julphar annual report

Annual Report2012

Gulf Pharmaceutical Industries

3Annual Report 2012

Gulf Pharmaceutical IndustriesGulf Pharmaceutical Industries

4 www.julphar.net

Section A

Julphar Business core

Message from ChairmanCEO ReviewAbout JulpharGlobal Reach2012 Growth StrategyJulphar Training Centre - Courses completed in 2012Responsibility2012 HighlightsOrganisationProduction and Product Julphar DiabetesJulphar Ethiopia

Section B

Business Overview

Overview of Global Healthcare MarketIndustry Forecast ScenarioOverview of Julphar’s Major MarketsOther Markets (GCC and Levant)

A B

5Annual Report 2012

Section CAnnual Financial Results

Business & Financial OverviewIndependent Auditor’s ReportConsolidated Statement of Financial PositionConsolidated Statement of IncomeConsolidated Statement of Comprehensive IncomeConsolidated Cash Flows Consolidated Statement of Changes in Shareholders’ EquityNotes to the Consolidated Financial Statements

C

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A

7Annual Report 2012 7

Annual Report

Section A

Julphar Business Core

Message from Chairman

CEO Review

About Julphar

Global Reach

2012 Growth Strategy

Julphar Training Centre - Courses completed in 2012

Responsibility

2012 Highlights

Organisation

Production and Product

Julphar Diabetes

Julphar Ethiopia

8 www.julphar.net

I am pleased to announce that Julphar has closed the year at AED1.18 billion, producing overall steady results, with a year on year growth of 15.3% over sales from 2011.

Maintaining stable financial growth and delivering sustainable healthcare is a key priority of the board. I would like to acknowledge and congratulate the Julphar Executive team for their contribution to our increase in sales and leadership abilities.

Our determination to succeed is evident in our healthy balance sheet. We continue to uphold our positioning, concentrating on strategic investment into new markets, as well as continuing to build on long-term relationships with our clients, partners and stakeholders.

Our overall performance has been measured by various key indicators, which keep us aligned with our long term strategy and vision. This year, the Board of Directors have focussed on a setting a solid foundation for the future and working towards our ambitious long-term plans.

The launch of both local and global facilities, teamed with an emphasis on difficult markets has taken the forefront of our overall strategy. This is evidently paying off, with our biotechnology sector showing excellent performance.

Julphar is a true reflection of Ras al Khaimah’s significant development and continues to lead as one of the UAE’s most influential local businesses making an impact on the global stage.

HH Sheikh Faisal bin Saqr Al Qasimi, Chairman

Message from ChairmanMessage from Chairman

Julphar's top 5 markets

Saudi Arabia

Iraq

U.A.E.

Libya

Egypt

6.7%

5.9%

32.0%

12.6%

9.7%

9Annual Report 2012

In 2012, Julphar has delivered another year of strong operational and financial performance, reflecting the hard work and dedication of our associates. Our strengths lie in sustaining and growing business in emerging and difficult markets, despite facing regional challenges such as humanitarian crisis’ and unstable political environments.

I would like to express my sincere gratitude to the Julphar team for continuing to strive for excellence and establishing ourselves as a leader in our field. Our ability to overcome challenges and deliver on our promise to clients is evident.

Providing a competitive advantage through expanding our core business has contributed to a strong overall performance. The launch of Julphar Diabetes was a significant milestone, highlighting our ability to shift from a local company to a top global player and enabling us to become one of the largest producers of insulin in the world.

The decision to move into local API production hasn’t stopped with insulin. This year, we have also invested further in biotechnology to tackle regional health issues such as Chronic Kidney Disease (CKD). Focussing on biosimilars and continued investment in our biotechnology capabilities strengthen our long term strategy of value added growth drivers.

This year we launched 96 strategic new products across various therapeutic segments, bringing our total number of registered products to 3483, across 5 continents.

Other areas of focus included the creation of our first regional manufacturing facility in Addis Ababa, Ethiopia. This 40,000 square foot facility will produce solid dosage and liquid dosage forms of medicines. The capacities of this facility will allow production of 25 million bottles per year of suspension and syrup, 500 million tablets per year and 170 million capsules per year.

In order to ensure our standards meet and exceed international regulations, we also appointed a new Director of Quality Assurance, who implemented new programs and initiatives throughout our staff and facilities.

By reaching our financial goal of AED1.180 billion in sales this year, we are set to take on 2013 with transparency, integrity and the determination to succeed.

Dr Ayman Sahli, CEO

CEO Review

Yearly sales (AED)

2010 2011 2012

1.18bn1.02

bn0.92bn

10 www.julphar.net

As an enabler of well-being in our communities, it is our ethical responsibility to facilitate the availability and accessibility of required medicines. This

About Julphar

Essence: Sustaining Health

Vision: Adding value to our communities through healthcare

Mission: We strive to sustainably meet the medicinal requirements of our communities through the production of the highest quality medicine, whilst ensuring their continued availability and accessibility.

Values: Respect / Commitment / Ethics / Passion

Purpose: We believe healthy people create healthy homes and build healthy communities. We bring health to people in need.

COMPANY PROFILE

Julphar is a true reflection of Ras Al Khaimah’s significant development. Established in 1980 under the guidance of H.H Sheikh Saqr Bin Mohammed Al Qasimi, we have established ourselves as a leader in production and distribution of pharmaceutical products. Our goal is to create high-quality medicines whilst maintaining a competitive cost. We achieve this through a network of twelve world-class manufacturing plants (with further expansion planned) and a reliable logistics network. We maintain a diverse product portfolio which target major therapeutic segments including endocrinology, anti-infective, cardiovascular and gastroenterology, over-the-counter, nephrology, dermatology, respiratory, metabolic and burn and wound management. Highlighting our commitment to diabetes management in the region, we have also become the only company in the Middle East to produce the raw material needed to make insulin through our division dedicated to Diabetes. With over 800 products in various dosage forms and more in the pipeline, Julphar is an example of one of the UAE’s local businesses making an impact on the global stage.

11Annual Report 2012

Global Reach

Julphar OfficesAfghanistanAlgeriaBahrainChinaEcuadorEgypt

EthiopiaIndonesiaIraqJordanKenyaKuwait

LebanonLibyaMauritiusMoroccoNigeriaOman

PhilippinesQatarSaudi ArabiaSenegalSouth AfricaSudan

SyriaTajikistanTanzaniaUgandaUnited Arab Emirates (H.Q.)Yemen

Top 5 Performing Products

East Africa & NigeriaEPOTIN

GINSAVITJULMENTINTRIAXONE

VANCOLON

Egypt, Sudan & Lebanon

ADOLJUSPRIN81

MEBORISEK

TRIAXONE

GCC(exclude KSA)

ADOLJULMENTIN

MEBORISEK

TRIAXONE

North Africa

DIALONEPOTIN

FOLICUMJUSLINEMEBO

Commonwealth of Independent

States & Far EastCALVITALISJULMENTINJULPHAMOX

PROFINALTRIAXONE

Levant & IraqADOL

JULMENTINMEBORISEK

TRIAXONE

Saudi ArabiaADOL

JULMENTINMEBO RISEK

TRIAXONE

12 www.julphar.net

2012 Growth Strategy

In 2012, our approach to sustaining both short and long term growth has included a focus on expanding our facilities internationally, raw material API production and increasing our presence in high potential markets.

Raw Material Production

In 2012, Julphar launched a division entirely dedicated to the manufacturing and commercialization of diabetes products. The Julphar Diabetes manufacturing plant is built in accordance with the latest EMEA regulations and utilizes the best available technologies in the market. Production capacity is expected to be 1,500 kgs of

human insuln API, that could yield abuot 40 million vials of insulin per year, enough to supply the entire region and beyond. API Production is a key area of growth for Julphar. Diabetes is a global pandemic and is on the rise in the MENA region and other countries where detection is poor and insulin is not always available.

Continuing its focus on biotechnology, Julphar is currently the only company in the Middle East with an in-house facility dedicated to producing the raw material needed to make erythropoietin. The Julphar product comes from the


originator of the raw material, ensuring that the quality of its erythropoietin product is uncompromised. Current production levels of erythropoietin in the Julphar facility amount to approximately 10 million vials per year.

