Preliminary Results

RNS Number : 8618Z

Hikma Pharmaceuticals Plc

13 March 2013

 



PRESS RELEASE                                                            

Hikma delivers a strong performance in 2012 with Group revenue growth up 21% and EPS up 24%

London, 13 March 2013 - Hikma Pharmaceuticals PLC ("Hikma") (LSE: HIK) (NASDAQ Dubai: HIK), the fast growing multinational pharmaceutical group, today reports its preliminary results for the year ended 31 December 2012.

Group financial highlights

Summary P&L $ million	2012	2011	Change
Revenue	1,108.7	918.0	+20.8%
Gross profit	501.1	395.3	+26.8%
Gross margin	45.2%	43.1%	+2.1
Operating profit	166.8	118.7	+40.5%
Adjusted[1] operating profit	193.8	145.8	+32.9%
Adjusted operating margin	17.5%	15.9%	+1.6
EBITDA[2]	225.2	165.7	+35.9%
Profit attributable to shareholders	100.3	80.1	+25.2%
Adjusted1 profit attributable to shareholders	120.5	100.9	+19.4%
Earnings per share (cents)	51.1	41.3	+23.8%
Dividend per share (cents)	16.0	13.0	+23.1%
Net cash flow from operating activities	182.2	126.4	+44.1%

·      Group revenue increased by 20.8% to $1,108.7 million, with organic[3]revenue up 5.2%

·      Branded revenue growth of 19.7% reflects strong demand across our MENA markets, with organic[4] growth of 11.3%

·      Branded adjusted operating profit increased by 17.6%, with an adjusted operating margin of 23.4%

·      In constant currency, Branded revenue grew by 23.1% and adjusted operating margin was 24.7%

·      Excellent performance in global Injectables delivered 48.9% revenue growth, with organic[5] revenue growth of 22.3% and adjusted operating margin of 26.2%

·      Remediation work at our Eatontown facility during 2012 reduced Generics revenue by 33.0% to $103.7 million and resulted in an operating loss of $20.9 million

·      Increase in Group adjusted operating margin to 17.5%, from 15.9% in 2011, reflecting a significant improvement in Injectables margin

·      Profit attributable to shareholders up 25.2% to $100.3 million.  On an adjusted basis, profit attributable to shareholders up 19.4% to $120.5 million

·      Net cash flow from operating activities up $55.8 million, to $182.2 million

·      Continued new product introductions across all countries and markets - launched 14 products and received 81 product approvals - and enhancement of the portfolio through product acquisitions

·      Completed acquisition of the Egyptian Company for Pharmaceuticals and Chemical Industries in January 2013 for a cash consideration of $20.5 million

·      Increase in the full year dividend to 16.0 cents per share, up from 13.0 cents in 2011

Said Darwazah, Chief Executive Officer of Hikma, said:

"I am pleased with the very strong performance of the Group this year. 

In the MENA region, our businesses are thriving as a result of the investment we have been making to strengthen our manufacturing and sales operations and our ongoing commitment to building our businesses in these markets. 

Our global Injectables business achieved excellent growth in revenue and profitability, with very strong performances across our geographies.  We are benefiting from the strength of our sales and manufacturing platform in the US, strong demand for our products across our markets and our continued track record for quality and operational excellence.  We are encouraged by the prospects for the global injectables market and believe the Injectables business is well positioned for strong growth over the medium and long term.

The performance of our Generics business has been impacted by the remediation work we are doing at our Eatontown facility.  Following completion of a strategic review, bringing this facility back into regulatory compliance remains the priority, as does returning it to profitability.  At the same time, we are evaluating the alternative options for this business.

Our focus in 2013 continues to be on building our business in MENA and on strengthening our global Injectables business.  We are well positioned for 2013 and we look forward to another strong year."

Enquiries

Hikma Pharmaceuticals PLC                                      

Susan Ringdal, VP Corporate Strategy and Investor Relations        [phone]/ [phone]

Lucinda Henderson, Investor Relations Manager                            [phone]/ [phone]

FTI Consulting                                                                        

Ben Atwell/ Julia Phillips/ Matthew Cole                                        [phone]

About Hikma

Hikma Pharmaceuticals PLC is a fast growing pharmaceutical group focused on developing, manufacturing and marketing a broad range of both branded and non-branded generic and in-licensed products.  Hikma's operations are conducted through three businesses: "Branded", "Injectables" and "Generics" based primarily in the Middle East and North Africa ("MENA") region, where it is a market leader, the United States and Europe.  In 2012, Hikma achieved revenues of $1,108.7 million and profit attributable to shareholders of $100.3 million. 

A presentation for analysts and investors will be held today at 09:30 at FTI Consulting, Holborn Gate, 26 Southampton Buildings, London, WC2A 1PB.  To join via conference call please dial: [phone] or 0808 237 0030 (UK toll free) and use participant PIN code: 87887107.  Alternatively you can listen live via our website at www.hikma.com.  A recording of both the meeting and the call will be available on the Hikma website.  Video interviews of Said Darwazah, CEO and Khalid Nabilsi, CFO are available at www.hikma.com.  The contents of the website do not form part of this preliminary results announcement.

Business and financial review

The business and financial review set out below summarises the performance of Hikma's three main business segments, Branded, Injectables and Generics, for the year ended 31 December 2012.

Group revenue by business segment (%)

	2012	2011
Branded	47.7%	48.1%
Injectables	42.4%	34.4%
Generics	9.4%	16.9%
Others	0.5%	0.6%

Group revenue by region (%)

	2012	2011
MENA	55.8%	55.4%
US	36.1%	34.6%
Europe and ROW	8.1%	10.0%

Branded

2012 highlights:

•      Branded revenue increased by 19.7%, with organic[6] revenue up 11.3%

•      Branded adjusted operating profit increased by 17.6%, with an adjusted operating margin of 23.4%

•      47 product launches and 4 new in-license agreements

Branded revenue increased by 19.7% in 2012 to $528.9 million, compared with $441.9 million in 2011.  On a constant currency basis, Branded revenue growth was 23.1%.  Organic revenue grew 11.3% to $480.7 million, with the recently acquired Promopharm and Savanna businesses in Morocco and Sudan respectively, contributing a further $48.1 million.  Over the year, we delivered particularly strong performances in Algeria, Egypt and Libya.  Across all of our MENA markets we have benefitted from the recent investments we have made to expand our local manufacturing presence, launch new products and restructure our sales and marketing teams. 

Our Egyptian business had an excellent year with over 25% revenue growth, reflecting increased manufacturing capacity and new product launches.  The Egyptian team successfully restructured its salesforce to enable a greater focus on strategic, higher value products.  On 22 January 2013, we completed the acquisition of the Egyptian Company for Pharmaceuticals and Chemical Industries ("EPCI") for an aggregate cash consideration of $20.5 million.  This is an important strategic acquisition, bringing a complementary portfolio of 35 products and enhancing our local manufacturing capabilities, including the addition of a dedicated cephalosporin facility.  The acquisition of EPCI significantly enhances our growth potential in the Egyptian market.

In Algeria, an increase in the volume of locally manufactured products and investment in our salesforce helped drive revenue growth of close to 20%.  In Libya, we saw a very strong recovery this year following the political unrest in 2011.  Our ongoing commitment to this market enabled us to restart our operations quickly following the disruptions and rapidly establish Hikma as the leading pharmaceutical company in this market.  In Morocco, where we have been progressing with the integration of Promopharm, we have successfully submitted 6 of Hikma's leading products for registration. 

In Iraq, whilst sales were disrupted at the beginning of the year due to the change we made to our distributor, we saw accelerating sales in the second half.  In Sudan, where a significant devaluation of the Sudanese pound caused pricing uncertainty and delayed shipments during the first half of the year, we were able to deliver much stronger growth in the second half and for the full year overall.  We believe that Iraq and Sudan are attractive markets that will offer excellent growth potential over the medium and long term.  We continue to strengthen our salesforce in the Iraqi market and build our product portfolio.  In Sudan, we are upgrading the manufacturing facility we acquired in 2011, which will further strengthen our leading position in this market.

During 2012, the Branded business launched a total of 47 products across all markets, including 6 new compounds and 9 new dosage forms and strengths.  The Branded business also received 36 regulatory approvals across the region, including 3 for new products. 

