Hikma Pharmaceuticals Annual Report 2006

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FY2006 Annual Report · Hikma Pharmaceuticals

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

Hikma Pharmaceuticals PLC
Annual Report 2006

Strategy

delivers continued growth

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

Contents
01 Financial and operational highlights
02 Group at a glance
04 Chairman and Chief Executive’s review

Directors’ report
06 Business and financial review
20 Corporate social responsibility
24 Board of Directors
25 Senior management
26 Corporate Governance Principles
29 Audit Committee report
31 Other matters

33 Remuneration Committee report
43 Statement of Directors’ responsibilities
44 Independent auditors’ report
Financial Statements
46 Consolidated income statement
47 Consolidated balance sheet
48 Consolidated statement of changes in equity
49 Consolidated cash flow statement
50 Notes to the consolidated financial statements
76 Directors’ responsibilities
77 Independent auditors’ report
78 Company balance sheet
79 Company statement of changes in equity
80 Company cash flow statement
81 Notes to the Company financial statements
83 Shareholder information
84 Principal Group companies
84 Advisers

Front cover:
Researcher in our new R&D labs in Amman, Jordan.

Designed and produced by Radley Yeldar (London)

Hikma Pharmaceuticals PLC

01
Highlights

Revenue ($ million)

+20.9%

Operating profit ($ million)

+8.7%

Profit before tax

+17.4%

262.2

317.0

69.2

75.2

64.4

75.6

Profit attributable to shareholders ($ million)

+24.3%

43.9

54.5

Diluted earnings per share (cents)

+9.5%

28.3

31.0

Research and development costs ($ million)

+10.8%

16.5

18.3

Continuing to deliver on IPO objectives, through
targeted capital investment, acquisitions, new product
filings and new licensing agreements

Consolidated our position in the fast growing
Saudi Arabian and the wider GCC market through
the acquisition of the remaining 52.5% share
of JPI not previously owned by Hikma

Substantially increased capacity across the Group,
with the addition of a cephalosporin plant in
Portugal, production plant in Algeria, R&D labs
in Jordan and a packaging line in the United States

Signed marketing distribution agreements with
Hospira, enhancing our product offering in Europe

Received 191 regulatory approvals across all
businesses and geographies, including 14 ANDAs

Submitted 88 regulatory filings in Jordan, the US
and Europe alone, including 32 ANDAs

Launched 23 new products1 across the Group
and signed 2 new licensing agreements for the
MENA region

Entered the oncology market in early 2007
through the acquisition of Ribosepharm GmbH,
a specialist in the marketing and distribution
of injectable oncology products in Germany

1New pharmaceutical compounds that are being launched for the first time by the
Group or, for the first time, within another business segment or a new region.

Hikma Pharmaceuticals PLC

02
Group at a glance

Diversified business

Revenue by business segment

Revenue by region

41.0% 35.5%
35.9% 43.9%
21.3% 18.8%
1.8%

1.8%

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

49.7% 42.4%
40.9% 49.8%
7.8%

9.3%

1 Branded
2 Generics
3 Injectables
4 Other

Geographic coverage

Our markets

R&D centres
Manufacturing plants

Hikma Pharmaceuticals PLC

Group at a glance

Broad product portfolio

Hikma sells 176 pharmaceutical products in 397 dosage strengths and
forms in 40 countries. 26 of these products are sold under promotion
and distribution agreements with, or licences from, 16 originator
pharmaceutical companies and three generic pharmaceutical
companies1. The majority of Hikma’s operations are in the the
Middle East and North Africa, the United States and Europe.

1Two additional in-licensed products were launched in early 2007 and a further five in-licensed products are pending launch.

2006
Branded
Revenue
$130.1 million

Products
83
branded generic products
including
18
products under licence

Key markets
Algeria, Jordan
Saudi Arabia

Top products

cefazolin
cefotaxime
ceftriaxone
cefuroxime
vancomycin

Hikma Pharmaceuticals PLC

04
Chairman and Chief Executive’s review

“We are very pleased with the
performance of Hikma in our first
full year as a listed company.”

Samih Darwazah
Chairman and CEO

Overview
In our first full year as a listed company, Hikma has delivered
strong financial results, benefiting from the strength and diversity
of our business model. In accordance with our strategy, we have
achieved excellent performances in both the Branded and
Injectable businesses, which have more than compensated for
the challenging market conditions in our Generic business in
the United States.

We are already well on our way to achieving the main objectives
set out at the time of our IPO. Since then, we have repaid
$50 million in outstanding debt. We have increased capacity,
having completed and commenced production at our Algerian
plant, completed the construction of our new dedicated
cephalosporin plant in Portugal and invested in improvements
at our Jordanian, Italian and US manufacturing facilities. We have
also begun to execute our acquisition strategy, through two
significant acquisitions.

Financial results
The Group performed well in 2006, achieving revenue of
$317.0 million, up 20.9% from 2005. Gross margin for the Group
was 50.0%, down from 51.8% in 2005, but still very strong when
compared to our industry peers. Operating profit grew by 8.7%
to $75.2 million, while operating margins decreased to 23.7%,
compared to 26.4% in 2005, primarily as a result of increased
overheads related to our new Algerian plant, the continued price
erosion in the Generic business and an increase in the Group’s
general and administrative expenses. The Group’s profit
attributable to shareholders increased by 24.3% to $54.5 million
and diluted earnings per share increased by 9.5% to 31.0 cents.

Business highlights
We ended 2006 with a total of 176 products in our portfolio
in 397 dosage strengths and forms, including the 23 products
launched during the year and 26 under-licence products.
During 2006, we were granted 191 regulatory approvals across
all geographies. In addition, we submitted a total of 88 regulatory
filings, including 54 new product applications. As of 31 December
2006, we had a total of 117 pending approvals in Jordan,
the United States and Europe alone, and 105 products under
development. In addition, at JPI we have 125 products
pending approval.1

In our Branded business, we were able to leverage the investment
made in sales and marketing in 2005 to drive significant growth
across both existing and newer markets. Through these efforts
we achieved market share gains in each of our three largest
markets – Algeria, Saudi Arabia and Jordan. These results were
achieved despite disruption in the Algerian market caused by the
implementation of a new reference pricing regime. In Algeria, we
have delivered double-digit growth, compared to 2005 as a result
of the introduction of new products and the commencement of
production at our new manufacturing facility.

1Definitions of products, filings and approvals are provided in the Business
and financial review.

Hikma Pharmaceuticals PLC

Chairman and Chief Executive’s review

Developments in 2007
In January 2007, we announced the acquisition of Ribosepharm
GmbH, an oncology company specialising in the marketing and
distribution of injectable oncology products both to private
practices and hospitals in Germany. This acquisition enhances our
injectable product portfolio, develops our sales and marketing
capabilities and provides us with an excellent platform from
which to enter the large and fast-growing oncology market.

Our product portfolio and product pipeline have continued to
develop in 2007. In the first two months of the year we received
a total of 14 regulatory approvals, submitted 9 regulatory filings
and launched 4 new products.

Looking forward
We expect both our Branded and Injectable businesses to deliver
strong sales growth in 2007, through a focus on key products,
the launch of new products and expansion into new markets.
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.

The integration of JPI has been successfully completed and the
integration of Ribosepharm is proceeding in line with expectations.
Further development of our injectable product portfolio and
our injectable sales, marketing and manufacturing capabilities
is essential to our growth strategy for this business and we will
continue to work to achieve this both through organic growth
and acquisitions. At the same time, we remain focused on our
aim to consolidate our strong position in the MENA region and
we continue to evaluate acquisition opportunities in our target
markets – Egypt, Morocco and Turkey. We are confident that the
strength and diversity of our business will enable us to continue
our track record of delivering strong growth within the Group.

Samih Darwazah
Chairman and Chief Executive Officer

We have continued to consolidate our strong position in the
MENA region through the acquisition of the remaining 52.5%
shareholding in JPI. The benefits of the excellent platform we
have created for accessing the GCC market are already being
seen. JPI contributed $11.7 million in sales for the four months
ended 31 December 2006. For the first eight months of the year,
and in previous years, JPI was treated as an associate.

In our Injectable business, we delivered strong sales growth as we
continued to develop our sales and marketing infrastructure across
all three regions. We now have a strong platform from which to
drive future sales in each region. Sales were particularly strong in
the MENA region, especially in Saudi Arabia and Sudan, where we
established new customer relationships and distribution channels.
Sales growth was also strong in Europe, and especially in Germany,
where our distribution agreements with Hospira are enhancing our
product offering and facilitating the penetration of our products in
the European market. In the United States we set up a specialised
distribution company, Hikma Pharmaceuticals (USA) Inc., with a
dedicated sales force for injectables.

In our Generic business, sales declined by 1.3% compared to 2005
as a result of continued price erosion and a limited contribution
from new product launches. However, we were successful in
renewing for the fourth option year our sales contract with the
Department of Veterans Affairs, an agency of the government of
the United States, for the supply of lisinopril.

Overall, we enhanced our manufacturing facilities across the Group
during the year, significantly increasing our manufacturing capacity
in order to meet the growing demand across our core businesses.
Early in 2006, we opened a new manufacturing plant in Algeria
and we announced FDA approval of the facilities of JPI for the
manufacture of oral cephalosporin products for sale in the US
market. The construction of our new injectable cephalosporin plant
in Portugal was completed by the year end and continues to be
on track to begin commercial production in the first half of 2007.

Board appointments
In December 2006, Dr. Ronald Goode was appointed to the Board.
Dr. Goode serves as an independent non-executive Director and
as a member of both the Audit and Remuneration Committees.
He has spent over 30 years in the international pharmaceutical
industry, including having held senior positions with Pfizer and
Searle, and is currently a director of Genitope Corporation, a
NASDAQ-listed company. Dr. Goode was formerly President
and Chief Executive Officer of Unimed Pharmaceuticals, Inc.
and eXegenics Inc., and a director of several other companies,
including Hokuriku Seiyaku and Vitro Diagnostics.

Dividend
The Board has recommended a final dividend for the year
to 31 December 2006 of 4.0 cents per share (approximately
2.1 pence per share), which makes a total of 7.0 cents per
share for the year. The proposed final dividend will be paid on
18 June 2007 to shareholders on the register on 18 May 2007,
subject to approval at the Annual General Meeting.

Hikma Pharmaceuticals PLC

06
Directors’ report
Business and financial review

06 Business and financial review
20 Corporate social responsibility
24 Board of Directors
25 Senior management
26 Corporate Governance Principles
29 Audit Committee report
31 Other matters

The Directors are pleased to present their report and audited
financial statements for the year ended 31 December 2006.
For the purposes of this report, “Company” means Hikma
Pharmaceuticals PLC and “Group” means the Company and its
subsidiary and associated undertakings.

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 2006, we had 176 generic pharmaceutical products in 397
dosage strengths and forms in our product portfolio, including
26 pharmaceutical products1 under promotion and distribution
agreements with, or licences from, 16 originator pharmaceutical
companies and three generic pharmaceutical companies.

The majority of our operations are in the Middle East and
North Africa (“MENA”) region, the United States 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 business segments – Branded, Injectables and
Generics, we have three key strategic aims:

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

Grow our Injectables business by expanding our product
portfolio, developing our manufacturing capabilities and
strengthening our sales and marketing network; and,

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

In 2006, we continued to make significant progress towards
achieving these objectives. During the year we achieved market
share gains in each of our three largest markets in the Branded
business – Algeria, Saudi Arabia and Jordan, by launching new
products and leveraging our sales and marketing capabilities.
We have also expanded into new markets and strengthened
our position in the fast growing Gulf Cooperation Council
(“GCC”) region through the acquisition of the remaining
52.5% of our associate Al-Jazeera Pharmaceutical Industries
(“JPI”) that we did not previously own. We continue to drive
growth in our Injectable business, where we have significantly
developed our sales and marketing capabilities. In the challenging
US generic market, we achieved gross margin of 52.6% despite
continued price erosion and a limited contribution from new
product launches.

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
2006 against these indicators is set out in the table below,
together with the prior year performance data.

Hikma’s key performance indicators

Revenue growth
Gross margin
Operating margin
R&D costs as a percentage of revenue
Profit attributable to shareholders

1Two additional under-licensed products were launched in early 2007 and a further
five under-licensed products are pending launch, including three products from JPI.

Year ended 31 December

2006
20.9%
50.0%
23.7%
5.8%
$54.5m

2005
23.5%
51.8%
26.4%
6.3%

Change
-2.6%
-1.8%
-2.7%
-0.5%
$43.9m +$10.6m

Hikma Pharmaceuticals PLC

Directors’ report

Group performance
Revenue for the Group increased by 20.9% to $317.0 million,
compared to $262.2 million in 2005. On an underlying basis,
excluding JPI, revenue increased by 16.4%. The increase was
primarily due to strong increases in revenue in both the Branded
and Injectable businesses.

In 2006, 41.0% of revenue was generated by our Branded
business, 35.9% of revenue was generated by our Generic
business and 21.3% by our Injectable business. Geographically,
49.7% of revenue was generated in the MENA region, while
40.9% of revenue was generated in the United States and
9.3% in Europe.

The Group’s gross profit increased by 16.7% to $158.5 million,
compared to $135.8 million in 2005. Group gross margins for
2006 were 50.0% of revenue, compared to 51.8% in 2005.
On a segmental basis, gross margins improved in the Injectable
business, but declined in the Branded business, due to an increase
in overheads related to the new Algerian plant and the impact of
reference pricing in Algeria, and in the Generic business due to
continued price erosion.

Group operating expenses increased in 2006 by 23.8% to
$84.2 million, compared to $68.0 million for 2005, mainly due to
higher sales and marketing expenses in the Injectable business, an
increase in corporate expenses related to being a public company
and the consolidation of JPI for the last four months of the year.

Sales and marketing expenses increased by 27.9% to
$35.0 million, due primarily to an increase in investment in
sales and marketing infrastructure in the Injectable business
and the consolidation of the sales and marketing expenses of
JPI. Sales and marketing expenses represented 11.0% of Group
revenue in 2006, compared to 10.4% in 2005.

The Group’s general and administrative expenses increased by
34.1% to $30.3 million, compared to $22.6 million in 2005.
As anticipated, the change can be attributed to an increase
in corporate expenses, which increased by $5.0 million to
$13.2 million as we continued to strengthen corporate functions
to support the demands of being a publicly listed company.
General and administrative expenses represented 9.6% of
Group revenue in 2006, compared to 8.6% in 2005.

Investment in R&D for the Group increased by 10.8% to
$18.3 million, compared to $16.5 million in 2005. This increase
can be attributed to ongoing investment in the development of
our product portfolio. Total investment in R&D represented 5.8%
of Group revenue in 2006, compared to 6.3% in 2005.

Other net operating expenses, which consist mainly of provisions
against slow moving items partially offset by foreign exchange
gains and management fees from an associate, were $0.6 million,
compared to $1.5 million in 2005.

The share of results of associates was $0.9 million in 2006,
compared to $1.4 million in 2005. This change reflects JPI’s status
as an associate business for only eight months of 2006.

Operating profit for the Group increased by 8.7% to $75.2 million,
compared to $69.2 million in 2005. Group operating margin
declined by 2.7 percentage points to 23.7% in 2006, compared
to 26.4% of revenue in 2005, primarily as a result of increased
overheads related to our new Algerian plant, the continued price
erosion in the Generic business and the increase in the Group’s
general and administrative expenses.

Research and Development1
In the year to 31 December 2006, Hikma submitted 88 regulatory
filings, including 32 ANDAs. These included filings for new
products, which include pharmaceutical compounds not yet
launched by Hikma, existing compounds being introduced into
new regions and countries, and line extensions (the registration
of new dosage strengths or forms of existing products).

Generics

United States

Branded

MENA2

Europe and RoW

Injectables

United States

MENA2

Europe

Filings in
2006

Pending
approvals
of new
New product approvals as of products as of
31 December
31 December
2006
2006

filings in
2006

Pending

117

We estimate that the currently marketed equivalent products
of the 71 new products covered by the Group’s pending
approvals had sales of approximately $23.7 billion in the year
ended 31 December 2006 in the markets covered by our
pending approvals3.

At 31 December 2006, we had a total of 105 new products
under development, the majority of which should receive
several marketing authorisations, including separate marketing
authorisations in differing strengths and/or product forms
between 2007 and 2009.

1Products are defined as pharmaceutical compounds sold by the Group.
New products are defined as pharmaceutical compounds not previously launched
by the Group and existing compounds being introduced into a new segment or a
new region.
Line extensions are new forms or dosage strengths of existing compounds.
Filings include filings for new products and the first filing of line extensions in
a new segment or new region.
Approvals are comprehensive and include approvals for new products and line
extensions and approvals in new segments, regions and countries.
Pending approvals include only applications that are pending for new products
and the first filing of a line extension in a new segment or a new region.

2Includes only the first filing of a product or line extension in the MENA region.

3 Source: IMS Health. This figure does not include the market potential of our
pending injectable approvals in the MENA region.

Hikma Pharmaceuticals PLC

Directors’ report

Consolidate

our strong market position in the MENA region

Social dynamics fuelling demand
The availability of healthcare is expanding
in the Middle East and North Africa and
the need for pharmaceutical products,
particularly treatments associated with
chronic diseases, is rapidly increasing.

Fast growing pharmaceutical markets
IMS Health predicts that the world’s
emerging markets, which currently
represent 17% of the global market,
will contribute 30% of the global
pharmaceutical market growth in 2007.

Our growing market share
The increase in demand for
pharmaceuticals in the MENA region is
driving market growth. Through our
superior sales force and expanding product
portfolio, we continue to grow faster than
most of the underlying markets in which
we operate.

Hikma Pharmaceuticals PLC

Directors’ report

Branded

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 business manufactures branded
generic pharmaceutical products for sale across the MENA
region and, increasingly, Europe.

Revenue in the Branded business, our largest business
segment, increased by 39.9% to $130.1 million, compared
to $93.0 million in 2005. Excluding JPI, which contributed
$11.4 million, underlying sales growth was 27.6%, primarily
due to focused sales and marketing efforts and new product
registrations.

Algeria, Saudi Arabia, Jordan and Sudan were the Branded
business’s largest markets in 2006. In Algeria we recovered strongly
from the disruptions caused by the introduction of reference
pricing in the beginning of the year, delivering double-digit sales
growth. Following the approval of our new manufacturing facility
in Algeria, new product registrations and local manufacturing
approvals have helped to drive growth in this market. During the
year, we received 26 product approvals in Algeria, including four
for new products and 20 local manufacturing approvals. In 2006,
our market share in Algeria increased to 3.9%, compared to
3.3% in 2005 and we are now the sixth largest pharmaceutical
manufacturer and second largest generic pharmaceutical
manufacturer by value in the Algerian market.1 While we expect
the reference pricing system introduced by the Algerian Ministry
of Labour and Social Security Affairs in early 2006 will continue to
impact prices in the Algerian market, we believe that the strength
of our current market position and our developing product
portfolio will enable us to mitigate further price reductions.

