Dechra Pharmaceuticals Annual Report 2002

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FY2002 Annual Report · Dechra Pharmaceuticals

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DECHRA PHARMACEUTICALS PLC

DECHRA PHARMACEUTICALS PLC
INNOVATION, DEVELOPMENT AND DELIVERY

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Dechra House
Jamage Industrial Estate
Talke Pits
Stoke-on-Trent ST7 1XW

T: +44 (0)1782 771100
F: +44 (0)1782 773366
E: corporate.enquiries@nvs-ltd.co.uk

www.dechra.com

ANNUAL REPORT AND ACCOUNTS 2002

REGISTRARS
Computershare Services PLC
PO Box 82
The Pavillions
Bridgwater Road
Bristol
BS99 7NH

FINANCIAL PR
Citigate Dewe Rogerson
9 The Apex
6 Embassy Drive
Edgbaston
Birmingham
B15 1TP

ADVISERS

STOCKBROKER &
FINANCIAL ADVISER
ING Barings
60 London Wall
London
EC2M 5TQ

PRINCIPAL BANKERS
Bank of Scotland
55 Temple Row
Birmingham
B2 5LS

AUDITORS
KPMG Audit Plc
2 Cornwall Street
Birmingham
B3 2DL

SOLICITORS
DLA
Victoria Square House
Victoria Square
Birmingham
B2 4DL

CONTENTS

01. Highlights
02. Dechra Pharmaceuticals: At a glance
04. Chairman’s Statement
05. Board of Directors
06. Chief Executive’s Review
08. National Veterinary Services

12. Arnolds Veterinary Products
14. Dales Pharmaceuticals
16. North Western Laboratories /

Cambridge Specialist Laboratory Services

18. Financial Review
20. Financial Contents

Dechra Pharmaceuticals operates in the healthcare/pharmaceuticals
and related markets. It is the only listed pharmaceutical company which
derives a substantial part of its income from the UK and international
veterinary and animal healthcare markets. Dechra comprises:

National Veterinary Services

Arnolds Veterinary Products

Dales Pharmaceuticals

North Western Laboratories /
Cambridge Specialist Laboratory Services

HIGHLIGHTS

> Significant achievements

> Introduction by Arnolds of two new veterinary licensed products
> Completion of two acquisitions
> £2.8 million capital investment programme at Dales completed
> Vetcom windows® launch and roll-out

> Exclusive disposables distribution contract secured

> Turnover

> Profit before tax*
> Earnings per share* †

> Total dividend per share

* pre-exceptional and goodwill amortisation
† after FRS 19 re-statement

02002

£170m

£7.6m
10.59p

4.12p

2001

£156m

£5.85m
9.29p

3.75p

+9%

+30%
+14%

+10%

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

OUR STRATEGY

> Development of the veterinary pharmaceutical portfolio
> Increasing export opportunities
> Further penetration of existing markets
> Exploitation of contract manufacturing opportunities

BUSINESS DESCRIPTION

KEY PRODUCTS AND SERVICES

National Veterinary Services
NVS is the UK market leader in the supply of pharmaceuticals,
pet related products, instruments, consumables, accessories,
IT and business services to the veterinary profession.

Arnolds Veterinary Products
Suppliers of licensed branded pharmaceuticals, instruments and
equipment used by the veterinary profession worldwide; focusing
on the small animal and equine markets.

• Highest Market Service Levels
• Electronic Ordering Systems
• Vetcom® Practice

Management Systems
• National Next Day Delivery

• Branded Veterinary
Pharmaceuticals

• Veterinary Instruments
• Surgical Equipment
• Pharmaceutical Development

Dales Pharmaceuticals
Licensed manufacturer of human and veterinary pharmaceuticals
for Arnolds and third party customers. It specialises in the
manufacture of liquids, ointments and solid dose pharmaceuticals.

• Manufacturing
• Clinical Trials and Specials
• Packing
• Technical Support

North Western Laboratories/
Cambridge Specialist Laboratory Services
NWL is the only veterinary pathology laboratory with UKAS
accreditation. A multi-disciplined commercial veterinary laboratory,
providing diagnostic and clinical pathology services covering over
500 test options to veterinary surgeons throughout the UK.

CSLS is the UK’s leading endocrine specialist. Arnolds utilises the skills
and knowledge of CSLS in its product development programme.

• Diagnostic and Clinical Services
• Assay Innovation
• Research and Development
• Clinical Trials

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

CHAIRMAN’S STATEMENT

“Our core veterinary and third party
contract manufacturing markets
continue to grow and offer
opportunities that we can exploit.”
Michael Redmond, Chairman

INTRODUCTION
The Group has produced a good performance
especially when considering the outside
influences which have clearly impacted on
our business, in particular the foot and
mouth outbreak and the on-going decline
in Agriculture.

Significant achievements include the
introduction of two new veterinary licensed
products to our pharmaceutical portfolio and
the completion of two acquisitions, the first
since our Stock Market Listing. We have also
completed a £2.8 million capital investment
programme at Dales.

The two acquisitions were largely funded
from the Group’s own cash resources; their
contribution to this year’s results is negligible
as we completed these transactions towards
the end of the financial year. We expect both
to be earnings enhancing in the year ending
30 June 2003. Further details are provided
within the Chief Executive’s Review.

FINANCIAL HIGHLIGHTS
Group turnover increased by 8.8% from
£156 million to £170 million whilst operating
profit (pre-goodwill and exceptional items)
improved from £8.23 million to £8.77 million.
Pre-tax profit (pre-goodwill and exceptional
items) was £7.6 million (2001: £5.85
million), an increase of 29.9%. Earnings per
share, on the same basis, was 10.59 pence
compared to 9.29 pence last year, an
increase of 14.0%.

the acquisitions and the costs of upgrading
our pharmaceutical manufacturing facilities.

DIVIDEND
In light of these results and in line with the
Group’s progressive dividend policy, the Board
is recommending a final dividend of 2.75
pence (2001: 2.5p), an increase of 10%. This,
together with the interim dividend of 1.37
pence paid in April 2002 gives a total for the
year of 4.12 pence (2001: 3.75 pence). The
total dividend is covered 2.4 times by profit
after tax. If approved at the Annual General
Meeting on 16 October 2002, the final dividend
will be paid to shareholders on the Register as
at 1 November 2002, on 27 November 2002.

PEOPLE
In November 2001, Ian Page was appointed
Chief Executive following the resignation of
Gary Evans. Prior to this he was Managing
Director of NVS and played a major role in
establishing this division’s leading position
within its marketplace. Martin Roach replaced
Ian as Managing Director at NVS in January
this year. He has extensive experience
within the distribution and veterinary
pharmaceuticals industries both in Europe
and North America.

In January we also announced, with great
sadness, the sudden death of Peter Redfern
who from 1997, as Chairman, guided the Group
through the MBO to flotation. Although he is
missed, he has left with us a strong legacy
upon which we shall build further.

joined the Group over the last 12 months.
I also wish to place on record our thanks to all
our employees throughout our subsidiaries
for their hard work and dedication in
delivering a good result in a challenging year
which has seen many achievements.

PROSPECTS
Our core veterinary and third party contract
manufacturing markets continue to grow and
offer opportunities that we can exploit. We
will further expand our licensed veterinary
product portfolio through our own in-house
development capabilities whilst, at the same
time, continuing to look for product
acquisition opportunities.

The merger between Dales and Anglian is
progressing well and the strengthened
management team is already starting to
realise the exciting potential for this business.

North Western Laboratories ("NWL") and
Cambridge Specialist Laboratory Services
("CSLS") have made encouraging progress
since acquisition with results to date in line
with our pre-acquisition expectations.

Trading in the first two months of the new
financial year is in line with our expectations
and we remain confident in the prospects for
growth being realised from our strategic
development plans.

Net debt at the year-end increased to £14.94
million and reflects the cash consideration for

On behalf of the Board and shareholders I
would like to welcome all the staff who have

Michael Redmond Chairman
3 September 2002

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

BOARD OF DIRECTORS

01. IAN PAGE
CHIEF EXECUTIVE
Aged 41, Ian joined the Group’s principal
trading subsidiary NVS at its formation in
1989 and was appointed Managing Director
in 1998. He joined the Board in 1997 and
became Chief Executive in November 2001.
Ian has played a key role in the development
of the Group’s growth strategy. Prior to
joining the Company, he gained extensive
knowledge and experience through various
positions he held within the pharmaceutical
and medical arena.

02. SIMON EVANS B.COM, ACA
GROUP FINANCE DIRECTOR
Aged 38, Simon qualified as a Chartered
Accountant in 1988 and spent seven years
at KPMG. He joined NVS in 1992 and, was
appointed Group Finance Director in 1997
following the MBO.

03. ED TORR
EXECUTIVE DIRECTOR
Aged 42, Ed joined NVS as Sales Director
in 1997 and was part of the MBO team.
In 1998, he was appointed Managing Director
of Arnolds and Dales. Prior to joining the
Group, he worked within the animal
healthcare sector for a number of companies
including ICI, Wellcome and Alfa Laval Agri.

04. MICHAEL ANNICE BSC(HONS),
M.R. PHARM.S.
EXECUTIVE DIRECTOR
Aged 42, Mike graduated from The School of
Pharmacy at Aston University in 1980. Prior
to joining Dales in 1990 as Site Manager
he worked within the Hospital Pharmacy
Service, Glaxo and SSS International
(formerly Cupal Pharmaceuticals). He was
appointed Production Director at the time of
the MBO and joined the Board in 1997. Mike
was appointed Managing Director at Dales
in March 2002.

05. MICHAEL REDMOND
NON-EXECUTIVE CHAIRMAN
Aged 58, Michael joined the Group as a
Non-Executive Director in April 2001, and
was appointed Chairman in July 2002.
He has extensive pharmaceutical industry
experience having begun his career with
Glaxo and through senior positions with
Schering Plough Corporation. In 1991,
he joined Fisons plc and in 1993 was
appointed to the Board as Managing
Director of the Group’s Pharmaceuticals
Division. Michael left Fisons in 1995
following its takeover by RPR. Mr Redmond
is currently also a Non-Executive Director
and Chairman at Microscience Ltd, Synexus
Ltd and Arakis Ltd and a Non-Executive
Director at Strakan Ltd.

Former Non-Executive Directorships
include Biocompatibles International plc,
CeNeS plc and Cantab Pharmaceuticals plc.

06. MALCOLM DIAMOND MBE
SENIOR NON-EXECUTIVE DIRECTOR
Aged 53, he joined the Board in August 2000
prior to the Group’s flotation in September of
the same year. Malcolm retired after 18
years as Chief Executive of Trifast plc in
March 2002 although he will continue to be
involved with the Company until September
2003. Currently, he is also advising a
number of private businesses on their
strategic planning, management
development programmes and marketing
initiatives. He was, until its takeover in
March 2002, a Non-Executive Director of
Sytner Group plc and was formerly a
Member of both the CBI Smaller Quoted
Companies Working Committee (SQC) and
the National Manufacturing Council.

07. STEPHEN WHITEHOUSE FCCA
COMPANY SECRETARY
Aged 54, Stephen has been with the Group
since 1989 and was part of the MBO team.
He is Finance Director at Arnolds and was
appointed Company Secretary at flotation
in 2000. Prior to this, he worked for twelve
years at GKN Sankey and ten years at
British Oxygen.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

CHIEF EXECUTIVE’S REVIEW

“Product opportunities remain key
to the Group’s strategy as they offer
significantly higher margin returns
across the Group.”
Ian Page, Chief Executive

INTRODUCTION
In my first year as Chief Executive, I am
delighted to report that Dechra has made
significant developments in taking forward
and delivering our strategy for growth.

THE COMPETITION COMMISSION INQUIRY
The Competition Commission’s Review
relating to the supply and dispensing of
Prescription-Only Veterinary Medicines
('POMs') continues.

On April 16, following an initial consultation
period, an interim ‘issues’ statement was
released by the Commission which
appeared on the Regulatory News Service.

A ‘Proposed Remedies’ paper is anticipated
to be released shortly which is expected to
be followed up by a further Consultation
period, with the resultant findings being
published in early 2003.

The Company continues to co-operate
fully with the inquiry and we will update
shareholders when any new relevant
information is available.

STRATEGY DEVELOPMENT
Returning to our strategy, I would like
to outline the progress achieved during
the year.

