Hikma Pharmaceuticals Plc Annual Financial Report and Notice of AGM (4724L)

TIDMHIK

RNS Number : 4724L

Hikma Pharmaceuticals Plc

19 April 2018

Hikma Pharmaceuticals PLC

(the 'Company')

Publication of 2017 Annual Report and Notice of AGM

LEI: 549300BNS685UXH4JI75

The Company will today publish on its website, www.hikma.com, the Annual Report for the year ended

31 December 2017 (the '2017 Annual Report').

Hard copy versions of the following documents will be sent to those shareholders who have elected to receive paper communication on or about 19 April 2018:

   --      2017 Annual Report 
   --      2018 Notice of Annual General Meeting 
   --      Proxy form for the 2018 Annual General Meeting 

Shareholders who have not elected to receive paper communication will be sent communications notifying them of the availability of these documents on the Company's website.

In compliance with Listing Rule 9.6.1 of the UK Financial Conduct Authority ('FCA'), the aforementioned documents will be submitted to the UK Listing Authority and will be available for public inspection at the National Storage Mechanism ('NSM') http://www.hemscott.com/nsm.do

The Company's Annual General Meeting will be held at 10:00 am on Friday 18 May 2018 at Sofitel,

St James, 6 Waterloo Place, London SW14 4AN.

The information included in the unaudited preliminary results announcement released on 14 March 2018, together with the information in the Appendices to this announcement which is extracted from the 2017 Annual Report, constitute the materials required by the FCA's Disclosure Guidance and Transparency Rule 6.3.5R. This announcement is not a substitute for reading the 2017 Annual Report in full. Page and note references in the Appendices below refer to page and note references in the 2017 Annual Report.

Enquiries:

Hikma Pharmaceuticals PLC

 
 Peter Speirs 
 Company Secretary 
 

19 April 2018

Appendix 1 - Principal Risks and Uncertainties

The Group faces risks and uncertainties that could have a material impact on its earnings and ability to trade in the future. These are determined via robust assessment considering our risk context by the Board of Directors with input from executive management. These risks and uncertainties are set out below. The contents of this table should not be considered as an exhaustive list of all the risks and uncertainties the Group faces.

The Board is satisfied that these risks are being managed appropriately and consistently with the target risk appetite.

 
 Risk and description        Mitigating actions 
--------------------------  ------------------------------------------------------------- 
 Industry earnings 
----------------------------------------------------------------------------------------- 
 The commercial 
  viability of                 *    Securing of key talent to manage complex commercial 
  the industry                      environment and develop business 
  and business 
  model we operate 
  may change significantly     *    Growth and expansion in new markets, with new 
  as a result                       products and in new therapeutic areas 
  of political 
  action, economic 
  factors, societal            *    Portfolio management programme to focus on strategic 
  pressures, regulatory             products that support revenue, profit and margin 
  interventions                     targets 
  or changes to 
  participants 
  in the value                 *    Development of capacity, diversification of 
  chain of the                      capability through differentiated technology, and 
  industry.                         investment in local markets 
 
 
                               *    Active product life cycle and pricing management 
                                    across all regions 
 
 
                               *    Continuous alignment of commercial and R&D 
                                    organisations to identify market opportunities and 
                                    meet demand through internal portfolio 
 
 
                               *    Collaboration with external partners for development 
                                    and in-licensing partnerships 
--------------------------  ------------------------------------------------------------- 
 Product pipeline 
----------------------------------------------------------------------------------------- 
 Identifying, 
  developing and               *    Partner marketing and business development 
  registering                       departments to monitor and assess the market for 
  supply of new                     arising opportunities 
  products from 
  the pipeline 
  that meet market             *    Expansive global product portfolio with increased 
  needs to provide                  focus on high value and differentiated products 
  continuous source 
  of future growth 
                               *    Experienced internal R&D teams developing products 
                                    and overseeing joint venture activities 
 
 
                               *    Product related acquisitions bolster pipeline 
 
 
                               *    Third party pharmaceutical product specialists 
                                    brought in to assist in the development of 
                                    manufacturing processes for new generic products. 
--------------------------  ------------------------------------------------------------- 
 Organisational development 
----------------------------------------------------------------------------------------- 
 Developing, 
  maintaining                  *    Strengthening executive experience with key talent to 
  and adapting                      fill strategic global positions, including 
  organisational                    appointment of new CEO 
  structures, 
  management processes 
  and controls,                *    Investment in group-wide human capital management 
  and talent pipeline               system 
  to enable effective 
  delivery by 
  the business                 *    Developing global HR programmes that attract, manage 
  in the face                       and develop talent within the organisation 
  of rapid and 
  constant internal 
  and external                 *    Review of organisation design, structures and 
  change                            accountabilities to maintain empowerment in decision 
                                    making and bring appropriate level of governance 
--------------------------  ------------------------------------------------------------- 
 
