Half Yearly Report

RNS Number : 1244K

Hikma Pharmaceuticals Plc

16 August 2012

 

PRESS RELEASE                                                                        

Hikma delivers a strong first half performance and remains on track to deliver revenue growth of 20% for the full year

London, 16 August 2012 - 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 2012.  

Group financial highlights

¹ Before the amortisation of intangible assets (excluding software) and exceptional items (including acquisition and integration related expenses of $0.6  million (H1 2011: $6.7 million))

² Earnings before interest, tax, depreciation and amortisation

³ Before the amortisation of intangible assets (excluding software) and exceptional items

·      Group revenue increased by 34.8% to $532.3 million, with organic  revenue up 7.6% 4

·      Branded revenue growth of 24.6% reflects strong demand across our MENA markets, with organicgrowth of 12.8%.  The Branded business remains on track for around 20% full year revenue growth, with gross and adjusted operating margins broadly in line with 2011 5

·      Excellent performance in global Injectables delivered 94.0% revenue growth, with organic revenue growth of 25.7%, and adjusted operating margin of 22.0% 6

·      Generics revenue decreased by 27.0% to $55.8 million, reflecting the impact of additional compliance work at the Eatontown facility and increased pricing pressure.  Full year revenue guidance is revised to around $115 million

⁴ Before the consolidation of the Multi-Source Injectables, Promopharm and Savanna businesses

⁵ Before the consolidation of the Promopharm and Savanna businesses

⁶ Before the consolidation of the Multi-Source Injectables and Promopharm businesses

·      Significant increase in Injectables margins more than offsets lower margins in the Generics business, with Group adjusted operating margin of 15.4%, compared to 15.1% in the first half of 2011

·      Profit attributable to shareholders up 22.0% to $40.4 million.  On an adjusted basis, profit attributable to shareholders is up 12.9% to $46.0 million

·      Net cash flow from operating activities up $27.9 million to $47.1 million, reflecting growth in profitability and an ongoing  focus on working capital management

·      Continued new product delivery across all countries and markets - launched 37 products and received 33 product approvals - and enhancement of the portfolio through product acquisitions

·      Increase in the interim dividend to 6.0 cents per share, up from 5.5 cents for the first half of last year

Said Darwazah, Chief Executive Officer of Hikma, said:

"We have had a strong start to the year in our Branded and Injectables businesses.  I am pleased with the growth we have achieved in our key MENA markets this year.  Our global Injectables business continues to deliver extremely strong growth, as we benefit from our increased scale and continued investment in quality and products.   In our Generics business, where operations have been disrupted by additional compliance work, we expect sales to gradually improve in the second half.

Overall, the Group is performing well and the outlook is positive for the second half.  I am pleased to be able to reiterate our Group guidance of around 20% revenue growth for the full year."

Enquiries

Hikma Pharmaceuticals PLC                                                               +44 (0)20 7399 2760

Susan Ringdal, Investor Relations Director                  

FTI Consulting                                                                                       +44 (0)20 7831 3113

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 2011, Hikma achieved revenues of $918.0 million and profit attributable to shareholders of $80.1 million. 

A presentation for analysts and investors will be held today at 09:30 at FTI Consulting, Holborn Gate, 26 Southampton Buildings, London, WC2A 1PB. To join via conference call please dial: +44 (0) 203 140 0722.  Alternatively you can listen live via our website at www.hikma.com.  A recording of both the meeting and the call will be available on the Hikma website.  Video interviews of Said Darwazah, CEO and Khalid Nabilsi, CFO are available at www.hikma.com.  The contents of the website do not form part of this interim management report.

Interim management report

The interim management report set out below summarises the performance of Hikma's three main business segments, Branded, Injectables and Generics, for the six months ended 30 June 2012.

Group revenue by business segment (%)

Group revenue by region (%)

Branded

H1 2012 highlights:

•      Branded revenue increased by 24.6%, with organic revenue up 12.8%

•      Branded adjusted operating profit increased by 10.5%, with an adjusted operating margin of 21.1%

•      On track to meet guidance of around 20% revenue growth for the full year, with gross and adjusted operating margins broadly in line with 2011

Branded revenue increased by 24.6% in the first half of 2012 to $248.8 million.  Organic revenue grew 12.8% to $225.2 million, with the recently acquired Promopharm and Savanna 7businesses contributing a further $23.6 million. 

