TIDMHIK
RNS Number : 4654Q
Hikma Pharmaceuticals Plc
09 April 2009
Hikma Pharmaceuticals PLC
Annual Report & Accounts and Notice of 2009 Annual General Meeting
In compliance with Listing Rule 9.6.1 Hikma Pharmaceuticals PLC has submitted to
the UK Listing Authority two copies of the following documents:
* Annual Report & Accounts 2008
* Notice of 2009 Annual General Meeting
* Proxy forms for the 2009 Annual General Meeting
* Sterling and Jordanian Dinar dividend election forms
Copies of the above documents will shortly be available for inspection at the UK
listing Authority's Document Viewing Facility which is situated at:
The Financial Services Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS
Copies of the Annual Report and Notice of Meeting will also be available on our
website www.hikma.com/investorrelations/financialreports/?year=2008.
This announcement contains additional information for the purposes of complying
with Rules 4.1.3 and 6.3.5 of the Disclosure and Transparency Directive. The
information in the attached appendix, consisting of risk factors, details of
related party transactions and the directors responsibility statement, has been
extracted unedited from the Annual Report and Accounts for the year ended 31
December 2008 and should be read in conjunction with the preliminary
announcement made on 17 March 2009, which is available on the company website
www.hikma.com.
Enquiries:
Hikma Pharmaceuticals PLC Tel: +44 (0)20 7399 2760
Said Darwazah, Chief Executive
Bassam Kanaan, Chief Financial Officer
Peter Laing, Investor Relations
Brunswick GroupTel: +44 (0)20 7404 5959
Jon Coles / Justine McIlroy
About Hikma
Hikma Pharmaceuticals PLC is a fast growing multinational group focused on
developing, manufacturing and marketing a broad range of both branded and
non-branded generic and in-licensed pharmaceutical products. Hikma's operations
are conducted through three businesses: "Branded", "Injectables" and "Generics".
Hikma's operations are based principally in the Middle East and North Africa
("MENA") region, where it is a market leader and sells across 17 countries, the
United States and Europe. In 2008, the Group achieved revenues of $580.7
million (2007 $449 million) and profit attributable to shareholders was $57.1
million (2007 $63 million). For news and other information, please visit
www.hikma.com.
Appendix
Directors Responsibility Statement
The directors are responsible for preparing the Annual Report and the financial
statements. The directors are required to prepare financial statements for the
group in accordance with International Financial Reporting Standards as adopted
by the EU (IFRSs) and have also elected to prepare financial statements for the
company in accordance with IFRSs. Company law requires the directors to prepare
such financial statements in accordance with IFRSs, the Companies Act 1985 and
Article 4 of the IAS Regulations.
International Accounting Standard 1 requires that financial statements present
fairly for each financial year the company's financial position, financial
performance and cash flows. This requires the faithful representation of the
effects of transactions, other events and condition in accordance with the
definitions and recognition criteria for assets, liabilities, income and
expenses set out in the International Accounting Standards Board's 'Framework
for the Preparation and Presentation of Financial Statements'. In virtually all
circumstances, a fair presentation will be achieved by compliance with all
applicable IFRSs. Directors are also required to:
* Properly select and apply accounting policies;
* Present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information; and
* Provide additional disclosures when compliance with the specific requirements in
IFRSs is insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the entity's financial position and
financial performance.
The directors responsible for keeping proper accounting records which disclose
with reasonable accuracy at any time the financial position of the company, for
safeguarding the assets, for taking reasonable steps for the prevention and
detection of fraud and other irregularities and for the preparation of a
directors' report and director's remuneration report which comply with the
requirements of the Companies Act 1985.
The directors are responsible for the maintenance and integrity of the company
website. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements differs from legislation in other
jurisdictions.
We confirm to the best of our knowledge:
* The financial statements, prepared in accordance with International Financial
Reporting Standards as adopted by the EU, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the company and
the undertakings included in the consolidation taken as a whole; and
* The business review, which is incorporated into the Directors' Report, includes
a fair review of the development and performance of the business and the
position of the company and the undertakings included in the consolidation taken
as a whole, together with a description of the principal risks and uncertainties
they face.
By order of the Board
Said Darwazah
Chief Executive Officer
Risk Factors
Principal Risks and Uncertainties
The Group's business faces risks and uncertainties. The section below includes
the principal risks and uncertainties that the Group considers could have a
significant effect on its financial condition, results of operations or future
performance. The list is not set out in order of priority and other risks,
currently unknown or not considered material, could have a similar effect.