 
 Reputation 
------------------------------------------------------------------------------------------- 
 Building and 
  maintaining trusting           *    Launch of new corporate brand to better communicate 
  and successful                      our values, purpose and strategy 
  partnerships 
  with our many 
  stakeholders                   *    Internal and external monitoring for early detection 
  relies on developing                and monitoring of issues that may impact reputation 
  and sustaining 
  our reputation 
  as one of our                  *    Investment and group alignment of corporate 
  most valuable                       responsibility and ethics through transparent 
  assets.                             reporting and compliance with global best practices 
                                      and strategic industry and community partnerships 
 
 
                                 *    Communication and engagement programmes on 
                                      appropriate use of products 
 
 
                                 *    Globalising communication and corporate affairs 
                                      capabilities 
----------------------------  ------------------------------------------------------------- 
 Ethics and compliance 
------------------------------------------------------------------------------------------- 
 Maintaining a 
  culture underpinned            *    Board level oversight from the Compliance, 
  by ethical decision                 Responsibility and Ethics Committee 
  making, with 
  appropriate internal 
  controls to ensure             *    Code of Conduct approved by the Board, translated 
  staff and third                     into seven languages and rolled out to all employees 
  parties comply 
  with our Code 
  of Conduct, associated         *    Active participation in international anti-corruption 
  principles and                      initiatives 
  standards, as 
  well as all applicable 
  legislation                    *    Anti-bribery and corruption, Sales and marketing, and 
                                      other compliance programmes implemented and monitored 
                                      through internal compliance assessments, Sales and 
                                      marketing, and other compliance programmes 
                                      implemented and monitored through internal compliance 
                                      assessments 
 
 
                                 *    Development of third party due diligence and 
                                      oversight programme 
----------------------------  ------------------------------------------------------------- 
 Information, technology and infrastructure 
------------------------------------------------------------------------------------------- 
 Ensuring integrity 
  of data, securing              *    IT organisational structure designed to enable 
  information stored                  coordinated, consistent and comprehensive enterprise 
  and/or processed                    approach 
  internally or 
  externally, maintaining 
  and developing                 *    Industry-standard information security solutions and 
  technology systems                  best practice processes adopted and adapted for local 
  that enable business                and Group requirements 
  processes, and 
  in ensuring infrastructure 
  supports the                   *    Cyber-risk activity monitored and changes implemented 

  organisation                        as necessary to combat evolving threats 
  effectively 
 
                                 *    Partnership established with strategic third parties 
                                      to implement and maintain a robust Group wide 
                                      information security programme 
 
 
                                 *    Investment in enterprise-wide standardisation 
                                      initiative incorporating data management, access and 
                                      process control and risk management 
----------------------------  ------------------------------------------------------------- 
 
 
 Legal, regulatory and intellectual property 
---------------------------------------------------------------------------------------- 
 Adapting to changes 
  in laws, regulations        *    Internal expertise drives awareness and understanding 
  and their application,           through policies, processes, and compliance culture 
  managing litigation, 
  governmental 
  investigations,             *    Staff trained and contractual terms established to 
  sanctions, contractual           mitigate or lower risks where possible 
  terms and conditions 
  and potential 
  business disruptions        *    Expert external advice procured to provide 
                                   independent services and ensure highest standards 
 
 
                              *    Board of Directors and executive management provide 
                                   leadership and take action 
-------------------------  ------------------------------------------------------------- 
 Inorganic growth 
---------------------------------------------------------------------------------------- 
 Identifying, 
  accurately pricing          *    The mergers and acquisitions team undertake extensive 
  and/or realising                 due diligence of each acquisition in partnership with 
  expected benefits                external advisors including financial and legal 
  from acquisitions                advisors, investment banks, and industry specialists 
  or divestments,                  in order to strategically identify, value, and 
  licensing, or                    execute transactions. 
  other business 
  development activities 
                              *    Executive Committee reviews major acquisitions before 
                                   they are considered by the Board 
 
 
                              *    The Board is willing and has demonstrated its ability 
                                   to refuse acquisitions where it considers the price 
                                   or risk is too high 
 
 
                              *    Dedicated integration project teams are assigned for 
                                   the acquisition, which are led by the business head 
                                   responsible for proposing the opportunity. Following 
                                   the acquisition of a target, the finance team, the 
                                   management team and the Audit Committee closely 
                                   monitor its financial and non-financial performance 
 
