hikma pharmaceuticals plc
13 hanover square
london w1s 1hw
uk
www.hikma.com
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what Makes
the Difference?
hikma pharmaceuticals plc
annual report 2010
2010 hikMa photostory
by george brooks
Portugal
Portugal
Egypt
Tunisia
Jordan
Tunisia
Jordan
Jordan
US
Egypt
Portugal
Egypt
Portugal
Jordan
Egypt
Jordan
Egypt
Portugal
Portugal
in 2010, george brooks visited our operations in egypt, tunisia, Jordan and portugal.
we thank all who took part in those photographs.
produced and designed by radley yeldar www.ry.com
This report is printed on “look!” paper. This paper is made from virgin wood fibre from well-managed forest independently certified
according to the rules of the forest stewardship council (fsc). it is manufactured at a mill that is certified to iso14001 and eMas environmental
standards. The mill uses pulps that are totally chlorine free (tcf), and some pulp is bleached using an elemental chlorine fee (ecf) process.
The inks in printing this report are all vegetable-based.
printed at st ives westerham press ltd, iso14001, fsc certified and carbonneutral®
Qualit y
Makes the Difference
hikMa pharMaceuticals plc
since hikMa was founDeD, we have grown into a successful
Multinational pharMaceutical group. our business toDay
is Diverse in its proDuct line anD the breaDth of its geographic
coverage. this Diversification will ensure that we Maintain
our track recorD of strong growth.
for more information, visit our website
www.hikma.com
Hikma Pharmaceuticals PLC
Annual report 2010
Contents:
Section One
How Have we performed?
4_How we Performed in 2010
6_CHAirmAn’s stAtement
8_GroUP At A GLAnCe
Section Two
How are we delivering
on our strategy?
12_CHief exeCUtive offiCer’s review
16_BUsiness And finAnCiAL review
29_PrinCiPAL risKs And UnCertAinties
Section Three
How do we act responsibly?
34_ensUrinG tHe sUstAinABiLity of oUr BUsiness
Section Four
governance
42_BoArd of direCtors
44_senior mAnAGement
46_CorPorAte GovernAnCe rePort
52_direCtors’ rePort
55_remUnerAtion Committee rePort
69_direCtors’ resPonsiBiLities
Section Five
financial statements
72_indePendent AUditors’ rePort
73_ConsoLidAted finAnCiAL stAtements
78_notes to tHe ConsoLidAted finAnCiAL stAtements
120_ComPAny finAnCiAL stAtements
123_notes to tHe ComPAny finAnCiAL stAtements
127_sHAreHoLder informAtion
128_PrinCiPAL GroUP ComPAnies – Advisers
1
Hikma Pharmaceuticals PLC
Hikma Pharmaceuticals PLC
Annual report 2010
2
Section One: How have we performed?
1
Section One
How Have
we performed?
4_How we Performed in 2010
6_CHAirmAn’s stAtement
8_GroUP At A GLAnCe
3
Hikma Pharmaceuticals PLC
Annual report 2010
How we Performed in 2010
AnotHer sUCCessfUL yeAr
HiKmA onCe AGAin deLivered roBUst GrowtH
in revenUe And Profit
2010
revenUe
2005-10
2010
revenUe CAGr
oPerAtinG mArGin
$730.9m
+22.8%
18.5%
2010
2010
2010
ProdUCts mArKeted
oPerAtinG CAsH fLow
emPLoyees
423
$144.8m
5,396
2010
2010
REVENUE BY REGION
REVENUE BY SEGMENT
EUROPE
AND REST OF
THE WORLD
10.9%
US
28.0%
MENA*
61.1%
GENERICS
23.9%
*Middle East and North Africa region (“MENA”).
INJECTABLES
21.5%
4
OTHERS
0.7%
BRANDED
53.9%
Section One: How have we performed?
1
2010 HiGHLiGHts
2010
2009
2008
2010
2009
2008
2010
2009
2008
135.1
107.3
80.7
OPERATING PROFIT
($ million)
+25.9%
98.8
77.7
57.1
PROFIT ATTRIBUTABLE TO
SHAREHOLDERS
($ million)
+27.2%
13.0
11.0
7.5
DIVIDEND PER SHARE
(Cents)
+18.2%
2010
2009
2008
2010
2009
2008
2010
2009
2008
730.9
636.9
580.7
REVENUE
($ million)
+14.8%
173.5
141.4
113.8
EBITDA1
($ million)
+22.7%
50.2
40.1
29.6
DILUTED EARNINGS PER SHARE
(Cents)
+25.2%
1 Reported profit before interest, tax, depreciation and amortisation.
5
Hikma Pharmaceuticals PLC
Annual report 2010
%
CHAirmAn's stAtement
A stronG PerformAnCe
in 2010, HiKmA onCe AGAin deLivered A stronG
PerformAnCe, inCreAsinG revenUe By 14.8% And
diLUted eArninGs Per sHAre By 25.2%
samih darwazah Non-Executive Chairman
6
Section One: How have we performed?
1
HIKMA
PHARMACEUTICALS
PLC
FTSE 250
FTSE 350
PHARMACEUTICALS
& BIOTECHNOLOGY
120
100
80
60
40
20
0
–20
–40
JAN 06
JUL 07
JAN 07
JUL 08
JAN 08
JUL 09
JAN 09
JUL 10
JAN 11
HIKMA’S TOTAL SHAREHOLDER RETURN FROM JANUARY 2006 (%)
We made significant progress on a number
of fronts in 2010. We delivered very robust
organic growth in revenues and profits. We
announced the important MSI acquisition in
the US and transactions in both Algeria and
Tunisia. The strength of our global, diversified
business model has enabled us to deliver an
excellent performance and we are confident
that the business is positioned to deliver
continued growth in the short, medium
and long term.
samih darwazah Non-Executive Chairman
Our success is underpinned by our diverse
business model, which combines our extensive
presence and experience in the Middle East
and North Africa (“MENA”) markets, a strong
business in the US generic market and a
growing global Injectables business.
In 2010, the MENA pharmaceutical market
continued to grow at a pace well above the
global average. Rising life expectancy and
changing lifestyles are creating new healthcare
needs, particularly for the treatment of diabetes
and cancer and increasing demand for
pharmaceuticals.
We expect the present turbulence in the
MENA will improve the living standards of
the people in the region, driving increased
affluence and greater government support
for healthcare services. We remain committed
to the region and to continuing to play a
key role in improving healthcare standards
by providing high quality affordable medicines.
Our expanding presence in the US and
Europe complements and strengthens our
activities in MENA, providing access to
different market opportunities, technologies,
products and customers. At the same time,
our businesses in the US and Europe are
benefitting from our MENA manufacturing
capabilities and associated cost synergies.
Our reputation for quality and high service
levels has increased our potential for further
growth in the US market. This has given us
the confidence to expand our operations in
the US through an agreement to acquire the
US injectables business of Baxter Healthcare,
Multi-Source Injectables (“MSI”). This acquisition,
expected to complete in April 2011, will
transform our global injectables business by
giving us greater scale and reach. We have
aspirations to be a global leader in generic
injectables and believe that bringing together
MSI’s broad product portfolio, strong sales
platform and customer relationships with
Hikma’s growing pipeline and leading
manufacturing facilities in Europe, is an
extremely powerful combination.
The Board is recommending a final
dividend of 7.5 cents per share (approximately
4.7 pence per share), which will make a
dividend for the full year of 13.0 cents per
share, an increase of 18.2% on 2009.
The proposed final dividend will be paid
on 26 May 2011 to shareholders on the
register on 15 April 2011, subject to
approval by shareholders at the Annual
General Meeting.
7
Hikma Pharmaceuticals PLC
Annual report 2010
GroUP At A GLAnCe
wHAt we do And wHere
we deveLoP, mAnUfACtUre And mArKet GeneriC And
in-LiCensed PHArmACeUtiCAL ProdUCts witHin tHree
Core BUsinesses. oUr oPerAtions sPAn 49 CoUntries And
foCUs on Key tHerAPeUtiC AreAs sUCH As Anti-infeCtives,
CArdiovAsCULAr, ALimentAry trACt And Cns
generics
selling generic products
across the us
2010
revenUe
$174.5m
+29.2%
Thirteenth largest generic company
in the Us market
focus on quality manufacturing
and high service levels
Quality is increasingly a key
competitive advantage
Leveraging our efficient and lower cost
manufacturing facilities in menA
50 products in 117 dosage strengths
and forms
GeoGrAPHiCAL AreA:
Us
toP ProdUCts:
Cephalexin
digoxin
isosorbide mononitrate
Lithium Carbonate
doxycycline
8
Section One: How have we performed?
1
inJectables
selling specialised injectable
products globally
2010
revenUe
$157.4m
+ 9.3%
Leading manufacturer for quality
sterile injectables
Us fdA approved manufacturing
facilities in Portugal and Germany
developing oncology platform
for manufacturing and sales
transforming our global platform with
the agreement to acquire Baxter’s Us
generic injectables business
120 products in 215 dosage strengths
and forms
GeoGrAPHiCAL AreA:
eUroPe, menA, Us
toP ProdUCts:
Ceftriaxone
vancomycin
Paclitaxel
Cefizox
Gemcitabine
branded
selling branded generics
and patented products across
17 mena markets
2010
revenUe
$394.2m
+11.8%
fifth largest pharmaceutical company
in the menA region
40% of sales from in-licensed products
1,600 reps targeting physicians and
pharmacists across the region
strong anti-infectives franchise
and increasing focus on cardiovascular,
diabetes and Cns products
Leading markets are Algeria, egypt,
Jordan and saudi Arabia
253 products in 485 dosage strengths
and forms
GeoGrAPHiCAL AreA:
menA
toP ProdUCts:
Actos®
Blopress®
suprax®
Amoclan
Prograf®
Key:
Manufacturing plants R&D
R&D plants
9
Hikma Pharmaceuticals PLC
Annual report 2010
10
Section Two: How are we delivering on our strategy?
2
%
%%
%%%
Section Two
How are we
delivering on
our strategy?
12_CHief exeCUtive offiCer’s review
16_BUsiness And finAnCiAL review
29_PrinCiPAL risKs And UnCertAinties
11
Hikma Pharmaceuticals PLC
Annual report 2010
CHief exeCUtive offiCer’s review
GrowtH tHroUGH diversifiCAtion
in 2010, HiKmA ContinUed its trACK reCord of doUBLinG
sALes every foUr yeArs. tHis sUCCess rests on tHe HArd
worK of HiKmA emPLoyees GLoBALLy And HiKmA’s
diversified BUsiness modeL
said darwazah Chief Executive Officer
12
Section Two: How are we delivering on our strategy?
2
oUr strAteGy for GrowtH
%
%%
%%%
strengthen
our leading
position in
the menA
region
develop
our global
product
range
in growing
therapeutic
areas
extend
our reach and
diversity as a
partner of
choice in
the menA
region
increase
the scale
of our
speciality
injectables
business
Leverage
our expertise
and capacity
in the Us
market
Build on our
world-class
manufacturing
and APi
sourcing
capabilities
extending our reach and diversity
through partnerships
We continue to deliver a strong performance
from our in-licensed products, which grew by
14.7% in 2010, reinforcing our position as the
licensing partner of choice in the MENA region.
The development of our in-licensed portfolio
is an integral part of our growth strategy and is
a key lever for developing our capabilities in
new product areas.
The strategic partnership with Celltrion
that we agreed in 2010 was a major
achievement. Through this partnership, we
plan to introduce nine biosimilar products,
including four in oncology, into the MENA
markets. With Celltrion’s unique biosimilar
portfolio and our strong reputation for quality,
we will be in an excellent position to lead
the market in these important products in
the MENA region.
strengthening our leading position
in the menA region
Our position as the leading regional company
in the fast growing MENA pharmaceutical
market continued to offer excellent opportunities
in 2010. We delivered a strong performance
in our top markets, continued to develop our
product portfolio, made further investment
in sales and marketing and successfully
completed two acquisitions.
Across all our 17 MENA markets, we
remained focused on developing our local
presence. By providing jobs, bringing technical
skills, raising quality standards and training staff,
we are helping to build global pharmaceutical
industries in each of our local markets, while
at the same time creating new opportunities
for Hikma.
developing our global product range
in growing therapeutic areas
Our product portfolio continues to grow with
22 new compounds and 38 new dosage
strengths and forms marketed and sold in
2010. A further 230 approvals across all
regions and markets will enable us to maintain
a steady stream of new product launches in
2011. Our portfolio also continues to develop
in new therapeutic areas, with new launches
in oncology, central nervous system, diabetes
and respiratory.
13
Hikma Pharmaceuticals PLC
Annual report 2010
CHief exeCUtive offiCer’s review
Continued
strenGtHen oUr
LoCAL PresenCe
tHroUGH ACQUisition
Tunis, Tunisia
in march 2010, we took a controlling
equity interest in the tunisian
pharmaceutical company ibn Al Baytar,
enabling us to accelerate our
penetration of the local market.
increasing the scale of our speciality
injectables business
The acquisition of Baxter’s Multi-Source
Injectables business, agreed in October 2010,
will be transformational for our Injectables
business, significantly enhancing the scale
and scope of our global Injectables platform.
MSI will add a high-quality, complementary
injectables portfolio including excellent critical
care products and DEA controlled substances.
It will position Hikma as the second largest
generic injectables supplier by volume in the
US with a combined market share of more
than 15%. It will bring well qualified and
experienced operational and sales teams
with excellent technical skills and customer
relationships and will increase our high quality
injectables manufacturing capacity and
distribution capabilities.
Leveraging our expertise and capacity
in the Us market
For a second consecutive year, the performance
of our Generics business has exceeded our
expectations. Through our commitment to
quality and service, we have continued to
grow our core business in the US and to take
market share from our competitors. At the
same time, we have been well positioned to
take advantage of some exceptional market
opportunities. While the level of competition
in the US remains high, we believe this
market will continue to offer exciting
opportunities and we are committed to
pursuing these opportunities.
maintaining our world class
manufacturing capabilities
Quality remains a key differentiating factor
across our business. In 2010, our commitment
to upholding the highest quality standards
in manufacturing helped to create new
opportunities in the very competitive US
market, both for our Generics and Injectables
businesses, and in both the US and Europe for
contract manufacturing. We continued our
track record of successful regulatory inspections
in 2010, most notably by receiving FDA
approval for our oncology manufacturing
facility in Germany.
strengthening our organisational structure
In January 2011, we announced some important
changes to the senior management team.
Bassam Kanaan, Chief Financial Officer, was
appointed President and Chief Operating
Officer for the MENA and EU regions.
Khalid Nabilsi, VP Finance, has taken over
as Chief Financial Officer. Michael Raya,
Corporate Vice President and CEO West-Ward,
assumed the responsibility of Executive
Vice President and CEO of the USA, with
responsibility for all the activities of the
Group in this region and Riad Mishlawi,
Vice President European Operations, assumed
the position of EU Vice President and Global
Head of Injectables. These appointments reflect
the increasing scale and internationalisation
of the Group and will support Hikma’s
continued growth.
Looking ahead
On the back of these strong results, we entered
2011 with good momentum across all our
businesses. The events of early 2011 in the
MENA region have led us to be more cautious
on the short-term outlook for our Branded
business. We are very optimistic about the
longer-term opportunities that economic
reform can bring and our commitment to the
MENA region has not changed. We continue
to believe in the excellent long-term growth
potential of the MENA region and we will
continue to invest in building our unique
local presence, both organically and
through acquisitions.
14
Section Two: How are we delivering on our strategy?
2
We are confident that we can continue to
deliver strong performances in our Injectables
and Generics businesses. We have made
significant investments in these businesses
in recent years, we now have very experienced
management teams in place and we see
numerous opportunities for growth. We also
have the integration of the MSI business
to look forward to and the transformation
this business will bring to both our global
Injectables and US businesses.
Overall, we are very positive on the
potential for 2011 and for the longer-term
prospects for the Group and expect to
continue our track record of doubling Group
sales every four years.
said darwazah Chief Executive Officer
HiKmA’s Key PerformAnCe indiCAtors
KPis
definition
2009
2010
Revenue growth
Operating profit growth/
revenue growth
Total working
capital days
Return on
invested capital
Percentage increase
or decrease in the
current year’s revenue
compared to the prior
year’s revenue
measures how
revenue growth
translates into growth
in operating profit
measures the average
number of days to
convert working
capital into revenue
measures the Group’s
efficiency in allocating
capital to profitable
investments
+9.7%
+14.8%
3.4x
1.7x
230
205
10.6%
12.4%
New product launches
new pharmaceutical
compounds launched
across the Group
24
22
15
Hikma Pharmaceuticals PLC
Annual report 2010
BUsiness And finAnCiAL review
BrAnded
A foCUs on QUALity sALes is deLiverinG
resULts ACross oUr PortfoLio of
BrAnded GeneriC And in-LiCensed ProdUCts
16
Section Two: How are we delivering on our strategy?
2
2010 HiGHLiGHts
strong second half performance across the
menA region delivers full year revenue
growth of 12.9% in constant currency
successful completion of acquisitions in
tunisia and Algeria, strengthening our
presence and capabilities in the menA region
excellent progress in the roll-out of key
in-licensed products
overview of the marketplace
The pharmaceutical markets in the MENA
region tend to be branded markets in which
products, either generic or patented, are
marketed under specific brand names.
According to IMS, pharmaceutical sales in
the private retail market in the MENA region
reached $8.4 billion in 2010, an increase of
8.4% over 2009. In recent years, MENA
pharmaceutical market growth has consistently
exceeded global market growth thanks to
positive demographic trends, improving
health awareness and increases in healthcare
coverage. We expect that these trends,
the increasing incidence of chronic diseases
and the continuous expansion of government
spending on healthcare will continue to drive
future growth.
Branded performance
Branded revenues increased by 11.8% in 2010
to $394.2 million, compared to $352.7 million
in 2009. In constant currency, Branded
revenues increased by 12.9%. Ibn Al Baytar,
the Tunisian business acquired at the end of
March 2010, contributed $11.4 million in sales
during the period.
During the year we continued to focus on new
product promotion, developing our market
position in leading products and therapeutic
areas, and improving the credit quality of our
customer base. These efforts are delivering
results across our portfolio of branded generic
and in-licensed products.
We successfully completed two acquisitions1
in 2010, strengthening our presence and
capabilities in the MENA region. In March,
we took a controlling equity interest in the
Tunisian pharmaceutical company Société
D’Industries Pharmaceutiques Ibn Al Baytar,
enabling us to accelerate our penetration of
the Tunisian market. In April, the Group agreed
to acquire the remaining 50% of the issued
share capital that we did not already own of
Al Dar Al Arabia in Algeria. The Al Dar Al
Arabia plant is expected to be completed by
the end of 2011. It will double Hikma’s local
manufacturing capacity in Algeria and will
significantly enhance our competitive position
in the Algerian market.
1 For more details on these acquisitions, please see note 39
of the consolidated financial statements.
tHe menA2 PHArmACeUtiCAL mArKet
Top 9 MENA markets
egypt
saudi Arabia
Algeria
morocco
UAe
Lebanon
tunisia
Jordan
Kuwait
2010
value
$m
8,356
2,072
1,829
1,681
894
629
481
437
195
139
2010 vs 2009
Growth
+8.4%
+12.4%
+11.0%
+7.1%
–2.0%
+9.3%
+12.5%
+3.3%
+10.0%
+6.3%
2 All market data sourced from IMS Health MAT December
2010. Figures reflect private retail sales only.
deveLoP oUr GLoBAL
ProdUCt rAnGe in GrowinG
tHerAPeUtiC AreAs
Amman, Jordan
The anti-psychotic therapeutic class is one
of the fastest growing in the menA region.
According to ims, respirox®, our leading
anti-psychotic drug, doubled its sales in 2010
and is now ranked number five, compared
to number eight at the end of 2009.
17
Hikma Pharmaceuticals PLC
Annual report 2010
BUsiness And finAnCiAL review
BrAnded Continued
As expected, our business in Algeria picked up
strongly in the second half of the year. We are
successfully managing the recent regulatory
changes by increasing the number of products
manufactured locally (from 54 in 2009 to
67 at the end of 2010) and by successfully
promoting our higher value branded generics
as well as our in-licensed products.
Our other key markets also performed
well. We delivered strong revenue growth
in Egypt, where sales were driven by
newly launched products and by our new
cardiovascular sales team. We achieved
excellent growth in Iraq, where investment
in the salesforce and our focus on promotion
in the private market is delivering results in
this developing market. Good performances
were also achieved in Saudi Arabia and across
the GCC (Gulf Co-Operation Council)
countries. While sales in Jordan continued
to be impacted by the restructuring of our
distribution channels, we are now moving
towards more optimal direct distribution to
our pharmacist customers and we believe
that this positions us well for 2011.
Revenue from in-licensed products grew
by 14.7%1 to $159.2 million, representing
40.4% of Branded sales, up from 39.4% in
2009. Key in-licensed products such as Blopress®
and Actos® have performed extremely well,
particularly in Algeria, Saudi Arabia and Egypt.
We continue to develop our portfolio of
in-licensed products, demonstrating our position
as the partner of choice in the MENA region.
1 2009 in-licensed sales were $138.9 million reflecting a
reclassification of products.
18
Section Two: How are we delivering on our strategy?
2
extend oUr reACH
As A PArtner
of CHoiCe in menA
South Korea
in April 2010 we signed an exclusive
licensing agreement with the south Korean
company Celltrion to distribute and market
nine biosimilar products, that are currently
under development, throughout the
menA region.
%
%%
%%%
Gross profit in the Branded business increased
by 8.4% to $203.4 million, compared to
$187.6 million in 2009. The Branded business
gross margin declined to 51.6%, compared to
53.2% in 2009. This reflects price declines on
locally manufactured products in Algeria and
the strengthening of the Japanese Yen, which
increased raw material costs.
Operating profit in the Branded business
increased by 7.9% to $98.7 million, compared
to $91.4 million in 2009. Operating margin
was 25.0%, compared to 25.9% in 2009.
This includes a non-recurring gain of $7.2 million
arising from the revaluation of the previously
held interests in the Tunisian company Ibn
Al Baytar and the Algerian company Al Dar
Al Arabia and $7.7 million in foreign
exchange losses.
1 All market data sourced from IMS Health, YTD December
2010. Private retail sales only include Algeria, Jordan,
Kuwait, Egypt, Tunisia, Morocco, UAE, Lebanon and
Saudi Arabia.
The strategic partnership with Celltrion
that we agreed in April 2010 was a major
achievement. Through this partnership,
we will introduce nine biosimilar products,
including four for oncology, into the MENA
markets. With Celltrion’s unique biosimilar
portfolio and our strong reputation for quality,
we will be in an excellent position to lead the
market in these important products in the
MENA region.
In addition, we signed a further three
licensing agreements: with Piramal Healthcare
for sevoflurane, an inhalation anaesthetic,
and with Sirao for Infasurf®, their leading
respiratory product, both for the MENA region;
and with Engelhard Arzneimittel for Prospan®
cough medicine for Algeria, Tunisia, Sudan
and Libya.
As a result of all of our efforts during
the year, Hikma remains the largest regional
pharmaceutical company and the fifth1
largest pharmaceutical company overall in the
MENA region, with a market share of 3.7%
for the 12 months through December 2010.
In 2010, the Branded business launched a
total of 61 products across all markets, including
8 new compounds and 14 new dosage forms
and strengths. The Branded business also
received 95 regulatory approvals across the
region, including 16 for new compounds.
19
Hikma Pharmaceuticals PLC
Annual report 2010
BUsiness And finAnCiAL review
inJeCtABLes
As sALes ACCeLerAte ACross oUr
inJeCtABLes BUsiness, we Are seeinG tHe
Benefits of eConomies of sCALe
20
2010 HiGHLiGHts:
injectables revenues up 12.1% in constant
currency driven by excellent growth
in the Us
excellent improvement in injectables
operating margin, to 15.1% from 10.6%
transformation of our global injectables
business through an agreement to acquire
the Us generic injectables business of
Baxter Healthcare
Section Two: How are we delivering on our strategy?
2
inCreAse tHe sCALe
of oUr sPeCiALity
inJeCtABLes BUsiness
New Jersey, USA
on 29 october 2010, we signed an agreement
to acquire Baxter Healthcare Corporation’s
Us generic injectables business. This acquisition
will double the size of our global injectables
business and at the same time double our
total sales in the Us market.
overview of the marketplace
Injectable products comprise the second
largest segment of the global pharmaceutical
market in terms of delivery mechanism after
oral products and have grown at a 20.9%
CAGR between 2002 and 2008. Injectable
products are produced in either liquid,
powder or lyophilized (freeze-dried) forms.
The manufacture of injectable products
requires specialised and sterile manufacturing
facilities and techniques. Regulatory authorities
impose strict standards. All of these factors have
led to a market with high barriers to entry and,
as a result, a limited number of competitors.
Going forward, the injectables market is
expected to benefit from the key drivers of
generic growth as well as from the patent
expiries of a number of injectable products.
injectables performance
Revenue in our global Injectables business
increased by 9.3% to $157.4 million compared
to $144.1 million in 2009. In constant currency,
Injectables revenues increased by 12.1%.
US Injectables sales reached $29.9 million, up
75.9% from $17.0 million in 2009. This excellent
performance was driven primarily by the
successful launch of new products and good
demand for existing products. An increased
demand for contract manufacturing also
contributed to this performance.
In 2010, our injectable manufacturing
facility in Germany, which produces lyophilized
and liquid injectable products for both oncology
and non-oncological uses, was inspected and
approved by the US FDA. This represents an
important step in the process of registering our
oncology products in the US and reinforces
our excellent track record for quality. This was
followed in December by an FDA approval for
irinotecan – our first oncology ANDA approval
for the US.
In the MENA region, Injectables sales picked
up in the second half of 2010, enabling us to close
the year up 4.1% with sales of $64.9 million
compared to $62.3 million in 2009. This increase
is attributed to strong growth in Algeria, our
newly launched oncology products and a good
performance in the tender market in the second
half of the year.
European Injectables sales decreased by
3.2% to $62.7 million in 2010 compared to
$64.8 million. In constant currency, European
sales increased slightly to $65.9 million,
reflecting our ability to offset significant price
declines in most of our European markets,
including declines driven by the supplementary
reimbursement scheme implemented in
Germany, with increased volumes from
existing products and from new contract
manufacturing opportunities.
In 2010, the Injectables business launched
a total of 36 products across all markets, including
12 new compounds and 21 new dosage forms
and strengths. The Injectables business also
received a total of 131 regulatory approvals
across all regions and markets, including
44 in MENA, 77 in Europe and 10 in the US.
Injectables gross profit grew by 12.9%
to $71.0 million, compared to $62.9 million in
2009, with gross margin increasing to 45.1%,
compared to 43.7% in 2009. The increase
in margin reflects growth in our own product
sales and in contract manufacturing and
increasing economies of scale.
Injectables operating profit increased
by 54.7% to $23.7 million, compared to
$15.3 million in 2009. Injectables operating
margin improved to 15.1% in 2010, up from
10.6% in 2009. This increase reflects our
strong performance in the US and a better
control of costs in Europe, and was achieved
despite an increased investment in R&D.
In 2010, we agreed to acquire Baxter
Healthcare’s Multi-Source Injectables business
for a cash consideration of $112 million.
This acquisition will transform our Injectables
business, and positioning Hikma, through
our wholly-owned subsidiary West-Ward
Pharmaceuticals Corp. (“West-Ward”), as
the second largest supplier by volume of generic
injectables in the US market. The Multi-Source
Injectables business will bring a portfolio of
41 products including several DEA controlled
substances and is estimated to have generated
in excess of $180 million in annual revenue
in 2010.
21
Hikma Pharmaceuticals PLC
Annual report 2010
BUsiness And finAnCiAL review
GeneriCs
tHis yeAr we HAve exPAnded oUr mArKet sHAre in tHe Us
GeneriCs mArKet tHroUGH A ContinUinG foCUs on imProvinG
serviCe LeveLs And By LeverAGinG oUr QUALity rePUtAtion
22
Section Two: How are we delivering on our strategy?
2
The Generics segments gross profit increased
by 55.7% to $81.8 million, compared to
$52.5 million in 2009. Gross margin
reached 46.9%, up from 38.9% in 2009.
Consequently, the Generics segment achieved
an operating profit of $51.1 million compared
to $25.0 million in 2009. Generic operating
margin grew from 18.5% to 29.3% in 2010.
This significant improvement in both the
gross and operating profit reflects the
exceptional performance of colchicine as
well as a good performance from our core
product portfolio.
In 2010, the Generics business launched
2 new compounds in 3 new dosage forms
and strengths and received 4 new product
approvals.
other businesses
Other businesses primarily comprise Arab
Medical Containers, a manufacturer of
pharmaceutical packaging, and International
Pharmaceuticals Research Centre, which
conducts bio-equivalency studies. These
businesses, which supply Group operations
and third parties, had aggregate revenues
of $4.8 million, compared with aggregate
revenue of $5.1 million in 2009.
These Other businesses delivered an
operating loss of $2.9 million in 2010,
compared to an operating loss of $2.3 million
in 2009. The slight increase in loss can be
attributed to an increase in overheads in
our Chemicals division.
2010 HiGHLiGHts
Generics revenues up 29.2% to $174.5 million
robust demand across the core product
portfolio supports the underlying business
specific market opportunities enhance
segment results
LeverAGe oUr
exPertise And CAPACity
in tHe Us mArKet
New Jersey, USA
Through our commitment to quality and
service, we have taken market share
from our competitors and are now the
thirteenth largest generic company in
the Us market in terms of number of
prescriptions written.
overview of the marketplace
The US represents the world’s largest generic
market, accounting for nearly 45% of the
global generic market. The total number of
US oral generic prescriptions dispensed grew
by 6.9% in 2010. Generics now account
for nearly 75% of all prescriptions dispensed
in the US. Generics now account for nearly
75% of all prescriptions dispensed in the US.
The increase in generic prescriptions has been
driven by the greater availability of generic
options and the efforts of both public
and private healthcare payers to use lower-cost
alternatives. The US generic pharmaceutical
industry is very competitive and has experienced
significant pricing pressure in recent years.
Going forward we expect that expanded
health coverage and significant patent expiries
will offset pricing pressures and drive future
generic market growth.
Generics performance
Revenue in our Generics business increased
by 29.2% to $174.5 million, compared to
$135.1 million in 2009. This performance
reflects strong demand for our core products
as well as a substantial increase in sales
resulting from our ability to take advantage
of specific market opportunities.
