Annual Financial Report

RNS Number : 2242W

Hikma Pharmaceuticals Plc

15 April 2019

 

Hikma Pharmaceuticals PLC
(the 'Company')

Publication of 2018 Annual Report and Notice of AGM

LEI: 549300BNS685UXH4JI75

The Company will today publish on its website, www.hikma.com, the Annual Report for the year ended
31 December 2018 (the '2018 Annual Report').

Hard copy versions of the following documents will be sent to those shareholders who have elected to receive paper communication on or about 15 April 2019:

·      2018 Annual Report

·      2019 Notice of Annual General Meeting

·      Proxy form for the 2019 Annual General Meeting

Shareholders who have not elected to receive paper communication will be sent communications notifying them of the availability of these documents on the Company's website.

In compliance with Listing Rule 9.6.1 of the UK Financial Conduct Authority ('FCA'), the aforementioned documents will be submitted to the UK Listing Authority and will be available for public inspection at the National Storage Mechanism ('NSM')  www.morningstar.co.uk/uk/NSM

The Company's Annual General Meeting will be held at 10:00 am on Friday 17 May 2019 at Sofitel,
St James, 6 Waterloo Place, London SW14 4AN.

The information included in the unaudited preliminary results announcement released on 13 March 2018, together with the information in the Appendices to this announcement which is extracted from the 2018 Annual Report, constitute the materials required by the FCA's Disclosure Guidance and Transparency Rule 6.3.5R. This announcement is not a substitute for reading the 2018 Annual Report in full. Page and note references in the Appendices below refer to page and note references in the 2018 Annual Report.

Enquiries:

Hikma Pharmaceuticals PLC                                     

Peter Speirs
Company Secretary

15 April 2019

 

Appendix 1 - Principal Risks and Uncertainties

The Group faces risks and uncertainties that could have a material impact on its earnings and ability to trade in the future.  These are determined via robust assessment considering our risk context by the Board of Directors with input from executive management. These risks and uncertainties are set out below. The contents of this table should not be considered as an exhaustive list of all the risks and uncertainties the Group faces.

The Board is satisfied that these risks are being managed appropriately and consistently with the target risk appetite.

Risk and description	Mitigating actions
Industry earnings
The commercial viability of the industry and business model we operate may change significantly as a result of political action, economic factors, societal pressures, regulatory interventions or changes to participants in the value chain of the industry.	·      Securing key talent to manage complex commercial environment and develop our business ·      Growth and expansion in existing markets with new products and in new therapeutic areas ·      Portfolio management programmes to focus on strategic products that support revenue, profit and margin targets ·      Development of capacity and diversification of capability through differentiated technology ·      Capital investment in the countries in which we operate to ensure continued market access ·      Active product life cycle and pricing management ·      Continuous alignment of commercial and R&D organisations to identify market opportunities and meet demand through internal portfolio ·      Collaboration with external partners for development and in-licensing partnerships
Product pipeline
Identifying, developing and registering new products that meet market needs to provide continuous source of future growth.	·      Align selection process for pipeline products to ensure optimal use of our expansive global product portfolio with increased focus on specialty products with high value and differentiation ·      Strategic oversight of pipeline delivery through dedicated global project management office ·      Product-related acquisitions to bolster pipeline ·      Third-party pharmaceutical product specialists brought in to assist in the development of manufacturing processes for new generic products
Organisational development
Developing, maintaining and adapting organisational structures, management processes and controls, and talent pipeline to enable effective delivery by the business in the face of rapid and constant internal and external change.	·      Strengthening teams with key talent appointed to fill strategic regional and global positions ·      Deployment of Group-wide human capital management system ·      Developing global programmes that attract, manage and develop talent within the organisation ·      Ongoing updates to organisation design, structures and accountabilities to maintain empowerment in decision-making and bring appropriate level of governance

 

Reputation
Building and maintaining trusting and successful partnerships with our many stakeholders relies on developing and sustaining our reputation as one of our most valuable assets.	·      Internal and external monitoring of issues that may impact reputation ·      Increasing investment in corporate social responsibility initiatives including sustainability reporting ·      Establishment and development of strategic industry and community partnerships ·      Communication and engagement programmes on appropriate use of products ·      Strengthening communication and corporate affairs capabilities in our core geographies
Ethics and compliance
Maintaining a culture underpinned by ethical decision-making, with appropriate internal controls to ensure staff and third parties comply with our Code of Conduct, associated principles and standards, as well as all applicable legislation.	·      Board level oversight from the Compliance, Responsibility and Ethics Committee (see pages 79 and 80 for details) ·      Code of Conduct approved by the Board, translated into seven languages and rolled out to all staff ·      Active participation in international anti-corruption initiatives ·      Anti-bribery and corruption, sales and marketing, and other compliance programmes implemented and monitored through internal compliance assessments ·      Implementation of third-party due diligence and oversight programme
Information, technology and infrastructure
Ensuring integrity, confidentiality and resilience of data, securing information stored and/or processed internally or externally, maintaining and developing technology systems that enable business processes, and in ensuring infrastructure supports the organisation effectively.	·      IT organisational structure designed to enable coordinated, consistent and comprehensive enterprise approach ·      Industry-standard information security solutions and best practice processes adopted and adapted for local and Group requirements ·      Cyber-risk activity monitored and changes implemented as necessary to combat evolving threats ·      Partnership established with strategic third parties to implement and maintain a robust ·      Group-wide information security framework ·      Investment in enterprise-wide standardisation initiative incorporating data management, access and process control, and risk management