High-potential markets

MENA markets offer a tremendous area for growth, particularly with Julphar’s vast presence in KSA, Libya and Iraq. Julphar has focused on building and maintaining relationships, and has the ability to recognise high potential markets through our long-term presence in these countries.

Julphar has a proven record to remain strong in difficult markets amidst political instability and humanitarian crisis. This is attributed to a long term presence and a logistics division which enable rapid delivery of products to areas which need it the most.

Diversification into other markets

2012 marked the realisation of Julphar’s differentiated strategy of diversification and expansion into emerging markets. Building its first international manufacturing facility was a milestone. As commerce in Ethiopia continues to grow, along with factors facilitating trade, Julphar recognised Ethiopia as a promising environment.

The facility will serve to encourage Ethiopia’s technical Industry, enriching the expertise and skills of its people.

Local staff recruitment began across key functional areas such as Quality Assurance, Quality Control, Regulatory Affairs, Production and Engineering, along with various Administrative roles.

“In the Middle East, the number of people with diabetes is expected to grow to 39 million by 2025, from 22 million today. In Africa, the numbers more than double from 7 million to 15 million in 2025”

Joe SaldahnaGeneral Manager, Julphar Diabetes

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1. Customer Care & Service Excellence Date: 15th – 18th January 2012Venue: Julphar Training Center / JTCNo. of Participants: 12 – 2 attend from RAK Immigration & 1 from RAK Airport

2. RAKMHSU CPD Conference Date: 25th May 2012No. of Participants: 100

3. RAKMHSU Career Fair JTC speaker & exhibition participationDate: 22nd October 2012

4. Sharjah University Soft Skills TrainingJTC speaker & exhibition participationDate: 29th April 2012

5. World Pharmacist DayDate: 25th Sept. 2012Venue: Sharjah UniversityNo. of Participants: 10

6. Leadership TrainingPlanned Date: December 2012, for three daysVenue: Ministry of Interior, RAKNo. of Participants: 20

7. Customer Care & Service Excellence for Ministry of Interior - RAKPlanned Date: Jan. 2013, for two daysVenue: Ministry of Interior, RAKNo. of Participants: 20

8. National Spirit Seminar for Julphar & other RAK Government authoritiesPlanned Date: Jan. 2013

9. Sharjah University Student’s Biosimilar TrainingDate: 9th December 2012Venue: Julphar Training CenterNo. of Participants: 40

10. Pharmacy Student’s Industrial Training

10a. Ajman University of Science & Technology Date: 22nd Jan. to 2nd Feb. 2012 Duration: two weeks No. of Students: 65

10b. Ajman University of Science & Technology Date: 23rd Jan. to 5th Feb. 2012 Duration: two weeks No. of Students: 17

10c. University of Findlay – USA Date: 20th – 24th May 2012 Duration: one week No. of Students: 9

10d. Ajman University of Science & Technology Date: 24th June to 7th July 2012 Duration: two weeks No. of Students: 28

10e. Nizwa University – Oman Date: 26th August – 6th September, 2012 Duration: two weeks No. of Students: 15

10f. RAK Medical Health & Sciences University (RAKMHSU) Date: 16th Sept. to 11th Oct. 2012 Duration: four weeks

Julphar Training Centre - Courses completed in 2012


Under the patronage of our Chairman - HH Sheikh Faisal Bin Saqr Al Qasimi in coordination of our CEO, Dr. Ayman Sahli. Julphar Training Center / JTC has announced “Sheikh Faisal Leadership Program” specially designed for our Local Staff to grow Emirati leaders encouraging them to be active sharing the decision making and to fuel their career advancement. The program will cover the following Training Courses: Communication Skills, Management and Leadership Skills, Human Resources Management, Finance Management, Presentation Skills, Quality and Excellence Management and English. The turnout was excellent on the program, but the choice was difficult as there were specific criteria for nomination. The number of applicants was 60 employees, but was accepted only 45 employees who met the selection criteria via an ability test and individual interviews.

The program will start with English test to specify the level of English language for each of the accepted employees and will be continued with the above mentioned training courses.

As the largest local pharmaceutical company, Julphar places great importance on Emiratisation and aims to play a significant role in the development of our national staff, students and professionals.

HH Sheikh Faisal Bin Saqr Al Qasimi Chairman

Responsibility

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JanuaryJusprin new pack launched in EgyptJulphar announces 2011 sales revenue of Dh1.024bn

FebruaryJulphar announces the provision of 5 scholarships and AED100K annually to The American University Of Ras Al KhaimahJulphar Sponsors Global Financial Markets Forum in UAEMEBO Scar Launched in KSA, Lebanon and UAEJulphar announces 10% increase in localization

MarchJulphar announces 11% growth for Q1Julphar sponsors Diabetes Camp for Kids (image 2)Julphar Sponsors DuphatJulphar hosts annual cGMP update conferenceJulphar hosts Risek UpdateCalyptus launched in UAEEffervescent Multivitamins launched in UAEMiran launched in UAE

AprilUAE Minister of Economy, H.E. Mr. Sultan Bin Saeed Al Mansoori visits Julphar (image 3)

MayJulphar sponsors Africa Health Exhibition in South AfricaJulphar sponsors World Cardiac Conference in UAEMEBO Scar launched in Qatar

JuneJulphar announces 13.5% growth for Q2Julphar CEO secures place in Arabian Business’ ‘Worlds most Influential Arabs’Julphar Launches MSD Partnership (image 4)

2012 Highlights


JulyFeromax launched in Jordan

SeptemberJulphar announces 14% growth for Q3Julphar launches Julphar Diabetes and hosts Julphar Diabetes Official Scientific Opening in UAE (image 4,5)Julphar wins 2012 CEO of the Year AwardSheikh Faisal Leadership Programme launched

OctoberJulphar launches Julphar Updates for Medical Practitioners (JUMP)

program

NovemberJulphar Diabetes official Scientific Opening in AlgeriaJulphar Diabetes lights up in blue to honour World Diabetes DayAfrican Delegates visit Julphar in preparation for launch of Julphar’s Ethiopian manufacturing facility (image 8)MEBO Scar launched in KuwaitFeromax launched in KSALipigard launched in Libya

DecemberJulphar announces 15.3% growth for Q4MEBO Dressing launched in KSA

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Chairman of the Board HH. Sheikh Faisal bin Saqr Al QasimiBoard of Directors HE Hassan Ahmed Al Akim (Vice Chairman) Sheikh Ahmed Bin Saqr Al Qasimi Sheikh Saqr Bin Humaid Al Qasimi Mr. Ahmed Essa Al Naem Mr. Nawaf Ghobash Ahmed Saeed Mr. Mohamed Jamaluddin Al Saati Dr. Ali Hussein Al Zawawi Mr. Ahmed Salim Al HosniCEO Dr Ayman SahliHead Office Ras Al Khaimah, United Arab EmiratesFounded March 30, 1980Julphar Facilities 11 operational plants in Ras Al KhaimahPlanned Facilities KSA Plant, Ethiopia PlantStrategic Partnerships International Diabetes Federation American University (RAK) – Scholarships MSDSubsidiaries Menacool FZE Julphar Pharmaceuticals PLC, EthiopiaWeb site address www.julphar.net 2012 Sales Approximately AED 1.18 billion Number of employees 2012 Over 2500 worldwide

Organisation

Chairman, Board of Directors and CEO

SUPPORT DIVISIONS Finance

Regulatory AffairsMedical Affairs

Human Resources Quality Affairs Quality Control

OPERATION DIVISIONS Production

Material Management Product Development Lab.

Maintenance

EXECUTIVE SUPPORTCEO Office Legal Counsel Corporate Development Business Affairs Corporate Communications

CLIENT DIVISIONS Sales

Marketing Tender

Distribution Agents

Julphar Diabetes MenaCool Julphar Training Centre


PipelineFrom Jan-Dec 2012:

96 Product Approvals

Registrations 3483 registration certificates

211 Julphar brands

“Julphar Regulatory affairs department has tactfully focused on pipeline development. In 2012, we have had 96 product approvals – a remarkable achievement.”