Revenue from in-licensed products increased from $174.8 million to $195.3 million in 2012, supported by the revenue contribution from Promopharm's in-license agreements.  In-licensed products represented 36.9% of Branded revenue compared to 39.6% in 2011.  Strong revenue growth from our leading in-licensed products is being offset by lower sales of Actos following the withdrawal of this product in some of our markets in 2011.  We signed 4 new licensing agreements for innovative oral products during 2012, which will support our continued focus on growing our portfolio of higher value products in growing therapeutic categories. 

Branded gross profit grew by 20.2% to $257.3 million in 2012 and gross margin was 48.7%, compared with 48.4% in 2011.  Despite higher inflationary pressure across the region in the wake of the Arab Spring, we maintained a stable gross margin by focusing on higher value, strategic products, reducing procurement costs and driving greater operational efficiencies.

Operating profit in the Branded business increased by 13.1% to $111.4 million, compared with $98.5 million in 2011.  Adjusted operating profit increased by 17.6% to $123.6 million.  Adjusted operating margin was 23.4%, compared with 23.8% in 2011, after excluding the amortisation of intangibles, integration costs and severance costs incurred as a result of restructuring our MENA operations during 2012.  Excluding the impact of adverse currency movements, particularly the Sudanese pound and the Algerian dinar, which reduced adjusted operating profit by around $10.9 million, adjusted operating margin was 24.7%.  The impact of higher salaries and benefits and increased operating costs are being more than offset by our ongoing success in restructuring our sales and marketing teams and driving efficiency savings across our operations. 

On a constant currency basis, we expect Branded revenue growth of around 11% in 2013 and a slight improvement in adjusted operating margin.  This reflects our ability to continue offsetting increased inflationary pressure across the MENA region with the launch of higher value products and by driving cost and operating efficiencies.  On a reported basis, taking into account exchange rate movements since the beginning of 2013, Branded revenue growth is currently expected to be around 9% this year, with margins in line with 2012. 

Injectables

2012 highlights:

·      Injectables revenue grew by 48.9% to $470.0 million, with organic revenue up 22.3%

·      Strong performances across our geographies - US, MENA and Europe

·      Significant improvement in Injectables adjusted operating margin, up from 17.4% to 26.2%

Injectables revenue by region

	2012	2011
US	63.0%	51.3%
MENA	20.5%	23.9%
Europe and ROW	16.5%	24.8%

Revenue in our global Injectables business increased by 48.9% to $470.0 million, compared with $315.7 million in 2011.  Organic revenue increased by 22.3% to $237.5 million.

US Injectables revenue grew by $134.0 million, or 82.6%, to $296.2 million.  This excellent performance reflects a full year contribution from the Multi-Source Source Injectables ("MSI"), our success in maximising the potential of our existing product portfolio, stronger customer relationships, new product launches and product acquisitions.  It is also due to the operational excellence of our Cherry Hill and Portuguese facilities, which significantly increased output through better management and additional capacity.  Our strong quality track record has helped to differentiate our business in the US market and enabled us to benefit from the favourable market conditions created by the supply constraints of some of our competitors.

In the MENA region, Injectables revenue increased by 27.5% to $96.1 million, compared with $75.4 million in 2011.  This reflects particularly strong growth in Saudi Arabia, Algeria, Libya and Jordan, due to strong demand in the private market and more tender wins, as well as the full year contribution from Promopharm.

Revenue in our European Injectables business of $77.8 million was in line with revenue of $78.2 million in 2011.  However, on a constant currency basis, European Injectables revenue grew by 7.3%, reflecting new product growth and continuing demand for contract manufacturing.  We also successfully offset double-digit price erosion with strong volume growth.

Injectables gross profit increased by 71.4% to $218.7 million, compared with $127.6 million in 2011.  Gross margin increased significantly to 46.5%, compared with 40.4% in 2011.  This reflects our efforts to actively manage our existing product portfolio, favourable market conditions, strong operational management, increased plant utilisation and greater economies of scale.

Operating profit of the Injectables business increased by 154.3% to $115.5 million.  Adjusted operating profit increased by 123.8% to $123.0 million.  Adjusted operating margin increased from 17.4% to 26.2%.  This excellent margin expansion reflects the improvement in gross margin, significantly better operating leverage and tight control of operating costs.  

We remain focussed on strengthening our global Injectables product portfolio, with a particular emphasis on more differentiated products.  In 2012, we received approval for a New Drug Application ("NDA") for argatroban injection, which we launched at the end of the year.  In May 2012, we purchased the Abbreviated New Drug Application ("ANDA") for sodium ferrous gluconate injection from GeneraMedix Pharmaceuticals.  These are both excellent products with strong market positions.

During 2012, the Injectables business launched a total of 30 products across all markets, including 8 new compounds and 8 new dosage forms and strengths.  The Injectables business also received a total of 41 regulatory approvals across all regions and markets, namely 11 in MENA, 22 in Europe and 8 in the US.  We signed 4 new licensing agreements during 2012 to add innovative injectable products to our MENA portfolio.

We expect our global Injectables business to continue to perform well and currently expect Injectables revenues will grow in the low double-digits in 2013.  We also see excellent prospects for the global Injectables business over the medium and long term. 

As previously announced, we are undertaking a review of the strategic options for the Injectables business.  We have received a number of unsolicited expressions of interest for the business and will consider the best option for shareholders.

Generics

2012 highlights:

·      Generics revenue decreased by 33.0% to $103.7 million

·      Operating loss of $20.9 million reflects the impact of additional compliance work at our Eatontown facility

·      Exceptional costs of $7.4 million related to the remediation work and restructuring of the Generics business

Generics revenue was $103.7 million, down 33.0% compared with $154.8 million in 2011.  This decline is due to the slowdown in production at our Eatontown facility during 2012, while we undertook the compliance work necessary to address the observations raised by the US Food and Drug Administration ("US FDA") in its warning letter of February 2012.  This led us to voluntarily halt commercial production at this facility during the last two months of 2012. 

Generics gross profit was $23.3 million, compared with $52.2 million in 2011, and gross margin was 22.5%, compared with 33.7% in 2011.  This reflects reduced operating leverage as a result of the significant slowdown in sales.

The Generics business made an operating loss of $20.9 million in 2012, compared with an operating profit of $17.1 million in 2011.  The loss included $7.4 million of one-off costs associated with the remediation and restructuring work.  

In late December 2012, we restarted manufacturing at the Eatontown facility and we are bringing products back gradually.  We expect to complete the remediation work in the second half of the year.   As the remediation process has been slower than expected, we remain focused on driving sustainable cost reduction and continue to look for further opportunities to cut costs across the business.  Following the completion of a strategic review, we have also initiated discussions with third parties to evaluate the alternative options for this business. 

The impact of continued remediation in 2013 is currently being offset by a market opportunity that is driving strong demand for one of our products.  We expect to maintain Generics revenue at 2012 levels and to breakeven for the full year.

Other businesses

Other businesses, which primarily comprise Arab Medical Containers, a manufacturer of plastic specialised packaging, International Pharmaceuticals Research Centre, which conducts bio-equivalency studies, and the chemicals division of Hikma Pharmaceuticals Limited, contributed revenue of $6.2 million, compared with $5.6 million in 2011.  

These other businesses delivered an operating loss of $3.3 million in 2012, compared with a loss of $2.4 million in 2011.

Group

Group revenue increased by 20.8% to $1,108.7 million in 2012.  Excluding the contributions from MSI in the US, Promopharm in Morocco and Savanna in Sudan, organic revenue growth was 5.2%. 

The Group's gross profit increased by 26.8% to $501.1 million, compared with $395.3 million in 2011.  Group gross margin was 45.2%, compared with 43.1%, with the significant gross margin improvement of the global Injectables business more than offsetting the lower Generics gross margin. 

Group operating expenses grew by 20.8% to $334.3 million, compared with $276.7 million in 2011.  Excluding the amortisation of intangible assets (excluding software) and exceptional items,[7] adjusted Group operating expenses grew by 24.0% to $311.7 million.  The paragraphs below address the Group's main operating expenses in turn.

Sales and marketing expenses were $152.8 million, or 13.8% of revenue, compared with $125.3 million and 13.6% of revenue in 2011.  Excluding non-recurring costs in 2012, sales and marketing expenses represented 13.4% of revenue.  The strong growth in our global Injectables business, where relatively low incremental sales and marketing investment is required to generate new sales, offset an increase in MENA sales and marketing expenditure due to higher wages and employee benefits.

