Hikma Pharmaceuticals Annual Report 2005

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FY2005 Annual Report · Hikma Pharmaceuticals

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Hikma Pharmaceuticals PLC
13 Hanover Square
London W1S 1HW
UK
www.hikma.com

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Hikma Pharmaceuticals PLC
Annual Report 2005

A strategy for growth

Hikma Pharmaceuticals PLC

Contents
02 Group at a glance
04 Chairman and

Chief Executive’s review

06 Our strengths
14 Business and financial review
28 Board of Directors and
senior management
30 Report of the Directors
32 Board report on corporate

governance

35 Audit Committee report
37 Board report on remuneration

Financial highlights

Revenue
($ million)
+23.5%

4
.
2
1
2

*
4
0

Diluted earnings
per share (cents)
+14.1%

8
.
4
2

2
.
2
6
2

5
0

3
.
8
2

43 Statement of Directors’

responsibilities

44 Independent auditor’s report
46 Consolidated income statement
47 Consolidated statement of

recognised income and expenses

48 Consolidated balance sheet
49 Consolidated cash flow statement
50 Notes to the consolidated financial

statements

81 Hikma Pharmaceuticals PLC accounts
87 Shareholder information
88 Company information

Operating profit
($ million)
+10.3%

7
.
2
6

2
.
9
6

Profit attributable
to shareholders ($ million)
+17.1%

9
.
3
4

5
.
7
3

*
4
0

5
0

4
0

5
0

R&D costs
($ million)
+70.7%

5
.
6
1

7
.
9

4
0

5
0

4
0

5
0

*2004 figures restated to reflect a change in the presentation of the results of our associate, IPO costs and Medicaid rebates. Further information is given in
Note 2 to the consolidated financial statements.

Designed and produced by Radley Yeldar. Photography by Edward Webb. Printed by CTD Printers.

Hikma Pharmaceuticals PLC 01

Hikma is a multinational pharmaceutical
group dedicated to improving quality
of life of people in the markets it serves
through the development, manufacture
and marketing of a broad range of
generic and in-licensed pharmaceutical
products

Operational highlights

• Achieved revenue growth for the Group of 23.5% with particularly strong

performance in the Branded and Injectable businesses

• Maintained gross margins for the Group at 51.8%

• Increased investment in R&D by 70.7% to 6.3% of revenue

• Delivered 17.1% growth in profit attributable to shareholders

• Listed on London Stock Exchange with a market capitalisation at year end of

£675 million ($1.2 billion)

• Expanded into the lyophilised segment of the injectables market

• Received FDA approval of the manufacturing facilities of our associate in Saudi Arabia

• Launched ten new products*, received 98 regulatory approvals and submitted

73 regulatory filings during the year

*New pharmaceutical compounds that are being launched for the first time by the Group or, for the first time, within a new business segment.

02 Hikma Pharmaceuticals PLC

Group at a glance
Diversified business

Revenue by business segment

Revenue by region

1. Generic Pharmaceuticals
2. Branded Pharmaceuticals
3. Injectable Pharmaceuticals

2005
43.9%
35.5%
18.8%

2004
50.0%
34.8%
13.6%

1. Middle East and North Africa
2. United States
3. Europe

2005
42.4%
49.8%
7.8%

2004
40.4%
53.3%
5.9%

2005

2004

Broad product portfolio

Hikma sells 115 generic pharmaceutical products in 256 dosage strengths and forms in
34 countries. Hikma also sells 25 pharmaceutical products under promotion and distribution
agreements with, or licences from, 12 originator pharmaceutical companies and one generic
pharmaceutical company. The majority of Hikma’s operations are in the United States, the
Middle East and North Africa (MENA) and Europe.

Generic

2005 revenue

$115.2 million

Products
36 non-branded solid
generic products

Branded

2005 revenue
$93.0 million

Injectable

2005 revenue
$49.3 million

Products
48 branded generic products

17 products under licence
and/or promotion and
distribution agreements

Products
31 branded and non-branded
injectable products

8 products under licence
and/or promotion and
distribution agreements

Hikma Pharmaceuticals PLC 03

Broad geographic coverage

Our markets

R&D centres
Manufacturing plants
(including JPI, 47.5% owned associate)

Key markets
US

Key markets
Algeria, Jordan,
Saudi Arabia

Key markets
MENA, US, Europe

Top products
ABC codeine
Chloroquine phosphate
Folic acid
Lisinopril
Lithium carbonate SR

Top products
Amoclan
Oprazole
Penamox
Prograf
Suprax

Top products
Cefazolin sodium
Ceftizoxime sodium
Ceftriaxone sodium
Cefuroxime sodium
Ciprofloxacin

04 Hikma Pharmaceuticals PLC

Chairman and Chief Executive’s review

“We are confident that the strength and diversity of our business

will enable us to continue to deliver organic growth at the
Group level, and we will continue to look for new opportunities
to grow through acquisition.”

Overview
I am pleased to report that 2005 was an extremely successful
year for Hikma Pharmaceuticals PLC. We have achieved a
strong set of financial results driven by new product launches,
better product targeting and enhanced sales and marketing
capabilities, combined with a continued focus on API sourcing,
manufacturing and operational efficiencies. Our performance
in 2005 reinforces our track record of delivering growth
and demonstrates the underlying strength of our diverse
business model.

On 1 November 2005 we successfully completed our
initial public offering on the London Stock Exchange and on
19 December 2005 we joined the FTSE 250. Through the offer
we raised gross proceeds of $124 million (£70.0 million) to be
used to repay debt and fund capital investment projects across
our core businesses. As of 31 December 2005, our market
capitalisation was $1.2 billion (£675 million). Through our
listing we have enhanced our international profile, gained
financial flexibility to grow our business both organically and
through acquisition, and enabled global investors to support
our development.

Financial results
The Group performed well across all businesses in 2005,
achieving revenue of $262.2 million, up 23.5% from 2004.
Gross margin for the Group remained stable at 51.8%.
Operating profit grew by 10.3% to $69.2 million, while
operating margins decreased to 26.4%, compared to 29.5%
in 2004, primarily as a result of increased investment in
R&D and sales and marketing. The Group’s profit for the
year increased by 17.1% to $43.9 million and diluted
earnings per share grew by 14.1% to 28.3 cents.

Business highlights
We ended 2005 with a total of 140 products in our portfolio
in 303 dosage strengths and forms, including the ten products
launched during the year and 25 under-licence products*.
During 2005 we were granted 98 regulatory approvals.
In addition, we submitted a total of 73 regulatory filings,
including 37 new product applications**. As of 31 December
2005, we had a total of 88 pending approvals and

90 products under development across our three main
business segments – Generic, Branded and Injectable
Pharmaceuticals.

In our Branded and Injectable Pharmaceuticals businesses,
we put considerable effort into developing our sales and
marketing capabilities, especially in the MENA region.
We achieved market share gains in Saudi Arabia and
maintained our market leading position in Jordan. We also
expanded into the technically challenging lyophilised segment
of the injectables market with the acquisition of the Italian
manufacturing business, IBPP, in March 2005. In December
2005, our Generic Pharmaceuticals business successfully
renewed its sales contract with the Department of Veterans
Affairs, an agency of the government of the United States,
for the supply of Lisinopril.

Board appointments
In anticipation of our IPO, three Non-Executive Directors were
appointed to the Board in October. In addition, Ali Al-Husry
joined the Board as a Non-Executive Director, having served
as a Director of Hikma Pharma Limited and other Group
companies since 1991. Ali is Chairman and CEO of
Export & Finance Bank in Jordan, as well as being a
director of a number of other organisations.

Sir David Rowe-Ham joined the Board as senior independent
Non-Executive Director and took up the position of Chairman
of the Nomination Committee. A Chartered Accountant,
Sir David is Chairman of Olayan Europe Ltd., BNP Paribas
South Asia Investment Co Ltd and Coral Products PLC.

Michael Ashton joined the Board as a Non-Executive Director
and took up the position of Chairman of the Remuneration
Committee. Michael has been the chief executive of a number
of pharmaceutical companies and has over 32 years of
experience in the pharmaceutical industry.

Breffni Byrne also joined the Board as a Non-Executive Director,
taking up the position of Chairman of the Audit Committee.
Also a Chartered Accountant, Breffni is Chairman of NCB
Stockbrokers and a director of Irish Life and Permanent plc,
Coillte Teoranta (the Irish state forestry company), Adsteam
Europe Limited and other companies.

Hikma Pharmaceuticals PLC 05

Dividend
The Board has recommended a pro rata final dividend for the
period from flotation to 31 December 2005 of 0.89 cents
per share (approximately 0.5 pence per share) equivalent to
approximately 5.34 cents on a full year basis. The proposed
final dividend will be paid on 30 May 2006 to shareholders
on the register on 28 April 2006, subject to approval at the
Annual General Meeting.

Developments in 2006
Early in 2006, we announced FDA approval of the
manufacturing facilities of JPI, our associate company in
Saudi Arabia, for the manufacture of oral cephalosporin
products for sale in the US market. The construction of
our new cephalosporin plant in Portugal is well underway
and on track to begin production in the first half of 2007.
The construction of our new penicillin plant in Jordan and
the expansion of our lyophilised injectable plant in Italy are
scheduled for completion in 2007. All three projects, as well
as the approval of the JPI facility, will significantly increase our
manufacturing capacity and allow us to meet the growing
demand across our core businesses.

In 2006, we are planning to expand the penetration of
our injectable products across the United States, Europe
and the MENA region, through new product launches and
greater investment in sales and marketing, including recent
senior sales and marketing appointments. Our sales in
Europe will be further enhanced by agreements signed
in the beginning of 2006 with Hospira, Inc., a global
specialty pharmaceutical and medication delivery company,
for the supply and distribution of injectable products in
European markets.

products sold in Algeria. We expect to be able to minimise the
effect of these price declines by introducing new products and
by increasing the sales volume, through greater promotion of
those Hikma products that are on the reference price list but
that have potential for sales growth.

Outlook
Our listing on the London Stock Exchange marks the
beginning of an exciting new phase in Hikma’s development.
In 2006, we will continue to improve the breadth and quality
of our product range and delivery of operational efficiencies
with continued investment in research and development,
sales and marketing and human resources.

Prospects for the Group’s overall business performance
are positive. We expect to continue our trend of strong
revenue growth, especially in our Branded and Injectable
businesses, through a focus on existing products, the launch
of new products and expansion into new markets. This will
be driven by the strength of our sales and marketing teams.
We expect the pricing environment in the United States to
remain competitive. However, we will work diligently to
minimise the effects of this pricing pressure on our Generic
business by introducing new products and retaining our
strategic focus on reducing raw material costs.

We are confident that the strength and diversity of our
business will enable us to continue to deliver organic growth
at the Group level, and we will continue to look for new
opportunities to grow through acquisition.

Samih Darwazah
Chairman and CEO

*Launches include only new pharmaceutical compounds that are being launched for the first time by the Group or, for the first time within another
business segment.
**Filings include filings for new products, which include pharmaceutical compounds not yet launched by the Group and existing compounds being
introduced into new regions and countries, and line extensions.

06 Hikma Pharmaceuticals PLC

Our strengths

Strong marketing capabilities in the MENA region

Strong brands can gain significant market share in the MENA region where,
for the most part, the markets focus on branded generic products. Hikma has
some of the strongest brands in the region and a long-standing reputation for
quality products.

Our large and experienced sales force is unique in the MENA region where
it has established strong relationships with physicians, hospitals, pharmacies
and purchasing groups for hospitals. These relationships, combined with our
commitment to quality, explain how our products have been able to become
market leaders. Three of Hikma’s top ten selling products in Jordan, for example,
are ranked in the top three by sales in their respective therapeutic categories.*

Our strong position in the MENA region also makes us an attractive partner for
multinational pharmaceutical companies seeking access to this region – as our
portfolio of under licence products demonstrates. These partnerships also help to
enhance our reputation in the market as a quality producer and market leader.

280 Branded and
51 Injectable sales and
marketing representatives
market Hikma products
across a total of 13 countries
We have 25 products under
licence or under promotion
and distribution agreements
in the MENA region –
including 17 Branded and
8 Injectable products

A powerful combination of quality products
and extensive sales and marketing capabilities

Sales and marketing representatives in the MENA region

Egypt 2

Tunisia 1

Lebanon 19

Jordan 97

Saudi Arabia 84

Gulf States 21

Algeria 76

Libya 6

Sudan 25

*Source: IMS.

Hikma Pharmaceuticals PLC 07

08 Hikma Pharmaceuticals PLC

Our strengths

A successful research and development team

Our historical success in
research and development
is illustrated in our having
obtained 1,039 regulatory
approvals since 1995,
including 40 ANDA
approvals by the FDA

Our research and development team consists of 127 professionals and
scientists with expertise in areas such as pharmaceutical formulation, process
optimisation, analytical chemistry and drug delivery. Hikma has particular expertise
in developing technically challenging products such as injectables, complex
formulations, unstable compounds and sustained release tablets and capsules.

When identifying and developing new generic pharmaceutical products,
Hikma looks for products that have a strong market potential and that are in
complementary or fast growing therapeutic categories. We also try to identify
products for which we would have an advantage sourcing the active
pharmaceutical ingredient (“API”), for which we have a particular expertise in
the development or manufacturing process, and for which we can expand
our offering through line extensions.

In 2005, we received 98 product approvals across a range of therapeutic
categories including Anti-Infective, Central Nervous System (“CNS”), and
Alimentary Tract and Metabolism. With a strong pipeline of products pending
approval in these and other therapeutic categories, we believe we are well-
positioned to continue this trend.

Hikma looks for products that have a strong
market potential and that are in complementary
or fast growing therapeutic categories

Hikma Pharmaceuticals PLC 09

A significant pipeline

We currently have the strongest pipeline we have ever had, with 88 pending
approvals and 90 products under development. Our pipeline focuses primarily
on the Anti-Infective, Cardiovascular, and CNS therapeutic categories, and we
are beginning to develop a presence in Anti-Neoplastics & Immunomodulating
Agents and Dermatology.

The 13 new products pending approval in our Generic Pharmaceuticals business
fall primarily in the Anti-Infective and Cardiovascular therapeutic categories.
In the MENA region, our Branded business has two new Cardiovascular products
pending approval. In our Injectable pipeline, which is our most extensive, we
have 29 new products pending approval and 28 products under development.
In this segment, we see exciting opportunities in the CNS and Anti-Neoplastics &
Immunomodulating Agents categories.

Pending approvals

New products under development

Generics 21
8

Branded 17

Injectables 50

Generics

Branded

Injectables

Line extensions

New products

10 Hikma Pharmaceuticals PLC

Our strengths

Hikma Pharmaceuticals PLC 11

A commitment to quality manufacturing

Our multiple manufacturing facilities provide us with the flexibility to select the
most appropriate manufacturing strategy for a particular product, taking into
account factors such as cost, regulatory requirements and capacity. For example,
because our facilities in Jordan and Saudi Arabia are FDA approved, we have the
flexibility to produce products for the US market in the MENA region, at a lower
cost. In some markets, like Algeria, having a local manufacturing presence is
essential for building market share as regulations can restrict the range of products
that can be imported. Our newly acquired injectable plant in Italy has provided extra
capacity needed to meet demand for our injectable products in European markets.

We are dedicated to maintaining the highest standards at our manufacturing
facilities, as our FDA approval record attests – all of our facilities are FDA
approved, bar Algeria and Italy, which were added this year. This is of particular
importance in our Injectable Pharmaceuticals business, where the manufacturing
process is more technically challenging than for solid or liquid products and where
production is subject to very strict quality and anti-contamination controls. We are
making considerable investment in these facilities, dedicating $20 million of the
IPO proceeds to the construction of a new cephalosporin plant in Portugal and
$8 million for the expansion of the existing lyophilised injectable plant in Italy.

United States
Solid pharmaceuticals

Jordan
Solid, semi-solid and liquid
pharmaceuticals and API

Portugal
Injectable pharmaceuticals

Italy
Injectable pharmaceuticals

Algeria
Solid, semi-solid and liquid
pharmaceuticals

Saudi Arabia (JPI)
Solid, semi-solid and liquid
pharmaceuticals

We have the flexibility to select the most appropriate
manufacturing strategy, taking into account cost,
regulatory requirements and capacity

12 Hikma Pharmaceuticals PLC

Our strengths

API sourcing strength

Our dedicated API sourcing team is responsible for identifying and securing
API and other raw materials for the Group. Hikma has relationships with
approximately 84 suppliers of API including relationships spanning more than
ten years with 26 of its suppliers. We believe that we are the main customer
for 20 of our suppliers. We source several APIs from suppliers in Asia that
have a lower cost base and therefore offer lower API prices than their
Western competitors.

We also have the capability to manufacture a limited amount of the API required
for some of our finished products. This capability is currently being utilised to
manufacture five APIs that the Group believes would be either difficult or
expensive to source from third parties. Going forward, we will look to
manufacture a growing proportion of the API that we use in our products in
order to maximise the cost advantages gained by producing API for captive
use and to increase both the volume and the breadth of our API production.
As of 31 December 2005, Hikma had seven APIs under development.

We are focused on developing strong
relationships with a broad range of
API suppliers

Hikma Pharmaceuticals PLC 13

A commitment to our people

Since the Company was founded in 1978, a key priority has been investment
in employee training and development. New employee training, on the job
training, job rotation, coaching and mentoring and succession planning are all
part of our training and development programmes. We also believe strongly in
continuing education and sponsor a number of employees annually to pursue
higher education.

Developing our people is an integral part of our appraisal system, through which
senior managers are encouraged to identify future managers and to focus on
building their leadership skills. We are committed to promoting from within,
as evidenced by the fact that most of the members of our senior management
team have worked for the Company for many years, developing their skills and
experience in a variety of different roles throughout the Group.

By focusing on our people, we now benefit from qualified and satisfied
employees and through their dedication to Hikma we have achieved
enormous success.

We attribute our success to our qualified
and satisfied employees

14 Hikma Pharmaceuticals PLC

Business and financial review

Hikma is a multinational pharmaceutical group focused on
developing, manufacturing and marketing a broad range
of generic and in-licensed pharmaceutical products in solid,
semi-solid, liquid and injectable final dosage forms

This business and financial review has been prepared solely
to provide additional information to shareholders as a body
to assess the Company’s strategies and the potential for those
strategies to succeed, and should not be relied on by any
other party or for any other purpose. This review contains
forward-looking statements that 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 report and should
be treated with caution due to the inherent uncertainties,
including both economic and business risk factors, underlying
any such forward-looking information.

The Directors, in preparing this review, have been guided by
the Accounting Standards Board’s 2003 Statement on
Operating and Financial Reviews. The Directors will seek
to comply fully with the 2006 Reporting Statement in the
Company’s next annual report and accounts.

Our business
Hikma is a multinational pharmaceutical group focused on
developing, manufacturing and marketing a broad range
of generic and in-licensed pharmaceutical products in solid,
semi-solid, liquid and injectable final dosage forms. At the
end of 2005, we had 115 generic pharmaceutical products
in 256 dosage strengths and forms in our product portfolio.
Hikma also sells 25 pharmaceutical products under promotion
and distribution agreements with, or licences from,
12 originator pharmaceutical companies and one generic
pharmaceutical company.

The majority of our operations are in the United States, the
Middle East and North Africa and Europe.

Our strategy for growth is to build a strong and diverse
product portfolio; to expand our geographic reach; to develop
and leverage our global research and development capabilities
and API sourcing strengths; and to continue to maintain the
very high standards of our manufacturing capabilities.

Across our three core businesses – Generic, Branded and
Injectable Pharmaceuticals, we have three key strategic aims:

1. Consolidate our strong market position in the MENA
region by launching new products, expanding our
geographic reach and increasing market share;

2. Grow our Injectable Pharmaceuticals business by successfully

launching new products into the MENA region, United
States and Europe and strengthening our sales and
marketing network; and

3. Continue to pursue profitable growth in the United States
by focusing on high margin, niche product opportunities.

We have made significant progress in 2005 towards achieving
these objectives. We have maintained and, in some cases,
increased our market share in key markets in the MENA
region, where we have also expanded into new markets and
launched new products. We have nearly doubled revenue in
our Injectable Pharmaceutical business through a combination
of new product launches and increased focus on sales and
marketing. In the challenging US generic market, where
pricing has become more competitive and margin pressure
increased in the second half of the year, we have delivered
solid revenue growth and maintained gross margins for the
year of 54.1%.

Our progress on our strategic objectives is monitored by the
Board by reference to five key financial performance indicators
applied on a Group-wide and segmental basis. These same
indicators are used by executive management to manage the
business. Performance in 2005 against these indicators is set
out in the table below, together with the prior year
performance data.

Hikma Pharmaceuticals PLC 15

Hikma’s key performance
indicators

Revenue growth

Gross margin

Year ended 31 December

2005

2004

Change

23.5% 14.1% +9.4%

51.8% 51.1% +0.7%

Operating margin

26.4% 29.5% –3.1%

R&D costs as a percentage
of revenue

Profit attributable to
shareholders ($ million)

6.3%

4.6% +1.7%

43.9

37.5

+17.1%

Group performance
Revenue for the Group increased by 23.5% to $262.2 million,
compared to $212.4 million in the prior year period.
The increase was primarily due to strong increases in revenue
in both the Injectable and Branded Pharmaceuticals businesses,
as well as a solid performance from our Generic
Pharmaceuticals business.

In 2005, 43.9% of revenue was generated by our Generic
Pharmaceuticals business, 35.5% of revenue was generated
by our Branded Pharmaceuticals business and 18.8% by our
Injectables business. 49.8% of revenue was generated in the
United States, while 42.4% of revenue was generated in the
MENA region and 7.8% in Europe.

The Group’s cost of sales increased by 21.6% to
$126.4 million, compared to $103.9 million for the prior year
period. Cost of sales represented 48.2% of Group revenue,
compared to 48.9% for the prior year period. The Group’s
gross profit increased by 25.2% to $135.8 million, compared
to $108.4 million in the prior year period. Group gross
margins for 2005 were 51.8% of revenue, compared to
51.1% in the prior year period. On a segmental basis,
gross margins improved in the Branded and Injectable
Pharmaceuticals businesses, and remained stable in the
Generic Pharmaceuticals business despite margin pressure
in the second half of the year.

Group operating expenses grew in 2005 by 48.9% to
$70.0 million, compared to $47.1 million for the prior year
period. Sales and marketing expenses increased by 38.7% to
$27.4 million, due primarily to a significant increase in sales
and marketing headcount in the MENA region for both the
Branded and Injectable Pharmaceuticals businesses. Sales and
marketing expenses represented 10.4% of Group revenue in
2005, compared to 9.3% in the prior year period.

Total S&M expenses ($ million)

As a percentage of revenue

Year ended 31 December

2005

27.4

10.4%

2004

19.7

9.3%

The Group’s general and administrative expenses increased
by 49.8% to $22.6 million, compared to $15.1 million in the
prior year period. The change can be attributed to an increase
in corporate expenses, which increased by $1.7 million to
$8.2 million as we strengthened corporate functions in
preparation for our public listing. In addition, we saw an
increase in general and administrative expenses in our Generic
Pharmaceuticals business, especially with respect to consulting
and IT costs related to the implementation of SAP. The increase
also reflects the consolidation of general and administrative
expenses of IBPP in Italy, the subsidiary acquired during the first
half of 2005. General and administrative expenses represented
8.6% of Group revenue in 2005, compared to 7.1% in the
prior year period.

