Interim Results

RNS Number : 0006N

Hikma Pharmaceuticals Plc

25 August 2011

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 organic^¹ 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 basis^² 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

²Before 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.

Summary P&L $ million	H1 2011 Reported	H1 2010 Reported	Change
Revenue	394.8	357.7	+10.4%
Gross profit	172.6	178.5	-3.3%
Reported operating profit	49.0	74.3	-34.0%
Adjusted operating profit³	60.3	73.2	-17.5%
Reported profit attributable to shareholders	33.1	54.7	-39.4%
Adjusted profit attributable to shareholders³	41.1	52.8	-22.1%
Diluted earnings per share (cents)	16.7	27.9	-40.1%
Adjusted diluted earnings per share (cents)³	20.7	26.9	-23.3%
Dividend per share (cents)	5.5	5.5	-
Net cash flow from operating activities	19.2	65.3	-70.6%

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

Summary P&L $ million	H1 2011 Group ex MSI	H1 2011 MSI	H1 2011 Group Consolidated
Revenue	369.2	25.5	394.8
Gross profit	167.0	5.6	172.6
Operating profit	56.0	(6.9)	49.0
Adjusted operating profit⁶	59.7	0.6	60.3
Profit attributable to shareholders	38.1	(5.0)	33.1
Adjusted profit attributable to shareholders	41.1	-	41.1

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

	H1 2011	H1 2010
MENA	31.1%	40.0%
US	37.6%	17.4%
Europe and ROW	31.3%	42.6%

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.

	Total marketed products		Products launched in H1 2011
	Compounds	Dosage forms and strengths	New compounds	New dosage forms and strengths	Total launches across all countries¹¹

Branded	255	488	2	3	16

Injectables	158	305	4	8	25

Generics	49	118	1	3	3

Group	462	911	7	14	44

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.

	Products approved in H1 2011			Products pending approval as at 30 June 2011
	New compounds	New dosage forms and strengths	Total approvals across all countries¹¹	New compounds	New dosage forms and strengths	Total pending approvals across all countries ¹¹

Branded	4	10	27	74	144	19612

Injectables	1	2	32	68	115	23112

Generics	3	12	12	23	23	23

Group	8	24	71	165	282	450

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

	Notes	H1 2011	H1 2010	FY 2010
		$000 (Unaudited)	$000 (Unaudited)	$000 (Audited)
Continuing operations
Revenue	3	394,759	357,694	730,936
Cost of sales	3	(222,141)	(179,187)	(373,592)
Gross profit	3	172,618	178,507	357,344
Sales and marketing costs		(56,988)	(52,692)	(106,673)
General and administrative expenses		(45,073)	(37,536)	(84,755)
Research and development costs		(11,459)	(10,173)	(23,608)
Other operating expenses (net)		(10,053)	(3,828)	(7,213)
Total operating expenses		(123,573)	(104,229)	(222,249)
Adjusted operating profit		60,317	73,154	143,025
Exceptional items
- Acquisition related expenses	4	(6,055)	(2,306)	(7,705)
- Gains on revaluation of previously held equity interests	4	-	7,176	7,176
- Inventory related adjustment	4	(1,203)	-	-
Intangible amortisation*	4	(4,014)	(3,746)	(7,401)

Operating profit		49,045	74,278	135,095
Finance income		154	97	346
Finance expense		(9,484)	(6,519)	(13,856)
Other income/(expense)		152	(382)	(603)
Profit before tax		39,867	67,474	120,982
Tax	5	(4,755)	(12,856)	(21,455)
Profit for the period/year		35,112	54,618	99,527
Attributable to:
Non-controlling interests		1,987	(53)	678
Equity holders of the parent		33,125	54,671	98,849
		35,112	54,618	99,527
Cumulative effect of change in fair value of available for sale investments		(9)	41	75
Cumulative effect of change in fair value of financial derivatives		(601)	(180)	(256)
Exchange difference on translation of foreign operations		14,381	(28,850)	(19,532)
Total comprehensive income before tax relating to components of other comprehensive income		48,883	25,629	79,814
Total comprehensive income for the period/ year		48,883	25,629	79,814
Attributable to:
Non-controlling interests		2,537	(633)	(1,023)
Equity holders of the parent		46,346	26,262	80,837
		48,883	25,629	79,814
Earnings per share (cents)
Basic	7	17.1	28.5	51.4
Diluted	7	16.7	27.9	50.2
Adjusted basic	7	21.3	27.5	53.6
Adjusted diluted	7	20.8	26.9	52.4

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

		30 June	30 June	31 December
	Notes	2011	2010	2010
		$000 (Unaudited)	$000 (Unaudited)	$000 (Audited)
Non-current assets
Intangible assets	8	294,804	265,521	269,120
Property, plant and equipment		391,842	301,710	317,463
Investment in associated companies	16	38,610	-	-
Deferred tax assets		23,443	19,953	23,288
Available for sale investments		468	583	477
Financial and other non-current assets		11,050	548	11,357
		760,217	588,315	621,705
Current assets
Inventories	9	269,490	171,445	182,192
Trade and other receivables	10	273,239	238,944	228,703
Collateralised cash		2,510	7,045	3,573
Cash and cash equivalents		89,526	60,996	62,718
Other current assets		2,934	1,043	929
		637,699	479,473	478,115
Total assets		1,397,916	1,067,788	1,099,820
Current liabilities
Bank overdrafts and loans		159,119	85,680	81,015
Obligations under finance leases		3,727	1,112	2,251
Trade and other payables	11	146,747	117,817	127,555
Income tax provision		10,652	12,069	12,621
Other provisions		9,176	7,572	8,641
Other current liabilities		15,254	22,980	20,540
		344,675	247,230	252,623
Net current assets		293,024	232,243	225,492
Non-current liabilities
Long-term financial debts	12	231,999	98,543	78,040
Deferred income		318	348	335
Obligations under finance leases		19,894	6,334	6,118
Deferred tax liabilities		12,353	13,593	12,404
		264,564	118,818	96,897
Total liabilities		609,239	366,048	349,520
Net assets		788,677	701,740	750,300