⁷Formerly Elie Pharmaceuticals in Sudan

During the first half we delivered strong growth in our key MENA markets.  In particular, we achieved an excellent performance in our Egyptian business, which grew by around 30%, reflecting increased manufacturing capacity, new product launches and our greater focus on strategic, higher value products.  In Algeria, growth of over 20% was driven by an increase in locally manufactured products, stronger brand recognition and the strength and focus of our sales and marketing team. 

In Saudi Arabia and Jordan we performed well in the first half, benefiting from a number of new product launches in Saudi Arabia and higher tender sales in both these markets.  In Libya, our recovery has been impressive and we have achieved excellent growth and a leading market position.  Our business in Morocco performed in line with our expectations, driven by its existing product portfolio.  We have begun the process of registering Hikma's key strategic products in Morocco to deliver future growth.  In Iraq, sales were disrupted in the first few months of the year as we changed our distributor.  Sales in Iraq are now accelerating and we expect a stronger second half.

In Sudan, a significant devaluation of the Sudanese pound created uncertainty around pharmaceutical pricing and disrupted product shipments.  Although we were able to offset some of the adverse currency impact, we achieved lower revenue in the first half compared to the first half of 2011.  Continued volatility with respect to the exchange rate could further impact revenue in the second half. 

In the first half of 2012, the Branded business launched a total of 30 products across all markets, including 2 new compounds and 4 new dosage forms and strengths.  The Branded business also received 24 regulatory approvals across the region, including 1 for a new product. 

Revenue from in-licensed products increased from $80.9 million to $89.2 million in the first half.  This represented 35.8% of Branded revenue compared to 40.5% of Branded revenue in the first half of 2011.  The change reflects strong growth in our branded generics portfolio and lower sales of Actos, which has been withdrawn in some of our markets.

Branded gross profit grew by 21.1% to $120.1 million in the first half and gross margin was 48.3% compared to 49.7%.  The decline in margin is primarily attributable to the impact of increased salaries and benefits driven by inflationary pressure in the wake of the Arab Spring, the consolidation of the lower margin Promopharm business and higher tender sales.  This is being partially offset by a greater focus on higher margin, strategic products and operational efficiencies.

Operating profit in the Branded business was $47.4 million, compared to $45.2 million in the first half of 2011.  Adjusted operating profit increased by 10.5% to $52.6 million.  Adjusted operating margin was 21.1%, compared to 23.8% in the first half of 2011, reflecting lower gross margin, an increase in salaries and benefits, higher R&D investment and the impact of adverse movements in the Sudanese pound and the Algerian dinar.  The devaluation of the Sudanese pound in the first half of 2012 resulted in a transactional loss of approximately $3.4 million. 

We continue to expect around 20% Branded revenue growth for the full year.  Due to the weighting of sales and the benefit of operating leverage, we expect gross margin and adjusted operating margin for the full year to be broadly in line with 2011.  However, if the Sudanese pound and the Algerian dinar remain at their current levels relative to the US dollar for the remainder of the year, we would expect a small negative impact on our margin outlook.

Injectables

H1 2012 highlights:

·      Injectables revenue grew by 94.0% to $225.2 million, with organic revenue up 25.7%

·      Strong performances across our US, MENA and European Injectables businesses

·      Significant expansion in Injectables adjusted operating margin, up from 14.0% to 22.0%

Injectables revenue by region

Revenue in our global Injectables business increased by 94.0% to $225.2 million, compared to $116.1 million in the first half of 2011. 

US Injectables revenue grew by $93.0 million, or 213.0%, to $136.6 million.  Organic revenue grew by $10.9 million, or 60.3%, to $29.0 million.  This excellent performance reflects the strength of our product portfolio including recent product launches, our strong manufacturing and sales platform in the US and growth in our contract manufacturing business.  Our quality track record means we are also benefiting from the favourable market conditions created by the supply constraints of our competitors.