Dr. Emad AlyMedical and Regulatory Affairs Director

Plant Annual Capacities

JI 5000 Million Tablets, 500 Million Capsules, 5 millionPowder Pro-Suspension

JII 30 Million Ampoules, 6 Million Lyophilized Vials,5 Million Pre-filled Syringes

JIII 600 Million tablets and capsules, 5 Million antibiotic powders for suspension

JIV 300 Million tablets and capsules, 5 Million of Antibiotic Powder Pro-suspension

JV Packaging Plant (as needed)

JVI 94 Million bottles Syrup, Suspensions and Drops JVII 200 Grams erythropoietin, equalling 8 Million vials JVIII 50 Million Units

JIX 30 Million Units

JX 60 Million Tubes of Creams and Ointments, 200 Million suppositories

JXI 1,500 kg. of human insulin API

Production and Products

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2012 was a breakthrough year for Julphar Diabetes; we were able to build a strong foundation which will serves us well over the long term. After establishing our own identity to focus on diabetes under the Julphar umbrella, we were able to position Julphar Diabetes as a strategic diabetes partner offering patients “ Quality Accessible Care’’ through a comprehensive portfolio of oral anti-diabetic products and insulin.As we celebrate our success in 2012, I wish to thank our core team without whose dedications and tireless efforts this would not have been possible. Success was achieved through the strong support of our matrix organization. Our heartfelt gratitude goes out to each one of them. Many of our partners from other functions offer us their best on a daily basis. They work in anonymity without the recognition and appreciation they deserve. This is our chance to say “Thank You“on behalf of the Julphar Diabetes team.

Financial

We more than doubled our revenue in 2012 versus 2011, and plan to double revenue again in 2013. Based on the foundation we have established, we will see exponential growth in both our oral and insulin businesses in 2014 and beyond. This growth will be achieved through new product when loss of exclusivity occurs, delivery and monitoring devices, and line extensions of currents products.

Milestones

Focus on the UAEWe have now a dedicated team to serve our HCP’s in the UAE. These include a PM, KAM and 3 DSR, with focus on the home country, through whom we were able to engage HCP’s at all levels. This has led to the awareness and support of Julphar and our products. We aspire have a dominant presence in the UAE over the next 5 years.

Market AccessIn line with our philosophy of offering “Quality Accessible Care” we were able to access second and third tier cities and towns which were underserved and had limited access to these critical medications. We entered the markets in Iraq, KSA and Algeria. We are now establishing a presence in Libya.New product launches were prosecuted in KSA for Glypride, Algeria for Jusline and we continue to build our strong presence in Iraq.

Scientific KnowledgeOne of our key strategic pillars is bringing cutting edge science to the HCPs in our region through Global Key Opinion Leaders.During our Scientific Symposium for the launch of Julphar Diabetes, Mary Angeline Bethel, MD from Oxford University in the UK spoke about relationship between Diabetes and Cardiovascular Disease. Jay Skyler, MD of Diabetes Research Institute in Miami spoke about the Future of Diabetes

General Manager’s Message

Julphar Diabetes


to 100 KOL’s representing our region. They were able to share their experiences and best practices with the audience. This is the first time Global KOLs at the highest level conducted a symposium of this magnitude in the UAE. We have Enduring materials from these programs will be shared with HCPs who were unable to attend. Given the excellent feedback we received and demand for such events, we will be conducting similar programs in the UAE, Istanbul and Barcelona in 2013.We participated at major regional conventions such us Lebanese Society of Endocrinology Diabetes and Lipids (EDL) in Lebanon, Excellence in Diabetes Endocrinology Congress (EDE) in Abu Dhabi, Emirates Diabetes Endocrine Congress (EDEC) in Dubai and the International Diabetic Foot Conference (IDFC) in Dubai. We also sponsored Endocrine Club Meetings as well as HPCs attendance to the American Diabetes Association- Middle East (ADA-ME) in Dubai. We had a strong presence at each event and we will continue to do so in 2013.As part of our partnership with the IDF, we conducted a “Kids Camp “inviting 60 children with Type 1 diabetes coming from across the GCC to offer them advice and guidance on coping with diabetes in their day to day lives. To mark the 21st World Diabetes Day on November 14th, and in collaboration with Diabetes & Endocrine local associations we organized a number of internal and external diabetes awareness events such walkathon and screening campaigns across UAE, KSA, Lebanon, Tunisia and Algeria in to spread education and awareness about Diabetes.

Insulin APIThe Grand opening of ’Julphar Diabetes ‘ was performed in September 2012. In addition to the scientific session, delegates were able to tour the new facilities. API is now in production and Merck Millipore signed a strategic supply agreement with us. As the first company-in the region to supply API of

the highest quality, we are now in discussion with several insulin providers around the world to satisfy their API needs. It is our goal to have Jusline finished product produced with Julphar API.

CommunicationAs part of our corporate social responsibility, we are committed to spreading awareness about diabetes epidemic in our region and more importantly how to prevent its complications. In 2012 we took our role seriously in spearheading education thru various media channels and we will continue to do so in 2013.

Joe Saldahna, GM Julphar Diabetes

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The resurgence of Africa as an increasingly powerful global and economic force combined with the continent’s ambitious growth plans and rapidly growing population mean that the demand for quality healthcare is greater than ever.

Recognising the importance of the African market, Julphar decided to launch its first African manufacturing facility in the Gerji Jakros region of the Ethiopian capital, Addis Ababa. Covering an area of 40,000 square feet, the facility produces solid dosage and liquid dosage forms of medicines.

During 2012, the design and construction of the plant took place. Julphar worked in close consultation with international regulatory bodies to ensure that its facility meets International Accreditation and cGMP compliance.

The opening of its first African facility in Ethiopia not only demonstrates Julphar’s commitment to the development of world class healthcare across this dynamic and vast continent but also emphasises its long-term desire to become a key investor in its economic development.

About the Facility

Facility Size40,000 square foot

Staff200 staff required (for initial phase)

Complete Packaging LineSyrup and suspension - Capping Machines, Labelling Machine,Carton Machine, Shrink wrap machineCapsules and tablets - Packing Machine, Blistering Machine

MachinesProduction – tablets and capsulesFulid Bed Dryer (Glatt, Germany)Granulator (Lodge, Germany)Bionic Bender blender (Olsa, Italy)Steralization Oven (Olsa, Italy)Tablet Compression Machine (BWI Manesty)Capsule Filling Machine (Bosch, Germany)

PackingBlistering Machine (Bosch, Germany)Blistering Machine (Ima, Italy)

Julphar Ethiopia

Pharmaceuticals PLC


Julphar recognises that Ethiopia, now more than ever, is an extremely interesting, dynamic and important marketopportunity. Ascommerce across the continent continues to grow, the demand forquality, affordablehealthcare is greater than ever.

CapacitiesProduction - syrup and suspension

Bottles – 25 million bottles per year

Tablets – 500 million tablets per year

Capsules– 170 million capsules per year

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B


Annual Report

Section B

Business Overview

Overview of Global Healthcare Market

Industry Forecast Scenario

Overview of Julphar’s Major Markets

Other Markets (GCC and Levant)

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Healthcare is a large and growing sector worldwide. Emerging markets in the Middle East and North Africa (MENA) region continue to show growth. Demographics, Regulatory Framework and Economic Factors affect this.

Globally, the financial market has seen an increase in stability compared to 2011, however concerns still remain. The weakness of the Euro, consumer confidence and unemployment rates in the US continue to affect the overall market.

According to “Global Pharmaceutical Market Forecast to 2012”, global pharma industry is projected to grow at a CAGR of around 6.5% during 2011-2013. The growth will be driven by low cost factor, increasing prevalence of diseases worldwide, and rising per capita income of consumers. Our research identifies that sales of generic drugs will emerge as the most prominent segment of the pharma market during the forecast period, indicating large opportunities for generics manufacturers to tap. (source - BMI)

Decline in global pharma market was largely due to the economic slowdown, and further aggravated by patent expiry of key blockbusters together with saturation in key pharma markets, such as the US and Western Europe.