• The development of our veterinary

pharmaceutical portfolio

Arnolds has successfully licensed and
marketed two new veterinary prescription-
only medicines - Vetoryl® and Felimazole®,
both of which are projected to make a
significant contribution to revenues during
the new financial year.

Product opportunities remain key to the
Group’s strategy as they offer significantly
higher margin returns across the Group.

Whilst our current pipeline will deliver
satisfactory returns in the short and
medium term, we are now accelerating
its development to drive longer-term
growth prospects.

We are continuing to identify niche
opportunities and additionally are
developing high-value branded generics.
We also have alliances with UK and
international pharmaceutical companies
to develop products for the veterinary
markets worldwide.

• Increased Export Opportunities
Sales of our licensed pharmaceuticals will
be significantly increased by licensing
products in overseas markets. Mainland
Europe offers short to medium-term
opportunities and we currently have a
number of licensing dossiers under
preparation for submission through the
‘mutual recognition’ system.

Dales, our manufacturing division, has
started the procedure to gain Federal Drug
Administration (“FDA”) approval as we
recognise the marketing opportunities for
niche products in North America. Whilst
there will be no short-term revenue
benefits, this is an important step to
achieve our long-term growth potential.

• Exploitation of Contract Manufacturing
The acquisition of Anglian Pharma Plc
(“Anglian”) has more than doubled our
contract manufacturing revenues and
substantially enhanced our management
capabilities with the retention of senior
Anglian personnel in all areas of the
business. The rationalisation of Anglian is
proceeding to plan with the transfer of
business to Dales’ site at Skipton expected
to be completed by the end of January 2003.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

> Build on the strengths and capabilities recently brought to the Group

through Anglian, NWL and CSLS

> Develop export markets through joint ventures in the EU and North America

> Continue to add value and enhance the service offerings to the

veterinary profession

The 30% organic sales growth achieved this
year provides a good base from which to
develop this business further in particular
through Anglian’s sales team who already
have a proven track record in securing new
contracts and developing long-term
relationships.

• Further Penetration of Existing Markets
Our principal trading subsidiary, National
Veterinary Services (“NVS”), again out-
performed market growth in the year
being reported by approximately three
percentage points.

NVS has launched Vetcom windows® our
in-house developed practice management
software which not only generates regular
rental income but considerably improves
veterinary practices marketing and
business management capabilities.

The NVS Central operation in Stoke-on-Trent,
Staffordshire, has been considerably
expanded by the acquisition of a lease for
an adjacent warehouse. The site has been
refurbished and provides an additional
6,000 pallet spaces to support growth
across the Group. The new facility will
further improve operational efficiencies at
NVS as well as providing increased security
and improved staff facilities.

More significantly, the acquisition of
North Western Laboratories (“NWL”) and
Cambridge Specialist Laboratory Services
(“CSLS”) has enabled us to extend our
service offering to the veterinary
profession.

NWL and CSLS are well regarded within the
industry for their high quality service levels
and clinical research methodologies. NWL,
based in Poulton-le-Flyde, is a multi-
disciplined veterinary laboratory with UKAS
accreditation and provides diagnostic and
clinical pathology services to veterinary
surgeons throughout the UK. Around 80% of
its work is focussed around the companion
animal sector.

NWL’s services are being promoted by NVS’s
sales team and we are already beginning to
see new business as a result. In addition we
have launched a national ‘sample’ collection
service utilising the NVS network. This new
service offered to our customers gives us a
competitive edge in this exciting and
developing market.

CSLS, based in Sawston, South
Cambridgeshire is the UK’s leading
specialist veterinary endocrine laboratory.
For a number of years, Arnolds has utilised
the skills of CSLS in its product development

programme - in particular they played a
key role in the newly launched licensed
products Vetoryl® and Felimazole®.

Summary
Despite the negative influence of factors
outside of our control, our strong and
capable team have delivered a good result
and a number of significant achievements,
as I have just outlined.

We welcome the additional skills and
expertise our recent acquisitions have
brought to the Group and, with the
continued support of the Board,
management and staff, I look forward to the
future with enthusiasm and confidence.

Ian Page Chief Executive
3 September 2002

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NATIONAL VETERINARY SERVICES

NVS, our principal trading subsidiary, is the
UK's leading veterinary wholesaler. Our
central warehouse which carries over
12,000 product lines, pharmaceuticals
instruments, consumables and related
products, provides a comprehensive service
to over 1,800 veterinary practices.

Traditionally, NVS has focussed on the small
animal market which has provided solid
growth over recent years. However, we have
strengthened our large animal offering
through new software, products and
marketing promotions. The large animal
market began to recover towards the end of
2001 and showed strong growth in the early
months of this calendar year albeit from a
lower base following the foot and mouth
crisis the previous year.

In the year being reported, NVS accounted
for 94% of Group turnover of which, 80%
relate to pharmaceuticals and 20% to related
products. Sales increased by 8% which was
three points above market sector growth.

IMPROVED SERVICES THAT BENEFIT
THE CUSTOMER
NVS will remain the leading veterinary
wholesaler by continuing to improve the
services we offer our customers.

VETCOM
Vetcom, our in-house developed practice
management software continues to provide
operational benefits to both NVS and its
customers. The software was first
introduced in 1990 and has provided a solid
foundation for the business. Today, over
80% of orders received daily by NVS are
processed electronically via the VetCom
system - the balance being handled by our
Customer Care team.

In April 2002, following several years of
development and extensive tests in trial
practices, we launched a Windows based
full practice management system.

VETCOM TEAM
VETCOM WINDOWS® PROVIDES THE
VETERINARY PROFESSION WITH A
COMPUTER SYSTEM THAT FULFILS ALL
THE REQUIREMENTS TO MANAGE THEIR
BUSINESSES EFFECTIVELY AND PROFITABLY.
SIMON LAHEY VETCOM MANAGER, AND HIS
TEAM AIM TO PROVIDE THE BEST SERVICE
POSSIBLE TO THE VETERINARY PRACTICES,
FROM INSTALLING THE SYSTEM TO FREE
INDUCTION TRAINING; FREE HELP DESK
SUPPORT; FREE SOFTWARE DEVELOPMENT
AND PROGRAM ENHANCEMENTS AND NEXT
DAY ENGINEERING SUPPORT.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

“NVS continues to focus on its core wholesaling business as we
consolidate on our market share, which remains above 40% in
a highly competitive market.”
Martin Roach, Managing Director

This comprehensive management tool not
only allows the veterinary practice to improve
its own marketing initiatives to its own client
base, it enables veterinary practices to do
everything from scheduling appointments
to holding client records, invoicing, stock
control, ordering and accounting.

In June 2002, Vetcom Tracker was
launched; this software has been developed
for the large animal veterinary practice and
has enabled them to meet Government
Safety Regulations to track prescribed
veterinary pharmaceuticals from ordering
through to administration in animals
destined for human food production.

Revenues are generated from these
products by monthly rental; we will increase
market penetration as more practices
utilise the software.

VET2PET
www.vet2pet.co.uk
This on-line secure veterinary pet
superstore, available to the consumer, lists
over 1,500 high quality premium products.
In addition to the electronic service, NVS
has supplied over 1,000 pet accessories
catalogues to veterinary practices enabling
their customers to browse in the waiting
room. Products can be ordered on-line or
via the surgery and delivered the next day
directly to customers homes or to their
veterinary practice.

This offering greatly extends the choice for
pet owners and benefits the practice as it
can add value to its service by being able
to supply, on demand, product without the
need to stock. As a result, we have seen
a significant increase in sales from this
activity which although from a low base
is encouraging for the future.

Our Pet Care Insurance, operated by
Pinnacle, continues to sell well. We
anticipate that by the end of 2002, around
10,000 policies will have been underwritten,
up from 4,000 in 2001 and although this
service is not considered a significant
revenue provider, it underpins our strategy
of improving the services we offer.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NATIONAL VETERINARY SERVICES CONTINUED

LABORATORY AND CLINICAL SERVICES
Following the acquisition of NWL and CSLS
we have extended our service offering to
include clinical and pathology services
which are being marketed by our customer
care and sales teams.

CUSTOMER CARE
Customer service remains fundamental to
our business. We must ensure that we can
deliver product in full and on time. I am
pleased to report that we have maintained
our 98% service levels.

We continue to examine ways to further
improve our customer care service.
Currently, we are in the process of
upgrading our telephone system thus
further improving the way in which we
handle enquiries.

NVS INDICES
As part of our objectives of improving
management information to veterinary
practices, we introduced NVS Indices.
This highly successful product provides
information to the veterinary practices on
their purchase levels and compares their
business with others in their territory as
well as nationally. This helps them manage
their costs, identify growth areas and
improve their buying and stock control
functions.

Meeting and exceeding our customers'
expectations is crucial. During the year,
we increased the level of staffing in this
area. Training is also key and we have run a
number of courses to enable staff to acquire
the experience and product knowledge
which enables them to provide professional
advice to our customers.

OPERATIONAL IMPROVEMENTS
The automated picking system introduced in
2001 at our Central warehouse operation in
Stoke has continued to provide substantial
cost savings and improved productivity.

However, with the increase in volumes
already achieved, and to support future
growth, we recently acquired a lease for
additional warehousing capacity on an
adjacent site which has more than doubled
capacity. The extended facility, allows us
to bring all our stock onto one site which
significantly improves our stock control
and efficiency.

10
10

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002
DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

“Customer service remains fundamental to our business. I am pleased
to report that we have maintained our 98% service levels.”
Martin Roach, Managing Director

In addition to improving our central operation,
we opened a depot in Wallingford, Berkshire
and added new van routes to satisfy
increased volume and better meet practices
requests for specific delivery times.

Our depot in Swanley, Kent, is near capacity.
Therefore, during this new financial year, we
will be establishing depots north and south
of the Thames which will satisfy increased
business in the South-East whilst providing
our veterinary practices in this region with
an improved service.

STRATEGY FOR GROWTH
2002 has seen NVS produce a creditable
performance. To ensure we remain in a
leading position our strategy for growth
will be based on:-

• Identifying new areas for development
whilst maintaining our focus on our
core business

• Further improving operational
efficiencies and productivity
• Continuing to provide the highest

levels of service

• Maintaining and developing close

relationships with our customers to
ensure we are meeting their needs
• Continue to enhance our IT capabilities
both internally and for our customers
• Identifying new sources of products
which will provide benefits to both
the veterinary profession and their
customers

• Further improving purchasing in order
to retain our competitiveness and
increase margins

www.vetwholesaler.co.uk

Martin Roach
Managing Director
National Veterinary Services Limited
3 September 2002

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

ARNOLDS VETERINARY PRODUCTS

LICENSING & REGULATORY
KEITH COLLIS AND THE REGULATORY TEAM
SUPPORTED BY DR FRANCESCA HOLLAND
PHD, MRCVS FORM PART OF THE TEAM
RESPONSIBLE FOR REGULATION AND
LICENSING OF THE PHARMACEUTICAL
DEVELOPMENT PROGRAMME. THEY
ALSO PROVIDE TECHNICAL SUPPORT TO
OUR CUSTOMERS AND OUR SALES &
MARKETING TEAM.
THE TEAM HAS SUCCESSFULLY LICENSED
HYPERCARD®, VETORYL® AND FELIMAZOLE®.
OUR GROWING PORTFOLIO OF DEVELOPMENT
PROJECTS IN THE COMPANION ANIMAL
SECTOR WILL PROVIDE THE TEAM WITH
FUTURE OPPORTUNITIES.

Our focus on new products, key suppliers
and strategic alliances has seen positive
contributions in all sectors of Arnolds’
business.

Oxyglobin® and Vetoryl® which were
developed and introduced to the market
in 2001/2002 have performed ahead
of expectations whilst other key
pharmaceutical brands such as
Equipalazone®, Soloxine®, Intubeaze®,
Willcain®, Intra Epicaine® and Peridale®
have increased sales over the period. Our
key distributorships of 3M®, B.Braun and
Sims-Portex® have also achieved growth
in a mature market.

We are also successfully continuing to
develop our export markets through EU
product licensing and by existing and new
international alliances all of which will
ensure good future growth overseas.

ADDING VALUE TO OUR CUSTOMERS
As part of our Continuous Development
Programme, Arnolds has introduced a series
of educational seminars targeted at our
customers - the veterinary surgeons.