Total investment in G&A ($ million)

As a percentage of revenue

Year ended 31 December

2005

22.6

8.6%

2004

15.1

7.1%

16 Hikma Pharmaceuticals PLC

Business and financial review continued

Investment in R&D for the Group increased by 70.7% to
$16.5 million, compared to $9.7 million in the prior year
period. This increase can be attributed primarily to the Generic
Pharmaceuticals business, where we saw an increase in the
number of ANDA filings and associated bio-equivalency costs
and the hiring of new scientists and technicians for the R&D
centre in Jordan. Total investment in R&D represented 6.3%
of Group revenue in 2005, compared to 4.6% in the prior
year period.

Research & Development
In the year to 31 December 2005, Hikma submitted
73 regulatory filings, including 19 ANDAs. These included
filings for new products, which include pharmaceutical
compounds not yet launched by the Company and existing
compounds being introduced into new regions and countries,
and line extensions (the registration of new dosage strengths
or forms of existing products).

Total investment in R&D ($ million)

As a percentage of revenue

Year ended 31 December

2005

16.5

6.3%

2004

9.7

4.6%

Other operating expenses increased by $1.0 million to
$3.6 million, compared to $2.6 million in the prior year
period, primarily as a result of the cost of setting up the new
manufacturing facilities in Algeria that commenced operations
early in 2006.

Other operating income increased by $1.4 million to
$2.0 million, compared to $0.6 million in the prior year
period, consisting mainly of management fees from JPI.

Share of results of associates, now included in operating profit
as they are considered to be core to the Group’s activities,
were $1.4 million in 2005, compared to $0.7 million in the
prior year period.

Operating profit for the Group increased by 10.3% to
$69.2 million, compared to $62.7 million in the prior year
period. Group operating margin declined 3.1% to 26.4% in
2005, compared to 29.5% of revenue in the prior year period.

Generic
Pharmaceuticals
United States

Branded
Pharmaceuticals
MENA region
Europe

Injectable
Pharmaceuticals
United States
MENA region
Europe

Pending

Pending
approvals
of new
New approvals products
as of
as of
31 Dec
31 Dec
2005
2005

product
Filings in filings in
2005

2005

16
4

5
23
11

5
1

5
11
5

8
9

16
23
11

2
1

13
11
5

We estimate that the currently marketed equivalent products
of the 45 new products covered by the Group’s pending
approvals had sales of approximately $9.0 billion in the year
ended 31 December 2005 in the markets covered by the
pending approvals.

Hikma Pharmaceuticals PLC 17

At 31 December 2005, we had a total of 90 products under
development, the majority of which should receive several
marketing authorisations, including separate marketing
authorisations in differing strengths and/or product forms
between 2006 and 2009.

Generic Pharmaceuticals
Generic Pharmaceuticals remains our largest business in terms
of revenue, contributing 43.9 % of total Group revenue in
2005, compared to 50.0% in the prior year period. As in
2004, all Generic Pharmaceutical revenues were generated in
the United States.

Revenue in our Generic Pharmaceuticals business increased by
8.5% to $115.2 million, compared to $106.2 million in the
prior year period. The change was primarily due to an increase
in sales volumes offset by price declines. During the year, two
new products were launched.

Revenue from the Generic Pharmaceuticals business top-ten
sellers represented 68.6% of Generic Pharmaceutical revenue
in 2005. Leading products included Lisinopril, Folic acid and
Lithium carbonate SR.

In December 2005 we successfully renewed our sales contract
with the Department of Veterans Affairs, an agency of the
government of the United States, for the supply of Lisinopril.
This renewal represented the exercise of the 3rd Option Year
for the contract with a contract period between 21 December
2005 and 20 December 2006. All other terms and conditions
of the contract, including pricing, remain unchanged. Lisinopril
accounted for 33.4% of Generic Pharmaceuticals revenue and
14.7% of Group revenue in 2005.

Cost of sales of the Generic Pharmaceuticals business
increased by 8.4% to $52.9 million, compared to
$48.8 million in the prior year period. Cost of sales of
the Generic Pharmaceuticals business represented 45.9%
of the Generic business’s total revenue in 2005, unchanged
from the prior year period.

Gross profit of the Generic Pharmaceuticals business increased
by 8.3% to $62.3 million, compared to $57.5 million in the
prior year period. The Generic Pharmaceuticals business’s gross
margin remained stable at 54.1%, despite a significant
reduction in gross margin in the second half of the year
resulting from increased pricing pressure.

Generic Pharmaceuticals operating profit decreased by
5.6% to $38.8 million. Operating margins in the Generic
Pharmaceuticals business decreased to 33.6% of revenue,
compared to 38.6% in the prior year period. The decrease
in operating margin can be attributed to an increase in
investment in R&D as a result of increased spending on
bio-equivalence studies in both the United States and Jordan
as well as an increase in general and administrative expenses
related to personnel, consulting and IT-related activities.

Branded Pharmaceuticals
The pharmaceutical market in the MENA region tends to
be a branded market, in which patented, generic and OTC
pharmaceutical products are marketed under specific brand
names. Our Branded Pharmaceuticals business manufactures
branded generic pharmaceutical products for sale across the
MENA region and, increasingly, Europe.

Revenue in our Branded Pharmaceuticals business increased
by 25.7% to $93.0 million, compared to $74.0 million in the
prior year period. The increase was due primarily to an increased
focus on our strongest products and to the strengthening of
our sales and marketing efforts across the region.

In line with our strategic objectives for the Branded
Pharmaceuticals business, we launched five new products*
in 2005. We also restructured our sales and marketing
capabilities across the MENA region, creating separate
sales teams for Branded and Injectable products. We ended
the year with 280 Branded sales and marketing representatives
across the MENA region.

*New pharmaceutical compounds that are being launched for the first time within a business segment.

18 Hikma Pharmaceuticals PLC

Business and financial review continued

Algeria, Saudi Arabia and Jordan remained the Branded
Pharmaceuticals business’s three key markets in 2005.
In 2005 our market share in Algeria increased slightly to
3.2%, compared to 3.0% in the prior year period, maintaining
our position as the seventh largest pharmaceutical
manufacturer and second largest generic pharmaceutical
manufacturer by value in the Algerian market. During the year
we increased the number of medical reps and launched a
number of new products into the market. The completion
of our manufacturing facilities in Algeria at the end of 2005,
and the subsequent approval of the facilities by the Algerian
Ministry of Health in early 2006, will enable us to produce
products locally for the Algerian market. Our new local
presence should also help to expedite the registration of new
products for this market.

In early 2006, the Algerian Ministry of Labour and Social
Security Affairs announced changes to its reimbursement
system, including the introduction of reference pricing for
a number of reimbursable products. This new legislation
is expected to impact current pricing of some, but not all,
of our products sold in Algeria. We expect to be able to
minimise the effect of these price declines by introducing
new products and by increasing the sales volume, through
greater promotion of those Hikma products that are on the
reference price list but that have potential for sales growth.

A strong performance in Saudi Arabia was driven, in part,
by the launch of new products and to a restructuring of the
sales force, which included management changes and
increased specialisation by the medical reps. In Saudi Arabia,
our combined market share in value terms, including that
of our associate business JPI, increased to 3.5% in 2005,
compared to 3.1% in the prior year period, making us the
sixth largest player in the Saudi Arabian market.

In Jordan we gave particular focus to our key products and
better product targeting. As in Algeria and Saudi Arabia,
we also launched new products in the Jordanian market.
We maintained our position as market leader for the full year,
with a market share of 6.4% in value terms.

In line with our strategy of expanding our geographic reach
in the MENA region, we established our own distribution
company in Lebanon in 2005, which will enable us to register
more products and give us more control of our sales and
distribution operations in this growing market.

Revenue from the Branded Pharmaceuticals business top-ten
sellers represented 80.2% of Branded Pharmaceutical revenue
in 2005. Leading products included Amoclan, Prograf and Suprax.

Cost of sales of the Branded Pharmaceuticals business increased
by 14.5% to $39.3 million, compared to $34.3 million in the
prior year period. Cost of sales of the Branded Pharmaceuticals
business represented 42.3% of the business’s total revenue,
compared to 46.4% in the prior year period. Gross profit of the
Branded Pharmaceuticals business increased by 35.3% to
$53.7 million, compared to $39.7 million in the prior year
period. The Branded Pharmaceuticals business’s gross margin
increased to 57.8%, compared to 53.6% in the prior year
period. This improvement in gross profit margin reflects
efficiency improvements in our production planning process
and increased economies of scale as well as an improvement in
product and geographical sales mix.

Branded Pharmaceuticals’ operating profit increased by 28.2%
in 2005, to $28.8 million. Operating margins in the Branded
Pharmaceuticals business were 30.9% in 2005, up from
30.3% in 2004.

Injectable Pharmaceuticals
Our Injectable Pharmaceuticals business manufactures
injectable generic pharmaceutical products in powder, liquid
and lyophilised forms for sale across the MENA region, the
United States and Europe. Injectable Pharmaceuticals is our
fastest growing and most geographically diverse business,
contributing 18.8% of total Group revenue in 2005,
compared to 13.6% in the prior year period.

Revenue in our Injectable Pharmaceuticals business increased
by 70.8% to $49.3 million, compared to $28.9 million in
the prior year period. The increase was due primarily to
strong performances in all key geographic regions, driven
by enhanced sales and marketing efforts and new
product launches.

Hikma Pharmaceuticals PLC 19

Revenues were particularly strong in the United States, where
we launched a new form of cefazoline in the first quarter of
2005 and secured sales contracts with three new customers.
In the MENA region, a strong performance was driven by
the development of a dedicated sales force of 51 sales
representatives and the introduction of new products.
In Europe, the acquisition of IBPP in Italy and our newly
established operations in Germany, which included four
sales and marketing employees at year end, helped to boost
Injectable Pharmaceuticals sales.

During the year, we focused on developing our sales and
marketing capabilities across all geographies and ended
the year with 51 sales reps in the MENA region and nine in
Europe – five in Portugal and four in Germany. Since the
beginning of 2006, we have added four additional sales and
marketing employees in Europe – two sales reps in Germany,
a sales director for the Benelux and a sales rep in Italy.
We have also enhanced our injectable presence in the
US through the appointment of a General Manager and
a VP Sales & Marketing.

Revenue from the Injectable Pharmaceuticals business’s
top-ten sellers represented 69.0% of Injectable Pharmaceuticals
revenue in 2005, compared to 86.9% in the prior year period.
Cephalosporins continue to be the segment’s top sellers,
while leading liquid injectables included Diclofenac sodium,
Ciprofloxacin and Atracurium. We also successfully launched
our Injectable portfolio’s first pre-filled syringe product,
HIBOR, an in-licensed low molecular weight heparin for
the MENA region.

Cost of sales of the Injectable Pharmaceuticals business
increased by 61.8% to $30.9 million, compared to
$19.1 million in the prior year period. Cost of sales of the
Injectable Pharmaceuticals business represented 62.6%
of the business’s total revenue compared to 66.3% in the
prior year period. Gross profit of the Injectable Pharmaceuticals
business increased by 89.7% to $18.4 million, compared
to $9.7 million in the prior year period. The Injectable
Pharmaceuticals business’s gross margin increased to 37.4%,
compared to 33.7% in the prior year period. The increase in
gross profit margin reflects the increased scalability of the
business as we achieved higher utilisation rates and as fixed
manufacturing expenses decreased as a percentage of sales.

Injectable Pharmaceuticals’ operating profit increased by
107.3% to $8.5 million, compared to $4.1 million in the
prior year period, despite increased spending on R&D and
sales and marketing. Injectable operating margins improved
to 17.2% in 2005, up from 14.1% in the prior year period.
The increased scalability of the business also explains this
improvement in operating margin.

Also in 2005 construction began on our new Cephalosporin
plant in Portugal, which will host three new production lines,
warehouses and laboratory facilities. The plant is on track to
begin production in the first half of 2007.

Other businesses
Other businesses, which include primarily Arab Medical
Containers, a manufacturer of plastic specialised packaging,
and International Pharmaceuticals Research Centre, which
conducts bio-equivalency studies, had aggregate revenue in
2005 of $4.7 million, or 1.8% of total Group revenue.

Financial performance

Flotation costs
Flotation costs related to our listing on the London Stock
Exchange (“IPO”) recognised in the income statement were
$1.4 million in 2005, compared to $0.4 million in the prior
year period. The direct costs of the issue of new shares
of $10.8 million have been charged to the share
premium account.

Finance income
The Group’s financing income includes interest income and
net foreign exchange gains from non-trading activities.
Financing income increased by $1.3 million to $1.6 million
in 2005, compared to $0.3 million the prior year period.
The increase was due primarily to interest earned on proceeds
generated from the Group’s IPO and interest generated from
cash deposits in the United States.

20 Hikma Pharmaceuticals PLC

Business and financial review continued

Finance costs
Financing costs increased by $1.4 million to $5.2 million,
compared to $3.8 million in the prior year period. This increase
relates primarily to borrowings for working capital purposes in
the Branded and Injectable Pharmaceuticals’ segments.

Profit before tax
Profit before tax for the Group increased by $5.4 million, or
9.1%, from $59.0 million in 2004 to $64.4 million in 2005.

Tax
The Group had tax expenses of $19.5 million in 2005.
The effective tax rate was 30.2%, a year on year decrease
of 5.1%. The tax rate decrease was due to a shift in the
geographic mix towards lower tax countries, particularly in
the MENA region as well as to a change in the geographic
mix of the origin of production to product sourcing from
subsidiaries in lower tax countries.

Minority interest
The profit attributable to Hikma’s minority interest increased
from $0.7 million in 2004 to $1.1 million in 2005.

Profit for the year
The Group’s profit for the year attributable to equity holders of
the parent grew by 17.1% to $43.9 million for the year ended
31 December 2005.

Earnings per share
Diluted earnings per share for the year to 31 December 2005
were 28.3 cents, up 14.1% from 24.8 cents in 2004.

Dividend
The Board has recommended a pro rata final dividend
for the period from float to 31 December 2005 of
0.89 cents per share (approximately 0.5 pence) equivalent to
approximately 5.34 cents on a full year basis. The proposed
final dividend will be paid on 30 May 2006 to shareholders
on the register on 28 April 2006, subject to approval at the
Annual General Meeting.

Cash flow and investment
Net cash inflow from operating activities was $32.7 million
in the year to 31 December 2005 compared to $32.8 million
in the year to 31 December 2004. Net working capital
increased by $24.1 million, primarily due to the relatively
higher portion of sales generated in the MENA region,
where collection periods are generally higher, as well as to
higher receivables in our Generic business. Debtor days
increased slightly from 103 days in 2004 to 108 days in 2005.
Meanwhile, inventory days increased from 156 days to 168
days primarily due to higher levels of raw materials.

Net cash used in investing activities was $16.4 million in the
year to 31 December 2005 compared to $25.4 million in the
same period in 2004. The most significant investing activities
in 2005 were purchases of property, plant and equipment
amounting to $23.4 million, offset by the realisation of
investments in cash deposits of $7.7 million.

Total cash paid for the purchase of businesses was $0.8 million.
This expenditure was mainly on the acquisition of IBPP in Italy.

Net cash from financing activities in the twelve months to
31 December 2005 was $77.4 million compared to net cash
used in financing activities of $5.4 million in the year to
31 December 2004. Significant financing activities in 2005
included $124.9 million generated from the issue of new shares.

Capital expenditure
Capital expenditures were driven primarily by investment in
our new facilities in Algeria, the new cephalosporin plant
in Portugal and the construction of a new quality control
laboratory and research and development facility in Jordan.
During the year the Group also made regular investments in
upgrading and maintaining existing facilities.

Balance sheet
The Group’s cash balance increased by $94.5 million in 2005
to $135.9 million, as a direct result of the Group’s initial public
offering of new shares as well as normal operating activities,
which generated $124.9 million and $32.7 million,
respectively. This was partially offset by capital expenditures,
debt repayments and dividends.

Hikma Pharmaceuticals PLC 21

The Group’s net cash position at 31 December 2005
was $86.9 million, compared to a net debt position of
$13.9 million at 31 December 2004. Net cash/debt is
calculated as the total of investments in cash deposits,
collateralised cash and cash and cash equivalents less
bank overdrafts and the current and long-term portion of
loans and obligations under finance leases.

Share price
The Group’s share price closed at 404.75 pence on
30 December 2005, an increase of 39.6% since listing
on the London Stock Exchange on 1 November 2005 at
an offer price of 290 pence. The Group’s total shareholder
return for this period was 39.6%, compared to 14.4% for
the FTSE 250 (30.2% for the full year) and 4.5% for the
FTSE 350 pharmaceuticals sector (32.4% for the full year),
with the stock outperforming both indices over the period.
During this period the share’s closing price ranged from
a low of 277 pence in November 2005 to a high of
404.75 pence at 30 December 2005.

Risk Management

Operational risks
There are a number of factors that have or could in the future
affect the Group’s results of operations, including the following:

Regulatory
In common with other companies operating in
the pharmaceutical industry, Hikma is subject to extensive
regulation in all the markets in which it operates. There is
no single worldwide harmonised set of regulations relating
to the development, manufacture and sale of pharmaceutical
products and we are therefore subject to different laws,
regulations and codes depending on the regions or countries
in which our businesses are operating.

In 2006 it is possible that regulatory changes could impact
our businesses. In the United States, the Medicare Act 2003
will be fully implemented in 2006. Implementation is likely
to increase the overall volume of drugs sold, as well as the
government-funded share of existing volumes. Given the
government’s emphasis on containing costs, the generic
share of the overall market should increase by volume albeit
at lower prices. It is very difficult to predict what impact,
if any, implementation of the Medicare Act will have on
Hikma’s profitability.

In early 2006, the Algerian Ministry of Labour and Social
Security Affairs announced changes to its reimbursement
system, including the introduction of reference pricing
for a number of reimbursable products. This new legislation
is expected to impact current pricing of some, but not all,
of our products sold in Algeria. We expect to be able to
minimise the effect of these price declines by introducing new
products and by increasing the sales volume, through greater
promotion of those Hikma products that are on the reference
price list but that have potential for sales growth.

Industry, economic and political dynamics
The Group operates in diverse markets and geographic regions
and is therefore subject to diverse industry, economic and
political dynamics. However, we believe the geographic spread
of our operations gives the Group unique strength and
flexibility and also lessens the impact on the Group’s results
and financial conditions due to disruption in or any other
extraordinary events at any one of our three businesses or a
change in the economic conditions or political environment or
sustained civil unrest in any particular market or country.

22 Hikma Pharmaceuticals PLC

Business and financial review continued

Pricing Dynamics
Pricing for the Groups’ products reflect a variety of factors,
including changes in API and other raw material costs,
intensity of competition, industry practice, governmental
regulation and general market conditions. Generic
pharmaceutical markets in the United States and Europe are
extremely competitive and/or regulated by governments, both
of which result in downward pressure on prices. We aim to
maximise the margins we achieve on our products through
competitive pricing strategies together with initiatives to
minimise raw materials and other manufacturing and
operating costs.

Government tender bids
Whilst the majority of Group sales have been to the private
sector, each of our three businesses participates in government
tenders. The timing and outcome of these tenders are
unpredictable, and the Group’s results could be affected by the
gain or loss of a significant government contract.

Research and development and commercialisation
of new products
The Group’s results of operations may be impacted significantly
by the timeliness of its research and development and product
commercialisation activities. In order to bring a drug to market
successfully, the Group must identify products for which it can
generate attractive margins and growth, undertake the
required research and development and obtain regulatory
approvals. Additional costs may be incurred and sales
opportunities lost if there is any significant delay in any of
these steps. Given the importance of research and
development, Hikma has expanded its investment in research
and development, particularly in Jordan where it can benefit
from lower labour and bio-equivalency costs.

API and other raw material costs
API costs make up a significant portion of our raw material
costs. Whilst the prices of the API that the Group uses have
in general fallen in recent years, these prices are volatile and
can vary significantly from supplier to supplier. In some cases,
increase in API and other raw material costs may not be
able to be passed on to customers and can therefore have
a significant impact on the Group’s results. Hikma has a
dedicated API sourcing function that has been successful in
sourcing lower cost API’s including sourcing through more
competitive suppliers in Asia.

Seasonality
The Group’s business, in particular the Branded
Pharmaceuticals business, is seasonal, and it generally
experiences higher net sales and net profit in the first half of
each financial year, as compared to the second half of its
financial year. Accordingly, the Group’s outstanding borrowings
historically have been higher during the first half of the
financial year to finance the working capital requirements of
the Group.

Timing of payments and concentration of customers
The Group has a significant volume of sales in the MENA
region, where distributors are accustomed to relatively long
credit periods. This is particularly the case in Algeria where
customarily a significant number of customers make payments
with post-dated cheques. The Group’s net accounts receivable
result in significant and variable working capital needs.

Hikma Pharmaceuticals PLC 23

Critical accounting policies and estimates
The Group’s accounting policies are more fully described
in Note 2 to the consolidated financial statements.
However, certain of the Group’s accounting policies
are particularly important to the presentation of the
Group’s results and require the application of significant
judgement by the Group’s management.

In applying these policies, the Group’s management uses its
judgement to determine the appropriate assumption to be
used in the determination of certain estimates used in the
preparation of the Group’s results. These estimates are based
on the Group’s previous experience, the terms of existing
contracts, information available from other outside sources
and other factors, as appropriate.

The Group’s management believes that, among others,
the following accounting policies that involve management
judgements and estimates are the most critical to
understanding and evaluating the Group’s financial results.

Revenue recognition
Revenue represents sales of products to external third parties
and excludes inter-company income and value added taxes.
Sales of goods are recognised when the risk of loss and title
are transferred to customers and reliable estimates can be
made of relevant deductions. The Group’s revenue recognition
policies require management to make a number of estimates,
with the most significant relating to charge backs, product
returns and rebates and price adjustments which vary by
product arrangements and buying groups.

Financial risks

Treasury policy
The Group finances its operations by a mixture of cash flows
from operations, short-term borrowings from banks and longer
term loans from banks. The Group borrows principally in
US Dollars at both floating and fixed rates of interest, using
derivatives, where appropriate, to generate the desired effective
currency profile and interest rate basis. The derivatives used for
this purpose are principally interest rate swaps and forward
foreign exchange contracts. The main risks arising from the
Group’s financial instruments are interest rate risk and foreign
currency risk. These risks are managed by the Chief Financial
Officer and overseen by the Board.

Interest rate risk
The Group manages its exposures to interest rate risks by
changing the proportion of fixed rate debts and variable rates
debts in its total debt portfolio. To manage this mix, the Group
may enter into interest rates swap agreements, in which it
exchanges the periodic payments based on notional amounts
and agreed upon fixed and variable interest rates. Using these
derivative financial instruments has not had a material impact
on the Group’s financial position at 31 December 2005.
See Note 29 to the consolidated financial statements for a
description of the Group’s interest rate risks.

Foreign exchange risk
The majority of Group sales are in US Dollars or currencies
pegged to the US Dollar. The Group’s most significant
foreign currency exposures relate to sales made in Europe,
costs incurred in euro and sales to certain MENA region
countries where currencies are not pegged to the US Dollar,
in particular Algeria.

See Note 29 to the consolidated financial statements for a
description of the Group’s foreign exchange risks.

Inflation risk
Hikma believes it is not subject to material risk due to inflation
in any of its core markets.