As a percentage of revenue, general and administrative expenses were 11.2%, compared with 11.7% in 2011.  General and administrative expenses increased by $17.0 million, or 15.8%, to $124.6 million in 2012.  Excluding non-recurring items, G&A expenses as a percentage of revenue were 10.7% in 2012, compared with 9.9% in 2011.  This reflects the increase in employee salaries and benefits in MENA and the high fixed cost base of the Generics business during the slowdown in production during 2012.

We continued to grow our investment in R&D, with a 9.0% increase in expenditure across the Group to reach $34.0 million.  Total investment in R&D represented 3.1% of Group revenue, compared with 3.4% in 2011.  Whilst this is lower than originally planned, we were able to replace some expected expenditure through product acquisitions.  We expect further growth in R&D spend in 2013 as we continue to execute plans to develop our product pipeline, particularly for injectable products.

Other net operating expenses increased by $10.4 million to $23.0 million, reflecting an increase in slow moving inventory provisions, primarily in the US, and higher transactional foreign exchange losses, primarily due to movements in the Sudanese pound against the US dollar.

Operating profit for the Group increased by 40.5% to $166.8 million in 2012.  Group operating margin increased to 15.0%, compared with 12.9% in 2011.   On an adjusted basis, Group operating profit increased by $48.0 million, or 32.9%, to $193.8 million and operating margin increased to 17.5%, up from 15.9% in 2011. 

Research & Development[8]

The Group's product portfolio continues to grow as a result of our in-house product development efforts.  During 2012, we launched 14 new compounds, expanding the Group portfolio to 825 compounds in 2,094 dosage forms and strengths.[9]  We manufacture and/or sell 94 of these compounds under-license from the originator.

Across all businesses and markets, a total of 77 products were launched during 2012.  In addition, the Group received 81 approvals. 

	Total marketed products		Products launched in 2012
	Compounds	Dosage forms and strengths	New compounds	New dosage forms and strengths	Total launches across all countries[10]
Branded	6069	1,6309	6	9	47
Injectables	178	361	8	8	30
Generics	41	103	-	-	-
Group	825	2,094	14	17	77

	Products approved in 2012			Products pending approval as at 31 December 2012
	New compounds	New dosage forms and strengths	Total approvals across all countries10	New compounds	New dosage forms and strengths	Total  pending approvals across all countries10
Branded	3	5	36	139	222	346
Injectables	10	12	41	89	112	327
Generics	4	4	4	22	22	22
Group	17	21	81	250	356	695

To ensure the continuous development of our product pipeline, we submitted 216 regulatory filings in 2012 across all regions and markets.  As of 31 December 2012, we had a total of 695 pending approvals across all regions and markets. 

At 31 December 2012, we had a total of 73 new products under development, the majority of which should receive several marketing authorisations for different strengths and/or product forms over the next few years.

Net finance expense

Net finance expense increased to $34.5 million, compared with $22.9 million in 2011.  This primarily reflects the annualised interest charge on the loans we acquired to finance the MSI and Promopharm acquisitions made in 2011.  We have also increased our loans in local currencies in 2012, which carry higher financing charges but help to reduce our exposure to exchange rate fluctuations in markets such as Algeria and Egypt.  This is explained in more detail in the net cash flow, working capital and net debt section below. In 2013, we expect a net finance expense of around $40 million, reflecting a further increase in local loans and additional working capital financing.

Profit before tax

Profit before tax for the Group increased by 40.6% to $132.0 million, compared with $93.9 million in 2011.  Adjusted profit before tax increased by 31.5% to $159.1 million.

Tax

The Group incurred a tax expense of $24.8 million, compared with $10.4 million in 2011.  The effective tax rate was 18.8%, compared with 11.1% in 2011.  The increase in the tax rate is mainly attributable to the increased profitability in higher tax jurisdictions, such as the US, North Africa and Portugal.  The operating loss in the Generics business meant that the tax rate in 2012 was slightly lower than our previous expectations, but for 2013, we expect the effective tax rate to increase to between 23% and 24%.

Profit for the period

The Group's profit attributable to equity holders of the parent increased by 25.2% to $100.3 million in 2012.  Adjusted profit attributable to equity holders of the parent increased by 19.4% to $120.5 million.

Earnings per share

Basic earnings per share increased by 23.8% to 51.1 cents, compared with 41.3 cents in 2011.  Diluted earnings per share increased by 24.9% to 50.6 cents, compared with 40.5 cents in 2011.  Adjusted diluted earnings per share was 60.8 cents, an increase of 19.2% over 2011.

Dividend

The Board has recommended a final dividend of 10 cents per share (approximately 6.7 pence per share), which will make a dividend for the full year of 16.0 cents per share, an increase of 23.1% compared with 2011.  The proposed final dividend will be paid on 23 May 2013 to eligible shareholders on the register at the close of business on 19 April 2012, subject to approval by shareholders at the Annual General Meeting.  The ex-dividend date is 17 April 2013 and the final date for currency elections is 3 May 2013.

Net cash flow, working capital and net debt

The Group generated operating cash flow of $182.2 million in 2012, up $55.8 million from $126.4 million in 2011.  This significant increase was partly due to the impact of a $21.1 million non-recurring cash injection in 2011 to fund the working capital requirement of MSI at the time of the acquisition, which reduced that year's operating cash flow.  Excluding this impact, the underlying increase in cash generation of $34.7 million, or 23.5%, reflects the strong improvement in profitability in 2012. 

This excellent growth in cash flow was achieved with relatively flat working capital days of 194 days, compared with 193 days in 2011.  Whilst Group receivable and payable days improved - receivable days reduced by 8 days to 97 days at 31 December 2012 and payable days increased by 5 days to 66 days - inventory days increased by 15 days to 164 days.  This was primarily driven by our US business, where we significantly increased the production output of the Injectables business and were holding more normalised stock levels at December 2012, compared to December 2011.

Capital expenditure was $51.4 million, compared with $69.0 million in 2011.  Around $32.0 million of that was spent in MENA, principally to maintain our manufacturing facilities across the region, to invest in our recently acquired facility in Sudan and to develop our chemical plant in Jordan.  Around $13.1 million was spent in the US, primarily at our facility in Cherry Hill, New Jersey, to expand manufacturing capacity.  In Portugal, investments included warehouse improvements and new machinery purchases.  

The Group purchased $38.8 million of intangible assets during 2012, including around $30.7 million in respect of new products and around $8.1 million related to the implementation of SAP at our Cherry Hill facility.

Group net debt decreased from $421.9 million at 31 December 2011 to $406.5 million at 31 December 2012.  This reflects higher cash balances from increased profitability, partially offset by increased borrowings in 2012 to finance capital expenditure, the purchase of intangible assets, the purchase of additional shares in Promopharm, the payment of the deferred consideration related to the MSI acquisition and the EPCI acquisition in January 2013.

Balance sheet

During the period, shareholder equity was negatively impacted by unrealised foreign exchange losses of $21.2 million, primarily reflecting the depreciation of the Sudanese pound, the Egyptian pound and the Algerian dinar against the US dollar and the revaluation of net assets denominated in these currencies.

Summary and outlook

We delivered a strong performance in 2012, with a 20.8% increase in revenue and a 23.8% increase in earnings per share.  This reflects strong growth in the Branded business and the excellent performance of the Injectables business.

We remain confident in our medium and long term growth prospects.  We have made a good start to 2013 and expect to deliver Group revenue growth of around 10% this year. 

Going concern statement

The directors believe that the Group is well diversified due to its geographic spread, product diversity and large customer and supplier base.  The Group operates in the relatively defensive generic pharmaceuticals industry which the directors expect to be less affected compared to other industries.  The Group has reduced its year end net debt position to $406.5 million (2011: $421.9 million) following significant investment in acquisitions.  Operating cash flow in 2011 was $182.2 million (2011: $126.4 million).  The Group has $313.0 million (2011: $396.4 million) of undrawn banking facilities.  These facilities are well diversified across the operating subsidiaries of the Group and are with a number of financial institutions.  The Group's forecasts, taking into account reasonable possible changes in trading performance, facility renewal sensitivities and maturities of long-term debt, show that the Group should be able to operate well within the levels of its facilities and their related covenants. 

