 1 we introduc ed a new C ode of C onduc t, wit h qualit y at its c entre. Our C ode c alls on us to adhe re to the high est et hical s tandard s and to maintain the tr ust of our coll eague s, cu stomer s and ultimately t he pati ents w e ser ve. Our re sponsibilit y We are focus ed on p ut ting bet ter he alth within re ach for patie nts, bu t our appro ach to ope rating re spons ibly goe s beyond t his. We work hard to en sure we are also helping o ur communitie s in other w ays: through medi cine and foo d donatio ns, our wo rk in supp or ting educ ation o r helping in cris is situation s. We also cl osel y tra ck our impac t on the e nvironment, an d for the rs t time this year h ave introduced a t arget to redu ce our car bon emis sion s. The ‘Acting re spons ibly ’ sec tion ofthis rep or t, on p ages 3 7 to 49 provide s more informatio n on all of our wor k on the se areas , with som e cas e studi es dem onst rating what we are do ing. Board evolution Looking to 202 2 and Board co mpositio n, Pamela Kirby will not st and for re- ele ctio n to the Bo ard at our Annual Gen eral M eeting in Ap ril. Pam jo ined th e Board in 20 14 and as sume d the role of Re muner ation Com mit tee Chair in 2016. O n behalf o f the Bo ard, I extend o ur hear t felt ap preciati on to Pam for he r stead y and thoug htf ul couns el during he r tenure. Nina Henderson wil l tak e over a s Remuneration Commit te e Chair . Nina joine d the Bo ard in 2016 and will bring ex tensive exec utive managem ent and bo ard exper ience to thi s impor t ant role. Driving f uture grow th Hikma has thre e stro ng busine ss es, a n extensi ve produ ct p or t folio and a bro ad footp rint of high-q ualit y , exible m anufac tur ing facilit ies , all of which contr ibute to the goo d market posi tions we h old. We are now loo king to build on this , with a fo cus on incre asingly complex and sp ecialise d medicine s, and c apitalising on the gro wt h oppo r tunitie s that be st be net o ur customers and al l our stak eholders. Impor tantly , in 202 1, we made gre at strateg ic progre s s on this, wi th acquisit ions and bus iness development oppor tunities adding to the g row th potential. We have a str ateg y inplace w hich is deliver ing result s, as d emons trated byour stro ng nancial p er forman ce in 202 1, and Iloo kfor ward to keeping you up dated as we co ntinue to grow. 1. Retu rn on inv es ted c api tal is c al culate d as c ore op er ating p ro t aeri ntere st an d ta x divi ded b y inves ted c ap ital (c alcu late d as tota lequ it y plus n et de bt) 6 Hikma P harm ace uti ca ls PLC Annual Report 2021 Chief E xecutive O cer ’ s str ategic review W e hav e deliv ered another strong nancial pe r forma nce throu gh the su cces sf ul ex e cu tion ofo urst rat eg y , an d w e ar e i n ve sti ng f or t he f ut ur e . Siggi O lafsson Chief E xecutive O ce r The pa st year has b ee n one of continu ed prog res s forHikma. We have launche d impo r tant prod uct s acros s our mar kets, develop ed ourp or t folio and pipelin e and achieve dconsis tency an d reliabilit y of supply in a mar ket that has continue d to be impac ted by the pan demic. While deli vering for pat ients today , we have also invested fo r the fu ture, ensuring w e are well place d to continue to thr ive and deliver o n our purp ose over t he long term . Cruciall y , we are d oing this while a cting resp onsibly, making a posit ive impac t onthe communit ies in which w e oper ate as well asminimising our impac t on th e environment. St rategic progress In earl y 2018, I s et out s trategi c prior itie s for the Gro up – to deliver mo re from our fo undation, to buil d a por t folio t hat anticipates f uture he alth ne eds and to inspire and e nable our p eopl e. Since the n, we have made excellent pro gres s agains t all three p riori ties . Each of o ur busine ss es as we ll as our Gro up func tions are o n a stronge r footing today and we are well p laced a s we look tow ards our nex t chapter of grow th. Better health. Within reach. Every day . Deliver B u il d I n sp ir e Hik ma Ph arm ace utic al s PLC Annual Report 2021 7 STRATE GIC REPORT Our str ategy continues to d eliver good nancial results and we were please d to grow revenue 9% and core operating prot 1 2% in 202 1 Deliver more from a strong foundation Our KPIs: – C ore revenue – C ore op erating pro t – R eturn on inves ted c apital Build a por t foli o that anticip ates f uture h ealth ne eds Our KPIs: – C ore revenue fro m new pro duct s launche d Inspir e and enable our people Our KPIs: – Employee enablemen t – Employee engagemen t To nd out mo re se e ‘Ou r progr es s’ on pa ge 22 . Strong nancial per forman ce We grew Group reven ue 9% in 202 1, to $2,55 3 million and Gro up core op erating p rot was $ 6 32 million, an increas e of 12% o n 2020. This impre ss ive per for mance was als o ree cted in o ur cash ow, with cash ow from ope rating ac tivit ies up 3 8% to $6 3 8 million. We were able to inves t in acquisiti ons and bu sines s develop ment opp or tuniti es while als o maintaining astrong b alance sh eet, ex iting the year w ith gearing of0.6x net debt to core EB ITDA. Our Inje ct able s busine ss a chieved go od grow th in 202 1 acros s all our regi ons. T hanks to the brea dth of our po r tfo lio, extensi ve and exibl e manufa ctur ing fac ilities an d our resili ent supply chain, t his remains astrong , die rentiated busine s s. In the US , we continue to play a le ading role in sup plying ho spital s with the m edicin es they n eed an d are the se cond larges t supplie r of gener ic injec tabl es by volume, wi th our po r tfo lio of over 120 pro duct s. Sinc e Dec ember, wearealso sup plying ho spita ls with comp ound ed pharmaceutical pr oducts out of our new sterile comp ounding f acilit y in Day ton, New J ersey. We remain focu sed on h aving a por t folio t f or the fut ure, with ongoing n ew launche s, and are als o building our p or t folio and p ipeline thro ugh acqui sition and par tn ership, including li censing t wo new biosimilars for the US . We already have experienc e commercialising biosimilar s in MENA , where th ese p roduc ts contrib uted to our grow th in 20 21. We are s eeing goo dgrow th in Europe, as we in crease s upply of ourown pro duc ts, an d enter new markets , such asFranc e.We have also bene t ted from v aluable contract manufacturing opportunities, leveraging ourex tensive lyophilis ation c apaci ty in Po r tugal. Our G ener ics b usine ss has s een sig nic ant revenue grow th and marg in expansio n in recent year s. Since Ijoine d in Febr uar y 2018 , we have grown Gen eric s revenue at a CAGR of 6% and, throug h our continuo usfocus o n optimising our co st ba se and driving o per ating ecie ncies , our margins a re now som e ofthe highe st in th e industr y. While the US gener ic market remains highly c ompeti tive, as eviden ced byac celer ating pric e erosio n, we are demo nstr ating our abilit y to more t han os et comp etitive pre ss ures throu gh our stro ng comme rcial and man ufacturing capabilit ies and the successful executi on of our p ipeline. In 202 1, we adde d seven new p roduc ts to our G ener ic s por t folio, inc luding gene ric Advair D iskus® and o ur novel naloxone nasal spr ay , Klox xado™, an impor t ant new treatm ent for reversing th e eec ts of o pioid overdos e. The se t wo produ ct s are great exampl es ofthe mo re complex ge neric an d spe cialt y bra nded medi cines that we are p rior itising and pro ducing fromour s tate- of -the-ar t manuf ac turing f acilit y inColumb us, Ohi o. In our Br ande d busine ss , we have continued to streng t hen our mar ket position a cros s the regio n. Ours trateg y of tie ring the se markets – fo cusing investm ent in markets with th e highes t potential – is paying o, with t wo of our Ti er One mar kets – Algeria and Eg ypt – p er forming s trongly in 20 21, mo re than os et ting change s in the tender m arket in Saudi Arab ia during the ye ar . O ur busine s s in Algeria is b ene t ting from new p roduc t launch es and a ne w oral on colog y plant – the r st of it s kind in Alger ia. We are also s eeing goo d grow th in our othe r markets such as M oroc co, Jordan an d UAE. Par tne rships are of p ar ticular imp or tan ce to our Bra nded b usines s and we c ontinued to sig n new licensing a greem ents in 202 1, stre ng thening our pipelin e of innovative pro duc ts for our M ENA markets. We have also built on o ur in-house R &D eor t s and ourpip eline of our own b rande d gene ric s. To nd out mo re se e ‘B usine s s and nan cial rev iew ’ onpa ges 24 to 3 4 . 8 Hikm a Phar mac eu tic als PLC Annual Repor t 2021 Chief E xecutive O cer ’ s s trategic review conti nued Investing in new te chnolo gies andcapabilities In 202 1, we continue d to expand our m anufac turing cap acit y and enha nce exis ting facili ties to s tay at the forefront of man ufac turing excell ence. We inves ted in new lling lines, exp anded wareh ousing and enhance d cap abilitie s acros s our op erati onal footp rint. We also invested in a n ew fac ilit y in Dayton, N ew Jer sey which will car r y out s terile comp ounding a ctiv ities fo r our Injec tab les bu sines s. W ith this new f acilit y , our fo cus on qualit y and o ur deep re lationship s with hos pitals in the US, we w ill be able to s atisf y a grow ing nee d for ready-to-adminis ter formats o f medicin es. Utilising our balance she et We are deploying o ur balanc e sheet to buil d our grow th pros pec ts . In 202 1 we announc ed the acquisi tion of Cus topharm, w hich will expand o ur por t folio o f marketed produ ct s, bring p romising new pipelin e oppo r tunitie s, and exp and our R& D cap abilitie s. Pos t year -e nd, we announ ced our expansi on into Canada w ith the ac quisition of T elige nt ’s Canadian as set s. Our te ams will continue to as ses s opp or tunit ies as th ey arise to en sure we are depl oying our cap ital in line wi th our str ateg y and deliverin g long- term value to our sh areholders. Building our culture of progress andbel onging Hikma is an inclu sive place to wo rk, und erpinne d by our stro ng culture of p rogres s and b elong ing and our value s: innovative, caring and collab orative. Throug hout 20 21, we wor ked to reinforce our valu es and ensure t hey are ree cted in o ur str ateg y , pr ac tice s and po licies . Shaping our c ulture and e quipping our pe ople wit h the right to ols to be at their b es t continue s to be of abs olute imp or tanc e. T o this en d, we evolved our Dive rsit y , Equit y and Inclu sion Com mit tee, which suppo r ts diver sit y and inclusi on initiative s, such as ournew emp loyee re source g roups pro gramm e, andcontinu ed to invest in up skilling our pe ople through a num ber of hybr id learning a nd developmen tprogrammes. In a year whe n our pe ople co ntinued to adapt an d stepp ed up to keep our b usines s op erati onal, our strong c ulture enab led us to b e resilient , per for m at our be st an d provide d us with the o ppor t unit y to explore n ew ways of work ing together b oth internally and with o ur par tner s and cus tomer s. Y o u can nd m ore informati on on how we tr ain and retain the b es t tale nt in the ‘ Acting re spo nsibly ’ se ctio n of this rep or t on page 4 2. Strategic priorities Adding diere ntiated produc ts throughR& DandBD As we lo ok ahe ad, we are building a di erentiated por t folio t hat anticipates f uture he alth ne eds. T his ambitio n is being re alised a s we add comp lex and spe cialt y pro duct s to our por t foli o and pipe line and isfunda mental to ensur ing we continue to gro w . Our R& D eor ts are f ocus se d on develop ing produ cts where th ere is a patient n eed. I n 2021, we s pent 6% of revenue on R& D, in line with our ta rget of 6 % to 7% . We also s treng then ed our R& D cap abilitie s, expan ding our R&D net wor k with the d evelopm ent of a new site for compl ex injec table s in Warren, N ew Jers ey , and we will be ad ding R&D c apabilitie s throug h the acqui sition of Custophar m 1 , the gen eric inje ct ables b usine ss . Par tne rships are integr al to Hikma’s str ateg y . In 202 1, we entered into new p ar tners hips and built o n existing one s in each of our b usine ss es. S ome of the se opp or tunitie s will contr ibute in the ne ar term, while other s will help to drive f uture grow th. T he biosimilar deals we si gned wi th Bio - The ra and G ed eon Richter will enable u s to bring impo r tant comp lex injec tabl e medi cines to the U S in the medium ter m. Par tnerships are integra l to Hikma’ s strateg y . 2021 saw continue d moment um as we entered into n ew partnerships and built on existing ones in each of our businesses Selec ted dea ls signed in 202 1: April AF T Pharmaceuticals for Comb oges ic® IV in t he US Melinta Therapeutics for V abomere® and Or bac tiv ® in MEN A August Bio- Ther a Sol utions f or uste kinumab (biosimi lar to Stelar a® ) inthe US September FAES Farma for B ilastin e tab lets int he US November Almirall fo r Finjuve™ in MEN A December Gedeon Richter for deno sumab (bio similar s to Prolia® and X geva®) inthe US 1. Subje c t to FTC ap prov al Hik ma Ph arm ace utic al s PLC Annual Report 2021 9 STRATE GIC REPORT 0. 6 x Net debt to EBITDA We hav e a dut y toact res ponsibly: for our pe ople, patients, communities and the planet Long- term , sus taina ble gr ow th By execu ting on R&D, es tabli shing strong p ar tner ships, expanding o ur spe cialt y por t foli o and building our comp ounding bus ines s, we will f ur ther diver sif y and tran sform o ur busine ss in ord er to achieve the n ext phas e of grow th. As we do t his, we mus t also en sure we are oper ating resp onsibly in all a spe ct s of what we do. We have identi ed four fo cus area s where we c an drive po sitive impac t: advancing he alth and wellbeing , empower ing our pe ople, p rotecting t he environment an d we building tr ust thro ugh qualit y in ever y thing we do. We have a respon sibilit y for our cu stomer s and their patient s, who rel y on our impo r tant me dicines eve r y day . O ur mis sion to adv ance heal th and wellb eing also applie s to the bro ader wellb eing of the co mmunitie s in which we op erate and i t exten ds to ensuring that o ur own pe ople are e mpowere d by an inclusive cul ture where ever yon e can thr ive. We are commit ted to prote cting th e environment , areas ses sing our e nvironmental imp act an d under stan ding how we c an minimise it. I a m ver y plea sed th at the Boa rd has approved a n ew target to reduc e our gree nhous e gas emis sions by 25%by 203 0, compa red to a 2020 ba seline. Conclusion 202 1 has be en anothe r year of grow th for Hikm a, as well as on e of advanc ing our fut ure ambition . With our expansi on into compo unding and se curing a f uture entr y into the US bio similar market, we are continuing to ensure we remain a top Inj ec table s busine s s in the US, whils t also exp anding our pre sen ce in Europe and MENA . For our G ene ric s busine ss , we are taking s trid es for ward in die rentiating our p or t folio, with sp ecialt y, marketed pro duct s such as Kl oxxa do™ , and com plex gener ic s such as gen eric Adv air Diskus®. Our Br ande d busine ss c ontinue s to deliver con sistent grow th, levera ging our well- es tablish ed pre senc e, reput ation and exp er tise in th e MENA regio n. I am excited abo ut how f ar we have come in the p ast few years , and by the op por tuni ties we have for th e fut ure, as we continue to pu t bet ter hea lth within rea ch in 202 2 and beyon d. How we are ac ting responsibl y Advancing health an d wellbeing Empowering our p eople Protecting the environment Building trust throu gh qualit y inevery thing we do To nd out mo re se e ‘ Ac ting re spo nsibl y’ on pa ges 3 7 to 49 . 10 Hik ma Ph arm ace utic al s PLC Annual Report 2021 In ve stment case A stro ng busine ss mo de l w ith s igni c ant opp or tu nities t o fu r th er e nh anc e ou r port fo li o to d riv e g ro w t h an d deliv er value for shareholders. Solid plat form for grow th – B road p or t folio of over 670 high-qualit y p roduc ts acro ss threeb usines se s – A gile supp ly chain, exib le manuf act uring and lea ding technic alcap abilitie s – Le ading supplie r of both gen eric inje ct able and n on-injec tabl e produ ct s in the US, th e larges t pharmac eutic al market glob ally – Le ading market posi tion in MENA (4th larges t pharm aceuti cal compa ny by sales) and a growing pre sen ce in Europe – T rus ted par tn er known fo r our commit ment to qualit y and reliab ility of suppl y Revenue by segment Injectables ...... .... $1,053m Gene r ics ................. $820m Bran d ed .................. $669 m Othe r ........................... $11m Revenue by geography U S ................................. 59% MENA............................ 33% Europe & ROW.............. 8% Increasingly diverse por t folio andpipeline – G rowing pre senc e in under ser ved, ni che areas w ith an increa sed focus o n spe cialt y and comp lex prod uct s, which o er le ss comp etition an d potential for f ur ther margin g row th – D eveloping p or t folio of bi osimilars for t he US market – F ocus on hi gher- value t hera peuti c areas such a s respir ator y , CNS and oncology – C ontinue d investme nt in R&D, new par tne rships , str ategic acquisi tions and ge ogr aphic exp ansion into cer t ain markets 7 R&D cent res 6% R&D s pen d as % of reven ue 28 0+ produ cts in o ur pipeline 19+ products added in 2021 thr ough business developmen t E xcellent nancial disciplin e with astr ong b alan ce sh eet and robu st cash generati on – G oo d ca sh ow gene ration, w ith $6 3 8 million ope rating c ash ow in 202 1 and low lever age of 0.6x net debt /core EBITDA 2 – Disciplined approach to cash man agement a nd acquisi tions – Strong b alance sh eet that provi des nan cial exibilit y to supp or t fut ure grow th $6 3 8 m operating cash ow 2 5% operating cash ow /r evenue Pro ven track record of deliv eringvalue forshareholders andac lea r vi sio n forg ro w th – G roup revenue C AGR 1 of 7% and c ore EBITDA 2 CAGR of 10% since20 18 – TSR 3 of 313 % over the las t ten years – Pro gres sively in creasing div idend 7% Gro up revenu e grow th at ath ree-ye ar CAG R 3 13% TSR over t he las t ten year s 1 Comp oun d annua l grow th r ate (CAG R) is a me asur e of me an annu al ret urn 2 C ore E BIT DA is ear ning s befo re inte res t, t ax, d epr eci atio n, amo r tis atio n, as set s wri te- down a nd imp airm ent ch arge s/reve rsa ls. EB IT DA is a non -IFR S mea sure , se epag e34 f or a re conc iliat ion to r epo r ted IF RS re sult s 3 Total sh areh old er ret urn ( TSR) is t he pe r for manc e of Hik ma sha res in clu ding dividendspaid Hik ma Ph arm ace utic al s PLC Annual Report 2021 11 STRATE GIC REPORT Solid plat form for grow th – B road p or t folio of over 670 high-qualit y p roduc ts acro ss threeb usines se s – A gile supp ly chain, exib le manuf act uring and lea ding technic alcap abilitie s – Le ading supplie r of both gen eric inje ct able and n on-injec tabl e produ ct s in the US, th e larges t pharmac eutic al market glob ally – Le ading market posi tion in MENA (4th larges t pharm aceuti cal compa ny by sales) and a growing pre sen ce in Europe – T rus ted par tn er known fo r our commit ment to qualit y and reliab ility of suppl y Revenue by segment Injectables ...... .... $1,053m Gene r ics ................. $820m Bran d ed .................. $669 m Othe r ........................... $11m Revenue by geography U S ................................. 59% MENA............................ 33% Europe & ROW.............. 8% Increasingly diverse por t folio andpipeline – G rowing pre senc e in under ser ved, ni che areas w ith an increa sed focus o n spe cialt y and comp lex prod uct s, which o er le ss comp etition an d potential for f ur ther margin g row th – D eveloping p or t folio of bi osimilars for t he US market – F ocus on hi gher- value t hera peuti c areas such a s respir ator y , CNS and oncology – C ontinue d investme nt in R&D, new par tne rships , str ategic acquisi tions and ge ogr aphic exp ansion into cer t ain markets 7 R&D cent res 6% R&D s pen d as % of reven ue 28 0+ produ cts in o ur pipeline 19+ products added in 2021 thr ough business developmen t E xcellent nancial disciplin e with astr ong b alan ce sh eet and robu st cash generati on – G oo d ca sh ow gene ration, w ith $6 3 8 million ope rating c ash ow in 202 1 and low lever age of 0.6x net debt /core EBITDA 2 – Disciplined approach to cash man agement a nd acquisi tions – Strong b alance sh eet that provi des nan cial exibilit y to supp or t fut ure grow th $6 3 8 m operating cash ow 2 5% operating cash ow /r evenue Pro ven track record of deliv eringvalue forshareholders andac lea r vi sio n forg ro w th – G roup revenue C AGR 1 of 7% and c ore EBITDA 2 CAGR of 10% since20 18 – TSR 3 of 313 % over the las t ten years – Pro gres sively in creasing div idend 7% Gro up revenu e grow th at ath ree-ye ar CAG R 3 13% TSR over t he las t ten year s 1 Comp oun d annua l grow th r ate (CAG R) is a me asur e of me an annu al ret urn 2 C ore E BIT DA is ear ning s befo re inte res t, t ax, d epr eci atio n, amo r tis atio n, as set s wri te- down a nd imp airm ent ch arge s/reve rsa ls. EB IT DA is a non -IFR S mea sure , se epag e34 f or a re conc iliat ion to r epo r ted IF RS re sult s 3 Total sh areh old er ret urn ( TSR) is t he pe r for manc e of Hik ma sha res in clu ding dividendspaid Hikma i s focu sed on delivering grow th over the long term 12 Hik ma Ph arm ace utic al s PLC Annual Report 2021 S tak eholder engag ement At Hikma, we are committe d to ac ting in the best interest o f all our stakeholders Stak ehol ders and the Board The B oard of Hikma c onsider s its du ties to shareho lders an d the wid er communit y at eachB oard and C ommit tee me eting and is par tic ularly aware of it s dut y to prom ote the succe s s of the Gro up for the b enet of all i ts st akeholders . Over t he nex t few page s we set out how w e engage wit h our key stakeholde rs and build consideration of stak eholder is sues into our decis ion making , in accord ance with Sec tion 1 72 of the C ompanie s Act 20 06. T he Board i s resp onsible fo r the entire Annual Rep or t and, the refore, direc ts rea ders to the following p ages in relat ion to the st akeholder and non-stak eholder elements of its duty to promote th e succe ss of t he Group: – likely co nseq uence s of any decisi on in the long term : the strategic overview on pages 4to9 – t he impac t of the G roup’s oper ations o n the environment : the Act ing resp onsibly s ec tion on page s4 4 to 47 – t he aim of the Gro up to maintain a reput ation for high s tandards o f busine ss co nduc t: the se ction s of the st rategic re por t relate d to produ ct quali ty an d safet y on pa ge 61 and theCo mpliance, Re spo nsibilit y and Ethic s Commit te e repor t o n page s 87 to 88 – t he nee d to act f airly as b et ween m ember s of the Gro up: the corp orate gover nance rep or t on page s 66 to 114 Stron g engagement with all ou r stakeholders is ke y todriving th e long-term sust ainable gro wt h of our busine ss . It allows us to b et ter under stan d their nee dsand infor ms our day-to-day comme rcial and operational decisions, as well as our long- term investm ents in our bu sines s and our p eop le. Develo ping stron g relationship s with our s takehold ers has never b een mo re impor t ant, par tic ularly durin g the uncer t ainty c ause d by the COVID -1 9 pan demic. O ur teams have worked hard to s tay conne cte d to all of ourst akeholder s, inclu ding the patie nts who us e our medi cines , health care profe s sionals , our custom ers , our empl oyees an d the wide r communit y . For more than 4 0 ye ars, we ha v e transformed people’ s lives by mak ing high- qu alit y me dicin es mor e ac c ess i ble to th e pa ti en ts th at n eed t hem. Patients and hea lthcare professionals Customers Employ ees re fer to Acting responsibly pag e 37 Comm unities re fer to Acting responsibly pag e 37 Government and regulators Suppliers Investors re fer to Investment case p age 10 Hik ma Ph arm ace utic al s PLC Annual Report 2021 13 STRATE GIC REPORT 6% of revenu e spent o n core R &D to impr ove access to high- quality, aordable medicine s Why is it import ant to engage with this group and what d o they expect fr om us ? Pati ents an d HCPs n ee d us to: – con sis tently p rovide a b road p or t foli o of pro duc ts – impr ove acce s s to high- quali ty, aorda ble me dicin es It is e ss ential t hat we alig n our co mmerc ial ac tivi tie s, ope rati ons an d R&D e or ts to t he chan ging ne eds o f patie nts and HCPs. How we engage across the G roup – Ou r comm ercial te ams me et reg ularl y with d oc tors an d hos pita l clinici ans to be tte r unde rst and t heir ne ed s and keep th em infor med a bou t our pr oduc ts – In MEN A, w e run reg ular fo rums b ring ing toget her key opini on le ader s, do cto rs an d glob al res earc h inst itute s to share k nowl edge an d rai se awar ene ss of h ealt hc are tren ds and diseas e management – We me et with p atie nt advo cac y gro ups for d ise ase s such asmult iple s cler osis , card iovas cular d isea se an d diabe tes How we engage at Boa rd level – Th e Boar d rece ives r egula r repo r ts fr om the Ch ief E xecut ive O cer wh ich inc lude fe edb ack f rom pat ients a nd healthc are profes sionals – Th e Comp lianc e, Res pon sibilit y an d Ethic s Co mmit tee i s res pon sible fo r direc t over sight of t he Gr oup’s app roac h to ethic al is sue s as so ciate d with H CPs – Ou r manage ment te ams pre se nt to the Bo ard at le ast o nce per ye ar, providing up date s on the n ee ds of pati ents a nd heal thc are prov ide rs acro ss o ur mar kets Outcom es and ac tions – La unche d Rea gila® in M ENA thro ugh ou r par tne rshi p withG ed eon R ichter, the rs t pro duc t in the re gion t hat is proven to a ddre ss b oth p osit ive and n egati ve sympto ms ofschizophrenia – Launched Kloxxado TM ( naloxone hydrochloride) nasal spr ay8mg in t he US, an i mpor t ant tre atment f or rever sing opio id overdo se – In MEN A, w e regul arly up date HC Ps wit h the mo st re cent stu die s and pro duc t infor matio n. In 20 21, we re turn ed to in-per son me etings – Es tab lishe d a com poun ding bu sine ss in t he US to ll a market ne ed an d provi de rea dy-to-adm iniste r drug pro duc ts whi ch help im prove th e spe ed an d safet y of patient care Patients and healthca reprofes sionals Our p urp ose i s to put b et ter he alth w ithin r eac h, ever y day for healthcare professionals (HCPs) and their pati ent s. We en gage wi th do cto rs , clinic ians a nd pharmacists to bet ter u nderstand their needs, helping them treat the patien ts they serve. Why is it import ant to engage with this group and what d o they expect fr om us ? Our e mploye es ex pe ct us to: – suppor t them and provide development and growth oppor tunities – prote ct t heir he alth a nd saf ety – fos ter a dive rs e and inc lusive c ulture The p as sion an d commi tme nt of our p eop le to our p urpo se and va lue s is key to delive ring ou r bra nd prom ise an d supp or ts o ur grow t h plans . One o f our key str ategi c pri orit ies is to buil d a cult ure that in spire s and en able s our p eop le, on e in whic h they are e mpow ered to dr ive inn ovatio n and are comm it ted to c aring f or cus tome rs, p atient s and c ommuni tie s around t he world. How we engage across the G roup – We oer learni ng and dev elopment opportunities for our pe ople . Hikma Ac ad emy ser ve s as a tr aining h ub throu gh which w e can c oord inate and o ptimis e lear ning and development activities – Ou r Group -wid e prin cipl es for e nsur ing emp loyee h ealt h and s afet y are ou tline d in our G roup Envir onme ntal, H ealth and S afet y Polic y State ment. We a lso have lo ca l poli cie s and procedures in place – We con duc t regu lar emp loyee s ur veys and u se this fee dba ck to improve o ur pe rf orma nce and c ultu re – We have an ac tive inte rnal c ommuni cati ons pr ogr amme to keep emp loye es en gage d and info rme d on Gr oup st rateg y, progress and dev elopment – We es tab lishe d the D iver sit y, Equity a nd Incl usion Com mit tee to c ontinue to c reate a cul ture wh ere ever yo ne feels they belong How we engage at Boa rd level – Nina Henderson has Board level responsibility for employee engagement. She repor ts on employ ee issues as required durin g Boa rd or Co mmit tee b usine s s. A rep or t on h er ac tivi tie s is inclu ded o n page 67 – Th e Boar d rece ives r egula r repo r ts on c ommuni cati ons activitie s with employ ee s, the bi- annual employee enga geme nt sur vey and eve nts or f ee dback t hat are rep or ted by t he Chief E xec utive O c er Outcom es and ac tions – Ho ste d a vir tual g lob al lea der ship co nferen ce for t he top160 H ikma le ade rs – Es tab lishe d a Div ersi ty, Equit y and In clusi on Com mit tee,w hich is c ompr ise d of memb er s from theE xecu tive C ommit te e – Es tab lishe d gui delin es to cre ate Employe e Re sou rce Gro ups (ERG s) – Launched a new leadersh ip programme designed to improve l ead ersh ip ee cti vene ss an d cap abili tie s for our people managers, thereby strengthening employee enablement a nd increasing engagement. With 1 50 people manag ers th rough t his pro gra mme in 20 21, it w ill be ro lle d out an nually to c over all t arget em ploye es Em p loye e s Our e mpl oyee s have alw ays be en at th e hear t ofever y th ing we do. A s th e driv ing for ce be hind Hikm a’sgrow th a nd su cce ss , our p eop le are o ur mos tval uabl e as set . 14 Hi kma Ph arm ace uti ca ls PLC Annual Report 2021 Stak eholder engagemen t conti nued Why is it import ant to engage with this group and what d o they expect fr om us ? Cus tomer s ne ed us to: – oe r a broa d pro duc t por t fo lio – have a co nsis tent and re liabl e suppl y of me dicine s – maintain ser vice levels Our c omme rcial tea ms wor k clos ely w ith our d iere nt cus tomer s to und ers tand t heir n eed s, re duce dr ug sh or tag es and en sure we inve st in th e pro duc ts, m anuf act uring c ap acit y and c apab ilitie s ne ede d to me et the ir requi rement s. How we engage across the G roup – We have com merci al, sal es an d marketin g teams d edic ated to our va rie d cus tomer g roup s in the US , MENA , and Euro pe – Our customer discussions in form our pipeline decisions, in an eo r t to bring t hem th e pro duc ts mo st in ne ed How we engage at Boa rd level – Co mmerc ial lea ds pre se nt to the B oard at le ast o nce ayearp roviding u pdate s on our c usto mer re lation ships andho w we are me eting c usto mer ne ed s – As p ar t of it s str ateg ic revie w proc es s, th e Bo ard reviewsi nformation on the generic pharmaceutical customer lands cape – Th e Boar d per iodi call y rec eive s indus tr y up dates f rom leading external profe ssional gro ups Outcom es and ac tions – La unche d 172 p rod uct s acro ss o ur market s – Co ntinue d to wor k clos ely wi th our c usto mers tounde rs tandt heir ne ed s Customers Our c ust omer s are o ur bus ines s pa r tner s and we a re committed to pro viding them with a con sistent and reli able s upp ly of hig h-qu alit y me dici nes . We work closely with Group Purchasing Organisations ( GPO s ), hospitals, health care professio nals, retailers, wholesalers and others to build strong relationshi ps anden hance service levels. 172 Produ ct s laun ched acros s our mar kets Deliveri ng for our customers When o ur custom ers ne ed us , we’re right there within rea ch – ready to re act quic kly and collab orative ly to meet th eir nee ds. By b eing highly re spon sive, anticipating ne eds an d infusing ever y interacti on with profes sionalism and res pec t, we are c reating stro ng and last ing par tne rships that b ene t ever yone – es pec ially the ho spitals , doc tors an d patients w ho rely on our me dicine s. Our cus tomer s can tr uly lean o n us for high-qu alit y medic ines and excell ent ser vi ce. This has b een e spe cially tr ue during the challeng es of the global pandem ic where we continue d toprovide uninterr upted acc es s tourgently ne ede d medic ines for t reating COVID-19 and many other me dical c onditio ns. We recentl y launche d a new marketing camp aign acros s US tr ade and s ocial m edia channels to dis tinguish Hik ma by illustr ating how cus tomer s can “ Lean on Us” at all time s for our unwavering co mmitment to the m and the patient s they ser ve. U ltimately , our commi tment and pas sion fo r the greater go od will al ways be what drive s us for ward. Hik ma Ph arm ace utic al s PLC Annual Report 2021 15 STRATE GIC REPORT Why is it import ant to engage with this group and what d o they expect fr om us ? Our c ommuni tie s value o ur eo r ts to: – impr ove heal thc are qual it y and ac ces s to me dicin es – streng then educational infrastruc tures – sup por t lo c al comm unitie s and p eo ple in ne ed – minimise o ur environmenta l impact Since i ts in cepti on, Hikm a has b een d edic ated to tra nsfo rmingp eo ple’s li ves by pro viding t he me dicine s the y nee d and s uppo r ting th e commu nitie s whe re we live an d wor k.Mak ing po sitive c ontr ibuti ons to th e comm unitie s whe rewe op erate, a nd prov iding as sis tan ce to tho se in ne ed , supp or ts o ur lon g-term, su sta inable g row th, wh ile po siti vely impac ting so ciet y . We also s tri ve to minimis e our env ironme ntal imp ac ts an d are committed to maki ng our operations more energy ecient. How we engage across the G roup – We have deve lop ed co llabo rati ve par tn ers hips and prog ramm es to p romote p osi tive cha nge and a ddre ss th e nee ds of o ur comm unitie s. T he se init iative s inclu de incre asing a cce ss to m edi cine, sup por t ing edu cat ion an d as sist ing ref ugee s and l ow-inc ome gr oups – We have an inter nal cro ss-f unc tiona l work ing gro up who me et on a reg ular ba sis to pro gre ss o ur unde rst andin g on climate -relate d risk s and op por t uniti es and a re work ing to achi eve our gre enh ous e gas emi ssi ons re duc tion t arget How we engage at Boa rd level – Th e Boar d of Dire cto rs have over archin g overs ight of our ESG s trate gy – Ou r Exe cutiv e Vice Pr esi dent of B usine ss O pe rati ons, w ho rep or ts dir ec tly into ou r CEO, lead s our ESG r epo rt ing as well as o ur inter nal cro ss-f unct ional w orki ng grou p integr ating TCFD into o ur busi nes s. M ore info rmati on on ou r sus tainab ilit y eo r ts c an be fo und on p age 3 6 to 52 and on our co rp orate g overnan ce and o ur mana geme nt of ESG is sue s on pag e 67 Outcom es and ac tions – As p ar t of Hik ma’s Blac k Employe e Adv isor y B oard ’s community outreach for underser ved and unde rrep res ented c ommuni tie s, th e team laun che d a programme to develop STE M ( Science, T echnology, Engin eer ing and M ath) talent in p rimar y s cho ols in th e US – Do nated 5 0,00 0 dos es of in jec tab le naloxon e to help expa nd non -pro t acc es s to a life- saving t reatm ent for revers ing opio id overdo se s – Es tab lishe d a tar get to red uce ou r Sco pe 1 and 2 gre enho use ga s emis sio ns by 25% by 203 0, usin g a 2020 base line year Comm unities an d envi ronment Our v isio n is to cre ate a he althi er wor ld tha t enri che s all our communities by developing high -quality medicines and making them accessible to those who need them. We are a respo nsible and sustainable company andhav e a dut y of c are tow ards o ur co mmuni ties andt he environmen t. $ 3. 2 million o f medicin es donate d in 20 21 Empl oy ees caring f or our comm unities Our emp loyees c are de eply ab out he lping pe ople, thro ugh our me dicine s and throug h communit y en gagement to he lp thos e in nee d.Acros s our lo catio ns Hikma emp loyees volunteer to help t heir neighb ours in ma ny ways– by raising m oney , donating fo od and medi cines , and supp or ting edu cation ini tiatives . Throug h our Black Emp loyee s Adviso r y Board in the US, we l aunched a p ilot progr amme in 20 21 to introduce S TEM educ ation to young s tude nts in under ser ved c ommunitie s. ST EM stan ds for science, tech nolog y , engineering and ma th educ ation, dis cipline s and skills vi tal to workforce developmen t and hi gher earning care er opp or tuniti es. I n the US, wom en and minori ties are o en underre pres ented in STEM-rel ated jobs . Student s who pa r ticipate d in Hikma’s 12-week STEM prog ramme l earne d how to de sign, build and y th eir own ele ctr ic drone s. T e acher s helpe d the s tudent s develop n ew technic al and probl em-solv ing skills. T he progr amme als o helped students t o build con dence and explore n ew opp or tunitie s for pe rso nal grow th. Student s and their pare nts had high p rais e for the programme . Plans are unde r way to expand Hikma’s STEM programme to underser ved neighbourhoods in sever al Ohio and N ew Jer sey communi ties wi th Hikma f aciliti es. 16 Hik ma Pha rma ceu tic als P LC Annual Repor t 2021 Stak eholder engagemen t conti nued Why is it import ant to engage with this group and what d o they expect fr om us ? Our su pplie rs wa nt us to: – uphold high ethic al standards – op erate i n a resp ons ible an d sust ainab le mann er – work collaboratively t o build stron g relationsh ips Our su pplie rs are c riti cal to o ur busi nes s, an d thei r prod uct s and exp er ti se sup por t us i n the de liver y of hi gh-q ualit y me dicine s to pati ents a round t he wor ld. Wor king tog ether a nd buil ding st rong rel ation ships n ot only en able s us to de liver on our br and p romis e but i t also e nsure s we have a sus tain able and re silie nt suppl y chain. Op erat ing res pon sibly a nd ethi call y is vit al to our lo ng-term succ es s, an d we wor k with o ur supp lier s to ensur e the so cial and eth ica l sta ndards w e requi re are uph eld. How we engage across the G roup – We con duc t quali ty a udit s pri or to on-b oardi ng any new API supp lier an d on a reg ular ba sis for o ur curr ent supp lier b ase – We ask o ur supp lier s to commi t to upho lding th e prin cipl es of our C ode o f Con duc t, inc luding f undam enta l sta ndards on huma n right s and mo der n slaver y – We con duc t initia l and p erio dic du e diligen ce to as se s s third-par t y risks – We are me asur ing and re por t ing on th e gree nhou se ga s (GHG ) emissions originat ing from our supplier base – We have st ar ted to m easu re the su sta inabili ty p rol e of our supplier base How we engage at Boa rd level – Th e Boar d rece ives u pdate s on sup plier i ssu es a s par t ofit sreview o f ope rati onal mat ter s, su ch as co nsid erat ion ofAPI su pply re st ric tion s res ulting f rom pan demi c- relate ddisr uptio n – Th e Boar d overs ee s the G roup’s r isk pro gra mme and rec eive s repo r ts on re leva nt iss ues , which i nclud e a spe ci c prin cipal r isk fo r API and t hird-pa r ty r isk man agem ent – Th e Comp lianc e, Res pon sibilit y an d Ethic s Co mmit tee i s res pon sible fo r direc t over sight of t he Gr oup’s app roac h to ethic al is sue s as so ciate d with sup plie rs Outcom es and ac tions – Ou r long-ter m relati onship s with o ur sup plier s have allow ed us to ens ure cont inuit y of sup ply to o ur cus tomer s duri ng the CO VID-19 pandem ic – 96% of our sup plie r bas e has be en as se s se d as par t of o ur third-par t y risk managem ent – Star te d mea surin g GHG e mis sion s orig inating f rom our supp lier b ase, wh ich is re por te d on pa ge 46 – Init iated a c ollab orat ion wi th EcoVadis, a le ade r in sus tainab ilit y ra tings , to ass es s our m ain supp lier s Suppliers We have an ex ten sive gl oba l net wor k of sup plie rs wh o prov ide us w ith th e pro duc ts n ee ded f or us to de live r our m edic ine s. We ac tive ly en gage w ith ou r supp lier s toens ure th e soc ial an d ethic al s tan dard s we req uire are upheld. 32 Manufacturing plants Why is it import ant to engage with this group and what d o they expect fr om us ? Our re gulato rs exp ec t us to: – adhere to reg ulatory re quirements – maintain high- qualit y manuf act uring fa cilities – prov ide s afe and e ec tive m edici nes Qu alit y is in ever y t hing we do an d has b een s ince ou r ince ption . We nee d to ensu re that our q ualit y sy stem s ope rate in full c ompli ance w ith the r equir ement s of inter nation al agen cie s as well a s dome st ic reg ulator y b odie s. How we engage across the G roup – We have st rong inter nal reg ulator y an d quali ty te ams wh o ensu re our qua lit y sys tems op er ate in full c ompl iance w ith the re gulator y r equire ment s of the F DA, th e EMA , MENA heal th aut hori tie s and oth er reg ulator y ag encie s acr os s ourmar kets – We wor k clos ely w ith lo cal g overnm ents a nd reg ulator y bo die s to ensure c urrent a nd pro pos ed re gulati ons an d policies suppor t patients’ needs and our operations How we engage at Boa rd level – Th e Boar d rece ives r egula r repo r ts on re latio ns wit h regulators, par ticular ly from a manufact uring quality and pro duc t approv al pe rsp ec tive, an d rec eive s an upda te on leg al mat ters at e ach m eetin g – Th e Boar d overs ee s the G roup’s r isk pro gra mme and rec eive s repo r ts on re leva nt iss ues , which i nclud e spe ci c prin cipal r isks c overing p rod uct q ualit y and s afet y an d lega l, regu lator y and inte lle ctu al prop er t y Outcom es and ac tions – Enga ged re gular ly wit h the di erent re gulato r y bod ies andhave a s trong q ualit y tr ack re cor d – Supp or te d the FDA in th eir tr aining e or ts by h ost ing avir tu al tra ining se s sion at ou r Colu mbus si te for over 50pa r ticip ants – Enga ged wi th the F DA Drug S hor ta ge O ce to pa r tner o n long-te rm so lutio ns for a ddre ssin g US dru g shor t age s – Enga ged on p oli cy and l egis lative c onsul tati on as a me mbe r of the A s soc iation o f Acce s sible M edi cine s Govern ment and regulator s Our i ndus tr y is hig hly-re gulat ed an d we mus t ope rate inacc ord ance w ith a wi de ra nge of in dus tr y and government policies and regulations including those ofthe U S Foo d and D ru g Adminis tr atio n (FDA), the Europ ean M edi cine s Age nc y (EMA), ME NA he alth authorities and other regulat ory agencies across ourma rkets . Hik ma Ph arm ace utic al s PLC Annual Report 2021 17 STRATE GIC REPORT Why is it import ant to engage with this group and what d o they expect fr om us ? Our inve stor s want u s to: – del iver sus tai nable l ong-term v alue – ee ct ively c ommuni cate o ur long-te rm st rateg y, nancial and operational performance and gro w th driv ers – me et indu str y an d glob al st anda rds for go od e nvironm ental, so cial and g overna nce (ESG) pr ac tic es We ensur e our inves tor s have an in-d epth un der sta nding of our op er ation s, nan cial p er for mance , grow th dr iver s and ESG eor t s. T he Bo ard re ceive s reg ular up dates an d fee dba ck on the se ac tiv itie s. T his hel ps ens ure that th e view s of our inves tors ar e cons idere d in the B oard ’s dec ision -makin g. How we engage across the G roup – We maint ain reg ular co ntac t with o ur share hol der s throug h a comprehensiv e inv estor relations ( IR) pr ogramme of conferences, roadshows and meetings – We mai ntain r egular dia logue with our debt holders and rating agencies – We com munic ate our s trate g y and nan cial p er for mance through regular nancial repor ting and investor events, sucha s the An nual G ener al Me eting (AG M) – A tar geted ex ter nal co mmunic atio ns pro gram me ens ures we are info rming key aud ienc es on o ur str ateg ic prog res s and imp ac t on our c ommuni tie s How we engage at Boa rd level – Th e Boar d rece ives r egula r update s on th e IR pro gra mme, inclu ding inve stor fe edb ack f rom the AG M, IR m eetin gs and inv estor perception studies – Th e Exe cuti ve Dire ctor s are info rme d of inves tor engagement activities on a regular basis – Th e Non- Exe cuti ve Dire cto rs make the mse lves av ailabl e tome et with inve stor s as re quire d in the co nduc t of thei rresp onsi biliti es (eg as Cha ir of a comm it tee) and areavail able to sh areho lder s at the AG M to answe r relate dque sti ons Outcom es and ac tions – We maint aine d regul ar cont ac t with o ur analys ts a nd inves tors to g ive bus ines s up dates . We at tende d 14 confe renc es an d met wi th 136 i nvesto rs in 20 21 – We ho sted a s eri es of m eet th e manag ement v ir tual eve nts to incre ase a cce ss to o ur se nior le ade rship te am for th e inv estment community Inve s to rs We maint ain re gula r cont ac t wit h inves tors to e nsur e they h ave a stro ng un ders ta nding o f our b usine ss . Ou r investors are largely global institutions and include both equity and debt holders. 14 Inve stor conferences attended In 2021, we ho sted a se rie s ofmeet the management events to s howcas e o ur thre e busin ess segm ents 18 Hikm a Pha rma ceu tic als PLC Annual Repor t 2021 202 6 202 1 $99 $82 Global context The gl obal phar maceu tical ma rket continued to grow in 20 21. Th e soc ial, demo graphi c and eco nomic dy namic s within the p harmace utic al industr y are changing r apidly. The pandemi c has prompte d an accel eratio n in many of the key trends sh aping the indus tr y , creating op por tuni ties fo r generi c pharma ceutic al compa nies. T he ne ed for mo re aordabl e health care so lution s is driving an inc rease in gener ic pen etratio n – the glob al gener ic pre scriptio n market is forec ast to grow at a CAGR ofaroun d 3.8 % over the nex t ve year s 1 . O ur mark ets E v olving demograph ic an dma r k et t re nd s 1. Evalu ate Pha rma, Wo rld P revi ew 202 1, O utl ook to 2 026 , July 2 02 1 2. Unit ed Nations, Global Issues, Ageing available at https:/ /w ww.un. org/en/ global-issues/ageing 3. WHO , Noncommun icable diseases avail able at https:/ /www.who .int/ne ws-room/fact -sheets/ detail/ noncommunicable-diseases 4. A AM, T he U.S . Ge ner ic & Bi osim ilar M edi cine s Sav ings Re po r t, Oc tob er 20 21 5. I QVIA , US Ph arma ceu tic al Trends , Iss ue s and O utl ook f or NACD S TSE, Au gus t 202 1 6. IQVIA, Asse ssing the Global Burden of Post-CO VID-19 Conditions, December 2021 7 . McK ins ey & Co mpany, An in ec tio n poi nt for bi osim ilar s, Ju ne 20 21 Global generics prescription market 1 ($billion) Key tr e n ds CHANGING DEMOGRAPHIC S A grow ing po pulati on and a r ise in li fe expe c tanc y worldwide is leading to i ncreased demand for heal thc are. Ac cordin g to the Un ited N ation s, 16% of the wo rld p opula tion is ex pec te d to be age d over 65 by 205 0 2 . This r apid s hi in de mogr aphi cs , as well a s chang ing life st yl es , is contr ibut ing to an inc reas e in noncommunicable d iseases (NCDs ), m ainly cardiov ascular disea se, canc er , respir atory dis ease and diabetes 3 . Almo st 70% of d eaths w orld wide a re ca used b y NCD s. This g rowin g epid emic p ose s challenges f or global economies and th reatens to over whe lm hea lth sys tems 3 . Strategic resp onse We are commi t ted to improvin g patient s’ acc es s to high- qualit y, aordable m edicin es . We are continu ously i nvesting i n our manuf ac turing s ites toenabl e us to meet c urrent an d fut ure nee ds of patie nts wor ldwid e. In MENA , we have a large s ale s, marketing an d suppo r t team that de dic ate their tim e to meet w ith do ctor s, clini cians and p harma cist s to bet ter un ders tan d their ne ed s. In the U S, we have strong rela tionships with our customers. Our disc ussi ons wit h them h elp inform o ur pipe line dec isions in a n eor t to br ing them t he pro duc ts most i n need . Key tr e n ds PRICING AND ACC E S S The n eed f or mor e aor dabl e heal thc are has n ever be en mor e impo rt ant as c ountr ies nav igate th e eco nomi c impac t of th e pand emic . Gove rnme nts are loo king to in crea se pat ient ac ces s to high- quali ty, aor dabl e med icine s and this n ee d for mo re cost -ee ctive healthcare is driving an increase in gene ric p enetr atio n. In th e US, 90 % of pre scr iptio ns lled are for generic medicines, while generics repr ese nt onl y 3% of he althc are s pen ding. O ver the las t ten year s, th e US hea lthc are sy stem h as save d nearly $2.4 trill ion by using generic medicines 4 . Strategic resp onse Ge neri c medic ines p lay an impor t ant role in h elping allevia te pressures on global healthcare budgets. As a comp any whos e purp ose i s to put be tte r healt h within re ach, ever y d ay , we a re commit te d to increasin g patients’ acces s to mor e aordable heal thc are. In 202 1, we laun ched 1 72 pro duc ts acr oss our mar kets and our c ontinuo us invest ment in R& D and manufa cturing c apabilitie s enables us to me et patients’ growin g demand. Fi nd out m ore ab out o ur acc ess t o med icin e on pa ge 38 . Hik ma Ph arm ace utic al s PLC Annual Report 2021 19 STRATE GIC REPORT Key tr e n ds Strategic resp onse THE I M PAC T OF COV I D - 19 The p andemi c demo nstr ated th e vit al role of th e healthcare ind ustr y , par ticularly the generics se ctor.At the star t of t he pan demic , we were ope rating at f ull ca pacit y, prior itising th e manuf ac ture ofpro duc ts that w ere in highe st deman d, whils t continuing to m aintain supp ly acro ssou r broad er po r tfo lio. While th ere is s till volatili ty in t he market, we a re focu sed o n ensur ing that our exible, hi gh-qu alit y manuf ac turing c apab ilitie s and re silient sup ply chain can c ontinue to un derp in our abili ty to p rovide a cons istent sup ply of me dicin es to our c ustom ers . Asp ar t of our s trateg y an d to mitigate sup ply ri sk, wecontin ue to qualif y al ternate so urce s of raw material s. By g rowing our p or t folio, we w ill also ensure w e have the pro duc ts our p atient s nee d. The COVI D-19 pand emic ha s impac te d the live s ofmilli ons of p eop le and c ommuni ties a roun d the world, creating signicant uncertainties. Patients were c aut ious to e nter hos pita ls, c ausin g a signicant diagnostic gap. There were c. 1 billion mis sed di agno stic v isit s in 202 0, which re pre sent s a20% de clin e on tota l expe cte d diag nos tic visi ts in a normal y ear 5 . Mis sed v isit s have had a d irec t imp ac t on pre scr iptio n utilis atio n and el ec tive pr oce dure s. While the pharmaceutical industr y has shown great agili ty d uring t he COVID - 19 pa ndemi c, it a lso r aise d con cerns a roun d the re silien ce of su pply c hains . This ha s prom pted c alls fo r loc al AP I and intermed iate production and some coun tries, sucha s the US , are als o lo oking to i ncrea se lo cal produc tion of nished g oods . The p ande mic con tinue s to impa ct an d shap e thegl obal h ealt hca re se cto r today. A large numb er of COVID -19 patient s have a ra nge of pe rsis ting heal th con ditio ns that ar e having a l onger te rm ee ct o n their c entr al ner vo us, c ardi ovasc ular an d respirator y systems 6 . Key tr e n ds Strategic resp onse GR OWT H IN BIOSIMIL AR UPT AKE T ap ping into the gr ow th of the bi osimilar ma rket in the US ha s bee n an area of fo cus fo r Hikma. We are leveraging our established commercial capabi lities inthe US to bu ild a highl y compl ement ar y por t fo lio of bio similar pro duc ts thro ugh lic ensing. I n 2021 , we signed an agr eement with Bio- Thera Solutions for uste kinumab, a pro pos ed bi osimilar to Stelar a®, and with G ed eon Ri chter for de nosuma b, a prop ose d bios imilar refere ncing Pro lia® and Xg eva®. In MENA, throug h our par t ner ship with C elltr ion, we have launch ed thre e bio similar pro duc ts in th e MENA region: Remsima® , T ruxima® and Herzuma® . Biosimilars are gaini ng more momentum as adoption in the US i mprove s. It is e sti mated th at glo bal bios imilar s ale s were over $ 15 billi on in 20 20, a 56% annu al grow th r ate sin ce 201 5. The m arket is expe c ted to co ntinue i ts do uble -digi t grow th, rea ching mo re than $ 3 0 billio n by 2025 7 . Bio similar u ptake var ies by c ountr y. Europe m akes up half o f the mar ket by value a nd the re are mo re than 6 0 pro duc ts ap prove d. In the U S, th e FDA has published new guidance on interchangeability, prov iding gr eater cl arit y fo r develo ping co mpani es . This ha s help ed re cent ly laun che d biosim ilars achi eve a rapi d upta ke compar ed to pr eviou s years . As th e regu lator y env ironm ent con tinue s to evolve in the US , and in C hina and J apan , we expe c t to see a n increase in biosimilar adoption 7 . 1 6% of the wo rld pop ulation is expected to be overthe age of 65by20 50 2 5 6% annu al grow th rate o f the glo bal biosim ilar market sin ce 201 5 7 20 Hik ma Ph arm ace utic al s PLC Annual Report 2021 Injec tab les Ge neric s Branded O ur busines s mo del Our d iv er sied bu si ness m ode l al lo w s u s t o re spon dt o t he m an y op portu ni ti es an d r i sk s wef ace,while deliv ering for our s tak eholders . B et ter hea lth within reach ev er y day Our business segments Se e our business and nancial re view onpa ge 24 Our resources Financial Invest ment in R&D, manu fac turin g facili ties , par tne rships an d M& A enable s us to expan d our pro ductp or t folio, techni cal c apabiliti es andoperations. People We have a highly skille d, diverse a nd eec tive workforce. Through continuous investm ent in the develop ment of our pe opleand by hir ing new tale nt, we se cure our fut ure. Va l u e s Our valu es pro mote a culture thatis innovative, collabor ative and caring , ensuring the sus tainabilit y of o ur busine ss . Relationships Strong relation ships with re gulators and healt h author ities a cros s all our markets , ands ucces sful colla borations with indust r ypar tner s, enab le us to achieve ourshare d objec tive s. Capabilities We have extensive co mmercial, R& D, manufac turing and dis tribution c apabilitie s acros s our mar kets focus ed on quali ty andec ienc y . Hik ma Ph arm ace utic al s PLC Annual Report 2021 21 STRATE GIC REPORT The value we create Patient bene ts We provide pat ients acro ss o ur markets with high-qu alit y and aordab le medi cines . 670 + Pr oducts Employ ee engagement By foc using on the e ngageme nt and developmen t of our people, we provide long and rewarding c aree rs for our t alented an d diverse workforce. 73% Employ ee engagement 2 020 score Shareholder return s We have a long histor y of cre ating value forour shareholders. 313% T ot al sharehol der return over la st ten year s Sust ainable b usines s We act re spo nsibly , adv ancing heal th and wellbein g, empowering our people, protec ting the environm ent and building trus t through q ualit y in ever y thing we do. – O ur emplo yees completed 47 ,00 0 instr ucto r -led le arning hour s – E st ablishe d a target to redu ce our Sc ope 1 and 2 gre enhous e gas emis sion s by 25% by 203 0, using a 2020 ba seline year F ind out m ore ab out o ur key per f orman ceindi cato rs on p age 2 2 Fin d out mo re abo ut how w e are manag ingris k on pag e 54 What we do O er a broad pro duc t por t folio We oer a bro ad and diere ntiated por t foli o ofmore than 670 pro duct s. It incl udes high-qual it y generic a nd branded generic medi cines an d a growing numbe r of in -li censed and speci alty pr oducts. 670 + Produ cts Market across geograp hies We distrib ute our pro duct s in our markets through ex peri ence d sale s and marketing teams. I n the MENA reg ion, around 2 ,000 repre sentati ves and supp or t s ta market our bran ds to doc tors and p harmaci sts , while oursal es team s in the US and Europe s ell to a broad r ange of cus tomer s, includin g the lea ding wholesalers, pharmacy chains, go vernments and hospi tal purchasing organis ations. c. 2 ,000 sales representatives market our products acro ss MENA Develop and innovate We are building a pip eline of pro duct s to meet the evolving n ee ds of patient s and heal thcare profe ssio nals through inves tment s in internal R&D, par tn erships an d str ategic acqui sitions . 6% Group revenue inves ted in co re R& D (2020: 6 % ) Manufa cture and maintain qualit y Our ex tensive and hig h-qualit y manuf actur ing cap abilitie s are at the hea r t of what we do. We have 32 plant s acros s the Group th at supply our g lobal mar kets with a broad r ange of inje ct able and no n-injec tabl e produ ct s, including 1 3 US FDA-inspec ted plants and 12 EMA-inspe cted plant s. 32 manufac turing plants 13 US FD A- inspected plants 12 EMA- inspected plants 22 Hik ma Ph arm ace utic al s PLC Annual Report 2021 O ur progres s W e are del iv eri ng o n our str at eg y an d measuring our per fo rmance with k ey per formance indic ators (KPIs ) . Strategic priority Deliver more from a strong foundation Build a portfolio that anticipatesfuture needs Inspire and enable our people KPI Core 1 reve nue ($ m) Core 1 operating prot ($ m) Return on invested c apital 3 (%) Core revenue from n ew produ ctlau nches (%) Employ ee enablement (%) Employ ee engagement (%) $2 ,55 3m $6 3 2 m 1 7. 1 % 9% 6 4% 73% 1,936 2,076 2,203 2,341 2,553 2017 2018 2019 2020 2021 386 460 508 566 632 2017 2018 2019 2020 2021 16.2 17.1 15.1 18.6 17.0 2017 2018 2019 2020 2021 2020 scor e 1 2020 scor e 1 Description T ot al annual core revenue gener ated acro ss all b usines se s Core op er ating prot Core op er ating prot aer t ax divide d by invested c apit al ( ca lculated as tota l equit y plus netdebt 4 ) Percent age of core revenue c ontribu tion from pro duc ts launch ed in 202 1 and the sec ond half of 2020 Global employ ee enablement score Global employ ee engagement score Why is it a KPI? This me asures o ur abilit y to maximis e value fro m our current produ ct p or t folio acro ss our g lobal markets and ge nerate revenue f rom new lau nches This me asures o ur abilit y to grow revenue and maint ain qualit y whiledeli vering eci encie s and ensuring c ost c ontrol This me asures o ur ecien cy in alloc ating capit al to busines ses andproje ct s This me asures o ur abilit y to extr ac t value f rom our glo bal prod uct pip eline This me asures wh ether p eopl e nd theirwor k fullling and re warding and whethe r they fee l suppor te d to achieve their f ull potential This me asures p eop le’s pride in wo rking for Hikma, th eir willingne ss to re commen d Hikma as an emp loyer and the ir desire to staylon g term 2021 performance Group c ore revenue incre ase d by9% re ect ing goo d per for mance from all thre e busine ss s egme nts, suppo r ted by stro ng recent productlau nches The incre ase in co re oper ating protw as driven by go od revenue grow th acro ss all thre e busine s s segm ents and s trong grow th in Generic s protabil it y The incre ase in retur n on investe d capi tal re ect s the improvem ent in core op erating p rot, p rimarily driven by a s trong step up in Generic s protabil it y , lower to tal debt and s trong c ash ow In 202 1, revenue from n ew produ ct launche s was 9 % of Group c ore revenue, upfrom 7 % in 2020. This re ec ts the s trong contrib ution f rom new launch es in G eneri cs and goo d contr ibution f rom Injec tab le andBr ande d launche s. This sh ows goo d progre ss tow ards achieving o ur goal of 10% of revenue fro m new launche s by 2023 1. Hikma r uns a glob al employe e engagem ent sur vey ever y tw o years. A s such, we d o not hav e the enablemen t and engagemen t percentages for repor ting purposes this y ear . In202 1, we condu cted an a ccount abilit y index sur vey tomea sure the level of ac tion planning con duc ted by manager s pos t the las t all-empl oyee engag ement sur vey . Itshowe d an 18 po int improvement in the ac countabili ty in dex sco re when comp ared to2020 Link to remuneration R R 2 R 1. Cor e resu lts a re pre se nted to s how th e und erl ying p er for man ce of th e Gro up, excl uding t he exce pti onal i tems an d oth er adj ust ment s set o ut in N ote 6 in th e Note s to th e con soli date d nan cial s tat emen ts. A r eco nci liati on fro m cor e to rep or ted o pe rati ng pro t is in clu ded w ithi n the C ons olid ated i nco me st atem ent in th e Fina ncia l st ateme nts 2. Co re op era ting p rot i s mea sure d be fore R &D co st s when u se d as on e of the p er fo rman ce cr iter ia fo r deter minin g the E xec uti ve Dire c tors ’ remun er atio n 3. Se e rec onc iliati on on p age 3 4 4. Gro up net d ebt is c al culat ed as G roup t otal d ebt le s s Gro up tot al ca sh. G roup to tal d ebt excl ude s co -de velo pme nt agre em ents a nd co nting ent lia bili tie s Hik ma Ph arm ace utic al s PLC Annual Report 2021 23 STRATE GIC REPORT Fi nd out m ore ab out ours tr ateg y o n page 6 F ind out m ore ab out h ow we are managing risk on p age 5 4 F ind out m ore ab out o ur remuneration on page 8 9 Strategic priority Deliver more from a strong foundation Build a portfolio that anticipatesfuture needs Inspire and enable our people KPI Core 1 reve nue ($ m) Core 1 operating prot ($ m) Return on invested c apital 3 (%) Core revenue from n ew produ ctlau nches (%) Employ ee enablement (%) Employ ee engagement (%) $2 ,55 3m $6 3 2 m 1 7. 1 % 9% 6 4% 73% 1,936 2,076 2,203 2,341 2,553 2017 2018 2019 2020 2021 386 460 508 566 632 2017 2018 2019 2020 2021 16.2 17.1 15.1 18.6 17.0 2017 2018 2019 2020 2021 2020 scor e 1 2020 scor e 1 Description T ot al annual core revenue gener ated acro ss all b usines se s Core op er ating prot Core op er ating prot aer t ax divide d by invested c apit al ( ca lculated as tota l equit y plus netdebt 4 ) Percent age of core revenue c ontribu tion from pro duc ts launch ed in 202 1 and the sec ond half of 2020 Global employ ee enablement score Global employ ee engagement score Why is it a KPI? This me asures o ur abilit y to maximis e value fro m our current produ ct p or t folio acro ss our g lobal markets and ge nerate revenue f rom new lau nches This me asures o ur abilit y to grow revenue and maint ain qualit y whiledeli vering eci encie s and ensuring c ost c ontrol This me asures o ur ecien cy in alloc ating capit al to busines ses andproje ct s This me asures o ur abilit y to extr ac t value f rom our glo bal prod uct pip eline This me asures wh ether p eopl e nd theirwor k fullling and re warding and whethe r they fee l suppor te d to achieve their f ull potential This me asures p eop le’s pride in wo rking for Hikma, th eir willingne ss to re commen d Hikma as an emp loyer and the ir desire to staylon g term 2021 performance Group c ore revenue incre ase d by9% re ect ing goo d per for mance from all thre e busine ss s egme nts, suppo r ted by stro ng recent productlau nches The incre ase in co re oper ating protw as driven by go od revenue grow th acro ss all thre e busine s s segm ents and s trong grow th in Generic s protabil it y The incre ase in retur n on investe d capi tal re ect s the improvem ent in core op erating p rot, p rimarily driven by a s trong step up in Generic s protabil it y , lower to tal debt and s trong c ash ow In 202 1, revenue from n ew produ ct launche s was 9 % of Group c ore revenue, upfrom 7 % in 2020. This re ec ts the s trong contrib ution f rom new launch es in G eneri cs and goo d contr ibution f rom Injec tab le andBr ande d launche s. This sh ows goo d progre ss tow ards achieving o ur goal of 10% of revenue fro m new launche s by 2023 1. Hikma r uns a glob al employe e engagem ent sur vey ever y tw o years. A s such, we d o not hav e the enablemen t and engagemen t percentages for repor ting purposes this y ear . In202 1, we condu cted an a ccount abilit y index sur vey tomea sure the level of ac tion planning con duc ted by manager s pos t the las t all-empl oyee engag ement sur vey . Itshowe d an 18 po int improvement in the ac countabili ty in dex score w hen comp ared to2020 Link to remuneration R R 2 R 1. Cor e resu lts a re pre se nted to s how th e und erl ying p er for man ce of th e Gro up, excl uding t he exce pti onal i tems an d oth er adj ust ment s set o ut in N ote 6 in th e Note s to th e con soli date d nan cial s tat emen ts. A r eco nci liati on fro m cor e to rep or ted o pe rati ng pro t is in clu ded w ithi n the C ons olid ated i nco me st atem ent in th e Fina ncia l st ateme nts 2. Co re op era ting p rot i s mea sure d be fore R &D co st s when u se d as on e of the p er fo rman ce cr iter ia fo r deter minin g the E xec uti ve Dire c tors ’ remun er atio n 3. Se e rec onc iliati on on p age 3 4 4. Gro up net d ebt is c al culat ed as G roup t otal d ebt le s s Gro up tot al ca sh. G roup to tal d ebt excl ude s co -de velo pme nt agre em ents a nd co nting ent lia bili tie s 24 Hik ma Pha rma ceu tic als P LC Annual Repor t 2021 Repor ted result s ( statutor y) 202 1 $million 2020 $million Change Constant currency 1 change Revenu e 2,553 2, 3 41 9% 7% Op erating pro t 582 579 1% 3% Prot at trib utabl e tos hareholders 421 431 (2)% 2% Cas h ow from oper ating activi ties 638 464 38% – Basic e arnings p er share(cents ) 2 182.3 182.6 0% 4% T ot al dividen d per share(cents ) 5 4.0 5 0.0 8% – Core results 3 ( underlying) 202 1 $million 2020 $million Change Constant currency 1 change Core revenu e 2,55 3 2 ,3 41 9% 7% Core op er ating prot 632 566 12% 15% Core pro t at tribu table tos hareholders 450 408 10% 1 5% Core b asic earnin gs persh are( cents) 2 194. 8 1 7 2 .9 13% 17% Strong 202 1 per formance – G roup revenue up 9 %, re ec ting a goo d per fo rmance f rom all threeb usines se s – C ore op erating pro t up 12% , driven by a f ur ther s tep up in Generic smar gin – C ore pro t att ribut able to shareho lder s up 10% – R epor te d prot at tr ibutab le to sharehol ders d own 2% and b asic EPS was at – Strong c ash ow from op eratin g acti vitie s, up 3 8% to $6 3 8 million – C ontinue d to inv es t 6% of revenue in R&D, with a growing p ipeline ofcompl ex and spe cialt y pro duct s – M aintained h ealthy balan ce shee t, with net d ebt 4 of $ 420 million and low lever age at 0.6x net debt to c ore EBITDA 5,6 – Full year di vidend of 5 4 ce nts per s hare, up from 50 c ents pe r share in 2020 Continu ed moment um, with grow th in all threebusinesses – Inj ec table s: Go od revenue g row th acros s all thre e geogr aphie s, including in th e US following a s trong 2020. Inje ct able s core ope rating pro t grew 5%, wi th a strong o per ating margin of 37 .5% – G ene ric s: 10% revenue grow th a nd core op erating m argin improvement of 3 00 bp s to 24.6%, ree cting a g ood p er forma nce from re cently launc hed pro duc ts – B rand ed: Revenue grew 9 % ree cting a go od co ntributi on from produ ct s used to tre at chronic illne ss es and c ore ope rating margin was 18 .7% , down fro m 20.6 % in 2020. E xcluding the impa ct of curren cy and hyp erinatio n, revenue grew 5% and core o per ating margin was s tab le Furthe r por tfo lio expansion and increased investment to suppo rt grow th – L aunche d gener ic Advair D iskus® in Ap ril and are gr adually gro wing market share, but exp ec t comp etition to intensif y in 20 22 – E xpa nsion of sp ecialt y pro duc t oerin g in the US, inclu ding the launch of Kl oxxa do TM 8mg naloxone nasal sp ray – Po sitioning fo r future g rowt h in Injec tabl es with t he signing of t wo US biosimilar a greem ents, th e acquisit ion of Cus topharm 7 , the launch of a new US c ompo unding busine s s and po st year-end expansi on into Canada t hrough ac quisition of T eligent as set s – Fur ther compl ex medicines added t o Branded por tfolio, i ncludin g eightor al oncol og y produ ct s in Algeria 1 Cons tan t curr enc y numb er s in 202 1 rep res ent re po r ted 20 21 nu mbe rs tr ans late d using 202 0 exchan ge ra tes , exclu ding pr ice i ncre ase s in th e bus ine ss re sul ting f rom th e dev aluat ion of t he Su dane se p oun d and exc ludi ng the im pac t fr om hyp erin ati on accounting. In 2021 Lebanon and Sudan wer e considered h yperinationary economies, the refo re the s pot exc hang e rate a s at 31 D ec emb er 20 21 wa s use d to tr ans late th e res ult s of the se o pe rati ons i nto US do llar s 2 I n Jun e 2020 , Hikma p urch ase d 12. 8 mill ion o rdinar y s hare s fro m Bo ehr inger I ngel heim , whic h are b eing h eld in t reas ur y 3 C ore re sul ts th roug hou t the d ocu ment a re pre se nted to s how th e und erl ying pe rf orm ance o f the G roup, e xcludi ng the e xcept ion al item s and ot her a djus tme nts seto ut in N ote 6 of th e Gro up co nso lidate d na ncia l st ateme nts . Cor e res ult s are anon -IFR S mea sure a nd a re con ciliat ion to r epo r ted I FRS me asur es is p rovi ded o n pag e33 4 G rou p net de bt is c alcu late d as Gr oup tot al de bt le ss G roup t otal c ash , incl udin g res tr ict ed c ash. G rou p net de bt is a no n-I FRS m easu re. Se e pa ge 3 4 for a re con cilia tion of Gr oup ne t debt t o rep or ted I FRS g ure s 5 Core EB ITDA i s ear nings b efo re inter es t, ta x, d epre ciat ion , amor t isat ion , ass et s wri te- down a nd imp airm ent ch arge s/reve rsa ls. EB IT DA is a non -IFR S mea sure , see pag e34 f or a re con ciliat ion to r epo r ted I FRS re sult s 6 Net de bt to co re EBI TDA is c alc ulate d as Gr oup n et deb t divi ded b y core EB IT DA and is considere d a useful measure of the Group’s nancing decisio n 7 Subje ct to F TC ap prov al B usiness a nd nancial review I am p le ase d wi t h ou r perfor man ce in 2 021, wit h grow th in all thr ee b usines s es . We have contin ue d t ola un c h ne w pr odu c ts w hi le ben ett i ng f rom t he breadth of our por t fo lio . Hik ma Ph arm ace utic al s PLC Annual Report 2021 25 STRATE GIC REPORT 1 Exce ptio nal ite ms co mpr ise d a $6 0 milli on imp airm ent rev ers al of produc t related intangibles, a $24 mill ion charge of product related intangibles a nd a $13 m illion in tangible assets write-down. Amo r tis atio n of int angib le as se ts (othe r than s o wa re) was $ 73 milli on. R efer to N ote 6 of t he Gr oup co nso lida ted n anci al statements for fur ther in formation Group Group revenu e grew 9% re ec ting grow th in ea ch of our thre e busine ss es. G roup gro ss marg in reduce d slightly , pr imarily due to a shi in p roduc t mix in our Injec table s and Bran ded busine ss es. Group o per ating expen ses we re $7 19 million (2020: $62 2 million ). Excluding adjus tments re lated to the amor tis ation of intan gible as set s ( other th an so ware) of $73 millio n (2020: $42 millio n ) and net inc ome fro m exceptional ite ms of $23 million (2020: $ 67 million ), Group c ore ope rating exp ense s were $6 69 million (2020: $6 47 millio n ) . Selling , gener al and adminis trati ve ( SG& A) exp ense s were $5 6 1 million (2020: $ 509 million) . Excluding t he amor tis ation of intan gible as set s ( other th an so ware) and exception al items, c ore SG& A exp ense s were $4 8 8 million (2020: $ 4 64 millio n ), up 5 % , reec ting goo d control of c ost s while increa sing spen d in cer tain areas suc h as sale s and mar keting for special t y produ ct s in the Ge neric s bu sines s and a gr adual return to pre -COVID mar keting activi ties in our Bran ded busine ss . Research and dev elopment ( R&D) expenses were $143 million (2020: $13 7 million) . Thi s reec ts an in crease in the se cond ha lf as the G roup focus ed on t he fut ure pipelin e. Core R& D was 6% of Group core revenu e, in line with o ur str ategy. Oth er net op erating ex pens es were $ 15 million (2020: $26 million incom e ). Excluding exceptional i tems 1 , core other net o per ating expen ses w ere $3 8 million (2020: $4 4 million ), which primar ily compr ise d foreign exchange-related cost s. The improvem ent in core op erating mar gin to 24.8% was pr imarily dri ven by the goo d per fo rmance in th e Generic s business. Khalid N abilsi Chief Financial O cer 26 Hik ma Ph arm ace utic al s PLC Ann ual Re por t 2 02 1 Busines s and nancial review conti nued W e sup pl y ho spi tal s acr oss ou r mar k ets wi th g ene ri c in jec table s, supported b y our ma nufacturi ng faci lit ies i n th e US, E ur ope an d MENA . In t he U S, we h a v e broadened o ur produc t oering to inc lude compounded s ter ile inject ables. I nje c t a b l es Hik ma Ph arm ace utic al s PLC Annual Report 2021 27 STRATE GIC REPORT Injec tab les revenue g rew 8% in 202 1, ben et ting fro m our broa d por t folio, ge ogr aphic spre ad, exibl e manufacturing capabilities and new launc hes across our regions. US Injec tab les revenu e grew 4% to $691 million (2020: $662 millio n ), reec ting a goo d per for mance f rom new launche s while maintaining d emand for o ur broad product por tfolio. MENA Inje ct ables reve nue was $1 80 million, up 13 % on a repo r ted basis an d 4% on a cons tant curren cy ba sis (2020: $160 million) . This grow th re ec ts a s trong per for mance a cros s most of o ur markets and go od demand fo r our growing bi osimilar po r tfo lio where wecontinue to gro w the market by increasing p atient acce s s. This mo re than os et tempo rar y disr uptions insome m arkets. European Inj ec table s revenue wa s $182 millio n, up17%(2020: $15 5 million ). In const ant currenc y , European Inj ec table s revenue incre ase d by 13% . Thisre ect s a goo d per fo rmance f rom our own products, recent la unches and con tinued demand forcon tract manufacturing. Core gro ss p rot grew 3 % to $58 1 million and gro ss margin de clined to 55 .2 %, re ec ting a norma lisation in produ ct mix fo llowing the s trong dema nd for COVID - 19 related pro duc ts in 2020. Injec tab les co re oper ating pro t, which exclud es the amor tis ation of intan gible as set s ( other th an so ware) 1 grew 5% and core o per ating margin was 3 7 .5% , compa red with 3 8.6% in 2020. In con stant cur renc y , core op erating p rot grew 7 % and core o per ating margin remaine d largely s tabl e, reec ting go od contro l of cos ts. During t he year , the Inje ct able s busine ss laun ched 15 produ ct s in the US, 2 9 in MENA and 3 4 in Europe. We submit ted 9 3 lings to regulator y au thorit ies ac ross all markets. T his primar ily ree cts o ur eor t s to expand our Europe an por t folio an d registe r produc ts in n ew European mar kets. We also sig ned new li censing de als, including to enter th e US biosimilar mar ket. Financial highlight s 202 1 $million 2020 $million Change Cons tant currency change Revenu e 1,0 53 97 7 8% 6% Core revenu e 1,0 53 97 7 8% 6% Gros s pro t 581 563 3% 2% Core gro ss p rot 581 563 3% 2% Core gross margin 55. 2% 5 7. 6 % (2. 4)p p (1 .9) p p Op erating pro t 351 354 (1)% 1% Core op er ating prot 395 37 7 5% 6% Core operating margin 3 7. 5% 3 8 . 6% (1.1) p p 0.3pp 1 Exce ptio nal ite ms co mpr ise d a $10 m illio n impa irme nt of pr odu ct re late d intan gib les a nd a $1 mi llion i ntan gibl e as set s wri te- dow n. Amo r tis atio n of int angi ble as s ets (oth er tha n so w are) was $ 3 3 mill ion. R efer t o Note 6 of t he Gr oup c ons olid ated nanc ial st atem ent s for f ur the r infor mati on 2020 2021 3 7. 5 38.6 Core operating margin (%) Core revenue ($m) 977 1,05 3 2020 2021 1,053 Core revenue by region ($m) US ...................................................................................... 691 (66%) MENA ................................................................................. 180 (17%) Euro p e............................................................................... 182 (17%) We are benet ting from strong commercial capabilities acro ss our markets and exible, high- quality operations Outlook for 2022 We expect Inj ectables revenue to grow in thelow to mid-sing le digit s. We expe ct co re operating mar gin to bein the r ange of 3 5% to 37 % . 28 Hik ma Pha rma ceu tic als P LC Annu al Rep or t 20 21 Busines s and nancial review conti nued W e supply oral and other non- injec table generi c and specialt y branded pr odu c ts i n t he U S re ta i l mark et , lev eraging our st ate-of - ar t manu fa c turing fa cilit y in Co lum bus , Ohio. G en e ric s Hik ma Ph arm ace utic al s PLC Annual Report 2021 29 STRATE GIC REPORT The go od revenue g row th in our Ge neric s bu sines s, up10% in 202 1, was pr imarily dri ven by a strong per for mance f rom rece ntly launche d produ ct s, whichmo re than os et increas ed pr ice ero sion. Gen eric s core g ros s prot grow th a nd margin expansi on was pr imarily due to p roduc t mix, wi th goo ddemand fo r prot able rec ent launche s. We delivere d a strong imp rovement in Ge neric s co re ope rating pro t, which exclud es the a mor tis ation of intangible as sets (other than so ware) and ex ceptional items 1 , mos tly due to the imp rovement in gros s pro t. While s ales an d marketing spend in crease d as a re sult of the exp ansion of our s pecia lt y busine ss , this was par tially o set by go od co ntrol of other o per ating expen ses . For th e year , G ene ric s core op erating margin was 24 .6%, ahea d of our guidan ce of 22 % to24% . In 202 1, the G eneric s b usines s launch ed seven p roduc ts and submit te d ve les to re gulator y autho ritie s. Financial highlight s 202 1 $million 2020 $million Change Revenu e 820 74 4 10% Core revenu e 82 0 74 4 10% Gros s pro t 388 329 18% Core gro ss p rot 388 3 41 14% Core gross margin 4 7. 3 % 45 .8% 1.5pp Op erating pro t 217 203 7% Core op er ating prot 202 161 25% Core operating margin 2 4 . 6% 2 1. 6% 3 .0 pp Core operating margin (%) 2021 2020 24.6 21.6 74 4 820 2020 2021 Core revenue ($m) We are delivering strong ope rating prot expansion, bene tting from recently launch ed produc ts Outlook for 2022 We expe ct G eneri cs revenue to grow in the range of 8 % to 10%. We expe ct core operating mar gin to bein the r ange of 24% to 25%. 1 Exce ptio nal ite ms co mpr ise d a $6 0 milli on imp airm ent rev ers al of pro duc t rel ated in tang ibl es an d a $14 mil lion im pair men t charg e of pro duc t rel ated in tang ibl es an d a $1 mill ion int ang ible a ss ets wri te- down . Amo r tis atio n of int angib le as s ets (othe r than s o wa re) was $ 3 0 milli on. Re fer to N ote 6 of th e Gro up co nso lidat ed n anci al statements for fur ther in formation 30 Hik ma Pha rma ceu tic als P LC Annu al Rep or t 20 21 Busines s and nancial review conti nued W e supply branded generi c s and in-lice nse d p atente d produ c t s from our loc al man u fa c t uring f acilities to retail and hospital customers across the M ENA region. B r an de d Hik ma Ph arm ace utic al s PLC Annual Report 2021 31 STRATE GIC REPORT Our Br ande d busine ss c ontinued to d eliver grow th in 202 1, with revenue up 9 %, whi ch include s the impa ct of hyper ination. In co nst ant currenc y , revenue grew 5%, with a g ood p er forman ce acros s our mar kets, par tic ularly in Alge ria, where we s aw the b enet s of our new onc olog y plant an d in Eg ypt, whe re we ben et ted from s trong deman d for our chroni c treatment s. Our chronic tre atments als o saw go od dema nd in our retail busine ss in S audi Ar abia, which p ar tially o set lower demand in the gov ernment tender business. O ther markets, inc luding Jorda n, UAE and Moroc co grew strong ly . Acros s the reg ion we be net ted f rom our focus se d comm ercial eor t s, a re spons ive supply chain and the b readth o f our por t foli o. Core gro ss p rot grew 7 % and, on a co nst ant currenc y basis , core gro ss pro t was at p rimarily du e to an increas e in slow-moving inventor y re sulting from pande mic-related de mand uc tuation s. Co re gros s margin contr ac ted slightly to 49 .0% . Core op er ating prot , which exclude s the amor t isation of intangible s ( other than so ware) and exceptional items 1 , fell 1%. In co nst ant currenc y , core op erating prot g rew 5% as higher inves tment in R&D an d increas ed s ales an d marketing spen d due to act ivitie s returning to pre -COVID levels w as o set by goo d control of G & A cos ts. C ore ope rating margin decre ase d primar ily due to devaluati on of the Sudane se p ound. In co nsta nt currenc y , c ore ope rating margin was s tab le. During t he year , the Br ande d busine ss la unched 8 7 produ ct s and submit ted 14 4 lings to regulator y author itie s. Revenue f rom in-licen sed p roduc ts repre sented 3 6% of Brande d revenue (2020: 37 % ). Financial highlight s 202 1 $million 2020 $million Change Cons tant currency change Revenu e 669 61 3 9% 5% Core revenu e 669 61 3 9% 5% Gros s pro t 328 3 07 7% 0% Core gro ss p rot 328 3 07 7% 0% Core gross margin 4 9.0 % 5 0.1% (1.1) p p (2.0) p p Op erating pro t 104 120 (13)% ( 7 )% Core op er ating prot 125 1 26 (1)% 5% Core operating margin 18 .7% 20 . 