In the MENA region, Injectables revenue increased by 42.9% to $51.6 million, compared to $36.1 million in the first half of 2011.  Excluding Promopharm, which added Injectables revenue of $3.6 million, organic MENA Injectables revenue grew by 32.7%.  This reflects strong demand in the private market, particularly in Saudi Arabia, Algeria and Libya and greater tender wins.

Revenue in our European Injectables business grew by 1.9% to $37.0 million.  On a constant currency basis, European Injectables revenue growth was 10.1%, reflecting growth from new contract wins for our contract manufacturing business, as well as good growth in sales of our own drugs and recent product launches.

Injectables gross profit increased by 125.4% to $98.2 million, compared to $43.6 million in the first half of 2011.  Gross margin increased to 43.6%, compared to 37.5% in the first half of 2011.  This reflects the successful restructuring of the Multi-Source Injectables business ("MSI"), lower unit costs from greater capacity utilisation and growth in our contract manufacturing business.

Operating profit of the Injectables business increased by 257.2% to $47.7 million.  Adjusted operating margin increased from 14.0% to 22.0%.  This excellent margin expansion reflects the improvement in gross margin, significantly better operating leverage and tight control of operating costs.  

We remain focussed on strengthening our Injectables product portfolio, with a particular emphasis on more differentiated products.  In January 2012 we received approval for a New Drug Application ("NDA") for argatroban injection.  In May 2012, we purchased the Abbreviated New Drug Application ("ANDA") for sodium ferrous gluconate injection from GeneraMedix Pharmaceuticals for a cash consideration of $16.0 million.   During the first half of 2012, the Injectables business launched a total of 7 products across all markets, including 3 new compounds and 3 new dosage forms and strengths.  The Injectables business also received a total of 15 regulatory approvals across all regions and markets, including 6 in MENA, 5 in Europe and 4 in the US.

Given the current market environment and the continued demand for our products, we expect the performance we achieved in Injectables in the first half will be sustained in the second half of the year.

Generics

H1 2012 highlights:

·      Generics revenue decreased by 27.0% to $55.8 million

·      Operating loss of $3.3 million reflects lower than expected sales resulting from the impact of additional compliance work at our Eatontown facility and increased pricing pressure

·      Revised revenue guidance to around $115 million for the full year

Generics revenue was $55.8 million, down 27.0% compared to $76.4 million in the first half of 2011.  This decline reflects an increase in pricing pressure and a slowdown in production at our Eatontown facility related to the additional compliance work we have undertaken to respond to FDA concerns raised in its warning letter of February 2012.  We expect sales to gradually improve in the second half of the year and now expect full year revenue of around $115 million. 

We continue to focus on our strategic priorities for this business, which include minimising our manufacturing costs and building our product portfolio.  We are accelerating the transfer of products for manufacture in our MENA facilities to improve efficiencies and reduce operating costs.  In the first half, 27.2% of Generics sales were manufactured in MENA, compared to 24.8% in the first half of 2011. 

We are also building our R&D pipeline of oral products for the US market.  In particular, we have made further progress in developing our relationship with Unimark in India with an agreement to collaborate on the development of fourteen ANDAs. 

Generics gross profit was $15.2 million, compared to $29.2 million in the first half of 2011 and gross margin was 27.3%, compared to 38.3% in the first half of 2011.  This reflects reduced operating leverage as a result of the significant slowdown in sales and an adverse change in product mix.

The Generics business made an operating loss of $3.3 million in the first half of 2012, compared to an operating profit of $10.2 million in the first half of 2011.  This is due to lower sales, high fixed operating costs and increased R&D expenditure.   With a better performance anticipated in the second half, we expect the business to breakeven for the full year.

Other businesses

Other businesses, which primarily comprise Arab Medical Containers, a manufacturer of plastic specialised packaging, International Pharmaceuticals Research Centre, which conducts bio-equivalency studies, and the chemicals division of Hikma Pharmaceuticals Limited, contributed revenue of $2.5 million, compared to $2.7 million in the first half of 2011. 