 
                              *    Post-transaction reviews highlight opportunities to 
                                   improve effectiveness of processes 
-------------------------  ------------------------------------------------------------- 
 Supply chain and API sourcing 
---------------------------------------------------------------------------------------- 
 Maintaining continuity 
  of supply of                *    Implementing comprehensive group wide third party 
  finished product                 management solution 
  and managing 
  cost, quality 
  and appropriate             *    Maintaining alternative API suppliers for the Group's 
  oversight of                     top strategic products, where possible 
  third parties 
  in our supply 
  chain                       *    Rigorous selection process for API suppliers and 
                                   focus on building long-term supply contracts 
  API and raw materials 
  represent one 
  of the Group's              *    The Group has a dedicated plant in Jordan that can 
  largest cost                     synthesise strategic injectable APIs where 
  components. As                   appropriate 
  is typical in 
  the pharmaceuticals 
  industry, a significant     *    Utilising supply chain models to maintain adequate 
  proportion of                    API levels 
  the Group's API 
  requirements 
  is provided by              *    Strengthening trade compliance capability to ensure 
  a small number                   compliance and drive efficiency 
  of API suppliers 
 
                              *    Serialisation programme ensuring roll out across the 
                                   group 
-------------------------  ------------------------------------------------------------- 
 
 
 Crisis response and continuity management 
--------------------------------------------------------------------------------------------- 
 Preparedness, 
  response, continuity             *    Central oversight being established of systems, 
  and recovery                          processes, and capabilities to enhance our Group-wide 
  from crisis events                    resilience and preparedness 
  such as natural 
  catastrophe, 
  economic turmoil,                *    Programme being rolled out to enhance our ability to 
  operational issues,                   respond effectively to crises, and to expedite the 
  political crisis,                     restoration of critical processes after disruption. 
  regulatory intervention 
 
                                   *    Engagement with key third parties involved in 
                                        preparedness, response and recovery 
 
 
                                   *    Corporate insurance programme reviewed and updated to 
                                        ensure appropriate coverage of high impact low 
                                        likelihood events 
------------------------------  ------------------------------------------------------------- 
 Product Quality 
--------------------------------------------------------------------------------------------- 
 Maintaining compliance 
  with current                     *    Quality culture driven throughout the organisation by 
  Good Practices                        global Quality office initiatives, and regularly 
  for Manufacturing                     reinforced by communication from senior executives 
  (cGMP), Laboratory 
  (cGLP), Distribution 
  (cGDP) and pharmacovigilance     *    Global implementation of quality systems that 
  (GVP) by staff,                       guarantee valid consistent manufacturing processes 
  and ensuring                          leading to the production of quality products 
  compliance is 
  maintained by 
  all relevant                     *    Facilities are maintained as inspection ready for 
  third parties                         assessment by relevant regulators 
  involved in these 
  processes 
                                   *    Documented procedures are continuously improved and 
                                        staff receive training on those procedures on a 
                                        regular basis 
 
 
                                   *    Continued environment and health certifications 
 
 
                                   *    Global pharmacovigilance programme in place and being 
                                        enhanced 
------------------------------  ------------------------------------------------------------- 
 Financial control and reporting 
--------------------------------------------------------------------------------------------- 
 Effectively managing 
  treasury activities,             *    Extensive financial control procedures implemented 
  tax position,                         and assessed annually as part of the internal audit 
  income, expenditure,                  programme 
  assets and liabilities, 
  and debtors, 
  and in reporting                 *    A network of banking partners is maintained for 
  accurately and                        lending and deposits 
  in a timely manner 
  in compliance 
  with statutory                   *    Management monitors debtor payments and takes 
  requirements                          precautionary measures and action where necessary 
  and accounting 
  standards. 
                                   *    Where it is economic and possible to do so, the Group 
                                        hedges its exchange rate and interest rate exposure 
 
 
                                   *    Management obtains external advice to help manage tax 
                                        exposures and has upgraded internal tax control 
                                        systems 
 
 
                                   *    Introduction of new automated financial consolidation 
                                        module 
------------------------------  ------------------------------------------------------------- 
 

Appendix 2 - Directors' Responsibility Statement

Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the Parent Company financial statements under FRS 101 'Reduced Disclosure Framework' and applicable law. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, International Accounting Standard 1 requires that Directors:

   --      Properly select and apply accounting policies 

-- Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information

-- Provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance

   --      Make an assessment of the Company's ability to continue as a going concern 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for protecting shareholder investments and safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm to the best of our knowledge:

-- The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole

-- The Strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face

-- The Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy

By order of the Board

Said Darwazah

Executive Chairman

13 March 2018

Mazen Darwazah

Executive Vice Chairman

13 March 2018

Appendix 3 - Related Party Transactions

Related party transactions: Note 40 of the financial statements, page 167.

Transactions between Hikma Pharmaceuticals PLC ("Hikma") and its subsidiaries (together, the "Group") have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associates, joint ventures and other related parties are disclosed below.