After making enquiries, the directors believe that the Group is adequately placed to manage its business and financing risks successfully despite the current uncertain economic and political outlook.  The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  The directors therefore continue to adopt the going concern basis in preparing the financial statements.

Responsibility statement

The responsibility statement below has been prepared in connection with the company's full annual report for the year ended 31 December 2012.  Certain parts thereof are not included within this announcement.  

We confirm to the best of our knowledge:

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

·    The Business review, which is incorporated into the Directors' report, includes a fair review of the
 development and performance of the business and the position of the Company and the undertakings
 included in the consolidation taken as a whole, together with a description of the principal risks and
 uncertainties they face.

By order of the Board

Said Darwazah                                                                          Khalid Nabilsi

Chief Executive Officer                                                               Chief Financial Officer

12 March 2013

Cautionary statement

This preliminary announcement has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed.  It should not be relied on by any other party or for any other purpose.

Forward looking statements

Certain statements in this announcement are forward-looking statements - using words such as "intends", "believes", "anticipates" and "expects".  Where included, these have been made by the Directors in good faith based on the information available to them up to the time of their approval of this announcement.  By their nature, forward-looking statements are based on assumptions and involve inherent risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements, and should be treated with caution.  These risks, uncertainties or assumptions could adversely affect the outcome and financial effects of the plans and events described in this announcement.  Forward-looking statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future.  You should not place undue reliance on forward-looking statements, which speak as only of the date of the approval of this announcement.

Except as required by law, the Company is under no obligation to update or keep current the forward-looking statements contained in this announcement or to correct any inaccuracies which may become apparent in such forward-looking statements.

Hikma Pharmaceuticals PLC

Consolidated income statement

for the year ended 31 December 2012

		Note		2012		2011
				$000		$000
Continuing operations
Revenue		3		1,108,721		918,025
Cost of sales		3		(607,603)		(522,676)
Gross profit		3		501,118		395,349
Sales and marketing costs				(152,763)		(125,295)
General and administrative expenses				(124,560)		(107,540)
Research and development costs				(34,019)		(31,218)
Other operating expenses (net)				(23,002)		(12,608)
Total operating expenses				(334,344)		(276,661)
Adjusted operating profit				193,835		145,824
Exceptional items:
- Acquisition and integration related expenses		4		(3,131)		(16,368)
- Severance expenses		4		(4,469)		-
- Plant remediation costs		4		(6,787)		-
- Inventory related adjustment		4		-		(1,770)
Intangible amortisation*		4		(12,674)		(8,998)
Operating profit		3		166,774		118,688
Share of results of associated companies				892		(1,164)
Finance income				1,266		468
Finance expense				(35,717)		(23,368)
Other expense (net)				(1,174)		(732)
Profit before tax				132,041		93,892
Tax		5		(24,826)		(10,423)
Profit for the year				107,215		83,469
Attributable to:
Non-controlling interests				6,895		3,362
Equity holders of the parent				100,320		80,107
				107,215		83,469
Earnings per share (cents)
Basic		7		51.1		41.3
Diluted		7		50.6		40.5
Adjusted basic		7		61.4		52.0
Adjusted diluted		7		60.8		51.0

* Intangible amortisation comprises the amortisation on intangible assets other than software.

Hikma Pharmaceuticals PLC

Consolidated statement of comprehensive income

for the year ended 31 December 2012

		2012		2011
		$000		$000
Profit for the year		107,215		83,469
Cumulative effect of change in fair value of available for sale investments		(23)		(42)
Cumulative effect of change in fair value of  financial derivatives		(2,120)		(692)
Exchange difference on translation of foreign operations		(26,547)		(15,294)
Total comprehensive income for the year		78,525		67,441
Attributable to:
Non-controlling interests		1,585		3,557
Equity holders of the parent		76,940		63,884
		78,525		67,441

Hikma Pharmaceuticals PLC

Consolidated balance sheet

at 31 December 2012

		Note		2012		2011
				$000		$000
Non-current assets
Intangible assets				433,049		408,804
Property, plant and equipment				419,943		421,357
Interests in associated companies				38,337		37,445
Deferred tax assets				45,772		36,072
Financial and other non-current assets				11,044		12,079
				948,145		915,757
Current assets
Inventories		8		272,231		239,260
Income tax asset				1,016		1,486
Trade and other receivables		9		328,147		315,856
Collateralised and restricted cash				1,756		2,595
Cash and cash equivalents				176,510		94,715
Other current assets				2,307		5,973
				781,967		659,885
Total assets				1,730,112		1,575,642
Current liabilities
Bank overdrafts and loans				192,879		152,853
Obligations under finance leases				3,480		3,300
Trade and other payables		10		194,805		169,212
Income tax provision				23,029		14,561
Other provisions				10,664		9,398
Other current liabilities				42,097		39,622
				466,954		388,946
Net current assets				315,013		270,939
Non-current liabilities
Long-term financial debts		11		372,488		344,895
Obligations under finance leases				15,891		18,134
Deferred tax liabilities				22,921		23,147
Derivative financial instruments				4,008		1,886
				415,308		388,062
Total liabilities				882,262		777,008
Net assets				847,850		798,634
		Note		2012		2011
				$000		$000
Equity
Share capital		12		35,091		34,904
Share premium				279,116		278,094
Own shares				(86)		(2,222)
Other reserves				518,532		465,799
Equity attributable to equity holders of the parent				832,653		776,575
Non-controlling interests				15,197		22,059
Total equity				847,850		798,634

The financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, were approved by the board of directors and signed on its behalf by:

Said Darwazah                                                Director

Mazen Darwazah                                             Director

12 March 2013

Hikma Pharmaceuticals PLC

Consolidated statement of changes in equity for the year ended 31 December 2012

	Merger reserve $000	Revaluation reserves $000	Translation reserves $000	Retained earnings $000	Total reserves $000	Share capital $000	Share premium $000	Own shares $000	Total equity attributable to equity shareholders of the parent $000	Non-controlling interests $000	Total equity $000
Balance at 1 January  2011	33,920	4,085	(12,080)	409,724	435,649	34,525	275,968	(2,220)	743,922	6,378	750,300
Profit for the year	-	-	-	80,107	80,107	-	-	-	80,107	3,362	83,469
Cumulative effect of change in fair value of available for sale investments	-	-	-	(42)	(42)	-	-	-	(42)	-	(42)
Cumulative effect of change in fair value of  financial derivatives	-	-	-	(692)	(692)	-	-	-	(692)	-	(692)
Realisation of revaluation reserve	-	(181)	-	181	-	-	-	-	-	-	-
Currency translation loss	-	-	(15,489)	-	(15,489)	-	-	-	(15,489)	195	(15,294)
Total comprehensive income for the year	-	(181)	(15,489)	79,554	63,884	-	-	-	63,884	3,557	67,441
Issue of equity shares	-	-	-	-	-	379	2,126	-	2,505	-	2,505
Purchase of own shares	-	-	-	-	-	-	-	(115)	(115)	-	(115)
Cost of equity settled employee share scheme	-	-	-	7,507	7,507	-	-	-	7,507	-	7,507
Exercise of equity-settled employee share scheme	-	-	-	(113)	(113)	-	-	113	-	-	-
Deferred tax arising on share-based payments	-	-	-	(5,644)	(5,644)	-	-	-	(5,644)	-	(5,644)
Current tax arising on share-based payments	-	-	-	3,750	3,750	-	-	-	3,750	-	3,750
Dividends on ordinary shares (note 6)	-	-	-	(25,201)	(25,201)	-	-	-	(25,201)	(100)	(25,301)
Acquisition of subsidiaries	-	-	-	-	-	-	-	-	-	26,650	26,650
Adjustment arising from change in non-controlling interests	-	-	-	(14,033)	(14,033)	-	-	-	(14,033)	(14,914)	(28,947)
Issue of equity shares of subsidiary	-	-	-	-	-	-	-	-	-	488	488
Balance at 31 December 2011 and 1 January 2012	33,920	3,904	(27,569)	455,544	465,799	34,904	278,094	(2,222)	776,575	22,059	798,634
Profit for the year	-	-	-	100,320	100,320	-	-	-	100,320	6,895	107,215
Cumulative effect of change in fair value of available for sale investments	-	-	-	(23)	(23)	-	-	-	(23)	-	(23)
Cumulative effect of change in fair value of  financial derivatives	-	-	-	(2,120)	(2,120)	-	-	-	(2,120)	-	(2,120)
Realisation of revaluation reserve	-	(181)	-	181	-	-	-	-	-	-	-
Currency translation (loss)	-	-	(21,237)	-	(21,237)	-	-	-	(21,237)	(5,310)	(26,547)
Total comprehensive income for the year	-	(181)	(21,237)	98,358	76,940	-	-	-	76,940	1,585	78,525
Issue of equity shares	-	-	-	-	-	187	1,022	-	1,209	-	1,209
Purchase of own shares	-	-	-	-	-	-	-	(158)	(158)	-	(158)
Cost of equity settled employee share scheme	-	-	-	7,961	7,961	-	-	-	7,961	-	7,961
Exercise of equity-settled employee share scheme	-	-	-	(2,294)	(2,294)	-	-	2,294	-	-	-
Deferred tax arising on share-based payments	-	-	-	98	98	-	-	-	98	-	98
Current tax arising on share-based payments	-	-	-	1,411	1,411	-	-	-	1,411	-	1,411
Dividends on ordinary shares (note 6)	-	-	-	(26,550)	(26,550)	-	-	-	(26,550)	(1,271)	(27,821)
Adjustment arising from change in non-controlling interests	-	-	-	(4,833)	(4,833)	-	-	-	(4,833)	(7,176)	(12,009)
Balance at 31 December  2012	33,920	3,723	(48,806)	529,695	518,532	35,091	279,116	(86)	832,653	15,197	847,850