In the first series of seminars, entitled
“Advances in Small Animal Medicines”,
lectures were delivered to 600 delegates by
independent speakers renowned for their
expertise in fields related to Arnolds product
sectors. Post seminar research showed an
80% positive approval rating in the subjects
covered which included:-

• Advances in Canine Endocrinology
• Anaemia: The Investigation

and Treatment

• Advances in Feline Endocrinology

and Cardiology

Throughout these seminars, Arnolds
reinforces its product range and enforces
our position as a key player in the
veterinary pharmaceutical market.

PRODUCT DEVELOPMENT
Arnolds’ strategy is to develop and market
niche pharmaceutical products focussed
on the companion animal sector.

Our pipeline in product development
remains centred around:-

• Cardiology
• Endocrinology/Hormonal
• Respiratory
• Oncology

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

“We are successfully continuing to develop our export markets
through EU product licensing and by existing and new international
alliances all of which will ensure good future growth.”
Ed Torr, Managing Director

The success of recent introductions to
our licensed product portfolio, including
Vetoryl® and Felimazole®, provide exciting
opportunities for the future. Already,
preparation is underway to license them
in other countries, initially in Europe.

We are constantly investigating
opportunities to supplement our own-brand
product range with associated products
through third party alliances. In the final
quarter of the year, our strength in the
instruments and consumables market was
further enhanced through a distribution
agreement with Cook Veterinary Products
which gives us exclusive rights to market
their veterinary products in the UK.

OPERATIONS
As we have continued to experience growth
we have had to adapt to the ever-changing
needs of the business and its customers.
The warehouse operation has been
reorganised, increased technical support
has been introduced and our front line sales
and marketing teams have been provided
with a more sophisticated database which
has further focussed their activities.

Within Arnolds we employ some 50 people,
and it is a credit to each and every one of
them that through their commitment and
effort, we have delivered a strong
performance.

A LOOK TO THE FUTURE
The veterinary industry in the UK faces an
exciting future.

Arnolds is in a strong position to capitalise
on this challenging market-place, and the
opportunities that we have created for
the future:-

• New innovative products
• A strong development pipeline
• The people and the structure to

deliver, and

• A strong brand with a companion

animal focus

Ed Torr
Managing Director
Arnolds Veterinary Products Limited
3 September 2002

www.arnolds.co.uk

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

DALES PHARMACEUTICALS

MANAGEMENT TEAM STRENGTHENED
THE TEAM HAS BEEN SIGNIFICANTLY
STRENGTHENED FOLLOWING THE
ACQUISITION OF ANGLIAN. SIMON DARVILLE,
STEVE DEWAR, STEPHEN WILLIAMS AND
GARETH DAVIES BRING TO THE BUSINESS
ADDITIONAL TECHNICAL EXPERTISE AND
EXPERIENCE WHICH STRENGTHENS THE
SALES & MARKETING, PRODUCTION, PACKING
AND TECHNICAL SUPPORT FUNCTIONS - ALL
ESSENTIAL FOR THE FUTURE GROWTH AND
DEVELOPMENT OF DALES.

Dales Pharmaceuticals, the Group’s
manufacturing arm located in Skipton, North
Yorkshire, is a fully licensed M.C.A.
(Medicines Control Agency) approved plant.
It produces veterinary pharmaceuticals on
behalf of the Group’s subsidiary, Arnolds,
and human pharmaceuticals for third
parties on a contract manufacturing basis.

The development, which we believe to be the
most modern and best of its kind in the UK,
has exceeded customer expectations. It
operates under a Building Management
System which monitors and controls the
environment, thus providing protection for
both products and staff who work within the
manufacturing and packing departments.

OPERATIONS
During the year, we have had to adapt to
change and create opportunities to meet
our strategic objectives.

We have been successful in developing
existing customer relationships whilst, at
the same time, converting enquiries into
sales from new customers both in the UK
and overseas.

BUILDING FOR THE FUTURE
The manufacturing facilities have undergone
extensive re-development at a cost of
£2.8 million. The 57,000 sq. ft unit, which
has trebled capacity, has taken more than
twelve months to complete and was
officially opened in May. The building was
named the Peter Redfern Building in
memory of our late Chairman.

Solid dose production capacity has been
significantly increased to one billion
tablets/capsules per annum, with packing
capacity similarly increased via fully
automated packing lines.

In addition to solid dose production, key
capabilities include production and packing
of liquid products such as injections, oral
suspensions, syrups and semi-solid
products such as gels, pastes, creams
and ointments.

STRENGTHENING THE OFFERING
The scope of products and services we can
now offer both new and existing customers
has been expanded through the acquisition
of Anglian, which was previously renowned
as a niche manufacturer of liquids,
ointments and solid dose pharmaceuticals.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

“Through the strengthened operating resource at Dales, created by
the capital investment and the Anglian merger, we are in a stronger
position to exploit the opportunities that exist in the human
healthcare market.”
Mike Annice, Managing Director

These complement the existing Dales range
of speciality solid dose tablets, capsules
and powders and provides opportunities for
the enlarged sales team to “cross sell” the
additional capabilities arising from the
expanded product offering.

Through the strengthened operating
resource at Dales, created by the capital
investment and the Anglian merger, we
are in a stronger position to exploit the
opportunities that exist in the human
healthcare market.

This, together with our close working
relationship with Arnolds on the
development and manufacture of its current
and future licensed veterinary product
portfolio, provides a solid foundation upon
which to further build our business.

Mike Annice
Managing Director
Dales Pharmaceuticals Limited
3 September 2002

www.dalespharma.com

FOCUSSING ON EFFICIENCY AND SERVICE
Currently, we are in the process of
transferring the manufacturing and
packaging activities of Anglian to Skipton.
This will create a single operation, with
added management resource, who can
meet on-going and future requirements
for both existing and new customers. It
will also have long-term benefits for the
business with increased operational and
productivity efficiency, and an improved
service to our customers.

MOVING FORWARD
Over the last three years, the pharmaceutical
contract manufacturing market is estimated
to have grown from £600 million to £800
million, as leading pharma businesses look
to out-source production of certain product
lines to achieve improved returns and
efficiencies on their major products.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NORTH WESTERN LABORATORIES /
CAMBRIDGE SPECIALIST LABORATORY SERVICES

THE PATHOLOGY TEAM
THE TEAM IS HEADED BY JANE MILLER, BVET
MED MRCVS FRCPATH. IN ADDITION TO HER
EXTENSIVE KNOWLEDGE OF CLINICAL
PATHOLOGY, JANE HAS A PARTICULAR
INTEREST IN HISTOPATHOLOGY, CYTOLOGY
AND PATHOLOGY. OTHER MEMBERS OF THE
TEAM INCLUDE; DR GERALDINE HALE BVM&S
PHD CERT PM MRCVS, WHO HAS AN INTEREST
IN INTERNAL MEDICINE, MICROBIOLOGY AND
EXTENSIVE EXPERIENCE OF CURRENT
VETERINARY THERAPY; SUE BECK BVMS
MRCVS, WHO SPECIALISES IN DERMATOLOGY
AND FELINE AND RABBIT MEDICINE AND DR
TED ORMEROD BVMS, PHD, MRCVS, THE
PRINCIPAL VETERINARY HISTOPATHOLOGIST.
WE ALSO RETAIN THE SERVICES OF ROMAIN
PIZZI BVSC, MSC, MRCVS, A SPECIALIST IN
AVIAN AND EXOTIC SPECIES.

NORTH WESTERN LABORATORIES

COMPETITIVE ADVANTAGE
NWL provides clinical and diagnostic
pathology services to the veterinary
profession within the UK and increasingly
in Europe.

NWL is the only commercial laboratory in this
sector of the market with UKAS accreditation
to ISO 17025, providing a significant
advantage over the competition in a number
of markets. This internationally recognised
standard, monitors all of the requirements
that testing laboratories have to meet if they
wish to demonstrate that they operate a
quality system, are technically competent,
and able to generate technically valid results.
UKAS accreditation has already given us a
competitive advantage in securing a number
of substantial new contracts in the last
2 years.

ADDING VALUE TO CLIENT SERVICE
NWL provides its veterinary clients with a
highly complementary range of services,
general veterinary practitioners continue
to provide the largest proportion of the
laboratory’s income.

With the changes taking place in the market,
NWL is well placed to provide an integrated
laboratory solution to the growing number

of corporate and large group veterinary
practices whilst continuing to provide the
smaller practice clients with a highly
personalised service.

Considerable emphasis is placed on the
development of client services. The Sameday
courier collection service is to be enhanced.
In addition, a Nextday service through the
NVS logistics system is to be introduced.
Web based sample tracking, reporting and
information services are under development
which will add value to the business and
improve our competitive advantage.

DIVERSIFICATION
Microbiological and analytical services to
the food industry continue to develop and,
although this sector is highly competitive,
we are currently undergoing a significant
investment which will create additional
capacity allowing us to exploit this and other
new markets. Similarly, we anticipate our
services to the pharmaceutical industry
to expand as further value of UKAS
accreditation is realised.

EXPANSION OF FACILITIES
Major expansion of the laboratory facilities
is underway. This will not only provide
increased laboratory space, but will also
accommodate the planned expansion of
the pathology team.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

“One of the unique strengths of the laboratory has been the research
and development of a wide range of specialist assays, in particular,
radio-immunoassay, a highly specialist analytical technique not
commonly available from competing laboratories.”
Alistair Parker/Tom Williams, Joint Managing Directors

www.nwlabs.co.uk

www.cslabs.co.uk

CAMBRIDGE SPECIALIST LABORATORY SERVICES

SPECIALIST EXPERTISE
The team at CSLS, headed by Helen Evans,
enjoys an enviable international reputation
for expertise in the highly specialised field
of veterinary endocrinology.

Helen was instrumental in starting the
first specialist veterinary endocrinology
laboratory in the 1980’s. Following the break
up of the original enterprise, Helen took the
opportunity with a number of colleagues to
establish CSLS. Since then, the laboratory
has gone from strength to strength through
the provision of a range of both routine and
highly specialised hormone assays for
the veterinary practitioner.

RESEARCH AND DEVELOPMENT
One of the unique strengths of the
laboratory has been the research and
development of a wide range of specialist
assays, in particular, radio-immunoassay,
a highly specialist analytical technique
not commonly available from competing
laboratories. This, together with the
expertise of Helen and her team are
recognised worldwide by veterinary
endocrinologists. Providing assay services
for UK and overseas universities and
research organisations gives an increasing
source of revenue. The laboratory works
closely with individual specialists to
develop assay methods and undertakes
the testing to an extremely high standard
of competence and reliability.

MAJOR ASSET
CSLS is a major asset, providing research,
testing and trial facilities for the Group
particularly Arnolds Veterinary Products,
as they develop a growing portfolio of
veterinary endocrinology pharmaceuticals
and other specialist products.

Alistair Parker/Tom Williams
Joint Managing Directors
North Western Laboratories/
Cambridge Specialist Laboratory Services
3 September 2002

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

FINANCIAL REVIEW

“During the year, significant investment of
nearly £7.0 million was made both in our
existing businesses and acquisitions.”
Simon Evans, Group Finance Director

OPERATING RESULTS
The Group profit and loss account is shown
on page 33 and discloses a profit before tax,
exceptional item and goodwill amortisation
of £7.6 million, an increase of 29.9% on
last year calculated on the same basis.
A significant contributor to this increase
was a lower interest charge, reflecting both
lower base rates this year and the full year
effect of reduced gearing following our
listing on the London Stock Exchange in
September 2000.

Group turnover increased by 8.8% (8.3%
excluding acquisitions) compared to 7.5%
last year. This reflects a slow recovery in
the market following the foot and mouth
outbreak last year, the benefit of new
product introductions at Arnolds and a
30.0% increase in third party contract
manufacturing turnover at Dales.

Gross margin showed a slight decline
during the year from 12.3% to 12.1%,
reflecting an increased competitive
environment faced particularly by NVS
together with fewer opportunities for
strategic stock purchases. Dales was also
impacted by the costs of the expansion.

However, I am pleased to say that the
increase in operating costs was restricted
to 5.4% (before exceptional items and
goodwill amortisation and excluding
acquisitions) compared to the increase in
turnover of 8.3%. This was achieved despite
increased expenditure on new product
development.

Overall, Group operating margin (before
exceptional items and goodwill
amortisation) reduced slightly to 5.15%
from 5.26%.

During the year, the Group made its first two
acquisitions since flotation. These were
both made towards the end of our financial
year and their impact on the results for this
year was therefore negligible. We expect
both acquisitions to be earnings enhancing
in the year ending 30 June 2003.