In Saudi Arabia, we delivered excellent growth as we continued to
see the benefits of the investment in sales and marketing that was
made in 2005, when 35 sales and marketing representatives were
added to the sales team. In 2006, we increased our market share,
which includes JPI, to 4.0%, compared to 3.8% in 2005, making
us the fifth largest player in the Saudi Arabian market1. During the
year three new products were launched in Saudi Arabia.

During the year we increased our shareholding in JPI, our associate
in Saudi Arabia, to 100% for a cash consideration of $21.0 million.
Through this acquisition we are benefiting from an enhanced
product portfolio and faster product delivery in the GCC region,
improved registration times, and an increase in the number of
sales representatives covering the region. At the end of 2006,
JPI had a total of 31 products in 82 dosage strengths in its product
portfolio, including 13 products in 21 dosage strengths that are
new to Hikma.

Growth in the Jordanian market was also strong in 2006 and
well ahead of the underlying market. As in Saudi Arabia, we
benefited in the Jordanian market from the investment in sales
and marketing that was made in the second half of 2005, when
16 sales representatives were added. We received seven new
product approvals and launched three new products in the
Jordanian market during the year and increased our market share
to 7.3%, compared to 6.8% in 2005, maintaining our position as
market leader.1

Sudan, the Branded business’s fourth largest market, performed
extremely well, largely due to an increased product focus and
better geographical coverage, combined with a more stable
operating environment. While market data is not readily available
for the Sudanese market, we believe that we now have a leading
position in this market.

We also achieved strong performances in some of our newer and
smaller markets, including Libya, UAE and South Africa, driven
mainly by better brand recognition and product launches.

Revenue from the Branded business’s top-ten sellers represented
73.0% of Branded revenue in 2006. Leading products included
Amoclan, Oprazole, Penamox, Prograf and Suprax. Sales from
under-licensed products represented 34.1% of sales in 2006.
During the year, two new licensing agreements were signed,
bringing the total number of products under-licence in the
Branded business to 25.2

Gross profit of the Branded business increased by 29.3% to
$69.5 million, compared to $53.7 million in 2005. The Branded
Pharmaceuticals business’s gross margin decreased to 53.4%,
compared to 57.8% in 2005. This change in gross profit margin is
attributed to an increase in overheads associated with the new
Algerian manufacturing facility that came on stream in early 2006,
and an increase in discounts granted in the Algerian market in
relation to the new reference pricing system.

The Branded business’s operating profit (before associates)
increased by 36.9% in 2006, to $39.4 million. Through a strict
focus on operating efficiencies, operating margins in the Branded
business remained stable at 30.3% in 2006, compared to 30.9%
in 2005, despite the inclusion of additional operating expenses
from JPI. As previously indicated, JPI will have a slightly dilutive
effect on Branded operating profit margins in 2007. We expect
this will be most apparent in the first half of the year, given the
seasonality we traditionally see in the Branded business.

In line with our strategic objectives for the Branded business,
we launched a total of six new products in 2006, three in Jordan
and three in Saudi Arabia. The total number of Branded sales and
marketing staff at year end was 443, which includes 128 sales
and marketing staff at JPI. Excluding JPI, the number of sales and
marketing staff increased slightly to 315, compared to 286 in
2005, as we benefited from the investment in sales and
marketing that was made in 2005.

1Source: IMS Health.

2At the end of 2006, 18 of these products were sold in the Branded business.
A further two were launched in the beginning of 2007 and an additional five are
pending launch.

Hikma Pharmaceuticals PLC

Directors’ report

Grow

our Injectable business

Developing our sales reach
We now have 58 sales representatives
marketing injectables in the MENA
region. In addition, we have 14 sales
representatives in Europe and five in
the United States.

Building a strong pipeline
We currently have 37 new molecules
pending approval in the Injectable
business, including 20 ANDAs. We have
a further 21 line extensions pending,
as well as 97 applications pending in
new markets.

Hikma Pharmaceuticals PLC

Directors’ report

Across the Injectable business, 14 new products were launched
during the year, including six in Jordan, three in the United States
and five in Europe.

Revenue from the Injectable business’s top-ten sellers represented
68.7% of Injectables revenue in 2006. Cephalosporins continue
to be the segment’s top sellers.

Gross profit of the Injectable business increased by 53.9% to
$28.3 million, compared to $18.4 million in 2005. The Injectable
business’s gross margin increased to 41.9%, compared to 37.4%
in 2005. Injectables operating profit increased by 57.4% to
$13.4 million, compared to $8.5 million in 2005, despite an
increase in spending on sales and marketing in anticipation
of a number of new product launches. Injectables operating
margins improved to 19.8% in 2006, up from 17.2% in 2005.
The increase in both gross and operating profit margin reflects
the increased scalability of the business as we achieved higher
utilisation rates.

Also in 2006, we completed the construction of our new
cephalosporin plant in Portugal, which is on track to begin
production in the first half of 2007.

In January 2007, we acquired Ribosepharm GmbH, an oncology
company specialising in the marketing and distribution of
injectable oncology products both to private practices and
hospitals in Germany, for a cash consideration of $45.0 million.
This acquisition provides us with an excellent platform from
which to enter the large and fast-growing oncology market.
Ribosepharm currently has 11 sales representatives in the
German market.

Injectables

Our Injectable business manufactures injectable generic
pharmaceutical products in powder, liquid and lyophilised
forms for sale across the MENA region, Europe and the
United States. The Injectable business contributed 21.3%
of total Group revenue in 2006, compared to 18.8%
in 2005.

Revenue in our Injectable business increased by 37.1% to
$67.6 million, compared to $49.3 million in 2005. The increase
was due primarily to strong performances in Europe and the
MENA region, where sales grew as a result of our continued
focus on sales and marketing.

During the year, the Injectable business received 63 regulatory
approvals, including 28 in Europe, 32 in the MENA region
and three in the United States. 12 of these approvals were for
new products, the rest were for new dosage strengths or forms.

Revenues were strong in Europe, particularly in Germany, where
sales were driven by an increasingly strong product portfolio and
our enlarged sales and marketing presence. Demand for our
lyophilised injectable products and a strong performance in
Portugal also boosted European Injectables sales, as did the sales
and distribution agreements signed with Hospira in the beginning
of 2006. At the end of December we had 14 sales and marketing
representatives in Europe.

The Injectable business also performed well in the MENA region,
especially in Saudi Arabia and Sudan. This strong performance
was driven by more focused sales efforts, the continuous
introduction of new products and formulations and the
development of newer markets including Lebanon and Libya.
Strong demand for tender business also boosted sales, especially
in the second half of the year. At the end of December we
had a total of 58 sales and marketing representatives in the
MENA region.

In the United States, at the beginning of the year we established
a specialised injectable distribution company Hikma
Pharmaceuticals (USA), Inc. Sales in this part of the business grew
modestly due to a lower than expected contribution from new
product sales as a result of delays in new product approvals.

Building customer relationships
Our developing sales force is building
new relationships with hospitals and
hospital buying groups, our key customers
in the injectable market.

Hikma Pharmaceuticals PLC

Directors’ report

Focus

on high margin, niche product opportunities to generate
profitable growth in the United States

Lowering our costs
The price erosion we have seen in the
US market in recent years forces us
to be vigilant about reducing our cost
base. We are continuously looking to
secure cheaper sources of the active
pharmaceutical ingredient or API, our
most significant cost.

Hikma Pharmaceuticals PLC

Directors’ report

Generic operating profit decreased by 7.1% to $36.0 million.
Operating profit margins in the Generic business decreased to
31.7% of revenue, compared to 33.6% in 2005. The decrease in
operating margin is attributed to price erosion and the increase
in overheads mentioned above, as operating expenses remained
largely unchanged.

Other businesses

Other businesses, which include primarily Arab Medical Containers,
a manufacturer of specialised plastic packaging, and International
Pharmaceuticals Research Centre (“IPRC”), which conducts
bio-equivalency studies, had aggregate revenue in 2006 of
$5.7 million, or 1.8% of total Group revenue. Other businesses
delivered an operating loss of $1.2 million in 2006, compared to
$0.03 million in 2005, as a result of an increase in investment in
research and development.

Generics

With higher growth rates in Branded and Injectables,
the Generic business contributed 35.9% of total
Group revenue in 2006, compared to 43.9% in 2005.
Consistent with 2005, all Generic revenues were generated
in the United States.

As anticipated, 2006 was a challenging year for our Generic
business. Revenue decreased by 1.3% to $113.7 million, compared
to $115.2 million in 2005. The change was primarily due to
continued price erosion, which was only partially offset by volume
increases, and a limited contribution from new product launches.
During the year, three new products were launched.

Revenue from the Generic business’s top-ten sellers represented
70.8% of Generic revenue in 2006. Leading products included
lisinopril, doxycycline and methocarbamol.

In December 2006 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 4th Option Year for the contract
with a contract period between 21 December 2006 and
20 December 2007. The contract was renewed at a slight
discount to last year’s renewal price. All other terms and conditions
of the contract remain unchanged. Lisinopril accounted for 34.6%
of Generic revenue and 12.4% of Group revenue in 2006.

Gross profit of the Generic business decreased by 4.1% to
$59.8 million, compared to $62.3 million in 2005. Gross margin
in the Generic business was 52.6%, compared to 54.1% in 2005.
This reflects the price erosion experienced in this market, as well as
an increase in overheads as new facilities and machinery came on
line during the year. These factors were only partially offset by an
improvement in raw material costs.

Strengthening our product portfolio
We submitted 20 ANDA filings in our
Generic business in 2006, including 17
for new products. This brings the total
number of products pending approval
to 31, or 23 new products.

Positive market outlook
We expect the pricing environment in
the United States to remain competitive,
but also see evidence of positive market
trends. IMS Health is currently forecasting
global generic market growth of 13% to
14% in 2007.

Hikma Pharmaceuticals PLC

Directors’ report

14
Financial performance

Finance income
The Group’s financing income includes interest income and
net foreign exchange gains from non trading activities.
Financing income increased by $3.7 million to $5.3 million
in 2006, compared to $1.6 million in 2005. 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.

Finance costs
Financing costs decreased by $0.2 million to $5.0 million,
compared to $5.2 million in 2005. While overall debt levels
increased during the year, this is due to the consolidation of JPI.
On an underlying basis, excluding JPI, total debt decreased by
14.2% to $46.5 million as of 31 December 2006.

Profit before tax
Profit before taxes and minority interest for the Group increased
by $11.2 million, or 17.4%, to $75.6 million, compared to
$64.4 million in 2005.

Tax
The Group had a tax expense of $19.6 million in 2006.
The effective tax rate was 26.0%, a year on year decrease of
4.2 percentage points. The tax rate decrease was due to a shift
in the geographic mix of sales towards lower tax countries,
particularly in the MENA region, as well as to a change in the
geographic mix of the origin of production towards subsidiaries
in lower tax countries.

Minority interest
Hikma’s minority interest increased to $1.4 million in 2006,
compared 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 24.3% to $54.5 million for the year ended
31 December 2006, compared to $43.9 million in 2005.

Earnings per share
Diluted earnings per share for the year to 31 December 2006 were
31.0 cents, up 9.5% from 28.3 cents in 2005.

Dividend
The Board has recommended a final dividend of 4.0 cents per
share (approximately 2.1 pence). The proposed final dividend
will be paid on 18 June 2007 to shareholders on the register on
18 May 2007, subject to approval at the Annual General Meeting.

Cash flow and capital expenditure
$35.1 million of generated cash flows were invested in working
capital to support sales growth, resulting in a net cash inflow from
operating activities of $35.2 million as of 31 December 2006,
compared to $32.7 million in 2005.

Debtor days increased from 101 days in 2005 to 126 days in 2006,
due to the consolidation of JPI. Excluding JPI, debtor days increased
slightly to 107 days. This increase was mainly as a result of a
temporary increase in receivables during the fourth quarter of
the year. Using the count back method to calculate debtor days
(i.e. counting back the year end receivable balance by respective
monthly sales), debtor days were stable at 102 days and 103 days
as at 31 December 2005 and 31 December 2006, respectively.

Inventory days increased from 168 days to 194 days primarily
due to a strategic decision in the United States to enhance service
levels by increasing inventories and due to the consolidation of JPI.
Without JPI, inventory days increased to 183 days.

Net cash used for investing activities was $72.7 million in the year
to 31 December 2006 compared to $16.4 million in the same
period in 2006. The most significant investing activity in 2006
was purchases of property, plant and equipment amounting to
$49.7 million, which relates primarily to the construction of the
new cephalosporin plant in Portugal, expansions in production
capacity in Jordan and the US, in addition to the completion of
the manufacturing facility in Algeria. During the year the Group
also made regular investments in upgrading and maintaining
existing facilities in all other areas, as well as setting up a new
quality control laboratory and research and development facility
in Jordan.

The second significant component of investing activities during
2006 was the $21.0 million paid for the acquisition of the 52.5%
of JPI that we did not already own.

Net cash used in financing activities in the 12 months to
31 December 2006 was $13.6 million, primarily representing a
long term debt (including capital leases) decrease of $8.9 million
and dividends paid of $7.0 million.

Hikma Pharmaceuticals PLC

Directors’ report

Consolidation of our position in the MENA region and expansion
of our Injectable business remain key strategic objectives and we
will continue to look for opportunities to expand our operations
both organically and through acquisitions.

In 2007, the intangible assets (excluding goodwill) acquired in the
JPI and Ribosepharm transactions will be amortised, in accordance
with the accounting standard IFRS 3 “Business combinations”.
As a result, we expect to incur an annual amortisation charge of
approximately $0.3 million for JPI, based on associated intangible
assets that we have valued at $4.9 million. We will undergo a
similar valuation exercise with respect to Ribosepharm’s intangible
assets over the course of the year and expect to incur an
associated annual amortisation charge. Generally, we expect future
amortisation charges will increase consistent with the acquisitive
nature of the Group.

Basis of preparation and forward-looking statements
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. Certain statements in the above review are forward-
looking statements which 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.
By their nature, forward-looking statements involve a number of risks, uncertainties
or assumptions that could cause actual results or events to differ materially from
those expressed or implied by the forward-looking statements, and should be treated
with caution. These risks, uncertainties or assumptions could adversely affect the
outcome and financial effects of the plans and events described in this review.
Forward-looking statements contained in this review regarding past trends or
activities should not be taken as a representation that such trends or activities will
continue in the future. You should not place undue reliance on forward-looking
statements, which speak as only of the date of this the approval of this report.

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

Cash balance and net cash position
The Group’s cash and cash equivalents decreased by
$49.7 million in 2006 to $86.2 million, primarily as a result of
capital expenditures, the acquisition of JPI, debt repayments and
dividends, partially offset by normal operating activities, which
generated $35.2 million.

The Group’s net cash position at 31 December 2006 was
$25.0 million, compared to a net cash position of $86.9 million
at 31 December 2005. Net cash 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 365.25 pence on 29 December
2006, a decrease of 9.76% since 30 December 2005. The Group’s
total shareholder return for this period was –9.3%, compared
to 32.7% for the FTSE 250 and –2.2% for the FTSE 350
pharmaceuticals sector, with the stock underperforming both
indices over the period. During this period the share’s closing price
ranged from a low of 329.5 pence on 29 June 2006 to a high of
458 pence on 25 April 2006.

Future outlook
Group performance in 2007 is on track and we are pleased
to be able to reiterate the guidance we gave in January of this
year and are updating this guidance to reflect the acquisition
of Ribosepharm.

Incorporating Ribosepharm, which will be consolidated from
1 January 2007, we now expect to deliver Group sales growth
in excess of 30%. Ribosepharm will also impact positively
on gross margin, which we now expect to be in line with 2006.
We expect Ribosepharm’s sales and marketing expenses as a
percentage of sales, however, to be approximately 35% to 40%
in 2007.

We will continue to invest in R&D at a rate of 5% to 6% of sales
and we now expect that our effective tax rate will improve slightly
from the 26% we have achieved in 2006.

We expect our results in 2007 will continue to reflect the
seasonality of our business, which will be further emphasised by
the consolidation of JPI. In addition, we continue to expect that
JPI will have a slightly dilutive effect on Branded operating margins
in 2007.

Hikma Pharmaceuticals PLC

Directors’ report

16
Financial performance continued

Pricing dynamics
Pricing for the Group’s products reflects 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.

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 its markets.
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 operate.

In 2007 it is possible that regulatory changes could impact our
businesses. In the United States, the Medicare Act 2003 was fully
implemented in 2006. As a result, we expect an increase in 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 impacted the pricing of some of our
products sold in Algeria. We expect this reference pricing system
will continue to impact prices in the Algerian market, but believe
that the strength of our current market position and our
developing product portfolio will enable us to mitigate further price
reductions in the Algerian market.

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
of any 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.

Hikma Pharmaceuticals PLC

Directors’ report

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 rate swap agreements, in which it exchanges the periodic
payments based on notional amounts and agreed upon fixed
and variable interest rate. Using these swap agreements has
not had a material impact on the Group’s financial position at
31 December 2006. See Note 27 to the Group’s consolidated
financial statements for a description of the Group’s interest
rate risks.

Credit risk
In most cases, the Group grants its buyers credit terms for
settlement of sales invoices. Credit risk is managed through the
Group Credit policy and the Group may also make use of factoring
and/or credit insurance arrangements to mitigate this risk.
Further details are set out in Note 27 of the Group’s consolidated
financial statements.

Liquidity risk
The Group has constant financing requirements, both for
short-term working capital needs and for long-term strategic plans.
Group Treasury ensures the Group debt/capital structure and
banking arrangements can accommodate these financing needs.

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

API and other raw material costs
Raw materials accounted for approximately 31.7% of the Group’s
net sales in the year ended 31 December 2006, with the most
significant portion of these costs relating to APIs. Whilst the prices
of the APIs 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 of
operations. Hikma has a dedicated API sourcing function that has
been successful in sourcing lower cost API’s 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 in order to finance the working
capital requirements of the Group.

Financial risks
The Group Treasury Manager is responsible for Financial Risk
Management and setting the appropriate controls and risk policies.
He is supported by treasury and budgeting managers at the
operating company and segmental levels, and reports to the
Chief Financial Officer.

Foreign exchange risk
The Group uses the USD as its reporting currency and is therefore
exposed to foreign exchange movements primarily in European,
Algerian and Sudanese currencies. Consequently, it enters into
various contracts, that change in value as foreign exchange
rates change, to preserve the value of assets and profitability.
Using these derivative financial instruments has not had a material
impact on the Group’s financial position at 31 December 2006.
See Note 27 to the Group’s consolidated financial statements for
a description of the Group’s foreign exchange risks.

Hikma Pharmaceuticals PLC

Directors’ report

18
Financial performance continued

Critical accounting policies and estimates
The Group’s accounting policies are more fully described in Note 1
of the Group’s 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.

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.

Hikma Pharmaceuticals PLC

Directors’ report

Accounts receivable and bad debts
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.

Goodwill and intangible assets
The Group’s management has significant investments in goodwill
and intangible assets as a result of acquisitions of businesses
and purchases of such assets as product development and
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.

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. The critical area of judgement is in relation to the
useful economic life of these product related intangibles and
the impairment tests for that are performed at least annually.

