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iMProviNG LiveS...
Hikma PHarmaceuticals Plc
annual rePort 2012
who we are...
Hikma PHarmaceuticals Plc
Since hikma was founded, it has rapidly
grown to become a successful multinational
pharmaceutical group with operations across
the Middle east and North africa, the United
States and europe. our business has a broad
product portfolio, selling a wide range of branded
and non-branded generics as well as innovative,
patented products under license. our robust
and diversified business model has quality at
the heart of everything we do and will enable us
to maintain our track record of strong growth.
For more inFormation, visit our website
www.hikMa.coM
how & where we are
improving Lives
2012 CONTENTS
improving Lives...
Strengthening our
leading position
in the MENA region
See page 12
improving Lives...
Extending our
reach and diversity
through partnerships
See page 24
improving Lives...
Leveraging our
expertise and capacity
in the US market
See page 32
overview
02 / how we performed in 2012
04 / Chairman’s statement
strategiC review
07 / BUsiness modeL
08 / groUp at a gLanCe
10 / Chief exeCUtive offiCer’s review
17 / Key performanCe indiCators
BUsiness and
finanCiaL review
21 / Branded
26 / injeCtaBLes
30 / generiCs
34 / groUp performanCe
38 / prinCipaL risKs and UnCertainties
sUstainaBiLity
41 / ensUring the sUstainaBiLity
of oUr BUsiness
Corporate governanCe
56 / aBoUt this governanCe report
58 / governanCe report
72 / Committee reports
82 / remUneration report
104 / direCtors’ responsiBiLities
finanCiaL statements
112 / independent aUditor’s report
113 / ConsoLidated finanCiaL
statements
118 / notes to the ConsoLidated
finanCiaL statements
157 / Company finanCiaL statements
160 / notes to the Company finanCiaL
statements
164 / sharehoLder information
iBC / prinCipaL groUp Companies –
advisers
1
improving Lives...
Developing our global
product range in growing
therapeutic areas
See page 18
improving Lives...
Increasing the scale
of our specialty
Injectables business
See page 28
improving Lives...
Building on our world-class
manufacturing and
API sourcing capabilities
See page 52
Hikma PHarmaceuticals Plc / annual rePort 2012 how we performed in 2012
another
sUCCessfUL year
hiKma deLivered exCeLLent
revenUe and earnings growth
2012
rEvENUE
2007–12
2012
rEvENUE CAgr
ADjUSTED OPEr ATINg MArgIN
$1,108.7m
+19.8%
17.5%
2012
2012
2012
PrODUCTS MArkETED
OPEr ATINg CASH fLOw
EMPLOyEES
826
$182.2m
6,649
2012 REVENUE BY SEGMENT (%)
2012 REVENUE BY REGION (%)
4
1
3
1. Branded
2. Injectables
3. Generics
4. Others
47.7%
42.4%
9.4%
0.5%
3
1
1. MENA*
2. US
3. Europe
and the rest
of the world
55.8%
36.1%
8.1%
2
2
* Middle East and North Africa region (“MENA”)
2 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
2012 highLights
REVENUE ($ MILLION)
+20.8%
12
11
EBITDA2 ($ MILLION)
+35.9%
12
11
ADJUSTED1 OPERATING PROFIT
($ MILLION)
+32.9%
1,108.7
918.0
12
11
PROFIT ATTRIBUTABLE TO
SHAREHOLDERS ($ MILLION)
+25.2%
225.2
165.7
12
11
DIVIDEND PER SHARE (CENTS)
EARNINGS PER SHARE (CENTS)
+23.1%
12
11
+23.8%
16.0
13.0
12
11
1 Before the amortisation of intangible assets (excluding software) and exceptional items
2 Earnings before interest, tax, depreciation and amortisation
193.8
145.8
100.3
80.1
51.1
41.3
3
Hikma PHarmaceuticals Plc / annual rePort 2012 Chairman's statement
an exCeLLent
performanCe
we deLivered very strong growth in 2012,
with revenUe Up 21% and eps Up 24%
samih darwazah
Non-Executive Chairman
4 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
TOTAL SHAREHOLDER
RETURN FROM
JANUARY 2007 (%)
+123%
200
150
100
50
0
-50
-100
HIKMA PHARMACEUTICALS PLC
FTSE 350
PHARMACEUTICALS &
BIOTECHNOLOGY
JAN 07
JAN 08
JAN 09
JAN 10
JAN 11
JAN 12
JAN 13
FTSE 250
Our robust business model continues to
drive high growth as we leverage our diverse
geographic presence, broad product portfolio
and high quality manufacturing facilities.
Our business in MENA grew by over
20% in 2012. we are seeing the results of
our steadfast commitment to the region,
demonstrated by the ongoing investment
we have been making in these markets.
we continue to be the leading regional
manufacturer in MENA and we remain focused
on strengthening our presence in our key
markets through capital expenditure and
acquisitions. Our investment has continued in
2013 with the acquisition of the Egyptian
Company for Pharmaceuticals and Chemical
Industries (“EPCI”), which adds new products
and manufacturing capabilities in Egypt.
During 2012, we made excellent
progress developing our global Injectables
business. we achieved strong revenue growth
and delivered transformational improvements
to our manufacturing operations, enabling a
step-change in the profitability of this business.
we maintained our track record of excellent
regulatory compliance in our Injectables
facilities and proved ourselves to be a reliable
supplier of high quality injectable products
during a challenging time in the US market.
we are encouraged by the prospects for the
global Injectables market and believe our
Injectables business is well positioned for strong
growth over the medium and long-term.
Our US oral generics business performed
below our expectations in 2012, due to
ongoing compliance work at our Eatontown
facility. Towards the end of the year, the Board
initiated a review of the strategic options for
this business, which has now been completed.
following this review, remediation of the
Eatontown facility remains the priority, as
does bringing the facility back to profitability.
At the same time, we have initiated strategic
discussions with third parties to evaluate
alternative options for the business.
As part of our strategy of investing in
our people and in recognition of the importance
of having highly trained and dedicated
employees, we are focused on ensuring
that middle management take on greater
responsibility and authority. In 2012, we
launched a leadership training programme for
middle managers with the American University
of Beirut (AUB) to provide them with the
knowledge and skills required for current and
future positions within Hikma.
As we train and empower our managers,
we ensure that Hikma’s values continue
to be well communicated and understood
by all of our people. During 2012, the Board
initiated a comprehensive review of our
Code of Conduct. we have since adopted
and published an enhanced Code that
demonstrates our commitment to upholding
the highest standards of integrity and
transparency across the group.
I was extremely pleased that our commitment
to our local businesses and sustainability was
recognised when we received the 2012 IfC
Client Leadership Award for our sustainable
development initiatives, excellence in
corporate governance and commitment to
local communities. we were also awarded
Healthcare Company of the year by Arabian
Business Achievement Awards, where we
were chosen from among 900 candidates.
This award was presented in recognition
of Hikma’s performance and growth as
a listed company.
The Board is recommending a final
dividend of 10.0 cents per share (approximately
6.7 pence per share), which will make a
dividend for the full year of 16.0 cents per
share, an increase of 23% on 2011.
The proposed final dividend will be paid on
23 May 2013 to shareholders on the register
on 19 April 2013, subject to approval by
shareholders at the Annual general Meeting.
from 1 january 2007 through to the end
of 2012, we have delivered a total shareholder
return of 123%. we are delighted with this
performance, which exceeds that of the
fTSE 250 index and the fTSE Pharmaceutical
index, which gave a total shareholder return
of 31% and 41% respectively, over the
same period.
Our ongoing commitment to our MENA
business and the investment we have made
in our global Injectables business means we
are well positioned to drive continued growth
in 2013 and beyond.
samih darwazah
Non-Executive Chairman
5
Hikma PHarmaceuticals Plc / annual rePort 2012 strategiC
review
a diversified BUsiness modeL
and proven strategy for
deLivering growth and
Creating sharehoLder vaLUe
6 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
strategiC review
BUsiness modeL
oUr aim is to improve the Lives of oUr patients
aCross oUr gLoBaL marKets
we achieve this through our robust and diversified business model. By selling both innovative and generic
products and establishing a unique and differentiated market position, we are able to drive strong and
sustainable growth, increase patients’ access to high quality, affordable medicines and create shareholder value.
how we Create vaLUe
OUr AIM IS TO...
wE ACHIEvE THIS THrOUgH OUr...
wE AIM TO DELIvEr...
improve
Lives
aCross
oUr
gLoBaL
marKets
HIgH qUALITy, AffOrDABLE gENErICS
PATIENT
BENEfITS
INNOvATIvE IN-LICENSED PrODUCTS
PrODUCTS TAILOrED TO PATIENT NEEDS
HIgH qUALITy MANUfACTUrINg
BrOAD r&D CAPABILITIES
ExPErIENCED SALES & MArkETINg TEAMS
STrONg PArTNErSHIPS wITH LICENSOrS
DEDICATED EMPLOyEES
SUSTAINABLE grOwTH
ESTABLISHED LOCAL PrESENCE
fINANCIAL
BENEfITS
STrONg PrOfITABILITy
SHArEHOLDEr vALUE
7
Hikma PHarmaceuticals Plc / annual rePort 2012 groUp at a gLanCe
what we do
& where
we deveLop, manUfaCtUr e and marKet a Broad r ange of
Br anded and non-Br anded generiC pharmaCeUtiCaL prodUCts
aCross the middLe east and north afriCa, the United states
and eUrope. we are aLso a Leading LiCensing partner in the
mena region. oUr oper ations span over 45 CoUntries and are
CondUCted throUgh three BUsiness segments
COrE BUSINESS DIvISION:
gEOgrAPHICAL ArEA:
generiCs
SELLINg OrAL gENErIC
PrODUCTS ACrOSS THE US
2012 rEvENUE:
$103.7m
–33.0%
US
TOP PrODUCTS:
Amoxicillin
Doxycycline
Isosorbide mononitrate
Methocarbamol
Prednisone
Long-standing presence in the
US oral generics market
focus on quality manufacturing
and high service levels
Strong emphasis on niche products,
including controlled substances
Leveraging our efficient and lower
cost US fDA approved manufacturing
facilities in jordan and Saudi Arabia
More information see page 30
View our business model on page 7
41 products in 103 dosage
forms and strengths1
8 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
COrE BUSINESS DIvISION:
gEOgrAPHICAL ArEA:
injeCtaBLes
SELLINg SPECIALISED
INjECTABLE PrODUCTS
gLOBALLy
US, Europe, MENA
TOP PrODUCTS:
fentanyl
Iron gluconate Morphine
Ondansetron
Hydromorphone
2012 rEvENUE:
$470.0m
+48.9%
A leading global manufacturer
of quality sterile injectables
US fDA approved manufacturing
facilities in the US, Portugal
and germany
range of manufacturing capabilities
including sterile liquid, powder,
lyophilised and cytotoxic products
Broad product portfolio including
CNS, anti-infective, cardiovascular
and oncology products
More information see page 26
View our business model on page 7
179 products in 361 dosage
forms and strengths
COrE BUSINESS DIvISION:
gEOgrAPHICAL ArEA:
Branded
SELLINg BrANDED gENErICS
AND IN-LICENSED PATENTED
PrODUCTS ACrOSS THE
MENA rEgION
2012 rEvENUE:
$528.9m
+19.7%
More information see page 21
View our business model on page 7
MENA
TOP PrODUCTS:
Amoclan® Blopress® Omnicef®
Suprax®
Zomax®
fifth largest pharmaceutical
manufacturer in the MENA region
36.9% of Branded sales from
in-licensed products
1,684 reps targeting physicians
and pharmacists across the region
Strong anti-infective franchise and
increasing focus on cardiovascular,
diabetes and CNS products
US fDA approved manufacturing
facilities in jordan and Saudi Arabia
606 products in 1,630 dosage
forms and strengths
9
kEy:
26 MANUfACTUrINg PLANTS
6 r&D CENTrES
1 Products marketed during 2012
Hikma PHarmaceuticals Plc / annual rePort 2012
Chief exeCUtive offiCer’s review
deLivering
oUr strategy
throUgh the diversifiCation of oUr oper ations
and oUr UniqUe BUsiness modeL, we are sUCCessfULLy
deLivering oUr str ategy for growth
said darwazah
Chief Executive Officer
10 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
oUr str ategy for growth
STrENgTHEN
DEvELOP
ExTEND
INCrEASE
LEvErAgE
BUILD
OUr LEADINg
POSITION IN THE
MENA rEgION
OUr gLOBAL
PrODUCT rANgE
IN grOwINg
THErAPEUTIC
ArEAS
OUr rEACH
AND DIvErSITy
THrOUgH
PArTNErSHIPS
THE SCALE Of
OUr SPECIALTy
INjECTABLES
BUSINESS
OUr ExPErTISE
AND CAPACITy
IN THE US
MArkET
ON OUr
wOrLD-CLASS
MANUfACTUrINg
AND API SOUrCINg
CAPABILITIES
Our performance this year reflects the
excellent results achieved by our Injectables
business in the US, the strength of our
businesses in MENA and a solid performance
in Europe. It also demonstrates the strength of
our unique business model and our focus on
the strategic priorities we have identified for
future growth.
we made good progress delivering
our strategy this year. we have continued to
strengthen our competitive position and gain
share in our key markets, develop our global
portfolio of higher value, more differentiated
products, expand our manufacturing capacity
and drive greater operational efficiencies.
strengthening our leading position
in the mena region
Since our IPO in 2005, we have made
eight acquisitions in MENA. we have invested
over $200 million in capex, expanded
our geographic reach, strengthened our
manufacturing capabilities, developed our
product portfolio and grown our sales teams.
Through these investments we have built
a very strong position in the MENA region.
In 2012, we successfully leveraged these
investments and our position as the leading
regional pharmaceutical manufacturer to drive
revenue growth in the MENA of over 20%.
Our performance was strongest in markets
such as Egypt and Algeria, where recent
investment to expand manufacturing capacity
has enhanced our ability to meet the growing
demand for our products.
This strong performance was achieved
despite the challenges we are facing in
many of our MENA markets as competition
increases, political and social issues cause
disruptions and costs increase due to higher
inflation. By continuing to invest in our
facilities, optimise our product portfolios
and improve operational efficiency, we have
been able to build stronger market positions
across all our MENA markets.
we remain very positive about the outlook
for our businesses in MENA. we have a long
track record of operating successfully in this
region, despite the economic and geopolitical
challenges and we see excellent opportunities
to grow our MENA revenue and profitability
over the medium and long-term.
developing our global product range
The development of our global product
portfolio, particularly the continuous introduction
of new, higher value products, is a key
strategic focus across the group. To achieve
this, we have continued to invest in r&D.
we are also broadening our sources of
new products beyond our own in-house
capabilities to include alliances with external
partners and product acquisitions. In 2012,
we continued to grow our portfolio through
the launch of 14 new products and 17 new
dosage forms and strengths across the group
and 77 total launches across all countries.
In our MENA markets, we continue to deliver
strong sales growth from our leading portfolio
of anti-infective products, whilst developing
our cardiovascular, diabetes, central nervous
system (“CNS”), oncology and respiratory
portfolios. Our strategy is to continue bringing
new branded generics to market as well as
innovative, patented products under license
from our growing number of global partners.
Acquisitions also contribute to the growth
in our product portfolio and can bring
new in-license relationships and additional
therapeutic categories. In 2012, we launched
47 oral and 15 injectable products across our
MENA markets.
In the US, we are continuing to deliver
a steady stream of new ANDAs, with four oral
and eight injectable approvals in 2012. we are
successfully introducing higher value, more
differentiated products to our portfolio
including products such as argatroban, iron
gluconate, phenylephrine and testosterone –
all excellent products with strong market
positions. In Europe, we launched 10 products
during 2012.
extending our reach and
diversity through partnerships
Since Hikma’s inception, partnerships have
been an integral part of our strategy for
developing a portfolio of differentiated,
innovative and high quality products for
sale across the group.
11
Hikma PHarmaceuticals Plc / annual rePort 2012 strengthening oUr Leading
position in the mena region
improving
Lives...
...THrOUgH A STrONg COMMITMENT
TO OUr MENA MArkETS
In recent years, we have been developing
our business in Libya, building a strong
sales team and good customer relationships.
In 2011, Libyan political unrest severely
disrupted our sales operations, restricting
our ability to operate commercially for
most of the year. we maintained our
market presence with donations of much
needed medicines and kept our employees
on the payroll during this time.
As the market stabilised, we were the
first pharmaceutical company to re-enter
the market and resume sales operations.
Our commitment to the Libyan market
and the dedication of our employees
has enabled us to rapidly rebuild our
business and establish Hikma as the
number one1 pharmaceutical company in
Libya. going forward, our Libyan business
will increasingly benefit from our ability
to leverage our manufacturing facilities
in jordan, Saudi Arabia, Egypt, Tunisia
and Morocco to export to Libya.
By providing patients with access to a
broad portfolio of high quality, affordable
pharmaceutical products, across a range
of important therapeutic areas, we are
helping to improve lives in Libya.
The responsiveness
of our local sales team
enabled us to very
quickly re-establish
our operations in Libya.
COUNTry
LiBya
POPULATION SIZE
(MILLION)2
HEALTHCArE ExPENDITUrE
(% Of gDP)2
LIfE ExPECTANCy
(yEArS)2
6.0
3.9%
78
1 Advanced marketing statistics, MAT October 2012
2 CIA – The world factbook
12 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
13
Hikma PHarmaceuticals Plc / annual rePort 2012 Chief exeCUtive offiCer’s review
Continued
In MENA, we have continued our track record
of working with strategic partners to in-license
patented products, supporting our strategy
of bringing innovative products to MENA and
increasing patients’ access to more affordable
medicines. In 2012, revenue from in-licensed
products grew by 12% and represented
36.9% of our sales in MENA.
The strength of our sales operations
and manufacturing capabilities across MENA,
including a team of over 1,600 reps, has
established Hikma as the partner of choice in
the region. As well as continuing to build on
our long-term relationships with key licensors,
we are actively establishing new partnerships.
In 2012, we signed seven new licensing
agreements for eight products.
In the US, we have established a successful
r&D partnership with Exela, a North Carolina
based r&D company that develops and
manufactures innovative and generic injectable
products. This has resulted in the approval
of an NDA for argatroban that we launched
towards the end of 2012. we are delighted
to have demonstrated the effectiveness of
this partnership model and we are continuing
to work with Exela on a number of other
product opportunities.
In Europe, we are increasingly working
with third parties, both to enhance our
portfolio through new in-license arrangements,
as well as to distribute our products in markets
where we do not currently have an established
sales presence, successfully enabling us to
enter new European markets.
following the strategic investment we
made in Unimark in India in 2011, we signed
an agreement with the company in 2012
to collaborate with them on the development
of 17 ANDAs for sale in the US market.
increasing the scale of our specialty
injectables business
In recent years, we have been rapidly growing
our global Injectables business through a
combination of strategic acquisitions, the
expansion of existing manufacturing facilities
and focused investment in r&D to develop
a broad product portfolio. Having transformed
the scale of our global Injectables business,
our investment focus is now on building
market share, entering new markets, optimising
our manufacturing capacity, broadening our
technical capabilities, developing our global
product portfolio and continuing to drive
greater operational efficiencies.
During 2012, we significantly enhanced
and expanded our Injectables manufacturing
capacity in the US. At the same time we
increased production in our European facilities
and made good progress with the re-allocation
of production across our facilities to maximise
utilisation and cost efficiencies. This resulted
in a reduction in unit costs, benefiting us across
all our geographies.
14 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
Since the MSI acquisition, our strategic
focus has been on integrating our sales and
marketing teams and leveraging our new local
manufacturing platform. Now, as one
of the largest suppliers by volume in the
US generic injectables market, we have been
able to build good relationships with the
group Purchasing Organisations (“gPOs”)
and wholesalers. These relationships were
strengthened in 2012 as we were able to
provide our customers with a reliable supply
of high quality injectable products at a
time of severe market shortages.
A core element of delivering our US
sales strategy is our ability to supply the
US market from our high quality fDA-approved
manufacturing facilities in jordan, Saudi Arabia,
Portugal and germany. In 2012, approximately
25% of our US sales were manufactured in our
overseas facilities.
we have recently completed a review to
assess the strategic options for the generics
segment of the Hikma group, which sells
unbranded oral generics products in the US
market. following completion of the review,
we have initiated discussions with third
parties to evaluate the alternative options
for the business.
The regulatory environment remained
challenging in 2012 and many of our competitors
continued to struggle with compliance issues.
Our excellent track record of quality and
reliability in Injectables manufacturing
provided us with a strong competitive
advantage, particularly in the US, and also
helped to drive growth in our contract
manufacturing business.
During the year, we continued to focus
on the development of our product portfolio,
through the introduction of more differentiated,
higher value products. we also placed a greater
focus on the development of global products
– where a single product file meets the
requirements of multiple regulatory authorities.
This increases the cost efficiency of our r&D
processes and accelerates the speed at which
we can register and launch new products
across all of our markets. This approach is
proving to be particularly successful in the
development of our oncology portfolio.
Leveraging our expertise and
capacity in the Us market
Our presence in the US, the world’s largest
pharmaceutical market, has been a key
source of diversification for Hikma since
we entered this market in the early 1990s.
The acquisition of Baxter’s Multi-Source
Injectables business (“MSI”) in May 2011
doubled the size of our existing US
business and in 2012, our US sales reached
$400 million, over 35% of group revenue.
15
Hikma PHarmaceuticals Plc / annual rePort 2012 Chief exeCUtive offiCer’s review
Continued
Building on our world-class manufacturing
and api sourcing capabilities
we are committed to maintaining the highest
standards of quality and compliance across
all of our manufacturing facilities. As industry
standards continue to be raised across our
geographies, we must work harder every
year to make the necessary investment in our
facilities and people to ensure we meet the
multiple international regulatory requirements
across all of our jurisdictions.
During 2012 our global facilities were
subject to multiple regulatory inspections,
as well as audits by licensing partners and
customers. In particular, our injectables facility
in Cherry Hill, New jersey and our oral solid
dosage manufacturing facilities in Amman,
jordan and riyadh, Saudi Arabia were inspected
by the US food and Drug Administration
(“US fDA”) and passed successfully.
At our oral solid dosage manufacturing
facility in Eatontown, New jersey we undertook
extensive compliance work during 2012,
including a voluntary shutdown of the facility
during November and December, to address
observations made by the US fDA in a
warning letter we received in february 2012.
The remediation work is ongoing and we are
committed to working with the fDA to address
the issues raised. Across the group, we regard
our ability to meet highest standards of quality
and compliance as critical to our success.
In 2012, we have been developing our
relationships with Unimark in India and Haosun
in China to strengthen our API sourcing
capabilities. we have also made a capex
investment to expand our own Chemical
facility in jordan. Making these strategic
investments and developing our own in-house
capabilities will enable us to increase our
access to high quality, reliable API supply
for strategic APIs. In particular, this selective
vertical integration is an important element
in our strategy to accelerate our pipeline
of new oncology products.
Looking ahead
The excellent performance we have delivered
in 2012 reflects our track record of investing
in future growth. Our continued progress in
meeting our strategic objectives will support
continued growth in 2013 and beyond.
said darwazah
Chief Executive Officer
16 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
hiKma’s Key performanCe indiCators
kPI
DEfINITION
COMMITMENTS
PErfOrMANCE
2010
2011
2012
revenUe
growth
Percentage increase
or decrease in the
current year’s revenue
compared with the
prior year’s revenue
we aim to deliver
strong group
revenue growth
– organically and
through acquisitions
Strong group revenue
growth of 20.8%,
with organic growth
of 5.3%
+14.8% +25.6% +20.8%
adjUsted4
operating
profit
growth
Measures the growth
in underlying
profitability,
excluding the impact
of amortisation and
exceptional items
we aim to increase our
underlying profitability
year-on-year whilst
driving revenue growth
Significant growth in
adjusted operating
profit, driven by the
excellent performances
of our Branded and
Injectables businesses
growth in
adjUsted
diLUted
earnings
per share
Calculated as growth
in adjusted profit
attributable to
shareholders divided
by the weighted average
number of shares in issue
we aim to deliver
high growth in earnings
and to meet the
expectations of our
shareholders
growth in adjusted
diluted earnings
per share reflects the
group’s improved
profitability
+24.6% +2.0% +32.9%
+21.4%
-2.6% +19.2%
net Cash
generated
from
operating
aCtivities/
revenUe
Measures the Group’s
cash conversion.
Calculated as operating
cash flow divided
by revenue
we target a cash
conversion ratio
of 15% to 20%
Our cash conversion
improved in 2012,
largely as a result
of improved profitability
20.9% 13.8%
16.4%
12.4%
8.1%
11.6%
Our return on invested
capital increased in
2012, benefiting
from our long track
record of investment
in our businesses and
facilities across the
group – through
company and product
acquisitions, capex
and r&D
retUrn on
invested
CapitaL
Measures the Group’s
efficiency in allocating
capital to profitable
investments.
we aim to maximise
shareholder value
by investing in
long-term growth
Calculated as operating
profit after interest
income and tax (including
non-controlling interest
share of profit) divided
by invested capital
(calculated as total equity
(including the equity
attributable to non-
controlling interests) plus
total debt and obligations
under finance leases)
4 Before the amortisation of intangible assets (excluding software) and exceptional items
17
Hikma PHarmaceuticals Plc / annual rePort 2012
18 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
deveLoping oUr gLoBaL prodUCt
r ange in growing ther apeUtiC areas
improving
Lives...
...By BUILDINg OUr ONCOLOgy POrTfOLIO
In 2012, we invested in the expansion
of our in-house API manufacturing
capabilities in jordan and continued to
work with our partner in China, Hauson,
to develop strategic oncology APIs that
will support future product registrations.
we have also been working to promote
doctors’ acceptance of generic oncology
products in MENA through in-market
trials at the king Hussein Cancer Center
in jordan.
By providing doctors and patients with
an alternative source of high quality,
affordable oncology products we are
improving lives across our MENA markets.
As our global oncology business develops,
it will be a key driver of growth across all
of our geographies. we currently market
4 oral and 11 injectable oncology products
across our markets. These products
are produced at our dedicated cytotoxic
injectables facility in germany and a
specialised oral facility in jordan.
we are well established in the oncology
market in Europe, where we market
a broad oncology portfolio through a
specialised sales team. we are building
our presence in the oncology market in
MENA, where the penetration of generic
oncology products is very low. we have
a strong pipeline, with 77 products
pending approval across all of our markets.
we also continue to add new licensing
agreements, such as gP Pharm’s treatment
for prostate cancer, Lutrate® 1 month.
COUNTry
LeBanon
POPULATION SIZE
(MILLION)1
HEALTHCArE ExPENDITUrE
(% Of gDP)1
LIfE ExPECTANCy
(yEArS)1
4.1
7.0% 75
1 CIA – The world factbook
19
Hikma PHarmaceuticals Plc / annual rePort 2012 BUsiness
and finanCiaL
review
the groUp onCe again deLivered
a very strong performanCe
20 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
20 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
BUsiness and finanCiaL review
Branded
strong revenUe growth in oUr Key mena marKets
overview of the marketplace
Hikma’s Branded business manufactures
and markets generic and in-licensed
originator products across the MENA region.
The pharmaceutical markets in MENA tend
to be branded markets in which products,
both generic and patented, are marketed
under specific brand names through large
sales and marketing teams.
In spite of the recent political unrest,
pharmaceutical sales for the top nine private
retail markets in the MENA region grew by
9.3% in 2012, to reach $10.3 billion, according
to IMS Health. This figure does not capture
the additional value of sales from government
tenders or from other smaller but fast growing
MENA markets such as Iraq, Libya and Sudan.
The growth in the MENA pharmaceutical
market continues to be underpinned by the
favourable demographics of a young, fast
growing population, coupled with a sizeable
elderly population. whilst the historically
strong demand for anti-infective products
remains, economic development in MENA
and changes in lifestyle are driving higher
incidences of chronic diseases such as
diabetes. Pharmaceutical companies in the
region are rapidly developing their portfolios
to meet the growing demand for cardiovascular,
diabetes, central nervous system and
oncology products.
2012 HIgHLIgHTS
3 BrANDED rEvENUE
INCrEASED By
19.7%
11.3%
wITH OrgANIC rEvENUE UP
3 BrANDED ADjUSTED OPErATINg
PrOfIT INCrEASED By
17.6%
wITH AN ADjUSTED OPErATINg
MArgIN Of
23.4%
3 LAUNCHED
47 prodUCts
AND SIgNED fOUr NEw
IN-LICENSE AgrEEMENTS
2121
Hikma PHarmaceuticals Plc / annual rePort 2012Hikma PHarmaceuticals Plc / annual rePort 2012
Branded
Continued
BRANDED REVENUE ($ MILLION)
+19.7%
12
11
528.9
441.9
Branded performance
Branded revenue increased by 19.7% in 2012
to $528.9 million, compared with $441.9
million in 2011. On a constant currency basis,
Branded revenue growth was 23.1%. Organic
revenue grew 11.3% to $480.7 million, with
the recently acquired Promopharm and
Savanna businesses in Morocco and Sudan
respectively, contributing a further $48.1
million. Over the year, we delivered particularly
strong performances in Algeria, Egypt and
Libya. Across all of our MENA markets we
have benefited from the recent investments
we have made to expand our local
manufacturing presence, launch
new products and restructure our sales and
marketing teams.
Our Egyptian business had an excellent
year with over 25% revenue growth, reflecting
increased manufacturing capacity and new
product launches. The Egyptian team successfully
restructured its sales force to enable a greater
focus on strategic, higher value products. On
22 january 2013, we completed the acquisition
of the Egyptian Company for Pharmaceuticals
and Chemical Industries (“EPCI”) for an
aggregate cash consideration of $20.5 million.
This is an important strategic acquisition,
bringing a complementary portfolio of 35
products and enhancing our local manufacturing
capabilities, including the addition of a
dedicated cephalosporin facility. The acquisition
of EPCI significantly enhances our growth
potential in the Egyptian market.
In Algeria, an increase in the volume of locally
manufactured products and investment in our
sales force helped drive revenue growth of
close to 20%. In Libya, we saw a very strong
recovery this year following the political unrest
in 2011. Our ongoing commitment to this
market enabled us to restart our operations
quickly following the disruptions and rapidly
establish Hikma as the leading pharmaceutical
company in this market.1 In Morocco, where
we have been progressing with the integration
of Promopharm, we have successfully
submitted six of Hikma’s leading products
for registration.
In Iraq, whilst sales were disrupted at the
beginning of the year due to the change we
made to our distributor, we saw accelerating
sales in the second half. In Sudan, where a
significant devaluation of the Sudanese pound
caused pricing uncertainty and delayed
shipments during the first half of the year, we
were able to deliver much stronger growth in
the second half and for the full year overall.
we believe that Iraq and Sudan are attractive
markets that will offer excellent growth
potential over the medium and long-term.
we continue to strengthen our sales force
in the Iraqi market and build our product
portfolio. In Sudan, we are upgrading the
manufacturing facility we acquired in 2011,
which will further strengthen our leading
position in this market.
22 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
1 Advanced Marketing Statistics, MAT October 2012
The mena5 pharmaceutical market
top 9 mena markets
egypt
saudi arabia
algeria
morocco
Uae
Lebanon
tunisia
jordan
Kuwait
2012 value
$m
10,282
2,510
2,351
2,110
962
821
585
532
228
183
growth
+9.3%
+15.6%
+11.4%
+8.0%
-1.0%
+10.6%
+1.7%
+8.3%
+5.2%
+4.7%
During 2012, the Branded business launched
a total of 47 products across all markets,
including six new compounds and nine new
dosage forms and strengths. The Branded
business also received 36 regulatory approvals
across the region, including three for
new products.
revenue from in-licensed products increased
from $174.8 million to $195.3 million in 2012,
supported by the revenue contribution from
Promopharm’s in-license agreements. In-licensed
products represented 36.9% of Branded
revenue compared to 39.6% in 2011. Strong
revenue growth from our leading in-licensed
products is being offset by lower sales of
Actos following the withdrawal of this product
in some of our markets in 2011. we signed
four new licensing agreements for innovative
oral products during 2012, which will support
our continued focus on growing our portfolio
of higher value products in growing
therapeutic categories.
Branded gross profit grew by 20.2%
to $257.3 million in 2012 and gross margin
was 48.7%, compared with 48.4% in 2011.
Despite higher inflationary pressure across
the region in the wake of the Arab Spring,
we maintained a stable gross margin by
focusing on higher value, strategic products,
reducing procurement costs and driving
greater operational efficiencies.
Operating profit in the Branded business
increased by 13.1% to $111.4 million, compared
with $98.5 million in 2011. Adjusted operating
profit increased by 17.6% to $123.6 million.
Adjusted operating margin was 23.4%,
compared with 23.8% in 2011, after excluding
the amortisation of intangibles, integration
costs and severance costs incurred as a result
of restructuring our MENA operations during
2012. Excluding the impact of adverse currency
movements, particularly the Sudanese pound
and the Algerian dinar, which reduced adjusted
operating profit by around $10.9 million,
adjusted operating margin was 24.7%. The
impact of higher salaries and benefits and
increased operating costs are being more than
offset by our ongoing success in restructuring
our sales and marketing teams and driving
efficiency savings across our operations.
On a constant currency basis, we expect
Branded revenue growth of around 11%
in 2013 and a slight improvement in adjusted
operating margin. This reflects our ability
to continue offsetting increased inflationary
pressure across the MENA region with the
launch of higher value products and by driving
cost and operating efficiencies. On a reported
basis, taking into account exchange rate
movements since the beginning of 2013,
Branded revenue growth is currently
expected to be around 9% this year, with
margins in line with 2012.
5 All market data sourced from IMS Health yTD December 2012.
figures reflect private retail sales only.
232323
Hikma PHarmaceuticals Plc / annual rePort 2012Hikma PHarmaceuticals Plc / annual rePort 2012Hikma PHarmaceuticals Plc / annual rePort 2012 extending oUr r eaCh and diversity
throUgh partnerships
improving
Lives...
...By LEvErAgINg OUr LArgE
AND ExPErIENCED SALES TEAM
It is the strength of our sales and
marketing teams across MENA that
establishes us as the partner of choice
in the region and enables us to bring
innovative new products to our markets.
In 2012, we continued to invest in
strengthening our sales teams across
the region and we are seeing significant
benefits from this strategy.
we are restructuring our sales and
marketing teams and optimising the
allocation of promotional spend across
our product portfolio to drive efficiency
gains and improve productivity. At the
same time, we are implementing an
enhanced reward structure that incentivises
our reps to focus on higher value
products in growing therapeutic areas.
Enhancements to our sales operations
are helping to drive strong growth in
sales of important in-license products
such as Blopress, a leading treatment
for hypertension. This is supported
by our ongoing efforts to raise doctor
and patient awareness of chronic
diseases through awareness days and
medical symposiums.
By driving growth in the use of
innovative in-licensed products to treat
chronic illnesses such as heart disease
and diabetes, we are improving lives
across MENA.
COUNTry
Uae
POPULATION SIZE
(MILLION)1
HEALTHCArE ExPENDITUrE
(% Of gDP)1
LIfE ExPECTANCy
(yEArS)1
5.5
3.7% 77
1 CIA – The world factbook
24 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
25
Hikma PHarmaceuticals Plc / annual rePort 2012 BUsiness and finanCiaL review
injeCtaBLes
very strong revenUe growth with signifiCant
margin improvement
2012 HIgHLIgHTS
3 INjECTABLES rEvENUE
grEw By
48.9%
TO $470.0 MILLION, wITH
OrgANIC rEvENUE UP
22.3%
3 STrONg PErfOrMANCES
ACrOSS OUr gEOgrAPHIES
– US, MENA AND EUrOPE
3 SIgNIfICANT IMPrOvEMENT
IN INjECTABLES ADjUSTED
OPErATINg MArgIN, UP frOM
17.4%
TO
26.2%
overview of the marketplace
Hikma’s Injectables business manufactures
and markets branded and non-branded
generic injectable products in the US, Europe
and MENA. Injectable products represent
the second largest segment of the global
pharmaceutical market in terms of delivery
mechanism after oral products. The value
of the global generic injectables market is
estimated to exceed $11.0 billion.1
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, which must meet
the strict quality standards imposed by the
regulatory authorities. These factors have
created a market with high barriers to entry
and, as a result, a limited number of competitors.
The global injectables market is expected
to benefit from the key drivers of generics
growth as well as from the patent expiries
of a number of high value injectable products.
injectables performance
injectables revenue by region
Us
mena
europe
2012
63.0%
20.5%
16.5%
2011
51.3%
23.9%
24.8%
revenue in our global Injectables business
increased by 48.9% to $470.0 million, compared
with $315.7 million in 2011. Organic revenue
increased by 22.3% to $237.5 million.
US Injectables revenue grew by
$134.0 million, or 82.6%, to $296.2 million.
This excellent performance reflects a full year
contribution from the Multi-Source Injectables
(“MSI”), our success in maximising the
potential of our existing product portfolio,
stronger customer relationships, new product
launches and product acquisitions. It is also
due to the operational excellence of our
Cherry Hill and Portuguese facilities, which
significantly increased output through better
management and additional capacity. Our
strong quality track record has helped to
differentiate our business in the US market
and enabled us to benefit from the favourable
market conditions created by the supply
constraints of some of our competitors.
In the MENA region, Injectables revenue
increased by 27.5% to $96.1 million, compared
with $75.4 million in 2011. This reflects
particularly strong growth in Saudi Arabia,
Algeria, Libya and jordan, due to strong
demand in the private market and more
tender wins, as well as the full year contribution
from Promopharm.
revenue in our European Injectables
business of $77.8 million was in line with
revenue of $78.2 million in 2011. However, on
a constant currency basis, European Injectables
revenue grew by 7.3%, reflecting new product
growth and continuing demand for contract
manufacturing. we also successfully offset
double-digit price erosion with strong
volume growth.
26 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
1 Espicom Business Intelligence
INJECTABLES REVENUE ($ MILLION)
+48.9%
12
11
470.0
315.7
Injectables gross profit increased by
71.4% to $218.7 million, compared with
$127.6 million in 2011. gross margin increased
significantly to 46.5%, compared with 40.4%
in 2011. This reflects our efforts to actively
manage our existing product portfolio,
favourable market conditions, strong
operational management, increased plant
utilisation and greater economies of scale.
Operating profit of the Injectables business
increased by 154.3% to $115.5 million.
Adjusted operating profit increased by 123.8%
to $123.0 million. Adjusted operating margin
increased from 17.4% to 26.2%. This excellent
margin expansion reflects the improvement
in gross margin, significantly better operating
leverage and tight control of operating costs.
we remain focused on strengthening
our global Injectables product portfolio, with
a particular emphasis on more differentiated
products. In 2012, we received approval for a
New Drug Application (“NDA”) for argatroban
injection, which we launched at the end of
the year. In May 2012, we purchased the
Abbreviated New Drug Application (“ANDA”)
for sodium ferrous gluconate injection from
generaMedix Pharmaceuticals. These are both
excellent products with strong market positions.
During 2012, the Injectables business
launched a total of 41 products across all
markets, including 8 new compounds
and 8 new dosage forms and strengths.
