TIDMHIK
RNS Number : 9508B
Hikma Pharmaceuticals Plc
07 April 2017
Hikma Pharmaceuticals PLC
2016 Annual Report & Accounts and Notice of 2017 Annual
General Meeting
In compliance with Listing Rule 9.6.1, Hikma Pharmaceuticals PLC
has submitted copies of the documents listed below to the UKLA and
will shortly be available for inspection at
http://www.hemscott.com/nsm.do
-- Annual Report & Accounts 2016
-- Notice of 2017 Annual General Meeting
-- Proxy form for the 2017 Annual General Meeting
Copies of the Annual Report and Notice of Meeting will also be
available on our website www.hikma.com.
The Annual General Meeting will be held at 10:00 am on Friday 19
May 2017 at Sofitel St James, 6 Waterloo Place, London, SW14
4AN.
In accordance with DTR 6.3.5, this announcement contains
information in the attached Appendices of the principal risk
factors (Appendix 1), a responsibility statement (Appendix 2) and
details of related party transactions (Appendix 3) which has been
extracted in full unedited text from the Annual Report and Accounts
2016. Where page numbers and notes are mentioned in the Appendix
these refer to page numbers and notes in the Annual Report and
Accounts 2016.
Enquiries:
Hikma Pharmaceuticals PLC
Peter Speirs Tel: +44 (0)207399
2760
Company Secretary
About Hikma
Hikma Pharmaceuticals PLC is a fast growing pharmaceutical group
focused on developing, manufacturing and marketing a broad range of
both branded and non-branded generic and in-licensed products.
Hikma's operations are conducted through three businesses:
"Branded", "Injectables" and "Generics" based primarily in the
Middle East and North Africa ("MENA") region, where it is a market
leader, the United States and Europe. In 2016, Hikma achieved
revenues of $1,950 million and profit attributable to shareholders
of $155 million.
Appendix 1 - Principal Risks and Uncertainties
During the year, the Board conducted a robust assessment 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. The Board is
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, although the contents of
this table are not deemed as an exhaustive list of all the risks
and uncertainties the Group faces.
Risk Description Mitigation and control
--------------- --------------------------------------------------------------------------- ------------------------------------------------------------
Product
quality * Situations resulting in poor manufacturing have the * Global implementation of quality systems that
potential to lead to: guarantee valid consistent manufacturing processes
leading to the production of quality products
o Product efficacy
and safety issues * The 11 FDA approved facilities are regularly assessed
affecting patients by the regulator
and manufacturing
personnel resulting
in liability and * Documented procedures are continuously improved and
reputational issues staff receive training on those procedures on a
o Regulatory action regular basis
that could result
in the closure
of facilities and * Continued environment and health certifications
consequential loss
of opportunity
and potential failure
to supply obligations
o Delayed or denied
approvals for new
products
o Product recalls
--------------- --------------------------------------------------------------------------- ------------------------------------------------------------
API sourcing
* API and raw materials represent one of the Group's * Maintaining alternative API suppliers for the Group's
largest cost components. As is typical in the top strategic products, where possible
pharmaceuticals industry, a significant proportion of
the Group's API requirements is provided by a small
number of API suppliers * API suppliers are carefully selected and the Group
endeavours to build long-term supply contracts
* There is a risk that it will not be possible to
secure or maintain adequate levels of API supplies in * The Group has a dedicated plant in Jordan that can
the future synthesise strategic injectable APIs where
appropriate
* Regulatory approval of a new supplier can be lengthy
and supplies may be disrupted if the Group is forced * Utilising supply chain models to maintain adequate
to replace a supplier which failed to meet applicable API levels
regulatory standards or terminated its arrangements
with the Group
--------------- --------------------------------------------------------------------------- ------------------------------------------------------------
MENA and
emerging * Hikma operates in MENA and emerging markets which * Geographic diversity reduces the impact of issues
markets have high levels of political and social instability arising in one jurisdiction with extensive experience
as well as economic and regulatory fluctuations that of operating in these environments and developing
can result in a wide variety of business disruptions opportunities
in those markets for a substantial period of time
* Strong regulatory team that proactively monitors
possible regulatory changes
* Building and nurturing local business relationships
whilst upholding the highest ethical standards
* Monitoring, analysing and reacting to economic
developments, on short, medium and long-term bases
--------------- --------------------------------------------------------------------------- ------------------------------------------------------------
New product
pipeline * A sizeable proportion of Group revenues and profits * Internal marketing and business development
derive from a number of strategic products. Failure departments monitor and assess the market for arising
to maintain a healthy product pipeline will affect opportunities
the ability of the Group to generate business and
limits the ability to provide differentiated products
to patients and customers * Expansive global product portfolio with increased
focus on high value and differentiated products
* Experienced internal R&D teams developing products
and overseeing joint venture activities
* Product related acquisitions (e.g. acquisition of
West-Ward Columbus)
* Third party pharmaceutical product specialists in
addition to strong R&D teams are assisting in the
development of manufacturing processes for new
generic products. Both are assisted centrally in the
implementation and management of projects
--------------- --------------------------------------------------------------------------- ------------------------------------------------------------
Industry
earnings * The dynamics of the generic pharmaceutical industry * Operating in wide range of countries, products and
include numerous volatile elements such as political therapeutic areas
action, societal changes, regulatory interventions,