Since mid-2008 we have focused on
improving service levels, leveraging our quality
reputation and optimising our manufacturing
capacity to meet market needs. In 2010, these
actions enabled us to deliver solid growth in
revenues from our core product portfolio.
We were also able to take advantage of
some specific market opportunities. The most
notable relates to the sale of colchicine, an
oral drug recommended for the treatment
of gout. This opportunity was finite and on
30 September 2010, West-Ward discontinued
sales of oral colchicine to comply with
regulatory requirements of the US Food and
Drug Administration.
23
Hikma Pharmaceuticals PLC
Annual report 2010
BUsiness And finAnCiAL review
GroUP PerformAnCe
oUr sUCCess is UnderPinned By oUr diverse BUsiness modeL,
wHiCH ComBines oUr extensive PresenCe in tHe menA mArKets,
A stronG BUsiness in tHe Us GeneriCs mArKet And A GrowinG
GLoBAL inJeCtABLes BUsiness
24
Section Two: How are we delivering on our strategy?
2
sUmmAry Profit And Loss
$ million
Net sales
Gross profit
Gross margin
Operating profit
Operating margin
Profit before tax
tax
Effective tax rate
Profit attributable to shareholders
2010
730.9
357.3
48.9%
135.1
18.5%
121.0
(21.5)
17.7%
98.8
2009
636.9
304.4
47.8%
107.3
16.8%
94.8
(15.5)
16.3%
77.7
Change
+14.8%
+17.4%
+1.1
+25.9%
+1.7
+27.6%
+38.7%
+1.4
+27.2%
Group performance
Revenue for the Group increased by 14.8%
to $730.9 million, compared to $636.9 million
in 2009. On a constant currency basis, Group
revenues increased by 16.0%. During the year,
our US generics business performed extremely
well driven by a strong performance in its core
business and exceptionally strong sales from
specific market opportunities. Our Branded
business continued to deliver double-digit
growth and we made good progress in our
Injectables business, particularly in the US.
The Group’s gross profit increased by
17.4% to $357.3 million, compared to
$304.4 million in 2009. Group gross margin
was 48.9%, compared to 47.8% in 2009.
This improvement primarily reflects the
exceptional improvement in gross profit
in our Generics business.
Group operating expenses grew by
12.7% to $222.2 million, compared to
$197.1 million in 2009. As a percentage of
sales, Group operating expenses decreased
slightly to 30.4% compared to 31.0% in 2009.
In line with our strategy to increase investment
in R&D across the Group, R&D grew by 40.2%
to $23.6 million. Total investment in R&D
represented 3.2% of Group revenue, compared
to 2.6% in 2009. This reflects increased
investment in product development for the US
market and for our global Injectables portfolio.
We expect to continue to increase our
investment in R&D as a percentage of sales as we
work to develop our global product portfolio.
Other net operating expenses declined on
a reported basis by $8.3 million to $7.2 million
in 2010. Increases in provisions for slow moving
items and foreign exchange losses were more
than offset by non-recurring gains arising from
the revaluation of the previously held interests in
the Tunisian company Ibn Al Baytar and the
Algerian company Al Dar Al Arabia, gains on
the sale of intangible assets, and other product
related income.
Operating profit for the Group increased
by 25.9% to $135.1 million, compared to
$107.3 million in 2009. Group operating
margin improved by nearly two percentage
points to 18.5%, compared to 16.8% in 2009.
The following paragraphs address the Group’s
main operating expenses.
Group sales and marketing expenses grew
more slowly than Group revenue during the
year, increasing by 8.8% to $106.7 million,
compared to $98.1 million in 2009.
Consequently sales and marketing expenses
decreased as a percentage of sales to 14.6% in
2010, compared to 15.4% in 2009. This reflects
the strong performance in our Generics
business with its relatively lower sales and
marketing expenses as a percentage of sales,
and economies of scale and reduced costs
in our global Injectables business.
General and administrative expenses
increased by 27.1% to $84.8 million. As a
percentage of sales, general and administrative
expenses increased to 11.6% in 2010, compared
to 10.5% in 2009. Excluding $7.7 million in
one-off costs related to the acquisition of the
Tunisian company Ibn Al Baytar, the Algerian
company Al Dar Al Arabia and Baxter’s
Multi Source Injectables business, general
and administrative expenses were flat as a
percentage of sales at 10.5%. This was
achieved through good control of costs across
the Group and despite an increase in corporate
expenses related to the strengthening of the
corporate management team and an increase
in employee benefits.
25
Hikma Pharmaceuticals PLC
Annual report 2010
BUsiness And finAnCiAL review
GroUP PerformAnCe Continued
net finance expense
Net finance expense increased to
$13.5 million, compared to $12.3 million
in 2009. The increase reflects higher bank
charges related to requirements in Algeria
to sell through confirmed letters of credit.
Profit before tax
Profit before tax for the Group increased
by 27.6% to $121.0 million, compared to
$94.8 million in 2009.
tax
The Group incurred a tax expense of $21.5 million
in 2010, compared to $15.5 million in 2009.
The effective tax rate was 17.7%, compared
to 16.3% in 2009, reflecting the impact of the
significant increase in profitability in the US.
Profit for the year
The Group’s profit attributable to equity
holders of the parent increased by 27.2%
to $98.8 million.
earnings per share
Diluted earnings per share for the year
to 31 December 2010 were 50.2 cents,
up 25.2% from 40.1 cents in 2009.
dividend
The Board has recommended a final dividend
of 7.5 cents per share (approximately 4.7 pence
per share), which will make a dividend for
the full year of 13.0 cents per share, up from
11.0 cents per share in 2009, an increase of
18.2%. The proposed final dividend will be
paid on 26 May 2011 to shareholders on
the register on 15 April 2011, subject to
approval by shareholders at the Annual
General Meeting.
net cash flow from operating activities
and investment
The Group continued to deliver significant
improvements in working capital in 2010,
reducing its overall working capital cycle by
25 days. This reflects our commitment to
improve collections, increase the factoring of
receivables and optimise our supply chain.
Over the year, Group receivable days decreased
by 16 days to 100 days as at 31 December
2010. Inventory days increased by 1 day to
178 days and payable days improved by
10 days to 73 days.
Working capital improvements coupled with
improved profitability led to a significant
increase in operating cash flow, particularly in
the MENA region and the US. Overall Group
net cash flow from operating activities grew
by 21.7% to $144.8 million in 2010, compared
to $119.0 million in 2009.
Capital expenditures increased to
$49.1 million, compared to $37.0 million
in 2009. In 2010, expenditure was focused
on the completion of our new lyophilisation
plant in Portugal, the expansion of our
manufacturing capacity in Algeria and Egypt,
continuous investment in IT infrastructure
and overall maintenance capex across all
of our facilities. We expect to increase capital
expenditure in 2011 as we continue to expand
our manufacturing capacity in the MENA
region to support demand for our global
products.
During the year, other Group investing
activities included investments of $4.4 million
and $18.6 million for the acquisitions of Ibn Al
Baytar and Al Dar Al Arabia, respectively, and
advanced payments related to the acquisition
of products and product related technologies.
26
Section Two: How are we delivering on our strategy?
2
BUiLd on oUr worLd CLAss
mAnUfACtUrinG
Viennenburg, Germany
we continually seek to improve our
production facilities. in April 2010, our
injectable facility in Germany, which
manufactures lyophilized and liquid
injectables for both oncological and
non-oncological uses, was inspected
and approved by the Us fdA.
Balance sheet
As a result of working capital improvements,
net debt decreased from $116.9 million as at
31 December 2009 to $101.1 million as at
31 December 2010 keeping the Group in a
very strong financing position.
We expect to fund the purchase of MSI
and associated working capital requirements
with new debt financing. This financing
has already been arranged and will increase
our total debt by around $140 million.
research & development1
The Group’s product portfolio continues
to grow. In 2010 we launched 22 new
compounds, expanding the Group portfolio
to 423 compounds in 817 dosage forms and
strengths. We manufacture and/or sell 46 of
these compounds under-license.
Across all businesses and markets, a total
of 100 products were launched. In addition,
the Group received 230 approvals.
To ensure the continuous development
of our product pipeline, we submitted 267
regulatory filings in 2010 across all regions
and markets. As of 31 December 2010, we
had a total of 633 pending approvals across
all regions and markets.
At 31 December 2010, we had a total
of 102 new products under development,
the majority of which should receive several
marketing authorisations for differing strengths
and/or product forms over the next few years.
HiKmA’s ProdUCt PortfoLio
total marketed products
Products launched in 2010
Branded
injectables
Generics
Group
Compounds
dosage forms
and strengths
new compounds
253
120
50
423
485
215
117
817
8
12
2
22
new dosage
forms and
strengths
total launches
across all
countries
in 20102
14
21
3
38
61
36
3
100
HiKmA’s ProdUCt PiPeLine
Products approved in 2010
Products pending approval
as at 31 december 2010
new
compounds
new dosage
forms and
strengths
16
11
4
31
30
21
4
55
Branded
injectables
Generics
Group
total
approvals
across all
countries
in 20102
95
131
4
230
new
compounds
new dosage
forms and
strengths
51
43
25
119
112
55
34
201
total pending
approvals
across all
countries as of
31 december
20102
313
286
34
633
1 Products are defined as pharmaceutical compounds sold by
the Group. New compounds are defined as pharmaceutical
compounds not yet launched by the Group and existing
compounds being introduced into a new segment.
2 Totals include all compounds and formulations that are either
launched, approved or pending approval across all markets.
27
Hikma Pharmaceuticals PLC
Annual report 2010
BUsiness And finAnCiAL review
GroUP PerformAnCe Continued
2011 outlook (at constant currency)
We expect to deliver Group revenue growth
of around 7% in 2011 and gross margin of
around 47%, excluding the Multi-Source
Injectables business.
We started 2011 with double digit growth
expectations for our Branded business. Recent
events in the MENA region, particularly in
Egypt, Libya and Tunisia, now require us to
be more cautious in our ability to achieve this.
To date, we have experienced disruptions
in manufacturing, sales and distribution.
While our focus in each affected market is
on returning to ‘business as usual’ as soon
as possible, it is very difficult to fully assess
the potential for further disruptions. With this
in mind, we now anticipate Branded revenue
growth of around 7% for the year, which
takes into consideration the disruption we
have experienced to date and assumes the
affected markets return to normal by the
middle of 2011. We continue to believe in
the excellent long-term growth potential of
the MENA region.
We are confident that we can continue
to deliver a strong performance in our global
Injectables business and we are excited about
the opportunities that the MSI business will
bring. We now anticipate this acquisition to
close by the end of April.
We expect that our Generics business will
perform well in 2011 and that our commitment
to quality and service will continue to
differentiate us in the competitive US market.
We estimate 2011 Generics sales of around
$160 million and mid-teens operating margin.
Refer to page 31 for Basis of preparation and Forward-looking statements.
28
Section Two: How are we delivering on our strategy?
2
!
BUsiness And finAnCiAL review
PrinCiPAL risKs And UnCertAinties
tHe seCtion BeLow inCLUdes tHe PrinCiPAL risKs And
UnCertAinties tHAt tHe GroUP Considers CoULd HAve A
siGnifiCAnt effeCt on its finAnCiAL Condition, resULts of
oPerAtions or fUtUre PerformAnCe. tHe List is not set oUt in
order of Priority And otHer risKs, CUrrentLy UnKnown or
not Considered mAteriAL, CoULd HAve A simiLAr effeCt
oPerAtionAL risKs
risK
PotentiAL imPACt
mitiGAtion
Compliance with cGMP
non-compliance with manufacturing
standards (often referred to as
“Current Good manufacturing
Practices” or cGmP)
delays in supply or an
inability to market or develop
the Group’s products
Commitment to maintain the
highest levels of quality across
all manufacturing facilities
delayed or denied approvals for the
introduction of new products
strong global compliance function
that oversees across the Group
Product complaints or recalls
Bans on product sales or importation
disruptions to operations
Litigation
remuneration and reward structure that
helps retain experienced personnel
Continuous staff training
Regulation
Unanticipated legislative and other
regulatory actions and developments
concerning various aspects of the
Group’s operations and products
restrictions on the sale of one or more
of our products
Local operations in most of our
key markets
restrictions on our ability to sell
our products at a profit
Unexpected additional costs required to
produce, market or sell our products
increased compliance costs
strong oversight of local regulatory
requirements to help anticipate potential
changes to the regulatory environments
in which we operate
representation and/or affiliation with
local industry bodies
slowdown in revenue growth
from new products
inability to deliver a positive
return on investments in r&d,
manufacturing and sales
and marketing
Commercialisation of new products
delays in the receipt of marketing
approvals, the authorisation of price and
reimbursement
Lack of approval and acceptance of new
products by physicians, patients and
other key decision-makers
inability to confirm safety,
efficacy, convenience and/or cost-
effectiveness of our products as
compared to competitive products
inability to participate in tender sales
experienced regulatory teams able to
accelerate submission processes across
all of our markets
Highly qualified sales and marketing
teams across all markets
A diversified product pipeline with 63 new
compounds pending approval, covering a
broad range of therapeutic areas
A systematic commitment to quality
that helps to secure approval and
acceptance of new products and
mitigate potential safety issues
29
Hikma Pharmaceuticals PLC
Annual report 2010
oPerAtionAL risKs Continued
risK
Product development
failure to secure new products or
compounds for development, either
through internal research and
development efforts, in-licensing,
or acquisition
PotentiAL imPACt
mitiGAtion
inability to grow sales and
increase profitability for the Group
experienced and successful in-house
research and development team
Lower return on investment in research
and development
strong business development team
track record of building
in-licensed brands
Partnerships
inability to renew or extend in-licensing
or other partnership agreements with a
third-party
Liability of products from
our portfolio
inability to market existing products
as planned
failure to recoup sales and
marketing and business
development costs
Long-term relationships with existing
in-licensing partners
experienced legal team capable of
negotiating appropriate agreements
with licensing partners
Continuous development of new
licensing partners
diverse revenue model with in-house
research and development capabilities
Disruptions in the manufacturing
supply chain
inability to develop and/or
commercialise new products
Alternate approved suppliers of
active ingredients
inability to procure active ingredients
from approved sources
inability to market existing products
as planned
Long-term relationships with reliable
raw material suppliers
inability to procure active ingredients
on commercially viable terms
inability to procure the quantities
of active ingredients needed to meet
market requirements
inability to supply finished product to
our customers in a timely fashion
Economic and political and
unforeseen events
The failure of control, a change in the
economic conditions or political
environment or sustained civil unrest
in any particular market or country
Unforeseen events such as fire or
flooding could cause disruptions to
manufacturing or supply
Lost revenue streams on short notice
reduced service levels and damage
to customer relationships
Corporate auditing team
continuously monitors regulatory
compliance of APi suppliers
focus on improving service levels
and optimising our supply chain
disruptions to manufacturing
and marketing plans
Lost revenue streams
inability to supply products
Geographic diversification, with
9 manufacturing facilities and sales
in more than 40 countries
Product diversification, with
423 products and 817 dosage strengths
and forms
Litigation
Commercial, product liability and other
claims brought against the Group
financial impact on Group
results from damages awards
reputational damage
in-house legal counsel with relevant
jurisdictional experience
30
Section Two: How are we delivering on our strategy?
2
finAnCiAL risKs
risK
Foreign exchange risk
exposure to foreign exchange
movements, primarily in the european,
Algerian, sudanese and egyptian
currencies
PotentiAL imPACt
mitiGAtion
fluctuations in the Group’s net asset
values and profits upon translation into
Us dollars
entering into currency derivative
contracts where possible
foreign currency borrowing
matching foreign currency revenues
to costs
Interest rate risk
volatility in interest rates
fluctuating impact on profits before
taxation
optimisation of fixed and variable rate
debt as a proportion of our total debt
Use of interest rate swap agreements
Credit Risk
reduced working capital funds
inability to recover trade receivables
risk of bad debt or default
Concentration of significant trade
balances with key customers in the
menA region and the Us
Clear credit terms for settlement of sales
invoices
Group Credit policy limiting credit
exposures
Use of various financial instruments
such as letters of credit, factoring and
credit insurance arrangements
Liquidity Risk
insufficient free cash flow and
borrowings headroom
reduced liquidity and working capital
funds
Continual evaluation of headroom and
borrowing
inability to meet short-term working
capital needs and, therefore, to execute
our long-term strategic plans
Committed debt facilities
diversity of institution, subsidiary and
geography of borrowings
Tax
Changes to tax laws and regulations in
any of the markets in which we operate
negative impact on the Group’s effective
tax rate
Costly compliance requirements
Close observation of any intended or
proposed changes to tax rules, both in
the UK and in other key countries
where the Group operates
Basis of preparation and
forward-looking statements
This business and financial review has been
prepared solely to provide additional
information to shareholders 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
– using words such as “intends”, “believes”,
“anticipates” and “expects”. Where included,
these have been made by the Directors in
good faith based on the information available
to them up to the time of their approval
of this report. By their nature, forward-looking
statements are based on assumptions and
involve inherent risks and uncertainties that
could cause actual results or events to differ
materially from those expressed or implied
by the forward-looking statements, and
should be treated with caution. These risks,
uncertainties or assumptions could adversely
affect the outcome and financial effects
of the plans and events described in this
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 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 announcement or to correct any
inaccuracies which may become apparent in
such forward-looking statements.
31
Hikma Pharmaceuticals PLC
Annual report 2010
32
Section Three: How do we act responsibly?
3
Section Three
How do we
act responsibly?
34_ensUrinG tHe sUstAinABiLity of oUr BUsiness
33
Hikma Pharmaceuticals PLC
Annual report 2010
CorPorAte resPonsiBiLity rePort
ensUrinG tHe sUstAinABiLity of oUr BUsiness
one of tHe virtUes we vALUe most At HiKmA is QUALity,
not JUst ProdUCt QUALity, BUt QUALity in everytHinG we do
34
Section Three: How do we act responsibly?
3
HiKmA’s dAy
AGAinst diABetes
Amman, Jordan
The aim of the campaign is to raise public
awareness about diabetes and to promote
a healthy lifestyle to combat the spread
of one of the most challenging
health conditions.
Since the Company was founded in 1979,
we have been committed to honesty,
integrity and the highest possible standards
in everything we do. We are dedicated to
the welfare and education of our employees,
committed to the communities in which
we work and determined to preserve and
protect the environment in which we operate.
These principles have guided us for the
past 30 years and will continue to do so in
the future.
Our five-year Corporate Responsibility
(“CR”) plan, which takes us from 2010 to
2015, revolves around two broad themes,
wellbeing and education, and four key
platforms, our people, our community,
our environment and ethics. These platforms
reflect Hikma’s genuine commitment to
its stakeholders and its dedication to fully
integrate CR within its business strategy.
We believe the CR Strategy in place will
further enhance Hikma’s reputation, support
both the global health and environment
agendas, and support a culture of global
community engagement. We continuously
aim for Hikma to be internationally
acknowledged as a committed and
responsible global business.
reporting
For the fourth year, we continued to use the
Global Reporting Initiative’s G3 guidelines as
a benchmark tool. We remain focused on
indicators relevant to our business and our
stakeholders; these indicators cover community
investment, environmental impacts, employees
and labour practices.
People
We have always recognized that our people
are our most important asset. We have a
talented and diverse workforce, which
reached approximately 5,400 employees in
2010. To successfully grow our business, we
are continuously seeking new ways to develop
and reward our people.
Developing our people
With our commitment to maintaining the
highest quality standards and cGMP (current
good manufacturing practices), technical
training continued to be a top priority across
the Group in 2010. Our Continuing Education
Scheme, which supports employees in
fully-funded further education programmes,
also continued successfully in 2010, as did our
ongoing graduate development programmes
and management rotation plans.
35
Hikma Pharmaceuticals PLC
Annual report 2010
CorPorAte resPonsiBiLity rePort
Continued
Rewarding our people
During 2010, we continued to develop our
remuneration plans for the Group. We are
working with the Hay Group and other
international consultancy firms to improve
employee compensation, benefits and
working conditions. In 2010, our employees
benefited from an employee savings fund,
share-based LTIP and MIP incentive programmes,
medical and life insurance and bonus schemes,
where possible.
Health and Safety Policy
We cannot operate successfully and deliver
quality products without ensuring the
health and wellbeing of our employees.
Communication of Hikma’s Health and
Safety policy – to meet and, where possible,
exceed all the labour laws and regulations
with regards to workplace health and safety
in all the countries in which we operate –
continued to be a priority in 2010.
Communication
As our business grows, both in terms of
the number of employees and across new
geographies, we are continuously working
to improve our internal communications.
Through bi-annual management briefings,
Hikma’s internal quarterly magazine and our
“Ask your CEO” initiative, we are able to relay
key messages regarding the strategy and
performance of the business, articulate the
short- and long-term business priorities,
recognise employee achievements and
address any employee questions or concerns.
Through these tools, and our “open-door”
policy, we have been able to maintain our
close family culture of openness and respect.
Health awareness
As a leading pharmaceutical company,
Hikma aspires to prepare its employees to
be leaders in health. By raising awareness
about obesity and other diseases and by
setting an example for healthy nutrition and
lifestyle, Hikma hopes to lead the way for all
its employees.
In 2010, significant events were organised to
raise health awareness including:
“you Are Hikma” campaign
raising awareness within the Group
regarding health, safety, and the environment
at Hikma and in the broader community
Hikma’s day against Breast Cancer
events and activities focused on awareness,
early detection and health screening
Hikma’s world Heart day
raising awareness about heart diseases and
prevention in conjunction with the world
Heart federation’s world Heart day
Hikma Anti-obesity campaign
Awareness campaign and obesity screening
Community
In 2010, we continued to seek new ways
for our employees to engage with their
local communities.
Hikma’s Global Volunteering Day
The Hikma Global Volunteering Day, held in
April each year, aims to encourage more and
more employees in our different units to invest
time in their local communities. This year,
Hikma celebrated its global volunteering day
by supporting cancer patients. Over 1,300
employees in 10 Hikma locations participated
in mid-April 2010 by donating blood,
cleaning and painting hospitals and grounds,
fundraising, spending time with patients,
entertaining children and organising awareness
campaigns and lectures for Hikma employees.
Development and education
We are active in our communities throughout
the year through a number of other initiatives,
including providing funding for students in
the fields of Technical Pharmacy and Applied
Medical Sciences. The time, interest and
funding that we provide to local students is
a real indication of our ongoing commitment
to the communities in which we work.
Over the long term, these efforts should also
help to ensure that we can continue to attract
well-trained employees in each of the markets
in which we are operating.
HiKmA’s GLoBAL
voLUnteerinG dAy
Amman, Jordan
in 2010, Hikma celebrated its global
volunteering day by supporting
cancer patients. on the occasion,
Jordanian employees planted seedlings
at The King Hussein Cancer Centre.
36
Section Three: How do we act responsibly?
3
NATIONALITY HEADCOUNT
AS AT DECEMBER 2010
44%
14%
3%
4%
9%
26%
Jordanian
GCC
African
Levant
European
Other
Giving
Across the Group, we continued in 2010 to
give generously to local causes, to donate
medicines to NGOs and to support communities
in crisis. Examples include donating in kind to
the World Economic Forum’s Disaster Relief
Network, sponsoring the 2010 King Hussein
Cancer Center summer camp, supporting
the Children’s Museum Jordan, sponsoring
SOS Children’s Villages, and donating to
the Palestinian Association for Children’s
Encouragement of Sports (PACES).
Global Fund to fight AIDS, TB and Malaria
Hikma continues to support the Global Fund
to fight AIDS, TB and Malaria. In December
2010, the MENA Chapter launched its first
awareness and advocacy campaign.
The campaign’s objective was to raise
awareness about infectious disease and
preserving human rights for infected patients
within the community.
environment
In 2010, we continued to work on reducing
our impact on the environment across our
businesses, while at the same time meeting
our corporate and business requirements
to reduce costs and operate more efficiently.
Hikma’s Environmental Policy
This year, we focused on disseminating our
Environmental Policy through awareness
campaigns and “You are Hikma” training sessions.
37
Hikma Pharmaceuticals PLC
Annual report 2010
CorPorAte resPonsiBiLity rePort
Continued
Hikma’s Environmental Policy’s five key pledges:
1. To integrate our environmental policy
across the Group;
2. To reduce our impact on climate change;
3. To comply with environmental legislation
and regulation in every country in which
we operate;
4. To strive for continuous improvement in
our environmental protection; and
5. To implement and develop ISO 14001
or its equivalent at every production site
across the Company.
Measuring our impact
During the year, we successfully obtained a
continuity certification for ISO 14001 in our
main units in Jordan and Saudi Arabia and/or
equivalent accreditations elsewhere. We also
performed a thorough assessment of carbon
emissions in our operations in Jordan. This analysis
is based on the Carbon Disclosure Project
framework and will provide valuable insights on
how to measure emissions and on which steps
to take to reduce emissions across the Group
in the coming years. GRI data collection also
helped to heighten awareness of energy
usage in 2010 and helped to identify areas
for improvement.
ethics
Hikma is committed to the highest ethical
principles and we endeavour to ensure that all
our employees conform to the highest possible
standards of integrity and honesty.
We are members of the Global Compact, a
UN-sponsored initiative for businesses committed
to aligning their operations and strategies with
ten universally accepted principles in the areas
of human rights, labour, environment and
anti-corruption. Hikma remains committed to
upholding these principles and embedding
them into its operations. We submitted our
Communication on Progress Report for the
second consecutive year in December 2010
ensuring our active membership in the United
Nations Global Compact.
We have updated our Supplier practices
audit to become more comprehensive and in
line with international best practice. Suppliers
Audit questionnaires relate to the environment,
human rights, child labour, anti bribery
measures and other relevant issues.
38
Section Three: How do we act responsibly?
3
oUr PLAtforms
CommUnity
PeoPLe
environment
etHiCs
we do not exist in isolation.
we wish to engage in our local
communities, recognising the
importance of establishing a
strong community footprint in
all countries of operation.
our people are our greatest asset.
They are ambassadors for the
company and we aim to support
them as fully as possible through
training, welfare and recognition
and by supporting diversity.
Limiting our environmental impact
is a priority. we are working to
establish a sustainable presence
in our communities through
recycling, waste reduction and
energy efficiency.
we are committed to the highest
ethical principles and encourage
all our counterparties to conduct
business at the highest possible
standards.
Aim
Aim
Aim
Aim
Building our brand
making us stronger
efficient use of resources
Preferred partner for business
ACtinG resPonsiBLy
– Global volunteering day
– Professional and technical training
– you are Hikma
– member of Un Global Compact
– Partnership with the Jordan river
foundation fundraising for local
homeless groups, disadvantaged
families and the elderly
and development
– transparent remuneration
structure with job grading
and levelling
– Compliance with health and
safety regulation
– energy and water conservation,
recycling and waste management
– solvency recovery pilot
– Carbon disclosure Project
– member of PACi
– Audit of main suppliers’
employment practices
weLLBeinG
– Partnering with the Global
fund to fight Aids, tB
and malaria
– distribution of free medicines
– Local fundraising for research
and treatment of chronic diseases
edUCAtion
– funding students in the fields
of technical Pharmacy and
Applied medical sciences
– educational bursaries
– Hikma’s day against
Breast Cancer
– Hikma’s day against diabetes
– free breast exams and
mammograms for all employees
– Local clean water initiatives
– stakeholder engagement
– focus on hazardous
waste reduction
– Adherence to highest
quality standards across
our global business
– staff education seminars
– environmental awareness
– Awareness sessions on key
diseases
lectures
– Awareness campaigns
– Health and safety training for
– staff training
– staff training on Global
Compact principles
– Community open days at Hikma
all employees
– internships and work experience
Gri rePortinG
– eC1 – direct economic value
generated (including revenues,
costs, donations, investments)
– eC8 – development and impact
of infrastructure investments
for public benefit
– LA7 – rates of injury, disease,
– en3 – direct energy
lost days, absenteeism
consumption
– LA10 – Average hours of training
– en8 – total water withdrawal
per employee per category
– so3 – Percentage of employees
trained in anti-corruption policies
– en22 – total weight of waste
– Pr1 – Life cycle stages in which
H&s impact of products are
measured for improvements
– Hr2 – Percentage of suppliers/
contractors undergone human
rights screening
39
Hikma Pharmaceuticals PLC
Annual report 2010
40
Section Four: Governance
4
Section Four
Governance
42_BoArd of direCtors
44_senior mAnAGement
46_CorPorAte GovernAnCe rePort
52_direCtors’ rePort
55_remunerAtion Committee rePort
69_direCtors’ resPonsiBiLities
41
Hikma Pharmaceuticals PLC
Annual report 2010
BoArd of direCtors
1. samih darwazah
Non-Executive Chairman, 80
Samih Darwazah is founder and Chairman of Hikma
Pharmaceuticals PLC. Samih was employed at Eli Lilly
from 1964 to 1976 before establishing Hikma
Pharmaceuticals in Jordan in 1977. Between 1995
and 1996 he served as Minister of Energy and Mineral
Resources in Jordan. He also founded the Jordan
Exporters’ Association and served as a member of
the Senate of the Hashemite Kingdom of Jordan.
A Fullbright scholar, Samih holds a Masters
Degree in Industrial Pharmacy from the St. Louis
College of Pharmacy, Missouri which he obtained in
1964, and from which he was awarded an honorary
Doctor of Science degree in 2010. He obtained
his BSc Degree in Pharmacy from the American
University of Beirut in 1954. In January 2011, the
Samih Darwazah Center for Innovation Management
and Entrepreneurship was established at the Olayan
School of Business at the American University of Beirut.
2. said darwazah
Chief Executive Officer, 53
Said was appointed Chief Executive Officer in
July 2007. He joined Hikma in 1981, and was
Chairman and Chief Executive of the Group holding
company from 1994–2003.
Said played a key role in the development of
the Group strategy during his tenure, including
the acquisition of West-Ward Pharmaceuticals
in the USA and the development of the Injectables
business in Europe and the MENA region. During
this period the Company’s facilities in the USA,
Jordan, and Portugal received FDA approval.
Said was Minister of Health for the Hashemite
Kingdom of Jordan from 2003–2006. He is currently
Vice Chairman of the Capital Bank of Jordan. He is
also Chairman of the Dead Sea Touristic and Real
Estate Investments and Chairman of the Health Care
Accreditation Council of Jordan. He has a degree in
industrial engineering from Purdue University (USA)
and an MBA from INSEAD.