The operations of Anglian Pharma
Manufacturing Ltd are in the process of
being integrated into Dales. Rationalisation
costs associated with the integration will be
shown as an exceptional operating item in
the year ending 30 June 2003.

NET INTEREST CHARGE
The net interest charge of £1.2 million was
covered 7.5 times by operating profit before
goodwill and exceptional item. This
compares to 3.5 times for the same period
last year.

EXCEPTIONAL ITEM
The exceptional item represents
compensation for loss of office paid to Gary
Evans the former Chief Executive together
with associated legal fees. This represented
his contractual entitlement.

TAXATION
The tax charge of 30.8% is slightly higher
than the standard UK corporation tax rate of
30.0%. The difference is principally due to
certain expenses that are not allowable for
tax, such as goodwill amortisation.

EARNINGS PER SHARE AND DIVIDEND
Adjusted earnings per share (before
exceptional items and goodwill
amortisation) was 10.59p (2001: 9.29p;
2001 pro-forma 9.66p), an increase of
14.0% (pro-forma: 9.6%).

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

TURNOVER (£m)

OPERATING PROFIT (£m)

EARNINGS PER SHARE (p)

£170

£156

£145

£130

£8.8

£8.2

£7.5

£6.0

10.59

9.29

6.05

1.61

99 00 01

> Turnover up 9%

> Operating Profit up 7%

> Earnings per Share up 14%

> Dividends up 10%

Pro-forma earnings in 2001 were calculated
before exceptional items and before a
pro-forma interest adjustment which
reflected the effect on interest payable and
similar charges on bank and other loans
(and the related tax effect) of replacing the
funding in place prior to the Group’s flotation
on the London Stock Exchange on 22
September 2000 with that in place from 22
September 2000 onwards as if this financing
had been in place since 1 July 2000.

The proposed final dividend is 2.75p per
share (2001: 2.5p) making a total of 4.12p
for the year (2001: 3.75p). Dividends were
covered 2.4 times by profit after taxation.

CAPITAL EXPENDITURE
Total fixed asset additions (excluding
acquisitions) were £2.8 million of which
£2.0 million related to the Dales expansion.
The depreciation charge for the year was
£1.3 million compared to £1.2 million last
year, the increase reflecting the continued
investment in the Group.

BALANCE SHEET AND SHAREHOLDERS’ FUNDS
Shareholders’ funds increased to £5.75
million during the year, reflecting the
retained profit for the year of £3.0 million and
the issue of £1.0 million of ordinary shares to
partly fund the acquisition of North Western
Laboratories Limited and Anglian Pharma Plc.
In addition, £0.75 million of shares are still to
be issued in respect of the Anglian Pharma
Plc acquisition.

Working capital increased from £5.4 million
to £9.1 million, of which £0.5 million related
to new acquisitions. The remainder of the
increase principally reflected an
investment in stocks at NVS to further
improve service levels.

PRIOR YEAR ADJUSTMENT
The Group has adopted FRS 19 “Deferred
Tax” for the first time. This has resulted in a
net deferred tax asset not previously
provided being included in the balance
sheet. All comparative figures have been
amended accordingly.

CASH FLOW AND NET DEBT
During the year, significant investment of
nearly £7.0 million was made both in our
existing businesses and acquisitions. This
caused net debt to rise from £8.7 million to
£14.9 million. Interest cover, however,
remains healthy.

CAPITAL POLICY
It is the policy of the Company to maintain a
prudent balance between equity financing
and debt financing. Whilst the cost of debt
is normally lower than the cost of equity,
it is at the expense of financial flexibility.
The Company will therefore only use debt

financing to the extent that minimum internal
interest cover targets are not breached.

TREASURY POLICY
Overall treasury policy is set by the Board
and monitored by myself. The Company
does not speculate on short term interest
rate or exchange rate movements. All of the
Group’s borrowings (with the exception of
hire purchase contracts) are currently at
floating rates.

No borrowings are denominated in foreign
currencies and the Group has no significant
foreign exchange exposure.

LIQUIDITY MANAGEMENT
The Group’s cash position is monitored on
a daily basis by myself. The Group has
available overdraft and revolving credit
facilities from the Bank of Scotland for its
day to day working capital requirements.

Further information on Financial
Instruments is shown in note 20 to
the financial statements.

Simon Evans Group Finance Director
3 September 2002

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

FINANCIAL
CONTENTS

21. Corporate Governance
24. Board Remuneration Report
28. Health & Safety Policy /

Environmental Policy

29. Directors’ Report
31. Statement of Directors’ Responsibilities
32.
33. Consolidated Profit and Loss Account
34. Balance Sheets

Independent Auditors’ Report

35. Reconciliation of Movements in

Shareholders’ Funds

35. Consolidated Statement of Total

Recognised Gains and Losses
36. Consolidated Cash Flow Statement
38. Notes to the Financial Statements
54. Financial History
55. Notes

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

CORPORATE GOVERNANCE

Combined Code
The Financial Services Authority (FSA) listing rules contain the Combined Code – ‘Principals of Good Governance and Code of Best Practice.’

In the opinion of the Directors, the Group has complied throughout the period with Section 1 of the Code of Best Practice with the exception
of the following items (references in brackets are to provisions in the Combined Code):

a) Composition of the Remuneration Committee. From January 2002 the Remuneration Committee consisted of two Non-Executive

Directors. Prior to this it consisted of three Non-Executive Directors (B.2.2).

b) Composition of the Audit Committee. From January 2002 the Audit Committee consisted of two Non-Executive Directors (all of whom

are independent). Prior to this there were three Non-Executive Directors (D.3.1).

Board of Directors
The details of the Board of Directors are shown on page 5 and in the Directors’ Report on page 29. There is a clear division of
responsibilities between the Chairman and Chief Executive. The Board consists of an independent Non-Executive Chairman, four Executive
Directors (including the Chief Executive) and one other independent Non-Executive Director.

At least two members of the Board are required to retire from office by rotation at the Annual General Meeting subject to all Directors
having submitted themselves for re-election every three years.

The Board considers an independent Director to be one who has no relationship with any party who may undermine independence
and is not dependent on the Company for his or her primary source of income or paid by the Company in any capacity other than a
Non-Executive Director. In addition, an independent director will not previously have been a senior manager of the Company, and will
not have participated in the Company’s incentive bonus schemes or pension schemes.

The Board considers M.M. Diamond to be the senior independent Director.

Conduct of Board Meetings
The Board normally has twelve regular monthly Board meetings including two meetings where the full year and half year results are dealt
with. Strategy meetings are convened as required. A schedule of matters reserved for the Board is maintained comprising key events and
decisions.

At all Board meetings an agenda is established reflecting the Directors’ responsibilities. This comprises reports from the Chief Executive,
Finance Director and Operating Company Directors, reports on the performance of the businesses, major items of strategic planning
and investments and significant policy issues. The Board considers at least annually the strategic plans of the Group and individual
businesses. From time to time the Directors receive presentations from management about key areas of the Group’s operations.

Full year and interim results are reviewed by the audit committee and approved prior to publication. Other price sensitive information may
be published only with the approval of the full Board.

The Directors regularly receive financial and other information on the Group’s activities and performance and those of the individual
businesses. Each Director is entitled on request to receive information to enable him to make informed judgements and adequately
discharge his duties and has access to the advice and services of the Company Secretary on all matters of Board procedure. The Directors’
terms of appointment also allow them, at the Company’s expense, to take independent professional advice in connection with their duties.

Although no formal training programme exists, all Directors are encouraged to keep up to date on matters relevant to the Group and attend
briefings and seminars as appropriate.

The Board is assisted by the following committees, all of which operate within written terms of reference.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

CORPORATE GOVERNANCE CONTINUED

The Audit Committee
Members: M. Redmond (Chairman), M.M. Diamond.

The Audit Committee generally meets twice a year. The terms of reference of the Audit Committee include the following responsibilities:

• To review and advise the Board on the interim and annual financial statements
• To review with the external auditors the nature and scope of their audit and the results of that audit, any control issues raised

by them and management’s response

• To make recommendations as to the appointment and remuneration of the external auditors and any question of their resignation

or removal

•To review and oversee the Company’s approach to internal control and risk management

The Remuneration Committee
Members: M.M. Diamond (Chairman), M. Redmond.

The Remuneration Committee meets at least once per year and sets the pay and benefits of the Executive Directors and approves their
terms and conditions and bonus schemes having regard to performance. A report on the remuneration of Directors appears on pages
24 to 27.

The Nominations Committee
Members: M. Redmond (Chairman), M.M. Diamond.

The Nominations Committee will normally meet once per year and oversees the plans for management succession, recommends
appointments and reappointments to the Board and considers the structure and composition of the Board generally.

Internal Control
The Directors have overall responsibility for the Group’s system of internal control and for reviewing its effectiveness. The system of
internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide
reasonable, not absolute, assurance against material misstatement or loss.

The members of the Board have responsibility for monitoring the conduct and operations of individual businesses within the Group.
This includes the review and approval of business strategies and plans and the setting of key business performance targets. The
executive management responsible for each business are accountable for the conduct and performance of their business within
the agreed strategies.

In complying with the internal control requirements of the Combined Code, the Directors have taken guidance from the Institute of
Chartered Accountants in England and Wales publication “Internal Control: Guidance for Directors on the Combined Code” (“the Turnbull
Guidance”). As a result, the Board has prepared and updated a thorough review of relevant risk areas and systems of internal control.
The review is structured by business area and key risk category.

The Company’s key systems of internal control include:

Business Plans
Business plans provide a framework from which annual budgets are agreed with each business, including financial and strategic
targets against which business performance is monitored. The plans are reviewed by executive management and then by the Board
for ultimate approval. Monthly actual results are compared to the approved plans.

Investment Approval
The Group has clear requirements for the approval and control of expenditure. Strategic investment decisions involving both capital
and revenue expenditure are subject to formal detailed appraisal and review according to approval levels set by the Board.
Operating expenditure is controlled within each business with approval levels for such expenditure being determined by the
individual business.

Management Structure
Executive management are responsible for the identification, evaluation and management of the significant risks applicable to
their areas of the business. The risks are assessed on a periodic basis and may be associated with a variety of internal or
external sources.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

CORPORATE GOVERNANCE CONTINUED

Risk Control
Responsibility for monitoring the Group’s system of internal control rests with the Board. It is assisted in this respect by the Audit
Committee which reviews the interim and annual reports provided to shareholders, the audit process and the systems of internal
control and risk management, the latter by way of consideration of the Board’s updated progress report and action plan regarding
internal controls.

Whilst the Board recognises this does not constitute an internal audit function, it believes that due to the size of the Group this review
provides sufficient comfort as to the controls in place.

The Board has reviewed the effectiveness of the Group’s internal control systems for the period from 1 July 2001 to the date of approval
of the financial statements by means of consideration of the updated progress report and internal controls action plan.

The Board will review the operation and effectiveness of its control assessment on a regular basis.

Investor Relations
A rolling programme of meetings between institutional shareholders and Executive Directors is held throughout the year, in addition to the
annual and half year results presentations and the Annual General Meeting to foster mutual understanding of objectives. Such meetings
are conducted so as to ensure protection of share price sensitive information that has not already been made available generally to
Company’s shareholders. Similar guidelines also apply to communications between the Company and parties such as financial analysts,
brokers, and the press. The Company also organises site visits on a periodic basis. All members of the Board usually attend the Annual
General Meeting. The Chairmen of the Audit Committee, Remuneration Committee and Nominations Committee will normally be available to
answer shareholders’ questions at that meeting. Notice of the Meeting, together with a letter from the Chairman and the Annual Report and
financial statements, are posted to shareholders not fewer than 23 days prior to the date of the Annual General Meeting. The package sent
to shareholders includes a summary of the business to be covered at the Annual General Meeting, where a separate resolution is
proposed for each substantive matter. Where a vote is taken on a show of hands, the level of proxies received for and against the
resolution and any abstentions will be disclosed at the meeting.

Going Concern
After consideration of budgets and other financial information, the Directors are satisfied that the Group is in a sound financial position
with adequate resources to continue in operation for the foreseeable future. For this reason, the Group financial statements have been
prepared on the basis that the Group is a going concern.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

BOARD REMUNERATION REPORT

This report has been prepared in compliance with schedule B of the Combined Code annexed to the listing rules of the Financial
Services Authority.

Remuneration Policies
In determining remuneration policies, the Board has followed the provisions set out in Schedule A of the Combined Code. Responsibilities
of the Remuneration Committee and its membership are set out in the corporate governance statement on pages 21 to 23.