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 or former sites. The Group’s management believes
that potential liabilities have a remote probability of crystallising.
These are treated as contingent liabilities in the Group financial
statements, and accordingly disclosed in Note 36. 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. The tax expense represents the sum of
the current 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.

Hikma Pharmaceuticals PLC

Directors’ report

20
Corporate social responsibility

Our commitment

Letter from the Chairman and Chief Executive,
Hikma Pharmaceuticals PLC

One of the great lessons of my life is that it is vitally important
for a successful person or business to commit to giving
back. Over 25 years we have built a strong and successful
global company based upon a set of core values which
are underpinned by the principle of giving back to our
communities, environment, families, friends and colleagues
and – most importantly – those less fortunate than ourselves.

Everyone at Hikma rightly believes that the work we do is
vitally important: our medicines save lives and make life
more comfortable for millions of patients in many countries
throughout the world. However, from day one, I recognised
that the way we do business is just as important as the quality
of the products we produce.

I have always insisted upon the highest ethics and in not just
meeting, but striving to surpass the regulations and “best
practice” that govern what we do. This ethos encompasses
our core business of producing medicines of the highest
quality as well as doing our best to care for the communities
and environment in which we live and work.

I am delighted to be writing this commitment to Hikma’s
corporate and social responsibility from a position of great
strength: our commitment is not new or recently embarked
upon. It is, rather, a fundamental pillar upon which our business
is based.

However, as with all good work, the job is never complete
and I assure our employees, shareholders, customers, patients,
communities and the governments who have given us
permission to sell our products in their countries that we
will continue to target the highest levels of corporate and
social responsibility in everything that we do.

Samih T Darwazah
March 2007

Summary and highlights
Every year, Hikma’s products save lives and improve the health
of millions of people around the globe. With our overriding
commitment to quality, in each of our chosen markets we aim
to meet and exceed every regulation and quality test applicable
to our industry.

We hire and retain the best employees in the business and we
train them well. We look after our employees and their families
because we are all part of the same Hikma family.

Hikma cares about the communities in which it works. We are
committed to making life in those communities better for
everyone who lives there, whether that is through education,
healthcare initiatives, charitable aid, sponsorships or work on
community improvement projects. We also care about protecting
our environment and ensuring that the business of making
lifesaving products doesn’t negatively impact upon it.

Our core values
• Honesty, integrity and the highest ethical standards

• Striving towards the highest levels of quality across our business

• Respect for all people, regardless of race, religion, gender

or background

• Dedication to the welfare, education and quality of life of

our employees

• Care and preservation of our environment and investment in

the communities in which we work.

Hikma’s vision for Corporate Social Responsibility
Our aim is to bring the strong principles of our founder to life
through a Corporate Social Responsibility (“CSR”) policy that
builds upon those principles and further aligns them with a
corporate strategy where ethical practices are integrated in all
aspects of Hikma’s business practice.

We aim to be recognised as a company that strives to focus on
respecting the environment and investing in the communities
in which we work whilst producing world-class products for
our global market.

We want to be acknowledged as a company that aligns
economic success with corporate and social responsibility, through
a commitment to our people and by encouraging education and
instilling positive values across our working practices. In turn,
this will bring value to our shareholders and to the communities
where we work.

Our vision is to be a leader, both in the Middle East and globally,
demonstrating that the strategic objectives of a business can be
achieved alongside a sustainable interaction with the economic
and social environment.

Hikma Pharmaceuticals PLC

Directors’ report

Our work with NGOs and charities
Hikma has recently adopted a formalised process for the way that
we work with and support NGOs at both global and local levels.
Over the years, we have supported a host of local charities and
invested money and time into many much needed projects.
These have helped fulfil one of the Company’s main philosophies
of giving something back to the communities in which we work.

Our strategy for working with and supporting NGOs and charities
will focus from now on fulfilling three key objectives: encouraging
Company-wide employee engagement in our work with NGOs
and charities, building mutually beneficial relationships with
selected organisations, and raising awareness of Hikma’s impact
on the environment via our work with NGOs in specific areas
such as water conservation or education. This strategy should
enable us to raise our profile as a responsible world-leading
pharmaceutical company as well as engage our employees to
see beyond our specifically corporate aims.

Although we have adopted this Company-wide strategy, we
believe that it is important and beneficial for each of our individual
businesses and operating companies to choose NGOs or charitable
causes they might wish to support for local or even personal
reasons. Hikma is keen to utilise our employees’ knowledge
of their local communities and to address their concerns for issues
affecting it. To ensure that our CSR strategy grows from the
grassroots level up we are currently engaging with individual
employees as part of the process by which we will select and
develop a global theme and cause.

CSR activity – 2006

Our environment
Hikma believes strongly in sustainable development. In every
country in which we operate, we are dedicated to protecting
the environment.

Hikma has an ongoing programme of installing energy saving
systems and energy efficient machinery in our plants and
offices worldwide. During 2006, we invested in energy efficient
machinery in 50% of our operations. New building projects in
Jordan and Portugal were designed to make best use of natural
light with skylights the administration buildings and laboratories.

Managing CSR
Hikma has taken several important steps in ensuring that CSR
remains a focus for the Group and its employees.

During 2006, we appointed an internationally recognised
consulting firm to help us understand how CSR sits within
Hikma’s strategy and to work with us to define our vision.
They have collected data across our operations in order to identify
areas where we are already achieving best practice and areas that
are in need of development. Our aim for this coming year is to
implement a structured CSR programme, through which we can
improve areas of weakness and develop our strengths. By the end
of 2007, we will be able to measure our progress against the data
collected in 2006. We will also be able to set out formal targets
against which we can report results and thus be in a position to
analyse our CSR efforts in an effective and measurable way.

Another recent development in managing Hikma’s ongoing CSR
is the creation of a new post of CSR Manager, reporting directly
to the Executive Vice Chairman, Mazen Darwazah.

The CSR Manager heads up Hikma’s CSR Core Committee
which is made up of a cross-section of Directors and managers.
The Committee meets regularly to discuss issues relating to
CSR and to decide on the best ways to move forward with
new policies, programmes and activities. The CSR Manager is
also responsible for day-to-day management and oversight
of the Company’s progress in measuring and delivering our
CSR objectives.

In addition, Hikma has officially implemented a Corporate Code
of Conduct which applies to all employees, including members
of the Board of Directors. The Code sets the highest international
level of ethical, moral, legal and business standards and covers
the spectrum of employee and corporate conduct. Within this
context, the Code encompasses respect for the individual and
human rights, health and safety in the workplace, human
development, protection of the environment, sustainability
or enhancement of natural resources, civic contribution, and
public involvement.

Helping to raise international standards
Hikma has signed up to a number of international charters and
compacts which work to raise standards of corporate and social
responsibility around the globe. In October 2006, Hikma signed
up to the Partnering Against Corruption Initiative (“PACI”) charter,
which aims to develop multi-industry principles and practices that
result in a competitive level playing field based on integrity,
fairness and ethical conduct.

Hikma is also in the process of assessing participation in the
United Nations Global Compact (“UNGC”) and the Global
Reporting Initiative (“GRI”). Adoption of the principles of these
corporate citizenship initiatives would provide Hikma with a
relevant, transparent and globally recognised reporting standard.

Hikma Pharmaceuticals PLC

Directors’ report

22
Corporate social responsibility continued

Our employees
Our employees are the lifeblood of Hikma and the pride of our
Company, both contributing to and benefiting from our corporate
social responsibility ethos.

In addition to the usual range of employee benefits, Hikma also
supports employees in fully funded further education such as
MBA and BA programmes and the Group provides bespoke
support for employees in need. We believe in hiring the best
employees we can find and then looking after them.

During 2007 Hikma will be introducing world-wide job grading
to allow us to compare positions across the Company and to
ensure internal and external equity with regards to compensation
and benefits. We will also be developing our performance
management process through which employees are given
quantifiable targets to personal and professional development.

We will also be developing a global Health and Safety policy
which will be based on country specific policies currently in place.

Our ethics
Pharmaceutical companies owe an extraordinary duty of care to
their customers and end consumers in terms of product quality,
safety and integrity. Lives depend on us getting quality and
efficacy absolutely right every time.

Hikma demands high standards of its suppliers above and beyond
the technical aspects and regulatory compliance of what they
provide to us. In 2007, we intend to develop this further, by
formalising a process of examination of environmental and ethical
practices and ensuring compliance with laws and regulations in
their respective countries.

We manage our waste responsibly and continually look for
further opportunities to recycle and reduce emissions. Steel,
aluminium, cardboard, plastic, paper and glass are recycled in a
multi-site drive to recycle our waste products. Water is cleaned by
us, wherever appropriate, before being returned to treatment
plants. Air filters are used at our penicillin production plants and
all output is routinely tested and checked to ensure that only
clean air is emitted.

Hikma regards environmental protection as a vital concern of
the Group and strongly encourages all employees to promote
energy savings and make the best possible efforts to conserve
and improve the environment. During 2007, we will be drafting
and implementing a Group-wide Environmental Policy and will
be setting targets for ourselves in environmental measurements
such as emissions, energy use, water use and levels of waste.
This is being made possible as a result of the data gathering
work we have commissioned and it will help us to both start
a measurement process and create defined areas where we
set our own standards.

Our society
Education is at the heart of Hikma’s commitment to society.
We are passionate about providing opportunities for further
education to our employees. In addition, we co-operate with
local universities and professional colleges in on-site student
training, site visits and assistance with research projects.
Hikma also builds schools in remote areas, sponsors educational
conferences and provides ongoing support such as teacher
housing and scholarships for promising students.

Charitable donations form another important part of Hikma’s
role within our local communities. During 2006, Hikma donated
$1.0 million in cash and medicines to charitable causes both in
Jordan and abroad. Employee donations to disaster relief funds
have been matched or exceeded by the Group and the Group
provides regular donations to countries in crisis. In addition,
Hikma operates a wide range of sponsorships and supports
an array of local charities in each of our communities around
the world.

2007 will see more of the same, with increased assistance for
charitable causes identified by our employees and stronger
links with NGO’s in our home countries. As ever, education
will continue to be a priority in terms of assistance for those
who need it most and we will do our utmost to give both
employees and those in our communities the very best in
educational opportunities.

Hikma Pharmaceuticals PLC

Directors’ report

Case study

Investment in the environment
Hikma’s production facilities in Portugal provide an excellent
example of the ways in which the Company is working towards
a cleaner, healthier environment. The two plants – one of which
is under a year old – are state-of-the-art facilities that employ
270 people and produce many of Hikma’s injectable products.

The plants have been built to provide energy efficient offices and
production areas and Hikma has made a substantial investment
in ensuring that the Company and its employees are committed
to efficient manufacturing practices and to minimising their
impact on the environment.

“Our main environmental aim in the building of these plants
has been to maximise the efficient utilisation of energy and
resources,” explains Amjad Wahbeh, New Projects Director in
Portugal. “The reduction of energy use, responsible solutions for
waste disposal and recycling are all important factors in ensuring
these facilities are as environmentally-friendly as possible.”

In the new plant, we have thought strategically about the
utilisation of natural light to minimise our energy requirements.
In addition, the implementation of motion detectors and a central
light control system ensures that the Company uses as little
electric energy as possible.

The new plant has also been built with double wall insulation,
a heat recovery system for the main air handling units, and a
water recycling system which ensures that cleaned process water
is re-used for sanitary, irrigation and floor cleaning purposes.

Hikma is committed to the protection and improvement of the
environment and to a greener and cleaner planet. We are proud
to be investing in energy efficient machinery that makes good
environmental – and good business – sense.

Letter from the Executive Vice-Chairman,
Board member responsible for CSR

Whilst delivering value to our shareholders, our primary aim
as a pharmaceutical company is that we produce consistently
high quality products, that the communities we work in benefit
from a clean environment, and that the pharmaceutical industry
benefits from our drive to raise standards and share our
expertise internationally.

Our CSR policy is designed to articulate the strong ethical
principles upon which the company was founded by ensuring
that our employees understand the ways in which they can
make a difference to the environment around them. Firstly, that
they are aware of how they can minimise their impact on the
environment – both as individuals and in playing a valuable role
to help Hikma reduce its impact. Second, that our employees
enhance their contribution to society with the full cooperation
and support of our organisation. Finally, that we all ensure that
we feel comfortable with the environmental and social
behaviours of our suppliers.

Changing global conditions in terms of the environment, best
practice, social awareness and political climates mean that we
must continually endeavour to meet the increasing demands of
corporate and social responsibilities. This report sets out how
we aim to formalise our ongoing commitment to Hikma’s set
of long-held business ethics and to ensure that all stakeholders
are aware of our intentions to drive forward our CSR principles.

Mazen Darwazah
March 2007

Hikma Pharmaceuticals PLC

Directors’ report

24
Board of Directors

1 Samih Darwazah

CEO and Chairman, 76

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

Executive Vice-Chairman, CEO of MENA, 48
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,
Capital Bank of Jordan 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 Council since 2003.
Mazen holds a degree from Beirut University, Lebanon.

3 Ali Al-Husry

Non-Executive Director, 49

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 Capital Bank of 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.

5 Breffni Byrne

Independent Non-Executive Director, 61

Breffni Byrne was appointed to the Board in October
2005 and 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, including significant
international responsibilities, 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.

4 Michael Ashton

Independent Non-Executive Director, 61

6 Sir David Rowe-Ham

Michael Ashton was appointed to the Board in October
2005 and holds the position of Chairman of the
Remuneration Committee. He is also a member of the
Audit Committee and the Nomination Committee.
Michael is the Group President and Chief Executive Officer
of LMA International and also serves on the Boards of
Transition Therapeutics and Proximagen.

Senior independent Non-Executive Director, 71
Sir David Rowe-Ham was appointed to the Board in
October 2005 and holds the position of Chairman of
the Nomination Committee. He is also a member of the
Audit Committee and the Remuneration Committee.
Sir David brings to Hikma a wide experience in financial
matters, corporate governance, public affairs and the
development of listed companies. He is also Chairman
of Arden Partners plc, Olayan Europe Ltd. and Peninsular
South Asia Investment Co. Ltd.

7 Ronald Goode

Independent Non-Executive Director, 63

Ronald Goode was appointed to the Board on 12
December 2006. He is a member of the Audit Committee
and the Remuneration Committee. Ron has spent over
30 years in the international pharmaceutical industry,
including having held senior positions with Pfizer and
Searle. He is the chairman of The Goode Group, advisers
to the pharmaceutical industry, and is a director of Mercy
Ships International and a trustee of Thunderbird. He is
also a director of Genitope Corporation, a NASDAQ-listed
company. He was formerly President and Chief Executive
Officer of Unimed Pharmaceuticals, Inc. and eXegenics Inc.,
and a director of several other companies, including
Hokuriku Seiyaku and Vitro Diagnostics.

Hikma Pharmaceuticals PLC

Directors’ report

25
Senior management

4 Majda Labadi

Vice-President of Injectables and General Manager,
Hikma 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 master
degree in health economics and a B.A. from the
American University of Beirut.

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.

5 Gabriel Kalisse

General Manager, West-ward Corporation

Gabriel took up the position of General Manager of the
Generic 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 2003 as
the General Manager of Hikma Pharmaceuticals Limited –
Jordan. Gabriel holds an M.B.A. from INSEAD.

6 Henry Knowles

General Counsel and Company Secretary

Henry joined the Company in September 2005. Prior to
joining Hikma, he worked for 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 is admitted
as a solicitor in England and Wales and holds an M.A. in
Social and Political Science from Cambridge University.

1 Bassam Kanaan

Chief Financial Officer

Bassam joined Hikma in 2001 and played a leading role in
preparing the company for its IPO in 2005. Prior to joining
Hikma, Bassam was the CFO of PADICO from 1994 to
2001. He currently serves on the board of Zara Holding and
has previously served as a board member of several large
corporations including Palestine Telecommunication Co.
and Central Electricity Generation Company in Jordan.
He qualified as a CPA with Deloitte & Touche in
Los Angeles where he worked as audit manager.
Bassam holds an Executive M.B.A. from Northwestern
University and a B.A. from Claremont McKenna College
in the United States.

2 Nabil Rizk

CEO of Generic Pharmaceuticals and Senior Corporate
Vice-President of 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

Corporate Vice-President Branded Pharmaceuticals,
MENA

Taghreed joined the Company in 1988 after graduating
from the University in Jordan with a degree in pharmacy.
In 1995, she was appointed as Marketing Planning Director
of Hikma Pharmaceuticals Limited and in 2002, promoted
to General Manager of Hikma Pharmaceuticals Limited.
In 2005, Taghreed became Corporate Vice-President of
Branded Pharmaceuticals MENA. Taghreed is expected
to complete her Executive MBA from INSEAD in
December 2007.

Hikma Pharmaceuticals PLC

Directors’ report

26
Corporate Governance Principles

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 (as revised) (the “Combined Code”)
as well as the corporate governance principles set out in the
Markets Law of the Dubai Financial Services Authority (the
“Markets Law”) (together the “Corporate Governance Principles”).
This report, the Audit Committee report set out on pages
29 and 30 and the Remuneration Committee report set out on
pages 33 to 42 describe how the Board applied the Corporate
Governance Principles during the year under review.

The Listing Rules of the Financial Services Authority and the
Markets Law require the Group to report on its application of the
principles of good governance and the extent of its compliance
with the provisions of the Corporate Governance Principles.
This statement provides details on how the Group has applied
these principles.

Each of Michael Ashton, Breffni Byrne, Ronald Goode and
Sir David Rowe-Ham are independent Non-Executive Directors.
The fifth Non-Executive Director, Ali Al-Husry, who brings 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, 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
to the Board. During the year under review, 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.

The senior independent Director is Sir David Rowe-Ham.

The Board
The Group is led and controlled by the Board of Directors.
The Board’s 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 it
responsibilities to shareholders, employees, customers and other
stakeholders. There is a formal schedule of matters reserved
for the Board’s 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.

Except for the matters formally reserved for the Board, and in
accordance with the Company’s Articles of Association, the Board
has delegated responsibility for the management of the Group,
through the Chief Executive, to executive management.

Composition of the Board
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 five
Non-Executive Directors. The names of the Directors and their
biographical details are set out on pages 24 to 25. The Chief
Executive and the Executive Vice-Chairman were appointed to
the Board on the incorporation of the Company on 8 September
2005. Save for Ronald Goode, who joined the Board on
12 December 2006, each of the Non-Executive Directors joined
the Board prior to the Company’s listing on the London Stock
Exchange, on 14 October 2005.

The Company combines the roles of Chairman and Chief
Executive, both these roles being held by Samih Darwazah, the
founder of the Group.

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 following its transition from private to public
company in late 2005, 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.

Board procedures and support
Board procedures afford the provision of timely, regular and
necessary management information to Directors to enable them
to fulfil their duties, with full board papers circulated in advance
of Board and Committee meetings. The Company Secretary is
charged with ensuring good information flow 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 for advising the
Board through its Chairman on all good corporate governance
matters to maintain compliance throughout the Group.
The appointment and removal of the Company Secretary
is a matter reserved for the Board.

