Hikma Pharmaceuticals Regulatory News (HIK)

PRESS RELEASE

Hikma delivers solid first half performance and reiterates full year revenue guidance of $2.0 billion to $2.1 billion

London, 24 August 2016 - Hikma Pharmaceuticals PLC (Hikma, Group) (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY) (rated Ba1 Moody's / BB+ S&P , both stable), the fast growing multinational pharmaceutical group, today reports its interim results for the six months ended 30 June 2016. The financial results include the consolidation of four months of Roxane Laboratories (now West-Ward Columbus).

H1 2016 highlights

· Group revenue of $882 million, up 24% in H1 2016 and up 28% in constant currency5

· Completed West-Ward Columbus acquisition, making significant progress with integration and on track to deliver cost synergies

· Group core operating profit of $176 million, down 14% and down 3% in constant currency, due to a lower contribution from specific market opportunities for the Generics business compared with the first half of 2015

· Group core basic earnings per share of 48.2 cents, down 32% and down 21% in constant currency

· Launched 44 products and received 182 approvals, expanding and enhancing our global product portfolio

· Launched 3 Bedford products in the year to-date and on track to achieve our target of 20 Bedford launches by the end of 2017

· Interim dividend of 11.0 cents per share, in line with the interim dividend for H1 2015

· The guidance published in the trading update on 3 August 2016 is unchanged

· Continue to expect 2016 Group revenue in the range of $2.0 billion to $2.1 billion in constant currency, driven by strong growth in Injectables and Branded and the consolidation of ten months of revenue from West-Ward Columbus

Said Darwazah, Chairman and Chief Executive Officer of Hikma, said:

"Hikma has delivered a solid first half performance in a transitional year. Our global Injectables business is performing well, with revenue growth and strong profitability driven by a favourable product mix. We continue to successfully transfer the Bedford products to our injectables facilities. By re-introducing these products to the market and increasing our investment in R&D, we are building a strong pipeline to support future growth.

We are making excellent progress integrating the West-Ward Columbus operations, although as previously announced, we had slower than expected approvals for certain products in the first half. These products have now been approved but their delay had an impact on expected revenue and profit in 2016. We remain on track to achieve the revenue growth and cost synergy targets that we have set ourselves for West-Ward Columbus in 2017 and beyond. In MENA, our focus on higher value products and tight cost control is delivering a continued improvement in profitability, despite the significant currency headwinds in the region.

Overall, the Group is well positioned across our markets and we are confident that we have the regulatory, R&D and commercial capabilities to realise the full potential of our pipeline opportunities over the coming years."

Enquiries

Hikma Pharmaceuticals PLC

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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.

A presentation for analysts and investors will be held today at 09:30 UK time at FTI Consulting, 200 Aldersgate, Aldersgate Street, London EC1A 4HD. To join via conference call please dial: +44 (0) 203 003 2666 or 0808 109 0700 (UK toll free). Alternatively you can listen live via our website at www.hikma.com. A recording of both the meeting and the call will be available on the Hikma website. The contents of the website do not form part of this interim management report.

Business and financial review

The business and financial review set out below summarises the performance of Hikma's three main business segments, Injectables, Generics and Branded, for the six months ended 30 June 2016.

Group revenue by business segment

Group revenue by region

Injectables

H1 2016 highlights:

· Global Injectables revenue of $357 million, up 4% from H1 2015 and up 5% in constant currency

· Strong core operating margin of 40.9%, even with a significant increase in R&D investment

· Launched 3 Bedford products in the year to-date and on target to launch a total of 20 Bedford products by the end of 2017

· Continue to expect mid to high-single digit revenue growth and core operating margin of around 38% for the full year

Injectables revenue by region

In H1 2016, global Injectables revenue grew by 4% to $357 million. In constant currency, global Injectables revenue increased by 5%.

Of this total, US Injectables revenue was $272 million, up 2% from $266 million in H1 2015. We continued to generate strong revenue from specific market opportunities, which as expected, were lower than in H1 2015. This was more than offset by good demand across our broad portfolio and new product launches, including the former Bedford products. We expect new product launches to drive stronger revenue growth in the second half of 2016.