Remuneration packages for Executive Directors are structured to include a performance related element linked to corporate and individual
objectives, specifically the Executive Share Plan and the Executive Bonus Scheme.

Remuneration policy reflects the fact that pay levels must be positioned at competitive levels in order to attract and retain Executive
Directors of a high calibre. At the same time it is recognised that levels of remuneration must be arrived at responsibly and fairly.

It is the policy of the Company to align the interests of shareholders and executives as closely as possible. Schemes encouraging
executive share ownership are an important part of the policy and executive share options are detailed below.

Salaries and Fees
Salaries of Executive Directors reflect the scope and depth of their responsibilities and are reviewed annually by the Remuneration
Committee. The Board sets the level of remuneration of the Non-Executive Directors by reference to practice in comparable companies.

Executive Bonus Scheme
This scheme rewards Executive Directors for achieving operating efficiencies and profitable growth in the relevant year by reference to
challenging but achievable targets derived at the beginning of the financial year and relate to Group and business unit performance.

During 2001/02, the performance criterion was operating profit before interest and tax. A bonus of 5% of base salary was payable for
performance at 95% of target rising to a maximum of 30% of salary for performance 20% above target. The bonuses of the Chief Executive
and Group Finance Director are dependant on Group results. The bonuses of the other Executive Directors are dependent on the relevant
subsidiary company performance.

Other Benefits
Executive Directors receive other benefits, including a company car, private healthcare, sick pay and holidays which overall provide a
reasonably competitive package comparable with that provided by other quoted companies.

Analysis of individual Directors’ emoluments

P.J. Redfern (deceased 23 January 2002)
G.B. Evans (resigned 5 November 2001)
S.D. Evans
I.D. Page
E.T.W. Torr
M.D. Annice
M.M. Diamond
M. Redmond (appointed 25 April 2001)
S.P. Whitehouse (resigned 22 August 2000)
C.D. Higham (resigned 22 August 2000)

*to date of resignation

Salaries
and fees
£’000

Bonuses
£’000

Other
benefits
£’000

Total
2002
£’000

Total
2001
£’000

14
48
94
118
88
72
20
20

9
12
9
4

9
13
11
9
9

474

14
57
116
141
106
85
20
20
–
–

559

25
151
99
108
96
77
17
3
11*
9*

596

G.B Evans who resigned on the 5th November 2001 received compensation for loss of office amounting to £194,000 (including £7,000 of
legal expenses) which was in accordance with his service contract.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

BOARD REMUNERATION REPORT CONTINUED

The Executive Share Plan
The Executive Share Plan has been adopted by the Company in addition to three share option schemes (the Approved Scheme, the
Unapproved Scheme and the SAYE Scheme – all detailed below). As a consequence of the imposition of very demanding performance
targets, the Executive Share Plan is intended to motivate Executive Directors to increase significantly the market value of the Company
for the benefit of the shareholders. In addition, it is expected that the plan will play a major part in retaining the services of the Directors
and Executives who have demonstrated, over recent years, their drive and commitment to the Company and its shareholders.

The Executive Share Plan is administrated by the trustee of the Dechra Pharmaceuticals PLC Employee Benefit Trust under the authority
of the Remuneration Committee.

Any Executive Director who is participating in the Executive Share Plan will not be granted options under the Approved Share Option
Scheme or the Unapproved Share Option Scheme.

Other than in circumstances which the Remuneration Committee consider exceptional, any further awards can only be made in the 42 day
period following the announcement of the interim or final results of the Company.

Two performance criteria attached to awards made under the Executive Share Plan, both of which must normally be satisfied before any
shares can vest.

Firstly, the share price of the Company in the six months following the third anniversary of the award must be at least 220% of the Initial
Award Value for at least 90 days (the Initial Award Value being 120p for the awards made on 14 September 2000 or an amount equal to the
three day average closing mid market value of an ordinary share on the date that any further awards are made). Adjustments to the share
price target would be made following a change in the capital structure of the Company.

Secondly, the earnings per ordinary share of the Company must exceed inflation by a compound 15% per annum in the three financial
years following an award.

The trustee of the Dechra Pharmaceuticals Employee Benefit Trust made the additional following awards under the Executive Share Plan
on 13 March 2002. These awards are share options with an exercise price of £1 in aggregate, which will vest to the Directors shown below
if the performance criteria detailed above are achieved within the relevant timescales. The option exercise date in respect of half of the
actual number over which the performance option can be exercised will be the fourth anniversary of the commencement of the measurement
period and in respect of the balance of the actual number over which the performance option can be exercised will be the fifth anniversary
of the commencement of the measurement period.

Director

S.D. Evans
I.D. Page
E.T.W. Torr
M.D. Annice

Exercise
Dates

As at
30 June 2001

2004 – 2012
2004 – 2010
2004 – 2010
2004 – 2012

145,833
166,666
166,666
104,166

Granted

20,833
–
–
62,500

As at
30 June 2002

166,666
166,666
166,666
166,666

Share Option Schemes
Two other schemes, the Approved Share Option Scheme and the Unapproved Share Option Scheme, are in operation within the Group. In
accordance with the terms of both schemes, employees (excluding Executive Directors) may receive options to buy Company shares at
current market value. Options can be exercised, subject to certain criteria relating to the performance of earnings per share, between three
and ten years after grant.

Approved Scheme
No awards were made under the Approved Scheme during the period.

Unapproved Scheme
The Remuneration Committee made awards on 22 April 2002 to specific key employees within the Group.
No Executive Directors received awards under this scheme.

The performance target to be achieved under the Unapproved Share Option Scheme has been set by the Remuneration Committee in
accordance with the scheme rules, and is based on the growth in the earnings per share of the Group. It requires that the percentage
growth in the Group’s earnings per share over a consecutive three-year period (commencing no earlier than the beginning of the
accounting period immediately preceding the grant of the option) is greater than the percentage increase in the Retail Prices Index for
the same period by 12 per cent.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

BOARD REMUNERATION REPORT CONTINUED

SAYE
The Company granted options under the Dechra Pharmaceuticals PLC SAYE scheme on 9 April 2002. No share options lapsed or were
exercised during the period.

An analysis of the number of outstanding Directors’ share options, is as follows:

SAYE Scheme

S.D. Evans
I.D. Page
E.T.W. Torr –
–
M.D. Annice

Exercise
Dates

2004
2006
2004
2005
2006

2001
Granted
at 158p

6,131
10,680
2,452
–
4,272

2002
Granted
at 129p

–
–
–
4,418
–

2002
Total

6,131
10,680
2,452
4,418
4,272

The market price of the Company’s shares on 30 June 2002 was 123p and the range of prices during the year was 181.50p – 123p.
Directors interests in share options at 3 September 2002 remain unchanged.

Directors’ Shareholdings
The beneficial interests of the Directors in office at 30 June 2002 and their families in the share capital of Dechra Pharmaceuticals PLC at
30 June 2002 are shown below.

Shareholdings

S.D. Evans
I.D. Page
E.T.W. Torr
M.D. Annice
M.M. Diamond
M. Redmond

There were no changes to the Directors’ interests shown above between 30 June 2002 and the date of this report.

Ordinary
Shares
2001

638,000
592,167
342,414
596,334
–
–

Ordinary
Shares
2002

663,000
592,167
342,414
596,334
5,000
10,000

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

BOARD REMUNERATION REPORT CONTINUED

Pension Entitlement
All Executive Directors were members of the Dechra Pharmaceuticals PLC money purchase pension scheme during the year. Contributions
made by Dechra Pharmaceuticals PLC on behalf of the Executive Directors during the year are based on a percentage of pensionable salary
and were as follows:

G.B. Evans (resigned 5 November 2001)
S.D. Evans
I.D. Page
E.T.W. Torr
M.D. Annice

Non-Executive Directors are not members of the pension scheme.

Contributions
during the year
£’000

6
11
14
7
9

Contracts of Service
Each Executive Director has a service contract with the Company which contains details regarding remuneration, holiday and sick pay
entitlements, restrictions and disciplinary matters.

Executive Directors are appointed on contracts terminable by the Company on not more than 12 months notice and by the Director on
six months notice.

Non-Executive Directors are appointed for an initial term of one year, continuing thereafter until terminated by either party giving not
less than 12 months notice.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

HEALTH AND SAFETY POLICY

Dechra Pharmaceuticals PLC attaches great importance to the Health and Safety of its employees and the public. The management are
responsible and committed to the implementation, monitoring and promoting of a policy of Health and Safety at work, to ensure the care
and well being of its employees and on-site visitors.

This is being achieved by adherence to the following policies: –

•

We will meet and where necessary exceed the requirements of all relevant legislation. Where there is no appropriate legislation,
Dechra will implement its own high standards.

Ensure the involvement and consultation of all employees to achieve commitment to the implementation of our policy by means
of risk assessment, continuous improvement and the monitoring of resources.

Work with our suppliers to encourage their involvement in achieving our aims.

Promote the awareness of Health and Safety to all employees through supervision, information and training and therefore ensure
the individuals active involvement in their own, and others well being.

Allocate duties for Health and Safety issues and provide practical working procedures to reduce the potential of risks identified.

To regularly review the Health and Safety policy to ensure full compliance with new legislation.

ENVIRONMENTAL POLICY

Dechra Pharmaceuticals PLC is committed to minimising the impact of its operations on the environment by means of a programme of
continuous improvement and the reduction of pollution.

This will be achieved by the adherence to the following policies: –

•

We shall meet and, where possible exceed the requirements of all relevant legislation. Where there is no appropriate legislation,
Dechra will consider and implement its own high standards.

Where practicable, reduce consumption of materials in all aspects of its operations and re-use and/or dispose of waste when
possible and promote recycling and the use of recycled products.

We shall review and consider energy efficiency on existing and replacement equipment including the vehicle fleet.

We will encourage employee involvement on environmental awareness through training programmes and company practices
for Dechra personnel.

Work with our suppliers and customers to encourage their involvement in achieving our aims.

We shall set and review objectives and targets to improve our environmental performance.

We will monitor and review our progress periodically.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

DIRECTORS’ REPORT

The Directors present their annual report and the audited financial statements for the year ended 30 June 2002.

Principal Activity
The Group manufactures and sells pharmaceuticals and also markets and sells veterinary equipment and related goods and services,
predominantly to the UK veterinary market, but also to overseas markets.

Acquisitions
During the year, the Company made two acquisitions, details of which are described in the Chief Executive’s Review and in note 5 to the
financial statements.

Share Capital
Details of the changes in share capital are shown in note 22 to the financial statements.

Results and Dividends
The results for the year are set out on page 33. The Directors recommend the payment of a final dividend of 2.75p per share which, if
approved by shareholders, will be paid on 27 November 2002 to shareholders registered at 1 November 2002. An interim dividend of 1.37p
per share was paid on 8 April 2002 making a total dividend for the year of 4.12p (2001: 3.75p). The total dividend payment is £2,069,000
(2001: £1,867,000). A retained profit of £2,989,000 (2001: £1,167,000) is transferred to reserves.

Business Review
A review of the Group’s activities during the year and likely future developments are dealt with in the Chairman’s statement,
Chief Executive’s review and Operational Review.

Directors
The Directors who served during the year were as follows:

P.J. Redfern (Chairman) (deceased 23 January 2002)
M. Redmond (Chairman since 5 July 2002)
G.B. Evans (resigned 5 November 2001)
S.D. Evans
I.D. Page
E.T.W. Torr
M.D. Annice
M.M. Diamond (acting Chairman from 24 January 2002 to 4 July 2002)

The interests of the Directors in the share capital of the Company are shown in the remuneration report on pages 24 to 27.

In accordance with the Company’s articles of association, I.D. Page and M.D. Annice retire by rotation and being eligible, offer themselves
for re-election.

Political and Charitable Contributions
The Group made no political or charitable contributions during the year.

Employees
It is the Group’s policy to encourage employee involvement as the Directors consider that this is essential for the successful running of
the business. The Group keeps employees informed of performance, developments and progress by way of regular team briefing sessions
and notices. The Group gives full consideration to applications for employment from disabled people, where they adequately fulfil the
requirements of the job.

Where existing employees become disabled, it is the Group’s policy whenever practicable to provide continuing employment under the
Company’s terms and conditions and to provide training and career development whenever appropriate.

