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HIKMA PHARMACEUTICALS PLC
Annual Report 2015
STRATEGIC REPORT
Overview
2 / Hikma timeline
4 / Our Group at a glance
Our business
6 / Our business model
8 / Chairman and Chief Executive’s statement
10 / Market review
16 / Our strategy and KPIs
Business and financial review
18 / Branded
22 / Injectables
28 / Generics
34 / Group performance
Sustainability
38 / Our approach to sustainability
40 / Meeting healthcare needs
42 / Promoting good business ethics
44 / Supporting our communities
46 / Enabling our people
48 / Minimising our environmental impact
Risk and control
52 / Risk and control
CORPORATE GOVERNANCE
63 / Message from our Chair
64 / Corporate Governance at a glance
68 / Board of Directors
72 / Executive Committee
74 / Governance report
82 / Committee reports
102 / Remuneration report
125 / Directors’ report
FINANCIAL STATEMENTS
130 / Independent Auditor’s Report
134 / Consolidated Financial Statements
139 / Notes to the Consolidated Financial Statements
180 / Company Financial Statements
183 / Notes to the Company Financial Statements
Shareholder information
192 / Principal Group Companies – Advisers
Financial highlights 2015
Hikma delivered strong performance
in Branded and Injectables, and made
excellent strategic progress in Generics
Revenue
$1,440m
Adjusted operating profit
$409m
EBITDA
$454m
Profit attributable to shareholders
$252m
Dividend per share
32 cents
Basic earnings per share
126.6 cents
Business and
financial review
To find out more about how we’ve
performed in 2015, see pages 18-37
We aim to be a leader in speciality
pharmaceuticals, delivering sustainable
long-term growth to shareholders
from
Opportunity
to
Growth
As we grow, we continue to focus on improving
the lives of patients across our global markets,
providing high-quality, affordable medicines
A lifetime rich
in achievements
Samih Darwazah 1930 – 2015
“The growing shift toward generic pharmaceuticals
shows people want high-quality, innovative products
that are accessible and affordable. That’s what Hikma
will continue to provide. That’s our future”
Samih Darwazah,
Lessons to Grow a Billion-Dollar Company: Mixing Family and Business.
Throughout the course of a
lifetime rich in achievements,
Samih Darwazah rose to the
heights of business success,
creating a world-renowned legacy
in the pharmaceutical industry as
the Founder, CEO, Chairman and
ultimately Honorary Life President
of Hikma Pharmaceuticals.
Throughout his career, Samih
encountered numerous
professional triumphs, and was
notably admired for his leadership
and humanitarian qualities. Samih
truly believed in giving back to the
community, and prioritised the
wellbeing of his employees
and customers.
Samih was born in Nablus
in 1930. As a young child,
he dreamed of becoming an
entrepreneur, and was fortunate
to receive a scholarship to the
Arab College of Jerusalem at
the young age of 13. He was
later accepted to the American
University of Beirut (AUB),
where he qualified for financial
aid, while working toward
his Bachelor’s degree. It was
during his time at AUB that he
encountered further good fortune
by meeting the love of his life,
Samira, a fellow AUB student
whom Samih married before
graduation. The couple raised
four children together – May,
Said, Mazen and Hana – who in
turn have raised 11 grandchildren.
After working as a pharmacist
for several years in Amman, Samih
successfully applied for a Fulbright
Scholarship at St Louis, Missouri,
where he obtained a Master’s
degree in Industrial Pharmacy in
1964. For the next 12 years, he
worked for Eli Lilly, progressively
climbing the occupational ladder
and taking on greater
responsibilities within the
company, leading him to relocate
several times to regional offices
around the US, Europe and the
Middle East.
In 1978, after moving back to
Jordan, Samih took a calculated
risk and decided to fulfill his dream
of founding his own pharmaceutical
company. Despite considerable
competition in the region, he
was convinced that by producing
high-quality medicines, his new
company would ultimately gain
the confidence of physicians and
patients alike. By the early 1990s,
Hikma had begun to expand
globally. Soon after establishing a
successful operation in Portugal, the
Company reached a new milestone:
operating a generic pharmaceutical
business in the United States.
Throughout Hikma’s growth,
Samih remained committed to
maintaining a safe and supportive
work environment for his employees
around the globe. He also insisted
the Company adhere to a strict
code of ethics, as well as contribute
to community development by
sponsoring robust corporate
social responsibility programmes.
In 1995, Samih was invited to serve
as Minister of Energy and Mineral
Resources. This move followed years
spent in public service – where he
also served as a Senator, a member
on the Advisory Economic Council
to His Majesty King Hussein, and
as the founder of the Jordanian
Trade Association. He was also a
firm supporter of education and an
advocate for women’s rights, which
is why, when he learned that many
girls in Southern Jordan lacked
access to quality schooling, he
decided to do something about
the problem himself. In 2009,
he established a school for girls
in Al Shobak, which is now
a thriving educational centre.
Samih’s many well-deserved
awards and accolades are as varied
as they are numerous. In 2007,
in recognition of his remarkable
achievements as a businessperson,
Ernst and Young named him the
Middle East Entrepreneur of the
Year. In 2010, the St. Louis College
of Pharmacy acknowledged his
lifetime of accomplishments by
granting him an Honorary Doctorate.
In the following year, his four
children paid tribute to their father
by establishing The Samih Darwazah
Center for Innovation Management
and Entrepreneurship at the Olayan
School of Business at AUB. In 2012,
his alma mater AUB presented him
with the Distinguished Alumnus
Award for his leadership in the
international healthcare industry.
In that same year, he was granted
an Honorary Doctorate from the
Lebanese American University
in recognition of his many
achievements, including raising the
standards of the pharmaceutical
sector in the MENA region.
In 2014, Samih received three
additional Honorary Doctorates.
The first was a degree in Humane
Letters from AUB for his efforts
in enriching the global quality
of life and in recognition of
his commitment towards the
community. His second came from
Birzeit University, commemorating
his excellence in community
and economic development in
the Arab world. The third degree
was in Pharmacy from Jordan
University of Science and
Technology, in recognition for his
outstanding achievements and
efforts in academia, science and
research in the fields of medicine
and pharmaceutical sciences.
In 2004, Samih published his first
book, entitled “Building a Global
Success“, which opens with his first
professional experience as a young
boy selling candied apples in Nablus.
Written in style of a novel, “Building
a Global Success” has been referred
to by several Deans of the Faculty
of Business Administration at both
Harvard and Columbia University.
Throughout his book, Samih’s love
and appreciation for his family, as
well as his passion and high work
ethic, shine through. Ten years
later, he published his second
book entitled, “Lessons to Grow
a Billion-Dollar Company: Mixing
Family and Business.”
Today, Samih’s legacy lives through
his children, grandchildren and the
Hikma family who proudly continue
to grow the company, which he
ever so passionately founded.
Young Samih addressing Hikma employees in the early years
A long way in a short time
Our mission
We are committed to improving people’s lives through our existing products and
our extensive and differentiated pipeline. Our aim is to provide patients with
better access to high-quality, affordable medicines in key therapeutic areas.
Our vision
Our vision is to build Hikma into a leading speciality pharmaceutical company with
a global presence. Through organic growth and strategic acquisitions, we will continue
to develop the business and maintain the high standards of ethics and responsibility
that are central to the way we operate.
$99m
Group revenue in 2000
Founded with a focus
on quality
Hikma was founded in 1978. In its early days, the Company established
itself as a leading supplier of branded generics and in-licensed products
in the Middle East and North Africa (MENA) region, meeting local
patient needs through the supply of high-quality affordable medicines.
Hikma then moved beyond the MENA, building a greenfield injectable
manufacturing facility in Portugal in 1990 and entering the United
States (US) market by acquiring West-Ward Pharmaceuticals in 1992.
In the following years, Hikma significantly expanded its operations
across its geographies growing total revenue from $16 million in
1990 to $99 million in 2000.
1978 – 2000
2
$262m
Group revenue in 2005
A renewed focus
on growth
Hikma listed on the London Stock Exchange
in 2005, raising proceeds of $124 million.
A successful initial public offering enhanced
Hikma’s flexibility to grow the business through
increased access to capital, whilst driving an
even greater focus on shareholder returns.
Having entered a new phase of growth, Hikma
completed four strategic acquisitions in 2007 –
two in Germany, to develop its oncology pipeline
and manufacturing capabilities, one in Egypt,
to establish a local manufacturing plant and
commercial presence in this protected market,
and one in Jordan, to consolidate its leading
position in the Jordanian market.
2005
$1,440m
Group revenue in 2015
From opportunity
to growth
2015 has been another significant year for Hikma
during which it continued to expand its operations
through organic growth and acquisitions.
The acquisition of Roxane Laboratories Inc. (Roxane)
from Boehringer Ingelheim, which closed in February
2016, will transform our non-injectables business in
the US, adding complementary and well differentiated
products, an attractive pipeline, proven R&D
capabilities and greater overall scale.
Hikma expects to benefit from the investments it has
made in recent years – in R&D, M&A, co-development
partnerships and licensing agreements. The Company
has an exciting pipeline across its business segments
that will drive accelerated and sustainable future growth.
$730m
Group revenue in 2010
Building a leading
position in key
markets
By 2010, following a period of significant
investment, Hikma had established a strong
presence in the US, Europe and across the
MENA region. Over the next five years, Hikma
strengthened its position in these markets
through organic growth and further strategic
acquisitions. The Company established itself as
a leading injectables player in the US, acquired
a business in Morocco to complete its footprint
in the MENA, and expanded its manufacturing
capabilities and commercial operations in Europe.
Algeirs, Algeria
Bedford, USA
2010
2015 and beyond
3
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Our Group at a glance
Well positioned
for future growth
We develop, manufacture and market a broad range of branded and non-branded
generic pharmaceutical products across the US, the MENA region and Europe.
We are also a leading licensing partner in the MENA region. Our operations
span over 50 countries and are conducted through three business segments.
Branded
Our Branded business sells branded
generics and in-licensed patented
products across the MENA region
and other emerging markets.
Injectables
Our Injectables business sells specialised
generic injectable products globally,
with state-of-the-art manufacturing
facilities in the US and Europe.
Generics
Our Generics business sells non-injectable
generic products in the United States,
with an increasingly differentiated
portfolio and pipeline.
Highlights
• Fifth largest pharmaceutical
Highlights
• A leading global manufacturer of
manufacturer in the MENA region
quality sterile injectables
Highlights
• Quality manufacturing and
high service levels
• 1,944 sales people targeting physicians
• US FDA approved manufacturing
• Strong emphasis on niche products
and pharmacists across the region
facilities in the US, Portugal and Germany
• Strong anti-infective franchise and
increasing focus on cardiovascular,
diabetes and central nervous system
(CNS) products
• A range of manufacturing capabilities,
including sterile liquid, powder,
lyophilised and cytotoxic products
• Broad product portfolio including
and forms
• Leverages our efficient and lower
cost US FDA approved manufacturing
facilities in Jordan and Saudi Arabia
• 26 products in 68 dosage strengths
• US Food and Drug Administration (FDA)
approved manufacturing facilities
in Jordan and Saudi Arabia
controlled substances, anti-infective,
cardiovascular and oncology products
• 185 products in 488 dosage strengths
• Key products include ‘Butalbital-
acetaminophen-caffiene’, Captopril,
Colchicine, Doxycycline, Prednisone
• 377 products in 1,125 dosage forms
and forms
and strengths
• Key products include Argatroban,
• Key products include Amoclan®,
Blopress®, Omnicef®, Prograf®, Suprax®
Fentanyl, Glycopyrrolate, Nicardipine,
Phenylephrine
2015 Branded revenue
2015 Injectables revenue
2015 Generics revenue
$570m
40%
of Group revenue
$710m
49%
of Group revenue
$151m
10%
of Group revenue
4
Hikma has 642 employees
in Europe – primarily in
Portugal, Germany and Italy
where we have injectable
manufacturing facilities.
These facilities supply
injectable products to
our global markets.
Europe and rest
of the world
6%
of Group revenue
MENA region
46%
of Group revenue
Hikma has 5,465 employees
in the MENA region. We have
local manufacturing facilities
in seven MENA markets and
sales and marketing teams
operating in 17 markets.
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In the US, we have
1,082 employees.
Our large state-of-the-art
manufacturing facilities
– one for sterile injectables
and one for oral solids – are
supplying a broad range of
products in the US market.
United States
48%
of Group revenue
Key
27 Manufacturing plants
in 11 countries
6 R&D centres
5
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Our business model
Creating
long-term
sustainable
value
Our success is underpinned by
our diversified business model,
which enables us to build a
leading global injectables business
and invest in our non-injectables
business in the US, while
benefiting from the strength
of our market position in
the MENA region.
Our inputs
Financial
Through capital investment and M&A,
we invest to expand our product portfolio,
technical capabilities, geographic reach
and manufacturing capacity.
People
We have a highly skilled, diverse and effective
workforce. Through continuous training
of our people and by hiring in new talent,
we are supporting our future development.
Values
We are committed to conducting business
in the most ethical way possible and strive
to achieve the highest-quality standards.
This approach helps ensure our business
is sustainable.
Relationships
Strong relationships with regulators
and health authorities across all of our
markets, and successful collaborations
with industry partners enable us to
achieve our growth objectives.
Capabilities
We have extensive manufacturing
capabilities across our global markets
focused on driving operational
excellence and greater efficiency.
Our strategy and Key
Performance Indicators
To find out more about our
strategic priorities and how
we’ve performed against our
targets in 2015, see page 16
6
How we’re different
Our commitment to quality
Quality has been the founding principle of Hikma.
Our reputation for the highest possible standards ensures
our strategic priorities are delivered, whilst maintaining
a productive and ethical culture across the Group.
Our activities
Develop and innovate:
We are developing broad and
differentiated portfolios of generic,
branded generic and in-licensed
products through internal R&D,
co-development partnerships,
licensing agreements and acquisitions.
Manufacture and maintain quality:
We are committed to maintaining the
highest quality standards in all of our
manufacturing facilities. We have 27
plants across the Group that supply
our global markets with a broad range
of injectable and non-injectable products,
The value we create
Patient benefits
Our high-quality,
affordable generic
medicines benefit
patients across
our markets.
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including 11 FDA-compliant
facilities and nine
EU-approved
facilities.
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Shareholder returns
Economic and financial
returns reinvested for
future growth.
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Branded
Leading pharmaceutical
manufacturer in MENA
Our mission
Providing patients
with better access
to high-quality,
cost effective
medicines
Injectables
Leading global
injectables
manufacturer
Generics
High-quality provider
of generics
in the US
How we’re different
Market to re g i o n s
Market to regions:
We actively market, sell and distribute our products in all our markets through experienced
sales and marketing teams. In the MENA region, nearly 2,000 representatives promote our
brands to doctors and pharmacists, while our national sales teams in the US and Europe are
selling to a broad range of customers including the leading wholesalers, pharmacy chains,
governments and hospital purchasing organisations.
Sustainable business
By conducting our
business well and acting
responsibly, we are
benefiting our employees
and our communities.
Our unique global footprint
Our presence today spans over 50 countries across
the globe. We are leveraging our strong market position
and local presence in each of our geographies,
capturing attractive growth opportunities.
Our differentiated portfolio
We are continuously developing our product portfolio
to address patients’ evolving needs, with a greater
emphasis on more differentiated products.
7
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Chairman and Chief Executive’s statement
Entering a new
phase of growth
– a truly unique asset – has grown at
a CAGR of 18% since 2005, through
a combination of organic growth
and strategic acquisitions that
completed our footprint in the region
and enabled us to consolidate in
key markets. We currently employ
close to 2,000 sales and marketing
professionals in MENA, up from
around 330 in 2005, who have
extended the awareness and
enhanced the perception of
Hikma brands across the region.
In Europe, we have built strong
injectable sales organisations in
Germany, Portugal and Italy and
have made significant investment
in manufacturing capacity and new
technologies. Today, our European
manufacturing capabilities are
truly impressive. Our high-quality
manufacturing facilities in Europe
produce 212 products across a range
of dosage forms, including vials,
ampoules, pre-filled syringes and
bags, and we are continuing to
invest in new technologies and
capabilities. With equipment
transferred from Ben Venue, we
are expanding our lyophilisation
capacity with nine new lyophilisers
and have just broken ground on
a new oncology centre.
Our business in the US has seen
the greatest transformation. The
acquisition of Baxter Healthcare’s
generic injectables business in 2011
and of Bedford Laboratories in 2014
“We remain very ambitious
for Hikma and we are
confident in our ability
to drive continued growth
in the years to come.”
We have come a long way
This year we celebrated ten years
since Hikma listed on the London
Stock Exchange. In 2005, Hikma
was just emerging as a global
pharmaceutical company, with
revenue of $262 million and a
market capitalisation of $1.2 billion
by year end. With 2015 revenue
of around $1.4 billion and a market
capitalisation of close to $6 billion,
we are firmly established as a leading
global pharmaceutical company
with a successful and diverse
business model.
We remain the leading regional
pharmaceutical manufacturer in the
MENA region. Our Branded business
8
have positioned Hikma as one of the
largest suppliers of generic injectables
in the US by volume. Through these
acquisitions, our injectable product
portfolio and pipeline have gained
significant breadth and differentiation.
Our agreement in 2015 to acquire
Roxane, which closed in February
2016, transforms our non-injectables
Generics business, adding more
than 80 attractive products to
our current portfolio and close to
90 differentiated products to our
pipeline, and makes us the sixth
largest generics company in the
United States by value. We expect
our US businesses to contribute
revenue of around $1.2 billion in
2016, up from just $130 million
in 2005. From this strong platform,
we are very well positioned for the
coming years.
Our business model is sound and all
three of our business segments are
operating from a position of strength.
Board changes and composition
Many of our Directors have been
with Hikma since we listed ten years
ago, whilst some have joined more
recently. I would like to thank all
of them for their sound advice and
unwavering commitment to Hikma
during their tenure on the Board.
With their support, Hikma has
successfully delivered on its growth
strategy. I would like to say a special
thanks to Breffni Byrne, who will
stand down from the Board this
May at our AGM after more than
ten years of valuable and committed
service, which has included his
exemplary chairmanship of the
Audit Committee. We wish him
well for the future.
Shareholder returns
Since Hikma listed in November
2005, through to the end of 2015,
we have delivered a total shareholder
return of 806.2%. We are delighted
with this performance, which
Total shareholder return since IPO (%)
806.2%
1,000
Hikma Pharmaceuticals Plc
FTSE 250
FTSE 350 Pharmaceuticals
& Biotechnology
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600
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Nov
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Nov
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Nov
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Nov
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Nov
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Nov
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Nov
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Nov
12
Nov
13
Nov
14
Nov
15
exceeds that of the FTSE 250 index
and the FTSE Pharmaceutical index,
which gave a total shareholder return
of 191.9% and 123.3% respectively,
over the same period.
Dividends
The Board has recommended a
final dividend of 21 cents per share
(approximately 14.6 pence) for 2015,
bringing the total dividend for the
full year to 32 cents per share
(approximately 22.3 pence per
share), in line with the total dividend
paid in 2014. The proposed dividend
will be paid on 19 May 2016 to
shareholders on the register on
8 April 2016, subject to approval
at the Annual General Meeting
on 12 May 2016.
Prospects
Our immediate priorities are the
integration of Roxane, the continued
introduction of the Bedford injectable
products and the launch of more
differentiated products in the MENA
region. Since we closed the Roxane
transaction on 29 February 2016, our
US and global teams have been
working tirelessly to implement our
integration plan as swiftly as possible.
This is being executed with the strong
support of the experienced and
talented Roxane team, who will
remain an integral part of the
combined business going forward.
To conclude, I would like to recognise
my father, Samih Darwazah, who
passed away in May 2015. He is, of
course, sorely missed by the entire
Hikma family, yet his legacy lives on in
virtually everything we do at Hikma.
Daily, we are fulfilling his commitment
to making high-quality medicines
accessible and affordable for patients
across the globe. We are emulating
his entrepreneurial spirit as we look
for new technologies to invest in and
new capabilities to develop. We are
following in his footsteps as we look
to enter new markets and take on new
challenges. We are convinced of the
need for continuing education and
training as we strive to expand our
knowledge and learn new skills. Most
importantly, we are working together
as a team to build on his success.
We remain very ambitious for Hikma
and we are confident in our ability
to drive continued growth in the
years to come.
Said Darwazah
Chairman and Chief Executive Officer
9
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Market review
Opportunities for growth
across our markets
Hikma’s senior management discuss market
conditions and the exciting opportunities ahead
and businesses across the MENA
region are increasing investments
in healthcare. In 2016 alone, it is
expected that public and private
investment in the Middle East
healthcare sector will exceed
$150 billion2. This level of investment
is driving growth across our key
markets. Over the next five years,
pharmaceutical sales in our largest
markets – Saudi Arabia, Algeria,
Egypt and Morocco – are expected
to grow at an average rate of around
8%. We have a long track record in
the MENA region of growing slightly
faster than the underlying market,
having grown at a constant
currency CAGR of 12% over
the last five years.
We expect to continue to grow
in line with our historical trend by
investing in the development of
our product portfolio and sales
and marketing teams. While strong
demand for anti-infectives remains,
patients in the MENA region are
increasingly suffering from chronic
illnesses that require more advanced
treatments. Obesity, cancer, diabetes
and heart disease are widespread
in the MENA region and smoking-
related respiratory diseases are
increasing. We aim to be a leading
provider of medicines in these
growing therapeutic areas.
Mazen Darwazah,
Vice Chairman and CEO of
MENA and Emerging Markets
Q. You have a presence in 17
markets across the Middle East
and North Africa. How are
these markets performing?
The pharmaceutical markets in
MENA are performing well.
Pharmaceutical sales in the top
nine private retail markets, where
Hikma generates most of its revenue,
reached nearly $12 billion in 20151.
Growth in the region continues
to be underpinned by favourable
demographics, including a fast
growing and ageing population,
increasing affluence and changing
lifestyles. To keep pace, governments
1 IMS Healthcare, YTD December 2015.
2 Healthcare Spending Surges as Demand Soars, The Middle Eastern Online, Peter Feuilherade.
10
Q. What are some of
the challenges you face
operating in the region?
The political and economic
environment in the MENA region
has created challenges in recent
years. Since the initial uprising of
the Arab Spring in Egypt and Tunisia
at the beginning of 2011, there
has been an increased level of
political uncertainty in many of
our markets. During this period,
we have benefited from our strong
local presence across the region.
In our MENA markets, we are
employing local people, investing
in high-quality manufacturing
facilities, working with local
regulators and supporting the
growth of the local pharmaceutical
markets. This “localness” has
differentiated Hikma and enabled us
to manage disruptions in the region.
In recent years, currency headwinds
in most of the North African
countries have had a material impact
on our revenue, while rising inflation
– and even hyperinflation
in markets like Sudan – have had
a significant impact on costs.
Through a strict focus on costs
and operating efficiency, we have
been able to manage, and in many
cases offset the impact of economic
disruptions on our business.
1 IMS Healthcare, YTD December 2015.
Market size across MENA1
Morocco
$866m
Tunisia
$458m
Libya
Algeria
$2.1bn
Lebanon
$635m
Jordan
$235m
Egypt
$2.8bn
Kuwait
$201m
Iraq
Bahrain
Qatar
UAE
$1.3bn
Saudi Arabia
$3.1bn
Sudan
Yemen
Oman
“We are employing local
people, investing in high-
quality manufacturing
facilities, working with local
regulators and supporting
the growth of the local
pharmaceutical markets.”
Q. Where do you see opportunities
for expansion?
As well as continuing to build our
position in the MENA region, we are
actively looking for opportunities to
expand into new emerging markets.
We are currently in the process of
building a local manufacturing
facility in Kazakhstan, a large and
attractive pharmaceutical market
and an entry point into Russia and
neighbouring CIS countries. We
have also begun registering products
across Sub-Saharan Africa, leveraging
our North African operations to
supply certain markets in this region.
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STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Market review – Continued
time, demand for generic injectable
products is increasing, with the global
market projected to grow from
$37 billion in 2013 to $70 billion
by 20201.
Numerous factors are steadily
increasing demand for injectable
drugs, including a number of patent
expiries, an ageing population,
increasing incidence of chronic
diseases requiring hospital care and
a rise in the number of patients in
need of surgery. Governments have
also been actively looking to manage
rising healthcare costs by increasing
the use of generic medicines.
Q. How important is quality?
Is it still a differentiating factor?
Quality is absolutely fundamental
to our business. Sterile injectable
manufacturers must adhere to strict
regulations regarding quality control
and maintain a stringent internal
quality control programme. Companies
that can do this well will maintain
an edge over their competitors,
minimising supply disruptions for
their marketed products.
Quality is something that is
embedded in the culture of Hikma
and is built into every one of our
manufacturing processes. Our high-
quality manufacturing facilities are
clearly differentiated from many
of our competitors, and we are
benefiting from our ability to
continue to reliably supply our
customers. In 2015, we successfully
brought our Portuguese plant back
into compliance with the US FDA,
and have continued our focus
on maintaining high-quality
operations in all our markets.
Riad Mechlaoui,
Global Head of Injectables
“Our focus is on continuing
our excellent track record
of operating high-quality
and extremely efficient
manufacturing facilities.”
Q. Why is the injectables market
segment attractive to operate in?
The manufacture of injectable
products requires specialised
and sterile manufacturing facilities
and techniques, and in some cases
dedicated machinery, which must
meet the strict quality standards
imposed by regulatory authorities.
Complying with these stringent
regulatory requirements, as well
as capital intensive manufacturing
processes, demands significant
continuous investment. At the
same time, investment in training
and development programmes
is essential to ensure the highest
levels of precision are implemented
throughout the manufacturing
process. These factors have created
a market with high barriers to entry
and, as a result, a limited number
of competitors relative to other
segments. Specialised technical
capabilities, high running costs
and the requirement for dedicated
operational facilities have further
restricted market entry. At the same
1 Market Opportunities in the Global Injectables Market, Patricia Van Arnum, 2 March 2015.
12
region, where our regional footprint
sets us apart from the competition,
we have only begun to scratch
the surface of our potential as we
continue to build our pipeline and
leverage our dedicated sales force
across our markets.
“As our business has grown,
so has the diversity of our
product portfolio and
manufacturing capabilities.”
Q. What are the key factors to
developing long-term sustainable
growth for this business?
From early on, the Injectables
business has been an important
driver of growth for the Group. As
our business has grown, so has the
diversity of our product portfolio and
manufacturing capabilities. Through
our Bedford acquisition, we now
have a state-of-the-art R&D centre
focused on introducing more
differentiated products and an
exciting pipeline, enhanced by
our own business development
and R&D efforts. This will enable
us to access a broader range of
attractive growth opportunities.
As a manufacturer of hospital
products used for critical care, we
not only have to ensure that the
highest quality standards are adhered
to and implemented at all times,
but to also prioritise patients’ and
physicians’ needs. We have seen an
increase in demand for a wider range
of medicines as well as advanced,
high-quality delivery systems. Both
patients and doctors are now
requiring better, faster access to
treatments and technology, and
we are focusing on expanding
our portfolio and enhancing
our technological capabilities
to be able to meet this demand.
Our diversified geographic presence
will also bring real advantages going
forward. Our well-established
presence in the US will enable us
to take advantage of the potential
of the world’s largest generic
injectables market. Through direct
sales and partnerships, we are in an
excellent position to penetrate new
markets in Europe. And in the MENA
Cherry Hill, USA
13
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Market review – Continued
largest supplier of generic injectables
by volume.
Q. How will the focus on pricing
impact you in the future?
Concerns about drug pricing have
sparked intense debate in 2015.
I think it is important to point out
that, for many years, generic
manufacturers have been playing a
key role in driving down healthcare
costs, making medication more
affordable and accessible to millions
of patients. Over the last ten years,
generic drugs were responsible for
around $1.7 trillion in healthcare
savings. These savings are expected
to continue in the US in the
coming years2.
As a key player in the generics
industry, our aim is to be responsible
when it comes to pricing and to
be a reliable partner. Across our
Generics portfolio, price declines
tend to outpace price increases,
which are typically implemented
to offset certain market risks,
such as limited inventory or Active
Pharmaceutical Ingredients (API)
price increases, or to offset certain
opportunity costs related to
responding to market shortages
for critical care products.
Ultimately, our goal is to be a reliable
supplier to our customers and
partners. Quality and manufacturing
issues have disrupted supply of
certain products in the US for a
number of years. We are focused
on maintaining the supply of our
products in the market and on
helping to address shortages wherever
possible. Through the acquisition of
Bedford, we were able to bring back
two important products to the US
market in 2015, resolving acute
market shortages.
Mike Raya,
President and
Chief Executive
of the US
US generics market
5 year CAGR
9.1%
55.73
50.99
44.47
68.89
63.83
11
12
13
14
15
Q. How is the US
market performing?
The US generics market grew by
8% in 2015 according to IMS, and
is forecasted to grow around 7%
per annum over the coming five
years1. Various factors are driving
the growth of generics – namely,
a continued focus by payers to
minimise overall healthcare spend,
along with an ageing population and
a rise in chronic illnesses. Further
healthcare reform should also
benefit the pharmaceutical industry,
increasing insurance coverage for
prescription drugs and encouraging
higher use of generics.
While the US generics market
continues to grow, the market
dynamics are changing. Leading
pharmaceutical manufacturers have
been consolidating, as have their
main wholesale and retail customers,
as scale is becoming increasingly
important. After the closing of
Roxane, Hikma will be the sixth
largest player in the US generics
market by value and the third
1 US Pharmaceuticals and Healthcare Report Q4 2015, BMI Research, 9 September 2015.
2 Generic Pharmaceutical Association, Generic Drug Savings in the U.S, Seventh Edition: 2015.
14
“We remain focused on
providing high-quality
affordable products to
patients, ensuring we
have a sustainable
business for the future.”
Q. What are the factors for
long-term sustainable growth
in this market?
Our overarching strategic priority
for our US business is to drive
sustainable growth by continuously
evolving our product portfolio in
response to the changing needs
of doctors and patients. The more
differentiated our product portfolio
is, the better we can address these
changing needs. Through our
in-house R&D, our business
development efforts and acquisitions,
we have been building a more
differentiated product pipeline across
a range of therapeutic areas, dosage
forms and delivery systems.
Quality will, of course, remain a
priority for the Group and is essential
for long-term sustainable growth.
Our excellent track record for
regulatory compliance has been
a key differentiator for us in the
US market. Like many of our
competitors, we have not been
immune to regulatory issues, but we
have demonstrated to our customers
that we will address any issues swiftly
and aggressively in order to minimise
any impact on the supply of our
products to patients. This approach
has enabled us to strengthen our
relationships with our customers,
for whom we have become a
trusted partner.
Cherry Hill, USA
15
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Our strategy and KPIs
Our strategy
for sustainable
long-term growth
Our strategy is to deliver high-quality, affordable
generic and branded generic medicines to patients
by strengthening our position as a leading global
injectables manufacturer, developing our portfolio
of non-injectable products for the US market and
leveraging our position as a leading pharmaceutical
manufacturer in MENA and emerging markets.
We are delivering our strategy through our key strategic
initiatives and measuring our performance using relevant
key performance indicators (KPIs).
Our strategy and Key
Performance Indicators
To find out more about how
we’ve performed in each of
our business segments, go to the
business and financial review
Branded 18
Injectables 22
Generics 28
16
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2
Maximising portfolio
opportunities
We are committed to
maximising the potential
of our marketed products,
leveraging our skilled sales
and marketing teams and
building on our strong
customer relationships.
• Good performance in our Branded
and Injectables businesses was
offset by expected declines in
our Generics business
• Branded revenue up 3%,
or 13% in constant currency
• Injectables revenue in line with 2014
• Generics revenue down 30%
reflecting expected declines in
specific market opportunities
Group
revenue ($m)
$1,440m
1,489
1,440
1,365
1,109
918
11
12
13
14
15
• Targeting Group revenue
in excess of $2 billion
• Continued strong performance
in Branded, in constant currency
• Injectables growth in the mid
to high single digits
• Generics revenue in the range
of $640 million to $670 million
Strengthening and
broadening our
product portfolio
We are broadening our
product offering with
differentiated products
through in-house
R&D, external partnerships
and product acquisitions.
Maintaining high-quality
manufacturing facilities
and efficient operations
We are investing in
high-quality manufacturing
facilities to improve the
efficiency of our processes,
whilst maintaining tight
control of overheads, general
and administrative and other
operating expenses.
Investing for growth
We are investing to expand
our product portfolio,
technological capabilities,
geographic reach and
manufacturing capacity,
though capital investment
and M&A.
Developing a highly
skilled and effective
workforce
We are continuously
investing in the training and
development of our people
whilst hiring talented new
employees to support our
future growth plans.
• Received three approvals
• Good control of
• Agreed acquisition
• Launched the
for former Bedford
products ahead
of expectations
• Total investment of
$71 million in R&D
and product-related
investments
(5% of Group sales)
cost across the Group
of Roxane
• Returned our Portuguese
facility to full US FDA
compliance
• Profit before tax
declined due to the
reduction in certain market
opportunities in the US
• Transferred significant
equipment and machines
from Ben Venue to our
operations in the US
and Europe
‘Women Empowerment’
programme across our
global key markets
Product
approvals
220
Group profit
before tax ($m)
$318m
Return on
invested capital (%)
23.4%
Number of employees
with length of service
of more than five years
263
241
220
362
318
298
114
81
132
94
24.0
23.0
23.4
3,674
3,736
2,899
2,107
13.0
8.1
11
11
12
12
13
13
14
14
15
15
11
12
13
14
15
11
11
12
12
13
13
14
14
15
15
12
12
13
13
14
14
15
15
Ensuring long-term sustainable growth
• Targeting a further eight
approvals for former
Bedford products
• Targeting 14 product
approvals in our Generics
business, including eight
from the Roxane pipeline
• Continuing to invest in
• Completing the new
quality across our facilities
• Upgrading the newly
acquired manufacturing
plant in Egypt
manufacturing facility
in Portugal
• Continuing to evaluate
investment opportunities
across our markets
• Rolling out behavioural
training programme for
employees across various
levels at Hikma to ensure
the continuous development
of professionalism in
the workplace
17
STRATEGIC REPORT Branded
from
Opportunity
Egypt is one of the largest pharmaceutical markets in the
MENA region. Egypt’s growing population of around 88 million
people and its improving economic outlook makes it
an attractive market for investment.
18
to
Growth
Since entering the Egyptian market in 2007, we have developed a
strong product portfolio, a market leading sales and marketing team,
high-quality manufacturing facilities, and an attractive pipeline in order
to strengthen our market position and drive future growth.
19
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Business and financial review – Continued
Branded
Building on our leading
position in the MENA region
Strong growth in revenue and profitability in constant currency
driven by good performance across our key markets
Maximising portfolio
opportunities
• Strong rebound in
Algeria following
implementation of
restructuring and
management change
• Excellent performance
in Egypt with 14 new
product launches
in more chronic
therapeutic areas
• Double digit growth
in the GCC driven by
enhanced distribution
channels
• Targeting continued
strong performance
in Algeria, Egypt and
Saudi Arabia and
recovery in Iraq
Strengthening and
broadening our
product portfolio
• Launched 54
products
• Received 139
approvals
• Signed three
new licensing
agreements for
more innovative
products
Maintaining high-
quality manufacturing
facilities and efficient
operations
• Received US FDA
approval for our
oncology plant
in Sahab, Jordan
• Successfully
completed FDA
inspections of our
facilities in Jordan
and Saudi Arabia
• Good control of
overheads and
operating costs
Investing for
growth
Developing a
highly skilled and
effective workforce
• Acquired EUP to
• Launched the AUB
training programme
for middle
management
across our
businesses in
North Africa
further strengthen
our position in
the fast-growing
Egyptian market
• Launched greenfield
investment in
Kazakhstan to
gain a foothold in
the CIS and Russia
• Leverage our local
R&D capabilities
to accelerate
development
of new higher
value products
• Maintain strict focus
on quality across
our MENA sites
• Targeting M&A
opportunities in
emerging markets
• Upgrade newly
acquired EUP
facility in Egypt
• Pursuing licensing
and other partner
agreements
• Leverage newly
implemented
development
centre to provide
enhanced training
opportunities
Ensuring sustainable long-term growth
Measuring our performance
Revenue
($ m)
15
14
Core adjusted operating margin1
(%)
Marketed products
570
551
15
14
20.7
20.1
15
14
377
376
1 Before the amortisation of intangible assets other than software and exceptional items included in operating profit, as set out in note 5 to
the financial information; previously referred to as adjusted operating margin.
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Summary financial highlights – Branded
$ million
Revenue
Gross profit
Gross margin
Core operating profit2
Core operating margin3
2015
570
277
48.6%
118
20.7%
2014
551
267
48.5%
111
20.1%
Change
+3%
+4%
+0.1pp
+6%
+0.6pp
Constant
currency
change1
+13%
+18%
+2.2pp
+34%
+3.9pp
2015 Highlights
• Branded revenue up 3% to
$570 million, up 13% in
constant currency
• Double digit growth in constant
currency in Egypt, the GCC and
Morocco and an excellent
recovery in Algeria
• Branded core operating profit up
6% to $118 million, up 34% in
constant currency
• Branded core operating margin
was 20.7%, or 24.0% in
constant currency
• Expecting the Branded business
to perform in line with historical
trends in 2016, on a constant
currency basis
Branded revenue increased by 13%
in 2015, before the impact of adverse
movements in the Algerian dinar,
Moroccan dirham, Tunisian dinar,
Egyptian pound and Sudanese pound
against the US dollar. On a statutory
basis, Branded revenue increased by
3% to $570 million, compared with
$551 million in 2014. Through a
continued focus on strategic, higher
value products and new product
launches, we achieved double digit
growth, on a constant currency basis,
in each of our top markets – Algeria,
Egypt, the GCC and Morocco.
In Algeria, revenue increased by 24%,
or 54% in constant currency, following
the restructuring we undertook in
2014. Our Egyptian business grew by
18% in constant currency, reflecting
successful recent product launches,
including one product for which
Hikma was the first supplier on the
market. In the GCC, which includes
Saudi Arabia and the UAE, revenue
increased by 14%, driven by the
prioritisation of strategic products,
stronger distribution capabilities, and
the broadening of our customer base,
with an increased focus on institutions.
Revenue in Morocco also grew in the
double digits in constant currency,
driven by new product launches
and an enhanced focus on strategic
products. These strong performances
more than offset lower sales in Iraq
and Libya, where political disruptions
persist, and in Sudan, which continues
to suffer from hyperinflation.
During 2015, the Branded business
launched a total of 54 products
across all markets, including one new
compound and two new dosage forms
and strengths. The Branded business
also received 139 regulatory approvals
across the region.
Revenue from in-licensed products
increased from $219 million to
$225 million in 2015, representing
40% of Branded revenue, in line with
2014. We signed three new licensing
agreements for innovative products
during 2015, which will help us to
grow our portfolio of higher value
1 Constant currency numbers in 2015, represent statutory 2015 numbers restated using average
exchange rates in 2014.
2 Before the amortisation of intangible assets other than software and exceptional items included
in operating profit, as set out in note 5 to the financial information; previously referred to
as adjusted operating profit.
3 Before the amortisation of intangible assets other than software and exceptional items included
in operating profit, as set out in note 5 to the financial information; previously referred to
as adjusted operating margin.
products in growing therapeutic
categories.
One of the licensing agreements
signed during the year was with
Vitabiotics, the UK’s largest
nutraceutical and vitamin company.
Under the terms of the agreement,
Hikma has the exclusive rights to
register, market, distribute and sell
five of Vitabiotics’ leading specialist
products in 15 of its MENA markets.
In addition, we have the exclusive
rights to market, distribute and sell
the full Vitabiotics product range
in five of these markets. Our large
sales and marketing teams are well
positioned to drive strong demand for
Vitabiotics’ rich portfolio of products,
which include some of the fastest
growing supplements in the UK
and eight brand leaders.
Branded gross profit increased by
4% to $277 million in 2015 and
gross margin was 48.6%, compared
to 48.5% in 2014. The benefit of
a more favourable product mix, the
strong recovery in Algeria and good
control of costs were offset by the
net impact of exchange rates.
Core operating profit, which excludes
the amortisation of intangibles of
$8 million and exceptional severance
costs of $5 million, increased by 6%
to $118 million, or 34% in constant
currency. Core operating margin was
20.7%, or 24.0% in constant currency,
up from 20.1% in 2014. This margin
improvement primarily reflects careful
management of operating expenses
during the year.
In 2016, we expect the Branded
business to perform in line with
historical trends, on a constant
currency basis. We expect revenue
growth to be driven by strong
underlying market growth, our
focus on strategic products and the
strength of our sales and marketing
teams. Improvement in the Branded
core operating margin is expected
to be driven by revenue growth
and operational leverage.
21
STRATEGIC REPORT Injectables
from
Opportunity
In 2014, we acquired Bedford Laboratories from
Boehringer Ingelheim, adding more differentiated injectable
products to our portfolio and pipeline, and a state-of-the-art
QDC centre with 39 R&D employees.
22
to
Growth
We are investing in future capacity through the transfer
of equipment and machines from the Ben Venue facility to our
US and European facilities, enhancing our technological capabilities
and enabling us to maximise the potential of our product portfolio.
23
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Business and financial review – Continued
Injectables
Strengthening our
global injectables platform
Continued solid performance with excellent profitability
Maximising portfolio
opportunities
• New launches in the
US offset increased
competition on
certain products
• Good demand for
recently launched
products and contract
manufacturing
drove EU growth
• Strong performance
in the MENA resulting
from dedicated
sales efforts
Strengthening and
broadening our
product portfolio
• Completed
tech transfer of
more than 20
Bedford products
to our global
manufacturing sites
• Submitted over
300 products
across our markets,
including 240
submissions in new
markets across
Europe
• Expecting new launches
to continue to drive
growth in the US
• Targeting increased
penetration of new
European markets
through new product
approvals
• Roll out of Remsima to
new markets in MENA
• Continue the
transfer of the
Bedford products to
further enhance our
product pipeline
• Focus on new
product development
through R&D
and business
development
Maintaining high-
quality manufacturing
facilities and efficient
operations
• Successfully brought
back our facility in
Portugal to full
US FDA compliance
• Good control of
costs year-on-year
drove decline of
overhead costs
Investing
for growth
Developing a
highly skilled and
effective workforce
• Enhanced
• Successfully
integrated the
Bedford team
• Strengthened our
sales and marketing
and R&D teams
our injectables
manufacturing
capabilities, adding
new technologies,
including pre-filled
syringe and
bag lines
• Transferred and
installed equipment
from Ben Venue
in our US and
European facilities
• Ensure our
injectables
quality control and
operational teams
continue to rotate
across our plants in
Europe and the US
• Invest in new
• Continue to
technologies across
our manufacturing
sites
implement our
R&D and technical
rotation programme
• Complete the
expansion of our
injectables facility
in Portugal
Measuring our performance
Ensuring sustainable long-term growth
Revenue
($ m)
15
14
Core adjusted operating margin1
(%)
Marketed products
710
713
15
14
43.9
37.2
15
14
185
182
1 Before the amortisation of intangible assets other than software and exceptional items included in operating profit, as set out in note 5 to
the financial information; previously referred to as adjusted operating margin.
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Summary financial highlights – Injectables
$ million
Revenue
Gross profit
Gross margin
Core operating profit2
Core operating margin3
2015
710
449
63.2%
312
43.9%
2014
713
431
60.4%
265
37.2%
Change
0%
+4%
+2.8pp
+18%
+6.8pp
Constant
currency
change1
+3%
+6%
+1.7pp
+19%
+5.8pp
Injectables revenue by region
US
MENA
Europe and ROW
Total
2015
2014
546
92
72
710
77%
13%
10%
548
90
75
713
77%
12%
11%
2015 Highlights:
• Global Injectables revenue of
$710 million, in line with 2014 and
guidance; in constant currency,
Injectables revenue was up 3%
• Expecting mid to high single
digit revenue growth in 2016 and
core operating margin to return
to a more normalised level of
around 36%
• Core operating margin increased
to 43.9%, from 37.2% in 2014,
well ahead of guidance, through
a combination of a favourable
product mix, better cost control
and operating leverage
• Launched first three Bedford
products and expecting a further
nine Bedford launches in 2016
• Successfully resolved US FDA
Warning Letter at Portuguese
facility
In 2015, our global Injectables
revenue was $710 million, in line
with our expectations following the
extremely strong performance in the
prior year, when revenue increased
by 33%, driven in part by specific
market opportunities. In constant
currency, global Injectables
revenue increased by 3%.
US Injectables revenue was
$546 million, in line with 2014.
During the year, we benefited from
our broad product portfolio and
the continuation of certain specific
market opportunities. The impact
of increased competition for some
of our existing products was offset
by new product launches. Bedford is
now well integrated into our global
Injectables business and we are
ahead of schedule with the technical
transfer of the former Bedford
products to our manufacturing
sites. Three of the approvals received
during the year were for former
Bedford products, demonstrating the
strength of our R&D and regulatory
capabilities, and we are confident
that we will achieve our target of
20 Bedford product launches by
the end of 2017.
In November 2015, we sold
the Ben Venue manufacturing
facilities in Bedford, Ohio to Xellia
Pharmaceuticals. The Ben Venue site
included four manufacturing plants
and a Quality and Development
Centre (QDC) with a team of R&D
scientists. We have retained the QDC
and Bedford’s strong R&D team to
expedite the technical transfer and
reactivation of Bedford’s products.
We have also transferred equipment,
1 Constant currency numbers in 2015, represent statutory 2015 numbers restated using average exchange rates in 2014.
2 Before the amortisation of intangible assets other than software and exceptional items included in operating profit, as set out in note 5 to
the financial information; previously referred to as adjusted operating profit.
3 Before the amortisation of intangible assets other than software and exceptional items included in operating profit, as set out in note 5 to
the financial information; previously referred to as adjusted operating margin.
25
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Business and financial review – Continued
Injectables – Continued
26
Bedford, USA
including lyophilisers and filling lines,
to our other global manufacturing
facilities in the US and Europe to
support our future growth plans.
MENA Injectables revenue increased
by 2% to $92 million, or by 14%
in constant currency. Strong growth
in Algeria, Saudi Arabia and Egypt
more than offset declines in Iraq and
Sudan. We have enhanced our focus
on sales and marketing for injectable
products in MENA and expanded our
dedicated Injectables team.
In September 2015, we agreed to
acquire EIMC United Pharmaceuticals
(EUP), strengthening our oncology
and injectables capabilities in Egypt.
The acquisition was completed
in February 2016. EUP brings an
attractive portfolio in these two
important growth areas for Hikma,
with the potential to add around
50 products by 2020. It also adds a
manufacturing facility in Egypt with
both oral and injectables lines. We
will leverage our established market
position in Egypt and large sales and
marketing team to maximise the
potential of EUP.
European Injectables revenue
decreased by 4% to $72 million
and increased by 15% in 2015
in constant currency. Higher
demand for certain products
and new contract manufacturing
business contributed to the strong
performance. In 2015, we expanded
our EU registration teams and our
sales and marketing capabilities
in order to cover new European
markets. These efforts are expected
to start generating sales in 2016.
In November 2015, we received a
letter from the US Food and Drug
Administration (FDA) closing
out the Warning Letter received
in October 2014 in respect of the
manufacturing plant in Portugal.
This demonstrates that the corrective
actions taken in response to the
Warning Letter were fully reviewed
and accepted by the US FDA.
Injectables gross profit increased
by 4% to $449 million in 2015,
compared with $431 million in 2014.
Gross margin increased to 63.2%,
compared with 60.4% in 2014.
This reflects continued strong sales
from certain market opportunities
in the US, a good performance
from other higher value products
and efficient management of
manufacturing overhead.
Core operating profit, which
excludes the gain from the sale
of the Ben Venue site, related
hibernation costs, proceeds from
legal claims and the amortisation
of intangible assets other than
software, increased by 18% to
$312 million in 2015. Core operating
margin increased to 43.9%, up
from 37.2% in 2014. The strong
improvement in core operating
margin reflects operational leverage
resulting from good control of sales
and marketing and general and
administrative expenses and better
management of inventories. The
improvement also reflects lower
Sintra, Portugal
R&D expenses, as $23 million
of R&D expenses related to the
technical transfer of the former
Bedford products was capitalised
on the balance sheet, in line with
our accounting policies.
During 2015, the Injectables business
launched a total of 37 products
across all markets, including six new
compounds and ten new dosage
forms and strengths. The Injectables
business also received a total of
79 regulatory approvals across all
regions and markets, namely 39
in MENA, 26 in Europe and 14 in
the US. We also signed one new
licensing agreement during 2015.
We expect Injectables revenue
growth to be in the mid to
high single digits in 2016,
with competition on marketed
products being more than offset
by new product launches from our
R&D, business development and
Bedford pipelines. We expect core
operating margin to return to a
more normalised level of around
36%, primarily due to a change
in product mix and an increase
in R&D expenses.
27
STRATEGIC REPORT Generics
from
Opportunity
With a market size close to $60 billion in value, the non-injectable
generics market in the US continues to grow. We have been investing
in our US facilities and actively developing our product pipeline,
targeting more attractive niche segments of the market.
28
to
Growth
The recent acquisition of Roxane brings significant scale to our
US business and offers excellent growth opportunities through its broad
portfolio and differentiated pipeline.
