Dechra Pharmaceuticals
Annual Report 2008

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

t: +44 (0)1782 771100
f: +44 (0)1782 773366
e: corporate.enquiries@dechra.com

Registered in England No. 3369634

www.dechra.com

Services

Pharmaceuticals

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An International Veterinary Pharmaceutical Business

Annual Report and Accounts for the year ended 30 June 2008

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Welcome to Dechra
Group Strategy

To sustain growth from our core businesses.
To continue to develop our veterinary pharmaceutical portfolio.
To increase our pharmaceutical penetration into international markets.

Services

Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2008

Advisers

Merchant Bank & Financial Advisers

NM Rothschild & Sons Limited

New Court

St Swithins Lane

London

EC4P 4DU

Stockbroker & Financial Advisers

Dresdner Kleinwort

30 Gresham Street

London

EC2P 2XY

Principal Bankers

Bank of Scotland

55 Temple Row

Birmingham

B2 5LS

Auditors

KPMG Audit Plc

2 Cornwall Street

Birmingham

B3 2DL

Lawyers

DLA Piper UK LLP

Victoria Square House

Victoria Square

Birmingham

B2 4DL

Registrars

Computershare Investor Services PLC

PO Box 82

The Pavilions

Bridgwater Road

Bristol

BS13 8AE

Financial PR

Citigate Dewe Rogerson Limited

9 The Apex

6 Embassy Drive

Edgbaston

Birmingham

B15 1TP

Pharmaceuticals

Trademarks

Trademarks appear throughout this document in italics. Dechra and the Dechra “D” logo are registered trademarks of Dechra Pharmaceuticals PLC.

Contents

01 Financial Highlights
02 Operational Review
08 Chairman’s Statement
10 Directors’ Business Review
28 Board of Directors
29 Senior Management
30 Directors’ Report
33 Corporate Governance
37 Audit Committee Report
38 Directors’ Remuneration Report

45 Social, Ethical and

Environmental Responsibilities

47 Statement of Directors’

Responsibilities in respect of
the Annual Report and the
Financial Statements

48 Independent Auditors’ Report
49 Consolidated Financial Statements
91 Company Financial Statements

100 Glossary of Terms
101 Advisers

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Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2008

Financial Highlights

+20%
Revenue
£ million

4
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+33%
Adjusted Profit
Before
Taxation*
£ million

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Profit Before
Taxation
£ million

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04 05 06

07 08

04 05 06

07 08

04 05 06

07 08

+23%
Adjusted
Earnings
per Share*
pence

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Earnings
per Share
pence

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+10%
Dividend
per Share
pence

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* Before VetXX® rationalisation costs and amortisation of acquired intangibles.

Key Developments

Robust organic growth in operating profit.

VetXX acquisition fully integrated and
performing in line with expectations.

Product development progressing to
schedule.

Vetoryl® US FDA compliance notification
received with US launch scheduled for
January 2009.

Key pharmaceuticals continue to increase
market penetration.

NVS® grew ahead of strong market
growth.

Dales continues to show good growth.

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Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2008

Operational Review
Our Business
Pharmaceuticals Division

DVP EU grew strongly throughout the financial year. Both the
existing UK and export businesses and the six months’ revenue
from VetXX contributed to this performance.

Pharmaceuticals
Revenue

up104%

to £54.3m (2007: £26.7m)

Share of Total 
Group Revenue

Share of Adjusted
Operating Profit

17%

50%

Dechra Veterinary Products (“DVP”)
Marketing and development of licensed branded pharmaceuticals
to the veterinary profession worldwide.

Dales Pharmaceuticals (“Dales”)
Licensed manufacturer of veterinary and human pharmaceuticals for DVP and third
party customers.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

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Pharmaceuticals

Performance

(cid:1) KEY PRODUCTS CONTINUE 

TO GROW STRONGLY

(cid:1) SIGNIFICANT INCREASE IN US

REVENUE

EXCELLENT PERFORMANCE 
FROM DALES – OPERATING PROFIT
UP 36%

up76%

Adjusted operating
profit
£m

10.8

6.1

4.9

4.3

3.1

2004

2005

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2007

2008

Milestones
(cid:1) Successful integration of VetXX
(cid:1) Strong EU growth of Vetoryl and Felimazole®
(cid:1) Good market penetration by new generic launches in UK
(cid:1) Pharmaderm range integrated into US operation

Milestones

Further new third party contracts gained

(cid:1) Successful ‘go live’ on new Oracle integrated IT system

Further progress on quality management systems

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Operational Review
Our Business
Our Business
Pharmaceuticals Division continued

Global Operations

Pharmaceuticals

Dechra Veterinary Products operates in the USA
and ten European countries: Norway, Denmark,
Finland, Sweden, the Netherlands, Spain,
Portugal, France, Ireland and the UK.

USA

Ireland

UK

Portugal

France

Product Type
Diets:

Specific® life-stage diets for dogs and cats.
These are a range of veterinary only diets for
healthy dogs and cats.

Specific therapeutic diets for dogs and cats.
These are a range of diets specifically targeted to
assist in the management of clinical conditions
such as kidney problems, heart problems and
allergies.

Pharmaceuticals:

Canaural® — first line treatment for otitis externa
in the cat and dog in the UK.

CleanAural® — leading ear cleaning product.

Equipalazone® — the leading non-steroidal anti-
inflammatory drug (NSAID) for the treatment of
musculoskeletal disorders in the horse.

Felimazole — the first veterinary licensed
product for the treatment of feline hyperthyroidism.

Fuciderm® — for the treatment of surface
pyoderma in the dog.

Canaural

Specific

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Equipalazone

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Norway

Finland

Sweden

Denmark

Netherlands

Spain

A number of our products are also marketed by partners
worldwide into important territories, including Germany,
Italy, Canada, Australia and Japan. We have also started
to develop relationships and have initial sales within
Eastern Europe.

Annualised Revenue by Product Type

Instruments and
consumables:

5%

Manufacturing:

12%

Pharmaceuticals:

53%

Diets:

26%

Care:

4%

Fucithalmic® Vet — the only licensed
product for the treatment of conjunctivitis
associated with staphylococcal infections.

Malaseb® — the only UK licensed medicated
shampoo for cats and dogs.

The Vetivex® range of infusion fluids —
licensed for the treatment of dehydration.

Vetoryl — a novel and patented product for
the treatment of Cushing’s Disease (excess
cortisol or hyperadrenocorticism) in dogs.

Felimazole

Vetoryl

Fucithalmic

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Operational Review
Services Division

NVS services both companion animal and livestock practices and
agricultural merchants. As with other divisions within Dechra, NVS
benefits from the good year-on-year growth in the veterinary market
which has seen growth of approximately 10% in the year.

Services Revenue

Share of Total Group
Revenue

Share of Adjusted
Operating Profit

up 11%

to £259.4m (2007: £234.2m)

83%

50%

National Veterinary Services (“NVS”)
UK market leader in the supply of pharmaceuticals and added value services to the
veterinary profession, including management information systems and consumer
and internet services.

NationWide Laboratories (“NWL”)
Multi-disciplined independent commercial veterinary laboratory. 

Cambridge Specialist Laboratory Services (“CSLS”)
Primary care and secondary referral specialist veterinary immunoassay laboratory. 

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Services
Services

Performance

(cid:1) STRONG SALES PERFORMANCE

INCREASE IN MARKET SHARE

IMPROVED OPERATING MARGIN

up12%

Adjusted operating
profit
£m

10.7

9.5

8.7

8.0

7.1

2004

2005

2006

2007

2008

Milestones
(cid:1) NVS outperforms the market
(cid:1) Successful cold chain distribution of Blue Tongue vaccine
(cid:1) Gained customers in new distribution channels

Milestones

Integrated Leeds Veterinary Laboratories (“LVL”)
23% increase in revenue

(cid:1) Allervet® allergy testing exceeds expectations

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Pharmace

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Chairman’s Statement

I am pleased to report an excellent performance by the Group

Financial Highlights

during the period. We have achieved good growth in revenue and

Group revenue increased 19.9% from £253.8 million to 

profitability from our UK businesses, increased market share at

£304.4 million.

NVS, significantly increased US revenues, achieved further

penetration of our products in Europe and launched new

products in the UK. Furthermore, we have made an acquisition,

VetXX Holdings A/S (“VetXX”), which materially increases our

pharmaceutical portfolio and provides a strong European

footprint to market the enlarged product range and future

developed products. The development of our own branded

Adjusted operating profit increased by 38.0% to £19.1 million

(2007: £13.9 million). Adjusted profit before taxation rose 33.3% to

£16.9 million (2007: £12.6 million). Operating profit after deducting

rationalisation costs and amortisation of acquired intangibles was

£14.1 million (2007: £13.8 million). Profit before taxation on the

same basis was £11.7 million (2007: £12.6 million).

veterinary pharmaceutical portfolio is progressing to schedule,

Adjusted basic earnings per share was 20.81p, up 23.2% from

with the launch of a key product for the US market, Vetoryl,

the 16.89p achieved in 2007. Earnings per share after

planned for January 2009.

rationalisation costs and amortisation of acquired intangibles was

14.20p (2007: 16.86p).

“We have achieved good growth in revenue and profitability from our
UK businesses, increased market share at National Veterinary Services,
significantly increased US revenues, achieved further penetration of 
our products in Europe and launched new products in the UK.”

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Dechra Pharmaceuticals PLC 
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Total cash investment in product development was £3.7 million

People

(2007: £3.3 million), of which £2.4 million was charged to the

On behalf of the Board and all our Shareholders I would like to

income statement (2007: £1.6 million).

welcome all VetXX and other new employees to the Group. 

Cash flow continued to be strong with cash flow from operations

being 114% of operating profit. As at 30 June 2008, the Group

I would also like to thank all employees for their hard work,

dedication and innovation in contributing to our successful year. 

had net borrowings of £27.0 million compared to net funds of

Prospects

£1.0 million at 30 June 2007, the increase being the new

The Group’s current trading is in line with the Board’s

borrowings taken out to partially fund the acquisition of VetXX.

expectations. International companion animal markets continue

Net debt to EBITDA on an adjusted basis was 1.3 times. Interest

cover on adjusted operating profit was 8.4 times.

Further details are contained in the Business Review.

Dividend

In line with our progressive dividend policy and our confidence in

the business, the Directors are recommending an increase in the

final dividend to 5.50p per share (2007: 5.00p per share). This,

together with the interim dividend of 2.75p per share (2007:

2.50p per share), makes a total dividend for the year of 8.25p per

share (2007: 7.50p per share), a 10% increase.

The total dividend is covered 2.0 times by profit after taxation but

after adding back amortisation of acquired intangibles.

The final dividend, which is subject to Shareholder approval at

our Annual General Meeting to be held on Friday 7 November

2008, will be paid on 12 December 2008 to Shareholders on the

Register at 14 November 2008.

to grow; our core businesses continue to perform well; our

acquisition, VetXX, is meeting our expectations; and our key

products continue to show good growth. The business will be

further enhanced with new product introductions, particularly 

the launch of Vetoryl and Felimazole in the US in the second half

of the 2009 financial year. We therefore remain confident in 

our future.

Michael Redmond

Chairman

2 September 2008

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Directors’ Business Review

The Business and its Markets
Dechra Pharmaceuticals PLC (“Dechra”) operates under two

The veterinary market for companion animal products is

dominated by North America, Western Europe and Japan. Key

Divisions, Pharmaceuticals and Services. The Pharmaceuticals

drivers within the companion animal market are the increasing

Division operates internationally and is unique in having its sole

medical and surgical capabilities of veterinary surgeons,

area of specialisation in companion animal products. The

increased life expectancy of pets and ultimately the consumer’s

Services Division serves UK veterinary practices in both the

passion for their animals.

companion animal and livestock sectors.

The North American, Western European and Japanese markets

Following the acquisition of VetXX in January 2008 (which is

are the most significant companion animal markets in the world,

detailed later in this review), the Group now employs 970 people

with pet ownership in over 50% of households and with a high

and operates out of 11 countries.

level of spend per animal. The table on the following page

provides details of companion animal populations in the markets

in which Dechra currently has a sales and marketing operation.

“Following the acquisition of VetXX in January 2008, the Group
now employs 970 people and operates out of 11 countries.”

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Companion Animal Populations in Dechra Territories

Territory

USA

France

UK and Ireland

Spain

Scandinavia

Netherlands

Dogs

Cats

Horses

(millions)

(millions)

(millions)

75

8

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5.5

2.1

2

82

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8.4

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3.1

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1

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0.6

0.5

0.4

Dechra currently markets products through partners and has

products in registration in several other important small animal

markets, the most significant of which are detailed below:

Companion Animal Populations in Important 

Non-Subsidiary Countries

Territory

Japan

Italy

Canada

Germany

Australia

Dogs

Cats

Horses

(millions)

(millions)

(millions)

12.5

6.9

6

5.3

3.7

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6.1

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2.4

0.1

0.3

1

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1.2

The UK veterinary market, which still represents the majority of

Dechra’s overall sales, has consistently outperformed the Retail

Prices Index over the last ten years of market growth.

Pharmaceutical Product Development
Strategy

The Group focuses on solid organic growth within its

Pharmaceuticals and Services Divisions. However, the key

strategic focus, which is now delivering excellent growth and will

provide significant revenues in the future, is through the

development and acquisition of our own branded veterinary

pharmaceutical portfolio of both novel and generic products and

the licensing of these key products into international markets. Our

product development is focused entirely on prescription only

veterinary medicines for dogs, cats and horses, with our main

area of specialisation being within critical care, endocrinology,

dermatology and ophthalmology. Most of our projects utilise

existing pharmaceutical entities that are typically used within the

human market and therefore the majority of product creation is

development and not research based. 

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Number of
employees

970

682

698

630

758

As at 30 June

04

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08

GB Veterinary Market Growth as measured by GFK

Retail Price Index (“RPI”)

%
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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Directors’ Business Review

Legislation

Key Strengths

There are three pieces of legislation that the Directors believe

The Directors believe that the Group has the exceptional skills

have been implemented to encourage development of

and expertise that are necessary for delivering its strategy:

specialised veterinary products into markets that are small relative

to human pharmaceutical sales:

The “Cascade Legislation”: The basic principle of this EU

legislation is that the veterinary surgeon must prescribe a

veterinary licensed product above any other alternative.

Therefore, any products licensed specifically for animals must

be used instead of a human ethical or generic product,

irrespective of price;

EU law gives a novel product ten years’ protection from

generic competitors, irrespective of its patent status; and

The US FDA (“Food and Drug Administration”) Center for

Veterinary Medicine provides five years’ protection from

generic competitors for the first approval of a new

pharmaceutical, irrespective of its patent status. Subsequent

approvals receive three years’ protection.

Dechra considers this legislation to be favourable towards its

strategy and is essential in providing safe, efficacious products for

animal welfare.

The recognition of opportunities for specialised and niche

pharmaceutical products for the veterinary market achieved

through knowledge gained from the Group’s strong market

position;

In-house formulation of products into preparations suitable

for the target species;

International experience and proven track record of

regulatory and license delivery;

Successful design and management of international clinical

field trials;

Industry leading veterinary and commercial personnel

throughout the Group; and

(cid:1) We have assembled scientific advisory boards comprising

international key opinion leaders.

