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Hikma Pharmaceuticals PLC

2016 Annual Report & Accounts and Notice of 2017 Annual General Meeting

In compliance with Listing Rule 9.6.1, Hikma Pharmaceuticals PLC has submitted copies of the documents listed below to the UKLA and will shortly be available for inspection at http://www.hemscott.com/nsm.do

ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ Annual Report & Accounts 2016

ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ Notice of 2017 Annual General Meeting

ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ Proxy form for the 2017 Annual General Meeting

Copies of the Annual Report and Notice of Meeting will also be available on our website www.hikma.com .

The Annual General Meeting will be held at 10:00 am on Friday 19 May 2017 at Sofitel St James, 6 Waterloo Place, London, SW14 4AN.

In accordance with DTR 6.3.5, this announcement contains information in the attached Appendices of the principal risk factors (Appendix 1), a responsibility statement (Appendix 2) and details of related party transactions (Appendix 3) which has been extracted in full unedited text from the Annual Report and Accounts 2016.ï¿½ Where page numbers and notes are mentioned in the Appendix these refer to page numbers and notes in the Annual Report and Accounts 2016.ï¿½

Enquiries:

Peter Speirs	Tel: +44 (0)207399 2760
Company Secretary

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About Hikma

Hikma Pharmaceuticals PLC is a fast growing pharmaceutical group focused on developing, manufacturing and marketing a broad range of both branded and non-branded generic and in-licensed products.ï¿½ 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.ï¿½ In 2016, Hikma achieved revenues of $1,950 million and profit attributable to shareholders of $155 million.

Appendix 1 - Principal Risks and Uncertainties

During the year, the Board conducted a robust assessment of all the principal risks in the businesses, looking in detail at the nature and scale of the risks being taken and the mitigation approaches. The Board considers that it is possible that more than one principal

risk could escalate at any one point in time. The Board is satisfied that these risks are being managed appropriately and consistently with the target risk appetite.

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The Group faces risks and uncertainties that could have a material impact on its earnings and ability to trade in the future. These principal risks are set out below, although the contents of this table are not deemed as an exhaustive list of all the risks and uncertainties the Group faces.

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Risk

Description

Mitigation and control

Product quality

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ï¿½ï¿½ï¿½ï¿½ï¿½ Situations resulting in poor manufacturing have the potential to lead to:

o Product efficacy and safety issues affecting patients and manufacturing personnel resulting in liability and reputational issues

o Regulatory action that could result in the closure of facilities and consequential loss of opportunity and potential failure to supply obligations

o Delayed or denied approvals for new products

o Product recalls

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

· The 11 FDA approved facilities are regularly assessed by the regulator

· Documented procedures are continuously improved and staff receive training on those procedures on a regular basis

· Continued environment and health certifications

API sourcing

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

· There is a risk that it will not be possible to secure or maintain adequate levels of API supplies in the future

· Regulatory approval of a new supplier can be lengthy and supplies may be disrupted if the Group is forced to replace a supplier which failed to meet applicable regulatory standards or terminated its arrangements with the Group

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

· API suppliers are carefully selected and the Group endeavours to build long-term supply contracts

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

· Utilising supply chain models to maintain adequate API levels

MENA and emerging markets

· Hikma operates in MENA and emerging markets which have high levels of political and social instability as well as economic and regulatory fluctuations that can result in a wide variety of business disruptions in those markets for a substantial period of time

· Geographic diversity reduces the impact of issues arising in one jurisdiction with extensive experience of operating in these environments and developing opportunities

· Strong regulatory team that proactively monitors possible regulatory changes

· Building and nurturing local business relationships whilst upholding the highest ethical standards

· Monitoring, analysing and reacting to economic developments, on short, medium and long-term bases

New product pipeline

· A sizeable proportion of Group revenues and profits derive from a number of strategic products. Failure to maintain a healthy product pipeline will affect the ability of the Group to generate business and limits the ability to provide differentiated products to patients and customers

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

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

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

· Product related acquisitions (e.g. acquisition of West-Ward Columbus)