Risk Management
Operational risks
Regulatory
Hikma is subject to extensive regulation on the approval, manufacture and
distribution of its products in all its markets. There is no single worldwide
harmonised set of regulations relating to the development, manufacture and sale
of pharmaceutical products and the Group is therefore subject to different laws,
regulations and codes depending on the regions or countries in which products
are marketed. This is particularly relevant in the MENA region where there is no
mutually-recognized regional regulatory body. Specific jurisdictions can
therefore refuse to register a product or may require additional information
even though it approved in another jurisdiction. This can create significant
compliance costs, and can also increase the time it takes to realize the full
penetration of products into all markets.
The Group operates in diverse markets and geographic regions and is therefore
subject to a broad range of industry, economic and political dynamics. The laws
and regulations governing the manufacture and supply of our products are subject
to change, which may lead to unanticipated business interruption or increased
costs for compliance. Whilst the cost of such disruption of compliance can be
significant, we believe that the wide geographic spread of our operations gives
the Group the strength and flexibility to lessen the impact on the Group's
results and financial condition of any such disruption.
Economic and political dynamics
The Group operates in emerging markets, some of which have less developed
political and legal systems, or which have a history of political volatility and
therefore present greater challenges to the conduct of business than more
developed markets. Whilst the Group has a wide geographical spread of
operations, the failure of control, a change in the economic conditions or
political environment or sustained civil unrest in any particular market or
country could adversely affect the financial condition of the Group.
Risk of interruption of production
Product manufacture is subject to continual regulatory control, and products
must be produced in accordance with good manufacturing practice regulations. Our
manufacturing sites are subject to approval and ongoing inspection by a large
number of regulatory agencies. In addition, small changes in manufacturing
processes may require further regulatory approval. These issues could result in
additional compliance expense, and compliance failure could result in
interruptions to production, product recalls, closure of manufacturing sites and
other sanctions, which could adversely affect our business and its financial
condition.
Regulated and other suppliers
A compliance failure by any of our regulated suppliers - for both active and
bulk ingredients - could lead to delays in production, product recalls, the
potential for product liability claims and other regulatory sanctions. The
business undertakes supply chain planning, and alternative sourcing of key
products. However, for some components we may have to rely on single sourcing,
which creates a greater risk of disruption to production in the event of
regulatory non-compliance or interruption of supply. While the Group does not
believe that any third-party supplier relationship is individually significant
in terms of the entire Group, a failure in supply could disrupt production and
restrict sales.
Government tender bids
Whilst the majority of Group sales are to the private sector, each of our three
businesses participates in government tenders. The timing and outcome of these
tenders are unpredictable, and the Group's results could be affected by the gain
or loss of a significant government contract.
Research and development and commercialisation of new products
The Group's results of operations may be impacted significantly by the
timeliness of its research and development and product commercialisation
activities. In order to bring a pharmaceutical product to market successfully,
the Group must identify products for which it can generate attractive margins
and growth, undertake the required research and development and obtain
regulatory approvals. Additional costs may be incurred, and sales opportunities
lost, if there is any significant delay in any of these steps. Given the
importance of research and development, Hikma has expanded its investment in
research and development, particularly in Jordan where it can benefit from lower
labour and bio-equivalency costs.
API and other raw material costs
Raw material costs represented over 30% of the Group's net sales in the year
ended 31 December 2008, with the most significant portion of these costs
relating to APIs. Whilst the prices of the APIs that the Group uses have in
general fallen in recent years, these prices are volatile and can vary
significantly from supplier to supplier. In some cases, increase in API and
other raw material costs may not be able to be passed on to customers and can
therefore have a significant impact on the Group's results of operations. Hikma
has a dedicated API sourcing function that has been successful in sourcing lower
cost API's through more competitive suppliers in Asia.
Seasonality
The Group's business, in particular the Branded Pharmaceuticals business, is
seasonal, and it generally experiences higher net sales and net profit in the
first half of each financial year, as compared to the second half of its
financial year. Accordingly, the Group's outstanding borrowings historically
have been higher during the first half of the financial year in order to finance
the working capital requirements of the Group.