Trading transactions:

During the year ended 31 December 2017, the Group entered into the following transactions with related parties:

Boehringer Ingelheim GmbH ('BI'): is a related party of Hikma because BI owns 16.6% (2016: 16.7%) of the share capital of Hikma, controls 11.7% (2016: 11.7%) of the voting capital of Hikma, has the right to appoint a director of Hikma and a senior executive of BI holds a directorship of Hikma. During the year, the Group acquired six products from BI which amounted to an aggregate consideration of $3.0 million, the Group total sales to BI amounted to $79.1 million (2016: $90.1 million) and the Group total purchases from BI amounted to $10.6 million (2016: $10.3 million). As at the year end, the amount owed from BI to the Group was $43.8 million (2016: $45.2 million). Additionally, balances arising from the acquisition of West-Ward Columbus from BI relating to contingent consideration.

Capital Bank, Jordan: is a related party of Hikma because one director of Hikma is the founder and former Chief Executive Officer of Capital Bank. At the year end, total cash balance at Capital Bank was $11.8 million (2016: $11.3 million) and utilisation of facilities granted by Capital Bank to the Group amounted to $nil (2016: $8.3 million). The interest expense/income is within market rate.

Darhold Limited ('Darhold'): is a related party of Hikma because three directors of Hikma jointly constitute the majority of directors and shareholders (with immediate family members) in Darhold and because Darhold owns 24.93% (2016: 25.00%) of the share and voting capital of Hikma. Other than dividends (as paid to all shareholders), there were no transactions between the Group and Darhold Limited during the year.

Hikmacure Limited ('Hikmacure'): is a related party of Hikma because Hikmacure is a 50:50 joint venture (JV) with MIDROC Pharmaceuticals Limited ('MIDROC'). Hikma and MIDROC have invested in Hikmacure in equal proportions of $2.5 million each in cash (2016: $2.5 million). During 2017 Hikma and MIDROC have agreed not to proceed with and to liquidate the venture. During the year, Hikmacure granted two loans of $2.3 million each to the Group and MIDROC.

HMS Holdings SAL ('HMS): HMS is a related party of Hikma because HMS is owned by the family of two directors of Hikma. Other than dividends (as paid to all shareholders), there were no transactions between the Group and HMS during the year.

Hubei Haosun Pharmaceutical Co. Ltd ('Haosun'): is a related party of Hikma because the Group holds a non-controlling interest of 30.1% (2016: 30.1%) in Haosun. During 2017, total purchases from Haosun were $1.4 million (2016: $0.4 million). At 31 December 2017, the amount owed from Hubei Haosun Pharmaceutical to the Group amounted to $1.6 million (2016: $1.7 million). On 13 February 2018, Hikma acquired additional stake in Hubei Haosun Pharmaceutical Co. Ltd bringing the total ownership to 49%.

Labatec Pharma ('Labatec'): is a related party of the Group because Labatec is owned by the family of two directors of Hikma. During 2017, total Group sales to Labatec amounted to $1.8 million (2016: $1.4 million). As at the year end, the amount owed by Labatec to the Group was $0.3 million (2016: $0.3 million).

Remuneration of key management personnel

The remuneration of the key management personnel (comprising the Executive and Non-Executive Directors and certain of senior management as set out in the Directors' Report) of the Group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of the individual Directors is provided in the audited part of the Remuneration Committee Report on pages 86 to 108.

 
                                 2017   2016 
                                   $m     $m 
------------------------------  -----  ----- 
 Short-term employee benefits    11.0   14.2 
------------------------------  -----  ----- 
 Share-based payments            10.2   11.5 
------------------------------  -----  ----- 
 Post-employment benefits        10.3      - 
------------------------------  -----  ----- 
 Other benefits                   0.6    0.3 
------------------------------  -----  ----- 
                                 32.1   26.0 
------------------------------  -----  ----- 
 

About Hikma

Hikma helps puts better health within reach every day for millions of people in more than 50 countries around the world. For 40 years, we've been creating high-quality medicines and making them accessible to the people who need them. We're a global company with a local presence across the United States (US), the Middle East and North Africa (MENA) and Europe, and we use our unique insight and expertise to transform cutting-edge science into innovative solutions that transform people's lives. We're committed to our customers, and the people they care for, and by thinking creatively and acting practically, we provide them with a broad range of branded and non-branded generic medicines. Together, our 8,500 colleagues are helping to shape a healthier world that enriches all our communities. We are a leading licensing partner in the MENA region, and through our venture capital arm, are helping bring innovative health technologies to people around the world. For more information, please visit www.hikma.com.

This information is provided by RNS

The company news service from the London Stock Exchange

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April 19, 2018 07:00 ET (11:00 GMT)