Preliminary Results

RNS Number : 0218D

Hikma Pharmaceuticals Plc

16 March 2011

PRESS RELEASE

Hikma's diversified business delivers strong sales and 25% earnings growth in 2010

16 March 2011 - Hikma Pharmaceuticals PLC ("Hikma") (LSE: HIK) (NASDAQ DUBAI: HIK), the fast growing multinational pharmaceutical group, today reports its preliminary results for the year ended 31 December 2010.

Summary P&L ($ million)	2010	2009	Change

Revenue	730.9	636.9	+14.8%
Gross profit	357.3	304.4	+17.4%
Operating profit	135.1	107.3	+25.9%
Profit attributable to shareholders	98.8	77.7	+27.2%
Diluted earnings per share (cents)	50.2	40.1	+25.2%
Dividend per share (cents)	13.0	11.0	+18.2%
Net cash from operating activities	144.8	119.0	+21.7%

2010 Highlights

· Group revenues up 14.8% and operating profit up 25.9%, reflecting continuous growth through diversification

· Gross margin improved to 48.9%, compared to 47.8% in 2009

· Operating margin increased to 18.5%, compared to 16.8% in 2009

· Net cash flow from operating activities increased by 21.7% to $144.8 million through excellent working capital management

· Continued new product delivery across all countries and markets

o 100 products launched

o 230 product approvals received

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

· Agreement to acquire the US generic injectables business of Baxter Healthcare Corporation, transforming our global Injectables business

· Strategic partnership signed with South Korea's Celltrion to market nine biosimilar products throughout the MENA region

Said Darwazah, Chief Executive Officer of Hikma, said:

"In 2010, Hikma continued its track record of doubling sales every four years. This success rests on the strength of our diversified business. We achieved double digit growth in our Branded business, with an excellent performance in our top markets. The performance of our Generics business exceeded our expectations, as our commitment to quality and service has helped to create new opportunities in the very competitive US market. This commitment to quality and service also contributed to the strong performance of our US injectables business and to the increased demand for injectable contract manufacturing in the US and Europe.

On the back of these strong results, we entered 2011 with good momentum across all our businesses. The events of early 2011 in the MENA region have led us to be more cautious on the short-term outlook for our Branded business. We are very optimistic about the longer-term opportunities that economic reform can bring and our commitment to the MENA region has not changed. We continue to believe in the excellent long-term growth potential of the MENA region and will continue to invest in building our unique local presence, both organically and through acquisitions.

We are confident that we can continue to deliver strong performances in our Injectables and Generics businesses. We have made significant investments in these businesses in recent years, we now have very experienced management teams in place and we see numerous opportunities for growth. We also have the integration of the Baxter's Multi-Source Injectables business to look forward to and the transformation this business will bring to both our global Injectables and US businesses."

Enquiries

Hikma Pharmaceuticals PLC

Susan Ringdal, Investor Relations Director +44 (0)20 7399 2760

Financial Dynamics +44 (0)20 7831 3113

Ben Atwell /Julia Phillips/Jonathan Birt/Matthew Cole

About Hikma

Hikma Pharmaceuticals PLC is a fast growing multinational 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 principally 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 $731 million and profit attributable to shareholders of $99 million.

A meeting for analysts and investors will be held today at 09:30am GMT at Financial Dynamics, Holborn Gate, 26, Holborn Gate London WC2A 1PB. A live webcast of the meeting will be available at www.hikma.com. In addition, we will be holding a conference call for US investors at 1.30pm GMT on +1 866 966 9439 (US only) or +44 (0) 1452 555 566 (rest of world), conference ID: 51687727. A recording of both meeting and call will be available on the Hikma website.

Business and financial review

Group performance

Revenue for the Group increased by 14.8% to $730.9 million, compared to $636.9 million in 2009. On a constant currency basis, Group revenues increased by 16.0%. During the year, our US generics business performed extremely well driven by a strong performance in its core business and exceptionally strong sales from specific market opportunities. Our Branded business continued to deliver double digit growth and we made good progress in our Injectables business, particularly in the US.

Revenue by segment	2010	2009
Branded	53.9%	55.4%
Injectables	21.5%	22.6%
Generics	23.9%	21.2%
Others	0.7%	0.8%

Revenue by region	2010	2009
MENA	61.1%	63.5%
US	28.0%	24.0%
Europe and Rest of World	10.9%	12.5%

The Group's gross profit increased by 17.4% to $357.3 million, compared to $304.4 million in 2009. Group gross margin was 48.9%, compared to 47.8% in 2009. This improvement primarily reflects the exceptional improvement in gross profit in our Generics business.

Group operating expenses grew by 12.7% to $222.2 million, compared to $197.1 million in 2009. As a percentage of sales, Group operating expenses decreased slightly to 30.4% compared to 31.0% in 2009. The following paragraphs address the Group's main operating expenses.

Group sales and marketing expenses grew more slowly than Group revenues during the year, increasing by 8.8% to $106.7 million, compared to $98.1 million in 2009. Consequently sales and marketing expenses decreased as a percentage of sales to 14.6% in 2010, compared to 15.4% in 2009. This reflects the strong performance in our Generics business, with its relatively lower sales and marketing expenses as a percentage of sales, and economies of scale and reduced costs in our global Injectables business.

General and administrative expenses increased by 27.1% to $84.8 million. As a percentage of sales, general and administrative expenses increased to 11.6% in 2010, compared to 10.5% in 2009. Excluding $7.7 million in one-off costs related to the acquisition of the Tunisian company Ibn Al Baytar, the Algerian company Al Dar Al Arabia and Baxter's Multi Source US Injectables business, general and administrative expenses were flat as a percentage of sales at 10.5%. This was achieved through good control of costs across the Group and despite an increase in corporate expenses related to the strengthening of the corporate management team and an increase in employee benefits.

