Interim Results

RNS Number : 6588R

Hikma Pharmaceuticals Plc

26 August 2010

 



PRESS RELEASE                                                                        

Hikma delivers strong H1 results, with revenue up 11.3% and adjusted operating profit up 20.2%

London, 26 August 2010 - 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 2010.

Summary P&L $ million	H1 2010	H1 2009	Change
Revenue	357.7	321.5	+11.3%
Gross profit	178.5	151.2	+18.1%
Operating profit	74.3	57.2	+29.9%
Adjusted operating profit ¹	73.2	60.9	+20.2%
Profit attributable to shareholders	54.7	43.2	+26.6%
Adjusted profit attributable to shareholders ¹	52.8	46.4	+13.8%
Diluted earnings per share (cents)	27.9	22.3	+25.1%
Adjusted diluted earnings per share (cents) ¹	26.9	23.9	+12.6%
Dividend per share (cents)	5.5	4.5	+22.2%
Net cash flow from operating activities	63.0	36.2	+74.0%

¹Before the amortisation of intangible assets (excluding software) of $3.7 million and exceptional items, which include a non-recurring gain of $7.2 million arising from the revaluation of the previously held interests in the Tunisian company Ibn Al Baytar and the Algerian company Al Dar Al Arabia, and transaction costs of $2.3 million related to these acquisitions.

H1 2010 highlights

·      Group revenue up 11.3% and adjusted operating profit up 20.2%, delivering continuous growth through diversification

·      Gross margin improved to 49.9% compared to 47.0% in H1 2009

·      Adjusted operating margin increased to 20.5% compared to 18.9% in H1 2009 while investing for future growth

·      Continued new product delivery across all countries and markets - launched 70 products and received 33 product approvals - and new in-licensing partners, including South Korea's Celltrion for biosimilars

·      Excellent working capital management, with net cash flow from operating activities up 74.0% to $63.0 million

·      Successfully completed acquisitions in Tunisia and Algeria, strengthening our presence and capabilities in the MENA region

·      Strong balance sheet with relatively stable net debt of $123.6 million compared to $116.9 million as of 31 December 2009

·      Received FDA approval for the manufacture of oncology products at our injectable plant in Germany

Said Darwazah, Chief Executive Officer of Hikma, said:

"We delivered another strong set of results during the first half of 2010. Our Generic and Injectables businesses have performed very well, with exceptional sales and profitability in Generics and a strong performance in US Injectables.  Branded sales were stable and we expect stronger sales in the second half of the year in this business.

The excellent first half performance of the Group overall reflects the strength and diversity of our business and we remain confident that we will achieve our target of low teens revenue growth for the full year with improved gross margin compared to 2009."

Enquiries

Hikma Pharmaceuticals PLC                                                               [phone]

Susan Ringdal, Investor Relations Director                  

Financial Dynamics                                                                               [phone]

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 2009, Hikma achieved revenues of  $637 million and profit attributable to shareholders of $78 million.  For news and other information, please visit www.hikma.com.

A presentation for analysts will take place today at 09:00 at Financial Dynamics.  Please call Mo Noonan for details on [phone]. 

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

Interim management report

Group performance

Revenue for the Group increased by 11.3% to $357.7 million, compared to $321.5 million in the first half of 2009.  During the period, we had an exceptionally strong performance in our Generics business, while at the same time we delivered improved sales in our Injectables business and stable Branded sales. 

Group revenues by business segment

	H1 2010	H1 2009
Branded	54.2%	59.2%
Injectables	20.8%	21.1%
Generics	24.4%	19.2%
Group revenues by region
	H1 2010	H1 2009
MENA	61.0%	68.0%
US	28.0%	20.9%
Europe and rest of world	11.0%	11.1%

The Group's gross profit increased by 18.1% to $178.5 million, compared to $151.2 million in the first half of 2009.  Group gross margin for the first half of 2010 was 49.9%, compared to 47.0% in the first half of 2009.  This resulted primarily from the exceptional improvement in gross profit in our Generics business as well as from higher sales and profitability in our Injectables business.

Adjusted Group operating expenses grew by 16.7% to $105.4 million. This excludes the amortisation of intangible assets (excluding software) of $3.7 million and exceptional items, which include a non-recurring gain of $7.2 million and transaction costs of $2.3 million related to the Algerian and Tunisian acquisitions². The paragraphs below address the Group's main operating expenses in turn.

²See note 13 of the condensed consolidated interim financial statements.

Sales and marketing expenses remained stable as a percentage of sales at 14.7%, reaching $52.7 million for the first half of the year, compared to $47.3 million in the first half of 2009.  This was achieved despite the integration of our Tunisian acquisition, continued investment in our sales force in the MENA region, and enhanced marketing activities in our Branded business. These investments were offset by the significant increase in sales in our Generics business and its relatively lower sales and marketing expenses as a percentage of sales.

General and administrative expenses as a percentage of sales remained stable at 9.8%, increasing by 11.2% to $35.2 million, compared to $31.7 million in the first half of 2009. During the period, we continued to focus on strengthening our corporate functions across the Group. 

Investment in R&D grew by 27.9% to $10.2 million, with total investment in R&D now representing 2.8% of Group revenues, compared to 2.5% in the first half of 2009, reflecting increased investment across all three business segments. 

Other net operating expenses decreased on a reported basis by $0.9 million to $6.1 million. On an adjusted basis, other net operating expenses increased by $4.0 million to $11.0 million.  This increase was due primarily to higher provisions for slow moving items, but also to transactional foreign exchange losses, which resulted mainly from the depreciation of the Algerian Dinar and the Sudanese Pound. 

Operating profit for the Group increased by 29.9% to $74.3 million, compared to $57.2 million in the first half of 2009.  Group operating margin rose to 20.8%, up from 17.8% in the first half of 2009.  On an adjusted basis, Group operating profit increased by 20.2% to $73.2 million and Group operating margins rose to 20.5%. 

Branded

H1 2010 highlights:

·              Branded revenue excluding acquisitions remained stable in H1 2010, reflecting disruptions in Algeria

·              Successful completion of acquisitions in Tunisia and Algeria, strengthening our presence and capabilities in the MENA region

·              On track to meet revenue guidance of low double digit growth for the full year, with stronger sales expected in the second half

Branded revenue increased by 1.9% in the first half of 2010 to $193.8 million.  Ibn Al Baytar, the Tunisian business acquired at the end of March, contributed $3.7 million in sales during the period. 

As previously reported, we experienced disruptions to our operations in Algeria in the first half, particularly at the start of the year, due to government imposed restrictions on imports.  As a result of these restrictions, we were unable to import certain key products and faced delays in the issuance of import licenses.  We experienced price declines on locally produced products and new requirements to sell through confirmed letters of credit also impacted sales. 

Most of these issues have now been addressed.  We have increased the number of products manufactured locally. We continue to transfer the manufacture of products to Algeria and we will be able to re-launch locally produced versions of some restricted products by year end.  We have also made excellent progress in diversifying and strengthening our customer base and product portfolio.  Finally, we have had great success promoting our leading branded generic and in-licensed products.  We are confident that, as a result of these efforts, we are in a much stronger position to accelerate growth in this market. 