Overview of Global Healthcare Market


Industry Forecast Scenario

Pharmaceutical Market Forecast 2007-20214.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

0.90.80.70.60.50.40.30.20.10.0

2007

2008

2009

2010

2011

2012

f

2013

f

2014

f

2015

f

2016

f

2017

f

2018

f

2019

f

2020

f

2021

f

Source: BMI

Pharmaceutical sales (US$bn), LHS Pharmaceutical sales at CER (US$bn), LHSPharmaceutical sales, % of GDP, RHS

2008 2010 2011e 2012f 2013f 2014f 2015f 2016f

Table: Pharmaceutical Sales Indicators, 2008-2016

2009

Pharmaceutical sales, %of health expenditure 12.40 11.31 10.54 13.43 11.29 12.4 10.94 10.73 10.44

Pharmaceutical sales, %of GDP 0.37 0.49 0.46 0.48 0.45 0.47 0.46 0.46 0.46

Pharmaceutical sales,per capita (US$) 189.3 192.7 241.8 194.7 192.3 191.9 205.4 223.1 260.8

1.337 1.175 2.023 1.463 1.557 1.515 1.685 1.845 2.218Pharmaceutical sales atconstant exchange rate(US$bn)

Pharmaceutical sales(AEDbn), % chg y-o-y 25.2 13.8 9.6 9.4 2.8 3.5 8.2 9.5 9.6

Pharmaceutical sales(AEDbn) 4.316 4.911 7.430 5.373 5.720 5.563 6.188 6.778 8.15

Pharmaceutical sales(US$bn), % chg y-o-y 25.2 13.8 9.6 9.4 2.9 3.5 8.2 9.5 9.6

Pharmaceutical sales(US$bn) 1.175 1.337 1.463 1.51 1.56 1.686 1.847 2.024 2.22

Source: BMI

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United Arab Emirates (UAE)

Julphar expects the UAE will remain one of the strongest and most stable markets in the region and recognize the UAE as large growth potential, both short and long term. This is attributed to a growing affluence of expatriate population, high income and an increasing prevalence of lifestyle diseases across the country.

The government is increasing private healthcare expenditure and the demand for innovative drugs continues to increase. Plans for new healthcare facilities will boost future demand for medicines. Local API production manufacturing is increasing through Julphars’ newest facility, based in Ras Al Khaimah.

Headline Expenditure Projections:

• Pharmaceuticals: AED5.56bn (US$1.51bn) in 2011 to AED5.72bn (US$1.56bn) in 2012; +2.9% in local currency and US dollar terms. Forecast unchanged from Q 4 12.

• Healthcare: AED46.44bn (US$12.64bn) in 2011 to AED52.13bn (US$14.20bn) in 2012; +12.2% in local currency terms and +12.3% in US dollar terms. Forecast broadly unchanged from Q 4 12.

KSA

Julphar expects Saudi Arabia to remain the largest pharmaceutical market in the Middle East and Africa region, growing from SAR16.69bn (US$4.46bn) in 2011 to SAR18.93bn (US$5.05bn) in 2012. In the forthcoming years, the Saudi pharmaceutical market is set to experience steady growth due to 120 Hospitals coming to completion and Healthcare infrastructural changes from the Government.

In an effort to promote social stability, the Government announced its initiative to invest US$3.2bn in healthcare projects across Saudi Arabia. This will increase access to healthcare and contribute to long term growth in the healthcare sector.

Headline Expenditure Projections: (Source: BMI)

• Pharmaceuticals: SAR16.69bn (US$4.46bn) in 2011 to SAR18.93bn (US$5.05bn) in 2012; +13.4% in both local currency and US dollar terms. Forecast broadly unchanged from Q 4 12.

• Healthcare: SAR78.98bn (US$21.09bn) in 2011 to SAR91.53bn (US$24.44bn) in 2012; +15.9% in both local currency and US dollar terms. Forecast broadly unchanged from Q 4 12.

Overview of Julphar’s Major Markets


Iraq

Iraq is a significant market for Julphar, making up 12.6% of total sales. The healthcare market remains challenging due to lack of infrastructure and underinvestment. Julphar expects the Iraq market will remain this way for the forthcoming years.

Healthcare facilities are slowly improving; plans for two specialist hospitals are underway for the forthcoming years. Import and Exports restrictions and counterfeit medicines contribute to challenges.


• Pharmaceuticals: IQD1,239bn (US$1.06mn) in 2011 to IQD1,476bn (US$1.26bn) in 2012; +19.1% in local currency and +19.0% in US dollar terms. Forecast broadly unchanged from Q 4 12.

• Healthcare: IQD9,439bn (US$8.07bn) in 2011 to IQD11,532bn (US$9.86bn) in 2012; +22.1% in local currency and +22.1% in US dollar terms. Forecast broadly unchanged from Q412.

Egypt

Julphar expects Egypt will remain a large and important player due to steady growth in the pharmaceutical market, as well as an increasing population; however political instability and lack of regulatory governing make Egypt high risk for international pharmaceutical companies.

According to BMI, the downsides to the country’s state of political and economic flux, are: the patent cliff, pricing, higher domestic drug production output and a diversification of drugs available at competitive prices in the generic drug sector.

Headline Expenditure Projections:(Source: BMI)

• Pharmaceuticals: EGP14.99bn (US$2.48bn) in 2012 to EGP17.01bn (US$2.70bn) in 2013; +13.4% in local currency terms and +8.9% in US dollar terms. Local currency forecast slightly higher in relation to Q113 , despite downward revision of historical figures .

• Healthcare: EGP66.59bn (US$11.01bn) in 2012 to EGP74.85bn (US$11.88bn) in 2013; +12.4% in local currency terms and +7.9% in US dollar terms. Local currency broadly in line with Q113.

Algeria

Julphar recognises Algeria as an important market which will present long term opportunities and as such has commenced construction of a new facility, planned for launch over the next 3-5 years.

Julphar expects the pharmaceutical market will see growth over the foreseeable future, largely due to an increase in market demand, as well as healthcare sector modernization initiatives by the government.


• Pharmaceuticals: DZD241.11bn (US$3.21bn) in 2012 to DZD264.51bn (US$3.53bn) in 2013; +9.7% in both local currency and US dollar terms. Forecast broadly unchanged from Q113.

• Healthcare: DZD686.53bn (US$9.15bn) in 2012 to DZD749.86bn (US$10.00bn) in 2013; +9.2% in both local currency and US dollar terms. Forecast broadly unchanged from Q113 , although historical data revised upwards.

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Kuwait

• Pharmaceuticals: KWD204mn (US$737mn) in 2011 to KWD219mn (US$781mn) in 2012; +7.4% in local currency terms and +6.0% in US dollar terms. Forecast raised from Q 4 12 .

• Healthcare: KWD1.10bn (US$3.96bn) in 2011 to KWD1.20bn (US$4.30bn) in 2012; +10.0% in local currency terms and +8.5% in US dollar terms. Forecast raised from Q 3 12 .

Oman

• Pharmaceuticals: OMR166mn (US$431mn) in 2011 to OMR181mn (US$476mn) in 2012; +8.9% in local currency terms and +10.4% in US dollar terms. Forecast broadly in line with Q412.

• Healthcare: OMR728mn (US$1.89bn) in 2012 to OMR796mn (US$2.10bn) in 2012; +9.3% in local currency terms and +10.8 in US dollar terms. Forecast revised downwards due to modifications to historical figures.

Qatar

• Pharmaceuticals: QAR1.32bn (US$362mn) in 2011 to QAR1.38bn (US$379mn) in 2012; +4.7% in local currency and US dollar terms. Historical figures adjusted to reflect new import data.

• Healthcare: QAR10.54bn (US$2.89bn) in 2011 to QAR11.40bn (US$3.13bn) in 2012; +8.2% in local currency and US dollar terms. Forecast slightly lower from Q412 on account of macroeconomic factors.

Other Markets (GCC and Levant)


Bahrain

• Pharmaceuticals: BHD90mn (US$240mn) in 2011 to BHD100mn (US$260mn) in 2012; +6.12% in both local currency and US dollar terms. Forecast unchanged from Q412.

