THE FUTURE Hikma Pharmaceuticals PLCHikma Pharmaceuticals Annual Report 2016 BUILDING FORBUILDING

HIKMA PHARMACEUTICALS PLC ANNUAL REPORT 2016 Contents We are a leading global specialty pharmaceutical company, generating revenue of around $2.0 billion Strategic report in 2016. We have a balanced business model, comprising three strong businesses that are well- Overview diversified by geography and product. We have IFC / At a glance operations in more than 50 countries across three Our business continents, employing 8,500 people globally. 2 / Chairman and Chief Executive’s statement Our primary objective is to improve lives by providing 4 / Our investment case patients with high-quality, affordable medicines 16 / Market review while creating long-term value for shareholders and 18 / Our strategy and building a sustainable business for our employees 20 / Our key performance indicators and communities. Business and financial review 22 / Injectables 26 / Generics Financial highlights 2016 30 / Branded 34 / Group performance Revenue Sustainability 38 / Our approach to sustainability $1,950m 40 / Meeting healthcare needs 42 / Promoting good business ethics 44 / Supporting our communities Core operating profit1 46 / Enabling our people 48 / Minimising our environmental impact Risk and control $419m 52 / Risk and control Reported operating profit Corporate governance 63 / Message from our Chair $302m 64 / Corporate governance at a glance 68 / Board of Directors EBITDA2 74 / Executive Committee 76 / Governance report 82 / Committee reports 104 / Remuneration report $473m 136 / Directors’ report Profit attributable to shareholders Financial statements 140 / Independent auditors’ report 148 / Consolidated financial statements $155m 153 / Notes to the consolidated financial statements 200 / Company financial statements Dividend per share 203 / Notes to the Company financial statements Shareholder information 33 cents 210 / Shareholder information 212 / Principal Group Companies – Advisers Basic earnings per share 1. Core results are presented to show the underlying performance of the Group, excluding amortisation of intangible assets other than software and the exceptional items set out in note 5 66.5 cents 2. Earnings before interest, tax, depreciation and amortisation At a glance

A FOUNDATION FOR THE FUTURE

We develop, manufacture and market a broad range of branded and non-branded generic pharmaceutical products across the United States (US), the Middle East and North Africa (MENA) and Europe. We are also a leading licensing partner in MENA. Our operations span more than 50 countries and are conducted through three business segments.

Our business segments

Injectables Generics Branded Our Injectables business sells Our Generics business sells Our Branded business sells branded specialised generic injectable non-injectable generic products generics and in-licensed innovative products globally, with state-of-the- in the US, with an increasingly products across the MENA and art manufacturing facilities in the differentiated portfolio and pipeline. other emerging markets. US and Europe.

Highlights Highlights Highlights • A leading global manufacturer • Seventh largest manufacturer • Fifth largest pharmaceutical of sterile injectables of non-injectable generics in manufacturer in the MENA • US Food and Drug the US market • Nearly 2,000 sales people Administration (FDA) • Large portfolio of targeting physicians and approved facilities in the US, differentiated products pharmacists across the region Portugal and Germany • State-of-the-art facilities in • Strong anti-infective franchise • A range of manufacturing the US with a broad range and increasing focus on capabilities, including sterile of capabilities cardiovascular, diabetes and liquid, powder, lyophilised • Utilises our lower-cost US central nervous system and cytotoxic products FDA-approved facilities in (CNS) products • Broad product portfolio Jordan and Saudi Arabia • US FDA-approved manufacturing including controlled substances, • 109 products in 375 dosage facilities in Jordan and anti-infective, cardiovascular forms and strengths Saudi Arabia and oncology products • Key products include: amoxicillin, • 397 products in 1,235 dosage • 201 products in 571 dosage buprenorphine, butalbital, forms and strengths forms and strengths acetaminophen & caffeine, • Key products include Amoclan®, • Key products include: fentanyl, colchicine, and fluticasone Blopress®, Omnicef®, Prograf® glycopyrrolate, neostigmine, and Suprax® nicardipine, and thiotepa

Find out more Business segments Injectables 22 To find out more about how we have Generics 26 performed in each of our businesses, go to the business and financial review. Branded 30 Key 29 manufacturing plants in 11 countries

7 R&D centres

United States MENA Europe and rest of the world 62% 33% 5% of Group revenue of Group revenue of Group revenue

In the US, we have more than 2,000 Hikma has nearly 5,000 employees in Hikma has nearly 700 employees in Europe employees. Our large state-of-the-art the MENA. We have local manufacturing – primarily in Portugal, Germany and Italy – manufacturing facilities – one for sterile facilities in seven markets and sales and where we have injectable manufacturing injectables and two for oral solids – supply marketing teams detailing doctors and facilities. These facilities supply injectable a broad range of products to patients in pharmacists across 17 markets. products to our global markets. the US market.

Revenue by business segment Revenue by region

Injectables $781m United States $1,211m Generics $604m MENA $641m Branded $556m Europe and Others $9m rest of the world $98m Strategic report OUR STRONG INVESTMENT CASE

Diversified business model Corporate governance

Established commercial capabilities

Strong global portfolio across diverse markets

Experienced R&D teams and a large,

differentiated pipeline Financial statements

High-quality global manufacturing footprint and efficient operations

Experienced management teams with a proven track record

IS CREATING LONG-TERM SUSTAINABLE VALUE

Annual Report 2016 1 Chairman and Chief Executive’s statement

BUILDING FOR THE FUTURE

We have a long history of improving lives A year of transformation by providing a reliable supply of high-quality, 2016 was a year of transformation as we re-balanced and strengthened our business to position ourselves affordable medicines to doctors and patients. for future growth. As a result of these actions, I am This was our founder’s vision and I am pleased to pleased to say that our business has never been in be carrying this on today. To achieve this in a better shape strategically. Despite some challenging trading conditions in 2016, we grew by 35% to reach fast-changing world, we need to be extremely revenue of around $2.0 billion. competitive, agile and entrepreneurial. We have a clear strategy for growth, which centres on optimising our current portfolio, developing our people, deepening our investment in product development, expanding our manufacturing capabilities and looking for new M&A opportunities. As a well-diversified organisation, we are positioned to capture significant new opportunities and enter new markets, while continuing to grow in our traditional regions, the US and the MENA.

Strategic partnerships and M&A We started the year with the completion of the Roxane Laboratories acquisition (now West-Ward Columbus), our largest and most significant acquisition to date, establishing us as a top ten US generics manufacturer. The integration of this acquisition and the successful ANDA filing for generic Advair were two of the key achievements of 2016. In addition to this acquisition, we formed new strategic partnerships and expanded our relationship with some of our existing partners. This included broadening our agreement with Basilea Pharmaceutica International Ltd to be their exclusive licensing, supply and distribution partner in the MENA for their anti-infective Cresemba®. We also strengthened our partnership with Vectura with the signing of a US development and licence agreement for a generic long acting beta-agonist (LABA) for the treatment of asthma and COPD delivered using Vectura’s proprietary dry powder inhalation technology and device. In 2016, we also made investments through our venture capital arm, Hikma Ventures, in Propeller Health, the leading digital solution for respiratory medicine, and in Chrono Therapeutics for their wearable transdermal smoking cessation device. These types of partnerships and selective investments in innovative new technologies, in addition to strategic M&A, will remain vital to the business as we move forward.

2 Hikma Pharmaceuticals PLC Strengthening our portfolio Creating value for shareholders Strategic report Across the Group, we have continued to optimise our We remain committed to creating value for our product portfolio, prioritising products with the greatest shareholders. Since Hikma listed on the London Stock promise and rationalising those that have become less Exchange in 2005 through to the end of 2016, we have attractive. New product introductions have also enhanced delivered a total shareholder return of 343%. We are our portfolio in 2016, as we launched more than delighted with this performance, which exceeds that of 200 products in different dosage forms and strengths the FTSE 250 index and the FTSE Pharmaceutical index, globally, including the re-introduction of the products whose total shareholder return was 154% and 119% that came with our acquisition of Bedford Laboratories respectively over the same period. We have been able to in 2014. achieve this in a manner that is transparent, ethical and sustainable. To that end, I am proud that we continue We have large and exciting pipelines for all of our to be recognised by the FTSE4Good as a leader in good businesses, with approximately 1,000 products in different Environmental, Governance and Sustainability practices. dosage forms and strengths pending regulatory approval and around 400 in our development pipeline globally. It is imperative that we continue to invest in pipeline Looking ahead Corporate governance replenishment to underpin sustainable long-term growth As we look to 2017 and beyond, I believe that we have and the investments we have been making in R&D support never been in a better position to deliver on the promise this. The development of generic Advair, which we hope of our mission to provide high-quality, affordable medicines will be approved in 2017, is an excellent example of our to people who need them. We’ve brought some excellent strategic focus on differentiated products. new talent into the business in 2016, and we continue to invest in the development and welfare of our people. Adding capacity I would like to thank my Hikma colleagues in all the parts of the world where we operate for their steadfast With strong demand for our currently marketed products commitment and continued hard work. and a sizeable pipeline, we are investing to ensure we have the capacity to continue delivering as we grow. In particular, we have significantly increased our sterile injectables capacity, transferring high-quality machinery and equipment from the Bedford acquisition to our Financial statements various sites in Portugal, Germany and the US. Said Darwazah This investment will enable us to quickly and efficiently Chairman and Chief Executive Officer execute our medium to long-term product launch programme and expand across all of our markets.

Driving better collaboration and efficiencies We made good strides in 2016 to improve our operating processes and systems so we can do things better and faster. This includes the transfer of a number of members of our management team from across our geographies to our Group headquarters in London. This will enable greater collaboration between our businesses, as well as improving the speed and efficiency of decision making. Across all of our markets we are focusing on efficiency. In HR and IT this has meant the introduction of new communications and management systems designed to improve connectivity and collaboration. At our 29 manufacturing facilities in 11 countries around the world, we are seeking to drive continuous manufacturing efficiencies while maintaining quality. Our sales teams have been effectively improving resource deployment and increasing productivity, enabling us to better and more cost-effectively meet the needs of doctors and patients.

Annual Report 2016 3 Our investment case

DIVERSIFIED BUSINESS MODEL Our business is well-diversified by geography and product. Our inputs

Financial People Values Relationships Capabilities Capital investment in We have a highly We are committed to Strong relationships We have extensive R&D, manufacturing skilled, diverse and conducting business with regulators and manufacturing facilities and M&A effective workforce. ethically and strive to health authorities across capabilities across enable us to expand Through continuous achieve the highest- all of our markets, and our global markets our product portfolio, training of our people quality standards. successful collaborations focused on operational technical capabilities, and by hiring new This approach helps with industry partners, excellence and efficiency. geographic reach and talent, we secure our ensure our business enable us to achieve manufacturing capacity. future development. is sustainable. our growth objectives.

Our activities

Develop and innovate: M an We are developing broad and differentiated portfolios of generic, uf branded generic and in-licensed products through internal R&D, e ac at tu co-development partnerships, licensing agreements and acquisitions. ov re n a n n i Branded d d n m a a Manufacture and maintain quality: i p n o l t a We are committed to maintaining the highest-quality standards in all e i v n e of our manufacturing facilities. We have 29 plants across the Group

q D Our mission u that supply our global markets with a broad range of injectable and Providing patients a

l

i non-injectable products, including 12 US FDA-approved facilities and

with better access t y to high-quality, nine EU-approved facilities. cost-effective medicines Injectables Generics Market across geographies: We actively promote, sell and distribute our products in our markets through experienced sales and marketing teams. In the MENA region, nearly 2,000 representatives market our brands to doctors and pharmacists, while our sales teams in the US and Europe are selling to a broad range of customers including the leading wholesalers, pharmacy chains, M governments and hospital purchasing organisations. ark hies et across geograp

The value we create

Patient benefits Employee benefits Shareholder returns Sustainable business Our high-quality, affordable By focusing on the Economic and financial By conducting our business well generic medicines benefit empowerment and returns are reinvested for and acting responsibly, we are patients across our markets. development of our people, future growth. benefiting our employees and we provide long and rewarding our communities. careers for our talented and diverse workforce. To find out more, see page 38 to 51.

4 Hikma Pharmaceuticals PLC Strategic report

How we are different

Our commitment to quality Our global footprint Our differentiated portfolio Quality has been the founding principle of Our presence today spans more than We are continuously developing our Hikma – our culture, people, processes and 50 countries across the globe. We have large and broad global product portfolio

facilities reflect this commitment and enable leading market positions in the US and the to address patients’ evolving needs. Across Corporate governance us to ensure the safety of our products. MENA, where our differentiated operating our businesses we are increasing our focus Embedding the highest-possible quality model, with strong, established local on products with one or more layers of standards within our business ensures our businesses in each of our markets, differentiation including innovative strategic priorities are delivered, while enables us to capture attractive in-licensed products, first-to-market maintaining a transparent and ethical growth opportunities. generics, hard-to-manufacture culture across the Group. products and complex products. Financial statements

Annual Report 2016 5 Our investment case

ESTABLISHED COMMERCIAL CAPABILITIES

Hikma operates in attractive markets with significant growth opportunities. Our strong commercial capabilities are enabling us to successfully leverage our global portfolio to drive growth. Our sales and marketing team of close to 2,000 people across the MENA supports our position as the fifth largest pharmaceutical manufacturer in the region and the largest regional player. We are the seventh largest pharmaceutical manufacturer in the US, with nationwide sales coverage.

Sales and marketing employees 2,147

2,164

2,147

2,089

14 15 16

6 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 7 Annual Report 2016 Our investment case

STRONG GLOBAL PORTFOLIO ACROSS DIVERSE MARKETS We have a broad global product portfolio, with over 700 products in approximately 2,200 dosage forms and strengths, across multiple therapeutic categories. This is a competitive advantage, creating a leading presence in key markets and strategically positioning us to capture opportunities in a dynamic market environment. Good momentum in new product launches, with an increasing focus on more differentiated and complex products, is enabling us to meet patient demand for a wider range of high-quality, affordable medicines.

Products on the market 707

707

588 582

14 15 16

8 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 9 Annual Report 2016 Our investment case

EXPERIENCED R&D TEAMS AND A LARGE, DIFFERENTIATED PIPELINE Through increased investment and recent strategic acquisitions, we have developed and strengthened our R&D capabilities to support sustainable long-term growth. We have dedicated and experienced R&D teams, with the ability to execute and replenish our large and growing product pipeline. We have close to 1,000 products pending approval from global regulatory authorities and approximately 400 products under active development. We have the expertise and resources to focus on more complex and differentiated products across a range of therapeutic categories, dosage forms and delivery systems.

R&D expenditure* and product-related investment ($) (million) $139m

139

79 71

14 15 16

* R&D expenditure is stated before exceptional items 10 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 11 Annual Report 2016 Our investment case

HIGH-QUALITY GLOBAL MANUFACTURING FOOTPRINT AND EFFICIENT OPERATIONS Hikma has an extensive and well-established manufacturing footprint. We operate 29 facilities in 11 countries, across the US, Europe and the MENA, 12 of which are approved by the US FDA and nine of which are EU-approved. The strategic investment we have made in our manufacturing capabilities and capacity has created a strong competitive advantage and enabled us to capture significant market opportunities. Quality is critical to our success and our excellent track record of regulatory compliance has made us a trusted partner to our customers.

Number of production employees 4,904

4,904

3,986 3,896

14 15 16

12 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 13 Annual Report 2016 Our investment case

EXPERIENCED MANAGEMENT TEAMS WITH A PROVEN TRACK RECORD Our experienced management teams have a long history of delivering strong growth. Since listing on the London Stock Exchange in 2005, we have grown revenue at a compound annual rate of 20%, from $262 million to around $2.0 billion in 2016. Over the same period, Hikma’s market capitalisation has increased from $0.9 billion to $5.6 billion, firmly establishing Hikma as a leading global pharmaceutical company, and we have delivered a total shareholder return of 343%. We continue to set ourselves ambitious targets for future growth, which will be delivered through strong organic growth and further strategic acquisitions.

Revenue ($) (million) $1,950m 1,950

1,489 1,440

14 15 16

14 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 15 Annual Report 2016 Market review

UNDERSTANDING GLOBAL HEALTHCARE

The global pharmaceutical market continues to grow and is expected to reach $1.5 trillion by 2021, growing at between 4% and 7% per annum.1 Despite a slowdown in economic growth worldwide, long-term demographic trends and changing lifestyles are continuing to drive increased demand for healthcare globally. At the same time, governments in both developed and emerging markets are focused on managing their healthcare budgets, which is increasing the generics’ share of the pharmaceutical market. Strong demand for high-quality, affordable generics is expected to continue to grow.

Outlook in our markets 1. An ageing population and Hikma is present in over 50 countries, with the US and shifting behaviours the MENA region being our largest markets. The US Scientific advances and improved access to healthcare pharmaceutical market is expected to reach $612 billion are contributing to a rise in life expectancy and increasing by 2020, growing at a compound annual growth rate the proportion of elderly people worldwide. According 2 (CAGR) of approximately 7%. The US generics market to United Nations’ projections, the world’s population is is the largest in the world and around 90% of drugs expected to grow by more than 1 billion people by 2030, 3 dispensed in the US are generics. Generic uptake with the number of people over the age of 60 expected is being driven by patent expiries of branded drugs, to rise by 500 million to 1.4 billion. At the same time, pro-generic policy reforms and governments’ focus changes in diet and activity patterns over the last 20 years, on affordable healthcare. with lifestyles becoming more sedentary, have contributed At $32 billion,4 the MENA region represents around to a doubling of global obesity rates among adults and 3% of the global pharmaceutical market. Growth in the tripling among children. These changes in demographics MENA pharmaceutical market slowed in 2016 due to the and lifestyles are contributing to an increase in chronic impact of prolonged low oil prices and political instability. illnesses such as cancer, diabetes, heart disease and Whilst growth is forecast to pick up as oil prices continue respiratory conditions. on a gradual upward trajectory, this slow recovery is likely to impact pharmaceutical spending. Given the importance of healthcare access for maintaining social stability and economic diversification, the slowdown in expenditure is “Hikma’s strategy in the MENA is aligned not expected to persist. Cutbacks in healthcare may also to the market trends. Over the last few pave the way for more affordable and sustainable medical years, we have been rapidly developing our solutions in the coming years. product portfolio in the fast growing chronic Below are the four key macro trends that we believe are disease categories, while maintaining our having the most impact on the generic pharmaceutical large portfolio of anti-infective products. markets where we operate. Our diverse product range, strong R&D capabilities and extensive commercial presence will ensure we are well positioned to meet the changing needs of patients.”

Mazen Darwazah Executive Vice Chairman, Chief Executive of MENA and Emerging Markets 16 Hikma Pharmaceuticals PLC The shift in disease patterns is especially marked in 3. Increasing pressure on pharmaceutical Strategic report the MENA region. Whilst infectious diseases remain pricing in the US more prevalent, chronic illnesses are expected to rise disproportionately fast. Diabetes is expected to be the Pricing pressure continued to increase across global fastest growing disease in MENA, with cancer and pharmaceutical markets in 2016, and in particular in the cardiovascular diseases also forecast to grow rapidly.5 US, as a result of customer and competitor consolidation and the political environment. Against a broader backdrop of steadily rising healthcare costs, there has also been 2. Global rise in healthcare spending and increased scrutiny on drug pricing in the US by the increased generic uptake government, media and consumers. We expect this scrutiny to continue in 2017 as political pressures The increased demand for high-quality healthcare mount and healthcare payers step up initiatives around the world as a result of ageing populations and to impose price cuts. changing behaviours has translated into rising healthcare costs. Due to the need for governments to contain these costs, generics are expected to continue taking a larger Corporate governance share of the total global pharmaceutical spend, increasing “The current market environment in the US from 27% ($261 billion) in 2012 to 36% ($421 billion) is creating an opportunity for companies by 2017, at a CAGR of 10%.6 that can provide high-quality medicines In the US, patent expiries, pro-generic healthcare reforms at affordable prices. This dynamic is also and increased acceptance of generic drugs by patients increasing the importance of scale and and healthcare professionals will continue to grow the differentiation. It is more important than generic pharmaceutical market. Generics already account ever to have a large and differentiated for the vast majority of prescription medicine usage and product offering, quality assurance and the percentage of all dispensed prescriptions is expected to rise from 90% to 92% by 2021.7 a competitive cost structure; all of which allow for long-term value creation.” While many of the growth economies are improving access to healthcare, governments, healthcare insurers Mike Raya and consumers in both developed and developing Chief Executive Officer, West-Ward Pharmaceuticals Financial statements countries will continue to look for ways to control spending.

4. Economic uncertainty in MENA “In an increasingly cost-conscious environment, Many markets in the MENA region continue to be we are well-positioned to meet patient impacted by political and economic instability. In the needs as one of the largest suppliers of Gulf Cooperation Council (GCC) markets, the effects of high-quality, affordable medicines. At the a weakened oil sector have become increasingly visible same time, we are working to address and markets in North Africa have seen their currencies significant medical needs by focusing weaken substantially. The long-term growth outlook is nonetheless still positive with the gradual rebalancing our development activities on complex of oil prices, governments’ prioritisation of healthcare generic products that require advanced expenditure and government initiatives to improve manufacturing technology.” pricing and speed up product registrations expected to underpin growth. Riad Mishlawi EU Vice President and Global Head of Injectables

1. Quintiles IMS: Outlook for Global Medicines through 2021 (December 2016) 2. Quintiles IMS: Strategic Market Review for Hikma Pharma (November 2016) 3. Quintiles IMS: Outlook for Global Medicines through 2021 (December 2016) 4. BMI Research: Pharmaceuticals and Healthcare outlook for 2017: MENA (November 2016) 5. PWC: Pharma Emerging Markets 2.0 2013 6. Deloitte: Global Life Sciences Outlook 2016 7. Quintiles IMS: Outlook for Global Medicines through 2021 (December 2016)

Annual Report 2016 17 Our strategy

Strategic priorities DELIVERING ON Maximise portfolio potential across our markets OUR STRATEGY We are maximising the potential of our marketed products, leveraging our skilled sales and marketing teams and building on our strong customer relationships. Our strategy is to deliver high-quality and affordable generic and branded generic medicines to patients by: Optimise operations and drive efficiencies –– strengthening our position as a leading We are investing in high-quality non-injectable generics company in the US; manufacturing facilities to improve the efficiency of our processes, while maintaining –– maintaining our position as a top three generic tight control of overheads, general and injectables company in the US and expanding administrative and other operating expenses. in existing and new markets; and –– maintaining our position as the leading regional player in the MENA and expanding Develop a differentiated product portfolio by building best-in-class in new emerging markets. R&D capabilities We are delivering our strategy through our We are enhancing our product offering and strengthening our competitive position by key strategic priorities and measuring our investing in our in-house R&D capabilities performance with relevant key performance and external partnerships to develop indicators (KPIs). differentiated products.

Attract and develop talent across the Group We are investing in the training and development of our people, while hiring talented new employees to support our future growth plans.

Find out more Our strategy and key performance indicators To find out more about how we Use M&A and capital have performed in each of our investment to accelerate business segments, go to the organic growth opportunities business and financial review. We are investing to expand our product Injectables 22 portfolio, technological capabilities, geographic Generics 26 reach and manufacturing capacity through Branded 30 capital investment and M&A.

18 Hikma Pharmaceuticals PLC 2016 highlights KPIs Principal risks Outlook Strategic report

• Group revenue of around $2.0 billion Group revenue ($m) • Product quality: risk of • Group revenue of $2.2 billion • Injectables revenue growth of 10% not meeting required in constant currency • Branded revenue down 2%, and up quality standards • Injectables revenue of 5% in constant currency $1,950 • Operating in the $800 million to $825 million • Generics revenue of $604 million, MENA and emerging • Branded revenue growth in including the consolidation of markets: risk of the mid-single digits in ten months of West-Ward Columbus business disruptions constant currency • Generics revenue of around $800 million

• Good control of overheads and Group profit before • Product quality: risk • Continue to invest in operating costs across the Group tax ($m) of regulatory action quality across our facilities • Strong growth in Injectables profit • Industry earnings: • Ongoing implementation of Corporate governance • Significantly improved Branded profitability risk of regulatory cost control programmes in constant currency $210 interventions, across the Group • Began programme to review MENA unpredictable drug facilities to improve efficiencies approval timings and difficult to anticipate • Achieved significant cost savings of over competitor strategies $35 million within West-Ward Columbus and pricing

• Total investment of $139 million in R&D and Product approvals • API sourcing: risk of • Continued execution and product-related investments (7% of revenue) difficulty obtaining replenishment of our product • Significantly strengthened in-house R&D and/or maintaining pipeline across our markets capabilities with West-Ward Columbus 343 adequate levels of API • Targeting $170 million of R&D

acquisition • Industry earnings: risk investment across the Group Financial statements • First-generic-to-market for key products of unpredictable drug in Algeria, Egypt, GCC and US approval patterns • Launched a first-to-file injectable generic, Product submissions levoleucovorin, in the US • Six approvals of former Bedford products • Launched first biosimilar monoclonal 188 antibody in Saudi Arabia, RemsimaTM

• Progressed our ‘Women Number of • Organisational • Conduct development Empowerment’ programme employees with growth: risk of not programmes across the Group • Launched talent reviews across the Group length of service of maintaining adequate as part of succession planning to identify high-performers at all levels more than five years talent acquisition • Implement various modules • Initiated a succession planning process strategies, organisation in the new Human Capital across key Group functions structure and/or Management System in management • Transferred a number of key employees from 4,598 some regions processes across the Group to our London headquarters • Recruit across our businesses to enhance global collaboration to support growth

• Completed acquisition of Return on invested • Acquisitions: risk • Continue to evaluate West-Ward Columbus capital (%) of misjudging key investment opportunities • Completed acquisition of EUP in Egypt elements of an in new and existing markets • Invested $122 million of capital expenditure acquisition, failing • Complete new oncology across the Group 10.6 to integrate assets, facility in Portugal financing-related • Progressed expansion of injectables risks and operating facility in Portugal expenses

To find out more about our Annual Report 2016 principal risks, go to page 54. 19 Our key performance indicators

Group Group profit MEASURING revenue ($m) before tax ($m) OUR PROGRESS $1,950 $210 1,950 362 318 1,489 298 1,356 1,440 1,109 210

132

12 13 14 15 16 12 13 14 15 16

Total annual revenue Total annual profit before generated across all tax generated by the Group businesses within the Group Description

This measures our ability This measures our ability to extract value from our to grow revenue, deliver product portfolio across efficiencies and ensure our global markets cost control, while maintaining high-quality manufacturing facilities Why is it a KPI?

Group revenue growth The decrease in Group profit of 35% primarily reflects before tax reflects growth in Find out more a good performance by core Group operating profit, Our strategy and key the Injectables business offset by a significant increase performance indicators and the consolidation of in exceptional items, primarily To find out more about how ten months of revenue related to the West-Ward from West-Ward Columbus Columbus acquisition we’ve performed in each of 2016 Performance our business segments, go to the business and financial review. Injectables 22 Generics 26 Branded 30

20 Hikma Pharmaceuticals PLC Product Product Employees with more Return on invested Strategic report approvals submissions than five years’ service capital (%) 343 188 4,598 10.6%

24.0 362 4,598 23.0 23.4 343 505 298 3,674 3,736 417 389 2,899 13.0 2,107 10.6 216 Corporate governance 132 188 81

12 13 14 15 16 12 13 14 15 16 12 13 14 15 16 12 13 14 15 16

The number of products The number of products The number of employees Operating profit after approved by regulatory submitted to regulatory who have been employed interest and tax divided by authorities across the Group authorities for approval by the Group for more than invested capital (calculated across the Group five years as total equity plus total debt and obligations under finance leases) Financial statements

This measures our ability This measures our R&D This measures our ability This measures our efficiency to successfully execute capabilities in new to retain a talented work in allocating capital to our product pipeline product development force across the Group profitable investments across the Group across the Group

We are maintaining a The decrease in the number An increase in the number The decrease in return on high level of product of product submissions is of employees with a length invested capital reflects the approvals through primarily due to lower of service above five years significant investment of increased investment in submissions in Europe reflects the success of our $1.5 billion made to acquire R&D and a continuous and MENA initiatives to attract and West-Ward Columbus in improvement in the retain talented employees 2016, which will drive returns quality of our filings over the longer term

Annual Report 2016 21 Business and financial review Injectables DELIVERING STRONG GROWTH AND INVESTING IN PIPELINE DEVELOPMENT

Maximise Optimise Develop a Attract and Use M&A portfolio operations and differentiated develop talent and capital potential across drive efficiencies product portfolio across the Group investment our markets by building to accelerate best-in-class organic growth R&D capabilities opportunities

• Delivered Injectables • Maintained very • More than doubled • Successfully integrated • Invested to expand revenue growth of 10% strong operating investment in R&D R&D employees across capacity and capabilities • US revenue up 11%, margin through a • Launched 79 products various locations in our facilities in the reflecting good demand focus on higher value in different dosage US and Europe across our broad products and increased forms and strengths, portfolio and new operational efficiencies including six former 2016 Highlights product launches, Bedford products including Bedford • Submitted 86 products products in different dosage • MENA revenue up 5% forms and strengths in constant currency across our markets • Europe revenue up 15%

• Deliver global Injectables • Continue to invest in • Continue to increase • Conduct behavioural • Evaluate potential to revenue in the range quality and drive investment in R&D competency assessments expand in new markets of $800 million to operating efficiencies and to focus on for senior leaders as and invest in new $825 million differentiated products part of our succession technologies management process • Continue strengthening 2017 Objectives the Injectables team for future growth through new hires

Ensuring sustainable long-term growth

Measuring our performance

Revenue ($m) Core operating margin1 (%) Marketed products

16 781 16 43.5 16 201

15 710 15 43.9 15 185

1. Core results are presented to show the underlying performance, excluding amortisation of intangible assets other than software and exceptional items set out in note 5 22 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 23 Annual Report 2016 Business and financial review continued Injectables continued

Summary financial highlights – Injectables Constant currency $ million 2016 2015 Change change Revenue 781 710 +10% +11% Gross profit 505 449 +12% +14% Gross margin 64.7% 63.2% +1.5pp +1.5pp Core operating profit 340 312 +9% 11% Core operating margin 43.5% 43.9% -0.4pp –

Injectables revenue by region 2016 2015 US 607 78% 546 77% MENA 91 12% 92 13% Europe and ROW 83 10% 72 10% Total 781 710

2016 highlights: • Global Injectables revenue of $781 million, up 10% • Launched 9 Bedford products by the end of 2016 and from 2015 and up 11% in constant currency on target to launch a total of 20 Bedford products by • Strong core operating margin of 43.5%, even with the end of 2017 a significant increase in R&D spend • Expect Injectables revenue to be in the range of $800 million to $825 million in 2017 and core operating margin to be in the high 30s after a further step-up in R&D investment

In 2016, global Injectables revenue grew by 10% to European Injectables revenue was $83 million in 2016, up $781 million. In constant currency, global Injectables 15% and up 17% in constant currency, reflecting strong revenue increased by 11%. growth in sales of our own products and good demand for our contract manufacturing services. Of this total, US Injectables revenue was $607 million, up 11% from $546 million in 2015. This strong growth Injectables gross profit increased to $505 million in reflected good demand across our broad product portfolio 2016, compared with $449 million in 2015. Gross and new product launches, including former Bedford margin increased to 64.7%, compared with 63.2% products, which more than offset increased competition in 2015. The continued strong gross margin reflects a on other products. favourable product mix in the US due to the contribution from higher value products, an improvement in the sales During 2016, MENA Injectables revenue was $91 million, mix in the MENA and operating efficiencies in Europe. compared with $92 million in 2015. In constant currency, revenue increased by 5%, reflecting good growth in most markets, which more than compensated for lower revenue in Algeria. In February 2016, we completed the acquisition of EIMC United Pharmaceuticals (EUP) in Egypt, adding a local injectables manufacturing facility and significantly enhancing our oncology business.

24 Hikma Pharmaceuticals PLC Core operating profit, which excludes the amortisation We expect the Injectables business to deliver continued Strategic report of intangible assets other than software and exceptional growth in 2017, with strong demand across our global items, was $340 million in 2016, up from $312 million portfolio and new product launches more than offsetting in 2015. Core operating margin was 43.5%, compared the impact of increased competition. We expect Injectables with 43.9% in 2015. The continued strength of the core revenue to be in the range of $800 million to $825 million. operating margin is a result of the strong gross margin We expect core operating margin to be in the high 30s in and operational efficiencies across the business. This 2017, which assumes a further step-up in R&D investment. margin was achieved even with a significant increase in R&D expense in 2016 as we invest in building our global injectables pipeline. During 2016, the Injectables business launched a total of 79 products in different dosages and strengths across all markets, including 13 new products. The Injectables business also received a total of 127 regulatory approvals for products in different dosages and strengths across all Corporate governance regions and markets, 52 in the MENA, 54 in Europe and 21 in the US. Financial statements

Annual Report 2016 25 Business and financial review continued Generics DELIVERING COST SAVINGS WHILST INVESTING IN PIPELINE DEVELOPMENT

Maximise Optimise Develop a Attract and Use M&A portfolio operations and differentiated develop talent and capital potential across drive efficiencies product portfolio across the Group investment our markets by building to accelerate best-in-class organic growth R&D capabilities opportunities

• Delivered revenue of • Implemented cost • Significantly • Successfully integrated • Completed the $604 million, including savings of over strengthened our R&D employees from acquisition of the consolidation of ten $35 million capabilities, adding a the newly acquired West-Ward Columbus months of revenue from large and experienced West-Ward Columbus – adding a large West-Ward Columbus team from West-Ward business portfolio, rich pipeline, Columbus experienced R&D team 2016 Highlights • Launched 18 products and state-of-the art in different dosage manufacturing facility forms and strengths • Submitted 71 products in different dosage forms and strengths

• Deliver revenue of • Improve the mix of sales • Continue to launch • Position the business for • Continue to pursue around $800 million to increase profitability products from our future growth through product acquisitions through new product • Continue to focus on large and differentiated new hires and/or and new partnerships launches and portfolio operating efficiencies pipeline reorganisational changes to enhance our pipeline optimisation • Obtain an approval for generic Advair 2017 Objectives

Ensuring sustainable long-term growth

Measuring our performance

Revenue ($m) Core operating margin (%) Marketed products

16 604 16 5.8 16 109

15 151 15 30.5 15 26

26 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 27 Annual Report 2016 Business and financial review continued Generics continued

Summary financial highlights – Generics $ million 2016 2015 Change Revenue 604 151 +300% Core Gross profit 228 89 +156% Core Gross margin 37.7% 58.9% -21.2pp Core operating profit 35 46 -24% Core operating margin 5.8% 30.5% -24.7pp

2016 highlights: • Generics revenue of $604 million, up from $151 million • Good progress with the West-Ward Columbus in 2015, primarily reflecting the consolidation of ten integration, achieving cost savings of over $35 million months of West-Ward Columbus • Continue to expect Generics revenue of around • Core operating profit of $35 million, in line with the $800 million in 2017 and a significant improvement most recent guidance, compared with $46 million in core operating profit in 2015, due to an anticipated reduction in the contribution from the legacy business and higher sales and marketing costs

Generics revenue was $604 million in 2016. Our legacy Generics gross profit was $196 million in 2016, Generics business contributed revenue of $130 million compared with $89 million in 2015. Excluding the impact compared with $151 million in 2015. As expected, this of exceptional items, core gross profit was $228 million. was due to lower revenue from certain products and the Gross margin was 32.5%, and core gross margin was required divestment of products in connection with the 37.7%, compared with 58.9% in 2015. The margin West-Ward Columbus acquisition, partially offset by decline reflects the less favourable sales mix of the steady growth in colchicine sales. legacy business in 2016 and the high overhead costs of West-Ward Columbus. Following completion of the acquisition on 29 February 2016, West-Ward Columbus contributed Core Generics operating profit was $35 million in 2016, revenue of $477 million. This was below our expectations compared with $46 million in 2015, in line with our most at the start of year, primarily due to delays in new product recent guidance and after achieving over $35 million of launches. It also reflects slower than expected volume cost savings. Core operating margin was 5.8%, compared growth from marketed products. with 30.5% in 2015, reflecting the lower gross margin, increased sales and marketing expenses and the high operating costs of the West-Ward Columbus business.

28 Hikma Pharmaceuticals PLC The Generics business reported an operating loss of We continue to expect revenue for the Generics business Strategic report $14 million in 2016 after the amortisation of intangible to be around $800 million in 2017, with an improvement assets of $16 million and exceptional items of $33 million. in the mix of sales and new product launches more The exceptional items primarily related to the West-Ward than offsetting the impact of increased competition Columbus acquisition, comprising inventory-related on the marketed portfolio and a reduction in contract adjustments of $27 million, integration and other costs of manufacturing revenue. Certain new launches are $9 million and the net gain from the divestment of certain expected to contribute around 15% of Generics legacy Generics products of $18 million. In addition, it revenue in 2017, primarily generic Advair, which is reflects an adjustment of $15 million associated with the assumed to be launched in the second half of the year. impairment and write-down of intangible assets related We expect the profitability of the Generics business to to co-development agreements entered into by our significantly improve in 2017, driven by new product legacy business. launches, an enhanced mix of sales and a continued During 2016, the Generics business launched 18 new focus on operating efficiencies. products in different dosages and strengths and received

18 approvals for products in different dosages and Corporate governance strengths. The Generics business also signed new licensing agreements for 4 new products. Financial statements

Annual Report 2016 29 2017 Objectives 2016 Highlights MARKET POSITIONS BUILDING ONOURLEADING Branded Business andfinancial review continued 30 15 16 Revenue ($m) performance our Measuring • • markets across our potential portfolio Maximise • in theGCC offset byslowdown and Egypt,partially particularly Algeria in mostmarkets, performances Strong currency of 5%inconstant Revenue growth currency growth inconstant digit revenue Deliver mid-single

• efficiencies and drive operations Optimise • control mix andtightcost improved product reflecting an constant currency, improvement in Significant margin currency in constant operating margin improving core Continue 556 570 Core operatingmargin(%) 15 16 Ensuring sustainablelong-termgrowth R&D capabilities best-in-class by building product portfolio differentiated Develop a • • • • • forms andstrengths in different dosage Submitted 90 products Saudi Arabia in Algeria,Egyptand Launched firstgenerics markets across ourMENA forms andstrengths in different dosage Launched 109products licensing agreements Continue toattractnew development accelerate pipeline R&D centres to leveraging ourlocal in newproducts, Continue investing

across theGroup Attract anddeveloptalent • • • • succession managementprocess for seniorleadersaspartofour Conducted behaviouralassessments and juniorHikmaemployees programme fornewgraduates Professional Excellence(HYPE) Launched theHikmaYoung Human CapitalManagementSystem management systemwithinthenew Introduce anewperformance conducting competencyassessments and developmentactivities Jordan fordeliveringlearning Establish aHikmaAcademyin 20.1 20.7 Marketed products 15 16

Hikma Pharmaceuticals PLC opportunities opportunities organic growth to accelerate investment and capital Use M&A • • • across theMENA upgrading ourplants in maintainingand Invested $31million in Egypt acquisition ofEUP Completed the emerging markets in existingandnew M&A opportunities Continue toevaluate

377 397

Strategic report Corporate governance Financial statements 31 Annual Report 2016 Business and financial review continued Branded continued

Summary financial highlights – Branded Constant currency $ million 2016 2015 Change change Revenue 556 570 -2% +5% Gross profit 282 277 +2% +13% Gross margin 50.7% 48.6% +2.1pp +3.6pp Core operating profit 112 118 -5% +31% Core operating margin 20.1% 20.7% -0.6pp +5.0pp

2016 Highlights • Branded revenue of $556 million, down 2% and • Core operating profit up 31% in constant currency up 5% in constant currency due an improvement in sales mix and tight cost control • Gross profit up 2% and up 13% in constant currency • Core operating margin was 20.1% and 25.7% • Core operating profit of $112 million, down 5%, in constant currency, up 5.0 percentage points reflecting a negative impact of $42 million from adverse • Expect Branded revenue growth in constant currency currency movements, primarily due to the devaluation to be in the mid-single digits in 2017 of the Egyptian pound in November 2016

Branded revenue increased by 5% in 2016, before the During 2016, the Branded business launched a total of impact of adverse movements in the Egyptian pound, 109 products in different dosages and strengths across Sudanese pound, Algerian dinar, Tunisian dinar and all markets, including 19 new products. The Branded Moroccan dirham against the US dollar. On a reported business also received 198 regulatory approvals across basis, Branded revenue decreased by 2% to $556 million, the region for products in different dosages and strengths. compared with $570 million in 2015. The growth on a Revenue from in-licensed products represented 39% constant currency basis reflected a good performance of Branded revenue, compared with 40% in 2015. across most of our markets as we focus on higher value We launched 51 new in-licensed products during 2016, products and pipeline execution. This was partially including three respiratory products and a number of OTC offset by a slowdown in the Gulf Cooperation products licensed from Vitabiotics, which will help us to Council (GCC) markets. grow our portfolio of higher value products in key In our key markets of Algeria and Egypt, our businesses therapeutic categories. performed extremely well, delivering strong double-digit On a reported basis, Branded gross profit increased by 2% constant currency growth. This was driven by underlying to $282 million and gross margin was 50.7%, compared market growth, an improvement in the sales mix and with 48.6% in 2015. In constant currency, gross profit new product launches. In the GCC, which includes increased by $36 million, or 13% and gross margin Saudi Arabia and the UAE, revenue was lower than increased to 52.2%. This strong growth in profitability in 2015, primarily due to economic uncertainty in reflects an improvement in the mix of sales, through our the region which has slowed market growth. focus on higher value products and tight cost control.

32 Hikma Pharmaceuticals PLC Core operating profit, which excludes the amortisation of Taking into account exchange rate movements since the Strategic report intangibles of $8 million, decreased by 5% to $112 million beginning of 2017, and assuming these rates prevail, we and core operating margin was 20.1%, down from 20.7% would expect reported Branded revenue to grow in the in 2015. This primarily reflects a foreign exchange loss of low-single digits and core operating margin to be broadly $17 million, mainly as a result of the revaluation of the in line with 2016. This adverse currency impact is primarily Group’s monetary assets and liabilities in Egypt following due to the devaluation of the Egyptian pound against the devaluation of the Egyptian pound against the US the US dollar by approximately 46%1. dollar after the floating of the Egyptian pound on 3 November 2016. Other businesses In constant currency, core operating profit grew by Other businesses, which primarily comprise Arab Medical 31% and core operating margin increased to 25.7%. Containers, a manufacturer of plastic specialised medicinal This significant improvement in profitability is primarily sterile containers, International Pharmaceuticals Research due to the increase in gross profit, as well as tight control Centre, which conducts bio-equivalency studies, and the of operating expenses, improved inventory management API manufacturing division of Hikma Pharmaceuticals and the benefit of restructuring measures undertaken Limited Jordan, contributed revenue of $9 million in Corporate governance in recent years. 2016, in line with 2015. These other businesses made In 2017, we expect Branded revenue to grow in the an operating loss of $2 million, compared with an mid-single digits in constant currency, driven by underlying operating loss of $5 million in 2015. market growth and our focus on strategic products. Financial statements

1. On 3 March 2017, the Egyptian pound had devalued against the US dollar from its peg of 8.8 EGP:USD prior to 3 November 2016 to 16.2 EGP:USD (www.oanda.com) Annual Report 2016 33 Business and financial review continued Group performance DELIVERING A SOLID FINANCIAL PERFORMANCE

Group revenue increased by 35% to $1,950 million in General and administrative expenses increased by 2016 after the consolidation of ten months of revenue $44 million to $244 million in 2016. Excluding exceptional from West-Ward Columbus. Group gross profit was items related to the acquisition and integration costs, $986 million and Group core gross profit was general and administrative expenses increased by $1,018 million, up from $818 million in 2015. Group $28 million, or 16%, primarily due to the consolidation gross margin was 50.6% and Group core gross margin of West-Ward Columbus. was 52.2%, compared with 56.8% in 2015. We have significantly increased our R&D investment from Group operating expenses increased by 57% to $36 million in 2015 to $150 million in 2016. Excluding $684 million, compared with $437 million in 2015. Core exceptional items core R&D expense was $126 million. Group operating expenses, excluding the amortisation Around half of the Group’s R&D expense was incurred of intangible assets other than software and exceptional in the development of our differentiated pipeline for items, increased by 46% to $599 million compared with the Generics business and we expect this investment to $409 million in 2015. This increase was principally due to increase in 2017. R&D spend for the Injectables business the consolidation of ten months of West-Ward Columbus, was also higher in 2016 and will continue to grow as we as well as an increase in R&D expenditure across the increase our investment in new product development. Group and a foreign exchange loss as a result of the An additional $13 million of product-related investment devaluation of the Egyptian pound against the US dollar was capitalised on the balance sheet in 2016. This related during 2016. to the transfer of the Bedford products to our facilities In 2016, amortisation of intangible assets other than and to product development investments with third party software was $37 million, compared with $16 million in partners, primarily in the US where we are focusing 2015. The increase primarily resulted from the acquisition on new therapeutic areas. The combined core R&D of West-Ward Columbus. Exceptional items included expense and product-related investment for the Group within operating expenses were $48 million, compared was $139 million (7% of Group revenue) compared with with $12 million in 2015. In 2016, exceptional items $71 million (5% of Group revenue) in 2015. We expect comprised acquisition and integration costs of $36 million, Group R&D expense to be around $170 million in 2017. the net gain on divestment of certain legacy Generics Other net operating expenses were $69 million in 2016, products of $18 million, impairment and write down compared with $29 million in 2015. Excluding exceptional of property, plant and equipment and intangible assets items of $12 million related to impairment losses, the of $34 million and the release of a contingent liability of divestment of certain products, and the release of a $4 million. The paragraphs below address the Group’s contingent liability, these expenses were $81 million in main operating expenses in turn. 2016, up from $37 million in 2015. The increase was due Sales and marketing expenses were $221 million to a foreign exchange loss as a result of the devaluation compared with $172 million in 2015. Excluding the of the Egyptian pound and to the consolidation of the amortisation of intangible assets other than software, West-Ward Columbus business. sales and marketing expenses were $184 million, or Group operating profit decreased by 21% from 9% of revenue compared with $156 million, or 11% of $381 million to $302 million in 2016. Excluding the revenue in 2015. The increase of $28 million was primarily impact of amortisation and exceptional items, core Group due to the consolidation of West-Ward Columbus and operating profit increased by 2% to $419 million and core the increased sales and promotional costs related to operating margin was 21.5% compared with 28.4% in the branded salesforce we established in the US 2015. This primarily reflects the lower contribution from from July 2015. certain products in the Generics business, the consolidation of West-Ward Columbus and higher R&D investment across the Group.

34 Hikma Pharmaceuticals PLC 1 Research & development In 2017, we expect the Group’s net finance expense to Strategic report be around $60 million. In addition, we expect non-cash The Group’s product portfolio continues to grow as a expenses resulting from the remeasurement of contingent result of our product development efforts. During 2016, liabilities to be around $20 million in 2017. we launched 34 new compounds. The Group’s portfolio now stands at 707 compounds in 2,181 dosage forms and strengths.2 We manufacture and/or sell 94 of these Profit before tax compounds under licence from the licensor. Profit before tax for the Group was $210 million in 2016, Across all businesses and markets, a total of 206 products down from $318 million in 2015. Core profit before tax were launched during 2016. In addition, the Group was $359 million, in line with 2015. received 343 approvals. Tax To ensure the continuous development of our product pipeline, we submitted 188 regulatory filings in 2016 The Group incurred a tax expense of $52 million, across all regions and markets. As of 31 December 2016, compared with $64 million in 2015. Excluding the tax impact of exceptional items, core Group tax expense was we had a total of 971 pending approvals across all regions Corporate governance and markets. At 31 December 2016, we had a total of $80 million in 2016, compared with $67 million in 2015. 396 new products under development. The core effective tax rate was 22.3%, compared with 18.9% in 2015. The increase in the effective tax rate Net finance expense reflects increased earnings in higher tax jurisdictions in 2016, particularly in the US. We expect the effective In 2016, net finance expense was $92 million. Excluding tax rate in 2017 to be around 26%. non-cash expenses resulting from the remeasurement of contingent liabilities, net finance expense was $60 million, up from $52 million in 2015. This primarily reflects the increased interest and financing fees as a result of the West-Ward Columbus acquisition which was completed in February 2016 as well as the interest paid on the $500 million 4.25% Eurobond which was issued in April 2015. Financial statements

Hikma product portfolio pipeline Products Products pending approved in approval as at Total marketed products Products launched in 2016 2016 31 December 2016 New dosage Total launches Total approvals Total pending Dosage forms New forms and across all across all approvals across all Compounds and strengths compounds strengths countries3 countries3 countries3 Injectables 201 571 13 23 79 127 620 Generics 109 375 2 3 18 18 71 Branded 397 1,235 19 38 109 198 280 Group 707 2,181 34 64 206 343 971

1. Products are defined as pharmaceutical compounds sold by the Group. New compounds are defined as pharmaceutical compounds being introduced for the first time during the period and existing compounds being introduced into a new segment. We are presenting details of the Group’s product portfolio and pipeline to provide additional information in respect of the size and make-up of the marketed portfolio which is generating revenue and the pipeline opportunity which will drive future revenue growth 2. Totals include 71 dermatological and cosmetic compounds in 282 dosage forms and strengths that are only sold in Morocco 3. Totals include all compounds and formulations that are either launched or approved or pending approval across all markets, as relevant

Annual Report 2016 35 Business and financial review continued Group performance continued

Profit attributable to shareholders Capital expenditure was $122 million, compared with $82 million in 2015. Of this, around $76 million was Profit attributable to shareholders decreased by 38% to spent in the US to expand the manufacturing capacity and $155 million, compared with $252 million in 2015. Core capabilities of our Injectables and Generics businesses. In profit attributable to shareholders decreased by 3% to the MENA, around $30 million was spent to maintain and $276 million, compared with $286 million in 2015. upgrade our equipment and facilities across a number of markets. The remaining $16 million was spent in Europe, Earnings per share expanding our Injectables manufacturing capacity for Earnings per share was impacted by the issuance lyophilised and oncology products. We expect Group of 40 million new shares to Boeringher Ingelheim on capital expenditure to be around $160 million in 2017. 29 February 2016 as part of the consideration for the The Group’s net debt2 (excluding co-development West-Ward Columbus acquisition, as well as the reduction agreements and contingent liabilities) stood at in profit attributable to shareholders in 2016 compared $697 million at the end of December 2016, compared with 2015. Basic earnings per share decreased by 47% with $135 million at the end of December 2015. On to 66.5 cents in 2016, compared to 126.6 cents in 2015. 29 February 2016, we completed the acquisition of Core basic earnings per share decreased by 18% to West-Ward Columbus and the net cash consideration 118.5 cents, compared with 143.7 cents in 2015. of $575 million (net of certain working capital and Core diluted earnings per share decreased by 17% other adjustments) was paid to Boehringer Ingelheim. In to 117.9 cents, compared with 142.3 cents in 2015. addition, 40 million new shares were issued to Boehringer Ingelheim at a price of 1881p, bringing the combined Dividend net consideration paid at closing to $1.6 billion, using The Board is recommending a final dividend of 22 cents the USD:GBP exchange rate of 1.3879:1. Post completion, per share (approximately 18 pence per share) for 2016, further adjustments to the cash consideration have bringing the total dividend for the full year to 33 cents been made which reduced the total consideration per share (approximately 27 pence) for 2016, a slight to $1.5 billion. Should certain targets be met, further increase from the total dividend of 32 cents per share payments could be triggered.3 The cash consideration paid in 2015. The proposed dividend will be paid was funded through a combination of cash and the on 25 May 2017 to shareholders on the register utilisation of the Group’s existing debt facilities. on 7 April 2017, subject to approval at the Annual General Meeting on 19 May 2017. Balance sheet Net assets at 31 December 2016 were $2,411 million, Net cash flow, working capital and net debt compared to $1,352 million at 31 December 2015. The The Group generated operating cash flow of $293 million significant increase in net assets reflects the consolidation in 2016, compared with $366 million in 2015. Excluding of the West-Ward Columbus business. Net current assets acquisition and integration costs related to the West-Ward were $530 million, compared to $768 million at Columbus acquisition, Group operating cash flow was 31 December 2015. $329 million in 2016, a decrease of 10% from $366 million During the period, shareholder equity was negatively in 2015. This primarily reflects an investment in working impacted by an unrealised foreign exchange translation capital following the acquisition of West-Ward Columbus. loss of $90 million, primarily reflecting movements in the Group working capital days were 240 days at December Egyptian pound, Sudanese pound, Algerian dinar, Tunisian 2016, up from 177 days at December 2015.1 This primarily dinar and Moroccan dirham against the US dollar and the reflects the consolidation of West-Ward Columbus, which translation of net assets denominated in these currencies. has higher working capital days, and an increase in inventory levels in the US and the MENA at the end of the year. We expect to achieve an improvement in Group working capital days in 2017.

1. Group working capital days are calculated as Group receivable days plus Group inventory days, less Group payable days. Group receivable days are calculated as Group trade receivables x 365, divided by trailing 12 months Group revenue. Group inventory days are calculated as Group inventory x 365, divided by trailing 12 months Group cost of sales. Group payable days are calculated as Group trade payables x 365, divided by trailing 12 months Group cost of sales. We believe Group working capital days provides a useful measure of the Group’s working capital management and liquidity 2. Group net debt is calculated as Group total debt less Group total cash. Group total debt excludes co-development agreements and contingent liabilities. We believe Group net debt is a useful measure of the strength of the Group’s financing position 3. Further detail regarding the West-Ward Columbus acquisition is provided in note 43 to the set of financial statements 36 Hikma Pharmaceuticals PLC Summary and outlook In 2017, we expect Branded revenue to grow in the Strategic report mid-single digits in constant currency, driven by underlying The Group delivered a solid performance in 2016 market growth and our focus on strategic products. whilst making excellent strategic progress, including the Taking into account exchange rate movements since the transformational acquisition of West-Ward Columbus. beginning of 2017, and assuming these rates prevail, we We expect the Injectables business to deliver continued would expect reported Branded revenue to grow in the growth in 2017, with strong demand across our global low-single digits and core operating margin to be broadly portfolio and new product launches more than offsetting in line with 2016. This adverse currency impact is primarily the impact of increased competition. We expect Injectables due to the devaluation of the Egyptian pound against the revenue to be in the range of $800 million to $825 million. US dollar. We expect core operating margin to be in the high 30s in Overall, we expect Group revenue in 2017 to be around 2017, which assumes a step-up in R&D investment. $2.2 billion in constant currency. We continue to expect revenue for the Generics business to be around $800 million in 2017, with an improvement

in the mix of sales and new product launches more Corporate governance than offsetting the impact of increased competition on the marketed portfolio and a reduction in contract manufacturing revenue. Certain new launches are expected to contribute around 15% of Generics revenue in 2017, primarily generic Advair, which is assumed to be launched in the second half of the year. We expect the profitability of the Generics business to significantly improve in 2017, driven by new product launches, an enhanced mix of sales and a continued focus on operating efficiencies. Financial statements

Annual Report 2016 37 Sustainability

OUR APPROACH TO SUSTAINABILITY

Our engagement process Through regular contact with our stakeholders, we are able to understand and cater for their needs, while improving how we operate our business.

Recognising our stakeholders How we engage Patients The sustainability of our business relies on meeting the We engage with our patients, our key stakeholder, needs of our patients, both now and in the future. through marketing and communications campaigns, focus groups and multiple customer feedback channels to meet their personal and collective healthcare needs.

Practitioners Doctors and other medical practitioners are both a We have strong sales and marketing teams who crucial route to market and, when supported, true work closely with healthcare professionals to better advocates of Hikma. understand the needs of both the practitioner and the patient.

People The lifeblood of our Group, it’s imperative that our As the driving force behind our success, we empower people are motivated to drive Hikma forward to and encourage our employees to lead innovative achieve our common goals. initiatives and maintain a healthy work-life balance.

Shareholders We rely on the support and engagement of We continuously engage with our shareholders through our shareholders, in order to deliver our investor relations and executive teams, who share our strategic objectives. our corporate story and investment case.

Communities The success and wellbeing of the communities in which We are committed to supporting the communities we are present are vital to maintaining our business. in which we operate, through charitable social engagement, spreading health awareness and local volunteering.

38 Hikma Pharmaceuticals PLC Our primary objective is to provide patients with high-quality, affordable Strategic report medicines tailored to their needs. We aim to do this in a sustainable way, working to ensure that our products deliver the maximum benefit, while managing the impact of our operations.

Our focused approach We have prioritised the sustainability issues of greatest significance and relevance to our business and stakeholders. This sustainability report focuses on these key areas, providing examples of initiatives we

have undertaken across the Group. Additional information can be found on our website. Corporate governance

Our focus areas Material issues Meeting healthcare needs Our patients are at the heart of everything we do. • Treating major health issues We are focused on meeting patient needs and improving • Providing affordable quality products the quality of healthcare across our markets. • Enhancing health awareness

Promoting good business ethics Through stringent internal controls and a healthy ethical • Responsible business initiatives culture, we ensure the future prosperity of our business

• Transparency & anti-bribery Financial statements and stakeholders. and corruption

Supporting our communities We have built strong local businesses, which sustainably • Global volunteering activities support and contribute to the local communities in • Improving health and wellbeing which we operate. • Charitable community engagement

Enabling our people Investing in the development and wellbeing of • Professional and personal our employees is key to building a successful and employee development sustainable business. • Women empowerment initiatives • Employee health and safety

Minimising our environmental impact We aim to limit our environmental impact by closely • Disclosing and improving our monitoring, reporting on and improving our operations. carbon emissions • Waste reduction and recycling • Environmental preservation efforts

Annual Report 2016 39 Sustainability continued

MEETING HEALTHCARE NEEDS

Since our founding nearly 40 years ago, we have been committed to our mission of improving the lives of people through the provision of high-quality, affordable medicines.

Treating major health issues Reaching people in crisis In 2016 we were able to reach more doctors and Over the course of 2016, we continued our legacy patients than ever before with more high-quality of donating much-needed medical products to local treatment options. Our reach was strengthened this communities and charity organisations throughout the year through the significant expansion of our oncology MENA and the US where we operate. This included capabilities in MENA and the acquisition of West-Ward essential medicines such as anti-infectives, as well as Columbus in the US, which makes us a top ten US generics cardiovascular, nervous system and alimentary tract company, providing more affordable medicines to doctors products. Our businesses in the US work with various and patients. organisations and donate short-dated medicines. Our US partner organisations include, but are not limited to: In addition to meeting the needs of doctors and Americares, Kingsway, Project Hope and Direct Relief. patients through our core business, we believe we We also donated medical supplies for use at Jordanian have a responsibility to encourage health awareness military field hospitals abroad under our long-term and education, as well as helping those who might find partnership with the Jordan Hashemite Charity themselves in crisis and unable to access care through Organization for Relief and Development (JHCO). traditional healthcare systems. In total, the value of in-kind and cash donations across the Group in 2016 was $2.6 million. Improving cancer care Hikma aims to support patients, oncologists, nurses and Providing affordable quality products hospitals in improving cancer care, and in establishing West-Ward Pharmaceuticals, our wholly-owned long-term partnerships with healthcare providers to meet subsidiary in the US, is a leading generic manufacturer their pressing needs in this area. In Egypt, we launched in the competitive US market. With an ever-expanding our new business unit “Hikma Specialized Egypt” which portfolio of products, investments in state-of-the-art aims to improve our ability to meet the unique and urgent manufacturing facilities and a family of committed needs of cancer patients and healthcare providers in employees, West-Ward delivers quality pharmaceuticals Egypt. Hikma is committed to making a difference by to a variety of customers within the healthcare industry providing a broad range of affordable added-value including major wholesalers, retailers and hospitals. medications for patients battling cancer. West-Ward is committed to being a responsible partner and reliably supplying affordable, high-quality generic medicines to meet today’s diverse healthcare needs. West-Ward’s operations are carried out at three FDA- approved manufacturing facilities located in Eatontown and Cherry Hill, both in New Jersey, and Columbus in Ohio. We also have an R&D centre in Bedford, Ohio and a distribution centre in Memphis, Tennessee.

40 Hikma Pharmaceuticals PLC Enhancing health awareness Our employees supported other activities throughout Strategic report the year, including a social media competition to raise The health and wellbeing of our employees and those in awareness of breast cancer; fundraising for Macmillan the communities in which we operate is very important Cancer Support through its ‘The World’s Biggest Coffee to us. Throughout the year, we organised several activities Morning’; and a donation to DKMS, a global organisation and campaigns to raise disease awareness and promote dedicated to the fight against blood cancer. healthy lifestyles. On World Cancer Day in February, we supported the ‘Talking Hands’ social media campaign On World Obesity Day, Hikma’s marketing team organised which encouraged people to spread messages of support. a campaign to raise awareness of the dangers of obesity. We also hosted several sessions for employees to learn Hikma’s employees in Jordan were given the chance to more about the disease, including visits from cancer measure their weight, BMI, fat percentage and muscle survivors who shared their personal experiences and percentage. They were also offered tips on how to stay inspirational stories on how they overcame the disease, healthy and maintain an ideal weight and they were and a talk given by a leading consultant hematologist and served nutritious meals at lunchtime, encouraging medical oncologist. In October, we collaborated with the them to eat well.

King Hussein Cancer Foundation’s Breast Cancer Program Corporate governance in Jordan sponsoring an employee cycling trip to raise awareness about breast cancer.

Hikma’s oncology plant in Jordan (Sahab), the first plant in MENA to receive MENA, EU and US FDA approval In 2016 we were proud that our Sahab facility in Jordan became the first oncology facility in the MENA to receive US FDA approval. This state-of-the-art oncology facility, which manufactures various oncology products including tablets and hard gelatin capsules, opened its doors in 2010 and is now helping us achieve our aim of Financial statements improving lives where there is limited access to high-quality therapies.

Annual Report 2016 41 Sustainability continued

PROMOTING GOOD BUSINESS ETHICS

Quality and excellence sit at the heart of Hikma, and we believe that a strong commitment to ethical values – such as integrity, honesty and transparency – is vital to our reputation and success. Building trust in our people and our business creates long-term value by helping to ensure our business remains relevant and sustainable.

Responsible business initiatives United Nations Global Compact (UNGC) Members since 2007, we remain committed to the United World Economic Forum (WEF) Nations Global Compact. We continue to support and Hikma is constantly seeking to develop and strengthen align our global operations with the ten UNGC principles, its global partnerships and initiatives to stay at the regularly reporting our alignment with the principles in forefront of advancing healthcare and human wellbeing. the areas of human rights, labour standards, environment The WEF engages political, business and other leaders of and anti-corruption. In 2016, we renewed our UNGC society to shape global, regional and industry agendas. membership by submitting a Communication on Our participation with international organisations from Progress report for 2015. Participating in the UNGC’s the public and private sectors is motivated by an ambition Communication on Progress Report demonstrates to act towards advancing global welfare. In 2016, Hikma our commitment to employees, our customers, our became one of the WEF’s Health Industry Partners, with communities and patients. As a multinational business, we the objective of exploring new and improved ways of are committed to conducting our business ethically and to developing the standard of healthcare offered to patients being an active partner in shaping a sustainable future. around the world. As a partner, we participated in the WEF Industry Strategy Meeting which explored how to improve the level of healthcare offered to patients by global pharmaceutical and healthcare companies. In the session, participants engaged with policy makers, focusing on industry challenges and collaborations to enhance the quality of and access to healthcare. We also participated in the WEF Global Healthcare meetings, which engage healthcare leaders worldwide to explore and develop new solutions that move the global healthcare industry Transparency & anti-bribery and corruption forward. Our participation in these events supports our aim to build stronger partnerships worldwide to reinforce B20 Anti-Corruption Working Group our vision of improving people’s lives around the globe. As we continue working to promote responsible business through collective action, we joined the Business 20 (B20) Anti-Corruption Working Group (ACWG), which operates under the umbrella of the G20 international forum of governments. The ACWG focuses on helping companies to improve their ethical conduct. As part of this, Hikma co-chaired the Public Procurement Work Stream, which seeks to promote ethical practices across the governmental and private sectors, and we joined the Beneficial Ownership Team.

42 Hikma Pharmaceuticals PLC Partnering Against Corruption Initiative (PACI) The Compliance Department is developing the Anti- Strategic report Hikma remains a founding member of the Partnering Bribery and Corruption e-learning programme to be Against Corruption Initiative (PACI), an off-shoot of the launched in 2017. This e-learning programme will provide WEF. PACI is a leading business voice on anti-corruption all Board members, management and employees with and transparency and is one of the WEF’s strongest comprehensive and interactive training on this important cross-industry collaborative efforts. Driven by interests issue including: of member companies, PACI undertakes initiatives to • Hikma’s Code of Conduct address global issues in anti-corruption and compliance. • Anti-bribery and corruption compliance We renewed our commitment in 2016 for zero tolerance of corruption or bribery across any and all of • Introduction to ABC Compliance our operations. • Interactions with public officials • Interactions with HCPs Modern Slavery Act (MSA) • Gifts, hospitality and entertainment Hikma is committed to ensuring that ‘modern slavery’

• Grants, sponsorships and donations Corporate governance in the form of forced or compulsory labour and human • Interactions with third parties trafficking does not take place in any of its businesses or supply chains across the globe. Key measures in support • Conflicts of interest of this goal include training Hikma staff on labour • Insider dealing standards and how to recognise and respond to any • Speak-up incidences of modern slavery, undertaking periodic analysis and management of any modern slavery risk The e-learning module will initially launch in three in Hikma’s businesses or supply chains, carrying out languages (English, Arabic and French) at the beginning appropriate due diligence and engaging on the issue of 2017 to employees in MENA and Europe, and will be with supply chain partners. introduced to US employees later in the year. In addition to the e-learning module, we will also make Anti-bribery and corruption available, via a shared internal platform, the compliance Hikma does not tolerate corruption or bribery and it policies and procedures that are essential to all employees applies strict processes to ensure that our employees do across all levels such as: Financial statements not participate in any form of corrupt practices. Hikma • Hikma’s Code of Conduct is publicly listed on the London Stock Exchange and • Anti-bribery and corruption thus abides by the UK Anti-Bribery Act 2010 and the Share Dealing Code and Disclosure policies. The Code • Gifts, hospitality and entertainment of Conduct sets the tone for all business activities, • Conflict of interest ensuring an ethical approach runs across the Group. • Speak-up

FTSE4Good Recognition

Hikma continued to be recognised as a constituent member of the FTSE4Good index series in 2016, and we are proud to maintain our commitment to high corporate business standards and ethics. Stakeholders such as NGOs, governmental bodies, consultants, academics and the investment community help to shape the criteria for inclusion in the indices, which include: anti-corruption, climate change, health and safety, and customer responsibility to name a few. Our continued inclusion means our environmental, social and governance practices meet globally recognised standards.

Annual Report 2016 43 Sustainability continued

SUPPORTING OUR COMMUNITIES

We believe we have a role to play in helping the communities in which we live and work. This takes the form of sharing our skills, providing opportunities, and promoting health and wellbeing.

Global volunteering activities Improving health and wellbeing Since 2001, we have had a Group-wide sponsored Annual Volunteering Day to promote community service among Promoting healthy lifestyles employees and give back to our communities. The events, In 2016, we renewed our agreement with the Royal which allow employees to ‘donate’ a day’s work in service Health Awareness Society (RHAS) to support two of its to the community, took place around the world over the projects which aim to enhance the school life of students course of a week in Jordan, Saudi Arabia, Egypt, Lebanon, across Jordan: The “Healthy Kitchen Project”, which Tunisia, Algeria, Portugal, Germany, Italy and the US. In supports the delivery of healthy meals for school children; total, 300 employees participated in the 2016 volunteering and the “Generations Project”, an anti-drug and tobacco activities in collaboration with different NGOs across initiative for school children. the globe. As part of RHAS’ Healthy Kitchen Project, several of our Activities included a clothing drive in Amman for those employees volunteered to distribute meals to students at in need; a cleanup of the Al-Zara area near the Dead Sea, one of our sponsored schools. This is a continuation of a organised in co-operation with the Royal Society for the project that was launched in 2015 in collaboration with Conservation of Nature (RSCN); collecting children’s shoes the Ministry of Education, Ministry of Health and the in the US for orphans; collecting non-perishable food World Food Program, to provide healthy and nutritious items for Emergency Assistance Centres in Ohio; raising meals to school students. The project seeks to raise health funds for the Children’s Hospital of Philadelphia (CHOP) and nutrition awareness and promote healthier eating and Unforgotten Haven, a charitable organisation patterns by disseminating comprehensive nutrition supporting the homeless; running a blood drive to information and educational resources within benefit the Lisbon Bone Marrow Centre in Portugal; school communities. and in Egypt, organising a blanket distribution We are also now sponsoring a new RHAS project campaign for “Giza” villages outside Cairo. launched in 2016 designed to protect young people in Jordan from drug and tobacco addiction. The project focuses on providing relevant social and life skills through training programmes, and focuses on enabling children and young people to become more resilient and dissuade them from peer pressure. The programme is adapted for middle and high schoolers and implemented through the Ministry of Education in addition to youth centres and local NGOs.

44 Hikma Pharmaceuticals PLC Local blood drives & heart health Charitable community engagement Strategic report We conducted our annual “You Are Hikma” campaign Our Eatontown site in New Jersey received a special thank in 2016, a week-long initiative to provide assistance to you message from Monmouth, New Jersey’s Family and our local communities. The campaign activities included Children Service’s centre, for their generous donations a blood donation drive to aid the National Blood Bank in “Operation Sleighbells”, an annual event, which of Jordan, whom Hikma has partnered with for over a distributes gifts of new coats, hats, gloves, toys, books, decade. In our US locations, we united with the Central gift cards and infant necessities to local children in need. Jersey Blood Centre, for our semi-annual “Have a Heart” More than 500 employees ‘adopted’ five families and blood drive held around Valentine’s Day in February. The donated toys and gifts for 125 children. They also raised team also partnered with the American Heart Association more than $5,000 to purchase coats, hats and gloves for the “Go Red for Women’s Heart Health Month”, for children in need in the area. where more than 150 colleagues fundraised for the entire month of February to support community education programmes for women’s heart health. Corporate governance

Aiding refugees with skills and employment

The crisis of refugees fleeing conflict and persecution is a global humanitarian phenomenon, and in 2016, our team in Portugal collaborated with the Portuguese Refugee Committee to put in place a programme to help train and employ refugees in Europe. Last year we hired and trained our first programme participant, Amir Hamad, a Sudanese refugee who arrived from Egypt and is now thriving at work and reunited with his family. Amir arrived in Portugal in 2015 and was received by the Portuguese Refugee Commission (PRC) which provides refugees with housing, legal and financial support for the first 12 to 18 months. We contacted the PRC and supported this international project, and adopted Amir as an employee inside our plant. Although there were some challenges, including a language barrier, Amir is now fully integrated and thriving within the Hikma team, and his family has successfully assimilated in Portugal. Financial statements

Annual Report 2016 45 Sustainability continued

ENABLING OUR PEOPLE

Employees are our most important asset and the driving force behind our success. At Hikma, we are committed to maintaining supportive and enriching environments in which our employees can thrive and succeed.

Professional and personal employee Women empowerment initiatives development We are proud to be an equal opportunity employer. We aim to support and empower women in the workplace Hikma Young Professionals Excellence (HYPE) and strengthen their positions in society. Programme In 2016, we conducted various activities under the At Hikma we aim to enhance the communities in umbrella of ‘women’s empowerment’, including which we are located, as well as invest in the young sponsoring and participating in the Women’s people within our communities. In 2016 we created Entrepreneurship Day, MENA 2016 Conference, a programme called HYPE (Hikma Young Professionals in Jordan. Our executives took part in several panel Excellence), which is a two-year rotational programme discussions, under the topics of supporting women developed for high-potential and high-performing recent in the workplace, the importance of gender equality, graduates. It aims to attract talented individuals and providing equal opportunities and inspiring women instill in them Hikma leadership values through a series empowerment initiatives. of rotations in finance, operations and commercial roles. As part of our Women Empowerment and Motivational The programme is currently being run in Jordan and the Programme, we have been holding monthly women inaugural HYPE class included seven individuals with empowerment sessions in our corporate locations, backgrounds in finance, operations, sales, regulatory entitled ‘Dare to Dream Big’, which aim to empower affairs and R&D. In 2017 we are increasing the number and inspire our employees. of rotations and including programme participants in the US, EU and other MENA countries. Employee health and safety Music classes at Hikma Safeguarding the health and safety of our people is integral to our commitment to remain a responsible organisation. As part of our ongoing efforts to contribute to the Our Health, Safety, Environment and Energy (HSEE) policy, wellbeing of our colleagues, employees in Jordan were which is communicated to all our people, ensures that the offered some unique opportunities to enhance their highest standards are maintained across the organisation musicality through free music lessons. We partnered in line with industry best practices. All our employees are with a specialist musical instruction website called rigorously trained with the highest safety and security ‘Izif’ and offered lessons to anyone with an interest standards to minimise hazardous risks to the employees in exploring their musical side. themselves as well as their surroundings. We consider Over the course of ten weeks, participants attended our employees to be our most valuable asset and as such 90-minute weekly workshops during which they make significant efforts to ensure they are fully equipped developed their artistic skills by taking singing classes, and prepared to respond to potentially harmful situations. piano sessions and guitar, oud or drum classes. The Going forward, we plan to enhance our measurement programme featured a combination of online and of certain health and safety indicators, enabling the offline sessions. organisation to identify areas for potential improvement to health and safety and further optimise our processes and procedures in this regard.