The Group has set up a SAYE Share Option Scheme so that all employees of the Group can participate in its success.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

DIRECTORS’ REPORT CONTINUED

Research and Development
The Group has a structured research and development programme with the aim of identifying and bringing to market new pharmaceutical
products. The expenditure on this activity for the year ended 30 June 2002 was £525,000 (2001: £427,000).

Suppliers
The Company does not adhere to any Code of Practice regarding the payment of suppliers but seeks to agree the terms of payment with
suppliers prior to placing business and it is the Company’s policy to settle liabilities by the due date. At 30 June 2002, the Group had an
average of 77 days (2001: 83 days) purchases outstanding in creditors. The Company had an average of NIL (2001: NIL days) days
purchases outstanding in creditors.

Substantial Shareholders
As at 22 August 2002, the Company is aware of the following material interests (other than Directors) representing 3% or more of the
issued share capital in the Company:

Threadneedle Asset Management
Scottish Widows Investment Partnership
Hermes Pensions Management
Montanaro Investment Management
Morley Fund Management
HG Capital Private Equity
Friends Ivory & Sime (London)
Edinburgh Fund Managers
Insight Investments
Legal & General Investment Management
Universities Superannuation Scheme

No of
shares

5,440,000
3,999,557
2,760,752
2,680,000
1,958,904
1,895,311
1,824,683
1,750,600
1,725,000
1,694,087
1,540,912

% of
Shares Held

10.78
7.93
5.47
5.31
3.88
3.76
3.62
3.47
3.42
3.33
3.05

Auditors
A resolution to re-appoint KPMG Audit Plc as auditors is to be proposed at the forthcoming Annual General Meeting.

By order of the Board

S.P. Whitehouse Secretary

3 September 2002

Dechra House
Jamage Industrial Estate
Talke Pits
Stoke-on-Trent
ST7 1XW

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

Company law requires the Directors to prepare financial statements for each financial period which give a true and fair view of the state
of affairs of the Company and the Group and of the profit or loss for that period. In preparing the financial statements, the Directors are
required to:

•

select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

•

state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the
financial statements;

prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company or Group will
continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial
position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 1985. They have
general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
DECHRA PHARMACEUTICALS PLC

We have audited the financial statements on pages 33 to 53.

Respective responsibilities of Directors and Auditors
The Directors are responsible for preparing the Annual Report. As described on page 31, this includes responsibility for preparing the
financial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibilities, as independent
auditors, are established in the United Kingdom by statute, the Auditing Practices Board, the Listing Rules of the Financial Services
Authority and by our profession’s ethical guidance.

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with
the Companies Act 1985. We also report to you if, in our opinion, the Directors’ Report is not consistent with the financial statements, if the
Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or
if information specified by law or the Listing Rules regarding Directors’ remuneration and transactions with the Group is not disclosed.

We review whether the statement on pages 21 to 23 reflects the Company’s compliance with the seven provisions of the Combined Code
specified for our review by the Listing Rules, and we report if it does not. We are not required to consider whether the Board’s statements
on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or
its risk and control procedures.

We read the other information contained in the Annual Report, including the corporate governance statement, and consider whether it is
consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the financial statements.

Basis of audit opinion
We conducted our audit in accordance with the Auditing Standards issued by the Auditing Practices Board. An audit includes examination,
on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting
policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to
provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement,
whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation
of information in the financial statements.

Opinion
In our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 30 June 2002
and of the profit of the Group for the year then ended and have been properly in accordance with the Companies Act 1985.

KPMG Audit Plc
Chartered Accountants
Registered Auditor
Birmingham

3 September 2002

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 JUNE 2002

Note

Turnover – continuing operations
– acquisitions

Cost of sales

Gross profit
Distribution costs

Administrative expenses – before goodwill

amortisation
– goodwill
amortisation

Total administrative expenses

Operating profit – continuing operations

– acquisitions

Total operating profit

Net interest payable and similar charges

2
2

2
3

3
3

Profit on ordinary activities before taxation
Tax on profit on ordinary activities

7
10

Profit on ordinary activities after taxation

Dividends

Retained profit for the financial year

Earnings per ordinary share
Basic
Diluted

12
12

2002

Before
Exceptional
Item
£’000

Exceptional
Item
(note 4)
£’000

Note

Total
£’000

Re-stated*
Before
Exceptional
Item
£’000

2001

Exceptional
Item
(note 4)
£’000

169,346
856

170,202
(149,664)

20,538
(6,166)

–
–

169,346
856

156,400
–

170,202
(149,664)

156,400
(137,208)

20,538
(6,166)

19,192
(5,882)

–
–

Re-stated*

Total
£’000

156,400
–

156,400
(137,208)

19,192
(5,882)

(5,599)

(194)

(5,793)

(5,076)

(1,080)

(6,156)

(101)

–

(101)

–

(5,700)

(194)

(5,894)

(5,076)

(1,080)

(6,156)

8,689
(17)

8,672

(1,170)

7,502
(2,308)

5,194

(194)
–

(194)

8,495
(17)

8,478

8,234
–

8,234

(1,080)
–

(1,080)

7,154
–

7,154

–

(1,170)

(2,382)

–

(2,382)

(194)
58

(136)

7,308
(2,250)

5,058

(2,069)

2,989

5,852
(1,738)

(1,080)
–

4,772
(1,738)

4,114

(1,080)

3,034

(1,867)

1,167

10.39p
10.36p

(0.27p)
(0.27p)

10.12p
10.09p

9.29p
9.26p

(2.44p)
(2.43p)

6.85p
6.83p

A statement of movements on reserves is given in note 23 to the financial statements.

All amounts relate to continuing operations.

*re-stated on adoption of FRS 19, see note 21.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

BALANCE SHEETS
AS AT 30 JUNE 2002

Fixed assets
Intangible assets
Tangible assets
Investments

Current assets
Stocks
Debtors
Cash at bank and in hand

Note

13
14
15

16
17

Company

2002

£’000

–
–
4,619

4,619

2001

£’000

–
–
894

894

Group

2002

£’000

2001
re-stated*
£’000

–
4,317
–

4,317

5,284
6,324
–

11,608

19,302
25,822
–

16,460
24,237
3,993

–
46,440
–

–
45,188
–

Creditors: amounts falling due within one year

(42,445)

(38,950)

(13,997)

(8,719)

45,124

44,690

46,440

45,188

Net current assets

2,679

5,740

32,443

36,469

Total assets less current liabilities

14,287

10,057

37,062

37,363

Creditors: amounts falling due after more than one year

(8,538)

(9,047)

(8,200)

(8,784)

Capital and reserves
Called up share capital
Shares to be issued
Share premium account
Merger reserve
Profit and loss account

5,749

1,010

28,862

28,579

22
23
23
23
23

504
750
26,783
994
(23,282)

498
–
26,783
–
(26,271)

504
5
26,783
–
1,570

498
–
26,783
–
1,298

Total equity shareholders’ funds

5,749

1.010

28,862

28,579

The financial statements were approved by the Board of Directors on 3 September 2002 and are signed on its behalf by:

I. Page Director

S.D. Evans Director

*re-stated on adoption of FRS 19, see note 21.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
FOR THE YEAR ENDED 30 JUNE 2002

At 1 July 2001 (re-stated- see below)

Profit after tax for the financial year
Dividends
New shares issued
Shares to be issued
Costs of share issue

At 30 June 2002

Group
2001
re-stated*
£’000

2002
£’000

1,010

(27,819)

28,579

5,058
(2,069)
1,000
750
–

3,034
(1,867)
28,002
–
(340)

2,341
(2,069)
6
5
–

Company

2001
£’000

875

1,909
(1,867)
28,002
–
(340)

5,749

1,010

28,862

28,579

The Group’s reserves at 1 July 2001 were originally £901,000 before adding a prior year adjustment of £109,000.

CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS
AND LOSSES
FOR THE YEAR ENDED 30 JUNE 2002

Profit for the financial year being total gains and losses relating to the year

Prior year adjustment (see note 21)

Total gains and losses since the last annual report

*re-stated on adoption of FRS 19, see note 21.

2001
re-stated*
£’000

3,034

2002

£’000

5,058

109

5,167

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JUNE 2002

Net cash inflow from operating activities

Returns on investment and servicing of finance
Interest received
Interest paid
Interest element of finance lease rentals

Net cash outflow for returns on investment and servicing of finance

Taxation
Corporation tax paid

Capital expenditure
Purchase of tangible fixed assets
Sale of tangible fixed assets

Net cash outflow for capital expenditure and financial investment

Acquisitions and disposals
Acquisitions of subsidiary undertakings
Borrowings of acquired businesses
Purchase of business

Net cash outflow for acquisitions and disposals

Equity dividends paid

Cash outflow before financing

Financing
Shares issued less expenses
New bank loans
Term loans repaid
Capital element of finance lease payments

Net cash (outflow)/inflow from financing

Decrease in cash in the period

Cash at 30 June 2001

(Bank overdraft)/cash at 30 June 2002

Note

5
5

2002
£’000

6,397

16
(1,103)
(39)

2001
£’000

3,453

4
(7,673)
(43)

(1,126)

(7,712)

(2,155)

(1,195)

(2,845)
141

(1,882)
111

(2,704)

(1,771)

(3,214)
(429)
(180)

(3,823)

(1,927)

–
–
(100)

(100)

(622)

(5,338)

(7,947)

–
3,000
(3,364)
(401)

27,662
15,000
(39,462)
(486)

(765)

2,714

(6,103)

(5,233)

3,993

(2,110)

9,226

3,993

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

CONSOLIDATED CASH FLOW STATEMENT CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

Reconciliation of Net Cash Flow to Movement in Net Debt

Decrease in cash during the period
Cash inflow from new loans
Debt repayments
Repayment of finance leases

Change in net debt resulting from cash flows
New finance leases
Loan stock issued

Movement in net debt in the period
Net debt at 1 July 2001

Net debt at 30 June 2002

Note

2002
£’000

(6,103)
(3,000)
3,364
401

(5,338)
(418)
(500)

(6,256)
(8,680)

2001
£’000

(5,233)
(15,000)
39,462
486

19,715
(860)
–

18,855
(27,535)

(14,936)

(8,680)

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2002

1. Accounting Policies
The following accounting policies have been applied in dealing with items which are considered material in relation to the Group and parent
Company’s financial statements. During the year, Financial Reporting Standard 19 ‘Deferred Tax’ became effective for this year’s financial
statements. For the effects of FRS 19, see note 21.

Basis of Preparation
The financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards.

Consolidation Principles
The consolidated financial statements incorporate those of Dechra Pharmaceuticals PLC and its subsidiary undertakings made up to
30 June.

The acquisition method of accounting has been adopted and the results of subsidiary undertakings acquired are included from the date
of acquisition.

In accordance with Section 230(4) of the Companies Act 1985, no separate profit and loss account is presented for the Company.
The profit after taxation dealt with in the accounts of the Company was £2,341,000 (2001: £1,909,000).

Turnover
Turnover represents cash and credit sales excluding value added tax.

Tangible Fixed Assets and Depreciation
Depreciation is calculated so as to write off the cost less estimated residual value of tangible fixed assets over their estimated useful lives.
The principal rates used are as follows:

Short leasehold property
Fixtures, fittings and equipment
Motor vehicles

Period of the lease on a straight line basis
10-33 1/3% on a straight line basis
25% on a straight line basis

Investments
Investments held as fixed assets are stated at cost less any impairment losses. Where the consideration for the acquisition of a subsidiary
undertaking includes shares in the Company to which the provisions of section 131 of the Companies Act 1985 apply, cost represents the
nominal value of the shares issued together with the fair value of any additional consideration given and costs. In the Group balance sheet
the excess of the fair value of the shares issued as consideration over their nominal value is credited to a merger reserve.

Goodwill
Goodwill relating to the acquisition of companies and businesses up to 30 June 1998 was written off immediately against reserves.
On a subsequent disposal or termination of a previously acquired business, the profit or loss on disposal or termination is calculated
after charging the amount of any related goodwill not written off through the profit and loss account, including any previously taken
direct to reserves. Purchased goodwill arising subsequent to 30 June 1998 is capitalised and amortised to nil over its estimated useful
economic life.

Leased Assets
Assets acquired under finance leases are capitalised and the outstanding future lease obligations are shown in creditors. Rental payments
are apportioned between the finance element, which is charged to the profit and loss account and the capital element which reduces the
outstanding lease obligations.

Operating lease rentals are charged to the profit and loss account on a straight line basis over the lease term.