Dechra has a proven track record of delivering licensed products

by working closely with regulatory authorities and by complying

with the highest standards. Increased investment in product

development capabilities has been made throughout the year

being reported, and the Directors are planning for a further

increase in development spend in the new financial year.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Key Products and Specialisations
Dermatology — Total annualised sales £10.1 million

With the acquisition of the VetXX business Dechra has become a

leading veterinary supplier in dermatological treatments.

Canaural was first licensed in 1975 and is still the leading first line

treatment for otitis externa in the cat and dog in the UK.

Canaural, which is now registered in 25 countries and generates

annual revenues of £3.9 million, can also be used in conjunction

with our leading ear cleaning product CleanAural which generates

a further £1.3 million of revenues annually.

Fuciderm, licensed in 1995, is the only licensed product for the

treatment of surface pyoderma in the dog, such as acute moist

dermatitis and intertrigo. It is a key product within our

dermatology range, selling into 23 countries, generating annual

sales of £2.7 million.

Malaseb was first licensed in 1996 and is still the only UK

licensed medicated shampoo for cats and dogs. It is used to

treat skin diseases caused by malassezia and staphylococcal

infections. The current annual product sales are £1.8 million. It is

anticipated that there is a significant growth opportunity for the

product as it has been submitted for registration in several new

European territories. 

Endocrinology — Total annualised sales £9.2 million

Endocrine disorders are a key focus for the business with a

number of licensed products treating a range of chronic diseases.

The two leading brands are Vetoryl and Felimazole. 

Vetoryl is a novel and patented product for the treatment of

Cushing’s Disease (excess cortisol or hyperadrenocorticism) in

dogs. It is marketed within the EU in 21 territories and is the only

recognised licensed efficacious veterinary product for the

treatment of Cushing’s Disease around the world. Launched in

the UK on a provisional marketing authorisation in September

2001, Vetoryl has since achieved full approval in the EU and has

consistently increased market penetration. In the USA it is also

sold under an FDA waiver scheme and through special import

schemes into other territories such as Canada and Australia.

Global revenues for Vetoryl in the twelve months were 

£5.1 million.

Felimazole is the first veterinary licensed product for the treatment

of feline hyperthyroidism. It competes in the world’s markets

Equine Medicine — Total annualised sales £5.7 million

We have a wide range of 14 licensed products supporting the

equine veterinarian. The lead product with the highest sales is

Equipalazone.

Equipalazone was first licensed in a sachet presentation in 1972

and subsequently in a paste and injection. It is still the leading

non-steroidal anti-inflammatory drug (NSAID) for the treatment of

musculoskeletal disorders, such as lameness due to acute and

chronic laminitis, in the horse. 

Ophthalmology — Total annualised sales £2.95 million

Ophthalmology is a highly specialised area of veterinary medicine

where we have a number of leading products including licensed

pharmaceuticals, unlicensed care products and instruments.

against human equivalents; however, the Cascade Legislation

Fucithalmic Vet, licensed in 1993, is the only licensed product

(see Legislation) has supported its growth. Felimazole received

available for the treatment of conjunctivitis associated with

marketing approval for the UK in 2002 and was approved in the

staphylococcal infections. It is highly effective because of its

EU in 2005. Global revenues for Felimazole in the 12 months

were £3.9 million.

unique sustained release formulation that ensures prolonged

retention within the eye. It is currently licensed in 21 countries

worldwide and delivers sales of £2.5 million. 

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Directors’ Business Review

Critical Care — Total annualised sales £2.0 million

Development Update

Dechra has a wide range of products that support emergency

medicine including licensed pharmaceuticals, wound treatments,

consumables and instruments. The leading range of products is

the Vetivex brand.

It is pleasing to report that we have received notification of

compliance for all parts of the Vetoryl USA application from

the FDA. An administration process has now commenced

and the product will be launched at the North American

The Vetivex range of infusion fluids are licensed for the treatment

Veterinary Conference in Florida in January 2009.

of dehydration. They are widely used to meet normal fluid and

electrolyte requirements when fluids cannot be given orally, such

as during surgery. The licenses were purchased from Ivex Ltd, a

(cid:1) We continue to make satisfactory progress in our Vetoryl

applications for Japan, Canada and Australia.

subsidiary of Gambro BCT Inc, in 2005. Since this time, sales

Vetoryl has been approved in Switzerland and is being

have grown year on year and currently deliver revenue of 

marketed by our partner, Veterinaria.

£1.7 million. The products are only licensed for sale in the UK 

and Ireland.

The completed dossier for Felimazole for the US market has

been submitted and we have subsequently had notification of

Development Team
We have a highly skilled development team of 20 people located

approval of the CMC and safety sections. We remain very

confident as to the progress of the efficacy section and

in the United Kingdom, Denmark and the United States. In the

anticipate being in a position to receive approval for this

year we have added two scientists to the pharmaceutical

product in the first half of the next calendar year.

development laboratory located at our manufacturing facility in

Skipton, invested in new equipment and have six new regulatory

staff through the acquisition of VetXX. This team has now been

fully integrated into Dechra. We are currently in the process of

adding further skilled personnel into this team as we continue to

identify and develop new products. During the year we acquired

and successfully implemented a new pharmacovigilance

monitoring and reporting database.

Trial work for Equidone® for the US market is almost

completed and has provided excellent results.

Research into other potentially lucrative applications for

Equidone has continued at two US universities; initial trial

results for one therapeutic indication are very positive.

Ovuplant® has been approved and marketing commenced in

Germany, Spain, France, Ireland, Italy and the Netherlands.

Prednidale 25, a new dosage form of an existing product,

has been approved and launched within the United Kingdom.

Intraepicaine®, one of our specialist equine products, has

been registered and marketed into Ireland.

Vetivex No 1 has been approved in Ireland and will be

marketed soon.

Atipam®, a UK branded generic, has been approved in

partnership with the marketing authorisation holders, Eurovet,

and has been launched in the UK.

Dossiers for two new significant generic products have been

submitted for approval.

In addition to the above activities, the Group has recognised

other novel and generic development opportunities which have

satisfied our internal assessment criteria resulting in

commencement of development programmes.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

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Acquisition
VetXX

In December 2007 we announced the acquisition of VetXX for

The business has now been successfully integrated into Dechra

£65.2 million including expenses. The acquisition was made on a

and expected synergies have been realised by the full integration

cash and debt-free basis and was funded by way of a new debt

of their UK sales and marketing function into our existing

facility and the placing and open offer of 11,624,544 new

operation and by the closure of their administration head office in

ordinary shares, raising £33.7 million net of expenses.

Copenhagen. The French subsidiary has already been rebranded

VetXX is a developer, producer and marketer of companion

animal veterinary products to veterinary professionals in ten

European countries. The acquisition has provided Dechra with a

strong European footprint and has materially increased Dechra’s

range of licensed veterinary products. It also provides Dechra

with a sales and distribution network to market the enlarged

product range and future developed products to veterinary

practices and wholesalers within eight European countries in

addition to the UK and Ireland in which Dechra already operated.

as Dechra with the remainder of the organisation being

rebranded within the next six months. Further information is

provided on the enlarged sales and marketing operation later in

this review.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Directors’ Business Review

Pharmaceuticals Division

Our Pharmaceuticals Division comprises Dechra Veterinary

Products Europe (“DVP EU”), Dechra Veterinary Products USA

(“DVP USA”), and Dales Pharmaceuticals.

Dechra Veterinary Products EU

DVP EU, located in Shrewsbury, England and Uldum, Denmark,

employs 212 people. The business markets and sells our own

branded, licensed veterinary pharmaceuticals within ten

European countries and manages the relationships with our

worldwide marketing partners. 

Sales Personnel

France

UK

Spain

Denmark

Sweden

16

14

8

5

4

Holland

Norway

Finland

Portugal

Eire

4

4

3

1

1

The marketing department, which consists of over 20 people, is

coordinated from the UK; however, all major territories have their

own local marketing expertise.

In addition to the pharmaceuticals outlined earlier in this report

which represent 53% of annualised divisional sales, the team also

markets the veterinary exclusive range of specialist diets Specific,

which represents 26% of annualised divisional turnover, and also

a range of unlicensed products branded as the Care range,

which represents 4%.

“DVP EU, located in Shrewsbury, England and
Uldum, Denmark, employs 212 people. The
business markets and sells our own branded,
licensed veterinary pharmaceuticals within ten
European countries and manages the relationships
with our worldwide marketing partners.”

There are two main pet diet product ranges which are sold

exclusively through veterinary practices, these being Specific

for dogs and Specific for cats. Each range offers tailored life-

stage and therapeutic diets. The therapeutic products

represent approximately 70% of diet sales and seek to

address issues such as diabetes, arthritis, urinary, kidney,

liver and heart problems.

The Care range has two key products, CleanAural and

Neutrale™. CleanAural is a no sting ear cleaner for frequent

use for ears producing excess wax. Neutrale is a range of

specialist shampoos for skin conditions in dogs.

Additionally, we have a number of marketing agreements: with

Virbac Inc. to market Thyroxyl within the UK and Ireland; with

Eurovet to market Domidine®, Sedator® and Atipam in the UK

and Ireland; with Biopure to market Oxyglobin® within the EU and

with Peptech to market Ovuplant in the EU.

DVP EU
management team

DVP UK
management team

Chris Kingdom 
Sales Director

Bob Parmenter
Steve Dewar Operations Director
Operations Director
Managing Director

Left to right: Giles Coley European Pharmaceutical Sales & Export Director, Ed Torr Managing Director, 
Carsten Jeppesen Chief of Logistics, Roeland Meijers Senior Vice-President, Jørgen Eker Chief Financial Officer 

Mark Sallin 
Finance Director

Gwenda Bason 
Marketing Director

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Dechra Pharmaceuticals PLC 
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A number of our products are also marketed by partners

Sales and Export Director. The remainder of the DVP EU

worldwide into important territories including Germany, Italy,

operating board comprises three of the retained key VetXX staff,

Canada, Australia and Japan. We have also started to develop

Carsten Jeppesen, Chief of Logistics, Jørgen Eker, Chief

Financial Officer, and Roeland Meijers, Senior Vice-President who

has direct responsibility for the Specific diet range. We are also

pleased to have retained the VetXX Country Managers who form

the basis of the senior management team. Bob Parmenter, who

has over 40 years’ veterinary industry experience and an

excellent track record, has been appointed as Managing Director

for the UK which is currently the largest territory and represents
30% of the Pharmaceutical Division’s annualised sales.

relationships and have initial sales within Eastern Europe.

Since the acquisition of VetXX we have transferred Equipalazone

Powder from our previous marketing partner into Dechra livery

and are successfully marketing the product through our

subsidiary in France and through a new partner in Germany.

Services
A number of new and existing Dechra products will be launched

into our EU subsidiaries throughout the next 12 months.

DVP EU, as outlined in the Financial Review, grew strongly

throughout the financial year. Both the existing UK and export

businesses and the six months’ revenue from VetXX contributed

to this performance.

Following the acquisition of VetXX, a number of management

changes have been implemented. Ed Torr, previously the Group’s

Development Director and Main Board member, has been

appointed Managing Director of DVP EU. Giles Coley, previously

DVP UK Country Manager, is now European Pharmaceutical

Pharmaceuticals

Pharmaceuticals

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Directors’ Business Review
Pharmaceuticals Division continued

Dechra Veterinary Products USA

This business, employing seven people, was established in 2005

and is located in Kansas City, USA, a city in which a significant

number of US animal health businesses are located. The

business currently markets seven licensed veterinary ophthalmic,

otic and dermatological products; the supply and marketing

rights of this range were acquired in May 2007. We have

successfully increased market share and sales of these products

throughout the year. During the year we have also secured two

new products through partnerships: with Biopure to market

Oxyglobin, a companion animal blood substitute, and with

Orthogen to market Irap, an orthopaedic treatment for horses.

The imminent launch of Vetoryl and Felimazole into the US market

will significantly increase our US revenues; therefore, we are in the

process of strengthening our operation. A new Head of Technical

Services, Dr Dana Fertig, a Sales and Marketing Director, Doug

Hubert, and an Equine Specialist, Bryan Toliver, have already

been appointed. We are now in the process of recruiting a sales

team with a further eight appointments anticipated prior to the

end of the calendar year. The administration and technical

services departments will also be strengthened. Logistics and

accounts are currently outsourced with established partners.

Services

The US market remains strategically significant to Dechra, being

approximately ten times the size of our current largest market, the

UK. New products are under development and opportunities are

being reviewed to further strengthen our US portfolio.

“We have received notification of compliance for
all parts of the Vetoryl USA application from the
FDA. An administration process has now
commenced and the product will be launched at
the North American Veterinary Conference in
Florida in January 2009.”

Pharmaceuticals

Pharmaceuticals

“The US market remains
strategically significant to
Dechra, being approximately
ten times the size of our
Services
current largest market, the
UK. New products are under
development and
opportunities are being
reviewed to further
strengthen our US portfolio.”

Pharmaceuticals

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DVP USA
management team

Chris Huettner 
Customer Service and Office Manager

Mike Eldred 
Steve Dewar Operations Director
Operations Director
President

Chip Whitlow 
Sales Manager

Doug Hubert
US Sales and Marketing Manager 

Dana Fertig 
Veterinary Technical Services Manager

Bryan Toliver
Equine Business Manager

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Dales

party business continues to be attracted from new and existing

Dales, located in Skipton, England and employing 193 people, is 

customers. The business has also continued to benefit from

a fully Medicines and Healthcare Regulatory Agency (“MHRA”)

greater efficiency and productivity as we build upon the quality

approved pharmaceutical manufacturer with multi-competence in

systems implemented last year. This had been enhanced by the

both scale and dose form. Dales manufactures the vast majority of

successful “go live” of a new IT platform, Oracle. The

our own branded licensed pharmaceutical products, which are

management team has been strengthened with the appointment

marketed through DVP, but also derives approximately 50% of

of a new Quality Director, Andrew Parkinson, and a

revenues from third party toll manufacture, predominantly for

Manufacturing Manager, Ernest Ukachu.

human pharmaceutical companies. This is Dechra’s only

significant source of revenue not derived from the veterinary

market.

Pharmaceutical manufacturing is also carried out at the VetXX

Uldum, Denmark facility where Malaseb, the Care range and a

number of minor products are currently manufactured. Potential

Dales has had an excellent year with increased production of our

synergies with Dales and improved capacity utilisation

own licensed products and from growth in third party sales. Third

opportunities are being explored.

“Dales has had an excellent
year with increased
production of our own
licensed products and from
growth in third party sales.”

Dales
management team

Left to right: Gareth Davies Sales & Marketing Director, Steve Dewar Operations Director, 
Mike Annice Managing Director, Kirsty Ireland Finance Director, Andrew Parkinson Quality Director 

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Directors’ Business Review

Services Division

Our Services Division comprises National Veterinary Services,

NationWide Laboratories and Cambridge Specialist Laboratory

Services.