During the period, MENA Injectables revenue was in line with H1 2015 at $43 million and in constant currency increased by 7%. Lower revenue in Algeria was more than offset by growth in Egypt, where we completed the acquisition of EIMC United Pharmaceuticals (EUP) in February, adding a local injectables manufacturing facility and enabling us to launch three products in the first half. We expect MENA Injectables to grow more strongly in the second half of 2016 driven by new product launches and higher oncology sales.

European Injectables revenue was $42 million in H1 2016, an increase of 20% on both a reported and constant currency basis. This strong growth reflected good demand for key products and contract manufacturing services.

Injectables gross profit increased to $225 million in H1 2016, compared with $215 million in H1 2015. Gross margin increased to 63.0%, compared with 62.5% in H1 2015. The continued strong gross margin reflects a favourable product mix in the US due to the contribution from specific market opportunities and other higher value products, including the higher margin Bedford products that have been re-introduced to the market.

Core operating profit, which excludes the amortisation of intangible assets other than software and exceptional items, was $146 million in H1 2016, in line with H1 2015. Core operating margin was 40.9%, compared with 42.4% in H1 2015. The continued strength of the core operating margin reflects the strong gross margin and was achieved even with a significant increase in R&D expense compared with H1 2015 related to new product development as we invest in building our pipeline.

During H1 2016, the Injectables business launched a total of 29 products across all markets, including 4 new products. The Injectables business also received a total of 70 regulatory approvals across all regions and markets, 31 in MENA, 23 in Europe and 16 in the US.

We continue to 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. Due to a favourable product mix, we expect core operating margin to be around 38%. If certain specific market opportunities for our US Injectables business continue through the remainder of the year, there may be scope to increase our full year guidance for 2016.

Generics

H1 2016 highlights:

· Generics revenue of $257 million, compared with $79 million in H1 2015, primarily reflecting the consolidation of four months of revenue from West-Ward Columbus

· Generics core operating profit of $8 million, with a core operating margin of 3.1%, reflecting the product mix and high operating costs

· Continue to expect full year revenue in the range of $640 million to $670 million in 2016, including ten months of West-Ward Columbus

· Continue to expect core Generics operating profit in the range of $30 million to $40 million in 2016

· Continue to expect 2017 West-Ward Columbus revenue in the range of $700 million to $750 million and West-Ward Columbus EBITDA margin of around 35% over the medium term

Generics revenue was $257 million in the first half of 2016. Our legacy Generics business contributed revenue of $64 million compared with $79 million in H1 2015. This reflected lower revenue from specific market opportunities, as expected and the required divestment of certain legacy products, partially offset by steady growth in colchicine sales. Following completion of the acquisition on 29 February 2016, West-Ward Columbus contributed revenue of $193 million in the first half. West-Ward Columbus' marketed portfolio performed in line with our expectations. However, as previously disclosed, overall revenue was lower than our expectations in the first half due to slower approvals for certain new products. Although these pipeline products have now been approved, their delay had an impact on expected revenue. We remain confident that new product launches from West-Ward Columbus' large and differentiated pipeline will drive strong growth in 2017.

Generics gross profit was $65 million in H1 2016, compared with $48 million in H1 2015. Excluding the impact of the inventory related adjustments and other costs related to the West-Ward Columbus acquisition, core gross profit was $89 million. Gross margin was 25.3%, and core gross margin was 34.6%, compared with 60.8% in H1 2015. This reflects the lower contribution from specific market opportunities in H1 2016 and the consolidation of West-Ward Columbus.

Core Generics operating profit was $8 million in H1 2016, compared with $33 million in H1 2015, reflecting the product mix and the high operating costs of the West-Ward Columbus business. After taking account of a number of adjustments related to the West-Ward Columbus acquisition including intangible amortisation of $8 million, inventory related adjustments of $20 million, integration and other costs of $7 million and the net gain from the divestment of certain legacy Generics products of $18 million, the Generics business had an operating loss of $9 million. Core operating margin was 3.1%, compared with 41.8% in H1 2015. We expect increased colchicine sales, the launch of higher value products from the West-Ward Columbus pipeline and the implementation of identified cost saving opportunities within the West-Ward Columbus business to drive an improvement in Generics operating margin during the second half of 2016 and in 2017.