These other businesses delivered an operating loss of $2.0 million in the first half of 2012, compared to a loss of $1.6 million in the first half of 2011.

Group

Group revenue increased by 34.8% to $532.3 million in the first half of 2012.  Excluding the contribution of MSI, Promopharm in Morocco and Savanna in Sudan, organic revenue growth was 7.6%.  The Group is on track to meet its target of around 20% revenue growth for the full year. 

The Group's gross profit increased by 35.6% to $234.1 million, compared to $172.6 million in the first half of 2011.  Group gross margin was 44.0%, compared to 43.7%, with the significant gross margin improvement of the global Injectables business more than offsetting the lower Generics gross margin. 

Group operating expenses grew by 28.7% to $159.0 million, compared to $123.6 million in the first half of 2011.  Excluding the amortisation of intangible assets (excluding software) and exceptional items, 8 adjusted Group operating expenses grew by 33.2% to $152.0 million.  The paragraphs below address the Group's main operating expenses in turn.

⁸ In H1 2012, amortisation of intangible assets (excluding software) was $6.4 million (H1 2011: $4.0 million).  In H1 2012, exceptional items included within general and administrative expenses were $0.6 million (H1 2011: $5.5 million)

Sales and marketing expenses were $74.1 million, or 13.9% of sales, compared to $57.0 million and 14.4% of sales in the first half of 2011.  This reflects strong growth in our global Injectables business where relatively low incremental sales and marketing investment is required to generate new sales.  This more than offset an increase in MENA sales and marketing expenditure due to higher wages and employee benefits.

General and administrative expenses increased by $10.8 million, or 24.0%, to $55.9 million in the first half.  As a percentage of sales, general and administrative expenses reduced to 10.5%, compared to 11.4% in the first half of 2011.  Excluding non-recurring transaction and integration costs, G&A expenses as a percentage of sales were 10.4%, compared to 10.0% in the first half of 2011.  This increase primarily reflects an increase in employee salaries and benefits in MENA.

Investment in R&D grew by 49.2% to $17.1 million, with total investment in R&D representing 3.2% of Group revenue, compared to 2.9% in the first half of 2011.  We expect R&D spend will increase in the second half of the year as we continue to execute plans to develop our R&D pipeline, particularly for injectable products.

Other net operating expenses increased by $1.9 million to $11.9 million reflecting an increase in foreign exchange losses, primarily due to movements in the Sudanese pound and slow moving stock provisions.

Operating profit for the Group increased by 53.1% to $75.1 million in the first half of 2012.  Group operating margin increased to 14.1%, compared to 12.4% in the first half of 2011.  On an adjusted basis, Group operating profit increased by 37.4% to $82.1 million and operating margin increased to 15.4%, up from 15.1% in the first half of 2011. 

Research & Development 9 

⁹ 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 2012, we launched 5 new compounds, expanding the Group portfolio to 688 compounds in 1,696 dosage forms and strengths.  We manufacture and/or sell 207 of these compounds under-license from the originator.

Across all businesses and markets, a total of 37 products were launched during the first half.  In addition, the Group received 39 approvals. 

¹⁰ 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 104 regulatory filings in the first half of the year across all regions and markets.  As of 30 June 2012, we had a total of 574 pending approvals across all regions and markets. 

At 30 June 2012, we had a total of 109 new products under development, the majority of which should receive several marketing authorisations for different strengths and/or product forms over the next few years.

Net finance expense

Net finance expense increased to $16.7 million, compared to $9.3 million in the first half of 2011 due to higher net debt, including an increase in loans in local currency that carry higher financing charges.  This is explained in more detail in the net cash flow, working capital and net debt section below.

Profit before tax

Profit before tax for the Group increased by 45.1% to $57.8 million, compared to $39.9 million in the first half of 2011.  Adjusted profit before tax increased by 28.3% to $64.8 million.

