Hikma Pharmaceuticals Regulatory News (HIK)

PRESS RELEASE

Hikma delivers a resilient H1 performance and is on track to deliver full year guidance for revenue growth and gross margin

London, 25 August 2011 - Hikma Pharmaceuticals PLC (LSE: HIK) (NASDAQ DUBAI: HIK), the fast growing global pharmaceutical group, today reports its interim results for the six months ended 30 June 2011.  

H1 2011 highlights

·; Group revenue increased by 10.4% to $394.8 million, with organic¹ growth of 3.2%

·; Branded revenue increased by 3% despite disruptions in several MENA markets and remains on track for around 7% full year growth

·; Continued investment in our people, our facilities and our overall operations in MENA during the period, reflecting our commitment to the region

·; Generic revenues declined bv 12.4% as expected, reflecting the exceptional colchicine sales in the first half of 2010. Excluding colchicine, Generics delivered double-digit revenue growth and remains on track to achieve around $160 million in revenue for the full year

·; Excellent revenue growth in the global Injectables business of 55.9%, with organic¹ revenue growth of 21.6% and organic operating profit up 41.0%

·; Closed the MSI transaction following a significant regulatory delay, giving rise to higher transaction costs of $5.4 million and a net loss of $5.0 million in the two months to 30 June 2011. MSI is expected to break even in the second half and achieve EBITDA margin of at least 10% in 2012

·; Gross margin was 43.7% compared to 49.9% and operating margin was 12.4% compared to 20.8%, reflecting the discontinuation of high margin colchicine sales, the consolidation of the Multi-Source Injectables (MSI) business, disruptions in the MENA region and the impact of currency movements

·; Profit attributable to shareholders of $33.1 million, compared to $54.7 million in the first half of 2010. On an adjusted basis² profit attributable to shareholders was $41.1 million, compared to $52.8 million

·; Continued new product delivery across all countries and markets - launched 44 products and received 71 product approvals

·; Maintained the interim dividend at 5.5 cents per share

·; Successfully completed investments in India and China, strengthening the quality and sourcing of Active Pharmaceutical Ingredients (APIs) and enhancing our R&D capabilities

1Before the consolidation of the Multi-Source Injectables business

2 Before the amortisation of intangible assets (excluding software) of $4.0 million in H1 2011 and $3.7 million in H1 2010 and before exceptional items. In H1 2011, exceptional items included transaction costs of $5.4 million, a fair value inventory adjustment of $1.2 million and the amortisation of pre-paid integration costs of $0.6 million, all of which relate to the MSI acquisition. In H1 2010, exceptional items included transaction costs of $2.3 million and non-recurring revaluation gains of $7.2 million

Said Darwazah, Chief Executive Officer of Hikma, said:

"I am very pleased with the resilient performance across the Group in the first half. While successfully managing unprecedented change and significant disruption in the MENA region, we have continued to invest in our MENA businesses. These investments - in our people, our facilities and our overall operations - reflect our commitment to the region.

We are delivering on our strategy to increase the scale of our global Injectables business. The organic business is performing very well and after an extended FTC approval process, our team in the US is rapidly integrating the MSI business and restructuring the operations to maximise operating efficiencies. At the same time, we are implementing our plans to capitalise on the exciting opportunities this business offers.

Excluding colchicine, which was discontinued in the second half of 2010, our Generics business achieved double-digit growth and we continue to leverage our FDA-approved operations in the MENA region to maximise the potential of our US product portfolio.

We have benefited once again from the diversity of our business model. We continue to expect a strong performance in the second half of the year and believe the Group remains well positioned for 2011 and beyond."

Enquiries

Hikma Pharmaceuticals PLC +44 (0)20 7399 2760

Susan Ringdal, Investor Relations Director

Financial Dynamics +44 (0)20 7831 3113

Ben Atwell /Julia Phillips/Jonathan Birt/Matthew Cole

About Hikma

Hikma Pharmaceuticals PLC is a fast growing global 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 2010, Hikma achieved revenues of $730.9 million and profit attributable to shareholders of $98.8 million.