46 Hikma Pharmaceuticals PLC Strategic report Find out more Diversity To find out more about diversity across the Group, see page 94.

Innovation & Leadership Advisory Board (I-LAB) In April 2016, our CEO formed the Innovation & Leadership Advisory Board

(I-LAB), with the aim of maintaining an innovative culture across the Hikma Group Corporate governance and fostering younger talent. The I-LAB is a committee of 17 employees under the age of 35, who are tasked with advising the CEO on cutting-edge technology initiatives and ideas that will introduce and encourage innovation in the workplace. The committee meets regularly to keep our top management up-to-date with developments in digital health and proposals on how to incorporate these advancements within Hikma. Financial statements

Annual Report 2016 47 Sustainability continued

MINIMISING OUR ENVIRONMENTAL IMPACT

At Hikma, we consider environmental stewardship to be a key aspect of our sustainability strategy. We take active steps to track and reduce our adverse environmental impacts and promote awareness about responsible environmental practices both internally and amongst the public. Efficiency improvements in 2016 contributed to sizeable reductions in our emissions versus the previous year.

GHG emissions disclosure Total tCO2e by category

This section has been prepared in accordance with our regulatory obligation to report greenhouse gas emissions pursuant to Section 7 of The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. The table below shows our emissions performance for the years ended 31 December 2014, 2015 and 2016. GHG Source 2014 2015 2016 Scope 1 – Combustion of fuel and

operation of facilities (tCO2e) 20,506 tCO2e 26,422 tCO2e 24,114 tCO2e Scope 2 (location-based) –

Electricity (tCO2) 57,459 tCO2 79,061 tCO2 78,279 tCO2 Scope 2 (market-based) –

Electricity (tCO2) n/a n/a 81,140 tCO2 Total Scope 1 and 2 emissions

(location-based) 77,965 tCO2e 105,483 tCO2e 102,393 tCO2e Purchased electricity for own consumption 76% tCO2e per FTE employee (Scope 1 & 2 location-based) 13.38 tCO e 17.11 tCO e 16.17 tCO e Natural gas combustion 12% 2 2 2 Diesel combustion 8% Data notes: Vehicle emissions 2%

• Emissions from the consumption of electricity are reported in tCO2 rather than tCO2e Refrigerants 1% since the International Energy Agency emission factors for electricity currently account Petrol combustion <1% for carbon dioxide emissions only. LPG/Propane combustion <1% • The full time equivalent (FTE) employee figures used to calculate the reported intensity metric cover the sites for which emissions data was provided rather than the total FTE figure for the organisation as a whole.

48 Hikma Pharmaceuticals PLC Disclosing and improving our Under the location-based method, we have utilised the Strategic report carbon emissions UK Government and the International Energy Agency country-specific emission factors for electricity generation. Performance Under the market-based method, for our European Between 2015 and 2016 we have seen an overall operations, we have utilised the residual mix electricity absolute decrease in emissions by 2.9% and a decrease emission factor published by RE-DISS as we have been in emissions per full time equivalent employee of 5.5%. unable to obtain tariff-specific emission factors from our This is in part due to the divestment of the Ben Venue suppliers, and for all non-European suppliers we have manufacturing facility in the US during the reporting year. utilised the location-based grid electricity emission factors as residual emission factors have yet to be calculated Methodology outside Europe. This approach is in line with the data hierarchy outlined in the GHG Protocol Scope 2 Guidance. We quantify and report our organisational greenhouse gas emissions using the WRI’s Greenhouse Gas (GHG) For the majority of our operations outside the United States and Europe there is currently no option to purchase

Protocol Corporate Accounting and Reporting Standard. Corporate governance electricity generated from renewable sources, and This year, we have reported in accordance with the GHG therefore our market-based Scope 2 figure is higher Protocol’s new Scope 2 Guidance, which requires that we than our location-based figure. dual report our Scope 2 emissions using two different methodologies: the location-based method and the market-based method. Financial statements

Annual Report 2016 49 Sustainability continued

However, there is significant progress being made in the Assumptions and estimations renewable energy sector in the MENA region as consumer In some cases, missing information has been estimated demand is shifting to a preference for clean energy and using data from the nearest reporting period as a proxy. governments are looking to decarbonise their economies Furthermore, due to the availability of additional data, and meet commitments set out in the United Nations we have decided to restate the 2015 emissions figures. Convention on Climate Change (UNFCCC) Paris This allows us to make a more accurate performance Agreement to avoid dangerous climate change. comparison between 2015 and 2016. Therefore, in 2017, we will be engaging with our electricity suppliers to understand how we can purchase Intensity ratio cleaner energy, reduce our climate impact through our In order to express our reported emissions in relation to a purchasing power, and support the necessary shift to quantifiable factor that will act as a useful comparator for a low carbon economy. performance analysis over time, we have chosen to adopt full time equivalent (FTE) employee for sites reported in Reporting boundaries and exclusions our organisational boundary as our chosen intensity We consolidate our organisational boundary according metric, as it is considered that this factor both influences to the operational control approach and have adopted a our overall energy consumption and is reflective of materiality threshold of 10% for GHG reporting purposes. business growth/decline. This approach includes all Hikma subsidiaries and corresponding facilities/assets. Hikma’s Carbon Disclosure Project 2016 (CDP) Joint ventures with less than 50% holding have been Hikma incorporated a water policy into its Global Climate excluded from our GHG disclosure as it is considered that Change Report, and filled out the Carbon Disclosure we do not have operational control over these emissions Project (CDP) water programme questionnaire to ensure sources. In addition, non-manufacturing facilities with less the protection of the environment by monitoring, reporting than 100 staff at the end of the reporting period are not on and reducing waste emissions in water. Hikma scored included within our emissions disclosure on the grounds (B-) on the CDP’s water programme questionnaire this of materiality. year, a good score in our first reporting cycle for the water programme. This year we achieved B level for our climate change report; defined as a ‘Management’ rating: where the company has assessed environmental issues, risks and implemented actions, policies and strategies to address them, in addition to providing the relevant data.

Total emissions and segmental reporting

Scope 1 (tC02e) Scope 2 (tC02e)

Europe 3,928 Europe 5,812 USA 8,680 USA 21,266 MENA 11,506 MENA 51,201

Scope 1 Scope 2 Total emissions Total emissions 24,114 78,279

50 Hikma Pharmaceuticals PLC Waste reduction and recycling Our Environmental Health & Safety (EHS) department Strategic report continuously seeks opportunities to positively impact We continuously seek to minimise our impact on the the environment. By listening to employee feedback, environment through pollution prevention, resource attending focus groups, or simply working with our conservation and waste minimisation initiatives. This waste disposal partners, much success has been year our various sites have proactively taken steps realised to achieve ‘green’ results. towards preserving the environment by working with waste disposal partners, launching awareness campaigns with our employees and participating in local level Environmental preservation efforts environmental sustainability programmes. An emphasis on recycling and beneficial use programmes has become Earth Hour campaign a standard within Hikma and future expansion of these Earth Hour is celebrated worldwide on the last Saturday programmes will remain a focus in the years to come. of March every year. Our employees participated in efforts to raise awareness of environmental threats due to the Drug take back wasteful use of energy. Many environmental activities Corporate governance For the past five years, our team in Columbus, Ohio took place around the Hikma locations such as a candle- has participated in biannual ‘Drug Take Back’ events lit walk, lectures and children’s face painting and games. which are designed to provide a safe, convenient and We also collaborated with the Royal Society for the responsible way for disposing of all types of medicines, Conservation of Nature (RSCN) to organise the eighth including prescription, OTC, liquids, ointments and annual ‘Clean Up the World’ campaign, held under the inhalers. The team’s efforts in 2016 resulted in a record slogan ‘Our Place… Our Planet… Our Responsibility’, total of 4,946 pounds, equivalent to over six million which seeks to shed light on the importance of cleaning tablets, being collected. Overall, these events account up and conserving natural parks while discouraging for a total of 16,610 pounds of medicines, equivalent people from littering. to over 25.4 million tablets, being collected and safely disposed of. Financial statements

Emissions by location 4,915 1 9,894 9,729 6,675 6,634 5,165 4,889 4,911 3,903 3,710 3,394 3,320 3,180 3,114 1,923 1,601 1,558 1,429 1,419 1,325 1,248 1,099 1,002 993 916 908 841 680 494 426 403 199 123 116 131 21 59 45 0 0

HJ USA USA USA Italy USA Egypt Egypt Algeria Algeria Jordan Jordan (JPI) Sudan Sudan Tunisia Tunisia (DAA) (HPA) (AMC) (APM) (EPCI) Morocco Portugal Bedford Germany Memphis (Savanna) (Medicef) Cherry Hill Eatontown Saudi Arabia (IAB Pharma) (Promapharm) (Pharmaland) (Thymoorgan) Scope 1 (tCO2E) Scope 2 (tCO2E)

Annual Report 2016 51 Risk and control

MANAGING THE UNCERTAINTIES

In the previous year, we reviewed and re-designed our approach to risk management and risk governance. This year, we embedded the overarching Enterprise Risk Management framework, which is subject to rigorous internal and external review.

Risk governance Page 53

Going Principal concern risks Page 61 Pages 54 to 57 Risk and control

Risk Viability management Page 60 Page 58

Internal control Pages 58 to 59

52 Hikma Pharmaceuticals PLC Risk governance Board of Directors Strategic report The Board is ultimately responsible for developing and maintaining the Group’s risk management and internal • Define the Group’s risk appetite annually control systems. During the year, the Board continued to • Review Hikma’s principal risks and uncertainties annually review the Group’s risk appetite in detail. Following this review, our principal risks are categorised into risks: Audit Committee • that are innate to the pharmaceutical business, the skilful management of which provides us with our • Assesses the effectiveness of the risk governance framework economic returns together with the internal control procedures and reports to the Board • that are inherent in our strategy, which we believe are worth taking, but in a selective and controlled manner • Reviews management’s bi-annual risk management report • Reviews the external communications and disclosures • for which we have little or no appetite and which we bi-annually try to minimise or avoid altogether Corporate governance This risk appetite, which also sets out expected mitigation Executive Management/Group Risk Committee approaches and risk limits, is reviewed and updated annually, forms the foundation of the Enterprise Risk • Develops the consolidated risk management report Management (ERM) framework and shapes the detailed • Reviews significant emerging risks approaches to risk management within the businesses. Our risk governance framework, as approved by Chief Risk Officer the Board, is summarised in the table to the right. (Chief Strategy and Corporate Development Officer) On behalf of the Board, the Audit Committee oversees Hikma’s risk management framework in the context of its • Co-ordinates communication between the global risk owners, responsibilities for internal control, bi-annually reviews the the Executive Committee and the Audit Committee material risks facing the Group and is updated in response • Prepares the consolidated risk management report and to changes in both the internal and external environment. submits it to the Audit Committee and Executive The risk framework provides further detail on the Management Committee bi-annually

monitoring, mitigation and control processes for each of • Validates and challenges the identified risks as received by Financial statements the identified principal risks and includes a designated the designated senior executive senior executive with Group level responsibilities in each • Works with relevant parties on the risk management external area. The designated senior executive takes into account communications and disclosures for the Annual Report the Group’s risk appetite as part of their consideration of • Updates the risk management framework annually risk events and report to the Executive Committee. The Audit Committee also reviews business and operational Designated Senior Executive risks with the internal and external auditors which are identified through the audit work that they perform, • Co-ordinates risk management activities across the regions including risk interviews with all executive management. • Submits a risk management status update report to the Chief Risk Officer bi-annually • Implements the risk management processes and identifies, assesses and manages risks within the business

Designated Regional Officer 5. Update Risk 1. Risk Appetite & Identification Framework • Submits a risk management status update report to the designated senior executive bi-annually • Implements the detailed risk management processes in operations and mitigates and manages risks within 4. Disclosure their respective regions, as part of their daily operations 2. Consolidation & External & Analysis Communication Internal Audit

3. Risk • Provides objective assurance and opinion of the effectiveness Reporting of Hikma’s risk management and internal control systems

Annual Report 2016 53 Risk and control continued

Principal risks 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. 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.

Risk and description Mitigation and control Product quality • Situations resulting in poor manufacturing and • Global implementation of quality systems that guarantee valid consistent processes have the potential to lead to: manufacturing processes leading to the production of quality products • Product efficacy and safety issues affecting • The 11 FDA approved facilities are regularly assessed by the regulator patients and manufacturing personnel resulting • Documented procedures are continuously improved and staff receive in liability and reputational issues training on those procedures on a regular basis • Regulatory action that could result in the closure • Continued environment and health certifications of facilities and consequential loss of opportunity and potential failure to supply obligations • Delayed or denied approvals for new products • Product recalls API sourcing • API and raw materials represent one of the • Maintaining alternative API suppliers for the Group’s top strategic Group’s largest cost components. As is typical products, where possible in the pharmaceuticals industry, a significant • API suppliers are carefully selected and the Group endeavours to proportion of the Group’s API requirements is build long-term supply contracts provided by a small number of API suppliers • The Group has a dedicated plant in Jordan that can synthesise strategic • There is a risk that it will not be possible to secure injectable APIs where appropriate or maintain adequate levels of API supplies in • Utilising supply chain models to maintain adequate API levels 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

54 Hikma Pharmaceuticals PLC Strategic report

Risk and description Mitigation and control Corporate governance MENA and emerging markets • Hikma operates in MENA and emerging markets • Geographic diversity reduces the impact of issues arising in one which have high levels of political and social jurisdiction with extensive experience of operating in these environments instability as well as economic and regulatory and developing opportunities fluctuations that can result in a wide variety • Strong regulatory team that proactively monitors possible of business disruptions in those markets for regulatory changes a substantial period of time • 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 • Internal marketing and business development departments monitor Financial statements profits derive from a number of strategic products. and assess the market for arising opportunities Failure to maintain a healthy product pipeline will • Expansive global product portfolio with increased focus on high affect the ability of the Group to generate business value and differentiated products and limits the ability to provide differentiated • Experienced internal R&D teams developing products and overseeing joint products to patients and customers 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 • Operating in wide range of countries, products and therapeutic areas industry include numerous volatile elements such • Diversification of manufacturing capability and capacity as political action, societal changes, regulatory • Active product life cycle and pricing management in the MENA region interventions, drug approval patterns, competitor strategies and pricing that are difficult to anticipate • Compliantly identify market opportunities and develop appropriate and may affect profitability, goodwill and impairment pricing strategies whilst responsibly applying price changes in the US

Annual Report 2016 55 Risk and control continued

Risk and description Mitigation and control Acquisitions • The Group strategy is to pursue value adding • The mergers and acquisitions team undertake extensive due acquisitions to expand the product portfolio, diligence of each acquisition, including legal, financial, compliance acquire manufacturing capabilities and expand and commercial, and utilise multiple valuation approaches in in existing and emerging markets. There is risk assessing target acquisition value of misjudging key elements of an acquisition or • Executive Committee reviews major acquisitions before they are failing to integrate the assets, particularly where considered by the Board they are distressed • The Board is willing and has demonstrated its ability to refuse • An acquisition of a large-scale target may entail acquisitions where it considers the price or risk is too high financing-related risks and operating expenses • Dedicated integration project teams are assigned for the acquisition, and significantly increase the Group’s leverage which are led by the business head responsible for proposing the if financed with debt 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 • Board level – Compliance, Responsibility and Ethics and emerging markets are considered to be Committee (“CREC”) higher risk in relation to sales practices. Improper • Code of Conduct approved by the Board, translated into seven conduct by employees could seriously damage languages and signed by all employees the reputation and licence to do business • 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 • Extensive financial control procedures have been implemented and risks similar to most major international are assessed annually as part of the internal audit programme manufacturers such as liquidity, exchange rates, • A network of banking partners is maintained for lending and deposits tax uncertainty and debtor default. In addition, • Management monitors debtor payments and takes precautionary measures most of the other risks could have a financial and action where necessary impact on the Group • 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

56 Hikma Pharmaceuticals PLC Risk and description Mitigation and control Strategic report Legal, intellectual property and regulatory • The Group is exposed to a variety of legal, IP • Expert internal departments that enhance policies, processes, embed and regulatory risks similar to most relevant compliance culture, raise awareness major international industries such as changes • Train staff and provide terms to mitigate or lower contractual risks in laws, regulations and their application, where possible litigation, governmental investigations, • First class expert external advice is procured to provide independent sanctions, contractual terms and conditions services and ensure highest standards and potential business disruptions • Board of Directors and executive management provide leadership and take action Information technology • If information and data are not adequately • Utilise industry-standard information security solutions and best practice Corporate governance secured and protected (data security, access process for local and Group requirements controls), this could result in: • Continue to stay abreast of cyber-risk activity and, where necessary, • Increased internal/external security threats implement changes to combat this • Compliance and reputational damages • Alignment of IT and business strategy • Regulatory and legal litigation • 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 • Employ HR programmes that attract, manage and develop talent within risks. The fast growth of the organisation poses the organisation risks to management processes, structures and • Keeping our organisation structures and accountabilities under review, and talent that serve the changing needs of the maintaining the flexibility to make changes smoothly as requirements change organisation. In turn, this may affect other risks Financial statements • Continuously upgrade management processes so that they become and remain at the standards of a global company

Reputational • Reputational risk inescapably arises as a • Monitor the internal and external sources that might signal by-product of other risks and from taking reputational issues complex business decisions. However, we • Sustain corporate responsibility and ethics through transparent reporting view our reputation as one of our most valuable and compliance with global best practices (e.g. GHG emissions, UN assets, as risks facing our reputation may affect Global Compact) our ability to conduct core business operations • Maintain strong communication and corporate affairs capabilities • Establishing partnerships and programmes to limit misuse of Hikma products

Annual Report 2016 57 Risk and control continued

Risk management Internal control During 2016, the Group focused on embedding the The Board is ultimately responsible for the effectiveness Enterprise Risk Management (“ERM”) framework. of the Group’s systems of internal controls and risk Hikma operates in diverse and dynamic markets which management. The Board confirms that it is in accordance are subject to great levels of uncertainty and the ERM with the Code and follows the FRC’s “Guidance on Risk framework is an integral part of our business as it Management, Internal Control and Related Financial provides for a pragmatic and consistent approach to and Business Reporting”. The system for identifying, identifying, calibrating and reporting on risks throughout evaluating and managing the risks the Group faces draws the organisation; gauging changes in the Group’s risk on the ongoing output of the finance department on profile; and balancing risk-taking with mitigation Group performance, the work of the internal auditors and control. and issues identified by the external auditors to the extent covered by their audit work. The Board monitors In addition to providing consistent approaches to the ongoing effectiveness of the system and formally measurement, the ERM framework specifies the reviews the Group’s policies on internal control on an designated senior executive responsible for detailed annual basis, including all material controls. The Board is oversight and management of each of the principal risks satisfied that the Group’s systems for internal control have in the business and guides them on the approach they been in place throughout the year under review and up to should take to monitor, mitigate and control each type the date of approval of the Annual Report and Accounts. of risk. All senior executives have the significant daily The systems of internal control are designed to manage interaction with reporting lines to members of the rather than eliminate the risk of failure to achieve the Executive Committee, which is responsible for controlling business objectives and can only provide reasonable but situations that may arise, irrespective of the risk category. not absolute assurance against material misstatement or loss. The Board considers two key areas where control needs to be enhanced: 1) IT — the Board appointed a Chief Information Officer to integrate Hikma’s global IT initiatives and expanded the Group’s IT resources. The Board receives regular updates on the progress of this enhancement. 2) Compliance — the Board initiated a programme to enhance the ABC activities in the US operations and instructed an external assessor to assess the enhancements in early 2017. The Board is satisfied that the enhancements are on track to be fully implemented and tested.

58 Hikma Pharmaceuticals PLC Key internal audit events The key elements of our internal control framework are as follows: Strategic report

• A documented and disseminated • An established process for reviewing the reporting structure with clear policies, financial performance and providing MAY procedures, authorisation limits, support to our joint ventures and segregation of duties and associates together with direct support The Audit Committee Chair delegated authorities from the Hikma finance function meets EY to review the internal audit • Written policies and procedures • Annual budgets, updated forecasts and findings to date, the management for material functional areas with long-term business plans for the Group responses and the action plan. specific responsibility allocated that identify risks and opportunities and to individual managers that are reviewed and approved by • A comprehensive system of internal the Board financial reporting that includes regular • A defined process for controlling capital comparison of results against budget expenditure which is detailed in the and forecast and a review of KPIs, each governance framework Corporate governance JUL informed by management commentary

EY report their initial findings to the Audit Committee. The Authority to invest Committee meets with EY ($ Million) without management present.

Board of Directors >50m

Executive Committee 20-50m

OCT

Investment Committee Financial statements The Audit Committee Chair has a further meeting with EY to review the full-year audit findings, Regional Regional Regional 10-20m review the results of the risk assessment investment investment investment that is undertaken in conjunction with management and consider the internal audit plan for the following year. M&A / Corporate Development Department

Project Team: Project Team: Project Team: MENA and <1m US Europe emerging markets DEC

EY report their full-year findings for the year, a forward-looking risk assessment and a plan for the following year to the Committee. The Committee meets with EY without management present.

Annual Report 2016 59 Risk and control continued

Viability Viability period The Directors have made their assessment of the Assessment mechanism viability of the Company over a period of three years. The Directors assess the position and prospects of This is the timeframe for new acquisitions and greenfield the Company at each Board meeting and at the end of opportunities to become fully mature and integrated the financial year by taking account of the strategic and businesses, to be ready to market products that have operational update from the Chief Executive and financial been transferred or developed and is considered to be reporting and forecasting from the Chief Financial Officer. the maximum over which forecasts can be made to a The Directors also receive regular updates on operational, reasonable level of accuracy. The Board acknowledges strategic and financial matters from executives. The Board that the accuracy is greater in the nearer term than it has considered the potential impact of the principal is towards the end of the viability period. risks detailed on pages 54 to 57 and has modelled the following scenarios which are designed to take into Qualifications and assumptions account those principal risks: The Board undertook a robust assessment of the • Product quality: Prolonged closure of one of our Group’s principal risks, as outlined on pages 54 to 57. major US FDA approved facilities This statement highlights the broad business environment variables that the Board considers could have a significant • MENA & emerging markets: Escalation of political impact on the viability of the Company. or social instability in one of our major MENA markets • Industry earnings: Significant changes to the pricing The Board acknowledges that financial modelling over the environment in the US viability period is subject to a number of assumptions by management. The most significant assumptions in the These scenarios were designed to be severe but view of the Directors are: plausible. They take full account of the availability and likely effectiveness of mitigating actions that could be • Introduction and commercialisation of new products taken to avoid or reduce the impact or occurrence of • Market growth and product demand rates the underlying risks and that would realistically be • Foreign exchange consistency open to them in the circumstances. • Continuation of elevation of certain product prices The Directors consider that this stress-testing of the • Political and social stability in the markets Company’s prospects is reasonable and the results showed that the Company would be able to withstand the impact • Ability to re-finance existing debt on similar terms of these scenarios by making the necessary adjustments • Cash flow generation from newly acquired businesses to its operating plans within the normal course • Ability to increase operational efficiency and reduce of business. central costs • The effective tax rate being within the current guidance range

Statement The Directors, having considered the above matters, have a reasonable expectation over the viability period that the Company will be able to continue in operation and meet its liabilities as they fall due.

60 Hikma Pharmaceuticals PLC Strategic report

Going concern The Directors have considered the going concern position After making enquiries, the Directors believe that the of the Company during the year and at the financial year Group is adequately placed to manage its business and end, as they have in previous years. The Directors believe financing risks successfully despite the current uncertain that the Group is well diversified due to its geographic economic and political outlook. The Directors have a spread, product diversity and large customer and supplier reasonable expectation that the Group has adequate base. The Group operates in the relatively defensive resources to continue in operational existence, therefore generic pharmaceuticals industry which the Directors the Directors continue to adopt the going concern basis expect to be less affected by economic downturns in preparing the financial statements. compared to other industries. Corporate governance The Group’s overall net debt position was $704 million at 31 December 2016 compared to $135 million in December 2015. Net cash flow from operating activities in 2016 was $293 million (2015: $366 million). The Group has $1,109 million (2015: $1,374 million) of undrawn short-term and long-term banking facilities, in addition to $180 million (2015: $205 million) of unutilised import and export financing limits. These facilities are well diversified across the 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, maturities of long-term debt, and the purchase of West-Ward Columbus, show that the Group should be able to operate well within the levels of its facilities and their Financial statements related covenants.

Annual Report 2016 61 CORPORATE GOVERNANCE

During the year we have continued to promote our core Hikma values of transparency, respect, trust and quality.

63 / Message from our Chair 64 to 67 / Corporate governance at a glance 68 to 73 / Board of Directors 74 to 75 / Executive Committee 76 to 83 / Governance report 84 to 103 / Committee reports 104 to 135 / Remuneration report 136 to 139 / Directors’ report

62 Hikma Pharmaceuticals PLC Corporate governance Message from our Chair

EVER STRONGER Strategic report GOVERNANCE Corporate governance Dear Shareholders “We owe Michael more than I have detailed Your Board has continued to develop and grow during 2016, continuing to improve our governance and here and I would like to thank him on behalf oversight of the Group. of all of us.” Earlier in 2016 several investors wrote to Hikma regarding succession for Independent Directors and Our response to these points leads me into the certain remuneration matters. I was pleased that Board and Committee changes that are underway. our Nomination and Governance Committee and We welcomed Nina Henderson to the Board in October Remuneration Committee addressed both of these issues and I am delighted that we have further enhanced our in a considered and consultative manner. You will find US and global corporate experience with such a strong further information in the respective Committee reports. appointment. The implementation of the medium-term succession plan results in Michael Ashton stepping down from the Board in May 2017. Michael has guided Financial statements the development of our remuneration practice and development of a Human Resources function from their nascent early days on listing in 2005 to the very strong position that we are in today. We owe Michael more than I have detailed here and I would like to thank him on behalf of all of us. As we announced during the year, John Castellani is in the process of assuming responsibility for the Compliance, Ethics and Responsibility Committee chair. This is a very important Committee for the Group and I am delighted that we have the right person to build on Ron Goode’s excellent achievements. Over the last five years we have made a significant number of directors appointments and have passed on the leadership of all four Board Committees. We feel that, by taking time to ensure we have the right people and do not lose knowledge, our succession process has greatly assisted in the continued enhancement of the Board. I would like to thank shareholders for their patience as we have gone through this exercise.

Said Darwazah Chairman and Chief Executive

Annual Report 2016 63 Corporate governance continued Corporate governance at a glance IMPLEMENTING CHANGE READY FOR THE FUTURE

During 2016, the Board focused on implementing Director and Committee changes in order to be ready to take Hikma to the next level.

Hikma’s Board of Directors

Highlights of 2016 Priorities in 2017 • Oversaw the integration of Roxane • Maximising the value from the product portfolio (now West-Ward Columbus) • Enhancing forecasting and budgeting processes • Extensive review of the Group’s strategy • Ensuring an orderly handover of responsibilities from • Expanded our US and global board experience further through Dr Ronald Goode to John Castellani as Chair of the the appointment of Nina Henderson Compliance, Responsibility and Ethics Committee • Enhanced gender diversity on the Board • Further develop our medium-term executive succession • Continued to develop and implement our executive and development plans and management succession plans • Embedding the revised remuneration policy and • Developed a US ABC enhancement programme performance targets • Enhanced our internal governance and processes concerning the market abuse regime • Carried out an in-depth review of the remuneration policy • Undertook a shareholder consultation regarding governance and remuneration arrangements • Successful transition to PricewaterhouseCoopers LLP as auditors • Advanced our anti-trust, anti-money laundering and trade sanctions programme

64 Hikma Pharmaceuticals PLC Strategic report

Attendance Board meeting attendance During the year under review, the Board held seven scheduled Director Attended % meetings and two unscheduled meetings. All Directors attended Said Darwazah 9/9 100% each scheduled and unscheduled meeting other than Michael Mazen Darwazah 9/9 100% Ashton who was unable to attend one meeting due to an Robert Pickering 9/9 100% Corporate governance important family commitment. Michael read the papers for Ali Al-Husry 9/9 100% consideration at that meeting and relayed his comments in advance through the Senior Independent Director. Michael Michael Ashton 8/9 89% contacted the Company Secretary as soon as possible in Dr Ronald Goode 9/9 100% order to establish the outcomes and key points considered. Pat Butler 9/9 100% Dr Pamela Kirby 9/9 100% Board changes Dr Jochen Gann (appointed 29 Feb During 2016, Dr Jochen Gann joined as the Boehringer Ingelheim 2016) 5/5 100% nominated Non-Executive Director and John Castellani and Nina John Castellani (appointed 1 Mar 2016) 5/5 100% Henderson joined as Independent Non-Executive Directors. Nina Henderson (appointed 1 Oct 2016) 2/2 100% Michael Ashton is due to stand down at the Annual General Breffni Byrne (retired 12 May 2016) 5/5 100% Meeting (“AGM”) on 19 May 2017. Please see pages 66 to 67 to view the detailed Board calendar and meeting activities. Financial statements

2015 Composition 2016 Composition

Total Total 9 11

Chairman & CEO 11% Chairman & CEO 9% Executive Directors 11% Executive Directors 9% Non-Independent NED 11% Non-Independent NED 18% Independent NED 67% Independent NED 64%

Annual Report 2016 65 Corporate governance continued Corporate governance at a glance continued

2016 Board key business and the time spent by area of focus In addition to the regular discussion items and responsibilities on page 67, the following matters were considered during 2016.

JAN FEB MAR

• West-Ward Columbus (“Roxane”) • West-Ward Columbus • Market update circular, prospectus and EGM (“Roxane”) update • Preliminary statements • Risk appetite • R&A 2015 • AGM notice • Dividend * Two meetings were held in February

MAY JUL AUG

• AGM • Brexit assessment • Market update • Forecast II • Strategy • Proposed interim dividend • Trading statement • Board evaluation • Forecast III • West-Ward Columbus • Interim announcement and results (“Roxane”) integration • API risk • Strategy

The Board’s time OCT DEC

• Strategic review • Budget for 2017 • Financing 2015 2016 • Investor relations review

NOV 2015 2016 • Forecast IV • Market update Corporate governance 14% 22% • Trading statement • Trading update Financial 21% 24% Operational developments 8% 7% Risk 21% 6% Please see pages 71 to 73 to view in detail the Directors’ biographies Strategy and acquisitions 36% 41%

66 Hikma Pharmaceuticals PLC Strategic report Regular items and responsibilities The following items are matters of regular discussion at meetings of the Board of Directors.

Chief Executive’s report Committee reports Investors and markets • Operational update from the • Committee Chair updates on • Capital and pharmaceutical business divisions business of the Committee markets updates • New greenfield opportunities • Discussion of recommended actions • Market consensus information and partnerships • Delegation of issues to management • Investor relations annual review • Issues arising across the Group Corporate governance

Legal Strategic Risk • Regulatory issues • Business environment updates • Risk appetite • Litigation developments • Pharmaceutical market strategy • Principal risks • Legal compliance updates • Specific M&A opportunities • Deep dive assessments • Legal and regulatory change • Management framework Financial statements

Finance Governance Training • Financial reporting • Board process enhancements • Company specific training • Flash sales • UK and listed environment • Professional adviser opportunities • Forecasting developments • Bespoke training programmes • Budgeting • Annual governance review

Annual Report 2016 67 Corporate governance continued Board of Directors

Standing left to right: Peter Speirs, Nina Henderson, Dr Jochen Gann, Michael Ashton, Dr Pamela Kirby, John Castellani, Ali Al-Husry, Mazen Darwazah Seated left to right: Robert Pickering, Pat Butler, Said Darwazah, Dr Ronald Goode 68 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 69 Annual Report 2016 Corporate governance continued Board of Directors continued

Around the table

Executives Non-Executives Independent Non-Executives

1. Said Darwazah 3. Ali Al-Husry 5. Robert Pickering Chairman and Chief Executive Non-Executive Director Senior Independent Director • Strategic vision • Financing and capital markets Chair Nomination and Governance Committee • Acquisitions and financing • MENA region • Listed environment and governance • US pharmaceuticals • Business development • Capital markets • Governance and leadership • Pharmaceuticals 6. Dr Pamela Kirby 2. Mazen Darwazah 4. Dr Jochen Gann Chair Remuneration Committee Executive Vice Chairman, Non-Executive Director • US and UK pharmaceuticals Chief Executive of MENA • Acquisitions and business development and Emerging Markets • Human resources and people • Treasury and capital management • MENA pharmaceuticals • EU pharmaceuticals 7. Michael Ashton • Regulatory and reputational Independent Non-Executive Director • Strategy and operations • North American, European and African • Business integrity and ethics manufacturing and distribution • Human resources and people

8. Dr Ronald Goode 1. 2. Chair Compliance, Responsibility and Ethics Committee • US and international pharmaceuticals 3. 12. • Business integrity and ethics

9. Pat Butler Chair Audit Committee 4. • Financial affairs and audit • Strategy and risk 11. The Boardroom table Full biographies are included on pages 71 to 73 10. John Castellani Chair (elect) Compliance, Responsibility and Ethics Committee 10. 5. • US pharmaceutical market • Regulatory and legislative

9. 6. 11. Nina Henderson Independent Non-Executive Director 7. 8. • Strategy and risk • US and international general management

Company Secretary

12. Peter Speirs Company Secretary • Listing and governance 70 Hikma Pharmaceuticals PLC 1. Said Darwazah 2. Mazen Darwazah 3. Ali Al-Husry Strategic report Chairman and Chief Executive Executive Vice Chairman, Chief Executive Non-Executive Director Age: 59 / Appointed: 1 July 2007 of MENA and Emerging Markets Age: 59 / Appointed: 14 October 2005 Joined Hikma: 1981 / Nationality: Jordanian Age: 58 / Appointed: 8 September 2005 Joined Hikma: 1981 / Nationality: Jordanian Joined Hikma: 1985 / Nationality: Jordanian Skills and experience: Said has served Skills and experience: Ali joined Hikma as as Chief Executive since July 2007 and Skills and experience: Mazen was Director of Hikma Pharma Limited in 1981 Chairman since May 2014. Said was appointed Group Executive Vice Chairman and has held various directorships within Chairman and Chief Executive of Hikma’s and MENA Chief Executive in 2005 and the Group. Ali brings great financial group holding company from 1994 to became President and Chief Executive of experience to the Board as well as an 2003 and Minister of Health for the MENA and Emerging Markets in 2014. in-depth knowledge of the MENA region Hashemite Kingdom of Jordan from During his 31 years’ service at Hikma he and Hikma Pharmaceuticals. Ali was a 2003 to 2006. has held an extensive range of positions founder of the Capital Bank of Jordan, within the Group starting as a medical which offers commercial and investment During his 35 years at Hikma, Said representative and working in different banking services, and served as Chief has undertaken several executive roles Corporate governance capacities including Chairman and Chief Executive of the Bank until 2007. which have provided him with extensive Executive of Hikma Pharmaceuticals experience in each functional area of Ali has a degree in Mechanical Engineering Limited, a major group operational Hikma’s global generic pharmaceuticals from the University of Southern California and holding company. business and in the broader strategic and an MBA from INSEAD. leadership of an international and Mazen is responsible for the strategic Other appointments: Ali is the founder entrepreneurial organisation. Said has led and operational direction of the MENA and a Director of Endeavour Jordan, a the development of the Group strategy, business. He is also responsible for the not for profit organisation that assists in the Injectables business in Europe and the expansion of the Group into emerging the development of entrepreneurs, and MENA region and acquisitions including markets outside the MENA region, global a Director of the Microfund for Women, West-Ward Pharmaceuticals and Baxter’s alliances, business relationships, CR and which provides microfinance to low- injectable business. Under Said’s business integrity. income female entrepreneurs. He is also leadership, Hikma’s facilities in the US, Mazen holds a BA in Business a trustee for the Jordanian University of Jordan and Portugal received US FDA Administration from the Lebanese Science and Technology. Additionally, Ali

approval, the leading international Financial statements American University and an AMP from is a Director of the Capital Bank of Jordan. pharmaceutical regulatory standard. INSEAD. He has served as the President Ali is also a Board member of DASH Said has a degree in industrial engineering of the Jordanian Association of Ventures Limited. from Purdue University and an MBA Manufacturers of Pharmaceuticals from INSEAD. and Medical Appliances. 4. Dr Jochen Gann Other appointments: Said holds various Other appointments: Mazen holds various Non-Executive Director public and charitable positions. He is public and charitable positions. He is Vice Age: 52 / Appointed: 29 February 2016 the Chairman of the Queen Rania Chairman of the Capital Bank of Jordan Joined Hikma: 2016 / Nationality: German Foundation, a major charitable project, and a trustee of the St. Louis College of and a Director of Endeavour Jordan, a Pharmacy, Birzeit University and King’s Skills and experience: Jochen is Global charitable organisation that assists in Academy. Mazen is also a member of the Head of Corporate Finance / M&A and the development of entrepreneurs, and King Abdullah Policy Board. He is on the Corporate Vice President at Boehringer a Trustee of Jordan River Foundation, Advisory Board for the Lebanese American Ingelheim GmbH. In his M&A role he a charitable organisation that aims to University (LAU), Lebanon. leads Boehringer Ingelheim’s mergers and empower Jordanian society. Said is also acquisitions activities across all businesses. Committee membership: a trustee of the American University He is also responsible for Business of Beirut. Said is a Board member of • CRE Committee Development & Licensing (Strategic the Central Bank of Jordan and DASH • Corporate Responsibility Committee Transaction and Alliance Management) Ventures Limited. He is also Chairman of (Chair) for Boehringer’s prescription medicine Royal Jordanian and the Dead Sea Touristic division. In addition, in his role as • Executive Committee & Real Estate Investments. Corporate Treasurer he is responsible for • Nomination and the group’s financing, asset management, Committee membership: Governance Committee risk management, and liquidity and credit • Executive Committee (Chair) management activities as well as the corporate banking strategy. Jochen is also managing director of the Corporate Venture Fund.

Annual Report 2016 71 Corporate governance continued Board of Directors continued

Jochen has held several senior roles at Committee membership: Michael has a Bachelor of Pharmacy Boehringer Ingelheim including Head of degree from Sydney University, and an • Audit Committee Controlling Subsidiaries and Head of Tax. MBA degree from Rutgers University, Prior to joining Boehringer Ingelheim in • Nomination and Governance New Jersey. 2007, Jochen held the positions of Head Committee (Chair) Other appointments: Michael is Chairman of Corporate Treasury at Cognis GmbH, • Remuneration Committee of Komixx, a private children’s educational Managing Director at Degussa Bank company. GmbH, Head of Treasury Controlling 6. Dr Pamela Kirby Committee membership: at Hoechst AG and Consultant at Independent Non-Executive Director Metzler, Germany. Age: 63 / Appointed: 1 December 2014 • Audit Committee Jochen holds a Doctorate Degree Joined Hikma: 2014 / Nationality: British • Nomination and (International Finance) from University Governance Committee of Hohenheim, Germany and a Master’s Skills and experience: Dr Pamela Kirby was • Remuneration Committee Degree in Business Administration and Chief Executive of Quintiles Transnational Corp and has held senior executive Science from University of Karlsruhe, 8. Dr Ronald Goode Germany. positions in F Hoffmann-La Roche Ltd and AstraZeneca plc. Dr Kirby has chaired Independent Non-Executive Director Other appointments: Jochen currently Scynexis Inc and was Senior Independent Age: 73 / Appointed: 12 December 2006 holds a number of board positions at Director of Informa plc. Dr Kirby has Joined Hikma: 2006 / Nationality: American companies of the Boehringer Ingelheim previously held Non-Executive Director group. He is also currently Chairman of positions with Smith & Nephew plc, Novo Skills and experience: Ron has spent the Finance committee at Verband Der Nordisk A/S, Curalogic A/S and Oscient over 30 years in the international Chemischen Industrie e. V., Germany and Pharmaceuticals Corp. pharmaceutical industry, including roles a Member of the Advisory Board KfW as President of International Operations Dr Kirby holds a first-class Bachelor of IPEX-Bank GmbH, Germany. at Searle and Vice President of Clinical and Science degree in Pharmacology and a Scientific Affairs at Pfizer. Ron’s extensive PhD in Clinical Pharmacology from the experience includes leading companies as 5. Robert Pickering University of London. Chief Executive and acting as an adviser to Senior Independent Director Other appointments: Dr Kirby is a companies in the pharmaceutical industry. Age: 57 / Appointed: 1 September 2011 Non-Executive Director of DCC plc, Victrex Ron also advises companies involved in Joined Hikma: 2011 / Nationality: British plc and Reckitt Benckiser Group PLC. She nanotechnology and in the information Skills and experience: Robert joined is also a Supervisory Board Member for technology business sectors. Akzo Nobel NV and a Non-Executive the Board as a Non-Executive Director Ron was formerly President and Chief member of the board of the King’s in September 2011 and became Senior Executive of Unimed Pharmaceuticals, Health Partnership, an academic Independent Director in May 2014. Inc. and eXegenics Inc. Ron was a health-science centre. Robert spent 23 years at Cazenove and Trustee of Thunderbird School of Global Co., becoming the first Chief Executive Committee membership: Management, which was ranked by of Cazenove Group PLC in 2001. He the Financial Times as the premier • Audit Committee subsequently served as Chief Executive of international business school. JP Morgan Cazenove, until his retirement • CRE Committee Ron has a PhD from the University in 2008. He has extensive experience of • Remuneration Committee (Chair) capital raising, mergers and acquisitions of Georgia and a MS and BS from the University of Memphis. He is a recipient and of the relationship between quoted 7. Michael Ashton companies and investors. of the University of Georgia distinguished Independent Non-Executive Director alumni award. Robert is a qualified solicitor with a law Age: 71 / Appointed: 14 October 2005 degree from Lincoln College, Oxford. Other appointments: Ron is the Chairman Joined Hikma: 2005 / Nationality: Australian of The Goode Group, advisers to the Other appointments: Robert is a Skills and experience: Michael has over pharmaceutical industry, a Director of Non-Executive Director of CLSA UK, a 30 years’ experience in the pharmaceutical Mercy Ships International, a medical branch of CLSA Limited, an independent industry, holding senior executive positions services charity, and a Senior Business brokerage and investment group and Itau with Pfizer and Merck. Michael was Chief Advisor to The Kinsella Group, an BBA International PLC, the investment Executive of Puricore until June 2015, investment banking company. Additionally bank of the Itaú Unibanco group. He SkyePharma PLC from November 1998 he is a member of Private Access, Inc., is Chairman of the Trustees of Lincoln to March 2006 and prior to that was a medical record software developer. College Oxford 2027 Trust. Chairman, President and Chief Executive of Faulding. He has held a number of non-executive and advisory positions across the pharmaceutical industry.

72 Hikma Pharmaceuticals PLC Committee membership: 10. John Castellani Nina has served as a Director of Royal Strategic report Dutch Shell PLC, AXA Financial Inc., • Audit Committee Independent Non-Executive Director The Equitable Companies, Del Monte • CRE Committee Age: 66 / Appointed: 1 March 2016 Foods Company, Hunt Corporation, (Chair until 19 May 2017) Joined Hikma: 2016 / Nationality: American Pactiv Corporation and Walter Energy • Remuneration Committee Skills and experience: John J. Castellani Inc. with service on Audit, Investment, was President and Chief Executive Nomination and Governance, Corporate 9. Pat Butler Officer of Pharmaceutical Research and Social Responsibility and Remuneration Independent Non-Executive Director Manufacturers of America (PhRMA) from Committees. She has served as a Lead 2010 to 2015. Prior to that, he was the Director and committee Chair. Age: 56 / Appointed: 1 April 2014 President and Chief Executive of Business Joined Hikma: 2014 / Nationality: Irish Nina is an honours graduate of Drexel Roundtable, an association of leading University and holds a Bachelor of Science. Skills and experience: Pat is a former US company chief executives. During his A member of the Drexel 100, she received Senior Director at McKinsey & Co. During career John has also held senior positions the Anthony J. P. Drexel Distinguished his 25 years at McKinsey, he focused on with Burson-Marsteller, Tenneco, Inc. and Alumni Award in 2010. Corporate governance advising large corporations in the EU, US General Electric Corp., amongst others. and MENA on strategic, acquisition and Other appointments: Nina is a Director John holds a Bachelor of Science Degree organisational issues. Pat is a partner at of IWG PLC (formerly Regus PLC), CNO (Biology) from Union College Schenectady, the Resolution Group, a financial services Financial Group Inc., a life and healthcare New York. investment and restructuring company. insurance products company, the Foreign Pat has extensive experience in strategy Other appointments: John is a member of Policy Association and the Visiting Nurse implementation, integrating acquisitions, the board of trustees of The Johns Hopkins Service of New York Inc., the largest home performance improvement and a range of Medical System Sibley Memorial Hospital, healthcare provider in the United States. finance functions including treasury and Washington, DC. He is also a Director She is a Trustee of Drexel University, risk management. Pat is considered to of 5th Port. including the Drexel College of Medicine. Nina is a President of the Kent Land Trust have recent and relevant Committee membership: financial experience. Foundation, a nature conservancy. • Audit Committee Prior to McKinsey, Pat qualified as a Committee membership: • CRE Committee

chartered accountant with the audit and Financial statements (Chair from 19 May 2017) • Audit Committee tax practice of Arthur Andersen. He has • Nomination and a first class honours degree in Commerce • Remuneration Committee Governance Committee and a postgraduate diploma in Accounting and Corporate Finance from University 11. Nina Henderson • Remuneration Committee College Dublin. Independent Non-Executive Director 12. Peter Speirs Other appointments: Pat is a Non- Age: 67 / Appointed: 1 October 2016 Executive Director of the Bank of Ireland, Joined Hikma: 2016 / Nationality: American Company Secretary Towergate Group and Res Media Limited. Appointed: 3 April 2012 Skills and experience: Nina is a former He is also a Governor of the British Film Joined Hikma: 2010 / Nationality: British Corporate Vice President of Bestfoods Institute and a trustee of the where she held numerous international Skills and experience: Peter joined Resolution Foundation. general management and executive Hikma as a Deputy Company Secretary in Committee membership: marketing positions for global consumer 2010 and assumed the role of Company Secretary in 2012. Peter is responsible for • Audit Committee (Chair) branded and food service businesses. During a 30 year career, her positions advising the Board and Committees on • CRE Committee included President Bestfoods Grocery governance matters. Prior to joining Hikma • Nomination and Governance North America Consumer Division, he worked for Barclays and Pool Re, Committee Corporate Vice President Business the UK terrorism re-insurer. Development Global Food Service • Remuneration Committee Peter is a Fellow of the Institute of Division, President Bestfoods Specialty Chartered Secretaries and Administrators Markets Division and Vice President and holds a Law degree from the Bestfoods Baking until 2001. University of East Anglia.

Annual Report 2016 73 Corporate governance continued Executive Committee

Manager at Hikma Investment, General Manager of Hikma Farmacêutica and Vice President of Injectables. In February 2009, Majda assumed her current position as Corporate Vice President, Human Resources and she took on additional responsibility for MENA operations in January 2015. She has been responsible for establishing a central human resource practice and leading the development of several Group-wide initiatives, including the grading structure, performance evaluation process and the Group bonus scheme. Majda has completed the Advanced Management Program (AMP) at INSEAD, holds a BA from the American University of Beirut and a Master’s degree from Hochschule Fur Okonomie in Berlin, Standing left to right: Michael Raya, Hussein Arkhagha, Bassam Kanaan, Majda Labadi, Mazen Darwazah, Germany. Khalid Nabilsi, Brian Hoffmann. Seated left to right: Riad Mishlawi, Said Darwazah, Susan Ringdal Other appointments: Majda is currently a member of the Board of Trustees of the Said Darwazah is responsible for delivering the expansion Al Hussein Technical University. Chairman and Chief Executive vision of the Chief Executive. Committee membership: Please refer to page 71 for full Bassam is qualified as a US Certified • Executive Committee biographical details. Public Accountant (CPA) and Chartered Financial Analyst (CFA). Bassam has a BA Khalid Nabilsi from Claremont McKenna College and an Mazen Darwazah Chief Financial Officer International Executive MBA from Kellogg/ Executive Vice Chairman, Chief Executive Recanati Schools of Management. Appointed: 2011 of MENA and Emerging Markets Joined Hikma: 2001 / Nationality: Jordanian Other appointments: Bassam currently Please refer to page 71 for full holds a Non-Executive Directorship in Arab Skills and experience: Prior to assuming biographical details. Bank. Bassam has served on the Boards his current role, Khalid held several senior of Aqaba Development Co., Jordan Dubai positions in the Hikma finance department Bassam Kanaan Properties, Zara Holding, Capital Bank including Corporate Vice President, Chief Strategy and Corporate of Jordan, CEGCO and Paltel. Bassam Finance and was a key member of the Development Officer is active in several non-profit and charity IPO team in 2005. Following qualification as a CPA he held a variety of roles in Appointed: 2014 organisations and is currently a member financial accounting, reporting and Joined Hikma: 2001 / Nationality: Jordanian of the Board of Trustees of the Welfare Association in Jordan. financial advisory services, and with Skills and experience: Bassam joined Atlas Investment Group (now AB Invest), Committee membership: Hikma as Chief Financial Officer in 2001 where he was involved in mergers and and played a leading role in preparing for • Executive Committee acquisitions advisory services. Prior Hikma’s IPO in 2005 and in its subsequent • Global Management Committee (Chair) to Atlas, Khalid had managed several M&A activity. In January 2011, Bassam multinational audit engagements at was promoted to the position of Majda Labadi Arthur Andersen in Amman, Jordan. President and Chief Operating Officer As Chief Financial Officer, Khalid has for the MENA and EU regions, where Corporate Vice President for Human integrated several acquisitions into he led the implementation of important Resources and Head of Operations, the financial reporting structure, organisational and operational MENA developed the Group internal control improvements. In 2014, he was promoted Appointed: 2009 framework and implemented new to the newly created role of Chief Strategy Joined Hikma: 1985 / Nationality: Jordanian leverage arrangements to fund and Corporate Development Officer, with Skills and experience: During her 31 years acquisitions and capital investment. Group-level responsibility for strategic at Hikma, Majda has held a variety of roles Khalid qualified as a US Certified Public development, acquisitions, alliances including Purchasing Manager at Hikma Accountant and has an MBA from the and product development. Bassam Pharmaceuticals Limited, Strategy University of Hull.

74 Hikma Pharmaceuticals PLC Other appointments: Khalid is a founder Michael is also a graduate of INSEAD’s Brian worked for L.E.K. Consulting as Strategic report of the Jordan Association for Management International Executive Program. a management consultant in their Boston Accountants and a Board member of the office. He led engagements for clients Committee membership: Jordan Armed Forces and Security in a wide variety of areas including Apparatuses Credit Union. • Executive Committee growth strategy, merger evaluation and integration, new product launches, Committee membership: Riad Mishlawi and strategic alliances. • Executive Committee EU Vice President and Global Head of Brian holds a Bachelor’s Degree Injectables in Business Administration from Susan Ringdal Appointed: 2011 Boston University Questrom School Vice President, Corporate Strategy and Joined Hikma: 1990 / Nationality: Lebanese of Management and an MBA from the Investor Relations University of Chicago Booth School of Skills and experience: Riad joined Hikma Appointed: 2012 Business with concentrations in strategic as a Project Engineer in the engineering Joined Hikma: 2005 / Nationality: American management, finance, and marketing. department where he was involved in the Corporate governance Skills and experience: Susan joined Hikma construction of Hikma’s facility in Portugal. Committee membership: as Investor Relations Director, having He spent a significant period in the • Executive Committee previously worked for the pharmaceutical manufacturing operations of many distribution and retail pharmacy group Hikma sites, was General Manager Hussein Arkhagha Alliance UniChem plc as Investor Relations of Hikma Italy and became Head of Manager. She also has experience as an Injectables Manufacturing Operations General Counsel Equity Analyst at Morgan Stanley in before assuming his current role. Riad Appointed: 2013 London. In early 2012 Susan assumed was an Executive Director at Watson Joined Hikma: 2001 / Nationality: responsibility for corporate strategy. Pharmaceuticals from 1998 to 2005, Jordanian responsible for Injectables operations. Susan holds a BA in History from Cornell Skills and experience: Hussein Riad has led Hikma’s Injectables division University and an MBA from London joined Hikma as Legal Counsel in July through a period of rapid growth and Business School. 2001. Since then, he has established and has integrated operations into a global developed the global legal department, Committee membership: operation. aligning its mission and strategy with Financial statements • Executive Committee Riad has a BSc in Engineering and a those of Hikma. Hussein is a key member • Global Management Committee Master’s in Engineering and Management of the team that prepared for Hikma’s IPO from George Washington University. on the London Stock Exchange in 2005, in addition to Hikma’s major acquisitions. Michael Raya Committee membership: Prior to his appointment as General Chief Executive Officer, West-Ward • Executive Committee Counsel, he held several positions at Pharmaceuticals Hikma, including Head of MENA Legal, Appointed: 2008 Brian Hoffmann Head of the Shareholders’ Department Joined Hikma: 1992 / Nationality: American President, West-Ward Pharmaceuticals and Head of Tax. Skills and experience: Michael joined Appointed: 2015 Hussein is a qualified lawyer in Hikma’s US subsidiary West-Ward Joined Hikma: 2009 / Nationality: American Jordan and holds a Master’s degree Pharmaceuticals from Vitarine in International Business Law from Skills and experience: Brian was appointed Pharmaceuticals where he had worked the University of Manchester, under President of West-Ward Pharmaceuticals from 1984 until 1992 in various roles, a UK Chevening Scholarship. including Vice President, Quality Control. in 2015 with responsibilities for two of Prior to this, Michael worked at Schering- Hikma’s facilities, supply chain, business Other appointments: Hussein is an active Plough and Hoffman LaRoche. At Hikma, development, and product selection. Brian member of charity associations, sports and Michael was responsible for all West-Ward originally joined West-Ward in 2009 to cultural organisations. He currently sits on Pharmaceuticals operations as well as develop a strategy function and was later the Board of Trustees for Prince Hamza Bin quality/compliance for all worldwide promoted to VP Corporate Development Al Hussein Schools in Jordan. Hikma facilities until his appointment and SVP & General Manager. Brian has led Committee membership: as President and Chief Executive of many strategic initiatives including the • Executive Committee West-Ward Pharmaceuticals in 2008. acquisitions and integrations of Baxter’s Multi-Source Injectables business and Michael holds a Master’s degree in Boehringer Ingelheim’s Roxane Laboratories. Industrial Pharmacy from Long Island University and a Bachelor’s degree in Chemistry from St. Francis College.

Annual Report 2016 75 Corporate governance continued Governance report

Explanations under the UK Corporate Reasons for the decision Governance Code The Board is focused on the commercial success of Hikma and believes that continuing the combined position of Governance principles Chairman and Chief Executive is the best way to achieve The Board is committed to the standards of corporate this objective for Hikma because: governance set out in the UK Corporate Governance Code • Chairman’s role: The Chairman position is highly visible (the “UK Code”) adopted in September 2014 and the inside and outside Hikma, acting as an ambassador Markets Law of the Dubai Financial Services Authority. The with business partners and adviser to the divisions. report on pages 62 to 135 describes how the Board has It is essential the Chairman intimately understands applied the Main Principles of the UK Code and Markets MENA culture and has strong relationships in the Law throughout the year ended 31 December 2016. region, can speak Arabic and has extensive The UK Code is available at www.frc.org.uk pharmaceutical knowledge. The Board considers that this Annual Report provides the • Business partners: A significant number of the information shareholders need to evaluate how we have Company’s key political and commercial relationships complied with our current obligations under the UK Code across the MENA region are built on the long-term trust and Markets Law. and respect for the Darwazah family where the role of the Chairman remains key. The Board acknowledges that Said Darwazah holding the positions of Chairman and Chief Executive and the • Continuity of success: Said Darwazah has been a continuation of Independent Non-Executive Directors driving force behind the operational success of the who have served more than nine years require explanation business since 2007 and the Board believes that it is under the UK Code. Hikma is committed to an open important to the continued success of the Group dialogue regarding these matters. Questions may be that he remains in the lead executive role. directed to and further information may be requested • Succession: The Board considers that the heritage and from the Company Secretary. Otherwise, throughout the management relationships across the Group add extra year and up until the date of this report, Hikma was in challenge to appointing an external Chief Executive, full compliance with the UK Code. whilst ensuring shareholder value is maximised. The Chief Executive continues to develop the executives Chairman and Chief Executive position below him with a view to handing responsibilities The Board is aware that Said Darwazah’s position as over in the medium term. Chairman and Chief Executive is a departure from the UK Code. The Board consulted shareholders in early 2014 Control enhancements and fully re-considered the position during the year. The The Board has implemented the following enhancements following disclosure summarises the Board’s rationale. The to controls: Independent Non-Executive Directors meet twice a year • Governance structure review: The Independent to review the Board structure including consideration Directors meet at least bi-annually in a private of whether the combined role should continue. The session chaired by the Senior Independent Director. Independent Non-Executive Directors have concluded This meeting includes consideration of the that the position remains appropriate. appropriateness of the governance structure and safeguards for shareholders. • Committee Chair roles: The Chairs of the Board Committees, all of whom are Independent Non-Executive Directors, undertake a significant amount of work in the oversight of the functions that report to their Committees and have in-depth relationships with the relevant executives.

76 Hikma Pharmaceuticals PLC • Transparency and engagement: Hikma has always had The Board reviewed and considered the independence Strategic report the highest regard for external shareholders. Many of of the Non-Executive Directors during the year as part the original investors from before listing still invest and of the annual corporate governance review. It recognises support Hikma today. Over 12 years since flotation, that Michael Ashton and Dr Ronald Goode have served the Company has maintained the highest standards in excess of nine years and therefore this constitutes a of shareholder engagement, which is reflective of departure from the UK Code. Michael Ashton will retire the importance placed in maintaining strong investor from the Board in May 2017 and Dr Ronald Goode relations and governance. Hikma has won and will stand down in May 2018. Dr Ronald Goode will be been shortlisted for several transparency and handing over the Chair of the Compliance, Responsibility governance awards. and Ethics Committee to John Castellani at the 2017 AGM. • Expanded Senior Independent role: The Board The Board wishes to retain the services of Dr Ronald Goode has increased the responsibilities of the Senior and Michael Ashton for a time period sufficient to transfer Independent Director to assume joint responsibility, their responsibilities and knowledge in an orderly manner with the Chairman and Chief Executive, for setting the whilst ensuring continuity and ongoing challenge. The

Board agenda, agreeing action points and the minutes Board considers this to be appropriate as Hikma is a Corporate governance of the meetings. maturing company in which historical knowledge and personal relationships are important to the successful Independence oversight of the business. The Board considers Robert Pickering, Michael Ashton, The Board is of the view that Michael Ashton and Dr Ronald Goode, Pat Butler, Dr Pamela Kirby, John Dr Ronald Goode remain independent because: Castellani and Nina Henderson to be independent. These • Their character and the manner in which they perform individuals provide extensive experience of international their role clearly demonstrate independent thought pharmaceutical, financial, corporate governance and and judgement. regulatory matters and were not associated with Hikma prior to the listing of Hikma in 2005. • They continue to ask difficult and challenging questions of management and request additional information when required. Tenure range • None of the Independent Directors receives additional remuneration apart from Directors’ fees, and they Financial statements do not participate in the Group’s share plans or pension schemes. • There are no conflicts of interest between any Independent Non-Executive Directors and management or significant shareholders. The Board does not view Ali Al-Husry as an Independent Director due to the length of his association with the Company, being an executive with Hikma prior to listing and his involvement with Darhold Limited, Hikma’s largest shareholder. However, he continues to bring to the Board broad corporate financial experience and a detailed knowledge of the MENA region, which is an important and specialist part of the Group’s business. Independent NED The Board does not view Dr Jochen Gann as an Tenure range No. Percentage Independent Director as his appointment was part of 0–3 years 4 57% the shareholder agreement with Boehringer Ingelheim, 4–6 years 1 14% a major shareholder and his primary employer. However, 7–9 years 0 0% Jochen brings significant M&A and corporate finance 9+ years 2 29% experience, with a particular focus on the pharmaceutical sector.

Annual Report 2016 77 Corporate governance continued Governance report continued

Roles The division of Board responsibilities can be summarised as follows:

Chairman and Chief Executive The Board has approved separate statements of the Chairman and the Chief Executive responsibilities in writing, which are reviewed annually and include:

Chairman Chief Executive • Being an ambassador for the Group • Providing the strategic vision and implementation • Providing an appropriate environment for the Board capability to ensure the Company achieves its to scrutinise and challenge the actions of management full potential in a constructive manner • Leading the executive team and supporting the • Setting the agenda for the Board, in consultation with business heads in the delivery of the divisional strategies the Senior Independent Director • Identifying and executing new business opportunities • Ensuring that the opinions of Directors and executives inside and outside the current core activities are fully taken into account • Ensuring effective implementation of Board decisions • Keeping the Senior Independent Director fully informed of all matters of importance to the Group • Ensuring that the Board considers all matters that are relevant to it and has appropriate information

Roles and responsibilities

Group Senior Functions Independent Director

t CEO Branded n B e o

a m

r e d

g

a Chairman G

n

o

a

and Committee v

e

m

Chairs r n

e Chief Executive

a

v

i

n

t CEO Generics

c

u

e

c and US

e

x E

Global Head Company Secretary of Injectables

78 Hikma Pharmaceuticals PLC Senior Independent Director Company Secretary Strategic report The Senior Independent Director’s responsibilities include: The Company Secretary reports to the Chairman and Chief Executive and supports him and the Senior • In consultation with the Chairman and Chief Executive, Independent Director in the delivery of their roles, setting the Board agenda, actions points and particularly in relation to information flow and setting the minutes the Board agenda. The Company Secretary keeps the • Leading the Board in matters of board composition, Board apprised of matters of governance and policy effectiveness and evaluation, particularly in relation to and all Directors have access to his advice and services. the performance of the Chairman and Chief Executive The Company Secretary also acts as secretary to the • Providing a communication channel between Board Committees, supporting the Committee Chairs the Chairman and Chief Executive and the in the governance aspects of their responsibilities. Non-Executive Directors The appointment and removal of the Company • Leading the bi-annual meetings of Independent Secretary is a matter reserved for the Board. Non-Executive Directors to assess the appropriateness of the governance structure and safeguards Board Committees Corporate governance for shareholders The Board has an extensive workload and, therefore, has • Providing a sounding board for the Chairman, delegated the detailed oversight of certain items to four executive management and the Company Secretary Board Committees: Audit; Nomination and Governance; • Acting as an alternate point of contact for shareholders Remuneration; and Compliance, Responsibility and Ethics and maintaining contact with principal investors and Committee (“CREC”). Each Committee has terms of representative bodies reference which were reviewed during the year. Copies are published on the Hikma website and are available for Executive Vice Chairman inspection at the registered office at 13 Hanover Square, London, W1S 1HW or by contacting cosec@hikma. When required, the Executive Vice Chairman acts as uk.com. The Chairs of each Board Committee report on alternate to the Chairman and Chief Executive and that Committee’s business at every Board meeting. The is another point of contact and sounding board for minutes of each Committee are made available to the management and Directors. The Executive Vice Chairman entire Board. Each Committee is empowered to request advances the executive agenda and supports the information from management and the advice of any Financial statements Chairman and Chief Executive in setting and delivering employee or officer, and obtain independent professional strategy. The Executive Vice Chairman has Board level advice at Hikma’s expense. executive responsibility for Hikma’s Anti-Bribery and Corruption (“ABC”), business integrity and ethics and corporate social responsibility programmes.

Non-Executive Directors The Independent Non-Executive Directors scrutinise the strategy, risk planning and operations of executives, providing advice and external perspective. They engage with management across the Group to ensure they are fully aware of the Group’s activities and issues it faces. The Independent Non-Executive Directors also keep Hikma’s governance structure under review and ensure that appropriate safeguards are in place. The Board holds meetings without the executive management present to discuss issues affecting the Group.

Annual Report 2016 79 Corporate governance continued Governance report continued

Effectiveness Hikma knowledge Board members frequently visit the business units and Skills and experience meet management teams to fully understand and advise The Board keeps the skills and experience of its on the important issues facing the Group. During the year, members under constant review. The Directors believe in Non-Executive Directors visited facilities in Jordan, Portugal the necessity for constructive challenge and debate in the and the US including the newly acquired site, West-Ward boardroom and consider that existing Board dynamics and Columbus. The Executive Directors and Ali Al-Husry have processes encourage honest and open debate with the extensive experience of Hikma from its earliest days to Executive Directors. today. The Directors maintain regular contact with senior management and the Company Secretary ensures that Directors are kept up to date with major developments Board experience in the Group’s business.

Business ethics and integrity 73% Training The Chairman considers the development needs of Listed environment 73% Directors as part of his ongoing assessment of Board Pharmaceutical 73% effectiveness and ensures that these requirements are met by the Company Secretary organising appropriate training Manufacturing 82% opportunities. The Board training and development activities this year were: Sales 82% • External advisers provided the Board with training Finance 82% sessions on governance, anti-bribery and anti- corruption, and financial reporting requirements Governance 91% • Directors attended several externally provided seminars Commercial 100% and discussion forums. Further training is scheduled for 2017 Regulatory and political 100% • Hikma’s brokers and financial advisers presented industry and market updates to the Board on Strategy and risk 100% several occasions Human resources 100% • The Company Secretary made regular updates to the Directors on relevant regulatory and governance matters Country of origin Independent advice The Board Governance Manual provides for any Director to have access to independent professional advice at Hikma’s expense.

Geographical experience External commitments The Directors’ external commitments are detailed in MENA 55% their profiles on pages 71 to 73. The Nomination and UK 73% Governance Committee operates, monitors and reviews the conflicts of interest procedures, which have operated Europe 82% effectively during the year. A register of external commitments is maintained by the Company Secretary US 91% and is reviewed at each Nomination and Governance Global 100% Committee and Board meeting. Where new commitments are proposed, these are reviewed in advance by the Nomination and Governance Committee and, where appropriate, recommendations on necessary controls are made to the Board. The Board considers that a degree of outside commitments enhances a Director’s ability to perform the role.

80 Hikma Pharmaceuticals PLC Time Elements assessed Strategic report The Directors commit an appropriate amount of time • Board Composition, Expertise and Dynamics to their roles and are readily available at short notice. • Time Management The Independent Non-Executive Directors are required • Board Support and Committees to commit at least 20 days during each year to the execution of their duties. However, all of the Independent • Strategic Oversight Non-Executive Directors devote at least 30 days per • Risk Management annum to their Hikma responsibilities. In addition, the • Succession Planning and Human Committee Chairs spend a significant amount of time on Resource Management their respective areas of responsibility and Non-Executive Directors take time to meet with management and visit • Priorities for Change operations where there are particular areas of interest. Consequently, the Independent Non-Executive Directors Progress on previously identified issues dedicate substantially more time to Hikma than their Observations Actions taken appointment requires. The duties of the Chairman and Independence and Following extensive work by the Corporate governance Chief Executive, Directors and Committee Chairs tenure Nomination and Governance are detailed in the Board Governance Manual. Committee, the Company announced the appointment of Evaluation and performance additional independent directors The Board re-assessed its approach to evaluation during and confirmed the tenure of the year. The conclusion from this exercise was that a full, longer serving directors. externally moderated, interview-based evaluation should Time The schedule of committee and be conducted every three years. board meetings was extended in order to allow further time Process for important business. Strategic focus An extensive strategic review • The process is co-ordinated by the Senior Independent was conducted and presented Director at the request of the Chairman to the Board for challenge and • Lintstock, an external moderator which has no other insight. The strategic review led Financial statements connection with the Company, led the process with to the development of a new, a thematic questionnaire and interview process detailed business plan. • Lintstock reported independently to the Chairman and Committee structure The membership of board the Senior Independent Director committees was extended to • Lintstock presented the results and findings to the ensure that all relevant skills full Board and provided their independent feedback and experiences were available. on the results The remit of the Nomination Committee was extended • A similar process was followed for each Committee to provide closer oversight of the Board of governance. • The results of the evaluation process formed part of Timeliness Management reviewed their the Chairman’s appraisal of the overall effectiveness processes for board papers to of the Board and its members ensure that directors had more • Regularly during the year, the Directors fed back to the time for considering issues Company Secretary improvements and enhancements in advance. that they considered should be progressed outside the evaluation timetable

Annual Report 2016 81 Corporate governance continued Governance report continued

Conclusions and actions Responsibilities The Board demonstrated particular strengths in the following areas: Board responsibility • Board composition The Board is the ultimate decision-making oversight and control authority in Hikma. The Board sets the strategic • Understanding of the key markets direction, monitors financial performance and challenges in North America and the MENA region management ideas and performance. The Board promotes • Interaction and atmosphere providing for good, good governance within the Group, and seeks to ensure healthy discussions and challenges that Hikma meets its responsibilities to shareholders, • Non-Executive Directors provide support and employees, suppliers, customers and other stakeholders. constructive challenge to management The Board is assisted in the delivery of its responsibilities • Oversight of risk management by internal and external advisers: Internal advisers Areas where further work is being undertaken by management and the Company Secretary: • Executive Vice Chairman, Chief Executive of MENA and Emerging Markets • Knowledge of European and emerging markets • Chief Financial Officer • Review of past decisions • CEO West-Ward Pharmaceuticals • Length of reports and presentations • Chief Strategy and Corporate Development Officer • Training and development opportunities for directors • VP Corporate Strategy and Investor Relations • Executive development • VP Human Resources and MENA Operations • VP EU and Global Head of Injectables Chairman’s appraisal • General Counsel The Independent Non-Executive Directors regularly meet • Company Secretary in private during the course of the year. The performance of the Chairman and the Board is discussed during these meetings. Additionally, the Senior Independent Director External advisers Nature of advice met with the Independent Non-Executive Directors to • Bank of America Broker undertake a formal appraisal of the performance of the Merrill Lynch Chairman and subsequently fed back comments to him. • CenterView Partners Investment adviser This review addressed: • Citigroup Broker • Board efficiency and openness • EY Internal auditor • The effectiveness of the Chairman’s leadership • Lintstock Board evaluation • The setting of the Board agenda • PwC External auditor • Communication with shareholders • Slaughter and May Lawyers • Internal communication and board efficiency • Willis Towers Watson Remuneration advisers The conclusion of this process was that the Chairman gave clear leadership and direction to the Board, and that Matters reserved to the Board the Board is run in an appropriate and effective manner. Hikma maintains a formal schedule of matters reserved to the Board in the Board Governance Manual, which is reviewed annually. The Chief Executive is responsible for delivering Hikma’s strategic and operational objectives and has authority from the Board to deliver those objectives through matters which are not reserved and where authority has been delegated specifically. The Chief Executive reports on operational progress and corporate actions to the Board at each meeting. Where appropriate, the Chief Executive is assisted by internal and external advisers in presenting operational progress and key strategic decisions to the Board.

82 Hikma Pharmaceuticals PLC The formal schedule of matters reserved to the Board Dialogue with stakeholders Strategic report includes the following items: During the year the Board reviewed communications from • Operational management: Approval of strategy, shareholders regarding the tenure of certain Independent operations oversight, performance review Directors and the disclosure and challenge in the • Structure and capital: Approval of changes to performance targets. The Board and its committees took Group structure or changes to capital structure account of these comments through clarifying succession arrangements, strengthening performance targets and • Banking and leverage: Approval of principal bankers consulting with shareholders on the action taken. and major lending arrangements Hikma is committed to clear and open communication • Financial reporting and controls: Approval of financial with shareholders and stakeholders. If there are matters announcements, accounts, dividends and significant on which additional explanation is required, Hikma changes to treasury and accountancy practice is always happy to discuss them. Please contact the • Internal controls: Assessing the effectiveness of Company Secretary in the first instance by writing the Group’s risk and control processes to [email protected]. • Contracts: Approval of significant contracts, Corporate governance The Board maintains regular dialogue with shareholders investments and projects which meet pre-set through its investor relations programme, directed monetary thresholds towards ensuring a mutual understanding of objectives. • Communication: Approval of certain press releases, The principal ongoing communications with shareholders and all circulars and prospectuses are through the publication of Hikma’s Annual Report and • Board membership and other appointments: Approval Accounts, interim results and trading statements. The of changes to Board structure and composition, Chairman meets major shareholders periodically to discuss succession, auditors and Company Secretary governance and strategy issues in order to understand their views on the Company and to ensure their views • Remuneration: Determining remuneration policy for are communicated to the Board as a whole. Shareholders senior management and Directors and officers and are encouraged to attend the Annual General Meeting amending or introducing share incentive plans (“AGM”) and if unable to do so are encouraged to vote • Corporate governance: Annually reviewing Board, by proxy. Copies of presentations made at the AGM are Committees and individual Director performance, available on the website after the event, together with the Financial statements and reviewing corporate governance arrangements results of the voting. All Directors are expected to attend • Capital expenditure: Approval of significant the AGM and full attendance has been achieved other capital projects than when exceptional personal circumstances have intervened. Indemnities and insurance For and on behalf of the Board of Directors of Hikma maintains an appropriate level of Directors’ and Hikma Pharmaceuticals PLC Officers’ insurance. The Directors benefit from qualifying third-party indemnities made by Hikma that were in force during the year and as at the date of this report. These indemnities are uncapped in amount in relation to losses and liabilities which Directors may incur to third parties in the course of the performance of their duties. Peter Speirs Company Secretary

14 March 2017

Annual Report 2016 83 Corporate governance continued

INTRODUCTION TO COMMITTEES

The Board has an extensive workload and, therefore, has delegated the detailed oversight of certain items to four Board Committees and the Executive Committee of senior management.