NVS

NVS, located in Stoke-on-Trent, England, employing 473 people,

is the UK market leader, as measured in terms of market share, in

the supply and distribution of veterinary products to veterinary

practices and other approved outlets. NVS competes with two

major full line competitors on the UK mainland, Centaur Services

and Dunlop, both of which are under American ownership.

NVS stocks a range of over 14,000 products including

pharmaceuticals, pet products, consumables and accessories.

NVS has also developed a range of IT solutions for veterinary

practices which are branded Vetcom®. Vetcom’s principal

objective is to collect orders electronically. Approximately 83% of

NVS orders arrive automatically with no human input required.

This is considered to be a major advantage to our customers and

also contributes to our low operating costs as, with over 35,000

invoiced lines per working day, significantly increased numbers of

people would be required to handle this business manually. NVS

distributes to 1,800 customers daily utilising its own fleet of vans

and HGVs. The centralised inventory in Stoke-on-Trent is picked

and packed throughout the afternoon and evening and then

NVS Network

Larkhall

Carlisle

Wetherby

Stoke-on-Trent

Mildenhall

Gloucester

Hertford

Bracknell

Swanscombe

Tiverton

distributed overnight to trunking depots by HGVs on large trailers.

NVS services both companion animal and livestock practices and

Van drivers are then employed locally at these depots who

agricultural merchants. As with other divisions within Dechra,

distribute the goods to the customers. NVS operates on a

NVS benefits from the good year-on-year growth in the veterinary

Sunday until Thursday shift which allows customers to place

market which has seen growth of approximately 10% in the year

orders up until 7.00 pm Monday to Thursday and any time over

(see The Business and its Markets).

the weekend up to 10.00 am on Sunday for a next working

day delivery.

Services

NVS 
management team

Martin Riley 
Managing Director

Tony Scott 
Operations Director

Caitrina Harrison 
Sales & Marketing Director

Dan Shipman 
Finance Director

Colin Higham 
Buying Director

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Dechra Pharmaceuticals PLC 
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“NVS is the UK market leader, as measured in terms of market
share, in the supply and distribution of veterinary products to
veterinary practices and other approved outlets.”

A strong sales performance from NVS, which has outperformed

with whom NVS has good long term relationships. Whilst NVS

the market, can be attributed to the successful cold chain

has been subject to significant fuel and utility cost increases,

distribution of Blue Tongue vaccine, volume growth from existing

improved efficiency, solid control of discounts offered, good cost

practices and groups and by new business gains. The market

control and market share gains have all contributed to the

has seen further consolidation of veterinary practices by groups

performance.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Directors’ Business Review
Services Division continued

“NWL operates out of three locations,
Poulton-le-Fylde, Leeds and Swanscombe,
and employs 80 people.”

Laboratories

NWL operates out of three locations, Poulton-le-Fylde, Leeds

and Swanscombe, and employs 80 people. As first referral

veterinary laboratories, they provide histology, pathology,

haematology, chemistry and microbiology services to veterinary

practices. Whilst a certain amount of simple chemistry is

performed at veterinary practices, nearly all veterinary practices

will outsource more advanced analytical tests, often requiring

expert interpretation of results. We consider NWL to offer the

highest level of service within this sector. We were the first

veterinary laboratory to gain UKAS (United Kingdom Accreditation

Service) approval. NWL also offers other services such as

Allervet, a pet and equine allergy testing programme. Allervet

revenues have exceeded our expectations during the year.

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Dechra Pharmaceuticals PLC 
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Leeds Veterinary Laboratories, which was acquired in April 2007,

CSLS, located in Sawston, England, employs seven people. It

has now been fully integrated into NWL. We have invested in

operates as a first and second referral laboratory, with a key area

LVL’s premises in increasing laboratory capacity and also in new

of expertise being endocrinology. The second referral work, i.e.

equipment.

Overall, the laboratory revenues have seen a good increase;

however, the increased infrastructure costs have resulted in a

profit performance slightly below last year.

providing services for NWL and some of NWL’s competitors, is

mainly derived from a key area of specialisation in radio-immuno

assays. The business also provides precise assays which support

the dosage regimes and patient monitoring of our key products,

Vetoryl Capsules and Felimazole Tablets. CSLS has increased

sales and improved profitability during the year.

Laboratories 
management team

Services

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Left to right: Dr Peter Graham Managing Director, Jamie Whitwam Food Microbiology
and Business Development Manager

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Directors’ Business Review

Key Performance Indicators

Revenue — pharmaceuticals
— services
— inter-division

Total revenue

Adjusted operating profit before product development cost

Product development cost

Adjusted operating profit

Adjusted operating margin
— Before product development cost

— After product development cost

Cash conversion rate

Gearing (i)

Return on capital employed (pre-tax)

Revenue per employee

Inventory days (ii)

Receivables days (iii)

2008
£’000

54,302
259,363
(9,294)

304,371

21,550

(2,408)

19,142

7.1%

6.3%

114%

27.3%

23.3%

342

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2007
£’000

26,648
234,207
(7,052)

253,803

15,521

(1,645)

13,876

6.1%

5.5%

103%

(3.5%)

37.5%

340

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Financial Ratios
Adjusted interest cover
Effective tax rate
Dividend cover (before amortisation of acquired intangibles)

8.4 times
28.9%
2.0 times

11.3 times
29.9%
2.2 times

(i) Gearing is calculated by dividing net borrowings by the sum of Equity Shareholders’ funds and net borrowings.

(ii) Inventory days are calculated by determining the number of days’ purchases, counting back, included in the year end inventory figure.

(iii) Receivables days are calculated by determining the number of days’ revenue (adjusted for value added tax), counting back, included in the year end

receivables figure.

Review Of Operating Performance

Group Performance

The financial year was an exciting one for the Group. Our core

businesses produced robust growth and as outlined earlier in this

report the Group was significantly enhanced by the acquisition of

VetXX in January 2008.

The following review focuses on adjusted figures (before VetXX

rationalisation costs and amortisation of acquired intangibles) as the

Directors believe that these give a clearer indication of underlying

performance.

Group revenue increased by 19.9% to £304.4 million while adjusted

operating profit, at £19.1 million, was ahead of last year by 38%.

Adjusted pre-tax profit was £16.9 million, 33.3% up on last year.

Pharmaceuticals Division

Revenue
Own branded
pharmaceuticals

Diets

Third party contract 
manufacturing

Instruments, consumables
and equipment

Total revenue

Adjusted operating profit

Adjusted operating margin

2008
£’000

2007
£’000

32,136

9,915

16,599

—

8,677

6,232

3,574

54,302

10,765

19.8%

3,817

26,648

6,102

22.9%

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Services Division

Revenue
Veterinary wholesaling

Laboratories

Total revenue

Adjusted operating profit

Adjusted operating margin

2008
£’000

2007
£’000

253,973

229,840

5,390

4,367

259,363

234,207

10,693

4.1%

9,525

4.1% 

Revenue from the Pharmaceuticals Division grew by 103.8% to 

Our veterinary wholesaling business, NVS, grew revenue by 10.5%

£54.3 million, of which £19.0 million was contributed by VetXX.

compared to last year. This was ahead of GB market growth as

Within own branded pharmaceuticals, our key products Vetoryl,

Felimazole and Equipalazone continued to show forward momentum.

measured by GfK of 10.0%. Continued cost efficiencies meant that

NVS increased its operating profit by 14.0%.

Global revenue from Vetoryl was £5.1 million, 13.1% up on last year

Revenue from our Laboratories business grew by 23.4% over last

whilst Felimazole grew by 15.6% to £3.9 million and Equipalazone

year, including a full year contribution from LVL. However, increased

grew by 12.5% to £3.0 million.

infrastructure costs meant that the operating profit achieved was

Of our other key products, the Vetivex range grew by 13.5% to £1.7

slightly below last year’s level.

million whilst Canaural, Fuciderm and Fucithalmic acquired with VetXX

Unallocated Central Costs

made revenue contributions of £1.9 million, £1.4 million and £1.4

Unallocated central costs increased by £0.5 million to £2.3 million.

million respectively in the period since acquisition.

This increase was due to salaries and an increase in the charge

Revenue from our US operation grew from £374,000 to £4.6 million

relating to share-based payments.

with a full year of marketing the Pharmaderm range of products.

Return on Capital Employed

Revenue from instruments, consumables and equipment fell by 6.4%

to £3.6 million. This reflects our decision to reduce the range of

products sold and focus on the key brands.

In the period prior to acquisition, the VetXX Specific range had been 

in long term decline. However, in the six months since acquisition,

growth of 4.6% was achieved compared to the equivalent period 

last year.

Revenue from third party contract manufacturing grew by 39.2% to

£8.7 million with the benefit of new contracts being realised.

Product development expenditure charged to the income statement

was £2.4 million, a 46.4% increase compared to last year. A further

£1.3 million of development expenditure was capitalised giving a total

cash spend for the year of £3.7 million compared to £3.3 million last

year. In future periods, a greater proportion of expenditure will be

charged to the income statement rather than being capitalised.

Adjusted operating profit for the division increased by 76.4% from

£6.1 million to £10.8 million, of which £2.7 million was contributed 

by VetXX.

Return on capital employed reduced from 37.5% to 23.3%. This was

due to the acquisition of VetXX and the significant increase in the

asset base arising therefrom.

Net Finance Expense

The adjusted net finance expense increased from £1.23 million to

£2.29 million. This was a result of the increased borrowing levels

taken on in January 2008 to partially finance the acquisition of VetXX.

The adjusted net finance expense was covered 8.4 times by adjusted

operating profit (2007: 11.3 times).

Taxation

The effective tax rate was 28.9%, slightly lower than the standard UK

rate for the year of 29.5% with the reduction in the UK corporation tax

rate from 30% to 28% being effective for three months of the financial

year. The main item contributing to this undercharge was profits from

our US subsidiary which were offset by trading losses brought

forward.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Directors’ Business Review

Earnings per Share and Dividend

Equity Shareholders’ funds have more than doubled compared to the

Adjusted earnings per share increased by 23.2% to 20.81p.

equivalent point last year. This reflects the issue of new equity and

The Board is proposing a final dividend of 5.50p per share which,

when added to the interim dividend of 2.75p per share already paid,

gives a total dividend for the year of 8.25p, a 10.0% increase over the

2007 figure of 7.50p. This takes into account the new shares issued

to partially fund the VetXX acquisition.

retained profit for the year.

The major additions to intangible assets and property, plant and

equipment related to the VetXX acquisition. Of the £4.0 million

increase in working capital, £3.0 million was due to VetXX. Inventory

days were 43, slightly behind the 42 days for last year. Receivable

The total dividend is covered 2.0 times by profit after tax after adding

days showed an improvement from 40 days to 39 days.

back amortisation of acquired intangibles (2007: 2.2 times).

Cash Flow

The Group achieved a cash conversion rate (defined as cash

generated from operations as a percentage of operating profit) of

The large increase in the deferred tax liability relates to the intangible

assets recognised on the acquisition of VetXX.

The increased borrowings taken on to partially fund the VetXX

114.1% (2007: 103.5%). If amortisation of acquired intangibles is

acquisition meant that there were net borrowings at 30 June 2008 of

added back to operating profit, then the conversion rate was 94.2%

£27.0 million compared to net cash at 30 June 2007 of £1.0 million.

(2007: 103.3%). During the year, the Group made a £1.5 million

As normal, due to the working capital cycle of the Group, net

working capital investment in the US subsidiary and also increased

borrowings will increase at the next reporting date of 31 December

the inventory of Vetoryl Capsules ahead of the US launch.

2008.

The most significant cash outflow during the year was the acquisition

of VetXX. The total amount paid (including expenses and repayment

of VetXX’s existing borrowings) was £65.2 million. This was funded by

the issue of 11,624,544 new ordinary shares raising £33.7 million net

of issue costs and a new bank facility.

Risks and Uncertainties

Like every business, the Group faces risks and uncertainties in both

its day-to-day operations and the achievement of its long term

strategic objectives. The Group has well-established procedures for

identifying and controlling risk. Significant risks and procedures to

control them are reviewed at Divisional Board Meetings on a monthly

Financial Position at the end of the Year

basis and by the Main Board on a quarterly basis.

Non-current assets
Intangible assets
Property, plant and
equipment
Deferred tax assets

Total non-current assets
Working capital
Current tax liability
Deferred tax liabilities
Net (borrowings)/cash

2008
£’000

2007
£’000

The main potential risk areas identified by the Directors are as follows:

Regulatory

90,375

13,089

Like the human pharmaceutical industry, the veterinary industry is

8,224
1,053

99,652
17,284
(2,824)
(15,316)
(26,997)

5,739
—

18,828
13,264
(2,464)
(147)
1,027

tightly regulated. Our major operational sites are required to be

licensed either by the MHRA or the Home Office, and our products by

the Veterinary Medicines Directorate (“VMD”) and the equivalent

overseas agencies. Inspections by these bodies are carried out

regularly.

All of our new pharmaceutical products are required to be approved

for sale by the relevant Regulatory Authority in each territory.

Equity Shareholders’ funds

71,799

30,508

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

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The main regulatory risks faced by the Group are:

General Market Conditions

Failing to operate our businesses in accordance with their

licenses resulting in disruption to operations;

The overall veterinary market has shown robust growth for many

years. However, there have in the past been periods when the market

has suffered a significant slowdown. This can be caused by external

Potential reclassification of major pharmaceutical products from

“shocks” such as BSE or general economic conditions. Our past

prescription only to a lower category causing loss of revenue;

experience has been that these slowdowns have been short term in

Failure to satisfy the regulatory authorities on new product

submissions causing product launches to be delayed or aborted;

nature. However, given the relatively high operational gearing of NVS,

in particular, any future market slowdown could have a material effect

Changes to laws or adverse reactions causing threat to existing

on short term profitability.

products.

Competitor Products

Although there is no evidence as yet that the current general

economic slowdown has significantly impacted the veterinary market,

such an impact cannot be ruled out if the economic downturn is

The launching of competitor products against our key pharmaceutical

brands could have an impact on revenues. One such competitor

product has been launched during the last financial year.

particularly severe.

Summary of Risks

Corporate Veterinary Practices

The growth of corporate veterinary practices has been a feature of the

veterinary market over the last few years. Most corporates currently

trade with NVS. The rise of corporate practices provides opportunities

and risks to the Group.

The Group has ongoing and embedded procedures in place to

control and, as far as possible, mitigate against the above risk factors.

It must be emphasised, however, that these procedures can only

control rather than eliminate risk.

The opportunities arise when a corporate group acquires veterinary

practices not currently trading with NVS. The risks arise from the

potential increased buying power of corporates causing pressure on

gross margin. Additionally, a payment default could cause a material

Ian Page

Chief Executive

impairment charge.