During H1 2016, the Generics business launched 1 new product and received 9 product approvals. The Generics business also signed new licensing agreements for 4 new products.

We continue to expect revenue for the combined Generics business in 2016 to be in the range of $640 million to $670 million, including ten months of contribution from West-Ward Columbus and taking into account the divestiture of certain legacy products. We expect the revenue shortfall from delays in new product launches to be largely offset by an increase in lower margin contract manufacturing revenue. The change in the mix of revenue will have an adverse impact on profitability in 2016, which will also be impacted by higher than expected costs resulting from the acceleration in timing of certain pipeline-related litigation. As a result, we expect core Generics operating profit to be in the range of $30 million to $40 million for the full year.

We continue to expect West-Ward Columbus revenue to increase to between $700 million to $750 million in 2017 as new product launches accelerate.  We continue to expect an increase in West-Ward Columbus' EBITDA margin to around 35% over the medium term. This high level of profitability will be achieved through new product launches from West-Ward Columbus' differentiated pipeline and the delivery of cost savings. We have made good initial progress since closing the acquisition and we continue to expect to achieve cost savings in the range of $35 million to $45 million by the end of 2017.

Branded

H1 2016 highlights:

· Branded revenue of $264 million, down 6% and up 1% in constant currency

· Branded core operating profit of $55 million, down 5% and up 28% in constant currency

· Branded core operating margin was 20.8% and 26.1% in constant currency

· Continue to expect Branded revenue growth in 2016 to be in line with historical trends, on a constant currency basis

· Continue to expect an improvement in Branded core operating margin as a result of revenue growth, a focus on higher margin products and increased efficiencies

Branded revenue increased by 1% in H1 2016, before the impact of adverse movements in the Algerian dinar, Egyptian pound, Sudanese pound, Moroccan dirham and Tunisian dinar against the US dollar. On a reported basis, Branded revenue decreased by 6% to $264 million, compared with $282 million in H1 2015. The growth on a constant currency basis reflected our continued focus on higher value products which more than offset lost revenue from discontinued tail products.

In the key markets of Algeria and Egypt, our businesses performed extremely well, delivering double-digit constant currency growth in the first half. In the Gulf Cooperation Council (GCC), which includes Saudi Arabia and the UAE, revenue declined compared with the first half of 2015 primarily due to a reduction in tender sales, a slowdown in demand for certain products and delays in product launches. We expect some improvement in the GCC in the second half driven by the timing of shipments and new product launches.

During H1 2016, the Branded business launched a total of 14 products across all markets, including 1 new product. The Branded business also received 103 regulatory approvals across the region.

Revenue from in-licensed products represented 38% of Branded revenue, compared with 40% in H1 2015. We launched two new in-licensed respiratory products during H1 2016, which will help us to grow our portfolio of higher value products in key therapeutic categories.

On a reported basis, Branded gross profit decreased by 1% to $134 million in H1 2016 and gross margin was 50.8%, compared with 48.2% in H1 2015. In constant currency, gross profit increased by $16 million, or 12% and gross margin increased to 53.5%. This reflects an improvement in the mix of sales through our focus on higher value products and the discontinuation of certain tail products.

Core operating profit, which excludes the amortisation of intangibles of $4 million, decreased by 5% to $55 million and core operating margin was 20.8%, up from 20.6% in H1 2015. In constant currency, core operating profit increased by 28% and core operating margin increased to 26.1%. This significant expansion in operating margin is primarily due to the improvement in gross margin, as well as continued tight control of operating expenses during the period and the benefit of restructuring measures undertaken in recent years.

For the full year in 2016, we continue to expect the Branded business to perform in line with historical trends on a constant currency basis. We expect revenue growth to be driven by our focus on strategic products and the strength of our sales and marketing teams. We continue to expect an improvement in Branded core operating margin as a result of revenue growth, a focus on higher margin products and increased efficiencies.