• Healthcare: BHD420mn (US$1.1bn) in 2011 to BHD500mn (US$1.2bn); +7.3% in both local currency and US dollar terms. Forecast unchanged from Q412.

Lebanon

• Pharmaceuticals: LBP1,959bn (US$1.30bn) in 2011 to LBP2,061bn (US$1.37bn) in 2012; +8.6% in local currency terms and +9.2% in US dollar terms. Forecast revised upwards from Q412 due to modifications to historical figures.

• Healthcare: LBP4,495bn (US$2.99bn) in 2011 to LBP4,750bn (US$3.15bn) in 2012; +5.7% in local currency terms and +5.6% in US dollar terms. Forecast revised upwards from Q412 due to modifications to historical figures.

Jordan

Pharmaceuticals: JOD463mn (US$653mn) in 2011 to JOD501mn (US$707mn) in 2012; +8.1% in local currency terms and +8.1% in US dollar terms. Forecast unchanged from Q412.

• Healthcare: JOD1.73bn (US$2.45bn) in 2011 to JOD1.87bn (US$2.65bn) in 2012; +8.0% in local currency terms and +8.1% in US dollar terms. Forecast unchanged from Q412.

Source: BMI

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C


Annual Report

Section C

Annual Financial Results

Business & Financial Overview

Independent Auditor’s Report

Consolidated Statement of Financial Position

Consolidated Statement of Income

Consolidated Statement of Comprehensive Income

Consolidated Cash Flows

Consolidated Statement of Changes in Shareholders’ Equity

Notes to the Consolidated Financial Statements

34 www.julphar.net

Business & Financial Overview

Operational Performance Overview

Revenues from Sales

The company registered sales revenue of AED 1,180.6 million during the year 2012, a year-on-year (yoy) growth of 15.3% over sales of AED 1,024.1 million in the previous year.

Private Market vs. Tender Market SalesPrivate market sales of AED 842.5 million saw a yoy growth of 12.9% and contributed 71.4% of the total sales, as against 72.8% in the previous year. As against this, the tender market sales of AED 338.1 million increased by 21.6% yoy, contributing 28.6% of the total sales, as against 27.2% during the previous year.

Country-wise SalesSaudi Arabia, with a contribution of (32.0%) continued to be the leading market for Julphar’s products during the year. It was followed by Iraq (12.6%), UAE (9.7%), Libya (6.7%), Egypt (5.9%), Afghanistan (5.0%) and Lebanon (4.3%). The top-7 markets, thus, accounted for about 71.8% of the total sales for the year.

Pvt. Mkt. Sales Share

Tender Sales Share

Sales 1,180.6 1,024.1 15.3%

842.571.4%

338.128.6%

278.127.2%

746.072.8%

12.9%

21.6%

(AED mn) FY 2012 FY 2011 YoY Change


Country-wise SalesSaudi Arabia, with a contribution of (32.0%) continued to be the leading market for Julphar’s products during the year. It was followed by Iraq (12.6%), UAE (9.7%), Libya (6.7%), Egypt (5.9%), Afghanistan (5.0%) and Lebanon (4.3%). The top-7 markets, thus, accounted for about 71.8% of the total sales for the year.

Significant gains continued to be registered in all our leading markets during the year under review.

Therapeutic Segment-wise SalesAnti-infectives continued to be Julphar’s leading products. Products sold in this segment alone accounted for about a third of the company’s sales for the year. This was followed by oral cavity & gastrointestinal tract (16.5% share), skin (12.4%), nutrition & blood (11.4%) and respiratory system (7.5%), respectively. The top-5 segments collectively accounted for about 79% of the total sales for the year.

The company saw gains in most of its major therapeutic segments. Product sales in central nervous system, endocrine system, musculoskeletal & joint diseases, oral cavity & gastrointestinal tract, respiratory system and cardiovascular system witnessed strong growth during the year.

32%

4%

3%

3%

3%2%

2%1%6%

4%

5%

6%

7%10%

12%

Saudi Arabia,

Iraq

UAE

Libya

Egypt

Afghanistan

Lebanon

Kuwait

Jordan

Yemen

Oman

Algeria

Sudan

Ethiopia

Others

Julphar - Country-wise Sales Year 2012

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JJulphar - Therapeutic Segment-wise Sales - Year 2012

30.8%

3.8%

7.0%

4.1%0.3%

0.1%5.9%

11.4%

16.5%

7.5%

12.4%

Anti-Infective & Antibacterial Durgs

Cardiovascular System

Central Nervous System

Endocrine System

Immunosuppressants

Local Anaesthetics

Musculoskeletal & Joint DiseaseNutrition & Blood

Oral Cavity & Gastrointestinal Tract

Respiratory System

Skin

Order Book

Total OrdersThe company continued to have a healthy order book at the end of the year, constituting both the private market and tender market orders.

Financial Performance OverviewThe financial performance of Julphar during the year under review was as under:

SalesJulphar registered sales revenue of AED 1,180.6 million during the year 2012, a yoy growth of 15.3% over sales of AED 1,024.1 million in the previous year.

Sales during the period were driven by the tender market sales which saw a yoy growth of 21.6%, while the private market sales grew by 12.9% yoy.

Cost of SalesThe cost of sales for the year was AED 483.1 million, up 21.9% yoy. As a share of sales revenues, the overall direct costs increased to 40.9% from 38.7% in the previous year. There was a sharp increase in the cost of packaging materials during the year.

Gross Profit Gross Profit for the year was AED 697.4 million vs. AED 627.6 million in the previous year, up 11.1% yoy. The GPM was 59.1%, as against 61.3% in the previous year.


Operating Profit The marketing and distribution expenses were AED 415.5 million during the year – 35.2% of revenues, 6.8% higher yoy. General & administrative expenses, on the other hand, were AED 70.3 million – 6.0% of revenues, 33.6% higher yoy. The Operating Profit for the year was AED 217.2 million vs. AED 200.0 million in the previous year, up 8.6% yoy. The OPM this year was 18.4% vs. 19.5% last year.

Finance CostThe finance cost for the year was AED 23.0 million compared with AED 20.1 million during the previous year. The increase is due to higher average debt levels during the year.

Profit Profit of Julphar for the year was AED 200.2 million vs. AED 170.2 million in the previous year, up a strong 17.6% yoy. The PM this year was 17.0% vs. 16.6% the previous year.

Earnings Per Share Basic earnings per share for the year was 26 fils, as against 22 fils in the previous year.

Dividend for the YearThe Board has recommended a cash dividend of 10% (10 fils per share) and stock dividend of 10% for 2012, as against a cash dividend of 10% (10 fils per share) and stock dividend of 10% paid out for 2011.

The proposed dividend will be paid out subject to approval in the Annual General Meeting.

Capital StructureThe paid-up capital of the company at the end of December 2012 was AED 784.7 million, as against AED 713.4 million at the end of the previous year. Shareholders’ equity stood at AED 1.71 billion, up 8.9% from end of 2011.

Non-current debt stood at AED 169.7 million, while current debt stood at AED 398.1 million at the end of the year. Total Debt-Equity ratio at the end of the year was 0.33.

The current ratio of the company was 1.9 at the end of December 2012.

Cost of SalesGross Profit GPMOperating Profit OPMProfit PM

483.1697.4

59.1%217.2

18.4%200.2

17.0%

396.4 627.6 61.3%200.0 19.5%170.2 16.6%

21.9%11.1%

8.6%

17.6%

Sales 1,180.6 1,024.1 15.3%

(AED mn) FY 2012 FY 2011 YoY Change

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Outlook Given the prevailing economic conditions, we are expecting company revenues to grow at a healthy rate, with a fairly steady gross margin likely in 2013. This will likely be driven mainly by the expected organic growth of the company.

With a large share of sales being generated in the MENA region, the company is likely to continue to benefit from the growth in the region’s pharmaceutical market, which is expected to remain much higher than that in the global market. Our share of the MENA market is also likely to continue to increase as we consolidate our position in our existing markets, while expanding into new markets with our growing portfolio of products. With new products and new markets, we see considerable scope for us to grow our business, in the MENA region and beyond.