In line with our strategy to increase investment in R&D across the Group, R&D grew by 40.2% to $23.6 million. Total investment in R&D represented 3.2% of Group revenue, compared to 2.6% in 2009. This reflects increased investment in product development for the US market and for our global Injectables portfolio. We expect to continue to increase our investment in R&D as a percentage of sales as we work to develop our global product portfolio.

Other net operating expenses declined on a reported basis by $8.3 million to $7.2 million in 2010. Increases in provisions for slow moving items and foreign exchange losses were more than offset by non-recurring gains arising from the revaluation of the previously held interests in the Tunisian company Ibn Al Baytar and the Algerian company Al Dar Al Arabia, gains on the sale of intangible assets, and other product related income.

Operating profit for the Group increased by 25.9% to $135.1 million, compared to $107.3 million in 2009. Group operating margin improved by nearly two percentage points to 18.5%, compared to 16.8% in 2009.

Branded

2010 highlights:

· Strong second half performance across the MENA region delivers full year revenue growth of 12.9% in constant currency

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

· Excellent progress in the rollout of key in-licensed products

Branded revenues increased by 11.8% in 2010 to $394.2 million, compared to $352.7 million in 2009. In constant currency, Branded revenues increased by 12.9%. Ibn Al Baytar, the Tunisian business acquired at the end of March 2010, contributed $11.4 million in sales during the period.

During the year we continued to focus 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 across our portfolio of branded generic and in-licensed products.

We successfully completed two acquisitions¹ in 2010, strengthening our presence and capabilities in the MENA region. 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 Tunisian market. In April, the Group agreed to acquire the remaining 50% of the issued share capital that we did not already own of Al Dar Al Arabia in Algeria. The Al Dar Al Arabia plant is expected to be completed by the end of 2011. It will double Hikma's local manufacturing capacity in Algeria and will significantly enhance our competitive position in the Algerian market.

1 For more details on these acquisitions, please see note 14 to the financial information.

As expected, our business in Algeria picked up strongly in the second half of the year. We are successfully managing the recent regulatory changes by increasing the number of products manufactured locally (from 54 in 2009 to 67 at the end of 2010) and by successfully promoting our higher value branded generics as well as our in-licensed products.

Our other key markets also performed well. We delivered strong revenue growth in Egypt, where sales were driven by newly launched products and by our new cardiovascular sales team. We achieved excellent growth in Iraq, where investment in the sales force and our focus on promotion in the private market is delivering results in this developing market. Good performances were also achieved in Saudi Arabia and across the GCC (Gulf Co-Operation Council) countries. While sales in Jordan continued to be impacted by the restructuring of our distribution channels, we are now moving towards more optimal direct distribution to our pharmacist customers and believe that this positions us well for 2011.

Revenue from in-licensed products grew by 14.7%² to $159.2 million, representing 40.4% of Branded sales, up from 39.4% in 2009. Key in-licensed products such as Blopress® and Actos® have performed extremely well, particularly in Algeria, Saudi Arabia and Egypt.

2 2009 in-licensed sales were $138.9 million reflecting a reclassification of products.

We continue to develop our portfolio of in-licensed products, demonstrating our position as the partner of choice in the MENA region. The strategic partnership with Celltrion that we agreed in April 2010 was a major achievement. Through this partnership, we will introduce nine biosimilar products, including four for oncology, into the MENA markets. With Celltrion's unique biosimilar portfolio and our strong reputation for quality, we will be in an excellent position to lead the market in these important products in the MENA region.

In addition, we signed a further three licensing agreements: with Piramal Healthcare for sevoflurane, an inhalation anaesthetic, and with Sirao for Infasurf®, their leading respiratory product - both for the MENA region; and with Engelhard Arzneimittel for Prospan® cough medicine for Algeria, Tunisia, Sudan and Libya.

As a result of all of our efforts during the year, Hikma remains the largest regional pharmaceutical company and the fifth³ largest pharmaceutical company overall in the MENA region, with a market share of 3.7% for the 12 months through December 2010.

3 all market data sourced from IMS Health, YTD December 2010. Private retail sales only include Algeria, Jordan, Kuwait, Egypt, Tunisia, Morocco, UAE, Lebanon and Saudi Arabia.

In 2010, the Branded business launched a total of 61 products across all markets, including 8 new compounds and 14 new dosage forms and strengths. The Branded business also received 95 regulatory approvals across the region, including 16 for new compounds.

Gross profit in the Branded business increased by 8.4% to $203.4 million, compared to $187.6 million in 2009. The Branded business gross margin declined to 51.6%, compared to 53.2% in 2009. This reflects price declines on locally manufactured products in Algeria and the strengthening of the Japanese Yen, which increased raw material costs.

Operating profit in the Branded business increased by 7.9% to $98.7 million, compared to $91.4 million in 2009. Operating margin was 25.0%, compared to 25.9% in 2009. This includes 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 $7.7 million in foreign exchange losses.

Injectables

2010 highlights:

• Injectables revenues up 12.1% in constant currency driven by excellent growth in the US

• Excellent improvement in Injectables operating margin, to 15.1% from 10.6%

• Transformation of our global Injectables business through the agreement to acquire Baxter's Multi-Source Injectables business

Revenue in our global Injectables business increased by 9.3% to $157.4 million compared to $144.1 million in 2009. In constant currency, Injectables revenues increased by 12.1%.

Injectables revenue by region	2010	2009
Europe	39.8%	45.0%
US	19.0%	11.8%
MENA	41.2%	43.2%

US Injectables sales reached $29.9 million, up 75.9% from $17.0 million in 2009. This excellent performance was driven primarily by the successful launch of new products and good demand for existing products. An increased demand for contract manufacturing also contributed to this performance.

In 2010, our injectable manufacturing facility in Germany, which produces 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 the US and reinforces our excellent track record for quality. This was followed in December by an FDA approval for irinotecan - our first oncology ANDA approval for the US.