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 $4 million in H1 2016, in line with H1 2015. These other businesses were breakeven in H1 2016, compared with an operating loss of $3 million in H1 2015.

Group

Group revenue increased from $709 million in H1 2015 to $882 million in H1 2016 after the consolidation of four months of revenue from West-Ward Columbus. Group gross profit was $425 million in H1 2016. Excluding exceptional items related to the West-Ward Columbus acquisition comprising inventory related adjustments of $20 million and other costs of $4 million, core gross profit was $449 million, up from $400 million in H1 2015. Group gross margin was 48.2% and core gross margin was 50.9%, compared with 56.4% in H1 2015.

Group operating expenses increased by 48% to $304 million, compared with $206 million in H1 2015, largely as a result of the consolidation of West-Ward Columbus and the associated acquisition and integration costs. Core Group operating expenses, excluding the amortisation of intangible assets other than software and exceptional items, increased by 39% to $273 million compared with $196 million in H1 2015. In H1 2016, amortisation of intangible assets other than software was $18 million, compared with $6 million in H1 2015. The increase primarily resulted from the acquisition of West-Ward Columbus. Exceptional items included within operating expenses were $13 million, compared with $4 million in H1 2015. In H1 2016, exceptional items comprised acquisition and integration related costs of $35 million, the net gain on divestment of certain legacy Generics products of $18 million and the release of a contingent liability of $4 million. The paragraphs below address the Group's main operating expenses in turn.

Sales and marketing expenses were $106 million compared with $81 million H1 2015. Excluding the amortisation of intangible assets other than software, sales and marketing expenses were $88 million, or 10% of revenue compared with $75 million, or 11% of revenue in H1 2015. The increase of $13 million was primarily due to the consolidation of West-Ward Columbus and the increased sales and promotional costs related to the branded salesforce we established in the US from July 2015.

General and administrative expenses increased by $44 million from $86 million in H1 2015 to $130 million in H1 2016. Excluding exceptional items related to the acquisition and integration costs, G&A expenses increased by $15 million, or 19%, primarily due to the consolidation of West-Ward Columbus.

We have significantly increased our R&D investment from $20 million in H1 2015 to $57 million in H1 2016. Around $29 million of the Group's R&D expense was incurred by West-Ward Columbus and we expect this spend to be higher in the second half as we continue to develop our differentiated pipeline. R&D spend for the Injectables business was also higher in H1 2016 due to our increased investment in new product development. An additional $12 million of product-related investment was capitalised on the balance sheet in H1 2016. This related to the transfer of the Bedford products to our facilities and to product development investments with third party partners, primarily in the US. The combined R&D expense and product-related investment for the Group was $69 million (8% of Group revenue) compared with $31 million (4% of Group revenue) in H1 2015. We continue to expect Group R&D expense to be around $150 million for the full year in 2016.

Other net operating expenses were $11 million in H1 2016, compared with $19 million in H1 2015. Excluding exceptional items of $22 million related to the divestment of certain products and the release of a contingent liability, these expenses were $33 million in H1 2016, up from $21 million in H1 2015. This is primarily due to the consolidation of the West-Ward Columbus business.

Group operating profit decreased by 38% from $194 million to $121 million in H1 2016. Excluding the impact of amortisation and exceptional items, core Group operating profit decreased by 14% to $176 million and core operating margin was 20.0% compared with 28.8% in H1 2015. This primarily reflects the lower contribution from specific market opportunities in the Generics business and the consolidation of West-Ward Columbus.

Research & Development7

The Group's product portfolio continues to grow as a result of our product development efforts. During H1 2016, we launched 5 new compounds. The Group's portfolio now stands at 674 compounds in 1,975 dosage forms and strengths.8 We manufacture and/or sell 76 of these compounds under licence from the licensor.

Across all businesses and markets, a total of 44 products were launched during H1 2016. In addition, the Group received 182 approvals.