· Third party pharmaceutical product specialists in addition to strong R&D teams are assisting in the development of manufacturing processes for new generic products. Both are assisted centrally in the implementation and management of projects

Industry earnings

· The dynamics of the generic pharmaceutical industry include numerous volatile elements such as political action, societal changes, regulatory interventions, drug approval patterns, competitor strategies and pricing that are difficult to anticipate and may affect profitability, goodwill and impairment

· Operating in wide range of countries, products and therapeutic areas

· Diversification of manufacturing capability and capacity

· Active product life cycle and pricing management in the MENA region

· Compliantly identify market opportunities and develop appropriate pricing strategies whilst responsibly applying price changes in the US

Acquisitions

· The Group strategy is to pursue value adding acquisitions to expand the product portfolio, acquire manufacturing capabilities and expand in existing and emerging markets. There is risk of misjudging key elements of an acquisition or failing to integrate the assets, particularly where they are distressed

· An acquisition of a large-scale target may entail financing-related risks and operating expenses and significantly increase the Group's leverage if financed with debt

· The mergers and acquisitions team undertake extensive due diligence of each acquisition, including legal, financial, compliance and commercial, and utilise multiple valuation approaches in assessing target acquisition value

· Executive Committee reviews major acquisitions before they are considered by the Board

· The Board is willing and has demonstrated its ability to refuse acquisitions where it considers the price or risk is too high

· Dedicated integration project teams are assigned for the acquisition, which are led by the business head responsible for proposing the opportunity. Following the acquisition of a target, the finance team, the management team and the Audit Committee closely monitor its financial and non-financial performance

ABC compliance

· The pharmaceutical industry and certain MENA and emerging markets are considered to be higher risk in relation to sales practices. Improper conduct by employees could seriously damage the reputation and licence to do business

· Board level - Compliance, Responsibility and Ethics Committee ("CREC")

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

· ABC compliance programme monitored by the CREC

· Over 5,000 employees have received ABC compliance training

· Sales and marketing and other ABC compliance policies and procedures are created, updated and rolled out and are subject to regular audits

· Active participation in international anti-corruption initiatives (e.g. PACI, UN Global Compact)

· Strengthening US compliance operations in line with business expansion

· Conducting legally privileged internal compliance audits

Financial

· The Group is exposed to a variety of financial risks similar to most major international manufacturers such as liquidity, exchange rates, tax uncertainty and debtor default. In addition, most of the other risks could have a financial impact on the Group

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

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

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

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

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

Legal, intellectual property and regulatory

· The Group is exposed to a variety of legal, IP and regulatory risks similar to most relevant major international industries such as changes in laws, regulations and their application, litigation, governmental investigations, sanctions, contractual terms and conditions and potential business disruptions

· Expert internal departments that enhance policies, processes, embed compliance culture, raise awareness

· Train staff and provide terms to mitigate or lower contractual risks where possible

· First class expert external advice is procured to provide independent services and ensure highest standards

· Board of Directors and executive management provide leadership and take action

Information technology

• If information and data are not adequately secured and protected (data security, access controls), this could result in:

o Increased internal/ external security threats

o Compliance and reputational damages

o Regulatory and legal litigation

• Utilise industry-standard information security solutions and best practice process for local and Group requirements

• Continue to stay abreast of cyber-risk activity and, where necessary, implement changes to combat this

• Alignment of IT and business strategy

• Working with strategic third parties to implement and maintain a robust Group wide information security programme

Human resources and organisational growth

• Changes in employment laws pose constant risks. The fast growth of the organisation poses risks to management processes, structures and talent that serve the changing needs of the organisation. In turn, this may affect other risks

• Employ HR programmes that attract, manage and develop talent within the organisation

• Keeping our organisation structures and accountabilities under review, and maintaining the flexibility to make changes smoothly as requirements change

• Continuously upgrade management processes so that they become and remain at the?standards of a global

Reputational

· Reputational risk inescapably arises as a by-product of other risks and from taking complex business decisions. However, we view our reputation as one of our most valuable assets, as risks facing our reputation may affect our ability to conduct core business