During the period we continued to emphasise 'quality sales' across all of our markets, focusing on new product promotion, developing our market position in leading products and therapeutic areas, and improving the credit quality of our customer base.  These efforts are delivering results, with strong growth in many of our leading branded generic and in-licensed products. 

We expect to see strong growth in the second half in most of our markets.  In Egypt, we expect to benefit from the significant increase in the number of sales representatives and new product launches, while in Jordan, growth will be driven by the continued restructuring of our distribution channels and focus on quality customers.  Strong demand for our leading branded generic and in-licensed products and an increase in tender sales will also contribute to stronger sales across the Branded business.

In the first half, we successfully completed two acquisitions, strengthening our presence and capabilities in the MENA region. ³  In March, we took a controlling equity interest in the Tunisian pharmaceutical company Société D'Industries Pharmaceutiques Ibn Al Baytar, enabling us to accelerate our penetration of the fast growing Tunisian market.  In April, the Group agreed to acquire the remaining 50% of the issued share capital of Al Dar Al Arabia that we did not already own.  The Al Dar Al Arabia plant is expected to be operational by the end of 2011.  It will double Hikma's manufacturing capacity in Algeria and will provide significant scope for further expansion, both in Algeria and across the region. 

³For more details on these acquisitions, please see note 13 of the condensed consolidated interim financial statements.

Revenue from in-licensed products grew by 8.8% in the first half to $82.6 million, representing 42.6% of Branded sales in the first half of 2010.  Key in-licensed products like Actos® and Blopress® continued to perform extremely well.  During the period, we continued our efforts to develop our portfolio of in-licensed products through partnerships. In April 2010 we announced a strategic investment in biosimilars through a partnership with the South Korean company Celltrion.  Under this agreement Hikma will have the exclusive rights to distribute and market nine biosimilar products, which are currently under development, throughout the MENA region under its own brand. This agreement and others signed during the period demonstrate our position as the partner of choice in the MENA region and represent excellent sources of growth for the medium-term.

During the first half of 2010, the Branded business launched a total of 50 products across all markets, including seven new compounds and eight new dosage forms and strengths.  The Branded business also received 16 regulatory approvals across the region, including one for a new product.

Gross profit in the Branded business was relatively stable at $102.2 million, compared to $100.9 million in the first half of 2009.  Branded gross margin reached 52.7%, compared to 53.0% in the first half of 2009. 

The combination of stable Branded sales against an increase in provisions for slow moving items and transactional foreign exchange losses, totalling $3.4 million, combined with continued investment in our sales force in the MENA region, which included an overall increase of more than 100 sales representatives, has had a short term impact on the Branded operating profit and margin.    As a consequence, adjusted operating profit in the Branded business decreased by 10.5% to $49.5 million, compared to $55.2 million in the first half of 2009. Adjusted operating margin was 25.5%, compared to 29.0% in the first half of 2009. 

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 low double digit revenue growth for the full year with full year operating margins slightly lower than 2009, excluding exceptional items.

Injectables

H1 2010 highlights:

•              Injectables revenue up 10.0% to $74.5 million on the back of strong sales in the US and increasing demand for contract manufacturing

•              Operating margin increased to 14.2% from 13.2% reflecting improving economies of scale

Injectables revenue by region

	H1 2010	H1 2009
MENA	40.0%	47.6%
US	17.4%	8.1%
Europe and ROW	42.6%	44.3%

Revenue in our global Injectables business increased by 10.0% to $74.5 million, compared to $67.7 million in the first half of 2009.  US injectables sales more than doubled to reach $13.0 million, compared to $5.5 million in the first half of 2009.  Growth was driven by good demand for existing products, the successful launch of new products and an increasing demand for contract manufacturing.

European Injectables sales reached $31.7 million in the first half, up 5.7% from $30.0 million in the first half of 2009, despite the negative impact of regulatory changes, primarily in the German market. Growth was driven by our existing product portfolio and by increased demand for contract manufacturing. 

In the MENA region, Injectables sales declined by 7.5% to $29.8 million, compared to $32.2 million in the first half of 2009.  This decline is mainly attributed to the timing of orders in both the private and tender markets.  As in 2009, we expect strong growth in the second half as we start benefiting from new tender contracts and order deliveries in newer markets such as Iraq.

During the first half, our injectable facility in Germany, which manufactures lyophilized and liquid injectable products for both oncology and non-oncological uses, was inspected and approved by the US FDA. This represents an important step in the process of registering our oncology products in both the US and Europe and reinforces our excellent track record for quality. 

During the first half of 2010, the Injectables business launched a total of 20 products across all markets, including nine new compounds and 20 new dosage forms and strengths.  The Injectables business also received a total of 16 regulatory approvals across all regions and markets, including eight in MENA, four in Europe and four in the US.

Injectables gross profit increased by 17.3% to $34.3 million, compared to $29.2 million in the first half of 2009, with gross margin increasing to 46.1%, compared to 43.2% in the first half of 2009.  The increase in margin reflects improving economies of scale as we drive higher sales in the US and Europe, a more efficient management of overheads and an improving sales mix.

Injectables operating profit increased by 18.0% to $10.6 million, compared to $8.9 million in the first half of 2009.  Injectables operating margin improved to 14.2%, up from 13.2% in the first half of 2009.

We anticipate a stronger performance in Injectables in the second half, when we expect to benefit from a pick up in MENA sales alongside continued growth in the US and Europe.

Generics

H1 2010 highlights:

·           Generics revenue up 41.1% to $87.2 million

·           Robust demand across the core product portfolio delivers strong sales and profitability

·           Exceptional sales in certain products enhance segment results

Our Generics business delivered exceptional results in the first half, with revenue growth of 41.1% to $87.2 million, compared to $61.8 million in the first half of 2009.  This performance reflects strong demand for our top products as well as a substantial increase in sales resulting from our ability to take advantage of attractive market opportunities in certain products as they arise.

We continue to leverage our global manufacturing capabilities and now produce 11 products in 55 dosage forms and strengths in the MENA region for sale in the US market.  These products represented 17.2% of Generics sales during the period.  We saw strong demand for some of our anti-infective products, which we were able to meet following the investment we have made in our FDA-approved manufacturing facilities in the MENA region. 

During the first half of 2010, the Generics business received one ANDA approval.

Generics gross profit doubled to $41.8 million, compared to $20.9 million in the first half of 2009 enabling gross margin to reach 47.9% compared to 33.8% in the first half of 2009.  This reflects  the significant increase in sales against relatively small increases in costs.  Generics operating profit increased by 185.7% to $26.1 million, compared to $9.1 million in the first half of 2009.  Operating margin increased to 30.0%, up from 14.8%.  This significant improvement results from the exceptional performance of certain products as well as good profitability from the core product portfolio.  For the second half of the year, and going forward, we do not expect this exceptional performance to continue.

Based on the performance that we have achieved in the Generics business in the first half of 2010 and the outlook for the second half of the year, we now expect Generics revenue growth of at least 20% for the full year. 