24 Hikma Pharmaceuticals PLC

Business and financial review continued

In accordance with industry practice, the Group offers
discounts or allowances to some of its customers or
governmental authorities in the form of rebates, charge backs,
price adjustments, discounts, promotional allowances or other
allowances. Additionally, in certain countries sales may be
made with a limited right of return under certain conditions.
Accruals for these provisions are presented in the financial
statements as reductions to gross sales and accounts receivable
and within other current liabilities.

Provisions for rebates, promotional and other credits
are estimated based on historical payment experience,
estimated customer inventory levels and contract terms and
are made at the time of sale. Provisions for other customer
credits, such as price adjustments, returns and charge backs
require management to make substantive judgements.
The Group has extensive internal historical information on
charge backs, rebates and customer returns and credits which
it uses as the primary factor in determining the related reserve
requirements. The Group believes that this historical data,
in conjunction with periodic review of available third-party
data, updated for any applicable changes in available
information provides a reliable basis for its reserve estimates.
There were no material changes in estimates associated with
aggregate provisions in the years ended 31 December 2004
and 2005. The Group continually monitors the adequacy of
procedures used to estimate these deductions from revenue
by comparison of estimated amounts to actual experience.

Charge backs
The provision for charge backs is the most significant and
complex estimate used in the recognition of revenue. In the
United States, the Group sells its products directly to
wholesalers, generic distributors, retail pharmacy chains and
mail-order pharmacies. The Group also sells its products
indirectly to independent pharmacies, managed care
organisations, hospitals, and group purchasing organisations,
collectively referred to as “indirect customers.” The Group
enters into agreements with its indirect customers to establish
pricing for certain products. The indirect customers then
independently select a wholesaler from which they purchase
the products at agreed-upon prices. The Group will provide
credit to the wholesaler for the difference between the
agreed-upon price with the indirect customer and the
wholesaler’s invoice price. This credit is called a charge back.
The provision for charge backs is based on historical
sell-through levels by the Group’s wholesale customers to the
indirect customers, and estimated wholesaler inventory levels.
As sales are made to the large wholesalers, the Group
continually monitors the reserve for charge backs and makes
adjustments when it believes that actual charge backs may
differ from estimated reserves.

Returns and rebates
In the United States and certain other countries the Group has
a product returns policy that allows some customers to return
product within a specified period prior to and subsequent to
the expiration date, in exchange for a credit to be applied to
future purchases. The Group estimates its provisions for returns
and rebates based on historical experience, changes to
business practices and credit terms. Additionally, the Group
considers, amongst other things, factors such as levels of
inventory in the distribution channel, product dating and
expiration period, and whether products have been
discontinued, and makes adjustments to the provision for
returns and rebates in the event that it appears that actual
product returns may differ from established reserves.

Hikma Pharmaceuticals PLC 25

Price adjustments
Price adjustments, also known as “shelf stock adjustments,”
are credits issued to reflect decreases in the selling prices
of the Group’s products that customers have remaining in
their inventories at the time of the price reduction.
Decreases in selling prices are discretionary decisions made
by management to reflect competitive market conditions.
Amounts recorded for estimated shelf stock adjustments are
based upon specified terms with direct customers, estimated
decreases in market prices and estimates of inventory held by
customers. The Group regularly monitors these and other
factors and evaluates the reserve as additional information
becomes available.

Research and development
Our business is underpinned by our marketed products and
development portfolio. The R&D expenditure on internal
activities to generate these products is charged to the income
statement in the year that it is incurred.

Purchases of intellectual property and product rights to
supplement our R&D portfolio are capitalised as intangible
assets. Such intangible assets are amortised from the launch
of the underlying products and are tested for impairment.
This policy is in line with practice adopted by other major
pharmaceutical companies.

Goodwill and intangible assets
The Group has investments in goodwill and intangible assets
as a result of acquisitions of businesses and purchases of such
assets as marketing rights.

Under IFRS, goodwill is held at cost and tested annually for
impairment, whilst intangibles are amortised over their
estimated useful lives. Estimated useful lives are reviewed
annually and impairment reviews are undertaken if events
occur which indicate an impairment to the carrying values of
the assets.

Contingent liabilities
In the normal course of business, contingent liabilities may
arise from product-specific and general legal proceedings,
from guarantees or from environmental liabilities connected
with our current sites. The Group’s management believes that
potential liabilities have a low probability of crystallising or are
very difficult to quantify reliably, and accordingly are treated
as contingent liabilities. These are not provided for but are
disclosed in the notes. Further details of these contingent
liabilities are set out in Note 38 to the consolidated financial
statements. Although there can be no assurance regarding
the outcome of legal proceedings, we do not expect them
to have a materially adverse effect on our financial position
or profitability.

Tax
The Group provides for income tax according to the laws
and regulations prevailing in the countries where it operates
and the likelihood of settlement. Furthermore, the Group
computes and records deferred tax assets according to IAS 12.
The tax expense represents the sum of the tax currently
payable and deferred tax. The tax currently payable is based on
taxable profit for the year. Taxable profit differs from net profit
as reported in the income statement because it excludes items
of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or
deductible. The Group’s liability for current tax is calculated
using tax rates that have been enacted or substantively
enacted by the balance sheet date.

26 Hikma Pharmaceuticals PLC

Business and financial review continued

Such assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition
(other than in a business combination) of other assets and
liabilities in a transaction that affects neither the tax profit nor
the accounting profit. Deferred tax liabilities are recognised
for taxable temporary differences arising on investments in
subsidiaries and associates, and interests in joint ventures,
except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available
to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the income
statement, except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also dealt
with in equity.

Inventory
Inventories are stated at the lower of cost and net kjs value.
Purchased products are valued at acquisition cost
and all other costs incurred in bringing each product to its
present location and condition. Costs of own-manufactured
products comprise direct materials and, where applicable,
direct labour costs and those overheads that have been
incurred in bringing the inventories to their present location
and condition. In the balance sheet, inventory is primarily
valued at standard cost, which approximates to historical
cost determined on a moving average basis, and this value
is used to determine the cost of sales in the income statement.
Provisions are made for inventories with lower net realisable
value or which are slow moving.

The Group’s inventories generally have a limited shelf life and
are subject to impairment as they approach their expiration
dates. The Group regularly evaluates the carrying value of its
inventories and when, in its opinion, factors indicate that
impairment has occurred, it establishes a reserve against the
inventories’ carrying value. The Group’s determination that a
valuation reserve might be required, in addition to the
quantification of such reserve, requires the Group to utilise
significant judgement.

Accounts receivable and bad debt
The Group estimates, based on its historical experience,
the level of debts that it believes will not be collected.
Such estimates are made when collection of the full amount
of the debt is no longer probable. These estimates are based
on a number of factors including specific customer issues and
industry, economic and political conditions. Bad debts are
written off when identified.

Our people and society
As a listed company quoted on the London Stock Exchange,
Hikma aims to conduct its business in an ethical and socially
responsible manner and to act with integrity and
professionalism. We place great importance on the interests of
all our stakeholders including our employees, our customers,
and our suppliers as well as the communities, and the
environment in which we operate while recognising that our
main accountability is to our shareholders.

During the course of 2006 the Company established an
Ethics Committee to oversee the implementation of high
standards of corporate governance and to monitor the
Group’s relationships with its customers, suppliers and
stakeholders. The committee will ensure that all aspects of
the Group’s business in the markets in which it has operated,
currently operates and will operate, including those which may
be perceived to have less developed standards of governance,
are conducted in accordance with high standards of business
practice and ethical behaviour. To the extent that the Group
receives or has received enquiries regarding its operations,
its policy is to co-operate fully with such requests.

Hikma Pharmaceuticals PLC 27

Future outlook
We believe the progress the Group has made in 2005 leaves
us well-positioned to continue our track record of strong
growth. We have made significant investment in both R&D
and sales and marketing, and through our capital investment
programme, we have expanded our manufacturing facilities.
With 88 pending approvals and 90 products under
development, our pipeline is stronger than ever.

We expect both our Branded and Injectable Pharmaceutical
businesses to deliver strong sales growth in 2006, through
a focus on key products, the launch of new products and
expansion into new markets. Gross margins in our Branded
business are expected to remain stable, and we see scope for
improvement in gross margins in our Injectable business,
through higher utilisation rates and lower fixed manufacturing
expenses as a percentage of sales.

We expect the pricing environment in the United States to
remain competitive. However, we will work diligently to
minimise the effects of this pricing pressure on our Generic
business by introducing new products and retaining our
strategic focus on reducing raw material costs.

We are confident that the strength and diversity of our
business will enable us to continue to deliver strong organic
growth at the Group level. Furthermore, consolidation of our
position in the MENA region remains a key strategic objective
and we will continue to look for opportunities to expand our
operations through acquisitions.

Employees and Health & Safety
Hikma is subject to the environmental, health and safety
laws in the countries where we operate and in particular
where we have manufacturing facilities. These laws govern
activities and operations that may have adverse environmental
and/or health and safety effects such as discharges to air and
water, handling, storage and disposal practices for solid and
hazardous wastes and general health, safety and welfare of
employees and members of the public. Hikma has made, and
will continue to make, expenditures to comply with existing
environmental health and safety laws and new requirements
arising from new or amended statutes and regulations.

Hikma recognises that attracting, retaining and motivating
skilled people is essential to its success. We are committed
to offering equal opportunities to all groups of people
irrespective of background. Our aim is to recruit the best staff
in the industry and we believe in maximising every employee’s
potential. We encourage in-house training and support staff
in further advanced education and professional development
where appropriate.

Hikma takes its responsibility to employee health and safety
very seriously and it is our policy to comply fully with regulatory
requirements and applicable industry best practice.

The Group recognises the benefit of adopting a sustainable
development approach to its operations, and will make
reasonable endeavours to operate within the broad concept
of sustainable development. The Board recognises and
accepts that concern for the environment and all employees
is an integral and fundamental part of our corporate
business strategy.

It is the intention of the Board to review the social and
environmental policies in place across the Group during
2006, with the aim of formalising policies that can be
applied effectively across the Group. In addition, the Board
intends to identify appropriate measures to be used to
monitor our performance against these policies.

28 Hikma Pharmaceuticals PLC

Board of Directors

1 Samih Darwazah
CEO and Chairman, 75

3 Ali Al-Husry
Non-Executive Director, 48

Ali Al-Husry has been a director of
Hikma Pharma Limited and other
companies within the Hikma group since
1991. He is also serving as Chairman
and Chief Executive Officer of Export &
Finance Bank in Jordan. He is also a
director of The Association of Banks
in Jordan, the Jordanian Insurance
Commission and several other
organisations. He brings great financial
experience to the Board as well as an
in-depth knowledge of the MENA
region. Ali has a degree in Mechanical
Engineering from the University of
Southern California and an M.B.A.
from INSEAD, France.

4 Michael Ashton
Independent Non-Executive Director, 60

Michael Ashton was appointed to the
Board in October 2005 and currently
holds the position of Chairman of the
Remuneration Committee. He is also
a member of the Audit Committee
and the Nomination Committee.
Michael is a non-executive director of
SkyePharma PLC.

Samih Darwazah, a qualified pharmacist,
worked for Eli Lilly from 1964 to
1976, before establishing Hikma
Pharmaceuticals Ltd. in 1978. Between
1995 and 1996 he served as Minister of
Energy and Mineral Resources in Jordan.
He also founded the Jordan Trade
Association and was a member of the
Advisory Economic Council to His
Majesty the King of Jordan. Samih holds
a masters degree from the St. Louis
College of Pharmacy, Missouri.

2 Mazen Darwazah
Vice-Chairman, 47

Mazen Darwazah joined Hikma in 1985
as a medical representative and has held
several positions, including Chairman
and CEO of Hikma Pharmaceuticals
Limited – Jordan, Chairman of Trust
Pharma Limited and Pharma Ixir Co. Ltd.
He is a member of the Nomination
Committee. He is a director of Jordan
International Insurance Company, Export
& Finance Bank and of several other
organisations. From 2001 to 2003
he was the president of the Jordanian
Association of Manufacturers of
Pharmaceuticals and Medical Appliances,
and has served as a member of the
Jordanian Higher Education Counsel
from 2003 to 2005. Mazen holds a
degree from Beirut University, Lebanon.

5 Breffni Byrne
Independent Non-Executive Director, 60

Breffni Byrne was appointed to the
Board in October 2005 and currently
holds the position of Chairman of the
Audit Committee. He is also a member
of the Remuneration Committee.
As a Chartered Accountant with over
30 years of experience in public practice,
he has extensive experience in financial
reporting, corporate governance and
general financial and commercial
matters. Breffni is Chairman of NCB
Stockbrokers and a director of Irish Life
and Permanent plc, Coillte Teoranta
(the Irish state forestry company),
Adsteam Europe Limited and
other companies.

6 Sir David Rowe-Ham
Senior independent
Non-Executive Director, 70

Sir David Rowe-Ham was appointed to
the Board in October 2005 and currently
holds the position of Chairman of the
Nomination Committee. He is also a
member of the Audit Committee and
the Remuneration Committee. Sir David,
also a Chartered Accountant, brings to
Hikma a wide experience in financial
matters, corporate governance, public
affairs and the development of listed
companies. He is Chairman of Olayan
Europe Ltd., BNP Paribas South Asia
Investment Co. Limited and Coral
Products PLC.

Hikma Pharmaceuticals PLC 29

Senior management

1 Bassam Kanaan
Chief Financial Officer

Bassam joined Hikma in 2001 and was
previously the CFO of PADICO, a public
shareholding company. He is a board
member of Zara Investments Co. in
Jordan and served as board member
of several large corporations including
PALTEL and CEGCO in Jordan.
He qualified as a CPA in 1989 with
Deloitte & Touche in Los Angeles where
he worked as Audit Manager. He also
qualified as a CFA in 2001. Bassam holds
an Executive M.B.A. from Northwestern
University and B.A. from Claremont
McKenna College in the United States.

2 Nabil Rizk
CEO of Generic Pharmaceuticals and
Head of Group R&D and API Sourcing

Nabil joined the Company in 1991 from
Pioneer Pharmaceuticals, Inc., a division
of Dow Chemical, where he worked as
Vice President of Operations. From 1976
to 1983 he served in various capacities
with Hudson Pharmaceuticals, a division
of Cadence Corporation including as
Manager of Quality Control and Quality
Assurance and Laboratory Supervisor
(Research & Development). Nabil holds
a masters degree in Chemistry from the
New Jersey Institute of Technology
and a B.Sc. in Applied Chemistry from
Cairo University.

3 Taghreed Al-Shunnar
General Manager of Branded
Pharmaceuticals

6 Henry Knowles
General Counsel and Company
Secretary

Henry joined the Company in
September 2005 in anticipation of the
Company’s listing on the London Stock
Exchange. He is admitted as a solicitor
in England and Wales and worked
for the previous ten years at the
international law firm, Ashurst, where
he specialised in Corporate Law, gaining
a wide knowledge of corporate and
commercial issues in both domestic
and international fields. Henry holds
an M.A. in Social and Political Science
from Cambridge University.

7 Susan Ringdal
Investor Relations Director

Susan joined the Company in November
2005, having previously worked for the
pharmaceutical distribution and retail
pharmacy group Alliance UniChem Plc
as Investor Relations Manager.
She also has experience as an equity
analyst at Morgan Stanley in London.
Susan holds a B.A. in History from
Cornell University and an M.B.A from
London Business School.

Taghreed joined the Company in
1988 after graduating from the
University of Jordan with a degree
in Pharmacy. In 1995, she was
made Marketing and Planning Director
of Hikma Pharmaceuticals Limited
and five years later appointed as the
Executive Vice President.

4 Majda Labadi
General Manager of Injectable
Pharmaceuticals

Majda joined the Company in
1985 as a purchasing manager at
Hikma Pharmaceuticals Limited and
held several positions there culminating
in her current appointment in March
2001. Majda holds a masters degree in
Health Economics and a B.A. from the
American University of Beirut.

5 Gabriel Kalisse
General Manager of Generic
Pharmaceuticals

Gabriel took up the position of General
Manager of the Generic Pharmaceuticals
business in 2006. Prior to this, he
held the position of Chief Information
Officer for the Group. Gabriel joined
the Company in 1989 and during
1996–2001 served as the Group Chief
Financial Officer and from 2001 to 2004
as the General Manager of Hikma
Pharmaceuticals Limited – Jordan.
Gabriel holds an M.B.A. from INSEAD.

30 Hikma Pharmaceuticals PLC

Report of the Directors

The Directors are pleased to present their report and audited
financial statements for the year ended 31 December 2005.
For the purposes of this report, “Company” means Hikma
Pharmaceuticals PLC and “Group” means the Company and
its subsidiaries and associated undertakings.

Principal activity
The principal activities of the Group are the development,
manufacture and marketing of a broad range of generic and
in-licensed pharmaceutical products in solid, semi-solid, liquid
and injectable final dosage forms. Hikma’s operations are
conducted through three businesses: Generic Pharmaceuticals,
Branded Pharmaceuticals and Injectable Pharmaceuticals.
The majority of Hikma’s operations are in the United States,
the MENA region and Europe.

The Group’s net sales, gross profit and operating profit are
shown by business segment in Note 3 to the consolidated
financial statements.

Business review and future development
A review of the development of the Group’s business during
the year, its position at the year end, future developments and
business risks are given in the Chairman and Chief Executive’s
review and the Business and financial review.

Results and dividends
The Group’s profit for the year attributable to shareholders
in 2005 was $43.9 million. The Board is recommending
a pro rata final dividend of 0.89 cents per share (approximately
0.5 pence) equivalent to approximately 5.34 cents on a full
year basis. The proposed final dividend will be paid on 30 May
2006 to shareholders on the register on 28 April 2006, subject
to approval at the Annual General Meeting.

Directors and their interests
The names of the Directors as at the date of this report,
together with details of their backgrounds and abilities, are set
out in the Directors’ biographies on page 28. Details of the
independence of Non-Executive Directors are set out in the
Board report on corporate governance on pages 32 to 34.

The Executive Directors served the Group throughout the year,
but were appointed to the Company on its incorporation on
8 September 2005.

Michael Ashton, Breffni Byrne and Sir David Rowe-Ham joined
the Board as Non-Executive Directors on 14 October 2005.
Ali Al-Husry also stepped up from the Board of Hikma Pharma
Limited to the Board of the Company on 14 October 2005.

Details of Directors’ share options are provided in the Board
report on remuneration on pages 37 to 42.

Creditor payment policy
The Company’s policy, which is also applied by the Group, is
to settle terms of payment with suppliers when agreeing the
terms of each transaction, ensure that suppliers are made
aware of the terms of payment and abide by the terms of
payment. Trade creditors of the Company at 31 December
2005 were equivalent to 77 days’ purchases, as compared to
58 days at 31 December 2004, based on the average daily
amount invoiced by suppliers during the year.

Charitable and political contributions
During the year the Group made charitable donations of
approximately $253,500, principally to local charities serving
the communities in which the Group operates. In addition, the
Group contributed approximately $210,000 in medicines to
the Disaster Resource Network of the World Economic Forum
for Tsunami relief efforts.

Hikma does not make political donations.

Share capital
In addition to the 51,311,193 Ordinary Shares issued as part of
the share capital restructuring on the IPO, a further 260,456
Ordinary Shares were issued as a result of the exercise of
the over-allotment option. As at 31 December 2005, the
Company had 693 ordinary shareholders and 166,798,407
ordinary shares in issue. The 49,998 non-voting Redeemable
Preference Shares of £1 each in the capital of the Company
that were issued in conjunction with the incorporation of the
Company have now been redeemed.

Hikma Pharmaceuticals PLC 31

Substantial shareholdings
Since the date of the Company’s IPO, the Company has not
received any notifications pursuant to sections 198 to 208 of
the Companies Act 1985 (Disclosure of interest in shares).
At the time of the IPO, the following interest was established:

Name of holder

Darhold Limited

Number

Percentage
held

52,649,972

31.6%

Auditors and AGM
In the case of each of the persons who are Directors of the
Company at the date when this report was approved:

• so far as each of the Directors is aware, there is no relevant

audit information (as defined in the Companies Act 1985) of
which the Company’s auditors are unaware; and

• each of the Directors has taken all the steps that he ought to

have taken as a Director to make himself aware of any
relevant audit information (as defined) and to establish that
the Company’s auditors are aware of that information.

Deloitte & Touche LLP have expressed their willingness to
continue in office as auditors and a resolution to reappoint
them will be proposed at the forthcoming Annual General
Meeting.

The Annual General Meeting of the Company will be held at
the London Underwriting Centre, 3 Minster Court, Mincing
Lane, London EC3R 7DD on Thursday 25 May 2006, starting
at 11.00 a.m. The Notice convening the meeting is given in a
separate document accompanying this document, and
includes a commentary on the business of the AGM, and
notes to help shareholders exercise their rights at the meeting.

Approved by the Board of Directors and signed on its behalf

Henry Knowles
Company Secretary

32 Hikma Pharmaceuticals PLC

Board report on corporate governance

The Board believes that notwithstanding the Combined Code’s
guidance that the roles of Chairman and Chief Executive
should not be combined, at this important time in the Group’s
development and its transition from private to public company,
the knowledge of the Group’s business and the experience
in guiding it to its current position brought to the Board by
Mr Darwazah justifies his holding both positions.

Each of Michael Ashton, Breffni Byrne, and Sir David
Rowe-Ham are independent Non-Executive Directors.
The fourth Non-Executive Director, Ali Al-Husry, who brings
great financial experience to the Board as well as an in-depth
knowledge of the MENA region which is significant to the
Group’s business, is not treated as being independent as a
result of his close links to the Darwazah family through
Darhold Limited, the Company’s largest shareholder.

The Non-Executive Directors who have diverse business
backgrounds, skills and experience bring independent
judgement to bear on issues of strategy, performance,
resources, key appointments, standards of conduct and other
matters presented. Since its flotation, the Company has
complied with the Combined Code requirement that at least
half of the Board, excluding the Chairman, should comprise
independent Non-Executive Directors.

As set out in the Prospectus, it is the intention of the Board
to recruit a further independent Non-Executive Director to
complement the skills of the existing Directors.

The senior independent Director is Sir David Rowe-Ham.

Board procedures and support
Board procedures provide for timely, regular and necessary
management information to be provided to Directors to
enable them to fulfil their duties, with full Board papers
circulated in advance of all Board and Committee meetings.
The Company Secretary is charged with ensuring good
information flows within the Board and its Committees, so
that adequate information is provided to the Board before
making decisions.

The Directors are able to obtain independent professional
advice at the Company’s expense in the performance of
their duties as Directors. In addition, all Directors have access
to the advice and services of the Company Secretary, who is
responsible for ensuring that good board procedures are
followed and that good corporate governance and compliance
are implemented throughout the Group. The appointment
and removal of the Company Secretary is a matter reserved
for the Board.

Combined Code
The Board is responsible for and committed to meeting the
standards of good corporate governance set out in the
Combined Code on Corporate Governance published by the
Financial Reporting Council in July 2003 (the “Combined
Code”). This report, the Audit Committee report set out on
pages 35 and 36 and the Board report on remuneration set
out on pages 37 to 42 describe how the Board applied the
Combined Code during the year under review. The Combined
Code became effective for the Group on 1 November 2005
as a result of its listing on the London Stock Exchange. Prior to
the IPO, the Group commissioned an independent review of
its corporate governance which formed the basis for a
strengthening of procedures in this area in anticipation of its
obligations as a listed company.

The Listing Rules of the Financial Services Authority require
UK-listed companies to report on their application of the
principles of good governance and the extent of their
compliance with the provisions of the Combined Code.
This statement provides details on how the Group has applied
these principles.