Board Committees Board Committee responsibilities The four Board Committees are: • Audit Committee • Nomination and Governance Committee ee itt A m u m di • Remuneration Committee o t C C n o • Compliance, Responsibility and o m ti m a Share Plans r it Ethics Committee (“CREC”) t e Performance e n Executive Director and e Each Board Committee has terms of reference which u Senior Management m Remuneration e are reviewed annually, published on the Group’s website R Internal Control at www.hikma.com and are available for inspection at Risk Management Financial Reporting the registered office at 13 Hanover Square, London, Remuneration Policy W1S 1HW. The Chair of each Board Committee reports Internal Audit on that Committee’s business at every Board meeting. External Audit

C The minutes of each Committee are made available o The Board Corporate Governance m to the entire Board. Each Committee makes a formal p Corporate Governance Training and Induction e l e i a t annual report to shareholders in the Annual Report. Appointments t n Speak-Up i Succession c Skills and Experience e m , m R CR Ethics Executive Committee e o s C p e o Business Integrity c The Chief Executive chairs the Group Executive n s n Committee, which develops strategic proposals to the ib a i rn li e Board, makes operational decisions and oversees risk ty v a o control. This Committee is operationally supported by the nd G E d th an Global Management Committee which is composed of ics ion Com nat executives at the level below the Executive Committee. mittee Nomi

84 Hikma Pharmaceuticals PLC Strategic report Audit Committee

Highlights in 2016 Priorities in 2017 “There were clear benefits from • Oversaw West-Ward Columbus • Enhancing forecasting a fresh pair of eyes and we have (“Roxane”) acquisition and and budgeting processes developed an effective working relationship with the PwC team.” related accounting matters • Accounting for R&D • Moved audit from Deloitte to PwC • Reviewing risk systems To find out more, • Continued development see pages 86 to 91 of Enterprise Risk Management approach Corporate governance Nomination and Governance Committee

Highlights in 2016 Priorities in 2017 “Having made a significant number • Finalised Independent Director and • Progressing the matters raised of changes over the past three years, chair succession by the Board evaluation exercise our succession arrangements for Independent Directors are in place • Identified Nina Henderson as an • Further developing the executive for the foreseeable future.” additional Director in alignment succession plan with US expansion To find out more, • Enhanced internal governance and see pages 92 to 97 MAR processes Financial statements Compliance, Responsibility and Ethics Committee

Highlights in 2016 Priorities in 2017 “I am delighted with the significant • Completed ABC risk assessment • Handover of chair responsibilities achievements of the Committee since it was established in 2010 • Developed and implemented a US • Implement and test the US to lead, develop and oversee our ABC enhancement programme ABC procedures approach to business integrity, • Advanced an anti-trust, • Integration of global compliance social responsibility and ethics.” anti-money laundering and trade sanctions programme To find out more, see pages 98 to 103

Remuneration Committee

Highlights in 2016 Priorities in 2017 “The Committee considered that • Enhanced the strategic linkage and • Reviewing management 2016 was solid, but in certain stretch of the performance criteria incentivisation aspects challenging from a Group financial performance view, but • Completed the handover of • Embedding the revised policy that significant progress was made the Committee Chair • Continue to enhance in integrating West-Ward Columbus • In-depth review of the performance targets and positioning the Group for remuneration policy future growth.”

To find out more, see pages 104 to 135

Annual Report 2016 85 Committee reports: Audit Letter from the Chair EMBRACING AND IMPLEMENTING CHANGE

Dear Shareholders “There were clear benefits from a fresh pair The completion of the West-Ward Columbus (“Roxane”) acquisition, a change in auditors and the continued of eyes and we have developed an effective development of the Enterprise Risk Management system working relationship with the PwC team.” made 2016 a busy year for the Audit Committee. The acquisition of Roxane was completed on 29 February 2016. Ahead of this the Audit Committee oversaw the preparation and issuance of the Class I You will recall at the AGM last year you approved the Circular and Prospectus. After the acquisition we Board’s recommendation to award the audit to PwC. assessed the fair value, for accounting purposes, of the 2016 was accordingly a year of transition. PwC completed assets acquired. This involved considerable intangible their review of the interim financial disclosures in August assets as well as various co-development and contract 2016 and performed a review of our internal controls, and manufacturing agreements. We carried out the fair value used the learnings from both exercises to plan the annual assessment at the half year and again at year end. audit in detail. There were clear benefits from a fresh pair of eyes and we have developed an effective working relationship with the PwC team. The Committee continued its oversight of the development of our Enterprise Risk Management system. We completed a detailed review of the principal risks and approaches to mitigating them, and we reviewed the new organisational processes for measuring and managing risks in an integrated manner. Overall, I am happy to report that the Company has made real progress in this area. Finally, this year we welcomed Nina Henderson and John Castellani to the Committee, each of whom brings invaluable expertise and insight. I would also like to thank Michael Ashton for his enormous contributions to the Committee over his tenure. As ever, if you have any questions, please do not hesitate to contact me.

Pat Butler Chair of the Audit Committee

86 Hikma Pharmaceuticals PLC Strategic report 2016 overview

2016 Highlights Membership and attendance • Oversaw West-Ward Columbus (“Roxane”) acquisition and The Audit Committee comprises seven Independent related accounting matters Non-Executive Directors: Pat Butler (Committee Chair), • Moved audit from Deloitte to PwC Michael Ashton, Dr Ronald Goode, Robert Pickering, Dr Pamela Kirby, John Castellani and Nina Henderson. • Continued development of Enterprise Risk Pat Butler, the Chair, has extensive experience of financing, Management approach accounting, risk and internal control matters from his 30 years at McKinsey and Arthur Andersen and is therefore considered 2017 Priorities to have recent and relevant financial experience. All members • Enhancing forecasting and budgeting processes have spent significant portions of their careers in leading positions at financial, advisory and pharmaceutical companies.

• Accounting for R&D Corporate governance • Reviewing risk systems Meeting Members Member since Attended Potential attendance • Optimising internal audit Pat Butler (Chair) 1 Apr 2014 7 7 100% Breffni Byrne Calendar of events (retired 12 May 2016) 14 Oct 2005 3 3 100% Michael Ashton 14 Oct 2005 6 7 86% Dr Ronald Goode 12 Dec 2006 7 7 100% Robert Pickering 1 Sept 2011 7 7 100% Q1 Q2 Dr Pamela Kirby 1 Dec 2014 7 7 100% • Forecast I • Audit plan John Castellani 1 March 2016 6 6 100% Nina Henderson 1 Oct 2016 2 2 100% • Preliminary statements • Forecast II & IMS Total meetings 7 98% • Report and Accounts

• Principal risks Financial statements and uncertainties Allocation of time

Risk 10% Internal audit 13% Financial statements 14% Forecasts 18% Financial performance 21% Acquisitions 24% Q3 Q4

• Interim dividend • Forecast IV & IMS • Auditor update • Audit performance • Forecast III & Interim and plan announcement • Budget for 2017 and results • Internal audit report

Advisers Internal External • Chief Financial Officer • PricewaterhouseCoopers LLP • VP Corporate Strategy and (Auditor) Investor Relations • EY (Internal Audit) • Company Secretary • Group Financial Controller

Annual Report 2016 87 Committee reports: Audit continued

Responsibilities • Taxation: The Group’s worldwide operations are highly integrated and involve a number of The Audit Committee assists the Board in discharging cross-border transactions. There is complexity and its responsibilities for financial reporting, external audit, judgement in estimating the potential tax liabilities internal audit, internal control and risk management. in various jurisdictions. The Committee reviewed The Committee reviews Hikma’s Annual Report, financial the appropriateness of the disclosures in the Annual statements, interim reports, trading updates and monitors Report and considered the advice from professional all audit and non-audit work undertaken by external services firms and management in this regard. auditors. It considers the significant accounting judgements underpinning the financial statements. It also monitors the • Accounts receivable and inventory: The Committee effectiveness and output of Hikma’s internal and external reviewed the reports on major receivables and inventory audit activities, internal controls and risk management provisions. The Committee considered management’s systems. The Audit Committee advises the Board on the valuation of inventory, plans to ensure payment and appointment, re-appointment and removal of the external relevant provisions. auditors, as well as the effectiveness of the audit process. • Asset impairment: The Group has significant investment The Audit Committee terms of reference include all in fixed assets. The Committee monitored the application matters prescribed by the Code and clearly set out its of the Group’s policies in relation to impairment authority and duties. They are reviewed by the Board on and valuation of those assets and considered and a regular basis and are available on the Hikma website, challenged management’s recommendations at the registered office at 13 Hanover Square, London, regarding the appropriate impairment. W1S 1HW and by contacting [email protected]. • Rebates and chargebacks: The Committee assessed the reports on the processing of chargebacks and Significant accounting judgements rebates in the US. This is a highly judgemental area During 2016 and up until the date of this report, the and applies to a significant proportion of Group Audit Committee considered and discussed the following revenue. The Committee considered the control financial matters: and modelling environment and the appropriateness of associated provisions. • Fair value of assets acquired: The Committee reviewed and challenged management’s estimates of the fair • Going concern: The Committee assessed the going values of assets and liabilities acquired as part of the concern position when preparing the annual and Roxane acquisition and thus the opening balance sheet. half-yearly financial statements. The Committee took This included a range of intangible assets related into account Hikma’s forecasts and budget, borrowing to product rights, products under development, facilities, contingent liabilities, medium and long-term co-development agreements and contract plans, and financial and operational risk management. manufacturing agreements. • Viability: The Committee received the medium-term • Goodwill and intangibles: The Committee reviewed business projections and considered the scenarios management’s forecasts for launching new products that could impact those projects and the ability and revenue expectations, and evaluated the implications of the Company to remain viable. of these forecasts for the carrying value of product- related intangibles. The Committee considered the Fair, balanced and understandable accounting policies and their practical implementation Hikma is committed to clear and transparent disclosures through management’s impairment analysis and and seeks to continuously improve the clarity of its associated judgements. This included a review of the reporting. In producing the Annual Report, management, accounting approach to co-development agreements. the auditors and the Committee aim to ensure that the • Revenue recognition: The Committee reviewed disclosures are in clear language, reflect the underlying the judgements of management regarding revenue situation and that appropriate information is disclosed. recognition for significant products where the potential for returns and rebates was high. The Committee was satisfied that the review by management validated the approach to revenue recognition and took account of changes in the environment for those products during the year. The Committee considered the results of an internal investigation into revenue recognition and returns procedures in Algeria which resulted from a whistleblower report and concluded that there were no such accounting issues, but certain wholesaler contractual and procedural enhancements were implemented.

88 Hikma Pharmaceuticals PLC At the request of the Board, the Audit Committee External audit Strategic report considers whether Hikma’s Annual Report is fair, balanced The external audit was undertaken by and understandable and whether it provides the necessary PricewaterhouseCoopers LLP (“PwC”). Mr Charles information for shareholders and stakeholders to assess van den Arend, the senior statutory auditor, assumed Hikma’s position, performance, business model strategy responsibility in May 2016 following the appointment of and associated risks. The Committee’s assessment is PwC by shareholders. As in previous years, the Committee underpinned by a comprehensive review conducted by maintained regular contact with the auditors throughout a committee of senior management (the “Reporting the year. The Committee regularly reviews the work of the Committee”), which consists of the: external auditors and undertook an assessment of the • Chief Financial Officer auditors’ performance and independence and in doing • Vice President, Corporate Strategy and so examined the following issues during the year: Investor Relations • Company Secretary Audit quality and technical capabilities The Committee evaluation process includes an assessment • General Counsel Corporate governance of the work of the auditors. The Committee formally • Vice President for Corporate Affairs reviewed the quality of the 2015 audit conducted by • Deputy Director of Investor Relations Deloitte and concluded that the team conducted an • Vice President for Human Resources and effective audit, with appropriately skilled staff. MENA operations* The Committee feeds back its comments on the auditors’ • Divisional Heads* performance as part of the regular meetings it has with • Group Financial Controller* them without management present, and believes that there is a strong, appropriate and open relationship • Chief Compliance Officer* between the audit team leadership, the Audit Committee * Where the matters on the agenda relate to their areas and management. The FRC’s corporate reporting review of responsibility team reviewed the tax disclosures in Hikma’s 2015 The Reporting Committee, which meets regularly during financial statements and did not raise any concerns the year: or observations.

• Initiates the first review of the Annual Report in Financial statements November, at which point areas for improvement Independence are identified and enhancements recommended The Committee’s policy is that the external auditors should • Discusses the proposed disclosures with external not undertake any work outside the scope of their annual auditors, brokers and public relations advisers to audit in order to maintain auditor independence. The obtain their input Committee has discretion to grant exceptions to this policy where it considers that exceptional circumstances • Reviews and refines disclosure and ensures the opinions exist and that independence can be maintained. The of the advisers continue to be sought Committee regularly reviews the independence safeguards • Oversees a verification process to ensure the accuracy of the auditors and remains satisfied that auditor of disclosures independence has not been compromised. • Issues guidance to contributors at the beginning and During 2015 and early 2016 the Company’s previous throughout the process and reports on actions and auditors, Deloitte LLP, undertook certain assurance significant areas of judgement to the Audit Committee work related to the production of a shareholder circular as appropriate and prospectus for the Class 1 acquisition of Roxane The Audit Committee closely oversees the work of the Laboratories. In advance of any instruction, the Committee Reporting Committee, which is responsible for ensuring reviewed the scope of this work and was satisfied that it the accuracy of the information submitted in the Annual was assurance related in its nature, required an in-depth Report and assessing whether the narrative section of knowledge of the Company and its financial procedures, the report is consistent with the accounting information. had to be conducted relatively quickly and that the Each of the members of the Audit Committee and independence of the auditors could be assured. the Reporting Committee was satisfied that the 2016 The Committee approved the use of Deloitte LLP Annual Report is fair, balanced and understandable and for this work. recommended the adoption of the report and accounts to the Board.

Annual Report 2016 89 Committee reports: Audit continued

PwC provided tax advisory and remuneration services to Risk and associated disclosures the Group prior to their appointment as auditors in May Readers are directed to the risk and control disclosures 2016 and have now ceased providing these services. as follows: PwC completed their work and assisting with certain tax projects by July 2016. • Principal risks and uncertainties on pages 54 to 57 Fees paid in respect of audit, audit-related and non-audit • Risk management on page 58 services provided by the previous and current auditors are • Internal control on pages 58 to 59 outlined in Note 6 to the consolidated financial statements • Internal audit on page 59 and in the chart below. Audit-related services are services • Viability on page 60 carried out by the external audit team by virtue of the role and principally include assurance-related work. For and on behalf of the Audit Committee

Competition and Markets Authority (“CMA”) The Audit Committee has complied with the CMA order relating to the provision of statutory audit services. A competitive audit tender process was undertaken in Pat Butler 2015 and the Committee’s responsibilities and powers Audit Committee Chair include those detailed in the CMA order. 14 March 2017

Auditors’ fee ($ million) $3.0m

100% 1 Jan – $2.4m PwC 31 Dec 2016 100% $0.6m

100% 1 Jan – $1.7m Deloitte 31 Dec 2015 10% 4% 86% $2.9m

0 20 40 60 80 100 Audit-related fees Non-audit-related fees Tax services West-Ward Columbus (”Roxanne”) related fees Other non-audit services

90 Hikma Pharmaceuticals PLC Strategic report

External auditor transition

The appointment of PricewaterhouseCoopers LLP (“PwC”) was approved by shareholders at the 2016 Annual General Meeting following a rigorous tender selection process. The proposed change in auditor was first communicated to shareholders in September 2015. The intervening period was used to ensure a smooth handover process from Deloitte LLP, the previous auditors. The Committee has overseen the transition of the external audit work to PwC through a number of activities:

Auditor independence Shadowing Deloitte The Committee reviewed the policies and procedures PwC shadowed Deloitte through areas of the 2015 in place to safeguard PwC’s independence and objectivity year-end audit to support their understanding of the Corporate governance prior to the commencement of their audit. The Committee process and procedures involved. This allowed PwC to also implemented a new policy to prohibit any non-audit carefully observe and establish roles during this phase. services to ensure that there was no impact on the audit service or PwC’s independence.

Induction Audit plan PwC underwent a thorough induction process to enhance PwC shared a detailed audit plan as part of the tender their understanding of the business and become more process, setting out the scope and objectives of the audit familiarised with Hikma. This included meetings with together with an overview of the planned approach, an Directors and management across the business with a assessment of the Group’s risk and controls, and proposed number of site visits to international operations including areas of audit focus. This detailed planning allowed for

Portugal, US and Jordan. a seamless issue-free transition. Financial statements

Transitional workshops Hikma Academy Workshops were held in a number of jurisdictions PwC rolled out an extensive training programme between the PwC audit team and departments and assessment for their global audit team. This was throughout the Hikma Group to assist with the to ensure that their team was provided with relevant development of the audit plan and outline key pharma training, were well equipped for the audit and milestones and objectives for the transition process. had a deep understanding of Hikma’s business, risks and policies.

Following the transition activities, the Committee considered that PwC was well-positioned and appropriately informed in undertaking their first full-year audit for 2016. The Committee considered that PwC’s efforts and Deloitte’s assistance had been invaluable for achieving an efficient and effective handover.

Annual Report 2016 91 Committee reports: Nomination and Governance Letter from the Chair DIVERSITY AND BALANCE ACROSS THE BOARD

Dear Shareholders “Having made a significant number of changes As in previous years, the Nomination and Governance Committee has focused on succession planning for over the past three years, our succession Independent Directors and executive management, arrangements for Independent Directors governance, Board structure and Board effectiveness. are in place for the foreseeable future.” During the year we communicated our medium-term succession plan for Independent Directors, which involves the retirement of Michael Ashton in May 2017 and Ron Goode in May 2018. In accordance with our approach The Committee continues to give due consideration that has been in place for several years, we have allowed to succession for the Executive Directors, including time for the orderly transfer of Ron’s CREC responsibilities reviewing the development needs of internal candidates to the new chair, John Castellani. We also completed and considering the critical aspects of undertaking an the process for identifying and appointing an additional external search. Whilst executive succession is not an Independent Director, which resulted in Nina Henderson immediate concern, it is something that we monitor joining the Board. Having made a significant number carefully and for which we have made appropriate plans. of changes over the past three years, our succession The Committee has undertaken extensive governance arrangements for Independent Directors are in place activities during the year, including the annual review for the foreseeable future. of our entire governance framework and extensive procedural changes and enhancements resulting from the Market Abuse Regulation. Following a review, we decided that the Board evaluation process should be enhanced through externally facilitated interviews and more in-depth assessment of the Chairman’s performance. We implemented changes to our appraisal process early in 2017. As Senior Independent Director, I am available at any time to discuss with shareholders any matter of concern.

Robert Pickering Chair of the Nomination and Governance Committee

92 Hikma Pharmaceuticals PLC Strategic report 2016 overview

2016 Highlights Membership and attendance • Implemented our medium-term Independent Director The Nomination and Governance Committee consists of five succession plan Directors. Four are Independent Non-Executive Directors: Robert • Undertook a non-executive search process leading to the Pickering, who is the Committee Chair, Michael Ashton, Pat Butler appointment of Nina Henderson and Nina Henderson. The fifth is Mazen Darwazah, the Executive Vice Chairman. The Committee met four times during the year. • Inducted three new Non-Executive Directors Meeting • Enhanced Board gender diversity Members Member since Attended Potential attendance • Reviewed and upgraded the Board evaluation programme Robert Pickering • Initiated a transition process for the Compliance, Responsibility (Chair) 1 Sep 2011 4 4 100% Michael Ashton 14 Oct 2005 3 4 75% and Ethics Committee Chair Corporate governance Pat Butler 1 Apr 2014 4 4 100% • Enhanced the Company’s internal governance and MAR processes Nina Henderson 1 Oct 2016 1 1 100% Mazen Darwazah 14 Oct 2005 4 4 100% 2017 Priorities Total meetings 4 95% • Progressing any matters raised by the Board evaluation exercise • Further developing the executive succession plan Allocation of time

Calendar of events Skills and experience 9% Independence 9% Diversity 11% Succession 11% Corporate Q1 Q2 governance 60%

• Director search • Director search Financial statements • Report to shareholders • US NED appointment • Board evaluation • Governance processes • Annual governance enhancements review

Advisers Internal External Q3 Q4 • Chairman and Chief Executive • Odgers Berndtson • Board and Committee • Board evaluation review • VP Human Resources and • Lintstock MENA Operations structure review • Training • Company Secretary • NED re-appointments and Director search • Governance processes enhancements

Annual Report 2016 93 Committee reports: Nomination and Governance continued

Responsibilities The Nomination and Governance Committee is responsible for corporate governance and succession planning, including the progressive refreshing of the Board and reviewing the appropriateness of the size, structure and composition of the Board. The Nomination and Governance Committee also operates, monitors and reviews the conflicts of interest procedures, which have operated effectively during the year. The Nomination and Governance Committee terms of reference include all matters prescribed by the Code and clearly set out its authority and duties. They are reviewed by the Board on a regular basis and are available on the Hikma website, at the registered office at 13 Hanover Square, London, W1S 1HW and by contacting [email protected].

Diversity

Diversity policy Hikma is committed to employing and engaging the best people, irrespective of background, gender, orientation, race, age or disability. Since its founding, Hikma continues to have excellent diversity in terms of culture, age, background, skills and experience.

Gender diversity Hikma has a long history of a significant number of women holding executive management positions, a number of whom have worked for the Company for the majority of their careers (see pages 74 to 75 for the Executive Committee membership). Hikma continues to promote gender diversity through the Women Entrepreneurs’ Day (WED), a United Nations event aimed at celebrating, empowering and supporting women in business worldwide. A number of senior Hikma women were speakers at a WED held in Jordan. The Committee considered Board diversity at several stages through 2016 and appointed a second female Director during the year under review. The Committee considers that it would be appropriate to improve further gender diversity and will seek to do so as succession opportunities arise. The Committee only engages executive search firms who are signatories to the Voluntary Code of Conduct for Executive Search Firms on gender diversity and best practice.

Ethnic diversity Hikma grew from a Jordanian, to a regional and then global company. Partly as a result of its heritage, Hikma has staff from all over the world at every level of seniority. Hikma has used the Parker Reviews’ definitions in order to provide the graphical detail in the ethnicity charts below.

Board Executive Committee Hikma Group Gender Ethnicity Gender Ethnicity Gender Ethnicity

Women 18% Non-white 27% Women 20% Non-white 70% Women 32% Non-white 65% Men 82% White 73% Men 80% White 30% Men 68% White 35% (Estimated)

94 Hikma Pharmaceuticals PLC Succession • The Senior Independent Director and other Committee Strategic report members met the shortlisted candidates, discussed Planning their impressions at the Nomination and Governance Committee and made recommendations As in previous years, the Committee continued its work on planning for executive succession. The • A second round of meetings was undertaken with the Committee reviewed the executives’ assessment of Chairman and Chief Executive and the Vice Chairman senior management’s capabilities and development • Following a full induction process and Nina Henderson needs to ensure that there is a sufficient pipeline for confirming her desire to join the Board, the Committee executive positions. The Committee is pleased to report recommended the appointment of Nina Henderson to that the succession plans for executives are appropriate. the Board The Company communicated its medium-term Odgers Berndtson, the search adviser, did not and does succession plan for Non-Executive Directors to investors on not have any further connection with the Company. 20 September 2016. This plan provides for the retirement of Michael Ashton in May 2017 and Dr Ronald Goode

Board review Corporate governance in May 2018, as well as the transfer of their respective Committee responsibilities. The medium-term succession Skills and experience plan, which was implemented during 2016, allows for the gradual rotation of Independent Non-Executives The broad range of skills and experience of Board and for a full induction and the transfer of knowledge members has greatly assisted in the success of Hikma. and relationships. In view of the current succession plans, the Nomination and Governance Committee undertakes an in-depth Independent Non-Executive Directors are normally analysis of each role on the Board before considering new expected to serve for up to nine years. They may be candidates. The Committee aims to preserve the Board’s invited to serve for longer, but additional service beyond broad spread of experience, which provides the necessary nine years is subject to particularly rigorous review. checks and balances for safeguarding the interests of the The medium-term plan allows for the orderly transition Group. While each Director possesses different skills, the of Committee chairmanship roles, allowing time to Committee believes that all Directors at Hikma share the ensure that all parties on the Board from management following important characteristics: are prepared for the change. • Challenging yet consensual style Financial statements In terms of the process for identifying candidates, the • Independence of mind and clarity of thought Committee has the necessary authority to advance the • Significant experience at an executive search process to the point when a shortlist of candidates management level or a candidate is proposed to the Board. • International business exposure The Nomination and Governance Committee undertook a process to identify a candidate to join the Board as an Additionally, the Committee considers that across the additional Independent Non-Executive Director, which Board as a whole and on the executive and non-executive can be summarised as follows: teams it is important to ensure at least two members have significant experience in the following areas: • The Senior Independent Director, in consultation with the Chairman and Chief Executive with the • Middle East and North Africa, particularly the business assistance of the Company Secretary, established and political environment a role and experience profile for the position of • US pharmaceutical and regulatory environment Non-Executive Director • Pharmaceutical manufacturing, quality and • A draft profile and the key characteristics and sales processes experience required were discussed by the • Business ethics and business integrity programmes Nomination and Governance Committee • Strategy and risk management • Following an assessment of the executive search • UK and international listed environment market, Odgers Berndtson was appointed to identify candidates who met the role profile • Human resources and remuneration governance • An extensive list of candidates was identified by For further information on the diverse skills and Odgers Berndtson and a shortlist was created through experience of our current Directors, please see discussions with the Senior Independent Director and the biographical details on pages 71 to 73. other committee members

Annual Report 2016 95 Committee reports: Nomination and Governance continued

Chairman and Chief Executive Governance The Committee and the Independent Non-Executive The Committee has full responsibility for governance Directors keep under review the position of Chairman matters for the Board. This includes the annual process of and Chief Executive and the governance safeguards that reviewing the procedures in the Board Governance Manual, were implemented at the time of the combination of roles the compliance with the UK Code, and considering the in May 2014 (a full rationale and process is included in governance agenda for the following year. The Committee the 2013 Annual Report on pages 63 to 64, a summary also keeps abreast of governance developments throughout version is included in this report on pages 76 to 77). The the year and makes adjustments in an orderly manner. Independent Non-Executive Directors met regularly during During the year, the Committee strengthened the internal the year without management present and discussed, governance processes to take account of the Market amongst other issues, the safeguards and functioning of Abuse Regulation. the Board. The Independent Directors considered that the For and on behalf of the Nomination and safeguards are effective and that the combined position Governance Committee continued to be appropriate. The Committee noted the Independent Directors’ position and concluded that the combined position continues to be appropriate.

Election and re-election Each member of the Board will stand for election Robert Pickering or re-election at the 2017 AGM, with the exception Nomination and Governance Committee Chair of Michael Ashton who will step down at the close of the 2017 AGM. The positions of each Board member 14 March 2017 were considered in detail during the year as part of the review of succession arrangements, consideration of independence issues, the Board and Committee evaluation processes and the ongoing dialogue between the Chairman and the Senior Independent Director.

96 Hikma Pharmaceuticals PLC Strategic report

Case study – Nina Henderson induction Nina joined the Board as part of the Independent Director Succession Plan. This is her induction story…

Tailored The induction programme was tailored to Nina. Nina holds and has held non-executive positions in other UK listed entities. Therefore, the induction was focused on the Company’s performance, structure, business operations, financial and board governance processes.

Strategy Corporate governance Nina met with the Chairman and Chief Executive in order to understand the structure and strategic direction of the Group.

Finance Prior to joining the Board Nina discussed the financial performance and procedures of the Company with the Chief Financial Officer. Additionally, she met with the senior statutory auditor.

Briefing In order for a potential director to fully understand the duties and responsibilities that are being undertaken, all directors receive an induction briefing in advance of a formal proposal being made to the Board. Nina’s briefing was undertaken by the Company Secretary prior to joining the Board. All briefing papers were made available in advance and requests for additional information were met immediately afterwards. Financial statements Structure The induction briefing was structured into four key areas:

Director duties and the Listing Rules Board governance and procedures The legal framework of the UK is substantially different The internal Board Governance Procedures for the from that of the US. Nina currently holds a non-executive operation of the Board, Committees and administration of position in another UK listed entity, and therefore a Directors were explained, including formalities regarding refresher of the concepts around duties of directors and the appointment process, announcements and the nature of the legal entity legislation and regulation associated documentation. in the UK were explained.

Company overview Site visits A detailed overview of the Company was presented Nina developed a near-term plan to visit the major facilities to Nina covering matters such as the business and in addition to the Board calendar. organisational structure, operational areas, activities, internal risk processes and shareholdings. Additionally, an explanation of the markets in which the Company operates was also given, with a particular focus on those more established such as the US and MENA regions.

Annual Report 2016 97 Committee reports: Compliance, Responsibility and Ethics Letter from the Chair AN INTEGRITY AND DEVELOPMENT JOURNEY

Dear Shareholders “I am delighted with the significant This is my final letter to you as Chair of the Compliance, Responsibility and Ethics Committee. Whilst we are achievements of the Committee since it continuing on a journey and there is further to go, was established in 2010 to lead, develop I am delighted with the significant achievements of the Committee since it was established in 2010 to lead, and oversee our approach to business develop and oversee our approach to business integrity, integrity, social responsibility and ethics.” social responsibility and ethics. Since formation, the main focus of the Committee has been formalising, developing and implementing Hikma’s operations, is formalised into fully implemented, an ABC business integrity programme based on a high-quality and appropriate policies, procedures and thorough risk assessment and understanding of our training programmes. business. We started with our founder’s commitment to always doing the right thing and developed that into The Committee has had the advantage of Hikma’s a global compliance department with fully implemented long-standing dedication to the communities in and externally assessed ABC procedures. There are many which it operates, which are brought together under people who have made the ABC programme a success our Corporate Social Responsibility programme. The and I would particularly like to thank my colleagues Committee has overseen, encouraged and supported Mazen Darwazah, Peter Speirs, Waleed Hamam, former this programme which is so clearly linked to our founder’s colleague, Othman Abu Gheida, and the individual desire to improve lives, particularly through educational compliance officers who have worked so hard to ensure and development opportunities for the least privileged. that ethical integrity, which has always been the basis of The Committee has addressed a wide range of ethical considerations and developed practices to ensure that Hikma does the right thing. Whilst we have come far, there is more work to do to further embed and enhance these programmes. John Castellani and I have been implementing our plan to transfer my chair responsibilities during the past year and to ensure that he is best placed to lead the Committee going forward. I would like to thank all those involved for their commitment and hard work that has made a success of the Committee’s vision.

Dr Ronald Goode Chair of the Compliance, Responsibility and Ethics Committee

98 Hikma Pharmaceuticals PLC Strategic report 2016 overview Membership and attendance The Compliance, Responsibility and Ethics Committee (“CREC”) 2016 Highlights consists of five members. Four are Independent Non-Executive Directors: Dr Ronald Goode (Committee Chair), Pat Butler, • Completed the re-assessment of ABC risk and verified Dr Pamela Kirby and John Castellani (Chair designate). The procedural implementation fifth member is the Executive Vice Chairman, Mazen Darwazah, • Developed and implemented an ABC programme for who champions Hikma’s Anti-Bribery and Corruption (“ABC”), the US operations Corporate Responsibility (“CR”) and human dignity programmes. • Developed a compliance online training tool for all employees The CREC met six times during the year, and full attendance was achieved. As the CREC is not a committee mandated by the • Became a strategic health partner at the World Code, its membership is not subject to published requirements. Economic Forum However, Hikma believes that the requisite challenge to operational • Developed the human dignity programme effectiveness is achieved by having an Independent Non-Executive

• Advanced an anti-trust, anti-money laundering (“AML”) and Director membership majority. The Chairmanship of the CREC is Corporate governance trade sanctions programme held by an Independent Non-Executive Director, Dr Ronald Goode. John Castellani, the Chair designate, is an Independent Non- 2017 Priorities Executive Director and will take the Chair from the 2017 AGM. • Handover of chair responsibilities The Chair of the Audit Committee is a standing member. • Implement and test the US ABC procedures Meeting Members Member since Attended Potential attendance • Integration of global compliance Dr Ronald Goode • Company-wide compliance online training (Chair) 1 Nov 2010 6 6 100% • Further promote our human dignity programme John Castellani (Chair designate) 1 Mar 2016 4 4 100% Calendar of events Mazen Darwazah 1 Nov 2010 6 6 100% Pat Butler 1 Apr 2014 6 6 100% Dr Pamela Kirby 1 Dec 2014 6 6 100%

Breffni Byrne (retired Financial statements Q1 Q2 12 May 2016) 1 Nov 2010 2 2 100% Total meetings 6 100% • ABC & CR update • ABC update • Shareholder report • CR update • US ABC assessment • US ABC assessment progress Allocation of time

Anti-trust, AML and trade sanctions 7% Corporate governance 13% Risk assessment 16% CR (including human dignity) 16% ABC operations 48% Q3 Q4

• Anti-trust, AML • Group compliance and trade sanctions and speak-up • Group and ABC risk • CR update assessment report • US ABC enhancement • US ABC strategy update Advisers • Group compliance and speak-up Internal External • Chief Compliance Officer • Good Corporation • VP for Corporate • Ernst & Young Communication • General Counsel • Company Secretary

Annual Report 2016 99 Committee reports: Compliance, Responsibility and Ethics continued

Responsibilities Strategy and resources The CREC sets the overall strategy for the Group’s During the year, the compliance department continued response to anti-money laundering, bribery, corruption to implement the medium-term global strategy for the and trade sanctions risks and is responsible for approving delivery of the commitment to business integrity and the contents of all of Hikma’s policies in areas where ABC. Hikma has a framework that sets out the structure ethical judgements are important. The CREC oversees of leadership, delegated authority and ownership for the Group’s ABC compliance programme, policies on the ABC compliance programme. ethics and business conduct and the development of the Code of Conduct (the “Code”). The CREC also oversees Hikma’s speak-up process for employees to raise ethical concerns, and, where relevant, oversees Board their investigation. The CREC reviews and monitors policy in the area of Corporate Responsibility (“CR”) at Board CREC level. The CREC’s terms of reference are available on the Hikma website, at the registered office at 13 Hanover Square, London, W1S 1HW and by contacting Chief Compliance Officer [email protected]. Branded Injectables US & Generics Division Division Division Anti-Bribery and Corruption (ABC) Champion Champion Champion

Group MENA US Top level commitment, from the beginning Compliance Compliance Compliance Since its foundation, Hikma has and continues to be Officers Officers Officers committed to the highest standards of integrity and ethics in the conduct of its business. Hikma has communicated its zero tolerance of bribery and corruption to its employees Operational responsibility and oversight for ABC is assigned and made sure that they are aware that Hikma will not by the Board to the Executive Vice Chairman, who then penalise any individual for complying with the principles delegates responsibility to his management team. The enshrined in the Code or in the ABC policies, even at the Chief Compliance Officer (“CCO”) reports directly to cost of forgoing a business opportunity, losing revenue the CREC on ABC matters. The CCO’s leadership of ABC or profit or disobeying a superior’s instructions. Hikma issues is overseen by the CREC Chair and the Executive disciplines staff for any ethical breaches of its standards Vice Chairman. The head of each business division has of integrity. taken responsibility to be the compliance champion for their division: Hikma is a founding member of the World Economic Forum’s Partnering Against Corruption Initiative (“PACI”), • Mazen Darwazah (Branded) the leading business driven global anti-corruption initiative • Riad Mishlawi (Injectables) which was formed in 2004 by a group of chief executives • Michael Raya (US and Generics) from different industries. PACI is one of the Forum’s strongest cross-industry collaborative efforts and is creating The CCO is supported by Group and regional compliance a highly visible, agenda-setting platform by working officers at the operational level. The legal, HR, financial and with business leaders, international organisations and company secretarial departments also advise and provide governments to address corruption, transparency and implementation support to the compliance department. emerging-market risks. Under the leadership of PACI Vanguard Chief Executives, the community is expanding rapidly and now focuses on implementing a global anti-corruption agenda.

100 Hikma Pharmaceuticals PLC Strategic report

Case study – US ABC risk assessment and process enhancements

Introduction Hikma engaged GoodCorporation, recognised worldwide as one of the leading organisations working in the field of corporate responsibility and business ethics, to conduct a risk assessment that would provide a benchmark and goals to improve Hikma’s Anti-Bribery and Corruption (“ABC”) programme. They have worked with over 100 clients, including 17 from the FTSE 100, in more than 60 countries, and the Committee believes them to be extremely well qualified to advise us. During 2015, the Committee instructed an independent assessment of each site. The US process was put on hold Corporate governance pending the acquisition of Roxane in early 2016. This assessment was completed during the year.

Risk assessment process The regional compliance officer for each site was responsible for delivering the requirements of GoodCorporation. At the conclusion of each assessment a presentation was made to the senior team, Chief Compliance Officer and regional officer, highlighting the areas where significant progress had been made and establishing a road map for the future. During the process the Chairman of the CREC received regular updates both from the Company Secretary and GoodCorporation.

1. Risk assessment outcome 2. Development The overall conclusion from the US exercise was that The US compliance team used the GoodCorporation good progress had been made since the previous visit, action plan and the advice of US legal experts to develop

but that significant further enhancements were in full ABC procedures that met the requirements of the Financial statements development which could further raise the level of US and UK legislation. achievement. GoodCorporation developed an action plan to ensure maximum enhancements.

3. Implementation 4. Verification exercise The US compliance team implemented their procedures The CREC instructed GoodCorporation to revisit the through working closely with relevant departments, US operations to test the implementation of the revised training workshops and communications. The US Chief procedures and assess the level of achievement. The Executive ensured that the US compliance team reported Committee was delighted to report that, as a result of directly to him, in order to ensure that successful work over an intensive, eight month period, the US ABC implementation could be achieved rapidly. practices were considered to be very strong.

Annual Report 2016 101 Committee reports: Compliance, Responsibility and Ethics continued

Training Responsibility and ethics Hikma’s policies have been developed in conjunction with its ongoing focus on education and dissemination of Code of Conduct ABC compliance information across the business. Hikma’s The CREC is responsible for the Group Code of employee induction programmes ensure that each new Conduct, which is reviewed and compared to comparable employee can clearly understand the Group’s ethical international companies regularly. The Code is available expectations. In addition, increasing awareness of ABC in all of the major languages in which the Company issues has been built within the business, with awareness conducts business: Arabic, English, French, German, sessions given to functional and geographical teams Portuguese, Italian and Russian. Each year all Hikma across the Group. employees are required to confirm that they have read During 2016, the Compliance Department developed an the Code, have understood it and will abide by its terms. online training tool for ABC issues, which is supported The training plan for the Code includes face-to-face by a commitment from the Chief Executive that all training for top managers, and training and discussion employees and officers of the Group will undertake sessions at department level for employees and lower that training. management. The Code is available on our website: www.hikma.com/en/sustainability/Code-of-conduct.html. Procedures Speak-up Hikma has developed, implemented and independently tested a full suite of ABC procedures across all its global Hikma has an open-door policy regarding communication operations. The procedures require significant efforts on so that it can hear from those who have any questions or the part of operational, financial and sales and marketing concerns about the ethics and integrity of the business. personnel, overseen by the regional compliance team. Where employees believe that it is not possible or The Group’s internal audit plan, under the direction of appropriate to report to line management, they may the General Counsel, verifies the effectiveness of the make reports confidentially to any senior manager ABC procedures and recommends improvements, within the business. Additionally, Hikma has anonymous where required. web and telephone reporting lines in place across all operations, which report directly to the compliance department and Chair of the CREC. Anti-trust, AML and trade sanctions The General Counsel oversees the Group’s compliance The Company has established a committee of senior within the anti-trust, anti-money laundering and trade group employees representing the compliance, legal and sanctions legislation and reports to the Committee in this human resources functions. This committee is responsible regard. The Group has established extensive policies and for investigating and approving appropriate action in procedures to ensure compliance which have been relation to all speak-up incidents. reviewed by the Committee during the year. As part of their commitment to the Code, employees understand that they have a duty to report any suspected violations. The Company remains satisfied that the policy and procedures enable proportionate and independent investigation of matters raised including non-compliance and that appropriate follow-up action is taken.

102 Hikma Pharmaceuticals PLC Compliance with the UK Modern Strategic report Slavery Act (“MSA”) Hikma is committed to ensuring that modern slavery in the form of forced or compulsory labour and human trafficking does not take place in any of its businesses or supply chains across the globe. Key measures in support of this goal include training Hikma staff on labour standards and how to recognise and respond to any incidences of modern slavery, undertaking periodic analysis and management of any modern slavery risk in Hikma’s businesses or supply chains, carrying out appropriate due diligence and engaging on the issue with supply chain partners.

Corporate responsibility Corporate governance The Executive Vice Chairman is the champion of Hikma’s CR programme within the Company and chairs Hikma’s CR Committee. The VP of Corporate Communication is responsible for CR at an operational level. The CR team, led by the VP of Corporate Communication, regularly presents developments to the CREC which, during the year under review, included: • Developed the Human Dignity programme • Joined the FTSE4Good index • Upgraded greenhouse gas reporting capabilities • Fully integrated the US CR activities within the Group CR programme Financial statements • Strategic health partner at the World Economic Forum • Continued commitment to the UN Global Compact

Further details are available in the Sustainability report on pages 38 to 51. For and on behalf of the Compliance, Responsibility and Ethics Committee

Dr Ronald Goode CREC Chair

14 March 2017

Annual Report 2016 103 Remuneration report Letter from the Chair REMUNERATION, PERFORMANCE AND STRATEGIC ACHIEVEMENT

Dear Shareholders “The Committee considered that 2016 was I am delighted to be writing to you for the first time in my role as Chair of the Remuneration Committee. solid, but in certain aspects challenging from My first year has been focused on assessing the existing a Group financial performance view, but that remuneration arrangements, developing the remuneration policy for the future and building the internal team. significant progress was made in integrating We spent significant time and resource assessing the West-Ward Columbus and positioning the adequacy of our existing remuneration arrangements Group for future growth.” and considering whether our remuneration policy should be adjusted. We concluded that the policy, which has been developed over the past few years, is tailored to The Committee has reviewed the overall level of executive the Company and we are, therefore, recommending packages and considers that the existing packages are minimal changes. appropriate, taking into account comparable positions, The main area of policy change, which was raised by performance, the business environment and the Group’s shareholders and we have addressed in these disclosures, is approach to remuneration below the Board level. The improving the linkage between performance remuneration Committee is not proposing to adjust packages significantly. outcomes and the Group’s strategic objectives, as well The Committee considered that 2016 was solid, but as enhancing the stretch in those targets. The targets in certain aspects challenging from a Group financial that impact this year’s and future years’ performance performance view, but that significant progress was made remuneration have been set to direct the executives to in integrating West-Ward Columbus and positioning the achieve the matters of greatest importance identified in Group for future growth. Therefore, the performance the strategic review, which centres on product development remuneration outcomes were measured on target in and aligning the organisational structure with that strategy. relation to the financial metrics, but considered above target overall for the strategic measures. Nina Henderson and Pat Butler joined the Committee during the year, ensuring that all the Independent Directors contribute towards remuneration discussions. I welcome them to the Committee. Over the course of the next year we will embed the executive policy and review incentivisation for management below the Executive Committee level. As an organisation, Hikma is committed to clear and open communication. I remain open to discussion with shareholders should there be any matters that they wish to raise directly.

Dr Pamela Kirby Chair of the Remuneration Committee 104 Hikma Pharmaceuticals PLC Strategic report 2016 overview

2016 Highlights Membership and attendance • Enhanced the strategic linkage and stretch of the The Remuneration Committee consists of seven Independent performance criteria Non-Executive Directors, with an Independent Non-Executive • Undertook an in-depth review of the remuneration policy Director holding the Chair of the Committee. All members of the Committee have held positions at the highest levels in • Considered and responded to issues raised by shareholders multinational organisations and hence have experienced business • Inducted Willis Towers Watson as the new and resource issues at all levels. The members have spent a remuneration advisers significant proportion of their careers leading teams and in • Successful transition of the Committee Chair from executive management. The members understand the need Michael Ashton to Dr Pamela Kirby to incentivise top management appropriately, while ensuring that rewards are fair throughout all levels of Hikma’s business. • Enhanced the performance criteria for the Executive Corporate governance Incentive Plan Meeting Members Member since Attended Potential attendance 2017 Priorities Dr Pamela Kirby (Chair) 1 Dec 2014 7 7 100% • Reviewing management incentivisation Michael Ashton 14 Oct 2005 6 7 86% • Embedding the revised policy Dr Ronald Goode 12 Dec 2006 7 7 100% • Continuing to enhance performance targets Robert Pickering 1 Mar 2014 7 7 100% • Developing management incentives John Castellani 1 Mar 2016 6 6 100% • Engaging with employees and stakeholders Pat Butler 20 Sep 2016 2 2 100% Nina Henderson 1 Oct 2016 2 2 100% Breffni Byrne (retired 12 May 2016) 14 Oct 2005 3 3 100% Total meetings 7 98% Financial statements Calendar of events Allocation of time

Conditions in the Group 5% Q1 Q2 Developing practices 10% Corporate governance 18% • Executive performance • Market update Setting executive remuneration 27% • Executive remuneration • EIP and MIP award Remuneration policy 40% • EIP award • Management succession • Remuneration • Termination policy adviser tender

Q3 Q4 Advisers

• Remuneration • Executive benchmarking Internal External policy review • Executive objectives • Chairman and Chief Executive • Willis Towers Watson • Executive objectives • Shareholder consultation • VP Human Resources and MENA operations • Company Secretary

Annual Report 2016 105 Remuneration report continued

Remuneration and performance summary References in this document to the ‘Regulations’ refer to The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, with which this report complies.

Performance components 2015 2016 Sales $1,440m 35% 1,950m Profit $355m 1% $359m Share price 2,301p -18% 1,893p Dividend 32 cents 3% 33 cents Employee compensation $356m 31% $465m Shareholder implementation approval 82.40% 88.97%

Total remuneration 2017 2015 2016 ($000) Executive Director ($000) ($000) (estimate) Said Darwazah 7,316 -14% 6,308 -13% 5,470 Mazen Darwazah 4,465 -23% 3,419 2% 3,492

Components 2017 2015 2016 ($000) Salary1 ($000) ($000) (estimate) Said Darwazah 1,200 3% 1,236 3% 1,273 Mazen Darwazah 676 3% 696 3% 717 Bonus2 Said Darwazah 2,928 28% 2,116 -10% 1,910 Mazen Darwazah 1,649 -31% 1,137 -5% 1,076 Share awards3 Said Darwazah 3,160 -9% 2,871 -24% 2,177 Mazen Darwazah 2,117 -30% 1,492 7% 1,591 Pensions4 Said Darwazah 16 -100% 0 0% 25 Mazen Darwazah 13 -100% 0 0% 14 Other benefits5 Said Darwazah 12 608% 85 0% 85 Mazen Darwazah 10 840% 94 0% 94

Non-Executive Directors’ fees 2017 2015 2016 (£000) Non-Executives (£000) (£000) (estimate) Non-Executive Directors’ average total fee6 95.1 1% 96.2 0% 96.2

1. Salary: The average rise for salaries across the Group in 2016 was 3%. 2. Bonus: The bonus figure comprises Elements A and C of the EIP. See page 112 for further explanation. The 2017 estimate is based on target performance. 3. Share awards: 2015 and 2016 figures represent LTIPs exercised during the year. 2017 is an estimation of the value of element B of the 2015 EIP and the LTIP to vest in that year, using 31 December 2016 vesting percentages, share prices and exchange rates. 4. Pension: The Company did not contribute to the Executive Directors’ pensions during the year because an assessment of provisions made in previous years resulted in a short-term surplus. Pension contributions are up to 10% of salary. Executives participate in the same pension plan as Jordanian employees, their country of employment. 5. Benefits: The increased level of benefits for Executive Directors relates to a re-assessment of transportation costs and depreciation. 6. NED fees: The Average Non-Executive Director’s fee includes basic fee and Committee membership and Chair fees. Full breakdown of fees on page 134.

106 Hikma Pharmaceuticals PLC Shareholder alignment Strategic report The Committee considers that it is very important to align the interests of the executive and the outcome for shareholders. The Committee closely monitors the linkage.

Share price and value of Market capitalisation and executive holdings ($m) total executive pay ($m) Hikma’s Executive Directors have a substantial equity The Committee considers that the total pay of the interest in the Company, the value of which is circa executives should be broadly commensurate with the 40 times the total remuneration paid to these executives. overall size, complexity and performance of the Company. Therefore, the changes in the share price experienced The Committee uses the graph below to broadly monitor by shareholders have a more significant impact on the the position and is content that remuneration has executives than their remuneration. increased broadly in line over time. Corporate governance Executive Director Total pay to Hikma market shareholding value ($m) Share price ($) Executive Directors ($m) capitalisation ($bn) 900 33.4 35 20 8 30.7 800 18 30 6.7 7 16 700 6.1 6 677 25 14 600 5.6 23.3 5 19.8 12 500 20 527 523 3.9 11.8 10 4 9.7 400 15 12.3 8 8.6 2.4 3 300 321 10 6 6.6 Financial statements 2 200 5.4 225 4 5 1 100 2

0 0 0 0 12 13 14 15 16 12 13 14 15 16 Executive Director shareholding value Total pay to Executive Directors Share price Hikma market capitalisation

Annual Report 2016 107 Remuneration report continued

Equity position of the Directors and executive management The Committee believes that its share ownership policy strongly links executive and shareholders’ interests. All Executive Directors are required to build and maintain a minimum shareholding equal to three times base salary. The limits under and compliance with this policy are reviewed periodically by the Committee. The table below demonstrates that the target shareholdings as a percentage of salary were met in full by the Executive Directors. Requirement Executive Director Target Actual fulfilled? Said Darwazah 300% 27,112% Yes Mazen Darwazah 300% 26,956% Yes

Share ownership requirements also apply to Hikma executive management who are required to build and maintain a minimum shareholding equal to at least two times base salary. In certain cases, the shareholding requirement has been increased in order to reflect local executive remuneration practice. Compliance with the shareholding requirement is measured annually at the time of this report.

Proportion of executive pay Executive pay and that is share-based 2016 executive shareholdings 2016 To further align shareholder and executive interests, The Committee believes that shareholder interests the Committee ensures that a significant proportion are aligned with Executive Directors through the of executive remuneration is based in shares. combination of substantial executive shareholdings, significant share-based compensation and remuneration broadly following company growth.

35% 65% 98.3%

0% 20% 40% 60% 80% 100% 1.7% Cash Shares 0% 20% 40% 60% 80% 100% Executive Director shareholding Executive Director pay

Committee responsibilities The Remuneration Committee assists the Board in determining its responsibilities in relation to remuneration, including making recommendations to the Board on the Group’s policy on executive remuneration, determining individual remuneration and benefits package of each of the Executive Directors and recommending and monitoring the remuneration of senior management below Board level. The Board is responsible for implementing the recommendations and agreeing the remuneration packages of individual Directors. The Remuneration Committee is also responsible for making recommendations for the grants of awards under any employee share plans. In accordance with the Committee’s terms of reference, no Director may participate in discussions relating to his own terms and conditions of remuneration. Non-Executive Directors’ fees are determined by the full Board. The Committee’s terms of reference include all matters prescribed by the Code and clearly set out its authority and duties. They are reviewed by the Board on a regular basis, and are available on the Hikma website, at the registered office at 13 Hanover Square, London, W1S 1HW and by contacting [email protected].

108 Hikma Pharmaceuticals PLC Directors’ remuneration policy Strategic report

Effective period The Directors’ Remuneration Policy (the “Policy”) for Hikma Pharmaceuticals PLC (“Hikma”) which is detailed on pages 109 to 118 will be put to a binding shareholder vote. The Policy will, subject to shareholder approval, become formally effective from the 2017 Annual General Meeting (“AGM”) on 19 May 2017. It is intended that the Policy will apply for a period of three years from the date of approval.

Executive Directors The remuneration for Executive Directors is designed to provide for a competitive compensation package which reflects the Group’s performance against strategic objectives. Remuneration for Executive Directors will continue to comprise the following elements:

Policy overview Fixed elements Variable elements Executive Incentive Plan (“EIP”) Corporate governance Base salary Element A: Cash bonus Total Benefits + Element B: Deferred shares = remuneration Pension Element C: Restricted shares

Summary of changes to the Policy The new Policy for which approval is being sought at the AGM in 2017 is broadly unchanged from the Policy that was previously approved by shareholders at the 2014 AGM, with the exception of the following matters: • Use of benchmarking data. In accordance with current guidance on use of benchmarking data, the Committee is moving away from formally setting remuneration within ranges defined by benchmark data. Going forward, the Committee will take into account market pay practice in UK listed companies of a similar size and relevant peer companies from the pharmaceutical sector. Financial statements • Base pay increases for Executive Directors will be restricted to a maximum of the increase for the wider workforce, unless there is exceptional reason such as to reflect a significant change in the scope or responsibilities of the role. • To change the performance criteria of the Executive Incentive Plan:

From To • Financial metrics (50%) • Financial metrics at a Group and regional level (60%) • Strategic and operational targets (40%) • Strategic targets (40%) • Personal targets (10%)

• To extend the life of the EIP from 5 years to 10 years on the same terms as previously approved. • To extend the limit on the maximum fees payable to Directors from £1,000,000 to £1,500,000 in order to allow for the orderly succession of Non-Executive Directors, as detailed in the Nomination and Governance Committee Report.

Our core principles The Remuneration Committee (the “Committee”) aims to ensure that the remuneration for the Executive Directors: • Enhances the achievement of Hikma’s strategic aims • Takes account of employment conditions both inside and outside Hikma • Aligns the interests of Directors with those of shareholders • Is aligned with Hikma’s founding principles

Discretion The Committee has discretion in several areas of policy as set out in this report. The Committee may also exercise operational and administrative discretions under relevant plan rules approved by shareholders as set out in those rules. In addition, the Committee has the discretion to amend the Policy with regard to minor or administrative matters where it would be, in the opinion of the Committee, disproportionate to seek or await shareholder approval.

Annual Report 2016 109 Remuneration report continued

Purpose and link to strategy Operation

Base salaries for individual Executive Directors are • Company performance Base salary reviewed annually by the Committee, and any changes • Affordability Provides a base level of normally take effect from 1 January. Salaries are set • Salaries for individuals who are recruited or promoted to remuneration to support with reference to: the Board may be set below market levels at the time of recruitment and retention • Pay increases for the general workforce acting as appointment, with the intention of bringing the base of Directors with the an upper limit unless exceptional circumstances exist salary levels in line with the market as the individual necessary experience • Individual performance, experience becomes established in their role. and expertise to deliver and contribution the Group’s strategy. Whilst base salaries are reviewed annually, they will not • Market pay in UK listed companies of a similar necessarily be increased each year. Key element of core fixed size, and relevant peer companies from the remuneration pharmaceutical sector

Benefits Benefits may include, but are not limited to: healthcare, the year in which the benefits or allowances were paid. school fees, company cars, and life insurance. Provides competitive benefits Accordingly, the Committee would expect to be able to in the market to enable the As the Company operates internationally it may adopt benefits such as relocation expenses, tax equalisation

Fixed elements recruitment and retention of be necessary for the Committee to provide special and support in meeting specific costs incurred by directors directors, and are in line with benefits or allowances. These would be disclosed to to ensure the Company and the individuals comply with their the culture of the Company. shareholders in the annual report on remuneration for obligations in the reporting of remuneration for tax purposes.

Pension A defined contribution scheme and/or cash supplement to 30% of the Group’s contributions to the Benefit Plan in lieu of pension may be provided. after three years of employment with the Group, and Provides a minimum level Executives currently participate on the same basis an additional 10% in each subsequent year. of pension contribution to as employees in the Hikma Pharmaceuticals Defined Should a new executive be appointed to the Board, support a low fixed cost Contribution Retirement Benefit Plan (the “Benefit they would normally participate in the Benefit Plan, and highly entrepreneurial Plan”), which operates in accordance with the rules according to the rules relevant to employees in the remuneration policy. relevant to employees in Jordan. Participants are entitled appropriate jurisdiction.

The Remuneration Committee sets annual Details of the 2016 performance targets, their level of A: Cash bonus performance targets for awards under the EIP. At the end of each year the Committee determines satisfaction and the resulting performance remuneration Immediate reward for financial the level of incentive earned for that year. are disclosed on pages 126 to 129. The Company discloses and strategic achievement. the nature and weighting of future performance targets in Element A is paid immediately as an annual the Policy Implementation report on pages 120 to 121. cash bonus.

Element B is provided in the form of deferred depending on the annual assessment of performance for shares. Element B awards are subject to the the year in question, as detailed on pages 126 to 129; and B: Deferred shares following conditions:

Variable elements (EIP) Variable • an additional holding period of three years for 50% of Deferred, at risk, share-based • a deferral period of two years; the award. The Committee retains the discretion to both reward for financial and • risk of performance based forfeiture each year of increase the number of shares awarded under Element B strategic performance. the deferral period of up to 50% of the cumulative subject to the holding period and to change the length deferred Element B shares which have not vested, of the holding period.

The performance conditions and targets for Element C –– continued employment on the third anniversary of the C: Restricted shares are the same as those for Element A and B. date of grant; and • Element C (maximum of 100% of salary per –– an additional holding period of two years for 50% of the Incentivises the achievement annum) is provided in the form of deferred shares. award. The Committee retains the discretion to both of strategic objectives over Element C awards are subject to the following increase the number of shares awarded under Element C the longer term. conditions: subject to holding period and to change the length of the –– a deferral period of three years; holding period. 110 Hikma Pharmaceuticals PLC Maximum opportunity Performance metrics Change to policy Strategic report Whilst there is no maximum salary, any increase will generally be no higher than the average increase for the No longer defined by the comparator wider workforce. A higher group range and upper limit of increase may be made in employee rise unless exceptional Not applicable. the event of a role change, circumstances exist to ensure greater promotion, or in exceptional alignment between executives and circumstances, but the the wider workforce. rationale will be clearly explained in the next report to shareholders.

The value of benefits is based on the cost to the Company

and there is no predetermined Corporate governance Not applicable. No change to policy. maximum limit. The range and value of the benefits offered is reviewed periodically.

The Group matches employee contributions made to the Benefit Plan. For the Executive Not applicable. No change to policy. Directors based in Jordan these are up to a maximum of 10% of applicable salary.

Annual performance metrics are based on: • Financial metrics (60%) – Core PBT (30%) and Core Revenue (30%): Extension of the EIP from based on the budget 5 to 10 years to align with policy. Financial statements • Strategic targets (40%): based on the Board approval strategy and The balance of the performance metrics have been strengthened Maximum 150% of salary business plan. and focused: per annum. However, at: The Company operates in a rapidly changing market place and therefore From: Forfeiture: 0% the Committee may change the balance of the measures, or use different measures, for subsequent financial years, as appropriate, to reflect this, • Financial metrics (50%) Threshold: 25% although currently there is no intention to do so. The Committee retains • Strategic and operational Target: 100% discretion in exceptional circumstances to change the performance targets (40%) See the performance measures and targets and their respective weightings part way through a • Personal targets (10%) summaries on pages performance year if there is a significant and material event which causes 120 to 121 for further detail. the Committee to believe the original measures, weightings and targets To: are no longer appropriate (an historic example would be the Arab Spring). • Financial metrics (60%) Discretion may also be exercised in cases where the Committee believes that the bonus outcome is not a fair and accurate reflection of business • Strategic targets (40%) performance. Malus and/or clawback provisions apply to all elements of the EIP as detailed on page 113.

Maximum 150% of salary per annum. However, at: Forfeiture: 0% See above in respect of Element A. See above in respect of Element A. Threshold: 25%. Target: 100%.

Maximum 100% of salary per annum. However, at: Forfeiture: 0% See above in respect of Element A. See above in respect of Element A. Threshold: 25% Target: 100%

Annual Report 2016 111 Remuneration report continued

Performance-based remuneration

Executive Incentive Plan The Hikma Pharmaceuticals PLC 2014 Executive Incentive Plan (“EIP”), was first approved by shareholders at the 2014 AGM and is due to expire in 2019. The Company intends for the EIP to remain the sole incentive arrangement available to Executive Directors for the policy period expiring in 2020. Shareholder approval is being sought at the 2017 AGM to extend the life of the EIP from 5 to 10 years resulting in the EIP expiring in 2024 rather than before the expiry of the current policy period. The EIP supports the Company’s objectives by allowing the setting of annual targets based on the businesses’ strategic objectives at that time, meaning that a wider range of performance metrics can be used that are relevant and suitably stretching.

Rationale The Remuneration Committee considers that the EIP remains appropriate because: • Global focus: Approximately 30% of the Company’s business is located in the MENA and 60% in the US, which requires the Company to compete with local practices, including: • US: to offer sufficient leverage in the incentives to be reasonably competitive compared to US pharmaceutical companies. • MENA: the strong short-term remuneration focus by executives in the MENA which is partly reflective of the political and economic environment. • US and MENA: equity based incentives are generally subject to time based vesting following grant, not multi-year performance conditions. • Business dynamics: Expansion in the MENA and emerging markets is a key strategic component. Political and economic change may cause a short-term lack of visibility of revenues and profits that could discourage longer-term investment and development. As a result, the application of conventional metrics used by more traditional incentive plans would likely fail to reward the successful execution of the Company’s strategy, one that has been widely supported by investors. The Company has experienced this in practice when dealing with the impact of the Arab Spring on incentive arrangements and the constant change in key markets. Given such evolving and in some cases highly volatile market conditions, it is difficult to establish testing but realistic multi-year targets which the participant associates with their own performance. • TSR: Comparative total shareholder return targets are inappropriate as even other industry comparators have a very different business mix in terms of product, geographic spread and business model, implying very different risk exposure.

Operational overview The EIP is composed of three elements: Maximum Treatment under award % Payout the Remuneration Element of salary mechanism Vesting period Risks after award Additional requirements Regulations A 150% Cash bonus Immediate • Clawback None Cash bonus B 150% Deferred 2 years • Forfeiture Share award Shares • Clawback 50% of the total share award is • Share price subject to a holding period after • Employed vesting. These shares may not be C 100% Restricted 3 years • Clawback Bonus* deferred sold until 5 years after grant. Shares • Share price in shares • Employed

* The Regulations require Element C to be treated as a cash bonus, although it is an award of shares that will vest three years after grant. The level of award made under the EIP depends on the achievement of performance conditions: • 60% Financial metrics (Core PBT and Core Revenue) • 40% Strategic targets (sub-conditions apply) For each condition or sub-condition, four levels are established: • Forfeiture: at which 0% is awarded in respect of the current year and 50% of outstanding Element B Deferred Shares lapse • Threshold: at which awards of up to 100% of salary may be granted • Target: at which awards of up to 250% of salary may be granted • Maximum: at which awards of up to 400% of salary may be granted

112 Hikma Pharmaceuticals PLC Other remuneration matters Strategic report

Shareholding requirement The Committee has a minimum shareholding requirement for Executive Directors in order to ensure a long-term, locked in alignment with shareholders. The objective is for Executive Directors to build up and maintain a minimum level of shareholding throughout their employment with the Company. The minimum shareholding requirement is 300% of salary. However, the Committee has discretion to increase this minimum. The shareholding requirement operates in the following manner: • Only shares unconditionally owned by the Executive Directors count towards the requirement; • No shares may be sold by the Executive Director (with the exception of shares sold to pay the tax due on vesting/exercise) until the shareholding requirement is met and no shares may be sold if the result of the sale is to reduce the Executive Directors’ shareholding below the shareholding requirement.

Further explanation on the Executive Directors’ shareholding requirement is detailed on page 131. Corporate governance

Malus and clawback The EIP has malus and clawback provisions to protect the Company and shareholders. Under these provisions, the Committee can reduce or cancel awards that have not yet vested (malus) and can require the repayment of an award (clawback) under the EIP. In addition, there is a performance based threshold condition for Element B. In the event of any of the following situations occurring, the Remuneration Committee would apply malus or clawback under the EIP: • Hikma’s financial statements or results being negatively restated; • participant having deliberately misled management, the Board or the market regarding Hikma’s performance; • participant causing significant damage to Hikma; • mistake in the calculation of the level of satisfaction of the performance targets; or • participant’s actions amounting to serious misconduct. Financial statements Terms of appointment and service

Service contracts The details of the service contracts of the Executive Directors of Hikma in force at the end of the year under review, which have not changed during the year and are available for inspection at the Company’s registered office at 13 Hanover Square, London, W1S 1HW, were: Company Unexpired Executive Director notice period Contract date term of contract Potential termination payment Said Darwazah 12 months 1 July 2007 Rolling contract 12 months’ salary and benefits Mazen Darwazah 12 months 25 May 2006 Rolling contract 12 months’ salary and benefits

The Executive Directors’ contracts are on a rolling basis, unless terminated by 12 months’ written notice. This arrangement is in line with best corporate practice for listed companies. The Committee’s policy for setting notice periods is that a maximum 12 month period will apply for Executive Directors. The Committee may in exceptional circumstances arising on recruitment allow a longer period, which would in any event reduce to 12 months following the first year of employment. Details of the Non-Executive Directors’ notice periods are provided on page 135. The Company complies with the UK Corporate Governance Code that all directors of FTSE 350 companies be subject to annual election by shareholders.

Annual Report 2016 113 Remuneration report continued

Recruitment remuneration The Committee’s normal approach to recruitment remuneration is to pay no more than is necessary to attract candidates of the appropriate calibre and experience needed for the role from the international market in which the Company competes. The Committee will have regard to guidelines and shareholder sentiment regarding one-off or enhanced short-term or long-term incentive payments made on recruitment and the appropriateness of any performance measures associated with an award. The table below summarises the adjustments to the Policy with respect to recruitment of Executive Directors: Component Policy Pension It is not the Remuneration Committee’s current policy for existing Executive Directors to provide executive level pension contributions or salary supplements. However, the Committee retains the discretion if required on recruitment to be able to offer either a contribution to a personal pension scheme or cash allowance in lieu of pension benefits. Maximum level of variable The maximum level of variable remuneration under the Company’s policy is 400% of salary p.a. remuneration In exceptional circumstances, solely for the year of recruitment, this may be increased to 550%. Share buy-outs/replacement The Committee’s policy is not to provide buy-outs as a matter of course. awards However, should the Committee determine that the individual circumstances of recruitment justify the provision of a buy-out, the value of any incentives that will be forfeited on cessation of a Director’s previous employment will be calculated taking into account the following: • the proportion of the performance period completed on the date of the Director’s cessation of employment; • the performance conditions attached to the vesting of these incentives and the likelihood of them being satisfied; and • any other terms and conditions having a material effect on their value (“lapsed value”). The Committee may then grant up to the equivalent value as the lapsed value, where possible, under the Company’s incentive plans. To the extent that it was not possible or practical to provide the buy-out within the terms of the Company’s existing incentive plans, a bespoke arrangement would be used.

Details of any packages would be disclosed as soon as is reasonably possible.

Payment for loss of office When considering termination payments, the Remuneration Committee takes account of the best interests of Hikma and the individual’s circumstances, including the reasons for termination, contractual obligations and the rules governing certain items of pay (e.g. EIP rules). The Remuneration Committee will ensure that there are no unjustified payments for failure on termination of employment. The Committee’s policy in relation to leavers can be summarised as follows: • In the normal course of events, the Executive Director will work their notice period and receive contractual compensation payments and benefits during this time. • In the event of the termination of an executive’s contract and Hikma requesting the executive to cease working immediately, payment in lieu of notice equal to fixed pay, pension entitlements, other benefits and, on a discretionary basis and only where it is in Hikma’s interest, a pro-rated performance related bonus will be payable. • In the event of termination for gross misconduct, neither notice nor payment in lieu of notice will be given and the executive will cease to perform services immediately. • On an Executive Director ceasing to hold office, the Company will announce an out-going Executive Director’s remuneration arrangements around the time of leaving. The Committee will honour Executive Directors’ contractual entitlements. Service contracts do not contain liquidated damages clauses. If a contract is to be terminated, the Committee will determine such mitigation as it considers fair and reasonable in each case. There are no contractual arrangements that would guarantee a pension with limited or no abatement on severance or early retirement. There is no agreement between the Company and its Directors providing for compensation for loss of office or employment that occurs because of a takeover bid. The Committee reserves the right to make additional payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation); or by way of settlement or compromise of any claim arising in connection with the termination of an Executive Director’s office or employment. When determining any loss of office payment for a departing individual the Remuneration Committee will always seek to minimise costs to the Company whilst seeking to address the circumstances at the time.

114 Hikma Pharmaceuticals PLC Application of Strategic report Remuneration Committee Component Approach discretion Base salary, benefits See above policy. Discretion to make and pension Executive Directors may be entitled to receive payment in lieu of notice. Payment in payments in lieu lieu of notice will be equivalent to the salary payments, benefit value and pension of notice to the contributions that they would have received if still employed by the Company for same value. a maximum of 12 months. EIP The treatment of awards on cessation of employment is governed by the rules of The Remuneration the EIP. Committee has The rules of the EIP provide that on termination of employment before the discretion to performance measurement date or prior to the relevant vesting date, no award determine that the will be granted in respect of the year of cessation and any subsisting entitlements reason for termination will lapse; unless the following circumstances apply: is classified in the

• injury or disability; same manner as Corporate governance • redundancy; those described in • retirement by agreement with the Company; the adjacent column. • the participant being employed by a company which ceases to be a member of The Remuneration the Group; Committee will only • the participant being employed in an undertaking or part of an undertaking use its general which is transferred to a person who is not a member of the Group; or discretion to • any other circumstances if the Remuneration Committee decides in any determine that an particular case. Executive Director If an Executive Director leaves in one of the above circumstances, the EIP rules is a good leaver provide for the following: in exceptional circumstances and Element A will provide a full The Remuneration Committee will calculate the amount of any payment pro-rated explanation to to the amount of the plan year completed on the Executive Director’s date of shareholders of cessation and taking into account the level of satisfaction of the performance targets Financial statements the basis for its at the next performance measurement date. Any payment shall be made as soon as determination. practicable after the determination of the level of satisfaction of the performance targets. Elements B and C The Remuneration Committee will calculate the amount of any payment pro-rated to the amount of the plan year completed on the Executive Director’s date of cessation and taking into account the level of satisfaction of the performance targets at the next performance measurement date. Any payment shall be made as soon as practicable after the determination of the level of satisfaction of the performance targets. 50% of the shares awarded will be subject to the sales restrictions (five years from date of grant to date of sale). Subsisting Element B and C awards will vest. The sale restrictions on 50% of the shares awarded will continue. It should be noted the performance conditions for the outstanding Element B and C awards will have been satisfied at the date of grant. Other contractual There are no other contractual provisions agreed prior to 27 June 2012. n/a obligations

Annual Report 2016 115 Remuneration report continued

Change of control Application of Remuneration Component Approach Committee discretion EIP The treatment of awards on a change of control is governed by the The Remuneration Committee has rules of the EIP. a discretion whether to pro-rate any element to time. It is the Remuneration Element A Committee’s policy in normal The Remuneration Committee will calculate the amount of any circumstances to pro-rate to time; payment pro-rated to the proportion of the plan year completed however, in exceptional circumstances on the change of control and taking into account the level of where the nature of the transaction satisfaction of the performance targets at the date of the change produces exceptional value for of control. Any payment shall be made as soon as practicable after shareholders and provided the the determination of the level of satisfaction of the performance performance targets are met, the targets. Remuneration Committee will consider Elements B and C whether pro-rating is equitable. In respect of the year of the change of control, the Remuneration The Remuneration Committee has Committee will calculate any award pro-rated to the proportion of the same discretion in relation to the plan year completed on the change of control and taking into Elements B and C as set out above account the level of satisfaction of the performance targets at the for Element A and will operate it in date of the change of control. Any award shall be made as soon as the same manner. practicable after the determination of the level of satisfaction of the performance targets and shall not be subject to the sale restrictions. Shares subject to subsisting awards shall vest on the date of the change of control and the sale restrictions shall be removed. It should be noted that the performance targets for subsisting awards were satisfied at the date of grant.