Other businesses

Other businesses, which comprise primarily Arab Medical Containers, a manufacturer of plastic specialised packaging, and International Pharmaceuticals Research Centre, which conducts bio-equivalency studies, contributed revenues of $2.2 million, compared to aggregate revenue of $1.9 million in the first half of 2009. 

These other businesses delivered an operating loss of $1.9 million in the first half of 2010, remaining at the same level as in the first half of 2009.

Research & Development 

Products 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.

The Group's product portfolio continues to grow.  During the first half of the year, we launched        16 new compounds, expanding the Group portfolio to 395 compounds in 811 dosage forms and strengths.  We manufacture and/or sell 40 of these compounds under-license from the originator.

Across all businesses and markets, a total of 70 products were launched during the first half.  In addition, the Group received 33 approvals. 

	Total marketed products		Products launched in H1 2010
	Compounds	Dosage forms and strengths	New compounds	New dosage forms and strengths	Total launches across all countries
Branded	252	480	7	8	50
Injectables	94	223	9	20	20
Generics	49	108	0	0	0
Group	395	811	16	28	70

	Products approved in H1 2010				Products pending approval as at 30 June 2010
	New compounds		New dosage forms and strengths	Total approvals across all countries	New compounds	New dosage forms and strengths	Total pending approvals across all countries
Branded	1		2	16	47	96	268 6
Injectables	7		9	16	33	50	281 6
Generics	1		1	1	23	30	30
Group	9		12	33	103	176	579

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

⁶ 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 104 regulatory filings in the first half of the year across all regions and markets.  As of 30 June 2010, we had a total of 579 pending approvals across all regions and markets. 

At 30 June 2010, we had a total of 64 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 decreased slightly to $6.4 million, compared to $6.7 million in the first half of 2009 due to lower net debt as explained in the net cash flow from operating activities and investment section below.

Profit before tax

Profit before tax for the Group increased by 33.7% to $67.5 million, compared to $50.5 million in the first half of 2009. Adjusted profit before tax increased by 22.5% to $66.4 million.

Tax

The Group incurred a tax expense of $12.9 million in the first half, compared to $6.5 million in the first half of 2009.  The effective tax rate was 19.1%, compared to 12.9% in the first half of 2009.  The increase in the tax rate is mainly attributable to the significant increase in profitability in the US.

Profit for the period

The Group's profit attributable to equity holders of the parent increased by 26.6% to $54.7 million in the first half of 2010.  Adjusted profit attributable to equity holders of the parent increased by 13.8% to $52.8 million.

Earnings per share

Diluted earnings per share increased by 25.1% to 27.9 cents, compared to 22.3 cents in the first half of 2009.   Adjusted diluted earnings per share were 26.9 cents, an increase of 12.6% over the first half of 2009.

Dividend

The Board has declared an interim dividend of 5.5 cents per share (approximately 3.6 pence per share), compared to 4.5 cents per share for the first half of 2009.  The interim dividend will be paid on 14 October 2010 to eligible shareholders on the register at the close of business on 10 September 2010. The ex-dividend date is 8 September 2010 and the final date for currency elections is 17 September 2010.

Net cash flow from operating activities and investment

The Group achieved an overall improvement in its working capital indicators. Group receivable days decreased by eight days compared to 30 June 2009, from 115 days to 107 days as at 30 June 2010. Inventory days decreased by four days to 175 days and payable days improved by 12 days from 65 days to 77 days. These improvements are a reflection of our continued focus on improving collections, improving supplier payment terms and a leaner supply chain.

Working capital improvements coupled with improved profitability in the US led to a significant increase in operating cash flow to reach $63.0 million during the first half, compared to $36.2 million during the first half of 2009.

Capital expenditures increased to $23.4 million, compared to $15.9 million in the first half of 2009, reflecting primarily increased investment in new machinery and expansion projects in MENA, the completion of our new lyophilisation facilities in Portugal and machinery upgrades in the US.

As a result, net debt decreased from $164.4 million at 30 June 2009 to $123.6 million at 30 June 2010, maintaining the Group in a very strong financing position.   Net debt on 31 December 2009 stood at $116.9 million.

Balance sheet

During the period, shareholders equity was impacted by a $28.9 million unrealised decrease in the translation reserve.  This decrease reflects primarily the Euro/USD spot rate, which has declined by nearly 15% as of 30 June 2010 (1.2208) compared to 31 December 2009 (1.4333), and is the result of the revaluation of net assets denominated in currencies other than US dollars. 

Outlook

The strong performance of the Group in the first half reflects the strength and diversity of our business and we remain on track to meet our full year target of low teens revenue growth for the Group.  We are expecting a strong second half in the MENA region, in both our Injectables and Branded businesses, and we expect our Generics business to continue to perform well. Given the strength of the Group's gross profit in the first half, we now expect to deliver improved gross margin for the Group for the full year, compared to 2009.

Principal risks and uncertainties

The Group's business faces risks and uncertainties which could have a significant effect on its financial condition, results of operation or performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The Directors do not consider that the principal risks and uncertainties, which are summarised below, have changed materially since the publication of the Annual Report & Accounts for the year ended 31 December 2009 (see pages 37 to 39), which is available at www.hikma.com.

Operational risks

Regulation

Hikma is subject to extensive regulation on the approval, manufacture and distribution of its products in all its markets. There is no single worldwide harmonised set of regulations relating to the development, manufacture and sale of pharmaceutical products, and these laws and regulations may be subject to unexpected change. This can increase the overall cost of bringing products to market,  delay full penetration of products into all markets and disrupt production.

 Economic and political dynamics

The Group operates in emerging markets. A change in the economic conditions or political environment or sustained civil unrest in any particular market or country could disrupt product development, manufacturing or marketing activities and adversely affect the financial condition of the Group.

Interruption of production

The Group's manufacturing facilities could be disrupted for reasons beyond the Group's control such as fire, work force actions, disruption to the supply chain or other issues. Non-compliance with current Good Manufacturing Practices (cGMP) could disrupt operations or delay approval for new products.

Suppliers and Partnerships

The Group benefits from close commercial relationships with a number of key customers, partners and suppliers. Damage to or loss of any of these relationships could have a direct and detrimental effect on the Group's results. Compliance or other failure by any of our regulated suppliers or partners could lead to delays in production or increased costs or liabilities.

R&D and commercialisation of new products 

Group results may be impacted significantly by the timeliness of its research and development and product commercialisation activities.  Additional costs may be incurred, and sales opportunities lost, if there is a significant delay in the development, licensing, acquisition or regulatory approval of new products. 

Competitors

The Group operates in highly competitive markets with significant product innovations and is subject to the risk of competitors entering those markets with an efficacy, convenience or pricing advantage over an existing product.

Litigation

There is a risk that claims brought by third parties (consumers, competitors and suppliers, amongst others) could have a financial or reputational impact on the Group.

Financial risks

Group Treasury is responsible for Financial Risk Management and setting the appropriate controls and risk policies. Group Treasury is supported by treasury departments at the operating company and segmental levels, and reports to the Chief Financial Officer.