3. mazen darwazah • #
Executive Vice Chairman, CEO of MENA, 52
Mazen Darwazah was appointed Executive Vice
Chairman in 2005. Since joining Hikma in 1985 he
has held various positions within the Group, including
Chairman and CEO of Hikma Pharmaceuticals
Limited (Jordan).
Mazen was recently appointed as a Senator of
the Hashemite Kingdom of Jordan. Mazen is also
the Chairman of the Jordan International Insurance
Company and holds a number of non-executive
directorships of various non-governmental and
educational organisations. He has previously served
as the President of the Jordanian Association of
Manufacturers of Pharmaceuticals and Medical
Appliances. Mazen holds a BA in Business
Administration from the Lebanese American
University and an Advanced Management
Programme from INSEAD.
4. sir david rowe-Ham *†•
Senior Independent Non-Executive Director, 75
Sir David Rowe-Ham was appointed to the Board
in October 2005 as senior independent director.
He also holds the position of Chairman of the
Nomination Committee.
Sir David brings to Hikma wide experience
in financial matters, corporate governance, public
affairs and the development of listed companies.
He is also Chairman of Olayan Europe Ltd.
1.
2.
3.
4.
42
Section Four: Governance
4
5. Ali Al-Husry
Non-Executive Director, 53
6. michael Ashton *†•
Independent Non-Executive Director, 65
8. dr. ronald Goode *†#
Independent Non-Executive Director, 67
Ali Al-Husry was appointed as a Non-Executive
Director in 2005. He joined Hikma as Director of
Hikma Pharma Limited in 1991 and has held various
directorships within the Group.
In 1995 Ali was a founder of The Capital Bank
of Jordan. He was Chief Executive Officer of the
Bank until 2007 and continues to be a Director. He is
chairman of Endeavour Jordan, a director of the
Microfund for Women and a member of the Board
of Trustees of the Jordan Museum. He brings great
financial experience to the Board as well as an
in-depth knowledge of the MENA region and Hikma
Pharmaceuticals. Ali has a degree in Mechanical
Engineering from the University of Southern
California and an MBA from INSEAD.
Michael Ashton was appointed to the Board in
October 2005 and is Chairman of the Remuneration
Committee.
Michael has over 30 years’ experience in the
pharmaceutical industry, having previously held
positions with Pfizer and Merck. He was formerly
Chairman, President and Chief Executive of
Faulding and Chief Executive of Skyepharma PLC.
He is also a non-executive director at Transition
Therapeutics, Proximagen Neuroscience plc and
Phosphagenics Limited.
7. Breffni Byrne *†#
Independent Non-Executive Director, 65
Breffni Byrne was appointed to the Board in October
2005 and is Chairman of the Audit 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, international
operations, corporate governance and general
financial and commercial matters. Breffni is
Chairman of NCB Stockbrokers, a non-executive
director of Irish Life and Permanent plc, Cpl
Resources plc, Coillte Teoranta (the Irish state
forestry company) and other companies.
Ronald Goode was appointed to the Board in
December 2006 and holds the position of
Chairman of the Compliance, Responsibility and
Ethics Committee.
Ron has spent over 30 years in the international
pharmaceutical industry, including senior positions
with Pfizer and Searle. He is currently the Chairman
of The Goode Group, advisers to the pharmaceutical
industry, on the Advisory Board of ART Recherches et
Technologies Avancées Inc. (a TSX-listed company), a
director of Mercy Ships International and a trustee of
Thunderbird School of Global Management. He was
formerly President and Chief Executive Officer of
Unimed Pharmaceuticals, Inc. and eXegenics Inc.
Board Committee membership key
* Audit Committee
† Remuneration Committee
• Nomination Committee
# Compliance, Responsibility and Ethics Committee
5.
6.
7.
8.
43
Hikma Pharmaceuticals PLC
Annual report 2010
senior mAnAGement
1. Bassam Kanaan
President and Chief Operating Officer
for the MENA and EU regions
Bassam joined Hikma as Chief Financial Officer in
2001, playing a leading role in the IPO in 2005.
He qualified as a Chartered Accountant in 1989
with Deloitte & Touche (USA) where he held a variety
of roles prior to joining PADICO in 1994 as CFO.
In February 2009, Bassam assumed the additional
responsibility for Operations, Manufacturing and
Supply Chain management in Europe & MENA.
In January 2011, Bassam relinquished his CFO role
and became President and Chief Operating Officer
for the MENA and EU regions. He currently holds
non-executive directorships in Zara Holding, Aqaba
Development Co. and Capital Bank of Jordan. Bassam
has an Executive MBA from Northwestern University
and a BA from Claremont McKenna College, USA.
2. michael raya
Executive Vice President and CEO of the
USA
Michael joined Hikma’s US subsidiary West-Ward
in 1992 from Vitarine Pharmaceuticals where he
had worked from 1984 until 1992 in various roles,
including Vice President, Quality Control. Prior to this,
Michael worked at Schering-Plough and Hoffman
LaRoche. Michael has previously been responsible
for all West-Ward’s operations as well as quality/
compliance for all worldwide Hikma facilities until his
appointment as CEO of West-Ward in 2008. Michael
holds a Masters degree in Industrial Pharmacy from
Long Island University and a Bachelor’s degree in
Chemistry from St. Francis College. Michael is also a
graduate of INSEAD’s International Executive Program.
3. Khalid nabilsi
Chief Financial Officer
Khalid joined Hikma in 2001 and was a member of
the IPO team in 2005. Prior to assuming his current
role Khalid held several senior positions in the Finance
department including Corporate Vice President,
Finance. Following qualification as a CPA he held a
variety of roles in financial accounting, reporting and
financial advisory services, and with Atlas Investment
Group (now AB Invest) where he was involved in
merger and acquisition advisory services. Prior to
Atlas, Khalid had managed several multinational
audit engagements at Arthur Andersen in Amman,
Jordan. Khalid is a founder and board member
of the Jordan Association for Management
Accountants and a board member of the Jordan
Armed Forces and Security Apparatuses Credit
Union. Khalid has an MBA from the University
of Hull, UK.
4. riad mechlaoui
EU Vice President and Global Head
of Injectables
Riad joined Hikma in 1990 as a Project Engineer in
the engineering department where he was involved
in the construction of Hikma’s facility in Portugal.
Riad spent a significant period in the manufacturing
operations of West-Ward, was general manager
of Hikma Italy and became Head of Injectables
Manufacturing Operations before assuming his
current role. Riad has a BSc in Engineering and a
Masters in Engineering and Administration from
George Washington University.
5. majda Labadi
Corporate Vice President, Human Resources
Majda joined the Company in 1985 and has held
a variety of roles including Purchasing Manager at
Hikma Pharmaceuticals Limited, Strategy Manager
at Hikma Investment, General Manager of Hikma
Farmaceutica and from 2007, Vice President of
Injectables. In February 2009 Majda assumed
her current position as Corporate Vice President,
Human Resources.
1.
4.
3.
2.
5.
44
Section Four: Governance
4
She has been responsible for establishing a central
HR function and implementing and consolidating
a number of group-wide HR initiatives including a
compensation structure and performance evaluation
process. Majda holds a Masters degree in Health
Economics and a BA from the American University of
Beirut. She is currently enrolled in the DBA program
at Instituto De Impressa, Madrid.
6. Henry Knowles
General Counsel and Company Secretary
Henry joined the Company as General Counsel and
Company Secretary in September 2005. Before
joining Hikma, he worked for the international law
firm, Ashurst, where he specialised in corporate law.
Since joining Hikma, Henry has advised on all aspects
of the Group’s business, including commercial
negotiations, supervising corporate governance and
compliance and contributing to the execution of the
Group’s acquisition strategy. Henry is admitted as a
solicitor in England and Wales and holds an MA in
Social and Political Science from Cambridge University.
7. susan ringdal
Vice President, Investor Relations
and Group Goal Compliance
9. fadi nassar
Corporate Vice President, Active
Pharmaceutical Ingredients (API)
Susan joined the Company as Investor Relations
Director 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 BA in History from Cornell University and an
MBA from London Business School.
Fadi joined Hikma in 1988 and has worked in
various roles within the Group including Operations,
Purchasing and Business Development. He was
promoted to Corporate Vice President, API in 2007.
Fadi holds a BSc in Chemical Engineering from
Newcastle University and an MA in Chemical
Engineering from Leeds University. Fadi is also
a graduate of INSEAD’s International Executive
Program.
8. dr. ibrahim Jalal
Senior Corporate Vice President,
Technical Affairs
Ibrahim joined Hikma in June 1979 as Technical
Director and has held a variety of roles including
Corporate Technical Vice President for Compliance
and Senior Corporate Vice President for R&D.
He has played a leading role in Hikma securing
FDA approval for its manufacturing units. Ibrahim
holds a PhD in Pharmacy from the University of
Wisconsin-Madison (USA).
10. ragheb Al-shakhshir
Corporate Vice President,
Research and Development
Ragheb joined Hikma in 2000 as a Research &
Development Manager. Prior to joining Hikma he
held a variety of roles as Senior Scientist at Novartis
Pharmaceuticals, and at Alcon Labs in the United
States. From 2003–2008 Ragheb led the Hikma R&D
Injectable team and from February 2009 assumed the
responsibility of Corporate Vice President, Research
& Development. Ragheb has a PhD in Industrial and
Physical Pharmacy from Purdue University, MS in
Engineering from the University of Massachusetts-
Amherst and a BS in Chemical Engineering from the
University of Wisconsin-Madison.
6.
8.
7.
9.
10.
45
Hikma Pharmaceuticals PLC
Annual report 2010
CorPorAte GovernAnCe rePort
Corporate Governance Principles
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 June 2008 (the “Combined Code”) and 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
49 to 51 and the Directors’ Remuneration Report set out on pages 55 to
68 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 Corporate
Governance Principles. This statement provides details on how the
Group has applied these 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, and the Corporate Governance Principles.
Throughout the year and up until the date of this report the Company
was in full compliance with the Corporate Governance Principles.
The Combined Code has been replaced with the UK Governance
Code (“UK Code”), which comes into effect for financial years
beginning on or after 30 June 2010. The Board is conscious of the
need to have regard for the new principles set out in the UK Code and
acknowledges that there are many similarities between the two codes.
Whilst the Company is only required to comply or explain its position in
relation to the Combined Code, where the UK Code is different from
the Combined Code the Board has, in addition, sought to explain its
position in relation to the UK Code in this report.
The Board
The Group is led and controlled by the Board of Directors.
The Board is responsible for setting the strategic direction and
monitoring the financial performance of the Group against its targets.
The Board also promotes good corporate governance within the Group,
and ensures that the Group meets its responsibilities to shareholders,
employees, suppliers, customers and other stakeholders. There is a
formal Schedule of Matters Reserved to the Board for consideration and
decision, which is reviewed and, if necessary updated, annually. This
includes approval of strategic plans, approval of financial statements and
the annual Group budget, approval of material investment decisions,
acquisitions and divestments, and review of the effectiveness of the
Group’s systems of internal control. The Schedule of Matters Reserved
to the Board was reviewed and updated during 2010.
The Board delegates its powers to the CEO who is responsible for
delivering the Company’s strategic objectives and is assisted in this task
by the executive management team.
The executive management team who report directly to the CEO
meet with him to discuss strategy and key objectives for their areas of
responsibility. The CEO reports on operational progress in these areas to
the Board and the key senior management team present to the Board,
as appropriate, to highlight and debate developments in their areas
of responsibility.
Composition of the Board
The Board comprises eight members, half of whom are independent: a
Non-Executive Chairman, five Non-Executive Directors, one of whom is
not classified as independent for the purposes of the Combined Code
and two Executive Directors. The Board reviewed and considered the
independence of the Non-Executive Directors during the year as part of
the annual corporate governance review that takes place in December
each year.
The names of the Directors and their biographical details are set
out on pages 42 to 43. The Chairman and the Executive Vice-Chairman
were appointed to the Board at the incorporation of the Company on
8 September 2005. The Chief Executive Officer was appointed to the
Board on 1 July 2007, and save for Ronald Goode, who joined the
Board on 12 December 2006, each of the Non-Executive Directors
joined the Board on 14 October 2005. The Non-Executive Directors have
diverse business backgrounds, skills and experience and as such bring
independent judgement to bear on issues of strategy, performance,
resources, key appointments, standards of conduct and other matters
presented to the Board.
In 2011, Said Darwazah, offers himself for re-election at the
Annual General Meeting. His biographical details are on page 42.
The other Directors retired and sought re-election at either the 2009 or
2010 AGM and, in compliance with the current governance guidelines,
will retire every three years. The Board is aware that the UK Code will
require all Directors to seek re-election every year and that this
requirement comes into force for the Group in 2012. 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 roles of the Chairman and Chief Executive Officer are separate,
and the Board has approved a statement of their respective
responsibilities in writing. These guidelines were reviewed during
2010 as part of the annual corporate governance review. Prior to the
appointment of the current Chief Executive Officer the Board undertook
consultation with its major shareholders and external advisers regarding
the continuation of Samih Darwazah in his role as Chairman. The Board
concluded that his former executive role should not prevent him from
remaining as Chairman, especially as he has an in-depth understanding
of the Group and the business and is able to provide a valuable
contribution in his capacity as Non-Executive Chairman. The Chairman’s
external commitments have changed during the year. The Board has
reviewed these and considers that the changes do not affect his ability
to perform his role.
Sir David Rowe-Ham, Michael Ashton, Ronald Goode and
Breffni Byrne are considered by the Board to be independent. The Board
does not classify Ali Al-Husry as an Independent Director for the
purposes of the Combined Code as a result of his involvement with
Darhold Limited, the Company’s largest shareholder. He was also a
Director of Hikma Pharmaceuticals Limited prior to the Company’s
listing. However, he continues to bring his broad financial experience to
the Board as well as a detailed knowledge of the MENA region which
is significant to the Group’s business.
46
Section Four: Governance
4
Company organised training for directors by external parties on the
changing legal and regulatory landscape. The Company’s brokers and
financial advisers also presented industry and market updates to the
Board on several occasions in 2010. These sessions are in addition to the
written briefings on areas of regulatory and legislative change presented
at each board meeting in the form of a Corporate Governance Paper.
This year briefings took place on the Bribery Act 2010, UK Governance
Code, UK Stewardship Code, ICSA guidance review, market abuse,
and various aspects of the Listing Rules. A tailored induction programme
would be made available to new directors joining the Board.
Board meetings
During the year under review the Board held eight scheduled meetings
and one unscheduled meeting. The Company Secretary attended all
Board meetings and committee meetings. A table showing attendance
at the Board and committee meetings is set out below. To the extent
Directors are unable to attend additional meetings called on short notice,
or are prevented from doing so by prior commitments, they receive and
read the papers for consideration at that meeting, relay their comments
in advance and, where necessary, follow up with the Chairman on the
decisions taken.
director
samih darwazah
said darwazah
mazen darwazah
Ali Al-Husry
sir david rowe-Ham
Breffni Byrne
michael Ashton
dr. ronald Goode
Total meetings held
Board Audit remuneration nomination Compliance
–
–
–
–
1
–
–
–
–
6
1
6
–
6
1
6
1
6
–
–
3
–
3
–
3
–
3
–
–
–
–
9
9
9
9
9
9
9
9
9
9
9
9
9
9
Board performance evaluation
As required by the Combined Code, a formal evaluation of the
performance of the Board was undertaken during the period
under review.
During 2009 the Board reviewed its approach to board evaluations
and approved a three year evaluation process, which included seeking
external consultation every third year. During 2010 the Board decided to
advance the move towards external facilitation and appointed Lintstock
to conduct an independently moderated evaluation of the Board and
its Committees. As in previous years the process was overseen by the
senior independent director. Lintstock prepared online questionnaires
designed to assess key governance and management themes. Lintstock
managed the process and reported independently to the Chairman and
the senior independent director, following which Lintstock presented the
results and findings to the full Board. The report for each committee was
reviewed by the relevant Committee.
The Senior Independent Director is Sir David Rowe-Ham who remains
available to shareholders should they have concerns that they do not
wish to raise with the Chairman. Sir David is also Chairman of the
Nomination Committee and is responsible for chairing meetings
of the Non-Executive Directors conducted without the presence of
the Chairman or executive management.
The Board continues to discuss its composition and the skills and
business experience of its members. All of the Directors believe in the
necessity for challenge and debate in the Boardroom and consider
that Board dynamics encourage honest and open debate with the
Executive Directors. The Directors believe that the Board’s decision
making process is inclusive, and is not dominated by any individual
or group of individuals.
information flow
Board and committee papers are circulated to members in advance
of the meetings. In addition to formal meetings, the Chairman and
non-executive directors maintain regular contact with each other and
strong relationships with executive management outside the formal
timetabled board meetings, as well as visiting subsidiary companies
regularly in order to discharge their obligations. The Chairman also holds
informal meetings with non-executive directors without the executive
management present to discuss issues affecting the Group. At the
discretion of the Board or relevant committee, senior executives are
invited to attend meetings and make presentations on the results and
strategies of their business units.
This year the Board received presentations from the CEO and COO
of the MENA region, the CEO of the US business, the Chief Financial
Officer, the General Counsel, the Head of Treasury, and the Corporate
Vice President for HR. Strategic presentations were received on human
resources, sales, compliance, supply chain management, finance and
operations. Each of the senior executives will update the Board on their
initiatives in their areas of responsibility during the course of 2011.
All directors have access to the advice and services of the Company
Secretary, who under the Chairman’s direction is responsible for ensuring
good information flow to the Board and its committees, that sound
board procedures are followed, assisting with training and induction
for directors and for advising the Board through the Chairman on all
matters of corporate governance. The appointment and removal of the
Company Secretary is a matter reserved for the Board. The Directors
are able to obtain independent professional advice at the Company’s
expense in the performance of their duties as directors and the Board
has approved a formal policy in this regard.
Board training/Continuing Professional development
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.
The Board is also encouraged to visit the major business units and to
meet the senior management teams in order to facilitate a better
understanding of the key issues facing the business. During 2010 the
47
Hikma Pharmaceuticals PLC
Annual report 2010
CorPorAte GovernAnCe rePort
Continued
The report to the Board included the aggregated data, the comments
from all completed questionnaires and the trends emerging from them.
Lintstock presented these results including the context of the review and
provided clear and independent feedback. From these results the Board
resolved certain action points to enhance performance. The results of
the evaluation process formed part of the Chairman’s appraisal of the
overall effectiveness of the Board and its members. Overall the review
concluded that the Board functions well, with good communication,
an inclusive and constructive approach to the consultation and debate,
all of which promotes effective decision-making.
During 2011 the Board will continue to review the overall process
and the areas on which it focuses in light of issues arising and make
enhancements in respect of the next evaluation. In 2012 the Board
will consider whether to undergo a fully moderated evaluation with
independent face-to-face Director interviews and Board meeting review.
The Board considers that the new process should assist in its development
and direction, with the aim of adding value to the Board’s operations.
In addition to the matters set out above in respect of all Directors,
the Senior Independent Director met with the Non-Executive Directors
to undertake a formal appraisal of the performance of the Chairman.
This review addressed the effectiveness of his leadership, the setting
of the Board agenda, communication with shareholders, internal
communication and Board efficiency. The Non-Executives concluded
that the Chairman gave clear leadership and direction to the Board,
and that the Board is run in an appropriate and effective manner.
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 Report on pages 64 and 66. The terms of appointment
of all Directors are made available for inspection before the Annual
General Meeting and during business hours at the Company’s registered
office at 13 Hanover Square, London.
directors’ remuneration
Details of the remuneration of the Executive and Non-Executive Directors
are contained in the Remuneration Report set out on pages 55 to 68.
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. During 2010, in response
to the expanding compliance requirements in all areas of the Group’s
business, the Board formalised its oversight in this critical area by
forming a new committee, the Compliance, Responsibility and Ethics
Committee (“CREC”).
Each of the three Combined Code committees and the CREC has
terms of reference, which were reviewed during the year. Copies are
published on the Group’s website at www.hikma.com and are available
for inspection at the registered office. The Chairmen give regular reports
of the Committees’ business to the Board.
Nomination Committee
The Nomination Committee consists of two Independent Non-Executive
Directors – Sir David Rowe-Ham (Committee Chairman) and Michael
Ashton – and the Executive Vice Chairman, Mazen Darwazah.
As required by the Corporate Governance Principles, 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.
The Nomination Committee is responsible for succession planning,
including progressive refreshing of the Board, and for ensuring that
all appointments to the Board are made on objective criteria and
that candidates have sufficient time to devote to their prospective
responsibilities. 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 three times during the year, with
full attendance. It met to discuss and review Board and Committee
composition, director and executive succession planning and to discuss
the performance evaluation and appraisal system for the Board.
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.
The Remuneration Committee therefore complies with the membership
requirements set out in the Corporate Governance Principles.
The Committee met six 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
advice from external consultants when required. A full report on
the role of the Remuneration Committee is set out in the Directors’
Remuneration Report on pages 55 to 68. During the year under review,
there has been close co-operation between the Corporate Vice President
for HR and the Chairman of the Remuneration Committee. This close
co-operation seeks to ensure that executive remuneration policies and
structure are appropriate and adequately reflect the remuneration
structures and policies in place for the Group’s employees as a whole.
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. The Audit Committee
therefore complies with the membership requirements set out in
the Corporate Governance Principles.
The Committee met nine times during the year with full
attendance. A full report of the role of the Audit Committee and details
of how it carried out its duties is set out in the Audit Committee report
on pages 49 to 51.
48
Section Four: Governance
4
Compliance, Responsibility and Ethics Committee
The Committee was formed in August 2010 and met once during the
year under review. The programme of meetings is scheduled to expand
over the course of 2011.
The Compliance, Responsibility and Ethics Committee (“CREC”) is
chaired by Ronald Goode. The other members are the Executive Vice
Chairman, Mazen Darwazah, and the Audit Committee Chairman,
Breffni Byrne. The key functions of the Committee are to oversee the
Group’s approach to compliance-related issues including the Group
compliance function, anti-corruption, whistleblowing, statements and
policies on ethics, conduct, values and principles and at Board level to set
and review Group policy in the area of Corporate Responsibility (“CR”).
The responsibilities and functions of the Ethics Committee were passed
to the CREC on its formation. Therefore the Ethics Committee has been
disbanded. The CREC has responsibility for CR issues at Board level and is
supported by the CR Steering Committee.
internal control
The Board has overall responsibility for the Group’s systems of internal
control and risk management and has complied with the requirements of
the Corporate Governance Principles in establishing a continuous process
for identifying, evaluating and managing the risks the Group faces.
The Board is responsible for monitoring the effectiveness of these
systems on an ongoing basis and, at least annually, conducting a formal
review of the Group’s policies on internal control. The system of internal
control provides reasonable but not absolute assurance against material
misstatement or loss.
The key elements are as follows:
a reporting structure with clear procedures, authorisation limits,
segregation of duties and delegated authorities;
annual budgets, updated forecasting, 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 and forecast, informed by management
commentary;
a clearly defined process for controlling capital expenditure and other
financial commitments, including appropriate authorisation levels,
which are monitored and approved by the Board as appropriate;
written policies and 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 which commenced in 2009. This involves a
risk-driven approach to internal audit which is overseen by the Audit
Committee. The internal audit process focuses on reviewing areas of
business risk, internal controls, financial reporting and other systems in
the Company’s main subsidiaries and at the corporate level, with regular
reports of its findings made 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
Corporate Governance Principles, a review of the effectiveness of the
Group’s systems of internal controls was conducted during the year
under review and that it accords with the relevant guidance.
Whistleblowing
The Group Whistleblowing Policy contains arrangements for the
Chairman of the Compliance, Responsibility and Ethics Committee,
the Senior Independent Director, and the Chairman of the Audit
Committee to receive, in confidence, complaints on accounting,
risk issues, internal control and other instances of allegedly improper
behaviour by Group employees.
Insurance
The Company maintains an appropriate level of Directors’ and Officers’
insurance in respect of any actions brought against Directors.
Audit Committee report
The Combined Code requires that this Annual Report separately
describes the work of the Audit Committee and how it discharges
its responsibilities.
Terms of reference
The Audit Committee terms of reference include all matters indicated
by the Corporate Governance Principles 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 interim management statements;
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 and markets Law;
monitor and review the internal financial controls and the Group’s
overall risk identification and management systems;
consider and approve the remit and effectiveness of the internal
audit function, its annual plan, its resources and access to information
and its freedom from management or other restrictions;
review and monitor management’s responsiveness to the findings
and recommendations of the internal auditors;
consider and make recommendations for appointment, reappointment
and removal of the Company’s external auditor, and oversee the
relationship with the external auditor;
review and monitor the quality, independence and objectivity of
the external auditor (accounting for relevant uK and professional
regulatory requirements) and approve their remuneration and
terms of engagement;
49
Hikma Pharmaceuticals PLC
Annual report 2010
CorPorAte GovernAnCe rePort
Continued
review and monitor the directors’ potential conflicts of interest and make
recommendations to the Board for the management of those interests and;
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.
The Audit Committee’s terms of reference were reviewed by the Audit
Committee during the period under review and were subsequently
reviewed and approved by the Board.
Composition
Hikma’s Audit Committee comprises four members – Breffni Byrne,
Michael Ashton, Sir David Rowe-Ham, and Ronald Goode – all of whom
are Independent Non-Executive directors, and whose biographical details
are set out on pages 42 to 43. 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 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. This includes reviewing the Company’s Annual Report, financial
statements, Interim Report, Interim Management Statements and trading
updates, reviewing and monitoring the extent of non-audit work
undertaken by external auditors, and monitoring the effectiveness and
output of the Company’s internal audit activities, internal controls and
risk management systems. The Audit Committee is also responsible
for making recommendations to the Board on the appointment,
reappointment and removal of the external auditors, as well as the
effectiveness of the audit process. The ultimate responsibility for
reviewing and approving the Annual Report and financial statements
and the half-yearly reports remains with the Board. The Board has also
delegated responsibility for the operation of the Company’s policies on
monitoring Directors’ conflicts of interest to the Audit Committee and
thus has been included in the Audit Committee’s terms of reference.
Meetings
The Audit Committee met nine times during the year under review, with
the Chief Financial Officer, Corporate Vice President for Finance, the
Company Secretary and the Deputy Secretary in attendance. The Audit
Committee reviewed the 2009 Annual Report & financial statements,
the 2010 interim report, the two Interim Management Statements
released by the Company and each of the regulatory statements made
by the Company in respect of trading and results issued during the year.
The Committee also reviewed and approved the audit plans for 2010 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 & financial statements on these
matters and reported on these to the Board. The Committee also
reviewed its own terms of reference and general effectiveness, both
specifically and in the context of the overall annual review of corporate
governance matters conducted by the Company.
The Group’s external auditors, Deloitte LLP, attended three Audit
Committee meetings for the purposes of presenting their 2009 audit
results and findings, the results of the 2010 interim review and their audit
plan for 2011. The internal auditors, Ernst & Young presented the results
of their audit programme for 2010 to the Audit Committee together
with their proposed audit plan for 2011. The Audit Committee continues
to review 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, during 2010, the Audit Committee Chairman met with
the external auditors in the USA and Jordan. The Audit Committee
Chairman also met with Ernst & Young in Jordan to discuss the results of
the 2010 internal audit programme and the risk assessment and proposal
for 2011.
Attendance of members at Audit Committee meetings is shown on
page 47 of the report on corporate governance.
External auditors
The Audit Committee is responsible for the development, implementation
and monitoring of the Group’s policy on external audit, which is led by
Deloitte LLP in the UK. Oversight and responsibility for monitoring the
independence and objectivity of the external auditors lies with the Audit
Committee. The Audit Committee is also the point of primary contact
with the Board. The Group has adopted a policy in relation to the
provision of non-audit services by the external auditors. The policy also
sets out the categories of non-audit services which the external auditors
will and will not be allowed to provide to the Group.
During the period under review the Group used members of the
global Deloitte network in certain jurisdictions for non-audit services. The
non-audit fees incurred of $3.9 million were higher than in previous
years (2009: $1.3 million) principally due to the performance of work
by Deloitte Consulting LLP in the United States related to assisting the
Group with the development of a post-merger integration (“PMI”)
plan for West-Ward’s acquisition of Baxter’s multi-source injectables
(“MSI”) business.
The appointment of Deloitte Consulting LLP in the United States was
made after a competitive tender process. A detailed Request For Proposal
was prepared and five international consulting firms were invited to tender.
Each firm produced a proposal and made presentations to West-Ward’s
executive management whereby their capabilities were assessed. The US
team recommended Deloitte Consulting LLP because of its strengths and
greater experience above other firms in relation to carve-out integrations
and the pharmaceutical industry, its capabilities in the integration areas
that were most likely to represent a challenge to the MSI acquisition and
the characteristics of the team. The appointment of Deloitte Consulting
LLP by West-Ward enabled them to obtain the most appropriate advice
and team for the work in a cost-effective manner.
50
Section Four: Governance
4
dialogue with shareholders
Ongoing communication with shareholders is a high priority. The Company
undertakes a continuous programme of meetings with institutional
shareholders in the UK, Europe, the United States and the MENA region.
This programme includes but is not limited to one-to-one meetings,
investor days, conference calls and presentations at investor conferences.
In addition the Company makes formal presentations at the time of its
annual and interim results which are webcast and disseminated on the
Company’s website. The Chief Executive Officer, Executive Vice Chairman,
Chief Financial Officer and other senior corporate executives have all
participated in the investor programme during the period under review.
The principal ongoing communication with shareholders is through
the publication of the Company’s Annual Report and Accounts, Interim
Results and Interim Management Statements, together with the opportunity
to question the Board and Committees at the Annual General Meeting.
Shareholders are encouraged to attend the AGM and if unable to do so
are encouraged to vote by proxy. Copies of presentations made at the
AGM are available on the website after the event together with the
results of the voting. The full Board is present at the AGM. The Company
maintains a website (www.hikma.com) 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 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 Investor Relations Director also presents an annual investor relations
review to the Board and regularly provides feedback from institutional
investors and analysts.
Procedures to deal with conflicts of interests
The Company has implemented procedures to deal with Directors’
conflicts of interest or potential conflicts of interest. Responsibility has
been delegated to the Audit Committee to operate, monitor and review
the procedures, which have operated effectively during the year.