6% ( 1 .9) p p 0.0 pp 1 Exceptional it ems comprised a $1 1 million intangible asset s wri te- down . Amo r tis atio n of int angib le as s ets (othe r than s o wa re) was $ 10 mill ion . Refe r to Note 6 of t he G roup c ons olid ated nanc ial statements for fur ther in formation 2021 2020 18.7 20.6 Core operating margin (%) 2021 2020 669 613 Core revenue ($m) Our grow th is increasingly co ming from medicines used to treat chronic illnes s Outlook for 2022 We expect Brand ed revenue in 202 2 to bein line wi th 202 1. Excluding t he impac t of hyper ination in 202 1, we expe ct Bra nded revenu e togrow in the mid-s ingle digits. 32 Hik ma Ph arma ce utic als P LC Annual Report 2021 Busines s and nancial review conti nued Other b usinesses Oth er busine s ses , which pr imarily com prise s Ar ab Medi cal Contain ers (AMC), a manufa cture r of plast ic spe cialise d medicin al sterile co ntainers, an d International Pharmaceut icals Re search Centre(IPRC), which cond uct s bio- equiv alenc y stu dies, c ontribu ted revenue of $11 million in 20 21 (2020: $7 millio n ) with an op er ating prot of $ 2 million (2020: $nil) . Research and de velopment Our inves tment in R&D an d busine ss d evelopme nt enable s us to continue exp anding the G roup’s produ ct p or t folio. Dur ing 2021, we had 172 n ew launche s and rec eived 24 3 ap provals. T o ensure th e continuo us develop ment of our pro duc t pipeline, we sub mit ted 242regulator y lings . 2021 submis sions 1 2021 app rovals 1 2021 launche s 1 Injec tables 93 114 78 US 13 12 15 MENA 24 66 29 Euro pe 56 36 34 Generic s 5 5 7 Branded 14 4 124 87 To t a l 242 243 172 Net nan ce expense 2021 2020 Change Constant currenc y change Finance income 30 47 0% 4% Finance e xpense 69 69 13% 17% Ne t nan ce exp ense 39 22 0% 4% Core na nce income 1 9 13% 17% Core nan ce expe nse 56 54 – – Cor e net nanc e expe nse 55 45 – – On a rep or ted ba sis, net nan ce expe nse wa s $3 9 million (2020: $22millio n ) . This c ompris ed $ 30 millio n nance inco me and $69million nanc e expen se. E xcluding exceptional item s 2 , core net nance exp ens e was $5 5 million (2020: $4 5 million) . This com prise d $1 million nanc e incom e and $56 millio n nance exp ense. T he increas e comp ared with 20 20 in par t re ec ts a drop in interes t incom e over the cour se of 202 1 due to a red ucti on in interest r ates, and a slight incre ase in exp ense s related to th e renancing of o ur revolving cre dit fa cilit y . We expe ct core n et nance exp ens e to be around $ 55 million in 202 2. Prot before tax Rep or ted pro t before t ax de crease d to $5 4 4 million (2020: $5 58 million) , p rimarily re ec ting an incre ase in the am or tis ation of intangibl es (other than so w are ), from $4 2 million to $73 million, d ue to new pro duct laun ches . Excludin g the amor ti sation of int angible s ( other t han so ware) and exceptional i tems 3 , core pro t before t ax was $5 78 million (2020: $52 2 million) , up 11%, ree cting th e strong per for mance of o ur three bu sines s seg ments . Ta x The G roup incurre d a repo r ted ta x expens e of $124 million (2020: $128 million) and a repor ted ee ctive t ax rate of 2 2.8 % (2020: 22.9% ). Excluding exce ptional items , Group c ore tax ex pens e was $12 9 million (2020: $115 million) . Th e core ee cti ve tax r ate increase d slightly to 22. 3% (2020: 2 2.0%) , primar ily due to a change in th e earnings mix . We expe ct the G roup core e ec tive tax r ate to be in the r ange of 2 2% to 23% in 20 22. Prot attributable to shar eholders Prot at trib utabl e to sharehold ers wa s $4 21 million (2020: $4 31million) . Core pro t at tribut able to share holde rs increa sed by11% to $45 0 million (2020: $ 40 8 million ). Earnings per share 2021 2020 Change Constant currenc y change Basic e arnings p er share (c e n t s) 182. 3 182.6 0% 4% Core b asic earnin gs per share (c e n t s) 194. 8 1 7 2 .9 13% 17% Dilute d earnings p er share (c e n t s) 18 0.7 1 8 1.1 0% 4% Core dilute d earnings persh are ( cents) 19 3 .1 171. 4 13% 17 % Weighted averag e number of Ordinar y Share s for the pur pos es of ba sic earnings(‘m) 231 236 – – Weighted averag e number of Ordinar y Share s for the pur pos es of dilute d earnings(‘m) 233 23 8 – – The incre ase in co re earnings p er share re ec ts the s trong per for mance of th e Group an d the value fo r sharehol ders cre ated bythe Gro up’s buy back o f 12.8 million o rdinar y shares in th e rst h alf of 2020. 1 Ne w pro duc ts s ubmi tte d, ap prove d and l aunc hed b y coun tr y in 20 21 2 E xception al items com prised $29 million non-cash nance income related t o the remeasuremen t of con tingent consi deration related to the Generics business and $13 million non-cash nance expense r elated to the unwi nding and remeasurement of contingen t consideration rela ted to t he Generics business 3 E xce ptio nal ite ms co mpr ise d a $6 0 milli on imp airm ent rev ers al of p rodu ct r elate d inta ngib le s, a $24 mi llio n impai rme nt char ge of pr odu ct re late d inta ngib les , a $13 m illio n inta ngib le as set s wri te- dow n and $1 6 millio n net nanc e inco me du e to the r eme asur emen t of con tinge nt con sid era tion . Amo r tis atio n of inta ngib le as se ts (othe r than s o wa re) was $7 3 milli on. Refe r to Not e 6 of the G rou p cons oli date d nan cial s tate ment s for f ur th er info rmat ion Hik ma Ph arm ace utic al s PLC Annual Report 2021 33 STRATE GIC REPORT Dividend The B oard is rec ommen ding a nal divide nd of 36 ce nts per s hare ( approximately 26 p ence p er share) ( 2020: 3 4 ce nts per s hare ) bringing t he total divid end for th e full year to 5 4 cents p er share ( approximately 4 0 pe nce pe r share) ( 2020: 50 c ents pe r share) . Thepro pos ed divi dend will b e paid on 28 A pril 202 2 to eligibl e shareho lders o n the regis ter at the clo se of bus ines s on 18 Marc h 202 2, subje ct to approv al at the Annual G ener al Me eting on 25April20 22. Net c ash ow, working capit al and net deb t The G roup gener ated s trong op erating c ash ow of $ 6 38 million (2020: $4 6 4 million) . This change pr imarily re ec ts the go od per for mance of th e Group, comb ined wit h a focus se d eor t to optimise inventorie s follow ing COVID-19 related stoc king in 2020. There sultant de creas e in inventory days drove an improvem ent in working c apit al days, which d ecrea sed by 26 days to 23 8 days. Capi tal exp enditure w as $14 5 million (2020: $17 2 million ). In the US, $56 millio n was sp ent upgra ding equipm ent and adding n ew techno logie s for our G ener ic s and Injec tab les bu sines se s, inclu ding our new co mpoun ding facili ty in D ayton, N ew Jer sey . In MENA , $6 6 million was s pent on s treng thening an d expanding manu fac turing cap abilitie s. In Europe, we s pent $23 millio n on stren gt hening our cap abilitie s. We expe ct G roup c apital exp endit ure to be in the r ange of $160 million to $1 80 million in 20 22. The G roup’s total debt de creas ed to $8 4 6 million at 3 1 Dec embe r 202 1 (31 De cembe r 2020: $93 2 million) . T his decre ase pr imarily ree ct s our stron g cash ow gener ation, whi ch enable d a reduc tion in shor t- term b orrowing , while we maint ained the re payment sc hedule of long -term loa ns. During t he year , we upsized, am ende d and exte nded o ur revolving credit f acilit y (RCF ), eecti ve as of Januar y 202 2, allow ing us the exibilit y to pur sue str ategic op por tuni ties . The RCF re mained undrawn at ye ar end. The G roup’s cash b alance at 3 1 De cembe r 2021 w as $ 426 million (2020: $ 327 milli on ). The G roup’s net debt (excluding co-d evelopme nt agreem ents and contingent liabili ties) was $ 420 million at 31 D ec ember 20 21 (31 De cembe r 2020: $6 05 million) . We co ntinue to have a strong bal ance shee t, with a net d ebt to core EBIT DA ratio of 0.6x (31 De cemb er 2020: 0. 9x) . On 24 Feb ruar y 202 2, the G roup anno unced a s hare buyb ack progr amme of up to $ 30 0 million to be exec uted during 20 22. T his takes into acco unt the stre ng th of our balan ce she et and low lever age ratio w hile maintaining the nan cial exibilit y ne ed ed to invest in th e busine ss a nd pursu e inorganic g rowt h oppo r tunitie s. Balance sh eet Net as set s at 31 D ecemb er 202 1 were $2, 4 67 million (31 De cembe r 2020: $2,14 8 million) . N et current as set s were $1,078 million (31De cemb er 2020: $ 894 million) . Outlook For Inje ct able s, as the COVID -19 volatility c ontinues to e ase and we se e a gradu al return of el ect ive surgerie s, we exp ec t for revenue to grow in the lo w to mid-single digit s, supp or ted by new p roduc t launche s. We exp ec t core ope rating marg in to be in the r ange of 35% to 37% . Our g uidance d oes n ot include a c ontributi on from Custop harm, which re mains subje ct to F TC approval. For G ener ics , we expe ct revenu e to grow in the ra nge of 8% to 10% and for co re oper ating margin to be in t he range of 24% to 25%. This ree ct s a good c ontribu tion from n ew and rec ent launche s, which we expe ct will m ore than o set an acc eler ation in pri ce erosio n. Our guidanc e as sumes a mid-year la unch of so dium oxybate. For Br ande d, we expe ct revenu es in 202 2 to be in line w ith 202 1. Excluding t he impac t from hyp erinatio n in 2021, we ex pec t Br ande d revenue to grow in the mi d-single digit s. We expe ct Gro up core net nan ce expe nse to be aro und $55 millio n and the c ore eec tive t ax rate to be in th e range of 2 2% to 23 %. We expe ct Gro up capi tal exp enditure to b e in the ran ge $160 million to $18 0 million. De nitions We use a numb er of non-I FRS measure s to repo r t and monito r the per for mance of o ur busine ss . Managem ent use s thes e adjus ted number s internally to mea sure our prog res s and for s ett ing per for mance t argets . We also pre sent the se numb ers, a longside o ur repo r ted resul ts, to ex ternal audi ence s to help them un ders tand th e under lying pe rf ormanc e of our busine s s. Our c ore number s may be cal culated diere ntly to other comp anies . Adjuste d measure s are not subs titut able fo r IFRS resul ts and shouldn ot be con sidere d super ior to result s pre sented in ac cordanc e with IFRS. Core result s Rep or ted res ults rep rese nt the Group ’s overall per for mance. However, these re sults c an includ e one- o or non- ca sh items whichare exclude d when as se s sing the unde rlying p er forman ce ofthe G roup. T o provi de a more co mplete pic ture of the G roup’s per for mance to ex ternal audi ence s, we provid e, alongsid e our repo r ted resul ts, co re result s, which are a n on-IFRS m easure. O ur core re sults exclude t he exceptional i tems and othe r adjustm ents setou t in Note 6 of the Gro up cons olidated nan cial statem ents. Group operating prot 202 1 $million 2020 $million Core operating prot 632 566 Intangi ble assets write-down (13) – Jordan w arehou se re incid ent – 11 Gx A inventory rel ated provision s – (1 5) MENA sev erance and r estruc turing costs – (3) Net impair ment revers al of produ ct related intangible s 36 62 Intangi ble assets amor tisation other than so ware ( 73) (4 2) Reported operating prot 582 579 34 Hi kma P har mace uti ca ls PLC Annual Report 2021 Busines s and nancial review conti nued Constant currency As th e majorit y of o ur busine ss is c onduc ted in the US , we pre sent our res ults in US do llars. Fo r both our B rand ed and Inje ct able busine ss es , a propo r tion of the ir sale s are deno minated in a curren cyother t han the US doll ar . In o rder to illustr ate the unde rlying per for mance of th es e busine ss es, we in clude infor mation on our result s in cons tant curre ncy. Cons tant cur rency numb ers in 20 21 rep rese nt repor te d 2021 num bers translated using 20 20 exchange rates, excluding price increa ses in the busin es s resul ting from the d evaluation of t he Sudane se p ound and excluding the imp act f rom hyper ination ac counting. EB I T DA EBITDA is ear nings before intere st , tax , depre ciation, amor tisatio n, as sets wr ite-d own and impair ment charge s/re vers als. EB ITDA 202 1 $ million 2020 $ million Reported operating prot 582 579 Dep reciation , amor tis ation, as set s write- down and imp airment charge s/reversals 14 5 91 Reported EBITD A 727 670 Exceptional it ems: Jordan w arehou se re incid ent – (11) As set s write o – inventor y-related provisions – 12 MENA sev erance and r estruc turing costs – 3 Co re E B IT DA 727 674 Working capital da ys We believe G roup working c apit al days provide a us eful me asure of the Gro up’s working c apit al manageme nt and liquidit y . Gro up working capi tal days are c alculated as G roup rec eivabl e days plus Gro up inventory d ays, les s Gro up payable days . Group re ceivab le days are cal culated as G roup tra de rece ivable s x 36 5, divide d by 12 months Group revenu e. Group inventor y days are ca lculated as G roup inventory x 3 65, di vided by 12 m onths Gro up cos t of sale s. G roup payable d ays are calculate d as Group t rade p ayable s x 365 , divide d by 12 months G roup cos t of sal es. Group net debt We believe G roup net debt is a u seful m easure of the s treng th of th e Group ’s nancing posi tion. G roup net debt is c alculate d as Group total debt le s s Group total c ash. G roup total de bt excludes c o- developmen t agreements and con tingen t liabi lities. Group net debt 31 D ec 2 02 1 $ million 31 D ec 2 020 $ million Shor t -term nancial debts (11 2) (15 8) Shor t- term l ease s liabilit ies (9) (1 0) Long-term nancial debts (6 5 1) (69 2 ) Long-term le ase s liabilitie s ( 74 ) ( 7 2) T otal debt (8 4 6) (93 2 ) Cas h, cash e quival ents and res tric tedc ash 426 327 Net debt (4 20) (6 0 5) ROIC ROI C is calc ulated as core o per ating prot a er interest an d taxdi vided by inves ted c apital (calc ulated as total e quit y plus netdebt). This measure s our e cienc y in alloc ating cap ital to protable in vestments. ROIC 202 1 $ million 2020 $ million Core op er ating prot 632 566 T otal tax (13 7 ) (1 2 1) Core operating prot before tax 495 445 Net debt 420 6 05 Equit y 2,4 67 2,14 8 Inves ted c apit al 2,887 2 ,75 3 ROIC 1 7. 1 % 16. 2% Hikma Pharm aceutic als PLC Annua l Rep or t 20 21 35 STRATE GIC REPORT 36 H ikm a Phar mac eut ica ls PLC A nnua l Rep or t 202 1 Sus ta inabilit y In this section 37 Acting resp onsibly 38 Advancing health and wellbeing 42 Empowering our people 4 4 Protecting the environment 4 8 Building trust through quality in ever y thing we do 50 Aligning with the T ask Force for Clima te-related FinancialD isclosure s ( T CFD) W e ha v e a du t y of c aretowards pat ients , comm unities , ou r p e opl e and the envi ronment. W eare a re sp on si ble and sustainable compan y , an du se ou r bu si ne ss t o promot e p os itiv e ch ang e. Hik ma Ph arm ace utic al s PLC Annual Report 2021 37 STRATE GIC REPORT Businesse s ha ve a crucia l role to pl ay as ste wards for futur e generations. A t Hikm a, we strive t o put bet ter health w ithin r each, eve r y day and m ak e a dier ence to people’s l ives. We ha ve a duty to act responsibly: for our people, pat ients, commu nities and the plane t. That is w hy we h av e identied fou r focus areas wher e we can drive positive i mpact. We advance health and w ellbei ng; we empower our people; we pro tect the envi ronmen t; and we build t rust through qual it y in ev er y thi ng we do. This Actin g responsibly section in the Annu al Repor t provides a gla nce at some of our s ustainabi lity eor ts . A more com prehensiv e overview can be found in our S ustainabi lity Rep or t 2021 to be publi shed in the second quar ter o f 2022. Acting responsibly at Hikma Advancing heath and wellbeing p3 8 Providing better healthcare and supporting ourcommunities – Acces s to medic ines – C orp orate s ocial re spo nsibilit y • Provi ding bet ter heal th • Supp or ting ed ucation • Helpi ng peo ple i n need Empowering our people p42 Shaping an inclusive culture where everyone canthrive – R ecrui tment, retenti on and prom otion – D iversi ty, equit y and inclusi on – Ens uring healt h and safet y Protecting the environment p 44 Minimising our impact on the planet – R educ tion of gre enho use gas e missi ons (GHG) – Su stainab le supply c hain – Water ma nagement – Was te management Bu ildin g trus t thro ugh q ualit y in eve r y thing w e do p 50 Upholding ethical standards and acting with integrity – Ethics and compli ance – Pro duc t qualit y and s afety – C orp or ate gover nanc e During the year , we donated $ 3. 2m of medi cine (value bas ed on co st of go ods) . 38 Hik ma Ph arm ace utic al s PLC Annual Report 2021 Ac ting Res pon sibly conti nued Advancing health and wellb eing Pro viding bet ter healthcare and sup por ting our comm unities Access to medicines We consid er acce ss to m edicine to b e one of our highe st sus tainabilit y pr iorit ies . As a gen eric s pharma ceutic al com pany , we are in th e busine ss of makin g medicines both aordable and accessible acros s our ge ogr aphies , which is co nsistent wi th our purp ose to pu t bet ter hea lth within rea ch, ever y day . Acros s the MENA re gion, whe re we have a broad lo cal manuf actur ing pres ence an d are the four th l arges t compa ny in region acc ording to sale s, we devel op, produ ce and dis tribute imp or tant me dicine s, making sure that under ser ve d pop ulations have acce s s to the medicines the y need, when they need them. In the US, w here we are a top -10 generic s comp any , we are a proud m embe r of the As so ciation for A cces sibl e Medi cines (A AM), an advoc acy g roup that adv ance s acce s s to generic m edicine s. T hrough this p ar tner ship, along wi th our gene ric pe er comp anies , we str ive to get safe, ee ct ive and les s co stly m edicine s into the hands of patient s acros s the US wh o nee d them. In Europe, we have three ma nufac turing s ites, s ell our produ ct s in several c ountrie s and continu e to expand. Our bro ad por t foli o of medic ines , freque nt new produ ct launc hes an d focus on ex panding our p roduc t pipelin e allow us to increa se acc es s to medicin es in each of th e countri es in which we o per ate. Medicine do nations We have an active me dicine do nation prog ramme, through w hich we provid e direct s uppor t to th ose pe ople and c ommunitie s that ne ed it mo st: inc luding low-incom e groups , displac ed pe rso ns, children w ith life-threatening illne ss es , and patient s witho ut sucie nt medic al cover age. Durin g 2021, we c ontinued to suppor t our par tne rs inclu ding Direc t Relief, Disp ensar y of Hop e, Ameri care s, the Brot her ’s Brother Foundati on, the Nati onal Children’s Can cer So ciet y , Save the Children an d others . During t he year , we donated $ 3. 2 million of m edicine (value b ase d on cos t of goo ds) . O ur medicin e donation s in 2020 were hig her than 202 1 due mainly to our re spo nse to the m edic al emergency follow ing the e xplosion in Beirut, Lebanon . Medicine do nations ( COGS )$m 3.1 4.1 3.2 2019 2020 2021 Addressing me dicine shor tages Hikma ’s broad por tfolio and exi ble manu fac turing cap abilitie s enable us to qui ckly res pond to urge nt nee ds for imp or tant me dicine s, esp eciall y when cri tical shor t ages exi st. In th e US, we wor k close ly with th e US Foo d and Dr ug Administr ation (FDA) to anticipate and addre ss sh or tage s of vit al medic ines . We have done this con sistently thro ughou t the pand emic by altering our manuf ac turing sch edule s to prio ritise p roduc tion of medi cines in sh or t supply t hat hospit als ne ed for treating th eir most s erio usly ill COVID - 19 patient s. Hikma has pl ayed a leading ro le in addre ssing US dr ug shor t ages , launching more t han 20 medic ines into shor t age situati ons in rece nt years and re ceiving an award from t he FDA for our eor t s. As a generic s pharmace utical company , we are in the business of making m edicines both aor dable and accessible a cross our geograp hies Hik ma Ph arm ace utic al s PLC Annual Report 2021 39 STRATE GIC REPORT Corporate social responsibility We work acro ss thre e focu s areas to addre s s so cio- econ omic hardships an d to provide relie f to thos e most in n eed . Provi ding b et ter he alth: We wor k to addres s unmet healthcare needs by conducting commu nity outre ach and provi ding in-kind me dicine donati ons to patients in n ee d. Supporting education: We are commit ted to providing our p eop le and co mmunitie s with opp or tunitie s to realise t heir full p otential through contin uous learning a nd developmen t. He lping p eop le in ne ed: We b elieve in supp or ting the com munities w e live and work in thro ugh lo cal non-pro t spo nsor ships and emp owering o ur employe es to supp or t our neig hbour s in nee d. We address socio‑economic hardships and provide relief to those most in needacros s ourgeogra phies Mo re th an: 4 , 70 0 volunt eer s Nearly : 8 , 3 00 hours of volunteer ing Engaging communities across: 13 cou ntri es Hikma emp loyee volunteering in 202 1 60 Hel d self s cree ning trai ning ses sio ns for 60wom en in Por tu gal 2 70 Orga nised o nline and in-p ers on publi c aware nes s cam paigns a cros s MENA , w ith 270 at tend ees 13 5 Provide d free mamm ogr am scree ning for 135wo men in Jord an, Eg ypt and Suda n 40 Hik ma Ph arm ace utic al s PLC Annual Report 2021 Ac ting Res pon sibly conti nued Global breast cancer awareness c ampaign Our annual camp aign engage s employe es and r aise s awarene ss a bout the valu e of early d etect ion and treatme nt. As pa r t of our camp aign, we oer emp loyee s self-screening t raining , educ ational l ec tures an d facilit ated appo intments wit h doc tors . We also exten ded our s uppor t to va rious organisatio ns, providing nancial donations and mat erial support to hospi tals and ch aritie s in the US, J ordan, Morocco, S udan and Egypt. More than $8 5, 000 donated to th e US National B reast Can cer Foun dation and th e King Hus sein Can cer Foun dation in Jord an Providi ng b et ter health Hik ma Ph arm ace utic al s PLC Annual Report 2021 41 STRATE GIC REPORT Par tne ring with the U nited Nation s High Commissioner for Refugees (UN HCR) to strengthen access to higher educ ation for re fugees In 202 1, we par tne red with t he UNH CR to suppo r t their DAFI (Alber t Eins tein Ge rman Aca demic Ref ugee Ini tiative ) sch olarship progr amme wit h the goal of p roviding higher educ ation s cholar ships and intern ship opp or tunitie s for 4 0 refuge es in J ordan, Eg ypt and Algeria. This prog ramme s uppor t s the UN HCR obje ct ive of increa sing the prop or tion of yo ung refuge es enrolle d in higher e duc ation prog ramme s from 3% to 15% by 203 0. Streng thening food secur ity in our communities We continue to addre s s food s hor tage s caus ed by overs tretche d suppor t syste ms and situat ions of pover t y, organising extensi ve meal donation act ivitie s in sever al loc ations . 950 Mea ls donate d to low-income f amilie s bypar tne ring wit h loc al Jor danian charities T aalof Alkhair and Tkiyet UmAli. 1 15, 000 Mea ls donate d acros s lo cal ba nks and pantr y p ar tner s in the US. 5, 000 Dis tribu ted foo d pack ages to mo re than 5,0 00pe opl e in nee d in Alger ia, Eg ypt , Morocco, Saudi Arabia, Iraq, Lebanon, Suda nand T uni sia. Suppor ting education Helpi ng peopl e in need 42 H ikm a Pha rma ceu tic als PLC A nnual Repor t 2021 Ac ting Res pon sibly conti nued Empowering ourpeo ple Shaping an inclusive culture where ev er yone can thrive Our p eopl e are at the hear t of o ur culture of pro gres s and be longing. We have taken ac tions in s everal area s to empower our people. Recruitment, retention andpromotion We suppor t o ur employe es throu gh their jo urney at Hikma by providing a c onduci ve environment for the m to learn an d grow. During the p andemic , we continue d to focus o n learning an d developm ent, providing hybrid (vi r tual and face-to-face ) programmes. We increased our f ocus on leadership dev elopment through b esp oke progr ammes t hat align with our newcult ural valu es. We are taking a numb er of step s to ensure we rec ruit the be st t alent, in cluding par tn ering with v arious universi ties an d enhancing our re cruit ment criter ia. Asp ar t of thes e eor t s, we are als o see king to recrui t more diver se tal ent. In 202 1, we recr uited 3 7% wom en and 6 3% me n. We will continue the se e or ts in 20 22. Our pe ople are at the hear t of our culture of progress and belonging To t a l : 13% 12% T urnov er ( men ) 1 4% T urnov er ( women ) V oluntar y and involuntar y tu rnover – 2021 Hik ma Ph arm ace utic al s PLC Annual Report 2021 43 STRATE GIC REPORT 3,82 1 Active learners 6, 000 Reading hours complet ed 4 7 , 000 Instructor led learnin g hours delive red fo r 35% of our employees 13, 000 Video-based learni nghours completed Diversity , equity and inclusion In 2020, we e stab lished t he Diver sit y , Equi ty a nd Inclusio n (DEI) Commit tee, le d bythree E xecut ive Commit tee m embe rs, in ord er to ensure we continu e to create aculture wh ere ever yone fe els they b elong. In th e US, we e stab lished o ur rst employe e reso urce group: the B lack Employe es Advi sor y Bo ard. Continuing o n thewor k done in 20 20, in 2021, the D EI Commit te e develop ed guid elines to cre ate Employee Re so urce Group s (ERGs) and an additional ERG w as create d: the Hikma Women’s Net work . Both ERG s will as sist wi th ensuring a m ore inclusive cul ture where all emp loye es c an thr ive. Ensuring health and safety Employee health and s afet y In order to emp hasise t he impor t ance of em ployee healt h and safet y , in 202 1 we update d our Group Environmental H ealth an d Safet y Policy St atement and had it i ssue d by our CEO. The s tatement rea rms our commi tment to employe e healt h and safet y. CO V I D ‑1 9 During 20 21, Hikm a continue d to take measures to protec t our empl oyees dur ing the COVID -1 9 pand emic. We monitore d and adjus ted our miti gation st rategie s as new infor mation and g uidance b ec ame available. We provide d our employe es wit h vaccinati on informatio n and encouraged the m to ge t vaccina ted when el igible. We hoste d vaccin ation clinic s for empl oyees an d their familie s at som e of our larger f acilitie s. Impac t on employee learning an d development: iLea rn platfo rm 44 H ik ma Pha rma ceu tic als PL C Annual Repor t 2021 2018 128,27 7 2019 124,812 2021 116,799 2020 144 ,899 Scope 1 Scope 2 Ac ting Res pon sibly conti nued Prote ctin g the environmen t Minimising ou r imp ac t onth e plan et We ar e impr oving t he way we mon itor our envi ronmen tal impacts, streng theni ng the ov ersight a nd managemen t of our ener g y consum ption, em issions, water and wast e. We al so contin ue to pursue actions t o impr ove ou r energ y eciency and ha ve developed an emissions reduction target forScope 1 and 2 emissions. Greenhouse gas emissions: Scope1and 2 During t he 202 1 repor t ing peri od, our me asured S cop e 1 and 2 emis sions (market -b ased) we re 116,7 79 tonne s of car bon dioxid e equiv alent (tCO 2 e ). This marks a decre ase b etw een 20 20 and 202 1 of 19% , due largely to our continue d investm ent in renewab le energ y an d improved e cienci es. Us ing the loc ation-b ase d metho d, our Sc ope 1 and 2 e missi ons redu ced by 8% bet ween 20 20 and 2021. Our rep or ting of Sc ope 1 an d 2 emiss ions has b een prepare d in acco rdance wi th our regulator y o bligation to repor t g reenho use ga s ( GH G) emissio ns pursu ant tothe Com panies A ct (Direc tors’ R epor t) and Limi ted Liabilit y Par tn ership s (Energ y and Car bon Re por t) Regulati ons 2018 w hich implem ent the governm ent ’s polic y on Streamline d Energ y and C arb on Rep or ting. We hav e put in place a target to reduce o ur Scope 1 and 2 GH G emissions by 25% by 2030, using a 202 0 baseline GH G emissions (tCO 2 e) Energy consumption (MWh ) 2021 2020 UK Res t of the world Tot a l UK Re st of the world To t a l Ele ctr icit y 116 1 7 7, 8 5 6 1 7 7, 9 7 2 129 223,6 34 223 ,7 6 3 Fue ls 1 – 201,641 201,641 87 1 2 1 7, 6 4 4 2 18 , 514 1 Na tur al gas a nd tr ans por t atio n fue ls (p etro l and di es el). Rep or te d fue l use in 2 020 f or the U K is an e st imate th at was d evel op ed ba se d on emp loye e hea dco unt. T he 20 21 di scl osur e is ba sed o n ac tua l data f or whi ch the re wa s no rep or te d fu el con sump tion g ene rate d ou t of the U K. 1 1 6 ,7 7 9 t C O 2 e Sco pe 1 and 2 e missi ons (market -bas ed) tota l. Bet we en 2020 a nd 202 1, a de crea se of 19 % 2021 2020 Scop e 1 – Comb ustio n of fuel an d ope ration off aciliti es 40, 4 50 4 7, 3 7 2 Scop e 2 ( market -bas ed) – Elec trici t y 76 , 3 2 8 9 7, 5 2 7 T o tal S cop e 1 and 2 em issi ons (market ‑bas ed) 116 ,7 79 14 4 ,8 99 Scop e 2 (loc ation-ba sed) – Ele ctr icit y 90,03 1 94,94 9 – Emis sio ns fro m the co nsumpt ion of el ec tric it y are rep or te d in tCO 2 e. Howe ver , sinc e the Inte rnati onal Ene rg y Age ncy e mis sion f ac tors fo r electricit y currently account for carbon dioxide emissions only , part of the seem iss ions ar e in tCO 2 – 202 0 data ha s be en revis ed d ue to improve d dat a availabi lit y , quali t y and accuracy Hik ma Ph arm ace utic al s PLC Annual Report 2021 45 STRATE GIC REPORT 0k 30k 60k 90k 120k 150k 2020 2021 Natural gas combustion (Scope 1) Diesel and petrol combustion (including for vehicle-use) Purchased electricity – standard (Scope 2) Purchased electricity – renewable (Scope 2) LPG/Propane combustion (Scope 1) Refrigerants (Scope 1) GH G emissions breakdown by source (market ‑based) Emissions intensit y: revenue ($m ) 1 2021 2020 Scop e 1 and 2 emis sion s ( market -base d) /revenue 45 .7 6 1 .9 Scop e 1 and 2 emis sion s (location-based) /re venue 51 .1 60. 8 1 Emi ssi ons i ntens it y is ca lcul ated u sing G roup -wi de reve nue ($m) – Rev enue 2020: 2,3 41 – Rev enue 2021: 2,553 Our U K oce The G roup ope rates o ne loc ation wi thin the Unite d Kingdom, w here we are lis ted, which is an o ce building that is man aged by a third par t y. During the year , the UK si te consume d 116,3 92 kW h (2020: 128,6 5 4 kWh) of energ y , which is eq uivalent to 25 tCO 2 e. The en erg y consumpti on is mea sured by meter readings p rovided by th e managing age nt and relates to elec tric it y used fo r heating , coo ling and gene ral oce p ower . The G roup do es not p rovide tr anspo r t within the U K other than v ia private hire vehic les for which con sumption dat a is not available. D uring the year , the UK si te was as se ss ed by an indep end ent exper t f or the potential to imp rove energ y eci ency, and rec ommend ations were p rovided fo r acti ons to be under t aken in the future. Propor tion of Gr oup emissions derived from the United K ingdom and osh ore area UK 0.02 % Measures to improve ecien cy and red uce our ca rbonfootprint We continue to improve the e nerg y eci ency of o ur ope ration s. As p ar t of our eor ts to redu ce our GH G emis sions fro m our sites in t he USA , we suppo r ted the generation of 35,000 MWh of clean energy generated in the US in 202 1 throug h the acqui sition of Re newabl e Energ y Cer tic ates (REC s ). Those ac quired Ren ewable Energ y Cer tic ates were ce r tied un der Gre en-e Renew able Energ y Stan dard for C anada and th e United State s v3 .5 ensur ing strong c ompliance w ith st andards, qua lit y assur ance an d prope r oversight. Also, in G ermany , Ital y , Por t ugal and Su dan, we proc ure a por ti on of our ele ct ricit y fro m renewab le source s. In T unisia, we in stall ed our r st comb ined co oling , heat and pow er (CCHP ) sys tem, helping to red uce cos ts and emis sions at o ur loc ations th ere. In other l ocat ions such as E gy pt and Moro cco, we continu ed our ro ll-out of more e cient light emit ting di ode (LED) xture s. In loc ations in cluding Jord an and T unisia, we in stall ed building manag ement sys tems (BMS) which provide eco nomic and su stainab ilit y bene ts . Ta r g e t We have put in place a t arget to reduc e our Sco pe 1 and 2 GH G emis sions by 25% by 203 0, using a 2020 bas eline. The t arget was d evelope d using the ab solute contr acti on appro ach and is in line wi th the Par is Climate Agre ement ’s well-be low 2 °C sce nario. Our app roach to achieve the target We are commit ted to ac hieving our emis sion s reduc tion t arget while co ntinuing to deliver on o ur str ateg y and grow the b usine ss . We have taken signic ant steps in 20 21 to redu ce our Scop e 1 and 2 emis sion s. Our p urchase of R ECs in th e US provide d subs tantial Sc ope 2 emis sion s reduc tions for 202 1. Our pref erred ap proach fo r Scop e 2 emis sions reduc tion s is to contribu te to the grow th of the renewa ble ener gy c apa cit y of the gri d. We will be explor ing such op por tuni ties in 20 22 and o nwards. In addit ion to our ac tions tow ards achieving o ur Scop e 1 and 2 emis sions t arget, we w ill focus in 20 22 on identif y ing oppo r tunitie s to make a meaning ful impac t on our Sc ope 3 emi ssio ns. In T unisia, we installed o ur rst combined coo ling, heat and power (CCHP) s yste m, helping to reduce costs and emissionsat our loc ations there 46 Hik ma Pha rma ceu tic als P LC Annual Report 2021 Ac ting Res pon sibly conti nued Metho dolog y for Scop e 1 and 2 We quantif y and rep or t our org anisation al GHG emis sions in alignm ent with the Wor ld Re source s Insti tute’s Gre enhous e Gas Proto col Co rpor ate Accounting and Rep or ting Standard and in alignment with the S cop e 2 Guidanc e. We conso lidate our organis ational b oundar y ac cording to the op erat ional control ap proach, w hich includ es all our f acilitie s. D ue to this boun dar y , joint ventures w ith les s than 5 0% holding are n ot include d as we do not have op eratio nal control. We have adopte d a materialit y thre shold o f 5% for GH G repor t ing purp ose s. In som e cas es, w here data is mi ssing , it has b een es timated using th e following meth odo log y: using dat a from on e year prio r to the month to be e stim ated or previou s year as prox y , c alculate an avera ge daily consumpti on over that per iod an d applying t hat to the number of d ays within the month to b e es timated. We conduc ted an in‑depth analys is of our supply chain to underst and the size of our Scop e 3 footpr int GHG emissions: Scope 3 We conduc ted an in- depth analy sis of our suppl y chain to under stan d the size of our Sc ope 3 fo otprint and per for med a re levance a ss es sment to identi f y the mos t material and rel evant categor ies w ith the supp or t of an external par t ner . In line with G reenh ouse G as Protoco l technic al guidanc e for ca lculating Sco pe 3 emis sion s, we use acombinati on of a spen d-bas ed meth od and, wherev er pos sible , an av erage-data method leveragin g resp ec tively E xiob ase 3 .4 and Ecoinvent 3.7 .1 databases. Our methodology incorporates su pplier loc ation, inat ion and cur rency r ates in orde r to increas e the ac curac y of our rep or ting. For mo st relev ant categor ies, a s reec ted b elow, full year 202 1 Sco pe 3 emis sions are e stimate d, at 83 7 , 22 7 tCO 2 e and have be en exter nally veri ed. Scop e 3 emis sions fo r thes e categor ies re pres ent 88 % of all Hikma emis sion s to manufac ture, pro mote and distr ibute its p roduc ts . Oth er Sco pe 3 c ategorie s were eith er not signi cant enough for r epor ting or no t applicable. Moving for w ard, we will be lo oking at eng aging with o ur supplie r base to obt ain supplier s pec ic or pro duc t level emis sions d ata to improve our Sco pe 3 data qualit y and id entif y opp or tunitie s to redu ce our carbon footp rint. GH G emissions, S cope 3 (tCO 2 e) Sc ope 3 c ate gor y C ategory descript ion tCO 2 e Verication level 1 Purchase of goo ds and s er vice s 74 2 ,9 8 7 Limited as suranc e 2 C apit al goods 2 7, 6 9 4 Limited as suran ce 3 Fuel- an d energ y-related a ctiv ities (FERA) ( not inclu ded in Sc ope 1 o r Scop e 2) 3 9, 1 6 6 Reas onable as surance 4 Ups tream transpor tation anddist ributi on 27 ,380 Limited as sur ance To t a l 837 ,227 The G HG sourc es that co nsti tuted our o per ational boun dar y for Sco pe 1 and 2 are: Scope 1: – Natural gas combustion – D iesel combus tion – Pet rol combu stion – LPG/Propane combustion – Vehicle emissions – R efriger ants Scope 2: – P urchase d elec tric it y – stan dard – P urchase d elec tric it y – renewab le Hik ma Ph arm ace utic al s PLC Annual Report 2021 47 STRATE GIC REPORT V erication of Scope 1 and 2 and FERA emissions data Car bon Cre dentials Ener gy S er vice s Ltd ( C arbon Intelligence) has be en contr acte d by Hikma Pharmac eutic als PLC for the indep ende nt third-par t y veric ation of dire ct an d indirec t car bon dioxid e equivalent emissions (C O 2 e ) as provi ded in the 202 1company Annual R epor t an d acco unts to areas onable level of a ssur ance in rel ation to ISO140 6 4-3 G reenho use ga ses . V eried emissions by scope incl ude: Scope 1 emissions – C ombus tion of ga seo us fue ls ( natural g as, die sel, petro l and LPG) – Fug itive refri gerant ga ses Scope 2 emissions – Purchased electricit y consumpt ion (location and m a r k e t- b a s e d ) Scope 3 emissions – Fue l- and energ y-relate d acti vitie s ( not includ ed inScop e 1 or Sc ope 2) Carbon Intell igence concludes with reasonable as suranc e, using the ISO 14 06 4- 3 stan dard, that theGH G as ser tio n is materially co rrec t, is a f air repre sentati on of the G HG emis sions dat a and informatio n and is prep ared in acc ordance wi th the relevant cr iteria. Th e full veri catio n statem ent can befoun d here w w w.hikma.com/ sust ainabilit y . Water and waste management We h ave pr ogrammes and practices in place to manage water an d waste an d we comply w ith all relevant laws an d regulation s in this regard. The us e of water is cri tical fo r the phar maceut ical manuf actur ing proc es s. In 20 21, we con ducte d a water scre ening exercise wi th exter nal consult ants to ide ntif y water-related risks in the sh or t, me dium and long ter m. The analysis includ ed 20 manufa cturing site s acros s 11 countri es and, us ing variou s evaluation to ols such as the World Resources Institute A queduct and World Wildlife Fund Water Risk F ilter , ass es se d risks at ea ch loc ation. T he stu dy also inc luded a ge ner al climate analysis , whereby we as se s sed h ow water -related r isks might be ae cte d by climate change in the me dium and long ter m. Throu gh the analysi s, we identi ed which site s had the gre atest ex posure to water sc arcit y . In 202 2, we will wor k with relev ant sites to improve under sta nding of how water is w ithdr awn, use d and discha rged from t hem and this k nowle dge will hel p us iden tif y wat er conser vation opportunities. We are also improving t he way in which we mo nitor andmanage o ur waste, an d are acti vely mea suring theamo unt of hazardou s and non-haz ardous w aste generated thr ough our operations. More infor mation ab out water and w aste manag ement will be incl uded in o ur 2021 Su stainab ilit y Repor t . Limited assurance of specic Scope3 categories For ex ternal as sura nce of the re maining three Sc ope 3 catego ries (Purcha se of goo ds and s er vice s, C apital goods and Upstream tr anspor tation and distribution) , we worked wit h an exter nal third par t y , Sievo Oy, t o as ses s our c arb on footpr int for the se categ orie s. Sievohas contr ac ted E Y under a ‘limite d assur ance engagement’ , as dened b y Int ernational Standards onAs sur ance Engage ments 3 00 0 (ISAE 30 00) to repor t on the methodolog y and the emission factors use d behind ‘ CO 2 Analy tic s’ too l (the T ool) as of 21Janu ar y 202 2 ( all together th e ‘Emis sion Informatio n’). The full as suran ce st atement can befoun d at ww w.hikma.com/sustainabili ty. 48 Hik ma Ph arma ce utic als P LC Annual Report 2021 Ac ting Res pon sibly conti nued Building trust through q ualit y in every thing we do Upholding eth ical standards and a c tin g with integrit y Ethics and compliance Hikma is co mmit ted to uphol ding the highe st ethi cal st andards in the c onduc t of its g lobal bu sines s ope ration s, which is gro unde d in our value s of car ing, innovation, and collab oration. Our valu es s er ve as the foun dation for a s trong governanc e fram ework that is f undament al to our long- term organ isational s ucces s. Our Code of Cond uct s ets ou t behaviour s we expe ct f rom our employe es as we c onduc t our busin es s, and p rovides an over view of our l egal, reg ulator y , an d ethical requirem ents. O ur Co de provide s guidan ce to our employe es and p ar tner s on the ethic s of Hikma’s busines s activitie s through the identication anddisc ussi on of vario us risks a ss ociated wi th ourbu siness. In addit ion to our Co de, we have also devel ope d polic ies and p roce dures de signe d to help emp loyees and third par t ies pu t thes e behavio urs into pra ctic e. Hikma empl oyees , oce rs and Dire ctor s are train ed on the Co de of Co nduc t as par t of th eir induc tion and are provide d refre sher tr aining on a per iodic b asis. Throug h our glob al complian ce progr amme we have adopte d internal control s and managem ent proce s ses to ensure the re spo nsible and et hical co nduc t of our busine ss . This inclu des c ompliance w ith all relevant glob al and loc al laws, c ode s and reg ulations whe rever we ope rate. We believe in tr anspare ncy an d promote a culture that e ncour ages e mployee s to rais e any conc erns ab out p otential violation o f laws and regulatio ns, or any other b ehaviour s or incid ents that do not com ply with o ur Cod e of Condu ct. In a dditio n, our sp eak up line provid es b oth internal and ex ternal st akeholders a re so urce to use to rai se con cerns ab out suspected misconduct condential ly . All cases recei ved are reviewe d by our Legal an d Complian ce teams, an d investigate d, as appro priate, by Legal and Complian ce per sonnel. Sub stantiated v iolations of our Cod e of Cond uct , or other p olicie s and pro cedure s are addre ss ed throu gh our disc iplinar y proc edure s. Our Co mpliance, R esp onsibilit y and Ethic s Co mmit tee provides ov ersight o f our global compl iance progr amme and t he managem ent of ass ociate d risks, including br iber y an d corr uption. We have a zero toler ance p olicy fo r bribe r y and cor ruption at Hikm a. As a pub licly lis ted comp any on the Londo n Stock Exchange (LSE ) , we are subje ct to th e regulation s of the UK Li sting Autho rit y . We also co mply with t he UK Brib er y Act 20 10 and the US F oreign C orrupt Pr ac tice s Act , as well as gl obal anti-c orrupt ion st andards and loc al anti-brib er y and co rruptio n laws. In 202 1, we implem ented RiskRate, an auto mated third-par t y ris k management s ystem throu gh which allnew third-par t y sup pliers to th e Group are e ntered and moni tored throu gh the Gro up’s third-par t y risk managem ent progr amme. We also e st ablishe d a st and-alone gl obal No n-Retaliati on Polic y to rearm Hikma’ s commit ment to open-door comm unication and the p rotecti on of individ uals who r aise is sues a nd conc erns in go od f aith. Hikma e mploy ees, ocers and Direc tors are trained on the C ode of Condu ct as par t of their ind uc tion and are provided refresher training on a periodic b asis Found ing member of thePar tnering Against Corruption Ini tiat ive (P A CI) Hikma is a foun ding membe r of the Par t nering A gainst C orr uption Initiati ve (P ACI) , a cros s-indus tr y collab orative e or t es tablis hed thro ugh the Wor ld Economi c Forum de dic ated to promoting c ompliance and eliminating co rruptio n. We are also memb ers of t he Busine s s 20 (B20) Anti-Cor ruption Wor king Gro up. The B20 re pres ents th e busine ss voic e of the G20 g roup of governme nts and the A nti-C orrupti on Working Group ha s a mandate to help comp anies imp rove their ethic al condu ct. This yea r , ou r FT SE 4G oo d Ind ex score was 3. 2 pla cing us in t he 69 th per cent ile as compared to other industry peer members. Hik ma Ph arm ace utic al s PLC Annual Report 2021 49 STRATE GIC REPORT Product quality and safety Ensuring quali ty is inh erent in ever y step we t ake in developin g and manuf act uring our me dicine s. Eac h ofour phar maceut ical ing redient s and nishe d dose s undergo mul tiple, tho rough quali ty te sting an d inspe cti on. The Q ualit y team is a glo bal team ta sked with und er taking o ngoing qualit y audit s around th e world in o ur manufa ctur ing sites . The he alth and s afet y of our patient s is at the he ar t of what we do. We ope rate a rigoro us pharm acovigilan ce syste m to prevent patient harm an d to promote the safe and e ec tive use of o ur produ cts . We have globally alig ned pro ces se s to detec t, evalu ate and communi cate any change to the b enet-risk ratio of our pro duct s and to imple ment timel y corre ctive and p reventat ive ac tio ns. We cond uct our pharmaco vigilance activities globally acros s the wh ole life span of our p roduc ts , complyin g with all lo cal re gulations an d safet y rep or ting timelin es. Main tai nin g our mem bersh ip of t he FTSE4 Good Inde x For the s eventh cons ecut ive year , we maintaine d our memb ership of t he F TSE4G ood I ndex Ser ies – an in dex of LSE-listed c ompanie s that demo nstr ate strong Environm ental, So cial and G overnanc e (ESG) pract ices a s measure d agains t globall y recog nised s tand ards. The F TSE4 Go od evaluate s companie s’ ee ctive nes s in addre ssing i ssue s such a s human right s, anti-c orrupti on, environment al per for mance, he alth and s afet y , an d communit y en gagement . Their as se ss ments are us ed by a wid e variet y of mar ket par ticip ants to develop re spo nsible inves tment fun ds and other p roduc ts . Our ESG rating in 20 21 wa s 3. 2, placing u s in the 69th p ercentil e as compare d to indust r y pee rs that are lis ted in the ind ex. Our aim is to co ntinue improving our managem ent of ESG iss ues . Pharmac ovigilance i s monitore d at the highe st levels ofour busin es s and is inclu ded in our Enter prise R isk Managem ent fra mework , which is overs een by th e Exe cutive Co mmit tee and th e Board o n a regular ba sis. T o en sure our pharm acovigilan ce syste m is achieving its ob jec tives , we monitor o ur worldw ide comp liance metri cs ever y m onth. The se are re corde d in monthly ope rational re por t s and reviewe d in glob al and regional phar macovigilance me etings. Corporate governance In 202 1, we condu cted a G roup-w ide review of our environment al, soc ial and governanc e (ESG) strateg y . As p ar t of this review, we re-examin ed which ES G iss ues are of g reatest imp or tan ce to Hikma as we ll as our key stakehold ers. T hes e iss ues will b e des crib ed inmore det ail in our 202 1 Sust ainabilit y Rep or t. While ce r tain elem ents of our ESG s trateg y are governe d by vario us board c ommit tee s, our B oard ofDirec tors have over arching oversight of o ur ESG str ateg y including environm ental asp ec ts and TCFD str ateg y and repo r ting. Our E xecuti ve Vice Pre sident (EVP) of Busin es s Op eratio ns, who re por t s direct ly into our CEO, leads our ESG rep or ting as well a s our internal cros s- func tional wo rking gro up integrating TCFD into our busine ss . Our C SR st rateg y is govern ed by the Comp liance, Re sp onsibilit y an d Ethics C ommit te e. More infor mation on our c orp orate governan ce and our manage ment of ESG is sues c an be fo und on page6 8. The Board of Direc tors have over arch ing oversight of our ESG str ategy 50 H ikm a Pha rma ceu tic als PL C Annual Repor t 2021 Aligning with th e TCFD We used a mixt ure of qualitative and quanti tative mode lling to understand how climate‑related risks a nd oppor tunities may change u nder die rent climate futures Aligning with the TCFD We ar e conti nuously al igni ng our in ternal proces ses and public di sclosures with the T ask Force for Cli mat e-rela ted Fin ancial Dis closure s ( TCFD ) . In acco rdance wit h Listing Rul e LR 9 . 8.6 (8) weare including dis closure s that are cons istent with th e TCFDRecomm endation s, rec ognising that we will continue to improve our imp lement ation of the reco mmendatio ns, e spe cially in the area o f str ategy resilie nce and th e improvement of metr ic s and target s.This s ec tion summar ise s our progre s s as of 31D ece mber 20 21 agains t the four TCFD c ategorie s which inclu de: Governance: our governance s truc ture to provid e ee ct ive over sight ove r our cl imate-re lated r isks andopp or tunit ies Strategy: our evalu ation of the ac tual an d potential impac ts of climate-re lated risks an d oppo r tunitie s on our busine ss, s trateg y , and nancial planning over the shor t , medium, an d long term Risk managemen t: how we ide ntif y , a ss es s, and manage climate-rel ated risks Metrics and targets: our pro gres s on set tin g metric s and targe ts to as ses s and man age our material climate-related r isks and op por tuni ties Governance Bo ar d leve l over sigh t Our B oard of Dire ctor s retains over arching oversight ofour TCFD str ategy in cluding our climate-re lated risksand o ppor tunitie s. We are planning to co nduc t additi onal Bo ard training in 20 22. Management le vel leadershi p At the managem ent level, we bring tog ether the exper t ise of many seni or lead ers fro m acros s our organis ation given t he divers e nature of our climate- related ri sks and opp or tuniti es. O ur Exe cutive Vi ce Presid ent (EVP) of Busine ss O per ations , who rep or ts direc tly into our CEO, leads o ur internal cros s- func tional wo rking gro up integrating TCFD reco mmendatio ns into our busine ss . As Chair of t his working g roup, she drive s progre ss in un ders tanding Hikma’s climate-related r isks and opp or tunit ies , bringing to gether the re levant expe r tise and p rovide s update s direct ly to the Bo ard as a whol e. Our TCFD working g roup me ets on a reg ular basis wi th exter nal consul tant supp or t with the o bjec tive to progre s s our under stan ding of Hikma’s climate-related r isks and opp or tunitie s and to take appro priate ac tion. Strategy Climate‑related risks and oppor tunities andtheir impac t With th e ass istan ce of third-par t y climate exp er tise, Hikma u nder took an iden tication and assessment proje ct to bet ter un ders tand th e top climate-related risks and o ppor tunitie s that could b e signi cant to Hikma’s busine ss . The foll owing were se lec ted for fur the r mode lling of their nanc ial impac t base d on str ategic impo r tanc e to Hikma, corre lation with oth er proje ct s and initiative s and gr anular data availabilit y for mo delling. Physical risks – Im pac t of storm s and oo ding on our f aciliti es andoperations T ransition risks – Im pac t of carb on pr icing on the r aw materials co sts of som e of our mos t energ y intensi ve inputs su ch as APIs and p ackaging – Ch anges in inves tor preferen ces aro und ESG impac ting our market valuation Opportunities Our exp osure to energ y p ricing change s was rev iewed. Alongs ide this ene rg y mode lling, we revie wed var ious str ategic opp or tunit ies to red uce our en erg y risk and reduc e our car bon imp act by cha nging our ene rg y mix, set ting an en erg y str ateg y , an d reducing o ur overall demand t hrough e ciencie s. We will co ntinue to work on our tr ansitio n plan in 202 2. Methodolog y We used a mi xture o f qualitative an d quantitati ve mod elling to under stan d how the se risks an d opp or tunitie s may change unde r dierent climate fut ures as well a s three die rent time hor izons. We use d the Bank of Eng land’s referenc e climate scenar ios to under stan d the potential f uture physic al diere nces in climate driven by temp erature cha nges, o utline d in the R epre se ntati ve Con centr atio n Pathw ays (RCP). Also, we have use d the Share d Soc ioe conomic Pathways (SSPs) . Through t his exercise we were ab le to bet ter under stand th e potential nancial impact s of the ide ntied climate r isks and opp or tunit ies, w hich will be inpu t into our str ategic planning. Hik ma Ph arm ace utic al s PLC Annual Report 2021 51 STRATE GIC REPORT Ca rbo n pric ing im pac ts o n our s upp ly ch ain We looked at proj ec ted car bon pr icing in sever al region s under die rent climate scenar ios, an d the potential pa ss-o n cos t that could o ccur within o ur supply ch ain inating our cos ts . As APIs an d packa gingmaterials are s ome of our m ost en erg y andc arbon intens ive procure d goo ds, it is t hes e materials that wo uld likely be impac ted th e most bythe introdu ctio n of car bon pr ices an d therefore forme d the ba sis of our mo delling. We have a sustainabl e procure ment prog ramme in place to b et ter under stan d the c arbon imp act s of the goo ds and se r vice s we procure. A s a key mitigation, weintend to engage w ith our main material s supplier s to under stan d their goals to re duce c arbo n, move to renewa ble ener gy an d increas e energ y e cienci es in their pro duc tion. Thro ugh suppli er engage ment, we anticipate we c an par tly mit igate the impac t of c arbo n pricing p as s-on in the f uture. Inve stor preference change Investor p reference s around ES G credential s are changing. We mo delle d the potential imp ac t on our market valuation, f rom shiing inves tor alloc ation s away from as set s which do not m eet ESG re quirement s and from d ecrea sing ESG ben chmark r atings. Hikma is alrea dy engag ing and communic ating with investor s on ESG-re lated mat ters inclu ding climate. By ensur ing we continue to s treng then a nd communic ate our climate and sus tainabilit y ambi tions and pe r formanc e, this risk is mit igated. Se e our Ac ting resp onsibly s ec tion, p age 37 , fo r more inform ation on our pe r formanc e this year . Energy pricing change s and our energy strategy While ene rg y cost s to our busin es s make up only approximately 1% of total co st s, energ y is hi ghly linkedto our sust ainabilit y str ateg y and our co ntinued eor t s to reduce o ur impac t on the environm ent; par tic ularly throu gh energ y e cienc y and moving to renewable ener g y . We mode lled multip le opp or tuniti es to under st and how we mitig ate and enhance o ur energ y s trateg y over time, inclu ding dierent ene rg y mixes in our die rent regions and achievemen t of dier ent energy eciency goals . This mo delling work w ill provide inpu t into our energ y tran sition plan. Physical impacts on our facilities Given o ur geogr aphic al sprea d acros s many region s wehave var ying levels of exp osure to physic al risks of climate change in our die rent loc ations . The mo delling of incre asing risk o f storms an d oo d caus ing damage to our f acilitie s, as well a s disruptio n to our ope ration s, show th at we have limited direc t expo sure to thes e acute ris ks in a future 1. 5°C and well-be low 2° C worl d. However , as the r isk increa ses under a busi nes s- as-usua l scenario where global warming exce eds 3 °C th ere is som e potential ris k for our f acilitie s. With th e insights f rom our mo delling and under stan ding that the se risks are n ot signic ant to our site s at this sta ge, we will continue to eng age with our op eratio nal fac ilities te ams in the high est r isk region s to ensure our bu sines s continuit y an d recover y proc es se s are t for pur pos e. The insig hts of this analysis we re used in t he stre ss te sting for t he longer-term viabilit y as se ssm ent ( se e page 6 3) . The results of our nancial impact asses sment determine that climate change is not expe c ted to have a material impac t on the Gro up’ s viabili ty in the longer ‑ter m Resilience of Hik ma’ s strateg y From our nancial imp act m odelling we w ere able to unde rst and how ce r tain area s of our busine s s could b e impac ted by climate change. Th e table b elow summ arise s the key insights fro m our nancial imp act m odelling condu cted t his year for the ve risks and op por t unities . Summar y ndings The re sults of o ur nancial impa ct as se ss ment show that climate chang e is not expe cte d to have a material impac t on the G roup’s viabilit y in the l onger term . The longe r -term is consi dered to b e a time pe riod of t hree year s. This is in line with th e timefr ame use d in the lo nger -term viabilit y a ss es sment (see pa ge 63). We recognis e that climate- related ri sks will continue to devel op over a signic antly lo nger per iod an d ass es s that Hikma will b e able to adapt its s trateg y and re spo nd appro priately to any such ris ks that may threaten to have a material impac t on the G roup. We will continue to us e the insight s outline d above over the c oming year to stre ng then our mo nitoring met ric s and under stan d where we ne ed to improve our mi tigation c ontrols. 52 H ikm a Phar mac eut ica ls PLC Annual Repor t 2021 Alignin g wi th th e TCFD conti nued We will continue to build on our climate‑related risk identication and mode lling by working with key stakeholders Risk management Process for i dentif ying and asse ssing climate‑related risks We identif y and a ss es s climate related risk s using arange of ap proac hes . We conduc ted a ris k identi catio n and as ses sme nt exercise as par t of theenterp rise r isk managem ent proc es s with all ris k owner s acros s the bu sines s. T he outcom es of this review fe d in to the TCFD Working Group’s as se ss ment of the mo st relev ant climate-related ris ks for Hikma. We engage d exter nal exper t s to suppo r t the TCFD Working G roup to identif y an d ass es s climate-related risks using c limate scienc e data and kn own pathways. We use thre e timefr ames to revi ew and as se ss th e likelihood and impac ts o f our climate risk s and impac ts . The rs t timefr ame wa s for a per iod of threeyea rs, align ed with t he longe r -term viabilit y as ses sme nt ( se e page 6 3) . We also con sidere d how climate-related r isks might impac t the G roup fur th er into the fut ure. Process for m anaging climate‑related risks and integration of risk management process es Climate-related r isks are identi ed, as se s sed, an d manage d by teams acros s the o rganisati on depe nding on the nature of t he risk . Our risk m anagement fra mework (see p age 5 4- 61 ) provide s a str uct ure for signic ant risks to b e esc alated an d integrated into ourenterp rise r isk managem ent proce s s. In 202 1 we also e sta blishe d the TCFD Working Group, a cro ss- func tional te am to conso lidate ass es sment s on this emerg ing risk area. Ex amples o f how climate-related r isks are manage d and integr ated into existing ri sk manageme nt activitiesincl ude: – Longer term via bility ass essment: envir onment and climate change related r isks includ ed in the s cenari o mod elling (see page 6 3) – Cr isis and co ntinuit y manageme nt progr amme: siteas ses sme nts of physic al risks an d controls (seepage6 0) Looking fo r ward to the co ming year , environment and climate change will continu e to be a focu s area and will continue to b e par t of the e nterpris e risk manage ment fra mework (see p age 5 4- 61 ) . We will continue to b uild on our ri sk identi cation an d mod elling by working wi th key stakeholde rs acros s our b usines s to unde rst and existing r isk mitig ation control s and proc es se s in place.W here we ide ntif y any control gap s or areas ofimprovement , we will build cle ar ac tion plans andowne rship to drive this fo r ward to ensure our long- term resil ience. Metrics and targets Metric s to asses s climate‑related risks andoppo rtu nities We have taken steps to under st and the nan cial impac ts of s ome of our mater ial risks and opp or tunitie s. Th e nex t steps are to improve th e metri cs by whic h we monitor th ese r isks and c apture opp or tunitie s, and t he ee ctiven es s of our contro ls. We also continu e to improve our environment al metri cs in relat ion to emis sions, e nerg y , water , and waste managem ent. The Remuneration Committee determined the CEO’sper fo rmance t arget for 20 21 which e nsures thatclear p rogre ss is b eing made wi th resp ec t to thedevelo pment and exe cution of t he Group’s Environmental, S ocial and G overnan ce str ateg y , w hich include s the G roup’s climate-related p rogram mes . This also incl udes t he identi catio n of climate-related ri sks and opp or tunit ies and t he manageme nt thereo f . Disclosures of S cope 1 and 2 target s An over view of o ur emis sions tar gets, o ur carb on footpr int and metri cs o n our energ y co nsumption c an be foun d in the Protec ting the environm ent sec tion o f our Annual R epor t , see p ages 4 4. Hikma Pharm aceutic als PLC Annua l Rep or t 20 21 53 STRATE GIC REPORT 54 H ikm a Phar mac eut ic als PLC A nnua l Rep or t 20 21 Risk management In 2 021 , ou r r i sk a ssess men ts inf ormed o ur deci sion -maki ng on priori ti sati on and allocation of reso urces across the G roup In this section 55 Risk m anagement framewor k 56 Risk ma nagement acti vities 58 Principal risks and uncer tainties 62 Going concern 6 3 L onger -term viabi lity Hik ma Ph arm ace utic al s PLC Annual Report 2021 55 STRATE GIC REPORT 1. Full co mmit te e term s of ref eren ce are av aila ble o n ww w.hikma.com Risk management framework Risk context Our pur pos e is to put b etter h ealth wi thin reach, ever y day for healt hcare p rofes sionals an d their patie nts. We bring pati ents acro ss th e US, MENA and Europ e abroad r ange of gen eric, s pec ialt y and br anded pharmaceutical pr oducts . The f uture is unce r tain and it c arr ies ri sk and opp or tunit y for our b usine ss . Thes e risks an d opp or tunitie s may be relate d to our str ateg y and deliver y of o ur objec tive s, the a ctiv ities an d proc es se s of the organ isation, the e xpec tations of our stakeholders, or our key relationship s and dep enden cies . Find ou t more abo ut the internal an d exter nal context for risk ma nagement for t he Group in th e ‘CEO’s str ategic review ’ (p ages 6 –9 ), ‘Our markets’ (p ages 18–19 ) and ‘O ur busine s s mode l’ (pag es 20 –21) . Risk strateg y Eec tive managem ent of risk and o ppor t unit y is fundam ental for th e long-term succ es s for the G roup. We oper ate an Enterpris e Risk Manage ment (ERM) fra mework to en sure that we are comp rehensive an d str uct ured in our app roach. T he fr amework d elivers athorou gh view of our r isk expo sure to inform ourde cision-making a nd enable t he alignment , eec tiven es s and eci enc y of our str ategic, t ac tical, operational a nd complia nce processe s. The approac h ensure s we full o ur obligatio ns and provid es as suran ce that our ac tivit ies are app ropriatel y controlle d. Risk appetit e The B oard determin es the n ature and exte nt of the princip al risks it i s willing to take and communic ates this throug h the Gro up risk app etite. The r isk app etite outline s expe cte d managem ent str ategies an d details limits and to leran ces o n risk exp osure for ea ch of the princip al risks . It forms t he foundatio n of the ERM fram ework and guide s management de cision-making acros s the G roup. The r isk appet ite is reviewe d twi ce ayear at Bo ard-level and is mo nitored by manag ement on an ongoingb asis. Risk governance The B oard has ultimate re spon sibilit y for the G roup’s approa ch to risk manag ement and internal c ontrol. On behal f of the Bo ard, the Audit C ommit tee over see s risk managem ent for the Gro up as par t of it s resp onsibilit ies for intern al control. The Audit C ommit tee revi ews the materia l risks fac ingthe Gro up, consider ing dierent so urces of assur ance, including executi ve management, internal audit and ex ternal au dit. Th e Chair of the Audit Commit te e is a sta nding memb er of the C ompliance, Res ponsibili ty an d Ethics C ommit tee (CREC) ensuring conne cti on bet we en the Bo ard commit te es with r isk oversig ht resp onsibilit ies 1 . Internal audit p rovide s indep endent as sur ance of the Group ’s int ernal c ontrol environm ent. For mo re details on our internal au dit appro ach se e page 8 3. The ERM o ce enabl es and dr ives th e impleme ntation of eective risk management prac tices through the organis ation, guid es gl obal ris k owners in a ss es sing and rep or ting their r isks, co ordinates em erging ris k as ses sme nts, and e st ablishe s par tne rships a cros s theorga nisation to pro mote and develo p a resp onsible risk cul ture. Compliance and cont rol functions with professional exper t ise in managin g risk in spe cialis t areas are in place a cros s the organi sation. The CEO and E xecu tive Commi tte e have direct owner ship of risk mana gement for th e Group. Risk managem ent account abilit y is fully e mbed ded wi thin their exec utive re spon sibilitie s and inc lude s as ses sme nts of str ategic, t ac tical, o per ational and complia nce relat ed oppor tuniti es and risks. As p ar t of the risk gover nance f ramewo rk, s enior executi ves are as signe d resp onsibilit y for s peci c princip al risks . The se glob al risk own ers co ordinate riskmana gement ac tivit ies acro ss t he organis ation with supp or t fro m management tea ms to ensure risk expo sure is managed a ppropr iately and in line wit h theris k appeti te. Risk management occ urs across the organisation Comp lement ar y manageme nt stru cture s provide a ssur ance over our r isk managem ent and internal co ntrol throug h stan dards, ac countabili ty, oversigh t, independent and external asses sments. E xec uti ve account abilit y Executive Committee Global risk o wners Ex ternal consultants Compliance andcontrol Corporate Compliance Quality Compliance Group Risk Oce Financial Complia nce Other compliance teams Front -line management Operational activity Management reviews Board oversight Board of Directors Audit Commit tee CREC Independent assurance Internal audit Ex ternal consultants Ex ternal audit Eective management of ri sk and oppor tunity is fundamental for the long- term success for the Group 56 H ikm a Pha rma ceu tic als PL C Annual Repor t 2021 In our ris k ass es sment s we analyse o ur current ris k expo sure (gi ven the contro ls we already have in place ) and the opportunit y for fur ther man agement act ion to mitigate the r isk. Risks wit h higher ris k exposure a nd opp or tunit y forfur th er managem ent act ion are categ orise d as ‘Pr iorit y foc us’ . Risks wit h higher ris k exposure b ut with out reasonable opportunit y for further managemen t act ion are ‘Clo sely m onitor ’ risks . Risks as se ss ed as having l ower risk exp osure are eithe r ‘Improve ’ if there are rea sonabl e act ions that managem ent can t ake , or ‘C ontinue to op erate’ if noaddi tional ac tions are c onside red ne ces sar y. This app roach he lps guide o ur decisi on-making for risk re spon se, pri oritis ation, and all oc ation of res ources a cros s the Gro up. Risk manag ement ac tivitie s in 20 21 Reviewed the risk management framewor k, risk a ppet ite, and princi palri sks Monitored ent erprise-wide key risk ind icato rs alig ned to risk a ppet ite to as se ss r isk expo sure Developed long- term climate re lated r isk sc enar io models Enhanced busine ss continuity manag ement for all manufa ctur ing facili ties Rened s cenario mode lling approach for signic ant risk event s bas ed on p rinci pal and em ergin g risks a longer ter m that may have signic ant impac t on our abilit y to achieve our o bjec tives . Emerging r isks are oen dri ven by forces o utsi de our control. A lthoug h emerging r isks may be miti gated by existing c ontrol fr amewor ks, they n eed to b e ass es se d to determine if any asp ec ts f all out side curre nt proc es se s or if the co ntrols in place m ay beco me inade quate as the ris k develops . Our app roach involve s est ablishing cro ss-func tion al teams to as se ss th e risks and o ppor t unities reco gnising the se may develo p over an extend ed timeframe. The risk asses sment methods deploy ed var y and may involve engag ing with ex ternal exp er ts , scenario modellin g, engagement with existing risk mitigat ion programmes, and dev elopment of risk mitigatio n and control s trateg ies that will b e sustainable o ver the lon ger term. Priorities for 202 2 In addit ion to core ac tivit ies , in 2022 w e will fur ther embe d our cris is and continuit y mana gement proc es se s to streng the n our organis ational re silienc e, with a fo cus on review ing and integrating o ur IT Continuit y an d Disa ster Re cover y cap abilitie s. We will continue to develo p par tne rships b etw een complia nce and con trol functions t o bring gr eater as suranc e for the Gro up. We wi ll further develop our emerging risk a ss essment proc es se s, including a fo cus on e merging climate- related ri sks alongsid e our alignme nt with the reco mmendatio ns from th e T ask Fo rce on Climate- related Finan cial Disc losure s ( se e page s 50– 52 for more det ails) . In line with go od p rac tice, we will c onduc t an independent e xternal asse ssment of our risk managem ent progr amme to provide a ssur ance to managem ent and the B oard. Risk management activities Risk manage ment ac tiviti es oc cur at all levels of the organis ation. Th e risk governa nce fr amewor k provide s str uct ure for the se ac tiviti es to ensure c onsiste ncy ofappro ach, alignme nt to the risk app etite and monitor ing of our risk ex posure a cros s the organis ation. The ERM o ce co ordinates reg ular risk as se ssm ents to review managem ent of risks we alre ady know a bout , and to identif y , analyse and evaluate new and emerging ris ks. The se as se ssm ents are co nsolidate d through t he ERM oce an d repor te d to the E xecutive C ommit tee by theglo bal risk ow ners . Summaris ed rep or ts and key outcom es are revie wed by the Audi t Commit tee an d Board . In additio n to the core rep or ting pro ce ss es des crib ed, a ran ge of key risk manageme nt activ ities occ urred dur ing the year . Risk management in pr actice Rec ognising ris k as the ee ct of un cer taint y on obje ctive s, our ab ilit y to manage risk ena bles d eliver y of our obje ct ives. T o ensure o ur ass es sment s and managem ent of risk are ac tion- orie nted we catego rise our risks c onside ring not jus t signic ance of r isk expo sure, but als o the opp or tunit y for mana gement act ion, de scrib ed in the ‘ Risk re spo nse de cision- making ’ se ctio n below. Ex amples o f our risk mana gement in pr ac tice are se en in the ‘ Hikma Eg ypt CCM eng agement ’ an d ‘Hikma Moro cco ris k ass es sment ’ c ase s tudie s on the nex t pag e. Emerging risks Emerging r isks are thos e that are newly i dentie d and have the potential to b ecom e signic ant risks for t he Group, tho se that may alread y be well kn own but that are rapi dly changing , or tho se that are develo ping over Risk exposure Opportunit y for further management action Closely monit or Continue to operate Priorit y focus Im prove Ris k respo nse dec i sion -m akin g Risk mana geme nt conti nued Hik ma Ph arm ace utic al s PLC Annual Report 2021 57 STRATE GIC REPORT Risk manag ement ac tivities occur at all levels of the organisation Case study: Hi kma Moroc co risk asses sment Aligne d to the Gro up-level enter pris e risk managem ent proce s s, cros s-func tional co untr y- level risk a ss es sment s are conduc ted p erio dicall y . The ERM O ce p ar tner s with Co mpliance to coo rdinate thes e engagem ents and prov ide support to local leadership teams in identifying, analysing and evaluating risks, and to conn ect with reg ional and G roup func tion s for suppo r t andexp er tise. The eng agement wi th Hikma Mo rocco w as oneofmany proje ct s compl eted in 202 1. The proje ct wa s delivere d with a hybri d on-site and remote supp or t. Throug h loc al func tional r isk works hops and senio r manageme nt reviews the und ers tanding ofthe ris ks facing H ikma Moro cco wa s enhance d and risk re spo nse de cision s taken for ‘Pr iorit y focus’ an d ‘Imp rove’ risks. Case study: Hi kma Egypt CC M eng age ment Our Cri sis and Continui ty M anageme nt ( CCM) Programme is designed to dev elop and embed cap abilitie s acros s all par t s of Hikma for key CCM discip lines: Cr isis Mana gement , Busine s s Continuit y (including IT C ontinuit y and Dis aster R ecover y), and Emergency Response. Countr y an d site engagem ents co ordinated by the CCM Progr amme provid e loc al managem ent teams with a s truc tured ap proach to fo cus on this r isk managem ent acti vit y with ac ces s to internal and exter nal subjec t mat ter expe r tise, and t he opp or tunit y to share goo d pra ctic e acros s the G roup. The CCM eng agement wi th Hikma Eg ypt w as one of many such proje ct s compl eted in 202 1 and followe d a trie d and tes ted proje ct p lan. Aer initial ki ck o with th e Gen eral M anager and senior leadership team members, local and progr amme subje ct mat ter exp er ts fo r each of th e CCM disciplin es reviewe d exist ing arran gements , as ses se d change s in the organis ation and b usine ss prio ritie s, and up dated pro ces se s and pro cedure s. All locations, busi nes s activities, depar tments and ke y dependencies were consider ed. The culminati on of the eng agement were CCM worksh ops and exercis es that p rovided tr aining forlo cal manag ement in handling va rious t yp es ofdisrupti on. 58 H ikm a Pha rma ceu tic als PL C Annual Repor t 2021 Risk mana geme nt conti nued Principal risks and uncertainties The G roup fa ces r isks from a r ange of sourc es that co uld have a material impac t on our n ancial commi tments an d abilit y to trad e in the fu ture. The B oard has p er forme d a robus t as ses sme nt of the prin cipal risks fo r the Gro up consid ering our ri sk context an d input fro m executive managem ent. Throu gh this as se ssm ent, the B oard has dete rmined th at the princ ipal risks f acing the G roup have not materially c hanged over the year an d that there are no n ew princip al risks to be a dded . The set of p rincipa l risks sho uld not be c onsidere d as an exhaus tive list o f all the risks th e Group f ace s. Cer tain risk f ac tors are ou tside th e control of mana gement. The B oard rec ognise s that the p rincipal r isks are dynamic an d that managem ent of thes e risks mus t be c ontinuous as t he risk environm ent change s. The B oard is s atise d that the pr incipal ri sks are being mana ged app ropriately an d consis tently with th e target ri sk appeti te. Eec tively manag ing thes e risks is dire ctl y linked to the per for mance of our s trateg ic KPIs (see pa ges 2 2– 23) and the d eliver y of the s trateg ic prio ritie s outline d on pag es 6 –9 . O ur princip al risks are s et out be low with examp les of ma nagement ac tion s that help to control t he risk ; the act ions de scr ibed do n ot include all a ctio ns taken by manageme nt. Industry dynamics Risk description Management actions The co mmercial viab ilit y of the indust r y and busine s s mode l we oper ate may change signicantly asa resul t of polit ical a ctio n, economic factors, societal pres sure s, regulator y inter venti ons or change s to par ticip ants in the value chain of t he indus tr y . – Gro w th and exp ansi on in exis ting ma rkets an d by enteri ng new ge ogr aphi c areas e g Can ada and Fr anc e – C apit al inves tment in t he co untrie s in whi ch we op erate to e nsure c ontinu ed mar ket acce ss e g ster ile inje ct able 5 03 B comp oun ding bus ines s in th e US, Al geria o ral o nco log y – De velop ment of c apa cit y and di vers ic ation o f cap abilit y th roug h diere ntiate d techn olog y – Collaboration with external par tners for de velopment and in-licensing partner ships – Co ntinuo us align ment of c omme rcial an d R&D org anis ation s to ident if y market op por t uniti es an d meet dema nd thro ugh inter nal p or t folio – Ac tive pr oduc t life c ycle a nd pri cing man agem ent – Levera ging the qualit y, reliability an d exibilit y of our manuf act uring fa cilitie s for par tner ships ( such as con tract manufacturing) – Work ing wit h a broa d rang e of cus tome rs and ex pand ing our re lation ships to c over new c usto mer s andpurchasing models Produ ct p ipeline Risk description Management actions Selecting, developing and regis tering new pro duc ts that me et market nee ds and are align ed with Hikma’s str ateg y to provide a continuo us source o f future gro wt h. – Inves ted in R &D wi th devel opme nt of exis ting f acili tie s, inc luding a n ew R&D s ite for co mplex i njec tab le s in Warre n, New J ers ey – Developed R&D expertise to develop comple x generic products – Es tab lishe d de dic ated in-h ous e labo rator y an d devel ope d ex ternal p ar tne rship s to miti gate ex tra ct able s and lea chabl es fo r cont ainer cl osure s yste ms ris k prol e in line w ith deve lopin g regul ator y req uireme nts – Bo lste red pip elin e throu gh bus ines s deve lop ment de als and e st abli shed s tr ategic p ar tne rship s to intro duce new technologi es in our r egions – Re crui ted ne w tale nt (eg Head of D evel opme nt in MENA) an d devel ope d intern al cap abili tie s ( eg cli nica l exper tise, injectable formulation ) Organisat ional dev elopment Risk description Management actions Develo ping, maint aining and adapting organisatio nal struc tures , manageme nt processes and controls , and tal ent pipeline toen able eective deliv er y bythebusin es s in the f ace of rapi dandcons tant internal an d external change. – Adv ance d our D iver sit y , Equi ty an d Incl usion p rogr amme w ith gl obal a nd lo cal ini tiati ves – La unche d glo bal le ade rship d evelo pment p rogr amme s to sup por t o ur grow th an d the evo lutio n of our c ulture – Stren gt hene d team s with key ta lent ap pointe d to ll st rate gic reg ional a nd glo bal p osit ions , inclu ding development of change management cap ability – Adv ance d our su cce ss ion man agem ent pro ces s to imp rove our re silie nce in key po siti ons – Gl obali se d our ta lent ac quisi tion pr oce s s – Co ntinue d to create exibl e work ing enviro nment s in re spo nse to COVI D-19 chall enge s to supp or t our empl oyee s and th eir fa milie s – Co ntinue d to drive s tan dardis atio n of HR pr oce ss es t hroug h Grou p-wi de human c api tal man agem ent sys tem – Co ntinue d to dep loy enha nce d lear ning mater ials to su ppo r t emplo yee s throug h the o rganis atio n-wide learning management sys tem Hik ma Ph arm ace utic al s PLC Annual Report 2021 59 STRATE GIC REPORT Reputation Risk description Management actions Building and m aintaining trus ted and succe s sful p ar tners hips with our stakeholders r elies on developi ng andsus taining our rep utatio n as one ofour mo st valuab le as sets . – Inter nal and ex ter nal mo nitor ing and ma nagem ent of is sue s that may imp ac t repu tati on – Ex ternal communications initi atives – Investor and analyst engagemen t activities – Es tab lishe d wor king gro up to integ rate envi ronme nt and clim ate-rel ated mat ter s into the b usine s s – Co nduc ted nancia l impac t anal ysis of c limate-re lated r isks an d opp or tuni tie s (see pa ge 51) – Developed comprehensive Acting Responsibly framework ( see pages 37–49 ) – Established and dev eloped strategic industry and comm unity par tnerships – De ploye d intern al comm unic ation p rogr amme s to supp or t em ploye e enga geme nt Ethics and com pliance Risk description Management actions Maintaining a cult ure under pinned byethica l decisi on making , with approp riate internal contro ls to ensure st a and thirdpar ti es comp ly with ourCo de ofCo nduc t, as soc iated polic ies andp roce dures , as well asallappli cablel egislatio n. – Up dated C ode o f Con duc t and var iou s Cor por ate Com plian ce po licie s, in cludin g Con ict of i nteres t, Spe ak Up, Third p ar t y due dil igenc e, and N on-ret aliati on – Stren gt hene d Co mplian ce le ader ship te am, inclu ding US C ompli ance O c er role – Active par ticipation in international a nti-corruption initiatives, including the Par tnering Against Cor rupt ion Ini tiative (PACI) and the B usine ss 2 0 Anti- Cor rupt ion Wor king G roup (see p age 4 8) Information and c yber se curit y , technolog y and infras truc ture Risk description Management actions Ensuri ng the in tegrity , condentia lity , availabilit y and re silience of d ata, se curing informati on store d and/ or proc es sed inter nally or ex ternally fromc yber an d non- cyb er threats , maintaining and devel oping techn olog y syste ms that enable b usine ss pro ce ss es, and ensur ing infra stru cture sup por t s the organisat ion eectively . – Stren gt hene d IT le ade rship te am and ro lle d out ne w ope ratin g mod el – Co ntinual a ss es sme nt and enh ance ment of c ybe r contr ols to sup por t b usine s s str ateg y and changingthreat landscap e – Init iated a s trate gic I T continu it y and dis as ter rec over y pro gra mme to val idate re silien ce – De velop ed ma nagem ent of Se greg ation o f Dut y s truc tur e for Fina ncial s ystem s in line wi th busine ssrequire ments – La unche d impl eme ntatio n of enhan ce d Glob al Q MS to miti gate leg acy a pplic ati on ris k Legal, regulatory and intel lec tual propert y Risk description Management actions Comp lying with laws an d regulatio ns, and their applic ation. Managing litigat ion, gov ernmental inv es tigations, sanctions , contractual te rms and condit ions and adapting to th eir change s while pres er ving shareholde r value, busine ss integ rit y and rep utation . – Co ntinuo us as se ss ment of d evelop ment s in leg al and re gulator y f ram ewor ks and imp ac t on the o rganis atio n – Co ntinue d to manag e comp lex liti gatio n act ivit y re lated to th e manuf ac ture, s ale an d dist ribu tion o f opio idpro duc ts – De velop ed an d update d po licie s and p roce dure s in re spo nse to cha nges i n the ri sks fa cing th e Gro up, inclu ding th e protec tio n and s ecur it y of pe rso nal dat a, the re gis trat ion an d maintenan ce of IP a ss ets , and compliance with economic sanctions, expor t controls and trade restrictio ns – Provi ded ove rsig ht on pr icing c ommit te es as se s sing pr ice in creas e to ens ure thor ough a ss es sme nt ofbus ines s ne ed s – Imp leme nted co ntrols a nd pro ced ures to a ddre ss r isk of IP l itigat ion in jur isdi cti ons wh ere Hik ma market s itsp rodu ct s – Inter nal co mmunic atio n and tr aining to r aise aw aren es s, en sure und ers tan ding and b uild a c omplia nce cul ture across the organisation – Ongoing asses sment a nd monitoring of general litiga tion activit y in the US pharmaceutical en vironmen t – Engaged external cou nsel for independent special ist advice 60 Hikma P harm ace uti ca ls PLC Annual Report 2021 Risk mana geme nt conti nued Principal risks and uncertainties continued Inorganic grow th Risk description Management actions Identifying, accurat ely pricing and realising exp ec ted be net s from acquisi tions or di vestm ents, licen sing, o r other bu sines s developmen t activities. – Maint aine d a hea lthy pip eline of o ppo r tunit ies to a chieve H ikma gro wt h str ateg y – Entere d the US b iosim ilar mar ket via lice nsing de als wi th Ge de on Ric hter and Bi o- Th era – Aligned business developmen t practices across the businesses – E xte nsive du e dilige nce of e ach ac quisi tion in p ar tner ship wi th ex terna l supp or t in ord er to st rateg ica lly ident if y , val ue, and exe cute tr ans ac tion s – E xte nsive B oard e ngage ment to rev iew majo r acqu isiti ons pr opo sed b y the E xecu tive Co mmit te e to ensure strategic al ignment – Pos t- ac quisit ion p er form ance (nan cial an d non-n ancial) m onito red cl ose ly to ensu re integr atio n and deli ver y on bu sine ss p lan – Pos t- tr ansa ct ion revi ews hig hlight op po r tuniti es to imp rove ee ct ivene s s of pro ces se s Active pharma ceutical ingre dient (API) and third-par t y risk management Risk description Management actions Maintaining availabilit y of sup ply , qualit y and co mpetit ivenes s of API purchas es and e nsuring prop er under stan ding and contro l of third-par t y ris ks. – Maint aine d rigo rous s ele cti on and q uali cati on pro ce ss fo r new API s uppli ers – Stron g focu s on buil ding lo ng-term sup ply co ntra ct s and s trate gic p ar tner ship s – Co ntinue d to se cure API s uppl y continu it y for hig h-valu e prod uct s thro ugh qua lic atio n of alter nate supp lier s, sto cking s tra tegie s and sup ply c hain mo dellin g – Stren gt hene d alig nment w ith R& D and com merci al team s to supp or t sc ale up of A PI req uireme nts fo r productlau nches – Inc reas ed s ourcing c ap abilit ies an d pre sen ce in key API mar kets to se cure a cce ss to c apa cit y and in novati on – Thir d par t y due dil igenc e pro ces s for o nbo arding an d contin uous m onito ring of t hird-pa r ties f ully au tomate d Crisis response and busin ess continuit y Risk description Management actions Prepare dnes s, re spo nse, continui ty and rec over y from disr uptive events, such as natur al c atast rophe, economic turmoil, operational issue s, pandemic, p olitical crisis, andregul atory inter venti on. – Re spo nde d to disr uptive eve nts wit h valu es-le d de cisio n-maki ng and pr ior itisin g the pro tec tion of t he he alth and s afet y of our e mploye es a nd pati ents – Embed ded our crisis and continuit y management (CCM ) progr amme – Standardise d busines s impact analysis and updated busine ss continuit y plans for all manufac turing sites – Alig ned I T Cont inuit y and D isa ster R ecov er y and CCM p rogr amme s – Co ntinue d cris is manag ement t raini ng to empl oyee s acro ss th e orga nisat ion to deve lop o ur resi lienc e cap abili ty – Es tab lishe d a CCM co mmunit y of p rac tic e to devel op exp er tis e acro ss t he Hikm a net work Hik ma Ph arm ace utic al s PLC Annual Report 2021 61 STRATE GIC REPORT Produc t qualit y and s afet y Risk description Management actions Maintaining co mpliance wi th current Good Prac tices for Ma nufacturing (c G M P ), L a b o r a to r y (c G L P), Comp ounding (cGCP), Distrib ution ( cG DP) and Pharmacovigilance ( cGV P) by sta, and ensuring complian ce is maintaine d by allrelevant third p ar ties involve d inthe se pro ces se s. – Hikm a Qua lit y Cou ncil pr ovide s over sight an d share s be st pr ac tice a cros s th e Grou p – Q ualit y and s afet y cul ture dr iven th rough out t he orga nisat ion by gl obal in itiati ves an d regul arly re inforc ed bycom munication from senior executives – Facili tie s maintain ed as i nspe c tion-r eady f or as se ss ment by re levant re gulato rs – Co ntinuo usly imp roved d ocum ente d proc edur es and c ondu cte d regu lar st a tr aining – Ove rs aw cG MP co mplian ce of thir d par tie s sup plyin g APIs , raw mate rials , pac kaging c omp onent s and otherservices – Maintained en vironment and health certications and dro ve contin uous improv ements – Co ntinuo us moni torin g of the s afet y of pro duc ts to d etec t any chang e to risk-ben et – Gl obal p harm acovi gilanc e prog ramm e in pla ce supp or te d by glob alis ed sy stem s – Stren gt hene d team s to res pon d to changi ng PV req uireme nts , par tic ularl y in MENA – Upg ra ded g loba l prod uct p or t foli o sys tem to improv e acce s s to accu rate and t imel y prod uct i nforma tion Financial control and r epor ting Risk description Management actions Eec tively m anaging inc ome, expen diture, as set s and liabilitie s, liquidit y , exchange rate s, ta x uncert ain t y , debtor and as sociate dact ivitie s, and in repo r ting accur ately , in a timely manner an dincomplianc e with st atutor y require ments and accounti ng standards. – Stren gt hene d le ader ship tea m with key app ointm ents , inclu ding US CF O, MENA Fina nce D irec tor, and Hea d of Financial Compliance – Init iated s ource to p ay tra nsfo rmati on proj ec t to digit ise s ource to c ontr ac t and pro cure to p ay proc es se s – Mit igate d segr egati on of dut y r isks wi th roll o ut of ac ces s co ntrol m odul e and st anda rdise d aut hori ty m atrix – Intro duc ed dat a mining m etho ds to enhan ce na ncial c omplia nce mo nitor ing ac tivi tie s – Autom ated ad ditio nal na nce pro ce ss es , inclu ding Or der to c ash, M aking T ax D igit al 62 Hik ma Ph arm ace uti cal s PLC Annual Report 2021 Risk mana geme nt conti nued Sev ere but plausible downside risk scenarios areused to test theviabilit y of theGro up Going concern and longer-term viability In accorda nce with the UK Corporate Governa nce Cod e provision s 4. 