Acquisitions and strategic alliances
Acquisitions remain a key part of the Group's strategy to develop and grow it's
business. The Group also seeks long-term licensing arrangements and strategic
alliances to expand its product portfolio and geographical presence. The risks
associated with this strategy include the availability of suitable acquisition
candidates and assimilating and integrating acquired companies into the Group.
Other risks include delays in implementation or unexpected costs or liabilities.
The Group may also risk of failing to realise operating benefits or synergies
from completed acquisitions. The Group mitigates these risks by implementing a
structured integration process which can include placing experienced management
into the acquired company to effect the swift installation of internal controls
and by subjecting management processes to close monitoring and review by
internal audit and senior management. In respect of long-term licensing
arrangements, a failure to agree appropriate commercial terms on renewal of such
agreements could lead to a reduction in revenues as replacement products are
sourced.
Financial risks
Group Treasury is responsible for Financial Risk Management and setting the
appropriate controls and risk policies. Group Treasury is supported by treasury
departments at the operating company and segmental levels and reports to the
Chief Financial Officer.
Foreign exchange risk
The Group uses the US Dollar as its reporting currency and is therefore exposed
to foreign exchange movements, primarily in the European, Algerian, Sudanese and
Egyptian currencies that could materially affect the Group's financial results.
Group Treasury attempts to mitigate this risk through various methods: entering
into currency derivative contracts where possible, foreign currency borrowing
and matching foreign currency revenues and costs. Using these methods has not
had a material impact on the Group's financial position at 31 December 2008. See
Note 29 to the Group's consolidated financial statements for a description of
the Group's Foreign Exchange risks.
Interest rate risk
The Group manages its exposures to interest rate risks by changing the
proportion of fixed rate debt and variable rate debt in its total debt
portfolio. To manage this mix the Group may enter into interest rate swap
agreements, in which it exchanges the periodic payments based on notional
amounts and agreed upon fixed and variable interest rates. Using these swap
agreements has not had a material impact on the Group's financial position at 31
December 2008. See Note 29 to the Group's consolidated financial statements for
a description of the Group's interest rate risks.
Credit Risk
In most cases, the Group grants its buyers credit terms for settlement of sales
invoices. Credit risk is managed through the Group Credit policy and the use of
various financial instruments such as letters of credit, factoring and credit
insurance arrangements. Further details are set out in Note 29 of the Group's
consolidated financial statements.
Liquidity Risk
The Group has constant financing requirements, both for short-term working
capital needs and for long term strategic plans. Corporate Treasury ensures the
Group debt/capital structure and banking arrangements can accommodate these
financing needs. Corporate Treasury also endeavours to efficiently utilise
excess liquidity from one subsidiary to another, while complying with any
foreign currency, legal or tax restrictions.
Going Concern
Although, the current economic conditions may affect short term demand for our
products, as well as place pressure on customers and suppliers which may face
liquidity issues, the Group's geographic spread, product diversity and large
customer and supplier base substantially mitigate these risks. In addition, the
Group operates in the relatively defensive generic pharmaceuticals industry
which we expect to be less affected compared to other industries that are
subject to greater cyclical changes.
The Group has $229 million of banking facilities of which $121 million were
undrawn as at 31 December 2008. These facilities are well diversified across the
operating subsidiaries of the Group with a number of financial institutions. The
majority of these facilities are short term, uncommitted working capital
related. See notes 24, 27 and 29 for details. However, we continue to expect
them to be renewed annually. In addition the Group maintained cash balances of
$63.5 million as at 31 December 2008. The Group's forecasts, taking into account
reasonable possible changes in trading performance, facility renewal
sensitivities and maturities of long term debt, show that the Group should be
able to operate well within the levels of its facilities and their related
covenants.
After making enquiries, the directors believe that the Group is adequately
placed to manage its business and financing risks successfully despite the
current uncertain economic outlook. Accordingly, they continue to adopt the
going concern basis in preparing the annual report and accounts, as stated in
the Directors report.
Inflation risk
Hikma believes it is not subject to material risk due to inflation in any of its
core markets at present.
Taxation
Almost all of the Group's earnings are derived in jurisdictions other
than the United Kingdom and are taxed there. Some of these overseas countries
offer more favorable tax rates in comparison to each other and the United
Kingdom. In addition to the United Kingdom, tax laws and regulations in many of
the countries where the Group operates include international rules that aim to
protect the tax base of such country. Any change to such rules could negatively
affect the effective tax rate of the Group or could create costly compliance
requirements. Therefore, the management maintains close observation of any
intended or proposed changes to such rules, both in the United Kingdom and in
other key countries where the Group operates.