A presentation for analysts will take place today at 09:00 at Financial Dynamics. Please call Mo Noonan for details on +44 (0) 20 7831 3113.

A video interview of Said Darwazah, CEO, is available at www.hikma.com and www.cantos.com.

Interim management report

Overview

Hikma's Group revenue increased by 10.4% to $394.8 million in the first half of 2011. Excluding the contribution of the MSI acquisition, organic sales growth was 3.2%.

In the first half, on a reported basis, Group gross profit decreased by 3.3% to $172.6 million and operating profit decreased by $25.2 million or 34.0% to $49.0 million. The decline in profitability reflects an exceptionally strong comparator period that included non-recurring profits from high margin colchicine sales. It also reflects the consolidation of the MSI business, disruptions in MENA and an increase in employee benefits across the region, and the impact of currency movements.

The Group is on track to meet our full year target of around 7% revenue growth and around 47% gross margin, before the consolidation of the MSI business.

During the period, our team in the MENA region did an excellent job of managing unprecedented disruptions in several markets and we have invested in strengthening our sales and manufacturing operations. With the exception of the markets affected by political unrest, we delivered double-digit growth in most other markets and 3.0% revenue growth for the Branded segment overall.

As expected, Generics revenues declined by 12.4% on a reported basis in the first half of 2011, reflecting the exceptional colchicine sales in the first half of 2010. If we exclude these, the Generics business achieved double-digit growth, demonstrating the strength of our underlying product portfolio. We reiterate our full year revenue guidance of around $160.0 million for the Generics business and expect operating margin in the low teens.

The organic4  Injectables business delivered an excellent performance during the period, with growth of 21.6% and strong performances in all regions, reflecting our expanding product portfolio, growth in contract manufacturing, the benefits of our global scale and the more aggressive approach we have taken to tenders. We expect this strong performance to continue in the second half and expect strong operating margin expansion for the full year.

3 Before the amortisation of intangible assets (excluding software) of $4.0 million in H1 2011 and $3.7 million in H1 2010 and before exceptional items. In H1 2011, exceptional items included transaction costs of $5.4 million, a fair value inventory adjustment of $1.2 million and the amortisation of pre-paid integration costs of $0.6 million, all of which relate to the MSI acquisition. In H1 2010, exceptional items included transaction costs of $2.3 million and non-recurring revaluation gains of $7.2 million

4 Before the consolidation of the Multi-Source Injectables business

Our acquisition of Baxter's Multi-Source Injectables (MSI) business was completed on 2 May 2011 and the results of MSI have been consolidated for the two months to 30 June 2011, contributing additional sales of $25.5 million to our Injectables business for the first half.

Due to the significant delay in closing the MSI transaction, caused by an extended FTC review, we have incurred higher than expected integration and transaction costs of $5.4 million, giving rise to an operating loss of $6.9 million and a net loss of $5.0 million for the MSI business in the two months to 30 June 2011.

Since closing, the integration process has proceeded apace. We have identified opportunities for cost savings, operational synergies and portfolio optimisation and we are rapidly implementing our restructuring plans. We have also begun actively pursuing the excellent long term growth opportunities in respect of the product portfolio that made this such an attractive investment to us. We expect the MSI business to break even in the second half of 2011. For 2012, we expect MSI to contribute revenues of at least $180.0 million and EBITDA margin of at least 10.0%.

Currency movements, particularly the Sudanese Pound, the Japanese Yen and the Euro, had a negative impact on our results in the first half of 2011 compared to the first half of 20105. In constant currency, Group operating profit would have been 11.4% or $5.6 million higher in the first half of the year. We expect the adverse currency impact on reported operating profit for the full year to be around $10.0 million.