drug approval patterns, competitor strategies and
pricing that are difficult to anticipate and may * Diversification of manufacturing capability and
affect profitability, goodwill and impairment capacity
* Active product life cycle and pricing management in
the MENA region
* Compliantly identify market opportunities and develop
appropriate pricing strategies whilst responsibly
applying price changes in the US
--------------- --------------------------------------------------------------------------- ------------------------------------------------------------
Acquisitions
* The Group strategy is to pursue value adding * The mergers and acquisitions team undertake extensive
acquisitions to expand the product portfolio, acquire due diligence of each acquisition, including legal,
manufacturing capabilities and expand in existing and financial, compliance and commercial, and utilise
emerging markets. There is risk of misjudging key multiple valuation approaches in assessing target
elements of an acquisition or failing to integrate acquisition value
the assets, particularly where they are distressed
* Executive Committee reviews major acquisitions before
* An acquisition of a large-scale target may entail they are considered by the Board
financing-related risks and operating expenses and
significantly increase the Group's leverage if
financed with debt * The Board is willing and has demonstrated its ability
to refuse acquisitions where it considers the price
or risk 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
--------------- --------------------------------------------------------------------------- ------------------------------------------------------------
ABC compliance
* The pharmaceutical industry and certain MENA and * Board level - Compliance, Responsibility and Ethics
emerging markets are considered to be higher risk in Committee ("CREC")
relation to sales practices. Improper conduct by
employees could seriously damage the reputation and
licence to do business * Code of Conduct approved by the Board, translated
into seven languages and signed by all employees
* ABC compliance programme monitored by the CREC
* Over 5,000 employees have received ABC compliance
training
* Sales and marketing and other ABC compliance policies
and procedures are created, updated and rolled out
and are subject to regular audits
* Active participation in international anti-corruption
initiatives (e.g. PACI, UN Global Compact)
* Strengthening US compliance operations in line with
business expansion
* Conducting legally privileged internal compliance
audits
--------------- --------------------------------------------------------------------------- ------------------------------------------------------------
Financial
* The Group is exposed to a variety of financial risks * Extensive financial control procedures have been
similar to most major international manufacturers implemented and are assessed annually as part of the
such as liquidity, exchange rates, tax uncertainty internal audit programme
and debtor default. In addition, most of the other
risks could have a financial impact on the Group
* A network of banking partners is maintained for
lending and deposits
* Management monitors debtor payments and takes
precautionary measures and 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 * The Group is exposed to a variety of legal, IP and * Expert internal departments that enhance policies,
property regulatory risks similar to most relevant major processes, embed compliance culture, raise awareness
and regulatory international industries such as changes in laws,
regulations and their application, litigation,
governmental investigations, sanctions, contractual * Train staff and provide terms to mitigate or lower
terms and conditions and potential business contractual risks where possible
disruptions
* First class expert external advice is procured to
provide independent services and ensure highest
standards
* Board of Directors and executive management provide
leadership and take action
--------------- --------------------------------------------------------------------------- ------------------------------------------------------------
Information
technology * If information and data are not adequately secured * Utilise industry-standard information security
and protected (data security, access controls), this solutions and best practice process for local and
could result in: Group requirements
o Increased internal/ * Continue to stay abreast of cyber-risk activity and,
external security where necessary, implement changes to combat this
threats
o Compliance and
reputational damages * Alignment of IT and business strategy
o Regulatory and
legal litigation
* Working with strategic third parties to implement and
maintain a robust Group wide information security
programme
--------------- --------------------------------------------------------------------------- ------------------------------------------------------------
Human
resources * Changes in employment laws pose constant risks. The * Employ HR programmes that attract, manage and develop
and fast growth of the organisation poses risks to talent within the organisation
organisational management processes, structures and talent that
growth serve the changing needs of the organisation. In turn,
this may affect other risks * Keeping our organisation structures and
accountabilities under review, and maintaining the
flexibility to make changes smoothly as requirements
change
* Continuously upgrade management processes so that
they become and remain at the--standards of a global
--------------- --------------------------------------------------------------------------- ------------------------------------------------------------
Reputational
* Reputational risk inescapably arises as a by-product * Monitor the internal and external sources that might
of other risks and from taking complex business signal reputational issues
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 * Sustain corporate responsibility and ethics through
business transparent reporting and compliance with global best
practices (e.g. GHG emissions, UN Global
* Maintain strong communication and corporate affairs
* Establishing partnerships and programmes to limit
misuse of Hikma
--------------- --------------------------------------------------------------------------- ------------------------------------------------------------
Appendix 2 - Directors' Responsibility Statement
Directors are responsible for preparing the Annual Report and
the financial statements in accordance with applicable laws 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.