In the MENA region, Injectables sales picked up in the second half of 2010, enabling us to close the year up 4.1% with sales of $64.9 million compared to $62.3 million in 2009. This increase is attributed to strong growth in Algeria, our newly launched oncology products and a good performance in the tender market in the second half of the year.

European Injectables sales decreased by 3.2% to $62.7 million in 2010 compared to $64.8 million in 2009. In constant currency, European sales increased slightly to $65.9 million, reflecting our ability to offset significant price declines in most of our European markets, including declines driven by the supplementary reimbursement scheme implemented in Germany, with increased volumes from existing products and from new contract manufacturing opportunities.

In 2010, the Injectables business launched a total of 36 products across all markets, including 12 new compounds and 21 new dosage forms and strengths. The Injectables business also received a total of 131 regulatory approvals across all regions and markets, including 44 in MENA, 77 in Europe and 10 in the US.

Injectables gross profit grew by 12.9 % to $71.0 million, compared to $62.9 million in 2009, with gross margin increasing to 45.1%, compared to 43.7% in 2009. The increase in margin reflects growth in our own product sales and in contract manufacturing and increasing economies of scale.

Injectables operating profit increased by 54.7% to $23.7 million, compared to $15.3 million in 2009. Injectables operating margin improved to 15.1% in 2010, up from 10.6% in 2009. This increase reflects our strong performance in the US and a better control of costs in Europe and was achieved despite an increased investment in R&D.

On 29 October 2010, we agreed to acquire the US generic injectables business of Baxter Healthcare Corporation for a cash consideration of $112 million. This acquisition will transform our Injectables business, doubling the size of our global injectable sales, while at the same time doubling our total sales in the US market, and positioning Hikma, through our wholly-owned subsidiary West-Ward Pharmaceutical Corp. ('West-Ward'), as the second largest supplier by volume of generic injectables in the US market. The Multi-Source Injectables business will bring a portfolio of 41 products including several DEA controlled substances and is estimated to have generated in excess of $180 million in annual revenue in 2010.

Generics

2010 highlights:

· Generics revenues up 29.2% to $174.5 million

· Robust demand across the core product portfolio supports the underlying business

· Specific market opportunities enhance segment results

Revenue in our Generics business increased by 29.2% to $174.5 million, compared to $135.1 million in 2009. This performance reflects strong demand for our core products as well as a substantial increase in sales resulting from our ability to take advantage of specific market opportunities.

Since mid-2008 we have focused on improving service levels, leveraging our quality reputation and optimising our manufacturing capacity to meet market needs. In 2010 these actions enabled us to deliver solid growth in revenues from our core product portfolio.

We were also able to take advantage of some specific market opportunities. The most notable relates 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 discontinued sales of oral colchicine to comply with the regulatory requirements of the US Food and Drug Administration.

The Generics segment gross profit increased by 55.7% to $81.8 million, compared to $52.5 million in 2009. Gross margin reached 46.9%, up from 38.9% in 2009. Consequently, the Generics segment achieved an operating profit of $51.1 million compared to $25.0 million in 2009. Generic operating margin grew from 18.5% to 29.3% in 2010. This significant improvement in both the gross and operating profit reflects the exceptional performance of colchicine as well as a good performance from our core product portfolio.

In 2010, the Generics business launched 2 new compounds in 3 new dosage forms and strengths and received 4 new product approvals.

Other businesses

Other businesses primarily comprise Arab Medical Containers, a manufacturer of pharmaceutical packaging, and International Pharmaceuticals Research Centre, which conducts bio-equivalency studies. These businesses, which supply Group operations and third parties, had aggregate revenues of $4.8 million, compared with aggregate revenue of $5.1 million in 2009.

These Other businesses delivered an operating loss of $2.9 million in 2010, compared to an operating loss of $2.3 million in 2009. The slight increase in loss can be attributed to an increase in overheads in our Chemicals division.

Research & Development 

4 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. In 2010 we launched 22 new compounds, expanding the Group portfolio to 423 compounds in 817 dosage forms and strengths. We manufacture and/or sell 46 of these compounds under-license.

Across all businesses and markets, a total of 100 products were launched. In addition, the Group received 230 approvals.

	Total marketed products		Products launched in 2010
	Compounds	Dosage forms and strengths	New compounds	New dosage forms and strengths	Total launches across all countries in 2010

Branded	253	485	8	14	61

Injectables	120	215	12	21	36

Generics	50	117	2	3	3

Group	423	817	22	38	100

	Products approved in 2010			Products pending approval as at 31 Dec 2010
	New compounds	New dosage forms and strengths	Total approvals across all countries in 2010	New compounds	New dosage forms and strengths	Total pending approvals across all countries as of 31 Dec 2010

Branded	16	30	95	51	112	313

Injectables	11	21	131	43	55	286

Generics	4	4	4	25	34	34

Group	31	55	230	119	201	633

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

To ensure the continuous development of our product pipeline, we submitted 267 regulatory filings in 2010 across all regions and markets. As of 31 December 2010, we had a total of 633 pending approvals across all regions and markets.

At 31 December 2010, we had a total of 102 new products under development, the majority of which should receive several marketing authorisations for differing strengths and/or product forms over the next few years.

Net finance expense

Net finance expense increased to $13.5 million, compared to $12.3 million in 2009. The increase reflects higher bank charges, related to requirements in Algeria to sell through confirmed letters of credit.

Profit before tax

Profit before tax for the Group increased by 27.6% to $121.0 million, compared to $94.8 million in 2009.

Tax

The Group incurred a tax expense of $21.5 million in 2010, compared to $15.5 million in 2009. The effective tax rate was 17.7%, compared to 16.3% in 2009, reflecting the impact of the significant increase in profitability in the US.

Profit for the year

The Group's profit attributable to equity holders of the parent increased by 27.2% to $98.8 million.

Earnings per share

Diluted earnings per share for the year to 31 December 2010 were 50.2 cents, up 25.2% from 40.1 cents in 2009.