The Injectables business also received a total
of 41 regulatory approvals across all regions
and markets, namely 11 in MENA, 22 in
Europe and 8 in the US. we signed 4 new
licensing agreements during 2012 to add
innovative injectable products to our
MENA portfolio.
we expect our global Injectables business
to continue to perform well and currently
expect Injectables revenues will grow in the
low double-digits in 2013. we also see
excellent prospects for the global Injectables
business over the medium and long-term.
As previously announced, we are
undertaking a review of the strategic options
for the Injectables business. we have received
a number of unsolicited expressions of interest
for the business and will consider the best
option for shareholders.
272727
Hikma PHarmaceuticals Plc / annual rePort 2012Hikma PHarmaceuticals Plc / annual rePort 2012Hikma PHarmaceuticals Plc / annual rePort 2012 28 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
inCreasing the sCaLe of oUr
speCiaLty injeCtaBLes BUsiness
improving
Lives...
...By INCrEASINg PATIENT ACCESS TO
HIgH qUALIT y, AffOrDABLE gENErIC INjECTABLES
In recent years we have been rapidly
growing our global Injectables business
through a combination of strategic
acquisitions, the expansion of existing
manufacturing facilities and investment
in r&D. In May 2011, the acquisition of
MSI more than doubled our Injectables
business and established Hikma as one
of the leading global suppliers by volume
of generic injectables.
Since the acquisition, we have
significantly increased production output
at the Cherry Hill facility through capex
investment, productivity gains and
efficiency improvements. At the same
time, we have built strong relationships
with key customers and embedded a
nationwide sales team which is enabling
us to reach patients across the US market.
we have a broad product portfolio,
which we are continuing to expand.
Our focused investment in r&D is also
enabling us to bring more differentiated
products, such as argatroban, to the
US market.
The MSI acquisition has significantly
increased our ability to supply high quality,
cost effective generic injectables to
improve the lives of patients in the US.
COUNTry
Us
POPULATION SIZE
(MILLION)1
HEALTHCArE ExPENDITUrE
(% Of gDP)1
LIfE ExPECTANCy
(yEArS)1
317
17.9
78
1 CIA – The world factbook
29
Hikma PHarmaceuticals Plc / annual rePort 2012 BUsiness and finanCiaL review
generiCs
performanCe impaCted By remediation worK
at oUr eatontown faCiLity
2012 HIgHLIgHTS
3 gENErICS rEvENUE
DECrEASED By
33.0%
TO
$103.7m
3 OPErATINg LOSS Of
$20.9m
rEfLECTS THE IMPACT Of
ADDITIONAL COMPLIANCE
wOrk AT OUr EATONTOwN
fACILITy
3 ExCEPTIONAL COSTS Of
$7.4m
rELATED TO rEMEDIATION
AND rESTrUCTUrINg
overview of the marketplace
Hikma’s generics business manufactures
non-branded oral generic products for sale
in the US market. The US represents the
world’s largest generic market and generics
now account for around 79% of all retail
prescriptions dispensed in the US.1 According
to IMS Health, the market for oral generic
products in the US grew by 22% in 2012,
reaching a total market value of $37.9 billion
and the number of oral generic prescriptions
written grew by 7% in 2012. The growth in
the generics market results from the
greater availability of molecules in generic
form as patents expire, along with patients
choosing lower cost options. The US generic
pharmaceutical industry is very competitive
and has experienced significant pricing
pressure in recent years. going forward,
we expect that significant patent expiries
and increased demand for cost-effective
medicines will offset pricing pressures and
drive future generic market growth.
generics performance
generics revenue was $103.7 million, down
33.0% compared with $154.8 million in
2011. This decline is due to the slowdown in
production at our Eatontown facility during
2012, while we undertook the compliance
work necessary to address the observations
raised by the US food and Drug
Administration (“US fDA”) in its warning letter
of february 2012. This led us to voluntarily halt
commercial production at this facility during
the last two months of 2012.
generics gross profit was $23.3 million,
compared with $52.2 million in 2011, and
gross margin was 22.5%, compared with
33.7% in 2011. This reflects reduced operating
leverage as a result of the significant slowdown
in sales.
The generics business made an operating
loss of $20.9 million in 2012, compared
with an operating profit of $17.1 million in
2011. The loss included $7.4 million of one-off
costs associated with the remediation and
restructuring work.
GENERICS REVENUE ($ MILLION)
-33.0%
12
11
103.7
154.8
30 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
1 IMS Health, yTD December 2012
In late December 2012, we restarted
manufacturing at the Eatontown facility and
we are bringing products back gradually.
we expect to complete the remediation
work in the second half of the year. As the
remediation process has been slower than
expected, we remain focused on driving
sustainable cost reduction and continue to
look for further opportunities to cut costs
across the business. following the completion
of a strategic review, we have also initiated
discussions with third parties to evaluate
the alternative options for this business.
The impact of continued remediation
in 2013 is currently being offset by a market
opportunity that is driving strong demand
for one of our products. we expect to
maintain generics revenue at 2012 levels
and to breakeven for the full year.
other businesses
Other businesses, which primarily comprise
Arab Medical Containers, a manufacturer
of plastic specialised packaging, International
Pharmaceuticals research Centre, which
conducts bio-equivalency studies, and the
chemicals division of Hikma Pharmaceuticals
Limited, contributed revenue of $6.2 million,
compared with $5.6 million in 2011.
These other businesses delivered an
operating loss of $3.3 million in 2012,
compared with a loss of $2.4 million in 2011.
313131
Hikma PHarmaceuticals Plc / annual rePort 2012Hikma PHarmaceuticals Plc / annual rePort 2012Hikma PHarmaceuticals Plc / annual rePort 2012
Lever aging oUr expertise
and CapaCity in the Us marKet
improving
Lives...
...THrOUgH OUr fOCUS
ON qUALITy MANUfACTUrINg
Our US operations generated $400 million,
or just over 35% of group revenue,
in 2012, up from $317 million in 2011.
The acquisition of Baxter’s Multi-Source
Injectables business in May 2011 doubled
the size of our existing US business and
significantly enhanced our injectables
capabilities in the US.
Since the MSI acquisition, we have
made investments to significantly
increase production output and enhance
operational management. Our strategic
focus has been on integrating our sales
and marketing teams and leveraging
our new US manufacturing platform.
Now, as one of the largest suppliers
by volume in the US generic injectables
market, we have been able to build
stronger relationships with group
Purchasing Organisations (“gPOs”) and
wholesalers. These relationships were
strengthened in 2012, as we were able
to provide our customers with a reliable
supply of high quality injectables products
at a time of severe market shortages.
Our high quality and expanding
US platform has made us a reliable
and valued partner who is committed
to improving the lives of patients
in the US.
COUNTry
Us
POPULATION SIZE
(MILLION)1
HEALTHCArE ExPENDITUrE
(% Of gDP)1
LIfE ExPECTANCy
(yEArS)1
317
17.9
78
1 CIA – The world factbook
32 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
33
Hikma PHarmaceuticals Plc / annual rePort 2012 BUsiness and finanCiaL review
groUp performanCe
oUr sUCCess is Underpinned By oUr diverse BUsiness modeL,
whiCh ComBines oUr extensive presenCe in the mena marKets
and a growing gLoBaL injeCtaBLes BUsiness
GROUP REVENUE ($ MILLION)
+20.8%
12
11
1,108.7
918.0
group revenue increased by 20.8% to
$1,108.7 million in 2012. Excluding the
contributions from MSI in the US,
Promopharm in Morocco and Savanna in
Sudan, organic revenue growth was 5.2%.
The group’s gross profit increased by 26.8%
to $501.1 million, compared with $395.3 million
in 2011. group gross margin was 45.2%,
compared with 43.1%, with the significant
gross margin improvement of the global
Injectables business more than offsetting the
lower generics gross margin.
group operating expenses grew by 20.8%
to $334.3 million, compared with $276.7
million in 2011. Excluding the amortisation
of intangible assets (excluding software) and
exceptional items, adjusted group operating
expenses grew by 24.0% to $311.7 million.
The paragraphs below address the group’s
main operating expenses in turn.
expenses increased by $17.0 million, or 15.8%, to
$124.6 million in 2012. Excluding non-recurring
items, g&A expenses as a percentage of
revenue were 10.7% in 2012, compared
with 9.9% in 2011. This reflects the increase
in employee salaries and benefits in MENA
and the high fixed cost base of the generics
business during the slowdown in production
during 2012.
we continued to grow our investment
in r&D, with a 9.0% increase in expenditure
across the group to reach $34.0 million. Total
investment in r&D represented 3.1% of group
revenue, compared with 3.4% in 2011. whilst
this is lower than originally planned, we were
able to replace some expected expenditure
through product acquisitions. we expect further
growth in r&D spend in 2013 as we continue
to execute plans to develop our product pipeline,
particularly for injectable products.
Sales and marketing expenses were
Other net operating expenses increased
$152.8 million, or 13.8% of revenue, compared
with $125.3 million and 13.6% of revenue in
2011. Excluding non-recurring costs in 2012,
sales and marketing expenses represented
13.4% of revenue. The strong growth in our
global Injectables business, where relatively low
incremental sales and marketing investments
required to generate new sales, offset
an increase in MENA sales and marketing
expenditure due to higher wages and
employee benefits.
As a percentage of revenue, general and
administrative expenses were 11.2%, compared
with 11.7% in 2011. general and administrative
by $10.4 million to $23.0 million, reflecting an
increase in slow moving inventory provisions,
primarily in the US, and higher transactional
foreign exchange losses, primarily due to
movements in the Sudanese pound against
the US Dollar.
Operating profit for the group increased
by 40.5% to $166.8 million in 2012. group
operating margin increased to 15.0%, compared
with 12.9% in 2011. On an adjusted basis, group
operating profit increased by $48.0 million,
or 32.9%, to $193.8 million and operating
margin increased to 17.5%, up from 15.9%
in 2011.
34 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
summary p&L
$ million
Revenue
Gross profit
gross margin
Operating profit
Adjusted6 operating profit
adjusted operating margin
EBITDA7
Profit attributable to shareholders
Adjusted8 profit attributable to shareholders
Earnings per share (cents)
Dividend per share (cents)
Net cash flow from operating activities
2012
2011
Change
1,108.7
501.1
45.2%
166.8
193.8
17.5%
225.2
100.3
120.5
51.1
16.0
182.2
918.0
395.3
43.1%
118.7
145.8
15.9%
165.7
80.1
100.9
41.3
13.0
126.4
+20.8%
+26.8%
+2.1
+40.5%
+32.9%
+1.6
+35.9%
+25.2%
+19.4%
+23.8%
+23.1%
+44.1%
net finance expense
Net finance expense increased to $34.5 million,
compared with $22.9 million in 2011. This primarily
reflects the annualised interest charge on
the loans we acquired to finance the MSI
and Promopharm acquisitions made in 2011.
we have also increased our loans in local
currencies in 2012, which carry higher financing
charges but help to reduce our exposure to
exchange rate fluctuations in markets such as
Algeria and Egypt. This is explained in more
detail in the net cash flow, working capital
and net debt section below. In 2013, we expect
a net finance expense of around $40 million,
reflecting a further increase in local loans and
additional working capital financing.
profit before tax
Profit before tax for the group increased by
40.6% to $132.0 million, compared with
$93.9 million in 2011. Adjusted profit before
tax increased by 31.5% to $159.1 million.
tax
The group incurred a tax expense of
$24.8 million, compared with $10.4 million
in 2011. The effective tax rate was 18.8%,
compared with 11.1% in 2011. The increase
in the tax rate is mainly attributable to the
increased profitability in higher tax jurisdictions,
such as the US, North Africa and Portugal.
The operating loss in the generics business
meant that the tax rate in 2012 was slightly
lower than our previous expectations,
but for 2013, we expect the effective tax
rate to increase to between 23% and 24%.
profit for the year
The group’s profit attributable to equity
holders of the parent increased by 25.2%
to $100.3 million in 2012. Adjusted profit
attributable to equity holders of the parent
increased by 19.4% to $120.5 million.
earnings per share
Basic earnings per share increased by 23.8%
to 51.1 cents, compared with 41.3 cents in
2011. Diluted earnings per share increased
by 24.9% to 50.6 cents, compared with
40.5 cents in 2011. Adjusted diluted earnings
per share was 60.8 cents, an increase of
19.2% over 2011.
dividend
The Board has recommended a final dividend
of 10 cents per share (approximately 6.7 pence
per share), which will make a dividend for the
full year of 16.0 cents per share, an increase
of 23.1% compared with 2011. The proposed
final dividend will be paid on 23 May 2013
to eligible shareholders on the register at the
close of business on 19 April 2012, subject
to approval by shareholders at the Annual
general Meeting. The ex-dividend date is
17 April 2013 and the final date for currency
elections is 3 May 2013.
6 Before the amortisation of intangible assets (excluding software) and exceptional items.
7 Earnings before interest, tax, depreciation and the amortisation of intangible assets.
8 In 2012, amortisation of intangible assets (excluding software) was $12.7 million (2011: $9.0 million).
In 2012, exceptional items included within operating expenses were $9.9 million (2011: $16.4 million).
353535
GROUP ADJUSTED OPERATING PROFIT
($ MILLION)
+32.9%
12
11
193.8
145.8
Hikma PHarmaceuticals Plc / annual rePort 2012Hikma PHarmaceuticals Plc / annual rePort 2012Hikma PHarmaceuticals Plc / annual rePort 2012 groUp performanCe
Continued
net cash flow, working capital and net debt
The group generated operating cash flow
of $182.2 million in 2012, up $55.8 million
from $126.4 million in 2011. This significant
increase was partly due to the impact of a
$21.1 million non-recurring cash injection in
2011 to fund the working capital requirement
of MSI at the time of the acquisition, which
reduced that year’s operating cash flow.
Excluding this impact, the underlying increase
in cash generation of $34.7 million, or 23.5%,
reflects the strong improvement in profitability
in 2012.
This excellent growth in cash flow was
achieved with relatively flat working capital days
of 194 days, compared with 193 days in 2011.
whilst group receivable and payable days
improved – receivable days reduced by 8 days
to 97 days at 31 December 2012 and payable
days increased by 5 days to 66 days – inventory
days increased by 15 days to 164 days. This was
primarily driven by our US business, where we
significantly increased the production output of
the Injectables business and were holding more
normalised stock levels at December 2012,
compared to December 2011.
Capital expenditure was $51.4 million,
compared with $69.0 million in 2011. Around
$32.0 million of that was spent in MENA,
principally to maintain our manufacturing
facilities across the region, to invest in our
recently acquired facility in Sudan and to
develop our chemical plant in jordan. Around
$13.1 million was spent in the US, primarily
at our facility in Cherry Hill, New jersey, to
expand manufacturing capacity. In Portugal,
investments included warehouse improvements
and new machinery purchases.
The group purchased $38.8 million of
intangible assets during 2012, including around
$30.7 million in respect of new products and
around $8.1 million related to the implementation
of SAP at our Cherry Hill facility.
group net debt decreased from
$421.9 million at 31 December 2011 to
$406.5 million at 31 December 2012. This
reflects higher cash balances from increased
profitability, partially offset by increased
borrowings in 2012 to finance capital
expenditure, the purchase of intangible
assets, the purchase of additional shares in
Promopharm, the payment of the deferred
consideration related to the MSI acquisition
and the EPCI acquisition in january 2013.
Balance sheet
During the period, shareholder equity was
negatively impacted by unrealised foreign
exchange losses of $21.2 million, primarily
reflecting the depreciation of the Sudanese
pound, the Egyptian pound and the Algerian
dinar against the US Dollar and the revaluation
of net assets denominated in these currencies.
summary and outlook
we delivered a strong performance in 2012,
with a 20.8% increase in revenue and a 23.8%
increase in earnings per share. This reflects
strong growth in the Branded business and
the excellent performance of the Injectables
business.
we remain confident in our medium and
long-term growth prospects. we have made a
good start to 2013 and expect to deliver group
revenue growth of around 10% this year.
36 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
OPErATINg CASH fLOw
(grOUP)
$182.2m
UP
$55.8m
hikma’s product portfolio
total marketed products
Compounds
dosage forms
and strengths
new
compounds
products launched in 2012
new dosage
forms and
strengths
total launches
across all
countries
in 201211
Branded
injectables
generics
Group
hikma’s product pipeline
60610
179
41
826
1,63010
361
103
2,094
6
8
–
14
9
8
–
17
47
30
–
77
products approved in 2012
products pending approval
as at 31 december 2012
new
compounds
new dosage
forms and
strengths
3
10
4
17
5
12
4
21
total
approvals
across all
countries
in 201211
36
41
4
81
Branded
injectables
generics
Group
new
compounds
new dosage
forms and
strengths
total pending
approvals
across all
countries as of
31 december
201211
research & development9
The group’s product portfolio continues
to grow as a result of our in-house product
development efforts. During 2012, we
launched 14 new compounds, expanding
the group portfolio to 826 compounds
in 2,094 dosage forms and strengths10.
we manufacture and/or sell 94 of these
compounds under-license from the originator.
Across all businesses and markets, a total
of 77 products were launched during 2012.
In addition, the group received 81 approvals.
To ensure the continuous development
of our product pipeline, we submitted 216
regulatory filings in 2012 across all regions
and markets. As of 31 December 2012, we
had a total of 695 pending approvals across
all regions and markets.
At 31 December 2012, we had a total
139
89
22
250
222
112
22
356
346
327
22
695
of 73 new products under development, the
majority of which should receive several marketing
authorisations for different strengths and/or
product forms over the next few years.
9 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
10 Totals include 123 dermatological and cosmetic compounds in 401 dosage forms and strengths that are only sold in Morocco
11 Totals include all compounds and formulations that are either launched or approved or pending approval across all markets, as relevant
373737
Hikma PHarmaceuticals Plc / annual rePort 2012Hikma PHarmaceuticals Plc / annual rePort 2012Hikma PHarmaceuticals Plc / annual rePort 2012 BUsiness and finanCiaL review
prinCipaL risK &
UnCertainties
the groUp’s BUsiness faCes risKs and UnCertainties
The group’s business faces risks and uncertainties which could have a significant effect on its
financial condition, results of operation or future performance and could cause actual results to
differ materially from expected and historical results.
operationaL risKs
rISk
POTENTIAL IMPACT
MITIgATION
CompLianCe with
regULatory
reqUirements
Failure to comply with applicable regulatory
requirements and manufacturing
standards (often referred to as ‘Current
Good Manufacturing Practices’ or cGMP)
regULation Changes
Unanticipated legislative and regulatory
actions, developments and changes affecting
the Group’s operations and products
CommerCiaLisation of
new prodUCts
Delays in the receipt of marketing approvals,
the authorisation of price and re-imbursement
Lack of approval and acceptance of new
products by physicians, patients and other
key decision-makers
Inability to confirm safety, efficacy,
convenience and/or cost-effectiveness of our
products as compared to competitive products
Inability to participate in tender sales
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
product complaints or recalls
Bans on product sales or importation
disruptions to operations
potential for litigation
plant closure
restrictions on the sale of one or
more of our products
restrictions on our ability to sell
our products at a profit
Unexpected additional costs required
to produce, market or sell our products
increased compliance costs
strong global compliance function that
oversees compliance across the group
remuneration and reward structure
that helps retain experienced personnel
Continuous staff training and know-how exchange
on-going development of standard
operating procedures
strong oversight of local regulatory
environments to help anticipate potential changes
Local operations in all of our key markets
representation and/or affiliation with
local industry bodies
diverse geographical and therapeutic
business model
slowdown in revenue growth from
new products
experienced regulatory teams able to accelerate
submission processes across all of our markets
inability to deliver a positive return
on investments in r&d, manufacturing
and sales and marketing
highly qualified sales and marketing teams
across all markets
a diversified product pipeline with 250 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
38 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
operationaL risKs continued
rISk
POTENTIAL IMPACT
MITIgATION
prodUCt safety
interruptions to revenue flow
Unforeseen product safety issues for
marketed products, particularly in respect
of in-licensed products
Costs of recall, potential for litigation
reputational damage
diversification of product portfolio
across key markets and therapies
working with stakeholders to understand
issues as they arise
prodUCt deveLopment
Failure to secure new products
or compounds for development
inability to grow sales and increase
profitability for the group
Lower return on investment in
research and development
Co-operation
with third parties
Inability to renew or extend in-licensing
or other co-operation agreements with
third parties
Loss of products from our portfolio
revenue interruptions
failure to recoup sales and marketing
and business development costs
experienced and successful in-house
r&d team, with specifically targeted product
development pathways
Continually developing and multi-faceted
approach to new product development
strong business development team
track record of building in-licensed brands
position as licensee of choice for our key
mena geography
investment in long-term relationships
with existing in-licensing partners
experienced legal team capable of negotiating
robust agreements with our partners
Continuous development of new partners
for licensing and co-operation
diverse revenue model with in-house
r&d capabilities
integration of
aCqUisitions
Difficulties in integrating any technologies,
products or businesses acquired
inability to obtain the advantages that the
acquisitions were intended to create
extensive due diligence undertaken
as part of any acquisition process
adverse impact on our business, financial
condition and results of operations
track record of acquisitions and subsequent
business integration
significant transaction and integration costs
could adversely impact our financial results
human resources personnel focused on managing
employee integration following acquisitions
inCreased Competition
Loss of market share
New market entrants in key geographies
On-going pricing pressure in increasingly
commoditised markets
decreasing revenues on established portfolio
disrUptions in the
manUfaCtUring sUppLy
Chain
inability to develop and/or commercialise
new products
inability to market existing products as planned
Inability to procure active ingredients
from approved sources
Inability to procure active ingredients on
commercially viable terms
Inability to procure the quantities of active
ingredients needed to meet market requirements
Lost revenue streams on short notice
reduced service levels and damage
to customer relationships
inability to supply finished product to our
customers in a timely fashion
Close monitoring of acquisition and
integration costs
on-going portfolio diversification,
differentiation and renewal through internal
r&d, in-licensing and product acquisition
Continuing focus on expansion
of geographies and therapeutic areas
alternate approved suppliers of active ingredients
Long-term relationships with reliable
raw material suppliers
Corporate auditing team continuously monitors
regulatory compliance of api suppliers
focus on improving service levels and
optimising our supply chain
393939
Hikma PHarmaceuticals Plc / annual rePort 2012Hikma PHarmaceuticals Plc / annual rePort 2012Hikma PHarmaceuticals Plc / annual rePort 2012 BUsiness and finanCiaL review
Continued
operationaL risKs continued
rISk
POTENTIAL IMPACT
MITIgATION
eConomiC and poLitiCaL
and Unforeseen events
disruptions to manufacturing and
marketing plans
Lost revenue streams
inability to market or supply products
The failure of control, a change in the economic
conditions (including the Middle East, North
Africa and the Eurozone), political environment
or sustained civil unrest in any particular
market or country
Unforeseen events such as fire or flooding could
cause disruptions to manufacturing or supply
geographic diversification, with 26 manufacturing
facilities and sales in more than 40 countries
product diversification, with 826 products
and 2,094 dosage strengths and forms
Litigation
financial impact on group results
from adverse resolution of proceedings
in-house legal counsel with relevant
jurisdictional experience
Commercial, product liability and other
claims brought against the Group
reputational damage
finanCiaL risKs
rISk
POTENTIAL IMPACT
MITIgATION
foreign exChange risK
Exposure to foreign exchange movements,
primarily in the European, Algerian,
Sudanese and Egyptian currencies
fluctuations in the group’s net
asset values and financial results upon
translation into Us dollars
interest rate risK
fluctuating impact on profits before taxation
Volatility in interest rates
entering into currency derivative
contracts where possible
foreign currency borrowing
matching foreign currency revenues
to in-jurisdiction costs
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
Clear credit terms for settlement of sales invoices
Inability to recover trade receivables
Concentration of significant trade balances with
key customers in the MENA region and the US
risk of bad debt or default
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
40 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
sUstainaBiLity
sUstainaBiLity remains an
integraL part of oUr approaCh
to BUsiness
41
Hikma PHarmaceuticals Plc / annual rePort 2012 sUstainaBiLity
responsiBiLty
we aim to improve Lives By providing patients with
Better aCCess to high qUaLity, affordaBLe mediCines
in Key ther apeUtiC areas
The table lists some
examples of key initiatives
in 2012 across our major
Corporate responsibility
impact areas and
links these initiatives
to our strategic goals.
2012 highLights
addressing major
heaLth issUes
patients
peopLe
STrENgTHENINg OUr
LEADINg POSITION
IN THE MENA rEgION
supported nationwide initiatives
in jordan, including the
national strategy to Combat
Chronic diseases
DEvELOP OUr gLOBAL
PrODUCT rANgE IN grOwINg
THErAPEUTIC ArEAS
introduced innovative medicines,
including Lutrate® one month from
gp pharm for advanced prostate
cancer, and Binosto®, the first
buffered solution osteoporosis
treatment, from effrx
engaged pharmacovigilance
(pv) consultants to review
our pv systems in the mena,
eU and Us
introduced the first locally
produced oncology generic, Cemivil®
(imatinib), into the formulary
of jordan’s King hussein Cancer
Center (KhCC)
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 OUr wOrLD-CLASS
MANUfACTUrINg AND
API SOUrCINg CAPABILITIES
supported the mena chapter
partnered with genepharm
Collaborated with the susan
expanded our chemical plant
of the global fund to fight aids,
in greece for Bicalutamide for the
Komen for the Cure foundation
in jordan to support the production
tuberculosis and malaria
treatment of prostate cancer
in the mid-south to support
of strategic oncology apis
breast cancer research
partnered with ameriCares
to supply medicines to syria
received fda approval for
phenylephrine hCl injection
and argatroban injection –
differentiated products for
our Us portfolio
addressed critical supply
shortages in the Us market
maintained high quality standards
at our Us fda approved facilities
through operational improvements
in jordan and saudi arabia, which
and capital investment in our
both passed recent fda inspections
Us and portuguese manufacturing
facilities
Launched leadership training
programme for middle managers
with the american University
of Beirut (aUB)
raised awareness amongst
employees on key health issues
such as obesity, breast cancer
and heart disease
active member of the global
Completed more than 650
smokefree partnership, and leader
employee training hours at
of smokefree initiatives in jordan.
our Cherry hill injectables
hikma has been smokefree
manufacturing facility
since 1994
supported employees impacted
by hurricane sandy and
renewed ohsas 18001, the
employee health and safety
participated in wider relief efforts
certification
CommUnity
set corporate responsibility
standard in mena through
Cr mapping research with
universities
sponsored local events to
raise awareness of diabetes
and obesity, including blood
pressure and glucose testing
active participant in the
world economic forum,
influencing mena and
global healthcare policies
supported children with
serious illnesses through the
collection and recycling of
soda and juice cans
recognised by the senator
of new jersey, Usa as a “stellar
example of fruitful partnerships
between business and colleges”
honoured by Libyan health
ministry for medical donations
and community support
environment
renewed iso 14001 certification
in egypt and received the iso 9001
certificate for quality management
renewed iso 14001 and
successfully completed a surveillance
audit at our main plant in jordan
Collaborated with international
initiated renewable energy
organisations on the implemention
project at our injectables facility
Collaborated with global entity to
apply optimal ways to save energy
installed energy efficient and
low emission machinery at our
facilities in jordan
of iso 26000, the social
responsibility certification,
in the mena
in portugal, using solar power
to drive energy savings
BUsiness ethiCs
received ifC Client Leadership
award for benefit to patient health
and sustainability practices
Updated Code of Conduct
with greater focus on integrity
implemented new social media
policy to unify image as trusted
and responsible company on
virtual platforms
awarded healthcare Company
Launched speak-up line in
of 2012 and nominated for
Best investor Communications
Us and europe
maintained commitment not
to undertake in-house animal
testing and uphold the
3rs – reduce, refine and replace
42 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
2012 highLights
addressing major
heaLth issUes
in jordan, including the
national strategy to Combat
Chronic diseases
STrENgTHENINg OUr
LEADINg POSITION
IN THE MENA rEgION
DEvELOP OUr gLOBAL
PrODUCT rANgE IN grOwINg
THErAPEUTIC ArEAS
supported nationwide initiatives
introduced innovative medicines,
including Lutrate® one month from
gp pharm for advanced prostate
cancer, and Binosto®, the first
buffered solution osteoporosis
treatment, from effrx
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 OUr wOrLD-CLASS
MANUfACTUrINg AND
API SOUrCINg CAPABILITIES
supported the mena chapter
of the global fund to fight aids,
tuberculosis and malaria
partnered with genepharm
in greece for Bicalutamide for the
treatment of prostate cancer
Collaborated with the susan
Komen for the Cure foundation
in the mid-south to support
breast cancer research
expanded our chemical plant
in jordan to support the production
of strategic oncology apis
patients
peopLe
engaged pharmacovigilance
(pv) consultants to review
our pv systems in the mena,
eU and Us
introduced the first locally
produced oncology generic, Cemivil®
(imatinib), into the formulary
of jordan’s King hussein Cancer
Center (KhCC)
partnered with ameriCares
to supply medicines to syria
received fda approval for
phenylephrine hCl injection
and argatroban injection –
differentiated products for
our Us portfolio
addressed critical supply
shortages in the Us market
through operational improvements
and capital investment in our
Us and portuguese manufacturing
facilities
maintained high quality standards
at our Us fda approved facilities
in jordan and saudi arabia, which
both passed recent fda inspections
Launched leadership training
raised awareness amongst
programme for middle managers
employees on key health issues
with the american University
such as obesity, breast cancer
of Beirut (aUB)
and heart disease
active member of the global
smokefree partnership, and leader
of smokefree initiatives in jordan.
hikma has been smokefree
since 1994
Completed more than 650
employee training hours at
our Cherry hill injectables
manufacturing facility
supported employees impacted
by hurricane sandy and
participated in wider relief efforts
renewed ohsas 18001, the
employee health and safety
certification
CommUnity
set corporate responsibility
standard in mena through
Cr mapping research with
universities
sponsored local events to
raise awareness of diabetes
and obesity, including blood
pressure and glucose testing
active participant in the
world economic forum,
influencing mena and
global healthcare policies
supported children with
serious illnesses through the
collection and recycling of
soda and juice cans
recognised by the senator
of new jersey, Usa as a “stellar
example of fruitful partnerships
between business and colleges”
honoured by Libyan health
ministry for medical donations
and community support
environment
renewed iso 14001 certification
renewed iso 14001 and
in egypt and received the iso 9001
successfully completed a surveillance
certificate for quality management
audit at our main plant in jordan
Collaborated with international
organisations on the implemention
of iso 26000, the social
responsibility certification,
in the mena
initiated renewable energy
project at our injectables facility
in portugal, using solar power
to drive energy savings
Collaborated with global entity to
apply optimal ways to save energy
installed energy efficient and
low emission machinery at our
facilities in jordan
BUsiness ethiCs
received ifC Client Leadership
Updated Code of Conduct
award for benefit to patient health
with greater focus on integrity
and sustainability practices
implemented new social media
policy to unify image as trusted
and responsible company on
virtual platforms
awarded healthcare Company
of 2012 and nominated for
Best investor Communications
Launched speak-up line in
Us and europe
maintained commitment not
to undertake in-house animal
testing and uphold the
3rs – reduce, refine and replace
43
Hikma PHarmaceuticals Plc / annual rePort 2012 sUstainaBiLity
sUstainaBiLity
report
addressing major heaLth issUes
As a leading pharmaceutical company with
widespread operations, global manufacturing
facilities and a network of international partners,
we are in a strong position to aid in addressing
major health issues in our key markets.
In the MENA, where we generate more than
60% of group sales, demographics are changing
rapidly, creating new patient requirements and
challenging governments and the private sector
to provide relevant and accessible treatments.
we are continuously working, through our
own r&D and through alliances and partnerships,
to bring patients in the region innovative
medicines and high quality, affordable generic
alternatives that meet their needs across a
range of therapeutic areas.
A key driver of our performance in the
MENA region this year was our focus on the
promotion of cardiovascular and diabetes
products. The incidence of heart disease and
diabetes has increased significantly in recent
years and so has the number of molecules
in our portfolio in these therapeutic areas.
In 2012, we also strengthened our
oncology pipeline. Through a licensing and
supply agreement with gP Pharm, we added
Lutrate® 1 month, which prevents tumour
growth in patients with advanced prostate
cancer. This critical medication will help to
address the issue of prostate cancer among
men, which is expected to increase as the
MENA faces a progressively ageing population.
In 2012, we continued to work with global
organisations to find cures for the world’s
toughest ailments. As in previous years, we
contributed to the global fund to fight AIDS,
Tuberculosis and Malaria. we supported the
global fund’s MENA chapter and collaborated
with the public sector in jordan on the
National Strategy to Combat Chronic Diseases,
providing full support for awareness and
educational initiatives focused on chronic
diseases such as diabetes. In the US, we worked
with the Susan komen for the Cure foundation,
the most widely known breast cancer
organisation in the United States, in a “race
for the Cure” campaign, raising money to
fund the education, prevention and research
of breast cancer in the Mid-South.
This year, we hosted a team of fellows
from Massachusetts Institute of Technology (MIT)
Sloan Business School and the International
finance Corporation (IfC) that were investigating
how companies in emerging markets are
investing in sustainability and how they are
achieving business success. Moreover, Hikma
was awarded the IfC Client Leadership Award,
which recognised Hikma for its success in
helping to treat patients in more than 50
countries through providing vital affordable
medicines. It was also recognised for its
commitment to local communities, for
its support of female workers, for its
commitment to applying high environmental
standards in production and for its commitment
to education and training, especially through
internships for young people.
patients
The well-being of patients is at the heart
of everything we do. As we focus on providing
high quality, safe and effective medicines at
affordable prices, we must implement best
practices in our manufacturing processes and
adhere to international good Manufacturing
Practices (gMPs). In 2012, our jordan,
Saudi Arabia and Cherry Hill facilities were
successfully inspected by the US fDA. Cherry Hill
also passed its MHrA inspection, a testament
to our ongoing commitment to patient safety
and high quality standards.
During the year, we continued our
efforts to provide information and patient
education in our core therapeutic categories.
At conferences held throughout the year
in the areas of anti-infectives, oncology, CNS,
cardiovascular and diabetes, we brought
doctors and specialists together to discuss
the latest advancements and treatments in
these critical therapeutic areas. These forums
help to educate doctors and improve their
advice to patients. As in previous years, we also
worked at the patient level, through public
awareness programmes and events, to raise
awareness of increasingly common health risks
like obesity and diabetes.
raising public awareness about preventing
and curing coronary problems took place in
collaboration with the world Heart federation
in a global world Heart Day across the group.
we also sponsored a campaign with jordan
Breast Cancer Program for educating people
about breast cancer, early detection and
encouraging women aged 40 years and older
to have mammograms.
44 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
wOrLD HEArT DAy
BrEAST CANCEr PrOgrAM
pharmacovigilance
Our Medical Affairs department is actively
engaged in Pharmacovigilance (“Pv”)
practices, relating to the detection,
assessment, understanding and prevention
of adverse effects or any other drug-related
problems. In 2012, we engaged Pv
consultants to review our Pv systems in the
US, EU and MENA regions. As we execute
the recommendations that came out of
this review, we expect to drive better
harmonization of Pv efforts across all regions.
In february 2012, we sponsored the Dubai
MENA Drug Safety Summit in Dubai, United
Arab Emirates. In December, a Pv group
meeting was held in Amman that brought
together experts from the Egyptian, jordanian
and Tunisian health authorities and national
pharmacovigilance centres. This workshop
investigated the legislation and guidelines
regarding pharmacovigilance and drug safety
in the MENA and how they are being applied.
The Summit and the group meeting
provided opportunities for our Pv team to
build stronger relationships with MENA
health authorities, to investigate the potential
for collaboration and to creating a channel
for the advocacy of more harmonized
pharmaceutical regulations.
Clinical research
In the MENA, our Medical Affairs team
undertake clinical research activities and
work with medical institutions, regulatory
authorities and clinical research organisations
(CrOs) to advance and improve healthcare
in the region.
This year, we partnered with Ergomed to
conduct the first clinical study in jordan for
one of our key anti-cancer products, Cemivil®
(imatinib). In 2012, Cemivil® was the first locally
produced oncology generic product to be
added to the formulary of the jordan king
Hussein Cancer Center (“kHCC”).
furthermore, we obtained approval of the
Cemivil® study protocol, by the Clinical Trial
Committee of the jordan food and Drug
Administration (“jfDA”), to be initiated in
the jordan University Hospital and kHCC.
Our decision to work with Ergomed stems
from a strong commitment to continuous medical
advancement through the use of clinical
studies, especially in the field of oncology,
and we have plans to extend this study to
other MENA markets.
45
Hikma PHarmaceuticals Plc / annual rePort 2012 sUstainaBiLity report
Continued
security of supply
Maintaining a good supply of our products
remains a key priority for us, particularly in
the US market, which has suffered from acute
supply shortages of injectable products in
recent years. In 2012, we increased production
at both our Cherry Hill and Portugal injectable
facilities in order to meet market demand for
our products and address market shortages.
we also worked to alleviate supply shortages
in disrupted MENA markets. Through medicinal
donations, we worked to bring much needed
medicines to areas of crisis. In-kind medicinal
donations were donated to Libya, gaza and Syria.
medical information
we endeavour to provide our patients with
accurate, comprehensive and relevant medical
information on our products. These practices
ensure the ethical and credible promotion
of our products. Our responsibility covers
delivering scientific knowledge tailored to the
sales representatives’ needs.
A key step toward the coordination
and harmonization of medical and product
information this year was the consolidation
of a global pharmaceutical product inventory,
containing the generic and Hikma brand
names, marketing authorisation holders,
manufacturing sites and countries where
products are registered. The product inventory
information is an essential tool for patients
and physicians.
Medical information efforts also comprised
a number of clinical and non-clinical overviews
and summaries that were developed to fulfil a
new requirement in registration applications in
several countries including Algeria, Azerbaijan,
jordan, kazakhstan, Morocco, Saudi Arabia
and Tunisia.
peopLe
health and safety
Hikma is committed to its employees’ health
and safety. we comply with workplace safety
standards – OHSAS 18001 standards or their
equivalents – in our manufacturing facilities.
Mandatory occupational training has been
conducted for all manufacturing operators.
To sustain a healthy work environment for
our people, Hikma is a member of the global
Smokefree Partnership (gSP), promoting
effective smoke-free environments since 1994.
This year, Hikma played an active role in
promoting smoke-free environments in the
private sector by inviting major jordanian
businesses to a session with the Cancer
Control Office of the king Hussein Cancer
Center to discuss the dangers of smoking in
the workplace. As a follow up to this event,
an informal coalition of smokefree jordanian
businesses was established.
During the year, we conducted our
annual employee welfare week, the “you Are
Hikma” campaign. A global initiative staged at
Hikma locations worldwide, “you Are Hikma”
celebrates the Company’s core values by raising
awareness among its staff of health, safety and
environmental issues. It emphasises personal
empowerment, encouraging responsible
corporate citizenship among Hikma staff
and improving their well being and quality
of life through positive and valuable
educational activities.