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
14 March 2017
Mazen Darwazah
Executive Vice Chairman
14 March 2017
Appendix 3 - Related Party Transactions
Related party transactions: Note 40 of the financial statements,
page 193.
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:
Boehringer Ingelheim GmbH (BI): is a related party of Hikma
because BI owns 16.7% (2015: 0.0%) of the share capital of Hikma,
controls 11.7% (2015: 0.0%) of the voting capital of Hikma, has the
right to appoint a director of Hikma and a senior executive of BI
holds a directorship of Hikma. During the year, the Group total
sales to BI amounted to $90.1 million (2015: $nil) and the Group
total purchases from BI amounted to $10.3 million. As at the year
end, the amount owed from BI to the Group was $45.2 million (2015:
$nil). Additionally, balances arising from the acquisition of
West-Ward Columbus from BI relating to contingent consideration are
disclosed in note 30 and purchase price adjustments which are
outstanding are disclosed in note 43.
Capital Bank, Jordan (Capital Bank): is a related party of Hikma
because one director of Hikma is a director, the founder and former
Chief Executive Officer of Capital Bank. At the year end, total
cash balance at Capital Bank was $11.3 million (2015: $9.4 million)
and utilisation of facilities granted by Capital Bank to the Group
amounted to $8.3 million (2015: $nil). The interest expense/income
is within market rate
Darhold Limited (Darhold): is a related party of Hikma because
three directors of Hikma jointly constitute the majority of
directors and shareholders (with immediate family members) in
Darhold and because Darhold owns 25.00% (2015: 29.06%) of the share
and voting capital of Hikma.
Other than dividends (as paid to all shareholders), there were
no transactions between the Group and Darhold Limited during the
year.
HikmaCure Limited (HikmaCure): is a related party of Hikma
because HikmaCure is a 50:50 joint venture (JV) with MIDROC
Pharmaceuticals Limited ('MIDROC'). 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
(2015: $2.5 million).
Hubei Haosun Pharmaceutical Co. Ltd (Haosun): is a related party
of Hikma because the Group holds a non-controlling interest of
30.1% (2015: 30.1%) in Haosun. During 2016, total purchases from
Haosun were $0.4 million (2015: $0.6 million). At 31 December 2016,
the amount owed from Hubei Haosun Pharmaceutical to the Group
amounted to $1.7 million (2015: $nil).
Labatec Pharma (Labatec): is a related party of the Group
because Labatec is owned by the family of two directors of Hikma.
During 2016, total Group sales to Labatec amounted to $1.4 million
(2015: $0.9 million). As at the year end, the amount owed by
Labatec to the Group was $0.3 million (2015: $0.2 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 104 to 135.
2016 2015
$m $m
------------------------------ ----- -----
Short-term employee benefits 14.2 14.1
------------------------------ ----- -----
Share-based payments 11.5 6.2
------------------------------ ----- -----
Post-employment benefits - 0.1
------------------------------ ----- -----
Other benefits 0.3 0.2
------------------------------ ----- -----
26.0 20.5
------------------------------ ----- -----
This information is provided by RNS
The company news service from the London Stock Exchange
END
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