28–3 1 and othe r regulator y disclo sure requirem ents, G oing co ncern an d longer- term viabili ty a ss es sment s are provide d. Assessment of position andprospects The G roup’s current and fo rec ast nanc ial posi tions are use d to ass es s the going c oncer n posi tion and longer -term viabi lity . The p ositio n and prosp ec ts of th e Group are as se s sed at Exec utive Co mmit tee me etings and at the en d of the nanc ial year . The as se ss ments co nsider s trateg ic and op eratio nal updates , princ ipal and eme rging risks , nancial rep or ting and fo rec asting f rom the Chief Financial O ce r , an d through th e developm ent of a business plan. The business plan tak e s in to accoun t our curre nt positi on, spe cic r isks and unce r taintie s fac ing the busin es s and known c hanges to our organis ation and b usines s mo del. The E xecuti ve Commit tee a ss es se s the fut ure str ategic po sitioning of H ikma as a comp any in thecontex t of the chang ing macroe cono mic and healt hcare e nvironment. A spe ct s of this analysis areshown in ‘ Glob al context ’ an d ‘Key trends’ (seepage s 18–19 ). The se var ious as se ss ments are pre sente d to the AuditCo mmit tee and B oard of Dire ctor s for independent scrutin y of ma nagement’s assumption s and mo delling appro ach. Th e Board als o rece ives regular up dates on op er ational, str ategic an d nancial mat ters from exe cutive s. Financial position The going concern and longer -term vi ability as ses sme nts are bas ed on th e nancial p osition ( asat31 D ec ember 20 21): – n et cash ow from op er ating acti vitie s was $6 3 8million – over all net debt w as $ 420 million (0.6 times coreEBI TDA) – availab le bor rowing ca pacit y is $1,0 86 million of commit te d undrawn lo ng-term ( se e Note 28 of the Group c onsoli dated nancial s tateme nts on page 160) . The se f acilitie s are well-di versie d acros s the subsidiar ies of th e Group and a re with a numbe r of nancial instit utions Financial c ovenants are susp ende d while the G roup retains it s investm ent gra de st atus from t wo r ating agencie s 1 . Never the les s, th e covenants are mo nitored and the G roup was in c ompliance o n 31 D ecemb er 202 1 and expe ct s to remain in complian ce with th ose covenants fo r the year ending in D ec ember 20 22 even in the severe b ut plausib le downsid e scena rios . As of 31 D ece mber 20 21 the G roup’s investm ent gra de rating was ar med by S &P and Fitch. Future prospects The G roup’s base c as e forec ast s take into account reasonab le pos sible change s in trading per for mance, including th ose that may ari se related to the COVID -19 pande mic, f acilit y renew al sensi tivitie s, and m aturitie s of long -term deb t. Assumptions Financial mod elling for the busines s plan and the goingcon cern an d viabilit y as se ssm ents is subje ct toassum ptions relate d to: – launch and com mercial isation of new products – ma rket share and produ ct de mand rate s – maintenan ce of cer t ain produ ct pr ices – p olitic al and social s tabilit y – ab ilit y to renance exis ting debt on s imilar terms – ab ilit y to increas e oper ational e cienc y and red uce central costs – e ec tive tax r ate being wi thin the curre nt guidanc erange Going concern For the p urpo ses o f ass es sing the going c oncer n posi tion the b ase c ase an d a forec ast inc luding severe but plau sible down side risks w ere analyse d over the18 -month pe rio d from the date of sig ning the nancial st atements. The analy sis shows that Hik ma is well-plac ed to manage its bu sines s and nancial risks succ es sfully des pite current unc er taintie s and con rms that the going con cern b asis shoul d be us ed in prep aring the nancial st atements. 1. Fitc h, Mo ody ’s an d S&P o r any of th eir a liate s or su cce s sor s. Hik ma Ph arm ace utic al s PLC Annual Report 2021 63 STRATE GIC REPORT Our asses sments show that Hikma is resilient to downside risk scenarios Longer-term viability Viability period The lo nger -term viabili ty of t he Group is a ss es se d for a per iod lo nger than for th e going conc ern analy sis. The longer -term viabi lity ass essment was conducted for a per iod of thre e years , ending on 3 1 De cembe r 2024. This is the t imefr ame for ac quisition s and busine ss developmen t oppor tunities to become integrated i nto our busin es s, and for p ipeline p roduc ts to contr ibute as marketed pro duc ts. O ur forec ast s are more accur ate in the near ter m than in the lo ng term and this limitatio n also app lies to our viab ilit y ass es sment s. Stress testing, modelling andsensitivity analysis Management developed sever e but plausi ble multi-event r isk sce narios that c ould impa ct the business adversely . The G roup’s str ategic obje cti ves, p rincipal r isks (PR) , asse ssments of longer -term emerging risks (ER ), managem ent input, re al-world exam ples an d the nancial mod elling assumptions lis ted above wereuse d to des ign the sc enario s. Reali stic bu t extre melys evere adjustm ents were f ur ther ap plied forsensiti vit y analysis. The foll owing hypothet ical s evere but plau sible multi-event r isk sce narios we re ass es se d. Longer-term viability scenarios – S cenario 1: Indus tr y dynamic s (PR) : Signi cant adver se change s to the pri cing environment including pr ice ero sion over and ab ove busine ss plan as sumptions we re conside red in addi tion to curre ncy devaluatio n eec ts fo r variou s MENA markets – S cen ario 2 : Produc t pipe line (PR) : Signic ant andex tensive delays to st rategic p roduc t launche s were as se ss ed, in par t icular for co mplex and speci alty pr oducts – S cen ario 3: Ethic s and c omplianc e (PR ): The implic ations of a sy stemic f ailure of the cor por ate complian ce progr amme le ading to a regulator investig ation were exp lored, in cluding repu tational impac t, ne s and le gal fee s, los s of s ales , remediati on expenses, and additi onal compl iance costs – S cen ario 4: Pro duc t qualit y and s afety (PR): Aprolo nged reg ulator -impos ed re stric tion o f a majorUS FDA-inspe cte d manufa ctur ing plant was mod elled f ac toring in los s of sa les , remediati on expen ses , as well as re duc tion to op erating co st s – S cen ario 5: Cr isis resp onse a nd busine ss c ontinuit y (PR) : E sc alation and d evelopm ent of situation s of poli tical an d socia l instab ilit y in MENA markets were as ses se d with lo ss of s ale s recog nised – S cenario 6: API and t hird-par t y risk mana gement (PR) : Si gnic ant disruptio ns to our raw and packa ging materials supp ly chain were mo delle d, aswell as inc rease d impor t t ari s and glo bal inationar y p res sures – S cen ario 7: Climate change (ER) : Disr uption throug h extre me weathe r events was a ss es sed w ith stor ms and o oding events imp act ing cer tain f aciliti es result ing in prope r ty d amage and bus ines s interruptio n ( se e also o ur disclos ures related to climate change on pa ges 50 –52) – S cen ario 8: Info rmation an d cyb er se curit y , techno log y and infr astr uc ture (PR) : Cyber at ta cks impac ting endp oints and ERP s ystems w ere mod elled wi th potential lo ss of s ale s, gener al busin es s interruptio n, and res pons e and reme diation co sts Longer-term viability analysis The co nse quence s of eac h of thes e severe bu t plausibl e multi-event ri sk scenar ios were m odell ed independently o ver the f orecas t period and the impac ts on EB ITDA, ab ilit y to meet our de bt obligati ons, and c ash ow were determin ed. The as se ss ment shows t hat althoug h the sce narios aresevere they d o not threaten the v iabilit y of Hikma.He adroo m was comfo r tably maint ained through out the v iabilit y per iod for e ach of the multi-event r isk sce narios . The as se ss ment and analy sis did not rely on managem ent acti ons that coul d be taken in the circu mstances to reduce the impact and consequences of the ris k even ts. Such actions, the ongoing impl ementat ion of the ERM p rogram me, and investm ent in infras truc ture and c hange initiative s are anticipated to c ontinue to enhance o rganisati onal resilience a nd support longer -term v iability . The ou tcome of th ese v arious qu antitative and qualitati ve ass es sment s leads m anagement to b elieve that Hikma is re silient to downsi de risk s cenario s. This is largely a s a result of o ur nancial po sition (in par tic ular our stro ng balance s heet and l ow levels of debt) and is sup por ted by th e fac t that our b usines s is well-dive rsie d through g eogr aphic sp read, pro duc t diversi ty, and large custom er and supp lier bas e. Fur ther det ails are provide d in the ‘CEO ’s strateg ic review ’ (page s 6–9), ‘Our markets’ (page s 18 –1 9) , and‘O ur busine ss m odel ’ (page s 20–21). 64 H ikm a Phar mac eu tic als PLC Annual Repor t 2021 Compliance Non-nanci al disclosur es The t able be low summaris es o ur posit ion on mat ters rel evant to the Non- Financial R epor ting D irec tive, in line with th e requirem ents of Se cti ons 414C A and 414CB o f the Comp anies Ac t 200 6. All refere nces m ade are to public ly acce ss ible informati on. Summary Further information and policies Ou r busin ess m ode l – Our diver sie d busine ss m odel all ows us to resp ond tothe many opp or tunitie s and ri sks we fac e, while deliverin g value for our stakeholders – O ur busine s s mode l, page s 20–21 Principal risks – Our ris k management f ramew ork is de signe d to ensure wetake a compre hensive vi ew of risk. T his include s nancial and non-nancial r isks that may impact our business and stakeholders – Risk management, page s 54– 6 3 Environmental matters – We are co mmit ted to making our o per ations mo re energ y ecient a nd envir onmentally r esponsible – We are improv ing the way we moni tor our impac ts , pursuing p rojec ts that re duce our fo otprint – We have put in p lace a targ et to reduce o ur Scop e 1 and 2 GHG e missi ons by 25% by 2030, using a 20 20 bas eline – We are alig ning our internal pro ces se s and our publicdis closure s are cons istent with th e T ask ForceonC limate-related Finan cial Disc losure s (TCFDreco mmendati ons – B oard-level over sight of environme ntal sust ainabilit y – Environm ental mat ters are inc orp orated in o ur risk management fram ework – Prote cting th e environment , pages 4 4– 47 – G HG emis sion s reduc tion t arget, pa ge 45 – Climate -related risks a nd opp or tunitie s and the ir impac t, pa ges 50 –52 Employees – Our emp loyees have alw ays been at th e hear t ofever y thing we do. A s the driv ing force be hind Hikma’sgrow th and suc ces s, o ur peo ple are our mos tvaluabl e ass et – We are co mmit ted to investing in t he develop ment ofourwor kforc e and in protec ting their h ealth and safet y .We have c.8 ,700 employe es acro ss th e US, MENA ,Europe and R OW – Stakeholder en gagement: Em ployees, page 13 – Emp owering o ur peo ple, page s 42–4 3 – C ode of C onduc t 1 – U pholding et hical s tandard s and ac ting with integr it y, page s 4 8– 49 – G roup Environment al, Healt h and Safet y Polic yStatement 1 – Principal risk: Organ isational de velopment, page5 8 Social mat ters – In all of our markets, w e work to me et socia l nee ds loc ally and improve live s. We have develope d progr amme s in keyareas to addres s so cial challen ges: • p roviding bet ter he alth • supp or ting educ ation • helpi ng people in n eed – W here our ac tivi ties re late to other soc ial matte rs, we se ekto unders tan d the per spe cti ve of all stakehol ders , determine o ur role and make clear o ur posi tion ba sed onour valu es and p urpo se – Stakeholder en gagement, pages 12 – 17 – Ad vancing health and we llbeing, pa ges 3 8– 41 – Ad dres sing drug sh or tage s in the US 1 – A nimal test ing posit ion 1 – Pr incipal r isk: Rep utatio n, page 59 1. Our p ubli c pol icie s, c ode s an d sta teme nts ar e availa ble o n ww w.hikma.com Hik ma Ph arm ace utic al s PLC Annual Report 2021 65 STRATE GIC REPORT Summary Further information and policies Respect for human rights – We re spe ct and up hold th e princip les of th e Univers al De claratio n of Human Right s both wit hin Hikma and acros s our val ue chain – We obj ec t in the stro nges t pos sible ter ms to the us e of any of our produ ct s for the pur pos e of cap ital punis hment – U pholding et hical s tandard s and ac ting with integr it y, page s 4 8– 49 – M odern sla ver y act policy statement 1 – U se of pro duct s in cap ital punis hment 1 – Pr incipal r isk: Rep utatio n, page 59 Anti-briber y and corruption – O ur Comp liance, Re spon sibilit y and Ethic s Commit te e (CREC) leads our eo r ts to stre ng then anti-br iber y and corr uption (ABC) po licie s and manage as so ciated ris ks – A s a public ly-listed co mpany on the Lon don Stock Exchange (LSE ) , we abid e by the regulati ons of the U K Listing Au thorit y. We operate in com pliance wit h the UK Brib er y Act 20 10, the Foreig n Corr upt Pra ctic es Ac t (FCP A) as well as lo cal laws an d regulation s – U pholding et hical s tandard s and ac ting with integr it y, page s 4 8– 49 – C ode of C onduc t 1 – Pr incipal r isk: Ethic s and com pliance, pa ge 59 – C omplian ce, Re spon sibilit y and Ethic s Commit te e repor t , page s 87–88 Non-nancial KPIs – We monitor th e posi tion, p er formanc e and impac t of Hikma acros s a wide range of nanc ial and non-nancial KPIs. N on-nancial K PIs are use d to measure p rogres s towards our s trateg ic prior itie s (page s 22–23) , our expo sure to risks (pag es 5 8- 6 1) , and are in pla ce in other areas thro ughou t the organis ation as p ar t of Hikma’s long-term sus tainable g row th str ateg y and our commitm ent to helping p eopl e and improving the communit ies in which w e oper ate – Voluntar y and involuntar y t urnover , page 4 2 – G HG emis sion s reduc tion t arget, pa ge 45 – M inimising our impac t on the p lanet, p ages 4 4 – 47 – Employees enablement and engagement, page2 3 – Audi t Commit te e repor t , page s 83 –8 6 – C omplian ce, Re spon sibilit y and Ethic s Commit te e repor t , page s 87–88 The Str ategic repo r t was app roved by the Bo ard of Dire ctors a nd signe d on its b ehalf by: Sigurdur Olafs son Chief E xecutive O ce r 23 Feb ruar y 20 22 66 H ikm a Pha rma ceu tic als PL C Ann ual R epo r t 20 21 Corporate go v ernance D uring the year , we reviewed our g o v ernance approa ch, made enhan cements , and conrmed the st re n g t ho f ou r e xi st in g arrang ements . In this se ctio n 67 Chair over view 68 Cor po rate gover nanc e at a g lanc e 70 Leadershi p 74 Structure 80 N omination and Governance Commit tee 8 3 Audit C omm it te e 87 Compliance, Resp onsibility and Ethics C ommittee 89 Remuneration Comm it tee 93 Remuneration policy su mmar y 96 Ann ual repor t on remu neration 111 Directors’ repor t Hik ma Ph arm ace utic al s PLC Annual Report 2021 67 GOVERNANCE Chair ov er view Dear Shareholders The pa st year has involve d stea dy progre ss in t he develop ment of the Board a nd the governan ce of our org anisatio n, including unde r taking a full bo ard evaluatio n proce ss w ith an ex ternal exp er t. The p roce ss ensure d that the Bo ard as ses se d and challe nged it s approa ch to ensure we obtain th e maximum valu e from our B oard me etings. We have made s everal enhan cement s as a resul t, and I am pl ease d to repo r t that our over all approa ch to governance c ontinues to b e eec tive. Board p rac tices The co ntinuation of the COVID -19 pandemic has re sulted in f ur ther develop ment of our B oard pr acti ces . Whilst th e Board c ontinues to ope rate ee ctivel y in a vir tual environm ent, we manage d to bring the memb ers togeth er for t wo me etings in the se cond h alf of the year. W e have found that in pe rson m eetings have signi cant b enet s in terms of social cohesion, innova tion and de velopment. At the same time, virtual meet ings have signic ant bene ts in term s of time ec ienc y , availab ility and foc us. A s we move for ward, th e Board will o per ate in a hybrid environment br inging togethe r the be net s of both of th ese ap proach es . Board an d Commit tee composition Over th e last few ye ars we have brought s everal ne w Direc tors onto the Bo ard, said go odbye to Inde pend ent Direc tors of l onger tenure, and tr ansition ed the Ch airs of the Audit C ommit tee an d Nominatio n and G overnance C ommit tee. Ac cordingly, during 2021, we have not made any change s to our Bo ard. Dr . Pam ela Kirby , our chair of th e Remuner ation C ommit tee, has deci ded not to s eek re- ele ctio n at the Annual G ener al Me eting. Iwould like to thank Pam for he r dedic ated and t hought ful le ader ship of the Co mmit tee. Nina He nder son has k indly agre ed to lea d the Commit te e going for ward. As we m ove into 2022, we will b e look ing to take steps to refre sh the Board a nd prepare fo r fur the r succe ssi on. Dur ing this exercise, we will be co gnisant of our g ender dive rsit y targ et ( se e page 8 1 for fur the r details) . As ha s bee n our pr acti ce for sever al years , we de sire for new Direc tors to have time to und erst and the c ulture, histor y, and ope ration s of Hikma befo re under t aking additi onal resp onsibili ties . Culture and strateg y The B oard reviewe d and approve d manageme nt ’s plans for sever al str ategic initiative s during th e year , including the ex pansion of o ur pipelin e through inves tment s in biosimilar s and the ac quisition of Custop harm. We fur th er approve d manageme nt’s prop os al to expand the c apacit y of o ur spe cialist inje ct ables b usine ss . In the se cond hal f of 202 1, we condu cted o ur annual str ategic review, in which we conr med our p rogre ss and a ss es sed s everal n ew oppo r tunitie s. At the end o f the year , following t wo ye ars of oversig ht and develop ment Said Darwaz ah Exec utive Chairman by the Bo ard, we launche d our ste rile injec tab le comp ounding busine ss in t he US, which w ill bring the hig h-qualit y sy stems of a major ph armaceutical man ufacturer to the niche compound ing market. Over all, the B oard is co ndent that the G roup is well posi tione d to continue to deli ver on our pip eline and improve patient s’ acce ss to high -qualit y , aordab le me dicines . During 20 20, following eng agement wi th our coll eague s and a th orough review of our c ulture by the B oard, we introdu ced a ne w set of cor por ate value s which fo cuse d on being c aring , innovative, and c ollabo rative. The se valu es build o n my father ’s visio n of Hikma as a com pany with high ethic al st andards, w here our p eopl e thrive in a supp or tive environment . The major it y of the B oard met and wo rked with my fath er , and so have rs t -hand exp erien ce of how he w anted to develop o ur culture. In th e Boardro om, we are remin ded of our v alue s regularly and are guid ed by them w hen making de cision s such as ac quiring Custop harm (being inn ovative ), suppor ting o ur team in Lebano n during the co untr y’s challe nging per iod (caring ), and the nature of relatio ns bet wee n the Bo ard and the E xecut ive Commit te e ( collab orati ve ) . Dur ing 202 1, the E xecutive team un der too k signic ant eor t s to promote the se value s through out the o rganisati on. The tea m and the Chief E xecu tive O cer pre sented to th e Board up dates on p rogres s and fe edba ck from colle ague s through out the ye ar . Fur th er details are availab le on pag e 8. Str ong gov ernance and strateg y ESG Early in 20 21, we d etermined t hat our Boa rd of Direc tors wo uld have overarching over sight of our ESG s trateg y inclu ding environment al aspe ct s and TCFD str ategy a nd repo r ting. This buil ds upon th e work of our bo ard commit te es that have resp onsibilit y fo r cer tain el ement s of our ESG wor k strea ms. The C hief Exe cutive O cer ha s fundam entally revi ewed and en hanced t he Group ’s ESG strateg y wi th a par tic ular emphasis o n the Gro up’s emissi ons and impa ct on th e environment . Furth er informati on is available in our n ew and enhance d discl osures o n page s 36 to 52. Nina Henderson is ou r independent Board member who helps ensu re that employe e per spe ctive s are consi dered w hen unde r taking B oard and Co mmit tee busine s s and, out side of our E xecu tive Direc tors , ensuring t hat the Bo ard is visible am ongst o ur collea gue s. The engage ment progr amme has b ee n spons ored intern ally by the Chief Exe cutive O cer an d has be en develop ed to en sure that we compl y with s ocial dis tancing re quirement s. This year ’s ac tivitie s includ ed par t icipation in: – a site v isit to the Co lumbus f acilit y and me etings with e mployee s – th e 2021 G lob al Leader ship Confere nce which in clude d c.160 of the Group’s leaders – Chie f Exec utive O cer vir t ual brie ngs to all collea gue s Nina formall y repor t s to the Bo ard on her n dings at each meet ingaswe consi der form al busine ss , such as during t he gra ding str uct ure review, employee eng agement sur vey and d uring remuneration considerations. Stak eholders The B oard unde r takes signi cant eo r ts to under st and and take acco unt of the nee ds and p ersp ec tives of o ur custom ers, s upplier s, employe es, inves tors and t he communit ies in whic h we oper ate. Fur ther det ails are available on p ages 1 2 to 17 . If there are a ny matters that you wish to dis cus s, ple ase do not h esit ate to contac t me. Said Darwazah Exe cutive Chairm an 68 Hik ma Pha rma ceu tic als P LC Annual Report 2021 90% Huma n resource s 100% G ov er nance 90% Commercial 100% Pharmaceutic al 80% Manufacturing 100% Regulator y an d political 100% Liste d environment 100% Fina nc e 80% Sales 80% Busines s ethic s an d in tegrity 100% Strateg y an d risk 90% Europe 100% Global 90% US 70% UK 50% MENA USA Ireland Jordan UK Iceland Corporate go v ernance A t a g lance Highlights 2 02 1 – Un der took a f ull inter view-ba sed B oard evaluati on with Independent A udit – D evelop ed the m edium-term succ es sion pla n for Non- Execu tive Direc tors an d Exec utive manage ment – Emb edde d and s treng then ed the B oard and C ommit tee change s made in 20 20 – M oved to a hybrid me eting app roach, gaining th e bene ts of b oth in-pers on and vir tual arr angements Priorities 202 2 – S eeking to inc rease ind epen dent repre sent ation on the B oard – C onside r succe ssi on for the C ommit tee chair s and addit ional resp onsib ilitie s – M aking fur the r progre ss tow ards achieving o ur gender diversi tyt arget – Imp lementing ch anges to our gover nance s truc ture in an orde rly and considered m anner Exp erience The p ercenta ge of the Bo ard with dire ct exp erien ce in the followingare as: Ge ographica l experience Countr y of origin Hik ma Ph arm ace utic al s PLC Annual Report 2021 69 GOVERNANCE 20 21 20 20 20 22 20 21 Attendance Directors Meetings at tended (9 scheduled and 2 unscheduled) % Said Dar w azah 11/11 10 0% Sig gi Olaf s son 11/11 10 0% Mazen Dar wazah 11/11 10 0% Pat Butler 1 1 0/ 11 91% Ali Al-H usr y 11/11 10 0% Dr Pam ela Kirby 11/11 10 0% John C astella ni 11/11 10 0% Nina Henderson 11/11 10 0% Cynthia Flower s 11/11 10 0% Douglas Hurt 11/11 10 0% 1. Pat Bu tle r was u nabl e to at tend o ne me eti ng ca lle d at ver y sh or t not ice. A t ime ha d be ench ose n to ach ieve ma ximu m at tend ance a nd, unf or tun ately, it me ant at le as t oneD ire cto r woul d not b e avail able . Time 2021 2020 C orp orate gove rnanc e 10% 13% Financial pe rfor mance 13% 14% Per formance and operations 11% 30% Risk 5% 12% Str ateg y and a cquis ition s 60% 31% Com positio n February 2022 February 2021 E xecu tive Cha irman an d Chief E xec utive O c er 20% 20% O the r Exe cuti ve Dire ctor s 10% 10% Non-Independent NED 10% 10% Independent NE D 60% 60% Independent Director tenure (as at 23 Feb rua r y 202 2) Number % 0 — 3 yea rs 2 3 3% 4 — 6 ye ars 2 3 3% 7— 9 yea rs 2 3 3% Diversit y (as at 31 D ece mbe r 202 1) Board Women 3 ( 3 0 %) Men 7 ( 70 %) Minorit y Eth nic 1 3 ( 3 0 %) White 7 ( 7 0 %) Execu tiv e Com mittee repo r ts 2 Women 2 2 (3 1 %) Men 50 (6 9 %) Minorit y Eth nic 1, 3 4 3 (6 0 %) White 2 9 (4 0 %) Executive Committee Women 3 (2 7 %) Men 8 ( 7 3 %) Minorit y Eth nic 1 7 (6 4%) White 4 ( 3 6%) Group Women 2 ,9 7 8 (3 5 %) Men 5,613 (65% ) 1. Mino rit y Eth nic dat a rel ates to c oll eag ues w ho id enti fy w ith o ne of th e rel evant cat egor ie s unde r the P arker R evie w dat a coll ec tio n exerci se 2. People r epor ting t o members of the Executive Committee 3. Dat a from H ikma ’s US op era tion s onl y 70 H ikm a Phar mac eut ica ls PLC Annual Repor t 2021 Find d etail ed Di rec tors’ b iogr aphi es at : ww w.h ikma.com/ ab out/leadership/ C C N A C R A N C R Lea dership B o ard of D ire c tor s SAID DARW AZAH , 64 EXECU TIVE CHAIRMAN Appoint ed: 1 July 20 07 | Joi ned Hikma : 1981 Nationalit y: Jordanian Board experience: Experience: Said se r ved as C hief E xecu tive O ce r from J uly 20 07 to Feb ruar y 20 18 and h as se r ved as Chai r since M ay 2014 . Said ha s over 4 0 years o f exp erie nce in ex ten sive le ader ship ro les at H ikma. Quali cations: Industrial E ngineering degr ee from Purdue Un iversity, MBA from INSEAD. Other appointm ents: Chairm an of the Q ue en RaniaF ounda tion an d Chairm an of Roy al JordanianAirlines . Vice Chairman of Capital Bank , Jor dan. B oard M embe r of INSE AD, an d Dash Ventures L imited . SIGGI OLAFSSON, 53 CHIEF EXECU TIVE OFFICER Appoint ed: 20 Febr uar y 201 8 | Joined Hikma: 2018 Nationalit y: Icelandic Board experience: Experience: Siggi has signic antly enhanced the lea der ship and s tr ateg y of the G roup s ince jo ining as Chie f Exe cuti ve O cer in 20 18. S igg i has a weal th of inter natio nal exp erie nce in t he pharmaceutical industr y , having held senior roles with A ct avis Phar ma Inc ., Pze r Inc. a nd Om ega Farma. Si gg i ser ve d as Pre side nt and CEO o f Glo bal G ene ric M edic ines at Teva Pharm aceu tic als. Quali cations: MS in Pharmacy (Cand Pharm) fromthe University of Iceland, Re ykjavik. Other appointm ents: None. MAZEN DARW AZAH , 63 EXECU TIVE VICE CHAIRMAN, PRESIDEN T OF MENA Appoint ed: 8 Septemb er 20 05 | Joined Hi kma: 1985 | Nationality : Jordanian Board experience: Experience: Mazen has le d and ex pand ed ou r busin es s in MEN A regio n and is a G roup -leve l str ategi c amba ss ado r in his rol e as Vic e Chair man. Since l istin g, he h as Gro up level r esp onsi bilit y inhisrol e as E xecu tive Vi ce Chair man and executi ve respo nsibilit y for lea ding Hikma’s uniqu eMENA b usine ss . Quali cations: BA in Busines s Admini str ation fromt he Leb ane se Am eric an Uni versi t y , Adva nce d Management Plan from INSE AD. Other appointm ents: Senato r in the J ordani an Sen ate. T r uste e of Bir zeit U niver sit y and K ing ’s Aca demy. Memb er of th e HM King A bdull ah Economic Policy Council. P A TRICK BUTLER, 61 SENIO R IND EPENDEN T DI RE CTO R Appoint ed: 1 April 20 14 | Joined Hikma: 2014 Nationalit y: Irish Board experience: Experience: Pat was Se nior D irec tor at M cKins ey & Co. D uring 25 ye ars at M cKins ey , he fo cus ed on str ategi c, nan cial an d str uc turin g advi ce to large cor por atio ns. P at quali ed in t he audi t and ta x prac tice of Arthur Andersen. Quali cations: Char tered accountant. Firs t -clas s honours degree i n Commerce and post graduate diplo ma in Acc ountin g and Co rpo rate F inance from U niver sit y Co llege D ublin . Other appointm ents: Chairman of Aldermore Gro up PLC and Mis chon d e Raya PLC. D irec tor ofThe A rdon agh Gr oup Limi ted an d Res M edia Limite d. T rus tee of t he Re sol ution F ound ation . ALI AL - H U S R Y, 64 NON - EXECU TIVE DI RE CTO R Appoint ed: 14 Octo ber 2 005 | Joined Hikm a: 1981 Nationalit y: Jordanian Board experience: Experience: Ali held v ario us mana geme nt and lea der ship rol es wi thin Hikm a befo re step ping into an adv iso r y role in 19 95, wh en he fo unde d Cap ital Bank of Jordan, focusing on comme rcial and inves tment b anking . Ali se r ved as C hief E xecu tive O cer of C api tal B ank until 20 07 . Quali cations: Mechanic al Engineering degre e fromt he Univ ersi ty o f Sou ther n Cali forni a, MBA fromINSEAD. Other appointm ents: Dire ctor o f Endeavo ur Jordan, Microfund for Women, C apital Bank of Jor dan, and DA SH Ventures L imite d. DR PA M EL A KIRBY , 68 IND EPENDEN T NON - EXECU TIVE DI RE CTO R Appoint ed: 1 Dec embe r 2014 | Joined Hi kma: 2014 Nationalit y: British Board experience: Experience: Dr Kirby w as Chi ef Exe cuti ve O cer of Qu intile sT r ans nation al Cor p, and hel d sen ior execu tive p osit ions at F H om ann-L a Ro che and As tra Zene ca. Pr eviou sly, Dr Kirby ch aired S cy nexis , was Senior Independent Director of Informa and held non-executive positions with Smith & Nephew and No vo Nordis k. Quali cations: Firs t -c las s BS c degre e in Pharmacolo gy, and Cli nical Pharma colog y PhD from the Un iversity of London. Other appointm ents: Dire ctor o f DCC PLC and Reckitt Benckiser Group PLC. S uper visor y Board Member of Akzo Nobel NV . Hik ma Ph arm ace utic al s PLC Annual Report 2021 71 GOVERNANCE Committees A Au dit Co mmit tee C Compliance, Re spo nsibilit y and Ethic sCo mmit tee N Nomination and Governance Commit tee R Remuneration Committee Chair Board experience Bu sine ss et hic s and inte grit y Commercial Finance Gove rnanc e Human resource s Listed envir onment Manufacturing Pharmaceuti cal Reg ulator y an dpoli tic al Sales Str ateg y and r isk A N C R A N R A C R A C N R JOHN CASTELLANI, 71 IND EPENDEN T NON - EXECU TIVE DI RE CTO R Appoint ed: 1 March 20 16 | Joi ned Hikma : 2016 Nationalit y: Americ an Board experience: Experience: John wa s Presi dent an d Chief Execu tive Ocer of Pharmac eutical Re search and Manu fac ture rs of A meri ca (PhR MA) and B usine s s Roun dta ble. D uring hi s care er J ohn has a lso he ld senior positions with Burson-Marsteller , T enneco, and General Elec tric. Quali cations: BSc i n Biol og y from U nion C olle ge Schenectady, New Y ork. Other appointm ents: Vice C hairma n of the Johns Hopkins Medicine National Capital Region Exe cuti ve Gove rnan ce Co mmit tee. D irec tor of 5th Por t . T r uste e of Th e John s Hop kins M edic al System Sib ley Me mor ial Ho spit al, Wash ing ton, D C. Mem ber of t he Adv isor y B oard o f RSR Pa r tner s. NINA HENDERSON, 71 IND EPENDEN T NON - EXECU TIVE DI RE CTO R Appoint ed: 1 Octo ber 2 016 | Joined Hikma: 2016 Nationalit y: American Board experience: Experience: Nina assumed Bo ard-level responsibility for employ ee engagement i n January 2019. Nina was C orp or ate VP of Be st fo ods a nd Pres ident o f Be st foo ds G roce r y prio r to its acqu isiti on by Unil ever. During a 3 0-ye ar car eer with B es t foo ds, an d its p red ece ss or co mpany CP C Intern ation al, she h eld a wid e var iet y of Gl obal a nd Nor th American ex ecutive general manag ement and marketin g pos ition s. Nin a has se r ved as a di rec tor of Roya l Dutc h Shell, A X A F inancia l, The Eq uitab le Com panie s, D elM onte, Pa cti v and Walte r Energ y. Quali cations: Hon ours g ra duate and B Sc f rom Drexel University. Other appointm ents: Non- Exe cuti ve Dire cto r of CNO F inancia l Grou p Inc and I WG PLC, Vi ce Chair of the B oard o f Drexel U niver sit y , Dire c tor of the Foreign Policy Asso ciation and Visiting Nurse Ser v ice of N ew Y ork , Inc . CYNTHIA FLOWER S, 62 IND EPENDEN T NON - EXECU TIVE DI RE CTO R Appoint ed: 1 June 20 19 | Joi ned Hikma : 2019 Nationalit y: American Board experience: Experience: Cynthia was P resi dent and C EO of the N or th Am eri can di visio ns of th e glob al pharmaceu tical companie s Ipsen and Eisai, and also h eld l eade rship p osi tion s at Amge n and Johnson & Johnson. Cyn thia is a non-executive direc tor of C ala drius B ios cien ces I nc. an d G1 Therapeu tics Inc., where she chai rs the Compensation Committee. Quali cations: Cynthia h olds a B SN f rom the Unive rsit y of D elaw are and E xec utive M BA fro m Whar to n Scho ol at th e Unive rsit y of Pe nnsy lvani a. Other appointm ents: Non- execu tive D irec tor of Cal adriu s Bio scie nce s Inc. a nd G1T her ape utic s Inc., where she ch airs the Compensation Com mit tee. M emb er of an ang el inves tme nt group as so ciated w ith the U niver sit y of N or th C arolina . DOUGLAS HURT , 65 IND EPENDEN T NON - EXECU TIVE DI RE CTO R Appoint ed: 1 May 2020 | Joined Hi kma: 2020 Nationalit y: British Board experience: Experience: Doug las wa s the Fin ance D irec tor of IMI PLC . Prior to t his, h e held a n umbe r of seni or nance and gener al management position s at Gla xoSmi thKlin e PLC, prev iousl y having wo rked at Pric e Waterh ous e. His c aree r has inc lude d sever al year s work ing in the U S as a Chief F inanc ial O cer and signicant expe rience in European busine sse s as an Oper ational and Regional Managing Direc tor . Quali cations: Char tere d Acc ounta nt, MA (Ho ns) in Economi c s from Cambridge University . Other appointm ents: Non-executive Director and Cha ir of the Au dit Co mmit tee o f Vesuviu s PLC, Countryside Par tnerships PLC and British Standards Institution. Senior independent director of Co untr ysid e and Vesuv ius. PETER SPEIRS CO M PA N Y S E C R E TA R Y Appoint ed: 2 April 20 12 | Joined Hikma: 2010 Nationalit y: British Ro le: Peter is r esp onsib le for a dvis ing on governance, executive remuner ation, and listing relate d mat ters . Peter j oine d Hikma a s Dep ut y Se creta r y and prev ious ly hel d role s wit h Barcl ays and Po ol Re. Quali cations: Fello w of the Ch ar tered Gove rnan ce Ins titu te. Law d egre e from t he Unive rsit y of E ast A nglia . 72 Hik ma Ph arm ace utic al s PLC Annual Report 2021 The f ull bio gra phie s of Hikm a’s Exe cutiv e Com mit tee c an be f ound o n the Hik ma webs ite: ww w.h ikma.com/ ab out/leadership/ Lea dership E x e cutive Commit t e e SIGGI OLAFSSON CHIEF EXECU TIVE OFFICER Joine d: 2018 Nationalit y: Icelandic For furth er biographical details ple ase s ee p age 70. MAZEN DARW AZAH EXECU TIVE VICE CHAIRMAN, PRESIDEN T OF MENA Jo ine d: 1985 Nationalit y: Jordanian For furth er biographical details ple ase s ee p age 70. KHALID NABILSI CHIEF FINANCIAL OFFICER Joine d: 2001 Nationalit y: Jordanian Rol e: Khalid is responsible for G roup nance, including repor ting and capit al management. Khalid has held several nancial p ositions during 21ye ars wi th Hikm a, inclu ding VP Fi nance . Quali cations: Cer tied Public Accountant. MBA f rom the U niver sit y of Hull . SHAHIN FESHARAKI CHIEF SCIENTIFIC OFFICER Jo ine d: 2019 Nationalit y: American Ro le: Shahin i s resp ons ible fo r all res earc h and devel opme nt ac tivi tie s in Hikma an d has a str ategic res ponsibili ty for e nhancing Hikma’s produ ct pip eline. Quali cations: PhD in Pharmaceutic al T echn olog y f rom th e Univer sit y of Mu mbai, and B Sc in Pha rmac y and M S in Ex per iment al Phar maco log y fro m PuneU niver sit y. HUSSEI N ARKHAGHA CHIEF COUN SEL Jo ine d: 2001 Nationalit y: Jordanian Ro le: Hussein established the global legal dep ar tme nt and set s it s str ategi c direc tio n. Prio rtohis app ointm ent as Chi ef Co unse l, he hel dsever al po siti ons at Hik ma, inc luding H ead Lega l/MENA , He ad of Shar ehol der s’ Dep ar tme nt and H ead of Tax. Quali cations: Hus sei n is a quali ed la wye r in Jor dan and h olds a M aste r’s d egre e in Inter nation al Busi nes s La w from th e Unive rsit y of M anch es ter , under the UK Cheveni ng Scholarshi p Programme. BRIAN HOFFMAN N PRESIDEN T , GENER IC S Jo ine d: 2009 Nationalit y: American Ro le: Bri an is re spon sible f or all as pec ts o f the Ge neri cs d ivisi on in the U S. Br ian has si gni cant strategic and operational experience from lea der ship rol es at Hik ma and p rior c onsul ting ro les . Quali cations: BA in Business Administration from B os ton Uni versi ty. MBA fr om the U niver sit y of Chicago. Hik ma Ph arm ace utic al s PLC Annual Report 2021 73 GOVERNANCE BASSAM KANA AN EXECU TIVE VICE PRESIDEN T , CORPORA TE DE VELOPMENT AND M&A Jo ine d: 2001 Nationalit y: Jordanian Ro le: Bass am has Group level responsibility for strategic developmen t, acquisitions a nd alliances. Bass am has held several ex ecutive positions durin g 21 yea rs wit h Hikma , inclu ding Chief Financial Oc er . Quali cations: US Cer t ie d Public A cco untant an d Char tered Financial Analyst. BA from Claremo nt McKenn a. Inter nation al Exe cuti ve MBA f rom Kellogg /Rec anati Schools of Managem ent. MA J DA LABADI EXECU TIVE VICE PRESIDEN T , ORGANISA T IONAL DE VELOPMENT Joine d: 1985 Nationalit y: Jordanian Ro le: Majda has Group level r esponsibility for human re so urce s. Maj da has h eld s evera l execu tive p osit ions du ring 3 7 years w ith Hik ma, inclu ding VP In jec tab les a nd VP MEN A Op erat ions . Quali cations: BA fro m the Am eri can Un ivers it y of Be irut . Mas ter ’s deg ree fr om Ho chsc hule Fur Okonomie, Germany . Advance d Management Prog ramm e at INSE AD. RIAD MI SH L AWI PRESIDEN T , INJEC T ABLES Jo ine d: 1990 Nationalit y: Lebane se Ro le: Riad i s resp ons ible fo r all asp ec ts of t he Injec tables divisi on globally. Riad has signic ant pharmaceu tical and ope rational exper ience from l ead ersh ip role s at Hikm a and Wats on Pharmaceuti cals. Quali cations: BS c in Engin eer ing and a MS in Engin eer ing and M anage ment fr om Ge orge Washin g ton Un iversity. HENRIETTE NIELSEN EXECU TIVE VICE PRESIDEN T , BUSINES S OPERA TIONS Jo ine d: 2018 Nationalit y: Danish Ro le: Hen riet te is re sp onsib le for th e Busi nes s Oper ations division which includes Risk, IT , ESG, and Digital and Bu siness Improveme nt. In addition, Hen riet te as sum es th e overa ll resp ons ibilit y of Hikma Ventur es, H ikma’s vent ure ca pita l fund . Quali cations: Law D egre e from t he Unive rsi ty of Co penh agen. M aste r of Law s from th e Unive rsit y of Edinburgh. SUSAN RI NG DAL EXECU TIVE VICE PRESIDEN T , STRA TEGIC PLANNING AND GLO B AL AFF AIRS Jo ine d: 2005 Nationalit y: American Ro le: Sus an is re spon sibl e for st rateg ic plan ning, inv estor relations, commu nications, corporate a airs an d busin es s intellig ence . Prior to j oining Hikma , Susa n worked f or Allia nce Uni chem a nd Morgan Stanley. Quali cations: BA in His tor y fro m Cor nell Unive rsit y. MBA fro m Londo n Busi nes s Sc hoo l. 74 Hikm a Pha rma ceu tic als PLC Annual Repor t 2021 S truc ture UK G o vern ance Co de Code C ompliance The B oard is commi t ted to the st andards of c orpo rate governanc e set out in the U K Cor por ate Governan ce Co de (the UK Co de ) publis hed in July 201 8 and the Mar kets Law of the D ubai Financ ial Ser vic es Author it y (the Markets Law) . The rep or t on pa ges 67 to 114 des cribe s how the B oard has ap plied th e Main Princip les of th e UK Co de and Markets L aw througho ut the year e nded 3 1 De cemb er 202 1. The UK Cod e is available at w w w.frc.org.uk. The B oard con siders t hat this Annual Repor t provides the i nformation shareholders need to evaluate how we have comp lied wit h our current ob ligations un der the UK C ode an d Markets Law. The B oard ackn owled ges that Sai d Dar waza h holding the p osit ion of Chairman and C hief Exe cutive O cer until Fe bruar y 20 18 and, sinc e that point , Exec utive Chairman, re quires exp lanation und er the UK Cod e. Throug hout th e year and up until the date of this re por t , Hikma was in co mpliance wi th the UK C ode oth er than in resp ec t of the Exe cutive Chairm an posit ion, the de gree of dire ct en gageme nt with the wor kforc e regarding execu tive remuner ation (which is disc uss ed in the Remun eratio n repor t o n page 90), and the Chief E xecuti ve O cer ’s pensi on contrib ution level b eing slightly l es s than 5% above the gen eral wo rkfo rce (which is discus se d in the Remun eratio n repor t on page 9 0) . T he Boa rd conside rs that the are as of non- complian ce are likely to continue for the m edium-term. Sh ould shareh older s require any fur th er informatio n relating to the se mat ters, q ues tions may be direc ted to the C ompany Se cretar y. Chair Role The E xecuti ve Chairman lea ds the B oard of Dire ctor s of the Co mpany . The E xecuti ve Chairman guid es, over se es, an d engage s with the Chief E xecutive O ce r in set ting and de livering the s trateg ic vision for the Comp any and optimising the Company’s long-term potential. Rationale The B oard ackn owled ges that Sai d Dar waza h’ s po sition as E xecu tive Chairman, having prev iously s er ved as Chi ef Exec utive O cer, and his tenure as a Dire ctor are d epar ture s from th e UK Co de. The E xecuti ve Chairman role w as created in F ebrua r y 2018, fo llowing the app ointment of Sig gi O lafs son as Chie f Execu tive O cer . Previous ly , S aid Dar waz ah was th e Chairman and Chie f Exec utive O cer . The cha nge of role s and app ointment of a Chief E xecut ive O cer has c ause d a reduc tion in S aid’s executi ve resp onsibilitie s, whilst s till retaining his s trategi c input. T he Board c onside rs that the tran sfer of re spons ibilitie s from Said to Sig gi ha s bee n ver y succe ss ful and that the Chi ef Exec utive O cer ha s bee n fully emp owered by th e Exe cutive Chairm an. The B oard consi ders i t is impor t ant to retain corp orate me mor y , impo r tant relation ships and the f amily cul ture of the orga nisation. T herefore, i t is valuable to ret ain Said Dar w azah’s ser vi ces in a s trategi c capa cit y . The B oard cons ulted shareh older s prio r to Said’s app ointment as Chairman and C hief Exe cutive O cer in M ay 2014 and following t he change to the p ositio n of Exec utive Chairma n in Febru ar y 2018. T he Indep ende nt Non-E xecut ive Direc tors met a s a group t wice dur ing 202 1 to review the B oard str uct ure and con clude d that the E xecutive Chairman rol e should c ontinue. The B oard is foc use d on the comm ercial suc ces s of Hikma and believe s that continuing th e posit ion of E xecutive Chair man for a per iod of tim e is the be st w ay to achieve succe ss for H ikma, be caus e: – C ontin uit y of s trat eg y: Sai d Dar wazah h as be en a driving fo rce behin d the str ategic suc ces s of the b usines s sinc e 2007 and the Board b elieve s that it is impor t ant for the c ontinued su cces s of the Group th at he remains in a st rategic ro le – E xecu tive Ch airma n’s role: the E xecu tive Chairman p ositio n is highly visib le inside an d outs ide Hikma, ac ting as an amb as sado r with bu sines s par tn ers and a dvise r to the organis ation – B usiness par tners: a signic ant number of Hikm a’s k ey polit ical and comm ercial relatio nships acro ss th e MENA regio n are built on the long-term tr ust an d resp ec t for the Dar w azah f amily where th e role of th e Execu tive Chairman re mains key The B oard continu es to ope rate the foll owing enhanc ed contro ls: – G overnance struc ture review: the I ndependent Directors meet at leas t bi-annually in a pri vate ses sion c haired by the S enior Independent Dir ec tor . This meetin g includes consideration of the approp riatene ss of th e governance s tru cture, th e division of resp onsibilit ies b etwe en the E xecu tive Chairman and t he Chief Exe cutive O cer an d safegu ards for shareh older s – Co mmittee Chair roles: the Chairs of the B oard Co mmit tees an d the Director responsible for employ ee engagement, undertake a signic ant amount of wo rk in the dis charge of their re spo nsibilitie s – T ransparency and engag ement: Hikma has alw ays had the high es t regard for sh arehold ers, w ith sever al of the or iginal investor s from before lis ting st ill investing and sup por ting Hik ma today . Over th e c.16 years since otation Hikm a has maintaine d the highe st st andards of shareh older e ngageme nt, which re ec ts the impor t ance pla ced in maint aining strong inves tor relation s andgovernance – Senior Independent Director role: t he Senior Independent Direc tor has jo int respo nsibilit y , with the E xecu tive Chairman, fo r set ting the B oard age nda, agre eing ac tion po ints and the minu tes of the me etings Hik ma Ph arm ace utic al s PLC Annual Report 2021 75 GOVERNANCE Executiv e Chief Execu tive Ocer The me mber s of Hikma’s Exec utive Com mit tee repo r t to the ChiefE xecutive O ce r , w ho repor ts to the E xecuti ve Chairman. TheChief E xecu tive O cer chair s the E xecutive C ommit tee, whichdevel ops st rategic init iatives and e nsures th e deliver y of th e approved s trateg yan d per for mance of th e Company. The Chief Exe cutive O cer makes s trateg ic prop osals an d repor t s on operational dev elopments to the Board. Executive Vice Cha irman When re quired, th e Exec utive Vic e Chairman ac ts as al ternate to theE xecuti ve Chairman and is an alte rnative po int of contac t and soun ding board for m anagement an d the Dire ctor s. Non-Exec utiv e Director s Independence The B oard reviewe d and con sidere d the indep ende nce of ea ch Non- Execu tive Dire ctor dur ing the year as p ar t of the annual corp orate gover nance review, which incl uded c onsider ation of progre ss ive refres hment of the B oard. The B oard co nsider s Pat Butl er , D r Pame la Kirby , John C aste llani, Nina Hend erso n, Cynthia Flower s and Do uglas Hur t to b e indep endent . Thes e individ uals provide ex tensive experie nce of international pharmace utical, nancial, co rpo rate governanc e and regulator y mat ter s and were notas soc iated with Hikm a prior to joining t he Boa rd. The B oard do es not vie w Ali Al-Hus r y as an Indep ende nt Direc tor due to the leng th of hi s ass ociatio n with Hikma, having h eld an execu tive posi tion wit h Hikma prio r to listing and his involvem ent with Dar hold Limited, Hikm a’s largest share holde r . H owever , he continu es to bring to the Bo ard broad c orpo rate nance ex peri ence, in- depth awarene ss o f the Gro up’s histor y , and a det ailed kno wledge o f theMENA re gion, which i s an impor t ant and spe cialist p ar t of the Group ’s busines s. Senior Independent Director The Senior Independent Director responsibil ities include: – involvem ent in set ting the B oard agen da, ac tion po ints and theminute s – le ading the B oard in mat ters of B oard com posit ion, ee ctive nes s and evaluati on, par tic ularly in relatio n to the per fo rmance of t he Exe cutive Chairm an – prov iding a communic ation chann el bet we en the E xecuti ve Chairma n and Independent Directors – le ading the In depe ndent Dire ctor s on their as se s sment of theapp ropriatene s s of the governan ce str uct ure and safeg uards for shar eholders – ac ting as an al ternate point of co ntac t for shareho lder s andmaintaining co ntac t with pr incipal inves tors and repre sentati vebodie s Employ ee engagement This Dire ctor-level role is re spons ible for ens uring, wh ere appro priate, that employe e per spe ctive s are taken into account in th e Board ’s deci sion-making pro ce ss es. Nina Henderson has under tak en the employ ee engagement r ole since Janu ar y 2019 and fur th er detail s on her ac tivit ies dur ing 2021 are include d in the Chair ’s st atement on pag e 67 . Company Secretary The C ompany Se cretar y rep or ts to the E xecu tive Chairman an d suppo r ts ea ch Board m ember in t he deliver y of t heir dutie s and specic responsibilities. The rol e prole s are reviewe d regularl y and detail ed on th e Hikma website a t ww w. hikma. com/in vestors/ corporate-gov ernance/ board-ro les-and-re spon sibilitie s/ Ap pl ie d G ove rna nc e The B oard has a well d evelope d and bro ad syste m of governance which inclu des de tailed p roce dures that are s et out in th e Board Gover nance Manua l, extensi ve Group Polic ies and a s ecure communic ations s ystem. T he Boa rd has clear ly es tablish ed resp onsibilit ies in the m atter s res er ved which e nsures a re gular cycl e of work an d that manageme nt are clear whe n additio nal oversight an d approval is re quired. The E xecuti ve Chairman wor ks with the Chi ef Exec utive O cer andthe S enior Ind epen dent Dire ctor to develo p the pri oritie s and agenda fo r the Bo ard and it s Commit tee s, to agre e ac tion po ints andminute s arising from m eetings , and formul ate appropriate resp onse s to governanc e mat ters such as s ucce ssio n, eec tiven es s and regul atory developments. As th e Chairman is ac tive in the s trateg ic lead ership of th e busine ss , Hikma maintains a b alance of in depen dence t hrough pla cing a greater emp hasis on th e role of the S enior Ind epen dent Dire ctor (SID ). The SID is ac tively involved in t he agenda s et ting pro ces s working to gether wit h the Chief E xecuti ve Oc er and con sulting with the E xecuti ve Chairman. The S ID takes re spons ibilit y for work ing with the Co mpany Secre tar y on mat ters aro und Bo ard proce s s and non- executive suc ces sion . Additionall y , th e SID wor ks with the Exe cutive Chairm an to review and agre e the ac tion p oints and minutes ar ising from me etings, to e nsure that meet ings maintain focus on independen t oversigh t, and to formulat e appropria te resp onse s to governanc e mat ters such as B oard infor mation, eec tiven es s and the B oard’s re spons e to regulator y devel opment s. The Chief E xecu tive O cer wor ks with the E xecu tive Chairman in mat ters such a s str ategy, addres sing point s rais ed by the B oard and its C ommit tee s, develo ping plans for exe cutive suc ces sion, an d the Comp any’s culture. T he Chief E xecuti ve Oc er engage s with oth er Direc tors a s required in th e deliver y of his ro le. The Chi ef Exec utive O cer f acilitate s and guide s the B oard’s disc ussi ons on mat ters relating to busine s s developm ent, c apital exp endit ure, oper ational per formance, and organisa tional dev elopment. 76 Hik ma Ph arm ace utic al s PLC Annual Report 2021 The B oard hol ds approximately nine s ched uled me etings a year an d also me ets as re quired. T he Bo ard agenda c ompris es mat ters f rom the reg ular cycle of wo rk (eg Annual Repo r t, budg eting, re sults announc ement s and divide nd), ad hoc mat ters ari sing from ac tion points, the im plementation of strategy (eg business development andacqui sitions) and regulator y, risk, and op erati onal develop ments . The E xecuti ve Chairman, Se nior Inde pend ent Direc tor and Chief Exe cutive O cer wo rk togethe r to agree th e agenda for m eetings , theac tion p oints aris ing, and in l eading Bo ard meet ings on dierenttopi cs . In the light of th e sug ges tions co ntained in th e 2021 re por t on t he Board ’s eec tivene ss , during the ye ar the Bo ard introduc ed so me change s to the way Boa rd meetings wo rk. B oard me etings are now t ypic ally divide d into three par t s: – T he rs t par t of the me eting is co nduc ted witho ut managem ent pres ent. Th e Exec utive Chairman p rovide s an over view of the meet ing busine ss to b e consid ered by the B oard. Th e Chief Exe cutive O cer o utline s matter s of impor tance in ter ms of the ope rational d evelopm ents of the G roup and th e meeting b usines s. The E xecuti ve Chairman and S enior Ind epen dent Dire ctor le ad discus sion s regarding govern ance mat ters – Fo r the se cond p ar t of the me eting, t he Exe cutive Co mmit tee memb ers join to pre se nt subjec t areas for whi ch they are resp onsibl e, to ensure wider aw arene ss of mat ters o f impor t ance tothe Gro up and to as sist with t heir per sonal d evelopme nt and succe ssion p lanning – T he nal par t of th e meeting o ccur s withou t manageme nt, it provide s the B oard’s Co mmit tees an d Direc tor resp onsibl e for employee en gagement with an oppor tunity to report on their work and for Dire ctor s to priv ately discus s and c onsider m atter s arising from th e seco nd par t of th e meeting The C ompany Se cretar y at tends for t he entiret y of Bo ard and Commit te e meeting s to ensure that rec ords are retaine d and ad vice is provide d as req uired. The C ompany Se cretar y d oes n ot atten d meet ings of the Ind epen dent Direc tors o r meetings b et ween t he Exe cutive Chairm an and the Ind epen dent Dire ctors , which o ccur at leas t t wice a year. The B oard rec eives reg ular repo r ts at each m eeting on c ultur al matters both from t he Director responsible for employee enga gement and the Chi ef Exec utive O cer. The Chief Exe cutive O cer re por t s the re sults of th e employee o pinion sur vey on a bi-annual b asis. Fur ther inform ation on the G roup’s ac tivitie s that relate to culture i s available on p age 8. Commitment and int erests The Nomina tion and Govern ance Committee considers the commitm ent of all Direc tors b oth in terms of d edic ation to the ro le and their t ime availabilit y . In order to e nsure an approp riate balanc e of skills and dive rsit y acro ss th e Boardro om, the C ommit tee has made ac commo dations to th e Board c alend ar to maximise availab ilit y and has ac knowle dged that t here are time s when this m ay mean that full at tendanc e may not be achieve d. The C ommit tee co nsider s that Hikma gains m ore from high -qualit y Dire ctor s than it lo ses f rom occ asion al situation s where f ull atten dance c annot be ac hieved. Having reviewe d commitm ent and at tendanc e during the year, the Commit te e has conc luded t hat all Direc tors are f ully dedic ated, commit an ap propr iate amount of time to their ro les , and are readily available at sho r t notice. The C ommit tee mo nitors the ex ternal ap pointme nts of Dire ctor s from both an availabili ty an d conic t of interes t per spe ctive, whil e noting that expe rienc es with ot her organis ations c an enhan ce a Direc tor ’s abilit y to per fo rm the rol e. Direc tors mus t obtain pr ior app roval before acce pting additi onal exter nal appo intments . The B oard and Nominatio ns and G overnance C ommit tee co nsider t hat the Dire ctors’ exter nal commitm ents do n ot negativel y impac t their abilit y to per for m their rol es and that any signi cant ap pointment s have been explaine d in the Annual R epor t . The ou tside intere st s of Direc tors are detaile d on pa ges 70 to 71. Commit tees The B oard has app ointed four B oard Co mmit tee s to assis t with the deliver y of t he Board ’s resp onsibilitie s. T he repo r ts of tho se Commit te es are availabl e on page s 78 to 110. The Chair of ea ch Commit te e engage s with s takeholde rs as is ne ce ss ar y in the con duct of the Co mmit tee’s busin es s. The C hairs are available to ans wer shareho lders’ qu es tions at the AGM an d by direct c orre spon dence through t he Comp any Secret ar y ( cos ec@hikm a.com) . Struc ture UK Go ve rna nce Code c on ti n ued GOVERNANCE Hikm a Pharmaceuti cals PLC Annu al Rep or t 20 21 77 78 Hik ma Ph arm ace uti cal s PLC Annual Report 2021 Please visit our website for more informa tion on Committees: ww w. hikma.com /investors/ corp orate-gov ernance/k ey-committees The fu ll Comm it tee rep or t is o n page s 8 3 to 86 . The fu ll Comm it tee rep or t is o n page s 80 to 8 2. S truc ture Commit tee ov er vie w 2021 highlights – Und er too k an ex ternal ly as siste d, inter v iew and o bse r vatio n bas ed Bo ardevalu ation – Co nside red t he key aspe ct s of th e medi um-term su cce ss ion pl an for Non-Executive Directors – Rev iewe d the new p lan for exe cut ive suc ces sio n and as se s sment o f executive capabilities and dev elopment 2022 priorities – Seek additional independent representation on the Board – Se ek to fu r ther e nhanc e gend er diver sit y at th e Boa rd – Rev iew the ro le s and re spo nsibili tie s of Ind epe ndent D irec tor s inclu ding the ch airing of C ommi t tees – Fur the r devel op the p lan for su cce s sion of E xec utive D irec tor s – Rev iew Bo ard st ruc ture a nd plan f or suc ces sio n of the C ommit te e Chair s and additional responsibilities of I ndependent Directors Allocation of time Cor por ate gover nance 50% Independence 17 % Skills and experience 11% Succession 22% Members and attendance Member Mee tings Attendance Pat But ler (Chair ) 3/3 100% Mazen Dar wazah 3/3 100% Nina Henderson 3/3 100% Cynthia Flower s 3/3 100% Douglas Hurt 3/3 100% Nomination and Governance Co mmittee Audit Co mmitte e 2021 highlights – Plann ed fo r the su cce ssi on of th e seni or st atuto r y audito r – Co ntinue d to moni tor deve lopm ents a rising f rom th e interna l audit programme – Reviewed plan s for managing distributabl e reser ves – Rev iewe d fur th er enhan cem ents to o ur risk p rogr amm e 2022 priorities – Ind uct ion of th e new s enior s tat utor y au ditor – Mo nitor ing and en hancin g our ri sk and inter nal au dit pro gram mes – Co ntinuo usly imp roving o ur disc losu res Allocation of time Cor por ate gover nance 3% Ex ter nal audi t 1 6% Financial per formanc e 24% Forecast and accounting 24% Intern al aud it 19 % Risk 14% Members and attendance Member Mee tings Attendance Dou glas Hur t (Chair) 4 /4 100% Pat Butler 4 /4 100% Dr Pam ela Kirby 4 /4 100% John C astella ni 4 /4 10 0% Nina Henderson 4 /4 100% Cynthia Flower s 4 /4 100% Hik ma Ph arm ace utic al s PLC Annual Report 2021 79 GOVERNANCE The fu ll Comm it tee rep or t is o n page s 87 to 8 8. The fu ll Comm it tee rep or t is o n page s 89 to 110. Complia nce, Resp onsibilit y and Ethics C ommitte e Remuneration Committee 2021 highlights – Enga ged wi th our G roup -wid e review o f our enviro nment al and CS Rstr ateg y – Co ntinue d to moni tor AB C compl iance d evelo pment s and o ur spe ak uppro gram me – Comp leted third-par t y due diligence p roce ss acros s remaining geographies – Rev iewe d the Gr oup’s dat a prote cti on arr ange ment s follo wing the B oar d’s requ es t that th e Comm it tee as sum e resp ons ibilit y fo r this are a – Considered management’s proposals t o further enhance our cross-border trade procedures 2021 highlights – Mo nitore d prog res s aga inst p er for manc e targe ts, i nclud ing the mil es tone s for th e busin es s plan – De velop ed ES G per fo rman ce tar gets fo r the CEO – Co ntinue d to enhan ce the l inkage b et wee n empl oyee s and exec utive compensation matters – Benchmarked ex ecutive compensation i ncluding re viewing region al var iation s to str uc ture 2022 priorities – As sis t wit h the de liver y of t he ethic al an d so cial re spo nsibili t y aspe ct s of our ESG p rogr amm e – Co ntinue to m onitor o ur rep or ting li nes a nd busi nes s integ rit y pro ce ss es – Rev iew the d elive r y of pro ces s enh ance ment s acros s ou r progr amm es 2022 priorities – Rev iew the re mune rati on po licy a nd it s alignm ent wit h the Gr oup’s st rate gy and business envir onment – Mo nitor pr ogre ss a gains t the ES G targe ts for t he E xecut ive Dire c tors – Man age the t ran sitio n to a new Co mmit te e chair Members and attendance Member Mee tings Attendance John C astella ni ( Chair) 4/4 10 0% Sig gi Olaf s son 4 /4 100% Mazen Dar wazah 4 /4 100% Pat Butler 1 3/4 75% Dr Pam ela Kirby 4 /4 100% Nina Henderson 4 /4 100% Douglas Hurt 4 /4 100% 1. Pat Bu tle r was u nabl e at tend t he me etin g due to a p re-ar ra nged c omm itme nt. Allocation of time Wider employ ee issues 17% Cor por ate gover nance 15% Developin g practices 33% Setting executive remuneration 3 5% Allocation of time ABC progr amme 41% Anti-trust, AML and trade sanctions 20% Cor por ate gover nance 1 4% ESG and C SR 25% Members and attendance Member Mee tings Attendance Dr Pam ela Kirby (Chair) 4 /4 100% Pat Butler 4 /4 100% John C astella ni 4 /4 10 0% Nina Henderson 4 /4 100% Cynthia Flower s 4 /4 100% Douglas Hurt 4 /4 100% 80 Hikm a Phar mac eut ica ls PLC Annual Repor t 2021 Patrick Butl er Chai r , Nomina tion and Gov ernance Committee and Senior Independent Di rector Nominat ion and Gov ernance Commit tee L ett e r fr om t he C ha i r Dear Shareholders I am writing to you in my rol es as th e Senior In depe ndent Dire ctor an d Chair of the N omination and G overnanc e Commit te e (NGC) . In the se role s, I help s teer the d evelopm ent of the Gro up’s governance an d succe ssion ar rangeme nts. Succes sion The C ommit tee overs ee s succe s sion for b oth executive s and Independent Dir ec tors. In t erms of ex ecutives, the Committee isresp onsibl e for the E xecuti ve Direc tors and fo r ensuring that approp riate arra ngement s are in place for s enior p ositio ns bel ow Board l evel. Executive During 20 21, th e Board revi ewed and up dated the su cce ssio n plan and tal ent developm ent fra mework th at seeks to en sure that we have arr angement s to manage executi ve succe ssi on. The me dium-term plans have be en disc uss ed and d evelope d taking into acc ount views from a wid e range of s takehold ers wit hin Hikma. The se pla ns were pres ented to and dis cus sed by th e whole B oard. In terms of su cce ssio n for Exe cutive Dire ctor s, the C ommit tee ha s consid ered th e potential for m edium-term change, t aking into acco unt the as ses sme nt of internal tale nt, and has th e nece s sar y relations hips with exec utive recr uitme nt speciali sts . As a re sult, th e Commit te e consid ers it is we ll posit ione d. Independent During 20 19 and 2020 we we lcome d t wo new direc tors an d in late 2020 we tr ansiti oned th e Senior I ndep endent D irector ro le and chair s of the Audit C ommit tee an d NGC . The se change s have allowed us to use 20 21 to develo p a new plan for th e succe ss ion of Inde pend ent Direc tors over th e medium ter m. Dr Pam ela Kirby is s tanding d own at the Annual G ene ral Me eting and I will re ach nine year s’ ser vic e in 2023 . Acco rdingly , we will be lo oking to nd c andidate s to increas e the level of in depen dent repre sent ation on the B oard dur ing the cour se of 202 2. Dur ing this pro ces s, th e NGC will b e mindful of t he Board ’s commitme nt to have at least 3 3% D irecto rs identif y ing as women . The NG C will also revi ew the addit ional commi tments of Direc tors in ter ms of Commi t tee Chairs and ot her res ponsibili ties wi th a view to ensur ing a smoot h transi tion of re sponsib ilities . The B oard consid ers it is imp or ta nt for thos e under t aking the se addit ional resp onsibilit ies to have sucie nt time to build exp erien ce of Hikma and relatio nships wit h relevant coll eague s in adv ance. In terms of su cce ssio n for the chair ing of Board C ommit tee s, I am plea sed to rep or t that Nina H ender son has k indly agre ed to continu e Pam’s thoug htf ul lead ership of the R emuner ation Co mmit tee. Balance During t he year , the NG C reviewe d the comp ositi on of the B oard. Thisreview in clude d conside ratio n of the skills and at tr ibutes of eachm ember, the balance b et ween co nstr uct ive challenge an d empow erment of th e executive, th e result s of the re cent Boa rd evaluation exerci se and the c urrent and de sired leve l of diversit y inthe Bo ardroom (see p age 69 and 81). I am please d to repor t th at theNG C conr ms that the B oard continu es to ope rate ee ctive ly andthat ea ch memb er is value d for the exp erie nce and sk ills that they bri ng. Skills and experience The N GC continue s to beli eve that a longer indu ctio n peri od is desirable for new Independent Directors to allow for building under stan ding of the bus ines s and, whe re succe ss ion for a Commit te e Chair is taking p lace, the t rans fer of knowl edge and relations hips as soc iated with the p ar ticular c ommit tee. Addi tionally , the Bo ard beli eves it is imp or tant for all D irecto rs to have signic ant international ex peri ence at an execu tive level, a challen ging yet cons ensual s ty le, and the hig hes t level of integrit y. The Commit te e regular ly consid ers wh ether the re may be gaps in f ullling the sp eci c and in-d epth expe rienc e that the Bo ard require s as a whol e, which focus es on t he following are as: – s trateg y, culture and lea dership – b usines s environm ent in both the US an d the MENA re gion – pharmaceutical manufacturing and distribut ion – d evelopme nt of new heal thcare c apab ilities – lis ting regul ations, inves tor perc eptions an d governanc e Hikma supp or ts D irec tors in their c ontinued p rofes sional develop ment. A s the Dire ctor s are highly exp erien ced, th eir trainingn eeds te nd to be related to ei ther ens uring awarene s s ofchange s in the busine s s, po litic al and regulator y enviro nments , orbe spo ke training on par tic ular areas for deve lopme nt. Therefo re, Hikma nanci ally suppo r ts sp ecic t raining requ es ts and en sures thatDire ctors are b riefe d by internal and ex ternal adv iser s on a regular b asis. During t he year , the B oard rece ived br iengs on mat ter s such as thepha rmaceutical competitiv e en vironmen t, the dev elopment ofbiosimilar s, he althc are busine ss d evelopme nt acti vit y , crisis managemen t, inv estor perceptions, business in tellig ence, capital markets and lis ting related devel opme nts. T enure The C ommit tee’s po licy on tenure i s that the Inde pend ent Non- Exe cutive Dire ctor s are norm ally expe cted to s er ve for a pe riod ofnine year s or , i f required to f acilit ate an orderly tr ansf er of resp onsibilit ies, t he nex t Annual G ener al Meet ing (A GM) of th e Comp any following the ninth annive rsar y of t heir appo intment. Th eir appo intments are for mally reviewe d aer thre e years and at six ye ars a more rig orous review p roce ss i s under ta k en. Oth er than Dr P amela Kir by , e ach memb er of the B oard will s tand for ele ctio n or re-e lec tion at the 20 22 AGM . The p osition o f each Dire ctor was clo sely rev iewed dur ing the year as p ar t of the con sider ation of succession arrangements, i ndependence issues, the bi- annual governanc e stru cture rev iews, th e Board an d Commit tee ev aluation proc es se s and the ongo ing dialogu e bet ween t he Exe cutive Chairman and t he Senio r Indep endent D irec tor . Time commitment The N GC continue s to review th e externa l commitme nts of eac h Direc tor with a v iew to ensuring t hat the ben ets o f the addit ional exper ience f rom their ex ternal c ommitme nts are not out weig hed byreduc tions in t he commit ment to the Co mpany . T he Dire ctor s achieve excellent at tendan ce and sp end signi cant tim e delivering their re spon sibilitie s. Acco rdingly , the NG C consi ders that th ere is currently a n appropr iate balance. T he Commi tte e will continue to monitor th e situatio n. Hik ma Ph arm ace utic al s PLC Annual Report 2021 81 GOVERNANCE Diversity The B oard approve d Hikma’s diversit y p olicy, which applie s to the whole G roup, including th e Board. H ikma’s objec tive is to continu e toensure that it ha s an inclusive wor kplace t hat welcom es die rent culture s, p ersp ec tives, a nd exper ience s from a cros s the glo be. Hikma is committed to emplo ying and engaging talen ted people, irres pec tive of th eir race, c olour, religion, age, sex , sexual or ientation, marit al stat us, nationa l origin, pre sent o r past his tor y of ment al or physica l disabilit y and a ny other fac tors n ot related to a per son’s abilit y to per fo rm the relev ant role. Hikma’ s inclusive workp lace welcom es dierent cultures, p erspec tives, a nd ex peri ence s fro m acro s s th e globe One of th e three pillar s of the G roup’s str ateg y is to ‘inspire and enable o ur peo ple’ . The G roup’s po licy and ap proach to dive rsit y , succe s sion and app ointment s are a core par t of t his pillar . The B oard monitor s the diver sit y metric s whi ch are detaile d on pag e 69 and use s the se as a refere nce po int when consi dering th e level of achievem ent agains t its diver sit y obje ctive (detaile d above) . Hik ma has succ es sful empowerment and talent dev elopment programmes to help all employe es make the mos t of their p otential, for more info rmation plea se se e page s 8 and 13. T his diversi ty p olic y is include d in our Cod e of Cond uct an d communic ated to all employe es. Fur th er detail on empl oyee diversi ty i s provide d on page 69 . The G roup’s talent a cquisitio n polici es for th e three mo st se nior st a gra des re quire a balanc ed list o f candid ates that ensure s diversi ty. Ethnicity The B oard cons iders t hat it has dem onstr ated st rong ethnic diver sit y since th e formation of H ikma and has thre e Dire ctors i dentif ying as Minori t y Ethnic repres enting 30 % of the Bo ard, including t he Exe cutive Chairm an. According ly , t he Boa rd has achieved a nd wholeheartedly supports and adopts the Pa rker r ecommendation tohave at least on e Direc tor identi f ying as minor it y ethnic. Gender Since it s founding , Hikma has ac tively p romoted ge nder diver sit y acros s it s oper ations . The NG C was p leas ed to be abl e to improve gende r diversit y in th e Boardro om over the pa st few year s. Th e Board has ado pted the Hampton-A lexander t arget to achieve at lea st 3 3% of Boa rd membe rs identi f ying as wome n. The pro ces se s to enhanc e the level of in depen dent repre sent ation on the B oard dur ing the cour se of 202 2 will take into account th e desire to achi eve this target. Governance review As in prev ious year s, the N GC unde r took the annu al review of the Group ’s governance arr angeme nts in conjunc tion w ith the Co mpany Sec retar y . This ye ar the exercise inc luded a t horough rev iew of the str uct ure of the Bo ard, Board G overnan ce Manual, an d complianc e with the U K Gover nance Co de and sup por ting gover nance gui dance. Evaluation and per forma nce During 20 21, we un der took a f ull, exter nally mo derate d interv iew andobs er vatio ns-base d Bo ard evaluation wi th Indep ende nt Audit Limited (IAL). IAL were appointe d following a co mpetiti ve tender proc es s during 2020. O ur previou s provider of b oard evalu ation ser vi ces ha d worked with u s for circa nine ye ars and th e Board consid ered it w as an appro priate point to ref resh our ap proach . IAL do not pe r form any other co nsultan cy s er vice s for the G roup. As p ar t of the refre shment of our a pproac h to Board evalu ation, we have adopted th e ‘Pr inciple s of Go od Pr acti ce for liste d comp anies using ex ternal Bo ard reviewer s’ which were pub lished by t he Cor por ate Governan ce Insti tute in Januar y 20 21. We con rm that IAL have adopted th e ‘Co de of Pra ctic e for Bo ard reviewers’ an d that we have agree d with IAL th e des cription of t he Boa rd evaluation pro ce ss detaile d on this p age and the dis closure s which re ec t opinions at tribute d to IAL. IAL s tar ted w orking wit h the Bo ard in 2021 an d have not provid ed any other se r vice s to Hikma prio r to this. In dis charging their dut ies, s everal In depe ndent Dire ctor s have engaged w ith IAL as par t of the ev aluation wor k under t aken by other compani es and organis ations wh ere they have a governanc e role. Process The mo st re cent evaluation p roce ss w as co ordinated by the S enior Indep ende nt Direc tor at the requ es t of the E xecutive Chair man. IALobs er ved th e condu ct of on e meeting of t he Board a nd each Commit te e and cond ucte d a private inter vie w with eac h Direc tor , theCo mpany Secre tar y , and se lec ted memb ers of m anagement . Bas ed on th e obse r vations an d feedb ack. IA L produ ced a rep or t which they dis cus se d with the S enior Ind epen dent Dire ctor and Comp any Secret ar y and, subs equentl y , wi th the E xecuti ve Chairman. As a re sult of the se me etings, t he Senio r Indep endent D irecto r and Comp any Secret ar y prepare d a note for the B oard which d etaile d aprop ose d resp onse to th e points r aise d. IAL provid ed the ir fee dback on th e resp onse n ote. IAL ’s full repor t and t he resp ons e note were subs eque ntly reviewe d by the full B oard in a meet ing withonl y Board me mber s, IAL ’s repre sentative, an d the Comp any Sec retar y pre sent. Fur th er to that meet ing, the re spo nse s to the point s raise d (see the t able on this p age) were rened and a gree d atasubse quent Bo ard meet ing. The re sults of th e 202 1 evaluation p roce ss for med p ar t of the Exe cutive Chairm an’s apprais al of the over all eec tivene s s of the Board a nd its m ember s and the as se s sment of the E xecu tive Chairman’s per fo rmance by th e other me mber s of the Bo ard. Additio nally , during the p erio d bet wee n ass es sment s, the D irec tors sug ges t and prom ote improvements as t hey arise. Results Our re spon se to the is sue s raise d in the 20 21 Bo ard evaluatio n repo r tare: Observations Action taken Facilitating discussion IAL noted t hat there may be oppor tunities for more ex tensive Board di scus sion by making adjustments to the way in which informa tion is shared and meet ings are structured. The B oard ado pted IAL ’s recomm endation that there sh ould b e more opp or tunit y for discus sion s witho ut managem ent pres ent. Additio nally , the Bo ard res truc tured i ts meet ings into three par t s and requ este d that Exe cutive Co mmit tee memb ers at tend t he informatio n sharing par t of t he new me eting str uct ure ( which is d etaile d on page s 75 and 7 6) . T his ensure s that executive s are aware of the key issue s that may aec t their G roup- level res ponsibili ties an d the Bo ard believe s this makes for a f uller and mo re informe d discus sion a nd stren gt hens the re lationship bet wee n Direc tors an d manageme nt. The B oard ado pted IAL ’s recomm endation s that bo ard time witho ut managem ent shoul d be adju sted s o that they chie y take place at the be ginning and the e nd of the me eting. The B oard cons idered t hat the Chief E xecuti ve O cer ’s highly informati ve brieng di d not require a wr it ten submis sion as to do s o could reduc e the fre e owing and infor mative nature of the rep or t and, never t hele ss , any impor tant mat ters were do cumente d in the minutes . 