Last checked at 7 Apr 2016 10:54
Hikma Pharmaceuticals PLC
2015 Annual Report & Accounts and Notice of 2016 Annual General Meeting
In compliance with Listing Rule 9.6.1, Hikma Pharmaceuticals PLC has submitted copies of the documents listed below to the National Storage Mechanism and will shortly be available for inspection at http://www.hemscott.com/nsm.do or http://www.morningstar.co.uk:
· Annual Report & Accounts 2015
· Notice of 2016 Annual General Meeting
· Proxy form for the 2016 Annual General Meeting
Copies of the Annual Report and Notice of Meeting will also be available on our website www.hikma.com. Hard copies are available by writing to the Company Secretary, Hikma Pharmaceuticals PLC, 13 Hanover Square, London W1S 1HW or by attending the office in person.
The Annual General Meeting will be held at 11:00 am on Thursday 12 May 2016 at The Westbury, Bond Street, Mayfair, London W1S 2YF.
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 2015. Where page numbers and notes are mentioned in the Appendix these refer to page numbers and notes in the Annual Report and Accounts 2015.
Enquiries:
Hikma Pharmaceuticals PLC
Peter Speirs, Company Secretary Tel: +44 (0)20 7399 2760
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 2015, Hikma achieved revenues of $1,440 million and profit attributable to shareholders of $252 million.
Appendix 1 - Principal Risks and Uncertainties
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 | 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: o Harm to end users, manufacturing personnel and the environment resulting in liability and reputational issues o Regulatory action that could result in the closure of facilities and consequential loss of opportunity and potential failure to supply obligations o Delayed or denied approvals for new products o Product recalls | · 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 · Continued environment and health certifications |
API sourcing
Executive responsibility: Director of Corporate API & Strategic Sourcing | · API and raw materials represent one of the 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 | · 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 |
MENA & emerging markets
Executive responsibility: Head of MENA | · Hikma operates in MENA and emerging 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 | · Geographic diversity reduces the impact of issues arising in one jurisdiction 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 |
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) |
Financial
Executive responsibility: Chief Financial Officer | · The Group is exposed to a variety of financial risks similar to most major international manufacturers such as liquidity, exchange rates, tax uncertainty and debtor default | · Extensive financial control procedures have been implemented andare 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 | · 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 |
Information technology
Executive responsibility: Chief Information Officer | • If information and data are not adequately secured and protected (data security, access controls), this could result in: o Increased internal/ external security threats o Compliance and reputational damages o Regulatory and legal litigation in case of failure to manage personal data o Reduced information accountability due to limited sensitive data access controls | • Utilise appropriate levels of industry-standard information security solutions for critical systems • Continue to stay abreast of cyber-risk activity and, where necessary, implement changes to combat this • Improved alignment between IT and business strategy |
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 |
Appendix 2 - 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.
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 DarwazahChairman and Chief Executive15 March 2016
Mazen DarwazahExecutive Vice Chairman15 March 2016
Appendix 3 - Related Party Transactions
Related party transactions: Note 40 of the financial statements, page 177.
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.
2015 $m | 2014 $m | |
Short-term employee benefits | 14.1 | 15.7 |
Share-based payments | 6.2 | 2.4 |
Post-employment benefits | 0.1 | 0.1 |
Other benefits | 0.1 | 0.2 |
20.5 | 18.4 |