116 Hikma Pharmaceuticals PLC Employment conditions Strategic report The Committee takes into consideration practices for all employees across the Group when reviewing executive remuneration. All employees receive a salary, pension and medical insurance on a similar basis to Executive Directors. Additionally, all employees participate in a cash bonus scheme which is based on Element A of the EIP. The majority of management level employees participate in a restricted share award scheme which is either Element B of the EIP or based upon that Element. The Committee reviews detailed internal and summary benchmarking data, and is satisfied that the level of remuneration is proportionate across the HR grades. The Committee does not directly consult employees on the Policy contained in this Report, but receives regular updates on employee feedback through the Group HR department and the employee engagement survey, which is conducted by an external organisation and includes views on remuneration and other matters. Employee cost and total executive pay ($m)

Total pay to Average employee cost The Committee is cognisant of the importance of Executive Directors ($m) ($’000) ensuring the pay of Executive Directors’ alignment with

14 58 the overall employee base. Whilst the Group has increased Corporate governance 55.8 considerably in size and complexity over the past five years, the Committee believes the employee experience 12 54 has been reasonably aligned with executives’. 50.4 10 50 48.2 11.8 9.7

8 45.1 8.6 46 44.2

6 6.6 42 5.4 4 38

2 34 Financial statements

0 30 12 13 14 15 16 Total pay to Executive Directors Average employee cost Shareholder views The Remuneration Committee reviews feedback received from shareholders as a result of the AGM process and throughout the rest of the year, and takes this into consideration together with the latest views of investor bodies and their representatives. The Committee engages with shareholders and investor bodies in the event of a significant vote against the Remuneration Policy or Policy Implementation. When any significant changes are made to the Remuneration Policy, the Remuneration Committee Chair discusses these with major shareholders in advance and may offer meetings for more detailed discussion, as it did during 2016: Steps Details Timeframe 1 Adviser We instructed our remuneration adviser to review the existing Remuneration Policy in April light of current market practice guidance. 2016 2 Development The adviser, VP for Human Resources, Company Secretary and Remuneration Committee May Chair discussed the technical review and considered the Company’s specific requirements, 2016 history and strategy. After considerate debate, a policy proposal was created. 3 Remuneration Committee The policy proposal was presented to the Remuneration Committee. Relevant August adjustments were made. 2016 4 Strategy session The Board reviewed the management strategic plan. The Remuneration Committee October identified the key strategic deliverables and developed them into performance targets. 2016 5 Shareholder consultation The Remuneration Committee Chair wrote to UK governance bodies and significant November shareholders authorising the minimal policy changes and enhancements to performance 2016 targets. Comments were supportive. 6 Finalisation Having taken into account the results of the consultation, the Remuneration Committee December approved the final policy proposal. 2016

Annual Report 2016 117 Remuneration report continued

Non-Executive Directors Non-Executive Directors’ (“NEDs”) fees are set by the Board under the leadership of the Chief Executive Officer and Executive Vice Chairman having considered the: • pay practice in other FTSE 100 companies and sector peers; • extensive travel required to undertake the role; and • significant guidance and support required from the NEDs. NEDs do not participate in the Group’s pension or incentive arrangements. The annual fees payable to newly recruited NEDs will follow the policy for fees payable to existing NEDs. The table below details the current fees.

Element and purpose Operation

Fees are reviewed and determined annually and paid in cash. Basic fee A basic fee for undertaking the duties of a Director of Hikma, chiefly regarding Board, strategy and Provides a level of fees to support recruitment and retention of NED with shareholder meetings. the necessary experience Chairman fee: £300,000* NED fee: £85,000 * For a Non-Executive role. Not currently in use.

Committee membership fee Fees are reviewed and determined annually and paid in cash. A composite fee for taking additional responsibilities in relation to Committee membership. Usually Non-Executives are members of at least three committees. Committee fee: £8,000

Committee Chair fee Fees are reviewed and determined annually and paid in cash. Audit Committee Chair fee: £16,000 The Committee Chairs undertake additional responsibilities in leading a committee and are expected to act as a sounding board for the executive that reports to the Remuneration Committee Chair fee: £8,000 relevant committee. The chairmanship fee is paid in addition to the membership fee Compliance, Responsibility and Ethics Committee Chair with a higher fee paid to the Audit Committee chairman to reflect the significant fee: £8,000 demands of this position. Nomination and Governance Committee Chair fee: £8,000

The Company pays expenses incurred wholly in relation Board related expenses to the position of Non-Executive Directors and ensures The Board believes that Directors should be free to perform their duties, that Directors do not incur a tax liability as a result. The as they see fit, without incurring personal expenses. Committee retains discretion to provide for an allowance structure as an alternative to the latter payment.

End of remuneration policy.

118 Hikma Pharmaceuticals PLC Policy implementation 2017 Strategic report

Salaries During 2016, the Committee undertook the annual benchmarking of executive packages. The Committee reviewed the data and concluded the executives should receive the same salary rise as the average employee of 3% for 2017. Salary Increase Executive Director 2017 2016 % Chief Executive $1,273,080 $1,236,000 3% Executive Vice Chairman $717,155 $696,267 3%

Benefits and pension No change from 2016. Corporate governance Executive Incentive Plan (EIP) During 2017, the EIP will be operated as detailed below and in the Policy on pages 109 to 118. The performance conditions and their weighting are set out below: Potential outcomes Weighting (% of maximum subject Forfeiture Threshold Target percentage Maximum to performance percentage of percentage of of element of percentage of Performance condition condition) element of award element of award award element of award Core PBT 30% 0% 25% 50% 100% Core Revenue 30% 0% 25% 50% 100% Strategy 40% 0% 25% 50% 100% + lose 50% of outstanding

Elements B Financial statements and C

Annual Report 2016 119 Remuneration report continued

For each performance condition the Committee has established measurement criteria which determine the level of reward that executives may receive:

2017 Performance criteria: Chairman and Chief Executive The Remuneration Committee is of the opinion that the disclosure of high-level forward-looking targets provides shareholders with an awareness of direction and outcomes but, given the commercial sensitivity arising in relation to the detailed financial and strategic targets used for the EIP, disclosing precise targets for the EIP in advance would not be in shareholders’ interests. This avoids the risk of the Company inadvertently providing a profit forecast or giving our international competitors access to sensitive information or an unfair advantage. Actual targets, performance achieved and awards made are published at the end of the performance period so shareholders can fully assess the basis for any pay-outs under the EIP. Performance condition Performance level Weighting Section Description percentage Measurement Forfeiture Threshold Target Max Targeted Core PBT compared to actual Profit before 30% audited Core PBT for the year ended Budget -30% Budget -10% Budget Budget +10% Tax 31 December 2017 Financial Target Group Revenue compared Group 30% to actual audited Group Revenue for Budget -30% Budget -10% Budget Budget +10% Revenue the year ended 31 December 2017 Enhance profitability by delivering on the opportunities from circa $2.5bn Return on 20% of investment in the Bedford and Disclosed on measurement investment Columbus pipelines. Measured by Return on Invested Capital Delivering the product pipeline in Strategic Research and the strategic plan ensuring that the 10% Disclosed on measurement Development medium-term revenue and profit targets are met Reorganise the Group to ensure Group that it is best placed to deliver the structure 10% Disclosed on measurement Board-approved, medium-term optimisation strategic objectives and business plan

0% award + Performance remuneration lose 50% 100% 250% 400% Total outcome prior two award award award years’ shares

A 0% 25% 100% 150% Outcome breakdown B 0% 25% 100% 150% C 0% 50% 50% 100%

120 Hikma Pharmaceuticals PLC Strategic report

2017 Performance criteria: Executive Vice Chairman Please see the statement on page 120 regarding performance target disclosure. Performance condition Performance level Weighting Section Description percentage Measurement Forfeiture Threshold Target Max Target Core PBT compared to actual PBT 20% audited Core PBT for the year ended Budget -30% Budget -10% Budget Budget +10% 31 December 2017 Target Group Revenue compared Group 20% to actual audited Group Revenue for Budget -30% Budget -10% Budget Budget +10% Revenue the year ended 31 December 2017 Financial Target MENA PBT compared to actual Corporate governance MENA PBT 10% audited MENA PBT for the year ended Disclosed on measurement 31 December 2017 Target MENA Revenue compared MENA 10% to actual audited MENA revenue for Disclosed on measurement Revenue the year ended 31 December 2017 Revenue generation in emerging Emerging 10% markets before year ended Disclosed on measurement Markets 31 December 2017 Reorganise the structure of the MENA division to ensure it is best positioned MENA for growth and margin improvements. Strategic structure 20% Disclosed on measurement Ensure internal development for optimisation the MENA management team by end of 2017

Finalise at least two of the Financial statements Strategic 10% three strategic partnerships with Disclosed on measurement partnerships three external parties

0% award + Performance remuneration lose 50% 100% 250% 400% Total outcome prior two award award award years’ shares

A 0% 25% 100% 150% Outcome breakdown B 0% 25% 100% 150% C 0% 50% 50% 100%

Annual Report 2016 121 Remuneration report continued

Illustration of policy The following charts show the value of each of the main elements of the compensation package provided to the Executive Directors during 2016 and the potential available for 2017 (dependent upon performance).

Said Darwazah Fixed Bonus Share award Total Benchmark data $000 $000 $000 $000 $000

Threshold 1,384/52% 955/36% 318/12% 2,657

2017 Target 1,384/30% 1,910/42% 1,273/28% 4,566 9,750 to 13,410

Maximum 1,384/21% 3,183/49% 1,910/29% 6,476

2016 Actual 1,321/28% 2,116/44% 1,325/28% 4,762 12,736 to 25,029

Mazen Darwazah Fixed Bonus Share award Total Benchmark data $000 $000 $000 $000 $000

Threshold 825/54% 538/35% 179/12% 1,543

2017 Target 825/32% 1,076/41% 717/27% 2,618 3,390 to 4,577

Maximum 825/22% 1,793/49% 1,076/29% 3,694

2016 Actual 790/30% 1,137/43% 717/27% 2,644 7,387 to 8,564

The following notes are applicable to the above calculations: • Salary, benefits and pension comprise ‘Fixed’ remuneration. • Elements A and C of the EIP comprise the Bonus and Element B comprises the share award. Elements A, B and C of the EIP are made in the year after the performance is achieved (e.g. for the 2017 illustration, the share awards detailed would be made in 2018 and vest two to three years later). Please note that the Remuneration and performance summary on page 106 uses share awards vesting (i.e. actual shares received, not those granted) during the period in order to make clear the difference between potential remuneration and what the executive earns in practice. • Benchmark data represents the weighted average total remuneration of the persons holding similar roles in comparable, international pharmaceutical companies.

122 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements

123 Votes available Votes 239,385,501 198,167,997 Votes cast Votes 201,588,237 161,008,645 3.3% 1.7% Withheld 7.4% Against 10.7% For 86.0% 90.8% Annual Report 2016 at a general meeting: Annual Report on Remuneration (2016 AGM) the Remuneration Policy (2014 AGM) to approve Vote Resolution Shareholder approval policy and practice. The voting patterns in the setting of remuneration of shareholders The Committee actively seeks the engagement below have been divided into votes ‘For’, ‘Against’ and the percentages For ease of understanding, included in the table below. are when considering approval discounted are ‘Withheld’. votes ‘Withheld’ Under the Companies Act therefore, not a valid vote and, are Advice and support Advice and advisers in 2016 following as its independent the Remuneration Committee appointed by (“WTW”) were Watson Willis Towers a competitive tender process. of HR department, particularly in the delivery Corporate Committee, WTW have also supported Hikma’s In addition to advising the $178k (2015: $138k paid to the year were total fees for advice to the Committee during The strategy. and human resources reward before to determine a quote for each project of ongoing advice and is used in place for the provision is PwC). A policy fee structure it is undertaken. with framework for our relationship a clear Code of Conduct, which provides Consultants Group to the Remuneration WTW adheres of WTW during the year and fees the performance The Committee reviewed standards. high professional our advisers while setting high-quality service to the Committee. provide independent and continued to that WTW remained The Committee concluded received. and maintains to policy performance and remuneration relating assistance of senior management on matters The Committee seeks the executive or that no Director, ensures fully informed. The Committee that its deliberations are ensure link with management to a strong or benefits. to his own remuneration or advice relating employee takes part in discussions Remuneration report continued

Annual report on remuneration All of the information presented on this page has been audited by PwC. For the year ended 31 December 2016, the Group’s policy on remuneration was implemented as set out below.

Single total figure The following table shows a single total figure of remuneration in respect of qualifying services for the 2016 financial year for each Executive Director, together with comparative figures for 2015. Bonus (EIP Elements Shares Salary Benefits A & C) (LTIP) Pension Other Total Benchmark range* Director Year $ $ $ $ $ $ $ $ Said Darwazah 2016 1,236,000 85,000 2,116,299 2,870,939 Nil Nil 6,308,238 9,750,000 to 13,410,000 2015 1,200,000 12,000 2,928,000 3,159,892 16,150 Nil 7,316,042 12,736,000 to 25,029,000 Mazen Darwazah 2016 696,267 94,000 1,136,753 1,491,746 Nil Nil 3,418,766 3,390,000 to 4,577,000 2015 675,987 10,000 1,649,409 2,117,454 12,535 Nil 4,465,385 7,387,000 to 8,564,000

* Benchmark data represents the weighted average total remuneration of the persons holding similar roles in comparable, international pharmaceutical companies. The EIP performance criteria for 2016 are detailed on pages 126 to 129 and criteria for the LTIP that vested on 17 May 2016 are on page 125.

Benefits The increased level of benefits for Executive Directors relates to a re-assessment of transportation costs and associated depreciation. Directors receive medical benefits and a company car.

Pension The Company did not contribute to the Executive Directors’ pension during the year because an assessment of provisions made in previous years resulted in short-term surplus. This is a pension payment paid to the Hikma Pharmaceutical Defined Contribution Retirement Benefit Plan (the ‘Benefit Plan’) on behalf of the Executive Directors on the same basis as other employees located in Jordan. The Executive Directors do not receive personal pension contributions from the Group. Under the Benefit Plan the Group matches employee contributions made, which are fixed at a maximum of 5% of applicable salary. Participants become entitled to all of the Group’s contributions once they have been employed for 10 years. Before that point, there is a staggered scale which starts at three years of employment. The Executive Directors have served for in excess of ten years and will receive their benefits under the Benefit Plan when they reach their 60th birthday. The Company does not and has not operated a defined benefit scheme.

124 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements

125 20% 8,800 8,800 100% 100% 100% 100% 100% 17,000 17,000 Return on Return on £384,200 £198,880 Award vested Award invested capital invested capital % of maximum

th Practice 76 10% 33% 23% Actual 8,800 8,800 100% 100% 17,000 17,000 £384,200 £198,880 EPS growth EPS growth percentile performance £1,995,580 £1,038,696 ($2,870,939) ($1,491,746)

Financial performance Financial performance 13% 20% 12% 20% 20% 8,800 3,400 1,760 17,000 £76,840 £39,776 Maximum percentile Sales growth Sales growth th 75 TSR TSR 100% 100% 26,600 50,900 50,900 26,600 100% of award element 100% of award 100% of award element 100% of award element 100% of award element 100% of award £601,160 £1,150,340

9% 15% 10% Requirements Threshold percentile percentile th 50 20% of award element 20% of award 20% of award element 20% of award element 20% of award element 20% of award 17% 17% 17% 50% Weighting Condition Share price on vesting was £22.60 and there were $1.4463 to £1. were price on vesting was £22.60 and there Share Share price on vesting was £22.60 and there were $1.4463 to £1. were on vesting was £22.60 and there price Share TSR is total shareholder return comparative performance against the Company’s Comparator Group. Comparator return comparative performance against the Company’s TSR is total shareholder Sales growth EPS growth Return on invested capital The information in the table above has been audited by PwC. * Total value Total Maximum number of shares capable of vesting Maximum number of shares * PwC. The information in the table above has been audited by Executive Vice Chairman Maximum number of shares capable of vesting Maximum number of shares Chairman and Chief Executive * Percentage of maximum vesting Percentage Number of vested shares of vested shares* Value of maximum vesting Percentage Number of vested shares Value of vested shares* Value value Total Annual Report 2016 TSR* LTIP share awards LTIP salary with a 300% of operated ”). The LTIP LTIP Incentive Plan (“ the Long Term vested under and 2016, awards During 2015 return and financial metrics. Further shareholder and performance conditions based on total vesting period maximum, a three-year In 2014, the LTIP [email protected]. from and accounts on pages 97 to 99 or on request 2012 report details can be found in the made under it in respect The EIP and awards of 150% of salary. EIP which has a maximum award with Element B of the was replaced of the 2016 performance year are described further below. year are of the 2016 performance granted in 2013. The award is the conditional share remuneration of amount included in the 2016 single total figure The LTIP the performance targets is shown below. performance achieved against Performance condition Performance condition Description Remuneration report continued

2016 Performance outcome: Chairman and Chief Executive The following table sets out the performance conditions and targets for 2016 and their level of satisfaction: Performance condition Section Description Measurement Profit Before Tax Target Core Profit Before Tax compared to audited Core Profit Before Tax for the year ended Financial 31 December 2016 WW Columbus synergies Implement the synergies that were identified prior to the West-Ward Columbus acquisition and, in order to outperform, implement additional synergies identified post-acquisition

US Generics R&D Submit products to the FDA for approval in accordance with West-Ward Columbus business plan

Strategic Global Injectables R&D Submit products to the FDA/regulatory authorities in accordance with the Injectables business plan

Transfer products acquired from the Bedford acquisition into Hikma’s FDA approved facilities

Centralisation of the Group Maximising operational efficiency by centralising selected Group functions and the leadership of Operational major divisions in the UK by the year end: Injectables, Generics and Group functions

Internal audit Enhancing the role of the internal audit programme by raising management engagement and responsiveness to issues raised

People strategy Undertake initiatives to ensure that core talent is identified and plans are in place for development Personal with a view to enhancing the succession arrangements throughout the Group

Total

126 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 127

Application Said % of salary 133.3% of salary 0% of salary 40.0% of salary 8.8% of salary 20.0% of salary 40.0% of salary 278.4% 16.3% of salary 20.0% of salary

50% of total shares 50% of total shares unsaleable until 5 years after grant None Additional Achievement Target Target to Max Below threshold Max Threshold Threshold to Target Max Max Target Target to Max Max

Receive

Achievement Shares in 3 years Shares May 2017 from Shares in 2 years Shares May 2017 from Cash now 2017) (March Receive Results Core PBT of $359m Core Synergies of $20m in excess of those detailed circular in the shareholder 6 products filed submitted 6 products 3 products submitted. 3 products on stability 1 product from Bedford from 26 products transferred transferred 26 products Group functions, Injectables functions, Group and Generics centralised in the UK and operating effectively 98% resolution of matters 98% resolution outstanding Talent review, development review, Talent and management succession plan completed $791,637 $1,324,662 $1,324,662 Value of bonus/ Value shares

Max Target +10% Target $391m Acquisition synergy target +10% $30m Acquisition product Acquisition product submission target +10% 6 files Product submission Product target +25% 5 products Product transfer Product target +10% 22 products Group functions, Group Injectables and Generics 100% of resolution matters outstanding and management succession plan completed Excellent Talent review, review, Talent development 64.1% 107.2% 107.2% Achievement

100% 150% 150% Maximum potential (% of salary) Calculation Target Target $355m Acquisition synergy target $27m Acquisition submission product target 5 files Product Product submission target 4 products Product Product transfer target 20 products Group functions Group and Injectables 95% of resolution matters outstanding Good Talent review and review Talent development completed $1,236,000 Salary

Required performance level Required Target –10% Target $320m Threshold Acquisition synergy target -20% $22m Acquisition product Acquisition product submission target -20% 4 files Product submission Product target -25% 3 products Product transfer Product target -20% 16 products Group functions Group only resolution of resolution matters outstanding 90% Acceptable Talent reviews reviews Talent completed C B A EIP Element

Participant Target -30% Target $249m Forfeiture Acquisition synergy target -30% $19m Acquisition product Acquisition product submission target -30% 3 files Product submission Product target -50% 2 products Product transfer Product target -30% 14 products No change 80% of resolution matters outstanding Unacceptable No people development activities undertaken The information in the tables above has been audited by PwC. Annual Report 2016 and Chief Executive Chairman In accordance with the EIP rules and based on the performance detailed in the table above, the following awards have been made in detailed in the table above, the following awards with the EIP rules and based on the performance In accordance of the 2016 performance year: respect Executive 50% Weighting 10% 10% 5% 5% 10% 5% 5% Remuneration report continued

2016 Performance outcome: Executive Vice Chairman Performance condition Section Description Measurement Profit Before Tax Target Core Profit Before Tax compared to audited Core Profit Before Tax for the year ended Financial 31 December 2016 Algerian Injectables Implement the Injectables strategy in Algeria through the creation of a partnership in order to be able to develop, manufacture and sell Injectable products in the region

Strategic Emerging markets strategy Develop the emerging markets strategy and operational support in order to ensure that it is ready for launching in 2017

MENA revenue growth Grow the MENA revenue in an environment where governmental healthcare expenditure is declining and foreign exchange movements are adverse. Achieve MENA revenue target

MENA operational efficiency Enhance the operational efficiency in the MENA region through the implementation of the cost Operational reduction strategy. Achieve the MENA EBITDA target

MENA receivables Reduce the relatively high level of receivables risk with distributors in order to reduce credit cost and risk. Achieve the MENA Cash to Cash target

Compliance Develop the Group Compliance functional capabilities and complete the integration of the US Personal compliance into the Group programme by the end of the year

Total

128 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 129

Application Mazen % of salary 133.3% of salary 25.0% of salary 40.0% of salary 15.4% of salary 40.0% of salary 0% of salary 12.5% of salary 266.3%

50% of total shares 50% of total shares unsaleable until five years after grant None Additional Achievement Target Target to Max Target Max Threshold Threshold and Target Max Below Threshold Target

Receive Shares in 3 years Shares May 2017 from Shares in 2 years Shares May 2017 from Cash now 2017) (March Receive Achievement $419,694 $717,058 $717,058 Value of bonus/ Value shares Results Core PBT of $359m Core Partnership opportunity pursued by management and subsequently manufacturing ruled out. Greenfield plan finalised. Emerging markets strategy completedEmerging markets strategy andfor HK, Iran, CIS, Ivory Coast beginning to perform. Kenya already MENA revenue of $671m. MENA revenue MENA EBITDA of $177m. MENA cash to cash of 274 days. CREC chair assessment. 60.3% 103.0% 103.0% Achievement

Target +10% Target $391m Max Objective complete and performing ahead of time Objective complete and performing ahead of time Target Revenue Target +10% $789m Target EBITDA Target +10% $177m Target cash to cash Target -10% 212 days Objective complete and performing ahead of time Excellent Calculation 100% 150% 150% Maximum potential (% of salary)

Target Target $355m Objective complete at year end Objective complete at year end Target Revenue Target $717m Target EBITDA Target $162m Target cash to Target cash 235 days Objective complete at year end Good $696,267 Salary

Required performance level Required C B A Threshold Target –10% Target $320m at year end Objective partially complete at year end Objective partially complete Target Revenue Target -10% $645m Target EBITDA Target –10% $130m Target cash to Target cash +10% 259 days partially complete at year end Objective Acceptable EIP Element Participant Forfeiture Target -30% Target $249m Objective off Objective off track at year end Objective off Objective off track at year end Target Revenue Target -30% $502m Target EBITDA Target -30% $113m Target cash to Target cash +30% 306 days Objective off Objective off track at year end Unacceptable Executive Annual Report 2016 The information in the tables above has been audited by PwC. Executive Vice Chairman In accordance with the EIP rules and based on the performance detailed in the table above, the following awards have been made detailed in the table above, the following awards with the EIP rules and based on the performance In accordance in respect of the 2016 performance year: in respect Weighting 50% 10% 10% 10% 10% 5% 5% Performance condition Measurement Target Core Profit Before Tax compared to audited Core Profit Before Tax for the year ended Tax for the year Before Profit to audited Core Tax compared Before Profit Core Target 31 December 2016 Implement the Injectables strategy in Algeria through the creation of a partnership in order to be able of a partnership in order the creation in Algeria through Implement the Injectables strategy in the region products and sell Injectable to develop, manufacture for that it is ready to ensure strategy and operational support in order Develop the emerging markets launching in 2017 Grow the MENA revenue in an environment where governmental healthcare expenditure is declining expenditure governmental where healthcare in an environment the MENA revenue Grow target Achieve MENA revenue adverse. exchange movements are and foreign the implementation of the cost region through in the MENA Enhance the operational efficiency Achieve the MENA EBITDA target strategy. reduction cost and credit to reduce risk with distributors in order high level of receivables Reduce the relatively risk. Achieve the MENA Cash to Cash target Compliance functional capabilities and complete the integration of the US Develop the Group by the end of the year programme compliance into the Group Profit Before Tax Before Profit Algerian Injectables Emerging markets strategy MENA revenue growth MENA revenue MENA operational efficiency MENA receivables Compliance Description 2016 Performance outcome: Executive Vice Chairman outcome: 2016 Performance Financial Strategic Operational Personal Total Section Remuneration report continued

The Company continued to operate the EIP in 2016. The outstanding share awards under the EIP and LTIP in respect of each of the Executive Directors are: Participant Share scheme Quantum Scheme Type of Date of Date of Basis of Exercise Director description1 interest award vesting award Shares (max) price Face value2 LTIP Conditional 15-May-14 15-May-17 200% 63,000 Nil $1,223,260 award salary EIP Element B Conditional 15-May-15 15-May-17 150% 41,000 Nil $955,002 award salary EIP Element C Conditional 15-May-15 15-May-18 100% 27,000 Nil $628,904 Said Darwazah award salary EIP Element B Conditional 17-Mar-16 17-Mar-18 147% 68,346 Nil $1,591,965 award salary EIP Element C Conditional 17-Mar-16 17-Mar-19 97% 45,100 Nil $1,050,502 award salary Total 244,446 $2,807,165 (2015: 233,000) LTIP Conditional 15-May-14 15-May-17 200% 46,000 Nil $893,174 award salary EIP Element B Conditional 15-May-15 15-May-17 150% 30,000 Nil $698,782 award salary EIP Element C Conditional 15-May-15 15-May-18 100% 20,000 Nil $465,855 Mazen Darwazah award salary EIP Element B Conditional 17-Mar-16 17-Mar-18 147% 38,501 Nil $896,793 award salary EIP Element C Conditional 17-Mar-16 17-Mar-19 97% 25,406 Nil $591,775 award salary Total 159,907 $2,057,810 (2015: 149,000)

1. The performance criteria for the LTIP are TSR, revenue growth, EPS growth, and ROIC, as detailed in previous awards on page 125. The performance criteria for Elements B and C of the EIP are met before grant. However, Element B is subject to forfeiture criteria for the first two years after grant, which are detailed part of the next year’s EIP performance criteria on pages 126 to 129. 2. The face value is calculated using the vesting percentages described earlier in this section and the closing share price of £18.93p and foreign exchange rates of $1.23016 to £1 on 31 December 2016. The actual value received by Executive Directors under the share incentive arrangements is dependent upon the share price of Hikma at the time of exercise, the satisfaction of performance criteria (LTIP) and the non-occurrence of forfeiture events (EIP Element B). The information in the table above has been audited by PwC. The applicable share prices for Hikma during the period under review were: Market price Date (Closing price) 1 January 2016 2,233p 31 December 2016 1,893p 2016 Range (low to high) 1,624p to 2,676p 14 March 2017 2,130p

130 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 0 0 131 Total Total

3,875 2,500 3,317 0.34% the year interests 10,000 18,566 12,000 Total share share Total 5,971,353 7,897,922 8,057,829 5,971,353 shareholding 14,142,052 14,386,498 Granted during

– – – – – – – – – period EIP not people) 4.03% 72,100 45,406 Personal subject to connected Shares (inc Shares 1,162,811 1,346,625 1,139,043 Granted in a performance rolling ten-year rolling – – – – – – – – – 68,501 109,346 shares Darhold performance EIP subject to 4,808,542 6,551,297 Conditional shares – – – – – – – – – 13,003,009 Effective Hikma Effective 63,000 46,000 performance Darhold 8.01% LTIP subject to LTIP 10.92% 21.67% Interest in Interest 0 0 3,875 2,500 3,317 owned 10,000 18,566 12,000 Total shares shares Total 7,897,922 5,971,353 14,142,052 – – – – – – – – – Yes Yes fulfilled? Requirement Requirement

– – – – – – – – – Number 89,676 of shares 159,191

– – – – – – – – – Ownership requirements 300% 300% of salary Percentage Percentage 1 3 2 Mazen Darwazah holds his shares in Darhold Limited through a family trust. in Darhold Limited through Mazen Darwazah holds his shares a vehicle called DYKB Limited. in Hikma and Darhold Limited through Ali Al-Husry holds his shares in Hikma. Dr Jochen Gann is senior executive in Boehringer Ingelheim who hold 40m (16.7%) shares Mazen Darwazah holds his shares in Darhold Limited through a family trust. in Darhold Limited through Mazen Darwazah holds his shares called DYKB Limited. a vehicle in Hikma and Darhold Limited through Ali Al-Husry holds his shares Ali Al-Husry** Mazen Darwazah* Dilution Director Director Annual Report 2016 1. 2. 3. have been met is the price on 31 December 2016 of £18.93p and foreign requirements price used to calculate whether the shareholding The share PwC. exchange rates of $1.23016 to £1 on the same date. The information in the table above has been audited by Said Darwazah The following table sets out details of the Directors’ shareholdings and, where there are shareholding requirements, whether these have whether requirements, shareholding are there and, where shareholdings The following table sets out details of the Directors’ been met: and shares held personally, by HMS Holdings SAL or by connected people. The cancellation and issuance of shares in Darhold and in shares people. The cancellation and issuance of by HMS Holdings SAL or by connected held personally, and shares Hikma shares’. ‘Effective of variation in the (by Darhold) can lead to a degree in Hikma and disposal of shares the purchase * ** PwC. The information in the table above has been audited by Mazen Darwazah Said Darwazah Said Darwazah, Mazen Darwazah and Ali Al-Husry are Directors and shareholders of Darhold Limited. Darhold holds 60,000,000 of Darhold Limited. and shareholders Directors Darwazah and Ali Al-Husry are Said Darwazah, Mazen Darhold owned through effectively in Hikma by shares their shareholdings down in Hikma. The table below breaks shares ordinary Discretionary Share Plans (5% Limit) Share Discretionary Director share interests Type of plan Type In accordance with the guidelines set out by the Investment Association, Hikma can issue a maximum of 10% of its issued share capital issued share of 10% of its Hikma can issue a maximum the Investment Association, guidelines set out by with the In accordance plans. The share of this 10% for discretionary plans and a maximum of 5% under all its share ten-year period to employees in a rolling plans since 2006: Company share from level of dilution resulting the current following table summarises Robert Pickering Pat Butler Michael Ashton John Castellani Ali Al-Husry Dr Ronald Goode Nina Henderson Dr Pamela Kirby Dr Jochen Gann Remuneration report continued

The following table sets out the changes in interests of Directors during the year under review and up to the date of this report. Directors not listed in the table did not change their share interests during the period. Director Date Event No. Shares Mazen Darwazah 17 May 2016 Exercise of LTIP. Retained all shares. 45,924 Said Darwazah 17 May 2016 Exercise of LTIP. Retained all shares. 88,383 Robert Pickering 21 March 2016 Purchase of shares. 2,500 Pat Butler 24 March 2016 Purchase of shares. 2,500 Dr Ronald Goode 25 August 2016 Purchase of shares. 2,000 John Castellani 11 April 2016 Purchase of shares. 2,500

Scheme interests The following table sets out details of the ‘scheme interests’ of the Directors. Element C of the EIP has been excluded from the table because it does not qualify as a ‘scheme interest’ (defined in the Regulations) due to the performance period being a single year. The LTIP and Element B of the EIP have been included because they have performance periods of three years and one year plus a two-year forfeiture condition, respectively: Vested but Exercised Gain on Type of interest Performance measures unexercised during the year exercise Director Shares Share options Yes No Said Darwazah – 244,446 172,346 72,100 – 88,383 $2,870,939 Mazen Darwazah – 159,907 114,501 45,406 – 45,924 $1,491,746 Robert Pickering – – – – – – – Michael Ashton – – – – – – – Ali Al-Husry – – – – – – – Dr Ronald Goode – – – – – – – Pat Butler – – – – – – – Dr Pamela Kirby – – – – – – – Dr Jochen Gann – – – – – – – John Castellani – – – – – – – Nina Henderson – – – – – – –

Remuneration table The following table sets out the total remuneration, including amounts vesting under short-term and long-term incentive plans, for each financial period in respect of the Directors holding the positions of Chief Executive and Executive Vice Chairman. Important note: The total figures for the financial years 2016 and 2015 are higher due to the change from a LTIP award subject to future performance to an EIP based on prior year performance. In accordance with the Regulations, the 2015 and 2016 totals include LTIPs vesting during the relevant period (which were granted three years before) and Element C of the EIP which was granted in respect of the relevant period. The Regulations require Element C to be treated as a cash bonus, although it is an award of shares that will vest three years after grant. The final LTIP awards vest in 2017, after which point the totals in the above table will include Element C only. Said Darwazah – Chairman & Chief Executive Mazen Darwazah – Executive Vice Chairman Bonus as Share awards as Bonus as Share awards as Year Total % max % max Total % max % max 2016 $6,308,238 71% 68% $3,418,766 69% 65% 2015 $7,316,042 98% 98% $4,465,386 98% 98% 2014 $5,056,255 100% 70% $3,572,764 100% 70% 2013 $3,956,836 100% 62% $2,646,280 100% 47% 2012 $3,296,000 80% 50% $2,114,000 80% 50% 2011 $2,629,000 80% 67% $1,748,000 80% 67% 2010 $1,965,000 100% 49% $1,296,000 100% 49% 2009 $1,183,000 37% 67% $797,000 37% 67%

The information in the table above has been audited by PwC.

132 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 133 Dec 16 change 30.6% 23.4% 16.0% -27.7% -10.4% -22.8% Percentage Percentage 2015 to 2016 % change from % change from 2015 46.9 7,189 $6,524 Dec 15 2015 Hikma Pharmaceuticals Plc FTSE 100 FTSE 350 Pharmaceuticals & Biotechnology Bonus $64m $362m $2,928,000 42 2016 8,339 $5,037 Dec 14 2016 $2,116,299 $79m $465m 3.9% change 20.5% 16.0% 608.3% Percentage Percentage Dec 13 78 2015 7,189 Benefits $12,000 $10,850 94 2016 Dec 12 8,339 $85,000 $11,272 3.0% change 50.3% 16.0% 29.5% Percentage Percentage Dec 11 185 2015 7,189 $25,734 Salary $1,200,000 Dec 10 278 2016 8,339 $33,337 $1,236,000 Dec 09 Dec 08 0 £ Total shareholder return Total Annual Report 2016 Distributions to shareholders Distribution expense Employee remuneration The following table sets out the total amount spent in 2016 and 2015 on remuneration of the Group’s employees and major of the Group’s The following table sets out the total amount spent in 2016 and 2015 on remuneration distributions to shareholders. Relative importance of spend on pay CEO CEO and average employee change and bonus between 2015 and benefits (CEO) salary, Chief Executive Officer’s change in the The table below shows how the percentage of those components of pay for employees. change in the average of each with the percentage 2016 compares The graph below shows the growth in value of £100 invested in Hikma ordinary shares compared to the FTSE 100 and FTSE 350 to the FTSE 100 and shares compared ordinary of £100 invested in Hikma in value shows the growth The graph below has chosen these comparators because the 2008 to 31 December 2016. The Company 31 December pharmaceutical sector from available. data is readily relevant exchange changes and by foreign largely unaffected the comparators are Company is a constituent, Employees ($m) 500 Number of employees Average per employee Average The Group’s pay review which took effect from 1 January 2016 awarded average percentage increases in wages and salaries of 3.0% increases average percentage 1 January 2016 awarded from took effect which pay review The Group’s similar to broadly to employees in the year ended 31 December 2016 were and level of benefits for existing employees. The nature of transportation costsre-assessment relates to a level of benefits for the Chairman and CEO The increased year. those in the previous of the year ended in respect (excluding the Executive Directors) The total amount of bonuses paid to employees and depreciation. 31 December 2016 was 22.8% lower than in 2015. 400 300 200 100 800 700 600 Remuneration report continued

Non-Executive Directors The table below details the fees paid to Non-Executive Directors during the year under review and the prior year. Several Directors (marked *) joined, retired or changed roles during the periods and their fees have been pro-rated for time served in the relevant position: Individual 2016 2015 Fee Taxable Fee Taxable (all travels Other (all travel Other Non-Executive elements) benefits1 expenses Total elements) benefits expenses2 Total Director Board position £,000 £,000 £,000 £,000 £,000 £,000 £,000 £,000 Robert Pickering Senior Independent Director 101.0 – – 101.0 98.5 – – 98.5 Patrick Butler Audit Committee Chair 109.0 – – 109.0 99.2 – – 99.2 Michael Ashton Independent Director 96.7 11.5 – 108.2 98.5 6.4 – 104.9 Dr Ronald Goode CRE Committee Chair 101.0 10.7 – 111.7 98.5 6.7 – 105.2 Dr Pamela Kirby Remuneration Committee Chair 97.3 – – 97.3 90.5 – – 90.5 Breffni Byrne* Independent Director 34.9 – – 34.9 97.8 2.8 – 100.6 Ali Al-Husry Non-Executive Director 85.0 – – 85.0 82.5 – – 82.5 Dr Jochen Gann* Non-Executive Director 70.8 – – 70.8 – – – – John Castellani* CRE Committee Chair Designate 77.5 0.9 – 78.4 – – – – Nina Henderson*3 Independent Director – – – – – – – – Samih Darwazah Chairman (retired) – – – – – – 714.1 714.1

1. ‘Taxable travel benefits’ refers to certain accommodation expenses for Non-Executive Directors that are wholly related to their attendance at Board meetings and are in accordance with normal Hikma expense policy. These expenses are treated as a taxable benefit by the UK authorities and the above figure includes the corresponding tax contribution. 2. ‘Other expenses’ refers to costs associated with Mr Samih Darwazah, the founder and Life President of Hikma, who passed away in 2015. The Company paid certain medical, transport and accommodation expenses related to his treatment whilst ill and following his death held commemorative events. The expenses were paid in recognition of the high level of regard in which he was held and in acknowledgement of his unique contribution to the Company. 3. Nina Henderson was due to receive fees of £23,300 for services during 2016. These fees were paid in 2017 and, in accordance with regulations, will be included in the 2017 table. The information in the table above has been audited by PwC.

Payments to past Directors and for loss of office There were no payments for loss of office during the financial year. There was one payment in 2015 to a past Director which related to Mr Samih Darwazah and is disclosed in the ‘Non-Executive Directors’ table above. The information in this paragraph has been audited by PwC.

134 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 135

1 month 1 month 1 month 1 month 1 month 1 month 1 month 1 month 1 month Notice payment 1 April 2014 1 March 2016 1 March 1 October 2016 14 October 2005 14 October 2005 29 February 2016 1 December 2014 Date of appointment 1 September 2011 12 December 2006 The Company requires all Directors be subject to annual election by shareholders. all Directors The Company requires Nina Henderson John Castellani Dr Jochen Gann Dr Pamela Kirby Pat Butler Dr Ronald Goode Ali Al-Husry Michael Ashton Annual Report 2016 14 March 2017 14 March Chair of the Remuneration Committee Dr Pamela Kirby Closing statement the Committee hopes that this has aided your this year and reporting to remuneration have continued to develop our approach We practices. Please do not hesitate to contact me if you have any questionsunderstanding of our Remuneration Policy and or observations. For and on behalf of the Remuneration Committee The Committee recognises that Executive Directors may be invited to take up non-executive directorships or public sector and to take up non-executive directorships may be invited that Executive Directors The Committee recognises which Hikma from experience, network and knowledge of the Director, the appointments, and that these can broaden not-for-profit are allowed may accept external and appointments as long as they do not lead to a conflict of interest can benefit. Executive Directors fees of $28,000 (2015: $10,000) and and Mazen Darwazah received Said Darwazah any fees. During the year under review, to retain on page 71. The profiles detailed in their Director to external appointments which are relating $10,000 (2015: $10,000) respectively these appointments is described in the governance statement on page 80. for controlling process External appointments Non-Executive Director Robert Pickering Letters of appointment Letters of made for a period are not service contracts. Appointments with Hikma, have letters of appointment Directors The Non-Executive of 36 months. Directors’ report

REPORT OF THE DIRECTORS TO SHAREHOLDERS AND STAKEHOLDERS

Financial The Directors submit their report together with the audited financial statements for the year Principal activity ended 31 December 2016. This report forms The principal activities of the Group are the development, the management report for the purposes of manufacture and marketing of a broad range of generic, the Disclosure and Transparency Rules. Readers branded and in-licensed pharmaceutical products in solid, are asked to cross refer to the other sections of semi-solid, liquid and injectable final dosage forms. The the Annual Report to the extent necessary to Group’s pharmaceutical operations are conducted through meet Hikma’s reporting obligations as follows three business segments: Branded, Injectables and (statements that are not applicable have Generics. The majority of the Group’s operations are been excluded): in the MENA region, the US and Europe. The Group • Long-term incentive schemes: Directors’ does not have overseas branches within the meaning remuneration report, pages 125 and 130 of the Companies Act 2006 (the “Act”). • Related party transactions: Note 40 of The Group’s net sales, gross profit and operating profit are the financial statements, page 193 shown by business segment in Note 4 to the consolidated • Going concern statement: Risk and control, financial statements on pages 163 to 165. page 61 • Names and biographical details of the Directors: Results corporate governance report, pages 71 to 73 The Group’s profit for the year in 2016 was $158 million • Independence of Non-Executive Directors: (2015: $254 million). corporate governance report, page 77 • Directors’ share interests: Directors’ Dividend remuneration report, page 131 to 132 The Board is recommending a final dividend of 22 cents • Greenhouse gas emissions: Sustainability report, per share (approximately 18 pence) (2015: 21 cents). page 48 The proposed dividend will be paid on 25 May 2017 to shareholders on the register on 7 April 2017, subject • Financial instruments and risk: Notes 30 and to approval at the Annual General Meeting (“AGM”) on 31 of the financial statements page 182 to 187 19 May 2017. An interim dividend of 11 cents per share was paid on 30 September 2016 (2015: 11 cents). The total dividend for the year 2016 is 33.0 cents per share (2015: 32.0 cents).

Creditor payment policy Hikma’s policy, which is also applied by the Group and will continue in respect of the 2017 financial year, is to settle terms of payment with all suppliers when agreeing the terms of each transaction and to ensure that suppliers are made aware of and abide by the terms of payment. Trade creditors of Hikma at 31 December 2016 were equivalent to 65 days’ purchases (2015: 81 days), based on the average daily amount invoiced by suppliers during the year.

136 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 137

So far as the Director is aware, there is no relevant audit is no relevant there is aware, So far as the Director unaware auditors are information of which Hikma’s has taken all the steps that he or she The Director to make himself ought to have taken as a Director audit information of any relevant or herself aware aware auditors are and to establish that Hikma’s of that information in the course of the performance of their duties. during the year and as at the date of this report. These during the year and as at the date of this report. to losses uncapped in amount in relation indemnities are parties may incur to third and liabilities which Directors • in This confirmation is given and should be interpreted of section 418 of the with the provisions accordance Companies Act 2006. Indemnities qualifying third-party benefit from The Directors in force indemnities made by Hikma which were Employment continued to operate the Company During this year, Accordingly, Mr Said Darwazah, Mr Mazen Darwazah, Mr Accordingly, Dr Ronald Goode, Ali Al-Husry, Mr Robert Pickering, Mr Jochen Gann, Dr Dr Pamela Kirby, Mr Patrick Butler, Ms Nina Henderson will seekMr John Castellani and Mr Michael Ashton the AGM. election or re-election at at the close of the AGM. the Board from will retire Auditors of Hikma at the date Director Each person who was a that: confirms was approved when this report • whichits existing employee engagement mechanisms communications, social networking, include intra-group an open door policy for legitimate union representatives incentive arrangements. The and the operation of share Company does not discriminate against a potential of disability and will make employee on grounds adjustments to employ and develop reasonable such persons. Directors should policy that all Directors It is the Board’s wish to continue and, should the Director retire re-election on an annual basis. seek in office,

Nil

Amount 2016 ($) 665,851 donated in

2,277,508 1,611,657 Nil Amount 2015 ($) 127,399 donated in 1,750,027 1,622,628

Group policy prohibits the payment of political donations the payment of political policy prohibits Group within the meaning of the Act. and expenditure Total Political donations and expenditure Medical (donations in kind) Annual Report 2016 of the Group are party to agreements that could alter party to agreements are of the Group of the Group or be terminated upon a change of control none of these agreements However, following a takeover. of itsis individually deemed to be significant in terms taken as potential impact on the business of the Group of any agreements not aware are a whole. The Directors or employees that between Hikma and its Directors or employment for compensation for loss of office provide that occurs because of a takeover bid, other than as with one follows. The Company has an agreement level, which allows for senior executive, below Board with an estimated value compensation for loss of office exchange values and foreign of $6.6m, based on share on 31 December 2016. no persons, with whom Hikma has contractual are There deemed to be essential or other arrangements, who are to the business of Hikma. Significant contracts business, members of the Group’s Due to the nature Interest capitalised during the year under review The interest activities can be found on page 10. to related was $0.3m (2015: $0.3m). The tax relief was $0.1m (2015: $0.1m). the capitalised interest The Group’s investment in research and development in research investment The Group’s revenue 7.7% of Group (R&D) during 2016 represented extensively invested Group the (2015: 2.8%). Additionally, and West-Ward of certain products in the purchase R&D Columbus. Further details on the Group’s Research and development the Group operates the Group Type of donation Type Local charities serving communities in which Donations of made charitable donations the Group During the year $1.8 million): $2.3 million (2015: approximately Directors’ report continued

Equity Share issuance At the AGM on 12 May 2016, the Directors were Capital structure authorised to issue relevant securities up to an aggregate Details of the issued share capital, together with nominal amount of £7,979,517 and to be empowered to movements in the issued share capital during the year, allot equity securities for cash on a non pre-emptive basis can be found in Note 33 to the financial statements. up to an aggregate nominal amount of £2,393,855 at Hikma has one class of ordinary shares of 10 pence each any time up to the earlier of the date of the 2017 AGM (“Shares”) which carries no right to fixed income. Each or 30 June 2017. The Directors propose to renew these share carries the right to one vote at general meetings authorities at the 2017 AGM for a further year. In the of Hikma. As at 31 December 2016: year ahead, other than in respect of Hikma’s obligations Issued during to satisfy rights granted to employees under its various Type Nominal value In issue the year share-based incentive arrangements, the Directors have Ordinary 10 pence 239,954,532 40,569,414 no present intention of issuing any additional share capital of Hikma. On 29 February 2016, the Company issued 40,000,000 Details of the employee share schemes are set out in Note ordinary shares to Boehringer Ingelheim pursuant to the 38 to the financial statements. Shares are also held by the acquisition of Roxane Laboratories that was approved Hikma Pharmaceuticals Employee Benefit Trust (“EBT”) by shareholders on 19 February 2016. Otherwise, during and are detailed in Note 35 to the financial statements. The 2016, Hikma issued ordinary shares solely pursuant to the EBT has waived its right to vote on the Shares it holds and exercise of options under the 2004 Stock Option Plan, also to its entitlement to a dividend. No other shareholder 2005 Long Term Incentive Plan, 2009 Management has waived the right to a dividend. Incentive Plan and 2014 Executive Incentive Plan. There are no specific restrictions on the size of a holding Annual General Meeting or on the transfer of Shares, which are both governed by The AGM of Hikma will be held at Sofitel St James, the general provisions of Hikma’s Articles of Association 6 Waterloo Place, London SW1Y 4AN on Friday, (the “Articles”) and prevailing legislation. Other than the 19 May 2017, starting at 10.00 a.m. The Notice shareholder agreement between Boehringer Ingelheim convening the meeting is given in a separate document (“BI”) and Hikma (the “Agreement”), the Directors are accompanying this document, and includes a commentary not aware of any agreements between holders of Hikma’s on the business of the AGM, and notes to help Shares that may have resulted in restrictions on the transfer shareholders exercise their rights at the meeting. of securities or on voting rights. The Agreement restricts BI’s voting rights to 28,500,000 Shares and the onward The Company provides for the vote on each resolution transfer of Shares until 1 January 2018, as disclosed in the to be by poll rather than by show of hands. This provides combined Prospectus and Circular posted to shareholders for greater transparency and allows the votes of all on 21 January 2016. No person has any special rights with shareholders to be counted, including those cast by proxy. regard to the control of Hikma’s share capital and all The level of proxies lodged for each resolution is projected issued Shares are fully paid. Hikma has not placed any onto a screen as each resolution is put to the meeting. A Shares into treasury during the period under review. ‘vote withheld’ explanation is included on the proxy cards. The powers of the Directors are determined by the Share buy-back Articles, the UK Code and other relevant UK legislation. At the AGM on 12 May 2016, shareholders gave the The Articles give the Directors the power to appoint Directors authority to purchase Shares from the market and remove Directors. The power to issue and allot Shares up to an amount equal to 10% of Hikma’s issued share contained in the Articles is subject to shareholder approval capital at that time. This authority expires at the earlier of at each AGM. The Articles, which are available on the 30 June 2017 or the 2017 AGM, which is scheduled for website, may only be amended by special resolution 19 May 2017. The Directors have not used this authority of the shareholders. during the year, but are proposing to renew this authority at the 2017 AGM. Additionally, at the Extraordinary General Meeting held on 19 February 2016, shareholders gave the Directors authority to re-purchase Shares from Boehringer Ingelheim that were issued in respect of the Roxane acquisition. This authority expires on 22 January 2021.

138 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 139

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 balanced and understandable and fair, as a whole, are to the information necessary for shareholders provide performance, business model assess the Company’s and strategy Make an assessment of the Company’s ability to ability of the Company’s Make an assessment a going concerncontinue as with in accordance The financial statements, prepared a trueInternational give Financial Reporting Standards, positionand fair view of the assets, liabilities, financial or loss of the Company and the undertakings and profit included in the consolidation taken as a whole of the includes a fair review The Strategic report anddevelopment and performance of the business • of the Board By order • for keeping adequate responsible are The Directors to show and sufficient that are accounting records • explain the Company’s transactions and disclose with transactions explain the Company’s financial position accuracy at any time the reasonable that the them to ensure of the Company and enable with the Companies Actfinancial statements comply shareholder for protecting also responsible 2006. They are assets of the Company the investments and safeguarding steps for the prevention and hence for taking reasonable other irregularities. and detection of fraud and and for the maintenance responsible are The Directors and financial informationintegrity of the corporate Legislation in website. included on the Company’s andthe United Kingdom governing the preparation from dissemination of financial statements may differ legislation in other jurisdictions. confirm to the best of our knowledge: We • Said Darwazah Chairman and Chief Executive 2017 14 March Mazen Darwazah Executive Vice Chairman 2017 14 March

held

4.1%

16.7% 10.1% 25.0%

Percentage Percentage shares Number of 9,791,950 40,000,000 24,161,331 60,000,000 2 1

Dr Jochen Gann is a Director of Hikma and a senior executive Dr Jochen Gann is a Director each being a Director and shareholder of Hikma, are of Hikma, are and shareholder each being a Director of Darhold Limited. and non-executive directors shareholders See page 131 for details of their holdings in Darhold Limited. of Boehringer Ingelheim GmbH. Messrs Said Darwazah, Mazen Darwazah and Ali Al-Husry, Messrs Said Darwazah, Mazen Darwazah and Ali Al-Husry, a manner that provides relevant, reliable, comparable reliable, relevant, a manner that provides and understandable information when compliance with additional disclosures Provide to insufficient in IFRSs are requirements the specific enable users to understand the impact of particular transactions, other events and conditions on the financial position and financial performance entity’s Properly select and apply accounting policies Properly information, including accounting policies, in Present Capital Group Capital Group International Fidelity International Boehringer Ingelheim GmbH Annual Report 2016 • Directors’ responsibility statement the Annual Report for preparing responsible are Directors with applicable and the financial statements in accordance the Directors Company law requires laws and regulations. financial statements for each financial year. to prepare the to prepare required are Under that law the Directors with International financial statements in accordance Group (IFRSs) as adopted by the Financial Reporting Standards Union and Article 4 of the IAS Regulation and European Company financial the Parent have also chosen to prepare statements under IFRSs as adopted by the EU. Under the accounts must not approve company law the Directors satisfied that they give a true and fair view unless they are or of the Company and of the profit of the state of affairs these loss of the Company for that period. In preparing financial statements, International1 Accounting Standard that Directors: requires • • 2. and in the period since During the year under review, on 1 November Initial Public Offering the date of Hikma’s pursuant shares 2005, Hikma did not issue any ordinary at an AGM to issue to an authority given by shareholders basis, on a non pre-emptive for cash shares ordinary of the placing undertaken other than in respect on 17 January 2008. Pre-emptive issue of shares 1. Name of shareholder Darhold Limited Substantial shareholdings Substantial had been notified of this document, Hikma As at the date to 89L of the Financial Servicespursuant to sections 89A and Rule 5 of the Disclosure and Markets Act 2000 and of the UKLA of the following interests Rules Transparency capital of Hikma: to the share in the voting rights attaching Financial statements Independent auditors’ report to the members of Hikma Pharmaceuticals PLC

Report on the financial statements What we have audited Our opinion The Group and Company financial statements, included within the Annual Report, comprise: In our opinion: • the consolidated and Company balance sheets as • Hikma Pharmaceuticals plc’s Group financial statements and at 31 December 2016; Company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the • the consolidated income statement and consolidated statement Company’s affairs as at 31 December 2016 and of the Group’s of comprehensive income for the year then ended; profit and the Group’s and the Company’s cash flows for the • the consolidated and Company cash flow statement for the year then ended; year then ended; • the Group financial statements have been properly prepared in • the consolidated and Company statement of changes in equity accordance with International Financial Reporting Standards for the year then ended; and (“IFRSs”) as adopted by the European Union; • the notes to the Group and Company financial statements, • the Company financial statements have been properly prepared which include a summary of significant accounting policies in accordance with IFRSs as adopted by the European Union and other explanatory information. and as applied in accordance with the provisions of the Certain required disclosures have been presented elsewhere Companies Act 2006; and in the Annual Report, rather than in the notes to the financial • the financial statements have been prepared in accordance statements. These are cross-referenced from the financial with the requirements of the Companies Act 2006 and, as statements and are identified as audited. regards the Group financial statements, Article 4 of the The financial reporting framework that has been applied in IAS Regulation. the preparation of the Group financial statements is IFRSs as adopted by the European Union, IFRSs as issued by the IASB, and Separate opinion in relation to IFRSs as issued by the IASB applicable law. The financial reporting framework that has been As explained in note 2 to the Group financial statements, the applied in the preparation of the Company financial statements Group, in addition to applying IFRSs as adopted by the European is IFRSs as adopted by the European Union and as applied in Union, has also applied IFRSs as issued by the International accordance with the provisions of the Companies Act 2006, Accounting Standards Board (“IASB”). and applicable law. In our opinion, the Group financial statements comply with IFRSs as issued by the IASB. Our audit approach Overview • Overall Group materiality: $13,275,000 which represents 5% of profit before tax after adding back certain non-recurring items such as the gain on sale of prednisone, Roxane acquisition costs and purchase accounting adjustment items MATERIALITY • Our audit included full scope audits of 7 components as well as procedures performed centrally over specific material balances at other locations around the world. Taken together these account for 83% of

AUDIT SCOPE consolidated revenue, 79% of the adjusted profit measure we use as the basis for determining materiality and 78% of consolidated profit before tax • Acquisition accounting for the Roxane transaction AREAS OF • Revenue recognition FOCUS • Impairment of goodwill and intangible assets • Taxation The scope of our audit and our areas of focus We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as “areas of focus” in the table below. We also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit. 140 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements

141

and manufacturing contract held in the opening balance sheet. As well a sample as validating the accuracy of the valuation models, we agreed of inputs back to supporting documentation; and of and testing over the cut-off physical verification of assets acquired and costs. streams selected revenue audited the acquired opening balances and substantively agreed a number agreed opening balances and substantively audited the acquired their valuation; of items back to supporting documentation to verify acquisition date; attendance at inventory counts shortly after the unfavourable supplychallenged management over the valuation of the How our audit addressed the area of focus addressed the area How our audit Hikma management engaged a third-party expert to provide valuation expert to provide a third-party Hikma management engaged assets of the fair value of Roxane’s to the determination support with respect our valuations experts to assist our engaged 3. We and liabilities under IFRS specifically examining the methodology, price allocation, audit of the purchase and useful economic life and other key assumptionsunderlying cash flows of the valuation models prepared and mathematical accuracy by management. of intangible assets, specifically identification challenged management’s We Development elements, by and Research the Marketed and In Process and the status of the rationale for the purchase understanding and verifying minutes and due including Board sources different from purchased products reasonableness the For those assets identified, we assessed diligence reports. that underpin the valuation of the intangible of the cash flow projections reasons understanding the assets, by comparing to historical cash flows and of projections. profile for the growth and cash flow challenged the key assumptions, including discount rate We estimate of the future used in determining management’s projections, growth valuations and satisfiedcash flows associated with the intangible assets reasonable. ourselves that they were accuracy of to the contingent consideration, we assessed the In relation sales volumes. future forecasted management’s • price allocations of our work, we determined that the purchase As a result reasonable. financial statements were for the acquisition outlined in the Group which engaged our tax specialists to examine the internal restructuring We to determine whether the subsequent to the acquisition, in order occurred that and to ensure accounted for appropriately, were tax effects resultant assumptions. based on reasonable any estimates made by management were of each aspect of the in respect we examined the disclosures Finally, a fair reflection providing transaction and found them to be reasonable, of the accounting and valuations judgements. We agreed the sales forecasts to the Board-approved plans, and consulted to the Board-approved the sales forecasts agreed We treatment accounting with our accounting technical experts on the correct of these liabilities. valued its contingent satisfied that management has appropriately are We in treatment accounting the correct and has reflected liability at year-end, the underlying books and records. assets, we performed theWith to the valuation of other acquired respect following substantive procedures: • • •

of the Roxane business, including the intangible assetof the Roxane business, including the intangible valuation, the supply and manufacturing agreement, contingent consideration on the acquisition and co-development agreements. of of areas Refer to the audit committee review significant accounting judgements page 88 and acquisition of businesses note 43. On 29 February 2016, the Group completed its Group On 29 February 2016, the business from the Roxane transaction to acquire price a purchase Boehringer Ingelheim, for million. consideration of $1,725 prepare the Company to The acquisition required the fair value of assetsvaluation models to determine acquisition and as part of the and liabilities acquired of goodwill of $407 million in the recognition resulted assets. A number ofand $723 million of intangible also undertaken were internal steps restructuring following the acquisition, which gave rise to complex taxation consequences. significant The business combination required injudgements and accounting estimates to be made assets and liabilities to fair value the acquired order Area of focus forAcquisition accounting the Roxane transaction Annual Report 2016 Financial statements Independent auditors’ report to the members of Hikma Pharmaceuticals PLC continued

Area of focus How our audit addressed the area of focus Revenue recognition A description of the key accounting policies for revenue We considered the Group’s processes for making judgements in this recognition, chargebacks and returns is included in Note 2. area and performed the following procedures: Management are required to make certain judgements in We assessed applicable controls in place around this process, tested respect of revenue recognition and the level of chargebacks, the nature of the pricing arrangements and the accuracy of calculations returns and other revenue deductions that will be realised and agreed the rates in customer agreements with those used in against the Group’s revenue. These estimates are material management’s calculations of the required provisions. to the financial statements and are highly judgemental, We compared the assumptions to contracted product prices and hence the reason for inclusion as an area of focus. rebate terms, historical rebates, discounts, allowances and returns The largest of these judgements relate to revenue levels (where relevant) and to current payment trends. We also recognition, chargebacks and returns, for which the validated assumptions used in the accrual calculation by comparison Group held provisions as at 31 December 2016. For these to historical levels of product returns and external information. estimates, management are required to make significant For the product where revenue is deferred, we obtained management’s judgements based on historical rates and trends in order calculations with respect to pricing assumptions, and validated the to determine these provisions. underlying calculations by comparing to historical data, as well as It is not always possible for management to make examining the terms of applicable contracts. We also vouched the a reliable estimate of the revenue that it will earn, as deferred amount to historical revenue trends, price volatility and post significant pricing volatility continues to exist. In one year end settlements to validate the accuracy of management’s deferral case, revenue recognition is deferred until the point at estimates and the appropriate application of the accounting treatment. which such clarity is available, known as the “sell-through” Of the $13 million deferred revenue at 31 December 2016, method. As at 31 December 2016, the amount of deferred we challenged management on this judgement and utilised our revenue is $13 million. The estimation of the accrual made knowledge of the market to determine if management’s assertion by management is complex and particularly significant in that it was not possible to reliably measure the price was appropriate. the US where pricing pressure and discounting are increasingly prevalent. Based on our work performed on the above estimates, we noted no material misstatements in the appropriateness of revenue recorded As disclosed in the Annual Report, a whistleblower alert was for the year. received alleging issues in relation to revenue recognition in Algeria. Management’s investigation did not identify any Following the whistleblower alert in Algeria referred to in the audit issues with the application of the revenue recognition policy. committee report we extended the amount of substantive testing procedures to address the risk in revenue recognition at each of the Refer to the audit committee review of areas of significant in scope components, and found no material misstatements. accounting judgements page 88, significant accounting policies note 2 and other current liabilities note 27.

142 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements

143

corroborated the information to Board approved budgets approved the information to Board corroborated and forecasts; accurateperformed look back testing to understand how previously; management had been in its forecasting and other market information over analysts’ reports considered and pricing; and market shares expected future if the weighted average cost of capital and considered recalculated rate of range; management’s the amount was within a reasonable to be at the higher end of the range for 12.5% was considered the US generics business. How our audit addressed the area of focus addressed the area How our audit UK, US, internationalIn conjunction with our pricing tax and transfer judgements and challenged management’s specialists, we evaluated of the Roxane acquisition, estimates of the taxation impacts in respect and tax provisions of uncertain involved in the measurement tax assets. We of deferred measurement judgements taken in the of International 12 –assessed the application Accounting Standard tax assets, of the deferred in determining the tax base Income Taxes taxable income. against forecast of assets and assessed recoverability we challenged the judgements this has involved judgements, Where evaluated these in the context of themade by management and with examining correspondence evidence available including tax authorities. relating judgement In understanding and evaluating management’s considered for uncertain tax positions, we to the level of provisioning of previous the status of ongoing tax authority audits, the outcome environment. tax authority audits, and developments in the tax is a mean that there The assumptions and the judgements involved the evidence available, range of potential outcomes, but from broad is and disclosure that the level of provisioning we considered financial statements. acceptable in the context of the Group’s impairment analyses and tested the integrity obtained the Group’s We CGUs assessed the determination of the of the calculations. We the CGU’s identified for the impairment calculation by considering our understanding of the business used as well as from previously of the also tested the reasonableness We and how it is monitored. possible where key assumptions by challenging management and party sources. information to third agreeing cash flows we future around given the key sensitivity In particular, performed the following procedures: • • • • sensitivity analyses which showed also obtained management’s We possible changes to key assumptions and the impact of reasonably we performed an independent calculation to quantify the change an in key assumptions which would be necessary to require impairment charge. that no determined the judgement made by the Directors We made in the financial and the disclosures impairment was required statements to be reasonable.

The Group has goodwill of $682 million and intangible The Group assets of $1,719 million. All cash generating units (“CGUs”) containing goodwill Impairment of goodwill and intangible assets Impairment of goodwill and intangible testedand indefinite –lived intangible assets must be for impairment annually. amount, being the higher The determination of recoverable requires of value-in-use and fair value less costs of disposal, andjudgement on the part of management in identifying amount for the relevant then estimating the recoverable based on management’s CGUs. Recoverable amounts are and external cash flow forecasts market view of future pricing and the most appropriate conditions such as future discount rate. Management performed an annual impairment assessment the which included the assumptions and estimates around margins, growth launches, profit product success of future rates and discount rates. Changes in these assumptions might give rise to a change in the carrying value of intangibles and goodwill. of significant of areas Refer to the audit committee review accounting judgements page 88 and intangible assets note 14. tax assets in the US which has the largest balance, and thetax assets in the US which judgements involved in assessing the level of uncertain tax provisions. of significant of areas Refer to the audit committee review deferred accounting judgements page 88, tax note 11 and tax note 17. The Group operates across a large number of jurisdictions a large number operates across The Group complex cross- in resulting due to its geographic spread, subject to periodic it is tax arrangements. As a result, border on a range of tax matterschallenges by local tax authorities of business including transactionduring the normal course arrangements. In tax matters and transfer pricing related and the year, Roxane during acquired addition, the Group complex tax consequences. this acquisition has several the to the acquisition, focused on matters relating We of deferred and recoverability measurement recognition, Area of focus Taxation Annual Report 2016 Financial statements Independent auditors’ report to the members of Hikma Pharmaceuticals PLC continued

How we tailored the audit scope statement line items and disclosures and in evaluating the effect We tailored the scope of our audit to ensure that we performed of misstatements, both individually and on the financial enough work to be able to give an opinion on the financial statements as a whole. statements as a whole, taking into account the geographic Based on our professional judgement, we determined materiality structure of the Group, the accounting processes and controls, for the financial statements as a whole as follows: and the industry in which the Group operates. Overall Group $13,275,000 Given 2016 was our first year as external auditors we performed materiality specific procedures over opening balances including reviews of How we 5% of profit before tax from continuing the working papers of the predecessor auditor both at a Group determined it operations after adding back certain and component level and other relevant procedures where these non-recurring items such as the gain on were not available, with the exception of one component where sale of prednisone, Roxane acquisition costs the local auditor has not changed. Our half year review was also and purchase accounting adjustment items. used, together with procedures performed prior to year-end on evaluating component procedures and controls and visits by Rationale for The Group’s principal measure of earnings senior team members to component locations, to refine the benchmark is Core profit. Management believes that it audit approach which we had begun to develop as part of applied reflects the underlying performance of the our transition following appointment. Group and is a more meaningful measure of the Group’s performance. We took this As at 31 December 2016 Hikma Pharmaceutical plc had in measure into account in determining our total 64 entities (subsidiaries and associates) as part of the materiality but did not add back certain Group. These entities may operate solely in one segment non-core items unless we deemed them but more commonly operate across two. Each territory to be truly non-recurring in nature. Our (“Component”) submits a Group Reporting package to Hikma’s materiality would have been higher if central accounting team including its income and financial we had adjusted for all non-core items. position prepared under Group Accounting policies which are Component We instructed each Component team to in compliance with IFRSs. We requested Component teams materiality perform work to a materiality level which in the US (West-Ward Eatontown and West-Ward Columbus), was below that of the Group. This ranged Jordan (Hikma Pharmaceuticals), Saudi Arabia (Hikma Al Jazeera between $1 million for the Algerian Pharmaceuticals Industries), Algeria (Hikma Pharma Algeria) and Component and $10 million for each Portugal (Hikma Farmaceutica) to audit reporting packages of of the US Components. certain entities in these territories and report the results of their full scope work to us. This work was supplemented by procedures We agreed with the Audit Committee that we would report to over specific balances performed centrally including the them misstatements identified during our audit above $500,000 consolidation, acquisitions, taxation and certain Component as well as misstatements below that amount that, in our view, balances not covered by local Component teams. warranted reporting for qualitative reasons. The involvement of the Group audit team in the work of the component auditors included conference calls, meetings with Going concern local management, review of working papers, attendance at Under the Listing Rules we are required to review the directors’ audit clearance meetings, and other forms of communication statement, set out on page 61, in relation to going concern. as considered necessary depending on the significance of the We have nothing to report having performed our review. component and the extent of accounting and audit issues arising. Under ISAs (UK & Ireland) we are required to report to you Given this was our first year as Hikma’s auditors, senior members if we have anything material to add or to draw attention to of the Group audit team also visited the US, Algeria, Saudi Arabia, in relation to the directors’ statement about whether they Jordan and Portugal. Due to its financial significance and the considered it appropriate to adopt the going concern basis in acquisition of Roxane during 2016, the extent of visits and preparing the financial statements. We have nothing material dialogue with the US Component teams was more extensive. to add or to draw attention to. Taken together our audit work accounted for 83% of As noted in the directors’ statement, the directors have consolidated revenue, 79% of the adjusted profit measure concluded that it is appropriate to adopt the going concern basis we use as a basis for determining materiality and 78% of in preparing the financial statements. The going concern basis consolidated profit before tax. presumes that the Group and Company have adequate resources to remain in operation, and that the directors intend them to do Materiality so, for at least one year from the date the financial statements The scope of our audit was influenced by our application of were signed. As part of our audit we have concluded that the materiality. We set certain quantitative thresholds for materiality. directors’ use of the going concern basis is appropriate. However, These, together with qualitative considerations, helped us to because not all future events or conditions can be predicted, determine the scope of our audit and the nature, timing and these statements are not a guarantee as to the Group’s and extent of our audit procedures on the individual financial Company’s ability to continue as a going concern.

144 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 145 We have no exceptions We to report. have no exceptions We to report. have no exceptions We to report.

materially inconsistent with the information in the audited financial statements; or materially inconsistent with the information in the with, our knowledge of based on, or materially inconsistent materially incorrect apparently audit; or in the course of performing our and Company acquired the Group otherwise misleading. Corporate Governance that they consider the Annual Report taken as a whole to Code (the “Code”), the information necessary for members to assess the and provides balanced and understandable be fair, position and performance, business model and strategy is materially inconsistent and Company’s Group’s course of performing our audit. in the and Company acquired with our knowledge of the Group matters communicated by us to address the work of the Audit Committee does not appropriately the Audit Committee. the statement given by the directors on page 88, in accordance with provision C.1.1 of the UK provision with on page 88, in accordance the statement given by the directors C.3.8 of the Code, describing by provision required the section of the Annual Report on page 88, as information in the Annual Report is: • • • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are year for which the financial statements Report for the financial the Strategic Report and the Directors’ the information given in statements; and is consistent with the financial prepared with applicable legal requirements. in accordance Report have been prepared the Directors’ the Strategic Report and • • Under ISAs (UK & Ireland) we are required to report to you if, in our opinion: to report required we are Under ISAs (UK & Ireland) • Annual Report 2016 ISAs (UK & Ireland) reporting Companies Act 2006 reporting the work undertaken in the course of the audit: In our opinion, based on • • obtained in the course of and their environment the Company knowledge and understanding of the Group, In addition, in light of the Report. and the Directors’ material misstatements in the Strategic Report if we have identified any to report required the audit, we are in this respect. have nothing to report We Other required reporting Other required applicable requirements and compliance with of other information Consistency Financial statements Independent auditors’ report to the members of Hikma Pharmaceuticals PLC continued

The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to: • the directors’ confirmation on page 54 of the Annual Report, in accordance with provision C.2.1 of the We have nothing Code, that they have carried out a robust assessment of the principal risks facing the Group, including material to add or those that would threaten its business model, future performance, solvency or liquidity. to draw attention to. • the disclosures in the Annual Report that describe those risks and explain how they are being managed We have nothing or mitigated. material to add or to draw attention to. • the directors’ explanation on page 60 of the Annual Report, in accordance with provision C.2.2 of We have nothing the Code, as to how they have assessed the prospects of the Group, over what period they have done material to add or so and why they consider that period to be appropriate, and their statement as to whether they have to draw attention to. a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

Under the Listing Rules we are required to review the directors’ statement that they have carried out a robust assessment of the principal risks facing the Group and the directors’ statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review.

Adequacy of accounting records and information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility.