Breffni Byrne
Chairman of the Audit Committee
The Audit Committee held extensive discussions with Deloitte LLP,
the UK-based Group auditors, regarding the safeguards that have been
put in place to ensure continued audit independence. These include
completely separate teams undertaking audit and non-audit work and
regular UK audit partner and US audit partner review of the nature of
the non-audit work being performed in the United States, together with
an independent US partner review of the local audit engagement in the
United States. The Committee is satisfied that, whilst fees charged for
this non-audit work in the United States are higher than those charged
for the audit work during the year, adequate controls remain in place
to safeguard auditor independence. In accordance with the Group’s
non-audit services policy, none of the work for the MSI acquisition
undertaken in the United States by Deloitte Consulting LLP was of a
financial information systems design, valuation, executive recruitment or
advocacy nature. The assistance has not involved undertaking decisions
that are the responsibility of management. The Committee continues
to keep the position under review. The UK-led audit team continues to
provide an appropriately high level of audit challenge to management
and constructively raise issues with the Committee. Should shareholders
wish to discuss the situation with the Company, the Chairman of the
Audit Committee will be happy to make himself available.
Fees paid in respect of audit, audit-related and non-audit services are
outlined in Note 6 to the Consolidated Financial Statements. Audit-related
services are services carried out by the external auditor by virtue of its role
as auditor and principally include assurance-related work.
The Group also maintains a policy 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.
There are no contractual provisions that restrict the Committee’s
choice of auditors. It is also the Committee’s policy to consider every year
whether there should be an audit tender process and whether using
auditors from one audit network continues to enhance the quality of
the audit. As part of its review of the effectiveness of the auditors, the
Committee gave extensive consideration to this issue during the year and
concluded that the existing team continue to conduct an effective audit,
the team’s knowledge of the Group, particularly the Group’s diverse
international operations, is advantageous in terms of its ability to identify
issues of importance and that there is a strong and open relationship
between the audit team leadership and the Audit Committee.
The Committee recommended to the Board the re-appointment of
the existing external auditor, who has been in place since the Company
listed in 2005
Overview
Consequently, the Audit Committee concludes that it has acted in
accordance with its terms of reference and ensured the independence
of the external auditors. The Chairman of the Audit Committee will be
available at the Annual General Meeting to answer questions on the
work of the Committee.
51
Hikma Pharmaceuticals PLC
Annual report 2010
direCtors’ rePort
tHe direCtors suBmit tHeir rePort toGetHer witH tHe Audited finAnCiAL
stAtements for tHe 52 weeKs ended 31 deCemBer 2010.
This report forms the management report for the purposes of the
Disclosure and Transparency Rules.
Business review
The Company is required by the Companies Act 2006 to set out a fair
review of the business during the year and a description of the principal
risks and uncertainties facing the Company, noting the performance and
development of the Company during the year and the position at the
year end. The information that fulfils these requirements and which is
incorporated in this report by reference, is included in the following
sections of the Annual Report:
a review of the business and strategy and expected future developments
is set out in the Chairman’s statement on pages 6 to 7, the Chief
executive’s review on pages 12 to 15 and the financial review on
pages 16 to 28;
the principal risks and uncertainties are set out on pages 29 to 31
and financial risks are described on page 31;
key financial performance indicators are described on page 15;
information on environmental, social and community issues is set
out in our Corporate responsibility report on pages 33 to 39
which also provides key performance indicators in this area; and
the principal operating subsidiaries are set out on page 128.
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. The Group’s operations are conducted
through three business segments: Branded Pharmaceuticals,
Injectable Pharmaceuticals, and Generic Pharmaceuticals. The majority
of the Group’s operations are in the MENA region, the United States
and Europe. The Group does not have overseas branches within
the meaning of the Companies Act 2006.
The Group’s net sales, gross profit and operating profit are shown
by business segment in Note 4 to the consolidated financial statements.
Results and dividends
The Group’s profit for the year attributable to shareholders in 2010
was $99 million (2009: $79 million). The Board is recommending a
final dividend of 7.5 cents per share (approximately 4.7 pence) (2009:
6.5 cents). The proposed final dividend will be paid on 26 May 2011 to
shareholders on the register on 15 April 2011, subject to approval at the
Annual General Meeting on 12 May 2011.
An interim dividend of 5.5 cents per share was paid on 14 October
2010 (approximately 3.6 pence per Ordinary Share) (2009: 4.5 cents)
which together with the final dividend, will make a total of 13 cents
per share for the period (2009: 11.0 cents).
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 42 and 43. Details of the independence
of Non-Executive Directors are set out in the report on corporate
governance on page 46.
The Executive and Non-Executive Directors served the Company
throughout the year. All of the Directors have been re-elected
by shareholders within the last two years with the exception of
Mr. Said Darwazah. At the 2011 Annual General Meeting, Said
Darwazah will retire in accordance with Article 110 of the Articles
of Association and, being eligible, will offer himself for re-election.
The explanatory notes to the Notice of Annual General Meeting sets
out why the Board believes Said Darwazah should be re-elected.
Details of Directors’ share-based incentives and interests in the
Ordinary Shares of the Company are provided in the Directors’
Remuneration Report on pages 67 to 68.
Creditor payment policy
The Company’s policy, which is also applied by the Group and will
continue in respect of the 2011 financial year, is to settle terms of
payment with suppliers when agreeing the terms of each transaction,
ensure that suppliers are made aware of and abide by the terms of
payment. Trade creditors of the Company at 31 December 2010 were
equivalent to 73 days’ purchases (2009: 63 days), based on the average
daily amount invoiced by suppliers during the year.
Charitable and political contributions
During the year the Group made charitable donations of approximately
$2.5 million (2009: $1.2 million), principally to local charities serving the
communities in which the Group operates. Donations of medicines
accounted for approximately $1,662,000 (2009: $108,000) of total
donations made.
The Group does not make political donations.
Research and Development (R&D)
The Group’s investment in Research & Development (“R&D”) during
2010 represented 3.2% of group revenue (2009: 2.6%). Further details
on the Group’s R&D activities can be found on page 27.
52
Section Four: Governance
4
Going concern
Although the current economic and political conditions may affect
short-term demand for the Company’s products, as well as place pressure
on our customers and suppliers, the Directors believe that the Group’s
geographic spread, product diversity and large customer and supplier
base substantially mitigate these risks. In addition, the Group operates
in the relatively defensive generic pharmaceuticals industry which the
Directors expect to be less affected compared to other industries.
The Group has reduced its year end net debt position to
$101 million (2009: $117 million) following strong cash generation
from operations. Operating cash flow in 2010 was $145 million.
The Group has $265 million of undrawn banking facilities having
allowed for the US acquisition. These facilities are well diversified
across the operating subsidiaries of the Group and are with a number
of financial institutions. The Group’s forecasts, taking into account
reasonable possible changes in trading performance, facility renewal
sensitivities and maturities of long-term debt, show that the Group
should be able to operate well within the levels of its facilities and
their related covenants.
After making enquiries, the Directors believe that the Group
is adequately placed to manage its business and financing risks
successfully despite the current uncertain economic and political
outlook. The Directors have formed a judgement that there is
reasonable expectation that the Group has adequate resources
to continue in operational existence for the foreseeable future.
The Directors therefore continue to adopt the going concern basis
in preparing the financial statements.
Capital structure
Details of the issued share capital, together with movements in the
issued share capital during the year can be found in Note 31 to the
financial statements. The Company has one class of Ordinary Shares
which carries no right to fixed income. Each share carries the right to
one vote at general meetings of the Company. As at 31 December 2010
the Company had 193,516,989 shares of 10 pence each in issue.
During 2010 the Company issued 1,889,382 Ordinary Shares pursuant
to the exercise of options under the Hikma Pharmaceuticals PLC 2004
Stock Option Plan and 2005 Long-Term Incentive Plan.
There are no specific restrictions on the size of a holding or on
the transfer of shares, which are both governed by the general
provisions of the Company’s Articles of Association and prevailing
legislation. The Directors are not aware of any agreements between
holders of the Company’s shares that may have resulted in restrictions
on the transfer of securities or on voting rights. No person has any
special rights with regard to the control of the Company’s share capital
and all issued shares are fully paid.
Details of any significant shareholdings in the Company can be
found on page 54 of this report.
Details of the employee share schemes are set out in Note 36 to the
financial statements. Shares are also held by the Hikma Pharmaceuticals
Employee Benefit Trust (“EBT”) and are detailed in Note 33 to the
financial statements. The EBT has waived its right to vote on the shares
it holds and also to its entitlement to a dividend. No other shareholder
has waived the right to a dividend. During the year, the Company did
not acquire any of its own shares by direct purchase, nominee purchase
or any other means nor did it dispose of such shares previously acquired.
The Company does not have a lien over its own shares.
At the Annual General Meeting on 13 May 2010, the Directors
were authorised to issue relevant securities up to an aggregate nominal
amount of £6,424,770, and to be empowered to allot equity securities
for cash on a non pre-emptive basis up to an aggregate nominal amount
of £963,715, at any time up to the earlier of the date of the Annual
General Meeting in 2011 or 30 June 2011. The Directors propose to
renew these authorities at the Annual General Meeting to be held on
12 May 2011 for a further year. In the year ahead, other than in respect
of the Company’s obligations to satisfy rights granted to employees
under its various share-based incentive arrangements, the Directors have
no present intention of issuing any share capital of the Company.
The powers of the Directors are determined by its Articles of
Association, the Combined Code and other relevant UK legislation.
The Directors powers are detailed in the Corporate Governance Report
starting on page 46. The Articles give the Directors the power to appoint
and remove directors and they also provide for re-election at three-yearly
intervals. The power to issue and allot shares contained in the Articles is
subject to shareholder approval at each annual general meeting. The
Articles, which are available on the website, may only be amended by
special resolution of the shareholders.
significant agreements and contracts
Due to the nature of the Group’s business, members of the Group are
party to agreements that could alter or be terminated upon a change
of control of the Group following a takeover. However, none of these
agreements is individually deemed to be significant in terms of its
potential impact on the business of the Group taken as a whole.
The Directors are not aware of any agreements between the Company
and its Directors or employees that provide for compensation for loss
of office or employment that occurs because of a takeover bid.
There are no persons, with whom the Company has contractual or
other arrangements, who are deemed to be essential to the business
of the Company.
Pre-emptive issue of ordinary shares
During the year under review, and in the period since 1 November 2005,
the date of the Company’s IPO, the Company did not issue any Ordinary
Shares pursuant to an authority given by shareholders at an Annual
General Meeting to issue Ordinary Shares for cash on a non pre-emptive
basis, other than in respect of the placing undertaken on 17 January 2008.
directors’ indemnities
The Company has made qualifying third party indemnity provisions for
the benefit of its Directors which were in force during the year and as at
the date of this report. These indemnities are uncapped in amount in
relation to losses and liabilities which Directors may incur to third parties
in the course of the performance of their duties.
53
Hikma Pharmaceuticals PLC
Annual report 2010
direCtors’ rePort
Continued
substantial shareholdings
As at the date of this document, the Company had been notified
pursuant to sections 89A to 89L of the Financial Services and Markets
Act 2000 and Rule 5 of the Disclosure and Transparency Rules of the
UKLA of the following interests in the voting rights attaching to the
share capital of the Company:
aggregate, options over 5,000 Ordinary Shares under the 2004 Plan
during the same period, all of which were sold.
Auditors
Each person who was a Director of the Company at the date when this
report was approved confirms that:
name of shareholder
darhold Limited*
sectoral Asset management
number of shares
57,183,028
6,222,574
Percentage held
29.549%
3.216%
* Messrs Samih Darwazah, Said Darwazah, Mazen Darwazah and Ali Al-Husry, each being a
Director and shareholder of the Company, are shareholders in the capital of Darhold Limited
and are also Directors of Darhold Limited.
so far as the director is aware, there is no relevant audit information
of which the Company’s auditors are unaware; and
the director has taken all the steps that he ought to have taken as a
director to make himself aware of any relevant audit information and
to establish that the Company’s auditors are aware of that
information.
This confirmation is given and should be interpreted in accordance with
the provisions of section 418 of the Companies Act 2006.
Deloitte 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
The Westbury, Bond Street, Mayfair, London W1S 2YF on Thursday,
12 May 2011, 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 15 March 2011 and signed on
its behalf by
Henry Knowles
Company Secretary
15 March 2011
The takeover Code – rule 9
At the Annual General Meeting held on 13 May 2010, a vote of the
independent shareholders of the Company approved the award of up
to an aggregate of 175,200 Ordinary Shares pursuant to the Company’s
2005 Long-Term Incentive Plan to Said Darwazah and Mazen Darwazah
(the “LTIP Holders”) and 4,500 Ordinary Shares pursuant to the
Management Incentive Plan to Hana Ramadan (the “MIP Holder”).
Because of the relationship of the LTIP Holders and the MIP Holder with
Darhold Limited, who at the time of the Annual General Meeting held
57,183,028 Ordinary Shares (at 9 April 2010 representing 29.56% of
the issued share capital of the Company, and as at 15 March 2011
being the latest practicable date prior to the publication of this
document, holding 57,183,028 Ordinary Shares, representing 29.55%
of the issued share capital of the Company), each of the LTIP Holders
and the MIP holder (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 9 April
2010, the Concert Party held, in aggregate, interests in 65,969,712
Ordinary Shares in the capital of Hikma (then representing 34.46%
of the then issued share capital of the Company). As at 15 March 2011
being the latest practicable date prior to the publication of this
document, the Concert Party held, in aggregate, interests in 64,453,907
Ordinary Shares in the capital of Hikma (representing 33.30% of the
then issued share capital of the Company). On full exercise of the
options under the Hikma Pharmaceuticals 2004 Stock Option Plan
(the “2004 Plan”) and full vesting of the LTIPs and the MIPs, the Concert
Party would potentially have, in aggregate, interests in 65,238,707
Shares in the capital of the Company (representing 33.57% 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 or vesting of LTIPs/MIPs).
During the period from the Annual General Meeting in 2010 to
15 March 2011, the LTIP/MIP Holders together with other members of
the Concert Party who hold options over Ordinary Shares pursuant to
the Company’s 2005 Long Term Incentive Plan (the “Option Holders”)
exercised, in aggregate, options over 100,000 Ordinary Shares in the
capital of the Company, all of which Ordinary Shares were retained
by the Option Holder. Additionally the LTIP/MIP Holders exercised, in
54
remunerAtion Committee rePort
Section Four: Governance
4
introduction
This report has been prepared in accordance with The Large & Medium-
Sized Companies and Groups (Accounts and Reports) Regulations 2008,
(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 UK Governance 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 2006
and 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 pages 42 to 43 in the Directors’ Report.
The Committee is composed entirely of Independent Non-Executive
Directors and is chaired by Michael Ashton.
The responsibility for the establishment of a remuneration policy
and approval of the aggregate remuneration cost is a matter for the
full Board, on the advice of the Remuneration Committee. The ongoing
recommendations of the Remuneration Committee have been approved
without amendment by the Board for submission to shareholders.
The following chart shows how the Remuneration Committee spent
its time during the year:
20%
35%
20%
25%
Executive remuneration
Performance metrics including bonus
Oversight of share-based incentives
Other including best practice updates
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.
The Remuneration Committee sought the assistance of the
Chairman, the Chief Executive Officer, Executive Vice Chairman and
the Corporate VP, Human Resources on matters relating to Directors’
performance and remuneration in respect of the period under review.
The Chairman, Chief Executive Officer, Executive Vice Chairman and
General Counsel may attend meetings of the Remuneration Committee
by invitation, except when their individual remuneration arrangements
are discussed. No Director takes part in discussions relating to his own
remuneration or benefits. As detailed below, during the year the
Remuneration Committee received independent advice on executive
compensation from PricewaterhouseCoopers LLP. With the exception of
certain corporate taxation advice, only services relating to human resource
practices were provided to the Company by PricewaterhouseCoopers
LLP during the year under review.
The Remuneration Committee is formally constituted with written
terms of reference with the full remit of the committee role described.
The terms of reference were reviewed and updated during the year and
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 128 of the Annual Report.
Philosophy behind Remuneration Committee’s approach
The Company’s remuneration policy is designed to incentivise, reward
and retain executives and the Remuneration Committee believes that
shareholders’ interests are best served by remuneration packages which
have a large emphasis on performance-related pay, thus encouraging
executives to focus on delivering the Group’s business strategy.
By providing meaningful incentives to executives the Company’s
policy ensures that the appropriate balance between fixed and
performance-related pay is maintained.
Performance-related pay and risk profile
The Remuneration Committee ensures that a significant proportion
of the remuneration package varies with the financial performance
of the Group and that targets are aligned with the Group’s stated
business objectives.
In applying its policy, the Committee is mindful of the Association
of British Insurers’ Guidelines on Responsible Investment Disclosure,
and seeks to ensure that the incentive structure for Executive Directors
and the wider senior executive management team takes account of
corporate performance on environmental, social and governance
issues, and will not raise environmental, social or governance risks
by inadvertently motivating irresponsible behaviour. More generally,
with regard to the overall remuneration structure, there is no restriction
on the Remuneration Committee which prevents it from taking into
account corporate governance on such matters and it takes due account
55
Hikma Pharmaceuticals PLC
Annual report 2010
remunerAtion Committee rePort
Continued
of issues of general operational risk when structuring incentives. Performance-related pay targets are reviewed to ensure they are consistent with
the general principles of effective risk management set by the Company and do not encourage short-term risk taking at the expense of long-term
objectives. In assessing the extent to which annual bonus and LTIP performance targets have been achieved, the audited results of the Company
are used and performance criteria are independently reviewed by the Company’s advisers.
remuneration policy 2010
Overall policy
The Remuneration Committee’s policy during the year under review was to set the main elements of the remuneration package at the following
quartiles in comparison to the Company’s Comparator Group:
Annual bonus
potential
upper Quartile
Pension
Base salary
Lower Quartile
to median
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.
Lower Quartile
to median
Potential total short-term
remuneration available
median to
upper Quartile
Benefits
in kind
Potential annual
share awards
upper Quartile
Potential total
compensation value
median to
upper Quartile
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.
Background
There have been several general statements from shareholder bodies and institutional investors clarifying their expectations for remuneration in
2010 and 2011 and a subsequent revised UK Corporate Governance Code has been issued.
In formulating the application of its policy for 2010 and future years, the Remuneration Committee has been cognisant of the evolving landscape in
remuneration developments. The Remuneration Committee also believe that many of the principles proposed by the Walker Review, UK Corporate
Governance Code and by institutional shareholders and their representative bodies are already in operation or embedded within the Company’s
remuneration framework, namely:
the terms of reference for the remuneration Committee include the responsibility for setting the over-arching parameters of incentive reward
for all senior employees, including those who could have a material impact on the risk profile of the Group;
the remuneration Committee has amended the performance conditions for the LtiP (following full shareholder consultation) to include key
financial performance metrics to encourage consistent and sustainable levels of Company performance and has ensured when selecting the
targeted level of performance that it is consistent with the risk profile set by the Board for the Company and therefore does not encourage
inappropriate risk taking by the executives (see later for full details of the new performance conditions for the LtiP).
The overall economic environment, the business background and the principal risks facing the Company are described in detail in the Business
Review on pages 11 and 31.
In assessing the performance priorities set for annual bonus the Remuneration Committee takes into account the general performance of the
Company and the prevailing economic environment.
The key highlights of the Company for 2010 include:
sales Growth of 14.8% from 2009.
Profit after tax of $98.8 million an increase of 27.2% from 2009.
ePs Growth of 25% from 2009; and
return on invested Capital of 12.4% (2009 10.6%).
56
Section Four: Governance
4
The Remuneration Committee feels that this level of performance in 2010 justifies the maximum on target bonus of 100% of salary for the
Executive Directors. Further, the Remuneration Committee has determined to award an additional bonus of 100% of salary to each of the Executive
Directors (total 200% of salary) to recognise the exceptional performance of the Company during 2010 in relation to the above measures and also
to recognise the achievement of the following important strategic goals by the executive team during 2010:
Continuation of the menA consolidation strategy;
transformation of the global injectables business through the agreement to acquire Baxter’s multi –source injectables business
successful implementation of a partnership for entry into the biosimilars market;
development and implementation of key executive management responsibilities in line with the strategic direction; and
ongoing improvement of financial processes.
2010 Comparator Group
During 2009 the Company reviewed its Comparator Group to ensure that it remained appropriate for the Company on an ongoing basis, reflecting
the increase in size of the Company and further internationalisation of the business. The only amendment to the Comparator Group during the year
was the removal of Sepracor Inc. due to its merger with Dainippon Sumitomo Pharma Co., Ltd, another entity.
The constituents of the Company’s Comparator Group for benchmarking remuneration during 2010 were as follows:
name
Amylin Pharmaceuticals inc
AstraZeneca PLC
BtG PLC
Crucell nv
endo Pharmaceuticals Holdings
forest Laboratories inc
Grilfols sA
name
Hospira inc.
impax Labs inc
King Pharmaceuticals inc.
merck KgaA
mylan inc
novartis AG
Prostraken Group PLC
name
sanofi Aventis
shire Pharmaceuticals PLC
uCB sA
valeant Pharmaceutical international
watson Pharmaceuticals inc
Factors the Remuneration Committee took into account when selecting the current 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;
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;
the consolidation in the pharmaceutical industry affecting the number of uK comparable companies; and
the uK listing environment.
Throughout this report, references to quartiles are to quartiles in the Comparator Group.
The Comparator Group was used as the comparator group in respect of the total shareholder return (“TSR”) performance condition for
awards granted in 2010 under the Hikma Pharmaceuticals PLC 2005 Long-Term Incentive Plan (“LTIP”) and will also be used in respect of the
TSR condition for the 2011 LTIP Awards. The Company has historically used the same comparators for both benchmarking remuneration and the
TSR performance condition aspect of awards granted during the relevant year, and will continue to do so in 2011. Awards made under the LTIP
in 2010 also have financial performance criteria (details of which are set out on pages 60 to 61 of this report) in addition to the TSR criterion.
The Committee intends to continue this practice in respect of future grants.
Ongoing review
The Remuneration Committee continues to review the remuneration policy on an annual basis to ensure it remains appropriate. This includes
reviewing overall remuneration practices to ensure that they achieve the strategic aims of the Group and to confirm and ensure that, after taking
account of all employment conditions, the remuneration of all employees, management and directors remains aligned. In this way the policy for
remuneration of executive directors is examined within the context of employment and remuneration polices across the Group. In particular the
Company has focused on increasing share ownership throughout the Group with wide access at management level to the Management Incentive Plan.
57
Hikma Pharmaceuticals PLC
Annual report 2010
remunerAtion Committee rePort
Continued
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; and
the current economic climate.
The Remuneration Committee has oversight of the main reward structures throughout the Group. In addition, in respect of the Committee’s specific
review for executive directors, the Committee is satisfied that the Group’s incentive structures are consistent with the risk profile of the Company set
by the Board and also encourage a long-term sustainable view to be taken by participants. One of the features of the Group’s remuneration which
the Committee believes is particularly relevant in this context is the availability of plans encouraging wide share ownership at all levels of management.
The Management Incentive Plan is used to incentivise management below the most senior level and provide share ownership. Approximately
300 employees are eligible to participate in the plan. Participants come from all levels of management (excluding those who participate in the Long
Term Incentive Plan) and are based in many of the Group’s geographical areas of operation, as the table below demonstrates.
Participation as a percentage of employees
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
33.0
67.0
12.5
9.1
5.0
5.0
5.0
5.0
2.8
3.2
2.0
1.7
3.8
3.3
2.4
2.6
2.9
1.4
7.2
6.3
6.7
5.0
D I A
I N
Y
L
A
I T
R
H
A
B
A I N
R
A
T
A
Q
A
Y
L I B
N
A
M
O
N
E
M
E
Y
Q
A
I R
W A I T
U
K
K I A
K
U
S L
A
V
O
A
U
E
L
B
E
O
N
A
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G
A
M
R
E
Y
N
U
T
N I S I A
N
A
D
U
S
Y
G
E
T
O
P
P
L
A
G
U
T
R
B I A
A
R
R I A
D I A
U
L
A
E
A
G
S
A
S
U
N
A
D
R
J O
It is the current intention of the Remuneration Committee to apply the 2010 policy in 2011.
2010 Balance between fixed and variable performance-based compensation
The chart below demonstrates the balance between the fixed and variable performance-based compensation for each Executive Director for the
year ended 31 December 2010.
said darwazah
mazen darwazah
58
fixed compensation
is calculated as:
variable performance
compensation is calculated as:
salary
Benefits
Pension contribution
26%
26%
Bonus Paid
fair market value of maximum
potential LtiP award
74%
74%
Section Four: Governance
4
elements of executive directors’ remuneration
Base salary
Policy 2010 and 2011 – 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.
When determining the base salary of the Executive Directors 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 Group.
The Remuneration Committee has access to information on the pay and conditions of other employees in the Group when determining the
remuneration packages for Executive Directors. The Remuneration Committee actively considers the relationship between general changes to
employees’ pay and conditions and any proposed changes in the remuneration packages for Executive Directors to ensure it can be sufficiently
robust in its determinations in light of the position of the Company as a whole.
The following tables summarises the base salary of Executive Directors:
name
Said Darwazah
median
Lower quartile
Mazen Darwazah
median
Lower quartile
2010
salary
$630,000
$420,000
2011
salary
$630,000
$1,076,000
$746,000
$420,000
$453,000
$404,000
median rise
in Comparator
Group
1%
0%
rise
0%
0%
After reviewing the above criteria, the Committee elected not to increase executive directors’ salaries for 2011, which remain at the 2009 level.
It remains the Committee’s ongoing policy that, save in exceptional circumstances, only modest rises in base salary should be required.
Annual performance-related bonus
Policy 2010 and 2011 – Upper quartile bonus potential 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 2011 will remain the same as those
applied for 2010.
Bonus payments are discretionary and are not pensionable. The following tables summarise the main features of the Group’s executive bonus plan.
Bonus
Hikma Target Bonus Potential
Hikma Maximum Bonus Potential
upper quartile Comparator Group
median Comparator Group
Hikma 2010 Bonus Paid as % of Salary
said darwazah mazen darwazah
100%
200%
158%
118%
200%
100%
200%
200%
200%
200%
59
Hikma Pharmaceuticals PLC
Annual report 2010
remunerAtion Committee rePort
Continued
Bonus payments for the Executive Directors for 2010 have been awarded at the maximum level. The Committee assessed corporate performance
during the year to be exceptional and therefore decided that it would be appropriate to reflect this in the performance-related remuneration for the
executive directors reflecting their strong leadership in difficult trading circumstances. The Executive Directors’ salaries are set at lower quartile levels,
enabling the Committee to reflect outstanding performance in bonus payments whilst remaining within the overall policies set by the Group.
See pages 56 to 57 for further information on the basis for the Committee’s decision.
The bonuses for 2010 have been paid on the basis of the level of satisfaction of the performance targets. The table below shows the principal
performance targets used for 2010 and their percentage satisfaction.
Said Darwazah
Profit after tax
operational milestones
Personal business targets
Total
Mazen Darwazah
Profit after tax
operational milestones
Personal business targets
Total
Percentage
of maximum
bonus potential
subject to target
Percentage
satisfaction of
bonus target
Percentage of
salary payable
50%
30%
20%
50%
30%
20%
100%
100%
100%
100%
100%
100%
50%
30%
20%
100%
50%
30%
20%
100%
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 and in order to ensure that they continue to remain challenging. Underlying
performance targets for Executive Directors’ bonuses were reviewed during 2008 to ensure that they remained in line with the Group’s overall
business strategy. The Committee applied the same parameters in 2010 and it is the opinion of the Committee that the overall nature of the
conditions remains appropriate for the requirements of the Group in 2011.
The 2011 bonus targets are set out below:
Bonus performance targets
50%
30%
20%
Profit after tax Operational milestones Personal business targets
share incentives
Policy 2010 and 2011 – Upper quartile The Remuneration Committee’s policy is to provide annual share grants to senior executives at a maximum
of the upper quartile level compared to the Comparator Group. Ongoing share incentives are provided to the Executive Directors solely through
the Long-term Incentive Plan (“LTIP”). 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.
During 2010 the Committee reviewed the performance criteria for the LTIP with the assistance of the remuneration adviser.
The Committee decided that the performance criteria should be expanded to include financial metrics relating to sales growth, earnings per share
growth and return on invested capital (see the table below). The Committee consulted the Company’s major shareholders and the main shareholder
representative bodies on the proposed change before it was implemented. The Committee is grateful for the time taken by shareholders on the
consultation and welcomes the confirmation received that the majority were supportive of the approach.
The Committee considers that the financial metrics ensure that absolute performance is taken into account and more closely align the criteria
with the Group’s strategy. The advantages of Total Shareholder Return (“TSR”), particularly performance compared to peers, are retained as this
criterion applies in respect of 50% of the award.
60
Section Four: Governance
4
Performance criteria
tsr (against comparator)
sales growth
ePs growth
return on invested capital
element of award
50%
16.7%
16.7%
16.7%
minimum
requirement maximum requirement
upper quartile
13%
20%
12%
median
9%
15%
10%
LTIP performance criteria
50%
16.7%
16.7%
16.7%
TSR Sales growth EPS growth Return on invested capital
Where the minimum requirement is achieved, 20% of this element of the award vests and becomes exercisable. Where the maximum requirement
is achieved all of this element of the award vests and becomes exercisable. Each criterion is independent of the other criteria.
Therefore, the proposed grant of awards with the attached performance conditions ensures that:
in respect of the element of the award measured against tsr1, that the Company’s comparative tsr performance against the Comparator
Group is at least at the upper quartile before executives receive the full benefit of this element of their share incentives; and
in respect of the remainder of the award, that the underlying financial performance of the Group supports the comparative performance before
executives receive their full award.
This structure demonstrates the Remuneration Committee’s desire to correlate incentive arrangements with the achievement of substantial
performance.
The Remuneration Committee granted the following awards to Executive Directors during 2010.
name
said darwazah
mazen darwazah
Percentage
of salary
147.4%
147.4%
uQ in CG
percentage
of salary
343%
213%
The following table summarises the main features of the LTIP in 2010 and its proposed operation during 2011.
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 (50% of the Award) and financial metrics relating
to sales growth, ePs growth and return on invested capital (50% in aggregate). 20% of Awards will be released for achieving minimum
performance with full release occurring for maximum performance, as detailed in the table, above. in relation to tsr the minimum requirement
is median comparable performance and the maximum requirement is upper quartile 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.
maximum grants for 2011 face value as a percentage of salary
said darwazah
200%
mazen darwazah
200%
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.
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.
61
Hikma Pharmaceuticals PLC
Annual report 2010
remunerAtion Committee rePort
Continued
The following chart sets out the level of release of existing LTIP awards if the Company’s performance measured as at 31 December 2010 continued
until the end of the relevant performance period.