Our solid balance sheet, low gearing and continued focus on operating cash flow generation is likely to continue to give us the financial flexibility to pursue growth opportunities, including strategic acquisitions that could supplement our strong organic growth. We are confident that the proven strength of Julphar’s business model will likely enable us to deliver a strong performance in 2013 and beyond.

Basis of Preparation and Forward-looking StatementsThis Business and Financial review has been prepared solely to provide additional information to shareholders to assess the company’s strategies and the potential for those strategies to succeed, and should not be relied on by any other party or for any other purpose. The World Bank’s classification for MENA region has been relied on for our analysis of and outlook for the region. Certain statements in the above review are forward-looking statements – using words such as “intends”, “believes”, “anticipates”, “likely” and “expects”. Where included, these have been made by the company management in good faith based on the information available to them up to the time of their approval of this report.

By their nature, forward-looking statements are based on assumptions and involve inherent risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements, and should be treated with caution. These risks, uncertainties or assumptions could adversely affect the outcome and financial effects of the plans and events described in this review. Statements contained in this review regarding past trends or activities should not be taken as a representation of perceived trends or activities in the future. Undue reliance should not be placed on forward-looking statements, which are valid only on the date of the approval of this report.

Except as required by law, the company is under no obligation to update or keep current the forward-looking statements contained in this review, or to correct any inaccuracies which may become apparent in such forward-looking statements.


INDEPENDENT AUDITOR'S REPORTThe ShareholdersGulf Pharmaceutical lndustries P.S.C.Ras AI KhaimahUnited Arab Emirates

Report on the Consolidated Financial StatementsWe have audited the accompanying consolidated financial statements of Gulf Pharmaceutical Industries P.S.C. (the "Company") and its Subsidiaries (the "Group”), which comprise the consolidated statement of financial position as at 31 December 2012, and the consolidated Income statement,consolidated statement of comprehensive Income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit Involves preforming procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Gulf Pharmaceutical Industries P.S.C. and its subsidiaries as at 31 December 2012, and their consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. Report on Other Legal and Regulatory Requirements Also, in our opinion, the Group has maintained proper books of account and the physical inventory was properly conducted. The information contained in the directors' report relating to the consolidated financial statements is in agreement with the books. We obtained all the information which we considered necessary for our audit. According to the Information available to us, there were no contraventions during the year of the U.A.E. Federal Commercial Companies law No.8 of 1984, as amended,or the Articles of Association of the Company which might have materially affected consolidated the financial position of the Group or its consolidated financial performance.

Deloitte & Touche (M.E.)

21 February 2013

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Notes to the Consolidated Financial Statements(For the year ended December 31, 2012)

1. Establishment and operations

Gulf Pharmaceutical Industries is a public share holding company “the Company” domiciled in Digdaga - Ras Al Khaimah. It was incorporated by the Emiri decree No.5/80 issued by H.H. The Ruler of the Emirate of Ras Al Khaimah and its dependencies on March 30, 1980 and the Emiri decree No.9/80 on May 4, 1980. The Group comprises Gulf Pharmaceutical Industries (Public Shareholding Company) and its subsidiaries “the Group” (Note 3).

The Company’s ordinary shares are listed on the Abu Dhabi Securities Exchange.

The Company’s registered office address is P.O. Box. 997 Ras Al Khaimah, United Arab Emirates.

The main activities of the Group are manufacturing and selling of medicines, drugs and various other types of pharmaceutical and medical compounds in addition to cosmetic compounds. The Company commenced its commercial activities effective from November 1984.

2. Adoption of new and revised International Financial Reporting Standards (IFRSs)

2.1 New and revised IFRSs applied with no material effect on the consolidated financial statements

The following new and revised IFRSs have been adopted in these consolidated financial statements. The adoption of these new and revised IFRSs has not had any material impact on the amounts reported for the current and prior years but may affect the accounting for future transactions or arrangements.

• Amendments to IFRS 1 Removal of Fixed Dates for First-Time Adopter.

The amendments regarding the removal of the fixed dates provide the relief to the first-time adopters of IFRSs from reconstructing transactions that occurred before their date of transition to IFRS. The amendments are effective for annual periods beginning on or after 1 July 2011 with retrospective application.

• Amendments to IFRS 1 Severe Hyperinflation

The amendments regarding severe hyperinflation provide guidance for entities emerging from severe hyperinflation either to resume presenting IFRS financial statements or to present IFRS financial statements for first time. The amendments are effective for annual periods beginning on or after 1 July2011 with retrospective application.

• Amendments to IAS 12 Income Taxes – Deferred Tax: Recovery of Underlying Assets

The amendments provide an exception to the general principles of IAS 12 for investment property measured using the fair value model in IAS 40 Investment Property by the introduction of a rebuttable presumption that the carrying amount of the investment property will be recovered entirely through sale. The amendments are effective for annual periods beginning on or after 1 January 2012 with retrospective application.


• Amendments to IFRS 7 Disclosures Transfers of Financial Assets

The amendments increase the disclosure requirements for transactions involving transfers of financial assets. These amendments are intended to provide greater transparency around risk exposures of transactions when a financial asset is transferred but the transferor retains some level of continuing exposure in the asset. The amendments also require disclosures where transfers of financial assets are not evenly distributed throughout the period. The amendments are effective for annual periods beginning on or after 1 July 2011. Entities need not provide the disclosures required by the amendments for any period presented that begins before the date of the initial application of the amendments.

2. Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued)

2.2 New and revised International Financial Reporting Standards (IFRSs) in issue but not yet effective and not early adopted

The Group has not early applied the following new standards, amendments and interpretations that have been issued but not yet effective:

New and revised IFRSs Effective for annual periods beginning on or after

• Amendments to IFRS 1 Government Loans provide relief to first-time adopters of IFRSs by amending IFRS 1 to allow prospective application of IAS 39 or IFRS 9 and paragraph 10A of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance to government loans outstanding at the date of transition to IFRSs.

• Amendments to IFRS 7 Financial Instruments: Disclosures relating to disclosures about

the initial application of IFRS.

• Amendments to IFRS 7 Financial Instruments: Disclosures enhancing disclosures about offsetting of financial assets and liabilities.

• IFRS 9 Financial Instruments issued in November 2009 introduces new requirements for

the classification and measurement of financial assets. IFRS 9 amended in October 2010 includes the requirements for the classification and measurement of financial liabilities and for derecognition.

Key requirements of IFRS 9 are described as follows:

• IFRS 9 requires all recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods.

1 January 2013

1 January 2013

1 January 2015

1 January 2015 (or otherwise when IFRS 9 is first applied)

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Key requirements of IFRS 9 are described as follows (continued):

� The most significant effect of IFRS 9 regarding the classification and measurement of financial liabilities relates to the accounting for changes in the fair value of a financial liability (designated as at fair value through profit or loss) attributable to changes in the credit risk of that liability. Specifically, under IFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Previously, under IAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was presented in profit or loss.

• IFRS 10 Consolidated Financial Statements* uses control as the single basis for

consolidation, irrespective of the nature of the investee. IFRS 10 requires retrospective application subject to certain transitional provisions providing an alternative treatment in certain circumstances. Accordingly, IAS 27 Separate Financial Statements* and IAS 28 Investments in Associates and Joint Ventures* have been amended for the issuance of IFRS 10.

• IFRS 11 Joint Arrangements* establishes two types of joint arrangements: Joint operations and joint ventures. The two types of joint arrangements are distinguished by the rights and obligations of those parties to the joint arrangement. Accordingly, IAS 28 Investments in Associates and Joint Ventures has been amended for the issuance of IFRS 11.

• IFRS 12 Disclosure of Interests in Other Entities* combines the disclosure requirements for

an entity’s interests in subsidiaries, joint arrangements, associates and structured entities into one comprehensive disclosure standard.

• IFRS 13 Fair Value Measurement issued in May 2011 establishes a single framework for measuring fair value and is applicable for both financial and non-financial items.

• Amendments to IAS 1 – Presentation of Other Comprehensive Income. The amendments retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate statements. However, items of other comprehensive income are required to be grouped into those that will and will not subsequently be reclassified to profit or loss with tax on items of other comprehensive income required to be allocated on the same basis.