46 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
rAISINg AwArENESS
DIABETES
OBESITy
we are an equal opportunity employer,
promoting diversity and inclusion. Hikma
employs more than 6,500 employees, 83%
of which are in the MENA countries, many
of which have high unemployment. A quarter
of our employees are female, which is double
the regional average in the MENA. females
also make up 75% of Portugal’s workforce,
and they occupy strategic top managerial
positions across the group.
we invest in the communities in which we
are located, hiring local talent and developing
the skills of the community’s youth. 60% of
employees were below the age of 30 in 2012.
training, education
and performance measurement
Through collaboration with Hr,
Cr responsibilities have been officially added
to Cr champions’ kPIs. These responsibilities
now represent 30% of their overall job
responsibilities. we now have 15 champions
across the group, following the appointment
of new champions in Sudan and Tunisia.
These champions drive the implementation
of our group-wide Cr strategy in Hikma’s
facilities worldwide.
we held our annual Hr and Cr training
workshops for employees globally in October
to touch base on main issues and introduce the
latest global trends in sustainable development
and further train our Cr champions in grI.
In 2012, we launched a leadership training
programme for middle managers with the
American University of Beirut (AUB). The training
provides managers with the knowledge and
skills needed for current and future positions at
Hikma, thus ensuring management succession
planning. we have completed the training for
41 of our managers this year and have already
started to see positive results.
west-ward Pharmaceuticals, our subsidiary
in the US, was recognised by the US Senator
of New jersey as a “stellar example of fruitful
partnerships between business and colleges”
due to our continuous collaboration with
Camden County College for the training of more
than 300 employees.
we also established a dedicated IT Training
Center that is preparing training courses for
our corporate teams on a range
of IT needs, from training in Hikma’s main
production systems to human resources and
customer relationship management systems
and project management (PMP).
responsible sales are essential and are
achieved by investing in Hikma’s sales and
marketing teams. we continuously strive to
strengthen the capabilities of our sales and
marketing team through training. Such
trainings aim at ensuring the communication
of evidence-based, well supported and
balanced messages to HCPs. Training covers
our sales and marketing teams in the entire
geographical locations of Hikma’s entities.
equal opportunities
we believe in the equal treatment of employees,
respect for human rights, and a workplace
free from discrimination, favouritism or
inequality in any form. At Hikma, it is a priority
that employees are comfortable in their work
environment. we have an open door policy
that ensures that grievances are heard and
that actions are taken. Throughout the year,
rotational meetings were conducted by the
CEO with various departments to better
understand potential issues and concerns.
47
Hikma PHarmaceuticals Plc / annual rePort 2012
sUstainaBiLity report
Continued
In Libya, Hikma was honoured by the Libyan
Ministry of Health in july 2012 for timely
medical donations worth USD 500,000 and
continuous community related initiatives.
In the US, our team organised and hosted
a week long on-site volunteer fair in june.
Employees took the time to explore opportunities
for community service with different local
organisations. In October our US employees
took part in the Leukemia and Lymphoma
Society’s “Light the Night walk” event and
collectively raised over USD 10,000 for the
society. In addition to each walker raising
money, each facility ran raffles, bake sales, and
various other fundraisers.
Hurricane Sandy left many along the
New jersey shore line and around our Eatontown
facility with nothing. Monetary donations,
toys, clothes and gift cards were collected
from our other US facilities to fund relief efforts
and support victims of the hurricane. Also in
the US, the Annual Thanksgiving food Drive
was held to benefit the foodBank of Monmouth
and Ocean Counties in a “Neighbors Helping
Neighbors” campaign. This foodbank supports
over 200 food pantries, soup kitchens, and
children’s meal programmes.
CommUnity
Through community engagement and health
awareness campaigns we are investing in
the local communities in which we operate.
we held our global volunteering Day in
April for the fifth consecutive year. This year,
volunteering activities included donating
blood, refurbishing orphanages and participating
in public awareness campaigns. recognition
was given to active volunteers who participate
every year, to encourage employee engagement
in the community.
Our businesses were also active throughout
the year in supporting their communities.
In Egypt volunteers hosted around 80 children
from a local orphanage for a day full of music,
puppet-shows and educational games.
In jordan, we renewed our partnership
with the UNrwA in sponsoring 30,000
underprivileged children to enter the Children’s
Museum, an interactive educational museum
for children of all ages.
48 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
In 2011, we were invited to collaborate
with the International Standards Organization
(ISO), the jordan Standards and Metrology
Organization (jSMO) and the Swedish
International Development Cooperation
Agency (SIDA) on a project about the use
and implementation of the ISO 26000
certification for Social responsibility within
the MENA. In 2012, we took part in a related
developing country workshop, where we
presented our experiences and joined a panel
on social responsibility best practices.
environment
Across the group, we aim to minimise
our environmental impact by integrating
environmental policies and activities into our
day-to-day business. New machinery installed
in two of our facilities in jordan will help
lower energy consumption and reduce
carbon emissions. while providing a clear
environmental benefit, this project will also
drive cost savings, through reductions in
electric, fuel and water consumption.
we are increasingly working to monitor
our environmental impact. In 2012, an ISO
14001 surveillance audit was conducted at the
main plant in jordan by SgS jordan auditors.
This was successfully completed, resulting in
re-certification. ISO 14001 certification was
also renewed in our plant in Egypt. This facility
was also granted the ISO 9001 certificate for
quality management, valid until 2015.
Hikma partnered with Self Energy and Nakhil
jordanian Investment and Trading Company
to explore optimal ways to reduce energy
costs, carbon emissions and our reliance on
electricity. The project included an energy
and power utilisation assessment of our
facilities in six markets, including jordan,
Egypt, Saudi Arabia and Algeria.
we also continued to monitor
our performance against environmental key
Performance Indicators (kPIs). These kPIs are
aligned with the Carbon Disclosure Project
(CDP) and the global reporting Initiative (grI)
reporting guidelines, which we have been
reporting against for three years. Carbon
emissions were analysed in our operations
and this year we supplied information on the
six greenhouse gases.
Initiatives have been put in place to
promote the recycling of old computers,
printers and furniture. These are redistributed
across business units or donated externally
to charitable organisations.
Since desertification is an issue in the
MENA region, we try to focus on opportunities
where we can enhance the local natural
environment. This year we hosted an Arbour
Day event, encouraging the local community
to plant trees and become aware of their natural
habitat. we also collaborated with several
organisations that promote planting trees.
49
Hikma PHarmaceuticals Plc / annual rePort 2012 sUstainaBiLity report
Continued
“ Upholding the highest standards
of ethical conduct is one of our
core principles. We are continuously
working to ensure all aspects
of our global operations are carried
out with integrity and reliability.
We remain committed to our
principle of combating corruption.”
animal welfare
The welfare of animals is an ethical and
essential part of our responsibility. good
animal welfare has become a worldwide
accepted practice and requirement for
pharmaceutical and manufacturing standards
as a whole. we are committed to safe
guarding the welfare of animals in the choices
that it makes.
we do not conduct any in-house testing
and, where required in a few specific
circumstances, the company requests external
organisations to conduct animal testing on our
behalf. No animal testing was conducted on
our behalf in 2012. A specific animal testing
policy formalises our activities, and the
following is an excerpt from the policy:
“where animal testing is required, Hikma
is committed to the principles of the 3r
research foundation – reduce, refine and
replace… The 3rs of animal testing (from the
Swiss-based 3r research foundation) are:
3 replace: Use alternatives to animal testing
whenever possible
3 reduce: Improve existing methods so that
fewer laboratory animals are required
3 refine: refine existing methods so that
animals are exposed to as little discomfort
and stress as possible.”
BUsiness ethiCs
Our business ethics are central to the way we
do our business. As a leading healthcare
company, we strive to overcome today’s social
and economic challenges by staying focused
on upholding the highest ethical conduct in
everything we do.
human rights
Continuing with our ethical journey, we
renewed our membership in UN global
Compact in December 2012, renewing our
commitment to aligning operations and
strategies with the ten universally accepted
principles in terms of human rights, labour,
environment and anti-corruption. In doing
so we have demonstrated how we respect
and protect internationally proclaimed human
rights, and are not complicit in matters of
human rights abuses, child labour, forced
and compulsory labour and take proactive
measures to eliminate them. for further
reading, the Communication On Progress
report is available on www.hikma.com and
www.unglobalcompact.org.
Our updated Code of Conduct was
published in the fourth quarter of 2012. The
Code and its supporting policies require that
our employees uphold the highest ethical
standards in their employment and reflect our
commitment to human rights. The Code of
Conduct was sent out across the group
and has been translated into the five main
languages of our locations: English, Arabic,
Portuguese, french and german and it is
available on our website.
50 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
Board oversight – Compliance
responsibility and ethics Committee
(CreC)
The CrEC oversees our ethical business
conduct. within its oversight fall the functions
of Corporate Compliance and Corporate
responsibility.
It is through the Compliance framework
adopted by CrEC that the Code of Conduct
has been updated and launched. for further
details of the work of the CrEC in relation
to corporate compliance, the CrEC report is
available on pages 79 to 81.
transparency measures
we are dedicated to sustain anti-bribery
and anti-corruption mechanisms across
its business. The CrEC and Compliance
department along with the Corporate
responsibility division have joined efforts to
maintain transparent and stringent measures
against corruption and bribery. The updated
Code of Conduct obliges employees to abide
by transparency measures and has greater
focus on integrity. At Hikma, we conduct
our business in adherence to principles of
quality, integrity, transparency, dignity and
respect for all.
Our image as a responsible and trusted
organisation is important to us.
Communication standards were formalised
in 2012 to maintain a unified image across our
platforms, which encompass the virtual online
platform as well. An extensive social media
policy was distributed to our employees
worldwide and has become part of their
employment contract to ensure responsible
and ethical participation in both Hikma
endorsed and other social media platforms.
we also created formal Hikma accounts in
the main and relevant social media outlets.
we welcome external stakeholder
engagement and are transparent in our
business activities. Our sense of responsibility
and transparency was displayed in our
cooperation and openly responding to ethical
audit organisations, which in turn helped our
ethical investment opportunities making Hikma
a more attractive prospect for “green” investors.
As a founding member of Partnering
Against Corruption Initiative (PACI), an initiative
created by the world Economic forum, we
continued to work with businesses around
the globe to combat bribery and corruption,
as this initiative requires a commitment to
zero tolerance of bribery in all its forms.
suppliers
The supply chain process at our manufacturing
facilities chooses significant suppliers that
uphold ethical practices and do not break with
internationally proclaimed integrity measures.
Our suppliers follow good Manufacturing
Practices (gMP) and our significant suppliers
are ISO 14001 and OHSAS 18001 certified or
their equivalent.
recognition
recognition was received in 2012 for our
excellence in implementing ethical standards,
transparency measures and high human
rights and labour standards in our facilities
in all our locations. we were nominated for
“Best Investor Communications Award” and
were selected for the International finance
Corporation (IfC) Award for being an
exemplary company in terms of Cr, female
employment, community efforts and youth
employment.
we were also chosen for the Arabian Business
Healthcare company of 2012 Award for our
leading position in the MENA.
In April 2012, the Cr Department of our
Saudi Arabian facility, jPI, was registered in the
Chamber of Commerce in riyadh as one of the
pioneers in this field.
51
Hikma PHarmaceuticals Plc / annual rePort 2012 BUiLding on oUr worLd-CLass
manUfaCtUring and api soUrCing
CapaBiLities
improving
Lives...
...THrOUgH THE DEvELOPMENT Of
A HIgH qUALITy, SECUrE SUPPLy CHAIN
In 2012, we invested in developing our
in-house Active Pharmaceutical Ingredient
(“API”) sourcing capabilities by
expanding our fDA approved chemical
plant in jordan, we are developing and
manufacturing API for certain key strategic
products, particularly where there are a
limited number of API suppliers in the
market or where the API is very expensive
or difficult to manufacture.
This facility also allows us to develop and
manufacture API at an earlier stage in the
formulation process, accelerating the
speed at which we are able to bring new
products to market. Today, this facility is
helping us be vertically integrated on key
products like enalaprilat, where we
produce the API in jordan, manufacture
the product in Portugal and sell it in the
US market.
The expansion of this plant means we can
accommodate new lines for manufacturing
APIs. This will enable us, for example, to
vertically integrate production for certain
oncology products in MENA, such as
zoledronic acid.
we will continue exploring additional
opportunities to leverage our API facilities
in the production of products across our
therapeutic areas.
This approach to ensuring a high quality,
secure supply chain is helping us to
improve lives across our markets.
HEALTHCArE ExPENDITUrE
(% Of gDP)1
LIfE ExPECTANCy
(yEArS)1
8%
80
COUNTry
jordan
POPULATION SIZE
(MILLION)1
6.5
1 CIA – The world factbook
52 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
53
Hikma PHarmaceuticals Plc / annual rePort 2012 Corporate
governanCe
a strong approaCh
to Corporate governanCe
54 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
55
Hikma PHarmaceuticals Plc / annual rePort 2012 aBoUt this
governanCe
report
wHAT HAvE wE IMPrOvED?
we have continued to
develop our approach to
reporting during the year in
order to increase stakeholder
understanding of the way
our business is governed.
we hope this new governance
report helps you understand
the way we control and develop
our business.
fOr MOrE INfOrMATION,
vISIT OUr wEBSITE
www.hiKma.Com
4.1 governanCe report
4.2 Committee reports
governanCe in hiKma
58
aUdit
72
58 / message from oUr Chairman
72 / Letter from the Chairman
59 / highLights
59 / priorities in 2013
73 / highLights
73 / memBership and attendanCe
59 / governanCe prinCipLes
59 / diaLogUe with staKehoLders
73 / responsiBiLities
73 / terms of referenCe
oUr Board
60 / oUr Board
63 / senior management
67 / roLes and responsiBiLities
67 / Board Composition
67 / Chairman and Chief exeCUtive
68 / independenCe
74 / risK
60
74 / internaL aUdit
75 / internaL ControL
75 / externaL aUdit
nomination
76
76 / Letter from the Chairman
77 / highLights
77 / memBership and attendanCe
effeCtiveness
68
77 / responsiBiLities
68 / sKiLLs and experienCe
68 / hiKma KnowLedge
68 / training
68 / evaLUation
meetings
69
69 / information fLow
69 / Company seCretary
69 / non-exeCUtives
69 / attendanCe
77 / sUCCession
77 / re-eLeCtion
77 / Composition
78 / diversity
78 / Board diversity
CompLianCe, r esponsiBiLity
and ethiCs
79
79 / Letter from the Chairman
80 / highLights
80 / memBership and attendanCe
direCtors
70
80 / responsiBiLities
70 / terms of appointment
70 / externaL Commitments
70 / dUties and Commitment
70 / remUneration
70 / indemnities and insUranCe
deLegation of aUthority
71
80 / anti-BriBery and anti-
CorrUption
80 / CompLianCe arChiteCtUre
81 / “aBC” risK assessment
81 / Code of CondUCt
81 / aBC poLiCies and proCedUres
81 / training
81 / speaK-Up
71 / matters reserved to the Board
81 / Corporate responsiBiLity
71 / introdUCtion to
the Committees
71 / reporting to the Board
r emU ner ation
82
82 / see remUneration governanCe
whiCh foLLows this seCtion
56 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
4.3 remUneration report
4.4 direCtors’ report
remUneration governanCe 82
exeCUtive impLementation
93
direCtors’ report
104
104 / operationaL
105 / finanCiaL
106 / direCtors
106 / eqUity
109 / responsiBiLities
82 / Letter from the Chairman
93 / saLary
94 / pension
95 / Benefits
95 / BonUs
96 / share awards
100 / non-exeCUtive fees
101 / share ownership
totaL
102
102 / totaL Compensation
83 / highLights
83 / memBership and attendanCe
84 / remUneration and
performanCe sUmmary
86 / remUneration poLiCy sUmmary
87 / remUneration poLiCy
enhanCements
87 / responsiBiLities
87 / adviCe and sUpport
poLiCy
88
88 / Core prinCipLes
88 / exeCUtive poLiCy
92 / non-exeCUtive
93 / poLiCy for 2013
A U D I T C OMMITTEE
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EXECUTIVE
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57
Hikma PHarmaceuticals Plc / annual rePort 2012
4.1 governanCe report
governanCe
in hiKma
message from oUr Chairman
4.1 gOvErNANCE IN HIkMA CONTENTS
58 / Message from our Chairman
59 / Highlights of 2012
59 / Priorities in 2013
59 / governance principles
59 / Dialogue with stakeholders
58 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
dear shareholders and stakeholders
when you look at our Hikma emblem, you will see two words. These
are “quality” and “Hikma”, which means “wisdom”. I chose these
two words because I wanted them to underpin everything that we do.
Being wise and having high standards are, in essence, what good
governance is all about. It is not about rushing or planning for the
short-term, it is about making sure that the decisions we take today
will benefit and keep Hikma strong in the long-term.
Our approach to governance is focused on our people, as it is our
people who make the decisions and take actions that are representative
of Hikma. we are careful when recruiting to select people with the
right moral and ethical values, as well as technical skills. we invest in
our people with the aim of creating long-term partnerships. At the
Board, we are very aware that our duties include communicating our
values across the group, empowering our people to fulfil our mission
and monitoring the outcomes to ensure that they are in line with our
high expectations.
As Hikma has expanded throughout the MENA region, we have
become recognised as a thought leader and governance best practice
operator in the jurisdictions in which we operate. Hikma takes pride in
taking this leading role as well as in learning from others in order to
continually improve our performance.
I have set out below some of our key governance achievements of
the past year and some of our aims for the coming year. I continue to
be impressed with the value the Board adds to the performance of our
business and have been pleased with the improvements that have
increased our effectiveness during the year. we believe that it is
important not only to comply with the rules of the Uk Corporate
governance Code, but also its spirit, and to explain clearly if there are
circumstances where Hikma’s approach on a specific issue is different.
In 2012 we complied fully with the governance requirements applicable
to Hikma.
samih darwazah
Chairman
THE BOARD’S TIME
5
1
1. Financial
2. Operational developments
3. Strategy
2
4
4. Corporate governance
5. Training
3
19%
15%
40%
19%
7%
highLights of 2012
XX we enhanced processes for reviewing strategy, with the
appointment of a vice President for Strategy and increased
use of the Executive Committee
XX we developed our approach to reporting in order to increase
stakeholder understanding of the way our business is governed
XX we provided input into several governance and reporting
consultations of the government and other bodies
XX we sought to improve corporate communication and transparency
on executive pay by changing the format of our remuneration
report and clearly separating past pay and future policy
XX we appointed a new Company Secretary with a sole
focus on governance
XX we continued to enhance our externally facilitated board
evaluation
XX we further developed our Board and senior management
succession which is detailed in a new succession manual
XX we further developed management level training on Corporate
governance and Business Integrity issues
XX we continued to develop the Board Corporate governance
awareness through Corporate governance presentations and
updates on matter relevant to the Board
priorities in 2013
XX Continue to contribute to governance practice and thought
leadership throughout our jurisdictions of operation
XX further develop our Board and senior management
succession planning arrangements
XX further advanced our commitment to business integrity
through the implementation of relevant procedures,
policies and training
XX Develop further our externally moderated Board
evaluation processes
governance principles
The Board is committed to meeting the standards of good corporate
governance set out in the Uk Corporate governance Code (the “Code”)
and the Corporate governance Principles set out in the Markets Law
of the Dubai financial Services Authority (the “Markets Law”).
This report on pages 54 to 109 describes how the Board applied the
Corporate governance Principles during the year under review.
Throughout the year and up until the date of this report Hikma
was in full compliance with the Corporate governance Principles.
dialogue with stakeholders
Hikma is committed to communicating with shareholders and stakeholders
in a clear and open manner. If there are matters on which additional
explanation is required, we are always happy to discuss them.
The Chairman, Senior Independent Director and Committee
Chairmen remain open for discussion on matters under their areas of
responsibility, either through contacting Hikma or at the Annual general
Meeting (“AGM”). Each Committee has provided shareholders with
a separate report on their activities during the year.
Ongoing communication with shareholders is a high priority.
Hikma 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. The Board receives regular updates on investor
relations issues, including feedback from analysts. In addition, Hikma
makes formal presentations at the time of its annual and interim results
which are webcast and disseminated on Hikma’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 Hikma’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. Hikma maintains a website which is updated
regularly. Additionally, Hikma continues to communicate with the
market in respect of the group’s performance and prospects through
the release of appropriate press announcements and other updates.
59
Hikma PHarmaceuticals Plc / annual rePort 2012 4.1 governanCe report
oUr Board
samih darwazah
Non-Executive Chairman
said darwazah
Chief Executive Officer
mazen darwazah
Executive Vice Chairman, CEO of MENA
Age: 82
Age: 55
Age: 54
Appointed: 8 September 2005
Appointed: 1 july 2007
Appointed: 8 September 2005
joined Hikma: 1977
Nationality: jordanian
joined Hikma: 1981
Nationality: jordanian
joined Hikma: 1985
Nationality: jordanian
Skills and experience:
Samih Darwazah founded Hikma Pharmaceuticals
in jordan in 1977 and listed Hikma on the London
Stock Exchange in 2005. Samih was Chairman
and Chief Executive of Hikma until 2007, when
he relinquished his executive responsibilities. In the
same year, Samih won Ernst and young’s Middle
East Entrepreneur of the year Award.
A fulbright scholar, Samih holds a Masters Degree
in Industrial Pharmacy from the St. Louis College
of Pharmacy, Missouri which he obtained in 1964
and an honorary Doctor of Science degree which
he was awarded in 2010. He obtained his BSc
Degree in Pharmacy from the American University
of Beirut (AUB) in 1954. In 2012, AUB awarded
Samih the “Distinguished Alumnus Award”
for his accomplishments in the international
healthcare industry.
Samih served as Minister of Energy and Mineral
resources in jordan between 1995 and 1996.
He also founded the jordan Exporters’ Association
and served as a member of the Senate of the
Hashemite kingdom of jordan. Samih was
employed at Eli Lilly from 1964 to 1976.
Other appointments:
Samih is a member of the generics Advisory
Board of Pictet, the Swiss Bank’s fund.
Skills and experience:
Said was appointed Chief Executive Officer in july
2007. Said was Chairman and Chief Executive of the
Hikma group holding company from 1994 to 2003
and Minister of Health for the Hashemite kingdom
of jordan from 2003 to 2006.
During his thirty two years at Hikma, Said has
undertaken several executive roles which have
provided him with extensive experience in
each functional area of Hikma’s global generic
pharmaceuticals business and in the broader
strategic leadership of an international entrepreneurial
organisation. Said has played a key role in the
development of the group strategy, including the
acquisition of west-ward Pharmaceuticals in the
USA and the development of the Injectables business
in Europe and the MENA region. Under Said’s
leadership, Hikma’s facilities in the USA, jordan
and Portugal received US fDA approval, the leading
international pharmaceutical regulatory standard.
Said has a degree in industrial engineering from
Purdue University and an MBA from INSEAD.
Other appointments:
Said is founder of the Healthcare Accreditation
Council of jordan. Said is Chairman of the Dead
Sea Touristic and real Estate Investments. He is a
member of the Central Bank of jordan Board.
He is a Director of Endeavour jordan, a charitable
organization that assists in the development of
entrepreneurs, and a Trustee of jordan river
foundation, a charitable organization that aims
to empower jordanian society. Said is a Trustee
at the American University of Beirut.
Skills and experience:
Mazen was appointed group Executive vice-
Chairman and MENA CEO in 2005. During his 28
years’ service at Hikma, he has held an extensive
range of positions within the group starting as a
medical representative and working in different
capacities including Chairman and CEO of Hikma
Pharmaceuticals Limited, a major group operational
and holding company.
As Chief Executive of MENA, Mazen is leading the
geographical expansion and consolidation of Hikma
in MENA region and the formation of strategic
business partnerships. Mazen is the executive
lead of Hikma’s corporate social responsibility and
business integrity programmes.
Mazen holds a BA in Business Administration
from the Lebanese American University and an
AMP from INSEAD. He has served as the President
of the jordanian Association of Manufacturers
of Pharmaceuticals and Medical Appliances.
Other appointments:
Mazen is a Senator of the Hashemite kingdom of
jordan and the Chairman of the jordan International
Insurance Company. He is vice Chairman of the
Capital Bank of jordan. Mazen is also a Member
of Board of Trustees of yarmouk University (jordan).
He is on the advisory board for the Lebanese
American University (LAU) Lebanon, and the
Buck Institute for Education, San francisco.
Committee membership:
Nomination Committee
Compliance, responsibility and Ethics Committee
Corporate responsibility Committee (Chairman)
60 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
sir david rowe-ham
Senior Independent Non-Executive Director
ali al-husry
Non-Executive Director
michael ashton
Independent Non-Executive Director
Age: 77
Age: 55
Age: 67
Appointed: 14 October 2005
Appointed: 14 October 2005
Appointed: 14 October 2005
joined Hikma: 2005
Nationality: British
joined Hikma: 1981
Nationality: jordanian
joined Hikma: 2005
Nationality: Australian
Skills and experience:
Sir David brings to Hikma wide experience in
financial matters, corporate governance, public
affairs, and the development of listed companies.
Sir David is a former Lord Mayor of London, and
has held many senior positions in Uk financial
institutions including serving as Chairman of Brewin
Dolphin Holdings PLC and Arden Partners PLC.
He is a past President of The Crown Agents foundation
and a former regional director of Lloyds Bank plc.
Skills and experience:
Ali joined Hikma as director of Hikma Pharma
Limited in 1981 and has held various directorships
within the group. Ali brings great financial
experience to the Board as well as an in-depth
knowledge of the MENA region and Hikma
Pharmaceuticals. Ali was a founder of The Capital
Bank of jordan, which offers commercial and
investment banking services, and served as
Chief Executive Officer of the Bank until 2007.
Skills and experience:
Michael has over 30 years’ experience in the
pharmaceutical industry, holding senior executive
positions with Pfizer and Merck. Michael was
Chief Executive Officer of SkyePharma PLC from
November 1998 to March 2006 and prior to that
was Chairman, President and Chief Executive
Officer of faulding. He has held a number of
non-executive and advisory positions across the
pharmaceutical industry.
Other appointments:
Sir David is Chairman of Olayan Europe Ltd.
Ali has a degree in Mechanical Engineering
from the University of Southern California and
an MBA from INSEAD.
Michael has a Bachelor of Pharmacy degree
from Sydney University, and his MBA degree from
rutgers University, New jersey.
Committee membership:
Audit Committee
Nomination Committee (Chairman)
remuneration Committee
Other appointments:
Ali is Chairman of Endeavour jordan, a not for
profit organisation that assists in the development
of entrepreneurs and a director of the Microfund
for women, which provides microfinance to
low-income female entrepreneurs. Also, he is
a member of the Board of Trustees of the jordan
Museum. Ali is a director of the Capital Bank
of jordan.
Other appointments:
Michael is a non-executive director at Transition
Therapeutics, a therapeutics biopharmaceutical
company. He is also Chairman of PuriCore plc,
water-based clean technology company, and komix,
a children’s educational organisation.
Committee membership:
Audit Committee
Nomination Committee
remuneration Committee (Chairman)
61
Hikma PHarmaceuticals Plc / annual rePort 2012 oUr Board
continued
Breffni Byrne
Independent Non-Executive Director
dr. ronald goode
Independent Non-Executive Director
robert pickering
Independent Non-Executive Director
Age: 67
Age: 69
Age: 53
Appointed: 14 October 2005
Appointed: 12 December 2006
Appointed: 1 September 2011
joined Hikma: 2005
Nationality: Irish
joined Hikma: 2006
Nationality: American
joined Hikma: 2011
Nationality: British
Skills and experience:
Breffni is a chartered accountant with over 30 years
of experience in public practice, including significant
international responsibilities. Breffni served as the
Managing Partner of the Audit and Business Advisory
practice of Arthur Andersen in Ireland and as Director
of risk Management of Andersen’s audit practice in
Middle East, India, Africa and the Nordic countries.
Breffni has extensive experience in financial reporting,
international operations, corporate governance and
general financial and commercial matters. He is a
former non-executive director of Irish Life and
Permanent plc. He is considered by the Board to
have recent and relevant financial experience.
Breffni holds a Masters degree in Economic
Science from the University College, Dublin and
is a Chartered Accountant.
Skills and experience:
ron has spent over 30 years in the international
pharmaceutical industry, including roles as President
of International Operations at Searle and vice
President of Clinical and Scientific Affairs at Pfizer.
His extensive experience includes leading companies
as CEO and acting as an adviser to companies
in the pharmaceutical industry. He also advises
companies involved in nanotechnology and in the
information technology business sectors.
ron was formerly President and Chief Executive Officer
of Unimed Pharmaceuticals, Inc. and exegenics Inc.
He is a trustee of Thunderbird School of global
Management, which is ranked by the financial Times
as the premier international business school.
ron has a PhD from the University of georgia and
a MS and BS from the University of Memphis.
Other appointments:
Breffni is a non-executive director of Aviva Life
and Pensions Ireland and NCB Stockbrokers,
an independent financial services company. He is
also a non-executive director of Tedcastles Holdings,
an oil distribution company, and Cpl resources plc,
a human resources company. He chairs the audit
committee of all of the above companies.
Committee membership:
Audit Committee (Chairman)
Compliance, responsibility and Ethics Committee
remuneration Committee
Other appointments:
ron is the Chairman of The goode group, advisers
to the pharmaceutical industry. ron is a director
of Mercy Ships International, a medical services
charity. He is a Senior Business Adviser to The kinsella
group, an investment banking company.
Committee membership:
Audit Committee,
Compliance, responsibility and Ethics Committee
(Chairman),
remuneration Committee
Skills and experience:
robert spent 23 years at Cazenove & Co., becoming
the first Chief Executive of Cazenove group PLC
in 2001. He subsequently served as Chief Executive
of jP Morgan Cazenove, until his retirement in
2008. He has extensive experience of capital raising,
mergers and acquisitions and of the relationship
between quoted companies and investors.
robert is a qualified solicitor with a law degree
from Lincoln College, Oxford.
Other appointments:
robert is a non-executive director of Neptune
Investment Management, a fund management
company and Itau BBA International PLC, the
investment bank of the Itaú Unibanco group.
He is Chairman of the Trustees of Lincoln College
Oxford 2027 Trust.
Committee membership:
Audit Committee
Nomination Committee
Compliance, responsibility and Ethics Committee
62 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
4.1 governanCe report
senior management
majda Labadi
Corporate Vice President,
Human Resources
Khalid nabilsi
Chief Financial Officer
susan ringdal
Vice President, Corporate Strategy
and Investor Relations
Appointed to current role: 2009
Appointed to current role: 2011
Appointed to current role: 2012
joined Hikma: 1985
Nationality: jordanian
joined Hikma: 2001
Nationality: jordanian
joined Hikma: 2005
Nationality: American
Skills and experience:
Susan joined Hikma as Investor relations Director,
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. In early 2012 Susan
assumed responsibility for corporate strategy.
Susan holds a BA in History from Cornell University
and an MBA from London Business School.
Skills and experience:
During her 28 years at Hikma, Majda has held a
variety of roles including Purchasing Manager at
Hikma Pharmaceuticals Limited, Strategy Manager
at Hikma Investment, general Manager of Hikma
farmaceutica and vice President of Injectables.
In february 2009 Majda assumed her current position
as Corporate vice President, Human resources.
She has been responsible for establishing a central
human resource practice and leading the development
of several group wide initiatives, including the grading
structure, performance evaluation process and the
group bonus scheme.
Majda has completed the Advanced Management
Program (AMP) program at INSEAD, holds a
BA from the American University of Beirut and
masters degree from Hochschule für Okonomie
in Berlin, germany.
Skills and experience:
Prior to assuming his current role, khalid held several
senior positions in the Hikma finance department
including Corporate vice President, finance and was
a key member of the IPO team in 2005. 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 mergers and
acquisitions advisory services. Prior to Atlas, khalid
had managed several multinational audit engagements
at Arthur Andersen in Amman, jordan. As Chief
financial Officer, khalid has integrated several
acquisitions into the financial reporting structure,
developed the group internal control framework
and implemented new leverage arrangements to
fund acquisitions and capital investment.
khalid is a US Certified Public Accountant and
has an MBA from the University of Hull.
Other appointments:
khalid is a founder of the jordan Association for
Management Accountants and a board member of
the jordan Armed forces and Security Apparatuses
Credit Union.
63
Hikma PHarmaceuticals Plc / annual rePort 2012 senior management
continued
Bassam Kanaan
President and Chief Operating Officer
for the MENA and EU regions
michael raya
President and CEO of the USA
riad mishlawi
EU Vice President and Global Head
of Injectables
Appointed to current role: 2011
Appointed to current role: 2008
Appointed to current role: 2011
joined Hikma: 2001
Nationality: jordanian
joined Hikma: 1992
Nationality: American
joined Hikma: 1990
Nationality: Lebanese
Skills and experience:
Michael joined Hikma’s US subsidiary west-ward
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. At Hikma 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 President and
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.
Skills and experience:
riad joined Hikma 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 many Hikma sites, was general manager
of Hikma Italy and became Head of Injectables
Manufacturing Operations before assuming his
current role. riad was an executive director at
watson Pharmaceuticals from 1998 to 2005,
responsible for Injectables operations. riad has
led the injectables divisional through a period
of rapid growth and has integrated operations
into a global operation.
riad has a BSc in Engineering and a Masters
in Engineering and Management from george
washington University.
Skills and experience:
Bassam started his career in 1986 with Deloitte &
Touche (Los Angeles) where he held a variety of roles
prior to joining PADICO in 1994 as CfO. Bassam
joined Hikma as CfO in 2001 and played a leading
role in preparing for Hikma’s IPO in 2005 and in
its subsequent M&A activity. In february 2009,
in addition to his responsibilities as CfO, Bassam
assumed responsibility for Operations, Manufacturing
and Supply Chain management in Europe & MENA.
In january 2011, Bassam was promoted to the
position of President and Chief Operating Officer for
the MENA and EU regions. Bassam has led the
growth, acquisition, and operational improvement
strategy in the MENA region. He also implemented
management restructuring initiatives aimed at
strengthening local management teams which
proved very effective in improving performance.
Bassam is qualified as a Certified Public Accountant
(CPA) and Chartered financial Analyst (CfA). Bassam
has a BA from Claremont Mckenna College and an
International Executive MBA from kellogg/recanati
Schools of Management.
Other appointments:
Bassam currently holds non-executive directorships
in Arab Bank. He has previously served on the Boards
of Aqaba Development Co., jordan Dubai Properties,
Zara Holding, Capital Bank of jordan, CEgCO and
Paltel. Bassam is active in several non-profit and
charity organizations and is currently a member
of the Board of Trustees of the welfare Association
in jordan.
64 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
henry Knowles
General Counsel
peter speirs
Company Secretary
dr ibrahim jalal
Senior Corporate Vice President,
Technical Affairs
Appointed to current role: 2005
Appointed to current role: 2012
Appointed to current role: 2000
joined Hikma: 2005
Nationality: British
joined Hikma: 2010
Nationality: British
joined Hikma: 1979
Nationality: jordanian
Skills and experience:
Since joining Hikma, Henry has advised on all
legal aspects of the group’s business, including
commercial negotiations, litigation and regulatory
matters as well as contributing to the execution
of the group’s acquisitions. More recently Henry
has been responsible for developing the group’s
enhanced corporate compliance programme.
Before joining Hikma, Henry worked for the
international law firm, Ashurst, where he specialised
in mergers & acquisitions, equity capital markets
and corporate law.
Henry is admitted as a solicitor in England and wales
and holds an MA in Social and Political Science from
Trinity College, Cambridge.
Skills and experience:
Peter joined Hikma as a Deputy Company Secretary
in 2010. Prior to joining Hikma, he worked in the
Corporate Secretariat of Barclays and Pool re,
the Uk terrorism re-insurer. He also worked at
Manifest, a leading Corporate governance Agency.
In 2012, Peter assumed the role of Company Secretary.
Peter is responsible for advising on governance
at the Board and across the group, as well as the
share-based compensation arrangements.
Peter is a fellow of the Institute of Chartered
Secretaries and Administrators and holds a law
degree from University of East Anglia.
Skills and experience:
Ibrahim joined Hikma 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.
65
Hikma PHarmaceuticals Plc / annual rePort 2012 senior management
continued
fadi nassar
Corporate Vice President, Active
Pharmaceutical Ingredients
ragheb al-shakhshir
Corporate Vice President,
Research & Development
Appointed to current role: 2007
Appointed to current role: 2009
joined Hikma: 1988
Nationality: jordanian
joined Hikma: 2000
Nationality: jordanian
Skills and experience:
fadi 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 is a Director of
Hubei Haosun Pharmaceutical Co. Ltd., an Active
Pharmaceutical Ingredient manufacturing company
in which Hikma purchased a significant minority
interest in 2011.
fadi holds a BSc in Chemical Engineering
from Newcastle University and an MSc in
Chemical Engineering from Leeds University.
fadi is also a graduate of INSEAD’s International
Executive Program.
Skills and experience:
ragheb joined Hikma 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, Masters in
Engineering from the University of Massachusetts-
Amherst and a BSc in Chemical Engineering
from the University of wisconsin-Madison.
66 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
4.1 governanCe report
Board Composition
During 2012, the Board comprised nine Directors:
roLes and responsiBiLities
The Board is responsible for setting the strategic direction and
monitoring the financial performance of the group against its targets.
The Board promotes good governance within the group, and seeks to
ensure that Hikma meets its responsibilities to shareholders, employees,
suppliers, customers and other stakeholders. There is a formal schedule
of matters reserved for the Board, which was reviewed in 2012 as part
of the annual corporate governance review conducted by the Audit
Committee and approved by the Board. The schedule includes approval
of strategic plans, financial statements, budget, material investment
decisions, acquisitions and divestments, and responsibility for the
effectiveness of the group’s systems of internal control.
The Board delegates its authority to the Chief Executive who is
responsible for delivering Hikma’s strategic objectives. The Chief
Executive is assisted in this task by the Executive Committee the
members of which meet with the Chief Executive to set strategy and
key objectives for their areas of responsibility. The Chief Executive
reports on operational progress and corporate actions to the Board.
where appropriate, the Chief Executive is assisted by internal and
external advisers in presenting operational progress and key strategic
decisions to the Board.
INTErNAL ADvISErS
ExTErNAL ADvISErS
XX CEO US
XX CfO
XX COO MENA
XX Ashurst
XX Addleshaw goddard
XX Bank of America Merrill Lynch
XX Company Secretary
XX Citigroup
XX general Counsel
XX Centerview Partners
XX vP EU and Injectables
XX Deloitte
XX vP Human resources
XX Ernst & young
XX vP Ir and Strategy
XX Lintstock
XX PwC
Board
XX One Non-Executive Chairman
XX Two Executive Directors
XX One Non-Independent Non-Executive Director
XX five Independent Non-Executive Directors
THE BOARD COMPOSITION
1
1. Chairman
2
2. Executive directors
3. Non-Independent NED
4. Independent NEDs
11%
22%
11%
56%
3
4
The names of the Directors, their biographical details and dates
of appointment are set out on pages 60 to 62.
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 directly with the Chairman. Sir David is
also responsible for chairing the meetings of the Non-Executive
Directors conducted without the presence of the Chairman or
executive management.
Chairman and Chief executive
The roles of the Chairman and Chief Executive Officer are separate,
and the Board has approved statements of their respective responsibilities
in writing. These statements were reviewed during 2012 as part of the
annual corporate governance review.