Simon Evans

Group Finance Director

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Board of Directors

Michael Redmond

Ian Page

Simon Evans

Ed Torr

Neil Warner

Malcolm Diamond

Executive Directors

Non-Executive Directors

Ian Page
Chief Executive
Aged 47, Ian joined the Group’s principal trading subsidiary NVS at its
formation in 1989. He was also part of the MBO in 1997. In 1998, he was
appointed Managing Director at NVS. He joined the Board in 1997 and
became Group 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 veterinary arena.

Simon Evans BCom, ACA
Group Finance Director
Aged 44, 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. He played a major role in the
management buy-out of the Group from Lloyds Chemists in 1997 and its
subsequent listing on the London Stock Exchange in 2000.

Ed Torr
Managing Director of Dechra Veterinary Products Europe
Aged 48, Ed joined NVS as Sales Director in 1997 and was appointed
Managing Director of Arnolds and Dales in 1998. He was appointed
Development Director in 2003 and Managing Director of Dechra Veterinary
Products Europe in January 2008, following completion of the acquisition
of VetXX. Prior to joining the Group, he worked within the animal healthcare
sector for a number of companies including ICI, Wellcome and Alfa 
Laval Agri.

Michael Redmond †•
Non-Executive Chairman
Aged 64, 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. Michael is Chairman of the 
Nomination Committee.

Malcolm Diamond MBE *†•
Senior Non-Executive Director
Aged 59, Malcolm joined the Board in August 2000. He is also a Non-
Executive Director at the Unicorn AIM VCT 11 Investment Fund. His other
Directorships include Chairman at CWO Limited and My Marketing
Limited. In addition, Malcolm advises a number of private businesses on
their strategic planning, management development programmes and
marketing initiatives. Malcolm was previously Chief Executive at Trifast plc,
a role he held for 18 years. Malcolm is Chairman of the Remuneration
Committee.

Neil Warner BA, FCA, MCT *†•
Non-Executive Director
Aged 55, Neil joined the Board in May 2003. He is Finance Director at
Chloride Group PLC, a position he has held since 1997. Prior to this, he
spent six years at Exel PLC (formerly Ocean Group PLC and acquired by
Deutsche Post in December 2005) where he held a number of senior posts
in financial planning, treasury and control. He has also held senior positions
in Balfour Beatty PLC (formerly BICC Group plc), Alcoa and
PricewaterhouseCoopers. Neil is Chairman of the Audit Committee.

* Member of the Audit Committee
† Member of the Remuneration Committee
• Member of the Nomination Committee

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Senior Management

Martin Riley

Mike Eldred

Mike Annice

Peter Graham

Susan Longhofer

Barbara Johnson

Zoe Bamford

Senior Management

Martin Riley
Managing Director, National Veterinary Services
Aged 44, Martin was appointed Managing Director of National Veterinary
Services in 2005. A graduate of the Welsh Agricultural College in
Aberystwyth, Martin has extensive knowledge of the animal healthcare and
veterinary sectors. Before joining the Group, he previously held several
senior positions over an 18 year period with the pharmaceutical
manufacturer Merial Animal Health.

Mike Eldred BA, MBA
President, US Operations, Dechra Veterinary Products
Aged 38, Mike was appointed in November 2004 to head up the Group’s sales
and marketing drive in the United States. He has over 12 years’ professional
experience in the US animal health sector, having held senior positions in
business development, sales and operations at Virbac Corporation, and
international marketing and operational positions at Fort Dodge Animal Health.
Mike began his career with Sanofi Animal Health where he managed the
pharmaceutical and biological production planning activities.

Mike Annice BSc (Hons), MRPharmS
Managing Director, Dales Pharmaceuticals 
Aged 48, 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 Technical Director at
the time of the Group’s MBO. Mike was appointed Managing Director at
Dales in March 2002.

Dr Peter Graham BVMS, PhD, CertVR, DipECVCP, MRCVS
Managing Director of NationWide Laboratories 
and Cambridge Specialist Laboratory Services
Aged 40, Peter was appointed Managing Director of NationWide Laboratories
and Cambridge Specialist Laboratory Services in 2003. Peter graduated from
the University of Glasgow Vet School in 1989, where he remained as Small
Animal House Physician and Research Scholar until 1995. During this period
he was awarded the RCVS Certificate in Veterinary Radiology and a PhD on
the Epidemiology and Management of Canine Diabetes Mellitus. He

contributed to the initial commercialisation of biochemistry and endocrinology
lab services at the University of Glasgow. Between 1995 and 2002, Peter was
Assistant Professor at the world’s largest specialist veterinary endocrinology
laboratory in Michigan State University, USA, leading it as Section Chief from
2000. He was awarded Diplomate of the European College of Veterinary
Clinical Pathologists in 2002. 

Dr Susan Longhofer DVM, MS, DipACVIM
Product Development and Regulatory Affairs Director
Aged 50, Susan joined the Group in June 2005. She has 18 years’ industry
experience in development and worldwide registration of animal health
pharmaceuticals, having worked for multinational corporations including
Virbac Corporation, Heska Corporation and Merck Research Laboratories.
Her veterinary degree is from Texas A&M University and her MS is from the
University of Wisconsin, Madison. She was awarded Diplomate status in the
American College of Veterinary Internal Medicine in 1992. She has held a
number of Academic and Professional Honours including membership on the
Board of Directors of the American Heartworm Society and the Executive
Council of the American Academy of Veterinary Pharmacology and
Therapeutics. 

Barbara Johnson Chartered MCIPD
Group HR Director
Aged 47, Barbara joined the Group in April 2008. She has 19 years’ human
resources management experience within the food and drink industry
covering manufacturing, retail, wholesale and distribution. Barbara has
previously worked for Allied Domecq plc, Geest plc and most recently
Nicholl Food Packaging Limited. Prior to joining private industry, Barbara
served for 10 years in the British Army.

Company Secretary

Zoe Bamford LLB (Hons)
Company Secretary and Solicitor
Aged 34, Zoe was appointed as Company Secretary in July 2007. She
qualified as a solicitor in April 2000. Prior to joining the Group she worked
at Eversheds LLP and Brammer plc.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Directors’ Report

The Directors present their report and audited financial statements for the year ended 30 June 2008.

Principal Activity, Business Review and Future Developments
The Company acts as a holding company to all the Group’s subsidiaries. The Group itself develops, markets and sells veterinary pharmaceuticals and
specialist pet diets into international companion animal markets. The Group also distributes veterinary products, including pharmaceuticals, specialist
pet diets and instruments to veterinary practices within the United Kingdom. Additionally, the Company manufactures pharmaceuticals for the Group
and for third parties and also provides diagnostic services to veterinary practices within the United Kingdom.

The Chairman’s Statement and the Directors’ Business Review on pages 8 to 27 provide a review of the Group’s business, likely future
developments and includes information in respect of:

Development and performance of the Group in the year;

Principal risks and uncertainties faced by the Group; and

Key Performance Indicators used to measure the Group’s performance.

Details of the Group’s policy in relation to its employees, health, safety and environment are disclosed on pages 45 and 46, and details of the
Group’s policies in relation to Corporate Governance are disclosed on pages 33 to 36.

Share Capital
The authorised share capital of the Company as at 30 June 2008 was £1,000,000 divided into 100,000,000 ordinary shares of 1p each. As at
the end of the financial year, 65,241,909 fully paid ordinary shares were in issue which included 813,666 ordinary shares issued during the year
in connection with the exercise of options under the Company’s share option schemes. Each share carries the right to one vote on a poll at a
general meeting of the Company and are all listed on the London Stock Exchange.

The rights and obligations attaching to the Company’s shares are contained within the Articles of Association (see following page), a copy of
which can be obtained by writing to the Company Secretary. There are no restrictions on transfer or limitations on the holding of shares in the
Company, nor are there any requirements to obtain prior approval in respect of any transfers of the shares.

At the Annual General Meeting of the Company held on 17 October 2007, the Company was authorised to purchase up to 5,280,370 of its
ordinary shares, representing 10% of the issued share capital of the Company at 30 June 2007. No shares were purchased under this policy
during the financial year. A resolution will be put to Shareholders at the forthcoming Annual General Meeting to renew this authority for a further
period of one year.

Results and Dividends
The results for the year and financial position at 30 June 2008 are shown in the consolidated income statement on page 50 and balance sheet on page
51. The Directors recommend the payment of a final dividend of 5.50p per share which, if approved by Shareholders, will be paid on 12 December 2008
to Shareholders registered at 14 November 2008. An interim dividend of 2.75p per share was paid on 11 April 2008, making a total dividend for the year
of 8.25p (2007: 7.50p). The total dividend payment is £5,368,000 (2007: £3,957,000). 

Directors
The Constitution of the Board and of its Committees, together with biographical notes on the Directors, is shown on page 28. Details of
Directors’ attendance at Board and Committee meetings and a statement on Board Evaluation is set out in the Corporate Governance Report
on pages 33 to 36.

The Company Articles of Association require one-third of the Board to retire by rotation at the Annual General Meeting and also if they have held
office for more than 36 months since appointed or last elected. Therefore, Ian Page and Neil Warner retire by rotation and, being eligible, offer
themselves for re-election. Further detail in respect of the proposed re-elections can be found in the enclosed Circular to Shareholders.

The interests of the Directors in the share capital of the Company are shown in the Remuneration Report on pages 38 to 44. During the year no
Director had a disclosable material interest in any contract or arrangement with the Company or any of its subsidiaries. Information in relation to
the Directors’ remuneration is disclosed in the Remuneration Report on pages 38 to 44.

The Articles of Association state that a Director may be appointed by an ordinary resolution of the Shareholders or by the Directors, either to fill 
a vacancy or as an addition to the existing Board but so that the total number of Directors does not exceed the maximum number of Directors
allowed pursuant to the Articles of Association. The maximum number of Directors currently allowed pursuant to the Articles of Association 
is ten.

The Articles of Association also state that the Board of Directors is responsible for the management of the business of the Company and in doing so
may exercise all the powers of the Company subject to the provisions of relevant legislation and the Company’s constitutional documentation. The
powers of the Directors set out in the Articles of Association include those in relation to the issue and buy-back of shares.

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Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2008

Articles of Association
Details of a resolution to amend the Articles of Association are included in the Circular to Shareholders.

A copy of the Articles of Association detailing the proposed amendments will be available for inspection at Hewitt New Bridge Street, 6 More
London Place, London, SE1 2DA during normal business hours from 19 September until the date of the Annual General Meeting on 7 November
2008. A copy will also be available at the Annual General Meeting.

Political and Charitable Contributions
Charitable donations made during the year amounted to £2,040 (2007: £750). No political donations were made during the year (2007: Nil).

Research and Development
The Group has a structured research and development programme with the aim of identifying and bringing to market new pharmaceutical
products. Investment in research and development is seen as key to further strengthen the Group’s competitive position. The expense on this
activity for the year ended 30 June 2008 was £2,408,000 (2007: £1,645,000) and a further £1,331,000 less £123,000 amortisation (2007:
£1,680,000 less £52,000 amortisation) was capitalised as development costs.

Employees
The Group has a policy of offering equal opportunities to employees at all levels in respect of conditions of work. Throughout the Group it is the
intention of the Directors to provide possible employment opportunities and training for disabled people and employees who become disabled,
having due regard to aptitude and abilities. Further details can be found in the Social, Ethical and Environmental Responsibilities Statement on
pages 45 and 46.

Acquisitions
On 15 January 2008 the Group successfully completed the acquisition of VetXX Holdings A/S for a total consideration of £65.2 million (including
expenses). VetXX Holdings A/S is based in Denmark and operates in nine other European countries, namely Norway, Finland, Sweden, Holland,
Spain, Portugal, France, Ireland and the UK. More information in relation to the acquisition and its integration within the Group can be found in
the Business Review on pages 10 to 23.

Suppliers
The Company does not follow any code of practice or standard regarding the payment of suppliers but seeks to agree the terms of payment
with suppliers prior to the placing of business and it is the Company’s policy to settle liabilities by the due date. At 30 June 2008, the Group had
an average of 73 days (2007: 74 days) purchases outstanding in creditors. The Company had an average of nil days (2007: nil days) purchases
outstanding in creditors.

Significant Agreements
The Company has entered into a number of significant agreements which ordinarily would be terminable upon a change of control of the
Company, such as:
— Banking facilities agreement; and
— Various distribution agreements.

Substantial Shareholdings
In accordance with the Disclosure Rules and Transparency Rules of the Financial Services Authority, as at 26 August 2008, the Company had been
notified of the following interests exceeding the 3% notification threshold:

Schroder Investment Management
Legal & General Investment Management
Rathbone Unit Trust Management
BlackRock Investment Management (UK)
Standard Life Investment Management
Insight Investment Management
Invesco Asset Management

No. of Shares

% of
Shares Held

8,147,749
5,053,820
4,664,601
3,815,060
3,359,279
3,244,427
2,089,080

12.49
7.75
7.15
5.85
5.15
4.97
3.20

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Directors’ Report

Audit Information
Each of the Directors who held office at the date of the approval of this Directors’ Report confirms that, so far as he is aware, there is no relevant
audit information of which the Company’s auditors are unaware, and each Director has taken all the steps that he ought to have undertaken as a
Director to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

Auditors
A resolution to reappoint KPMG Audit Plc as auditors of the Company and to authorise the Directors to determine their remuneration will be
proposed at the forthcoming Annual General Meeting.

Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements
The statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements can be found on page 47.

Directors’ and Officers’ Liability
The Company maintains an appropriate level of Directors’ and Officers’ insurance whereby Directors are indemnified against liabilities to third
parties to the extent permitted by the Companies Act. The Directors also benefited from qualifying third party indemnity provisions in place
during the financial year and at the date of this report. A copy of the indemnity provisions will be available for inspection at the Annual General
Meeting.

Annual General Meeting
The 2008 Annual General Meeting of the Company will be held at 9.00 am on 7 November 2008. In accordance with the Combined Code the
notice of the meeting together with the Annual Report and financial statements are posted to Shareholders at least 20 working days before the
Annual General Meeting. The package sent to Shareholders includes a summary of the business to be covered at the Annual General Meeting. 
A separate resolution is prepared 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 are disclosed at the meeting and will be made available as soon as reasonably practicable after the
meeting on the Company website at www.dechra.com.

The notice of meeting, which includes the special business to be transacted at the Annual General Meeting, is included within the Circular to
Shareholders.

By order of the Board

Zoe Bamford 
Company Secretary
Dechra Pharmaceuticals PLC
2 September 2008

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Corporate Governance

The Board recognises its accountability to Shareholders and is committed to maintaining high standards of corporate governance. In the opinion
of the Directors, the Company has complied throughout the period under review with Section 1 of the 2006 FRC Combined Code on Corporate
Governance (the Code) in all aspects.

Application of the principles of the Combined Code
Section 1 of the Combined Code sets out the main and supporting principles of good governance for companies. The following report details
how the Company has applied the principles of Section 1 of the Combined Code to its activities. 

DIRECTORS

The Board
The Board is collectively responsible for the success of the Company and provides entrepreneurial leadership within an embedded framework
which allows for the ongoing assessment and management of risk. There is a formal schedule of matters reserved to the Board. These include
the approval of corporate policies, strategy, plans and budgets, acquisitions and disposals of companies or businesses, major investment and
financial decisions and major management or organisational changes.