The Board
The Group is led and controlled by the Board of Directors.
Its role is to determine long-term strategy; to monitor the
achievement of business objectives; to ensure the Group has
adequate available resources; to promote good corporate
governance; and to ensure that the Group meets its
responsibilities to shareholders, employers, customers and
other stakeholders. There is a formal schedule of matters
reserved to the Board for consideration and decision.
This includes approval of strategic plans, approval of financial
statements, the annual budget, material investment decisions,
acquisitions and divestments, and review of the effectiveness
of the Group’s system of internal control.

The Board has delegated responsibility for the management
of the Group, through the Chief Executive, to executive
management.

Composition of the board
The Group has ensured that a majority of the Board comprises
Non-Executive Directors. The Board currently comprises of
the Chairman, who is also the Chief Executive, the Executive
Vice Chairman and four Non-Executive Directors. The names
of the Directors and their biographical details are set out on
page 28. The Chief Executive and the Executive Vice Chairman
were appointed to the Board on the incorporation of the
Company on 8 September 2005. Each of the Non-Executive
Directors joined the board on 14 October 2005.

As set out in the prospectus published by the Company in
conjunction with the IPO (the ”Prospectus”), the Company
combines the roles of Chairman and Chief Executive, both
these roles being held by Samih Darwazah, the founder
of the Group.

Hikma Pharmaceuticals PLC 33

Board meetings
Since incorporation of the Company on 8 September 2005
and during the period under review, the Board met on four
occasions, with one of those meetings held since the IPO.
The Company Secretary attended all Board Meetings and
Committee Meetings. A table showing attendance at these
meetings is set out below.
Meeting
record

Board Audit Remuneration Nomination

Number of
meetings
Samih Darwazah
Mazen Darwazah
Ali Al Husry
Michael Ashton
Breffni Byrne
Sir David
Rowe-Ham

4
4
4
3*
3*
3*

1
–
–
–
1
1

–
–
–
–
–
–

–

*The Non-Executive Directors have attended all meetings since their appointment.

The Board maintains a close dialogue between Board meetings,
ensuring that, amongst other things, the Non-Executive
Directors are kept up to date with major developments in
the Group’s business.

Board performance evaluation
All Directors will be subject to election by shareholders at the
first Annual General Meeting, and to re-election thereafter
at intervals of no more than three years. The Non-Executive
Directors have been appointed for an initial term of three
years, which can be renewed and extended for not more
than two further three-year terms.

The Chairman believes that the Non-Executive Directors bring
a balance of skill and experience to the Board, and in the short
time since the IPO have shown themselves to discharge their
roles effectively and with commitment to the strategic aims of
the Group. Biographies of the Non-Executive Directors are set
out on page 28. As the Directors were only appointed late in
2005, formal evaluation of the performance of the Board, the
Chairman, the Committee Chairmen and individual Directors
was not undertaken during the period under review.

Executive Directors’ service arrangements
The Chief Executive and the Executive Vice Chairman each
have letters of appointment with the Company. In addition
they hold their executive positions with the Group under
applicable Jordanian labour regulations. The executive
employment arrangements are for an indefinite term and,
in accordance with Jordanian labour law, are terminable by
either party on one month’s notice. Further details are given
in the Board report on remuneration.

Dialogue with shareholders
Communication with shareholders is a high priority and in
addition to presentations at the time of the release of the
annual and interim results, a regular dialogue with institutions
is planned.

The Chief Financial Officer and other senior corporate
executives have made a number of structured presentations to
investors between the IPO and the year-end.

The principal ongoing communication with shareholders will
be through the publication of the Company’s Annual Report
and Accounts and Interim Results, together with the
opportunity to question the Board and Committees at the
Annual General Meeting. The Company maintains a website
(www.hikma.com) containing financial and other information
which, following the required publicity blackout period after
the IPO, is updated regularly. Additionally, the Company
intends to present a balanced view of the Group’s
performance and prospects through the release of appropriate
press announcements.

The Board will be kept apprised of the views of shareholders
and the market in general through the feedback from the
meeting programme and results presentations. Analysts’
reports are also circulated to the Board members. The senior
independent Director has undertaken to be available to
shareholders if they have a concern that cannot be
appropriately addressed through the Chairman/Chief
Executive.

Board Committees
In accordance with the principles of good corporate
governance and in compliance with the Combined Code,
at the time of the IPO the Board established three committees
– the Audit Committee, Nomination Committee and
Remuneration Committee. The Group also has an Executive
Committee comprising the Executive Directors and senior
corporate management.

Each of the three Combined Code committees has terms of
reference, which were adopted at the time of the IPO and
will be reviewed at least yearly. Copies are published on the
corporate website at www.hikma.com. Their Chairmen give
reports of the committees’ business to the Board.

Nomination Committee
The Nomination Committee consists of two independent
Non-Executive Directors – Sir David Rowe-Ham (Committee
Chairman) and Michael Ashton – and the Executive
Vice Chairman, Mazen Darwazah. As required by the
Combined Code, the majority of the members of the
Committee are independent Non-Executive Directors and an
independent Non-Executive Director holds the Chairmanship
of the committee.

34 Hikma Pharmaceuticals PLC

Board report on corporate governance continued

The Nomination Committee is responsible for succession
planning and for ensuring that all appointments to the Board
are made on objective criteria. In accordance with its terms of
reference, the committee is required to take into account the
skills, knowledge and experience of the Board in making its
decisions and is able to use external search firms or open
advertising to compile shortlists of candidates for the Board.
It is also charged with reviewing the appropriateness of the
size, structure and composition of the Board.

Because the IPO did not occur until the beginning of
November 2005, the Nomination Committee did not meet in
the period under review.

Remuneration Committee
The Remuneration Committee consists of the Company’s
three independent Non-Executive Directors – Michael Ashton
(Committee Chairman), Breffni Byrne and Sir David
Rowe-Ham – and consequently complies with the Combined
Code membership requirements.

The committee met once between the IPO and the year end
(with full attendance), and intends to meet at least twice a
year in the future. The committee is responsible for setting and
reviewing executive remuneration and that of the Company
Secretary and is able to take external advice from consultants
when required. A full report on the role of the Remuneration
Committee is set out in the Board report on remuneration
on pages 37 to 42.

Audit Committee
The Audit Committee consists of the Company’s three
independent Non-Executive Directors – Breffni Byrne
(Committee Chairman), Michael Ashton and Sir David
Rowe-Ham – and consequently complies with the Combined
Code membership requirements.

The committee met once between the IPO and the year end
(with full attendance), and intends to meet at least three times
a year in the future. A full report of the role of the Audit
Committee and the details of how it carried out its duties
is set out in the Audit Committee report on pages 35 and 36.

Executive Committee
The Group also has an Executive Committee, made up of
the Executive Directors and other senior management of
the Group, which oversees the day to day operation of the
Group’s major manufacturing subsidiaries, implements the
decisions of the Board, and makes recommendations for the
Board’s approval.

Internal Control
The Board has overall responsibility for the Group’s systems of
internal control and risk management. It is also responsible for
monitoring the effectiveness of these systems on an ongoing
basis. The system of internal control provides reasonable but
not absolute assurance against material misstatement or loss.

The key elements are as follows:

• an organisation structure with clear operating and reporting
procedures, authorisation limits, segregation of duties and
delegated authority;

• annual budgets and long-term plans for the Group that
identify risks and opportunities which are reviewed and
approved by the Board;

• a comprehensive system of internal financial reporting which

includes regular comparison of financial results and key
performance indicators against budget;

• a clearly defined process for controlling capital expenditure

including appropriate authorisation levels, which is approved
by the Board on an ongoing basis; and

• written policies on procedures for all material

functional areas.

During 2005 in anticipation of its obligations as a listed
company, the Group commissioned Ernst & Young to
undertake a top-level risk assessment review, followed by a
review of financial and operating controls at the principal
subsidiaries. Their findings have been reviewed by the Audit
Committee and the results communicated to the Board.

Following on from the above projects, the Board (on the
recommendation of the Audit Committee) has now appointed
Ernst & Young to manage and execute the Group’s internal
audit function on a group-wide basis for a period of three
years. This will involve a risk-driven approach to internal audit
which will be overseen by the Audit Committee with ongoing
reviews of risk identification, internal controls and systems in all
major business areas with regular reporting of findings to the
Audit Committee. Ernst & Young will have direct access to the
Audit Committee and the Board Chairman.

The Board believes that with these arrangements now in
place, the Group has addressed the requirements of “Internal
Control” Guidance for Directors on the Combined Code (the
“Turnbull Guidance”). The Board also confirms that a review
of the effectiveness of the Group’s systems of internal controls
was conducted during the year.

Audit Committee report

The Combined Code requires that this Annual Report
separately describes the work of the Audit Committee and
how it discharges its responsibilities.

On 31 October 2005, the Board established an Audit
Committee to oversee financial reporting and internal control
matters and to maintain appropriate relationships with the
Company’s auditors. Hikma’s Audit Committee comprises
three members – Breffni Byrne, Michael Ashton and
Sir David Rowe-Ham – all of whom are independent
Non-Executive Directors, and whose qualifications are set out
on page 28. The committee is chaired by Breffni Byrne, who is
a Chartered Accountant and who is considered by the Board
to have recent and relevant financial experience. No members
of the committee have links with the Company’s external
auditors. The Company therefore considers that it complies
with the Combined Code recommendation regarding the
composition of the Audit Committee. The committee
chairman receives additional remuneration to compensate
him for his additional responsibilities.

The Audit Committee assists the Board in discharging its
responsibilities with regard to financial reporting, external and
internal audit and control, including reviewing the Company’s
annual financial statements, reviewing and monitoring the
extent of the non-audit work undertaken by external auditors,
and reviewing the effectiveness of the Company’s internal
audit activities, internal controls and risk management
systems. The Audit Committee is also responsible for making
recommendations to the Board on the appointment,
reappointment and removal of the external auditors,
as well as the effectiveness of the audit process. The ultimate
responsibility for reviewing and approving the annual
report and accounts and the half-yearly reports remains
with the Board.

Hikma Pharmaceuticals PLC 35

The Audit Committee terms of reference, approved by the
Board on 31 October 2005, clearly set out its authority and
duties. These can be found on the Company’s website at
http://investors.hikma.com/hikma/governance.jsp and are
summarised as follows:

• monitor the integrity of the financial statements and any

other formal announcement relating to the Group’s financial
performance and review summary financial statements and
significant financial returns to regulators;

• review and challenge accounting policies and accounting for

significant or unusual transactions;

• review and challenge the adoption of accounting standards,
estimates and judgements and the clarity of disclosure in
financial reports;

• review and challenge compliance with stock exchange,

UK Listing Authority and legal requirements including the
requirements of the Combined Code;

• review arrangements for employees to raise concerns, in

confidence, about possible wrongdoing in financial reporting
or other matters;

• monitor and review the internal financial controls and the

Group’s overall risk identification and management systems;

• consider and approve the remit and effectiveness of the
internal audit function, its annual plan, its resources and
access to information and its freedom from management
or other restrictions;

• review and monitor management’s responsiveness to the
findings and recommendations of the internal auditors;

• consider and make recommendations for appointment,
reappointment and removal of the Company’s external
auditor, and oversee the relationship with the external
auditor;

• review and monitor the quality, independence and objectivity

of the external auditor (accounting for relevant UK and
professional regulatory requirements) and approve their
remuneration and terms of engagement;

• develop and implement a policy on the supply by the

external auditor of non-audit services, taking into account
relevant ethical guidance and potential conflicts of interest.

36 Hikma Pharmaceuticals PLC

Audit Committee report continued

Insurance
The Company maintains an appropriate level of Directors’ and
Officers’ insurance in respect of action taken against Directors.

Compliance with the provisions of the Combined Code
Between the IPO and the year end, the Company applied
the principles of the Combined Code, with the following
exceptions:

Combined Code provisions A2.1, A2.2: the Combined Code
requires that the positions of Chairman and Chief Executive
are separate, with an independent Chairman leading the
Board. For the reasons outlined above, the founder of the
Group, Mr Samih Darwazah, currently occupies both roles.

Combined Code provisions A4.1, B2.1, C3.3: the Company
adopted terms of reference for each of the Audit,
Remuneration and Nomination Committees at the time of
its IPO, but for technical reasons these were not displayed
on the Company’s website until after the year end.

Combined Code provision C.3.4: Because of the short period
of time between the IPO and the year end, arrangements by
which staff may, in confidence, raise concerns about possible
improprieties in financial reporting or other matters had
not been put in place. The Board plans to introduce such
arrangements in 2006.

Going concern
The Board believes that the Group has adequate resources to
continue operating for the foreseeable future. For this reason,
it will adopt the going concern basis in preparing the accounts.

The Audit Committee will formally meet at least three times
per year and otherwise as required. The Chief Executive, the
Chief Financial Officer, other Directors and representatives from
the finance function may be invited to attend meetings of the
Audit Committee, from time to time as appropriate.

The Audit Committee met once between the date of the IPO
and the year end, with the Chief Financial Officer, the
Company Secretary and the external auditor in attendance.
In accordance with the Combined Code, during this meeting
the Audit Committee also met with the Group’s external
auditor without executive management present.

The committee reviewed the external audit plan for 2005
and the planned approach for internal audit for 2006.
The committee also reviewed the results of a top-level risk
assessment along with reviews of internal controls, both at
Group level and for the principal subsidiaries, which had
been undertaken by Ernst & Young during 2005.

In addition, the Audit Committee Chairman has met with the
external auditor at the principal subsidiaries in the United
States and Jordan and also met with Ernst & Young who
have been appointed for a three year period to manage and
execute the Group’s internal audit function.

Attendance of members at committee meetings is shown in
the Board report on corporate governance.

The Audit Committee has adopted a policy in relation to
the provision of non-audit services by the external auditor.
Fees paid in respect of audit, audit-related and non-audit
services are outlined in Note 4 to the consolidated financial
statements. Audit-related services are services carried out
by the external auditor by virtue of its role as auditor and
principally include assurance-related work, accounting advice
and other procedures associated with the IPO.

In line with best practice the external auditor does not provide
services such as information system design and valuation or
advocacy work which could be considered to be inconsistent
with the audit role. The committee has reviewed the
non-audit services provided by the external auditor and is
satisfied that the nature of these services has not compromised
the auditor’s independence.

Hikma Pharmaceuticals PLC 37

Board report on remuneration

This report has been prepared in accordance with
the Directors’ Remuneration Report Regulations 2002
(the “Regulations”). The report also meets the relevant
requirements of the Listing Rules of the Financial Services
Authority and describes how the Board has implemented
the principles of Good Governance relating to Directors’
remuneration. As required by the Regulations, a separate
resolution to approve this report will be proposed at the
Annual General Meeting of the Company at which the annual
accounts for the corresponding financial year will be laid.

The Regulations require the auditors to report to shareholders
on the “auditable part” of the Board report on remuneration,
and state whether in their opinion that part of the report has
been properly compiled in accordance with the Companies
Act 1985 (as amended by the Regulations). The report has
therefore been divided into separate sections for unaudited
and audited information.

Unaudited Information

Remuneration Committee
At the time of the IPO, the Group established a Remuneration
Committee comprising three members – Michael Ashton
(Committee Chairman), Breffni Byrne and Sir David
Rowe-Ham – all of whom are independent Non-Executive
Directors. The Company therefore considers that it complies
with the Combined Code recommendations regarding
the composition of the Remuneration Committee. None
of the committee members has any personal financial interest
(other than as shareholders), conflicts of interest arising from
cross-directorships or day-to-day involvement in the running
of the business.

The Remuneration Committee’s role is to assist the Board in
determining its responsibilities in relation to remuneration,
including making recommendations to the Board on the
Company’s policy on executive remuneration, determining
the individual remuneration and benefits package of each of
the Executive Directors and recommending and monitoring
the remuneration of senior management below Board
level. The Board is then responsible for implementing the
recommendations and agreeing the remuneration packages
of individual Directors.

The Remuneration Committee will also be responsible for
making recommendations for the grants of awards under
any employee stock option plans. In accordance with the
committee’s terms of reference, no Director may participate
in discussions relation to his own terms and conditions of
remuneration. Subject to the limits set out in the Company’s
Articles of Association, Non-Executive Directors’ fees are
determined by the full Board.

Remuneration policy for Executive Directors
The aim of the Group’s remuneration policy is to maximise the
position of the Group in the global pharmaceutical sector by
attracting, retaining and motivating the highest calibre of
Executive Directors and senior executives with the relevant skills
to achieve its business objectives. It will also seek to align the
rewards of those individuals with the interests of shareholders
by linking part of their remuneration package to personal
performance and the success of the Group.

Determination of any discretionary element of the Executive
Directors’ remuneration package and the future measurement
of their performance is undertaken by the Remuneration
Committee. Remuneration packages for Executive Directors
will be reviewed annually with the aim of referencing
these to those of other companies of similar size, activities
and complexity.

The remuneration package for Executive Directors comprises
the following elements:

• a basic salary;

• director’s fees;

• a performance-related annual cash bonus;

• share-related incentive schemes;

• benefits in kind; and

• post employment benefits.

As described below, a significant proportion of Executive
Directors’ remuneration is discretionary.

Basic salary
The basic salaries of the Executive Directors aim to be
competitive with those of Directors and executives in similar
positions and be appropriate and competitive with regard to
the responsibilities involved.

The Remuneration Committee intends to conduct a full review
of salaries during the course of 2006 and will implement a
formal salary review system for Executive Directors. In deciding
on appropriate levels of remuneration the committee intends
to consider the Group as a whole and the responsibilities of
the Executive Directors within the Group. Additionally, the
committee will take account of the opinions of external
consultants in the conduct of the salary review, to help gain
an objective view on the appropriate levels and structure of
executive remuneration.

Director’s fees
As part of their remuneration, each of the Executive Directors
receives Director’s fees in respect of their position as a Director
of the Company.

38 Hikma Pharmaceuticals PLC

Board report on remuneration continued

Performance-related annual cash bonus
The Remuneration Committee believes that incentive
compensation awarded should be tied to personal
performance, the interests of the shareholders and the
achievement of the Company’s strategic goals. Historically,
bonus payments have been assessed on the basis of personal
and Group performance, and have comprised a significant
proportion of executive remuneration.

During the course of 2006, the parameters for bonus awards
will be further reviewed by the committee and expanded to
take into account a broader spectrum of key performance
indicators, to further align bonuses with the success of the
Company and the interests of shareholders.

Other benefits
The Company provides other benefits in line with market
practice. These principally include medical insurance/coverage,
life insurance, and a company car.

Long-term incentives

Hikma Pharmaceuticals PLC 2004 Stock Option Plan
In October 2004, the Executive Directors were granted options
over shares in Hikma Pharma Limited, a Jersey company (now
a subsidiary of the Company) pursuant to the Hikma Pharma
Limited 2004 Stock Option Plan (the “2004 Plan”), which is
open to all Directors and employees of the Group. Under the
2004 Plan, options were awarded to qualifying employees on
the basis of their anticipated contribution to the development
of the Group. The exercise of options granted under the Plan
was not dependent on any performance criteria. However,
vesting and exercise of all options under the 2004 Plan was
conditional on the successful listing of the Company’s shares
on the London Stock Exchange. At the time of the IPO,
the 2004 Plan was renamed the Hikma Pharmaceuticals PLC
2004 Stock Option Plan, and awards over shares in
Hikma Pharma Limited were converted to options over
shares in the Company.

In line with institutional guidelines, it is the policy of the
Remuneration Committee that the exercise price for new
options granted under the 2004 Plan should be market price
at the date of grant.

Hikma Pharmaceuticals PLC 2005 Long-Term Incentive Plan
At the time of the IPO, the Company adopted the Hikma
Pharmaceuticals PLC 2005 Long-Term Incentive Plan (“LTIP”),
pursuant to which awards may be made to Executive Directors
and senior management. The LTIP was implemented to give
the Group the opportunity to further incentivise Directors and
senior management and link their long-term interests with
those of the Group. The LTIP also supplements the Hikma
Pharmaceuticals PLC 2004 Stock Option Plan, which was
adopted in October 2004.

No awards have been made under the LTIP, and during the
course of 2006 the Remuneration Committee will review the
key performance criteria for awards thereunder. Awards to
Directors will be made at the discretion of the Remuneration
Committee.

The Company does not operate any long-term incentive
schemes other than those detailed above. There are no
amendments proposed to be made to the terms and
conditions of any entitlement of any Executive Director to
share options.

It is intended that the Remuneration Committee will fully
review the Group’s policy on the award of share options and
other long-term incentives during the course of 2006.

Post-employment benefits

Government Social Security
Pursuant to applicable law, each of the Executive Directors
receives contributions as a percentage of salary which are paid
by the Group into government social security systems.

Hikma Pharmaceuticals Defined Contribution Retirement
Benefit Plan (Jordan)
The Executive Directors participate in the Hikma
Pharmaceuticals Defined Contribution Retirement Benefit Plan
(the “Benefit Plan”) in accordance with the Rules of the
Benefit Plan relevant to employees of the Group based in
Jordan. Under the Benefit Plan the Group matches employee
contributions made to the Benefit Plan. These are fixed at 5%
of applicable salary. Participants are entitled to 30% of the
Group’s contributions to the Benefit Plan after three years of
employment with the Group, and 10% in each subsequent
year. The participant’s interest in the Group’s contribution fully
vests after ten years of employment.

The assets of the Benefit Plan are held separately to those of
the Group. The only obligation of the Group in respect of the
Benefit Plan is to make the specified contributions.

Hikma Pharmaceuticals PLC 39

During the course of 2006 the Remuneration Committee will
review the Company policy on Executive service agreements,
including formalising the Group’s policy on notice periods.
It is anticipated that this will be in line with the guidelines laid
down in the Combined Code on Corporate Governance.

During the period under review, the Chairman/Chief Executive
and the Executive Vice Chairman held their executive positions
with the Group under applicable Jordanian labour regulations.
Their appointments are for an indefinite term and, in
accordance with Jordanian labour law, are terminable by either
party on one month’s notice.

The Chairman/Chief Executive and the Executive
Vice Chairman also receive remuneration pursuant to letters
of appointment with the Company for the provision of their
services as Chairman and Vice Chairman of the Company,
respectively. The annual remuneration under each of
these letters of appointment is $69,840 (£40,000).
The appointments, which took effect from 14 October 2005,
are for an initial period of up to 36 months, following
which the appointments will be reviewed on a yearly basis.
Continuation of the appointments is dependent on satisfactory
performance and, where appropriate, re-election at Annual
General Meetings. These letters of appointment would
terminate immediately on the termination of the relevant
Executive Director’s service arrangements.

In the event of termination of the existing service
arrangements in respect of the Chairman/Chief Executive,
compensation of one month of basic salary for each year of
employment with the Group and interests in the Benefit Plan
would be payable. This amount would not exceed one year’s
salary and benefits. In the event of termination of the
existing service arrangements in respect of the Executive
Vice Chairman, compensation would be payable in respect
of accrued salary up to resignation, accrued vacation and
interests in the Benefit Plan. The Letters of Appointment can
be terminated without payment by the Company, other than
in respect of accrued fees and expenses properly incurred.

Both Mr Samih Darwazah and Mr Mazen Darwazah who,
during the period under review, did not have formal service
agreements, will be proposed for re-election at the Annual
General Meeting.