The Chairman previously held the role of Chairman and Chief
Executive. In 2007, he relinquished his executive responsibilities and
continued as Non-Executive Chairman.
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.
67
Hikma PHarmaceuticals Plc / annual rePort 2012 4.1 governanCe report
continued
independence
The Board considers Sir David rowe-Ham, Michael Ashton, ronald
goode, Breffni Byrne and robert Pickering to be independent. These
individuals provide extensive experience of international pharmaceutical,
financial, corporate governance and regulatory matters and were
not associated with Hikma prior to the listing of Hikma in 2005.
The Board reviewed and considered the independence of the
Non-Executive Directors during the year as part of the annual corporate
governance review. The Board considers that their diverse business
backgrounds, skills and experience enable all the Non-Executive
Directors to continue to bring independent judgement to bear on issues
of strategy, performance, resources, key appointments, standards of
conduct and other matters presented to the Board.
The Board does not classify Ali Al-Husry as an Independent
Director because of his involvement with Darhold Limited, Hikma’s
largest shareholder. He was also a Director of Hikma prior to listing.
However, he continues to bring to the Board broad financial experience
and a detailed knowledge of the MENA region which represents the
majority of the group’s business.
effeCtiveness
skills and experience
The Board keeps the skills and experience of its members under
constant review. The Directors believe in the necessity for challenge and
debate in the boardroom and consider that existing Board dynamics
and processes encourage honest and open debate with the Executive
Directors.
hikma Knowledge
Board members are encouraged to visit the business units and to meet
management teams in order to facilitate a better understanding of the
key issues facing the business.
The Non-Executive Directors undertook several operational visits
during the year, and maintain an excellent understanding of the way
the business operates.
The Chairman, Mr. Ali Al-Husry and the Executive Directors have
extensive experience of Hikma from its earliest days to its current day.
The directors maintain an appropriate dialogue amongst
themselves and senior management, which ensures that non-executive
directors are kept up to date with major developments in the group’s
business.
training
The main Board training and development activities this year were:
XX External training on the legal and regulatory landscape.
XX External training on Anti-Bribery and Anti-Corruption.
XX The Company Secretary made regular updates to the Directors
on relevant regulatory and governance matters.
XX Directors attended several externally provided seminars
and discussion forums. further training is scheduled for 2013.
XX Hikma’s brokers and financial advisers presented industry
and market updates to the Board on several occasions.
XX The Investor relations department reported to the Board on its
activities and issues arising in the market on a regular basis.
evaluation
The Board and the Committee undertake an externally moderated
evaluation each year. The key points of the programme are:
BOArD ExPErIENCE
International exposure
Pharmaceutical
Manufacturing
Sales
regulatory
Listed
environment
finance
gEOgrAPHICAL SPLIT
67%
67%
67%
67%
56%
68 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
XX The process is coordinated by the Senior Independent Director
100%
at the request of the Chairman.
XX Lintstock, our external moderator prepared online questionnaires
for both the Directors and Senior Management designed to build
on previously identified themes.
XX In 2012 the Board enhanced the evaluation with new questionnaires
which were sent to senior management. Such an extra participation
injected a wider perspective into the evaluation.
100%
XX Lintstock managed the process and reported independently to the
Chairman and the Senior Independent Director. Lintstock presented
the results and findings to the full Board in the context of Hikma’s
business and that of its peers.
XX In the fTSE and international markets and provided their
independent feedback on the results.
XX A similar process was followed for each Committee.
The main elements of the questionnaire were:
meetings
XX Board composition
XX Time management
XX Board information
XX Strategic oversight
XX Operational oversight
information flow
The Company Secretary supports the Chairman in setting the Board
agenda, ensuring appropriate reports from executive management
and advisors are delivered in a timely manner and that Directors have
the information they need in order to make fully-informed decisions.
During the year the Board received presentations and considered the
following matters:
XX Succession planning and human resource management
XX financial performance
XX Case study
XX Priorities for change
The key conclusions and observations from the 2012 evaluation were:
XX The Board continues to operate effectively
XX The views of each member were openly communicated
and appropriately taken into account
XX The Board will continue to work on Strategy, risk and Succession
XX Divisional operational performance and business development
XX Legal update
XX Corporate governance update
XX Executive Committee and Strategic updates
XX Committee Chairmen report
XX Acquisitions
XX Investor relations
Significant progress had been made on previously identified issues:
XX financial markets performance/broker update
OBSErvATIONS
ACTION TAkEN
focus upon Board and executive
succession planning
Duplication in reviewing detailed
financial information at the
Board and Audit Committee
Increased communication
on Hikma Strategy
A succession manual has been
approved by the Board and
lays down the procedures for
Board and executive succession.
financial presentation format
was changed to improve
clarity of information and
presentation style.
Enhanced use of the
Executive Committee to
consider group Strategy.
In 2013 the Board will consider whether to enhance the externally
moderated evaluation with face-to-face Director interviews, based on
the continued added value this could bring to the Board’s operations.
The results of the evaluation process formed part of the Chairman’s
appraisal of the overall effectiveness of the Board and its members.
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.
XX risk management
XX Insurance
XX Human resources
XX Compliance
XX research and development
XX Tax
The Board governance Manual contains the policy for Directors to
obtain independent legal advice at Hikma’s expense.
Company secretary
The Company Secretary reports to the Chairman. All directors have
access to the advice and services of the Company Secretary, who is
responsible for ensuring good information flow to the Board and its
committees, and that sound Board procedures are followed. The
appointment and removal of the Company Secretary is a matter
reserved for the Board.
non-executives
The Chairman holds meetings with Non-Executive Directors (without
the executive management present) to discuss issues affecting the
group. As in previous years, the Independent Non-Executive Directors
have met without the Chairman or Executive Directors being present
on several occasions during the year.
attendance
During the year under review the Board held nine scheduled meetings
and one unscheduled meeting. The annual cycle of the Board’s work is
detailed in the Calendar section below.
The Company Secretary attended all Board Meetings and
Committee Meetings. At the discretion of the Board or relevant
committee, senior management are invited to attend meetings and make
presentations on developments and results in their business divisions.
69
Hikma PHarmaceuticals Plc / annual rePort 2012 4.1 governanCe report
continued
The table below shows attendance at the Board and Committee meetings. To the extent directors were unable to attend additional meetings
called on short notice, or were prevented from doing so by prior commitments, they received and read the papers for consideration at that
meeting, relayed their comments in advance and, where necessary, followed 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
ronald goode
robert pickering
Total Meetings Held
BOArD
AUDIT
rEMUNErATION
NOMINATION
COMPLIANCE
100%
100%
100%
100%
100%
100%
100%
100%
100%
9
–
–
–
–
100%
100%
100%
100%
100%
10
–
–
–
–
100%
100%
100%
100%
100%
7
–
–
75%*
–
100%
–
100%
–
100%
4
–
–
100%
–
–
100%
–
100%
100%
7
* Mr. Mazen Darwazah was unavailable for one Nomination Committee meeting due to his attendance being required at an Executive Committee meeting
direCtors
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 91 to 93. They are made available for
inspection before the Annual general Meeting and during business
hours at Hikma’s registered office at 13 Hanover Square, London.
external Commitments
The Directors’ external commitments are detailed in their profiles on
pages 60 to 62. The Audit Committee operates, monitors and reviews
the conflicts of interest procedures, which have operated effectively
during the year. A register of external commitments is maintained by
the Company Secretary and is reviewed, updated at each Audit
Committee and Board meeting. where new commitments are
proposed, these are reviewed in advance by the Audit Committee
and where appropriate, recommendations on necessary controls are
made to the Board.
The Board considers that a degree of outside commitments
enhances a Director’s ability to perform the role.
duties and Commitment
The Directors commit an appropriate amount of time to their roles and
are readily available at short notice. The letters of appointment require
Non-Executive Directors to commit 20 days during each year to the
execution of their duties. However, all of the Non-Executive Directors
devote at least 30 days per annum to their Hikma responsibilities. In
addition, the committee chairmen spend a significant amount of time
on their respective areas of responsibility and Non-Executive Directors
take time to meet with management and visit operations where
there have particular areas of interest. Consequently, the independent
Non-Executive Directors dedicate substantially more time to Hikma
than their appointment requires.
The duties of the directors, Chief Executive, Chairman and
Committee chairmen are set out in the Board governance Manual.
remuneration
The remuneration report is on pages 82 to 103.
indemnities and insurance
Hikma maintains an appropriate level of Directors’ and Officers’
insurance. The Directors benefit from qualifying third party indemnities
made by Hikma 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.
70 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
deLegation of aUthority
introduction to the Committees
The Board has an extensive workload and, therefore, has delegated
the detailed oversight of certain items to four committees:
XX Audit Committee
XX Nomination Committee
XX remuneration Committee
XX Compliance, responsibility and Ethics Committee (“CREC”)
Each committee has terms of reference which were reviewed during
the year. Copies are published on the group’s website and are available
for inspection at the registered office at 13 Hanover Square, London.
reporting to the Board
The Chairmen of each Committee report on that Committee’s business
at every Board meeting. The minutes of each Committee are made
available to the entire Board. Each Committee makes a formal annual
report to shareholders in the Annual report.
for and on behalf of the Board of Directors of Hikma
Pharmaceuticals PLC
peter speirs
Company Secretary
12 March 2013
matters reserved to the Board
Hikma maintains a formal schedule of matters reserved to the Board in
the Board governance Manual. This includes the following items:
XX Operational Management
Approval of strategy, operations oversight,
performance review
XX Structure & Capital
Approval of changes to group structure or changes
to capital structure
XX financial reporting & Controls
Approval of financial announcements, accounts,
dividends, conducting significant changes to treasury
and accountancy practice
XX Internal Controls
reviewing the effectiveness of the group’s risk
and control processes, including an annual assessment
XX Contracts
Approval of significant contracts, investments
and projects which meet pre-set monetary thresholds
XX Communication
Approval of certain press releases, and all circulars
and prospectuses
XX Board Membership and Other Appointments
Approval of changes to board structure and
composition, succession, auditors, company secretary
XX remuneration
Determining remuneration policy for senior management
and Directors and officers, amending or introducing
share incentive plans
XX Corporate governance
Annually reviewing Board, Committees and individual
Director performance, and reviewing corporate governance
arrangements
71
Hikma PHarmaceuticals Plc / annual rePort 2012
4.2 Committee reports
aUdit
OPEN fOr DISCUSSION
Call +44 20 7399 2760
or E-mail: investors@hikma.uk.com
dear shareholder
I would like to give you an overview of the operation and scope of the
Audit Committee and report on its work over the past year.
The membership of the Audit Committee has not changed during
the year, it comprised Sir David rowe-Ham, Michael Ashton, ronald
goode, robert Pickering and myself. The Committee’s written terms of
reference are available on Hikma’s website.
The Committee met ten times during the year. we invited the
Chief financial Officer, Auditors, Internal Auditors and certain members
of the finance team to attend meetings as required. As in previous
years, the Committee met with the internal and external auditors
without management present.
The Committee has an annual cycle of work relating to reviewing
financial performance and forecasting, results announcements,
internal control, risk management and internal and external audit.
The finance department has continued to provide first rate
reporting, whilst working on the complex integration of our
acquisitions and the development and output of management
reporting systems.
As an organization Hikma is committed to clear and open
communication. As I mentioned last year, I remain open to discussion
with shareholders should they have any concerns that they wish to raise
directly with me.
Breffni Byrne
Chairman of the Audit Committee
Letter from the Chairman
AUDIT rEPOrT
72 / Letter from the Chairman
73 / Our Highlights
73 / Membership and attendance
73 / responsibilities
73 / Terms of reference
74 / risk
74 / Internal Audit
75 / Internal Control
75 / External Audit
72 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
oUr highLights
XX reviewed the corporate governance of the group and
made recommendations to the Board
XX Monitored the performance and findings of the external
and internal auditors
XX Implemented the results of the 2012 Audit Committee’s
evaluation exercise
XX Participated in the financial reporting Council (frC) consultation
on changes to the Uk Corporate governance Code and
the accompanying guidance on audit committees
XX responded to an frC survey on the role of internal audit in
providing assurance over the control of risks associated with
executive remuneration
XX Monitored the non-audit services provided by the auditor
XX reviewed the preliminary statement, the Interim financial
Statements and the Interim Management Statements
ALLOCATION OF COMMITTEE’S TIME
1
6
1. Financial performance
2. Announcements/
financial results
2
3
3. Forecasts
4. Internal audit
5. External audit
5
4
6. Corporate governance
23%
9%
16%
13%
28%
11%
membership and attendance
The Audit Committee consists of five Independent Non-Executive
Directors – Breffni Byrne (Committee Chairman), Michael Ashton,
Sir David rowe-Ham, ronald goode and robert Pickering.
MEMBErS
Breffni Byrne (Chairman)
michael ashton
sir david rowe-ham
ronald goode
robert pickering
total meetings
MEETINgS ATTENDANCE
100%
100%
100%
100%
100%
10
INTErNAL ADvISErS
ExTErNAL ADvISErS
XX Chief financial Officer
XX Deloitte (Audit)
XX Company Secretary
XX Ernst & young (Internal Audit)
XX financial reporting Director
XX Treasury Director
XX Budget Director
All members of the Committee have extensive financial experience,
including international operations. The Committee has significant
financial experience. The Chairman has over 30 years’ experience
as a public accountant and is considered by the Board to have
recent and relevant financial experience. All members have spent
a significant portion of their careers in leading positions at financial
or pharmaceutical companies.
responsibilities
The Audit Committee assists the Board in discharging its responsibilities
with regard to financial reporting, external and internal audit, internal
control and corporate governance. The Committee reviews Hikma’s
annual report, financial statements, interim report, interim
management statements and trading updates, monitors any non-audit
work undertaken by external auditors, and monitors the effectiveness
and output of Hikma’s internal audit activities, internal controls and risk
management systems. The Committee is responsible for overseeing
corporate governance arrangements across the group, including the
annual corporate governance review.
The Audit Committee advises the Board on the appointment,
re-appointment and removal of the external auditors, as well as the
effectiveness of the audit process. The Committee operates Hikma’s
policies on monitoring Directors’ conflicts of interest.
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. They are approved and reviewed by the Board as part of
the annual corporate governance review and one addition was made
this year in respect of ensuring the annual report is fair and balanced.
The terms of reference are available on the Hikma website and by
contacting investors@hikma.uk.com.
They are summarised as follows:
XX monitor the integrity of the financial statements and any
other formal announcement relating to the group’s financial
performance; review summary financial statements and
Interim Management Statements
XX review and challenge the adoption of accounting standards,
estimates and judgements and the clarity of disclosure in
financial reports
XX review and challenge compliance with stock exchange,
Uk Listing Authority and legal requirements including the
requirements of the Code and Markets Law
XX monitor and review the internal financial controls and the
group’s overall risk identification and management systems
73
Hikma PHarmaceuticals Plc / annual rePort 2012 risk
The Committee oversees Hikma’s risk management framework in the
context of its responsibilities for internal control and annually reviews
the strategic risks facing the group. Part of the work of the group
Internal Audit function is, in consultation with management, to prepare
an annual assessment of the risks facing the group, identified both as a
result of their assurance work on the group’s control environment and
through discussions with senior management. Their report covers the
group’s approach to strategic, operational, compliance and financial
risk. This review is presented to the Audit Committee and forms the
basis for subsequent corrective actions and informs the work to be
undertaken in the subsequent audit year. Additionally, the Audit
Committee discusses business and operational risks with the external
auditors to the extent that these are identified by the audit work that
they perform. Details of the principal risks facing Hikma and action taken
to mitigate and control those risks are detailed on pages 38 to 40.
internal audit
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.
The internal audit process focuses on reviewing areas of business risk,
internal controls, and financial reporting across the group’s systems.
The internal auditors report directly to the Chairman of the Audit
Committee, with regular reports of its findings made to the Audit
Committee. The internal audit programme operates as follows:
XX The internal auditors, in consultation with management,
prepare an annual risk Assessment, which gives the focus
for the Audit Plan and the entities to be targeted. It covers
the principal risks and uncertainties facing the group, details
of previous geographical and functional reviews, whether
new assets/entities have been acquired, the situation and
risks identified arising from previous audits
XX The risk Assessment and the resulting Internal Audit Plan
are presented to the Audit Committee Chairman for review
XX following the Chairman’s comments, the final assessment
and Audit Plan is presented to and approved by the
Audit Committee
XX following completion of each review, the Internal Auditors
identify areas for remedial action and action plans are
discussed and agreed with management. The findings
and actions are used to create an Internal Audit report
for each subsidiary/geography
XX The Internal Audit reports and progress on Action Plans
are submitted to the Audit Committee, including reporting
if management fall behind agreed action plans
XX The Audit Committee reports to the Board on internal
audit matters
4.2 Committee reports
Audit continued
E S P O N S I B ILITY AND ETHICS
E , R
C
N
P LI A
M
C O
G E M E N T
RIS K
M
A N A
G
T I N
R
O
P
E
R
E
E
T
T
I
M
M
O
C
N
O
I
T
A
N
I
M
O
N
THE BOARD
COMMITTEES
INTERNAL
CONTROL
AUDIT
A
U
D
I
T
C
O
M
M
I
T
T
E
E
C
O
G
O
RPO
VERN
RATE
CE
N
A
R
E
M
U
NERATION COMMI T T E E
I
N
A
T
E
U
R
D
N
I
T
A
L
Terms of reference continued
XX 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
XX review and monitor management’s responsiveness to the
findings and recommendations of the internal auditors
XX consider and make recommendations for appointment,
re-appointment and removal of Hikma’s external auditor,
and oversee the relationship with the external auditor
XX review and monitor the quality, independence and objectivity of
the external auditor and approve their remuneration and terms of
engagement
XX review and monitor the directors’ potential conflicts of interest and
make recommendations to the Board for the management of those
interests
XX 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
74 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
internal Control
The Board reviewed the effectiveness of the group’s systems of
internal controls and risk management during the year and confirms
that it accords with the relevant guidance.
The Board has overall responsibility for the group’s systems of
internal control and has established a continuous process for identifying,
evaluating and managing the risks the group faces. This draws on the
ongoing output of the finance department on group performance,
the work of the internal auditors and issues identified by the external
auditors to the extent covered by their audit work. The Board is
responsible for monitoring the ongoing effectiveness of these systems
and for conducting a formal annual 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.
external audit
The Audit Committee is responsible for the development,
implementation and monitoring of the group’s policy on external
audit, which is undertaken by Deloitte LLP and for monitoring the
independence and objectivity of the external auditors. The Audit
Committee is also the primary point of contact for the auditors with
the Board. The group has adopted a policy on the provision of
non-audit services by the external auditors, which is included in the
Board governance Manual, setting out which non-audit services
the external auditors may and may not provide to the group.
The group also maintains a policy requiring prior approval by the
Audit Committee for recruitment of a senior member of the audit
team or the recruitment of an employee of the external auditors
to a senior finance position within the group.
The key elements are as follows:
XX A documented and disseminated reporting structure
with clear procedures, authorisation limits, segregation
of duties and delegated authorities
XX 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
XX A comprehensive system of internal financial reporting
which includes regular comparison of results and against
budget and forecast, and a review of kPIs, each informed
by management commentary
XX A system of documented reporting controls over our
joint ventures and associates together with direct support
from the Hikma finance function
XX A defined process for controlling capital expenditure
and other financial commitments, including appropriate
authorisation levels, which are monitored and approved
by the Board as appropriate
XX written policies and procedures for material functional areas
with specific responsibility allocated to individual managers
The group continues to grow through acquisition. Accordingly,
the Board and the Committee place significant importance on the
swift integration of acquired businesses in terms of internal and
financial control. This builds on information gathered in the legal,
financial, business and regulatory due diligence undertaken in
advance of any transaction, and focuses on financial personnel
support, imposition of Hikma reporting policies, IT consistency and
subsequent internal audit work.
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 ensure the quality
of the audit. The Committee reviewed this during the year and
concluded that the existing team continue to conduct an effective
audit, that 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 relay them clearly
to the Committee. The Committee believes 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 Hikma listed in 2005. The external auditor is required to rotate the
audit partner responsible for the engagement every five years. This is
the second year of the current lead audit partner. There are no
contractual obligations that restrict the Company’s choice of external
auditor.
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. During the period under review the group used members of the
global Deloitte network in certain jurisdictions for non-audit services.
Deloitte are instructed for advisory work only after a competitive tender
process and with the approval of the Audit Committee. The Committee
regularly reviews the independence safeguards of Deloitte and only
authorises non-audit work where the Committee considers it would
not be able to obtain advice of similar quality for a reasonable cost.
Should shareholders wish to discuss the situation with Hikma, the
Chairman of the Audit Committee will be happy to make himself available.
for and on behalf of the Audit Committee
Breffni Byrne
Audit Committee Chairman
12 March 2013
75
Hikma PHarmaceuticals Plc / annual rePort 2012 4.2 Committee reports
nomination
OPEN fOr DISCUSSION
Call +44 20 7399 2760
or E-mail: investors@hikma.uk.com
dear shareholder
During 2012, the Nomination Committee’s time has primarily focused
on medium-term succession considerations. we have adopted a
new, internal succession manual, which outlines certain key policy
considerations when considering how to develop the Board.
whilst we did not make any changes to the Board over the year,
we have considered potential scenarios over the medium-term.
As I mentioned last year, when we were seeking a new non-
executive, our priority on recruitment is to identify a person who fits
with the diverse international culture and management style of Hikma.
we are cognisant of the significant advantages of diversity at the level
of the Board, senior management and the group as a whole, which
assists us in ensuring that the right person is appointed to the role.
Hikma has an excellent record leading on diversity across the MENA
region. Increasing gender diversity at the board level is high on the list
of considerations in our medium-term plans.
On other matters during the year under review, Dr. ron goode
reached six years’ service. we carefully considered his performance, as
well as the diverse range of skills, experience and background required
to run our international company. we were pleased to recommend the
extension of his term for a further period of three years.
As an organisation, Hikma is committed to clear and open
communication, and, as the Senior Independent Director, I am open
at any time to discussion with shareholders should they have concerns
which they wish to raise.
sir david rowe-ham
Chairman of the Nomination Committee
Letter from the Chairman
NOMINATION rEPOrT
76 / Letter from the Chairman
77 / Our Highlights
77 / Membership and attendance
77 / responsibilities
77 / Succession
77 / re-election
77 / Composition
78 / Diversity
78 / Board Diversity
76 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
oUr highLights
XX Created a succession manual detailing the main governance
and operational considerations for each board position
XX Continued consideration to medium-term succession
developments
XX reviewed the composition, diversity and balance of skills
on the Board
XX Enhanced our oversight and thought on diversity at all
levels within Hikma
XX Developed the board evaluation process
ALLOCATION OF TIME
6
5
1
1. Diversity
2
2. Board evaluation
3. Skills and experience
4. Succession
5. Independence
3
4
6. Corporate governance
12%
24%
8%
24%
16%
16%
membership and attendance
The Nomination Committee consists of four Directors. Three are
independent non-executive directors: Sir David rowe-Ham, Michael
Ashton and robert Pickering. The fourth is Mazen Darwazah, the
Executive vice Chairman. Sir David rowe-Ham is the Chairman of the
Committee. The Committee met four times during the year. with the
exception of one meeting where Mr Darwazah had a prior Executive
Committee engagement, full attendance was achieved.
responsibilities
The Nomination Committee is responsible for succession planning,
including the progressive refreshing of the Board, 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. It is also charged with reviewing the appropriateness
of the size, structure and composition of the Board.
The Nomination Committee terms of reference include all matters
indicated by the Corporate governance Principles and clearly set
out its authority and duties. The Committee’s terms of reference are
approved and reviewed by the Board on a regular basis. The terms
of reference are available on the Hikma website and by contacting
investors@hikma.uk.com.
succession
The Committee has continued its work on planning for board and
oversight of senior executive succession. The Committee reviewed and
discussed the external guidance and internal processes in place for
succession at Board level. During the year the Committee developed
a new succession manual which provides a framework for changes
at the board level and the key considerations for each position.
The Committee continues to actively consider succession and has
an appropriate dialogue with the Board and the Chairman in this
regard. The Committee continues to plan and review potential
scenarios for board change over a three year time horizon. Once a plan
of action becomes sufficiently established and to the extent considered
necessary, Hikma will consult major shareholders and stakeholders.
In terms of the process for identifying candidates, the Committee
has the necessary authority to advance the search process to the extent
that a shortlist of candidates or a candidate is proposed to the Board.
The final decision on any director’s appointment rests with the Board.
whilst the selection process may differ depending on the nature of
the appointment, the main elements of the selection process are:
XX it is led by the Senior Independent Director,
in consultation with the Board Chairman
MEMBErS
MEETINgS ATTENDANCE
XX a role and experience profile is established
sir david rowe-ham (Chairman)
michael ashton
mazen darwazah
robert pickering
total meetings
100%
100%
75%
100%
4
XX an appropriate process for internal and external search is selected
XX a short-list of candidates is created and considered
XX the identified candidates are interviewed
XX the Committee makes a proposal to the Board
INTErNAL ADvISErS
ExTErNAL ADvISErS
XX Chairman
XX Chief Executive
XX Company Secretary
XX Odgers Berndtson
XX Lintstock
re-election
Each member of the Board will submit himself for re-election at the
2013 AgM.
Composition
The Board continues to keep its composition under review. During the
year the Nomination Committee reviewed the skills of its Directors, and
the experience they bring the Board for setting the strategic direction
of the group, and achieving its objectives. The Committee concluded
that together the Directors have a very broad spread of experience,
consistent with the needs of the group. for further information
on the diverse skills and experience of our Directors, please see the
biographical details on pages 60 to 62.
77
* Mr Mazen Darwazah was unavailable for one Nomination Committee meeting due to his attendance being
required at an Executive Committee meeting
Hikma PHarmaceuticals Plc / annual rePort 2012 4.2 Committee reports
Nomination continued
N E R A T I O N COMMITTEE
E M U
R
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N
N
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C TI O
A I N I N
T R
U
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diversity
Hikma is committed to employing and engaging the best people,
irrespective of background, gender, orientation, race, age or disability.
Hikma has always operated a discrimination-free working environment
and is committed to gender diversity at all levels and in all areas of its
business.
As part of our commitment to diversity, we have improved our
internal monitoring and increased the level of information on diversity
available to our stakeholders in this report. we consider that our
diversity continues to be demonstrated by the broad range of people in
our organisation.
Board diversity
The Committee considered board diversity at several stages through
the year. whilst the Board has excellent diversity in terms of culture,
age, background, skills and experience, the Committee is cognisant of
the need to improve gender diversity at the board level.
we continue to believe that diversity targets are inappropriate, as
they are unfair to candidates and may prevent Hikma from employing
the person who best suits the role.
for and on behalf of the Nomination Committee
sir david rowe-ham
nomination Committee Chairman
12 March 2013
78 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
empLoyee profiLe
Age, culture and gender diversity
CULTURAL DIVERSITY
1. Middle Eastern
2. European
3. US
1. 19–30
2. 31–40
3. 41–50
4. 50+
1
3
2
AGE DIVERSITY
1
4
3
2
GENDER DIVERSITY OVERALL
1
1
1. Women
2. Men
2
2
GENDER DIVERSITY IN EXECUTIVE MANAGEMENT
1
1
1. Women
2. Men
2
75%
6%
19%
59%
24%
9%
8%
27%
73%
29%
71%
OPEN fOr DISCUSSION
Call +44 20 7399 2760
or E-mail: investors@hikma.uk.com
4.2 Committee reports
CompLianCe,
responsiBiLity
and ethiCs
Letter from the Chairman
COMPLIANCE, rESPONSIBILITy AND ETHICS
rEPOrT
79 / Letter from the Chairman
80 / Our Highlights
80 / Membership and attendance
80 / responsibilities
80 / Anti-Bribery and Anti-Corruption (ABC)
80 / Compliance Architecture
81 / ABC risk Assessment
81 / Code of Conduct
81 / ABC Policies and Procedures
81 / Training
81 / Speak-up
81 / Corporate responsibility
dear shareholder
This has been the second full year of operation for the Compliance,
responsibility and Ethics Committee. Over the year we have continued
to develop our programme for Anti-Bribery and Anti-Corruption
(ABC) compliance and formalised our oversight of Hikma’s Corporate
responsibility (Cr) programme. I am pleased to report on the progress
we have made towards linking Hikma’s strong culture of ethics with
formal processes and procedures to help ensure ABC compliance and
strengthen our marketplace activities. Our ABC Programme moved
on significantly during the year, following the completion of the risk
assessment in 2011. The major developments have been the:
1. Adoption and publication of an enhanced Code of Conduct,
which has been translated into the functional languages of
Hikma and fully implemented across the group. The new Code
of Conduct is available on our website;
2. Drafted a full suite of ABC policies designed to meet the
requirements identified by our risk assessment. This was undertaken
with the assistance of an external consultant with significant industry
experience in this area; and
3. Continuing steps forward in the training and education of our
employees enhancing both their understanding of ABC matters and
our processes for the discussion of concerns.
Our oversight of and input into Hikma’s Cr programme has moved
to another level over the course of the year. The key points I would like
to highlight to you are:
1. we formalised the reporting relationship for the Corporate
responsibility Committee to the CrEC; and
2. The Corporate responsibility team’s regular presentation of
developments in Corporate responsibility initiatives to the CrEC.
In 2013, the CrEC will be focused on the on-going development of our
compliance programme, and further training and education of our
employees to build understanding of compliance issues across the group.
This will continue to give our people the tools and information they
need to make good decisions when they are faced with ethical issues.
As an organization Hikma is committed to clear and open
communication. I remain open to discussion with shareholders should
there be any concerns that they wish to raise directly.
dr. ronald goode
Chairman of the Compliance, Responsibility and Ethics Committee
79
Hikma PHarmaceuticals Plc / annual rePort 2012
4.2 Committee reports
Compliance, Responsibility & Ethics
continued
oUr highLights
XX 64% employees certification against the new Code of Conduct
XX Increased understanding and engagement with the ABC
programme across Hikma
XX full management consultation on the standardisation of
ABC policies
XX Initiated externally facilitated “speak up” hotlines
XX Direct oversight of the CSr programme, with frequent reports
and updates.
ALLOCATION OF TIME
6
5
1
1. Diversity
2
2. Board evaluation
3. Skills and experience
4. Succession
5. Independence
3
4
6. Corporate governance
12%
24%
8%
24%
16%
16%
membership and attendance
MEMBErS
MEETINgS ATTENDANCE
dr ronald goode (Chairman)
mazen darwazah
Breffni Byrne
robert pickering
total meetings
100%
100%
100%
100%
7
INTErNAL ADvISErS
ExTErNAL ADvISErS
XX general Counsel
XX Compliance Consultant
XX group Compliance Manager
XX Company Secretary
XX Director of Communications
The Compliance, responsibility and Ethics Committee (“CREC”) consists
of four members. Three are independent Non-Executive Directors:
ronald goode (Committee Chairman), Breffni Byrne and robert
Pickering. The fourth member is the Executive vice Chairman,
Mazen Darwazah. The CrEC met seven times during the year,
and full attendance was achieved.
As the CrEC is not a committee mandated by the Code, its
membership is not subject to published requirements. However, Hikma
believes that the requisite challenge to operational effectiveness is
achieved by having an independent non-executive director membership
majority. The Chairmanship of the CrEC is held by an independent
80 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
Non-Executive Director, Dr ronald goode, and the Chairman of the
Audit Committee is a standing member. within the Company, the
Executive vice Chairman champions Hikma’s Anti-Bribery and
Corruption (ABC) and Corporate responsibility (CR) programmes.
The CrEC first met in November 2010.
responsibilities
The CrEC sets the overall strategy for the group’s response to bribery
and corruption risks and is responsible for approving the contents of
all of the business’s policies in areas where ethical judgements are
important. The CrEC therefore oversees the group’s ABC Compliance
Programme, together with group policies on ethics and business
conduct. The CrEC reviews group policy in the area of Cr at a Board
level and is supported in this work by the Cr Committee. The CrEC is
responsible for overseeing the development of the group’s Code of
Conduct (the “Code”), though formal ownership, and final approval of
the Code, or any changes to it, lies with the Board of Directors. It is the
CrEC’s responsibility to own the framework for ABC compliance within
the group and to ensure that it operates adequately and effectively.
The CrEC also oversees Hikma’s Speak-Up process for employees to
raise ethical concerns, and, where relevant, oversees their investigation.
The CrEC’s terms of reference are reviewed by the Board on a regular
basis. The terms of reference are available on the Hikma website and by
contacting investors@hikma.uk.com.
anti-Bribery and anti-Corruption (aBC)
quality and excellence have been the heart of Hikma since its
foundation, and Hikma has always been committed to the highest
standards of integrity and ethics in the conduct of its business. Hikma
has a zero tolerance of bribery and corruption. Hikma will not penalise
any individual for complying with the principles enshrined in the Code
or in our ABC policies, even at the cost of forgoing a business
opportunity, losing revenue or profit or disobeying a superior’s
instructions. Hikma will discipline staff for ethical breaches in order
to maintain its high standards of integrity.
Compliance architecture
The group has created a framework that sets out the structure of
leadership, delegated authority and ownership for Hikma’s ABC
compliance programme. Operational responsibility and oversight for
compliance is assigned by the Board to the Executive vice Chairman,
who then delegates responsibility to his management team. The Head
of Compliance reports directly to the CrEC on compliance matters and
his leadership of ABC issues is overseen by the CrEC Chairman and the
Executive vice Chairman. He is supported by a group Compliance
Manager.
The heads of each business division have taken responsibility to be
the compliance champion for their division. They set the tone for
business integrity in their operations. Our Compliance Champions are:
XX Bassam kanaan
XX riad Mishlawi
XX Michael raya
Branded
Injectables
US & generics
This aligns the ownership of good compliance behaviours with the
day-to-day business operations.
aBC risk assessment
As reported in last year’s Annual report, in 2011 Hikma undertook a
full ABC risk assessment. This was performed by the good Corporation,
an independent body who have specialized in business ethics and
integrity for over a decade. good Corporation visited each of our major
areas of operation to perform this risk assessment.
As reported, a significant conclusion from the exercise was that
Hikma has a strong ethical culture that is deeply embedded within its
operations.
been built within the business for the processes and issues of ABC
compliance, with training given to functional and geographical teams
across the group, with a particular focus on the MENA region. formal
board training on ABC compliance issues was also performed during
the year. This training and communication continues to enhance
employees’ understanding of bribery and corruption risks, and
increases the penetration of compliance issues into the decision-making
process for business departments as they consider existing and new
business structures.
Code of Conduct
In conjunction with undertaking the development of our ABC policies,
we undertook a full review of Hikma’s existing code of conduct. we
benchmarked this code against good industry practice and a peer
group of international companies. we also undertook a full internal
consultation, encompassing a broad cross-section of management –
and benefitted from the input of our external Compliance Consultant.
The updated Code was reviewed by the CrEC and proposed to the
Board, where it was fully supported. The new Code has now been
translated into the major functional languages of Hikma: English,
Arabic, french, german and Portuguese.
Each year Hikma employees are required to confirm that they have
read the Code, have understood it and will abide by its terms.
Employees also confirm that they understand their obligations to report
events of suspected non-compliance with the Code. This was
performed in 2012 using the new Code, covering 64 per cent of the
employees of the business.
The Code is available on our website:
http://www.hikma.com/en/corporate-responsibility/code-of-conduct
aBC policies and procedures
Using the information gained from the ABC risk assessment, our
primary focus in 2012 has been the design and development of new
ABC policies, aimed to link our ethical culture to more formal processes.
we engaged an external Compliance Consultant to assist with
thought leadership for the development of our framework and policies.
He brought considerable industry expertise to the group – both in
relation to the design of effective mechanisms for the management of
ABC risks, and also the implementation processes required for the
resulting policies and their supporting procedures.
During the year, the Compliance Consultant worked with the
compliance function to produce a full suite of ABC policies, together
with a framework for their operation and procedures for their
implementation. A full consultation with executive management is
on-going, encompassing the advice and support of the Compliance
Champions, and senior functional and line management within each
business division and each significant geography. This process has been
undertaken in order to ensure that the policies can and will be applied
consistently at every level throughout Hikma.
The focus of the Compliance Department and the Compliance
Champions for 2013 will be to finalise these policies and commence
their implementation across the group.
training
The development of our policies has been undertaken in conjunction
with our on-going focus on education and dissemination of ABC
compliance information across the business.
During the year, our employee induction programmes have been
updated to ensure that each new employee can clearly understand the
group’s ethical expectations. In addition, increasing awareness has
speak-up
The Board understands that it is critical for employees to be able to
raise concerns on issues of integrity without retribution and that
appropriate methods of voicing such concerns be available to them.
Hikma has always encouraged an environment in which full, free,
and frank discussions can be held on issues that concern its employees.
Therefore, Hikma has an open door policy regarding communication so
that it can hear from those who have any questions or concerns about
the ethics and integrity of the business.
As part of their commitment to the Code employees understand
that they have a duty to report any suspected violations of the Code, of
Hikma’s policies or any applicable law or regulations.
Hikma encourages employees to report these concerns, and where
employees believe that it is not possible or appropriate to report to line
management, they may make reports confidentially to any senior
manager within the business.
In 2012 we implemented a dedicated and anonymous telephone
reporting line in the US, and added to this with additional telephone
and online reporting processes in the EU at the beginning of 2013. we
also tested a MENA region reporting line, which we are assessing for
roll out over the course of this year. reports coming through these lines
are reviewed by a management Compliance Committee established for
this purpose and by the Chairman of CrEC for potential consideration
by the full Committee.
Hikma investigates all reports of non-compliance and takes
appropriate action. we continue to encourage all our employees to
improve our business by taking advantage of our desire for an open
and constructive dialogue.
Corporate responsibility
The Executive vice Chairman champions Hikma’s Corporate
responsibility programme within the Company and is Chairman of
Hikma’s Corporate responsibility Committee. The Director of
Communications is responsible for Cr at an operational level.
The CrEC Chairman, Director of Communications, divisional and
functional heads, and Company Secretary are members of the Cr
Committee. The Cr Committee reviews, supports and promotes
Hikma’s Cr activities and reports directly to the CrEC.
The Cr team, led by the Director of Communications, regularly
present developments to the CrEC. Please see pages 41 to 53 for the
group’s Corporate responsibility report.
for and on behalf of the Compliance responsibility
and Ethics Committee
dr. ronald goode
Committee Chairman
12 March 2013
81
Hikma PHarmaceuticals Plc / annual rePort 2012 4.3 remUneration reports
remUneration
OPEN fOr DISCUSSION
Call +44 20 7399 2760
or E-mail: investors@hikma.uk.com
Letter from the Chairman
4.3 rEMUNErATION rEPOrTS
82 / governance
88 / Policy
93 / Executive Implementation
102 / Total Compensation
dear shareholder
In the last year, we completed a thorough review of Hikma’s executive
remuneration arrangements with a focus on competitive remuneration
linked to performance. we also sought to improve transparency and
to provide a clear report on past pay and future policy.
we decided to move this report in line with the Department for
Business, Innovation and Skills regulations one year early. we developed
and implemented clawback arrangements for all bonus and executive
share schemes as well as share ownership requirements for Directors
and senior management. we also reviewed the performance of our
remuneration adviser and conducted a tender exercise.