146 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements

147

whether the accounting policies are appropriate to the Group’s to the Group’s appropriate policies are whether the accounting been consistently and have circumstances and the Company’s disclosed; applied and adequately accounting estimates made of significant the reasonableness and by the directors; statements. of the financial the overall presentation Chartered Accountants and Statutory Auditors Chartered London 2017 14 March Charles van den Arend (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP What an audit of financial statements involves of financial statements What an audit about the amounts and obtaining evidence An audit involves reasonable to give sufficient in the financial statements disclosures material from free statements are assurance that the financial This includes caused by fraud or error. misstatement, whether an assessment of: • • • by assessing the areas primarily focus our work in these We our judgements against available evidence, forming directors’ in the own judgements, and evaluating the disclosures financial statements. test and examine information, using sampling and other We necessary toauditing techniques, to the extent we consider obtain basis for us to draw conclusions. We a reasonable provide of controls, testing the effectiveness audit evidence through or a combination of both. substantive procedures all the financial and non-financial information In addition, we read within the Annual Report to identify material inconsistencies any informationthe audited financial statements and to identify based on, or materially materially incorrect that is apparently by us in the course inconsistent with, the knowledge acquired of any apparent of performing the audit. If we become aware thematerial misstatements or inconsistencies we consider With Report to the Strategic implications for our report. respect include Report, we consider whether those reports and Directors’ by applicable legal requirements. required the disclosures

Annual Report 2016 and the audit Responsibilities fully in the Directors’ As explained more responsible are Statement set out on page 139, the directors of the financial statements and for being for the preparation satisfied that they give a true and fair view. an opinion on the is to audit and express Our responsibility with applicable law and financial statements in accordance us to comply with require Those standards ISAs (UK & Ireland). for Auditors. Ethical Standards the Auditing Practices Board’s for and including the opinions, has been prepared This report, with members as a body in accordance only for the Company’s and for no otherChapter 3 of Part 16 of the Companies Act 2006 do not, in giving these opinions, accept or assume purpose. We to for any other purpose or to any other person responsibility is shown or into whose hands it may come whom this report our prior consent in writing. by agreed expressly save where Responsibilities for the financial statements Our responsibilities and those of the directors Other Companies Act 2006 reporting Other Companies Act 2006 you to report to required 2006 we are Under the Companies Act remuneration of directors’ disclosures if, in our opinion, certain report no exceptions to We have not made. specified by law are this responsibility. arising from statement Corporate governance the part to review required we are Under the Listing Rules to be audited has been properly prepared in accordance with the with in accordance prepared properly to be audited has been Companies Act 2006. to ten furtherof the Corporate Governance relating Statement having have nothing to report of the Code. We provisions performed our review. Directors’ remuneration Act 2006 opinion report – Companies Directors’ remuneration Remuneration Report of the Directors’ In our opinion, the part Financial statements Consolidated income statement For the year ended 31 December 2016

2016 2015 Exceptional Exceptional items and items and 2016 other 2016 2015 other 2015 Core adjustments Reported Core adjustments Reported results (note 5) results results (note 5) results Note $m $m $m $m $m $m Continuing operations Revenue 4 1,950 – 1,950 1,440 – 1,440 Cost of sales 4 (932) (32) (964) (622) – (622) Gross profit 4 1,018 (32) 986 818 – 818 Sales and marketing expenses (184) (37) (221) (156) (16) (172) General and administrative expenses (208) (36) (244) (180) (20) (200) Research and development expenses (126) (24) (150) (36) – (36) Other operating expenses (net) 8 (81) 12 (69) (37) 8 (29) Total operating expenses (599) (85) (684) (409) (28) (437) Operating profit 4 419 (117) 302 409 (28) 381 Loss/impairment of associates 16 – – – (2) (7) (9) Finance income 9 3 9 12 3 – 3 Finance expense 10 (63) (41) (104) (55) (2) (57) Profit before tax 359 (149) 210 355 (37) 318 Tax 11 (80) 28 (52) (67) 3 (64) Profit for the year 6 279 (121) 158 288 (34) 254 Attributable to: Non-controlling interests 34 3 – 3 2 – 2 Equity holders of the parent 276 (121) 155 286 (34) 252 279 (121) 158 288 (34) 254 Earnings per share (cents) Basic 13 118.5 66.5 143.7 126.6 Diluted 13 117.9 66.2 142.3 125.4

148 Hikma Pharmaceuticals PLC 140 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

– (2) $m (67) 141 149 254 187 189 187 2015

– 1 1 $m 69 69 69 69 (90) (90) 158 158 2016

34 34 23 23 Note to of the tax: income statement, net at fair value value fair at on of foreign operations foreign operations of on investment designated designated investment

Total comprehensive income for the year year the for income Total comprehensive Exchange difference on translati Exchange difference Equity holders of the parent of the parent Equity holders Annual Report 2016

Attributable to: interests Non-controlling Profit for the year the year for Profit income Other comprehensive Consolidated statement of comprehensive income income comprehensive of statement Consolidated 2016 December 31 ended year the For

Itemsmayreclassified that be subsequently Effect of change in Annual Report 2016 2 2 3 3 $m 2015 2015 results results Reported

126.6 125.4 – – (622) – 818 – (36) – 1,440 8 (29) – 3 3 (64) (2) (2) (57) (7) (7) (9) $m 2015 2015 other Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals (note 5) items and Exceptional adjustments (2) 2 3 $m (37) (36) (67) (55) 409 (28) 381 Core (409) (28) (437) 288 (34) 254 286 (34) 252 288 (34) 254 355 (37) 318 818 2015 (180) (20) (200) (156) (16) (172) (622) results 143.7 143.7 142.3 142.3 1,440 1,440 – 3 12 $m (52) (69) 158 155 158 210 986 302 2016 (244) (150) (221) (104) (964) (684) 66.5 66.2 results results 1,950 1,950 Reported

– – – 9 $m (24) 28 (32) 12 (36) (37) (41) (32) (85) 2016 (121) (121) (121) (149) (117) other other (note 5) items and items and Exceptional adjustments

– 3 3 $m (80) (80) (81) (81) (63) 279 279 276 276 279 279 359 359 419 419 Core Core (208) (126) (184) (932) (599) 2016 118.5 118.5 117.9 117.9 1,018 1,018 1,950 1,950 results

6 4 4 4 4 9 11 34 13 13 10 Note trative expenses expenses trative

Earnings per share (cents) (cents) share Earnings per Diluted Basic Basic Attributable to: of the parent Equity holders

Tax General and adminis Research and development expenses the year for Profit interests Non-controlling Gross profit Gross profit Sales and marketing expenses Loss/impairment associatesof tax before Profit 16 140 Other operating expenses (net) (net) Other operating expenses 8 income Finance Finance expense Financial statements statements Financial statement income Consolidated 2016 December 31 ended year the For Continuing operations Cost of sales sales of Cost Total operating expenses expenses operating Total Operating profit Revenue Financial statements Consolidated balance sheet At 31 December 2016

2016 2015 Note $m $m Non-current assets Intangible assets 14 1,719 607 Property, plant and equipment 15 969 507 Investment in associates and joint ventures 16 7 7 Deferred tax assets 17 172 70 Financial and other non-current assets 18 48 46 2,915 1,237 Current assets Inventories 19 459 251 Income tax asset 2 3 Trade and other receivables 20 759 488 Collateralised and restricted cash 21 7 40 Cash and cash equivalents 22 155 553 Other current assets 23 66 25 1,448 1,360 Total assets 4,363 2,597 Current liabilities Bank overdrafts and loans 24 117 115 Trade and other payables 25 343 276 Income tax provision 112 75 Other provisions 26 27 28 Other current liabilities 27 319 98 918 592 Net current assets 530 768 Non-current liabilities Long-term financial debts 28 721 590 Obligations under finance leases 29 21 22 Deferred tax liabilities 17 15 21 Other non-current liabilities 32 277 20 1,034 653 Total liabilities 1,952 1,245 Net assets 2,411 1,352 Equity Share capital 33 40 35 Share premium 282 282 Own shares 35 (1) (1) Other reserves 2,075 1,021 Equity attributable to equity holders of the parent 2,396 1,337 Non-controlling interests 34 15 15 Total equity 2,411 1,352

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 Mazen Darwazah Director Director 14 March 2017

150 Hikma Pharmaceuticals PLC 142 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

$m Total Total 143 151 equity 2,411 2,411 $m (3) (3) (90) (1) (78) 15 15 Non- interests interests controlling controlling

$m toequity 2,396 2,396 attributable attributable Total equity Total equity shareholders shareholders of the parent parent the of $m (1) Own Own shares $m Share Share 282 premium

– – – (87) – – – (77) $m 40 Share Share capital $m Total Total reserves 2,075 2,075 $m earnings Retained Retained 1,246 1,246 $m (248) (248) reserves reserves Translation Translation

– – 155 155 – – – 155 3 158 – – 252 252 – – – 252 2 254 – (63) – (63) – – – (63) (4) (67) – (87) – (87) –– –––––– 1 1 1 – – – (87) 1 156 1 1 69 –– –––––––– – – –– – 22 ––– – – 22 1 1 69 (77) 1 – (77) – – – – 69 1 – – 22 – – 1 22 – 1 – (63) 252 – 189 – – –– – –– – – 15 – – – (1) 15 (64) 189 – (1) – (64) (2) 1 – 187 – – – – – – 1 – 15 – – (1) – (64) 1 15 – (2) (66) (1) $m 38 38 (98) 942 882 35 281 (1) 1,197 19 1,216 38 (161) 1,144 1,021 35 282 (1) 1,337 15 1,352 reserves 1,077 1,077 1,039 1,039 – – 1,039 5 – – 1,044 – 1,044 Revaluation Merger and and Merger

Annual Report 2016

Balance at Balance at 2016 31 December Effect of change in Effect of change in at fair designated investment value (note 23) Loss Currency translation Total comprehensive year the income for with transactions Total owners, recognised equity in directly Issue of equityshares for of a subsidiary acquisition (note 33,43) equity-settled Cost of employee sharescheme (note 38) Deferred tax arisingshare- on based payments shares ordinary on Dividends (note 12) subsidiaries of Acquisition (note 43) Profit for the year Profit for the year Total transactions with transactions Total owners, recognised equity in directly Issue of equityshares (note 33) Balance at 1 January 2015 2015 January 1 Balance at Profit for the year Currency translation loss loss Currency translation equity-settled Cost of employee sharescheme (note 38) Deferred tax arisingshare- on based payments shares ordinary on Dividends (note 12) December 31 Balance at 2016 January 2015 and 1 Consolidated statement of changes in equity equity in changes of statement Consolidated 2016 December 31 ended year the For Total comprehensive year the income for Annual Report 2016

3 3 7 7 (1) (1) 15 15 $m 35 35 22 22 21 21 20 20 25 25 28 98 40 40 75 70 70 46 46 282 282 590 590 115 115 553 553 251 251 488 488 276 276 607 607 507 507 2015 2015 igned 1,021 1,021

7 7 2 2 7 7 (1) 15 15 $m 40 40 21 21 15 15 66 66 27 48 48 282 282 721 721 918 918 530 592 768 277 277 117 117 319 319 155 155 459 459 112 112 759 759 343 343 969 969 172 2016 2,075 2,075 2,396 2,396 2,411 1,337 1,352 Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals 1,034 1,034 1,952 2,411 653 1,245 1,352 1,448 1,448 4,363 1,360 2,597 1,719 1,719 2,915 2,915 1,237 28 34 16 21 24 35 22 33 17 18 20 23 26 27 29 19 25 32 14 15 17 Note pproved by the Board of Directors and s and Directors of Board the by pproved

uticals PLC, registered number 5557934, were a were 5557934, number registered PLC, uticals Director Director Mazen Darwazah

nance leases leases nance

Other reserves Equity attributable to equity holders of the parent parent holders of the equity to Equity attributable interests Non-controlling Total equity Hikma Pharmace statements of The financial on its behalf by: by: behalf on its Own shares Share capital Share premium Long-term financial debts debts Long-term financial fi under Obligations liabilities Total Net assets Equity assets Net current liabilities Non-current liabilities tax Deferred liabilities non-current Other Cash and cash equivalents equivalents Cash and cash Other current assets assets Total liabilities Current loans and overdrafts Bank Trade and other payables provisions Other Other current liabilities Financial and other non-current assets non-current assets other and Financial Inventories tax asset Income Trade and other receivables Collateralisedrestricted and cash Income tax provision tax provision Income Intangible assets assets Intangible equipment and plant Property, ventures joint and associates in Investment Deferred tax assets assets Current Said Darwazah Said 142 Financial statements statements Financial sheet balance Consolidated At 31December 2016 Non-current assets

Director Director 14 March 2017 Financial statements Consolidated cash flow statement For the year ended 31 December 2016

2016 2015 Note $m $m Net cash from operating activities 36 293 366

Investing activities Purchases of property, plant and equipment (122) (82) Proceeds from disposal of property, plant and equipment 1 31 Purchase of intangible assets (68) (55) Proceeds from disposal of intangible assets 24 – Investment in financial and other non-current assets (11) – Investment in available for sale investments (6) (1) Investments designated at fair value – (20) Acquisition of business undertakings net of cash acquired (515) – Finance income 2 3 Acquisition related amounts held in escrow account – (38) Net cash used in investing activities (695) (162) Financing activities (Decrease)/increase in collateralised and restricted cash (4) 6 Proceeds from issue of long-term financial debts 471 529 Repayment of long-term financial debts (326) (91) Proceeds from short-term borrowings 345 325 Repayment of short-term borrowings (337) (595) Dividends paid (77) (64) Dividends paid to non-controlling shareholders of subsidiaries (1) (2) Interest paid (54) (49) Proceeds from issue of new shares – 1 Proceeds from co-development and earnout payment agreement, net 2 17 Net cash generated by financing activities 19 77 Net (decrease)/increase in cash and cash equivalents (383) 281 Cash and cash equivalents at beginning of year 553 280 Foreign exchange translation movements (15) (8) Cash and cash equivalents at end of year 155 553

152 Hikma Pharmaceuticals PLC 144 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

145 153 e power to direct the relevant power to direct the e s the ability to exercise joint exercise joint the ability to s mpany) and entities controlledmpany) and entities nancial statements were also nancial statements were issued IASBby the and alsoin rating policies, are accounted for are accounted rating policies, valuation to market of certain ents incorporate the results of ncial Reporting Standards (IFRS) Standards (IFRS) Reporting ncial entities, they are accounted for they entities, le to companies using IFRS. IFRS. using companies to le to continue in operational operational in to continue een prepared under the historical prepared under the historical een dollar the as majority of the rting Standards issuedas the by turns to the Group, generally through through generally the Group, turns to ternational Financial Reporting Reporting Financial ternational continue to adopt the going concern basis concern the going continue to adopt The assetsliabilities, and and the results and of flows,cash the subsidiaries, its and Company net assets of associates and of the results share The Group’s ventures and joint

existence considered and the therefore goingbasis concern as they appropriate. Thus, page 61). statements (see nancial the fi preparing in of accounting by the the Group). Company (together The consolidated financial statements include: • • The statementsfinancial consolidatedof entities are made up to 31 December each year. th has Group the which over Entities re the affect to as so activities ope and control over the financial the Group ha Where as subsidiaries. net assetsto control the over, and entities rights of, entities, the are to ability the has Group the Where ventures. joint as for accounted over influence exercise significant as associates. The results and assets and liabilitiesof associates joint venturesand are incorporatedinto the consolidated financial statements using of accounting. method the equity Going concern concern Going The Directors the financial have, at the timeof approving statements, a reasonable expectation that the Company and the resources adequate have Group consolidation of Basis The consolidated financial statem Hikma Pharmaceuticals (the PLCCo Basis of preparation preparation of Basis Hikma Pharmaceuticals PLC’s consolidated financialstatements are prepared in accordance with: (i) Fina International EU endorsed and interpretations of the In the parts of and those Committee Standards Interpretations Companies Act 2006 as applicab Repo Financial International (ii) (IASB). Standards Board Accounting International statements have b The financial for cost convention,the re except liabilities. and assets financial fi published previously The Group’s prepared in accordance with IFRSs Union. in the European use adopted for IFRSs accordance with Hikma of currency functional and presentational The Pharmaceuticals PLC isUS the US dollars. in conducted is business Company’s retations have financial statements of deferred tax assets tax assets of deferred Benefit Plans:Benefit Employees ies Act. The address of the t yet been adopted by t the EU): retations have not been applied have not been retations and IFRS 16 will impact leased impact 16 will IFRS and ndards and Interp ndards and d; the Directors do not find it find not do Directors d; the atory deferral accounts atory deferral accounts ccounting for future transactions ials statements of the Group in statements of the Group ials Financial Instruments Instruments Financial Customers Customers Interests in Joint Operations of Assets Sale or Contribution between an Investor and it Associate venture Joint or Investment Entities: Applying the Exemption Consolidation for unrealisedlosses Clarification of Acceptable Methods of Acceptable Clarification Amortisation and of Depreciation Statements Leases Contributions Contributions Revenue from Contracts with Revenue from Contracts es and related disclosures. disclosures. and related es Annual Report 2016 practical provide to a reasonable estimate of the effects of the financ the on IFRS listed above future periods. page 212. given on is registered office Until a detailed review is complete policies accounting 2. Significant General Information Hikma Pharmaceuticals isPLC a company incorporated in the the Compan under United Kingdom assets and financial liabiliti assets and financial IAS 12 (Amendments) (Amendments) 12 IAS Recognition of and disclosure both the measurement impact IFRS 9 will on revenue an impact may have 15 IFRS instruments, financial related disclosure, and recognition IFRS 10, IFRS 12 and IAS and IFRS 12 IFRS 10, 28 (Amendments) IFRS 16 IFRS 15 IFRS 15 The following StandardsInterp and IAS 1 (Amendments) (Amendments) 1 IAS Annual improvements 2010-2012 Initiative Disclosure Annual improvements 2012-2014 been adopted in the current year. Their adoption has not had any not has current year. Their adoption the been adopted in these financial in reported on the amounts impact significant statements impact the but a may and arrangements. (Amendments) IFRS 11 of for Acquisitions Accounting IAS 28 and IFRS 10 (Amendments) in these financial statements because whileinissue, are not yet cases had no effective (and in some 9 IFRS IAS 16 and IAS 38 IAS 38 and IAS 16 (Amendments) (Amendments) IAS 27 Separate Financial in Equity Method Amendments IFRS 14 IFRS Amendments (Amendments) IAS 19 Regul Defined 1. Adoption of new and revised standards new and The revised following Sta Notes to the consolidated the to Notes

Annual Report 2016

– – – 6 1 1 3 3 (8) (8) (2) (2) (1) (1) $m 77 77 17 17 31 31 (91) (91) (49) (49) (64) (64) (38) (38) (20) (20) (55) (55) (82) (82) 553 553 325 325 280 281 281 529 529 366 366 2015 2015 (595) (595) (162) (162)

– – – 2 2 2 2 1 1 (4) (1) (6) $m 19 19 24 24 293 (15) (15) (54) (54) (77) (77) (11) (11) (68) (68) 155 155 345 345 553 471 471 2016 (383) (383) (337) (337) (326) (326) (695) (695) (515) (515) (122) (122) Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals 36 Note earnout payment agreement, net shareholders of subsidiaries subsidiaries of shareholders akings net of cash acquired net of cash acquired akings held in escrow account in escrow account held nd other non-current assets assets non-current nd other nslation movements nslation movements

Repayment of short-term borrowings tra Foreign exchange of year end at Cash and cash equivalents Proceeds from short-term borrowings cash equivalents and in cash Net (decrease)/increase of year at beginning Cash and cash equivalents Repayment of long-term financial debts debts Repayment financial of long-term Proceeds from issue of long-term financial debts financial debts of long-term issue Proceeds from Interest paid Proceeds issuefrom of new shares Dividends paid paid Dividends non-controlling to paid Dividends and Proceeds from co-development Net cash generated by financing activities activities by financing generated Net cash Finance income income Finance amounts related Acquisition activities investing used in Net cash activities Financing (Decrease)/increase incollateralised and restricted cash Investments designated at fair value undert business of Acquisition Investment in available for sale investments investments sale for available in Investment Proceeds from disposal of property, plant and equipment plant and equipment of property, Proceeds from disposal assets Purchase of intangible of intangible assets Proceeds from disposal financial a in Investment 144 activities Investing and equipment plant Purchases of property, Financial statements statements Financial statement flow cash Consolidated 2016 December 31 ended year the For from operating activities Net cash

Financial statements Notes to the consolidated financial statements continued

2. Significant accounting policies continued If the initial accounting for a business combination is incomplete by Interests acquired in entities are consolidated from the date the the end of the reporting period in which the combination occurs, Group acquires control and interests sold are de-consolidated from the Group reports provisional amounts for the items for which the the date control ceases. accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or Transactions and balances between subsidiaries are eliminated and liabilities are recognised, to reflect new information obtained about no profit before tax is taken on sales between subsidiaries until the facts and circumstances that existed as of the acquisition date products are sold to customers outside the Group. that, if known, would have affected the amounts recognised as Transactions with non-controlling interests are recorded directly of that date. in equity. The measurement period is the period from the date of acquisition Deferred tax relief on unrealised intra-Group profit is accounted for to the date the Group obtains complete information about facts only to the extent that it is considered recoverable. and circumstances that existed as of the acquisition date, and is subject to a maximum of one year. Goodwill is capitalised as a separate item in the case of subsidiaries and as part of the cost of investment in the case of joint ventures Investment in associates and associates. An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint Business combinations venture. Significant influence is the power to participate in the The acquisition of subsidiaries is accounted for using the acquisition financial and operating policy decisions of the investee revenue method. The consideration is measured at the aggregate of the fair but is not control or joint control over those policies. values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in The results and assets and liabilities of associates are incorporated exchange for control of the acquiree. Acquisition related costs are in these financial statements using the equity method of recognised in the consolidated income statement as incurred. accounting, except when the investment is classified as held for Where applicable, the consideration for the acquisition includes sale, in which case it is accounted for in accordance with IFRS 5 any asset or liability resulting from a contingent consideration Non-Current Assets Held for Sale and Discontinued Operations. arrangement, measured at its acquisition-date fair value. Under the equity method, investments in associates are carried Subsequent changes in those fair values can only affect the in the consolidated balance sheet at cost as adjusted for post- measurement of goodwill where they occur during the acquisition changes in the Group’s share of the net assets of the ‘measurement period’ and are as a result of additional information associate, less any impairment in the value of individual becoming available about facts and circumstances that existed at investments. Losses of an associate in excess of the Group’s the acquisition date. All other changes are dealt with in accordance interest in that associate (which includes any long-term interests with relevant IFRSs. This will usually mean that changes in the that, in substance, form part of the Group’s net investment in the fair value of consideration are recognised in the consolidated associate) are recognised only to the extent that the Group has income statement. incurred legal or constructive obligations or made payments on behalf of the associate. Where a business combination is achieved in stages, the Group’s previously-held interests in the acquired entity are remeasured to Any excess of the cost of acquisition over the Group’s share of fair value at the acquisition date (i.e. the date the Group attains the net fair value of the identifiable assets, liabilities and contingent control) and the resulting gain or loss, if any, is recognised in the liabilities of the associate recognised at the date of acquisition is consolidated income statement. recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment The acquiree’s identifiable assets, liabilities and contingent liabilities as part of that investment. Any excess of the Group’s share of the that meet the conditions for recognition under IFRS 3 are net fair value of the identifiable assets, liabilities and contingent recognised at their fair value at the acquisition date. liabilities over the cost of acquisition, after reassessment, is Goodwill arising on acquisition is recognised as an asset and recognised immediately in the consolidated income statement. initially measured at cost, being the excess of the aggregate of Where a Group entity transacts with an associate of the Group, consideration, non-controlling interest and fair value of previously profits and losses are eliminated to the extent of the Group’s held equity interest over the fair values of the identifiable net assets interest in the relevant associate. acquired. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the consideration, the excess is recognised immediately in the consolidated income statement. The non-controlling interest in the acquiree is initially measured at the non-controlling interest’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

154 Hikma Pharmaceuticals PLC 146 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

147 155 rtain customers. rtain customers. the agreed-upon price the agreed-upon price and group purchasing purchasing group and ’s best estimate. While such While estimate. ’s best r returns based on historical historical returns based on r well historicalas experience, cator of future rebate liabilities.cator and mail-order pharmacies.and The ts.The indirect customers then ctly to independent pharmacies, pharmacies, to independent ctly anted to healthcare authorities vels by the Group’s wholesale wholesale by the Group’s vels actual product returns may differreturns product actual dicator of future dicator returns. The of revenue. In the US, the Group the US, the of revenue. In the most significant and complex complex and significant most the n for rebates based on n current for te. Provisions for returns are te. Provisions for and credit terms. and such Whilecredit vered by various programmes programmes vered by various rred to as “indirect customers”. customers”. rred to as “indirect rebates are recognised in the the in rebates are recognised wholesale distributors, generic arrangements with ce arrangements e difference between between e difference withindirect the customer wholesaler’sand the invoice price. This creditis called a chargeback. The provision for ischargebacks le sell-through based on historical customers indirectto the customers,and estimated wholesaler inventorylevels.As sales are madelarge to wholesale customers, for chargebacks and the reserve monitors the Group continually makes adjustments when it believes actualthat chargebacks may reserves. differ estimated from

Returns that allows customers policy return The Group has a product and to prior to return period the product withinspecified a da expiration the subsequent to the in which period in the of revenue recognised as a reduction are recognised. sales underlying fo provision its The Group estimates experience, representing management experience has enabled reasonable estimationsin the history past, be an accurate in may not always makes returns and for provisions the monitors Group continually adjustments itwhen that believes reserves. established from Rebates In certain countries, rebates are gr and under contractual Chargebacks is for chargebacks The provision recognition the in estimate used directly to products its sells pharmacy chains retail distributors, indire products its sells Group also hospitals, managed care organisations, refe collectively organisations, to customers indirect into agreements with its The Group enters certain produc for pricing establish the they purchase which from a wholesaler select independently credit to Group will provide The at agreed-upon prices. products th the wholesaler for US are in co the Products sold at a discount. are sold products under which as Medicaid) (such provisio its The Group estimates as and conditions contractual terms practices changes to business experience has enabled reasonable estimationsin the history past, indi accurate an be always not may rebates and for the provisions monitors The Group continually makes adjustments believes may it when actualdiffer rebates that All from established reserves. a as recognised are sales underlying the which in period revenue. of reduction nt liabilities in the the in liabilities nt financial statements s, allowances given, s, allowances e to actual rates. Monetary e to actual rates. US dollars are translated into into translated are dollars US riods. Assets and liabilities are liabilities and Assets riods. or made available to external or made available to records. In records. Consolidatedthe ceivable after the deduction ceivable after the deduction il a reliable measurement can be il ating profit in the individual individual the in profit ating esarising on consolidation Non-monetary items arising arising items Non-monetary levant functional currencies of of currencies levant functional are in not the retranslated expense items for Group entities tes, which approximate to actual idered being a hyperinflationary hyperinflationary being a idered be measured reliably at the measured reliably be d at the d ratesat prevailing on the monitored and adjusted regularly regularly and adjusted monitored ology and assumptions used to and assumptions ology evailing at the date. reporting g in ended Sudan for g the years ans and on short-term foreign short-term foreign on ans and when translating the results of results the when translating accruals future for estimated on other currency allforeign ange rates ange prevailingrates at the m foreign currency transactions are currency m foreign ice cannot be reliablymeasured, a pharmaceutical product and product a pharmaceutical included in other curre included 2015 was not material.2015 s can generate uncertainty the as to d tax, other sales taxe d tax, other sales comprehensive income. income. comprehensive lars, assets,liabilities, incomestatement Annual Report 2016 point when the product is supplied or made available to to made available or supplied is when the product point external customers. Revenue is recognised in the consolidated incomestatement are supplied or services when goods Dynamic market change operations into US dol US into operations translate are accounts equity and balance sheet date. Sudan is cons Revenue recognition price of net selling ultimate therefore revenue cannot always customers againstorders received and when titleloss of and risk have passed. re Revenue represents the amounts adde value of discounts, Hyperinflationary economies economies, In hyperinflationary 2016. December 2015 and ended years 31 both the in economy accountin The effect of inflation and 31 December 2016 individual Group entities at average rates for the relevant monthly approximat which periods, accounting assetsliabilities and arising fro retranslated at exchange rates pr Exchange gainslo and losses on finance within included are deposits and borrowings currency expense. Exchange differences oper in recognised are transactions Foreign currency transactions, being transactions denominated in denominated transactions being transactions, Foreign currency functional entity’s Group an individual a currency other than currency, are translated into the re 2. Significant accounting policies continued continued policies accounting 2. Significant Foreign currencies records. accounting Group entity’s transactions currency foreign from accounting entity’s Group individual Financial Statements,income and than other currency a functional with accounting pe rates, for the relevant translated at the US dollar exch Notes to the consolidated the to Notes US dollars at average exchange ra reporting differenc date. Exchange are recognised in other other in recognised are revenue recognition is deferred unt revenue recognition made. Deferred revenue is rebates and returns. The method information. and historical contractual light of in selling pr If net the ultimate provisions for chargebacks and for chargebacks provisions estimate rebates and returns are consolidated balance sheet. Annual Report 2016 Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals low), or additional assets or assets additional low), or ill is included within the the within included is ill od from the date of acquisition acquisition from the date of od idiary nor an interest in a joint joint a in interest an nor idiary ovisional amounts are adjusted are amounts ovisional and is assessed for impairment impairment for assessed is and th an associate of the Group, Group, the of associate an th sions of the investee revenue revenue investee of the sions of the acquisition date, and is date, and acquisition of the for in accordance with IFRS 5 in accordance with for nsolidated income statement. income nsolidated the extent that the Group the has ligations or made payments on made payments ligations or e and Discontinued Operations. Operations. Discontinued e and and contingent liabilities assets, cted the amounts recognised as cted the amounts recognised the power the to participate in the ect new information obtained about obtained ect new information If the initial accounting for a business combination is incomplete by by incomplete is combination business a for accounting initial the If occurs, the combination in which period the end of the reporting which the items for for the provisional amounts the Group reports pr Those incomplete. is accounting be during(see periodthe measurement to are refl recognised, liabilities facts and circumstances that existedas of the acquisition date have affe would that, if known, of that date. The measurement periodis the peri facts about information to complete the date the Group obtains and circumstancesthat existed as subject to a maximum of one year. Investment in associates associates in Investment significant Group has the entity over which an is An associate subs neither a is and that influence is influence venture. Significant deci policy operating and financial those policies. over control joint or control but is not The results and assets and liabilitiesof associates are incorporated in these financial statements using the equity method of held for as classified is when the investment except accounting, is accounted it case in which sale, for Sal Assets Held Non-Current are carried in associates investments method, Under the equity in the consolidated balance sheet at cost as adjustedpost- for the of assets net the of share Group’s the in changes acquisition individual of value the in impairment any less associate, investments. Losses of an associate in excess the Group’sof interestin that associateincludesinterestslong-term (which any the in investment net Group’s the of part form substance, in that, to associate) are recognised only ob legal or constructive incurred behalf of the associate. of share over the Group’s cost of acquisition of the Any excess the net fair valueof the identifiable assets,liabilities contingent and liabilities of the associate recognised at the date of acquisitionis The goodw recognised as goodwill. the investment of carrying amount of the share of the Group’s excess Any investment. as part of that net fair valueof the identifiable liabilities over the cost of after acquisition,reassessment, is the co in recognised immediately wi Where transacts a Group entity extent of the Group’s to the eliminated are losses and profits interestin associate. the relevant and fair value of previously previously of value fair and ed at the aggregate of the fair tion of the net fair value of the of the net fair tion subsidiaries are eliminated and nt in the case of joint ventures joint of in the case nt acquiree is initially measured at measured initially acquiree is lues of the identifiablelues of the net assets e Group’s interest in the net fair interest in Group’s e ee. Acquisition related costs are are costs related Acquisition ee. interests are recorded directly are recorded directly interests nges are nges dealt withaccordance in values can only affect the affect values can only nsolidated income statement. income nsolidated nd circumstances that existed at that circumstances nd quisition-date fair value. value. fair quisition-date (i.e. the date the Group attains date the (i.e. Group the is recognised as an asset and as an asset is recognised e consolidated fromdate the the ere they the occur during ments issued by the Group in in the Group issued by ments from a contingent consideration consideration contingent from a ealised intra-Group profit is accounted for is profit intra-Group ealised

146 Business combinations acquisition the for using is accounted subsidiaries of The acquisition measur is method. The consideration values,of assets of date liabilitiesexchange, given, at the incurred instru and equity or assumed, the acquir of exchange for control statement as incurred. income recognised in the consolidated Where applicable,the consideration the for acquisitionincludes any assetliability or resulting measuredarrangement, at its ac those fair in Subsequent changes wh measurement of goodwill ‘measurement period’ and are as a of result additional information available about becoming facts a other cha date. All the acquisition with IFRSs.relevant This will usuallymean that changes in the are recognised in the consolidated consideration fair value of income statement. Group’s the in stages, is achieved combination Where a business previously-heldinterests in the acquired entity are remeasured to fair value at the acquisition date the in recognised is any, if loss, or gain resulting the and control) consolidated income statement. The acquiree’sidentifiable assets,liabilities and contingent liabilities IFRS 3 are under for recognition that meet the conditions date. fair value at recognised at the their acquisition Goodwill acquisition arising on being the initially excess cost,measured aggregate of of at the interest non-controlling consideration, held interest over equitythe fair va th after reassessment, If, acquired. value of the acquiree’scontingent identifiable and liabilities assets, liabilities exceeds costthe the consideration,of isthe excess the co in recognised immediately the in interest The non-controlling propor interest’s non-controlling the assets,liabilities liabilities and contingent recognised. Financial statements statements Financial continued statements financial consolidated the to Notes continued policies accounting 2. Significant Interests acquiredin entities ar from sold are de-consolidated interests and control Group acquires the date ceases. control between balances and Transactions before no tax profit isbetween subsidiariestaken on until sales the the Group. outside customers to are sold products non-controlling with Transactions in equity. on unr Deferred tax relief only to the extent itisthat considered recoverable. subsidiaries of case the in Goodwill is capitalised as a separate item investme cost of and as part of the and associates. Financial statements Notes to the consolidated financial statements continued

2. Significant accounting policies continued number of equity instruments expected to vest (except for failure to satisfy a market vesting condition) and the impact of the revision Price adjustments of the original estimates, if any, is recognised in the consolidated Price adjustments, also known as “shelf stock adjustments”, income statement, such that the cumulative expense reflects the are credits issued to reflect decreases in the selling prices of revised estimate, with a corresponding adjustment to equity the Group’s products that customers have remaining in their reserves. Where the terms of a share-based payments award are inventories at the time of the price reduction. Decreases in selling modified, as a minimum, an expense is recognised as if the terms prices are discretionary decisions made by Group management to had not been modified. In addition, an expense is recognised for reflect competitive market conditions. Amounts recorded for any increase in the value of the transaction as a result of the estimated shelf stock adjustments are based upon specified terms modification, as measured at the modification date. Where a with direct customers, estimated declines in market prices and share-based payments award is cancelled, it is treated as if it estimates of inventory held by customers. The Group regularly had vested on the date of cancellation, and any expense not yet monitors these and other factors and re-evaluates the reserve as recognised for the award is recognised immediately. However, if a additional information becomes available. new award is substituted for a cancelled award, and designated as a replacement award on the date that it is granted, the cancelled Free goods and new awards are treated as if they were a modification of the Free goods are issued to customers as sale incentives, original award, as described above. The dilutive effect of reimbursement of agreed upon expenses incurred by the customer outstanding share-based payments is reflected as additional share or as compensation for expired or returned goods. Free goods dilution in the computation of diluted earnings per share. are recognised at cost at the date at which one of the above conditions is met. The costs associated with free goods are Retirement benefit costs classified as cost of sales. Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to state- Share-based payments managed retirement benefit schemes are dealt with as payments Employees (including Directors) of the Group receive remuneration to defined contribution schemes where the Group’s obligations in the form of share-based payments, whereby employees render under the schemes are equivalent to those arising in a defined services in exchange for shares or rights over shares (‘equity- contribution retirement benefit scheme. settled transactions’). Borrowing costs IFRS 2 ‘Share-Based Payments’ requires an expense to be Borrowing costs directly attributable to the acquisition, recognised when the Group buys goods or services in exchange construction or production of qualifying assets, which are assets for shares or rights over shares (‘share-based payments’) or in that necessarily take a substantial period of time to get ready for exchange for other equivalent assets. their intended use or sale, are added to the cost of those assets, The cost of share-based payments’ transactions with employees until such time as the assets are substantially ready for their is measured by reference to the fair value at the date at which the intended use or sale. share-based payments are granted. The fair value of the equity Investment income earned on the temporary investment of specific settled stock options scheme is determined using a binomial borrowings pending their expenditure on qualifying assets is model. The fair value of the management incentive plan is deducted from the borrowing costs eligible for capitalisation. determined based on the share price as at the date of grant discounted by dividend yield. The fair value of the long-term All other borrowing costs are recognised in the consolidated incentive plan is determined using a Monte Carlo valuation model, income statement in the period in which they are incurred. for long-term incentive plan awards made from 2010, 50% of the Dividend income award is subject to a TSR performance condition which is valued by Income from investments is recognised when the shareholders’ applying the Monte Carlo simulation methodology, the remaining rights to receive payment have been established. 50% of the award is subject to financial metrics and valued by applying a Black-Scholes model. Leasing The expected life used in the models has been adjusted, based on Leases are classified as finance leases whenever the terms of the management’s best estimate, for the effects of non-transferability, lease transfer substantially all the risks and rewards of ownership to exercise restrictions, and behavioural considerations (further details the lessee. All other leases are classified as operating leases. Rentals are given in Note 38). In valuing share-based payments, no account payable under operating leases are charged to income on a is taken of any performance conditions, other than conditions straight-line basis over the term of the operating lease. Benefits linked to the market price of the shares of Hikma received and receivable as an incentive to enter into an operating Pharmaceuticals PLC. lease are also spread on a straight-line basis over the lease term. The cost of share-based payments is recognised, together with a corresponding increase in equity, on a straight-line basis over the vesting period based on the Group’s estimate of equity instruments that will eventually vest. The Group revises its estimate of the

156 Hikma Pharmaceuticals PLC 148 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

149 157 exceptional in exceptional believes to be believes ement of contingent liabilities, liabilities, ement of contingent tends to settle its current tax its current settle to tends the extent that it is no longer gree of certainty attached to the gree x that can materiallyimpact the assumptions that representassumptions that ins and losses on disposal of disposal on and losses ins economic benefits is assessed is benefits economic tax assets against current tax current assets against tax cidence effect or have a distortive cidence income taxes levied by the same by taxes levied income ised inter-company profits on inter-company profits ised nt of goodwill, net of any tax net of any goodwill, nt of tangibles excluding software and software excluding tangibles will flow to the Group; and will flow and to the Group; ight to external evidence. external evidence. ight to tion company. Where there is a timate of the set of economic conditions conditions of economic set timate of the down and impairment down and write- cost, ganisation it is identifiable; identifiable; is it that probable that the expected benefits future is economic it the asset are attributable to the cost the assetof can be measured reliably.

nature by virtue of theirnature by of sizevirtuein or on current year earnings.items Such includecosts associated with one-off ga combinations, business reor assets, businesses and impairme charges on assets impact. Deferred tax assets and liabilities are offset when there is a legally offset current enforceable to right liabilities and when they relate to in and the Group taxation authority net basis. on a liabilities assets and The carrying amount of deferred tax assetsis reviewed at each balance sheet date and reduced to probablesufficient that taxable willprofits be available to allow allor part of the asset to be recovered. on unreal Deferred tax is booked inventorythe sales,extent they areto expected to unwind, at the rate applicable to distributhe significant difference between the tax rates of the relevant deferred ta this creates companies, favourable had a 6.7% this rate. In 2016, effective tax Group’s impact on the effective tax rate. using reasonable and supportable supportable and reasonable using es management’s best that will existthe usefulover life of the asset. to assess the Judgement de is used flow are attributableof future economic the benefits use that of to the asset basison the of the evidence available at of the initialtime we greater giving recognition, Exceptional items and other adjustments adjustments other and items Exceptional items Exceptional for making adjustments by core earnings The Group presents management which profits costs and adjustments Other These include amortisation in of finance cost from resulted remeasur impact. net of any tax Intangibleassets if: recognised is asset intangible An • • • future expected of probability The financial statements is based on taxable profit for taxable profit for based on is s and reduction of the lease lease the of reduction s and ounts of assets and liabilities liabilities and of assets ounts nd records deferred tax assets nd records credited in the credited consolidated that it is probable that taxable taxable that probable is it that in subsidiariesin and associates, e or deductible in other years and other years and in e or deductible using tax rates that have been tax using rates that have rence will rence reverse in the not tant rate of interesttant on the ofit nor the accounting profit, no profit, nor the accounting ofit ary differences and deferred tax differences and deferred ary it relates to itemsit charged relates or are recognised of as the assets to be payable or recoverable on to be payable or recoverable ich case the deferred taxich case is also extent the temporary difference except where the Group is able except ognisedfor taxable temporary nst which deductible temporary deductible temporary which nst ing liability to the lessor is included in in included is to the lessor liability ing ng to property, plant and plant property, ng to Annual Report 2016 to control the reversal of the temporary isdifferenceitto control temporary and of the the reversal diffe probable that the temporary foreseeable future. Deferred tax is at the tax calculated rates that are expected to applyin periodthe when the liabilityis settled or the asset is realised. Deferred tax is charged or dealt within equity. differences arising on investments on investments differences arising ventures, joint in and interests income statement, except when credited directly to equity, in wh enacted or substantively enacted by balancethe sheet date. Deferred tax istax expected the differences between the carrying am in used tax bases and the corresponding statements in the financial using the for is accounted and taxable the profit, computation of balanceliability sheet Deferred tax method. liabilities are generally tempor taxable all for recognised assets to the are recognised extent profits will be available agai a in than (other recognition initial the from or goodwill from arises and liabilitiesother assets of in a combination) transaction business that affects neither the taxable pr deferred tax is provided. Deferred tax liabilities are rec the year. Taxable profit differs from net profit as reported in the consolidated income statement because it excludes items of income that are or taxabl expense it further excludes items that are never taxable or deductible. The calculated is tax incurred Group’s differencesTo the can reverse. and and liabilities IASaccording to 12 ‘Income Taxes’. The tax expense represents the sum period of the tax in the current and deferred tax. The current tax incurred in period the equipment are treated as deferred income and released to the consolidated income statement livesover the expected useful of the assets concerned. Tax laws and to the tax according income for The Group provides operates. where the in Group the prevailing countries regulations a Group computes the Furthermore, Government grants relatiGovernment grants Group at their fair value or, if lower, at the present value at of the the present value lower, if value or, fair Group at their minimumlease payments, each determined inceptionat the of the lease. The correspond grants Government 2. Significant accounting policies continued continued policies accounting 2. Significant leases finance under held Assets the balance sheetas a capital lease obligation. Lease payments are between finance charge apportioned Notes to the consolidated the to Notes obligationachieveso a ascons to remaining balance of the liability. liability. the of balance remaining Annual Report 2016 ease. Benefitsease. Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals it is granted, the cancelled is granted, it ed to vest (except for ed failure to vest (except for elled, itis treated as if it mporary investment of specific of specific mporary investment ed immediately. However, if a However, immediately. ed eligible for capitalisation. eligible d to the cost of those assets, to the cost d fying assets, which are assets which assets, fying to those arising in a defined a defined in arising those to retirement benefit schemes are schemes benefitretirement e charged to income on a on to income e charged on) and the impact of the revision the revision of and the impact on) risks and rewards of ownership to to ownership of rewards and risks ncelled award, and designated as ncelled cumulative expense reflects cumulativethe reflects expense gnised when the shareholders’when gnised llation, and any expense not yet and any expense llation, of the operating l operating the of cognised in the consolidated onding adjustment to equity to adjustment onding is recognised in the consolidated in the consolidated recognised is the modification date. Where a have been established. have been established. nefit schemes are dealt with paymentsas number of equity instruments expect instruments number of equity conditi vesting market a to satisfy if any, estimates, of the original income statement, such that the withrevised a corresp estimate, reserves. Where the terms of a share-based payments are award modified, a as minimum, an expense is recognisedif terms the as expense is an recognised In for addition, had not been modified. any increasein value the of the transaction as a result of the modification, as measured at share-based payments isaward canc had date vested of on cance the award is recognis recognised for the new award is substituted for a ca a replacement award on the date that and new awards are treated as if they were a modification of the original award, describedas dilutiveabove. The effect of outstandingshare-based paymentsreflectedis as additional share per share. earnings of diluted computation in the dilution Retirement benefit costs contribution Payments to defined charged as an expense as they fall due. Payments to madestate- managed retirement be obligations Group’s the where schemes contribution defined to under are the equivalent schemes contribution benefit retirement scheme. costs Borrowing directly costs Borrowingattributable the acquisition, to quali of or production construction that necessarily take get a ready substantialfor period of to time their intended or use sale, are adde untilsuch time as assetsthe are substantially ready for their sale. intended or use earned on the te income Investment is assets on qualifying their expenditure pending borrowings costs borrowing deducted from the Allborrowingare re other costs income in which in statement are they incurred. the period income Dividend reco is investments from Income rightspayment to receive Leasing Leases are classified as finance leaseswhenever the terms of the lease transfer substantially all the the lessee.All other leases are classified as operatingleases. Rentals ar leases operating under payable straight-line over basisthe term to receivedenter ininto asand receivable operating centive an an lease are also spread on a straight-line basis leaseover the term. management to ions (further details details (further ions estimate of instruments equity a straight-line basis over a basis the straight-line nses incurred by the customer by the incurred nses ods or services in exchange in exchange services ods or is recognised, together with a recognised, together is ers have remaining in their their in have remaining ers itions, than conditions other declines in market prices and declines in market prices s are based upon specified terms specified s are based upon tion methodology, the remaining remaining the methodology, tion dels has been adjusted, based on has been adjusted, dels of the Group receive remuneration Group receive of remuneration the iceDecreases reduction. inselling s made by Group s determined using a binomial binomial a using determined sociated with free goods are sociated with free goods customers. The Group regularly The Group regularly customers. yments, whereby employees render yments, render employees whereby ng share-based payments, no account share-based payments, ng

. nd behavioural considerat behavioural nd equivalent assets. assets. equivalent

148 Share-based payments payments Share-based Directors) (including Employees pa share-based of form the in services for in sharesexchange or rights sharesover (‘equity- settled transactions’). IFRS‘Share-Based Payments’2 requires an expense to be go Group buys recognised when the for shares or rights over shares (‘share-based payments’)or in exchange for other The costshare-based of payments’ transactions with employees ismeasured to the by fairreference value at the date at which the share-based payments are granted. The fairequity valueof the is scheme options settled stock is plan model. of The the management incentive fair value determinedon the as sharebased at the price date of grant long-term value of the The fair yield. dividend by discounted model, Monte Carlo valuation a using is determined plan incentive the of 50% 2010, from made awards plan incentive long-term for by is valued which a TSR performance condition to award is subject simula Carlo the Monte applying by and valued metrics financial to subject 50% of the award is model. a Black-Scholes applying The expected life used in the mo effects of management’s non-transferability,best estimate, for the exercise restrictions, a In valui 38). are given in Note is taken of any performance cond linked to pricethe market sharesof the of Hikma Pharmaceuticals PLC. share-based payments The cost of on in equity, increase corresponding on the Group’s based period vesting that will eventually vest.its estimate The of Group the revises Financial statements statements Financial continued statements financial consolidated the to Notes continued policies accounting 2. Significant adjustments Price Price adjustments,also known “shelfas stock adjustments”, are creditsissued reflectto decreasesin selling pricesthe of that custom products the Group’s pr of the at the time inventories Free goods incentives, sale as to customers issued Free goods are agreed upon expe of reimbursement goods Free goods. returned or expired for compensation as or are recognised at at the cost date at of which the one above The costs as is met. conditions classified sales of costas prices are discretionary decision prices are discretionary for recorded Amounts market conditions. reflect competitive estimated shelfstock adjustment with directestimated customers, by held inventory estimates of and other and factors re-evaluates these reservemonitors the as available. becomes information additional Financial statements Notes to the consolidated financial statements continued

2. Significant accounting policies continued Property, plant and equipment Expenditures on research and development activities are charged Property, plant and equipment have been stated at cost on to the consolidated income statement, except only when the acquisition and are depreciated on a straight-line basis except for criteria for recognising an internally generated intangible asset are land at the following depreciation rates: met, which is usually when approval from the relevant regulatory Buildings 2% to 4% authority is considered probable. Machinery 5% to 33% Also, the Group engages with third party research and Vehicles, Fixtures and equipment 6% to 33% development companies to develop products on its behalf. Payments made to such third parties to fund research and A units of production method of depreciation is applied to development efforts are recognised as intangible assets if the operations in their start-up phase, as this reflects the expected capitalisation criteria for recognising an intangible asset are pattern of consumption of the future economic benefits embodied met, all other payments are charged to the consolidated in the assets. When these assets are fully utilised, a straight-line income statement. method of depreciation is applied. Principle intangible assets are: Projects under construction are not depreciated until construction has been completed and assets are considered ready for use. (a) Goodwill: arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Any additional costs that extend the useful life of property, plant Goodwill is measured as the excess of the sum of the and equipment are capitalised. Property, plant and equipment consideration transferred, the amount of any non-controlling which are financed by leases giving Hikma Pharmaceuticals PLC interest in the acquiree and the fair value of the acquirer’s substantially all the risks and rewards of ownership are capitalised previously held equity interest (if any) in the entity over the net at the lower of the fair value of the asset and the present value of of the acquisition-date fair value of the identifiable assets the minimum lease payments at the inception of the lease, and acquired and the liabilities assumed. depreciated in the same manner as other property, plant and equipment over the shorter of the lease term or their useful life. If, after reassessment, the Group’s interest in the fair value of the Whenever the recoverable amount of an asset is impaired, the acquiree’s identifiable net assets exceeds the sum of the carrying value is reduced to the recoverable amount and the consideration transferred, the amount of any non-controlling impairment loss is taken to the consolidated income statement. interest in the acquiree and the fair value of the acquirer’s Projects under construction are carried at cost, less any recognised previously held equity interest in the acquiree (if any), the excess impairment loss. is recognised immediately in the consolidated income statement as a bargain purchase gain. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their On disposal of a subsidiary, the attributable amount of goodwill is intended use. included in the determination of the consolidated income statement on disposal. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the (b) Customer relationships: represent the value attributed to the carrying amount of the asset and is recognised in the consolidated long-term relationships held with existing customers at the date income statement. of acquisition and are amortised over their useful economic life. Impairment of property, plant and equipment (c) Product related intangibles: and intangible assets (i) Product files and under-licenced products recognised At the same time each year the Group carries out an impairment through acquisitions, and from development activities are review for goodwill and other indefinite life intangible assets. At amortised over their useful economic lives once the asset is the year end the Group reviews the carrying amounts of its ready for use. property, plant and equipment and intangible assets that are (ii) In process product files recognised on acquisition are subject to amortisation to determine whether there is any amortised over the useful economic life once the asset is indication that those assets have suffered an impairment loss. If ready for use. any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). (d) Trade name: some trade names are assigned indefinite useful In consideration of the impairment review, the Group compare the lives and others have finite useful lives over which they are carrying value of the asset to its recoverable amount. amortised where applicable, in the period from acquisition. The recoverable amount is the higher of fair value less costs to sell (e) Marketing rights: are amortised over their useful lives and value in use. In assessing value in use, the estimated future commencing in the year in which the rights first generate sales. cash flows are discounted to their present value using a pre-tax (f) Purchased software: is amortised over the useful economic discount rate that reflects current market assessments of the time life when the asset is ready for use. value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

158 Hikma Pharmaceuticals PLC 150 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

151 159 financial assets assets financial le of a financial asset is under is asset le of a financial ry course of business, less all all less business, course of ry very of the financial asset and very of the financial nt and non-current assets in the the in assets non-current and nt d in bringing each product to its its to d in bringing each product highly liquid investments with with investments liquid highly y valued cost,at standardwhich AFS”) financial assets and ‘loans and ‘loans assets financial AFS”) s and, where applicable, s direct and, e end of each reporting period to of period each e reporting end four categories: four acquisition cost including all including cost acquisition The costs of own-manufactured of own-manufactured costs The nt payments in respect of of in respect payments nt determine the cost of sales in the determinesales of the cost loss’ (“FVTPL”), ‘held-to-maturity’ ‘held-to-maturity’ (“FVTPL”), loss’ abilities are recognised on the are recognised on abilities tion depends on the nature and the nature on depends tion recognised and derecognised on a and derecognised recognised Group’s balance sheet when the Group becomes a party to the when sheet the a Group party becomes balance Group’s the instrument. of contractual provisions Cash and cash equivalents equivalents cash and Cash include equivalents Cash and cash to an and are subject less or of three months maturities original value. in changes of risk insignificant instruments Financial li financial and assets Financial Financial assets Financial classifiedassets are into or profit value through ‘at fair (“ ‘available-for-sale’ investments, and receivables’. classifica The the financialand is purpose determined of time assets at of the recognition. initial initially are assets financial All trade date, where sa the purchase or require deli a contract whose terms (i) at valueassets Financial fair loss or profit through be will the Group acquisition, Columbus West-Ward As part of continge for certain reimbursed Those on future events. based conditions and other milestones financial assets revalued are at th represent the value of the expected cashflows differenceand the is presented as finance cost/income. These financial assets are other curre under currently booked consolidated balance sheet. Inventories Inventories Inventories are at stated the lowercostnet realisableof and value. are stated Purchased products at incurre costs additional attributable condition. and present location direct material comprise products bringing in have been incurred overheads that and any labour costs the In condition. and location present their to inventories the is primaril inventory balance sheet, approximates historicalto cost determinedon a moving average used to is value basis, and this consolidated income statement. realisableNet value represents the in the ordina price estimated selling estimated necessarycosts to make Inventory the sale. related provisions are made for net realisablevalue lower than slowcost, dated inventory. short moving and are initially at measured fair value, plus those transaction costs. For are loss and through profit value as at fair classified assets financial value. fair at measured initially financial statements cognised for the asset cognised for useful life or not life yet or not useful of the cash-generating unit the cash-generating unit of assets are tested as follows; assets are follows; tested as that they might be impaired. impaired. they might be that the impairment loss is treated loss the impairment less the relevant asset is carried it) isit)its reduced recoverableto ment tests are set out in note 14. re frequently if events or if events re frequently dicate that the carrying amount that the carrying amount dicate rrying amount of each asset in in amount of each asset rrying sset (or cash-generating unit) is is unit) (or cash-generating sset cognised immediately in the immediately cognised al of the impairment loss is is loss the impairment al of ount that would have been that would have been ount to which goodwill has been been goodwill has which to the increased carrying amount amount increased carrying the irment annually, or more annually, irment ng amount of the asset (or cash- (or asset of the ng amount h of the Group’s cash-generating cash-generating Group’s h of the the revised of its the estimate y consolidatedin the income carrying amount, the carrying amount amount carrying the amount, carrying irment loss been re loss irment and then to the other assets of the unit the other and assets then of to the at have an indefinite Other intangible assets testedimpairment for whenever events in circumstances in changes or ready for use are not subject to amortisation and are tested or mo impairment annually for indicate in circumstances changes may not be recoverable. pro-rata on ca the basis of the not is goodwill for recognised loss impairment An unit. the period. subsequent reversed in a frequently when isthere indication an that the unit be may amount If the recoverable impaired. loss the impairment unit, of the amount carrying than the less is any goodwill amount of reduce the carrying to first is allocated allocated to the unit allocated are tested for impa for tested are allocated units. Cash-generating units units Cash-generating units. The assumptions used in the impair (b) (b) th assets Intangible treated as a revaluationincrease. intangible and Goodwill The Group’s (a) to Goodwill eac is allocated (or cash-generating inyears.unit) A prior reversal an impairment of immediatel recognised is loss statement,is relevant assetcarriedunless at the a revalued revers the case which in amount, Annual Report 2016 recoverable amount, but so that but recoverable amount, does carrying not am exceed the impa determined had no 2. Significant accounting policies continued continued policies accounting 2. Significant a of If an the recoverable amount its than less estimated to be of the cash-generatingasset (or un is re loss impairment amount. An consolidated income statement, un case in which at a revalued amount, as a revaluation to decrease the extent that it doesexceed the not the in recognised is excess any and surplus, revaluation previous consolidated income statement. other than goodwill, the asset, for loss Where an impairment the carryi reverses, subsequently increased to is generating unit) Notes to the consolidated the to Notes

Annual Report 2016 2% to 4% 2% to 4% 5% to 33% 5% to 33% 6% to 33% tangible assets. At At assets. tangible Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals of fair value less costs to sell sell to costs less of fair value straight-line basis except for straight-line except basis alan asset is or of retirement the assets are ready for their recognised in the consolidated in the consolidated recognised depreciated until construction until construction depreciated e useful life of property, plant plant life of property, useful e een the sales proceeds and the proceeds een the sales as this reflects expected the rds of ownership are capitalised of ownership are capitalised rds recognised any less at cost, rried market assessments of the time of assessments market r present value using a pre-tax pre-tax a value using r present depreciation is applied to is applied depreciation coverable amount of the asset is the coverable amount of are considered use.ready for r as other property, plant and property, r plant as other consolidated income statement. e Group carries out an impairment impairment an e Group carries out the recoverable amount and the amount and the recoverable , on the same basis as other as other basis same on the , to its recoverable amount. amount. recoverable its to her indefinite life in life her indefinite the year end the Group reviews the carrying amounts of its of its amounts carrying the year end the Group reviews the property, plant and equipmentintangible and assets that are subject to determinewhether there to isamortisation any indication that those assetshave suffered an impairment loss. If re the exists, indication any such estimated to the determineloss (if impairment any). the extent of In comparethe Group the impairment the considerationreview, of asset the of value carrying the higher is The recoverable amount and valuein In use.assessing in use,value the estimated future thei to discounted are flows cash current rate that reflects discount value of money and the risksspecto the ificasset for which the estimatesfuture cash have flows not been adjusted. of Impairment of property, plant and equipment equipment and plant property, of Impairment assets intangible and year th At the same each time ot and review for goodwill Property, plant and equipment equipment and plant Property, Property, plant and equipmentbeen stated on at have cost are depreciated on and a acquisition rates: land depreciation at the following Buildings Machinery and equipment Fixtures Vehicles, of method production of units A start-up phase, their in operations embodied benefits economic of the future pattern of consumption in the assets. When these assets are fully utilised,straight-line a is applied. method of depreciation are construction not Projects under and assets has been completed Any additional costs that extend th and equipment are capitalised. Property, plant and equipment which are leasesfinanced by givingHikma Pharmaceuticals PLC and rewa risks the all substantially at the lower fair of the value of the asset and the present value of lease, the minimum the and leaseinception paymentsof at the same manne the depreciated in lease the shorterover life. equipmentof the termuseful or their the impaired, is an asset Whenever the recoverable amount of to is reduced carrying value impairmentloss taken isto the are construction ca Projects under loss. impairment Depreciation of these assets when commences property assets, intended use. the dispos on arising loss The gain or determineddifference as the betw is the asset and of carrying amount income statement. ssigned indefinite useful indefinite ssigned the rights first generate sales. generate sales. first rights the customersexisting at date the over theirover useful economiclife. lopment activities charged are al from the relevant regulatory the relevant regulatory from al acquired (the acquisition date). (the acquisition acquired d as intangible assets if the intangible assets d as ally generated intangible asset are sing an intangible asset are are asset intangible an sing ement, ement, except only when the e excess of the sum of the the sum of e excess arged to the consolidated velop products on its behalf. behalf. its on products velop e attributable amount of goodwill is is goodwill of amount e attributable represent the value represent to attributed the is amortised over the useful economic the useful economic over is amortised finite usefullives over are which they are amortisedover their usefullives some trade names are a arising in a business combination is recognised as an recognised is combination in a business arising through acquisitions, and from development activities are are activities from development and through acquisitions, amortisedover their useful economiclives once the asset is ready for use. are acquisition on recognised files product In process is asset the once life economic useful the over amortised ready for use.

asset at the date that control is measured as th Goodwill is the amount of any non-controlling transferred, consideration interestin the acquiree and the fairvalue of the acquirer’s previously held equityinterest (if any) in entityover the net the of the acquisition-date fair value of identifiablethe assets assumed. liabilities the and acquired acquiree’sidentifiable net assets the sum of the exceeds the amount of any non-controlling transferred, consideration interestin the acquiree and the fairvalue of the acquirer’s previously held equityinterest in acquiree the (if any), the excess is recognisedimmediately in the consolidatedincome statement as a bargain gain. purchase income consolidated of the the determination in included statement on disposal. long-term held relationships with amortised are and acquisition of (i) recognised products under-licenced Product files and (ii) lives and others have others have lives and acquisition. from in the period amortised where applicable, year in which the in commencing life iswhen the ready asset for use. 150 Financial statements statements Financial continued statements financial consolidated the to Notes continued policies accounting 2. Significant and deve on research Expenditures to the consolidated income stat criteria for recognisingintern an when approv is usually met, which probable. considered is authority research and party with third engages Also, the Group de to development companies to fund research and parties third such Payments made to are recognise development efforts recogni for criteria capitalisation met, all other payments are ch income statement. Principleintangible assets are: (a) Goodwill: If, in interest after reassessment, value the of Group’s the the fair th of a subsidiary, On disposal Customer relationships: (b) (c) intangibles: related Product Trade name: (d) (e) rights: Marketing (f) Purchased software: Financial statements Notes to the consolidated financial statements continued

2. Significant accounting policies continued • Contingent consideration arising from West-ward Columbus (ii) Available for sale financial assets acquisition represent contractual liabilities to make payments to third parties in the form of milestone payments that are Listed shares and listed redeemable notes held by the Group that dependent on the achievement of certain US FDA approval are traded in an active market are classified as being AFS and are stated at fair value. Gains and losses arising from changes in fair milestones; and royalty payments based on future sales of certain products that are currently under development. Further value are recognised in other comprehensive income, with the details can be seen in note 43. exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on Financial liabilities are revalued at the end of each reporting period monetary assets, which are recognised directly in the consolidated to represent the value of expected future cash outflows and the income statement. Where the investment is disposed of or is difference is presented as finance cost/income. These financial determined to be impaired, the cumulative gain or loss previously liabilities are currently booked under other current and non-current recognised in the investments revaluation reserve is reclassified to liabilities in the consolidated balance sheet. the consolidated income statement. The Group’s investments in unlisted shares that are not traded in an active market and the fair (ii) Other financial liabilities value of which cannot be reliably measured are stated at cost, less Other financial liabilities, including borrowings, are initially a provision for any impairment loss, which is taken to the measured at fair value, net of transaction costs. consolidated income statement. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense (iii) Loans and receivables recognised on an effective yield basis. Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are The effective interest method is a method of calculating the classified as ‘loans and receivables’. Loans and receivables are amortised cost of a financial liability and of allocating interest measured at amortised cost using the effective interest method, expense over the relevant period. The effective interest rate is the less any impairment. Interest income is recognised by applying the rate that exactly discounts estimated future cash payments through effective interest rate, except for short-term receivables when the the expected life of the financial liability, or, where appropriate, a recognition of interest would be immaterial. shorter period, to the net carrying amount on initial recognition. The effective interest method is a method of calculating the Derivative financial instruments amortised cost of a debt instrument and of allocating interest Derivative financial instruments are used to manage the Group’s income over the relevant period. The effective interest rate is the exposure to interest rate and foreign exchange risks. The principal rate that exactly discounts estimated future cash receipts (including derivative instruments used by the Group are interest rate swaps all fees and points paid or received that form an integral part of the and foreign exchange forward and option contracts. The Group effective interest rate, transaction costs and other premiums or does not hold or issue derivative financial instruments for trading or discounts) through the expected life of the debt instrument, or, speculative purposes. where appropriate, a shorter period, to the net carrying amount on initial recognition. Hedge accounting The Group designates certain hedging instruments, in respect of Income is recognised on an effective interest basis for debt interest rate and foreign currency risk, as cash flow hedges. Hedges instruments other than those financial assets classified as at FVTPL. of foreign exchange risk on firm commitments are accounted for Financial liabilities as cash flow hedges. Financial liabilities are classified in two categories: financial liabilities At the inception of the hedge relationship, the entity documents ‘at FVTPL’ or ‘other financial liabilities’. The classification depends the relationship between the hedging instrument and the hedged on the nature and purpose of the financial liabilities and is item, along with its risk management objectives and its strategy for determined at the time of initial recognition. undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group tests (i) Financial liabilities at (FVTPL) whether the hedging instrument is highly effective in offsetting The Group currently has two financial liabilities at FVTPL as below: changes in fair values or cash flows of the hedged item. • Co-development and earn out payment agreements with Note 31 sets out details of the fair values of the derivative third parties where the Group earns milestone payments instruments used for hedging purposes. reflecting the achievement of R&D and commercialisation milestones. Those payments are recognised as financial Cash flow hedge liabilities once received. The effective portion of changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the consolidated income statement.

160 Hikma Pharmaceuticals PLC 152 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

153 161 working capital,working assets fixed al growth rate al for goodwill. storical experience, the level of the level of experience, storical endeavours to minimise risk risk to minimise endeavours of competitors and net selling and net of competitors lities in the form of milestone of in the form lities sk premiums used to determine to determine used sk premiums credit worthiness of a particular worthiness credit of a to contingent receivables (see (see receivables contingent to ments such as letters of credit of letters as such ments l and intangible assets are assets intangible l and e management’s estimate of estimate e management’s e written-off when identified. collected. collected. Such estimates are made ty assigned to reaching the the reaching ty to assigned and the underlying local economic local economic underlying and the 120 days, and in MENA 180-360 in MENA and days, 120 unt of the debt is no longer longer the debt is no unt of launch date and probability of a launch keting, R&D and other operating other operating and R&D keting, based on a number of factors on a number based e also critical judgements. judgements. critical also e ngible assets ngible The revenue forecasts (including size,market estimated expected market share, number prices). The raw and packagingmaterials costs. intangibles the product-related lives of useful The economic The allocationof sales, mar individual the costs to product-related intangibles. (on charges asset The contributory and workforce). ri and specific rate The discount net present valuesand the termin

Goodwill and inta Goodwill recognition initial to the in relation judgment areas of The critical goodwil of tests impairment and as follows: • • • • • • the products pipeline Also, for approval ar successful product related receivables and Liabilities Contingent acquisitions to The Group entered contractual liabi in addition payments and royalty note 43), where the critical areasjudgment of to liabilitiesthose and receivables are the probabili th and milestones success-based future sales. Accounts receivable and bad debts debts bad and receivable Accounts Trade receivable inexposures locally the are operatingmanaged units where they arise.Credit limits are set as deemed appropriate of qualitative and based on a number for the customer, quantitative related to the factors ranging customers variety of to a is exposed customer. The Group fromagencies large government-backed wholesalersprivate and pharmacies, to privately owned range the US in terms Group. vary Typical credit across risks the in Europe 30- days, from 30-90 days. Where appropriate, the Group instru finance trade of use the by and insurance. its hi based on The Group estimates, not be will believes debts that it when collection the fullof amo probable. These estimates are and economic industry, and issues customer specific including ar Bad debts conditions. political financial statements ctors that are considered to be nts and buying groups. If the groups. nts and buying ing estimates are recognised in estimates are recognised ing or loss accumulated in equity is in equity accumulated loss or a past isevent, it a probable that instrument expires or is sold, sold, is or expires instrument revisedif revisionthe affects mptions are reviewed on an mptions other comprehensive income income comprehensive other associated assumptionsassociated are based gnised in other comprehensive other comprehensive in gnised nsolidated income statement. income nsolidated able measurement can be made. measurement can able classified to the consolidated most significant relating to of the revision and future periods ultimately recognisedin the d when the the Group revokes bates and price adjustments (note adjustments and price bates be reliably measured, revenue measured, revenue be reliably ted in equity and is recognised is recognised and ted in equity judgements and estimates are the and estimates judgements made of the amount of the of made of the amount as the recognised hedged item. item. hedged recognised the as rrent and future periods. ssumptions about the carrying the carrying about ssumptions no longer qualifies for hedge for hedge qualifies longer no s will be to required settleobligations the The Group’s Directors believe that the following accounting accounting following the that believe Directors Group’s The Directors’ involve that policies Annual Report 2016 if the revision affects both cu both affects revision the if the Group’s and evaluating understanding to most critical results. financial is deferred until a reli recognition ongoing basis. Revisions to account Revisions basis. ongoing the inperiod which the estimate is period in the or that period only Revenue recognition policies The recognition Group’s require Directors to revenue make a number of withestimates, the price cannot net selling ultimate The deferred revenue in respect of includedthis is in other current liabilities in the consolidated sheet. balance relevant. Actual relevant.results Actual may differ from these estimates. assu underlying The estimates and re returns, product chargebacks, arrangeme product vary by 2) which In the application of the Group’s accounting policies, which which policies, accounting of the Group’s In the application are describedinNote 2, the Directors are required to make and a estimates judgements, experience and other fa on historical 3. Critical accounting judgements and key key and judgements accounting Critical 3. uncertainty estimation of sources Equity instruments instruments issuedEquity by at the the Group are recorded costs. issue direct of net received, proceeds from apparent are not readily that and liabilities assets amounts of estimates and other The sources. Provisions present obligation Group has a when the are recognised Provisions (legal asor constructive) a result of income at that time is accumula is time that at income when the forecast is transaction consolidated income statement. When a forecast istransaction no gain occur, the longer expected to the co in recognised immediately resource an outflow of can be and a reliable estimate obligation. 2. Significant accounting policies continued continued policies accounting 2. Significant in recognised previously Amounts are re in equity and accumulated income statementin the periods when itemthe hedged is same statement, in the income recognised in the consolidated statement income line of the or terminated, or exercised, reco loss or Any gain accounting. Notes to the consolidated the to Notes discontinue is Hedge accounting hedging the relationship, hedging Annual Report 2016 and its strategy for for strategy its and Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals sh flow hedges. Hedges Hedges hedges. sh flow certain US FDA approval approval FDA US certain gain loss relating to or the g instruments, in respect of in respect g instruments, e effective interestrate is the ly under development. Further Further development. ly under ts based on future sales of on future sales based ts d future cash payments through through future cash payments d highly effective in offsetting tions. Furthermore, at the at Furthermore, tions. nancial instruments for trading or or trading for instruments nancial ign exchange risks. The principal exchange The risks. ign ing from West-ward Columbus West-ward Columbus from ing lationship, documents the entity nd option contracts. The Group The contracts. nd option ility and of allocating interest and of allocating ility e cost/income. These financial dging instrument and the hedged the and instrument dging a method of calculating the of calculating a method at the end of each reporting period period at the end of each reporting method, with interest expense the Group are interest rate swaps are interest rate the Group ing amount on initial recognition. recognition. initial on amount ing under other current and non-current current and non-current under other rm commitments are accounted for commitments rm sh flows of the hedged item. item. of the hedged flows sh management objectives objectives management ign currency risk, as ca risk, ign currency instruments are used to manage the Group’s Group’s the manage to used are instruments Contingent consideration aris Contingent consideration acquisition represent contractualliabilities to make payments to in payments form that of third are milestonethe parties achievement of dependent on the paymen royalty and milestones; are current that certain products note 43. seen in can be details

• revalued are liabilities Financial to represent the value cash and of the expected future outflows as financ difference is presented are currently booked liabilities liabilities in the consolidated sheet. balance Cash flow hedge hedge flow Cash in fair of valuea the derivative The effective of changes portion hedge is recognised flow as a cash qualifies and designated is that The income. comprehensive in other ineffectiveis portion recognisedimmediately in the consolidated income statement. Derivative financial instruments instruments Derivative financial financial Derivative interestexposure to rate and fore by used instruments derivative and forward foreign a exchange fi derivative issue or hold does not speculative purposes. accounting Hedge certain hedgin The Group designates interest and fore rate (ii) Other financial liabilities initially are borrowings, including liabilities, financial Other measured at fair value, net of transaction costs. measured at equently amortised subs are liabilities financial Other cost using the effectiveinterest basis. effective yield recognised on an is The effective interest method liab a financial of cost amortised Th period. expense over the relevant estimate discounts exactly that rate the expected lifeof the financial liability,or, where appropriate, a the net carry to shorter period, fi risk on exchange of foreign hedges. as cash flow the hedge At re the inception of the relationshipthe he between risk its with item, along hedge transac undertaking various tests the Group basis, ongoing and on an the hedge of inception is whether the hedging instrument values or ca in fair changes values of of the fair the derivative details sets out Note 31 hedging purposes. used for instruments TPL as below: as below: TPL ssification depends ssification liabilities at FV liabilities future cash receipts (including (including future cash receipts ation reserve is reclassified to to is reclassified ation reserve ed directlyin the consolidated e effectivee interest is rate the that form an integral part of the ign exchange gains and losses on losses and exchange gains ign earns milestone payments payments milestone earns le notes held by the Group that by the Group held le notes od, to the net carrying amount on to the net carrying od, are recognised as financial are recognised as financial ilities’. The cla The ilities’. mprehensive income, with with the income, mprehensive ctive interest basis for debt ctiveinterest basis for debt r short-term receivableswhen the r short-term a method of calculating the of calculating a method ng the effective interest method, effective interest ng the on costs and other premiums or and other premiums costs on would be immaterial. be immaterial. would nt losses, interest calculated using the the using calculated interest losses, nt

Co-development and earn out payment agreements with where the Group third parties reflecting achievementthe of R&D and commercialisation payments Those milestones. liabilities once received.