29
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Business and financial review – Continued
Generics
Investing for future growth
Excellent strategic progress, transforming our prospects in the US
Strengthening and
broadening our
product portfolio
• Submitted three
products from our
internal R&D
• Signed new
partnership
agreements for
18 new products
• Leverage Roxane’s
R&D capabilities
to ensure successful
pipeline
development
and more
differentiated
launches
s
t
h
g
i
l
h
g
i
H
5
1
0
2
s
e
v
i
t
c
e
j
b
O
6
1
0
2
Maximising portfolio
opportunities
• Delivered growth from
our legacy products
• Launched MITIGARE™
and an authorised
generic for the
treatment of gout
• Successfully
integrate Roxane
into our business
• Leverage combined
Hikma and Roxane
portfolios to strengthen
our relationship with
our customers
• Leverage new
promotion capabilities
to increase MITIGARE™
market share
Maintaining high-
quality manufacturing
facilities and efficient
operations
• Strengthened our
operations by
leveraging our
global quality
control employees
Investing for
growth
• Agreed to acquire
Roxane from
Boehringer
Ingelheim
• Continue to pursue
product acquisitions
and new third
party partnerships
to enhance our
pipeline
• Integrate the
Roxane business
to accelerate
growth and achieve
operational synergies
• Expect to deliver cost
savings in the range
of $35 million to
$45 million by 2017
Developing a
highly skilled and
effective workforce
• Strengthened our
internal legal and
intellectual property
(IP) teams
• Established
nationwide branded
salesforce
• Integrate Roxane’s
highly skilled
employees into
the Hikma team
Ensuring sustainable long-term growth
Measuring our performance
Revenue
($ m)
15
14
Core adjusted operating margin1
(%)
Marketed products
151
216
15
14
30.5
15
14
52.3
26
24
1 Before the amortisation of intangible assets other than software and exceptional items included in operating profit, as set out in note 5 to
the financial information; previously referred to as adjusted operating margin.
30
Summary financial highlights – Generics
$ million
Revenue
Gross profit
Gross margin
Core operating profit1
Core operating margin2
2015
151
89
58.9%
46
30.5%
2014
216
150
69.4%
113
52.3%
Change
-30%
-41%
-10.5pp
-59%
-21.8pp
2015 Highlights:
• Generics revenue of $151 million,
in line with recent guidance and
down 30% on 2014, reflecting
the expected decline in specific
market opportunities
• Generics core operating profit of
$46 million, with a core operating
margin of 30.5%
• Agreed to acquire Roxane
Laboratories, transforming our
prospects for the Generics business
• Expecting 2016 revenue in the
range of $640 million to $670
million, including ten months
of contribution from Roxane and
taking into account the divestiture
of certain legacy products
associated with the acquisition
of Roxane. Core Generics
operating margin is expected
to be in the low double digits
• Continue to expect 2017 Roxane
revenues in the range of $700
million to $750 million and Roxane
EBITDA margin of around 35%
over the medium term
Generics revenue was $151 million,
in line with our most recent guidance
and down 30% compared to $216
million in 2014. As expected, the
specific market opportunity that
contributed to the very strong
performance in 2014 continued
to decline significantly during the
course of 2015 due to increased
competition. This was partially
offset by strong volume growth
in the legacy portfolio.
In January 2015, we launched
colchicine 0.6mg capsules under
the brand name Mitigare, alongside
an authorised generic for Mitigare.
By July, we had established a
nationwide salesforce and sales
began to build gradually in the
second half of the year, albeit more
slowly than our initial expectations.
We are confident that colchicine
sales will continue to grow in 2016
given our ability to significantly
improve managed care access,
pharmacy shelf stock and physician
and patient awareness.
Generics gross profit was $89 million,
compared with $150 million in
2014, and gross margin was 58.9%,
compared with 69.4% in 2014, as
a result of the continued decline
in revenue from specific market
opportunities. Core operating
profit was $46 million, compared
with $113 million in 2014, and
core operating margin was 30.5%
in 2015, compared with 52.3% in
2014. In addition to the continued
decline in revenue from specific
market opportunities, higher sales
and marketing spend related to
the establishment of a branded
salesforce contributed to the
decline in core operating margin.
1 Before the amortisation of intangible assets other than software and exceptional items included in operating profit, as set out in note 5 to
the financial information; previously referred to as adjusted operating profit.
2 Before the amortisation of intangible assets other than software and exceptional items included in operating profit, as set out in note 5 to
the financial information; previously referred to as adjusted operating margin.
31
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Business and financial review – Continued
Generics – Continued
“The acquisition of
Roxane transforms
Hikma’s position, scale
and potential in the
US generics market.”
taking into account the divestiture
of certain legacy products. Core
Generics operating margin is
expected to be in the low
double digits.
We expect Roxane’s full year revenue
in 2016 to be below $650 million as
previously disclosed, with increased
competition on the current marketed
portfolio partially offset by revenue
from recent and planned new
product launches. Roxane’s revenues
are then expected to increase to
between $700 million to $750 million
in 2017 as new product launches
accelerate. We continue to expect
Roxane’s EBITDA margin to reach
around 35% over the medium term.
This high level of profitability will
be achieved through the launch
of certain high value products and
specific cost savings, which are
expected to be in the range of
$35 million to $45 million by
2017. We continue to expect
the acquisition to be slightly
dilutive to core2 earnings per
share (EPS) in 2016 and strongly
accretive to core EPS thereafter.
Other businesses
Other businesses, which
primarily comprise Arab Medical
Containers, a manufacturer
of plastic specialised medicinal
sterile containers, International
Pharmaceuticals Research Centre,
which conducts bio-equivalency
studies, and the API manufacturing
division of Hikma Pharmaceuticals
Limited Jordan, contributed revenue
of $9 million in 2015, unchanged
from 2014. These other businesses
had an operating loss of $5 million
in 2015, also unchanged from 2014.
1 IMS Healthcare, YTD sales value December 2015, adjusted to reflect recent M&A activity.
2 Before the exceptional item and other adjustment as set out in note 5 to the financial information.
During 2015, the Generics business
launched one new compound and
one new dosage form and strength,
and received two product approvals.
The Generics business also signed
new licensing agreements for
19 new products.
On 29 February 2016, following
the satisfaction of the remaining
conditions to closing including
shareholder approval and the
divestiture of three products
from our legacy Generics business
(representing approximately
$20 million in revenue in 2015), we
completed the Roxane acquisition.
The acquisition of Roxane
transforms Hikma’s position, scale
and potential in the US generics
market, establishing Hikma as the
sixth largest company by revenue1.
It adds significant breadth to our
US portfolio, bringing 88 highly
differentiated products in specialised
and niche segments of the market,
including oncology, respiratory,
extended release and controlled
substances. It also enhances our
pipeline, adding 89 R&D projects,
including 57 Paragraph IV products,
13 of which are first-to-file
opportunities. The acquisition
strengthens our ability to drive
sustainable long-term growth,
adding Roxane’s highly experienced
R&D team with a successful
track record of bringing new and
differentiated products to market as
well as a best-in-class manufacturing
facility and technological capabilities.
We have planned extensively for
the integration of Roxane and
are working to swiftly integrate
it within our US Generics business.
2016 revenue for the combined
Generics business is expected to
be in the range of $640 million to
$670 million, including ten months
of contribution from Roxane and
32
Eatontown, USA
33
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Business and financial review – Continued
Group performance
Entering a new
phase of growth
Group
Group revenue was $1,440 million
in 2015, down 3% from 2014.
Group gross profit decreased by
4% to $818 million, compared
with $851 million in 2014. Group
gross margin was 56.8% compared
with 57.2% in 2014.
Group operating expenses declined
by 3% to $437 million, compared with
$449 million in 2014. Excluding the
amortisation of intangible assets other
than software and exceptional items,
Group operating expenses declined
by 4% to $409 million compared
with $424 million in 2014. In 2015,
amortisation of intangible assets
other than software was $16 million,
compared to $14 million in 2014.
In 2015, exceptional items included
within operating expenses were
$12 million, compared to $11 million
in 2014, and included acquisition and
integration costs related to the Roxane
transaction, severance costs and
non-recurring hibernation costs at the
Ben Venue site, offset by a gain from
the sale of the Ben Venue site and a
successful litigation settlement. The
paragraphs below address the Group’s
main operating expenses in turn.
Sales and marketing expenses were
$172 million, or 12% of revenue,
compared with $171 million and
11% of revenue in 2014. An increase
in marketing expenses related to
the establishment of a nationwide
branded salesforce in the US was
offset by a reduction in marketing
expenses in the MENA region
and lower supply-related penalties.
General and administrative
expenses increased by $15 million
to $200 million in 2015. Excluding
exceptional severance costs in the
MENA region and acquisition and
integration related expenses, G&A
expenses increased by $6 million,
or 3%, primarily due to an increase
in employee benefits.
In 2015, we continued to invest
in R&D across our three businesses
to drive future growth. Group R&D
expenditure was $36 million in 2015,
compared with $55 million in 2014.
An additional $35 million was
invested in the technical transfer
of the former Bedford products
to our facilities and other product
acquisitions and was capitalised on
the balance sheet. In total, R&D
and product-related investment
represented $71 million (5% of
Group revenue) during the period,
compared to $79 million (5% of
Group revenue) in 2014. In 2016,
we expect Group R&D expense to
increase to around $150 million
due to the consolidation of Roxane
and its high levels of R&D spend.
Other net operating expenses
decreased by $9 million to
$29 million. Excluding exceptional
items, these expenses decreased
by $1 million, primarily reflecting
better inventory management and
a decrease in foreign exchange
losses, partly offset by the additional
costs of maintaining the Ben Venue
manufacturing facility that was
acquired in the second half of 2014.
Core Group operating profit
decreased by 4% to $409 million
in 2015 and operating margin
was 28.4% compared with
28.7% in 2014.
Research & Development1
The Group’s product portfolio
continues to grow as a result of
our product development efforts.
During 2015, we launched eight
new compounds. The Group’s
portfolio now stands at 588
compounds in 1,681 dosage forms
and strengths2. We manufacture
and/or sell 76 of these compounds
under licence from the licensor.
Across all businesses and markets, a
total of 92 products were launched
during 2015. In addition, the Group
received 220 approvals.
To ensure the continuous
development of our product pipeline,
1 Products are defined as pharmaceutical compounds sold by the Group. New compounds are defined as pharmaceutical compounds being introduced
for the first time during the period and existing compounds being introduced into a new segment.
2 Totals include 71 dermatological and cosmetic compounds in 282 dosage forms and strengths that are only sold in Morocco.
34
we submitted 505 regulatory filings
in 2015 across all regions and
markets. As of 31 December 2015,
we had a total of 1,250 pending
approvals across all regions and
markets. At 31 December 2015,
we had a total of 144 new
products under development.
Results from associated companies
In 2015, we recognised a loss from
associated companies of $2 million
related to our minority interest
in Unimark Remedies Limited
(Unimark). In addition, we impaired
the remaining investment balance
related to Unimark by taking an
impairment charge of $7 million.
In 2016, we are divesting our
interest in Unimark to satisfy
US FTC requirements related to
closing the Roxane transaction
for minimal value.
Net finance expense
Net finance expense amounted
to $54 million in 2015, up from
$34 million in 2014. The increase
is mainly attributed to the interest
paid on the $500 million 4.25%
Eurobond issued in April 2015.
In 2016, we expect the Group’s
net finance expense to be around
$62 million, reflecting increased
interest expense and financing fees
related to Roxane. In addition, we
expect to incur other non-cash
expenses resulting from the
revaluation of the fair value
of future royalty payments.
Profit before tax
Core profit before tax decreased
by 8% to $355 million, compared
with $387 million in 2014.
Tax
The Group incurred a tax expense
of $64 million, compared with $80
million in 2014. The effective tax rate
was 20.1%, compared with 22.1%
in 2014. The reduction in the effective
tax rate reflects increased earnings
in lower taxed jurisdictions, combined
with lower earnings in the US.
In 2016, the effective tax rate is
expected to be around 25%. This
is expected to return closer to 2015
levels over the medium term.
Profit attributable to
shareholders
Profit attributable to shareholders
decreased by 9% to $252 million,
compared to $278 million in
2014. Core profit attributable
to shareholders decreased by
4% to $286 million in 2015,
compared to $299 million in 2014.
Earnings per share
Basic earnings per share decreased
by 10% to 126.6 cents in 2015,
compared to 140.4 cents in 2014.
Core basic earnings per share
decreased by 5% to 143.7 cents,
compared with 151.0 cents in 2014.
Core diluted earnings per share
decreased by 5% to 142.3 cents,
compared with 149.5 cents in 2014.
Dividend
The Board is recommending a
final dividend of 21 cents per share
(approximately 14.6 pence) for 2015,
bringing the total dividend for the
full year to 32 cents per share
(approximately 22.3 pence per
share), in line with the total dividend
paid in 2014. The proposed dividend
will be paid on 19 May 2016 to
shareholders on the register on
8 April 2016, subject to approval
at the Annual General Meeting
on 12 May 2016.
Hikma product portfolio pipeline
Total marketed products
Products launched in 2015
Products
approved in
2015
Products pending
approval as at
31 December
2015
Compounds
Dosage forms
and strengths
New
compounds
New dosage
forms and
strengths
Total launches
across all
countries1
Total approvals
across all
countries1
Total pending
approvals across
all countries1
377
185
26
588
1,125
488
68
1,681
1
6
1
8
2
10
1
13
54
37
1
92
139
79
2
220
524
666
60
1,250
Branded
Injectables
Generics
Group
1 Totals include all compounds and formulations that are either launched or approved or pending approval across all markets, as relevant.
35
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Business and financial review – Continued
Group performance – Continued
Group profit before tax ($m)
$318m
362
318
298
132
94
11
12
13
14
15
Earnings per share (cents)
126.6
140.4
126.6
107.6
51.1
41.3
11
12
13
14
15
Net cash flow, working capital
and net debt
The Group generated operating
cash flow of $366 million in 2015,
down $59 million from $425 million
in 2014. This reflects the lower
contribution from specific market
opportunities for the Generics
business and higher working capital
investments in the US. Working
capital days were 177 days in 2015,
in line with 2014 levels. Capital
expenditure was $82 million,
compared with $91 million in 2014.
Of this, $40 million was spent in
MENA to upgrade and maintain
our equipment and facilities across
a number of markets. The remaining
$42 million was spent in the US and
Europe, primarily to expand our
Injectables manufacturing capacity,
including the installation of
equipment from Ben Venue.
In 2016, we expect Group
capital expenditure to be around
$200 million, including Roxane.
The Group’s net debt (excluding
co-development agreements) stood
at $135 million at the end of 2015,
compared to $274 million at
the end of 2014. In April 2015,
we strengthened our financing
capabilities with the issuance of a
$500 million Eurobond due April
2020. The proceeds were partially
used to refinance existing debt
facilities, including the Bedford
bridge loan of $225 million.
On 29 February 2016, the acquisition
of Roxane closed and the net cash
consideration of $575 million (net
of certain working capital and other
adjustments) was paid to Boehringer.
In addition, 40,000,000 new shares
were issued to Boehringer at a price
of 1881p, bringing the combined
net consideration paid at closing to
approximately $1.6 billion, using the
US:GBP exchange rate of 1.3879:1.
The cash consideration was funded
through a combination of cash and
the utilisation of the Group’s existing
debt facilities. Should certain further
targets be met, further payments
could be triggered.
Balance sheet
Net assets as at 31 December 2015
totalled $1,352 million, compared to
$1,216 million in 2014. Net current
assets increased to $768 million,
compared to $172 million in 2014.
During the period, shareholder
equity was negatively impacted
by an unrealised foreign exchange
translation loss of $67 million,
primarily reflecting movements
in the Euro, the Algerian dinar,
Moroccan dirham, Egyptian pound
and the Sudanese pound against
the US dollar and the translation
of net assets denominated in
these currencies.
Summary and outlook
The Group performed well in
2015, and made excellent strategic
progress. The Branded business
remains well positioned to continue
the strong performance achieved
in 2015. In 2016, we expect the
Branded business to perform in
line with historical trends, on a
constant currency basis, driven by
strong underlying market growth,
our focus on strategic products
and the strength of our sales and
marketing teams. Improvement in
the Branded core operating margin
is expected to be driven by revenue
growth and operational leverage.
We expect Injectables revenue
growth in the mid to high single
digits in 2016, with competition on
marketed products being more than
offset by new product launches from
our R&D, business development and
Bedford pipelines. We expect core
36
operating margin to return to a more
normalised level of around 36%, due
primarily to a change in product mix
and higher R&D expenses.
2016 revenue for the combined
Generics is expected to be in the
range of $640 million to $670
million, including ten months of
contribution from Roxane and taking
into account the divestiture of certain
legacy products. Core Generics
operating margin is expected to
be in the low double digits.
We expect Roxane’s full-year
revenue in 2016 to be below
$650 million, increasing to between
$700 million to $750 million in 2017,
as previously disclosed. We expect
Roxane’s EBITDA margin to reach
around 35% over the medium term.
This high level of profitability will
be achieved through the launch of
high value products and cost savings,
which are expected to be in the
range of $35 million to $45 million
by 2017. We continue to expect the
acquisition to be slightly dilutive to
core earnings per share (EPS)
as we integrate the business in
2016 and strongly accretive to
core EPS thereafter.
Overall, we are expecting Group
revenue in 2016 to be in the range
of $2.0 billion to $2.1 billion
including the contribution of
ten months of revenue from
Roxane, with continuing
momentum into 2017.
Our statutory results in 2016
will be impacted by a number of
exceptional, non-cash and other
charges including the amortisation
of intangible assets, an inventory
step up, the revaluation of the fair
value of future royalty payments and
one-off acquisition and integration
costs. In aggregate, these charges
are currently expected to impact
statutory net income by around
$115 million.
Summary financial results
$ million
Revenue
Gross profit
Core operating profit1
EBITDA2
Core EBITDA3
Profit attributable to shareholders
Core profit attributable to shareholders4
Basic earnings per share (cents)
Core basic earnings per share (cents)4
Dividend per share (cents)5
Net cash flow from operating activities
2015
1,440
818
409
454
466
252
286
126.6
143.7
32.0
366
2014
1,489
851
427
474
485
278
299
140.4
151.0
32.0
425
Change
-3%
-4%
-4%
-4%
-4%
-9%
-4%
-10%
-5%
0%
-14%
Constant
currency
change
+2%
+1%
+4%
+4%
+4%
+2%
+7%
–
–
–
–
1 Before the amortisation of intangible assets other than software and exceptional items included in operating profit, as set out in note 5 to
the financial information; previously referred to as adjusted operating profit.
2 Earnings before interest, tax, depreciation and amortisation. EBITDA is stated before impairment charges and share of results from
associated companies.
3 EBITDA before exceptional items.
4 Before the exceptional items and other adjustments as set out in note 5 to the financial information.
5 In 2014, Hikma paid a total combined dividend of 32.0 cents per share, comprised of a full-year dividend of 22.0 cents per share and a special
dividend of 10.0 cents per share.
37
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Sustainability
Our approach to sustainability
Our primary objective is to provide patients with high-quality, affordable medicines
tailored to their needs. We aim to do this in a sustainable way, working to ensure
our products deliver the maximum benefit to patients, while managing the impact
of our operations.
Our engagement process
Through regular contact with our stakeholders, we are able to understand and cater for their needs, while
improving how we operate our business.
Recognising our stakeholders
How we engage
Patients
The sustainability of our business relies on
meeting the needs of our patients, both
now and in the future.
Practioners
Doctors and other medical practitioners are
both a crucial route to market and, when
supported, true advocates of Hikma.
We engage with our patients through marketing
and communications campaigns, focus groups
and multiple customer feedback channels which,
along with our practitioner advocates, ensures
that we understand their personal and
collective healthcare needs.
Our marketing and sales teams have close
relationships with our practitioners, to understand
their own needs and those of their patients.
People
The lifeblood of our Group, it’s imperative
that our people are motivated to drive
Hikma forward to achieve our
common goals.
At Hikma we have shared values and a
distinct ethos, developed for and by our people.
We hold regular Company forums and internal
communications campaigns to ensure we
continue this alignment.
Shareholders
We rely on the support and engagement of
our shareholders, in order to deliver upon
our strategic objectives.
Our investor relations and executive teams
hold monthly meetings with our shareholders
to explain Hikma’s corporate story and future
investment case.
Communities
The success and wellbeing of the
communities in which we are present,
are vital to maintaining our business.
We engage with our communities at all levels of
the business through volunteering and Group
sponsored activities.
38
Our focused approach
We have prioritised the sustainability issues of greatest significance and relevance to our business and
stakeholders. This sustainability report focuses on these key areas, providing examples of initiatives we
have undertaken across the Group. Additional information can be found on our website.
Our focus areas
Material issues
Meeting healthcare needs
Our patients are at the heart of
everything we do. We are focused
on meeting patient needs and
improving the quality of healthcare
across our markets.
Promoting good business ethics
Through stringent internal controls
and a healthy ethical culture, we
ensure the future prosperity of
our business and stakeholders.
Supporting our communities
We have built strong local
businesses, which sustainably
support and contribute to the local
communities in which we operate.
Enabling our people
Investing in the development
and wellbeing of our employees
is key to building a successful and
sustainable business.
Minimising our
environmental impact
We aim to limit our environmental
impact by closely monitoring, reporting
on and improving our operations.
• Treating major health issues
• Delivering high-quality, affordable products
• Enhancing doctor and patient awareness
and education
• Transparency in corporate governance
• Ensuring an ethical approach runs across the Group
• Delivering a local economic impact
• Investing in healthcare markets
• Engaging our employees to give back
• Training and development
• Promoting equal opportunities
• Ensuring health and safety
• Reducing our energy and water consumption
• Minimising waste
39
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Sustainability – Continued
Meeting healthcare needs
Our patients are at the heart of everything we do. We ensure their
needs are met through supplying high-quality, affordable medicines.
This underpins our strategy on both a global and local scale. Our
commitment to providing the right education to doctors and patients
is enabling them to lead and promote a healthier lifestyle.
Enhancing doctor and patient
awareness and education
In order to meet the healthcare
needs of today, we believe we must
first raise awareness and educate
our partners and patients in order
to sustain their own wellbeing.
Promoting healthier lifestyles
We care deeply about the health
and wellbeing of our employees
and community members. During
the year, we sponsored activities
across the Group aimed at providing
education on disease prevention
and encouraging a healthy lifestyle
through physical activity and
healthy nutrition.
In Jordan, for example, we
organised a ‘Ramadan Walk against
Hypertension’; an event aimed at
educating the public about the
dangers of having hypertension
and importance of following a
healthy lifestyle. Free blood-pressure
screenings were offered, along with
specialists’ insights on how to
prevent and cope with hypertension.
Over 50 individuals from the local
community, including physicians
and employees, took part.
Helping our employees quit smoking
We collaborated with the King
Hussein Cancer Center on funding
a Smoking Cessation Programme
for employees, resulting in a
75% success rate. A pilot sample
of employees interested in quitting
smoking was chosen. Counselling
sessions were held, and medications
were prescribed in accordance with
patients’ needs. Depending on the
responsiveness of the patient, the
duration of therapy spanned three
to eight months, and the treatment
fees per patient varied from
$220-$1,200.
Delivering high-quality,
affordable products
Quality and pricing are not
conflicting elements for Hikma and
nor should they be for our patients;
our strategy is to deliver both.
Ensuring medicine supply
In 2015, we successfully launched
Thiotepa in the US market; an
injectables drug for the treatment of
a variety of cancers which has been
on the US FDA Drug Shortages list.
Our teams in the US and Europe
have worked closely together to
prioritise bringing back products that
are in short supply to patients in need.
Treating major health issues
We focus on the major health
issues faced by our patients in
order to deliver maximum impact
on their lives.
Reaching our patients
Hikma provides continuous support
to its local communities through
in-kind donations with the help
of various aid organisations. In
2015, Promopharm, our business
in Morocco, donated a wide variety
of medications to African countries
to help fight the Ebola disease.
Hikma donated anti-infectives and
gastrointestinal medicines to Guinea,
through the Moroccan Ministry
of Health, worth over $50,000.
In Jordan, Hikma sponsored a total
of 20 medical days and provided
free medications worth over
$47,190. Hikma also donated
medications worth $93,000 to
Syrian and Palestinian refugee
camps in Jordan.
40
Royal Health Awareness Society
Health community clinic success story
Samar is a 27-year-old female with type II diabetes. In 2015, Samar heard about the Health Community
Clinics project established by the Royal Health Awareness Society (RHAS) in collaboration with Hikma,
and was keen to join their treatment programme. At the time, her cumulative blood sugar level was
9.8 mmol/L, potentially leading to internal organ and eye damage. Samar was unable to join the
programme as she suffered from cerebral palsy and faced difficulties attending the sessions as well
as being active. The doctors at the clinic successfully reached out to her and through monitoring her
progress by phone, managed to persuade her to start treatment including exercising and following
an appropriate meal plan. Samar was able to lose 10 kilograms and decreased her cumulative blood
sugar level to a healthy 5.2 mmol/L. She also participated in a shot put tournament held in Jordan
in which she ranked second place.
41
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Sustainability – Continued
Promoting good
business ethics
Practitioners entrust us with their reputation, patients with their health
and communities with their future. This is the basis upon which we
have earned our licence to operate, and built our focus on long-term
value creation. Through stringent internal controls and a healthy
ethical culture, we ensure the future prosperity of our business
and stakeholders.
Transparency in corporate
governance
Good business ethics begin in
the boardroom. This is where the
benchmark for integrity and honesty
is set, ensuring performance of the
highest standard is delivered from
our leadership to our stakeholders.
Compliance, Responsibility and
Ethics Committee
Corporate Responsibility (CR)
at Hikma is governed by the
Compliance, Responsibility
and Ethics Committee (CREC).
The Vice President of Corporate
Communication is responsible for
CR at an operational level. The CR
Committee oversees Hikma’s CR
activities and reports directly to the
CREC. Further details are available
in the CREC report on pages
96 to 101.
Ensuring an ethical approach
runs across the Group
Whilst good business ethics begin
in the boardroom, they are brought
to life through day-to-day behaviours
of all of our people across the Group.
Taking action in global welfare
Hikma is an active player in
the international arena of global
welfare and ethics. We believe that
public-private and international
co-operation is key to ensuring the
sustainable growth of worldwide
healthcare economies.
Hikma is committed to helping
communities through providing
internships and jobs, especially
in the MENA where the youth
demographic (15 – 29 years)
is estimated at around 30%.
Through our partnership with the
World Economic Forum (WEF), Hikma
participated in the New Vision for
Arab Employment initiative. Serving
as a WEF Regional Associate for the
second consecutive year, Hikma was
one of 2,500 business, government,
academic and civil society leaders to
convene this year to explore solutions
for pressing international, regional
and industry issues.
We are also very active in the
fight against corruption. As a global
pharmaceutical leader, we have a
responsibility to be a role model in
transparency. As a founding member
of the Partnering Against Corruption
Initiative (PACI), an off-shoot of the
WEF, Hikma renewed its commitment
in 2015 for its zero tolerance of
corruption across its operations. By
committing to the PACI principles, we
join forces with other organisations
worldwide to raise work standards
and build a competitive, transparent,
accountable and ethical culture. Our
commitment to business ethics is
42
reflected in our Code of Conduct,
which sets the tone at the top and
ensures every employee abides by
these ethical values, building an
internal culture of transparency and
accountability. The PACI also dictates
that we conduct our operations
ethically with all of our stakeholders
and across our supply chain, requiring
that our suppliers are also intolerant
to corruption.
Hikma continues working to promote
responsible business through
collective action, co-operating with
other organisations and companies
to take action towards improving
business environments. Hikma joined
the B20 (Business 20) Anti-corruption
Working Group (ACWG), which
operates under the umbrella of
the G20 international forum of
governments. The ACWG focused
on different work streams related to
projects tailored to assist companies
improve their ethical conduct.
Hikma was actively involved in the
procurement work stream that aimed
to promote ethical practices across
governmental and private sectors.
In addition, by the end of the
year, the B20 ACWG launched an
Anti-corruption Toolkit for Small and
Medium Sized Enterprises (SMEs),
designed for such establishments
with limited time and resource, to
help manage one of the biggest
challenges companies face all over
the world: corruption. In 2015, the
B20 was hosted by Turkey and will
move on to China in 2016, where
we plan to continue our involvement.
Preserving our Founder’s ethics
Since its establishment in 1978 by
Dr Samih Darwazah, Hikma has been
built on strong ethical foundations.
We consistently uphold these values
across our operations; performing
with integrity, a drive for excellence,
and a high standard of quality and
respect towards our people, the
environment and our patients.
We continue to maintain our
transparency and implement
accountability measures across
the Group.
Our corporate strategy centres
around two themes – wellbeing and
education. We have a Continuous
Education Scheme Programme
which offers employees the chance
to pursue a higher education, as well
as internal company programmes
such as management rotation plans
aimed to strengthen our employees’
skills and enhance their exposure
to different parts of the business.
UN Global Compact membership renewal by
submitting annual communication on progress
Hikma has been a member of the United Nations Global Compact
since 2007. In 2015, we renewed our UNGC membership by submitting a
Communication on Progress report (COP). Every year Hikma is required to
demonstrate how it aligns its company operations with the ten principles
of the UNGC across the key areas of human rights, labour standards, the
environment and anti-corruption.
This year we focused on demonstrating how Hikma globally supports
its policies, procedures, actions and performance in line with the ten
principles. Throughout the COP, we clearly demonstrate our commitment
to employees, patients, the community, the environment and global
welfare. Hikma will continue to actively support the UNGC and
integrate its principles across the business.
43
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Sustainability – Continued
Supporting our
communities
We cannot achieve our mission of improving people’s lives in a long-
term, sustainable manner without the backing of our stakeholders.
In turn, we endeavour to earn this support wherever possible,
through focusing on making a difference in the communities.
Delivering a local economic impact
Our ongoing business success
depends on the sustainable success
of the local communities within
which we are embedded. This is
why we focus on enriching the local
economies and creating sustainable
value in our different locations.
Fostering children’s growth
Hikma continuously contributes
to the social development of the
community, including helping
children in need. In 2015, Hikma
renewed its partnership with SOS
Children’s Villages Jordan to sponsor
a home in Irbid, Jordan. Hikma
covered the expenses of the home,
which houses seven orphans and
their SOS mother. Hikma, through
its various locations, has been
supporting the SOS Children’s
Villages worldwide by taking part
in refurbishing and repainting homes
as well as accompanying the children
on various educational tours.
Hikma’s continuous participation
in numerous social responsibility
activities has positioned us in a
unique place among partners
and customers. Being a leading
company in this field has helped
Hikma achieve its remarkable
success. Our focus on educating
the future generation ensures the
development of the communities
we exist in. One of the several
initiatives Hikma undertook in
2015 was a large donation of
school supplies, textbooks and
woollen blankets to a number of
underprivileged children in boarding
schools in the North-West region of
Tunisia. Similarly, Hikma Farmaceutica
in Portugal raised monetary
donations to provide school supplies
for the children of the Santa Casa
Misericórdia organisation.
Investing in healthcare markets
Our skills and expertise equip us to
make a significant difference to the
healthcare markets which support
the wellbeing of our communities.
Improving health through nutrition
In 2015, Hikma continued to
implement initiatives to help
eradicate hunger and provide food
and nutrition aid to those in need.
For example, Hikma employees
in Jordan supported a non-
governmental organisation, Tkiyet
Um Ali (TUA), to alleviate hunger
among underprivileged families.
More than 40 employees joined
TUA in preparing food parcels,
distributing goodwill packages and
serving meals to underprivileged
families residing in Amman, Qastal
and Salt. Hikma Algeria organised a
campaign in the month of Ramadan,
where food and monetary donations
were collected and given out to 30
needy families. Through the help of
the authorities responsible for the
region, Sidi Thabet in Tunisia, food
packages were also distributed
to underprivileged families.
During our annual summer social
responsibility event in Portugal,
Hikma Farmaceutica successfully
raised the required amount of funds
needed to purchase an industrial
fridge for the charity Santa Casa
Misericórdia. The charity utilises this
fridge for food conservation which
is then distributed to over 2,400
people in our local community
in the Sintra region.
44
In the US, Hikma’s West-Ward
Pharmaceuticals held a Valentine
fundraiser for its employees. The
monetary donation enabled 12 boxes
and four bags of groceries to be
delivered to the local food pantry
at the Cherry Hill Food and Outreach
Council. This was supplemented
by our employees in Cherry Hill
and Bedford volunteering at the
local food pantry.
Hikma supported the fundraising
event of the United Nations World
Food Programme (WFP) held in July
2015. Through this sponsorship,
we sought to aid needy families
in Jordan’s poverty pockets that
were affected by the economic
and Syrian crisis.
Engaging our employees to
give back
Community support is part of our
DNA, making it an area of focus
shared by Hikma’s dedicated and
diverse team of talented people.
Throughout the year, our employees
volunteered in numerous campaigns.
Hikma’s volunteers plant trees at a public school
that we adopted in Sweimeh, Jordan
Enhancing the education and wellbeing of our communities is key to improving the quality of people’s lives.
One of the many successful projects in 2015 was volunteering to plant trees and renovating parts of the
Sweimeh School for Girls. Sweimeh is an extremely impoverished area in the South of Jordan.
Hikma supplied all of the materials needed for planting the trees and the renovation. Hikma also donated
tables, chairs and toys for the school. Our volunteers painted the outside walls of the nurseries and planted
250 trees on the school grounds. Hikma also refurbished parts of the school including hazardous areas that
were considered dangerous for the students.
45
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Sustainability – Continued
Enabling our people
Without the knowledge, commitment and drive of our people, we would
not be the business we are today. We begin by ensuring that they are
treated with the utmost respect and equality. From here, we focus on
training our people to constantly develop their skills and expertise. This is
a virtuous circle from which our organisation significantly benefits,
putting empowered and evolved employees at the heart of our long-term
business success.
Ensuring health and safety
Nowhere is our duty to
employees more prevalent than
in our responsibility for protecting
their health and safety. We embed
a stringent safety policy throughout
every workspace we occupy, across
our operations, from R&D centres
to the sales offices.
Training and development
At Hikma we empower our people
to develop the skills and expertise
required to achieve their professional
goals. We are confident in the
knowledge that the investment
in their training is an investment
in our future.
Cherry Hill, USA
46
Developing our people
As we continue to grow, we ensure
that our most important resource,
our people, continues to advance
and develop. In 2015, a total of
4,998 employees across the Group
were placed in 765 different training
programmes tailored to enhance
know-how and career progression.
We also ensure new employees are
properly integrated through tailor-
made induction sessions conducted
across all our sites. This orientation
programme covers the history of
Hikma policies and procedures,
employees’ benefits, employees’
rights, confidentiality, conflicts of
interest, values, competencies, career
paths and organisational structures.
As part of our ongoing efforts in
the field of corporate responsibility,
Hikma in Jordan partnered with
Orient Spirit, a vocational training
centre for people with disabilities
and special needs such as Down
Syndrome and autism. The centre
offers training programmes in
academic skills, life skills, soft skills,
locomotor skills, job coaching and
counselling. Students of both
genders train in different fields such
as embroidery, woodwork, mosaics
and drama, providing a stronger
sense of independence to help
the students assimilate in society.
Through this partnership, Hikma has
provided ten partial scholarships for
the children of our employees who
meet the criteria set out by the centre.
Creative team building
At Hikma, we continuously focus on
developing our employees through
various formal and informal training
media. In 2015, Hikma’s global legal
team of 19 employees attended a
training workshop in London. This
two-day workshop included a
series of talks and team building
activities which encompassed
numerous sessions by different
speakers covering fundamental
legal topics. Further training sessions
focused on antitrust investigations in
the pharmaceutical industry and joint
ventures. These activities enhanced
the team members’ work abilities,
listening skills, creativity, as well as
opening more channels amongst
the team.
Promoting equal opportunities
Our business relies on a diverse mix
of skills and expertise that requires
the unique contribution of each
person on our team. That’s why we
actively promote an environment
in which opportunities are equally
available to everyone.
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
Diversity
To find out more about
diversity across the Group,
see page 92
Women Empowerment and Motivation Programme
Hikma has initiated motivational and empowerment sessions for women across its businesses, starting
with Jordan. This is in line with the 2015 objectives set for the “Advancement of Women across the
Hikma Group”. The aim of these monthly sessions is to further support the women at Hikma to achieve
both their personal and professional goals and give them the needed guidance for career advancement.
In each session, a chosen Champion discussed her career path and how she managed to overcome different
challenges faced in the corporate world. Champions were from within Hikma and the local community. The
programme was held in Jordan, Portugal and the US with plans to expand to other sites. The final session in
2015 honoured our women who have worked at Hikma for 20 years and above by the Company’s CEO.
47
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Sustainability – Continued
Minimising our
environmental impact
Sustainability at Hikma is about building a better business with a brighter tomorrow. As a global
pharmaceutical manufacturer, environmental issues are among our priorities. Our holistic approach
ranges from committing to minimising energy consumption to raising awareness of our most pressing
ecological challenges. This drives our commitment to both contributing to a cleaner world and building
a more efficient operating model.
2015 emissions by GHG source
Minimising our environmental impact
This section has been prepared in accordance with our regulatory
obligation to report greenhouse gas emissions pursuant to Section 7
of The Companies Act 2006 (Strategic Report and Directors’ Report)
Regulations 2013.
During the 2015 financial year, Hikma Pharmaceuticals emitted
26,479 tCO2e from the combustion of fuel (Scope 1 direct) and
83,520 tCO2 from electricity purchased for our own use (Scope 2
indirect). This is equal to 4.30 tCO2e Scope 1 emissions per full time
equivalent (FTE) employee and 13.55 tCO2 Scope 2 emissions per
FTE employee respectively.
The table below shows our emissions performance for the years ended
31 December 2013, 2014 and 2015.
Purchased electricity
for own consumption
76%
Category
Scope 1 – Combustion of fuel and
operation of facilities (tCO2e)
tCO2e per FTE employee
Scope 2 – Electricity purchased for
our own use (tCO2)
tCO2 per FTE employee
2015
2014
2013
26,479
20,491
20,831
4.30
83,520
3.69
57,459
3.70
51,424
Natural gas
combustion
Diesel combustion
Refrigerants
13.55
10.35
9.14
Vehicle emissions
• Emissions from the consumption of electricity are reported in tCO2 rather than tCO2e
since the UK Government emission factors for overseas electricity currently account
for carbon dioxide emissions only.
• The FTE employee figures used to calculate the reported intensity metric cover the
sites for which emissions data was provided rather than the total FTE figure for the
organisation as a whole.
Petrol combustion
LPG/Propane
combustion
12%
7%
2%
2%
<1%
<1%
48
Sintra, Portugal
Reducing our energy and
water consumption
Heavy resource consumption is a
burden on both our communities
and our expenses. We identify
the environmental areas of most
vulnerability in our industry and
work effectively to minimise our
impact. Our approach is driven by
staff education, emission analysis
and transparent reporting.
Methodology
We have quantified and reported
our organisational greenhouse gas
emissions according to the Defra
Environmental Reporting Guidelines
2013 and have utilised the 2015 UK
Government Conversion Factors
for Company Reporting in order
to calculate emissions from
corresponding activity data.
Reporting boundaries
We consolidate our organisational
boundary according to the
operational control approach and
have adopted a materiality threshold
of 10% for GHG reporting purposes.
This approach includes all Hikma
subsidiaries and corresponding
facilities/assets. Joint ventures with
less than 50% holding have been
excluded from our GHG disclosure
as it is considered that we do not
have operational control over these
emissions sources. In addition,
non-manufacturing facilities with
fewer than 100 staff at the end of
the reporting period are not included
within our emissions disclosure
on the grounds of materiality.
The GHG sources that constitute our
operational boundary for the 2015
reporting period are as follows:
Scope 1: Facility diesel combustion,
facility natural gas combustion,
facility LPG combustion, fugitive
refrigerants from air-conditioning
equipment and vehicle
fuel combustion.
Scope 2: Purchased electricity
consumption for our own use.
Assumptions, estimations
and exclusions
In some cases, missing information
has been estimated using data from
the nearest reporting period as a
proxy. Furthermore, due to the
availability of additional data, we
have decided to restate the 2014
emissions figures. This allows us to
make a more accurate performance
comparison between 2014
and 2015.
Intensity ratio
In order to express our reported
emissions in relation to a quantifiable
factor that will act as a useful
comparator for performance analysis
over time, we have chosen to adopt
full time employee equivalent (FTE)
as our chosen metric as it is
considered that this factor both
influences our overall energy
consumption and is reflective
of business growth/decline.
Performance
Between 2014 and 2015 we have
seen a 29% increase in Scope 1
emissions and a 48% increase
in Scope 2 emissions. There are a
number of reasons for this increase;
most significantly, we have expanded
the scope of our reporting and for
the first time we have reported on
emissions from AMC, Morocco,
Sudan (PharmaLand) and Sudan
49
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Sustainability – Continued
(Savanna), which has resulted in a
6% increase in Scope 1 emissions
and 17% in Scope 2 emissions.
If these sites are excluded from
the year on year comparison of
Scope 1 and 2 emissions, Scope 1
emissions, on a like-for-like basis,
have increased by 21% and Scope 2
emissions have increased by 23%
since 2014. Another important factor
was that emissions from our site in
Bedford, USA, went up significantly
in 2015 since this was the first full
year of operation, which has resulted
in a 7% increase in overall emissions
in 2015.
Investing in environmentally
friendly technology
Behaving in a sustainable manner is
embedded in all the aspects of our
operations. Hikma underwent an
evaluation exercise regarding its cars
and replaced some of the biggest toxic
gas emission engines with ten Hybrid
cars. The Hybrid System is a much
more efficient system with minimum
energy expenditure operating to
maximise fuel efficiency and minimise
CO2 emissions. This resulted in
reducing the cars’ emissions by
50% and the fuel bill by 60%.
Disclosing our carbon emissions
As a global manufacturer, we
are highly aware of our impact on
the environment, which is why we
constantly seek methods to minimise
waste, analyse carbon emissions,
promote the responsible usage of
energy and electricity consumption,
and reduce demands for water
consumption. As part of our
adherence to sustainability, we
report climate change data to the
CDP so as to increase transparency
to our stakeholders and manage
both risks and opportunities arising
from climate change. We are also
keen on educating our staff and
raising their awareness about the
effects they have on the environment
50
in everything they do. According to
the Carbon Disclosure Project (CDP)
Global Climate Change Report 2015,
Hikma has scored 90 ‘B’ in the rating
of healthcare sector responding
companies, registering a significant
improvement during the reporting
year of 2014 compared to previous
years. In light of Hikma’s efforts
towards minimising its environmental
impact and global carbon footprint,
the Company has been actively
committed to reporting to the
CDP, which expertly scrutinises
a company’s carbon emissions
and provides analysis for better
operational functions. Participating
companies were scored against
two parallel assessment schemes:
performance and disclosure.
Engaging our people
We consider our employees to be
our greatest, most valuable asset.
Since their knowledge, skills and
teamwork are key to our success,
we continuously strive to bring the
whole team together and engage
with them on issues related to
health, workplace safety and
supporting the environment.
Through our annual ‘You Are Hikma’
campaign, we arranged several
activities aimed at raising health,
safety and environmental awareness.
These included medical testing for
the employees and a blood drive.
Awareness lectures were also
organised to educate our people
on the safe handling of mechanical
equipment, first aid administration,
and recycling benefits. Furthermore,
we participated in the ‘Clean Up
the World’ campaign, which was
held in Dibeen Forest in Jordan.
Our employees and their families
participated in cleaning tasks geared
towards raising public awareness on
the importance of preserving natural
parks and refraining from littering.
Minimising waste
Our response to resource reliance
is simple: we work to maximise
efficiency and implement controls
and solutions to minimise waste.
Beyond this, we merge employee
and community engagement
programmes to encourage the
efforts of our stakeholders to
spread positive environmental
impacts beyond our initial reach.
Recycling and reuse
For Earth Day this year, West-Ward,
our business in the US, undertook
a number of activities that focused
on environmental care. The company
distributed Colorado blue spruce trees
to all its employees. By planting these
trees, 57,600 lbs. of carbon dioxide
could be reduced annually. It also
partnered with Terracycle and Recork,
two prominent recycling agencies, to
set up specialised bins to collect pens,
highlighters, sharpies and corks.
Hikma in Jordan has partnered with
a recycling company called Al Ajyal,
a certified company that works with
the Ministry of Health, for recycling
our paper and plastic waste in most
of our Jordan locations. One of the
terms for this partnership includes
a social responsibility segment where
Al Ajyal is responsible for providing
a certain number of corporate
responsibility activities per year, which
include environmental awareness
sessions, sponsorships, free medical
days, educational school trips for
local schools, orphans and NGOs.
In Bedford, a project was initiated
where large donations of computer
equipment including desktops,
laptops, printers and monitors were
given to the Bedford City Schools. This
amounted to over 20 pallets (10,000
lbs) of electronics reused and recycled
back to the community. This puts our
Bedford site recycling rate at over
35%, which indicates the percentage
of waste that this site recycles.
Total emissions and segmental reporting
Scope 1
Total emissions
26,479 tC02e
(2014: 20,491 tC02e)
Scope 2
Total emissions
83,520 tC02
(2014: 57,459 tC02)
Europe
4,399
Scope 1 (tC02e)
9,667
USA
MENA 12,413
Europe
5,908
Scope 2 (tC02)
USA
22,903
MENA 54,709
Emissions by location
0
8
6
1
1
,
0
8
1
1
1
,
2
8
9
9
,
6
3
5
5
.
5
4
3
6
,
9
3
6
5
,
5
0
2
5
,
5
0
5
3
,
1
0
3
1
,
8
0
7
1
,
6
4
0
1
,
5
2
2
4
1
4
1
,
5
1
2
1
,
8
8
3
4
,
2
9
9
1
,
Algeria
(D A A)
Algeria
(H P A)
Jordan
(A M C)
Jordan
(A P M )
U S A
Bedford
Scope 1 (tCO2e)
Scope 2 (tCO2)
U S A
C herry Hill
U S A
Eatonto w n
9
4
1
3
,
3
0
3
1
,
Egypt
8
2
7
3
,
6
2
0
3
,
8
9
5
1
,
9
0
3
1
,
2
1
0
1
,
5
9
1
1
,
0
3
7
5
1
1
3
8
6
7
5
8
2
7
8
0
6
3
0
5
9
4
0
9
4
7
1
,
5
8
0
1
,
0
7
6
Italy
Saudi Arabia
(JPI)
U S A
M orocco
(Pro m apharm)
M e m phis
Portugal
Sudan
(Pharm aLand)
Sudan
(Savanna)
G erm any
(Thy m oorgan)
Tunisia
(IA B Pharm a)
Tunisia
(M edicef)
51
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Business and financial review – Continued
Risk and control
Managing the
uncertainties
This section provides an overview of Hikma’s approach to risk management,
risk governance and the ability of Hikma to continue to operate successfully.
Going
concern
Page 61
Viability
Page 60
Risk
governance
Page 53
Risk and
control
Internal
control
Pages 58 to 59
Principal
risks
Pages 54 to 56
Risk
management
Page 58
52
Risk governance
During the year the Board reviewed its risk appetite
in detail. It classified the principal risks in the business
into risks that:
• are innate to the pharmaceutical business, the
skilful management of which provides us with
our economic return
• are inherent in our strategy, which we believe are
worth taking, but in a selective and controlled manner
• for which we have little or no appetite and which
we try to minimise or avoid altogether
This risk appetite, which also sets out expected
mitigation approaches and risk limits, will be reviewed
and updated annually, is the foundation of the ERM
and shapes the detailed approaches to risk
management within the businesses.
The risk governance framework which was approved by
the Board during the year is summarised in the chart to
the right. On behalf of the Board, the Audit Committee
oversees Hikma’s risk management framework in the
context of its responsibilities for internal control and
bi-annually reviews the strategic risks facing the Group.
The risk framework provides further detail on the
monitoring, mitigation and control processes for each
of the principal risks and includes a risk owner, who is a
designated senior executive with Group level responsibilities
in each area. The risk owners take into account the Group
risk appetite as part of their consideration of risk events
and report to the Executive Committee. The Audit
Committee also reviews business and operational risks
with the internal and external auditors which arise through
the audit work that they perform, including risk interviews
with all executive management.
Board of Directors
• Define Group’s risk appetite annually
• Review Hikma’s principal risks annually
• Establish risk governance framework and ensure Audit
Committee is capable of fulfilling its role
Audit Committee
• Report to the Board on the effectiveness of risk management
framework and internal control policies annually
• Review of the risk management consolidated report bi-annually
• Review the external communications and disclosures bi-annually
Executive Management/Group Risk Committee
• Review the consolidated risk management report bi-annually
and update the Audit Committee
• Review significant emerging risks
ERM Lead (Chief Strategy and Corporate
Development Officer)
• Co-ordinate communications between global risk owners,
Executive Committee and Audit Committee
• Prepare consolidated risk management report and submit
it to Audit Committee and Executive Management
Committee bi-annually
• Validate and challenge identified risks as received by
the global risk owners
• Work with related parties on the risk management external
communications and disclosures for the Annual Report
• Update risk management framework annually
Global Risk Owners
• Co-ordinate risk management activities across the regions
• Submit a risk management status update report to
the enterprise risk management lead bi-annually
• Implement the risk management process and identify,
assess and manage risks within the business
5. Update Risk
Appetite &
Framework
1. Risk
Identification
Regional Risk Owners
4. Disclosure
& External
Communication
2. Consolidation
& Analysis
3. Risk
Reporting
• Submit a risk management status update report to the global
risk owner bi-annually
• Implement the detailed risk management processes in
the operations and mitigate and manage risks within their
respective regions as part of their day to day operations
Internal Audit
• Provide objective assurance and opinion of the effectiveness
of Hikma’s risk management and internal control systems
53
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Risk and control – Continued
Principal risks
During the year the Board also conducted a detailed
review of all the principal risks in the businesses, looking
in detail at the nature and scale of the risks being taken
and the mitigation approaches. The Board considers that
it is possible that more than one principal risk could
escalate at any one point in time. It was satisfied that
these risks are being managed appropriately and
consistently with the target risk appetite.
The Group faces risks and uncertainties that could have
a material impact on its earnings and ability to trade
in the future. These principal risks are set out below.