Equity
Share capital		34,937	34,501	34,525
Share premium		277,440	275,203	275,968
Own shares		(2,292)	(2,251)	(2,220)
Other reserves		469,029	387,517	435,649
Equity attributable to equity holders of the parent		779,114	694,970	743,922
Non-controlling interest		9,563	6,770	6,378
Total equity		788,677	701,740	750,300

Hikma Pharmaceuticals PLC

Condensed consolidated statement of changes in equity

	Merger reserve $000	Revaluation reserves $000	Translation reserves $000	Retained earnings $000	Total reserves $000		Share capital $000		Share premium $000	Own shares $000	Total equity attributable to equity shareholders of the parent $000	Non-controlling interest $000		Total equity $000
Balance at 1 January 2010 (Audited)	33,920	4,266	5,751	327,130	371,067	34,236		272,785		(2,203)	675,885		7,372	683,257
Profit for the period	-	-	-	54,671	54,671		-		-	-	54,671		(53)	54,618
Cumulative effect of change in fair value of available for sale investments	-	-	-	41	41		-		-	-	41		-	41
Cumulative effect of change in fair value of financial derivatives	-	-	-	(180)	(180)		-		-	-	(180)		-	(180)
Realisation of revaluation reserve	-	(91)	-	91	-		-		-	-	-		-	-
Currency translation loss	-	-	(28,270)	-	(28,270)		-		-	-	(28,270)		(580)	(28,850)
Total comprehensive income for the period	-	(91)	(28,270)	54,623	26,262		-		-	-	26,262		(633)	25,629
Issue of equity shares	-	-	-	-	-		265		2,418	-	2,683		-	2,683
Acquisition of own shares	-	-	-	-	-		-		-	(108)	(108)		-	(108)
Cost of equity settled employee share scheme	-	-	-	2,090	2,090		-		-	-	2,090		-	2,090
Exercise of employees long term incentive plan	-	-	-	(60)	(60)		-		-	60	-		-	-
Current and deferred tax arising on share-based payments	-	-	-	632	632		-		-	-	632		-	632
Dividends on ordinary shares	-	-	-	(12,474)	(12,474)		-		-	-	(12,474)		-	(12,474)
Acquisition of subsidiaries	-	-	-	-	-		-		-	-	-		31	31
Balance at 30 June 2010 (Unaudited)	33,920	4,175	(22,519)	371,941	387,517		34,501		275,203	(2,251)	694,970		6,770	701,740


Balance at 1 January 2010 (Audited)	33,920	4,266	5,751	327,130	371,067		34,236		272,785	(2,203)	675,885		7,372	683,257
Profit for the year	-	-	-	98,849	98,849		-		-	-	98,849		678	99,527
Cumulative effect of change in fair value of available for sale investments	-	-	-	75	75		-		-	-	75		-	75
Cumulative effect of change in fair value of financial derivatives	-	-	-	(256)	(256)		-		-	-	(256)		-	(256)
Realisation of revaluation reserve	-	(181)	-	181	-		-		-	-	-		-	-
Currency translation loss	-	-	(17,831)	-	(17,831)		-		-	-	(17,831)		(1,701)	(19,532)
Total comprehensive income for the year	-	(181)	(17,831)	98,849	80,837		-		-	-	80,837		(1,023)	79,814
Issue of equity shares	-	-	-	-	-		289		3,183	-	3,472		-	3,472
Acquisition of own shares	-	-	-	-	-		-		-	(107)	(107)		-	(107)
Cost of equity settled employee share scheme	-	-	-	4,473	4,473		-		-	-	4,473		-	4,473
Exercise of employees long term incentive plan	-	-	-	(90)	(90)		-		-	90	-		-	-
Current and deferred tax arising on share-based payments	-	-	-	2,435	2,435		-		-	-	2,435		-	2,435
Dividends on ordinary shares	-	-	-	(23,073)	(23,073)		-		-	-	(23,073)		-	(23,073)
Acquisition of subsidiaries	-	-	-	-	-		-		-	-	-		29	29
Balance at 31 December 2010 (Audited)	33,920	4,085	(12,080)	409,724	435,649		34,525		275,968	(2,220)	743,922		6,378	750,300

Profit for the period	-	-	-	33,125	33,125		-		-	-	33,125		1,987	35,112
Cumulative effect of change in fair value of available for sale investments	-	-	-	(9)	(9)		-		-	-	(9)		-	(9)
Cumulative effect of change in fair value of financial derivatives	-	-	-	(601)	(601)		-		-	-	(601)		-	(601)
Realisation of revaluation reserve	-	(91)	-	91	-		-		-	-	-		-	-
Currency translation gain	-	-	13,831	-	13,831		-		-	-	13,831		550	14,381
Total comprehensive income for the period	-	(91)	13,831	32,606	46,346		-		-	-	46,346		2,537	48,883
Issue of equity shares	-	-	-	-	-		412		1,472	-	1,884		-	1,884
Acquisition of own shares	-	-	-	-	-		-		-	(112)	(112)		-	(112)
Cost of equity settled employee share scheme	-	-	-	3,634	3,634		-		-		3,634		-	3,634
Exercise of employees long term incentive plan	-	-	-	(40)	(40)		-		-	40	-		-	-
Current and Deferred tax arising on share-based payments	-	-	-	(3,327)	(3,327)		-		-	-	(3,327)		-	(3,327)
Dividends on ordinary shares	-	-	-	(14,497)	(14,497)		-		-	-	(14,497)		-	(14,497)
Dividends paid to minority shareholders	-	-	-	-	-		-		-	-	-		-	-
Partial disposal of an investment in a subsidiary (without loss of control)				1,264	1,264						1,264		160	1,424
Issue of equity shares of subsidiaries		-	-	-	-		-		-	-	-		488	488

Balance at 30 June 2011 (Unaudited)	33,920	3,994	1,751	429,364	469,029		34,937		277,440	(2,292)	779,114		9,563	788,677

Hikma Pharmaceuticals PLC

Condensed consolidated cash flow statement

	Note	H1 2011	H1 2010	FY 2010
		$000 (Unaudited)	$000 (Unaudited)	$000 (Audited)