Hikma Pharmaceuticals PLC

Consolidated cash flow statement

for the year ended 31 December 2012

	Note		2012		2011
			$000		$000
Net cash from operating activities	13		182,161		126,397
Investing activities
Purchases of property, plant and equipment			(51,405)		(69,032)
Proceeds from disposal of property, plant and equipment			989		696
Purchase of intangible assets			(38,783)		(8,967)
Proceeds from disposal of intangible assets			255		191
Acquisition of interest in associated companies			-		(38,610)
Investment in financial and other non current assets			151		(287)
Acquisition of subsidiary undertakings net of cash acquired			(11,978)		(217,779)
Payments of costs directly attributable to acquisitions	4		(1,519)		(10,147)
Finance income			1,266		468
Net cash used in investing activities			(101,024)		(343,467)
Financing activities
Decrease in collateralised and restricted cash			839		978
Increase in long-term financial debts			151,997		335,353
Repayment of long-term financial debts			(124,183)		(68,364)
Increase in short-term borrowings			52,390		59,095
Decrease in obligations under finance leases			(2,122)		(2,028)
Dividends paid			(26,550)		(25,201)
Dividends paid to non-controlling shareholders			(1,271)		(100)
Interest paid			(34,188)		(23,758)
Proceeds from issue of new shares			1,051		2,390
Proceeds from non-controlling interest for capital increase in subsidiary			-		488
Acquisition of non-controlling interest in subsidiary			(12,009)		(29,196)
Net cash generated by financing activities			5,954		249,657
Net increase in cash and cash equivalents			87,091		32,587
Cash and cash equivalents at beginning of year			94,715		62,718
Foreign exchange translation movements			(5,296)		(590)
Cash and cash equivalents at end of year			176,510		94,715

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

1. Basis of preparation

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2012 or 2011, but is derived from those accounts. Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention any matters by way of emphasis without qualifying their report and did not contain statements under S498 (2) or (3) of the Companies Act 2006. Hikma Pharmaceuticals PLC's consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board. The financial statements have also been prepared in accordance with IFRSs adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation. The financial statements have been prepared under the historical cost convention, except for the revaluation to market of certain financial assets and liabilities. The preliminary announcement is based on the Company's financial statements. The Group's previously published financial statements were also prepared in accordance with International Financial Reporting Standards. These International Financial Reporting Standards have been subject to amendment and interpretation by the International Accounting Standards Board and the financial statements presented for the years ended 31 December 2011 and 31 December 2012 have been prepared in accordance with those revised standards. Unless stated otherwise these policies are in accordance with the revised standards that have been applied throughout the year and prior years presented in the financial statements. The presentational and functional currency of Hikma Pharmaceuticals PLC is the US Dollar as the majority of the Company's business is conducted in US Dollars (USD).

2. Going concern

The directors believe that the Group is well diversified due to its geographic spread, product diversity and large customer and supplier base. The Group operates in the relatively defensive generic pharmaceuticals industry which the directors expect to be less affected compared to other industries.

The Group has reduced its year end net debt position to $406.5 million (2011: $421.9 million) following strong cash generation from operations. Operating cash flow in 2012 was $182.2 million (2011: $126.4 million). The Group has $313.0 million (2011: $396.4 million) of undrawn banking facilities. These facilities are well diversified across the operating subsidiaries of the Group and are with a number of financial institutions. The Group's forecasts, taking into account reasonable possible changes in trading performance, facility renewal sensitivities and maturities of long-term debt, show that the Group should be able to operate well within the levels of its facilities and their related covenants. After making enquiries, the directors believe that the Group is adequately placed to manage its business and financing risks successfully despite the current uncertain economic and political outlook. The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The directors therefore continue to adopt the going concern basis in preparing the financial statements.

3.  Segmental reporting

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

The Group discloses underlying operating profit as the measure of segmental result as this is the measure in the decision-making and resource allocation process of the chief operating decision maker, who is the Group's Chief Executive Officer.

Information regarding the Group's operating segments is reported below.

The following is an analysis of the Group's revenue and results by reportable segment in 2012:

Year ended
31 December 2012	Branded		Injectables		Generics		Others		Group
	$000		$000		$000		$000		$000
Revenue	528,854		470,030		103,679		6,158		1,108,721
Cost of sales	(271,508)		(251,302)		(80,339)		(4,454)		(607,603)
Gross profit	257,346		218,728		23,340		1,704		501,118
Adjusted segment result	123,634		122,952		(13,511)		(3,338)		229,737
Exceptional items:
- Integration related expenses	(701)		(2,430)		-		-		(3,131)
- Severance expenses	(2,527)		(1,380)		(562)		-		(4,469)
- Plant remediation costs	-		-		(6,787)		-		(6,787)
Intangible amortisation*	(9,029)		(3,614)		(31)		-		(12,674)
Segment result	111,377		115,528		(20,891)		(3,338)		202,676
Unallocated corporate expenses									(35,902)
Adjusted operating profit									193,835
Operating profit									166,774
Results from associated companies									892
Finance income									1,266
Finance expense									(35,717)
Other expense (net)									(1,174)
Profit before tax									132,041
Tax									(24,826)
Profit for the year									107,215
Attributable to:
Non-controlling interest									6,895
Equity holders of the parent									100,320
									107,215

* Intangible amortisation comprises the amortisation of intangible assets other than software.

"Others" mainly comprises Arab Medical Containers Ltd, International Pharmaceutical Research Center Ltd and the chemicals division of Hikma Pharmaceuticals Ltd (Jordan).

Unallocated corporate expenses are primarily made up of employee costs, office costs, professional fees, donations and travel expenses.

Segment assets and liabilities 2012		Branded		Injectables		Generics		Corporate and others		Group
		$000		$000		$000		$000		$000
Additions to property, plant and equipment (cost)		26,071		16,916		5,193		1,661		49,841
Additions to intangible assets		1,886		35,738		7,056		-		44,680
Total property, plant and equipment and intangible assets (net book value)		503,858		281,588		61,129		6,417		852,992
Depreciation		21,120		12,944		6,710		1,585		42,359
Amortisation (including software)		9,937		5,750		160		185		16,032
Interests in associated companies		-		-		-		38,337		38,337
Balance sheet
Total assets		1,050,373		481,001		135,214		63,524		1,730,112
Total liabilities		574,526		252,054		5,751		49,931		882,262

The following is an analysis of the Group's revenue and results by reportable segment in 2011: Year ended 31 December 2011 Branded Injectables Generics Others Group $000 $000 $000 $000 $000 Revenue 441,907 315,728 154,813 5,577 918,025 Cost of sales (227,830) (188,151) (102,609) (4,086) (522,676) Gross profit 214,077 127,577 52,204 1,491 395,349 Adjusted segment result  105,143      54,938   17,124 (2,369)   174,836 Exceptional items:  - Integration related expenses      (921)       (4,551)              -           -    (5,472)  - Inventory related adjustments             -       (1,770)              -           -    (1,770) Intangible amortisation*    (5,763)       (3,186)         (39)     (10)    (8,998) Segment result 98,459 45,431 17,085 (2,379) 158,596 Adjusted unallocated corporate expenses (29,012) Exceptional items:  - Acquisition related expenses (10,896) Unallocated corporate expenses (39,908) Adjusted operating profit 145,824 Operating profit 118,688 Results from associated companies (1,164) Finance income 468 Finance expense (23,368) Other expense (net) (732) Profit before tax 93,892 Tax (10,423) Profit for the year 83,469 Attributable to: Non-controlling interest 3,362 Equity holders of the parent 80,107 83,469

* Intangible amortisation comprises the amortisation of intangible assets other than software.