Board meetings
During the year under review, the Board met on nine occasions.
The Company Secretary attended all Board Meetings and
Committee Meetings. A table showing attendance at these
meetings is set out below.

Meeting
record

Number of meetings

Samih Darwazah

Mazen Darwazah

Ali Al-Husry

Michael Ashton

Breffni Byrne

David Rowe-Ham

Ronald Goode

Board

Audit

Remuneration

Nomination

–

*Ronald Goode was appointed at the final meeting of the year.

Hikma Pharmaceuticals PLC

Directors’ report

The Directors maintain 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. Visits by each of the Non-Executives to the Group’s main
facilities in the MENA region, the United States and Europe help
to reinforce the Board’s understanding of key business issues.

presentations at investor conferences. In 2006 the Company also
held a site visit for investors and analysts at its manufacturing
facility in Portugal.

The Chairman, Executive Vice-Chairman, Chief Financial Officer
and other senior corporate executives have all participated in this
investor programme during the period under review.

Board performance evaluation
All Directors other than Ronald Goode were elected by
shareholders at the first Annual General Meeting, held on
25 May 2006. Ronald Goode will be subject to election by
shareholders at the Annual General Meeting to be held on 6 June
2007. All Directors are subject to re-election thereafter at intervals
of no more than three years. Non-Executive Directors are
appointed for an initial term of three years, which can be renewed
and extended for not more than two further three-year terms.

The principal ongoing communication with shareholders is 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 is updated regularly.
Additionally the Company presents a balanced view of the Group’s
performance and prospects through the release of appropriate
press announcements and other updates.

The Chairman believes that the Non-Executive Directors
continue to bring a balance of skill and experience to the Board,
and 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 24.

As required by the Combined Code, an evaluation of the
performance of the Board, the Chairman, the Committee
Chairmen and the individual Non-Executive Directors was
undertaken during the period under review.

The Non-Executive Directors, led by the senior independent
Director, met to undertake a formal appraisal of the performance
of the Chairman. In addition to the matters set out overleaf in
respect of all Directors, the review addressed effectiveness of
leadership, setting the Board agenda, communication with
shareholders and internal communication and Board efficiency.

Discussions on the performance of the Board, each of its
Committees and each Non-Executive Director were also undertaken
by the Chairman with each Committee Chairman and each
Non-Executive Director. These discussions focused on Board and
Committee performance and membership, timetabling, internal
and external support, the quality and timely availability of
relevant Board information and the contribution of, preparation
for and performance by individual Directors at Board and
Committee meetings.

Directors’ service arrangements and terms of appointment
Details of the Executive Directors’ service arrangements and
Non-Executive Directors’ letters of appointment are contained
in the Remuneration Committee report on pages 33 to 42.

Directors’ remuneration
Details of the remuneration of the Executive and Non-Executive
Directors are contained in the Remuneration Committee report
set out on pages 33 to 42.

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, the Company has undertaken a programme of
meeting with institutional shareholders in the UK, Europe, the
United States and the MENA region. This programme includes
but is not limited to one-on-one meetings, conference calls and

The Board is kept updated on the views of shareholders and the
market in general through the feedback from the investor meeting
programme and results presentations. Analysts’ reports are
circulated to the Board members together with monthly Investor
Relations reports. 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 and the Markets Law,
the Board maintains three Committees – the Audit Committee,
Nomination Committee and Remuneration Committee. The Group
also has an Executive Committee comprising the Executive
Directors and senior management of the Group, and an Ethics
Committee, which draws its members from the Board and the
senior management of the Group.

Each of the three Combined Code Committees has terms of
reference, which were reviewed during the year. 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. 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, and the Company has therefore complied with
the requirements of the Corporate Governance Principles.

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.

The Nomination Committee met five times during the year,
culminating in the recommendation of the appointment of
a new Non-Executive Director. In discharging their responsibilities,

Hikma Pharmaceuticals PLC

Directors’ report

28
Corporate Governance Principles continued

the Committee appointed an independent search firm and used
other sources to identify relevant candidates, compiled a shortlist,
and following a process of interviews conducted by members of
the Committee, made a recommendation to the Board in respect
of the appointment.

Remuneration Committee
The Remuneration Committee consists of the Company’s
four independent Non-Executive Directors – Michael Ashton
(Committee Chairman), Breffni Byrne, Sir David Rowe-Ham
and Ronald Goode, who joined the Committee following
his appointment to the Board on 12 December 2006.
The Remuneration Committee therefore consequently
complies with the Corporate Governance Principles
membership requirements.

The Committee met eight times during the year with full
attendance. 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 Remuneration Committee Report
on pages 33 to 42.

Audit Committee
The Audit Committee consists of four independent Non-Executive
Directors – Breffni Byrne (Committee Chairman), Michael Ashton,
Sir David Rowe-Ham and Ronald Goode, who joined the
Committee following his appointment as a Director on
12 December 2006. The Audit Committee consequently
complies with the Corporate Governance Principles
membership requirements.

The Committee met eight times during the year with full
attendance. 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 29 and 30.

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
operating subsidiaries, implements the decisions of the Board,
and makes recommendations for the Board’s approval.

Ethics Committee
The Ethics Committee is chaired by Michael Ashton and draws
its members from the Board (Michael Ashton, Ronald Goode
and Mazen Darwazah) and senior management across the
Group. The Ethics Committee aims to monitor ethical behaviour
and integrity across all areas of the Group’s business. Thus, the
Committee is responsible for the review and approval of
statements and policies on ethics, conduct, values and principles
within the Group.

Internal control
The Board of Directors has overall responsibility for the Group’s
systems of internal control and risk management and has applied
the relevant principles of the Combined Code in establishing a
continuous process of identifying, evaluating and managing the
risks the Group faces. The Board is 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 business 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, along with
management comments;

• A clearly defined process for controlling capital expenditure

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

• Written policies on procedures for all material functional areas
with specific responsibility allocated to individual managers.

During the year under review, Ernst & Young continued its
management and execution of the Group’s internal audit function
on a global basis under a three year contract entered into in 2005.
This involves a risk-driven approach to internal audit which was
overseen by the Audit Committee. The internal audit process
focuses on reviewing areas of business risk, internal controls and
systems in the Company’s main subsidiaries and at the corporate
level, with regular reports of its findings to the Audit Committee.
Ernst & Young have direct access to the Audit Committee and the
Board Chairman.

The Board confirms that, in accordance with the requirements
of the Combined Code and the Markets Law, a review of the
effectiveness of the Group’s systems of internal controls was
conducted during the year.

Insurance
The Company maintains an appropriate level of Directors’ and
Officers’ insurance in respect of action taken against Directors.
Additionally, in accordance with the Company’s Articles of
Association, to the extent permitted by law, directors are
granted an indemnity from the Company in respect of liabilities
incurred as a result of their office.

Compliance with the Corporate Governance Principles
During the year under review, the Company applied the principles
set out in section 1 of the Combined Code, including both the
main principles and the supporting principles, save in respect of
Code provisions A2.1, A2.2 pursuant to which the 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.

The Company also applied the Corporate Governance Principles
required by the Markets Law. The above disclosure is also made in
respect of the Company’s obligations under Article 20 of the
Markets Law.

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.

Hikma Pharmaceuticals PLC

Directors’ report

29
Audit Committee report

The Corporate Governance Principles require that this Annual
Report separately describes the work of the Audit Committee
and how it discharges its responsibilities.

The Audit Committee’s terms of reference were reviewed by the
Audit Committee during the period under review and referred to
the Board for approval.

Terms of reference
The Audit Committee terms of reference include all matters
indicated by the Combined Code and clearly set out its authority
and duties. These can be found on the Company’s website at
www.hikma.com 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,

re-appointment 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.

Composition
Hikma’s Audit Committee comprises four members – Breffni Byrne,
Michael Ashton, Sir David Rowe-Ham, and Ronald Goode, who
joined the Committee following his appointment to the Board on
12 December 2006 – all of whom are independent Non-Executive
Directors, and whose qualifications are set out on page 24.
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 recommendations
of the Corporate Governance Principles regarding the
composition of the Audit Committee. The Committee Chairman
receives additional remuneration to compensate him for his
additional responsibilities.

Responsibilities
The Audit Committee assists the Board in discharging its
responsibilities with regard to financial reporting, external and
internal audit and internal control, including reviewing the
Company’s annual financial statements, interim report and trading
updates, 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, re-appointment 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.

Meetings
The Audit Committee met eight times during the year under
review, with the Chief Financial Officer and the Company Secretary
in attendance. The Audit Committee reviewed the 2005 annual
report and accounts, the 2006 interim report and the trading
statements issued during the year. The Committee also reviewed
and approved the audit plans for 2006 for both internal and
external auditors and the related scope of internal audit work to
be undertaken. The Committee reviewed the effectiveness of the
Group’s internal controls and risk management processes and
the disclosures made in the annual report and accounts on these
matters. The Committee also reviewed its own term of reference
and general effectiveness.

Hikma Pharmaceuticals PLC

Directors’ report

30
Audit Committee report continued

The Group’s external auditors, Deloitte and Touche LLP, attended
four Audit Committee meetings for the purposes of presenting
their 2005 audit results and findings, the results of the 2006
interim review and their audit plan for 2006. The internal auditors,
Ernst & Young presented their 2006 audit plan and summary
findings of their work to the Audit Committee, who also reviewed
the response by management, proposed action plans and the
overall effectiveness of the internal audit function. In accordance
with the Combined Code, the Audit Committee also met with the
Group’s external auditor and internal auditor without executive
management present.

In addition, the Audit Committee Chairman met with the external
auditor at the principal subsidiaries in the United States, Jordan,
Portugal and with the auditors of JPI in Saudi Arabia following
the acquisition of its outstanding shareholding during the year.
The Audit Committee Chairman also met with Ernst & Young in late
2006 to discuss the scope of the 2007 internal audit programme.

Attendance of members at Committee meetings is shown on
page 26 of the Directors’ Report on Corporate Governance.

A policy has also been adopted whereby prior approval by the
Audit Committee is required before the recruitment of a senior
member of the audit team or the recruitment of an employee
of the external auditors to a senior finance position within
the Group.

The Group Whistleblowing policy contains arrangements for the
Chairman of the Audit Committee and the Senior Independent
Director to receive, in confidence, complaints on accounting,
risk issues, internal control and other instances of allegedly
improper behaviour by Group employees.

Overview
The Audit Committee concludes that it has acted in accordance
with its terms of reference and ensured the independence
of external audits. The Audit Committee also reviewed the
effectiveness of the external auditors and recommends to the
Board that they be reappointed. The Chairman of the Audit
Committee will be available at the Annual General Meeting
to answer questions on the work of the Committee.

External auditors
The Audit Committee is responsible for the development,
implementation and monitoring of the Group’s policy on external
audit, and has adopted a policy in relation to the provision of
non-audit services by the external auditors.

Fees paid in respect of audit, audit-related and non-audit services
are outlined in Note 3 to the Group 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 and accounting advice.

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. In addition audit related and non-related
services provided by the external auditor in excess of certain
monetary limits require prior approval by the Audit Committee.
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 auditors’ independence.

Hikma Pharmaceuticals PLC

Directors’ report

31
Other matters

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 business segments: Generic Pharmaceuticals,
Branded Pharmaceuticals and Injectable Pharmaceuticals.
The majority of Hikma’s operations are in the MENA region,
the United States and Europe.

The Group’s net sales, gross profit, operating profit and are
shown by business segment in Note 2 to the consolidated
financial statements.

Results and dividends
The Group’s profit for the year attributable to shareholders in 2006
was $54.5 million. The Board is recommending a final dividend
of 4.0 cents per share (approximately 2.1 pence). The proposed
final dividend will be paid on 18 June 2007 to shareholders
on the register on 18 May 2007, 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 roles, backgrounds and abilities, are set out
in the Directors’ biographies on pages 24 and 25. Details of the
independence of Non-Executive Directors are set out in the report
on Corporate Governance Principles on pages 26 to 28.

The executive and Non-Executive Directors served the Company
throughout the year, save for Ronald Goode, who was appointed
as a Non-Executive Director on 12 December 2006. Having been
appointed by the Directors, Dr Goode will retire immediately
prior to the next Annual General Meeting and offer himself
for re-election.

Details of Directors’ share options are provided in the
Remuneration Committee report on pages 33 to 42.

The Directors who held office on 31 December 2006 had the
following interests in the shares and debentures of the Company.

Director

Samih Darwazah

Mazen Darwazah

Michael Ashton

Ali Al-Husry

Breffni Byrne

Ronald Goode

Sir David Rowe-Ham

Preference shares of £11

Ordinary shares of 10 pence

1 January
2006

31 December
2006

1 January
2006

31 December
2006

24,999

–

– 1,074,506 1,394,506

–

561,958

–

4,566

– 1,109,748 1,145,124

–

10,000

–

10,000

Total shares:

49,998

– 2,766,212 3,126,154

1 The Preference Shares held by the Executive Directors as at 1 January 2006 were
redeemed by the Company on 9 February 2006.

No changes in the Directors’ interests in share capital took place
between 31 December 2006 and the date of this document.

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 2006 were
equivalent to 74 days’ purchases, as compared to 77 days at
31 December 2005, 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
$1.0 million, principally to local charities serving the communities
in which the Group operates. Donations of medicines accounted
for $0.6 million of total donations made.

The Group does not make political donations.

Share capital
As at 31 December 2006, the Company had 915 ordinary
shareholders and 168,164,207 ordinary shares in issue. During
2006 the Company issued 1,365,800 ordinary shares pursuant to
the exercise of options under the Hikma Pharmaceuticals PLC 2004
Stock Option Plan.

Hikma Pharmaceuticals PLC

Directors’ report

32
Other matters continued

Substantial shareholdings
As at 31 December 2006, the Company had been notified
pursuant to sections 198 to 208 of the Companies Act 1985
(Disclosure of interest in shares) of the following interests in the
ordinary share capital of the Company:

Name of Shareholder

Darhold Limited

Capital Research and
Management Company

Number

Percentage
held

52,649,972

31.3%

10,223,003

6.1%

Auditors
Each of the persons who is a Director of the Company at the date
when this report was approved confirms that:

• so far as the Director is aware, there is no relevant audit

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

• the Director has taken all the steps that he or she ought to have
taken as a Director to make himself or herself aware of any
relevant audit information (as defined) and to establish that the
Company’s auditors are aware of that information.

No further notifications were received between 31 December 2006
and the date of this document.

This confirmation is given and should be interpreted in accordance
with the provisions of section 243ZA of the Companies Act 1985.

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.

Annual General Meeting
The Annual General Meeting of the Company will be held at
London Underwriting Centre on Wednesday, 6 June 2007, 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 on 21 March 2007 and signed
on its behalf

Henry Knowles
Company Secretary

The Takeover Code – Rule 9
At the Annual General Meeting held on 25 May 2006, a vote
of the independent shareholders of the Company approved the
previous award of 2,520,000 options over ordinary shares to
Samih Darwazah, Mazen Darwazah, Mohammed Saffouri,
May Darwazah and Hana Darwazah (the “Options Holders”)
(the “Whitewash”). Because of the relationship of the Option
Holders with Darhold Limited, who at the time of the Annual
General Meeting held 52,649,972 Ordinary Shares (representing
31.565% of the issued share capital of the Company at 21 April
2006, being the latest practicable date prior to the publication
of the Notice of Annual General Meeting), each of the Option
Holders (together with certain other identified individuals at that
date) was treated as acting in concert with Darhold Limited for
the purposes of the Takeover Code (the “Concert Party”). As at
21 April 2006, the Concert Party held, in aggregate, interests in
60,446,652 Ordinary Shares in the capital of Hikma (representing
36.239% of the then issued share capital of the Company).
On full exercise of the options the Concert Party would potentially
have, in aggregate, interests in 62,966,652 shares in the capital of
the Company (representing 37.188% of the enlarged issued share
capital of the Company, on the basis that no Ordinary Shares were
issued other than pursuant to the exercise of such options).

During the period from the Annual General Meeting in 2006 to
21 March 2007, the Option Holders have exercised, in aggregate,
options over 364,000 Ordinary Shares in the capital of the
Company, of which 44,000 Ordinary Shares were sold immediately
upon exercise and 320,000 Ordinary Shares were retained by
Options Holders. Thus, at the date of this document, the Concert
Party holds interests in 60,766,652 Ordinary Shares (representing
36.135% of the issued share capital of the Company at the date
of this document).

Hikma Pharmaceuticals PLC

33
Remuneration Committee report

Introduction
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 applied the principles and complied with the provisions of
the Combined Code and the Markets Law relating to Directors’
remuneration. As required by the Regulations, an advisory
resolution to approve this report will be proposed at the Annual
General Meeting of the Company at which the financial
statements will be approved.

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

Unaudited Information

Remuneration Committee
The Directors who were members of the Committee during the
year under review are set out on page 26 of the Directors’ Report
on Corporate Governance.

The responsibility for the establishment of a remuneration
policy and its cost is a matter for the full Board, on the advice
of the Remuneration Committee. The recommendations of
the Remuneration Committee have been approved without
amendment by the Board for submission to shareholders.

The Remuneration Committee is responsible for developing policy
on remuneration for Executive Directors and senior management
and for determining specific remuneration packages for each of
the Executive Directors. The Remuneration Committee members
have no personal financial interest other than as shareholders in
matters to be decided, no potential conflicts of interests arising
from cross-directorships and no day-to-day involvement in running
the business.

During the period under review, the Remuneration Committee
sought the assistance of the Chairman and Vice Chairman on
matters relating to Directors’ performance and remuneration.
The Chairman, Vice Chairman and Henry Knowles, General
Counsel, attend meetings by invitation except when their individual
remuneration arrangements are discussed. No Director takes part
in discussions relating to his own remuneration and benefits.
The Remuneration Committee appointed and received wholly
independent advice on executive compensation from Halliwell
Consulting. No services other than those detailed in this report
were provided to the Company by Halliwell Consulting during
the year.

The Remuneration Committee is formally constituted with
written terms of reference with the full remit of the committee
role described. The terms of reference are available on the
Company’s website or on request by shareholders in writing
from the Company Secretary whose contact details are set out
on page 84 of the Annual Report.

Philosophy behind Remuneration Committee’s approach
The remuneration policy is designed to encourage, reward and
retain the executives and the Remuneration Committee believes
that shareholders’ interests are best served by remuneration
packages which have a large emphasis on performance-related
pay. Emphasis on performance should encourage executives to
focus on delivering the business strategy and by providing
meaningful incentives to executives to ensure that the appropriate
balance between fixed and performance-related pay is maintained.

Remuneration policy 2006 and 2007
The Remuneration Committee applied a new policy during the
year under review. The Committee decided, despite no formal
requirement to do so, to follow best practice and carried out an
extensive shareholder consultation exercise on the proposed new
policy. A substantial majority of those shareholders consulted
supported the proposed policy.