Risk and description
Mitigation and control
Product quality
Executive responsibility: Senior Vice President for Technical Affairs
• Situations resulting in poor manufacturing and
processes quality of products have the potential
to lead to:
- Harm to end users, manufacturing personnel
and the environment resulting in liability and
reputational issues
- Regulatory action that could result in the
closure of facilities and consequential loss
of opportunity and potential failure to
supply obligations
• Global quality programme which leads the manufacturing processes
in all sites
• The 11 FDA approved facilities are regularly assessed by the regulator
• Documented procedures are continuously improved and staff receive
training on those procedures on a regular basis
• Global quality issues team with extensive experience of implementing
corrective action when issues arise
• Global product liability insurance and crisis management team
• Adopt a “quality by design” approach for all of our manufacturing facilities
- Delayed or denied approvals for new products
• Continued environment and health certifications
- Product recalls
API sourcing
Executive responsibility: Director of Corporate API & Strategic Sourcing
• API and raw materials represent one of the
• Maintaining alternative API suppliers for each of the Group’s products,
where possible
• API suppliers are carefully selected and the Group endeavours to
build long-term partnerships with exclusive supply
• The Group has a dedicated plant in Jordan that can synthesise strategic
and difficult to procure injectable APIs where appropriate
• Utilising supply chain models to maintain adequate API levels
Group’s largest cost components. As is typical
in the pharmaceuticals industry, a significant
proportion of the Group’s API requirements
is provided by a small number of API suppliers
• There is a risk that it will not be possible
to secure or maintain adequate levels of
API supplies in the future
• Regulatory approval of a new supplier can be
lengthy and supplies may be disrupted if the
Group is forced to replace a supplier which
failed to meet applicable regulatory standards
or terminated its arrangements with the Group
MENA & emerging markets
Executive responsibility: Head of MENA
• Hikma operates in MENA and emerging
• Geographic diversity reduces the impact of issues arising in one jurisdiction
markets which have high levels of political
and social instability as well as economic
and regulatory fluctuations that can result
in a wide variety of business disruptions in
those markets for a substantial period of time
with extensive experience of operating in these environments and
developing opportunities from change
• Strong regulatory team that proactively monitors possible
regulatory changes
• Building and nurturing local business relationships whilst upholding
the highest ethical standards
• Monitoring and reviewing economic developments
54
Risk and description
Mitigation and control
New product pipeline
Executive responsibility: VP of Corporate Development and VP of Active Pharmaceutical Ingredients
• A significant proportion of Group profits
derive from a relatively small number of
higher margin products
• Internal marketing and business development departments monitor
and assess the market for arising opportunities
• Expansive global product portfolio with increased focus on high
value products
• Experienced internal regulatory teams developing products and
overseeing joint venture activities
• Product related acquisitions (e.g. acquisition of Roxane)
• Third party pharmaceutical product specialists are assisting in the
development of manufacturing processes for new generic products
where the patent has recently expired
• Strong R&D teams that are assisted centrally in the implementation
and management of projects
Industry earnings
Executive responsibility: Divisional Business Heads
• The dynamics of the generic pharmaceutical
industry includes numerous volatile elements
such as regulatory interventions, drug
approval patterns, competitor strategies
and pricing that are difficult to anticipate
and may affect profitability
• Operating in wide range of countries, products and therapeutic areas
• Diversification of manufacturing capability and capacity
• Active product life cycle and pricing management in the MENA region
• Identify market opportunities and develop appropriate pricing strategies
whilst responsibly applying price charges in the US
Acquisitions
Executive responsibility: Chief Strategy and Corporate Development Officer
• The Group strategy is to pursue value adding
acquisitions to expand the product portfolio,
acquire manufacturing capabilities and expand
in existing and emerging markets. There is risk
of misjudging key elements of an acquisition
or failing to integrate the assets, particularly
where they are distressed
• An acquisition of a large-scale target may entail
financing-related risks and operating expenses
and significantly increase the Group’s leverage
if financed with debt
• The mergers and acquisitions team undertake extensive due diligence of each
acquisition, including legal, financial, compliance and commercial, and
utilise multiple valuation approaches in assessing target acquisition value
• Executive Committee reviews major acquisitions before they are
considered by the Board
• The Board is willing and has demonstrated its ability to refuse
acquisitions where it considers the price is too high
• Dedicated integration project teams are assigned for the acquisition, which are
led by the business head responsible for proposing the opportunity. Following
the acquisition of a target, the finance team, the management team and the
Audit Committee closely monitor its financial and non-financial performance
• A variety of funding options are available to the Group to finance acquisitions
Compliance
Executive responsibility: Chief Compliance Officer
• The pharmaceutical industry and certain MENA
markets are considered to be higher risk in
relation to sales practices. Improper conduct
by employees could seriously damage the
reputation and licence to do business
• Board level – Compliance, Responsibility and Ethics Committee
• Code of Conduct approved by the Board, translated into seven
languages and signed by all employees
• ABC compliance programme monitored by the CREC
• 2,200 employees received ABC compliance training in 2014 and in 2015
• Sales and marketing and other ABC compliance policies and procedures
are created, updated and rolled out
• Active participation in international anti-corruption initiatives
(e.g. PACI, UN Global Compact)
55
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Risk and control – Continued
Risk and description
Mitigation and control
Financial
Executive responsibility: Chief Financial Officer
• The Group is exposed to a variety of financial
• Extensive financial control procedures have been implemented and
risks similar to most major international
manufacturers such as liquidity, exchange
rates, tax uncertainty and debtor default
are assessed annually as part of the internal audit programme
• A network of banking partners is maintained for lending and deposits
• Management monitors debtor payments and takes action where necessary
• Where it is economic and possible to do so, the Group hedges its exchange
rate and interest rate exposure
• Management obtains external advice to help manage tax exposures and
has upgraded internal tax control systems
Legal, intellectual property and regulatory
Executive responsibility: General Counsel
• The Group is exposed to a variety of legal, IP
and regulatory risks similar to most relevant
major international industries such as
litigation, investigations, sanctions and
potential business disruptions
Information technology
Executive responsibility: Chief Information Officer
• Expert internal departments that enhance policies, processes, embed
compliance culture, raise awareness and train staff
• First class expert external advice is procured to provide independent
services and ensure highest standards
• Board of Directors and management provide leadership and take action
as necessary
• If information and data are not adequately
secured and protected (data security, access
controls), this could result in:
• Utilise appropriate levels of industry-standard information security
solutions for critical systems
• Continue to stay abreast of cyber-risk activity and, where necessary,
-
Increased internal/ external security threats
implement changes to combat this
- Compliance and reputational damages
• Improved alignment between IT and business strategy
- Regulatory and legal litigation in case
of failure to manage personal data
- Reduced information accountability due
to limited sensitive data access controls
Organisational growth
Executive responsibility: Corporate VP of HR and MENA Operations
• The fast growing pace of the organisation
carries the inherent risk to maintaining
adequate talent acquisition strategies,
organisational structure and or/management
processes that serve the changing needs of
the organisation. In turn, this may affect
other risks within the Company
• Keeping our organisation structures and accountabilities under review, and
maintaining the flexibility to make changes smoothly as requirements change
• Employ HR programmes that attract, manage and develop talent within
the organisation
• Continuously upgrade management processes that meet so that they become
and remain the standard of a global company of our size
Reputational
Executive responsibility: VP of Corporate Strategy and Investor Relations and VP of Communications
• Reputational risk inescapably arises as a
by-product of other risk and from taking
intricate business decisions. However, we view
our reputation as one of our most valuable
assets, as risks facing our reputation may affect
our ability to conduct core business operations
• Monitor the internal and external sources that might signal reputational issues
• Sustain corporate responsibility and ethics through transparent reporting and
compliance with global best practices (e.g. GHG emissions, UN Global Compact)
• Respond quickly and conscientiously to any issue that threatens our reputation,
and maintain access to world class expertise that can help us in this respect
56
Case study – Roxane acquisition
due diligence
The Roxane acquisition was almost ten times larger than any previous acquisition undertaken. The Board
focused significant effort on reviewing the due diligence for the acquisition and the management team
divided the process into seven functional work streams with significant internal and external resource.
Finance
Tax
Details
- Review of seller financial information
- Testing of Roxane financial procedures
- Review of auditor records
Parties
- Hikma Finance & Strategy
- Deloitte
- EY
- PwC
Commercial
Details
- Creation of Hikma individual product forecasts
- Scenario testing for all products including pipeline
delays and price variation
- Operational costs and synergy assessment
Parties
- Hikma Executives, Finance, Sales, Strategy and
Regulatory
- Hyman, Phelps and McNamara Parexel
- Winston and Strawn
Legal
Details
- Review of all material commercial agreements
- Reflected in acquisition sale and purchase agreement
- Consideration of potential anti-trust issues
Parties
- Hikma Legal
- Arnold and Porter
- Slaughter and May
- White and Case
Details
- Review of organisational structure and potential liabilities
Parties
- Hikma Tax and Legal
Pipeline
Details
- Review of FDA correspondence logs
- Testing of launch date estimates
- Review of filing strategy and notices
Parties
- Hikma Sales, Quality and Regulatory
- Hyman, Phelps and McNamara Parexel
- Winston and Strawn
Manufacturing
Details
- Site visit including testing of quality control
- Review of US FDA site records
Parties
- Hikma Executives, Quality and Regulatory
Management
Details
- Receipt of full presentation from Roxane management
- Detailed transitional services arrangements
- Hikma and Roxane key person assessment
- Review of HR and IT systems
Parties
- Hikma Executives, HR and IT
57
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Risk and control – Continued
Risk management
During 2015, the Group began
consolidating several different
strands of its risk management
activity into an integrated approach.
This ‘Enterprise Risk Management’
(ERM) framework summarised
on page 53 is a pragmatic and
consistent approach to identifying,
calibrating and reporting on risks
throughout the organisation;
gauging changes in the Group’s risk
profile; and balancing risk-taking
with mitigation and control.
In addition to providing consistent
approaches to measurement, the
ERM framework specifies a risk
owner, responsible for detailed
oversight and management of each
of the principal risks in the business,
and guides these risk owners on
the approach they should take
to monitoring, mitigation and
control for each type of risk.
The Board delegated responsibility
for implementing this framework to
Bassam Kanaan, the Chief Strategy
and Corporate Development Officer
(CSCDO). The CSCDO is assisted
by the Group Risk Committee and
guided by the risk appetite set by
the Board. We envisage that the
framework will be fully operational
during the course of 2016.
The risk management practices
operated by the executive are
designed to meet this requirement.
The risk owners are all senior
executives who have significant
daily interaction with and reporting
lines to members of the Executive
Committee, which is responsible
for controlling situations that arise,
irrespective of the risk category.
Internal control
The Board is ultimately responsible
for the effectiveness of the Group’s
systems of internal controls and risk
management. The Board confirms
that it is in accordance with the
Code and follows the FRC’s
“Guidance on Risk Management,
Internal Control and Related
Financial and Business Reporting”.
The system for identifying, evaluating
and managing the risks the Group
faces 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 monitors the ongoing
effectiveness of the system and
formally reviews the Group’s policies
on internal control on an annual
basis, including all material controls,
including financial, operational and
compliance control. The system
of internal control is designed to
manage rather than eliminate the
risk of failure to achieve the business
objectives and can only provide
reasonable but not absolute
assurance against material
misstatement or loss. The Board
confirms that the necessary actions
are being taken to remedy any
significant failings or weaknesses
identified from its review.
58
The key elements of our internal control framework are as follows:
Key internal audit events
The Committee Chair
meets E&Y to review the internal
audit findings to date, the
management responses
and the action plan.
• A documented and disseminated
reporting structure with clear
policies, procedures, authorisation
limits, segregation of duties and
delegated authorities
• Written policies and procedures
for material functional areas with
specific responsibility allocated
to individual managers
MAY
• A comprehensive system of
E&Y report their initial findings
to the Audit Committee. The
Committee meets with E&Y
without management present.
internal financial reporting that
includes regular comparison
of results against budget and
forecast and a review of KPIs,
each informed by management
commentary
• An established process
for reviewing the financial
performance and providing
support to our joint ventures
and associates together with
direct support from the Hikma
finance function
• Annual budgets, updated
forecasts and long-term business
plans for the Group that identify
risks and opportunities and that
are reviewed and approved by
the Board
• A defined process for controlling
capital expenditure which is
detailed in the governance
framework
JUL
The Committee Chair
has a further meeting with E&Y to
review the full-year audit findings,
review the results of the risk
assessment that is undertaken
in conjunction with management
and consider the internal audit
plan for the following year.
OCT
E&Y report their full-year findings
for the year, a forward-looking
risk assessment and a plan for the
following year to the Committee.
The Committee meets with E&Y
without management present.
Authority to invest
Board of Directors
Executive Committee
Investment Committee
($ Million)
>20m
10-20m
Regional
investment
Regional
investment
Regional
investment
10-20m
M&A / Corporate Development Department
DEC
Project Team:
MENA
Project Team:
US
Project Team:
Europe
<1m
59
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Risk and control – Continued
Viability period
The Directors have made their
assessment of the viability of the
Company over a period of three
years. This is the timeframe for
new acquisitions and greenfield
opportunities to become fully mature
and integrated businesses, and is
considered to be the maximum
over which forecasts can be made
to a reasonable level of accuracy.
The Board acknowledges that the
accuracy is greater in the nearer
term than it is towards the end
of the viability period.
Based on this assessment,
the Directors have a reasonable
expectation that the Company will
be able to continue to operate and
meet its liabilities as they fall due
over the period to December 2018.
Qualifications and assumptions
The Directors would like to draw the
reader’s attention to the statement
of principal risks on pages 54 to 56.
This statement highlights the broad
business environment variables that
the Directors consider could have a
significant impact on the viability of
the Company.
The Board acknowledges that
financial modelling over the viability
period is subject to a number of
assumptions by management.
The most significant assumptions
in the view of the Directors are:
• Introduction and commercialisation
of new products
• Market growth and product
demand rates
• Foreign exchange consistency
• Continuation of elevation of
certain product prices
• Political and social stability in
the markets
• Ability to re-finance existing debt
on similar terms
• Cash flow generation from newly
acquired businesses
• Ability to increase operational
efficiency and reduce central costs
• The effective tax rate being within
the current guidance range
Statement
The Directors, having considered
the above matters, have a reasonable
expectation over the viability period
that the Company will be able to
continue in operation and meet
its liabilities as they fall due.
Viability
Assessment mechanism
The Directors assess the position
and prospects of the Company at
each Board meeting and at the end of
the financial year by taking account of
the strategic and operational update
from the Chief Executive and financial
reporting and forecasting from the
Chief Financial Officer. The Directors
also receive regular updates on
operational, strategic and financial
matters from executives. The Board
has considered the potential impact
of the principal risks detailed on
pages 54 to 56 and has modelled
the following scenarios which are
designed to take into account
those principal risks:
• Prolonged closure of one of our
major US FDA approved facilities
• Escalation of political or social
instability in one of our major
MENA markets
• Significant changes to the pricing
environment in the US
These scenarios were designed to
be severe but plausible. They take
full account of the availability and
likely effectiveness of mitigating
actions that could be taken to avoid
or reduce the impact or occurrence
of the underlying risks and that
would realistically be open to
them in the circumstances.
The Directors consider that this
stress-testing based assessment
of the Company’s prospects
is reasonable.
60
During the year the Group agreed
to purchase Roxane Laboratories
from Boehringer Ingelheim GmbH
for $1.619 billion. The transaction
closed on 29 February 2016, and
the net debt position of the Group
after the close of the transaction
was $728 million. The transaction
was also financed by the issue of
40 million shares, increasing the
issued capital of the Company
by circa 20%.
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 a 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.
Going concern
The Directors have considered
the going concern position of the
Company during the year and at the
financial year end, as they have in
previous years. 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 by economic downturns
compared to other industries.
The Group’s overall net debt position
was $135 million at 31 December
2015 compared to $274 million in
December 2014. Operating cash
flow in 2015 was $366 million
(2014: $425 million). The Group has
$1,374 million (2014: $839 million)
of undrawn short-term and long-
term banking facilities, in addition
to $205 million (2014: $180 million)
of unutilised import and export
financing limits. These facilities are
well diversified across the 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, maturities of long-term
debt, and the purchase of Roxane
Laboratories, show that the Group
should be able to operate well within
the levels of its facilities and their
related covenants.
61
STRATEGIC REPORT HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Corporate Governance
During the year we have continued to promote
our Hikma values, which are transparency,
respect, trust and quality.
63 / Message from our Chair
64 to 67 / Corporate Governance at a glance
68 to 71 / Board of Directors
72 to 73 / Executive Committee
74 to 81 / Governance report
82 to 101 / Committee reports
102 to 124 / Remuneration report
125 to 129 / Directors’ report
62
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Corporate Governance
Message from our Chair
Strong governance
from the beginning
“Breffni has dedicated the past 11 years
to Hikma and has been instrumental
in developing our financial leadership
and processes from listing to today.”
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
We also welcome John Castellani as a new independent
director. John brings a wealth of pharmaceutical
experience, particularly in the United States,
as well as regulatory, restructuring and broad
business experience. He has an excellent record.
We are in the process of transferring the committee
chair responsibilities. During 2015, Pat Butler took the
audit chair, having spent a year being inducted into the
Hikma committee. Also during the year, Michael Ashton
began handing over responsibility for the Remuneration
Committee to Dr Pamela Kirby. It is a strength that we
are able to transfer responsibilities in an orderly manner,
avoiding the loss of history and ensuring that strong
relationships continue.
Finally, I would like to commemorate Samih Darwazah,
the founder of Hikma and my father. Samih passed away
during the year and I know that a number of you, as well
as Hikma people, miss him. I know how proud he was
of what Hikma’s people have achieved and the direction
in which we are going. Samih spent his entire career
promoting our Hikma values of transparency, respect,
trust and quality. These will continue to guide us.
Said Darwazah
Chairman and Chief Executive
63
Dear Shareholders and Stakeholders
Another year has passed. As we reported last year,
we made significant changes to the Board during 2014.
We welcomed two new Directors, changed Robert’s and
my role and said goodbye to our dear friends Sir David
Rowe-Ham and Samih Darwazah. During 2015, we have
focused on embedding these changes, with Roxane
making the largest strategic move in the Company’s
history, and considering succession further.
Firstly, I would like you to join me in expressing our
sincere gratitude to Breffni Byrne, who is retiring at the
AGM. Breffni has dedicated the past 11 years to Hikma
and has been instrumental in developing our financial
leadership and processes from listing to today. We owe
him a huge debt and must thank him for his integrity,
diligence and friendship.
The Roxane acquisition brings with it a strategic
partnership with Boehringer Ingelheim through their
equity holding, the appointment of Jochen Gann to our
Board and ongoing business partnership. I am delighted
that our friends at BI nominated Jochen to our Board.
We have been working closely with Jochen over the past
two years on the Bedford and Roxane acquisitions and
have formed an excellent relationship with him, both at
a management and board level. Jochen brings a wealth
of corporate action, pharmaceutical and global business
experience. I am confident that he will enhance the
capabilities of the Board and that the appointment
will help to further strengthen our relationship with BI.
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Corporate Governance – Continued
Corporate governance at a glance
Continuing our journey
ready for the future
During 2015, the Board focused on embedding previous changes,
making the largest strategic move in the Company’s history and
planning for the future succession.
Hikma’s Board of Directors
Highlights of 2015
• Strengthened our strategic partnership with
Boehringer Ingelheim through the appointment
of Jochen Gann
• Expanded our US board experience by
undertaking an extensive search process
leading to the appointment of John Castellani
• Launched the Women Empowerment programme
• Re-assessed and improved our approach to risk
management at the Board, Executive Committee
and across the Group
Priorities in 2016
• Integrating Roxane and developing our
relationship with Boehringer Ingelheim
• Embedding the changes to the Board which
are identified above and detailed in our
succession plan
• Ensuring an orderly handover of responsibilities
from Michael Ashton to Dr Pamela Kirby as
Chair of the Remuneration Committee
• Further developing and implementing
our risk control framework
• Nominated for the ICSA Award for Best Board
• Continuing to contribute to governance
disclosure in the FTSE 100
• Undertook a comprehensive audit tender process
leading to a change of auditor
• Externally assessed the effectiveness of our
Anti-Bribery and anti-Corruption programme
• Undertook our annual review of all
governance practices
• Strengthened our internal controls and
governance processes for subsidiaries
and delegation of authority
practice and thought leadership throughout
our jurisdictions of operation
• Deepening our integral commitment and
procedures to respect the dignity and human
rights of our employees and others
• Further advancing our commitment to business
integrity by completing the roll-out of procedures,
policies and training in each operational jurisdiction
64
Attendance
During the year under review the Board held
eight scheduled meetings and three unscheduled
meetings. All Directors attended each scheduled
meeting. Through no fault of his own, Mazen
Darwazah was unable to attend one meeting which
was called at short notice. Mazen read the papers
for consideration at that meeting and relayed his
comments in advance through the Chairman and
Chief Executive. Mazen contacted the Company
Secretary as soon as possible in order to establish
the outcome and key points considered.
Board meeting attendance
Director
Attended
Said Darwazah
Mazen Darwazah
Ali Al-Husry
Breffni Byrne
Michael Ashton
Ronald Goode
Robert Pickering
Pat Butler
Dr Pamela Kirby
11/11
10/11
11/11
11/11
11/11
11/11
11/11
11/11
11/11
%
100%
91%
100%
100%
100%
100%
100%
100%
100%
Please see pages 66 to 67 to view the detailed Board calendar
and meeting activities.
Board changes
There were no changes to the Board during 2015.
Since the year end, Dr Jochen Gann has joined as
the Boehringer Ingelheim nominated non-executive
and John Castellani has joined as an independent
non-executive. Breffni Byrne is due to stand down
at the AGM on 12 May 2016.
2015 Composition
9
Total
2016 Composition
11
Total
Chairman
Executive
Directors
11%
11%
Non-Independent
NED
11%
Independent
NED
67%
Chairman
Executive
Directors
9%
9%
Non-Independent
NED
18%
Independent
NED
64%
65
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Corporate Governance – Continued
Corporate governance at a glance – Continued
2015 Board key business & the time spent by area of focus
FEB
Mar
• Initial full-year
financial performance
• EUP acquisition approval
• Bond issuance
• Risk appetite
• Preliminary
• Launched the search for
statements/R&A 2014
a Director
• Market update
• Board evaluation
• Dividend
• AGM notice
Jul
Aug
• Roxane acquisition approval
• Acquisition deep dive
• Quality risk deep dive
• Hikma Ventures
• Directors’ responsibilities
• Proposed interim dividend
• Investor relations review
• Forecast III & Interim
announcement and results
• IT risk deep dive
Nov
Dec
• Forecast IV & Interim
management statement
• Emerging market risk
• Product pipeline risk
• Acquisition structure update
• Acquisition circular
• Budget for 2016
• Financing
• Investor relations review
• Board processes
Please see pages 69 to 71 to view in detail the Directors’ biographies
66
May
• AGM
• Forecast II & Interim
management statement
• Potential acquisition
• US generics market
The Board’s time
Financial
Operational
developments
Strategy and
Acquisition
Corporate
governance
Risk
21%
8%
36%
14%
21%
Regular items and responsibilities
The following items are matters of regular discussion at meetings of the Board of Directors.
Chief Executive’s report
• Operational update from
the business divisions
• New greenfield
and partnerships
• Issues arising across
the Group
Risk
• Risk appetite
• Principal risks
• Deep dive assessments
• Management framework
Committee reports
• Committee Chair updates
on business of the Committee
• Discussion of
recommended action
• Delegation of issues
to management
Investors and markets
• Analyst opinions
• Market consensus information
• Investor relations
annual review
Legal
• Reputational and
regulatory issues
Strategic
• Business environment updates
• Pharmaceutical market
• Litigation developments
strategy
• Specific M&A opportunities
Finance
• Financial reporting
• Flash sales
• Forecasting
• Budgeting
Governance
• Board process enhancements
• UK and listed environment
developments
• Annual governance review
Training
• Broker updates on the market
• Tailored director
training sessions
• Programmes from
external advisers
67
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Corporate Governance – Continued
Board of Directors
Around the table
1.
2.
12.
3.
4.
5.
11.
10.
The Boardroom table
Full biographies are included on pages 69 to 71
9.
6.
8.
7.
Executives
Non-Executives
1. Said Darwazah
Chairman and Chief Executive
3. Ali Al-Husry
Non-Executive Director
• Strategic vision
• Financing and capital markets
• Acquisitions and financing
• MENA region
• US pharmaceuticals
• Business development
• Governance and leadership
• Pharmaceuticals
Independent Non-Executives
5. Robert Pickering
Senior Independent
Non-Executive Director
• Listed environment and governance
• Capital markets
6. Dr Pamela Kirby
Chair (elect) Remuneration Committee
• US and UK pharmaceuticals
• Human resources and people
7. Breffni Byrne
Independent Non-Executive Director
• Auditing and accounting
• Governance and reputation
8. Michael Ashton
Chair Remuneration Committee
• North American, European and African
manufacturing and distribution
• Human resources and people
9. Dr Ronald Goode
Chair Compliance, Responsibility
and Ethics Committee
• US and international pharmaceuticals
• Business integrity and ethics
10. Pat Butler
Chair Audit Committee
• Financial affairs and audit
• Strategy and risk
2. Mazen Darwazah
Executive Vice Chairman,
Chief Executive of MENA
and Emerging Markets
• MENA pharmaceuticals
• Regulatory and reputational
• Strategy and operations
• Business integrity and ethics
4. Dr Jochen Gann
Non-Executive Director
11. John Castellani
Independent Non-Executive Director
• Acquisitions and business development
• US pharmaceutical market
• Treasury and capital management
• Regulatory and legislative
• EU pharmaceuticals
Company Secretary
12. Peter Speirs
Company Secretary
• Governance
68
1. Said Darwazah
Chairman and Chief Executive
Age: 58 / Appointed: 1 July 2007
Joined Hikma: 1981 / Nationality: Jordanian
Skills and experience: Said has served
as Chief Executive since July 2007 and
Chairman since May 2014. Said was
Chairman and Chief Executive of Hikma’s
group holding company from 1994 to 2003
and Minister of Health for the Hashemite
Kingdom of Jordan from 2003 to 2006.
During his 34 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 and entrepreneurial
organisation. Said has led the development
of the Group strategy, the Injectables
business in Europe and the MENA region
and acquisitions including West-Ward
Pharmaceuticals and Baxter’s injectable
business. Under Said’s leadership, Hikma’s
facilities in the US, 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 holds various
public and charitable positions. He is the
Chairman of the Queen Rania Foundation,
a major charitable project, and a Director of
Endeavour Jordan, a charitable organisation
that assists in the development of
entrepreneurs, and a Trustee of Jordan River
Foundation, a charitable organisation that
aims to empower Jordanian society. Said is
also Chairman of the Jordanian University
of Science and Technology and a trustee
of the American University of Beirut. Said
is a member of the Central Bank of Jordan
Board. He is also Chairman of the Dead
Sea Touristic and Real Estate Investments.
Committee membership:
• Executive Committee (Chair)
2. Mazen Darwazah
Executive Vice Chairman,
Chief Executive of MENA
and Emerging Markets
Age: 57 / Appointed: 8 September 2005
Joined Hikma: 1985 / Nationality: Jordanian
Skills and experience: Mazen was appointed
Group Executive Vice Chairman and MENA
Chief Executive in 2005 and became
President and Chief Executive of MENA
and Emerging Markets in 2014. During
his 30 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 Chief Executive of Hikma
Pharmaceuticals Limited, a major group
operational and holding company.
Mazen is responsible for the strategic and
operational direction of the MENA business.
He is also responsible for the expansion of
the Group into emerging markets outside
the MENA region, global alliances, business
relationships, CR and business integrity.
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 holds various
public and charitable positions. Mazen is
the Chairman of the Jordan International
Insurance Company and Vice Chairman of
the Capital Bank of Jordan. Mazen is also a
trustee of the St. Louis College of Pharmacy
and Birzeit University. He is on the advisory
Board for the Lebanese American University
(LAU), Lebanon, and the Buck Institute for
Education, San Francisco.
Committee membership:
• CRE Committee
• Corporate Responsibility
Committee (Chair)
• Executive Committee
• Nomination Committee
Standing left to right: Dr Jochen Gann, Peter Speirs, Robert Pickering, Said Darwazah, Dr Pamela Kirby, Michael Ashton, Ali Al-Husry, Mazen Darwazah, Pat Butler, John Castellani
Seated left to right: Dr Ronald Goode, Breffni Byrne
69
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Corporate Governance – Continued
Board of Directors – Continued
3. Ali Al-Husry
Non-Executive Director
Age: 58 / Appointed: 14 October 2005
Joined Hikma: 1981 / Nationality: Jordanian
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
of the Bank until 2007.
Ali has a degree in Mechanical Engineering
from the University of Southern California
and an MBA from INSEAD.
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. He is also a trustee for
the Jordanian University of Science and
Technology. Additionally, Ali is a Director
of the Capital Bank of Jordan.
4. Dr Jochen Gann
Non-Executive Director
Age: 51 / Appointed: 29 February 2016
Joined Hikma: 2016 / Nationality: German
Skills and experience: Jochen is Global Head
of Corporate Finance / M&A and Corporate
Vice President at Boehringer Ingelheim
GmbH. In his M&A role he leads Boehringer
Ingelheim’s mergers and acquisitions
activities across all businesses. He is also
responsible for Business Development &
Licensing (Strategic Transaction and Alliance
Management) for Boehringer’s prescription
medicine division. In addition, in his role as
Corporate Treasurer he is responsible for
the group’s financing, asset management,
risk management, and liquidity and credit
management activities as well as the
corporate banking strategy. Jochen is
also managing director of the Corporate
Venture Fund.
Jochen has held several senior roles at
Boehringer Ingelheim including Head of
Controlling Subsidiaries and Head of Tax.
Prior to joining Boehringer Ingelheim in
2007, Jochen held the positions of Head
of Corporate Treasury at Cognis GmbH,
Managing Director at Degussa Bank GmbH,
Head of Treasury Controlling at Hoechst
AG and Consultant at Metzler, Germany.
70
Jochen holds a Doctorate Degree
(International Finance) from University of
Hohenheim, Germany and a Master’s Degree
in Business Administration and Science from
University of Karlsruhe, Germany.
Other appointments: Jochen currently
holds a number of board positions at
companies of the Boehringer Ingelheim
group. He is also currently Chairman of
the Finance committee at Verband Der
Chemischen Industrie e. V., Germany
and a Member of the Advisory Board
KfW IPEX-Bank GmbH, Germany.
5. Robert Pickering
Senior Independent Director
Age: 56 / Appointed: 1 September 2011
Joined Hikma: 2011 / Nationality: British
Skills and experience: Robert joined the
Board as a Non-Executive Director in
September 2011 and became Senior
Independent Director in May 2014.
Robert spent 23 years at Cazenove and
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. He is also a Non-Executive Director
of CLSA UK, a branch of CLSA Limited, an
independent brokerage and investment
group 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 (Chair)
• Remuneration Committee
6. Dr Pamela Kirby
Independent Non-Executive Director
Age: 62 / Appointed: 1 December 2014
Joined Hikma: 2014 / Nationality: British
Skills and experience: Dr Pamela Kirby was
Chief Executive of Quintiles Transnational
Corp and has held senior executive
positions in F Hoffmann-La Roche Ltd
and AstraZeneca plc. Dr Kirby has chaired
Scynexis Inc and was Senior Independent
Director of Informa plc. Dr Kirby has
previously held Non-Executive Director
positions with Smith & Nephew plc, Novo
Nordisk A/S, Curalogic A/S and Oscient
Pharmaceuticals Corp.
Dr Kirby holds a first-class Bachelor of
Science degree in Pharmacology and a PhD
in Clinical Pharmacology from the University
of London.
Other appointments: Dr Kirby is a Non-
Executive Director of DCC plc, Victrex plc
and Reckitt Benckiser Group PLC.
Committee membership:
• Audit Committee
• CRE Committee
• Remuneration Committee
(Chair from 15 May 2016)
7. Breffni Byrne
Independent Non-Executive Director
Age: 70 / Appointed: 14 October 2005
Joined Hikma: 2005 / Nationality: Irish
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
the 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. Breffni is a former
Non-Executive Director of Irish Life and
Permanent PLC and Coillte Teoranta, the
Irish state-owned forestry company. Breffni
was Chairman of Aviva’s life insurance
operations in Ireland and Chairman of
Investec Securities Holdings Limited
(formerly NCB Stockbrokers Limited.)
Breffni is considered by the Board to have
recent and relevant financial experience.
Breffni holds a Master’s degree in Economic
Science from University College Dublin and
is a chartered accountant.
Other appointments: Breffni is Chairman
of Tedcastles Holdings, an oil distribution
company. Breffni is also a Non-Executive
Director of Citibank Europe plc, Hillingdon
Investment Company and Cpl Resources
PLC, a human resources company. Breffni
has been a member of the Audit Committee
of all of the above companies, in most cases
the Chairman.
Committee membership:
• Audit Committee
• CRE Committee
• Remuneration Committee
8. Michael Ashton
Independent Non-Executive Director
Age: 70 / Appointed: 14 October 2005
Joined Hikma: 2005 / Nationality: Australian
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 of Puricore until June 2015,
SkyePharma PLC from November 1998
to March 2006 and prior to that was
Chairman, President and Chief Executive
of Faulding. He has held a number of
non-executive and advisory positions
across the pharmaceutical industry.
Michael has a Bachelor of Pharmacy degree
from Sydney University, and an MBA degree
from Rutgers University, New Jersey.
Other appointments: Michael is a Non-
Executive Director at Transition Therapeutics,
a therapeutics biopharmaceutical company.
He is also Chairman of Komix, a private
children’s educational company.
Committee membership:
• Audit Committee
• Nomination Committee
• Remuneration Committee
(Chair until 15 May 2016)
9. Dr Ronald Goode
Independent Non-Executive Director
Age: 72 / Appointed: 12 December 2006
Joined Hikma: 2006 / Nationality: American
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. Ron’s extensive experience includes
leading companies as Chief Executive and
acting as an adviser to companies in the
pharmaceutical industry. Ron also advises
companies involved in nanotechnology
and in the information technology
business sectors.
Ron was formerly President and Chief
Executive of Unimed Pharmaceuticals, Inc.
and eXegenics Inc. Ron was a Trustee of
Thunderbird School of Global Management,
which was 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: 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. Ron is a Senior Business Advisor to
The Kinsella Group, an investment banking
company. He is also a member of the
Scientific Advisory Board to The North Texas
Enterprise Center for Medical Technology.
Additionally he is a member for Private
Access, Inc., a medical record software
developer. Ron is a recipient of the
University of Georgia distinguished
alumni award.
Committee membership:
• Audit Committee
• CRE Committee (Chair)
• Remuneration Committee
10. Pat Butler
Independent Non-Executive Director
Age: 55 / Appointed: 1 April 2014
Joined Hikma: 2014 / Nationality: Irish
Skills and experience: Pat is a former Senior
Director at McKinsey & Co. During his 25
years at McKinsey, he focused on advising
large corporations in the EU, US and MENA
on strategic, acquisition and organisational
issues. Pat was a partner at the Resolution
Group, a financial services investment and
restructuring company. Pat has extensive
experience in strategy implementation,
integrating acquisitions, performance
improvement and a range of finance
functions including treasury and risk
management. Pat is considered to have
recent and relevant financial experience.
Prior to McKinsey, Pat qualified as a chartered
accountant with the audit and tax practice of
Arthur Andersen. He has a first class honours
degree in Commerce and a postgraduate
diploma in Accounting and Corporate
Finance from University College Dublin.
Other appointments: Pat is a Non-Executive
Director of the Bank of Ireland, Res Media
Limited and British Business Bank
Investments Limited. He is also a
Governor of the British Film Institute and
a trustee of the Resolution Foundation.
Committee membership:
• Audit Committee (Chair)
• CRE Committee
• Nomination Committee
11. John Castellani
Independent Non-Executive Director
Age: 65 / Appointed: 1 March 2016
Joined Hikma: 2016 / Nationality: American
Skills and experience:
John J. Castellani was President and Chief
Executive Officer of Pharmaceutical Research
and Manufacturers of America (PhRMA)
from 2010 to 2015. Prior to that, he was the
President and Chief Executive of Business
Roundtable, an association of leading US
company Chief Executives. During his career
John has also held senior positions with
Burson-Marsteller, Tenneco, Inc. and
General Electric Corp., amongst others.
John holds a Bachelor of Science Degree
(Biology) from Union College Schenectady,
New York.
Other appointments: John is a member of
the board of trustees of The Johns Hopkins
Medical System Sibley Memorial Hospital,
Washington, DC. He is also a member of the
board of directors of the National Patient
Safety Foundation.
Committee membership:
• Audit Committee
• CRE Committee
• Remuneration Committee
12. Peter Speirs
Company Secretary
Appointed: 3 April 2012
Joined Hikma: 2010 / Nationality: British
Skills and experience: Peter joined Hikma
as a Deputy Company Secretary in 2010
and assumed the role of Company Secretary
in 2012. Peter is responsible for advising
the Board and Committees on governance
matters. Prior to joining Hikma he worked
for Barclays and Pool Re, the UK terrorism
re-insurer.
Peter is a Fellow of the Institute of
Chartered Secretaries and Administrators
and holds a Law degree from the University
of East Anglia.
Peter is Vice Chair of Governors and Chair
of the Finance and Resources Committees
of Lime Tree School.
71
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Corporate Governance – Continued
Executive Committee
Said Darwazah
Chairman and Chief Executive
Please refer to page 69 for full
biographical details.
Mazen Darwazah
Executive Vice Chairman,
Chief Executive of MENA and
Emerging Markets
Please refer to page 69 for full
biographical details.
Bassam Kanaan
Chief Strategy and Corporate
Development Officer
Appointed: 2014
Joined Hikma: 2001 / Nationality: Jordanian
Skills and experience: Bassam joined Hikma
as Chief Financial Officer in 2001 and played
a leading role in preparing for Hikma’s IPO in
2005 and in its subsequent M&A activity. In
January 2011, Bassam was promoted to the
position of President and Chief Operating
Officer for the MENA and EU regions, where
he led the implementation of important
organisational and operational
improvements. In 2014, he was promoted
to the newly created role of Chief Strategy
and Corporate Development Officer, with
Group-level responsibility for strategic
development, acquisitions, alliances and
product development. Bassam is responsible
for delivering the expansion vision of the
Chief Executive.
Bassam is qualified as a US 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
a Non-Executive Directorship in Arab Bank.
Bassam has 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 organisations
and is currently a member of the Board
of Trustees of the Welfare Association
in Jordan.
Committee membership:
• Executive Committee
• Global Management Committee (Chair)
Majda Labadi
Corporate Vice President for Human
Resources and Head of Operations,
MENA
Appointed: 2009
Joined Hikma: 1985 / Nationality: Jordanian
Skills and experience: During her 30 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 Farmacêutica and Vice President of
Injectables. In February 2009, Majda
assumed her current position as Corporate
Vice President, Human Resources and she
took on additional responsibility for MENA
operations in January 2015. 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.
Standing left to right: Michael Raya, Brian Hoffman, Majda Labadi, Said Darwazah, Khalid Nabilsi, Susan Ringdal, Bassam Kanaan
Seated left to right: Mazen Darwazah, Riad Mishlawi
72
Brian Hoffman
President and Chief Executive of the
Generics Division
Appointed: 2015
Joined Hikma: 2009 / Nationality: American
Skills and experience: Brian was appointed
President of West-Ward Pharmaceuticals
in 2015 with responsibilities for two of
Hikma’s facilities, supply chain, business
development, and product selection. Brian
originally joined West-Ward in 2009 to
develop a strategy function and was later
promoted to VP Corporate Development
and SVP & General Manager. Brian has
led many strategic initiatives including the
acquisitions and integrations of Baxter’s
Multi-Source Injectables business and
Boehringer Ingelheim’s Roxane Laboratories.
Brian worked for L.E.K. Consulting as a
management consultant in their Boston
office. He led engagements for clients
in a wide variety of areas including growth
strategy, merger evaluation and integration,
new product launches, and strategic
alliances.
Brian holds a Bachelor’s Degree in Business
Administration from Boston University
Questrom School of Management and an
MBA from the University of Chicago Booth
School of Business with concentrations
in strategic management, finance,
and marketing.
Committee membership:
• Executive Committee
Majda has completed the Advanced
Management Program (AMP) at INSEAD,
holds a BA from the American University
of Beirut and a Master’s degree from
Hochschule Fur Okonomie in Berlin, Germany.
Committee membership:
• Executive Committee
Khalid Nabilsi
Chief Financial Officer
Appointed: 2011
Joined Hikma: 2001 / Nationality: Jordanian
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 qualified as 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.
Committee membership:
• Executive Committee
6. Susan Ringdal
Vice President, Corporate Strategy
and Investor Relations
Appointed: 2012
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.
Committee membership:
• Executive Committee
• Global Management Committee
Michael Raya
President and Chief Executive of the US
Appointed: 2008
Joined Hikma: 1992 / Nationality: American
Skills and experience: Michael joined Hikma’s
US subsidiary West-Ward Pharmaceuticals
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 was responsible for all
West-Ward Pharmaceuticals operations as
well as quality/compliance for all worldwide
Hikma facilities until his appointment as
President and Chief Executive of West-Ward
Pharmaceuticals in 2008.
Michael holds a Master’s 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.
Committee membership:
• Executive Committee
Riad Mishlawi
EU Vice President and Global Head
of Injectables
Appointed: 2011
Joined Hikma: 1990 / Nationality: Lebanese
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.
He 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 Hikma’s Injectables division through
a period of rapid growth and has integrated
operations into a global operation.
Riad has a BSc in Engineering and a Master’s
in Engineering and Management from
George Washington University.
Committee membership:
• Executive Committee
73
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Corporate Governance – Continued
Governance report
Explanations under the Code
Governance principles
The Board is committed to the standards of corporate
governance set out in the UK Corporate Governance
Code (the Code) adopted in September 2014 and the
Markets Law of the Dubai Financial Services Authority.
The report on pages 62 to 129 describes how the Board
has applied the Main Principles of the Code and Markets
Law throughout the year ended 31 December 2015.
The current Code is available at www.frc.org.uk
The Board considers that this Annual Report provides the
information shareholders need to evaluate how we have
complied with our current obligations under the Code
and Markets Law.
The Board acknowledges that Said Darwazah holding
the positions of Chairman and Chief Executive and the
continuation of Independent Non-Executive Directors
who have served more than nine years require
explanation under the Code. Hikma is committed to an
open dialogue regarding these matters. Questions may
be directed to and further information may be requested
from the Company Secretary. Otherwise, throughout the
year and up until the date of this report, Hikma was
in full compliance with the Code.
Chairman and Chief Executive position
The Board is aware that Said Darwazah’s position
as Chairman and Chief Executive is a departure from
the Code, provision A.3.1. The Board fully considered
the position and consulted shareholders in early 2014.
The disclosure below summarises the Board’s rationale.
The Independent Non-Executive Directors meet twice a
year to review the Board structure including consideration
of whether the combined role continues to be
appropriate. The Independent Non-Executive Directors
have concluded that the position remains appropriate.
Reasons for the decision
The Board is focused on the commercial success of Hikma
and believes that the continuing position of Chairman
and Chief Executive is the best way to achieve this
objective for Hikma because:
• Chairman’s role: The Chairman position is highly visible
inside and outside Hikma, acting as an ambassador
with business partners and adviser to the divisions.
It is essential the Chairman intimately understands
MENA culture and has strong relationships in the
region, can speak Arabic and has extensive
pharmaceutical knowledge.
• Business partners: A significant number of the
Company’s key political and commercial relationships
across the MENA region are built on the long-term
trust and respect for the Darwazah family where
the role of the Chairman remains key.
• Continuity of success: Said Darwazah has been
a driving force behind the operational success of the
business since 2007 and the Board believes that it
is important to the continued success of the Group
that he remains in the lead executive role.
• Succession: The Board considers that an external
Chief Executive appointment is unlikely to be in
the best interests of the Group given its heritage
and management structure. The Chief Executive is
developing the executives below him with a view to
handing responsibilities over in the medium term.
Control enhancements
The Board has implemented the following enhancements
to controls:
• Governance structure review: The Independent
Directors meet at least bi-annually in a private
session chaired by the Senior Independent Director.
This meeting includes consideration of the
appropriateness of the governance structure
and safeguards for shareholders.
• Committee Chair roles: The Chairs of the Board
Committees, all of whom are Independent Non-
Executive Directors, undertake a significant amount
of work in the oversight of the functions that report
to their Committees and have in-depth relationships
with the relevant executives.
74
• Transparency and engagement: Hikma has always had
the highest regard for external shareholders. Many of
the original investors from before listing still invest and
support Hikma today. Over ten years since flotation
the Company has maintained the highest standards
of shareholder engagement, which is reflective of
the importance placed in maintaining strong investor
relations and governance. Hikma has won and been
shortlisted for several transparency and governance
awards, particularly over the past five years.
• Expanded Senior Independent role: The Board has
increased the responsibilities of the Senior Independent
Director to assume joint responsibility, with the
Chairman and Chief Executive, for setting the Board
agenda, agreeing action points and the minutes of
the meetings.
Independence
The Board considers Robert Pickering, Michael Ashton,
Ronald Goode, Breffni Byrne, Pat Butler, Dr Pamela
Kirby and John Castellani 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.
Tenure range
Tenure range
0–3 years
4–6 years
7–9 years
9+ years
Independent NED
No.
3
1
0
3
Percentage
43%
14%
0%
43%
The Board reviewed and considered the independence
of the Non-Executive Directors during the year as part
of the annual corporate governance review. It recognises
that Breffni Byrne, Michael Ashton and Ronald Goode
have served in excess of nine years and therefore this
constitutes a departure from the Code, provision B.1.1.
Breffni Byrne is leaving the Board in May 2016 having
successfully handed over his prior responsibilities as
former Chair of the Audit Committee. The Board wishes
to retain the services of Ronald Goode and Michael
Ashton for a time period sufficient to transfer their
responsibilities and knowledge in an orderly manner
whilst ensuring continuity and ongoing challenge.
The Board considers this is appropriate because Hikma
is a maturing company in which historical knowledge
and personal relationships are important to the
successful oversight of the business.
The Board is of the view that Michael Ashton, Breffni
Byrne and Ronald Goode remain independent because:
• Their character and the manner in which they perform
their role clearly demonstrate independent thought
and judgement.
• They ask difficult and challenging questions of
management and request additional information
when they feel it is required.
• None of the Independent Directors receives additional
remuneration apart from Directors’ fees, and they
do not participate in the Group’s share plans or
pension schemes.
• There are no conflicts of interest between any
Independent Non-Executive Directors and management
or the controlling shareholder. The Independent
Directors do not serve as directors of any subsidiary
companies or affiliates of the Group.
The Board does not view Ali Al-Husry as an Independent
Director due to the length of his association with the
Company, because he was an executive with Hikma
prior to listing and because of his involvement with
Darhold Limited, Hikma’s largest shareholder. However,
he continues to bring to the Board broad corporate
financial experience and a detailed knowledge of the
MENA region, which is an important and specialist
part of the Group’s business.
The Board does not view Jochen Gann as an Independent
Director because his appointment was made as part of
the shareholder agreement with Boehringer Ingelheim,
a major shareholder and his primary employer. However,
Jochen brings significant M&A and corporate finance
experience with a particular focus on the
pharmaceutical sector.
75
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Corporate Governance – Continued
Governance report – Continued
Roles
The division of Board responsibilities can be summarised as follows:
Chairman and Chief Executive
The Board has approved separate statements of the Chairman and the Chief Executive responsibilities in writing,
which are reviewed annually and include:
Chief Executive:
• Providing the strategic vision and implementation
capability to ensure the Company achieves its
full potential
• Leading the executive team and supporting
the business heads in the delivery of the
divisional strategies
• Identifying and executing new business opportunities
inside and outside the current core activities
• Ensuring effective implementation of Board decisions
Chairman:
• Being an ambassador for the Group
• Providing an appropriate environment for the Board to
scrutinise and challenge the actions of management in
a constructive manner
• Setting the agenda for the Board, in consultation with
the Senior Independent Director
• Ensuring that the opinions of Directors and executives
are fully taken into account
• Keeping the Senior Independent Director fully informed
of all matters of importance to the Group
• Ensuring that the Board considers all matters that are
relevant to it and has appropriate information
Roles and responsibilities
Group
Functions
Senior
Independent
Director
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Committee
Chairs
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Global Head
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Company
Secretary
76
Company Secretary
The Company Secretary reports to the Chairman
and Chief Executive and supports him and the Senior
Independent Director in the delivery of their roles,
particularly in relation to information flow and setting
the Board agenda. The Company Secretary keeps the
Board apprised of matters of governance and policy
and all Directors have access to his advice and services.
The Company Secretary also acts as secretary to the
Board and Committees, supporting the Committee
Chairs in the governance aspects of their responsibilities.
The appointment and removal of the Company Secretary
is a matter reserved for the Board.
Board Committees
The Board has an extensive workload and, therefore, has
delegated the detailed oversight of certain items to four
Board Committees: Audit; Nomination; Remuneration;
and Compliance, Responsibility and Ethics Committee
(CREC). Each Committee has terms of reference which
were reviewed during the year. Copies are published
on the Hikma website and are available for inspection
at the registered office at 13 Hanover Square, London,
W1S 1HW or by contacting cosec@hikma.uk.com.
The Chairs of each Board 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 is empowered to request
information from management and the advice of any
employee or officer, and obtain independent professional
advice at Hikma’s expense.
Vice Chairman
When required, the Vice Chairman acts as alternate to
the Chairman and Chief Executive and is another point
of contact and sounding board for management and
Directors. The Vice Chairman advances the executive
agenda and supports the Chairman and Chief Executive
in setting and delivering strategy. The Vice Chairman
has Board level executive responsibility for Hikma’s
anti-bribery and corruption, business integrity and
ethics and corporate social responsibility programmes.
Senior Independent Director
The Senior Independent Director responsibilities include:
• Together with the Chairman and Chief Executive,
setting the Board agenda, agreeing actions points
and the minutes of the meetings
• Leading the Board in matters of Board composition,
effectiveness and evaluation, particularly in relation to
the performance of the Chairman and Chief Executive
• Providing a communication channel between
the Chairman and Chief Executive and the
Non-Executive Directors
• Leading the bi-annual meetings of Non-Executive
Directors to assess the appropriateness of the
governance structure and safeguards for shareholders
• Providing a sounding board for executive management
and the Company Secretary
• Acting as an alternate point of contact for shareholders
and maintaining contact with principal investors and
representative bodies
Non-Executive Directors
The Non-Executive Directors scrutinise the strategy, risk
planning and operations of executives, providing advice
and external perspective. They engage with management
across the Group to ensure they are fully aware of the
Group’s activities and issues it faces. The Non-Executive
Directors also keep Hikma’s governance structure under
review and ensure that appropriate safeguards are in
place. The Board holds meetings without the executive
management present to discuss issues affecting
the Group.
