Annual Financial Report and Notice of AGM

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 the industry and business model we operate may change significantly as a result of political action, economic factors, societal pressures, regulatory interventions or changes to participants in the value chain of the industry.

·      Securing of key talent to manage complex commercial environment and develop business

·      Growth and expansion in new markets, with new products and in new therapeutic areas

·      Portfolio management programme to focus on strategic products that support revenue, profit and margin targets

·      Development of capacity, diversification of capability through differentiated technology, and 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 registering supply of new products from the pipeline that meet market needs to provide continuous source of future growth

·      Partner marketing and business development departments to monitor and assess the market for arising opportunities

·      Expansive global product portfolio with increased focus on high value and differentiated products

·      Experienced internal R&D teams developing products and overseeing joint venture activities

·      Product related acquisitions 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 and adapting organisational structures, management processes and controls, and talent pipeline to enable effective delivery by the business in the face of rapid and constant internal and external change

·      Strengthening executive experience with key talent to fill strategic global positions, including appointment of new CEO

·      Investment in group-wide human capital management system

·      Developing global HR programmes that attract, manage and develop talent within the organisation

·      Review of organisation design, structures and accountabilities to maintain empowerment in decision making and bring appropriate level of governance

 

 

 

 



 

Reputation

Building and maintaining trusting and successful partnerships with our many stakeholders relies on developing and sustaining our reputation as one of our most valuable assets.

·      Launch of new corporate brand to better communicate our values, purpose and strategy

·      Internal and external monitoring for early detection and monitoring of issues that may impact reputation

·      Investment and group alignment of corporate responsibility and ethics through transparent 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 by ethical decision making, with appropriate internal controls to ensure staff and third parties comply with our Code of Conduct, associated principles and standards, as well as all applicable legislation

·      Board level oversight from the Compliance, Responsibility and Ethics Committee 

·      Code of Conduct approved by the Board, translated into seven languages and rolled out to all employees

·      Active participation in international anti-corruption initiatives

·      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 information stored and/or processed internally or externally, maintaining and developing technology systems that enable business processes, and in ensuring infrastructure supports the organisation effectively

·      IT organisational structure designed to enable coordinated, consistent and comprehensive enterprise approach

·      Industry-standard information security solutions and best practice processes adopted and adapted for local and Group requirements

·      Cyber-risk activity monitored and changes implemented as necessary to combat evolving threats

·      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 and their application, managing litigation, governmental investigations, sanctions, contractual terms and conditions and potential business disruptions

·      Internal expertise drives awareness and understanding through policies, processes, and compliance culture

·      Staff trained and contractual terms established to mitigate or lower risks where possible

·      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 and/or realising expected benefits from acquisitions or divestments, licensing, or other business development activities

·      The mergers and acquisitions team undertake extensive due diligence of each acquisition in partnership with external advisors including financial and legal advisors, investment banks, and industry specialists in order to strategically identify, value, and execute transactions.

·      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 finished product and managing cost, quality and appropriate oversight of third parties in our supply chain

 

API and raw materials represent one of the Group's largest cost components. As is typical in the pharmaceuticals industry, a significant proportion of the Group's API requirements is provided by a small number of API suppliers

·      Implementing comprehensive group wide third party management solution

·      Maintaining alternative API suppliers for the Group's top strategic products, where possible

·      Rigorous selection process for API suppliers and focus on building long-term supply contracts

·      The Group has a dedicated plant in Jordan that can synthesise strategic injectable APIs where appropriate

·      Utilising supply chain models to maintain adequate API levels

·      Strengthening trade compliance capability to ensure compliance and drive efficiency

·      Serialisation programme ensuring roll out across the group



 

Crisis response and continuity management

Preparedness, response, continuity and recovery from crisis events such as natural catastrophe, economic turmoil, operational issues, political crisis, regulatory intervention

·      Central oversight being established of systems, processes, and capabilities to enhance our Group-wide resilience and preparedness

·      Programme being rolled out to enhance our ability to respond effectively to crises, and to expedite the restoration of critical processes after disruption.

·      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 Good Practices for Manufacturing (cGMP), Laboratory (cGLP), Distribution (cGDP) and pharmacovigilance (GVP) by staff, and ensuring compliance is maintained by all relevant third parties involved in these processes

·      Quality culture driven throughout the organisation by global Quality office initiatives, and regularly reinforced by communication from senior executives

·      Global implementation of quality systems that guarantee valid consistent manufacturing processes leading to the production of quality products

·      Facilities are maintained as inspection ready for assessment by relevant regulators

·      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, tax position, income, expenditure, assets and liabilities, and debtors, and in reporting accurately and in a timely manner in compliance with statutory requirements and accounting standards.

·      Extensive financial control procedures implemented and assessed annually as part of the internal audit programme

·      A network of banking partners is maintained for lending and deposits

·      Management monitors debtor payments and takes precautionary measures and action where necessary

·      Where it is economic and possible to do so, the Group hedges its exchange rate and interest rate exposure

·      Management obtains external advice to help manage tax exposures and has upgraded internal tax control systems

·      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

$m

2016

$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.

 


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