Total shareholder return
The following graph shows the Company’s performance,
measured by total shareholder return for the period
1 November 2005 to 31 December 2005. The performance is
compared with the performance of the FTSE 250 Index also
measured by total shareholder return. The FTSE 250 Index
has been chosen on the basis that it is a recognisable
reference point and the main index in which the Company’s
shares are included.

Total shareholder return
(pence, rebased to 100)

Hikma
FTSE 250

140

130

120

110

100

31 Oct

7 Nov 14 Nov

21 Nov

28 Nov 5 Dec 12 Dec 19 Dec

26 Dec

30Dec

Source: Bloomberg

Shareholding policy
The Company encourages Directors to hold shares in the
capital of the Company. However, in line with the provisions of
the Combined Code on Corporate Governance, Non-Executive
Directors do not participate in the share option or long-term
incentive plans of the Company. A table setting out the
Directors’ interests in the share capital of the Company is set
out in the audited section of this report.

Service arrangements
It is the intention of the Committee that prior to the
Annual General Meeting the Chairman/Chief Executive and
the Executive Vice Chairman will enter into new service
agreements further formalising the terms of their appointment
and setting out a notice period of one year for each
appointment. It is anticipated that the letters of appointment
to the Board of the Company would be terminated without
the payment of compensation on execution of the new service
agreements. It is intended that, on termination of the new
service agreements the maximum amount of compensation
payable to an Executive Director would be an amount of salary
and benefits corresponding to the notice period.

40 Hikma Pharmaceuticals PLC

Board report on remuneration continued

Non-Executive Directors
All Non-Executive Directors have specific terms of engagement. Their remuneration is determined by the Board within the limits
set by the Articles of Association and based on the level of fees paid to Non-Executive Directors of similar companies.

Each of the Non-Executive Directors has a letter of appointment with the Company. Each appointment is terminable on one
month’s notice from either the Company or the Director, but is envisaged to be for an initial period of up to 36 months.
Continuation of the appointment is dependent on satisfactory performance and, where appropriate, re-election at Annual
General Meetings. The basic fee paid to each of the Non-Executive Directors is $61,111 (£35,000).

The Non-Executive Directors receive further fees as follows: Mr. Ashton: $8,731 (£5,000) for Chairmanship of the Remuneration
Committee; Sir David Rowe-Ham; $8,731 (£5,000) for the Chairmanship of the Nomination Committee; and Mr. Byrne: $20,953
(£12,000) for the Chairmanship of the Audit Committee. Each of the Non-Executive Directors is reimbursed expenses incurred
properly and reasonably in the performance of their duties and attendance at Board meetings. The Non-Executive Directors
do not participate in the Group’s stock option plans. Each of the non-executive directors was appointed to the Board on
14 October 2005.

Each of the Non-Executive Directors, who do not have service contracts, will be proposed for re-election at the next Annual
General Meeting.

Audited information

Aggregate Directors’ remuneration for 2004/2005
The total amounts for directors’ remuneration were as follows:

Emoluments
Compensation for loss of office
Gains on exercise of share options
Amounts receivable under long-term incentive schemes
Money purchase pension contributions

Total

Directors’ emoluments and compensation

2005
$

1,526,936
–
–
–
–

2004
$

1,420,194
–
–
–
–

1,526,936

1,420,194

Director

Executives
Mr Samih Darwazah
Mr Mazen Darwazah

Non-Executives
Mr Michael Ashton*
Mr Ali Al-Husry*
Mr Breffni Byrne*
Sir David Rowe-Ham*

Fees/
Basic salary
$

Other
benefits
$

Annual
bonuses
$

2005
Total
$

2004
Total
$

375,818
280,128

54,691
48,979

500,000
200,000

930,509
529,107

911,549
509,087

14,881
20,073
17,485
14,881

–
–
–
–

14,881
20,073
17,485
14,881

–
11,283
–
–

Aggregate emoluments

723,266

103,670

700,000

1,526,936

1,431,477

*The emoluments of Mr Michael Ashton, Mr Breffni Byrne and Sir David Rowe-Ham are pro-rated from their date of appointment. The emoluments of
Mr Samih Darwazah, Mr Mazen Darwazah and Mr Ali Al-Husry include their emoluments as Directors of Hikma Pharma Limited.

Hikma Pharmaceuticals PLC 41

Directors’ post-employment benefits
Each of the Executive Directors received contributions to the Hikma Pharmaceuticals Defined Contribution Retirement Benefit
Plan (Jordan) during the year under review. The contributions paid by the Group were as follows:

Director

Mr Samih Darwazah
Mr Mazen Darwazah

Directors’ interests in shares

Executives:
Mr Samih Darwazah
Mr Mazen Darwazah

Non-Executives:
Mr Michael Ashton
Mr Ali Al-Husry
Mr Breffni Byrne
Sir David Rowe-Ham

Total Shares

2005
$

5,042
4,192

2004
$

3,388
3,899

Preference shares of £1

Ordinary shares of 10 pence

Interests as at
Interests on appointment 31 December
2005

as a director

8 September 2005
–
–

14 October 2005
–
–
–
–

24,999
24,999

–
–
–
–

Interests as at

Interests as at
1 January 2005 or on 31 December
2005

appointment as a director

1 January 2005

10,148,272*
5,986,612*

1,074,506
561,958

14 October 2005
–

1,309,748*

–
–

–
1,109,748
10,000
10,000

–

49,998

17,444,632

2,766,212

*Interests of the Executive Directors and Ali Al-Husry have been shown as of 1 January 2005 and have been adjusted to take account of the share for share
exchange of Hikma Pharma Limited shares for Hikma Pharmaceuticals PLC shares and the share re-organisation undertaken on 31 October 2005 by the Company in
connection with the IPO.

The Preference Shares held by the Executive Directors as at 31 December 2005 were redeemed by the Company on 9 February
2006. Otherwise, there have been no changes in the Directors’ interests share capital between the 31 December and the date
of this document.

Directors’ share options
The aggregate emoluments disclosed above do not include any amounts for the value of options to acquire Ordinary Shares in
the capital of the Company granted to or held by the Executive Directors.

Options granted under the 2004 Plan are not subject to performance criteria, though vesting of options under the 2004 Plan
was conditional on the successful listing of the Company’s share on the London Stock Exchange. Options became exercisable
for the first time under the 2004 Plan during the period under review. However, no options were exercised by Directors during
the year and no options expired unexercised. Furthermore, there were no variations to the terms and conditions of share options
during the year.

42 Hikma Pharmaceuticals PLC

Board report on remuneration continued

Hikma Pharmaceuticals PLC 2004 Stock Option Plan

Number of options

Director

As at
appointment 31 December
2005
as a director*

Exercise price
($)

Price paid
for award

Date of
exercise† Date of Expiry

Mr Samih Darwazah

1,600,000

0.9075**

Mr Mazen Darwazah

800,000

0.9075**

– 1 November
2005
– 1 November
2005

11 October
2014
11 October
2014

*Share Options shown on appointment as a Director represent options under the 2004 Plan held over shares in Hikma Pharma Limited prior to its acquisition by
Hikma Pharmaceuticals PLC in connection with the listing on the London Stock Exchange. Option numbers have been adjusted to take account of the share
re-organisation undertaken by the Company on 31 October 2005 in connection with the IPO.

**Representing the Exercise Price of options following the share re-organisation undertaken on 31 October 2005. Options were awarded on 12 October 2004 with
an Exercise price of $3.63.

†Share Options became exercisable following the successful listing of the Company’s shares on the London Stock Exchange. Options under the 2004 Plan have
phased vesting over five years, with 20% vesting each year on the anniversary of award.

The closing market price for the ordinary shares on 30 December 2005 was 404.75 pence. During the period from 1 November
2005 to the year end the share’s closing price ranged from a low of 277 pence to a high of 404.75 pence.

Long-term incentive schemes
No awards have been made under the Hikma Pharmaceuticals 2005 Long-Term Incentive Scheme.

Audit
The emoluments and Directors’ interests’ information disclosed in the Board report on remuneration, which is required
by Part 3 of Schedule 7A of the Companies Act 1985 (as amended), has been audited.

This report was approved by the Board of Directors on 28 March 2006 and signed on its behalf

Michael Ashton
Chairman of the Remuneration Committee

Hikma Pharmaceuticals PLC 43

Statement of Directors’ responsibilities

Directors’ statements of responsibility in relation to the
consolidated financial statements.

The Directors confirm that the financial statements comply
with these requirements.

The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time
the financial position of the Group, for safeguarding the
assets, for taking reasonable steps for the prevention and
detection of fraud and irregularities and the preparation of
a Directors report and Directors’ remuneration report which
comply with the requirements of the Companies’ Act 1985.

The Directors are responsible for the maintenance and
integrity of the Company’s website where the Group’s
Annual Report and accounts are available. Information
published on the internet is accessible in many countries
where legal requirements may differ from the United
Kingdom’s legislation relating to the preparation and
dissemination of financial statements.

The Directors are required by law to prepare consolidated
financial statements of Hikma Pharmaceuticals PLC and its
subsidiaries (together “the Group”) in accordance with the
Companies’ Act 1985, International Financial Reporting
Standards and Article 4 of the IAS regulation.

The Directors are responsible for preparing the Annual
Report and the financial statements.

International Accounting Standard 1 requires that the
financial statements present fairly for each financial year the
Group’s financial position, financial performance and cash
flows. This requires the faithful representation of the effects
of transactions, other events and conditions 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 International
Financial Reporting Standards. 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; and

• provide additional disclosures when compliance with the
specific requirements of IFRS is insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the Group’s financial position
and financial performance.

44 Hikma Pharmaceuticals PLC

Independent auditors’ report to the members of
Hikma Pharmaceuticals PLC

We have audited the Group financial statements of Hikma
Pharmaceuticals PLC for the year ended 31 December 2005
which comprise the consolidated income statement, the
consolidated statement of recognised income and expenses,
the consolidated balance sheet, the consolidated cash flow
statement, and the related Notes 1 to 44. These Group
financial statements have been prepared under the accounting
policies set out therein. We have also audited the information
in the Directors’ remuneration report that is described as
having been audited.

We have reported separately on the individual company
financial statements of Hikma Pharmaceuticals PLC for the
year ended 31 December 2005.

This report is made solely to the Company’s members, as a
body, in accordance with section 235 of the Companies Act
1985. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are
required to state to them in an auditors’ report and for no
other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than
the Company and the Company’s members as a body, for
our audit work, for this report, or for the opinions we
have formed.

Respective responsibilities of Directors and auditors
The Directors’ responsibilities for preparing the Annual Report,
the Directors’ remuneration report and the Group financial
statements in accordance with applicable law and International
Financial Reporting Standards (IFRS) as adopted for use in the
European Union are set out in the statement of Directors’
responsibilities.

Our responsibility is to audit the Group financial statements
and the part of the Directors’ remuneration report described as
having been audited in accordance with relevant United
Kingdom legal and regulatory requirements and International
Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the Group
financial statements give a true and fair view in accordance
with the relevant financial reporting framework and whether
the Group financial statements and the part of the Directors’
remuneration report described as having been audited have
been properly prepared in accordance with the Companies Act
1985 and Article 4 of the IAS Regulation. We report to you if,
in our opinion, the Directors’ report is not consistent with the
Group financial statements. We also report to you if we have
not received all the information and explanations we require
for our audit, or if information specified by law regarding
Directors’ transactions with the Company and other members
of the Group is not disclosed.

We also report to you if, in our opinion, the Company has
not complied with any of the four Directors’ remuneration
disclosure requirements specified for our review by the Listing
Rules of the Financial Services Authority. These comprise the
amount of each element in the remuneration package and
information on share options, details of long-term incentive
schemes, and money purchase and defined benefit schemes.
We give a statement, to the extent possible, of details of any
non-compliance.

We review whether the corporate governance statement
reflects the Company’s compliance with the nine provisions of
the 2003 FRC Combined Code specified for our review by the
Listing Rules of the Financial Services Authority, and we report
if it does not. We are not required to consider whether the
Board’s statement on internal control covers all risks and
controls, or form an opinion on the effectiveness of the
Group’s corporate governance procedures or its risk and
control procedures.

We read the Directors’ report and the other information
contained in the Annual Report for the above year as
described in the contents section including the unaudited part
of the directors’ remuneration report and we consider the
implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the
Group financial statements.

Hikma Pharmaceuticals PLC 45

Basis of audit opinion
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis,
of evidence relevant to the amounts and disclosures in the
Group financial statements and the part of the Directors’
remuneration report described as having been audited. It also
includes an assessment of the significant estimates and
judgements made by the Directors in the preparation of the
Group financial statements, and of whether the accounting
policies are appropriate to the Company’s circumstances,
consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all
the information and explanations which we considered
necessary in order to provide us with sufficient evidence to
give reasonable assurance that the Group financial statements
and the part of the Directors’ remuneration report described
as having been audited are free from material misstatement,
whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy
of the presentation of information in the Group financial
statements and the part of the Directors’ remuneration report
described as having been audited.

Opinion
In our opinion:

• the Group financial statements give a true and fair view, in
accordance with IFRS as adopted for use in the European
Union, of the state of the Group’s affairs as at 31 December
2005 and of its profit for the year then ended; and

• the Group financial statements and the part of the Directors’
remuneration report described as having been audited have
been properly prepared in accordance with the Companies
Act 1985 and Article 4 of the IAS Regulation.

Separate opinion in relation to IFRS
As explained in Note 2 of the Group financial statements, the
Group, in addition to complying with its legal obligation to
comply with IFRS as adopted for use in the European Union,
has also complied with the IFRS as issued by the International
Accounting Standards Board. Accordingly, in our opinion
the financial statements give a true and fair view, in
accordance with IFRS, of the state of the Group’s affairs as at
31 December 2005 and of its profit for the year then ended.

Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
London, United Kingdom

28 March 2006

46 Hikma Pharmaceuticals PLC

Consolidated income statement for the year ended 31 December 2005

Continuing operations
Revenue
Cost of sales

Gross profit
Sales and marketing costs
General and administrative expenses
Research and development costs
Other operating expenses
Other operating income
Share of results of associates

Operating profit
Flotation costs
Finance income
Finance costs
Other income

Profit before tax
Tax

Profit for the year

Attributable to:
Minority interest
Equity holders of the parent

Earnings per share (cents)
Basic

Diluted

Notes

2005
$000’s

2004
$000’s
(Restated
see Note 2)

3
3

6
7
16

8
9
10

262,215
(126,424)

135,791
(27,367)
(22,610)
(16,507)
(3,556)
2,008
1,449

69,208
(1,426)
1,562
(5,211)
276

64,409
(19,452)

44,957

1,090
43,867

44,957

30.0

28.3

212,377
(103,937)

108,440
(19,728)
(15,098)
(9,672)
(2,552)
602
732

62,724
(425)
326
(3,825)
224

59,024
(20,835)

38,189

731
37,458

38,189

26.3

24.8

During the year the Group carried out a corporate restructuring including the introduction of a new holding company.
The income statement has been prepared using merger accounting and is presented on a pro forma basis as if the new holding
company had been in existence throughout both the current and prior periods. Further information is given in Note 2.

A consolidated income statement from the date of incorporation of the new holding company is given in Note 44.

Consolidated statement of recognised
income and expenses for the year ended 31 December 2005

Gains on revaluation of available-for-sale investments taken to equity
Gains on revaluation of fair value derivatives taken to equity
Exchange (loss)/gain on translation of foreign operations

Net (expenses)/income recognised directly in equity
Profit for the year

Total recognised income and expense for the year

Attributable to:
Equity holders of the parent
Minority interests

Hikma Pharmaceuticals PLC 47

2005
$000’s

980
164
(1,941)

(797)
44,957

44,160

43,070
1,090

44,160

2004
$000’s

92
168
1,158

1,418
38,189

39,607

38,876
731

39,607

48 Hikma Pharmaceuticals PLC

Consolidated balance sheet as of 31 December 2005

Non-current assets
Intangible assets
Property, plant and equipment
Interest in associate
Due from associate
Deferred tax assets
Available for sale investments
Financial and other non-current assets

Current assets
Inventories
Income tax recoverable
Trade and other receivables
Investment in cash deposits
Collateralised cash
Cash and cash equivalents
Other current assets

Total assets

Current liabilities
Bank overdrafts and loans
Obligations under finance leases
Trade and other payables
Income tax provision
Other provisions
Other current liabilities

Net current assets

Non-current liabilities
Long-term financial debts
Deferred income
Obligations under finance leases
Deferred tax liabilities

Total liabilities

Net assets

Equity
Share capital
Share premium
Treasury shares
Reserves

Equity attributable to equity holders of the parent
Minority interest

Total equity

Notes

14
15
16

17
18
19

22
23

24
28
25

28
17

31
32
33
34

2005
$000’s

7,735
91,209
7,552
2,304
1,506
1,439
1,276

113,021

58,017
1,320
87,466
–
5,120
135,959
1,891

289,773

402,794

21,146
797
48,849
5,965
1,233
3,542

81,532

208,241

30,791
416
1,411
1,162

33,780

115,312

287,482

29,457
110,074
–
144,350

283,881
3,601

287,482

2004
$000’s

5,033
71,471
6,103
1,613
171
425
1,189

86,005

44,365
1,908
63,732
7,692
–
41,415
1,364

160,476

246,481

35,108
1,165
29,812
4,646
829
1,672

73,232

87,244

24,291
591
2,448
744

28,074

101,306

145,175

25,269
–
(187)
117,408

142,490
2,685

145,175

The financial statements were approved by the Board of Directors and signed on its behalf by:

Samih Darwazah
Director

28 March 2006

Consolidated cash flow statement for the year ended 31 December 2005

Hikma Pharmaceuticals PLC 49

Net cash from operating activities
Investing activities
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of intangible assets
Investment in financial and other assets
Disposal of financial and other assets
Investment in available for sale securities
Reduction of/(investment in) cash deposits
Acquisition of subsidiary
Cash acquired on acquisition of subsidiary

Net cash used in investing activities

Financing activities
Proceeds from the sale of treasury shares
Purchase of treasury shares
Increase in collateralised cash
Increase in long-term financial debts
Repayment of long-term financial debts
(Repayments)/increase in short-term borrowings
Net (repayments)/increase in obligations under finance leases
Dividends paid
Proceeds from issue of new shares
Costs of issue of new shares

Net cash from/(used in) financing activities

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes

Cash and cash equivalents at end of year

Notes

2005
$000’s

32,713

(23,423)
873
(562)
(78)
–
(35)
7,692
(825)
4

(16,354)

346
–
(5,120)
25,583
(20,895)
(15,659)
(3,109)
(17,800)
124,913
(10,810)

77,449

93,808
41,415
736

135,959

2004
$000’s

32,842

(18,043)
66
(3,287)
(643)
500
(71)
(4,111)
(690)
880

(25,399)

4,841
(4,835)
–
–
(9,670)
6,990
1,011
(3,766)
–
–

(5,429)

2,014
39,301
100

41,415

50 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

1. Corporate restructuring
During the period the Group carried out a corporate restructuring including the introduction of a new holding company,
Hikma Pharma PLC, incorporated in Great Britain as a public limited company on 8 September 2005. Hikma Pharma PLC
changed its name to Hikma Pharmaceuticals PLC on 19 September 2005 and on 31 October 2005 Hikma Pharmaceuticals PLC
acquired the issued share capital of Hikma Pharma Limited, the former holding company, for the issue of shares to shareholders
on the basis of four shares for every one share held in Hikma Pharma Limited. Prior to 31 October 2005, Hikma Pharmaceuticals
PLC had not commenced trading or made any profits or losses. On 1 November 2005 the shares of Hikma Pharmaceuticals PLC
were listed on the London Stock Exchange.

The corporate restructuring was accounted for using merger accounting principles. The results of the Company and its
subsidiaries have been presented on a pro forma basis for the years ended 31 December 2005 and 31 December 2004 as the
Directors believe this information is more meaningful to readers than information for the period from 8 September 2005 to
31 December 2005. The Directors believe that this presentation is necessary to present a true and fair view of the results of
the Company and its subsidiaries for the period.

The Hikma Pharmaceuticals PLC consolidated statutory income statement and cash flow statement for the period from
8 September 2005, the date of incorporation, to 31 December 2005 is presented in Note 44, in order to comply with
Section 226 of the Companies Act 1985.

2. Significant accounting policies

Basis of accounting
Hikma Pharmaceuticals PLC’s consolidated financial statements are prepared in accordance with International Financial Reporting
Standards (IFRS) issued by the International Accounting Standards Board. The financial statements have also been prepared in
accordance with IFRS 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 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 2004 and
31 December 2005 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 this
financial statements.

The currency used in the preparation of the accompanying consolidated financial statements is the US Dollar as the majority of
the Company’s business is conducted in US Dollars ($).

The significant accounting policies are set out below.

Restatement of prior year income statement comparatives
The following restatements had no effect on the profit for the 2004 financial year or on the net assets of the Group at
31 December 2004.

For the year ended 31 December 2005, the Group’s share of results of associates has been included within operating profit as
the Directors consider these activities to be operational activities and the 2004 comparative has been restated. Accordingly,
management fees receivable from associates of $1,016,000 (2004: $333,000) are included in other operating income. In 2004
the management fees were included in other income.

Flotation costs totalling $425,000 incurred in 2004 were classified as general and administrative expenses. Following flotation,
the 2004 comparatives have been restated to reflect these costs as non operational.

The prior year comparatives for revenue, sales and marketing costs, and general and administrative expenses have been restated
to reflect a change in accounting policy for Medicaid rebates and associated administrative charges paid to the wholesale
customers of the Generics division. The restatement has resulted in revenue, sales and marketing costs, and general and
administrative expenses being decreased by $1,771,000, $1,334,000 and $437,000 respectively. This restatement had no
effect on operating profits for the period.

Hikma Pharmaceuticals PLC 51

2. Significant accounting policies continued

Basis of consolidation
The consolidated financial statements incorporate the results of Hikma Pharmaceuticals PLC (the “Company”) and entities
controlled by the Company (together the “Group”). Control is achieved where the Company has the power to govern the
financial and operating policies of an investee entity so as to obtain benefits from its activities.

On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of
acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as
goodwill. The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities
recognised. Subsequently, any losses applicable to the minority interest in excess of the minority interest are allocated against
the interests of the parent. The results of subsidiaries acquired or disposed of during the year are included in the consolidated
income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary,
adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by
the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments
issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination.
The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are
recognised at their fair value at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the
business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities
recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and
contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the
assets, liabilities and contingent liabilities recognised.

Investments in associates
An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control,
through participation in the financial and operating policy decisions of the investee.

The results and assets and liabilities of associates are incorporated in the financial statements using the equity method of
accounting except when classified as held for sale. Investments in associates are carried in the balance sheet at cost as adjusted
by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual
investments. Losses of the associates in excess of the Group’s interest in those associates are not recognised.

Any excess of the cost of acquisition over the Group’s share of the fair values of the identifiable net assets of the associate at the
date of acquisition is recognised as goodwill.

Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s
interest in the relevant associate.

52 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements continued

2. Significant accounting policies continued

Intangible assets
Intangible assets are valued at cost and reviewed at least annually for any impairment. Any resulting impairment loss is recorded
in the income statement under general and administrative expenses.

(a) Goodwill: Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the

fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised as an
asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as
an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not
subsequently reversed.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units. Cash-generating
units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication
that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the
unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the
other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised
for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss
on disposal.

(b) Marketing rights: are amortised over their useful lives commencing in the year in which the rights first generate sales.