Foreign exchange risk

The Group uses the US Dollar as its reporting currency and is therefore exposed to foreign exchange movements, primarily in the European, Algerian, Sudanese, Egyptian and Tunisian currencies, which could materially affect the Group's financial results. 

Interest rate risk

The Group manages its exposures to interest rate risks by changing the proportion of fixed rate debt and variable rate debt in its total debt portfolio. To manage this mix the Group may enter into interest rate swap agreements, in which it exchanges the periodic payments based on notional amounts and agreed upon fixed and variable interest rates.

Credit Risk

In most cases, the Group grants its buyers credit terms for settlement of sales invoices.  Credit risk is managed through the Group Credit policy and the use of various financial instruments such as letters of credit, factoring and credit insurance arrangements. As at 30 June 2010, the Group has concentration of risk arising from significant balances with key customers in the MENA region and the US.

 Liquidity Risk

The Group has constant financing requirements, both for short-term working capital needs and for long term strategic plans. The principal terms of the Group's committed debt facilities and the Directors' view on the sufficiency of those facilities are described in note 2 to the condensed interim financial statements.

Tax

The Group operates in many markets each of which has individual tax laws and regulations. Actual or potential changes are monitored to understand how they could affect the tax rate of the Group.

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

26 August 2010

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 2010 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 14. 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 2010 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 Registered Auditors

London, United Kingdom

25 August 2010

Hikma Pharmaceuticals PLC

Condensed consolidated statement of comprehensive income

			H1 2010		H1 2009		FY 2009
	Notes		$000's (Unaudited)		$000's (Unaudited)		$000's (Audited)
Continuing operations
Revenue	3		357,694		321,495		636,884
Cost of sales	3		(179,187)		(170,312)		(332,459)
Gross profit	3		178,507		151,183		304,425
Sales and marketing costs			(52,692)		(47,303)		(98,083)
General and administrative expenses			(35,230)		(31,674)		(66,677)
Research and development costs			(10,173)		(7,956)		(16,843)
Other operating expenses (net)			(6,134)		(7,036)		(15,529)
Total operating expenses			(104,229)		(93,969)		(197,132)
Adjusted operating profit			73,154		60,930		114,742
Exceptional items
- Acquisition related expenses	11		(2,306)		-		-
- Gains on revaluation of previously held equity interests	11		7,176		-		-
Intangible amortisation*	11		(3,746)		(3,716)		(7,449)
Operating profit			74,278		57,214		107,293
Finance income			97		226		514
Finance expense			(6,519)		(6,923)		(12,827)
Other expense			(382)		(64)		(193)
Profit before tax			67,474		50,453		94,787
Tax	4		(12,856)		(6,493)		(15,469)
Profit for the period			54,618		43,960		79,318
Attributable to:
Non-controlling interests			(53)		730		1,635
Equity holders of the parent			54,671		43,230		77,683
			54,618		43,960		79,318
Earnings per share (cents)
Basic	6		28.5		22.8		40.9
Diluted	6		27.9		22.3		40.1
Adjusted basic	6		27.5		24.5		44.1
Adjusted diluted	6		26.9		23.9		43.2
Cumulative effect of change in fair value of available for sale investments			41		18		2
Cumulative effect of change in fair value of  financial derivatives			(180)		26		(202)
Exchange difference on translation of foreign operations			(28,850)		(3,552)		1,364
Total comprehensive income for the period			25,629		40,452		80,482
Attributable to:
Non-controlling interests			(633)		390		1,586
Equity holders of the parent			26,262		40,062		78,896
			25,629		40,452		80,482

On this page and throughout this interim financial information "H1 2010" refers to the six months ended 30 June 2010, "H1 2009" refers to the six months ended 30 June 2009 and "FY 2009" refers to the year ended 31 December 2009.

* 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		2010		2009		2009
			$000's		$000's		$000's
Non-current assets			(Unaudited)		(Unaudited)		(Audited)
Intangible assets			265,521		254,746		255,696
Property, plant and equipment			301,710		273,922		283,371
Interest in joint venture			-		5,453		5,451
Deferred tax assets			19,953		18,438		18,793
Available for sale investments			583		557		542
Financial and other non-current assets			548		2,030		2,270
			588,315		555,146		566,123
Current assets
Inventories	7		171,445		166,635		160,509
Trade and other receivables	8		238,944		229,231		226,841
Collateralised cash			7,045		1,025		2,334
Cash and cash equivalents			60,996		50,526		65,663
Other current assets			1,043		1,165		1,251
			479,473		448,582		456,598
Total assets			1,067,788		1,003,728		1,022,721
Current liabilities
Bank overdrafts and loans			85,680		101,550		60,317
Obligations under finance leases			1,112		708		1,826
Trade and other payables	9		117,817		104,094		107,618
Income tax provision			12,069		12,824		14,857
Other provisions			7,572		5,452		6,153
Other current liabilities			22,980		7,082		13,671
			247,230		231,710		204,442
Net current assets			232,243		216,872		252,156
Non-current liabilities
Long-term financial debts			98,543		108,340		116,119
Deferred income			348		588		494
Obligations under finance leases			6,334		5,358		6,675
Deferred tax liabilities			13,593		12,353		11,734
			118,818		126,639		135,022
Total liabilities			366,048		358,349		339,464
Net assets			701,740		645,379		683,257
Equity
Share capital			34,501		34,010		34,236
Share premium			275,203		270,900		272,785
Own shares			(2,251)		(2,203)		(2,203)
Other reserves			387,517		336,496		371,067
Equity attributable to equity holders of the parent			694,970		639,203		675,885
Non-controlling interest			6,770		6,176		7,372
Total equity			701,740		645,379		683,257