Net cash from operating activities	13	19,220	65,306	152,540
Investing activities
Purchases of property, plant and equipment		(33,199)	(23,354)	(49,121)
Proceeds from disposal of property, plant and equipment		313	785	1,556
Purchase of intangible assets		(7,179)	(1,156)	(4,074)
Proceeds from disposal of intangible assets		66	-	566
Investment in associated companies		(38,610)	-	-
Investment in financial and other non current assets		307	6	(10,800)
Proceeds from available for sale investments (net)		-	-	140
Acquisition of subsidiary undertakings, net of cash acquired		(105,825)	(22,796)	(23,000)
Payments of costs directly attributable to acquisitions	4	(3,892)	(2,306)	(7,705)
Finance income		154	97	346
Net cash used in investing activities		(187,865)	(48,724)	(92,092)
Financing activities
Increase/(decrease) in collateralised cash		1,063	(4,609)	(1,140)
Increase in long-term financial debts		197,695	12,758	19,045
Repayment of long-term financial debts		(51,488)	(32,465)	(59,177)
Increase in short-term borrowings		69,769	18,271	14,147
Decrease in obligations under finance leases		(489)	(1,557)	(616)
Dividends paid		(14,497)	(12,474)	(23,073)
Purchase of own shares		-	(108)	-
Interest paid		(9,555)	(6,320)	(13,754)
Proceeds from issue of new shares		1,772	2,683	3,365
Proceeds from non-controlling interest for capital increase in subsidiaries		488	-	-
Net cash from/(used in) financing activities		194,758	(23,821)	(61,203)
Net increase/(decrease) in cash and cash equivalents		26,113	(7,239)	(755)
Cash and cash equivalents at beginning of period		62,718	65,663	65,663
Foreign exchange translation movement		695	2,572	(2,190)
Cash and cash equivalents at end of period		89,526	60,996	62,718

Hikma Pharmaceuticals PLC

Notes to the condensed set of financial statements - continued

1. General information

The financial information for the year ended 31 December 2011 does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2010, which were prepared under International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board, have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain any statement under Section 498 (2) or (3) of the Companies Act 2006.

2. Accounting policies

The unaudited condensed set of financial statements for the six months ended 30 June 2011 have been prepared using the same accounting policies and on a basis consistent with the audited results for the year ended 31 December 2010. The financial information has been prepared under the historical cost convention, except for the revaluation to market value of certain financial assets and liabilities.

Basis of preparation

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

The Group's condensed consolidated financial statements included in this half yearly financial report are prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. They were approved by the Board on 24 August 2011.

Going concern

The Group has $751.8 million of banking facilities of which $335.5 million were undrawn as at 30 June 2011. Of the undrawn facilities, $172.2 million was committed. These facilities are well diversified across the operating subsidiaries of the Group with a number of financial institutions.

About 50% of the Group's short-term and undrawn long-term facilities are of a committed nature.

We continue to expect the short-term facilities to be renewed upon maturity. In addition the Group maintained cash balances of $90 million as at 30 June 2011. The Group's forecasts, taking into account reasonable possible changes in trading performance, facility renewal sensitivities and maturities of long-term debt, show that the Group should be able to operate within the levels of its facilities.

Although the current economic conditions may affect short-term demand for our products, as well as placing pressure on customers and suppliers which may face liquidity issues, the Group's geographic spread, product diversity, large customer and supplier base substantially mitigate these risks.

In addition, the Group operates in the relatively defensive generic pharmaceuticals industry which we expect to be less affected compared to other industries that are subject to greater cyclical changes.

After making enquiries, the Directors believe that the Group is adequately placed to manage its business and financing risks successfully despite the current uncertain economic outlook. Accordingly, they continue to adopt the going concern basis in preparing the half- yearly condensed financial statement.

Changes in accounting policy

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

3. Business and geographical segments

For management purposes, the Group is currently organised into three operating divisions - Branded , Injectables and Generics. These divisions are the basis on which the Group reports its primary segment information.

Segment information about these businesses is presented below.

Six months ended
30 June 2011 (unaudited)	Branded	Injectables	Generic	Others	Group
	$000	$000	$000	$000	$000
Revenue	199,623	116,105	76,376	2,655	394,759
Cost of sales	(100,447)	(72,555)	(47,161)	(1,978)	(222,141)
Gross profit	99,176	43,550	29,215	677	172,618
Result
Adjusted segment result	47,548	16,822	10,173	(1,591)	72,952
Exceptional items :
- Acquisition related expenses	-	(600)	-	-	(600)
- Inventory related adjustment	-	(1,203)	-	-	(1,203)
Intangible amortisation*	(2,345)	(1,669)	-	-	(4,014)

Segment result	45,203	13,350	10,173	(1,591)	67,135

Adjusted Unallocated corporate expenses					(12,635)
Exceptional items :
- Acquisition related expenses					(5,455)

Unallocated corporate expenses					(18,090)
Operating profit					49,045
Finance income					154
Finance expense					(9,484)
Other income					152
Profit before tax					39,867
Tax					(4,755)
Profit for the period					35,112
Attributable to:
Non-controlling interest					1,987
Equity holders of the parent					33,125
					35,112

Segment result is defined as operating profit for each segment.

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

"Others" mainly comprise Arab Medical Containers Ltd, International Pharmaceutical Research Center Ltd and the chemicals division of Hikma Pharmaceuticals Ltd Jordan.

Unallocated corporate expenses are primarily made up of employee costs, office costs, professional fees, donations and certain acquisition related expenses.

3. Business and geographical segments (continued)

Other information 30 June 2011 (unaudited)	Branded	Injectables	Generic	Others	Group
	$000	$000	$000	$000	$000

Additions to property, plant and equipment (cost)	24,057	3,048	3,761	2,119	32,985
Acquisition of subsidiary's property, plant and equipment (net book value)	-	50,342	-	-	50,342
Additions to intangible assets	6,191	988	-	-	7,179
Intangible assets arising on acquisition	-	18,060	-	-	18,060
Total property, plant and equipment and intangible assets (net book value)	415,339	226,018	33,969	11,320	686,646
Depreciation	9,648	3,749	2,363	480	16,240
Amortisation (including software)	3,078	1,904	96	98	5,176
Balance sheet
Segment assets	859,181	370,078	137,807	30,850	1,397,916
Segment liabilities	334,498	245,730	16,600	12,411	609,239