(c) Product files: product files are assigned indefinite useful lives which are reviewed for impairment at least annually;

any impairment is recognised immediately in profit and loss and is not subsequently reversed.

(d) Purchased software: is amortised over three years.

Foreign currencies
For the purpose of the consolidated financial statements, the results and financial position of each Group company are
expressed in US Dollars, which is the functional currency of the Group, and the presentation currency for the consolidated
financial statements.

Transactions in currencies other than local currency are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are
retranslated at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities carried at fair value that
are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Gains and losses arising on retranslation are included in net profit or loss for the period, except for exchange differences arising
on non-monetary assets and liabilities where the changes in fair value and the related foreign exchange are recognised directly
in equity.

On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing
on the balance sheet date. Income and expense items are translated at the average exchange rates for the period.
Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such cumulative
translation differences are recognised as income or as expenses in the period in which the operation is disposed.

Revenue recognition
Revenue is recognised in the income statement when goods or services are supplied or made available to external customers
against orders received and when title and risk of loss passes to the customer.

Turnover represents net invoice value after the deduction of discounts and allowances given and accruals for estimated future
rebates and returns. The methodology and assumptions used to estimate rebates and returns are monitored and adjusted
regularly in the light of contractual and historical information and past experience. Value added tax and other sales taxes are
excluded from revenue.

Hikma Pharmaceuticals PLC 53

2. Significant accounting policies continued

Charge backs
The provision for charge backs is the most significant and complex estimate used in the recognition of revenue. In the USA the
Group sells its products directly to wholesale distributors, generic distributors, retail pharmacy chains and mail-order pharmacies.
The Group also sells its products indirectly to independent pharmacies, managed care organisations, hospitals, and Group
purchasing organisations, collectively referred to as “indirect customers”. The Group enters into agreements with its indirect
customers to establish pricing for certain products. The indirect customers then independently select a wholesaler from
which they purchase the products at agreed-upon prices. The Group will provide credit to the wholesaler for the difference
between the agreed-upon price with the indirect customer and the wholesaler’s invoice price. This credit is called a charge back.
The provision for charge backs is based on historical sell-through levels by the Group’s wholesale customers to the indirect
customers, and estimated wholesaler inventory levels. As sales are made to the large wholesale customers, the Group
continually monitors the reserve for chargebacks and makes adjustments when it believes that actual charge backs may
differ from estimated reserves.

Returns and rebates
In certain countries and consistent with industry practice, the Group has a product return policy that allows selected customers
to return the product within a specified period prior to and subsequent to the expiration date, in exchange for a credit to be
applied to future purchases.

The Group estimates its provision for returns and rebates based on historical experience, changes to business practices and credit
terms. While such experience has allowed for reasonable estimations in the past, history may not always be an accurate
indicator of future returns. The Group continually monitors the provisions for returns and rebates, and makes adjustments
when it believes that actual product returns may differ from established reserves. Generally, the reserve for returns and rebates
increases as net sales increase.

Price adjustments
Price adjustments, also known as “shelf stock adjustments”, are credits issued to reflect decreases in the selling prices of the
Group’s products that customers have remaining in their inventories at the time of the price reduction. Decreases in selling
prices are discretionary decisions made by Group management to reflect competitive market conditions. Amounts recorded for
estimated shelf stock adjustments are based upon specified terms with direct customers, estimated declines in market prices and
estimates of inventory held by customers. The Group regularly monitors these and other factors and re-evaluates the reserve as
additional information becomes available.

Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary
investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible
for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Dividend income
Income from investments is recognised when the shareholders’ rights to receive payment have been established.

Leasing
Leases are classified as capital leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership
to the lessee. All other leases are classified as operating leases. Rentals payable under operating leases are charged to income on
a straight-line basis over the term of the operating lease.

Assets held under capital leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the
minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in
the balance sheet as a capital lease obligation. Lease payments are apportioned between finance charges and reduction of the
lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.

54 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements continued

2. Significant accounting policies continued

Government grants
Government grants relating to property, plant and equipment are treated as deferred income and released to the income
statement over the expected useful lives of the assets concerned.

Research and development
Research and development expenses are fully charged to the income statement, as the Group considers that the regulatory and
other uncertainties inherent in the development of its products generally mean that the recognition criteria in IAS 38 “Intangible
assets” are not met. Where, however the recognition criteria are met, intangible assets will be capitalised and amortised over
their useful economic life.

Retirement benefit costs
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to
state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s
obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

Tax
The Group provides for income tax according to the laws and regulations prevailing in the countries where the Group operates.
Furthermore, the Group computes and records deferred tax assets according to IAS 12 “Income Taxes”.

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income
statements because it excludes items of income or expense that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted
for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction
that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates,
and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly
to equity, in which case the deferred tax is also dealt with in equity.

Share-based payment transactions
Employees (including Directors) of the Group receive remuneration in the form of share-based payments, whereby employees
render services in exchange for shares or rights over shares (“equity-settled transactions”).

Hikma Pharmaceuticals PLC 55

2. Significant accounting policies continued

Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which the
share-based payments are granted. The fair value is determined using a binomial model. The expected life used in the model
has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and
behavioural considerations (further details are given in Note 36). In valuing equity-settled transactions, no account is taken of
any performance conditions, other than conditions linked to the market price of the shares of Hikma Pharmaceuticals PLC.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, on a straight-line basis
over the vesting period based on the Group’s estimate of shares that will eventually vest. No expense is recognised for awards
that do not ultimately vest. Where the terms of an equity-settled award are modified, as a minimum an expense is recognised
as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction
as a result of the modification, as measured at the modification date. Where an equity-settled award is cancelled, it is treated
as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately.
However, if a new award is substituted for a cancelled award, and designated as a replacement award on the date that it is
granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the
previous paragraph. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of
diluted earnings per share.

IFRS 2 “Share-based Payment” requires an expense to be recognised when the Group buys goods or services in exchange for
share or rights over shares (“equity-settled transactions”) or in exchange for other equivalent assets.

Property, plant and equipment
Property, plant and equipment have been valued at cost of acquisition and are depreciated, except for land, on a straight-line
basis at the following depreciation rates:

Buildings
Vehicles
Machinery and equipment
Fixtures and equipment

2% to 4%
10% to 20%
5% to 20%
8% to 33%

Any additional costs that extend the useful life of property, plant and equipment are capitalised. Financing costs associated with
the construction of property, plant and equipment are not capitalised. Property, plant and equipment which are financed by
leases giving Hikma Pharmaceuticals PLC substantially all the risks and rewards of ownership are capitalised at the lower of
the fair value of leased property and the present value of the minimum lease payments at the inception of the lease, and
depreciated in the same manner as other property, plant and equipment over the shorter of the lease term or their useful life.
Whenever the recoverable amount of an asset is impaired, the carrying value is reduced to the recoverable amount and the
impairment loss is taken to the income statement. Projects under construction are carried at cost, less any recognised
impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are
ready for their intended use.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and
the carrying amount of the asset and is recognised in the income statement.

Inventories
Inventories are stated at the lower of cost and net realisable value. Purchased products are valued at acquisition cost and all
other costs incurred in bringing each product to its present location and condition. Cost of own-manufactured products
comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing
the inventories to their present location and condition. In the balance sheets, inventory is primarily valued at standard cost,
which approximates to historical cost determined on a moving average basis, and this value is used to determine the cost of
sales in the income statement. Net realisable value represents the estimated selling price in the ordinary course of business,
less all estimated costs of completion and all estimated costs necessary to make the sale. Provisions are made for inventories
with net realisable value lower than cost or for slow moving inventory.

56 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements continued

2. Significant accounting policies continued

Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the
contractual provisions of the instrument.

Derivative financial instruments are used to manage exposure to market risks from treasury operations. The principal derivative
instruments used by the Group are interest rate swaps and forward foreign exchange contracts. The Group does not hold or
issue derivative financial instruments for trading or speculative purposes.

Derivative financial instruments are initially recognised in the balance sheet at cost and then remeasured at subsequent reporting
dates to fair value. Hedging derivatives are classified on inception as fair value hedges, cash flow hedges or net investment
hedges. Changes in the fair value of derivatives designed as fair value hedges are recorded in the income statement, with
the changes in the fair value of the hedged asset or liability. Changes in the fair value of derivatives designed as cash flow
hedges are recognised in equity. Amounts deferred in equity are transferred to the income statement in line with the hedged
forecast transaction. Hedges of net investments in foreign entities are accounted for in a similar way to cash flow hedges.

Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in
the income statement.

Investments
Available for sale investments with quoted market prices are initially recognised at cost on acquisition and remeasured to
their fair values at year-end. Gains or losses on remeasurement to fair value are recognised in shareholders’ equity until the
investments are sold, disposed of, or determined to be impaired, at which time the cumulative gains or loss relating to these
investments previously recognised in equity is included in the income statement. Available for sale financial assets without
market prices and the fair value of which cannot be reliably measured are stated at cost, less a provision for any impairment loss,
which is taken to the income statement.

The fair value of quoted financial assets represents the closing price in the financial markets at the date of the financial
statements. However, the fair value of unquoted financial assets, or those with no declared price are estimated by comparing
the fair value of a similar financial instrument or through a discounted cash flow method.

Accounts receivable
Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the
effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when
there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s
carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at
initial recognition.

Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with original maturities of three months or less and are subject to an
insignificant risk of changes in value.

Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges,
including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis in profit
or loss account using the effective interest method and are added to the carrying amount of the instrument to the extent that
they are not settled in the period in which they arise.

Trade payables
Trade payables are not interest bearing and are stated at fair value.

Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Hikma Pharmaceuticals PLC 57

2. Significant accounting policies continued

Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation.

Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount
of the asset is estimated in order to determine the extent of the impairment loss. An intangible asset with an indefinite useful life
is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or income-generating unit) is estimated to be less than its carrying amount, the carrying
amount of the asset (income-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an
expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount
that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years.
A reversal of an impairment loss is recognised as income immediately.

New accounting policies and future requirements
The following IFRS and IFRIC interpretation have been issued by the IASB and are likely to affect future annual reports.

IFRS 7 “Financial instruments: disclosures” was issued in August 2005 and is required to be implemented by the Group from
1st January 2007. This new standard incorporates the disclosure requirements of IAS 32, which it supersedes, and adds further
quantitative and qualitative disclosures in relation to financial instruments.

IFRIC 4 “Determining whether an arrangement contains a lease” was issued in December 2004 and is required to be
implemented by the Group from 1 January 2006. The interpretation requires arrangements which may have the nature,
but not the legal form, of a lease to be accounted for in accordance with IAS 17 “Leases”. This interpretation is not expected
to have a material impact on the Group.

58 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements continued

3. Business and geographical segments
For management purposes, the Group is organised into three operating divisions – Generics, Branded and Injectables.
These divisions are the basis on which the Group reports its primary segment information.

Segment information about these businesses is presented below.

Revenue
Cost of sales

Gross profit

Result
Segment result

Unallocated corporate expenses
Share of results of associates

Operating profit
Flotation costs
Finance income
Finance costs
Other income

Profit before tax
Tax
Minority interest

Profit for the year attributable to
equity shareholders

Other information

Additions to property, plant and
equipment assets (cost)
Acquisition of subsidiary’s property,
plant and equipment
Additions to intangible assets
Total property, plant and equipment and
intangible assets (net book value)
Depreciation and amortisation
Total investment in associated companies
Balance sheet
Assets
Segment assets

Liabilities
Segment liabilities

Generics
2005
$000’s

115,208
(52,861)

62,347

Branded
2005
$000’s

93,012
(39,297)

53,715

Injectable
2005
$000’s

49,303
(30,883)

18,420

38,765

28,764

8,486

–

1,449

–

Corporate
and others
2005
$000’s

4,692
(3,383)

1,309

(27)

–

Generics
2005
$000’s

Branded
2005
$000’s

Injectable
2005
$000’s

Corporate
and others
2005
$000’s

Group
2005
$000’s

262,215
(126,424)

135,791

75,988

(8,229)
1,449

69,208
(1,426)
1,562
(5,211)
276

64,409
(19,452)
(1,090)

43,867

Group
2005
$000’s

4,385

12,364

–
–

25,600
4,879
–

–
282

33,844
2,273
7,552

7,770

9,857
3,939

30,408
2,133
–

1,680

26,199

–
–

9,092
1,040
–

9,857
4,221

98,944
10,325
7,552

122,831

140,631

50,219

89,113

402,794

13,207

62,937

25,237

13,931

115,312

Hikma Pharmaceuticals PLC 59

3. Business and geographical segments continued

Revenue
Cost of sales

Gross profit

Result
Segment result

Unallocated corporate expenses
Share of results of associates

Operating profit
Flotation costs
Finance income
Finance costs
Other income

Profit before tax
Tax
Minority interest

Profit for the year attributable to
equity shareholders

Other information

Additions to property, plant and equipment
assets (cost)
Acquisition of subsidiary’s property, plant
and equipment
Additions to intangible assets
Total property, plant and equipment and
intangible assets (net book value)
Depreciation and amortisation
Total investment in associated companies
Balance sheet
Assets
Segment assets

Liabilities
Segment liabilities

Generics
2004
$000’s

106,225
(48,773)

57,452

Branded
2004
$000’s

74,013
(34,312)

39,701

Injectable
2004
$000’s

28,859
(19,140)

9,719

41,043

22,441

4,056

–

732

–

Corporate
and others
2004
$000’s

3,280
(1,712)

1,568

986

–

Generics
2004
$000’s

Branded
2004
$000’s

Injectable
2004
$000’s

Corporate
and others
2004
$000’s

Group
(Restated)
2004
$000’s

212,377
(103,937)

108,440

68,526

(6,534)
732

62,724
(425)
326
(3,825)
224

59,024
(20,835)
(731)

37,458

Group
2004
$000’s

6,139

–
3,443

25,271
2,036
–

8,340

2,133

1,432

18,044

–
–

25,256
2,505
6,103

–
778

18,373
1,412
–

3,146
70

7,604
727
–

3,146
4,291

76,504
6,680
6,103

104,411

93,493

29,953

18,624

246,481

16,818

45,783

18,998

19,707

101,306

60 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements continued

3. Business and geographical segments continued
The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the
goods/services:

United States
Europe
Middle East and North Africa
Rest of the world

Sales revenue by
geographical market

2005
$000’s

130,454
20,445
111,283
33

262,215

2004
$000’s

113,101
12,490
85,826
960

212,377

The following is an analysis of the additions to property, plant and equipment and intangible assets, an analysis of total property,
plant and equipment and intangible assets and an analysis of total assets by the geographical area in which the assets are located:

Additions*
to property, plant and
equipment and intangibles

Total property, plant and
equipment and intangibles

2005
$000’s

4,385
21,573
14,319

40,277

2004
$000’s

9,582
2,912
12,987

25,481

2005
$000’s

25,600
31,431
41,913

98,944

2004
$000’s

25,271
18,373
32,860

76,504

2005
$000’s

122,832
115,587
164,375

402,794

Total assets

2004
$000’s

104,411
30,377
111,693

246,481

United States
Europe
Middle East and North Africa

*Additions include property, plant and equipment and intangibles acquired with and arising on the acquisition of subsidiary undertakings.

4. Profit for the year
Profit for the year has been arrived at after charging/(crediting):

Net foreign exchange gains
Research and development costs
Loss on sale of property, plant and equipment
Depreciation of property, plant and equipment
Amortisation and impairment of intangibles
Cost of inventories recognised as expense
Write-down of inventories
Staff costs (see Note 5)
Auditors’ remuneration for audit services (see below)

A more detailed analysis of auditors’ remuneration on a worldwide basis is provided below.

Audit fees
Fees in connection with the float*
Other services

*In addition, $1,995,000 of fees in relation to the float has been set off against the share premium account.

For the years ended
31 December

2005
$000’s

(217)
16,507
440
8,909
1,416
83,648
855
51,889
1,059

2005
$000’s

644
212
203

1,059

2004
$000’s

(282)
9,672
390
6,680
–
67,237
921
36,894
439

2004
$000’s

409
–
30

439

Hikma Pharmaceuticals PLC 61

4. Profit for the year continued
A description of the work of the Audit Committee is set out in the Audit Committee report on pages 35 and 36 and
includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided
by the auditors.

Included in the amount for audit services shown on the previous page are the audit fees of Hikma Pharmaceuticals PLC
(company only) of $50,000.

5. Staff costs
The average monthly number of employees (including Executive Directors) was:

Production
Selling and marketing
Research and development
General and administrative

Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Post employment benefits
End of service indemnity
Other*

2005
Number

2004
Number

1,052
363
160
252

1,827

2005
$000’s

41,055
4,039
685
843
5,267

51,889

818
292
122
195

1,427

2004
$000’s

29,662
2,702
615
615
3,300

36,894

*Other staff costs mainly consist of health insurance, training, housing and living allowances.

6. Other operating expenses
The other operating expenses consist mainly of damaged and slow moving items and the cost of setting up the new
manufacturing facilities in Algeria that commenced operations early in 2006.

7. Other operating income
The other operating income consists mainly of management fees from Al-Jazeera Pharmaceuticals Industries Co. – KSA and
foreign exchange gains.

8. Flotation costs
The total costs of flotation were $12,661,000, of which costs incurred in issuing shares amounting to $10,810,000 have been
charged against the share premium account. The remaining amount of $1,851,000 incurred as a result of the listing exercise,
but which was not eligible to be set against the share premium, has been reflected in flotation costs within the income
statement, of which $1,426,000 and $425,000 was recognised in the years ended 31 December 2005 and 2004, respectively.

9. Finance income

Interest income
Net foreign exchange

For the years ended
31 December

2005
$000’s

1,562
–

1,562

2004
$000’s

313
13

326

62 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements continued

10. Finance costs

Interest on bank overdrafts and loans
Interest on obligations under finance leases
Other bank charges

11. Tax

Current tax:

UK current tax
Foreign tax

Deferred tax (Note 17)

For the year ended
31 December

2005
$000’s

3,437
227
1,547

5,211

2004
$000’s

2,498
436
891

3,825

For the years ended
31 December

2005
$000’s

110
19,596
(254)

19,452

2004
$000’s

–
20,896
(61)

20,835

UK corporation tax is calculated at 30% of the estimated assessable profit for the year. At 31 December 2004 the Group was
headed by Hikma Pharma Limited, a company incorporated in Jersey where the tax rate is zero.

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

Profit before tax

Tax at the UK corporation tax rate of 30%
Tax effect of share of results of associates
Tax effect of expenses that are not deductible in determining taxable profit
Tax effect of exempted revenues
Tax effect of losses for which no deferred tax asset is recognised
Effect of different tax rates of subsidiaries operating in other jurisdictions
Other adjustments

Tax expense for the year

2005
$000’s

64,409

19,323
(435)
7
(3,023)
1,520
2,427
(367)

19,452

No reconciliation is provided for 2004 as the company was incorporated in Jersey where the tax rate is zero.

12. Dividends

Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2004 of 5.0 cents per share
(2003: 2.6 cents per share)
Pre-float interim dividend for the year ended 31 December 2005 of 7.5 cents per share

Proposed final dividend for the year ended 31 December 2005 of 0.89 cents per share
(2004: 5.0 cents per share)

2005
$000’s

2004
$000’s

7,120
10,680

17,800

3,766
–

3,766

1,500

7,120

The final dividend for the year ended 31 December 2004 and the pre-float interim dividend for the year ended 31 December
2005 were paid by Hikma Pharma Limited which is incorporated in Jersey.

Hikma Pharmaceuticals PLC 63

13. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:

Earnings
Earnings for the purposes of basic and diluted earnings per share being net profit attributable
to equity holders of the parent

Number of shares
Weighted average number of Ordinary Shares for the purposes of basic earnings per share (‘000)
Effect of dilutive potential Ordinary Shares:
Share options (‘000)

Weighted average number of ordinary shares for the purposes of diluted earnings per share (‘000)

154,856

2005
$000’s

2004
$000’s

43,867

37,458

Number

146,454

142,400

8,402

30.0

28.3

7,843

150,243

26.3

24.8

Basic/Cents

Diluted/Cents

14. Intangible assets

Cost
At 1 January 2004
Additions

At 1 January 2005
Additions
Acquisition of subsidiary’s intangibles
Translation adjustments

At 31 December 2005

Amortisation
At 1 January 2004, 31 December 2004
and 1 January 2005
Charge for the year
Impairment charge

At 31 December 2005

Carrying amount
At 31 December 2005

At 31 December 2004

Goodwill
$000’s

Marketing
rights
$000’s

Product
files
$000’s

Software
$000’s

Total
$000’s

1,350
70

1,420
–
975
–

2,395

(608)
–
–

(608)

1,787

812

–
778

778
665
–
(103)

1,340

–
(102)
–

(102)

1,238

778

–
–

–
–
2,581
–

2,581

–
–
–

–

2,581

–

–
3,443

3,443
–
–
–

3,443

–
(1,064)
(250)

(1,314)

2,129

3,443

1,350
4,291

5,641
665
3,556
(103)

9,759

(608)
(1,166)
(250)

(2,024)

7,735

5,033

Goodwill of $1,350,000 arose on the acquisition of Arab Medical Containers in 1990. Goodwill of $70,000 arose on the
acquisition of the Group’s shares of IPRC and SPRC in 2004. The additions to goodwill in 2005 represent the acquisition of the
Italian subsidiary (IBPP) (see Note 36). In accordance with International Accounting Standard 38 “Intangible Assets” (“IAS 38”)
the Group has tested its goodwill for impairment and assessed that the fair value exceeds its book value, therefore no
impairment has been taken to the income statement.

Marketing rights were acquired in 2005 and 2004 and are being amortised over a period of three to five years from the time
they generate sales.

Product files were acquired at 14 March 2005 on the acquisition of the Italian subsidiary (IBPP). The product files have an
indefinite useful life and are being reviewed for impairment test at least annually.

Software represents the new Enterprise Resource Planning solution (ERP) that the Company implemented in January 2005.
An impairment charge of $250,000 has been recognised during 2005 in relation to software which no longer has any beneficial
interest to the Group.

64 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements continued

15. Property, plant and equipment

Land and
buildings
$000’s

Vehicles
$000’s

Machinery
and
equipment
$000’s

Fixtures and
equipment
$000’s

Projects
under
construction
$000’s

32,299
2,332
(10)
2,095
871

37,587
736
3,440
(208)
2,543
(1,807)

42,291

5,799
1,114
(1)
283

7,195
1,121
475
–
(12)
(577)

8,202

4,154
1,055
(1,354)
–
39

3,894
1,066
56
(349)
–
(47)

4,620

2,504
479
(1,269)
26

1,740
573
14
(250)
–
(44)

2,033

53,870
10,411
(3,228)
221
879

62,153
8,085
6,249
(885)
2,401
(2,560)

75,443

31,102
4,500
(2,960)
393

33,035
5,908
2,710
(653)
(316)
(1,222)

39,462

7,279
2,243
(753)
–
282

9,051
2,681
112
(1,009)
465
(237)

11,063

3,303
1,243
(656)
154

4,044
1,307
45
(251)
328
(147)

5,326

1,835
5,149
(1)
(2,316)
133

4,800
13,631
–
(17)
(5,409)
(190)

12,815

–
–
–
–

–
–
–
–
–
–

–

Total
$000’s

99,437
21,190
(5,346)
–
2,204

117,485
26,199
9,857
(2,468)
–
(4,841)

146,232

42,708
7,336
(4,886)
856

46,014
8,909
3,244
(1,154)
–
(1,990)

55,023

34,089

2,587

35,981

5,737

12,815

91,209

30,392

2,154

29,118

5,007

4,800

71,471

Cost
At 1 January 2004
Additions
Disposals
Transfers
Translation adjustment

At 1 January 2005
Additions
Acquisition of subsidiary
Disposals
Transfers
Translation adjustment

At 31 December 2005

Accumulated depreciation
At 1 January 2004
Charge for the year
Disposals
Translation adjustment

At 1 January 2005
Charge for the year
Acquisition of subsidiary
Disposals
Transfers
Translation adjustment

At 31 December 2005

Net book value
31 December 2005

Net book value
31 December 2004

The net book value of the Group’s machinery and equipment includes an amount of $3,341,000 (2004: $5,273,000)
in respect of assets held under finance lease.