82 H ikm a Phar mac eu tic als PLC Annual Repor t 2021 Nominat ion and G overna nce Commit tee Le t te r fr om th e Ch ai r con ti nu ed Observations Action taken Positioning and summarising IAL observed some meeting items bein g posit ioned and summarise d by the pre senter s The B oard reviewe d the p ositioning o f meeting business and concl uded that the Executive Chairman sh ould lea d the rs t par t of the meet ing where the key discu ssio ns are held onmat ters relate d to governance, maj or str ategic initiative s, and n ance. The B oard consid ers th e Chairman’s lead ership in the rs t par t of the me eting ensure s that discus sion s are approp riately fr amed an d direc tors have an opp or tunit y to disc uss aspec ts without management. Presentation and purpose IAL o bse r ved t hat improve ment s could b e made to the po sitioning of paper s, dening their purpose andset ting o ut the is sue s that the Bo ard may choo se to foc us on in its discussions. Fur therm ore, this would gi ve an opp or tunit y to reduc e the leng th of management presentations The B oard has ada pted its ag enda to make clear wh ether item s require app roval, input or are for informati on only. This has ensured t hat les s me eting time is sp ent on mat ters that are for informati on only and th e material is available in ad vance. T he Board c onside rs that managem ent ’s highly informative and comprehensiv e papers and presentations signic antly ad d to the proc es se s for making decisions and de veloping ideas and, ther efore, has not signi cantl y altered th e proce s ses related to pre senting an d posit ioning mat ters for approv al or input . All pres entatio ns include an approp riate opp or tunit y for que sti oning. Governance disclosure IAL o bse r ved t hat the go vernance disclo sure in the Annual Repor t could m ore fully explain the condu ct of B oard meetings and the role s of relevant par tie s The B oard has review ed it s governance disclo sure and enhan ced th e des cription of the role s of the Chair man, Chief E xecuti ve Ocer , and Senior Independent Director and the expla nation of the w ay in which meeting s are condu cted t hrough th e ‘ A pplie d Gover nance’ s ec tion on pa ges 75 and 76. During t he year , I met se parately w ith the Ind epen dent Dire ctor s, the Chairman and t he Chief E xecuti ve Oc er in order to unde r take an as ses sme nt of the per fo rmance of t he Board . We conclud ed that the Board c ontinue s to oper ate eec tively and t hat a signic ant number of enhanc ements have be en mad e over the rece nt perio d, par ti cularly since th e Chief Exe cutive O cer j oined in Fe bruar y 20 18. Th e next Board ev aluation exercis e will be und er taken during 202 2 and repo r ted in the foll owing Annual Rep or t. The e val uat ion pr ocess h as he lped u s recognise streng ths and make fur ther enhancements Conclusions an d actions In relation to th e most re cent as se ss ment exercise, th e Board ha s reviewe d its app roach and m ade mo dic ations whe re it believe s that additi onal value c an be o btaine d and has enhanc ed the di sclos ure of its gover nance arr angem ents (see pag es 75 and 76 for fur ther d etails) . Additio nally , the Bo ard consid ered that i t continued to o per ate eec tivel y with par ti cular stren gt hs in the follo wing areas: – t he str ategic lea ders hip of the E xecutive Chair man – t he eec tive relati onship bet we en E xecutive Chair man and the Chief E xecutive O ce r – t he commitm ent to doing the r ight things – t he energ y and d edic ation of th e executive manag ement team and Board D irec tors – o ur approa ches to s et ting and monito ring risk ap petite Executive Chairman’s appraisal The E xecuti ve Chairman and I m eet regula rly to discu ss mat ters including th e per for mance of th e Board an d how his role he lps delive r and enhanc e that per fo rmance. T his builds on di scus sions th at I hold with the I ndep endent D irector s which o ccur bi-annually and comme ntar y rec eived throu gh the b oard evaluatio n proce s s. The Exe cutive Chairm an’s per forman ce is also revi ewed by the Remune ration C ommit tee as p ar t of the deter mination of per formance-based compensation. Director appraisal The E xecuti ve Chairman, having taken into acco unt the comm ents from th e Board eval uation and dis cus sions wit h the Seni or Indep ende nt Direc tor and Chief E xecut ive Oc er , reviewe d the per for mance of e ach of the D irec tors during th e year and con clude d that each D irec tor contrib utes ee ct ively to the B oard, brings par tic ular areas of skill an d exper ience th at ensure the B oard as a whole h as the rig ht capabili ties , and devotes su cient time to th eir role. Th e NGC ha s conclu ded that th e relevant Dire ctor s be reco mmende d to shareho lders fo r re-e lec tion at the 20 22 AGM . For and o n behalf of th e Nominatio n and Gover nance Co mmit tee. Patrick Butler Chair , N omination and Governanc e Commit tee 23 Feb ruar y 20 22 Hik ma Ph arm ace utic al s PLC Annual Report 2021 83 GOVERNANCE Dou glas Hur t Chair , Au dit Co mmit tee Audit C ommit te e L ett e r fr om t he C ha i r Dear Shareholders I am plea sed to rep or t that the C ommit tee ha s had anothe r year ofsolid p rogre ss in it s oversight of th e matte rs dele gated to it by theBo ard. During t he year , the Co mmit tee continu ed to play a key role in as sisting th e Board in it s oversight of n ancial rep or ting, fo rec asting and audit ing matter s. Th e Commit tee ’s activ itie s include d reviewing and moni toring the integr it y of the Gro up’s nancial informati on, the Group ’s systems of internal c ontrols and r isk managem ent, and th e internal and ex ternal audi t proc es s. Ensuring resilie nce and clear re por ting Pandemic impa ct s The COVID -19 pandemic continu ed to create challe nging condi tions in 202 1, which require d a high level of ad aptabilit y and re silienc e from our nancial re por ting an d exter nal audit team s. The C ommit tee is plea sed to rep or t that all the re levant pro ces se s under it s oversig ht have continued to op er ate in an eec tive manner dur ing the pande mic. We rec ognise th at we owe a lot to the commi tment of our colle ague s and their s trong relatio nships wit h internal and ex ternal aud itors and ad visers. In terms of th e impac ts of th e pandemi c on our nancia l per for mance, we have continued to exp eri ence change s to the mix of p roduc ts require d by hospit als and pati ents. T he Gro up has per for med we ll through out the p andemic a nd at the end of t he nancial year h ad undrawn c ommit ted nan cing fac ilities in exce ss of $ 1,000 millio n. Theviab ilit y statem ent and going con cern a ssumptio ns have bee n criti cally revi ewed and th e Group is in a s trong nanc ial posi tion. Verication During t he year , managem ent reviewed t he mech anisms to enhanc e the as suran ce pro ces s related to the q ualitative dis closure s in the Annual Rep or t (beyon d the audit , advis er review and inter nal review proc es se s ). As a result , the qualit ative disclo sures have be en reviewe d by our internal teams wh o are resp onsible f or each s ec tion of the Annua l Repor t a nd who have provide d addit ional veri catio n and supp or t material in re spe ct of e ach material s tatement of f ac t. This enhan cement as sis ted the C ommit tee in it s determinatio n thatthe rep or t and ac counts t aken as a whole are f air , balance d andu nderstandable. Distributable reserves The C ommit tee is aware t hat the FRC is en coura ging organis ations to provide g reater clarit y on t heir distr ibut able res er ves p ositi on. Dur ing the year, management re-as se ss ed the G roup’s distr ibutab le res er ves in line with FR C guidance. T he Com mit tee has reviewe d and approved t he distr ibutab le res er ves dis closure in th e nancial st atements (see pa ge 181 for f ur ther d etails) . The C ommit tee has als o reviewe d a propo sal by manage ment to conver t the G roup’s merger re ser ve (which was c reated whe n the busine ss li sted in 20 05 and as a re sult of the a cquisiti on of the Columb us fac ilit y in 2016 ) into fur the r distrib utabl e rese r ves. T his merger re ser ve re duc tion pro ces s has b een und er taken by sever al other lis ted comp anies . It is an ordinar y co urse l egal pro cedure under t aken with guidan ce from our l egal adv iser s and subje ct to shareho lder app roval at the Annual G ene ral Me eting and th e approval of t he Cour t . It shoul d result in th e Company ’s distr ibutab le res er ves incre asing signi cantly in exce ss of t he current div idend requirem ents, th ereby creating g reater exibilit y for t he fut ure. Sharehol ders w ill nd fur the r details of th e merger re ser ve re duc tion in the AGM notic e on page s 6 to 7 . Internal a udit The internal au dit of Hikma is p er form ed by Erns t & Y oun g (EY ), who repo r t direct ly to the Chair of the C ommit tee. T here is a reg ular progr amme of inter acti on bet we en EY an d the Com mit tee. EY a ss es s each f acilit y and th e Group’s majo r proce s ses over a three -year peri od. For m ajor sites , as ses sme nts are more f requent . Managem ent is require d to resp ond to ndings wit hin a shor t time per iod, co mplete all pro ces s improveme nts within t wo year s and ensure at le ast 8 0% of high-ris k ndings are res olved w ithin six months . The Co mmit tee has re ceived re por t s on the nding s of the progr amme and is p leas ed to rep or t that managem ent has resp onde d approp riately to any new ndings an d has made go od progre ss in d elivering it s plans fo r enhancem ents that have previo usly been identied. During t he year , the Co mmit tee moni tored prog res s with th e internal audit pro gramm e for 202 1 and reviewe d and approve d the plan for 202 2. E Y and managem ent work clo sely tog ether to delive r the internal audit p lan, develop a ctio n plans for p oints rai sed, an d ensure that the Co mmit tee rec eives ap propri ate and timely infor mation. Th e Commit te e is plea sed wi th the pro gres s and com mitment of managem ent and the internal au ditors . During t he year , the Co mmit tee continu ed to monito r the per fo rmance and independence of the i nterna l audito rs in accorda nce with the polic ies that have be en es tabli shed. T he Commi tte e conclu ded that EY c ontinue to per fo rm an ee ctive inter nal audit prog ramme an d remain independent. The Committee considers th at EY bring signic ant pharm aceuti cal and M ENA market exper ience whi ch iscompl emented by th e exper ience of ot her third-par t y exp er ts where re quired. Ex ternal a udit The ex ternal audi t was unde r taken by Pricew aterhous eC oop ers LLP (Pw C) and has be en since th eir appointm ent in May 2016. P wC we re appo inted following a co mpetit ive tender p roce ss . Mr Darr yl P hillips was app ointed as a key audit par t ner in 2017 b efore subs eque ntly be coming the s enior s tatutor y au ditor in May 2019 . MrPhillips has ser ve d the maximum t ime allowe d on the audit of H ikma and will hand over his re spons ibilitie s to Mr Nigel Com ello. Mr Co mello is a par tne r in the audit p rac tice of P wC w ho was s elec ted foll owing internal as se ssm ents by P wC . Following a b rieng by P wC re garding the se lec tion pro ce ss, t he Commi tte e reviewe d and approved t he appo intment. Th e Commit tee w elcom es Mr Co mello to the ro le and thanks Mr Phillips fo r his dedic ated se r vice. 84 Hik ma Ph arm ace uti cal s PLC Annual Report 2021 Audit Commit tee Le t te r fr om th e Ch ai r con ti nu ed Eectiveness During t he year , the Co mmit tee reviewe d the wor k of Pw C and conclu ded that t hey provide an e ec tive audit , have constr uct ive relations hips with th e relevant par t ies and th at Mr Phillips provide d clear an d cons truc tive lea dership to th e audit team. A s par t of this review the C ommit tee examin ed the fo llowing areas: – Au dit quality and technic al capabilities: the Committee considered that the audi tors unde r took an ee cti ve and in-de pth ass es sment and veri catio n exercise in res pec t of the na ncial st atements an d as sociate d disclo sures for t he year end ed 31 D ec ember 20 21 and that the level of ex per tis e Pw C broug ht to bear wa s high. The Commit te e provide s fee dback on t he auditor ’s per fo rmance as p ar t of the reg ular meetin gs with the m withou t manageme nt pres ent, takes into acco unt the repo r ts and anal ysis ofthe Finan cial Rep or ting Coun cil, and be lieves that the re is an ope n and approp riately challe nging relation ship bet wee n the audit l eader ship team, the Audi t Commit tee an d manageme nt – Indep endence: the Commi tte e regular ly reviews th e indep enden ce safeg uards of the au ditors and re mains satis ed that au ditor independence has no t been compromised. The Committee’s polic yon the p rovision of n on-audit ser v ices i s that all such prop ose d ser vic es re quire the approv al of the Co mmit tee in advan ce of an inst ruc tion. T he Commit te e is satis ed that th e auditors a re independent – Challenge and judg ement: the Com mit tee consi ders that P w C provide sig nic ant challenge to the ma nagement team w hich result s in the Co mpany’s p osition b eing fully c onside red and sup por ted and, whe re appropr iate, fur ther s treng the ned. T he Commit te e believe s that P wC has de mons trated we ll consid ered and c lear- sighted judg ement in the mat ter s on which it ha s provide d opinion and has b een op en to an appro priate level of chall enge and deb ate – N on-audit fees: the Commi tte e’s polic y is that the ex ternal au ditors should n ot under t ake an y work o utsid e the sc ope of th eir annual audit and t he review of the inter im nancial st atements . The Commit te e has discret ion to grant excepti ons to this po licy wh ere it conside rs that exceptional circumst ances exis t and that indep enden ce can b e maintaine d, whilst having du e regard to the FRC ’s ethical s tand ards for auditor s. Th e Commit tee ’s approval isrequire d to instr uct P wC to p er form n on-audit ser v ices . P wC provide d as suranc e ser vic es relate d to the interim review and ot her audit relate d assur ance wo rk with a v alue of $200,0 00 (2020: $210,00 0) . In 2020, P wC provi ded s er vice s related to the b ond oerin g totalling $208 ,000, bu t no such s er vice s were provi ded in 202 1. The se ser v ices a re within the ordinar y c ours e of ser vi ces provide d by the audito r The C ommit tee con rms that the s tatu tor y audit se r vice s for the nancial year un der review we re condu cted in c ompliance w ith the Comp etition a nd Markets Auth orit y Ord er , and a comp etitive audi t tender p roce ss w as under t aken in 2015. Audit tendering Pw C were app ointed as au ditors in May 2016, t herefore, th e current Annual Rep or t is th e sixt h repor t th at they have audited. P wC rot ated the Se nior Statutor y Audi tor in 2019 and, as note d earlie r on this page, a fur the r rotation will o ccur in 20 22. Thi s follows the C hair of the Audit Commit te e being tr ansfe rred to D ouglas H ur t in Dec ember 20 20. The Commit te e consid ers it is p rude nt to allow time for one s ignic ant change to be come e mbed ded b efore emba rking on anoth er . In acco rdance wit h the audit ten dering gui deline s, the C ommit tee conr ms that it is not exp ec ting to under t ake a tender exercise until 2025. Th e Commit te e will keep the situ ation unde r review and rep or t to sha reholders accordin gly . Fees Aud itor ’s fee ($ m) $ 3 .5 m PwC 1 Ja n – 31 Dec 2021 1 Ja n – 31 Dec 2020 5.7% 94.3% 12.0% 88.0% $3.3m $0.2m $2.8m $0.4m Audit rel ated fe es Other non-audit services Position and prospects During t he year , managem ent under too k an annual review of i ts str ategic direc tion an d an exten sive ass es sment of t he Group’s shor t- term and m edium-term pro spe ct s which are includ ed in the budget fo r the follow ing year and the ve-year busine s s plan, resp ec tively. Management pre sente d and recei ved the B oard’s approval an d comme ntar y on the f ull str ateg y , b udget and bu sines s plan. Having t aken account of how t he busine ss h as resp onde d to the challenges of th e commercial environment, th e busines s plan, princip al risks an d uncer t ainties f acing the G roup and othe r relevant informatio n, the Commi t tee has con clude d that the Gro up continue s to have attr act ive prosp ec ts for th e future. Going concern and longer-term viability The G roup has a se lec tion of s cenario s with s evere but plausib le downsid e as sumptions ba sed up on the G roup’s princ ipal risks an d uncer t ainties . Each year, management mo dels the imp ac t of thes e scenar ios occur ring as par t of the going con cern and viabilit y analysis . In resp ec t of the mo st rec ent as ses sme nt, the sc enario s took into acco unt the Group ’s principal r isks, manage ment ’s view on cur rent signic ant risks , and longe r -term emerg ing risks which are d etaile d in the viabili ty di sclos ure on page 6 3. The C ommit tee review ed the ou tcome s from the s cenar io analysis and con clude d that the Gro up could re asonab ly resp ond to the challenge s and ens ure the continue d sur viv al of the busin es s. The impac t of a sce nario (involving sever al risk event s ) has co nsistently be en manageab le for the G roup, while ackn owled ging that it may result in a s hor t -term set b ack. Th e Direc tors c onsidere d the going conc ern po sition a s detaile d on page 62 . Having reviewe d and challeng ed the downside assump tions, forecasts and mitiga tion str ateg y of manageme nt, the Dire ctor s beli eve that the Group is adequately p laced to manage its b usines s and nancing risks succe s sfully. The Direc tors have a reas onabl e expec tati on that the Group ha s adequ ate resourc es to continu e in oper ational exis tence for a pe riod of at l east 12 m onths fro m the date of signing the n ancial st atements. T herefore, th e Direc tors c ontinue to adopt th e going conc ern bas is in prepar ing the nancial s tateme nts. The D irector s, having co nsidere d the long er -term viabilit y as ses sme nt as detaile d on page 6 3 , conrm t hat they have areas onable exp ec tation t hat Hikma will be ab le to continue inoper ation an d meet it s liabilitie s as they f all due and over th e viabilit y p erio d which ends o n 31 D ecemb er 2024 . See p age 6 3 forfur th er details . Signicant matters As p ar t of its wor k reviewing th e nancial pe r formanc e of the Gro up and the rep or t of th e auditors , the Audit C ommit tee co nsidere d and discus sed t he following impor tant nancial mat ters: Hik ma Ph arm ace utic al s PLC Annual Report 2021 85 GOVERNANCE – G oo dwi ll and in tang ible a sse ts – va luati ons an d discl osur es: As inpreviou s years, m anagement und er took th e impairme nt test exercise in re spe ct of ea ch of the four C ash G ener ating Unit s (C GU) and the G roup’s other intan gible as set s. In re spe ct of the B rand ed, Injec tab les and G ene ric s busine ss di visions t hat cons titute thre e of the CGUs , no new imp airment indic ators were i dentie d and, therefo re, management c onclude d that the exi sting he adroom continue d to be su cient. In re spe ct of th e Gene ric Adv air Diskus® CGU, manageme nt had reco mmende d an impairm ent revers al of $4 6 million at th e half year review an d subse quently ins tru cted an exter nal par t y to as ses s the f air value o f the CGU le ss t he cos t of sale. Foll owing this valuation, management con cluded that no fur the r adjust ment was re quired. Th e review of pro duct re lated intangibl es re sulted in an impair ment charge of $2 3 million and an impairme nt reversal of $ 14 million. The C ommit tee revi ewed manageme nt’s approach and recommenda tions and conc luded that the pro pos als were app ropriate. – R evenu e rec ogniti on: The C ommit tee revi ewed th e Group’s po licies for revenue re cognit ion and the ap plic ation of tho se po licies by managem ent. The C ommit tee revie wed the m odel ap plied by managem ent to arrive at the char gebacks , which e stimates th e ‘in-chann el’ inventorie s held by wh oles aler s and the charge back rate be ing the diere nce bet we en the co ntrac ted pr ice with in direct custom ers and t he whol esa ler ’s invoice price. Similar rev iews were undert ak en of the deductions to rev enue made for customer rebates , returns an d indirec t non- custom er and governm ent rebates . The C ommit tee als o agree d the dis closure s around the se year-end es timates and th e sensi tivit y of the e stimate s to changes in assumptions. – Ta x a t i o n : Hikma’ s worldwide operations a re highly int egrated and involve a number of cro ss-b order supp ly chains, w hich result s in judgem ent being re quired to es timate the potential t ax liabilit ies indierent juri sdic tions . During th e year , t he Commi tte e and Bo ard recei ved pre sentati ons from t he Hea d of T ax reg arding the potential direc tion of t ax planning ac tivi ties and e nhancem ents to the res ources avail able to the de par tment , the contro l environment foroperationa l eectivenes s and r epor ting. The Comm it tee took advic e from profe s sional se r vice s rms and man agement in as ses sing the re asona blene ss o f the Group ’s provisions for uncer t ain tax p ositio ns which amo unted to $4 4 million and in reviewing th e deferre d tax as se ts in key markets which amounte d to$18 3 million. Th e Commit tee rev iewed th e approp riatenes s of the disclo sures in th e Annual Rep or t, an d reviewed an d approved theGro up’s tax s trateg y st atement, whi ch is available on t he Company ’s website – C ontingent Liability : Following re ceipt of a noti catio n from HMR C in the UK c onrming that th e Company is not a b ene ciar y of st ate aid, the G roup no lon ger holds a c ontingent liabilit y relating to as sociate d UK and EU litig ation. The C ommit tee rev iewed and concurred with the conclus ion – H yperinationar y economie s: The Group o per ates in Leban on and Sudan which h ave experien ced in ation in exces s of 100 % over a three -year peri od and, th erefore, are con sidere d to be hyperin ationar y e conomie s in acc ordance wi th IAS 2 9 . In accordan ce with the International Financial Re por ting Standards the nanc ial statem ents for th e relevant entiti es have be en res tated to reec t the c urrent purchasing p ower using t he ocial exchange rate of tho se ec onomie s resul ting in a reduc tion to th e Group’s net incom e of circa $10 millio n and an increa se in the G roup’s revenue of circa $ 4 3 million . The Co mmit tee reviewe d and approve d managem ent ’s approach to as cer t aining the nancial imp act of t his even t in accor dance with the accounti ng standard – C lou d base d so w are: In re spon se to the IFR IC Apr il 2021 a genda decisions regar ding cloud computing arrangemen t customisat ion and conguration costs treatment. Man agement undertook an as ses sme nt of the Group ’s so ware-re lated intangibl e ass ets and conclu ded that circ a $13 millio n of ass ets sh ould be exp ens ed as a cos t instead o f being c apitalis ed. T he Commi tte e concur red that the amo unt was not material to th e prior ye ar result s and that it should b e treated a s an exceptional ite m in the current yea r Understanding the k ey judgemen tal mat ters Fair , balanced and understandable Hikma is co mmit ted to clear an d trans parent discl osure and s eeks tocontinuou sly improve the clar it y of its rep or ting. At the re que st of the Bo ard, the Audit C ommit tee c onsider s wheth er Hikma’s Annual Rep or t is fair, balanced an d unders tand able and that th e narr ative se ction o f the repo r t is consis tent with th e nancial inform ation. TheC ommit tee’s as se ssm ent is under pinned by a rep or t fro m the Rep or ting Commi tte e, which com prise s repre sent atives fro m nance, investor relati ons, r isk, co mmunicatio ns and governan ce, following their co mprehen sive review of the A nnual Rep or t. Th e Repor ting Commit te e’s work is supp or ted by div isional and f unc tional he ads, asrequire d. The Re por ting C ommit tee ’s activi ties in clude: – ini tiating the review p roce ss fo r the Annual Re por t sig nic antly before the y ear - end, consideri ng external de velopments, issuing guidanc e to contribu tors and id entif ying area s for improvement – o btaining input f rom exter nal advis ers , including th e auditors , designers, corporate brok ers and publi c relations advisers – un der tak ing severa l multi-func tional revi ews of the dis closure s as awhole p rior to the p ublic ation of the A nnual Rep or t to ensure consistency and accuracy across the documen t as a whole – over see ing an extens ive veric ation pro ce ss to ens ure the accur ac y of discl osures Each m ember of t he Audit Co mmit tee and th e Repor t ing Commit te e is satis ed t hat the 202 1 Annual Rep or t is f air , b alance d and understandable and has recommended the adoption o f the Report and Acco unts to the B oard. Reporting controls Hikma’s key controls and risk m anagement s ystems relat ing to thenanc ial repor t ing proce s s include th e enterpri se res ource planning sys tem, the ex ternal au dit at subsidiar y and G roup levels , the processes in the ‘Fai r , balanced and un derstandable’ and ‘ V eri cati on’ sec tion s des cribe d earlie r in this let ter , the review ofthenanc ial statem ents and dis closure s that is unde r taken by theE xecuti ve Commit tee, an d detaile d internal nancial c ontrol proc es se s nece s sitating the ve ric ation of nan cial reco rds at aloc al,regio nal and Gro up level. Managing ris k and uncert ainty Risk management and interna l control Risk management The C ommit tee has c ontinued to re ceive rep or ts on t he ope ration of the Gro up’s enterpris e risk mana gement fr amewor k which inclu des the material c ontrols and p rogram me for enhanc ing the Gro up’s mitigatio n eor t s. As in p revious year s, manage ment and the B oard have under taken a tho rough as se ss ment of the G roup’s emerging risks as we ll as the annual revi ew of the pr incipal ris ks. The C ommit tee and the B oard have consi dered th e princip al risks f acing the G roup and we have deci ded that n o adjustm ents were re quired in the ye ar under revi ew. The Board an d management have als o reviewed th e appet ite for thos e princ ipal risks an d have conclude d that it remains approp riate. Aer a review of th ose r isks that pre sent a greater potential ri sk in the near te rm, the B oard rec eived ad ditional informatio n on the Gro up’s data se curit y initiati ves. Fur the r 86 Hik ma Ph arm ace utic al s PLC Annual Report 2021 Audit Commit tee Le t te r fr om th e Ch ai r con ti nu ed informatio n regarding the G roup’s risk mana gement ac tivit ies isavailable in th e Risk managem ent sec tion o n page s 54 to 6 3. Internal control The B oard conr ms that it is ult imately resp onsible f or ensuring t hat Hikma’s system s of internal contro ls and risk man agement remain eec tive. Th e key elements of o ur internal control f ramew ork are asfollows: – a d ocume nted and dis seminated re por ting s tru cture wi th clear polic ies , proce dures , author isatio n limits, s egreg ation of dutie s and delegated a uthorities – w rit ten po licies an d proce dures fo r material fun ctio nal areas wit h spe cic re spon sibilit y alloc ated to indivi dual manager s – a c omprehensive sys tem of internal nancial repor ting that include s regular c omparis on of res ults again st bud get and fore cas t and a review of KPIs , each infor med by mana gement co mmentar y – an e st ablishe d proc es s for reviewing t he nancial p er forman ce and providing supp or t to Hikma co mpanie s and as so ciates togethe r with dire ct supp or t from H ikma’s nance fun ctio n – annu al budget s, upd ated forec ast s and me dium-term busine s s plans for H ikma that identif y r isks and op por tuni ties an d that are reviewe d and, where ap propr iate, approved by the B oard – a d ened p roce ss fo r controlling c apita l expendi ture which is detaile d in the gover nance fr amewor k The B oard is sati se d that Hikma’s system s for internal contro l accord with the FR C ’s guidance, and h ave been in pla ce throug hout th e year under revi ew and up to the date of app roval of the Annual R epor t a nd Account s. Th e Board revi ews the ee cti venes s of the se sy stems at leas t annually as p ar t of the pro ces se s for the A nnual Rep or t and risk managem ent. The B oard has n ot identie d any material weakn es se s. In making this as se s sment, th e Board t akes into account: – R isk management: the enterpris e risk mana gement fr amewor k that provide s a str uct ure for risk man agement ac tivi ties to o ccur at all levels of the o rganisati on, including mana gement of th e princip al risks and un cer tainti es (detailed o n page s 59 to 6 1) . Ri sk repor t ing proc es se s ensure the E xecut ive Commit te e and the B oard are engage d in the de sign and imp lement ation of new co ntrol initiative s and provid e oversight of exis ting prog ramme s – I nternal audit: the Co mmit tee rec eives reg ular repo r ts from t he internal auditor s and other t hird-par t y expe r ts who revi ew relevant par ts o f the Gro up busine ss op er ations, a ss es s Hikma’s proce s ses , identif y are as for improveme nt, monitor p rogre ss , and under t ake their own a ss es sment of the r isks fa cing Hikma – Financial performance: Hikma’s nancial per formanc e and forec ast ing repor t s are reviewe d by the Bo ard to aid the under stan ding of the unde rlying p er forman ce of the bu sines s, deviat ions from expectations and ma nagement’s operational challenges an d respon ses – Ethic s: the busine ss integr it y and ethic s pro cedure s and contro ls that are led by t he Complia nce, Re spons ibilit y and Ethic s Commit te e (CREC) . T o ensure co nsisten cy and aware nes s bet we en the se Commi t tees’ re spon sibilitie s, the Audi t Commit tee C hair is a st anding memb er of the CR EC – G over nanc e: the Board and G roup-l evel controls an d proce s ses that make up our approa ch to governance t hat is led by the Nomination and G overnance Co mmitte e and include s all appropr iate nancial and non-nancial controls – E xterna l auditor: the reg ular and con dential dialog ue with th e ex terna l audi tor Memb ership of the Commit tee The C ommit tee com prise s so lely of Ind epen dent Direc tors all of whom have relev ant nancial expe rienc e. I am consid ered by th e Board to have signi cant re cent and relev ant nancial exp erien ce chiey re lated to my work with oth er audit co mmit tee s, having be en anance dire ctor of an other liste d entit y and having he ld senio r nancial p ositio ns in other enti ties . Biogr aphic al detail s of the Commit te e memb ers c an be foun d pages 70 to 7 1. The B oard is satis ed th at the Commit te e has the re source s and exp er tis e to fullit s resp onsibili ties . As Chair of th e Audit Com mit tee, I remain availabl e to sharehold ers and st akeholder s should t hey wish to disc uss any mat ters wi thin this repo r t or under th e Commit te e’s area of resp onsibilit y wh ether at the AGM or by writ ing to the Comp any Secret ar y . Do uglas H ur t Chair , Audit Commi t tee 23 Feb ruar y 20 22 Hik ma Ph arm ace utic al s PLC Annual Report 2021 87 GOVERNANCE John C aste llani Chai r , Complia nce, Responsibil it y and E thics Co mmi t te e Compliance , R espons ibili t y and Ethi c s Commit tee L ett e r fr om t he C ha i r Dear Shareholders During 20 21, th e Complian ce, Res ponsibili ty a nd Ethics C ommit tee (CREC) continued to prom ote and overse e our commi tments to busine ss integ rit y , qualit y , communiti es and ethi cal co nduc t. This rep or t focu ses o n the mat ters that th e Commit te e addres se d during the ye ar . Fur th er details re lated to the st ruc ture of our AB C complian ce and integri ty p rogr amme are available o n our websi te. Ethics Modern slavery Hikma is co mmit ted to ensuring t hat mode rn slaver y in the for m of force d or compul sor y lab our and human tr acking d oe s not take place in any of it s busine ss es o r supply chains a cros s the glo be. Keymeasures in sup por t of this g oal includ e: – t raining Hikma s ta on lab our st andards an d how to reco gnise and resp ond to any incide nces o f mode rn slaver y – un der tak ing peri odic analy sis of any mode rn slaver y risk in Hikma’s busine ss es an d supply chains – c arrying out appropri ate d ue dili gence – e ngaging wit h supply chain p ar tner s and the op erati onal par t of ourbusin es s if and whe n any issue s aris e Corporate Social Responsibility The C ommit tee overs aw, encour aged and sup por te d the cor por ate so cial resp onsibilit y pro gramm e which is so c learly linked to our founde r’s de sire to improve lives , par ticular ly throug h health, educational and development oppor tunities for the least privi leged. Our so cial re sponsib ilit y repor t p rovide s a detaile d as ses sme nt of our key eor ts which is avail able on pa ges 3 6 to 53 . Ethical issues The C ommit tee overs aw Hikma’s resp onse to ethi cal is sue s arising during the ye ar . T here are no mat ter s to repor t . Integrit y , qualit y and co mmunit y Anti-briber y and corruption ABC programme Our AB C complianc e progr amme continu es to pe r form in a highly eec tive mann er . The ABC p rogr amme has s trong supp or t from th e Board , the CREC and th e Chief E xecutive O ce r . T he Chief Comp liance O cer rep or ts to th e Chief Co unsel and h as direc t access to the Commi t tee. I am plea sed to up date you on our pro gres s with o ur progr amme to as ses s the A BC pra cti ces of o ur supplier s. Dur ing the year , we compl eted the roll o ut of new third-p ar ty d ue diligence p roce ss es acros s all our majo r areas of op erati on. Where re levant, ap propriate act ion has b een t aken. Commitment to integrity The C ommit tee and th e Board are ve r y proud of Hik ma’s commitment to high st andards of bu sines s integrit y. It include s the Bo ard’s long-st anding , zero-toler ance of br iber y and c orrupti on which has be en demo nstr ated in numero us inst ance s, including b eing a founding me mber of th e World Econ omic For um’s Par tner ing Agains t Corr uption Initiative. Code of Conduct The C ommit tee continu es to overs ee the d evelopm ent and promoti on of Hikma’s Co de of Cond uct , which emb odie s the impo r tant mo ral and ethic al value s that are cri tical to th e Group’s suc ces s. Th e Cod e guide s all the Co mmit tee’s ac tiviti es and is t he key reference po int for all our empl oyees . During 20 21, manag ement reviewe d and upd ated the Co de of Co nduc t to ensure that it remain s appropr iate, relevant and easil y under stoo d. The chang es were revi ewed and e ndors ed by the Co mmit tee and app roved by the B oard. Speak up The C ommit tee has revi ewed the s peak up p roce dures and re por t s during the ye ar and remains s atise d that the pro ce ss co ntinues to ope rate ee ctivel y . T he pro cedure s, which in clude a Co mmit tee of senior and i ndependent corporate emplo yees that undertake propor tionat e in vestigations and implement corrective action, are appropria te and eective. The C ommit tee continu ed to rec eive regular re por t s on iss ues identi ed throu gh the Gro up-wid e speak up ar range ments , which include c onde ntial repor t ing lines that rep or t direc tly to the p reviousl y mentioned In vestigations Comm it tee. The pr ogramme includes Group -wide rep or ting so ware and a co mmunicatio ns sys tem provide d by an indep endent third p ar t y . This sys tem ensure s that colle ague s can rep or t con dentially or in an onymit y . The over all level of repo r ts is wit hin the norm al range for an o rganisati on of our size. The Chair of th e Audit Commi t tee is a st anding memb er of the CR EC and vic e versa, w hich ensure s that any relevant is sue s are consid ered by the rig ht peop le within our gover nance s truc ture. B oth Commit te e Chairs rep or t all relev ant matter s consid ered by the ir Commit tee to the nex t Bo ard meeting . Speak up mat ter s are repor te d and consid ered as p ar t of this pro ces s. 88 Hik ma Pha rma ceu tic als P LC Annual Report 2021 Com pli anc e, Res pon sib il ity and E th ics Comm ittee Le t te r fr om th e Ch ai r con ti nu ed T raining During t he year , we continue d with our t raining pro gramme s for theCo de of Co nduc t, ABC , anti-money laun dering an d related mat ters. T he progr amme s have been d evelope d with as sis tance fromex ternalexp er ts an d are provide d to employee s vir tuall y through t heir per sonalis ed co rpo rate training p or tal. O ur training progr amme sinclude wo rked example s and tes ts to ensure andenhanc e under stan ding. The B oard has f ully suppo r ted the trainingp rogram mes and h as under t aken the aspe ct s that apply toallcollea gue s. Auditing and Monitoring The C ommit tee re ceives re gular update s on the internal a uditing andmon itoring programme conducted b y the Hi kma Complia nce team. Inad dition, th e Commit tee ret ains indep ende nt third par tie s toconduc t pe riodi c audits of t he complian ce prog ramme an d relatedac tivi ties . Doing the right thing a nd ensuring compliance Reg ulations Anti-trust, anti-money laundering (AML) and trade sanctions The Chief C ouns el overse es Hik ma’s compliance w ith the anti-trus t, AML and trade sanctions legisla tion, among st other matters. The Chief Co unsel ha s created pro cedure s for the m anagement of th ese mat ters which have be en reviewe d and app roved by the CREC . The Chief Co unsel rep or ts to th e CREC on rel evant matte rs that aris e, including p er tinent chang es to the reg ulator y lands cap e. The leg al team has devel ope d a training pro gramm e on anti-trust , AML, prevention of t ax evasi on and tr ade san ctio ns, whic h has be en under t aken by colleag ues wh ose rol es req uire training or awa renes s. Criminal Finances Act The Chief C ouns el is resp onsibl e for ensurin g complianc e with the Criminal Finan ces Ac t. Th e CREC has app roved proc edure s that have be en reco mmende d by the Chief C ounse l and reviewe d thos e proc edure s at appropr iate interv als. The p roce dures are d esign ed to resp ond to the re quirement s of the preventio n of tax eva sion legis lation from th e UK G overnment. Hik ma’s proce ss es and proc edure s in this regard are pro por tio nate to its risk of f acilit ating tax evasion , which is relativel y low. Hikma is stead fas t in applying t he princip les of t he UK ta x evasion l egislatio n acros s its b usines se s and will continue to over see mat ter s of complian ce. Data protection The Chief C ouns el is resp onsibl e for Hikma’s data prote ctio n polici es which are de signe d to ensure comp liance wit h relevant leg islation. The p olicie s were cons idered by t he Board at th e point of implem entation of t he Gen eral D ata Protec tion Reg ulation and wereupd ated and then rev iewed by th e Commit tee d uring 202 1. I am available at any time to disc uss w ith shareho lder s any matter ofconcern. For and o n behalf of th e Complia nce, Re sponsib ilit y and Ethic s Commit tee. John C astellani Chair , Complian ce, Re sponsib ilit y and Ethic s Commit tee 23 Feb ruar y 20 22 Hik ma Ph arm ace utic al s PLC Annual Report 2021 89 GOVERNANCE Pamela K irby Chai r , Remuneration Committee Remuneration Commit tee L ett e r fr om t he C ha i r Dear Shareholders I am plea sed to pre se nt our 2021 R emuner ation Rep or t. I have deci ded not to s tand for re -ele ct ion to the B oard of Hikma at the 20 22 AGM, con sequ ently I will cea se my role as Chair of t he Commi tte e at that point . I am delighted that Nin a Hende rson h as agree d to lead theCo mmit tee going for w ard. Nina and I have worked cl osely o n remuner ation is sue s over a number of ye ars and I am pl ease d that Iwill leave the C ommit tee in go od hands . Remune ration Policy The p olicy fo r the remune ration of E xecu tive Dire ctors p rovide s asalar y, benet s and pe nsion su cient to be mar ket competiti ve. Thisapp roach is ad opted acro ss th e organis ation in order to alig n theentire cul ture of Hikma. Th e polic y foc uses t he Exe cutive Direc tors o n the incenti ve oppor tunit y available f rom the E xecuti ve Incenti ve Plan (EIP ) which chie y require s the de liver y of annual nancial p er forman ce target s. Th ese t argets ap ply to the G roup bonus s chem e in which all colle ague s par tic ipate and, therefo re, ensure clar it y for our emp loyees an d builds f ur ther on th e cultur al alignment ob jec tive. The nan cial target s deri ve from the G roup’s ve-year bu sines s plan and, t herefore, re quire the deli ver y of the Group ’s medium-term str ateg y which en sures that the s harehold er exper ience a nd pay outcom e are aligne d, predic tab le and prop or tional. T he target s are set ab ove both the pr ior year ou t turn and the pri or year target ensuring that longe r -term nancial per for mance is d elivered an d builds f ur ther on th e propo r tionalit y obje ctive. Fur the r information o n the rati onale for th e target s is available on p age 98. The EIP , which ap plies to th e top tw o levels of managem ent, diverge s slightly fro m the bo nus sche me that ope rates fo r more junior employe es. T he divergen ce enabl es the C ompany to reduc e the prio ryear awards of s enior manage ment if pe rf ormance i s not sucie ntly maintaine d in the curre nt year . T his ope rates thro ugh thee stab lishment of for fei ture per fo rmance l evels such as tho se detail ed on pa ges 10 0 to 105. Addit ionally , for execu tive direc tors only , a clawba ck polic y appli es to all awards whic h ensures t hat behavio ural and re putati onal risks are mi tigated. T hes e measure s ensure that th e emergen ce of material r isks to the Gro up are ree cted in pa y outcomes. Our remun eratio n polic y was ad opted in 2014 . The chan ges madesinc e that point have be en in resp ons e to points r aise d byinvestorsa nd the governa nce communi ty a s well as our enhanced understanding o f how the a rrangements al ign colleagues to deliver val ue: – R educing t he overall numb er of target s for ea ch direc tor thereby enhancing clarit y and ensur ing simplicit y – In creasing th e weighting of the nancial targe ts there by increasing the obje ct ivit y in the deter mination of award s and making the outcome more propor tionate to the sh areholder experience – Limi ting salar y inc rease s to the level of th e loc al work force t hereby ensuring f airne s s and clarit y for o ur employe es. Ad ditionally, this ensure s that increas es are limite d to a sust ainable level for t he entire bus ines s. During 20 22 , we will be app lying our exis ting po licy and rev iewing its eec tiven es s and areas fo r improvement. Aligning ou tcomes Perf ormance outcome The nan cial target s that the Co mmit tee es tabli shed for t he direc tors for 202 1 were ver y s tretching. The G roup revenue ta rget was $2,529milli on (2020: $2, 299 millio n ) and the co re oper ating pro t before R &D target w as $78 5 million (2020: $6 67 million ) . The se t argets have increase d by 18% an d 31% over the las t tw o years. I n resp ect o f the pe r formanc e outcom e for 202 1, you will se e from the p er forman ce tabl es on pa ges 10 0 to 105 that the revenu e and prot o utcome s were around th e level of our challe nging expe ct ations . The s trategic e lement s of the p er formanc e target s for 202 1 related to our appro ach to Environment al, Social an d Gover nance (ESG) issue s and our pla ns for ensur ing leade rship suc ces sion. B oth of the se elem ents are core to Hikm a’s ability to co ntinue to deliver it s str ategic plans and c reate value for s ociet y. During 20 21, th e Board re ques ted that th e Chief Exe cutive O cer dene t he Group’s ESG s trateg y wit h a par ticular e mphasis on t he Group ’s emission s and impac t on the e nvironment. T he proje ct has be en compl eted succ es sfull y . We have es tabli shed an d teste d where we are with o ur current arr angeme nts, mo delle d our climate impac t, approved a l onger- term t arget for the re duc tion of gre enhous e gas emis sions and d evelope d plans to de liver that target . The exercis e enable d the G roup to identif y op por tuni ties to re duce it s gree nhouse gas emis sion s by 19% compare d to the pr ior year . As w e move for ward, th e oppo r tunitie s for fur th er redu ction s will be come mo re challeng ing and must b e delivere d whilst g rowing the bus ines s result ing in signic ant eor t b eing require d to achieve a 25% reduc tion (from th e level in 2020) by 203 0. The Commi tte e has determine d the p er forman ce level for this t arget as Ma ximum. In relation to le ader ship succe s sion, the Chi ef Exec utive O cer has develop ed s olid succ es sion plan s for each ro le at the E xecutive Commit te e and identi ed and r anked the mis sion cr itic al role s, including as ses sing internal talent. Th e ability of th e Company to deliver its oper ation al per formance a nd strategic projects over the longer t erm will be dependent on the conti nued strength of its lead ership team . This work is c ritic al to the fu ture of the G roup and the Co mmit tee. E xcellent prog res s has be en made an d, therefore, theCo mmit tee has r ated the p er forman ce as Ab ove T arget. Over all, the nan cial per for mance has b een a ss es se d as clos e to the target level a nd the st rategic p er forma nce as ab ove target, re sulting in an overall p er forman ce determinati on slightly ab ove the target level. The C ommit tee n oted that the C ompany has pe r forme d strong ly in terms of T otal Share holde r Return ( TSR) since the Chief Exe cutive O cer jo ined in 20 18, bu t the TSR pe rf ormanc e has declin ed so mewhat during th e year under rev iew. The Commit te e reviewe d the bon us outcom es for co lleag ues ac ross t he organizat ion and noted t hat the trend w as for bo nuse s to be redu ced slig htly year on year . Acco rdingly , the C ommit tee con sider s that the remune ration polic y has op erate d succe ss fully in that : there is alig nment bet we en the amo unts paid to E xecuti ve Direc tors and th e wider wo rkf orce; the longer -term strategy is on targ et; and the short -t erm shareholder experience is aligned with the per formance outcome. Ther efore, the 90 Hikm a Phar mac eut ica ls PLC Annual Repor t 2021 Remuneration Committee Le t te r fr om th e Ch ai r con ti nu ed Commit te e has not adjus ted the qu antitative ou tcome of th e per formance metrics. Future performance ta rgets As note d earlie r in this let ter , we believe th e current app roach to per for mance t argets is d elivering and, t herefore, we are c ontinuing with our ex isting app roach to nanc ial target s. They will c ontinue to repre sent at lea st 80 % of the overa ll per for mance outc ome and th e budget fo r 202 2 ( which w as approved by th e Board in D ece mber 202 1) has been us ed to deter mine target l evel of per for mance. In relation to th e str ategic target s, the E xecu tive Chairman will continue to have a Retur n on Investe d Capit al target b ec ause thi s ree ct s the long-term nature of his ro le. The Chi ef Exec utive O cer and E xecutive V ice Chairman are re spo nsible for d elivering s trateg ic prio ritie s and, the refore, their s trategic t argets are linked to the continue d deliver y of o ur ESG progr amme (see p ages 3 7 to 52 for fur the r details) . Pension contribution Hikma’s pens ion contrib ution s for Exe cutive Dire ctor s are aligne d with the w ork force contr ibutio n of c.10% of salar y, o the r than in resp ec t of the Chief E xecu tive O cer who re ceive s a contribu tion of14.1% of his current sala r y . T he Chief E xecuti ve Oc er ’s pension contrib ution has b een f rozen resulting in it re ducing f rom 15% of salar y over th e last t wo year s. Th e Commit tee w ill seek to alig n thispe nsion contr ibutio n with the wi der wor kforc e in the event ofachange of th e posit ion hold er . The b enchmark ing information recei ved by the C ommit tee co nrms that th e contribu tion level is atthe lower e nd of expe ct ations fo r this posi tion. Salaries The C ommit tee unde r took a b enchmark ing exercise during t he year which too k into account the n ormal, size adjus ted market data fro m the F TSE 10 0 and glob al pharma ceutic al market. Addi tionally , the Commit te e reque ste d an exercise to provide f ur ther infor mation on market pra ctic es in the M ENA region. H aving conside red the ma rket data and p ackage s of the E xecuti ve Direc tors, t he Commit te e determine d that the E xecut ive Chairman wa s well pos itione d agains t his pe ers and, a ccording ly , n o increas e was re quired. In relati on to the Chief E xecutive O ce r , th e Commit te e approved an in crease of 3 .5% which ta k es into ac count that his total p ackage is sig nic antly belo w our US pe ers an d a c. 3.5% incre ase b eing the avera ge increas e for the Gro up’s work force. Th e Vice Chair man’s salar y was inc rease d by 3.5% in line wit h the appro ach acro ss the G roup and th e salar y benchmar king data. Wider employ ee context The C ommit tee do es not dire ctl y consult e mployee s on the remuner ation asp ec ts co ntained in t his repor t , but re ceive s regular update s on employe e feedb ack throu gh the wor k of the Dire ctor resp onsibl e for employe e engagem ent, the G roup human c apital depar t ment and the b i-annual employee c ultural s ur vey , which i s condu cted by an ex ternal o rganisati on. The C ommit tee review s the pay prop osal s in terms of s alar y increme nts and p er formanc e pay for empl oyees at a juris dict ional and Gro up level. The ma ximum salar y in crement for an exec utive direc tor is set by refere nce to the s alar y increme nt for the juris dicti on of ope ration an d the wide r employee b onus p ool is d etermine d by referenc e to per form ance agains t the s ame nancial m etric s that apply to th e Exec utive Dire ctor s. In terms o f pay gaps, t he Commit te e notes that th e Comp any’s pe ers t ypic ally have a pay ratio o f 1:100 ( empl oyees:CEO tota l pay ) or mo re wherea s the Comp any’s po sition is c. 1:28 (202 1 total pay: $18 7 , 4 4 4 for UK /Group empl oyees: $5, 307 ,3 58 for th e Chief E xecutive O ce r) . Ac cordingly, the Commit te e consid ers that th e approa ches to pay for t he work force and E xecutive D irec tors are aligne d and, th erefore, do not re quire signic ant additional explanation. The C ommit tee is reg ularly br iefed on t he wider e mployee p ay polic ies and p rac tice s throug hout th e Group, including t he internal Living Wage rep or t and th e level of pay in each o ne of our jurisdi ctio ns, which t akes acco unt of the cos t of living. We continu e tobe full y commit ted to provi de a Living Wage to all our e mployee s. Engagemen t At the 202 1 AGM ( fur t her informati on is available on p age 92) shareho lders w ere suppo r tive of the rep or t on remun eratio n. The Commit te e has not so ught to impleme nt polic y change s or made signic ant adjus tments to th e Exec utive Dire ctor s’ compe nsatio n. According ly , the Commi t tee did not co nduc t any one to one shareholder en gagement activity during the year . Comments recei vedon the C ompany ’s remuner ation po licy will b e taken into consid erati on in the remune ration p olic y review that is due in 20 22 and will be re por te d to sharehold ers nex t year. Discreti on The C ommit tee overs ee s the appli cation o f discretio n in accordan ce with the R emuner ation Polic y . The C ommit tee has n ot applie d this discreti on during the ye ar under revie w . I remain op en to discus sion w ith shareho lder s should th ere be any mat ters that they wi sh to raise dire ct ly . Dr Pa mel a Kirby Chair , Remunerat ion Committee 23 Feb ruar y 20 22 Hik ma Ph arm ace utic al s PLC Annual Report 2021 91 GOVERNANCE Remune ration dashboard TSR and tota l executive pa y Over th e last ten ye ars, Hikm a has per for med s trongl y against i ts UKpe ers in Hik ma’s index (FTSE 10 0) and sec tor (FTS E 350 Pharmac eutic als & Biote chnolog y s egme nt, a relatively sm all group ofcomp anies that are mainl y focus ed on devel oping new me dicine s) . 0 1 2 3 4 5 6 0 100 200 300 400 500 600 Aver age tot al pay to Exe cu tive D ire cto rs ($ m) TSR f rom 1 Jan uar y 20 12 Average E xec utive Di rec tor pay Hikma Phar mac euti cals PLC TSR 2013 2014 2015 2016 2017 2018 2019 2020 2021 1.7 3.3 4.3 6.0 4 .9 3.2 4.3 3.7 4.6 4.3 F TSE 100 TSR F TSE 350 Pha rmac euti cal s & Biotech nolo g y TSR 2012 Gen eric pharmaceu tical pe ers Hikma op erate s within a sub-s et of the phar maceu tical in dustr y that focu ses o n generi c medic ines, m ainly in the US market. Hikma require s acce ss to th e US gener ic pharma ceutic al environm ent to recrui t its sp ecialis ed and ex tensive t alent po ol. Th e Commit tee viewe d Hikma’s strong rel ative per for mance sinc e Sigg i Olafs so n joine d in Febr uar y 2018 as an imp or tant f ac tor in determining the Exe cutive Dire ctor s’ per for mance award s. Stro ng TSR p er for man ce sin ce Sig gi O laf ss on’s app oin tme nt Large Cap Spe cialty/Generi cs 1 20 Feb 18 20 Aug 18 20 Feb 19 20 Aug 19 20 Feb 20 20 Aug 20 20 Feb 21 20 Aug 21 31 Dec 20 14 1. 66% (62 . 4 2 %) 40.6 5% (8 3 . 5 8 %) 0 50 100 150 -10 0 -50 200 Hikma US Mid Cap G ene ric s and Inje ct abl es 3 CEEME A Heal thc are 2 1. Larg e Ca p Spe cial ty/Ge ner ic s inc lude s Teva, Viat ris a nd Per rig o 2. CEEM EA H eal thc are in clud es K RK A , Asp en, A dco ck and G e deo n 3. US Mid C ap G en eric s an d Inje c tab les i nclu des A mne al, Am pha sta r , L annet t , Advanz and Mallinckrodt V alue of executive holdings Hikma’s Exec utive Dire ctor s have substa ntial equit y interes ts , whichst rongly align s their long-term intere st s with shareh older s. 0 5 10 15 20 25 30 35 40 Exe cu tive D ire cto r shareholding value ($m) Share price ($) Exe cuti ve Direc tor sha rehol ding Share pr ice (as at year -e nd in US dollar s) 2015 2014 2016 2017 2018 2019 2020 2021 782 591 551 523 561 470 3 0.74 33.37 23.29 15.30 21.89 26.4 0 34.43 680 30.0 3 347 0 100 200 300 400 500 600 700 800 Shareholder appro val Annual report on remuneration (23 April 2021 AGM) Votes availab le 230,771,404 Votes ca st 1 7 7, 0 7 8 , 3 5 4 For 90. 4% Agains t 9. 6% Withheld 4 1,1 98 , 56 6 Annual report on remuneration (30 April 2020 AGM) Votes availab le 242,54 3,355 Votes ca st 1 9 9,9 2 4 , 4 0 7 For 95 .1 6% Agains t 4. 8 4% Withheld 4 2, 894,616 Remuneration Policy (30 April 2020 AGM) Votes availab le 242,54 3,355 Votes ca st 19 9,9 2 4 , 3 7 8 For 95. 5% Agains t 4. 5% Withheld 4 2, 894,64 6 4. Und er th e Com pani es Ac t 20 06 vote s ‘ Wi thhe ld’ a re not a v alid vo te and, t her efore , are di sco unte d when c ons ide ring ap prov al at a ge ner al me eti ng 92 H ikm a Phar mac eut ica ls PLC Annual Repor t 2021 Remuneration Committee conti nued Remuner ation and per formance s ummar y This rep or t (on pages 9 2 to 110 ) comp lies wi th The L arge and Me dium-sized Comp anies an d Group s (Accounts an d Repo r ts) Regulations 20 08 ( as amended) . Performance components 2020 2021 Sale s $2, 3 41 million 9% $2 ,55 3 million Core op er ating prot b efore R&D $703 millio n 10% $7 75 million Share pric e 2,518p -12 % 2 , 219p Dividend 50 cents 8% 54 c ents Employe e co mpe nsat ion $ 560 millio n 4% $5 83 million Shareholder implementation approval 95 .1 6% 90. 4% Share holder policy appro val 95 .5% N/A T otal remuneration Exe cu tive D irec tor 2020 ($000) 2021 ( $000) 2022 ( $000) (es ti m at e) Said Dar w azah 4 ,060 13% 4,585 15% 5, 252 Sig gi Olaf s son 3,7 19 4 3% 5,307 5 6% 8, 262 Mazen Dar wa zah 3,227 12% 3,809 1% 3,863 Components 2020 ($000) 2021 ( $000) 2022 ( $000) (es ti m at e) Salar y 1 Said Dar w azah 1,01 8 0% 1,018 0% 1,018 Sig gi Olaf s son 1,1 3 3 3% 1,1 67 4% 1,208 Mazen Dar wazah 717 5% 753 4% 780 Bonus 2 Said Dar w azah 1,8 55 -15 % 1,568 -3% 1,527 Sig gi Olaf s son 2,252 -16% 1,895 - 4% 1,812 Mazen Dar wa zah 1,2 97 -5% 1,232 - 5% 1,16 9 Share awards vested 3 Said Dar w azah 1,0 47 80% 1,875 38% 2 ,583 Sig gi Olaf s son 0 N/A 2 ,047 14 6% 5,039 Mazen Dar wa zah 1,06 4 60% 1, 700 5% 1,78 7 Pensions Said Dar w azah 69 0% 69 0% 69 Sig gi Olaf s son 170 - 6% 160 3% 165 Mazen Dar wa zah 56 4% 58 5% 61 Other benets Said Dar w azah 70 -2 1% 55 0% 55 Sig gi Olaf s son 16 3 -7 7 % 38 0% 38 Mazen Dar wa zah 93 -29 % 66 0% 66 1. Sala r y: Th e aver age ri se fo r sal arie s ac ros s Hikm a in 20 21 wa s 3. 5% 2. Bo nus: T he b onus gure c omp ris es El eme nts A an d C of the E IP . S ee p age 95 f or fu rt her e xpla natio n. Th e 202 2 e stim ate pre sum es t arge t per fo rma nce 3. Shar e award s ves ted: 2 02 1 gur es re pre sent E lem ent B of th e 2019 E IP and El eme nt C of th e 201 8 EIP exer cis ed dur ing th at yea r . 20 22 is a n es timat ion of t he va lue of E leme nt B of th e 202 0 EIP an d Elem ent C of t he 201 9 EIP tha t are to ve st in t hat yea r , usi ng 31 D ec emb er 20 21 ve st ing pe rce ntag es , share p ric es an d excha nge r ates Hik ma Ph arm ace utic al s PLC Annual Report 2021 93 GOVERNANCE Non-Exec utiv e Directors ’ fees Non-Executives 2020 (£000) 2021 (£ 000) 2022 (£ 000) (es ti m at e) Non- Execu tive Dire ctor s’ average total fe e 1 9 7. 1 8% 104 .6 3% 1 0 7. 6 1. NED fe es: T he ave rag e Non- E xecu tive D ire cto r’s fe e inc lud es ba sic fe e, C ommi tte e me mbe rsh ip fee , fee s for sp ec ic a ddi tion al re spo nsib iliti es , and C ommi tt ee Ch air fe es . A full bre akdown o f fee s on p age 10 9. The aver age fe e cha nge s ree c t the ha ndove r of Co mmit te e re spo nsib iliti es an d reti reme nt and a ppo intm ent of N on- Exe cut ive Di rec tor s Remuner ation Policy Summar y The D irector s’ Remune ration Po licy (the Polic y) is summarise d below. It is als o detaile d in full on pa ges 79 to 8 4 of the 20 19 Annual Rep or t and can als o be foun d on the web site at: w w w.hikma.com/investor s/ corp orate -governance/key-commit te es/remuner ation-c ommit tee/ . The Poli cy was app roved at the AGM he ld on 30 A pril 2020. T he Polic y took ee ct f rom this date and may op erate for up to thre e years . E leme n t C – rest ri c te d sh ares E le men t B – de ferred sh ares E le men t A – cas h bonus Pension Bas e salar y Benets T otal remu ne r ation Vari able element s – Executiv e Incent ive Pla n ( EI P ) Fixe d e leme nts Fixed elements Pur pos e and l ink to st rate g y Operation Fixed elements Base s alar y Provide s a base l evel of remuner ation to supp or t recr uitment and rete ntion of Dire ctors w ith the nec es sar y exp erie nce and exp er tise to d eliver the Group ’s strateg y. Salari es are set w ith referen ce to: pay increase s for the ge ner al work force act ing as an uppe r limit unles s exceptio nal circums tance s exist ; salar ies in pe er compa nies fro m the phar maceut ical s ec tor and UK lis ted comp anies; Company per for mance; and aordabilit y . Benets An appro priate pack age of market comp etitive be net s to ensure execu tives are rew arded and fo cus ed. Ben ets m ay include, but are n ot limited to: healthc are; sch ool fe es; comp any car s; life insuran ce; reloc ation wh ere it is req uired by the C ompany; and t ax equalis ation wh ere the direc tor be com es ta x reside nt in a jurisdic tion as a result o f the role. Pensi on An appro priate level of p ension c ontributi on to ensure executi ves are provid ed with a ret irement st andard comme nsurate wit h their role. The C ompany ope rates d ened c ontribut ion arr angement s in its main ope rational jur isdic tions an d executive s par tic ipate in thes e arran gements . A cas h supplem ent in lieu of pe nsion may be p aid provide d that the total pen sion payment d oes n ot exceed th e maximum op por tuni ty. 94 H ikm a Pha rmac eu tic als PLC Annual Repor t 2021 Remuneration Committee conti nued Executive Ince ntive Plan (EIP) Per forman ce awards that inc entivis e Direc tors to de liver annual nancial p er form ance targ ets and ce r tain key strateg ic deliver able s, with t he majori ty o f awards made in sha res to ensure that m edium-term p er formanc e is delivere d. The Re munerat ion Commi tte e set s annual per for mance t argets for aw ards under t he EIP , in accordan ce with th e rule s of the EIP . Annual per for mance m etric s are bas ed on: – Fina ncial metrics: At leas t 80% of th e per for mance award, w ith spe cic t argets ba sed o n the bud get that is approved p rior to th e per for mance per iod. Th e preci se target s will be de termined by th e Commit te e on an annual ba sis – Strategic deliv erables: Up to 20% of the p er formanc e award is bas ed on t he deliver y of s peci c, subje cti ve targets t hat are set by the Commit te e in order to ensure t hat ke y mile stone s in the Co mpany’s s trateg y are deli vered At the end of e ach year the C ommit tee dete rmines t he level of pe r formanc e for the pr ior year. Based on t he per fo rmance, th e Commit te e makes the follo wing awards: Element Max imum aw ard % of salary Payo ut mechanism V estin g period Ris ks aer a ward Additional req uirements T reat ment u nde r the remuneration r egulations A 150% Cash bonus Imme diate – Clawba ck None Cash bonus B 150% Defer red Shares 2 year s – For feiture – Claw back – Share pr ice – Empl oyed All share s vestin g are subjec t to a holding p erio d aer ves ting. The se share s may not be s old until 5 year s aergr ant. Share award C 100% Re st ric te d Shares 3 year s – C lawba ck – Share pri ce – Empl oyed Bonus 1 deferre d in shares 1. The R egul atio ns re quire El eme nt C to be i nclu de d in the ’ Bo nus’ c omp one nt for re po rt ing pu rpo se s, al tho ugh i t is an aw ard of sh are s that wi ll ves t thr ee yea rs a er gr ant A holding re quirement ap plies to Elem ents B and C e nsuring that share s may not be s old until ve year s from the p oint of gr ant. Follow ing ces s ation of empl oyment of an E xecutive D irec tor , t he Comp any’s poli cy is that th e Direc tor must h old for a p erio d of tw o years the l ower oftheshare s held o n ces sati on of employm ent or share s equiva lent to 30 0% of the nal, annu alised s alar y . In relation to dis closure of p er forma nce target s: – Pr ior year (202 1) : full det ails of the previ ous year ’s per for mance t argets , their level of s atisf acti on and the re sulting p er forman ce remuner ation are discl ose d on page s 100 to 105 – Fut ure year (2022): the nature and weig hting of future p er for mance targ ets are disc lose d on page 9 8. Malus and clawback p rovisions apply. Hik ma Ph arm ace utic al s PLC Annual Report 2021 95 GOVERNANCE Illustration of p olicy The foll owing char ts s how the valu e of each of th e main eleme nts of the c ompen sation p ackage prov ided to the E xecu tive Dire ctors d uring 202 1 and the pot ential avail able for 2022 ( dep endent u pon per formance ) . Threshol d 2022 2 0 21 T ar get Maxim um Act ua l T otal remuneration $000 Elements A & C Element B S ai d Da rwazah Siggi Olafsson 2,159 1,527 41% 1,018 28% 2,545 49% 2,817 45% 1,527 29% 2,291 37% Threshol d 2022 2021 T ar get Maxim um Act ua l T otal remuneration $000 Elements A & C Element B Fixed 2,619 302 12% 1,812 41% 3,020 48% 1,895 42% 1,812 29% 1,217 27% 1,142 53% Fixed 1,142 31% 1,142 22% 1,142 18% 1,142 31% 1,411 54% 1,411 32% 1,411 23% 1,411 19% 1,365 30% Maz e n Da rwazah Threshol d 2022 2021 T ar get Maxim um Equity growth Act ua l Equity growth Equity growth T otal remuneration $000 Elements A & C Element B Fixed 1,685 1,169 41% 780 27% 1,949 48% 2,169 45% 1,232 42% 1,169 29% 1,754 36% 2,000 3,000 4,000 5, 000 6, 000 7,000 8,000 2,000 3,000 4,000 5, 000 6, 000 7,000 8,000 2,000 3,000 4,000 5, 000 6, 000 7,000 8,000 1,000 905 54% 905 32% 905 22% 905 19% 877 30% 763 35% 1,000 1,000 792 27% 1,208 27% 3,359 45% 7,488 4,477 195 12% 2,854 4,023 4,828 2,901 254 12% 906 35% 6,243 2,718 36% 3,687 5,214 6,250 3,734 1,024 27% 1,568 42% 4,431 585 35% The foll owing notes are ap plica ble to the ab ove calculati ons: – Salar y , bene ts and pension comprise ‘Fixed’ remuneration – Ele ments A an d C of the EIP comp rise t he bonus a nd; Element B comp rise s the share aw ard. Element s A, B an d C of the EIP are mad e in theyear ae r the per fo rmance is a chieved (eg for the 202 2 illus tration , the bonu s would b e paid and th e share awards be g ranted in 20 23. The share aw ards would ve st t wo or thre e years later) . Ple ase note that the R emuner ation and p er forman ce summar y on p age 92 us es share awards ves ting (ie ac tual share s recei ved, not tho se gr anted) during the p erio d in order to make clear t he dieren ce bet we en potential remuner ation and w hat the Exe cutive D irecto r receive s in pra ctic e – ‘ Equit y grow th’ pre sumes a 5 0% increas e in the valu e of shares g ranted und er the EIP in re spe ct of that yea r and that the execu tive remains inplace fo r the hol ding peri od (ie the award ve st s ) 96 H ikma P har mac eut ica ls PLC Annual Repor t 2021 Annual repor t on remunerati on Annual repor t on remuneration The infor mation pre sented o n page s 96 to 110 has bee n audited by P wC , as indic ated. Direc tor and average employee compens ation change The t able be low shows th e perce ntage change in t he Chief E xecutive O ce r’s (CEO) salar y , b ene ts and b onus b etwe en 2020 an d 202 1 compa red with th e perce ntage change in th e average of e ach of tho se comp onent s of pay for employe es (excluding the Exe cutive Dire ctor s ). Salar y Be nets Bonus 2021 2020 Percentage change from 2020 (fr o m 2 01 9) 2021 2020 Percentage change from 2020 (fr o m 2 01 9) 2021 20 20 Percentage change from 2020 (fr o m 2 01 9) Exe cutive Chairm an $1,01 8,0 00 $1,01 8,0 00 0.0 % (0.0%) $55,4 65 $70 , 323 - 2 1 .1 % (- 1 5 . 6 %) $1,568,281 $1 ,879 ,388 -16 . 6% (-1. 3 %) CEO $1,166, 990 $1, 133,000 3.0 % (3.0 % ) $ 3 7, 9 3 0 $16 3, 2 31 -76 . 8 % (-7 2 . 3 %) $1,895,381 $2,141,419 -11 . 5 % ( 5 . 2 %) Vice Chair man $ 7 5 3,1 4 4 $ 7 1 7, 1 5 5 5.0% (0.0%) $ 65 ,1 66 $92,8 92 -29 . 8% (0.7%) $1,232,175 $1, 312,17 6 -6 .1% (-1.1%) Pat Butler $14 5, 469 $ 1 4 9, 7 3 0 -2.8% (2.0% ) $0 $0 0.0% (0.0% ) $0 $0 0.0% (0.0%) Ali Al-H usr y $118, 40 5 $1 12,2 98 5 . 4 % ( 3 . 5 %) $728 $ 2,00 2 - 6 3.6% ( - 39 .7%) $0 $0 0.0% (0.0% ) Dr Pam ela Kirby $14 5, 4 69 $ 1 3 7,9 6 6 5 . 4 % ( 2 .9 %) $0 $0 0.0% (0.0% ) $0 $0 0.0% (0.0%) John C astella ni $14 5, 469 $ 1 3 7,9 6 6 5 . 4 % (2 .9 %) $8 ,74 7 $12, 4 4 3 -2 9 .7 % (-23 .9%) $0 $0 0.0% (0.0%) Nina Henderson $145 ,4 69 $ 1 3 7,9 6 6 5 . 4 % ( 2 .9 % ) $8,556 $12,17 0 -29 .7% (- 1 7 .8%) $0 $0 0.0% (0.0%) Cynthia Flower s $ 1 3 1 ,9 3 7 $125,132 5.4% (7 6.9% ) $5 ,568 $ 7, 8 1 3 -28.7 % (0.0%) $0 $0 0.0% (0.0%) Douglas Hurt $159,001 $85,560 8 5. 8% (0.0% ) $0 $0 0.0 % (0.0%) $0 $0 0.0% (0.0% ) Employe e s ($m ) $318 $306 3 .9 % (2 . 0 %) $11 2 $105 6 .7% (1.0%) $ 61 $56 8 . 9% (0.0%) Number of emp loyees 8 ,70 3 8,681 0 . 3 % ( 1 . 2 %) 8 ,70 3 8,681 0. 3 % (1 . 2 %) 8,70 3 8,681 0. 3 % (1 . 2 %) Av erage per employee $ 3 5 ,16 0 $ 3 5, 249 - 0. 3% (0. 8%) $12 ,06 5 $12,095 -0. 2% (-0. 2 % ) $6 ,4 35 $6 , 4 51 -0.2% ( - 1.2% ) Average pe r UK/ PL C empl oyee $129 , 295 $111, 370 1 6 .1 % ( 1 . 3 %) $4,2 18 $ 9, 2 3 4 -54 .3% ( 34.8%) $ 44 ,681 $ 3 7, 8 8 7 17 . 9% (5.7%) Hikma’s pay review, which took e ec t from 1 Januar y 20 21, award ed averag e perce ntage increa ses in w ages an d salari es of 3 .5% (2020: 3.0%) for existing e mployee s (with cer tain excepti ons for juri sdic tions exp erien cing ver y high inati on ). The nature and level of b enet s to employe es in the year en ded 3 1 De cemb er 202 1 were broa dly similar to thos e in the previo us year (2020: unchang ed) . UK gende r and CEO pay ratios Hikma has 3 5 employe es in the U K ( who wo rk for the G roup hol ding company) and, as a resul t, is exempt from ge nder p ay and average employe e: CEO pay disclosure re quireme nts. Th e small number o f employee s and signi cant dive rsit y of role s and se niorit y in th e UK resul ts insignic ant challeng es in obtaining c ompar able gen der data . The rati o of total CEO pay to the avera ge Group em ployee is 28:1 using a simp le average met hodo log y . Hikma is c ommit ted to paying f airly and n ot discriminating on g ender o r other groun ds. Relative impor tance o f spend on pay The foll owing tabl e sets o ut the total am ount spent in 20 21 and 20 20 on remune ration o f Hikma’s employee s and major di strib utions tos hareholders. Distribution expense 2021 2020 % change from 2020 to 202 1 Employe e rem uner atio n $58 3 million $5 60 million 4 .1 % Distributions to shareholders 1 $120 million $ 47 7 million -74 . 8 % 1. The C omp any pur chas ed 1 2.8 mi llio n share s dur ing 20 20 at a co st o f $3 68 mi llio n, whic h is inc lud ed in th e dis trib uti ons to s hare hol der s in ac cord ance w ith t he reg ulat ion s. Th ose s hare s are he ld in t reas ur y and d o not re cei ve divi den ds Hik ma Ph arm ace utic al s PLC Annual Report 2021 97 GOVERNANCE Employee cost and average executive pay ( $m ) Exe cu tive D ire cto r pay ($ m) Aver age em ploy ee cos t ($) Exe cuti ve Direc tor pay Average em ploye e cos t 2014 2015 2016 2017 2018 2019 2020 2021 4 8,1 86 50,3 55 55 , 76 2 55,8 62 53,7 27 53 ,796 53,62 5 3.7 4.6 62,62 2 4.3 4.3 4 .9 5 .9 4.3 3.2 0 10, 000 20 ,000 30, 000 40, 000 50, 000 60, 000 0 1 2 3 4 5 6 Commit tee memb ership and at tendance Members and attendance Member Mee tings Attendance Dr Pam ela Kirby (Chair) 4 /4 10 0% Pat Butler 4 /4 10 0% John C astella ni 4 /4 10 0% Nina Henderson 4 /4 10 0% Cynthia Flower s 4 /4 10 0% Douglas Hurt 4 /4 10 0% Advice and sup por t The C ommit tee se eks the a ssis tanc e of senior m anagement (Chief E xecutive O ce r , E VP Org anisatio nal Develo pment, G roup T ot al Reward Direc tor and C ompany Se cretar y) on mat ters relating to p olicy, per formanc e and remune ration, b ut ensure s that no oc er or emp loyee takes par t in disc ussi ons relating to the ir own remuner ation or b ene ts. Willis T o wers Wats on (W T W ) continue d to provide in depe ndent adv ice to the Co mmit tee, at the C ommit tee’s requ es t, in relation to mar ket pra ctic e, UK cor por ate governance b es t pra ctic e, and incentive p lan target s ett ing. W T W also provi ded th e Human Cap ital de par tment wi th broad b enchmar king and inc entive ope ration a dvice th at related to employe es be low Bo ard level. A po licy fe e stru cture is in p lace for th e provisio n of advice a nd is use d to determine a qu ote for each pro jec t before it i s under t aken. The total fee s for ad vice to the C ommit tee during the year we re $3 9 , 3 83 (202 0: $90, 9 29) , which were d etermined in a ccordan ce with a pre -agree d fee matri x applie d to a sche dule of regular proje ct s which are unde r taken by W T W . For a d hoc proj ec ts, an e stimate is prov ided b ase d on the sp ecic ation fo r the work . The C ommit tee reviewe d the per fo rmance o f W T W during the year an d fee s receive d, conc luding that W T W remaine d indep endent an d continue d to provide high-qu alit y ser vic e. W T W were app ointed by the C ommit tee in 2016 foll owing a comp etitive tend er pro ces s. W T W adh eres to th e Remune ration C onsult ants Gro up Cod e of Condu ct. D uring the ye ar , t he Commit te e instr ucte d Merce r to under take a regio n spe cic ben chmarking exercis e for which a fe e of $8,0 00 (2020: $ 8,00 0) was paid. M ercer are a re cognis ed exp er t in the reg ion in que stion . Policy implemen tation 2021 Policy deviation During 20 21, th e Commit tee h as not deviated f rom the remun eratio n polic y approve d by sharehold ers at the AGM o n 30 Ap ril 2020. Salaries, benets and pension Pleas e se e the Chair ’s let ter (page 90) for co mmentar y o n salari es. T he applic ation of b ene ts and p ension is un changed . Salar y Change Exe cu tive D irec tor Individual 2022 2021 % Exe cutive Chairm an Said D ar wazah $1 ,01 8,0 00 $1,01 8,0 00 0.00 % Chief E xecutive O ce r Sig gi O lafs so n $1 ,20 7 ,834 $1 , 166, 990 3.50% Exe cutive Vic e Chairman Mazen Dar wazah $ 7 7 9, 5 0 4 $75 3 ,013 3.50% 98 Hi kma P har mac eut ica ls PLC Annual Report 2021 Annual repor t on remuneration conti nued Executive Incentive Plan (EIP) For 202 2, th e Commit tee ha s determine d that the p er forman ce criter ia for the E xecuti ve Direc tors will b e: Area Description Weig ht R ationale Financial Gro up/ divisio nal revenu e 40% Historic ally , the pr icing of gene ric phar maceut ical p roduc ts has d ecrea sed w ith time. Th e Commit te e is cognis ant that this coul d lead to de clining revenue over the l onger ter m, which couldul timately resul t in a declining bu sines s overall. B y ensuring t hat a signic ant propo r tion ofper fo rmance re munerati on is bas ed on revenu e, the Commi tte e is able to en sure that the Exe cutive Dire ctor s are focu sed on mi tigating pr icing dec lines by max imising the potential o f thein-market po r tfo lio, launching new pro duc ts, an d developing t he pipelin e. Pleas e se e page 2 2 of the Strategi c repor t fo r the det ail on this target . Group/ divisional coreop erating protb efore R&D 40% Ultimately , core op erating p rot is a key measure of v alue to Hikma’s shareho lders . Given th e highly comp etitive bus ines s environment in whi ch Hikma op erate s, the E xecuti ve Direc tors mus t focus continuo usly on optimis ing Hikma’s cost b ase. Th e Commit te e wants the E xecu tive Dire ctors to deliver an o ptimised c ost b ase wit hout pu t ting at risk the l onger- term pro spe ct s of the busin es s byunder investing in R&D. Th erefore, R&D c ost s have been exclud ed fro m this criter ion. Pleas e se e page 2 2 of the Strategi c repor t fo r the det ail on this target . Strategic Strategic del iverables 20% The t argets are de signe d to ensure that the E xecu tive Dire ctors d eliver the ES G str ategy an d target to reduc e Gree nhouse G as emis sions by 25% by 203 0 that is det ailed on p ages 2 2 and 23 o f this repo r t. Fur ther det ails will be dis clos ed on m easureme nt. Disclosed on measurement The R emune rati on Co mmit tee i s of the o pinion t hat the di sclo sure of hi gh-leve l for war d-lo oking t arget s provi des s hareh olde rs wi th an awar ene ss of direc tio n and ou tcom es bu t, gi ven the c omme rcial s ensi tivi ty ar ising in r elatio n to the de taile d nan cial an d str ategi c targe ts us ed for t he EIP , di scl osing pre cise t arget s for th e EIP in ad vanc e would n ot be in s hareh olde rs’ intere st s. T his avoid s the ri sk of Hikm a inadve r tently p rovidin g a pro t fore cas t or gi ving our inter natio nal co mpet itors a cce ss to s ens itive inf ormat ion or an u nfair a dvant age. Ac tua l targe ts, p er for manc e achie ved and aw ards ma de are p ublish ed at the e nd of the p er for manc e per iod s o share hol ders c an f ully as se s s the ba sis for a ny pay-ou ts und er the EI P . Structure (applicable to EIP from 2020 to 2022) Elements To t a l A Cash bonus B Deferred shares C Restricted shares Forfeiture 0% 0% 0% 0% award + for fei t 50% ou tst anding Element B Below minimum 0% 0% 0% 0% award Minimum 25% 25% 25% 75% award T arget 100% 100% 50% 250% award Maximum 150% 150% 100% 40 0% award Single total gur e ( audited) The foll owing tabl e shows a singl e total gure of rem unerati on in resp ec t of qualif ying s er vice s for the 20 21 nan cial year for ea ch Exec utive Direc tor , togethe r with comp arative g ures for 20 20. Dire ctor Ye a r Salar y $ Benets $ Bonus (EIP Elements A and C) $ Shares Vested (EIP Elem ent B) $ Pension $ To t a l $ T ota l Fixe d $ Total V ariable $ Said Dar w azah 2021 1,018 ,0 00 55, 465 1,568,281 1,8 75,4 47 6 8 ,9 2 6 4, 58 6,119 1,142, 39 1 3,4 33,728 2020 1,018 ,00 0 70, 3 2 3 1,855,055 0 6 8 ,9 4 6 3 ,012 ,3 24 1,157 , 269 1 ,855,055 Sig gi Olaf s son 20 21 1, 166 , 990 3 7,9 3 0 1,8 95 ,381 2,0 47 ,0 07 160,0 50 5,30 7 ,35 8 1 , 3 6 4 ,9 7 0 3, 94 2,388 2020 1, 133,000 16 3, 23 1 2,252,3 69 0 1 6 9,9 5 0 3,718,550 1, 4 6 6 ,1 8 1 2, 252,369 Mazen Dar wazah 202 1 75 3 ,1 4 4 6 5 ,16 6 1, 23 2 ,1 75 1, 294,742 58,48 4 3,4 03,710 8 76 , 7 9 3 2,52 6, 9 17 2020 7 1 7, 1 5 5 92,892 1,29 7 ,238 508,838 5 5 , 76 5 2, 6 71,888 865,8 12 1, 80 6,076 The EIP p er forman ce criter ia for 202 1 are detail ed on pa ges 10 0 to 105. Hik ma Ph arm ace utic al s PLC Annual Report 2021 99 GOVERNANCE Benets Said Dar w azah rec eived tr ansp or tatio n bene ts of $ 4 0,3 03 (2020: $55 ,2 16 ) and me dical b ene ts of $15,162 (2020: $15,107). Siggi O lafs son recei ved tr anspor tation b ene ts of $19 , 99 2 (2020: $19 ,992) , hou sing bene ts of $nil (2020: $ 110, 90 3) related to his st ay in the UK and me dical ben ets of $ 17 , 93 8 (2020: $ 32, 3 36) . Mazen Dar waz ah rece ived tr anspo r tation b ene ts of $ 35,06 4 (2020: $6 4 ,60 3) and medic al be net s of $3 0,102 (2020:$28, 289) . So cial sec urit y payme nts made in J ordan, that are re quired to be p aid by Jordanian law, are not consi dered to b e a ben et. Pension Said Dar w azah and M azen Dar wazah p ar ticipate in the H ikma Pharmac eutic al De ned C ontribut ion Retirem ent Bene t Plan (the Jordan B ene t Plan ) on th e same b asis as other e mployee s loc ated in Jo rdan. Unde r the Jord an Bene t Plan, Hikma match es empl oyee contr ibution s made, up to a maximum of 10 % of applic able s alar y . Par ticip ants be com e entitle d to all of Hikma’s contribu tions on ce they have be en employe d for ten years . Before that point , there is a s tag gered s cal e which st ar ts at thre e years of em ployment . Said Dar wa zah and Mazen D ar wazah have se r ved for in exces s of ten years an d receive th eir ben ets un der the J ordan Be net Plan b ec ause th ey are over 60 year s of age. In resp ec t of 2020, Sig gi wa s due to recei ve a pensio n contribu tion of $16 5,00 0 which repre sente d 14.6% of his salar y . Howeve r , a c alculatio n error w as made re sulting in an overp ayment of $4 , 950which ha s bee n deduc ted f rom the 202 1 payment . Hikma Pharma ceutic als PLC doe s not and has not o per ated a den ed be net s cheme. Additional Information The foll owing additi onal informati on is available in th e Remuner ation C ommit tee’s rep or t: – D irec tor and average e mployee c ompen sation chan ge: pleas e see p age 97 – R elative per fo rmance an d spen d on pay: pl ease s ee pag e 91 – AGM voting : plea se se e page 9 2 Vested share awards During 20 21, th e following share aw ards ves ted for the E xecu tive Direc tors . The total sh ares ves ted in 202 1 are summari sed in th e following thre etabl es. EIP Under t he EIP , per for mance cri teria mus t be met b efore an award is gr anted. Th ere are three aw ard t ype s under th e EIP which are treate d in the following mann er in resp ec t of the t able above: – Ele ment A – a ca sh bonu s that is payable imm ediately and at tr ibuted to th e earnings for t he per for mance yea r – Ele ment B – an award of share s that ves ts t wo year s aer gr ant subjec t to there b eing no for feit ure events and is at trib uted to the ea rnings inresp ec t of the year in whi ch it ves ts (i.e. two ye ars aer b eing gra nted) – Ele ment C – an award of share s that ves ts thre e years ae r grant and, du e to their be ing no fur the r per for mance re quirements , is at tribute d tothe ear nings for the p er forman ce year in the s ame manner a s Element A The t ables b elow d etail share awards (Elem ents B and C) ves ting during th e year ende d 31 D ece mber 20 21. Whils t the se share s ves ted during 202 1, they are at tribute d to earnings as d etaile d in the par agr aph above. Said Darwazah — EIP Maximum numb er of share s cap able of ve sting — Elem ent B 6 1,666 Maximum numb er of share s cap able of ve sting — Elem ent C Nil For feiture Nil V esting price Nil Numbe r of veste d shares 6 1,666 T o tal v alue o f vest ed sha res 1 $1,87 5,4 47 1. Share p ric e on ve sti ng wa s £2 1.94 and wa s $1. 