Legal, regulatory and intellectual property
Adapting to changes in laws, regulations and their application, managing litigation, governmental investigations, sanctions, contractual terms and conditions, and potential business disruptions.	·      Continuous assessment of developments in legal and regulatory frameworks and impact on the organisation ·      Internal communication and training on policies and processes drives awareness and understanding and builds a compliance culture ·      External advice procured to provide independent services and ensure highest standards ·      Strengthened experience and capability for managing intellectual property matters
Inorganic growth
Identifying, accurately pricing and/or realising expected benefits from acquisitions or divestments, licensing, or other business development activities.	·      Extensive due diligence of each acquisition in partnership with external support, including financial and legal advisers, investment banks, and industry specialists in order to strategically identify, value, and execute transactions ·      Executive Committee review of major acquisitions before they are considered by the Board ·      The Board spends a significant amount of time reviewing major acquisitions to ensure strategic alignment ·      Dedicated integration project teams led by the business head responsible ·      Post-acquisition performance (financial and non-financial) monitored closely to ensure integration and delivery on business plan ·      Post-transaction reviews highlight opportunities to improve effectiveness of processes
Supply chain and active pharmaceutical ingredient (API) sourcing
Maintaining continuity of supply of finished product and managing cost, quality and appropriate oversight of third parties in our supply chain.	·      Continuity of API supply maintained for high-value products through alternative API suppliers, stocking strategies, and supply chain modelling ·      Rigorous selection process for API suppliers and focus on building long-term supply contracts ·      Vertically integrated plant in Jordan to synthesise selected strategic injectable APIs ·      Strengthening trade compliance capability to ensure compliance and drive efficiency ·      Programmes rolled out across the Group to ensure compliance with serialisation requirements for US, Europe and MENA

 

Crisis response and continuity management
Preparedness, response, continuity and recovery from crisis events, such as natural catastrophe, economic turmoil, operational issues, political crisis, and regulatory intervention.	·      Continued strengthening of central oversight of systems, processes, and capabilities to enhance our Group-wide resilience and crisis preparedness ·      Updated crisis management framework to enhance our ability to respond effectively to crises, and to expedite the restoration of critical processes after disruption ·      Identified key third parties involved in preparedness, response and recovery with updated framework ·      Corporate insurance programme aligned to ensure appropriate coverage of high-impact, low-likelihood events
Product quality and safety
Maintaining compliance with current Good Practices for Manufacturing (cGMP), Laboratory (cGLP), Distribution (cGDP) and Pharmacovigilance (cGVP) by staff, and ensuring compliance is maintained by all relevant third parties involved in these processes.	·      Quality culture driven throughout the organisation by global quality initiatives, and regularly reinforced by communication from senior executives ·      Global implementation of quality systems that ensure valid consistent manufacturing processes leading to the production of quality products ·      Facilities maintained as inspection-ready for assessment by relevant regulators ·      Documented procedures continuously improved and regular staff training ·      Continued environment and health certifications ·      Global pharmacovigilance programme in place
Financial control and reporting
Effectively managing treasury activities, tax position, income, expenditure, assets and liabilities, and debtors, and reporting accurately and in a timely manner in compliance with statutory requirements and accounting standards.	·      Extensive financial control procedures implemented and assessed annually as part of the financial compliance monitoring programme ·      Network of banking partners maintained for lending and deposits ·      Management monitors debtor payments and takes precautionary measures and action where necessary ·      Selected hedging of exchange rate and interest rate exposure ·      External advice to help manage tax exposures and upgraded internal tax control systems

 

Appendix 2 - Directors' Responsibility Statement

Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting

Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law). In preparing the group financial statements, the directors have also elected to comply with IFRSs, issued by the International Accounting Standards Board (IASB). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the

group and company and of the profit or loss of the group and company for that period. In preparing the financial statements, the directors are required to:

·      select suitable accounting policies and then apply them consistently

·      state whether applicable IFRSs as adopted by the European Union and IFRSs issued by IASB have been followed for the group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the company financial statements, subject to any material departures disclosed and explained in the financial statements

·      make judgements and accounting estimates that are reasonable and prudent

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and company will continue in business

The directors are also responsible for safeguarding the assets of the group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for keeping adequate accounting recordsthat are sufficient to show and explain the group and company's transactions and disclose with reasonable accuracy at any time the

financial position of the group and company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

The directors are responsible for the maintenance and integrity of the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from

legislation in other jurisdictions.