Dividend

The Board has recommended a final dividend of 7.5 cents per share (approximately 4.7 pence per share), which will make a dividend for the full year of 13.0 cents per share, up from 11.0 cents per share in 2009, an increase of 18.2%. The proposed final dividend will be paid on 26 May 2011 to shareholders on the register on 15 April 2011, subject to approval by shareholders at the Annual General Meeting.

Net cash flow from operating activities and investment

The Group continued to deliver significant improvements in working capital in 2010, reducing its overall working capital cycle by 25 days. This reflects our commitment to improve collections, increase the factoring of receivables and optimise our supply chain. Over the year, Group receivable days decreased by 16 days to 100 days as at 31 December 2010. Inventory days increased by 1 day to 178 days and payable days improved by 10 days to 73 days.

Working capital improvements coupled with improved profitability led to a significant increase in operating cash flow, particularly in the MENA region and the US. Overall Group net cash flow from operating activities grew by 21.7% to $144.8 million in 2010, compared to $119.0 million in 2009.

Capital expenditures increased to $49.1 million, compared to $37.0 million in 2009. In 2010, expenditure was focused on the completion of our new lyophilisation plant in Portugal, the expansion of our manufacturing capacity in Algeria and Egypt, continuous investment in IT infrastructure and overall maintenance capex across all of our facilities. We expect to increase capital expenditure in 2011 as we continue to expand our manufacturing capacity in the MENA region to support demand for our global products.

During the year, other Group investing activities included investments of $4.4 million and $18.6 million for the acquisitions of Ibn Al Baytar and Al Dar Al Arabia, respectively, and advanced payments related to the acquisition of products and product related technologies.

Balance sheet

As a result of working capital improvements, net debt decreased from $116.9 million as at 31 December 2009 to $101.1 million as at 31 December 2010, keeping the Group in a very strong financing position.

We expect to fund the purchase of MSI and associated working capital requirements with new debt financing. This financing has already been arranged and will increase our total debt by around $140 million.

2011 Outlook (at constant currency)

We expect to deliver Group revenue growth of around 7% in 2011 and gross margin of around 47%, excluding the Multi-Source Injectables business.

We started 2011 with double digit growth expectations for our Branded business. Recent events in the MENA region, particularly in Egypt, Libya and Tunisia, now require us to be more cautious in our ability to achieve this. To date, we have experienced disruptions in manufacturing, sales and distribution. While our focus in each affected market is on returning to 'business as usual' as soon as possible, it is very difficult to fully assess the potential for further disruptions. With this in mind, we now anticipate Branded revenue growth of around 7% for the year, which takes into consideration the disruption we have experienced to date and assumes the affected markets return to normal by the middle of 2011. We continue to believe in the excellent long-term growth potential of the MENA region.

We are confident that we can continue to deliver a strong performance in our global Injectables business and we are excited about the opportunities that the Multi-Source Injectables business will bring. We now anticipate this acquisition will close by the end of April.

We expect that our Generics business will perform well in 2011 and that our commitment to quality and service will continue to differentiate us in the competitive US market. We estimate 2011 Generics sales of around $160 million and mid-teen operating margin.

Responsibility statement

The responsibility statement below has been prepared in connection with the company's full annual report for the year ended 31 December 2010. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

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

· The Business review, which is incorporated into the Directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

By order of the Board

Said Darwazah Khalid Nabilsi
Chief Executive Officer Chief Financial Officer

15 March 2011

Cautionary statement

This preliminary announcement has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. It 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.

Consolidated statement of comprehensive income for the year ended 31 December 2010

	Note	2010	2009
Continuing operations		$000	$000
Revenue	3	730,936	636,884
Cost of sales	3	(373,592)	(332,459)
Gross profit	3	357,344	304,425
Sales and marketing costs		(106,673)	(98,083)
General and administrative expenses		(84,755)	(66,677)
Research and development costs		(23,608)	(16,843)
Other operating expenses (net)		(7,213)	(15,529)
Total operating expenses		(222,249)	(197,132)
Adjusted operating profit		143,025	114,742
Exceptional items:
- Acquisition related expenses	4	(7,705)	-
- Gains on revaluation of previously held equity interests	4	7,176	-
Intangible amortisation*	4	(7,401)	(7,449)
Operating profit	3	135,095	107,293
Finance income		346	514
Finance expense		(13,856)	(12,827)
Other expense (net)		(603)	(193)
Profit before tax		120,982	94,787
Tax	5	(21,455)	(15,469)
Profit for the year		99,527	79,318
Attributable to:
Non-controlling interests		678	1,635
Equity holders of the parent		98,849	77,683
		99,527	79,318
Earnings per share (cents)
Basic	7	51.4	40.9
Diluted	7	50.2	40.1
Adjusted basic	7	53.6	44.1
Adjusted diluted	7	52.4	43.2
Cumulative effect of change in fair value of available for sale investments		75	2
Cumulative effect of change in fair value of financial derivatives		(256)	(202)
Exchange difference on translation of foreign operations		(19,532)	1,364
Total comprehensive income before tax relating to components of other comprehensive income		79,814	80,482
Total comprehensive income for the year		79,814	80,482
Attributable to:
Non-controlling interests		(1,023)	1,586
Equity holders of the parent		80,837	78,896
		79,814	80,482