38 6 to £ 1 und er Ele ment C Siggi Olafsson — EIP Maximum numb er of share s cap able of ve sting — Elem ent B 6 7, 3 0 7 Maximum numb er of share s cap able of ve sting — Elem ent C Nil For feiture Nil V esting price Nil Numbe r of veste d shares 6 7, 3 0 7 T o tal v alue o f vest ed sha res 2 $2 ,04 7 ,0 07 2. Sha re pri ce on ve st ing w as £2 1.94 and w as $1 .3 86 to £ 1 un der El eme nt C Mazen Darwazah — EIP Maximum numb er of share s cap able of ve sting — Elem ent B 42,572 Maximum numb er of share s cap able of ve sting — Elem ent C 12,0 42 For feiture Nil V esting price Nil Numbe r of veste d shares 5 4 , 614 T o tal v alue o f vest ed sha res 3 $1 ,7 00 ,169 3. Shar e pri ces o n ves ting w ere £ 21 . 94 an d £2 3. 84 a nd th ere we re $1. 3 86 an d $1. 413 to £ 1 und er Ele ment B a nd Ele ment C , re spe ct ivel y Share price appreciation The incre ase in va lue of the ab ove awards from th e point of gr ant to the point of ve sting wa s $498 ,4 3 7 in relation to Said D ar wazah, $ 54 4,04 2 inrelation to Sig gi Ol afs son, and $ 582 ,4 3 9 ( $ 34 4,108 in relatio n to Element B and $2 38 ,3 3 1 for Eleme nt C) in relation to Mazen Dar waz ah. 100 Hikm a Phar mac eu tic als PLC Annual Repor t 2021 202 1 Per formance outcom e: Executive Chairman ( audite d) Read ers are dire cted to th e comment ar y on busine s s per for mance that is in cluded in t he Chair ’s let ter on page s 89 to 90. The foll owing tabl e sets o ut the p er forman ce condit ions and t argets for 2 021 an d their level of s atisf act ion: Performance condition Performance level Achievemen t Application Section Description Rationale and measur ement Weighting Forfeiture 0% salar y awarded Minimum 75% of salar y awarde d T arg et 250% of salary awarde d Maximum 400 % of salary awarde d Results Achievemen t % of salar y Financial Core revenue Historic ally , the p ricing of gen eric pha rmaceu tica l produc ts ha s decre ase d with time. T he Commit te e is cognis ant that this coul d lead to de clining revenue over the l onger ter m, which couldul timately resul t in a declining bu sines s overall. B y ensuring t hat a signic ant propo r tion of per fo rmance re munerati on is bas ed on revenu e, the Commi tte e is able to en sure that the Exe cutive Dire ctor s are focu sed on mi tigating pr icing dec lines by max imising the potential o f the in-market por t folio, launc hing new pro duct s, and deve loping the p ipeline. S ee page 2 2 of the Strategic re por t for f ur ther det ail on the p er forman ce related to this t arget. 4 5% T arget -3 0% $1,7 70 million T arget -10% $2, 276 million T arget $2,52 9 million T arget +10% $2,78 2 million Core revenu e of $2,5 53 millio n T arget to maximum 118. 9% of s alar y Core O per ating Prot (COP ) befo re R&D Ultimately, COP is a k ey mea sure of value to Hikma’s shareh older s. Gi ven the highly c ompeti tive busine ss e nvironment in which Hik ma oper ates, t he Exe cutive Dire ctor s must fo cus continuo usly on optimis ing Hikma’s cost b ase. Th e Commit te e wants the E xecu tive Dire ctors to deliver an o ptimised c ost b ase wit hout pu t ting at risk the l onger- term pro spe ct s of the busin es s by under investing in R&D. Th erefore, R&D c ost s have been exclud ed fro m this criter ion. Se e page 2 2 of the Strateg ic repo r t for fur the r detail on t he per fo rmance rel ated to this target . 4 5% T arget -3 0% $55 0 million T arget -10% $707 million T arget $78 5 million T arget +10% $8 64 m illion COP befo re R&D of $7 75 millio n Thres hold to target 102.4% of salar y Strategic Return on Inve sted Capit al (ROIC) Hikma invest s signi cant c apital to exp and its p roduc t po r tfo lio and pipe line and improving its hig h-qualit y manuf ac turing c apabilit ies . Over the l onger term , thes e act ivitie s ensure that margins c an be maintain ed throu gh manuf act uring more co mplex/spe cialt y pro duct s and capt uring greater mar ket share, respe ctive ly . The ex tensive r ange of cap ital inves tments have variou s timeframe s for delivering new c apabilitie s and enhancing Hikma’s competi tive positio n. The p er forman ce of previo us and exis ting proje cts i s monitore d by the Bo ard on a proje ct by proje ct ba sis. RO IC provid es a Gro up-level m ethod of a ss es sing the time an d cos t to deliver proje ct s and their ultim ate returns over a one -year timefr ame. Se e page 2 2 of the Str ategic repo r t for fur the r detail on t he per for mance rel ated to this target . 10% T arget -3 2% 11.0% T arget -10% 14 .6% T arget 16. 2% T arget +10% 1 7. 8 % ROI C of 17 .1% T arget to maximum 3 3.3 % of salar y To t a l 100% Unacceptable Acceptable G ood Excellen t 2 5 4 . 6% The ab ove per form ance res ults in per formance r emuneration under the EIP as fo llows (audited) : Par ticipant Calculation Rec eive Exe cu tive EIP Element S alary Max imum pote ntia l (% of salar y) Application % of salary V alue of bonus/shares Receive Notes Exe cuti ve Chairman A $1,0 18,0 00 150% 1 0 0 .6% $ 1 , 0 2 3 ,9 5 8 Cas h now (Februar y 202 2) B 150% 1 0 0 .6% $ 1 , 0 2 3 ,9 5 8 Shares in 2 yea rs from Fe bruar y 202 2 All share s vestin g are subjec t to a holding per iod aer ve sting. The se share s may not be s old until 5 years ae r grant. C 100% 5 3. 5% $5 44 ,323 Shares in 3 yea rs from Fe bruar y 202 2 To t a l 400% 2 54 .7% $2,5 92,2 39 Annual repor t on remuneration conti nued Hik ma Ph arm ace utic al s PLC Annual Report 2021 10 1 GOVERNANCE 202 1 Per formance outcom e: Executive Chairman ( audite d) Read ers are dire cted to th e comment ar y on busine s s per for mance that is in cluded in t he Chair ’s let ter on page s 89 to 90. The foll owing tabl e sets o ut the p er forman ce condit ions and t argets for 2 021 an d their level of s atisf act ion: Performance condition Performance level Achievemen t Application Section Description Rationale and measur ement Weighting Forfeiture 0% salar y awarded Minimum 75% of salar y awarde d T arg et 250% of salary awarde d Maximum 400 % of salary awarde d Results Achievemen t % of salar y Financial Core revenue Historic ally , the p ricing of gen eric pha rmaceu tica l produc ts ha s decre ase d with time. T he Commit te e is cognis ant that this coul d lead to de clining revenue over the l onger ter m, which couldul timately resul t in a declining bu sines s overall. B y ensuring t hat a signic ant propo r tion of per fo rmance re munerati on is bas ed on revenu e, the Commi tte e is able to en sure that the Exe cutive Dire ctor s are focu sed on mi tigating pr icing dec lines by max imising the potential o f the in-market por t folio, launc hing new pro duct s, and deve loping the p ipeline. S ee page 2 2 of the Strategic re por t for f ur ther det ail on the p er forman ce related to this t arget. 4 5% T arget -3 0% $1,7 70 million T arget -10% $2, 276 million T arget $2,52 9 million T arget +10% $2,78 2 million Core revenu e of $2,5 53 millio n T arget to maximum 118. 9% of s alar y Core O per ating Prot (COP ) befo re R&D Ultimately, COP is a k ey mea sure of value to Hikma’s shareh older s. Gi ven the highly c ompeti tive busine ss e nvironment in which Hik ma oper ates, t he Exe cutive Dire ctor s must fo cus continuo usly on optimis ing Hikma’s cost b ase. Th e Commit te e wants the E xecu tive Dire ctors to deliver an o ptimised c ost b ase wit hout pu t ting at risk the l onger- term pro spe ct s of the busin es s by under investing in R&D. Th erefore, R&D c ost s have been exclud ed fro m this criter ion. Se e page 2 2 of the Strateg ic repo r t for fur the r detail on t he per fo rmance re lated to this target . 4 5% T arget -3 0% $55 0 million T arget -10% $707 million T arget $78 5 million T arget +10% $8 64 m illion COP befo re R&D of $7 75 millio n Thres hold to target 102.4% of salar y Strategic Return on Inve sted Capit al (ROIC) Hikma invest s signi cant c apital to exp and its p roduc t po r tfo lio and pipe line and improving its hig h-qualit y manuf ac turing c apabilit ies . Over the l onger term , thes e act ivitie s ensure that margins c an be maintain ed throu gh manuf act uring more co mplex/spe cialt y pro duct s and capt uring greater mar ket share, respe ctive ly . The ex tensive r ange of cap ital inves tments have variou s timeframe s for delivering new c apabilitie s and enhancing Hikma’s competi tive positio n. The p er forman ce of previo us and exis ting proje cts i s monitore d by the Bo ard on a proje ct by proje ct ba sis. RO IC provid es a Gro up-level m ethod of a ss es sing the time an d cos t to deliver proje ct s and their ultim ate returns over a one -year timefr ame. Se e page 2 2 of the Str ategic repo r t for fur the r detail on t he per for mance rel ated to this target . 10% T arget -3 2% 11.0% T arget -10% 14 .6% T arget 16. 2% T arget +10% 1 7. 8 % ROI C of 17 .1% T arget to maximum 3 3.3 % of salar y To t a l 100% Unacceptable Acceptable G ood Excellen t 2 5 4 . 6% The ab ove per form ance res ults in per formance r emuneration under the EIP as fo llows (audited) : Par ticipant Calculation Rec eive Exe cu tive EIP Element S alary Max imum pote ntia l (% of salar y) Application % of salary V alue of bonus/shares Receive Notes Exe cuti ve Chairman A $1,0 18,0 00 150% 1 0 0 .6% $ 1 , 0 2 3 ,9 5 8 Cas h now (Februar y 202 2) B 150% 1 0 0 .6% $ 1 , 0 2 3 ,9 5 8 Shares in 2 yea rs from Fe bruar y 202 2 All share s vestin g are subjec t to a holding per iod aer ve sting. The se share s may not be s old until 5 years ae r grant. C 100% 5 3. 5% $5 44 ,323 Shares in 3 yea rs from Fe bruar y 202 2 To t a l 400% 2 54 .7% $2,5 92,2 39 102 H ikm a Phar mac eut ica ls PLC Annual Repor t 2021 Annual repor t on remuneration conti nued 202 1 Per formance outcom e: Chief Executive O cer ( audited) Read ers are dire cted to th e comment ar y on busine s s per for mance that is in cluded in t he Chair ’s let ter on page s 89 to 90. The foll owing tabl e sets o ut the p er forman ce condit ions and t argets for 2 021 an d their level of s atisf act ion: Performance condition Performance level Achiev ement Application Section Description Rationale and measur ement Weighting Forfeiture 0% salar y awarded Minimum 75% of salar y awarde d T arg et 250% of salary awarde d Maximum 400 % of salary awarde d Results Achie vement % of salary Financial Core revenue Historic ally , the p ricing of gen eric pha rmaceu tica l produc ts ha s decre ase d with time. T he Commit te e is cognis ant that this coul d lead to de clining revenue over the l onger ter m, which couldul timately resul t in a declining bu sines s overall. B y ensuring t hat a signic ant propo r tion of per fo rmance re munerati on is bas ed on revenu e, the Commi tte e is able to en sure that the Exe cutive Dire ctor s are focu sed on mi tigating pr icing dec lines by max imising the potential o f the in-market por t folio, launc hing new pro duct s, and deve loping the p ipeline. S ee page 2 2 of the Strategic re por t for f ur ther det ail on the p er forman ce related to this t arget. 40% T arget -3 0% $1,7 70 million T arget -10% $2, 276 million T arget $2,52 9 million T arget +10% $2,78 2 million Core revenu e of $2,5 53 millio n T arget to maximum 105.7% of s alar y Core O per ating Prot (COP ) befo re R&D Ultimately, COP is a k ey mea sure of value to Hikma’s shareh older s. Gi ven the highly c ompeti tive busine ss e nvironment in which Hik ma oper ates, t he Exe cutive Dire ctor s must fo cus continuo usly on optimis ing Hikma’s cost b ase. Th e Commit te e wants the E xecu tive Dire ctors to deliver an o ptimised c ost b ase wit hout pu t ting at risk the l onger- term pro spe ct s of the busin es s by under investing in R&D. Th erefore, R&D c ost s have been exclud ed fro m this criter ion. Se e page 2 2 of the Strateg ic repo r t for fur the r detail on t he per fo rmance rel ated to this target . 40% T arget -3 0% $55 0 million T arget -10% $707 million T arget $78 5 million T arget +10% $8 64 m illion COP befo re R&D of $7 75 millio n Thres hold to target 91.0% of salar y Strategic Environmental, So cial, and Governan ce Str ate g y During 20 21, th e Board re ques ted that th e Chief Exe cutive O cer f undame ntally review th e Group ’s ESG strateg y wit h a par ticular e mphasis o n the Group ’s emissio ns and impac t on th e environment (fur ther c omment ar y is available on p age 89) . 10% Commit tee a ss es sment of th e longer ter m corp orate tar gets for improving the G roup’s emis sions an d environmental p er for mance and the m edium term s trateg y for d elivering th ose t argets. Current s tatus asce r taine d. Responsiblelong -term target s approved. Strat egic plan del ivered. Maxim um determine d by the C omm it tee 40.0% of salar y Leadership succession and dev elopment The abili ty of t he Comp any to deliver its o per ational p er formanc e and str ategic pro jec ts over the longer ter m will be de pend ent on the co ntinued s treng th of it s lead ership team. T he Bo ard reque ste d that the Chief E xecut ive O cer develo p plans for suc ces sion fo r the top lea dership role s and the mis sion cr itic al role s, including a ss es sing internal tal ent and creating d evelopme nt plans (fur ther c omment ar y is available on p age 89) . 10% Commit tee a ss es sment of th e succe ssi on plans for t he Group thatwere pre sented to th e Board in D ece mber 20 21. Succe s sion plans fo r all Exe cutive Co mmit tee role s and identi catio n ofmis sion crit ical ro les . Ab ove targ et determine d by the C omm it tee 30.0% of salar y To t a l 100% Unacceptable Acceptable G ood Excellen t 266. 7% The ab ove per form ance res ults in per formance r emuneration under the EIP as fo llows (audited) : Par ticipant Calculation Rec eive Exe cu tive EIP Element S alary Max imum pote ntia l (% of salary) Application % of salary V alue of bonus/shares Receive Notes Chief Exe cu tive Ocer A $1, 166, 990 150% 10 4. 3% $1,217 ,183 Cas h now (Februar y 202 1) B 150% 10 4. 3% $1,217 ,183 Shares in 2 yea rs from Fe bruar y 202 2 All share s vestin g are subjec t to a holding per iod aer ve sting. The se share s may not be s old until 5 years ae r grant. C 100% 5 8 .1% $ 678 ,1 98 Shares in 3 yea rs from Fe bruar y 202 2 To t a l 400% 266.7% $ 3 ,1 1 2 ,5 6 4 Hik ma Ph arm ace utic al s PLC Annual Report 2021 103 GOVERNANCE 202 1 Per formance outcom e: Chief Executive O cer ( audited) Read ers are dire cted to th e comment ar y on busine s s per for mance that is in cluded in t he Chair ’s let ter on page s 89 to 90. The foll owing tabl e sets o ut the p er forman ce condit ions and t argets for 2 021 an d their level of s atisf act ion: Performance condition Performance level Achiev ement Application Section Description Rationale and measur ement Weighting Forfeiture 0% salar y awarded Minimum 75% of salar y awarde d T arg et 250% of salary awarde d Maximum 400 % of salary awarde d Results Achie vement % of salary Financial Core revenue Historic ally , the p ricing of gen eric pha rmaceu tica l produc ts ha s decre ase d with time. T he Commit te e is cognis ant that this coul d lead to de clining revenue over the l onger ter m, which couldul timately resul t in a declining bu sines s overall. B y ensuring t hat a signic ant propo r tion of per fo rmance re munerati on is bas ed on revenu e, the Commi tte e is able to en sure that the Exe cutive Dire ctor s are focu sed on mi tigating pr icing dec lines by max imising the potential o f the in-market por t folio, launc hing new pro duct s, and deve loping the p ipeline. S ee page 2 2 of the Strategic re por t for f ur ther det ail on the p er forman ce related to this t arget. 40% T arget -3 0% $1,7 70 million T arget -10% $2, 276 million T arget $2,52 9 million T arget +10% $2,78 2 million Core revenu e of $2,5 53 millio n T arget to maximum 105.7% of s alar y Core O per ating Prot (COP ) befo re R&D Ultimately, COP is a k ey mea sure of value to Hikma’s shareh older s. Gi ven the highly c ompeti tive busine ss e nvironment in which Hik ma oper ates, t he Exe cutive Dire ctor s must fo cus continuo usly on optimis ing Hikma’s cost b ase. Th e Commit te e wants the E xecu tive Dire ctors to deliver an o ptimised c ost b ase wit hout pu t ting at risk the l onger- term pro spe ct s of the busin es s by under investing in R&D. Th erefore, R&D c ost s have been exclud ed fro m this criter ion. Se e page 2 2 of the Strateg ic repo r t for fur the r detail on t he per fo rmance re lated to this target . 40% T arget -3 0% $55 0 million T arget -10% $707 million T arget $78 5 million T arget +10% $8 64 m illion COP befo re R&D of $7 75 millio n Thres hold to target 91.0% of salar y Strategic Environmental, So cial, and Governan ce Str ate g y During 20 21, th e Board re ques ted that th e Chief Exe cutive O cer f undame ntally review th e Group ’s ESG strateg y wit h a par ticular e mphasis o n the Group ’s emissio ns and impac t on th e environment (fur ther c omment ar y is available on p age 89) . 10% Commit tee a ss es sment of th e longer ter m corp orate tar gets for improving the G roup’s emis sions an d environmental p er for mance and the m edium term s trateg y for d elivering th ose t argets. Current s tatus asce r taine d. Responsiblelong -term target s approved. Strat egic plan del ivered. Maxim um determine d by the C omm it tee 40.0% of salar y Leadership succession and dev elopment The abili ty of t he Comp any to deliver its o per ational p er formanc e and str ategic pro jec ts over the longer ter m will be de pend ent on the co ntinued s treng th of it s lead ership team. T he Bo ard reque ste d that the Chief E xecut ive O cer develo p plans for suc ces sion fo r the top lea dership role s and the mis sion cr itic al role s, including a ss es sing internal tal ent and creating d evelopme nt plans (fur ther c omment ar y is available on p age 89) . 10% Commit tee a ss es sment of th e succe ssi on plans for t he Group thatwere pre sented to th e Board in D ece mber 20 21. Succe s sion plans fo r all Exe cutive Co mmit tee role s and identi catio n ofmis sion crit ical ro les . Ab ove targ et determine d by the C omm it tee 30.0% of salar y To t a l 100% Unacceptable Acceptable G ood Excellen t 266. 7% The ab ove per form ance res ults in per formance r emuneration under the EIP as fo llows (audited) : Par ticipant Calculation Rec eive Exe cu tive EIP Element S alary Max imum pote ntia l (% of salary) Application % of salary V alue of bonus/shares Receive Notes Chief Exe cu tive Ocer A $1, 166, 990 150% 10 4. 3% $1,217 ,183 Cas h now (Februar y 202 1) B 150% 10 4. 3% $1,217 ,183 Shares in 2 yea rs from Fe bruar y 202 2 All share s vestin g are subjec t to a holding per iod aer ve sting. The se share s may not be s old until 5 years ae r grant. C 100% 5 8 .1% $ 678 ,1 98 Shares in 3 yea rs from Fe bruar y 202 2 To t a l 400% 266.7% $ 3 ,1 1 2 ,5 6 4 104 Hi kma P harm ace uti ca ls PLC Annual Report 2021 Annual repor t on remuneration conti nued 202 1 Per formance outcom e: Executive Vice Chairman (audited) Read ers are dire cted to th e comment ar y on busine s s per for mance that is in cluded in t he Chair ’s let ter on page s 89 to 90. The foll owing tabl e sets o ut the p er forman ce condit ions and t argets for 2 021 an d their level of s atisf act ion: Performance condition Performance level Achiev ement Application Section Description Rationale and measur ement Weighting Forfeiture 0% salar y awarded Minimum 75% of salar y awarde d T arg et 250% of salary awarde d Maximum 400 % of salary awarde d Results Achie vement % of salary Financial Core revenue Historic ally , the p ricing of gen eric pha rmaceu tica l produc ts ha s decre ase d with time. T he Commit te e is cognis ant that this coul d lead to de clining revenue over the l onger ter m, which couldul timately resul t in a declining bu sines s overall. B y ensuring t hat a signic ant propo r tion of per fo rmance re munerati on is bas ed on revenu e, the Commi tte e is able to en sure that the Exe cutive Dire ctor s are focu sed on mi tigating pr icing dec lines by max imising the potential o f the in-market por t folio, launc hing new pro duct s, and deve loping the p ipeline. S ee page 2 2 of the Strategic re por t for f ur ther det ail on this t arget. 25% T ar get -30 % $1,7 70 million T arget -10% $2, 276 million T arget $2,52 9 million T arget +10% $2,78 2 million Core revenu e of $2,5 53 millio n T arget to maximum 66.1% of salar y Core O per ating Prot (COP ) befo re R&D Ultimately, COP is a k ey mea sure of value to Hikma’s shareh older s. Gi ven the highly c ompeti tive busine ss e nvironment in which Hik ma oper ates, t he Exe cutive Dire ctor s must fo cus continuo usly on optimis ing Hikma’s cost b ase. Th e Commit te e wants the E xecu tive Dire ctors to deliver an o ptimised c ost b ase wit hout pu t ting at risk the l onger- term pro spe ct s of the busin es s by under investing in R&D. Th erefore, R&D c ost s have been exclud ed fro m this criter ion. Se e page2 2 of the Strateg ic repo r t for fur the r detail on t his target. 25% T ar get -30 % $55 0 million T arget -10% $707 million T arget $78 5 million T arget +10% $8 64 m illion COP befo re R&D of $7 75 millio n Thres hold to target 56.9% of salar y MENA revenue The Exec utive Dire ctor is re spo nsible for t his region. T he Commi tte e consi dered nan cial metri cs tob e the be st met hod of en suring delive r y of the str ateg y that coul d be mea sured in an obje ctive mann er that is readil y under stan dable by investo rs. M easured by t arget MENA revenue compa red to audited M ENA revenue for th e year ende d 31 D ece mber 20 21. Se e page s 30 an d 31 of the Bu sines s and nanc ial review for f ur ther det ail on this targ et. 15% T arget -23% $624 million T arget -10% $73 0 million T arget $8 11 million T arget +10% $89 2 million MENA revenue of $8 07 million Thres hold to target 36. 2% of s alary MENA COP b efore R&D The Exe cutive Dire ctor is re spo nsible for t his region. T he Com mit tee consi dered n ancial metri cs to b e the be st met hod of en suring delive r y of the Bo ard-approved s trateg y that co uld be me asured in an ob jec tive manner t hat is readily und ers tandabl e by investors . Mea sured by target M ENA COP comp ared to audite d MENA COP for th e year ende d 31 D ece mber 20 21. T o align the ap proach w ith the G roup target , R&D and G roup cos ts have be en remove d from the measure ments of t his target. S ee pa ges 3 0 and 31 of t he Busine s s and nancial revi ew for fur th er detail on t his target . 15% T arget -3 0% $14 5 million T arget -10% $18 6 million T arget $207 million T arget +10% $22 8 million MENA COP b efore R&D of $209 million T arget to maximum 39 .6% of salary Strategic Environmental, So cial, and Governan ce Str ate g y During 20 21, th e Board re ques ted that th e Vice Chair man fundam entally review t he Group ’s ESG str ateg y for the MENA re gion wit h a par ticular e mphasis on t he divisio n’s emissio ns and impac t on the environm ent (furt her comm entar y is availabl e on page 8 9 ). 10% Committee asse ssment of the longer -term corporate targe ts for improving th e MENA regio n emis sions and enviro nmental per for mance an d the me dium-term str ategy fo r deliver ing thos etarget s. Current s tatus asce r taine d. Responsiblelong -term target s approved. Strat egic deliver plan deliver ed. Maxim um determine d by the C omm it tee 40.0% of salar y Leadership succession and dev elopment The abili ty of t he Comp any to deliver its o per ational p er formanc e and str ategic pro jec ts over the longer ter m will be de pend ent on the co ntinued s treng th of it s lead ership team. T he Bo ard reque ste d that the Vic e Chairman devel op plans for su cce ssio n for the top le ader ship role s and the mis sion cr itic al roles in t he MENA regi on, including as se s sing internal tal ent and creating develop ment plans (fur the r comment ar y is available on p age 89) . 10% Commit tee a ss es sment of th e succe ssi on plans for t he MENA region t hat were pres ented to the B oard in D ecemb er 202 1. Succe s sion plans fo r all MENA regi on role s and identication o f mission criti cal rol es. Ab ove targ et determine d by the C omm it tee 30.0% of salar y To t a l 100% Unacceptable Acceptable G ood Excellen t 268.8% The ab ove per form ance res ults in per formance r emuneration under the EIP as fo llows (audited) : Par ticipant Calculation Rec eive Exe cu tive EIP Element S alary Max imum pote ntia l (% of salar y) Application % of salary V alue of bonus/shares Receive Notes Exe cuti ve ViceChairman A $75 3 ,013 150% 105. 2% $792,237 Cas h now (Februar y 202 2) B 150% 105. 2% $792,237 Shares in 2 yea rs from Fe bruar y 202 2 All share s vestin g are subjec t to a holding per iod aer ve sting. The se share s may not be s old until 5 years ae r grant. C 100% 5 8 .4% $ 4 3 9,9 3 8 Shares in 3 yea rs from Fe bruar y 202 2 To t a l 400% 26 8.8% $2, 024,4 12 Hik ma Ph arm ace utic al s PLC Annual Report 2021 105 GOVERNANCE 202 1 Per formance outcom e: Executive Vice Chairman (audited) Read ers are dire cted to th e comment ar y on busine s s per for mance that is in cluded in t he Chair ’s let ter on page s 89 to 90. The foll owing tabl e sets o ut the p er forman ce condit ions and t argets for 2 021 an d their level of s atisf act ion: Performance condition Performance level Achiev ement Application Section Description Rationale and measur ement Weighting Forfeiture 0% salar y awarded Minimum 75% of salar y awarde d T arg et 250% of salary awarde d Maximum 400 % of salary awarde d Results Achie vement % of salary Financial Core revenue Historic ally , the p ricing of gen eric pha rmaceu tica l produc ts ha s decre ase d with time. T he Commit te e is cognis ant that this coul d lead to de clining revenue over the l onger ter m, which couldul timately resul t in a declining bu sines s overall. B y ensuring t hat a signic ant propo r tion of per fo rmance re munerati on is bas ed on revenu e, the Commi tte e is able to en sure that the Exe cutive Dire ctor s are focu sed on mi tigating pr icing dec lines by max imising the potential o f the in-market por t folio, launc hing new pro duct s, and deve loping the p ipeline. S ee page 2 2 of the Strategic re por t for f ur ther det ail on this t arget. 25% T ar get -30 % $1,7 70 million T arget -10% $2, 276 million T arget $2,52 9 million T arget +10% $2,78 2 million Core revenu e of $2,5 53 millio n T arget to maximum 66.1% of salar y Core O per ating Prot (COP ) befo re R&D Ultimately, COP is a k ey mea sure of value to Hikma’s shareh older s. Gi ven the highly c ompeti tive busine ss e nvironment in which Hik ma oper ates, t he Exe cutive Dire ctor s must fo cus continuo usly on optimis ing Hikma’s cost b ase. Th e Commit te e wants the E xecu tive Dire ctors to deliver an o ptimised c ost b ase wit hout pu t ting at risk the l onger- term pro spe ct s of the busin es s by under investing in R&D. Th erefore, R&D c ost s have been exclud ed fro m this criter ion. Se e page2 2 of the Strateg ic repo r t for fur the r detail on t his target. 25% T ar get -30 % $55 0 million T arget -10% $707 million T arget $78 5 million T arget +10% $8 64 m illion COP befo re R&D of $7 75 millio n Thres hold to target 56.9% of salar y MENA revenue The Exec utive Dire ctor is re spo nsible for t his region. T he Commi tte e consi dered nan cial metri cs tob e the be st met hod of en suring delive r y of the str ateg y that coul d be mea sured in an obje ctive mann er that is readil y under stan dable by investo rs. M easured by t arget MENA revenue compa red to audited M ENA revenue for th e year ende d 31 D ece mber 20 21. Se e page s 30 an d 31 of the Bu sines s and nanc ial review for f ur ther det ail on this targ et. 15% T arget -23% $624 million T arget -10% $73 0 million T arget $8 11 million T arget +10% $89 2 million MENA revenue of $8 07 million Thres hold to target 36. 2% of s alary MENA COP b efore R&D The Exe cutive Dire ctor is re spo nsible for t his region. T he Com mit tee consi dered n ancial metri cs to b e the be st met hod of en suring delive r y of the Bo ard-approved s trateg y that co uld be me asured in an ob jec tive manner t hat is readily und ers tandabl e by investors . Mea sured by target M ENA COP comp ared to audite d MENA COP for th e year ende d 31 D ece mber 20 21. T o align the ap proach w ith the G roup target , R&D and G roup cos ts have be en remove d from the measure ments of t his target. S ee pa ges 3 0 and 31 of t he Busine s s and nancial revi ew for fur th er detail on t his target . 15% T arget -3 0% $14 5 million T arget -10% $18 6 million T arget $207 million T arget +10% $22 8 million MENA COP b efore R&D of $209 million T arget to maximum 39 .6% of salary Strategic Environmental, So cial, and Governan ce Str ate g y During 20 21, th e Board re ques ted that th e Vice Chair man fundam entally review t he Group ’s ESG str ateg y for the MENA re gion wit h a par ticular e mphasis on t he divisio n’s emissio ns and impac t on the environm ent (furt her comm entar y is availabl e on page 8 9 ). 10% Committee asse ssment of the longer -term corporate targe ts for improving th e MENA regio n emis sions and enviro nmental per for mance an d the me dium-term str ategy fo r deliver ing thos etarget s. Current s tatus asce r taine d. Responsiblelong -term target s approved. Strat egic deliver plan deliver ed. Maxim um determine d by the C omm it tee 40.0% of salar y Leadership succession and dev elopment The abili ty of t he Comp any to deliver its o per ational p er formanc e and str ategic pro jec ts over the longer ter m will be de pend ent on the co ntinued s treng th of it s lead ership team. T he Bo ard reque ste d that the Vic e Chairman devel op plans for su cce ssio n for the top le ader ship role s and the mis sion cr itic al roles in t he MENA regi on, including as se s sing internal tal ent and creating develop ment plans (fur the r comment ar y is available on p age 89) . 10% Commit tee a ss es sment of th e succe ssi on plans for t he MENA region t hat were pres ented to the B oard in D ecemb er 202 1. Succe s sion plans fo r all MENA regi on role s and identication o f mission criti cal rol es. Ab ove targ et determine d by the C omm it tee 30.0% of salar y To t a l 100% Unacceptable Acceptable G ood Excellen t 268.8% The ab ove per form ance res ults in per formance r emuneration under the EIP as fo llows (audited) : Par ticipant Calculation Rec eive Exe cu tive EIP Element S alary Max imum pote ntia l (% of salar y) Application % of salary V alue of bonus/shares Receive Notes Exe cuti ve ViceChairman A $75 3 ,013 150% 105. 2% $792,237 Cas h now (Februar y 202 2) B 150% 105. 2% $792,237 Shares in 2 yea rs from Fe bruar y 202 2 All share s vestin g are subjec t to a holding per iod aer ve sting. The se share s may not be s old until 5 years ae r grant. C 100% 5 8 .4% $ 4 3 9,9 3 8 Shares in 3 yea rs from Fe bruar y 202 2 To t a l 400% 26 8.8% $2, 024,4 12 106 Hik ma Pha rma ceu tic als P LC Annual Report 2021 Annual repor t on remuneration conti nued Outstandin g shar e award s ( audited ) Hikma continu ed to op erate the EIP in 20 21. Th e outs tandin g share awards unde r the EIP in res pec t of ea ch of the E xecutive D irec tors are: Par ticipant Share scheme Q uantum Dire ctor Schem e descr iption 1 T yp e of inter es t Date of award Date of ve st ing Basis of award Share s ( max) Face va lue 2 Said Darwazah EIP Element C Condi tional award 1 2- M a r-1 9 1 2- M a r-2 2 85% of salar y 38 ,8 62 $ 8 6 7, 7 7 8 EIP Element B Co nditional award 27- F e b - 2 0 2 7- F e b - 2 2 117% of salar y 4 7, 1 6 9 $ 1,1 94 , 3 1 0 EIP Element C Condi tional award 27- F e b - 2 0 2 7- F e b - 2 3 67% of salar y 2 7, 0 5 7 $68 5,078 EIP Element B Co nditional award 25 - F eb -2 1 2 5- F eb -2 3 116 % of salar y 3 4,827 $1,182,028 EIP Element C Condi tional award 25 - F eb -2 1 25- Feb -24 66 % of salar y 1 9, 8 3 0 $ 673 ,0 28 To t a l 1 6 7, 74 5 (2020: 17 4,75 4) $4,60 2,222 (20 2 0: $ 4 ,1 24 ,1 76 ) Siggi Olafs son EIP Element C Condi tional award 1 2- M a r-1 9 1 2- M a r-2 2 87% of salar y 4 2 , 6 76 $ 9 5 2 ,9 6 5 Firs t Y ear Awar d (EI P C Equivalent) Condi tional award 1 2 - M a r- 19 1 2 - M a r- 2 2 150% of salar y 72,000 $1,60 7 ,7 60 EIP Element B Co nditional award 27- F e b - 2 0 2 7- F e b - 2 2 12 2% of s alary 5 3,1 4 8 $1, 3 4 5,70 9 EIP Element C Conditi onal award 27- F e b - 2 0 2 7- F e b - 2 3 7 2% of salar y 3 1,4 26 $795 ,709 EIP Element B Con ditional award 25 - F eb -2 1 2 5- F eb -2 3 124% of salar y 41, 527 $1 ,409 ,4 34 EIP Element C Conditi onal award 25 - F eb -2 1 25- Feb -24 7 4% of salar y 24, 8 3 6 $842, 93 4 To t a l 26 5 ,61 3 (2020: 266,55 7) $ 6 ,9 5 4 , 5 1 1 (2020: $6,20 5,108) Mazen Darwazah EIP Element C Condi tional award 1 2 - M a r- 19 1 2 - M a r- 2 2 8 3 % of salar y 2 6,514 $592,056 EIP Element B Con ditional award 27- F e b - 2 0 2 7- F e b - 2 2 117% of salar y 3 2 ,9 9 3 $835,37 7 EIP Element C Conditi onal award 27- F e b - 2 0 2 7- F e b - 2 3 67% of salar y 18, 831 $ 4 76 , 4 9 9 EIP Element B Con ditional award 25 - F eb -2 1 2 5- F eb -2 3 1 15% of salar y 24 , 3 19 $ 8 25, 379 EIP Element C Conditi onal award 25 - F eb -2 1 25- Feb -24 66 % of salar y 1 3 ,9 0 3 $47 1, 8 59 To t a l 116,560 (2020: 132 , 952) $3,201,17 0 (2020: $ 3,02 1,66 3) 1. The p er for man ce cr iter ia for El eme nts B a nd C of th e EIP are a ss es se d be fore a g ran t is con sid ere d. Addi tio nall y , Ele ment B i s subj ec t to for fe itur e crit eria f or th e rs t tw o year s aer g ra nt, whic h are de tail ed e ach ye ar as p ar t of th e nex t year ’s EI P per fo rma nce cr ite ria on p age s 10 0 to 105 2. Th e fac e val ue is th e val ue at th e poi nt of gr ant whi ch is th e 30 -d ay aver age to th e 31 D ec emb er of t he pe r form anc e year. The f ace v alu e (30 -day ave ra ge pr ice) in re spe ct o f awar ds gr anted i n 2019 w as $2 2. 33 (£ 17.63 p), 2020 $25 .3 2 (£19.3 0p), and 20 21 $ 3 3.94 (£25 .2 5p). The ac tua l valu e rec eive d by E xecu tive D ire cto rs und er th e shar e ince ntive a rr ange ment s is dep en dent up on th e sha re pri ce of H ikma at t he tim e of ve stin g, t he sat isf ac tio n of pe r form anc e cri teri a and th e non -oc cur renc e of fo rf eit ure even ts (EIP El eme nt B onl y) 3. The m inimum v alu e of the a ward s at ves ting w ill b e the sh are pr ice o n the d ay of ves ting m ulti plie d by th e numb er of sh are s ves ting . If th e Exe cut ive Di rec tor le aves e mpl oyme nt dur ing the ve st ing p eri od, t he nor mal p osi tio n is that ze ro sha res ve st . If all t he fo rf eit ure co ndit ion s occ ur in ea ch yea r of th e ves ting p eri od un der El eme nt B onl y , zer o share s wil l ves t. Th e weighting of each f or feiture condition has a proportional impact on the v esting percentage under Element B only Hik ma Ph arm ace utic al s PLC Annual Report 2021 107 GOVERNANCE The app licab le share pri ces fo r Hikma during the p erio d unde r review were: Date Marke t price (Closing price) 1 Januar y 2021 2,518p 31 D ece mber 20 21 2, 219 p 202 1 Range (low to high) 2,186p to 2,690p 23 Feb ruar y 20 22 2,01 3p Dilution In acco rdance wit h the guid elines s et out by the Inve stme nt As sociati on, Hikma c an issu e a maximum of 10 % of its is sue d share cap ital in arolling ten-year pe riod to emp loyee s under all it s share plans an d a maximum of 50 % of this (represe nting 5% of issue d share cap ital) for discreti onar y share plan s. The fo llowing tab le summaris es the c urrent level of dilut ion resul ting from Hikm a’s share plans since 20 11: T ype of plan Gr ante d in a rolling ten-year period Granted during the ye ar Disc retionar y Share Plan s (5 % Limit) 3.66 % 0. 3 8% Direc tor s hare interes ts (audited) Said Dar w azah, Mazen D ar wazah an d Ali Al-Hus r y are Direc tors and s harehold ers of Da rhold Limi ted. Darh old ho lds 60,00 0,000 O rdinar y Shares in Hik ma. The t able be low breaks d own their share holdings in Hik ma by shares e ect ively owne d throug h Darhol d and share s held per sonally o r by conne cted p eop le. The c ancell ation and is suance o f shares in Dar hold an d Hikma, as well a s changes in th e number of Hik ma shares h eld by Darh old, c an lead to a de gree of v ariation in th e ‘Eec tive Hikm a shares’ . Darhold Personal Dire ctor Inter es t in Darhold Eective Hikma shares Shares (incl. connected people) To t a l shareholding Said Dar w azah 22. 32% 13,393,875 650,070 1 4 , 0 4 3 ,9 4 5 Mazen Dar wazah 1 11 .61 % 6, 965,5 4 3 1,2 4 8,850 8, 214,393 Ali Al-H usr y 2 8. 2 5% 4 ,9 5 2 , 5 1 3 1,1 62 , 8 11 6 ,115 , 3 2 4 1. Mazen D ar wa zah ho lds h is sha res in D arh old L imite d thro ugh a f amil y tru st 2. Ali A l-H usr y ho lds hi s shar es in H ikma an d Dar hol d Limi ted th roug h a fam ily tr us t The foll owing tabl e sets o ut detail s of the Dire ctor s’ shareholding s in Hikma and, whe re there are share holding re quirement s, wheth er the se have been m et: Ownership requirements Tot a l Scheme Interests To t a l Dire ctor Percentage of salary Number of shares Requirement ful lled? Shares owned 3 EIP su bje ct to performance (Element B) EIP su bje ct to service (Element C) Share int erests Said Dar w azah 300 % 1 01, 707 Ye s 1 4 , 0 4 3 ,9 4 5 8 1, 996 8 5 , 74 9 14,2 11,690 Sig gi Olaf s son 300 % 1 1 6 ,9 5 2 Ye s 55,513 94 ,675 1 7 0 ,9 3 8 3 2 1,1 26 Mazen Dar wazah 4 300 % 75, 24 5 Ye s 8,214,393 5 7, 3 1 2 5 9, 2 4 8 8 , 3 3 0 ,9 5 3 Ali Al-H usr y 5 6,1 15 , 3 2 4 6 ,115 , 3 2 4 Pat Butler 3, 875 3, 875 Dr Pam ela Kirby 4,8 17 4 ,8 17 John C astella ni 3,500 3,500 Nina Henderson 7, 1 0 0 7, 1 0 0 Cynthia Flower s 1,10 0 1 ,10 0 Douglas Hurt 1,50 0 1, 500 3. Inc ludin g share s e ec tive ly own ed t hrou gh Dar hol d as p er the t abl e abo ve 4. Maze n Dar wa zah h old s his sha res i n Darh old L imite d thr ough a f ami ly tr ust , in whi ch he ha s a be ne cial int ere st 5. A li Al- Husr y h old s his sha res i n Hikma a nd Da rho ld Lim ited t hrou gh a f amily t rus t, in w hich h e has a b ene ci al inter es t There have be en no chan ges in the intere st s of the Dire ctor s in the share s of Hikma bet we en 31 D ece mber 20 21 and th e date of this repo r t. The share pri ce use d to calc ulate whether th e sharehol ding requireme nts have bee n met is the pr ice on 3 1 De cemb er 202 1 of £2 2.19p and foreign exchange rate of $1. 35 3 to £1 o n the sam e date. 108 Hik ma Ph arm ace utic al s PLC Annual Report 2021 Annual repor t on remuneration conti nued Direc tor s hare interes ts (audited) contin ued The foll owing tabl e sets o ut the change s in the share intere st s of Direc tors dur ing the year und er review and up to th e date of this repo r t. Ot her than as det ailed in th e table, t he Direc tors’ sha re interest s in Hikma did not chang e during the p erio d. Dire ctor Date Event Numb er of shares Douglas Hurt 2- M a r-2 1 Market Purchase of Shares 1,50 0 Said Dar w azah 12 - M a r- 2 1 V es ting of 2018 EI P Element B. R etaine d all shares 6 1, 666 Sig gi Olaf s son 1 2 - M a r- 2 1 Vest ing of 2018 EIP Elem ent B. Ret ained s ome share s 35,513 Mazen Dar wazah 1 2- M a r-2 1 Vesting of 2 018 EIP Eleme nt B. Retain ed all share s 42,572 Nina Henderson 1 7- M a r- 2 1 M arket purchase of shares 1,60 0 Mazen Dar wazah 1 7- M ay -2 1 V es ting of 201 8 EIP Element C . Retaine d all shares 1 2,0 42 Schem e interest s The foll owing tabl e sets o ut detail s of the ‘sche me interest s’ of the D irecto rs. Elem ent B and C of the EIP have b een inclu ded b ec ause th ey have ser vi ce condi tions in exce ss of on e year . T yp e of int ere st Share int erests with performance measures Ve s te d b u t unexe rcis ed Dire ctor Shares Share options Ye s No Said Dar w azah 1 6 7, 7 4 5 — 8 1, 996 8 5 , 74 9 — Sig gi Olaf s son 265,6 13 — 94 ,675 1 7 0 ,9 3 8 — Mazen Dar wazah 11 6,560 — 5 7, 3 1 2 5 9, 2 4 8 — All other dire ctor s — — — — — T otal shareholder retu rn During t he last ten ye ars, Hik ma per for med s trongly ag ainst it s UK pe ers in Hik ma’s index (FTSE 10 0) and sec tor (F TSE 350 Phar maceu ticals & Biotechn olog y s egment , a relatively small g roup of comp anies that are mainl y focus ed on devel oping new dr ugs) . T he Remune ration C ommit tee has cho sen the se co mparator s be caus e it use s executi ve compe nsatio n benchm arking data f rom the F TSE 10 0 and the pha rmaceu tica l industry when considering com pensation for the Executive Directors. -10 0 0 100 200 300 400 500 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18 Dec 19 Dec 20 Dec 21 Hikma Phar mac euti cals PLC F TSE 100 F TSE 350/Pha rmac euti cal s & Biotech nolo g y Hik ma Ph arm ace utic al s PLC Annual Report 2021 109 GOVERNANCE Remuneration table The foll owing tabl e sets o ut the total re munerat ion, including am ounts ve sting und er shor t- term and l ong-term incentive p lans, for e ach nancial p erio d in resp ec t of the Dire ctor s holding th e posi tions of E xecuti ve Chairman and Chie f Execu tive O cer . The tot al gure s for the nancial year s 2017 and 20 16 are higher th an would othe rw ise be t he ca se due to a change of in centive plan. In a ccordan ce with th e Regulatio ns, the 2017 a nd 2016 totals inc lude L TI Ps ves ting during the re levant per iod (which were gr anted thre e years b efore) and Element C of the EIP whic h was gr anted in re spec t of the re levant per iod. T he Regulat ions require El ement C to be tre ated in a similar way to the annual b onus, al thoug h it is an award of share s that will ves t three year s aer gr ant. The na l L TIP award s veste d in 2017 and, th erefore, do not imp act t he Share Awards perc entage for 20 18 onwards . Said Darwaz ah — Executive Chairman Sig gi O laf ss on — Chi ef E xec utiv e O cer Ye a r To t a l Bonus as % max 1 Share awards as % max 2 To t a l Bonus as % max 1 Share awards as % max 2 2021 $4,5 86, 119 62% 67 % $5,307 ,358 65% 70% 2020 $ 4 , 0 5 9, 6 5 3 73% 7 7% $3,718,549 80% 83% 2019 $4,4 48, 934 74% 78% $ 4 ,12 1 ,7 2 4 78% 82% 2018 $ 4,5 01, 217 88% 90% $5,260 , 957 89% 9 1% 2017 $3,538,6 46 0% 0% N/A N /A N /A 2016 $6 ,308,2 38 7 1% 6 8% N/A N/A N/A 2015 $ 7, 3 1 6 , 0 4 2 98% 98% N /A N /A N /A 2014 $5, 056,255 100% 70% N /A N /A N /A 2013 $ 3 ,9 5 6 , 8 3 6 100 % 62% N/A N/A N/A 2012 $3,296, 000 8 0% 50% N/A N /A N /A 1. The ‘ Bo nus a s % max ’ col umn co mpr ise s ca sh und er Ele men t A of the EI P pai d imme diate ly an d share s und er El eme nt C of the E IP that a re rel eas ed th ree ye ars a er g rant 2. Th e ‘Sh are awa rds as % m ax ’ colu mn inc lude s Ele ment B o f the EI P , s hare s that ve st i n tw o year s fro m the da te of gr ant pro vid ed tha t the E xec uti ve rema ins in em ploy men t and fo rf eit ure event s have n ot occ urr ed Non-Exec utiv e Directors ( audit ed) During t he year , the E xecuti ve Direc tors reviewe d the fe es pai d to Non-E xecut ive Direc tors . The con clusion of th e review was t hat the bas e fee should b e increa sed by 3 .4% to £90,5 00 (202 1: £87 ,50 0) and the othe r fees s hould remain un changed (Commi tte e memb ership fe e of £10,00 0 and Co mmit tee Chair and ad ditional re spo nsibilit y fee s of £1 0,000 (Audit Chair £ 20,00 0) ). The base fe e was la st incre ased in 20 20 and othe r elem ents were las t increa sed in 20 19 . Th e table b elow d etails the fe es p aid to Non-E xecut ive Direc tors dur ing the year und er review and th e prio r year . Cer t ain Direc tors join ed, retire d or change d roles dur ing the p erio ds and their fe es have be en pro -rated for t ime ser ve d in the relevantp ositio n: Fee ( all elements ) £000 T a xable benets 1 £000 To t a l £000 Name Board posi tion 2021 2020 2021 2020 202 1 2020 Rober t Pick er ing 2 Independent Director – 10 3.8 – 0.0 – 10 3.8 Pat Butler 2 Senior Independent Director 1 0 7. 5 116.7 0.0 0.0 1 0 7. 5 116.7 Dr Pam ela Kirby Remuneration Committee Chai r 1 0 7. 5 1 0 7. 5 0.0 0.0 1 0 7. 5 1 0 7. 5 Ali Al-H usr y N on-E xecuti ve Direc tor 8 7. 5 8 7. 5 0. 5 1.6 8 8 .0 8 9. 1 Dr Jo chen G ann N on-E xecuti ve Direc tor – 4 3.8 – 8.8 – 52.5 John C astella ni CRE Co mmit tee Chair 1 0 7. 5 1 0 7. 5 6.5 9. 7 114 .0 1 1 7. 2 Nina Henderson Independent Director and Employe e Eng agem ent Lea d 1 0 7. 5 1 0 7. 5 6.3 9. 5 113.8 117 .0 Cynthia Flower s Independent Director 9 7. 5 9 7. 5 4 .1 6.1 101 .6 103 .6 Douglas Hurt Au dit Commit te e Chair 1 1 7. 5 6 6.7 0.0 0.0 1 1 7. 5 6 6.7 1. ‘Taxab le be ne ts’ in clu des c er ta in acc omm oda tion e xpe nse s for N on- Exe cu tive D irec tor s that a re who lly re late d to the ir at tend anc e at Boa rd me etin gs and a re in ac cord anc e with nor mal Hi kma ex pen se p olic y. The se exp en se s are tre ated a s ta xabl e ben e ts by th e UK au tho rit ies a nd, wh ere ap pro pria te, the a bove gure i nclu de s the co rre sp ondi ng ta x cont rib utio n 2. Pro -ra ted fe es i n resp ec t of t ime se r ved a nd po siti on ch ange s. R obe r t Picker ing s er ved a s Sen ior In dep en dent D irec tor u ntil 1 D ec emb er 20 20 and re tire d fro m the B oard o n 18 D ece mbe r 202 0. Pat B utl er se rv ed as Au dit C ommi t tee ch air unti l 1 De cem ber 2 020, w hen h e bec am e the S enio r Ind epe nde nt Dir ec tor. Doug las H ur t join ed t he Bo ard on 1 M ay 202 0 and b ec ame Chai r of the Au dit C ommi t tee on 1 D ec emb er 20 20 110 Hi kma P har mac eut ica ls PLC Annual Report 202 1 Annual repor t on remuneration conti nued Payments to past D irec tors ( audited) There we re no payment s to past D irec tors during t he nancial year. Payments for los s of oce (audited) There we re no payment s for los s of o ce during the n ancial year . T erms of appointment an d ser vice Service contracts The det ails of the s er vice c ontrac ts of t he Exe cutive Dire ctor s of Hikma in force at th e end of the ye ar under revi ew, which have not changed during the ye ar and are available fo r inspe ctio n at Hikma’s registere d oce at 1 N ew Burling ton Pla ce, Londo n W1S 2HR , were: Exe cu tive D irec tor Company notice period C ontr ac t date Unex pire d ter m of cont ra ct Potenti al termina tion payment Said Dar w azah 12 m onths 1 July 2 007 Rolling contract 12 mo nths’ salar y and b ene ts Sig gi Olaf s son 12 m onths 20 Febr uar y 2018 Rolling con tract 12 m onths’ sal ar y and ben ets Mazen Dar wazah 12 mo nths 25 May 200 6 Rolling con tract 12 m onths’ sala r y and ben ets The E xecuti ve Direc tors are not ap pointed fo r a spec ied ter m and, there fore, do not have an out stan ding term that req uires disc losure. Letters of appointment The N on-E xecutive D irec tors have let ters of app ointment wi th Hikma, not s er vice c ontrac ts , which are available fo r inspe cti on at Hikma’s regis tered o ce at 1 New Bur ling ton Place, Lond on W1S 2H R. App ointment s are made for a p erio d of 36 m onths and the n reviewed . Non-Executive Director Da te of appointment No tice p ayme nt Ali Al-H usr y 14 Oc tober 20 05 1 mont h Pat Butler 1 Apr il 2014 1 mont h Dr Pam ela Kirby 1 De cembe r 2014 1 mont h John C astella ni 1 March 2016 1 mo nth Nina Henderson 1 Oc tober 20 16 1 month Cynthia Flower s 1 June 2019 1 mo nth Douglas Hurt 1 May 2020 1 mont h Hikma comp lies wi th the UK C orp orate G overnance C ode re quirement that all D irec tors be subj ec t to annual elec tion by sh arehold ers. Ex ternal appoin tments Hikma rec ognise s that E xecuti ve Direc tors may be invite d to take up non-execu tive direc torships o r public s ec tor and not -for -pro t appo intments , and that the se c an broade n the exp erien ce, net work an d knowle dge of the D irec tor , f rom which Hikma c an be net . Exe cutiveDire ctor s may accept ex ternal ap pointme nts as long a s they do not le ad to a conic t of interes t and are allowe d to retain any fee s. During t he year unde r review, Said Dar waz ah and Mazen Dar w azah rec eived fe es of $ 4,100 (2020: $ 4,100), and $20,700 (2020:$19 , 250), resp ec tively, relating to external app ointment s which are det ailed in the ir Direc tor prol es on pa ge 70. The proc es s for controlling ex ternal commitm ents is de scr ibed in t he governanc e statem ent on page 76. Closing statement We have continued to devel op our appro ach to remune ration re por ting thi s year and the C ommit tee ho pes t hat this has aide d your under stan ding of our Remun eratio n Policy an d pra ctic es. Pl ease d o not he sitate to conta ct me if yo u have any questio ns or obs er vatio ns. For and o n behalf of th e Remuner ation C ommit tee Dr Pa mel a Kirby Chair of the Re munerat ion Commi tte e 23 Feb ruar y 20 22 Hik ma Ph arm ace utic al s PLC Annual Report 2021 111 GOVERNANCE Direc tors’ repo r t Repor t of the Directors to shareholders and stakeholders The D irector s submit th eir repor t to gether wit h the audite d nancial st atements for th e year ende d 31 D ece mber 20 21. Thi s repor t fo rms the manage ment repo r t for the pur pos es of th e Disc losure and T r ansparen cy Rule s. Re ader s are asked to cros s refer to the other se ction s of the Annual R epor t to th e extent ne ces s ar y to meet Hikma’s repor t ing obligatio ns as follow s ( st atements that are n ot applic able have been excluded): – Likely f uture develo pments o f Hikma: Strategic rep or t and th e Busine s s and nancial revi ew, pages 1 to 35 – Long-t erm incentiv e schemes: Directors’ rem uneration report, page107 – R elated par t y tr ansa ctio ns: Note 3 8 to the Group n ancial st atements, p age 175 – G oing co ncern s tateme nt: Risk manage ment repo r t, page 6 2 – Lo ng-term viabilit y st atement: Risk m anagement rep or t, p age 6 3 – N ames an d biogr aphic al details of t he Dire ctors: c orp orate governanc e repor t , page s 70 and 71 – Independenc e of Non -Executive Directors: corporate go vernance repo r t, page 75 – D irec tors’ share intere sts: D irec tors’ remune ration re por t, p ages 8 9 and 11 0 – G reenh ouse g as emis sions: Sus tainabilit y rep or t, p ages 4 4 to 52 – F inancial ins trument s and risk : Note 29 to the G roup nancia l st atements, p ages 161 to 167 – Sta k eho lder and S .172 Statement, p ages 12 to 17 – corp orate governa nce statemen t includi ng the a pplicable governanc e code: pa ges 74 and 7 6 – inter nal control and r isk managem ent syste ms for the nan cial repo r ting proc es s: page s 85 and 8 6 – c ompo sition and o per ation of the a dministr ative, managem ent andsupe r visor y b odie s and co mmit tees: p ages 70 to 73 – di versit y po licy an d its app licatio n: pages 69 and 8 1 For the p urpo ses o f Listing Rule 9.8.4 , shareho lders are dire cte d inacco rdance wit h the following t able to note s in the Gro up nancialStatements: Item Reference Interes t capi talise d and as so ciated ta x relief Page 11 2 Publicatio n of unaudited nancial informa tion None Det ails of long-term ince ntive schem es See N ote 37 on pa ges 172 to 174 Waiver of emol uments by Dire ctor s None Allotme nt of secur itie s for ca sh, including bymajor subsi diarie s None Controlling e ntities/parent und er takings ofHikma None Contr act s of signi canc e with a material interest o f a Direc tor or contro lling shareholders None Ser vi ces prov ided to Hikma by c ontrolling shareholders None Arr angement s by which shareh older s have agree d to waive cur rent or fut ure dividen ds See N ote 31 on p ages 167 and 16 8 Controll ing sha reholder agreements and asso ciat ed obligation s Hikma do es not have any controlling shareho lders w ithin the me aning of the Listing R ules Principal a ctiv it y The pr incipal ac tivi ties of H ikma are the devel opment , manufa cture andmarketing of a bro ad range of g eneri c, bra nded an d in-licens ed pharmaceutical pr oducts . Hi kma’s pharmaceutical operati ons are condu cted t hrough thre e busine ss s egme nts: Injec tab les , Gen eric s, and Br ande d. The majo rit y of Hikma’s ope ration s are in the MENA region, t he US and Europe. H ikma doe s not have overse as br anche s within the m eaning of the C ompanie s Act 2 006 (the Ac t) . Hikma’s net sal es, g ros s prot and s egme ntal resul ts are show n by busine ss s egme nt in Note 5 to the Group n ancial st atements onpage s 140 an d 141. Results Hikma’s repor te d prot fo r the year in 20 21 was $ 420 millio n (2020:$4 31million) . Dividend The B oard is rec ommen ding a nal divide nd of 36 ce nts per s hare ( approximately 26 p ence p er share) ( 2020: 3 4 ce nts per s hare ) bringing t he total divid end for th e full year to 5 4 cents p er share ( approximately 4 0 pe nce pe r share) ( 2020: 50 c ents pe r share, approximately 3 6 pen ce per sh are ) . The p ropo sed div idend w ill be paid on 28 A pril 202 2 to eligibl e sharehol ders o n the regis ter at the clos e of busine ss o n 28 March 202 2, subje ct to ap proval at the AnnualG ener al Me eting on 25 April 20 22 . Creditor payme nt policy Hikma’s polic y , which is als o applie d by all subsidiari es and will continue in re spe ct of th e 202 2 nancial year, is to settl e terms ofpayment wi th all supplier s when ag reeing th e terms of ea ch tran sac tion and to en sure that we abide by th ose ter ms of payment.T ra de creditor s ofHikma at 3 1 Dec embe r 2021 we re equiv alent to 7 6days’ purchas es (2020: 9 1 days ), base d on Group tra de payable s multipli ed by 36 5, divid ed by trailing 1 2 months Groupc ost of go ods s old. Don ations During t he year Hikma ma de charit able do nations of app roximately $4 .0 million (2020: $ 6.8 milli on ): T yp e of donation Amount don ated in 2020 ($ ) Amou nt donated in 20 21 ($) Loc al charities s er ving communitie s in which Hikma o per ates 2 ,73 1, 24 8 76 3 ,1 5 5 Medi cal (donations in kin d) 4 ,06 8, 23 2 3,188,896 Politic al donati ons and exp enditure nil nil To t a l 6 , 7 9 9, 4 8 0 3 ,9 5 2 , 0 5 1 Hikma’s polic y prohibi ts the p ayment of poli tical d onations an d expen diture within t he meaning of t he Act . 112 H ik ma Pha rma ceu tic als PL C Annual Repor t 2021 Direc tors’ repor t conti nued Research and de velopment Hikma’s investme nt in rese arch and develo pment (R&D) during 202 1repres ented 5.6% of Group reven ue (2020: 5. 9%) . Fur ther detailso n Hikma’s R&D ac tiviti es c an be foun d on page s 8, 10, 18, 19, 21, 23 a nd 32. Interes t The intere st c apitalis ed during t he year unde r review was $nil (2020:$nil) . The t ax impac t related to th e capit alise d interest w as $nil (2020: $nil). Signic ant contra ct s Due to th e nature of Hikma’s busine ss , memb ers of Hikm a are par t y toagree ments that co uld alter or b e terminated up on a change ofcontrol of H ikma following a t akeover . H owever , none of th es e agree ments is in dividually d eeme d to be signi cant in ter ms of its potential impa ct on t he busine ss o f Hikma taken as a who le. The Direc tors are n ot aware of any agreem ents b etwe en Hikma an d its Direc tors o r employee s that provid e for comp ensat ion for los s of oce o r employm ent that occur s be caus e of a takeover bid. There are n o per sons , with who m Hikma has contr ac tual or othe r arr angement s, who are de eme d to be es se ntial to the busine s s ofHikma. Directors It is the B oard’s po licy that all D irec tors sho uld retire and, sho uld the Direc tor wish to co ntinue in oce, s eek e lec tion or re -ele cti on on an annual basi s. Acco rdingly , SaidDar w azah, Sig gi O lafs son, Mazen Dar waz ah, Patric k Butle r , AliA l-Husr y, John Cas tellani, Nina Hend ers on, Cynthia Flower s and Do uglas Hur t w ill seek re -ele ct ion atthe AGM. Indemnities and insur ance Hikma maintains an a ppropr iate level of Direc tors’ an d Oc ers’ insuran ce. The D irec tors be net f rom qualif ying third-p ar ty indemni ties ma de by Hikma that were in forc e during the ye ar and as at the date of this rep or t. Th es e indemniti es are unc appe d in amount in relation to lo ss es and liab ilities w hich Direc tors may inc ur to third par tie s in the co urse of th e per for mance of th eir dutie s. Auditors Each p ers on who wa s a Direc tor of Hikma at the d ate when this rep or t was app roved conr ms that: – s o far as t he Direc tor is aware, th ere is no rel evant audit inform ation of which Hikma’s audi tors are unaware – t he Direc tor has t aken all the steps th at he or she ou ght to have taken as a Dire ctor to make himself o r hers elf aware of any relev ant audit infor mation and to e stab lish that Hikma’s auditor s are aware ofthat informatio n This con rmation is g iven and sho uld be interp reted in acc ordance with the p rovisions of s ec tion 418 of th e Comp anies Ac t 200 6. Employ ee engagement Nina Henderson undertook the emplo yee engagement activities, asde scrib ed on p age 67 . Hikma co ntinued to op erate it s existing employe e engagem ent mecha nisms which inc lude intra- Gro up communic ations , so cial net working , an op en doo r polic y for legit imate union repre sentati ves and th e oper ation of share in centive arr angement s. Hikma do es n ot discriminate agains t a potential employe e on ground s of disabilit y an d will make reasonabl e adjustments t o employ a nd develop d isabled people. Stak eholder engagemen t Further informa tion on the Boar d’s engagemen t with stak eholders isdetail ed on pa ges 12 to 17 . Equit y Capital structure Det ails of the is sued s hare capi tal, togeth er with movem ents in the iss ued share c apit al during the ye ar , c an be fo und in Note 31 to th e Group na ncial st atements on p ages 167 and 16 8. Hikma h as one clas s of Ordinar y Share s of 10 pe nce eac h ( Share s ) which c arrie s no right to xed in come. Ea ch share c arrie s the rig ht to one vote at gener al me etings of Hikma. As at 3 1 De cembe r 2021: Ty p e Nominal value In issue Issue d during the ye ar Shares 1 0 pence 244,331,2 88 999 ,108 During 20 21, Hikm a issu ed Ordinar y Share s so lely pur suant to the exercise of opti ons unde r the 200 5 Long T er m Incenti ve Plan, 2009 Management Inc entive Plan, 2018 Management Inc entive Plan, and 2014 E xecutive In centive Plan. There are n o spe cic re stric tion s on the size of a hol ding or on the tran sfer of share s, which a re both govern ed by the gen eral p rovision Hikma’s Ar ticle s of As so ciation (the Ar ti cles) and prevailing le gislation. The D irector s are not aware of any agre ement s bet wee n holde rs of Hikma’s shares t hat may hav e re sulted in res tric tion s on the tr ansfer of se curitie s or on voting r ights. N o per son has any sp ecial r ights with regard to the c ontrol of Hikma’s share c apita l and all iss ued share s are fully pai d. During 20 20, the Com pany purchase d 12, 83 3 ,2 33 Sha res from Bo ehringer Ing elheim (the ‘ T reasur y Share s’). The T re asur y Shares are held in tre asur y and, ac cordingly, do not receive div idends a nd do not exercise voting right s. Hik ma Ph arm ace utic al s PLC Annual Report 2021 113 GOVERNANCE Share buyba ck At the Annual G ener al Me eting (AGM) on 23 April 2 021, share holde rs gave the Dire ctor s author it y to purchase sh ares fro m the market up to an amount e qual to 10% of Hikma’s is sued sh are capit al at that time. This auth orit y expire s at the ear lier of 3 0 June 202 2 or the 20 22 AGM , which is s chedul ed for 25 Apr il 202 2. Share issuance At the AGM on 23 Ap ril 202 1, the Dire ctor s were auth orise d to iss ue relevant s ecuri ties up to an ag greg ate nominal amount of £ 8,111, 072 and to be em powere d to allot equit y s ecuri ties for c ash o n a non-pre -empti ve basis up to an ag gregate no minal amount of £1, 216 ,66 0 at any time up to the earlie r of the date of the 20 22 AGM or 30 Jun e 202 2. The D irecto rs prop ose to ren ew thes e autho ritie s at the 202 2 AGM for afur th er year . In the year ah ead, othe r than in resp ec t of Hikma’s obligati ons to satis f y rights g ranted to emp loyee s under it s vario us share-b ase d incentive arr angem ents, an d in relation to the merger re ser ve re duc tion that is subje ct to sha rehold er approval at the AGM, th e Direc tors have no pre sent intention o f issuing any additional share c apital of Hikma. Det ails of the emp loyee share sc heme s are set ou t in Note 37 to the Group na ncial st atements on p ages 1 72 to 17 4. Any Share s held by the Hikma Phar maceu tical s Employee B enet T rus t (EBT) and are detail ed in Note 31 to th e Group nan cial st atements on p age 168 . TheEBT has w aived it s right to vote on any shares it h olds and als o toits enti tlement to a divi dend. O ther t han the share s held by the EBTthe T rea sur y Shares , no other share holde r has waive d the rig ht toa dividen d. Annual General Meeting The AGM of Hikm a will be hel d at Hikma O ces , 5th oo r , 1 N ew Burling ton Pla ce, London W 1S 2HR on M onday , 25 April 20 22, s tar ting at1.00 p.m. and ar rangem ents are in pla ce for vir tual at ten dance. TheN otice convening the m eeting is g iven in a sep arate doc ument accompan ying th is document, a nd includes a commentary on the busine ss o f the AGM, expl ains how shareho lder s can t ake part e ither in per son or v ir tually , and note s to help shareho lder s exercise their right s at the meet ing. Hikma provid es for th e vote on each re solut ion to be by p oll rathe r than by show of han ds. This p rovide s for greater tr anspare ncy an d allows the vote s of all shareho lders to b e counted, in cluding thos e cas t by proxy. The level of proxie s lod ged for ea ch res olutio n is proje cted o nto a screen a s each re solut ion is put to th e meeting . A‘vote withhe ld’ expl anation is inclu ded in th e Notice. The p owers of th e Direc tors are d etermined by t he Ar ticle s, th e UK Cod e and other re levant UK le gislation. T he Ar ticl es give th e Direc tors the po wer to appo int and remove Dire ctors . The p ower to is sue and allot share s containe d in the Ar ti cles is sub jec t to sharehol der approv al at each AGM . The Ar tic les , which are available o n the webs ite, may only b e amende d by spe cial res olutio n of the shareh older s. Substantial shareholding s As at the d ate of this docum ent, Hikma ha d bee n notie d pursuant to se ction s 89A to 89L of the Financial S er vice s and Mar kets Act 20 00 and Rule 5 of th e Discl osure and T ransp arenc y Rules of t he UKL A of the follo wing interest s in the voting rig hts at taching to th e share capit al of Hikma: Name of shareholder Number of shares Percentage held 1 Darhold Li mited 2 60 ,000 ,000 25 .9 2 % Capit al Group International 11,3 85,712 4 .9 2 % Welling ton Managem ent Group LLP 11,556,88 2 4 .9 9 % Black Rock G roup 11,5 73 ,8 3 6 5.00% 1. The p erc enta ges d eta ile d relat e to voting r ight s in th e Com pany. The refo re, th e T r eas ur y Shar es an d shar es he ld by th e EBT have b ee n exclud ed f rom th e den omin ator fo r this calculation 2. Sai d Dar w azah , Maze n Dar wa zah an d Ali A l-Hu sr y, each b eing a D irec tor a nd shar eho lde r of Hikm a, are s hare hol der s and N on-E xe cuti ve Dir ec tor s of Dar hol d Limi ted. Se e pag e 107 for d eta ils of th eir int ere sts i n Dar hol d Limit ed Since the ye ar end, Bla ckrock G roup noti ed the C ompany that theirho lding had incre ase d to 11,84 4,03 9 repre senting 5.10% of thevoting capit al. Pre-emptive issue of shares During t he year unde r review, and in the per iod sinc e the date of Hikma’s Initial Publi c Oer ing on 1 Novemb er 200 5, Hikma did not iss ue any shares pur suant to an author it y given by share holde rs at an AGM to issu e shares for c ash o n a non-pre- emptive b asis, othe r than in resp ec t of the pla cing under t aken on 17 Januar y 200 8. Post balance she et events On 17 Janu ar y 2022 , Hikma announ ced that i t has agre ed to acquire the C anadian as set s of T elige nt Inc. ( T eligent). The acquisi tion marks Hikma’s expansio n into Canada an d include s a por t foli o of 25 sterile injec tabl e produ cts , three in-lic ence d ophthalmic pro duc ts and a pipelin e of seven addi tional pro duc ts, fo ur of which are app roved by Health C anada. The tr ansa ctio n was co mpleted on 2 F ebru ar y 2022 a nd Hikma paidc ash con sider ation of $ 46 millio n. Due to th e proximit y of thecom pletion of t he tran sac tions to th e date of issuan ce of the cons olidated nan cial st atements , the initial valu ation for the busine ss c ombination an d net as set s acquired i s in progre ss . It is expe cte d that mos t of the cons ider ation paid is at tr ibutab le to produ ct relate d intangible a ss ets and aro und $2 million for workingc apital. On 23 F ebruar y 2 022 , the Bo ard author ise d manageme nt to under t ake a share buyba ck with a valu e of up to $3 00 million. Fur therdet ails are available in th e announce ment of the preliminar yre sults whi ch was to be ma de on 24 Feb ruar y 202 2. 114 H ik ma Pha rma ceu tic als PL C Annual Repor t 2021 Direc tors’ Responsibil ities Statement Direc tors’ responsibilities statement The D irector s are resp onsibl e for prep aring the Annu al Repo r t andthe nancia l statemen ts in accorda nce with appl icable law andregul ation. Comp any law requires th e Direc tors to prep are nancial s tatement s for eac h nancial year. Under that law the Dire ctor s have prepare d the Group na ncial st atements in ac cordanc e with UK -adopted international accounting st andards and the C ompany nancial st atements in ac cordance w ith United K ingdom G ener ally Acce pted Accounting Pr ac tice (Unite d Kingdom Ac counting Standard s, compr ising FRS 101 “ Re duced D isclo sure Framewo rk ” , and appli cabl e law) . In p reparing th e Group nan cial st atements , the Dire ctors h ave also ele cted to comp ly with International Financial Rep or ting Standards is sue d by the Internatio nal Accounting St andards B oard (IFRSs as is sue d by IASB) . Under c ompany law, Direc tors must n ot approve the nan cial st atements unle ss t hey are satis ed t hat they give a tru e and fair v iew of the s tate of aair s of the Gro up and Com pany and of the pro t or los s of the G roup for that p erio d. In prepar ing the nanc ial st atements, t he Direc tors are re quired to: – select suitable accountin g policies and th en apply them consistent ly – s tate whether appl icable UK -adopt ed int ernationa l accounti ng st andards and IFR Ss is sued by IA SB have bee n followed fo r the group nan cial statem ents and Uni ted Kingdo m Accounting Standards , compr ising FRS 101 have be en followe d for the C ompany nancial s tatement s, subje ct to any material de par ture s disclo sed and explain ed in the nan cial st atements – ma k e judge ments and a ccounting e stimate s that are reas onable and prudent; and – p repare the nancial st atements o n the going co ncern b asis unle ss it is inappro priate to pre sume that the G roup and Co mpany will continue in busine ss The D irector s are resp onsibl e for safeg uarding the as set s of the Group an d Compa ny and hence for t aking rea sonabl e steps for t he prevention an d detec tion of fr aud and oth er irregul aritie s. The D irector s are also re spo nsible for keep ing adequ ate accounting reco rds that are suci ent to show and explain t he Group ’s and Comp any’s tran sac tions an d disclo se with re asona ble acc urac y at any time the nancial posit ion of the Group and C ompany and enable them to ens ure that the nancial s tateme nts and the D irec tors’ Remune ration R epor t c omply wit h the Comp anies Ac t 20 06. The D irector s are resp onsibl e for the maintenanc e and integrit y of th e Comp any’s websi te. Legislation in th e United King dom governing th e prepar ation an d diss emination of nan cial st atements may dier f rom legislati on in other jurisdictions. Direc tors’ conrm ations The D irector s consi der that the A nnual Rep or t and Acco unts, t aken as a whol e, is fair , balan ced and un ders tand able and prov ides th e informatio n nece s sar y for share holde rs to as ses s the G roup’s and Comp any’s po sition and p er form ance, busin es s mod el and str ateg y . Each of t he Direc tors , whos e names an d func tions lis t in the Dire ctor s’ repo r t conrm th at, to the be st of th eir knowle dge: – t he Group na ncial st atements , which have bee n prepare d in accordance with UK -adopt ed int ernation al account ing standar ds and IFRS s issu ed by IAS B, give a tr ue and f air view of the as set s, liabilitie s, nanc ial posi tion and pro t of the G roup; – t he Comp any nancial st atements , which have bee n prepare d in acco rdance wit h United Kingd om Accounting St andards, compr ising FRS 101, gi ve a true and f air view of t he as sets , liabilitie s, and nancial po sition of the Comp any; and – t he Annual Rep or t and na ncial st atements inc ludes a f air review of the dev elopment a nd per formance of the busi nes s and the position of the G roup and Co mpany , toge ther with a d esc ription of th e princip al risks an d uncer t ainties that it f ace s Elec tronic communic ations Hikma’s preferen ce is to communic ate through Hik ma’s website, rathe rthan in pap er form. Share holde rs are enc ourag ed to visit th e website to acce ss Hikma’s Annual Rep or ts and half-y ear and nal result s pre sentatio ns. Shareh older s who wish to re ceive pap er communic ations c an ele ct to do s o through H ikma’s registr ars , LinkAs set S er vice s ( ww w.hikmashares .com ). On b ehalf of the B oard Said Darwazah Exe cutive Chairm an 23 Feb ruar y 20 22 Sigurdur Olafsso n Chief E xecutive O ce r 23 Feb ruar y 20 22 FINANCIAL ST A TEMENTS Hikm a Pharmaceuti cals PLC Annu al Rep or t 20 21 115 Financ ial statements W e deliv er a ccu rate, high-q ualit y an d ti mely inf ormat ion toalls tak eholders with the utmos t integrit y an d e cienc y . In this section 116 Independent auditors’ repor t 12 4 Consolida ted nanci al statements 12 9 Notes to the Cons olidat ed nancial st atements 18 0 Company nancial s tatements 18 2 N otes to the Company nancia l st atements 116 Hi kma P har mac eut ica ls PLC Annual Report 2021 Independent a udit ors’ repor t to the members of Hikma Pharmaceuticals PL C Report on the audit of the nancial statements Opinio n In our opinio n: – H ikma Pharmac eutic als PLC’s Group nancial st atements an d Company nancial st atements (the “nancial st atements”) give a true an d fair vie w of the st ate of the Group ’s and of the Comp any’s aair s as at 31 D ece mber 20 21 and of t he Group’s pro t and the Group ’s cash ows f or the year th en ende d; – t he Group na ncial st atements have be en prop erly p repare d in accordance with UK -adopt ed int ernation al account ing standar ds; – t he Comp any nancial st atements have be en prop erly p repare d in accordance with Unit ed Kingdom Gener ally Accepted A ccountin g Prac tice (Uni ted Kingdo m Accounting Stan dards, co mprising FRS 101 “ Redu ced D isclo sure Framewor k”, and applic able law); and – t he nancial s tatement s have been p repare d in accordan ce with the req uirements of t he Comp anies Ac t 200 6. We have audited the nan cial st atements , include d within the A nnual Rep or t, which c ompris e: the cons olidated an d Comp any balance shee ts as at 31 D ec ember 20 21; the co nsolid ated incom e statem ent and the co nsolidated statement o f comprehensi ve income , the consolidat ed cash ow state ment, and the consolidat ed and Comp any statement s of change s in equit y for th e year then e nded; and the n otes to the nancia l stateme nts, whi ch include a d escr iption of the s ignicant accou nting policies. Our opini on is consi stent with o ur repor ting to th e Audit Com mit tee. Separa te opinion in relation to IFRS s as issued bytheIASB As exp lained in note 2 to the n ancial st atements , the Gro up, in additi on to applying U K -adopte d international a ccounting s tandard s, has also applie d international nancial repor t ing standards (IFRSs) asis sued by th e International Ac counting Standa rds Board (IA SB) . In our opinio n, the Gro up nancial s tatement s have been p roper ly prepare d in acco rdance wi th IFRSs as i ssu ed by the IA SB. Basis for opinion We conduc ted o ur audit in acc ordance wi th International St andards on Auditing (UK ) (“ISA s (UK)” ) and applic able law. Our re spon sibilitie s under ISA s (UK) are f ur ther d escr ibe d in the Auditors’ re spo nsibilitie s for the au dit of the nanc ial statem ents se cti on of our rep or t. We believe that t he audit evid ence we have obtain ed is su cient and approp riate to provide a ba sis for our op inion. Independence We remained in depe ndent of the G roup in acc ordance w ith the ethic al requireme nts that are relev ant to our audit of the n ancial st atements in the U K, which in clude s the FRC ’s Ethical Stan dard, as applic able to lis ted publi c interest enti ties , and we have fullle d our other ethic al re sponsib ilities in a ccordan ce with th ese re quirement s. T o th e bes t of our kno wledge a nd belief, we dec lare that non-audit ser vi ces p rohibited by th e FRC ’s Ethical Standard we re not provide d. Oth er than tho se disc lose d in Note 7 , we have provid ed no no n-audit ser vi ces to the C ompany or it s controll ed unde r takings in th e peri od under au dit. Our a udit appro ach Ove r v iew Audit sc ope – O ur audit incl uded f ull scop e audit s of four comp onent s, sp ecie d proc edure s on spe cic nan cial statem ent line items of on e additi onal comp onent, c entral au dit proc edure s on spe cic nancial s tatement line i tems of t wo comp onents an d audit proc edure s per for med ce ntrally over sp eci c material balan ces at loc ations aro und the G roup. Full scop e comp onents a ccount for 72% of c onso lidated revenue, 73 % of the adju sted pro t mea sure we use as a b asis for de termining materialit y and 7 9% of consol ida ted t otal assets. – T his year we have also sp eci cally s et out our c onside ration of t he impac t of climate change on th e audit which is f ur ther exp lained bel ow. As explained in t he Sust ainabilit y Rep or t, th e Group is cl early mindful of i ts impa ct on th e environment and is fo cus se d on ways to reduc e climate related impac ts . In planning and exe cuting our au dit we have conside red the G roup’s risk as se s sment pro ces s and this , together w ith discu ssio ns with our o wn sust ainabilit y spe cialist s, provide d us with a go od und ers tanding of th e potential impa ct of climate change on the nancial st atements . Bas ed on this , we under stan d that the key impac t to the Group c ould be a p otential increas e in input co sts f or energ y intensive sup plies like APIs and packa ging materials due to c arb on pric ing. This would m ost likely impac t the nanc ial statem ent line items and e stimate s as sociate d with f uture ca sh ows sinc e the impa ct of climate change is expe cte d to beco me more not able in th e medium to long te rm. Thekey areas impa cted in clude valu ation of goo dwill and intangibl eass ets and re cover abilit y of the Gro up’s deferre d tax as sets . We note that manageme nt’s as se ss ment is that the imp act on Hikma is immater ial, never thel es s, while au diting the e stimate s as sociate d with the fo rec ast s, we have challenge d manageme nt onree cting t he impac t of climate change and any climate change related co mmitment s in the ca sh ows . We have not identied anymatter s as par t of thi s work which c ontradi ct the di sclos ures inthe Annual R epor t o r lead to any material ad justme nts to the nancial st atements. Key audit matter s – Valuation of go odw ill and intangibl e ass ets (Group) – Valuation an d accur acy of g ros s to net rebate and retur n adjus tments in th e US (Group ) – R eorgani sation of h olding comp anies un der Hikma Phar maceu ticals PLC ( Company) Mater iali ty – O vera ll Group materiali ty : $25 million (2020: $24 million) based onapproximately 5% of pro t befo re tax aer a djusting fo r all excep tional it ems and other adjustments ex cept for amor tisation ofintangibl e ass ets oth er than so w are. – Overa ll Company materiali ty : $21.6 millio n (2020: $21.6 millio n ) bas ed on 1% of total as set s, cap ped b ase d on overall G roup materiali ty. – Pe r formanc e materialit y: $1 8.75 million (2020: $18 millio n ) (Group) and $16. 