77
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Corporate Governance – Continued
Governance report – Continued
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.
Board experience
Listed environment
73%
82%
82%
82%
82%
82%
91%
100%
100%
100%
100%
64%
73%
82%
91%
100%
Pharmaceutical
Manufacturing
Sales
Finance
Business ethics and integrity
Governance
Commercial
Regulatory and political
Strategy and risk
Human resources
Country of origin
Geographical experience
MENA
UK
Europe
US
Global
78
Hikma knowledge
Board members frequently visit the business units and
meet management teams to fully understand and advise
on the important issues facing the Group. During the
year, Non-Executive Directors visited facilities in Jordan,
Portugal and the US. The Executive Directors and Ali
Al-Husry have extensive experience of Hikma from its
earliest days to today. The Directors maintain regular
contact with senior management and the Company
Secretary ensures that Directors are kept up to date
with major developments in the Group’s business.
Training
The Chairman considers the development needs of
Directors as part of his ongoing assessment of Board
effectiveness and ensures that these requirements are
met by the Company Secretary organising appropriate
training opportunities. The main Board training and
development activities this year were:
• External advisers provided the Board with training
sessions on governance and financial reporting
requirements
• Directors attended several externally provided seminars
and discussion forums. Further training is scheduled
for 2016
• Hikma’s brokers and financial advisers presented industry
and market updates to the Board on several occasions
• The Company Secretary made regular updates
to the Directors on relevant regulatory and
governance matters
Independent advice
The Board Governance Manual provides for any Director
to have access to independent professional advice at
Hikma’s expense.
External commitments
The Directors’ external commitments are detailed in their
profiles on pages 69 to 71. The Nomination 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 at each
Nomination Committee and Board meeting. Where
new commitments are proposed, these are reviewed
in advance by the Nomination 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.
Elements assessed
• Board Composition, Expertise & Dynamics
• Time Management
• Board Support & Committees
• Strategic Oversight
• Risk Management
• Succession Planning and Human
Resource Management
• Priorities for Change
Conclusions and action
Key conclusions and observations from the
2015 evaluation:
• The Board continues to operate effectively and
all members actively participate in all discussions
with equal contributions, candid discussion and
critical thinking
• The Board is well balanced in terms of skills, experience
and independence
• The flow, timeliness and quality of information were
highly rated
• The Board’s risk appetite is well balanced and
considered appropriate
• The position of Chairman and Chief Executive has been
well managed
• The Board has a positive understanding of the markets
of Europe, North America and the MENA region
Time
The Directors commit an appropriate amount of time
to their roles and are readily available at short notice.
The Non-Executive Directors are required 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 are
particular areas of interest. Consequently, the
Independent Non-Executive Directors dedicate
substantially more time to Hikma than their
appointment requires. The duties of the Chairman
and Chief Executive, Directors and Committee Chairs
are set out in the Board Governance Manual.
Evaluation and performance
The Board and the Committees undertake an externally
moderated evaluation each year. The evaluation
process and the issues identified are summarised in
the table below.
Process
• The process is co-ordinated by the Senior Independent
Director at the request of the Chairman
• Lintstock, an external moderator which has no other
connection with the Company, prepared online
questionnaires for both the Directors and senior
management, designed to build on previously
identified themes
• 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 in the FTSE and international markets and
provided their independent feedback on the results
• A similar process was followed for each Committee
of the Board
• The results of the evaluation process formed part of
the Chairman’s appraisal of the overall effectiveness
of the Board and its members
• Regularly during the year, the Directors fed back to the
Company Secretary improvements and enhancements
that they considered should be progressed outside the
evaluation timetable
79
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Corporate Governance – Continued
Governance report – Continued
Progress on previously identified issues
Responsibilities
Observations
Risk management
practices could be
expanded internally
Additional US political
and regulatory
experience was
required, particularly
with the Roxane
acquisition
Further assurance of
the implementation
and suitability of the
ABC procedures
The Audit Committee
needed to focus on its
extensive financial and
risk responsibilities
Action taken
The Board made the Chief Strategy
and Corporate Development Officer
responsible for risk management at
the Executive Committee. The Board
oversaw the development of the risk
appetite, reviewed the principal risks
and considered management’s
mitigation strategy for each
risk. The Audit Committee developed
a process for assessing the viability of
the Company and associated risk and
viability disclosure.
The Nomination Committee led a
search process for individuals with
the requisite specific and business
leadership experience which led to
the appointment of John J Castellani.
The CRE Committee requested
that the Company Secretary lead
a re-assessment of Anti-Bribery
and anti-Corruption practices. The
assessment was undertaken by Good
Corporation, as in 2011. A full report
demonstrated that significant progress
had been made with development and
implementation.
The Board decided to move the
governance and external commitment
responsibilities of the Audit Committee
to the Nomination Committee,
allowing both Committees to focus
on the workstreams that more naturally
suit their remit and providing a better
time and responsibility balance.
Chairman’s appraisal
The Non-Executive Directors regularly meet in private
during the course of the year. The performance of
the Chairman and the Board is discussed during these
meetings. Additionally, 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 the Chairman’s leadership
• The setting of the Board agenda
• Communication with shareholders
• Internal communication and Board efficiency
The conclusion of this process was that the Chairman
gave clear leadership and direction to the Board, and that
the Board is run in an appropriate and effective manner.
80
Board responsibility
The Board is the ultimate decision-making oversight
and control authority in Hikma. The Board sets the
strategic direction, monitors financial performance
and challenges management ideas and performance.
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. The Board is assisted in the delivery
of its responsibilities by internal and external advisers:
Internal advisers
- President and CEO, MENA
- Chief Financial Officer
- CEO US
- Chief Strategy and Corporate Development Officer
- VP Strategy and Investor Relations
- VP Human Resources
- VP EU and Injectables
- Company Secretary
- General Counsel
External advisers
- Bank of America Merrill Lynch Broker
Nature of advice
- CenterView Partners
Investment adviser
- Citigroup
- Deloitte
- E&Y
- Lintstock
- PwC
Broker and investment adviser
Auditor
Internal audit
Board evaluation
Auditor designate
and remuneration
Matters reserved to the Board
Hikma maintains a formal schedule of matters reserved
to the Board in the Board Governance Manual, which is
reviewed annually. The Chief Executive is responsible for
delivering Hikma’s strategic and operational objectives
and has authority from the Board to deliver those
objectives through matters which are not reserved
and where authority has been delegated specifically.
The Chief Executive reports on operational progress
and corporate actions to the Board at each meeting.
Where appropriate, the Chief Executive is assisted by
internal and external advisers in presenting operational
progress and key strategic decisions to the Board.
The formal schedule of matters reserved to the Board
includes the following items:
• Operational management: Approval of strategy,
operations oversight, performance review
• Structure and capital: Approval of changes to Group
structure or changes to capital structure
• Financial reporting and controls: Approval of financial
announcements, accounts, dividends; significant
changes to treasury and accountancy practice
• Internal controls: Assessing the effectiveness of
the Group’s risk and control processes
• Contracts: Approval of significant contracts,
investments and projects which meet pre-set
monetary thresholds
• Communication: Approval of certain press releases,
and all circulars and prospectuses
• Board membership and other appointments: Approval
of changes to Board structure and composition,
succession, auditors and Company Secretary
• Remuneration: Determining remuneration policy for
senior management and Directors and officers and
amending or introducing share incentive plans
• Corporate governance: Annually reviewing Board,
Committees and individual Director performance,
and reviewing corporate governance arrangements
Indemnities and insurance
Hikma maintains an appropriate level of Directors’ and
Officers’ insurance. The Directors benefit from qualifying
third-party indemnities made by Hikma that 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.
Dialogue with stakeholders
Hikma is committed to clear and open
communication with shareholders and stakeholders.
We take account of the views of our stakeholders in
our decisions and policies. If there are matters on which
additional explanation is required, we are always happy
to discuss them. Please contact the Company Secretary
in the first instance by writing to cosec@hikma.uk.com.
The Board maintains a regular dialogue with shareholders
through its investor relations programme, directed
towards ensuring a mutual understanding of objectives.
The principal ongoing communications with shareholders
are through the publication of Hikma’s Annual Report
and Accounts, interim results and interim management
statements. The Chairman meets major shareholders
periodically to discuss governance and strategy issues in
order to understand their views on the Company and to
ensure their views are communicated to the Board as a
whole. The Chairman, the Senior Independent Director
and other Non-Executive Directors are available to meet
with major shareholders on request. The Committee
Chairs remain open to discuss any matters relevant to
their areas of responsibility, either through contacting
Hikma or at the Annual General Meeting (AGM).
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. All Directors are expected to attend the AGM
and full attendance has been achieved other than when
exceptional personal circumstances have intervened.
For and on behalf of the Board of Directors of Hikma
Pharmaceuticals PLC
Peter Speirs
Company Secretary
15 March 2016
81
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Corporate Governance – Continued
Introduction
to Committees
The Board has an extensive workload and, therefore, has delegated the detailed
oversight of certain items to four Board Committees and the Executive
Committee of senior management.
Board Committee responsibilities
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Board Committees
The four Board Committees are:
• Audit Committee
• Nomination Committee
• Remuneration Committee
• Compliance, Responsibility and Ethics
Committee (CREC)
Each Board Committee has terms of reference
which are reviewed annually, published on the
Group’s website at www.hikma.com and are
available for inspection at the registered office
at 13 Hanover Square, London, W1S 1HW.
The Chair of each Board Committee reports
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.
Executive Committee
Additionally, the Chief Executive is supported
by the Group Executive Committee, which
considers and develops proposals to the
Board, reviews operational performance
and oversees strategic and risk activities.
This Committee is operationally supported
by the Global Management Committee
which is composed of executives at the
level below the Executive Committee.
82
Audit Committee
Highlights in 2015
• Reviewed the Roxane
acquisition, due diligence
and circular support
• Conducted an audit
tender programme
• Advanced the risk agenda,
practices and disclosure
• Successful transition of
the Committee Chair
Nomination Committee
Priorities in 2016
• Integrating Roxane into Hikma’s
financial reporting framework
• Ensuring a successful first audit
for PwC
• Continuing to advance the risk
management programme
“Deloitte have served
Hikma effectively and
diligently.”
To find out more, see pages 84 to 89
Highlights in 2015
• Identified John Castellani as an
additional Director in alignment
with US expansion
Priorities in 2016
• Further diversifying the
gender profile of the Board
• Reviewing the executive
• Reviewed a BI proposal for
succession plan
Jochen Gann to join the Board
• Fully assumed responsibility
for governance
• Considering the implications
of the FCA’s governance
adjustments to the listing regime
“We have found
the right people who
broaden the experience
profile and fit very well
with the existing team.”
To find out more, see pages 90 to 95
Compliance, Responsibility and Ethics Committee
Highlights in 2015
• Reinforced our commitment
Priorities in 2016
• Developing of Hikma’s anti-
to human dignity
• Transition to a new Chief
Compliance Officer
• ABC advancements certified
by the risk re-assessment
• Promoted the CR programme
slavery and human trafficking
programme
• Expanding the CREC
responsibilities into AML
and trade sanctions
“Samih Darwazah
fundamentally wanted
to make the world a
better place through the
advancement of people.”
To find out more, see pages
96 to 101
Remuneration Committee
Highlights in 2015
• Initiated the handover of
the Committee Chair
Priorities in 2016
• Reviewing the Group
remuneration policy
• Completed a tender for
• Embedding the handover
a new remuneration adviser
of the Chair
• Better aligned executive
remuneration with the FTSE 100
and global pharma group
• Inducting the new
remuneration adviser
“The journey over
the last few years has
built more systems and
processes to support, but not
deviate from, that vision
of family.”
To find out more, see pages
102 to 124
83
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Committee reports: Audit
Letter from the Chair
Performance and prospects
– an objective assessment
“Deloitte have served Hikma effectively
and diligently.”
diligently, and were exceptionally helpful to me in my
new role over the last 12 months. We wish them well
for the future. We welcome our new team from PwC
to the journey ahead.
Through the course of the year and at the Committee’s
request we were joined in our meetings by the Chief
Executive, the Chief Financial Officer, the VP of Investor
Relations, the Group Financial Controller and other
members of the finance team, as well as the auditors
and internal auditors. In addition, the Committee
met with both internal and external auditors without
management present, and I met with each separately
on several occasions as part of a review of their work.
This letter and the report following should give you an
overview of the scope of the Committee’s role, how it
operates and the highlights of the last year. In addition,
I am happy to meet with shareholders directly if there
are matters you would like to discuss.
Pat Butler
Chair of the Audit Committee
Dear Shareholders
This is my first letter to you as Chairman of the Audit
Committee. Firstly I would like to thank Breffni Byrne
for his outstanding leadership of the Committee for
its first ten years and for the thoughtfulness and
generosity with which he has helped me transition
into the role over the last year. I also welcome John
Castellani as a new member of the Committee, bringing
a wealth of experience from the US and from the
regulatory environment.
2015 was a busy year for the Audit Committee.
In addition to the normal audit, internal control and
reporting responsibilities, we spent considerable time
on the Roxane acquisition, on the due diligence, the
approval and the issuance of a combined Class I
Circular and Prospectus to Shareholders.
The Committee also spent considerable time overseeing
the work done to consolidate and enhance how Hikma
reports and manages the risks it faces. We approved
the design of an enterprise wide approach to risk
management, along with new risk and control
reporting, and have been monitoring its testing
and implementation.
We also put the Company’s annual audit up for tender
this year, and as a result are proposing to change auditors
from Deloitte to PricewaterhouseCoopers (PwC) from
2016. Deloitte have served Hikma effectively and
84
2015 Overview
2015 Highlights
• Roxane acquisition – assessed financial transaction
rationale, diligence and support for the circular
and supplementary circular
• Risk management – thoroughly reviewed our
risk appetite, risk management framework and
principal risks, viability position and disclosure
• Audit tendering – conducted an extensive audit
tender process and appointed a new auditor
• Non-audit fees – reviewed the position on
non-audit fees and have resolved to minimise
the level of non-audit services
• Auditing – monitored the performance and
findings of the external and internal auditors
Calendar of events
Q1
Q2
• Forecast I
• Audit tender
• Preliminary statements
• Risk appetite
• Report and Accounts
• Forecast II & IMS
• Principal risks and
uncertainties
• Corporate
governance review
Q3
Q4
• Roxane due diligence
• Roxane circular
• Interim dividend
• Forecast IV & IMS
• Forecast III & Interim
announcement
and results
• Audit tender exercise
• Internal audit report
• Audit performance
and plan
• Budget for 2016
• Risk assessment
Membership and attendance
The Audit Committee comprises seven Independent
Non-Executive Directors: Pat Butler (Committee Chair),
Breffni Byrne, Michael Ashton, Ronald Goode,
Robert Pickering, Dr Pamela Kirby and John Castellani.
Pat Butler, the Chair, has extensive experience of
financing, accounting, risk and internal control
matters from his 30 years at McKinsey and Arthur
Andersen. All members have spent a significant
portion of their careers in leading positions at
financial, advisory and pharmaceutical companies.
Members
Member since Attended Potential
Pat Butler (Chair)
Breffni Byrne
Michael Ashton
Ronald Goode
Robert Pickering
Dr Pamela Kirby
John Castellani
Total meetings
1 Apr 2014
14 Oct 2005
14 Oct 2005
12 Dec 2006
1 Sept 2011
1 Dec 2014
1 March 2016
7
7
7
7
7
6
–
7
7
7
7
7
7
–
7
Meeting
attendance
100%
100%
100%
100%
100%
86%
–
98%
Allocation of time
Final performance 20%
Announcements/
Results
Forecasts
Internal Audit
External Audit
Risk
Roxane
8%
11%
10%
22%
9%
20%
Advisers
Internal
• Chief Financial Officer
External
• Deloitte (Auditor)
• VP Investor Relations
• PricewaterhouseCoopers
and Strategy
(Successor Auditor)
• Company Secretary
• Group Financial Controller
• Ernst & Young
(Internal Audit)
85
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Committee reports: Audit – Continued
The Audit Committee assists the Board in discharging
its responsibilities for financial reporting, external audit,
internal audit, internal control and risk management.
The Committee reviews Hikma’s Annual Report, financial
statements, interim reports, trading updates and
monitors all audit and non-audit work undertaken
by external auditors. It monitors the effectiveness and
output of Hikma’s internal and external audit activities,
internal controls and risk management systems. The
Audit Committee advises the Board on the appointment,
reappointment and removal of the external auditors,
as well as the effectiveness of the audit process. The
Committee terms of reference include all matters
indicated by the Code and clearly set out its authority
and duties. They are reviewed by the Board as part
of the annual corporate governance review. During
the year, the Committee passed responsibility for
corporate governance and Directors’ conflicts of interest
procedures to the Nomination Committee. The terms
of reference are published on the Hikma website and
are available for inspection at the registered office at
13 Hanover Square, London, W1S 1HW or by contacting
cosec@hikma.uk.com.
Significant accounting judgements
During 2015 and up until the date of this report, the
Audit Committee considered and discussed the following
financial matters:
• Revenue recognition: The Committee reviewed
the judgements of management regarding revenue
recognition for significant products where the potential
for returns and rebates was high. The Committee was
satisfied that the review by management validated the
approach to revenue recognition and took account of
changes in the environment for those products during
the year.
• Taxation: The Group’s worldwide operations are
highly integrated and involve a number of cross-
border transactions. There is complexity and
judgement in estimating the potential tax liabilities
in various jurisdictions. The Committee reviewed the
appropriateness of the disclosures in the Annual Report
and considered the advice from professional services
firms and management in this regard.
• Accounts receivable and inventory: The Committee
reviewed the reports on major receivables and
inventory provisions. The Committee considered
management’s valuation of inventory, plans to
ensure payment and relevant provisions.
• Goodwill and intangibles: The Committee reviewed
management’s impairment analysis and associated
judgements.
• Asset impairment: The Group has significant
investment in fixed assets. The Committee monitored
the application of the Group’s policies in relation
to impairment and valuation of those assets
and considered and challenged management’s
recommendations regarding the appropriate
impairment.
• Rebates and chargebacks: The Committee assessed
the reports on the processing of chargebacks and
rebates in the US. This is a highly judgemental area
and applies to a significant proportion of Group
revenue. The Committee considered the control
and modelling environment and the appropriateness
of associated provisions.
• Going concern: The Committee assessed the going
concern position when preparing the annual and
half-yearly financial statements. The Committee took
into account Hikma’s forecasts and budget, borrowing
facilities, contingent liabilities, medium and long-term
plan, and financial and operational risk management.
• Viability: The Committee received the five-year business
projections and considered the risk related scenarios
that could impact those projects and the ability of
the Company to remain viable.
Fair, balanced and understandable
Hikma is committed to clear and transparent
disclosure and seeks to continuously improve the
clarity of its reporting. In producing the Annual Report,
management, the auditors and the Committee ensure
that the disclosures are in clear language, reflect the
underlying situation and that appropriate information
is disclosed.
86
At the request of the Board, the Audit Committee
considers whether Hikma’s Annual Report is fair,
balanced and understandable and whether it provides
the necessary information for shareholders to assess
Hikma’s position, performance, business model and
strategy. The Committee’s assessment is underpinned
by a comprehensive review conducted by a committee
of senior management (the ‘Reporting Committee’),
which consists of the:
External audit
The external audit was undertaken by Deloitte LLP. At the
AGM, the Board is recommending the appointment of
PwC as auditors. As in previous years, the Committee
maintained regular contact with the auditors throughout
the year. The Committee regularly reviews the work of
the external auditors and undertook an assessment of
the auditors’ performance and independence and in
doing so examined the following issues during the year:
• Chief Financial Officer
• Vice President, Corporate Strategy and
Investor Relations
• Company Secretary
• General Counsel
• Investor Relations Manager
• Vice President for Human Resources*
• Divisional Heads*
• Group Financial Controller*
• Chief Compliance Officer*
The Reporting Committee, which meets regularly during
the year:
• Initiates the first review of the Annual Report in
November, at which point areas for improvement
are identified and enhancements recommended
• Discusses the proposed disclosures with external
auditors, brokers and public relations advisers to
obtain their input
• Reviews and refines disclosure and ensures the
opinions of the advisers continue to be sought
• Oversees a verification process to ensure the
accuracy of disclosures
• Issues guidance to contributors at the beginning
and throughout the process and reports on actions
and significant areas of judgement to the Audit
Committee as appropriate
The Audit Committee closely oversees the work of the
Reporting Committee, which is responsible for ensuring
the accuracy of the information submitted in the Annual
Report and assessing whether the narrative section of
the report is consistent with the accounting information.
Each of the members of the Audit Committee and the
Reporting Committee was satisfied that the 2015
Annual Report is fair, balanced and understandable
and recommended the adoption of the report and
accounts to the Board.
* Where the matters on the agenda relate to their areas of responsibility
Audit quality and technical capabilities
The Committee formally reviewed the quality of the
audit and capabilities of the team during the year and
concluded that the existing team conducted an effective
audit. The Committee feeds back its comments on the
auditors’ performance as part of the regular meetings
with them that occur without management present. The
Committee evaluation process includes an assessment of
the work of the auditors, which was rated positively. The
FRC’s audit quality review team reviewed Deloitte’s audit
of Hikma’s 2014 financial statements as part of their
2015 annual inspection of audit firms. The Chair of the
Audit Committee received a full report of the findings
of this review and discussed them with Deloitte. The
Committee noted that there were no significant areas
for improvement identified with the report. The auditors
ensure that experienced specialists assist management
and present to the Committee where there are issues
of a more complex nature, such as international
taxation. The Committee believes that there is a strong,
appropriate and open relationship between the audit
team leadership, the Audit Committee and management.
Independence
The Committee regularly reviews the independence
safeguards of the auditors. The auditors are not allowed
to undertake work that involves promoting Hikma,
installing systems, making management decisions,
supporting litigation or tasks that would involve review
or reliance upon their audit work. The Committee aims
to minimise non-audit work and authorises such activities
only where the appointment is in the best interests of
the Group and:
• The independence of the auditors is maintained
both in terms of the type of work undertaken and
the overall level of the non-audit fee
• The services of other major providers is limited due
to issues such as conflicts of interest
87
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Committee reports: Audit – Continued
Fees paid in respect of audit, audit-related and non-
audit services are outlined in Note 6 to the consolidated
financial statements and in the chart below. Audit-related
services are services carried out by the external audit
team by virtue of the role and principally include
assurance-related work.
Competition and Markets Authority Order
The Audit Committee has complied with the CMA
order relating to the provision of statutory audit services.
A competitive audit tender process was undertaken
during 2015 and the Committee’s responsibilities
and powers include those detailed in the Order.
Risk and associated disclosures
Readers are directed to the risk and control disclosures
as follows:
• Principal risks and uncertainties on pages 54 to 56
• Risk management on page 58
• Internal control on page 58
• Internal audit on page 59
• Viability on page 60
For and on behalf of the Audit Committee
Auditors’ Fees ($ million)
Audit-Related Fees
Non-Audit-Related Fees
Tax advisory services
Tax compliance services
Other non-audit services*
Pat Butler
Audit Committee Chair
15 March 2016
15
14
10% 4%
80%
20%
$1.7m
86%
$2.9m
$1.8m
$0.5m
0.0
0.5
1.0
1.5
2.0
2.5
3.0
* Includes services related to corporate transactions, primarily the Roxane
acquisition and Class 1 Circular.
88
Case study – audit tender
Introduction
Deloitte LLP were appointed as auditors when the original Hikma holding company was incorporated in 1977.
Since that point there have been three senior audit partners, with the current senior audit partner due
to complete his term in March 2016. As a result of this and the regulatory changes, the Audit Committee
decided it would be prudent to undertake a tender exercise during 2015.
Leadership
The tender process was led by the Audit Committee Chair and a Steering Committee was established
comprising the Audit Committee Chair, Mr Breffni Byrne, Dr Pamela Kirby, the Chief Financial Officer,
the Group Financial Controller and the Company Secretary.
Participants
Given the size, complexity and geographical scope of the Company, several major global accounting firms
were invited to take part in the tender.
Process
The tender process and the Committee’s involvement in the process are outlined below:
June 2015
June/July 2015
July 2015
August 2015
Request for Proposal
(RFP)
Hikma circulated the RFP
to selected firms.
Independence
Firms confirmed their
assessment of
independence.
Data room
Hikma provided access
to relevant data.
Site visits
Firms visited the Group’s
major facilities and
operations in Jordan &
the US.
Management
meetings
Firms met management
and held one to one
meetings with the Audit
Committee Chair and
Chief Financial Officer.
Proposal
Firms submitted a written
proposal which was
reviewed by the
Steering Committee.
Presentation
Firms presented their
proposal. The Steering
Committee reviewed the
proposals and considered
which firm to recommend.
September 2015
Audit Committee
The Steering Committee
made a recommendation
to the Audit Committee.
The recommendation
was approved.
Conclusion and rationale
Detailed evaluation criteria and a scoring matrix were used to assist the Steering Committee in making
its decision. The Committee considered that Deloitte had been invaluable in assisting the development
of the Company from incorporation to listing and to the present day. The Committee balanced this against
the advantages of having a new audit firm as the Company further matured. PwC had communicated a clear
desire to take on the audit, developed excellent relationships with management and had a clear plan to help the
Company on the next step of its journey. Accordingly, having taken appropriate references into consideration, the
Committee recommended the appointment of PwC and a resolution proposing PwC as Hikma’s auditor will be
put to the shareholders at the 2016 Annual General Meeting. There are no contractual provisions that restrict
the Committee’s choice of auditor and Hikma does not indemnify its external auditor. Should shareholders
wish to discuss the change of auditor, the Chair of the Audit Committee will make himself available.
89
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Committee reports: Nomination
Letter from the Chair
Diversity and balance
across the Board
“We have found the right people who
broaden the experience of the Board
and fit very well with the existing team.”
Dear Shareholder
The Committee has been active during the year as we
have continued to review, adjust and implement our
medium-term Board succession plan. The plan provides
for the gradual rotation of Independent Non-Executive
Directors. We are mindful of the risks of changing too
much too quickly and of the danger of losing valuable
Company and market-specific knowledge. As we bring
new Directors onboard, we will ensure that they are fully
inducted into the Company and their roles in advance
of the retirement of the Director they are replacing.
We are also aware of the potential independence issues
of extended service and I confirm that no Independent
Director will serve in excess of 12 years. Consistent with
this aim, Breffni Byrne will stand down at the close of
the AGM.
During the year we undertook a search for an
Independent Non-Executive Director with US
pharmaceutical and regulatory experience and
we were very pleased that we were able to appoint
John Castellani as a result. Additionally, as part of our
acquisition of Roxane, Boehringher Ingelheim nominated
Jochen Gann to the Board and we fully supported their
proposal. In respect of both appointments, we have
found the right people who broaden the experience
of the Board and fit well with the existing team.
Our succession arrangements include rotation of the
Committee Chairs. During the year the handover of the
Audit Committee responsibilities from Breffni Byrne to
Pat Butler was successfully completed. We also began the
process of handing over the Remuneration Committee
Chair from Michael Ashton to Dr Pamela Kirby, which
we aim to complete during the course of 2016.
Having reviewed the responsibilities of the Board
Committees during the year and with this Committee
already having significant governance responsibilities,
we considered it was appropriate for the Committee
to assume complete responsibility for governance. This
includes the annual governance review process as well
as considering the overall structure and controls on the
Board. We have reviewed non-executive independence,
the role of the Chairman and Chief Executive and the
balance of responsibilities and control. The relationship
between myself, as Senior Independent, and Said
Darwazah, as Chairman, is very strong; we meet
regularly, listen to each other’s views and work
together closely to achieve joint aims.
As the Senior Independent Director, I am open at any
time to discussion with shareholders.
Robert Pickering
Chair of the Nomination Committee
90
2015 Overview
2015 Highlights
• Undertook a non-executive search process
leading to the appointment of John Castellani
• Considered Boehringer Ingelheim’s proposal for
a Non-Executive Director leading to the
appointment of Jochen Gann
• Further developed our medium-term
succession plan
• Successful transition of the Audit Committee
chairmanship
• Initiated a transition process for the
Remuneration Committee Chair
• Assumed full responsibility for Board governance
• Reviewed the composition, diversity and balance
of skills on the Board
Membership and attendance
The Nomination Committee consists of four
Directors. Three are Independent Non-Executive
Directors: Robert Pickering, who is the Committee
Chair, Michael Ashton and Pat Butler. The fourth
is Mazen Darwazah, the Executive Vice Chairman.
The Committee met seven times during the year.
Full attendance was achieved.
Member
since Attended Potential
Meeting
attendance
1 Sep 2011
Members
Robert Pickering
(Chair)
Michael Ashton
Pat Butler
1 Apr 2014
Mazen Darwazah 14 Oct 2005
Total meetings
14 Oct 2005
Calendar of events
Allocation of time
Q1
Q2
• Independence
• Report to shareholders
• Board evaluation
• Management
succession
• Committee evaluation
• Director search
7
7
7
7
7
7
7
7
7
100%
100%
100%
100%
100%
Diversity
Skills and
experience
Succession
Independence
Corporate
governance
27%
14%
27%
10%
22%
Q3
Q4
• Board structure review
• Board evaluation
• NED appointments
• Nominated
• Director search
Director review
• Director search
• Training
Advisers
Internal
• Chairman and Chief
Executive
• VP Human Resources
• Company Secretary
External
• Spencer Stuart
• Odgers Berndtson
• Lintstock
91
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Committee reports: Nomination – Continued
Responsibilities
The Nomination Committee is responsible for corporate
governance and succession planning, including the
progressive refreshing of the Board and 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
also operates, monitors and reviews the conflicts of
interest procedures, which have operated effectively
during the year. 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 published on the Hikma website and
are available for inspection at the registered office at
13 Hanover Square, London, W1S 1HW or by
contacting cosec@hikma.uk.com.
Diversity
Within Hikma
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. We consider that
our diversity continues to be demonstrated by the
broad range of people in our organisation. Hikma has
a long history of a significant number of women being
present in executive management positions, a number
of whom have worked for the Company for the
majority of their careers (see pages 72 to 73 for the
Executive Committee membership). This is illustrated
in the charts accompanying this page.
The Chief Executive’s letter to staff for 2015
stated that one of the two strategic priorities is
the “Advancement of women across the Group”.
The letter stated that “Supporting women to achieve
their professional goals is an integral part of the
Hikma culture. Women at Hikma have leveraged their
broad capabilities and strong leadership skills to help
drive Hikma’s growth. Together we must take the right
steps to ensure that women at Hikma have even more
input into current and future projects and encourage
them to take on more responsibilities.”
At the Board
The Committee considered Board diversity at
several stages through the year and is committed
to further enhance gender diversity as part of its
medium-term plans. Since the listing of Hikma the
Board has excellent diversity in terms of culture, age,
background, skills and experience. The Committee
was pleased to be able to improve gender diversity
during 2014 but recognises that the current level of
female representation is not sufficient for a leading
international organisation. The Committee requires
the external search consultants to actively seek female
candidates and to ensure that a significant proportion
of long and shortlisted candidates are female.
Board
Executive Committee
Hikma Group
Men
Women
91%
Men
9%
Women
78%
22%
Men
Women
68%
32%
92
Succession
Planning
As in previous years, the Committee continued its
work on planning for executive and non-executive
succession. The Committee reviewed and updated
its medium-term succession plan which allows for the
gradual rotation of independent non-executives, to allow
for a full induction and the transfer of knowledge and
relationships. Independent Non-Executive Directors are
normally expected to serve for up to nine years. They
may be invited to serve for longer, but additional
service beyond nine years is subject to particularly
rigorous review and the Committee has resolved that
no Independent Non-Executive Director would serve
in excess of 12 years. Additionally, the medium-term
plan allows for the orderly transition of Committee
chairmanship roles, allowing time to ensure parties
on the Board and within management are best placed
for the change. The Committee will implement the
changes necessary to ensure that the plan is met over
a two to four year timeframe and will keep shareholders
updated as decisions are made. 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 Board decided to look further ahead in relation to
independent non-executive succession, and asked the
Nomination Committee to undertake the process to
identify a candidate to join the Board as an additional
Independent Non-Executive Director. At the request of
the Chairman, the Committee undertook a thorough
recruitment process, which can be summarised as follows:
• The Senior Independent Director, in consultation with
the Board Chairman and with the assistance of the
Company Secretary, established a role and experience
profile for the position of non-executive director
• A draft profile and the key characteristics and
experience required were discussed by the
Nomination Committee
• Following an assessment of the executive search
market, Spencer Stuart was appointed to identify
candidates who met the role profile
• An extensive list of candidates was identified
by Spencer Stuart and a shortlist was created through
discussions with the Senior Independent Director
• The Senior Independent Director and another
Committee member met the shortlisted candidates,
the results of which were discussed by the Nomination
Committee and recommendations made
• A second round of meetings was undertaken with the
Chairman and Chief Executive and the Vice Chairman
• Following a full induction process and John Castellani
confirming his desire to join the Board, the Committee
recommended the appointment of John Castellani to
the Board
The appointment of John Castellani followed the
established and tested Hikma process, which is
summarised above. Spencer Stuart, the search
adviser, did not and does not have any further
connection with the Company.
Board review
Skills and experience
The broad range of skills and experience of Board
members has greatly assisted in the success of Hikma.
In view of the current succession plans, the Nomination
Committee undertakes an in-depth analysis of each role
on the Board before considering new candidates. The
Committee aims to preserve the Board’s very broad
spread of experience, which provides the necessary
checks and balances for safeguarding the interests of
the Group. While each Director possesses different skills,
the Committee believes that all Directors at Hikma share
the following important characteristics:
• Challenging yet consensual style
• Independence of mind and clarity of thought
• Significant experience at an executive
management level
• International business exposure
Additionally, the Committee considers that across the
Board as a whole and on the executive and non-executive
teams it is important to ensure at least two members
have significant experience in the following areas:
• Middle East and North Africa, particularly the
business and political environment
• US pharmaceutical and regulatory environment
• Pharmaceutical manufacturing, quality and
sales processes
• Business ethics and business integrity programmes
• Strategy and risk management
• UK and international listed environment
• Human resources and remuneration governance
For further information on the diverse skills and
experience of our current Directors, please see
the biographical details on pages 69 to 71.
93
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Committee reports: Nomination – Continued
Chairman and Chief Executive
The Committee and the Independent Non-Executive
Directors keep under review the position of Chairman and
Chief Executive and the governance safeguards that were
implemented at the time of the combination of roles in
May 2014 (a full rationale and process is included in the
2013 Annual Report on pages 63 to 64, a summary
version is included in this report on pages 74 to 75).
The Independent Non-Executive Directors met regularly
during the year without management present and
discussed, amongst other issues, the safeguards and
functioning of the Board. The Independent Directors
considered that the safeguards are effective and that
the combined position continued to be appropriate,
chiefly due to the nature of the relationship between
the Chairman and the Senior Independent Director
and the culture of considered and consensual approach
that is evident throughout Hikma. The Committee noted
the Independent Directors’ position and concluded that
the combined position continues to be appropriate.
Re-election
Each member of the Board will submit himself or
herself for election or re-election (as appropriate) at
the 2016 AGM. The positions of each Board member
were considered in detail during the year as part of
the review of succession arrangements, consideration
of independence issues, the Board and Committee
evaluation processes and the ongoing dialogue between
the Chairman and the Senior Independent Director.
Governance
The Committee has undertaken full responsibility for
governance matters for the Board. This includes the
annual process of reviewing the procedures in the
Board Governance Manual, the compliance with the
UK Governance Code, the Group Internal Controls and
considering the governance agenda for the following
year. The Committee also keeps abreast of governance
developments throughout the year and makes
adjustments in an orderly manner.
For and on behalf of the Nomination Committee
Robert Pickering
Nomination Committee Chair
15 March 2016
94
Case study – Jochen Gann induction
Following the acquisition of Roxane Laboratories, Boehringer
Ingelheim (‘BI’) recommended the appointment of Dr Jochen
Gann to the Board. This is his induction story...
Tailored
The induction programme was tailored to Dr Gann. Jochen has extensive experience in pharmaceutical
operations, capital markets, mergers and acquisitions and finance. However, he had not previously been
a director of a UK company or operated in a listed company environment. Therefore, the induction
programme was tailored to these areas.
Briefing
In order that a potential director fully understands the duties and responsibilities that are being
undertaken, all directors receive an induction briefing in advance of a formal proposal being made to
the Board. Jochen’s briefing was undertaken by the Company Secretary during a seven hour meeting
at the BI facilities in Ingelheim. All briefing papers were made available in advance and requests for
additional information were met immediately afterwards.
Structure
The induction briefing was structured into four key areas:
Director duties and UK law
Listing rules and governance
The legal framework of the UK is substantially
different from that of Germany. Accordingly, the
concepts around duties of directors and the nature
of the legal entity legislation and regulation in the
UK were explained.
BI are a very large, but privately owned entity.
Therefore, the additional obligations contained in
the listing, disclosure and transparency and related
rules were explained, particularly in relation to the
UK governance code, inside information, dealing
in shares and disclosures to the market.
Class 1 circular
Board procedures
The Roxane acquisition involved a class 1 circular. As
a potential director being considered as part of the
acquisition, Jochen incurred the same responsibilities
as the existing directors in the circular. Accordingly,
those responsibilities and the governance and
verification processes were fully explained.
The internal Board Governance Procedures
for the operation of the Board, Committees and
administration of Directors were explained, including
formalities regarding the appointment process,
announcements and associated documentation.
95
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Committee reports: Compliance, Responsibility and Ethics
Letter from the Chair
Commitment to integrity
and human dignity
“Samih Darwazah fundamentally wanted
to make the world a better place through
the advancement of people.”
Dear Shareholder
I am pleased to report that the Compliance,
Responsibility and Ethics Committee (CREC) has
continued to drive the Company’s commitment to
business integrity and human dignity and that Hikma’s
people remain steadfast in their adherence to those
ideals. We are delivering on the vision of the late Samih
Darwazah, the founder of Hikma, who fundamentally
wanted to make the world a better place through the
advancement of people.
The CREC has a long established relationship with
the Corporate Responsibility (CR) Committee,
which oversees the Company’s work on charitable
and humanitarian issues, environmental initiatives,
community involvement and societal development.
We take significant pride in putting back into the
communities in which we operate and building on
Samih’s commitment to the advancement of people.
The programme continues to perform excellently and
we are very proud of our achievements in this regard.
Corruption is a worldwide issue that negatively impacts
many for the benefit of a few. It is extremely important
to the Committee and the Company that we take the
necessary steps to prevent corruption in our business
and curtail it in the societies in which we operate.
In support of this objective, I am pleased to report
that the Anti-Bribery and anti-Corruption (ABC)
compliance programme has gone from strength to
strength. Waleed Hamam, our Chief Compliance Officer,
has quickly settled into the role, taken the reigns and
advanced the agenda. The CREC has been particularly
impressed with the compliance department’s involvement
in international ABC initiatives and significant progress
made in implementing ABC policies, which was
evidenced by an independent re-assessment of
our ABC programme.
The CREC fully supports the initiatives to prevent human
trafficking and anti-slavery, acts which are an antithesis
to our desire to promote the advancement of people
and respect for human dignity. Over the course of the
next year the CREC will be focusing on furthering the
human dignity programme both in and outside Hikma.
As an organisation 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.
Ronald Goode
Chair of the Compliance, Responsibility and Ethics Committee
96
2015 Overview
2015 Highlights
• Enhanced our UN Global Compact commitment
through participation in their anti-corruption
programme
• Continued to promote business integrity
internationally through the Partnering Against
Corruption Initiative
• Completed and tested the implementation of
ABC procedures in all MENA countries
• Undertook an independent re-assessment of
ABC risk and verified procedural implementation
• Further increased ABC resource and enhanced
the departmental structure
• Completed ABC, Code of Conduct and legal
and regulatory environment training for the
entire US sales team
• Initiated a human dignity programme
• Continued support for the CR programme
Calendar of events
Q1
Q2
• ABC & CR update
• Shareholder report
• Instructed risk
re-assessment
• ABC update
Membership and attendance
The Compliance, Responsibility and Ethics Committee
(CREC) consists of six members. Five are Independent
Non-Executive Directors: Ronald Goode (Committee
Chair), Breffni Byrne, Pat Butler, Dr Pamela Kirby and
John Castellani. The sixth member is the Executive
Vice Chairman, Mazen Darwazah. The CREC met
five 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 Non-Executive
Director, Ronald Goode, and the Chair of the Audit
Committee is a standing member. Within the
Company, the Executive Vice Chairman champions
Hikma’s anti-bribery and corruption (ABC), corporate
responsibility (CR) and human dignity programmes.
Members
Ronald Goode
(Chair)
Breffni Byrne
Pat Butler
Dr Pamela Kirby
Mazen Darwazah
John Castellani
Total meetings
Member
since Attended Potential
Meeting
attendance
1 Nov 2010
1 Nov 2010
1 Apr 2014
1 Dec 2014
1 Nov 2010
1 Mar 2016
5
5
5
5
5
–
5
5
5
5
5
–
5
100%
100%
100%
100%
100%
–
100%
Q3
Q4
• ABC risk re-
• Re-assessment report
assessment progress
review
• Human dignity
• ABC & CR update
Allocation of time
Advisers
Internal
• Chief Compliance Officer
• VP for Corporate
Communication
• Company Secretary
• General Counsel
External
• Good Corporation
• E&Y
ABC Operations
40%
Risk Assessment
31%
CR
Corporate
governance
19%
10%
97
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Committee reports: Compliance, Responsibility and Ethics – Continued
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
Hikma’s policies in areas where ethical judgements
are important. The CREC oversees the Group’s ABC
compliance programme, policies on ethics and business
conduct and the development of the Code of Conduct
(the ‘Code’). The CREC also oversees Hikma’s speak-up
process for employees to raise ethical concerns, and,
where relevant, oversees their investigation. The CREC
reviews and monitors policy in the area of CR at Board
level. The CREC’s terms of reference are reviewed by
the Board on an annual basis, are published on
the Hikma website and are available for inspection
at the registered office at 13 Hanover Square, London,
W1S 1HW or by contacting cosec@hikma.uk.com.
Anti-Bribery and anti-Corruption (ABC)
Top level commitment, from the beginning
Since its foundation Hikma has and continues to
be committed to the highest standards of integrity
and ethics in the conduct of its business. Hikma
has communicated its zero tolerance of bribery and
corruption to its employees and made sure that they
are aware that Hikma will not penalise any individual
for complying with the principles enshrined in the
Code or in the ABC policies, even at the cost of forgoing
a business opportunity, losing revenue or profit or
disobeying a superior’s instructions. Hikma disciplines
staff for any ethical breaches of its standards of integrity.
Hikma is a founding member of the World
Economic Forum’s Partnering Against Corruption
Initiative (PACI), the leading business driven global
anti-corruption initiative which was formed in 2004
by a group of Chief Executives from different industries.
PACI is one of the Forum’s strongest cross-industry
collaborative efforts and is creating a highly visible,
agenda-setting platform by working with business
leaders, international organisations and governments
to address corruption, transparency and emerging-
market risks. Under the leadership of PACI Vanguard
Chief Executives, the community is expanding rapidly
and now focuses on implementing a global anti-
corruption agenda.
Board
CREC
Chief Compliance Officer
Branded
Division
Champion
Injectables
Division
Champion
US & Generics
Division
Champion
Group
Compliance
Officer
Divisional
Officers
Divisional
Officers
Divisional
Officers
Group
Officers
Strategy and resources
During the year, the compliance department continued
to implement the medium-term global strategy for the
delivery of the commitment to business integrity and
ABC which was approved in 2014. Hikma has a
framework that sets out the structure of leadership,
delegated authority and ownership for the ABC
compliance programme. Operational responsibility
and oversight for ABC is assigned by the Board to
the Executive Vice Chairman, who then delegates
responsibility to his management team. The Chief
Compliance Officer (CCO) reports directly to the CREC
on ABC matters. The CCO’s leadership of ABC issues
is overseen by the CREC Chair and the Executive Vice
Chairman. The head of each business division has
taken responsibility to be the compliance champion
for their division:
• Mazen Darwazah (Branded)
• Riad Mechlaoui (Injectables)
• Michael Raya (US and Generics)
The CCO is supported by Group and regional compliance
officers at the operational level. The legal, financial and
company secretarial departments also advise and provide
implementation support to the compliance department.
During 2015, the compliance department continued to
expand regional resource.
98
Case study – ABC risk re-assessment
As the CREC started its fifth year, it wanted to assess progress
with the prime driver for the founding of the Committee,
Anti-Bribery and anti-Corruption (ABC). This is the story...
Rationale
The CREC started a formal ABC compliance
programme from the ground upwards in 2010.
Since then, the Committee has instructed a full
assessment of ABC risk, created the policies
and procedures and compliance department and
promoted the Company’s founding commitment
to business integrity. The Committee wanted to
measure the progress made and consider where
to go next on its journey.
Independence
The CREC requested that the Company Secretary
lead the re-assessment exercise. Additionally, the
Committee appointed Good Corporation because
of their commitment to eradicating corruption,
high standards of integrity and to ensure that
there was an accurate measure of progress by
using the same supplier. Good Corporation
reported to the Company Secretary on an
operational basis and directly to the CREC
for reporting.
Site selection
The CREC reviewed the previous assessment
results and considered the relative size and risk
of each major site in order to ascertain where to
focus the attention of the exercise. The conclusion
from this process was that the assessment should
include the Company’s corporate centre and
facilities in Jordan, operations in Egypt and the
Kingdom of Saudi Arabia (KSA) and the entire
US business.
Process
The regional compliance officer for each site
was responsible for delivering the requirements of
Good Corporation in terms of: procedures, reports
and supporting information; meetings with the
entire senior management team and all functional
areas; and a random sample of employees, third
parties and suppliers. Three Good Corporation
personnel made a four day assessment of each
site. At the conclusion of each assessment a
presentation was made to the senior team,
Chief Compliance Officer and regional officer,
highlighting the areas where significant progress
had been made and establishing a road map for
the future. During the process the Chairman of
the CREC received regular updates both from
the Company Secretary and Good Corporation.
Results
At the conclusion of the Jordan, Egypt and
KSA assessments, Good Corporation moderated
the results across each site in order to ensure
consistency of measurement. Good Corporation
presented a composite analysis to the Committee
Chairman and compliance function over a one
day session. The overall results were presented to
the CREC and demonstrated that: ‘Considerable
progress has been made in establishing and
embedding anti-bribery and corruption safeguards
since Good Corporation’s previous assessment
in 2011’.
Next steps
The compliance department are integrating the
results of the exercise and areas for improvement
into their medium-term strategy, which will be
presented to the CREC during 2016. Due to the
significant increase in scale and complexity of
the US business following the Roxane acquisition
that closed in the first quarter of 2016, the CREC
considered it would be appropriate to undertake
the US assessment following closing.
99
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Committee reports: Compliance, Responsibility and Ethics – Continued
Policies and procedures
Hikma undertook a full ABC risk assessment during
2011, which led to the development of a full set of ABC
policies during 2012. During 2013, these policies were
fully reviewed and developed by external advisers and
internal management. The final policies were approved
by the CREC in late 2013. During 2014, the compliance
strategy established the plan for the implementation
of those policies and work commenced on local
implementation in the MENA, EU and US. The CREC is
pleased to confirm that last year’s target was met, and
the implementation of the ABC policies was substantially
complete by the end of 2015.
Training
Hikma’s policies have been developed in conjunction
with its ongoing focus on education and dissemination
of ABC compliance information across the business.
Hikma’s employee induction programmes ensure that
each new employee can clearly understand the Group’s
ethical expectations. In addition, increasing awareness
has been built within the business for the processes and
issues of ABC compliance, with awareness sessions given
to functional and geographical teams across the Group.
Responsibility and ethics
Code of Conduct
The CREC is responsible for the Group Code of
Conduct, which is reviewed and compared to
comparable international companies regularly. The Code
has been translated into the major functional languages
of Hikma: Arabic, English, French, German, Portuguese,
Italian and Russian. Each year all Hikma employees are
required to confirm that they have read the Code, have
understood it and will abide by its terms. The training
plan for the Code includes face-to-face training for top
managers, and training and discussion sessions at
department level for employees and lower management.
The Code is available on our website: www.hikma.com/
en/corporate-responsibility/code-of-conduct.
Human dignity
The Board of Hikma has resolved that it will not accept
any involvement of its people, suppliers or business
partners in any practices that constitute a breach of
fundamental human rights, including human trafficking,
child labour and slavery. Hikma was founded on the
principle of promoting the advancement of people
and has been a member of the UN Global Compact
since 2007. The Compact embraces, supports and enacts
universally accepted principles in the areas of human
rights, labour, environment and anti-corruption.
Over the course of 2016 the CREC will be overseeing
the development of Hikma’s initiatives which support
this commitment.
Speak-up
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.
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. Additionally, Hikma has anonymous
web and telephone reporting lines in place across all
operations, which report directly to the compliance
department and the CREC. As part of their commitment
to the Code, employees understand that they have a
duty to report any suspected violations. The Company
remains satisfied that the policy and procedures enable
proportionate and independent investigation of matters
raised including non-compliance and that appropriate
follow-up action is taken.
100
Corporate responsibility
The Executive Vice Chairman is the champion of
Hikma’s CR programme within the Company and
is Chairman of Hikma’s CR Committee. The VP of
Corporate Communication is responsible for CR at an
operational level. The CR Committee reviews, supports
and promotes Hikma’s CR activities and reports directly
to the VP of Corporate Communication. The CR team,
led by the VP of Corporate Communication, regularly
presents developments to the CREC which, during the
year under review, included:
• Achieving ISO 50001 certification for environmental
practices and energy management
• Fully implementing our GHG (Greenhouse
Gas emissions) disclosure
• Completing phase two of roll out of sustainability
software
• Successfully passing third party inspection of our
CDP (Carbon Disclosure Project)
• Benchmarking Hikma’s CR activities against those
of comparable companies
Further details are available in the Sustainability report
on pages 38 to 51.