Six months ended
30 June 2010 (unaudited)	Branded	Injectables	Generic	Others	Group
	$000	$000	$000	$000	$000
Revenue	193,848	74,461	87,151	2,234	357,694
Cost of sales	(91,675)	(40,166)	(45,384)	(1,962)	(179,187)
Gross profit	102,173	34,295	41,767	272	178,507
Result
Adjusted segment result	49,460	11,836	26,286	(1,935)	85,647
Exceptional items :
- Gains on revaluation of previously held equity interests	7,176	-	-	-	7,176
Intangible amortisation*	(2,302)	(1,283)	(161)	-	(3,746)
Segment result	54,334	10,553	26,125	(1,935)	89,077

Adjusted Unallocated corporate expenses					(12,493)
Exceptional items :
- Acquisition related expenses					(2,306)

Unallocated corporate expenses					(14,799)
Operating profit					74,278
Finance income					97
Finance expense					(6,519)
Other expense					(382)
Profit before tax					67,474
Tax					(12,856)
Profit for the period					54,618
Attributable to:
Non-controlling interest					(53)
Equity holders of the parent					54,671
					54,618

Segment result is defined as operating profit for each segment.

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

"Others" mainly comprise Arab Medical Containers Ltd, International Pharmaceutical Research Center Ltd and the chemicals division of Hikma Pharmaceuticals Ltd Jordan.

Unallocated corporate expenses are primarily made up of employee costs, office costs, professional fees, donations and certain acquisition related expenses.

Other information 30 June 2010 (unaudited)	Branded	Injectables	Generic	Other	Group
	$000	$000	$000	$000	$000
Additions to property, plant and equipment (cost)	17,797	2,074	2,785	698	23,354
Acquisition of subsidiary's property, plant and equipment (net book value)	24,437	-	-	-	24,437
Additions/(disposals) to intangible assets	708	423	5	20	1,156
Intangible assets arising on acquisition	28,066	-	-	-	28,066
Total property, plant and equipment and intangible assets (net book value)	392,698	134,441	31,164	8,928	567,231
Depreciation	8,739	2,692	2,181	526	14,138
Amortisation (including software)	2,919	1,452	260	26	4,657
Balance sheet
Segment assets	766,483	164,463	118,475	18,367	1,067,788
Segment liabilities	260,265	73,852	19,743	12,188	366,048

Year ended
31 December 2010 (audited)	Branded	Injectables	Generic	Others	Group
	$000	$000	$000	$000	$000
Revenue	394,166	157,439	174,491	4,840	730,936
Cost of sales	(190,733)	(86,437)	(92,710)	(3,712)	(373,592)
Gross profit	203,433	71,002	81,781	1,128	357,344

Result
Adjusted segment result	96,230	26,224	51,258	(2,889)	170,823
Exceptional items :
- Gains on revaluation of previously held equity interests	7,176	-	-	-	7,176
Intangible amortisation*	(4,732)	(2,500)	(169)	-	(7,401)
Segment result	98,674	23,724	51,089	(2,889)	170,598

Adjusted Unallocated corporate expenses					(27,798)
Exceptional items :
- Acquisition related expenses					(7,705)

Unallocated corporate expenses					(35,503)
Operating profit					135,095
Finance income					346
Finance expense					(13,856)
Other expense					(603)
Profit before tax					120,982
Tax					(21,455)
Profit for the year					99,527
Attributable to:
Non-controlling interest					678
Equity holders of the parent					98,849
					99,527

Segment result is defined as operating profit for each segment.

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

"Others" mainly comprise Arab Medical Containers Ltd, International Pharmaceutical Research Center Ltd and the chemicals division of Hikma Pharmaceuticals Ltd Jordan.

Unallocated corporate expenses are primarily made up of employee costs, office costs, professional fees, donations and certain acquisition related expenses.

Other information 31 December 2010 (audited)	Branded	Injectables	Generic	Other	Group
	$000	$000	$000	$000	$000
Additions to property, plant and equipment (cost)	32,747	7,428	6,798	2,125	49,098
Acquisition of subsidiary's property, plant and equipment (net book value)	24,437	-	-	-	24,437
Additions to intangible assets	2,147	1,902	5	20	4,074
Intangible assets arising on acquisition	28,066	-	-	-	28,066
Total property, plant and equipment and intangible assets (net book value)	397,301	146,818	32,682	9,782	586,583
Depreciation	16,032	5,517	6,373	1,169	29,091
Amortisation (including software)	6,044	2,848	365	85	9,342

Balance sheet
Segment assets	748,353	184,039	141,599	25,829	1,099,820
Segment liabilities	232,855	77,217	18,551	20,897	349,520

The following table provides an analysis of the Group's sales by geographical market, irrespective of the origin of the goods/services:

	Sales revenue by geographical market
	H1 2011	H1 2010	FY 2010
	$000	$000	$000
	(Unaudited)	(Unaudited)	(Audited)
Middle East and North Africa	229,849	218,047	446,524
United States	120,013	100,116	204,389
Europe and Rest of the World	43,922	39,243	79,133
United Kingdom	975	288	890
	394,759	357,694	730,936

Included in revenues arising from the Branded and Injectables segments are revenues of approximately $43,301,000 (30 June 2010: $39,226,000 and 31 December 2010: $99,371,000) which arose from the Group's largest customer, based in Saudi Arabia.

4. Exceptional items and intangible amortisation

Exceptional items are defined as those that are material in nature or amount and are non-recurring. Exceptional items are disclosed separately in the condensed consolidated statement of comprehensive income to assist in the understanding of the Group's underlying performance.

	H1 2011	H1 2010	FY 2010
	$000	$000	$000
Acquisition related expenses	(6,055)	(2,306)	(7,705)
Gains on revaluation of previously held equity interests	-	7,176	7,176
- Inventory related adjustment	(1,203)	-	-
Exceptional items	(7,258)	4,870	(529)
Intangible amortisation *	(4,014)	(3,746)	(7,401)
Exceptional items and intangible amortisation	(11,272)	1,124	(7,930)
Tax effect	3,265	775	3,666
Impact on profit for the period/year	(8,007)	1,899	(4,264)

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

Acquisition related expenses relate to transaction and integration costs incurred in acquiring the Baxter Healthcare Multi-Source injectables business (MSI) in the USA. These are mainly included in the unallocated corporate expenses. Further details are set out in note 15 "Acquisition of subsidiaries". The results of MSI have been included in the Injectables segment.