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

Consolidated balance sheet at 31 December 2010

	Note	2010	2009
Non-current assets		$000	$000
Intangible assets		269,120	255,696
Property, plant and equipment		317,463	283,371
Interest in joint venture		-	5,451
Deferred tax assets		23,288	18,793
Available for sale investments		477	542
Financial and other non-current assets		11,357	2,270
		621,705	566,123
Current assets
Inventories	8	182,192	160,509
Trade and other receivables	9	228,703	226,841
Collateralised cash		3,573	2,334
Cash and cash equivalents		62,718	65,663
Other current assets		929	1,251
		478,115	456,598
Total assets		1,099,820	1,022,721
Current liabilities
Bank overdrafts and loans		81,015	60,317
Obligations under finance leases		2,251	1,826
Trade and other payables	10	127,555	107,618
Income tax provision		12,621	14,857
Other provisions		8,641	6,153
Other current liabilities		20,540	13,671
		252,623	204,442
Net current assets		225,492	252,156
Non-current liabilities
Long-term financial debts		78,040	116,119
Deferred income		335	494
Obligations under finance leases		6,118	6,675
Deferred tax liabilities		12,404	11,734
		96,897	135,022
Total liabilities		349,520	339,464
Net assets		750,300	683,257

Consolidated balance sheet at 31 December 2010


	Note	2010	2009
		$000	$000
Equity
Share capital	11	34,525	34,236
Share premium		275,968	272,785
Own shares		(2,220)	(2,203)
Other reserves		435,649	371,067
Equity attributable to equity holders of the parent		743,922	675,885
Non-controlling interests		6,378	7,372
Total equity		750,300	683,257

The financial statements of Hikma Pharmaceuticals PLC, registered number 5557934, were approved by the board of directors and signed on its behalf by:

Said Darwazah Director

Mazen Darwazah Director

15 March 2011

Consolidated statement of changes in equity for the year ended 31 December 2010

	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 interests $000		Total equity $000
Balance at 1 January 2009	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
Current and deferred tax arising on share-based payments	-	-		-	3,170		3,170			-		-	-		3,170			-		3,170
Dividends on ordinary shares (note 6)	-	-		-	(16,118)		(16,118)			-		-	-		(16,118)			-		(16,118)
Balance at 31 December 2009 and 1 January 2010	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)3)		79,814
Issue of equity shares	-		-	-		-		-	289		3,183			-		3,472	-		3,472
Issued of own shares	-		-	-		-		-	-		-			(107)		(107)	-		(107)
Cost of equity settled employee share scheme	-		-	-		4,473		4,473	-		-			-		4,473	-		4,473
	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 interests $000		Total equity $000
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 (note 6)	-		-	-		(23,073)		(23,073)	-		-			-		(23,073)	-		(23,073)
Acquisition of subsidiaries	-		-	-		-		-								-	29		29
Balance at 31 December 2010	33,920		4,085	(12,080)		409,724		435,649	34,525		275,968			(2,220)		743,922	6,378		750,300

Consolidated cash flow statement for the year ended 31 December 2010

	Note	2010	2009
		$000	$000
Net cash from operating activities	12	144,835	118,979
Investing activities
Purchases of property, plant and equipment		(49,121)	(35,170)
Proceeds from disposal of property, plant and equipment		1,556	1,080
Purchase of intangible assets		(4,074)	(5,213)
Proceeds from disposal of intangible assets		566	1,316
Investment in joint venture		-	2
Investment in financial and other non current assets		(10,800)	(193)
Proceeds from disposal of available for sale investments		140	-
Acquisition of subsidiary undertakings net of cash acquired		(23,000)	-
Finance income		346	514
Net cash used in investing activities		(84,387)	(37,664)

Financing activities
Increase in collateralised cash		(1,140)	(1,515)
Increase in long-term financial debts		19,045	39,275
Repayment of long-term financial debts		(59,177)	(33,570)
Increase/(decrease) in short-term borrowings		14,147	(56,983)
(Decrease)/increase in obligations under finance leases		(616)	1,784
Dividends paid		(23,073)	(16,118)
Purchase of own shares		-	(1,079)
Interest paid		(13,754)	(13,461)
Proceeds from issue of new shares		3,365	3,191
Net cash used in financing activities		(61,203)	(78,476)

Net (decrease)/increase in cash and cash equivalents		(755)	2,839

Cash and cash equivalents at beginning of year		65,663	62,727

Foreign exchange translation movements		(2,190)	97
Cash and cash equivalents at end of year		62,718	65,663

1. Basis of preparation

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2010 or 2009, but is derived from those accounts. Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention any matters by way of emphasis without qualifying their report and did not contain statements under S498 (2) or (3) of the Companies Act 2006. Hikma Pharmaceuticals PLC's consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board. The financial statements have also been prepared in accordance with IFRSs adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation. The financial statements have been prepared under the historical cost convention, except for the revaluation to market of certain financial assets and liabilities. The preliminary announcement is based on the Company's financial statements.

The Group's previously published financial statements were also prepared in accordance with International Financial Reporting Standards. These International Financial Reporting Standards have been subject to amendment and interpretation by the International Accounting Standards Board and the financial statements presented for the years ended 31 December 2009 and 31 December 2010 have been prepared in accordance with those revised standards. Unless stated otherwise these policies are in accordance with the revised standards that have been applied throughout the year and prior years presented in the financial statements.

The presentational and functional currency of Hikma Pharmaceuticals PLC is the US Dollar as the majority of the Company's business is conducted in US Dollars (USD).

Going Concern

Although the current economic and political conditions may affect short-term demand for the Company's products, as well as place pressure on our customers and suppliers, the Directors believe that 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 the Directors expect to be less affected compared to other industries.

The Group has reduced its year end net debt position to $101 million (2009: $117 million) following strong cash generation from operations. Operating cashflow in 2010 was $145 million. The Group has $265 million of undrawn banking facilities having allowed for the US acquisition. These facilities are well diversified across the operating subsidiaries of the Group and are with a number of financial institutions. 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.

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 and political outlook. The Directors have formed a judgement that there is reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Directors therefore continue to adopt the going concern basis in preparing the financial statements.

2. Adoption of new and revised standards

The following new and revised Standards and Interpretations have been adopted in the current year. With exception to IFRS 3(2008) Business Combinations and IAS 27(2008) Consolidated and Separate Financial Statements (see note 1), their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements.