For and on behalf of the Compliance, Responsibility
and Ethics Committee
Ronald Goode
CREC Chair
15 March 2016
101
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Remuneration report
Letter from the Chair
Aligning remuneration
to Group success
“The journey over the last few years has built
more systems and processes to support, but
not deviate from, that vision of family.”
Dear Shareholders
This is my final letter to you as Chair of the Remuneration
Committee. Over the past year I have spent a significant
amount of time with Dr Pamela Kirby who will be taking
the Chair from the AGM. She is very experienced in
remuneration matters and is now fully inducted
into Hikma. I wish her every success in taking
the Committee forward.
Looking back over my tenure, I am delighted with the
progress that has been made from the listing of a private
company in 2005 to joining the FTSE 100 in early 2015.
This has been a period of immense development and
growth, particularly in terms of our remuneration policy,
human resources practices and our people strategy.
Hikma has always treated its people as members of a
family, providing the important elements of stability and
an environment in which people can flourish. The journey
over the last few years has built more systems and
processes to support, but not deviate from, that vision
of family. I feel privileged to have been on that journey.
Over the past few years we have undertaken significant
work to develop our remuneration policy to ensure it
is fit for purpose for a global FTSE 100 enterprise and
supports the entrepreneurial and acquisitive strategy of
the Group. This has resulted in significant change and
I would like to thank all of our shareholders for their
support. Having completed that programme, this
year has been one of minimal change in remuneration
practice, largely focusing on embedding the policies
that we have.
Performance remuneration remains a very important
part of the way that we incentivise and motivate all
our employees. It builds on our philosophy of providing
a salary to ensure stability, but for the growth of our
people and our Company we have to provide the
opportunities to excel and recognise where that occurs.
I would like to add a personal note of thanks to
Marcus Peaker of PwC. His well-considered, practical
and measured approach has been a steady guide during
my time in the chair. Sadly, as PwC become our auditor
in 2016, we must say good bye to Marcus. We have
conducted a review of remuneration advisers and I am
pleased to welcome Willis Towers Watson to the team.
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 matters that they wish to raise directly.
Michael Ashton
Chair of the Remuneration Committee
102
2015 Overview
Our highlights
• Identified and inducted a new Committee Chair –
Dr Pamela Kirby
• Undertook a search for a new remuneration
adviser, following the appointment of PwC
as our auditors
• Reviewed and enhanced the performance
criteria for the Executive Incentive Plan
• Reviewed executive contractual and notice
arrangements
• Maintained our remuneration policy position
• Benchmarked Executive Director, Non-Executive
and senior management compensation
• Further developed advice and guidance
regarding remuneration below Board level
• Considered developments in the business
and governance arena
• Acted as a sounding board for significant projects
undertaken by the Human Resources department
Calendar of events
Q1
Q2
• Executive performance
• Human
• Executive
remuneration
• EIP award
• Remuneration report
• Committee evaluation
resources update
• MIP award
• Governance
Q3
Q4
• HR strategy
• Governance
• Executive
benchmarking
• Adviser performance
• Adviser tender
exercise
• Executive contracts
Membership and attendance
The Remuneration Committee consists of six
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 multinational organisations and hence have
experienced business and resource issues at all levels.
The members have spent a significant proportion
of their careers leading teams and in executive
management. The members understand the need
to incentivise top management appropriately, while
ensuring that rewards are fair throughout all levels
of Hikma’s business.
Member
since Attended Potential
Meeting
attendance
Members
Michael Ashton
(Chair)
Breffni Byrne
14 Oct 2005
14 Oct 2005
Ronald Goode
12 Dec 2006
Dr Pamela Kirby
(Chair designate)
1 Dec 2014
Robert Pickering
1 Mar 2014
John Castellani
1 Mar 2016
Total meetings
Allocation of time
Advisers
Internal
• Chairman and Chief
Executive
• VP Human Resources
• Company Secretary
6
6
6
5
6
–
6
6
6
6
6
–
6
100%
100%
100%
83%
100%
–
97%
Setting executive
remuneration
25%
Remuneration
policy
Conditions in
the Group
Developing
practices
Corporate
Governance
11%
30%
6%
28%
External
• Willis Towers Watson
• PricewaterhouseCoopers
103
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Remuneration report – Continued
Remuneration and performance summary
References in this document to the ‘Regulations’ refer to The Large and Medium-sized Companies and
Groups (Accounts and Reports) (Amendment) Regulations 2013, with which this report complies.
Performance components
2014
2015
$1,489m
-3%
$1,440m
Notes
- Exceptional product performance
in 2014
$362m
-12%
$318m
- Profit Before Tax
1,979p
16%
2,301p
0%
4%
32 cents
$50,354
N/A
82.40%
-
Includes special dividends in 2014
- Average per employee
- Votes withheld have been discounted
- Votes withheld have been discounted
Sales
Profit
Share price
Dividend
32 cents
Employee compensation
$48,186
Shareholder
policy approval
Shareholder
implementation approval
92.50%
98.80%
Total remuneration
Executive Director
2014
($000)
2015
($000)
Said Darwazah
5,056
45%
7,316
-10%
Mazen Darwazah
3,573
25%
4,465
-20%
2016
($000)
(estimate) Notes
- Below policy position
- Policy range $12.7m
6,600
to $25.0m
- Below policy position
- Policy range $7.4m
3,572
to $8.6m
104
Components
Salary
Said Darwazah
Mazen Darwazah
Bonus
2014
($000)
842
620
43%
9%
2015
($000)
1,200
676
2016
($000)
(estimate) Notes
3%
3%
1,236
696
- The average rise for salaries across
the Group in 2016 was 3%
Said Darwazah
2,106
39%
2,928
-37%
1,854
- Figures are elements A and C
of the EIP. See pages 109 to 110
for further explanation
- The 2016 estimate is based
Mazen Darwazah
1,550
6%
1,649
-37%
1,044
on target performance
Share awards
Said Darwazah
2,086
51%
3,160
10%
3,480
Mazen Darwazah
1,391
52%
2,117
-15%
1,808
Pensions
Said Darwazah
11
45%
16
6%
Mazen Darwazah
12
8%
13
0%
Other benefits
Said Darwazah
Mazen Darwazah
11
0
9%
0%
12
10
8%
10%
17
13
13
11
- 2014 and 2015 figures represent
LTIPs exercised during the year
- 2016 is an estimation of the value
of the LTIP to vest in that year,
using 31 December 2015 vesting
percentages, share prices and
exchange rates
- Pension contributions are up
to 10% of salary
- Executives participate in the
same pension plan as Jordanian
employees, their country
of employment
Non-Executive Directors’ fees
Non-Executives
2014
($000)
2015
($000)
2016
($000)
(estimate) Notes
Non-Executive
Directors’ average
total fee
92.1
3%
95.1
1%
96.1
- Below policy position (policy range
£246k to £347k)
- Average Director’s fee includes basic
fee and Committee membership
and Chair fees
- Full breakdown of fees on
page 112
105
CORPORATE GOVERNANCE
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Remuneration report – Continued
Remuneration policy summary
The full remuneration policy can be found on pages
90 to 99 of the Annual Report 2013 which is available
at www.hikma.com.
Effective period
The Directors’ remuneration policy was approved at
the 2014 AGM and will be effective until the 2017 AGM.
It has not been adjusted during the year.
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:
• Enhances the achievement of Hikma’s strategic aims
• Takes account of employment conditions both inside
and outside Hikma
• Aligns the interests of all employees, management
and Directors with those of shareholders
• Takes account of Hikma’s Corporate Social
Responsibility programme, including environmental,
social and governance issues
• Is aligned with Hikma’s founding principle of
Business Integrity
Factors affecting remuneration policy
Market
conditions
affecting the
Company
Our Group
remuneration
policy
Recruitment
market in the
Company’s
sector
Current
economic
climate
Institutional
shareholders
and their
representative
bodies
Changing
market
practice
Committee responsibilities
The Remuneration Committee assists the Board
in determining its responsibilities in relation to
remuneration, including making recommendations
to the Board on the Group’s policy on executive
remuneration, determining individual remuneration
and benefits package of each of the Executive Directors
and recommending and monitoring the remuneration
of senior management below Board level. The Board is
responsible for implementing the recommendations
and agreeing the remuneration packages of individual
Directors. The Remuneration Committee is also
responsible for making recommendations for the grants
of awards under any employee share plans. In accordance
with the Committee’s terms of reference, no Director
may participate in discussions relating to his own terms
and conditions of remuneration. Non-Executive Directors’
fees are determined by the full Board.
Employment conditions
The Committee ensures that employees’ remuneration
across the Group is taken into consideration when
reviewing executive remuneration policy. There is a
balance to be achieved with disclosure, as this may
give rise to ever greater remuneration increases across
the whole of Hikma and reduce the ability to reward for
superior performance and in line with market practice.
The Committee reviews detailed internal data and is
satisfied that the level of remuneration is proportionate
across the HR grades.
The following table details the maximum performance
remuneration available at each level in the Group:
Position
Executive Director
Executive Committee
Senior management
Management
Other employees
Maximum award (% of salary)
Element A
Cash bonus
Element B
Deferred shares
Element C
restricted shares
150
100
75
50
30
150
100
75
50
–
100
100
–
–
–
Discretion
The Committee has discretion in several areas of policy
as set out in this report. The Committee may also exercise
operational and administrative discretions under relevant
plan rules approved by shareholders as set out in those
rules. In addition, the Committee has the discretion to
amend policy with regard to minor or administrative
matters where it would be, in the opinion of the
Committee, disproportionate to seek or await
shareholder approval.
106
Remuneration policy for Executive Directors
Policy overview
Salary
Pension
Benefits
Cash bonus (A)
Share award
• Matching (B)
• Restricted (C)
Fixed
Compensation
Lower Quartile
to
Median
EIP – Performance
Based Compensation
Upper Quartile
Total =
Median
to
Upper Quartile
• The maximum that can be paid to each Director is up to the median position for the Fixed Compensation elements
and the Upper Quartile position for the Performance Based Compensation against the Comparator Group
• The Committee encourages executives to perform to the highest of their abilities through a strong bias
on Performance Based Compensation
• The Committee benchmarks compensation against comparable companies (Comparator Group), which
currently consists of:
Actavis*
Actelion
Akorn Pharmaceuticals
Alexion Pharmaceuticals
Alkermes
Almirall
Biogen Idec
Biomarin Pharmaceutical
Celgene
Cubist Pharmaceuticals*
*Acquired/merged during 2015.
Endo International
Genus*
Impax Laboratories
Jazz Pharmaceuticals
Lonza Group
Medicines Company
Merck KGaA
Mylan
Myriad Genetics
Novozymes
Pacira Pharmaceuticals
Perrigo
Qiagen
Regeneron Pharmaceuticals
Salix Pharmaceuticals*
UCB
United Therapeutics
Vertex Pharmaceuticals
• The Committee has within the policy the discretion to amend this Comparator Group, but did not do so during
the year. The criteria taken into account when selecting the current Comparator Group included:
- Type of pharmaceutical specialism
- International nature of Hikma’s operations
- International nature of the executive team
- Market capitalisation and turnover
- Number of employees
- Consolidation in the pharmaceutical industry affecting the number of comparable companies
- UK listing environment
• The Committee is cognisant of the limitations of benchmarking. While it forms the upper limit of
compensation, other factors are taken into account when determining awards and rises
• The Comparator Group is used to assess the Total Shareholder Return (TSR) of Hikma in relation to
the performance target for the Long Term Incentive Plan (LTIP)
107
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Remuneration report – Continued
New UK Combined Code
The Committee is comfortable that its policy is in line with the new UK Corporate Governance Code (applying for
financial years beginning on or after 1 October 2014). The following table sets out the key elements of the revised
Code and how the Company’s remuneration policy for Executive Directors is in line with the Code:
Code provision
Remuneration policy solution
The EIP contains three Elements:
- Element A is a cash based bonus
- Element B provides a rolling deferral in shares for two years and an ongoing
performance based risk adjustment
- Element C provides shares subject to a three-year vesting period
- 50% of shares earned under Elements B and C cannot be sold for five years
from the date of award
It is the Committee’s view that the EIP provides a holistic approach to ensuring
Executive Directors are focused on the long-term success of the Company.
The EIP includes best practice malus and clawback provisions. The circumstances
in which malus and clawback could apply are as follows:
- Discovery of a material misstatement resulting in an adjustment in the audited
consolidated accounts of the Company
- The assessment of any performance target or condition in respect of an award
to be based on error, or inaccurate or misleading information
- The discovery that any information used to determine the number of shares
subject to an award was based on error, or inaccurate or misleading information
- Action or conduct of an award holder which, in the reasonable opinion of the
Board, amounts to employee misbehaviour, fraud or gross misconduct
- Events or behaviour of an award holder have led to the censure of the Company
by a regulatory authority or have had a significant detrimental impact on the
reputation of any Group Company provided that the Board is satisfied that the
relevant award holder was responsible for the censure or reputational damage
and that the censure or reputational damage is attributable to him
Malus will apply up to the date of the determination of the award and clawback
will apply for three years from the date of payment and the vesting of awards.
The Committee is comfortable that the rules of the Plans provide sufficient powers
to enforce malus and clawback if required.
The policy contains the following relevant features:
- Minimum shareholding requirement of 300% of salary for the
Executive Directors
- Five-year period from award to sale for 50% of Elements B and C of the
EIP which continues to apply following cessation of employment
The Committee, therefore, believes that its policy is in line with best practice.
Executive Directors’
remuneration should
be designed to promote
the long-term success of
the Company.
Schemes should include
provisions that would enable
the Company to recover sums
paid or withhold the payment
of any sum, and specify the
circumstances in which it
would be appropriate to do so.
For share-based remuneration,
the Remuneration Committee
should consider requiring
Directors to hold a minimum
number of shares and to hold
shares for a further period after
vesting or exercise, including
for a period after leaving the
Company, subject to the
need to finance any costs of
acquisition and associated
tax liabilities.
108
Policy implementation 2016
Comparator Group
With the exception of Actavis, Cubist Pharmaceuticals, Genus and Salix Pharmaceuticals which ceased to be
independent companies, the Comparator Group is unchanged since the prior year.
Salaries
During 2015, the Committee undertook the annual benchmarking of executive packages. The Committee reviewed
the data and concluded the executives should receive the same salary rise as the average employee of 3% for 2016.
Executive Director
Chief Executive
Vice Chairman
Benefits and pension
No change from 2015.
Salary
Increase
2016
$1,236,000
$696,267
2015
$1,200,000
$675,987
%
3%
3%
Executive Incentive Plan (EIP)
During 2016, the EIP will be operated on the same basis as 2015, as described in the Annual Report on
Remuneration on pages 110 and 115 to 117. The performance conditions and their weighting, which are
unchanged, are set out below:
Performance condition
Profit Before Tax
Strategy
Personal
Weighting (% of
maximum subject
to performance
condition)
50%
40%
10%
Forfeiture
percentage of
element of award
0%
0%
0%
+ lose 50% of
outstanding
Element B
and C
Threshold
percentage of
element of award
25%
25%
25%
Target percentage
of element of
award
50%
50%
50%
Maximum
percentage of
element of award
100%
100%
100%
109
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Remuneration report – Continued
For each performance condition the Committee has established measurement criteria which determine the level
of reward that executives may receive:
Performance condition
Performance level
Description
Profit Before
Tax
Measurement
Budget
Forfeiture
Threshold
Target
Max
Budget –30% Budget –10%
Budget
Budget +10%
- Generics division expansion Acquisition
- Strengthening and
broadening our
product portfolio
- Maintaining high-quality
and efficient manufacturing
facilities to maximise
profitability
- Expanding partnerships
- Consolidate MENA
Product approvals
Bedford transfer
FDA approval for
key facilities
New strategic
partnerships
Strengthen within
core markets
Manage environmental
factors
No strategic
development
Some strategic
targets met
Most strategic
targets met
All strategic
targets met
Personal
- Developing a highly skilled,
effective and diverse workforce
Employee satisfaction
survey
No personal
development
Some personal
targets met
Most personal
targets met
All personal
targets met
Performance Remuneration Outcome
Total
0% award + lose
50% prior two
years’ shares
100%
award
250%
award
400%
award
Outcome breakdown
Element A
Element B
Element C
0%
0%
0%
25%
25%
50%
100%
100%
50%
150%
150%
100%
The Remuneration Committee is of the opinion that given the commercial sensitivity of the detailed financial,
operational and strategic targets used for the EIP, disclosing precise targets for the EIP in advance would not be in
shareholders’ interests. This avoids the risk of the Company inadvertently giving international competitors an unfair
advantage because they are not required to report to the same disclosure standard as a UK listed company. Actual
targets, performance achieved and awards made are published at the end of the performance period in order that
shareholders can fully assess the basis for any pay-outs under the EIP.
110
Illustration of policy
The following charts show the value of each of the main elements of the compensation package provided to
the Executive Directors during 2015 and the potential available for 2016 (dependent upon performance).
Said Darwazah
Fixed
$000
Bonus
$000
Share award
$000
Total
$000
Policy position
$000
Threshold
1,265/51% 927/37%
309/12%
2,501
2016
Target
1,265/29% 1,854/43% 1,236/28% 4,355
12,736 to 25,029
Maximum
1,265/20% 3,090/50% 1,854/30% 6,209
2015
Actual
1,228/21% 2,928/49% 1,764/30% 5,920
7,414 to 12,594
Mazen Darwazah
Fixed
$000
Bonus
$000
Share award
$000
Total
$000
Policy position
$000
Threshold
720/51%
522/37%
174/12%
1,416
2016
Target
720/29%
1,044/42% 696/28%
2,461
7,387 to 8,564
Maximum
720/21%
1,741/50% 1,044/30% 3,505
2015
Actual
699/21%
1,649/49% 994/30%
3,342
2,857 to 4,584
The following notes are applicable to the above calculations:
• Salary, benefits and pension comprise ‘Fixed’ remuneration
• Elements A and C of the EIP comprise the Bonus and Element B comprises the share award. Elements A, B and C
of the EIP are made in the year after the performance is achieved (i.e. for the 2016 illustration, awards will be made
in 2017 and Elements B and C vest in 2019 and 2020, respectively). Please note that the Remuneration and
performance summary on page 105 uses share awards vesting (i.e. actual shares received, not those granted)
during the period.
111
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Remuneration report – Continued
Non-Executive fees
The Board has determined that the basic fees for the Non-Executive Directors will be increased by 3% in line with the
general salary rises for employees in the Group. The Committee membership and chairmanship fees are unchanged.
Non-Executive Director
Robert Pickering*
Pat Butler*
Michael Ashton
Ronald Goode
Dr Pamela Kirby*
Breffni Byrne*
Ali Al-Husry
Jochen Gann*
John Castellani*
Total
fee
£000
101.0
109.0
101.0
101.0
101.0
93.0
85.0
85.0
93.0
2016
Basic
fee
£000
85.0
85.0
85.0
85.0
85.0
85.0
85.0
85.0
85.0
Chairmanship
fee
£000
8.0
16.0
8.0
8.0
8.0
–
–
–
–
Committee
fee
£000
8.0
8.0
8.0
8.0
8.0
8.0
–
–
8.0
Total
fee
£000
98.5
106.5
98.5
98.5
90.5
106.5
82.5
–
–
2015
Basic
fee
£000
82.5
82.5
82.5
82.5
82.5
82.5
82.5
–
–
Chairmanship
fee
£000
8.0
16.0
8.0
8.0
–
16.0
–
–
–
Committee
fee
£000
8.0
8.0
8.0
8.0
8.0
8.0
–
–
–
* 2015 or 2016 fees have been pro-rated for time served in the relevant position.
Advice and support
PricewaterhouseCoopers LLP (PwC) have provided independent advice to the Remuneration Committee since
the listing of Hikma and during the year under review. PwC have also supported Hikma’s Corporate HR department,
particularly in the delivery of reward and human resources strategy, and provided certain taxation advice. The total
fees for advice to the Committee during the year were $138k (2014: $90k).
PwC 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. The Committee reviewed the performance
of PwC during the year and the fees received. The Committee concluded that PwC remained independent and
continued to provide high-quality service to the Committee.
During 2015, the Company undertook an audit tender process that led the Board to recommend the appointment
of PwC as auditors with effect from 12 May 2016. The Board requires the auditors to minimise non-audit services and
noted that remuneration services are prohibited under legislation that is to come into force. Therefore, PwC would
not be able to provide advice to the Committee once they became auditors. Accordingly, Michael Ashton (Chair)
and Dr Pamela Kirby (Chair designate) led a tender process for remuneration advice. The conclusion of this process
was that Willis Towers Watson should be appointed to conduct remuneration advice going forward. The Committee
thanks PwC for their commitment and diligence and welcomed Willis Towers Watson to Hikma.
The Committee seeks the assistance of senior management on matters relating to policy performance and
remuneration and maintains a strong link with management to ensure that its deliberations are fully informed.
The Committee ensures that no Director, executive or employee takes part in discussions or advice relating to
his own remuneration or benefits.
Shareholder approval
The Committee actively seeks the engagement of shareholders in the setting of remuneration policy and practice.
The voting patterns are included in the table below. For ease of understanding, the percentages below have been
divided into votes ‘For’, ‘Against’ and ‘Votes withheld’. Under the Companies Act ‘Votes withheld’ are not a valid
vote and, therefore, are discounted when considering approval at a general meeting:
Resolution
2015 Policy
2014 Policy
2014 Implementation
112
For
78.5%
90.8%
97.0%
Against
16.8%
7.4%
1.2%
Withheld
Votes cast
Votes
available
4.7% 154,826,722 198,880,939
1.7% 161,008,645 198,167,997
1.8% 161,008,645 198,167,997
Annual Report on Remuneration
For the year ended 31 December 2015, the Group’s policy on remuneration was implemented as set out below.
Single total figure
The following table shows a single total figure of remuneration in respect of qualifying services for the 2015 financial
year for each Executive Director, together with comparative figures for 2014.
Policy verification
Director
Said Darwazah
Year
2015
2014
Mazen Darwazah 2015
2014
Salary
$
1,200,000
842,265
675,987
620,172
Bonus
$
Benefits
$
LTIP
$
12,000 2,928,000 3,159,892
11,000 2,105,663 2,085,993
10,000 1,649,409 2,117,454
0 1,550,430 1,390,662
Pension
$
16,150
11,335
12,535
11,500
Other
$
Total
$
Policy range
(see page 107)
$
Nil 7,316,042 12,736,000 to 25,029,000
5,870,000 to 7,316,000
Nil 5,056,255
7,387,000 to 8,564,000
Nil 4,465,386
2,123,000 to 5,175,000
Nil 3,572,764
The information in the table above has been audited by Deloitte.
Salary
This is the basic annual salary paid monthly in arrears. Further details on future salaries are available on page 109.
Benefits
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. The benefits received related to school fees.
Pension
This is a pension payment paid to the Hikma Pharmaceuticals Defined Contribution Retirement Benefit Plan
(the ‘Benefit Plan’) on behalf of the Executive Directors on the same basis as other employees located in Jordan.
The Executive Directors do not receive personal pension contributions from the Group. Under the Benefit Plan the
Group matches employee contributions made, which 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 Executive Directors have served for in excess of ten years and will receive their benefits
under the scheme when they reach their 60th birthday.
Bonus
During 2015, Hikma operated a cash bonus plan with Element A of the EIP, which has a maximum award of 150%
of salary, and a share based bonus under Element C of the EIP, which has a maximum award of 100% of salary.
The EIP and awards made under it in respect of the 2015 performance year are described below.
Share awards
During 2014 and 2015, awards vested under the Long Term Incentive Plan (LTIP) which were granted in 2011 and
2012, respectively. The LTIP operated with a 300% of salary maximum, a three-year vesting period and performance
conditions based on total shareholder return and financial metrics. Further details can be found in the 2012 report
and accounts on pages 97 to 99 or on request from investors@hikma.com. In 2014, the LTIP was replaced with
Element B of the EIP which has a maximum award of 150% of salary. The EIP and awards made under it in respect
of the 2015 performance year are described further below.
113
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Remuneration report – Continued
LTIP
The LTIP amount included in the 2015 single total figure of remuneration is the conditional share award granted
in 2012. The performance achieved against the performance targets is shown below.
Condition
Requirements
Practice
Description
TSR
Sales growth
EPS growth
Weighting
50%
17%
17%
Return on invested capital
17%
Threshold
50th percentile
20% of award element
9%
20% of award element
15%
20% of award element
10%
20% of award element
Maximum
75th percentile
100% of award element
13%
100% of award element
20%
100% of award element
12%
100% of award element
Actual
performance
86th
percentile
17%
43%
20%
Award vested
% of maximum
100%
100%
100%
100%
* TSR is total shareholder return comparative performance against the Company’s Comparator Group.
The information in the table above has been audited by Deloitte.
Chairman and Chief Executive
Performance condition
Maximum number of shares capable of vesting
Percentage of maximum vesting
Number of vested shares
Value of vested shares*
Total value
* Share price on vesting was £20.71 and there were $0.63574 to £1.
The information in the table above has been audited by Deloitte.
Vice Chairman
Performance condition
Maximum number of shares capable of vesting
Percentage of maximum vesting
Number of vested shares
Value of vested shares*
Total value
* Share price on vesting was £20.71 and there were $0.63574 to £1.
The information in the table above has been audited by Deloitte.
Financial performance
TSR
48,400
100%
48,400
£1,002,364
Sales growth
16,200
100%
16,200
£335,502
Return on
invested capital
16,200
100%
16,200
£335,502
EPS growth
16,200
100%
16,200
£335,502
£2,008,870
($3,159,892)
Financial performance
TSR
32,600
100%
32,600
£675,146
Sales growth
10,800
100%
10,800
£223,668
Return on
invested capital
10,800
100%
10,800
£223,668
EPS growth
10,800
100%
10,800
£223,668
£1,346,150
($2,117,454)
114
Executive Incentive Plan
The EIP was approved by shareholders at the 2014 AGM and is the sole incentive arrangement for Executive Directors.
The EIP is composed of three elements:
Element
A
B
C
Maximum
award
% of salary
150%
150%
Delivery
mechanism
Cash bonus
Deferred
shares
100%
Restricted
shares
3 years
Point received
Immediate
2 years
Risks after award
None
- Forfeiture/clawback
- Share price
- Employed
- Forfeiture/clawback
- Share price
- Employed
Additional requirements
None
50% of the total share
award is subject to a
holding period after
vesting. These shares
may not be sold until
five years after grant.
The level of award made under the EIP depends on the achievement of performance conditions:
• 50% Profit Before Tax
• 40% Strategic and Operational Targets (sub-conditions apply)
• 10% Personal Targets (sub-conditions apply)
The EIP has malus and clawback provisions on all Elements. In addition, there is a performance based threshold
condition for Element B. In the event of any of the following situations occurring, the Remuneration Committee
would reduce or cancel the awards under the EIP and/or existing shares awarded under the EIP:
• Hikma’s financial statement or results being negatively restated
• A participant having deliberately misled management or the market regarding Hikma’s performance
• A participant causing significant damage to Hikma
• A mistake in the calculation of the level of satisfaction of the performance targets
• A participant’s actions amounting to serious misconduct
115
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Remuneration report – Continued
The following table sets out the performance conditions and targets for 2015 and their level of satisfaction:
Performance Condition
Required Levels
Achievement
Application
Basis of
measurement
Threshold
Target
Max
Results
Achievement
Said % of
salary
Mazen%
of salary
Type
Profit Before Tax
PBT
$265m PBT
$294m PBT $323m PBT
Strategic and Operational
Generics division
expansion
Acquisition
Proposals
reviewed
and rejected
Significant
proposal
approved
Major
proposal
approved
Strengthening
and broadening
our product
portfolio
Product
approvals
Bedford
transfer
100 new
product
approvals
150 new
product
approvals
200 new
product
approvals
FDA approval
for key
facilities
Maintain
quality base
Maintain
and
improve
quality
base
Significantly
enhance
quality and
manufacturing
base
New strategic
partnerships
Enhance
existing
partnerships
1 major
strategic
partnership
2 major
strategic
partnerships
Subjective, market knowledge based
assessment by the Remuneration
Committee
Strengthen
within core
markets
Manage
environmental
factors
Target –
Max
191% 191%
Max
60%
60%
Max
30%
30%
Max
30%
30%
Max
20%
20%
Max
20%
20%
$318m PBT versus
budget of $293m
PBT – 109%
of budget
Roxane acquisition
moves Hikma from
20th to 6th in the US.
Secured scarce,
high-quality asset.
220 new product
approvals at Hikma
facilities. World
class product pipeline
acquired with Roxane
Portugal facility
re-approved. Roxane
world class facility
acquired. Existing
FDA approved
facilities maintained
Vitabiotics relationship
cemented in MENA.
Boehringer
relationship expanded
to Roxane and further
BD activity
Opened Egyptian
injectables market
through EUP
acquisition.
Restructured
Algerian operation
to enhance efficiency
Employee
satisfaction
survey
Numerous internal metrics reviewed and
considered under a subjective assessment
by the Remuneration Committee
Implemented changes
arising from employee
satisfaction survey
Max
40%
40%
Acceptable Good
Excellent
Close to Max
391% 391%
Maintaining
high-quality
and efficient
manufacturing
facilities to
maximise
profitability
Expanding
partnerships
Consolidate
MENA
Personal
Developing a
highly skilled,
effective and
diverse workforce
Total
116
In accordance with the EIP rules and based on the performance detailed in the table above, the following awards have
been made in respect of the 2015 performance year:
Participant
Executive
Chairman and
Chief Executive
EIP Element
A – Cash Bonus
Salary
Calculation
Maximum
potential
(% of salary)
150%
Achievement
147%
Value of
bonus/shares
$1,764,000
B – Deferred Shares
150%
147%
$1,764,000
$1,200,000
C – Restricted Shares
100%
97%
$1,164,000
Vice Chairman A – Cash Bonus
150%
147%
$993,702
B – Deferred Shares
150%
147%
$993,702
$675,987
C – Restricted Shares
100%
97%
$655,708
The information in the table above has been audited by Deloitte.
Receive
Receive
Cash now
(March 2016)
Additional
None
50% of
total shares
unsaleable
until five years
after grant
None
None
50% of
total shares
unsaleable
until five years
after grant
None
Shares in 2
years from
May 2016
Shares in 3
years from
May 2016
Cash now
(March 2016)
Shares in 2
years from
May 2016
Shares in 3
years from
May 2016
117
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Remuneration report – Continued
Non-Executive Directors
The table below details the fees paid to Non-Executive Directors during the year under review and the prior year.
Several Directors (marked *) joined, retired or changed roles during the periods and their fees have been pro-rated for
time served in the relevant position:
Individual
Non-Executive Director
Robert Pickering*
Patrick Butler*
Michael Ashton
Ronald Goode
Dr Pamela Kirby*
Breffni Byrne*
Ali Al-Husry
Jochen Gann*
John Castellani*
Sir David Rowe-Ham*
Samih Darwazah*
Board position
Senior Independent
Director
Audit Committee Chair
Remuneration
Committee Chair
CRE Committee Chair
Remuneration
Committee Chair
Designate
Independent Director
Non-Executive Director
Non-Executive Director
Independent Director
Senior Independent
Director (retired)
Chairman (retired)
2015
Fee
(all
elements)
£,000
Taxable
travel
benefits
£,000
Other
expenses
£,000
98.5
99.2
98.5
98.5
90.5
97.8
82.5
–
–
–
–
–
–
6.4
6.7
–
2.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
714.1
Fee
(all
elements)
£,000
2014
Taxable
travel
benefits
£,000
91.6
58.3
95.0
95.0
7.3
102.5
80.0
–
–
43.5
91.7
2.2
–
8.1
7.6
–
4.3
–
–
–
–
–
Total
£,000
93.8
58.3
103.1
102.6
7.3
106.8
80.0
–
–
43.5
91.7
Total
£,000
98.5
99.2
104.9
105.2
90.5
100.6
82.5
–
–
–
714.1
The information in the table above has been audited by Deloitte.
‘Taxable travel benefits’ refers to certain accommodation expenses for Non-Executive Directors that are wholly related
to their attendance at Board meetings and are in accordance with normal Hikma expense policy. These expenses are
treated as a taxable benefit by the UK authorities and the above figure includes the corresponding tax contribution.
‘Other expenses’ refers to costs associated with Mr Samih Darwazah, the founder and Life President of Hikma,
who died during the year. The Company paid certain medical, transport and accommodation expenses related to
his treatment whilst ill and following his death held commemorative events. The expenses were paid in recognition
of the high level of regard in which he was held and in acknowledgement of his unique contribution to the Company.
Payments to past Directors and for loss of office
There were no payments for loss of office during the financial year. There was one payment to a past Director which
related to Mr Samih Darwazah and is disclosed in the ‘Non-Executive Directors’ table above.
Outstanding share awards
The Company operated the 2005 Long Term Incentive Plan (LTIP) from 2007 to 2014. Under the LTIP a grant
of shares was made to Executive Directors each year which would be received three years following grant, subject
to satisfaction of performance criteria based on Total Shareholder Return (TSR) and financial metrics. The table
below details the performance against TSR and financial metrics and the resultant impact on vesting for each of
the remaining grants. The operation of the LTIP is fully explained on page 98 of the Annual Report for the year
ended 31 December 2013.
118
Share scheme
2014 LTIP grant
2013 LTIP grant
Equity
performance
Financial performance
Vesting level
TSR
50.0%
50.0%
Sales growth
3.3%
0.0%
EPS growth
16.7%
0.0%
ROIC
16.7%
16.7%
Total
86.7%
66.7%
The Company operated the 2014 EIP for the first time in 2015. The outstanding share awards under the EIP and LTIP
in respect of each of the Executive Directors are:
Participant
Director
Said Darwazah
Total
Mazen Darwazah
Share scheme
Quantum
Scheme
description Type of interest
LTIP Conditional
award
LTIP Conditional
award
EIP Element B Conditional
award
EIP Element C Conditional
award
LTIP Conditional
award
LTIP Conditional
award
EIP Element B Conditional
award
EIP Element C Conditional
award
Date
of award
Date of
vesting
Basis of
16-May-13 16-May-16 187% salary
award Shares (max)
102,000
Exercise price
Face value*
Nil $2,319,531
16-May-14 16-May-17 200% salary
63,000
Nil $1,861,630
15-May-15 15-May-17 150% salary
41,000
Nil $1,398,681
15-May-15 15-May-18 100% salary
27,000
Nil
$921,082
16-May-13 16-May-16 140% salary
233,000 (2014: 262,000) $6,500,924
Nil $1,205,246
53,000
16-May-14 16-May-17 200% salary
46,000
Nil $1,359,285
15-May-15 15-May-17 150% salary
30,000
Nil $1,023,425
15-May-15 15-May-18 100% salary
20,000
Nil
$682,283
Total
149,000 (2014: 164,000) $4,270,240
* The face value is calculated using the vesting percentages described earlier in this section and the share price of £23.01p and foreign exchange
rates of $0.6745 to £1 on 31 December 2015. The actual value received by Executive Directors under the share incentive arrangements is dependent
upon the share price of Hikma at the time of exercise, the satisfaction of performance criteria (LTIP) and the non-occurrence of forfeiture events
(EIP element B).
The applicable share prices for Hikma during the period under review were:
Date
1 January 2015
31 December 2015
2015 Range (low to high)
15 March 2016
Market price
(Closing price)
1,979p
2,301p
1,886p to 2,574p
1,721p
119
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Remuneration report – Continued
Dilution
On 29 February 2016, the Company issued 40,000,000 shares to Boehringer Ingelheim in consideration for the
purchase of Roxane Laboratories. The issuance increased the issued share capital of the Company by circa 20%
and resulted in a reduction to the overall dilution level resulting from the satisfaction of share awards.
In accordance with the guidelines set out by the Investment Association of British Insurers, 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
Discretionary Share Plans (5% Limit)
Granted in a
rolling ten-year
period
3.87%
Granted during
the year
0.32%
Equity position of the Directors & Executive Management
The Committee believes that its share ownership policy strongly links executive and shareholders’ interests.
All Executive Directors are required to build and maintain a minimum shareholding equal to three times base salary.
The limits under and compliance with this policy are 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
Said Darwazah
Mazen Darwazah
Target
300%
300%
Actual
38,200%
37,300%
Requirement
fulfilled?
Yes
Yes
Share ownership requirements also apply to Hikma executive management who are required to build and maintain a
minimum shareholding equal to at least two times base salary. In certain cases the shareholding requirement has been
increased in order to reflect local executive remuneration practice. Compliance with the shareholding requirement is
measured annually at the time of this report. Executive management’s shareholdings as a percentage of salary were:
Date
31 December 2015
31 December 2014
Requirement
200%
200%
Lowest
0%
345%
Highest
2,250%
2,255%
Average
Total shares
1,089% 1,039,573
1,128% 1,020,961
Requirement
fulfilled?
No
Yes
Due to exceptional circumstances the Committee allowed one executive to sell their holding during the year. Shares
vesting under any Hikma share scheme for that executive will be retained in a nominee facility which is managed by
Hikma. The executive will receive dividends but will not be able to dispose of his/her shares until the requirement is
met and then only to the extent of shares in excess of the requirement.
120
Director share interests
Said Darwazah, Mazen Darwazah and Ali Al-Husry are Directors and shareholders of Darhold Limited. Darhold holds
57,933,028 ordinary shares in Hikma. The table below breaks down their shareholdings in Hikma by shares effectively
owned through Darhold and shares held personally or by connected persons. The cancellation and issuance of shares
in Darhold and the purchase and disposal of shares in Hikma (by Darhold) can lead to a degree of variation in the
‘Effective no. of Hikma shares’.
Director
Said Darwazah
Mazen Darwazah
Ali Al-Husry*
Darhold
Personal
Interest in
Darhold
Effective Hikma
shares
21.49% 12,449,647
10.82% 6,267,496
7.95% 4,607,635
Shares (inc
connected
people)
657,000
907,041
1,162,811
Total
shareholding
13,106,647
7,174,537
5,770,446
* Ali Al-Husry holds his shares in Hikma and Darhold Limited through a vehicle called DYKB Limited.
The information in the table above has been audited by Deloitte.
The following table sets out details of the Directors’ shareholdings and, where there are shareholding requirements,
whether these have been met:
Director
Said Darwazah
Mazen Darwazah
Robert Pickering
Breffni Byrne
Michael Ashton
Ali Al-Husry*
Ronald Goode
Pat Butler
Dr Pamela Kirby
Jochen Gann
John Castellani
Ownership requirements
Percentage of
salary
300%
300%
–
–
–
–
–
–
–
–
–
Number of
shares
105,528
59,446
–
–
–
–
–
–
–
–
–
Total shares
owned
13,106,647
7,174,537
7,500
10,000
18,566
5,770,446
10,000
1,375
3,317
–
–
Conditional
shares under
the LTIP and EIP
233,000
149,000
–
–
–
–
–
–
–
–
–
Total share
interests
13,455,041
7,382,983
7,500
10,000
18,566
5,770,446
10,000
1,375
3,317
–
–
* Ali Al-Husry holds his shares in Hikma and Darhold Limited through a vehicle called DYKB Limited.
The information in the table above has been audited by Deloitte. The share price used to calculate whether the shareholding requirements have been
met is the price on 31 December 2015 of £23.01p and foreign exchange rates of $0.6745 to £1 on the same date.
The following table sets out the changes in interests of Directors during the year under review and up to the date
of this report. Directors not listed in the table did not change their share interests during the period.
Director
Dr Pamela Kirby
Mazen Darwazah
Said Darwazah
Date
28 August 2015
18 May 2015
18 May 2015
Event
Purchase of shares.
Exercise of LTIP. Retained all shares.
Exercise of LTIP. Retained all shares.
No. Shares
3,317
65,000
97,000
121
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Remuneration report – Continued
Scheme interests
The following table sets out details of the ‘scheme interests’ of the Directors. Element C of the EIP has been excluded
from the table because it does not qualify as a ‘scheme interest’ (defined in the Regulations) due to the performance
period being a single year. The LTIP and Element B of the EIP have been included because they have performance
periods of three years and one year plus a two-year forfeiture condition, respectively:
Type of interest
Performance measures
Vested but
unexercised
Exercised
during the year
Director
Said Darwazah
Mazen Darwazah
Robert Pickering
Breffni Byrne
Michael Ashton
Ali Al-Husry
Ronald Goode
Pat Butler
Dr Pamela Kirby
Jochen Gann
John Castellani
Shares
–
–
–
–
–
–
–
–
–
–
–
Share options
233,000
149,000
–
–
–
–
–
–
–
–
–
Yes
206,000
129,000
–
–
–
–
–
–
–
–
–
No
27,000
20,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
97,000
65,000
–
–
–
–
–
–
–
–
–
Remuneration table
The following table sets out the total remuneration, including amounts vesting under short-term and long-term
incentive plans, for each financial period in respect of the Directors holding the positions of Chief Executive and
Vice Chairman.
Important note: The total figures for the financial years 2015 and 2014 are higher due to the change from a LTIP
award subject to future performance to an EIP based on prior year performance. In accordance with the Regulations,
the 2014 and 2015 totals include LTIPs vesting during the relevant period (which were granted three years before)
and Element C of the EIP which was granted in respect of the relevant period. The Regulations require Element C to
be treated as a cash bonus, although it is an award of shares that will not vest for three years after grant. The final
LTIP awards vest in 2017, after which point the totals in the above table will include Element C only.
Year
2015
2014
2013
2012
2011
2010
2009
Said Darwazah – Chairman & Chief Executive
Mazen Darwazah – Vice Chairman
Total
$7,316,042
$5,056,255
$3,956,836
$3,296,000
$2,629,000
$1,965,000
$1,183,000
Bonus as
% max
98%
100%
100%
80%
80%
100%
37%
Share awards as
% max
Total
98% $4,465,386
70% $3,572,764
62% $2,646,280
50% $2,114,000
67% $1,748,000
49% $1,296,000
$797,000
67%
Bonus as %
max
98%
100%
100%
80%
80%
100%
37%
Share awards as
% max
98%
70%
47%
50%
67%
49%
67%
The information in the table above has been audited by Deloitte.
122
Performance graph
The graph below shows Hikma’s performance, measured by Total Shareholder Return (TSR) compared to the
FTSE 250 and FTSE 350 Pharmaceutical sector from 31 December 2005 to 31 December 2015.The Company has
chosen these comparators because the Company is a constituent, the comparators are largely unaffected by foreign
exchange changes and relevant data is readily available.
Total shareholder return since IPO (%)
806.2%
1,000
Hikma Pharmaceuticals Plc
FTSE 250
FTSE 350 Pharmaceuticals
& Biotechnology
800
600
400
200
0
-200
Nov 05
Nov 06
Nov 07
Nov 08
Nov 09
Nov 10
Nov 11
Nov 12
Nov 13
Nov 14
Nov 15
CEO and average employee change
The table below shows how the percentage change in the Chief Executive’s (CEO) salary, benefits and bonus
between 2014 and 2015 compares with the percentage change in the average of each of those components
of pay for employees.
Salary
CEO
Employees ($m)
Number of employees
Average per employee
2015
2014
$1,200,000 $842,265
178
7,139
$24,933
185
7,189
$25,734
Percentage
increase
2015
42.5% $12,000
3.9%
362
7,189
0.7%
3.2% $50,355
Benefits
2014
$11,000
344
7,139
$48,186
Bonus
Percentage
increase
2015
2014
9.1% $2,928,000 $2,105,663
47.1
46.9
5.2%
7,139
7,189
0.7%
$6,598
$6,524
4.5%
Percentage
increase
39.1%
-0.4%
-0.7%
-1.1%
The Group’s pay review which took effect from 1 January 2015 awarded average percentage increases in wages and
salaries of 3.9% for existing employees. The nature and level of benefits to employees in the year ended 31 December
2015 was broadly similar to that in the previous year. The total amount of bonuses paid to employees (excluding the
Executive Directors) in respect of the year ended 31 December 2015 was 1.1% lower than in 2014.
Relative importance of spend on pay
The following table sets out the total amount spent in 2015 and 2014 on remuneration of the Group’s employees and
major distributions to shareholders.
Distribution expense
Employee remuneration
Distributions to shareholders
2015
$362m
$76m
2014
$344m
$55m
% increase
from 2014 to
2015
5.2%
38.2%
123
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Remuneration report – Continued
Terms of appointment and service
Service contracts
The 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, were:
Executive Director
Said Darwazah
Mazen Darwazah
Company
notice period
12 months
Contract date
1 July 2007
Unexpired
term of contract
Rolling contract
Potential termination payment
12 months’ salary and benefits
12 months
25 May 2006
Rolling contract
12 months’ salary and benefits
Letters of appointment
The Non-Executive Directors have letters of appointment with Hikma, not service contracts. Appointments are made
for a period of 36 months.
Non-Executive Director
Robert Pickering
Michael Ashton
Ali Al-Husry
Breffni Byrne
Ronald Goode
Pat Butler
Dr Pamela Kirby
Jochen Gann
John Castellani
Date of appointment
1 September 2011
14 October 2005
14 October 2005
14 October 2005
12 December 2006
1 April 2014
1 December 2014
29 February 2016
1 March 2016
Notice payment
1 month
1 month
1 month
1 month
1 month
1 month
1 month
1 month
1 month
The Company requires all Directors be subject to annual election by shareholders.
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, network and knowledge of the
Director, from which Hikma can benefit. Executive Directors may accept external appointments as long as they do
not lead to a conflict of interest and are allowed to retain any fees. During the year under review, Said Darwazah
and Mazen Darwazah received fees of $10,000 (2014: $10,000) and $10,000 (2014: $10,000) respectively relating
to external appointments which are detailed in their Director profiles on page 69. The process for controlling these
appointments is described in the governance statement on page 78.
Closing statement
We have continued to develop our approach to remuneration reporting this year and the Committee hopes that this
has aided your understanding of our remuneration policy and practices. Please do not hesitate to contact me if you
have any questions or observations.
For and on behalf of the Remuneration Committee
Michael Ashton
Remuneration Committee Chair
15 March 2016
124
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Directors’ report
Report of the Directors
to shareholders and stakeholders
The Directors submit their report together with
the audited financial statements for the year
ended 31 December 2015. This report forms
the management report for the purposes of
the Disclosure and Transparency Rules. Readers
are asked to cross refer to the other sections of
the Annual Report to the extent necessary to
meet Hikma’s reporting obligations as follows
(statements that are not applicable have
been excluded):
• Long term incentive schemes: Directors’
remuneration report, pages 118 and 119
• Related party transactions: Note 40 of the
financial statements, page 177
• Going concern statement: Risk and control,
page 61
• Names and biographical details of the Directors:
corporate governance report, pages 69 to 71
• Independence of Non-Executive Directors:
corporate governance report, page 75
• Directors’ share interests: Directors’ remuneration
report, page 121
• Greenhouse Gas Emissions: Sustainability report,
page 51
• Financial Instruments and Risk: Note 30 of the
financial statements page 166 to 170
Financial
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, Injectables
and Generics. The majority of the Group’s operations are
in the MENA region, the US 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 on page 148.
Hikma has not capitalised any interest payments.
Results
The Group’s profit for the year in 2015 was $257 million
(2014: $282 million).
Dividend
The Board is recommending a final dividend of 21 cents
per share (approximately 14.6 pence) (2014: 21 cents
including a special dividend). The proposed dividend
will be paid on 19 May 2016 to shareholders on the
register on 8 April 2016, subject to approval at the
Annual General Meeting on 12 May 2016. An interim
dividend of 11 cents per share was paid on 25 September
2015 (2014: 11 cents). The total dividend for the year
2015 is 32.0 cents per share (2014: 32.0 cents).
Creditor payment policy
Hikma’s policy, which is also applied by the Group
and will continue in respect of the 2016 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 2015
were equivalent to 81 days’ purchases (2014: 74 days),
based on the average daily amount invoiced by suppliers
during the year.
125
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Directors’ report – Continued
Donations
During the year the Group made charitable donations
of approximately $1.8 million (2014: $2.0 million):
Auditors
Each person who was a Director of Hikma at the date
when this report was approved confirms that:
Type of donation
Local charities serving communities
in which the Group operates
Medical (donations in kind)
Political
Total
Amount
donated in
2014 ($)
Amount
donated in
2015 ($)
• So far as the Director is aware, there is no
relevant audit information of which Hikma’s
auditors are unaware
1,489,484
518,189
Nil
2,007,673
1,622,628
127,399
Nil
1,750,027
• 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.
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.
Employment
During this year, the Company continued to operate
its existing employee engagement mechanisms which
include intra-group communications, social networking,
an open door policy for legitimate union representatives
and the operation of share incentive arrangements.
The Company does not discriminate against a potential
employee on grounds of disability and will make
reasonable adjustments to employ and develop
such persons.
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 33 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 2015:
Type
Ordinary
Nominal value
10 pence
In issue
199,385,118
Issued during
the year
753,079
Group policy prohibits the payment of political donations.
Research and development
The Group’s investment in research and development
(R&D) during 2015 represented 2.8% of Group revenue
(2014: 3.7%). Additionally, the Group invested extensively
in the purchase of certain products including the Roxane
pipeline. Further details on the Group’s R&D activities
can be found on page 34.
Interest
The interest capitalised during the year under review
was $0.3m (2014: $0.2m). The tax relief related to
the capitalised interest was $0.1m (2014: $0.1m).
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.
Directors
It is the Board’s policy that all Directors should retire
and, should the Director wish to continue in office, seek
re-election on an annual basis. Accordingly, Mr Said
Darwazah, Mr Mazen Darwazah, Mr Robert Pickering,
Mr Ali Al-Husry, Mr Michael Ashton, Dr Ronald Goode,
Mr Pat Butler, Dr Pamela Kirby, Dr Jochen Gann and Mr
John Castellani will retire at the Annual General Meeting.