To ensure the continuous development of our product pipeline, we submitted 120 regulatory filings in H1 2016 across all regions and markets. As of 30 June 2016, we had a total of 1,315 pending approvals across all regions and markets. At 30 June 2016, we had a total of 255 new products under development.

Net finance expense

In H1 2016, net finance expense was $38 million. Excluding non-cash expenses resulting from the remeasurement of contingent liabilities, net finance expense was $29 million, up from $22 million in H1 2015. This reflects the increased interest and financing fees as a result of the West-Ward Columbus acquisition which was completed in February 2016 as well as the interest paid on the $500 million 4.25% Eurobond which was issued in April 2015. For the full year in 2016, we continue to expect the Group's net finance expense to be around $62 million. In addition, we expect non-cash expenses resulting from the remeasurement of contingent liabilities to be around $17 million for the full year in 2016.

Profit before tax

Profit before tax for the Group was $83 million in H1 2016, down from $170 million in H1 2015. Core profit before tax was $147 million, down 18% from $180 million in H1 2015.

Tax

The Group incurred a tax expense of $24 million, compared with $35 million in H1 2015. Excluding the tax impact of exceptional items, core Group tax expense was $37 million in H1 2016, in line with $37 million in H1 2015. The core effective tax rate was 25.2%, compared with 20.6% in H1 2015. The increase is due to the increased earnings in higher tax jurisdictions H1 2016. We continue to expect the core effective tax rate for the full year in 2016 to be around 25% and to return to closer to 2014 levels over the medium term.

Profit attributable to shareholders

Profit attributable to shareholders decreased by 57% to $58 million, compared with $134 million in H1 2015. Core profit attributable to shareholders decreased by 23% to $109 million, compared with $142 million in H1 2015.

Earnings per share

Earnings per share was impacted by the issuance of 40 million new shares to Boeringher Ingelheim on 29 February 2016 as part of the consideration for the West-Ward Columbus acquisition, as well as the reduction in profit attributable to shareholders in H1 2016 compared with H1 2015. Basic earnings per share decreased by 62% to 25.7 cents in H1 2016, compared to 67.3 cents in H1 2015. Core basic earnings per share decreased by 32% to 48.2 cents, compared with 71.4 cents in H1 2015. Core diluted earnings per share decreased by 33% to 47.8 cents, compared with 71.0 cents in H1 2015.  

Dividend

The Board has declared an interim dividend of 11.0 cents per share (approximately 8.4 pence per share) for H1 2016, in line with the interim dividend of 11.0 cents per share in H1 2015. The interim dividend will be paid on 30 September 2016 to eligible shareholders on the register at the close of business on 2 September 2016. The ex-dividend date is 1 September 2016 and the final date for currency elections is 16 September 2016.

Net cash flow, working capital and net debt

The Group generated operating cash flow of $99 million in H1 2016. Excluding the acquisition and integration costs related to the West-Ward Columbus acquisition of $35 million, Group operating cash flow was $134 million in H1 2016, an increase of 7% from $125 million in H1 2015. Improved cash collection in MENA more than offset the lower contribution from specific market opportunities for the Generics business. Group working capital days were 211 days at June 2016, up from 192 days at June 2015.10 This primarily reflects an increase in inventory days in the US and MENA due to these businesses building inventory levels in anticipation of stronger sales in the second half.

Capital expenditure was $55 million, compared with $37 million in H1 2015. Of this, around $32 million was spent in the US to expand the manufacturing capacity and capabilities of our Injectables and Generics businesses. In MENA, around $17 million was spent to maintain our equipment and facilities across a number of markets. The remaining $6 million was spent in Europe, expanding our Injectables manufacturing capacity for lyophilised and oncology products. We expect Group capital expenditure to be around $150 million for the full year in 2016, including West-Ward Columbus.

The Group's net debt11 (excluding co-development agreements and contingent liabilities) stood at $819 million at the end of June 2016, compared with $135 million at the end of December 2015. On 29 February 2016, we completed the acquisition of West-Ward Columbus and the net cash consideration of $575 million (net of certain working capital and other adjustments) was paid to Boehringer Ingelheim. In addition, 40 million new shares were issued to Boehringer Ingelheim at a price of 1881p, bringing the combined net consideration paid at closing to $1.6 billion, using the US:GBP exchange rate of 1.3879:1. Post completion, further adjustments to the cash consideration have been made which reduced the total consideration to $1.5 billion. Should certain further targets be met, further payments could be triggered.12 The cash consideration was funded through a combination of cash and the utilisation of the Group's existing debt facilities.