Tax

The Group incurred a tax expense of $15.0 million, compared to $4.8 million in the first half of 2011.  The effective tax rate was 25.9%, compared to 11.9% in the first half of 2011.  The increase in the tax rate is mainly attributable to the increased profitability of the US Injectables business.  We now expect the effective tax rate for the Group to be around 23% for the full year.

Profit for the period

The Group's profit attributable to equity holders of the parent increased by 22.0% to $40.4 million in the first half of 2012.  Adjusted profit attributable to equity holders of the parent increased by 12.9% to $46.0 million.

Earnings per share

Basic earnings per share increased by 20.3% to 20.6 cents, compared to 17.1 cents in the first half of 2011.  Diluted earnings per share increased by 22.2% to 20.4 cents, compared to 16.7 cents in the first half of 2011.   Adjusted diluted earnings per share was 23.3 cents, an increase of 13.1% over the first half of 2011.

Dividend

The Board has declared an interim dividend of 6.0 cents per share (approximately 3.8 pence per share), compared to 5.5 cents per share for the first half of 2011.  The interim dividend will be paid on 8 October 2012 to eligible shareholders on the register at the close of business on 31 August 2012.  The ex-dividend date is 29 August 2012 and the final date for currency elections is 14 September 2012.

Net cash flow, working capital and net debt

The Group generated operating cash flow of $47.1 million in the first half, up $27.9 million from $19.2 million in the first half of 2011.  This increase in operating cash flow reflects the improved profitability of the Group in the first half of 2012 and better working capital management.  Cash flow in the first half of 2011 was impacted by a non-recurring cash injection of $18.9 million to fund the initial working capital requirement of the MSI business at the time of its acquisition in May 2011.

The Group continued to deliver significant improvements in working capital in the first half, reducing its overall working capital cycle by 46 days to 208 days.  Group receivable days reduced by 9 days to 108 days at 30 June 2012 and payable days decreased by 18 days to 66 days.  Inventory days improved by 55 days to 166 days, reflecting lower inventories in MENA compared to the first half of 2011 when markets were disrupted by the Arab Spring.

Capital expenditure was $26.1 million, compared to $33.0 million in the first half of 2011.  Around $16 million of that was spent in MENA, principally to develop our chemical plant in Jordan and the recently acquired Savanna business in Sudan, and to maintain our manufacturing facilities across the MENA region.  Investment in the US of around $8 million was primarily to add new capacity at the Cherry Hill facility in New Jersey.  In Portugal, investments included warehouse improvements and new machinery purchases.  We now expect capital expenditure for the full year of around $65 million. 

Group net debt 11increased from $322.7 million at 30 June 2011 to $473.0 million at 30 June 2012.   Net debt on 31 December 2011 stood at $421.9 million.  The increase in borrowing in the first half of 2012 was primarily to finance capital expenditure, the purchase of intangible assets and the purchase of additional shares in Promopharm.

¹¹ Net debt is calculated as bank overdrafts and loans, long term financial debts and obligations under finance leases, less cash and cash equivalents, collateralised cash and restricted cash

Balance sheet

During the period, shareholder equity was negatively impacted by unrealised foreign exchange losses of $25.1 million, reflecting the depreciation of the Euro, the Sudanese pound and the Algerian dinar against the US dollar and the revaluation of net assets denominated in these currencies.

Summary and Outlook

Hikma has delivered a strong performance in the first half of 2012.  The global Injectables business is delivering excellent growth and our Branded business is performing very well.  This is being partially offset by the decline in the Generics business.

The Group remains on track to meet our full year target of around 20% revenue growth. 

We are expecting stronger sales growth in the MENA region in the second half and we continue to expect our Branded business to deliver around 20% revenue growth for the full year, with gross margin and adjusted operating margin broadly in line with 2011.  However, if the Sudanese pound and the Algerian dinar remain at their current levels relative to the US dollar for the remainder of the year, we would expect a small negative impact on our margin outlook.

Given the current market environment and the continued demand for our injectable products, we expect the performance of the global Injectables business in the first half of 2012 will be sustained in the second half of the year.

In our Generics business, we now expect revenue of around $115 million and the business to break even for the full year.

Overall we are pleased with the progress of the Group in the first half and the outlook for the full year.