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 business, major items of strategic planning, investments and
significant policy issues.

The Board has formally delegated specific responsibilities to Board Committees, including the Audit, Remuneration and Nomination Committees.
The Board will also appoint committees to approve specific processes as deemed necessary.

The Board is scheduled to meet eleven times per annum with additional meetings called if necessary, including two meetings where the full year
and half year results are dealt with. 

Attendance at meetings during the year to 30 June 2008 was as follows:

Name

M Redmond
MM Diamond
NW Warner
ID Page
SD Evans
ETW Torr

Board
(11 meetings)

Audit
(3 meetings)

Remuneration
(5 meetings)

Nomination
(1 meeting)

11
11
10
11
11
11

n/a
3
3
n/a
n/a
n/a

5
5
5
n/a
n/a
n/a

1
1
1
n/a
n/a
n/a

Note: n/a denotes that the Director is not a member of this committee, but may attend by invitation.

The Chairman regularly holds meetings with the Non-Executive Directors without the Executive Directors being present. Led by the Senior
Independent Director, the Non-Executive Directors meet without the Chairman present, at least annually, to appraise the Chairman’s
performance.

Should Directors have any concerns which cannot be resolved about the running of the Company or a proposed action, they have the right to
ensure this is recorded in the minutes. Further, on resignation, should a Non-Executive Director have any concerns, the Chairman would invite him
to provide a written statement for circulation to the Board.

The Company maintains an appropriate level of Directors’ and Officers’ insurance in respect of legal action against Directors.

Chairman and Chief Executive
There is a clear division of responsibilities between the Chairman and Chief Executive. During the year the Board reviewed and approved new
Terms of Reference in respect of the Chairman and the Chief Executive. The Chairman is responsible for the leadership and effective working of
the Board and to ensure that each Director, in particular the Non-Executive Directors, are able to make an effective contribution to the Board.
The Chief Executive is responsible for the management of the Company, implementing policies and strategies determined by the Board. 

The Chairman, at the time of his appointment, did meet and continues to meet the independence criteria set out in the Code. His appointment was
rigorously reviewed by the Board last year and they considered that he continues to fulfil his role to the highest standard, providing appropriate
support and direction to the Company and its Executives.

Board Balance and Independence
The Board consists of the Non-Executive Chairman, two other Non-Executive Directors and three Executive Directors (including the Chief
Executive). Taking into account the provisions of the Code, the Board has determined that each of the Non-Executive Directors is independent
and free from any relationships which could compromise their independent judgement. Further, the Board considers it is of sufficient size for the
discharge of its duties and that the balance of skills and expertise is appropriate for the requirements of the business. The details of the Board of
Directors are shown on page 28 and in the Directors’ Report on page 30. 

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Corporate Governance

The Board considers MM Diamond to be the Senior Independent Director and he is available to Shareholders if they have concerns which
contact through the normal channels have failed to resolve or for which such contact is inappropriate.

The Board considers that all the Non-Executive Directors are independent of management and free of any business or other relationship which
could materially interfere with or compromise the exercise of their independent judgement. 

Appointments to the Board
The Board has an established Nomination Committee to lead the process for Board appointments and to make recommendations to the Board.
The Nomination Committee comprises M Redmond (Chairman), MM Diamond, and NW Warner. The Chairman will not chair the Committee
meeting when it is dealing with the appointment of a successor to the Chairman.

The Nomination Committee normally meets once a year and its terms of reference are available on the Company website at www.dechra.com.

The terms of reference set out the Nomination Committee’s role and the authority delegated to it by the Board. They include the following
responsibilities:

To oversee the plans for management succession;

To recommend appointments to the Board;

To evaluate the effectiveness of the Non-Executive Directors;

To consider the structure, size and composition of the Board generally.

There have been no appointments to the Board during the year to 30 June 2008.

Other significant commitments of the Chairman and the Non-Executive Directors were disclosed to the Board before appointment and the Board
is notified of any subsequent changes. None of the Executive Directors hold a Non-Executive Directorship.

The letters of appointment of the Non-Executive Directors will continue to be available for inspection at the Company’s registered office. Both the
letters of appointment of the Non-Executive Directors and the Service Contracts of the Executive Directors will be on display at the forthcoming
Annual General Meeting.

Information and Professional Development
The Directors are supplied in a timely manner with all relevant documentation and financial information to assist them in the discharge of their
duties. This includes information on the Company’s operational and financial performance. At least one Board meeting per year is held at one of
the Group’s operational sites to enable the Directors to update and maintain their knowledge and familiarity with the Group’s operations.

All newly appointed Directors receive an induction programme to the Company including corporate governance training and background to the
Company. All Directors are encouraged to keep up to date on all matters relevant to the Group and attend briefings and seminars as
appropriate.

Each Director is entitled on request to receive information to enable him to make informed judgements and adequately discharge his duties. In
addition, all Directors have access to the advice and services of the Company Secretary and senior managers generally, and may take
independent professional advice at the Company’s expense in connection with their duties. The Company Secretary is responsible to the Board
for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. Both the appointment and removal
of the Company Secretary is a matter for the Board as a whole.

The Board has an approved procedure for all Directors to take independent professional advice at the Company’s expense.

Performance Evaluation
The Board has developed a formal process of reviewing its own effectiveness and the effectiveness of the Board Committees. This is based on a
combination of written reviews by individual Directors, discussion with the Chairman and review by the Board as a whole. As part of this process
the Board considers the performance of individual Directors. This process has been undertaken during the year.

Re-election
On appointment, the Directors are required to seek election at the first Annual General Meeting following appointment. One-third 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. At the forthcoming Annual General Meeting ID Page and NW Warner retire by rotation in accordance with the Articles of
Association. The Board strongly supports their re-election.

REMUNERATION
Details of Directors’ remuneration are set out in the Directors’ Remuneration Report at pages 38 to 44. This details the Company’s compliance
with the Code’s requirements with regard to remuneration matters. The terms of reference of the Remuneration Committee are available on the
Company website at www.dechra.com.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

ACCOUNTABILITY AND AUDIT

Financial Reporting
The Board seeks to present a balanced and understandable assessment of the Group’s position and prospects, through the Chairman’s
Statement, the Directors’ Business Review and the Directors’ Report.

The respective responsibilities of the Directors and the auditors in connection with the Financial Statements are explained in the Statement of
Directors’ Responsibilities and the Auditors’ Report on pages 47 and 48 respectively.

Internal Control
The Directors are responsible for maintaining the Group’s system of internal control, and for reviewing its effectiveness. The system of internal
control aims to safeguard the Company’s assets, ensure that proper accounting records are maintained, ensure compliance with statutory and
regulatory requirements and ensure the effectiveness and efficiency of operations including the assessment and management of risk. The
system of internal control is designed to manage rather than eliminate risk of failure to achieve business objectives and can only provide
reasonable and not absolute assurance, particularly against material misstatement or loss. 

The Group has a well-established, ongoing and embedded framework of internal financial and operational control for identifying, evaluating and
managing the risks faced by the Group. This framework has been in place throughout the year under review, and has continued up to the date
of approval of the Annual Report.

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 prepares and updates a quarterly thorough review of relevant risk areas and systems of internal control. The review is
structured by business area and key risk strategy and is based upon a summary of information prepared and reviewed by divisional
management on an ongoing basis. The current review was prepared to 30 June 2008.

The Group’s key systems of control include:

Business Plans
Business plans provide a framework from which annual budgets and forecasts are agreed with each business unit, 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. Actual performance during the year is monitored monthly against budget, forecast and previous year. Full year forecasts
are updated at regular intervals during the year based on trended historical data and realistic forecasts.

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 determined by the individual businesses.

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

The Company and its business units operate control procedures designed to ensure complete and accurate accounting of financial transactions
and to limit the loss of assets due to fraud. Measures taken include physical controls, segregation of duties in key areas, and internal reviews
and checks.

Key functions such as tax, treasury, insurance, legal and personnel are controlled centrally.

Audit Committee and Auditors
Information relating to the Audit Committee is set out in the Audit Committee Report on page 37. This details the Company’s compliance with
the Combined Code’s requirements in respect of audit matters. The terms of reference of the Audit Committee are available on the Company
website at www.dechra.com.

Responsibility for monitoring the Group’s system of internal control rests with the Board. It is assisted 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 Audit Committee reviews the requirement for an internal audit function annually.

The Board has reviewed the effectiveness of the Group’s internal control systems for the period from 1 July 2007 to the date of approval of the
financial statements which has included quarterly business risk reviews and quarterly internal control reporting.

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

The external auditors are engaged to express an opinion of the Company’s Annual Report and Accounts. They independently and objectively
review management’s reporting of the Group’s consolidated results and financial position. In addition, they review the systems of internal control
and the data contained in the Annual Report and Accounts to the level necessary for expressing their audit opinion.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Corporate Governance continued

RELATIONS WITH SHAREHOLDERS

Dialogue with Institutional Shareholders
Relationships with Shareholders receive high priority and a rolling programme of meetings between institutional Shareholders and Executive
Directors is held throughout the year. These meetings are in addition to the annual and interim results presentations and the Annual General
Meeting and seek to foster mutual understanding of the Company’s and Shareholders’ objectives. Such meetings are conducted so as to
ensure protection of share price sensitive information that has not already been made generally available to the 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.

Constructive use of the Annual General Meeting
All members of the Board usually attend the Annual General Meeting. The Chairmen of the Audit Committee, Remuneration Committee and
Nomination Committee will normally be available to answer Shareholders’ questions at that meeting.

Notice of the meeting, together with the Annual Report and financial statements, is posted to Shareholders not less than 20 working days prior
to the date of the Annual General Meeting. The information sent to Shareholders includes a summary of the business to be covered at the
Annual General Meeting, where a separate resolution is prepared for each substantive matter. When a vote is taken on a show of hands, the
level of proxies received for and against the resolution and any abstentions are disclosed at the meeting and will be made available as soon as
practicable after the meeting on the Company website at www.dechra.com.

At the Annual General Meeting there is an opportunity, following the formal business, for informal communications between investors and
Directors.

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’s financial statements have been prepared on
the basis that the Group is a going concern.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Audit Committee Report

Membership
The members of the Audit Committee (the Committee) are currently:

NW Warner (Chairman of the Committee)
MM Diamond (Senior Independent Director)

The Board considers that NW Warner has recent and relevant financial experience gained through his position as Finance Director of Chloride
Group PLC, as required by the Combined Code on Corporate Governance.

The Company Secretary acts as secretary to the Committee.

Responsibilities
The main role and responsibilities of the Committee are set out in the written terms of reference which are available on the Company website at
www.dechra.com. The main responsibilities are:

To monitor the integrity of the financial statements of the Company, reviewing the annual and half year reports in detail to ensure they
present a balanced assessment of the Company’s position and prospects which is understandable to Shareholders and potential investors.
To review the effectiveness of the Company’s internal controls and risk management systems as described on pages 35 and 36 and, in
conjunction with the auditors, consider the accounting policies adopted by the Company.
To review the Company’s whistle-blowing arrangements.
To oversee the relationship with the external auditors. The Committee makes recommendations to the Board on the appointment of the
external auditors, approves their remuneration, monitors their independence and objectivity, and monitors the effectiveness of the audit
process and sets the policy for non-audit work.
To make recommendations to the Board on the requirement for an internal audit function.

In the performance of its duties the Committee had access to the services of the external auditors and is at liberty to obtain outside professional
advice as necessary. Further, the external auditors have direct access to the Committee Chairman outside the formal Committee meetings. 

The Committee monitors and reviews the effectiveness of internal control activities. Given the systems of internal control discussed on page 35,
and due to the present size of the Group, the Committee currently believes that an internal audit function is not required.

Meetings 
The Committee met three times during the year, timed to coincide with the financial and reporting timetable of the Company; namely July,
August and February. Members’ attendance at the meetings held during the year can be found on page 33. 

At the meeting in July the Committee considered and agreed with the external auditors the approach and overall scope of the audit to be
commenced in respect of the 2007 year end. The Committee also carried out a formal review of its own effectiveness led by the Committee
Chairman.

A further Committee meeting was held in August which was primarily concerned with a review of the draft financial statements and draft
preliminary statement prior to their submission to the Board. The Committee also considered, amongst other matters, a review of internal
controls, auditor effectiveness and amendments to the Company’s Whistle-Blowing Policy, a copy of which can be found on the Company
website at www.dechra.com. 

At the meeting in February, in addition to routine matters the Committee also considered the half year results and draft half year announcement.

The external auditors attend meetings of the Committee other than when their appointment or performance is being reviewed. The Chief
Executive, Chairman, Group Finance Director and other senior finance staff attend as appropriate.

The performance, cost and independence of the external auditors is reviewed annually by the Committee, together with a review of the level of
service provided by the external auditors to the Group.

The Committee has discussions at least once a year with the auditors without the management being present.

The scope of the year’s audit is discussed in advance by the Committee and audit fees are reviewed and approved by the Committee. Professional
rules require rotation of the Group Audit Engagement Director every five years and this took place during the 2005/2006 financial year. 

The annual appointment of the auditors by our Shareholders at the Annual General Meeting is a fundamental safeguard but, beyond this, controls are in
place to ensure that additional work performed by the auditors is appropriate and subject to proper review as discussed below.

Auditor Independence
With respect to non-audit assignments undertaken by the external auditors, the Company has developed a policy to ensure that the provision of
such services does not impair their independence or objectivity. When considering the use of external auditors to undertake non-audit work, the
Chief Executive and Group Finance Director do at all times give consideration to the provisions of the Smith Report with regard to the
preservation of independence.

The Chief Executive and the Group Finance Director have authority to commission the external auditors to undertake non-audit work where there is
a specific project with a cost not exceeding £25,000 and total non-audit fees in any year do not exceed £80,000. This work has to be reported to
the Audit Committee at the meeting where the Annual Report is considered. If the cost is expected to exceed the established levels then the prior
approval of the Audit Committee is required before the work is commissioned. In all cases, other potential providers are adequately considered.

During the current year, the external auditors were commissioned to carry out extensive due diligence, working capital and reporting accountant
work in respect of the VetXX acquisition. The external auditors were considered most appropriate to perform this work given both their
knowledge of the existing business and the requirement to report on the existing as well as the enlarged Group. The fees paid to the external
auditors for this work were in excess of the limits above, and prior Board approval was therefore obtained.

The external auditors annually confirm their policies on ensuring audit independence and provide the Committee with a report on their own audit
quality procedures.

Effectiveness Review
During the year, the Committee reviewed its own effectiveness through a process led by the Committee Chairman. The results of the review were
advised to the Committee and the Board.

Based on the Committee’s review of the performance of the external auditors and on the planning and execution of the annual audit, the Committee has
recommended to the Board that a resolution to reappoint KPMG Audit Plc be proposed at the forthcoming Annual General Meeting.