This follows the significant enhancements we implemented last
year which enabled us to be nominated for a transparency award.
Shareholders will recall that we froze salaries for Executive Directors
and senior management in 2009 to 2011 and made an increase in
2012 which was linked to salary rises across the MENA region. At the
same time we have continued to review salaries for operational
employees to remain competitive and reflect the pressure that exists
in a number of our markets. we have established a new bonus scheme
throughout the group with enhanced linkage to personal and group
objectives and underlying group and business unit performance.
The Committee has spent a significant amount of time reviewing
potential adjustments to enhance the performance linkage of the
existing cash bonus structure. whilst we are not proposing to
change the basis of the schemes, we aim to develop our process
for linking awards and performance. This builds on last year’s
implementation of additional financial performance targets for
our long-term incentive plan.
1 This report has been prepared on behalf of the Board in accordance with regulation 11 and Schedule 8
of the Large and 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 Corporate governance Code and Markets law relating to Directors’ remuneration. As required by the
regulations, an advisory resolution to approve this report will be proposed at the Company’s Annual general
Meeting on 16 May 2013. The Auditors are required to report on the certain “auditable” sections of this
report and to state whether, in their opinion, that these sections of the report have been properly prepared in
accordance with the Companies Act 2006 and the regulations. The auditable sections have been identified
in this report.
Building Public Trust Awards 2012
highly commended
executive remuneration reporting
in the ftse 250
82 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
Letter from the Chairman
highLights of 2012
3 reviewed and established remuneration policies in respect of
clawback provisions, minimum shareholdings requirements and
joiners & leavers’ remuneration provisions
3 Nominated for an ifs ProShare award for the most effective
communication of an employee share plan
3 Highly recommended for the Building Trust Award
for best remuneration Disclosure
3 reviewed and developed the usage of kPIs, the bonus plan and
share scheme usage across the group
3 reviewed the performance and competitiveness
of our remuneration Advisers
3 Changed structure and lay out of the report
3 Developed the linkage between incentive compensation and
performance across the group
3 responded to the Department for Business Innovation and Skills
consultation on Executive remuneration
3 reviewed and revised the comparator group composition to
enhance the linkage with our comparator criteria
3 Benchmarked executive director, non-executive and senior
management compensation
3 Acted as a sounding board for significant projects undertaken
by the Human resources department
membership and attendance
The remuneration Committee consists of four Independent
Non-Executive Directors, with an Independent Non-Executive Director
holding the chairmanship of the Committee.
All members of the Committee have held positions at the highest
levels in multi-national organisations and hence have experienced working
life at all levels. They have spent a significant proportion of their careers
leading teams and in executive management. They understand the need
to incentivise top management appropriately, whilst ensuring that rewards
are fair throughout all levels of Hikma’s business.
MEMBErS
MEETINgS ATTENDANCE
we have fully engaged with several of the consultations of BIS and
other governance bodies.
There have been several significant worldwide events during the
year and the continuation of the impacts of the Arab Spring and the
Eurozone crisis. with Hikma’s focus in the MENA region and significant
operations in the EU, the Committee has been impressed with
management’s ability to perform in a turbulent time.
As an organisation Hikma is committed to clear and open
communication. I have always been available to shareholders to raise
matters directly and I remain open to discussion with shareholders
should there be any concerns that they wish to raise directly.
why is the remuneration structure appropriate for hikma?
we continue to believe that our remuneration structure is appropriate
for Hikma. we have maintained our policy from last year setting
remuneration at the median to upper quartile compared to our
comparator group. we have a regular programme of meetings with
shareholders regarding all aspects of Hikma. During the year and to
date, shareholders have not raised any matters of concern. Should we
significantly change policy or introduce new share incentive
arrangements, we will consult shareholders first.
In respect of executive remuneration there have been no departures
from normal policy or use of special discretion during the year.
michael ashton
Chairman of the Remuneration Committee
michael ashton (Chairman)
sir david rowe-ham
Breffni Byrne
ronald goode
total meetings
100%
100%
100%
100%
7
83
Hikma PHarmaceuticals Plc / annual rePort 2012
4.3 remUneration reports
continued
remUneration and performanCe sUmmary
pERfoRMAnCE CoMponEnts
sales
profit
share price
dividend
2011
$918m
$146m
620p
13 cents
+21%
+33%
+23%
+23%
2012
$1,109m
$194m
761p
16 cents
employees
compensation
$38,600
+14%
$43,950
shareholder approval
99.1%
96.1%
NOTES
3 Adjusted operating profit
3 Last quarter average (dividend excluded)
3 Average per employee
3 It is not possible to estimate 2013
employee remuneration
3 The Arab Spring impacted wage
settlements in the MENA region
3 Shareholder approval of the
remuneration report at the 2011
and 2012 AgM
3 2012 was the year of the
“shareholder spring”
totAL REMunERAtion
ExECUTIvE DIrECTOr
said darwazah
mazen darwazah
CoMponEnts
sALARy
said darwazah
mazen darwazah
Bonus
said darwazah
mazen darwazah
Ltips
said darwazah
mazen darwazah
2011
($000)
2,629
1,748
2011
($000)
630
420
1,008
672
972
648
+25%
+21%
+20%
+20%
+19%
+20%
+36%
+23%
84 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
2012
($000)
3,296
2,114
2012
$000)
750
504
1,200
806
1,324
794
+10%
+3%
+7%
+7%
+7%
+7%
+13%
-5%
2013 ($000)
(ESTIMATED) NOTES
3,609
2,167
2013 ($000)
(ESTIMATED) NOTES
803
539
3 Salaries were frozen for three years
(2009-2011), which explains the 2012
20% increase
3 Hikma is lower quartile against our
comparator group
1,285
862
3 2013 bonuses are predicted by
using an average of 2011 and 2012
percentage of salary applied to
the 2013 salary
1,500
756
3 figures represent exercised LTIPs
during the year at fair Market value
3 These options were granted 3 years
prior to being exercised in the
following years
CoMponEnts continued
pEnsions
said darwazah
mazen darwazah
othER BEnEfits
said darwazah
mazen darwazah
8.5
7.8
10.5
0
non-ExECutivE DiRECtoRs fEEs
non-ExECutivEs
Chairman
non-executive
directors average
total fee
2011
(£000)
157.5
79.5
+20%
+20%
0%
0%
0%
+5%
10.1
9.3
10.5
0
2012
(£000)
157.5
+7%
+7%
0%
0%
10.8
10.0
3 Pension contributions are fixed at up
to 2% of salary
3 Executives participate in the same
pension plan as jordanian employees
3 Significantly below the
comparator group
10.5
0
2013
(£000) NOTES
+27%
200.0
3 No change in the chairman fee since
2009
83.5
+7%
3 The Chairman waived payment of
his fee increase for 2013 to £200k
and will be paid £158k
88.5
3 Total directors fee includes basic fee,
Committee and Chairmanship fee
3 Increase of fees to move toward
the level set by group policy
3 Ensure competitiveness of
non-executive directors’ fees
3 fee increased in line with average
increases for executives within
the Company
85
Hikma PHarmaceuticals Plc / annual rePort 2012
4.3 remUneration reports
continued
remUneration poLiCy (2013) sUmmary
poLiCy ovERviEw
how thE CoMMittEE
sEts REMunERAtion
Salary
Pension
Benefits
Bonus
Share award
fixed
Compensation
Lower quartile
to
Median
Performance Based
Compensation
Median
to
Upper quartile
totaL =
Median
to
Upper quartile
3 The Committee benchmarks compensation against comparable companies (“Comparator group”) and ensure that
directors’ fixed compensation is set within the lower/median quartile in the Comparator group.
3 The Committee puts a strong bias on performance based compensation, encouraging executives to perform to the
highest of their abilities; only if this occurs will total remuneration exceed the median.
fixED CoMpEnsAtion
sALARy
Salary reference points are reviewed annually and include:
3 Salary levels of the Comparator group
3 Director’s role, experience and performance
3 Pay at group level
3 general economic environment
3 group performance
pEnsions
3 Hikma’s contributions to the Defined Contribution retirement Benefit Plan in respect of Executive Directors
match those of employees.
3 The Directors do not receive personal pension contributions from the group.
BEnEfits
3 Benefits include healthcare, company cars and life insurance.
86
91
92
93
pERfoRMAnCE BAsED CoMpEnsAtion
Bonus
Bonus potential:
3 Target
100% of Salary
3 Exceptional 200% of Salary
Bonus is subject to clawback provisions.
Level of bonus determined by:
87/93
3 financial Performance (50%)
3 Operational Milestones (30%)
3 Individual Performance (20%)
shARE AwARDs
3 Long Term Incentive Plan (“LTIP”) awards vest after three years and are subject to the following performance conditions:
94
TSr performance against the Comparator group
Sales growth
EPS growth
return on invested capital
wEIgHT %
50%
17%
17%
17%
3 Maximum award is 300% of salary (exceptional circumstances) – the operational maximum has been 200%.
3 The level of award depends on threshold performance requirements and no award will be released if the threshold
conditions for each criterion are not met.
3 The award is also subject to the clawback provisions.
86 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
rEMUNErATION POLICy ENHANCEMENTS 2012
CLAwBACk
PrOvISIONS
SHArE OwNErSHIP
rEqUIrEMENTS
3 The Committee has implemented clawback provisions for the annual bonuses and LTIP awards
of Executive Directors and certain key Executives.
3 All Executive Directors are required to build up and maintain a minimum shareholding
in Hikma equal to three times base salary.
89
89
responsibilities
The Committee is responsible for setting group remuneration policy
and overseeing its application. It takes responsibility for setting the
remuneration of the Executive Directors and Chairman and makes
recommendations on reward for the senior management team.
The Committee reviews performance and strives to ensure Hikma’s
remuneration structures mean that the interests of management
and shareholders are aligned.
The remuneration Committee terms of reference include all
matters indicated by the Corporate governance Principles and clearly
set out its authority and duties. The Committee’s terms of reference
are approved and reviewed by the Board on a regular basis. The terms
of reference are available on the Hikma website and by contacting
investors@hikma.uk.com. The terms of reference are included in the
Board governance Manual.
In addition Addleshaw goddard provided legal and regulatory advice to
the Committee. Addleshaw goddard has provided other legal advisory
services to Hikma during the year, chiefly relating to financing.
The Committee undertook an exercise to review remuneration
advice. Proposals were obtained from several potential advisers and
meetings held. The Committee concluded that the current advisers
remained independent and continued to provide high quality service
to the Committee. Therefore, no change is justified at this stage.
As in previous years, the Committee sought the assistance of senior
management on matters relating to policy performance and remuneration
in respect of the period under review and maintained a strong contact
with management to ensure that its deliberations were fully informed.
The Committee ensures that no Director, Executive or employee takes
part in discussions or advice relating to his own remuneration or benefits.
ALLOCATION OF TIME (%)
INTErNAL ADvISErS
ExTErNAL ADvISErS
1
4
3
2
1. Setting executive
remuneration
2. Remuneration policy
3. Conditions in the group
4. Developing practices
58%
23%
10%
9%
XX Chief Executive
XX PwC
XX vP Human resources
XX Addleshaw goddard
XX Company Secretary
advice and support
As in previous years, the remuneration Committee received independent
advice on executive compensation from PricewaterhouseCoopers LLP,
which supports the committee and Corporate Hr in the delivery and
development of our reward and human resources strategy. with the
exception of certain taxation advice, this is the only service provided
to Hikma by PricewaterhouseCoopers LLP during the year.
PricewaterhouseCoopers LLP adheres to the remuneration Consultants
group Code of Conduct, which provides a clear framework for our
relationship with our advisers while setting high professional standards.
E
E
T
T
I
M
M
O
C
T
I
D
U
A
E S P O N S I B ILITY AND ETHICS
E , R
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P LI A
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N E R A TIO
R E M
P O LIC Y
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THE BOARD
COMMITTEES
R
E
E X E C U T I V E
A N D S E N I O R
E X E C U T I V E
R E M U N E R A T I O N
PERFORMANCE
M
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MINATION COMMI T T E E
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87
Hikma PHarmaceuticals Plc / annual rePort 2012
executive directors’ remuneration policy
The Committee reviewed Hikma’s compensation policy during the year,
made certain enhancements and concluded that the policy continues
to remain appropriate.
The Committee believes that:
3 fixed Compensation (salary, pension and benefits)
must be sufficient to attract individuals of the right calibre and
ensure that they are not significantly under remunerated when
compared to their peers. Compensation that is too low can
be a distraction and retention disadvantage. However, fixed
compensation is not the prime driver of performance;
3 performance Based Compensation (bonus and share plans)
provide executives with the potential to be compensated in line
with their peers, providing the overall performance of the group
is strong, taking into account the long-term trajectory of the group.
Such compensation is discretionary and not pensionable.
The Committee views that by putting a strong bias on performance
related compensation, executives are encouraged to perform to the
highest of their abilities.
The policy supports the performance based culture of Hikma.
fixed costs are minimised and total short-term compensation (salary,
benefits and bonus) will only reach and exceed the median if the
performance-based bonus is earned for the relevant financial year.
The policy in respect of long-term incentives and potential
compensation value is an extension of the policy on total short-term
compensation. Executives will receive a market competitive package
only if solid performance is achieved.
In formulating the application of its policy for 2012 and future
years, the remuneration Committee has been cognisant of the evolving
landscape in compensation. The remuneration Committee also believes
that many of the principles proposed by the Department of Business,
Innovation and Skills, Uk Corporate governance Code and by institutional
shareholders and their representative bodies are already in operation
or embedded within Hikma’s compensation framework.
4.3 remUneration reports
continued
poLiCy
our Core principles
The remuneration Committee reviews group remuneration policy
on an annual basis to ensure it remains appropriate. The Committee
aims to ensure that remuneration for the Executive Directors and
senior management:
3 Enhances the achievement of Hikma’s strategic aims
3 Takes account of employment conditions both inside and
outside Hikma
3 Aligns the interests of all employees, management and directors
with those of shareholders
3 Takes account of Hikma’s Corporate social Responsibility
programme, including environmental, social and governance issues
3 Is aligned with Hikma’s founding principle of Business integrity
The remuneration Committee has oversight of the main compensation
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
Hikma and encourage a long-term sustainable view to be taken by
participants. Hikma continues to encourage employees to increase
share ownership throughout the group, using its share incentive plans.
The Committee has been particularly sensitive to the external
factors set out above affecting a number of the countries in which
it has operations and has ensured that throughout the group any
short-term risks have appropriately been reflected in the remuneration
structures.
fACTOrS AffECTINg rEMUNErATION POLICy
Changing
market
practice
Market
conditions
affecting the
company
recruitment
market in
the Company’s
sector
grOUP
rEMUNErATION
POLICy
Current
economic
climate
Institutional
shareholders
and their
representative
bodies
88 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
Bonus
The Committee’s policy position is for bonuses to be in the Median to Upper quartile range and be subject to fulfilment of performance.
The maximum levels of bonus that executives may receive are dependent on performance:
3 on target: maximum bonus is 100% of salary
3 Exceptional: maximum bonus is 200% of salary
The performance metrics 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 Hikma and in order to ensure that they continue to remain challenging.
The performance metrics applied in 2012 were:
PrOfIT AfTEr TAx
OPErATIONAL MILESTONES
PErSONAL BUSINESS
TArgETS
Threshold weighting
between targets
50%
30%
20%
TOTAL
100%
The remuneration Committee, as stated earlier in the report, will be using the same maximum bonus potential and type of performance
conditions for 2013.
hikma employee Context
The Committee ensures that employee’s remuneration across the group is taken into consideration when reviewing executive remuneration
policy. Disclosing a range of what is actually received for each Hr grade is likely to give rise to ever greater remunerations increases across
the whole of Hikma and reduces the ability to reward for superior performance.
The Committee reviews internal data of the sort described and is satisfied that the level of remuneration is proportionate across the
Hr grades. we have disclosed the potential performance related pay below.
executive directors
senior management
management
other
BONUS
200%
150%
75%
25%
SHArE AwArD
300%
200%
50%
0%
The pay of employees in the MENA region increased significantly during the year, chiefly as a result of the Arab Spring. As the Executive Directors
are based in this region, an element of this rise was taken into account. The Committee does not directly consult employees, but receives regular
updates on employee feedback through the group Hr department.
management incentive plan
The 2009 Management Incentive Plan (“Mip”) was approved by shareholders at the 2010 Annual general Meeting, whereby shareholders
consented to Hikma satisfying awards under the MIP from newly issued shares. Under the MIP, Hikma makes grants of conditional
awards to management across the group below senior management level. Awards are subject to the satisfaction of individual and group
performance targets.
89
Hikma PHarmaceuticals Plc / annual rePort 2012 4.3 remUneration reports
continued
MANAGEMENT INCENTIVE PLAN PERCENTAGE OF EMPLOYEES ELIGIBLE (%)
Algeria
Egypt
Germany
Jordan
Portugal
Italy
KSA
Lebanon
Libya
Sudan
UK
USA
Yemen
7
2
4
8
3
5
7
4
8
5
13
6
6
Comparator group
During 2012, the Committee reviewed its Comparator group to ensure that it remained appropriate for Hikma on an ongoing basis, reflecting
the increase in size of Hikma and increasing internationalisation of the business. The Committee has resolved that, having taken account of
those companies that have been acquired during the period, the Comparator group did not remain appropriate for the group as the benchmark
for 2013. Centerview, Citigroup and Bank of America Merrill Lynch assisted in the selection of comparable Companies.
Criteria taken into account by the remuneration Committee when selecting the current Comparator group included the:
3 Type of pharmaceutical specialism
3 International nature of Hikma’s operations
3 International nature of the executive team
3 Market capitalisation and turnover
3 Number of employees
3 Consolidation in the pharmaceutical industry affecting the number of comparable companies
3 Uk listing environment.
The Committee seeks to benchmark executive compensation against companies of a similar status, sector, and performance. The Committee
is cognisant of the fact that a too slavish devotion to comparators can lead to executive compensation continually rising above those of wider
employee compensation. Therefore, the Comparator group is used as a guide to set parameters for compensation and ensure executives are
incentivised to perform to the best of their abilities for the long-term. In this context it is only one of a number of factors taken into account by
the Committee when determining the level and elements of Hikma’s compensation policy.
90 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
Compensation practices in the Comparator group are used to:
3 Rank hikma Compensation against the Comparator group. This enables the Committee to determine Hikma’s position in relation to other
companies and, hence, assess the compensation of Hikma executives to ensure that the Policy is being met (e.g. lower quartile to median salary)
3 Assess tsR performance. The Total Shareholder return (“tsR”) of Hikma compared to its Comparator group is used as the
performance target in respect of the executive share scheme (“Ltip”). Only upper quartile performance results in 100% vesting
of the TSr components of LTIP awards.
The constituents of Hikma’s Comparator group for 2012 were as follows:
NAME
adcock ingram holdings Ltd*
aspen healthcare Limited*
astraZeneca pLC
Btg pLC
egis pLC*
endo pharmaceuticals holdings
forest Laboratories inc
* Six companies added to the Comparator group in 2012
gedeon richter plc*
grilfols sa
hospira inc
impax Labs inc
Krka*
merck Kgaa
mylan inc
novartis ag
sanofi aventis
shire pharmaceuticals pLC
stada arzneimittel ag*
UCB sa
watson pharmaceuticals inc
Throughout this report, references to quartiles are to quartiles in the Comparator group.
Clawback policy
The Committee has certain clawback arrangements in place for the annual bonuses and LTIP awards of Executive Directors and certain key
executives. In the event of any of the following situations occurring, the remuneration Committee would reduce or cancel the next bonus
and/or reduce or cancel the next vesting of LTIP awards:
3 Hikma’s financial statement or results being negatively restated
3 a participant having deliberately misled management or the market regarding Hikma’s performance
3 a participant causing significant damage to Hikma
3 a participant’s actions amounting to serious misconduct
share ownership
During the year, the Committee decided to require all executive directors to build and maintain a minimum shareholding equal to three times base
salary. The Committee believes that this policy strongly links executive and shareholders’ interests and decided to set the shareholding targets
at a level higher than the majority of our peers. This minimum holding must be achieved as quickly as possible and in any case within two years
following appointment as a director.
Share ownership requirements also apply to Hikma Executive Management who are required to build up and maintain a minimum
shareholding equal to two times base salary. These limits will be reviewed periodically by the Committee.
The table below demonstrates that the target shareholdings as a percentage of salary were met in full by the Executive Directors.
ExECUTIvE DIrECTOr
TIME frOM APPOINTMENT
TArgET
said darwazah
mazen darwazah
6 years 9 months
8 years 7 months
3x
3x
ACTUAL rEqUIrEMENT fULfILLED?
✓
✓
176x
152x
service Contracts
Details of the service contracts of the Executive Directors of Hikma in force at the end of the year under review, which have not changed
during the year, are as follows:
NAME
said darwazah
mazen darwazah
COMPANy
NOTICE PErIOD
CONTrACT
DATE
UNExPIrED TErM
Of CONTrACT
POTENTIAL
TErMINATION PAyMENT
12 months
1 july 2007
rolling contract
12 months
25 may 2006
rolling contract
12 months salary
and benefits
12 months salary
and benefits
91
Hikma PHarmaceuticals Plc / annual rePort 2012
4.3 remUneration reports
continued
The Executive Directors’ contracts are on a rolling basis, unless terminated by 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). There are no special provisions in the contracts of employment extending
notice periods on a change of control, liquidation of Hikma or cessation of employment.
recruitment of executives
In normal circumstances, new Executive Directors will receive a compensation package in accordance with Hikma remuneration policy for
salary, benefits, pension, bonuses and LTIP. In exceptional circumstances, the remuneration Committee has discretion to consider higher
remuneration levels necessary to attract, retain and motivate high calibre executives. In the event that the Committee exercises this discretion,
the Committee will provide an explanation of the exceptional circumstances in the next remuneration report.
Leaver’s remuneration policy
when considering termination payments, the remuneration Committee takes account of the best interests of Hikma and the individual’s
circumstances including the reasons for termination, contractual obligations and LTIPs and pension plan rules. The remuneration Committee
will ensure that there are no unjustified payments for failure on an Executive Director’s termination of employment. The Committee’s policy in
relation to leavers can be summarised as follows:
3 In the normal course of events, the Executive Director will work their notice period and receive usual compensation
payments and benefits during this time.
3 In the event of the termination of an Executive’s contract and Hikma requesting the Executive to cease working immediately,
payment in lieu of notice equal to fixed pay, pension entitlements, other benefits and, on a discretionary basis and only where
it is in Hikma’s interest, a pro-rated performance related bonus will be payable.
3 The Executive Director may also be considered for a variable pay award upon termination of employment. However, the Executive
would not be entitled to any variable pay in situations where the Executive resigned or where Hikma has terminated the Executive’s
employment with the contractual right to do so. The performance of Hikma in terms of finance and meeting of operational
targets is the prime driver for determining whether to make an award and quantum.
3 In the event of termination for gross misconduct, neither notice nor payment in lieu of notice will be given and the executive
will cease to perform his services immediately.
In the event that the Committee exercises the discretion detailed in this section, the Committee will provide an explanation in the next
remuneration report.
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 Hikma can benefit. Executive Directors
may therefore accept such appointments as long as they do not lead to a conflict of interest, and Executive Directors are allowed to retain
any fees paid under such appointments. During the year under review, Said Darwazah and Mazen Darwazah received fees of $10,000 (2011:
$10,000) and $10,000 (2011: $10,000) respectively, in respect of such appointments which are detailed in their Director profiles on page 60.
External appointments are kept under review by the Audit Committee and the process for controlling these appointments is described in the
governance Statement on page 73.
non-executive
The policy for Non-Executive fees is set by the Board taking into account recommendations from the Chief Executive Officer and Executive vice
Chairman and the limits set by the Articles of Association.
The “Time Commitments” (see page 70) of the Non-Executive Directors to Hikma are above those of an average non-executive. The nature of
Hikma’s business is international, requiring the Non-Executive Directors to travel to the USA, Middle East, North Africa 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 Hikma’s Non-Executive Directors. To ensure that Hikma 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.
92 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
Non-Executive Directors’ fees are structured into three elements:
3 Directorship: a base fee for undertaking the duties of a Director of Hikma, chiefly regarding board, strategy and shareholder meetings.
3 Committee membership: a one-off fee for taking additional responsibilities in relation to Committee membership.
Usually Non-Executives are members of three committees.
3 Committee Chairmanship: committee chairmen undertake additional responsibilities in leading a committee and are expected to
act as a sounding board for the Executive that reports to the relevant committee. The chairmanship fee is paid in addition to the membership
fee with a higher fee paid to the Audit Committee chairman to reflect the significant demands of this position.
Letters of appointment
The Non-Executive Directors do not have service contracts, but have letters of appointment with Hikma. Each appointment is terminable on
one months’ notice from either Hikma or the Director, but is envisaged to be for an initial period of up to 36 months. This period can be renewed
and extended for not more than two further three-year terms, unless exceptional circumstances exist.
NAME
samih darwazah
michael ashton
ali al-husry
Breffni Byrne
ronald goode
sir david rowe-ham
robert pickering
DATE Of OrIgINAL APPOINTMENT
NOTICE PAyMENT
17 july 2007
14 october 2005
14 october 2005
14 october 2005
12 december 2006
14 october 2005
1 september 2011
1 month
1 month
1 month
1 month
1 month
1 month
1 month
senior management
The policy for senior management compensation is set in line with policy for the Executive Directors, with a degree of discretion for
the Committee to take into account particular issues identified by the Chief Executive, such as the performance of a specific individual
or business unit.
policy for 2013
2012 was yet again a turbulent year in global markets and in particular in the MENA region where a significant amount of Hikma’s business
is conducted. Political upheaval brought pressure on employment conditions across the region. Notwithstanding those significant pressures,
Hikma is a global business and the remuneration Committee remains of the view that its existing remuneration policy remains appropriate
for the group. Therefore, it is envisaged that no change will be made to the remuneration Policy in 2013.
ExECUTIvE IMPLEMENTATION
salary
The Committee’s salary policy position is Lower Quartile to Median.
Salary
Pension
Benefits
fixed
compensation
Lower quartile
to
Median
with the assistance of PricewaterhouseCoopers LLP, the Committee undertook a benchmarking of Executive Director salaries during 2012.
The conclusion was that salaries were below the policy range of Lower quartile to Median, as can be seen in the table below:
POLICy POSITION
POLICy vALUE
ACTUAL SALAry 2012
ADHErENCE TO POLICy
Said Darwazah
(Chief Executive)
Mazen Darwazah
(Executive vice Chairman)
Lower quartile to median
$742k to $1,155K
$750,000
within policy position
Lower quartile to median
$523k to $631k
$504,000
Below policy position
93
Hikma PHarmaceuticals Plc / annual rePort 2012 4.3 remUneration reports
continued
when determining the base salary of the Executives, the main points the Committee takes into consideration are the:
3 salary levels of the Comparator group
3 performance of the Executive Director
3 performance and development of the group’s business
3 Director’s experience and responsibilities
3 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
compensation 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 compensation packages for Executive Directors to ensure it can be
sufficiently robust in its determinations in light of the position of Hikma as a whole.
In relation to 2012, the Committee has taken into consideration the following important factors in determining that the Executive Directors’
salaries should be increased by 7%:
3 The robust group performance, with sales and net income growth in excess of 20%.
3 The successful integration of strategic acquisitions.
3 Being positioned significantly below our policy position from a comparison perspective.
3 There being no change to Executive Director salaries during 2009, 2010 and 2011.
3 Despite the high level of political and economic turbulence across the world in 2011 and 2012, particularly in the Middle East,
the very strong year for Hikma.
said darwazah (Chief executive)
mazen darwazah (executive vice Chairman)
2011-2012
$750,000
$504,000
2013
INCrEASE
POLICy vALUE
ADHErENCE TO
POLICy
$802,500
$539,280
7%
7%
$742k to $1,155K within policy range
$523k to $631k within policy range
pension
The Committee’s pension policy position is Lower Quartile to Median for Executive Directors.
Salary
Pension
Benefits
fixed
compensation
Lower quartile
to
Median
During the year under review, as in previous years, the only pension contributions made by the group in respect of the Executive Directors
were contributions to the Hikma Pharmaceuticals Defined Contribution retirement Benefit Plan (jordan). The Executive Directors therefore,
do not receive personal pension contributions from the group.
94 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
The Hikma Pharmaceuticals Defined Contribution retirement Benefit Plan (the “Benefit plan”) operates in accordance with the rules relevant
to employees of the group based in jordan. Under the Benefit Plan the group matches employee contributions made to the Benefit Plan.
These are fixed at a maximum 5% of applicable salary. Participants are entitled to 30% of the group’s contributions to the Benefit Plan after
three years of employment with the group, and an additional 10% in each subsequent year. The participant’s interest in the group’s contribution
fully vests after ten years of employment. The contributions and their relation to the Comparator group were as follows:
DIrECTOr
% Of SALAry
said darwazah
(Chief executive)
mazen darwazah
(executive vice Chairman)
The information in the above table has been audited by Deloitte.
1.35%
1.86%
2011
US$
8,505
7,818
% Of SALAry
2012
US$
POLICy
POSITION
POLICy vALUE
(% Of SALAry)
ADHErENCE
TO POLICy
1.35%
1.86%
10,125 Lower quartile
to median
9,374
25%
15%
Below policy
position
Below policy
position
The pension contributions made by the group for the Executive Directors are significantly below the Comparator group. The Executive Directors
have indicated that they are content with the existing arrangements and have requested that their pension remains in line with group
employment practice by participating in the same pension plan as other employees in jordan. The Committee continues to keep this situation
under review.
Benefits
The Committee’s benefits policy position is Lower Quartile to Median.
Salary
Pension
Benefits
fixed
compensation
Lower quartile
to
Median
Hikma makes available the normal benefits in kind for Executives of their level in a company of Hikma’s size, such as company cars, healthcare and
life insurance. Benefits received during the year were:
DIrECTOr
said darwazah (Chief executive)
mazen darwazah (executive vice Chairman)
Bonus
The Committee’s bonus policy position is Median to upper Quartile.
Bonus
Share award
Performance
Based
Compensation
Median
to
Upper quartile
vALUE Of 2012 BENEfITS
$10,536
$nil
The 2012 bonuses of the Executive Directors are within the range in the Comparator group
Said Darwazah (Chief Executive)
Mazen Darwazah (Executive vice Chairman)
$1,200k median to Upper quartile
$806k median to Upper quartile
$1,733k to $2,966k
Below policy range
$746k to $977k within policy range
BONUS 2012
POLICy POSITION
POLICy vALUE ADHErENCE TO POLICy
95
Hikma PHarmaceuticals Plc / annual rePort 2012 4.3 remUneration reports
continued
achievement of targets 2012
PrOfIT AfTEr TAx
OPErATIONAL MILESTONES
PErSONAL BUSINESS
TArgETS
Said Darwazah 2012
(Chief Executive)
Mazen Darwazah 2012
(Executive vice-Chairman)
50%
50%
30%
30%
20%
20%
TOTAL
100%
100%
In relation to 2012, the Committee has assessed performance against the bonus criteria and determined that the thresholds
have been met in respect of on target performance. The Committee has considered the achievement of the following important
strategic goals by the Executive team and determined that the Operational Milestones and Personal Business targets were
exceeded leading to a total bonus of 160% of salary:
3 Adjusted net income achieving the budgeted target of $120m
3 Exceeding the group target of 20% revenue growth, building on the strategic target of doubling revenue every four years
3 Outstanding performance of the global Injectables division, including the successful integration of MSI in the US, the development of new
product capabilities and operational efficiency improvements
3 Expansion of market share in key MENA geographies building on the long-term objective of 5% market share in each jurisdiction
3 Successful management of the continued political and cultural disruption in the Arab world
3 Significant enhancements to our research and Development pipeline which will benefit Hikma in the medium-term
3 Advancing the group’s business integrity agenda with executive management, including new Anti-Bribery and
anti-Corruption (ABC) policies and Code of Conduct
share awards
Share award Policy position is Median to Upper quartile.
Bonus
Share award
Performance
Based
Compensation
Median
to
Upper quartile
Executive directors participated in the 2005 Long Term Incentive Plan (“LTIP”).
grant
The remuneration Committee proposes to grant the following awards to Executive Directors in 2013.
NAME
said darwazah
mazen darwazah
The information in the above table has been audited by Deloitte.
NO. SHArES
103,000
52,000
fACE vALUE
(% Of SALAry)
187%
140%
POLICy vALUE
265% to 313%
104% to 399%
ADHErENCE
TO POLICy
Below policy range
within policy range
As in previous years these awards are made subject to a vote of independent shareholders to be taken at the AgM of Hikma
to be held on 16 May 2013.
96 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
exercised
It should be noted that the actual value of the shares granted to the Executive Directors that they will receive will depend on the following:
3 The level of vesting of shares based on the satisfaction of the performance conditions at the end of the three year
period from the date of grant
3 The share price of Hikma on the date of vesting
The 2009 LTIP awards were exercised by the Executive Directors during the year. In respect of these awards, Hikma achieved TSr growth of 100%
(7th position out of 21) and the level of vesting was 92%:
DIrECTOr
DATE Of grANT
LTIP ExErCISED
DATE Of ExErCISE
MArkET PrICE
NOTIONAL gAIN
said darwazah
mazen darwazah
The information in the above table has been audited by Deloitte.
19 march 2009
19 march 2009
115,000
69,000
19 march 2012
19 march 2012
£7.27p
£7.27p
£836,050
£501,630
options outstanding
In respect of each of the Executive Directors, the aggregate number of shares outstanding at the year-end under option was:
NO. Of
LTIP SHArES
PrICE PAID
fOr AwArD
ExErCISE
PrICE
DATE Of
AwArD
INITIAL DATE
Of vESTINg
DATE Of
ExPIry
DIrECTOr
said
darwazah
total
mazen
darwazah
total
The information in the above table has been audited by Deloitte.
105,000
108,000
97,000
310,000
70,000
72,000
65,000
207,000
–
–
–
–
–
–
nil
nil
nil
nil
nil
nil
2 november 2010
13 may 2011
18 may 2012
2 november 2013
13 may 2014
18 may 2015
2 november 2010
13 may 2011
18 may 2012
2 november 2013
13 may 2014
18 may 2015
2 november 2020
13 may 2021
18 may 2022
(2011: 338,000)
2 november 2020
13 may 2021
18 may 2022
(2011: 217,000)
Long term incentive plan
The 2005 Long Term Incentive Plan (“Ltip”) was approved by shareholders at the 2006 Annual general Meeting. The LTIP is used to incentivise
Executive Directors and senior management through the grant of nil-cost options with performance conditions that are measured over a period
of three years. Those who participate in the LTIP are excluded from participating in the 2009 Management Incentive Plan.
The remuneration Committee believes that share awards under the LTIP enable Hikma to provide a competitive incentive and retention
tool which is also cost effective in respect of both shareholder dilution and income statement expense. The Performance Conditions are detailed
separately on page 98 of this report. remuneration Committee’s policy is to provide annual share grants to Executive Directors and senior
management at a maximum of the upper quartile level compared to the Comparator group.
During 2010 the Committee reviewed the performance criteria for the LTIP resolving that the performance criteria should be expanded to
include financial metrics for 50% of each LTIP award. The Committee consulted major shareholders and the main shareholder representative
bodies on the proposed change before it was implemented. The Committee was grateful for the time taken by shareholders on the consultation
and welcomed the confirmation received that the majority were supportive of the approach.
The Committee considers that the financial metrics chosen ensure that absolute performance is taken into account and more closely align
the LTIP with the group’s strategy. The advantages of Total Shareholder return (“tsR”) were retained in respect of 50% of the award.
97
Hikma PHarmaceuticals Plc / annual rePort 2012 4.3 remUneration reports
continued
The Awards under the LTIP for 2012 and those that will be made in 2013, are therefore subject to the following performance
conditions which are measured over a three year period from the date of grant:
3 Comparative tsR performance against the Comparator group
3 financial metrics
– Sales growth
– EPS growth
– return on invested capital
The threshold and maximum performance requirements for each of the performance conditions is detailed in the table below.
Each criterion is independent of the other criteria.
PErfOrMANCE CrITErIA
tsr (against comparator)
sales growth
eps growth
return on invested Capital
ELEMENT Of AwArD
THrESHOLD rEqUIrEMENT
MAxIMUM rEqUIrEMENT
50%
17%
17%
17%
median
9%
15%
10%
Upper quartile
13%
20%
12%
Basis of performance Condition selection & measurement
Comparative TSr was selected as a performance condition for the proposed awards by the remuneration Committee as it ensures that
irrespective of general market conditions the Executives have outperformed their peers over the measurement period in delivering shareholder
value before being entitled to receive any of their awards. 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.
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.
In terms of performance and the vesting of awards in three years time:
3 0% of Awards will be released for achieving below threshold performance
3 20% of Awards will be released for achieving threshold performance
3 100% of Awards will be released for achieving maximum performance
3 Between threshold performance and maximum performance awards vest on a straight line basis
where the threshold 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. Therefore, the performance conditions ensure that:
3 Hikma’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
3 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 and align incentives with the objectives of shareholders.
98 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
The following chart sets out the level of release of existing LTIP awards if Hikma’s performance measured as at 31 December 2012 for the financial
metrics and as at 13 february 2013 (the last available data) for TSr was applied for the whole period.
2012 LTIP grant
12%
2011 LTIP grant
TSr
0%
2010 LTIP grant
35%
SALES
grOwTH
EPS
grOwTH
17%
17%
17%
0%
0%
0%
rOIC
17%
17%
17%
TOTAL
46%
34%
69%
It should be noted that the real value received by Executive Directors under the share incentive arrangements is dependent
upon satisfaction of performance conditions and the share price of Hikma at that time.
total shareholder return performance graph
The graph shows Hikma’s performance, measured by Total Shareholder return (“tsR”) compared to the fTSE 250 Index and
the fTSE 350 Pharmaceuticals & Biotechnology Index from 1 january 2007 to 31 january 2013. The fTSE 250 and 350 Indices
have been selected to provide a broader comparator of Hikma’s performance.
TOTAL SHAREHOLDER
RETURN FROM
JANUARY 2007 (%)
+123%
200
150
100
50
0
-50
-100
HIKMA PHARMACEUTICALS PLC
FTSE 350
PHARMACEUTICALS &
BIOTECHNOLOGY
JAN 07
JAN 08
JAN 09
JAN 10
JAN 11
JAN 12
JAN 13
FTSE 250
share prices
The applicable share prices for Hikma during the period under review were:
1 january 2012
31 december 2012
2012 range (low to high)
12 march 2013
The information in the above table has been audited by Deloitte.