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

15 August 2012

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.

INDEPENDENT REVIEW REPORT TO HIKMA PHARMACEUTICALS PLC

We have been engaged by Hikma Pharmaceuticals PLC (the 'Company') to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 which comprises the condensed consolidated income statement, 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 15. 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 it 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 Kingdom's 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 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

 15 August 2012

Condensed consolidated income statement

On this page and throughout this interim financial information "H1 2012" refers to the six months ended 30 June 2012, "H1 2011" refers to the six months ended 30 June 2011 and "FY 2011" refers to the year ended 31 December 2011.

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

Condensed consolidated statement of comprehensive income

Condensed consolidated balance sheet

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                                                             Breffni Byrne

Director                                                                         Director                                                                                15 August 2012

Condensed consolidated statement of changes in equity

Condensed consolidated cash flow statement

Notes to the condensed set of financial statements (unaudited)

1.         General information

The financial information for the year ended 31 December 2011 does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2011, 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 auditor's 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 2012 have been prepared using the same accounting policies and on a basis consistent with the audited financial statements of Hikma Pharmaceuticals PLC (the 'Group') for the year ended 31 December 2011 which are prepared in accordance with IFRSs as adopted by the European Union.

Basis of preparation

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

The Group's condensed set of financial statements included in this half- yearly financial report have been prepared in accordance with International Accounting Standards 34 'Interim Financial Reporting' as adopted by the European Union.  They were approved by the Board on 16 August 2012.

Taxes on income for interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

Certain balances have been reclassified to conform with current period presentation, these include trade receivables as at 30 June 2011 which were shown net of $19,329,000 of provisions for expired goods, certain returns and other rebates, which have now been included in other current liabilities.

Going concern

The Group has $905.1 million of banking facilities of which $331.1 million were undrawn as at 30 June 2012. Of the undrawn facilities, $189.4 million was committed. These facilities are well diversified across the operating subsidiaries of the Group with a number of financial institutions.

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

We continue to expect the short-term facilities to be renewed upon maturity. In addition the Group maintained cash balances of $121 million as at 30 June 2012. The Group's forecasts, taking into account reasonable possible changes in trading performance, facility renewal sensitivities and maturities of long-term debt, show that the Group should be able to operate within the levels of its facilities.

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

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

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

           Changes in accounting policy

        Adoption of new and revised standards

        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 1(amended)                                                                Government Loans

         IFRS 1 (amended)                                                               Severe Hyperinflation and Removal of Fixed             Dates for First-time Adopters

         IFRS 7 and IAS 32(amended)                                            Offsetting Financial Assets and Financial Liabilities

         IFRS 9                                                                                    Financial Instruments and subsequent amendments to IFRS 9 and IFRS 7 issued 16 December 2011

         IFRS 10                                                                    Consolidated Financial Statements              

         IFRS 11                                                                                 Joint Arrangements

         IFRS 12                                                                                 Disclosure of Interests in Other Entities

         IFRS 13                                                                                 Fair Value Measurement

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

3.         Business and geographical segments

For management purposes, the Group is currently organised into three operating divisions - Branded, Injectables and Generics. These divisions represent the Group's reportable segments under IFRS 8 and are the basis on which the Group reports its primary segment information.

Segment information about these businesses is presented below.

           Segment result is defined as operating profit for each segment.

           *Intangible amortisation comprises the amortisation of 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 and travel expenses.

  Segment result is defined as operating profit for each segment.

 *Intangible amortisation comprises the amortisation of 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, travel expenses and acquisition related expenses.

Segment result is defined as operating profit for each segment.

*Intangible amortisation comprises the amortisation of 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, travel expenses and acquisition related expenses.

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

Included in revenues arising from the Branded and Injectables segments are revenues of approximately        $54,365,000 (30 June 2011: $43,301,000 and 31 December 2011: $101,900,000) which arose from the Group's largest customer which is located in Saudi Arabia.

4.   Exceptional items and intangible amortisation

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

 

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

During the period, the Group incurred $0.6 million in integrating Promopharm and Savanna in the Group.