NW Warner
Chairman — Audit Committee
2 September 2008

www.dechra.com
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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Directors’ Remuneration Report

The Report is presented in accordance with the relevant provisions of the Combined Code and the Directors’ Remuneration Report Regulations
2002 (the Regulations). The Report is divided into two sections, unaudited and audited information, in accordance with the Regulations. The
audited information commences on page 43.

The Board is responsible overall for the Group’s remuneration policy and the setting of the Non-Executive Directors’ fees, although the task of
determining and monitoring the remuneration packages of the Executive Directors and agreeing the Chairman’s fee level has been delegated to
the Committee.

This Remuneration Report will be submitted at the 2008 Annual General Meeting for the approval of the Shareholders.

The Remuneration Committee
The Committee consists exclusively of independent Non-Executive Directors and presently comprises MM Diamond, M Redmond and 
NW Warner. The Committee is chaired by MM Diamond and met five times during the year. The Chief Executive attended all meetings in order to
assist on matters concerning remuneration of other senior Executives within the Group; however, the Chief Executive was not present during the
part of the meetings where his own remuneration was discussed. The attendance record of the Committee members is detailed within the
Corporate Governance Report on page 33. The Committee may seek any information it requires from any employee or Director, and all
employees and Directors are required to co-operate with any request made by the Committee. Z Bamford (Company Secretary) also provided
information to the Committee during the year.

During the year the Committee also received independent Executive remuneration advice (excluding advice in respect of pensions) from
remuneration consultants, Hewitt New Bridge Street (HNBS). The level of advice received is discussed in further detail within this Report.

The Committee has its own terms of reference, which are approved by the Board. These were reviewed during the year to ensure compliance
with the Combined Code. Copies can be obtained from the Company Secretary or via the Company website at www.dechra.com. MM Diamond
and Z Bamford are available to Shareholders to discuss remuneration policy.

Role of the Committee
The Committee is responsible for determining, on behalf of the Board, the framework of remuneration for the Executive Directors and for
ensuring and reviewing the ongoing appropriateness and relevance of the remuneration policy. When setting the Executive Directors’
remuneration packages the Committee always considers (i) remuneration packages payable to Executives employed in comparable companies
and (ii) pay increases within the Group more generally. The Committee also monitors remuneration practice amongst other senior Executives and
sets the Chairman’s fee level.

Remuneration Policy for Executive Directors
Dechra’s policy on Executive Directors’ remuneration has been further developed by the Committee during the year. The resultant policy is to
provide Directors’ remuneration packages that:

attract, retain and incentivise Executives of the calibre required to ensure that the Group is managed successfully to the benefit of
Shareholders;
provide appropriate alignment between Dechra’s strategic goals, Shareholder returns and Executive reward;
have a competitive mix of base salary and short and long-term incentives with a significant proportion of the package determined by
stretching targets linked to Dechra’s performance;
are consistent with corporate governance best practice guidelines so long as the Committee believes that compliance with such guidelines
is in the best interests of Shareholders.

Remuneration Review
Every two years the Committee obtains an independent review of its Executive Directors’ remuneration packages to assess whether they are
consistent with the Company’s remuneration policy. Existing remuneration arrangements comprised:

Salary: Ian Page — £300,000, Simon Evans — £175,000, Ed Torr — £160,000
Pension worth 14% of salary
Sundry benefits in kind, including fully expensed car and private medical insurance
Annual Bonus worth up to 60% of salary based on profit targets and personal objectives
Annual share awards under the Executive Incentive Plan (EIP) worth up to 50% of salary based on Total Shareholder Return (TSR) relative to
other FTSE Small Cap companies

During 2008 HNBS carried out the latest independent review for the Committee and their primary conclusions were that:

the value of the Executive Directors’ existing remuneration packages was significantly below market levels both compared to direct peers
(being a selection of companies drawn from the Pharmaceuticals/Biotechnology, Health Care Equipment and Services Sectors) and also
compared to companies drawn from all sectors of a similar market capitalisation and turnover;
existing remuneration arrangements were skewed significantly more towards fixed pay rather than performance-related pay than is
standard;
the relative simplicity of the existing incentive structure (namely an annual bonus and a single long-term scheme) was valued by Executives;
the existing use of a TSR performance target to determine the vesting of EIP awards was felt to be appropriate, particularly so as to provide
alignment with Shareholder interests;
although the current Executive Directors have considerable shareholdings, the absence of a formal share ownership guideline was noted as
being out of step with current best practice.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

In light of the review, the Committee proposed a number of alterations to the remuneration structure which were discussed with the Company’s
top ten Shareholders as well as The Association of British Insurers (ABI) and Research, Recommendations and Electronic Voting (RREV). The
revised remuneration structure, which results in a relatively balanced split between the fixed and performance-related elements of the ongoing
remuneration arrangements, is outlined in the following sections.

The revised structure does involve a significant increase in potential pay rewards for the Executive Directors. The Committee felt this was
required and appropriate for a number of reasons:

The Group has continued to grow rapidly with the result that the value of Executive packages is significantly behind the market. Additionally,
individual Executive roles have become larger as a result of the increased complexity and geography of the Group as it evolves into an
international business. The Committee is very keen to retain what it regards as a highly marketable Executive team that has been key to
recent growth and remains central to the future prospects of the Group. Accordingly, whilst not obsessed with chasing the market, the
Committee needs to ensure that packages are suitably competitive to retain these Executives. This has necessitated significant adjustments
so as to bring them more into line with mid-market levels.
The largest percentage pay increase is attributable to ETW Torr and reflects the significant expansion of his role since the recent acquisition
of VetXX when he became the Managing Director of VetXX (now known as DVP EU).
Approximately two-thirds of the increase in the potential value of the remuneration packages is performance-related so will only be
achievable if Dechra continues to perform strongly. Performance targets have also been made more stretching for the annual bonus and a
lower proportion of share awards will vest in future for median TSR performance. 

In summary, the Committee believes that the proposals will enable the Company to provide a remuneration package that is competitive,
challenging and, by rewarding Executives for significant financial and share price out-performance, aligned with the interests of its Shareholders.

Base Salary
The Committee has agreed that, so as to remain market competitive, base salaries should be increased with effect from 1 July 2008 to: 
ID Page — £350,000, SD Evans — £220,000 and ETW Torr — £210,000. 

Pensions 
The Company operates a Group Stakeholder personal pension scheme which has been effective since 1 July 2005. The Company will continue
to contribute 14% of salary on behalf of the Executive Directors.

Benefits in Kind
The Executive Directors receive other benefits, including the use of a fully expensed car, medical cover and life assurance scheme. 

Annual Bonus
The Executive Bonus Scheme rewards Executive Directors for achieving operating efficiencies and profitable growth in the relevant year by
reference to challenging but achievable operational targets determined at the beginning of the financial year.

Executive bonuses for the year ended 30 June 2009 are to be calculated as follows:

Annual cash bonus potential will be increased from 60% of salary to 100% of salary.
As in the current bonus scheme, up to 10% of salary can be earned based on the achievement of personal objectives. The personal
objectives of the Chief Executive will be set by the Chairman, and those of the other Executive Directors will be set by the Chief Executive.
This element of the bonus is payable at the sole discretion of the Remuneration Committee.
Up to 90% of salary (compared to 50% of salary in the current bonus scheme) can be earned based on Group profit targets set at the
beginning of the financial year (with payments as outlined in the chart below).

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80

70

60

50

40

30

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90

95

100

105

110

115

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The increase in annual bonus potential is part of the overall package of measures that the Committee believes is required in order to provide the
Directors with an appropriately competitive and incentivising remuneration package. 

However, as the chart illustrates, to counterbalance the increase in bonus potential, the revised scheme requires a tougher out-performance of
‘target’ (110% rather than 105% in the existing scheme) in order for the maximum bonus to be payable. As a result, there is only a limited
increase in bonus payable for achieving target performance. The Committee considers that this should ensure that incentives at the higher end
of the range are payable only for demonstrably superior Group performance. 

www.dechra.com
stock code: DPH

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Directors’ Remuneration Report continued

Long-Term Incentives
No further grants can be awarded to Executive Directors under the EIP which was granted approval by Shareholders at the Annual General Meeting 
on 23 October 2003 and expires in 2008. Shareholder approval will therefore be sought at the forthcoming Annual General Meeting, to be held on 
7 November 2008, for a new long-term share scheme (2008 LTIP).

As with the EIP, the 2008 LTIP will seek to provide a clear link between the remuneration of the Executive Directors and the creation of value for
Shareholders by rewarding the Executive Directors for the Company’s performance in terms of relative TSR.

The 2008 LTIP, subject to Shareholder approval, will allow the Executive Directors and selected senior Executives of the Company to receive a
conditional award of performance shares worth up to 150% of base salary (200% of salary in exceptional circumstances) although initially no awards
worth more than 100% of salary will be granted.

Vesting of performance shares will normally occur provided that:

(a)

the participant is still employed by the Group at the end of the three year vesting period; and 

(b)

to the extent that the pre-set performance targets have been satisfied over the three year performance period which will run from the start of
the financial year within which the award is granted. Performance targets for the proposed grant during the financial year ending 30 June 2009
will be determined by:

(1) An ‘underpin’ condition based on the Company’s adjusted diluted earnings per share performance — no awards will vest if the Company

adjusted diluted earnings per share has not grown by at least RPI + 3% per annum over the performance period. 

(2) The Company’s TSR performance — assuming that the underpin is achieved, vesting of the awards will be determined by the Company’s

TSR performance compared to the other constituents of the FTSE Small Cap sector at the start of the performance period. The TSR will
be calculated by comparing average performance over three months prior to the start and end of the performance period. Vesting will be
on the following basis:

TSR Performance

Below Median
Median
Between Median and Upper Quartile
Upper Quartile 

Vesting Percentage

0%
25%
Pro-rata vesting based on the Company’s ranking in the comparator group
100%

Further details of the 2008 LTIP are provided in the enclosed Circular to Shareholders for the 2008 Annual General Meeting and a resolution will be put to
Shareholders at that meeting to approve the 2008 LTIP. Subject to Shareholder approval, the initial awards under this scheme will be made during 2008.

The Company also operates an Approved Share Option Scheme, an Unapproved Share Option Scheme together with a Savings Related Share Options
Scheme (SAYE). Executive Directors are entitled to participate in the SAYE scheme but are not entitled to participate in the Approved Share Option
Scheme or the Unapproved Share Option Scheme by reason of their participation in the 2008 LTIP. 

Share Ownership Guideline
To be consistent with best practice, a formal share ownership guideline will be introduced for Executive Directors requiring them to retain at least half of
any future share awards vesting as shares (after paying any tax due on the shares) until they have a holding of Dechra shares worth at least 100% of
their base salary. Currently, all of the Executive Directors’ shareholdings equate to over 100% of their base salary.

Contracts of Services
Each Executive Director has a service contract with the Company which contains details regarding remuneration, 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 6 months’
notice. 

Non-Executive Directors have a service contract for an initial 12 month period which is thereafter terminated by either party giving 12 months’ notice. 

Details of Directors’ service contracts and notice periods are set out below.

Name

M Redmond
ID Page
SD Evans
ETW Torr
MM Diamond
NW Warner

Commencement date 

25 April 2001
23 August 2000
23 August 2000
23 August 2000
23 August 2000
2 May 2003

Director

12 months
6 months
6 months
6 months
12 months
12 months

Notice Period

Company

12 months
12 months
12 months
12 months
12 months
12 months

There are no expiry dates applicable to either Executive or Non-Executive Directors’ service contracts.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

The Company may, in its absolute discretion at any time after written notice has been given by either party, lawfully terminate the service contract by
paying to the Director an amount equal to his salary entitlement for the unexpired period of notice together with an amount representing the fair value of
any other benefits to which the Director is contractually entitled for the unexpired period of notice (subject in either case to a deduction at source of
income tax and National Insurance contributions).

In the event that the service contract is terminated before the end of any financial year, the Director shall not be entitled to any bonus in respect of that
financial year.

Non-Executive Directors’ compensation is confined to 12 months’ remuneration.

Individual Directors’ eligibility for the various elements of compensation is set out below:

Name

M Redmond
ID Page
SD Evans
ETW Torr
MM Diamond
NW Warner

Salary 

Bonus

12 months
12 months
12 months
12 months
12 months
12 months

n/a
nil
nil
nil
n/a
n/a

Benefits

n/a
12 months
12 months
12 months
n/a
n/a

Where applicable, payment of this compensation would be in full and final settlement of all claims other than in respect of share options or awards and
pension arrangements. In an appropriate case the Directors would have regard to the departing Director’s duty to mitigate loss, except in the event of
dismissal following a change of control of the Company.

Other than as described above, there are no express provisions within the Directors’ service contracts for the payment of compensation or liquidated
damages on termination of employment. 

No compensation payments were made to Executive or Non-Executive Directors during the year.

Non-Executive Directors
The Board aims to recruit and retain Non-Executive Directors of a high calibre with the requisite experience required to achieve success for the
Company and its Shareholders. 

The fees of the Chairman are determined by the Committee and the fees of the Non-Executive Directors are determined by the Board following a
recommendation from both the Chief Executive and the Chairman. It should be noted that neither the Chairman nor the Non-Executive Directors take
part in the determination of their own remuneration.

Non-Executive Directors are paid a basic fee with additional fees paid for the chairing of Committees. Following a review by HNBS during the year,
which benchmarked the current Non-Executive Director fee levels against the same companies used for benchmarking the Executive Directors’
remuneration packages, it was agreed that fee levels should be increased from 1 July 2008. The annual fee level for 2008/09 is as follows:

Office

Chairman

Non-Executive Director

Senior Non-Executive additional fee

Remuneration Committee Chairmanship additional fee

Audit Committee Chairmanship additional fee

Non-Executive Directors are not eligible to participate in any of the Company’s share schemes, incentive schemes or pension schemes. 

www.dechra.com
stock code: DPH

15400

09/09/2008

Proof 8

Fee
£’000

80

31

3

5

8

41

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Directors’ Remuneration Report continued

Directors’ Shareholdings
The beneficial interests of the Directors in office and their families in the share capital of Dechra Pharmaceuticals PLC as at 30 June 2008 were as follows:

Shareholdings

M Redmond

ID Page

SD Evans

ETW Torr

MM Diamond

NW Warner

Ordinary Shares
2008

Ordinary Shares
2007 

41,475

759,332

806,370

426,796

6,100

2,691

35,000

662,819

749,131

390,934

5,000

2,206

There have been no changes in the holdings of the Directors between 30 June and 26 August 2008.

Total Shareholder Return
The graph below shows the Total Shareholder Return performance of the Company over the past five years compared with the Total Shareholder
Return over the same period for the FTSE Small Cap Total Return Index. The FTSE Small Cap Index is considered to be an appropriate index as the
Company is a constituent of that index.