Hikma Pharmaceuticals PLC

Remuneration Committee report

34
Remuneration Committee report continued

Overall policy
The Remuneration Committee’s policy during the year was to set the main elements of the remuneration package at the following
quartiles in comparison to the Company’s Comparator Group:

Base salary

Annual bonus potential

Pension

Benefits in kind

Lower quartile
to median

Upper quartile

Lower quartile to median

Potential total short-term
remuneration available

Potential annual
share awards

Median to
upper quartile

Upper quartile

Potential total
compensation value

Median to
upper quartile

This supports the performance-based culture of the Company. Fixed costs are minimised and
total short-term remuneration will only reach and exceed the median if the performance-based
bonus is earned for the relevant financial year.

The policy in respect of long-term
incentives and potential
compensation value is an extension
of the policy on total short-term
remuneration. Executives will only
receive a market competitive
package if the annual bonus and
long-term incentives are earned.

Hikma Pharmaceuticals PLC 2005 Long-Term Incentive Plan (“LTIP”)
As part of the 2006 remuneration review, the Committee specifically considered how the Company’s LTIP would be operated during
2006. The Committee decided to reduce the maximum permissible grant under the Plan from 400% of salary to 300% of salary and
to introduce an effective operational cap at 200% of salary; in addition, after reviewing possible performance criteria for the release
of awards (and taking into account the views of shareholders during the consultation) the Committee determined that a comparative
total shareholder return measure would be the most appropriate performance condition. It is the view of the Committee that this
performance condition remains appropriate to the Company’s current circumstances and prospects and therefore will apply to any grants
made to executives in 2007 (see later for further details on the LTIP). The policy applied during 2006 will continue to apply for 2007.

2006 and 2007 Comparator Group
The constituents of the Company’s Comparator Group (“CG”) for benchmarking remuneration during 2006 and which (to the extent
not taken over) will continue to apply for 2007 are as follows:

Name

Acambis Plc

Alizyme Plc

Allergan Inc

Alpharma Inc

AstraZeneca PLC

Axis-Shield Plc

Name

Barr Pharmaceuticals Inc

CAT Group Plc

Forest Laboratories Inc

King Pharmaceuticals Inc

Mylan Laboratories Inc

Neutec Pharma Plc

Name

Oxford Biomedica Plc

Protherics Plc

Shire Pharmaceuticals PLC

SkyePharma Plc

Vernalis PLC

Watson Pharmaceuticals Inc

Factors the Remuneration Committee took into account when selecting the Comparator Group included:

• the industry within which the Company operates, specifically taking into account both the international nature of the Company’s
business and its competitors, and the international nature of the Company’s current executive team and potential recruits to
that team;

• the market capitalisation, turnover and number of employees of the Company; and

• the UK listing environment of the Company.

Throughout this report, references to quartiles are to quartiles in the Comparator Group.

Ongoing review
The Remuneration Committee will continue to review the remuneration policy on an annual basis to ensure it remains appropriate for
the relevant financial year. Factors taken into account by the Remuneration Committee include:

• market conditions affecting the Company;

• the recruitment market in the Company’s sector;

• changing market practice;

• changing views of institutional shareholders and their representative bodies.

Hikma Pharmaceuticals PLC

Remuneration Committee report

Balance between fixed and variable performance-based compensation
The chart below demonstrates the balance between the potential fixed and variable performance-based compensation for each
Executive Director for the year ended 31 December 2006.

Name

Samih Darwazah

Mazen Darwazah

Elements of Executive Directors’ remuneration

Basic salary

Fixed compensation
is calculated as:

Variable performance
compensation is calculated as:

Salary
benefits
pension contribution

28%

33%

Maximum bonus available
fair market
value of maximum
potential LTIP award

72%

67%

Policy 2006 and 2007 – Lower quartile to median
The Company’s remuneration policy is to set the levels of base salary for the Executive Directors below the median to support a
performance-based culture.

Name

Samih Darwazah

Median

Lower quartile

Mazen Darwazah

Median

Lower quartile

2005 Salary

2006 Salary

2007 Salary

$375,818 $462,208 $462,208

Median rise
in Comparator
Group

5.4%

Rise

$772,000

$487,000

$280,128 $354,063 $371,766

7.2%

$417,000

$318,000

The significant rises in the Executive Directors’ salaries between 2005 and 2006 reflected:

• the increased responsibility and profile resulting from the Company’s listing; and

• a desire by the Committee to move the salaries towards the lower quartile to median position in order to ensure both that the levels

of compensation were competitive but also to ensure that no glass ceiling operated for the next level of management.

It should be noted that the change in the salaries of the Executive Directors between 2005 and 2006 was a one-off adjustment.
The Committee’s ongoing policy is more accurately demonstrated by their decision that only modest salary rises were required for 2007.

When determining the salary of the executives the Committee takes into consideration:

• the levels of base salary for similar positions with comparable status, responsibility and skills, in organisations of broadly similar size

and complexity, in particular the lower quartile and median salary levels of those comparable companies within the pharmaceuticals
industry and the Comparator Group;

• the performance of the individual Executive Director;

• the individual Executive Director’s experience and responsibilities; and

• pay and conditions throughout the Company.

Hikma Pharmaceuticals PLC

Remuneration Committee report

36
Remuneration Committee report continued

Annual performance-related bonus

Policy 2006 and 2007 – Upper quartile bonus potential
Bonus payments are not pensionable. The following tables summarise the main features of the Company’s executive bonus plan.

Bonus

Company bonus potential

Upper quartile

Median

2006 bonus paid as percentage of salary

Upper quartile bonus payments in the Comparator Group as a percentage of salary

Samih Darwazah

Mazen Darwazah

100%

68%

95%

81%

100%

68%

60%

95%

92%

The maximum target bonus potential is 100% of salary. It is possible for exceptional performance to earn up to a total maximum
bonus of 200% of salary. The maximum bonus potentials for 2007 will remain the same as those that applied for 2006.

The bonuses for 2006 have been paid on the basis of the level of the satisfaction of the performance targets. The table below shows the
principal performance targets used for 2006 and their percentage satisfaction.

Percentage of maximum bonus
potential subject to target

Percentage satisfaction
of bonus target

Percentage of salary payable

Samih Darwazah

Profit after tax

Operational milestones

Personal business targets

Total

Mazen Darwazah

Profit after tax

Operational milestones

Personal business targets

Total

50%

30%

20%

50%

30%

20%

90%

100%

90%

100%

45%

30%

20%

95%

45%

30%

20%

95%

The targets for the annual bonus plan are reviewed and agreed by the Remuneration Committee each year to ensure that they are
appropriate to the current market conditions and position of the Company in order to ensure that they continue to remain challenging.
It is the opinion of the Committee that the nature of the performance conditions remains appropriate for 2007.

Share incentives

Policy 2006 and 2007 – Upper quartile
The Remuneration Committee’s policy is to provide annual share grants at the upper quartile level compared to the Comparator
Group. Ongoing share incentives, excluding all employee plans, are provided to the Executive Directors solely through the LTIP.
No further grants will be made to Executive Directors under any other discretionary share plan.

The Remuneration Committee did not grant any awards under the LTIP or any other discretionary share plan to the Executive Directors
during 2006. It is intended to make grants to the Executive Directors under the LTIP in 2007 and on an ongoing basis. As there was no
grant of awards in 2006 under the LTIP (or any other discretionary plan operated by the Company), the Remuneration Committee is
proposing to increase the level of the 2007 grant to 300% of salary for both Executive Directors which is greater than the normal
operating maximum grants (Samih Darwazah (200%) and Mazen Darwazah (175%)). The following points should be noted:

• the maximum annual grant limit under the LTIP approved by shareholders is 400% of salary, however, the Remuneration Committee

did not feel that an appropriate balance between the interests of the Company, its shareholders and the Executive Directors would be
met by doubling the 2007 grant in compensation for the lack of a 2006 grant; and

• this is a one-off situation and on an ongoing basis the Committee has no current intention to grant awards under the LTIP above

200% of salary (with a possible exception on the recruitment of new senior executives).

The Remuneration Committee believes that share awards under the LTIP enable the Company to provide a competitive incentive and
retention tool which is also cost effective in respect of both shareholder dilution and income statement expense. Furthermore, the
proposed grant of awards with the attached performance condition ensures that the Company’s comparative Total Shareholder Return
(“TSR”1) performance against the Comparator Group is at least at the upper quartile before Executives will receive the full benefit of
their share incentives. This structure demonstrates the Remuneration Committee’s desire to correlate incentive arrangements with the
achievement of substantial performance. The following table summarises the main features of the LTIP and its proposed operation
during 2007.

1 Total Shareholder Return (“TSR”) – is a measure showing the return on investing in one share of the Company over the performance period (the return is the value of
the capital gain and reinvested dividends). It is normally used comparatively and the company which achieves the best return is ranked number one.

Hikma Pharmaceuticals PLC

Remuneration Committee report

Maximum annual grant face value2 as percentage of salary and performance condition

Maximum annual grant 300% (current normal operating maximum set by the Remuneration Committee 200%)
The Awards will be subject to comparative TSR performance against the Comparator Group. 20% of Awards will be released for median
performance with full release occurring for upper quartile comparative performance. The Remuneration Committee will also ensure that
the underlying financial performance of the Company is consistent with its TSR performance. When considering this underlying financial
performance the factors taken into account by the Remuneration Committee will include profit after tax, revenue growth and the
achievement of operational milestones.

Proposed grants for 2007 Face Value as a percentage of salary

Samih Darwazah

Mazen Darwazah

300%

It should be noted that the real value received by the Executive Directors under the share incentive arrangements will be dependent upon
the degree to which the performance conditions are satisfied at the end of the three year performance period and the share price of the
Company at this time.

Basis of performance condition selection and measurement
Comparative TSR was selected as the performance condition for the proposed awards by the Remuneration Committee as it ensures
that the Executives have outperformed their peers over the measurement period in delivering shareholder value before being entitled to
receive any of their awards irrespective of general market conditions. The Remuneration Committee will provide a full explanation and
justification at the time of the release of the award and why it believes that the underlying financial performance of the Company is
consistent with this TSR performance.

The Remuneration Committee determines whether the performance conditions for share awards are satisfied, and where appropriate
will consult with independent external advisors to calculate the TSR in accordance with the rules of the LTIP and sign-off these figures
prior to the release of any award.

Dilution
In accordance with the guidelines set out by the Association of British Insurers (“ABI”) the Company can issue a maximum of 10% of its
issued share capital in a rolling ten year period to employees under all its share plans. Under the LTIP rules, grants of no more than 3% of
the issued ordinary share capital of the Company may be awarded in the first three years following the Company’s IPO. The Company
has not made any grants of shares since the IPO.

Post-employment benefits

Policy 2006 and 2007 – Lower quartile to median
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 an additional 10% in each
subsequent year. The participant’s interest in the Group’s contribution fully vests after ten years of employment. It should be noted
that the change in UK pension legislation on 6 April 2006 has had no effect on the Company’s executive pension provision due to the
location of the Company’s executives.

The following table sets out the percentage post employment contributions compared to the Comparator Group.

Company

Upper quartile

Median

Lower quartile

Samih Darwazah

Mazen Darwazah

1.3%

17%

2.1%

In addition, 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.

2 Face value for awards under the LTIP face value is the aggregate market value of the shares subject to the award at the date of grant.

Hikma Pharmaceuticals PLC

Remuneration Committee report

38
Remuneration Committee report continued

Benefits in Kind

Policy 2006 and 2007 – Market practice
The Company provides the normal benefits in kind for executives of this level in a company of this size, such as company cars, healthcare
and life insurance.

Total compensation

Policy 2006 and 2007 – Median to upper quartile depending on performance
The following table shows the value of each of the main elements of the remuneration package provided to the Executive Directors
during the year ended 31 December 2006.

Name

Samih Darwazah

Mazen Darwazah

Other remuneration matters

Salary
$000s

$462

$354

Bonus paid
$000s

Benefits
$000s

Total payments
$000s

$440

$336

$52

$98

$954

$788

Total
FMV LTIP Actual and FMV
$000s

$000s

$954

$788

Total in
2005 CG
at median
$000s

$2,056

$1,062

Directors’ Shareholding Policy
The Remuneration Committee does not currently have a formal shareholding requirement due to the substantial shareholdings
of the Executive Directors. The Committee, however, wholeheartedly supports the alignment of interests created by a minimum
level of executive shareholding and should the make-up of the Board change would consider the introduction of a formal
shareholding requirement.

All-employee share arrangements
Historically the Company has used options to provide share incentives to employees of the Company. While options may continue to be
a part of the compensation package for those employees who do not participate in the LTIP, the Company is in the process of deciding
whether to operate a Company-wide all-employee share purchase and matching plan. The preliminary view of the Board is that this type
of arrangement has the same cost vs. benefit advantages behind the change from options to LTIP awards and is important in supporting
the engagement of employees with the business as a whole. The main features of the Hikma Pharmaceuticals PLC 2006 Share Incentive
Plan (“SIP”) are set out below. Shares required to satisfy awards under the SIP will be purchased in the market.

Name

SIP

Status

Eligibility

Main features

Decision on implementation All employees of the
in 2007

Company including the
Executive Directors.

The Plan provides employees with the opportunity of purchasing
£1,500 (or local currency equivalent) of shares a year out of
salary and providing additional matching shares on a 1:1 ratio.
These matching shares will be normally released three years after
they have been awarded provided that the associated shares
purchased by the employee have been retained and provided the
employee is still employed by a Group Company at this time.

Executive Directors’ contracts
Details of the service contracts of the Executive Directors of the Company are as follows:

Name

Samih Darwazah

Company notice period

Contract date

Unexpired term of contract

Potential termination payment

12 months

25 May 2006

Rolling contract

Mazen Darwazah

12 months

25 May 2006

Rolling contract

12 months’ salary
and benefits

The Executive Directors’ contracts are on a rolling basis, unless terminated by at least 12 months’ written notice. This arrangement is in
line with best corporate practice for listed companies. In the event of the termination of an Executive’s contract, salary and benefits will
be payable during the notice period (there will, however, be no automatic entitlement to bonus payments or share incentive grants
during the period of notice other than in accordance with the rules of the relevant incentive plan). The Remuneration Committee will
ensure that there have been no unjustified payments for failure on an Executive Director’s termination of employment. There are no
special provisions in the contracts of employment extending notice periods on a change of control, liquidation of the Company or
cessation of employment.

Hikma Pharmaceuticals PLC

Remuneration Committee report

External Appointments
The Committee recognises that Executive Directors may be invited to take up non-executive directorships or public sector
appointments, and that these can broaden the experience and knowledge of the director, from which the Company can benefit.
Executive Directors may therefore accept non-executive appointments as long as they do not lead to a conflict of interest, and are
allowed to retain any fees paid under such appointments. During the year under review, Mazen Darwazah received fees of
USD$36,150 in respect of such appointments.

Non-Executive Directors’ fees

Policy 2006 and 2007 – Upper quartile
The remuneration of the Non-Executive Directors is determined by the Board based upon recommendations from the Chairman/
Chief Executive Officer and Executive Vice Chairman and is within the limits set by the Articles of Association.

In light of the review of Executive Director remuneration in 2006, it was considered appropriate to appoint Halliwell Consulting to
undertake a review of the levels of Non-Executive Directors’ fees paid. The nature of the Company’s business is international, requiring
the Non-Executive Directors to travel to the USA, Middle East and Europe, and the Nomination Committee has therefore looked for
Non-Executive Directors with a wide range of experience both in the UK and internationally. The use of options for Non-Executive
Directors is very prevalent in the US and also to some extent internationally. However, as a UK listed company complying with UK best
practice the Board do not feel it is appropriate to grant options to the Company’s Non-Executive Directors. To ensure that the Company
is able to attract the appropriate calibre of candidate and to take account of its inability to grant options, the Board has set its fee policy
at the upper quartile.

The individual basic and committee fees, which are paid in Pound Sterling, are as follows:

Name

Michael Ashton

Ali Al-Husry

Breffni Byrne

Ronald Goode*

Sir David Rowe-Ham

2006
Total fee
£000s

2007
Basic fee
£000s

Committee fee
£000s

Total fee
£000s

Upper quartile
fees in CG

£000s**

–

*The fees of Ronald Goode, who has only served part of the year, have been annualised on the same basis as the remuneration of his fellow Non-Executive Directors to
allow the levels to be compared to other Non-Executive Directors of the Company and his peers within the Comparator Group.

**In calculating the fees in the Comparator Group, the fees of the US companies were converted to £Sterling at a rate of USD$1.75, being the rate at the date of
review in 2006.

It should be noted that the Board determined to increase the fees of the Non-Executive Directors because of the following factors:

• in order to recruit an additional Non-Executive Director of the appropriate calibre the Board was required to increase the level of fees

offered. This necessitated a change in the fees for all the Company’s Non-Executive Directors;

• the Board was able to measure the actual time commitment required from Non-Executive Directors which was not reflected in the

historic level of fees; and

• to take account of the inability to grant options.

Non-Executive Directors do not participate in any bonus plan or share incentive programme operated by the Company and are not
entitled to pension contributions or other benefits provided by the Company. The Non-Executive Directors do not have service contracts,
but have letters of appointment with the Company. Each appointment is terminable on one months’ notice from either the Company or
the Director, but is envisaged to be for an initial period of up to 36 months, subject to the terms of the Company’s Articles of
Association, the Companies Act and shareholder approval.

Name

Michael Ashton

Ali Al-Husry

Breffni Byrne

Ronald Goode

Sir David Rowe-Ham

Effective date of appointment

Notice payment

14 October 2005

12 December 2006

14 October 2005

1 month

Ronald Goode, who as a Non-Executive Director does not have a service contract, will be proposed for re-election at the next Annual
General Meeting of the Company.

Hikma Pharmaceuticals PLC

Remuneration Committee report

40
Remuneration Committee report continued

Total Shareholder Return performance graph
The graph shows the Company’s performance, measured by total shareholder return (“TSR”), compared to the constituents of the
Comparator Group and FTSE 250 Index for the period 1 November 2005 to 31 December 2006. The Comparator Group has been
selected as it is the group of companies whose performance the Company is compared to in determining the release of awards under
the LTIP. The FTSE 250 Index has been selected to provide a broader comparator of the Company’s performance and is the main Index
in which the Company’s shares are included.

Total Shareholder Return from 1 November 2005
(percent)

FTSE 250 Index

Hikma Pharmaceuticals PLC

Comparator Group

100

–50

11/05

12/05

01/06

02/06

03/06

04/06

05/06

06/06

07/06

08/06

09/06

10/06

11/06

12/06

Audited information

Aggregate Directors’ remuneration for 2005 and 2006
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

2006
US$

2005
US$

2,094,372 1,526,936

–

2,132,149

–

4,226,521 1,526,936

Hikma Pharmaceuticals PLC

Remuneration Committee report

Directors’ emoluments and compensation

Director

Executives

Samih Darwazah

Mazen Darwazah

Non-Executives

Ali Al-Husry

Michael Ashton

Breffni Byrne

Ronald Goode*

Sir David Rowe-Ham

Aggregate emoluments

Fees/Basic salary Other benefits** Annual bonuses
US$

US$

2006 Total
US$

2005 Total
US$

462,208

51,998

440,000

954,206

930,509

354,063

98,501

336,000

788,564

529,107

75,503

85,680

98,709

6,030

85,680

–

75,503

85,680

98,709

6,030

20,073

14,881

17,485

–

85,680

14,881

1,167,873

150,499

776,000 2,094,372 1,526,936

*The emoluments for 2006 of Ronald Goode reflect the fees paid to him from 12 December 2006, the date of his appointment until the year end.