LTIP level of release
2010
LTIP Grant**
2009
LTIP Grant
2008
LTIP Grant
2007
LTIP Grant*
100%
100%
100%
100%
*2007 LTIP Grant has been released in full (see later section of the report).
**2010 LTIP Grant is based 50% on TSR performance and 50% on financial performance.
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 that time.
Basis of performance condition selection and measurement
Comparative TSR was selected as a 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 Committee believes that the financial metrics link the final award of the LTIPs more
closely to the underlying financial performance of the Group. The combination of TSR performance and financial metrics allows comparable
performance and absolute performance to be taken into account in equal measure. In respect of the 2008 and 2009 awards the Remuneration
Committee will provide a full explanation and justification at the time of the release of each LTIP award as to why it believes that the underlying
financial performance of the Company is consistent with the TSR performance. In respect of the awards made in 2010 and onwards, the Group
performance will be taken into account by the financial metrics.
The Remuneration Committee determines whether the performance conditions for share awards are satisfied. The Committee has appointed
PricewaterhouseCoopers LLP to assist in the ongoing calculation of TSR and newly introduced financial metrics in accordance with the rules of
the LTIP. The Committee will review and, if appropriate, approve 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 10 year period to employees under all its share plans and a maximum of 5% of this 10% for discretionary share plans.
The following table summarises the current level of dilution resulting from Company share plans following the IPO:
type of plan
All employee share Plans (10% limit)
discretionary share Plans (5% limit)
share awards as a percentage
of issued share capital as at
31 december 2010 in a rolling
10 year period
0%
2.36%
share awards as a percentage
of issued share capital as at
31 december 2010 granted
during the year
0%
0.62%
The Company has not implemented any all-employee share incentive arrangements.
It is the Company’s current intention that LTIP awards granted in 2010 will be satisfied by newly issued shares.
62
Section Four: Governance
4
Post-employment benefits
Policy 2010 and 2011 – 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 10 years of employment.
The following table sets out the percentage post employment contributions compared to the Comparator Group.
Company
median CG
said darwazah mazen darwazah
1.86%
22%
1.35%
35%
In addition, pursuant to applicable law, each of the Executive Directors receives contributions as a percentage of salary which is paid by the Group
into government social security systems.
Benefits in kind
Policy 2010 and 2011 – 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 2010 and 2011 – Median to upper quartile depending on performance The following charts show the value of each of the main elements of
the remuneration package provided to the Executive Directors during the year ended 31 December 2010.
Said Darwazah
Mazen Darwazah
$630,000
$1,260,000
3
8
8
4
7
$
,
$543,000
$420,000
$840,000
,
2
1
1
6
3
$
$362,000
Salary Bonus paid Benefits FMV LTIP
Salary Bonus paid Benefits FMV LTIP
name
Said Darwazah
Mazen Darwazah
salary
$630,000
$420,000
Bonus paid
$1,260,000
$840,000
Benefits total payments
$1,964,883
$1,296,112
$74,883
$36,112
fmv LtiP
$543,000
$362,000
total
actual and fmv
$2,507,883
$1,658,112
total on target in
2010 CG at
median
$5,028,000
$1,288,000
63
Hikma Pharmaceuticals PLC
Annual report 2010
remunerAtion Committee rePort
Continued
Potential compensation for 2011: Policy – Median to Upper Quartile depending on performance
The following charts illustrate the maximum 2011 level of salary, benefits, bonus and LTIP award as a proportion of total compensation:
Said Darwazah maximum
Mazen Darwazah maximum
36%
30%
36%
31%
4%
30%
2%
31%
Salary
Benefits
Bonus
FMV LTIP award
Salary
Benefits
Bonus
FMV LTIP award
other remuneration matters
Directors’ shareholding policy
The Company does not have a formal Directors’ 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.
Management Incentive Plan (“MIP”)
Under the MIP, the Company makes grants of conditional awards to executive management across the Group based on the satisfaction of annual
performance targets. The key features of the MIP are as follows:
the miP is open to management level employees across the Group below senior executive level;
participation in the LtiP will preclude participation in the miP;
participants will be notified of a maximum monetary entitlement (the maximum award level is anticipated to be 50% of salary per annum) the
value of which will be awarded to participants in the form of conditional awards over shares, based on annual performance against individual
and Group KPis;
nil cost options will vest two years after the date of award (being approximately three years after the commencement of the financial year to
which the award relates), subject to the participant remaining in employment with the Group during this period. once the options have been
awarded, the continued employment requirement is the only condition for vesting.
At the AGM held on 13 May 2010 the Company obtained approval from shareholders to satisfy awards under the MIP from newly issued shares.
Executive Directors’ contracts
Details of the service contracts of the Executive Directors of the Company in force at the end of the year under review, which have not changed
during the year, are as follows:
name
said darwazah
Company notice period
12 months
Contract date
1 July 2007
unexpired term of contract
rolling contract
mazen darwazah
12 months
25 may 2006
rolling contract
Potential termination payment
12 months’ salary
and benefits
12 months’ salary
and benefits
64
Section Four: Governance
4
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.
External appointments
The Committee recognises that Executive Directors may be invited to take up non-executive directorships or public sector and not-for-profit
appointments, and that these can broaden the experience and knowledge of the Director, from which the Company can benefit. Executive
Directors may therefore accept such 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, Said Darwazah and Mazen Darwazah received fees of US$10,000 and US$10,000
respectively, in respect of such appointments.
Non-Executive Directors’ Fees
Policy 2010 – Upper quartile The remuneration of the Non-Executive Directors is determined by the Board based upon recommendations
from the Chief Executive Officer and Executive Vice Chairman and is within the limits set by the Articles of Association.
The nature of the Company’s business is international, requiring the Non-Executive Directors to travel to the USA, Middle East and Europe.
The Board is therefore made up of Non-Executive Directors with a wide range of experience both in the UK and internationally. The use of options
for Non-Executive Directors is prevalent in the US and also to some extent internationally. However, as a UK listed company complying with UK
best practice it is not considered appropriate to grant options to the Company’s Non-Executive Directors. To ensure that the Company remains able
to attract the appropriate calibre of candidate and to take account of its inability to grant options, the Board has therefore set its fee policy at the
upper quartile.
The individual basic and committee fees, which are paid in pounds Sterling, are as follows:
name
samih darwazah
michael Ashton
Ali Al-Husry
Breffni Byrne
ronald Goode
sir david rowe-Ham
2010
total fee
£000
157.5
78.0
63.0
85.5
72.4
78.0
Basic fee
£000
157.5
67.0
67.0
67.0
67.0
67.0
Chairmanship fee
£000
–
7.5
–
15.0
7.5
7.5
2011
Committee fee
£000
–
7.5
–
7.5
7.5
7.5
2011
total fee
£000
157.5
82.0
67.0
89.5
82.0
82.0
During 2009 the Board commissioned PricewaterhouseCoopers LLP to conduct a study of non-executive remuneration against the Comparator
Group. This showed that, in relation to the overall NED fee policy set by the Group, Hikma’s NED fees remained out of step with those of the
Comparator Group. Following the review it was resolved by the Board that the composition of the NED fees should be updated to reflect not only
the work undertaken as a chairman of a Board committee, but also as a member of Board committees. Therefore, a Board committee membership
fee is paid in addition to the basic fee to those NEDs who sit on the board committees in 2010. The Board also resolved that from 1 January 2011,
the basic fees of Non-Executive Directors should be increased to the amounts set out above. There has been no change in the fees of the Non-Executive
Chairman. The increases continue to move non-executive fees back towards the Group’s stated policy, though overall non-executive fees remain
below the level set by Group policy. The Board continues to believe that it is important to ensure that the fees paid to non-executives remain
competitive, that they reflect the increasingly important role played by non-executives and allow the Nomination Committee to recruit Non-Executive
Directors of the appropriate calibre in accordance with the requirements of succession planning. A further external review of non-executive fees will
be conducted in 2011.
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 month’s 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.
65
Hikma Pharmaceuticals PLC
Annual report 2010
remunerAtion Committee rePort
Continued
name
samih darwazah
michael Ashton
Ali Al-Husry
Breffni Byrne
ronald Goode
sir david rowe-Ham
date of original appointment notice payment
1 month
1 month
1 month
1 month
1 month
1 month
17 July 2007
14 october 2005
14 october 2005
14 october 2005
12 december 2006
14 october 2005
total shareholder return performance graph
The graph shows the Company’s performance, measured by total shareholder return (“TSR”), compared to the FTSE 250 Index and the FTSE 350
Pharmaceuticals & Biotechnology Index from 1 January 2006 to 31 January 2011. The FTSE 250 and 350 Indices have been selected to provide
a broader comparator of the Company’s performance.
HIKMA
PHARMACEUTICALS
PLC
FTSE 250
FTSE 350
PHARMACEUTICALS
& BIOTECHNOLOGY
120
100
80
60
40
20
0
–20
–40
JAN 06
JUL 06
JAN 07
JUL 07
JAN 08
JUL 08
JAN 09
JUL 09
JAN 10
JUL 10
JAN 11
TOTAL SHAREHOLDER RETURN FROM 1 JANUARY 2006 (%)
Audited information
Aggregate Directors’ remuneration for 2010 and 2009
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
2010
us$
4,083,095
-
1,248,654
-
-
5,331,749
2009
us$
2,739,389
–
4,644,835
–
–
7,384,224
66
Section Four: Governance
4
Directors’ emoluments and compensation
director
Executives
said darwazah
mazen darwazah
Non-Executives
samih darwazah
Ali Al-Husry
michael Ashton
Breffni Byrne
ronald Goode2
sir david rowe-Ham
Aggregate emoluments
fees/Basic salary
us$
other
benefits1
Annual bonuses
us$
2010
total
us$
2009
total
us$
630,000
420,000
74,883
36,112
1,260,000
840,000
1,964,883
1,296,112
1,182,845
796,968
243,538
96,752
119,725
131,247
111,113
119,725
1,872,100
–
–
–
–
–
–
110,995
–
–
–
–
–
–
2,100,000
243,538
96,752
119,725
131,247
111,113
119,725
4,083,095
245,693
93,431
105,113
116,795
93,431
105,113
2,739,389
1 Other Benefits include provision of health insurance, company car and medical expenses.
2 Dr Ronald Goode became Chairman of the Compliance, Responsibility and Ethics Committee in August 2010 and received the chairmanship fee of £7,500 per annum pro rated for one quarter.
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
said darwazah
mazen darwazah
2010
us$
8,505
7,818
2009
us$
8,505
7,818
Directors’ interests in shares
The table below details the Directors’ holdings in the share capital of the Company, including the changes between 31 December 2010 and the
date of this document.
director
samih darwazah
said darwazah
mazen darwazah
michael Ashton
Ali Al-Husry
Breffni Byrne
ronald Goode
sir david rowe-Ham
Total shares
ordinary shares of 10 pence
1 January
2010
2,515,450
413,445
986,591
18,566
1,109,748
10,000
9,000
10,000
5,072,800
31 december
2010
2,331,746
213,445
695,225
18,566
1,109,748
10,000
12,700
10,000
4,401,430
15 march
2011
2,331,746
213,445
695,225
18,566
1,109,748
10,000
12,700
10,000
4,401,430
Each of Samih Darwazah, Said Darwazah, Mazen Darwazah and Ali Al-Husry are directors of Darhold Limited, which is therefore a connected
person of these individuals for the purposes of the Listing Rules and the Disclosure and Transparency Rules of the Financial Services Authority.
Samih Darwazah, Said Darwazah, Mazen Darwazah and Ali Al-Husry are also shareholders of Darhold Limited. At the date of this document,
Darhold Limited held 57,183,028 Ordinary Shares of the Company.
67
Hikma Pharmaceuticals PLC
Annual report 2010
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 of the Company
granted or held by the Executive Directors.
On 4 November 2010, the Chief Executive Officer, Said Darwazah exercised a nil-cost option over 100,000 Ordinary Shares in the Company
granted under the 2005 Long Term Incentive Plan, retaining all of the shares so exercised. The share price at the point of exercise was £7.77p,
the exchange rate was $1.61:£1 and, therefore, the value of this holding at that point was approximately $1,249,000. 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
None of the Directors had any share options outstanding under this scheme at the beginning of or during the year under review and no further
options will be granted under this plan. 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 shares on the London Stock Exchange.
Hikma Pharmaceuticals PLC 2005 Long Term Incentive Plan (LTIP)
In respect of each of the Executive Directors, the aggregate number of shares under option outstanding at the year-end was:
director
said darwazah
mazen darwazah
number of LtiP shares
As at
31 december
2010
320,000
249,000
As at
31 december
2009
315,000
179,000
The aggregate options detailed above relate to the following unexercised options over Ordinary Shares as at 31 December 2010:
director
said darwazah
mazen darwazah
number of
LtiP shares
90,000
125,000
105,000
50,000
54,000
75,000
70,000
Price paid
for award
–
–
–
–
–
–
–
exercise price
nil
nil
nil
date of award
29 April
2008
19 may
2009
2 november
2010
nil 10 september
2007
29 April
2008
19 may
2009
2 november
2010
nil
nil
nil
initial date
of vesting
29 April
2011
19 may
2012
2 november
2013
10 september
2010
29 April
2011
19 may
2012
2 november
2013
date of expiry
29 April
2018
19 may
2019
2 november
2020
10 september
2017
29 April
2018
19 may
2019
2 november
2020
The closing market price for the Ordinary Shares on 31 December 2010 was 811.5 pence. During the period from 1 January 2010 to the year end
the closing price for the Company’s shares ranged from a low of 514.0 pence to a high of 829.5 pence.
Audit
The emoluments and Directors’ interests’ information disclosed in the Directors’ report on remuneration, which is required by Schedule 8 of the
Regulations and the Companies Act 2006 (as amended), has been audited.
Approved by the Board of Directors on 15 March 2011 and signed on its behalf by
michael Ashton
Chairman of the Remuneration Committee
68
Section Four: Governance
4
direCtors’ resPonsiBiLities
We confirm to the best of our knowledge:
the financial statements, prepared in accordance with the
international financial reporting standards as adopted by the eu,
give a true and fair view of the assets, liabilities, financial position
and profit or loss of the Company and the undertakings included in
the consolidation taken as a whole; and
the business review, which is incorporated into the directors’ report,
includes a fair review of the development and performance of the
business and the position of the Company and the undertakings
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties they face.
By order of the Board
said darwazah
Chief Executive Officer
mazen darwazah
Executive Vice Chairman, CEO MENA
15 March 2011
The Directors are responsible for preparing the Annual Report and the
financial statements. The Directors are required to prepare financial
statements for the Group in accordance with the International Financial
Reporting Standards as adopted by the EU (IFRS) and have also elected
to prepare financial statements for the Company in accordance with
the IFRS. Company law requires the Directors to prepare such financial
statements in accordance with IFRS, the Companies Act 2006 and
Article 4 of the International Accounting Standard (IAS) Regulations.
IAS 1 requires that financial statements present fairly for each
financial year the Company’s financial position, financial performance
and cash flows. This requires the faithful representation of the effects
of transactions, other events and condition in accordance with the
definitions and recognition criteria for assets, liabilities, income and
expenses set out in the International Accounting Standards Board’s
“Framework for the Preparation and Presentation of Financial
Statements”. In virtually all circumstances, a fair presentation will
be achieved by compliance with all applicable IFRS. Directors are
also required to:
properly select and apply accounting policies;
present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information; and
provide additional disclosures when compliance with the specific
requirements in ifrs is insufficient to enable users to understand
the impact of particular transactions, other events and conditions on
the entity’s financial position and financial performance.
The Directors are responsible for keeping proper accounting records
which disclose with reasonable accuracy at any time the financial
position of the Company, for safeguarding the assets, for taking
reasonable steps for the prevention and detection of fraud and other
irregularities and for the preparation of a Directors’ Report and Directors’
Remuneration Report which comply with the requirements of the
Companies Act 2006.
The Directors are responsible for the maintenance and integrity of
the Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements differs from
legislation in other jurisdictions.
69
Hikma Pharmaceuticals PLC
Annual report 2010
70
Section Five: Financial statements
5
Section Five
financial StatementS
72_IndePendent AudItors’ rePort
73_ConsoLIdAted FInAnCIAL stAtements
78_notes to tHe ConsoLIdAted FInAnCIAL stAtements
120_ComPAny FInAnCIAL stAtements
123_notes to tHe ComPAny FInAnCIAL stAtements
127_sHAreHoLder InFormAtIon
128_PrInCIPAL GrouP ComPAnIes – AdvIsers
71
Hikma Pharmaceuticals PLC
Annual report 2010
IndePendent AudItors’ rePort to tHe memBers oF
HIkmA PHArmACeutICALs PLC
We have audited the financial statements of Hikma Pharmaceuticals PLC
for the year ended 31 December 2010 which comprise the Consolidated
statement of comprehensive income, the Consolidated and the Company
balance sheet, the Consolidated and the Company statement of changes
in equity, the Consolidated and Company cash flow Statement, and the
related Notes 1 to 56. The financial reporting framework that has been
applied in their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union and,
as regards the Parent company financial statements, as applied in
accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
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
As explained more fully in the Directors’ Responsibilities Statement,
the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards for Auditors.
scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures
in the financial statements sufficient to give reasonable assurance that the
financial statements are free from material misstatement, whether caused
by fraud or error. This includes an assessment of: whether the accounting
policies are appropriate to the Group’s and the Parent Company’s
circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates made
by the Directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in the
annual report to identify material inconsistencies with the audited financial
statements. If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.
opinion on financial statements
In our opinion:
the financial statements give a true and fair view of the state of the
Group’s and of the Parent Company’s affairs as at 31 december 2010
and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in
accordance with IFrss as adopted by the european union;
the Parent Company financial statements have been properly prepared
in accordance with IFrss as adopted by the european union and as
applied in accordance with the provisions of the Companies Act 2006;
and
the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAs regulation.
separate opinion in relation to IFrss as issued by the IAsB
As explained in Note 2 to the Group financial statements, the Group
in addition to complying with its legal obligation to apply IFRSs as
adopted by the European Union, has also applied IFRSs as issued by
the International Accounting Standards Board (IASB).
In our opinion the Group financial statements comply with IFRSs
as issued by the IASB.
opinion on other matters prescribed by the Companies Act 2006
In our opinion:
the part of the directors’ remuneration report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
the information given in the directors’ report for the financial year
for which the financial statements are prepared is consistent with the
financial statements.
matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in
our opinion:
adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
the Parent Company financial statements and the part of the directors’
remuneration report to be audited are not in agreement with the
accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are
not made; or
we have not received all the information and explanations we require
for our audit.
Under the Listing Rules we are required to review:
the directors’ statement, contained within the directors’ report, in
relation to going concern;
the part of the Corporate Governance statement relating to the
Company’s compliance with the nine provisions of the June 2008
Combined Code specified for our review; and
certain elements of the report to shareholders by the Board on
directors’ remuneration.
edward Hanson (senior statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditors
London, United Kingdom
15 March 2011
72
ConsoLIdAted stAtement oF ComPreHensIve InCome
For tHe yeAr ended 31 deCemBer 2010
Section Five: Financial statements
5
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
Adjusted operating profit
Exceptional items:
– Acquisition related expenses
– Gains on revaluation of previously held equity interests
Intangible amortisation*
Operating profit
Finance income
Finance expense
other expense (net)
Profit before tax
tax
Profit for the year
Attributable to:
non-controlling interests
Equity holders of the Parent
Earnings per share (cents)
Basic
diluted
Adjusted basic
Adjusted diluted
Cumulative effect of change in fair value of available for sale investments
Cumulative effect of change in fair value of financial derivatives
exchange difference on translation of foreign operations
Total comprehensive income before tax relating to components of other comprehensive income
Total comprehensive income for the year
Attributable to:
non-controlling interests
Equity holders of the Parent
* Intangible amortisation comprises the amortisation on intangible assets other than software.
73
note
2010
$000
2009
$000
4
4
4
8
5
5
5
4
9
10
11
6
32
13
13
13
13
730,936
(373,592)
357,344
(106,673)
(84,755)
(23,608)
(7,213)
(222,249)
143,025
(7,705)
7,176
(7,401)
135,095
346
(13,856)
(603)
120,982
(21,455)
99,527
678
98,849
99,527
51.4
50.2
53.6
52.4
75
(256)
(19,532)
79,814
79,814
(1,023)
80,837
79,814
636,884
(332,459)
304,425
(98,083)
(66,677)
(16,843)
(15,529)
(197,132)
114,742
–
–
(7,449)
107,293
514
(12,827)
(193)
94,787
(15,469)
79,318
1,635
77,683
79,318
40.9
40.1
44.1
43.2
2
(202)
1,364
80,482
80,482
1,586
78,896
80,482
Hikma Pharmaceuticals PLC
Annual report 2010
ConsoLIdAted BALAnCe sHeet
At 31 deCemBer 2010
non-Current Assets
Intangible assets
Property, plant and equipment
Interest in joint venture
deferred tax assets
Available for sale investments
Financial and other non-current assets
Current Assets
Inventories
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
74
note
2010
$000
2009
$000
14
15
16
17
18
19
20
21
22
23
24
28
25
26
27
28
17
269,120
317,463
–
23,288
477
11,357
621,705
182,192
228,703
3,573
62,718
929
478,115
1,099,820
81,015
2,251
127,555
12,621
8,641
20,540
252,623
225,492
78,040
335
6,118
12,404
96,897
349,520
750,300
255,696
283,371
5,451
18,793
542
2,270
566,123
160,509
226,841
2,334
65,663
1,251
456,598
1,022,721
60,317
1,826
107,618
14,857
6,153
13,671
204,442
252,156
116,119
494
6,675
11,734
135,022
339,464
683,257
Section Five: Financial statements
5
ConsoLIdAted BALAnCe sHeet Continued
At 31 deCemBer 2010
equIty
share capital
share premium
own shares
other reserves
Equity attributable to equity holders of the Parent
non-controlling interests
Total equity
note
31
33
32
2010
$000
2009
$000
34,525
275,968
(2,220)
435,649
743,922
6,378
750,300
34,236
272,785
(2,203)
371,067
675,885
7,372
683,257
The financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, were approved by the Board of Directors and signed on its
behalf by:
said darwazah
Director
15 March 2011
mazen darwazah
Director
75
Hikma Pharmaceuticals PLC
Annual report 2010
ConsoLIdAted stAtement oF CHAnGes In equIty
For tHe yeAr ended 31 deCemBer 2010
Balance at 1 January 2009
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
realisation of revaluation reserve
Currency translation gain/(loss)
Total comprehensive
income for the year
Issue of equity shares
Acquisition of own shares
Cost of equity-settled
employee share scheme
Current and deferred tax arising on
share-based payments
dividends on ordinary shares (note 12)
Balance at 31 December 2009
and 1 January 2010
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
realisation of revaluation reserve
Currency translation loss
Total comprehensive
income for the year
Issue of equity shares
Issue of own shares
Cost of equity-settled
employee share scheme
exercise of employees long-term
incentive plan
Current and deferred tax arising
on share-based payments
dividends on ordinary shares (note 12)
Acquisitions of subsidiaries
Balance at 31 December 2010
–
–
–
–
–
–
–
–
–
–
–
(181)
–
(181)
–
–
–
–
–
merger
reserve
$000
33,920
–
revaluation
reserves
$000
4,447
–
translation
reserves
$000
total
retained
reserves
earnings
$000
$000
4,338 257,798 300,503
77,683
77,683
–
–
–
2
2
–
–
1,413
(202)
181
–
(202)
–
1,413
total equity
attributable
to equity
shareholders
of parent
$000
(1,124) 603,209
77,683
own
shares
$000
–
non-
controlling
interests
$000
total
equity
$000
5,786 608,995
1,635 79,318
share
capital
$000
share
premium
$000
33,857 269,973
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
–
2
(202)
–
1,413
–
–
(49)
(202)
–
1,364
1,413 77,664
–
–
–
–
78,896
–
–
–
379
–
–
2,812
–
– 78,896
3,191
–
(1,079)
(1,079)
1,586 80,482
3,191
(1,079)
–
–
–
4,616
4,616
3,170
–
3,170
– (16,118) (16,118)
–
–
–
–
–
–
–
4,616
–
4,616
–
3,170
– (16,118)
–
3,170
– (16,118)
33,920
–
4,266
–
5,751 327,130 371,067
98,849
98,849
–
34,236 272,785
–
–
(2,203) 675,885
98,849
–
7,372 683,257
99,527
678
–
–
–
–
–
–
–
–
–
–
–
–
33,920
–
–
75
75
–
(181)
–
–
– (17,831)
(256)
181
(256)
–
– (17,831)
–
–
–
–
–
–
–
–
–
75
–
75
(256)
–
–
–
– (17,831)
–
–
(256)
–
(1,701) (19,532)
(181)
–
–
(17,831) 98,849
–
–
–
–
80,837
–
–
–
289
–
–
3,183
–
–
–
(107)
80,837
3,472
(107)
(1,023) 79,814
3,472
(107)
–
–
–
–
–
–
4,473
4,473
(90)
(90)
–
–
–
2,435
2,435
–
– (23,073) (23,073)
–
–
–
4,085 (12,080) 409,724 435,649
–
–
–
–
–
–
–
–
34,525 275,968
–
4,473
90
–
–
–
4,473
–
2,435
–
– (23,073)
–
(2,220) 743,922
2,435
–
– (23,073)
29
29
6,378 750,300
76
Section Five: Financial statements
5
ConsoLIdAted CAsH FLow stAtement
For tHe yeAr ended 31 deCemBer 2010
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
Proceeds from disposal of intangible assets
Investment in joint venture
Investment in financial and other non-current assets
Proceeds from disposal of available for sale investments
Acquisition of subsidiary undertakings net of cash acquired
Finance income
Net cash used in investing activities
FInAnCInG ACtIvItIes
Increase in collateralised cash
Increase in long-term financial debts
repayment of long-term financial debts
Increase/(decrease) in short-term borrowings
(decrease)/increase in obligations under finance leases
dividends paid
Purchase of own shares
Interest paid
Proceeds from issue of new shares
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign exchange translation movements
Cash and cash equivalents at end of year
note
34
2010
$000
144,835
(49,121)
1,556
(4,074)
566
–
(10,800)
140
(23,000)
346
(84,387)
(1,140)
19,045
(59,177)
14,147
(616)
(23,073)
–
(13,754)
3,365
(61,203)
(755)
65,663
(2,190)
62,718
2009
$000
118,979
(35,170)
1,080
(5,213)
1,316
2
(193)
–
–
514
(37,664)
(1,515)
39,275
(33,570)
(56,983)
1,784
(16,118)
(1,079)
(13,461)
3,191
(78,476)
2,839
62,727
97
65,663
77
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements
1. AdoPtIon oF new And revIsed stAndArds
The following new and revised Standards and Interpretations have been adopted in the current year. With exception to IFRS 3 (2008) Business
Combination and IAS 27 (2008) Consolidated and Separate Financial Statements (see Note 2), their adoption has not had any significant impact
on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements.
IFrs 3(2008) Business Combinations;
IAs 27(2008) Consolidated and Separate Financial Statements;
IAs 28(2008) Investments in Associates
Amendment to IFrs 2 Share-based Payment
Amendment to IAs 39 Financial Instruments: Recognition
and Measurement
These standards have introduced a number of changes in the accounting for
business combinations when acquiring a subsidiary or an associate. IFrs 3 (2008)
has also introduced additional disclosure requirements for acquisitions.
IFrs 2 has been amended, following the issue of IFrs 3 (2008), to confirm that
the contribution of a business on the formation of a joint venture and common
control transactions are not within the scope of IFrs 2.
IAs 39 has been amended to state that options contracts between an acquirer
and a selling shareholder to buy or sell an acquiree that will result in a business
combination at a future acquisition date are not excluded from the scope of
the standard.
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these
financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
IFrs 9
IsA 24 (amended)
IAs 32 (amended)
IFrIC 19
IFrIC 14 (amended)
Improvements to IFrss (may 2010)
Financial Instruments
Related Party Disclosures
Classification of Rights Issues
Extinguishing Financial Liabilities with Equity Instruments
Prepayments of a Minimum Funding Requirements
The Directors do not expect that the adoption of the other standards listed above will have a material impact on the financial statements of the
Group in future periods.
2. sIGnIFICAnt ACCountInG PoLICIes
General Information
Hikma Pharmaceuticals PLC is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is
given on page 128.
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.
The presentational and functional currency of Hikma Pharmaceuticals PLC is the US Dollar as the majority of the Company’s business is
conducted in US Dollars (USD).
Changes in accounting policy
The same accounting policies, presentation and methods of computation are followed in the set of financial statements as applied in the Group’s
latest annual audited financial statements, except as described below.
In the current financial year, the Group has adopted International Financial Reporting Standard 3 “Business Combinations” (revised 2008) and
International Accounting Standard 27 “Consolidated and Separate Financial Statements” (revised 2008).
78
Section Five: Financial statements
5
2. sIGnIFICAnt ACCountInG PoLICIes Continued
Changes in accounting policy continued
The most significant changes to the Group’s previous accounting policies for business combinations are as follows:
Acquisition related costs which previously would have been included in the cost of a business combination are included in the unallocated
corporate expenses as they are incurred;
Any previously held equity interest in the entity acquired is remeasured to fair value at the date of obtaining control, with any resulting gain or loss
recognised as a profit or loss;
Any changes in the Group’s ownership interest subsequent to the date of obtaining control are recognised directly in equity, with no adjustment to
goodwill; and
Any changes to the cost of an acquisition, including contingent consideration, resulting from events after the date of acquisition are recognised as
a profit or loss. Previously, such changes resulted in an adjustment to goodwill.
The revised standards have been applied to the acquisition of Société D’Industries Pharmaceutiques Ibn Al Baytar S.A. (Ibn Al Baytar) and Al Dar
al Arabia as described in Note 39. The result has been a total gain of USD 7,176,000 due to the remeasurement to fair value of the previously held
equity interests and transaction costs totalling of USD 2,306,000 which have been expensed to general and administrative expenses. Both the gain
and the transaction costs have been classified as exceptional items as described in Note 5.
Any adjustments to contingent consideration for acquisitions made prior to 1 January 2010 which result in an adjustment to goodwill continue
to be accounted for under IFRS 3 (2004) and IAS 27 (2005). There have been no such adjustments into the year ended 31 December 2010.
Exceptional items are defined as those that are material in nature or amount and are non-recurring.