)

p

(

e
c
i
r
P
e
r
a
h
S

Dechra  Pharmaceuticals TSR

FTSE SMALL CAP TSR

500p

450p

400p

350p

300p

250p

200p

150p

100p

50p

0p

3
0
e
n
u
J

3
0
t
p
e
S

3
0
c
e
D

4
0
r
a
M

4
0
e
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J

4
0
t
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e
S

4
0
c
e
D

5
0
r
a
M

5
0
e
n
u
J

5
0
t
p
e
S

5
0
c
e
D

6
0
r
a
M

6
0
e
n
u
J

6
0
t
p
e
S

6
0
c
e
D

7
0
r
a
M

7
0
e
n
u
J

8
0
t
p
e
S

8
0
c
e
D

8
0
r
a
M

8
0
e
n
u
J

Effectiveness Review
During the year, the Committee reviewed its effectiveness through a process led by the Committee Chairman. The findings were reported to the
Committee and the Board.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Audited Information
The auditors are required to report on the information contained in the remainder of this report.

Summary of Remuneration

Executive Directors

ID Page (Chief Executive)

SD Evans 

ETW Torr 

Non-Executive Directors

M Redmond (Chairman) 

MM Diamond

NW Warner

Salaries
& Fees
£’000

Bonuses
£’000

Other
Benefits
£’000

Total 
2008
£’000

Total
2007
£’000 

300

175

160

60

31

29

755

180

105

96

—

—

—

381

69

47

37

—

—

—

549

327

293

60

31

29

153

1,289

389

256

233

52

29

27

986

Executive bonuses for the year ended 30 June 2008 (as reflected in the table above) were determined as follows:

Profit performance — 10% of salary payable upon the achievement of 95% of Group profit target rising to 50% of salary payable upon the
achievement of 105% of Group profit target. Actual performance reflected 115% of the profit target resulting in a payment worth 50% of salary.
Personal objectives — up to an additional 10% of salary was payable to Executive Directors upon the achievement of personal objectives. Actual
performance resulted in payments worth 10% of salary.

Executive Incentive Plan
Awards made under the Executive Incentive Plan are as follows:

ID Page

SD Evans

ETW Torr

Award
date

2004

2005

2006

2008

2004

2005

2006

2008

2004

2005

2006

2008

Number 
of shares
at 30 June
2007

48,589

34,861

47,412

—

130,862

33,096

23,904

30,263

—

87,263

31,348

22,908

28,245

—

82,501

Granted
during
the year

—

—

—

37,975

37,975

—

—

—

22,152

22,152

—

—

—

20,253

20,253

Exercised
during
the year

(48,589)

—

—

—

(48,589)

(33,096)

—

—

—

(33,096)

(31,348)

—

—

—

(31,348)

Number
of shares
at 30 June
2008

Performance
period

Share Price at
Share Price at
date of award date of exercise
pence

pence

—

2004–2007

34,861

47,412

37,975

120,248

2005–2008

2006–2009

2007–2010

—

2004–2007

23,904

30,263

22,152

76,319

2005–2008

2006–2009

2007–2010

—

2004–2007

22,908

28,245

20,253

71,406

2005–2008

2006–2009

2007–2010

159.5

251

250.75

386

159.5

251

250.75

386

159.5

251

250.75

386

350

—

—

—

350

—

—

—

350

—

—

—

Awards under the EIP vest based on Dechra’s TSR performance over a three year performance period starting on 1 July prior to date of grant relative to
the FTSE Small Cap Total Return Index with 30% of awards vesting for median performance rising to 100% for upper quartile performance. No awards
vest unless the Committee is satisfied with the underlying financial performance of the Company over the performance period.

During the financial year awards granted in 2004 became exercisable. Independent verification by HNBS showed that the Company’s TSR performance
for the three year period to 30 June 2007 was in the top quartile of the FTSE Small Cap Total Return Index. The Committee also determined that the
underlying financial performance of the Company over the performance period had been satisfactory. The full award was therefore exercisable.

Independent verification has also recently been sought from HNBS in respect of the satisfaction of the performance targets for awards which vested as at
30 June 2008. It has been confirmed to the Committee that the Company’s TSR performance for the three year period to 30 June 2008 was again in the
top quartile of the FTSE Small Cap Total Return Index. Subject to the Committee confirming that the underlying financial performance of the Company
has been satisfactory throughout the performance period, the awards will be capable of exercise for a 90 day period commencing on 2 September 2008.

The aggregate gain made by the Executive Directors on share options exercised during 2008 was £589,000. The aggregate gain made by the
Executive Directors on share options exercised during 2007 was £694,000.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Directors’ Remuneration Report continued

SAYE Scheme
Directors’ entitlements under the SAYE Scheme are as follows:

Market price
at date
of grant
pence

Award
date

Exercise
price
pence

Exercise
dates

At
30 June
2007
number

Exercised
number

Granted
number

Lapsed
number 

ID Page

SD Evans

ETW Torr

2 April 2003

15 October 2004

15 October 2004

18 October 2005

48

198

198

255

39 June 2008

42,115

(42,115)

158

158

204

Jan 2008

Jan 2008

Dec 2008

7,641

3,056

2,750

(7,641)

(3,056)

—

55,562

(52,812)

—

—

—

—

—

—

—

—

—

—

At
30 June
2008
number

—

—

—

2,750

2,750

Share Price
The middle market price for the Company’s shares on 30 June 2008 was 420p and the range of prices during the year was 306p to 462.75p.

Pension Entitlement
All Executive Directors were members of the Dechra Pharmaceutical PLC Group Stakeholder personal pension scheme throughout 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 paid as follows:

Age

47

44

48

Contributions
2008
£000

Contributions
2007
£000 

42

25

22

89

31

20

18

69

ID Page

SD Evans 

ETW Torr

By order of the Board

Malcolm Diamond
Chairman — Remuneration Committee
2 September 2008

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Social, Ethical and Environmental Responsibilities

A responsible approach to our stakeholders and the wider community is seen by the Board to be fundamental to the Group. The conduct of the
Group towards social, environmental, ethical and health and safety issues is recognised to have an impact on our reputation and the
implementation of policies and systems continues. 

The Board takes ultimate responsibility for Corporate Social Responsibility (CSR) and continues to be committed to developing and
implementing appropriate policies to create and maintain long-term value for Shareholders. Sound business ethics help to minimise risk, ensure
legal compliance and enhance Company efficiency. The need to review and manage risks to the short and long-term value of the Company
arising from CSR is recognised by the Board and it considers that it has received adequate information to review these risks and has not
identified any risks to the business that could affect its future value.

Environmental Policy
The Group recognises the importance of good environmental controls. It is the Group’s policy to comply with and exceed environmental
legislation currently in place, adopt responsible environmental practices and be committed to minimising the impact of its operations on the
environment.

The Group is a registered member of a compliance scheme in respect of the Waste Packaging Obligations Regulations and, in addition, all of the
National Veterinary Services depots recycle waste cardboard back to UK paper mills, and waste polythene is also recycled back to UK recycling
agents. In particular, Dales Pharmaceuticals has achieved a 47% reduction in its landfill waste as a direct result of increased recycling activities.

A fleet of low CO2 emission diesel vehicles is maintained; these vehicles are replaced every three years via leasing agreements. In addition, a
number of LPG powered vehicles are being used in and around the London area. 

Our manufacturing unit, Dales Pharmaceuticals, continues to comply with, and exceed, effluent discharge standards into local water supplies,
this being monitored by Yorkshire Water Authority. Standard operating procedures are in place to ensure that contaminated waste is disposed of
under strict controls. Exhaust air is fully filtered from the manufacturing unit before discharge.

Dales Pharmaceuticals is now actively working towards achieving its ISO 140001 status. A gap analysis has recently been carried out which has
highlighted the procedures to be drafted. Funding has been obtained form the Manufacturing Advisory Service who are assisting Dales
Pharmaceuticals in obtaining the standard and it is hoped that the status will be achieved within the next financial year.

Dales Pharmaceuticals has previously worked closely with the Carbon Trust in order to review its respective energy consumption and a number
of areas identified where improvements can be made. As a result of the Carbon Trust audit of Dales Pharmaceuticals the manufacturing unit has
(amongst other things):

Installed low energy use (high frequency) lighting in all new or refurbished areas of the site;
Replaced and tuned the main burner unit in the factory steam boiler to effect maximum efficiency of the gas burn; and
Changed the grade of oil used in the oil fired heater unit contained in one of the buildings on site. This new grade of oil is significantly more
energy efficient.

The Carbon Trust has recently visited the Distribution Unit, NVS, in order to carry out an energy consumption audit and the results are awaited in
respect of this. It is envisaged that similar audits will be carried out at the remaining UK operating units within the next financial year.

Dechra Pharmaceuticals PLC has been involved in the Corporate Membership Scheme for the Staffordshire Wildlife Trust (the Trust) throughout
the financial year. The money provided by the Company has assisted the Trust in funding its core operating costs and assisted in helping support
community activities organised by the Trust, in particular, a guided walk at Parrotts Drumble (situated behind the Group’s Distribution unit, NVS)
that attracted over 100 participants.

The Group continues to review its environmental controls and encourage its own staff, suppliers and customers to achieve similar standards.

ETW Torr is the nominated Director responsible for environmental policies.

Business Ethics
The Board expects all of the Group’s business activities to be conducted in accordance with high standards of ethical conduct and full
compliance with all applicable national and international legislation. This includes, in particular, the provision of a safe working environment
including health and safety awareness, maintenance of fair and competitive employment practices, opposition to any bribery or corrupt business
practices, treating suppliers on a fair basis to build long-term relationships to our mutual benefit, and being responsive to our customers’ needs
and providing a high standard of customer care. 

A Whistle-Blowing Policy is in place whereby employees may report, in confidence, any suspected wrongdoings within the business where they
feel unable to discuss any such issue directly with local management. The policy was reviewed and updated during the year by the Audit
Committee. This policy is available to all employees via staff handbooks and the Company website at www.dechra.com.

Open and honest communication is positively encouraged between employees and management throughout the business.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Social, Ethical and Environmental Responsibilities continued

Health and Safety Policy
The Group attaches great importance to the health and safety of its employees and the public. The management are responsible and committed
to the maintenance, 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. All of its sites are registered with the British Safety Council.

Each unit within the Group has an active Health and Safety Committee comprising representatives from both management and employees. The
workforce nominates employee representatives. These committees meet on a regular basis to carry out a review of risk assessments and
standard operating procedures as well as investigating any concerns raised by individual employees. Each site has the requisite number of
employees trained in Health and Safety legislation.

A full health and safety report is presented at Divisional Board Meetings on a regular basis in the presence of Executive Directors. These reports
are summarised for subsequent review by the Board.

A transport risk review committee has been established to assess risks related to the vehicle fleet and establish control procedures. This
includes a quarterly licence check of all individuals who are able to drive Company vehicles, an investigation into all accidents and a disciplinary
procedure for speeding offences. This committee meets four times a year and issues raised by this committee are included at Health and Safety
meetings.

SD Evans is the nominated Director responsible for Health and Safety policies.

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 manufacturing site, Dales Pharmaceuticals, is registered with “Investors in People” and operates a Works Council.

Dales Pharmaceuticals also takes on a number of apprentices each year via the Modern Apprenticeship Scheme. Such employees are assisted
in achieving National Vocational Qualifications as part of their apprenticeship, usually work-based but also involving literacy and numeracy
modules. During the year, Claire Harrison, one of the apprentices employed at the unit, was put forward by her Training Officer from the North
Lancs Training Group for the Learning and Skills Council National Apprenticeship Award 2008. Claire went on to win the award.

It is the Company’s policy to provide equal recruitment and other opportunities for all employees, regardless of age, sex, religion, race or
disability. The Group gives full consideration to applications from disabled people, where they adequately fulfil the requirements of the role.

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 encouraged employees to share in the growth of the Company through eligibility to participate in the SAYE Scheme.

National apprentice of the year award

Dales employee Claire Harrison receiving the national apprentice of the year award
from Mike Annice

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Statement of Directors’ Responsibilities in respect 
of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with
applicable law and regulations.

Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they are
required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and have elected to prepare the Parent
Company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

The Group financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position and the performance
of the Group; the Companies Act 1985 provides in relation to such financial statements that references in the relevant part of that Act to financial
statements giving a true and fair view are references to their achieving a fair presentation.

The Parent Company financial statements are required by law to give a true and fair view of the state of affairs of the Parent Company.

In preparing each of the Group and Parent Company 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;
for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
for the Parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any
material departures disclosed and explained in the Parent Company financial statements; and 
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company
will continue in business.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of
the Parent Company and enable them to ensure that its 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. Under applicable law and regulations, the Directors are also responsible for preparing a Directors’ Report, Directors’
Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

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

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Independent Auditors’ Report

We have audited the Group and Parent Company financial statements (the “financial statements”) of Dechra Pharmaceuticals PLC for the year ended
30 June 2008 which comprise the Consolidated Income Statement, the Consolidated and Parent Company Balance Sheets, the Consolidated
Statement of Cash Flows, the Consolidated Statement of Changes in Shareholders’ Equity and the related notes. These financial statements have
been prepared under the accounting policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is
described as having been audited.

This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work
has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company,
and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective Responsibilities of Directors and Auditors
The Directors’ responsibilities for preparing the Annual Report and the Group financial statements in accordance with applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the EU, and for preparing the Parent Company financial statements and the
Directors’ Remuneration Report in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice)
are set out in the Statement of Directors’ Responsibilities on page 47.

Our responsibility is to audit the financial statements and the part of the Directors’ Remuneration Report to be audited in accordance with
relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of
the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the
Group financial statements, Article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the Directors’
Report is consistent with the financial statements. The information given in the Directors’ Report includes that specific information presented in
the Directors’ Business Review that is cross-referenced from the Business Review and Future Developments section of the Directors’ Report. In
addition we report to you if, in our opinion, 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 regarding Directors’ remuneration and other transactions is not disclosed.

We review whether the Corporate Governance Statement reflects the Company’s compliance with the nine provisions of the 2006 Combined
Code specified for our review by the Listing Rules of the Financial Services Authority, 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 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. Our responsibilities do not extend to any other information.

Basis of Audit Opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) 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 and the part of the Directors’
Remuneration Report to be audited. 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 and Company’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 and the part of the Directors’ Remuneration Report to be
audited 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 and the part of the Directors’ Remuneration Report to be audited.

Opinion
In our opinion:

the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the Group’s affairs
as at 30 June 2008 and of its profit for the year then ended; 
the Group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation;
the Parent Company financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the
state of the Parent Company’s affairs as at 30 June 2008; 
the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in
accordance with the Companies Act 1985; and
the information given in the Directors’ Report is consistent with the financial statements.