During the first half of 2011, we have had success in executing our strategy to build our API and R&D capabilities through strategic minority investments. We acquired a minority stake in Unimark Remedies Limited (Unimark), a leading manufacturer of API ingredients and API intermediates. We will collaborate with Unimark to develop new strategic APIs and ANDAs. This will enable us to bring more products in more therapeutic areas to market globally.

We also acquired a minority stake in Hubei Haosun Pharmaceutical Co Ltd (Haosun), a Chinese company that develops and manufactures niche, difficult to make APIs. This investment will give us access to a high quality, long term source of oncology API.

We are also pleased to announce today that Robert Pickering will be appointed to Hikma's Board of Directors on 1 September 2011 as an independent non-executive director. Robert brings extensive experience in advising high growth companies on issues relating to corporate governance, strategy and global operations. Robert spent 23 years at Cazenove & Co. becoming the first Chief Executive of Cazenove Group PLC in 2001. He served as Chief Executive of Cazenove and also JP Morgan Cazenove, the joint venture partnership, until his retirement in 2008. He has extensive experience of capital raising, mergers and acquisitions and of the relationship between quoted companies and investors. Robert is a qualified solicitor with a law degree from Lincoln College, Oxford. He is a non-executive director of Neptune Asset Management.

5 The first half results are based on average exchange rates, principally $1/3.07 Sudanese Pound, $1/Yen 81.94, $1/€1.40. Comparative exchange rates for the first half of 2010 were $1/2.39 Sudanese Pound, $1/Yen 91.47, $1/€1.33

Branded

H1 2011 highlights:

• Branded revenue increased by 3.0%, demonstrating the resilience of our business in the MENA region

• On track to meet Branded revenue guidance of around 7% growth for the full year

Branded revenue increased by 3.0% in the first half of 2011 to $199.6 million, despite challenging market conditions in some territories. In constant currency, Branded revenue increased by 4.9%.

With the exception of the markets affected by political unrest during the period, we achieved double-digit growth in most of our other MENA markets, with an excellent performance in Algeria, Sudan and Iraq. This growth was partially offset by disruptions to our operations in Tunisia, Egypt, Libya, Yemen and Bahrain, which were impacted by political unrest. Our experience in operating in more challenging market conditions enabled us to respond quickly and effectively to the disruptions to our operations in Tunisia, Egypt and Bahrain and to minimise their impact. These markets are now recovering well and we expect that our performance in these territories will continue to improve in the second half provided market conditions remain stable. In Libya, where tensions have been more protracted, we are only now beginning to see a recovery.

During the first half we continued to see a good performance in our core Anti-Infective business and have continued to build our capabilities in the Cardiovascular and Diabetes market. Sales in our Central Nervous System (CNS) business are accelerating and we delivered strong growth from some of our recently launched products across a range of therapeutic areas. We also continued to invest in our manufacturing facilities during the period. We completed upgrades of our facilities in Tunisia and Egypt and are nearing completion of our new Anti-Infective facility in Algeria.

In the first half, the Branded business launched a total of 16 products across all markets, including 2 new compounds and 3 new dosage forms and strengths. Through the launch of these products, we are bringing new solutions for the treatment and care of patients with heart disease and cancer and enhancing our Anti-Infective portfolio. The Branded business also received 27 regulatory approvals across the region, including 4 for new products, of which two will enhance our CNS portfolio and one will enhance our portfolio of palliative care products for cancer.

During the first half, the use of Actos, a product we license from Takeda for the treatment of Type 2 diabetes, was suspended by regulatory authorities in Lebanon, Tunisia and Algeria due to concerns regarding a slight increase in the risk of bladder cancer in long-term users. The FDA and the EMA have not recommended suspension or withdrawal of Actos from their markets and we have been able to continue to sell Actos in all other markets where we have registered the product, though in some markets we expect to be impacted by more restrictive labelling requirements.

Revenue from in-licensed products declined slightly in the first half of 2011 to $80.9 million (representing 40.5% of Branded sales), compared to $82.6 million in the comparative period.