• 152 effective interest method and fore effective interest method which are recognismonetary assets, income statement. Where the investment is disposed of or is previously loss or gain cumulative the impaired, be to determined investments revalu recognised in the in investments Group’s statement. The income the consolidated unlisted sharesare not traded in an active that market and the fair value of which cannot be reliably measured are stated at lesscost, a provision impairmentfor loss,any which is taken to the consolidated income statement. receivables and Loans (iii) receivables,Trade receivablesother loans, fixedhave that and or market are in an active quoted that determinable are payments not classified and ‘loansasreceivables’. Loans and receivables are usi measured at amortised cost the applying by recognised is income Interest impairment. any less fo except effective interest rate, interest of recognition is The effective interest method interest and of allocating ment a instru debt of cost amortised over the Th relevant income period. estimated discounts exactly that rate received or paid points and fees all transacti effective interest rate, or, the debt instrument, the expected life of through discounts) where appropriate, a shorter peri recognition. initial effe an on recognised is Income instrumentsthan thoseother financial assets classifiedas at FVTPL. Financial liabilities liabilities financial categories: two in classified are liabilities Financial liab financial ‘at FVTPL’ or ‘other (i) (FVTPL) at liabilities Financial The Group currently has two financial Financial statements statements Financial continued statements financial consolidated the to Notes continued policies accounting 2. Significant (ii) assets financial sale for Available listed redeemab shares and Listed are traded in an active market are classified AFS and are being as fair in changes from arising losses and Gains value. fair at stated other co in value are recognised impairme exception of on the nature and purpose of the financial liabilities and is is and liabilities the financial purpose of on the nature and recognition. initial of time the at determined Financial statements Notes to the consolidated financial statements continued

3. Critical accounting judgements and key The Group benefits from a tax exemption in Jordan arising partly from the WTO approved Export Exemption that will be in force up sources of estimation uncertainty continued until 31 December 2018. Hikma does not believe that the impact Taxation of the future withdrawal of this exemption will materially impact In common with most international organisations, the Group may the Group’s tax rate in light of the alternative options available be subject to audit from revenue authorities from time to time. under existing Jordan’s domestic rules. Where an outflow of funds is believed to be probable and a The Group makes substantial sales in the US market of products reliable estimate of the outcome of the dispute can be made, owned by a UK group company which also arranges for the management provides for its best estimate of the liability. These product development and manufacture, both in the US and in estimates take into account the specific circumstances of each other territories in which the Group operates. Whilst a reduction in dispute and relevant external advice, are inherently judgemental the US federal tax rate would beneficially impact the Group’s and could change substantially over time as new facts emerge and effective tax rate, other aspects of potential US tax reforms that each dispute progresses. Hikma continues to invest in its financial may be adopted, such as border adjustability and denial of interest systems to ensure the quality of the Group’s financial data which deductions, could have a significant negative impact on the reduces the risk of an adverse revenue authority audit Group’s effective tax rate. Furthermore, Hikma continues to believe that it has made Continuing with the impact of changes in tax rules in the territories adequate provision for the liabilities likely to arise from open in which we operate, the Base Erosion and Profit Shifting (“BEPS”) assessments and audits. Where open issues exist, the ultimate initiative of the OECD is likely to result in increased taxation as the liability for such matters may vary from the amounts provided and actions from the BEPS initiative are adopted by fiscal authorities. is dependent upon the outcome of negotiations with the relevant The Group is reviewing the impact of such changes as they tax authorities or, if necessary, litigation proceedings. become clear and taking any action necessary to help mitigate any In addition to tax audits, the Group faces other potential tax risks adverse consequences to the extent reasonably possible. that could affect the sustainability of the Group’s effective tax rate. As part of a reorganisation following West-Ward Columbus The main risks are transfer pricing, the withdrawal of tax acquisition, certain assets and liabilities were transferred intra- exemptions, legislative interpretations or changes. Specifically, at group with external valuations obtained. If these valuations are this time there is uncertainty regarding potential future US tax successfully challenged by relevant tax authorities, it could reforms. No reliable estimate of the potential impact of these adversely impact the tax recorded on the reorganisation. proposals can be made at this time. Other risks the Group faces include a material change to the statutory tax rates, from the As at the balance sheet date, the Group held an aggregate OECD’s base erosion and profit shifting initiatives and adjustments provision in the sum of $64 million in respect of liabilities likely to arising out of a difference in interpretation of tax legislation. Hikma arise from the above risks. Hikma considers up to $21 million could regularly takes professional advice to ensure the risks mentioned be released in 2017 due to statute of limitations but this could be above are appropriately analysed and managed with any ultimate offset by new provisions needed in 2017. potential liability being adequately provided. Contingent liabilities The transfer pricing risk can arise from a difference in view over the The promotion, marketing and sale of pharmaceutical products pricing of cross-border, inter-company product sales and services and medical devices is highly regulated and the operations of and of sales of assets. The standard by which most authorities, and market participants, such as Hikma, are closely supervised by the Group, assess the transfer price is whether it is set at arm’s regulatory authorities and law enforcement agencies, including the length. An upward adjustment by the tax authority of one territory FDA and the US Department of Justice. As a result, the Group is will not necessary result in the downward adjustment by the other subject to certain investigations by governmental agencies, as well territory, leading to a potentially increased tax cost through a as other various legal proceedings considered typical to its business mismatch of tax deductions and taxable income, as well as a relating to employment, product liability and commercial disputes. potential increase arising out of a rate arbitrage. The Group has For current matters see note 37. considered the risk in detail and has provided for potential tax adjustments so does not believe that any adjustment will materially impact the rate going forward.

162 Hikma Pharmaceuticals PLC 154 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

$m $m 155 163 2015 2015 2015 2015 results results Reported Reported ss of the the of ss – 277 – 570 – (293) – – 710 449 – (261) $m $m 2015 2015 2015 2015 (note 5) (note 5) Exceptional Exceptional adjustments adjustments ce allocation proce ce allocation items other and items other and $m $m Core Core 277 277 118 (13) 105 570 570 Core Core 2015 2015 710 710 449 312 (1) 311 2015 2015 (159) (159) (13) (172) (293) (293) (261) (261) (137) (1) (138) results results results results erics. and Gen Injectables – Branded, divisions $m $m 282 104 556 2016 781 505 312 2016 (178) (274) (276) (193) results results results results cision-making and resour cision-making and Reported Reported – – – – – – (8) (8) $m $m (28) (28) 2016 2016 other other other other (note 5) (note 5) reportable segment: reportable segment: items and items and items and items and Exceptional Exceptional adjustments adjustments $m $m Core Core 556 556 282 112 2016 Core Core 781 781 505 340 2016 (274) (274) (170) (276) (276) (165) results results results results organised into three principal operating three principal into organised , is , the principal measure in usedthe de revenue and results by revenue and results ting segments is reported below. ting segments e Group reports its segmental information. information. segmental its e Group reports Gross profit Gross profit Gross profit Gross profit Annual Report 2016 Injectables segment includes EUP results. results. EUP includes segment Injectables These divisions are the basis on which th which on basis the are divisions These result segment as defined Operating profit, Executive Chief Officer. ischief maker, Group’s who operating decision the opera Group’s the regarding Information the Group’s of analysis is an The following expenses operating Total Segment result Injectables 2016 December ended 31 Year Revenue sales of Cost Total operating expenses expenses operating Total Segment result Revenue sales of Cost Branded Branded 2016 December ended 31 Year 4. Segmental reporting 4. Segmental currently is Group the purpose management For

Annual Report 2016 terially impact terially impact Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals ion up in force willthat be s inin tax rules the territories al of interest and deni stability necessary to help mitigate any mitigate necessary to help nsiders up to $21 million could could million $21 to up nsiders in liabilities respect of likely to ion ion and Profit Shifting (“BEPS”) of limitations but this could be considered typical to its business business its typical to considered ained. If these are valuations If ained. ability and commercial disputes. disputes. commercial and ability potentialUS tax reforms that up operates. Whilst in a reduction exemption will ma exemption abilities were transferred intra-abilities transferred were the alternative options available options available the alternative icant negative impact on the on negative impact icant kma, are closely supervised by supervised closely kma, are extent reasonably possible. reasonably possible. extent llowing West-Ward Columbus West-Ward Columbus llowing regulated and the operations of of operations the and regulated rded on the reorganisation. the reorganisation. rded on te would beneficially impact the Group’s the Group’s impact te would beneficially The Group benefits from a tax exemption in Jordan arising partly Jordan arising in from a tax exemption The Group benefits from the WTO approved Export Exempt Hikmanot impact believe does that 2018. the December until 31 of the future withdrawal of this light of tax rate in the Group’s rules. domestic Jordan’s under existing the US market of products in sales substantial The Group makes the arranges also for which company owned by a UK group and in US in the and manufacture, both product development other territorieswhich in the Gro ra the US federal tax effective tax rate, other aspects of adju as border such may be adopted, signif a have could deductions, rate. effective tax Group’s change impact of the with Continuing in whichthe Base Eros we operate, the as taxation increased in result to likely is OECD the of initiative initiativeactionsBEPS from the are adopted by fiscal authorities. they changes as of such impact the The Group is reviewing become cleartaking and any action adverse to consequences the fo a reorganisation As part of li assets and certain acquisition, obt external valuations group with could it authorities, tax relevant by challenged successfully tax reco impact the adversely date, an sheet the aggregate Group As held at the balance million of $64 sum in the provision arise from above the risks. Hikma co statute due to 2017 be released in in 2017. needed offset by new provisions Contingent liabilities liabilities Contingent pharmaceutical products of and sale marketing The promotion, is highly devices and medical Hi as such participants, market law regulatoryenforcement and agencies,authorities including the is Group the of Justice. As a result, the US Department FDA and subject to certain investigationsgovernmental by agencies, as well proceedings legal as other various li product employment, relating to For current matters see note 37. tives and adjustments adjustments and tives nues to invest in its financial financial its in invest nues to any adjustment will materially e tax authority of one territory e tax authority is whether it is set at arm’s arm’s whether it is set at is by which most authorities, and and authorities, most which by of the Group’s effective tax the rate. Group’s of and managed with any ultimate ultimate any with managed and pany product sales and services and sales pany product authorities from time to time. authorities from time from a indifferenceover the view believe that it has made believe that it has taxable income, taxable as well as a up faces other potential tax risks tax risks potential other up faces nal organisations, the Group may the organisations, nal vice, are inherently judgemental judgemental inherently are vice, me. Other risks the Group faces the Other Group risks me. the potential impact of these these of impact potential the a rate arbitrage. The Group has a rate garding potential future US tax garding potential future downward adjustment by the adjustment other by downward ly increased tax cost through a through cost tax increased ly profit shifting initia shifting profit r itsr best estimate of the liability. These ssary, litigation proceedings. proceedings. litigation ssary,

154 be subject from to audit revenue a and probable be to believed is funds of outflow an Where made, be can reliable dispute the estimate of the outcome of management provides fo each estimatesof take specific into account circumstances the external ad and relevant dispute over time as new facts emerge and substantially change and could Hikma conti progresses. each dispute which data financial Group’s the quality of the to ensure systems reduces the riskan adverse of revenue authority audit Furthermore, Hikma continues to adequate provision for the liabilitieslikely to arise open from assessmentsWhere and audits. open issues exist, the ultimate and provided may vary from the amounts matters such for liability negotiations the outcome of with the relevantdependent upon is if nece or, tax authorities the Gro tax audits, to In addition affect the that sustainability could The main risks are transfer pricing, the withdrawal of tax exemptions,legislative interpretations or changes. Specifically, at this time there is uncertainty re reforms. No reliable estimate of ti made at this be can proposals includetax rates, change from to the the a statutory material and base erosion OECD’s Financial statements statements Financial continued statements financial consolidated the to Notes key and judgements accounting Critical 3. continued uncertainty estimation of sources Taxation internatio most with common In arising out of a difference in interpretation legislation.of tax Hikma regularly takes professional adviceensure to the risks mentioned are appropriately above analysed provided. adequately being potential liability The transfer risk pricing can arise inter-com of cross-border, pricing The standard of assets. and of sales transfer price the the Group, assess by th upward adjustment An length. in the necessary result will not a potential to leading territory, and deductions of tax mismatch of out arising potential increase nd has provided for potential tax considered potential the for inrisk detail provided and has that not believe so does adjustments impact the rate going forward. Financial statements Notes to the consolidated financial statements continued

4. Segmental reporting continued 2016 Exceptional 2015 items and Exceptional 2016 other 2016 2015 items and other 2015 Core adjustments Reported Core adjustments Reported Generics results (note 5) results results (note 5) results Year ended 31 December 2016 $m $m $m $m $m $m Revenue 604 – 604 151 – 151 Cost of sales (376) (32) (408) (62) – (62) Gross profit 228 (32) 196 89 – 89 Total operating expenses (193) (17) (210) (43) (2) (45) Segment result 35 (49) (14) 46 (2) 44

Generics segment includes West-Ward Columbus results. 2016 Exceptional 2015 items and Exceptional 2016 other 2016 2015 items and other 2015 Core adjustments Reported Core adjustments Reported Others results (note 5) results results (note 5) results Year ended 31 December 2016 $m $m $m $m $m $m Revenue 9 – 9 9 – 9 Cost of sales (6) – (6) (6) – (6) Gross profit 3 – 3 3 – 3 Total operating expenses (5) – (5) (8) – (8) Segment result (2) – (2) (5) – (5)

“Others” mainly comprises Arab Medical Containers Ltd, International Pharmaceutical Research Center Ltd and the chemicals division of Hikma Pharmaceuticals Ltd (Jordan). 2016 Exceptional 2015 items and Exceptional 2016 other 2016 2015 items and other 2015 Core adjustments Reported Core adjustments Reported Group results (note 5) results results (note 5) results Year ended 31 December 2016 $m $m $m $m $m $m Revenue 1,950 – 1,950 1,440 – 1,440 Cost of sales (932) (32) (964) (622) – (622) Gross profit 1,018 (32) 986 818 – 818 Total operating expense (533) (53) (586) (346) (16) (362) Segment result 485 (85) 400 472 (16) 456 Unallocated expenses (66) (32) (98) (63) (12) (75) Operating profit 419 (117) 302 409 (28) 381 Loss/impairment of associates – – – (2) (7) (9) Finance income 3 9 12 3 – 3 Finance expense (63) (41) (104) (55) (2) (57) Profit before tax 359 (149) 210 355 (37) 318 Tax (80) 28 (52) (67) 3 (64) Profit for the year 279 (121) 158 288 (34) 254

Attributable to: Non-controlling interests 3 – 3 2 – 2 Equity holders of the parent 276 (121) 155 286 (34) 252 279 (121) 158 288 (34) 254

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

164 Hikma Pharmaceuticals PLC 156 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

7 7 5 (1) (8) $m $m $m $m 72 78 68 82 157 165 118 118 458 697 972 697 162 113 656 2015 2015 4,363 4,363 1,952 1,164 1,164 2,688 1,440 1,440 million) million) ervices:

– – – – – 1 1 22 7 7 7 7 85 2 2 56 3 3 3 7 2 2 51 3 3 $m $m $m $m 58 58 10 10 48 95 95 158 158 143 143 115 641 641 2016 2016 others Group others others Group 1,211 1,211 1,469 1,211 1,211 1,950 the end of the ll recognised on the Corporate and Corporate and

– – – – – – – 1 1 8 8 8 8 $m $m 56 56 28 26 32 447 447 2,306 2,306 1,015 1,130 1,130 1,667

– – (1) (8) $m $m 38 11 40 34 28 26 880 404 576 irrespective of the origin of the goods/s origin of the irrespective

– – – – – – 9 11 5 41 1 $m $m 24 39 15 14 21 10 22 19 453 397 309 86 1,245 478 532 81 23 1,114 475 397 1,108 1,108 829 165 495 2,597 1,019 1,019 Branded Injectables Generics Branded Injectables Generics of the Group’s sales by geographical sales market, Group’s of the and equipment* venues of approximately $253 million (2015: $173 $173 (2015: million $253 revenues of approximately are segments Injectables Generics and the ent and intangible assets assets intangible and ent ent and intangible assets assets intangible and ent of property, plant and plant and property, of

erty plant and equipment nt (including software) nt (including ilities 2016 nd liabilities 2015 2015 liabilities nd acquisition of Bedford as a result of the adjustment to inventory, property, plant and equipment and deferred tax made prior to prior made tax deferred and equipment and plant property, inventory, to adjustment the of result a as Bedford of acquisition 2015. July 15 on period measurement Total assets Total assets Segment assets a

Balance sheet Balance sheet Total assets Algeria Algeria Europe and rest of the world the world Europe and rest of Depreciation and impairment and Depreciation Total property, plant and equipm Total property, plant (net book value) Balance sheet Annual Report 2016 Included in revenues arising from revenues arising in Included United States Saudi Arabia The top sellingmarkets were as below: United States Africa East and North Middle The following table provides an table analysis provides The following Total liabilities Total liabilities * goodwi provisional the to made was million $8 of a reduction 2014, in acquisition (“Bedford”) Laboratories Bedford to Further

Additions to property, plant and equipment (cost) (cost) and equipment plant property, to Additions Remeasurement of property, plant

Total liabilities Additions to property, plant and equipment (cost) (cost) and equipment plant property, to Additions prop business of Acquisition 4. Segmental reporting continued continued reporting 4. Segmental liab and assets Segment (note 43)

United Kingdom United Kingdom Total property, plant and equipm Total property, plant (net book value) impairment and Depreciation equipment Additionsintangible to assets Acquisition of business intangible assets (note 43) 43) (note assets intangible business of Acquisition intangible of and write-down impairment Amortisation, assets (including software) ventures joint and associates in Investment which arose from the Group’s largest customer which is in the United States. States. United in the is customer which largest Group’s the which arose from Additions to intangible assets assets intangible to Additions impairme Amortisation and Remeasurement of Intangible assets* ventures joint and associates in Investment Annual Report 2016

2 2 3 3 9 9 3 $m $m $m 2015 2015 2015 2015 2015 2015 results results results results results results ion of ion Reported Reported Reported isition isition

– – – – – – – – – (622) 818 – 151 – (62) – 89 – (8) – 1,440 – – (6) (5) 3 3 (64) (2) (2) (57) (7) (7) (9) (2) (2) (45) (2) (2) 44 $m $m $m 2015 2015 2015 2015 2015 2015 Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals (note 5) (note 5) (note 5) Exceptional Exceptional Exceptional adjustments adjustments adjustments items other and items other and items other and

2 2 3 3 9 9 3 (2) (8) (6) (5) $m $m $m 89 46 (67) (55) (63) (12) (75) (62) (43) Core Core Core 286 288 (34) (34) 252 254 288 (34) 254 355 (37) 318 409 (28) 381 472 (16) 456 818 151 2015 2015 2015 (346) (16) (362) (622) results results results results 1,440 1,440

search Centersearch Ltd and the chemicals divis – 3 9 3 (5) (6) (2) 12 $m $m $m fees, travel expenses, donations, and acqu donations, expenses, fees, travel (52) (98) (14) 155 158 158 210 302 400 196 986 604 2016 2016 2016 (104) (586) (408) (964) (210) results results results results results 1,950 1,950 Reported Reported Reported

– – – – – – – – – 9 $m $m $m 28 (41) (32) (53) (85) (32) (32) (32) (32) (17) (49) 2016 2016 2016 (121) (121) (121) (149) (117) other other other other other (note 5) (note 5) (note 5) items and items and items and items and items and Exceptional Exceptional Exceptional adjustments adjustments adjustments

– – 3 3 3 3 9 9 3 (6) (5) (2) $m $m $m 35 35 (80) (80) (63) (63) (66) (66) Core Core Core Core Core 276 276 279 279 279 359 359 419 419 485 485 228 228 604 604 2016 2016 2016 (533) (533) (376) (376) (932) (932) (193) (193) results results results results 1,950 1,950 1,018 ainers Ltd, International Pharmaceutical Re Pharmaceutical International Ltd, ainers y made up of employee costs, professional professional costs, employee of up made y

Non-controlling interests interests Non-controlling of the parent Equity holders Unallocated corporate expenses are primaril related expenses. Attributable to: Profit for the year the year for Profit Profit before tax tax before Profit Tax Finance income income Finance expense Finance Operating profit Operating profit Loss/impairment associatesof Year ended 31 December 2016 Total operating expense expense operating Total Segment result Unallocated expenses Cost of sales sales of Cost Gross profit Gross profit Year ended 31 December 2016 Year ended 31 December 2016 156 Others Revenue sales of Cost Gross profit expenses operating Total Segment result Cont Medical Arab comprises mainly “Others” Hikma Pharmaceuticals Ltd (Jordan). Group Revenue sales of Cost Gross profit Financial statements statements Financial continued statements financial consolidated the to Notes continued reporting 4. Segmental Generics Revenue Segment result Total operating expenses expenses operating Total Generics segment includes West-Ward Columbus results. results. Columbus West-Ward includes segment Generics Financial statements Notes to the consolidated financial statements continued

5. Exceptional items and other adjustments Exceptional items and other adjustments are disclosed separately in the consolidated income statement to assist in the understanding of the Group’s core performance. 2016 2015 Exceptional items $m $m Acquisition, integration and other costs (41) (14) Gain from sale of assets, net 18 6 Inventory related adjustments (27) – Release of contingent liability 4 – Impairment of property, plant and equipment (10) – Impairment of product related intangible assets (6) – Write-down of products related intangible assets (18) – Severance costs – (6) Proceeds from legal claims – 2 Exceptional items included in operating profit (80) (12) Impairment of investment in associates – (7) Exceptional items included in profit (80) (19) Other adjustments Intangible amortisation other than software (37) (16) Remeasurement of contingent consideration, financial liability and asset, net (32) (2) Exceptional items and other adjustments (149) (37) Exceptional items: • Acquisition, integration and other related costs are incurred in relation to the acquisition of West-Ward Columbus which was completed on 29 February 2016. Acquisition related expenses are included in the unallocated corporate expenses, while integration and other expenses are included in the general and administrative expense and cost of sales respectively. Acquisition related expenses mainly comprise third party consulting services, legal and professional fees, other costs represent severance and retention payments paid. • Gain from sale of assets relates to the divestiture of certain products, and is included in other operating income. • Inventory related adjustments reflect the amortisation of the fair value uplift of the inventory acquired as part of West-Ward Columbus acquisition, and are included in cost of sales. • Release of contingent liability is due to not achieving certain performance-related milestones in respect of a previous acquisition, and is included in other operating income. • Impairment loss of property, plant and equipment relates to the write-off of machinery and equipment as a result of previous acquisition, and is included in other operating expenses. • Impairment of product related intangible assets has been included in the research and development expenses. • Write-down of product related intangible assets relates to the write-down of certain R&D elements associated with the co-development agreements entered into with third parties since 2011 and has been included in the research and development expenses.

166 Hikma Pharmaceuticals PLC 158 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

6 6 es $m 159 167

2015 2015 results on on nt (note Reported her her resulting resulting Ward deration

– 51 – 29 – – – – 17 367 6 6 362 $m 2015 2015 (note 5) ted to Unimarkted Remedi Exceptional adjustments presented the difference items other and

6 6 6 16 22 $m 51 51 29 17 17 Core 367 367 356 2015 2015 results results receivables in respect to West- included in general and general and in included elopment earnout payment agreeme earnout payment elopment vestment balance rela vestment Xellia Pharmaceuticals cash for a consi $m 21 78 68 68 of West-Ward Columbus, which was closed which was closed Columbus, West-Ward of 109 575 465 2016 m acquisition represents the net differencem acquisition represents the ulting ulting cons party third comprise mainly expenses lated results results Reported nout payment agreement re – – – 24 $m 10 43 27 2016 other other an indemnification an claimin the US, which included was in ot (note 5) mainly in MENA and were were and MENA in mainly ility in relation to the co-dev relation in ility items and items and Exceptional adjustments e related to the following: the following: e related to with the future earnout payments to be made (note 32). be made with (note the 32). future to earnout payments

$m 68 68 21 21 68 25 85 Core Core 548 548 465 2016 d has been divested during 2016 for minimal value. value. for minimal 2016 during been divested d has results financial liability and asset arising fro asset arising liability and financial re incurred in relation to the acquisition rnation costs related to the assets. to the assets. related costs hibernation net of is The gain income. ting presented the impairment of the remaining in the remaining presented the impairment of e sale of Bedford manufacturing facilities to manufacturing facilities of Bedford e sale ing of management teams teams management of ing ability in relation to the co-development ear co-development to the relation in ability neral and administrative expense. Acquisition re expense. Acquisition neral and administrative corporate expenses, while integration related related integration while expenses, corporate unallocated in the lated expenses were included l items and other adjustments ar and other adjustments items l impairment impairment 29 February 2016. Acquisition re Acquisition 29 February 2016. ge the in expenses were included Acquisition and integration related costs we integration related costs and Acquisition 32). The remeasurement is included in finance cost/income. in finance cost/income. included is 32). The remeasurement Remeasurement of contingent consideration, from the valuation of the liabilities and assets associated payments with the future contingent liab the financial to in addition (note 43) acquisition Columbus resulting from the valuation of the liabilities associated associated liabilities of the valuation the from resulting limited. Hikma’s share in Unimark Remedies Limite Remedies in Unimark share Hikma’s limited. Remeasurement of the financial li Remeasurement of the financial Impairment of investment in associates re in associates investment of Impairment operating income. income. operating Severance costs related to restructur Proceeds from legalProceeds from claimsreceivedinsettlement refer to cash of of $30 million was included in other opera other in included was million $30 of administrative expenses. Gain assets th related of from the to sale services, legal and professional fees. fees. professional legal and services,

(including software) Amortisation and Amortisation Staff costs (note 7) Inventories: Inventories: inventories of Write-down Cost of inventories recognised as an an as recognised inventories of Cost expense Research and development (other than than (other development and Research costs) staff Annual Report 2016

Net foreign losses exchange impairment and Depreciation

Profit for the year has been arrived at after charging:hasafter arrivedProfitbeen at for the year 6. Profit for the year • In previous periods exceptiona periods In previous 5. Exceptional items and other adjustments continued continued adjustments other and items 5. Exceptional adjustments: Other •

• • • • • Annual Report 2016

– – – – – 2 2 6 6 (2) (2) (6) (6) (7) $m (16) (16) (14) (14) 2015 2015 pment pment on and Columbus Columbus nding of nding tion, and is and tion,

– – – – 4 4 (6) $m 18 18 (32) (32) (80) (80) (80) (12) (37) (19) (10) (10) (27) (27) (41) (41) (18) (18) which was 2016 (149) (149) (37)

Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals velopment expenses. expenses. velopment y acquired as part of West-Ward part of acquired as y and cost of sales respectively. Acquisiti respectively. sales of cost and y and equipment as a resultprevious of lestones in respect of a previous acquisi in respect of a previous lestones the research and de the research e unallocated corporate expenses, while corporate expenses, while e unallocated ed income statement to assist in the understa in the statement to assist ed income ofessional fees, other costs represent severance represent other costs fees, ofessional is included in other operating income. income. operating in other included is the acquisition of West-Ward Columbus of acquisition the the research and development expenses. and development expenses. the research ite-downof certain R&D elements associated with the co-develo ir value uplift of ir the value inventor uplift

pment relates to the write-off of machiner relates pment to the write-off on related expenses are included in th are included expenses on related es since 2011 and has been included in included has been and es 2011 since not achieving certain performance-related mi performance-related not achieving certain on, financial liability and asset, net net asset, liability and on, financial ted costs are incurredted costs are in to relation e divestiture of certain products, and products, of certain e divestiture ngible assets the relateswr to third party consulting services, legal and pr services, party consulting third ments are disclosed separately in the consolidat separately are disclosed ments d intangible assets has been included in included been has assets intangible d lated intangible assets intangible lated lated intangible assets intangible lated

Write-down of product related inta related product Write-down of parti third with agreements entered into retention payments paid. paid. retention payments Gainassets relates to of th from sale of sales. cost in included and are acquisition, due to is liability Release of contingent income. other operating in included equi and property, plant of loss Impairment expenses. in other operating included is and acquisition, relate product of Impairment related expenses mainly comprise mainly related expenses of the the fa amortisation Inventory adjustments reflect related completed on 29 February 2016. Acquisiti 2016. February on 29 completed expense and administrative in the general included are expenses other and integration Acquisition, integration and other rela and integration Acquisition,

Remeasurement Remeasurement of contingent considerati Exceptional items and other adjustments adjustments and other items Exceptional Exceptional items included in operating profit profit included in operating items Exceptional in associates investment of Impairment included in profit items Exceptional Other adjustments Intangible amortisation other than software • Impairment of product re product of Impairment • • • • Gain from sale of assets, net net assets, of sale from Gain liability Release of contingent equipment plant and property, of Impairment • Inventory related adjustments adjustments Inventory related Proceeds fromlegal claims Write-down of products re products Write-down of

158 the Group’s core performance. core the performance. Group’s Exceptionalitems: • Financial statements statements Financial continued statements financial consolidated the to Notes adjustments other and items 5. Exceptional and other adjust Exceptional items Exceptional items other costs and integration Acquisition, Severance costs Financial statements Notes to the consolidated financial statements continued

6. Profit for the year continued On 12 May 2016 PricewaterhouseCoopers LLP was appointed and replaced Deloitte LLP. The Group auditor’s remuneration on a worldwide basis was as below: 2016 2015 $m $m Audit of the Company’s annual accounts 0.6 0.4 Audit of the Company’s subsidiaries pursuant to legislation 1.6 1.2 Total audit fees 2.2 1.6 Assurance services* 0.2 0.1

Total audit and assurance fees 2.4 1.7

- Tax compliance services – 0.1 - Tax advisory services 0.6 0.3 - Other services** – 2.5 Total non-audit fees 0.6 2.9 Total fees 3.0 4.6 * Assurance services relate to review procedures in respect of the interim financial information. ** Other services include transaction services, in particular relating to West-Ward Columbus prospectus/class one circular. A description of the work of the Audit Committee is set out inthe Audit Committee report on pages 84 to 90 and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor.

7. Staff costs The average monthly number of employees (including Executive Directors) was: 2016 2015 Number Number Production 4,904 3,896 Sales and marketing 2,147 2,164 General and administrative 992 865 Research and development 296 264 8,339 7,189

2016 2015 $m $m Their aggregate remuneration comprised: Wages, salaries and bonuses 320 247 Social security costs 29 22 Post-employment benefits 16 7 End of service indemnity 6 14 Share-based payments (note 38) 22 15 Car and housing allowances 17 19 Health insurance 32 19 Other costs and employee benefits 23 19 465 362

168 Hikma Pharmaceuticals PLC 160 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

– – – – 2 2 1 2 3 3 $m $m 161 169 2015 2015 2015 2015 2015 results results results Reported Reported Reported ncome. 2 – – – – – – – – – – – 24 16 – 15 8 8 (29) 2 2 57 $m $m 2015 2015 other 2015 2015 2015 2015 (note 5) 5) (note (note 5) (note 5) (note 5) items and Exceptional Exceptional Exceptional adjustments adjustments adjustments items other and items other and – – – – – 2 2 1 3 3 24 16 15 $m $m 17 17 13 30 55 55 $m $m $m (37) (37) (54) (54) (5) (59) Core Core Core Core 2015 2015 2015 2015 Core Core 2015 2015 results results results results results ms and other product – related i – related other product ms and 2 2 9 1 26 22 41 13 $m $m $m 12 38 (69) 104 2016 2016 2016 (107) results results results results results results Reported Reported Reported note 19) and foreign exchange losses. losses. exchange and foreign note 19) – – – – – – 9 9 41 $m $m $m 41 22 12 (10) 2016 2016 2016 other other other other other (note 5) (note 5) (note 5) gains, proceeds from legal clai legal from proceeds gains, items and items and items and items and items and Exceptional Exceptional Exceptional adjustments adjustments adjustments – – 2 1 1 3 2 2 13 26 22 $m $m $m 63 63 16 16 (81) (81) (97) (97) Core Core Core Core Core Core 2016 2016 2016 results results results results results results inly of write-down of inventories ( of inventories write-down of inly ts mainly of foreign exchange foreign of mainly ts erdrafts and loans Other financial income income Other financial Other bank charges Remeasurement of contingent liability financial consideration, and asset, net Net foreign loss exchange

Annual Report 2016

Interest on Eurobond Interest on Eurobond 10. Finance expense expense Finance 10. Remeasurement of contingent liability financial consideration, and asset, net Interest income income Interest Core other operating income consis income Finance 9. Core other operating expenses consist ma consist Core other operating expenses Other operating expense Other operating expense income Other operating

8. Other operating expenses (net) (net) expenses operating Other 8.

Interest on bank ov Interest on Annual Report 2016

7 7 $m $m 0.1 0.1 2.5 0.3 0.3 2.9 4.6 1.7 1.7 0.4 0.4 1.6 1.6 1.2 1.2 0.1 22 22 14 14 15 15 19 19 19 19 247 247 865 865 264 362 2015 2015 2015 2015 2015 7,189 7,189 3,896 3,896 2,164 Number Number lanation lanation

– – 6 6 $m $m 0.6 0.6 1.6 1.6 0.2 29 29 16 22 22 17 17 32 23 0.6 0.6 0.6 3.0 2.4 2.4 2.2 2.2 320 320 992 992 296 465 2016 2016 2016 Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals 8,339 8,339 4,904 4,904 2,147 Number Number services are provided by the auditor. the auditor. by are provided services the Audit Committee report on pages 84 to 90 and includes an exp 90 to pages 84 on report Committee the Audit s appointed and replaced Deloitte LLP. LLP. Deloitte replaced and s appointed (including Executive Directors) was: Executive Directors) was: (including a worldwide basis was as below: was as basis below: a worldwide ministrative

- Tax complianceservices - Tax advisory services - Other services** fees Total non-audit fees Total Social security costs costs security Social benefitsPost-employment Wages, salaries and bonuses bonuses and Wages, salaries indemnity End of service Share-based payments (note 38) Research and development Research and development allowances Car and housing insurance Health benefits and Other employee costs Total audit and assurance fees 160 * information. financial interim the of respect in procedures review to relate services Assurance ** Other services include transaction services, in particular relating to West-Ward Columbus prospectus/class one circular. set out in is Committee work of the Audit of the A description non-audit when safeguarded is independence and objectivity of how auditor costs 7. Staff The average monthlyemployeesnumber of Production Sales and marketing General and ad Their aggregate remuneration comprised: Financial statements statements Financial continued statements financial consolidated the to Notes 6. for continued Profit the year LLP wa PricewaterhouseCoopers On 12 May 2016 accounts annual Company’s of the Audit The Group auditor’s remuneration on on remuneration The Group auditor’s legislation to pursuant subsidiaries Company’s of the Audit fees Total audit Assurance services* Financial statements Notes to the consolidated financial statements continued

11. Tax 2016 2015 $m $m Current tax: Foreign tax 115 68 Adjustments to prior year 2 (1) Deferred tax (note 17): Current year (57) (5) Adjustments to prior year (8) 2

UK corporation tax is calculated at 20.0% (2015: 20.3%) of the estimated assessable profit made in the UK for the year. The Group incurred a tax expense of $52 million (2015: $64 million). The effective tax rate is 24.8%, (2015: 20.1%). The increase in the effective tax rate reflects increased earnings in higher taxed jurisdictions, particularly in the US where the federal corporate tax rate is 35.0%. Taxation for all 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 consolidated income statement as follows: 2016 2015 $m $m Profit before tax 210 318 Tax at the UK corporation tax rate of 20. 0% (2015: 20.3%) 42 64 Profits taxed at different rates 13 (16) Permanent differences – non taxable income (17) (17) – non deductible expenditures 13 6 – adjustment on intercompany stock (14) 4 – Other (1) (1) State and local taxes 2 1 Temporary differences for which no benefit is recognised 13 11 Change in provision for uncertain tax positions 5 11 Unremitted earnings 2 – Prior year adjustments (6) 1 Tax expense for the year 52 64

The format of the 2016 tax reconciliation has been expanded to clarify the reconciling items. For consistency, we have re-classified the 2015 comparatives using the same methodology. Profit taxed at different tax rates relates to profits arising in overseas jurisdictions where the tax rate differs from the UK statutory rate. Permanent differences relate to items which are non-taxable or no tax relief is ever likely to be due. The major items are differences in GAAP between IFRS and local territory GAAP, expenses and income disallowed where they are covered by statutory exemptions, foreign exchange differences in some territories and statutory reliefs such as R&D and manufacturing tax credits. Temporary differences for which no benefit is recognised includes items on which it is not possible to book deferred tax and comprise mainly of the impact of creating / (utilising) unrecognised temporary differences. The change in provision for uncertain provisions relates to the provisions the Group takes in the event of a revenue authoritysuccessfully taking an adverse view of the positions adopted by the Group in 2016 and primarily relates to a transfer pricing adjustment. Changes in deferred tax arise where a difference arises in the timing of the tax and accounting treatment of items. Prior year adjustments include differences between the tax liability recorded in the tax returns submitted for previous years and estimated tax provision reported in a prior period’s financial statements. This category also includes adjustments (favourable or adverse) in respect of uncertain tax positions following agreement of the tax returns with the relevant tax authorities.

170 Hikma Pharmaceuticals PLC 162 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

2 ‘m $m $m 30 22 64 12 163 171 199 201 2015 2015 2015 2015 share results n Number Reported Reported , the , the and other and sic earnings sic Earnings per Earnings per mber of of mber 126.6 125.4 Cents – 1 1 ‘m $m $m 51 51 26 77 233 233 234 2016 2015 2015 (note 5) Number Number Exceptional adjustments items other and $m Core 286 286 (34) 252 2015 2015 2015 Cents 143.7 143.7 142.3 results results per share per share ng on 19 May 2017 and has not bee not and has 19 May 2017 ng on Core Core earnings e Group before exceptional items items e Group before exceptional $m ns is shown in the table below. Core ba below. Core the table in shown is ns 66.5 66.2 155 2016 2016 share Cents results results Reported Reported Earnings per $m 2016 (121) other other (note 5) items and items and ghlight the Core results of th of Core results the ghlight Exceptional le to holdersequityof the parent by the average nu weighted adjustments e number of shares in issue at 31 December 2016 (239,955,000) 31 December 2016 at issue in shares of e number ders at the Annual General Meeti Annual ders at the $m Core Core 276 276 2016 2016 Cents 118.5 118.5 117.9 results December 2016 is 22.0 cents (2015: 21.0 cents). cents). 21.0 cents (2015: is 22.0 December 2016 per share 2016 of 11.0 cents (2015: 11.0) per share per 11.0) (2015: cents of 11.0 2016 r the purposes of diluted earnings per share per share diluted earnings of r the purposes r the purposes of basic earnings per share share per earnings basic of purposes r the 2015 of 21.0 cents (2014: 15.0 cents) per share share per 15.0 cents) cents (2014: of 21.0 2015 nd core earnings used is also set out below: below: set out is also used nd core earnings es used for the basic and diluted calculatio the basic and diluted for es used Core earnings ended 31 December 2014 of 6.0 cents cents 6.0 2014 of 31 December ended ntial Ordinary Shares: ntial Ordinary Weightednumber of Sharesaverage Ordinary fo Number of shares Annual Report 2016 Basic Basic Diluted Share-based awards included as a liability in these financial statements. Based on th Based statements. these financial in a liability as included liability million. unrecognised is $53 Weightednumber of Sharesaverage Ordinary fo Effect of dilutive pote Earnings for the purposes of basic and of and basic the purposes Earnings for net profit share being per diluted earnings attributable to equity holders of the parent The proposed final dividend is subject to approval by sharehol to approval by subject is dividend The proposed final pershare 13. Earnings iscalculatedper Earningsshare dividing by attributab the profit The proposed final dividend for the year ended 31 for the year The proposed dividend final Amounts recognised as distributions to equity holders in the year: holders to equity as distributions recognised Amounts December year ended Final 31 for dividend the 12. Dividends on ordinary shares shares ordinary on 12. Dividends shar number of shares. ordinary The ordinary per share to are hi intended diluted earnings per share and Core a of the reported A reconciliation adjustments.

Interim dividend for the year ended for dividend 31 December Interim Special dividend for final the year

Annual Report 2016

– 1 1 4 4 1 1 6 6 2 2 (1) (1) (5) (5) (1) (1) $m $m 11 11 11 11 64 64 64 64 68 68 (17) (17) (16) (16) 318 318 2015 2015 2015 2015 ign se in in se ified the successfully successfully ) in respect of of respect in ) nd estimated estimated nd erences in

5 orate tax rate 2 2 2 2 2 2 (1) (6) (8) $m $m 13 13 52 52 13 13 42 42 13 statutory rate. rate. statutory (14) (14) (57) (57) (17) (17) 210 210 115 115 2016 2016 Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals r pricing adjustment. adjustment. r pricing eatment of items. eatment of items. submitted for previous years a previous for submitted ems. For consistency, we have re-class have we consistency, For ems. mprise mprise co and tax deferred book to possible not is ily relates to a ily transfe relates to cludes adjustments (favourable (favourable or adverse adjustments cludes tions where tions the tax rate differs from the UK ). The effective tax rate is 24.8%, (2015: 20.1%). The increa The 20.1%). (2015: 24.8%, tax rate is ). The effective as R&D and manufacturing tax credits. tax credits. manufacturing and R&D as ty recorded in the tax returns ty recorded e estimated assessablemade inprofit UK the for the year. e provisions the Group takes in the event Group of takes e a in provisions revenue the the authority re tax per the consolidated statement incomeas follows: tax returns with relevant tax authorities.the rates prevailingjurisdiction. in the respective expensesand income disallowed where they are covered by exemptions,statutory fore been expanded to clarify the reconciling it reconciling the to clarify been expanded is recognised includes items on which it on which items includes is recognised h are or non-taxable no tax relief islikely ever be due. to The majoritems are diff nings in higher taxed jurisdictions, particularly in the US where the federal corp federal the where US the in particularly jurisdictions, taxed higher in nings financial statements. Thiscategory also in tax and accounting tr tax and accounting in the of timing the fference arises s to profits arising in overseas jurisdic overseas in arising profits to s ilising) unrecognised temporary differences. temporary differences. unrecognised ilising) no benefit is recognised benefit is recognised no me territories and statutory reliefs such and statutory me reliefs territories

Adjustments to prior year year to prior Adjustments Current year Foreign tax year to prior Adjustments Changes in deferred tax arise Changes where a di Prior year adjustments include differences between the tax liabili tax provision reported in a prior period’s period’s in a prior tax provision reported the of agreement following positions tax uncertain Permanent differences itemsrelate to whic GAAP between IFRS and local GAAP, territory so in exchange differences benefit Temporary no differences for which / (ut impact of creating of the mainly The change provisionsfor inprovision uncertain th relates to primar and in 2016 Group the adopted by view of taking the positions an adverse 2015 comparatives using the same methodology. methodology. the same using 2015 comparatives Profit taxed at tax different rates relate Temporary differences for which Change in provision for uncertain tax positions positions for uncertain tax Change in provision The format of the 2016 tax reconciliation has has reconciliation tax 2016 the of format The – Other State and local taxes is 35.0%. 35.0%. is Taxation for alljurisdictions is calculated at the The charge for the year can be befo reconciled to profit Unremitted earnings Unremitted earnings Prior year adjustments Tax expense for the year – non deductible expenditures – expenditures non deductible – adjustment on intercompany stock stock intercompany on – adjustment UK corporation tax is calculated at 20.0% (2015: 20.3%) th of 20.3%) (2015: at 20.0% calculated is tax UK corporation $64 million (2015: $52 million a tax expense of The Group incurred the effective tax rate reflects increased ear 162 Profit before tax 20.3%) (2015: 20. 0% tax rate of Tax at the UK corporation Profits taxed at different rates Permanent differences income taxable – non Financial statements statements Financial continued statements financial consolidated the to Notes 11. Tax Current tax: Deferred tax (note 17): Financial statements Notes to the consolidated financial statements continued

14. Intangible assets Marketing Customer Product-related rights and Goodwill relationships intangibles Trade names others Software Total $m $m $m $m $m $m $m Cost Balance at 1 January 315 75 256 10 17 34 707 2015 Additions – – 35 – 2 19 56 Remeasurement* (8) – – – – – (8) Translation adjustments (14) (6) (4) (1) (1) (1) (27) Balance at 1 January 293 69 287 9 18 52 728 2016 Additions – – 18 – 19 35 72 Acquisition of 420 – 743 – – 1 1,164 subsidiaries (note 43) Write-down (note 5) (18) (18) Disposals – – (5) – (1) – (6) Translation adjustments (30) (8) (19) – – (1) (58) Balance at 31 683 61 1,006 9 36 87 1,882 December 2016 Amortisation Balance at 1 January (1) (33) (42) (2) (8) (19) (105) 2015 Charge for the year – (5) (10) – (1) (4) (20) Impairment (note 5) – – (2) – – – (2) Translation adjustments – 3 2 – – 1 6 Balance at 1 January (1) (35) (52) (2) (9) (22) (121) 2016 Charge for the year – (5) (30) (1) (1) (7) (44) Adjustments to – – (2) – 2 – – beginning balance Impairment – – (6) – – – (6) Translation adjustments – 4 3 – – 1 8 Balance at 31 (1) (36) (87) (3) (8) (28) (163) December 2016 Carrying amount At 31 December 2016 682 25 919 6 28 59 1,719 At 31 December 2015 292 34 235 7 9 30 607

* Further to Bedford Laboratories (Bedford) acquisition in 2014, a reduction of $8 million was made to the provisional goodwill recognised on the acquisition of Bedford as a result of the adjustment to inventory, propertyplant and equipment and deferred tax made prior to the end of het measurement period on 15 July 2015. As at 31 December 2016, the Group had intangible assets under development amounting to $604 million (2015: $156 million) which are not subject to amortisation until ready for use. Within the balance, there is $496 million in relation to West-Ward Columbus acquisition. The Group tests the product-related intangible assets under development for impairment annually using five-year projected cash flows based on sales growth rates, profit margin discounted at discount rates consistent with the Group WACC and adjusted where appropriate. The majority of the Group’s product-related intangible assets are marketed in the US region, and the carrying values of individually significant assets within the product-related intangibles are presented below. As at 31 December 2016 2015 $m $m Generic Advair 306 –

172 Hikma Pharmaceuticals PLC 164 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

– $m 75 32 43 30 165 173 187 292 2015 Pre–tax dates is dates is each er that the er pected to pected o benefit o benefit discount rate rate discount

As at 31 December As 31 at 2% 16%* 2% 13% 2% 13% 2% 12% 2% 17%** $m 75 75 32 43 36 164 164 407 682 2016 wth rates being reflected in in reflected being rates wth Terminal average growth rates.growth average

(perpetuity) (perpetuity) ws of the CGU. growth rate growth

Group does not consid e chance that changes to the key changeschance that to the e ternal market information. information.market ternal mate of future long–term ts in the MENA, the nerating units (CGUs) that are expected t that (CGUs) units nerating ndications that goodwill may be impaired. be impaired. that goodwill may ndications s and the discount rate. The rate discount discount is s ex and the ial impairment charges. charges. impairment ial CC, adjusted where appropriate. appropriate. where CC, adjusted sts based on both internal and ex both on based sts , adjusted for expected changes. mbus. There is a reasonably possibl pairment tests of CGUs are as follows: are as follows: CGUs tests of pairment sition should reduce. Also, any change in expected product launch product change in expected any reduce. Also, should sition based on management’s esti based on management’s costs of disposal and in value costs use disposal of h could mitigate any potent mitigate h could unt of goodwill has been allocated as follows: been allocated as follows: goodwill has unt of nt or more frequently if there are i if there frequently more nt or on the impairment of each CGU’s carrying value. Whilst the headroom* varies for for varies the headroom* Whilst value. carrying each CGU’s impairment of on the is allocated at acquisition to the cash ge to the at acquisition is allocated the short-term impact of the political even Higher of fair value less value Higher fair less of Sales growth rates Discount rate Discount Oncology Terminal growth rate rate growth Terminal Bedford West-Ward Columbus Terminal growth rates Terminal growth WA on Group rates based Discount Branded MSI Profit margins margins Profit Margins past reflect experience 5 years irment. The most uncertain assumptions are sale are assumptions uncertain The most irment. Oncology. ounted cash flow models used in the im the in used models flow cash ounted losses in the long-term has increased. increased. has long-term in the losses within within the financial projections, given the historical financial performance. performance. financial historical the given projections, financial the Determination of assumptions Growth rates are internal foreca

Key assumptions likely to result in potential operational changes whic changes operational potential in result to likely impairment of likelihood Whilst there is some uncertainty regarding reduce over time as any risk-premium associated with the acqui associated with the reduce any risk-premium over time as

Annual Report 2016 * as Headroom is defined the excess theof, higher of fair value the and value in use, to the carryingcompared value a CGU. of The Group has conducted a sensitivity analysis a sensitivity The Group has conducted * flo cash the in included market/country associated the of profits operating the to according blended is rate discount Branded

Details related to the disc the to related Details rate Terminal growth rate and discount gro higher the in assumed uncertainties ** additional the for account to Columbus West-Ward for used was rate discount higher A CGU, CGUthe with the leastheadroom relative West-Wardis Colu impa in result could assumptions

Valuation basis Valuation basis * is included CGU EUP impairme for annually goodwill The Group tests West-Ward Columbus West-Ward Columbus Oncology* Injectables: Injectables: Branded 14. Intangible assets continued combination in a business Goodwill acquired carrying amo The combination. from that business

- MSI - Bedford Total Period of specific projected projected specific Period of cash flows Annual Report 2016

– – – – 8 8 6 6 $m $m are Total 728 728 2015 2015 (163) (163) (121) (121) priate. priate. 1,882 1,882 1,719 1,719 flows flows quisition. ually (18)

As at 31 December As 31 at – – – (8) – (6) – (6) – (2) 1 1 1 1 1 1 1,164 (1) (1) (27) (4) (4) (20) (1) (1) (58) (7) (7) (44) $m $m 52 52 87 87 59 59 (28) (28) (22) (22) 306 306 2016 Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals he measurement period on recognised on the acquisition

five-year projected cash projected five-year cash – – – – – – – 2 2 2 19 56 9 30 607 (1) (1) (1) (8) (8) (19) (105) (9) (1) $m 18 36 28 others Software rights and Marketing Group WACC and adjusted where appro and adjusted WACC Group to $604 million (2015: $156 million) which million) $156 (2015: million $604 to

– – – – – – – – – 19 35 72 – – – – 9 9 6 7 (1) (1) (3) (2) (2) $m region, and the carrying values of individ of values and the carrying region, 6 million in West-Wardrelation to Columbus ac impairment annually using using annually impairment

– 3 2 $m (87) (52) 287 287 919 1,006 1,006 intangibles Trade names Product-related plant and equipment and deferred tax made prior to the end of t discount rates consistent with the with rates consistent discount (18)

– – (2) – 743 – (6) – 35 – 18 – (5) – – (2) 4 4 3 3 (5) (5) (30) (5) (5) (10) (6) (6) (4) (8) (8) (19) $m 69 69 61 61 25 25 (36) (36) (35) (35) ssets under development for for development under ssets Customer Customer tangible assets are US marketed in the tangible relationships relationships tangible assets under development amounting amounting under development assets tangible

– – – – – – – – – – – ated intangiblesare presented below. (1) (1) (33) (42) (1) (8) $m 315 75 256 10 17 34 707 293 293 420 683 682 292 34 235 Goodwill

rates, profit margin discounted at at discounted margin rates, profit

of Bedford as a result of the adjustment to inventory, property property inventory, to adjustment the of result a as Bedford of 15 July 2015. Cost Impairment Translation adjustments Balance at 1 January Balance at 1 January 2015 Additions Translation adjustments adjustments Translation January 1 Balance at 2016 (14) of Acquisition 43) (note subsidiaries Additions Additions 5) Write-down (note Disposals Balance at 31 31 Balance at 2016 December Remeasurement* Translation adjustments adjustments Translation Amortisation (30) 5) (note Impairment Translation adjustments Balance at 31 31 Balance at 2016 December Carrying amount amount Carrying Balance at 1 January January 1 Balance at 2015 year the for Charge Balance at 1 January January 1 Balance at 2016 At 31 December 2016 2016 December 31 At December 2015 At 31 Charge for the year Adjustments to to Adjustments balance beginning

Generic Advair 164 * goodwill provisional the to made was million $8 of reduction a 2014, in acquisition (Bedford) Laboratories Bedford to Further had in the Group 2016, December As at 31 not subject to amortisation ready for until use. Within balance,the there is $49 intangible a product-related The Group tests the growth sales based on Financial statements statements Financial continued statements financial consolidated the to Notes 14. Intangible assets The majority of the Group’s product-related in product-related Group’s of the The majority significant withinassets the product-rel Financial statements Notes to the consolidated financial statements continued

14. Intangible assets continued Other intangible assets Amortisation of all intangible assets with finite useful lives is charged on a straight-line basis. Customer relationships: Customer relationships represent the value attributed to the existing direct customers that the Group acquired on the acquisition of subsidiaries. The customer relationships have an average estimated useful life of 15 years (2015: 15 years). Product related intangibles: Product related intangibles include two types: a. Product files and under-licenced products: The estimated useful life varies from five to sixteen years (2015: five to fifteen years). b. In process product files: Mainly represents files acquired from Bedford and West-Ward Columbus that are not yet ready for use. Trade name: Trade names were mainly recognised on the acquisition of Hikma Germany GmbH (Germany) and Promopharm. The trade name recognised on the acquisition of Hikma Germany GmbH (Germany) has an indefinite economic useful life. The carrying value of Hikma Germany GmbH (Germany) trade name is $4 million (2015: $5 million). The trade names recognised on the acquisition of promopharm have useful lives of 10 years. Marketing rights and others a. Marketing rights: are amortised over their useful lives commencing in the year in which the rights are ready for use. b. Other acquisition related: This mainly represents intangible assets recognised on the acquisition of Thymoorgan, which relate to its specialist manufacturing capabilities. The estimated useful life varies from 12 years to an indefinite useful life. The carrying value of assets with indefinite lives is $1 million (2015: $1 million). Software: Software intangibles mainly represent the Enterprise Resource Planning solutions that are being implemented in different operations across the Group in addition to other software applications. The software has an average estimated useful life varies from three to five years. As at 31 December 2016, the Group had entered into contractual commitments for the acquisition of intangible assets of $19 million (2015: $49 million).

174 Hikma Pharmaceuticals PLC 166 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

– – 4 $m 167 175 illion) 969 832 832

(325) (390) 1,359 1,359 of assets of assets t and t and

– 19 – 17 – (68) – (50) – (1) – – (10) – 16 2 2 10 (4) (4) (7) $m 90 90 192 192 185 he measurement period recognised on the acquisition construction Total Projects under

– (3) (10) – – (1) (1) – 5 5 9 9 (117) 3 3 8 8 (44) 2 2 5 5 66 6 85 97 118 7 9 9 125 458 (9) (9) (4) (54) (4) (4) (2) (36) (9) (9) (1) (1) (1) (1) (5) (8) (8) (1) (37) $m 98 98 41 84 84 (53) (53) (57) Vehicles, equipment Fixtures and carrying value of $42 million (2015: $45 m $45 million (2015: $42 value of carrying quisition of property, plant and equipment property, of quisition

$6 million (2015: $8 million) in respect in respect million) $8 million (2015: $6 – – 9 2 8 9 6 7 (3) (7) $m and 539 297 360 360 (198) (242) equipment Machinery items around the Group and the net property, Group and plan the around the items

– – – – – – (10) – – 4 10 5 8 8 $m 64 44 12 24 (18) (39) (11) (11) (30) (20) (21) (13) (17) (70) (84) (11) (17) (64) (186) (54) (3) (307) 228 162 31 86 507 302 364 84 71 821 530 446 298 298 180 144 buildings buildings Land and y and Tunisia (2015: Portugal, Germany and Tunisia). and Tunisia). Germany Portugal, (2015: y and Tunisia plant and equipment and deferred tax made prior to the end of t ant and equipment includes an amount of an amount includes equipment and ant red into contractual commitments for the ac commitments red into contractual dged property, plant and equipment having a equipment having plant and property, dged -term loans. This amount includes both specific both includes amount This loans. -term n (2015: $9 million). million). $9 (2015: n of Bedford as a result of the adjustment to inventory, property property inventory, to adjustment the of result a as Bedford of on 15 July 2015. Translation adjustment adjustment Translation Impairment (note 5) (note Impairment Translation adjustment adjustment Translation Disposals Disposals Transfers adjustment Translation Impairment Impairment Annual Report 2016 The net book value of the Group’s property, pl property, Group’s the of value book net The At 31 December 2015 2015 December At 31 depreciation to subject not is Land * goodwill provisional the to made was million $8 of reduction a 2014, in acquisition (Bedford) Laboratories Bedford to Further Balance at 31 December 2016 2016 December 31 Balance at amount Carrying 2016 December 31 At Translation adjustment adjustment Translation Disposals Charge for the year Disposals balance to beginning Adjustments Balance at 1 January 2016 2016 January 1 Balance at Charge for the year Balance at 1 January 2015 2015 January 1 Balance at Balance at 31 December 2016 2016 December 31 Balance at Accumulated depreciation Acquisition of subsidiaries (note 43) (note 43) subsidiaries of Acquisition Balance at 1 January 2016 2016 January 1 Balance at Additions Additions Additions Cost 2015 January 1 Balance at 15. Property, plant and equipment Remeasurement* Disposals Transfers balance to beginning Adjustments

held under finance lease. lease. finance held under had ple the Group 2016, December As at 31 as collateral for various long various as collateral for German in Portugal, businesses Group’s of the equipment had ente the Group 2016, December As at 31 millio $9 to amounting Annual Report 2016 n of n ng ion s from three s from s). s). g value of value of g Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals ul life varie ul rgan, which relate to its mes recognised on the acquisitio ct customers that the Group acquired that the Group ct customers e estimated usef that are that beingimplemented in different indefinite economic useful life. The carryi life. useful indefinite economic quisition of intangible assets of $19 mill $19 of assets intangible of quisition on the acquisition of Thymoo es from five to sixteen years (2015: five to fifteen years). years). fifteen to five (2015: years sixteen to five from es the year in rights which are the ready for use. ions. The software has an The ions. averag varies 12 from years indefiniteto an usefullife. The carryin on (2015: $5 million). The trade na The trade $5 million). on (2015: ve an average estimated useful life of 15 years (2015: 15 year 15 (2015: years 15 of life useful estimated average an ve from Bedford and West-Ward Columbus that are not yet ready for use. use. for ready yet not are that Columbus West-Ward and Bedford from is charged on a straight-line basis. basis. straight-line on a is charged les les include two types: e Enterprise Resource Planning solutions solutions Planning Resource e Enterprise The estimated useful life vari The estimated red into contractual commitments for the ac commitments red into contractual of Hikma Germany GmbH (Germany) has an (Germany) Germany GmbH Hikma of $1 million (2015: $1 million). million). $1 (2015: $1 million Product related intangib Product Mainly represents files acquired le assets with finite usefullives Customer relationships the valueCustomer represent to the attributed existing dire ed on the acquisition of Hikma Germany GmbH (Germany) and Promopharm. Promopharm. and (Germany) of Germany Hikma GmbH acquisition the Trade names ed on were mainly recognis Software intangibles represent th mainly

specialist manufacturing capabilities.The estimated lifeuseful assets with indefinite livesis Customer relationships: Software: operations across the Group in addition to other software applicat software other to addition in Group the across operations to five years. had ente the Group 2016, December As at 31 million). $49 (2015: 166 on the acquisition of subsidiaries. The customer relationships ha relationships customer The subsidiaries. of acquisition the on intangibles: related Product a. products: under-licenced and files Product b. product files: In process Trade name: The trade the name acquisition recognised on a. are amortisedrights: over their useful Marketing lives commencing in b. This related: mainly represents intangible Other acquisition assets recognised Financial statements statements Financial continued statements financial consolidated the to Notes 14. Intangible assets continued Other intangibleassets intangib all of Amortisation milli $4 is name trade (Germany) GmbH Germany Hikma of value others and rights Marketing promopharm have useful lives of 10 years. years. of 10 have useful lives promopharm Financial statements Notes to the consolidated financial statements continued

16. Investments in associates and joint ventures The Group’s share in Hubei Haosun Pharmaceutical Co Ltd (China) is 30.1% at 31 December 2016 (31 December 2015: 30.1%) with an investment balance of $4 million at 31 December 2016 (31 December 2015: $4 million), The Group’s share of the results of Hubei Haosun Pharmaceutical Co. Ltd is $nil (2015: share of the results of Unimark Remedies Limited and Hubei Haosun Pharmaceutical Co Ltd is a loss of $2million). In previous periods, the Group impaired the remaining investment balance related to Unimark Remedies Limited of $7 million which was due to the continuous financial difficulties. Hikma’s share in Unimark Remedies Limited has been divested during 2016 for minimal value. The below represents the Group’s share of the result of Hikma Cure and Hubei Haosun Pharmaceutical Co Ltd. which is included in the consolidated income statement. For the year ended 31 December 2016 For the year ended 31 December 2015 Joint Joint ventures Associates Total ventures Associates Total $m $m $m $m $m $m Balance at 1 January 3 4 7 3 13 16 Share of loss – – – – (2) (2) Impairment of investment (note 5) – – – – (7) (7) Balance at 31 December 3 4 7 3 4 7

Summarised financial information in respect of the Group’s interests in associated companies is set out below: As at As at 31 December 31 December 2016 2015 $m $m Total assets 15 214 Total liabilities 5 160 Net assets 10 54 Group’s share of net assets of associates 3 13

For the For the year ended year ended 31 December 31 December 2016 2015 $m $m Total revenue 4 49 Net loss – (23) Group’s share of loss of associates – (2)

17. Deferred tax Certain deferred tax assets and liabilities have been appropriately offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes: As at 31 December 2016 2015 $m $m Deferred tax liabilities (15) (21) Deferred tax assets 172 70 157 49

176 Hikma Pharmaceuticals PLC 168 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

– 1 2 4 2 5 $m $m 44 46 49 169 177 157 2015 t and t and capital, capital, dictability dictability es of $2 of es $122 million),$122 le any recognised. reverse in the – – – – – – 39 1 1 3 7 7 $m As at 31 December $m 38 38 48 2016 the end of the measurement payments Total its in the US. US. the in its ill recognised on the ion in relation of West- of in relation ion Share-based t related technologies from technologies t related – – (1) (1) 1 1 2 2 2 2 6 6 $m (29) (29) (13) (13) through the Group’s venture capital venture Group’s the through sh as part of certainsh as part working earnings of $208 million (2015: million (2015: of $208 earnings – – sses on which no deferred tax is deferred no on which sses 1 5 1 tted earnings of overseas subsidiari of overseas earnings tted $m (23) (18) re reclassified to intangible assets whi intangible assets to re reclassified assets Fixed assets nt receivable of $118 mill $118 receivable of nt llion (2015: $164 million) due to the unpre million) $164 (2015: llion es and it is probable that they will not that probable is it es and oup and movements thereon during the curren thereon during movements oup and Amortisable Amortisable re both products and produc and products re both – – – (3) (3) $m 74 74 202 term in two venture capital companies companies venture capital in two temporary differences* Other short- Other related technologies we related technologies – – 70 10 (16) (1) 65 – – – – – 61 (20) (2) 1 1 mporary differences relate to lo mporary differences $m costs charge backs, product returns and unrealised intercompany prof intercompany unrealised and returns product backs, charge y differences relating to the y unremi differences relating ognised on the remaining unremitted unremitted the remaining ognised on Deferred R&D R&D Deferred – – – – 2 2 1 1 4 4 1 77 (20) (22) 2 42 4 4 6 (1) (1) ilities and assets recognised by the Gr by recognised and assets ilities $m on temporary differences totalling $189 mi $189 differences totalling on temporary classified to inventory once received. once received. inventory to classified Tax losses represents the non-current portion of the total continge the total portion of represents the non-current ntures developments LLC”. LLC”. ntures developments mainly represent advance payments made to acqui advance payments made to represent mainly rred tax liability on temporar rred tax liability ferred tax liability has been been rec has ferred tax liability r receivables. acquisition of Bedford as a result of the adjustment to inventory, property plant and equipment and deferred tax made prior to to prior made tax deferred and equipment and plant property inventory, to adjustment the of result a as Bedford of acquisition 2015. July 15 on period million (2015: nil). No de nil). (2015: million Exchange differences Exchange differences Other non-current asset Other non-current Annual Report 2016 Price adjustment receivable adjustment Price Price adjustment receivable (note 43) Available-for-sale investments Exchange differences Exchange differences goodw ** provisional the to made was million $8 of a reduction 2014, in acquisition (“Bedford”) Laboratories Bedford to Further assets non-current other and Financial 18. ve international “Hikma arm product to related payments any year, the During parties. third re be will products to related payments No deferred has tax been asset recognised assets Other non-current * to relate primarily differences temporary short-term other The Credit/(Charge) to income income to Credit/(Charge) (note 43) subsidiary of Acquisition 2016 December 31 At – At 1 January 2016 2016 January At 1 At 1 January 2015 2015 January At 1 income to Credit/(Charge) 17. Deferred tax continued continued tax 17. Deferred tax are liab the The major following deferred years. prior reporting equity to (Charge) differenc of of the these reversal temporary the timing is able to control as the Group foreseeable future. million in received ca $82 year, the Group the During and 43). 30 (note acquisition Ward Columbus and othe milestones $6 million of investments include investments Available-for-sale

Remeasurement ** None of lossesthese are expected to expire. a defe We have recognised

of the related future profit streams. $167 million of these te these of million $167 streams. profit future related the of Annual Report 2016

7 7 (2) $m $m $m $m 13 13 49 49 54 54 (23) (23) 160 160 214 214 As at As at 2015 2015 2015 2015 2015 2015 For the For the the h was al value. Limited Limited year ended 31 December 31 December

alances (after alances (after – – – 4 4 3 3 5 5 4 As at 31 December (2) (2) (7) (7) (7) $m $m $m 15 15 10 $m (15) (15) (21) 172 172 157 70 49 2016 2016 As at 2016 2016 Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals For the the For year ended 31 December 31 December – – 3 3 13 16 r the year ended 31 December 2015 $m Joint Joint dies Limited of $7 million whic million of $7 dies Limited ventures Associates Total divested during 2016 for minim 2016 divested during armaceutical Co Ltd. which is included in included is which Ltd. Co armaceutical – – 7 7 mber 2016 (31 December 2015: 30.1%) with an 30.1%) December 2015: (31 2016 mber $m share of the results of Unimark Remedies Unimark of results the of share Total llowing is the analysis of tax the b deferred – – 4 4 $m balance related to Unimark Reme to Unimark related balance re and Hubei Haosun Ph Haosun Hubei re and imark Remedies Limited has been imark been Remedies Limited has s interests in associated companies is set out below: below: out set is companies associated in interests s – – 3 3 3 3 $m Joint Joint For the year ended 31 December 2016 Fo ventures Associates ical Co Ltd (China) is 30.1% at 31 Dece is 30.1% Ltd (China) Co ical osun Pharmaceutical Co. Ltd is $nil (2015: (2015: $nil is Ltd Co. Pharmaceutical osun remaining investment remaining cember 2016 (31 December 2015: $4 million), (31 December cember $4 2015: 2016 Ltd is a loss of $2million). $2million). of loss a is Ltd abilities have been appropriatelyoffset. The fo

Group’s share of loss of associates loss of associates of Group’s share Group’s share of net assets of associates associates of net assets of Group’s share due to the continuous financial difficulties. Hikma’s share in Un Hikma’s difficulties. financial due to the continuous 168 Balance at 31 December December 31 Balance at Total assets Total liabilities Net assets Total revenue loss Net tax 17. Deferred Certain and li tax assets deferred liabilities tax Deferred Deferred tax assets Financial statements statements Financial continued statements financial consolidated the to Notes in associates Investments joint 16. and ventures Pharmaceut Hubei Haosun in share The Group’s January 1 Balance at Share of loss respect of the Group’ in information Summarised financial investment balance of $4 million at 31 De Ha Hubei of of the results share The Group’s and Hubei Haosun Pharmaceutical Co Pharmaceutical Haosun and Hubei the impaired the Group periods, In previous The below represents the Group’s share of the result Hikma of Cu consolidated income statement. Impairment of investment (note 5) 5) (note investment of Impairment offset) for financial reporting purposes: purposes: reporting offset) for financial Financial statements Notes to the consolidated financial statements continued

19. Inventories As at 31 December 2016 2015 $m $m Finished goods 120 55 Work-in-progress 73 33 Raw and packing materials 229 144 Goods in transit 18 11 Spare parts 19 8 459 251

Inventories are stated net of provision as follows: ` As at 31 As at 31 December Translation December 2015 Additions Utilisation adjustments 2016 $m $m $m $m $m Provisions against inventory 47 70 (50) (2) 65

20. Trade and other receivables As at 31 December 2016 2015 $m $m Trade receivables 699 432 Prepayments 44 39 VAT and sales tax recoverable 14 15 Employee advances 2 2 759 488

Trade receivables are stated net of provisions for chargebacks and doubtful debts as follows: As at 31 As at 31 December Translation Acquisition of December 2015 Additions Utilisation adjustments subsidiaries 2016 $m $m $m $m $m $m Chargebacks and other allowances 85 1,575 (1,563) – 164 261 Doubtful debts 43 12 – (1) – 54 128 1,587 (1,563) (1) 164 315

The following table provides a summary of the age of trade receivables: Past due Not past due on the less than 90 between 91 between 181 reporting date days and 180 days and 360 days Over one year Impaired Total At 31 December 2016 $m $m $m $m $m $m $m Total trade receivables as at 31 December 2016 841 70 13 24 12 54 1,014 Related allowance for doubtful debts (54) (54) 841 70 13 24 12 – 960 Chargebacks and other allowances (261) Net receivables 699

178 Hikma Pharmaceuticals PLC 170 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

– 5 $m $m $m 22 20 25 171 179 553 102 429 2015 2015 is December December tal, ion (2015: (2015: ion receivables,

As at 31 As at 31 uoted prices in in prices uoted 432 (85) – 517 $m $m $m 77 77 68 10 34 20 12 66 155 155 2016 2016 ment firm to manage manage to firm ment

(43) (43)

4 4 43 560 4 4 rm bank short-term ined against $m US and Jordanian Algerian, se, Past due as part of certain working as capi part of 5 with an asset manage 5 with an asset

$m s in respect of specific trade and other trade of specific respect in s restricted cash reta restricted receivable of $118 million in relation of West-Ward West-Ward million in of receivable relation of $118 deemed irrecoverable, the allowance account deemed irrecoverable, the ir value and classed as level 1 as it uses q uses as it level 1 as classed ir and value between 181 and 360 and days360 Over one year Impaired Total stricted cash held in an escrow account of $2 mill of $2 escrow account in an held stricted cash of $5 million (2015: Sudane (2015: $5 million of

$m rities of three months or less. oup received $82 million in cash in cash $82 million oup received between 91 and 180 days and 180

$m days nt that represents its estimate of losse estimate represents its nt that concentration risk are provided in Note 30. Note 30. in are provided risk concentration less than 90 less than 90 , Algerian and US operations , Algerian

not be recoverable. When the receivable is the receivable When not be recoverable. EIMC United Pharmaceuticals (note 43), and 43), and (note Pharmaceuticals EIMC United represents the agreement 201 the Group entered represents the in agreement $m 423 423 50 25 15 423 423 50 25 15 on the debt instruments. The asset is measured at fa measured The is asset debt instruments. ghly liquid investments with matu with investments liquid ghly Not past due Not past due represents the current portion of the total contingent contingent of represents the the total current portion reporting date reporting date

underlying receivable. receivable. underlying tricted cash amounted to $7 million mainly represent re represent mainly million $7 to amounted cash tricted r receivables. ed at fair value and othe milestones value: fair at designated Investment Columbus acquisition (note 30, and 43). During the year, the Gr During 43). and (note 30, acquisition Columbus Annual Report 2016 Price adjustment receivable adjustment Price Price adjustment receivable (note 43) designat Investment 23. Other current assets assets current Other 23. Cash and cash equivalents include hi include equivalents Cash and cash $38 million) related to the acquisition of to the acquisition related $38 million) on hand Cash at banks and Time deposits underlying of portfolio a $20 million active markets. 22. Cash and cash equivalents equivalents and cash Cash 22. 21. Collateralised and restricted cash cash Collateralised 21. and restricted res and Collateralised Chargebacks and other Chargebacks and allowances Net receivables impairme The an Group allowance establishes for Related allowance for debts doubtful At 31 December 2015 December At 2015 31 Total receivablestrade as at 31 December 2015 20. Trade and other receivables continued continued receivables other and 20. Trade Sudanese to the Group’s granted transactions million). of $2 operations

Money market deposits Money market deposits Others

where it is may where deemed it that is a receivable written-off against the written-off against credit and for policy Group’s on the More details Annual Report 2016

2 2 8 8 $m $m $m $m $m 65 65 39 39 15 33 33 11 11 55 55 54 54 (54) (54) 699 699 960 960 488 488 432 432 144 144 251 251 315 315 2016 261 261 2016 2015 2015 2015 2015 (261) (261) As at 31 As at 31 December December

– – 2 2 As at 31 December As at 31 December (2) $m $m $m $m $m 44 44 14 73 73 18 18 19 (54) (54) 164 164 164 164 759 759 699 699 120 120 229 229 459 459 2016 2016 Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals Translation subsidiaries adjustments Acquisition of Acquisition

– (1) (1) $m $m $m 12 (50) Past Past due Translation adjustments

– $m $m $m 70 24 (1,563) (1,563) between 181 and 360 days Over one year Impaired Total

$m 12 $m $m 47 13 2015 Additions Utilisation 1,587 1,587 1,575 1,575 December between 91 and 180 days

` at 31 As

$m 85 85 43 $m 70 70 128 128 2015 Additions Utilisation days As at 31 December less than 90 for chargebacks and doubtful debts as follows: as follows: debts and doubtful chargebacks for

$m 841 841 70 13 24 12 54 1,014 on the on Not past due past due Not reporting date reporting

Net receivables Total trade receivables Total as at 31 December 2016 The following table provides a summary of the age receivables:of trade

Trade receivables are stated net of provisions At 31 December 2016 Chargebacks and other Chargebacks and allowances 170 20. Trade and other receivables other and receivables 20. Trade Trade receivables Prepayments tax recoverable VAT and sales Employee advances other allowances Chargebacks and debts Doubtful Financial statements statements Financial continued statements financial consolidated the to Notes Inventories 19. goods Finished Work-in-progress inventory against Provisions Raw and packing materials materials packing and Raw transit in Goods Spare parts as follows: net of provision are stated Inventories

Related allowance for debts doubtful Financial statements Notes to the consolidated financial statements continued

24. Bank overdrafts and loans As at 31 December 2016 2015 $m $m Bank overdrafts 10 8 Import and export financing 63 58 Short-term loans – 4 Current portion of long-term loans (note 28) 44 45 117 115

2016 2015 % % The weighted average interest rates paid were as follows: Bank overdrafts 4.32 6.19 Bank loans (including the non-current bank loans) 3.26 2.77 Eurobond 4.25 4.25 Import and export financing 3.75 3.09

Import and export financing represents short-term financing for the ordinary trading activities of the business, and is mainly denominated in US Dollars, Algerian Dinar, and in Saudi Riyals.