**Other Benefits include provision of health insurance, company car, medical expenses and statutory contributions to government social security funds.

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

Samih Darwazah

Mazen Darwazah

Directors’ interests in shares

Director

Samih Darwazah

Mazen Darwazah

Michael Ashton

Ali Al Husry

Breffni Byrne

Ronald Goode

Sir David Rowe-Ham

Total shares:

2006
US$

6,265

7,441

2005
US$

5,042

4,192

Preference shares of £1

Ordinary shares of 10 pence

1 January
2006

31 December
2006

1 January
2006

31 December
2006

24,999

–

– 1,074,506 1,394,506

–

561,958

–

4,566

– 1,109,748 1,145,124

–

10,000

–

10,000

49,998

– 2,766,212 3,126,154

The preference shares held by the Executive Directors as at 1 January 2006 were redeemed by the Company on 9 February 2006.
There have been no changes in the Directors’ interests share capital between the 31 December 2006 and the date of this document.

Hikma Pharmaceuticals PLC

Remuneration Committee report

42
Remuneration Committee report continued

Directors’ share options
The aggregate emoluments disclosed above do not include any amounts or the value of options to acquire ordinary shares in the capital
of the Company granted 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. During the year under review, the CEO
exercised options over 320,000 Ordinary Shares of the Company. No other 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.

Hikma Pharmaceuticals PLC 2004 Stock Option Plan

Director

Samih Darwazah

Mazen Darwazah

As at
31 December 2006

As at
1 January 2006

Exercised
during year†

Exercise price
(US$)

Price paid
for award

Initial date
of vesting** Date of expiry

Number of options

1,280,000 1,600,000

320,000

0.9075*

800,000

–

0.9075*

–

1 Nov
2005

11 Oct
2014

*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 US$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, being 12 October in each subsequent year.

†The closing market price for an Ordinary Share on the date of exercise, being 3 October 2006, was 403.5 pence. Based on the US Dollar/Sterling exchange rate on that
date of £1:US$1.8762, this gave a notional gain on exercise of US$2,132,149. All of the shares being the subject of the options exercise were retained by the option holder.

The closing market price for the Ordinary Shares on 29 December 2006 was 365.25 pence. During the period from 1 January 2006 to
the year-end the share’s closing price ranged from a low of 329.5 pence to a high of 458 pence.

Long-term incentive schemes
No awards were made to Executive Directors under the Hikma Pharmaceuticals 2006 Long-Term Incentive Scheme during the period
under review.

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

Approved by the Board of Directors on 21 March 2007 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.

Hikma Pharmaceuticals PLC

44
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 2006
which comprise the consolidated income statement, the
consolidated balance sheet, the consolidated statement of
changes in equity, the consolidated cash flow statement and
the related notes 1 to 39. The Group’s 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 2006.

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 (IFRSs) 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’s
financial statements give a true and fair view, whether the
Group’s financial statements have been properly prepared in
accordance with the Companies Act 1985 and Article 4 of the
IAS Regulation and whether the part of the Directors’
remuneration report described as having been audited have
been properly prepared in accordance with the Companies Act
1985. We report to you whether, in our opinion, the
information given in the Directors’ report is not consistent with
the Group financial statements.

In addition, we report to you if, in our opinion, 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 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 as described in the contents
section and consider whether it is consistent with the Group’s

financial statements. We consider the implications for our
report if we become aware of any apparent misstatements or
material inconsistencies with the Group’s financial statements.
Our responsibilities do not extend to any further information
outside the annual report.

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 to be 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 Group’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 to be 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’s financial statements and the part of the Directors’
remuneration report to be audited.

Opinion
In our opinion:

• the Group’s financial statements give a true and fair view, in
accordance with IFRSs as adopted for use in the European
Union, of the state of the Group’s affairs as at 31 December
2006 and of its profit for the year then ended;

• the Group’s financial statements have been properly prepared
in accordance with the Companies Act and Article 4 of the
IAS Regulation;

• the Group’s financial statements and the part of the

Directors’ remuneration report to be audited have been
properly prepared in accordance with the Companies Act
1985; Article 4 of the IAS Regulation; and

• the information given in the Directors’ report is consistent

with the Group’s financial statements.

Separate opinion in relation to IFRS
As explained in Note 1 of the Group financial statements, the
Group, in addition to complying with its legal obligation to
comply with IFRSs as adopted for use in the European Union,
has also complied with the IFRSs as issued by the International
Accounting Standards Board. Accordingly, in our opinion the
financial statements give a true and fair view, in accordance with
IFRSs, of the state of the Group’s affairs as at 31 December
2006 and of its profit for the year then ended.

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

21 March 2007

Hikma Pharmaceuticals PLC

Financial Statements

Contents
46 Consolidated income statement
47 Consolidated balance sheet
48 Consolidated statement of changes in equity
49 Consolidated cash flow statement
50 Notes to the consolidated financial statements
76 Directors’ responsibilities
77 Independent auditors’ report
78 Company balance sheet
79 Company statement of changes in equity
80 Company cash flow statement
81 Notes to the Company financial statements
83 Shareholder information
84 Principal Group companies
84 Advisers

Hikma Pharmaceuticals PLC

46
Consolidated income statement
for the year ended 31 December 2006

Continuing operations

Revenue

Cost of sales

Gross profit

Sales and marketing costs

General and administrative expenses

Research and development costs

Other operating expenses (net)

Total operating expenses

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

2006
$000’s

2005
$000’s

317,022

262,215

(158,492)

(126,424)

158,530

135,791

(35,014)

(27,367)

(30,328)

(22,610)

(18,291)

(16,507)

(588)

(1,548)

(84,221)

(68,032)

938

1,449

75,247

69,208

–

5,258

(1,426)

1,562

(4,958)

(5,211)

276

75,596

64,409

(19,639)

(19,452)

55,957

44,957

1,435

54,522

55,957

1,090

43,867

44,957

32.6

31.0

30.0

28.3

Hikma Pharmaceuticals PLC

47
Consolidated balance sheet
at 31 December 2006

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

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

Reserves

Equity attributable to equity holders of the parent

Minority interest

Total equity

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

Samih Darwazah Director
Mazen Darwazah Director

21 March 2007

Notes

2006
$000’s

2005
$000’s

23,940

7,735

156,845

91,209

–

5,719

776

1,242

7,552

2,304

1,506

1,439

1,276

188,522

113,021

83,720

58,017

500

1,320

121,846

82,634

5,337

5,120

86,227

135,959

2,204

1,891

299,834

284,941

488,356

397,962

35,614

21,146

1,216

797

53,916

44,017

8,535

2,577

4,868

5,965

1,233

3,542

106,726

76,700

193,108

208,241

25,339

30,791

356

4,441

1,695

416

1,411

1,162

31,831

33,780

138,557

110,480

349,799

287,482

29,712

29,457

111,431

110,074

203,924

144,350

345,067

283,881

4,732

3,601

349,799

287,482

Hikma Pharmaceuticals PLC

48
Consolidated statement of changes in equity
for the year ended 31 December 2006

Balance at 1 January 2005

Issue of equity shares

Cost of equity settled employee share scheme

Expenses of issue of equity shares

Sale of treasury shares

Deferred tax arising on share 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 loss

Balance at 31 December 2005
and 1 January 2006

Issue of equity shares

Cost of equity settled employee share scheme

Deferred and current tax arising on share 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

Revaluation reserve

Currency translation gain

Merger
reserve
$000’s

Retained
earnings
$000’s

Other
reserves*
$000’s

Total reserves
$000’s

Share capital
$000’s

Share premium
$000’s

Total equity
attributable
to equity
shareholders
of the parent
$000’s

33,920

82,140

1,348

117,408

25,269

(187)

142,490

–

712

–

960

(17,800)

43,867

980

164

–

712

–

960

(17,800)

43,867

980

164

(1,941)

4,188

120,725

124,913

–

712

(10,810)

346

–

346

960

(17,800)

43,867

980

164

(1,941)

33,920

111,023

(593)

144,350

29,457

110,074

283,881

–

879

2,352

(6,509)

54,522

(663)

–

4,807

4,159

8,373

–

879

2,352

(6,509)

54,522

(663)

4,807

4,159

255

1,357

–

1,612

879

2,352

(6,509)

54,522

(663)

4,807

4,159

203,924

29,712

111,431

345,067

Balance at 31 December 2006

33,920

161,631

*Other reserves comprise the revaluation reserve (see note 31) and the cumulative translation reserve.

Hikma Pharmaceuticals PLC

49
Consolidated cash flow statement
for the year ended 31 December 2006

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

Investment in available for sale securities

Reduction of cash deposits

Acquisition of subsidiary undertakings

Cash acquired on acquisition of subsidiary

Net cash used in investing activities

Financing activities

Proceeds from the sale of treasury shares

Increase in collateralised cash

Increase in long-term financial debts

Repayment of long-term financial debts

Increase/(decrease) in short-term borrowings

Increase/(decrease) in obligations under finance leases

Dividends paid

Dividends paid to minority shareholders

Proceeds from issue of new shares

Costs of issue of new shares

Net cash (used in)/from financing activities

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Foreign exchange translation

Cash and cash equivalents at end of year

Notes

2006
$000’s

2005
$000’s

35,250

32,713

(49,725)

(23,423)

453

(2,715)

–

(21,633)

860

873

(562)

(78)

(35)

7,692

(825)

(72,726)

(16,354)

–

(217)

495

346

(5,120)

25,583

(12,881)

(20,895)

1,244

3,449

(15,659)

(3,109)

(6,989)

(17,800)

(294)

(130)

1,612

124,913

–

(10,810)

(13,581)

77,319

(51,057)

93,678

135,959

41,415

1,325

866

86,227

135,959

Hikma Pharmaceuticals PLC

50
Notes to the consolidated financial statements

1. Significant accounting policies

Basis of accounting
Hikma Pharmaceuticals PLC’s consolidated financial statements are prepared in accordance with International Financial Reporting
Standards (IFRSs) issued by the International Accounting Standards Board. The financial statements have also been prepared in
accordance with IFRSs adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation.
The financial statements have been prepared under the historical cost convention, except for the revaluation to market of certain
financial assets and liabilities.

The 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 2005 and 31 December 2006 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 these financial statements.

The presentational and functional currency of Hikma Pharmaceuticals PLC is the US Dollar as the majority of the Company’s business
is conducted in US Dollars ($).

The significant accounting policies are set out below.

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”) and the Group’s share of the results and net assets of its associates. Control is achieved where the
Company has the power to govern the financial and operating policies either directly or indirectly 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.

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 “Business Combination” 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 Groups’ interest
in the relevant associate.

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

1. Significant accounting policies (continued)

Intangible assets
(a) 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 related intangibles: include product files and under-licenced products 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.

(e) Customer relationships: represent the value attributed to the long-term relationships held with existing customers at the date of

acquisition and are amortised over their useful economic life of 15 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, the functional currency of Hikma Pharmaceuticals PLC 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 of.

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 has passed.

Revenue represents the amounts receivable after the deduction of discounts, value added tax, other sales taxes, 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 light of contractual and historical information and past experience.

Chargebacks
The provision for chargebacks 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 chargeback. The provision for chargebacks 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
chargebacks may differ from estimated reserves.

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

1. Significant accounting policies (continued)

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.

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.

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 recognised 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.

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

1. Significant accounting policies (continued)

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 and liabilities 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”).

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

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 34). 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.

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

Buildings
Vehicles
Machinery and equipment
Fixtures & equipment

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

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

1. Significant accounting policies (continued)

Any additional costs that extend the useful life of property, plant and equipment are 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.

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 the Group’s exposure to interest rate and foreign exchange risks. 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.

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

1. Significant accounting policies (continued)

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 the income statement
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.

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 will be required to settle the obligations 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
1 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.

IFRS 8 “Operating Segments” IFRS 8 replaces IAS 14 “Segment Reporting” and requires an entity to adopt a “management
approach” whereby the segment information reported will be what management uses internally for evaluating segment performance
and deciding how to allocate resources to operating segments. Subject to its endorsement by the European Union, the Group must
adopt IFRS 8 by 2009.

IFRIC 8 “Scope of IFRS 2" IFRIC 8 clarifies that IFRS 2 “Share-based Payment” applies to arrangements where an entity makes
share-based payments for apparently nil or inadequate consideration. The Group will adopt IFRIC 8 in 2007.

IFRIC 10 “Interim Financial Reporting and Impairment” IFRIC 10 clarifies that an entity shall not reverse an impairment loss
recognised in a previous interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried
at cost. Subject to its endorsement by the European Union, the Group will adopt IFRIC 10 in 2007.

IFRIC 11 “Group and Treasury Share Transactions” IFRIC 11 clarifies that share-based incentive involving an entity’s own equity
instruments in which the entity chooses or is required to buy its own instruments to settle the obligation should always be accounted
for as an equity-settled award and also provides guidance on the accounting for share-based incentives provided to the employees
of a subsidiary in the subsidiary’s financial statements. Subject to its endorsement by the European Union, the Group will adopt IFRIC 11
in 2007.

Management does not expect that these pronouncements will have a material impact on the Group’s results or financial position,
but IFRS 7 and IFRS 8 will affect the disclosure of information in the Group’s financial statements.

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

2. Business and geographical segments
For management purposes, the Group is currently 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.

Year ended 31 December 2006

Revenue

Cost of sales

Gross profit

Result

Segment result

Unallocated corporate expenses

Share of results of associates

Operating profit

Finance income

Finance costs

Other income

Profit before tax

Tax

Profit for the year

Attributable to:

Minority interest

Equity holders of the parent

Generics
$000’s

Branded
$000’s

Injectables
$000’s

Corporate
and other
$000’s

Group
$000’s

113,674

130,114

67,570

5,664

317,022

(53,911)

(60,642)

(39,225)

(4,714)

(158,492)

59,763

69,472

28,345

950

158,530

36,011

39,379

13,360

(1,200)

87,550

–

938

–

(13,241)

938

75,247

5,258

(4,958)

75,596

(19,639)

55,957

1,435

54,522

55,957

Group
$000’s

53,171

34,400

2,715

14,929

Other information 2006

Additions to property, plant and equipment assets (cost)

Acquisition of subsidiary’s property, plant and equipment (cost)

Additions to intangible assets

Intangible assets arising on acquisition

Total property, plant and equipment and intangible assets (net book value)

Depreciation and amortisation

Generics
$000’s

7,569

–

28,847

4,321

Branded
$000’s

21,953

34,400

1,494

14,929

89,159

5,376

Injectables
$000’s

21,184

–

1,200

–

53,557

2,730

Corporate
and other
$000’s

2,465

–

9,222

1,370

180,785

13,797

Balance sheet

Total assets

Segment assets

Total liabilities

Segment liabilities

95,510

233,323

72,750

86,773

488,356

8,054

85,212

31,157

14,134

138,557

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

2. Business and geographical segments (continued)

Year ended 31 December 2005

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

Profit for the year

Attributable to:

Minority interest

Equity holders of the parent

Generics
$000’s

Branded
$000’s

Injectables
$000’s

Corporate
and other
$000’s

Group
$000’s

115,208

93,012

49,303

4,692

262,215

(52,861)

(39,297)

(30,883)

(3,383)

(126,424)

62,347

53,715

18,420

1,309

135,791

38,765

28,764

8,486

(27)

75,988

–

1,449

–

(8,229)

1,449

69,208

(1,426)

1,562

(5,211)

276

64,409

(19,452)

44,957

1,090

43,867

44,957

Other information 2005

Additions to property, plant and equipment assets (cost)

Acquisition of subsidiary’s property, plant and equipment (cost)

Additions to intangible assets

Generics
$000’s

4,385

–

Branded
$000’s

12,364

–

282

Injectables
$000’s

7,770

9,857

3,939

Total property, plant and equipment and intangible assets (net book value)

25,600

33,844

30,408

Depreciation, amortisation and impairment charge

Total interest in associated companies

4,879

–

2,273

7,552

2,133

–

Corporate
and other
$000’s

Group
$000’s

1,680

26,199

–

9,092

1,040

–

9,857

4,221

98,944

10,325

7,552

Balance sheet

Total assets

Segment assets

Total liabilities

Segment liabilities

122,831

135,799

50,219

89,113

397,962

13,207

58,105

25,237

13,931

110,480

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

2. 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 and Rest of the World

Middle East and North Africa

Sales revenue by
geographical market
For the years ended 31 December

2006
$000’s

2005
$000’s

129,778

130,454

29,543

20,478

157,701

111,283

317,022

262,215

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:

United States

Europe

Middle East and North Africa

2006
$000’s

7,569

22,804

74,842

2005
$000’s

4,385

21,573

14,319

2006
$000’s

28,848

53,898

98,039

2005
$000’s

2006
$000’s

Total assets

2005
$000’s

25,600

94,466

122,832

31,431

149,057

115,587

41,913

244,833

159,543

Additions* to property, plant
and equipment and intangibles

Total property, plant and
equipment and intangibles

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

105,215

40,277

180,785

98,944

488,356

397,962

3. 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 intangible assets

Cost of inventories recognised as expense

Write-down of inventories

Staff costs (see Note 4)

Auditors’ remuneration (see overleaf)

For the years ended
31 December
2005
$000’s

2006
$000’s

(793)

(217)

18,291

16,507

12,468

1,329

440

8,909

1,416

100,552

83,648

1,273

855

67,777

51,889

1,447

1,059

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

3. Profit for the year (continued)

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

Audit of the Company’s annual accounts

Audit of the Company’s subsidiaries pursuant to legislation

Total audit fees

Taxation

– Compliance services

– Advisory services

Corporate finance related services

Other services*

Total non-audit fees

Total fees

For the years ended
31 December
2005
$000’s

2006
$000’s

360

476

836

195

132

192

612

279

365

644

–

365

415

1,447

1,059

*In 2005, $212,000 relates to work performed on the IPO which was charged to the income statement. Additional fees of $1,995,000 in relation to the IPO were set off
against the share premium account in 2005.

A description of the work of the Audit Committee is set out in the Audit Committee report on pages 29 and 30 and includes an
explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.

4. 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 costs*

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

2006
Number

1,420

538

193

292

2005
Number

1,052

363

160

252

2,443

1,827

2006
$000’s

2005
$000’s

52,009

41,055

4,938

758

1,180

8,892

4,039

685

843

5,267

67,777

51,889

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

5. Other operating expenses (net)

Other operating expense

Other operating income

For the years ended
31 December
2005
$000’s

2006
$000’s

(2,504)

(3,556)

1,916

2,008

(588)

(1,548)

Other operating expenses consist mainly of slow moving items, partially offset by foreign exchange gains and the management fees
from an associate company.