IFRS 3(2008) Business Combinations;

IAS 27(2008) Consolidated and Separate Financial Statements;

IAS 28(2008) Investments in Associates

These standards have introduced a number of changes in the accounting for business combinations when acquiring a subsidiary or an associate. IFRS 3(2008) has also introduced additional disclosure requirements for acquisitions.

Amendment to IFRS 2 Share-based Payment

IFRS 2 has been amended, following the issue of IFRS 3(2008), to confirm that the contribution of a business on the formation of a joint venture and common control transactions are not within the scope of IFRS 2.

Amendment to IAS 39 Financial Instruments: Recognition and Measurement

IAS 39 has been amended to state that options contracts between an acquirer and a selling shareholder to buy or sell an acquiree that will result in a business combination at a future acquisition date are not excluded from the scope of the standard.

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

IFRS 9 Financial Instruments

IAS 24 (amended) Related Party Disclosures

IAS 32 (amended) Classification of Rights Issues

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

IFRIC 14 (amended) Prepayments of a Minimum Funding Requirement

Improvements to IFRSs (May 2010)

The directors do not expect that the adoption of the other standards listed above will have a material impact on the financial statements of the Group in future periods.

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 14. The result has been a total gain of USD 7,176,000 due to the remeasurement to fair value of the previously held equity interests and transaction costs totalling of USD 2,306,000 have been expensed to general and administrative expenses. Both the gain and the transaction costs have been classified as exceptional item as described in note 4.

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 year ended 31 December 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 segment information.

The Group discloses underlying operating profit as the measure of segment result as this is the measure used in the decision-making and resource allocation process of the chief operating decision maker, who is the Group's Chief Executive Officer.

Information regarding the Group's operating segments is reported below.

The following is an analysis of the Group's revenue and results by reportable segment in 2010:

Year ended
31 December 2010	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

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 (net)					(603)
Profit before tax					120,982
Tax					(21,455)
Profit for the year					99,527
Attributable to:
Non-controlling interests					678
Equity holders of the parent					98,849
					99,527

* 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.

3. Business and geographical segments- continued

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

Segment assets and liabilities 2010	Branded	Injectables	Generic	Corporate and others	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 (net book value)	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

3. Business and geographical segments - continued

The following is an analysis of the Group's revenue and results by reportable segment in 2009:

Year ended 31 December 2009
	Branded	Injectables	Generic	Others	Group
	$000	$000	$000	$000	$000
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

Adjusted segment result	96,029	17,859	25,360	(2,345)	136,903
Exceptional items:
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 (net)					(193)
Profit before tax					94,787
Tax					(15,469)
Profit for the year					79,318
Attributable to:
Non-controlling interests					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 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 travel expenses in addition to acquisition related expenses.

3. Business and geographical segments - continued

Segment assets and liabilities 2009	Branded	Injectables	Generic	Corporate and others	Group
	$000	$000	$000	$000	$000
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

Segment assets	679,112	204,220	119,093	20,296	1,022,721

Segment liabilities	203,750	91,104	30,567	14,043	339,464

3. Business and geographical segments - continued

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
	For the year ended 31 December
	2010	2009
	$000	$000
Middle East and North Africa	446,524	404,689
United States	204,389	152,406
Europe and Rest of the World	79,133	78,981
United Kingdom	890	808
	730,936	636,884

The top selling markets are USA, Saudi Arabia and Algeria with total sales of USD 204.4 million (2009: USD 152.4 million), USD 118.5 million (2009: USD 107.2 million) and USD 88.8 million (2009: USD 74.5 million), respectively.

Included in the Group's total sales are sales of approximately USD 99.4 million (2009: USD 92.8 million) which arose from sales to the Group's largest client in Saudi Arabia.

The following is an analysis of the total non current assets excluding deferred tax assets and an analysis of total assets by the geographical area in which the assets are located:

	Total non current assets excluding deferred tax asset as at 31 December		Total assets as at 31 December
	2010	2009	2010	2009
	$000	$000	$000	$000
Middle East and North Africa	417,553	357,945	766,822	690,170
Europe	146,844	157,938	185,945	205,758
United States	33,589	30,944	141,598	119,093
United Kingdom	431	503	5,455	7,700
	598,417	547,330	1,099,820	1,022,721

4. Exceptional items and intangible amortisation

Exceptional items are disclosed separately in the statement of comprehensive income to assist in the understanding of the Group's underlying performance.

	For the years ended 31 December
	2010	2009
	$000	$000
Acquisition related expenses	(7,705)	-
Gains on revaluation of previously held equity interests	7,176	-
Exceptional items	(529)	-
Intangible amortisation *	(7,401)	(7,449)

Exceptional items and intangible amortisation	(7,930)	(7,449)
Tax effect	3,666	1,531
Impact on profit for the year	(4,264)	(5,918)

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

Acquisition related expenses relate to transaction costs incurred in acquiring Ibn Al Baytar, Al Dar Al Arabia and the Baxter Multi-Source injectables business in the USA which is in the process of completion. These are included in the unallocated corporate expenses.

Gains on revaluation of previously held equity interests relate to gains arising from the remeasurement to fair value of the previously held equity interest in Ibn Al Baytar and Al Dar Al Arabia. These are included within other operating expenses (net). Further details are set out in note 14 "Acquisition of subsidiaries".

5. Tax

	For the years ended 31 December
	2010	2009
	$000	$000
Current tax:
UK current tax	-	560
Double tax relief	-	(560)
Foreign tax	27,037	19,988
Prior year adjustments	(691)	1,035
Deferred tax	(4,891)	(5,554)
	21,455	15,469

UK corporation tax is calculated at 28% (2009: 28%) of the estimated assessable profit made in the UK for the year.

Effective tax rate for the Group is 17.74% (2009: 16.32%).

Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdiction.

