Annual Financial Report & AGM Notice

RNS Number : 2998B

Hikma Pharmaceuticals Plc

13 April 2012

 



Hikma Pharmaceuticals PLC

2011 Annual Report & Accounts and Notice of 2012 Annual General Meeting

In compliance with Listing Rule 9.6.1, Hikma Pharmaceuticals PLC has submitted copies of the documents listed below to the National Storage Mechanism and will shortly be available for inspection at http://www.hemscott.com/nsm.do or http://www.morningstar.co.uk:

·        Annual Report & Accounts 2011

·        Notice of 2012 Annual General Meeting

·        Proxy forms for the 2012 Annual General Meeting

Copies of the Annual Report and Notice of Meeting will also be available on our website www.hikma.com. Hard copies are available by writing to the Company Secretary, Hikma Pharmaceuticals PLC, 13 Hanover Square, London W1S 1HW or by attending the office in person.

The Annual General Meeting will be held at 11:00 am on Thursday 17 May 2012 at The Westbury, Bond Street, Mayfair, London W1S 2YF.

In accordance with DTR 6.3.5, this announcement contains information in the attached Appendices of the principal risk factors (Appendix 1), a responsibility statement (Appendix 2) and details of related party transactions (Appendix 3) which has been extracted in full unedited text from the Annual Report and Accounts 2011.  Where page numbers and notes are mentioned in the Appendix these refer to page numbers and notes in the Annual Report and Accounts 2011. 

Enquiries:

Hikma Pharmaceuticals PLC                                           Tel: [phone]

Peter Speirs, Company Secretary                             

Susan Ringdal, Investor Relations Director

Financial Dynamics                                              Tel:  [phone]

Ben Atwell /Julia Phillips/Jonathan Birt/Matthew Cole    

About Hikma

Hikma is a fast growing multinational 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 principally in the Middle East and North Africa ("MENA") region, where it is a market leader, the United States and Europe. In 2011, Hikma achieved revenue of $918.0 million and profit attributable to shareholders of $80.1 million.

Appendix 1 - Principal Risks and Uncertainties

The Group's business faces risks and uncertainties. 

The section below includes the principal risks and uncertainties that the Group considers could have a significant effect on its financial condition, results of operations or future performance.  The list is not set out in order of priority and other risks, currently unknown or not considered material, could have a similar effect.

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 >          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 over [60] new 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
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 or 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 9 manufacturing facilities and sales in more than 40 countries >          Product diversification, with 423 products and 817 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 Euro, Algerian dinar, Sudanese pound and Egyptian pound	>          Fluctuations in the Group's net asset values and profits 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

Appendix 2 - Responsibility Statement

DIRECTORS' RESPONSIBILITY STATEMENT

The directors are responsible for preparing the Annual Report and the financial statements. The Directors are required to prepare financial statements for the Group in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and have also elected to prepare financial statements for the Company in accordance with the IFRS under EU law. Company law requires the Directors to prepare such financial statements in accordance with IFRS, the Companies Act 2006 and Article 4 of the International Accounting Standard ("IAS") Regulations.

IAS 1 requires that financial statements present fairly for each financial year the company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and condition in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the Preparation and Presentation of Financial Statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRS. Directors are also required to:

·           Properly select and apply accounting policies

·           Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information

·           Provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance

·           Make an assessment of the company's ability to continue as a going concern

The directors are responsible for keeping proper accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the Company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a directors' report and directors' remuneration report which comply with the requirements of the Companies Act 2006.

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 differs from legislation in other jurisdictions.

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                         Mazen Darwazah

Chief Executive Officer              Executive Vice Chairman, CEO MENA

13 March 2012

Appendix 3 - Related Party Transactions

Details of related party transactions are included in Note 38 of the Financial Statements on pages 138 to 139.

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 associate 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 29.2% at the end of 2011 (2010: 29.5%). 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 US D 610,000 (2010: USD 2,169,000). Loans and overdrafts granted by Capital Bank to the Group amounted to US D 3,841,000 (2010: US D 48,000) with interest rates ranging between 8.25% and 3MLI BOR + 1. Total interest expense incurred against Group facilities was US D 7,000 (2010: US D 18,000). Total interest income received was Nil (2010: US D 8,000) and total commission paid in the year was US D 8,000 (2010: US D 76,000).

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 US D 3,035,000 (2010: US D 2,166,000). The Group's insurance expense for Jordan International Insurance Company contracts in the year 2011 was US D 2,902,000 (2010: US D 2,481,000). The amounts due from Jordan International Insurance Company at the year end were US D 109,000 (2010: Due to US D 66,000).

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 2011 was US D 150,000 (2010: US D 161,000).

Labatec Pharma: is a related party of the Group because it is owned by Mr. Samih Darwazah. During 2011 the Group total sales to Labatec Pharma amounted to US D 338,000 (2010: US D 414,000) and the Group total purchases from Labatec amounted to US D 3,805,000 (2010: US D 1,373,000). At 31 December 2011 the amount owed to Labatec Pharma from the Group was US D 753,000 (2010: US D 193,000).

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 2011 fees of US D 1,216,000 (2010: US D 927,000) were paid for legal services provided.

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 76 to 90.

	2011 $000	2010 $000
Short-term employee benefits	8,474	9,749
Share-based payments	3,196	2,074
Post-employment benefits	102	79
Other benefits	428	230
	12,200	12,132

* See Note 2.

 

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