Hikma Pharmaceuticals PLC

Condensed consolidated statement of changes in equity

	Merger reserve $000's	Revalua-tion reserves $000's	Translation reserves $000's	Retained earnings $000's	Total reserves $000's	Share capital $000's	Share premium $000's	Own shares $000's	Total equity attributable to equity shareholders of the parent $000's	Non-controlling interest $000's	Total equity $000's
Balance at 1 January 2009 (Audited)	33,920	4,447	4,338	257,798	300,503	33,857	269,973	(1,124)	603,209	5,786	608,995
Profit for the period	-	-	-	43,230	43,230	-	-	-	43,230	730	43,960
Cumulative effect of change in fair value of available for sale investments	-	-	-	18	18	-	-	-	18	-	18
Cumulative effect of change in fair value of  financial derivatives	-	-	-	26	26	-	-	-	26	-	26
Realisation of revaluation reserve	-	(91)	-	91	-	-	-	-	-	-	-
Currency translation loss	-	-	(3,212)	-	(3,212)	-	-	-	(3,212)	(340)	(3,552)
Total comprehensive income for the period	-	(91)	(3,212)	43,365	40,062	-	-	-	40,062	390	40,452
Issue of equity shares	-	-	-	-	-	153	927	-	1,080	-	1,080
Acquisition of own shares	-	-	-	-	-	-	-	(1,079)	(1,079)	-	(1,079)
Cost of equity settled employee share scheme	-	-	-	2,170	2,170	-	-	-	2,170	-	2,170
Deferred tax arising on share-based payments	-	-	-	1,336	1,336	-	-	-	1,336	-	1,336
Dividends on ordinary shares	-	-	-	(7,575)	(7,575)	-	-	-	(7,575)	-	(7,575)
Balance at 30 June 2009 (Unaudited)	33,920	4,356	1,126	297,094	336,496	34,010	270,900	(2,203)	639,203	6,176	645,379
Balance at 1 January 2009 (Audited)	33,920	4,447	4,338	257,798	300,503	33,857	269,973	(1,124)	603,209	5,786	608,995
Profit for the year	-	-	-	77,683	77,683	-	-	-	77,683	1,635	79,318
Cumulative effect of change in fair value of available for sale investments	-	-	-	2	2	-	-	-	2	-	2
Cumulative effect of change in fair value of  financial derivatives	-	-	-	(202)	(202)	-	-	-	(202)	-	(202)
Realisation of revaluation reserve	-	(181)	-	181	-	-	-	-	-	-	-
Currency translation gain/(loss)	-	-	1,413	-	1,413	-	-	-	1,413	(49)	1,364
Total comprehensive income for the year	-	(181)	1,413	77,664	78,896	-	-	-	78,896	1,586	80,482
Issue of equity shares	-	-	-	-	-	379	2,812	-	3,191	-	3,191
Acquisition of own shares	-	-	-	-	-	-	-	(1,079)	(1,079)	-	(1,079)
Cost of equity settled employee share scheme	-	-	-	4,616	4,616	-	-	-	4,616	-	4,616
Deferred tax arising on share-based payments	-	-	-	3,170	3,170	-	-	-	3,170	-	3,170
Dividends on ordinary shares	-	-	-	(16,118)	(16,118)	-	-	-	(16,118)	-	(16,118)
Balance at 31 December 2009 (Audited)	33,920	4,266	5,751	327,130	371,067	34,236	272,785	(2,203)	675,885	7,372	683,257
Profit/(loss) 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	-	-	-
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

Hikma Pharmaceuticals PLC

Condensed consolidated cash flow statement

	Note		H1 2010		H1 2009		FY 2009
			$000's (Unaudited)		$000's (Unaudited)		$000's (Audited)
Net cash from operating activities	10		63,000		36,246		118,979
Investing activities
Purchases of property, plant and equipment			(23,354)		(14,325)		(35,170)
Proceeds from disposal of property, plant and equipment			785		246		1,080
Purchase of intangible assets			(1,156)		(2,067)		(5,213)
Proceeds from disposal of intangible assets			-		738		1,316
Investment in joint venture			-		-		2
Investment in financial and other non current assets			6		46		(193)
Proceeds from available for sale investments (net)			-		1		-
Acquisition of subsidiary undertakings, net of cash acquired			(22,796)		-		-
Finance income			97		226		514
Net cash used in investing activities			(46,418)		(15,135)		(37,664)
Financing activities
Increase in collateralised cash			(4,609)		(206)		(1,515)
Increase in long-term financial debts			12,758		30,768		39,275
Repayment of long-term financial debts			(32,465)		(15,842)		(33,570)
Increase/(decrease) in short-term borrowings			18,271		(32,750)		(56,983)
(Decrease)/increase in obligations under finance leases			(1,557)		(650)		1,784
Dividends paid			(12,474)		(7,574)		(16,118)
Purchase of own shares			(108)		(1,079)		(1,079)
Interest paid			(6,320)		(6,992)		(13,461)
Proceeds from issue of new shares			2,683		1,080		3,191
Net cash used in financing activities			(23,821)		(33,245)		(78,476)
Net (decrease)/increase in cash and cash equivalents			(7,239)		(12,134)		2,839
Cash and cash equivalents at beginning of period			65,663		62,727		62,727
Foreign exchange translation movement			2,572		(67)		97
Cash and cash equivalents at end of period			60,996		50,526		65,663

Hikma Pharmaceuticals PLC

Notes to the condensed set of financial statements

1.         General information

The financial information for the year ended 31 December 2009 does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2009, 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 2010 have been prepared using the same accounting policies and on a basis consistent with the audited results for the year ended 31 December 2009, other than as noted below. 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 25 August 2010.

Going concern

The Group has $374 million of banking facilities of which $182.5 million were undrawn as at 30 June 2010. 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 $68 million as at 30 June 2010. 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 well within the levels of its facilities and their related covenants.

Although the current economic conditions may affect short-term demand for our products, as well as place pressure on customers and suppliers which may face liquidity issues, the Group's geographic spread, product diversity and 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.

2.         Accounting policies (continued)

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, except as described below.

In the current financial year, the Group has adopted International Financial Reporting Standard 3 "Business Combinations" (revised 2008) and International Accounting Standard 27 "Consolidated and Separate Financial Statements" (revised 2008).

The most significant changes to the Group's previous accounting policies for business combinations are as follows:

·          Acquisition related costs which previously would have been included in the cost of a business combination are included in other operating income/(expense) as they are incurred;

·          Any previously held equity interest in the entity acquired is remeasured to fair value at the date of obtaining control, with any resulting gain or loss recognised as a profit or loss;

·          Any changes in the Group's ownership interest subsequent to the date of obtaining control are recognised directly in equity, with no adjustment to goodwill; and

·          Any changes to the cost of an acquisition, including contingent consideration, resulting from events after the date of acquisition are recognised as a profit or loss. Previously, such changes resulted in an adjustment to goodwill.

The revised standards have been applied to the acquisition of Societe D'industries Pharmaceutiques Ibn Al Baytar S.A. (Ibn Al Baytar) and Al Dar al Arabia as described in note 13. The result has been a total gain of $7,176,000 due to the remeasurement to fair value of the previously held equity interests and transaction costs totalling of $2,306,000 have been expensed  to other operating income/(expense). Both the gain and the transaction costs have been classified as exceptional item as described in note 11.

Any adjustments to contingent consideration for acquisitions made prior to 1 January 2010 which result in an adjustment to goodwill continue to be accounted for under IFRS 3(2004) and IAS 27 (2005), for which the accounting policies can be found in the Group's latest annual audited financial statements. There have been no such adjustments into the period to 30 June 2010.