"Others" mainly comprise Arab Medical Containers Ltd, International Pharmaceutical Research Center Ltd and the chemicals division of Hikma Pharmaceuticals Ltd (Jordan).

Unallocated corporate expenses are primarily made up of employee costs, office costs, professional fees, donations, travel expenses and acquisition related expenses.

 

Segment assets and liabilities 2011		Branded		Injectables		Generics		Corporate and others		Group
		$000		$000		$000		$000		$000
Additions to property, plant and equipment (cost)		44,869		11,926		12,925		975		70,695
Acquisition of subsidiary's property, plant and equipment (net book value)		24,125		50,071		-		-		74,196
Additions to intangible assets		5,054		2,520		1,106		287		8,967
Intangible assets arising on acquisition		110,900		40,324		-		-		151,224
Total property, plant and equipment and intangible assets (net book value)		527,240		244,725		50,759		7,437		830,161
Depreciation		18,205		10,521		6,250		684		35,660
Amortisation (including software)		7,064		3,748		307		224		11,343
Interests in associated companies		-		-		-		37,445		37,445
Balance sheet
Total assets		958,709		389,819		168,526		58,588		1,575,642
Total liabilities		490,523		197,271		31,514		57,700		777,008

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

		2012		2011
		$000		$000
Middle East and North Africa		619,185		508,776
United States		399,877		317,334
Europe and Rest of the World		80,992		87,622
United Kingdom		8,667		4,293
		1,108,721		918,025

The top selling markets were as below:

		2012		2011
		$000		$000
United States		399,877		317,376
Saudi Arabia		124,819		121,387
Algeria		120,828		102,495
		645,524		541,258

Included in revenues arising from the Branded and Injectables segments are revenues of approximately  $103,971,000 (2011: $101.905,000) which arose from sales to the Group's largest customer which is located in Saudi Arabia.

The following is an analysis of the total non current assets excluding deferred tax and financial instruments and an analysis of total assets by the geographical area in which the assets are located:

		Total non current assets excluding deferred tax and financial instruments as at 31 December				Total assets as at 31 December
		2012		2011		2012		2011
		$000		$000		$000		$000
Middle East and North Africa		563,091		567,935		1,157,406		1,019,288
Europe		144,586		141,481		191,302		197,128
United States		155,604		131,589		372,797		349,705
United Kingdom		345		800		8,607		9,521
		863,626		841,805		1,730,112		1,575,642

4.  Exceptional items and intangible amortisation

Exceptional items are disclosed separately in the consolidated income statement to assist in the understanding of the Group's underlying performance.

		2012		2011
		$000		$000
Acquisition related expenses		-		(10,896)
Integration related expenses		(3,131)		(5,472)
		(3,131)		(16,368)
Severance expenses		(4,469)		-
Plant remediation costs		(6,787)		-
Inventory related adjustment		-		(1,770)
Exceptional items		(14,387)		(18,138)
Intangible amortisation *		(12,674)		(8,998)
Exceptional items and intangible amortisation		(27,061)		(27,136)
Tax effect		6,852		6,374
Impact on profit for the year		(20,209)		(20,762)

* Intangible amortisation comprises the amortisation on intangible assets other than software.

Acquisition and integration related costs

During the year the Group incurred $3,131,000 in cost associated with the integration of MSI, Promopharm S.A, and Savanna.

In the previous year, acquisition and integration-related expenses were incurred as a result of the acquisition of MSI, Promopharm, and Savanna.

Acquisition-related expenses are included in unallocated corporate expenses while integration-related expenses are included in segment results. Acquisition-related expenses mainly comprise third party consulting services, legal and professional fees.

Costs of $1,519,000 (2011: $10,147,000) have been classified as investing activities in the cash flow statement relating to the cash outflow in respect of acquisition and integration costs in the period.

Other costs

Severance expenses related to the restructuring of management teams across all three operating regions.

The Generics segment incurred plant remediation costs for compliance work at our Eatontown facility in response to observations received from the FDA.

In the prior year, the inventory-related adjustment reflects the fair value uplift of the inventory acquired as part of the MSI acquisition.

5.  Tax

		2012		2011
		$000		$000
Current tax:
Foreign tax		30,535		15,541
Prior year adjustments		4,703		(1,358)
Deferred tax		(10,412)		(3,760)
		24,826		10,423

UK corporation tax is calculated at 24.5% (2011: 26.5%) of the estimated assessable profit made in the UK for the year.

Effective tax rate for the Group is 18.8% (2011: 11.10%).

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

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

		2012		2011
		$000		$000
Profit before tax:		132,041		93,892
Tax at the UK corporation tax rate of 24.5% (2011: 26.5%)		32,350		24,881
Profits taxed at different rates		(17,219)		(10,796)
Permanent differences		2,891		(5,158)
Temporary differences for which no benefit is recognised		2,101		2,854
Prior year adjustments		4,703		(1,358)
Tax expense for the year		24,826		10,423

6.   Dividends

		2012		2011
		$000		$000
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2011 of 7.5 cents (2010: 7.5 cents) per share		14,746		14,497
Interim dividend for the year ended 31 December 2012 of 6.0 cents (2011: 5.5 cents) per share		11,804		10,704
		26,550		25,201

The proposed final dividend for the year ended 31 December 2012 is 10.0 cents (2011: 7.5 cents) per share, bringing the total dividends for the year to 16.0 cents (2011: 13.0 cents) per share.

The proposed final dividends is subject to approval by shareholders at the annual general meeting on 16 May 2013 and has not been included as a liability in theses financial statements. Based on the number of shares in issue at 31 December 2012 (196,765,000), the unrecognized liability is $19,677,000.

7.  Earnings per share

Earnings per share is calculated by dividing the profit attributable to equity holders of the parent by the weighted average number of ordinary shares. The number of ordinary shares used for the basic and diluted calculations is shown in the table below. Adjusted basic earnings per share and adjusted diluted earnings per share are intended to highlight the adjusted results of the Group before exceptional items and intangible amortisation. A reconciliation of the basic and adjusted earnings used is also set out below:

			2012		2011
			$000		$000
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent			100,320		80,107
Exceptional items (see note 4)			14,387		18,138
Intangible amortisation*			12,674		8,998
Tax effect of adjustments			(6,852)		(6,374)
Adjusted earnings for the purposes of adjusted basic and diluted earnings per share being adjusted net profit attributable to equity holders of the parent			120,529		100,869
			Number		Number
Number of shares			'000		'000
Weighted average number of Ordinary Shares for the purposes of basic earnings per share			196,348		194,135
Effect of dilutive potential Ordinary Shares:
Share-based awards			1,951		3,633
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share			198,299		197,768
			2012		2011
			Earnings per share		Earnings per share
			Cents		Cents
Basic			51.1		41.3
Diluted			50.6		40.5
Adjusted basic			61.4		52.0
Adjusted diluted			60.8		51.0

*Intangible amortisation comprises the amortisation of intangible assets other than software.

8.  Inventories

		As at 31 December
		2012		2011
		$000		$000
Finished goods		87,663		77,862
Work-in-progress		30,011		28,039
Raw and packing materials		135,571		114,449
Goods in transit		18,986		18,910
		272,231		239,260

Goods in transit include inventory held at third parties whilst in transit between Group companies.