• Amendments to IAS 19 Employee Benefits eliminate the “corridor approach” and therefore require an entity to recognise changes in defined benefit plan obligations and plan assets when they occur.

• Amendments to IAS 32 Financial Instruments: Presentation relating to application guidance on the offsetting of financial assets and financial liabilities.

• IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine.

1 January 2013

1 January 2013

1 January 2013

1 January 2013

1 July 2012

1 January 2013

1 January 2013

1 January 2014


• Annual Improvements to IFRSs 2009 – 2011 Cycle The annual improvements include the amendments to five IFRSs which have been

summarized below:

� IFRS 1 First Time Adoption of International Financial Reporting Standards – Repeated application of IFRS 1.

� IFRS 1 First Time Adoption of International Financial Reporting Standards – Borrowing costs.

• IAS 1 Presentation of Financial Statements – Clarification of the requirements for comparative information.

• IAS 16 Property, Plant and Equipment – Classification of serving equipment.• IAS 32 Financial Instruments: Presentation - Tax effect of the distribution to the

holders of equity instruments.• IAS 34 Interim Financial Reporting - Interim financial reporting and segment

information for total assets and liabilities.

• Amendments to IFRS 10, IFRS 12 and IAS 27 – Guidance on Investment Entities

On 31 October 2012, the IASB published a final standard on investment entities, which amends IFRS 10, IFRS 12, and IAS 27 and introduces the concept of an investment entity in IFRSs. The amendments establish an exception to IFRS 10’s general consolidation principle for investment entities, requiring them to “measure particular subsidiaries at fair value through profit or loss, rather than consolidate them.” In addition, the amendments outline required disclosures for reporting entities that meet the definition of an investment entity.

*In May 2011, a package of five Standards on consolidation, joint arrangements, associates and disclosures was issued, including IFRS 10, IFRS 11, IFRS 12, IAS 27 (as revised in 2011) and IAS 28 (as revised in 2011). In June 2012, the amendments to IFRS 10, IFRS 11 and IFRS 12 were issued to clarify certain transitional guidance on the application of these IFRSs for the first time. These five standards are effective for annual periods beginning on or after 1 January 2013. Earlier application is permitted provided that all of these five standards are applied early at the same time.

Management anticipates that these amendments will be adopted in the Group’s consolidated financial statements for the period beginning 1 January 2013 or as and when they are applicable and adoption of these standards and interpretations may have no material impact on the consolidated financial statements of the Group in the period of initial application.

3. Significant accounting policies

3.1 Statement of compliance

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS).

3.2 Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis, except for financial instruments and investment property, which were presented at fair value. The principal accounting policies adopted are set out below.

1 January 2014

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3.3 Basis of consolidation

The consolidated financial statements of Gulf Pharmaceutical Industries P.S.C. and its Subsidiaries (the “Group”) incorporate the financial statements of the Company and entities controlled by the Company (its Subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the profit and loss from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of Group companies to bring their accounting policies in line with those used by other members of the Group.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. The interests of non-controlling shareholders may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement basis is made on an acquisition-by-acquisition basis. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to equity holders of the Company.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets and liabilities of the subsidiary and any non- controlling interests.

All significant intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Details of the Company’s subsidiaries as of 31 December 2012 were as follows:

Place of incorporation Percentage Name of subsidiary and operation of ownership Principal activity

Mena Cool F.Z.E Ras Al Khaimah- 100% Transportation UAE

Julphar Pharmaceuticals P.L.C Ethiopia 55% Manufacturing of medicines, wrapping and packing materials

Julphar Pharma GMBH Germany 100% Manufacturing of medical supplies – Discontinued


3.4 Net investment in 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 venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, an investment in associates is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in associates. When necessary, the entire carrying amount of the investment is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

When a Group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognised in the Group’ consolidated financial statements only to the extent of interests in the associate that are not related to the Group.

3.5 Revenue recognition

3.5.1 Sale of goods

• Sales are measured at the fair value of the consideration received or receivable against these sales. Sales are reduced for estimated customer returns, rebates and other similar allowances.

• Sale of goods are recognised when all the following conditions are satisfied:

• The Group has transferred to the buyer the significant risks and rewards of ownership of the goods;• The Group retains neither continuing managerial involvement to the degree usually associated with ownership

nor effective control over the goods sold;• The amount of revenue can be measured reliably;• It is probable that the economic benefits associated with the transaction will flow to the Group; and• The costs incurred or to be incurred in respect of the transaction can be measured reliably.

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3.5.2 Interest income

Interest on fixed deposits is recognised when it is probable that the economic benefits will flow to theGroup and the amount of income can be measured reliably.

Interest on fixed deposits are accrued on a time basis, by reference to the principal outstanding and the profit rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the asset’s net carrying amount on initial recognition.

3.5.3 Dividends

Dividend revenue from investments is recognized when the Company’s right to receive payment has beenestablished.

3.6 The Group as a lessee

All of the Group’s lease contracts are of an operating lease nature and are accounted for as operating leases. Operating lease payments are recognised as an expense on a straight-line basis over the lease term. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

3.7 Foreign currencies

The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group entity are expressed in Arab Emirates Dirhams (“AED”), which is the functional currency of the Group and the presentation currency for the consolidated financial statements.

In preparing the consolidated financial statements, transactions in currencies other than the functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognized in profit or loss in the year in which they arise.

3.8 Borrowing costs

Borrowing costs directly attributable to the acquisition and construction of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use.


Where applicable, investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the year in which they are incurred.

3.9 Property, plant and equipment

Land is stated at cost less impairment loss (if any).

Capital work in progress is stated at cost, less any recognised impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Other property, plant and equipment are carried at cost less accumulated depreciation and any identified impairment loss.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance expenses are charged to the profit or loss in the period in which they are incurred.

Depreciation is charged so as to write off the cost of assets, other than land and capital work in progress, over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the profit or loss.

Depreciation is provided on the straight-line method based on the anticipated useful lives, as follows:

%Buildings 2-10Plant and machinery 6-33Installations 4-25Motor Vehicles 10-33Furniture and fixture 10-25Tools and equipment 10-33Land improvements 4-10

3.10 Investment property

Investment property, which is property held to earn rentals and/ or for capital appreciation, is stated at its fair value at the reporting date. Gains or losses arising from changes in the fair value of investment property are included in the profit or loss in the period in which they arise.

Investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised.

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3.11 Inventories

Inventories of finished and semi finished products are valued at the lower of average production costs or net realisable value. Production costs include materials, labour, direct expenses and production overheads. Inventories of raw material, packing materials, spare parts and other consumables are valued at the lower of First In First Out basis cost or net realisable value. Net realisable value represents the estimated selling price less all estimated costs of completion and costs necessary to make the sale.

3.12 Impairment of tangible assets

At each reporting date, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation reserve increase.

3.13 Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.


3.14 Employee benefits

3.14.1 Defined contribution plan

UAE national employees of the Group are members of the Government-managed retirement pension and social security benefit scheme pursuant to U.A.E. labour law no. 7 of 1999. The Group is required to contribute 12.5% of the “contribution calculation salary” of payroll costs to the retirement benefit scheme to fund the benefits. The employees and the Government contribute 5% and 2.5% of the “contribution calculation salary” respectively, to the scheme. The only obligation of the Group with respect to the retirement pension and social security scheme is to make the specified contributions. The contributions are charged to profit or loss.

3.14.2 Annual leave and leave passage

An accrual is made for the estimated liability for employees’ entitlement to annual leave and leave passage as a result of services rendered by eligible employees up to the end of the year.

3.14.3 Provision for employee s’ end of service benefits

Provision is also made for the full amount of end of service benefit due to non-UAE national employees in accordance with the UAE Labour Law and is based on current remuneration and their period of service at the end of the reporting period. Provisions for employees’ end of service benefit due to employees working with entities domiciled in other countries are made in accordance with local laws and regulations applicable.

The accrual relating to annual leave and leave passage is disclosed as a current liability, while the provision relating to end of service benefit is disclosed as a non-current liability.