Critical accounting policies and estimates
The Group's accounting policies are more fully described in Note [X] of the
Group's consolidated financial statements. However, certain of the Group's
accounting policies are particularly important to the presentation of the
Group's results and require the application of significant judgement by the
Group's management.
In applying these policies, the Group's management uses its judgement to
determine the appropriate assumption to be used in the determination of certain
estimates used in the preparation of the Group's results. These estimates are
based on the Group's previous experience, the terms of existing contracts,
information available from other outside sources and other factors, as
appropriate.
The Group's management believes that, among others, the following accounting
policies that involve management judgements and estimates are the most critical
to understanding and evaluating the Group's financial results.
Revenue recognition
Revenue represents sales of products to external third parties and excludes
inter-company income and value added taxes. Sales of goods are recognised when
the risk of loss and title are transferred to customers and reliable estimates
can be made of relevant deductions. The Group's revenue recognition policies
require management to make a number of estimates, with the most significant
relating to charge backs, product returns, rebates and price adjustments which
vary by product arrangements and buying groups.
Charge backs
The provision for charge backs is the most significant and complex estimate used
in the recognition of revenue. In the US, the Group sells its products directly
to wholesalers, generic distributors, retail pharmacy chains and mail-order
pharmacies. The Group also sells its products indirectly to independent
pharmacies, managed care organisations, hospitals, and group purchasing
organisations, collectively referred to as "indirect customers." The Group
enters into agreements with its indirect customers to establish pricing for
certain products. The indirect customers then independently select a wholesaler
from which they purchase the products at agreed-upon prices. The Group will
provide credit to the wholesaler for the difference between the agreed-upon
price with the indirect customer and the wholesaler's invoice price. This credit
is called a "charge back". The provision for charge backs is based on historical
sell-through levels by the Group's wholesale customers to the indirect
customers, and estimated wholesaler inventory levels. As sales are made to the
large wholesalers, the Group continually monitors the reserve for charge backs
and makes adjustments when it believes that actual charge backs may differ from
estimated reserves.
Accounts receivable and bad debts
The Group estimates, based on its historical experience, the level of debts that
it believes will not be collected. Such estimates are made when collection of
the full amount of the debt is no longer probable. These estimates are based on
a number of factors including specific customer issues and industry, economic
and political conditions. Bad debts are written off when identified.
Goodwill and intangible assets
The Group has significant investments in goodwill and intangible assets as a
result of acquisitions of businesses and purchases of assets such as product
development and marketing rights.
Under IFRS, goodwill and intangibles with indefinite useful economic lives are
held at cost and tested annually for impairment, whilst the remaining
intangibles are amortised over their estimated useful lives. Estimated useful
lives are reviewed annually and impairment reviews are undertaken if events
occur which indicate impairment to the carrying values of the assets.
Purchases of intellectual property and product rights to supplement our R&D
portfolio are capitalised as intangible assets. Such intangible assets are
amortised from the launch of the underlying products and are tested for
impairment. This policy is in line with practice adopted by other major
pharmaceutical companies. The critical area of judgement is in relation to the
useful economic life of these product-related intangibles and the impairment
tests for that are performed at least annually.
Contingent liabilities
In the normal course of business, contingent liabilities may arise from
product-specific and general legal proceedings, from guarantees or from
environmental liabilities connected with our current or former sites. These
potential liabilities are considered to have a remote probability of
crystallising and are therefore treated as contingent liabilities in the Group
financial statements, and accordingly disclosed in Note 36. Although there can
be no assurance regarding the outcome of legal proceedings, we do not expect
them to have a materially adverse effect on our financial position or
profitability.
Tax
The Group provides for income tax according to the laws and regulations
prevailing in the countries where it operates and the likelihood of settlement.
The tax expense represents the sum of the current and deferred tax and the tax
currently payable is based on taxable profit for the year. Taxable profit
differs from net profit as reported in the income statement because it excludes
items of income or expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The Group's
liability for current tax is calculated using tax rates that have been enacted
or substantively enacted by the balance sheet date.
Related Party Transactions
During the year, Group companies entered into the following transactions with
related parties:
Darhold Limited: is a related party of the Group because it is considered one of
the major shareholders of Hikma Pharmaceuticals PLC with ownership percentage of
30.2% at the end of 2008 (2007: 30.8%). Further details on the relationship
between Mr. Samih Darwazah and Darhold Limited are given in the Remuneration
Report.