· Monitor the internal and external sources that might signal reputational issues

· Sustain corporate responsibility and ethics through transparent reporting and compliance with global best practices (e.g. GHG emissions, UN Global

· Maintain strong communication and corporate affairs

· Establishing partnerships and programmes to limit misuse of Hikma

Appendix 2 - Directors' Responsibility Statement

Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the Parent Company financial statements under IFRSs as adopted by the EU. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, International Accounting Standard 1 requires that Directors:

· Properly select and apply accounting policies

· Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information

· Provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance

· Make an assessment of the Company's ability to continue as a going concern

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for protecting shareholder investments and safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm to the best of our knowledge:

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

· The Strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face

· The Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy

By order of the Board

Said Darwazah
Chairman and Chief Executive
14 March 2017

Mazen Darwazah
Executive Vice Chairman
14 March 2017

Appendix 3 - Related Party Transactions

Related party transactions: Note 40 of the financial statements, page 193.

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 associates and other related parties are disclosed below.

Trading transactions:

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

Boehringer Ingelheim GmbH (BI): is a related party of Hikma because BI owns 16.7% (2015: 0.0%) of the share capital of Hikma, controls 11.7% (2015: 0.0%) of the voting capital of Hikma, has the right to appoint a director of Hikma and a senior executive of BI holds a directorship of Hikma. During the year, the Group total sales to BI amounted to $90.1 million (2015: $nil) and the Group total purchases from BI amounted to $10.3 million. As at the year end, the amount owed from BI to the Group was $45.2 million (2015: $nil). Additionally, balances arising from the acquisition of West-Ward Columbus from BI relating to contingent consideration are disclosed in note 30 and purchase price adjustments which are outstanding are disclosed in note 43.

Capital Bank, Jordan (Capital Bank): is a related party of Hikma because one director of Hikma is a director, the founder and former Chief Executive Officer of Capital Bank. At the year end, total cash balance at Capital Bank was $11.3 million (2015: $9.4 million) and utilisation of facilities granted by Capital Bank to the Group amounted to $8.3 million (2015: $nil). The interest expense/income is within market rate

Darhold Limited (Darhold): is a related party of Hikma because three directors of Hikma jointly constitute the majority of directors and shareholders (with immediate family members) in Darhold and because Darhold owns 25.00% (2015: 29.06%) of the share and voting capital of Hikma.

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

HikmaCure Limited (HikmaCure): is a related party of Hikma because HikmaCure is a 50:50 joint venture (JV) with MIDROC Pharmaceuticals Limited ('MIDROC'). Hikma and MIDROC invested in HikmaCure in equal proportions and have committed to provide up to $22 million each in cash, of which $2.5 million has been paid (2015: $2.5 million).

Hubei Haosun Pharmaceutical Co. Ltd (Haosun): is a related party of Hikma because the Group holds a non-controlling interest of 30.1% (2015: 30.1%) in Haosun. During 2016, total purchases from Haosun were $0.4 million (2015: $0.6 million). At 31 December 2016, the amount owed from Hubei Haosun Pharmaceutical to the Group amounted to $1.7 million (2015: $nil).

Labatec Pharma (Labatec): is a related party of the Group because Labatec is owned by the family of two directors of Hikma. During 2016, total Group sales to Labatec amounted to $1.4 million (2015: $0.9 million). As at the year end, the amount owed by Labatec to the Group was $0.3 million (2015: $0.2 million).

Remuneration of key management personnel

The remuneration of the key management personnel (comprising the Executive and Non-Executive Directors and certain of senior management as set out in the Directors' Report) of the Group is set out below in aggregate for each of the categories specified in IAS 24

Related Party Disclosures. Further information about the remuneration of the individual Directors is provided in the audited part of the Remuneration Committee Report on pages 104 to 135.

	2016 $m	2015 $m
Short-term employee benefits	14.2	14.1
Share-based payments	11.5	6.2
Post-employment benefits	-	0.1
Other benefits	0.3	0.2
	26.0	20.5