2 million (2020: $16 .2 million) ( Co mpany) . Hik ma Ph arm ace utic al s PLC Annual Report 2021 117 FINANCIAL ST A TEMENTS The scope of our audit As p ar t of desig ning our audit , we determine d materialit y and a ss es se d the ris ks of material mis statem ent in the nancia l stateme nts. K ey audit matters Key audit matter s are thos e mat ters that, in t he auditor s’ profes sional judgem ent, were of mo st signi can ce in the audi t of the nancial st atements of th e current pe riod an d include t he mos t signic ant as ses se d risks of mater ial miss tateme nt ( wheth er or not due to fr aud) identi ed by the au ditors, in cluding tho se which ha d the greate st eec t on: the over all audit st rateg y; th e alloc ation of re source s in the audit; a nd direc ting the eo r ts of the e ngageme nt team. The se mat ters, an d any comments we m ake on the result s of our pro cedure s there on, were ad dres sed in t he context o f our audit of th e nancial st atements as a wh ole, and in for ming our opinio n there on, and we donot provi de a sep arate opinion o n thes e mat ters. This is not a c omplete lis t of all risks ide ntied by o ur audit. ‘R eorganis ation of h olding comp anies un der Hikma Phar maceut icals PLC’ is a new key audit mat ter this year. ‘T a x including co mpletene ss and valuati on of provisio ns for unce r tain ta x posit ions’ and ‘ Impa ct ofCOVID-19’, which were key audit mat ters las t year , a re no longer include d be caus e of the re duced l evel of judgem ent in resp ec t of uncer t ain tax p ositio ns following sim plic ation of Hikma’s ta x str uct ure in 2019 and fur th er clarit y o n the treatme nt of cer tain t ax mat ters; and due to th e insignic ant impac t of COVID -1 9 on bus ines s per for mance an d control environm ent, and th e audit pro ces s due to well es tabli shed w ays of remote working. O the r wise, the key audit mat ters be low are consi stent with la st year . 118 Hi kma P harm ace uti ca ls PLC Annual Report 2021 V aluation of goo dwill and intangible as sets (Group) Key audi t mat ter H ow ou r audi t add res se d the key a udit m at ter At 31 D ece mbe r 202 1, the G roup ha d goo dwill of $ 285 mil lion (31 D ec emb er 2020 : $289 mil lion) and intan gibl e ass ets o f $607 mi llion (31 D ec emb er 202 0: $5 87 millio n) compri sing pro duc t-related int angib le as set s, so ware an d other identied in tangible assets such as mark eting rights, customer rela tionships and trade marks. The se ar e conta ined w ithin fo ur ca sh gen erat ing unit s (CGUs): Gener ic s, Ge neri c Adva ir Disk us®, Bran ded an d Inje ct able s. A ll CGUs c ontain ing goo dwill and in deni te-live d inta ngibl e ass ets m ust b e tes ted fo r impair ment ann ually and ni te-lif e intang ible as s ets are te ste d whe n there i s an indic atio n of impair ment . An imp airme nt is bo oked wh en the c arr y ing valu e excee ds th e rec overa ble am ount. J udge ment is re quire d in as se ss ing whet her an impair ment t rig ger eve nt has hap pen ed an d there i s signi ca nt est imatio n unce r taint y in re spe c t of cal culatin g the re cover abl e value o f CGUs an d as set s to deter mine wh ethe r an impair ment c harge sh ould b e bo oked. Im pairm ent wasd etermi ned to b e a signi c ant risk f or the G ene ric s, G en eric A dvair D iskus ® and Branded CGUs. Addi tiona lly , the G roup m ust co nsid er whe ther t here are in dic ators o f impair ment re vers al at eac h rep or ting date . Such in dicato rs are u sually theop po site of th e indic ator s of impair ment t hat previ ousl y gave ris e to the impair ment a nd the re is judg ement invo lved in a ss es sing t he exis tenc e of the seimp airm ent rever sal in dic ators . Onc e indic ator s for imp airme nt revers al are ide ntie d, th e deter minatio n of rec overa ble v alue s requi res sig nic ant es timati on on th e par t of ma nagem ent in dete rminin g the hig her of th e valu e inuse ( VI U) and f air valu e les s co st s to disp ose (F VLCT D) for the rel evant indiv idual a ss ets o r CGUs . The se reve rs al cons ider atio ns are rel evant to th e Ge neri cs a nd Ge ner ic Adv air Dis kus® CG Us in par t icular d ue to the im pairm ent rec orde d in 2017 i n relati on to the se CG Us. Dur ing 202 1, no im pairm ent has b ee n reco rde d on a CGU le vel. Imp airme nt of$23 m illion w as rec orde d in re spe ct of p rodu ct re lated int angib les ; a fur th erimp airme nt of $1 milli on wa s reco rded i n resp ec t of oth er intan gibl e as set s. Anim pairm ent rever sal o f $60 mi llion ha s be en rec orde d on indi vidu al markete d prod uct r elated i ntang ible s, inc luding $ 4 6 millio n in res pec t of Generic Advair Diskus®. Refe r to the Audi t Comm it tee rev iew of are as of sig nic ant jud geme nt on page s8 4- 85 , signi ca nt acco unting p olic ies (note 2), critic al ac count ing judge ment s and key so urce s of es timati on unc er taint y (note 3) and go od will and oth er inta ngibl e as set s ( note 16) in the G roup n ancial s tate ment s. We as se ss ed th e deter minatio n of the CG Us ide ntie d for t he impai rment cal culati on by co nside ring th e CGUs p revio usly u sed a s well as f rom ourun ders ta nding of th e busi nes s as i t develo ps and h ow it is m onitor ed. Wecon clude t hat manag ement ’s d etermin ation of f our CGU s in 202 1 isrea sona ble. Wit h supp or t fro m our inter nal val uation s expe r ts we p er for med t he followi ngpr ocedures: – Und ers too d manag ement ’s p roce s s for fore ca stin g cas h ows; – Evalu ated th e appro pri atene ss of t he met hod olog y u sed in t he rel evant impairm ent model s; – T es ted th e comp leten es s and a ccur ac y of the mo del s as well a s the unde rly ing data u sed i n the mo del s, incl uding re con ciling th e ca sh ows tothe B oard ap prove d plan (which i nclud es th e impa ct of COVI D-19 and climate change impact consider ations) ; – Evalu ated th e signi ca nt as sumptio ns us ed by man ageme nt in deter mining fut ure c ash ow s, inc luding c ash ow grow t h or de cline, p ricin g and pro tab ilit y , timin g and pro babil it y of reg ulator y suc ce ss fo r key produ ct s; – Ou r internal v aluati ons ex per t s as se ss ed th e reas onab lene s s of the valu ation m etho dolo g y , disc ount r ates , long te rm grow th r ate and mathematical accuracy; – We als o comp ared m anagem ent for ec ast s to analy st co nse nsus c ash ows for the Generic s, Injectables and Branded businesses and the Generic Adva ir Disk us® CGU a nd chall enge d manag ement w here t here we re signicant d ierences; – Per fo rme d a retro spe ct ive comp aris on of fo rec as ted reven ues a nd cos ts toac tual p ast p er for manc e includ ing chall engin g manage ment to p rodu ce additional analysis on a cons tant currency ba sis; and – For t he G ener ic Adv air Dis kus® CG U and int angibl e as set v aluatio n, wechallenged management ’s weighting of scenarios within the valu ationm ode l bas ed on th e exp ec ted imp ac t of comp etit ion an d regu lator y up dates . Bas ed o n our wor k we dete rmine d our ow n sen sitiv itie s and ap plie d the se tomanag ement ’s m odel s for ea ch of th e four CG Us. We foun d manage ment ’s co nclus ions o n the CGU s and ind eni te-live d intan gible a ss et impa irme nt ass es sm ents to b e reas onab le, alt houg h the hea droo m on the G ene ric Ad vair D iskus ® CGU is m ore se nsiti ve to the key as sumpti ons aro und gro wt h and dis count r ate s. Addi tion al disc losur es have be en incl ude d by manag ement in a cco rdanc e with IA S 36 . We conc lude t he analy se s per fo rme d and dis clo sed i n note 16 of th e Group nanci al st atement s are re aso nable. We a lso va lidate d the ap propr iaten es s of the relate d disc losu res in no tes 2 and 3 o f the G roup na ncial s tatem ents . We also te ste d mana geme nt’s im pairm ent indi cator s as se ss ment for nite life intan gible a ss ets an d foun d this to b e reas onabl e. For impai rment reversal cons iderations, we audit ed management’s as se ssm ent of imp airm ent rever sal in dic ators b oth at the CG U leve l (Gene ric s and G en eric A dvair D iskus ®) and at the ind ividu al intan gible a ss et level t aking into a cco unt the co ndit ions in t he US gen eri cs m arket and f ac tors relati ng to Ge neri c Adva ir Disku s® and c onsul ted wi th our inte rnal te chnic al accounti ng experts on the accoun ting j udgements i nvolv ed. Where indic ator s for imp airme nt rever sal we re ident ie d, we te sted m anage ment ’s ca sh ow m ode ls for re cover abl e value in l ine wit h our te sting ove r the CG U level m ode ls and ag ree d the c ash ows to the B oar d approve d bus ines s pl an. Bas ed o n our pro ce dures , we co nclud ed it w as ap propr iate to rever se $ 60 millio n of impair ment o n spe ci c marketed p rodu ct s which s howe d disc rete and sustained recov er y in per formance. We consider managemen t ’s position on not rev ersin g impair ment of t he Ge ner ic s CGU to be r eas onabl e bas ed on key judgem ents d iscl ose d in note 3 to th e Gro up nanc ial st ateme nts. Independent auditors’ repor t to the members of Hikma Pharmaceutic als PLC conti nued Hik ma Ph arm ace utic al s PLC Annual Report 2021 119 FINANCIAL ST A TEMENTS V aluation and a ccurac y of gross to net rebate and r eturn adjustme nts in the US (Group) Key audit mat te r How o ur audit a ddre ss ed t he key audit mat te r Mana geme nt is requ ired to ma ke estim ates in re spe c t of revenu e reco gniti on and sp eci c ally, the level of re turn s and indi rec t rebate s that w ill be re alise d again st th e Grou p’s revenue . The se e sti mates are c ompl ex, mate rial to th e nan cial st ateme nts an d requir e signi c ant es timati on by Dire cto rs to e sta blish a n appro priate p rovisi on, he nce the re aso n for inc lusio n as an are a of focu s. Th e signi c ant es timate s relate to revenu e reco gnit ion thro ugh in direc t reb ates an d retur ns in the U S for whi ch the G roup re cord ed reve nue de duc tion s for th e year en ded 3 1 De cem ber 20 21 of $2 11 million (20 20: $174 million). Charge bac ks and dire ct r ebate s are no l onger c onsi dere d a signi ca nt risk du e to the lo wer leve l of es timat ion co mpare d to the ot her c ategor ies o f provis ion and to th e limite d numbe r of mis st ateme nts in pr eviou s years o n this c atego r y . The D irec tor s have deter mine d a provis ion of $19 6 million to b e ne ces s ar y at31D ec embe r 202 1 (2020: $ 154 m illion) in resp ec t of in direc t reb ates an d retur ns. R efer to th e Audit C ommit te e revie w of area s of signi c ant judge ment on pa ges 8 4 -8 5, sign ic ant acc ountin g poli cie s ( note 2), crit ica l acco unting judge ment s and key so urce s of es timati on unc er taint y (note 3), trad e and othe rrece ivab les (note 2 1) and other c urre nt liabili ties (note 2 7) in th e Grou p nancial statement s. Work ing alon gside o ur US co mpon ent team , we con side red th e Gro up’spro ces s es for m aking ju dgem ents in t his area a nd pe rf orme d thefo llowin g proc edur es: – As s es se d the reve nue re cogni tion p olic y and te ste d the o per ating eectiveness of certain applicable controls in place around t his process; – T es ted ret urns , and re bates p ayme nts and c redi t memo s throu gho ut the year by ag ree ing sel ec ted tr ans ac tion s back to t he und erly ing so urce documentation incl uding customer claims and payment in formation; – Per fo rme d anal yt ica l proc edur es over c hanne l inventor y for m ajor who les aler s for wh ich dat a was o btaine d fro m a third pa r ty s er vi ce prov ider ; – Developed an independent e xpec tation or t ested management’s process for th e large st el eme nts of th e provis ions a s at 31 D ece mbe r 202 1 using as sumpti ons an d input s bas ed o n contr ac ted pr ice s and re bate ter ms, histo ric al reb ates , disc ounts , vali dated c hannel i nventor y leve ls, and invoice s re ceive d or paym ent s made, a s appli cab le, sub seq uent to year-end to v alidate t he prov ision s. We co mpare d this ex pe ct ation to t he ac tual p rovisio n rec ognis ed by t he Gro up; and – Co nside red t he his toric al ac cur acy o f the Gr oup’s e stimate s in pre viou s year s and th e eec t of any ad just ment s to prio r year s’ provi sions i n the current year ’s result s. Bas ed o n the pro ce dure s per fo rme d, we did n ot ident if y any mater ial dierences between our independent expectations and the provisions rec orde d. We als o evaluate d the d iscl osure s in note 2, n ote 3, n ote 21 and note 27 o f the G roup na ncial s tatem ents w hich we c onsid ere d appro priate . Reorganisation of h olding companies unde r Hikma Pharmace uticals PLC (Company ) Key audit mat te r How o ur audit a ddre ss ed t he key audit mat te r In the c urrent ye ar, the holdin g comp any str uc ture un der Hik ma Phar maceu tic als PLC was s impli ed by li quidati ng tw o down stre am hol ding comp anie s and tr ans ferr ing the n et as set s up to the C omp any by way of a dividend of $2,179 m illion prima rily via a non-cash intercompan y transfer . Foll owing th is, th e Comp any wrote do wn its i nvest ment in th e interm ediate hol ding sub sidiar y by $2 ,2 22 m illion . The ne t impac t of th e res tru ctu ring on theC ompa ny was a lo ss of $ 4 3 mill ion wit h an equ ival ent de creas e in distrib utabl e reser ves . Refe r to invest ment in su bsidi arie s (note 4) and pro t for the ye ar (note 12) inthe C ompa ny nancia l sta tement s. We insp ec ted th e Boa rd minute s for th e subs idiari es b eing liq uidate d tocon rm that t he mem ber s have res olve d to liqui date the c ompan ies . We also in spe cte d the B oard m inute s for the s ubsid iar y payin g the div iden d to con rm the d ivid end wa s appr opri ately ap proved . We unde rsto od t he tr ans act ion that w as b eing und er taken an d con rme d the treatment was i n accordance with the accounting policies and accounting standards. We al so veried the journal entries for the liquida tion and the d ividend payment. We agre e with m anage ment ’s wri te- down of t he Com pany ’s invest ment in theinte rme diate hol ding co mpany fo llowing t he Co mpany ’s rec eipt of th e netas se ts of th e unde rlyi ng hol dings as a di vide nd, as t his rep res ents a v alid trigger for impai rment. In add itio n to audit ing the a ccou nting entr ies , we co nside red t he impa ct ondis trib uta ble re ser ve s wit h supp or t fro m our inter nal exp er ts to h elp us vali date the imp ac t of the re st ruc tur ing on th e dist ribu tabl e res er ves o f Com pany. We did not ident if y any is sue s in this re gard. Bas ed o n the pro ce dure s per fo rme d we did no t identi f y any materi al adjustments from the reorganisation. 120 Hi kma P har mac eut ica ls PLC Annual Report 2021 How we ta ilored the a udit scop e We tailore d the sc ope of our a udit to ensure that we p er form ed enoug h work to b e able to give an opini on on the nan cial st atements as a whol e, taking into acc ount the str uc ture of the G roup and the Company , the accou nting process es and con trols, and the industry in which they o per ate. Proce dures we re per for med p rior to year-end to evaluate comp onent auditor pro ced ures and co ntrols, and over sight disc ussi ons were undert ak en by sen ior team members with component audit ors, to rene th e audit appro ach and en sure sucie nt oversight of comp onent audito rs. A s at 31 D ecemb er 202 1, Hikma Phar maceut icals PLC had in total 57 subsidiar ies an d one joint venture as p ar t of the Group. T hes e entitie s may oper ate solel y in one seg ment but m ore commonly operate across t wo. Each territory ( component) su bmits aGroup re por ting p ackage to Hikma’s centr al acc ounting team includ ing its inco me statement and balance sheet prepar ed under Group a ccounting p olicie s which are in com pliance wit h IFRSs . We reque ste d compo nent teams in th e US (Hikma USA) , Jord an (Hikma Jordan) and Alger ia (Hikma Algeria) to audit repo r ting packa ges of cer t ain entitie s in thes e territo ries an d repor t t he result s of their f ull scop e audit wo rk to us. Thi s work wa s supplem ented by a full s cope audit of Hikm a Pharmace utic als PLC carrie d out by the G roup engage ment team. We also re que sted o ur compo nent team in Por tuga l to per form s peci ed pro ce dures over sp ecic b alance s in Hikma Por tu gal. Additi onally , proc edure s were car rie d out by the Group au dit team over spe cic b alance s in Hikma Internatio nal V entures Limite d and Hikma International Pharmaceu ticals; and, other pro ced ures were p er form ed centr ally on the c onso lidation, taxat ion and sp eci c material balan ces not c overed by comp onent auditor s. Due to tr avel res tric tions a s a result of COVID -19 , we have not been able t o per form component oversigh t visits. Nevertheles s, we have according ly increas ed th e freque ncy of c ommunic ation withour c ompon ent teams throu gh confere nce ca lls at the planning , executio n and comp letion s tage s including incre asing the involvement from s enior tea m membe rs from b oth side s. We have attended meetings with local management a longside our component auditor s, reviewe d sele cte d working p aper s for all nancially signicant and mat erial components, attended component a udit clear ance m eetings as p ar t of the interim and ye ar end audit w ork, and performed other forms of o versight as considered necess ary dep ending on the s ignic ance of th e compo nent and the ex tent ofacco unting and audit is sue s arising. Full sc ope c ompon ents acco unt for 72% of c onso lidated revenue, 79 % of cons olidated totalas set s and 73% of t he adjus ted pro t measure we us ed as abasis fo r determining materiali ty. Materia lity The s cope of o ur audit wa s inuenc ed by our app licatio n of materialit y. W e set ce r tain quantit ative thres holds fo r materialit y . The se, togethe r with qualit ative cons ider ations, h elpe d us to determine t he sco pe of our audi t and the nature, timing a nd extent of our audit p roce dures on t he individu al nancial st atement line item s and disc losure s and in evaluating the e ec t of mis statem ents, b oth individu ally and in ag gregate on th e nancial s tatement s as a whol e. Bas ed on our p rofes sional ju dgement , we determine d materialit y for th e nancial s tatement s as a whole a s follows: Fin anc ial s ta tem ent s – Gr oup Financial statements – Company Overall mater iality $25 million (2020: $24 milli on ). $21.6 million (2020: $2 1.6 millio n ). How w e dete rmine d it Approximately 5% of pro t befo re tax aer adjus ting for all exceptional i tems and othe r adjustments e xcept f or amortis ation of intangi ble as sets oth er than so w are 1% of total as sets , but c appe d at $21.6 millio n base d on overall G roup materiali ty Rationale for benchmark applied The G roup’s princ ipal mea sure of earnings is core pro t. Man agement b elieves that it ree ct s the under lying p er formanc e of the Group an d is a more me aning ful mea sure of the Group ’s per forman ce. We took the e quival ent repo r ted mea sure into account in deter mining our materialit y b ut did not ad d back cer tain non- coreitems unl es s we dee med th em to be non-re curring in nature. O ur materialit y wo uld have been hi gher if we ha d adjuste d for all non- core items. The C ompany hold s the Group ’s in ves tment s and per for ms trea sur y func tions on b ehalf of th e Group. The s treng th of the b alance sh eet is the key meas ure of nancial health that is impo r tant to shareholder s since th e primar y fo cus for the C ompany is the payment of div idends an d ser vi cing of debt. For ea ch comp onent in the s cope of o ur Group au dit, we allo cate d a materialit y that is le ss t han our overall G roup materialit y. The range of materialit y allo cated a cros s comp onents w as bet we en $5 million an d $21.6 million. C er tain c ompon ents were au dited to a lo cal s tatutor y au dit materialit y that wa s also le ss t han our overall G roup materiali ty. We use pe r formanc e materialit y to redu ce to an approp riately low level t he probab ilit y that the ag gregate of un corre cted an d undetec ted miss tateme nts excee ds overall mater ialit y . S peci call y , we u se per fo rmance mater ialit y in determining th e scop e of our audit a nd the nature and ex tent of our tes ting of acco unt balance s, clas se s of tr ansac tion s and discl osures , for example in d etermining sam ple sizes . Our per for mance mater ialit y was 75% (2020: 75% ) of overall materia lit y , am ounting to $18.75 million (20 20: $18 million) for the Group nan cial st atements and $ 16.2 millio n (2020: $16. 2 million ) for th e Company nanc ial statem ents. Independent auditors’ repor t to the members of Hikma Pharmaceutic als PLC conti nued Hik ma Ph arm ace utic al s PLC Annual Report 2021 121 FINANCIAL ST A TEMENTS In determining th e per for mance mater ialit y , we c onside red a numbe r of fa ctors–the his tor y of mis statem ents, r isk as ses sme nt and ag gregatio n risk and th e eec tivene s s of controls–and co nclude d that an amount at the up per en d of our nor mal range w as appro priate. We agree d with the Au dit Commit te e that we would rep or t to them miss tateme nts identi ed dur ing our audit ab ove $1.2 million (Gro up audit) (2020: $1. 2 million) and $1.2 million (Comp any audit) (2020: $1.075 million ) as well as mi ss tatement s below t hose am ounts that , inour view, warr anted rep or ting for qualit ative reas ons. Conclusions re lating to going concern Our evalu ation of the D irecto rs’ as ses sme nt of the Gro up’s and the Comp any’s abilit y to continue to a dopt the going c oncer n basis of accounti ng incl uded: – a greeing th e underl ying ca sh ow proje cti ons to Bo ard approved forec ast s, as se s sing how the se fore cas ts are co mpiled, an d as ses sing the a ccur acy of mana gement ’s forec as ts; – ev aluating the key assumpt ions within m anagement ’s fore cas ts; – c onside ring liquidit y and availab le nancial re sourc es; – c onside ring complia nce with c ovenants in the cur rent year and abilit y to compl y with the se at ea ch future c ovenant repor t ing date in the going co ncer n peri od; – a ss es sing whethe r the plausib le downsi de sce nario prep ared by manageme nt appro priately considered the principal ris ks facing thebusin es s; and – evalu ating the feasibilit y of management ’s mitigating actio ns in theplausible dow nside scenar io. Bas ed on th e work we have per fo rme d, we have not identie d any material unc er taintie s relating to events or c onditio ns that, individu ally or colle ct ively , may cas t signic ant doubt on t he Group ’s and the C ompany ’s abilit y to continue as a going c oncer n for a pe riod of at leas t t welve months f rom when t he nancial s tatement s are author ised fo r issue. In auditing th e nancial s tatement s, we have conclu ded that th e Direc tors’ us e of the going c oncer n basis of a ccounting in th e prepar ation of th e nancial s tatement s is approp riate. However, becau se not all fu ture events or c onditio ns can b e predi cted, t his conclus ion is not a guar antee as to th e Group’s andtheC ompany ’s abilit y to continue as a going c oncer n. In relation to th e Direc tors’ rep or ting on h ow they have applie d the UKCo rpor ate Gover nance Co de, we have nothing material to ad d ordraw at tention to in rel ation to the Dire ctor s’ statem ent in the nancial s tatement s abou t whether t he Direc tors c onside red it appropria te t o adopt the going concern basis of accou nting . Our re spon sibilitie s and the re spons ibilitie s of the Dire ctor s with resp ec t to going conc ern are de scr ibed in th e relevant se ct ions of thisrep or t. Repor ting on othe r information The othe r information c ompris es all of th e informatio n in the Annual Rep or t other than t he nancial s tatement s and our audi tors’ repo r t there on. The D irec tors are re spons ible for the oth er informatio n, which inclu des rep or ting b ased o n the T as k Force on Climate -related Financial D isclo sures ( TCFD ) reco mmendati ons. O ur opinion on thenanc ial statem ents do es not cover t he other infor mation and, acco rdingly , we do not exp res s an audit opini on or , except to the extent oth er wise exp licitly s tated in this re por t, a ny form of as suranc ethereo n. In conne ct ion with o ur audit of the nan cial st atements , our resp onsibilit y is to rea d the other info rmation an d, in doing so, consider whether the other i nformation is mat erially i nconsistent wit h the nanc ial statem ents or our k nowle dge obtaine d in the audi t, or other wis e appe ars to be mater ially mis stated . If we identif y an appare nt material incons istenc y or material mis st atement, we are require d to per form p roce dures to co nclude wh ether th ere is a material mis st atement of the nan cial st atements or a mater ial miss tateme nt of the other infor mation. If, base d on the wo rk we haveper form ed, we co nclude th at there is a material mis s tatement ofthis other info rmation, we are re quired to rep or t that f act . We have nothing to repo r t bas ed on the se re spon sibilitie s. With re spe ct to the Str ategic rep or t and Dire ctor s’ repo r t, we also consid ered wh ether th e disclos ures req uired by the UK C ompanie s Act 20 06 have be en include d. Bas ed on our w ork unde r taken in the cour se of the au dit, th e Comp anies Ac t 200 6 requires u s also to rep or t cer t ain opinions an d mat ters as de scr ibed b elow. Strateg ic repor t and Direc tors’ repor t In our opinio n, bas ed on the w ork unde r taken in the cour se of the audit, t he informatio n given in the Str ategic rep or t and Dire ctor s’ repo r t for the year en ded 3 1 De cemb er 202 1 is consis tent with the nancial s tatement s and has b een pre pared in ac cordanc e with applicable legal r equirements. In light of the kn owled ge and under st anding of the G roup and Comp any and their environme nt obtaine d in the cour se of the au dit, we did not ide ntif y any material mis stateme nts in the Str ategic repo r t and Dire ctor s’ repor t . Directors’ Remuneration In our opinio n, the par t of t he Annual rep or t on remun eratio n to beaudi ted has b een pro perl y prepare d in accord ance with t he Companie s Act 20 06. Corporate go vernance stat ement The Lis ting Rule s require us to review t he Direc tors’ s tatement s inrelation to going c oncer n, longer-term viabilit y and that par t o f thecor por ate governance s tateme nt relating to the Comp any’s complian ce with th e provision s of the UK C orpo rate Gover nance Cod e spe cie d for our review. Our ad ditional re spon sibilitie s withre spe ct to the c orpo rate governanc e statem ent as other informatio nare des cribe d in the Rep or ting on oth er informatio n se ction o f this repo r t. Bas ed on th e work unde r taken as par t of o ur audit, we have conclu ded that e ach of the fo llowing ele ments of th e corp orate governance st atement is materially consistent with th e nancial st atements and o ur knowle dge obtain ed during t he audit , and we have nothing material to add o r draw at tention to in relatio n to: – T he Dire ctors’ c onrmatio n that they have car ried o ut a robus t as ses sme nt of the emerg ing and prin cipal risks; – T he discl osures in th e Annual Rep or t that de scr ibe tho se prin cipal risks , what proce dures are in p lace to ide ntif y emerging r isks and an explanatio n of how the se are b eing managed o r mitigated; – T he Dire ctors’ s tateme nt in the nancial s tatement s abou t whether they con sidere d it approp riate to adopt the g oing conc ern bas is of acco unting in prepar ing them, and t heir identi catio n of any material unc er taintie s to the Group ’s and Company ’s abilit y to continue to do s o over a per iod of at le ast t welve mo nths from th e date of approval of the nancial st atements; – T he Dire ctors’ ex planation as to th eir as ses sme nt of the Group ’s and Comp any’s prosp ec ts , the per iod this a ss es sment cover s and why the pe riod i s appropr iate; and – T he Dire ctors’ s tateme nt as to whether th ey have a reasonab le expe ct ation that the C ompany will be ab le to continue in op er ation and me et its liabili ties as t hey fall du e over the per iod of i ts as ses sme nt, including any related di sclos ures draw ing attentio n toany nece ss ar y qualic ations o r ass umptions. 122 Hik ma Pha rma ceu tic als P LC Annual Report 2021 Our review o f the Dire ctors’ s tateme nt regarding the lo nger -term viabilit y of the G roup wa s subst antially le ss in s cope th an an audit and only c onsiste d of making inquir ies and c onside ring the D irector s’ proc es s suppo r ting their s tatement ; checkin g that the st atement isinalignment wi th the relev ant provisions o f the UK C orpo rate Governance Code; and considering whether the stat ement is consis tent with th e nancial st atements an d our knowl edge an d under stan ding of the Gro up and Com pany and their environm ent obtaine d in the co urse of th e audit. In addit ion, bas ed on th e work und er taken as par t of o ur audit, we have conclud ed that ea ch of the follow ing eleme nts of the co rpo rate governance st atement is materially consistent with th e nancial st atements and o ur knowle dge obtain ed during t he audit: – T he Dire ctors’ s tateme nt that they consi der the Ann ual Repo r t, taken as a whol e, is fair , balan ced an d unders tand able, and provide sthe infor mation ne ces sar y fo r the memb ers to as se s s theGro up’s and Comp any’s po sition, p er forman ce, busine ss mod eland st rateg y; – T he se ctio n of the Annual R epor t th at desc ribe s the review of eec tiven es s of risk mana gement and intern al control sys tems; and – T he se ctio n of the Annual R epor t d escr ibing the wor k of the AuditCo mmit tee. We have nothing to repor t in re spe ct of our re spo nsibilit y to repo r t when th e Direc tors’ s tatement relating to th e Comp any’s complian ce with the C ode d oe s not prop erly dis close a d epar ture f rom a relevant provisio n of the Co de spe cie d under th e Listing Rul es for revi ew by the audito rs. Responsibili ties for the nancial statements andtheau dit Responsibilities of the d irec tors for the nancialst atements As exp lained mo re fully in the D irec tors’ res ponsib ilities s tateme nt, the Dire ctor s are resp onsibl e for the prep aratio n of the nancia l statemen ts in accorda nce with the a pplicable framework a nd for being s atise d that they gi ve a true and f air view. The Dire ctor s are also re spon sible for suc h internal control a s they determin e is nec es sar y to enab le the prep aratio n of nancial s tatement s that are free f rom material mis st atement, wh ether due to f raud o r error . In prepa ring the nan cial statem ents, t he Direc tors are re spo nsible for as se ssing th e Group’s and th e Comp any’s abilit y to continue a s a going con cern, dis closing , as app licab le, mat ters related to going concern and us ing the going concern basis of accou nting unless the Direc tors ei ther intend to liquid ate the Group or t he Comp any or to ceas e ope ration s, or have no realis tic altern ative but to do s o. Auditors’ responsibi lities for the audit of the nancialst atements Our obj ec tives are to obt ain reaso nable as suran ce abo ut whethe r the nancial s tatement s as a whol e are free f rom material mis st atement, whethe r due to fr aud or erro r , an d to issue an a uditors’ rep or t that include s our op inion. Rea sonabl e assur ance is a hi gh level of as suranc e, but is not a gu arantee that an au dit cond ucte d in acco rdance wit h ISAs (UK ) will always detec t a material mis st atement when it ex ists . Mis statem ents c an arise f rom fr aud or erro r and are consid ered mater ial if, individually or in th e agg regate, they coul d reas onably b e expe cted to inu ence th e econ omic de cisions of us ers taken on the b asis of the se nanc ial statem ents. Irreg ularitie s, inclu ding frau d, are inst ance s of non-c omplianc e with laws and reg ulations. We de sign p roce dures in line wi th our resp onsibilit ies, o utline d above, to detec t material mis st atements in resp ec t of irregul aritie s, inclu ding frau d. The ex tent to which our proc edure s are capa ble of detec ting irre gularit ies, in cluding fr aud, is detailed below . Bas ed on our un ders tanding of t he Group an d indust r y , we i dentie d that the pr incipal ri sks of non- complianc e with laws and re gulations related to patent prote ctio n, produ ct safet y (inclu ding but not limite d to the Unite d States Foo d and Dr ug Administ ration re gulations), comp etition an d antitrus t laws, pr icing pr act ices an d legislati on, tax legislati on, and an ti-bribery and corruption legisl ation ( includin g but not limited to the F oreign C orrupt Pr ac tice s Act), and we consid ered the ex tent to which non- complian ce might have a material ee ct on the nanc ial statem ents. We als o consid ered th ose laws and regulatio ns that have a direct imp ac t on the nanci al statem ents such as the C ompanie s Act 20 06 and Lis ting Rule s of the Finan cial Conduct Authority (FCA ) . We e valuat ed managemen t ’s incentiv es and opp or tunit ies for f raudul ent manipulation of t he nancial st atements (including t he risk of over ride of co ntrols) , a nd determine d that the pr incipal ri sks were related to p osting ina ppropr iate journal entrie s to manipulate nancial re sults an d manageme nt bias in acco unting es timates. T he Group e ngageme nt team shared this r isk as ses sme nt with the co mpone nt auditors s o that they coul d include approp riate audit pro cedure s in resp ons e to such risks in th eir work . Audit pro cedure s per fo rmed by t he Group e ngageme nt team and/ or component aud itors included : – dis cus sions wi th managem ent and the G roup’s legal co unsels , including co nsider ation of kn own or susp ec ted ins tance s of non- complianc e with laws and re gulations an d frau d; – a ss es sment of mat ters re por ted o n the Gro up’s whistle blowing hotline and re sult s of manageme nt’s inves tigation of su ch mat ters; – challe nging assumptio ns made by management in its sig nicant acco unting es timates par ti cularly in relati on to es timation of reb ate and return p rovisions an d valuation o f intangible a ss ets (see related key audit matter s above) ; and – id entif ying and testing jo urnal entries , in par ticular any journal entrie s pos ted wit h unusual acc ount combinatio ns, jo urnals po sted by senio r management , journals p os ted and review ed by the s ame individual and consolidation journals. There are inh erent limitatio ns in the audi t proce dures d escr ibe d above. We are le ss likely to be come aware o f instan ces of n on- complian ce with laws an d regulation s that are not clos ely relate d to events and tr ans acti ons ree cte d in the nancial s tateme nts. Als o, the ris k of not detec ting a material mis st atement due to fr aud is higher t han the risk of n ot detec ting one re sulting fro m error , as fr aud may involv e deliberat e concealment b y , for example, forgery or int entional misrepresentations, or through col lusion. Our audi t testing mi ght include te sting co mplete po pulations of cer t ain trans act ions and b alance s, po ssib ly using data au diting techniqu es. H owever , it t ypic ally involves s elec ting a limited numb er of items for te sting , rath er than tes ting comp lete popul ations. We will oen se ek to target p ar ticular ite ms for tes ting bas ed on th eir size or risk char ac terist ics . In other c ase s, we will u se audit s ampling to enable u s to draw a conc lusion ab out the p opulatio n from which th e sampl e is sele cte d. A fur the r des cription of o ur resp onsibiliti es for th e audit of the nancial s tatement s is loc ated on th e FRC ’s website at: w w w.frc.org. uk/auditors resp onsibilitie s. T his des cription fo rms par t of o ur auditor s’ repor t . Independent auditors’ repor t to the members of Hikma Pharmaceutic als PLC conti nued Hik ma Ph arm ace utic al s PLC Annual Report 2021 123 FINANCIAL ST A TEMENTS Use of this repo rt This rep or t, incl uding the opini ons, has b een p repare d for and only fo r the Co mpany’s me mber s as a bo dy in acco rdance wit h Chapter 3 of Par t 16 of the C ompanie s Act 2 006 and fo r no other p urpo se. We do not, in gi ving the se opinio ns, acc ept or as sume re spons ibilit y for any other pur pos e or to any other pe rson to wh om this rep or t is shown o r into whose han ds it may come s ave where expre s sly agree d by our prio r conse nt in writing. Other required reporting Companies Ac t 20 06 exception repor ting Under t he Comp anies Ac t 200 6 we are require d to repor t to you if, inour opinio n: – we h ave not obtained all t he informatio n and explanatio ns we require for o ur audit; o r – a dequate ac counting rec ords have not be en kept by the Comp any , or return s adequ ate for our audit have not be en re ceived f rom bran ches n ot visited by us; o r – c er tain dis closure s of Direc tors’ re munerati on spe cie d by law are not made; or – t he Comp any nancial st atements and t he par t of th e Annual rep or t on remune ration to b e audited are n ot in agreem ent with the acco unting record s and returns . We have no exceptions to rep or t arising f rom this res ponsibili ty. Appointm ent Following t he reco mmendati on of the Audit C ommit tee, we we re appo inted by the memb ers o n 11 May 2016 to audit the nanc ial st atements for th e year ende d 31 D ece mber 20 16 and subse quent nancial p erio ds. Th e peri od of total uninterr upted eng agement issixyear s, covering t he years en ded 3 1 De cemb er 2016 to 31D ece mber 20 21. Other matter In due co urse, as re quired by the F inancial Co nduc t Authori t y Disc losure Gui dance and T rans parenc y Rule 4.1.14R, the se nan cial st atements will for m par t of the ESEF-p repared a nnual nancial repo r t led on t he National Stor age Me chanism of the F inancial Cond uct Auth orit y in ac cordanc e with the ESEF Re gulator y T e chnic al Standard (‘ ESEF RTS’). This auditor s’ repo r t provide s no as suran ce over whethe r the annual nan cial repor t will be prep ared using t he single el ec tronic form at speci ed in th e ESEF RTS. Darryl Phillips (Senior Statutor y Au ditor) for and on b ehalf of Pr icewaterh ouse Co oper s LLP Char tered Ac countant s and Statutor y Audi tors London 23 Feb ruar y 20 22 Consolidated income statement For the year ende d 31 December 2021 2021 Core results 2021 Exceptional items and other adjustments (Note 6) 2021 Reported results 2020 Core results 2020 Exceptional items and other adjustments (Note 6) 2020 Reported results Note $m $m $m $m $m $m Revenue 4 2,553 – 2,553 2,341 – 2,341 Cost of sales (1,252) – (1,252) (1,128) (12) (1,140) Gross profit /(loss) 1,301 – 1,301 1,213 (12) 1,201 Selling, genera l and administrative expenses (488) (73) (561) (464) (45) (509) Net impairment loss on financial assets – – – (2) – (2) Research and development expenses (143) – (143) (137) – (137) Other operating expenses 9 (40) (37) (77) (47) (7) (54) Other operating income 9 2 60 62 3 77 80 Total operating (expenses)/income (669) (50) (719) (647) 25 (622) Operating profit/(loss) 5 632 (50) 582 566 13 579 Finance income 10 1 29 30 9 38 47 Finance expense 11 (56) (13) (69) (54) (15) (69) Gain fro m invest ment at fair value through profit an d loss (FVTPL) – – – 1 – 1 Results f rom joint venture 1 – 1 – – – Profit/(loss) before tax 578 (34) 544 522 36 558 Tax 12 (129) 5 (124) (115) (13) (128) Profit/(loss) for the year 449 (29) 420 407 23 430 Attributable to: Non-controlling interests 32 (1) – (1) (1) – (1) Equity holders of the parent 450 (29) 421 408 23 431 449 (29) 420 407 23 430 Earnings per share (cents) Basic 15 194.8 182.3 172.9 182.6 Diluted 15 193.1 180.7 171.4 181.1 124 H ikm a Pha rma ceu tic als PL C Annual Repor t 2021 Consolidated statement of comprehensive income For the year ende d 31 December 2021 2021 Reported results 2020 Reported results Note $m $m Profit for the year 420 430 Other comprehensive income Items that may subsequently be reclassi fied to the consolidated income statement, net of tax: Currency translation and hyperinflation movement (22) 39 Items that will not subsequently be reclassif ied to the consolidated income sta tement, ne t of tax: Remeasurement of post-employment benefit obligations 26 (1) (1) Change in invest ments at fair value thro ugh other comprehensive income (FVTOCI) 19 14 2 Total other comprehensive income for the year (9) 40 Total compr ehensive inco me for the year 411 470 Attributable to: Non-controlling interests 2 2 Equity holders of the parent 409 468 411 470 Hik ma Ph arm ace utic al s PLC Annual Report 2021 125 FINANCIAL ST A TEMENTS Consolidated balance sheet At 31 December 2021 2021 2020 (restated) 1 Note $m $m Non-current assets Goodwill 16 285 289 Other in tangible a ssets 16 607 587 Property, plant and equipment 17 1,072 1,009 Right-of-use asset s 33 74 59 Investments in joint ventures 18 10 9 Deferred tax assets 13 183 221 Financial and other non-current assets 19 47 39 2,278 2,213 Current assets Inventories 20 695 757 Income tax receivable 60 36 Trade and other receivables 1 21 816 700 Collateralised and restr icted cash – 4 Cash and cash eq uivalents 22 426 323 Other current assets 1 23 97 102 2,094 1,922 Total a ssets 4,372 4,135 Current liabili ties Short-term financial debts 24 112 158 Lease liab ilities 33 9 10 Trade and other payables 25 468 470 Income tax payable 57 72 Other provisions 26 31 28 Other current liabilities 27 339 290 1,016 1,028 Net current assets 1,078 894 Non-current li abilities Long-term financial debts 28 651 692 Lease liab ilities 33 74 72 Deferred tax liabilities 13 24 31 Other non-current liabilities 30 140 164 889 959 Total liabil ities 1,905 1,987 Net a ssets 2,467 2,148 Equity Share capital 31 42 41 Share premium 282 282 Other reserves (60) (80) Retained earnings 2,189 1,892 Equity attri butable to equity hol ders of the parent 2,453 2,135 Non-controlling interests 32 14 13 Total equit y 2,467 2,148 1. In 2021, pr epayments have been reclassified und er ot her current assets which we re p reviously classified under trade and oth e r receivables, and hence at 31 December 2020 numbers have been restated reflecti ng $56 million re classifica tion from trade and o ther r eceivables to other current as sets. H ad t his r eclassifica tion be e n applied at 1 January 2020, these line items would have been restate d by $49 milli on. (see Notes 21 and 23) The con solidated financial statements of Hikma Pharm aceuticals PLC, registered number 55 57934, on pages 124 to 179 were approve d by the Board of Directors on 23 February 2022 and signed on its behalf by: Said Darwazah Executive Chairman 23 Febru ary 20 22 Sigurdur Olafsson Chief Executive Officer 126 Hik ma Pha rma ceu tic als P LC Annual Report 2021 Consolidated statement of change s in equity For the year ende d 31 December 2021 Merger and revaluation reserves 1 $m Translation reserve $m Total other reserves $m Retained earnings $m Share capital $m Share premium $m Equity attributable to equity shareholders of the parent $m Non- controlling interests $m Total equity $m Balance at 1 January 2020 57 (235) (178) 1,972 41 282 2,117 12 2,129 Profit for the year 2 62 – 62 369 – – 431 (1) 430 Change in fair value of investments at FVTOCI (Note 19) – – – 2 – – 2 – 2 Remeasuremen t of post- employment benefit obligations (Note 26) – – – (1) – – (1) – (1) Currency translation and hyperinflation movement – 36 36 – – – 36 3 39 Total comprehensive income for the year 62 36 98 370 – – 468 2 470 Total t ransactions with owners, recognised direc tly i n equ ity Cost of equity-settled employee share scheme (Note 37) – – – 27 – – 27 – 27 Dividends paid (No te 14) – – – (109) – – (109) (1) (110) Share buyback (Note 31) – – – (368) – – (368) – (368) Balance at 31 December 2020 and 1 January 2021 119 (199) (80) 1,892 41 282 2,135 13 2,148 Profit for the year 2 48 – 48 373 – – 421 (1) 420 Change in fair value of investments at FVTOCI (Note 19) – – – 14 – – 14 – 14 Realisation of revalu ation reserve (3) – (3) 3 – – – – – Remeasuremen t of post- employment benefit obligations (Note 26) – – – (2) – – (2) – (2) Tax arising on rem easurement of post-employment benefit obligations – – – 1 – – 1 – 1 Currency translation and hyperinflation movement – (25) (25) – – – (25) 3 (22) Total comprehensive income for the year 45 (25) 20 389 – – 409 2 411 Total t ransactions with owners, recognised direc tly i n equ ity Cost of equity-settled employee share scheme (Note 37) – – – 29 – – 29 – 29 Exercise of emp loyees share scheme – – – (1) 1 – – – – Dividends paid (No te 14) – – – (120) – – (120) (1) (121) Balance at 31 December 2021 164 (224) (60) 2,189 42 282 2,453 14 2,467 1. Merger and revaluatio n reserves mainly relates to Columbus business acquisition in 2016 2. A net Impairment reversal of $48 million has been a llocated from retained earnings to the merger and revaluation reserves in relation to Columbus business acquisitio n intangible assets (2020: $62 million) (Notes 6 and 16) Hik ma Ph arm ace utic al s PLC Annual Report 2021 127 FINANCIAL ST A TEMENTS Consolidated cash flow statement For the year ende d 31 December 2021 2021 2020 Note $m $m Cash flow s from operating activities Cash generated from operations 34 767 525 Income taxes paid (131) (68) Income taxes received 2 7 Net cash inflow from operating act ivities 638 464 Cash flow from investing activities Purchases of property, plant and equipment (145) (172) Purchase of intangible asset s (84) (52) Proceeds from sale of invest ment at FVTOCI 5 – Additions of investments at FVTOCI (3) (5) Proceeds from investment divestiture 1 2 Contingent consideration paid (17) (60) Interest income received 2 7 Investment related amounts relea sed fro m/(held in) escro w account 3 (3) Net cash outflow from investing activities (238) (283) Cash flow from financing activities Proceeds f rom issue of long-term financial debts 10 1,543 Repayment of long-term financial debts (45) (1,372) Proceeds from short-term borrowings 383 430 Repayment of short-term borrowings (431) (367) Repayment of lease liabilities (31) (14) Dividends paid 14 (120) (109) Dividends pa id to non-controlling shareho lders of subsidiaries (1) (1) Interest and bank charges paid (50) (39) Share buyback – (375) Commitment fees received related to the share bu yback – 7 Payment to co-development and earnout payment agreement (2) (1) Net cash outflow from financing activities (287) (298) Net in crease/(decrease) in cash and cash equivalents 113 (117) Cash and cash equivalents at beginn ing of year 323 442 Foreign exchange translation movements (10) (2) Cash and cash equivalents at end of year 22 426 323 128 H ikm a Phar mac eu tic als PLC Annual Repor t 2021 Notes to the consolidated financial statements 1. Adoption of new an d revised st andards The following revised Standards and Interpretations have been issued and are effective for annual pe riods beginning on 1 January 2021. The Group has not early adopted any ot her standard, interp retation 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 amendmen ts provide temporary reliefs which address the fin ancial reporting ef fects when an interban k offered rate (IBOR) is replaced with an alternative nearly risk-free inte rest rate (RFR). The amendments include the following practical expedien t: A practical expedient to require contractual changes, or changes to c a sh 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. Th e 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 up date included an agenda decision on configuration an d customisation costs in a cloud computing arrangement involving So ftware as a Servi ce (SaaS). The agenda decision included guidance on how entities should account for such configuration and customisation costs. The Group has ad opted the IFRIC upda te as a change in accounting policy. Th e impact relating to pr ior year was not material and therefore the application was not retrospectivel y appl ied and was recognised in the current year consolidated income st atement as excep tional item (Notes 6, 9 and 16) . 2. Significant accounting policies General informat ion Hikma Phar maceuticals PLC is a pub lic limited liability company incorporated and domici led in Unit ed Kingdom under the Companies Ac t 2006. The address of the registered office is given on page 188. The Group’s principal activities a re the development, manufac turing, marketing and selling of a broad range of generic, branded and in- licensed pha rmaceutical products in solid, semi-solid, liquid and injectable final dosage fo rms. Basis of preparation Hikma Pharmaceuticals PLC’s consolid ated financial statements ha ve been prepared in accordance with: (i) UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicab le to companies reporting under those standards. On 31 December 2 020, IFRS as adopted by the European Union at that date was brought into UK law an d became UK-adopted International Accounting Standard s, with future changes being subject to endorsement by the UK Endorsement Board. The Group transitioned to UK-adopted Internat ional Accounting Standards in its consolidated financial statements on 1 January 2 021. T his 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 Sta ndards Board (IASB) The consolidated financial statemen ts have been prepared under the historical cost convention, except for the re valuation to fair value of certain financial assets and liabilities. The accoun ting policies included in this note have been applie d consistently other than where new policies have been adopted. The Gro up’s previo usly publishe d conso lidated finan cial state ments were prepared in accordance with: (i) IFRS in conformity with the requ irements of the Companies Act 2006 and the applicable legal re quiremen ts of the Companies Act 2006. In addition to complying with IFRS in c onformity with the requirements of the Companies Act 2006, 2020 fi nancial s tatements 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 Sta ndards Board (IASB) The presentational and functional cu rrency o f Hikma Pharmaceuticals PLC is the US dollar as the majority of the Company’s business is conducted in US dollars. Going concern The Directors believe that the Group is well diversified due to its geographic sprea d, product diversity and large customer and supplier base. Taking into account the Group’s current posit ion and its principal risks fo r a period longer than 12 m onths from the date of signing the consolidated financial statement, a going concern analysis has been prepared us ing realis tic scenarios applying a severe but plausible downside which shows sufficient liquidity headroom. Therefore, the Directors believe t hat the Group and its subsidiaries are adequately placed to manage its business and financing ris ks successfully, despite the current uncertain economic outlook . Having assessed the principa l risks, the Directors considered it a ppropriate to adopt the going concern basis o f accounting in preparing the con solidated fina ncial statemen ts. (see page 62). Financial covenants are suspended while the G roup retains its investment grade stat us from two rating agencie s 1 . Neverthele ss, the covenants are monitored and the Group was in compliance on 31 December 2021 and expects to re main in comp liance with those covenants for the year ending in Dece mber 2022 even in the severe but plausible downside s cenarios. As of 31 December 2021 the Group’s investment grade ratin g was affirmed by S&P and Fitch. 1. Rating agencies: means each of Fitch, Moody’s and S&P or any of t heir affiliates or successors Hik ma Ph arm ace utic al s PLC Annual Report 2021 129 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 2. Signific ant accounting policies continued Basis of consolidation The con solidated financial statements incorporate the results of Hikma Pharmaceuticals PLC (the Company) and entities controlled by the Company (togeth er the Group). Contro l is achieved when the Group is exposed, or has r ights, to variable returns from its invo lvement with the investee and has the ability to affect those returns th rough its power o ver the investee. The con solidated financial statements include: — the assets and liabil ities, resu lts an d cash flows of the Company and its subsidiaries (ent ities that are controlled by the Group, through the power of governing the financial and operating policies to obtain benefits from its activities) — the Group’s share of the results and net assets of joint ventures All subs idiaries an d the Company financial statements consolidated are made up to 31 Dec ember each year. Interests acquired in entities are consolidated from the date the Group acquires co ntrol an d interests sold are de-con solidated from the date control ceases. Goodwill is capitalised as a separate item in the case of subsidiaries and as part of the cost of investment in the case of joint ventures and associate s. Transactions and balances between su bsidiaries are elim inated and no profit be fore tax is taken on sales between subsidiaries until the products are sold to customers outside the Group. Transactions with non-con trolling in terests are recorded directly in equity. Deferred tax relie f on unrealised intra-group profit is acco unted for only to the extent that it is conside red recoverab le. Business combinations The acquis ition of subsidiaries is accounted for using the acquisition method. A ll ident ifiable assets, liabil ities and contingent liabilities acquired are meas ured at fair value o n the acquisition date. All acquisition related costs are recognised in the consoli dated income statement as incurred. The consideration is measured a t the aggregate fair values of assets given, liabilities incurred o r assumed, and equity instruments issued b y the Group in exchange for control of the acquiree, at th e acquisition date. Where appl icable, this considera tion may include the fair va lue of assets or li abilities resulting from a contingen t consideratio n arrangemen t. Contingent consideration classified as an asset or liability is a financial instrument and, w ithin the scope of I FRS 9 ‘Financial Instruments’, is measured at fair value, with changes in fair value recognised in the consolidated income sta tem ent in line with IFRS 9. Subsequent chan ges to those fair values can only affect the measurement of go odwill, wh ere they occur d uring th e ‘measure ment period’ and are as a result of add itional informa tion becoming available about facts and c ircumstances that ex isted at the acquisi tion date . All other changes are dealt with in accor dan ce with relevant IFRSs. This will usually mean that changes in the fair value of con sideration are recognised in the consolid ated income statement. Where a business combination is achieved in stages, the Group’s previously held in terests in the acqu ired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attain s control). The result ing gain or loss, if any, is recognised in the consolidated income state ment. Goodwill arising on acquisition is re cogn ised as an asset and initially measured at cost, being the excess of the aggregate of consideration, non- controlling interest an d fair value of previously held equity interest over the fair values of th e identifiable net assets acquired. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and acquired contingent liabilities exceeds the cost of the consideration, the excess is recogn ised immediately in the consolidated income statement. The no n-controlling interest in the acquiree is init ially measured at the non-controlling interest’s proportion of th e net fair value of the assets, liabilities and acquired contin gent lia bilities recognised. If the initial accounting for a busine ss combinat ion is incomplete by the end of the reporting period in which the combination occurs, the Group reports p rovisional amounts fo r the items for which the accounting is incomplete. Those pro visional amo unts are adjusted during the measurement pe riod, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisi tion date that , if known, would have affected the amounts recognised as of that date. The measure ment period is the peri od from the date of acquisition to the date the Group obtains com p lete info rmation a bout facts and circumstances th at existed as o f the acquisition date a nd is subject to a maximum of one year. Investments in joint ventures Joint ventures are entities that the Gr oup has the ability to exerc ise join t control over their economic activit ies and net asse ts. The result s and assets an d liabi lities o f joint ventures are in corporated in these consolidated financ ial state ments using the equity method of accounting, where the invest ment s are carried in th e conso lidated balance sheet at cost as adjusted for post-acquisi tion changes in the Group’s share of the net assets of th e joint venture, less any impairment in the value of individual investments. Losses of a joint venture in excess of the Group’s interest in that join t ven ture (which includes any long-term interests that, in substance, form pa rt of the Group’s net investment in the joint venture) are recognised only to the extent that the Group has incurred legal or constructive obligati ons or made payments on behalf o f the join t venture . Any excess of the cost of acquisi tion over the Group ’s share of the net fair value of the identifiable assets, liabilities and acquired contingent liabilities of th e join t venture recognised at the date of acquisition is recognised as goodwill. The goo dwill is included within the c arrying amount of the investment and is assessed for i mpairment as part of tha t investment. Any impairment charges are recognised immediately in the consolidated income state ment. Where a Group en tity transacts with a joint venture of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant joint ven ture. The aggregate of Group’s sh are o f profit or losses after tax of joint ventures is shown on the face of the consolidated income statement below operating profit an d represents profit after tax. 130 H ikm a Phar mac eut ica ls PLC Annual Repor t 2021 2. Significant ac c ounting policies continued Foreign currencies Foreign currency transactions, being transactions denominated in a currency other than an i ndividual Gr oup entity’s functional currency, are translate d into the rele vant functional currencies o f individual Group entities at average rates for the relevant monthly accounting periods, which appro ximate to actual rates. Monetary asse ts and liabilities arisin g from foreign currency transactions are ret ranslated at exchange rates prevailing a t the reporting date. Exchange gains and losses on loans and on short-term foreign currency bo rrowings and deposits are included within finance income and expense. Exchange differences on all other foreign currency transactions are reco gnised in oper ating profit in the individual Group entity’s accounting records. Non-monetary items arising from foreign currency transactions ar e not retranslated in the individual Group entity’s accounting records. In the Consolidated Financial Statements, income and expense it ems for Group entities with a functional currency other than US dolla rs are translated into US dollars at average exchange rates, which approximate to actu al rates, for the relevant accounti ng periods. Assets and liabilities are translated at the US dollar exchange rates prevai lin g at the repo rting d ate. Exchange differences arising on consolidation are recognised in the consolidated statement of ot her comprehe nsive incom e. On the disposal of foreign operation entities , the accumu lated foreign exchange gai ns/losses are reclassified from OCI to the consolidated income statement. Hyperinflationary economies In hyperinflationary economies, when translating the results of operations into US dollars, assets, liabi lities, in come stat ement and equity accounts are translated at the rate prevailing on the balance sheet date. In territories where there are re strictions on the free access to foreign currency or multiple exchange rates, the applicable rates of exchange are regularly reviewed. Lebanon and Sudan were considered to be hy per inf lat iona ry economies in the year ended 31 December 2021 at which date the prevailing rates were 436.28 Sudanese pound per US dollar and 1,507.5 Lebanese pound per US dollar. Any gain or l oss on net monetary asset/liability is recognised in the consolidated income statement. The effect of inflation on non-monetary asset/liability is rec ognised in other comprehensive income within equity. Revenue r ecognition Under IFRS 15 revenue is recognis ed in the co nsolidated income statement when control of the goods or services are transferred to the customer at an amount that refl ects the consi deration to which the Group expects to be entitled in ex change for those goods and services . The poin t at which co ntrol passes is determined b y each customer arrangement, but generally occurs o n delivery to the customer. The Group manufactures certain medicines on behalf of some customers. The revenue from providing contract m anufacturing services is recognise d when these medicines are approved by the quality control department. Ther e is no alternative use of these medicines and a lso the Group has enforceable right to payments once these medicines are quality app roved. The Gro up has generally concluded that it acts as prin cipal in its revenue arrangements bec ause it typically co ntrols the goods before the transfer to the customer. Revenue represents the amounts receivable after the deduction of discounts, value added tax, other sales taxes, allowances given, provisions fo r chargebacks and accruals for estimated future rebates, returns and price adjustments. The methodology and assumptions used to estimate rebates and ret urns are monitored and adjusted regularly in light of contractual and historical information. The Group does not expect to have any contracts where the period between the transfer o f the promised goods or services to the customer and payment by t he customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time val ue of money. Variable consi deration The ulti mate net selling price is calculated using variable consideration estimates for certain gross to net adjustments. Chargebacks The provision for chargebacks is the most significant and complex estimate used in the recog nition of revenue. In the US, the Group sells its products directly to wholesal e distributors, generic distributors, retail pharmacy chains and mail-order pharmacies. The Group also sells its products indirectly to independent pharmacies, managed care organisations, hospitals, and group purc hasing organisations, collectively referred to as ‘indirect customers’. The Group enters into agreements wi th its indirect customers to esta blish pricing for cer tain products. The indirect customers then independ ently select a wholesaler from which they purchase the products at agreed-upon prices. The Group will provide credit to the wholesaler for the difference between the agr eed-upon price with the indirect customer and t he wholesaler’s invo ice price. This credit is called a chargeback. The provision for chargebacks is based on historical sell-through levels by the Group’s w h olesale customers to the indirect customers, and est imated wholesaler inventory levels. As sales are made to large wholesale customers, the Gr oup continually monitors the reserve for chargebacks and makes adjustments when it believes that actual chargebacks may differ fro m estima ted reserves (see Note 21 for chargebacks sensitivity analysis). Returns The Group has a product return policy that allows customers to return the product within a specified period prior to and subse quent to the expiration date. Provisions for return s are recognised as a reduction of revenue in the period in which the underlying sa les are recognised. The Group estimates its provision for returns based on historical experience, repres enting management’s best estimate. While such experience has enabled reasonable estimations in the past, history may not always be an accurate indicator of future retu rns. The Group continually monitors the provisions for re turns and makes ad justments when it believes that actua l product returns may differ from established reserves (see Note 27 for return sensitivity analysis). Rebates In the US, rebates are granted to wholesaler distributors and direct customers. Rebat es are also grante d to healthcare au thorities and under contractual arrangements with certain indirect customers. Products sold in the US are covered by various programmes (such as Medicaid) under which products are sold at a discount. The Group estimates its pro vision fo r rebates based on current contractual terms and conditions as wel l as historic al experience, changes to business practices and credit terms. While such experience has enabled reasonable estimations in the past, history may not always be an accurate indicator o f future rebate liabilities. The Group continually monitors the provisions for rebate s and makes adj ustments when it believes tha t actual rebates may d iffer from established reserves. All rebates are recognised in the perio d in which the underlying sales are recognised as a reduction of revenue (see Notes 21 an d 27 for re bates sensitivity an alysis). Hik ma Ph arm ace utic al s PLC Annual Report 2021 131 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 2. Signific ant accounting policies continued Performance obli gation Free goods Free goods are issued to certain custom ers a s an alternative to discounts. Under IFRS 15 the se free goods g ive rise to a separate performance obligation, which requires man agement to allocate the transaction p rice to the original goods and the related free goods. Re venue for free goods is recognised when they are transfer red to the customer and a contract liability is recogn ised fo r the performance obligations that will be satisfied in the future. Share-based payments At the Company’s discretion and subject to the achievement of Group and personal performance criteria in the prior year, e mployees (includi ng Executive Directors) of the Group re ceive performance based remuneration in the form of share-based payments, whereby employees render their services in exchan ge fo r shares or rights over sha res (equity-set tled transactions) under either the 20 14 Executive Incentive Plans (EIP) or the 2009 and 2018 Management Incent ive Plan (MIP). Refe r to Note 37 for more details. IFRS 2 ‘Share-Base d Payments’ requires an expense to be recognised when the Group buys goods or services in exchange for shares or right s over shares (share-based payments) or in exchange for other equivalent a ssets. The cost of share- based payments’ transactions with employees is measured by reference to the fair va lue at the date at which the share- based payments are granted. The fair value o f the EIP a nd MIP are determined base d on Black-Scholes methodology for nil-cost options using the share price as at the date o f grant discount ed by dividend yield. No account is taken of a ny performance conditions. The cost of share- based payments is recognised, together with a corresponding increase in equity, on a str aight-line basis ove r the year of performance and the vesting period after the grant date based on the Group’s estimate of cost of equity instruments that wi ll eventually vest. The Group revises its estimate of the number of equity instru ments expected to vest and the impact of th e revision of the original estimates, if a ny, is recognised in the conso lidated in come statem ent, such that the cumulative expen se reflects the re vised estimate, with a corresponding adjustment to equity reserves. The diluti ve effect of outstanding share-based pa yments is reflected as additional share di lution in the computation of di luted earn ings per share. Retirement benefit costs — Payments made to defined contribution retirement be nefit schemes are charged as an expense as they fall due. Payments made to state- managed retirement benefit schemes are de alt with as payments to defined contr ibution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined c ontribution retirement benefit scheme. (Note 40) — In certain countries and entities, the Group has post-employment defined benefit plans. Accordingly, valuations of the obligations under those plans are carried out and any changes in net liability due to actuarial valuations and changes in assumptions are taken as re- measurement gains or losses in other comprehensive i ncome. Changes in the pre sent value of the defined b enefit obligations re sulting from plan amendments or curtailments are recognised immediately in the consolidated income stateme nt as past service costs — End of service payments are provided for based on employees’ final salaries and allowances and their cumu lati ve years of s ervice. (Not e 26) Dividend income Income fro m invest ments is recognised when th e shareho lders’ rights to receive pa yment have been established. Leases In accordance with IFRS 16, the Gr oup applies a single recognition and measure ment approach for all leases, except for short-term leases and leases o f low-valu e assets. The Gro up recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying a ssets: — Right-of-use assets: The Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated de preciation and impairment losses, and adjusted for any re measurement of lease liabilitie s. The cost of right-of-use assets includes the amoun t of lease liab ilities recognised, initial direct costs incurred, and lease payments made at or before the co mmencement date less any lease incentives received. Un less the Group is reasonab ly certain o f obtaining ownership of a leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight- line basis over the shorter of its esti m ated useful life and the lease term. Right of use o f assets are deprec iated on a stra ight-line basis at the following depreciation rates: Buildings 4% to 50% Machinery and Equipment 20% to 33% Vehicles 13% to 50% — Lease liabilities: at t he commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments), less any leas e incentives receivable, variable lease payments that depend on an index or a rate, and am ounts expected to be paid under resid ual value guarantees. The lease payments also include th e exercise price of a purchase option, payments for optional extension periods and payments of penalties for ter minating a lease when these options are reas onably certain to be exercised by the Group. The discount rate used to calculate the lease liabilities is the i ncremental borrowing rate (IBR). The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-s pecific estimates (such as the subsidiary’s stand-alone credit profile) — Short-term leases and leases of low-value assets: the Group applies the short-term lease recognition exemption to its short -term leases of machinery and equipmen t (ie those leases that have a lease term of 12 months or less from the commence ment date and d o not contain a purchase op tion). It also applies the lease of low-value assets recognition exemption to l eases of offi ce equipm ent that are considered of low value (i.e. below $5,000). Lease payments on short term leases and leases of low-value assets are recognised as an expense on a straight-lin e basis over the lease term 132 Hik ma Ph arm ace uti cal s PLC Annual Report 2021 2. Significant ac c ounting policies continued Taxes The Gro up provides for income tax according to th e laws and regulations prevailing in the countries whe re the Group operates. Furthermore, the Group computes and records deferr ed tax assets and liabilities according to IAS 12 ‘Income Taxes’. The tax expense represents the sum of the current tax in the current period and deferred tax. Current Income Tax Current income tax assets and liabilities are measured at the amount expected to be re covered from or paid to the taxation authorities within one year. The current tax incurred in the period is based on taxable profit for the year and prior year movemen t acco unted for in the c urrent year. Taxab le profit differs from net profit as re port ed in the consolid ated income statement becaus e it excludes ite m s of income or expe nse that are taxable or deductible in other years and it further excludes items that are never taxa ble or deductible. The Gro up’s tax incurred is calcu lated using tax rates that have been enacted or substantively enacted by the consolidated bala nce sheet date. Deferred tax Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount s of assets and liabi lities in the consolidated financial statements a nd the corresponding tax bases u sed in the computation of taxable pro fit an d is accounted f or using the consolidated balance sheet liabilit y metho d. Deferred tax liabilities are generally recognised for all taxabl e temporary di fferences and defer red tax assets are recognised to the exte nt that it is probable that taxable profits w ill be available against which deductible te mporary d ifferences will reve rse. To the extent the tempo rary difference arises from goodwill or fro m the initial recognition (other t han in a business combination) o f other assets and liabilities in a transa ction that af fects neither the taxable profit nor the accounting prof it, no deferred tax is provided. Deferred tax liabilities are recognised for taxable temp orary differences arising on in vestments in subs idiaries, and interests in jo int venture s, except where the Group is able to c ontrol the reversal of the temporary difference an d it is probable that th e temporary differe nce will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settle d, or the asset is realised. Deferred tax is charged or credited in the con solidated income statement, except when it relates to items charged or cr edited directly to equity, in which case the deferred tax is also dealt within equity. Deferred tax assets and liabilities are o ffset when there is a legally enforceable ri ght to offset current tax assets a gainst current tax l iabilities and when they re late to income taxe s levied by the same taxation authority and the Group intends to se ttle its current tax assets and liabilities on a net basis. The carrying amount of deferred tax assets is reviewed at each consolidated bala nce sheet date and reduced to the extent that it is no longer pro bable th at sufficient taxable profits will be availa ble to allow all or part of the asset to be recovered . Uncertain tax position In line with IFRIC 23, if it is considered probable that a tax authority will accept an uncertain tax treatment, the tax charge sho uld be calculated on that basis. If it is not considered probable, the effect of the uncertainty should be estimated and reflected in the tax charge. In assessing the uncertainty, it is assumed that the tax authority will h ave fu ll knowledge of all information related to the matt er. Exceptiona l ite ms and other adjustm ents We use a number of non-IFRS measures to report and monitor the performance of our business. Manage ment uses these adjusted numbers internally to measure our progress and for setting performance targets. We also present th ese numbers, alongside our reported results, to external audience s to help them un derstand the under lying perfo rmance of our business. Our adju sted nu mbers 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 accorda nce with IFRS. Core results Reported result s represent the Grou p’s overall performance. However, these results can include one-off or non-cash items that mask the underlying performance of the Grou p. To provide a more complete picture of the Group’s pe rformance an d to improve comparabi lity o f our consolidated financial statements to external audiences, we provide, alongside our reported results, core result s, which are a non-IFRS measure. We represent and discu ss our Group and segmental financials reconciled betwee n reported and core results. This presentation allows for full vis ibility an d transparenc y of our financials so that shareholders are able to clearly assess the performance fac tors of the Group. Our core results exclude the excepti onal items and other adjustments set out in Note 6 in the Notes to the consolidated financial state ments. Exceptional item s Exceptional items represent adjustments for costs and profits which management believes to be exception al in nature by virtue of their size or incidence, or have a distortive effect on current year earnings, such as costs associated with business c ombinations, one-off gains and losses on disposal of businesses assets, reorganisation costs a nd any exceptional items related to tax suc h as significant tax b enefit/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 remeasurem ent and unwinding of contingent consideration and co-development earnout payment agreement financial liabilities. Intangible assets An intan gible asse t is recognised if al l the below co nditions are met: — it is iden tifiable — it is probable that the expected future economic benefits that are attributable to the asset wi ll flow to th e Group — the cost of the asse t can be measured reliably The probabilit y of expected future economic benefits is assessed using reasonable and supportable assumpti ons that represent management’s best estimate of the set of economic conditions that w ill exist over the useful life of the asset. The asse ts are amortised on a straight-line basis on the following amortisation rates: Customer rel ationships 10% Product re lated in tangibles 5% to 33% Trade names 10% Marketing r ights 7% to 33% Software 10% to 33% Hik ma Ph arm ace utic al s PLC Annual Report 2021 133 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 2. Signific ant accounting policies continued 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 o f the evidence available at the time of init ial recogn ition, giving greater weight to external evid ence. Expenditures on research and devel opment activities are charged to the consolidated income statement, except only when the crite ria for recognising an int ernally gene rated i ntangible 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 pa yments made to such third parties to fund research and development efforts are recognise d as intangible assets if the capitalisatio n criter ia for an intangible asset a re met, which typically is when licen ce fees and certain milestone pa yments 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 measu red as the excess of the su m of the consideration transferred, the a mount of any non-controlling interest in th e acquiree and the fair value of th e acquirer’s previously held equity interest (if any) in the ent ity over the net of th e acquisition-date fair value o f the identifiable assets, liabilities and acq uired contin gent liabil ities. If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceed s the sum of the consideration transferred, the a mount of any non-controlling interest in th e acquiree and the fair value of the acquirer’s previo usly held equity interest in the acquiree (if an y), the excess is recognised immediately in the consolidat ed income statement as a bargain purchase gain. On disposal of a subsidiary, the a ttr ibutable amount of goodwill is included in the determination of any prof it or loss o n di sposal in the consolidated income statement (b) Product related intangibles: (i) Product files and in-licensed products recognised th rough acquisitions and p artnerships are a mortised over their useful economic lives once the asset is ready for use (ii) In process product files recogn ised o n 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 iden tified in tangibles a re: (d) Customer relationships: represent the value attributed to the long- term rel ationships held with exis ting customers that the Group acquired o n business combinatio ns. Custome r relationships are amortised over th eir useful economic life (e) Trade names: are amortised over their useful lives from the da te of acquisition (f) Marketing rights: are amortised over their useful lives commencing in the year in which t he rights first generate sales Property, plant and equipment Property, plant and equipment ha ve been stated at cost on acquisit ion and are depreciated on a straight-line basis except for land at the following depreciation rates: Buildings 2% to 33% Machinery and equipment 5% to 25% Vehicles, fixtu res and equipment 8% to 33% A unit of production method of deprec iation is appl ied to operations in their start -up phase, as this reflects the expected pattern of consumpt ion of the future economic benefits em bodied in the assets. When these assets are fully utilised, a s traight-line method of depr eciation is applied. Projects under construction are not depreciated until construction has been completed and assets a re considered ready for use. Any addit ional costs that extend the useful life of property, plant and equipment are capitalised . Whenever the recoverable amount of an asset is impaired, the carrying value is reduced to the recoverable amount and the impairment loss is taken to the co nsolidated income statement. Projects under constructio n are carried at cost, less any recognised impairment loss. Depreciation of these assets, on t he same basis as other property, p lant and equipment assets, commences when the assets are ready for their intended use. The gain or loss arising on the disposal or retirement of an asset is determined as the difference be tween the sales proceeds and the carrying amount o f the asset and is recognised in t he con solidated income state ment. 134 Hik ma Pha rma ceu tic als P LC Annual Report 2021 2. Significant ac c ounting policies continued Impai rment of p roperty, plant and equipment and intangib le a ssets At the same t ime each year, the Group carries ou t an impairment re view for goo dwill and intangible assets that are not yet read y for use. At the year end, the Group reviews the carr y ing amounts o f its property, plant and equipment and intangible assets that are subject to depreciation and amortisation to determi ne whether there is any in dication that those assets have suffered an i mpairment loss. If any such indication exists, the recoverable a mount of the asset is e stimated to determine the extent o f the imp airment loss (i f any). The recoverable amount is the higher of fair value less costs to sell and value in use (VIU). In assessing value in use, the estimated future cash flows are discounted to their present value us ing a pre-tax discount rate that reflects curre nt market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asse t (or cash-generating unit (CGU)) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is re duced to its reco verable amount . An impairment loss is recognise d immediate ly in the co nsolidated in come statement . When an impairme nt loss for the asse t, other than goodwill, subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable a mount. However, the increased carrying amount should not exceed the carrying am ount that would have been determined h ad there been n o impairmen t in prior years. A reversal of an imp airment lo ss is recognised immediately in the con solidated income state ment. For assets excluding g oodwill, an assessment is made at each reporting date to determine whethe r there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indi cati on exists, the Group estimates the assets’ or CGU’s recoverable a mounts. A previo usly recog nised impair ment loss is reversed only if there has been a sustained and discrete change in the assumptions and indicators used to determine the asset’s recoverable amount sinc e the last impairment loss w as recognised . The reversal is limite d so that the carrying amount of the asset does no t exceed its recoverable amount, nor exceed the ca rrying amount that would have been determined, ne t of depreciation and amortisati on, had no impairment loss been recogn ised for the asset in prio r years. Such reversal is recognised in the consolidated income statement. In line with IAS 36, previously recognised impairment losses on goodwill are not reversed, s ee Note 16. The Group’s goodwill and intangible assets are tes ted as follows: (a) Goodwill is allocated to each of the Gro up’s cash-generating units. These cash-generating units are tes ted for impairment annually, or more frequent ly when there is an indication that the un it may be impaired. If the recoverable amount of the cash-gen erating un it is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carry ing amount of any goodwill al located to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asse t in the unit. An impairment loss recognised for goodwill is not reversed in a subsequen t period. The assumptions used and sensiti vity analysis in the impairment tests are set out in Note 16 (b) Intangible assets that are not yet ready for use are not subject to amortisat ion and are tested annually for impai rment or more frequently if events or changes in circumstances indicate that they might be impaired. Other intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable Inventories Inventories are stated at the lower o f cost and net r ealisable value. Purchased products are stated at acquisition cost including all additional attributable costs i ncurred in bringing each product to its present l ocation and condition. The costs of own-ma nufactured product s comprise direct materials and, where applicable , direct labour costs a nd any overheads t hat have been incurred in bringing the i nventories to their present location and condition. In the consolidated balance sheet, inventory is primarily valued at historical cost determined on a moving average basis, an d this value is used to determine the cost of sales in the consolidated incom e statement. Net realisable value represents the estimated selling price in the ordinary course of business, less all estimated costs ne c essary to make th e sale. Inven tory related provisions are made when net realisable value is lower t han cost, and for slow moving and short dated inventory. Cash and cash equivalents Cash and cash eq uivalents comprise cash at bank, cash in hand and highly liquid invest ments with maturi ties within three months or less. Money mar ket deposits comprise investment in funds at FVTPL that are subject to insignificant risk of ch anges in fair value and can be readily converted into cash. Hik ma Ph arm ace utic al s PLC Annual Report 2021 13 5 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 2. Signific ant accounting policies continued Financial instruments Financial assets a nd financia l liabi lities are recognised on the Group’s consolidated bala nce sheet when the Group becomes a party to the contractual provisions of the instrument. Financial assets The Group classifies its financial as sets in the following measurement categories: (i) Financial assets at FVTPL Listed shares, debt instruments and invest ment port folios he ld by the Group that are tr aded in an act ive market are c lassified as being financial assets at FVTPL and are stated at fair value. Gains and losses arising from changes in fair value are recognised in the consolidated Income Statement, see Note 23. (ii) Financial assets at FVTOCI The Gro up’s inves tments held by its venture capit al su bsidiaries are stated at FVTOCI with no recycling of cumula tive gains or losses upon de-recognition. Investments in un lis ted shares are measured at cost minus any impairment and adjusted for observable price changes in orderly transactions for the identical or a similar investment of the same issuer un der level 3 valuation. For investments in lis ted shares, fair value is re adily determin able under level 1 valuation, see Not es 19 and 2 9. (iii) Financial assets at amortised cost Trade rece ivables, loans , and othe r receivables that have fixed or determinable pa yments that are not quoted in an active market are classified as ‘financial assets at a mortised cost’. These financial assets are measured at amortised cost using the effective interest method, less any impairment. Interest income is recogn ised by applying the effec tive interest rate, except for short-te rm r eceivables wh en the recognition of interest would be immaterial. In order for a financial asset to be classified and measured at amortised cost, it needs to give rise to cash flows that are solely payments of principal and inter est (SPPI) on the principal amount outstanding . This assessment is referred to as the SPPI test and is performed at an instru ment lev el. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The busin ess model determines wh ether cash flows will result from co llecting contractual cash flows, sellin g the financial assets, or both. Financial assets classified and measured at a mortised cost are he ld within a business model with the objective to hold financial assets in order to collect con tractual cash flows. The effect ive inte rest metho d is a m ethod of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant per iod. The effective interest rate is the rate th at exactly discounts estimated future cash receipts (including all fees an d points paid or received that form an integral pa rt of the e ffective intere st rate, transaction costs and other premiums or discounts) th rough the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amoun t on initial recognitio n. Income is recognised on an effectiv e interest basis for debt instruments other than those financial assets classified as at FVTPL. For trade receivables and contract assets, the Group applies a simplified approach in calculatin g expected credit loss. Th erefore, the Group does not track changes in credit risk, but in stead recognises a loss allowance based on lifetime expected credi t losses at e ach reporting date. The Group h as establishe d a provision matrix that is based on its historical credit lo ss experie nce, adjusted for forward-looking factors specific to the debtors and the economic environment. Financial liabilit ies Financial liabilities are c lassified in two categories: financial liabilities at FVTPL or financial debts repres enting loans and borrowings. The classification dep ends on the natu re and purpose of t he financial liabilities and is determined at the time of initial recognition. (i) Financial liabilities at FVTPL The Gro up currently has two fin ancial liabilities at FVTP L as below: — co-development and earn out payment agreements with third parties where the Group earns milestone payments reflecting the achieveme nt of research and development; and commercialisation milestones. Those payments are recogn ised as fina ncial liabilities once received — contingent consideration arising fro m the Columbus business acquisition represent contractual liabilities to make paymen ts to third parties in the form of mile stone pa yments that are dependent on the achievement of certain US FDA approval milestones; and payments based on future sales of certain products Financial liabilities at FVTPL are reva lued at the end of each reporting period to represent the va lue of expected fu ture cash outflows and the difference is presented as finance co st/income. These fi nancia l liabili ties are currently booked under other non- current liabilities and o ther current liabilities in the consolidated balance sheet. (Note 27 and 30) (ii) Financial debts Financial debts ar e initial ly measure d at fair value, n et of transaction costs and subsequently measured at amortised cost using the effective interest method, with interest ex pe nse recognised on an effective interest method. The effect ive inte rest metho d is used fo r calculat ing th e amortised cost of a financial liabi lity and of allocating interest expens e over the relevant period. The calculation of effective interest rate is the rate that exactly discounts estima ted future cash payments through the expected life of the financial liability, or, where appr opriate, a shorter p eriod, to the net carrying amount o n initial recognition. A financial liability is derecognised when the o bligation under the liability is discharged or cancelled or expires. When an existing fin ancial liability is replaced by anot her from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the dere cognition of the original liability and the recognition of a n ew liability. The difference in the respective carrying amounts is reco gnised in the consolidated income statement. 136 H ikm a Phar mac eut ica ls PLC Annual Repor t 2021 2. Significant ac c ounting policies continued Provisions Provisions are recognised when the Group has a presen t obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources w ill be required to sett le the obligations and a reliable estimate can be made of the amount of the obligation. Own shares — The Group provides finance to th e trustee of the Employee Benefit Trust (EBT) which is Link Market Ser vice Trustee Limited to purchase shares to satisfy long-term commit ments arising from t he employee share plan operated by the Company. These shares are deducted from equity. (Note 31) — Treasury shares and any direct expenses associated with them are recognised at cost and deducted from equity. No gain or lo ss is recognised in the consolidated income statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments. (Note 31) Cash dividen d The Compan y recognises a liability to pay a dividend when th e distribution is authorised and no longer at the discretion of the Company. In accordance with the laws of the United Kingdom, a final dividend is recognised when it is approved by th e majorit y of shareholders and an interim dividend is recognised when it is paid. Equity instruments Equity inst ruments issued by the Group are recorded at the proceeds received, net of direct issue costs. 3. Cr itical acco unting j udgements and key sources of estimation uncertainty In the application of the Group’s acco unting policies, which are described in Note 2, the Directors are requ ired to make judgements and estimates about the carrying amounts of assets and liabilities that are not readily apparent fro m other sources. The estimates are based on historical experience and other factors that ar e considered to be relevant. Actual res ults may differ from these estimates. The estimates are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is rev ised if the revision affects only that period or in the period of the revision and future pe riods if the revision affects both current and future periods. The Group’s Directors belie ve that th e following accounting policies that involve Directors’ judgements and estimates are the most critical to understanding and evaluating th e G roup’s financial results. Revenue r ecognition estimate (Notes 4 and 5 ) The Group’s revenue recognition poli cies require Directors to make estimates o f the n et selling price, which is made complicated due to chargebacks, product returns and rebates. These arrangements vary by product arrangement and buying group. Refer to Note 2 for more details on each of the underlying es timates, and Note s 21 and 27 for sensitivity analysis. Goodwill and intangible assets – i mpairment testing CGUs ( Note 16) Testing for im pairment of goodwill and other assets included within a cash generating unit (CGU) to estab lish the appropriate valuation of the CGU. The valuation used for compa ris on to the carr ying value of the net assets of the CGU requires the fol l owing ke y judgements and estimates: Critical judgemen t — Determination of the CG U — For rever sal assessment of the Generics CGU, the Group assessed the events that indicat ed the impairment booked in 2017 and concluded that such indicators still existed, namely pricing pressures in the market, the increasing number of generic products and delays to approvals of more complex products. The existing valuation headroom above the carrying value of the Generics CGU has predominantly been created by marketed and pipeline products that were not reflected in the Group’s plans at the time that the ori ginal impairm ent wa s booked, and as such did not reflect a reversal o f the initial impairment ind icators Critical estimates — Estimating a five-year business plan for the purposes of forecasting free cash flows involves forecast ing appropriate sales and operating expenses taking into consideration both internal and e xternal information — Estimating future capital expenditures and working capital requirements over the five-year pe riod — Estimating a d iscount rate that appr opriately reflects the Group’s weighted avera ge cost of capital as adjusted for specific risk premiu ms reflecting risks inherent in achieving the projected fu ture cash flows — Estimating an app ropriate terminal growth rate beyond the forecast period Product related intangibles (Note 16 ) Valuing intangible assets upon initial recogn ition as at the acquis ition date and testing for impairment require th e followin g judgements and estimates : Critical judgemen t — For pipeline products, establishing t he launch date and probability of a successful product app roval are critical judgements — Determining whethe r an impairme nt indication has occurred for intangible asse ts. In such case the Group first assesses the qualitative factors to determine whether it is more likel y than not that the fair value o f the intangible asset is less than its carryin g amoun t as a basis for dete rmining whether it is necessary to perfo rm a quantitative impairment test — For previously impaired assets, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased, if such indication exists, the Group estimat es the asset’s or CGU’s recoverable amount. Refer to Notes 2 and 16 f or more details Critical estimates — Esti mating revenue forecasts (including market size, estimated expected market share, number of competitors and net sellin g prices) — Esti mating the expected economic useful lives of the product-related intangibles — Estimating the sal es and the allocation of marketing, r esearch and development and other operating co sts to the indi vidual product- related in tangibles — Estimating a contr ibutory asset charge (on working capital, fixed assets and workforce) — Estimating a d iscount rate and specific risk premiums Contin gent c onsiderati on (Notes 27, 29 and 30) The determin ation o f the fair value of conti ngent consideration is base d on discounted cash flows. The critic al estimates and judgements taken into consideration for contingent co nsideration fair valuation are the same as applied for forecas ting r e ve nue of launched and pipeline products desc ribed in ‘Product related intangibles’ above. (S ee Note 29 for sensiti vity analysis) Hik ma Ph arm ace utic al s PLC Annual Report 2021 137 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 3. Critical accountin g judgements and key sources of estima tion uncertainty continued Taxation ( Notes 12 and 13) Key sour ces of estimation uncertainty The Group has made the fol lowing key assumptions concerni ng the future, or other key so urces of estimation unce rtainty in the reporting period tha t may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Recognition of deferred tax assets (No te 13) The recognition of deferred tax assets is b ased on the c urrent forecast of taxab le profits arising in th e jurisd iction in which the deferred tax asset arises. A deferre d tax asset is recogn ised to the extent that there are forecast taxable pro fits within a reasonable period. This exercise is reviewed each year and, to the extent forecasts change, an adjustment to the recognised deferred tax asset may be made. Recognition of deferred tax assets is dr iven by the Group’s ability to utilise the deferred tax asset which is reliant on forecast taxable pro fits aris ing in the jur isdiction in which losses are incurred. Tax audit risk In commo n with most international organisatio ns, the Group is s ubject to audit from revenue authorities from t ime to time. W here an outflow of funds is belie ved to be probab le and a reliable estimate of the outcome of the dispute can be made, management provides for its best estimate o f the liabilit y. These estimates take int o account the specif ic circumstances of each dispute and rele vant external advice, are inherently judgemental and could change substantially over time as new facts emerge and each dispute progre sses. Hik ma continues to inves t in its financial s ystems to ensure the quality of the Group’s fina ncial data which reduces the risk o f an adve rse revenu e authority audit. Furthermore, Hikma continues to believe that it has made ad equate pro vision for the liabilities likely to ar ise from open assessments and audits. Where open issue s exist, the ultimat e liability for suc h matters may vary from the amoun ts provided and is dependent upon the outcome of nego tiat ions with the rele vant tax authorities or, i f necessary, litigation proceedings. Other risks In addit ion to tax audits, the G roup faces other potential tax risks that could affect the sustainability of th e Group’s effective tax rate. The main risks are noted below. Hik ma regularl y takes professional advice to ensure the risks mentioned below are approp riately analysed and managed with any ul timate poten tial liabi lity being adequately provided. Transfer pricing risk The transfe r pricin g risk can a rise from a difference in view over the pricing of cross-b order, inte rcompany product sales and services and of sales o f assets. The standard by whic h mo st authoritie s, and the G roup, assess the transfer price is whether it is set at ar m’s len gth. An upward adjustment b y the tax authority of one territory will not necessari ly result in the downward adjustment by the other territo ry, pot entially lead ing to an increased estimated tax cost thro ugh a mismatch of tax deductions and taxable income, as well as a potential increase arising o ut of a rate arbitrage. The Group has considered the risk in detail and has provided for poten tial tax adjustments so does n ot believe that any adjustment will materially impact the rate going forward. Valuation risk As part of a reorganisation following the Co lumbus busine ss acquisition in 201 6 and the 20 19 busine ss restru cturing, certain assets and liabilities were transfe rred in tra-Group with external valuations obtained. If these valuations are suc cessfully chal lenged by relevant tax authorities, it could adversely impact th e tax recorded on the reorganisation. Sensitivity (Note 12) Where an uncertain tax position aris es, the Group w ill assess what the probable o utcome wi ll be, assuming the rele vant tax authority has full knowledge o f the situation. Where it is asse ssed that an exposure will give r ise to an uncertain tax position , a provision is booked for the best estimate of the liability in line with IFRIC 23 p rinciples. Hikma con tinues to re-evaluate existing uncertain po sitions to determine if a change in facts and circumstances has occurred that wo uld make it necessary to adjust. Contingent liabilities Legal contingent li abilities The promo tion, market ing and sale of pharmaceut ical products and medical de vices is highly regulated and the operations of market participants, such as Hikma, are closely supervised by regulator y authorities and la w enforcement ag encies, including the FDA and the US Department of Justice. As a result, the Group is subject to cer tain investigations by governmental agencies, as well as other various legal proceedings considered typical to it s business relating to employment, product l iability and commerc ial d isputes. (see Note 36) The critic al areas of judgement in re lation to contingen t liabilit ies are as follows : — a possible obl igation depending on whether some uncertain future event occurs in relation to legal proceedings and/or go vernmental agencies in vestigations — a present obligation but payment is not probable where Hikma denies having engaged in conduct t hat w ould give rise to liability with respect to these civil suits and is vigorously pursuing defence o f legal proceedi ngs — a present oblig ation but the a mount cannot be measured reliably Tax contingent lia bilities Due to the Group operating across a numb er of differ ent tax jurisdicti ons, it is subject to periodic challen ge by local tax authorit ies on a ran ge of tax matters arising in th e normal course of busin ess. These challenges generally include transfer pr icing arr angements, oth er internatio nal tax matters and the judgemental interpretation of local tax leg islation. 138 H ik ma Pha rma ceu tic als P LC Annual Repor t 2021 4. Revenue from contra cts with customers Business and geographical markets The follo wing tabl es provide an analysis o f the Group’s reported revenue by segment an d geographical market, irrespective o f th e origin of the goods/services: Injectables Generics Branded Others Total Y ear ended 31 December 2021 $m $m $m $m $m United States 691 820 – – 1,511 Middle East and North Africa 180 – 661 6 847 Europe and rest of the world 176 – 8 5 189 United Kingdom 6 – – – 6 1,053 820 669 1 1 2,553 Injectables Generics Branded Others Total Year ended 31 De cember 2020 $m $m $m $m $m United States 662 744 – – 1,406 Middle East and North Africa 160 – 605 5 770 Europe and rest of the world 149 – 8 2 159 United Kingdom 6 – – – 6 977 744 613 7 2,341 The top selling markets in 20 21 are as below: 2021 2020 $m $m United States 1,511 1,406 Saudi Ar abia 218 223 Egypt 127 118 1,856 1 ,747 In 2021, included in revenue arising from the Generics and Inje ctables segments are sales the Group made to two wholesalers in the US accounting for equal to o r greater than 10% of the Group’s revenue on an individual basis of $402 million (16% of Group revenue) and $341 mill ion (1 3% of Group rev enue), in 2020: $333 million (14% of Group revenue) and $274 million (12% o f Group revenue). The following table provides contra ct balances related to re venue: 2021 2020 $m $m Trade receivables (Note 21) 781 662 Contract assets (Note 23) – 3 Contract l iabilities (Note 27) 213 162 Trade receivables are non-i nterest bearing and typical credit terms in the US range from 3 0 to 90 days, in Europe 30 to 120 days, and in MENA 180 to 360 days. Contract l iabilities mainly relate to returns and free go ods provis ions. Hik ma Ph arm ace utic al s PLC Annual Report 2021 139 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 5. Business segments For managem ent reporting purposes, the Grou p is organised into three principal operating divisions – Inject ables, Ge nerics and Branded. These divisions are the b asis on which the Gr oup repor ts its segm ental informati on. Core op erating pro fit, defined as ‘segment result’, is th e prin cipal measure used in the decisi on-making and r esource allocatio n process of the chief operating decision maker, who is the Group’ s Ch ief Executive Officer. Information regarding the G roup’s o perating seg ments is reported below: 2021 Core results 2021 Exceptional items and other adjustments (Note 6) 2021 Reported results 2020 Core results 2020 Exceptional items and other adjustments (Note 6) 2020 Reported results Injectables $m $m $m $m $m $m Revenue 1,0 53 – 1,053 977 – 977 Cost of sales (472) – (472) (414) – (414) Gross profit 581 – 581 563 – 563 Total operating expenses (186) (44) (230) (186) (23) (209) Segment result 395 (44) 351 377 (23) 354 2021 Core results 2021 Exceptional items and other adjustments (Note 6) 2021 Reported results 2020 Core results 2020 Exceptional items and other adjustments (Note 6) 2020 Reported results Generics $m $m $m $m $m $m Revenue 820 – 820 744 – 744 Cost of sales (432) – (432) (403) (12) (415) Gross profit 388 – 388 341 (12) 329 Total operating expenses (186) 15 (171) (180) 54 (126) Segment result 202 15 217 161 42 203 2021 Core results 2021 Exceptional items and other adjustments (Note 6) 2021 Reported results 2020 Core results 2020 Exceptional items and other adjustments (Note 6) 2020 Reported results Branded $m $m $m $m $m $m Revenue 669 – 669 613 – 613 Cost of sales (341) – (341) (306) – (306) Gross profit 328 – 328 307 – 307 Total operating expenses (203) (21) (224) (181) (6) (187) Segment result 125 (21) 104 126 (6) 120 2021 Core results 2021 Exceptional items and other adjustments (Note 6) 2021 Reported results 2020 Core results 2020 Exceptional items and other adjustments (Note 6) 2020 Reported results Others¹ $m $m $m $m $m $m Revenue 11 – 11 7 – 7 Cost of sales (6) – (6) (5) – (5) Gross profit 5 – 5 2 – 2 Total operating expenses (3) – (3) (2) – (2) Segment result 2 – 2 – – – 1. Oth ers mai nly comprises Arab Medical Cont ainers LL C and International Pharmaceutical Research Center LLC 140 H ikm a Pha rmac eu tic als PLC Annual Repor t 2021 5. Business segments continued 2021 Core results 2021 Exceptional items and other adjustments (Note 6) 2021 Reported results 2020 Core results 2020 Exceptional items and other adjustments (Note 6) 2020 Reported results Group $m $m $m $m $m $m Segment resul t 724 (50) 674 664 13 677 Unallocated expe nses¹ (92) – (92) (98) – (98) Operating profit/( loss) 632 (50) 582 566 1 3 579 Finance income 1 29 30 9 38 47 Finance expense (56) (13) (69) (54) (15) (69) Gain fro m invest ment at FVTPL – – – 1 – 1 Results f rom joint venture 1 – 1 – – – Profit/(loss) before tax 578 (34) 544 52 2 36 558 Tax (129) 5 (124) (115) (13) (128) Profit/(loss) for the year 449 (29) 420 407 23 430 Attributable to: Non-controlling interests (1) – (1) (1) – (1) Equity holders of the parent 450 (29) 421 408 23 431 449 (29) 420 407 23 430 1. Unallocated corporate expenses mainly comprise employ ee costs, third-party professional fees and IT expenses The following table provides an analysis of the Group non-current assets 2 by geographic a rea: 2021 2020 $m $m United Sta tes 1,083 995 Middle E ast and North Afr ica Jordan 365 356 Others 321 307 686 663 Europe and rest of the world Portugal 136 137 Others 52 55 188 192 United King dom 8 1 94 2,038 1,944 2. Non-curren t ass ets exclud e inv estments in joint ventures, deferr ed t ax a ssets, and financi al and o ther non-cur rent assets Hik ma Ph arm ace utic al s PLC Annual Report 2021 141 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 6. Exceptional items and other adjus tments Exceptional items and other adjustments are d isclosed separate ly in the c onsolidated income statement to a ssist in the under sta nding of the Group’s core perfo rmance. Generics Injectables Branded Unallocated Total 2021 $m $m $m $m $m Exceptional items Intangible asse ts write-down Other operating expenses (1) (1) (11) – (13) Excep tional items (1) (1) (11) – (13) Other adjustments Impairment reversal of product relate d intangibles Other op erating inc ome 60 – – – 60 Impairment of produ ct related intangib les Other operat ing expenses (14) (10) – – (2 4) Intangible assets amortisation other than software SG&A (30) (33) (10) – (73) Remeasurement of c ontingent consideration Finance income – – – 29 29 Unwinding and r emeasurem ent of c ontingent consideration and other financial li ability Finance expense – – – (13) (13) Exception al items and other adjustme nts inclu ded i n pro fit bef ore t ax 15 (44) (21) 16 (34) Tax effect Tax 5 Impact on profit for the year (29) Exceptional items have been recognised in accordance with our accounting policy outlines i n Note 2, the details a re presented below: Excepti onal items — Intangible assets write-down: $13 m illion wr ite-down o f software representing prior year impact of the application of the IFRIC April 202 1 agenda decisions regard ing cloud computing arrangement cu stomisation and configuration costs treatment. The Group has adopted the IFRI C update as a change in accounting policy. The impact relating to prior ye ar wa s not material and therefore the applicat ion was not retrosp ectively applied and was recognise d in the current year co nsolidated in come statement as exceptional item (N ote 1) Other adjustments — Impairment reversal of product related intangibles: $60 mi llion impairment reversal mainly related to gen eric Adva ir Diskus® intangible asset as a result o f launchin g the product following FDA approva l in April 2021 fo llowing an amendment submitted to its Abbre viated New Drug Application in Januar y 2021 (Note 16) — Impairment of product re lated intan gibles: $ 24 mil lion impa irment charg e of different product related intan gibles due to a decl ine in performance and forecaste d profitab ility (No te 16) — Intangible assets amortisation other than software of $73 million — Rem easurement of contingent consideration finance income of $29 million represents the income resulting from the val uation of the liabilities associated with the future contingen t payments in respect o f contingent consideratio n recognised through business combinations (Notes 27, 29 and 30) — Unwinding and remeasurement of contingent consideration and other financ ial liability fin ance expen se of $13 million represents the expense resulting from the unwinding and the valuation of the liabilities associated wit h the future contingent paym ents i n respect o f contingent consideration recognised through business co mbinations and the financial liability in relation to the co-development ea rnout payment agreement (Notes 27 , 29 and 30) 142 Hi kma P harm ace uti ca ls PLC Annual Report 2021 6. Exceptional items and other adjustments continued In the previous ye ar, exceptional ite ms and ot her adjustments were related to the follow ing: Generics Injectables Branded Unallocated Total 2020 $m $m $m $m $m Exceptional Items Jordan war ehouse fire incident Other operating income 4 – 7 – 11 MENA severance and restructuring c osts SG& A – – ( 3) – ( 3) Assets write of f – PP E I mpairment Other operating expenses (3 ) – – – (3 ) Assets write of f – I nventory Related Provision Cost of sal es (12) – – – ( 12) Excep tional items (1 1) – 4 – (7 ) Other adjustments Impairment of p roduct rela ted intangibles Other operating expenses (4 ) – – – (4 ) Impairment reversal of product related i nta ngibles Other op erating inc ome 66 – – – 66 Intangible assets amortisation other than software SG&A (9 ) ( 23) (1 0) – (4 2) Remeasurement of contingent consideration Finance income – – – 38 3 8 Unwinding and r emeasurement o f c ontingent consideration and other financial li ability Finance expens e – – – (1 5) ( 15) Exception al items and other adjustments includi ng in profit befo re tax 42 (23) (6) 23 36 Tax expenses associated with previously unrecognised deferred tax assets Tax ( 3) Tax effect Tax (1 0) Impact on profit for the year 2 3 Excepti onal items — Jordan warehouse fire incident: In 2020, Hikma recognised $1 1 million for i nsurance compensation related to a fire incident which took place in 20 19 at one of Hikma’s Jordan facilities — MENA severance and restructuring costs: of $ 3 million related to on e-off o rganisational restructuring in MENA that sta rted in 2 019 and finis hed in 20 20 — Assets write off: In December 2020, Hikma submitted to the FDA a Prior Approval Suppleme nt (PAS) relating to generic Advair Diskus®. The amendment reflected enh anced packaging controls to meet new industry standards adopted since the initial submission of its AND A applic ati on. As a result, the launch has been temporarily paused and inventory amounting to $12 million was expected to expire before launch and ha s been written off. In addition, $3 million of property, plant and equipment was written off (Notes 9 and 17) — Tax expense associated with previo usly unrecognised deferred tax assets: A prior year adjustment to the tax expense associate d with previously unrecognised deferred tax assets of $3 million arose as a tax return to prov ision adjustment Other ad justments — Im pairment reve rsal of product related inta ngibles: $66 million impairme nt reversal in respect of specific product related intangibles in the Generics segment wh ich reflected a better than expected performance of ce rtain marketed products acquired through business combination ( Note 16) — Im pairment charge of product re lated intangibles of $4 mill ion — Intangi ble assets amorti sation othe r than software of $42 million — Rem easurement of contingent consideration fi nance income of $ 38 million represents th e in come result ing fro m the valuation of the liabilities associated with the future contingen t paym ents in respect of contingent consideration recognised through business combinations (Notes 27, 29 and 30) — Unw inding and remeasurement of contingent consideration and othe r financial liability finance expense of $15 million represents the expense resulting from th e unwinding and the va luation of the liabilities associated with the future cont ingent payments in respect of contingent consideration recognised through business combinations and the fi nancial liability in relation to the co-development earnout pa yment agreement (Notes 27, 29 and 30) Hik ma Ph arm ace utic al s PLC Annual Report 2021 143 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 7. Audit remuneration The Group auditor’s remuneration on a world wide basis is as be low: 2021 2020 1 $m $m Fees to the aud itor for the aud it of the annual accounts 1.4 1.0 Fees to the aud itor and its associate s for the audit of the Group's subsidiaries 1.9 1.9 Total audi t fees 3.3 2.9 Audit re lated assurance services 2 0.2 0.2 Other non-audit fees – 0.2 Total audit and non-audit fees 3.5 3.3 1. A mounts have been restat ed to re flect final amounts b illed in relatio n to 2020 2. Assurance services relate to r eview procedures in respect to the interim financial information In 2020, non-audit fees of $0.2 million we re charged relating to a bond offering. A descript ion of the work of the Audit Comm ittee is set out in the Audit Committee report on pages 83 to 86 and includes an exp lanation of how auditor objectivity and in dependence is safeguarded when non-audit services are provided by the auditor. 8. Staff costs The average monthly number o f employees (including Executive Directors) was: 2021 2020 Number Number Production 4,924 4,918 Sales, general and administration 3,273 3,282 Research and development 506 481 8,703 8,681 2021 2020 $m $m Aggregate remuneration comp rised: Wages, salar ies and bonuses 407 392 Social security costs 38 39 Post-employment benefit s 15 14 End of service indemnity 9 9 Share-based pa yments (Note 37) 29 27 Car and housing allowances 22 21 Health insurance 41 36 Other costs and e mployee benefits 22 22 583 560 144 Hik ma Ph arma ce utic als P LC Annual Report 2021 9. Other operating income/expenses 2021 Core results 2021 Exceptional items and other adjustments (Note 6) 2021 Reported results 2020 Core results 2020 Exceptional items and other adjustments (Note 6) 2020 Reported results Other operating expense $m $m $m $m $m $m Impairment charge of intangible assets – 24 24 1 1 4 15 Intangible assets write -down – 13 13 – – – Impairment cha rge of property, plant and equipment 1 – 1 3 3 6 Loss on disposal/damage of property, plant and equipment 1 – 1 2 – 2 Forex and net monetary hyperinflation losses, net 36 – 36 30 – 30 Others 2 – 2 1 – 1 40 37 77 47 7 54 Exceptional items an d other adjustments comprise $24 million impair ment charge in relation to certain product related intangibl e assets and $13 million write-down of soft ware represent ing prior y ear impact of the application of the IFRI C April 2021 agenda decisions regarding clo ud computing arrangement customisation and configuration costs treatment . In 20 20, exceptional item s and other adjustments comprised $4 mill ion impairment charge in relation to certain p roduct related intangible assets in addition to $3 m illion write off of property, plant and equi pment (Notes 6, 16 and 17). 2021 Core results 2021 Exceptional items and other adjustments (Note 6) 2021 Reported results 2020 Core results 2020 Exceptional items and other adjustments (Note 6) 2020 Reported results Other operating in come $m $m $m $m $m $m Impairment reversal of intangible assets – 60 60 – 66 66 Others 2 – 2 3 11 14 2 60 62 3 77 80 Exceptional items and othe r adjustments repr esent $60 mill ion (2020: $66 million) impa irment reversal in relation to certain product related inta ngible assets (Notes 6 and 16). In 2020, the other operating income of $14 million mainly comp rised $ 11 mill ion for insurance compensation related to a fire in cident. 10. Fi nance income 2021 Core results 2021 Exceptional items and other adjustments (Note 6) 2021 Reported results 2020 Core results 2020 Exceptional items and other adjustments (Note 6) 2020 Reported results $m $m $m $m $m $m Interest income 1 – 1 7 – 7 Remeasurement of contingent consideration (Notes 27, 29 and 30) – 29 29 – 38 38 Other finance income – – – 2 – 2 1 29 30 9 38 47 Hik ma Ph arm ace utic al s PLC Annual Report 2021 14 5 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 11. Finance exp ense 2021 Core results 2021 Exceptional items and other adjustments (Note 6) 2021 Reported results 2020 Core results 2020 Exceptional items and other adjustments (Note 6) 2020 Reported results $m $m $m $m $m $m Interest on bank o verdrafts and loans 21 – 21 22 – 22 Interest on Eurobond 18 – 18 15 – 15 Unwinding and remeasurement of contingent consideration and ot her financia l liabil ities (Notes 27, 29 and 30) – 13 13 – 15 15 Other bank charges 13 – 13 13 – 1 3 Lease accretion of interest 4 – 4 4 – 4 56 13 69 54 15 6 9 12. Tax 2021 Core results 2021 Exceptional items and other adjustments (Note 6) 2021 Reported results 2020 Core results 2020 Exceptional items and other adjustments (Note 6) 2020 Reported results $m $m $m $m $m $m Current tax: Foreign tax 114 (7) 107 99 (2) 97 Adjustment to pr ior year (13) – (13) 1 3 2 Deferred tax (Note 13) Current year 20 2 22 19 12 31 Adjustment to pr ior year 8 – 8 (2) – (2) 129 (5) 124 115 13 128 UK corporation tax is calculated at 19.0% (2020: 19. 0%) of the estimated assessable profit made in the UK for the year. The Group incurred a tax exp ense of $124 million (2020: $128 million). The effective tax charge rate is 22.8% (2020: 22.9%). Th e reported effective ta x rate is higher than the sta tutory rate primarily due to the earnings mix. Taxation fo r all jurisdictions is calculated at th e rates prevailing in the res pective juris diction. 146 H ikm a Pha rma ceu tic als PLC Annual Repor t 2021 12. Tax continued The charge for the year can be recon ciled to profit before tax per the co nsolidated inco me statemen t as follows: 2021 2020 $m $m Profit be fore tax 544 558 Tax at the U K corporation tax rate of 19% (2020: 19.00%) 104 106 Profits taxed at different rates 7 7 Permanent differe nces: – Non-deductible expenditure 5 7 – Other permanent differences 2 – – Research and development benefit (6) (3) State and local taxes 7 8 Temporary differences: – Rate change tax l osses and other deductible temporary differences for which no benefit is recognised 5 6 – Exceptional tax ch arge associated with pr eviously un recognised tax losses (Note 6) – 3 Change in provis ion for uncertain tax positions 2 (8) Unremitted earn ings 3 4 Prior year adjust ments (5) (2) Tax expense for the year 124 128 Profits taxed at different tax rates relates to profits arising in overseas jurisdictions where the t ax rate differs from the U K statutory rate. Permanent differences relate t o items which are non-taxable or for which no tax relief is ever likely to be due. The major items are expenses and income disallowed where they are covered by statutory exemptions, foreign exchange differences in som e territories and statutory r eliefs such as research an d developmen t. Rate change tax losses and other deductible temporary differences for w hich no benefit is reco gnised includes items for wh ich i t is not possible to book deferred tax and comprise mainly unrecognised tax losses. The change in provision for uncertain tax positions relates to the provisions the Group holds in the event a revenue authority successfully takes an adverse view of the positions adopted by th e Group in 2021 and primarily relates to transfe r pricing adjustment. As at th e cons olidated balance sheet date, the Group h eld an aggregate p rovisi on in the sum of $44 million (2020: $43 million) for uncertain tax positions. The Grou p released $nil in 2021 (2020: $8 million) due to the statute of limitations and released $7 million (2020: $4 million) following settlements with no f inal tax adjust ments required by the relevant tax authorities. This was offset by new provisions and updates of $9 mill ion booked in 2021 (2020: $4 million). The cur rency exchange differen ces for the year is a $1 million reduction to the aggregate provision. In 2022, up to $ 4 million could be released due to the statute of limitation and settlements. If all areas of uncertainty were audite d and all areas re sulted in an adverse outcome, manage ment d oes not believe any material additional tax would be payable be yond what is pro vided. Prior year adjust ments include differen ces between the tax liability recorded in the t ax returns subm itted for previous years a nd the estimated tax provision reported in a prior period’s consolidated financial st atements. This category also includes adjustments to the tax re turns (favourable) against which an adverse uncertain tax position has been booked and included under “change in provisi on for uncertain tax positions” ab ove. Publication of tax strategy In line with the UK requirement for la rge UK businesses to publish their ta x strategy, the Group’s tax strategy has been made ava ilable on the Group’s website. Hik ma Ph arm ace utic al s PLC Annual Report 2021 147 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 13. Deferred tax Certain defe rred t ax assets and liabi lities have been appropriatel y o ffset. Th e follow ing is the analysis o f the deferred tax b al ances (after offset) for financial reporting purposes: As at 31 December 2021 2020 $m $m Deferred tax liabilities (24) (31) Deferred tax assets 183 221 159 190 The below table represents the de ferred tax movement in 2021: Product related provision Intangible assets Other provisions and accruals Unremitted earnings Others Total $m $m $m $m $m $m 1 January 2021 111 76 18 (11) (4) 190 Credit/(charge) to incom e (17) – (6) 3 (10) (30) Currency translation (loss) and hyperinflation impact – 1 – – (2) (1) At 31 December 2021 94 77 12 (8) (16) 159 The below table represents the de ferred tax movement in 2020: Product related provision Intangible assets Other provisions and accruals Unremitted earnings Others Total $m $m $m $m $m $m 1 January 2020 96 99 20 (7) 15 223 Credit/(charge) to income 15 22 (1) (4) (17) (29) Currency translation (loss) and hyperinflati on impact – (1) (1) – (2) (4) At 31 December 2020 111 76 18 (11) (4) 190 The Gro up has a poten tial defe rred tax asset o f $234 million (2020: $258 million), of which $183 million (2020: $221 mi llion) h as been recognised. No deferre d tax asset has been recognised on gross temporary di fferences to talling $208 mill ion (2020: $171 million) mainly due to the unpredictability of the related future profit streams. $194 million (2020: $168 million) of these gross tempo rary di fferences re late to losses, of which $186 million are UK losses that don’t expire. No deferred tax is recognised against the losses due to significant uncertainty regarding future t axa ble income forecasts in the relevant jurisdictions. $3 m illion of non-UK losses are expected to expire i n 2022. The rema in ing $14 million represent other u nrecognised gross short term tempo rary d ifferences that rela te to multiple jurisdictions. During the year a r eduction in the deferre d tax liability has been recognised on temporary differ ences relating to the unremitt ed earnings of ove rseas subsidiaries of $3 million (2020: addition of $4 million) . No deferred tax lia bility h as been recognised on the remaining unrem itted earnings of $207 mi llion (20 20: $239 million), as the G roup is able to con t rol the timing of the reversal of these temporary d ifferences an d it is probab le that they will not re verse in the foreseeab le future. The Group has adjusted the c lassification of $ 11 million to better reflect the nature of deferred tax ba lances, this has been i ncluded in the current year movement under “credit/(charge) to income” an d did not result in any impact on the consolidated balance sheet. Deferred taxes o n in tangible ass ets relate to differences between the tax deductions and the book deductions for intangible assets. 148 Hik ma Pha rma ceu tic als P LC Annual Report 2021 14. Dividends Paid in 2021 Paid in 2020 $m $m Amounts recognised as distributions to equit y holders in the year: Final dividend for the year ended 31 December 2020 of 34.0 cents (31 December 2019: 30.0 cents) per sha re 78 72 Interim di vidend during the year ended 31 Dece mber 2021 of 18.0 cents (31 December 2020: 16.0 cents) per share 42 37 120 109 The proposed final di vidend for the year ended 31 De cember 2021 is 36.0 cents (2020: 34.0 cents). The proposed final di vidend is subject to approval by s hareholde rs at the Annual General M eeting on 25 April 2022 and has not b een included as a liability in these consolidated financial statements. Based on the number of shares in free is sue at 31 Dece mber 2021 (231,498, 0 55), the unrecognised liability is $ 83 millio n. 15. Earnings per share (EPS) Basic earn ings per share is calculated by dividing the profit at tri butable to equi ty holders of the parent by the weighted aver age number of Ordinary Shares. Dil uted EPS is calcu lated by dividing the profit attribut able to ordinary equity holders by the weighted average number of the Ordinary Sh ares outstanding durin g the year plus the weighted ave rage number of Ordinary Shares that would be issued on conversion of all dilut ive poten tially Ordinary Shares. The number o f Ordinary Shares used for the basi c and di luted calculat ions is shown in the table below. Co re ba sic earnings per share and core diluted earnings per sh are are intended to highlight the core re sults of the Group before exceptional items and other adjustments. 2021 Core results 2021 Exceptional items and other adjustments (Note 6) 2021 Reported results 2020 Core results 2020 Exceptional items and other adjustments (Note 6) 2020 Reported results $m $m $m $m $m $m Earnings for the purposes of basic a nd diluted EPS being net profit attributable to equity holders of the parent 450 (29) 421 408 23 431 Basic earn ings per share has been calculated by dividing the profit attributable to shareholders by the weight ed average number of shares in iss ue during the year after deduct ing Treasury shares and shares held by the Employee Benefit Trust (EBT ). Treasury shares have no ri ght to receive dividends and the trustees have waived their rights to dividends on the sh ares held by the EBT. The numbers of shares used in calculating basic an d diluted earnings per share are reconciled below: 2021 2020 Number Number Number of shares m m Weighted avera ge number of Or dinary Shares for the purposes of basic EPS¹ 231 236 Effect of dilutive potentially Ordinary Shares: Share-based awa rds 2 2 Weighted avera ge number of Or dinary Shares for the purposes of diluted EPS 233 238 1. Wei ghted avera ge nu mber of o rdinary shar es h as been calculat ed by th e wei ghted average nu mber of s hares in i ssue during the year after d educting Treasury shares and shares held by t he E BT (Note 31) 2021 Core EPS 2021 Reported EPS 2020 Core EPS 2020 Reported EPS Cents Cents Cents Cents Basic 194.8 182.3 172.9 182.6 Diluted 193.1 180.7 171. 4 181.1 Hik ma Ph arm ace utic al s PLC Annual Report 2021 149 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 16. Goodwill and other intangible assets The chan ges in the carryin g value of goodwill and o ther intan gible assets for the years ended 31 December 2021 and 31 December 2020 are as follows: Goodwill Product-related intangibles Software Other identified intangibles Total $m $m $m $m $m Cost Balance at 1 January 2020 690 1,033 147 184 2 ,054 Additions – 8 12 1 6 36 Disposals – – (14) – (14) Translation adjustments 7 – – 5 12 Balance at 1 January 2021 697 1,041 145 205 2,088 Write-down – – (14) – (14) Additions – 14 11 58 83 Reclassification – 3 – (3) – Translation adj ustments (4) (2) – (3) (9) Balance at 31 December 2021 693 1,056 142 257 2,148 Accumulated amortisation and im pairment Balance at 1 January 2020 (408) (660) (75) (77) (1,220) Charge for the year – (29) (10) (14) (53) Disposals – – 14 – 14 Impairment reversal – 6 6 – – 66 Impairme nt charge – (5) (10) – (15) Translation adj ustments – (1) – (3) (4) Balance at 1 January 2021 (408) (629) (81) (94) (1,212) Write-down – – 1 – 1 Charge for the year – (59) (11) (14) (84) Impairment reversal – 60 – – 60 Impairme nt charge – (23) – (1) (24) Translation adj ustments – 1 – 2 3 Balance at 31 December 2021 (408) (650) (91) (107) (1,256) Carrying amount At 31 December 2021 285 406 51 150 892 At 31 December 2020 289 412 64 111 876 Of the total intangible assets other than go odwill, $13 2 mill ion (2020: $252 million) are un der deve lopment an d not yet subject to amort isation. 150 Hikm a Pha rma ceu tic als PLC A nnual Repor t 2021 16. Goodwil l and other intangible assets continued Goodwill Goodwill acquired in a business co mbination is allo cated at acquisition to the cash generating units (CG Us) that are expected t o benefit from that business combination. The carrying amount of goodwill has been allocated as fo llows: As at 31 December 2021 2020 $m $m Branded 170 173 Injectables 115 116 Total 285 289 In accordance with the Group policy, goodwill is tested annually for impairment during the fourth quarter or more fre quently if there are indic ators that goodwill may be impaired. Branded, Injectab les and Generics CGUs Details re lated to the discounted cas h flow models used in the impairmen t tests of the Branded, Injectables and Generics CGUs a re as follows: Valuation basis VIU Key assumptions Sales g rowth rates, informed by p ricing an d volume assumptions Profit margins and profit margin growth rates for marketed and p ipeline products Expected launch dates for p ipeline products Termi nal growth rates Discount rates Determination of assumptions Growth rates are internal foreca sts based on both internal and exte rnal marke t informatio n, informed by histo rical experien ce and ma nagement’s best estimates of the future Margins reflect past experience, adjust ed for expected changes in the future Establishing the la unch date and probabilit y of a successfu l product approval for p ipeline pr oducts Terminal g rowth rates are based on the Group’s experience in its markets Discount rates for each CGU are derived from specific regions/countries Period of specific projected cash flows 5 years, to whic h a terminal growth rate is then applied Terminal growth rate and discount rate Terminal growth rate (perpetuity) Pre-tax discount rate 2021 2020 2021 2020 Branded 2.4% 2.4% 15.4% 16.6% Injectables 2.1% 2.1% 10.2% 11.1% Generics 2.3% 2.3% 9.9% 12.7% Hik ma Ph arm ace utic al s PLC Annual Report 2021 151 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 16. Goodwill and other intangible assets continued The Group performed its annua l goodwill and CGU impairment test for th e Branded, Injectables an d Generics. The Group’s model is a VIU model based on the disc ounted value of the best estimates d erived fro m the key assumptions to arr ive at the recoverable value. Th is v alue is then compared to the carrying value of the CGU to determ ine whether an impai rment is required. In addition, the Gro up models sensitivities on the VIU amounts calculated to dete rmine wheth er reaso nable changes in key assumptio ns could lead to a potent ial impairme nt. If such reasonable changes woul d result in an impairment, then in accordance with IAS36 these are d isclosed belo w. For the Branded, Injectables and Gene rics CGU s the Group has determined th at suf ficient headro om 1 sti ll exists under reasonable changes in key assumptions. Spec ifically, an evaluation of the CGUs was made assuming an increase of t wo percentage poin ts in the discount rate, or a 10% decline in the projected cash flows, or a 5% decli n e in the projected cash flows in the termina l year or re ducing the terminal growth rate by two percentage points and in all case s sufficient headr oom exists. Climate-related matters: The Group monitors the development of climat e related risks. At th e current time, cli mate change is no t expected to have a material impact on the consolidated financ ial statements (see page 50). The Group co nducted a sensitivity for the potential imp act o f climate change, specifically assuming dis ruption through ex treme weather events, such sc enario had mini mal impact on the recoverable values of all CGUs. 1. Headroom is defined as the excess of the re coverable value, over the carrying v alue of a C GU Generic Ad vair Diskus® CGU The Group evaluated generic Ad vair Disku s® as a sepa rate CGU, ma inly due to it s distinct assets and liabilities and its ability to generate largely independent cash flows. As per the Group policy, th e launchin g of generic Ad vair Disku s® follo wing FDA approval in April 2021 of an amendment su bmitted to its Abbreviated New Drug Application in January 2021 was conside red as an ind icator fo r an impairment reversal assessment. As a result, the G ro up evaluated the generic A dvair Dis kus® CGU recoverable amount based on fair value less cost to sell (FVLCS) model, being th e higher value compa red to VIU. The evalu ation res ulted in a reversal of i mpairment o f $46 million bringing the revised carrying value to $ 160 mill ion. This va luati on methodology uses significant inputs which are not based on o bservable marke t data, therefore this valuation technique is classi fied as a le vel 3 valuation. Details relating to the discounted cash flow model used for the generi c Advair Diskus® impairment test are as follow s: Valuation basis FVLCS Key assu mptions Sales growth r ates, info rmed by pricing and volu me assumpt ions Profit margin s and profit margin growth rates Useful life Discount rates Determination of assumptions Probability weight ed average of d ifferent possibilit ies on sales growth rates, informed by conversion rates from the branded products and competitor ent ries Margins reflect past experience, adjusted for expected changes in the future Useful life reflects management best estimate of the product’s expected economic benefit Discount rate is derived from the specific region/c ountry in which the CG U operates Period of specific projected cash flows 5 years Useful life 15 years Post-tax discount rate 8% The Group performed sensitivity analysis o ver the valuation of the generic Advair Diskus® CGU. The sensitivity analysis assumed an increase of two percentage points in the discount rate or a 10% decline in the projecte d cash flows. Applying those sensitivities would result in an impairment charge against the generic Advair Dis kus® CGU of approximately $13 million and $17 million, respectively. 152 H ikm a Phar mac eut ica ls PLC Annual Repor t 2021 16. Goodwil l and other intangible assets continued Product-related intangible assets In-Process Research and Develo pment (IPR&D) IPR&D consists of pipeline products of $6 million mainly re late d to Generics CGU of $5 million with immaterial amounts allocated to the Branded and Injectables CGUs. At 31 Decembe r 20 20, IPR&D balance was $170 million mainly related to generic Advair Diskus® of $13 8 millio n which was launched during the year and trans ferred to product rights. These intang ibles are not in use and accordingly, no amortisation has been charged against them. The Group performs an im pairment review of IPR&D assets annually. The result of this test was an impairment charge of $9 mil lio n (2020: $4 million) Product rights Product rights consists of marketed produc ts of $400 million (2020: $242 m illion) mainly related to generic Advair Diskus®. Whenever impair ment indicators are identified for definite life intangib le assets, Hikma rec onsiders the asset’s estimated econ omic benefit, calculates the value of the individual assets or asset group’s c ash flows and compar es such value a gainst the individual asset’s or asse t group’s carrying amount. If the carrying a mount is greater, the Group records an impair ment loss fo r the excess of book value over the valuation which is based on the discounted cash flows by appl ying an appropriate disc ount rate that refl ects the risk factor s associated with th e cash flows and the CGUs under which these products sit. Furthermore, if there is an indication that pre viously r ecognised impair me nt losses no longer exist or have decreased, th e Group estimates the assets’ recoverable amounts. A previously recognised impairment loss is re versed only if ther e has been a sustained and discrete change in the assumptions and indicators used to determine the asset’s recoverable amount si nce th e last impairment loss was recogn ised. The reversal is limited so that the carrying amount of the asset does no t exceed its recoverable amount, nor exceed the carrying amount that wo uld have been determined, net of depreciation and amortisa tion, had no impairment loss been recognised for the asset in prior years. As at 31 December 2021, the result of this testing was an impai rment charge of $14 million (2020: $1 million) related to different products due to decl ines in perfo rmance and forecasted profitability, and an impairment reversa l of $60 mil lion (20 20: $66 million) comprising $46 m illion rela ted to the generic Advair Diskus® intangible asset and $14 million for other products rela ted to the Generics CGU due to improved per formance. The Group performed sensitivity analysis over the valuation of th e generic Advair Diskus® intangible asset. T he sensitivi ty analysis assumed an increase of two percentage points in the discount rate or a 10 % decline in the projected cash flows, applying those sensitiviti es would result in an impairment ch arge against the generic Advair Diskus® intang ible asset of approximately $11 million and $16 million, respecti vely. Software Software intangibles mainly represent the Enterprise Resource Planning solutions that ar e being implemented in d ifferent operat ions across the Group in addition to other software app lications. The software has an average estima ted us eful life that varies from three to ten yea rs. In 2021, there was no impairment of software (2020: $10 million). In 2021, the Group recorded a $13 million write-down of software previo usly capit alised as a result of application of the IFRIC April 2021 agenda decisions regard ing cloud computing arrangement cu stomisation and configuration costs treatment. Other identified intangibles Other identified intangibles comprise customer relationships, trade names and marketing rights of $150 million (2020: $111 mill ion). The increase duri ng the year represent payments mad e to third parties in relation to marketing rights and licensing agreemen ts. Fo llowing a review of impairmen t indicators for other identified intangibles as at 31 December 2021, there was an impairment charge of $1 million (2020: $nil). Customer relationships Customer relationships represent the value attributed to existing direct customers that the Gr oup acquired on the acquisition o f subsidiaries. The customer relationships have an average estimated useful life of 15 years. Trade names Trade name s were mainly recognised on th e acquisitio n of Hikma Ger many GmbH (Germany) with estimate d useful lives of ten years. Marketing rights Marketing r ights are amortised over their useful lives c ommencing in the year in which the rights are ready for use with estima ted useful li ves varyi ng from two to ten years. Hik ma Ph arm ace utic al s PLC Annual Report 2021 15 3 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 17. Property, plan t and equipment Land and buildin gs Machinery and equipment Vehicles, fix tures and equipment Projects under construction 1 Total Cost $m $m $m $m $m Balance at 1 January 2020 597 685 125 233 1,640 Additions 6 20 8 136 170 Disposals (4) (34) (7) – (45) Transfers 28 83 3 (114) – Translation adj ustment 9 7 1 – 17 Balance at 1 January 2021 636 761 130 255 1,782 Additions 18 17 7 104 146 Disposals (3) (10) (6) (10) (29) Transfers 28 39 8 (75) – Translation adjust ment (3) (11) (1) (3) (18) Balance at 31 December 2021 676 796 138 271 1,881 Accumulated depreciation and im pairment Balance a t 1 January 2020 (199) (420) (96) (13) (728) Charge for the year (18) (36) (17) – (71) Disposals 4 32 7 – 43 Impairment (2) (4) – – (6) Translation adjust ment (4) (6) (1) – (11) Balance at 1 January 2021 (219) (434) (107) (13) (773) Charge for the year (15) (39) (17) – (71) Disposals 3 8 7 10 28 Impairment (1) – – – (1 ) Translation adjustment 1 7 – – 8 Balance at 31 December 2021 (231) (458) (117) (3) (809) Carrying amount At 31 December 2021 445 338 21 268 1,072 At 31 December 2020 417 327 23 2 42 1,009 1. Accumulated depreciation and impairment balance at 1 January 2020 of $13 million within projects under construction relates to previous years impairment charges Land is not s ubject to depreciation. As at 31 December 2021, the Group had pledged property, p lant and equipment with a carrying value of $8 million (2020: $9 milli on) as collateral for various lo ng-term loans. This amount includes specific items in the net pro perty, p lant and equipment of the Group’s busine sses in Tunisia (2020: Tunisia). Depreciation of $50 million (2020: $57 mil lion) is included in the cost of sales, $ 16 mill ion (2020: $10 million) in selling ge neral and administrative expenses and $5 million (2020: $4 million) in research and development expenses. As at 31 December 2021, the Group had ente red into co ntractual comm itments fo r the acquisition of property, pl ant and equipment amounting to $33 million ( 2020: $60 million). As at 31 December 2021, the Group booked an impairment charge of $1 millio n (2020: $6 million i mpairment charge, $3 million was considered as exceptional item related to prop erty, plan t and equipment write o ff) (Notes 6 and 9). 154 Hik ma Ph arm ace uti cal s PLC Annual Report 2021 18. Inv estments in joint ventures The Group’s share in Hubei Haosun Pharmaceut ical Co Ltd (China) was 49% at 31 December 2021 (31 December 20 20: 49%) with an inv estment balance of $10 million at 31 December 2021 (31 December 2020: $9 million) and share of the profit for the year ended 31 Decembe r 2021 of $1 million (2020: $nil). Below tab le repres ent investment in joint ventures movement during the year. For the year ended 31 December 2021 For the year ended 31 December 2020 $m $m Balance at 1 January 9 11 Group's share of profit of joint ventures 1 – Liquidation of HikmaCure – (2) Balance a t 31 December 10 9 Summarised financial information in respect of the Group’s interests in Hubei Haosun Pharmaceuticals Co Ltd is se t out below: As at 31 December 2021 As at 31 December 2020 $m $m Total asse ts 24 19 Total l iabilities (6) (2) Net assets 18 17 Group's share of net assets of joint ventures 9 8 For the year ended 31 December 2021 For the year ended 31 December 2020 $m $m Total revenue 8 6 Net profit 1 1 Group's share of profit of joint ventures 1 – 19. Financial and other non-current assets As at 31 December 2021 2020 $m $m Investments at FVTOCI 36 25 Other non-current assets 11 14 47 39 Investments at FVTOCI include eigh t investments through the Group’s venture capital arm, Hikma International Ventures and Developments LLC and Hikma Ven tures Limited, which are not he ld for trading and which the Group has irrevo cably elected at initial recognition to reco gnise in this category. During the year, th e venture arm sold one of its i nvestments, in vested in two new companies and increased i nvestment in four ve ntures. One of the investments is a listed company with a readily determinable fair value that f alls under level 1 valuation (Note 29). Its value is measured at the share price market value. T he oth er invest ments are unlisted share s without readil y determ inable fa ir va lues that fall under level 3 val uat ion ( Note 29), their value is measured at cost minus any impair ment, and adjusted for obse rvable price changes in orderly transactions for the identical or a si milar in vestment of the same issuer. In 2021, total change in fair value was a ga in of $14 million (2020: $2 million) recognised in the other comprehe nsive inco me. Other non-current assets mainly represent long term receivables and a sublease ar rangement in the US. Hik ma Ph arm ace utic al s PLC Annual Report 2021 155 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 20. Invento ries As at 31 December 2021 2020 $m $m Finished goods 245 283 Work-in-progress 92 95 Raw and packing materials 373 394 Goods in transit 24 44 Spare parts 38 33 Provision against Inventory 1 (77) (92) 695 757 1. The cost of inventory related provision recognised as an e xpense in the cost of sales in the consolidated income statement w as $48 mi llion (2020: $57 million). Inventories are stated net of provi sion as follows: As at 1 January Additions Utilisation Translation adjustments As at 31 December $m $m $m $m $m Provisions against inventory in 2021 92 48 (62) (1) 77 Provisions against inventory in 2020 85 57 (50) – 92 21. Tr ade and other receivables As at 31 December 2021 2020 (restated) 1 $m $m Gross trade receivables 1,107 973 Chargebacks and other allowances (275) (256) Related allowance for expected cred it loss (51) (55) Net trade receivables 781 662 VAT and sales tax recoverab le 32 35 Other receivab les 3 3 Net trade and other receivables 1 816 700 1. In 20 21, prepayments have been reclassified under other current assets which were previously classified under t rade and othe r receivables, and henc e at 31 December 2020 numbers have b een restated reflecting $56 million reclassification from trade and other receivables to oth er curre nt assets. Had this reclassificatio n b ee n applied at 1 January 2020, these line items would have been restated by $49 million. (see Note 23) The fair value of receivables is estimated to be not significantly different fro m the re spective carrying amounts. 156 Hikm a Pha rma ceu tic als PL C Annual Repor t 2021 21. Tr ade and other receivables continued Trade receiv ables are stated net o f provis ions for chargebacks and expec ted credit loss allowance as follows: As at 31 December 2020 Additions, net Utilisation Translation adjustments As at 31 December 2021 $m $m $m $m $m Chargebacks and other allowances 256 2,160 (2,141) – 275 Expected credit loss allowance 55 – (3) (1) 51 311 2,160 (2,144) (1) 326 As at 31 December 2019 Additions, net Utilisation Translation adjustments As at 31 December 2020 $m $m $m $m $m Chargebacks and other allowances 280 1,865 (1,889) – 2 56 Expected credit loss allowance 55 2 (1) (1) 55 335 1,867 (1,890) (1) 311 More details on th e Group’s policy for credit and concentration risk are prov ided in Note 29. At 31 December 2021, the provision balance relating to chargeba cks was $201 million (2020: $184 million). The key inputs and as sumptions included in calcu lating this provisio n are estimations of ‘ in chan nel’ inve ntory at the wholesalers (including processing lag) of 40 days (2020: 40 days) an d the estimated charge back rates as in formed by average historical chargeback credits adjusted for expected chargeback levels for n ew products and estimated fut ure sales trends. Base d on the conditions existing at the balance sheet date, an increase/decrease in the estimate of in channel inventory by 1 day increases/decreases the provision by $5 million (2020: $5million), and if the overa ll chargeback ra te of 55% (2020: 55 %) increases/decreases by one percentage point the provision would increa se/decrease by $4 mi llion (2020: $3 million). At 31 December 2021 the provision balance relating to customer rebates was $55 million (2020: $57 million). The key inputs and assumptions included in calcu lating this provisio n are historical relationships of re bates and payments to re venue, past payment ex perience, estimat e of ‘in channel’ inventory at the wholesalers and estimated future trends. Based on the conditi ons existing at the balance sheet date, a ten bas is point increase/decrease in the rebates rate of 6.5% (2020: 7.8%) would increase/decrease this provision by appro ximately $1 million ( 2020: $1 million ). 22. Cash and ca sh equival ents As at 31 December 2021 2020 $m $m Cash at banks an d on hand 155 85 Time deposits 249 203 Money mar ket deposits 22 35 426 323 Cash and cash eq uivalents include highly liquid investments w ith maturities of three m onths or l ess which are con vertible to known amounts of cash and are subject to insignific ant risk of changes in value. Money mar ket deposits comprise investment in funds at FVTPL that are subject to insignifi cant risk of changes in fair value and can be readily converted into cash that fa ll under level 1 valuation (Note 29) . Hik ma Ph arm ace utic al s PLC Annual Report 2021 157 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 23. Other current assets As at 31 December 2021 2020 (restated) 1 $m $m Prepayments 1 65 56 Investment at FVTPL 24 24 Others 8 22 97 102 1. In 2021, pr epayments have been reclassified und er ot her current assets which we re p reviously classified under trade and oth e r receivables, and hence the 2020 numbers have b een restated reflecting $56 million reclassif ication from trade and other receivabl es to other curr ent as sets. Had this r eclassifi cation b een applied a t 1 January 2020, these line items would have bee n re stated by $ 49 million. (see Note 21) Investment at FVTPL represents the agreement the Group entered into with an asset management firm in 2015 to manage a $20 million port folio of underlying debt instruments. The investment comprises a portfolio of a ssets that are managed by an asset manager and is meas ured at fair value; any changes in fair va lue go through the consolidated income statement. These assets are classified as level 1 as they are based on quoted prices in active markets (N ote 29). Others balanc e at 31 December 2021, mainly represents compensation due from suppliers in relation to inventory price adju stment. The b alance at 31 Decembe r 2020 mainly represents insura nce compensation receivable of $10 million which was received during the year (Note 6) , compensation due from suppliers in relation to inv entory price adjustment of $5 m illion and revenue contract asset of $3 million. 24. Short-term financial debts As at 31 December 2021 2020 $m $m Bank overdrafts 3 3 Import and export financing 58 67 Short-term loans 3 47 Current portion of long-term loans (Note 28) 48 41 112 158 2021 2020 % % The weighted average inte rest rates incurred are as foll ows: Bank overdrafts 3.21 4.25 Bank loans (including the non-current bank loans) 2.83 3.04 Eurobond 1 3.58 4.17 Import and export financing 2 6.39 5.70 1. The Eu robond effective interest rate includes unwinding of discount amount and upfront fees 2. Import and export financing repres ents short-t erm financi ng fo r th e ordi nary tradin g ac tivities of the Group 25. Trade and other payables As at 31 December 2021 2020 $m $m Trade payab les 262 279 Accrued expenses 194 175 Other payables 12 16 468 470 The fai r value of payables is estimat ed to be not significantly di fferent from the respective carrying amounts. 