Stocks
Stocks are valued at the lower of cost and net realisable value. The cost of work in progress and finished goods includes an appropriate
proportion of attributable overheads.

Research and Development
Research and development expenditure is written off as it is incurred.

Derivative Financial Instruments
Short term debtors and creditors that meet the definitions of a financial asset or liability respectively have been excluded from the
numerical disclosures as permitted by FRS 13; Derivatives and Other Financial Instruments Disclosures as detailed in note 20.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

1. Accounting Policies continued
Arrangement Fees
Arrangement fees incurred on the raising of loans are written off over the expected life of the relevant loan.

Taxation
The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between
the treatment of certain items for taxation and accounting purposes. Deferred tax is measured on a non-discounted basis at the tax rates
that are expected to apply in the periods in which the timing differences reverse and is provided in respect of all timing differences which
have arisen but not reversed by the balance sheet date, except as otherwise required by FRS19, “Deferred Tax”. FRS 19 has been adopted
for the first time in these financial statements and comparative figures have been re-stated accordingly (See note 21).

Pensions
The Group operates a defined contribution pension scheme. The amount charged to the profit and loss account represents contributions
payable to the scheme in the accounting period.

The assets of the Scheme are held separately from those of the Group in an independently administered fund.

2. Analysis of Turnover by Geographical Region

Destination

UK
Rest of the world

The Directors consider that all turnover is derived from a single class of business.

3. Cost of Sales and Operating Expenses Analysis

Turnover
Cost of sales

Gross profit
Distribution costs

Administrative expenses - before exceptional
items and goodwill amortisation
– exceptional items
– goodwill amortisation

Total administrative expenses

Operating profit

The origin of all turnover was in the UK.

2002
£’000

167,907
2,295

2001
£’000

154,705
1,695

170,202

156,400

Continuing Operations
2002
Acquisitions
£’000

£’000

Total
£’000

2001
Total
£’000

169,346
(149,102)

20,244
(6,107)

856
(562)

170,202
(149,664)

156,400
(137,208)

294
(59)

20,538
(6,166)

19,192
(5,882)

(5,448)
(194)
–

(151)
–
(101)

(5,599)
(194)
(101)

(5,076)
(1,080)
–

(5,642)

(252)

(5,894)

(6,156)

8,495

(17)

8,478

7,154

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

4. Exceptional Items

Flotation costs
Compensation for loss of office

2002
£’000

–
194

194

2001
£’000

1,080
–

1,080

The compensation for loss of office relates to the termination of the contract of Gary Evans, the former Chief Executive and associated
legal fees.

5. Acquisitions
North Western Laboratories Limited and Cambridge Specialist Laboratory Services Limited were acquired on 8 April 2002 and, excluding
goodwill amortisation, contributed £73,000 to the Group’s operating profit, £72,000 to profit before tax, (£177,000) to operating cash
flows, (£1,000) to returns on investment and servicing of finance, (£16,000) to financing and utilised £3,000 for investment activities.

Under the terms of the acquistion agreement, consideration was paid on completion made up of £1,500,000 in cash, the issue of
£500,000 of loan notes and £750,000 of ordinary shares of 1p at a fair value consideration of 160p per share.

Anglian Pharma Plc and Anglian Pharma Manufacturing Limited were acquired on 17 May 2002 and, before goodwill amortisation,
contributed £11,000 to the Group’s operating profit, £5,000 to profit before taxation, (£118,000) to the Group’s operating cash flows,
(£6,000) to returns on investment and servicing of finance, (£6,000) to financing and utilised £37,000 for investing activities.

In accordance with the acquistion agreement, initial consideration was paid on completion made up of £1,500,000 in cash and the issue
of £250,000 of ordinary shares of 1p at a fair value consideration of 137.2p per share. Further consideration of £750,000 of ordinary
shares of 1p is payable on 17 May 2003. If the consolidated net assets of Anglian Pharma Plc at 17 May 2002 are determined to be less
than £150,000 then the deferred consideration will be reduced by an equivalent amount. The best estimate at 30 June 2002 of the
deferred consideration that will be payable is £750,000 and this has been credited to shares to be issued in anticipation of the settlement
of the purchase consideration in ordinary shares. Appropriate adjustments to goodwill and shares to be issued will be made as and when
the final consideration is agreed and settled.

The fair values arising on these acquisitions were:

Intangible fixed assets
Tangible fixed assets
Stock
Debtors
Bank loans and overdrafts
Finance leases and hire purchase
Other creditors
Provisions for liabilities and charges

Cash consideration (including acquisition expenses of £214,000)

Non-cash consideration:
Shares issued
Loan notes issued
Shares to be issued (estimated)

Total estimated consideration

Goodwill (see note 13)

2002
Fair
Value
Provisions
£’000

(14)
(25)
(68)
(44)
–
–
–
(48)

Book
Value
£’000

14
664
687
1,106
(429)
(285)
(1,453)
(26)

278

(199)

Fair
Value
£’000

–
639
619
1,062
(429)
(285)
(1,453)
(74)

3,214

1,000
500
750

5,464

5,385

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

5. Acquisitions continued

The fair value adjustments above principally relate to the revaluation of assets to their estimated market value.

Total consideration and fair value adjustments have been determined provisionally subject to the availability of more detailed market value
information relating to specific assets and liabilities.

There were no acquisitions in 2001.

6. Net Interest Payable and Similar Charges

Bank loans and overdrafts
Amortisation of arrangement fees
Other loans
Other interest
Finance charges payable on finance leases and hire purchase contracts

Total interest payable
Bank deposit and other interest receivable

Net interest payable and similar charges

7. Profit on Ordinary Activities Before Taxation is stated after charging/(crediting):

Research and development
Depreciation of owned assets
Depreciation of assets held under finance leases
Amortisation of goodwill
Profit on disposal of tangible fixed assets
Operating lease rentals:
land and buildings
plant and machinery

Audit fees (including £9,000 for the Parent Company (2001: £9,000))
Other payments to the auditors for non-audit services
(2001: including £203,000 relating to the flotation)

2002
£’000

1,070
74
3
–
39

1,186
(16)

1,170

2002
£’000

525
1,033
256
101
(43)

603
10
66

2001
£’000

1,704
37
595
7
43

2,386
(4)

2,382

2001
£’000

427
1,010
175
–
(78)

455
61
40

293

In addition to the non-audit fees shown above, a further £66,000 (2001:£nil) has been capitalised in respect of payments made for
non-audit services provided by the auditors.

8. Remuneration of Directors
Details of the remuneration, share holdings, share options and pension contributions of the Directors are included in the Board
Remuneration Report on pages 24 to 27.

9. Employees
The monthly average number of staff employed by the Group, which includes Directors, were:

Manufacturing
Distribution
Administration

2002
Number

2001
Number

70
289
141

500

59
274
121

454

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

9. Employees continued
The costs incurred in respect of these employees were:

Wages and salaries
Social security costs
Other pension costs

10. Tax on Profit on Ordinary Activities
a) Tax charge for the year

Current taxation

UK Corporation tax charge
Adjustments in respect of prior periods

Total current tax charge for the year

Deferred taxation

Origination and reversal of timing differences
Adjustments in respect of prior periods

Total deferred tax charge for the year

Tax on profit on ordinary activities

Tax credit included above attributable to
exceptional operating items

2002
£’000

6,475
530
191

7,196

2001
£’000

5,874
476
157

6,507

2002

£’000

2001
re-stated*
£’000

2,281
(35)

2,246

(24)
28

1,537
(67)

1,470

263
5

268

2,250

1,738

–

b) Factors affecting the tax charge for the current period
The current tax charge is higher than the standard rate of corporation tax in the UK of 30% (2001: 30%). The differences are explained
below:

Profit on ordinary activities before taxation
Current tax charge at 30% (2001: 30%)

*re-stated on adoption of FRS 19, see note 21.

2002
£’000

7,308
2,192

2001
£’000

4,772
1,432

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

10. Tax on Profit on Ordinary Activities continued
Effects of

Permanent timing differences:
– goodwill amortisation
– depreciation on assets not eligible for tax allowances
– disallowable flotation related expenses
– other

Temporary timing differences:

– excess of capital allowances over depreciation
– other short term timing differences
– adjustments to tax charge in respect of previous periods

2002
£’000

2001
£’000

30
18
–
17

(20)
44
(35)

(11)

–
15
335
18

368

(22)
(241)
(67)

(330)

Total current tax charge (see above)

2,246

1,470

11. Dividends

Interim paid 1.37p per share (2001: 1.25p)
Final proposed 2.75p per share (2001: 2.5p)

2002
£’000

682
1,387

2,069

2001
£’000

622
1,245

1,867

12. Earnings per Share
Earnings per ordinary share have been calculated by dividing the profit on ordinary activities after taxation for each financial year by the
weighted average number of ordinary shares in issue during the year.

Basic earnings per share after exceptional items and goodwill amortisation
Effect of exceptional items

Basic earnings per share before exceptional item

Effect of goodwill amortisation

Adjusted earnings per share

Diluted earnings per share

Effect of exceptional items

Diluted earnings per share before exceptional items

Effect of goodwill amortisation

Adjusted diluted earnings per share

*re-stated on adoption of FRS 19, see note 21.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

2002

pence

10.12
0.27

10.39

0.20

10.59

10.09

0.27

10.36

0.20

10.56

2001
re-stated*
pence

6.85
2.44

9.29

–

9.29

6.83

2.43

9.26

–

9.26

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

12. Earnings per Share continued

The calculation of basic and diluted earnings per share is based upon:
Earnings for basic and diluted earnings per share calculations
Exceptional items

Earnings for basic and diluted earnings per share calculations before exceptional items

Goodwill amortisation

£’000

5,058
136

5,194

101

3,034
1,080

4,114

–

Earnings for adjusted and adjusted diluted earnings per share

5,295

4,114

Weighted average number of ordinary shares for basic and adjusted earnings per share
Impact of share options

2002
No.

2001
No.

49,989,015
151,049

44,274,767
132,093

Weighted average number of ordinary shares for diluted and adjusted diluted earnings per share

50,140,064 44,406,860

13. Intangible Fixed Assets – Goodwill

Cost
At 1 July 2001
Additions

At 30 June 2002
Amortisation
At 1 July 2001
Charge for the year

At 30 June 2002

Net book value
At 30 June 2002

At 1 July 2001

Goodwill is being amortised over 10 years, being the Directors’ estimate of the useful life.

Group
£’000

–
5,385

5,385

–
101

101

5,284

–

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

14. Tangible Fixed Assets

Group

Cost
At 1 July 2001
Additions – existing operations

– acquisitions

Disposals

At 30 June 2002

Depreciation
At 1 July 2001
Disposals
Charge for the year

At 30 June 2002

Net book value at 30 June 2002

Net book value at 30 June 2001

Leased assets
Net book value of assets held under finance leases:
At 30 June 2002

At 1 July 2001

Contracted Capital Commitments

Short
Leasehold
Land and
Buildings
£’000

Freehold
Land
£’000

Motor
Vehicles
£’000

Plant
and
Fixtures
£’000

Total
£’000

7,100
2,755
639
(507)

2,469
266
39
(452)

3,795
1,153
588
(55)

2,322

5,481

9,987

13
–
–
–

–
–
–

–

823
1,336
12
–

2,171

133
–
90

223

1,948

690

774
(409)
639

1,004

1,318

1,695

–

662

826

1,876
–
560

2,436

3,045

1,919

178

–

2002
£’000

649

2,783
(409)
1,289

3,663

6,324

4,317

840

826

2001
£’000

1,075

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

15. Fixed Asset Investments

Company

Cost and net book value
At 1 July 2001
Additions

At 30 June 2002

Shares in Subsidiary
Undertakings
£’000

894
3,725

4,619

A list of principal subsidiary undertakings is given in note 29.

Where subsidiaries are acquired for shares, or a combination of shares and cash, statutory merger relief has been applied and accordingly
cost includes the nominal value of shares issued.

16. Stocks

Group

Raw materials and consumables
Work in progress
Finished goods and goods for resale

17. Debtors

Trade debtors
Amounts owed by subsidiary undertakings
Group relief receivable
Deferred taxation
Other debtors
Prepayments and accrued income

*re-stated on adoption of FRS 19, see note 21.