Balance sheet

Net assets at 30 June 2016 totalled $2,400 million, compared to $1,352 million at 31 December 2015. The significant increase in net assets reflects the consolidation of the West-Ward Columbus business. Net current assets were $701 million, compared to $768 million at 31 December 2015.

During the period, shareholder equity was negatively impacted by an unrealised foreign exchange translation loss of $16 million, primarily reflecting movements in the Algerian dinar, Moroccan dirham, Egyptian pound, the Sudanese pound and the Tunisian dinar against the US dollar and the translation of net assets denominated in these currencies.

Summary and outlook

The Group delivered a solid performance in the first half of 2016 whilst completing the transformational acquisition of West-Ward Columbus and rapidly progressing with the integration.

Our global Injectables business is performing well in 2016 and we expect stronger revenue growth in the second half as revenue from the re-introduction of the Bedford products increases. We continue to expect revenue to be in the mid to high-single digits for the full year in 2016, with competition on marketed products being more than offset by new product launches from our R&D, business development and Bedford pipelines. Due to a favourable product mix, we expect core operating margin for this business to be around 38% for the full year.

We continue to expect revenue for the combined Generics business to be in the range of $640 million to $670 million, including ten months of contribution from the West-Ward Columbus business and taking into account the divestiture of certain legacy products. As previously disclosed, due to a change in the product mix, with the revenue shortfall from delayed product launches being largely offset by higher contract manufacturing revenue, we expect core Generics operating profit to be in the range of $30 million to $40 million.

We continue to expect West-Ward Columbus revenue to increase to between $700 million to $750 million in 2017 as new product launches accelerate.  We continue to expect an increase in West-Ward Columbus' EBITDA margin to around 35% over the medium term. This high level of profitability will be achieved through new product launches from West-Ward Columbus' differentiated pipeline and the delivery of planned cost savings. We have made good initial progress since closing the acquisition and we continue to expect to achieve cost savings in the range of $35 million to $45 million by the end of 2017.

The Branded business is successfully executing its strategy of focusing on higher value products and tight cost control, delivering continued growth in profitability. The business continues to be impacted by adverse currency movements against the US dollar. On a constant currency basis, we continue to expect the Branded business to perform in line with historical trends for the full year in 2016, driven by strong underlying market growth, our focus on strategic products and the strength of our sales and marketing teams. We expect an improvement in Branded core operating margin to be driven by revenue growth, a focus on higher margin products and increased efficiencies.

For the overall Group, we continue to expect revenue in 2016 to be in the range of $2.0 billion to $2.1 billion in constant currency, including the contribution of ten months of revenue from West-Ward Columbus, with continuing momentum into 2017.

As previously disclosed, our full year reported results will be impacted by a number of exceptional, non-cash and other charges including the amortisation of intangible assets, inventory-related adjustments, acquisition, integration and other costs, the release of a contingent liability and the gain on sale from divestiture of certain products. In aggregate, the net impact of these items on operating profit is now estimated at around $88 million. After the tax effect and the remeasurement of contingent liabilities included within net finance, the net impact of these items on profit attributable to shareholders is now estimated at around $83 million.

Overall, Hikma is well positioned across our markets and we remain confident in our enhanced prospects for growth. Pipeline execution remains a key growth driver, particularly the differentiated West-Ward Columbus and Bedford pipelines and we are expecting these to deliver stronger growth in the second half of 2016 and in 2017.

Going concern statement

As set out in note 2 to the condensed financial statements, the Directors considered it appropriate to prepare the financial statements on the going concern basis as explained in the basis of preparation.