Our rapid response to events in the region, and in Egypt and Tunisia in particular, enabled us to limit the impact on Branded profitability. Branded gross profit of $99.2 million in the first half of 2011 was just $3.0 million lower than the comparative period and gross margin declined from 52.7% to 49.7%. The decline is primarily the result of lost sales in Libya and Yemen and of action we took to increase salaries and employee benefits across the MENA region to minimise the impact of market disruptions. The decline also relates to the negative impact of currency movements against the US dollar in the first half of 2011 compared to the first half of 2010. In particular, the significant depreciation of the Sudanese Pound reduced the translation rate for our reported sales and the appreciation of the Japanese Yen significantly increased the cost of raw materials for in-licensed products.

Operating profit in the Branded business was $45.2 million, compared to $54.3 million in the first half of 2010. Operating margin was 22.6%, compared to an operating margin of 28.0% in the first half of 2010. Excluding the non-recurring gain of $7.2 million that we benefited from in the prior year period, the reduction in operating profit was $1.9 million. This difference is explained by the impact of foreign exchange movements, the improvements that we have made in employee benefits across the region and our investment in the sales and marketing teams in MENA, which were partially offset through tight cost control.

We are confident that the Branded business will deliver stronger sales growth in the second half in our key markets. We therefore expect to achieve our target of around 7.0% revenue growth for the full year and we expect full year operating margin of around 23.0%.

Injectables

H1 2011 highlights:

·; Excluding MSI, Injectables revenue grew by 21.6%, driven by a strong performance across all three regions

·; Injectables operating margin, excluding MSI, improved by 220 basis points to 16.4%

·; Closed MSI acquisition on 2 May 2011 and swiftly implementing integration and restructuring plans

6 Before the amortisation of intangible assets (excluding software) of $4.0 million and exceptional items, which include transaction costs of $5.4 million, a fair value inventory adjustment of $1.2 million and the amortisation of pre-paid integration costs of $0.6 million, all of which relate to the MSI acquisition

Injectables revenue by region

Revenue in our global Injectables business increased by 55.9% to $116.1 million, compared to $74.5 million in the first half of 2010. Excluding $25.5 million from the MSI acquisition, consolidated for May and June, organic revenue growth was 21.6%.

In the MENA region, Injectables sales increased by 21.3% to $36.1 million, compared to $29.8 million in the first half of 2010. This reflects significant growth in private sales in Saudi Arabia, Sudan, Algeria and Iraq and a more aggressive approach to tenders driving an increased win rate.

Sales in our European Injectables business grew by 14.6% to $36.4 million in the first half. An increase in contract manufacturing as well as new product launches enabled us to offset continued price declines across our European markets.

Excluding MSI, our Injectables business in the US grew by 39.7% to $18.1 million, driven by growth in sales of existing products, new product launches and increased demand for contract manufacturing. As mentioned above, the MSI business contributed an additional $25.5 million in sales.7

During the first half of 2011, the Injectables business launched a total of 25 products across all markets, including 4 new compounds and 8 new dosage forms and strengths. The Injectables business also received a total of 32 regulatory approvals across all regions and markets, including 20 in MENA, 10 in Europe and 2 in the US.

On 17 August, Hikma announced that it had entered into a licensing and distribution agreement with Vifor Pharma, a wholly-owned subsidiary of the Galenica Group, under which Hikma will market Ferinject®, Vifor Pharma's innovative treatment for iron deficiency, in the MENA region. The agreement will leverage Hikma's local presence, regional marketing and regulatory expertise, allowing Hikma to maximise the potential of one of the world's fastest-growing markets for iron deficiency products.

On 17 May 2011, Hikma announced that it had entered into an exclusive co-promotion agreement with Therabel Pharma Deutschland GmbH to support the launch of Loramyc® for cancer patients in the retail oncology community. The agreement brings together Therabel's strong knowledge and broad coverage of the German hospital market and Hikma's extensive experience in the oncology segment, to provide the market access required to ensure the success of this specialty drug in the oncology segment.