These items are disclosed separately in the consolidated statement of comprehensive income to assist in the understanding of the financial
performance of the Group.
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 ability 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. Non-controlling interests
in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. The non-controlling interest is stated at the
minority’s proportion of the fair values of the assets and liabilities recognised. Subsequently, any losses applicable to the non-controlling interest in
excess of the non-controlling 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 statement of comprehensive income from the effective date of acquisition or up to the effective date of
disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used
in line with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair
values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control
of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities
that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination
over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the
Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business
combination, the excess is recognised immediately in the statement of comprehensive income.
The non-controlling interest in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and
contingent liabilities recognised.
79
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
2. sIGnIFICAnt ACCountInG PoLICIes Continued
Going concern
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in
preparing the financial statements (see page 53).
Investment 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.
Significant influence is the power to participate in the financial and operating policy decisions of the investee, but not control or joint control
over these policies.
Investment in joint venture
A joint venture is a contractual arrangement whereby the Group and a third party undertake an economic activity that is subject to joint control.
Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating
decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers).
Each venturer contributes cash or other resources to the jointly controlled entity. These contributions are included in the accounting records
of the venturer and recognised in its financial statements as an investment in the jointly controlled entity.
The Group recognises its interest in the joint venture using proportionate consolidation. The application of proportionate consolidation
means that the balance sheet of the Group includes its share of the assets that it controls jointly and its share of the liabilities for which it is
jointly responsible.
Intangible assets
(a) Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is
measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value
of the acquirer’s previously held equity interest (if any) in the entity over the net of the acquisition date amounts of the identifiable assets acquired
and liabilities assumed.
If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration
transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the
acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.
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.
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) 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.
(d) Product related intangibles
(i)
(ii)
product files and under-licensed products are assigned indefinite useful lives which are reviewed for impairment at least annually; and
Under-licence agreements and product dossiers are amortised over their useful lives in the year of acquisition.
(e) Purchased software is amortised over the useful economic life when the asset is available for use.
(f) In process research and development recognised on acquisition is amortised over the useful life in the year of acquisition.
(g) Trade name some trade names are assigned indefinite useful lives and others have finite useful lives over which they are amortised where
applicable, in the period from acquisition.
80
Section Five: Financial statements
5
2. sIGnIFICAnt ACCountInG PoLICIes Continued
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 presentational currency of 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.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
revenue recognition
Revenue is recognised in the statement of comprehensive income 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,
provisions for chargebacks 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 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.
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.
81
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
2. sIGnIFICAnt ACCountInG PoLICIes Continued
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.
To the extent that variable rate borrowings are used to finance a qualifying asset and are hedged in an effective cash flow hedge of interest
rate risk, the effective portion of the derivative is deferred in equity and released to profit or loss when the qualifying asset impacts profit or loss.
To the extent that fixed rate borrowings are used to finance a qualifying asset and are hedged in an effective fair value hedge of interest rate risk,
the capitalised borrowing costs reflect the hedged interest rate.
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. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over
the lease term.
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 statement of comprehensive
income over the expected useful lives of the assets concerned.
research and development
Research and development expenses are fully charged to the statement of comprehensive income, 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.
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 statement of
comprehensive income 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.
82
Section Five: Financial statements
5
2. sIGnIFICAnt ACCountInG PoLICIes Continued
tax Continued
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 statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which
case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on
a net basis.
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”).
share-based payments
IFRS 2 “Share-based Payments” requires an expense to be recognised when the Group buys goods or services in exchange for share or rights over
shares (“share-based payments”) or in exchange for other equivalent assets.
The cost of share-based payments’ 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 of the equity-settled stock options scheme is determined using a binomial model. The fair value of the
long-term incentive plan is determined using a Monte Carlo valuation model. The expected life used in the models has been adjusted, based on
management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations (further details are given in
Note 36). In valuing share-based payments, 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 share-based payments 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 a share-based payments 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 a share-based payments 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 share-based payments is reflected as additional share dilution in the computation of diluted
earnings per share.
83
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
2. sIGnIFICAnt ACCountInG PoLICIes Continued
Property, plant and equipment
Property, plant and equipment have been stated at cost on acquisition and are depreciated on a straight-line basis except for land at the following
depreciation rates:
Buildings
vehicles
machinery
Fixtures and equipment
2% to 4%
10% to 20%
5% to 33%
6% to 33%
A units of production method of depreciation is applied to operations in their start up phase such as the lyophilised manufacturing plant in Portugal
as this reflect the expected pattern of consumption of the future economic benefits embodied in the assets. When these assets are fully utilised a
straight-line method of depreciation is applied.
Projects under construction are not depreciated until construction has been completed.
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 the asset 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 statement of comprehensive income. 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 statement of comprehensive income.
Inventories
Inventories are stated at the lower of cost and net realisable value. Purchased products are stated 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
sheet, inventory is primarily valued at standard cost, which approximates to historical cost determined on a moving average basis, and this value is
used to determine the cost of sales in the statement of comprehensive income. Net realisable value represents the estimated selling price in the
ordinary course of business, less 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 foreign exchange forward and option 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 re-measured at subsequent reporting dates to fair
value. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument,
in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
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 statement of comprehensive income, 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 statement of comprehensive income 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 statement
of comprehensive income.
84
Section Five: Financial statements
5
2. sIGnIFICAnt ACCountInG PoLICIes Continued
Financial instruments Continued
Investments Available for sale investments with quoted market prices are initially recognised at cost on acquisition and re-measured to their fair
values at year-end. Gains or losses on re-measurement 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 statement of comprehensive income. 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 statement of comprehensive income.
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. Appropriate allowances for estimated irrecoverable amounts
are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference
between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at
initial recognition.
Cash and cash equivalents Cash and cash equivalents include highly liquid investments with original maturities of three months or less and are
subject to an insignificant risk of changes in value.
Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges,
including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis 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 to
determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the
Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. 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 (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless
the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or 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 (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised
immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated
as a revaluation increase.
85
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
3. CrItICAL ACCountInG JudGements And key sourCes oF estImAtIon unCertAInty
In the application of the Group’s accounting policies, which are described in Note 2, the Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both
current and future periods.
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.
Chargebacks
(see details above)
revenue recognition
The Group’s revenue recognition policies require management to make a number of estimates, with the most significant relating to chargebacks,
product returns, rebates and price adjustments which vary by product arrangements and buying groups.
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 critical areas of judgement in relation to goodwill and intangible assets are the useful economic lives of the product-related intangibles,
the growth rates used in the impairment tests for goodwill and the discount rates used to determine net present values.
Contingent liabilities
The Group is involved in various legal proceedings considered typical to its business relating to employment, product liability and other commercial
disputes. Often this litigation is subject to substantial uncertainties, and therefore the probability of a loss, if any, being sustained or an estimate of
the amount of any loss, is difficult to ascertain. Consequently, it is often not practicable to make a reasonable estimate of the possible financial
effect, if any, that could arise from the ultimate resolution of legal proceedings. In such cases, where the Group believes that disclosure is required,
information regarding the nature and facts of the case is disclosed. For current matters see Note 35. Although there can be no assurance regarding
the outcome of the disclosed legal proceeding, based on management’s current and considered view, the Group does not expect it to have a
materially adverse effect on our financial position. This position could change over time.
86
Section Five: Financial statements
5
4. seGmentAL rePortInG
For management purposes, the Group is currently organised into three operating divisions – Branded, Injectables and Generics. These divisions
are the basis on which the Group reports its segment information.
The Group discloses underlying operating profit as the measure of segment result as this is the measure used in the decision-making and
resource allocation process of the chief operating decision maker, who is the Group’s Chief Executive Officer.
Information regarding the Group’s operating segments is reported below.
The following is an analysis of the Group’s revenue and results by reportable segment in 2010:
year ended 31 december 2010
revenue
Cost of sales
Gross profit
Adjusted segment result
exceptional items:
– Gains on revaluation of previously held equity interests
Intangible amortisation*
segment result
Adjusted unallocated corporate expenses
exceptional items:
– Acquisition related expenses
unallocated corporate expenses
operating profit
Finance income
Finance expense
other expense (net)
Profit before tax
tax
Profit for the year
Attributable to:
non-controlling interest
equity holders of the Parent
Branded
$000
394,166
(190,733)
203,433
96,230
7,176
(4,732)
98,674
Injectables
$000
157,439
(86,437)
71,002
26,224
–
(2,500)
23,724
Generic
$000
174,491
(92,710)
81,781
51,258
–
(169)
51,089
others
$000
4,840
(3,712)
1,128
(2,889)
–
–
(2,889)
Group
$000
730,936
(373,592)
357,344
170,823
7,176
(7,401)
170,598
(27,798)
(7,705)
(35,503)
135,095
346
(13,856)
(603)
120,982
(21,455)
99,527
678
98,849
99,527
* Intangible amortisation comprises the amortisation on intangible assets other than software.
“Others” mainly comprise Arab Medical Containers Ltd, International Pharmaceutical Research Center Ltd and the chemicals division of Hikma
Pharmaceuticals Ltd Jordan.
Unallocated corporate expenses are primarily made up of employee costs, office costs, professional fees, donations, travel expenses and
acquisition related expenses.
87
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
4. seGmentAL rePortInG Continued
segment assets and liabilities 2010
Additions to property, plant and equipment (cost)
Acquisition of subsidiary’s property, plant and equipment
(net book value)
Additions to intangible assets
Intangible assets arising on acquisition (net book value)
total property, plant and equipment and intangible assets
(net book value)
depreciation
Amortisation (including software)
Balance sheet
segment assets
segment liabilities
Branded
$000
32,747
24,437
2,147
28,066
397,301
16,032
6,044
748,353
232,855
Injectables
$000
7,428
–
1,902
–
146,818
5,517
2,848
184,039
77,217
The following is an analysis of the Group’s revenue and results by reportable segment in 2009:
Branded
$000
352,674
(165,066)
187,608
96,029
(4,580)
91,449
Injectables
$000
144,069
(81,162)
62,907
17,859
(2,526)
15,333
year ended 31 december 2009
revenue
Cost of sales
Gross profit
Adjusted segment result
Intangible amortisation*
segment result
unallocated corporate expenses
operating profit
Finance income
Finance expense
other expense (net)
Profit before tax
tax
Profit for the year
Attributable to:
non-controlling interest
equity holders of the Parent
Generic
$000
6,798
–
5
–
32,682
6,373
365
141,599
18,551
Generic
$000
135,060
(82,524)
52,536
25,360
(343)
25,017
Corporate
and others
$000
2,125
–
20
–
9,782
1,169
85
Group
$000
49,098
24,437
4,074
28,066
586,583
29,091
9,342
25,829
20,897
1,099,820
349,520
others
$000
5,081
(3,707)
1,374
(2,345)
–
(2,345)
Group
$000
636,884
(332,459)
304,425
136,903
(7,449)
129,454
(22,161)
107,293
514
(12,827)
(193)
94,787
(15,469)
79,318
1,635
77,683
79,318
* Intangible amortisation comprises the amortisation on intangible assets other than software.
“Others” mainly comprise Arab Medical Containers Ltd, International Pharmaceutical Research Center Ltd and the chemicals division of Hikma
Pharmaceuticals Ltd Jordan.
Unallocated corporate expenses are primarily made up of employee costs, office costs, professional fees, donations, travel expenses and
acquisition related expenses.
88
Section Five: Financial statements
5
4. seGmentAL rePortInG Continued
segment assets and liabilities 2009
Additions to property, plant and equipment (cost)
Additions to intangible assets
total property, plant and equipment and intangible assets
(net book value)
depreciation
Amortisation (including software)
Balance sheet
segment assets
segment liabilities
Branded
$000
23,827
1,889
341,548
14,715
5,509
Injectables
$000
9,594
2,591
157,938
4,730
2,956
Generic
$000
2,925
709
30,815
4,567
434
Corporate
and others
$000
609
24
8,766
1,187
50
Group
$000
36,955
5,213
539,067
25,199
8,949
679,112
203,750
204,220
91,104
119,093
30,567
20,296
14,043
1,022,721
339,464
The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods/services:
middle east and north Africa
united states
europe and rest of the world
united kingdom
sales revenue by
geographical market
for the year ended 31 december
2010
$000
446,524
204,389
79,133
890
730,936
2009
$000
404,689
152,406
78,981
808
636,884
The top selling markets are USA, Saudi Arabia and Algeria with total sales of USD 204.4 million (2009: USD 152.4 million), USD 118.5 million
(2009: USD 107.2 million) and USD 88.8 million (2009: USD 74.5 million), respectively.
Included in the Group’s total sales are sales of approximately USD 99.4 million (2009: USD 92.8 million) which arose from sales to the Group’s
largest client in Saudi Arabia.
The following is an analysis of the total non-current assets excluding deferred tax assets and an analysis of total assets by the geographical area in
which the assets are located:
middle east and north Africa
europe
united states
united kingdom
total non-current assets
excluding deferred tax assets
as at 31 december
2010
$000
417,553
146,844
33,589
431
598,417
2009
$000
357,945
157,938
30,944
503
547,330
total assets
as at 31 december
2010
$000
766,822
185,945
141,598
5,455
1,099,820
2009
$000
690,170
205,758
119,093
7,700
1,022,721
89
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
5. exCePtIonAL Items And IntAnGIBLe AmortIsAtIon
Exceptional items are disclosed separately in the statement of comprehensive income to assist in the understanding of the Group’s underlying
performance.
Acquisition related expenses
Gains on revaluation of previously held equity interests
Exceptional items
Intangible amortisation*
Exceptional items and intangible amortisation
tax effect
Impact on profit for the year
*Intangible amortisation comprises the amortisation on intangible assets other than software.
For the years ended 31 december
2010
$000
(7,705)
7,176
(529)
(7,401)
(7,930)
3,666
(4,264)
2009
$000
–
–
–
(7,449)
(7,449)
1,531
(5,918)
Acquisition related expenses relate to transaction costs incurred in acquiring Ibn Al Baytar, Al Dar Al Arabia and the Baxter Multi-Source injectables
business in the USA which is in the process of completion. These are included in the unallocated corporate expenses.
Gains on revaluation of previously held equity interests relate to gains arising from the remeasurement to fair value of the previously held equity
interest in Ibn Al Baytar and Al Dar Al Arabia. These are included within other operating expenses (net). Further details are set out in Note 39
“Acquisition of subsidiaries”.
Profit for the year has been arrived at after charging/(crediting):
6. ProFIt For tHe yeAr
net foreign exchange losses
research and development costs
Loss on disposal of property, plant and equipment
depreciation of property, plant and equipment
Amortisation of intangible assets (including software)
Inventories:
Cost of inventories recognised as an expense
write-down of inventories
staff costs (see note 7)
Auditors’ remuneration (see below)
Gains on revaluation of previously held equity interests (see note 39)
For the years ended 31 december
2010
$000
6,309
23,608
376
29,091
9,342
247,774
13,076
168,957
5,014
(7,176)
2009
$000
1,783
16,843
236
25,199
8,949
213,558
12,501
156,274
1,302
–
90
A detailed analysis of the Group’s auditors’ remuneration on a worldwide basis is provided below:
6. ProFIt For tHe yeAr Continued
Audit of the Company’s annual accounts
Audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Audit related service*
Total audit and audit related fees
– tax compliance services
– tax advisory services
– other services**
– transaction due diligence services
Total non-audit fees
Total fees
Section Five: Financial statements
5
For the years ended 31 december
2010
$000
367
619
986
115
1,101
128
281
3,159
345
3,913
5,014
2009
$000
330
624
954
119
1,073
103
88
–
38
229
1,302
* These fees predominantly relate to review procedures in respect of the interim financial information.
** Other services relate to integration planning performed in the US in respect of the planned acquisition of the Baxter Multi-Source injectables business. Further details in respect of this service
are on pages 50 to 51.
A description of the work of the audit committee is set out in the Audit Committee report on pages 49 to 51 and includes an explanation of how
auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.
The average monthly number of employees (including Executive Directors) was:
7. stAFF Costs
Production
selling and marketing
research and development
General and administrative
Their aggregate remuneration comprised:
wages, salaries and bonuses
social security costs
Post employment benefits
end of service indemnity
share-based payments
Car and housing allowance
other costs and employee benefits
91
For the years ended 31 december
2010
number
3,048
1,625
186
537
5,396
2009
number
2,689
1,567
141
483
4,880
For the years ended 31 december
2010
$000
2009
$000
121,027
10,122
2,433
2,756
4,473
12,651
15,495
168,957
110,779
9,278
2,187
2,982
4,616
12,075
14,357
156,274
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
8. otHer oPerAtInG exPenses (net)
other operating expense
other operating income
For the years ended 31 december
2010
$000
(23,741)
16,528
(7,213)
2009
$000
(18,583)
3,054
(15,529)
Other operating expenses consist mainly of provisions against slow moving inventory items, abnormal spoilage, and foreign exchange losses.
Other operating income consists mainly of gains on revaluation of previously held equity interests of USD 7,176,000 (see Note 39), gain on sale of
intangible assets, other product related income, and other income.
9. FInAnCe InCome
10. FInAnCe exPense
11. tAx
Interest income
Interest on bank overdrafts and loans
Interest on obligations under finance leases
other bank charges
Current tax:
uk current tax
double tax relief
Foreign tax
Prior year adjustments
deferred tax (note 17)
UK corporation tax is calculated at 28% (2009: 28%) of the estimated assessable profit made in the UK for the year.
Effective tax rate for the Group is 17.74% (2009: 16.32%).
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdiction.
92
For the years ended 31 december
2010
$000
346
2009
$000
514
For the years ended 31 december
2010
$000
5,755
206
7,895
13,856
2009
$000
7,367
197
5,263
12,827
For the years ended 31 december
2010
$000
2009
$000
–
–
27,037
(691)
(4,891)
21,455
560
(560)
19,988
1,035
(5,554)
15,469
Section Five: Financial statements
5
The charge for the year can be reconciled to profit before tax per the statement of comprehensive income as follows:
11. tAx Continued
Profit before tax:
tax at the uk corporation tax rate of 28% (2009: 28%)
Profits taxed at different rates
uk tax on dividend income
double tax relief offset
Permanent differences
temporary differences for which no benefit is recognised
Prior year adjustments
tax expense for the year
12. dIvIdends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 december 2009 of 6.5 cents (2008: 4.0 cents) per share
Interim dividend for the year ended 31 december 2010 of 5.5 cents (2009: 4.5 cents) per share
For the years ended 31 december
2010
$000
120,982
33,875
(15,184)
–
–
853
2,602
(691)
21,455
2009
$000
94,787
26,540
(15,776)
560
(560)
3,643
27
1,035
15,469
2010
$000
12,473
10,600
23,073
2009
$000
7,575
8,543
16,118
The proposed final dividend for the year ended 31 December 2010 is 7.5 cents (2009: 6.5 cents) per share, bringing the total dividends for the year
to 13.0 cents (2009: 11.0 cents) per share.
13. eArnInGs Per sHAre
Earnings per share are calculated by dividing the profit attributable to equity holders of the Parent by the weighted average number of Ordinary
Shares. The number of Ordinary Shares used for the basic and diluted calculations are shown in the table below. Adjusted basic earnings per
share and adjusted diluted earnings per share are intended to highlight the adjusted results of the Group before exceptional items and intangible
amortisation. A reconciliation of the basic and adjusted earnings used is also set out below:
earnings for the purposes of basic and diluted earnings per share being net profit
attributable to equity holders of the Parent
exceptional items (see note 5)
Intangible amortisation*
tax effect of adjustments
Adjusted earnings for the purposes of adjusted basic and diluted earnings per share
being adjusted net profit attributable to equity holders of the Parent
*Intangible amortisation comprises the amortisation of intangible assets other than software.
93
For the years ended 31 december
2010
$000
98,849
529
7,401
(3,666)
2009
$000
77,683
–
7,449
(1,531)
103,113
83,601
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
13. eArnInGs Per sHAre Continued
number of shares
weighted average number of ordinary shares for the purposes of basic earnings per share
effect of dilutive potential ordinary shares:
share options
weighted average number of ordinary shares for the purposes of diluted earnings per share
For the years ended 31 december
2010
number
’000
192,304
4,551
196,855
2010
earnings
per share
cents
51.4
50.2
53.6
52.4
2009
number
’000
189,757
3,968
193,725
2009
earnings
per share
cents
40.9
40.1
44.1
43.2
Basic
diluted
Adjusted basic
Adjusted diluted
Cost
Balance at 1 January 2009
Additions
disposals
translation adjustments
Balance at 1 January 2010
Additions
Acquisition of subsidiaries
disposals
translation adjustments
Balance at 31 December 2010
AmortIsAtIon
Balance at 1 January 2009
Charge for the year
translation adjustments
Balance at 1 January 2010
Charge for the year
Acquisition of subsidiaries
translation adjustments
Balance at 31 December 2010
CArryInG Amount
At 31 December 2010
At 31 December 2009
14. IntAnGIBLe Assets
Goodwill
$000
marketing
rights
$000
Customer
relationships
$000
Product
related
intangibles
$000
In process
r&d
$000
155,195
–
–
871
156,066
–
26,859
–
(5,240)
177,685
(608)
–
–
(608)
–
–
–
(608)
6,749
2,153
(194)
118
8,826
251
–
(249)
(476)
8,352
(1,265)
(1,105)
(32)
(2,402)
(817)
–
125
(3,094)
64,431
–
–
373
64,804
–
–
–
(2,067)
62,737
(5,664)
(4,294)
(56)
(10,014)
(4,219)
–
154
(14,079)
22,394
1,094
–
258
23,746
2,509
224
(155)
(722)
25,602
(2,410)
(1,540)
(27)
(3,977)
(1,760)
(211)
140
(5,808)
4,470
_
(200)
6
4,276
–
610
–
(55)
4,831
(303)
(297)
(1)
(601)
(332)
(513)
21
(1,425)
other
acquisition
related
intangibles
$000
3,195
10
–
9
3,214
–
–
–
(232)
2,982
(568)
(194)
(11)
(773)
(185)
–
39
(919)
trade
names
$000
6,283
19
–
99
6,401
–
1,068
–
(520)
6,949
(19)
(19)
–
(38)
(88)
–
(1)
(127)
software
$000
total
$000
10,956
1,937
(18)
27
12,902
1,314
246
–
(231)
14,231
(4,608)
(1,500)
(18)
(6,126)
(1,941)
(217)
95
(8,189)
273,673
5,213
(412)
1,761
280,235
4,074
29,007
(404)
(9,543)
303,369
(15,445)
(8,949)
(145)
(24,539)
(9,342)
(941)
573
(34,249)
177,077
155,458
5,258
6,424
48,658
54,790
19,794
19,769
3,406
3,675
6,822
6,363
2,063
2,441
6,042
6,776
269,120
255,696
94
Section Five: Financial statements
5
Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs) that are expected to benefit from that
business combination. The carrying amount of goodwill has been allocated as follows:
14. IntAnGIBLe Assets Continued
BrAnded
Arab Pharmaceuticals manufacturing Co.
Al Jazeera Pharmaceutical Industries Ltd
Hikma Pharma sAe (egypt)
Ibn Al Baytar
Al dar Al Arabia
InJeCtABLes
German operations
Hikma Italia s.p.A
otHers
Arab medical Containers
IPrC and std
Total
2010
$000
2009
$000
74,399
6,752
32,977
11,409
14,883
140,420
74,399
6,752
34,877
–
–
116,028
35,075
745
35,820
37,787
806
38,593
742
95
837
177,077
742
95
837
155,458
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill may be impaired.
The recoverable amounts of the CGUs are determined from value in use calculations. The value in use calculations are based on the
budget for the following year, grown at 2%–5% in perpetuity. The key assumptions for the value in use calculations are those regarding
the discount rates and short-term growth forecast in budgets.
Management estimates discount rates using WACC rates that reflect the current market assessments of the time value of money
and the risks specific to the CGUs. The discount rates used varied between 9% and 15% based on the markets in which the CGU’s
operate. The short-term growth rates range from no growth to 124% of growth.
The Group has conducted a sensitivity analysis on the impairment test of each CGU’s carrying value. In each case the valuations
indicate sufficient headroom such that a reasonably possible change to key assumptions is unlikely to result in an impairment of the
related goodwill. Whilst there is some uncertainty regarding the short-term impact of the political events in MENA, the Group doesn’t
consider that the likelihood of impairment losses in the long-term is increased.
other intangible assets
Amortisation of all intangibles assets with finite useful lives is charged on a straight-line basis.
Marketing rights Marketing rights are amortised over their useful lives commencing on the year in which the rights first generate sales.
Product related intangibles Product related intangibles include three types:
a. Product files and under-licensed products The product files and under-licence products intangibles are assessed as having indefinite useful
life due to the expected longevity of the products. These assets are reviewed for impairment at least annually. The carrying value of these assets
is USD 5,797,000 (2009: USD 5,837,000), the movement relates to retranslation at year end rates.
b. Under-licence agreements Under-licence agreements have an average estimated useful life of 11 years (2009: 11 years).
c. Product dossiers Product dossiers have an average estimated useful life of 15 years (2009: 15 years).
Customer relationships Customer relationships represent the value attributed to the existing direct customers that the Company acquired on
the acquisition of subsidiaries. The customer relationships have an average estimated useful life of 15 years (2009: 15 years).
95
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
14. IntAnGIBLe Assets Continued
other intangible assets Continued
In process R&D In process R&D represents the pipeline of products under development that were recognised on the acquisition of Arab
Pharmaceutical Manufacturing Company and Hikma Pharma SAE- Egypt. The In process R&D has an average estimated useful life of 15 years
(2009: 15 years).
Trade name Trade names were recognised on the acquisition of Ribosepharm, Arab Pharmaceutical Manufacturing Company and Ibn Al Baytar.
The trade name recognised on the acquisition of Ribosepharm is expected to have an indefinite economic useful life due to its expected longevity.
The carrying value of Ribosepharm’s trade name is USD 5,550,000 (2009: USD 6,003,000), the movement has arisen due to retranslation. The trade
name recognised on the acquisition of Arab Pharmaceutical Manufacturing Company has an estimated useful life of 12 years (2009: 12 years).
Software Software intangibles mainly represent the Enterprise Resource Planning solution that is being implemented in different operations across
the Group. The software has an average estimated useful life of five years.
Other acquisition related intangibles This mainly represents intangible assets recognised on the acquisition of Thymoorgan which relate to its
specialist manufacturing capabilities. The estimated useful lives vary from 10 years to indefinite useful life. The carrying value of assets with indefinite
lives is USD 994,000 (2009: USD 1,075,000), the movement relates to retranslation at year end rates.
15. ProPerty, PLAnt And equIPment
Cost
Balance at 1 January 2009
Additions
disposals
transfers
translation adjustment
Balance at 1 January 2010
Additions
Acquisitions of subsidiaries
disposals
transfers
translation adjustment
Balance at 31 December 2010
ACCumuLAted dePreCIAtIon
Balance at 1 January 2009
Charge for the year
disposals and transfers
translation adjustment
Balance at 1 January 2010
Land and
buildings
$000
138,497
2,141
(122)
13,779
510
154,805
2,138
11,510
(10)
12,223
(3,928)
176,738
23,145
4,510
(55)
140
27,740
vehicles
$000
machinery and
equipment
$000
Fixtures and
equipment
$000
Projects under
construction
$000
10,139
1,392
(646)
192
(19)
11,058
2,108
693
(594)
526
(245)
13,546
4,542
1,603
(314)
(6)
5,825
171,985
9,608
(2,192)
9,998
778
190,177
14,772
7,122
(2,640)
13,700
(4,716)
218,415
82,593
14,712
(2,393)
354
95,266
34,636
3,307
(740)
1,240
113
38,556
4,774
624
(121)
981
(851)
43,963
17,863
4,374
(274)
81
22,044
44,536
20,507
(611)
(25,209)
427
39,650
25,306
10,757
(1,081)
(27,430)
(2,076)
45,126
–
–
–
–
–
total
$000
399,793
36,955
(4,311)
–
1,809
434,246
49,098
30,706
(4,446)
–
(11,816)
497,788
128,143
25,199
(3,036)
569
150,875
96
Section Five: Financial statements
5
15. ProPerty, PLAnt And equIPment Continued
Charge for the year
Acquisition of subsidiaries
disposals and transfers
translation adjustment
Balance at 31 December 2010
Carrying amount
At 31 December 2010
Carrying amount
At 31 December 2009
Land and
buildings
$000
5,321
2,321
(9)
(823)
34,550
vehicles
$000
machinery and
equipment
$000
Fixtures and
equipment
$000
Projects under
construction
$000
1,813
201
(410)
(117)
7,312
17,102
3,128
(1,975)
(1,970)
111,551
4,855
619
(111)
(495)
26,912
–
–
–
–
–
total
$000
29,091
6,269
(2,505)
(3,405)
180,325
142,188
6,234
106,864
17,051
45,126
317,463
127,065
5,233
94,911
16,512
39,650
283,371
The net book value of the Group’s machinery and equipment includes an amount of USD 11,862,000 (2009: USD 12,743,000) in respect of assets
held under finance lease.
As at 31 December 2010 the Group had pledged property, plant and equipment having a carrying value of USD 80,557,000 (2009:
USD 79,557,000) as collateral for various long-term loans. This amount includes both specific items around the Group and the net property, plant
and equipment of the Group’s businesses in Portugal, Saudi Arabia, US and Tunisia.
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. In 2008, the German Government provided Thymoorgan Pharmazie GmbH a grant of Euro 560,000
being a contribution towards the acquisition of two freeze dryers and additional equipment. The carrying value of the grants as of 31 December
2010 were USD nil (2009: USD 40,000) for Hikma Farmaceutica and USD 336,000 (2009: 454,000) for Thymoorgan Pharmazie GmbH.
During the year 2010, the Group entered into contractual commitments for the acquisition of property, plant and equipment amounting to
USD 373,000 (2009: USD 776,000).
The amount of borrowing costs that have been capitalised in the year within the projects under construction is USD 1,620,000 (2009:
USD 422,000). The average capitalisation rate used ranges between 2.9%–10.6%. (2009: 2.9%–12.1%).
16. Interest In JoInt venture
In 2009, the investment in joint venture represented the Group joint venture in Al Dar Al Arabia Pharmaceutical Manufacturing Company.
The Group share of the joint venture as at 31 December 2009 was USD 5,451,000.
During 2010 the Group increased its equity interest in Al Dar Al Arabia Pharmaceutical Manufacturing Company to 100% and therefore,
the results of this company were consolidated within Hikma Group consolidated financial statements and are no longer considered to be as a
joint venture.