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

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 2010 (unaudited)

	Branded		Injectables		Generic		Others		Group
	$000's		$000's		$000's		$000's		$000's
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 :
- Acquisition related expenses	(2,306)		-		-		-		(2,306)
- Gains on revaluation of previously held equity interests	7,176		-		-		-		7,176
Intangible amortisation*	(2,302)		(1,283)		(161)		-		(3,746)
Segment result	52,028		10,553		26,125		(1,935)		86,771
Unallocated corporate expenses									(12,493)
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

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

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

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

3.         Business and geographical segments (continued)

Other Information 30 June 2010 (unaudited)

		Branded		Injectables		Generic		Others		Group
		$000's		$000's		$000's		$000's		$000's
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 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
Total assets
Segment assets		766,483		164,463		118,475		18,367		1,067,788
Total liabilities
Segment liabilities		260,265		73,852		19,743		12,188		366,048

 

Six months ended 30 June 2009 (unaudited)

	Branded		Injectables		Generic		Others		Group
	$000's		$000's		$000's		$000's		$000's
Revenue	190,179		67,689		61,775		1,852		321,495
Cost of sales	(89,324)		(38,453)		(40,894)		(1,641)		(170,312)
Gross profit	100,855		29,236		20,881		211		151,183
Result
Adjusted segment result	55,233		10,381		9,209		(1,934)		72,889
Intangible amortisation*	(2,210)		(1,440)		(66)		-		(3,716)
Segment result	53,023		8,941		9,143		(1,934)		69,173
Unallocated corporate expenses									(11,959)
Operating profit									57,214
Finance income									226
Finance expense									(6,923)
Other expense									(64)
Profit before tax									50,453
Tax									(6,493)
Profit for the period									43,960
Attributable to:
Non-controlling interest									730
Equity holders of the parent									43,230
									43,960

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

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

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

3.             Business and geographical segments (continued)

Other information 30 June 2009 (unaudited)		Branded		Injectables		Generic		Other		Group
		$000's		$000's		$000's		$000's		$000's
Additions to property, plant and equipment (cost)		9,679		4,332		1,629		215		15,855
Additions/(disposals) to intangible assets		1,426		733		656		(721)		2,094
Total property, plant and equipment and intangible assets (net book value)		336,528		151,262		31,955		8,923		528,668
Depreciation		7,120		2,358		2,331		618		12,427
Amortisation (including software)		2,656		1,408		184		25		4,273
Balance sheet
Total assets
Segment assets		664,165		201,581		117,213		20,769		1,003,728
Total liabilities
Segment liabilities		221,012		87,052		31,599		18,686		358,349

Year ended 31 December 2009 (audited)

	Branded		Injectables		Generic		Others		Group
	$000's		$000's		$000's		$000's		$000's
Revenue	352,674		144,069		135,060		5,081		636,884
Cost of sales	(165,066)		(81,162)		(82,524)		(3,707)		(332,459)
Gross profit	187,608		62,907		52,536		1,374		304,425
Result
Adjusted segment result	96,029		17,859		25,360		(2,345)		136,903
Intangible amortisation*	(4,580)		(2,526)		(343)		-		(7,449)
Segment result	91,449		15,333		25,017		(2,345)		129,454
Unallocated corporate expenses									(22,161)
Operating profit									107,293
Finance income									514
Finance expense									(12,827)
Other expense									(193)
Profit before tax									94,787
Tax									(15,469)
Profit for the year									79,318
Attributable to:
Non-controlling interest									1,635
Equity holders of the parent									77,683
									79,318

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

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

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

3.         Business and geographical segments (continued)

		Branded		Injectables		Generic		Other		Group
Other information 31 December 2009 (audited)		$000's		$000's		$000's		$000's		$000's
Additions to property, plant and equipment (cost)		23,827		9,594		2,925		609		36,955
Additions to intangible assets		1,889		2,591		709		24		5,213
Total property, plant and equipment and intangible assets (net book value)		341,548		157,938		30,815		8,766		539,067
Depreciation		14,715		4,730		4,567		1,187		25,199
Amortisation (including software)		5,509		2,956		434		50		8,949
Balance sheet
Total assets
Segment assets		679,112		204,220		119,093		20,296		1,022,721
Total liabilities
Segment liabilities		203,750		91,104		30,567		14,043		339,464

The following table provides an analysis of the Group's sales by geographic destination:

		Sales revenue by geographical market
		H1 2010		H1 2009		FY 2009
		$000's		$000's		$000's
		(Unaudited)		(Unaudited)		(Audited)
Middle East and North Africa		218,047		218,288		404,689
United States		100,116		67,333		152,406
Europe and Rest of the World		39,243		35,620		78,981
United Kingdom		288		254		808
		357,694		321,495		636,884

4.       Tax                                                                                                                                                                   

		H1 2010		H1 2009		FY 2009
		$000's		$000's		$000's
		(Unaudited)		(Unaudited)		(Audited)
Current tax:
UK current tax		-		570		560
Double tax relief		-		(570)		(560)
Foreign tax		15,007		10,728		19,988
Prior year adjustments		(882)		103		1,035
Deferred tax		(1,269)		(4,338)		(5,554)
		12,856		6,493		15,469

5.       Dividends       

		H1 2010		H1 2009		FY 2009
		$000's		$000's		$000's
		(Unaudited)		(Unaudited)		(Audited)
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2009 of 6.5 cents (2008: 4.0 cents) per share		12,474		7,575		7,575
Interim dividend for the year ended 31 December 2009 of 4.5 cents per share		-		-		8,543
		12,474		7,575		16,118

 

The proposed interim dividend for the period ended 30 June 2010 is 5.5 cents (30 June 2009: 4.5 cents) per share.

6.         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 2010		H1 2009		FY 2009
		$000's		$000's		$000's
		(Unaudited)		(Unaudited)		(Audited)
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent		54,671		43,230		77,683
Exceptional items		(4,870)		-		-
Intangible amortisation*		3,746		3,716		7,449
Tax effect of adjustments		(775)		(580)		(1,531)
Adjusted earnings for the purposes of adjusted basic and diluted earnings per share being adjusted net profit attributable to equity holders of the parent		52,772		46,366		83,601
		Number		Number		Number
Number of shares		'000		'000		'000
Weighted average number of Ordinary Shares for the purposes of basic earnings per share		191,792		189,254		189,757
Effect of dilutive potential Ordinary Shares :
Share options		4,059		4,377		3,968
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share		195,851		193,631		193,725
		H1 2010		H1 2009		FY 2009
		Earnings per share		Earnings per share		Earnings per share
		Cents		Cents		Cents
Basic		28.5		22.8		40.9
Diluted		27.9		22.3		40.1
Adjusted basic		27.5		24.5		44.1
Adjusted diluted		26.9		23.9		43.2

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

7.      Inventories

		H1 2010		H1 2009		FY 2009
		$000's		$000's		$000's
		(Unaudited)		(Unaudited)		(Audited)
Finished goods		55,942		46,048		41,453
Work-in-progress		30,816		23,476		28,074
Raw and packing materials		70,794		87,042		79,040
Goods in transit		13,893		10,069		11,942
		171,445		166,635		160,509

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

8.      Trade and other receivables

		30 June		30 June		31 December
		2010		2009		2009
		$000's		$000's		$000's
		(Unaudited)		(Unaudited)		(Audited)
Trade receivables		210,187		202,512		203,250
Prepayments		19,644		20,024		16,063
Value added tax recoverable		6,383		4,407		5,569
Interest receivable		217		157		49
Employee advances		2,513		2,131		1,910
		238,944		229,231		226,841

9.      Trade and other payables

		30 June		30 June		31 December
		2010		2009		2009
		$000's		$000's		$000's
		(Unaudited)		(Unaudited)		(Audited)
Trade payables		74,675		60,333		57,307
Accrued expenses		30,484		30,310		35,602
Employees' provident fund *		1,943		3,532		4,049
VAT and sales tax payables		3,496		3,625		3,033
Dividends payable **		2,320		2,411		2,348
Social security withholdings		795		775		856
Income tax withholdings		1,434		1,442		1,456
Other payables		2,670		1,666		2,967
		117,817		104,094		107,618

* 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 $2,100,000 (30 June 2009: $2,219,000 and 31 December 2009: $2,165,000) due to the previous shareholders of Arab Pharmaceutical Manufacturing.