25. Trade and other payables As at 31 December 2016 2015 $m $m Trade payables 172 139 Accrued expenses 157 122 Other payables 14 15 343 276

Other payables mainly include employees’ provident fund liability of $5 million (31 December 2015: $5 million), which mainly represents the outstanding contributions to the Hikma Pharmaceuticals Ltd (Jordan) retirement benefit plan, on which the fund receives 3.5% interest.

26. Other provisions Other provisions represent the end of service indemnity provisions for employees of certain Hikma Group subsidiaries. This provision is calculated based on relevant laws in the countries where each Group company operates, in addition to their own policies. Movements on the provision for end of service indemnity: 2016 2015 $m $m 1 January 28 25 Additions 1 5 Utilisation (2) (2) At 31 December 27 28

180 Hikma Pharmaceuticals PLC 172 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

– 1 1 3 3 6 3 5 $m $m 33 45 35 16 29 20 17 49 98 (45) 173 181 f 635 141 494 590 635 589 513 2015 2015 tracting tracting ated with with ated ly. During During ly. sented as a sented ted to the iability.

– 1 1 1 2 2 2 1 2 4 4 As at 31 December As at 31 December $m $m 13 13 44 44 29 13 13 69 (44) (44) 765 765 270 270 495 721 171 519 765 746 109 109 123 319 2016 2016 eration and liabilities liabilities eration and

nother $30 million rela $30 million nother ctual contingent consid ctual contingent esent value of future payments on a co- payments on a value future esent of ndent on successful clinical development o development clinical successful ndent on re cash outflows and the difference re is outflows cash pre and the yments, the agreed Group to has pay yments, the con consideration and a and consideration e secured on plante certainsecured on and equipment. property, : The liability mainly relates to the pr this agreement, milestone payments depe agreement, milestone this In return of receiving such milestone pa such receiving of In return ect the present value of the expected futu value ect of the present is $93 million related to the contingent million is $93 llion in respect to the contingent consideration and $10 million for the contingent l the contingent for million $10 and consideration to the contingent respect in llion represent the current portion of the Group’s contra the Group’s current portion of represent the of the year-end isbalance $4 million. and 31 December 2015, the liability associ liability the 2015, December 31 2016 and 31 December As at products. s of those and liability (note 43) (note 43) liability and includeindirect rebate liabilities across the Group. Long-term financial loansLong-term financial Egyptian pound Egyptian pound Algerian dinar dinar Algerian Saudi riyal Contingent consideration Contingent consideration

Others Less: current portion of long term loans (note 24) 24) loans (note long term of portion Less: current Euro Finance lease obligatations lease obligatations Finance finance cost/income. portion The current and liability Contingent consideration 43) respective million(note $119 and 30 and 43) (note million $220 of of a total acquisition Columbus to West-Ward in relation mi $20 a total of paid the year, the Group Annual Report 2016 The loans at are amortisedheld cost. ar $8 million) (2015: million $3 to loans amounting Long-term Breakdown by currency: US dollar Breakdown by maturity: maturity: by Breakdown one year Within development and earnout agreement. development part and of As balance The of current the portion year-end loansLong-term (Eurobond) Long-term borrowings 28.Long-term financial debts Co-development and earnout payment agreement payment earnout and Co-development Deferred revenue provision goods free and Return 27. Other current liabilities liabilities current Other 27. liability. contingent sheet balance opening Others

Tunisian dinar dinar Tunisian In the second year second In the In the third year

Thereafter In year the fourth In the year fifth Co-development and earnout payment (note 32) (note 32) and earnout payment Co-development these earnout payments was adjusted these to earnout refl payments was adjusted defined products are received by the Group. Group. received by the are defined products party a certain percentage of future sale Annual Report 2016

5 5 4 4 8 8 % (2) (2) $m $m $m 25 25 28 28 15 15 58 58 45 3.09 3.09 4.25 4.25 2.77 2.77 6.19 6.19 139 139 122 276 115 115 2015 2015 2015 2015 2015 2015 2015 2015 eceives ision is is ision denominated denominated

– 1 1 % As at 31 December As at 31 December (2) $m $m $m 28 28 27 27 14 14 10 10 63 44 3.75 3.75 4.25 4.25 3.26 3.26 4.32 4.32 2016 2016 172 172 157 343 117 117 2016 2016 Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals

siness, and is mainly and is mainly siness, tirement benefit plan, on which the fund r which the fund benefit tirement plan, on ng activities of the bu ng activities 1 December 2015: $5 million), which mainly mainly which million), $5 2015: December 1 operates, in addition to their own policies. policies. own their to addition in operates, ons for employees of certain Hikma Group subsidiaries. This prov This Group subsidiaries. Hikma of certain for employees ons the Hikma Pharmaceuticals Ltd (Jordan) re provident fund liability of $5 million (3 million of $5 liability fund provident ents short-term financing for the tradi ordinary end of service indemnity: indemnity: of service end laws in the countries where each Group company where each Group company countries the in laws

Import and export financing Import and repres export Riyals. in Saudi Algerian and Dinar, US Dollars, in Import and export financing financing and export Import Eurobond Eurobond Bank loans (including the non-current bank loans) bank loans) the non-current (including Bank loans Utilisation December At 31 Bank overdrafts Additions

172 25. Trade and other payables payables other and 25. Trade Trade payables Accrued expenses Other payables employees’ include Other payables mainly provisions Other 26. provisi indemnity service of end the represent provisions Other calculated relevant based on 1 January Financial statements statements Financial continued statements financial consolidated the to Notes loans and overdrafts Bank 24. Bank overdrafts financing and export Import Short-term loans 28) (note loans long-term of Current portion The weighted average interest rates paid were as follows: represents the outstanding contributions to contributions represents the outstanding interest. 3.5% for provision Movements on the Financial statements Notes to the consolidated financial statements continued

28. Long-term financial debts continued Included in the table above are the following major arrangements entered into by the Group: (a) A syndicated revolving credit facility of $1,175 million was entered on 27 October 2015. The facility has an outstanding balance of $145 million at 31 December 2016 (with a fair value of $145 million) and a $1,030 million unused available limit. The facility matures on 24 December 2019 and can be used for general corporate purposes. Proceeds of $145million were used mainly to finance part of the cash consideration of West-Ward Columbus acquisition. (b) A $500 million (with a fair value of $495 million) 4.25%Eurobond due April 2020 with the rating of (BB+/Ba1). The proceeds were used to refinance existing debt and to finance part of the cash consideration of West-Ward Columbus acquisition. (c) A nine-year $110 million loan from the International Finance Corporation (IFC) was entered on 19 December 2011. The loan has an outstanding balance of $74 million at 31 December 2016 (with a fair value of $73 million). Quarterly equal repayments for the term loan commenced on 15 November 2013 and will continue until 15 August 2020. The loan has been used to finance acquisitions in the MENA region and MENA’s capital expenditure.

29. Obligations under finance leases Present value of minimum Minimum lease payments lease payments 2016 2015 2016 2015 $m $m $m $m Amounts payable under finance leases: Within one year * 2 2 1 1 In the second to fifth years inclusive 23 25 21 22 25 27 22 23 Less: Interest lease charges (3) (4) Present value of minimum lease payments payable 22 23

* The current portion of the obligations under finance lease is included within Other Current Liabilities (note 27). It is the Group’s policy to lease certain of its property, plant and equipment under finance leases. The average lease term is 5 years (2015: 5 years). For the year ended 31 December 2016, the average effective borrowing rate was between1.88% and 14.00% (2015: between 0.87% and 9.61%).

30. Financial policies for risk management and their objectives Credit and concentration of risk The Group’s principal financial assets are cash and cash equivalents, trade and other receivables, and investments. The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful debts, chargebacks, without recourse discounts, and other allowances. A provision for impairment is made where there is an identified loss event, which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows. The credit risk on liquid funds, investments and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. In line with local market practice, customers in the MENA region are offered relatively long payment terms compared to customers in Europe and the US. During the year ended 31 December 2016, the Group’s largest two customers in the MENA region represented 7.4% of Group revenue, 4.7% from one customer in Saudi Arabia, and 2.7% from a customer in Algeria. At 31 December 2016, the amount of receivables due from all customers based in Saudi Arabia was $113 million (2015: $119 million), and in Algeria was $87 million (2015: $66 million). During the year ended 31 December 2016, three key US wholesalers represented 36.1% of Group revenue (2015: 32.6%). The amount of receivables due from all US customers at 31 December 2016 was $369 million (2015: $109 million). The Group manages this risk through the implementation of stringent credit policies, procedures and certain credit insurance agreements. Trade receivable exposures are managed locally in the operating units where they arise. Credit limits are set as deemed appropriate for the customer, based on a number of qualitative and quantitative factors related to the creditworthiness of a particular customer. The Group is exposed to a variety of customers ranging from government-backed agencies and large private wholesalers to privately owned pharmacies, and the underlying local economic risks vary across the Group. Typical credit terms in the US range from 30-90 days, in Europe 30-120 days, and in MENA 180-360 days. Where appropriate, the Group endeavours to minimise risk by the use of trade finance instruments such as letters of credit and insurance.

182 Hikma Pharmaceuticals PLC 174 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

175 183

2015 ue to 3.7495 3.7495 0.6540 0.7090 9.8008 1.9623 0.9006 0.9006 9.6600 9.6600 7.7160

and ent ent in nts, and nts, he Euro, he 100.4033 100.4033 121.0700 y monitors monitors y he Tunisian Tunisian he s s a going e leasese ties level, level, ties ard continuous continuous n the n the tutions. The do so, do nd is nd Average rates s through the e capital and consolidated ash (note 21). 21). ash (note ents. a specific a 2016 3.7495 3.7495 0.7432 0.7090 9.7920 2.1482 0.9053 0.9053 12.0919 12.0919 10.1112 109.4432 109.4432 116.8907 d and c restricted 2015 2015 nd regional financial insti financial nd regional where it is appropriate to where it is 3.7495 3.7495 0.6754 0.7090 2.0321 0.9168 0.9168 9.6600 9.6600 7.8309 9.8476 hedge against the risk of movem of risk the against hedge level and at the operating enti and at the level 107.1317 107.1317 120.3800 onthly basis in addition to the to addition in basis onthly nce between borrowing cost, asset nce between borrowing cost, crease in the Group’s gearing ratio is d is gearing ratio crease in the Group’s gional and international banks a international and gional . Where possible, the Group uses financing Group uses the Where possible, . Period end rates at the Group will be able to continue a to continue Group will be able at the 2016 nominated in a currency that is other tha is in that a currency nominated by the Board of Directors under the cash / risk the cash / under of DirectorsBoard by the the need to meet dividends, banking covena to banking meet the dividends, need a variety of a derivativevariety financial instrum foreigncurrency rates. Management activel e 22), and collateralise 3.7495 3.7495 0.8077 0.7090 2.3386 0.9500 0.9500 nd loans (note 24), obligations under financ under obligations 24), (note nd loans 15.9490 15.9490 18.2482 10.0699 the where possible, Consequently, dirham. nd Moroccan 110.5274 110.5274 116.8907 xchange rates used are as follows: xchange rates used are as follows: pital and maximisingshareholder the return to th highly rated global a rated global th highly dinar and the Saudi riyal had no impact on the impact had no dinar and the Saudi riyal y markets, the Algerian dinar, the Sudanese pound, t dinar, the Sudanese markets, the Algerian y up’s objective is to reduce, to is objective up’s erefore exposed to foreign exchange movements primarily in t primarily exchange movements exposed to foreign erefore financial capital reports on a m capital reports on financial bt financing at both the Group Group at both the bt financing d relationships with local, re local, with d relationships nancial institutions, through institutions, nancial and fi countries currencies, reign exchange rates change, to rates reign change, exchange views the structurecapital by consideringlevel the of availabl nance, while maintaining the bala nance, while 40 million shares to Boehringer Ingelheim,millionshares as 40 to part Boehringer of the West-W ment and their objectives continued continued objectives their and ment interest rate risk. The Gro interest al debt/equity) was 35% (2015: 54%); the de the 54%); (2015: was 35% al debt/equity) erning future capital spend, as well as as well as spend, capital future erning s liquidity to have reasonable assurance th to have reasonable liquidity s ncy risk management. management. ncy risk ), net of cash and cash equivalents (not equivalents and cash net of cash ), odicallymeet to Hikma’s appetite.risk an pound cannot be hedged at reasonable cost be hedged at cannot an pound t funds, which include bank overdrafts a bank overdrafts include which t funds, ciated with changes in interest ininterest rates and changes ciated with lating to these exposures by entering into entering exposures by these lating to , management reviews management , on account of financial instruments being de instruments of financial on account cash balances to predefined limits approved limits predefined balances to cash of holding cash in certain certain in cash holding of impact on the Group accounts and the e and the accounts impact on the Group s are pegged against the US dollar. are the pegged US s against dollar. trategy objectives whilst reducing its cost of ca of cost its reducing whilst objectives trategy and being of a monetary nature. a monetary being of and currencies to mitigatecurrencies risks. the The Jordanian policy, the group’s excess cash should be held wi be held should cash excess group’s the policy, ssets and liabilities. Due to the lack of open currenc open of lack the to Due liabilities. and ssets and balance sheet curre sheet balance and foreign denominated a denominated foreign Egypti the and dirham Moroccan the dinar, aim of the policy is to mitigate the to risk mitigate is policy aim of the reviews threshold. peri the The policy group USD/Saudi riyal riyal USD/Saudi dirham USD/Moroccan USD/British pound pound USD/British USD/Jordanian dinar pound USD/Egyptian USD/Tunisian dinar Annual Report 2016 USD/EUR USD/EUR USD/Sudanese pound concern and deliver its growth s its concern and deliver Foreign exchangerisk and currencyrisk and is th currency presentation its US dollar as the The Group uses dinar a Tunisian pound, yen, Egyptian Japanese pound, Sudanese dinar, Algerian as fo value in which change contracts, various into Group enters Cash management management Cash of the deployment The Group manages Capital risk management it monitors and capital its manages Group The The Group is exposed The to and Group foreign is exchange exposed 30. Financial policies for risk manage risk for policies Financial 30. Marketrisk Per the management policy. local in denominated facilities

Currency risks as defined by IFRS 7 arise IFRS by defined as Currency risks have a significant The currencies that fluctuations in earnings and cash flow asso cash flow and in earnings fluctuations thesere manage the exposuresvolatility to income statementas those currencie functional of an currency entity USD/Algerian dinar dinar USD/Algerian yen USD/Japanese In order to monitor the available net funds net the available to monitor In order this enables the Group to borrow at competitive rates and to buil at competitive to borrow Group enables the this deemed therefore to be the most effective raisingmeans fi of management, liability review treasury by function. the Group (tot gearing the Group’s December 2016 At 31 borrowing ratios. borrowing ratios. ne plus equity capital as The Group defines 28 (note debts financial long-term (note 29), de obtaining strategy of its Group continued the year, the During the short to medium-term strategic plans conc optimisation of the debt and equity mix. The Group regularly re regularly The Group mix. debt and equity of the optimisation the increaseinshareholders’ equity followingissuance the of Columbus acquisition. acquisition. Columbus Annual Report 2016 f

of of f 1 1 % $m 22 22 23 2015 2015 s macies, macies, erm s ans s in were matures reements.

iate for the 30-120 30-120 he Group is Group he lance of lance ks with high with high ks lease lease payments

5 years (2015: 5 years (2015: 5 of allowances of allowances

1 1 $m 21 21 22 2016 Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals Present value of minimum lease term is

2 (4) $m 25 27 23 2015 been used to finance acquisitions in the acquisitions finance been used to 1.88% and 14.00% (2015: between between (2015: 14.00% 1.88% and and certain credit insurance ag insurance and certain credit and in Algeria was $87 million million $87 was Algeria in and nge from 30-90 days, in Europe in Europe days, nge from 30-90 million were used mainly to finance part o part to finance were used mainly million es. The average yment terms compared to customer coverabilitycash flows. of the Algeria. At 31 December 2016, the amount 2016, 31 December At Algeria. stomers in the MENA region represented 7.4 region represented in the MENA stomers risk by the use of trade finance instrument the of use trade by risk ables, and investments. investments. and ables,

2 ovision for impairment is made where re the is is an impairment for ovision (3) $m 23 25 22 entered on 19 December 2011. The loan ha The December 2011. on 19 entered d because the counterparties are ban the counterparties d because 2016 editworthinessparticular of a customer. T

s presented in the balance sheet are net sheet the balance in s presented Minimum lease payments Other Current Liabilities (note 27). 27). (note Other Current Liabilities on of West-Ward Columbus acquisition. acquisition. Columbus West-Ward on of ented 36.1% of Group revenue (2015: 32.6%). The amount o 32.6%). Group revenue (2015: ented 36.1% of into by the Group: by the Group: into value of $73 million). Quarterly of for $73 equalthe million). t value repayments on) and a $1,030 million unused available limit.unused milliona $1,030 and The facilityon) nt credit policies, procedures procedures credit policies, nt its where they arise.Credit limits are set as deemed appropr cal credit terms in the US ra cal in credit the terms US s, trade and other receiv s, trade are longoffered relatively pa s $369 million (2015: $109 million). million). $109 (2015: million s $369 idence of a reductionidence of in a the re $113 million (2015: $119 million), million), $119 (2015: $113 million Eurobond due April 2020 with the rating of (BB+/Ba1). The proceeds (BB+/Ba1). rating of the with April 2020 due Eurobond t and equipment under finance leas under finance t and equipment ve financial instruments is limite is instruments ve financial continue until 15 August 2020. The loan has loan The 2020. 15 August until continue jor arrangements entered Saudi Arabia, and 2.7% from a customer in a customer from 2.7% and Arabia, Saudi ee key US wholesalers repres wholesalers ee key US nd quantitative factors related to nd the quantitative cr factors related ternational Finance Corporation (IFC) was (IFC) Corporation Finance ternational ourse discounts, and other allowances. A pr and ourse discounts, 31 December 2016, the Group’s largest two cu largest the Group’s December 2016, 31 from government-backed agencies from and government-backed largewholesalers private to privatelyphar owned management and their objectives objectives their and management finance part of the cash considerati of the finance part e cash and cash equivalent e cash and cash s under finance lease is included included within lease is s under finance ere appropriate, the Group endeavours to minimise to the Group endeavours ere appropriate, butable to its trade receivables. The amount receivables. its trade to butable s based was in s Saudi Arabia capital expenditure. investments and derivati investments rnational credit-rating agencies. US customers at 31 December 2016 wa 2016 December 31 at customers US

outstanding balance of $74 million at 31 December 2016 (with a a fair (with 2016 December 31 million at $74 of balance outstanding and will November 2013 on 15 loan commenced MENA region and MENA’s MENA’s and MENA region used to refinance existing debt and to and debt existing refinance to used $145 million at 31 December 2016 (with a fair value of $145 milli $145 a fair(with of value December 2016 $145 million at 31 Proceeds of $145 purposes. for general corporate be used and can 2019 December on 24 the cash considerationof West-Ward Columbus acquisition. (c) (c) In the loan from million $110 A nine-year receivables due from all due from receivables of stringe the implementation through this risk The Group manages for doubtful debts, chargebacks, without rec chargebacks, without debts, for doubtful 174 entered on 27 October 2015. The facility has an outstanding ba an outstanding facility has The October 2015. entered on 27 was (a) million $1,175 of facility credit revolving syndicated A leases: under finance Amounts payable one year * Within risk for policies Financial 30. risk of concentration and Credit ar assets principal financial The Group’s attri is primarily risk credit The Group’s million). $66 (2015: thr 2016, December 31 ended year the During Financial statements statements Financial continued statements financial consolidated the to Notes 28.Long-term financial debtscontinued Includedin the table above are the following ma (b) 4.25% million) (with a fair value of $495 million A $500 leases finance under Obligations 29. Trade receivable inexposures locally the are operatingmanaged un In the second to fifth years inclusive years inclusive fifth second to In the Less:Interest lease charges Present value of minimumlease payments payable * The of current the portion obligation plan property, of its lease certain to policy Group’s is the It years). For the year ended 31 December 2016, the average effective December 2016, borrowing the rate ended was 31 years). between For the year 9.61%). 0.87% and identifiedloss event, which, on basedprevious experience, is ev funds, liquid The credit risk on credit ratings assignedinte by Inline with localmarket practice, customersin the MENA region ended year the During US. the and Europe Group. Typi the vary across risks economic local and the underlying receivables due from all customer due from receivables a qualitative a number of based on customer, of exposedcustomers to a variety ranging

such as letters of credit and insurance. such of and credit as letters days, and in MENA 180-360 days. Wh days. MENA 180-360 in days, and of Group revenue, 4.7% from one customer in one customer 4.7% from of Group revenue, Financial statements Notes to the consolidated financial statements continued

30. Financial policies for risk management and their objectives continued Net foreign currency financial assets/(liabilities) US British Algerian Japanese dollar Euro pound dinar yen Others* 2016 $m $m $m $m $m $m Functional currency of entity: – Jordanian dinar 59 16 – (21) (2) 52 – Euro (12) – – – – – – Algerian dinar (73) – – – – – – Saudi riyal 42 (2) – – (2) – – Sudanese pound (14) – – – – – – Egyptian pound (32) (2) – – (1) – – Tunisian dinar (3) 2 – – – 1 – Moroccan dirham (2) (8) – – – – – Lebanese pound (3) – – – – – – US dollar – 13 – – – 9 (38) 19 – (21) (5) 62 * Others include Saudi riyal and Jordanian dinar. Net foreign currency financial assets/(liabilities) US British Algerian Japanese dollar Euro pound dinar yen Others* 2015 $m $m $m $m $m $m Functional currency of entity: – Jordanian dinar 91 29 – (32) (2) 24 – Euro (11) – – – – – – Algerian dinar (82) (6) – – – – – Saudi riyal 26 (2) – – (2) – – Sudanese pound (26) – – – – 1 – Egyptian pound (8) (1) – – (1) – – Tunisian dinar (4) 2 – – – – – Moroccan dirham (1) (6) – – – – – Lebanese pound (3) – – – – (7) – US dollar – 17 2 – – 37 (18) 33 2 (32) (5) 55 * Others include Saudi riyal and Jordanian dinar. A sensitivity analysis based on a 10% movement in foreign exchange rates has no material impact on the Group results and Group statement of changes in equity. The Group sets certain limits on liquid funds per currency (other than the functional currency of the Group) and per country. Interest rate risk The Group manages its exposure to interest rate risk by changing the proportion of debt that is floating by entering into interest rate swap agreements. Using these derivative financial instruments have not had a material impact on the Group’s financial position as at 31 December 2016 or the Group’s results of operations for the year then ended. As at 31 December 2016 As at 31 December 2015 Fixed rate Floating rate Total Fixed rate Floating rate Total $m $m $m $m $m $m Financial liabilities Interest-bearing loans and borrowings 514 346 860 522 206 728 Financial assets Cash and cash equivalents – 78 78 – 451 451

An interest rate sensitivity analysis assumes an instantaneous 100 basis point change in interest rates in all currencies from their levels at 31 December 2016, with all other variables held constant. Based on the composition of the Group’s debt portfolio as at 31 December 2016, a 1% increase/decrease in interest rates would result in an additional $3 million (2015: $3 million) in finance cost/income being incurred per year and would not be material to the Group.

184 Hikma Pharmaceuticals PLC 176 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

5 (4) 35 177 (23) 185 220 258 ts Financial unts; unts; rrowers posures, posures, Liabilities gn ty at profit profit at ty t on the net d atd fair value rrent rrent – – – – – 4 19 25 – 2 2 2 38 38 (82) (82) 118 118 Assets Financial rest rates or rest forei generally they have ilities is dependen ilities and the financial liabili financial the and m their fair values; m their fair values; the respective carrying amo the respective and approvals of certain produc of and approvals anges in market rates and so ir market value. For loan fixed-rate ex ir market

tracts relating to inte relating to tracts at at the balance sheet date; of the financial liab financial of the e short maturity of these instruments; of maturitythese e short which similar loans would be made to bo loans would similar which instruments and given that instruments gnificantly different fro different gnificantly contingent consideration consideration contingent d 31 December 2016 and the year ended 31 2016 and the d 31 December . Management classifies items that are recognise items . Management classifies are estimated to be equal to cted cash inflows, milestones, milestones, inflows, cted cash nd re-price in response to any ch response to nd re-price in nd prevailing exchange nd rates prevailing exchange ment and their objectives continued continued objectives their and ment be not significantly different from their fa their from different significantly not be subject to an aggregate cap of $200 million. an million. aggregate cap of subject to $200 used to estimate the fair value: value: fair the estimate to used s may include forward, swap, and option con forward, swap, and option include s may of receivables and payables of receivables ir value determination as described below: below: described as determination ir value me maturities remaining loans; of such opment and earn out key payment input – opment the and earn s in Level 3 items for the period ende period items for the in Level 3 s the instrument could be exchanged in a cu in could be exchanged instrument which the at the amount at included is ilities on observable market data observable market on except for the disclosed below. below. the disclosed except for liabilities and assets financial financial assets and liabilities; liabilities; and assets financial to the short-term maturities of these financial of these maturities to the short-term financial assets and liabilities; liabilities; and financial assets lue amounted to $20 million (note 23). 23). (note million $20 to lue amounted d on level 2 market prices a market prices level 2 on d ment considers the carrying amounts to be not si to be not amounts the carrying ment considers 10% higher or lower, the fair value of both the 10% higher or both lower, the the fair value of nd receivables (note 43). (note 43). nd receivables rties, other than in a forced or liquidation sale or liquidation a forced other than in rties, l assets and liabilities liabilities and assets l crease by $17 million. million. crease by $17 Quoted pricesin active markets for identical assets or liabilities Inputs that are observable for the assetliability or Inputs that are not based Inputs fair value is estimated by discounting the future usingcash flows current rates at the by discounting estimated is fair value with similar sa credit and for the ratings Over the counter (OTC) derivative Over contract the derivative counter (OTC) negligible credit risk, manage risk, negligible credit amount to the carrying management considers Short-term loans and overdrafts – approximatcarryinges to the amount because of th rate a are variable loans the of majority the loans – Long-term Financial liability related to the co-devel related liability Financial will increase/de or loss Cash and cash equivalents – due – due equivalents cash and Cash Lease obligations are valued – presentat the value minimum of the lease payments. currencies and are valued base Receivables values – the fair and payables revenues from the sale of products which are sale revenues of from the products The key input of the contingent consideration related to the expe related consideration to contingent the The key input of discounted using a Monte Carlo analysis. analysis. Monte Carlo a using discounted Level 1: Level 2: Level 3: A $500 million Eurobond amounted to $495 million (note 28). 28). (note million $495 to Eurobond amounted million A $500 a Contingent consideration (note32). agreement payment earnout and Co-development Investment designated at fair va designated Investment

• • • Acquisition of subsidiaries (note 43) (note 43) subsidiaries of Acquisition Remeasurement through income statement (note 5) 5) (note statement income through Remeasurement Annual Report 2016 The Group has no material fair value material fair no The Group has • Additions statement income Remeasurement through 2015 December 31 Balance at were assumptions and methods The following • • Additions Release Balance at 1 January 2015 2015 January 1 Balance at The fair value of financial assets and liab and assets The fair value of financial 30. Financial policies for risk manage risk for policies Financial 30. financia of value Fair •

Balance at 31 December 2016 2016 December 31 Balance at Received/Settlement • If expected flowscash were based on the level of inputs used in their fa in their used of inputs level based on the • transaction between willing pa between willing transaction • • December 2015: December 2015: The Group has the following level 3 level following The Group has the table presents The the following change • • • The Group has the following Level 1 The Group has the • Annual Report 2016

– – – – – – – – – – – – – 9 9 1 1 1 1 (7) (7) $m $m $m 62 62 24 24 55 55 52 52 37 37 ber ber 31 31 est rate swap me being being me their levels at their

– – – – – – – – – – – – – – (2) (2) (5) (5) (1) (1) (2) (2) (5) (1) (2) (2) $m $m $m yen Others* yen Others* Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals As at 31 December 2015 2015 December As 31 at Japanese Japanese

– 451 451 – – – – – – – – – – – – – – – – – – $m $m $m

(21) (32) (21) (32) 522 206 728 dinar the Group results and Group and Group results the Group dinar Algerian Algerian Fixed rate Floating rate Total ial assets/(liabilities) ial financ assets/(liabilities) Net currency foreign st rates in all from currencies Net foreign currency financial assets/(liabilities) financial foreign currency Net

– – – – – – – – – – – – – – – – – – – – 2 2 that is floating by entering into inter into by entering floating is that $m $m $m 78 the Group’s debt portfolio as at 31 Decem 31 at as portfolio debt Group’s the 860 Total British pound British pound pact on the Group’s financial position as at position financial the Group’s pact on ion (2015: $3 million) in finance cost/inco in finance $3 million) (2015: ion al currency of the Group) and per country. per country. and of the Group) al currency

– – – – – – – 2 2 (6) (1) (2) (6) (8) (2) (2) $m $m $m tes has no material impact on impact material has no tes 78 19 13 29 16 33 17 Euro 346 As at 31 December 2016 100 basis point change in intere in change point basis 100

– – – US (8) (8) (4) (4) (1) (3) (3) (2) (3) (3) US $m $m $m 91 91 59 59 26 26 42 42 (38) (38) (11) (11) (82) (14) (14) (32) (12) (12) (73) (18) (18) (26) (26) 514 514 ment and their objectives continued continued objectives their and ment dollar dollar Euro Fixed rateFixed rate Floating te risk by changing the proportion of debt the proportion changing te risk by erations for the year then ended. for erations held constant. Based on the composition of the composition Based on constant. held ment in foreign exchange ra l instruments have not had a material im material a have not had l instruments unds per currency (other than the function per currency unds be material to the Group. material to the Group. be

tes would result in an additional $3 mill in an additional result rates would interest increase/decrease 2016, in a 1% year and would incurred not per An interest rate sensitivity analysis assumes an instantaneous instantaneous an assumes analysis sensitivity rate interest An other variables with all 31 December 2016, Cash and cash equivalents equivalents Cash and cash

Interest-bearing loans and borrowings borrowings and loans Interest-bearing Financial assets – Moroccan dirham – Moroccan dirham – Lebanese pound – US dollar – Tunisian dinar 2015 2015 – Jordanian dinar – Euro – Algerian dinar – Jordanian dinar – Sudanese pound – Egyptian pound – – Egyptian pound December 2016 or the Group’s results of op results or the Group’s December 2016 Financial liabilities 176 * * dinar. Jordanian and riyal Saudi include Others of entity: currency Functional – Saudi riyal * dinar. Jordanian and riyal Saudi include Others move a 10% based on analysis A sensitivity Interest raterisk interest ra to exposure its The Group manages financia these derivative agreements. Using Financial statements statements Financial continued statements financial consolidated the to Notes manage risk for policies Financial 30. of entity: currency Functional – Euro – Algerian dinar – Saudi riyal statement of changes in equity. f liquid on limits certain The Group sets – Moroccan dirham – Moroccan dirham – US dollar – Tunisian dinar – Sudanese pound – Sudanese pound 2016 – Lebanese pound – Lebanese pound Financial statements Notes to the consolidated financial statements continued

30. Financial policies for risk management and their objectives continued Liquidity risk of assets/(liabilities) Liquidity risk Less than one Two to five More than five year years years Total 2016 $m $m $m $m Cash and cash equivalents 155 – – 155 Trade receivables 699 – – 699 Interest-bearing loans and borrowings (73) (787) – (860) Interest-bearing overdrafts (10) – – (10) Interest-bearing Import and Export loans (64) – – (64) Trade payables and accruals (329) – – (329) 378 (787) – (409)

Less than one Two to five More than five year years years Total 2015 $m $m $m $m Cash and cash equivalents 553 – – 553 Trade receivables 432 – – 432 Interest-bearing loans and borrowings (72) (666) (5) (743) Interest-bearing overdrafts (12) – – (12) Interest-bearing Import and Export loans (59) – – (59) Trade payables and accruals (261) – – (261) 581 (666) (5) (90)

At 31 December 2016 the Group had undrawn facilities of $1,289 million (2015: $1,580 million). Of these facilities, $1,093 million (2015: $1,381 million) was committed and the remainder was uncommitted.

31. Derivative financial instruments Foreign exchange forward contracts The Group utilises currency derivatives to hedge significant future transactions and cash flows. The Group uses foreign currency forward contracts in the management of its exchange rate exposures. The instruments purchased are primarily denominated in the currencies of the Group’s principal markets. At the balance sheet date, the total notional amount of outstanding forward foreign exchange contracts that the Group was committed to have been translated at 31 December exchange rates as below: 2016 2015 $m $m Foreign exchange forward contracts (JPY) 6 –

186 Hikma Pharmaceuticals PLC 178 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

– – – – 2 2 (2) (4) $m $m $m 19 15 18 20 179 187 2015 2015 ance ve s up until up until s nterest $nil, which terially affect terially 2015

the financial 4 asedon fair 1 1 3 3 1 As at 31 December (1) (3) $m $m 33 14 15 15 15 199 199 200 35 35 226 277 2016 2016 Number ‘m ‘m Number 5 5 $m 35 35 40 valent instruments at the bal instruments valent 2016 e balance e sheetbalance date. The i rrowings. These contracts ha rrowings. will not materially affect materially will not portion of the year-end balance is is balance year-end the of portion nge exposure for the upcoming year. These exposure for year. the These upcoming nge 41 200 241 of 4.34% (2015: 1.94% to 4.34%) for period 4.34%) for to 1.94% (2015: of 4.34% e through profit and loss. loss. profit and e through Columbus, the Group entered into supply and Group entered into supply the Columbus, Number ‘m 2015: liability of $nil). These amounts are b These amounts of $nil). liability 2015: balance sheet contingent liability. liability. balance contingent sheet equivalent instruments at th instruments equivalent interest rate fluctuations interest e based on market values of equi on market values e based dges of currency fluctuations is not significant and will not ma and not significant is fluctuations of currency dges In respect to note 27, In the respect non-current to r-end are held at fair valu fair at held are r-end

nts designed to address the (JPY) excha the to address nts designed cash hedgesmovement inflow in fairyear and resultedthe value the inlossof a have fixed interest payments at a interestrate have fixed payments rate movements on its bank bo its on movements rate interest to exposure its ge lue of interest rate by swaps interest lue of In respect to note 27, the non-current portion of the year-end Inportionbalance millionof to note the is27, the $146 respect related non-current to ed the swaps and ed are the based swaps on oup is estimated as a liability of $nil ( of as a liability is estimated oup As part of the acquisition of West-Ward West-Ward of the acquisition part of As her $80 million related to the opening related to the opening her $80 million receipts at EURIBOR. receipts at EURIBOR. ed in shareholders’ equity: equity: ed in shareholders’ and liability (note 43) (note 43) liability and At 31 December December At 31 Dividends paid paid Dividends Currency translation loss subsidiaries of Acquisition Co-development and earnout payment and earnout payment Co-development Annual Report 2016 At 1 January January At 1 Share of profit 34. Non-controlling interests interests 34. Non-controlling At 1 January January At 1 Issued during the year (ordinaryshares of 10p each) 33. Share capital capital 33. Share paid – includ and fully Issued and anot consideration the contingent Contingent consideration and liability: Contingent consideration Contingent consideration Contingent consideration Agreement Supply Manufacturing 32. Other non-current liabilities liabilities non-current Other 32. Supply Manufacturing Agreement: Interest rateswaps rate swaps to mana interest The Group uses 31. Derivative financial instruments continued continued instruments financial 31. Derivative arrangeme the Group entered December 2016, In are designatedeffectiveforward contracts as

At 31 December December At 31 Others The Group believes that the The the va Group effect believes on rate swaps that the Group yea was committed to at the Boehringer. with contracts manufacturing Co-development agreement: and earnout payment $14 million. The fair value of swaps entered by the Gr swaps The fair value of has been reflected in other comprehensive income. These ar amounts These income. comprehensive in other has been reflected interest have floating 2017 and the banks that originat by values provided sheet date. cash he flow that the the The value Group effect of believes on of the Group. position the financial million) and $4 $nil (2015: of nominal values position of the Group. Group. of the position Annual Report 2016 – – $m $m $m (64) (64) (10) (10) 699 699 155 155 2015 2015 (860) (860) (329) (329) (409) (409) es of es of ion (2015: (2015: ion y forward y forward – – (12) – – (59) – – (261) – – 432 – – 553 – – – – – – 6 – (5) (5) (743) (5) (5) (90) $m $m $m 2016 years Total years Total Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals More five than More than five five than More – – – – – – – – – – $m $m years years (787) (787) Two five to Two Two to five million). Of these facilities, $1,093 mill $1,093 Of these facilities, million). are primarily denominated in are primarily denominated the currenci $m $m (72) (666) year (12) (59) (73) (64) (10) tted to commi was Group the that contracts xchange year 432 553 699 378 155 581 (666) (261) (329) cash flows. The Group uses foreign currenc foreign The Group uses cash flows. Less than one Less than one ment and their objectives continued continued objectives their and ment cilities of $1,289 million (2015: $1,580 $1,580 (2015: million of $1,289 cilities nge rate exposures. The instruments purchased instruments exposures. The nge rate hedge significant future transactions and significant hedge onal amount of outstanding forward foreign e foreign forward outstanding of amount onal the remainder was uncommitted. uncommitted. remainder was the er exchange rates as below: er

Interest-bearing loans and borrowings borrowings and loans Interest-bearing 2015 2015 Trade payables and accruals Interest-bearing loans Import and Export Trade receivables Interest-bearingoverdrafts 2016 At 31 December 2016 the Group had undrawn fa had the Group December 2016 At 31 Interest-bearing Import and Export loans loans and Export Import Interest-bearing Trade receivables and borrowings loans Interest-bearing overdrafts Interest-bearing 178 equivalents Cash and cash instruments financial Derivative 31. Foreign exchangeforward contracts to derivatives currency The Group utilises excha of its in the management contracts at 31 Decemb have been translated (JPY) contracts forward exchange Foreign Financial statements statements Financial continued statements financial consolidated the to Notes manage risk for policies Financial 30. assets/(liabilities) of risk Liquidity risk Liquidity equivalents Cash and cash markets. principal the Group’s date, the total noti sheet At the balance and was committed million) $1,381 Trade payables and accruals Trade payables and accruals

Financial statements Notes to the consolidated financial statements continued

35. Own shares The Employee Benefit Trust (‘EBT’) of Hikma holds 40,831 (2015: 40,831) Ordinary Shares in the Company. The trustee of the EBT is Capita Trustees Limited, an independent trustee. The market value of the Ordinary Shares held in the EBT at 31 December 2016 was $1 million (2015: $1 million). The book value of the retained own shares at 31 December 2016 are $1 million (2015: $1 million). The Ordinary Shares held in the EBT will be used to satisfy long-term commitments arising from the employee share plans operated by the Company.

36. Net cash from operating activities 2016 2015 $m $m Profit before tax 210 318 Adjustments for: Depreciation, amortisation, impairment, and write-down of: Property, plant and equipment 78 51 Intangible assets 68 22 Investment in associate – 7 Gain on disposal of property, plant and equipment (note 5) – (11) Gain on disposal of intangible assets (note 5) (18) – Movement on provisions (1) 3 Cost of equity-settled employee share scheme 22 15 Finance income (12) (3) Interest and bank charges 102 57 Results from associates – 2 Foreign exchange loss* 19 – Release of contingent Liability (4) – Cash flow before working capital 464 461 Change in trade and other receivables (128) (78) Change in other current assets 1 (1) Change in inventories (32) 4 Change in trade and other payables 46 28 Change in other current liabilities 15 3 Change in other non-current liabilities 3 – Cash generated by operations 369 417 Income tax paid (76) (51) Net cash generated from operating activities 293 366 * The presentation of 2016 has been amended to show the foreign exchange loss in a separate line item. We have not restated the 2015 comparatives in this respect on the basis that it is only a disclosure as the amount was immaterial and embedded in the net cash generated from operating activities.

37. Contingent liabilities A contingent liability existed at the balance sheet date in respect of external guarantees and letters of credit totalling $49 million (31 December 2015: $50 million). In January 2017 the Group received a subpoena from a state attorney general, requesting certain pricing and costing information. Management do not believe sufficient evidence exists to provide for this currently.

188 Hikma Pharmaceuticals PLC 180 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

h 181 189 (in $) (in as average for ured Group’s Group’s Weighted ant dates. Risk - free inomial inomial interest rate er return er return exercise price exercise price e years e years 2015

average 12,500 12,500 12,500 9.18 9.18 (51,300) (51,300) 7.10 (79,700) (79,700) 7.59 Expected 143,500 143,500 7.60 Number of Number of share options share options by equity instruments, wit instruments, equity by contractual life contractual life – – – e revenue growth, earnings per growth, earnings e revenue l Meeting and the last grant w grant last the and l Meeting 9.18 9.18 9.18 2016 (in $) average Expected Weighted exercise price dividend yield dividend yield – – – onditions. The TSR measurescondition the sting conditions of 20% per year for fiv 20% of conditions sting r three years subject totalto a sharehold equity instruments, with fifteen separate gr with instruments, equity 4-135 of the remuneration of report the and remuneration a meas 4-135 the grant and vesting dates. dates. and vesting the grant 12,500 12,500 (12,500) volatility volatility Expected Number of of Number share options tion compensation scheme settled scheme compensation tion

e points. No awards vest for No awards vest for these points. in between vesting o-rata $ m performance requirements for m th performance requirements holders at the 2007 Annual Genera Annual at the 2007 holders neral employee shareplans option was calculated by applying a b ree year financial period to period to ree year financial se for share options exercised during the year was $9.18. year was $9.18. the exercised during for share options se cised immediately after the vestingcised immediately after date. date Exercise price grant instruments are settledin equity once exercised. price price at The share return on invested capitalperformance c $ $ cost options were granted which vest afte were granted which vest options cost ans have a ten-year contractual life and ve life and contractual have a ten-year ans schedule dictates that 20% of awards vest that dictates TSR vesting schedule The r pharmaceutical companies. rmance conditions are detailed in pages 10 pages in detailed are conditions rmance r quartile performance, with pr with r quartile performance, 0.74 0.74 0.35 4.50 0.91 4.50 0.91 26.20% 44.80% 6.67% 3.85% 7.5 years 7.5 years 4.54% 4.22% 1.14 1.14 2.61 5.45 9.19 5.45 9.19 34.90% 31.50% 1.21% 0.08% 4.0 years 3.8 years 4.11% 4.54% granted granted ended 31 December 2014. The LTIP is settled by is settled 2014. The LTIP ended 31 December share option share option value of each tranche will be exer e scheme are shown below: scheme e The estimated fair

granted Number Number four separate grant dates. The options over four these separate grant dates. The options grants under Details th of the made under the LTIP during the year the made under the LTIP during awards and $nil conditional Under the LTIP, Annual Report 2016 Long-term incentive plan plan incentive Long-term share by approved was (“LTIP”) Plan Incentive Long-Term 2007 The beginning on the first anniversary of the grant date. of the on the anniversary first beginning The estimated fairvalue shareof each optionin the granted ge model. pricing option It was assumed that each option Further details of generalthe employee share option plan are as follows: Exercisable at 31 December The weighted average share price at date the of exerci Outstanding at 1 January Outstanding at 1 January Exercised during the year 13–Oct–2005 13–Oct–2005 1,600,000 12–Oct–2004 9,520,000 pl share option the general employees All of 4–Nov–2008 4–Nov–2008 29–Apr–2008 1,041,500 85,000 Date of grants Date of grants 38. Share-based payments 38. Share-based scheme option share Equity-settled op stock one had Company the 2016, December 31 ended year the During

Outstanding at 31 December December 31 at Outstanding Expired during the year the Expired during

against the financialaudited statements for the closest th share and return on invested capital perfo capital invested on return and share TSR relative to a comparator group of othe group of TSR relative to a comparator uppe and 100% for median performance performance which is below the median. The threshold and maximu threshold The the median. is below which performance (TSR), revenue growth, earnings per share and per earnings (TSR), revenue growth,

Annual Report 2016

– – – – 2 2 7 7 3 4 4 3 3 (3) (3) (1) (1) $m 15 15 28 28 57 57 51 51 22 (11) (11) (51) (51) (78) (78) 366 366 417 417 318 318 461 461 2015 2015 llion llion is Capita Capita is ry Shares ry .

– – – million (31 3 3 1 1 (1) (4) $m 22 22 46 46 15 78 78 68 19 19 (18) (18) (12) (76) (76) (32) (32) 293 293 102 102 369 369 210 210 464 464 2016 (128) (128) Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals 2015 comparatives in this ating activities. nd letters $49 of totallingnd credit letters es inesthe Company. The trustee of the EBT ng certain pricing and costing information costing and pricing ng certain ld in the EBT at 31 December 2016 was $1 mi 2016 was $1 EBT at 31 December in the ld oyee share plans operated by the Company. 31 December 2016 are $1 million (2015: $1 million). 31 millionThe December $1 Ordina 2016 are (2015: $1 change loss in a separate line item. We have not restated the restated not have We item. line separate a in loss change e for this currently.

spect of external guarantees a from a state attorney general, from requesti a holds 40,831 (2015: 40,831) Ordinary Shar Ordinary 40,831) (2015: 40,831 holds e market value of the Ordinary e Shares market he value of the Ordinary long-term commitments arising long-term commitments from the empl rating activities activities rating pairment, and write-down of: and write-down pairment, ngible assets (note 5) 5) (note assets ngible

current liabilities liabilities current nd other receivables nd other receivables

respect on the basis that it is only a disclosure as the amount was immaterial and embedded in the net cash generated from oper Gain on disposal of inta of disposal on Gain loss* Foreign exchange Net cash generated from operating activities activities from operating generated Net cash Movement on provisions provisions on Movement charges bank and Interest associates from Results Gain on disposal of property, plant and equipment (note 5) equipment (note and property, plant of disposal Gain on Cost equity-settled employee of share scheme income Finance Change in trade and other payables Change in liabilities other current tax paid Income Change in other non- by operations Cash generated Property, plant and equipment equipment Property, plant and assets Intangible Investment in associate 180 Trustees Limited, an independent trustee. Th trustee. independent an Limited, Trustees The book valuethe million). retained of $1 own (2015: shares at heldin the EBT will be used to satisfy for: Adjustments Depreciation, imamortisation, * ex foreign the show to amended been has 2016 of presentation The 37.Contingent liabilities liability existedA contingent balance re sheet at date the in million). $50 December 2015: subpoena Group received a the In January 2017 to provid evidence exists Management do not believe sufficient Financial statements statements Financial continued statements financial consolidated the to Notes shares Own 35. The Employee Benefit Trust Hikma(‘EBT’) of ope from cash 36. Net tax before Profit Release of contingent Liability Liability Release of contingent working capital Cash flow before Change in trade a Change in assets other current inventories Change in Financial statements Notes to the consolidated financial statements continued

38. Share-based payments continued Details of the grants under the plan are shown below: Date of grants The estimated fair value of Number each share The share price Expected Expected Risk-free granted option granted at grant date volatility dividend yield interest rate $ $ 3-Dec-2014 5,899 23.28 31.39 25.40% 0.71% 1.28% 11-Jun-2014 151,429 23.47 28.62 25.40% 0.71% 1.28% 29-May-2014 109,000 22.67 27.63 27.00% 0.73% 1.15% 3-Apr-2014 89,727 23.25 27.73 26.00% 0.72% 1.17% 6-Nov-2013 20,802 15.18 19.41 26.00% 0.89% 0.89% 17-May-2013 470,683 11.00 14.92 26.40% 1.10% 0.45% 16-Mar-2012 547,780 8.65 11.43 30.31% 1.14% 0.67% 18-Mar-2011 646,054 9.00 11.74 37.04% 1.11% 1.65% 22-Mar-2010 730,253 6.97 9.00 37.18% 1.20% 1.88% 19-May-2009 200,000 3.89 6.67 38.98% 1.22% 1.92% 19-Mar-2009 920,000 2.94 5.11 38.98% 1.47% 1.88% 29-Apr-2008 700,000 5.46 9.22 31.47% 0.08% 4.50% 10-Sep-2007 150,000 4.70 8.28 34.64% 0.08% 5.00% 23-Apr-2007 466,000 4.47 7.69 34.64% 0.08% 5.45% 2-Apr-2007 160,000 4.33 7.46 34.64% 0.08% 5.40%

All long-term incentive plans have ten years contractual life and vest after three years. The estimated fair value of each share option granted in the LTIP was calculated by applying the Monte Carlo simulation methodology. For awards made from 2011, 50% of the award is subject to a TSR performance condition which was valued by applying the Monte Carlo simulation methodology, the remaining 50% of the award is subject to financial metrics which are valued by applying the Black-Scholes model. For further details see the remuneration committee report. The exercise price of the share award is $nil. Further details on the number of shares granted are as follows: 2014 2014 2014 2014 2013 2013 2012 2007 grants grants grants grants grants grants grant grants 03 Dec 14 June 29 May 3 Apr 6 Nov 17 May 16 March 23 April Total Year 2016 Number Number Number Number Number Number Number Number Number Outstanding at 1 January 5,899 151,429 109,000 84,954 20,802 431,876 27,820 13,000 844,780 Exercised during the year – – – – (13,529) (346,295) (5,600) – (365,424) Expired during the year – – – – (2,093) (53,595) – – (55,688) performance condition Outstanding at 31 December 5,899 151,429 109,000 84,954 5,180 31,986 22,220 13,000 423,668 Exercisable at 31 December – – – – 5,180 31,986 22,220 13,000 72,386

2014 2014 2014 2014 2013 2013 2012 2007 grants grants grants grants grants grants grant grants 03 Dec 14 June 29 May 3 Apr 6 Nov 17 May 16 March 23 April Total Year 2015 Number Number Number Number Number Number Number Number Number Outstanding at 1 January 5,899 151,429 109,000 84,954 20,802 431,876 468,250 13,000 1,285,210 Exercised during the year – – – – – – (440,430) – (440,430) Outstanding at 31 December 5,899 151,429 109,000 84,954 20,802 431,876 27,820 13,000 844,780 Exercisable at 31 December – – – – – – 27,820 13,000 40,820

The cost of the LTIP of $3 million (2015: $5 million) has been recorded in the consolidated income statement as part of general and administrative expenses.

190 Hikma Pharmaceuticals PLC 182 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

s $ 183 191

start price at at price 347,772 347,772 The share The share grant date id during this this during id – 145,918 $ – 196,373 – (22,777) – (190,400) The 9,973 9,973 option granted granted estimated estimated each share each share fair value of value fair l Meeting, whereby shareholder l Meeting, – – the KPI performance performance period. the KPI ndent on the achievement of on the achievement ndent the Company makes grants of makes grants the Company MIP awards were made at the 12,632 12,632 granted granted Number – 219,296 229,081 448,377 – (725) (211,554) (212,279) – (190,400) – grants 14-May 11-Jun 17 May Total (5,324) (4,562) (7,554) (17,440) Number Number Number Number Date of Date of 140,594 140,594 214,009 9,973 364,576 132,442 132,442 145,918 145,918 2015 grants 2014 grants 2013 grants ill be made at the ill end be of made at nt level. Awards are depe nt level. 19/03/200928/03/201011/05/2011 340,000 18/05/2012 147,561 17/05/2013 356,894 11/06/2014 412,056 4.89 11/05/2015 252,482 9.15 11/05/2016 12.96 225,904 145,918 9.47 5.11 14.61 196,372 9.36 13.23 27.73 32.17 9.72 14.93 31.73 28.33 32.63 32.20 – 140,594 214,009 9,973 364,576 – y issued shares. Under the MIP, Under shares. issued y eholders at the 2010 Annual Genera Annual at the 2010 eholders (3,648) (8,152) (10,977) 11–May 14–May 11–Jun 17 May Total Number Number Number Number Number 196,373 196,373 192,725 192,725 a two year holding period. The 2009 period. a two holding year corded incorded income consolidatedstatement as the of part general and 2016 grants2016 grants 2015 grants 2014 grants 2013 of grant less the present value of dividends expected to pa be to expected dividends of value present the less grant of awards and future awards w awards and future e Group below senior manageme senior below e Group holes methodology for nil-cost options. options. nil-cost for methodology holes Year 2016 2016 Year Outstanding at 1 January of the KPI performance period, whereas the 2011 of the period, KPI whereas performance shown below: grants under Details the of plan are the conditional awards to management across th awards conditional and are then subject to over one year KPIs and Group individual consented to the Company satisfying awards under the MIPawards under satisfying the from newl Company consented to the Annual Report 2016 MIP’s 3 MIP’s 3 MIP’s 4 MIP’s 5 MIP’s 6 MIP’s 7 MIP’s 8 MIP’s 2 MIP’s 2 administrative expenses. The fair valueshare isper of the sharesface value on the date MIP’s 1 The cost of the MIP of $6 million (2015: $6 million) has been re has million) $6 (2015: of $6 million The cost of the MIP Outstanding at 1 January Outstanding at 1 January year the during Granted

Granted during the year the during Granted Outstanding December at 31 The 2009 Management Incentive Plan (“MIP”) was approved by shar by approved was (“MIP”) Plan Incentive Management 2009 The 38. Share-based continued payments 38. Share-based Management incentiveplan Black-Sc on based is Valuation period.

Exercised during the year year the Exercised during year the Expired during Year 2015 Exercised during the year the Exercised during year the Expired during December Outstanding at 31 Annual Report 2016

Risk-free logy. For For logy. choles choles interest rate and 2007 2007

2007 2007 grants grants Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals Expected 2012 2012 grant grant dividend yield dividend yield 2012 2012 grant grant 440,430) 440,430) – (440,430) 2013 volatility volatility Expected grants 2013 grants Number Number Number Number er Number Number Number Number $ 2013 grants 2013 grants trics which are valued by applying Black-Sthe at grant date The share price 2014 grants 2014 $ grants rmance condition which was valued by applying the Monte Carlo Monte the applying was valued by which rmance condition each share 2014 was calculated by applying the Monte Carlo simulation methodo simulation the Monte Carlo by applying was calculated fair value of corded incorded income consolidatedstatement the as of part general grants 2014 The The estimated option granted option grants and vest after three years. and vest after

2014 2014 5,899 5,899 23.28 31.39 25.40% 0.71% 1.28% granted grants Number Number 89,727 89,727 23.25 27.73 26.00% 0.72% 1.17% 20,802 20,802 15.18 19.41 26.00% 0.89% 0.89% 2014 2014 547,780 547,780 646,054 730,253 8.65 920,000 9.00 6.97 150,000 11.43 2.94 11.74 30.31% 9.00 4.70 37.04% 5.11 37.18% 1.14% 1.11% 8.28 38.98% 1.20% 0.67% 1.65% 34.64% 1.47% 1.88% 0.08% 1.88% 5.00% 109,000 109,000 22.67 470,683 11.00 27.63 200,000 27.00% 14.92 3.89 0.73% 26.40% 1.15% 6.67 1.10% 38.98% 0.45% 1.22% 1.92% 151,429 151,429 23.47 28.62 25.40% 0.71% 1.28% 700,000 700,000 466,000 160,000 5.46 4.47 4.33 9.22 7.69 31.47% 7.46 34.64% 0.08% 34.64% 0.08% 4.50% 0.08% 5.45% 5.40% grants – – – – 5,180 31,986 22,220 13,000 72,386 – – – – (13,529) (346,295) (5,600) – (365,424) – – – – (2,093) (53,595) – – (55,688) 2014 2014 – – – – – – ( – – – – – – 27,820 13,000 40,820 grants grants 5,899 5,899 151,429 109,000 84,954 20,802 431,876 27,820 13,000 844,780 03 Dec 03 Dec 14 June 29 May 3 Apr 6 Nov 17 May 16 March 23 April Total Number Number Number Number Numb 2014 ng 50% of the award is subject to financial me financial to subject of the award is ng 50% grants 03 Dec 14 June 29 May 3 Apr 6 Nov 17 May 16 March 23 April Total Number Number Number Number Number shares granted are as follows: e remuneration committee report. ve ten years contractual life

The estimated fairvalue shareof each optionin the granted LTIP 182 Year 2016 January 1 at Outstanding year the Exercised during year the during Expired performance condition December Outstanding at 31 December Exercisable at 31 5,899 151,429 109,000 84,954 Year 2015 5,180 January 1 at Outstanding 31,986 Exercised during the year 22,220 13,000 423,668 5,899 151,429 109,000 84,954 20,802 431,876 468,250 13,000 1,285,210 Financial statements statements Financial continued statements financial consolidated the to Notes continued payments 38. Share-based shown below: grants under Details the of plan are the Date of grants 3-Dec-2014 11-Jun-2014 11-Jun-2014 29-May-2014 3-Apr-2014 6-Nov-2013 17-May-2013 16-Mar-2012 18-Mar-2011 22-Mar-2010 19-May-2009 19-Mar-2009 29-Apr-2008 10-Sep-2007 23-Apr-2007 2-Apr-2007 ha plans incentive long-term All model. For further details model. For further see th The exercise price of the share award is $nil. of number the on details Further awards made from 2011, 50% of the award is subject to a TSR perfo a TSR to subject is award the of 50% 2011, from made awards the remaini methodology, simulation Outstanding at 31 December Outstanding at 31 December 31 at Exercisable 5,899 151,429 109,000 84,954 20,802 431,876 27,820 13,000 844,780 The cost of the LTIP of $3 million (2015: $5 million) has been re has million) $5 (2015: of $3 million The cost of the LTIP administrative expenses. Financial statements Notes to the consolidated financial statements continued

38. Share-based payments continued Executive incentive plan The 2014 Executive Incentive Plan (EIP) was approved by shareholders at the 2014 Annual General Meeting. The EIP is a combinedcash bonus (element A), deferred shares (element B) and restricted share (element C) scheme. Under the EIP, the Company makes grants of conditional awards and $nil cost options under elements B and C to the executive directors and senior executives of the Group.Awards under all elements are dependent on the achievement of individual and Group KPIs over one year prior to grant. The shares awarded under element B are not released for a period of two years during which they are subject to a forfeiture condition. The shares awarded under element C are not released for a period of three years, but arenot subject to a forfeiture condition. Members of the Executives committee must retain 50% of the shares received from elements B and C for a period of five years from the date of grant. 2016 grants 2016 grants 2015 grants 2015 grants Total Year 2016 11-May 17-Mar 15-May 10-Apr Number

Beginning Balance – – 118,000 338,808 456,808 Granted during the year 165,553 448,875 – – 614,428 Outstanding at 31 December 165,553 448,875 118,000 338,808 1,071,236

2015 grants 2015 grants Total Year 2015 15-May 10-Apr Number Beginning Balance 118,000 338,808 456,808 Granted during the year – – – Outstanding at 31 December 118,000 338,808 456,808

The cost of the EIP of $13 million (2015: $4 million) has been recorded in the consolidated income statement as part of general and administrative expenses. The fair value per share is the face value of shares on the date of grant.

The estimated fair value of each share Number option The share price Date of grants granted granted at grant date $ $ EIP’s 1 10/4/2015 338,808 33.24216 33.24216 EIP’s 2 15/5/2015 118,000 33.11449 33.11449 EIP’s 3 B 17/3/2016 242,608 26.97918 26.97918 EIP’s 3 C 17/3/2016 206,267 26.97918 26.97918 EIP’s 4 11/5/2016 165,553 32.15333 32.15333

39. Operating lease arrangements 2016 2015 $m $m Minimum lease payments under operating leases recognised in profit or loss for the year 7 8

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: 2016 2015 $m $m Within one year 7 4 In the two to five years inclusive 18 9 After five years 12 4 37 17

Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for a term of one to eight years.

192 Hikma Pharmaceuticals PLC 184 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

p $m 0.1 6.2 0.1 185 193 14.1 20.5 2015 $nil). $nil). c to the year.

of of losed in in IAS 24 IAS in roup totalroup rt of the the rt of ion) and ion) me is within within is me – $m 0.3 0.3 14.2 14.2 11.5 26.0 2016

of two directors of Hikma. During During Hikma. of directors of two ontingent consideration are disc consideration ontingent Group holds a non-controlling interest of a non-controlling Group holds ecutive Directors and certain of senior senior of certain and Directors ecutive e year end, the amount year owed end, by the Labate amount e l proportions and have committed to provide u to provide have committed and l proportions Directors is provided in the audited pa in the is provided Directors .7% (2015: 0.0%) of the share capital of Hikma, Hikma, capital of share of the 0.0%) .7% (2015: Hikma jointly constitute the majority of directors and directors majority of the jointlyHikma constitute een the Group and Darhold Limited during the during Darhold Limited een the Group and ion (2015: $nil). The interest expense/inco The interest $nil). ion (2015: aggregate for each of the categories specified categories the of each for aggregate pital Bank was $11.3 million (2015: $9.4 mill $9.4 (2015: million pital Bank was $11.3 are disclosed below. below. are disclosed osun were $0.4 million (2015: $0.6 million). At 31 million). December At 31 $0.6 million (2015: were osun $0.4 use one director of Hikma founder is one and a director former use director, the use Darhold owns 25.00% (2015: 29.06%) of the share and voting voting and of the share 29.06%) (2015: 25.00% owns use Darhold eliminated on consolidation and are not disclosed in this note. in this and are not disclosed on eliminated consolidation the amount owed from BI to the Group was $45.2 million (2015: million (2015: $45.2 was Group the to BI from owed amount the the right to appoint a director of senior executive Hikmathe right and a use Labatec is owned by the family owned by the is use Labatec Columbus from to BI c relating to the Group amounted to $1.7 million (2015: $nil). $nil). million (2015: $1.7 amounted to to the Group l cash balance at Ca at balance l cash is a related party of Hikma because the Hikma a because related the party of is and other related parties and $1.4 million (2015: $0.9 million). As at th As million). $0.9 (2015: million $1.4 rsonnel (comprising the Executive and Non-Ex and the Executive (comprising rsonnel h are outstanding are disclosed in note 43. note 43. in are disclosed h are outstanding ion about the remuneration of the individual the individual remuneration of the ion about is a related party of Hikmais a beca related party

areholders), there were betw no areholders), transactions there tal Bank to the Group amounted to $8.3 $8.3 mill amounted to tal Bank to the Group Hikma and MIDROC invested in HikmaCure in equa HikmaCure in invested Hikma and MIDROC is a related party of Hikma because BI owns 16 owns BI because Hikma of party a related is is a related Hikmaparty of because HikmaCure is a 50:50 joint venture (JV) with MIDROC ly members) in Darhold and beca Darhold and in members) ly rectors’ Report) of the Group is set out below in below set out is Group of the Report) rectors’ rt on pages 104 to 135. to 135. pages 104 rt on is a related party of Hikma because three directors of a related is party because of three Hikma directors is a related party of the Group beca party of the Group a related is

2016, total Group sales to Labatec amounted to sales to Group 2016, total million). $0.2 (2015: million $0.3 was Group to $22 million each in cash, of which $2.5 million has been paid (2015: $2.5 million). million). $2.5 paidhas millionbeen (2015: $2.5 of which million in cash, to $22 each Ltd (Haosun): Co. Hubei Haosun Pharmaceutical from Ha total purchases 2016, During in Haosun. 30.1%) 30.1% (2015: 2016, the amount owed from Hubei Haosun Pharmaceutical Haosun Pharmaceutical owed from Hubei 2016, the amount (Labatec): Labatec Pharma Other benefits Other benefits Annual Report 2016 Share-based payments Short-term employee benefits Darhold Limited (Darhold): Darhold Limited of the key The management remuneration pe utilisation of facilities granted by Capi granted by of facilities utilisation market rate Remuneration of key management personnel Trading transactions: transactions: Trading with related parties: transactions entered into the following companies the year, Group During GmbH (BI): Ingelheim Boehringer 40. Related parties parties Related 40. Transactions between the Companyand its subsidiaries have been has Hikma, of capital voting of the 0.0%) (2015: controls 11.7% the G and $nil) (2015: million to $90.1 amounted BI to sales total During the of year, the Hikma. Group a BI directorship holds end, year the at As million. $10.3 to amounted BI from purchases Additionally,balances arising acquisition fromof West-Wardthe fami immediate (with shareholders of Hikma. capital sh to all paid (as Other than dividends

Transactions between the Group and its associates associates its between the Group and Transactions (HikmaCure): HikmaCure Limited Limited (‘MIDROC’). Pharmaceuticals Post-employment benefitsPost-employment

Remuneration Committee Repo Committee Remuneration Related Party Disclosures. Further informat RelatedFurther Party Disclosures. management as set out in the Di in the out management as set note 30 and purchase price adjustments whic price adjustments note 30 and purchase Bank): (Capital Jordan Capital Bank, At tota the year of end, Capital Bank. Officer Chief Executive Annual Report 2016 $ – – 8 8 4 4 9 9 4 ing $m $m 17 17 2015 2015 2015 2015 of cash ed under 456,808 456,808 Awards 1,071,236 1,071,236 and d under at grant date s committee s committee a term of The share price $ – – 614,428 – – 7 7 7 7 $m $m 18 18 12 37 2016 2016 Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals option option granted 338,808 338,808 338,808 338,808 each share mpany makes grants fair value of fair value of The The estimated – – – ents under non-cancellable operat non-cancellable ents under 15-May 10-Apr Number granted Number Number 118,000 118,000 118,000 118,000 338,808 456,808 118,000 118,000 2015 grants 2015 grants Total r the EIP, the Co – 118,000 338,808 456,808 448,875 448,875 10/4/201515/5/201517/3/2016 338,808 17/3/2016 118,000 33.24216 11/5/2016 242,608 33.11449 206,267 33.24216 26.97918 165,553 33.11449 26.97918 26.97918 32.15333 26.97918 32.15333 its office properties. Leases are negotiated for Leases are negotiated properties. office its Date of grants – for future minimum lease paym lease minimum future for 11-May 17-Mar 15-May 10-Apr Number 165,553 448,875 165,553 165,553 ders at the 2014 Annual General Meeting. The EIP is a combined a combined EIP is Meeting. The General Annual 2014 ders at the corded in the consolidated income statement as part of general statement as income consolidated corded in the

2016 grants 2016 grants 2015 grants 2015 grants Total not subject to a forfeiture Memberscondition. not subject of the Executive ed share (element C) scheme. Unde scheme. C) ed share (element nd C for a period of five years from the date of grant. date of grant. of the five years from nd C for a period ement of individual and Group KPIs over one year prior to grant. The shares award grant. KPIs year over prior one to and Group individual ement of nder elements B and C to the executive directors and senior executives of the Group. of the Group. executives senior and directors the executive C to B and nder elements operating leases recognised in profit or loss for the year for loss or profit in leases recognised operating rred shares (element B) and restrict

must 50% of the sharesretain a from received elements B element B releasedare not for a period of two years during which are they subject to a condition.forfeiture The shares awarde element C releasedare not for a period of three years,but are bonus (element A), defe A), (element bonus u options cost and $nil awards conditional are dependent on the achiev under all elements leases, which due fall as follows: At the balance sheet date, the Group had outstanding commitments outstanding had Group the date, sheet balance the At represent rentals payable by the Group for certain of Group for payable by the lease payments represent rentals Operating Within one year Within In the inclusivetwo to five years After five years one to eight years. 184 Granted during the year the Granted during Outstanding December at 31 Balance Beginning Granted during the year December 31 at Outstanding EIP’s 1 EIP’s 2 B EIP’s 3 C EIP’s 3 EIP’s 4 lease arrangements Operating 39. under lease payments Minimum Financial statements statements Financial continued statements financial consolidated the to Notes continued payments 38. Share-based Executive incentiveplan was sharehol approved by Plan (EIP) Incentive The 2014 Executive Balance Beginning been re has million) $4 million (2015: of $13 The cost of the EIP administrative expenses. The fair valueshare isper of the shares face value on the date of grant. Year 2016 Year 2015 Financial statements Notes to the consolidated financial statements continued

41. Subsidiaries, associate and joint venture The subsidiaries, associate and joint venture of Hikma Pharmaceuticals PLC are as follows:

Group PLC “The Company” Ownership% Ownership% Ownership% Ownership% Ordinary Ordinary Ordinary Ordinary shares shares shares shares At 31 At 31 At 31 At 31 Incorporated December December December December Company’s name in Address of the registered office 2016 2015 2016 2015 Algerie Industrie Mediterraneene Du Medicament S.A.R.L. Algeria Zone d’Activité 16/15 Staoueli, Algeria 97% 97% – – Jazeera Pharmaceutical Industry SARL Algeria Zone d’Activité, Propriété N° 379 Section 99% 99% – – N° 04 Staoueli, Algeria Hikma Pharma Algeria SARL Algeria Zone d’Activité 15/16 Staoueli, Algeria 100% 100% – – SPA Al Dar Al Arabia pour la Fabrication de Médicaments Algeria Zone d’Activité El Boustane N° 78, Sidi 100% 100% – – Abdellah, Al Rahmania, Algeria Hikma Pharma SAE* Egypt 12 El-Esraa Street, El-Mohandeseen, 100% 100% – – Lebanon Square, Giza, Egypt Hikma Specialized Pharmaceuticals SAE Egypt 10 D, 11 D, Industrial Zone, Badr City, 98% – – – Cairo, Egypt Hikma for Importation Co. LLC Egypt 12 El-Esraa Street, El-Mohandeseen, 99% 99% – – Lebanon Square, Giza, Egypt Egyptian Co. for Pharmaceutical and Chemical Industries S.A.E. Egypt 16 Ahmed Hosny Street, First Zone, Naser 100% 100% – – City, Cairo, Egypt Hikma Pharma Share Co Ethiopia Addis Ababa, Ethiopia, Bole Sub City, 100% 100% – – Kebele 16, Woreda Hikma Pharma GmbH Germany Lochhamer Strasse 13 82152 Martinsried, 100% 100% – – Germany Thymoorgan Pharmazie GmbH Germany Schiffgraben 23, 38690 Goslar OT 100% 100% – – Vienenburg, Germany Thymoorgan GmbH* Germany Schiffgraben 23, 38690 Goslar OT 100% 100% – – Vienenburg, Germany Hikma Finance Ireland Limited Ireland 2 Grand Canal Square, Grand Canal 100% – – – Harbour, Dublin 2, Ireland Hikma Italia S.p.A Italy Viale Certosa, 10, Pavia, 27100, Italy 100% 100% Hikma Pharma Limited* Jersey 47 Esplanade, St Helier, JE1 0BD, Jersey 100% 100% 100% 100% Arab Pharmaceutical Manufacturing PSC* Jordan Al Buhaira – Salt, P.O. Box 42, Jordan 100% 100% Hikma Investment LLC* Jordan Bayader Wadi Al-Seer, Industrial Area, 100% 100% – – Saleem Bin Al-Hareth Street, Building 21, P.O. Box 182400, Amman, 11118, Jordan Hikma International Pharmaceuticals LLC Jordan 122 Queen Zain AlSharaf Street, Bayader 100% 100% – – Wadi Al-Seer, Amman, Jordan Hikma International Ventures and Development LLC Jordan 21 Saleem Bin Al-Hareth Street, Industrial 100% – – – Area, Bayader Wadi Al-Seer, Amman, Jordan Arab Medical Containers LLC* Jordan P.O. Box 80, Sahab Industrial Estate, 100% 100% – – 11512, Jordan Hikma Sofia Travel and Tourism Jordan Mustafa Semreen Complex Building No. 100% 100% – – 29, Jamal Qaytoqa Street, Bayader Wadi Al- Seer, Amman, Jordan International Pharmaceutical Research Centre LLC Jordan P.O. Box 963166, Amman, 11196, Jordan 51% 51% – – Hikma Pharmaceuticals LLC* Jordan Bayader Wadi Al-Seer, Industrial Area, 100% 100% – – Saleem Bin Al-Hareth Street, Building 21, P.O. Box 182400, Amman, 11118, Jordan Hikma United Renewable Energy Jordan 21 Saleem Bin Al-Hareth Street, Industrial 100% – – – Area, Bayader Wadi Al-Seer, P.O. Box 182400, Amman, 11118, Jordan Specialized for Pharmaceutical Industries LLC Jordan Bayader Wadi Al-Seer, Industrial Area, 100% – – – Saleem Bin Al-Hareth Street, Building 21, P.O. Box 182400, Amman, 11118, Jordan Future Pharmaceutical Industries LLC Jordan P.O. Box 80, Sahab Industrial Estate, 100% 100% – – 11512, Jordan Hikma CIS JSC Kazakhstan Apt. 1, House 7, Building-28, “Keremet” 100% 100% – – Microdistrict, Bostandykskiy District, A15C8X2, Almaty, Kazakhstan Hikma Pharma Kazakhstan Kazakhstan Apt. 1, House 7, Building-28, “Keremet” 100% 100% – – Microdistrict, Bostandykskiy District, A15C8X2, Almaty, Kazakhstan Al Jazeerah Pharmaceutical Industries Ltd* KSA Riyadh Gallery, Olaya Street, Riyadh, P.O. 100% 100% 52.5%** 52.5%** Box 106229, Riyadh-11666, Kingdom of Saudi Arabia