As at 31 December 2005 the Group had pledged property, plant and equipment, having a carrying value of $31,538,000
of which an amount of $6,743,000 was pledged to International Finance Corporation.

In 1994, the Portuguese Government granted Hikma Farmacêutica an amount of Euro 1,600,000 to build the Company’s
factory in accordance with the SINPEDIP programme. The grant amount is being released to the income statement over the
period necessary to match it with the assets’ life. The carrying value of the grant as of 31 December 2005 was $416,000
(31 December 2004: $591,000).

The Directors were not aware of any significant contractual commitments other than those disclosed in the accounts as of
31 December 2005 (2004: $1,600,000).

The amount of borrowing costs that was capitalised on the projects under construction is $300,000 (2004: nil).

Hikma Pharmaceuticals PLC 65

16. Interest in associate
Summarised financial information in respect of the Group’s 47.5% interest in the Ordinary Shares of Al-Jazeera Pharmaceutical
Industries Co. – incorporated in KSA is set out below:

Total assets
Total liabilities

Net assets

Interest in associate

Revenues
Profit

Share of result of associate

For the years ended
31 December

2005
$000’s

47,773
(31,874)

15,899

7,552

30,371
3,050

1,449

2004
$000’s

40,690
(27,842)

12,848

6,103

23,347
1,541

732

Profit is stated after management fees of $1,061,000 (2004: $333,000) paid to the Group.

17. Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the
current and prior reporting period.

Reserves
Deferred
Tax losses R&D costs and others
$000’s

$000’s

Interest
rate swaps
$000’s

Amortis-
able
assets
$000’s

Fixed
assets
$000’s

Stock
options
$000’s

Software
develop-
ment
$000’s

Total
$000’s

At 1 January
2004
Charge to
income
Exchange
differences

At 1 January
2005
Charge/(credit)
to income
Charge/(credit)
to equity
Acquisition of
subsidiary
Exchange
differences

As 31 December
2005

–

(357)

(129)

(482)

(28)

(1,620)

(14)

–

(171)

(2,102)

(91)

–

(50)

1,284

–

300

(6)

(44)

1,578

–

532

1,312

–

(20)

1,312

573

(128)

213

(19)

287

(214)

(410)

(254)

–

(960)

651

(69)

–

(960)

294

(314)

(270)

(1,889)

(19)

(27)

2,447

(1,174)

902

(344)

Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset)
for financial reporting purposes:

Deferred tax liabilities
Deferred tax assets

2005
$

1,162
(1,506)

(344)

2004
$

744
(171)

573

A deferred tax asset on unused tax losses totalling $226,000 has not been recognised in the year due to the unpredictability of
future profit streams. These losses may be carried forward indefinitely. In addition there is a deferred tax asset of approximately
$310,000 on other deductible temporary differences which has not been recognised due to uncertainty regarding the tax
treatment of the profits against which these differences will reverse.

66 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements continued

18. Available for sale investments
The investment in available for sale securities represents investments in listed equity securities and unlisted securities that are
recorded at the fair value based on either quoted market price for listed companies or using other valuation methods for
unlisted companies.

Listed companies
Non-listed companies*

As at 31 December

2005
$000’s

1,185
254

1,439

2004
$000’s

171
254

425

*Included in this amount is an investment in a non-listed US company (MENA Innovative Technologies Inc.) of $141,000 (2004: $141,000) that represents 32.5% of
its common share for which the management does not exert significant influence as it has no representation on the Board of Directors of the company.

19. Financial and other non-current assets

Investments recorded at cost
Amounts due from investments recorded at cost
Other financial assets

As at 31 December

2005
$000’s

488
511
277

2004
$000’s

488
554
147

1,276

1,189

Investments at cost represent the Group’s share of 32% (2004: 32%) and 49% (2004: 49%) in Societe Hikma Pharma – Tunisia
and Societe D’Industries Pharmaceutiques Ibn Al Baytar S.A. – Tunisia, over which the Company does not exert significant
influence due to a number of factors including its limited representation on the Board of Directors of these companies.
On 17 March 2005 the Group signed an agreement with Societe D’Industries Pharmaceutiques Ibn Al Baytar S.A. – Tunisia,
to sell the Group’s share in Societe Hikma Ibn Al Baytar Limited – Tunisia for a total value equivalent to Tunisian Dinar 400,000
($333,000) to be paid in four instalments within nine months from 17 March 2005. In the year to 31 December 2005 the
Group has received three instalments totalling $241,000, which have been recognised as other income in the income statement
as the net book value of the investment amounted to one US Dollar.

Amounts due from investments recorded at cost include $162,000 (2004: $162,000), and $459,000 (2004: $554,000) due
from Societe Hikma Pharma – Tunisia and Societe D’Industries Pharmaceutiques Ibn Al Baytar S.A. – Tunisia, respectively. While
the remaining amount of $188,000 (2004: $514,000) represents the amount due form Societe Hikma Ibn Al Baytar Limited –
Tunisia, which was sold to Societe D’Industries Pharmaceutiques Ibn Al Baytar S.A. – Tunisia as mentioned above. The amounts
due from Societe Hikma Pharma – Tunisia and Societe Hikma Ibn Al Baytar Limited – Tunisia are stated after provision for
doubtful debts of $298,000 (2004: $676,000).

20. Inventories

Finished goods
Work-in-progress
Raw and packing materials
Goods in transit

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

As at 31 December

2005
$000’s

14,868
13,150
24,247
5,752

58,017

2004
$000’s

14,777
7,890
17,791
3,907

44,365

21. Trade and other receivables

Trade receivables
Other prepayments
Interest receivable
Employee advances
Value added tax recoverable
Other receivables

Hikma Pharmaceuticals PLC 67

As at 31 December

2005
$000’s

77,441
5,389
217
68
3,889
462

87,466

2004
$000’s

60,151
1,762
30
29
1,733
27

63,732

Trade receivables are stated net of provisions for chargebacks in the US, doubtful debts and expired goods as follows:

Charge backs
Doubtful debts
Expired goods

As at 31 December

2005
$000’s

15,828
4,408
1,693

21,929

2004
$000’s

18,125
3,432
1,216

22,773

22. Collateralised cash
Collateralised cash represents an amount equal to 105% of bank facilities granted to the Group’s Algerian operations.

23. Cash and cash equivalents

Cash on hand and at banks
Time deposits
Money market deposits
Restricted cash

Cash and cash equivalents include highly liquid investments with maturities of three months or less.

24. Bank overdrafts and loans

Overdrafts
Import and export financing
Short-term loans
Current portion of long-term loans (Note 27)
Fair value of derivative financial instruments

As at 31 December

2005
$000’s

33,405
1,194
101,025
335

135,959

2004
$000’s

13,864
2,562
24,980
9

41,415

As at 31 December

2005
$000’s

866
5,208
7,267
7,805
–

21,146

2004
$000’s

13,283
13,013
103
8,619
90

35,108

68 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements continued

24. Bank overdrafts and loans continued

The weighted average interest rates paid were as follows:
Bank overdrafts
Bank loans (including the non-current bank loans)

2005
%

4.16
5.14

2004
%

3.30
4.89

Import and export financing represent short-term financing for the ordinary trading activities of the business.

25. Trade and other payables

Trade payables
Accrued expenses
Employees’ provident fund*
VAT and sales tax payables
Dividends payable
Social security withholdings
Income tax withholdings
Other payables

As at 31 December

2005
$000’s

26,738
16,537
2,301
1,425
841
416
378
213

48,849

2004
$000’s

16,612
10,332
1,563
854
93
118
182
58

29,812

*The employees’ provident fund liability represents outstanding contributions to the Hikma Pharmaceuticals Limited – Jordan retirement benefit plan on which the
fund receive 5% interest.

26. Other provisions
Other provisions represent the end of service indemnity provisions of Hikma Pharmaceuticals Limited – Jordan, Istituto Biochimico
Pavese Pharma S.P.A (Italy), and Pharma Ixir Co. Ltd (Sudan). This provision represents a one month salary payable for each year
employed for certain individuals in accordance with the agreements for the Group employees for Hikma Pharmaceuticals Limited
– Jordan and Pharma Ixir Co, Ltd. Regarding IBPP, the staff leaving indemnity is not funded, and all calculations necessary to
determine the annual expense are determined in accordance with Italian law. The annual accrual for staff indemnity is calculated
by dividing the employees’ remuneration for the year by 13.5 and it is subject to revaluation on a yearly basis.

Movements on the provision of end of service indemnity:

1 January
Addition
Utilisation
Translation adjustments

31 December

As at 31 December 2005, the balance of IBPP’s provision for end of service indemnity was $327,000.

2005
$000’s

829
733
(300)
(29)

1,233

27. Long-term financial debts

Total debts
Less: current portion of debts

Long-term financial debts

Breakdown by maturity:
Under one year
In the second year
In third year
In the fourth year
In the fifth year
Thereafter

Breakdown by currency:
US Dollar
Euro
Jordanian Dinar
Algerian Dinar

Long-term financial debts

Hikma Pharmaceuticals PLC 69

As at 31 December

2005
$000’s

38,596
(7,805)

30,791

2004
$000’s

32,910
(8,619)

24,291

As at 31 December

2005
$000’s

7,805
8,737
8,357
7,532
4,065
2,100

2004
$000’s

8,619
7,901
5,683
4,634
3,302
2,771

38,596

32,910

22,302
6,184
9,989
121

38,596

19,846
6,255
6,446
363

32,910

At 31 December 2005, import and export financing, short-term loans and the current and long-term portion of long-term loans
total $51,071,000 (2004: $46,026,000).

At 31 December 2005, loans and import and export financing of $36,344,000 (2004: $22,985,000), were arranged at fixed
interest rates.

The other borrowings at 31 December 2005 of $14,727,000 (2004: $23,041,000) are arranged at floating rates, thus exposing
the Group to cash flow interest rate risk.

Loans amounting to $9,993,000 (2004: $13,475,000) are secured on property, plant and equipment.

28. Obligations under finance leases

Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive

Less: interest lease charges

Present value of minimum lease payments payable

Minimum lease payments

Present value of
minimum lease payments

2005
$000’s

838
1,441

2,279
(71)

2,208

2004
$000’s

1,297
2,595

3,892
(279)

3,613

2005
$000’s

797
1,411

2,208
–

2,208

2004
$000’s

1,165
2,448

3,613
–

3,613

It’s the Group’s policy to lease certain of its fixtures and equipment under finance leases. The average lease term is two years
(2004: two years). For the year ended 31 December 2005, the average effective borrowings rate was between 5.4% and 6%
(2004: between 4.8% and 5.95%). All leases are on fixed repayment basis and no arrangement has been entered into for
contingent rental payment.

70 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements continued

29. Financial policies for risk management and their objectives

Credit risk
The Group’s principal financial assets are bank balances and cash, trade and other receivables, finance lease receivables
and investments.

The Group’s credit risk is primarily attributable to its trade and finance lease receivables. The amounts presented in the balance
sheet are net of allowances for doubtful receivables. An allowance for impairment is made where there is an identified loss
event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows.

The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high
credit-ratings assigned by international credit-rating agencies.

The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties
and customers.

Market risk
The Group is exposed to foreign exchange and interest rates risk. Management actively monitors these exposures to manage
the volatility relating to these exposures by entering into a variety of derivatives financial instruments. The Group’s objective is to
reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flow associated with changes in interest rates
and foreign currency rates. It is the Group policy and practice to use derivative financial instruments to manage exposures to
interest rates and foreign currency fluctuations.

Foreign exchange risk
The Group uses the US Dollar as its reporting currency and is therefore exposed to foreign exchange movements primarily in
European, Algerian and Japanese currencies. Consequently it enters into various contracts, which change in value as foreign
exchange rates change to hedge against the risk of movement in foreign denominated assets and liabilities.

Interest rate risk
The Group manages its exposures to interest rate risks by changing the proportion of fixed rate debt and variable rate debt in
its total debt portfolio. To manage this mix, the Group may enter into interest rates swap agreements, in which it exchanges the
periodic payments based on notional amounts and agreed upon fixed and variable interest rates. Using the above-mentioned
derivative financial instruments has not had a material impact on the Group’s financial position at 31 December 2005 or the
Group’s results of operations for the year then ended.

Fair value of financial assets and liabilities:
The fair value of financial assets and liabilities are included at the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions
were used to estimate the fair value:

• Cash and cash equivalents – approximates to the carrying amount.

• Short-term loans and overdrafts – approximates to the carrying amount because of the short maturity of these instruments.

• Long-term loans – approximates to the carrying amount in the case of floating rate bank loans and other loans.

• Forward exchange contracts – based on market prices and exchange rates at the balance sheet date.

• Receivables and payables – approximates to the carrying amount.

• Provisions – approximates to the carrying amount.

• Lease obligations – approximates to the carrying value.

The fair value of the Group’s financial assets and liabilities do not materially differ form their fair value.

Hikma Pharmaceuticals PLC 71

30. Derivative financial instruments

Currency derivatives
The Group utilises currency derivatives to hedge significant future transactions and cash flows. The Group is a party to a
variety of foreign currency forward contracts and options in the management of its exchange rate exposures. The instruments
purchased are primarily denominated in the currencies of the Group’s principal markets.

At the balance sheet date, total notional amount of outstanding forward foreign exchange contracts that the Group has
committed are as below:

Foreign exchange forward contracts (Euro)
Foreign exchange forward contracts (Yen)
Foreign exchange option contracts (Euro)

2005
$000’s

414
300
–

2004
$000’s

–
–
1,020

These arrangements are designed to address significant exchange exposures.

At 31 December 2005 and 2004, the fair value of the Group’s currency derivatives is estimated to be $709,648 and $1,016,647
respectively. The fair valuation of the currency derivatives that are designated and effective as cash flow hedge resulted in a loss
of $4,847 and a loss of $3,128 for the years ended 31 December 2005 and 2004 respectively that has been deferred in equity.
These amounts are based on market values of equivalent instruments at the balance sheet date.

Interest rate swaps
The Group uses interest rate swaps to manage its exposure to interest rate movements on its bank borrowings. Contracts with
original nominal values of $19.5 million as at 31 December 2004 increased to $28 million as at 31 December 2005 have fixed
interest payments at rates ranging from 2.8% to 5.4% for periods up until 2012 and have floating interest receipts ranging
from LIBOR to LIBOR plus 1.5%.

The fair value of swaps entered into by the Group is estimated at a favourable value of $208,310 and a favourable value of
$121,892 as at 31 December 2005 and 2004 respectively. These amounts are based on market values provided by the banks
that originated the swaps and are based on equivalent instruments at the balance sheet date. Some of these interest rate swaps
are designated as effective cash flow hedges and the fair value thereof has been deferred in equity totalling $126,333 and
$32,386 for the years ended 31 December 2005 and 2004 respectively, and the remainder are designated as ineffective cash
flow hedges of which the change in their fair value has been taken to earnings. A gain of $171,483 and $81,328 for the years
ended 31 December 2005 and 2004 respectively have been recognised in the income statement.

31. Share capital

Authorised:
500,000,000 Ordinary Shares of 10p each
49,998 non-voting, Redeemable Preference Shares of £1 each

Issued and fully paid – included in shareholders’ equity 166,798,407 Ordinary Shares of 10p each

Issued and fully paid – included in liabilities
49,998 non-voting, Redeemable Preference Shares of £1 each

2005
$000’s

88,700
90

29,457

2004
$000’s

88,700
90

25,269

–

The Company was incorporated on 8 September 2005 with an authorised share capital of £50,000 divided into two Ordinary
Shares of £1 each and 49,998 non-voting, Redeemable Preference Shares of £1 each.

The two Ordinary Shares of £1 each were transferred on 8 September 2005 as subscriber shares at a price of £1 each to the
two Executive Directors, and on 15 September 2005 all the Preference Shares were allotted to the Executive Directors.
The Company redeemed the Preference Shares at par on 9 February 2006. At 31 December 2005 the Preference Shares were
recorded as a financial liability within other current liabilities.

On 31 October 2005, the two Ordinary Shares of £1 each were subdivided into 10 Ordinary Shares of 10 pence each and the
authorised Ordinary Share capital of the Company was increased to £50 million by the creation of an additional 499,999,980
Ordinary Shares of 10 pence each.

72 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements continued

31. Share capital continued
On 31 October 2005, the Company acquired the entire issued share capital of Hikma Pharma Limited pursuant to a share
exchange offer, following which it became the holding company of the Group. Under the terms of the share exchange,
shareholders in Hikma Pharma Limited received four Ordinary Shares in the Company for every one share held in Hikma
Pharma Limited. Total shares issued and fully paid were 142,400,020 Ordinary Shares of 10 pence each.

On 1 November 2005, and as a result of a placing, 24,137,931 Ordinary Shares of 10 pence each were issued at a price of
290p per Ordinary Share.

On 30 November 2005, the Company allotted 260,456 Ordinary Shares at a price of 290 pence per Ordinary Share pursuant to
the exercise of an over-allotment option.

32. Share premium

Balance at 1 January 2004, 31 December 2004 and 1 January 2005
Premium arising on issue of Equity Shares
Expenses of issue of Equity Shares
Treasury Shares

Balance at 31 December 2005

33. Treasury shares

Balance at 1 January
Sale of Treasury Shares
Purchase of Treasury Shares
Transfer to share premium

Balance at 31 December

2005
$000’s

(187)
346
–
(159)

–

The number of shares held at 31 December 2004 was 91,743 shares.

34. Reserves

Merger
reserve
$000’s

Retained
earnings
$000’s

Cumulative
translation
reserve
$000’s

At 1 January 2004
Cost of equity settled employee share scheme
Dividends on Ordinary Shares
Profit for the year
Cumulative effect of change in fair value of available for sale investments
Cumulative effect of change in fair value of financial derivatives
Currency translation gain

33,920
–
–
–
–
–
–

At 31 December 2004
Cost of equity settled employee share scheme
Deferred tax arising on stock options
Dividends on Ordinary Shares
Profit for the year
Cumulative effect of change in fair value of available for sale investments
Cumulative effect of change in fair value of financial derivatives
Currency translation gain

33,920
–
–
–
–
–
–
–

48,043
145
(3,766)
37,458
92
168
–

82,140
712
960
(17,800)
43,867
980
164
–

At 31 December 2005

33,920

111,023

190
–
–
–
–
–
1,158

1,348
–
–
–
–
–
–
(1,941)

(593)

Share
premium
$000’s

–
120,725
(10,810)
159

110,074

2004
$000’s

(193)
4,841
(4,835)
–

(187)

Total
reserve
$000’s

82,153
145
(3,766)
37,458
92
168
1,158

117,408
712
960
(17,800)
43,867
980
164
(1,941)

144,350

35. Minority interest

At 1 January
Minority interest share of profit
Other movements including foreign exchange

At 31 December

Hikma Pharmaceuticals PLC 73

2005
$000’s

2,685
1,090
(174)

3,601

2004
$000’s

697
731
1,257

2,685

36. Acquisition of subsidiary
On 14 March 2005, the Group acquired 100% of the issued share capital of Istituto Biochimico Pavese Pharma S.P.A (IBPP)
located in Italy for cash consideration of Euro 500,000 ($673,100) and deferred consideration of Euro 500,000 to be paid in
2006 subject to certain conditions. The IBPP business concerns the antiseptic manufacturing of injectable products (solutions and
lyophilized powders) in vials and ampoules.

The net assets acquired in the transaction and the goodwill arising are set out below:

Book value
$000’s

Fair value
adjustment
$000’s

Fair value
$000’s

Net assets acquired
Product files
Property, plant and equipment
Deferred taxes
Financial assets
Inventory
Other current assets
Accounts receivable, net
Cash and cash equivalents
Trade accounts payable
Capital lease obligations
Bank overdrafts and loans
Provision for end of service indemnity
Other current liabilities
Long-term financial debts
Capital lease obligations

Goodwill
Total consideration

Satisfied by:
Cash
Deferred consideration
Directly attributable costs

Net cash outflow arising on acquisition
Cash consideration
Cash and cash equivalents acquired

1,222
5,464
357
1
346
159
1,529
4
(1,207)
(541)
(2,164)
(288)
(1,797)
(1,894)
(1,163)

1,359
1,148
(651)
–
–
–
(106)
–
–
–
–
–
(1,256)
–
–

494

2,581
6,612
(294)
1
346
159
1,423
4
(1,207)
(541)
(2,164)
(288)
(3,053)
(1,894)
(1,163)

522

976
1,498

673
673
152

1,498

673
(4)

669

Directly attributable acquisition costs include legal and accounting costs incurred in the preparation of the acquisition contracts
and in performing due diligence activities.

The Group placed significant emphasis on the value of property, plant and equipment in making the decision to acquire IBPP.
The property, plant and equipment of IBPP complement the Group’s Injectables business.

74 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements continued

36. Acquisition of subsidiary continued
The losses of IBPP from the date of acquisition that are included in the Group’s income statement for the period amounted
to $526,000.

If the acquisition of IBPP had been completed on the first day of the financial year, Group revenues for the year would have
been $262,914,000 and the Group’s profit attributable to equity holders of the parent would have been $42,986,000.

37. Net cash from operating activities

Profit before tax and minority interest
Adjustments for:
Depreciation, amortisation and impairment of

Property, plant and equipment
Intangible assets
Financial assets

Results from associated companies
Losses on disposal of property, plant and equipment
Movement on provisions
Deferred income
Cumulative effect of change in fair value of derivatives
Stock options granted
Deferred tax
Interest and bank charges

Cash flow before working capital
Change in trade and other receivables
Change in due from associate
Change in other current assets
Income tax recoverable
Change in inventories
Change in trade and other payables
Change in other current liabilities

Cash generated by operations
Income tax paid
Interest paid

Net cash generated from operating activities

2005
$000’s

64,409

8,909
1,416
–
(1,449)
440
404
(174)
164
713
(252)
5,211

79,791
(22,311)
(691)
(369)
588
(13,306)
16,064
(4,029)

55,737
(17,800)
(5,224)

32,713

2004
$000’s

59,024

6,680
–
92
(732)
390
372
(54)
168
145
41
3,826

69,952
(10,426)
(1,080)
(1,700)
(707)
4,563
1,955
(6,532)

56,025
(19,458)
(3,725)

32,842

38. Contingent liabilities
The Group was contingently liable for letters of guarantee and letters of credit totalling $11.1 million and $7.1 million as of
31 December 2005 and 2004, respectively.

The Group guaranteed 47.5% of a loan granted to its associate Al-Jazeera Pharmaceutical Industries by Saudi Industrial
Development Fund (SIDF) for a total equivalent value of $11.2 million and $13.3 million for the years ended 31 December 2005
and 2004, respectively.