10.        Net cash from operating activities

		H1		H1		FY
		2010		2009		2009
		$000's		$000's		$000's
		(Unaudited)		(Unaudited)		(Audited)
Profit before tax		67,474		50,453		94,787
Adjustments for:
Depreciation, amortisation and impairment of:
Property, plant and equipment		14,138		12,428		25,199
Intangible assets		4,657		4,272		8,949
Gain on revaluation of previously held equity interest		(7,176)		-		-
Gains on disposal of property, plant and equipment		57		161		236
Losses/(gains) on disposal of intangible assets		56		(425)		(903)
Movement on provisions		681		386		761
Movement on deferred income		(146)		(107)		(201)
Cost of equity settled employee share scheme		2,090		2,170		4,616
Finance income		(98)		(226)		(514)
Interest and bank charges		6,519		6,923		12,827
Cash flow before working capital		88,252		76,035		145,757
Change in trade and other receivables		(5,152)		(34,137)		(29,949)
Change in other current assets		208		(103)		(190)
Change in inventories		(9,144)		(12,804)		(8,278)
Change in trade and other payables		5,998		20,654		24,262
Change in other current liabilities		817		(3,730)		3,164
Cash generated by operations		80,979		45,915		134,766
Income tax paid		(17,979)		(9,669)		(15,787)
Net cash generated from operating activities		63,000		36,246		118,979

 

11.        Exceptional items and intangible amortisation

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		H1		FY
		2010		2009		2009
		$000's		$000's		$000's
Acquisition related expenses		(2,306)		-		-
Gains on revaluation of previously held equity interests		7,176		-		-
Exceptional items		4,870		-		-
Intangible amortisation *		(3,746)		(3,716)		(7,449)
Exceptional items and intangible amortization		1,124		(3,716)		(7,449)
Tax effect		775		580		1,531
Impact on profit for the period		1,899		(3,136)		(5,918)

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

Acquisition related expenses relate to transaction costs incurred in acquiring Ibn Al Baytar and Al Dar Al Arabia into the Group.  These are included within other operating income/(expense).

Gains on revaluation of previously held equity interests relate 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 are included within other operating income/(expense).  Further details are set out in note 13 "Acquisition of subsidiaries".

12.      Related party balances

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

During the period, the Group 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 29.6% at 30 June 2010 (30 June 2009: 30.1% and 31 December 2009: 29.8%).

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 one board member of the Bank is also a board member of Hikma Pharmaceuticals PLC. Total cash balances at Capital Bank - Jordan were USD 233,000 (30 June 2009: USD 391,000 and 31 December 2009: USD 3,294,000). Loans and overdrafts granted by Capital Bank to the Group amounted to USD 125,000 (30 June 2009: USD 143,000 and 31 December 2009: USD 77,000) with interest rates ranging between 8.25% and 3 month LIBOR + 3. Total interest expense incurred against Group facilities was USD 6,000 (H1 2009: USD 17,000 and FY 2009: USD 28,000). Total interest income received was Nil (H1 2009: Nil and 2009 FY: USD 37,000) and total commission paid in the period was USD 14,000 (H1 2009: USD 9,000 and 2009: USD 17,000).

Jordan International Insurance Co: 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 1,868,000 (H1 2009: USD 516,000 and FY 2009: USD 1,686,000). The Group's insurance expense for Jordan International Insurance Co contracts in the period was USD 1,548,000 (H1 2009: USD 641,000 and FY 2009: USD 2,006,000). The amounts due to Jordan International Insurance Co at 30 June 2010 were USD 74,000 (30 June 2009: USD 99,000 and 31 December 2009: USD 129,000).

Tunisian Companies: were related parties to the Group because the Group used to hold a minority interest in Societe D'Industries Pharmaceutiques Ibn Al Baytar S.A- Tunisia. This company owns another Tunisian company Societe Hikma Medicef Limited - Tunisia, which was therefore a related party as well. During March 2010, the Company increased its equity interest in Societe D'Industries Pharmaceutiques Ibn Al Baytar S.A- Tunisia to a controlling interest. As a result, the results of those companies were consolidated within Hikma Group consolidated financial statements and are therefore no longer considered to be related parties.

In previous periods, amounts due from the two Tunisian companies, net of provisions were 30 June 2009: USD 627,000 and 31 December 2009: USD 491,000 and 30 June 2009: USD 784,000 and 31 December 2009: USD 1,052,000  from Societe Hikma Medicef Limited - Tunisia and Societe D'Industries Pharmaceutiques Ibn Al Baytar S.A. - Tunisia, respectively. The corresponding Group's provision for doubtful debts related to balances above was 30 June 2009: USD 303,000 and 31 December 2009: USD 327,000.

Labatec Pharma: is a related party of the Group because it is owned by Mr. Samih Darwazah. During the period to 30 June 2010 the Group total sales to Labatec Pharma amounted to USD Nil (H1 2009: USD 19,000 and FY 2009: USD 42,000) and the Group total purchases from Labatec amounted to USD 139,000 (H1 2009: USD 186,000 and FY 2009 USD 393,000). At 30 June 2010 the amount owed by Labatec Pharma to the Group was USD 5,000 (30 June 2009: USD Nil and 31 December  2009: USD Nil) while the amount owed to Labatec was USD Nil (30 June  2009: USD 78,000 and 31 December  2009: USD 149,000).

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 2010 was USD 202,000 (30 June 2009: USD 161,000 and 31 December 2009: USD 279,000).

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 2010 fees of USD 47,000 (H1 2009: USD 30,000 and FY 2009: USD 55,000) were paid for legal services provided.

 13.     Acquisition of subsidiaries

During the period, Hikma acquired additional shareholdings in two businesses: Societe D'Industries Pharmaceutiques Ibn Al Baytar ("Ibn Al Baytar")  in Tunisia and Al Dar Al Arabia in Algeria.

Details of the provisional goodwill and gain on the previously held equity interests arising on both acquisitions are as below:

		Goodwill		Gain on the previously held equity interests
Subsidiary		$000's		$000's
Ibn Al Baytar		11,873		2,679
Al Dar Al Arabia		14,986		4,497
		26,859		7,176

The movement in goodwill in the period is as follows:

Cost		$000's
As at 1 January 2010		156,066
Acquisition of subsidiaries		26,859
Translation adjustment		(8,680)
Balance at 30 June 2010		174,245
Amortisation
As at 1 January 2010 and as at 30 June 2010		(608)
Carrying amount at 30 June 2010		173,637

None of the goodwill recognised is expected to be deductible for tax purposes.