194 Hikma Pharmaceuticals PLC 186 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

s – – – – 2015 187 195 At 31 share Ordinary Ordinary December December arked (*) Ownership% Ownership%

s 2016 At 31 share Ordinary Ordinary December December Ownership% Ownership%

s 2015 At 31 share Group PLC“The Company” Ordinary Ordinary December December Ownership% Ownership%

s 50% 50% 50% 50% 50% 50% – – 51% 51% 51% – 99% 99% – – – 30% 30% – – 94% 94% 94% 67% 67% 67% – – 2016 At 31 share 100% – – 100% 100% 100% 100% – – – – 100% 100% 100% 100% 100% 100% 100% – 100% 100% – 100% 100% – – 100% 100% – – 100% 100% – – – – – – – – – – – 100% 100% – 100% 100% – – – 100% 100% – 100% 100% – 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% – – – 100% 100% 100% 100% 100% – 100% 100% 100% 100% 100% 100% 100% – – – – – 100% 100% – 100% 100% 100% 100% 100% Ordinary Ordinary

December December Ownership% Ownership% s Carthage, Tunisia 66% 66% – - s s 2035 Tunis 2035 - 2328 Luxembourg - L Carthage 2035, Tunisia Carthage 2035, Tunisia - - s uticals products and associated goods and services. Companies m Companies and services. goods associated and products uticals n Trust Center 1209 Orange Street, Street, Orange 1209 Center Trust n ion Trust Center 1209 Orange Street, Street, Orange 1209 Center Trust ion Nacional 9, Fervença, São João das Lampas e ation Trust Center 1209 Orange Street, Street, Orange 1209 Center Trust ation Street, Orange 1209 Center Trust ation areraweg 45, P.O.Box 4914, Curaçao Kingdom Kingdom Kingdom Kingdom Kingdom Kingdom Kingdom Kingdom Kingdom Kingdom 19801 Delaware Castle, New Wilmington, 19801 Delaware Castle, New Wilmington, 38118–7809 19801 Delaware Castle, New Wilmington, Street Suite 200 CarsonCity, Nevada 89701 Wilmington, New Castle, Delaware 19801 Delaware Castle, New Wilmington, Block No. 21, House No. 420, Khartoum, Sudan Khartoum, 420, No. House 21, No. Block Tunisia 36282, Dubai,United ArabEmirate Kingdom Kingdom 36282, Dubai,United ArabEmirate Kingdom PRC Province, Hubei City, Ezhou Zone, Development Block No. 21, House No. 420, Khartoum, Sudan Khartoum, 420, No. House 21, No. Block Tunis 1, Charguia 19801 Delaware Castle, New Wilmington, Province de Settat, Morocco Settat, de Province Netherland The P Hassan, Beirut, Lebanon Beirut, Hassan, Charguia 1, Tunis 1, Charguia Terrugem, Sintra Portugal Terrugem, Sintra, Corpor 13 Hanover Square, London, W1S 1HW, United United 1HW, W1S London, Square, Hanover 13 13 Hanover Square, London, W1S 1HW, United United 1HW, W1S London, Square, Hanover 13 800 S Gay Street, Suite 2021, Knoxville, Tennessee Avenue Habib Bourguiba, Sidi Thabet, 2020 Ariana, Ariana, 2020 Thabet, Sidi Bourguiba, Habib Avenue Estrada Corporat Premises 202-204, Floor2, Building 26, Dubai, UAE 100% 100% 100% 100% Seberíniho 1, 821 03 Bratislava 03 821 1, Seberíniho 13 Hanover Square, London, W1S 1HW, United United 1HW, W1S London, Square, Hanover 13 Impasse N°4-Energie Solaire, Zone Industrielle La La Industrielle Zone Solaire, N°4-Energie Impasse Carson S 701 Nevada of Company Trust Corporation 13 Hanover Square, London, W1S 1HW, United United 1HW, W1S London, Square, Hanover 13 Saria Building, Ground Floor, EmbassiesStreet, Bir Corporatio 13 Hanover Square, London, W1S 1HW, United United 1HW, W1S London, Square, Hanover 13 Corpor Street, Orange 1209 Center Trust Corporation Impasse N°4-Energie Solaire, Zone Industrielle La United 1HW, W1S London, Square, Hanover 13 Estradado Rio da Mó,8, A/B, Fervença, 2705-906 Zone Industrielledu Sahel,Rue N. 7, Had Soualem, RiyadArea, ObiedKhatim Street, P.O.Box 10461, The Oberoi Centre, Level15, BusinessBay, P.O.Box The Oberoi Centre, Level15, BusinessBay, P.O.Box 11Rue 8610 Charguia1 RiyadArea, ObiedKhatim Street, P.O.Box 10461, 13Hanover Square, London, W1S1HW, United 13Hanover Square, London, W1S1HW, United No20 JuxianRoad, GedianEconomic and Technology

s NieuweSteen 36 1625HV HOORN, TheNetherland s and joint venture continued continued venture joint and USA USA UK UK UK UK Portugal Portugal USA Netherlands Netherlands Zuidoost, Amsterdam 1101CM, 238, Herikerbergweg Tunisia Tunisia UK UK USA USA UK UK Netherland Tunisia Tunisia USA USA Lebanon Slovakia Slovakia USA USA Netherlands Antille Netherlands UK UK UAE Luxembourg 20 rue des Peupliers, Portugal Switzerland rue des Battoirs 7,1205Genève, Switzerland USA Morocco UK UK Incorporated in Address of the registered office Tunisia UAE Sudan UK UK

L

L es are held by other Group companies. Hikma Holdings (UK) Limited* Limited* (UK) Holdings Hikma UK Limited* Hikma Limited (Maple) Hikma West-WardHoldings Limited* Inc* (USA) Eurohealth Corp Pharmaceuticals West-Ward West-Ward Injectables, Inc Hikma Americas Inc Inc. Holdings, Property Bedford Inc. Laboratories Roxane Columbus West-Ward Inc. Savannah Pharmaceutical Industries Ltd SAR International Eurohealth Sudan Medicef STE AMKIHikma MENA Holdings Limited UAE Limited* Hikmacure companies. were incorporated as holding Annual Report 2016 ** The remaining shar The investmentsin subsidiaries are allstated at cost. pharmace in trading operate principally subsidiaries The Group’s Hikma Pharma Benelux B.V B.V Benelux Pharma Hikma STE Hikma Pharma Tunisie STE D’Industriee Pharmaceutique Ibn AlBaytar* Tunisia FZ- Pacific Asia and Markets Emerging Hikma LLC Hikma MENA Holdings Limited* Limited* Ventures Hikma HikmaAcquisitions (UK) Limited* Limited* Hikmacure HubeiHaosun Pharmaceutical Co Ltd China APM Tunisie SARL SARL Tunisie APM PharmaCo. Ixir Ltd Lifotec Farmaceutica S.G.P.S S.A* S.A* S.G.P.S Farmaceutica Lifotec Hikma Finance (Luxembourg) SAR (Luxembourg) Finance Hikma N.V International Hikma Company’s name 41. Subsidiaries, associate 41. Subsidiaries, associate du Pharmaceutique Promotion de Société S.A.)* (Promopharm Maghreb N.V Eurohealth

Hikma LibanS.A.R.L Hikma Farmaceutica S.A s.r.o Slovakia Hikma Annual Report 2016

s – – – – – – – – – – – – – – – – – – – – – – – – – 2015 At 31 share Ordinary Ordinary December December Ownership% Ownership%

s – – – – – – – – – – – – – – – – – – – – – – – – – 2016 At 31 share Ordinary Ordinary December December Ownership% Ownership% Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals

s – – – – – 2015 At 31 share Group PLC“The Company” Ordinary Ordinary December December Ownership% Ownership% s 99% 99% 99% 98% 98% 99% 99% 97% 97% 51% 51% 2016 At 31 share 100% 100% 100% 100% 100% 100% 52.5%** 52.5%** 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Ordinary Ordinary December December Ownership% Ownership% t t dan r t Salt, P.O. Box 42, Jordan t – Seer, Amman, Jordan - Microdistrict, Bostandykskiy District, Bostandykskiy Microdistrict, A15C8X2, Almaty, Kazakhstan District, Bostandykskiy Microdistrict, A15C8X2, Almaty, Kazakhstan Box106229, Riyadh-11666, Kingdomof Arabia Saudi 11512, Jordan Lebanon Square, Giza, Egyp Giza, Square, Lebanon Saleem Bin Al-Hareth Street, Building 21, 21, Building Street, Al-Hareth Bin Saleem P.O.Box 182400, Amman, 11118, Jordan Abdellah, Al Rahmania, Algeria Rahmania, Al Abdellah, 29, Street, Bayader Qaytoqa WadiAl-Jamal Jo Amman, Seer, Saleem Bin Al-Hareth Street, Building 21, 21, Building Street, Al-Hareth Bin Saleem P.O.Box 182400, Amman, 11118, Jordan Wadi Al 11512, Jordan Harbour, Dublin2, Harbour, Ireland Vienenburg, Germany Vienenburg, Vienenburg, Germany Vienenburg, Area,Bayader Al-Seer, Wadi P.O. Box 182400,Amman, 11118, Jordan Germany 21, Building Street, Al-Hareth Bin Saleem P.O.Box 182400, Amman, 11118, Jordan Cairo, Egyp Cairo, Addis Ababa, Ethiopia, Bole Sub City, Kebele 16, Woreda N° 04 Staoueli, Algeria Staoueli, 04 N° Egyp Giza, Square, Lebanon Amman, Al-Seer, Bayader Wadi Area, Jordan City, Cairo, Egyp Cairo, City, 10D, 11 D,Industrial Zone, Badr City, a a Section 379 N° Propriété d’Activité, Zone an an Estate, Industrial Sahab 80, Box P.O. A A P.O. Riyadh, Street, Olaya Gallery, Riyadh Incorporated Incorporated in of Address registeredthe office Algeri Jordan Jordan Bayader Street, AlSharaf Zain Queen 122 Kazakhstan Apt.1, House 7,Building-28, “Keremet” KS Kazakhstan Apt.1, House 7,Building-28, “Keremet” Jordan Jordan Area, Industrial Al-Seer, Wadi Bayader Egypt Egypt El-Mohandeseen, Street, El-Esraa 12 Algeria Zone d’Activité 15/16 Staoueli,Algeria Egypt Egypt El-Mohandeseen, Street, El-Esraa 12 rdan Jordan Area, Industrial Al-Seer, Wadi Bayader Ethiopia Ethiopia Jordan 21 Saleem Bin Al-Hareth Street, Industrial Jord Jordan P.O.Box 80, Sahab IndustrialEstate, Jordan Jordan Area, Industrial Al-Seer, Wadi Bayader Italy Viale Certosa,10, Pavia,27100, Italy Jersey 47 Esplanade,St Helier, JE1 0BD, Jersey Jordan Mustafa Semreen Complex Building No. Germany Germany 8215213 LochhamerMartinsried, Strasse Germany Schiffgraben 23,38690 Goslar OT Jordan P.O.Box 963166, Amman, 11196, Jordan Ireland 2 Grand CanalSquare, GrandCanal Germany Schiffgraben 23,38690 Goslar OT Egypt Jordan Jordan AlBuhaira Algeria Zone d’Activité El Boustane N°78, Sidi ate and joint venture joint venture and ate

A

Future Pharmaceutical Industries LLC Industries FuturePharmaceutical HikmaCIS JSC Hikma PharmaKazakhstan Ltd* Industries Pharmaceutical Al Jazeerah Hikma Italia S.p. Italia Hikma Hikma Pharma SAE* SAE* Pharma Hikma Specialized for Pharmaceutical Industries LLC LLC Industries Pharmaceutical for Specialized SPA DarAl AlArabia pour la Fabricationde Médicaments Manufacturing Arab PSC* Pharmaceutical Hikma Pharma Limited* Hikma Investment LLC* LLC* Investment Hikma LLC Pharmaceuticals International Hikma ArabMedical ContainersLLC* Hikma Sofia Travel and Tourism Thymoorgan GmbH* Hikma Finance Ireland Limited Hikma Pharma GmbH Hikma Pharma Thymoorgan PharmazieGmbH Hikma United Renewable Energy Hikma Pharmaceuticals LLC* LLC* Pharmaceuticals Hikma 186 Algerie Industrie Mediterraneene Du Medicament S.A.R.L. S.A.R.L. Medicament Du Mediterraneene Industrie Algerie SARL Industry Pharmaceutical Jazeera Algeria Hikma PharmaAlgeria SARL Algeria Staoueli, 16/15 d’Activité Zone Hikma Specialized Pharmaceuticals SAE LLC Co. Importation for Hikma Co Share Pharma Hikma LLC Development and Ventures International Hikma Jordan Industrial Street, Al-Hareth Bin Saleem 21 International PharmaceuticalResearch Centre LLC Financial statements statements Financial continued statements financial consolidated the to Notes 41. Subsidiaries, associ The subsidiaries, associate and joint venture of Hikma Pharmaceuticals PLC are as follows: name Company’s Egyptian Co. Pharmaceuticalfor and Chemical Industries S.A.E. Egypt 16Ahmed Hosny Street,First Zone,Naser Financial statements Notes to the consolidated financial statements continued

42. Defined contribution retirement benefit plan Hikma Pharmaceuticals PLC has defined contribution retirement plans in five of its subsidiaries: Hikma Pharmaceuticals PLC – United Kingdom, Hikma Pharmaceuticals Limited (Jordan), Arab Pharmaceutical Manufacturing Co, West-Ward Pharmaceuticals Corp and West- Ward Columbus Pharmaceuticals. The details of each contribution plan are as follows: Hikma Pharmaceuticals PLC – United Kingdom The Group currently has a defined contribution pension plan available for staff working in the United Kingdom whereby the Group contributes 10% of salary. Contributions commence after three months’ employment. Employees are immediately entitled to 100% of the Group’s contributions. The Group’s contributions for the year ended 31 December 2016 were $0.2 million (2015: $0.2 million). Hikma Pharmaceuticals LLC – Jordan: The Group currently has an employee savings plan whereby the Group fully matches employees’ contributions, which are fixed at 10% (up to 2011 was 5%) of salary. Employees are entitled to 30% ofthe Group contributions after three years of employment with the Group and an additional 10% for each subsequent year. Employees are entitled to 100% of the company contributions after ten years of employment with the company. The Group’s contributions for the year ended 31 December 2016 were $2 million (2015: $2 million). Arab Pharmaceutical Manufacturing PSC – Jordan: The Group currently has an employee saving plan whereby the employees contribute at 10%, and the company at 15% of basic salary. After three years of employment with the company, employees are entitled to 100% of the company contributions. The Group’s contributions for the year ended 31 December 2016 were $1 million (2015: $1 million). West-Ward Pharmaceuticals Corp: (401 (k) salary saving plan) West-Ward Pharmaceutical Corp has a 401 (k) defined contribution plan, which allows all eligible employees to defer a portion of their income through contributions to the plan. All employees not covered by any collective bargaining agreement are eligible after being employed for 90 days. Employees can defer up to 95% of their gross salary into the plan, not to exceed $18,000 (2015: $18,000), not including catch-up contributions available to eligible employees as outlined by the Internal Revenue Service. The company matches 40% of the employees’ eligible contribution. Employer contributions do not vest for up to two years of service, 50% after two years of service and 100% after three years of service. Employees are considered to have completed one year of service for the purposes of vesting upon the completion of 1,000 hours of service at any time during a plan year. Employer contributions to the plan for the year ended 31 December 2016 were $3 million (2015: $3 million). West-Ward Columbus Pharmaceuticals Corp: (401 (k) salary saving plan) West-Ward Columbus Pharmaceutical Corp has a 401 (k) defined contribution plan, which allows all eligible employees to defer a portion of their income through contributions to the plan. All employees not covered by any collective bargaining agreement are eligible after being employed for 90 days. Employees can defer up to 95% of their gross salary into the plan, not to exceed $18,000 for 2016,not including catch-up contributions available to eligible employees as outlined by the Internal Revenue Service. The company matches 100% on first 5% of the employees’ eligible contribution. Employer contributions do not vest for up to two years of service, 20% after two years of service and 100% after six years of service. Employees are considered to have completed one year of service for the purposes of vesting upon the completion of 1,000 hours of service at any time during a plan year. Employer contributions to the plan for the year ended 31 December 2016 were $8.1 million. The assets of the plans are held separately from those of the Group. The only obligation of the Group with respect to the retirement benefit plans is to make specified contributions.

196 Hikma Pharmaceuticals PLC 188 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

189 197 h a 5

nger. 4 well as – million million 60 60 ass R&D ass $m (34) (34) (85) (15) 170 170 200 a b 723 447 c d 407 575 224 f 575 ble assets. otential. (152) (152) e (118) g Ordinary Ordinary . The gross oducts oducts 1,318 1,318 1,725 1,044 1,725 Fair Fair Value

r Ingelheim (Boehringer).West- Ingelheim r t portfolio and t best-in-cl portfolio ring market, expand the manufactu rics ies not attributable to intangi attributable to ies not fair value of the consideration was $1,72 the consideration value of fair further working capital adjustments as adjustments working capital further bility to launch additional pipeline pr pipeline additional to launch bility xchange rate of 1.3879:1 (representing an (representing an rate of 1.3879:1 xchange o, create long-termsustainable growth p by a third party expert as set out below. party out by expert below. a as third set vice Agreement vice between Agreement the Group and Boehri West-Ward’s Columbus experienced R&D team wit R&D experienced Columbus West-Ward’s rking capital and other adjustments); 40 million other adjustments); and rking capital ghly differentiated produc differentiated ghly owing the issuance); a contingent consideration of $224 of consideration a contingent issuance); the owing ied assets) iedand expected synerg assets) West-Ward Columbus, from Boehringe from West-Ward Columbus, d includes trade receivables includes trade d with a fair millionvalue of $158 quisition of West-Ward Columbus. The total Columbus. of West-Ward quisition price adjustment of $118 million reflecting reflecting million $118 adjustment of price s share price of £18.81 and the the US: GBP e and of £18.81 share price s d the goodwill arising have been valued ect of milestones and other conditions. conditions. and other of milestones ect esses: West-Ward Columbus and EUP. and EUP. Columbus West-Ward esses: share capital immediately foll immediately share capital nd differentiated products to market, the possi to market, products nd differentiated dd significantdd US portfoli breadth to Hikma’s prepayment related to Ser the Transitional tion and scale in the US gene in and the scale US tion posi Hikma’s bus will transform e sustainable long-term growth, the addition long-term of e sustainable unidentif2020 (future potential receivables due is $158 million. onsideration of $575 million (net of certain wo certain (net of million of $575 onsideration ished US specialty generics company with a hi with company generics specialty US ished Shares issuedBoehringer to based on Hikma’ issued cent. of Hikma per estimated 16.71 purchase performance; and based a on future The net assets acquiredin the transaction an capabilities. capabilities. West-Ward Colum of The acquisition capacity and technological capabilities, a ac the completed Hikma 2016, February 29 On of net cash c comprising million in resp amounts receivable from Boehringer represents The th goodwill arising successful track record of bringing new a new successful track record of bringing includinglaunch beyond those to

contractual amount for trade Annual Report 2016 a. Trade and include a other receivables a. Cash consideration Discharged by: Goodwill Ward Columbus is a well-establ is Columbus Ward Other Current Assets assets Intangible equipment Property, plant and Deferred tax assets Trade and other payables Other current liabilities liabilities tax Deferred liabilities Other non-current Net assets acquired Total consideration Cash consideration Issuanceshare of Contingent consideration price purchase Adjustment to acquired equivalents Cash and cash Trade and other receivables Inventories Net assets acquired Net West-Ward Columbus acquire it had agreed to that announced Hikma 2015 On 28 July 43. Acquisition of businesses businesses of 43. Acquisition Duringbusin Hikma the year, acquired two

The fair millionvalue isand $170 other an receivables of trade Annual Report 2016 . ). rs 0% 0%

e not portion on). on). not f theirf pon the the pon es 40% of of 40% es 100% es ited of vesting vesting of eing nded nded e after e after service and er two years 015: $2 million $2 015: Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals re $2 million (2 million $2 re $0.2 million (2015: $0.2 milli $0.2 (2015: $0.2 million agreement are eligible after b are eligible agreement e for the purposes of vesting u vesting of purposes e for the rgaining agreement are eligibl rgaining service, 50% after two years of lows all eligible employees to defer a employees all eligible lows West-Ward Pharmaceuticals Corp and West- and Corp West-Ward Pharmaceuticals oyees’ contributions, which are fixed at 1 which are fixed at contributions, oyees’ eligible employees to defer a portion o defer a portion to employees eligible ontributions to the plan for the year for the year e plan to the ontributions the company contributions. The Group’s The Group’s contributions. company the ng in the United Kingdom whereby the Group Kingdom United ng in the the of obligation The only of the Group. m those InternalRevenue Service. The match company InternalRevenue Service. The match company completed one year of service the purposes for ontribute at 10%, and the company at 15% of basic salary at 15% of basic and the company at 10%, ontribute entitled to 100% of the company contributions after ten yea ten after contributions company the of 100% to entitled ended 31 December 2016 were ended 31 December 2016 ve completed one year of servic one year of ve completed ributions do not vest for up to two years of service, 20% aft service, 20% to two years of up vest for do not ributions the Group contributions after three years of employment with th three years with of employment after contributions the Group red by any collective bargaining any bargaining collective red by the year 2016 ended we 31 the December not covered by any collective ba by any collective not covered ear. Employer contributions to the plan for the year ended 31 for Decemberto the the plan contributions ear. Employer not vest for of up to two not years vest year. Employees are Employees year. any time during a plan year. Employer c year. a plan time during any n), Arab Pharmaceutical Manufacturing Co, Pharmaceutical Manufacturing Arab n), to 95% of their gross salary into the plan, not to exceed $18,000 (2015: $18,000), (2015: to exceed $18,000 not the plan, into salary gross of their to 95% defined contribution plan, which allows all all allows which plan, contribution defined s a 401 (k) defined contribution plan, which al which plan, contribution (k) defined a 401 s bution retirement plansin five of its subsidiaries: Hikma Pharmaceuticals PLC – Un n pension plan available for staff plan worki available for staff pension n of each contribution plan are as follows: plan whereby the employees c plan whereby the employees s plan whereby matches the empl Group plan fully s ssets of the plans are held separately fro plans are of held the ssets mmence three months’ after employment. Employees are immediately entitled to 100% company, employees are entitled to 100% of are entitled to 100% employees company, to eligible employees as outlined by the outlined as employees to eligible by the outlined as employees to eligible s of sservice. Employees are considered to have

completion of 1,000 hours of service at any time during a plan y during at any time service of hours of 1,000 completion million). $3 (2015: 2016 were $3 million contributions for the year ended 31 December 2016 were $1 million (2015: $1 million). million). $1 million $1 (2015: were 2016 December 31 ended year the for contributions Ward Columbus Pharmaceuticals. The details defer up can Employees days. 90 employed for 100% after three years of service. Employees are considered to are ha considered 100% after Employees three years of service. 188 The Group currently has an employee saving saving employee an has currently Group The the After with three years of employment West-Ward Pharmaceuticals Corp: (401(k) salary savingplan) a 401 (k) Corp has West-Ward Pharmaceutical not cove employees All the plan. to contributions through income available contributions catch-up including do Employer contributions contribution. eligible the employees’ plan) saving salary (k) (401 Corp: Pharmaceuticals Columbus West-Ward ha Corp Pharmaceutical West-Ward Columbus for 2016, $18,000 exceed not to plan, the into salary r gross 95% of thei can defer up to Employees 90 days. for being employed available contributions catch-up including cont contribution. Employer eligible employees’ of the 5% on first of service and 100% after six year of service at hours of 1,000 upon the completion The a were $8.1 million. 31 December 2016 make to specifiedthe benefitisGroup retirement contributions. with to respect plans Financial statements statements Financial continued statements financial consolidated the to Notes 42. Defined contribution retirement benefit plan Hikma Pharmaceuticals hasPLC defined contri (Jorda Limited Hikma Pharmaceuticals Kingdom, Hikma Pharmaceuticals–PLC United Kingdom The Group currently has a defined contributio co Contributions salary. of 10% contributes Jordan: – LLC Pharmaceuticals Hikma saving employee an has currently Group The Arab PharmaceuticalManufacturing – PSC Jordan: of the Group’s contributions. The Group’s contributions for the year contributions The Group’s contributions. of the Group’s of their income through contributions to the plan. All employees All employees to the plan. contributions through income of their (up to 2011 was 5%) of salary. Employees are entitled to 30% of 30% of are entitled to Employees of salary. 5%) 2011 was (up to Group and an additional 10% for each subsequent for 10% Group and an additional for contributions Group’s The with the company. of employment Financial statements Notes to the consolidated financial statements continued

43. Acquisition of businesses continued b. Inventories have been valued as follows: • Raw materials at the current replacement cost. • Finished goods and work in process at the estimated selling prices less a cost to dispose of and complete, less a reasonable profit attributable to the selling effort, this results in an inventory step-up amounted to $27 million (note 5). c. Intangible assets represent: • Fair value of “Marketed products” which present the outcome of the R&D efforts, material and formulas. The Multi Period Excess Earnings Method (“MEEM”) of the Income Approach has been used to value those products. Useful lives of 9 -14 years have been determined. • Fair value of products in various stages of development (“Pipeline Products”). The Multi Period Excess Earnings Method (“MEEM”) of the Income Approach has been used to value those products. Useful lives of 7 -15 years have been determined. d. The Property, plant and equipment acquired have been valued by a third party expert at current market values on the basis of Fair Value as defined in IFRS 13 and in accordance with IFRS 3 Business Combinations. e. As part of the acquisition, Hikma assumed a contingent liability related to the co-development with a third party of two specific products that includes payments for milestones and royalties dependent on the net sales (see note 32). These contingent liabilities were recorded as opening balance sheet liabilities based on a probability weighted present value amount at the time of the acquisition. Subsequent to the acquisition, $10 million of such milestones were paid. In addition, concurrent with the acquisition, Hikma entered into supply and manufacturing contracts with Boehringer. f. As part of the acquisition of West-Ward Columbus, Hikma agreed to pay Boehringer contingent consideration of $220 million representing a probability weighted present value of potential liabilities related to two specific products subject to the achievement of certain US FDA approval milestones, royalties for each calendar quarter in the first year that certain conditions exist. Additionally, there was also $4 million contingent consideration in relation to retention bonus and special advance payments. Subsequent to the acquisition, $23 million were paid of such milestones and special payments. g. A purchase price adjustment of $118 million reflecting further working capital adjustments as well amounts receivable from Boehringer in respect of milestones and other conditions (notes 18, 23). Goodwill recognised is expected to be non-deductible for income tax purposes. The revenue and core operating profit of West-Ward Columbus from the date of the acquisition, included in the Group’s consolidated statement of comprehensive income for the year amounted to $477 million and $34 million, respectively. These numbers exclude acquisition, integration, and other costs amounting to $41 million, the amortisation of the fair value uplift of the inventory of $27 million, and the intangible amortisation of $ 15 million) EUP On 8 September 2015 Hikma announced that it had agreed to acquire 97.73% of the share capital of EUP from a consortium of shareholders. EUP is a pharmaceutical manufacturing company specialising in oncology products. The acquisition of EUP will strengthen Hikma’s position in the large and fast growing Egyptian market, add an attractive portfolio and pipeline in the key strategic areas of oncology and injectables, add a manufacturing facility in Egypt, with both oral and injectable lines, and leverage Hikma’s established market position in Egypt and strong sales and marketing team. On closing the transaction on Feb 17th 2016, the total fair value of the consideration is deemed to be $38 million. $34 million is cash consideration and the balance of $4 million has been treated as deferred consideration.

198 Hikma Pharmaceuticals PLC 190 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

1 (2) (1) $m 191 199 Group’s

s for the

Effect on ave been 1 c 4 1 1 (1) (1) (1) (1) (1) (2) (6) profit/(loss) 13 13 38 34 38 34 33 21 21 11 a b 24 ent of $m to the

Fair Fair Value – $m 107 107 107 for these products products these for Group’s revenues revenues ghts have been valued using using valued been have ghts

ed cash flow approach has been been has approach flow cash ed

Effect on The product ri nancial year, the Group’s revenue the year, Group’s nancial to equity parent wouldto holders of the h ket participant. by a third party expert as set out below. out party by expert below. a as third set isincluded in the Group’s consolidatedstatem

. by entity for periodthe the from beginning of the year up leted on the first day of the fi day the of leted first on nt rate applicable for any mar applicable rate nt to $4 million and $3 million, respectively. respectively. $3 million, and $4 million to d the goodwill arising have been valued oup, applying a discou oup, a applying ies that will be obtained by integrating EUP into the existing business. business. existing into the EUP integrating by obtained be ies that will non-deductible for income tax purposes for income non-deductible quired have been valued by a third party expert at current market value. value. market current at expert party third a by valued been have quired ss of ssof EUP from that of the date the acquisition by product gr ted in the table below: ted below: in the table a model that reflects a market participant point of view, where assumptions were built based on the expected market performance market expected the on based built were assumptions where view, of point participant a market reflects that a model identity. acquirer’s the of irrespective taken based taken on based earnings excess period have wouldbeen approximately attributable profit $2,057 million and the Group’s approximately $154 million. The appropriate additionalcontribution b. plant The property, and equipment ac c. acquired. assets net of proportion a as recognised been have interests non-controlling The EUP Annual Report 2016

West-Ward Columbus Full period impact of acquisitions: acquisitions: of impact period Full been comp EUP had and Columbus West-Ward of If the acquisition Goodwill recognised is expected to be is Goodwill recognised Goodwill Cash Deferred consideration acquired equivalents Cash and cash on acquisition arising Net cash outflow a. discount A acquired. rights of type the on based valued been have approvals and licenses product to relating rights Product amounted year the for income comprehensive illustra date is acquisition Cash consideration Total consideration Discharged by: Non-controlling interest interest Non-controlling lo operating core and revenue The Inventories Inventories Net assets acquired Net equivalents Cash and cash 43. Acquisition of businesses continued continued businesses of 43. Acquisition represents The the goodwill synerg arising The net assets acquiredin the transaction an Assets Intangible equipment Property, plant and debt Financial tax provision Income Other current liabilities tax liabilityDeferred Net assets acquired

Annual Report 2016 of ofit ted tered ties ties were on. oehringer oehringer ngthen ngthen f Fair Value Value Fair f ecific ecific evement of onally, there there onally, blished blished reas of reas of of $27 million, million, of $27 Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals rmulas. The Multi Period Excess Multi Period Excess rmulas. The in strategic the a key well amounts receivable from B from receivable well amounts at current market valuesat current on the basis o value amount at the time of the acquisiti at the time value amount e Multi Period Excess Earnings Method (“MEEM”) Excess Earnings Period e Multi deemed to be $38 million. $34 million is cash is million $34 million. deemed to be $38 jectable lines,leverage and Hikma’s esta t year that certain conditions exist. Additi exist. year that certain conditions t the acquisition, included in the Group’s consolida Group’s in the included the acquisition, d to two specific products subject to the achi subject products d to two specific e portfolio and pipeline nd nd special payments.advance Subsequent to the In addition, concurrent with the acquisition, concurrent Hikmaaddition, en In to value those products. Useful lives of 9 -14 years have been 9 -14 lives of Useful products. value those to the R&D efforts, material and fo and material efforts, R&D the less a cost to dispose of and complete, less a reasonable pr less complete, of and to dispose a cost less ndent on the net sales (see note 32). These contingent liabili contingent These 32). note (see sales net the on ndent re 97.73% of the share capital of EUP from a consortium of of a consortium from EUP of capital share the of 97.73% re million and $34 million, respectively. These numbers exclude numbers exclude These respectively. million, and $34 million ialising in oncology products. The acquisition of EUP will stre The acquisition products. oncology in ialising , the amortisation of the fair value uplift of the inventory inventory the of fair the value uplift of , the amortisation working capital adjustments as adjustments working capital ts. Useful lives of 7 -15 years have been determined. years have of 7 -15 lives Useful ts. consideration of $220 million million of $220 consideration Boehringer contingent reed to pay as deferred consideration. as deferred consideration. inventory inventory step-up amounted to $27 million (note 5). such milestones were paid. paid. were milestones such have been valued by a third party expert based on a probability weighted present probability weighted on a based ones and royalties depe and royalties ones of development (“Pipeline Products”). Th Products”). (“Pipeline of development ce with IFRS 3 Business Combinations. Combinations. Business IFRS 3 ce with such milestones and special payments. payments. special and milestones such present value of potential liabilities relate liabilities potential present value of 2016, the total fair value of the consideration is the consideration value of fair the total 2016, s, royalties s, quarter infor the each firscalendar non-deductible for income tax purposes. tax purposes. for income non-deductible th ofit of West-Ward Columbus from the date of from the Columbus of West-Ward ofit consideration in relation to retention bonus a retention bonus to in relation consideration her conditions (notes 18, 23). 23). 18, (notes conditions her trong sales and marketing team. nd fast growingmarket, add an nd attractivfast Egyptian Fair value of “Marketed products” which present of the outcome of “Marketed products” Fair which value attributableselling to in the effort, an this results been used has Approach of the Income (“MEEM”) Earnings Method determined. stages in various of products Fair value Raw materials at current the replacement cost. prices at the estimated selling process work in and goods Finished produc to value those has been used Approach the Income

into supply and manufacturing contracts with Boehringer. with Boehringer. contracts and manufacturing supply into representing a probability weighted representing a probability certain US FDA approval milestone approval certain US FDA contingent $4 million was also Subsequent to the acquisition, $10 million of million $10 acquisition, Subsequent to the acquisition, $23 million were paid of were paid of million $23 acquisition, in respect of milestones and ot of milestones in respect recorded as opening balance sheet liabilities balance recorded as opening products that includes payments for milest payments for that includes products as defined in IFRS 13 and in accordan 13 and IFRS in as defined • • • • f. ag Hikma Columbus, of West-Ward the acquisition As part of g. further million reflecting $118 of price adjustment A purchase 15 million) $ of amortisation and the intangible Goodwill recognised is expected to be is Goodwill recognised The revenue and core operating pr $477 to amounted year the for income comprehensive of statement million to $41 amounting and other costs integration, acquisition, d. d. and equipment acquired The Property, plant e. As the part acquisition,of Hikma assumed a contingent with liab of two sp party a thirdthe co-development ility related to c. c. Intangible assets represent: 190 EUP to acqui had agreed that On Hikmait 8 September announced 2015 shareholders. isEUP a pharmaceutical manufacturing company spec Financial statements statements Financial continued statements financial consolidated the to Notes continued businesses of 43. Acquisition b. valued as follows: have been Inventories market position in Egypt and s in market position Feb 17 on transaction the On closing $4 millionthe balance of $4 and been hastreated consideration Hikma’s position in the large a ng facility in Egypt, with both oral and in oral and both in Egypt, with ng facility a manufacturi add injectables, oncology and Financial statements Company balance sheet At 31 December 2016

2016 2015 Note $m $m Non-current assets Intangible assets 46 13 197 Financial and other non-current assets 6 8 Investments in subsidiaries 47 3,179 1,888 Due from subsidiaries 48 507 115 Property, plant and equipment 3 – 3,708 2,208 Current assets Inventories – 4 Other current assets 49 59 22 Cash and cash equivalents 50 32 363 Due from subsidiaries 48 108 117 Other receivables 2 3 201 509 Total assets 3,909 2,717 Current liabilities Other payables 51 4 2 Other current liabilities 13 22 Income tax provision 5 – Due to subsidiaries 52 32 42 54 66 Net current assets 147 443 Non-current liabilities Long-term financial debts 53 640 495 Due to subsidiaries 52 55 45 Other non-current liabilities 54 – 18 695 558 Total liabilities 749 624 Net assets 3,160 2,093 Equity Share capital 61 40 35 Share premium 62 282 282 Own shares (1) (1) Profit for the year 63 77 133 Other reserves 2,762 1,644 Equity attributable to equity holders of the parent 3,160 2,093

The financial statements of Hikma Pharmaceuticals PLC, register number 5557934, were approved by the Board of Directors and signed on its behalf by: Said Darwazah Mazen Darwazah Director Director 14 March 2017

200 Hikma Pharmaceuticals PLC 192 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

1 1 (1) $m

193 201 3,160 3,160 – – 1,044 1 1 (1) (1) $m 77 77 77 22 22 22 15 15 15 (77) (77) (77) (64) (64) (64) 1,093 1,093 earnings Total Retained – – – – 133 133 – – – – – $m 1,746 1,746 – – – – – – – 1,039 – – – (1) 707 987 2,009 (1) 707 1,070 2,093 (1) $m – – – – – – – – – m Own shares Merger reserve 1 $m ent of comprehensive income of the Company is not presented as not is of the Company income comprehensive ent of 282 – – – – – – – – – 5 5 $m 35 35 281 40 40 35 35 282 Paid up capital Share premiu part of this accounts. part of this accounts. Annual Report 2016 As permitted by section 408 of the Companies Act 2006, the statem 2006, Act of the Companies 408 section by As permitted Balance at 31 December 2016 2016 December 31 Balance at Issue of equity shares shares of equity Issue Issue of equityshares Balance at 1 January 2015 2015 January 1 Balance at Company statement of changes in equity equity in changes of statement Company 2016 December 31 ended year the For

Cost of equity settled employee share share employee settled equity of Cost scheme Profit for the year Dividends paid paid Dividends Effect fair of value change in Cost of equity settled employee share share employee settled equity of Cost scheme Profit for the year Dividends paid paid Dividends Effect fair of value change in Balance at 31 December 2015 2015 December 31 Balance at 2016 and 1 January Annual Report 2016

– – 8 8 4 4 2 3 3 (1) (1) $m 45 45 22 22 35 35 18 18 42 42 66 22 22 197 197 443 443 495 115 115 282 282 624 624 558 558 509 509 363 363 117 117 2015 2015 ned on ned on 2,093 2,093 2,208 2,208 1,888 1,888 2,093 2,093 2,717 2,717

– – – – 6 6 3 3 4 4 2 2 5 (1) $m 13 13 77 77 133 55 55 59 59 40 40 32 32 54 32 32 13 13 147 147 640 507 507 282 282 749 749 695 695 201 201 108 108 2016 Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals 2,762 2,762 3,160 1,644 3,708 3,708 3,179 3,179 3,160 3,160 3,909 3,909 53 50 46 63 52 48 49 61 62 51 52 47 48 54 Note pproved by the Board of Directors and sig and Directors of Board the by pproved

uticals PLC, register number 5557934, were a were 5557934, number register PLC, uticals Director Director Mazen Darwazah ty holders ty of the parent

192 Said Darwazah Said Financial statements statements Financial Company balance sheet At 31December 2016 Non-current assets assets Intangible non-current assets other and Financial subsidiaries in Investments

Director Director 14 March 2017 Profit for the year Other reserves Equityto equi attributable Hikma Pharmace statements of The financial assets Current Inventories liabilities Non-current debts Long-term financial subsidiaries to Due liabilities non-current Other Due from subsidiaries subsidiaries from Due equipment Property, plant and Other current assets equivalents Cash and cash Other current liabilities Net current assets its behalf by: by: behalf its Net assets Net assets Equity Share capital Share premium Own shares Total liabilities liabilities Total

Total assets assets Total liabilities Current Other payables subsidiaries to Due Due from subsidiaries subsidiaries from Due Other receivables tax provision Income Financial statements Company cash flow statement For the year ended 31 December 2016

2016 2015 $m $m Profit before tax 73 133 Adjustments for: Depreciation, amortisation and impairment of: Amortisation of intangible assets 3 1 (Gains)/losses on disposal of intangible assets (26) – Cost of equity-settled employee share scheme 5 3 Finance income (15) (4) Interest and bank charges 53 33 Change in other current assets – 1 Change in other payables 2 1 Change in inventory – (4) Change in other receivables 1 (1) Change in amounts due from/to subsidiaries 13 15 Change in other current liabilities (3) 5 Release of contingent Liability (4) – Non-cash dividend from subsidiaries 3 – Net cash from operating activities 105 183 Investing activities Change in amounts due from subsidiaries 47 (70) Purchase of property, plant and equipment (3) – Purchase of intangible assets (15) (31) Proceeds from disposal of intangible assets 9 – Investments designated at fair value – (20) Investment in subsidiaries 2 24 Acquisition of business undertakings net of cash acquired (516) – Interest income 3 4 Net cash used in investing activities (473) (93) Financing activities Decrease in collateralized cash – 5 Proceeds from issue of new shares – 1 Proceeds from issue of long term financial debts 405 512 Repayment of long term financial debts (260) (66) Repayment of short-term debts – (247) Interest paid ‐ (33) (27) Dividends paid (77) (64) Cumulative effect of change in fair value – (1) Proceeds from co-development and earn out payment agreement, net 2 17 Net cash generated from financing activities 37 130 Net (decrease)/increase in cash and cash equivalents (331) 220 Cash and cash equivalents at beginning of year 363 143 Cash and cash equivalents at end of year 32 363

202 Hikma Pharmaceuticals PLC 194 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

– 3 (1) $m 13 13 195 203 198

the dated in the in the e as those

– (43) – – (1) – (2) – 51 – – – – (8) – (5) 3 3 (137) $m 10 10 13 13 of the adjustment to to adjustment the of

– – – – – – – andards adopted for use andards adopted for 3 3 (1) (2) (5) (5) (1) $m 145 145 payment’, whereby current charge payment’, whereby intangibles intangibles Software Total Product related tails are given in Note 1 to the consoli Note in tails are given anies Act 2006. As permitted by that Act, by permitted As Act 2006. anies

– – (140) – 145 10 155 – – – – – – – (8) $m 43 144 10 197 51 43 (43) Goodwill onal Financial Reporting St Reporting onal Financial st basis. The principal accounting policies adopted are the adopted sam policies The principal accounting st basis. ents with additionthe of the policies noted below. d standards is the same as for the Group. De the Group. same as for is the standards d mpany are presented as required by the Comp by the as required mpany are presented ve been prepared in accordance with Internati ve been prepared with in accordance property, plant and equipment, inventory and deferred taxes made prior to the end of the measurement period on 15 July 2015. 2015. July 15 on period measurement the of end the to prior made taxes deferred and inventory equipment, and plant property, Charge for the year Annual Report 2016 Carrying amount amount Carrying 2016 December 31 At December 2015 At 31 * result a as Bedford of acquisition the on recognised goodwill provisional the to made was million $8 of adjustment an 2015 In Charge for the year Transfers to subsidiaries 2016 December 31 Balance at European Union. The statementsfinancial prepared on the have historical been co expenses relating the to subsidiaries’employees are recharged to subsidiary companies. Disposals Amortisation 2015 January 1 at Balance 2016 January 1 Balance at Transfer to investment in subsidiaries 2016 December 31 Balance at Balance at 1 January 2016 2016 January 1 Balance at subsidiaries to) Additions/(Transfers Cost 2015 January 1 at Balance 46.Intangible assets 45. Significant accounting policies policies accounting 45. Significant The separate financial Co statements of the 44. Adoption of new and revised standards standards revised and new of 44. Adoption and revise of new Company the The impact on ha statements separate financial statem financial the Note consolidated 2 to in set out impairment. for provisions appropriate, where less, cost at stated are subsidiaries in Investments based ‘Share 2 IFRS with accordance in are accounted for employee share Equity-settled schemes Notes to the Company financial statements statements financial Company the to Notes 2016 December 31 ended year the For

Additions/transfers from subsidiaries from subsidiaries Additions/transfers Remeasurement* financialstatements. Annual Report 2016

– – – – – – – – – – – 1 1 5 5 1 1 5 5 1 3 3 4 4 1 1 (1) (1) (1) (1) (4) (4) (4) (4) $m 17 17 15 15 33 33 24 24 (64) (64) (27) (27) (66) (66) (20) (20) (93) (31) (31) (70) (70) 363 363 220 220 143 130 130 512 512 183 183 133 133 2015 2015 (247) (247)

– – – – – – – – – – – – – 2 2 1 1 2 2 2 2 3 3 9 5 5 3 3 3 3 (3) (4) (3) $m 32 32 37 37 13 13 53 53 47 47 73 73 (77) (77) (33) (33) (15) (15) (26) (26) (15) (15) 363 363 405 405 105 105 2016 (331) (331) (260) (260) (516) (516) (473) Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals n agreement,out payment net akings net of cash acquired net of cash acquired akings s at beginning of year year of beginning s at on and impairment of: of: impairment on and term financial debts debts term financial ‐

Cash and cash equivalent Cash and cash of year end at Cash and cash equivalents Proceeds from co-developmentear and activities financing from generated Net cash Net (decrease)/increase in cash and cash equivalents Cumulative effect of change in fair value Cumulativeof change in value fair effect Dividends paid paid Dividends Change in other receivables receivables other in Change subsidiaries due from/to Change in amounts Change in inventory inventory Change in Change in liabilities other current Release of contingent Liability Liability Release of contingent Interest paid Repayment of short-term debts Interest and bank charges charges bank and Interest Change in assets other current Change in other payables Repayment of long Finance income income Finance subsidiaries in Investment undert business of Acquisition activities Financing Decrease in collateralized cash Proceeds issuefrom of new shares debts term financial of long issue Proceeds from Non-cash dividend from subsidiaries from subsidiaries dividend Non-cash from operating activities Net cash activities Investing subsidiaries due from Change in amounts plant and equipment Purchase of property, of intangible assets Proceeds from disposal Investments designated at fair value activities investing used in Net cash Cost equity-settled employee of share scheme (Gains)/losses on disposal of intangible assets assets intangible of disposal on (Gains)/losses income Interest Purchase of intangible assets assets Purchase of intangible 194 Financial statements statements Financial statement flow cash Company 2016 December 31 ended year the For tax before Profit for: Adjustments Depreciation, amortisati Amortisation of intangible assets assets intangible Amortisation of

Financial statements Notes to the Company financial statements continued For the year ended 31 December 2016

47. Investments in subsidiaries The details of Investment in subsidiaries are mentioned in note 41. The following table provides the movement of the investments in subsidiaries: 2016 2015 $m $m Beginning balance 1,888 2,033 Additions/Transfers from/(to) subsidiaries 1,908 – Transfer from Goodwill 43 – Reduction in investment* (650) – Reduction in paid up capital** (10) (145) Ending balance 3,179 1,888 * This category relates to an intragroup restructuring following the acquisition of West-Ward Columbus. ** In 2016, the capital of Hikma Finance (Luxembourg) SARL was reduced by $10 million, in previous period a reduction of $108 million in Hikma Finance (Luxembourg) SARL, in addition the capital contribution of $37 million to Eurohealth International SARL was reversed as the conditions of the contribution were not satisfied. Part of this capital reduction is related to the transfer of intangibles from sister companies.

48. Due from subsidiaries and sister companies Non-current assets 2016 2015 $m $m West-Ward Pharmaceuticals Corp. 8 56 Hikma Italia S. P. A 4 5 Hikma MENA Holdings 7 7 West-Ward Pharmaceuticals International Limited * 488 – Eurohealth International SARL – 47 507 115 * Increase in respect of dividends in specie as part of an intragroup restructuring following the acquisition of West-Ward Columbus. Current assets 2016 2015 $m $m Hikma Pharmaceuticals - Jordan 3 – Hikma UK Limited 62 88 Hikma MENA Holdings 7 7 West-Ward Pharmaceutical Corp. 33 – Hikma Pharma SAE 2 2 Eurohealth International SARL – 17 Hikma finance (Luxembourg) SARL – 3 Hikma Emerging Markets and Asia Pacific FZ-LLC Dubai 1 – 108 117

49. Other current assets 2016 2015 $m $m Price adjustment receivable (note 43) 34 – Investment designated at fair value 20 20 Co-development and earnout Receivable 3 2 Others 2 – 59 22

Investment designated at fair value: represents the agreement the Group entered in 2015 with an asset management firm to manage a $20 million portfolio of underlying debt instruments. The asset is measured at fair value and classed as level 1 as it uses ‘quoted prices in active markets.

204 Hikma Pharmaceuticals PLC 196 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

– 1 2 1 5 3 – – – $m $m $m 39 44 45 42 31 197 205 363 363 324 324 2015 2015 2015 rying 5 1 2 – 1 – – – As at 31 As December 31 at 5 5 $m 24 24 32 $m $m 27 27 32 44 44 10 55 2016 2016 2016

maturity less.of three The months car or to their fair value. value. fair their to her payables approximates her nd short-term bank deposits with an original with original an deposits bank short-term nd ates to their fair value. value. fair their to ates Eurohealth International SARL Thymoorgan GmbH Thymoorgan GmbH Annual Report 2016

Hikma Investment LLC Investment Hikma West-Ward USA Current liabilities liabilities Current Hikma (Maple) Limited LLC Investment Hikma Non-current liabilities liabilities Non-current Other payables payables Other ot of amount carrying the that consider Directors The 52. Due subsidiaries to and sister companies 51. Financial liabilities liabilities Financial 51. These comprise cash held by the Company a Company the by held cash comprise These Cash at banks and on hand on hand Cash at banks and Time deposits 50. Financial assets assets Financial 50. equivalents cash and Cash approxim amount of these assets

Money market deposits Money market deposits Others West-Ward Pharmaceuticals International Limited Hikma Pharma Limited - Jersey Hikma Farmaceutica S.A Annual Report 2016 – – – 5 7 – – – – – – – – – – – – 3 3 2 2 2 2 7 7 $m $m $m $m 17 17 20 20 88 88 22 22 56 56 47 47 117 117 115 115 2015 2015 2015 2015 2015 2015 2015 (145) (145) 2,033 2,033 quoted prices in in prices quoted – – – 3 2 8 4 7 2 2 3 3 7 1 1 20 20 34 34 59 59 $m $m $m $m 33 33 62 62 43 43 (10) (10) 488 488 108 108 507 507 2016 2016 2016 2016 (650) (650) ment firm to manage manage to firm ment Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals 1,888 1,888 1,908 1,908 3,179 3,179 1,888 illion in Hikma Finance ditions of the contribution mbus. 5 with an asset manage 5 with an asset ir value and classed as level 1 as it uses ‘ uses as it level 1 as classed ir and value duced by $10 million, in previous period a reduction of $108 m

ial statements continued continued statements ial of the investments in subsidiaries: in subsidiaries: of the investments represents the agreement 201 the Group entered represents the in agreement debt instruments. The asset is measured at fa measured The is asset debt instruments. tal reduction is related to the transfer of intangibles from sister companies. companies. sister from intangibles of transfer the to related is reduction tal idiaries are mentioned in note 41. in note 41. are mentioned idiaries ed at fair value

(Luxembourg) SARL, in addition the capital contribution of $37 million to Eurohealth International SARL was reversed as the con capi this of Part satisfied. not were Hikma EmergingMarkets and AsiaPacific FZ-LLC Dubai Eurohealth International SARL SARL (Luxembourg) Hikma finance Investment designat Investment and earnout Receivable Co-development West-Ward PharmaceuticalCorp. Hikma Pharma SAE Others 196 48. Due from subsidiaries and sister companies companies sister and subsidiaries from 48. Due assets Non-current West-Ward Pharmaceuticals Corp. * Colu West-Ward of acquisition the following restructuring intragroup an of part as specie in dividends of respect in Increase Current assets Hikma Pharmaceuticals - Jordan Hikma UK Limited Holdings MENA Hikma assets current Other 49. Price adjustment receivable (note 43) Financial statements statements Financial financ Company the to Notes 2016 December 31 ended year the For in subsidiaries Investments 47. subs in Investment of details The The following table provides the movement balance Beginning * Columbus. West-Ward of acquisition the following restructuring intragroup an to relates category This ** In 2016, the capital of Hikma Finance (Luxembourg) SARL was re HikmaItalia A S. P. Holdings MENA Hikma West-Ward Pharmaceuticals International Limited * value: fair at designated Investment Additions/Transfers from/(to) subsidiaries subsidiaries from/(to) Additions/Transfers

Eurohealth International SARL a $20 million portfolio of underlying of portfolio a $20 million Transfer from Goodwill active markets. Reduction in investment* investment* in Reduction Ending balance balance Ending Reduction in paid up capital** capital** up paid in Reduction Financial statements Notes to the Company financial statements continued For the year ended 31 December 2016

53. Long-term financial debts A $500 million (with a fair value of $495 million) 4.25 per cent. Eurobond due April 2020 with the rating of (BB+/Ba1). The proceeds were used to refinance existing debt and to finance part of the cash consideration of West-Ward Columbus acquisition.

54. Other non-current liabilities Co-development and earnout payment agreement In 2015 the liability mainly relates to the present value of future payments on a co-development and earnout agreement. As part of this agreement, milestone payments dependent on successful clinical development of defined products are received by the Group. In return of receiving such milestone payments, the Group has agreed to pay the contracting party a certain percentage of future sales of those products. As at 31 December 2016 and 31 December 2015, the liability associated with these earnout payments was adjusted to reflect the present value of the expected future cash outflows and the difference is presented as a finance cost/income. During 2016, the total liability was transferred to sister company, however PLC still acts as guarantor for the performance of a number of its affiliates pursuant to various agreements.

55. Financial policies for risk management and their objectives Currency risk Currency risks as defined by IFRS 7 arise on account of financial instruments being denominated in a currency that is not the functional currency and being of a monetary nature. The following table illustrates financial assets and liabilities for the Company in different currencies: Liabilities Assets 2016 2015 2016 2015 $m $m $m $m British Pound – – – 1

A sensitivity analysis based on a 10% movement in foreign exchange rates has no material impact on the Company results and Company statement of changes in equity. Further details on how the Company manages the currency risk are given in Note 30. Interest rate risk As at 31 December As at 31 December 2016 2015 Fixed rate Floating rate Total Fixed rate Floating rate Total $m $m $m $m $m $m Financial liabilities Interest-bearing loans and borrowings 495 145 640 494 – 494 Financial assets Cash and cash equivalents – 27 27 – 357 357

An interest rate sensitivity analysis assumes an instantaneous 100 basis point change in interest rates in all currencies from their levels at 31 December 2016, with all other variables held constant. Based on the composition of the Company debt and cash portfolio as at 31 December 2016, a 1% increase in interest rates would result in an additional interest expense of $1 million being incurred per year (2015: $4 million of interest income incurred).

206 Hikma Pharmaceuticals PLC 198 Hikma Pharmaceuticals plc Strategic report Corporate governance Financial statements

3 2 (2) (4) $m 32 $m llion 199 207 (726) (696) ed to al of share- of tments. tments. – 363 – – – – – $m $m years Total years Total (702) (702) (702) Two to five five Two to Two Two to five 3 3 2 2 6 (2) (2) (4) $m $m $m 32 32 year (20) (20) (567) (587) (24) (24) year 363 363 344 344 (567) (223) Less than one Less than one e ability to satisfy its liability commi liability its satisfy to e ability e scheme was 2,560,000 (2015: 2,560,000). 2,560,000). (2015: was 2,560,000 scheme e 2015: sixteen) (excluding Executive Directors); tot Directors); Executive (excluding sixteen) 2015: ion) represents national insurance contributions. The cost The insurance contributions. national represents ion) n) of which salaries and bonuses compromise an amount of $5 mi $5 of an amount compromise bonuses and salaries which of n) e 38. As at 31 December 2016, the total number of options grant of options number the total at 31 December 2016, As e 38. ment and their objectives continued continued objectives their and ment mpensation scheme during the life of th of life the during scheme mpensation ly has an average of twenty-one employees ( has an average of twenty-one employees ly nefits presented below. presented below. nefits (2015: $3 million) the remaining balance of $1 million (2015: $1 mill$1 (2015: million $1 of remaining balance million) the $3 (2015: compensation paid to them amounted to $6 million (2015: $4 millio $4 (2015: to $6 million to them amounted compensation paid other be based payments and 2016 Other payables Other payables Interest bearing loans and borrowings and borrowings loans Interest bearing Annual Report 2016 The details of the stock compensation scheme are provided in not in scheme are provided compensation of the stock The details 57. Stock options 56. Staff costs 56. Staff current Hikma Pharmaceuticals PLC operating cash flow during 2016, it has th it 2016, during cash flow operating Group’s that, given the The Company believes Cash and cash equivalents equivalents Cash and cash receivable Accounts

Cash and cash equivalents equivalents Cash and cash receivable Accounts 55. Financial policies for risk manage risk for policies Financial 55. risk Liquidity and borrowings loans Interest bearing Other payables co stock the under Company the of employees

2015 2015

Annual Report 2016

1 $m $m 2015 2015 Assets Assets lect lect turn of turn of of this ose er year ceeds were a number of

2015 their levels their at mpanyin

– – 494 As at 31 December As 31 at $m $m 2016 Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals future sales of of th sales future

– – 357 357 $m $m payments was adjusted to ref to payments was adjusted 2015 494 the Company the resultsCompany Company and y debt and y cash portfolio at as Liabilities Fixed rate Floating rate Total t and earnout agreement. As part st rates in all from currencies

– certain percentage of certain $m $m 27 2016 640 2016 Total ts as guarantor ts for the performance of nominated in a currency that is not the not the is in that a currency nominated nancial assets and liabilities for the Co the for liabilities and assets nancial

on of West-Ward Columbus acquisition. acquisition. Columbus West-Ward on of ditional interest expense of $1 million being incurred p being interest million ditional expense of $1 As at 31 December $m associated with these earnout with these associated tes has no material impact on impact material has no tes 27 145 lopment of defined products are received by the Group. In re In by the Group. are received of defined products lopment on the composition of the Compan of the on the composition sk are given in Note 30. Note 30. in sk are given 100 basis point change in intere in change point basis 100 nt. Eurobond due April 2020 with the rating of (BB+/Ba1). The pro of (BB+/Ba1). the rating with 2020 due April nt. Eurobond ture payments on on a co-developmen ture payments

– nd the difference is presented as cost/income. a finance $m 495 495 ial statements continued continued statements ial Fixed rateFixed rate Floating has agreed to pay the contracting party agreed a to has pay the contracting rates would in result an ad d to sister company, however PLC still ac nature. The following tableillustrates fi ment in foreign exchange ra management and their objectives objectives their and management on account of financial instruments being de instruments of financial on account finance part of the cash considerati of the finance part pendent on successful clinical deve clinical on successful pendent mpany manages ri the currency risk

British Pound Pound British Cash and cash equivalents equivalents Cash and cash instantaneous an assumes analysis sensitivity rate interest An 31 December 2016, with other held variables constant. Based all incurred). income interest million of $4 (2015: 31 December 2016, increasea 1% in interest Financial assets Financial assets Interest-bearing loans and borrowings borrowings and loans Interest-bearing receiving such milestone payments, the Group the payments, milestone such receiving liability the December 2015, 31 December 2016 and at 31 As products. the present valueof the expected future cash outflows a Duringliability 2016, the total was transferre its affiliates to pursuant various agreements. agreement, milestone payments de agreement, milestone 198 used to refinance existing debt and to and debt existing refinance to used risk Currency 7 arise IFRS by defined as Currency risks move a 10% based on analysis A sensitivity Interest rate Financial liabilities Financial statements statements Financial financ Company the to Notes 2016 December 31 ended year the For 53.Long-term financial debts ce per 4.25 million) (with a fair value of $495 million A $500 liabilities non-current Other 54. agreement payment earnout and Co-development fu present value of to the relates mainly liability the In 2015 risk for policies Financial 55. statement of changes in equity. how the Co details Further on functional currency monetary and being currency of a functional different currencies: Financial statements Notes to the Company financial statements continued For the year ended 31 December 2016

58. Long-term incentive plans 63. Profit for the year The details of the LTIP scheme are provided in note 38. As at 31 December 2016, the total number of awards granted to employees of the As permitted by section 408 of the Companies Act 2006, the statement of comprehensive income of the Company is not presented as Company under the LTIPs during the life of the plans was 1,649,615 shares (2015: 1,649,615) and the total amount of the compensation part of these accounts. The net income in the Company for the year is $77 million (2015: $133 million). expenses charged to profit and loss is $2 million (2015: $2 million). Included in the net income for the year is an amount of $125 million (2015: $202 million) representing dividends received,$32 million of acquisition cost in relation to West-Ward Columbus acquisition (2015:$12 million), and $5 million (2015: $3 million) representing the 59. Management incentive plans current year charge of LTIPs and EIPs whereby the remaining charge $17 million (2015: $12 million) of the Group’s stock options, LTIPs, The details of the MIP scheme are provided in note 38. As at 31 December 2016, the total number of awards granted to employees of the MIPs and EIPs charge is recharged to subsidiary companies. Company under the MIP during the life of the plans was 25,716 shares (2015: 18,383 shares) and the total amount of the compensation expenses charged to profit and loss is $nil (2015: $nil). 64. Related parties Amounts repayable to and from subsidiaries are disclosed in Notes 48 and 52. 60. Executive incentive plans Other transactions with related parties include management charges for services provided to the subsidiary companies, equity settled The 2014 Executive Incentive Plan (“EIP”) was approved by shareholders at the 2014 Annual General Meeting. The details of the EIP employee share scheme costs relating to the subsidiary companies and transactions with key management personnel. Compensation paid scheme are provided in note 38. As at 31 December 2016, the total number of awards granted to employees of the Company under the to key management personnel is disclosed in Note 40. Details of Directors remuneration are disclosed in the Remuneration Committee EIP during the life of the plans was 364,274 shares (2015:153,209) and the total amount of the compensation expenses charged to profit Report on pages 104 to 135. and loss is $ 3 million (2015: $1 million). More details on the general information of the ultimate parent of the Group are disclosed in Note 2. 61. Share capital Issued and fully paid - included in shareholder’s equity: 65. Contingent liabilities A contingent liability existed at the balance sheet date in respect of Standby Letter of Credit totalling to $9 million (2015: $9 million). 2016 2015 Number ‘m $m Number ‘m $m At 1 January 200 35 199 35 Issued during the year (ordinary shares of 10p each) 41 5 1 – At 31 December 241 40 200 35

62. Share premium Share premium $m Balance at 1 January 2016 282 Premium arising on exercise of stock options – Balance at 31 December 2016 282

208 Hikma Pharmaceuticals PLC 200 Hikma Pharmaceuticals plc Annual Report 2016 201 Strategic report Corporate governance Financial statements

aid 201 209 tee illion of , LTIPs,, ttled ng the $9 million). million). $9 Compensation p Compensation the Remuneration Commit Remuneration the gement personnel. talling to $9 million (2015: to the subsidiary companies, equity to companies, the subsidiary se $12 million) of the Group’s stock stock options the Group’s of million) $12 uneration are disclosed in disclosed uneration are ent of comprehensive income of the Company is not presented presented as not is of the Company income comprehensive ent of e Group are disclosed in Note 2. Note 2. in are disclosed e Group s and transactions with key mana key with s and transactions illion (2015: $202 million) representing dividends received,$32 m received,$32 dividends representing million) $202 (2015: illion on (2015:$12 million), and $5 million (2015: $3 million) representi $3 million) (2015: million $5 and million), (2015:$12 on tails of Directors rem Directors tails of any for the year is $77 million (2015: $133 million). $133 any for (2015: the millionyear is $77 management charges for services provided services charges for management ereby the remaining charge $17 million (2015: million charge $17 ereby the remaining ion of the ultimate parent of th ion of the ultimate sclosed in Note 40. De 40. Note in sclosed ged to subsidiary companies. companies. subsidiary ged to Annual Report 2016 Report on pages 104 to 135. to 135. 104 Report on pages More details on the general informat part of these accounts. The net income in Comp income part The the of net these accounts. $125 m of is an amount for the year the net income in Included Annual Report 2016 employee share scheme costs relating to the subsidiary companie to the subsidiary relating costs scheme employee share 65.Contingent liabilities Aliability contingent existed balanceat the sheet date in respect of Standby Letter of Credit to acquisition cost in relation to West-Ward Columbus acquisiti Columbus West-Ward relation to in cost acquisition wh current year charge EIPs of LTIPs and parties Related 64. 52. 48 and Notes in es are disclosed subsidiari repayable to and from Amounts Other withtransactions related parties include di is to key management personnel 63. Profit 63. for Profit year the the statem 2006, Act of the Companies 408 section by As permitted

MIPs is rechar and EIPs charge – – e $m $m 282 282 282 2015 2015 tion ation of the of the profit profit IP premium Share 1 1 199 199 35 200 200 35 Hikma Pharmaceuticals plc Hikma plc Pharmaceuticals Number ‘m Number ‘m 5 $m 35 40 2016 Meeting. The details of the E the The details of Meeting. of awards granted to employees granted to employees of awards of the compensation expenses charged to charged expenses the compensation of tal number of awards granted to employees of awards number tal 41 200 241 Number ‘m ders at the 2014 Annual General General Annual 2014 the at ders l number of awards granted to employees of the Company under th under of awards granted the to Company employees of l number 5 shares (2015: 1,649,615) and the total amount of the compens and the total amount 1,649,615) (2015: 5 shares December 2016, the total number number the total 2016, December ial statements continued continued statements ial plans was 25,716 shares (2015: 18,383 shares) and the total amount of the compensa and the total amount shares) 18,383 (2015: shares 25,716 was plans shares (2015:153,209) and the total amount total amount and the (2015:153,209) shares in note 38. As at 31 December 2016, the to 2016, December As at 31 note 38. in ss is $2 million (2015: $2 million). $2 million). (2015: $2 million is ss nd loss is $nil (2015: $nil). $nil). (2015: $nil is loss nd uded in shareholder’s equity: equity: shareholder’s in uded

200 61. Share capital capital 61. Share Issued and paid fully- incl January At 1 premium 62. Share 2016 Balance at 1 January Premiumoptions arising stock on exercise of 2016 December 31 Balance at Financial statements statements Financial financ Company the to Notes 2016 December 31 ended year the For plans incentive Long-term 58. scheme are provided of the LTIP The details incentive plans Management 59. As at 31 note 38. in MIP scheme are provided of the The details of the life MIP during under the the Company plans incentive 60. Executive sharehol by approved was (“EIP”) Plan Incentive Executive 2014 The Issued during the year (ordinaryshares of 10p each) December At 31 Company under the LTIPs during the life of the plans was 1,649,61 the life of the plans LTIPs during under the Company lo and to profit expenses charged expenses charged to profit a to profit expenses charged tota the 2016, December 31 at As 38. note in provided are scheme 364,274 was plans the of life the during EIP and loss is $ 3 million (2015: $1 million). million). $1 (2015: 3 million is $ and loss Shareholder information

2017 financial calendar 6 April 2016 final dividend ex-dividend date 7 April 2016 final dividend record date 19 May Annual General Meeting 25 May 2016 final dividend paid to shareholders 17 August* 2017 interim results and interim dividend announced 24 August* 2017 interim dividend ex-dividend date 25 August* 2017 interim dividend record date 22 September* 2017 interim dividend paid to shareholders

* Provisional dates.

Shareholding enquiries Enquiries or information concerning existing shareholdings should be directed to the Company’s registrars, Capita Registrars either: • in writing to Shareholder Services, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU; • by telephone from within the UK on 0871 664 0300; • by telephone from outside the UK on +44 371 664 0300; or • through the website www.capitaregistrars.co.uk.

Dividend payments – Currency The Company declares dividends in US Dollars. Unless you have elected otherwise, you will receive your dividend in US Dollars. Shareholders can opt to receive the dividend in Pounds Sterling or Jordanian Dinar. The Registrar retains records of the dividend currency for each shareholder and only changes them at the shareholder’s request. If you wish to change the currency in which you receive your dividend please contact the Registrars.

Dividend payments – Bank Transfer Shareholders who currently receive their dividend by cheque can request a dividend mandate form from the Registrar and have their dividend paid direct into their bank account on the same day as the dividend is paid. The tax voucher is sent direct to the shareholders’ registered address.

Dividend payments – International Payment System If you are an overseas shareholder the Registrar is now able to pay dividends in several foreign currencies for an administrative charge of £5.00, which is deducted from the payment. Contact the Registrar for further information.

Website Press releases, the share price and other information on the Group are available on the Company’s website www.hikma.com.

Share listings London Stock Exchange The Company’s Ordinary Shares are admitted to the Official List of the London Stock Exchange. They are listed under EPIC − HIK, SEDOL − B0LCW08 GB and ISIN – GB00B0LCW083. Further information on this market, its trading systems and current trading in Hikma Pharmaceuticals PLC shares can be found on the London Stock Exchange website www.londonstockexchange.com.

Global Depository Receipts The Company also has listed Global Depository Receipts (GDRs) on the Nasdaq Dubai. They are listed under EPIC – HIK and ISIN – US4312882081. Further information on the Nasdaq Dubai, its trading systems and current trading in Hikma Pharmaceuticals PLC GDRs can be found on the website www.nasdaqdubai.com.

210 Hikma Pharmaceuticals PLC Strategic report Corporate governance Financial statements 211

Annual Report 2016 Telephone number + 44 207 399 2760. Telephone Shareholder fraud scams. Over the last year many boiler room regarding has issued a number of warningsThe Financial Conduct Authority to shareholders concerning investment unsolicited phone calls or correspondence have received shareholders that aware companies have become to sell them what often turnto be offering out who target UK shareholders, overseas based “brokers” typically from matters. These are can be These brokers commonly known as boiler rooms. operations are in US or UK investments. These worthless or high risk shares at a to buy shares cautious of unsolicited advice, offers advised to be very are persuasive. Shareholders very persistent and extremely advice: any unsolicited investment If you receive Company reports. of free discount or offers name of the person and organisations; Obtain the correct authorised by the FCA by looking the firm up on www.fsa.gov.uk/register; Check they are 111 6768 or visit www.fca.org.uk/consumers/scams; Report the matter to the FCA either by calling 0800 If the caller persists, hang up. on the Company website. included in Company mailings and are by the Company are dealing facilities sponsored Details of the share London W1S 1HW. is 13 Hanover Square, office and the registered website is www.hikma.com The Company’s PO Box 358516 US) within the +1 888 BNY ADRS (toll-free Tel: E-mail: [email protected] Pittsburgh, PA 15252-8516 Pittsburgh, PA +1 201 680 6825 Tel: American depository receipts (ADRs) American Ordinary ADR equates to 2 Hikma One Mellon acts as Depositary. for which BNY ADR programme PLC has an Hikma Pharmaceuticals be made to: Enquiries should under the symbol HKMPY. programme traded as a Level 1 (OTC) ADRs are Shares. Services BNY Mellon Shareowner Principal Group Companies

HIKMA PHARMACEUTICALS PLC WEST-WARD PHARMACEUTICAL CORP. Registered in England and Wales number 5557934 401 Industrial Way West Eatontown Registered office: New Jersey 07724 13 Hanover Square US London W1S 1HW UK Telephone: +1 732 542 1191 Facsimile: +1 732 542 6150 Telephone: +44 (0)20 7399 2760 Facsimile: +44 (0)20 7399 2761 E-mail: [email protected]

HIKMA PHARMACEUTICALS LLC HIKMA FARMACÊUTICA (PORTUGAL) S.A. P.O. Box 182400 Estrada Rio Da Mo no. 8 11118 Amman 8A, 8B – Fervença Jordan 2705 – 906 Terrugem SNT Portugal Telephone: +962 6 5802900 Facsimile: +962 6 5827102 Telephone: +351 21 9608410 Facsimile: +351 21 9615102

Advisers

AUDITORS BROKERS PUBLIC RELATIONS PricewaterhouseCoopers LLP Citigroup Global Markets FTI Consulting 1 Embankment Place Limited 200 Aldersgate London WC2N 6RH Canada Square Aldersgate Street UK London E14 5LB London EC1A 4HD UK UK Bank of America Merrill Lynch 2 King Edward Street London EC1A 1HQ UK

212 Hikma Pharmaceuticals PLC This report is printed on ‘UPM fine SC’ paper. This paper is made from virgin wood fibre from well-managed forest independently certified according to the rules of the Forest Stewardship Council (FSC). It is manufactured at a mill that is certified to ISO14001 and EMAS environmental standards. The mill uses pulps that are totally chlorine free (TCF), and some pulp is bleached using an elemental chlorine free (ECF) process. The inks in printing this report are all vegetable-based. Printed at Pureprint Group, ISO14001, FSC certified and CarbonNeutral® Designed and produced by Black Sun Plc www.blacksunplc.com HIKMA PHARMACEUTICALS PLC ANNUAL REPORT 2016 www.hikma.com Hikma Pharmaceuticals PLC UK London W1S 1HW, 13 Hanover Square,