These costs mainly comprises of third party consulting services, legal and professional fees.

$3.9 million (30 June 2010: $2.3 million and 31 December 2010: $7.7 million) of costs have been classified as investing activities in the cash flow statement relating to the cash outflow in respect of these costs in the period.

The inventory related adjustments reflect the fair value uplift (recognised in costs of sales) of the inventory acquired as part of the MSI acquisition (refer to note 15).

In the prior year, acquisition related expenses related to transaction costs incurred in acquiring Ibn Al Baytar, Al Dar Al Arabia and MSI which was in the process of completion. These were included in the unallocated corporate expenses.

Gains on revaluation of previously held equity interests related to gains arising from the remeasurement to fair value of the previously held equity interests in Ibn Al Baytar and Al Dar Al Arabia. These were included within other operating expenses (net).

5. Tax

	H1 2011	H1 2010	FY 2010
	$000	$000	$000
	(Unaudited)	(Unaudited)	(Audited)
Current tax:
Foreign tax	4,423	15,007	27,037
Prior year adjustments	450	(882)	(691)
Deferred tax	(118)	(1,269)	(4,891)
	4,755	12,856	21,455

6. Dividends

	H1 2011	H1 2010	FY 2010
	$000	$000	$000
	(Unaudited)	(Unaudited)	(Audited)
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2010 of 7.5 cents (2009: 6.5 cents) per share	14,497	12,473	12,473
Interim dividend for the year ended 31 December 2010 of 5.5 cents per share	-	-	10,600
	14,497	12,473	23,073

The proposed interim dividend for the period ended 30 June 2011 is 5.5 cents (30 June 2010: 5.5 cents) per share.

7. Earnings per share

Earnings per share are calculated by dividing the profit attributable to equity holders of the parent by the weighted average number of ordinary shares. The number of ordinary shares used for the basic and diluted calculations are shown in the table below. Adjusted basic earnings per share and adjusted diluted earnings per share are intended to highlight the adjusted results of the Group before exceptional items and intangible amortisation*. A reconciliation of the basic and adjusted earnings used is also set out below:

	H1 2011	H1 2010	FY 2010
	$000	$000	$000
	(Unaudited)	(Unaudited)	(Audited)
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent	33,125	54,671	98,849
Exceptional items	7,258	(4,870)	529
Intangible amortisation*	4,014	3,746	7,401
Tax effect of adjustments	(3,265)	(775)	(3,666)
Adjusted earnings for the purposes of adjusted basic and diluted earnings per share being adjusted net profit attributable to equity holders of the parent	41,131	52,772	103,113

	Number	Number	Number
Number of shares	'000	'000	'000
Weighted average number of Ordinary Shares for the purposes of basic earnings per share	193,330	191,792	192,304
Effect of dilutive potential Ordinary Shares :
Share options	4,878	4,059	4,551
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share	198,208	195,851	196,855

	H1 2011	H1 2010	FY 2010
	Earnings per share	Earnings per share	Earnings per share
	Cents	Cents	Cents
Basic	17.1	28.5	51.4
Diluted	16.7	27.9	50.2
Adjusted basic	21.3	27.5	53.6
Adjusted diluted	20.8	26.9	52.4

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

8. Intangible assets

	Goodwill	Marketing rights	Customer relationships	Product related intangibles	In process R&D	Trade names	Other acquisition related intangibles	Software	Total
	$000	$000	$000	$000	$000	$000	$000	$000	$000
Cost
Balance at 1 January 2010	156,066	8,826	64,804	23,746	4,276	6,401	3,214	12,902	280,235
Additions	-	417	-	202	5	-	-	541	1,165
Acquisition of subsidiaries	26,859	767	-	233	632	-	-	256	28,747
Disposals	-	(51)	-	(5)	-	-	-	-	(56)
Translation adjustments	(8,680)	(954)	(2,899)	(1,332)	(96)	(890)	(456)	(395)	(15,702)
Balance at 30 June 2010	174,245	9,005	61,905	22,844	4,817	5,511	2,758	13,304	294,389
Cost
Balance at 1 January 2010	156,066	8,826	64,804	23,746	4,276	6,401	3,214	12,902	280,235
Additions	-	251	-	2,509	-	-	-	1,314	4,074
Acquisition of subsidiaries	26,859	-	-	224	610	1,068	-	246	29,007
Disposals	-	(249)	-	(155)	-	-	-	-	(404)
Translation adjustments	(5,240)	(476)	(2,067)	(722)	(55)	(520)	(232)	(231)	(9,543)
Balance at 31 December 2010	177,685	8,352	62,737	25,602	4,831	6,949	2,982	14,231	303,369
Additions	-	521	-	6,170	-	-	-	488	7,179
Acquisition of subsidiaries	5,804	-	-	12,195	-	-	61	-	18,060
Disposals	-	-	-	(50)	-	-	-	-	(50)
Translation adjustments	3,243	468	694	771	11	528	244	197	6,156
Balance at 30 June 2011	186,732	9,341	63,431	44,688	4,842	7,477	3,287	14,916	334,714
Amortisation
Balance at 1 January 2010	(608)	(2,402)	(10,014)	(3,977)	(601)	(38)	(773)	(6,126)	(24,539)
Charge for the year	-	(528)	(2,119)	(856)	(141)	(9)	(93)	(911)	(4,657)
Acquisition of subsidiaries	-	-	-	(24)	(432)	-	-	(225)	(681)
Translation adjustments	-	261	145	278	52	-	84	189	1,009

Balance at 30 June 2010	(608)	(2,669)	(11,988)	(4,579)	(1,122)	(47)	(782)	(7,073)	(28,868)
Amortisation
Balance at 1 January 2010	(608)	(2,402)	(10,014)	(3,977)	(601)	(38)	(773)	(6,126)	(24,539)
Charge for the period	-	(817)	(4,219)	(1,760)	(332)	(88)	(185)	(1,941)	(9,342)
Acquisition of subsidiaries	-	-	-	(211)	(513)	-	-	(217)	(941)
Translation adjustments	-	125	154	140	21	(1)	39	95	573
Balance at 31 December 2010	(608)	(3,094)	(14,079)	(5,808)	(1,425)	(127)	(919)	(8,189)	(34,249)
Charge for the period	-	(440)	(2,118)	(1,161)	(140)	(57)	(98)	(1,162)	(5,176)
Translation adjustments	-	(135)	39	(182)	(24)	(5)	(59)	(119)	(485)
Balance at 30 June 2011	(608)	(3,669)	(16,158)	(7,151)	(1,589)	(189)	(1,076)	(9,470)	(39,910)
Carrying amount
At 30 June 2011	186,124	5,672	47,273	37,537	3,253	7,288	2,211	5,446	294,804
At 31 December 2010	177,077	5,258	48,658	19,794	3,406	6,822	2,063	6,042	269,120
At 30 June 2010	173,637	6,336	49,917	18,265	3,695	5,464	1,976	6,231	265,521

The current period intangibles arising from the acquisition of subsidiaries relate to the acquisition of MSI, as set out below in note 15.