3.15 Financial assets

All financial assets are recognised and derecognised on trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Financial assets of the Group are classified into the following specified categories: bank balances and cash, financial assets ‘at fair value through profit or loss’ (FVTPL), ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Income is recognised on an effective interest basis for financial assets other than those financial assets classified as at FVTPL.

Dividends on AFS equity instruments are recognised in profit or loss when the Group’s right to receive thedividends is established.

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The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the reporting date. The change in fair value attributable to translation differences that result from a change in amortised cost of the asset is recognised in profit or loss, and other changes are recognised in other comprehensive income.

3.15.1 Loans and receivables

Loans and receivables are initially measured at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

3.15.2 Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the asset have been affected.

For listed and unlisted equity investments classified as AFS equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; or• breach of contract, such as a default or delinquency in interest or principal payments; or• it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or• the disappearance of an active market for that financial asset because of financial difficulties.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account.

Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.


When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period.

With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

In respect of AFS equity securities, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income.

3.153 Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset.

3.16 Financial liabilities and equity instruments issued by the Company

3.16.1 Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

3.16.2 Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group entities are recorded at the proceeds received, net of direct issue costs.

3.16.3 Financial liabilities

The Group has classified the following financial liabilities as ‘other financial liabilities’: trade payables and accruals, unclaimed dividends and bank borrowings and are initially measured at fair value, net of transaction costs and subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis except for short term payable when the recognition of interest would be immaterial.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

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3.16.4 Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged,cancelled or they expire.

3.16.5 Dividend distribution

Dividend distribution to the Shareholders is recognised as a liability in the Group’s consolidated financialstatements in the period in which the dividends are approved by the Shareholders.

4. Critical accounting judgments and key sources of estimation uncertainty

While applying the accounting policies as stated in Note 3, management of the Group has made certain judgments, estimates and assumptions that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period of the revision in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

4.1 Critical judgments in applying accounting policies

The following are the critical judgements, apart from those involving estimations (see 4.2 below), that the management have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements.

4.1.1 Revenue recognition

Management has considered the detailed criteria for the recognition of revenue from the sale of goods set out in International Accounting Standard 18: Revenue, and in particular whether the Company had transferred risks and rewards of ownership of the goods. Based on the acceptance by the customer of the liability for the goods sold, management is satisfied that the significant risks and rewards have been transferred and the recognition of the revenue is appropriate.

4.1.2 Allowance for doubtful debts

Allowance for doubtful debts is determined using a combination of factors to ensure that the receivables are not overstated due to uncollectibility. The allowance for doubtful debts for all customers is based on a variety of factors, including the overall quality and aging of the receivables, continuing credit evaluation of the customers’ financial conditions and collateral requirements from customers in certain circumstances. Also, specific provisions for individual accounts are recorded when the Group becomes aware of the customer’s inability to meet its financial obligations.

4.1.3 Allowance for slow moving and obsolete inventories

Inventories are stated at the lower of cost or net realizable value. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made at the product level for estimated excess, obsolescence or impaired balances. Factors influencing these adjustments include changes in demand, technological changes, physical deterioration and quality issues. Based on the factors, management has identified inventory items as slow and


non moving to calculate the allowance for slow moving and obsolete inventories. Revisions to the allowance for slow moving inventories would be required if the outcome of these indicative factors differ from the estimates.

4.1.4 Classification of properties

In the process of classifying properties, management has made various judgments. Judgment is needed to determine whether a property qualifies as an investment property, property, plant and equipment and/or property held for resale. The Group develops criteria so that it can exercise that judgment consistently in accordance with the definitions of investment property, property, plant and equipment and property held for resale. In making its judgment, management considered the detailed criteria and related guidance for the classification of properties as set out in IAS 2, IAS 16 and IAS 40, in particular, the intended usage of property as determined by the management.

5. Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity capital. The Group’s overall strategy remains unchanged from 2011.

Capital gearing ratio

The Group reviews the capital structure on a quarterly basis. As part of this review, the Group considers the cost of capital and the risks associated with capital.

The gearing ratio at the year end was as follows:

2012 2011 AED’000 AED’000

Debt (i) 567,760 495,207Bank balances and cash (82,686) (68,653)

Net debt 485,074 426,554

Equity (ii) 1,705,601 1,569,814

Net debt to equity ratio (times) 0.28 0.27

(i) Debt is defined as bank borrowings (see Note 18).(ii) Equity includes share capital, statutory reserve, voluntary reserve, foreign currency translation reserve, cumulative changes on revaluation of investments and retained earnings.

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6. Financial instruments

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3 to the consolidated financial statements.

Financial risk management objectives

The Group’s management observes domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through analysing risk exposures by degree and magnitude of risks. These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk.

The Group seeks to minimise the effects of risks related to financial instruments. The Group’s policies in this regards are set and approved by the board of directors who draws the overall guidelines on foreign exchange risk, interest rate risk, credit risk, and the investment of excess liquidity. Compliance with policies and exposure limits is reviewed by the board of directors on regular basis.

Market risk

The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchangerates and interest rates.

There has been no change to the Group’s exposure to market risks or the manner in which it manages andmeasures the risk.

Interest rate risk management

The Group is exposed to interest rate risk as the Group borrows funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings.

The Group is also exposed to interest rate price risk with reference to its fixed rate time deposits with banks. During the current year, interest on fixed deposits ranged from 1% to 2% per annum (2011: from3% to 4% per annum).

If interest rates on bank borrowings had been 50 basis points higher/lower throughout the year and all other variables were held constant, the Group’s profit for the year ended 31 December 2012 and equity as at 31 December 2012 would decrease/ increase by approximately AED 2.84 million (2011: AED 2.45 million).

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group obtains information about counterparties credit worthiness from publicly available financial information and its own trading records. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved periodically by the relevant management in the Group and, where appropriate, letters of guarantee are obtained from customers.


Credit risk is primarily related to the trade receivable balances which are presented in the consolidated statement of financial position net of any applicable allowances for losses that were estimated by the Group’s management based on prior experience and prevailing economic conditions. Current year’s sales include AED 377,324,000 being sales to one main customer (2011: AED 333,469,000 being sales to one main customer). Total trade receivables due from the above main customer amounted to AED226,257,000 as at 31 December 2012 (2011: AED 193,450,000).

Credit risk related to liquid funds is limited as the counterparties are banks with sound reputation.

The carrying amount of financial assets recorded in the financial statements, which is net of impairmentlosses, represents the Group’s maximum exposure to credit risk.

Equity price risk

Sensitivity analysis

At the reporting date if the prices of investments in equity instruments are 10% higher/lower as per the assumptions mentioned below and all the other variables were held constant the Group’s:

• Profit/equity would have increased/decreased by AED 0.56 million (2011: AED 0.58 million) in the case of investments held for trading.

• Equity would have increased/decreased by AED 3.14 million (2011: AED 2.81 million) in the case of available-for-sale investments.

Method and assumptions for sensitivity analysis

• The sensitivity analysis has been done based on the exposure to equity price risk as at the reporting date.

• As at the reporting date, if the prices of investments in equity instruments are 10% higher/ lower on the market value uniformly for all equities while all other variables are held constant, the impact on profit or loss and equity has been shown above.

• A 10% change in the prices of investments in equity instruments has been used to give a realistic assessment as a plausible event.

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the Board of Directors, who has built an appropriate liquidity risk management framework for the management of short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves by continuously monitoring forecast and actual cash flows, dealing with financial institutions of good reputation and matching the maturity profiles of financial assets and liabilities.

Fair value of financial instruments

The fair values of financial assets and financial liabilities are determined as follows:

• The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets is determined with reference to quoted market prices;

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• The fair value of other financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments.

Foreign currency risk management

The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. There is no currency exchange risk related to transactions denominated in the US dollars or currencies linked with it as the AED rate is fixed to the US dollar. The management undertakes suitable procedures to minimise risks associated with transactions denominated in currencies other than AED and US$.

7. Approval of consolidated financial statements

The consolidated financial statements were approved by the Board of Directors and authorized for issue on 21 February 2013.


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