Mr Breffni Byrne will retire from the Board at the close
of the AGM.
126
During 2015, Hikma issued ordinary shares solely
pursuant to the exercise of options under the Stock
Option Plan, 2005 Long Term Incentive Plan and 2009
Management Incentive Plan. On 29 February 2016,
the Company issued 40,000,000 ordinary shares to
Boehringer Ingelheim pursuant to the acquisition of
Roxane Laboratories that was approved by shareholders
on 19 February 2016.
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 14 May 2015,
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 2016 or the 2016 Annual
General Meeting, which is scheduled for 12 May 2016.
The Directors have not used this authority during the
year, but are proposing to renew this authority at the
2016 Annual General Meeting. Additionally, at the
Extraordinary General Meeting held on 19 February
2016, shareholders gave the Directors authority to
re-purchase shares from Boehringer Ingelheim that
were issued in respect of the Roxane acquisition.
Share issuance
At the Annual General Meeting on 14 May 2015, the
Directors were authorised to issue relevant securities up
to an aggregate nominal amount of £6,629,331, and to
be empowered to allot equity securities for cash on a non
pre-emptive basis up to an aggregate nominal amount of
£1,988,799, at any time up to the earlier of the date of
the 2016 Annual General Meeting or 30 June 2016. The
Directors propose to renew these authorities at the 2016
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.
Details of the employee share schemes are set out in
Note 38 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, 12 May 2016, starting at 11.00 a.m. The
Notice convening the meeting is given in a separate
document accompanying this document, and includes
a commentary on the business of the AGM, and notes
to help shareholders exercise their rights at the meeting.
The Company provides for the vote on each resolution
to be by poll rather than by show of hands. This provides
for greater transparency and allows the votes of all
shareholders to be counted, including those cast by
proxy. The level of proxies lodged for each resolution
is projected onto a screen as each resolution is put to
the meeting. A ‘vote withheld’ explanation is included
on the proxy cards.
The powers of the Directors are determined by the
Articles, the Code and other relevant UK legislation.
The Articles give the Directors the power to appoint
and remove Directors. 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.
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
Darhold Limited1
Boehringer Ingelheim GmbH2
Capital Group International
Fidelity International
Number of
shares
57,933,028
40,000,000
15,899,676
9,791,950
Percentage
held
24.2%
16.7%
6.6%
4.1%
1 Messrs Said Darwazah, Mazen Darwazah and Ali Al-Husry, each being a
director and shareholder of Hikma, are shareholders and non-executive
directors of Darhold Limited. See page 121 for details of their holdings
in Darhold Limited.
2 Dr Jochen Gann is a Director of Hikma and a senior executive of
Boehringer Ingelheim GmbH.
127
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Directors’ report – Continued
Controlling shareholder
During 2014, the Listing Rules were amended to
introduce additional requirements for companies
with controlling shareholders. Darhold Limited and
the Concert Party (as detailed in the 2015 Notice of
Annual General Meeting) were a controlling shareholder
of Hikma during 2015. Since the year end, Darhold
Limited and the Concert Party ceased to be
a controlling shareholder.
Pre-emptive issue of shares
During the year under review, and in the period since
the date of Hikma’s Initial Public Offering on 1 November
2005, 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 Murad
Hana Darwazah Ramadan
Tareq Darwazah
Zeena Murad
EIP granted 15
May 2015
68,000
50,000
–
3,557
–
–
MIP granted 14
May 2015
–
–
282
–
1,117
931
At the Annual General Meeting held on 14 May 2015, a
vote of the independent shareholders of Hikma approved
the award of up to an aggregate of 128,000 ordinary
shares pursuant to Hikma’s 2014 Executive Incentive Plan
to Said Darwazah, Mazen Darwazah and Hana Darwazah
Ramadan (the ‘EIP Holders’) and 20,000 ordinary shares
pursuant to the Management Incentive Plan to May
Darwazah Murad, Zeena Murad, Tareq Darwazah and
Walid Darwazah (the ‘MIP Holders’). Because of the
relationship of the EIP Holders and the MIP Holders with
Darhold Limited, who at the time of the Annual
General Meeting held 57,183,028 ordinary shares
(at 7 April 2015 representing 28.75% of the issued
share capital of Hikma, and as at 16 March 2016
being the latest practicable date prior to the publication
of this document, holding 57,933,028 ordinary shares,
representing 24.20% of the issued share capital of
Hikma), each of the EIP 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 7 April 2015, the Concert Party
held, in aggregate, interests in 62,075,779 ordinary
shares in the capital of Hikma (then representing
31.21% of the then issued share capital of Hikma). As
at 16 March 2016 being the latest practicable date prior
to the publication of this document, the Concert Party
held, in aggregate, interests in 62,987,779 ordinary
shares in the capital of Hikma (representing 26.31%
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 the MIPs, the Concert
Party would potentially have, in aggregate, interests in
63,387,200 shares in the capital of Hikma (representing
26.44% 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/EIPs/MIPs).
During the period from the Annual General Meeting
in 2015 to 16 March 2016, the LTIP/EIP/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, or 2014
Executive Incentive Plan or 2009 Management
Incentive Plan (each an ‘Option Holder’) exercised,
in aggregate, options over 504,562 ordinary shares
in the capital of Hikma.
Holding, 7 April 2015
Holding, 16 March 2016
Holding if all existing EIP, MIP,
LTIP are exercised
Holding if maximum award
granted in 2016 exercised
No. of
ordinary
shares
57,183,028
62,075,779
Percentage of
issued share
capital
No. of
ordinary
shares
28.75% 57,933,028
31.21% 62,987,779
No. of
Percentage of
ordinary
issued share
shares
capital
24.20%
–
26.31% 63,387,200
Percentage of
issued share
capital
–
No. of
ordinary
shares
–
26.44% 63,534,137
Percentage of
issued share
capital
–
26.48%
Darhold Limited
Concert Party
128
We confirm to the best of our knowledge:
• The financial statements, prepared in accordance
with International Financial Reporting Standards, give
a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the
undertakings included in the consolidation taken
as a whole
• The Strategic report includes a fair review of the
development and performance of the business and
the position of the Company and the undertakings
included in the consolidation taken as a whole,
together with a description of the principal risks
and uncertainties that they face
• The Annual Report and financial statements, taken
as a whole, are fair, balanced and understandable and
provide the information necessary for shareholders to
assess the Company’s performance, business model
and strategy
By order of the Board
Said Darwazah
Chairman and Chief Executive
15 March 2016
Mazen Darwazah
Executive Vice Chairman
15 March 2016
Directors’ Responsibility Statement
Directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable law and regulations. Company law requires
the Directors to prepare financial statements for each
financial year. Under that law the Directors are required
to prepare the Group financial statements in accordance
with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and Article 4 of the
IAS Regulation and have also chosen to prepare the
Parent Company financial statements under IFRSs as
adopted by the EU. Under company law the Directors
must not approve the accounts unless they are satisfied
that they give a true and fair view of the state of affairs
of the Company and of the profit or loss of the Company
for that period. In preparing these financial statements,
International Accounting Standard 1 requires
that Directors:
• Properly select and apply accounting policies
• Present information, including accounting policies,
in a manner that provides relevant, reliable,
comparable and understandable information
• Provide additional disclosures when compliance with
the specific requirements in IFRSs are insufficient to
enable users to understand the impact of particular
transactions, other events and conditions on the
entity’s financial position and financial performance
• Make an assessment of the Company’s ability
to continue as a going concern
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position
of the Company and enable them to ensure that the
financial statements comply with the Companies
Act 2006. They are also responsible for protecting
shareholder investments and safeguarding the assets
of the Company and hence for taking reasonable
steps for the prevention and detection of fraud
and other irregularities.
The Directors are responsible for the maintenance
and integrity of the corporate and financial information
included on the Company’s website. Legislation in
the United Kingdom governing the preparation and
dissemination of financial statements may differ
from legislation in other jurisdictions.
129
CORPORATE GOVERNANCE HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Financial Statements
Independent Auditor’s Report to the members of Hikma Pharmaceuticals PLC
Opinion on financial statements of Hikma
Pharmaceuticals PLC
In our opinion:
the financial statements give a true and fair view of the
state of the Group's and of the Parent Company's affairs as
at 31 December 2015 and of the Group's profit for the year
then ended;
the Group financial statements have been properly prepared
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
the Parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the
Companies Act 2006; and
the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
The financial statements comprise the Consolidated Income
Statement, the Consolidated Statement of Comprehensive Income,
the Consolidated and Parent Company Statements of Financial
Position, the Consolidated and Parent Company Cash Flow
Statements, the Consolidated and Parent Company Statements of
Changes in Equity and the related notes 1-44 to the Consolidated
Financial Statements and 45-67 to the Parent Company Financial
Statements. The financial reporting framework that has been
applied in their preparation is applicable law and IFRSs as adopted
by the European Union and, as regards the Parent Company
financial statements, as applied in accordance with the provisions
of the Companies Act 2006.
Separate opinion in relation to IFRSs as issued
by the IASB
As explained in note 2 to the Group financial statements, in addition
to complying with its legal obligation to apply IFRSs as adopted by
the European Union, the Group 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.
Going concern and the Directors’ assessment of the
principal risks that would threaten the solvency or
liquidity of the Group
As required by the Listing Rules we have reviewed the directors’
statement regarding the appropriateness of the going concern basis
of accounting contained within note 2 to the financial statements
and the directors’ statement on the longer-term viability of the
Group contained within the strategic report on page 60.
We have nothing material to add or draw attention to in relation to:
the directors' confirmation on page 53 that they have carried
out a robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future
performance, solvency or liquidity;
the disclosures on pages 54-56 that describe those risks and
explain how they are being managed or mitigated;
the directors' statement in note 2 to the financial statements
about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing them and
their confirmation that there are no material uncertainties
to the Group's ability to continue to do so over a period of
at least twelve months from the date of approval of the
financial statements;
the director's explanation on page 60 as to how they have
assessed the prospects of the Group over the three year period
to 31 December 2018 and why they consider that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We agreed with the director’s adoption of the going concern basis
of accounting and we have not identified any material uncertainties
that may cast significant doubt on the Group’s ability to continue
as a going concern. However, because not all future events or
conditions can be predicted, this statement is not a guarantee
as to the Group’s ability to continue as a going concern.
Independence
We are required to comply with the Financial Reporting Council’s
Ethical Standards for Auditors and we confirm that we are
independent of the Group and we have fulfilled our other ethical
responsibilities in accordance with those standards. We also confirm
we have not provided any of the prohibited non-audit services
referred to in those standards.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below
are those that had the greatest effect on our audit strategy, the
allocation of resources in the audit and directing the efforts of
the engagement team:
130
130
Independent Auditor’s Report to the members of Hikma Pharmaceuticals PLC
Opinion on financial statements of Hikma
Pharmaceuticals PLC
In our opinion:
the financial statements give a true and fair view of the
state of the Group's and of the Parent Company's affairs as
at 31 December 2015 and of the Group's profit for the year
then ended;
the Group financial statements have been properly prepared
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
the Parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European
Going concern and the Directors’ assessment of the
principal risks that would threaten the solvency or
liquidity of the Group
As required by the Listing Rules we have reviewed the directors’
statement regarding the appropriateness of the going concern basis
of accounting contained within note 2 to the financial statements
and the directors’ statement on the longer-term viability of the
Group contained within the strategic report on page 60.
We have nothing material to add or draw attention to in relation to:
the directors' confirmation on page 53 that they have carried
out a robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future
Union and as applied in accordance with the provisions of the
performance, solvency or liquidity;
Companies Act 2006; and
the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
The financial statements comprise the Consolidated Income
Statement, the Consolidated Statement of Comprehensive Income,
the Consolidated and Parent Company Statements of Financial
Position, the Consolidated and Parent Company Cash Flow
Statements, the Consolidated and Parent Company Statements of
the disclosures on pages 54-56 that describe those risks and
explain how they are being managed or mitigated;
the directors' statement in note 2 to the financial statements
about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing them and
their confirmation that there are no material uncertainties
to the Group's ability to continue to do so over a period of
at least twelve months from the date of approval of the
financial statements;
Changes in Equity and the related notes 1-44 to the Consolidated
the director's explanation on page 60 as to how they have
Financial Statements and 45-67 to the Parent Company Financial
assessed the prospects of the Group over the three year period
Statements. The financial reporting framework that has been
to 31 December 2018 and why they consider that period to be
applied in their preparation is applicable law and IFRSs as adopted
appropriate, and their statement as to whether they have a
by the European Union and, as regards the Parent Company
reasonable expectation that the Group will be able to continue
financial statements, as applied in accordance with the provisions
in operation and meet its liabilities as they fall due over the period
of the Companies Act 2006.
Separate opinion in relation to IFRSs as issued
by the IASB
As explained in note 2 to the Group financial statements, in addition
to complying with its legal obligation to apply IFRSs as adopted by
the European Union, the Group has also applied IFRSs as issued by
the International Accounting Standards Board (IASB).
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We agreed with the director’s adoption of the going concern basis
of accounting and we have not identified any material uncertainties
that may cast significant doubt on the Group’s ability to continue
as a going concern. However, because not all future events or
conditions can be predicted, this statement is not a guarantee
as to the Group’s ability to continue as a going concern.
In our opinion the Group financial statements comply with IFRSs
as issued by the IASB.
Independence
We are required to comply with the Financial Reporting Council’s
Ethical Standards for Auditors and we confirm that we are
independent of the Group and we have fulfilled our other ethical
responsibilities in accordance with those standards. We also confirm
we have not provided any of the prohibited non-audit services
referred to in those standards.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below
are those that had the greatest effect on our audit strategy, the
allocation of resources in the audit and directing the efforts of
the engagement team:
Risk
How the scope of our audit responded to the risk
Revenue recognition
The Group’s revenue recognition policies require directors to
make a number of estimates, with the most significant relating
to provisions for chargebacks, product returns, rebates and
price adjustments (See notes 2 and 3) which vary by product
arrangements and buying groups.
Additionally, for certain pharmaceutical products there may be
uncertainty over the ultimate net selling price due to actual or
probable price volatility or over the level of returns, particularly
after the launch of a new product. In circumstances where
revenue cannot be reliably measured at the time of shipment,
revenue recognition is delayed until a reliable estimate can
be made. As there is significant management judgement in
determining whether revenue can be reliably measured, this
is an area of audit focus.
Impairment of goodwill and intangible assets
The Group holds goodwill and intangible assets totalling $604
million (see notes 3 and 14). These relate to Hikma’s acquired
manufacturing operations and other business combinations
and separately acquired product rights, which the directors are
required to assess for impairment. The significant value of these
items and the judgemental nature of assumptions included within
the impairment models, in particular the growth rates inherent
in the forecasts and the discount rate assumptions, make this an
area of audit focus.
Management completed impairment reviews where indicators
of impairment existed or where an annual impairment review
was required for assets with an indefinite useful life or goodwill.
Taxation
The Group’s worldwide operations are highly integrated and
involve a number of cross border transactions. As a result there
is complexity and judgement surrounding the valuation of tax
liabilities, including transfer pricing considerations (see notes 2,
3, 11 and 17).
We assessed the revenue recognition policies applied by the
Group, including the valuation and timing of revenue recognition
with reference to the relevant revenue recognition criteria in IFRSs.
Where revenue has been deferred because management
have determined that revenue cannot be reliably measured,
we challenged this judgement on a product by product basis
by comparing management’s estimate to our independently
developed expectation. Additionally we challenged the basis
of the decision to revert to normal recognition practice in the
case of one product.
We challenged the key judgements such as the expected value of
chargebacks, product returns, price adjustments and the amount
of inventory in the channel with respect to any deferred revenue
by performing analytical and substantive procedures.
Substantive procedures included examining third party statements
and data (e.g. external prescription data), sampling chargeback
payments processed subsequent to the year end to assess run rates
and challenging management estimates of channel inventory by
reference to IMS data.
We assessed each of the impairment reviews by critically reviewing
the estimated future cash flows by considering the historical
accuracy of budgeting and through our understanding of the
future prospects of the business or investment. We understood the
assumptions underlying the forecast cash flows and corroborated
the validity of these to other audit evidence. We sensitised the
forecast cash flows based on observed historical accuracy. We
worked with internal valuation specialists to challenge the discount
rates, comparing assumptions to external market data. Where
significant judgements were made we also carried out sensitivity
analyses to assess their impact.
We challenged the judgements made by the directors and
evaluated the appropriateness of the provisions for both
known and uncertain tax positions and their related disclosures.
Working with our own taxation specialists, we obtained the
latest correspondence between the Group and the relevant tax
authorities, understood the judgements made by the directors
in respect of the various open issues, held meetings with senior
management and reviewed any opinions of the Group’s external
tax advisers.
130
131
131
FINANCIAL STATEMENTS
Independent Auditor’s Report to the members of Hikma Pharmaceuticals PLC
Continued
Risk
How the scope of our audit responded to the risk
Inventory valuation
At 31 December 2015, the Group held inventories of $250 million
net of provisions of $47 million (see note 19). The directors make
significant judgements regarding the value of inventory provisions
for obsolescence and short-dated items.
We challenged the assumptions over inventory provisions by:
Reviewing the historical ageing of inventory;
Identifying and assessing a sample of aged and obsolete
inventory;
Analysing the level of short-dated inventory and the associated
provisions;
Testing the expected volume and price of future sales of
inventory by reviewing the price of a sample of inventory sold
after the balance sheet date; and
Reviewing the historical accuracy of inventory provisioning and
the level of inventory write-offs during the year.
In 2014 we also reported on acquisition accounting as a risk in our audit report. We have not reported on this because the only material
business combination announced in 2015 did not complete until early in 2016.
The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee discussed on
page 86.
Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to
express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the
risks described above, and we do not express an opinion on these individual matters.
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed
or influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
selected to provide an appropriate basis for undertaking audit
work to address the risks of material misstatement identified above.
Our audit work at these components was executed at levels of
materiality applicable to each individual entity which were lower
than Group materiality, ranging from $6m to $9m (2014: $6m
to $9m).
At the Parent Company level we also tested the consolidation
process and carried out analytical procedures to confirm our
conclusion that there were no significant risks of material
misstatement of the aggregated financial information of the
remaining components not subject to audit or audit of specified
account balances.
The Group audit team continued to follow a programme of
planned visits that has been designed so that a senior member of
the Group audit team visits each of the locations where the Group
audit scope was focused at least once every two years and the
most significant of them including Jordan and the USA at least once
a year. In 2015, the Group Partners visited the USA, Jordan and
Portugal. In years when we do not visit a significant component we
will include the component audit team in our team briefing, discuss
their risk assessment, and review documentation of the findings
from their work.
We determined materiality for the Group to be $15.4 million
(2014: $18 million), which is approximately 5% (2014: 5%) of
profit before tax, and below 1.2% (2014: 1.5%) of equity.
We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of $300,000 (2014:
$360,000), as well as differences below that threshold that, in our
view, warranted reporting on qualitative grounds. We also reported
to the Audit Committee on disclosure matters that we identified
when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of
the Group and its environment, including any Group-wide controls,
and assessing the risks of material misstatement at the Group level.
Based on that assessment, we focused our Group audit scope
primarily on the audit work at fifteen components. Nine of these
components were subject to a full scope audit; while others were
subject to an audit of certain specified account balances performed
centrally by the Group audit team. These locations represent the
principal business units and account for 88% (2014: 82%) of the
Group’s net assets, 90% (2014: 97%) of the Group’s revenue and
91% (2014: 88%) of the Group’s profit before tax. They were also
132
132
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Independent Auditor’s Report to the members of Hikma Pharmaceuticals PLC
Continued
Risk
Inventory valuation
How the scope of our audit responded to the risk
At 31 December 2015, the Group held inventories of $250 million
We challenged the assumptions over inventory provisions by:
net of provisions of $47 million (see note 19). The directors make
significant judgements regarding the value of inventory provisions
for obsolescence and short-dated items.
Reviewing the historical ageing of inventory;
Identifying and assessing a sample of aged and obsolete
inventory;
provisions;
Analysing the level of short-dated inventory and the associated
Testing the expected volume and price of future sales of
inventory by reviewing the price of a sample of inventory sold
after the balance sheet date; and
Reviewing the historical accuracy of inventory provisioning and
the level of inventory write-offs during the year.
In 2014 we also reported on acquisition accounting as a risk in our audit report. We have not reported on this because the only material
business combination announced in 2015 did not complete until early in 2016.
The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee discussed on
page 86.
Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to
express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the
risks described above, and we do not express an opinion on these individual matters.
selected to provide an appropriate basis for undertaking audit
work to address the risks of material misstatement identified above.
Our audit work at these components was executed at levels of
materiality applicable to each individual entity which were lower
than Group materiality, ranging from $6m to $9m (2014: $6m
to $9m).
At the Parent Company level we also tested the consolidation
process and carried out analytical procedures to confirm our
conclusion that there were no significant risks of material
misstatement of the aggregated financial information of the
remaining components not subject to audit or audit of specified
account balances.
The Group audit team continued to follow a programme of
planned visits that has been designed so that a senior member of
the Group audit team visits each of the locations where the Group
audit scope was focused at least once every two years and the
most significant of them including Jordan and the USA at least once
a year. In 2015, the Group Partners visited the USA, Jordan and
Portugal. In years when we do not visit a significant component we
will include the component audit team in our team briefing, discuss
their risk assessment, and review documentation of the findings
from their work.
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed
or influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
We determined materiality for the Group to be $15.4 million
(2014: $18 million), which is approximately 5% (2014: 5%) of
profit before tax, and below 1.2% (2014: 1.5%) of equity.
We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of $300,000 (2014:
$360,000), as well as differences below that threshold that, in our
view, warranted reporting on qualitative grounds. We also reported
to the Audit Committee on disclosure matters that we identified
when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of
the Group and its environment, including any Group-wide controls,
and assessing the risks of material misstatement at the Group level.
Based on that assessment, we focused our Group audit scope
primarily on the audit work at fifteen components. Nine of these
components were subject to a full scope audit; while others were
subject to an audit of certain specified account balances performed
centrally by the Group audit team. These locations represent the
principal business units and account for 88% (2014: 82%) of the
Group’s net assets, 90% (2014: 97%) of the Group’s revenue and
91% (2014: 88%) of the Group’s profit before tax. They were also
132
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
the part of the Directors' Remuneration Report to be audited
has been properly prepared in accordance with the Companies
Act 2006; and
the information given in the Strategic Report and 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
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
we have not received all the information and explanations we
require for our audit; or
adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
the Parent Company financial statements are not in agreement
with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report
if in our opinion certain disclosures of directors’ remuneration have
not been made or the part of the Directors’ Remuneration Report
to be audited is not in agreement with the accounting records and
returns. We have nothing to report arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review the part of
the Corporate Governance Statement relating to the company’s
compliance with ten provisions of the UK Corporate Governance
Code. We have nothing to report arising from our review.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we
are required to report to you if, in our opinion, information in the
annual report is:
materially inconsistent with the information in the audited
financial statements; or
apparently materially incorrect based on, or materially inconsistent
with, our knowledge of the Group acquired in the course of
performing our audit; or
otherwise misleading.
In particular, we are required to consider whether we have identified
any inconsistencies between our knowledge acquired during the
audit and the directors’ statement that they consider the annual
report is fair, balanced and understandable and whether the annual
report appropriately discloses those matters that we communicated
to the audit committee which we consider should have been
disclosed. We confirm that we have not identified any such
inconsistencies or misleading statements.
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. We also comply with International Standard on
Quality Control 1 (UK and Ireland). Our audit methodology and tools
aim to ensure that our quality control procedures are effective,
understood and applied. Our quality controls and systems include
our dedicated professional standards review team and independent
partner reviews.
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.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes
an assessment of: whether the accounting policies are appropriate
to the Group’s and the Parent Company’s circumstances and
have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information
in the annual report to identify material inconsistencies with the
audited financial statements and to identify any information that is
apparently materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing the
audit. If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.
Paul Franek FCA
(Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
15 March 2016
133
133
FINANCIAL STATEMENTS
Consolidated Income Statement
For the year ended 31 December 2015
2015
Exceptional
items and
other
adjustments
(note 5)
$m
2015
Statutory
results
$m
2014
Core results
$m
2014
Exceptional
items and
other
adjustments
(note 5)
$m
2014
Statutory
results
$m
2015
Core results
$m
Note
4
4
4
8
4
16
9
10
11
6
34
1,440
(622)
818
(156)
(180)
(36)
(37)
(409)
409
(2)
3
(55)
355
(67)
288
2
286
288
(16)
(20)
8
(28)
(28)
(7)
(2)
(37)
3
(34)
(34)
(34)
1,440
(622)
818
(172)
(200)
(36)
(29)
(437)
381
(9)
3
(57)
318
(64)
254
2
252
254
1,489
(638)
851
(157)
(174)
(55)
(38)
(424)
427
(6)
4
(38)
387
(84)
303
4
299
303
(14)
(11)
(25)
(25)
(25)
4
(21)
(21)
(21)
13
13
143.7
142.3
126.6
125.4
151.0
149.5
1,489
(638)
851
(171)
(185)
(55)
(38)
(449)
402
(6)
4
(38)
362
(80)
282
4
278
282
140.4
139.0
Continuing operations
Revenue
Cost of sales
Gross profit
Sales and marketing expenses
General and administrative expenses
Research and development expenses
Other operating expenses (net)
Total operating expenses
Operating profit
Loss/impairment of associates
Finance income
Finance expense
Profit before tax
Tax
Profit for the year
Attributable to:
Non-controlling interests
Equity holders of the parent
Earnings per share (cents)
Basic
Diluted
134
134
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Consolidated Income Statement
For the year ended 31 December 2015
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2015
Profit for the year
Items that may be reclassified subsequently to the income statement:
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
Note
31
2015
$m
254
(67)
187
(2)
189
187
2014
$m
282
1
(53)
230
3
227
230
2015
Exceptional
items and
other
2014
Exceptional
items and
other
2015
adjustments
Statutory
2014
adjustments
Core results
(note 5)
results
Core results
(note 5)
Note
$m
$m
$m
$m
1,440
1,440
1,489
2015
(622)
818
(172)
(200)
(36)
(29)
(437)
381
(9)
3
(57)
318
(64)
254
2
252
254
$m
(16)
(20)
8
(28)
(28)
(7)
(2)
(37)
3
(34)
(34)
(34)
(638)
851
(157)
(174)
(55)
(38)
(424)
427
(6)
4
(38)
387
(84)
303
4
299
303
2014
Statutory
results
$m
1,489
(638)
851
(171)
(185)
(55)
(38)
(449)
402
(6)
4
(38)
362
(80)
282
4
278
282
(14)
(11)
(25)
(25)
(25)
4
(21)
(21)
(21)
4
4
4
8
4
16
9
10
11
6
34
(622)
818
(156)
(180)
(36)
(37)
(409)
409
(2)
3
(55)
355
(67)
288
2
286
288
13
13
143.7
142.3
126.6
125.4
151.0
149.5
140.4
139.0
Continuing operations
Revenue
Cost of sales
Gross profit
Sales and marketing expenses
General and administrative expenses
Research and development expenses
Other operating expenses (net)
Total operating expenses
Operating profit
Loss/impairment of associates
Finance income
Finance expense
Profit before tax
Tax
Profit for the year
Attributable to:
Non-controlling interests
Equity holders of the parent
Earnings per share (cents)
Basic
Diluted
134
135
135
FINANCIAL STATEMENTS
Consolidated Balance Sheet
At 31 December 2015
Non-current assets
Intangible assets
Property, plant and equipment
Investment in associates and joint ventures
Deferred tax assets
Financial and other non-current assets
Current assets
Inventories
Income tax asset
Trade and other receivables
Collateralised and restricted cash
Cash and cash equivalents
Other current assets
Total assets
Current liabilities
Bank overdrafts and loans
Obligations under finance leases
Trade and other payables
Income tax provision
Other provisions
Other current liabilities
Net current assets
Non-current liabilities
Long-term financial debts
Obligations under finance leases
Deferred tax liabilities
Other non-current liabilities
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
2015
$m
2014
$m
14
15
16
17
18
19
20
21
22
23
24
29
25
26
27
28
29
17
32
33
35
34
607
507
7
70
46
1,237
251
3
488
40
553
25
1,360
2,597
115
1
276
75
28
97
592
768
590
22
21
20
653
1,245
1,352
35
282
(1)
1,021
1,337
15
1,352
602
514
16
67
39
1,238
273
10
439
8
280
3
1,013
2,251
393
1
248
65
25
109
841
172
145
23
25
1
194
1,035
1,216
35
281
(1)
882
1,197
19
1,216
The financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, were approved by the Board of Directors and signed
on its behalf by:
Said Darwazah
Director
15 March 2016
Mazen Darwazah
Director
136
136
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Consolidated Statement of Changes in Equity
For the year ended 31 December 2015
Note
14
15
16
17
18
19
20
21
22
23
24
29
25
26
27
28
29
17
32
33
35
34
1,237
1,238
1,360
2,597
1,013
2,251
2015
$m
607
507
7
70
46
251
3
488
40
553
25
115
1
276
75
28
97
592
768
590
22
21
20
653
1,245
1,352
35
282
(1)
1,021
1,337
15
1,352
2014
$m
602
514
16
67
39
273
10
439
8
280
3
393
1
248
65
25
109
841
172
145
23
25
1
194
1,035
1,216
35
281
(1)
882
1,197
19
1,216
Balance at 1 January 2014
Profit for the year
Cumulative effect of change in
fair value of financial derivatives
Currency translation loss
Total comprehensive income
for the year
Cost of equity-settled employee
share scheme
Exercise of equity-settled
employee share scheme
Dividends on ordinary shares
(note 12)
Balance at 31 December 2014
and 1 January 2015
Profit for the year
Currency translation Loss
Total comprehensive income
for the year
Issue of equity shares
Cost of equity-settled employee
share scheme
Deferred tax arising on share-
based payments
Dividends on ordinary shares
(note 12)
Balance at 31 December 2015
The financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, were approved by the Board of Directors and signed
Consolidated Balance Sheet
At 31 December 2015
Non-current assets
Intangible assets
Property, plant and equipment
Investment in associates and joint ventures
Deferred tax assets
Financial and other non-current assets
Current assets
Inventories
Income tax asset
Trade and other receivables
Collateralised and restricted cash
Cash and cash equivalents
Other current assets
Total assets
Current liabilities
Bank overdrafts and loans
Obligations under finance leases
Trade and other payables
Income tax provision
Other provisions
Other current liabilities
Net current assets
Non-current liabilities
Long-term financial debts
Obligations under finance leases
Deferred tax liabilities
Other non-current liabilities
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Mazen Darwazah
Director
Total liabilities
Net assets
Equity
Share capital
Share premium
Own shares
Other reserves
on its behalf by:
Said Darwazah
Director
15 March 2016
136
Total equity
attributable
to equity
shareholders
of the
parent
$m
1,017
278
Non-
controlling
interests
$m
17
4
Total
equity
$m
1,034
282
1
(52)
(1)
1
(53)
227
3
230
8
8
(55)
(1)
(56)
Merger and
Revaluation
reserves
$m
38
Translation
reserves
$m
(46)
Retained
earnings
$m
712
278
Total
reserves
$m
704
278
Share
capital
$m
35
Share
premium
$m
281
Own
shares
$m
(3)
38
(52)
1
1
(52)
(52)
279
227
8
(2)
8
(2)
(55)
(55)
942
252
252
15
(1)
882
252
(63)
189
15
(1)
35
281
1
(98)
(63)
(63)
2
(1)
1,197
252
(63)
189
1
15
(1)
38
(161)
(64)
1,144
(64)
1,021
35
282
(1)
(64)
1,337
19
2
(4)
1,216
254
(67)
(2)
187
1
15
(1)
(2)
15
(66)
1,352
137
137
FINANCIAL STATEMENTS
Consolidated Cash Flow Statement
For the year ended 31 December 2015
Net cash from operating activities
Investing activities
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of intangible assets
Proceeds from disposal of intangible assets
Investment in financial and other non-current assets
Investment in available for sale investments
Investments designated at fair value
Acquisition of business undertakings net of cash acquired
Finance income
Acquisition related amounts held in escrow account
Net cash used in investing activities
Financing activities
Increase/(decrease) in collateralised and restricted cash
Increase in long-term financial debts
Repayment of long-term financial debts
(Decrease)/increase in short-term borrowings
Dividends paid
Dividends paid to non-controlling shareholders of subsidiaries
Interest paid
Proceeds from issue of new shares
Proceeds from co-development and earnout payment agreement
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
36
5
21
2015
$m
366
(82)
31
(55)
(1)
(20)
3
(38)
(162)
6
529
(91)
(270)
(64)
(2)
(49)
1
17
77
281
280
(8)
553
2014
$m
425
(91)
1
(27)
1
(5)
(225)
4
(342)
(1)
5
(121)
241
(55)
(1)
(38)
30
113
168
(1)
280
138
138
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Consolidated Cash Flow Statement
For the year ended 31 December 2015
Notes to the Consolidated Financial Statements
Net cash from operating activities
Investing activities
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of intangible assets
Proceeds from disposal of intangible assets
Investment in financial and other non-current assets
Investment in available for sale investments
Investments designated at fair value
Acquisition of business undertakings net of cash acquired
Finance income
Acquisition related amounts held in escrow account
Net cash used in investing activities
Financing activities
Increase/(decrease) in collateralised and restricted cash
Increase in long-term financial debts
Repayment of long-term financial debts
(Decrease)/increase in short-term borrowings
Dividends paid
Dividends paid to non-controlling shareholders of subsidiaries
Interest paid
Proceeds from issue of new shares
Proceeds from co-development and earnout payment agreement
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
36
5
21
2015
$m
366
(82)
31
(55)
(1)
(20)
3
(38)
(162)
6
529
(91)
(270)
(64)
(2)
(49)
1
17
77
281
280
(8)
553
2014
$m
425
(91)
1
(27)
1
(5)
4
(225)
(342)
(1)
5
(121)
241
(55)
(1)
(38)
30
113
168
(1)
280
1. Adoption of new and revised 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, however, may impact the accounting for future
transactions and arrangements.
2. Significant accounting policies
General Information
Hikma Pharmaceuticals PLC is a company incorporated in the
United Kingdom under the Companies Act. The address of the
registered office is given on page 192.
Amendments to IAS 36
Amendments to IAS 39
IFRIC 21
Amendments to IAS 32
IFRS 11 (Amendments)
Annual improvements to
IFRSs: 2011 – 2013
Recoverable Amount Disclosures for
Non-Financial Assets
Novation of Derivatives and
Continuation of Hedge Accounting
Levies
Offsetting Financial Assets and
Financial Liabilities
Accounting for Acquisitions of
Interests in Joint Operations
At the date of authorisation of these financial statements, the
following Standards and Interpretations which have not been
applied in these financial statements were in issue but not yet
effective (and in some cases had not yet been adopted by the EU):
IFRS 9
IAS 16 and IAS 38
(amendments)
IAS 16 and IAS 41
(amendments)
IFRS 15
IAS 19 (amendments)
IAS 27 (amendments)
IFRS 10 and IAS 28
(amendments)
Financial Instruments
Clarification of Acceptable Methods of
Depreciation and Amortisation
Agriculture: Bearer Plants
Revenue from Contracts with
Customers
Defined Benefit Plans: Employees
Contributions
Equity Method in Separate Financial
Statements
Sale or Contribution of Assets
between an Investor and it Associate
or Joint venture
Annual improvements to
IFRSs: 2010 – 2012
Annual improvements to
IFRSs: 2012 – 2014 Cycle
IAS 1 (Amendments)
IFRS 10, IFRS 12 and IAS 28
(Amendments)
IFRS 16
IAS 12 (Amendments)
Disclosure Initiative
Investment Entities: Applying the
Consolidation Exemption
Leases
Recognition of deferred tax assets for
unrealised losses
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, except that IFRS9 will impact both the
measurement and disclosures of financial instruments and IFRS 15
may have an impact on revenue recognition and related disclosures.
Beyond the information above, it is not practicable to provide a
reasonable estimate of the effects of IFRS 9 , IFRS 15 and IFRS 16
until a detailed review has been completed.
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
(page 61).
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”).
An investor controls an investee when it is exposed, or has rights, to
variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee.
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.
138
139
139
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
2. Significant accounting policies continued
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.
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.
140
140
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued Notes to the Consolidated Financial Statements Continued
2. Significant accounting policies continued
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.
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
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:
liabilities exceeds the cost of the consideration, the excess is
It is identifiable;
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.
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.
2. Significant accounting policies continued
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 internally generated intangible asset are met,
which is usually when approval from the relevant regulatory
authority is considered probable.
Also the Group engages with third party research and development
companies to develop products on its behalf. Payments made to
such third parties to fund research and de*The format of the 2015
tax reconciliation has been expanded to clarify the reconciling items.
For consistency, we have re-classified the 2014 tax reconciliation
using the same methodology.
Further details of the elements of the tax reconciliation are
described below:
Profits taxed at different rates refer to non-UK profits taxed at
statutory rates different from the UK statutory rate.
Permanent differences relate principally to income which is not
subject to tax due to statutory exemptions.
Temporary differences for which no benefit is recognised
includes items on which it is not possible to book deferred tax and
comprise mainly of the impact of creating / (utilising) unrecognised
temporary differences.
Prior year adjustments include amounts settled with tax authorities
which differ from the amounts previously provided.
Development efforts are recognized as intangible assets if the
capitalization criteria for recognising an intangible asset are met, all
other payments are charged to the consolidated income statement.
(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.
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
(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) Product files and under-licenced products are assigned
indefinite useful lives which are reviewed for impairment
at least annually; and
(ii) 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
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
2. Significant accounting policies continued
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.
Hyperinflationary Economies
In hyperinflationary economies, when translating the results of
operations into US dollars, assets, liabilities, income statement
and equity accounts are translated at the rates prevailing on the
balance sheet date. Sudan was considered to be a hyperinflationary
economy during the year ended 31 December 2015.The effect of
using the prevailing rate in Sudan for the year ended 31 December
2015 was not material.
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
Dynamic market changes can generate uncertainty as to the
ultimate net selling price of a pharmaceutical product and therefore
revenue cannot always be measured reliably at the point when the
product is supplied or made available to external customers.
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.
If the ultimate net selling price cannot be reliably measured, revenue
recognition is deferred until a reliable measurement can be made.
Deferred revenue is included in other current liabilities in the
consolidated balance sheet.
Chargebacks
The provision for chargebacks is the most significant and complex
estimate used in the recognition of revenue. In the US 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 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
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
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HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued Notes to the Consolidated Financial Statements Continued
2. Significant accounting policies continued
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.
Hyperinflationary Economies
In hyperinflationary economies, when translating the results of
operations into US dollars, assets, liabilities, income statement
and equity accounts are translated at the rates prevailing on the
balance sheet date. Sudan was considered to be a hyperinflationary
economy during the year ended 31 December 2015.The effect of
using the prevailing rate in Sudan for the year ended 31 December
2015 was not material.
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
Dynamic market changes can generate uncertainty as to the
ultimate net selling price of a pharmaceutical product and therefore
revenue cannot always be measured reliably at the point when the
product is supplied or made available to external customers.
Rebates
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
at a discount.
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.
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 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.
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
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
If the ultimate net selling price cannot be reliably measured, revenue
recognition is deferred until a reliable measurement can be made.
revenue.
Deferred revenue is included in other current liabilities in the
Price adjustments
consolidated balance sheet.
Chargebacks
The provision for chargebacks is the most significant and complex
estimate used in the recognition of revenue. In the US the
Group sells its products directly to wholesale distributors, generic
distributors, retail pharmacy chains and mail-order pharmacies.
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
2. Significant accounting policies continued
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.
Free goods
Free goods are issued to customers as sale incentives,
reimbursement of agreed upon expenses incurred by the customer
or as a compensation for expired/returned goods. Free goods are
recognised at cost at the date at which the related revenue is
recognised. The costs associated with free goods are classified
as cost of sales.
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.
Leasing
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 for the year represents the sum of the tax in current
period, deferred tax arising in the period and prior year adjustments.
The tax incurred in the period is based on taxable profit for the
year. Taxable profit differs from profit before tax 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 tax incurred 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 temporary taxable
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.
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 to 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.
142
143
143
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
2. Significant accounting policies continued
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.
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.
Share-based payment transactions
Employees (including Directors) of the Group receive remuneration
in the form of share-based payments, whereby employees render
services in exchange for shares or rights over shares (equity-settled
transactions).
Share-based payments
IFRS 2 ‘Share-Based Payments’ requires an expense to be recognised
when the Group buys goods or services in exchange for 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 38). 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, 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.
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
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HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued Notes to the Consolidated Financial Statements Continued
2. Significant accounting policies continued
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.
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.
Share-based payment transactions
Employees (including Directors) of the Group receive remuneration
in the form of share-based payments, whereby employees render
services in exchange for shares or rights over shares (equity-settled
transactions).
Share-based payments
IFRS 2 ‘Share-Based Payments’ requires an expense to be recognised
when the Group buys goods or services in exchange for 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 38). 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, 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.
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
2. Significant accounting policies continued
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’.
The Group engage in co-development and earn out payment
agreements with third parties where the Group earn milestone
payments reflecting the achievement of R&D and commercialisation
milestones. Those payments are recognised as financial liabilities
once received and revalued at the end of each reporting period to
represent the value of expected future cash outflows and the
difference is presented as finance cost
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.
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.
144
145
145
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
2. Significant accounting policies continued
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 31 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.
The 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.
Exceptional Items
The Group presents core earnings by making adjustments for
costs and profits which management believes to be exceptional
in nature by virtue of their size or incidence or have a distortive
effect on current year earnings. Such items would include costs
associated with business combinations, one-off gains and losses
on disposal of businesses, assets, finance costs on co-development
and earnout agreement and similar items of a non-recurring
nature together with reorganisation costs and similar charges
and by adding back impairment of goodwill and amortisation and
impairment of intangible assets arising on business combinations,
net of any tax impact.
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.
146
146
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued Notes to the Consolidated Financial Statements Continued
2. Significant accounting policies continued
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 31 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.
The 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.
Exceptional Items
The Group presents core earnings by making adjustments for
costs and profits which management believes to be exceptional
in nature by virtue of their size or incidence or have a distortive
effect on current year earnings. Such items would include costs
associated with business combinations, one-off gains and losses
on disposal of businesses, assets, finance costs on co-development
and earnout agreement and similar items of a non-recurring
nature together with reorganisation costs and similar charges
and by adding back impairment of goodwill and amortisation and
impairment of intangible assets arising on business combinations,
net of any tax impact.
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.
3. Critical accounting judgements and key sources
of estimation uncertainty continued
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 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
(note 2) which vary by product arrangements and buying groups.
If the ultimate net selling price cannot be reliably measured, revenue
recognition is deferred until a reliable measurement can be made.
The Deferred revenue in respect of this is included in other current
liabilities in the consolidated balance sheet.
Accounts receivable and bad debts
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 of credit
and insurance.
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 promotion, marketing and sale of pharmaceutical products and
medical devices is highly regulated and the operations of market
participants, such as Hikma, are closely supervised by regulatory
authorities and law enforcement agencies, including the FDA and
the US Department of Justice. As a result, the Group is subject to
certain investigations by governmental agencies as well as other
various legal proceedings considered typical to its business relating
to employment, product liability and commercial disputes.
For current matters see note 37.
Taxation
In common with most international organisations, the Group may
be subject to audit from revenue authorities from time to time.
Where an outflow of funds is believed to be probable and a reliable
estimate of the outcome of the dispute can be made, management
provides for its best estimate of the liability. These estimates take
into account the specific circumstances of each dispute and relevant
external advice, are inherently judgemental and could change
substantially over time as new facts emerge and each dispute
progresses. Hikma continues to invest in its financial systems to
ensure the quality of it’s the Group financial data reduces the risk
of an adverse revenue authority audit. Furthermore, the Group
continues to believe that it has made adequate provision for the
liabilities likely to arise from open assessments. Where open issues
exist the ultimate liability for such matters may vary from the
amounts provided and is dependent upon the outcome of
negotiations with the relevant tax authorities or, if necessary,
litigation proceedings.
In addition to tax audits, the Group faces other potential tax risks
that could affect the sustainability of the Group’s effective tax rate.
The main risks are transfer pricing and the withdrawal of tax
exemptions. Other risks the Group faces include a material change
to the statutory tax rates, from the OECD’s base erosion and profit
shifting initiatives and adjustments arising out of differences in
interpretation of tax legislation. The Group regularly takes
professional advice to ensure the risks mentioned above are
appropriately analysed and managed with any ultimate potential
liability being adequately provided.
The transfer pricing risk can arise from a difference in view over the
pricing of cross-border, inter-company product sales and services
and of sales of assets. The standard by which most authorities assess
the transfer price is whether it is set at arm’s length. An upward
adjustment by the tax authority of one territory will not necessary
result in the downward adjustment by the other territory, leading
to a potentially increased tax cost through a mismatch of tax
deductions and taxable income, as well as a potential increase
arising out of a rate arbitrage. The Group has considered these risks
in detail and has provided for potential tax adjustments so does not
believe that any adjustment will materially impact the effective tax
rate going forward.
The Group benefits from a tax exemption in Jordan arising partly
from the WTO approved Export Exemption that will be in force
up until 31 December 2018. The Group does not believe that the
impact of the future withdrawal of this exemption will materially
impact the Group’s tax rate in light of the alternative options
available under existing Jordanian domestic rules.
146
147
147
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
4. Segmental reporting
For management purposes, the Group is currently organised into three principal 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 principal measure used in decision-making
and resource allocation by 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 2015:
Year ended 31 December 2015
Revenue
Cost of sales
Gross profit
Core segment result
Exceptional items:
– Integration costs
– Severance costs
– Proceeds from legal claims
– Gain from sale of assets, net
Intangible amortisation other than software
Segment result
Core unallocated corporate expenses
Exceptional items:
– Acquisition related expenses
Unallocated corporate expenses
Core operating profit
Operating profit
Loss\impairment of associates
Finance income
Finance expense
Profit before tax
Tax
Profit for the year
Attributable to:
Non-controlling interest
Equity holders of the parent
Branded
$m
570
(293)
277
118
Injectables
$m
710
(261)
449
312
Generics
$m
151
(62)
89
46
Others
$m
9
(6)
3
(5)
Group
$m
1,440
(622)
818
471
(5)
(8)
105
(1)
2
6
(8)
311
(2)
44
(5)
(2)
(6)
2
6
(16)
455
(62)
(12)
(74)
409
381
(9)
3
(57)
318
(64)
254
2
252
254
Segment result is defined as operating profit for each segment.
“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, professional fees, travel expenses and donations.
148
148
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
4. Segmental reporting
For management purposes, the Group is currently organised into three principal 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 principal measure used in decision-making
and resource allocation by 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 2015:
Year ended 31 December 2015
Revenue
Cost of sales
Gross profit
Core segment result
Exceptional items:
– Integration costs
– Severance costs
– Proceeds from legal claims
– Gain from sale of assets, net
Intangible amortisation other than software
Segment result
Core unallocated corporate expenses
Exceptional items:
– Acquisition related expenses
Unallocated corporate expenses
Core operating profit
Operating profit
Loss\impairment of associates
Finance income
Finance expense
Profit before tax
Tax
Profit for the year
Attributable to:
Non-controlling interest
Equity holders of the parent
Branded
Injectables
Generics
Others
$m
$m
570
(293)
277
118
(5)
(8)
$m
710
(261)
449
312
(1)
2
6
(8)
105
311
$m
151
(62)
89
46
(2)
44
9
(6)
3
(5)
(5)
Group
$m
1,440
(622)
818
471
(2)
(6)
2
6
(16)
455
(62)
(12)
(74)
409
381
(9)
3
(57)
318
(64)
254
2
252
254
Segment result is defined as operating profit for each segment.
“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, professional fees, travel expenses and donations.
4. Segmental reporting continued
Segment assets and liabilities 2015
Additions to property, plant and equipment (cost)
Remeasurement of property, plant and equipment (note 43)
Additions to intangible assets
Remeasurement of Intangible assets (note 43)
Total property, plant and equipment and intangible assets
(net book value)
Depreciation and impairment
Amortisation and impairment (including software)
Investment in associates and joint ventures
Balance sheet
Total assets
Total liabilities
Branded
$m
24
5
Injectables
$m
39
(1)
41
(8)
Generics
$m
15
8
Corporate
and others
$m
7
2
478
22
9
1,108
453
532
19
11
829
397
81
8
1
165
309
The following is an analysis of the Group’s revenue and results by reportable segment in 2014:
Branded
$m
551
(284)
267
111
Injectables
$m
713
(282)
431
265
Generics
$m
216
(66)
150
113
(9)
102
(5)
260
113
Year ended 31 December 2014
Revenue
Cost of sales
Gross profit
Core segment result
Exceptional items:
Intangible amortisation other than software
Segment result
Core unallocated corporate expenses
Exceptional items:
– Acquisition related expenses
Unallocated corporate expenses
Core operating profit
Operating profit
Loss from associates
Finance income
Finance expense
Profit before tax
Tax
Profit for the year
Attributable to:
Non-controlling interest
Equity holders of the parent
23
2
1
7
495
86
Others
$m
9
(6)
3
(5)
(5)
Group
$m
85
(1)
56
(8)
1,114
51
22
7
2,597
1,245
Group
$m
1,489
(638)
851
484
(14)
470
(57)
(11)
(68)
427
402
(6)
4
(38)
362
(80)
282
4
278
282
Segment result is defined as operating profit for each segment.
“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 and travel expenses.
148
149
149
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
4. Segmental reporting continued
Segment assets and liabilities 2014
Additions to property, plant and equipment (cost)
Acquisition of business’ 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 and impairment
Amortisation and impairment (including software)
Investment in associates and joint ventures
Balance sheet
Total assets
Total liabilities
Branded
$m
48
Injectables
$m
31
Generics
$m
8
Corporate
and others
$m
2
4
511
22
10
1,123
481
53
16
174
528
18
13
770
405
4
70
7
1
7
2
16
175
92
183
57
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
2015
$m
656
697
82
5
1,440
2015
$m
697
162
113
972
Group
$m
89
53
25
174
1,116
49
23
16
2,251
1,035
2014
$m
633
763
89
4
1,489
2014
$m
763
146
86
995
Included in revenues arising from the Generics and Injectables segments are revenues of approximately $173 million (2014: $221 million)
which arose from the Group’s largest customer which is located in the United States.