97
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior
reporting years.
17. deFerred tAx
At 1 January 2009
(Credit)/charge to income
Charge to equity
Adjustments
exchange differences
At 1 January 2010
Charge to income
Credit to equity
Acquisition of subsidiaries
Adjustments
exchange differences
At 31 December 2010
tax
losses
$000
(112)
(616)
–
(35)
(19)
(782)
(229)
–
–
–
57
(954)
deferred
r&d costs
$000
(295)
–
–
–
(5)
(300)
(764)
–
–
–
24
(1,040)
other
short-term
temporary
differences
$000
(9,295)
(6,652)
–
–
(2)
(15,949)
(1,339)
–
–
641
10
(16,637)
Amortisable
assets
$000
7,480
(39)
–
–
110
7,551
(577)
–
307
–
48
7,329
Fixed
assets
$000
3,857
2,836
–
–
50
6,743
(1,220)
–
2,349
–
(268)
7,604
stock
options
$000
(2,515)
(1,083)
(1,233)
509
–
(4,322)
(762)
(1,461)
–
(641)
_
(7,186)
total
$000
(880)
(5,554)
(1,233)
474
134
(7,059)
(4,891)
(1,461)
2,656
–
(129)
(10,884)
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
2010
$000
12,404
(23,288)
(10,884)
2009
$000
11,734
(18,793)
(7,059)
No deferred tax asset has been recognised on temporary differences totalling USD 56,690,000 (2009: USD 3,873,000) due to the unpredictability
of the related future profit streams. The significant increase during 2010 relates mainly to the increased eligibility of certain intra-group sales to be
recognised as temporary differences. Of these temporary differences, USD 6,194,000 relates to losses which may be carried forward for two years
before expiry and USD 3,374,000 relate to losses which may be carried forward for four years before expiry.
No deferred tax liability is recognised on temporary differences of USD 36 million (2009: USD 30 million) relating to the unremitted earnings
of overseas subsidiaries as the Group is able to control the timing of the reversal of these temporary differences and it is probable that they will not
reverse in the foreseeable future.
98
Section Five: Financial statements
5
18. AvAILABLe For sALe Investments
Available for sale investments represents investments in listed equity securities and unlisted securities that are recorded at fair value based on either
quoted market price for similar listed companies or using other valuation methods for unlisted companies.
1 January
disposals
Fair value adjustments recognised in equity
31 December
Listed
$000
245
–
3
248
non Listed
$000
297
(140)
72
229
2010
total
$000
542
(140)
75
477
Listed
$000
250
–
(5)
245
non Listed*
$000
290
–
7
297
2009
total
$000
540
–
2
542
* Included in this amount is an investment in a non-listed US company (MENA Innovative Technologies Inc.) of USD 62,000 that represents 32.5% of its common share capital.
During 2010 the Group has disposed of its share in this company.
19. FInAnCIAL And otHer non-Current Assets
Investments recorded at cost
Amounts due from investments
Amounts due from related parties recorded at cost
other financial assets
other non-current asset
As at 31 december
2010
$000
–
–
–
1,357
10,000
11,357
2009
$000
485
726
491
568
–
2,270
In 2009, Investments recorded at cost represented the Group’s share of 32.125% in Société D’Industries Pharmaceutiques Ibn Al Baytar S.A.–Tunisia.
During 2010 the Group increased its equity interest in Société D’Industries Pharmaceutiques Ibn Al Baytar S.A- Tunisia to a controlling interest
and therefore, the results of this company were consolidated within Hikma Group consolidated financial statements and are no longer considered
to be investments at cost. For more details please refer to Note 39.
Other non-current assets represent advanced payment made to acquire products and product related technologies.
99
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
20. InventorIes
Finished goods
work-in-progress
raw and packing materials
Goods in transit
Goods in transit include inventory held at third parties whilst in transit between Group companies.
Provision for slow moving inventory
As at
31 december
2009
$000
13,992
Additions
$000
13,546
Acquisitions of
subsidiaries
11
utilisation
$000
(10,606)
2010
$000
50,829
29,592
81,864
19,907
182,192
2009
$000
41,453
28,074
79,040
11,942
160,509
translation
adjustments
$000
(98)
As at
31 december
2010
$000
16,845
The total expense in the income statement for the write-off of inventory including provision for such write-offs was USD 13,076,000 (2009:
USD 12,501,000).
21. trAde And otHer reCeIvABLes
trade receivables
Prepayments
value added tax recoverable
Interest receivable
employee advances
Trade receivables are stated net of provisions for chargebacks, doubtful debts and expired goods as follows:
Chargebacks and returns
doubtful debts
expired goods
As at
31 december
2009
$000
38,102
19,758
6,690
64,550
Additions
$000
113,227
3,666
4,331
121,224
Acquisition of
subsidiaries
–
38
40
78
utilisation
$000
(113,515)
(732)
(3,438)
(117,685)
As at 31 december
2010
$000
200,334
22,305
3,883
223
1,958
228,703
2009
$000
203,250
16,063
5,569
49
1,910
226,841
translation
adjustments
$000
(64)
(405)
(40)
(509)
As at
31 december
2010
$000
37,750
22,325
7,583
67,658
100
Section Five: Financial statements
5
The following table sets forth a summary of the age of trade receivables:
21. trAde And otHer reCeIvABLes Continued
At 31 December 2010
total trade receivables as at
31 december 2010
related allowance for doubtful debts
Chargebacks and returns provision
expired goods provision
net receivables
At 31 December 2009
total trade receivables as at
31 december 2009
related allowance for doubtful debts
Chargebacks and returns provision
expired goods provision
net receivables
not past
due on the
reporting date
$000
202,820
–
202,820
not past
due on the
reporting date
$000
212,063
–
212,063
less than
90 days
$000
27,290
–
27,290
less than
90 days
$000
23,437
–
23,437
between
91 and
180 days
$000
11,164
–
11,164
between
91 and
180 days
$000
6,181
–
6,181
between
181 and
360 days
$000
2,914
–
2,914
between
181 and
360 days
$000
3,223
–
3,223
Past due
over
one year
$000
1,479
–
1,479
Past due
over
one year
$000
Impaired
$000
total
$000
22,325
(22,325)
–
267,992
(22,325)
245,667
(37,750)
(7,583)
200,334
Impaired
$000
total
$000
3,138
–
3,138
19,758
(19,758)
–
267,800
(19,758)
248,042
(38,102)
(6,690)
203,250
The Group establishes an allowance for impairment that represents its estimate of losses in respect of specific trade and other receivables where it
is deemed that a receivable may not be recoverable. When the receivable is deemed irrecoverable, the allowance account is written-off against the
underlying receivable.
More details on the Group’s policy for credit and concentration of risk management are provided in Note 29.
Collateralised cash represents mainly an amount equal to 100% of a portion of bank facilities granted to the Group’s Sudanese and Algerian
operations of USD 3,573,000 (2009: Egyptian and Algerian operations of USD 2,334,000).
22. CoLLAterALIsed CAsH
101
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
23. CAsH And CAsH equIvALents
Cash at banks and on hand
time deposits
money market deposits
Cash and cash equivalents include highly liquid investments with maturities of three months or less.
24. BAnk overdrAFts And LoAns
Bank overdrafts
Import and export financing
short-term loans
Current portion of long-term loans (note 27)
The weighted average interest rates paid were as follows:
Bank overdrafts
Bank loans (including the non-current bank loans)
Import and export financing
Import and export financing represents short-term financing for the ordinary trading activities of the business.
25. trAde And otHer PAyABLes
trade payables
Accrued expenses
employees’ provident fund*
vAt and sales tax payables
dividends payable**
social security withholdings
Income tax withholdings
other payables
As at 31 december
2009
$000
52,107
13,452
104
65,663
As at 31 december
2009
$000
15,924
10,831
2,323
31,239
60,317
2009
%
3.65
3.64
2.19
2010
$000
50,787
11,931
–
62,718
2010
$000
14,462
23,844
6,514
36,195
81,015
2010
%
3.45
2.95
2.76
As at 31 december
2010
$000
74,936
42,428
2,625
452
2,256
1,130
2,074
1,654
127,555
2009
$000
57,307
35,602
4,049
3,033
2,348
856
1,456
2,967
107,618
* The employees’ provident fund liability mainly represents the outstanding contributions due to the Hikma Pharmaceuticals Limited – Jordan retirement benefit plan, on which the fund receives
5% interest.
** Dividends payable includes USD 2,072,000 (2009: USD 2,165,000) due to the previous shareholders of APM.
102
Section Five: Financial statements
5
26. otHer ProvIsIons
Other provisions represent the end of service indemnity provisions of Hikma Pharmaceuticals Limited – Jordan, Hikma Italia, JPI, AMC, APM, Hikma
Pharma Co. (Tunisia), Pharma Ixir Co. Ltd (Sudan), Hikma Pharma Algeria and Ibn Al Baytar. This end of service indemnity comprises one month’s
salary payable for each year employed for each employee in all the above companies except Hikma Italia.
The provision for end of service indemnity for Hikma Italia 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:
27. LonG-term FInAnCIAL deBts
1 January
Additions
Acquisition of subsidiaries
utilisation
translation adjustments
31 December
total loans
Less: current portion of loans (note 24)
Long-term financial loans
Breakdown by maturity:
within one year
In the second year
In the third year
In the fourth year
In the fifth year
Thereafter
Breakdown by currency:
usd
euro
Jordanian dinar
Algerian dinar
egyptian Pound
tunisian dinar
2010
$000
6,153
2,795
712
(947)
(72)
8,641
2009
$000
5,392
2,365
–
(1,611)
7
6,153
As at 31 december
2010
$000
114,235
(36,195)
78,040
36,195
34,193
26,700
6,167
3,735
7,245
114,235
67,237
30,181
–
10,951
1,998
3,868
114,235
2009
$000
147,358
(31,239)
116,119
31,239
49,476
30,587
24,701
4,623
6,732
147,358
102,864
30,240
103
11,699
2,452
–
147,358
The loans are shown on an undiscounted basis.
At 31 December 2010, import and export financing, short-term loans and the current and long-term portion of long-term loans total
USD 144,593,000 (2009: USD 160,512,000).
Loans amounting to USD 22,443,000 (2009: USD 45,707,000) are secured on property, plant and equipment.
103
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
28. oBLIGAtIons under FInAnCe LeAses
Amounts payable under finance leases:
within one year
In the second to fifth years inclusive
Less: Interest lease charges
Present value of minimum lease payments payable
minimum lease
payments
Present value of minimum
lease payments
2010
$000
2,403
6,358
8,761
(392)
8,369
2009
$000
2,274
7,473
9,747
(1,246)
8,501
2010
$000
2,251
6,118
8,369
2009
$000
1,826
6,675
8,501
It is the Group’s policy to lease certain of its fixtures and equipment under finance leases. The average lease term is four years (2009: four years).
For the year ended 31 December 2010, the average effective borrowings rate was between 1.8% and 12% (2009: between 1.8% and 7.0%).
29. FInAnCIAL PoLICIes For rIsk mAnAGement And tHeIr oBJeCtIves
Credit and concentration of 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, 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.
In line with local market practice, clients in the MENA region are offered relatively longer payment terms compared to clients in Europe and
the US. During the year ended 31 December 2010, the Group’s largest three clients in the MENA region represented 18.2% of Group revenue,
13.6% in Saudi Arabia, 2.6% in Tunisia, and 2% in Algeria. The amount of receivables due from customers based in the Algerian market at
31 December 2010 is USD 37,936,000 (2009: USD 32,016,000), Saudi Arabia is USD 59,950,000 (2009: USD 53,373,000), and Tunis is USD
7,706,000 (2009: USD 4,528,000). The Group manages this risk through the implementation of stringent credit policies and procedures and
certain credit insurance agreements.
Trade receivable exposures are managed locally in the operating units where they arise. Credit limits are set as deemed appropriate for
the customer, based on a number of qualitative and quantitative factors related to the credit worthiness of a particular customer. The Group is
exposed to a variety of customers ranging from government backed agencies and large private wholesalers to privately owned pharmacies, and
the underlying local economic risks vary across the Group. Typical credit terms in the US range from 30–60 days, in Europe 30–120 days, and
MENA 180–360 days. Where appropriate, the Group endeavours to minimise risks by the use of trade finance instruments such as letters of
credit and insurance.
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
exposures to manage the volatility relating to these exposures by entering into a variety of derivative financial instruments.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the returns
to shareholders through the optimisation of the debt and equity balance. The Capital structure of the Group consists of debt, which includes
the borrowings disclosed in Note 27.
The Group is not subject to any externally imposed capital requirements.
104
Section Five: Financial statements
5
29. FInAnCIAL PoLICIes For rIsk mAnAGement And tHeIr oBJeCtIves Continued
Foreign exchange risk
The Group uses the USD as its functional currency and is therefore exposed to foreign exchange movements primarily in the Euro, Algerian Dinar,
Sudanese Pound and Egyptian Pound. Consequently, where possible 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. Due to the lack of open currency
markets, Algerian Dinars and Sudanese Pounds cannot be hedged. Where possible the Group uses financing facilities denominated in local
currencies to mitigate the risks. The Jordanian Dinar and Saudi Riyal have no impact on the statement of comprehensive income as those currencies
are pegged against the US Dollar.
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 2010
or the Group’s results of operations for the year then ended.
Financial liabilities
Interest-bearing loans and borrowings
Financial assets
Cash and cash equivalents
As at 31 december 2010
As at 31 december 2009
Fixed rate
$000
Floating rate
$000
total
$000
Fixed rate
$000
Floating rate
$000
total
$000
48,152
119,272
167,424
40,444
144,493
184,937
–
62,718
62,718
–
65,663
65,663
An interest rate sensitivity analysis assumes an instantaneous 100 basis point change in interest rates in all currencies from their levels at
31 December 2010, with all other variables held constant. Based on the composition of the Group’s debt portfolio as at 31 December 2010, a 1%
increase/decrease in interest rates would result in an additional USD 1.2 million (2009: USD 1.4 million) in interest expense/income being incurred
per year.
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; and
lease obligations – approximates to the carrying value.
Management considers that the book value of the Group’s financial assets and liabilities does not materially differ from their fair value.
105
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
29. FInAnCIAL PoLICIes For rIsk mAnAGement And tHeIr oBJeCtIves Continued
Currency risk
Currency risks as defined by IFRS 7 arise on account of financial instruments being denominated in a currency that is other than the functional
currency of the booking entity and being of a monetary nature.
The currencies that have a significant impact on the Group accounts and the exchange rates used are as follows:
usd/eur
usd/sudanese Pound
usd/Algerian dinar
usd/saudi riyal
usd/British Pound
usd/Jordanian dinar
usd/egyptian Pound
Period end rates
Average rates
2010
0.7545
3.1049
74.0273
3.7495
0.6464
0.7090
5.8224
2009
0.6977
2.2398
72.7309
3.7495
0.6278
0.7090
5.5051
2010
0.7531
2.5209
74.3916
3.7495
0.6467
0.7090
5.6555
2009
0.7170
2.3173
72.6817
3.7495
0.6386
0.7090
5.5776
The Jordanian Dinar and Saudi Riyal have no impact on the statement of comprehensive income as those currencies are pegged against the
US Dollar.
2010
Functional currency of entity:
– Jordanian dinar
– euro
– Algerian dinar
– saudi riyal
– sudanese Pound
– egyptian Pound
Sensitivity analysis:
2010
Functional currency of entity:
– Jordanian dinar
– euro
– Algerian dinar
– saudi riyal
– sudanese Pound
– egyptian Pound
*Others include Saudi Riyals and Jordanian Dinars.
us dollar
$000
92,608
(1,817)
(82,113)
5,554
(7,228)
(1,669)
5,335
us dollar
$000
926
(18)
(821)
56
(72)
(17)
54
euro
$000
sterling
$000
Algerian dinar
$000
Japanese yen
$000
others*
$000
net foreign currency financial assets/(liabilities)
(10,158)
–
(95)
417
39
47
(9,750)
euro
$000
(102)
–
(1)
4
–
–
(99)
(2)
–
(7)
8
–
27
26
(53,673)
–
–
(1,389)
–
–
(55,062)
(4)
–
–
(2,008)
–
–
(2,012)
16,310
–
–
(25)
653
(16)
16,992
Impact on statement of comprehensive income assuming 1% appreciation
of foreign currency against functional currency as at year end
sterling
$000
Algerian dinar
$000
Japanese yen
$000
others
$000
–
–
–
–
–
–
–
(537)
–
–
(14)
–
–
(551)
–
–
–
(20)
–
–
(20)
163
–
–
–
7
–
170
106
Section Five: Financial statements
5
29. FInAnCIAL PoLICIes For rIsk mAnAGement And tHeIr oBJeCtIves Continued
2009
Functional currency of entity:
– Jordanian dinar
– euro
– Algerian dinar
– saudi riyal
– sudanese Pound
– egyptian Pound
sensitivity analysis:
2009
Functional currency of entity:
– Jordanian dinar
– euro
– Algerian dinar
– saudi riyal
– sudanese Pound
– egyptian Pound
Liquidity risk of assets/(liabilities)
2010
Cash and cash equivalents
trade receivables
Interest bearing loans and borrowings
Interest bearing overdrafts
Interest bearing finance lease
trade payables
2009
Cash and cash equivalents
trade receivables
Interest bearing loans and borrowings
Interest bearing overdrafts
Interest bearing finance lease
trade payables
us dollar
$000
43,147
(1,816)
(36,699)
2,092
(10,527)
(1,972)
(5,775)
us dollar
$000
431
(18)
(367)
21
(105)
(20)
(58)
euro
$000
sterling
$000
Algerian dinar
$000
Japanese yen
$000
others
$000
net foreign currency financial assets/(liabilities)
(5,612)
–
(929)
1,107
–
840
(4,594)
euro
$000
(56)
–
(9)
11
–
8
(46)
100
–
(2)
(11)
–
1
88
–
–
–
380
–
–
380
(551)
–
–
(1,783)
–
–
(2,334)
1,756
–
–
–
–
(7)
1,749
Impact on statement of comprehensive income assuming 1% appreciation
of foreign currency against functional currency as at year end
sterling
$000
Algerian dinar
$000
Japanese yen
$000
others
$000
1
–
–
–
–
–
1
–
–
–
4
–
–
4
Less than
one year
$000
62,718
200,334
(66,553)
(14,462)
(2,403)
(74,936)
104,698
Less than
one year
$000
65,663
203,250
(44,393)
(15,924)
(2,274)
(57,307)
149,015
(6)
–
–
(18)
–
–
(24)
more than
one year
$000
–
–
(78,040)
–
(6,358)
–
(84,398)
more than
one year
$000
–
–
(116,119)
–
(7,473)
–
(123,592)
18
–
–
–
–
–
18
total
$000
62,718
200,334
(144,593)
(14,462)
(8,761)
(74,936)
20,300
total
$000
65,663
203,250
(160,512)
(15,924)
(9,747)
(57,307)
25,423
At 31 December 2010 the Group had undrawn facilities of USD 264,857,000 (2009: USD 193,152,000). USD 130,752,000
(2009: USD 95,452,000) of these was committed and the remainder was uncommitted.
107
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
30. 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, the total notional amount of outstanding forward foreign exchange contracts that the Group was committed to,
have been translated at 31 December exchange rates as below.
Foreign exchange forward contracts and options (euro)
These arrangements are designed to address significant exchange exposures.
2010
$000
4,780
2009
$000
–
At 31 December 2010 the fair value of the Group’s currency derivatives some of which were designated as effective cash flow hedges was an
asset of USD 83,000 (2009 USD nil). The movement in fair value in the year resulted in a gain of USD 83,000 (2009: USD 382,000 net loss) which
has been reflected in equity. These amounts were based on market values of equivalent instruments at the balance sheet date.
The fair value of the currency derivatives which were designated as ineffective cash flow hedges was an asset of USD 8,000 (2009 Assets of: nil)
held at fair value through profit and loss. The movement in fair value in the year resulted in a gain of USD 8,000 has been recognised in the
statement of comprehensive income for the year ended 31 December 2010 (2009: nil) in respect of such derivatives.
The Group believes that the effect on the value of cash flow hedges of currency and interest rate fluctuations is not significant and will not
materially affect the financial position of the Group.
Interest rate swaps
The Group uses interest rate swaps to manage its exposure to interest rate movements on its bank borrowings. These contracts have nominal values
of USD 45.4 million (2009: USD 34.4 million) and have fixed interest payments at rates ranging from 1.91% to 4.75% (2009: 1.91% to 4.75) for
periods up until 2016 and have floating interest receipts at LIBOR or EURIBOR.
The fair value of swaps entered into by the Group is estimated as a liability of USD 1,287,000 (2009: liability of USD 932,000). 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 movement in fair value totalling a loss of USD 339,000
(2009: USD gain of 180,000) has been reflected in equity. The remaining outstanding interest rate swaps that the Group was committed to at the
year end are held at fair value through profit and loss. The movement in fair value in the year resulted in a loss of USD 16,000 which has been
recognised in the statement of comprehensive income for the year ended 31 December 2010 (2009: loss of 216,000) in respect of such derivatives.
The Group believes that the effect on the value of interest rate swaps by interest rate fluctuations will not materially affect the financial position
of the Group.
108
Section Five: Financial statements
5
31. sHAre CAPItAL
Issued and fully paid – included in shareholders’ equity:
At 1 January
Issued during the year
At 31 December
number ’000
191,628
1,889
193,517
2010
$000
34,236
289
34,525
number ’000
189,238
2,390
191,628
2009
$000
33,857
379
34,236
32. non-ControLLInG Interests
At 1 January
share of profit
Currency translation loss
Acquisition of Ibn Al Baytar
At 31 December
2010
$000
7,372
678
(1,701)
29
6,378
2009
$000
5,786
1,635
(49)
–
7,372
33. own sHAres
Own shares represent 562,000 (2009: 450,000) Ordinary Shares in the Company held by Sanne Trust Company Limited, an independent trustee.
During the year the Company issued 700,000 Ordinary Shares to the independent trustee to meet short-term commitments in relation to
employee share plans. 588,000 shares were utilised during the year.
The market value for the own shares at 31 December 2010 is USD 7,056,000 (2009: USD 3,551,000). In 2010, no shares were acquired.
The book value of the retained own shares at 31 December 2010 is USD 2,220,00. The trust holds these shares to meet long-term commitments
in relation to employee share plans.
109
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
34. net CAsH From oPerAtInG ACtIvItIes
Profit before tax
Adjustments for:
depreciation and amortisation of:
Property, plant and equipment
Intangible assets
Gain on revaluation of previously held equity interest
Loss on disposal of property, plant and equipment
Gain on disposal of intangible assets
movement on provisions
movement on deferred income
Cost of equity settled employee share scheme
Finance income
Interest and bank charges
Cash flow before working capital
Change in trade and other receivables
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
Net cash generated from operating activities
2010
$000
120,982
2009
$000
94,787
29,091
9,342
(7,176)
376
(162)
2,488
(159)
4,473
(346)
13,856
172,765
10,689
322
(19,295)
16,102
(3,091)
177,492
(32,657)
144,835
25,199
8,949
–
236
(903)
761
(201)
4,616
(514)
12,827
145,757
(29,949)
(190)
(8,278)
24,262
3,164
134,766
(15,787)
118,979
35. ContInGent LIABILItIes
The Group was contingently liable for letters of guarantee and letters of credit totalling USD 119.7 million (2009: USD 62.4 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, has the potential to produce conflicting claims from revenue authorities as to the profits to be taxed in individual territories.
In common with many other companies in the pharmaceutical industry the Group is involved in various legal proceedings considered typical
to its business, including litigation relating to employment, product liability and other commercial disputes.
As reported in 2009, West-Ward Pharmaceutical Corp. was a co-defendant, with four other generic pharmaceutical manufacturers, in litigation
brought by Mutual Pharmaceutical Company, Inc. regarding the continued sale by West-Ward Pharmaceutical Corp. and the others of generic oral
colchicine in the United States, following the approval by the FDA of Mutual’s “ColcrysTM” colchicine product (the “Claim”). On 18 October 2010
the Group announced that the dispute between West-Ward Pharmaceutical Corp. and Mutual Pharmaceutical Company, Inc. relating to the sale of
oral colchicine tablets had been resolved to the parties’ mutual satisfaction.
110
Section Five: Financial statements
5
36. sHAre-BAsed PAyments
equity settled share option scheme
During the year ended 31 December 2010 and 2009, the Company had one stock option compensation scheme settled by equity instruments, with
four separate grant dates. The options over these instruments are settled in equity once exercised.
Details of the grants under the scheme are shown below:
date of grants
4 november 2008
29 April 2008
13 october 2005
12 october 2004
The estimated
fair value of
each share
option granted
usd
1.14
2.61
0.74
0.35
The share price
at grant date
usd
5.45
9.19
4.50
0.91
number
granted
85,000
1,041,500
1,600,000
9,520,000
exercise
price
usd
5.45
9.19
4.50
0.91
expected
volatility
34.90%
31.50%
26.20%
44.80%
expected
dividend yield
1.21%
0.08%
6.67%
3.85%
expected average
contractual life
4.0 years
3.8 years
7.5 years
7.5 years
risk-free
interest rate
4.11%
4.54%
4.54%
4.22%
All the general employees share option plans have a 10 year contractual life and vesting conditions of 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 plans was calculated by applying a binomial option
pricing model.
It was assumed that each option tranche will be exercised the options immediately after vesting date.
Further details of the general employee share option plan are as follows:
outstanding at 1 January
Granted during the year
exercised during the year
expired during the year
outstanding at 31 december
exercisable at 31 december
2010
weighted
average
exercise
price (in $)
3.42
–
3.25
9.18
3.33
1.96
number of
shares option
6,201,800
85,000
(2,390,000)
(251,100)
3,645,700
2,682,900
2009
weighted
average
exercise
price (in $)
2.73
5.45
1.34
6.83
3.42
1.85
number of
shares option
3,645,700
–
(1,189,382)
(73,700)
2,382,618
1,900,218
The cost of the equity settled share option scheme of USD 403,000 (2009: USD 1,245,000) has been recorded in the consolidated statement of
comprehensive income as part of general and administrative expenses.
The weighted average share price at the date of exercise for share options exercised during the year was USD 9.97. The options outstanding at
31 December 2010 had a weighted average remaining contractual life of less than one year.
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three to four years.
111
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
36. sHAre-BAsed PAyments Continued
Long-term incentive plan
During the year ended 31 December 2010 the Company had one long-term incentive plan (“LTIP”) settled by equity instruments, with eight
separate grant dates. Under the LTIP, conditional awards and nil cost options are made which vest after three years subject to a total shareholder
return (“TSR”) performance condition. This condition measures the Group’s TSR relative to a comparator group of other pharmaceutical companies.
In this case, the vesting schedule dictates that 20% of awards vest for median performance and 100% for upper quartile performance, with
pro-rata vesting in between these points. No awards vest for performance which is below the median.
For awards made in 2010 the TSR conditions applies in respect of 50% of the award and financial metrics apply in respect of the remaining
50%. For further details see the Remuneration Report.
Details of the grants under the plan are shown below:
date of grants
2 november 2010
22 march 2010
19 may 2009
19 march 2009
28 April 2008
10 september 2007
23 April 2007
2 April 2007
The estimated
fair value of
each share
option granted
usd
6.71
4.64
3.89
2.94
5.46
4.70
4.47
4.33
The share price
at grant date
usd
7.8
9.0
6.67
5.11
9.22
8.28
7.69
7.46
number
granted
175,000
555,253
200,000
920,000
700,000
150,000
466,000
160,000
expected
volatility
39.60%
37.18%
38.98%
38.98%
31.47%
34.64%
34.64%
34.64%
expected
dividend yield
0.99%
1.20%
1.22%
1.47%
0.08%
0.08%
0.08%
0.08%
risk-free
interest rate
0.97%
1.88%
1.92%
1.88%
4.50%
5.00%
5.45%
5.40%
All long-term incentive plans have 10 years contractual life and vest after 3 years subject to TSR performance condition except for awards made in
2010 where the TSR performance condition applies in respect of 50% of the award and financial metrics apply in respect of the remaining 50%.
For further details see the Remuneration Report.
The estimated fair value of each share option granted in the LTIP was calculated by applying the Monte Carlo Simulation methodology.
The exercise price of the share award is nil.
Further details on the number of shares granted are as follows:
year 2010
outstanding at 1 January
Granted during the year
exercised during the year
expired during the year
outstanding at 31 december
2 november
number
–
175,000
–
–
175,000
2010 grant
22 march
number
–
555,253
–
–
555,253
2009 grants
2008 grants
2007 grants
19 march
number
920,000
–
–
(50,000)
870,000
19 may
number
200,000
–
–
–
200,000
29 April
number
650,000
–
–
–
650,000
2 April
number
23 April
number
10 september
number
total
number
160,000
–
(135,000)
–
25,000
364,000
–
(343,000)
–
21,000
150,000
–
(100,000)
–
50,000
2,444,000
730,253
(578,000)
(50,000)
2,546,253
year 2009
outstanding at 1 January
Granted during the year
expired during the year
outstanding at 31 december
2009 grant
2008 grant
19 march
number
–
920,000
–
920,000
19 may
number
–
200,000
–
200,000
29 April
number
685,000
–
(35,000)
650,000
2 April
number
160,000
–
–
160,000
23 April
number
409,000
–
(45,000)
364,000
2007 grants
10 september
number
150,000
–
–
150,000
total
number
1,404,000
1,120,000
(80,000)
2,444,000
112
Section Five: Financial statements
5
36. sHAre-BAsed PAyments Continued
Long-term incentive plan Continued
The cost of the long-term incentive plan of USD 3,455,000 (2009: USD 2,608,000) has been recorded in the consolidated statement of
comprehensive income as part of general and administrative expenses.
management incentive plan
In 2009 the Company notified certain employees of their awards under the Hikma Management Incentive Plan (“MIP”). Under the MIP, conditional
awards of nil cost options are made which give the opportunity for an employee to receive an award of shares subject to achievement of the
employee Key Performance Indicators (KPIs). This condition measures the employee achievement against set KPIs. In this case, the number of shares
awarded is based on percentage of achievements. No awards vest for achievements below 50%.
Once made, the award is subject to a two year holding period during which the employee must remain employed in the Group; at the end of
the holding period the award is released and becomes exercisable.