Responsibility statement

The Board confirms to the best of its knowledge:

a) The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' gives a true and fair view of the assets and liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R;

b) The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months including their impact on the financial statements and description of principal risks and uncertainties for the remaining six months of the year); and

c) The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein which have had or could have a material financial effect on the financial position of the Group during the period).

Cautionary statement

This interim management report has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. It should not be relied on by any other party or for any other purpose.

Forward looking statements

This announcement may contain statements which are, or may be deemed to be, "forward looking statements" which are prospective in nature. All statements other than statements of historical fact may be forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of forward looking words such as "intends", "believes", "anticipates", "expects", "estimates", "forecasts", "targets", "aims", "budget", "scheduled" or words or terms of similar substance or the negative thereof, as well as variations of such words and phrases or statements that certain actions, events or results "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved.

Where included, such statements have been made by Hikma in good faith based on the information available to it up to the time of the approval of this announcement. By their nature, forward looking statements are based on current expectations, assumptions and projections about future events and therefore 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 and a variety of factors, many of which are beyond Hikma's control, could cause actual results to differ materially from those projected or implied in any forward-looking statements. 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, Hikma 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. Except as expressly provided in this announcement, no forward looking or other statements have been reviewed by the auditors of Hikma. All subsequent oral or written forward looking statements attributable to the Hikma or any of its members, directors, officers or employees or any person acting on their behalf are expressly qualified in their entirety by the cautionary statement above.

Principal risks and uncertainties

As part of Hikma's Enterprise Risk Management Framework, the Board conducted a detailed review of all of the existing and emerging principal risks in the businesses during the year and detailed these principal risks on pages 52 to 56 of the Annual Report of Hikma Pharmaceuticals PLC for the year ended 31 December 2015. The Board has reviewed those principal risks and uncertainties and concluded that no substantial changes need to be made. It is not anticipated that the nature of the principal risks and uncertainties will change in the second six months of this financial year.

In summary, the principal risks and uncertainties affecting the Group are those described in the table below.

1 Before the amortisation of intangible assets other than software and the exceptional items included in operating profit set out in note 4 to the set of financial statements. We believe core operating profit better represents the underlying performance of the Group as it removes the impact of certain non-cash items and items that are one-off in nature

2 Before the exceptional items included in operating profit set out in note 4 to the set of financial statements. We believe core EBITDA better represents the underlying performance of the Group as it excludes one-off items, non-cash items and items below operating profit

3 Before the amortisation of intangible assets other than software and the exceptional items included in profit set out in note 4 to the set of financial statements. We believe core basic EPS better represents underlying earnings per share as it excludes certain non-cash items and items that are one-off in nature

4 Earnings before interest, tax, depreciation and amortisation. EBITDA is stated before impairment charges, loss/impairment of associates and inventory related adjustments in respect of the West-Ward Columbus acquisition. We use EBITDA to evaluate the operational performance of the Group excluding non-cash items and items below operating profit

5 Constant currency numbers in H1 2016 represent reported H1 2016 numbers re-stated using average exchange rates in H1 2015. We believe constant currency numbers better represent the underlying performance of the businesses within the Group that have a functional currency that is subject to significant fluctuations against the US dollar

6 Before the amortisation of intangible assets other than software and exceptional items, as set out in note 3 to the set of financial statements

7 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. We are presenting details of the Group's product portfolio and pipeline to provide additional information in respect of the size and make-up of the marketed portfolio which is generating revenue and the pipeline opportunity which will drive future revenue growth

8 Totals include 71 dermatological and cosmetic compounds in 282 dosage forms and strengths that are only sold in Morocco

9 Totals include all compounds and formulations that are either launched or approved or pending approval across all markets, as relevant

10 Group working capital days are calculated as Group receivable days plus Group inventory days, less Group payable days. Group receivable days are calculated as Group trade receivables x 365, divided by trailing 12 months Group revenue. Group inventory days are calculated as Group inventory x 365, divided by trailing 12 months Group cost of sales. Group payable days are calculated as Group trade payables x 365, divided by trailing 12 months Group cost of sales. We believe Group working capital days provides a useful measure of the Group's working capital management and liquidity