The charge for the year can be reconciled to profit before tax per the statement of comprehensive income as follows:

	For the years ended 31 December
	2010	2009
	$000	$000
Profit before tax:	120,982	94,787
Tax at the UK corporation tax rate of 28% ( 2009: 28%)	33,875	26,540
Profits taxed at different rates	(15,184)	(15,776)
UK tax on dividend income	-	560
Double tax relief offset	-	(560)
Permanent differences	853	3,643
Temporary differences for which no benefit is recognised	2,602	27
Prior year adjustments	(691)	1,035
Tax expense for the year	21,455	15,469

6. Dividends

	2010	2009
	$000	$000
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	12,473	7,575
Interim dividend for the year ended 31 December 2010 of 5.5 cents (2009: 4.5 cents) per share	10,600	8,543
	23,073	16,118

The proposed final dividend for the year ended 31 December 2010 is 7.5 cents (2009: 6.5 cents) per share, bringing the total dividends for the year to 13.0 cents (2009: 11.0 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:

	For the years ended 31 December
	2010	2009
	$000	$000
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent	98,849	77,683
Exceptional items (see note 4)	529	-
Intangible amortisation*	7,401	7,449
Tax effect of adjustments	(3,666)	(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	103,113	83,601
	Number	Number
Number of shares	'000	'000
Weighted average number of Ordinary Shares for the purposes of basic earnings per share	192,304	189,757
Effect of dilutive potential Ordinary Shares:
Share options	4,551	3,968
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share	196,855	193,725

	2010	2009
	Earnings per share	Earnings per share
	Cents	Cents
Basic	51.4	40.9
Diluted	50.2	40.1
Adjusted basic	53.6	44.1
Adjusted diluted	52.4	43.2

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

8. Inventories

	2010	2009
	$000	$000
Finished goods	50,829	41,453
Work-in-progress	29,592	28,074
Raw and packing materials	81,864	79,040
Goods in transit	19,907	11,942
	182,192	160,509

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

9. Trade and other receivables

	As at 31 December
	2010	2009
	$000	$000
Trade receivables	200,334	203,250
Prepayments	22,305	16,063
Value added tax recoverable	3,883	5,569
Interest receivable	223	49
Employee advances	1,958	1,910
	228,703	226,841

10. Trade and other payables

	As at 31 December
	2010	2009
	$000	$000
Trade payables	74,936	57,307
Accrued expenses	42,428	35,602
Employees' provident fund *	2,625	4,049
VAT and sales tax payables	452	3,033
Dividends payable **	2,256	2,348
Social security withholdings	1,130	856
Income tax withholdings	2,074	1,456
Other payables	1,654	2,967
	127,555	107,618

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

** Dividends payable includes USD 2,072,000 (2009: USD 2,165,000) due to the previous shareholders of APM.

11. Share capital

Issued and fully paid - included in shareholders' equity:
	2010		2009
	Number '000	$000	Number '000	$000
At 1 January	191,628	34,236	189,238	33,857
Issued during the year	1,889	289	2,390	379
At 31 December	193,517	34,525	191,628	34,236

12. Net cash from operating activities

	2010	2009
	$000	$000
Profit before tax	120,982	94,787
Adjustments for:
Depreciation and amortisation of:
Property, plant and equipment	29,091	25,199
Intangible assets	9,342	8,949
Gain on revaluation of previously held equity interests	(7,176)	-
Loss on disposal of property, plant and equipment	376	236
Gain on disposal of intangible assets	(162)	(903)
Movement on provisions	2,488	761
Movement on deferred income	(159)	(201)
Cost of equity settled employee share scheme	4,473	4,616
Finance income	(346)	(514)
Interest and bank charges	13,856	12,827
Cash flow before working capital	172,765	145,757
Change in trade and other receivables	10,689	(29,949)
Change in other current assets	322	(190)
Change in inventories	(19,295)	(8,278)
Change in trade and other payables	16,102	24,262
Change in other current liabilities	(3,091)	3,164
Cash generated by operations	177,492	134,766
Income tax paid	(32,657)	(15,787)
Net cash generated from operating activities	144,835	118,979

13. Related party balances

Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associate and other related parties are disclosed below.

Trading transactions:

During the year, Group companies entered into the following transactions with related parties:

Darhold Limited: is a related party of the Group because it is considered one of the major shareholders of Hikma Pharmaceuticals PLC with ownership percentage of 29.5% at the end of 2010 (2009: 29.8%). Further details on the relationship between Mr. Samih Darwazah, Mr. Said Darwazah, Mr. Mazen Darwazah and Mr. Ali Al-Husry, and Darhold Limited are given in the Directors' Report.

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

Capital Bank - Jordan: is a related party of the Group because during the year three board members of the Bank are also board members at Hikma Pharmaceuticals PLC. Total cash balances at Capital Bank - Jordan were USD 2,169,000 (2009: USD 3,294,000). Loans and overdrafts granted by Capital Bank to the Group amounted to USD 48,000 (2009: USD 77,000) with interest rates ranging between 8.75% and 3MLIBOR + 1. Total interest expense incurred against Group facilities was USD 18,000 (2009: USD 28,000). Total interest income received was 8,000 (2009: USD 37,000) and total commission paid in the year was USD 76,000 (2009: USD 17,000).

Jordan International Insurance Company: is a related party of the Group because one board member of the company is also a board member at Hikma Pharmaceuticals PLC. Total insurance premiums paid by the Group to Jordan International Insurance Company during the year were USD 2,166,000 (2009: USD 1,686,000). The Group's insurance expense for Jordan International Insurance Company contracts in the year 2010 was USD 2,481,000 (2009: USD 2,006,000). The amounts due to Jordan International Insurance Company at the year end were USD 66,000 (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 31 December 2009: USD 491,000 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 31 December 2009: USD 327,000.

13. Related party balances - continued

Mr. Yousef Abd Ali: Mr. Yousef Abd Ali is a related party of the Group because he holds a non-controlling interest in Hikma Lebanon of 33%, the amount owed to Mr. Yousef by the Group as at 31 December 2010 was USD 161,000 (2009: USD 161,000).