158 Hik ma Ph arma ce utic al s PLC Annual Report 2021 26. Ot her provisions Other provisions represent the end of service indemnity provisions for employees of certain Group subsidiaries including some i mmaterial amounts for defined benefit plans. This provision is calculated based on relevant laws in the countries where each Group company operat es, i n a ddition to their own po licies. For defined benefit plans, changes in net liability due to actuarial valuations and changes in assumpt ions resulted in remeasurement loss of $2 million (2020: $1 mil lion). Movements on the provi sion for end of service indemnity: 2021 2020 $m $m 1 January 28 23 Additions 11 10 Remeasurement of post-employment benefit obligations 2 1 Utilisation (10) (6) At 31 December 31 28 27. Ot her current liabilities As at 31 December 2021 2020 $m $m Contract l iability 213 162 Co-development and earnout payment (Notes 29 and 30) 2 2 Acquired con tingent liability (Note 30) 15 18 Contingent consideration (Notes 29 and 30) 12 13 Indirect rebate and other allowance s 80 74 Others 17 21 339 290 Contract liabilities: Th e Group allows customers to return products wit hin a specified period prior to and subs equent to the expiration date. In addition, free goods are issu ed to customers as sale incentives, reimbursement of agreed upon expenses incurred by the customer or as c ompensation for e xpired or returned goods. At 31 December 2021, the prov ision balance relating to returns was $193 million (2020: $154 million). The key assumptions incl uded in calculating this provision are estimations of re venue estimated to be subject to returns and the estimated returns rate of 1.74% (2020: 1.47%) as informed by both historical return rates and consi deration of specific factors like product dating and expiration, new product launches, entranc e of new competitors, and changes to contractual terms. Based on the conditions existi ng at the balance sheet date, a ten-b asis point increase/decrease in the returns and al lowances rate would increase/decrease this pro vision b y approxim ately $11 million (2020: $8 m illion). As at 31 December 2020 Additions Utilisation As at 31 December 2021 $m $m $m $m Contract l iabilities 162 132 (81) 213 As at 31 December 201 9 Additions Utilisation As at 31 December 2020 $m $m $m $m Contract l iabilities 142 127 (107) 162 During the y ear en ded 31 December 2021, $8 million (2020: $8 million) revenue was recognised from transferring free goods to th e customers. Indirect rebates and other al lowances: mainly represent rebates grante d to healthcare au thorities and other parties under contractual a rrangements with certain indirect customers. At 31 December 2021 the provision balance relating to the indi rect rebates was $56 million (2020: $55 million). The key inputs and assumptions included in calcul ating this provisio n are historical relationships of reb ates and payments to revenue, pa st payment experience , estimate of ‘in channel’ inventory at the wholesalers and estimated future trends. Based on the conditions existing at the balance sheet date, a ten-bas is point increase/decrease in rebates rate of 2.1% (2020: 2.7%) would increase/decrease this pro vision by approx imately $3 million (2020 : $2 million). Hik ma Ph arm ace utic al s PLC Annual Report 2021 159 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 28. Long-term financial debts As at 31 December 2021 2020 $m $m Long-term loans 207 242 Long-term borrowings (Eurobond) 492 491 Less: current portion of long-term loans (Note 24) (48) (41) Long-term financial loans 651 692 Breakdown by maturity: Within one year 48 4 1 In the second year 44 4 8 In the third year 37 44 In the fourth year 524 36 In th e fifth year 23 522 In the sixth year 22 2 1 Thereafter 1 21 699 733 Breakdown by currency: US dolla r 620 642 Euro 44 54 Jordanian dinar 10 1 3 Algerian dinar 1 3 14 Saudi ri yal 9 9 Moroccan dirham 3 – Tunisian dinar – 1 699 733 The loans are h eld at amortised cost. Long-term loans amo unting to $0.5 million (31 December 2020: $1 million) are secured on certain pro perty, plan t and equipment. Major arrange ments entered into by the Group were: a) A syndicated revolving credit facility of $1,175 million was entered into o n 27 October 2015. From the $1, 175 mi llion, $175 mil lion matured on 24 December 2019, $130 million matured o n January 2021 and th e remain ing $870 million matures on 24 December 2023. At 31 Decemb er 2021 the facility has an outstanding balance of $nil ( 2020: $nil) and a $870 million unused available limit (2020: $1,000 million). On 29 De cember 2021 the facility agreement has been increased to $1,150 mi llion ava ilable fo r 5 years till Jan 2027 effective from 4 Janua ry 2022 with an extension options for additional 2 years. The facility can be used for general corporate purposes b) A ten-year $150 m illion loan from the International Finance Corporation was entered into on 21 Decembe r 2017. There was ful l utilisation of the loan since April 2020. Quarterly equal repayments of the long-term loan have commenced on 15 March 2021. The lo an was used for gener al corporate purposes. The facility matu res on 15 December 2027 c) Hikma issued a $500 million (carrying value at 31 Dece mber 2021 of $492 mi llion, an d fair value at 31 December 2021 of $515 million) 3.25%, five- year Eurobond on 9 July 2020 w ith a rating of (BBB-/Ba1) which is due in July 2025. The proceeds of the issuance were $494 mill ion which were used for general corporate purposes d) An eight-year $200 mi llion lo an facili ty from the International Finance Corporation and Man aged Co-lending Portfolio program was entered into o n 26 October 2020. There was no utilis ation of the loan a s of December 20 21. The facility matures on 15 Septem ber 2028 and can be used for general corporate pu rposes 160 Hi kma P harm ace uti ca ls PLC Annual Report 2021 29. Financial policies for risk ma nagement and their objectives Credit and concentration of risk The Gro up’s principal financial asset s are cash and cash equivalents, trade and other receivables, and investments. The Gro up’s credit risk is pri marily att ributable to its trade receivables. The amounts presented in the consolidated balance s heet are net of allowances for expected credit loss, ch argebacks, an d other allowances. A p rovision for imp airment is made based o n expected credit losses which are estimated based on previous experience, current events and forecasts of futu re co nditions. A loan or receivable is considered impaired wh en there is no reasonable expectation of recovery, or when a debtor fails to ma ke a contractual payment for a specif ic period which varies bas ed on the type of debtor and the market in which they operate. The credit risk on liquid in vestments is limited because the co un terparties are banks w ith high credit rat ings assigned by inte rnational credit-rating agencies. In line with local market pract ice, customers in the ME NA region are o ffered re latively long paymen t terms compared to custom er s in Europe and the US. During the year ended 31 December 2021, the Group’s largest two customers in the ME NA region represen ted 5.6% of Group revenue (2020 : 6.2%), 4.3% from one customer in Saudi Arabia (202 0: 4.1%), and 1 .3% from one customer in Egypt (2020: 2.1% from a customer in Saudi A rabia). At 31 December 2021, the amount of receivables due from a ll customer s based in Saudi Arabia was $102 mi llion (2020: $78 million) a nd the am ount of receivables due fro m all customers based in Egypt was $57 million (2020: $42 million). During the year ended 31 December 2021, three ke y US wholesalers represented 38% of Group re venue (2020: 35%). The amount of re ceivables due from all US cu stomers at 31 December 2021 was $332 million (2020: $285 million). The Group manages this risk through the implementation of string ent credit policies, procedures and certai n credit insurance ag reements. Trade rece ivable e xposures are managed locally in the o perating units where they ar ise. Cre dit limits are set as deemed appropr iate for the customer, based on a numb er of qualitative an d quantitative factors related to the creditworthi ness o f a particular customer. The Group i s exposed to a variety of customers rangin g from government-backed agencies and large priv ate wholesalers to privately owned pharmacies, and the underlyi ng local economic risks vary across the Group. Typical credit terms in the US range from 30 to 90 days, in Europe 30 to 120 days, and in MENA 180 to 360 days. Where appropriat e, the Group endeavours to minimise risk by the use of tra de finance instruments such as letters of credit and insur ance. The following table provides a summary of the age o f trade receivables (Note 21): Past due Not past due on the reporting date Less than 90 days Between 91 and 180 days Between 181 and 360 days Over one year Total At 31 December 2021 $m $m $m $m $m $m Expected credit loss rate 0.01% 0.05% 11.1% 14.3% 53.4% 4.7% Gross trade receivables as at 31 Decembe r 2021 910 72 9 28 88 1,107 Related allowance for expected credit loss – – (1) (4) (46) (51) Chargebacks and other allowances (275) – – – – (275) Net trade receivables 635 72 8 24 42 781 Past due Not past due on the reportin g date Less than 90 days Between 91 and 180 days Between 181 and 360 days Over one year Total At 31 December 2020 $m $m $m $m $m $m Expected credit loss rate 0.01% 4.0% 5.9% 12.5% 57.6% 5.7% Gross trade receivables as at 31 December 2020 780 75 17 16 85 973 Related allowance for expected credit loss – (3) (1) (2) (49) (55) Chargebacks and other allowances (256) – – – – (256) Net trade receivables 524 72 16 14 36 662 Hik ma Ph arm ace utic al s PLC Annual Report 2021 161 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 29. Financial policies for risk ma nagement and their objectives continued Market r isk The G roup is exposed t o foreign exchan ge and interest rate ri sks. The Group’s objective is to reduce, where it is appropr iate t o do so, f luctuations in earnings and cash flow a ssociated with changes in interest rates and fo reign currency rates. Managem ent actively monitors these exposures to manage the volatility relating to thes e ex posures by en tering into a variety of der ivative financial instruments, if needed . Capital risk management The Group manages its capital and monitors its liquid ity to have reasonable assurance that the Group will be able to continue a s a going concern and deliver its growth strategy objecti ves, whils t reducing its cost of capita l and maximising the return to sharehold ers through t he optimisation of the debt and equity mix. The Group regularly review s th e capital structure by considering th e level of available capital and the short t o medium-term strategic plans concerning future capital spend, as well as the need to meet dividends, banking co venants, and borrowing ratios. The Group defines capit al as equity plus net debt which includes long and short-term finan cial debts (Notes 24 and 28), lease liabilities (Note 33), net of cash and cash equivalents (Note 22) and collateral ised and restricted cash. Group net debt excludes co-development and e arnout payments, acquired co ntingent liabilities and co ntingent con sideration (No tes 27 and 30). During the year, the Group continued its strateg y of obtaining de bt finan cing at both the Group le vel and at t he operating enti ties level. Th is enables the Gro up to borrow at competit ive rates and to build relat ionships w ith lo cal, regional and international banks and is there fo re deemed to be the most effective means of raising finance, while maintaining the balance between borrowing cost, asset and liability management, and conso lidated balan ce sheet currency risk management. In order to monitor the available net funds, management reviews financi al capital reports on a mo nthly basis, in addit ion to the continuous review by the Group treasury function. At 31 December 2021, the Group’s gearing ratio (total debt/equity) was 34% (2020: 43%). The decrease in the Group’s ge aring rat io is due t o the increase in the Group total equit y as a result of the profits ge nerated during the year and the decrease o f the total debt s. Cash managemen t The Group manages the deployment of cash balances to predefined limits appro ved by the Board of Directors under the cash/r isk management policy. Per the policy, the Group’s excess cash should be held with high ly rated global and regional f inancial i nstitutions. The aim o f the policy is t o mitigate the risk of holding cash in certain currencies, countries and f inancial in stitutions, through a specific threshold. Th e Group reviews the policy periodically to meet its risk appetite. Foreign exchange risk and currency risk The Group uses th e US dollar as its reporting cu rrency and is th e refore exposed to foreign exchange movements primarily in the Euro, Algerian din ar, Sudanese pound, Japanese yen, Eg yptian po und, Tunisian dina r, Lebanese pound and Moroccan dirham. Consequently, where possible, the Group enters into various contracts, which change in value as foreign exchange rates change, to hedge against the risk of movement in foreig n denominated assets and liabilities. Due to the lack of open currency markets, the Algerian dinar, the Sud anese pound, the Tunisian dinar, the Moroccan dirham and the Egyptian pound cannot be hedged at reasonable cost. Where po ssible, the Group uses financing facilities denomi nated in loca l currencies to mitigate the risks. The Jordanian dinar and th e Saudi riyal had no impact on the conso lidated income statement as those curre ncies are pegged against the US dollar. Lebanon and Sudan were considered to be hyperinflationary econom ies in the yea r ended 31 December 2021. Wh en translating their results of operations into U S dollars, assets, liabilit ies, income statement and equity acco unts are translated at the rate prevailing on the balance sheet date. At 31 December 2021, the Lebanese pound rate was 1,507.5 per US dollar, and the Sudanese pound ra te was 436.28 pe r US dollar. Currency risks, as defined by IFRS 7, aris e on account of financ ial instru ments bein g denominated in a curren cy that is other t han the functional currency o f an entity and being of a monetary nature. 162 Hik ma Ph arma ce utic al s PLC Annual Report 2021 29. Financial policies for risk ma nagement and their objectives continued The currencies that have a significant impact on the Grou p accounts and the exchange rates used are as follows: Period-end rates Average ra tes 2021 2020 2021 2020 US dolla r /Euro 0.880 0.824 0.845 0.876 US dollar /Sudanese pound 1 436.280 120.000 –¹ –¹ US dolla r /Algeria n dinar 138.719 132.212 135.097 126.799 US dollar /Saudi riyal 3.750 3.750 3.750 3.750 US dollar /Pound sterling 0.739 0.731 0.727 0.779 US dollar /Jordanian dinar 0.709 0.709 0.709 0.709 US dollar /Egyptian pound 15.655 15.664 15.634 15.745 US dolla r /Japanese yen 115.080 103.200 109.805 106.770 US dollar /Moroccan dirham 9.280 8.905 8.992 9.502 US dolla r /Tunisia n dinar 2.887 2.705 2.802 2.812 US dollar /Lebanese pound 2 1,507.500 1,507.500 – 2 – 2 1. In both ye ars, S udan has been a hy perinfl ationary economy and S udanese ope rations were tra nslated using t he p eriod end rate 2. In both years, Lebanon has been a h yperinflationary economy and Lebanese operations were translated using the period end rate Net foreign currency financial assets/(liabi lities) US dollar Euro Japanese yen Others¹ 2021 $m $m $m $m Functional currency of entity: – Jordanian dinar 241 21 (6) 17 – Euro 30 – – – – Algerian dinar (2) – – – – Saudi riyal 7 (10) – – – Sudanese pound (31) – – – – Egyptian pound (12) 1 – – – Tunisi an dinar 1 3 – 5 – Moroccan dirham (5) (4) – – – Lebanese pound – – – 5 229 1 1 (6) 27 1. Others inclu de Saudi riyal, Jordanian dinar and Pound sterling Net foreign c urrency financial assets/(lia bilities) US dollar Euro Japanese yen Others¹ 2020 $m $m $m $m Functional currency of entity: – Jordanian dinar 279 12 (6) 7 – Euro 32 – – – – Algerian dinar (5) – – – – Saudi riyal 7 (5) – – – Sudanese pound (26) – – – – Egyptian pound (14) – – – – Tunisi an dinar 1 1 – 2 – Moroccan dirham (4) (5) – – – Lebanese pound (4) (1) – 3 – US dollar – 3 – 2 266 5 (6) 14 1. Others inclu de Saudi riyal, Jordanian dinar and Pound sterling Hik ma Ph arm ace utic al s PLC Annual Report 2021 163 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 29. Financial policies for risk ma nagement and their objectives continued A sensit ivity ana lysis based on a 10% movement in foreign exch ange rat es would result in a $26 million translation al incre ase/d ecrease on the Group results. The Group sets ce rtain limits on liquid funds per currency (other than the US dolla r) and per country. Interest rate risk As at 31 December 2021 As at 31 Dec ember 2020 Fixed rate Floating r ate Total Fixe d rate Floating rate Total $m $m $m $m $m $m Financial liabilit ies Interest-bearing loans and borrowings 672 91 763 704 146 850 Lease liab ilities 83 – 83 82 – 82 Financial assets Cash and cash eq uivalents – 271 271 – 238 238 An interes t rate sensitivit y analysis assumes an instantaneous one percentage point change in inte rest rates in all c urrencies from their levels at 31 December 2021, with all other variables held constant. Based on the composition of the Group’s net debt portfolio as at 31 D ecember 2021, a one percentage point increase/decrease in interest r ates would result in $2 mil lion decre ase/increase in net finance cost per year (2020: $1 million increase/decrease). As at 31 December 2021, $0.05 million (2020: $ 47 millio n) of the Group’s u tilised debt portfolio as well as $1,243 millio n (2020 : $1,314 million) of the Group’s un utilised debt facili ties, hav e USD LIBOR as the benchmark in terest rate. The unutilised debt facilities mainly rel ate to: — The Group’s syndicated revolving credit facility of $870 million (2020: $1,000 million) (Note 28) — The International Finance Corporation loan of $200 million (20 20: $200 million) (Note 28) — Other smaller facilities The Group has not identified an y other IBOR exposures that a re expe cted to be impacted by IBOR reform. D iscussions on IBOR tran si tioning is ongoing with counterparties, while monitoring the market deve lopments s urrounding the IBOR reform. Fair value of fi nancial assets and liabilities The fai r value of financial assets and liabilit ies is included at th e amount at which the instrument could be exchanged in a cu rrent transaction between willing parties, o ther th an in a fo rced o r liquidation sale. The follo wing fin ancial as sets/liabilities are pre sented at th eir carrying value which approx imates to their fair value: — Cash a t bank and on ha nd, time deposit and collateralised and restr icted cash – due to the short- term maturities of these financial instruments a nd given that generally they have negligible credit risk, manageme nt considers the carrying am ounts to be not significantly differ ent fr om their fair values — Short-term loans and overdrafts approximate to their fair value because of th e short maturity of these instruments — Long-term loans – loans with variable rates are re-priced in response to any changes in market ra tes and so management considers their carrying values to be not significantly di ffer ent from their fair values Loans with fixed rate s re late ma inly t o: — $500 million (carrying value at 31 December 2021 of $492 million, and fa ir value at 31 Dece mber 20 21 of $515 million) Eurobond accounted for at amortised cost. The fair value is deter mined with reference to a quoted price in an active market as at the balance sheet date (a l evel 1 fair value) (Note 28) — A ten-year $150 millio n loan from the International Finance Corporation with o utstanding ba lance of $127 million (fair value at 31 D ecember 2021 of $127 million). Fair v alue is estimated by disco unting fut ure cash flows using the current rates at wh ich simi lar lo ans would be made to borrowers with similar credit ratings an d for the sa me remain ing matu rities of such loans (a level 2 fair value) — Receivables and payables – the fair values o f receivable s and payables are esti mated to not be significan tly di fferent fro m the respective carrying a mounts Management classifies items that are recognised a t fai r value based o n the level of the inputs used in their fair value determi na tion as described below: — Lev el 1: Quoted prices in active markets for identical as sets or liabilities — Lev el 2: Inputs tha t are observable fo r the asset or liabili ty — Lev el 3: Inputs that are not b ased on observable ma rket data 164 H ikm a Pha rma ceu tic als PL C Annual Repor t 2021 29. Financial policies for risk ma nagement and their objectives continued The follo wing fin ancial as sets/liabilities are presen ted at their fair value : Fair value measurements At 31 December 2021 Level 1 Level 2 Level 3 Total Financial Assets Investments at FVTPL (Note 23) 24 – – 24 Money market deposit (Note 22) 22 – – 22 Investments in listed companies at FVTOCI (Note 19) 14 – – 14 Investments in unlisted shares at FVTOCI (Note 19) – – 22 22 Total financial ass ets 60 22 82 Financial Liabilitie s Co-development and earnout paym ent liabilities (Note 27 and 30) – – 4 4 Contingent consideration liability resulting from th e acquisitio n of the Co lumbus business (Note 27 and 30) – – 70 70 Total financia l liabilitie s – – 74 74 Fair value measurements At 31 December 2020 Level 1 Leve l 2 Level 3 Total Financial Assets Investments at FVTPL (Note 23) 24 – – 24 Money market deposit (Note 22) 35 – – 35 Investments in unlisted shares at FVTOCI (Note 19) – – 25 25 Total financial ass ets 59 25 84 Financial Liabilitie s Co-development and earnout payment lia bilities (No te 27 and 30) – – 5 5 Contingent consideration liability resulting from th e acquisitio n of the Co lumbus business (Note 27 and 30) – – 89 8 9 Total financia l liabilitie s – – 94 94 Hik ma Ph arm ace utic al s PLC Annual Report 2021 165 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 29. Financial policies for risk ma nagement and their objectives continued The following table presents the changes in Level 3 ite ms for the year ended 31 Dece mber 20 21 and the year ended 31 December 20 20 : Financial assets Financial liabilities $m $m 1 January 2020 18 178 Settled – (61) Remeasurement of contin gent considera tion and other financia l liabilit y recognised in finance income – (38) Unwinding of contingent consideration and other fina ncial liability recognised in f inance expense – 15 Additions 5 – Change in investments at FVTOCI 2 – Balance at 31 December 2020 and 1 January 2021 25 94 Settled – (4) Remeasurement of contin gent considera tion and other financia l liabilit y recognised in finance income – (29) Unwinding of contingent consideration and other fi nancial liability recognised in finance expense – 13 Change in fair value of in vestments at FVTOCI 24 – Additions 3 – Sale of investmen t at FVTOCI (30) – Balance at 31 December 2021 22 74 Contingent consideration liability represents contractual liability to make payments to third parties in the fo rm of milestone payments that depend on the achievement of certain US FD A approval milestones; and payments based on fu ture sale s of certain products. Th ese liabi litie s we re recognised as part o f the Columbus business acq uisition. The critic al areas of estimates in relation to the valuation of the contingent consideration ar e the probabilities assigned to reaching the success-based milestones and m anagement’s esti mate of future sales. The valuat ion for the payments that are based on future sales is base d on a discounted cash flow model applied to projected fut ure sales for a period of 15 years us ing a post-tax d iscount rate of 8%. The key assumption used for th is va luation is the sales projections informed by pricing an d vo lume a ssumptions wh ich were determined using probability weighted average of different possibilities on sales growth rates. The valu ation for milesto ne payment is ba sed on 100% probability of success-based milestone discounted using discount rate of 6.9%. If the future sales were 5% higher or lower, the fair value of th e contingen t considerat ion wil l increase/decreas e by $4 mi llio n (2020: $4 million) (Notes 27 and 30). If the probability assigned to reachin g the success-based mileston es wer e 5% lower, the fair va lue of the contingent considerat ion w ill decrease by $1 million (2020: $ 1 million) (Notes 27 and 30). Liquidity risk Less than one year One to five years More than five years Total 2021 $m $m $m $m Interest-bearing long-term loans and borrowings¹ (Note 28) (70) (710) (23) (803) Interest-bearing s hort-term loans and borrowings¹ (Note 24) (3) – – (3) Interest-bearing o verdrafts¹ (Note 24) (3) – – (3) Interest-bearing import and export loans¹ (Note 24) (60) – – (60) Interest bearing finance lease¹ (Note 33) (12) (36) (71) (119) Trade payab les and accruals (Note 25) (456) – – (456) Co-development and earnout payment 1 (Notes 27 and 30) (2) (3) – (5) Acquired co ntingent liability (Notes 2 7 and 30) (15) (38) (30) (83) Contingent consideration 1 (Notes 27 and 30) (12) (49) (27) (88) (633) (836) (151) (1,620) 1. A s the se ar e i nterest-b earing liabi lities, expected interes t exp ense have bee n in cluded in the balance 166 Hi kma P harm ace uti ca ls PLC Annual Report 2021 29. Financial policies for risk ma nagement and their objectives continued Less than on e year One to five year s More than five year s Total 2020 $m $m $m $m Interest-bearing long-term loans and borrowings¹ (Note 28) (64) (728) (42) (834) Interest-bearing s hort-term loans and borrowings¹ (Note 24) (47) – – (47) Interest-bearing o verdrafts¹ (Note 24) (2) – – (2) Interest-bearing import and export loans¹ (Note 24) (69) – – (69) Interest bearing f inance lease¹ (Note 33) (10) (49) (49) (108) Trade payab les and accruals (Note 25) (454) – – (454) Co-development and earnout payment 1 (Notes 27 and 30) (2) (3) – (5) Acquired con tingent liability (Notes 27 and 30) (18) (46) (27) (91) Contingent consideration 1 (Notes 27 and 30) (13) (72) (26) (111) (679) (898) (144) (1,721) 1. As the se ar e in terest-be aring liabil ities, expect ed i nterest exp ense have been includ ed i n th e bal ance The Gro up regularly monitors all cash, cash equivalent s and debt to maintain liquidit y needs. This is don e by analysing de bt he adroom and expected cash flow s. The Group seeks to be pr oactive in its liquidity management to avoid any adverse liquidity effect. At 31 December 2021, the Group had undrawn facilities of $1,413 million (2020: $1,549 million). Of these facilities, $1,086 mil lion (2020: $1,232 million) were committed long term facilities. 30. Other non-current liabilities As at 31 December 2021 2020 $m $m Contingent consideration (Note 27 and 29) 58 76 Acquired con tingent liability (Note 27 ) 68 80 Co-development and earnout payment (Notes 27 and 29) 2 3 Others 12 5 140 164 Contingent consideration and acquired con tingent liabilities represent contractual liabilities to make paym ents to third par ties in the form of milestone payments that depend on the achi evement of certain US FDA app roval milestones; and payments based on future sales of certain products. These liabilities we re recognised as part of the Columbus business acquisition (see Note 29 fo r sensiti vity analys is) . In 2021, $14 million (2020: $15 million) of this balance was reclassified to other current liabilities. 31. Share capital Issued and fully paid – included in sh areholders’ equity: As at 31 December 2021 2020 Number $m Number $m Ordinary Shares of 10p each 244,331,288 42 243,332,180 41 At 31 December 2021, of the iss ued share capital, 12, 833,233 (20 20: 12,8 33,233) are held as Treasury shares, nil (2020: 40,831) shares are held in t he Employee Benefit Trust (EBT) and 231,498,055 (2020: 230,458,116) shares are in free issue. Own Shares Treasury Shares Hikma holds 12,833,233 as T reasury shares re lated to the Share buyback of its own shares previously held by Boehringer Ingelhei m GmbH ( BI) for £23.00/share ($ 28.76/share). The voting rights attached to the Treasury shares are not capable of exercise. The market value of the Treasur y shares held at 31 December 202 1 was $385 million (2020: $442 million). The book value of the Treasury shares at 31 December 2021 are $ 368 million (2020: $368 million). Hik ma Ph arm ace utic al s PLC Annual Report 2021 167 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 31. Share capital continued Shares held in EBT EBT of Hikma h olds nil (2020: 40,831) Ordin ary Shares in the Company. The trustee of the EBT is Apex Financ ial Services (Trust Company) Limite d an independent trust ee. The market value of the O rdinary Sh ares held in the EBT at 31 December 2021 was $n il (2 020: $1 million). T he book value of the retained own shares at 31 December 2021 are $nil (2020: $1 mill ion). During the year, the Ordinary Shares held in the EBT were used to satisfy long- term co mmitments ar ising fro m the employee share plans operated by the Company. 32. No n-controlling interests 2021 2020 $m $m At 1 January 13 12 Share of losses (1) (1) Dividends paid (1) (1) Currency translation and hyperinflation movement 3 3 At 31 December 14 13 33. Right-of-use asse ts and lease liabilities The carrying amounts of right-of-use assets recognised and the movements dur ing the year: Buildings Vehicles Machinery and Equipment Total $m $m $m $m As at 1 January 2020 43 6 1 50 Additions 19 6 – 25 Sub-lease reclassification to financial and ot her non-current assets (Note 19) (4) – – (4) Impairme nt charge (1) – – (1) Depreciation expense (7) (4) – (11) As at 31 December 2020 and 1 Janu ary 2021 50 8 1 59 Additions 27 4 – 31 Lease buyout (4) – – (4) Depreciation expense (7) (4) (1) (12) As a t 31 December 2021 66 8 – 74 The carry ing amounts of lease li abilities and the movements during the year: 2021 2020 $m $m As a t 1 January 82 68 Additions 32 24 Accretion o f intere st 5 4 Payments (36) (14) As a t 31 December 83 8 2 Current 9 10 Non-current 74 72 168 H ikm a Phar mac eu tic als PLC Annual Repor t 2021 33. Right-of-use assets and lease liabilities continued The maturit y analysis of lease l iabilities: 2021 2020 $m $m Breakdown by maturity: Within one year 9 10 In the second year 7 6 In the third year 7 6 In the fourth year 6 24 In th e fifth year 3 4 In the sixth year 2 2 Thereafter 49 30 83 82 At 31 December 2021, lease liabilities included o ptional exte nsion periods amounting to $39 million (2020: $13 million). The following are t he amounts recognised in the consolidated income statement: 2021 2020 $m $m Depreciation expense of right-of-use assets (12) (11) Impairment o f right-of-u se assets – (1) Interest expe nse on lease liabilities (5) (4) Expense relating to short-term leases (1) (1) Total amount recognised in the consolidated income statement (18) (17) 34. Cas h gener ated fro m operating activities 2021 2020 $m $m Profit before tax 544 558 Adjustments for: Depreciation, amortisation, impairment charges/reversals and write-down of: Property, plant and equipment 72 77 Intangible assets 61 2 Right of Use of Assets 12 12 Gain fro m invest ment at FVTPL – (1) Loss on disposal/damage of property, plant and equipment 1 2 Movement in provisions 2 4 Cost of equity-settled employee sha re scheme 29 27 Finance income (30) (47) Interest and bank charges 69 69 Results f rom joint venture 1 – Foreign exchange loss and net monetary hyperinflation impact 36 30 Changes in working capital: Change in trade a nd other receivables (166) (47) Change in other current assets 27 (14) Change in invento ries 38 (180) Change in trade a nd other payables 14 6 Change in other current liabilities 62 41 Change in other non-current liabilities (5) (14) Cash flow from operating activi ties 767 525 Hik ma Ph arm ace utic al s PLC Annual Report 2021 169 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 35. Reconciliati on of net cash flow to mov ement in net deb t Below table represent a reconciliat ion of net cash flow to movement in net debt: 2021 2020 $m $m Interest-bear ing loans and borrowings (Notes 24 and 28) Balance at 1 January 850 617 Proceeds f rom issue of long-term financial debts 10 1,543 Proceeds from issue of sh ort-term financial debts 383 430 Repayment of long-term financial debts (45) (1,372) Repayment of short-term financial debts (431) (367) Amortisation of upfront fees 3 – Foreign exchange translation movements (7) (1) Balance at 31 December 763 850 Lease liabilities (Note 33) Balance at 1 January 82 68 New lease s 32 2 4 Repayment of lease liabilities (31) (10) Balance at 31 December 83 82 Total De bt 846 932 Cash and cash eq uivalents (Note 22) (426) (323) Collateralised and restr icted cash – (4) Net d ebt 420 605 36. Co ntingent liabi lities Guarantees and letters of c redit A contingent liability existed at the balance sheet date in respect of external guarantees an d letters of credit t otalling $45 million (31 December 2020: $41 mi llion) arising in the normal course of business. No provision for these liabili ties has been made in these consolidated f inancial statements. A cont ingent liab ility existed at the b alance sheet date for a standby letter of credit totalling $10 millio n (2020: $8 million ) for a poten tial stamp duty ob ligation that ma y aris e for repayment of a loan by interc ompany guarantors . It’s not probable that the repayment will be mad e by the intercompany gua rantors. Legal Proceed ings The Gro up is involved in a number of le gal proceeding s in the ord inary c ourse of its business, including actu al or threatened l iti gation and actual or potential government investigations relating to employment matters, product l iability, commercial disputes, pricing, sales and marketing pract ices, infringement of IP rights, the validity of certain paten ts an d competition laws. Most of the claims involve h ighly co mplex issues . Often these issues are subject to su bstantial uncertainties and, therefore, t he probabi lity o f a loss, if any, being sustained and/or an estimate o f the amount of any loss is difficult to ascerta in. It is the Group’s policy to acc rue for amounts re lated to these lega l matter s if it i s probable that a liability ha s been incurred and an amount is reas onably estimable . — In 2018, the Group received a civi l investigat ive deman d from the US Department of Justice requesting information related to pr oducts, pricing and rela ted commu nications. In 2017, the Gr oup recei ved a subpoena fro m a US state attorney general and a subpoena from the US Department of Justice. Hik ma denies having engag ed in any conduct that would gi ve rise to liability wi th respect to these demands but is coop erating with al l such demands. At this point, managemen t does not belie ve suffic ient eviden ce exists to make any provision for this — Starting in 2016, s everal co mplaints have been filed in the United States on beh alf of putative classes o f direct and indirect purchasers of generic drug p roducts, as well as se veral indi vidual direct purc hasers opt-out plaintiffs (inc luding two produ cts). These complaints, which allege that the defendants engaged in conspiracies to fix, increase, maintain and/or s tabilise th e prices of the generic drug products named, h ave been brought against H ikma and various other defendants. The p laintiffs general ly seek damages and injunctive relief under federal ant itrust l aw and damages under various state laws. Hikma denies having engaged in conduct that would give rise to liability with respect to these civil suits and is vigorous ly pursuing de fense of these cases . At this point, management does not believe sufficient evidence exists to make any provision fo r this — S tarting in June 2020, several complaints have been filed in the United States on behalf of putative classes of direct and indirect purchasers of Xyrem® aga inst Hikma and other defendants. These complaints allege th at Jazz Pharmaceutic als PLC and its subsi diaries entered i nto unlawful reverse payment agreements with each of th e de fendants, in cluding Hik ma, in settling patent infringement litigation over Xyrem® . The plaintiffs in these lawsuits seek treble damages and a permanent injunction. H ikma denies having engaged in conduct that would g ive rise t o liability with respect to these lawsuits and is vigorously pursuin g defen ce of these cases. At this point, m anagement does not believe suffici ent evidence exists to make any provis ion for this 170 H ikm a Phar mac eut ica ls PLC Annual Repor t 2021 36. Conti ngent liabi lities continued — Num erous complaints have been f iled with respect to Hikma's sa les, and distribution, or manufact ure of opioid products. Those c omplaints now total approximately 682 in number. These la wsuits h ave been filed against dis tributo rs, bra nded pharmaceut icals manufactu rers, pharmacies, hospitals, generic pharmaceuticals manufacturers, individuals, and other defendants by a number of cities, counties, states, ot her governmental agencies and private plaintiffs in both state, and federal, and Canadian provincial courts. Most of the federal cases have been consolidated into a multidistrict litigation in the Northern Dist rict of Ohio. These cases asse rt in ge neral tha t the defendants alle gedly engaged in improper marketing and distribution of opioids and that defendan ts fa iled to develop and im plement systems sufficient to identify suspicious o rder s of opioid products and prevent the abuse and diversion of such products. Plaintiffs seek a v ariety of remedies, including restitution, civil penalties, disgorgement of profits, tre ble damages, attorneys' fees and injunctive relief. Hikma denie s having engaged in conduct that would give rise to liability with respect to these civil suits and is vigorously pursuing defense of th ese cases. At this point, managemen t does not belie ve sufficien t e vide nce exists to make any pro vision for t his — In November 202 0, Amarin Pharmaceuticals fi led a patent in fringe ment l awsuit against Hikma in the United States District Court for the District of Delaware (No. 20-c v-1630) alleg ing that Hikma’s sales and dist ribution of its generic icosapent ethyl product infri nges three Amarin patents that describe certain m ethods of using icosapent ethy l. Amarin sought an injunctio n barring Hikma from selling its generic product a s well as unspecified damages. Hikma’s product is not approved for the patented methods but rather is ap proved only for a different indication not co vered by any valid patents. In January 2022 the court dismissed the lawsuit a gainst Hi kma, and as of th is writing Amarin has not sought to appeal the court’s dismissal. Hikma denies the allegations and will vigoro usly defend against them if necessary. Management does not believe sufficient evidence exists to make any pro vision for these issues Tax In April 2019, the European Commission released its decision that certain tax exem ptions offered by the UK authorities could co nstitute State Aid and where this is the case, the relevant tax will need to be paid to the UK tax authorities. Th e UK Government has subsequently appealed against th is decision. In common with other UK headquartered international comp anies whose arrangements were in line with current UK C FC leg islation, Hikma could have been affected by the outcome of this decision and ha d estimated the maximu m potential liability to be approximately $2.4 million. In 2021, formal letters of confirmations were received from HMRC that confirme d that Hikma is not a beneficiar y of State Aid in accordance with the European Commission’s decision and the UK’s Controlled Foreign Co mpany legislation. Following HMRC’s conf irmation, Hikma no lon ger requires a contingent liability in this regard. Hik ma Ph arm ace utic al s PLC Annual Report 2021 17 1 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 37. Shar e-based p ayments Executive incentive plan The 2014 Executive Incentive P lan (EIP) was a pproved by shareholders at the 2014 Annu al General Meeting. The EIP is a combined cash bonus (element A), deferred shares (element B) and restricted shares (element C) scheme. Un der the EIP, the Co mpany ma kes grants of c onditional awards under elements B and C to the Executive Directors and senior exec utives o f the Group. Awards un der all elements are dependent o n the achievement of individua l and Group KPIs over o ne year prior to g rant. The shares awarded under element B are not relea sed for a period of two years during which they are subject to forfeiture conditio ns. The shares aw arded under element C are not relea sed for a period of three years but a re not subject to a forfeiture condition. Members of the Executives Committee must reta in 100% of the shares received from elements B and C for a p eriod of fi ve ye ars from the date of grant. Details of the outstanding g rants under this plan are shown below: 2021 grants 2021 grants 2020 grants 2020 grants 2019 grants 2019 grants 2019 grants 2018 grants 2017 grants 2016 grants 2016 grants 2015 grants Total Y ear 2021 25 Feb 25 Feb 27 Feb 27 Feb 17 May 12 March 12 March 16 May 13 Apr 11 May 17 March 10 April Number Beginning balance – – 184,355 550,745 216,834 280,529 31 3,288 14 0,484 50,107 13,171 51,350 12,012 1,812,875 Granted during the year 157,644 43 2,098 – – – – – – – – – – 589,742 Exercised during the year – – – (16 ,49 6) (205 ,463 ) – (313 ,28 8) (126, 273) – – – – (6 61, 520) Expired during the year – ( 8,3 70) – (2 2,7 96) ( 11, 371 ) – – – – – – – ( 42, 537 ) Outstanding at 31 December 157,644 423,728 184,355 511,453 – 280,529 – 14,211 50,107 13,171 51,350 12,012 1,698,560 Exercisable at 31 December – – – – – – – 14 ,211 50,107 13,171 51,350 12,012 140,851 Weighted average remainin g contractual life (years) 2.15 1.15 1.16 0.16 – 0.19 – 6.38 5.36 4.36 4.21 3.28 0.56 2020 grants 2020 grants 2019 grants 2019 grants 2019 grants 2018 grants 2017 grants 2016 grants 2016 grants 2015 grants Total Year 2020 27 Feb 27 Feb 17 May 12 Ma rch 12 Ma rch 16 May 13 Apr 11 May 17 March 10 Apr il N umber Beginning b alance – – 246,076 280,529 313 ,288 503,460 196,918 18,171 51,350 24,024 1,633,816 Granted during the year 184,355 561,994 – – – – – – – – 746,349 Exercised during the year – (11,249) (29,242) – – (362,976 ) (146,811) (5,000) – (12,012 ) (567,290) Outstanding at 31 Dec ember 184,355 550,745 216,834 28 0,529 313,288 140,484 50,107 13,171 51,350 12,012 1,812,875 Exercisable at 31 December – – – – – 26,982 50,107 13,171 51,350 12,012 153,622 Weighted average remainin g contractual life (years) 2.16 1.16 0.38 1.19 0.19 7.38 6.36 5.36 5.21 4.28 1.80 172 Hik ma Ph arm ace utic al s PLC Annual Report 2021 37. Shar e-based p ayments conti nued The cost of the EIP of $20 million (2020: $18 million) has been recorded in the consolidated income stateme nt as part o f sellin g, general and administrative expenses and research and deve lopment expenses. The fair value per share is the face value o f shares on the date of grant less the present value of dividends expected to be p a id during the vesting period. Valuation is based on the Black-Scholes methodology for nil-cost options. The weighted average share price for 2021 is $32.60 ( 2020: $30.24). The details of fair value of the ou tstanding shares are shown below: Date of grant Number grante d The estimated fair value of each share option granted The share pri ce at grant date Expected dividend yield $ $ % EIP 1 10/04/2015 338,808 32.78 33.24 0.81% EIP 3 B 17/03/2016 242,608 26.21 26.98 0.71% EIP 3 C 17/03/2016 206,267 26.21 26.98 0.71% EIP 4 11/05/2016 165,553 3 1.69 32.15 0.73% EIP 5 B 13/04/2017 428,528 23.52 23.98 0.97% EIP 5 C 13/04/2017 184,741 23.29 23.98 0.97% EIP 6 B 16/05/2018 440,231 18.45 19.09 1.71% EIP 6 C 16/05/2018 113,456 18.14 19.09 1.71% EIP7 B 12/03/2019 313,288 21.00 21.75 1.79% EIP7 C 12/03/2019 208,529 20.63 21.75 1.79% EIP8 17/05/2019 246, 076 21.41 22.18 1.79% EIP9 12/03/2019 72,000 20.63 21.75 1.79% EIP 10 B 27/02/2020 561,994 24.10 24.91 1.67% EIP 10 C 27/02/2 020 184,355 23.70 24.91 1.67% EIP 11 B 25/02/2021 432,098 32.17 33.09 1.43% EIP 11 C 25/02/2021 157,644 31.71 33.09 1.43% The exercise price of the share awa rd is $nil. Management incentive plan The 2009 Management Incentive Plan (MIP) wa s appr oved by shareholders at the 2010 Annual General Meeting and the 2018 MIP was a pproved by shareholders at the 2018 Annual General Meeting. Under the MIP, the Company makes grants of conditional awards to management ac ross the Group below senior management level. Awards are dependent on the achiev ement of individual and Group KP Is over one year and are then subject to a two- year holding period. Details of the outstanding g rants under this plan are shown below: 2021 grants 2020 grants 2019 grants 2018 grants 2017 grants 2016 grants 2015 grants 2014 grants 2013 grants 25 Feb 27 Feb 17 May 16 May 19 May 11 May 14 May 11 June 17 May Total Y ear 2021 Number Number Number Number Number Number Number Number Number Number Outstanding at 1 January – 377,913 394,263 17,445 36,990 8,254 8,854 5,890 3,013 852,622 Granted during the year 341, 422 – – – – – – – – 341 ,422 Exercised during the year (1,376) (4,118) (363,799) (3,922 ) (1,106) (1,564) (1,209) – (1,325) (378,419) Expired during the year (2 ,559) (15,546) (30,464) (325) – – – – – (48 ,894) Outstanding at 31 December 337,487 358,249 – 13,198 35,884 6,690 7,645 5,890 1,688 766,731 Exercisable at 31 December – – – 13,198 35,884 6,690 7,645 5,890 1,688 70,995 Weighted average remaining contractual life (years) 1.15 0.16 – 6. 38 5.38 4.36 3.37 2.45 1.38 1.04 Hik ma Ph arm ace utic al s PLC Annual Report 2021 173 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 37. Shar e-based pa yments continued 2020 grants 2019 grants 2018 grants 2017 grants 2016 grants 2015 grants 2014 grants 2013 grants 27 Feb 17 May 16 May 19 Ma y 11 May 14 May 11 June 17 May Tot al Year 2020 Number Number Number Number Number Number Numb er Number Number Outstanding at 1 January – 408,243 400,870 36,990 8,254 8,854 5,890 3,013 872,114 Granted during the year 381,546 – – – – – – – 381,546 Exercised during the year (776) (6 ,832 ) (376,560) – – – – – (384,168) Expired during the year (2,857) (7,1 48) (6,865) – – – – – (16,870) Outstanding at 31 December 377,913 394,263 17,445 36,990 8,254 8,854 5,890 3,013 852,622 Weighted a verage rema ining con tractual li fe (years) 1.16 0.38 7.38 6.38 5.36 4.37 3.45 2.38 1.24 The cost of the MIP of $9 million (2020: $9 million) has been recorded in the consolid ated income statement as part of selling, general and administrative expenses, cost of sales and research and deve lopment expenses. The fair value per share is the face value of shares on the date of grant less the present value of d ividends expected to be pa id during the ves ting period. Val uation is based on the Bla ck-Sc holes methodology for nil-cost options. The weighted average share price for 2021 is $3 2.60 (20 20: $30.24). The details of fair value of the ou tstanding shares are shown below: Date of grant Number granted The estimated fair value of each share option granted The share price at grant date Expected dividend yield $ $ % MIP 5 17/05/2013 252,482 14.61 14.93 1.10 MIP 6 11/06/2014 225,904 27.73 28.33 0.71 MIP 7 14/05/2015 145,918 32.17 32.63 0.71 MIP 8 11/05/2016 196,373 31.73 32.20 0.73 MIP 9 19/05/2017 273,724 22.09 22.54 1.01 MIP 10 16/05/2018 443,288 18.45 19.09 1.71 MIP 11 17/05/2019 436,107 21.41 22.18 1.79 MIP 12 27/02/2020 381,546 24.10 24.91 1.67 MIP 13 25/02/2021 341, 422 32.17 33.0 9 1.43 The exercise price of the share award is $nil. 174 Hik ma Pha rma ceu tic als P LC Annual Report 2021 38. Rela ted parties Transactions betw een Hikma Pharmaceuticals PLC (Hikma) and its subsidiaries (together, the Group) have been eliminated on conso lidation and are not disclo sed in this Note. Tran sactions between the Group and its joint ventures an d other related parties are disclosed below . Trading tr ansactions: During the year ended 31 December 2021, the Group entered into the following tr ansactions with related p arties: Darhold Limite d (Darhold): is a related party of Hikma because three Directors of Hikma jointly constitute the majority of Direct ors and shareholders (with immediate family members) in Darhold and because Darhold ow ns 24.56% (2020: 24.66%) of the share capital and 25.92% (2020: 26.03%) voting capital of Hikma. Other than divide nds (as paid to all shareholders), there we re no transactions between the Group and D arhold Limited during the year . Hubei Hao sun Pharmaceutical Co. Ltd (Haosun): is a related party of Hikma because the Group holds a non-controlling interest of 49% in the joint venture (JV) with Haosun (2020: 4 9%). During the year, total di rect purchases from Haos un were $nil million (2020: $1.1 million ). At 31 December 2021, the amount owed from the Group to Haosun amounted to $nil (2020: $0.1 million). In addition, in certain countries the Group purchases from Hao sun indirectly. During the year total indirect purchases from Haosun were $0.7 million (2020: $1.1 million). Labatec Pharma (Labatec): is a related party o f the Group because Labatec is owned by th e family of two Directors of Hikma. During the year, total Group sales to Labatec amounted to $2 million (2020: $3 million) , and total Group purchases amount ed to $0.5 million (2020: $0. 6 million). As at the year end, the amount owed by Lab atec to the Group was $0.6 million (20 20: $0.7 million). Al Ti bbi: is a related part y of the G roup because it is jo intly contro lled by a direct relation of a senior executive member of the Group and Dash Ventures, in which two Directors o f the Group have a controlling interest. During the ye ar ended 31 December 2020, the Group requested that Al Tibbi provide patient ref erral serv ices in response to COVID measures in Jorda n. Total transactions with Al Tibb i was $0.03 millio n ( 2020: $0 .4 millio n) an d the amount owed by the Group to Al Tibbi was $nil (2020: $0.2 million). Remuneration of key m anagement personnel The remuneration of the key management personnel (comprising the Executive Directors, N on-Executive Directors and the senior ma nagement as set out in the Governance report) of the Gr oup is set out below in aggregate for each of the categories specified in IAS 24 ‘Re lated Party Disclosures’. Further information about the remuneration of the individual Dire ctors is prov ided in the a udite d part of the Remuneration Comm ittee report on pages 89 to 110. 2021 2020 $m $m Short-term emplo yee benefits 18.0 19.9 Share-based pa yments 12.9 11.1 Post-employment ben efits 0.1 0.3 Other benefits 0.6 0.7 31.6 32.0 Hik ma Ph arm ace utic al s PLC Annual Report 2021 1 75 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 39. Subsid iaries and joint ventures The subsid iaries and joint venture of Hikma Pharmace uticals PLC are as follows: Owned by the Group Ownership % Ordinary shares Ownership% Ordinary shares Company’s name Incorporated in Address of the registered office At 31 December 2021 At 31 December 2020 Al Jazeera Pharmaceutical Industry S.A.R. L Algeria Zone d'Activité, Propriété N° 3 79 Section N° 04 Staoueli, Algeria 99% 99% Algerie Industrie Mediterraneene Du Me dicament S.A.R.L. Algeria Zone d'Activité 16/15 Staoueli, Algeria 97% 97% Hikma Pharma Algeria S.A.R.L. Algeria Zone d'Activité 16/15 Staoueli, Algeria 100% 100% SPA Al Dar Al Arabia pour la Fabrication de Médica ments Algeria Zone d’Activité El Boustane N° 78, Sidi Abdellah, Al Rahmania, Algeria 100% 100% Hubei Haosun Pharmaceutical Co Ltd China No 20 Juxian Road, G edian Economic an d Technolog y Development Area, Hubei, China 49% 49% Hikma Canada Limited Canada Blaney McMurtry LLP, Suite 15000 2 Queen Street, Toronto ON M5C 3G5 100% 100% Hikma Pharma S.A.E Egypt 12 El-Esraa Street, El-Mohandeseen, Lebanon Square, Giza, Egypt 100% 100% Hikma Pharmaceut icals Industries S.A.E Egypt 16 Ahmed Hosny Street, First Zone, Naser City, Cairo, E gypt 100% 100% Hikma Specialised Pharmaceuticals (S.A.E) Egypt 10 D, 11 D, Ind ustrial Zone, Badr Ci ty, Cairo, E gypt 98% 98% Hikma for Importation Co. LLC Egypt 16 Ahmed Hosny Street, First Zone, Naser City, Cairo, E gypt 99% 100% Hikma Pharma GmbH Germany Lochhamer Strasse 13, 82152, Martinsried, Germany 100% 100% Thymoorgan Pharmazie GmbH Germany Schiffgraben 2 3, DE-38690 , G oslar, OT Vienenburg, Germany 100% 100% Hikma Finance (Ireland) Limited Ireland 2 Grand Canal Square, Grand Canal Harbour, Dublin 2, Ireland – 100% Hikma Italia S.p.A Italy Viale Certosa 10, 27100, Pavia, I taly 100% 100% Hikma Pharma Limited 1 Jersey 47 Esplanade , St H elier, JE1 0BD, Jersey 100% 100% Arab Medical Containers LLC Jordan P.O. Box 80, Saha b Industrial Estate, 11512, Jordan 100% 100% Arab Pharmaceut ical Manufacturing PSC Jordan Al Buhaira – Salt, P .O. Box 42, Jordan 100% 100% Future Pharmaceutical Industries LLC Jordan P.O. Box 80, Saha b Industrial Estate, 11512, Jordan – 100% Hikma Internation al Pharmaceuticals LLC ( Exempt) Jordan 122 Queen Zain AlSharaf Street, Bayader Wadi Al-Seer, Amman, Jordan 100% 100% Hikma Internat ional Ventures and Developmen t L LC (Exempt) Jordan Bayader Wadi Al-See r, Industrial Area, Saleem Bin Al- Hareth Street, Buildin g 21, P.O. B ox 182400, Amman, 11118, Jordan 100% 100% Hikma Investment LLC Jordan Bayader Wadi Al-See r, Industrial Area, Saleem Bin Al- Hareth Street, Buildin g 21, P.O. B ox 182400, Amman, 11118, Jordan 100% 100% Hikma Pharmaceut icals LLC Jordan Bayader Wadi Al-See r, Industrial Area, Saleem Bin Al- Hareth Street, Buildin g 21, P.O. B ox 182400, Amman, 11118, Jordan 100% 100% Hikma United Renewable Energy Jordan Bayader Wadi Al-See r, Industrial Area, Saleem Bin Al- Hareth Street, Building 21, P. O. Box 182400, Amma n, 11118, Jordan – 100% 176 Hik ma Ph arma ce utic als P LC Annual Report 2021 39. Subsid iaries and joint venture continued Owned by the Group Ownership % Ordinary shares Ownership % Ordinary shares Company’s name Incorporated in Address of the registered office At 31 December 2021 At 31 Decem ber 2020 Internation al Pharmaceutic al Research Centre LLC Jordan P.O. Box 963166, Amman, 11196, Jordan 51% 51% Sofia Travel and Tourism Jordan Mustafa Semreen Complex Building No. 29, Jamal Qaytoqa Street, Bayader Wadi Al-See r, Amman, Jordan 100% 100% Specialised for Pharmaceutical Industries LLC Jordan Bayader Wadi Al-Seer, Indust rial Area, Saleem Bin Al- Hareth Street, Building 21, P. O. Box 182400, Amman, 11118, Jordan 100% 100% Hikma Pharmaceutic als Co. Ltd., Almaty (Kazakhtan) Representat ive Office Kazakhstan Apt. 1, House 7, Building-28 , “Keremet” Microdistrict , Bostandykskiy District, Almaty, A15C8X2, Kazakhstan 100% 100% Al Jazeera Pharmaceutical Industries Ltd KSA P.O. Box 106229 11666 Riyadh, Saudi Arabia 100% 100% Hikma Liban S.A.R.L. Leba non Saria Building, Ground Fl oor, Embassies Street, Bir Hassan, Beirut, Leb anon 67% 67% Société de P romotion Pharmaceutiqu e d u Maghreb (Promopharm S.A.) Morocco Zone Industrielle du Sahel, Rue N. 7, Had Soualem, Province de Se ttat, Morocco 94% 94% Hikma Pharma B enelux B.V Netherlands Nieuwe Steen 36, 1 625 HV, Hoorn, Netherlands 100% 100% Hikma Farmaceutica, ( Portugal) S.A Portugal Estrada Rio Da Mo no.8, 8a, 8B-Ferv enca, 2705-906, Terugem SNT, Portugal 100% 100% Lifotec Farmaceutica S.G.P.S S.A Portugal Estrada Nacional 9, Fer vença, São Jo ão das Lampas e Terrugem, Sintra, Portugal 100% 100% Hikma Care for Me dicines and Medical Supplies C ompany Palestine West Bank Al Birah, Ramallah 51% 51% Hikma Pharmaceutic als Palestine West Bank Al Birah, Ramallah 100% 100% Hikma Slovakia s.r.o Slova kia Se beríniho 1 821 03 Bratislav a, Slovakia 100% 100% Hikma Espana S.L Spain CA LLE MALDONADO, 4 – BJ D 28006, MAD RID Spain 100% 100% Pharma Ixir Co. Ltd Sudan Riyad Area, Obied Khatim Street, P.O. Box 10461, Block No. 21, House No. 420, Kh artoum, S udan 51% 51% Savannah Pharmaceutical Industries Co. Lt d Sudan Riyad Area, Obied Khatim Street, P.O. Box 10461, Block No. 21, House No. 420, Kh artoum, S udan 100% 100% Eurohealth International S.A.R.L. 1 Switzerland Rue des Battoirs 7, 1205 Genève, Sw itzerland 100% 100% APM Tunisie S.A.R.L. Tunisia Impasse N°4-Energie Solaire, Z one Industrielle La Charguia 1, Tunis-Carthage, 2035, Tunisia 99% 99% STE D'Industriee Pharmaceutique Ibn Al Baytar Tunisia 11 Rue 8610 Charguia 1-2035 Tunis-Carthage, T unisia 100% 100% STE Hikma Pharma Tunisie Tunisia Impasse N°4-Energie Solaire, Z one Industrielle La Charguia 1, Tunis-Carthage 2035, Tunisia – 2 100% STE Medicef Tunisia Avenue Habib Bourguiba, Sidi Thabet, 2020 Ariana, Tunisia 100% 100% Hik ma Ph arm ace utic al s PLC Annual Report 2021 17 7 FINANCIAL ST A TEMENTS Notes to the consolidated financial statements continued 39. Subsid iaries and joint venture continued Owned by the Group Ownership % Ordinary shares Ownership % Ordinary shares Company’s name Incorporated in Address of the registered office At 31 December 2021 At 31 December 2020 Hikma Emerging Markets and Asia Pacific FZ-LLC 3 United Arab Emirates Premises 202-204, Floor 2, Building 26, Dubai, United Arab Emirates 100% 100% Hikma Internation al Trading Limited 1 United Arab Emirates The Oberoi Centre, Level 15, Business Bay, P.O. Box 36282, D ubai, United Arab Emirates 100% 100% Hikma MENA FZE 1 United Arab Emirates The Oberoi Centre, Level 15, Business Bay, P.O. Box 36282, D ubai, United Arab Emirates 100% 100% Hikma (Maple) Limited United Kingdom 1 New Burlington Pl ace, London, W1S 2HR, United Kingdom – 100% Hikma Acquisitions (U K) Limited 1 United Kingdom 1 New Burlington Pl ace, London, W1S 2HR, United Kingdom – 100% Hikma Holdings (U K) Limited United Kingdom 1 New Burlington Pl ace, London, W1S 2HR, United Kingdom – 100% Hikma UK Lim ited 2 United Kingdom 1 New Burlington Pl ace, London, W1S 2HR, United Kingdom 100% 100% Hikma Ventures Li mited 1 United Kingdom 1 New Burlington Pl ace, London, W1S 2HR, United Kingdom 100% 100% Hikmacure Limited United Kingdom 1 New Burlington Pl ace, London, W1S 2HR, United Kingdom – 50% West-Ward Holdings Limited United Kingdom 1 New Burlington Pl ace, London, W1S 2HR, United Kingdom 100% 100% Hikma Pharmaceut icals Internation al Limited United Kingdom 1 New Burlington Pl ace, London, W1S 2HR, United Kingdom 100% 100% Hikma Intelligence Limited United Kingdom 1 New B urlington Place, London, W1S 2HR, United Kingdom 100% 100% Eurohealth (U.S.A.) Inc United States 200 Conn ell Drive, 4 th Floor Berkeley Heights, NJ 07922 100% 100% Hikma Speciality USA, Inc. United States 200 Connell Drive, 4 th Floor Berkeley Heights, NJ 07922 100% 100% Hikma Labs Inc. United States Corporation Trust Company of Neva da 701 S Carson Street Suite 200, Carson C ity, NV 89701, United States 100% 100% West-Ward Columbus Inc. United States Corporation Trust Center 1209 Orange Street, Wilmington, New Castle DE 19 802, United States 100% 100% Hikma Injectables USA, Inc. United States Corporation Trust Center 1209 Orange Street, Wilmington, New Castle DE 19 802, United States 100% 100% Hikma Pharmaceut icals USA Inc. United States 200 Connell Drive, 4 th Floor Berkeley Heights, NJ 07922 100% 100% Hikma Finance USA L LC United States 200 Con nell Drive, 4 th Floor Berkeley Heights, NJ 07922 100% 100% Hikma France France Tour Cb21 16 Pl ace de l'Iris, Courbevoie 92400 100% – Hikma Cali Inc. (Delaware) Unit ed States Corporat ion Trust Center , 12 09 Orange Street, Wilmington DE 1980 1, Uni ted States 100% – 1. Owned by PLC ‘the Company’ 2. In 2021, STE Hikma Pharma Tunisie was merged into STE D'In dustriee Pharmaceutique Ibn Al B aytar 3. In 2021, Hikma UK Limited became fully owned by Hi kma Pharmaceuticals PLC, f ollowing a Group reorganisation The in vestments i n subsidiar ies are all stated at cost in Hikma Phar maceuticals PLC and are consolidated in line with IFRS 10. The invest ments in joint ventures are acco un ted for using the equ ity method (Note 18). The Group’s subsidiaries principally operate in trading pharmaceuticals products and associated goods and ser vices, except for Sofia Travel and Tourism subs idiary wh ich coord inates emp loyees trav el arrangements . Companies marked () were in corporated a s holding companies . 178 H ikm a Pha rma ceu tic als PL C Annual Repor t 2021 40. Defined contribution retirement benefit plan The Group has defined contribution retirement plans in four of its sub sidiaries: Hikma Pha rmaceuticals PLC – United K ingdom, Hikma Pharmaceuticals Limited (Jordan), A rab Pharmaceutical Manufa cturing Co and Hikma Pharmaceu ticals USA Inc. The details of each contribution plan are as follows: Hikma Pharmaceuticals P LC Hikma Pharmaceuticals PLC currently has a defined co ntribution pens ion plan available fo r staff working in the United Kin gdom w hereby Hikma Pharmaceuticals PLC contributes 10% of basic salary. Employees a re immediately entitled to 100% of the contribut ions. Hikma Pha rmaceuticals PLC contributions for the year ended 31 December 20 21 were $0.3 million (2020: $0.3 million). Hikma Pharmaceuticals LLC Hikma Pharmaceuticals LLC currently has an employee savings plan wh ereby Hikma Pharmaceuticals LLC fully m atches e mployees’ con tributions, which are fixed at 10% of basic sala ry. Employees are entitled to 100% of Hikma Pharmaceuticals LLC contribut ions after three y ears of employment with the Company. Hikma Pharmaceuticals LLC contributions for the year ended 31 December 2021 were $3.2 m illion (2020: $3 milli on). Arab Pharmaceutical Manufact uring PSC Arab Pharmaceuti cals Manufacturin g PSC currently ha s an employee savings plan whereby Arab Pharmaceuticals Manufacturing PSC fu lly matches employees’ contributions, which are fixed at 10% of basic salary. Employees are entitled to 100% of Arab Pharmaceut icals Manufacturing PSC contributions after three years of employment with the Company. Arab Pharmaceuticals M anufacturing PSC contributions for the ye ar ended 31 December 2021 were $0.5 million (2020: $0.5 million ). Hikma Pharmaceutica ls US A Inc .: (401 (k) Retire ment P lan) Hikma Phar maceuticals USA Inc. has a 401(k)-defined contribution plan, which allows all eligible employees to defer a portion o f their income thro ugh contributions to the plan. Eligible e mployees can begin contributing to the plan after being employed for 90 days. Employees ca n defer up to 95% of their e ligible in come into the plan, not to exceed $19,500 (2020: $19,500), not including c atch-up contrib utions availab le to e ligible emp loyees as outlined by the Int ernal Revenue Service. The company matches the empl oyees’ eligible contribution dollar-for-dollar on the fir st 6% o f elig ible p ay contributed to the plan. Employer contributions vest 50% after tw o years of service and 100% afte r three years of service. Employees are considered to have completed one year of service for the purpose s of vest ing upon the completion of 1,000 hours of service at any time dur ing a plan year. Employer contributions to the plan for the year ended 31 December 2021 were $10 million (2020: $9 million). The assets of this plan are held separately from those of the Group. The only obligation of the Group with respect to th is plan is to make specified contributio ns. 41. Subse quent events Teligent Inc. acquisition On 17 January 2022, Hikma announced that it has agreed to acquire the Canadian assets of Teligent Inc. (Teligent). The acquisit ion marks Hikma ’s expansion into Canada and includes a port fo lio of 25 sterile injectable products, th ree in-lic enced oph thalmic products and a p ipeline of seven additional products, four of which are approve d by Health Canada. The transaction was comple ted on 2 February 2022 an d Hikma paid a cash consideration of $46 million. Due to the proximity of th e completion of the transaction to the date of issuance of the consolidated financ ial statements, the initial valuation for the business combinatio n and net assets acquired is in progress. It is expected that most of the con sideration paid is attributable to product related in tangible a ssets and aroun d $2 million is a ttributable to working capital. Share buyback On 24 February 2022, Hikma announced a shar e buyback programme of up to $300 million to be executed during 2 022. The buyback ha s been sized to maint ain balan ce sheet efficiency whilst leaving significant headroom for contin ued inves tment opportun ities. The Buyback re flects the Group’s strong cash generation, balance sheet strength and the Board’s confidence in the future growth prospects of the business. It is worth noting that since 31 December 2021, the Company has received interco mpany dividend s wh ich increased the retained earn ings balan ce availab le for d istribution after year-end. Hik ma Ph arm ace utic al s PLC Annual Report 2021 179 FINANCIAL ST A TEMENTS Company b alance sheet At 31 December 2021 2021 2020 (restated ) 1 Note $m $m Non-current assets Property, plant and equipment 1 2 Right-of-use asset s 7 9 Intangible assets 3 15 27 Investments in subsidiaries 4 3,288 3,332 Due from subsidiaries 5 34 100 3,345 3,470 Current assets Trade and other receivables 1 10 14 Due from subsidiaries 5 88 49 Cash and cash eq uivalents 7 222 156 Other current assets 1 6 28 30 348 249 Total a ssets 3,693 3,719 Current liabili ties Other payables 2 2 Due to subsidiaries 8 18 29 Short-term financial debts 9 21 21 Other current liabilities 12 12 53 64 Net current assets 295 185 Non-current li abilities Long-term financial debts 9 105 129 Due to subsidiaries 8 – 48 Finance lease obligatio ns 9 11 114 188 Total liabil ities 167 252 Net a ssets 3,526 3,467 Equity Share capital 11 42 41 Share pre mium 282 282 Other reserves 1,746 1,746 Profit fo r the year 12 150 483 Retained earnings 1,306 915 Equity shareholders’ funds 3,526 3,467 1. In 2021, pr epayments have been reclassified und er ot her current assets which we re p reviously classified under trade and oth e r receivables, and hence the 2020 numbers have b een restated reflecting $6 milli on reclassificatio n from trade and other receivables to other current asse ts. Had this reclassificati on been applied at 1 January 2020, these li ne items would hav e been restated by $3 million. (see Note 6) The financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, on pages 180 to 186 were approved by th e Boar d of Directors on 23 Februar y 2022 and signed on its behalf by: Said Darwazah Executive Chairman 23 Febru ary 20 21 Sigurdur Olafsson Chief Executive Officer 180 Hik ma Pha rma ceu tic als P LC Annual Report 2021 Company statement of change s in equity For the year ende d 31 December 2021 Share capital Share premium Merger reserve Retained earnings Total $m $m $m $m $m Balance at 1 January 2020 41 282 1,746 1,365 3,434 Profit fo r the year – – – 483 483 Total compr ehensive inco me for the year – – – 483 483 Cost of equity sett led employee share scheme – – – 27 27 Dividends pa id – – – (109) (109) Share buyback – – – (368) (368) Balance at 31 December 2020 and 1 January 2021 41 282 1,746 1,398 3,467 Profit fo r the year – – – 150 150 Total compr ehensive inco me for the year – – – 150 150 Cost of equity sett led employee share scheme – – – 29 29 Exercise of employees share scheme 1 – – (1) – Dividends pa id – – – (120) (120) Balance at 31 December 2021 42 282 1,746 1,456 3,526 At 31 December 2021, the Company had retained earnings availabl e f or distribution i n excess of $320 million, which is determine d with reference to the Companies Act 2006 and to guidance issued by the I nstitute of Chartered Accountants in England and Wales in 20 17. Hik ma Ph arm ace utic al s PLC Annual Report 2021 181 FINANCIAL ST A TEMENTS Notes to the Company financial statements For the year ende d 31 December 2021 1. Adoption of new and revised standards The nature of the impact on the Company o f new and revised standard s is the same as for the Group. Details are given in Note 1 of the Group consolidated financial statements. 2. Significant ac cou nting policies Basis of accounting These financial statements, for the year ended 3 1 December 2021 have b een prepared in accordance with F RS 101. As permitted by FRS 101, the Company has taken advantage of the following exemptions from the require ments of IFRS as below: — Paragraph 10(d) of IAS 1 ‘Presentation of Fina ncial Statements’ (s tatement of cash flows) — Paragraph 16 of IAS 1 ‘Presentati on of Financial St atements’ (statement of compliance with all IFRS) — Paragraph 38A of IAS 1 ‘Presentat ion of Fi nancial Statements’ (require ments for min imal o f two primary statements, inclu ding c a sh flow statements) — Paragraph 45B an d 46 to 52 of IAS 1 ‘Presentatio n of Financia l Statements ’ (Share based pa yment) — Paragraph 111 of IAS 1 ‘Presentation of Financia l S tatements’ (cash flow statement information) — IFRS 7 financial instruments disclosure — Paragraph 17 o f IAS 24 ‘Related Parties Disclosures’ — Paragraph 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accountin g Estimates and Errors’ — IAS 7 ‘State ment of cash flows’ No indiv idual profi t and loss accoun t is prepared as provided by section 4 08 of the Companies Act 2006. The financial statements have been prepared on the hi storical cost basis. The prin cipal accoun ting policies adopted are the same as those set out in Note 2 of the G roup con solidated f inancial sta tements with the addition of the policies not ed below. Investments in subsidiaries are stated at cost less, wh ere appr opriate, provisio n for impairment. The carrying value of investments is reviewed fo r impairment when there is an indication that the investment might be impaired . Any provisio n resulting from an imp airment rev iew is charged to the Company income statement. Te sting for impairment requires making estimates for the valuation of th e investments. Intercompany receivables are classified as financial assets at amortised cost and are measured at amortise d cost using the effective interest method less any impairment. The Company applies a general approach in ca lculating expected credit loss. At the repo rting date, all out standing balances were considered to hav e low credit risk, therefore , an operational simplification was applied when assessing expected credit loss on a twelve-mont h period basis. Equity-settled e mployee share schemes are accounted for in accordan ce with IFRS 2 ‘Share based payment’. The current charge rela ting to the subsidiaries’ employees is recharge d to subsidiary companies. 182 H ikm a Pha rma ceu tic als PLC Annual Repor t 2021 3. Intangible asset s Software Total $m $m Cost Balance at 1 January 2020 39 39 Additions 11 11 Disposals 1 (10) (10) Balance at 1 January 2021 40 40 Additions 3 3 Write-down (5) (5) Disposals 1 (7) (7) Balance at 31 December 2021 31 31 Accumulated amortisation and im pairment Balance at 1 January 2020 (6) (6) Charge for the year (2) (2) Impairment (5) (5) Balance at 1 January 2021 (13) (13) Charge for the year (3) (3) Balance at 31 December 2021 (16) (16) Carrying amount At 31 December 2021 15 15 At 31 December 2020 27 27 1. Dispos als r epresent software sold to subsid iaries Details o f useful lives are included in Note 16 of the Gro up consolidated finan cial statement s. 4. Investments in subsidiaries The details of Investment in subsidiaries are mentioned in Note 39 of the Group consolidated financial statements. The following table provides the movement of the investments in subsidiar ies: 2021 2020 $m $m Beginning balance 3,332 3,331 Additions to subsidiaries 2,179 1 Liquidation of subsidiaries (2,223) – Ending balance 3,288 3,332 The movement during the year represent reorganisation of the Group structure through transf er/l iquation of certain holding comp anies, specifically liquidation of Hikma Acquisitions (UK) Limited and addition of Hikm a UK Limited (see Note 39 of the Group consolidated financia l statements). Hik ma Ph arm ace utic al s PLC Annual Report 2021 183 FINANCIAL ST A TEMENTS Notes to the Company financial statements continued 5. Due from subsidiaries Non-current As at 31 December 2021 2020 $m $m Hikma Phar maceuticals LLC 30 40 Hikma Phar maceuticals USA Inc. – 8 Hikma Emerging Markets and As ia Pacific FZ-LLC 4 5 Hikma UK Limited – 4 Hikma MENA FZE – 43 34 100 Current As at 31 December 2021 2020 $m $m Hikma Pharma GmbH 1 1 Hikma Phar maceuticals USA Inc. 51 31 Hikma MENA FZE 10 – Hikma Pharma S.A.E 2 2 Promopharm 2 – Al Jazeera Pharmaceuticals Industries JPI 8 – Hikam Pharmaceu ticals International Limited 1 1 Hikma Emerging Markets and As ia Pacific FZ-LLC 7 7 Others 6 7 88 49 The Company does not expect any materia l cr edit losses from inter g roup receivables. 6. Oth er curr ent assets As at 31 December 2021 2020 (restated) 1 $m $m Investments at FVTPL 24 2 4 Prepayments 1 4 6 28 30 1. In 2021, pr epayments have been reclassified und er ot her current assets which we re p reviously classified under trade and oth e r receivables, and hence the 2020 numbers have b een restated reflecting $6 milli on reclassificatio n from trade and other receivables to other current asse ts. Had this reclassificati on been applied at 1 January 2020, these li ne items would hav e been restated by $3 million Investment at FVTPL: represents the agreement the Group entered into with an asset management firm in 2015 to man age a $20 million portfolio of underlying debt instruments. The investment comprises a portfolio of a ssets that are managed by an asset manager and is meas ured at fair value; any changes in fair va lue go through the income statement. Th ese assets are class ified as level 1 va luation as they are based o n quoted prices in active markets. (see Note 29 o f the of the Group consolidated financial statements) 184 Hi kma P har mace uti ca ls PLC Annual Report 2021 7. Cas h and cash equivalents As at 31 December 2021 2020 $m $m Cash at banks an d on hand 15 1 1 Time deposits 207 145 222 156 Cash and cash eq uivalents include highly liquid in vestments w ith maturities of three m onths or l ess which are con vertible to known amounts of cash and are subject to insignific ant risk of changes in value. 8. Due to subsidiaries Non-current As at 31 December 2021 2020 $m $m Hikma MENA FZE – 48 – 48 Current As at 31 December 2021 2020 $m $m Hikma Invest ment LLC – 17 Hikma Farmaceutica S.A 5 4 Hikma Pharma Limite d 1 3 Hikma UK Limited 1 1 Hikma Phar maceuticals LLC 10 2 Other 1 2 18 29 9. Financial debts A syndicated revolving credit facility of $1,175 million was ente red into on 27 October 2015. From the $1,175 million, $175 mil lion matured on 24 December 2019, $130 million matured on January 2021 and the remaining $870 million matures on 24 December 202 3. At 31 Decemb er 2021 the facility has an outstanding balanc e of $nil (2 020: $nil) and a $870 million unused available limit (2020: $1,000 million). On 29 December 20 21 the facility agreement has been increased to $1, 150 million available for 5 years till Jan 2027 effective from 4 January 2022 w ith an extension options for additional two yea rs. This facility is a vailable in two tranches, the firs t for Hikma Pharmaceuticals PLC $760 mi llion and the second is for Hikma Fin ance USA LLC $390 million and both tranches ca n be used f or general corporate purposes. A ten-year $150 million loan from the Inte rnational Finance Corporation was entered into on 21 December 2017. There was fu ll ut ilisation of the l oan since Apri l 2020. Quarterly equal re payments of the long-term loan have commenced on 15 March 2021. The loan was used for gener al corporate purposes. The facility matu res on 15 December 2027. An eight-year $200 million loan from the International Finance Corporation and Managed Co-lending Portfol io program was entered into on 26 October 2020. There was no utilisation of the loan as of December 20 21. The facility matures on 15 September 2028 (Note 28 ) of the Group consolidated financial statements. The weighted average interest rates incurred by the Group are disc losed in Note 24 of the o f the Group consolidated financial s tatements. Hik ma Ph arm ace utic al s PLC Annual Report 2021 185 FINANCIAL ST A TEMENTS Notes to the Company financial statements continued 10. Staff costs Hikma Phar maceuticals PLC currently has an average of 35 employees (2020: 35 employees) (excludi ng Executive Directors); total compensation paid to them amounted to $10 mill ion (2020: $12 million), of wh ich salaries and bonuses comprise an amoun t of $7 million (2020: $8 m illion) the remaining balance o f $3 million (2020: $4 mil lion) main ly represe nts national insurance contributions and other employee benefits. 11. Shar e capital Issued and fully paid – included in s hareholder's equity: As at 31 December 2021 2020 Number $m Number $m Ordinary Sha res of 10p each 244,331,288 42 243,332,180 41 At 31 December 2021, of the iss ued share capital, 12,833,233 (2020: 12,833,233) are held as Treasury shares, nil (2020: 40,831) shares are held in th e Employee Benefit Trust (EBT) and 231,498,055 (2020: 230,458,116) sha res are in free i ssue (Note 31) of the Group consolidated f inancial statements. 12. Profit for the year The ne t profit in the Company for the year is $150 million (2020: $4 83 mill ion). Included in the net profit for the year is an amount of $2,401 million (2020: $5 10 millio n) dividends income offset by $2,223 mi llion wr ite-off of investmen ts in subsidiaries mainl y as a result of the reorganisa tion of the Group structure (Note 4). The remaining inco me statement components la rg ely represent general and admi nistrative expenses and net financing expenses. Aud it fe es for the Compan y are disclosed in Note 7 of the G roup con solidated f inancial sta tements. 13. Contingent liabilities A contingent liability existed at the balance sheet date for a standby letter of credit totalling $10 million (2020: $8 million) for potenti al stamp duty obligation that may arise for repayment of a loan by intercompany guarantors. It’s not pro bable that the repayment will be made by the intercompany guarantors. In addition, the Company guarantee d Hikma Fi nance USA LLC $500 million, 3.25%, f ive year Eurobond issued in July 20 20 (Note 28 of the G roup consolidated fina ncial statements) and guaranteed H ikma Pharmaceutic als USA Inc. cont ingent consideration related to the Columb us business acquisition (Note 27 and 30 of the Group con solidated finan cial st atements). It’s not probable that any of the guaranteed entit ies will default on the guaranteed obli gations. 186 Hik ma Pha rma ceu tic als P LC Annual Report 2021 Hik ma Ph arm ace utic al s PLC Annual Report 2021 187 202 2 nanci al calendar 17 March 2021 n al dividen d ex -div idend date 18 March 202 1 nal divide nd reco rd date 25 Ap ril Annual Gen eral M eeting 28 Apr il 20 21 nal di viden d paid to shareho lder s 4 August 20 22 interim re sult s and interim dividend announced 17 August 202 2 interim divid end ex-dividen d date 18 August 202 2 interim divid end rec ord date 16 Sept ember 20 22 interim div idend p aid to sharehol ders * Provisional dates Shareholding en quiries Enquirie s or informati on conc erning exis ting shareho ldings shoul d be dire cted to Hikm a’s registr ars, Link R egist rars e ither : – in wr iting to Shareho lder S er vice s, Link G roup, 10th Flo or , Centr al Square, 2 9 Wellingto n Street, Le eds LS1 4 DL – by tel ephon e from within t he UK on 0 37 1 66 4 03 00 – by tel ephon e from out side th e UK on +4 4 3 71 6 64 0 30 0 or – by em ail – enquirie s@link group.co.uk Dividend payments – cu rrency Hikma de clares div idend s in US dollars . Unle ss you have ele cte d other wis e, you will rec eive your divid end in US dollar s. Shareh older s can o pt to receive the di viden d in pound s terling or J ordanian dinar . The Re gistr ar retains re cords of t he divide nd curren cy for e ach shareho lder and o nly change s them at the sha reholde r ’s reques t. If you wish to chang e the curren cy in whic h you recei ve your dividen d please contact the Registrars. Dividend payments – ban k transfer Sharehol ders w ho currently re ceive th eir divide nd by chequ e can reque st a div idend man date form from t he Regis tra r and have their divide nd paid dire ct into their b ank account o n the sam e day as the divide nd is paid. T he tax vo ucher is s ent direc t to the shareh older ’s regis tered addre s s. Dividend payments – i nternati onal payment sy stem If you are an overs eas share holde r , th e Regis trar is n ow able to pay divide nds in sever al foreign c urrencie s for an adminis trati ve charge of£5.00, which is d educ ted fro m the payme nt. Conta ct th e Regis trar for further informa tion. Webs ite Pres s rele ase s, the share p rice and ot her informati on on the G roup areavailable on H ikma’s website w w w.hikma.com. Share listings London Stock Exchange Hikma’s Ordinar y Share s of 10 pen ce each (Shares) are admit ted to the O cial Lis t of the Lond on Stock Exchang e. They are liste d under EPIC − HIK , SEDOL − B 0LCW0 8 GB and ISI N – GB0 0B0 L C W08 3. Fur ther inform ation on this mar ket, its tr ading sys tems and cur rent tra ding in Hikma’s shares c an be foun d on the Lon don Stock Exchange websi te ww w.londonsto cke xchange.com. Global Depository Receipts Hikma als o has listed G lob al Dep ositor y Re ceipts (GD Rs) ontheNa sdaq D ubai. They are lis ted und er EPIC – HIK an d ISIN – US4 3128 820 81. Fur the r information o n the Nas daq Dub ai, its tr ading syste ms and curre nt trading in Hikm a’s GDRs c anbe foun d on the websi te ww w.nasdaq dubai.com. American Depository Receipts (ADR) Hikma has an AD R progr amme for w hich BNY M ellon ac ts a s Dep ositor y. One ADR e quates to t wo share s. AD R are trad ed as a Level 1 (O TC ) prog ramme un der the s ymbol H KMPY . Enq uiries should b e made to: BNY M ellon Share owner S er vice s PO B ox 358 516 Pit tsburg h, P A 15252-8516 T el: +1 201 680 6 825 T el: +1 888 B NY AD RS (t oll-fre e within the US) E-ma il: sh rrelations@bn ymellon.com Shareholder fraud The Finan cial Con duct Aut horit y has i ssue d a numbe r of warnings to sha reholders regard ing boiler r oom sc ams. Sha reholders may hav e received u nsolicited phone calls or correspondence co ncerning investm ent matter s. Th ese a re ty picall y from overs eas ba sed ‘b rokers’ who tar get UKshareho lder s, oer ing to sell the m what oen turn o ut to be wor thl es s or high-r isk shares in US o r UK investm ents. T hes e ope ration s are commonl y known as b oiler ro oms. T hes e brokers c an be ver y p ersis tent and ext remely p ersua sive. Shareho lders are advis ed to be ve r y cauti ous of uns olicited a dvice, o ers to buy s hares at a disco unt or oers of f ree co mpany repor t s. If you re ceive any unsolicit ed inv estment advice : – o btain the co rrec t name of th e pers on and org anisatio ns – ch eck th ey are author ised by th e FCA by lo oking the rm up on ww w. fca.org. uk/regist er – re por t th e matter to th e FCA ei ther by c alling 080 0 111 67 6 8 or vis it w ww.fca.org.uk/consumer s – if t he call er per sist s, hang up Det ails of the share de aling fac ilities s pons ored by Hikm a areinclude d in Hikma’s mailings and are on H ikma’s website. Hikma’s website is w w w.hikma.com and th e registe red oc e is 1 New Bur ling ton Place, Lond on W1S 2H R. T el ephon e number + 4 4 (0)20 7399 2 7 60. Shareh older informa tion 188 Hi kma Ph arm ace uti ca ls PLC Annual Report 2021 Pr inci pal G roup Companies and Advi sers Hikma Pharmace uticals PLC Regis tered in Englan d and Wales num ber 55 579 34 Registered oce : 1 New Bur ling ton Place London W1S 2HR UK T el ephon e: +44 (0)20 739 9 2760 E-mail: uk -inves tors@hikma .com Hikma Pharmace uticals USA In c. 200 C onnell D rive Berkeley Heights New Je rsey 079 22 US T el ephon e: + 1 9 08 673 10 30 Hikma Pharmace uticals LLC 21 Sa leem B in Hareth Street P .O . Box 18 2400 11118 A mman Jordan T elephone: +9 62 6 5802900 Hikma Farmacêu tica (Por tugal) S. A . Est rada R io Da Mo no. 8 8A , 8B – Fer ven ça 2705 – 906 T err ugem SNT Portugal T el ephon e: +351 21 9608 410 Advisers Auditors Pw C LLP 1 Embankment Place London WC2N 6RH UK Brokers Citigro up Glob al Markets Limite d Canada S quare London E1 4 5LB UK Morga n Stanley & Co. Internati onal PLC 25 Cab ot Square Canar y Whar f London E1 4 4Q A UK Registrars Link Group, 10 th Floo r Centr al Square 29 Welling ton Street Leeds LS1 4DL Printed in the U K by Pureprint . Purepr int is a Carb onNe utral ® company . Both manuf actur ing mill and the pr inter are regis tered to the Environme ntal Managem ent System ISO14 00 1 and are Fore st Stewardship Coun cil ® (FSC® ) chain-of-cus tody ce r tied . De sign and pro duc tion © Hikma Pharmaceuticals PLC 1 New Bur ling ton Place London W1S 2HR UK T +4 4 (0 )20 73 99 2760 www .h ik m a. c om
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