6. Flotation costs
The total costs of flotation in 2005 were $12,661,000, of which, costs incurred in issuing shares amounting to $10,810,000 were
charged against the share premium account. The remaining amount of $1,851,000 incurred was not eligible to be set against the
share premium. This has been charged through the income statement, $1,426,000 of these costs were recognised in the year ended
31 December 2005 and the remainder in 2004.

7. Finance income

Interest income

Net foreign exchange gain

8. Finance costs

Interest on bank overdrafts and loans

Interest on obligations under finance leases

Other bank charges

9. Tax

Current tax:

UK current tax

Double tax relief

Foreign tax

Prior year adjustments

Deferred tax (Note 15)

UK corporation tax is calculated at 30% of the estimated assessable profit made in the UK for the year.

For the years ended
31 December
2005
$000’s

2006
$000’s

4,874

384

5,258

1,562

–

1,562

For the years ended
31 December
2005
$000’s

2006
$000’s

2,931

1,928

4,958

3,437

227

1,547

5,211

For the years ended
31 December
2005
$000’s

2006
$000’s

26,982

(26,840)

110

–

23,093

19,596

(500)

(3,096)

–

(254)

19,639

19,452

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

9. Tax (continued)

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

Profit before tax:

Tax at the UK corporation tax rate of 30%

Profits taxed at different rates

UK tax on dividend income

Double tax relief offset

Share of associate’s profits not taxed

Permanent differences

Losses for which no benefit is recognised

Other tax adjustments

Prior year adjustments

Movement in tax provisions

Tax expense for the year

10. Dividends

Amounts recognised as distributions to equity holders in the period:

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

Interim dividend for the year ended 31 December 2006 of 3.0 cents
(2005: 7.5 cents)* per share

Proposed final dividend for the year ended 31 December 2006
of 4.0 cents per share (2005: 0.89 cents) per share

*The dividends declared in 2005 relate to dividends declared prior to the IPO.

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

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

2006
$000’s

75,596

22,679

(5,561)

26,800

(26,800)

(281)

1,273

(838)

429

(500)

2,438

2005
$000’s

64,409

19,323

(596)

–

(435)

1,520

(367)

–

19,639

19,452

2006
$000’s

2005
$000’s

1,489

7,120

5,020

6,509

10,680

17,800

6,727

1,500

2006
$000’s

2005
$000’s

54,522

43,867

Number
000’s

Number of shares

Weighted average number of Ordinary Shares for the purposes of basic earnings per share

167,279

146,454

Effect of dilutive potential Ordinary Shares :

Share options

Weighted average number of Ordinary Shares for the purposes of diluted earnings per share

8,638

8,402

175,917

154,856

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

11. Earnings per share (continued)

Basic

Diluted

12. Intangible assets

Cost

Balance at 1 January 2005

Additions

Acquisition of subsidiary

Translation adjustments

Balance at 1 January 2006

Additions

Subsequent adjustments

Acquisition of subsidiary

Translation adjustments

Balance at 31 December 2006

Amortisation

Balance at 1 January 2005

Charge for the year

Impairment charge

Balance at 1 January 2006

Charge for the year

Translation adjustments

Balance at 31 December 2006

Carrying amount

At 31 December 2006

At 31 December 2005

2006
Earnings
per share
Cents

32.6

31.0

2005
Earnings
per share
Cents

30.0

28.3

Software
$000’s

Total
$000’s

3,443

–

3,443

659

–

5,641

665

3,556

(103)

9,759

2,715

(219)

14,929

121

Product
related
intangibles
$000’s

–

2,581

–

2,581

1,037

–

4,946

3,256

–

4,946

6,874

4,102

27,305

–

(608)

(1,064)

(1,166)

(250)

(1,314)

(2,024)

(125)

(1,064)

(1,329)

–

(12)

(125)

(2,378)

(3,365)

Goodwill
$000’s

Marketing
rights
$000’s

Customer
relationships
$000’s

1,420

–

975

–

2,395

(219)

6,727

–

8,924

(608)

–

(608)

–

(608)

778

665

–

(103)

1,340

998

–

121

2,459

–

(102)

–

(102)

(140)

(12)

(254)

8,316

1,787

2,205

1,238

4,946

–

6,749

2,581

1,724

2,129

23,940

7,735

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 International Pharmaceuticals Research Center Limited (“IPRC”) and Specialized Pharmaceuticals Research
Center Limited (“SPRC”) in 2004. The additions to goodwill in 2006 represent the acquisition of the remaining interest of Al Jazeera
Pharmaceutical Industries Limited (“JPI”) and SPRC (in 2005 additions represented the acquisition of the Italian subsidiary, Istituto
Biochimico Pavese Pharma S.p.A. (“IBPP”). In accordance with International Accounting Standard 38 “Intangible Assets” the Group
has tested its goodwill for impairment and assessed that the fair value exceeds its book value, therefore no impairment loss has been
taken to the income statement.

Product related intangibles include product files and under-licensed products. In 2005, product files intangibles were recognised on the
acquisition of IBPP and in 2006 by the Jordanian, Algerian and Portuguese operations. Also the under-licensed products were acquired
at 11 September 2006 on the acquisition of JPI. The product related intangibles have an indefinite useful life and are being reviewed for
impairment at least annually.

Software represents the new Enterprise Resource Planning solution (“ERP”) that the Group implemented in the Jordanian operations
during 2006 and in the US operations during 2005.

Customer relationships represent the full value attributed to the existing direct customers that the Company acquired on the acquisition
of JPI. The customer relationships have an estimated useful life of 15 years. Amortisation will commence on 1 January 2007.

The Group tests goodwill annually for impairment and if there are any indications that goodwill might be impaired. The key assumptions
for the value in use calculations are those regarding the growth rates. The growth rates are based on industry growth forecasts and on
the Group’s five years business plan.

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

13. Property, plant and equipment

Cost

Balance at 1 January 2005

Additions

Acquisition of subsidiary

Disposals

Transfers

Translation adjustment

Balance at 1 January 2006

Additions

Acquisition of subsidiary

Disposals

Transfers

Translation adjustment

Balance at 31 December 2006

Accumulated depreciation

Balance at 1 January 2005

Charge for the year

Acquisition of subsidiary

Disposals

Transfers

Translation adjustment

Balance at 1 January 2006

Charge for the year

Acquisition of subsidiary

Disposals

Transfers

Translation adjustment

Balance at 31 December 2006

Net book value

31 December 2006

Net book value

31 December 2005

Land and
buildings
$000’s

37,587

736

3,440

(208)

2,543

(1,807)

42,291

3,059

16,247

(11)

5,121

1,480

Machinery
and
equipment
$000’s

Fixtures and
equipment
$000’s

Projects
under
construction
$000’s

Total
$000’s

62,153

8,085

6,249

9,051

2,681

112

(885)

(1,009)

2,401

(2,560)

465

(237)

4,800

117,485

13,631

26,199

–

(17)

(5,409)

9,857

(2,468)

–

(190)

(4,841)

75,443

11,063

12,815

146,232

9,082

15,922

(747)

7,286

2,206

3,303

1,883

(192)

833

262

36,396

–

53,171

34,400

(113)

(1,721)

(13,315)

–

833

4,894

Vehicles
$000’s

3,894

1,066

(349)

–

(47)

4,620

1,331

348

(658)

113

68,187

5,829

109,192

17,152

36,616

236,976

7,195

1,121

475

–

(12)

(577)

8,202

1,570

2,326

(4)

–

485

1,740

33,035

573

(250)

–

(44)

5,908

2,710

(653)

(316)

(1,222)

2,033

39,462

701

262

(465)

(13)

8,185

8,315

(597)

1,057

4,044

1,307

(251)

328

(147)

5,326

2,012

1,221

(143)

139

12,579

2,562

56,433

8,557

–

46,014

8,909

3,244

(1,154)

–

(1,990)

55,023

12,468

12,124

(1,209)

–

1,725

80,131

55,608

3,267

52,759

8,595

36,616

156,845

34,089

2,587

35,981

5,737

12,815

91,209

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

13. Property, plant and equipment (continued)

The net book value of the Group’s machinery and equipment includes an amount of $7,991,000 (2005: $3,341,000) in respect of assets
held under finance lease.

As at 31 December 2006 the Group had pledged property, plant and equipment, having a carrying value of $53,468,000
(2005: $31,538,000).

In 1994, the Portuguese Government granted Hikma Farmaceutica 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 2006 was $357,000 (2005: $416,000).

During the year 2006, the Group entered into contractual commitments for the acquisition of property, plant and equipment amounting
to $3.7 million (2005: Nil).

The amount of borrowing costs that have been capitalised within the projects under construction is $612,000 (2005: $300,000).

14. Interest in associate
On 11 September 2006 Hikma acquired the remaining 52.5% share capital of JPI. JPI was accounted for as an associate prior to this
date. Thereafter, the results of JPI have been fully consolidated (See Note 31).

Summarised financial information in respect of the Group’s 47.5% interest in the Ordinary Shares of JPI is set out below.

Total assets

Total liabilities

Net assets

Interest in associate

Revenues

Profit

Share of result of associate

For the
period ended
and as at
11 September
2006
$000’s

For the

year ended
and as at
31 December
2005
$’000

51,284

47,773

(33,412)

(31,874)

17,872

15,899

8,490

7,552

26,390

30,371

1,975

938

3,050

1,449

Profit is stated after management fees of $923,648 for the period up to 11 September 2006 (year ended 31 December 2005:
$1,061,000) due to the Group.

15. 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.

At 1 January 2005

Charge/(credit) to income

Credit to equity

Acquisition of subsidiary

Exchange differences

At 31 December 2005/
1 January 2006

Charge/(credit) to income

Credit to equity

Acquisition of subsidiary

Adjustments

Exchange differences

At 31 December 2006

Tax losses
$000’s

–

(357)

Deferred
R&D costs
$000’s

(171)

(128)

–

Reserves
and others
$000’s

(2,102)

194

–

Amortisable
assets
$000’s

(44)

–

Fixed
assets
$000’s

1,578

287

–

651

(69)

Stock
options
$000’s

–

(214)

(960)

–

(314)

(1,086)

(270)

(1,908)

(1,125)

–

(36)

(30)

–

(500)

–

(27)

2,447

(1,174)

–

989

–

(412)

–

706

(264)

(1,805)

–

Software
development
$000’s

1,312

(410)

–

902

(226)

–

Total
$000’s

573

(254)

(960)

294

(344)

(3,096)

(1,805)

1,695

(466)

(8)

(1,436)

(283)

(3,533)

962

2,833

(3,243)

676

(4,024)

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

15. Deferred tax (continued)

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

Deferred tax liabilities

Deferred tax assets

2006
$000

1,695

(5,719)

(4,024)

2005
$000

1,162

(1,506)

(344)

A deferred tax asset on unused tax losses totalling $578,000 (2005: $226,000) has not been recognised in the year due to the
unpredictability of the related future profit streams. These losses may be carried forward indefinitely. In addition, a deferred tax asset
of approximately $8,500,000 (2005: $310,000) on other deductible temporary differences has not been recognised due to uncertainty
regarding the tax treatment of the profits against which these differences will reverse.

16. 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.

1 January

Additions

Fair value adjustments recognised in equity

31 December

As at 31 December 2006

As at 31 December 2005

Listed
$000’s

1,185

–

(579)

606

Non Listed*

$000’s

254

–

(84)

170

Total
$000’s

1,439

–

(663)

776

Listed
$000’s

175

980

Non Listed*

$000’s

254

–

Total
$000’s

429

980

1,185

254

1,439

*Included in this amount is an investment in a non-listed US company (MENA Innovative Technologies Inc.) of $62,000 (2005:
$141,000) that represents 32.5% (2005: 32.5%) of its common share capital (see Note 37). The Group does not exert significant
influence over this entity.

17. Financial and other non current assets

Investments recorded at cost

Amounts due from investments recorded at cost

Other financial assets

As at 31 December

2006
$000’s

488

475

279

2005
$000’s

488

511

277

1,242

1,276

Investments at cost represent the Group’s share of 49% (2005: 49%) and 32% (2005: 32%) 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.

Amounts due from investments recorded at cost include $162,000 (2005: $162,000), and $375,000 (2005: $459,000) due from Societe
Hikma Pharma – Tunisia and Societe D’Industries Pharmaceutiques Ibn Al Baytar S.A. – Tunisia, respectively. While the remaining amount
of $236,000 (2005: $188,000) represents the amount due from Societe Hikma Ibn Al Baytar Limited – Tunisia, which was sold to Societe
D’Industries Pharmaceutiques Ibn Al Baytar S.A. – Tunisia. 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 (2005: $298,000).

18. 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

2006
$000’s

21,684

18,489

36,109

7,438

2005
$000’s

14,868

13,150

24,247

5,752

83,720

58,017

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

19. Trade and other receivables

Trade receivables

Other prepayments

Value added tax recoverable

Interest receivable

Employee advances

Other receivables

As at 31 December

2006
$000’s

2005
$000’s

109,266

72,609

6,148

5,701

427

304

–

5,389

3,889

217

462

121,846

82,634

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

Chargebacks

Doubtful debts

Expired goods

As at
31 December
2005
$000’s

Additions
$000’s

Acquisition of
subsidiary
$000’s

Utilisation
$000’s

Translation
adjustments
$000’s

As at
31 December
2006
$000’s

15,828

82,919

–

(83,829)

–

14,918

4,408

1,693

1,244

1,079

1,405

–

(40)

(168)

21,929

85,242

1,405

(84,037)

114

121

7,131

2,611

24,660

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

21. 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.

22. Bank overdrafts and loans

Bank overdrafts

Import and export financing

Short-term loans

Current portion of long-term loans (Note 25)

The weighted average interest rates paid were as follows:

Bank overdrafts

Bank loans (including the non-current bank loans)

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

As at 31 December

2006
$000’s

19,708

66,412

2005
$000’s

33,405

1,194

107

101,025

–

335

86,227

135,959

As at 31 December

2006
$000’s

3,031

10,115

11,281

11,187

35,614

2006
%

5.11

5.53

2005
$000’s

866

5,208

7,267

7,805

21,146

2005
%

4.16

5.14

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

23. 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

2006
$000’s

32,331

15,000

2,106

2,281

361

653

382

802

2005
$000’s

26,738

11,705

2,301

1,425

841

416

378

213

53,916

44,017

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

24. Other provisions
Other provisions represent the end of service indemnity provisions of Hikma Pharmaceuticals Limited – Jordan, IBPP, JPI 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, JPI, and Pharma Ixir Co, Ltd. Regarding IBPP,
the end of service indemnity is not funded, and all calculations necessary to determine the annual expense are determined in accordance
with Italian law. The annual accrual for end of service indemnity is calculated (as required by Italian law) by dividing the employees’
remuneration for the year by 13.5 and it is subject to revaluation on an annual basis.

Movements on the provision for end of service indemnity:

1 January

Addition

Utilisation

Translation adjustments

31 December

As at 31 December 2006, the balance of JPI’s provision for end of service indemnity was $1,157,000.

25. Long-term financial debts

Total loans

Less: current portion of loans (Note 22)

Long-term financial loans

2006
$000’s

1,233

1,630

(347)

2005
$000’s

829

733

(300)

(29)

2,577

1,233

As at 31 December

2006
$000’s

2005
$000’s

36,526

38,596

(11,187)

(7,805)

25,339

30,791

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

25. Long-term financial debts (continued)

Breakdown by maturity:

Within 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

Saudi Riyal

As at 31 December

2006
$000’s

2005
$000’s

11,187

10,101

9,354

4,679

1,179

7,805

8,737

8,357

7,532

4,065

2,100

36,526

38,596

14,250

22,302

5,387

7,928

–

8,961

6,184

9,989

121

–

36,526

38,596

At 31 December 2006, import and export financing, short-term loans and the current and long-term portion of long-term loans total
$57,922,000 (2005: $51,071,000).

At 31 December 2006, loans and import and export financing of $45,195,000 (2005: $36,344,000), were arranged at fixed interest rates.

The other borrowings at 31 December 2006 of $12,727,000 (2005: $14,727,000) are arranged at floating rates, thus exposing the
Group to cash flow interest rate risk.

Loans amounting to $13,350,000 (2005: $9,993,000) are secured on property, plant and equipment.

26. 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

2006
$000’s

2005
$000’s

2006
$000’s

2005
$000’s

1,380

5,183

6,563

(906)

5,657

838

1,441

2,279

(71)

2,208

1,216

4,441

5,657

797

1,411

2,208

It’s the Group’s policy to lease certain of its fixtures and equipment under finance leases. The average lease term is six years
(2005: two years). For the year ended 31 December 2006, the average effective borrowings rate was between 3.8% and 7.0%
(2005: between 5.4% and 6.0%).

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

27. Financial policies for risk management and their objectives

Credit risk:
The Group’s principal financial assets are cash and cash equivalents, trade and other receivables, and investments.

The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances
for doubtful debts, chargebacks in the US, expired goods and without recourse discounts. A provision 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 a significant credit concentration arising from one customer. The Group is owed $27.6 million (2005: $24.1 million) by
its agent in Saudi Arabia. This receivable balance represents the consolidation of both Hikma Pharmaceuticals Jordan and JPI receivable
balances due from this agent. During January 2007, JPI has agreed with the agent to change the payment method for private market
sales from open account to domestic confirmed letters of credit. As such, during 2007, this receivable concentration is expected to
gradually decrease, and the remaining receivables will be those related to the Saudi public sector and public sector tender sales, which
the Directors believe carry little risk.

As a market norm, clients in the MENA region are offered relatively longer payment terms compared to clients in Europe and the U.S.
As at 31 December 2006, the Group had a receivable balance in Algeria of $19.3 million (2005: $19.6 million) and management
perceives that the risk associated with these balances has increased due to the concentration of debt with certain customers.
The Group manages this risk through the implementation of stringent credit policies and procedures and credit insurance agreements.

Market risk:
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. The Group is exposed to foreign exchange and interest rate risk.
Management actively monitors these risks and manages them by entering into a variety of derivative financial instruments.

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, the Group 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 debt that is fixed by entering into interest rate
swap agreements. Using these derivative financial instruments has not had a material impact on the Group’s financial position at
31 December 2006 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.

• Lease obligations – approximates to the carrying value.

Management consider that the book value of the Group’s financial assets and liabilities do not materially differ from their fair value.

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

28. Derivative financial instruments

Currency derivatives
The Group utilises currency derivatives to hedge significant future transactions and cash flows. The Group is 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 was committed to,
are as below.

Foreign exchange forward contracts (Euro)

Foreign exchange forward contracts (Yen)

2006
$000’s

–

2005
$000’s

414

300

These arrangements are designed to address significant exchange exposures.

At 31 December 2006 all forward foreign exchange contracts were closed. At 31 December 2005 the fair value of the Group’s currency
derivatives was $709,648. The fair valuation of the currency derivatives that are designated and effective as cash flow hedge resulted
in a loss of $4,847 for the year ended 31 December 2005 that has been reflected 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. These contracts
(with original nominal values of $28 million as at 31 December 2005 reducing to $15 million as at 31 December 2006) have fixed
interest payments at rates ranging from 3.9% to 4.75% for periods up until 2011 and have floating interest receipts at LIBOR.