Labatec Pharma: is a related party of the Group because it is owned by Mr. Samih Darwazah. During 2010 the Group total sales to Labatec Pharma amounted to USD 414,000 (2009: USD 42,000) and the Group total purchases from Labatec amounted to USD 1,373,000. At 31 December 2010 the amount owed to Group from Labatec Pharma was USD 193,000 (2009: USD 149,000).

King and Spalding: is a related party of the Group because the partner of the firm is a board member and a company secretary of West-Ward. King and Spalding is an outside legal counsel firm that handles general legal matters for West-ward. During 2010 fees of USD 927,000 (2009: USD 55,000) were paid for legal services provided.

14. Acquisition of subsidiaries

On 29 October 2010, Hikma announced that it has also signed an agreement to acquire the assets of Baxter Healthcare Corporation's US generic injectables business for a cash consideration of USD 112 million. The deal is expected to be completed during April 2011.

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	$000
Ibn Al Baytar	11,873	2,679
Al Dar Al Arabia	14,986	4,497
	26,859	7,176

14. Acquisition of subsidiaries - continued

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 was held by the other 4.95% non-controlling interest until 24 September 2010. During this period, the non-controlling shareholder informed the Group that it intended to exercise the option to increase their shareholding to 14.95%. This is expected to take place during 2011.

The total fair value of the consideration is deemed to be USD 9,295,000, 50% of which is deferred. USD 5,000,000 is cash consideration and the balance of USD 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 USD 3,164,000. The resulting gain of USD 2,679,000 has been recognised in other operating income in the year.

14. Acquisition of subsidiaries - continued

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

Ibn Al Baytar	Book value	Fair value adjustment		Fair value
	Book value	Fair value adjustment		Fair value
	$000	$000		$000
Net assets acquired:
Trade name	144	1,063	a	1,207
Cash and cash equivalent	263	-		263
Accounts receivable, gross	6,075	-		6,075
Provision for Doubtful debts and expired goods	(78)	-		(78)
Other current assets	2,721	-		2,721
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	(2,853)	(1,405)	d	(4,258)
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 identifiable net assets.

14. Acquisition of subsidiaries- continued

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

Ibn Al Baytar		$000
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 USD 11,379,000 and USD 370,000 respectively.

14. 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 USD 18,740,000 and deferred consideration of USD 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. Actual exchange movement paid amounted to USD 204,000. The difference of USD 949,000 has been recognized as a gain in the income statement.

The Al Dar Alarabia 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 USD 9,947,000. The resulting gain of USD 4,497,000 has been recognised in other operating income in the year.

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
	Book value	Fair value adjustment		Fair value
	$000	$000		$000
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)
Deferred consideration paid				204
Net cash outflow arising on acquisition				18,615

14. Acquisition of subsidiaries- continued

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

Al Dar Al Arabia		$000
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 have been re-valued upwards to this fair value.

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

14. 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 year would have been approximately USD 733,398,000 and the Group's profit attributable to equity holders of the parent would have been approximately USD 98,498,000.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 $000	Effect on Group's profit $000

Ibn Al Baytar	2,462	(292)
Al Dar Al Arabia	-	(59)
	2,462	(351)

15. Foreign exchange currencies

The currencies that have a significant impact on the Group accounts and the exchange rates used are as follows:

	Period end rates		Average rates
	2010	2009	2010	2009


USD/EUR	0.7545	0.6977	0.7531	0.7170
USD/Sudanese Pound	3.1049	2.2398	2.5209	2.3173
USD/Algerian Dinar	74.0273	72.7309	74.3916	72.6817
USD/Saudi Riyal	3.7495	3.7495	3.7495	3.7495
USD/British Pound	0.6464	0.6278	0.6467	0.6386
USD/Jordanian Dinar	0.7090	0.7090	0.7090	0.7090
USD/Egyptian Pound	5.8224	5.5051	5.6555	5.5776

The Jordanian Dinar and Saudi Riyal have no impact on the statement of comprehensive income as those currencies are pegged against the US Dollar.

16. Contingent liabilities

The integrated nature of the Group's worldwide operations, involving significant investment in research and strategic manufacture at a limited number of locations, with consequential cross-border supply routes into numerous end-markets, gives rise to complexity and delay in negotiations with revenue authorities as to the profits on which individual Group companies are liable to tax. Disagreements with, and between, revenue authorities as to intra-Group transactions, in particular the price at which goods and services should be transferred between Group companies in different tax jurisdictions, has the potential to produce conflicting claims from revenue authorities as to the profits to be taxed in individual territories.

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.

As reported in 2009, West-Ward Pharmaceutical Corp. was a co-defendant, with four other generic pharmaceutical manufacturers, in litigation brought by Mutual Pharmaceutical Company, Inc. regarding the continued sale by West-Ward Pharmaceutical Corp. and the others of generic oral Colchicine in the United States, following the approval by the FDA of Mutual's 'ColcrysTM' Colchicine product (the "Claim"). On 18 October 2010 the Group announced that the dispute between West-Ward Pharmaceutical Corp. and Mutual Pharmaceutical Company, Inc relating to the sale of oral Colchicine tablets had been resolved to the parties' mutual satisfaction.

Additional information

Publication of Annual Report and Accounts

The preliminary statement is not being posted to shareholders. The Report and Accounts will be posted to shareholders in due course and will be delivered to the Registrar of Companies following the Annual General Meeting of the Company. Once published, copies of the Report and Accounts will be able to be downloaded from the Company's website at www.hikma.com.

Annual General Meeting

The Annual General Meeting of Hikma Pharmaceuticals PLC will be held at The Westbury, The Times Room, Bond Street, Mayfair, London W1S 2YF, on Thursday, 12 May 2011 at 11.00 a.m.

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 US	> 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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