In the previous year, acquisition and integration-related expenses are costs incurred in acquiring the Multi-Source Injectables business ("MSI"), Promopharm, and Savanna. Acquisition-related expenses are included in the unallocated corporate expenses while integration-related expenses are included in segment results.

Acquisition-related expenses mainly comprise third party consulting services, legal and professional fees.

$1.5 million (30 June 2011: $3.9 million and 31 December 2011: $10.1 million) of costs have been classified as investing activities in the cash flow statement relating to the cash outflow in respect of these costs in the period.

The inventory-related adjustments in previous year reflect the fair value uplift of the inventory acquired as part of the MSI acquisition.

5. Tax                                                                                                                                                                      6. Dividends                                                                                                                                                                                                                                                                                                                                   

The proposed interim dividend for the period ended 30 June 2012 is 6.0 cents (30 June 2011: 5.5 cents) per share.

7.         Earnings per share

Earnings per share is 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:

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

8. Intangible assets

The current period additions within product related intangible relate to licenses for products with an indefinite useful life. The software additions relate to the Group's ongoing SAP implementation.

*An adjustment of $0.6 million has been made to the provisional goodwill recognised on the acquisition of MSI. The measurement period for MSI closed on 2 May 2012.

  9.      Inventories

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

10.      Trade and other receivables *See note 2. 11.      Trade and other payables

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

** Dividends payable includes $2,009,000 (30 June 2011: $2,045,000 and 31 December 2011: $2,022,000) due to the previous shareholders of Arab Pharmaceutical Manufacturing.

 12.      Long-term financial debts 13.        Net cash from operating activities                               14.        Foreign exchange rates 15.     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 period, Group companies 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 an ownership percentage of 29.0% at 30 June 2012 (30 June 2011: 29.3% and 31 December 2011: 29.2%).

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 two board members of the Bank were also board members of Hikma Pharmaceuticals PLC. Total cash balances at Capital Bank - Jordan were  $2,991,000 (30 June 2011: $462,000 and 31 December 2011: $610,000). Loans and overdrafts granted by Capital Bank to the Group amounted to $8,448,000 (30 June 2011: $372,000 and 31 December 2011: $3,841,000) with interest rates ranging between 9 % and 3 month LIBOR + 1%. Total interest expense incurred against Group facilities was $165,000 (H1 2011: $9,000 and FY 2011: $7,000). No interest income was received in any period and total commission paid in the period was $38,000 (H1 2011: $16,000 and 2011: $8,000).

Jordan International Insurance Company: is a related party of the Group because one board member of the insurance company is also a board member of Hikma Pharmaceuticals PLC. Total insurance premiums paid by the Group to Jordan International Insurance Co during the period were $1,797,000 (H1 2011: $2,329,000 and FY 2011: $3,035,000). The Group's insurance expense for Jordan International Insurance Co contracts in the period was $2,715,000 (H1 2011: $1,953,000 and FY 2011: $2,902,000). The amounts due to Jordan International Insurance Co at 30 June 2012 were $577,000 (30 June 2011: $272,000 and 31 December 2011: Due from $109,000).

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 2012 was $150,000 (30 June 2011: $161,000 and 31 December 2011: $150,000).

Labatec Pharma SA: is a related party of the Group because it is owned by Mr. Samih Darwazah.

The Group sells to Labatec Pharma and purchases from Labatec Pharma certain products for resale which gives both companies access to additional markets. During the period to 30 June 2012 the Group's total sales to Labatec Pharma amounted to $215,000 (H1 2011: Nil and FY 2011: $338,000) and the Group total purchases from Labatec Pharma amounted to $1,396,000 (H1 2011: $1,177,000 and FY 2011: $3,805,000). At 30 June 2012 the amount owed to Labatec Pharma from the Group was $892,000 (30 June 2011: $1,269,000 and 31 December 2011: $753,000).

King and Spalding: is a related party of the Group because a 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 2012 fees of $45,000 (H1 2011: $951,000 and FY 2011: $1,216,000) were paid for legal services provided.

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.

Operational risks

Financial risks