MArkET PrICE
(CLOSINg PrICE)
620.0p
761.0p
605.5p to 776.5p
975.0p
99
Hikma PHarmaceuticals Plc / annual rePort 2012 4.3 remUneration reports
continued
dilution
In accordance with the guidelines set out by the Association of British Insurers (“ABi”) Hikma can issue a maximum of 10% of its issued share
capital in a rolling ten 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 Listing of Hikma in 2005:
TyPE Of PLAN
grANTED IN A rOLLINg TEN yEAr PErIOD
grANTED DUrINg THE yEAr
discretionary share plans (5% Limit)
3.06%
0.49%
It is Hikma’s current intention that LTIP awards and MIP granted in 2013 will be satisfied by newly issued shares on vesting. Hikma has not
implemented any all-employee share incentive arrangements.
non-executive fees
The Board’s Non-Executive fee Policy is Upper quartile.
fee
Only
compensation
Upper quartile
The individual basic and committee fees, which are paid in pounds Sterling, are as follows:
NAME
2012
TOTAL fEE
£000
BASIC fEE
£000
CHAIrMANSHIP fEE
£000
COMMITTEE fEE
£000
samih darwazah*
sir david rowe-ham
Breffni Byrne
michael ashton
ali al-husry
ronald goode
robert pickering
* The Chairman’s fee has remained unchanged since 2009, despite the fee that has been paid being significantly below the market rate.
The Committee reviewed the fee during the year and raised it to £200,000. The Chairman elected to waive payment of the increase of £32,500 for 2013.
200.0
76.0
76.0
76.0
76.0
76.0
76.0
157.5
86.0
93.5
86.0
71.0
86.0
78.5
–
7.5
15.0
7.5
–
7.5
–
–
7.5
7.5
7.5
–
7.5
7.5
2013
TOTAL fEE
£000
200.0
91.0
98.5
91.0
76.0
91.0
83.5
The Board has resolved that from 1 january 2013, the basic fees of Non-Executive Directors should be increased to the amounts set out above.
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 rises proposed are in line with the general level of rise for senior management across the group. 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. The Non-Executive Directors are not eligible to participate in the group pension
arrangements and do not receive personal pension contributions by the group.
100 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
The non-executive fees are within the median to upper quartile range of the comparator group, below the policy position of upper quartile:
NAME
samih darwazah
michael ashton
ali al-husry
Breffni Byrne
ronald goode
robert pickering
sir david rowe-ham
2013 TOTAL fEE
£000
COMPArATOr
M-Uq
£000
200.0
91.0
76.0
98.5
91.0
83.5
91.0
194 to 268
91 to 179
61 to 147
91 to 180
91 to 176
90 to 169
92 to 170
POLICy POSITION
ACTUAL POSITION
Upper quartile
Upper quartile
Upper quartile
Upper quartile
Upper quartile
Upper quartile
Upper quartile
median
median
median to
Upper quartile
median
median
median
median
ADHErENCE
TO POLICy
within policy
within policy
within policy
within policy
within policy
Below policy
Below policy
share ownership
The table below details all the Directors’ holdings in the share capital of Hikma up until 12 March 2013.
DIrECTOr
1 jANUAry 2012
31 DECEMBEr 2012
12 MArCH 2013
OrDINAry SHArES Of 10 PENCE
samih darwazah
said darwazah
mazen darwazah
sir david rowe-ham
Breffni Byrne
michael ashton
ronald goode
ali al husry
robert pickering
Total shares:
The information in the above table has been audited by Deloitte.
11,481,746
11,168,445
6,517,225
10,000
10,000
18,566
22,700
5,684,748
7,500
34,920,930
11,286,299
11,593,445
6,733,225
10,000
10,000
18,566
22,700
5,684,748
7,500
35,366,483
11,286,299
11,593,445
6,733,225
10,000
10,000
18,566
22,700
5,684,748
7,500
35,366,483
Samih Darwazah, Said Darwazah, Mazen Darwazah and Ali Al-Husry are Directors and shareholders of Darhold Limited.
Darhold Limited holds 57,183,028 Ordinary Shares of Hikma. The table below breaks down their shareholding in Hikma by shares
effectively owned through Darhold and shares held personally.
DIrECTOr
samih darwazah
said darwazah
mazen darwazah
ali al husry
The information in the above table has been audited by Deloitte.
% Of DArHOLD
EffECTIvE NO Of
HIkMA SHArES
MAx AwArD
UNDEr LTIP
HOLDINg IN OwN
NAME/NOMINEE
TOTAL
SHArEHOLDINg
OrDINAry SHArES Of 10 PENCE
16%
19%
10%
8%
9,150,000
10,865,000
5,718,000
4,575,000
310,000
207,000
2,136,299
418,445
808,225
1,109,748
11,286,299
11,593,445
6,733,225
5,684,748
101
Hikma PHarmaceuticals Plc / annual rePort 2012 4.3 remUneration reports
continued
totaL Compensation
The following charts show the value of each of the main elements of the compensation package provided to the Executive Directors
during 2012 and the potential available for 2013 (dependent upon performance).
SAID DArwAZAH
SALAry
$000
803
803
803
750
2013
Low
target
stretch
2012 actual
MAZEN DArwAZAH
SALAry
$000
539
539
539
504
2013
Low
target
stretch
2012 actual
BONUS
$000
0
803
1,606
1,200
BONUS
$000
0
539
1,078
806
LTIP
$000
0
843
1,767
1,324
LTIP
$000
0
567
1,186
794
OTHEr
$000
22
22
22
22
OTHEr
$000
10
10
10
10
TOTAL
$000
825
2,471
4,198
3,296
TOTAL
$000
549
1,175
2,813
2,114
The following table shows the total compensation package for the Executive Directors during the year ended 31 December 2012 compared to the
on target package provided at the median and upper quartile of the Comparator group:
said darwazah
(Chief executive)
mazen darwazah
(executive vice Chairman)
POLICy
POSITION
POLICy
vALUE
ACTUAL TOTAL
COMPENSATION 2012
ADHErENCE
TO POLICy
median to Upper quartile
$5,677k to $6,865k
$3,296k
Below policy position
median to Upper quartile
$4,376k to $6,201k
$2,114k
Below policy position
102 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
This can be broken down amongst the Directors as follows:
DIrECTOr
executives
said darwazah
mazen darwazah
2011
TOTAL
Us$
1,648,536
1,092,000
non-executives
samih darwazah
sir david rowe-ham
Breffni Byrne
michael ashton
ali al-husry
ronald goode
robert pickering1
Aggregate emoluments
The information in the above table has been audited by Deloitte.
1 robert Pickering joined the Board on 1 September 2011 and, therefore, his 2011 fees have been annualised.
252,693
131,561
143,594
131,561
107,495
131,561
119,528
3,758,529
fEES/BASIC SALAry
Us$
OTHEr BENEfITS
Us$
ANNUAL BONUSES
Us$
2012
TOTAL
Us$
750,000
504,000
254,648
139,046
151,172
139,046
114,794
139,046
126,920
2,318,672
10,536
0
1,200,000
806,400
1,960,536
1,310,400
–
–
–
–
–
–
–
[10,536]
–
–
–
–
–
–
–
2,006,400
254,648
139,046
151,172
139,046
114,794
139,046
126,920
4,335,608
Closing statement
we have further enhanced our approach to remuneration reporting this year and the Committee hopes that this has aided shareholder
and stakeholder understanding of our remuneration policy and practices. Hikma remains open to discussion, should there be any areas
for further clarification.
for and on behalf of the remuneration Committee
michael ashton
Remuneration Committee Chairman
12 March 2013
103
Hikma PHarmaceuticals Plc / annual rePort 2012
4.4 direCtors’ report
direCtors’
report
OPEN fOr DISCUSSION
Call +44 20 7399 2760
or E-mail: investors@hikma.uk.com
The Directors submit their report together with the audited
financial statements for the 52 weeks ended 31 December 2012.
This report forms the management report for the purposes of
the Disclosure and Transparency rules. readers are asked to cross
refer to the governance report, remuneration report and sections
of other relevant reports which are included in this report to the
extent necessary to meet Hikma’s reporting obligations.
operationaL
Business review
Hikma 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 Hikma, noting the performance and
development of Hikma 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:
4.4 COMMITTEE rEPOrTS
review highLights
104 / Operational
105 / financial
106 / Directors
106 / Equity
109 / Directors’ responsibilities
3 A review of the business and strategy and expected future
developments is set out in the Chairman’s statement on
pages 4 and 5, the Chief Executive’s review on pages 10 to 16 and
the financial review on pages 20 to 37
3 The principal risks and uncertainties are set out on pages 38 to 40
and financial risks are described on pages 144 to 148
3 key financial performance indicators are described on page 17
3 Information on environmental, social and community issues is set
out in our Corporate responsibility report on pages 41 to 53, which
also provides key performance indicators in this area
3 The principal operating subsidiaries are set out on page 56
104 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
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 pharmaceutical operations are conducted
through three business segments: Branded, Injectable, and generic.
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.
Hikma has not capitalised any interest payments.
finanCiaL
results
The group’s profit for the year in 2012 was $107.2 million (2011:
$83.5 million).
dividend
The Board is recommending a final dividend of 10 cents per share
(approximately 6.7 pence) (2011: 7.5 cents). The proposed final
dividend will be paid on 23 May 2013 to shareholders on the register
on 19 April 2013, subject to approval at the Annual general Meeting
on 16 May 2013.
An interim dividend of 6 cents per share was paid on 8 October
2012 (approximately 3.694 pence per ordinary share) (2011: 5.5 cents)
which together with the final dividend will make a total of 16 cents
per share for the period (2011: 13 cents)
Creditor payment policy
Hikma’s policy, which is also applied by the group and will continue
in respect of the 2013 financial year, is to settle terms of payment with
all suppliers when agreeing the terms of each transaction and to ensure
that suppliers are made aware of and abide by the terms of payment.
Trade creditors of Hikma at 31 December 2012 were equivalent to 66
days’ purchases (2011: 61 days), based on the average daily amount
invoiced by suppliers during the year.
donations
During the year the group made charitable donations of approximately
$0.7 million (2011: $3.2 million):
AMOUNT DONATED
IN 2011 ($)
AMOUNT DONATED
IN 2012 ($)
Local charities serving
communities in which the
group operates
medical (donations in kind)
political
Total:
1,504,000
1,694,000
nil
3,199,000
304,124
363,740
nil
667,864
group policy prohibits the payment of political donations.
research and development
The group’s investment in research & Development (“R&D”) during
2012 represented 3.1% of group revenue (2011: 3.4%). further details
on the group’s r&D activities can be found on page 37.
related party transactions
Details of related party transactions are included in Note 37 of the
financial Statements on page 155.
going Concern
The Directors believe that the group is well diversified due to its
geographic spread, product diversity and large customer and
supplier base. The group operates in the relatively defensive generic
pharmaceuticals industry which the Directors expect to be less
affected compared to other industries.
The group has decreased its year end net debt position to
$406.5 million (2011: $421.9 million) following significant capital
investment relating to recent acquisitions in 2011. Operating cash flow
in 2012 was $182.2 million (2011: $126.4million). The group has
$313.0 million (2011: $396.4 million) of undrawn banking facilities.
These facilities are well diversified across the operating subsidiaries of
the group and are with a number of financial institutions. The group’s
forecasts, taking into account reasonable possible changes in trading
performance, facility renewal sensitivities and maturities of long-term
debt, show that the group should be able to operate well within the
levels of its facilities and their related covenants.
After making enquiries, the Directors believe that the group is
adequately placed to manage its business and financing risks successfully
despite the current uncertain economic and political outlook. The Directors
have 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.
105
Hikma PHarmaceuticals Plc / annual rePort 2012 indemnities
The Directors benefit from qualifying third party indemnities made by
Hikma 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.
eqUity
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. Hikma 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 Hikma.
As at 31 December 2012:
NOMINAL vALUE
IN ISSUE
ISSUED DUrINg
THE yEAr
ordinary
10 pence
197,036,507
1,185,200
During 2012, Hikma issued Ordinary Shares solely 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 Hikma’s Articles of Association (the “Articles”) and prevailing
legislation. The Directors are not aware of any agreements between
holders of Hikma’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 Hikma’s share capital and all issued
shares are fully paid. Hikma has not placed any shares into treasury
during the period under review.
share Buy Back
At the Annual general Meeting on 17 May 2012, shareholders gave
the Directors authority to purchase shares from the market up to an
amount equal to 10% of Hikma’s issued share capital at that time.
This authority expires at the earlier of 30 june 2013 or the 2013 Annual
general Meeting, which is scheduled for 16 May 2013. The Directors
are proposing to renew this authority at the 2013 Annual general
Meeting.
During the year, Hikma 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. Hikma does not have a lien
over its own shares.
4.4 direCtors’ report
continued
significant 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 Hikma
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 Hikma has contractual or other
arrangements, who are deemed to be essential to the business
of Hikma.
auditors
Each person who was a Director of Hikma at the date when
this report was approved confirms that:
3 So far as the Director is aware, there is no relevant audit
information of which Hikma’s auditors are unaware; and
3 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 Hikma’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 has expressed its willingness to continue in office as
auditors and a resolution to reappoint them will be proposed at the
forthcoming Annual general Meeting.
direCtors
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 60 to 62. Details of the independence
of Non-Executive Directors are set out in the report on corporate
governance on page 68. All the Executive and Non-Executive Directors
served Hikma throughout the year.
It is the Board’s policy that all Directors should retire and seek
re-election on an annual basis. Accordingly, Samih Darwazah, Said
Darwazah, Mazen Darwazah, Sir David rowe-Ham, Ali Al-Husry,
Breffni Byrne, Michael Ashton, ronald goode and robert Pickering
will retire and seek re-election at the Annual general Meeting.
Shareholders are referred to the Nomination Committee report
on pages 76 to 78 and the profiles of each of the Directors on
pages 60 to 62.
106 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
share issuance
At the Annual general Meeting on 17 May 2012, the Directors were
authorised to issue relevant securities up to an aggregate nominal
amount of £560,220, and to be empowered to allot equity securities
for cash on a non pre-emptive basis up to an aggregate nominal
amount of £84,033, at any time up to the earlier of the date of the
2013 Annual general Meeting or 30 june 2013. The Directors propose
to renew these authorities at the 2013 Annual general Meeting for
a further year. In the year ahead, other than in respect of Hikma’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 Hikma.
directors’ interests
Details of Directors’ share-based incentives and interests in the
ordinary shares of Hikma are provided in the Directors’ remuneration
report on pages 82 to 103.
substantial shareholdings
As at the date of this document, Hikma 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 Hikma:
NAME Of SHArEHOLDEr
NUMBEr Of SHArES
PErCENTAgE HELD
Details of the employee share schemes are set out in Note 35 to the
financial statements. Shares are also held by the Hikma Pharmaceuticals
Employee Benefit Trust (“EBt”) and are detailed in Note 35 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.
annual general meeting
The Annual general Meeting of Hikma will be held at The westbury,
Bond Street, Mayfair, London w1S 2yf on Thursday, 16 May 2013,
starting at 11 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.
The powers of the Directors are determined by the Articles, the
Code and other relevant Uk legislation. The Directors’ powers are
detailed in the Corporate governance report starting on page 54.
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.
darhold Limited*
Capita group international
sectoral asset management
norges Bank
dupont Capital management
*Messrs Samih Darwazah, Said Darwazah, Mazen Darwazah and Ali Al-Husry, each being a Director and
shareholder of Hikma, are shareholders and Directors of Darhold Limited.
57,183,028
17,743,904
8,301,483
7,579,731
5,952,422
28.94%
9.01%
4.21%
3.85%
3.02%
pre-emptive issue of shares
During the year under review, and in the period since 1 November
2005, the date of Hikma’s IPO, Hikma 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.
takeover panel – rule 9
said darwazah
mazen darwazah
may darwazah
hana ramadan
tareq darwazeh
Zeena murad
LTIP grANTED
18 MAy 2012
MIP grANTED
18 MAy 2012
97,000
65,000
–
–
–
–
–
–
794
2,630
1,296
1,570
107
Hikma PHarmaceuticals Plc / annual rePort 2012 4.4 direCtors’ report
continued
HOLDINg, 13 APrIL 2012
HOLDINg, 12 MArCH 2013
HOLDINg If ALL ExISTINg SOP,
MIP, LTIP ArE ExErCISED
HOLDINg If MAxIMUM AwArD
grANTED IN 2013 ExErCISED
NO Of
OrDINAry
SHArES
PErCENTAgE Of
ISSUED SHArE
CAPITAL
NO Of
OrDINAry
SHArES
PErCENTAgE Of
ISSUED SHArE
CAPITAL
NO Of
OrDINAry
SHArES
PErCENTAgE Of
ISSUED SHArE
CAPITAL
NO Of
OrDINAry
SHArES
PErCENTAgE Of
ISSUED SHArE
CAPITAL
darhold Limited
Concert party
57,183,028
64,790,718
29.06%
39.92%
57,183,028
64,024,625
28.94%
32.40%
–
64,556,432
–
32.67
–
64,711,432
–
32.61%
the MIPs, the Concert Party would potentially have, in aggregate,
interests in 64,711,432 shares in the capital of Hikma (representing
32.61 per cent. of the enlarged issued share capital of Hikma, 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 2012
to 12 March 2013, the LTIP/MIP Holders together with other members
of the Concert Party who hold options over ordinary shares pursuant
to Hikma’s 2005 Long Term Incentive Plan (each an “option holder”)
exercised, in aggregate, options over 187,800 ordinary shares in the
capital of Hikma.
At the Annual general Meeting held on 17 May 2012, a vote of the
independent shareholders of Hikma approved the award of up to an
aggregate of 162,000 ordinary shares pursuant to Hikma’s 2005
Long Term Incentive Plan to Said Darwazah and Mazen Darwazah
(the “Ltip holders”) and 20,000 ordinary shares pursuant to the
Management Incentive Plan to Hana ramadan, May Darwazah,
Zeena Murad and Tareq Darwazah (the “Mip holders”). Because
of the relationship of the LTIP Holders and the MIP Holders with
Darhold Limited, who at the time of the Annual general Meeting held
57,183,028 ordinary shares (at 13 April 2012 representing 29.08 per
cent. of the issued share capital of Hikma, and as at 12 March 2013
being the latest practicable date prior to the publication of this
document, holding 57,183,028 ordinary shares, representing 28.94 per
cent. of the issued share capital of Hikma), each of the LTIP Holders and
the MIP Holders (together with certain other identified individuals at
that date) was treated as acting in concert with Darhold Limited for the
purposes of the Takeover Code (the “Concert party”). As at 13 April
2012, the Concert Party held, in aggregate, interests in 64,790,718
ordinary shares in the capital of Hikma (then representing 32.92 per
cent. of the then issued share capital of Hikma). As at 12 March 2013
being the latest practicable date prior to the publication of this
document, the Concert Party held, in aggregate, interests in
64,024,625 ordinary shares in the capital of Hikma (representing
32.40 per cent. of the then issued share capital of Hikma).
On full exercise of the options under the Hikma Pharmaceuticals 2004
Stock Option Plan (the “2004 plan”) and full vesting of the LTIPs and
108 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
direCtors’ responsiBiLity statement
The Directors are responsible for preparing the Annual report and the
financial statements. The Directors are required to prepare financial
statements for the group in accordance with International financial
reporting Standards as adopted by the European Union (“ifRs”)
and have also elected to prepare financial statements for Hikma in
accordance with the IfrS under EU law. Company law requires the
Directors to prepare such financial statements in accordance with
IfrS, the Companies Act 2006 and Article 4 of the International
Accounting Standard (“iAs”) regulations.
IAS 1 requires that financial statements present fairly for each
financial year Hikma’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:
3 Properly select and apply accounting policies
3 Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable
and understandable information
3 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
3 Make an assessment of Hikma’s ability to continue
as a going concern
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain Hikma’s transactions and
disclose with reasonable accuracy at any time the financial position of
Hikma, 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
Hikma’s website. Legislation in the United kingdom governing the
preparation and dissemination of financial statements differs from
legislation in other jurisdictions.
we confirm to the best of our knowledge:
3 The financial statements, prepared in accordance with
International financial reporting Standards as adopted
by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit or loss
of Hikma and the undertakings included in the consolidation
taken as a whole; and
3 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 Hikma and
the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and
uncertainties they face
3 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
By order of the Board
said darwazah
Chief Executive
Officer
12 March 2013
mazen darwazah
Executive Vice Chairman,
CEO MENA
109
Hikma PHarmaceuticals Plc / annual rePort 2012
110 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
finanCiaL
statements
111
Hikma PHarmaceuticals Plc / annual rePort 2012 independent aUditor’s report to the memBers
of hiKma pharmaCeUtiCaLs pLC
we have audited the financial statements of Hikma Pharmaceuticals PLC
for the year ended 31 December 2012, which comprise the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated and Company balance sheets,
the consolidated and Company statements of changes in equity,
the consolidated and Company cash flow statements, and the related
Notes 1 to 57. 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 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 auditor’s 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 auditor
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 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:
3 the financial statements give a true and fair view of the state of the
group’s and of the Company’s affairs as at 31 December 2012 and of
the group’s profit for the year then ended;
3 the group financial statements have been properly prepared in
accordance with IfrSs as adopted by the European Union;
112 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
3 the 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
3 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:
3 the part of the Directors’ remuneration report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
3 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:
3 adequate accounting records have not been kept by the Company, or
returns adequate for our audit have not been received from branches
not visited by us; or
3 the 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
3 certain disclosures of Directors’ remuneration specified by law are not
made; or
3 we have not received all the information and explanations we require
for our audit.
Under the Listing rules we are required to review:
3 the Directors’ statement, contained within the Directors’ report, in
relation to going concern;
3 the part of the Corporate governance Statement relating to the
Company’s compliance with the nine provisions of the Uk Corporate
governance Code specified for our review; and
3 certain elements of the report to shareholders by the Board on
Directors’ remuneration.
paul franek fCa
(Senior Statutory Auditor)
for and on behalf of deloitte LLp
Chartered accountants and statutory auditor
London, United Kingdom
12 March 2013
ConsoLidated inCome statement
for the year ended 31 deCemBer 2012
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 and integration related expenses
– severance expenses
– plant remediation costs
– inventory related adjustment
intangible amortisation*
Operating profit
share of results of associated companies
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
*Intangible amortisation comprises the amortisation of intangible assets other than software.
Note
2012
$000
2011
$000
4
4
4
8
5
5
5
5
5
4
16
9
10
11
6
31
13
13
13
13
1,108,721
(607,603)
501,118
(152,763)
(124,560)
(34,019)
(23,002)
(334,344)
193,835
(3,131)
(4,469)
(6,787)
–
(12,674)
166,774
892
1,266
(35,717)
(1,174)
132,041
(24,826)
107,215
6,895
100,320
107,215
51.1
50.6
61.4
60.8
918,025
(522,676)
395,349
(125,295)
(107,540)
(31,218)
(12,608)
(276,661)
145,824
(16,368)
–
–
(1,770)
(8,998)
118,688
(1,164)
468
(23,368)
(732)
93,892
(10,423)
83,469
3,362
80,107
83,469
41.3
40.5
52.0
51.0
113
Hikma PHarmaceuticals Plc / annual rePort 2012 ConsoLidated statement of Comprehensive inCome
for the year ended 31 deCemBer 2012
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
exchange difference on translation of foreign operations
Total comprehensive income for the year
attributable to:
non-controlling interests
Equity holders of the parent
2012
$000
107,215
(23)
(2,120)
(26,547)
78,525
2011
$000
83,469
(42)
(692)
(15,294)
67,441
1,585
76,940
78,525
3,557
63,884
67,441
114 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
ConsoLidated BaLanCe sheet
at 31 deCemBer 2012
non-CUrr ent assets
intangible assets
property, plant and equipment
interests in associated companies
deferred tax assets
financial and other non-current assets
CUr r ent assets
inventories
income tax asset
trade and other receivables
Collateralised and restricted cash
Cash and cash equivalents
other current assets
Total assets
CUrr ent 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-CUr r ent LiaBiLities
Long-term financial debts
obligations under finance leases
deferred tax liabilities
derivative financial instruments
Total liabilities
Net assets
eqUity
share capital
share premium
own shares
other reserves
Equity attributable to equity holders of the parent
non-controlling interests
Total equity
Note
2012
$000
2011
$000
14
15
16
17
18
19
20
21
22
23
27
24
25
26
27
17
29
30
32
31
433,049
419,943
38,337
45,772
11,044
948,145
272,231
1,016
328,147
1,756
176,510
2,307
781,967
1,730,112
192,879
3,480
194,805
23,029
10,664
42,097
466,954
315,013
372,488
15,891
22,921
4,008
415,308
882,262
847,850
35,091
279,116
(86)
518,532
832,653
15,197
847,850
408,804
421,357
37,445
36,072
12,079
915,757
239,260
1,486
315,856
2,595
94,715
5,973
659,885
1,575,642
152,853
3,300
169,212
14,561
9,398
39,622
388,946
270,939
344,895
18,134
23,147
1,886
388,062
777,008
798,634
34,904
278,094
(2,222)
465,799
776,575
22,059
798,634
The financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, were approved by the Board of Directors and signed on its
behalf by:
said darwazah
Director
mazen darwazah
Director
12 March 2013
115
Hikma PHarmaceuticals Plc / annual rePort 2012 ConsoLidated statement of Changes in eqUity
for year ended 31 deCemBer 2012
merger
reserve
$000
revaluation
reserves
$000
translation
reserves
$000
retained
earnings
$000
total
reserves
$000
share
capital
$000
share
premium
$000
own
shares
$000
33,920
–
4,085
–
(12,080) 409,724 435,649 34,525 275,968 (2,220)
–
80,107
80,107
–
–
–
total equity
attributable
to equity
shareholders
of the parent
$000
non-
controlling
interests
$000
total
equity
$000
743,922
80,107
6,378 750,300
83,469
3,362
Balance at 1 January 2011
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
purchase of own shares
Cost of equity settled
employee share scheme
exercise of equity settled
employee share scheme
deferred tax arising on
share-based payments
Current tax arising on
share-based payments
dividends on ordinary shares (note 12)
acquisition of subsidiaries
adjustment arising from change in
non-controlling interests
issue of equity shares of subsidiary
Balance at 31 December 2011
and 1 January 2012
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
purchase of own shares
Cost of equity settled employee
share scheme
exercise of equity settled employee
share scheme
deferred tax arising on
share-based payments
Current tax arising on
share-based payments
dividends on ordinary
shares (note 12)
adjustment arising from change in
non-controlling interests
Balance at 31 December 2012
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(42)
(42)
–
(181)
–
–
–
(15,489)
(692)
181
(692)
–
– (15,489)
–
–
–
–
–
–
–
–
–
–
–
–
(42)
–
(42)
(692)
–
(15,489)
–
–
(692)
–
195 (15,294)
(181) (15,489) 79,554
–
–
–
–
–
–
63,884
–
–
–
379
–
–
2,126
–
–
–
(115)
63,884
2,505
(115)
3,557
–
–
67,441
2,505
(115)
–
–
–
–
–
–
–
–
–
7,507
7,507
–
(113)
(113)
–
(5,644)
(5,644)
3,750
–
3,750
– (25,201) (25,201)
–
–
–
–
–
(14,033) (14,033)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,507
–
7,507
113
–
–
–
–
–
–
–
–
–
(5,644)
–
(5,644)
3,750
(25,201)
–
–
3,750
(100) (25,301)
26,650
26,650
(14,033) (14,914) (28,947)
488
488
–
33,920
–
3,904
–
(27,569) 455,544 465,799 34,904 278,094
–
– 100,320 100,320
–
(2,222)
–
776,575
100,320
22,059 798,634
6,895 107,215
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(23)
(23)
–
(181)
–
–
–
(21,237)
(2,120)
181
(2,120)
–
– (21,237)
–
–
–
–
–
–
–
–
–
–
–
–
(23)
–
(23)
(2,120)
–
(21,237)
–
–
(2,120)
–
(5,310) (26,547)
(181) (21,237) 98,358
–
–
–
–
–
–
76,940
–
–
–
187
–
–
1,022
–
–
–
(158)
76,940
1,209
(158)
1,585
–
–
78,525
1,209
(158)
–
–
–
–
–
–
7,961
7,961
–
(2,294)
(2,294)
–
98
98
–
1,411
1,411
– (26,550) (26,550)
–
–
–
–
–
–
–
7,961
–
7,961
–
2,294
–
98
–
–
–
98
1,411
–
1,411
–
–
–
–
–
–
(26,550)
(1,271) (27,821)
–
(86)
(4,833)
832,653
(7,176) (12,009)
15,197 847,850
–
33,920
–
3,723
–
–
(4,833)
(48,806) 529,695 518,532 35,091 279,116
(4,833)
–
116 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
ConsoLidated Cash fLow statement
for the year ended 31 deCemBer 2012
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
acquisition of interest in associated companies
investment in financial and other non-current assets
acquisition of subsidiary undertakings net of cash acquired
payments of costs directly attributable to acquisitions
finance income
Net cash used in investing activities
finanCing aCtivities
decrease in collateralised and restricted cash
increase in long-term financial debts
repayment of long-term financial debts
increase in short-term borrowings
decrease in obligations under finance leases
dividends paid
dividends paid to non-controlling shareholders
interest paid
proceeds from issue of new shares
proceeds from non-controlling interest for capital increase in subsidiary
acquisition of non-controlling interest in subsidiary
Net cash generated by financing activities
Net 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
33
2012
$000
2011
$000
182,161
126,397
5
(51,405)
989
(38,783)
255
–
151
(11,978)
(1,519)
1,266
(101,024)
839
151,997
(124,183)
52,390
(2,122)
(26,550)
(1,271)
(34,188)
1,051
–
(12,009)
5,954
87,091
94,715
(5,296)
176,510
(69,032)
696
(8,967)
191
(38,610)
(287)
(217,779)
(10,147)
468
(343,467)
978
335,353
(68,364)
59,095
(2,028)
(25,201)
(100)
(23,758)
2,390
488
(29,196)
249,657
32,587
62,718
(590)
94,715
117
Hikma PHarmaceuticals Plc / annual rePort 2012 notes to the ConsoLidated finanCiaL statements
1. adoption of new and r evised standards
The following new and revised Standards and Interpretations have been adopted in the current year. Their adoption has not had any significant
impact on the amounts reported in these financial statements but, with the exception of the amendment to IfrS 1 and IfrIC 20, may impact
the accounting for future transactions and arrangements.
amendments to ias 1 Presentation of
Financial Statements
(Amended June 2011)
ias 19 Employee Benefits (revised June
2011)
amendments to ifrs 7 Financial
Instruments: Disclosure
The amendment increases the required level of disclosure within the statement of comprehensive
income.
The amendments require the recognition of changes in defined benefits obligations and in the fair
value of scheme assets when they occur.
The amendments increase the disclosure requirements for transactions involving the transfer of
financial assets in order to provide greater transparency around risk exposures when financial
assets are transferred.
amendments to ias 12 Income Taxes The amendments provide a practical approach for measuring deferred tax liabilities and deferred
tax assets when investment property is measured using the fair value model in ias 40 ‘investment
property’. The amendments introduce a presumption that an investment property is recovered
entirely through sale.
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 1 (amended)
ifrs 1 (amended)
ifrs 7 (amended)
ifrs 9
ifrs 10
ifrs 11
ifrs 12
ifrs 13
ias 27 (revised)
ias 28 (revised)
ias 32 (amended)
ifriC 20
Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters
Government Loans
Disclosures – Offsetting of Financial Assets and Financial Liabilities
Financial Instruments
Consolidated Financial Statements
Joint Arrangements
Disclosure of Interests in Other Entities
Fair Value Measurement
Separate Financial Statements
Investments in Associates and Joint Ventures
Offsetting Financial Assets and Financial Liabilities
Stripping Costs in the Production Phase of a Surface Mine
The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the group
in future periods.
118 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
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 the inside back cover.
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 (“IASB”). 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 IfrSs issued by the IASB and also in accordance
with IfrSs adopted for use in the European Union.
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.
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 105).
Basis of consolidation
The consolidated financial statements incorporate the results of Hikma Pharmaceuticals PLC (the “Company”) and entities controlled by the
Company (together the “group”). Control is achieved where the Company has the 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, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition.
Any excess of the aggregate of consideration, non-controlling interest and fair value of previously held equity interest over the fair values of the
identifiable net assets acquired is recognised as goodwill. Non-controlling interests in the net assets of consolidated subsidiaries may initially be
measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. Subsequent
to acquisition, the carrying amount of non-controlling interests is the amount initially recognised plus the non-controlling interests’ share of
subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling
interests having a deficit balance.
Changes in the group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying
amount of the group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries.
Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is
recognised directly in equity and attributed to the equity shareholders of the parent.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date
of acquisition or up to the effective date of disposal, as appropriate. where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used in line with those used by the group. All intra-group transactions, balances, income and
expenses are eliminated on consolidation.
Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method. The consideration 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. Acquisition related costs are recognised in the consolidated income statement as incurred. where applicable, the consideration for the
acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value.
Subsequent changes in those fair values can only affect the measurement of goodwill where they occur during the ‘measurement period’ and are
as a result of additional information becoming available about facts and circumstances that existed at the acquisition date. All other changes are
dealt with in accordance with relevant IfrSs. This will usually mean that changes in the fair value of consideration are recognised in the
consolidated income statement.
119
Hikma PHarmaceuticals Plc / annual rePort 2012 notes to the ConsoLidated finanCiaL statements
Continued
2. signifiCant aCCoUnting poLiCies Continued
where a business combination is achieved in stages, the group’s previously-held interests in the acquired entity are remeasured to fair value at the
acquisition date (i.e. the date the group attains control) and the resulting gain or loss, if any, is recognised in the consolidated income statement.
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 aggregate of consideration,
non-controlling interest and fair value of previously held equity interest over the fair values of the identifiable net assets acquired. 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 consideration, the excess is recognised immediately in the consolidated income statement.
The non-controlling interest in the acquiree is initially measured at the non-controlling interest’s proportion of the net fair value of the assets,
liabilities and contingent liabilities recognised.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the
group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the
measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and
circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.
The measurement period is the period from the date of acquisition to the date the group obtains complete information about facts and
circumstances that existed as of the acquisition date, and is subject to a maximum of one year.
investment in associates
An associate is an entity over which the group has significant influence and that is neither a subsidiary nor an interest in a joint venture.
Significant influence is the power to participate in the financial and operating policy decisions of the investee revenue but is not control or joint
control over those policies.
The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting,
except when the investment is classified as held for sale, in which case it is accounted for in accordance with IfrS 5 Non-Current Assets Held for
Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as
adjusted for post-acquisition changes in the group’s share of the net assets of the associate, less any impairment in the value of individual
investments. Losses of an associate in excess of the group’s interest in that associate (which includes any long-term interests that, in substance,
form part of the group’s net investment in the associate) are recognised only to the extent that the group has incurred legal or constructive
obligations or made payments on behalf of the associate.
Any excess of the cost of acquisition over the group’s share of the net fair value of the identifiable assets, liabilities and contingent
liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying
amount of the investment and is assessed for impairment as part of that investment. Any excess of the group’s share of the net fair value of
the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in the
consolidated income statement.
where a group entity transacts with an associate of the group, profits and losses are eliminated to the extent of the group’s interest in the
relevant associate.
intangible assets
An intangible asset is recognised if:
• it is identifiable;
• it is probable that the expected future economic benefits that are attributable to the asset will flow to the group; and
• the cost of the asset can be measured reliably.
The probability of expected future economic benefits is assessed using reasonable and supportable assumptions that represent management’s
best estimate of the set of economic conditions that will exist over the useful life of the asset.
judgement is used to assess the degree of certainty attached to the flow of future economic benefits that are attributable to the use of the
asset on the basis of the evidence available at the time of initial recognition, giving greater weight to external evidence.
Expenditures on research and development activities are charged to the consolidated income statement, except only when the criteria for
recognising an intangible asset are met, which is usually when approval from the relevant regulatory authority is considered probable.
(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 fair value of the identifiable assets acquired
and the liabilities assumed.
120 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
2. signifiCant aCCoUnting poLiCies Continued
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 the consolidated income statement 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. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the consolidated income statement
on disposal.
(b) Marketing rights: are amortised over their useful lives commencing in the year in which the rights first generate sales (See Note 14).
(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 from the date of acquisition. Intangible assets
recognised from development activities are amortised over their useful economic life.
(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 from the date 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.
foreign currencies
The individual financial statements of each group company are presented in the currency of the primary economic environment in which it
operates (its functional currency). 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 a company’s functional 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.
Exchange differences arising on retranslation of monetary assets and liabilities are recognised in the consolidated income statement in the
period in which they arise.
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
other comprehensive income 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 consolidated income statement when goods or services are supplied or made available to external customers against
orders received and when title and risk of loss have passed.
revenue represents the amounts receivable after the deduction of discounts, value added tax, other sales taxes, 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.
121
Hikma PHarmaceuticals Plc / annual rePort 2012 2. signifiCant aCCoUnting poLiCies Continued
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
In certain countries the group has a product return policy that allows customers to return the product within a specified period prior to and
subsequent to the expiration date. Provisions for returns are recognised in the period in which the underlying sales are recognised, as a reduction
of sales revenue.
The group estimates its provision for returns based on historical experience, representing management’s best estimate. 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 makes adjustments when it believes that actual product returns may differ from established reserves.
rebates
In certain countries, rebates are granted to healthcare authorities and under contractual arrangements with certain customers. Products sold in
the United States are covered by various programmes (such as Medicaid) under which products are sold at a discount.
The group estimates its provision for rebates based on current contractual terms and conditions as well as 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 rebate liabilities. The group continually monitors the provisions for rebates and makes adjustments when it believes
that actual rebates may differ from established reserves. All rebates are recognised in the period in which the underlying sales are recognised as
a reduction of sales revenue.
price adjustments
Price adjustments, also known as “shelf stock adjustments”, are credits issued to reflect decreases in the selling prices of the group’s products
that customers have remaining in their inventories at the time of the price reduction. Decreases in selling prices are discretionary decisions made
by group management to reflect competitive market conditions. Amounts recorded for estimated shelf stock adjustments are based upon
specified terms with direct customers, estimated declines in market prices and estimates of inventory held by customers. The group regularly
monitors these and other factors and re-evaluates the reserve as additional information becomes available.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take
a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
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 the consolidated income statement 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 the consolidated income statement 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.
122 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 2. signifiCant aCCoUnting poLiCies Continued
Leasing
The Group as lessee
Leases are classified as finance 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 finance 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 consolidated income statement
over the expected useful lives of the assets concerned.
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 consolidated income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the
balance sheet date.
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 taxable 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 consolidated income statement, except when it relates to items charged or credited directly to equity, in which
case the deferred tax is also dealt with in equity.
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’).
123
Hikma PHarmaceuticals Plc / annual rePort 2012 2. signifiCant aCCoUnting poLiCies Continued
share-based payments
IfrS 2 ‘Share-Based Payments’ requires an expense to be recognised when the group buys goods or services in exchange for shares 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
management incentive plan is determined based on the share price as at the date of grant discounted by dividend yield. The fair value of the
long-term incentive plan is determined using a Monte Carlo valuation model, for long-term incentive plan awards made from 2010, 50% of the
award is subject to a TSr performance condition which is valued by applying the Monte Carlo simulation methodology, the remaining 50% of
the award is subject to financial metrics and valued by applying a Black-Scholes 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 35). 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 equity instruments that will eventually vest. The group revises its estimate of the number of equity
instruments expected to vest (except for failure to satisfy a market vesting condition) and the impact of the revision of the original estimates, if any,
is recognised in the consolidated income statement, such that the cumulative expense reflects the revised estimate, with a corresponding
adjustment to equity reserves. 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 above. The dilutive effect of outstanding share-based payments is reflected as additional share
dilution in the computation of diluted earnings per share.