Injectables gross profit increased by 27.0% to $43.6 million in the first half of 2011, compared to $34.3 million in the first half of 2010, with gross margin decreasing to 37.5%, compared to 46.1% in the comparative period. The reduction in margin reflects the integration of the lower margin MSI business, higher raw material prices as a result of a strengthening of the Euro and an increase in overhead costs as we scale up the new lyophilized plant in Portugal in 2011.

Operating profit for the Injectables business increased by 26.5% to $13.3 million in the first half of the year. Operating margin declined from 14.2% to 11.5%. This includes operating losses of $1.5 million incurred by the MSI business in the two months to 30 June 2011 but excludes transaction costs of $5.4 million, which have been classified as corporate expenses.

Excluding the MSI business, Injectables operating profit increased by 41.0% to $14.9 million and operating margin increased to 16.4%. This excellent improvement in operating margin reflects expansion of our product portfolio, growth in contract manufacturing, the benefits of global economies of scale and better cost control.

7Following changes in the contractual arrangements with wholesalers since acquiring the MSI business, Baxter's 'fees for service arrangements' with wholesalers have now become 'direct rebates' under Hikma's contracts with wholesalers. This change in contractual arrangements has no impact on operating margin, however, it reduces MSI's net sales as reported by Hikma.

We anticipate that the strong first half performance of the organic Injectables business will continue for the remainder of 2011. The integration of the MSI operations in the US is progressing well, as we focus on restructuring the operations to drive operating efficiencies and to maximise the potential of the product portfolio. We are also actively pursuing the excellent long term growth opportunities that made this acquisition attractive. The MSI business is expected to contribute net sales of around $100 million to $105 million for the full year in 2011 and a net loss of around $5.0 million (including $5.4 million of transaction costs). For 2012, we expect MSI to contribute revenues of at least $180.0 million and EBITDA margin of at least 10.0%.

Generics

H1 2011 highlights:

·; Generics revenue declined by 12.4% to $76.4 million in the first half of 2011 due to the discontinuation of colchicine sales8

·; Excluding colchicines sales, we achieved double-digit growth in Generics revenue

·; Significant investments made to strengthen the senior management team in preparation for future growth

Generics revenue declined by 12.4% to $76.4 million in the first half, compared to $87.2 million in the first half of 2010. This decline is due to the discontinuation of colchicine sales, which provided us with an opportunity to achieve exceptional sales in 2010 that was not available in 2011. Excluding the impact of colchicine, we achieved double-digit growth in the Generics business over the comparative period.

This strong underlying performance was driven in part by our ability to drive sufficient volume growth to offset a slight increase in pricing pressure. Our ability to leverage our global manufacturing capabilities also helped to drive sales. We now have 10 products in 29 dosage forms and strengths which we produce at our MENA facilities for sale in the US market. These products represented 24.8% of Generics sales during the period, compared to 20.9% in the first half of 2010.

During the first half of 2011, the Generics business received 3 ANDA approvals.

Generics gross profit was $29.2 million, compared to $41.8 million in the first half of 2010 and gross margin was 38.3% compared to 47.9% in the first half of 2010. This reflects the loss of the exceptional benefit of high margin colchicine sales in the prior year period.

Generics operating profit decreased by 61.1% to $10.2 million in the first half of 2011, down from $26.1 million in the comparative period. Operating margin returned to a more sustainable 13.3%, compared to 30.0%, principally due to the lack of colchicine sales in 2011. We have also slightly increased the operating costs of the Generics business through higher provisions for slow moving items and through investments to strengthen our senior management team. We have hired experienced individuals to enhance key functions of the Generics business including finance, supply chain management, operations, compliance and HR.

We expect the strong performance of the business in the first half of 2011 to continue during the second half of the year and reiterate our guidance for full year Generics revenue of around $160 million. We expect Generics operating margin for the full year will be in the low teens.