Other than dividends (as paid to all shareholders), there were no transactions
between the Group and Darhold Limited in the year.
Capital Bank - Jordan: is a related party of the Group because during the year
two board members of the Bank were also board members at Hikma Pharmaceuticals
PLC. As at 31 December 2008, those two board members were no longer board
members of the Capital Bank. Total cash balances at Capital Bank - Jordan were
USD 217,000 (2007: USD 155,000). Loans and overdrafts granted by Capital Bank to
the Group amounted to USD 207,000 (2007: USD 389,000) with interest rates
ranging between 8.75% and LIBOR + 1. Total interest expense and bank charges
incurred against Group facilities was USD 86,000 (2007: USD 47,000). Total
interest income received was USD 1,500 (2007: USD 10,000) and total commission
paid in the year was 11,300 (2007: USD 9,000)
Jordan International Insurance Company: is a related party of the Group because
one board member of the company is also a board member at Hikma Pharmaceuticals
PLC. Total insurance premiums paid by the Group to Jordan International
Insurance Company during the year were USD 1,351,000 (2007: USD 1,107,000). The
Group's insurance expense for Jordan International Insurance Company contracts
in the year 2008 was USD 1,490,000 (2007: USD 1,360,000). The amounts due to
Jordan International Insurance Company at the year end were USD 93,000 (2007:
USD 143,000).
Mena Innovative Technology: is a related party because the Group holds a
minority stake in this company (see note 18) and because the majority
shareholder is the wife of Mr. Nabil Rizk - a chairman of West-ward
Pharmaceuticals. Total purchases during the year were USD 1,000 (2007: USD
76,000). Purchases were made at market price discounted to reflect the quantity
of goods purchased. At 31 December 2008, the Group had no outstanding balance
with Mena Innovation Technology (2007: USD Nil).
Tunisian Companies: Amounts due from the two Tunisian companies the Group has
invested in net of provisions are USD 474,000 (2007: USD 270,000) and USD
793,000 (2007: USD 486,000) due from Societe Hikma Medicef Limited-Tunisia and
Societe D'Industries Pharmaceutiques Ibn Al Baytar S.A. - Tunisia, respectively.
The provision for doubtful debts related to balances above was USD 303,000
(2007: USD 154,000).
West-ward Pharmaceuticals Corp: In prior years, certain expenses of the Chairman
were paid in the USA by West-ward Pharmaceuticals Corp and reimbursed by the
Chairman. This practice has now ceased, and at 31 December 2008, the Group has
no outstanding balance with the Chairman (2007: USD 11,000).
Mr. Yousef Abd Ali: Mr. Yousef Abd Ali is a related party of the Group because
he holds a minority interest in Hikma Lebanon of 33%. The amount owed to Mr.
Yousef by the Group as at 31 December 2008 was USD 161,000 (2007: Nil).
Labatec Pharma SA: is a related party of the Group because it is owned the by
Mr. Samih Darwazah. During 2008 the Group total sales to Labatec Pharma amounted
to USD 30,000 (2007: Nil). At 31 December 2008 the Group had no outstanding
balance with Labatec Pharma (2007: Nil).
Remuneration of key management personnel: The remuneration of the key management
personnel (comprising the executive and non-executive director's and the members
of senior management as set out in the Director's 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 Directors' Remuneration Report
on pages 89 to 91.
Forward looking statements
Certain statements in this announcement are forward-looking statements - using
words such as "intends", "believes", anticipates" and "expects". Where included,
these have been made by the Directors in good faith based on the information
available to them up to the time of their approval of this announcement. By
their nature, forward-looking statements are based on assumptions and involve
inherent risks and uncertainties that could cause actual results or events to
differ materially from those expressed or implied by the forward-looking
statements, and should be treated with caution. These risks, uncertainties or
assumptions could adversely affect the outcome and financial effects of the
plans and events described in this announcement. Forward-looking statements
contained in this announcement regarding past trends or activities should not be
taken as a representation that such trends or activities will continue in the
future. You should not place undue reliance on forward-looking statements, which
speak as only of the date of the approval of this announcement.
Except as required by law, the Company is under no obligation to update or keep
current the forward-looking statements contained in this announcement or to
correct any inaccuracies which may become apparent in such forward-looking
statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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