Details are as follows:

Ibn Al Baytar

On 26 March 2010 the Group increased its voting equity interest in Ibn Al Baytar from 32.125% to 66% to obtain control and thereby develop its activity in the North Africa region.  In addition 29.05% of the non-controlling interests in the company have waived the voting rights attached to these shares.  A call option over this 29.05% shareholding is held by the other 4.95% non-controlling interest until 24 September 2010.

The total fair value of the consideration is deemed to be $9,295,000, 50% of which is deferred. $5,000,000 is cash consideration and the balance of $4,295,000 has been treated as a financial liability and deemed consideration in accordance with IAS 32 Financial Instruments: Presentation and IFRS 3 revised (2008): Business Combinations.

As a consequence of the transaction, the previously held equity interest was re-valued to $3,164,000. The resulting gain of $2,679,000 has been recognised in other operating income in the period.

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

13.          Acquisition of subsidiaries - continued

Ibn Al Baytar		Book value		Fair value adjustment		Fair value
		$000's		$000's		$000's
Net assets acquired:
Trade name		144		1,063	a	1,207
Cash and cash equivalent		263		-		263
Accounts receivable, net		5,997		-		5,997
Other current assets		1,747		-		1,747
Inventories		3,066		-		3,066
Financial assets		2		-		2
Deferred taxes asset		33		-		33
Property, plant and equipment		6,030		2,173	b	8,203
Financial debts		(7,267)		-		(7,267)
Trade accounts payable		(3,844)		-		(3,844)
Other current liabilities		(1,317)		-		(1,317)
Income tax provision		-		(591)	c	(591)
Provisions		(1,879)		(1,405)	d	(3,284)
Long-term financial debts		(2,535)		-		(2,535)
Deferred taxes liabilities		(92)		(971)	e	(1,063)
Identifiable net assets		348		269		617

Consideration		9,295
Fair value of previously held equity interest (32.125%)		3,164
Non-controlling interest (4.95%)*		31
		12,490
Less: identifiable net assets		(617)
Goodwill		11,873
Consideration is satisfied by :
Cash		4,648
Deferred consideration		4,647
		9,295
Cash  consideration		4,648
Cash  and  cash equivalents acquired		(263)
Net cash outflow arising on acquisition		4,385

*The non-controlling interest has been valued at 4.95% of the fair value of the identifiable net assets.

13.       Acquisition of subsidiaries - continued

Gain on revaluation of previously held interest was calculated as follows:

Ibn Al Baytar		$000's
Fair value of previously held equity interest (32.125%)		3,164
Book value of previously held equity interest (32.125%)		(485)
Gain on revaluation of previously held interest		2,679

a. Seven trade names relating to generic products and an under licence contract have been valued using the relief from royalty method.

b. The property, plant and equipment acquired have been re-valued upwards to their fair value.

c. Certain tax exposures have been identified as a result of open tax positions with the tax authorities.

d. This mainly comprises of retrospective compensation for employees as a result of review by the local authorities with relation to compliance with certain labour laws.  In addition to certain employees related business commitment adhered to before the acquisition date.

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

         The revenue and net profit of Ibn Al Baytar from the date of the acquisition that is included in the Groups' income statement for the year amounted to $3,677,000 and $558,000 respectively.

13.         Acquisition of subsidiaries - continued

Al Dar Al Arabia

On 20 April 2010, the Group completed the acquisition of 100% of the issued share capital of Al Dar Al Arabia for cash consideration of $18,740,000 and deferred consideration of $1,153,000.  The deferred consideration relates to the estimated currency exchange movement payable to the vendor on conversion of the consideration from Algerian Dinars into US Dollars six months after completion.

The Al Dar Al Arabia plant will double Hikma's manufacturing capacity in Algeria and will provide significant scope for further expansion both in Algeria and in the MENA region. As a consequence of the transaction, the previously held equity interest was re-valued to $9,947,000. The resulting gain of $4,497,000 has been recognised in other operating income in the period.

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

Al Dar Al Arabia

		Book value		Fair value adjustment		Fair value
		$000's		$000's		$000's
Net assets acquired:
Cash and cash equivalents		329		-		329
Property, plant and equipment		9,730		6,504	a	16,234
Other current liabilities		(83)		-		(83)
Deferred tax liability		-		(1,626)	b	(1,626)
Identifiable net assets		9,976		4,878		14,854
Consideration						19,893
Fair value of previously held equity interest (50%)						9,947
						29,840
Less identifiable net assets						(14,854)
Goodwill						14,986
Consideration is satisfied by :
Cash						18,740
Deferred consideration						1,153
						19,893
Cash  consideration						18,740
Cash  and  cash equivalents acquired						(329)
Net cash outflow arising on acquisition						18,411

  Gain on revaluation of previously held equity interest was calculated as follows:

Al Dar Al Arabia		$000's
Fair value of previously held equity interest (50%)		9,947
Book value of previously held equity interest (50%)		(5,450)
Gain on revaluation of previously held interest		4,497

a.             The property, plant and equipment acquired has been re-valued upwards to this fair value.

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

  13.        Acquisition of subsidiaries - continued

Full year impact of acquisitions:

If the acquisition of Ibn Al Baytar and Al Dar Al Arabia had been completed on the first day of the financial year, the Group's revenues for the period would have been approximately $360,126,000 and the Group's profit attributable to equity holders of the parent would have been approximately $54,324,000.The appropriate additional contribution by entity for the period from the beginning of the year up to the acquisition date is illustrated in the table below:

Subsidiary		Effect on Group's revenues		Effect on Group's profit
		$000's		$000's
Ibn Al Baytar		2,432		(289)
Al Dar Al Arabia		-		(58)
		2,432		(347)

14.      Contingent liabilities

In common with many other companies in the pharmaceutical industry the Group is involved in various legal proceedings considered typical to its business, including litigation relating to employment, product liability and other commercial disputes.

 In particular, West-ward Pharmaceutical Corp. is a co-defendant in litigation brought by Mutual Pharmaceutical Company, Inc. ("Mutual") regarding the continued sale by West-ward and the others of generic oral colchicine in the United States, following the approval by the FDA of Mutual's 'Colcrys' ™ colchicine product (the "Claim"). Pursuant to the Claim, Mutual alleges unfair competition and false advertising by the Defendants in respect of their sale of oral colchicine, and seeks damages for loss of sales. The Claim was filed in the United States District Court for the Central District of California and subsequently, on petition by the Defendants, transferred to the United States District Court for the District of New Jersey. At the same time as the transfer of the Claim to the District of New Jersey, the Court denied a preliminary injunction that Mutual had sought to prevent the Defendants from continuing their alleged unfair competition and false advertising pending the final outcome of the Claim, finding that Mutual had not demonstrated a substantial likelihood of success on the merits.  Discovery in the Claim remains ongoing.

This matter remains subject to substantial uncertainties. As this litigation is at an early stage, it is also not practicable to make a reasonable estimate of the possible financial effect, if any, that could arise. Management has assessed and considered all of the relevant facts of the litigation and having done so does not consider that a provision is required to be made in respect of the Claim.

 

END

 

 

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