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
2014
$m
606
141
368
55
1,170
2015
$m
577
135
390
63
1,165
Total assets
as at 31 December
2014
$m
1,202
195
648
206
2,251
2015
$m
1,174
146
811
466
2,597
Middle East and North Africa
Europe
United States
United Kingdom
150
150
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
4. Segmental reporting continued
Segment assets and liabilities 2014
Additions to property, plant and equipment (cost)
Acquisition of business’ 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 and impairment
Amortisation and impairment (including software)
Investment in associates and joint ventures
Balance sheet
Total assets
Total liabilities
$m
48
4
511
22
10
1,123
481
$m
31
53
16
174
528
18
13
770
405
$m
8
4
70
7
175
92
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
Middle East and North Africa
Europe
United States
United Kingdom
Included in revenues arising from the Generics and Injectables segments are revenues of approximately $173 million (2014: $221 million)
which arose from the Group’s largest customer which is located in the United States.
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
2015
$m
577
135
390
63
2014
$m
606
141
368
55
Total assets
as at 31 December
2015
$m
1,174
146
811
466
2014
$m
1,202
195
648
206
1,165
1,170
2,597
2,251
$m
2
1
7
2
16
183
57
2015
$m
656
697
82
5
2015
$m
697
162
113
972
Group
$m
89
53
25
174
1,116
49
23
16
2,251
1,035
2014
$m
633
763
89
4
2014
$m
763
146
86
995
1,440
1,489
Branded
Injectables
Generics
Corporate
and others
5. Exceptional items and other adjustments
Exceptional items are disclosed separately in the consolidated income statement to assist in the understanding of the Group’s underlying
performance.
Exceptional items
Acquisition and integration related costs
Severance costs
Proceeds from legal claims
Gain from sale of assets, net
Exceptional items included in operating profit
Impairment of investment in associates
Exceptional items included in profit
Other adjustments
Intangible amortisation other than software
Co-development and earnout payment agreement finance cost (note 32)
Exceptional items and other adjustments
Tax effect
Impact on profit for the year
2015
$m
(14)
(6)
2
6
(12)
(7)
(19)
(16)
(2)
(37)
3
(34)
2014
$m
(11)
(11)
(11)
(14)
(25)
4
(21)
Exceptional items:
Acquisition and integration related expenses are costs incurred in relation to the acquisition of Roxane laboratories Inc. and Boehringer
Ingelheim “Roxane Inc.”, which was closed on 29 February 2016. Acquisition related expenses are included in the 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.
Severance expenses in 2015 related to restructuring of management teams mainly in MENA.
Proceeds from legal claims refers to cash received in settlement of an indemnification claim in the US.
Gain from sale of the assets related to the sale of Bedford manufacturing facilities to Xellia Pharmaceuticals for a cash consideration
of $30 million. The gain is net of hibernation costs related to the assets.
Impairment of investment in associates represents the impairment of the remaining investment balance related to Unimark Remedies
limited. Hikma’s share in Unimark Remedies Limited is being divested during 2016 for minimal value.
Other adjustments:
Co-development and earnout payment agreement finance cost represents the difference resulting on remeasurement of the fair value
of the liability associated with the future earnout payments to be made in relation to the agreement (note 32).
In previous periods exceptional items related to the following:
Acquisition related expenses were costs incurred from acquiring Bedford Laboratories, these expenses were included in the unallocated
corporate expenses and mainly comprise third party consulting services, legal and professional fees.
150
151
151
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
6. Profit for the year
Profit for the year has been arrived at after charging:
Net foreign exchange losses
Depreciation and impairment of property, plant and equipment
Amortisation and impairment of intangible assets (including software)
Inventories:
Cost of inventories recognised as an expense
Write-down of inventories
Staff costs (note 7)
The Group 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
Assurance services*
Total audit and assurance fees
- Tax compliance services
- Tax advisory services
- Other services**
Total non-audit fees
Total fees
2015
$m
6
51
22
367
29
362
2015
$m
0.4
1.2
1.6
0.1
1.7
0.1
0.3
2.5
2.9
4.6
2014
$m
6
49
23
378
32
344
2014
$m
0.4
1.2
1.6
0.2
1.8
0.1
0.4
0.5
2.3
* Assurance services relate to review procedures in respect of the interim financial information.
** Other services include transaction services, in particular relating to the Roxane prospectus\class one circular.
A description of the work of the Audit Committee is set out in the Audit Committee report on pages 84 to 88 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:
2015
Number
3,896
2,164
264
865
7,189
2014
Number
3,986
2,089
223
841
7,139
Production
Sales and marketing
Research and development
General and administrative
152
152
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
6. Profit for the year
Profit for the year has been arrived at after charging:
Net foreign exchange losses
Depreciation and impairment of property, plant and equipment
Amortisation and impairment of intangible assets (including software)
Inventories:
Cost of inventories recognised as an expense
Write-down of inventories
Staff costs (note 7)
The Group 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
Assurance services*
Total audit and assurance fees
- Tax compliance services
- Tax advisory services
- Other services**
Total non-audit fees
Total fees
Production
Sales and marketing
Research and development
General and administrative
2015
2014
2015
$m
6
51
22
367
29
362
$m
0.4
1.2
1.6
0.1
1.7
0.1
0.3
2.5
2.9
4.6
2014
$m
6
49
23
378
32
344
$m
0.4
1.2
1.6
0.2
1.8
0.1
0.4
0.5
2.3
2015
Number
3,896
2,164
264
865
2014
Number
3,986
2,089
223
841
7,189
7,139
7. Staff costs continued
Their aggregate remuneration comprised:
Wages, salaries and bonuses
Social security costs
Post-employment benefits
End of service indemnity
Share-based payments
Car and housing allowances
Health insurance
Other costs and employee benefits
8. Other operating expenses (net)
Other operating expense
Other operating income
2015
$m
247
22
7
14
15
19
19
19
362
2015
$m
(59)
30
(29)
2014
$m
242
22
7
10
8
18
18
19
344
2014
$m
(55)
17
(38)
Other operating expenses consist mainly of write-down of inventories (note 19), foreign exchange losses, and hibernation costs related to
Bedford Laboratories (note 5).
Other operating income consists mainly of foreign exchange gains, gain from sale of Ben Venue manufacturing facilities (note 5), proceeds
from legal claims (note 5), and other product-related income.
* Assurance services relate to review procedures in respect of the interim financial information.
** Other services include transaction services, in particular relating to the Roxane prospectus\class one circular.
A description of the work of the Audit Committee is set out in the Audit Committee report on pages 84 to 88 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:
9. Finance income
Interest income
Other financial income
10. Finance expense
Interest on bank overdrafts and loans
Interest on Eurobond
Interest on obligations under finance leases
Co-development and earnout payment agreement finance cost (note 32)
Other bank charges
2015
$m
2
1
3
2015
$m
24
16
2
15
57
2014
$m
4
4
2014
$m
19
1
18
38
152
153
153
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
11. Tax
Current tax:
Foreign tax
Adjustments to prior year
Deferred tax (note 17)
2015
$m
2014
$m
68
1
(5)
64
82
(9)
7
80
UK corporation tax is calculated at 20.2% (2014: 21.5%) of the estimated assessable profit made in the UK for the year.
The Group incurred a tax expense of $64 million, compared with $80 million in 2014. The effective tax rate is 20.1%, (2014: 22.1%). The
reduction in the effective tax rate reflects increased earnings in lower taxed jurisdictions, combined with lower earnings in the US. In 2016,
the effective tax rate is expected to be around 25%. This is expected to return closer to 2014 levels over the medium term.
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 20.2% (2014: 21.5%)
Profits taxed at different rates
Permanent differences
Temporary differences for which no benefit is recognised
Change in provision for uncertain tax positions
State and local taxes
Prior year adjustments
Tax expense for the year
2015
$m
318
64
(13)
(11)
11
11
1
1
64
2014*
$m
362
78
12
(37)
13
20
3
(9)
80
* The format of the 2015 tax reconciliation has been expanded to clarify the reconciling items. For consistency, we have re-classified the 2014 tax reconciliation
using the same methodology.
Further details of the elements of the tax reconciliation are described below:
Profits taxed at different rates refer to non-UK profits taxed at statutory rates different from the UK statutory rate.
Permanent differences relate principally to income which is not subject to tax due to statutory exemptions.
Temporary differences for which no benefit is recognised includes items on which it is not possible to book deferred tax and comprise mainly
of the impact of creating / (utilising) unrecognised temporary differences.
Prior year adjustments include amounts settled with tax authorities which differ from the amounts previously provided.
154
154
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
11. Tax
Current tax:
Foreign tax
Adjustments to prior year
Deferred tax (note 17)
2015
$m
2014
$m
68
1
(5)
64
82
(9)
7
80
2015
$m
318
64
(13)
(11)
11
11
1
1
64
2014*
$m
362
78
12
(37)
13
20
3
(9)
80
UK corporation tax is calculated at 20.2% (2014: 21.5%) of the estimated assessable profit made in the UK for the year.
The Group incurred a tax expense of $64 million, compared with $80 million in 2014. The effective tax rate is 20.1%, (2014: 22.1%). The
reduction in the effective tax rate reflects increased earnings in lower taxed jurisdictions, combined with lower earnings in the US. In 2016,
the effective tax rate is expected to be around 25%. This is expected to return closer to 2014 levels over the medium term.
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:
Tax at the UK corporation tax rate of 20.2% (2014: 21.5%)
Profit before tax
Profits taxed at different rates
Permanent differences
Temporary differences for which no benefit is recognised
Change in provision for uncertain tax positions
State and local taxes
Prior year adjustments
Tax expense for the year
using the same methodology.
* The format of the 2015 tax reconciliation has been expanded to clarify the reconciling items. For consistency, we have re-classified the 2014 tax reconciliation
Further details of the elements of the tax reconciliation are described below:
Profits taxed at different rates refer to non-UK profits taxed at statutory rates different from the UK statutory rate.
Permanent differences relate principally to income which is not subject to tax due to statutory exemptions.
Temporary differences for which no benefit is recognised includes items on which it is not possible to book deferred tax and comprise mainly
of the impact of creating / (utilising) unrecognised temporary differences.
Prior year adjustments include amounts settled with tax authorities which differ from the amounts previously provided.
12. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2014 of 15.0 cents (2013: 13.0 cents) per share
Interim dividend for the year ended 31 December 2015 of 11.0 cents (2014: 7.0 cents) per share
Special final dividend for the year ended 31 December 2014 of 6.0 cents (2013: 4.0 cents) per share
Special Interim dividend for the year ended 31 December 2015 of nil (2014: 4.0 cents) per share
2015
$m
2014
$m
30
22
12
64
25
14
8
8
55
The proposed final dividend for the year ended 31 December 2015 is 21.0 cents (2014: 15.0 cents plus 6.0 cents as a special dividend)
per share. This brings the full year dividend to 32.0 cents (2014: 22.0 cents plus 10.0 cents as a special dividend).
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 12 May 2016 and has not been
included as a liability in these financial statements. Based on the number of shares in issue at 31 December 2015 (199,421,000), the
unrecognised liability is $42 million.
13. Earnings per share
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. Core basic earnings
per share and Core diluted earnings per share are intended to highlight the Core results of the Group before exceptional items and other
adjustments. A reconciliation of the basic and core 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 (note 5)
Other adjustments:
– Intangible amortisation other than software (note 5)
– Co-development and earnout payment agreement finance cost (note 5)
Tax effect of adjustments (note 5)
Core earnings for the purposes of Core 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
Core basic
Core diluted
2015
$m
252
19
16
2
(3)
2014
$m
278
11
14
(4)
286
299
Number
'm
199
Number
'm
198
2
201
2
200
2015
Earnings per
share
Cents
126.6
125.4
143.7
142.3
2014
Earnings per
share
Cents
140.4
139.0
151.0
149.5
154
155
155
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
14. Intangible assets
Cost
Balance at 1 January 2014
Additions
Acquisition of business
Translation adjustments
Balance at 1 January 2015
Additions
Remeasurement (note 43)*
Translation adjustments
Balance at 31 December 2015
Amortisation
Balance at 1 January 2014
Charge for the year
Impairment
Translation adjustments
Balance at 1 January 2015
Charge for the year
Impairment
Translation adjustments
Balance at 31 December 2015
Carrying amount
At 31 December 2015
At 31 December 2014
Goodwill
$m
Customer
relationships
$m
Product-
related
intangibles Trade names
$m
$m
Marketing
rights and
others
$m
Software
$m
279
51
(15)
315
(8)
(14)
293
(1)
(1)
(1)
292
314
78
(3)
75
(6)
69
(29)
(5)
1
(33)
(5)
3
(35)
34
42
118
19
123
(4)
256
35
(4)
287
(30)
(8)
(5)
1
(42)
(10)
(2)
2
(52)
235
214
11
(1)
10
(1)
9
(2)
(2)
(2)
7
8
17
1
(1)
17
2
(1)
18
(8)
(1)
1
(8)
(1)
(9)
9
9
30
5
(1)
34
19
(1)
52
(16)
(4)
1
(19)
(4)
1
(22)
30
15
Total
$m
533
25
174
(25)
707
56
(8)
(27)
728
(86)
(18)
(5)
4
(105)
(20)
(2)
6
(121)
607
602
The current year additions include licences and new products under development.
* An adjustment of $8 million was made to the provisional goodwill recognised on the acquisition of Bedford as a result of the adjustment to property, plant and
equipment, inventory and deferred taxes made prior to the end of the measurement period on 15 July 2015 (note 43).
As at 31 December 2015, the Group had Intangible assets under development amounting to $156 million (2014: $154 million) which are
not subject to amortisation until ready for use.
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:
As at 31 December
2014
$m
199
83
32
51
32
314
2015
$m
187
75
32
43
30
292
Branded
Injectables:
– MSI
– Bedford
Oncology
Total
156
156
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
14. Intangible assets
Cost
Additions
Balance at 1 January 2014
Acquisition of business
Translation adjustments
Balance at 1 January 2015
Additions
Remeasurement (note 43)*
Translation adjustments
Balance at 31 December 2015
Amortisation
Balance at 1 January 2014
Charge for the year
Impairment
Translation adjustments
Balance at 1 January 2015
Charge for the year
Impairment
Translation adjustments
Balance at 31 December 2015
Carrying amount
At 31 December 2015
At 31 December 2014
Customer
Product-
related
Goodwill
relationships
intangibles Trade names
Marketing
rights and
others
$m
Software
$m
$m
279
51
(15)
315
(8)
(14)
293
(1)
(1)
(1)
292
314
$m
78
(3)
75
(6)
69
(29)
(5)
1
(33)
(5)
3
(35)
34
42
$m
118
19
123
(4)
256
35
(4)
287
(30)
(8)
(5)
1
(42)
(10)
(2)
2
(52)
235
214
$m
11
(1)
10
(1)
9
(2)
(2)
(2)
7
8
17
1
(1)
17
2
(1)
18
(8)
(1)
1
(8)
(1)
(9)
9
9
30
5
(1)
34
19
(1)
52
(16)
(4)
1
(19)
(4)
1
30
15
Total
$m
533
25
174
(25)
707
56
(8)
(27)
728
(86)
(18)
(5)
4
(105)
(20)
(2)
6
607
602
(22)
(121)
The current year additions include licences and new products under development.
* An adjustment of $8 million was made to the provisional goodwill recognised on the acquisition of Bedford as a result of the adjustment to property, plant and
equipment, inventory and deferred taxes made prior to the end of the measurement period on 15 July 2015 (note 43).
As at 31 December 2015, the Group had Intangible assets under development amounting to $156 million (2014: $154 million) which are
not subject to amortisation until ready for use.
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:
As at 31 December
2015
$m
187
75
32
43
30
292
2014
$m
199
83
32
51
32
314
Branded
Injectables:
– MSI
– Bedford
Oncology
Total
156
14. Intangible assets continued
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill may be impaired.
Details related to the discounted cash flow models used in the impairment tests of CGUs are as follows:
Valuation basis
Key assumptions
Determination of
assumptions
Period of specific
projected cash flows
Terminal growth rate
and discount rate
Higher of fair value less costs of disposal and value in use
Sales growth rates
Profit margins
Terminal growth rate
Discount rate
Growth rates are internal forecasts based on both internal and external market information.
Margins reflect past experience, adjusted for expected changes.
Terminal growth rates based on management’s estimate of future long-term average growth rates.
Discount rates based on Group WACC, adjusted where appropriate.
5 years
Branded
MSI
Bedford
Oncology
Terminal growth
rate (perpetuity)
2%
2%
2%
2%
Pre-tax discount
rate
14%*
11%
11%
11%
* Branded discount rate is blended according to the operating profits of the associated market\country included in the cash flows of the CGU.
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.
157
157
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
14. Intangible assets continued
Other intangible assets
Amortisation of all intangible assets with finite useful lives is charged on a straight-line basis.
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 (2014: 15 years).
Product related intangibles: Product related intangibles include four types:
a. Product files and under-licenced products: $6 million (2014: $20 million) of the product files and under-licence products intangibles
are assessed as having indefinite useful lives due to the expected longevity of the products.
b. Under-licence agreements: The estimated useful life of under-licence agreements varies from five to eleven years
(2014: five to eleven years).
c. Product dossiers: Product dossiers have an average estimated useful life of 15 years (2014: 15 years).
d. In process product files: Mainly represent files acquired from Bedford that are in the process of being transferred to our
manufacturing facilities.
Trade name: Trade names were mainly recognised on the acquisition of Hikma Germany GmbH (Germany), Arab Pharmaceutical
Manufacturing Company, Promopharm, 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 million (2014: $5 million). The trade
names recognised on the acquisition of the other subsidiaries have useful lives that vary from three to twenty years.
Marketing rights and others
a. Marketing rights: Marketing rights are amortised over their useful lives commencing in the year in which the rights are ready for use.
The estimated useful life of marketing rights varies from five to ten years.
b. 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 (2014: 15 years).
c. Other acquisition related: 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 $1 million (2014: $1 million).
Software: Software intangibles mainly represent the Enterprise Resource Planning solutions that are being implemented in different
operations across the Group. The software has an average estimated useful life of five years.
As at 31 December 2015, the Group had entered into contractual commitments for the acquisition of intangible assets of $49 million
(2014: $45 million).
158
158
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
14. Intangible assets continued
Other intangible assets
Amortisation of all intangible assets with finite useful lives is charged on a straight-line basis.
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 (2014: 15 years).
Product related intangibles: Product related intangibles include four types:
a. Product files and under-licenced products: $6 million (2014: $20 million) of the product files and under-licence products intangibles
are assessed as having indefinite useful lives due to the expected longevity of the products.
b. Under-licence agreements: The estimated useful life of under-licence agreements varies from five to eleven years
(2014: five to eleven years).
manufacturing facilities.
c. Product dossiers: Product dossiers have an average estimated useful life of 15 years (2014: 15 years).
d. In process product files: Mainly represent files acquired from Bedford that are in the process of being transferred to our
Trade name: Trade names were mainly recognised on the acquisition of Hikma Germany GmbH (Germany), Arab Pharmaceutical
Manufacturing Company, Promopharm, 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 million (2014: $5 million). The trade
names recognised on the acquisition of the other subsidiaries have useful lives that vary from three to twenty years.
Marketing rights and others
a. Marketing rights: Marketing rights are amortised over their useful lives commencing in the year in which the rights are ready for use.
The estimated useful life of marketing rights varies from five to ten years.
b. 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 (2014: 15 years).
c. Other acquisition related: 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 $1 million (2014: $1 million).
Software: Software intangibles mainly represent the Enterprise Resource Planning solutions that are being implemented in different
operations across the Group. The software has an average estimated useful life of five years.
As at 31 December 2015, the Group had entered into contractual commitments for the acquisition of intangible assets of $49 million
(2014: $45 million).
15. Property, plant and equipment
Cost
Balance at 1 January 2014
Additions
Acquisition of business
Disposals
Transfers
Translation adjustment
Balance at 1 January 2015
Additions
Remeasurement (note 43)
Disposals
Transfers
Translation adjustment
Balance at 31 December 2015
Accumulated depreciation
Balance at 1 January 2014
Charge for the year
Impairment
Disposals
Translation adjustment
Balance at 1 January 2015
Charge for the year
Impairment
Disposals
Translation adjustment
Balance at 31 December 2015
Carrying amount
At 31 December 2015
Carrying amount
At 31 December 2014
Land and
buildings
$m
263
17
20
14
(12)
Machinery
and
equipment
$m
328
14
26
(6)
19
(17)
Fixtures and
equipment
$m
58
5
7
(1)
2
(2)
Projects
under
construction
$m
58
51
(35)
(3)
Vehicles
$m
16
2
(2)
(1)
302
8
(11)
12
(13)
298
(58)
(10)
4
(64)
(11)
5
(70)
228
238
15
1
(2)
(1)
13
(10)
(2)
2
(10)
(1)
2
1
(8)
5
5
364
6
(17)
24
(17)
360
(170)
(29)
4
9
(186)
(30)
9
9
(198)
162
178
69
4
(1)
(6)
8
(3)
71
(40)
(7)
1
2
(44)
(8)
5
2
(45)
26
25
71
66
(1)
(44)
(2)
90
(2)
(1)
(3)
(1)
(4)
86
68
Total
$m
723
89
53
(9)
(35)
821
85
(1)
(37)
(36)
832
(280)
(48)
(1)
7
15
(307)
(50)
(1)
16
17
(325)
507
514
The net book value of the Group’s property, plant and equipment includes an amount of $8 million (2014: $7 million) in respect of assets
held under finance lease.
As at 31 December 2015, the Group had pledged property, plant and equipment having a carrying value of $45 million (2014: $47 million)
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, Germany, and Tunisia (2014: Portugal, Germany and Tunisia).
As at 31 December 2015, the Group entered into contractual commitments for the acquisition of property, plant and equipment amounting
to $9 million (2014: $23 million).
158
159
159
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
16. Investments in associates and joint ventures
A loss of $2 million representing the Group share of the results of Unimark Remedies Limited and Hubei Haosun Pharmaceutical Co. Ltd
(2014: share of loss $6 million). During 2015, the Group has impaired the remaining investment balance related to Unimark Remedies
Limited of $7 million which is due to the continuous financial difficulties. Hikma’s share in Unimark Remedies Limited is being divested during
2016 for minimal value.
The below represents the Group’s share of the result and the impairment of Unimark Remedies Limited and Hubei Haosun Pharmaceutical
Co. Ltd. Both are included in the consolidated income statement.
Balance at 1 January
Share of loss
Impairment of investment (note 5)
Balance at 31 December
For the year ended
31 December 2015
For the year ended
31 December 2014
Joint
ventures
$m
3
3
Associates
$m
13
(2)
(7)
4
Total
$m
16
(2)
(7)
7
Joint
ventures
$m
3
3
Associates
$m
19
(6)
13
Total
$m
22
(6)
16
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 revenue
Net loss
Group's share of loss of associates
17. Deferred tax
For the year
ended
31 December
2015
$m
214
160
54
13
49
(23)
(2)
For the year
ended
31 December
2014
$m
220
148
72
17
50
(27)
(6)
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior
reporting years.
Tax losses
$m
4
4
1
(1)
4
Deferred R&D
costs
$m
1
1
1
Other
short-term
temporary
differences
$m
89
(12)
77
(3)
74
Amortisable
assets
$m
(22)
2
(20)
1
1
(18)
Fixed assets
$m
(9)
(13)
(22)
6
2
1
(13)
Share-based
payments
$m
1
1
2
(1)
1
Total
$m
60
(7)
(13)
2
42
5
(1)
2
1
49
At 1 January 2014
(Charge)/Credit to income
Acquisition of business
Exchange differences
At 1 January 2015
Credit/(Charge) to income
(Charge) to equity
Remeasurement (note 43)
Exchange differences
At 31 December 2015
160
160
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
16. Investments in associates and joint ventures
A loss of $2 million representing the Group share of the results of Unimark Remedies Limited and Hubei Haosun Pharmaceutical Co. Ltd
(2014: share of loss $6 million). During 2015, the Group has impaired the remaining investment balance related to Unimark Remedies
Limited of $7 million which is due to the continuous financial difficulties. Hikma’s share in Unimark Remedies Limited is being divested during
2016 for minimal value.
For the year ended
31 December 2015
For the year ended
31 December 2014
ventures
Associates
Total
ventures
Associates
Joint
$m
3
3
$m
13
(2)
(7)
4
$m
16
(2)
(7)
7
Joint
$m
3
3
Summarised financial information in respect of the Group’s interests in associated companies is set out below:
The below represents the Group’s share of the result and the impairment of Unimark Remedies Limited and Hubei Haosun Pharmaceutical
Co. Ltd. Both are included in the consolidated income statement.
Deferred tax liabilities
Deferred tax assets
As at 31 December
2015
2014
$m
$m
(25)
(21)
67
70
42
49
17. Deferred tax continued
Certain deferred tax assets and liabilities have been appropriately offset. The following is the analysis of the deferred tax balances (after
offset) for financial reporting purposes:
Balance at 1 January
Share of loss
Impairment of investment (note 5)
Balance at 31 December
Group's share of net assets of associates
Group's share of loss of associates
Total assets
Total liabilities
Net assets
Total revenue
Net loss
17. Deferred tax
reporting years.
At 1 January 2014
(Charge)/Credit to income
Acquisition of business
Exchange differences
At 1 January 2015
Credit/(Charge) to income
(Charge) to equity
Remeasurement (note 43)
Exchange differences
At 31 December 2015
160
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior
Deferred R&D
Amortisable
Fixed assets
Share-based
payments
Tax losses
$m
costs
$m
Other
short-term
temporary
differences
$m
89
(12)
77
(3)
74
1
1
1
assets
$m
(22)
(20)
2
1
1
$m
(9)
(13)
(22)
6
2
1
(18)
(13)
4
4
1
(1)
4
No deferred tax asset has been recognised on temporary differences totalling $164 million (2014: $86 million) due to the unpredictability of
the related future profit streams. Of these temporary differences, $40 million relates to unrecognised deferred tax on UK share-based
payments. The remaining temporary difference of $ 124 million relates to losses on which no deferred tax is recognised. None of these losses
are expected to expire.
No deferred tax liability is recognised on temporary differences of $122 million (2014: $96 million) relating to the unremitted earnings of
overseas subsidiaries, as the Group is able to control the timing of the reversal of these temporary differences and it is probable that they will
not reverse in the foreseeable future.
For the year
For the year
ended
ended
31 December
31 December
18. Financial and other non-current assets
Other financial assets
Available-for-sale investments
Other non-current asset
As at 31 December
2014
$m
1
1
37
39
2015
$m
2
44
46
Other non-current assets mainly represent advance payments made to acquire products and product related technologies from third parties.
These payments will be reclassified to intangible assets and inventory from the point where the products are available for use.
19. Inventories
Finished goods
Work-in-progress
Raw and packing materials
Goods in transit
As at 31 December
2014
$m
60
33
159
21
273
2015
$m
55
33
152
11
251
Goods in transit includes inventory held at third parties whilst in transit between Group companies.
Provisions against inventory
`
As at
31 December
2014
$m
50
Additions
$m
29
Utilisation
$m
(31)
Translation
adjustments
$m
(1)
As at
31 December
2015
$m
47
The total expense in the consolidated income statement for the write-off of inventory, including provisions for such write-offs, was $29
million (2014: $32 million).
$m
19
(6)
13
2015
$m
214
160
54
13
49
(23)
(2)
$m
1
1
2
(1)
1
Total
$m
22
(6)
16
2014
$m
220
148
72
17
50
(27)
(6)
Total
$m
60
(7)
(13)
2
42
5
(1)
2
1
49
161
161
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
20. Trade and other receivables
Trade receivables
Prepayments
VAT and sales tax recoverable
Employee advances
As at 31 December
2014
$m
384
42
12
1
439
2015
$m
432
39
15
2
488
Trade receivables are stated net of provisions for chargebacks and doubtful debts as follows:
Chargebacks and other allowances
Doubtful debts
As at
31 December
2014
$m
85
35
120
Additions
$m
524
11
535
Utilisation
$m
(524)
(1)
(525)
Translation
adjustments
$m
(2)
(2)
As at
31 December
2015
$m
85
43
128
The following table provides a summary of the age of trade receivables:
At 31 December 2015
Total trade receivables as at
31 December 2015
Related allowance for doubtful debts
Chargebacks and other allowances
Net receivables
At 31 December 2014
Total trade receivables as at
31 December 2014
Related allowance for doubtful debts
Chargebacks and other allowances
Net receivables
Past due
Not past
due on the
reporting
date
$m
less than
90 days
$m
423
50
423
50
between
91 and 180
between
181 and 360
Over one
days
$m
25
25
days
$m
15
15
year
$m
Impaired
$m
4
4
43
(43)
Not past
due on the
reporting
date
$m
less than
90 days
$m
334
60
334
60
between
91 and 180
between
181 and 360
days
$m
26
26
days
$m
22
22
Past due
Over
one year
$m
Impaired
$m
27
27
35
(35)
Total
$m
560
(43)
517
(85)
432
Total
$m
504
(35)
469
(85)
384
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 30.
162
162
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
20. Trade and other receivables
Trade receivables
Prepayments
VAT and sales tax recoverable
Employee advances
As at 31 December
2015
$m
432
39
15
2
488
2014
$m
384
42
12
1
439
As at
2015
$m
85
43
128
Total
$m
560
(43)
517
(85)
432
Total
$m
504
(35)
469
(85)
384
Trade receivables are stated net of provisions for chargebacks and doubtful debts as follows:
Chargebacks and other allowances
Doubtful debts
The following table provides a summary of the age of trade receivables:
31 December
Translation
31 December
Additions
Utilisation
adjustments
$m
524
11
535
$m
(524)
(1)
(525)
$m
(2)
(2)
Not past
due on the
reporting
less than
91 and 180
181 and 360
Over one
between
between
Past due
date
$m
90 days
$m
423
50
423
50
date
$m
90 days
$m
334
60
334
60
At 31 December 2015
Total trade receivables as at
31 December 2015
Related allowance for doubtful debts
Chargebacks and other allowances
Net receivables
At 31 December 2014
Total trade receivables as at
31 December 2014
Related allowance for doubtful debts
Chargebacks and other allowances
Net receivables
off against the underlying receivable.
Not past
due on the
reporting
less than
91 and 180
181 and 360
between
between
days
$m
15
15
days
$m
22
22
year
$m
Impaired
$m
4
4
43
(43)
Past due
Over
$m
27
27
one year
Impaired
$m
35
(35)
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-
More details on the Group’s policy for credit and concentration of risk management are provided in Note 30.
As at
2014
$m
85
35
120
days
$m
25
25
days
$m
26
26
21. Collateralised and restricted cash
Collateralised and restricted cash amounted to $40 million, mainly represent restricted cash held in an escrow account ($38 million) related
to the acquisition of EIMC United Pharmaceuticals (note 44), in addition to restricted cash retained against short-term bank transactions
granted to the Group’s Sudanese, Algerian, Jordanian and US operations. (2014: Sudanese, Egyptian, Algerian, Jordanian, and US
operations of $8 million).
22. Cash and cash equivalents
Cash at banks and on hand
Time deposits
Money market deposits
As at 31 December
2014
$m
81
183
16
280
2015
$m
102
429
22
553
Cash and cash equivalents include highly liquid investments with maturities of three months or less.
23. Other current assets
Other current assets mainly represents the agreement the Group entered with an asset management firm to manage a $20 million equity
portfolio. This investment is measured at fair value and any changes in fair value go through other comprehensive income.
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.
This asset is classified as level 1 “quoted prices in active markets”.
24. Bank overdrafts and loans
Bank overdrafts
Import and export financing
Short-term loans
Current portion of long-term loans (note 28)
The weighted average interest rates paid were as follows:
Bank overdrafts
Bank loans (including the non-current bank loans)
Eurobond
Import and export financing
As at 31 December
2014
$m
19
83
227
64
393
2015
$m
8
58
4
45
115
2015
%
6.19
2.77
4.25
3.09
2014
%
5.50
2.50
3.34
Import and export financing represents short-term financing for the ordinary trading activities of the business.
2014: Short-term loans mainly represent a one year syndicated bridge loan of $225 million which was entered into on 7 July 2014.
The bridge loan has been used to finance the acquisition of Bedford Laboratories and was fully repaid during year 2015.
162
163
163
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
25. Trade and other payables
Trade payables
Accrued expenses
Other payables
As at 31 December
2014
$m
129
105
14
248
2015
$m
139
122
15
276
Other payables mainly include employees’ provident fund liability of $5 million (31 December 2014: $5 million), which mainly represents
the outstanding contributions to the Hikma Pharmaceuticals Ltd (Jordan) retirement benefit plan, on which the fund receives 5% interest.
26. Other provisions
Other provisions represent the end of service indemnity provisions for employees 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
31 December
27. Other current liabilities
Deferred revenue
Return and free goods provision
Others*
* The others balance above includes rebate liabilities across the Group.
2015
$m
25
5
(2)
28
2014
$m
20
7
(2)
25
As at 31 December
2014
$m
46
35
28
109
2015
$m
16
49
32
97
164
164
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
25. Trade and other payables
Trade payables
Accrued expenses
Other payables
Other payables mainly include employees’ provident fund liability of $5 million (31 December 2014: $5 million), which mainly represents
the outstanding contributions to the Hikma Pharmaceuticals Ltd (Jordan) retirement benefit plan, on which the fund receives 5% interest.
26. Other provisions
Other provisions represent the end of service indemnity provisions for employees 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
31 December
27. Other current liabilities
Deferred revenue
Return and free goods provision
Others*
* The others balance above includes rebate liabilities across the Group.
As at 31 December
2015
$m
139
122
15
276
2014
$m
129
105
14
248
2015
$m
25
5
(2)
28
2015
$m
16
49
32
97
2014
$m
20
7
(2)
25
2014
$m
46
35
28
109
As at 31 December
28. Long-term financial debts
Long-term loans
Long-term borrowings (Eurobond)
Less: current portion of loans (note 24)
Long-term financial loans
Breakdown by maturity:
Within one year
In the second year
In the third year
In the fourth year
In the fifth year
Thereafter
Breakdown by currency:
US Dollar
Euro
Jordanian Dinar
Algerian Dinar
Saudi Riyal
Egyptian Pound
Tunisian Dinar
As at 31 December
2014
$m
209
(64)
145
2015
$m
141
494
(45)
590
45
35
20
17
513
5
635
589
3
6
1
33
3
635
64
65
51
13
9
7
209
173
6
4
13
8
5
209
The loans are held at amortised cost.
Long-term loans amounting to $8 million (2014: $12 million) are secured.
Included in the table above are the following major arrangements entered into by the Group:
a) A nine-year $110 million loan from the International Finance Corporation (IFC) was entered into on 19 December 2011. The loan has
an outstanding balance of $41 million at year end (with a fair value of $40 million) and a $50 million unutilised available limit. Quarterly
equal repayments for the term loan commenced on 15 November 2013 and will continue until 15 August 2020. The loan has been used
to finance acquisitions in the MENA region and MENA’s capital expenditure.
b) A US$500 million (with a fair value of $494 million) 4.25% Eurobond due in April 2020 with the rating of (BB+/Ba1). The proceeds were
used to refinance existing debt and for general corporate purposes.
164
165
165
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
29. 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
2015
$m
2
25
27
(4)
23
2014
$m
2
27
29
(5)
24
Present value of minimum
lease payments
2014
$m
2015
$m
1
22
23
1
23
24
It is the Group’s policy to lease certain of its property, plant and equipment under finance leases. The average lease term is 5 years
(2014: 5 years). For the year ended 31 December 2015, the average effective borrowing rate was between 0.87% and 9.61%
(2014: between 0.75% and 9.61%).
30. 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 2015, the Group’s largest two customers in the MENA region represented 9.9% of Group
revenue, 6.4% from one customer in Saudi Arabia, and 3.5% from a customer in Algeria. At 31 December 2015, the amount of receivables
due from all customers based in Saudi Arabia was $119 million (2014: $110 million), and in Algeria was $66 million (2014: $46 million).
During the year ended 31 December 2015, three key US wholesalers represented 32.6% of Group revenue (2014: 37%). The amount of
receivables due from all US customers at 31 December 2015 was $109 million (2014: $75 million).
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 creditworthiness 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 of credit and insurance.
Market risk
The Group’s objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flow associated with changes
in interest rates and foreign currency rates. The Group is exposed to foreign exchange and interest rate risk. Management actively monitors
these exposures to manage the volatility relating to these exposures by entering into a variety of derivative financial instruments.
Capital risk management
The Group manages its capital 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.
The Group defines capital as equity plus net funds, which include bank overdrafts and loans (note 24), obligations under finance leases
(note 29), long-term financial debts (note 28), net of cash and cash equivalents (note 22), and collateralised and restricted cash (note 21).
166
166
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
29. Obligations under finance leases
Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive
Less: Interest lease charges
Present value of minimum lease payments payable
Minimum lease payments
Present value of minimum
lease payments
2015
$m
2
25
27
(4)
23
2014
$m
2
27
29
(5)
24
2015
$m
1
22
23
2014
$m
1
23
24
It is the Group’s policy to lease certain of its property, plant and equipment under finance leases. The average lease term is 5 years
(2014: 5 years). For the year ended 31 December 2015, the average effective borrowing rate was between 0.87% and 9.61%
(2014: between 0.75% and 9.61%).
30. 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 2015, the Group’s largest two customers in the MENA region represented 9.9% of Group
revenue, 6.4% from one customer in Saudi Arabia, and 3.5% from a customer in Algeria. At 31 December 2015, the amount of receivables
due from all customers based in Saudi Arabia was $119 million (2014: $110 million), and in Algeria was $66 million (2014: $46 million).
During the year ended 31 December 2015, three key US wholesalers represented 32.6% of Group revenue (2014: 37%). The amount of
receivables due from all US customers at 31 December 2015 was $109 million (2014: $75 million).
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 creditworthiness 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 of credit and insurance.
Market risk
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.
The Group defines capital as equity plus net funds, which include bank overdrafts and loans (note 24), obligations under finance leases
(note 29), long-term financial debts (note 28), net of cash and cash equivalents (note 22), and collateralised and restricted cash (note 21).
30. Financial policies for risk management and their objectives continued
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, regional 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.
At 31 December 2015 the Group’s gearing (Total debt/equity) was 54% (2014: 46%); the increase in the Group’s gearing ratio is due to
the issuance of a $500 million Eurobond.
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, the Sudanese Pound, the Tunisian
Dinar, Moroccan Dirham and the Egyptian 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 had 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
2015 or the Group’s results of operations for the year then ended.
Financial liabilities
Interest-bearing loans and borrowings
Financial assets
Cash and cash equivalents
As at 31 December 2015
As at 31 December 2014
Fixed rate
$m
Floating
rate
$m
Total
$m
Fixed rate
$m
Floating
rate
$m
522
206
728
118
444
451
451
199
Total
$m
562
199
An interest rate sensitivity analysis assumes an instantaneous 100 basis point change in interest rates in all currencies from their levels at
31 December 2015, with all other variables held constant. Based on the composition of the Group’s debt portfolio as at 31 December 2015,
a 1% increase/decrease in interest rates would result in an additional $2.5 million (2014: $2.5 million) 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:
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.
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
The Group has no material fair value financial assets and liabilities except the contingent consideration as disclosed below.
166
167
167
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
30. Financial policies for risk management and their objectives continued
The following methods and assumptions were used to estimate the fair value:
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;
Short-term loans and overdrafts – approximates to the carrying amount because of the short maturity of these instruments;
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;
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;
Receivables and payables – the fair values of receivables and payables are estimated to be equal to the respective carrying amounts; and
Lease obligations – are valued at the present value of the minimum lease payments.
Contingent consideration – the key input into the contingent consideration Level 3 financial liabilities is the future profitability of
the business to which the contingent consideration relates. The range of possible outcomes for the fair value of this liability is $nil to
$75 million (31 December 2014: $nil to $75 million)
Financial liability related to the co-development and earn out payment – the key input of the financial liabilities is dependent on the net
revenues from the sale of products which are subject to an aggregate cap of $200 million.
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
2015
0.9168
9.6600
107.1317
3.7495
0.6754
0.7090
7.8309
120.3800
9.8476
2.0321
Period end rates
2014
0.8226
6.2696
87.9245
3.7495
0.6437
0.7090
7.1582
119.9500
9.0154
1.8612
2015
0.9006
9.6600
100.4033
3.7495
0.6540
0.7090
7.7160
121.0700
9.8008
1.9623
Average rates
2014
0.7523
6.0277
80.6145
3.7495
0.6068
0.7090
7.0972
105.8700
9.0155
1.7001
The Jordanian Dinar and Saudi Riyal have no impact on the consolidated income statement as those currencies are currently pegged to the
US Dollar.
168
168
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
30. Financial policies for risk management and their objectives continued
The following methods and assumptions were used to estimate the fair value:
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;
Short-term loans and overdrafts – approximates to the carrying amount because of the short maturity of these instruments;
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;
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;
Receivables and payables – the fair values of receivables and payables are estimated to be equal to the respective carrying amounts; and
Lease obligations – are valued at the present value of the minimum lease payments.
Contingent consideration – the key input into the contingent consideration Level 3 financial liabilities is the future profitability of
the business to which the contingent consideration relates. The range of possible outcomes for the fair value of this liability is $nil to
$75 million (31 December 2014: $nil to $75 million)
Financial liability related to the co-development and earn out payment – the key input of the financial liabilities is dependent on the net
revenues from the sale of products which are subject to an aggregate cap of $200 million.
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
US Dollar.
107.1317
87.9245
100.4033
80.6145
2015
0.9168
9.6600
3.7495
0.6754
0.7090
7.8309
9.8476
2.0321
Period end rates
Average rates
2014
0.8226
6.2696
3.7495
0.6437
0.7090
7.1582
9.0154
1.8612
2015
0.9006
9.6600
3.7495
0.6540
0.7090
7.7160
9.8008
1.9623
2014
0.7523
6.0277
3.7495
0.6068
0.7090
7.0972
9.0155
1.7001
120.3800
119.9500
121.0700
105.8700
30. Financial policies for risk management and their objectives continued
Net foreign currency financial assets/(liabilities)
2015
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.
2014
Functional currency of entity:
– Jordanian Dinar
– Euro
– Algerian Dinar
– Saudi Riyal
– Sudanese Pound
– Egyptian Pound
– Tunisian Dinar
– Lebanese Pound
– US Dollar
US Dollar
$m
Euro
$m
Dinar
$m
Yen
$m
Others*
$m
Algerian
Japanese
83
(10)
(75)
24
(23)
(7)
(4)
(1)
(3)
(16)
26
(5)
(2)
(1)
1
(6)
15
28
(29)
(29)
(1)
(2)
(3)
22
(6)
34
50
US Dollar
$m
Euro
$m
Net foreign currency financial assets/(liabilities)
Algerian
Dinar
$m
Japanese
Yen
$m
Others*
$m
112
16
(72)
8
(16)
(19)
(4)
(3)
22
(1)
(6)
(2)
(3)
1
19
8
(54)
(54)
(1)
(1)
29
1
(5)
57
82
The Jordanian Dinar and Saudi Riyal have no impact on the consolidated income statement as those currencies are currently pegged to the
* Others include Saudi Riyal and Jordanian Dinar.
A sensitivity analysis based on a 1% movement in foreign exchange rates has no material impact on the Group results and Group statement
of changes in equity.
The Group sets certain limits on liquid funds per currency (other than the functional currency of the Group) and per country.
168
169
169
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
30. Financial policies for risk management and their objectives continued
Liquidity risk of assets/(liabilities)
Liquidity risk
2015
Cash and cash equivalents
Trade receivables
Interest-bearing loans and borrowings
Interest-bearing overdrafts
Interest-bearing Import and Export loans
Trade payables and accruals
2014
Cash and cash equivalents
Trade receivables
Interest-bearing loans and borrowings
Interest-bearing overdrafts
Interest-bearing Import and Export loans
Interest-bearing finance lease
Trade payables and accruals
Less than
one year
Two to
five years
$m
553
432
(72)
(12)
(59)
(261)
581
Less than
one year
$m
280
384
(73)
(248)
(86)
(2)
(234)
21
$m
(666)
(666)
Two to
five years
$m
(157)
(27)
(184)
More than
five years
$m
(5)
(5)
More than
five years
$m
(8)
(8)
Total
$m
553
432
(743)
(12)
(59)
(261)
(90)
Total
$m
280
384
(238)
(248)
(86)
(29)
(234)
(171)
At 31 December 2015 the Group had undrawn facilities of $1,580 million (2014: $1,021 million). Of these facilities, $1,381 million
(2014: $859 million) was committed and the remainder was uncommitted.
170
170
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
30. Financial policies for risk management and their objectives continued
Liquidity risk of assets/(liabilities)
Liquidity risk
2015
Cash and cash equivalents
Trade receivables
Interest-bearing loans and borrowings
Interest-bearing overdrafts
Interest-bearing Import and Export loans
Trade payables and accruals
2014
Cash and cash equivalents
Trade receivables
Interest-bearing loans and borrowings
Interest-bearing overdrafts
Interest-bearing Import and Export loans
Interest-bearing finance lease
Trade payables and accruals
Less than
one year
Two to
More than
five years
five years
$m
553
432
(72)
(12)
(59)
(261)
581
$m
280
384
(73)
(248)
(86)
(2)
(234)
21
$m
(666)
(666)
$m
(157)
(27)
(184)
$m
(5)
(5)
$m
(8)
(8)
Total
$m
553
432
(743)
(12)
(59)
(261)
(90)
Total
$m
280
384
(238)
(248)
(86)
(29)
(234)
(171)
Less than
one year
Two to
More than
five years
five years
At 31 December 2015 the Group had undrawn facilities of $1,580 million (2014: $1,021 million). Of these facilities, $1,381 million
(2014: $859 million) was committed and the remainder was uncommitted.
31. Derivative financial instruments
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 $4 million (2014: $100 million) and have fixed interest payments at rates ranging from 1.94% to 4.34% (2014: 1.41%
to 4.34%) for periods up until 2017 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 $nil (2014: liability of $nil). 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 gain of $nil (2014: gain of
$1 million) 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 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.
32. Other non-current liabilities
Co-development and earnout payment agreement
The liability mainly relates to the fair value of future payments on a co-development and earnout agreement. Through this agreement,
milestone payments dependent on successful clinical development of defined products are received by the Group. In return of receiving
such milestone payments, the Group has agreed to pay the contracting party a certain percentage of future sales of those products. As at
31 December 2015, the liability associated with these earnout payments was adjusted to reflect the present value of the expected future
cash outflows and the difference is presented as a financing cost.
33. Share capital
Issued and fully paid – included in shareholders’ equity:
At 1 January
Issued during the year
At 31 December
34. Non-controlling interests
At 1 January
Share of profit
Dividends paid
Currency translation loss
At 31 December
Number 'm
199
1
200
2015
$m Number 'm
198
35
1
199
35
2015
$m
19
2
(2)
(4)
15
2014
$m
35
35
2014
$m
17
4
(1)
(1)
19
35. Own shares
The Employee Benefit Trust (EBT) of Hikma holds 40,831 (2014: 40,831) Ordinary Shares in the Company. The trustee of the EBT is Capita
Trustees Limited, an independent trustee. The EBT acquired $nil (2014: $nil) shares and released $nil (2014: $nil) shares during the year.
The market value of the Ordinary Shares held in the EBT at 31 December 2015 was $1 million (2014: $1 million). The book value of the
retained own shares at 31 December 2015 is $1million (2014: $1 million). The Ordinary Shares held in the EBT will be used to satisfy long-
term commitments arising from the employee share plans operated by the Company. Hikma holds $nil (2014: $nil) Ordinary Shares in
treasury. During the year, the Company issued 753,079 Ordinary Shares.
170
171
171
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
36. Net cash from operating activities
Profit before tax
Adjustments for:
Depreciation, amortisation, and impairment of:
Property, plant and equipment
Intangible assets
Investment in associate
(Gain)\ Loss on disposal of property, plant and equipment
Gain on disposal of intangible assets
Movement on provisions
Cost of equity-settled employee share scheme
Finance income
Interest and bank charges
Results from associates
Cash flow before working capital
Change in trade and other receivables
Change in other current assets
Change in inventories
Change in trade and other payables
Change in other current liabilities
Cash generated by operations
Income tax paid
Net cash generated from operating activities
2015
$m
318
51
22
7
(11)
3
15
(3)
57
2
461
(78)
(1)
4
28
3
417
(51)
366
2014
$m
362
49
23
1
(1)
5
8
(4)
38
6
487
(16)
2
24
7
504
(79)
425
37. Contingent liabilities
A contingent liability existed at the balance sheet date in respect of external guarantees and letters of credit totalling $50 million
(2014: $45 million).
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, have the potential to produce conflicting claims from
revenue authorities as to the profits to be taxed in individual territories.
The promotion, marketing and sale of pharmaceutical products and medical devices is highly regulated and the operations of market
participants, such as Hikma, are closely supervised by regulatory authorities and law enforcement agencies, including the FDA and the
US Department of Justice. As a result, the Group is subject to certain investigations by governmental agencies, as well as other various
legal proceedings considered typical to its business relating to employment, product liability and commercial disputes.
172
172
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
36. Net cash from operating activities
Profit before tax
Adjustments for:
Depreciation, amortisation, and impairment of:
Property, plant and equipment
Intangible assets
Investment in associate
(Gain)\ Loss on disposal of property, plant and equipment
Gain on disposal of intangible assets
Movement on provisions
Cost of equity-settled employee share scheme
Finance income
Interest and bank charges
Results from associates
Cash flow before working capital
Change in trade and other receivables
Change in other current assets
Change in inventories
Change in trade and other payables
Change in other current liabilities
Cash generated by operations
Income tax paid
37. Contingent liabilities
(2014: $45 million).