The current period additions mainly relate to licences for products.

9. Inventories

	H1 2011	H1 2010	FY 2010
	$000	$000	$000
	(Unaudited)	(Unaudited)	(Audited)
Finished goods	85,670	55,942	50,829
Work-in-progress	33,329	30,816	29,592
Raw and packing materials	136,561	70,794	81,864
Goods in transit	13,930	13,893	19,907
	269,490	171,445	182,192

Goods in transit include inventory held at third parties whilst in transit between Group companies.

10. Trade and other receivables

	30 June	30 June	31 December
	2011	2010	2010
	$000 (Unaudited)	$000 (Unaudited)	$000 (Audited)
Trade receivables	233,871	210,187	200,334
Prepayments	32,386	19,644	22,305
Value added tax recoverable	3,912	6,383	3,883
Interest receivable	701	217	223
Employee advances	2,369	2,513	1,958
	273,239	238,944	228,703

11. Trade and other payables

	30 June	30 June	31 December
	2011	2010	2010
	$000 (Unaudited)	$000 (Unaudited)	$000 (Audited)
Trade payables	102,341	74,675	74,936
Accrued expenses	31,973	30,484	42,428
Employees' provident fund *	3,072	1,943	2,625
VAT and sales tax payables	845	3,496	452
Dividends payable **	2,228	2,320	2,256
Social security withholdings	1,230	795	1,130
Income tax withholdings	2,456	1,434	2,074
Other payables	2,602	2,670	1,654
	146,747	117,817	127,555

* The employees' provident fund liability represents outstanding contributions to Hikma Pharmaceuticals Limited - Jordan retirement benefit plan, on which the fund receives 5% interest.

** Dividends payable includes $2,044,526 (30 June 2010: $2,100,000 and 31 December 2010: $2,072,000) due to the previous shareholders of Arab Pharmaceutical Manufacturing.

12. Long-term financial debts

	30 June	30 June	31 December
	2011	2010	2010
	$000 (Unaudited)	$000 (Unaudited)	$000 (Audited)
Total loans	285,809	131,954	114,235
Less: current portion of loans	(53,810)	(33,411)	(36,195)
Long-term financial loans	231,999	98,543	78,040

Breakdown by maturity:
Within one year	53,810	33,411	36,195
In the second year	70,930	40,187	34,193
In third year	45,271	32,490	26,700
In the fourth year	54,454	15,579	6,167
In the fifth year	49,987	3,044	3,735
Thereafter	11,357	7,243	7,245
	285,809	131,954	114,235

The increase of long term -debts is mainly due to the new loans of $139 million withdrawn to finance the new acquisitions of MSI, Unimark Remedies Limited and Hubei Haosun Pharmaceutical Co.Ltd (Haosun).

13. Net cash from operating activities

	H1 2011	H1 2010	FY 2010
	$000 (Unaudited)	$000 (Unaudited)	$000 (Audited)
Profit before tax	39,867	67,474	120,982
Adjustments for:
Depreciation, amortisation and impairment of:
Property, plant and equipment	16,240	14,138	29,091
Intangible assets	5,176	4,657	9,342
Gain on revaluation of previously held equity interest	-	(7,176)	(7,176)
Loss on disposal of property, plant and equipment	17	57	376
(Gains)/losses on disposal of intangible assets	(17)	56	(162)
Movement on provisions	535	681	2,488
Movement on deferred income	(16)	(146)	(159)
Cost of equity settled employee share scheme	3,634	2,090	4,473
Payments of costs directly attributable to acquisitions *	3,892	2,306	7,705
Finance income	(154)	(98)	(346)
Interest and bank charges	9,484	6,519	13,856
Cash flow before working capital	78,658	90,558	180,470
Change in trade and other receivables	(35,947)	(5,152)	10,689
Change in other current assets	(1,775)	208	322
Change in inventories	(31,145)	(9,144)	(19,295)
Change in trade and other payables	15,486	5,998	16,102
Change in other current liabilities	(1,220)	817	(3,091)
Cash generated by operations	24,057	83,285	185,197
Income tax paid	(4,837)	(17,979)	(32,657)
Net cash generated from operating activities	19,220	65,306	152,540

* Please refer to note 4

14. Related party balances

Intra-group transactions have been eliminated on consolidation and are not disclosed in this note.

During the period, the Group had the following relationships and entered into the following transactions with related parties:

Darhold Limited: is a related party of the Group because it is one of the major shareholders of Hikma Pharmaceuticals PLC with ownership percentage of 29.3% at 30 June 2011 (30 June 2010: 29.6% and 31 December 2010: 29.5%).

Other than dividends (as paid to all shareholders), there were no transactions between the Group and Darhold Limited during the period.

Capital Bank - Jordan: is a related party of the Group because during the period three board member of the Bank are also board members of Hikma Pharmaceuticals PLC. Total cash balances at Capital Bank - Jordan were USD 462,000 (30 June 2010: USD 233,000 and 31 December 2010: USD 2,169,000). Loans and overdrafts granted by Capital Bank to the Group amounted to USD 372,000 (30 June 2010: USD 125,000 and 31 December 2010: USD 48,000) with interest rates ranging between 9 % and 3 month LIBOR + 3. Total interest expense incurred against Group facilities was USD 9,000 (H1 2010: USD 6,000 and FY 2010: USD 18,000). Total interest income received was Nil (H1 2010: Nil and 2010 FY: USD 8,000) and total commission paid in the period was USD 16,000 (H1 2010: USD 14,000 and 2010: USD 76,000).