2002
£’000

1,619
72
17,611

2001
£’000

723
37
15,700

19,302

16,460

Group

re-stated*
2001
£’000

23,187
–
–
109
732
209

2002
£’000

24,550
–
–
31
869
372

Company

2002
£’000

–
44,955
1,433
–
41
11

2001
£’000

–
43,830
1,274
–
23
61

25,822

24,237

46,440

45,188

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

18. Creditors

Bank loans and overdrafts
Hire purchase and finance leases
Trade creditors
Amounts due to subsidiary undertakings
Other creditors
Corporation tax
Other taxation and social security
Accruals and deferred income
Deferred consideration
Proposed dividend

Bank loans
Unsecured loan stock
Hire purchase and finance leases
Other creditors

Falling Due within One Year

Group
2001
£’000

3,000
410
31,131
–
67
1,263
1,192
462
180
1,245

2002
£’000

10,334
–
–
2,018
–
–
–
258
–
1,387

2002
£’000

5,838
423
31,709
–
253
1,387
678
770
–
1,387

42,445

38,950

13,997

Company
2001
£’000

4,436
–
–
2,971
–
–
–
67
–
1,245

8,719

Falling Due after more than One Year

2002
£’000

7,700
500
267
71

8,538

Group
2001
£’000

8,784
–
263
–

9,047

2002
£’000

7,700
500
–
–

8,200

Company
2001
£’000

8,784
–
–
–

8,784

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

19. Borrowings

Bank loans due after more than one year
Aggregate bank loan instalments repayable

between one and two years
between two and five years

Arrangement fees netted off

Obligations under finance leases due after more than one year
Due between one and two years

Unsecured loan stock due after more than one year
Due between one and two years

Total

2002
£’000

3,728
4,180

7,908

(208)

7,700

267

500

8,467

Group
2001
£’000

3,000
6,000

9,000

(216)

8,784

263

–

9,047

2002
£’000

Company
2001
£’000

3,728
4,180

7,908

(208)

7,700

–

500

8,200

3,000
6,000

9,000

(216)

8,784

–

8,784

The term loans from Bank of Scotland of £9 million, £1.288 million and £1.35 million are secured by a fixed and floating charge on the
assets of the Group. Interest is charged at 1.25% over LIBOR. The loans are repayable in semi-annual instalments of £1.5 million, £214,000
and £150,000 respectively.

The unsecured loan stock is payable on the earlier of 8 April 2004 or North Western Laboratories Limited and Cambridge Specialist
Laboratory Services Limited achieving annual pre-tax profits of at least £400,000. Interest is charged at 1% below base rate.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

20. Financial Instruments and Derivatives
An explanation of the Group’s treasury policies and controls is set out in the Finance Director’s Review on pages 18 to 19. As permitted by
Financial Reporting Standard 13, short term debtors and creditors meeting the definition of a short term asset or liability are excluded from
these disclosures.
a) Fair value of financial assets and liabilities

Most financial assets and liabilities are at floating rates of interest and therefore their fair value and book value are equal. Finance
leases are at various fixed rates of interest, however the difference between book value and fair value is not material.

b) Interest rate risk profile as at 30 June 2002
i) Financial liabilities

Financial liabilities principally comprise the Group’s borrowings of bank loans and overdrafts from the Bank of Scotland. These are
secured by fixed and floating charges on the assets of the Group. All interest is payable at floating rates of 1 – 1.25% above LIBOR.
The Group also has finance lease commitments of £690,000 (2001: £673,000) with a weighted average fixed interest rate of 8%
(2001: 9%) over a weighted average term of 15 months (2001: 20 months).

ii) Financial assets

The Group had cash in hand of £NIL (2001: £3,993,000). Interest receivable is at floating rate.

c) Foreign currency exposure profile

There were no material foreign currency monetary assets or liabilities that may give rise to gains or losses in the profit and
loss account.

d) Maturity of borrowings

Details are shown in notes 18 and 19.

e) Maturity of facilities

At 30 June 2002 the Group had an undrawn committed revolving credit facility of £5 million maturing in 2005.

21. Provisions for Liabilities and Charges

At 1 July 2001 as previously reported
Prior year adjustment

At 1 July 2001 as re-stated (included in debtors)
Transfer from profit and loss account
Acquisitions
Deferred taxation transferred to debtors

At 30 June 2002

The amounts provided for deferred taxation under the liability method at 30% (2001: 30%), are as follows:

Group

Capital allowances
Short term timing differences

Amounts included in debtors

*re-stated on adoption of FRS 19, see note 21.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

Deferred Tax
Group
£’000

–
(109)

(109)
4
74
31

–

2002

£’000

2001
re-stated*
£’000

89
(120)

(31)

3
(112)

(109)

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

21. Provisions for Liabilities and Charges continued

Prior year adjustment
As a result of the Group’s adoption of FRS 19 “Deferred Tax’, full provision is now made for deferred taxation on all timing differences which
have arisen but have not reversed at the balance sheet date, except as follows:

i) deferred tax is not recognised on the difference between fair values and book values on non-monetary assets arising on acquisition
except where there is a binding agreement to sell the asset and the gain or loss expected to arise has been recognised
ii) deferred tax assets are recognised only to the extent that it is more likely than not that they will be recovered.

The effect of the prior year adjustment was to reduce consolidated profit after tax by £30,000 (2001: £2,000) and increase net assets by
£31,000 (2001: £109,000). There was no effect on the Company.

22. Called up share Capital
Issued share capital

At 1 July 2001
New shares issued

At 30 June 2002

Authorised share capital
At 30 June 2002 and June 2001

Ordinary Shares
of 1p each

No.

49,791,278
650,966

50,442,244

75,000,000

£’000

498
6

504

750

Since 1 July 2001 there have been the following changes in the issued and fully paid share capital of the Company:

On 8 April 2002, 468,750 new ordinary shares of 1p were issued at 160p to the shareholders of North Western Laboratories Limited and
Cambridge Specialist Laboratory Services Limited in part consideration for the acquisition of these companies.

On 17 May 2002, 182,216 new ordinary shares of 1p were issued at 137.2p to the shareholders of Anglian Pharma Plc and Anglian Pharma
Manufacturing Limited in part consideration for the acquisition of these companies. Further shares will be issued to the vendors as set out
in note 5.

Share Options
Outstanding share options over ordinary shares of 1p at 30 June 2002 under the various Group Share Option Schemes are as follows:

Exercise
Period

Exercise
Price per
Share
Pence

Unapproved Share Option scheme
14 September 2000
22 April 2002

2003 – 2010
2005 – 2012

120
153.5

SAYE scheme
26 April 2001
9 April 2002

Total share options

2004 – 2006
2005 – 2007

158
129

At
30 June
2001
Number

544,000
–

544,000

201,247
–

201,247

745,247

Exercised

Granted

Lapsed

Number

At
30 June
2002
number

–
–

–

–
–

–

–
399,000

(20,000)
–

524,000
399,000

399,000

(20,000)

923,000

–
150,614

(23,123)
–

178,124
150,614

150,614

(23,123)

328,738

549,614

(43,123)

1,251,738

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

23. Reserves

Group

At 1 July 2001 as previously reported
Prior year adjustment (see note 21)

At 1 July 2001 (as re-stated)
New shares issued (see note 5)
Shares to be issued (see note 5)
Retained profit for the year

At 30 June 2002

Company

At 1 July 2001
Shares to be issued
Retained profit for the year

At 30 June 2002

24. Goodwill

Shares
to be
issued

Share
Premium
Account

Merger
Reserve

£’000

–
–

–
–
750
–

750

–
5
–

26,783
–

26,783
–
–
–

26,783

26,783
–
–

26,783

–
–

–
994
–
–

994

–
–
–

–

Profit
and Loss
Account
re-stated*
£’000

(26,380)
109

(26,271)
–
–
2,989

(23,282)

1,298
–
272

1,570

The cumulative amount of goodwill written off to reserves at 30 June 2002 was £30,184,000 (2001: £30,184,000).

25. Reconciliation of Operating Profit to Operating Cash Flow

Operating profit
Depreciation
Goodwill amortisation
Profit on disposal of tangible fixed assets
Increase in stocks
Increase in debtors
Decrease in creditors

Net cash inflow from operating activities

*re-stated on adoption of FRS 19, see note 21.

2002
£’000

8,478
1,289
101
(43)
(2,223)
(601)
(604)

2001
£’000

7,154
1,185
–
(78)
(253)
(1,972)
(2,583)

6,397

3,453

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

26. Analysis of Net Debt

Cash at bank and in hand
Debt due after one year
Debt due within one year
Finance leases

At 1
July
2001
£’000

3,993
(9,000)
(3,000)
(673)

Cash
Inflow/
(Outflow)
£’000

Other
Non-Cash
Changes
£’000

(3,993)
(1,908)
162
401

–
2,500
(3,000)
(418)

At 30
June
2002
£’000

–
(8,408)
(5,838)
(690)

(8,680)

(5,338)

(918)

(14,936)

Major non-cash transactions:
During the year the Group entered into finance lease arrangements in respect of assets with a total capital value at the inception of the
leases of £133,000 (2001: £860,000) and finance leases with a total capital value of £285,000 (2001: £nil) arising on the acquisitions
of subsidiaries (see note 5).

On 8 April 2002, the Group issued £500,000 of unsecured loan stock to the shareholders of North Western Laboratories Limited and
Cambridge Specialist Laboratory Services Limited in part consideration for the acquisition of these companies (see note 5).

27. Other Financial Commitments

At 30 June 2002 the Group has the following commitments
payable within one year under operating leases expiring:

Between one and two years
Between two and five years
In five years or more

2002
Land and
Buildings
£’000

2001
Land and
Buildings
£’000

9
51
756

816

–
44
489

533

28. Pensions
The Group operates a defined contribution pension scheme for certain employees. The Group contributed between 8% and 12% of
pensionable salaries which amounted to £191,000 (2001: £157,000). See note 9.

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2002

29. Subsidiary Undertakings
The principal subsidiary undertakings of the Company, all of which are wholly owned, are:

Company

Country
of Operation

Country of
Incorporation

Principal
Activity

National Veterinary Services Limited*

Arnolds Veterinary Products Limited*

UK and Export

Dales Pharmaceuticals Limited*

Veneto Limited

North Western Laboratories Limited

†
Cambridge Specialist Laboratory Services Limited

Anglian Pharma Manufacturing Ltd

††

Anglian Pharma Plc

*100% of ordinary share capital held by Veneto Limited.

†
100% of ordinary share capital held by North Western Laboratories Limited.

††

100% of ordinary share capital held by Anglian Pharma Plc.

England

Wholesale of
veterinary products

Marketer of
veterinary
pharmaceuticals,
instruments and equipment

Manufacture of
pharmaceuticals

Holding Company

Veterinary
Laboratory

Manufacture
of pharmaceuticals

England

Holding Company

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

FINANCIAL HISTORY

Profit and loss account
Turnover
Operating profit before exceptional items and goodwill
Profit on ordinary activities before taxation
Profit after taxation
Dividends
Retained profit
Earnings per share – adjusted (pence)
Dividend per share (pence)
Average number of employees

Balance sheet
Fixed assets
Working capital
Net debt
Shareholders’ funds

Cash flow
Cash flow from operating activities
Net interest paid
Tax paid
Capital expenditure
Acquisitions
Equity dividends paid
Financing
Changes in cash in period

2002
£’000

2001
£’000

2000
£’000

1999
£’000

1998
£’000

170,202
8,773
7,308
5,058
(2,069)
2,989
10.59
4.12
500

11,608
9,077
(14,936)
5,749

6,397
(1,126)
(2,155)
(2,704)
(3,823)
(1,927)
(765)
(6,103)

156,400
8,234
4,772
3,034
(1,867)
1,167
9.29
3.75
454

4,317
5,373
(8,680)
1,010

3,453
(7,712)
(1,195)
(1,771)
(100)
(622)
2,714
(5,233)

145,487
7,505
2,088
1,546
–
1,546
6.05
–
408

130,762
6,033
417
205
–
205
1.61
–
367

2,595
1,580
(31,994)
(27,819)

2,514
5,823
(37,669)
(29,332)

12,036
(3,662)
(252)
(859)
(260)
–
(2,473)
4,530

5,424
(3,348)
61
(183)
(25)
–
(1,388)
541

122,874
5,502
77
9
–
9
0.03
–
343

2,529
5,022
(37,088)
(29,537)

6,408
(4,072)
(1,300)
(130)
(36,672)
–
39,921
4,155

The historical figures have been adjusted to reflect the adoption of FRS19 “Deferred Tax” (see note 21)

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002

NOTES

DECHRA PHARMACEUTICALS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2002