8During 2010 we were able to take advantage of some specific market opportunities. The most notable related to the sale of colchicine, an oral drug recommended for the treatment of gout. This opportunity was finite and on 30 September 2010, West-Ward Pharmaceuticals, Hikma's wholly-owned subsidiary in the US, discontinued sales of oral colchicine to comply with regulatory requirements of the US Food and Drug Administration.

Other businesses

Other businesses, which primarily comprise Arab Medical Containers, a manufacturer of plastic specialised packaging, International Pharmaceuticals Research Centre, which conducts bio-equivalency studies, and the chemicals division of Hikma Pharmaceuticals PLC, contributed revenues of $2.7 million, compared to aggregate revenue of $2.2 million in the first half of 2010.

These other businesses delivered an operating loss of $1.6 million in the first half of 2011, compared to a loss of $1.9 million in the first half of 2010.

Group

Revenue for the Group grew by 10.4% to $394.8 million in the first half of 2011, compared to $357.7 million in the first half of 2010. Excluding the impact of the recent MSI acquisition, Group revenues grew by $11.5 million, or 3.2%, driven by growth across all segments of our underlying business.

The Group's gross profit decreased by 3.3% to $172.6 million in the first half of 2011, compared to $178.5 million in the first half of 2010. Group gross margin was 43.7%, compared to 49.9% in the previous period, primarily due to the discontinuation of high margin colchicine sales, the consolidation of the MSI business, disruptions in the MENA region and the impact of currency movements.

Group operating expenses grew by 18.6% to $123.6 million in the first half of 2011, compared to $104.2 million in the first half of 2010. Excluding the amortisation of intangible assets (excluding software) and exceptional items9, adjusted Group operating expenses grew by 6.6% to $112.3 million. The paragraphs below address the Group's main operating expenses in turn.

Sales and marketing expenses remained stable as a percentage of sales at 14.4%, reaching $57.0 million for the first half of 2011, compared to $52.7 million in the comparative period. We are continuing to invest in the growth of our MENA sales force and at the same time we are achieving the benefits of scale in our global Injectables business.

General and administrative expenses increased by $7.5 million or 20.1% to $45.1 million in the first half. As a percentage of sales, general and administrative expenses increased to 11.4%, up from 10.5% in the first half of 2010. This is principally due to an increase in transaction costs of $5.4 million and integration costs of $0.6 million in the first half of 2011, compared to transaction costs of $2.3 million in the first half of 2010. It also reflects our significant investment in our US management team in preparation for the integration of the recently acquired MSI business and the development of the combined US operations.

Investment in R&D grew by 12.6% to $11.5 million, with total investment in R&D representing 2.9% of Group revenues, compared to 2.8% in the first half of 2010. We expect R&D spend will increase in the second half of the year as we continue to execute our plans to develop our R&D pipeline, particularly for injectable products.

Other net operating expenses increased on a reported basis by $6.2 million to $10.1 million. Excluding $7.2 million of non-recurring revaluation gains on equity interests from the comparable period, other net operating expenses decreased by $1.0 million.

9 In H1 2011, amortisation of intangible assets (excluding software) was $4.0 million (H1 2010: $3.7 million). In H1 2011, exceptional items include transaction costs of $5.4 million, a fair value inventory adjustment of $1.2 million and the amortisation of pre-paid integration costs of $0.6 million, all of which relate to the MSI acquisition. In H1 2010, exceptional items include transaction costs of $2.3 million and non-recurring revaluation gains of $7.2 million

Operating profit for the Group declined by 34.0% to $49.0 million in the first half of 2011. Group operating margin declined to 12.4%, down from 20.8% in the first half of 2010. On an adjusted basis, Group operating profit declined by 17.5% to $60.3 million and operating margin declined from 20.5% to 15.3%.

Research & Development10

The Group's product portfolio continues to grow. During the first half of 2011, we launched 7 new compounds, expanding the Group portfolio to 462 compounds in 911 dosage forms and strengths. We manufacture and/or sell 50 of these compounds under-license from the originator.