Jordan International Insurance Company: is a related party of the Group because one board member of the insurance company is also a board member of Hikma Pharmaceuticals PLC. Total insurance premiums paid by the Group to Jordan International Insurance Co during the period were USD 2,329,000 (H1 2010: USD 1,868,000 and FY 2010: USD 2,166,000). The Group's insurance expense for Jordan International Insurance Co contracts in the period was USD 1,953,000 (H1 2010: USD 1,548,000 and FY 2010: USD 2,481,000). The amounts due to Jordan International Insurance Co at 30 June 2011 were USD 272,000 (30 June 2010: USD 74,000 and 31 December 2010: USD 66,000).

Labatec Pharma: is a related party of the Group because it is owned by Mr. Samih Darwazah. During the period to 30 June 2011 the Group total sales to Labatec Pharma amounted to USD Nil (H1 2010: USD Nil and FY 2010: USD 414,000) and the Group total purchases from Labatec Pharma amounted to USD 1,177,000 (H1 2010: USD 139,000 and FY 2010 USD 1,373,000). At 30 June 2011 the amount owed to Labatec Pharma by the Group was USD 1,269,000. The amount owed by Labatec Pharma to the Group was (30 June 2010: USD 5,000 and 31 December 2010: USD 193,000).

Mr. Yousef Abd Ali: Mr. Yousef Abd Ali is a related party of the Group because he holds 33% of Hikma Liban SARL in Lebanon. The amount owed to Mr. Yousef by the Group as at 30 June 2011 was USD 161,000 (30 June 2010: USD 161,000 and 31 December 2010: USD 161,000).

King and Spalding: is a related party of the Group because the partner of the firm is a board member and company secretary of West-ward Pharmaceutical Corp. King and Spalding is an outside legal counsel firm that handles general legal matters for West-ward. During the period to June 2011 fees of USD 951,000 (H1 2010: USD 47,000 and FY 2010: USD 927,000) were paid for legal services provided.

15. Acquisition of subsidiaries

On 2 May 2011, the Group completed the acquisition of 100% of Baxter Healthcare Corporation's Multi-Source Injectables (MSI) business for cash consideration of $103,839,000 and deferred consideration of $12,684,000 of which $11,542,000 is a discounted value of non interest bearing note and due in two payments, February 2012 and November 2012. This deferred consideration has been treated as a financial liability in accordance with IAS 32 Financial Instruments: Presentation and IFRS 3 revised (2008): Business Combinations.

The purpose of the acquisition was to significantly enhance the scale and scope of Hikma's global Injectables platform.

The acquisition was a trade and asset based transaction. It is considered a business combination in accordance with IFRS 3 revised (2008): Business Combinations as Hikma's wholly owned subsidiary West-Ward Pharmaceuticals acquired an integrated set of activities and assets that can be managed for the purpose of providing a return to the shareholders.

Due to the timing of the acquisition, closing on 2 May 2011, the fair value and goodwill arising on acquisition stated below are considered to be provisional.

The goodwill arising represents the synergies that will be obtained by integrating MSI into the existing business and increasing the scale of Hikma's Injectables business.

The Group's condensed consolidated statement of comprehensive income for the period ended 30 June 2011 includes acquisition related costs amounting to $5,455,000 and the amortisation of prepaid integration costs of $600,000 and a fair value inventory adjustment of $1,203,000.

The net assets acquired in the transaction and the provisional goodwill arising are set out below:

Multi-Source Injectables	Book value	Fair value adjustment		Fair value
	Book value	Fair value adjustment		Fair value
	$000	$000		$000
Product rights	-	12,195	a	12,195
Other intangible assets	-	61		61
Property, plant and equipment	125,263	(74,921)	b	50,342
Inventories	48,312	4,235	c	52,547
Prepaid expenses	7,906	-		7,906
Other current assets	204	231	d	435
Deferred taxes asset	-	3,340	e	3,340
Other current liabilities	(985)	-		(985)
Capital lease obligations	(10,483)	(4,639)	f	(15,122)
Identifiable net assets	170,217	(59,498)		110,719
Consideration				116,523
Less: identifiable net assets				(110,719)
Goodwill				5,804
Consideration is satisfied by :
Cash				103,839
Deferred consideration				12,684
				116,523

Cash consideration				103,839
Cash and cash equivalents acquired				-
Net cash outflow arising on acquisition				103,839

a. Product rights relating to thirty six product licences and approvals has been valued based on the type of rights acquired. A discounted cashflow approach has been taken based on excess earnings by product group, applying a discount rate applicable for any market participant.

Useful lives of 10 - 15 years have been determined.

b. The property, plant and equipment acquired have been valued by a third party expert at current market values.

c. Inventories have been valued as follows:

a. Raw materials at the current replacement cost.

b. Finished goods and work in process at the estimated selling prices less a cost to dispose and complete and less a reasonable profit attributable to selling effort.

d. Other current assets include back orders which have been valued by estimating the amount of expected profit that is attributable to the efforts of the seller.

e. Taxable temporary differences have been identified by reference to IAS 12 "income tax"

f. Finance lease obligations acquired have been revalued using a discounted future cash flow method and applying the Company's incremental borrowing rate as the discount rate.

As part of the acquisition West-Ward was assigned a long term API supply agreement that contains fixed minimum purchase obligations. The Company is in the process of evaluating whether any fair value adjustments should be recorded with respect to this contract. The contract contains a clause that anticipates termination in certain market conditions.

Goodwill recognised is expected to be deductible for income tax purposes.

Full year impact of acquisition:

The revenue and net loss excluding pre tax transaction costs of $5.4 million of MSI from the date of the acquisition that is included in the Group's condensed consolidated statement of comprehensive income for the period amounted to $25,528,028 and $1,470,000 respectively.

If the acquisition of MSI had been completed on the first day of the financial year, the Group's revenues for the period would have been approximately $452,730,000 and the Group's profit attributable to equity holders of the parent would have been approximately $36,225,000.