Net cash generated from operating activities
2015
$m
318
51
22
7
(11)
3
15
(3)
57
2
461
(78)
(1)
4
28
3
417
(51)
366
2014
$m
362
49
23
1
(1)
5
8
(4)
38
6
487
(16)
2
24
7
504
(79)
425
38. Share-based payments
Equity-settled share option scheme
During the year ended 31 December 2015, 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
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%
Exercise
price
$
5.45
9.19
4.50
0.91
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:
A contingent liability existed at the balance sheet date in respect of external guarantees and letters of credit totalling $50 million
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.
Outstanding at 1 January
Exercised during the year
Expired during the year
Outstanding at 31 December
Exercisable at 31 December
2015
2014
Number of
share
options
143,500
(79,700)
(51,300)
12,500
12,500
Weighted
average
exercise price
(in $)
7.60
7.59
7.10
9.18
9.18
Number of
share options
228,600
(61,100)
(24,000)
143,500
143,500
Weighted
average
exercise price
(in $)
7.33
6.67
0.91
7.60
7.60
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, have the potential to produce conflicting claims from
The weighted average share price at the date of exercise for share options exercised during the year was $7.59. The options outstanding
at 31 December 2015 had a weighted average remaining contractual life of less than three years.
revenue authorities as to the profits to be taxed in individual territories.
The promotion, marketing and sale of pharmaceutical products and medical devices is highly regulated and the operations of market
participants, such as Hikma, are closely supervised by regulatory authorities and law enforcement agencies, including the FDA and the
US Department of Justice. As a result, the Group is subject to certain investigations by governmental agencies, as well as other various
legal proceedings considered typical to its business relating to employment, product liability and commercial disputes.
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
The 2007 Long-Term Incentive Plan (LTIP) was approved by shareholders at the 2007 Annual General Meeting and the last grant was
made under the LTIP during the year ended 31 December 2014. The LTIP is settled by equity instruments, with fifteen separate grant dates.
Under the LTIP, conditional awards and $nil cost options were granted which vest after three years subject to a total shareholder return
(TSR), revenue growth, earnings per share and return on invested capital performance conditions. The TSR condition measures the
Group’s TSR relative to a comparator group of other pharmaceutical companies. The TSR 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. The threshold and maximum performance requirements for the revenue growth, earnings
per share and return on invested capital performance conditions are detailed in page 104 to 105 of the remuneration report and a measured
against the audited financial statements for the closest three year financial period to the grant and vesting dates.
172
173
173
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
38. Share-based payments continued
Details of the grants under the plan are shown below:
Date of grants
3-Dec-2014
11-Jun-2014
29-May-2014
3-Apr-2014
6-Nov-2013
17-May-2013
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
$
23.28
23.47
22.67
23.25
15.18
11.00
8.65
9.00
6.97
3.89
2.94
5.46
4.70
4.47
4.33
Number
granted
5,899
151,429
109,000
89,727
20,802
470,683
547,780
646,054
730,253
200,000
920,000
700,000
150,000
466,000
160,000
The share
price at
grant date
$
31.39
28.62
27.63
27.73
19.41
14.92
11.43
11.74
9.00
6.67
5.11
9.22
8.28
7.69
7.46
Expected
volatility
Expected
dividend
yield
Risk-free
interest rate
25.40%
25.40%
27.00%
26.00%
26.00%
26.40%
30.31%
37.04%
37.18%
38.98%
38.98%
31.47%
34.64%
34.64%
34.64%
0.71%
0.71%
0.73%
0.72%
0.89%
1.10%
1.14%
1.11%
1.20%
1.22%
1.47%
0.08%
0.08%
0.08%
0.08%
1.28%
1.28%
1.15%
1.17%
0.89%
0.45%
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.
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 2011, 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. For further details see the remuneration committee report.
The exercise price of the share award is $nil.
Further details on the number of shares granted are as follows:
Year 2015
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
2014
grants
03 Dec
Number
5,899
2014
grants
14 June
Number
151,429
2014
grants
29 May
Number
109,000
2014
grants
3 Apr
Number
84,954
2013
grants
6 Nov
Number
20,802
2012
2013
grant
grants
16 March
17 May
Number
Number
468,250
431,876
(440,430)
2007
grants
23 April
Number
13,000
Total
Number
1,285,210
(440,430)
5,899
151,429
109,000
84,954
20,802
431,876
27,820
13,000
844,780
27,820
13,000
40,820
174
174
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
38. Share-based payments continued
Details of the grants under the plan are shown below:
Date of grants
3-Dec-2014
11-Jun-2014
29-May-2014
3-Apr-2014
6-Nov-2013
17-May-2013
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
$
23.28
23.47
22.67
23.25
15.18
11.00
8.65
9.00
6.97
3.89
2.94
5.46
4.70
4.47
4.33
Number
granted
5,899
151,429
109,000
89,727
20,802
470,683
547,780
646,054
730,253
200,000
920,000
700,000
150,000
466,000
160,000
The share
price at
grant date
Expected
volatility
Expected
dividend
Risk-free
yield
interest rate
$
31.39
28.62
27.63
27.73
19.41
14.92
11.43
11.74
9.00
6.67
5.11
9.22
8.28
7.69
7.46
25.40%
25.40%
27.00%
26.00%
26.00%
26.40%
30.31%
37.04%
37.18%
38.98%
38.98%
31.47%
34.64%
34.64%
34.64%
0.71%
0.71%
0.73%
0.72%
0.89%
1.10%
1.14%
1.11%
1.20%
1.22%
1.47%
0.08%
0.08%
0.08%
0.08%
1.28%
1.28%
1.15%
1.17%
0.89%
0.45%
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.
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 2011, 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. For further details see the remuneration committee report.
The exercise price of the share award is $nil.
Further details on the number of shares granted are as follows:
2014
grants
03 Dec
Number
2014
grants
14 June
Number
2014
grants
29 May
Number
2014
grants
3 Apr
Number
2013
grants
6 Nov
Number
2013
grants
17 May
Number
2012
grant
16 March
Number
2007
grants
23 April
Number
Total
Number
Outstanding at 1 January
5,899
151,429
109,000
84,954
20,802
431,876
468,250
13,000
1,285,210
Year 2015
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
(440,430)
(440,430)
5,899
151,429
109,000
84,954
20,802
431,876
27,820
13,000
844,780
27,820
13,000
40,820
38. Share-based payments continued
Year 2014
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
2014
grants
03 Dec
Number
2014
2014
2014
grants
grants
grants
14 June
3 Apr
29 May
Number Number Number
2013
grants
6 Nov
Number
2012
grant
2010
2013
grants
grant
17 May 16 March 18 March 22 March
Number
2007
grants
23 April
Number Number Number
2011
grant
Number
Total
Number
20,802 439,730 468,250
555,561
23,939
13,000
1,521,282
5,899 151,429 109,000
89,727
356,055
(391,496) (18,194)
(409,690)
(4,773)
(7,854)
(12,627)
(164,065)
(5,745)
(169,810)
5,899 151,429 109,000
84,954
20,802 431,876 468,250
13,000
1,285,210
13,000
13,000
The cost of the LTIP of $5 million (2014: $5 million) has been recorded in the consolidated income statement as part of general and
administrative expenses.
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 2015
Outstanding at 1 January
Granted during the year
Exercised during the year
Expired during the year
Outstanding at 31 December
2015 grants
14-May
Number
145,918
(5,324)
140,594
2014 grants 2013 grants
17 May
Number
229,081
(211,554)
(7,554)
9,973
11-Jun
Number
219,296
(725)
(4,562)
214,009
Total
Number
448,377
145,918
(212,279)
(17,440)
364,576
174
175
175
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
38. Share-based payments continued
Year 2014
Outstanding at 1 January
Granted during the year
Exercised during the year
Expired during the year
Outstanding at 31 December
2014 grants
11-Jun
Number
225,904
(6,608)
219,296
2013 grants
17 May
Number
243,534
(5,722)
(8,731)
229,081
2012 grants
18 May
Number
370,468
(348,506)
(21,962)
Total
Number
614,002
225,904
(354,228)
(37,301)
448,377
The cost of the MIP of $6 million (2014: $3 million) has been recorded in the consolidated income statement as part of general and
administrative expenses.
Executive incentive plan
The 2014 Executive Incentive Plan (EIP) was approved by shareholders at the 2014 Annual General Meeting. The EIP is a combined cash
bonus (element A), deferred shares (element B) and restricted share (element C) scheme. Under the EIP, the Company makes grants of
conditional awards and $nil cost options under elements B and C to the executive directors and senior executives of the Group. Awards
under all elements are dependent on the achievement of individual and Group KPIs over one year prior to grant. The shares awarded under
element B are not released for a period of two years during which they are subject to a forfeiture condition. The shares awarded under
element C are not released for a period of three years, but are not subject to a forfeiture condition. Members of the Executives committee
must retain 50% of the shares received from elements B and C for a period of five years from the date of grant.
Year 2015
Beginning Balance
Granted during the year
Outstanding at 31 December
2015 grants
15-May
Number
118,000
118,000
2015 grants
10-Apr
Number
338,808
338,808
Total
Number
456,808
456,808
The cost of the EIP of $4 million (2014: $nil) has been recorded in the consolidated income statement as part of general and
administrative expenses.
39. Operating lease arrangements
Minimum lease payments under operating leases recognised in profit or loss for the year
2015
$m
8
2014
$m
5
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating
leases, which fall due as follows:
Within one year
In the two to five years inclusive
After five years
2015
$m
4
9
4
17
2014
$m
2
2
4
Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for a term of one
to five years.
176
176
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
2014 grants
2013 grants
2012 grants
11-Jun
Number
17 May
Number
18 May
Number
243,534
370,468
225,904
(6,608)
(5,722)
(8,731)
219,296
229,081
Total
Number
614,002
225,904
(37,301)
448,377
(348,506)
(354,228)
(21,962)
The cost of the MIP of $6 million (2014: $3 million) has been recorded in the consolidated income statement as part of general and
The 2014 Executive Incentive Plan (EIP) was approved by shareholders at the 2014 Annual General Meeting. The EIP is a combined cash
bonus (element A), deferred shares (element B) and restricted share (element C) scheme. Under the EIP, the Company makes grants of
conditional awards and $nil cost options under elements B and C to the executive directors and senior executives of the Group. Awards
under all elements are dependent on the achievement of individual and Group KPIs over one year prior to grant. The shares awarded under
element B are not released for a period of two years during which they are subject to a forfeiture condition. The shares awarded under
element C are not released for a period of three years, but are not subject to a forfeiture condition. Members of the Executives committee
must retain 50% of the shares received from elements B and C for a period of five years from the date of grant.
The cost of the EIP of $4 million (2014: $nil) has been recorded in the consolidated income statement as part of general and
Minimum lease payments under operating leases recognised in profit or loss for the year
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating
2015 grants
2015 grants
15-May
Number
10-Apr
Number
Total
Number
118,000
338,808
456,808
118,000
338,808
456,808
2015
$m
8
2015
$m
4
9
4
17
2014
$m
5
2014
$m
2
2
4
38. Share-based payments continued
Year 2014
Outstanding at 1 January
Granted during the year
Exercised during the year
Expired during the year
Outstanding at 31 December
administrative expenses.
Executive incentive plan
Year 2015
Beginning Balance
Granted during the year
Outstanding at 31 December
administrative expenses.
39. Operating lease arrangements
leases, which fall due as follows:
Within one year
In the two to five years inclusive
After five years
to five years.
176
Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for a term of one
40. Related parties
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 29.06% at end of 2015 (2014: 28.8%).Further details on the relationship between 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 during the year.
Capital Bank - Jordan: is a related party of the Group because two Hikma Pharmaceuticals PLC board members are also board members
of Capital Bank – Jordan. Additionally a senior member of Hikma management team is a board member of one company owned by Capital
Bank - Jordan. Total cash balance at Capital Bank – Jordan as of 31 December 2015 was $9.4 million (31 December 2014: $5.7 million).
Utilisation of facilities granted by Capital Bank – Jordan to the Group amounted to $nil (31 December 2014: $nil). Interest expense/income
is within market rate.
Jordan International Insurance Company: is a related party of the Group because one board member of the Company is also a board
member of Hikma Pharmaceuticals PLC. The Group's insurance expense for Jordan International Insurance Company contracts during the
period was $0.5 million (2014: $0.2 million). The amounts due to Jordan International Insurance Company were $0.4 million (2014: $nil).
Labatec Pharma: is a related party of the Group because it is owned by the Darwazah family. During 2015, the Group total sales to Labatec
Pharma amounted to $0.9 million (2014: $0.5 million). At 31 December 2015, the amount owed from Labatec Pharma to the Group was
$0.2 million (31 December 2014: $ 0.1 million).
Arab Bank: is a related party of the Group because one Hikma Pharmaceuticals PLC senior management member is also a board member
of Arab Bank PLC. Total cash balance at Arab Bank was $55.7 million (31 December 2014: $90.4 million). Utilisation of facilities granted by
Arab Bank to the Group amounted to $56.6 million (31 December 2014: $115.0 million). Interest expense/income is within market rate.
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 2015, fees of $0.2 million (2014: $0.1 million) were paid. At 31 December 2015, the amount owed to American University of Beirut
from the Group amounted to $nil (31 December 2014: $0.1 million).
HikmaCure: The Group holds a 50:50 joint venture (JV) agreement with MIDROC Pharmaceuticals Limited. The JV is called HikmaCure.
Hikma and MIDROC invested in HikmaCure in equal proportions and have committed to provide up to $22 million each in cash of which
$2.5 million has been paid in previous periods.
Unimark: During 2015, the Group has impaired the remaining investment balance related to Unimark Remedies Limited. The exceptional
impairment of investment was $7 million. As at 31 December 2015, the Group held a non-controlling interest of 23.1% in Unimark
Remedies Limited. During 2015, the Group paid an amount of $nil in relation to a products development agreement (2014: $2.5 million).
Hikma’s share in Unimark Remedies Limited is being divested during 2016 for minimal value.
Haosun: The Group held a non-controlling interest of 30.1% in Hubei Haosun Pharmaceutical Co., Ltd (Haosun) at 31 December 2015
(31 December 2014: 30.1%). During 2015, total purchases from Haosun were $ 0.6 million (2014: $1.0 million).
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 102 to 124.
Short-term employee benefits
Share-based payments
Post-employment benefits
Other benefits
2015
$m
14.1
6.2
0.1
0.1
20.5
2014
$m
15.7
2.4
0.1
0.2
18.4
177
177
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Continued
41. Subsidiaries
The subsidiaries of Hikma Pharmaceuticals PLC are as follows:
Company’s name
Hikma Pharma Algeria S.A.R.L
Jazeera Pharmaceuticals Industries S.A.R.L
Algerie Industrie Mediterraneene du Medicaments S.A.R.L
Al Dar Al Arabia pour la Fabrication de Medicaments S.P.A
Hikma Pharma SAE
Hikma for Importation Co. LLC
EPCI S.A.E
Hikma Pharma Share Co
Thymoorgan Pharmazie GmbH
Hikma Pharma GmbH
Thymoorgan GmbH
Hikma Italia S.P.A
Hikma Pharma Limited**
Hikma Investment LLC**
Hikma International Pharmaceuticals LLC
Arab Medical Containers LLC
Hikma Sofia Travel and Tourism
International Pharmaceuticals Research Centre LLC
Hikma Pharmaceuticals LLC
Arab Phamaceutical Manufacturing PSC
Alkeena Pharmaceutical Industries LLC *
Almotaqademah Pharmaceutical Industries LLC *
Future Pharmaceutical Industries LLC
Hikma CIS JSC
Hikma Pharma Kazakhstan
Al Jazeerah Pharmaceutical Industries Ltd
Hikma Liban S.A.R.L
Hikma Finance (Luxembourg) SARL**
Societe de Promotion Pharmaceutique du Maghreb S.A
Hikma International N.V**
Hikma Benelux B.V
Eurohealth N.V (Netherlands Antilles)**
Lifotec Farmaceutica S.G.P.S S.A**
Hikma Farmaceutica S.A
Pharma Ixir Co. ltd
Savannah Pharmaceutical Industries
Eurohealth International SARL
Societe Hikma Pharma Tunisie Ltd
Societe D'Industries Pharmaceutiques Ibn Al Baytar S.A
Societe Medicef Ltd
Arab Phamaceutical Manufacturing Tunisie
AMKI Mena Holdings Ltd
Hikma Mena Holdings
Hikma Strategic Consultancy FZ-LLC
Hikma Limited**
Hikma Acquisitions (UK) Limited**
Hikmacure Limited
Hikma Holdings (UK) Limited**
Hikma UK Limited**
West-Ward Pharma International Limited
Hikma (Maple) Limited**
West-Ward Holdings Limited**
Eurohealth (USA) Inc (Delware)**
West-Ward Pharmaceutcal Corp (Delware)
West-Ward Injectables, Inc (Delware)
Bedford Property Holdings, Inc**
Hikma Americas Inc (Tennessee)
* Under Liquidation.
Ownership%
Ordinary shares
At 31 December
2015
100
99
97
100
100
100
100
50
100
100
100
100
100
100
100
100
100
51
100
100
100
100
100
100
100
100
67
100
94.1
100
100
100
100
100
51
100
100
100
66
100
100
100
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
Ownership%
Ordinary shares
At 31 December
2014
100
99
97
100
100
100
100
50
100
100
100
100
100
100
100
100
100
51
100
100
100
100
100
100
100
100
67
100
94.1
100
100
100
100
100
51
100
100
100
66
100
100
100
100
100
100
50
100
100
100
100
100
100
100
100
Incorporated in
Algeria
Algeria
Algeria
Algeria
Egypt
Egypt
Egypt
Ethiopia
Germany
Germany
Germany
Italy
Jersey
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Kazakhstan
Kazakhstan
KSA
Lebanon
Luxembourg
Morocco
Netherlands
Netherlands
Netherlands
Portugal
Portugal
Sudan
Sudan
Switzerland
Tunisia
Tunisia
Tunisia
Tunisia
UAE
UAE
UAE
UK
UK
UK
UK
UK
UK
UK
UK
US
US
US
US
US
The group’s subsidiaries principally operate in trading pharmaceuticals products and associated goods and services except for companies
marked (**) which were incorporated as holding companies.
178
178
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Consolidated Financial Statements Continued
41. Subsidiaries
The subsidiaries of Hikma Pharmaceuticals PLC are as follows:
Ownership%
Ownership%
Ordinary shares
Ordinary shares
At 31 December
At 31 December
Incorporated in
2015
2014
Company’s name
Hikma Pharma Algeria S.A.R.L
Jazeera Pharmaceuticals Industries S.A.R.L
Algerie Industrie Mediterraneene du Medicaments S.A.R.L
Al Dar Al Arabia pour la Fabrication de Medicaments S.P.A
Hikma Pharma SAE
Hikma for Importation Co. LLC
EPCI S.A.E
Hikma Pharma Share Co
Thymoorgan Pharmazie GmbH
Hikma Pharma GmbH
Thymoorgan GmbH
Hikma Italia S.P.A
Hikma Pharma Limited**
Hikma Investment LLC**
Hikma International Pharmaceuticals LLC
Arab Medical Containers LLC
Hikma Sofia Travel and Tourism
International Pharmaceuticals Research Centre LLC
Hikma Pharmaceuticals LLC
Arab Phamaceutical Manufacturing PSC
Alkeena Pharmaceutical Industries LLC *
Almotaqademah Pharmaceutical Industries LLC *
Future Pharmaceutical Industries LLC
Hikma CIS JSC
Hikma Pharma Kazakhstan
Al Jazeerah Pharmaceutical Industries Ltd
Hikma Liban S.A.R.L
Hikma Finance (Luxembourg) SARL**
Societe de Promotion Pharmaceutique du Maghreb S.A
Hikma International N.V**
Hikma Benelux B.V
Eurohealth N.V (Netherlands Antilles)**
Lifotec Farmaceutica S.G.P.S S.A**
Hikma Farmaceutica S.A
Pharma Ixir Co. ltd
Savannah Pharmaceutical Industries
Eurohealth International SARL
Societe Hikma Pharma Tunisie Ltd
Societe D'Industries Pharmaceutiques Ibn Al Baytar S.A
Societe Medicef Ltd
Arab Phamaceutical Manufacturing Tunisie
AMKI Mena Holdings Ltd
Hikma Mena Holdings
Hikma Strategic Consultancy FZ-LLC
Hikma Limited**
Hikma Acquisitions (UK) Limited**
Hikmacure Limited
Hikma Holdings (UK) Limited**
Hikma UK Limited**
West-Ward Pharma International Limited
Hikma (Maple) Limited**
West-Ward Holdings Limited**
Eurohealth (USA) Inc (Delware)**
West-Ward Pharmaceutcal Corp (Delware)
West-Ward Injectables, Inc (Delware)
Bedford Property Holdings, Inc**
Hikma Americas Inc (Tennessee)
* Under Liquidation.
178
Algeria
Algeria
Algeria
Algeria
Egypt
Egypt
Egypt
Ethiopia
Germany
Germany
Germany
Italy
Jersey
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Jordan
Kazakhstan
Kazakhstan
KSA
Lebanon
Luxembourg
Morocco
Netherlands
Netherlands
Netherlands
Portugal
Portugal
Sudan
Sudan
Switzerland
Tunisia
Tunisia
Tunisia
Tunisia
UAE
UAE
UAE
UK
UK
UK
UK
UK
UK
UK
UK
US
US
US
US
US
100
94.1
100
99
97
100
100
100
100
50
100
100
100
100
100
100
100
100
100
51
100
100
100
100
100
100
100
100
67
100
100
100
100
100
51
100
100
100
66
100
100
100
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
100
94.1
100
99
97
100
100
100
100
50
100
100
100
100
100
100
100
100
100
51
100
100
100
100
100
100
100
100
67
100
100
100
100
100
51
100
100
100
66
100
100
100
100
100
100
50
100
100
100
100
100
100
100
100
42. Defined contribution retirement benefit plan
Hikma Pharmaceuticals PLC has defined contribution retirement plans in three of its subsidiaries: Hikma Pharmaceuticals Limited (Jordan),
West-Ward Pharmaceuticals Corp and Arab Pharmaceutical Manufacturing Co. The details of each contribution plan are as follows:
Hikma Pharmaceuticals LLC – 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 are entitled to 100% of the company contributions after ten years
of employment with the company. The Group’s contributions for the year ended 31 December 2015 were $2 million (2014: $2 million).
West-Ward Pharmaceuticals Corp: (401 (k) salary saving plan)
West-Ward Pharmaceutical Corp has 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 $18,000 and $17,500 for 2015
and 2014 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 2015 were $3 million (2014: $2 million).
Arab Pharmaceutical Manufacturing PSC – Jordan:
The Group currently has an employee saving plan wherein the employees contribute at 10%, and the company at 15% of basic salary.
After three years of employment with the company, employees are entitled to 50% of the company contributions and 100% after five years
of employment with the company. The Group’s contributions for the year ended 31 December 2015 were $1 million (2014: $1 million).
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.
43. Acquisition of a business
On 15 July 2014 Hikma completed its acquisition of the US generic injectables business, Bedford Laboratories (Bedford) from Ben Venue
Laboratories, Inc. (Ben Venue), a member of the Boehringer Ingelheim Group of Companies. The consideration for the acquisition comprised
of an upfront cash payment of $225 million which was paid on 15 July 2014 and contingent cash payments which are, subject to the
achievement of performance-related milestones over a period of five years from closing the transaction.
A reduction of $8 million was made to the provisional goodwill recognised on the acquisition of Bedford as a result of the adjustment to
inventory, property plant and equipment and deferred tax made prior to the end of the measurement period on 15 July 2015.
44. Subsequent events
a) On 28 July 2015 Hikma announced that it has agreed to acquire Roxane Laboratories Inc. and Boehringer Ingelheim Roxane Inc.
(together, “Roxane”), from Boehringer Ingelheim (Boehringer). Roxane is a well-established US specialty generics company with a highly
differentiated product portfolio and best-in-class R&D capabilities.
On closing the transaction on 29 February 2016, Hikma paid cash consideration of $575 million (net of certain working capital and other
adjustments) and issued 40 million Ordinary Shares to Boehringer (representing an estimated 16.71 per cent. of Hikma issued share capital
immediately following the issuance). The total consideration paid was approximately $1.6 billion based on Hikma’s share price of £18.81 and
the US:GBP exchange rate of 1.3879:1 on 29 February 2016. Hikma has also agreed to make further cash payments of up to $125 million,
contingent to the achievement of certain US FDA approval milestones, depending on specific product, type of approval and dosage approval
and further exclusivity and ten-year quarterly sales based contingent payments once the products are commercialised.
b) On 8 September 2015 Hikma announced that it has agreed to acquire 97.73% of the share capital of EIMC United Pharmaceuticals (EUP)
from a consortium of shareholders. EUP is a pharmaceutical manufacturing company specialising in oncology products. The acquisition of
EUP will strengthen Hikma’s position in the large and fast growing Egyptian market, add an attractive portfolio and pipeline in the key
strategic areas of oncology and injectables, add a manufacturing facility in Egypt, with both oral and injectable lines, and leverage Hikma’s
established market position in Egypt and strong sales and marketing team. An amount of $ 38 million was held in an escrow account
related to the acquisition of EUP as of 31 December 2015 (note 21). The acquisition was completed on 17 February 2016.
Due to the proximity of the completion date of both transactions to the date of issuance of the financial statements, the initial accounting
for the business combination is in progress and as such it is not practical to disclose the Purchase Price Allocation.
179
179
The group’s subsidiaries principally operate in trading pharmaceuticals products and associated goods and services except for companies
marked (**) which were incorporated as holding companies.
FINANCIAL STATEMENTS
Company Balance Sheet
At 31 December 2015
Non-current assets
Intangible assets
Financial and other non-current assets
Investments in subsidiaries
Due from subsidiaries and sister companies
Current assets
Inventories
Other current assets
Cash and cash equivalents
Collateralised and restricted cash
Due from subsidiaries and sister companies
Other receivables
Total assets
Current liabilities
Other payables
Other current liabilities
Short term debt
Due to subsidiaries and sister companies
Net current assets
Non-current liabilities
Long-term financial debts
Due to subsidiaries and sister companies
Other non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Own shares
Other reserves
Equity attributable to equity holders of the parent
Note
2015
$m
2014
$m
47
48
49
50
51
49
52
53
54
55
54
56
63
64
197
8
1,888
115
2,208
4
22
363
117
3
509
2,717
2
22
42
66
443
495
45
18
558
624
2,093
35
282
(1)
1,777
2,093
51
2,033
149
2,233
1
143
5
85
2
236
2,469
1
9
247
15
272
(36)
41
147
188
460
2,009
35
281
(1)
1,694
2,009
The financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, were approved by the Board of Directors and signed
on its behalf by:
Said Darwazah
Director
15 March 2016
Mazen Darwazah
Director
180
180
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Note
2015
$m
2014
$m
47
48
49
50
51
49
52
53
54
55
54
56
63
64
197
8
1,888
115
2,208
2,717
4
22
363
117
3
509
2
22
42
66
443
495
45
18
558
624
51
2,033
149
2,233
1
143
5
85
2
236
2,469
1
9
247
15
272
(36)
41
147
188
460
2,093
2,009
35
282
(1)
1,777
2,093
35
281
(1)
1,694
2,009
Equity attributable to equity holders of the parent
The financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, were approved by the Board of Directors and signed
Mazen Darwazah
Director
Company Balance Sheet
At 31 December 2015
Non-current assets
Intangible assets
Financial and other non-current assets
Investments in subsidiaries
Due from subsidiaries and sister companies
Current assets
Inventories
Other current assets
Cash and cash equivalents
Collateralised and restricted cash
Due from subsidiaries and sister companies
Other receivables
Total assets
Current liabilities
Other payables
Other current liabilities
Short term debt
Due to subsidiaries and sister companies
Net current assets
Non-current liabilities
Long-term financial debts
Due to subsidiaries and sister companies
Other non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Own shares
Other reserves
on its behalf by:
Said Darwazah
Director
15 March 2016
180
Company Statement of Changes in Equity
For the year ended 31 December 2015
Balance at 1 January 2014
Cost of equity settled employee share scheme
Exercise of employees long term incentive plan
Profit for the year
Dividends paid
Balance at 31 December 2014 and 1 January 2015
Issue of equity shares
Cost of equity settled employee share scheme
Profit for the year
Dividends paid
Cumulative effect of change in fair value
Balance at 31 December 2015
Paid up
capital
$m
35
35
35
Share
premium Own shares
$m
(3)
2
(1)
$m
281
281
1
282
(1)
Merger
reserve
$m
707
707
707
Retained
earnings
$m
675
8
(2)
361
(55)
987
15
133
(64)
(1)
1,070
Total
$m
1,695
8
361
(55)
2,009
1
15
133
(64)
(1)
2,093
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.
181
181
FINANCIAL STATEMENTS
2015
$m
2014
$m
133
361
1
3
(4)
33
1
1
(4)
(1)
15
5
183
(70)
(31)
(20)
24
4
(93)
5
1
446
(247)
(27)
(64)
(1)
17
130
220
143
363
2
(3)
10
51
5
426
(131)
1
(225)
3
(352)
(4)
-
(91)
225
(9)
(55)
66
140
3
143
Company Cash Flow Statement
for the year ended 31 December 2015
Profit before tax
Adjustments for:
Depreciation, amortisation and impairment of:
Amortisation of intangible assets
Cost of equity-settled employee share scheme
Finance income
Interest and bank charges
Change in other current assets
Change in other payables
Change in inventory
Change in other receivables
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 intangible assets
Investments designated at fair value
Investment in subsidiaries
Acquisition of business undertakings net of cash acquired
Interest income
Net cash used in investing activities
Financing activities
Decrease/(Increase) in collateralised cash
Proceeds from issue of new shares
Increase/(Decrease) in long-term financial debts
(Decrease)/Increase in short-term debts
Interest paid
Dividends paid
Cumulative effect of change in fair value
Proceeds from co-development and earnout payment agreement
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
182
182
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Profit before tax
Adjustments for:
Depreciation, amortisation and impairment of:
Amortisation of intangible assets
Cost of equity-settled employee share scheme
Finance income
Interest and bank charges
Change in other current assets
Change in other payables
Change in inventory
Change in other receivables
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 intangible assets
Investments designated at fair value
Investment in subsidiaries
Interest income
Net cash used in investing activities
Financing activities
Decrease/(Increase) in collateralised cash
Proceeds from issue of new shares
Increase/(Decrease) in long-term financial debts
(Decrease)/Increase in short-term debts
Interest paid
Dividends paid
Acquisition of business undertakings net of cash acquired
Cumulative effect of change in fair value
Proceeds from co-development and earnout payment agreement
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
1
3
(4)
33
1
1
(4)
(1)
15
5
183
(70)
(31)
(20)
24
4
(93)
5
1
446
(247)
(27)
(64)
(1)
17
130
220
143
363
2
(3)
10
51
5
426
(131)
1
(225)
3
(352)
(4)
-
(91)
225
(9)
(55)
66
140
3
143
Company Cash Flow Statement
for the year ended 31 December 2015
Notes to the Company Financial Statements
For the year ended 31 December 2015
2015
$m
2014
$m
133
361
45. Adoption of new and revised standards
The impact on the Company of new and revised standards is the same as for the Group. Details are given in Note 1 to the consolidated
financial statements.
46. 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 as 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 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.
47. Intangible assets
Cost
Balance at 1 January 2014
Acquisition of business
Balance at 1 January 2015
Additions/transfers from sister companies
Remeasurement (note 43)*
Balance at 31 December 2015
Amortisation
Balance at 1 January 2014
Charge for the year
Balance at 1 January 2015
Charge for the year
Balance at 31 December 2015
Carrying amount
At 31 December 2015
At 31 December 2014
Product
related
intangibles
$m
Goodwill
$m
Software
$m
-
145
145
(1)
(1)
-
10
10
Total
$m
51
51
155
(8)
198
(1)
(1)
144
10
197
51
51
51
(8)
43
43
51
* An adjustment of $8 million was made to the provisional goodwill recognised on the acquisition of Bedford as a result of the adjustment to property, plant and
equipment, inventory and deferred taxes made prior to the end of the measurement period on15 July 2015 (note 43).
182
183
183
FINANCIAL STATEMENTS
Notes to the Company Financial Statements Continued
48. Investments in subsidiaries
Investments in subsidiaries represent the following:
Company’s name
Hikma Limited
Hikma Pharma Limited
Hikma Acquisitions (UK) Limited
Al Jazeera Pharmaceutical Industries Ltd
Hikma MENA Holdings
AMKI MENA Holdings Ltd
Hikma International N.V
Eurohealth International SARL
Hikma Finance (Luxembourg) SARL
The investments in subsidiaries are all stated at cost.
* The remaining shares are held by other Group companies.
The following table provides the movement of the investments in subsidiaries:
Beginning balance
Additions
Reduction of paid up capital
Ending balance
Incorporated in
UK
Jersey
UK
KSA
UAE
UAE
Netherlands
Switzerland
Luxembourg
Ownership%
Ordinary shares at
31 December 2015
100
100
100
52.5*
100
100
100
100
100
Ownership%
Ordinary shares at
31 December 2014
100
100
100
52.5*
100
100
100
100
100
2015
$m
2,033
(145)
1,888
2014
$m
1,678
355
2,033
The 2014 additions relate to a capital increase in Hikma Finance (Luxembourg) SARL ($318 million) and a capital contribution to Eurohealth
International SARL ($37 million).
In 2015, the capital of Hikma Finance (Luxembourg) SARL was reduced by $108 million. In addition, the capital contribution of $37 million to
Eurohealth International SARL was reversed as the conditions of the contribution were not satisfied. Part of this capital reduction is related to
the transfer of intangibles from sister companies.
184
184
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Company Financial Statements Continued
48. Investments in subsidiaries
Investments in subsidiaries represent the following:
Company’s name
Hikma Limited
Hikma Pharma Limited
Hikma Acquisitions (UK) Limited
Al Jazeera Pharmaceutical Industries Ltd
Hikma MENA Holdings
AMKI MENA Holdings Ltd
Hikma International N.V
Eurohealth International SARL
Hikma Finance (Luxembourg) SARL
The investments in subsidiaries are all stated at cost.
* The remaining shares are held by other Group companies.
The following table provides the movement of the investments in subsidiaries:
Incorporated in
Ownership%
Ownership%
Ordinary shares at
Ordinary shares at
31 December 2015
31 December 2014
UK
Jersey
UK
KSA
UAE
UAE
Netherlands
Switzerland
Luxembourg
100
100
100
52.5*
100
100
100
100
100
100
100
100
52.5*
100
100
100
100
100
Beginning balance
Additions
Reduction of paid up capital
Ending balance
International SARL ($37 million).
The 2014 additions relate to a capital increase in Hikma Finance (Luxembourg) SARL ($318 million) and a capital contribution to Eurohealth
In 2015, the capital of Hikma Finance (Luxembourg) SARL was reduced by $108 million. In addition, the capital contribution of $37 million to
Eurohealth International SARL was reversed as the conditions of the contribution were not satisfied. Part of this capital reduction is related to
the transfer of intangibles from sister companies.
2015
$m
2,033
(145)
1,888
2014
$m
1,678
355
2,033
49. Due from subsidiaries and sister companies
Non current assets
West-Ward Pharmaceuticals Corp.
Hikma Italia S. P. A
Hikma MENA Holdings
Hikma International Pharmaceuticals LLC
Eurohealth International SARL
2015
$m
56
5
7
47
115
2014
$m
74
4
18
7
46
149
These balances represent loans that carry interest of 1.5% to 4.8% (2014: 2.0% to 4.8%) per annum charged on the outstanding
loan balances.
Current assets
Hikma Farmaceutica S.A
Hikma UK Limited
Hikma Limited UK
Hikma MENA Holdings
West-Ward Pharmaceutical Corp.
Hikma Pharma SAE
Eurohealth International SARL
Hikma finance (Luxembourg) SARL
Others
2015
$m
88
7
2
17
3
117
2014
$m
1
56
1
23
1
3
85
50. Other current assets
Other current assets mainly represents the agreement the Group entered with an asset management firm to manage a $20 million portfolio.
This investment is measured at fair value and any changes in fair value go through other comprehensive income.
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.
This asset is classified as level 1 “quoted prices in active markets”.
184
185
185
FINANCIAL STATEMENTS
Notes to the Company Financial Statements Continued
51. Financial assets
Cash and cash equivalents
These comprise cash held by the Company and short-term bank deposits with an original maturity of three months or less. The carrying
amount of these assets approximates to their fair value.
52. Financial liabilities
Other payables
The Directors consider that the carrying amount of other payables approximates to their fair value.
53. Short term debt
In the previous year, short term debt mainly represented a one year syndicated bridge loan of $225 million which was entered into on
7 July 2014. The bridge loan has been used to finance the acquisition of Bedford Laboratories (note 24).
54. Due to subsidiaries and sister companies
Non-current liabilities
Hikma Pharmaceuticals LLC
Hikma (Maple) Limited
Hikma Investment LLC
Eurohealth International SARL
Current liabilities
Hikma Investment LLC
West-Ward USA
Hikma Farmaceutica S.A
Thymoorgan GmbH
Others
2015
$m
44
1
45
2015
$m
5
31
2
3
1
42
2014
$m
100
44
3
147
2014
$m
15
15
Amounts due to sister company of $42 million (2014: $15 million) represent non-interest-bearing loan repayable on demand.
55. Long-term financial debts
A US$500 million (with a fair value of $494 million) 4.25% Eurobond due April 2020 with the rating of (BB+/Ba1). The proceeds were used
to refinance existing debt and for general corporate purposes.
186
186
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
Notes to the Company Financial Statements Continued
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.
The Directors consider that the carrying amount of other payables approximates to their fair value.
In the previous year, short term debt mainly represented a one year syndicated bridge loan of $225 million which was entered into on
7 July 2014. The bridge loan has been used to finance the acquisition of Bedford Laboratories (note 24).
54. Due to subsidiaries and sister companies
Non-current liabilities
2015
$m
44
1
45
2015
$m
5
31
2
3
1
42
2014
$m
100
44
3
147
2014
$m
15
15
Amounts due to sister company of $42 million (2014: $15 million) represent non-interest-bearing loan repayable on demand.
55. Long-term financial debts
A US$500 million (with a fair value of $494 million) 4.25% Eurobond due April 2020 with the rating of (BB+/Ba1). The proceeds were used
to refinance existing debt and for general corporate purposes.
51. Financial assets
Cash and cash equivalents
52. Financial liabilities
Other payables
53. Short term debt
Hikma Pharmaceuticals LLC
Hikma (Maple) Limited
Hikma Investment LLC
Eurohealth International SARL
Current liabilities
Hikma Investment LLC
West-Ward USA
Hikma Farmaceutica S.A
Thymoorgan GmbH
Others
186
56. Other non-current liabilities
Co-development and earnout payment agreement
The liability mainly relates to the fair value of future payments on a co-development and earnout agreement. Through this agreement
milestone payments, dependent on successful clinical development of defined products, are received by the Group. In return of receiving
such milestone payments, the Group agreed to pay the contracting party a certain percentage of future sales of those products. As at
31 December 2015, the liability associated with these earnout payments was adjusted to reflect the present value of the expected future
cash outflows and the difference is presented as a financing cost.
57. 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:
British Pound
2015
$m
Liabilities
2014
$m
2015
$m
1
Assets
2014
$m
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 30.
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 2015, with all other variables held constant. Based on the composition of the Company debt and cash portfolio as at
31 December 2015, a 1% increase/decrease in interest rates would result in an additional interest income of $4 million being incurred
per year (2014: $1 million of interest expense incurred).
Liquidity risk
2015
Cash and cash equivalents
Accounts receivable
Interest bearing loans and borrowings
Other payables
2014
Cash and cash equivalents
Accounts receivable
Interest bearing loans and borrowings
Other payables
Less than
one year
$m
363
3
(20)
(2)
344
Two to five
years
$m
(567)
(567)
Less than
one year
$m
148
2
(253)
(1)
(104)
Two to five
years
$m
(51)
(51)
The Company believes that, given the Group’s operating cash flow during 2015, it has the ability to satisfy its liability commitments.
Total
$m
363
3
(587)
(2)
(223)
Total
$m
148
2
(304)
(1)
(155)
187
187
FINANCIAL STATEMENTS
Notes to the Company Financial Statements Continued
58. Staff costs
Hikma Pharmaceuticals PLC currently has sixteen employees (2014: sixteen) (excluding Executive Directors); total compensation paid to
them amounted to $4 million (2014: $4 million) of which salaries and wages compromise an amount of $3 million (2014: $3 million)
the remaining balance of $1 million (2014: $1 million) represents national insurance contributions, the cost of share-based payments and
other benefits.
59. Stock options
The details of the stock compensation scheme are provided in note 38. As at 31 December 2015, 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 (2014: 2,560,000) and
the total amount of compensation expenses charged to profit or loss is $nil (2014: $nil).
60. Long-term incentive plans
The details of the LTIP scheme are provided in note 38. As at 31 December 2015, the total number of awards granted to employees of the
Company under the LTIPs during the life of the plans was 1,649,615 shares (2014:1,649,615) and the total amount of the compensation
expenses charged to profit and loss is $2 million (2014: $2 million).
61. Management incentive plans
The details of the MIP scheme are provided in note 38. As at 31 December 2015, the total number of awards granted to employees of the
Company under the MIP during the life of the plans was 18,383 shares (2014:15,834 shares) and the total amount of the compensation
expenses charged to profit and loss is $nil (2014: $nil).
62. Executive incentive plans
The 2014 Executive Incentive Plan (EIP) was approved by shareholders at the 2014 Annual General Meeting. The details of the EIP scheme
are provided in note 38. As at 31 December 2015, the total number of awards granted to employees of the Company under the EIP during
the life of the plans was 153,209 shares and the total amount of the compensation expenses charged to profit and loss is $1 million.
63. Share capital
Issued and fully paid – included in shareholders’ equity:
199,421,287 (2014: 198,632,039 ) Ordinary Shares of 10p each
Details of the issue of share capital in the year are given in Note 33.
64. Share premium
Balance at 1 January 2015
Premium arising on exercise of stock options
Balance at 31 December 2015
2015
$m
35
2014
$m
35
Share
premium
$m
281
1
282
188
188
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
65. Net income for the year
As permitted by section 408 of the Companies Act 2006, the statement of comprehensive income of the Company is not presented as part
of these accounts. The net income in the Company for the year is $133 million (2014: $361 million).
Included in the net income for the year is an amount of $202 million (2014: $398 million) representing dividends received and $3 million
(2014: $2 million) representing the current year charge of LTIPs and EIPs. The remaining $12 million (2014: $6 million) of the Group’s stock
options, LTIPs, MIPs and EIPs charge is recharged to subsidiary companies.
66. 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 29.06% at end of 2015 (2014: 28.8%).Further details on the relationship between, 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 during the period
Arab Bank: is a related party of the Company because one Hikma Pharmaceuticals PLC senior management member is also a board
member of Arab Bank PLC. Total cash balances at Arab Bank were $5.1 million (31 December 2014: $47.6 million). Utilisation of facilities
granted by Arab Bank to the Company amounted to $nil (31 December 2014: $ 37.4 million). Interest expense/income is within market rate.
Amounts repayable to and from subsidiaries are disclosed in Notes 49 and 54.
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 40. Details of Directors remuneration are disclosed in the Remuneration Committee Report
on pages 102 to 124.
The 2014 Executive Incentive Plan (EIP) was approved by shareholders at the 2014 Annual General Meeting. The details of the EIP scheme
More details on the general information of the ultimate parent of the Group are disclosed in Note 2.
67. Contingent liabilities
A contingent liability existed at the balance sheet date in respect of Standby Letter of Credit totalling to $9 million (2014: $nil).
Notes to the Company Financial Statements Continued
Hikma Pharmaceuticals PLC currently has sixteen employees (2014: sixteen) (excluding Executive Directors); total compensation paid to
them amounted to $4 million (2014: $4 million) of which salaries and wages compromise an amount of $3 million (2014: $3 million)
the remaining balance of $1 million (2014: $1 million) represents national insurance contributions, the cost of share-based payments and
58. Staff costs
other benefits.
59. Stock options
The details of the stock compensation scheme are provided in note 38. As at 31 December 2015, 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 (2014: 2,560,000) and
the total amount of compensation expenses charged to profit or loss is $nil (2014: $nil).
60. Long-term incentive plans
The details of the LTIP scheme are provided in note 38. As at 31 December 2015, the total number of awards granted to employees of the
Company under the LTIPs during the life of the plans was 1,649,615 shares (2014:1,649,615) and the total amount of the compensation
expenses charged to profit and loss is $2 million (2014: $2 million).
61. Management incentive plans
The details of the MIP scheme are provided in note 38. As at 31 December 2015, the total number of awards granted to employees of the
Company under the MIP during the life of the plans was 18,383 shares (2014:15,834 shares) and the total amount of the compensation
expenses charged to profit and loss is $nil (2014: $nil).
62. Executive incentive plans
are provided in note 38. As at 31 December 2015, the total number of awards granted to employees of the Company under the EIP during
the life of the plans was 153,209 shares and the total amount of the compensation expenses charged to profit and loss is $1 million.
63. Share capital
Issued and fully paid – included in shareholders’ equity:
199,421,287 (2014: 198,632,039 ) Ordinary Shares of 10p each
Details of the issue of share capital in the year are given in Note 33.
64. Share premium
Balance at 1 January 2015
Premium arising on exercise of stock options
Balance at 31 December 2015
2015
$m
35
2014
$m
35
Share
premium
$m
281
282
1
188
189
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FINANCIAL STATEMENTS
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Shareholder Information
2016 financial calendar
7 April
8 April
12 May
19 May
2015 final dividend ex-dividend date
2015 final dividend record date
Annual General Meeting
2015 final dividend paid to shareholders
2016 interim results and interim dividend
announced
2016 interim dividend ex-dividend date
2016 interim dividend record date
2016 interim dividend paid to shareholders
24 August*
1 September*
2 September*
30 September*
* Provisional dates.
Shareholding enquiries
Enquiries or information concerning existing shareholdings should be directed to the Company’s registrars, Capita Registrars either:
in writing to Shareholder Services, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU;
by telephone from within the UK on 0870 162 3100;
by telephone from outside the UK on +44 208 639 2157; or
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.
Share listings
London Stock Exchange
The Company’s Ordinary Shares are admitted to the Official List of the London Stock Exchange. They are listed under EPIC HIK, SEDOL
B0LCW08 GB and ISIN – GB00B0LCW083.
Further information on this market, its trading systems and current trading in Hikma Pharmaceuticals PLC shares can be found on the
London Stock Exchange website www.londonstockexchange.com.
Global Depository Receipts
The Company also has listed Global Depository Receipts (GDRs) on the Nasdaq Dubai. They are listed under EPIC – HIK and ISIN –
US4312882081. Further information on the Nasdaq Dubai, its trading systems and current trading in Hikma Pharmaceuticals PLC GDRs
can be found on the website www.nasdaqdubai.com.
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190
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015Financial Statements – Continued
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Shareholder Information
2016 financial calendar
2015 final dividend ex-dividend date
2015 final dividend record date
Annual General Meeting
2015 final dividend paid to shareholders
2016 interim results and interim dividend
announced
2016 interim dividend ex-dividend date
2016 interim dividend record date
7 April
8 April
12 May
19 May
24 August*
1 September*
2 September*
* Provisional dates.
30 September*
2016 interim dividend paid to shareholders
Shareholding enquiries
Enquiries or information concerning existing shareholdings should be directed to the Company’s registrars, Capita Registrars either:
in writing to Shareholder Services, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU;
by telephone from within the UK on 0870 162 3100;
by telephone from outside the UK on +44 208 639 2157; or
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.
Press releases, the share price and other information on the Group are available on the Company’s website www.hikma.com.
Website
Share listings
London Stock Exchange
The Company’s Ordinary Shares are admitted to the Official List of the London Stock Exchange. They are listed under EPIC HIK, SEDOL
B0LCW08 GB and ISIN – GB00B0LCW083.
Further information on this market, its trading systems and current trading in Hikma Pharmaceuticals PLC shares can be found on the
London Stock Exchange website www.londonstockexchange.com.
Global Depository Receipts
The Company also has listed Global Depository Receipts (GDRs) on the Nasdaq Dubai. They are listed under EPIC – HIK and ISIN –
US4312882081. Further information on the Nasdaq Dubai, its trading systems and current trading in Hikma Pharmaceuticals PLC GDRs
can be found on the website www.nasdaqdubai.com.
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 (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 Conduct 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 FCA by looking the firm up on www.fsa.gov.uk/register;
Report the matter to the FCA either by calling 0800 111 6768 or visit www.fca.org.uk/consumers/scams;
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.
190
191
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FINANCIAL STATEMENTS
HIKMA PHARMACEUTICALS PLC – ANNUAL REPORT 2015
Principal Group Companies
HIKMA PHARMACEUTICALS PLC
WEST-WARD PHARMACEUTICAL CORP.
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
US
Telephone: +1 732 542 1191
Facsimile: +1 732 542 6150
HIKMA PHARMACEUTICALS LLC
HIKMA FARMACÊUTICA (PORTUGAL) S.A.
P.O. Box 182400
11118 Amman
Jordan
Telephone: +962 6 5802900
Facsimile: +962 6 5827102
Estrada Rio Da Mo no. 8
8A, 8B – Fervença
2705 – 906 Terrugem SNT
Portugal
Telephone: +351 21 9608410
Facsimile: +351 21 9615102
AUDITORS
Deloitte LLP
2 New Street Square
London EC4A 3BZ
UK
Advisers
BROKERS
PUBLIC RELATIONS
Citigroup Global Markets
Limited
Canada Square
London E14 5LB
UK
Bank of America Merrill Lynch
2 King Edward Street
London EC1A 1HQ
UK
FTI Consulting
200 Aldersgate
Aldersgate Street
London EC1A 4HD
UK
192
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Hikma Pharmaceuticals plc
13 Hanover Square, London W1S 1HW, UK
www.hikma.com