Across all businesses and markets, a total of 44 products were launched during the first half. In addition, the Group received 71 approvals.

10Products are defined as pharmaceutical compounds sold by the Group. New compounds are defined as pharmaceutical compounds not yet launched by the Group and existing compounds being introduced into a new segment.

11Totals include all compounds and formulations that are either launched, approved or pending approval across all markets.

12 Includes all submissions made for the first time in a particular market, but excludes re-submissions, which have historically been included in this calculation.

To ensure the continuous development of our product pipeline, we submitted 81 regulatory filings in the first half of the year across all regions and markets. As of 30 June 2011, we had a total of 450 pending approvals across all regions and markets.

At 30 June 2011, we had a total of 144 new products under development, the majority of which should receive several marketing authorisations for different strengths and/or product forms over the next few years.

Net finance expense

Net finance expense increased to $9.3 million, compared to $6.4 million in the first half of 2010 due to the higher net debt as explained in the net cash flow, working capital and net debt section below.

Profit before tax

Profit before tax for the Group decreased by 40.9% to $39.9 million, compared to $67.5 million in the first half of 2010. Adjusted profit before tax decreased by 22.9% to $51.1 million.

Tax

The Group incurred a tax expense of $4.8 million in the first half, compared to $12.9 million in the first half of 2010. The effective tax rate was 11.9%, compared to 19.1% in the first half of 2010. The decrease in the tax rate is mainly attributable to the reduced profitability of the US business.

Profit for the period

The Group's profit attributable to equity holders of the parent decreased by 39.4% to $33.1 million in the first half of 2011. Adjusted profit attributable to equity holders of the parent decreased by 22.1% to $41.1 million.

Earnings per share

Diluted earnings per share decreased by 40.1% to 16.7 cents, compared to 27.9 cents in the first half of 2010. Adjusted diluted earnings per share were 20.8 cents, a decrease of 22.7% over the first half of 2010.

Dividend

The Board has declared an interim dividend of 5.5 cents per share (approximately 3.3 pence per share), compared to 5.5 cents per share for the first half of 2010. The interim dividend will be paid on 13 October 2011 to eligible shareholders on the register at the close of business on 9 September 2011. The ex-dividend date is 7 September 2011 and the final date for currency elections is 23 September 2011.

Net cash flow, working capital and net debt

The Group generated operating cash flow of $19.2 million in the first half of 2011, compared to $65.3 million in the first half of 2010. This reduction in operating cash flow reflects the funding requirements of the MSI business and an increase in Group inventories.

The consolidation of the MSI balance sheet at 30 June 2011 increased Group working capital by $69.3 million compared to June 2010. The MSI transaction was structured as an asset purchase which included the purchase of $52.5 million of inventories but no other working capital. Following the acquisition, Hikma made a cash injection of $18.9 million to fund the working capital of MSI in the first two months of trading.

Excluding the impact of MSI, Group inventory has increased by $42.5 million compared to June 2010 and inventory days increased by 18 days to 193 days. The increase was partially due to higher inventories being held in MENA due to the market disruptions and in anticipation of higher sales in the second half of 2011. In addition, the Generics business took a strategic decision to hold higher inventories this year to enable the business to be opportunistic in respect of product shortages in the market, as well as to be competitive in delivering an outstanding service level.

Excluding MSI, Group receivable days decreased by four days to 103 days at 30 June 2011. This improvement reflects a focus on enhanced cash collection arrangements in the MENA region. Group payable days increased by five days to 82 days at 30 June 2011, reflecting an increased emphasis on payables management across the Group.

Overall, Group working capital days increased from 205 days at June 2010 to 214 days at June 2011, excluding the MSI impact.