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 reflects 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 and assets are considered ready for use.
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 of 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 consolidated income statement.
Projects under construction are carried at cost, less any recognised impairment loss.
Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in the consolidated income statement.
124 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 2. signifiCant aCCoUnting poLiCies Continued
inventories
Inventories are stated at the lower of cost and net realisable value. Purchased products are stated at acquisition cost including all additional
attributable costs incurred in bringing each product to its present location and condition. The cost of own-manufactured products comprises
direct materials and, where applicable, direct labour costs and any 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 consolidated income statement. 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.
Financial assets
All financial assets are recognised and derecognised on a trade date, where the purchase or sale of a financial asset is under a contract whose
terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value,
plus transaction costs, except for those financial assets classified as at fair value through the consolidated income statement, which are initially
measured at fair value.
financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (“fvTPL”), ‘held-to-
maturity’ investments, ‘available-for-sale’ (“AfS”) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose
of the financial assets and is determined at the time of initial recognition.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the
relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or
received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of
the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at fvTPL.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as
‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest
income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
Available for sale financial assets
Listed shares and listed redeemable notes held by the group that are traded in an active market are classified as being AfS and are stated at fair
value. gains and losses arising from changes in fair value are recognised in other comprehensive income, with the exception of impairment losses,
interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets, which are recognised directly in
the consolidated income statement. where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously
recognised in the investments revaluation reserve is reclassified to the consolidated income statement. The group’s investments in unlisted shares
that are not traded in an active market 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 consolidated income statement.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual
arrangement.
Financial liabilities
financial liabilities are classified as either financial liabilities ‘at fvTPL’ or ‘other financial liabilities’.
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised
on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the
relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the
financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
125
Hikma PHarmaceuticals Plc / annual rePort 2012 2. signifiCant aCCoUnting poLiCies Continued
derivative financial instruments
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.
Hedge accounting
The group designates certain hedging instruments, in respect of interest rate and foreign currency risk, as cash flow hedges. Hedges of foreign
exchange risk on firm commitments are accounted for as cash flow hedges.
At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item,
along with its risk management objectives and its strategy for undertaking various hedge transactions. furthermore, at the inception of the hedge
and on an ongoing basis, the group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash
flows of the hedged item.
Note 29 sets out details of the fair values of the derivative instruments used for hedging purposes.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other
comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the consolidated income statement.
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to the consolidated income
statement in the periods when the hedged item is recognised in the consolidated income statement, in the same line of the income statement
as the recognised hedged item.
Hedge accounting is discontinued when the group revokes the hedging relationship, the hedging instrument expires or is sold, terminated,
or exercised, or no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income at that time is accumulated
in equity and is recognised when the forecast transaction is ultimately recognised in the consolidated income statement. when a forecast
transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in the consolidated income statement.
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.
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 property, plant and equipment and intangible assets excluding goodwill
At each balance sheet date, the group reviews the carrying amounts of its property, plant and equipment 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 at least 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 cash-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 the consolidated income
statement, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease to the
extent that it does not exceed the previous revaluation surplus, and any excess is recognised in the consolidated income statement.
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 the consolidated income statement, 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.
126 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 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 Directors believe that, among others, the following accounting policies that involve Directors’ judgements and estimates are the
most critical to understanding and evaluating the group’s financial results.
revenue recognition
The group’s revenue recognition policies require Directors to make a number of estimates, with the most significant relating to chargebacks,
product returns, rebates and price adjustments (See Note 2) 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 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 incurred 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 34.
127
Hikma PHarmaceuticals Plc / annual rePort 2012 4. segmentaL r eporting
for management purposes, the group is currently organised into three operating divisions – Branded, Injectables and generics. These divisions
are the basis on which the group reports its segmental information.
The group discloses underlying operating profit as the measure of segmental result, as this is the measure 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 2012:
year ended 31 december 2012
revenue
Cost of sales
Gross profit
Adjusted segment result
exceptional items:
– integration related expenses
– severance expenses
– plant remediation costs
intangible amortisation*
segment result
Unallocated corporate expenses
Adjusted operating profit
operating profit
results from associated companies
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
528,854
(271,508)
257,346
123,634
(701)
(2,527)
–
(9,029)
111,377
injectables
$000
470,030
(251,302)
218,728
122,952
(2,430)
(1,380)
–
(3,614)
115,528
generics
$000
103,679
(80,339)
23,340
(13,511)
–
(562)
(6,787)
(31)
(20,891)
others
$000
6,158
(4,454)
1,704
(3,338)
–
–
–
–
(3,338)
group
$000
1,108,721
(607,603)
501,118
229,737
(3,131)
(4,469)
(6,787)
(12,674)
202,676
(35,902)
193,835
166,774
892
1,266
(35,717)
(1,174)
132,041
(24,826)
107,215
6,895
100,320
107,215
*Intangible amortisation comprises the amortisation of intangible assets other than software.
“Others” mainly comprises Arab Medical Containers Ltd, International Pharmaceutical research Center Ltd and the chemicals division of Hikma
Pharmaceuticals Ltd (jordan).
Unallocated corporate expenses are primarily made up of employee costs, office costs, professional fees, donations, and travel expenses.
128 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 4. segmentaL r eporting Continued
segment assets and liabilities 2012
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)
interests in associated companies
Balance sheet
total assets
total liabilities
Branded
$000
26,071
1,886
503,858
21,120
9,937
–
injectables
$000
16,916
35,738
281,588
12,944
5,750
–
generics
$000
5,193
7,056
61,129
6,710
160
–
Corporate
and others
$000
1,661
–
6,417
1,585
185
38,337
group
$000
49,841
44,680
852,992
42,359
16,032
38,337
1,050,373
574,526
481,001
252,054
135,214
5,751
63,524
49,931
1,730,112
882,262
The following is an analysis of the group’s revenue and results by reportable segment in 2011:
year ended 31 december 2011
revenue
Cost of sales
gross profit
Adjusted segment result
exceptional items:
– integration related expenses
– inventory related adjustments
intangible amortisation*
segment result
Adjusted unallocated corporate expenses
exceptional items:
– acquisition related expenses
Unallocated corporate expenses
Adjusted operating profit
operating profit
results from associated companies
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
441,907
(227,830)
214,077
105,143
(921)
–
(5,763)
98,459
injectables
$000
315,728
(188,151)
127,577
54,938
(4,551)
(1,770)
(3,186)
45,431
generics
$000
154,813
(102,609)
52,204
17,124
–
–
(39)
17,085
others
$000
5,577
(4,086)
1,491
(2,369)
–
–
(10)
(2,379)
group
$000
918,025
(522,676)
395,349
174,836
(5,472)
(1,770)
(8,998)
158,596
(29,012)
(10,896)
(39,908)
145,824
118,688
(1,164)
468
(23,368)
(732)
93,892
(10,423)
83,469
3,362
80,107
83,469
*Intangible amortisation comprises the amortisation of intangible assets other than software.
“Others” mainly comprise Arab Medical Containers Ltd, International Pharmaceutical research Center Ltd and the chemicals division of Hikma
Pharmaceuticals Ltd (jordan).
Unallocated corporate expenses are primarily made up of employee costs, office costs, professional fees, donations, travel expenses
and acquisition related expenses.
129
Hikma PHarmaceuticals Plc / annual rePort 2012 4. segmentaL r eporting Continued
segment assets and liabilities 2011
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
total property, plant and equipment and intangible assets
(net book value)
depreciation
amortisation (including software)
interests in associated companies
Balance sheet
total assets
total liabilities
Branded
$000
44,869
24,125
5,054
110,900
527,240
18,205
7,064
–
injectables
$000
11,926
50,071
2,520
40,324
244,725
10,521
3,748
–
generics
$000
12,925
–
1,106
–
50,759
6,250
307
–
Corporate
and others
$000
975
–
287
–
7,437
684
224
37,445
group
$000
70,695
74,196
8,967
151,224
830,161
35,660
11,343
37,445
958,709
490,523
389,819
197,271
168,526
31,514
58,588
57,700
1,575,642
777,008
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
The top selling markets were as below:
United states
saudi arabia
algeria
2012
$000
619,185
399,877
80,992
8,667
1,108,721
2012
$000
399,877
124,819
120,828
645,524
2011
$000
508,776
317,334
87,622
4,293
918,025
2011
$000
317,334
121,387
102,495
541,216
Included in revenues arising from the Branded and Injectables segments are revenues of approximately $103,971,000 (2011: $101,905,000) which
arose from sales to the group’s largest customer, which is located in Saudi Arabia.
The following is an analysis of the total non-current assets excluding deferred tax and financial instruments and an analysis of total assets by the
geographical area in which the assets are located:
total non-current assets
excluding deferred tax
and financial instruments
as at 31 december
2012
$000
563,091
144,586
155,604
345
863,626
2011
$000
567,935
141,481
131,589
800
841,805
total assets as at 31 december
2012
$000
1,157,406
191,302
372,797
8,607
1,730,112
2011
$000
1,019,288
197,128
349,705
9,521
1,575,642
middle east and north africa
europe
United states
United Kingdom
130 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 5. exCeptionaL items and intangiBLe amortisation
Exceptional items are disclosed separately in the consolidated income statement to assist in the understanding of the group’s underlying
performance.
acquisition related expenses
integration related expenses
severance expenses
plant remediation costs
inventory related adjustment
Exceptional items
intangible amortisation*
Exceptional items and intangible amortisation
tax effect
Impact on profit for the year
2012
$000
–
(3,131)
(3,131)
(4,469)
(6,787)
–
(14,387)
(12,674)
(27,061)
6,852
(20,209)
2011
$000
(10,896)
(5,472)
(16,368)
–
–
(1,770)
(18,138)
(8,998)
(27,136)
6,374
(20,762)
*Intangible amortisation comprises the amortisation of intangible assets other than software.
Acquisition and integration related costs
During the year, the group incurred $3,131,000 of costs associated with the integration of MSI, Promopharm S.A, and Savanna.
In the previous year, acquisition and integration-related expenses were incurred as a result of the acquisition of MSI, Promopharm,
and Savanna.
Acquisition-related expenses are included in unallocated corporate expenses while integration-related expenses are included in segment
results. Acquisition-related expenses mainly comprise third party consulting services, legal and professional fees.
Costs of $1,519,000 (2011: $10,147,000) have been classified as investing activities in the cash flow statement relating to the cash outflow
in respect of acquisition and integration costs in the period.
Other costs
Other costs include severance expenses related to the restructuring of management teams across all three operating regions.
The generics segment incurred plant remediation costs for compliance work at our Eatontown facility in response to observations made by
the US fDA.
In the prior year, the inventory-related adjustment reflects the fair value uplift of the inventory acquired as part of the MSI acquisition.
6. profit for the year
Profit for the year has been arrived at after charging/(crediting):
net foreign exchange losses
research and development costs
Loss on disposal of property, plant and equipment
Loss/(gain) on disposals of intangible assets
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)
auditor’s remuneration (see below)
A more detailed analysis of the group’s auditor’s remuneration is provided on the following page.
2012
$000
2,759
34,019
349
67
42,359
16,032
2011
$000
111
31,218
22
(91)
35,660
11,343
367,711
19,218
294,188
1,941
330,537
12,271
237,839
3,734
131
Hikma PHarmaceuticals Plc / annual rePort 2012 6. profit for the year Continued
The group’s auditor’s remuneration on a worldwide basis was as below:
audit of the Company’s annual accounts
audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
audit related services*
Total audit and audit related fees
– tax compliance services
– tax advisory services
– other services**
Total non-audit fees
Total fees
2012
$000
387
815
1,202
128
1,330
91
266
254
611
1,941
2011
$000
324
825
1,149
463
1,612
135
239
1,748
2,122
3,734
* Audit related services relate to review procedures in respect of the interim financial information. The prior year figure includes services for the opening balance sheet work
in respect of MSI, Promopharm and the prospectus work relating to the Promopharm acquisition.
** Other services include transaction services related to corporate transactions. The previous year’s figure includes integration planning performed in the US in respect
of the MSI acquisition.
A description of the work of the Audit Committee is set out in the Audit Committee report on pages 72 to 75 and includes an explanation
of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor.
7. staff Costs
The average monthly number of employees (including Executive Directors) was:
production
sales 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
132 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
2012
number
3,716
1,986
285
662
6,649
2012
$000
210,195
17,938
5,911
5,585
7,961
14,579
32,019
294,188
2011
number
3,625
1,699
239
602
6,165
2011
$000
175,627
15,051
3,559
2,934
7,507
13,483
19,678
237,839
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 8. other oper ating expenses (net)
other operating expense
other operating income
2012
$000
(27,864)
4,862
(23,002)
2011
$000
(20,579)
7,971
(12,608)
Other operating expenses consist mainly of provisions against slow moving inventory items, abnormal manufacturing spoilage, disposal of
intangible and fixed assets, and foreign exchange losses. Other operating income consists mainly of foreign exchange gains, other product related
income, and commissions and royalties.
9. finanCe inCome
interest income
10. finanCe expense
interest on bank overdrafts and loans
interest on obligations under finance leases
other bank charges
net foreign exchange loss
11. tax
Current tax:
foreign tax
prior year adjustments
deferred tax (note 17)
Uk corporation tax is calculated at 24.5% (2011: 26.5%) of the estimated assessable profit made in the Uk for the year.
The effective tax rate for the group is 18.8% (2011: 11.10%).
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdiction.
The charge for the year can be reconciled to profit before tax per the consolidated income statement as follows:
profit before tax:
tax at the UK corporation tax rate of 24.5% (2011: 26.5%)
profits taxed at different rates
permanent differences
temporary differences for which no benefit is recognised
prior year adjustments
tax expense for the year
2012
$000
1,266
2011
$000
468
2012
$000
20,810
1,161
13,417
329
35,717
2011
$000
12,884
869
9,615
–
23,368
2012
$000
2011
$000
30,535
4,703
(10,412)
24,826
15,541
(1,358)
(3,760)
10,423
2012
$000
132,041
32,350
(17,219)
2,891
2,101
4,703
24,826
2011
$000
93,892
24,881
(10,796)
(5,158)
2,854
(1,358)
10,423
133
Hikma PHarmaceuticals Plc / annual rePort 2012
12. dividends
amounts recognised as distributions to equity holders in the year:
final dividend for the year ended 31 december 2011 of 7.5 cents (2010: 7.5 cents) per share
interim dividend for the year ended 31 december 2012 of 6.0 cents (2011: 5.5 cents) per share
2012
$000
2011
$000
14,746
11,804
26,550
14,497
10,704
25,201
The proposed final dividend for the year ended 31 December 2012 is 10.0 cents (2011: 7.5 cents) per share, bringing the total dividend for the year
to 16.0 cents (2011: 13.0 cents) per share.
The proposed final dividend is subject to approval by shareholders at the Annual general Meeting on 16 May 2013 and has not been included
as a liability in these financial statements. Based on the number of shares in issue at 31 December 2012 (196,765,000), the unrecognised liability
is $19,677,000.
13. earnings per shar e
Earnings per share is calculated by dividing the profit attributable to equity holders of the parent by the weighted average number of ordinary
shares. The number of ordinary shares used for the basic and diluted calculations is shown in the table below. Adjusted basic earnings per share
and adjusted diluted earnings per share are intended to highlight the adjusted results of the group before exceptional items and intangible
amortisation (excluding software). 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
number of shares
weighted average number of ordinary shares for the purposes of basic earnings per share
effect of dilutive potential ordinary shares:
share-based awards
weighted average number of ordinary shares for the purposes of diluted earnings per share
Basic
diluted
adjusted basic
adjusted diluted
*Intangible amortisation comprises the amortisation of intangible assets other than software.
134 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
2012
$000
100,320
14,387
12,674
(6,852)
2011
$000
80,107
18,138
8,998
(6,374)
120,529
100,869
number
’000
196,348
1,951
198,299
2012
earnings
per share
Cents
51.1
50.6
61.4
60.8
number
’000
194,135
3,633
197,768
2011
earnings
per share
Cents
41.3
40.5
52.0
51.0
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 14. intangiBLe assets
Cost
Balance at 1 January 2011
additions
acquisition of subsidiaries
disposals
translation adjustments
Balance at 1 January 2012
additions
adjustments*
reclassification
disposals
translation adjustments
Balance at 31 December 2012
amortisation
Balance at 1 January 2011
Charge for the year
translation adjustments
Balance at 1 January 2012
Charge for the year
reclassification
translation adjustments
Balance at 31 December 2012
Carrying amoUnt
At 31 December 2012
At 31 December 2011
goodwill
$000
marketing
rights
$000
Customer
relationships
$000
product
related
intangibles
$000
in process
r&d
$000
trade
names
$000
other
acquisition
related
intangibles
$000
software
$000
total
$000
177,685
–
99,311
–
(6,983)
270,013
–
606
–
(31)
(2,958)
267,630
(608)
–
–
(608)
–
–
–
(608)
8,352
1,155
–
–
(197)
9,310
1,245
–
–
–
186
10,741
(3,094)
(1,033)
100
(4,027)
(884)
–
(70)
(4,981)
62,737
–
17,216
–
(1,259)
78,694
–
–
–
–
(951)
77,743
(14,079)
(4,488)
226
(18,341)
(5,195)
–
205
(23,331)
25,391
6,831
30,275
(100)
(715)
61,682
30,850
–
686
(150)
(1,086)
91,982
(5,597)
(2,768)
139
(8,226)
(5,625)
(207)
29
(14,029)
4,318
–
–
–
(51)
4,267
–
–
(686)
–
(19)
3,562
(912)
(279)
30
(1,161)
(241)
207
17
(1,178)
6,949
–
4,286
–
(268)
10,967
–
–
–
–
(68)
10,899
(127)
(228)
12
(343)
(530)
–
3
(870)
2,982
–
73
–
(65)
2,990
230
–
–
(142)
26
3,104
(919)
(202)
29
(1,092)
(199)
–
37
(1,254)
14,014
981
63
–
(179)
14,879
12,355
–
–
–
(62)
27,172
(7,972)
(2,345)
117
(10,200)
(3,358)
–
25
(13,533)
302,428
8,967
151,224
(100)
(9,717)
452,802
44,680
606
–
(323)
(4,932)
492,833
(33,308)
(11,343)
653
(43,998)
(16,032)
–
246
(59,784)
267,022
269,405
5,760
5,283
54,412
60,353
77,953
53,456
2,384
3,106
10,029
10,624
1,850
1,898
13,639
4,679
433,049
408,804
The current year additions include licences, new products under development and software, which mainly relates to the group’s ongoing SAP
implementation.
* An adjustment of $606,000 was made to the provisional goodwill recognised on the acquisition of MSI as a result of the adjustment to deferred taxes made prior to the end of
the measurement period on 2 May 2012 (Note 17).
135
Hikma PHarmaceuticals Plc / annual rePort 2012 14. intangiBLe assets Continued
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:
Br anded
arab pharmaceuticals manufacturing Co.
al jazeera pharmaceutical industries Ltd
hikma pharma sae (egypt)
societe d’industries pharmaceutiques ibn al Baytar s.a.
spa societe al dar al arabia
société de promotion pharmaceutique du maghreb s.a. (promopharm)
savanna pharmaceuticals industries Co. Ltd.
injeCtaBLes
german operations
Baxter healthcare multi-source injectables (msi)
hikma italia s.p.a
others
arab medical Containers
iprC
Total
as at 31 december
2011
$000
2012
$000
74,399
6,752
30,164
10,580
14,108
60,849
1,644
198,496
34,485
32,494
743
67,722
742
62
804
267,022
74,399
6,752
31,745
10,943
14,495
59,934
3,411
201,679
34,273
31,888
728
66,889
742
95
837
269,405
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 cash flows
over five years grown at 2% in perpetuity. The key assumptions for the value-in-use calculations are those regarding the discount rates and
compound annual cash flow growth rate for the five-year business plan.
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 10.1% and 18.8% based on the markets in which the CgU’s operate. The
compound annual cash flow growth rates range from 1% growth to 37% 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 does not consider that the likelihood
of impairment losses in the long-term has increased.
other intangible assets
Amortisation of all intangible 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.
The estimated useful life of marketing rights varies from 5 to 10 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 (2011: 15 years).
Product related intangibles Product related intangibles include three types:
a. Product files and under-licensed products: $5,536,000 (2011: $5,739,000) of the product files and under-license products intangibles are
assessed as having indefinite useful lives due to the expected longevity of the products. The movement relates to retranslation at year end rates.
These assets are reviewed for impairment at least annually.
The product files recognised on the acquisition of MSI have an average estimated useful life of 10 years. The carrying value of these files is
$4,646,000 (2011: $5,162,663).
b. Under-license agreements: The estimated useful life of under-license agreements varies from 5 to 11 years (2011: 5 to 11 years).
136 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued
14. intangiBLe assets Continued
c. Product dossiers: Product dossiers have an average estimated useful life of 15 years (2011: 15 years).
In-process R&D: In-process r&D represents mainly 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
(2011: 15 years).
Trade name: Trade names were mainly recognised on the acquisition of Hikma germany gmbH (germany), Arab Pharmaceutical Manufacturing
Company, Promopharm, Savanna and Ibn Al Baytar.
The trade name recognised on the acquisition of Hikma germany gmbH (germany) is expected to have an indefinite economic useful life
due to its expected longevity. The carrying value of Hikma germany gmbH (germany) trade name is $5,536,000 (2011: $5,423,000). The
movement has arisen due to retranslation. The trade names recognised on the acquisition of the other subsidiaries have useful lives that vary
from 3 to 20 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 life varies from 10 years to an indefinite useful life. The carrying value of assets with
indefinite lives is $991,000 (2011: $971,000). The movement relates to retranslation at year end rates.
15. property, pLant and eqUipment
Cost
Balance at 1 January 2011
additions
acquisition of subsidiaries
disposals
transfers
translation adjustment
Balance at 1 January 2012
additions
disposals
transfers
translation adjustment
Balance at 31 December 2012
aCCUmULated depr eCiation
Balance at 1 January 2011
Charge for the year
disposals and transfers
translation adjustment
Balance at 1 January 2012
Charge for the year
disposals
translation adjustment
Balance at 31 December 2012
Carrying amount
At 31 December 2012
Carrying amount
At 31 December 2011
Land and
buildings
$000
174,417
7,915
36,447
(35)
1,709
(2,342)
218,111
4,118
(446)
20,037
(4,161)
237,659
(32,229)
(6,855)
1
780
(38,303)
(8,929)
98
(10)
(47,144)
vehicles
$000
machinery and
equipment
$000
fixtures and
equipment
$000
projects under
construction
$000
13,345
2,039
120
(1,527)
549
(150)
14,376
1,143
(1,183)
130
(471)
13,995
(7,111)
(1,949)
1,189
68
(7,803)
(2,019)
970
144
(8,708)
215,287
22,290
34,234
(1,221)
7,082
(3,393)
274,279
10,527
(10,277)
14,424
(1,555)
287,398
(108,423)
(21,107)
946
1,727
(126,857)
(25,554)
9,798
(169)
(142,782)
43,344
7,444
3,165
(440)
(962)
(429)
52,122
1,241
(3,877)
3,243
(663)
52,066
(26,293)
(5,749)
420
340
(31,282)
(5,857)
3,829
141
(33,169)
45,126
31,007
230
(53)
(8,378)
(1,218)
66,714
32,812
(248)
(37,834)
(816)
60,628
–
–
–
–
–
–
–
–
–
total
$000
491,519
70,695
74,196
(3,276)
–
(7,532)
625,602
49,841
(16,031)
–
(7,666)
651,746
(174,056)
(35,660)
2,556
2,915
(204,245)
(42,359)
14,695
106
(231,803)
190,515
5,287
144,616
18,897
60,628
419,943
179,808
6,573
147,422
20,840
66,714
421,357
137
Hikma PHarmaceuticals Plc / annual rePort 2012 15. property, pLant and eqUipment Continued
The net book value of the group’s property, plant and equipment includes an amount of $17,151,000 (2011: $18,229,000) in respect of assets
held under finance lease.
As at 31 December 2012, the group had pledged property, plant and equipment having a carrying value of $135,166,000 (2011:
$150,268,000) 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, Egypt, US, germany and Tunisia (2011: Portugal, Egypt, Saudi Arabia, US, and Tunisia).
In 2008, the german government provided Thymoorgan Pharmazie gmbH with a grant of Euro 560,000, being a contribution towards the
purchase of two freeze dryers and additional equipment. The carrying value of the grant as at 31 December 2012 was $187,000 (2011: $249,000).
During the year 2012, the group entered into contractual commitments for the acquisition of property, plant and equipment amounting to
$2,800,000 (2011: $166,000).
The amount of borrowing costs that have been capitalised in the year, within the projects under construction, is $68,000 (2011: $781,000).
The average capitalisation rate used ranges between 2.87%–11.00% (2011: 3.12%–10.50%).
16. interest in assoCiated Companies
On 15 April 2011, the group acquired a non-controlling interest of 23.1% in the Indian company Unimark remedies Limited (“Unimark”) through
the subscription of new equity for a cash consideration of $33,609,000. Through this strategic partnership, Hikma and Unimark will collaborate
on the development of strategic APIs and new product formulations. Unimark’s strong technical and r&D capabilities will complement Hikma’s
in-house r&D efforts and are expected to enable Hikma to bring more products in more therapeutic categories to market globally.
On 28 june 2011, the group acquired a non-controlling interest of 30.1% in Hubei Haosun Pharmaceutical Co., Ltd (“Haosun”) through the
subscription of new equity, for a cash consideration of $5,000,000. Through this partnership Hikma gains access to a high quality, long-term
source of API, particularly in the strategically important area of oncology.
gains of $892,000, representing the group’s share of the results of associates, are included in the consolidated income statement.
Balance at 1 January 2012
additions
share of income/loss of associates
Balance at 31 December
Summarised financial information in respect of the group’s interests in associated companies is set out below:
total assets
total liabilities
net assets
Group’s share of net assets of associates
total revenues
net income/loss
Group’s share of income/loss of associates
for the
year ended
31 december
2012
$000
for the
year ended
31 december
2011
$000
37,445
–
892
38,337
–
38,609
(1,164)
37,445
for the
year ended
31 december
2012
$000
for the
year ended
31 december
2011
$000
227,345
118,640
108,705
25,947
139,596
3,974
892
192,645
93,424
99,221
23,775
89,659
(6,017)
(1,164)
The information above is adjusted for fair value adjustments arising on acquisition and to comply with the group’s accounting policies.
138 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 17. deferred tax
The following are the major deferred tax liabilities and assets recognised by the group and movements thereon during the current and prior
reporting year.
At 1 January 2011
(Charge)/credit to income
Charge to equity
acquisition of subsidiaries
adjustments
exchange differences
At 1 January 2012
(Charge)/credit to income
Credit to equity
adjustments*
exchange differences
At 31 December 2012
tax
losses
$000
954
(665)
–
–
–
19
308
(254)
–
–
1
55
deferred
r&d costs
$000
1,040
297
–
–
(571)
(45)
721
(317)
–
–
6
410
other
short-term
temporary
differences
$000
16,637
6,963
–
15,989
–
(238)
39,351
10,308
–
(606)
(29)
49,024
amortisable
assets
$000
fixed
assets
$000
share-based
payments
$000
(7,329)
(1,411)
–
(11,918)
–
547
(20,111)
1,015
–
–
(53)
(19,149)
(7,604)
(1,132)
–
–
–
142
(8,594)
137
–
–
97
(8,360)
7,186
(292)
(5,644)
–
–
–
1,250
(477)
98
–
–
871
total
$000
10,884
3,760
(5,644)
4,071
(571)
425
12,925
10,412
98
(606)
22
22,851
*An adjustment of $606,000 was made to the deferred tax recognised on acquisition of MSI prior to the end on the measurement period on 2 May 2012.
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
as at 31 december
2011
$000
2012
$000
(22,921)
45,772
22,851
(23,147)
36,072
12,925
No deferred tax asset has been recognised on temporary differences totalling $33,310, 000 (2011: $64,514,000) due to the unpredictability of the
related future profit streams.
Of these temporary differences, $8,681,000 relate to unrecognised deferred tax on Uk share-based payments. The remaining temporary
differences of $24,629,000 relate to losses on which no deferred tax is recognised. Of these losses $1,321,000 relate to losses that have expired
by 31 December 2012.
No deferred tax liability is recognised on temporary differences of $57,933,000 (2011: $39,201,000) 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.
139
Hikma PHarmaceuticals Plc / annual rePort 2012 18. finanCiaL and other non-CUrrent assets
other financial assets
available for sale investments
other non-current asset
Other non-current assets represent advance payments made to acquire products and product related technologies.
19. inventories
finished goods
work-in-progress
raw and packing materials
goods in transit
as at 31 december
2011
$000
2012
$000
632
412
10,000
11,044
1,644
435
10,000
12,079
as at 31 december
2011
$000
2012
$000
87,663
30,011
135,571
18,986
272,231
77,862
28,039
114,449
18,910
239,260
goods in transit includes inventory held at third parties whilst in transit between group companies.
provisions against inventory
as at
31 december
2011
$000
24,078
additions
$000
22,206
Utilisation
$000
(19,195)
translation
adjustments
$000
as at
31 december
2012
$000
(278)
26,811
The total expense in the consolidated income statement for the write-off of inventory, including provisions for such write-offs, was $19,218,000
(2011: $12,271,000).
20. tr ade and other r eCeivaBLes
trade receivables
prepayments
value added tax recoverable
interest receivable
employee advances
Trade receivables are stated net of provisions for chargebacks and doubtful debts as follows:
as at 31 december
2011
$000
2012
$000
294,048
22,758
8,439
579
2,323
328,147
292,100
16,015
5,188
490
2,063
315,856
as at
31 december
2011
$000
57,616
18,429
76,045
additions
$000
167,146
4,104
171,250
Utilisation
$000
(176,266)
(324)
(176,590)
translation
adjustments
$000
28
(504)
(476)
as at
31 december
2012
$000
48,524
21,705
70,229
Chargebacks and other allowances
doubtful debts
140 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 20. tr ade and other r eCeivaBLes Continued
The following table provides a summary of the age of trade receivables:
At 31 December 2012
total trade receivables as at
31 december 2012
related allowance for doubtful debts
Chargebacks and other allowances
net receivables
At 31 December 2011
total trade receivables as at
31 december 2011
related allowance for doubtful debts
Chargebacks and other allowances
net receivables
not past
due on the
reporting date
$000
less than
90 days
$000
between
91 and
180 days
$000
between
181 and
360 days
$000
past due
over
one year
$000
250,285
61,128
8,479
14,672
8,008
250,285
61,128
8,479
14,672
8,008
impaired
$000
total
$000
21,705
(21,705)
–
364,277
(21,705)
342,572
(48,524)
294,048
not past
due on the
reporting date
$000
274,862
–
274,862
less than
90 days
$000
56,367
–
56,367
between
91 and
180 days
$000
between
181 and
360 days
$000
past due
over
one year
$000
impaired
$000
total
$000
9,422
–
9,422
5,479
–
5,479
3,586
–
3,586
18,429
(18,429)
–
368,145
(18,429)
349,716
(57,616)
292,100
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 28.
21. CoLLater aLised and restriCted Cash
Collateralised and restricted cash primarily represent an amount retained against short-term bank transactions granted to the group’s Sudanese,
Egyptian, jordanian and Algerian operations of $1,756,000. (2011: Sudanese, Egyptian, jordanian and Algerian operations of $2,595,000).
22. 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.
as at 31 december
2011
$000
2012
$000
76,023
99,798
689
176,510
64,944
29,623
148
94,715
141
Hikma PHarmaceuticals Plc / annual rePort 2012 23. BanK overdr afts and Loans
Bank overdrafts
import and export financing
short-term loans
deferred consideration
Current portion of long-term loans (note 26)
The weighted average interest rates paid were as follows:
Bank overdrafts
Bank loans (including the non-current bank loans)
import and export financing
as at 31 december
2011
$000
2012
$000
19,591
72,768
12,011
–
88,509
192,879
2012
%
5.24
3.07
3.69
18,286
53,196
4,284
11,785
65,302
152,853
2011
%
4.80
2.94
2.42
Import and export financing represents short-term financing for the ordinary trading activities of the business.
The deferred consideration is in relation to the acquisition of MSI and was paid during the year ended 31 December 2012.
24. tr ade 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
2011
$000
2012
$000
110,600
69,734
5,863
560
2,074
1,709
2,862
1,403
194,805
97,756
60,276
4,181
535
2,207
1,107
2,482
668
169,212
* The employees’ provident fund liability mainly represents the outstanding contributions due to the Hikma Pharmaceuticals Ltd (jordan) retirement benefit plan, on which the fund
receives 5% interest.
**Dividends payable includes $1,889,000 (2011: $2,022,000) due to the previous shareholders of APM.
25. other provisions
Other provisions represent the end of service indemnity provisions of certain Hikma group subsidiaries. This provision is calculated based on
relevant laws in the countries where each group company operates, in addition to their own policies.
Movements on the provision for end of service indemnity:
1 January
additions
Utilisation
translation adjustments
31 December
142 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
2012
$000
9,398
2,069
(767)
(36)
10,664
2011
$000
8,641
1,865
(1,069)
(39)
9,398
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 26. Long-ter m finanCiaL deBts
total loans
Less: current portion of loans (note 23)
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:
Us dollar
euro
jordanian dinar
algerian dinar
saudi riyal
egyptian pound
tunisian dinar
as at 31 december
2011
$000
2012
$000
460,997
(88,509)
372,488
410,197
(65,302)
344,895
88,509
79,794
79,513
77,923
47,644
87,614
460,997
405,350
13,247
5,642
29,294
–
4,355
3,109
460,997
65,302
84,488
63,732
65,490
58,069
73,116
410,197
346,405
18,394
–
37,400
–
4,343
3,655
410,197
The loans are held at amortised cost.
At 31 December 2012, import and export financing, short-term loans and the current and long-term portion of long-term loans totalled
$545,777,000 (2011: $467,677,000).
Long-term loans amounting to $85,989,000 (2011: $105,338,000) are secured.
Included in the table above are the following major arrangements entered into by the group:
a) A five year $100,000,000 syndicated term loan and a four year $45,000,000 revolver were entered into on 2 May 2011. The term loan was
partially repaid by $25,000,000 on 15 December 2011. Equal quarterly repayments for the term loan commenced on 30 june 2012 and will
continue until 2 May 2016. The loan had an outstanding balance of $68,750,000 at the year-end and an unused revolver balance of
$40,000,000. The revolver maturity date is 2 May 2015. The term loan was used to fund the acquisition of the MSI business in 2011 and the
revolver is used to fund the US business’ working capital needs.
b) A seven year syndicated loan of up to $180,000,000 was entered into on 27 September 2011. The syndicate was closed on 1 june 2012 and
has an outstanding balance at year end of $180,000,000. quarterly repayments for the term loan should commence 18 months after the date
of the agreement, 27 March 2013 and will continue until the 84th month after the date of the agreement, 27 September 2018. Payments will
be made with equal instalments representing 3.182% of the loan balance and a bullet payment of 30% at the maturity of the loan. The loan
was used to finance the Promopharm acquisition and the group’s general capital expenditure.
c) A nine year $110,000,000 loan from the International finance Corporation (“IfC”) was entered into on 19 December 2011. The loan had an
outstanding balance of $60,000,000 at year end and a $50,000,000 unused available limit. Equal quarterly repayments for the term loan
should commence on 15 November 2013 and will continue until 15 August 2020. The loan has been used to finance acquisitions and capital
expenditure in the MENA region, noting that the loan is restricted for use in permitted developing countries.
143
Hikma PHarmaceuticals Plc / annual rePort 2012 27. 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
2011
$000
2012
$000
present value of minimum
lease payments
2011
$000
2012
$000
3,641
16,664
20,305
(934)
19,371
3,490
19,315
22,805
(1,371)
21,434
3,480
15,891
19,371
3,300
18,134
21,434
It is the group’s policy to lease certain of its property, plant and equipment under finance leases. The average lease term is five years (2011:
five years). for the year ended 31 December 2012, the average effective borrowing rate was between 1.0% and 8.8% (2011: between 1.7%
and 8.8%).
28. 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, without recourse discounts, and other allowances. 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, customers in the MENA region are offered relatively long payment terms compared to customers in Europe
and the US. During the year ended 31 December 2012, the group’s largest three customers in the MENA region represented 13.7% of group
revenue, 9.4% in Saudi Arabia, 2.3% in Algeria and 2.0% in Tunisia. At 31 December 2012, the amount of receivables due from customers based
in Saudi Arabia was $60,271,000 (2011: $53,351,000), in Algeria was $40,911,000 (2011: $31,139,000), and in Tunisia was $5,502,000 (2011:
$3,382,000).
During the year ended 31 December 2012, three key US wholesalers represented 16.8% of group revenue (2011: 18.8%). The amount of
receivables due from US customers at 31 December 2012 was $59,197,000 (2011: $86,476,000).
The group manages this risk through the implementation of stringent credit policies, 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 30–90 days, in Europe 30–120 days,
and in MENA 180–360 days. where appropriate, the group endeavours to minimise risk by the use of trade finance instruments such as letters
in 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 and monitors its liquidity to have reasonable assurance that the group will be able to continue as a going concern
and deliver its growth strategy objectives whilst reducing its cost of capital and maximising the return to shareholders through the optimisation of
the debt and equity mix. The group regularly reviews the capital structure by considering the level of available capital and the short to medium-
term strategic plans concerning future capital spend, as well as the need to meet dividends, banking covenants and borrowing ratios.
144 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 28. finanCiaL poLiCies for risK management and their oBjeCtives Continued
The group defines capital as equity plus net funds, which include bank overdrafts and loans (Note 23), obligations under finance leases (Note 27),
long-term financial debts (Note 26), net of cash and cash equivalents (Note 22) and collateralised and restricted cash (Note 21).
During the year, the group continued its strategy of obtaining debt financing at both the group level and at the operating entities level.
This enables the group to borrow at competitive rates and to build relationships with local and international banks and is therefore deemed to be
the most effective means of raising finance, while maintaining the balance between borrowing cost, asset and liability management and balance
sheet currency risk management.
In order to monitor the available net funds, management reviews financial capital reports on a monthly basis in addition to the continuous
review by the group treasury function.
gearing (debt/equity) increased from 65% to 69%. Acquisitions, a key element of the group’s business strategy, have been funded by debt
financing of $33,528,000 in the year of which $20,000,000 relates to the acquisition of the Egyptian Company for the Pharmaceuticals and
Chemicals Industries (“EPCI”) (Note 40). The Directors consider that the group’s current gearing is appropriate in that it enables the group to
maintain its existing dividend policy and at the same time to accommodate the group’s investment policy.
Foreign exchange risk
The group uses the US Dollar as its presentation currency and is therefore exposed to foreign exchange movements primarily in the Euro, Algerian
Dinar, Sudanese Pound, japanese yen, Egyptian Pound, Tunisian Dinar and Moroccan Dirham. 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, the Algerian Dinar and the Sudanese Pound 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 consolidated income statement as those currencies are pegged against the US Dollar.