11 Group net debt is calculated as Group total debt less Group total cash. Group total debt excludes co-development agreements and contingent liabilities. We believe Group net debt is a useful measure of the strength of the Group's financing position

12 Further detail regarding the West-Ward Columbus acquisition is provided in note 21 to the set of financial statements

INDEPENDENT REVIEW REPORT TO HIKMA PHARMACEUTICALS PLC

Report on the consolidated interim financial statements

Our conclusion

We have reviewed Hikma Pharmaceuticals plc's condensed interim financial statements (the "interim financial statements") in the Press Release of Hikma Pharmaceuticals plc for the 6 month period ended 30 June 2016. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting' ("IAS 34") as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Separate conclusion in relation to IFRS as issued by the IASB

As explained in note 2 to the interim financial statements, the Group, in addition to applying IAS 34 as adopted by the European Union, has also applied IAS 34 as issued by the International Accounting Standards Board ("IASB"). Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with IAS 34 as issued by the IASB.

What we have reviewed

The interim financial statements comprise:

-the consolidated balance sheet as at 30 June 2016;

-the consolidated income statement and consolidated statement of comprehensive income for the period then ended;

-the consolidated cash flow statement for the period then ended;

-the consolidated statement of changes in equity for the period then ended; and

-the explanatory notes to the interim financial statements.

The interim financial statements included in the Press Release have been prepared in accordance with IAS 34, as adopted by the European Union and as issued by the IASB and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards as adopted by the European Union and as issued by the IASB.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Press Release, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Press Release in accordance with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Press Release based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose.We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

INDEPENDENT REVIEW REPORT TO HIKMA PHARMACEUTICALS PLC

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Press Release and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

23 August 2016

a) The maintenance and integrity of the Hikma Pharmaceuticals PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.

b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Hikma Pharmaceuticals PLC

Consolidated Income Statement

On this page and throughout this interim financial information "H1 2016" refers to the six months ended 30 June 2016, "H1 2015" refers to the six months ended 30 June 2015 and "FY 2015" refers to the year ended 31 December 2015

Statement of Change in Equity

Notes to the Interim Financial Statements

1. General information

These condensed interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2015, which were prepared under International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board and IFRS as adopted by the EU, have been filed with the Registrar of Companies. The auditor's report on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain any statement under Section 498 (2) or (3) of the Companies Act 2006.

The condensed interim financial statements for the six months to 30 June 2016, with comparative figures for the six months to 30 June 2015, is unaudited and does not constitute statutory accounts. However, the auditor, PricewaterhouseCoopers LLP who was appointed on 12 May 2016, has carried out a review of the condensed interim financial statements and their report in respect of the six months to 30 June 2016 is set out in the Independent review report. The comparative figures for the year to 31 December 2015 do not constitute the Company's statutory accounts for the year. Those accounts have been reported on by the Company's previous auditors, Deloitte LLP, and delivered to the Registrar of Companies. The report of the previous auditor was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain statements under Section 498 (2) or (3) of the Companies Act 2006.

2. Accounting policies

The unaudited condensed interim financial statements for the six months ended 30 June 2016 has been prepared using the same accounting policies and on a basis consistent with the audited financial statements of Hikma Pharmaceuticals PLC (the 'Group') for the year ended 31 December 2015.

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.

At the date of authorisation of these interim financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

Basis of preparation

The currency used in the preparation of the accompanying condensed interim financial statements is the US Dollar ($) as the majority of the Group's business is conducted in US Dollars.

These condensed interim financial statements for the six months ended 30 June 2016 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, "Interim financial reporting", as adopted by the European Union and as issued by the International Accounting Standards Board (IASB). The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2015, which have been prepared in accordance with IFRSs issued by the International Accounting Standards Board (IASB) and the IFRSs adopted by the European Union.

Taxes on income for interim periods are accrued using the effective tax rate that would be applicable to expected total annual earnings.

The same accounting policies, presentation and method of computation are followed in the condensed interim financial statements as has been applied in the Group's latest annual audited financial statements.

There have been no changes to the accounting standards in the current year that have materially impacted the Group financial statements.

Accounting Estimates