Capital expenditures increased to $33.2 million, compared to $23.4 million in the first half of 2010. A total of $25.6 million was spent in MENA alone on facility enhancement and expansion projects in Egypt, Tunisia and Algeria. This underlines our future growth expectation in MENA and our commitment to the region. Other investments included machinery and equipment for the new lyophilisation facility in Portugal and machinery upgrades in the US. The estimated capex for the second half of 2011 is around $45.0 million, which includes investment in the MSI business. 

Group net debt increased from $123.6 million at 30 June 2010 to $322.7 million at 30 June 2011. Net debt on 31 December 2010 stood at $101.1 million. The increase in borrowing in the first half of 2011 was principally to finance the initial consideration of $103.8 million for the MSI acquisition, 13 as well as incremental financing to fund $38.6 million of investments in India and China. The higher net debt balance also reflects the deferred consideration for the MSI acquisition of $12.7 million, the finance lease obligations acquired in the transaction of $15.1 million, transaction costs of $5.4 million and the cash injection of $18.9 million to fund the working capital of MSI in the two months of trading post the acquisition.

Balance sheet

During the period, shareholder equity increased by $14.4 million reflecting an unrealised increase due to the exchange difference on translation of foreign operations. The increase primarily reflects the Euro/US dollar spot rate, which has appreciated by nearly 9.0% as of 30 June 2011 (1.4391) compared to 31 December 2010 (1.3253), and is the result of the revaluation of net assets denominated in currencies other than US dollars.

Summary and Outlook

Despite an exceptionally strong comparator period in the first half of 2010 and challenging MENA markets, Hikma has delivered a resilient performance in the first half of 2011. The MENA business is performing well, Injectables is growing very strongly and the Generics business, excluding colchicine, is delivering double-digit growth.

The Group remains on track to meet our full year target of around 7% revenue growth and around 47% gross margin, before the consolidation of the MSI business.

We are expecting stronger sales growth in the MENA region in the second half and we continue to expect our Branded business to deliver around 7% revenue growth for the full year, with operating margin of around 23%.

13 The consideration for the MSI acquisition was $112 million plus an additional inventory payment of $4.5 million. The total consideration of $116.5 million includes deferred consideration of $12.7 million.

We expect ongoing growth in our Generics business and we reiterate our guidance of around $160 million in revenue for the full year and expect operating margin in the low teens.

Our organic Injectables business is expected to continue to perform well with significant operating margin expansion for the full year. The MSI business is expected to contribute net sales of around $100 million to $105 million and a net loss of around $5.0 million (including transaction costs of $5.4 million) for the full year in 2011. For 2012, we expect MSI to contribute revenues of at least $180 million and EBITDA margin of at least 10%.

Overall we are pleased with the progress of the Group in the first half of 2011 and expect Hikma's long track record of doubling the business every four years to continue over the medium term.

Going concern statement

As stated in note 2 to the condensed financial statements, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than twelve months from the date of this report. Accordingly they continue to adopt the going concern basis in preparing the condensed financial statements.

Responsibility statement

The Board confirms that to the best of its knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(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).

By order of the Board

Said Darwazah

Chief Executive Officer

25 August 2011

Cautionary statement

This Interim Management Report ("IMR") has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The IMR should not be relied on by any other party or for any other purpose.

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.

Hikma Pharmaceuticals PLC

INDEPENDENT REVIEW REPORT TO HIKMA PHARMACEUTICALS PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 which comprises the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 16. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company 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. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdoms' Financial Services Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

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 inquiries, 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.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

24 August 2011

Hikma Pharmaceuticals PLC

Condensed consolidated statement of comprehensive income

On this page and throughout this interim financial information "H1 2011" refers to the six months ended 30 June 2011, "H1 2010" refers to the six months ended 30 June 2010 and "FY 2010" refers to the year ended 31 December 2010.

* Intangible amortisation comprises the amortisation on intangible assets other than software.

Hikma Pharmaceuticals PLC

Condensed consolidated balance sheet

Hikma Pharmaceuticals PLC

Condensed consolidated statement of changes in equity

Hikma Pharmaceuticals PLC

Condensed consolidated cash flow statement