Interest rate risk
The group manages its exposure to interest rate risk by changing the proportion of debt that is floating by entering into interest rate swap
agreements. Using these derivative financial instruments has not had a material impact on the group’s financial position as at 31 December 2012
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
fixed rate
$000
as at 31 december 2012
total
$000
floating rate
$000
fixed rate
$000
as at 31 december 2011
total
$000
floating rate
$000
174,496
410,242
584,738
190,329
328,853
519,182
–
99,798
99,798
–
29,623
29,623
An interest rate sensitivity analysis assumes an instantaneous 100 basis point change in interest rates in all currencies from their levels at
31 December 2012, with all other variables held constant. Based on the composition of the group’s debt portfolio as at 31 December 2012, a 1%
increase/decrease in interest rates would result in an additional $3,104,000 (2011: $2,992,000) in interest expense/income being incurred per year.
Fair value of financial assets and liabilities
The fair value of financial assets and liabilities is 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. Management classifies items that are recognised at fair value based on the level
of inputs used in their fair value determination as described below:
• Level 1: quoted prices in active markets for identical assets or liabilities
• Level 2: Inputs that are observable for the asset or liability
• Level 3: Inputs that are not based on observable market data
145
Hikma PHarmaceuticals Plc / annual rePort 2012 28. finanCiaL poLiCies for risK management and their oBjeCtives Continued
The following methods and assumptions were used to estimate the fair value:
3 Cash and cash equivalents – due to the short-term maturities of these financial instruments and given that generally they have negligible credit
risk, management considers the carrying amounts to be not significantly different from their fair values;
3 Short-term loans and overdrafts – approximates to the carrying amount because of the short maturity of these instruments;
3 Long-term loans – the majority of the loans are variable rate and re-price in response to any changes in market rates and so management
considers the carrying amount to be not significantly different from their fair market value. for fixed-rate loan exposures, fair value is estimated by
discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for
the same remaining maturities of such loans;
3 Over the counter (“OTC”) derivative contracts may include forward, swap, and option contracts relating to interest rates or foreign currencies and
are valued based on level 2 market prices and prevailing exchange rates at the balance sheet date;
3 receivables and payables – due to the short-term maturities of these financial instruments, the fair values of receivables and payables are
estimated to be equal to the respective carrying amounts; and
3 Lease obligations – are valued at the present value of the minimum lease payments.
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 an 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
Usd/japanese yen
Usd/moroccan dirham
Usd/tunisian dinar
2012
0.7565
5.9988
78.0915
3.7495
0.6185
0.7090
6.3654
85.9013
8.4838
1.5506
period end rates
2011
0.7722
2.8918
76.0061
3.7495
0.6470
0.7090
6.0481
77.4136
8.6133
1.4993
2012
0.7775
4.3346
77.5551
3.7495
0.6309
0.7090
6.0864
79.8155
8.6458
1.5686
average rates
2011
0.7180
2.9869
72.8147
3.7495
0.6233
0.7090
5.9648
79.7414
8.3682
1.4079
The jordanian Dinar and Saudi riyal have no impact on the consolidated income statement as those currencies are pegged to the US Dollar.
Us dollar
$000
euro
$000
British pound
$000
net foreign currency financial assets/(liabilities)
others*
japanese yen
$000
$000
algerian dinar
$000
83,304
9,106
(112,399)
18,296
(13,908)
(4,781)
(5,538)
(1,291)
(3,552)
–
(30,763)
(4,526)
–
(1,409)
2,114
7
(1,199)
1,197
(5,080)
–
16,885
7,989
(138)
–
(2)
(91)
–
–
(8)
–
–
989
750
(149,886)
–
–
(35)
–
–
–
–
–
0
(149,921)
(4)
–
–
(2,720)
–
(30)
–
–
–
–
(2,754)
14,284
–
(25)
(72)
–
(25)
(6)
(578)
(6,072)
(80)
7,426
2012
functional currency of entity:
– jordanian dinar
– euro
– algerian dinar
– saudi riyal
– sudanese pound
– egyptian pound
– tunisian dinar
– moroccan dirham
– Lebanese pound
– Us dollar
*Others include Saudi riyal and jordanian Dinar.
146 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 28. finanCiaL poLiCies for risK management and their oBjeCtives Continued
sensitivity analysis:
2012
functional currency of entity:
– jordanian dinar
– euro
– algerian dinar
– saudi riyal
– sudanese pound
– egyptian pound
– tunisian dinar
– moroccan dirham
– Lebanese pound
– Us dollar
2011
functional currency of entity:
– jordanian dinar
– euro
– algerian dinar
– saudi riyal
– sudanese pound
– egyptian pound
– tunisian dinar
– moroccan dirham
– Lebanese pound
– Us dollar
*Others include Saudi riyal and jordanian Dinar.
Us dollar
$000
833
91
(1,124)
183
(139)
(48)
(55)
(13)
(36)
–
(308)
euro
$000
(45)
–
(14)
21
–
(12)
12
(51)
–
169
80
impact on profit or loss assuming 1% appreciation
of foreign currency against functional currency as at year end
others
$000
algerian dinar
$000
japanese yen
$000
British pound
$000
(1)
–
–
(1)
–
–
–
–
–
10
8
(1,499)
–
–
–
–
–
–
–
–
–
(1,499)
–
–
–
(27)
–
–
–
–
–
–
(27)
143
–
–
(1)
–
–
–
(6)
(61)
(1)
74
Us dollar
$000
euro
$000
British pound
$000
net foreign currency financial assets/(liabilities)
others*
japanese yen
$000
$000
algerian dinar
$000
55,945
(2,736)
(65,510)
14,926
(18,874)
(3,981)
(4,062)
(423)
(1,729)
–
(26,444)
1,070
–
(834)
944
405
(485)
790
(5,383)
–
1,992
(1,501)
(279)
–
(25)
15
–
(3)
(228)
–
–
(1,378)
(1,898)
(99,710)
–
–
(1,798)
–
–
–
–
–
–
(101,508)
316
–
–
(4,318)
–
(312)
–
–
–
–
(4,314)
12,095
–
(1)
(2)
–
(30)
–
(501)
(8,795)
579
3,345
147
Hikma PHarmaceuticals Plc / annual rePort 2012 28. finanCiaL poLiCies for risK management and their oBjeCtives Continued
Us dollar
$000
euro
$000
559
(27)
(655)
149
(189)
(40)
(41)
(4)
(17)
–
(265)
11
–
(8)
9
4
(5)
8
(54)
–
20
(15)
sensitivity analysis:
2011
functional currency of entity:
– jordanian dinar
– euro
– algerian dinar
– saudi riyal
– sudanese pound
– egyptian pound
– tunisian dinar
– moroccan dirham
– Lebanese pound
– Us dollar
Liquidity risk of assets/(liabilities)
Liquidity risk
2012
Cash and cash equivalents
trade receivables
interest-bearing loans and borrowings
interest-bearing overdrafts
interest-bearing finance lease
trade payables
2011
Cash and cash equivalents
trade receivables
interest-bearing loans and borrowings
interest-bearing overdrafts
interest-bearing finance lease
trade payables
impact on profit or loss assuming 1% appreciation of foreign
currency against functional currency as at year end
others
japanese yen
$000
$000
algerian dinar
$000
British pound
$000
(3)
–
–
–
–
–
(2)
–
–
(14)
(19)
Less than
one year
$000
176,510
294,048
(191,855)
(20,301)
(3,641)
(110,600)
144,161
Less than
one year
$000
94,715
292,100
(149,240)
(18,563)
(3,490)
(97,756)
117,766
(997)
–
–
(18)
–
–
–
–
–
–
(1,015)
two to
five years
$000
–
–
(314,952)
–
(16,664)
–
(331,616)
two to
five years
$000
–
–
(298,954)
–
(19,315)
–
(318,269)
3
–
–
(43)
–
(3)
–
–
–
–
(43)
more than
five years
$000
–
–
(90,486)
–
–
–
(90,486)
more than
five years
$000
–
–
(74,957)
–
–
–
(74,957)
121
–
–
–
–
–
–
(5)
(88)
6
34
total
$000
176,510
294,048
(597,293)
(20,301)
(20,305)
(110,600)
(277,941)
total
$000
94,715
292,100
(523,151)
(18,563)
(22,805)
(97,756)
(275,460)
At 31 December 2012 the group had undrawn facilities of $313,021,000 (2011: $396,459,000). Of these facilities, $158,929,000 (2011:
$258,615,000) was committed and the remainder was uncommitted.
148 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 29. 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)
foreign exchange forward contracts and options (jpy)
2012
$000
–
2,000
2011
$000
4,031
6,000
These arrangements are designed to address significant exchange exposures.
At 31 December 2012, the fair value of the group’s currency derivatives, some of which were designated as effective cash flow hedges,
was a liability of $7,000 (2011: a liability of $187,000). The movement in fair value in the year resulted in a gain of $180,000 (2011: loss of
$270,000); which has been reflected in other comprehensive income. These amounts are based on market values of equivalent instruments at
the balance sheet date.
The fair value of currency derivatives designated as ineffective cash flow hedges was $Nil (2011: $Nil) held at fair value through profit and loss.
The movement in fair value in the year has not resulted in any profit or loss being recognised in the consolidated income statement for the year
ended 31 December 2012 (2011: loss of $8,000) in respect of such derivatives.
The group believes that the effect on the value of cash flow hedges of currency 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 $157,858,000 (2011: $173,164,000) and have fixed interest payments at rates ranging from 1.41% to 4.34% (2011: 1.41% to 4.34%)
for periods up until 2018 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 $4,001,000 (2011: liability of $1,699,000). These amounts are
based on fair 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 $2,301,000 (2011: loss
of $422,000) has been reflected in other comprehensive income. 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 $1,000, which has been
recognised in the consolidated income statement for the year ended 31 December 2012 (2011: gain of $10,000) 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.
30. share CapitaL
Issued and fully paid – included in shareholders’ equity:
At 1 January
issued during the year
At 31 December
number ’000
195,851
1,185
197,036
2012
$000
34,904
187
35,091
number ’000
193,517
2,334
195,851
2011
$000
34,525
379
34,904
149
Hikma PHarmaceuticals Plc / annual rePort 2012
31. non-ControLLing inter ests
At 1 January
share of profit
dividends paid
issue of equity shares of subsidiaries
Currency translation (loss)/gain
acquisition of subsidiaries
adjustment arising from change in non-controlling interests
At 31 December
2012
$000
22,059
6,895
(1,271)
–
(5,310)
–
(7,176)
15,197
2011
$000
6,378
3,362
(100)
488
195
26,650
(14,914)
22,059
In 2012, the group acquired an additional 9.8% stake in Promopharm for a cash consideration of $12,009,000, bringing the total ownership to
94.1%. This was completed as part of a mandatory tender offer, which closed on 6 january 2012.
The change in non-controlling interest in 2011 was mainly due to the group acquiring an additional stake in Promopharm of 20.4%, for a
cash consideration of $29,196,000, through the purchase of additional shares in the market.
32. own shares
Own shares represent 270,651 (2011: 571,000) ordinary shares in the Company held by Sanne Trust Company Limited, an independent trustee.
During the year, the Company issued 1,005,400 Ordinary Shares to the independent trustee to meet short-term commitments in relation to
employee share plans. 1,305,749 shares were utilised during the year.
The market value for the own shares at 31 December 2012 was $3,183,000 (2011: $5,472,000). In 2012, no shares were acquired. The book
value of the retained own shares at 31 December 2012 is $86,000 (2011: $2,222,000). The trustee holds these shares to meet long-term
commitments in relation to employee share plans.
150 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 33. net Cash from oper ating aCtivities
Profit before tax
adjustments for:
depreciation and amortisation of:
property, plant and equipment
intangible assets
Loss on disposal of property, plant and equipment
Loss (gain) on disposal of intangible assets
movement on provisions
movement on deferred income
Cost of equity-settled employee share scheme
payments of costs directly attributable to acquisitions
finance income
interest and bank charges
results from associates
Cash flow before changes in 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
34. Contingent LiaBiLities
note
2012
$000
2011
$000
132,041
93,892
5
42,359
16,032
349
67
1,266
(62)
7,961
1,519
(1,266)
35,717
(892)
235,091
(20,759)
2,259
(42,305)
21,914
10,429
206,629
(24,468)
182,161
35,660
11,343
22
(91)
757
(87)
7,507
10,147
(468)
23,368
1,164
183,214
(59,898)
(4,570)
(8,199)
15,987
1,958
128,492
(2,095)
126,397
A contingent liability existed at the balance sheet date in respect of guarantees and letters of credit totalling $120,554,000 (2011: $82,494,000).
The integrated nature of the group’s worldwide operations, involving significant investment in research and strategic manufacturing 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.
151
Hikma PHarmaceuticals Plc / annual rePort 2012 35. share-Based payments
equity settled share option scheme
During the year ended 31 December 2012, 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:
The estimated
fair value of each
share option
granted
$
1.14
2.61
0.74
0.35
number
granted
85,000
1,041,500
1,600,000
9,520,000
The share
price at
grant date
$
5.45
9.19
4.50
0.91
exercise
price
$
5.45
9.19
4.50
0.91
expected
volatility
expected
dividend yield
expected
average
contractual life
risk-free
interest rate
34.90%
31.50%
26.20%
44.80%
1.21%
0.08%
6.67%
3.85%
4.0 years
3.8 years
7.5 years
7.5 years
4.11%
4.54%
4.54%
4.22%
date of grants
4-nov-2008
29-apr-2008
13-oct-2005
12-oct-2004
All of the general employees share option plans have a ten-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 immediately after the vesting date.
further details of the general employee share option plan are as follows:
outstanding at 1 january
exercised during the year
expired during the year
outstanding at 31 december
exercisable at 31 december
2012
weighted
average exercise
price (in $)
7.24
6.74
9.18
7.33
6.85
number of
share options
743,200
(179,800)
(23,700)
539,700
378,600
2011
weighted
average exercise
price (in $)
3.33
1.55
5.45
7.24
6.06
number of
share options
2,382,618
(1,634,318)
(5,100)
743,200
433,000
The cost of the equity settled share option scheme of $104,000 (2011: $296,000) has been recorded in the consolidated income statement as
part of general and administrative expenses.
The weighted average share price at the date of exercise for share options exercised during the year was $11.25. The options outstanding at
31 December 2012 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.
Long-term incentive plan
During the year ended 31 December 2012, the Company had a long-term incentive plan (“LTIP”) settled by equity instruments, with nine separate
grant dates. Under the LTIP, conditional awards and nil cost options are granted 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 from 2010, the TSr 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 Committee report.
152 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 35. share-Based payments Continued
Details of the grants under the plan are shown below:
date of grants
16-mar-2012
18-mar-2011
22-mar-2010
19-may-2009
19-mar-2009
29-apr-2008
10-sep-2007
23-apr-2007
2-apr-2007
The estimated
fair value of
each share
option granted
$
8.65
9.00
6.97
3.89
2.94
5.46
4.70
4.47
4.33
The share price at
grant date
$
11.43
11.74
9.00
6.67
5.11
9.22
8.28
7.69
7.46
number
granted
547,780
646,054
730,253
200,000
920,000
700,000
150,000
466,000
160,000
expected
volatility
expected
dividend yield
risk-free
interest rate
30.31%
37.04%
37.18%
38.98%
38.98%
31.47%
34.64%
34.64%
34.64%
1.14%
1.11%
1.20%
1.22%
1.47%
0.08%
0.08%
0.08%
0.08%
0.67%
1.65%
1.88%
1.92%
1.88%
4.50%
5.00%
5.45%
5.40%
All long-term incentive plans have ten years contractual life and vest after three years, subject to performance conditions as mentioned above.
for further details see the remuneration Committee report.
The estimated fair value of each share option granted in the LTIP was calculated by applying the Monte Carlo simulation methodology. for awards
made from 2010, 50% of the award is subject to a TSr performance condition which was valued by applying the Monte Carlo simulation
methodology, the remaining 50% of the award is subject to financial metrics which are valued by applying the Black-Scholes model.
The exercise price of the share award is nil.
further details on the number of shares granted are as follows:
year 2012
outstanding at 1 january
granted during the year
exercised during the year
expired during the year
forfeitures
expired during the year
performance condition
outstanding at 31 december
exercisable at 31 december
year 2011
outstanding at 1 january
granted during the year
exercised during the year
expired during the year
outstanding at 31 december
exercisable at 31 december
2009 grants
19 may
number
2008 grants
29 april
number
19 march
number
2 april
number
23 april
number
2007 grants
10 september
number
total
number
2012 grant
16 march
number
–
547,780
–
2011 grant
18 march
number
646,054
–
–
2010 grant
22 march
number
693,632
–
–
820,000 200,000
–
(680,800) (184,000)
–
42,000
–
–
(55,830)
(68,230)
(84,129)
–
–
–
–
491,950
–
–
577,824
–
–
609,503
–
(59,200) (16,000)
–
80,000
–
80,000
–
42,000
42,000
–
–
–
–
–
–
–
13,000
–
–
– 2,414,686
547,780
–
(864,800)
–
–
–
(208,189)
–
13,000
13,000
–
–
–
(75,200)
1,814,277
135,000
2011 grant
18 march
number
–
646,054
–
–
646,054
–
2010 grant
22 march
number
730,253
–
–
(36,621)
693,632
–
2009 grants
19 march
number
19 may
number
870,000
–
–
(50,000)
820,000
–
200,000
–
–
–
200,000
–
2008 grant
29 april
number
650,000
–
(608,000)
–
42,000
42,000
2 april
number
25,000
–
(25,000)
–
–
–
23 april
number
21,000
–
(8,000)
–
13,000
13,000
2007 grants
10 september
number
total
number
50,000
–
(50,000)
–
–
–
2,546,253
646,054
(691,000)
(86,621)
2,414,686
55,000
The cost of the long-term incentive plan of $4,471,000 (2011: $4,796,000) has been recorded in the consolidated income statement as part
of general and administrative expenses.
153
Hikma PHarmaceuticals Plc / annual rePort 2012 35. share-Based payments Continued
management incentive plan
The 2009 Management Incentive Plan (“MIP”) was approved by shareholders at the 2010 Annual general Meeting, whereby shareholders
consented to the Company satisfying awards under the MIP from newly issued shares. Under the MIP, the Company makes grants of conditional
awards to management across the group below senior management level. Awards are dependent on the achievement of individual and group
kPIs over one year and are then subject to a two year holding period. The 2009 MIP awards were made at the start of the kPI performance
period, whereas the 2011 awards and future awards will be made at the end of the kPI performance period.
Details of the grants under the plan are shown below:
year 2012
outstanding at 1 january
granted during the year
exercised during the year
expired during the year
outstanding at 31 december
year 2011
outstanding at 1 january
granted during the year
exercised during the year
expired during the year
outstanding at 31 december
2012 grants
18 may
number
–
412,056
–
(33,786)
378,270
2011 grants
11 may
number
339,134
–
(5,305)
(33,705)
300,124
2011 grants
11 may
number
–
356,894
–
(17,760)
339,134
2009 grants
19 march
number
460,809
–
(435,644)
(25,165)
–
2009 grants
19 march
number
487,561
–
–
(26,752)
460,809
total
number
799,943
412,056
(440,949)
(92,656)
678,394
total
number
487,561
356,894
–
(44,512)
799,943
The cost of the MIP of $3,386,000 (2011: $2,415,000) has been recorded in the consolidated income statement as part of general and
administrative expenses.
36. oper ating Lease arr angements
minimum lease payments under operating leases recognised in profit or loss for the year
2012
$000
4,766
2011
$000
4,368
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 two to five years inclusive
2012
$000
3,548
3,123
6,671
2011
$000
2,163
3,345
5,508
Operating lease payments represent rentals payable by the group for certain of its office properties. Leases are negotiated for a term of one
to three years.
154 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued 37. reLated party BaLanCes
Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. Transactions
between the group and its associates and other related parties are disclosed below.
trading transactions:
During the year, group companies entered into the following transactions with related parties:
Darhold Limited: is a related party of the group because it is considered one of the major shareholders of Hikma Pharmaceuticals PLC with
an ownership percentage of 29.0% at the end of 2012 (2011: 29.2%). further details on the relationship between Mr. Samih Darwazah,
Mr. Said Darwazah, Mr. Mazen Darwazah and Mr. Ali Al-Husry, and Darhold Limited are given in the Directors’ report.
Other than dividends (as paid to all shareholders), there were no transactions between the group and Darhold Limited in the year.
Capital Bank – Jordan: is a related party of the group because during the year two Board members of the Bank were also Board members at
Hikma Pharmaceuticals PLC. Total cash balances at Capital Bank – jordan were $2,977,000 (2011: $610,000). Loans and overdrafts granted by
Capital Bank to the group amounted to $Nil (2011: $3,841,000) with interest rates ranging between 8.25% and 3MLIBOr + 1%. Total interest
expense incurred against group facilities was $344,000 (2011: $7,000). Total interest income received was $Nil (2011: $Nil) and total commission
paid in the year was $91,000 (2011: $8,000).
Jordan International Insurance Company: is a related party of the group because one Board member of the Company is also a Board member
at Hikma Pharmaceuticals PLC. Total insurance premiums paid by the group to jordan International Insurance Company during the year were
$3,423,000 (2011: $3,035,000). The group’s insurance expense for jordan International Insurance Company contracts in the year 2012 was
$2,806,000 (2011: $2,902,000). The amounts due to jordan International Insurance Company at the year-end were $154,000 (2011: Due
from $109,000).
Mr. Yousef Abd Ali: is a related party of the group because he holds a non-controlling interest in Hikma Lebanon of 33%, the amount owed
to Mr. yousef by the group as at 31 December 2012 was $150,000 (2011: $150,000).
Labatec Pharma: is a related party of the group because it is owned by Mr. Samih Darwazah. During 2012, the group total sales to Labatec
Pharma amounted to $282,000 (2011: $338,000) and the group total purchases from Labatec Pharma amounted to $1,179,000 (2011:
$3,805,000). At 31 December 2012, the amount owed from Labatec Pharma to the group was $211,000 (2011: Owed to $753,000).
King and Spalding: is a related party of the group because the partner of the firm is a Board member and the company secretary of west-ward.
king and Spalding is an outside legal counsel firm that handles general legal matters for west-ward. During 2012 fees of $45,000 (2011:
$1,216,000) were paid for legal services provided.
Jordan Resources & Investments Company: is a related party of the group because three Board members of the group are shareholders in the
firm. During 2012 fees of $151,000 (2011: $Nil) were paid for training services provided.
American University of Beirut: is a related party of the group because one Board member of the group is also a trustee of the University.
During 2012 fees of $125,000 (2011: $Nil) were paid for training services provided.
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 82 to 103.
short-term employee benefits
share-based payments
post-employment benefits
other benefits
2012
$000
10,460
3,716
211
204
14,591
2011
$000
8,474
3,196
102
428
12,200
155
Hikma PHarmaceuticals Plc / annual rePort 2012 38. sUBsidiaries
The main subsidiaries of Hikma Pharmaceuticals PLC are as follows:
Company’s name
hikma pharmaceuticals Limited
arab pharmaceutical manufacturing Co.
hikma pharma algeria sarL
hikma farmaceutica s.a.
west-ward pharmaceutical Corp.
pharma ixir Co. Ltd
hikma pharma sae
Thymoorgan pharmazie gmbh
hikma pharma gmbh
hikma italia s. p. a
al jazeera pharmaceutical industries Ltd.
societe d’industries pharmaceutiques ibn al Baytar s.a.
spa societe al dar al arabia
societe de promotion pharmaceutique du maghreb s.a.
savanna pharmaceuticals industries Co. Ltd.
ownership%
ordinary shares
at 31 december
2012
100
100
100
100
100
51
100
100
100
100
100
66
100
94.1
100
ownership%
ordinary shares
at 31 december
2011
100
100
100
100
100
51
100
100
100
100
100
66
100
84.3
100
established in
jordan
jordan
algeria
portugal
U.s.a.
sudan
egypt
germany
germany
italy
K.s.a.
tunisia
algeria
morocco
sudan
39. defined ContriBUtion r etirement 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. The details of each contribution plan are as follows:
hikma pharmaceuticals Limited – jordan:
The group currently has an employee savings plan wherein the group fully matches employees’ contributions, which are fixed at 10% (up to 2011
was 5%) of salary. Employees are entitled to 30% of the group contributions after three years of employment with the group and an additional
10% for each subsequent year. Employees fully vest in the group contributions after ten years of employment. The group’s contributions for the
year ended 31 December 2012 were $2,163,000 (2011: $885,000).
west-ward pharmaceuticals Corp: (401 (k) salary saving plan)
Prior to 2001, west-ward Pharmaceutical 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 95% of their gross salary into the plan, not to exceed $17,000 and $16,500 for 2012 and
2011, 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 the 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 2012
were $2,020,000 (2011: $1,357,000).
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 2012 were $708,000 (2011: $600,000).
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.
40. sUBseqUent events
On 9 january 2013, Hikma announced that is has agreed to acquire the Egyptian Company for Pharmaceuticals & Chemical Industries (“EPCI”);
the deal was completed on 22 january 2013. Hikma paid a cash consideration of $18,500,000 and deferred consideration of $2,000,000. The
main purpose of the acquisition was to strengthen Hikma’s position in the large and fast growing Egyptian market. Due to the timing of the
acquisition, Purchase Price Allocation has not yet been performed.
156 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSContinued Company BaLanCe sheet
at 31 deCemBer 2012
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
short-term debt
due to subsidiaries
Net current assets/(liabilities)
Non-current liabilities
Long-term financial debts
Total liabilities
Net assets
Equity
share capital
share premium
own shares
other reserves
Equity attributable to equity holders of the parent
Notes
43
44
45
44
46
47
48
54
55
56
2012
$000
2011
$000
1,678,040
70,079
37
309
1,748,465
568
5,803
136,329
83
142,783
1,891,248
340
2,036
30,705
16,217
49,298
93,485
1,664,637
57,324
87
571
1,722,619
589
6,091
111,666
92
118,438
1,841,057
412
2,237
–
592,000
594,649
(476,211)
148,836
198,134
1,693,114
137,410
732,059
1,108,998
35,091
279,116
(86)
1,378,993
1,693,114
34,904
278,094
(2,222)
798,222
1,108,998
The financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, were approved by the Board of Directors and signed on its
behalf by:
said darwazah
Director
mazen darwazah
Director
12 March 2013
157
Hikma PHarmaceuticals Plc / annual rePort 2012
Company statement of Changes in eqUity
for the year ended 31 deCemBer 2012
Balance at 1 January 2011
issue of equity shares
purchase of own shares
Cost of equity-settled employee share scheme
exercise of employees long-term incentive plan
net profit for the year
dividends paid
Balance at 31 December 2011 and 1 January 2012
issue of equity shares
purchase of own shares
Cost of equity-settled employee share scheme
exercise of employees long-term incentive plan
net profit for the year
dividends paid
Balance at 31 December 2012
paid up
capital
$000
34,525
379
–
–
–
–
–
34,904
187
–
_
–
–
–
35,091
share premium
$000
own shares
$000
merger reserve
$000
275,968
2,126
–
–
–
–
–
278,094
1,022
–
–
–
–
–
279,116
(2,220)
–
(115)
–
113
–
–
(2,222)
–
(158)
–
2,294
–
–
(86)
707,369
–
–
–
–
–
–
707,369
–
–
–
–
–
–
707,369
retained
earnings
$000
40,793
–
–
7,507
(113)
67,867
(25,201)
90,853
–
–
7,961
(2,294)
601,654
(26,550)
671,624
total
$000
1,056,435
2,505
(115)
7,507
–
67,867
(25,201)
1,108,998
1,209
(158)
7,961
–
601,654
(26,550)
1,693,114
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.
158 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
Company Cash fLow statement
for the year ended 31 deCemBer 2012
Profit 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
investment in subsidiary
interest income
Net cash (used in) investing activities
finanCing aCtivities
proceeds from issue of new shares
increase in long-term financial debts
increase in short-term debts
interest paid
dividends paid
Net cash generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2012
$000
601,654
1,754
(2,442)
5,183
21
(72)
71
51
9
(594,014)
(152)
12,063
(12,755)
(35)
(13,403)
2,442
(23,751)
1,051
11,426
30,705
(5,232)
(26,550)
11,400
(288)
6,091
5,803
2011
$000
67,867
1,818
(2,753)
1,334
(398)
157
60
60
1
(4,648)
(1,224)
62,274
(34,529)
(489)
(141,510)
2,753
(173,775)
2,390
137,410
–
(70)
(25,201)
114,529
3,028
3,063
6,091
159
Hikma PHarmaceuticals Plc / annual rePort 2012 notes to the Company finanCiaL statements
41. adoption of new and r evised 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.
42. 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 policies noted below.
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
Equity-settled employee share schemes are accounted for in accordance with IfrIC 11 ‘group and Treasury Share Transactions’, whereby
current charge expenses relating to the subsidiaries’ employees are recharged to subsidiary companies.
43. investments in sUBsidiaries
Investments in subsidiaries represent the following:
Company’s name
hikma Limited
hikma pharma Limited
hikma holdings (UK) Limited
hikma acquisitions (UK) Limited
al jazeera pharmaceutical industries Ltd (“jpi”)
hikma pharmaceuticals Limited
hikma mena holdings
amKi mena holdings
hikma international n.v.
The investments in subsidiaries are all stated at cost.
*The remaining shares are held by other group companies.
ownership %
ordinary shares
2012
ownership %
ordinary shares
2011
100
100
–
100
52.5*
22.8*
100
100
100
100
100
100
–
52.5*
22.8*
100
–
–
established in
UK
jersey
UK
UK
Ksa
jordan
Uae
Uae
netherlands
The movement in the carrying value of the investments in the year represents an increase in the investment in Hikma MENA Holdings
of $13,400,000 and a new investment in AMkI MENA Holdings of $2,722. The total investment in subsidiaries is $1,678,040,000
(2011: $1,664,637,000).
During the year ended 31 December 2012, Hikma undertook an internal reorganisation of the group subsidiary structure. The ultimate
interest in all subsidiaries remains unchanged. The changes in ownership immediately below the Company were the addition of Hikma
International N.v. and Hikma Acquisitions (Uk) Limited and the removal of Hikma Holdings (Uk) Limited.
44. dUe from sUBsidiaries
non-current assets
hikma investment Ltd.
west-ward pharmaceuticals Corp.
hikma italia s.p.a
hikma pharma Limited – jersey
2012
$000
8,512
50,628
3,959
6,980
70,079
2011
$000
8,384
37,952
3,782
7,206
57,324
These balances represent loans that carry interest of 1.5% to 4.8% (2011: 1.5% to 4.8%) per annum charged on the outstanding loan balances.
160 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
44. dUe from sUBsidiaries Continued
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
due from hikma mena holdings Limited
due from west-ward pharmaceutical Corp.
due from hikma pharmaceuticals Limited – jordan
others
45. finanCiaL assets
2012
$000
7,491
643
113
90,291
625
14,229
837
20,109
1,991
136,329
2011
$000
7,222
487
78
93,446
580
7,151
1,196
–
1,506
111,666
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.
46. finanCiaL LiaBiLities
other payables
The Directors consider that the carrying amount of other payables approximates to their fair value.
47. dUe to sUBsidiaries
due to hikma holdings
due to hikma pharmaceuticals Limited – jordan
due to hikma phamia Limited – jersey
due to hikma investment Ltd.
due to eurohealth – nv
2012
$000
–
–
15
728
15,474
16,217
2011
$000
591,800
200
–
–
–
592,000
These balances mainly represent amounts due to Hikma Holdings (Uk) Ltd which are non-interest-bearing loans repayable on demand. During the
year ended 31 December 2012, Hikma undertook an internal reorganisation of the group subsidiary structure. The ultimate interest in all
subsidiaries remains unchanged. As a result of this re-organisation, the non-interest bearing loan with Hikma Holdings (Uk) Limited ceased.
48. Long-ter m finanCiaL deBts
The Company has a seven-year syndicated term loan of $180,000,000 which was entered into on 27 September 2011. The loan has an
outstanding balance at year end of $172,468,000 (with a fair value of $170,541,000) from which $21,705,000 is due in one year and a zero
unused available limit. quarterly repayments for the term loan should commence 18 months after the date of the agreement and will continue
until the 84th month after the date of the agreement. Payment will be made with equal instalments representing 3.182% of the loan balance and
a bullet payment of 30% at the maturity of the loan. The loan was used to finance the Promopharm acquisition and the group’s general capital
expenditure.
161
Hikma PHarmaceuticals Plc / annual rePort 2012 notes to the Company finanCiaL statements
Continued
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
British pound
jordanian dinar
2012
$000
–
960
–
Liabilities
2011
$000
–
1,537
–
2012
$000
36
975
29
assets
2011
$000
1,992
159
31
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 28.
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 2012, with all other variables held constant. Based on the composition of the Company debt and cash portfolio as at
31 December 2012, a 1% increase/decrease in interest rates would result in an additional interest expense/income of $1,800,000 being incurred
per year (2011: $1,400,000).
Liquidity risk
2012
Cash and cash equivalents
accounts receivables
interest-bearing loans and borrowings
other payables
2011
Cash and cash equivalents
accounts receivables
interest-bearing loans and borrowings
other payables
Less than
one year
$000
5,803
83
(35,412)
(340)
(29,866)
Less than
one year
$000
6,091
92
(4,341)
(412)
1,430
two to
five years
$000
_
–
(99,193)
–
(99,193)
two to
five years
$000
_
_
(83,053)
–
(83,053)
more than
five years
$000
_
–
(63,161)
–
(63,161)
more than
five years
$000
_
_
(70,495)
–
(70,495)
total
$000
5,803
83
(197,766)
(340)
(192,220)
total
$000
6,091
92
(157,889)
(412)
(152,118)
The Company believes that, given the group’s forecast operating cash flow during 2012, it has the ability to satisfy its liability commitments.
50. staff Costs
Hikma Pharmaceuticals PLC currently has ten employees (2011: ten) (excluding Executive Directors); total compensation paid to them amounted
to $2,466,000 (2011: $1,890,000) of which salaries and wages compromise an amount of $1,768,000 (2011: $1,291,000) the remaining balance
of $698,000 (2011: $599,000) represents national insurance contributions, the cost of share-based payments and other benefits.
51. stoCK options
The details of the stock compensation scheme are provided in Note 35. As at 31 December 2012, the total number of options granted to
employees of the Company under the stock compensation scheme during the life of the scheme was 2,560,000 (2011: 2,560,000) and the
total amount of the compensation expenses charged to profit and loss is $Nil (2011: $Nil).
162 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
52. Long-ter m inCentive pLans (Ltips)
The details of the LTIP scheme are provided in Note 35. As at 31 December 2012, the total number of awards granted to employees of the
Company under the LTIPs during the life of the plans was 1,331,000 shares (2011: 1,123,000) and the total amount of the compensation expenses
charged to profit and loss is $1,744,000 (2011: $1,818,000).
53. management inCentive pLans (mips)
The details of the MIPs scheme are provided in Note 35. As at 31 December 2012, the total number of awards granted to employees of the
Company under the MIPs during the life of the plans was 4,000 shares (2011: Nil) and the total amount of the compensation expenses charged
to profit and loss is $11,000 (2011: $Nil).
54. share CapitaL
Issued and fully paid – included in shareholders’ equity:
197,036,507 (2011: 195,851,307) ordinary shares of 10p each
Details of the issue of share capital in the year are given in Note 30.
55. share premiUm
Balance at 1 January 2012
premium arising on exercise of stock options
Balance at 31 December 2012
56. net inCome for the year
2012
$000
2011
$000
35,091
34,904
share premium
$000
278,094
1,022
279,116
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. The net income in the Company for the year is $601,654,000 (2011: $67,867,000).
Included in the net income for the year is an amount of $614,422,000 (2011: $75,557,000) representing dividends received and
$1,744,000 (2011: $1,818,000) representing the current year charge of LTIPs and $11,000 (2011: $Nil) representing the current year charge of
MIPs expenses relating to the Company’s employees. The remaining $6,206,000 (2011: $5,689,000) of the group’s stock options, LTIPs and MIPs
charge is recharged to subsidiary companies.
57. reLated party
Darhold Limited: is a related party of the Company because it is considered one of the major shareholders of Hikma Pharmaceuticals PLC with
ownership percentage of 29.0% at the end of 2012 (2011: 29.2%). further details on the relationship between Mr. Samih Darwazah,
Mr. Said Darwazah, Mr. Mazen Darwazah and Mr. Ali Al-Husry, and Darhold Limited are given in the Directors’ report.
Amounts repayable to and from subsidiaries are disclosed in Notes 44 and 47.
Other transactions with related parties include management charges for services provided to the subsidiary companies, equity settled
employee share scheme costs relating to the subsidiary companies and transactions with key management personnel. Compensation paid to
key management personnel is disclosed in Note 37. Details of Directors remuneration are disclosed in the remuneration Committee report on
pages 82 to 103.
More details on the general information of the ultimate parent of the group are disclosed in Note 2.
163
Hikma PHarmaceuticals Plc / annual rePort 2012 sharehoLder information
2013 financial calendar
share listings
17 april
19 april
16 may
23 may
21 august*
5 september*
7 september*
10 october*
*Provisional dates.
2012 final dividend ex-dividend date
2012 final dividend record date
annual general meeting
2012 final dividend paid to shareholders
2013 interim results and interim dividend announced
2013 interim dividend ex-dividend date
2013 interim dividend record date
2013 interim dividend paid to shareholders
shareholding enquiries
Enquiries or information concerning existing shareholdings should be
directed to the Company’s registrars, Capita registrars either:
3 in writing to Shareholder Services, Capita registrars, The registry,
34 Beckenham road, Beckenham, kent Br3 4TU;
3 by telephone from within the Uk on 0870 162 3100;
3 by telephone from outside the Uk on +44 208 639 2157; or
3 through the website www.capitaregistrars.co.uk.
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.
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.
American Depository Receipts (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:
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.
164 HIkMA PHArMACEUTICALS PLC / ANNUAL rEPOrT 2012
PriNciPaL GroUP coMPaNieS
Hikma PHarmaceuticals Plc
west-ward PHarmaceutical corPoration
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
465 industrial way west
eatontown
new Jersey 07724
usa
telephone: +1 732 542 1191
Facsimile: +1 732 542 6150
Hikma PHarmaceuticals limited
Hikma Farmacêutica s.a.
P.o. box 182400
11118 amman
Jordan
telephone: +962 6 5802900
Facsimile: +962 6 5827102
adviSerS
auditors
deloitte llP
2 new street square
london ec4a 3bZ
uk
estrada rio da mo no. 8
8a, 8b – Fervença
2705 – 906 terrugem snt
Portugal
telephone: +351 21 9608410
Facsimile: +351 21 9615102
Brokers
citigroup global markets
limited
canada square
london e14 5lb
uk
Legal advisers
ashurst
broadwalk House
5 appold street
london ec2a 2Ha
uk
Public relations
Fti consulting
Holborn gate
26 southampton buildings
london wc2a 1Pb
uk
bank of america merrill lynch
2 king edward street
london ec1a 1HQ
uk
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170
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