The appropriate additional contribution for the period from the beginning of the year up to the acquisition date is illustrated in the table below:

	Effect on Group's revenues	Effect on Group's profit
	$000	$000
MSI	57,971	3,100
	57,971	3,100

16. Investment in Associates

On April 15, 2011 the Group acquired a non controlling interest of 23.07% in the Indian company Unimark Remedies Limited through the subscription of new equity for a cash consideration of $ 33.6 million. Through this strategic partnership, Hikma and Unimark will collaborate on the development of strategic APIs and ANDAs. Unimark's strong technical and R&D capabilities will complement Hikma's in-house R&D efforts and are expected to enable Hikma to bring more products in more therapeutic categories to market globally.

On June 28, 2011 the Group acquired a non controlling interest of 30% in Hubei Haosun Pharmaceutical Co.Ltd (Haosun) through the subscription of new equity for a cash consideration of $5 million.

Through this partnership Hikma gains access to a high quality, long term source of API, particularly in the strategically important area of oncology.

Principal Risks and Uncertainties

The Group's business faces risks and uncertainties. The section below sets out the principal risks and uncertainties that the Group considers could have a significant effect on its financial condition, results of operations or future performance. The list is not set out in order of priority and other risks, currently unknown or not considered material, could have a similar effect.

Operational risks

Risk	Potential impact	Mitigation
Compliance with cGMP
> Non-compliance with manufacturing standards (often referred to as 'Current Good Manufacturing Practices' or cGMP)	> Delays in supply or an inability to market or develop the Group's products > Delayed or denied approvals for the introduction of new products > Product complaints or recalls > Bans on product sales or importation > Disruptions to operations > Litigation	> Commitment to maintain the highest levels of quality across all manufacturing facilities > Strong global compliance function that oversees compliance across the Group > Remuneration and reward structure that helps retain experienced personnel > Continuous staff training
Regulation
> Unanticipated legislative and other regulatory actions and developments concerning various aspects of the Group's operations and products	> Restrictions on the sale of one or more of our products > Restrictions on our ability to sell our products at a profit > Unexpected additional costs required to produce, market or sell our products > Increased compliance costs	> Local operations in most of our key markets > Strong oversight of local regulatory requirements to help anticipate potential changes to the regulatory environments in which we operate > Representation and/or affiliation with local industry bodies >
Commercialisation of new products
> Delays in the receipt of marketing approvals, the authorisation of price and re-imbursement > Lack of approval and acceptance of new products by physicians, patients and other key decision-makers > Inability to confirm safety, efficacy, convenience and/or cost-effectiveness of our products as compared to competitive products > Inability to participate in tender sales	> Slowdown in revenue growth from new products > Inability to deliver a positive return on investments in R&D, manufacturing and sales and marketing	> Experienced regulatory teams able to accelerate submission processes across all of our markets > Highly qualified sales and marketing teams across all markets > A diversified product pipeline with over 60 new compounds pending approval, covering a broad range of therapeutic areas > A systematic commitment to quality that helps to secure approval and acceptance of new products and mitigate potential safety issues
Product development
> Failure to secure new products or compounds for development, either through internal research and development efforts, in-licensing, or acquisition	> Inability to grow sales and increase profitability for the Group > Lower return on investment in research and development	> Experienced and successful in-house research and development team > Strong business development team > Track record of building in-licensed brands
Partnerships
> Inability to renew or extend in-licensing or other partnership agreements with a third-party	> Loss of products from our portfolio > Revenue interruptions > Failure to recoup sales and marketing and business development costs	> Long-term relationships with existing in-licensing partners > Experienced legal team capable of negotiating robust agreements with our licensing partners > Continuous development of new licensing partners > Diverse revenue model with in-house research and development capabilities
Disruptions in the manufacturing supply chain
> Inability to procure active ingredients from approved sources > Inability to procure active ingredients on commercially viable terms > Inability to procure the quantities of active ingredients needed to meet market requirements > Inability to supply finished product to our customers in a timely fashion	> Inability to develop and/or commercialise new products > Inability to market existing products as planned > Lost revenue streams on short notice > Reduced service levels and damage to customer relationships	> Alternate approved suppliers of active ingredients > Long-term relationships with reliable raw material suppliers > Corporate auditing team continuously monitors regulatory compliance of API suppliers > Focus on improving service levels and optimising our supply chain
Economic and political and unforeseen events
> The failure of control, a change in the economic conditions or political environment or sustained civil unrest in any particular market or country > Unforeseen events such as fire or flooding could cause disruptions to manufacturing or supply	> Disruptions to manufacturing and marketing plans > Lost revenue streams > Inability to market or supply products	> Geographic diversification, with 15 manufacturing facilities and sales in more than 40 countries > Product diversification, with 423 products and 817 dosage strengths and forms
Litigation
> Commercial, product liability and other claims brought against the Group	> Financial impact on Group results from damages awards > Reputational damage	> In-house legal counsel with relevant jurisdictional experience

Financial risks

Risk	Impact	Mitigation
Foreign exchange risk
> Exposure to foreign exchange movements, primarily in the European, Algerian, Sudanese and Egyptian currencies	> Fluctuations in the Group's net asset values and profits upon translation into US dollars	> Entering into currency derivative contracts where possible > Foreign currency borrowing > Matching foreign currency revenues to costs
Interest rate risk
> Volatility in interest rates	> Fluctuating impact on profits before taxation	> Optimisation of fixed and variable rate debt as a proportion of our total debt > Use of interest rate swap agreements
Credit Risk
> Inability to recover trade receivables > Concentration of significant trade balances with key customers in the MENA region and the US¹	> Reduced working capital funds > Risk of bad debt or default	> Clear credit terms for settlement of sales invoices > Group Credit policy limiting credit exposures > Use of various financial instruments such as letters of credit, factoring and credit insurance arrangements
Liquidity Risk
> Insufficient free cash flow and borrowings headroom	> Reduced liquidity and working capital funds > Inability to meet short-term working capital needs and, therefore, to execute our long term strategic plans	> Continual evaluation of headroom and borrowing > Committed debt facilities > Diversity of institution, subsidiary and geography of borrowings
Tax
> Changes to tax laws and regulations in any of the markets in which we operate	> Negative impact on the Group's effective tax rate > Costly compliance requirements	> Close observation of any intended or proposed changes to tax rules, both in the UK and in other key countries where the Group operates

This information is provided by RNS

The company news service from the London Stock Exchange

END

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