The fair value of swaps entered into by the Group is estimated as an asset of $149,116 (2005: $208,310). 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 totalling $149,116
(2005: $126,333) has been deferred in equity. The ineffective element of the cash flow hedges are taken to the income statement.
A gain of US$nil (2005: $171,483) has consequently been recognised in the income statement.

29. Share capital

Authorised:

500,000,000 Ordinary Shares of 10 pence each

49,998 non-voting, redeemable Preference Shares of £1 each

The Group redeemed the Preference Shares at par on 9 February 2006.

Issued and fully paid – included in shareholders’ equity:

At 1 January

Issued during the year

At 31 December

30. Minority interest

At 1 January

Minority interest share of profit

Other movements including dividends paid

At 31 December

2006
$000’s

2005
$000’s

88,700

–

Number 000’s

$000’s

Number 000’s

2006

2005

$000’s

166,798

29,457

142,400

25,269

1,366

255

24,398

4,188

168,164

29,712

166,798

29,457

2006
$000’s

3,601

1,435

(304)

4,732

2005
$000’s

2,685

1,090

(174)

3,601

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

31. Acquisition of subsidiary
On 11 September 2006, the Group acquired the remaining 52.5% of the issued share capital of JPI located in Saudi Arabia for cash
consideration of $21,000,000. The JPI operations manufacture products primarily for the Branded segment, which largely sells to
customers in the GCC region.

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 related intangibles

Customer relationships

Property, plant and equipment

Inventory

Other current assets

Accounts receivable, net

Cash and cash equivalents

Trade accounts payable

Income tax provision

Bank overdrafts and loans

Provision for end of service indemnity

Other current liabilities

Long-term financial debts

Due to sister companies

Deferred tax liability

Net assets acquired (100%)

Net assets acquired (52.5%)

Goodwill

Total consideration

Satisfied by :

Cash

Directly attributable costs

Cash consideration

Cash and cash equivalents acquired

Net cash outflow arising on acquisition

–

18,248

8,209

2,258

20,760

860

(5,147)

(96)

(13,223)

(982)

(3,345)

(6,934)

(3,200)

–

(1,695)

17,408

10,120

9,139

5,313

3,256

4,946

4,029

(74)

–

3,256

4,946

22,277

8,135

2,258

(342)

20,418

–

860

(5,147)

(96)

(13,223)

(982)

(3,345)

(6,934)

(3,200)

(1,695)

27,528

14,452

6,727

21,179

21,000

179

21,179

21,000

(860)

20,140

In addition to the consideration paid above, an amount of $454,000 has been paid in 2006 in respect of previous acquisitions.

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 JPI. The property,
plant and equipment of JPI complement the Group’s Branded business.

The revenue and net profit of JPI from the date of acquisition that are included in the Group’s income statement for the period
amounted to $11,737,000 and $1,918,000 respectively.

If the acquisition of JPI had been completed on the first day of the financial year, Group revenues for the year would have been
$338,948,000 and the Group’s profit attributable to equity holders of the parent would have been $55,828,000.

In accordance with IFRS, the Group has consolidated 100% of JPI at fair value. The fair value adjustment of $4,807,000 arising on
consolidation that relates to the previously held 47.5% share of JPI has been reflected as a revaluation reserve in equity. This reserve will
be transferred to retained earnings to offset the depreciation and amortisation charges arising on the total tangible and intangible assets
over their useful economic lives.

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

32. Net cash from operating activities

Profit before tax and minority interest

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

Movement on provisions

Deferred income

Cumulative effect of change in fair value of derivatives

Share option charge

Finance income

Interest and bank charges

Cash flow before working capital

Change in trade and other receivables

Change in due from associate/related party

Change in other current assets

Change in inventories

Change in trade and other payables

Change in other current liabilities

Cash generated by operations

Income tax paid

Finance income

Interest paid

Net cash generated from operating activities

2006
$000’s

2005
$000’s

75,596

64,409

12,468

1,329

8,909

1,416

(938)

(1,449)

362

(59)

879

440

152

(174)

164

713

(5,258)

(1,562)

4,958

5,211

89,423

78,229

(17,059)

(20,544)

(896)

(290)

(691)

219

(17,565)

(13,306)

610

138

14,297

(4,029)

54,361

54,175

(19,397)

(17,800)

5,258

1,562

(4,972)

(5,224)

35,250

32,713

33. Contingent liabilities
The Group was contingently liable for letters of guarantee and letters of credit totalling $16.9 million (2005: $11.1 million).

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

Notes to the consolidated financial statements

34. Equity settled share option scheme
During the year ended 31 December 2006 and 2005, the Company had one share-based compensation scheme settled by equity
instruments with two separate grant dates. 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

General employee share option plan

Date of grant

Number granted

Contractual life

13 October 2005

1,600,000

10 years

Vesting conditions

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

General employee share option plan

Date of grant

Number granted

Contractual life

12 October 2004

9,520,000

10 years

Vesting conditions

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 immediately after
vesting date.

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

Outstanding at the beginning of the year

Granted during the year

Exercised during the year

Expired during the year

Outstanding at the end of the year

Exercisable at the end of the year

2006

Weighted
average
exercise
price (in $)

Number of
shares option

11,120,000

1.42 9,520,000

–

1,600,000

2005

Weighted
average
exercise
price (in $)

0.91

4.5

(1,365,800)

(156,000)

9,598,200

2,606,200

1.18

2.94

–

1.44 11,120,000

1.09 1,904,000

1.42

0.91

A stock based compensation charge of $879,000 (2005: $712,000) has been recorded in the income statement as part of general and
administrative expenses.

The weighted average share price at the date of exercise for share options exercised during the period was $3.92. The options
outstanding at 31 December 2006 had a weighted average remaining contractual life of 3 to 4 years.

Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous 3 to 4 years.

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

35. Operating lease arrangements

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

2006
$000’s

532

2005
$000’s

655

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

2006
$000’s

1,074

3,493

3,836

8,403

2005
$000’s

1,421

4,320

4,726

10,467

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.

36. 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 overleaf.

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

Darhold Limited: is a related party of the Group because it is considered one of the major shareholders of Hikma Pharmaceuticals PLC
with ownership percentage of 31.3% at the end of 2006 (2005: 31.6%). During the year, the Group has not paid any administrative
expense on behalf of Darhold Limited and there is no outstanding balance with the Group at year end (2005: $21,000).

Capital Bank (previously 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 $207,000
(2005: $5,180,000). Loans and overdrafts granted by Export & Finance Bank to the Group amounted to $594,000 (2005: $1,201,000)
with interest rates ranging between 8.1% and LIBOR + 1 to 1.25%. Total interest expense incurred against Group facilities was $81,000
(2005: $107,000).

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 during the
year were $1,214,000 (2005: $1,185,000). The Group’s insurance expense for Jordan International Insurance Co contracts in the year
2006 was $1,183,000 (2005: $967,000). The amounts due to Jordan International Insurance Co at the year end were $90,000 (2005:
$78,000).

Mena Innovative Technology: is a related party of the Group because it holds a minority stake in this company (see Note 16) and
because the majority shareholder is the wife of Mr. Nabil Rizk – CEO of Generic Pharmaceuticals. Total purchases during the year were
$75,000 (2005: $67,000). Purchases were made at market price discounted to reflect the quantity of goods purchased. At 31 December
2006, the Group has no outstanding balance with Mena Innovation Technology (2005: $10,000).

Tunisian companies: Amounts due from Tunisian companies include $162,000 (2005: $162,000), 236,000 (2005: $188,000)
and $375,000 (2005: $459,000) due from 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 (2005: $298,000).

West-ward Pharmaceuticals Corp: Certain expenses of the Chairman were paid in the USA by West-ward Pharmaceuticals Corp
and reimbursed by the Chairman. At 31 December 2006, the balance outstanding amounted to $101,000 (2005: $120,000).
The total amount has been repaid since the year end.

Al Jazeera Pharmaceuticals Industries (up to 11 September 2006): Total purchases from JPI during the period amounted to
$4,401,000 (2005: $3,619,000) and total sales amounted to $914,000 (2005: $1,905,000). Balances due from JPI at 11 September
2006 amounted to $4,432,000 (2005: $2,304,000). 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.

Hikma Pharmaceuticals PLC

Notes to the consolidated financial statements

36. Related party balances (continued)

Remuneration of key management personnel
The remuneration of 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 Directors remuneration report on pages 33 to 42.

Short-term employee benefits

Share-based payments

Post employment benefits

Other benefits

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

Company’s name

Hikma Pharmaceuticals Limited

Trust Pharma Co.

Hikma Farmaceutica S.A.

West-Ward Pharmaceuticals Corp.

Pharma Ixir Co.

Istituto Biochimico Pavese Pharma S.p.A. (IBPP)

Al Jazeera Pharmaceutical Industries (JPI)

2006
$000’s

4,227

414

136

2005
$000’s

4,342

414

171

4,832

4,980

Ownership % Ownership %
Ordinary shares Ordinary shares
2005

2006

100

47.5

Established in

Jordan

Algeria

Portugal

USA

Sudan

Italy

KSA

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

Hikma Pharmaceuticals Limited – 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 an additional
10% for each subsequent year. Employees fully vest in the Group contributions after ten years of employment. The Group’s contributions
for the year ended 31 December 2006 were $493,000 (2005: $410,000).

West-ward Pharmaceuticals Corp: (401(k) salary saving plan)
Prior to 2001, West ward Pharmaceuticals Corp 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 $15,000
and $14,000 for 2006 and 2005, 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 for the year ended 31 December 2006 were $265,000 (2005: $275,000).

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.

39. Subsequent events
In January 2007, the Group announced the acquisition of Ribosepharm GmbH for consideration of $45 million. The value of tangible assets
acquired was $0.6 million. The Group is currently in the process of determining the fair value adjustments and hence the goodwill and
intangibles arising on the acquisition. Due to the timing of this transaction, it is not practicable to calculate and disclose the amounts arising.

On 9 February 2007, the Group completed the acquisition of the remaining share capital of 51% Hikma Pharma Co, a distribution
business in Tunisia for $3,800. At this stage it is not practicable to determine the goodwill arising on this acquisition.

Hikma Pharmaceuticals PLC

Hikma Pharmaceuticals PLC – the Company

76
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.

Approved by the Board of Directors and signed on its behalf by:

Samih Darwazah
Director

21 March 2007

Hikma Pharmaceuticals PLC

Hikma Pharmaceuticals PLC – the Company

77
Independent auditors’ report
to the members of Hikma Pharmaceuticals PLC

We have audited the individual company financial statements (the “financial statements”) of Hikma Pharmaceutical PLC for the year ended
31 December 2006 which comprise the balance sheet, the statement of changes in shareholders’ equity, the cash flow statement and the
related Notes 1 to 11. 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 2006. We have reported separately on the Group financial statements of
Hikma Pharmaceuticals PLC for the year ended 31 December 2006 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 individual company financial statements in accordance with
applicable law and International Financial Reporting Standards (IFRSs) as adopted by 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 and whether the
individual company financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of
the IAS Regulation. We also report to you whether in our opinion the information given in the Directors’ report is consistent with the
individual company financial statements.

In addition we report to you if, in our opinion, 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 other information contained in the annual report as described in the contents section and consider whether it is consistent
with the audited individual company financial statements. We consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the individual company financial statements. Our responsibilities do not extend
to any further information outside the annual report.

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 individual company 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 IFRSs 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 2006;

• the individual company financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4

of the IAS Regulation; and

• the information given in the Directors’ report is consistent with the individual company financial statements.

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

21 March 2007

Hikma Pharmaceuticals PLC

Hikma Pharmaceuticals PLC – the Company

78
Company balance sheet
at 31 December 2006

Non-current assets

Investment in subsidiaries

Due from subsidiaries

Tangible fixed assets

Current assets

Other current assets

Cash and cash equivalents

Due from subsidiaries

Accounts receivable

Dividends receivable

Total assets

Current liabilities

Other payables

Other current liabilities

Income tax provision

Due to subsidiaries

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

21 March 2007

Mazen Darwazah
Director

Notes

2006
$000’s

2005
$000’s

2 1,353,342

740,298

72,039

54,000

597

–

1,425,978

794,298

986

422

65,442

58,732

726

–

1,500

67,172

60,654

1,493,150

854,952

454

1,098

142

593,290

594,984

–

594,984

994

354

110

–

1,458

4,836

6,294

898,166

848,658

29,712

29,457

818,800

817,443

49,654

1,758

898,166

848,658

Hikma Pharmaceuticals PLC

Hikma Pharmaceuticals PLC – the Company

79
Company statement of changes in equity
for the year ending 31 December 2006

At 8 September 2005

Issue of share capital

Net income for the period

At 31 December 2005/1 January 2006

Issue of share capital

Net income for the year

Dividends paid

At 31 December 2006

Notes

Paid up
capital
$000’s

–

Share
premium
$000’s

–

29,457

817,443

–

29,457

817,443

Retained
earnings
$000’s

–

1,758

Total
$000’s

–

846,900

1,758

848,658

255

1,357

–

1,612

–

54,405

(6,509)

29,712

818,800

49,654

898,166

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

Hikma Pharmaceuticals PLC

Hikma Pharmaceuticals PLC – the Company

80
Company cash flow statement
for the year ending 31 December 2006

Profit before tax

Stock option charge

Increase in other current assets

(Decrease)/increase in other payables

Depreciation on tangible fixed assets

Increase in net receivables

Change in amounts due to/from subsidiaries

Increase in other current liabilities

Income tax paid

Net cash from operating activities

Investing activities

Change in amounts due to/from subsidiaries

Decrease/increase in dividends receivable

Investment in tangible fixed assets

Investment in subsidiary

Net cash used in investing activities

Financing activities

Proceeds from share issuance

Costs of share issue

Dividends paid

Net cash (used in)/from financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of the year

Cash and cash equivalents at end of the year

2006
$000’s

2005
$000’s

53,851

1,695

196

(564)

(540)

(18)

1,764

744

(610)

172

(422)

994

–

354

–

54,916

2,793

(22,875)

(49,164)

1,500

(1,500)

(690)

–

(21,244)

(7,500)

(43,309)

(58,164)

1,612

124,913

–

(10,810)

(6,509)

–

(4,897)

114,103

6,710

58,732

65,442

–

58,732

Hikma Pharmaceuticals PLC

Hikma Pharmaceuticals PLC – the Company

81
Notes to the Company 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 Subsidiaries
Investment in subsidiaries represents 100% share in Hikma Pharma Limited – Jersey, 100% of Hikma Holdings, 100% of Hikma Limited
and 52.5% of Al Jazeera Pharmaceutical Industries; the cost method is used to account for these investments.

On 10 November 2006 the Company subscribed 9,038 Ordinary Shares of £1 each in the share capital of Hikma Holdings (UK) Limited
for an aggregate amount of $591,865,487, $65,487 was paid up in cash and the remaining of $591,800,000 was left outstanding in
the intercompany account.

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 four employees; total compensation paid to them amounted to $923,000 (2005: $117,000)
of which salaries and wages compromise an amount of $492,000 (2005: $73,000) the remaining balance of $367,000 (2005: $44,000)
represent social security and other benefits.

6. Share options
The details of the share compensation scheme are provided in Note 35 to the Group financial statements. The number of options
granted to the employees of the Company (including Directors) was 2,600,000 (2005: 2,560,000) and the total amount of the
compensation expenses charged to income statement is $196,400 (2005: $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

The Company redeemed the Preference Shares at par on 9 February 2006.

Issued and fully paid – included in shareholders’ equity:

At start of period

Issued during the year

At 31 December

2006
$000’s

2005
$000’s

88,700

–

Number 000’s

$000’s

Number 000’s

2006

2005

$000’s

166,798

29,457

142,400

25,269

1,366

255

24,398

4,188

168,164

29,712

166,798

29,457

Hikma Pharmaceuticals PLC

Hikma Pharmaceuticals PLC – the Company

8. Share premium

Balance at 8 September 2005

Premium arising on issue of Equity Shares

Expenses on issue of Equity Shares

Balance at 31 December 2005

Premium arising on issue of Equity Shares

Balance at 31 December 2006

Share premium
$000’s

–

828,253

(10,810)

817,443

1,357

818,800

9. Retained earnings
Included in the retained earnings an amount of $196,400 (2005: $172,000) represents the current year charge of share option expenses.

10. Contingent liabilities
At 31 December 2006, the Company has agreed to guarantee the payment of the $591,800,000 from Hikma Holdings (UK) Ltd to
Hikma Acquisitions (UK) Ltd. The guarantee relates to loan notes issued to Hikma Acquisitions (UK) Limited by Hikma Holdings (UK) Ltd
as consideration for the transfer of the entire issued share capital in Hikma UK Limited to Hikma Holdings (UK) Ltd as part of the
Hikma Group reorganisation.

11. Subsequent events
In January 2007, the Group announced the acquisition of Ribosepharm GmbH for consideration of $45 million. The book value
of assets acquired was $0.6 million. The Group is currently in the process of determining the fair value adjustments and hence the
goodwill and intangibles arising on the acquisition. Due to the timing of this transaction, it has been impractical to calculate and
disclose the amounts arising.

Hikma Pharmaceuticals PLC

83
Shareholder information

2007 financial calendar
22 March

16 May

18 May

6 June

18 June

5 September*

19 September*

21 September*

19 October*

*Provisional date.

2006 preliminary results and final dividend announced

2006 final dividend ex-dividend date

2006 final dividend record date

Annual General Meeting

2006 final dividend paid to shareholders

2007 interim results and interim dividend announced

2007 interim dividend ex-dividend date

2007 interim dividend record date

2007 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 Ordinary Shares are listed on the London Stock Exchange. They are listed under EPIC – HIK, SEDOL – B0LCW08 GB
and ISIN – GB00B0LCW083. The Company also has listed Global Depository Receipts (“GDRs”) on the Dubai International Financial
Exchange (“DIFX”). They are listed under EPIC – HIK and ISIN – US4312882081.

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.

Further information on the DIFX, its trading systems and current trading in Hikma Pharmaceuticals PLC GDRs can be found on the
DIFX website www.dfix.ae.

Company details
Hikma Pharmaceuticals PLC
Registered in England and Wales number 5557934

Registered office:
13 Hanover Square
London
W1S 1HW
Telephone: +44 20 7399 2760
Facsimile: +44 20 7399 2761
E-mail:
Website: www.hikma.com

susan.ringdal@hikma.uk.com

Hikma Pharmaceuticals PLC

84
Principal Group companies

Hikma Pharmaceuticals PLC
13 Hanover Square
London W1S 1HW
UK
Telephone: +44 20 7399 2760
Facsimile: +44 20 7399 2761
Website: www.hikma.com

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 3TR
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

Contents
01 Financial and operational highlights
02 Group at a glance
04 Chairman and Chief Executive’s review

Front cover:
Researcher in our new R&D labs in Amman, Jordan.

Designed and produced by Radley Yeldar (London)

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

Hikma Pharmaceuticals PLC
Annual Report 2006

Strategy

delivers continued growth

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