We confirm to the best of our knowledge:

·      the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of Hikma and the undertakings included in the consolidation taken as a whole

·      the Strategic report includes a fair review of the development and performance of the business and the position of Hikma and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face

·      the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess Hikma's performance, business model and strategy

By order of the Board

Said Darwazah
Executive Chairman
12 March 2019

Sigurdur Olafsson
Chief Executive Officer
12 March 2019

 

Appendix 3 - Related Party Transactions

Related party transactions: Note 40 of the financial statements, page 162.

Transactions between Hikma and its subsidiaries (together, the Group) have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associates, joint ventures and other related parties are disclosed below.

Trading transactions:

During the year ended 31 December 2018, the Group entered into the following transactions with related parties:

Boehringer Ingelheim GmbH ('BI'): is a related party of Hikma because BI owns 16.6% (2017: 16.6%) of the share capital of Hikma, controls 11.8% (2017: 11.8%) of the voting capital of Hikma, has the right to appoint a director of Hikma and a senior executive of BI holds a directorship of Hikma. The Group total sales to BI amounted to $66.6 million (2017: $79.1 million) and the Group total purchases from BI amounted to $5.1 million (2017: $10.6 million). As at the year end, the amount owed from BI to the Group was $18.1 million (2017: $43.8 million). Additionally, balances arising from the acquisition of the Columbus business from BI relating to contingent consideration are disclosed in notes 24, 28 and 32.

Capital Bank, Jordan: is a related party of Hikma because one director of Hikma is the founder and former Chief Executive Officer of Capital Bank. At the year end, total cash balance at Capital Bank was $7.5 million (2017: $11.8 million) and utilisation of facilities granted by Capital Bank to the Group amounted to $nil (2017: $nil). The interest income is within the market range.

Darhold Limited ('Darhold'): is a related party of Hikma because three directors of Hikma jointly constitute the majority of directors and shareholders (with immediate family members) in Darhold and because Darhold owns 24.85% (2017: 24.93%) of the share and voting capital of Hikma. Other than dividends (as paid to all shareholders), there were no transactions between the Group and Darhold Limited during the year.

Hikmacure Limited ('Hikmacure'): is a related party of Hikma because Hikmacure is a 50:50 joint venture (JV) with MIDROC Pharmaceuticals Limited (MIDROC). Hikma and MIDROC have invested in Hikmacure in equal proportions of $2.5 million each in cash (2017: $2.5 million). During 2017, Hikma and MIDROC agreed not to proceed with and to liquidate the venture.

HMS Holdings SAL ('HMS): is a related party of Hikma because HMS is owned by the family of two directors of Hikma. Other than dividends (as paid to all shareholders), there were no transactions between the Group and HMS during the year.

Hubei Haosun Pharmaceutical Co. Ltd ('Haosun'): is a related party of Hikma because the Group holds a 49.0% interest in the joint venture (JV) with Haosun (2017: 30.1%). During 2018, total purchases from Haosun were $2.3 million (2017: $1.4 million). At 31 December 2018, the amount owed from Haosun to the Group amounted to $0.2 million (2017: $1.6 million). During the year Hikma acquired an additional stake in Haosun bringing the total ownership to 49.0% (note 18).

Labatec Pharma ('Labatec'): is a related party of the Group because Labatec is owned by the family of two directors of Hikma. During 2018, total Group sales to Labatec amounted to $2.9 million (2017: $1.8 million). As at the year end, the amount owed by Labatec to the Group was $0.3 million (2017: $0.3 million).

Remuneration of key management personnel

The remuneration of the key management personnel (comprising the Executive and Non-Executive Directors and certain of senior management as set out in the Directors' report) of the Group is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'. Further information about the remuneration of the individual Directors is provided in the audited part of the Remuneration Committee report on pages 81 to 104.

	2018 $m	2017 $m
Short-term employee benefits	17.4	11.0
Share-based payments	8	10.2
Post-employment benefits	0.1	10.3
Other benefits	0.8	0.6
	26.3	32.1

About Hikma

Hikma helps put better health within reach every day for millions of people in more than 50 countries around the world. For more than 40 years, we've been creating high-quality medicines and making them accessible to the people who need them. Headquartered in the UK, we're a global company with a local presence across the United States (US), the Middle East and North Africa (MENA) and Europe, and we use our unique insight and expertise to transform cutting-edge science into innovative solutions that transform people's lives. We're committed to our customers, and the people they care for, and by thinking creatively and acting practically, we provide them with a broad range of branded and non-branded generic medicines. Together, our 8,400 colleagues are helping to shape a healthier world that enriches all our communities. We are a leading licensing partner in the MENA region, and through our venture capital arm, are helping bring innovative health technologies to people around the world. For more information, please visit www.hikma.com.

 

END

 

 

ACSSFSFFIFUSEFL