9.  Trade and other receivables

		As at 31 December
		2012		2011
		$000		$000
Trade receivables		294,048		292,100
Prepayments		22,758		16,015
Value added tax recoverable		8,439		5,188
Interest receivable		579		490
Employee advances		2,323		2,063
		328,147		315,856

10.    Trade and other payables           

		As at 31 December
		2012		2011
		$000		$000
Trade payables		110,600		97,756
Accrued expenses		69,734		60,276
Employees' provident fund *		5,863		4,181
VAT and sales tax payables		560		535
Dividends payable **		2,074		2,207
Social security withholdings		1,709		1,107
Income tax withholdings		2,862		2,482
Other payables		1,403		668
		194,805		169,212

* The employees' provident fund liability mainly represents the outstanding contributions due to the Hikma Pharmaceuticals Ltd (Jordan) retirement benefit plan, on which the fund receives 5% interest.

** Dividends payable includes $1,889,000 (2011: $2,022,000) due to the previous shareholders of APM.

11.  Long-term financial debts		As at 31 December
		2012		2011
		$000		$000
Total loans		460,997		410,197
Less: current portion of loans		(88,509)		(65,302)
Long-term financial loans		372,488		344,895
Breakdown by maturity:
Within one year		88,509		65,302
In the second year		79,794		84,488
In the third year		79,513		63,732
In the fourth year		77,923		65,490
In the fifth year		47,644		58,069
Thereafter		87,614		73,116
		460,997		410,197
Breakdown by currency:
US Dollar		405,350		346,405
Euro		13,247		18,394
Jordanian Dinar		5,642		-
Algerian Dinar		29,294		37,400
Egyptian Pound		4,355		4,343
Tunisian Dinar		3,109		3,655
		460,997		410,197

The loans are held at amortised cost.

At 31 December 2012, import and export financing, short-term loans and the current and long-term portion of long-term loans totalled $545,777,000 (2011: $467,677,000).

 Long term loans amounting to $85,989,000 (2011: $105,338,000) are secured.

Included in the table above are the following major arrangements entered by the Group:

a)   A five year $100,000,000 syndicated term loan and a four year $45,000,000 revolver were entered into on 2 May 2011. The term loan was partially repaid by $25,000,000 on 15 December 2011. Quarterly equal repayments for the term loan commenced on 30 June 2012 and will continue until 2 May 2016. The outstanding balance at year end was $68,750,000 and an unused revolver balance of $40,000,000. The revolver maturity date is 2 May 2015. The term loan has been used to fund the acquisition of the MSI business in 2011, and the revolver is used to fund the US business working capital needs.

b)   A seven year syndicated loan of up to $180,000,000 was entered into on 27 September 2011. The syndicate was closed on the 1 June 2012 and has an outstanding balance at year end of $180,000,000. Quarterly repayments for the term loan should commence 18 months after the date of the agreement- 27 March 2013 and will continue until the 84th month after the date of the agreement- 27 September 2018. Payments will be made with equal instalments representing 3.182% from the loan balance and a bullet payment of 30% at the maturity of the loan. The loan has been used to finance the Promopharm acquisition and the Group's general capital expenditure.

c)   A nine year $110,000,000 loan from the International Finance Corporation (IFC) was entered into on 19 December 2011. The loan has an outstanding balance of $60,000,000 at year end and a $50,000,000 unused available limit. Quarterly equal repayments for the term loan should commence on 15 November 2013 and will continue until 15 August 2020. The loan has been used to finance acquisitions in the MENA region and MENA's capital expenditure, noting that the loan is restricted to be used in permitted developing countries.

12.        Share capital  

Issued and fully paid - included in shareholders' equity:
		2012				2011
		Number '000		$000		Number '000		$000
At 1 January		195,851		34,904		193,517		34,525
Issued during the year		1,185		187		2,334		379
At 31 December		197,036		35,091		195,851		34,904

13.  Net cash from operating activities

	Note	2012		2011
		$000		$000
Profit before tax		132,041		93,892
Adjustments for:
Depreciation and amortisation of:
Property, plant and equipment		42,359		35,660
Intangible assets		16,032		11,343
Loss on disposal of property, plant and equipment		349		22
Loss (Gain) on disposal of intangible assets		67		(91)
Movement on provisions		1,266		757
Movement on deferred income		(62)		(87)
Cost of equity-settled employee share scheme		7,961		7,507
Payments of costs directly attributable to acquisitions	4	1,519		10,147
Finance income		(1,266)		(468)
Interest and bank charges		35,717		23,368
Results from associates		(892)		1,164
Cash flow before changes in working capital		235,091		183,214
Change in trade and other receivables		(20,759)		(59,898)
Change in other current assets		2,259		(4,570)
Change in inventories		(42,305)		(8,199)
Change in trade and other payables		21,914		15,987
Change in other current liabilities		10,429		1,958
Cash generated by operations		206,629		128,492
Income tax paid		(24,468)		(2,095)
Net cash generated from operating activities		182,161		126,397

14.  Related party balances

Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associates and other related parties are disclosed below.

Trading transactions:

During the year, Group companies entered into the following transactions with related parties:

Darhold Limited: is a related party of the Group because it is considered one of the major shareholders of Hikma Pharmaceuticals PLC with ownership percentage of 29.0% at the end of 2012 (2011: 29.2%). Further details on the relationship between Mr. Samih Darwazah, Mr. Said Darwazah, Mr. Mazen Darwazah and Mr. Ali Al-Husry, and Darhold Limited are given in the Directors' Report.

Other than dividends (as paid to all shareholders), there were no transactions between the Group and Darhold Limited in the year.

Capital Bank - Jordan: is a related party of the Group because during the year two Board members of the Bank were also board members at Hikma Pharmaceuticals PLC. Total cash balances at Capital Bank - Jordan were $2,977,000(2011: $610,000). Loans and overdrafts granted by Capital Bank to the Group amounted to $Nil (2011: $3,841,000) with interest rates ranging between 8.25% and 3MLIBOR + 1%. Total interest expense incurred against Group facilities was $344,000 (2011: $7,000). Total interest income received was $Nil (2011: $Nil) and total commission paid in the year was $91,000 (2011: $8,000).         

Jordan International Insurance Company: is a related party of the Group because one Board member of the company is also a Board member at Hikma Pharmaceuticals PLC. Total insurance premiums paid by the Group to Jordan International Insurance Company during the year were $3,423,000 (2011: $3,035,000). The Group's insurance expense for Jordan International Insurance Company contracts in the year 2012 was $2,806,000 (2011: $2,902,000). The amounts due to Jordan International Insurance Company at the year end were $154,000 (2011: Due from $109,000).

Mr. Yousef Abd Ali: is a related party of the Group because he holds a non-controlling interest in Hikma Lebanon of 33%. The amount owed to Mr. Yousef by the Group as at 31 December 2012 was $150,000 (2011: $150,000).

Labatec Pharma: is a related party of the Group because it is owned by Mr. Samih Darwazah. During 2012 the Group total sales to Labatec Pharma amounted to $282,000 (2011: $338,000) and the Group total purchases from Labatec Pharma amounted to $1,179,000 (2011: $3,805,000). At 31 December 2012 the amount owed from Labatec Pharma to the Group was $211,000 (2011: Owed to $753,000).

King and Spalding: is a related party of the Group because the partner of the firm is a board member and the company secretary of West-Ward. King and Spalding is an outside legal counsel firm that handles general legal matters for West-Ward. During 2012 fees of $45,000 (2011: $1,216,000) were paid for legal services provided.

Jordan Resources & Investments Company: is a related party of the Group because three board members of the Group are shareholders in the firm. During 2012 fees of $151,000 (2011: $Nil) were paid for training services provided.

American University of Beirut: is a related party of the Group because one board member of the Group is also a trustee of the University. During 2012 fees of $125,000 (2011: $Nil) were paid for training services provided.

15.     Foreign exchange currencies

The currencies that have a significant impact on the Group accounts and the exchange rates used are as follows:

	Period end rates				Average rates
	2012		2011		2012		2011
USD/EUR	0.7565		0.7722		0.7775		0.7180
USD/Sudanese Pound	5.9988		2.8918		4.3346		2.9869
USD/Algerian Dinar	78.0915		76.0061		77.5551		72.8147
USD/Saudi Riyal	3.7495		3.7495		3.7495		3.7495
USD/British Pound	0.6185		0.6470		0.6309		0.6233
USD/Jordanian Dinar	0.7090		0.7090		0.7090		0.7090
USD/Egyptian Pound	6.3654		6.0481		6.0864		5.9648
USD/Japanese Yen	85.9013		77.4136		79.8155		79.7414
USD/Moroccan Dirham	8.4838		8.6133		8.6458		8.3682
USD/Tunisian Dinar	1.5506		1.4993		1.5686		1.4079

The Jordanian Dinar and Saudi Riyal have no impact on the consolidated income statement as those currencies are pegged to the US Dollar.