The integrated nature of the Group’s worldwide operations, involving significant investment in research and strategic
manufacture at a limited number of locations, with consequential cross-border supply routes into numerous end-markets,
gives rise to complexity and delay in negotiations with revenue authorities as to the profits on which individual Group companies
are liable to tax. Disagreements with, and between, revenue authorities as to intra-Group transactions, in particular the price at
which goods and services should be transferred between Group companies in different tax jurisdictions, can produce conflicting
claims from revenue authorities as to the profits to be taxed in individual territories. Resolution of such issues is ongoing.

In common with many other companies in the pharmaceutical industries the Group is subject to certain legal and product
liability claims from time to time. Whilst provisions have been made for probable losses that management deems to be
reasonable or appropriate there are inherent uncertainties connected with these estimates.

The Group does not expect the resolution of uncertainties to have a material effect on the consolidated financial statements.

Hikma Pharmaceuticals PLC 75

39. Hikma Pharmaceuticals PLC equity settled share option scheme
During the year ended 31 December 2005, the Company had one share-based compensation scheme settled by equity
instruments. The options over these instruments are settled in equity once exercised.

Details of the grants under the scheme are shown below:
2005

Type of arrangement
Date of grant
Number granted
Contractual life
Vesting conditions

General employee share option plan
13 October 2005
1,600,000
Ten years
20% per year for five years beginning on the first anniversary of the grant date

The estimated fair value of each share option granted in the general employee share option plan is $0.74. This was calculated
by applying a binomial option pricing model. The model inputs were the share price at grant date of $4.50, exercise price of
$4.50, expected volatility of 26.2%, expected dividend yield of 6.67%, expected contractual life of 7.5 years, and a risk-free
interest rate of 4.54%. To allow for the effects of early exercise, it was assumed that the employees would exercise the options
immediately after vesting date.
2004

Type of arrangement
Date of grant
Number granted
Contractual life
Vesting conditions

General employee share option plan
12 October 2004
9,520,000
Ten years
20% per year for five years beginning on the first anniversary of the grant date

The estimated fair value of each share option granted in the general employee share option plan is $0.35. This was calculated
by applying a binomial option pricing model. The model inputs were the share price at grant date of $0.91, exercise price of
$0.91, expected volatility of 44.8%, expected dividend yield of 3.85%, expected contractual life of 7.5 years, and a risk-free
interest rate of 4.22%. To allow for the effects of early exercise, it was assumed that the employees would exercise the options
after vesting date.

Further details of the general employee share option plan are as follows:

Outstanding at 1 January 2005
Granted during the year

Outstanding at 31 December 2005

Exercisable at 31 December 2005

Weighted
average
exercise price
$

0.91
4.50

1.42

0.91

Number of
options

9,520,000
1,600,000

11,120,000

1,904,000

A stock based compensation charge of $712,000 (2004: $145,000) has been recorded in the income statement as part of
general and administrative costs.

76 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements continued

40. Operating lease arrangements

Minimum lease payments under operating leases recognised in income for the year

2005
$000’s

655

2004
$000’s

492

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:

Within one year
In the second to fifth years inclusive
After five years

2005
$000’s

1,421
4,320
4,726

10,467

2004
$000’s

857
1,689
–

2,546

Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for an
average term of one to 7.5 years.

41. 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 associate and other related parties are disclosed below.

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

Al-Jazeera Pharmaceuticals Industries: is a related party of the Group because it is considered an associate company with
ownership percentage of 47.5%. Total purchases from Al-Jazeera Pharmaceuticals Industries during 2005 amounted to
$3,619,000 and total sales amounted to $1,905,000. Balances due from Al-Jazeera Pharmaceuticals Industries at the end
of 2005 amounted to $2,304,000. Management fees due to the Group amounted to $1,016,000 as at 31 December
(2004: $333,000). Sales of goods were made at the Group’s usual list prices and purchases were made at market price
discounted to reflect the quantity of goods purchased and the relationship between the 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 31.6% at the end of 2005 (2004: nil). During the year 2005, the Group
has paid administrative expense on behalf of Darhold Limited for a total amount of $34,000 of which the balance due to the
Group by year end amounted to $21,000 (2004: nil).

Export & Finance Bank – Jordan: is a related party of the Group because two board members of the Bank are also Board
members at Hikma Pharmaceuticals PLC total cash balances at Export & Finance Bank – Jordan were $5,180,000
(2004: $40,774). Loans and overdrafts granted by Export & Finance Bank to the Group amounted to $1,201,000
(2004: $1,028,000) with interest rates ranging between 1 to 1.25% + LIBOR.Total interest expense incurred against
Group facilities was $107,000 (2004: $102,000).

Jordan International Insurance Co: 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 Co in the
year 2005 were $1,185,000 (2004: $834,000). The Group’s insurance expense for Jordan International Insurance Co contracts
in the year 2005 was $967,000 (2004: $928,000).The amounts due to Jordan International Insurance Co at 2005 year end
were $78,000 (2004: $284,000).

Mena Innovative Technology: is a related party of the Group because the majority shareholder is Mr. Nabil Rizk’s wife – the head
of the Generics business. Total purchases during the year 2005 were $67,000. Purchases were made at market price discounted
to reflect the quantity of goods purchased and the relationship between the parties. The amounts due to Mena Innovation
Technology at 2005 year end were $10,000 (2004: $6,000).

Tunisian Companies: Amounts due from Tunisian companies include $162,000 (2004: $162,000), 188,000 (2004: $514,000)
and $459,000 (2004: $554,000) due form Societe Hikma Pharma – Tunisia, Societe Hikma Ibn Al Baytar Limited – Tunisia and
Societe D’Industries Pharmaceutiques Ibn Al Baytar S.A. – Tunisia, respectively. The amounts due from Societe Hikma Pharma –
Tunisia and Societe Hikma Ibn Al Baytar Limited – Tunisia are stated after provision for doubtful debts of $298,000
(2004: $676,000).

West-ward Pharmaceuticals – USA: Certain expenses of the Chairman were paid in the USA by West-ward Pharmaceuticals and
reimbursed by the Chairman. At 31 December 2005, the balance outstanding amounted to $120,000 (2004: nil) which has
been repaid since the year end.

Hikma Pharmaceuticals PLC 77

41. Related party balances continued

Remuneration of key management personnel
The remuneration of the two Executive Directors and the key management personnel of the Group are 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 Board report on remuneration on pages 40 to 42.
2005
$000’s

2004
$000’s

Short-term employee benefits
Share-based payment
Post employment benefits
Other benefits

42. Hikma Pharmaceuticals PLC main subsidiaries
The main subsidiaries of Hikma Pharmaceuticals PLC are as follows:

Company’s name

Hikma Pharmaceuticals Co.
Trust Pharma Co.
Hikma Farmacêutica
West-ward Pharmaceutical Corp.
Pharma Ixir Co.
Istituto Biochimico Pavese Pharma S.P.A (IBPP)

*Acquired during the year.

4,342
414
53
171

4,980

3,665
91
33
139

3,928

Ownership % Ownership %
Ordinary
Shares
2004

Ordinary
Shares
2005

Established in

Jordan
Algeria
Portugal
USA
Sudan
Italy

100
100
100
100
51
100*

100
100
100
100
51
–

43. Hikma Pharmaceuticals PLC defined contribution retirement benefit plan
Hikma Pharmaceuticals PLC has defined contribution retirement plans in two of its subsidiaries: West-ward Pharmaceuticals –
USA and Hikma Pharmaceuticals Jordan. The details of each contribution plan are as follows:

Hikma Pharmaceuticals – Jordan: The Group currently has an employee saving plan wherein the Group fully matches employee’s
contributions, which are fixed at 5% of salary. Employees are entitled to 30% of the Group contributions after three years of
employment with the Group and 10% for each subsequent year. Employees fully vest in the Group contributions after
ten years of employment. The Group’s contributions were $410,000 and $321,000 for the years ended 2005 and
2004 respectively.

West-ward – USA: (401 (k) salary saving plan). Prior to 2001, West-ward – USA established a 401 (k) defined contribution plan,
which allows all eligible employees to defer a portion of their income through contributions to the plan. All employees not
covered by any collective bargaining agreement are eligible after being employed for one year. Employees can defer up to 25%
of their gross salary into the plan, not to exceed $14,000 and $13,000 for 2005 and 2004, respectively, not including catch-up
contributions available to eligible employees as outlined by the Internal Revenue Service. The company matches 40% of the
employees’ eligible contribution. Employer contributions vest 0% after one year of service, 50% after two years of service and
100% after three years of service. Employees are considered to have completed one year of service for purposes of vesting upon
the completion of 1,000 hours of service at any time during a plan year. Employer contributions to the plan as at 31 December
2005 and 2004 amounted to $275,000 and $294,000 respectively.

The assets of the plans are held separately from those of the Group. The only obligation of the Group with respect to the
retirement benefit plans is to make specified contributions.

78 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements continued

44. Hikma Pharmaceuticals PLC

Consolidated income statement from date of incorporation on 8 September 2005 to 31 December 2005

Net sales
Cost of sales

Gross profit
Sales and marketing
General and administrative
Research and development
Other operating expenses, net
Share of results of associate

Operating profit
Flotation costs
Finance income
Finance cost
Other expense

Profit before tax
Tax

Profit for the period

Attributable to:
Equity holders of the parent
Minority interest

2005
$000’s

90,822
(45,600)

45,222
(9,842)
(9,182)
(6,858)
2,867
1,383

23,590
(1,426)
831
(1,789)
(1,088)

20,118
(4,376)

15,742

15,466
276

15,742

The profit and loss account above is required by the Companies Act 1985 and covers the first statutory accounting reference
period of Hikma Pharmaceuticals PLC from its date of incorporation on 8 September 2005 to 31 December 2005.

Disclosure notes for this period are not presented as the Directors do not believe they would provide meaningful information to
users of the accounts.

Directors’ remuneration for this period is included within the amounts disclosed in the Board report on remuneration on pages
37 to 42 which include remuneration for the period from 8 September or, if later, date of appointment until the year end.

Hikma Pharmaceuticals PLC 79

44. Hikma Pharmaceuticals PLC continued

Consolidated cash flow statement from date of incorporation on 8 September 2005 to 31 December 2005

Net cash from operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of intangible assets
Investment in financial and other assets
Investment in available for sale securities
Acquisition of subsidiary

Net cash used in investing activities

Cash flows from financing activities
Increase in collateralised cash
Increase in long-term financial debts
Repayment of long-term financial debts
Repayment of short-term financial debts
Payment of capital lease obligations
Dividends paid
Proceeds on issue of new shares
Payments on issue of new shares

Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Net effect of foreign exchange rate changes

Cash and cash equivalents at period end

$000’s

20,847

(14,747)
873
89
(593)
(16)
(40)

(14,434)

(5,120)
5,471
(20,500)
(15,041)
(2,310)
(10,835)
124,913
(10,810)

65,768
72,181
61,164
2,297

135,642

80 Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements continued

44. Hikma Pharmaceuticals PLC continued

Consolidated cash flow statement from date of incorporation on 8 September 2005 to 31 December 2005

Profit before tax
Adjustments for:
Depreciation, amortisation and impairment of:

Property, plant and equipment
Intangible assets

Results from associated companies
Losses on disposal of property, plant and equipment
Movements on provision
Deferred revenue
Cumulative effect of change in fair value of derivatives
Stock options granted
Deferred tax
Interest and bank charges

Cash flow before working capital
Change in accounts receivables
Change in other current assets
Change in inventories
Change in trade accounts payable
Change in other current liabilities

Cash generated by operations
Income tax paid
Interest paid

Net cash generated from operating activities

$000’s

20,118

3,950
522
(1,383)
556
375
(46)
236
273
(744)
2,089

25,946
6,155
(3,484)
(992)
(7,318)
8,186

28,493
(5,545)
(2,101)

20,847

Hikma Pharmaceuticals PLC 81

Directors’ responsibilities

Company Law requires the Directors to prepare accounts and Notes for each financial year, which give a true and fair view
of the state of affairs of the Company as at the end of the financial year and the income statement of the Company for
that period.

In preparing those accounts and Notes the Directors are required to:

• select suitable accounting policies and apply them consistently;

• make judgements and estimates that are reasonable and prudent; and

• state whether applicable accounting standards have been followed.

The Directors are responsible for ensuring proper accounting records are kept which disclose with reasonable accuracy at
any time the financial position of the Company and enable them to ensure that the accounts and Notes comply with the
Companies Act 1985. They are also responsible for the Company’s system of internal control, for safeguarding of the assets
of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities

After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the
financial statements.

82 Hikma Pharmaceuticals PLC

Independent auditors’ report to the members of
Hikma Pharmaceuticals PLC

We have audited the individual company financial statements of Hikma Pharmaceuticals PLC for the year ended 31 December
2005 which comprise the balance sheet, the cash flow statement and the related Notes 1 to 9. These individual company
financial statements have been prepared under the accounting policies set out therein.

The corporate governance statement and the Directors’ remuneration report are included in the Group annual report of Hikma
Pharmaceuticals PLC for the year ended 31 December 2005. We have reported separately on the Group financial statements of
Hikma Pharmaceuticals PLC for the year ended 31 December 2005 and on the information in the Directors’ remuneration report
that is described as having been audited.

This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state
to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or
for the opinions we have formed.

Respective responsibilities of Directors and auditors
The Directors’ responsibilities for preparing the annual report and the financial statements in accordance with applicable law and
International Financial Reporting Standards (IFRS) as adopted for use in the European Union are set out in the statement of
Directors’ responsibilities.

Our responsibility is to audit the individual company financial statements in accordance with relevant United Kingdom legal and
regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the individual company financial statements give a true and fair view in accordance
with the relevant financial reporting framework and whether the financial statements have been properly prepared in
accordance with the Companies Act 1985 and Article 4 of the IAS Regulation. We report to you if, in our opinion, the Directors’
report is not consistent with the individual company financial statements. We also report to you if the Company has not kept
proper accounting records, if we have not received all the information and explanations we require for our audit, or if
information specified by law regarding Directors’ remuneration and other transactions is not disclosed.

We read the Directors’ report and the other information contained in the annual report for the above year as described in the
contents section. We consider the implications for our report if we become aware of any apparent misstatements or material
inconsistencies with the individual company financial statements.

Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the
individual company financial statements. It also includes an assessment of the significant estimates and judgements made by
the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the
Company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in
order to provide us with sufficient evidence to give reasonable assurance that the individual company financial statements
are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the individual company financial statements.

Opinion
In our opinion:

• the individual company financial statements give a true and fair view, in accordance with IFRS as adopted for use in the

European Union as applied in accordance with the requirements of the Companies Act 1985, of the state of the Company’s
affairs as at 31 December 2005; and

• the individual company financial statements have been properly prepared in accordance with the Companies Act 1985 and

Article 4 of the IAS Regulation.

Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
London, United Kingdom

28 March 2006.

Company balance sheet as of 31 December 2005

Hikma Pharmaceuticals PLC 83

Non-current assets
Investment in subsidiary
Due from subsidiaries

Current assets
Other current assets
Cash and cash equivalents
Dividends receivable

Total assets

Current liabilities
Other payables
Other current liabilities
Income tax provision

Non-current liabilities
Due to subsidiaries

Total liabilities

Net assets

Equity
Share capital
Share premium account
Retained earnings

Equity attributable to equity holders to the parent

The financial statements were approved by the Board of Directors and signed on its behalf by:

Samih Darwazah
Director

28 March 2006

Notes

7
8
9

2005
$000’s

740,298
54,000

794,298

422
58,732
1,500

60,654

854,952

994
354
110

1,458

4,836

6,294

848,658

29,457
817,443
1,758

848,658

84 Hikma Pharmaceuticals PLC

Company statement of changes in equity for the period ended 31 December 2005

At 8 September 2005
Issue of share capital
Net income for the period

At 31 December 2005

Notes

Paid up
capital
$000’s

–
29,457
–

29,457

Share
premium
$000’s

–
817,443
–

817,443

Retained
earnings
$000’s

–
–
1,758

1,758

Total
$000’s

–
846,900
1,758

848,658

As permitted by Section 230 of the Companies Act 1985, the income statement of the Company is not presented as part of
these accounts.

Cash flow statement for the period ended 31 December 2005

Hikma Pharmaceuticals PLC 85

Profit before tax

Stock options granted
Change in other current assets
Change in other payables
Change in other current liabilities

Net cash used in operating activities
Investing activities
Change in amounts due from subsidiaries
Change in dividends receivable
Investment in subsidiary

Net cash used in investing activities

Financing activities
Proceeds from share issuance
Costs of share issue

Net cash from financing activities

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

2005
$000’s

1,695

172
(422)
994
354

2,793

(49,164)
(1,500)
(7,500)

(58,164)

124,913
(10,810)

114,103

58,732
–

58,732

86 Hikma Pharmaceuticals PLC

Notes to the separate financial statements

1. Significant accounting policies
The separate financial statements of the Company are presented as required by the Companies Act 1985. As permitted by that
Act, the separate financial statements have been prepared in accordance with International Financial Reporting Standards and
UK law.

The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same
as those set out in Note 2 to the consolidated financial statements with the addition of the policy as noted below.

Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.

2. Investment in subsidiary
Investment in subsidiary represents 100% share in Hikma Pharma Limited – Jersey, the cost method is being used to account for
this investment.

3. Financial assets

Cash and cash equivalents
These comprise cash held by the company and short-term bank deposits with an original maturity of three months or less.
The carrying amount of these assets approximates their fair value.

4. Financial liabilities

Other payables
The Directors consider that the carrying amount of other payables approximates to their fair value.

5. Staff costs
Hikma Pharmaceuticals PLC currently has two employees; total compensation paid to them amounted to $117,000 of which
salaries and wages compromise an amount of $73,000 the remaining balance of $44,000 represent social security and
other benefits.

6. Stock options
The details of the stock compensation scheme were provided in Note 39 to the consolidated financial statements. The number
of options granted to the employees of the Company (including Directors) was 2,560,000 and the total amount of the
compensation expenses charged to income statement is $172,000.

7. Share capital

Authorised:
500,000,000 Ordinary Shares of 10 pence each
49,998 non-voting, redeemable preference shares of £1 each

Issued and fully paid – included in shareholders’ equity 166,798,407 Ordinary Shares of 10 pence each

Issued and fully paid – included in liabilities 49,998 non-voting, redeemable preference shares of £1 each

The details of the issue of the share capital in the period are given in Note 31 to the consolidated financial statements.

2005
$000’s

88,700
90

29,457

8. Share premium

Balance at 8 September 2005
Premium arising on issue of equity shares
Expenses of issue of equity shares

Balance at 31 December 2005

Share premium
$000’s

–
828,253
(10,810)

817,443

9. Retained earnings
Included in the retained earnings an amount of $172,000 represents the current year charge of stock option expenses.

Hikma Pharmaceuticals PLC 87

Shareholder information

2006 financial calendar

29 March
26 April
28 April
25 May
30 May
13 September*
20 September*
22 September*
20 October*

*Provisional date.

2005 preliminary results and final dividend announced
2005 final dividend ex-dividend date
2005 final dividend record date
Annual General Meeting
2005 final dividend paid to shareholders
2006 interim results and interim dividend announced
2006 interim dividend ex-dividend date
2006 interim dividend record date
2006 interim dividend paid to shareholders

Shareholding enquiries
Enquiries or information concerning existing shareholdings should be directed to the Company’s registrars,
Capita Registrars either:

– in writing to Shareholder Services, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU;

– by telephone from within the UK on 0870 162 3100;

– by telephone from outside the UK on +44 20 8639 2157; or

– through the website www.capitaregistrars.co.uk.

Changes of address should be promptly notified to the registrars.

Website
Press releases, the share price and other information on the Group are available on the Company’s website www.hikma.com.

Share listings
The Company’s shares are listed on the London Stock Exchange. They are listed under EPIC – HIK, SEDOL – B0LCW08 GB and
ISIN – GB00B0LCW083.

Further information on this market, its trading systems and current trading in Hikma Pharmaceuticals PLC shares can be found
on the London Stock Exchange website www.londonstockexchange.com.

Company details
Hikma Pharmaceuticals PLC
Registered in England number 5557934

Registered office:
Broadwalk House
5 Appold Street
London
EC2A 2HA
Telephone: +44 20 7479 4870/4893
Facsimile: +44 20 7760 2580
E-mail:
Website: www.hikma.com

investors@global.hikma.com

88 Hikma Pharmaceuticals PLC

Principal Group companies

Hikma Pharmaceuticals PLC
Medius House LG
2 Sheraton Street
London W1F 8BH
UK
Telephone: +44 20 7479 4870/4893
Facsimile: +44 20 7760 2580
Website: www.hikma.com

From 1 June 2006 Hikma Pharmaceuticals PLC’s
address will be:
13 Hanover Square
London W1S 1HW
UK
Telephone: +44 20 7399 2760
Facsimile: +44 20 7399 2761

Hikma Pharmaceuticals Limited
P.O. Box 182400
11118 Amman
Jordan
Telephone: +962 6 5802900
Facsimile: +962 6 5827102

West-ward Pharmaceutical Corporation
465 Industrial Way West
Eatontown, New Jersey 07724
USA
Telephone: +1 732 542 1191
Facsimile: +1 732 542 6150

Hikma Farmacêutica S.A.
Estrada Rio Da Mo no. 8
8A, 8B–Fervença
2705-906 Terrugem SNT
Portugal
Telephone: +351 21 9608410
Facsimile: +351 21 9615102

Advisers

Auditors
Deloitte & Touche LLP
Hill House
1 Little New Street
London EC4A 4TR
UK

Brokers
Citigroup Global Markets Limited
Citigroup Centre
Canada Square
London E14 5LB
UK

Merrill Lynch International
Merrill Lynch Financial Centre
2 King Edward Street
London EC1A 1HQ
UK

Legal Advisers
Ashurst
Broadwalk House
5 Appold Street
London EC2A 2HA
UK

Public Relations
Brunswick Group LLP
16 Lincoln’s Inn Fields
London WC2A 3ED
UK

Hikma Pharmaceuticals PLC

Contents
02 Group at a glance
04 Chairman and

Chief Executive’s review

06 Our strengths
14 Business and financial review
28 Board of Directors and
senior management
30 Report of the Directors
32 Board report on corporate

governance

35 Audit Committee report
37 Board report on remuneration

Financial highlights

Revenue
($ million)
+23.5%

4
.
2
1
2

*
4
0

Diluted earnings
per share (cents)
+14.1%

8
.
4
2

2
.
2
6
2

5
0

3
.
8
2

43 Statement of Directors’

responsibilities

44 Independent auditor’s report
46 Consolidated income statement
47 Consolidated statement of

recognised income and expenses

48 Consolidated balance sheet
49 Consolidated cash flow statement
50 Notes to the consolidated financial

statements

81 Hikma Pharmaceuticals PLC accounts
87 Shareholder information
88 Company information

Operating profit
($ million)
+10.3%

7
.
2
6

2
.
9
6

Profit attributable
to shareholders ($ million)
+17.1%

9
.
3
4

5
.
7
3

*
4
0

5
0

4
0

5
0

R&D costs
($ million)
+70.7%

5
.
6
1

7
.
9

4
0

5
0

4
0

5
0

Designed and produced by Radley Yeldar. Photography by Edward Webb. Printed by CTD Printers.

Hikma Pharmaceuticals PLC
13 Hanover Square
London W1S 1HW
UK
www.hikma.com

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Hikma Pharmaceuticals PLC
Annual Report 2005

A strategy for growth