Details of the grants under the plan are shown below:
19 march 2009
Type of arrangement
Date of grant
Maximum number granted
Actual number granted
Contractual life
Vesting conditions
Management Incentive Plan
19 March 2009
484,829
468,249
10 years
After three years subject to achievement of KPIs
The cost of the management incentive plan of USD 615,000 (2009: USD 763,000) has been recorded in the consolidated statement of
comprehensive income as part of general and administrative expenses.
37. oPerAtInG LeAse ArrAnGements
minimum lease payments under operating leases recognised in the statement of comprehensive income for the year
2010
$000
3,514
2009
$000
3,012
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
2010
$000
1,766
4,159
–
5,925
2009
$000
1,961
4,044
959
6,964
Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for a term of 1 to 3 years.
113
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
38. reLAted PArty BALAnCes
Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. Transactions
between the Group and its associate and other related parties are disclosed below.
trading transactions:
During the year, Group companies entered into the following transactions with related parties:
Darhold Limited is a related party of the Group because it is considered one of the major shareholders of Hikma Pharmaceuticals PLC
with ownership percentage of 29.5% at the end of 2010 (2009: 29.8%). Further details on the relationship between Mr. Samih Darwazah,
Mr. Said Darwazah, Mr. Mazen Darwazah and Mr. Ali Al-Husry, and Darhold Limited are given in the Directors’ Report.
Other than dividends (as paid to all shareholders), there were no transactions between the Group and Darhold Limited in the year.
Capital Bank – Jordan is a related party of the Group because during the year, three board members of the Bank are also Board members at
Hikma Pharmaceuticals PLC. Total cash balances at Capital Bank – Jordan were USD 2,169,000 (2009: USD 3,294,000). Loans and overdrafts
granted by Capital Bank to the Group amounted to USD 48,000 (2009: USD 77,000) with interest rates ranging between 8.75% and
3MLIBOR + 1. Total interest expense incurred against Group facilities was USD 18,000 (2009: USD 28,000). Total interest income received was
8,000 (2009: USD 37,000) and total commission paid in the year was USD 76,000 (2009: USD 17,000).
Jordan International Insurance Company is a related party of the Group because one board member of the company is also a Board member
at Hikma Pharmaceuticals PLC. Total insurance premiums paid by the Group to Jordan International Insurance Company during the year were
USD 2,166,000 (2009: USD 1,686,000). The Group’s insurance expense for Jordan International Insurance Company contracts in the year 2010
was USD 2,481,000 (2009: USD 2,006,000). The amounts due to Jordan International Insurance Company at the year end were USD 66,000
(2009: USD 129,000).
Tunisian companies were related parties to the Group because the Group used to hold a minority interest in Société D’Industries Pharmaceutiques
Ibn Al Baytar S.A. – Tunisia. This company owns another Tunisian company Société Hikma Medicef Limited – Tunisia, which was therefore a related
party as well. During March 2010, the Company increased its equity interest in Société D’Industries Pharmaceutiques Ibn Al Baytar S.A – Tunisia to a
controlling interest. As a result, the results of those companies were consolidated within Hikma Group consolidated financial statements and are
therefore no longer considered to be related parties.
In previous periods, amounts due from the two Tunisian companies, net of provisions were 31 December 2009: USD 491,000 and
31 December 2009: USD 1,052,000 from Société Hikma Medicef Limited – Tunisia and Société D’Industries Pharmaceutiques Ibn Al Baytar S.A.
– Tunisia, respectively. The corresponding Group’s provision for doubtful debts related to balances above was 31 December 2009: USD 327,000.
Mr. Yousef Abd Ali Mr. Yousef Abd Ali is a related party of the Group because he holds a non-controlling interest in Hikma Lebanon of 33%,
the amount owed to Mr. Yousef by the Group as at 31 December 2010 was USD 161,000 (2009: USD 161,000).
Labatec Pharma S.A. is a related party of the Group because it is owned by Mr. Samih Darwazah. During 2010 the Group total sales to
Labatec Pharma amounted to USD 414,000 (2009: USD 42,000) and the Group total purchases from Labatec amounted to USD 1,373,000
(2009: USD 393,000). At 31 December 2010 the amount owed to the Group from Labatec Pharma was USD 193,000 (2009: USD 149,000).
King and Spalding is a related party of the Group because the partner of the firm is a board member and the company secretary of West-Ward.
King and Spalding is an outside legal counsel firm that handles general legal matters for West-ward. During 2010 fees of USD 927,000 (2009:
USD 55,000) were paid for legal services provided.
114
Section Five: Financial statements
5
38. reLAted PArty BALAnCes Continued
remuneration of key management personnel
The remuneration of the key management personnel (comprising the executive and non-executive directors’ and certain of senior management as
set out in the Directors’ Report) of the Group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
Further information about the remuneration of the individual Directors is provided in the audited part of the Remuneration Committee Report on
pages 66 to 68.
short-term employee benefits
share-based payments
Post employment benefits
2010
$000
7,305
1,408
17
8,730
2009
$000
5,918
2,002
31
7,951
39. ACquIsItIon oF suBsIdIArIes
On 29 October 2010, Hikma announced that it has also signed an agreement to acquire the assets of Baxter Healthcare Corporation’s US
generic injectables business for a cash consideration of USD 112 million. The deal is expected to be completed during April 2011.
During the year, Hikma acquired additional shareholdings in two businesses: Société D’Industries Pharmaceutiques Ibn Al Baytar
(“Ibn Al Baytar”) in Tunisia and Al Dar Al Arabia in Algeria.
Details of the provisional goodwill and gain on the previously held equity interests arising on both acquisitions are as below:
subsidiary
Ibn Al Baytar
Al dar Al Arabia
Details are as follows:
Gain on the
previously held
equity interests
$000
2,679
4,497
7,176
Goodwill
$000
11,873
14,986
26,859
Ibn Al Baytar
On 26 March 2010 the Group increased its voting equity interest in Ibn Al Baytar from 32.125% to 66% to obtain control and thereby develop
its activity in the North Africa region. In addition 29.05% of the non-controlling interests in the company have waived the voting rights attached
to these shares. A call option over this 29.05% shareholding was held by the other 4.95% non-controlling interest until 24 September 2010.
During this period, the non-controlling shareholder informed the Group that it intended to exercise the option to increase their shareholding to
14.95%. This is expected to take place during 2011.
The total fair value of the consideration is deemed to be USD 9,295,000, 50% of which is deferred. USD 5,000,000 is cash consideration and
the balance of USD 4,295,000 has been treated as a financial liability and deemed consideration in accordance with IAS 32 Financial Instruments:
Presentation and IFRS 3 revised (2008): Business Combinations.
As a consequence of the transaction, the previously held equity interest was re-valued to USD 3,164,000. The resulting gain of USD 2,679,000
has been recognised in other operating income in the year.
115
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
39. ACquIsItIon oF suBsIdIArIes Continued
Ibn Al Baytar Continued
The net assets acquired in the transaction and the provisional goodwill arising are set out below:
Book value
$000
Fair value
adjustments
$000
Fair value
$000
144
263
6,075
(78)
2,721
3,066
2
33
6,030
(7,267)
(3,844)
(1,317)
–
(2,853)
(2,535)
(92)
348
1,063 a
–
–
–
–
–
–
–
2,173 b
–
–
–
(591) c
(1,405) d
–
(971) e
269
1,207
263
6,075
(78)
2,721
3,066
2
33
8,203
(7,267)
(3,844)
(1,317)
(591)
(4,258)
(2,535)
(1,063)
617
9,295
3,164
31
12,490
(617)
11,873
4,648
4,647
9,295
4,648
(263)
4,385
Ibn Al Baytar
Net assets acquired:
trade name
Cash and cash equivalent
Accounts receivable, gross
Provision for doubtful debts and expired goods
other current assets
Inventories
Financial assets
deferred tax assets
Property, plant and equipment
Financial debts
trade accounts payable
other current liabilities
Income tax provision
Provisions
Long-term financial debts
deferred tax liabilities
Identifiable net assets
Consideration
Fair value of previously held equity interest (32.125%)
non-controlling (4.95%)*
Less: identifiable net assets
Goodwill
Consideration is satisfied by:
Cash
deferred consideration
Cash consideration
Cash and cash equivalents acquired
Net cash outflow arising on acquisition
*The non-controlling interest has been valued at 4.95% of the fair value of identifiable net assets.
116
Section Five: Financial statements
5
39. ACquIsItIon oF suBsIdIArIes Continued
Ibn Al Baytar Continued
Gain on revaluation of previously held equity interest was calculated as follows:
Iln Al Baytar
Fair value of previously held equity interest (32.125%)
Book value of previously held equity interest (32.125%)
Gain on revaluation of previously held interest
$000
3,164
(485)
2,679
a. Seven trade names relating to generic products and an under licence contract have been valued using the relief from royalty method.
b. The property, plant and equipment acquired have been re-valued upwards to their fair value.
c. Certain tax exposures have been identified as a result of open tax positions with the tax authorities.
d. This mainly comprises of retrospective compensation for employees as a result of review by the local authorities with relation to compliance
with certain labour laws. In addition to certain employees related business commitment adhered to before the acquisition date.
e. Taxable temporary differences have been identified by reference to IAS 12 “income tax”.
The revenue and net profit of Ibn Al Baytar from the date of the acquisition that is included in the Groups’ income statement for the year amounted
to USD 11,379,000 and USD 370,000 respectively.
Al dar Al Arabia
On 20 April 2010, the Group completed the acquisition of 100% of the issued share capital of Al Dar Al Arabia for cash consideration of
USD 18,740,000 and deferred consideration of USD 1,153,000. The deferred consideration relates to the estimated currency exchange
movement payable to the vendor on conversion of the consideration from Algerian Dinars into US Dollars six months after completion. Actual
exchange movement paid amounted to USD 204,000. The difference of USD 949,000 has been recognised as a gain in the income statement.
The Al Dar Alarabia plant will double Hikma’s manufacturing capacity in Algeria and will provide significant scope for further expansion both
in Algeria and in the MENA region. As a consequence of the transaction, the previously held equity interest was re-valued to USD 9,947,000.
The resulting gain of USD 4,497,000 has been recognised in other operating income in the year.
The net assets acquired in the transaction and the provisional goodwill arising are set out below:
Al dar Al Arabia
Net assets acquired:
Cash and cash equivalent
Property, plant and equipment
other current liabilities
deferred tax liability
Identifiable net assets
Consideration
Fair value of previously held equity interest (50%)
Less: identifiable net assets
Goodwill
Consideration is satisfied by:
Cash
deferred consideration
Cash consideration
Cash and cash equivalents acquired
deferred consideration paid
Net cash outflow arising on acquisition
117
Book value
$000
Fair value
adjustments
$000
329
9,730
(83)
–
9,976
–
6,504 a
–
(1,626) b
4,878
Fair value
$000
329
16,234
(83)
(1,626)
14,854
19,893
9,947
29,840
(14,854)
14,986
18,740
1,153
19,893
18,740
(329)
204
18,615
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ConsoLIdAted FInAnCIAL stAtements Continued
39. ACquIsItIon oF suBsIdIArIes Continued
Al dar Al Arabia Continued
Gain on revaluation of previously held equity interest was calculated as follows:
Al dar Al Arabia
Fair value of previously held equity interest (50%)
Book value of previously held equity interest (50%)
Gain on revaluation of previously held interest
a. The property, plant and equipment acquired have been re-valued upwards to this fair value.
b. Taxable temporary differences have been identified by reference to IAS 12 “income tax”.
$000
9,947
(5,450)
4,497
Full year impact of acquisitions:
If the acquisition of Ibn Al Baytar and Al Dar Al Arabia had been completed on the first day of the financial year, the Group’s revenues for the
year would have been approximately USD 733,398,000 and the Group’s profit attributable to equity holders of the Parent would have been
approximately USD 98,498,000. The appropriate additional contribution by entity for the period from the beginning of the year up to the
acquisition date is illustrated in the table below:
subsidiary
Ibn Al Baytar
Al dar Al Arabia
40. HIkmA PHArmACeutICALs PLC mAIn suBsIdIArIes
The main subsidiaries of Hikma Pharmaceuticals PLC are as follows:
effect on
Group’s
revenues
$000
2,462
–
2,462
effect on
Group’s
profit
$000
(292)
(59)
(351)
Company’s name
Hikma Pharmaceuticals Limited
Arab Pharmaceutical manufacturing Co. (“APm”)
Hikma Pharma Algeria sArL
Hikma Farmaceutica s.A.
west-ward Pharmaceuticals Corp.
Pharma Ixir Co. Ltd
Hikma Pharma sAe
Thymoorgan Pharmazie GmbH
Hikma Pharma GmbH
Hikma Italia s.p.A.
Al Jazeera Pharmaceuticals Industries Ltd (“JPI”)
société d’Industries Pharmaceutiques Ibn Al Baytar s.A.
sPA société Al dar Al Arabia
118
ownership %
ordinary shares
2010
100
100
100
100
100
51
100
100
100
100
100
66
100
ownership %
ordinary shares
2009
100
100
100
100
100
51
100
100
100
100
100
32.125
50
established in
Jordan
Jordan
Algeria
Portugal
u.s.A.
sudan
egypt
Germany
Germany
Italy
k.s.A.
tunisia
Algeria
Section Five: Financial statements
5
41. HIkmA PHArmACeutICALs PLC deFIned ContrIButIon retIrement BeneFIt PLAn
Hikma Pharmaceuticals PLC has defined contribution retirement plans in three of its subsidiaries: West-Ward Pharmaceuticals Corp, Hikma
Pharmaceuticals Limited Jordan and Arab Pharmaceutical Manufacturing Co. (“APM”). 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 employees’ 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 10 years of employment. The Group’s contributions for the year ended
31 December 2010 were USD 746,211 (2009: USD 673,000).
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 USD 16,500 for 2010 and 2009,
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 do not vest for up to two years 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 2010 were USD 588,000
(2009: USD 493,000).
Arab Pharmaceutical manufacturing Company – Jordan:
The Group currently has an employee saving plan wherein the employees’ contribute at 10%, and the company at 15% of basic salary. Employees
are entitled to 100% of the company contributions after three years of employment with the company. The Group’s contributions for the
year ended 31 December 2010 were USD 570,000 (2009: USD 494,000).
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.
119
Hikma Pharmaceuticals PLC
Annual report 2010
ComPAny BALAnCe sHeet
At 31 deCemBer 2010
non-Current Assets
Investment in subsidiaries
due from subsidiaries
Intangible assets
Property, plant and equipment
Current Assets
other current assets
Cash and cash equivalents
due from subsidiaries
Accounts receivable
Total assets
Current LIABILItIes
other payables
other current liabilities
due to subsidiaries
Net current liabilities
Total liabilities
Net assets
equIty
share capital
share premium
own shares
retained earnings
Equity attributable to equity holders to the Parent
note
44
45
46
45
47
48
53
54
55
2010
$000
2009
$000
1,523,127
22,795
147
143
1,546,212
191
3,063
103,473
93
106,820
1,653,032
255
2,197
594,145
596,597
489,777
596,597
1,056,435
34,525
983,337
(2,220)
40,793
1,056,435
1,523,127
26,678
196
165
1,550,166
481
6,428
104,316
154
111,379
1,661,545
292
1,649
592,923
594,864
483,485
594,864
1,066,681
34,236
980,154
(2,203)
54,494
1,066,681
The financial statements of Hikma Pharmaceuticals PLC, registered number 5557954, were approved by the Board of Directors and signed on its
behalf by:
said darwazah
Director
mazen darwazah
Director
15 March 2011
120
Section Five: Financial statements
5
ComPAny stAtement oF CHAnGes In equIty
For tHe yeAr ended 31 deCemBer 2010
At 1 January 2009
Issue of share capital
own shares
Cost of equity settled employee share scheme
net loss for the year
dividends paid
At 31 December 2009/1 January 2010
Issue of share capital
own shares
Cost of equity settled employee share scheme
exercise of employees long-term incentive plan
net profit for the year
dividends paid
At 31 December 2010
Paid up
capital
$000
33,857
379
–
–
–
–
34,236
289
–
–
–
–
–
34,525
share
premium
$000
977,342
2,812
–
–
–
–
980,154
3,183
–
–
–
–
–
983,337
retained
earnings
$000
70,949
–
–
4,616
(4,953)
(16,118)
54,494
–
–
4,473
(90)
4,989
(23,073)
40,793
own
shares
$000
(1,124)
–
(1,079)
–
–
–
(2,203)
–
(107)
–
90
–
–
(2,220)
total
$000
1,081,024
3,191
(1,079)
4,616
(4,953)
(16,118)
1,066,681
3,472
(107)
4,473
–
4,989
(23,073)
1,056,435
As permitted by section 408 of the Companies Act 2006, the statement of comprehensive income of the Company is not presented as part of these
accounts.
121
Hikma Pharmaceuticals PLC
Annual report 2010
ComPAny CAsH FLow stAtement
For tHe yeAr ended 31 deCemBer 2010
Profit/(loss) before tax
Cost of equity settled employee share scheme
Finance income
Interest and bank charges
Change in other current assets
Change in other payables
depreciation of property, plant and equipment
Amortisation of intangible assets
Change in accounts receivable
Change in amounts due from/to subsidiaries
Change in other current liabilities
Net cash from operating activities
InvestInG ACtIvItIes
Change in amounts due from subsidiaries
Purchase of property, plant and equipment
Interest income
Net cash from investing activities
FInAnCInG ACtIvItIes
Proceeds from issue of new shares
decrease in short-term debts
Interest paid
Purchase of own shares
dividends paid
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
2010
$000
4,989
899
(836)
268
290
(37)
128
49
61
5,639
604
12,054
3,883
(106)
836
4,613
3,365
–
(324)
–
(23,073)
(20,032)
(3,365)
6,428
3,063
2009
$000
(4,953)
998
(3,056)
958
(320)
91
158
51
(112)
7,807
(213)
1,409
43,480
(3)
3,056
46,533
3,191
(40,000)
(684)
(1,079)
(16,118)
(54,690)
(6,748)
13,176
6,428
122
Section Five: Financial statements
5
notes to tHe ComPAny FInAnCIAL stAtements
42. AdoPtIon oF new And revIsed stAndArds
The impact on the Company of new and revised standards is the same as for the Group. Details are given in Note 1 to the consolidated
financial statements.
43. sIGnIFICAnt ACCountInG PoLICIes
The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate
financial statements have been prepared in accordance with International Financial Reporting Standards and UK company 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.
44. Investment In suBsIdIArIes
Investment in subsidiaries represents the following:
Company’s name
Hikma Limited
Hikma Pharma Limited
Hikma Holdings (uk) Limited
Al Jazeera Pharmaceutical Industries Ltd (“JPI”)
Hikma Pharmaceuticals Limited
The investments in subsidiaries are all stated at cost.
*The remaining shares are held by other Group companies.
non-current assets
Hikma Investment
west-ward Pharmaceuticals Corp
Hikma Italia s.p.A
Hikma Pharma Limited – Jersey
45. due From suBsIdIArIes
ownership %
ordinary shares
2010
100
100
100
52.5*
22.8*
ownership %
ordinary shares
2009
100
100
100
52.5*
22.8*
established in
uk
Jersey
uk
k.s.A.
Jordan
As at 31 december
2010
$000
8,269
8,801
3,606
2,119
22,795
2009
$000
8,160
8,424
4,420
5,674
26,678
These balances represent loans that carry interest of 1.3% to 4.8% (2009: 2.2% to 4.8%) per annum charged on the outstanding loan balances.
Current assets
due from Hikma Pharma Limited – Jersey
due from Hikma Farmaceutica – Portugal
due from Hikma Pharma – Germany
due from Hikma uk Limited
due from Hikma Limited
others
123
As at 31 december
2010
$000
7,221
165
86
94,723
307
971
103,473
2009
$000
4,431
445
883
96,707
306
1,544
104,316
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ComPAny FInAnCIAL stAtements Continued
46. 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 to their fair value.
other payables
The Directors consider that the carrying amount of other payables approximates to their fair value.
47. FInAnCIAL LIABILItIes
Due to subsidiaries mainly represents an amount due to Hikma Holdings (UK) Ltd which is a non interest bearing loan repayable on demand.
48. due to suBsIdIArIes
49. FInAnCIAL PoLICIes For rIsk mAnAGement And tHeIr oBJeCtIves
Currency risk
Currency risks as defined by IFRS 7 arise on account of financial instruments being denominated in a currency that is not the functional currency and
being of a monetary nature. The following table illustrates financial assets and liabilities for the Company in different currencies:
euro
GBP
2010
$000
–
1,191
Liabilities
2009
$000
87
788
2010
$000
125
580
Assets
2009
$000
(30)
183
A sensitivity analysis based on a 1% movement in foreign exchange rates has no material impact on the Company results and Company statement
of changes in equity.
Further details on how the Company manages the currency risk are given in Note 29 to the Group accounts.
Interest rate risk
An interest rate sensitivity analysis assumes an instantaneous 100 basis point change in interest rates in all currencies from their levels at
31 December 2010, with all other variable held constant. Based on the composition of the Company debt portfolio as at 31 December 2010,
a 1% increase in interest rates would result in no additional interest expense being incurred per year (2009: USD nil).
Liquidity risk:
2010
Cash and cash equivalents
Accounts receivables
other payables
Less than
one year
$000
3,063
93
(255)
2,901
124
Section Five: Financial statements
5
49. FInAnCIAL PoLICIes For rIsk mAnAGement And tHeIr oBJeCtIves Continued
Liquidity risk: continued
2009
Cash and cash equivalents
Accounts receivables
other payables
Less than
one year
$000
6,428
154
(292)
6,290
The Company believes that given the Group’s forecast operating cash flow during 2011, it has the ability to satisfy its liability commitments.
50. stAFF Costs
Hikma Pharmaceuticals PLC currently has eight employees (2009: six) (excluding Executive Directors); total compensation paid to them amounted
to USD 1,660,000 (2009: USD 1,334,000) of which salaries and wages compromise an amount of USD 1,192,000 (2009: USD 1,007,000) the
remaining balance of USD 468,000 (2009: USD 327,000) represent national insurance contributions, the cost of share-based payments and
other benefits.
The details of the stock compensation scheme are provided in Note 36 to the Group accounts. The number of options granted to the employees
of the Company (including Directors) was 2,560,000 (2009: 2,560,000) and the total amount of the compensation expenses charged to income
statement is USD 24,719 (2009: USD 194,600).
51. stoCk oPtIons
52. LonG-term InCentIve PLAns (LtIPs)
The details of the LTIP scheme are provided in Note 36 to the Group accounts. The number of awards granted to the employees of the Company
(including Directors) was 721,324 shares (2009: 656,000) and the total amount of the compensation expenses charged to income statement is
USD 874,022 (2009: USD 803,680).
53. sHAre CAPItAL
Issued and fully paid – included in shareholder’s equity
193,516,989 (2009: 191,627,607) ordinary shares of 10 pence each
The details of the issue of the share capital in the year are given in Note 31 to the Group accounts.
2010
$000
34,525
2009
$000
34,236
125
Hikma Pharmaceuticals PLC
Annual report 2010
notes to tHe ComPAny FInAnCIAL stAtements Continued
54. sHAre PremIum
Balance at 1 January 2010
Premium arising on exercise of stock options
Balance at 31 December 2010
share premium
$000
980,154
3,183
983,337
55. net InCome For tHe yeAr
As permitted by section 408 of the Companies Act 2006, the statement of comprehensive income of the Company is not presented as part of these
accounts.
Included in the net income for the year is an amount of USD 12,282,000 (2009: USD nil) representing dividends received and USD 899,000
(2009: USD 998,000) representing the current year charge of stock option and LTIPs expenses relating to the company’s employees. The remaining
USD 3,574,000 (2009: USD 3,618,000) of the Group’s stock option and LTIPs charge is recharged to subsidiary companies.
56. reLAted PArty
Transactions between the Company and its subsidiaries and associates are disclosed in Note 38.
Amounts repayable to and from subsidiaries are disclosed in Notes 45 and 48.
Other transactions with related parties include management charges for services provided to the subsidiary companies and transactions with
key management personnel. Compensation paid to key management personnel is disclosed at Note 38. Details of Directors remuneration are
disclosed in the Remuneration Committee Report on pages 66 to 68.
More details on the general information of the ultimate Parent of the Group are disclosed in Note 2.
126
Section Five: Financial statements
5
sHAreHoLder InFormAtIon
2011 financial calendar
13 April
15 April
12 may
26 may
25 August*
7 september*
9 september*
13 october*
2010 final dividend ex-dividend date
2010 final dividend record date
Annual General meeting
2010 final dividend paid to shareholders
2011 interim results and interim dividend announced
2011 interim dividend ex-dividend date
2011 interim dividend record date
2011 interim dividend paid to shareholders
* Provisional dates.
shareholding enquiries
Enquiries or information concerning existing shareholdings should be
directed to the Company’s registrars, Capita Registrars either:
share listings
London Stock Exchange
The Company’s Ordinary Shares are admitted to the Official List of
the London Stock Exchange. They are listed under EPIC – HIK, SEDOL –
B0LCW08 GB and ISIN – GB00B0LCW083.
Further information on this market, its trading systems and current
trading in Hikma Pharmaceuticals PLC shares can be found on the
London Stock Exchange website www.londonstockexchange.com.
Global Depository Receipts
The Company also has listed Global Depository Receipts (“GDRs”)
on the Nasdaq Dubai. They are listed under EPIC – HIK and ISIN –
US4312882081. Further information on the Nasdaq Dubai, its trading
systems and current trading in Hikma Pharmaceuticals PLC GDRs can
be found on the website www.nasdaqdubai.com.
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 +44 208 639 2157; or
through the website www.capitaregistrars.co.uk.
American Depository Receipt (ADRs)
Hikma Pharmaceuticals plc has an ADR programme for which BNY
Mellon acts as Depositary. One ADR equates to 2 Hikma Ordinary
Shares. ADRs are traded as a level 1 Over-the-Counter (OTC)
programme under the symbol HKMPY. Enquiries should be made to:
dividend payments – Currency
The Company declares dividends in US Dollars. Unless you have elected
otherwise, you will receive your dividend in US Dollars. Shareholders
can opt to receive the dividend in Pounds Sterling or Jordanian Dinar.
The Registrar retains records of the dividend currency for each
shareholder and only changes them at the shareholder’s request.
If you wish to change the currency in which you receive your dividend
please contact the Registrars.
dividend payments – Bank transfer
Shareholders who currently receive their dividend by cheque can request
a dividend mandate form from the Registrar and have their dividend paid
direct into their bank account on the same day as the dividend is paid.
The tax voucher is sent direct to the shareholders’ registered address.
dividend payments – International Payment system
If you are an overseas shareholder the Registrar is now able to pay
dividends in several foreign currencies for an administrative charge of
£5.00, which is deducted from the payment. Contact the Registrar
for further information.
website
Press releases, the share price and other information on the Group
are available on the Company’s website www.hikma.com.
BNY Mellon Shareowner Services
PO Box 358516
Pittsburgh, PA 15252-8516
Tel:+1 201 680 6825
Tel: +1 888 BNY ADRS (toll-free within the US)
E-mail: shrrelations@bnymellon.com
shareholder fraud
The Financial Services Authority has issued a number of warnings to
shareholders regarding boiler room scams. Over the last year many
companies have become aware that shareholders have received
unsolicited phone calls or correspondence concerning investment
matters. These are typically from overseas based “brokers” who target
UK shareholders, offering to sell them what often turn out to be
worthless or high risk shares in US or UK investments. These operations
are commonly known as boiler rooms. These brokers can be very
persistent and extremely persuasive. Shareholders are advised to be very
cautious of unsolicited advice, offers to buy shares at a discount or offers
of free Company reports. If you receive any unsolicited investment advice:
obtain the correct name of the person and organisations;
check they are authorised by the FsA by looking the firm up on
www.fsa.gov.uk/register;
report the matter to the FsA either by calling 0845 606 1234 or visit
www.moneymadeclear.fsa.gov.uk;
if the caller persists, hang up.
Details of the share dealing facilities sponsored by the Company are
included in Company mailings and are on the Company website.
The Company’s website is www.hikma.com and the registered office
is 13 Hanover Square, London W1S 1HW. Telephone number
+ 44 207 399 2760.
127
Hikma Pharmaceuticals PLC
Annual report 2010
PrInCIPAL GrouP ComPAnIes
Hikma Pharmaceuticals PLC
Registered in England and Wales number 5557934
Registered office:
13 Hanover Square
London W1S 1HW
UK
Telephone: +44 (0)20 7399 2760
Facsimile: +44 (0)20 7399 2761
E-mail: investors@hikma.uk.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
Auditors
Deloitte LLP
2 New Street Square
London EC4A 3BZ
UK
Brokers
Citigroup Global Markets Limited
Canada Square
London E14 5LB
UK
Bank of America Merrill Lynch
2 King Edward Street
London EC1A 1HQ
UK
AdvIsers
128
Legal Advisers
Ashurst
Broadwalk House
5 Appold Street
London EC2A 2HA
UK
Public relations
Financial Dynamics
Holborn Gate
26 Southampton Buildings
London WC2A 1PB
UK
Adr depositary Bank
BNY Mellon Shareowner Services
P.O. Box 358516
Pittsburgh, PA 15252 – 8516
USA
2010 hikMa photostory
by george brooks
Portugal
Portugal
Egypt
Tunisia
Jordan
Tunisia
Jordan
Jordan
US
Egypt
Portugal
Egypt
Portugal
Jordan
Egypt
Jordan
Egypt
Portugal
Portugal
in 2010, george brooks visited our operations in egypt, tunisia, Jordan and portugal.
we thank all who took part in those photographs.
produced and designed by radley yeldar www.ry.com
This report is printed on “look!” paper. This paper is made from virgin wood fibre from well-managed forest independently certified
according to the rules of the forest stewardship council (fsc). it is manufactured at a mill that is certified to iso14001 and eMas environmental
standards. The mill uses pulps that are totally chlorine free (tcf), and some pulp is bleached using an elemental chlorine fee (ecf) process.
The inks in printing this report are all vegetable-based.
printed at st ives westerham press ltd, iso14001, fsc certified and carbonneutral®
Qualit y
Makes the Difference
hikMa pharMaceuticals plc
since hikMa was founDeD, we have grown into a successful
Multinational pharMaceutical group. our business toDay
is Diverse in its proDuct line anD the breaDth of its geographic
coverage. this Diversification will ensure that we Maintain
our track recorD of strong growth.
for more information, visit our website
www.hikma.com
hikma pharmaceuticals plc
13 hanover square
london w1s 1hw
uk
www.hikma.com
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what Makes
the Difference?
hikma pharmaceuticals plc
annual report 2010