Principal risks and uncertainties

The Group's business faces risks and uncertainties which could have a significant effect on its financial condition, results of operation or future performance and could cause actual results to differ materially from expected and historical results.

Operational risks

Risk	Potential impact	Mitigation
Compliance with regulatory requirements
>    Failure to comply with applicable regulatory requirements and manufacturing standards (often referred to as 'Current Good Manufacturing Practices' or cGMP)	>      Delays in supply or an inability to market or develop the Group's products >      Delayed or denied approvals for the introduction of new products >      Product complaints or recalls >   Bans on product sales or importation >      Disruptions to operations >      Plant closure >      Potential for litigation	>     Commitment to maintain the highest levels of quality across all manufacturing facilities >     Strong global compliance function that oversees compliance across the Group >  Remuneration and reward structure that helps retain experienced personnel >    Continuous staff training and know-how exchange >   On-going development of standard operating procedures
Regulation changes
>   Unanticipated legislative and regulatory actions, developments and changes affecting the Group's operations and products	>      Restrictions on the sale of one or more of our products  >      Restrictions on our ability to sell our products at a profit >    Unexpected additional costs required to produce, market or sell our products >      Increased compliance costs	>   Strong oversight of local regulatory environments to help anticipate potential changes >    Local operations in all of our key markets >      Representation and/or affiliation with local industry bodies >  Diverse geographical and therapeutic business model
Commercialisation of new products
>      Delays in the receipt of marketing approvals, the authorisation of price and re-imbursement >  Lack of approval and acceptance  of new products by physicians, patients and other key decision-makers >      Inability to confirm safety, efficacy, convenience and/or  cost-effectiveness of our products as compared to competitive products >      Inability to participate in tender sales	>      Slowdown in revenue growth from new products >      Inability to deliver a positive return on investments in R&D, manufacturing and sales and marketing	>      Experienced regulatory teams able to accelerate submission  processes across all of our markets >  Highly qualified sales and marketing teams across all markets >      A diversified product pipeline with 229 compounds pending approval, covering a broad range of therapeutic areas >      A systematic commitment to quality that helps to secure approval and acceptance of new products and mitigate potential safety issues
Product safety
>     Unforeseen product safety issues for marketed products, particularly in respect of in-licensed products	>      Interruptions to revenue flow >    Costs of recall, potential for litigation >      Reputational damage	>   Diversification of product portfolio across key markets and therapies >   Working with stakeholders to understand issues as they arise
Product development
>    Failure to secure new products or compounds for development	>    Inability to grow sales and increase profitability for the Group >   Lower return on investment in research and development	>      Experienced and successful in-house R&D team, with specifically targeted product development pathways >    Continually developing  and multi-faceted approach to new product development >   Strong business development team >  Track record of building in-licensed brands >      Position as licensee of choice for our key MENA geography
Co-operation with Third parties
>    Inability to renew or extend in-licensing or other co-operation  agreements  with third parties	>      Loss of products from our portfolio >      Revenue interruptions >     Failure to recoup sales and marketing and business development costs	>     Investment in long-term relationships with existing in-licensing partners >      Experienced legal team capable of negotiating robust agreements with our partners >      Continuous development of new partners for licensing and co-operation >      Diverse revenue model with in-house R&D capabilities
Integration of acquisitions
>     Difficulties in integrating any technologies, products or businesses acquired	>      Inability to obtain the advantages that the acquisitions were intended to create >      Adverse impact on our business, financial condition and results of operations >     Significant transaction and integration costs could adversely impact our financial results	>  Extensive due diligence undertaken as part of any acquisition process >      Track record of acquisitions and subsequent business integration >   Human resources personnel focussed on managing employee integration following acquisitions >      Close monitoring of acquisition and integration costs
Increased competition
>     New market entrants in key geographies >      On-going pricing pressure in increasingly commoditised markets	>     Loss of market share >     Decreasing revenues on established portfolio	>      On-going portfolio diversification, differentiation and renewal through internal R&D, in-licensing and product acquisition >      Continuing focus on expansion of geographies and therapeutic areas
Disruptions in the manufacturing supply chain
>      Inability to procure active ingredients from approved sources >      Inability to procure active ingredients on commercially viable terms >     Inability to procure the quantities of active ingredients  needed to meet market requirements	>     Inability to develop and/or commercialise new products >   Inability to market existing products as planned >      Lost  revenue streams on short notice >    Reduced service levels and damage to customer relationships >      Inability to supply finished product to our customers in a timely fashion	>      Alternate approved suppliers of  active ingredients >     Long-term relationships with reliable raw material suppliers >     Corporate auditing team continuously monitors regulatory compliance of API suppliers >     Focus on improving service levels and optimising our supply chain
Economic and political and unforeseen events
>     The failure of control, a change in the economic conditions (including the Middle East, North Africa and the Eurozone), political environment or sustained civil unrest in any particular market or country >     Unforeseen events such as fire or flooding could cause disruptions to manufacturing or supply	>      Disruptions to manufacturing and marketing plans >      Lost revenue streams >      Inability to market or supply products	>     Geographic diversification, with 26 manufacturing facilities and sales in more than 40 countries >      Product diversification, with 825 products and 2,094 dosage strengths and forms
Litigation
>     Commercial, product liability and other claims brought against the Group	>      Financial impact on Group results from adverse resolution of proceedings >      Reputational damage	>     In-house legal counsel with relevant jurisdictional experience

Financial risks

Risk	Impact	Mitigation
Foreign exchange risk
>     Exposure to foreign exchange movements, primarily in the European, Algerian, Sudanese and Egyptian currencies	>     Fluctuations in the Group's net asset values and financial results upon translation into US dollars	>     Entering into currency derivative contracts where possible >     Foreign currency borrowing >     Matching foreign currency revenues to in-jurisdiction costs
Interest rate risk
>      Volatility in interest rates	>     Fluctuating impact on profits before taxation	>     Optimisation of fixed and variable rate debt as a proportion of our total debt >     Use of interest rate swap agreements
Credit Risk
>     Inability to recover trade receivables >     Concentration of significant trade balances with key customers in the MENA region and the US	>      Reduced working capital funds >      Risk of bad debt or default	>      Clear credit terms for settlement of sales invoices >     Group Credit policy limiting credit exposures >     Use of various financial instruments such as letters of credit, factoring and credit insurance arrangements
Liquidity Risk
>      Insufficient free cash flow and borrowings headroom	>     Reduced liquidity and working capital funds >     Inability to meet short-term working capital needs and, therefore, to execute our long term strategic plans	>     Continual evaluation of headroom and borrowing >      Committed debt facilities >     Diversity of institution, subsidiary and geography of borrowings
Tax
>      Changes to tax laws and regulations in any of the markets in which we operate	>      Negative impact on the Group's effective tax rate >      Costly compliance requirements	>     Close observation of any intended or proposed changes to tax rules, both in the UK and in other key countries where the Group operates

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^[1] Before the amortisation of intangible assets (excluding software) and exceptional items

^[2] Earnings before interest, tax, depreciation and amortisation

^[3] Before the consolidation of the Multi-Source Injectables, Promopharm and Savanna businesses

^[4] Before the consolidation of the Promopharm and Savanna businesses

^[5] Before the consolidation of the Multi-Source Injectables and Promopharm businesses

[6] Before the consolidation of the Promopharm and Savanna businesses

[7] In 2012, amortisation of intangible assets (excluding software) was $12.7 million (2011: $9.0 million).  In 2012, exceptional items included within operating expenses were $9.9 million (2011: $16.4 million)

[8] Products are defined as pharmaceutical compounds sold by the Group.  New compounds are defined as pharmaceutical compounds not yet launched by the Group and existing compounds being introduced into a new segment

[9] Totals include 123 dermatological and cosmetic compounds in 401 dosage forms and strengths that are only sold in Morocco

[10] Totals include all compounds and formulations that are either launched or approved or pending approval across all markets, as relevant

 

END

 

 

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