KPMG Audit Plc 
Chartered Accountants 
Registered Auditor
2 Cornwall Street
Birmingham
B3 2DL
2 September 2008

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Consolidated 
Financial Statements

Contents

50 Consolidated Income Statement

51 Consolidated Balance Sheet

52 Consolidated Statement of Changes in Shareholders’ Equity

53 Consolidated Statement of Cash Flows

55 Notes to the Consolidated Financial Statements

90 Financial History

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Consolidated Income Statement

For the year ended 30 June 2008

Revenue

Cost of sales

Gross profit

Distribution costs

Administrative expenses

Operating profit

Finance income 

Finance expense

Profit before taxation

Income tax expense

Profit for the year attributable to
equity holders of the parent

Earnings per share

Basic

Diluted

Dividend per share (interim paid
and final proposed for the year)

Note

2

2

3

4

6

8

10

10

9

2008

Amortisation 
of acquired
intangibles and
rationalisation
costs (note 5)
£’000

—

—

—

—

(5,071)

(5,071)

—

(77)

(5,148)

1,281

Adjusted
£’000

304,371

(250,771)

53,600

(13,360)

(21,098)

19,142

1,973

(4,262)

16,853

(4,668)

Total
£’000

304,371

Adjusted
£’000

253,803

(250,771)

(216,952)

53,600

(13,360)

(26,169)

14,071

1,973

(4,339)

11,705

(3,387)

36,851

(10,850)

(12,125)

13,876

1,044

(2,274)

12,646

(3,780)

12,185

(3,867)

8,318

8,866

2007

Amortisation
of acquired
intangibles and
rationalisation
costs (note 5)
£’000

—

—

—

—

(27)

(27)

—

—

(27)

8

(19)

14.20p

14.09p

8.25p

Total
£’000

253,803

(216,952)

36,851

(10,850)

(12,152)

13,849

1,044

(2,274)

12,619

(3,772)

8,847

16.86p

16.62p

7.50p

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Consolidated Balance Sheet

At 30 June 2008

ASSETS

Non-current assets

Intangible assets

Property, plant and equipment

Deferred tax assets

Total non-current assets

Current assets

Inventories

Trade and other receivables

Cash and cash equivalents

Total current assets

Total assets

LIABILITIES

Current liabilities

Borrowings

Trade and other payables

Current tax liabilities

Total current liabilities

Non-current liabilities

Borrowings

Deferred tax liabilities

Total non-current liabilities

Total liabilities

Net assets

EQUITY

Issued share capital

Share premium account

Hedging reserve

Foreign currency translation reserve

Merger reserve

Retained earnings

Total equity attributable to equity holders of the parent

Note

11

12

14

15

16

17

20

18

19

20

14

22

2008
£’000

90,375

8,224

1,053

99,652

32,435

47,445

22,219

102,099

201,751

(21,218)

(62,596)

(2,824)

(86,638)

(27,998)

(15,316)

(43,314)

(129,952)

71,799

652

62,166

281

1,608

1,770

5,322

71,799

The financial statements were approved by the Board of Directors on 2 September 2008 and are signed on its behalf by:

Ian Page Director

Simon Evans Director

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2007
£’000

13,089

5,739

—

18,828

25,732

36,173

17,222

79,127

97,955

(4,529)

(48,641)

(2,464)

(55,634)

(11,666)

(147)

(11,813)

(67,447)

30,508

528

28,041

(71)

—

1,770

240

30,508

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Consolidated Statement of Changes in Shareholders’ Equity

For the year ended 30 June 2008

Issued
share
capital
£’000

519

Share
premium
account
£’000

27,693

Hedging
reserve
£’000

(71)

Year ended 30 June 2007

At 1 July 2006

Profit for the period being total 

recognised income and expense 

for the period

Dividends paid

Share-based payments including 

current and deferred tax 

Shares issued

At 30 June 2007

Year ended 30 June 2008

At 1 July 2007

Profit for the period 

Fair value gains on derivative

financial instruments

Exchange differences on translation

of foreign operations 

Total recognised income and 

expense for the period 

Dividends paid

Share-based payments including 

current and deferred tax 

Shares issued

Share issue expenses

At 30 June 2008

—

—

—

9

—

—

—

348

528

28,041

528

—

—

—

—

—

—

124

—

652

28,041

—

—

—

—

—

—

35,636

(1,511)

62,166

Foreign
currency
translation
reserve
£’000

—

—

—

—

—

—

—

—

1,608

—

—

—

—

—

—

—

—

(71)

(71)

—

352

352

—

—

—

—

281

—

1,608

Merger
reserve
£’000

1,720

Retained
earnings
£’000

(5,946)

—

—

—

50

1,770

1,770

—

—

—

—

—

—

—

—

8,847

(3,595)

934

—

240

240

8,318

—

—

8,318

(4,420)

1,184

—

—

Total
£’000

23,915

8,847

(3,595)

934

407

30,508

30,508

8,318

352

1,608

10,278

(4,420)

1,184

35,760

(1,511)

71,799

1,608

1,770

5,322

Hedging Reserve
The hedging reserve represents the cumulative fair value gains or losses on derivative financial instruments for which hedge accounting has been
applied.

Foreign Currency Translation Reserve
The foreign currency translation reserve contains exchange differences on the translation of subsidiaries with a functional currency other than sterling.

Merger Reserve
The merger reserve represents the excess of fair value over nominal value of shares issued in consideration for the acquisition of subsidiaries where
statutory merger relief has been applied in the financial statements of the Parent Company.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Consolidated Statement of Cash Flows

For the year ended 30 June 2008

Cash flows from operating activities

Profit for the period

Adjustments for:

Depreciation

Amortisation

Loss/(gain) on sale of property, plant and equipment

Finance income

Finance expense

Equity-settled share-based payment expenses

Income tax expense

Operating cash flow before changes in working capital

Increase in inventories

Increase in trade and other receivables

Increase in trade and other payables

Cash generated from operations

Interest paid

Income taxes paid

Net cash from operating activities

Cash flows from investing activities

Proceeds from sale of property, plant and equipment

Interest received

Acquisition of subsidiaries

Purchase of property, plant and equipment

Capitalised development expenditure

Purchase of other intangible non-current assets

Net cash from investing activities

Cash flows from financing activities

Proceeds from the issue of share capital

Share issue expenses

New borrowings

Expenses of raising new borrowings

Repayment of borrowings

Dividends paid

Net cash from financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at start of period

Exchange differences on cash and cash equivalents

Cash and cash equivalents at end of period

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Note

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2008
£’000

8,318

1,291

3,230

15

(1,973)

4,339

603

3,387

19,210

(3,912)

(3,070)

3,825

16,053

(4,450)

(3,041)

8,562

5

1,648

(65,151)

(694)

(1,331)

(92)

(65,615)

35,747

(1,511)

50,200

(751)

(17,185)

(4,420)

62,080

5,027

17,222

(30)

22,219

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£’000

8,847

984

137

(7)

(1,044)

2,274

479

3,772

15,442

(3,737)

(248)

2,871

14,328

(2,228)

(2,895)

9,205

23

1,059

(717)

(823)

(1,680)

(2,845)

(4,983)

357

—

—

—

(3,481)

(3,595)

(6,719)

(2,497)

19,719

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17,222

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Consolidated Statement of Cash Flows continued

Reconciliation of net cash flow to movement in net borrowings

For the year ended 30 June 2008

Net increase/(decrease) in cash and cash equivalents

Repayment of borrowings

New borrowings

Borrowings assumed on acquisition of subsidiaries

New finance leases

Other non-cash changes

Movement in net cash/(borrowings) in the period

Net cash at start of period

Net (borrowings)/cash at end of period

Note

27

24

2008
£’000

5,027

17,185

(50,200)

—

(319)

283

(28,024)

1,027

(26,997)

2007
£’000

(2,497)

3,481

—

(55)

(956)

(25)

(52)

1,079

1,027

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements

1.

Accounting Policies
Dechra Pharmaceuticals PLC is a Company domiciled in the United Kingdom. The consolidated financial statements of the Group for the year
ended 30 June 2008 comprise the Company and its subsidiaries.

(a)

Statement of Compliance
The Consolidated Financial Statements have been prepared and approved by the Directors in accordance with International Financial
Reporting Standards as adopted by the European Union. The Company has elected to prepare its Parent Company financial statements
in accordance with UK GAAP and they are separately presented on pages 91 to 99.

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Group
financial statements.

The Group’s significant accounting policies are listed below:

(b)

Basis of Preparation
The financial statements are presented in Sterling, rounded to the nearest thousand. They are prepared on the historical cost basis
except for derivative financial instruments and cash-settled share-based transactions that are stated at fair value.

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the
revision affects both current and future periods. Judgements made by Directors in the application of accounting policies that have a
significant effect on the Financial Statements and estimates with a significant risk of material adjustment in the next year are discussed 
in note 28.

During the period, the Company adopted the following accounting statements:

— IFRS 7 Financial Instruments: Disclosures and the related amendment to IAS 1 Presentation of Financial Statements — 

Capital Disclosures

— IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies
— IFRIC 8 Scope of IFRS 2
— IFRIC 9 Reassessment of Embedded Derivatives
— IFRIC 10 Interim Financial Reporting and Impairment
— IFRIC 11 Group and Treasury Share Transactions

These have resulted in additional disclosures, but have had no impact on reported profit or net assets.

At the date of authorisation of these financial statements, the following Standards/revisions to Standards and Interpretations which have
not been applied in these financial statements were in issue but not yet effective:

— IFRS 2 Share-based Payments (revised 2008)
— IFRS 3 Business Combinations (revised 2008)
— IFRS 5 Non-current Assets Held for Sale and Discontinued Operations (revised 2008)
— IFRS 8 Operating Segments
— IAS 1 Presentation of Financial Statements (revised 2007/2008)
— IAS 16 Property, Plant and Equipment (revised 2008)
— IAS 19 Employee Benefits (revised 2008)
— IAS 23 Borrowing Costs (revised 2008)
— IAS 27 Consolidated and Separate Financial Statements (revised 2008)
— IAS 28 Investments in Associates (revised 2008)
— IAS 31 Interests in Joint Ventures (revised 2008)
— IAS 32 Financial Instruments: Presentation (revised 2008)
— IAS 36 Impairment of Assets (revised 2008)
— IAS 38 Intangible Assets (revised 2008)
— IAS 39 Financial Instruments: Recognition and Measurement (revised 2008)
— IFRIC 12 Service Concession Arrangements
— IFRIC 13 Customer Loyalty Programmes
— IFRIC 14 The Limit on a Defined Benefit Asset. Minimum Funding Requirements and their Interaction

The Directors anticipate that the adoption of these Standards/revisions to Standards and Interpretations in future periods will have no
material impact on the financial statements of the Group except for additional segment disclosure when IFRS 8 comes into effect for
periods commencing on or after 1 January 2009 and the financial statement presentation changes under IAS 1 (revised 2007/2008)
which also comes into effect for periods beginning on or after 1 January 2009.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

1.

Accounting Policies continued
Basis of Consolidation
(c)
Subsidiaries
(i)
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to
govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of
subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the date that control
ceases.

(ii)

Transactions Eliminated on Consolidation
Intra-Group balances and any unrealised gains and losses or income and expenses arising from intra-Group transactions are
eliminated in preparing the Consolidated Financial Statements.

(d)

(e)

Business Combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair
values, at the date of completion, of assets given, liabilities incurred or assumed, and equity instruments issued by the Company in exchange
for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s indentifiable assets, liabilities and
contingent liabilities that meet the conditions for recognition under IFRS3 are recognised at their fair value at the acquisition date.

Foreign Currency Translation
(i)

Functional Currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency).

(ii)

(iii)

Foreign Currency Translation
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of
monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Foreign Operations
The results and financial position of all the Group entities that have a functional currency different from the functional currency of the
Parent Company are translated into sterling as follows:

(i)
(ii)

assets and liabilities are translated at the closing rate at the reporting date;
income and expenses are translated at the average rate for the period being reported.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to
Shareholders’ equity, being recognised in the foreign currency translation reserve.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate. On disposal of a foreign entity, accumulated exchange differences are recognised in the
income statement in the same period in which the gain or loss on disposal is recognised.

There are no Group entities operating in a hyperinflationary economy.

(f)

Financial Assets and Liabilities
Financial assets
The Group classifies its financial assets into the following categories: held for trading financial assets, loans and receivables, held-to-
maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the assets are held.

Management determines the classification of its financial assets at initial recognition in accordance with IAS 39 Financial Instruments:
Recognition and Measurement and re-evaluates this designation at every reporting date for financial assets other than those held at fair
value through the income statement.

Held for trading financial assets
This category has two sub-categories: financial assets held for trading and those designated at fair value through the income statement
at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so
designated by management. Derivatives that do not qualify for hedge accounting are also categorised as held for trading.

Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of
the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months
of the reporting date.

Held for trading financial assets are recognised and subsequently carried at fair value. Available-for-sale financial assets are recognised
and subsequently carried at fair value plus any directly attributable transaction costs. Loans and receivables and held-to-maturity
investments are carried at amortised cost using the effective interest method. Financial assets not carried at fair value through the income
statement are initially recognised at fair value plus transaction costs.

Financial assets are derecognised when the rights to receive cash flows from the assets have expired or have been transferred and the Group
has transferred substantially all risks and rewards of ownership. Gains and losses (both realised and unrealised) arising from changes in the
value of financial assets held at fair value through the income statement are included in the income statement in the period in which they arise.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

1.

Accounting Policies continued

Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are
recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are
included in the income statement as gains and losses from investment securities.

The Group assesses at each reporting date whether there is objective evidence that a financial asset or a Group of financial assets is
impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security
below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial
assets, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss
on that financial asset previously recognised in the income statement, is removed from equity and recognised in the income statement.
Impairment losses recognised on these instruments are not reversed through the income statement if the fair value of the instrument
increases in a later period.

Derivative financial instruments
The Group uses derivative financial instruments to manage its exposure to foreign exchange and interest rate risks. In accordance with its
treasury policy, the Group does not hold or issue derivative financial instruments for speculative purposes. However, derivatives that do
not qualify for hedge accounting are accounted for as trading instruments.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are remeasured to fair value at each
reporting date.

Hedging
Cash flow hedges
Changes in the fair value of derivative financial instruments designated as cash flow hedges are recognised directly in equity to the extent
that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge
accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast
transaction occurs. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount
of the asset when it is recognised. In other cases, the amount recognised in equity is transferred to profit or loss in the same period that
the hedged item affects profit or loss.

Hedges of net investment in foreign operations
Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign
operation are recognised in the Foreign Currency Translation Reserve within equity, to the extent that the hedge is effective. To the extent
that the hedge is ineffective, such differences are recognised in profit or loss. When the hedged part of a net investment is disposed of,
the associated cumulative amount in equity is transferred to profit or loss as an adjustment to the profit or loss on disposal.

Receivables
Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise
when the Group provides money, goods or services directly to a third party with no intention of trading the receivable. They are included
in current assets, except for those with maturities greater than one year after the balance sheet date (these are classified as non-current
assets). Receivables are included in trade and other receivables in the balance sheet.

Receivables are recognised initially at fair value and subsequently measured at amortised cost. Amortised cost is determined using the
effective interest method less an allowance for impairment. An allowance for impairment of receivables is established when there is
objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The
amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows
(discounted at the effective interest rate). The allowance is initially recognised in the income statement.

Trade and Other Payables
Trade and other payables are initially recognised at fair value and subsequently at amortised cost.

Borrowings
Borrowings are recognised initially at fair value net of directly attributable transaction costs incurred. Borrowings are subsequently stated
at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income
statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least
12 months after the reporting date.

(g)

Property, Plant and Equipment
(i)

Owned Assets
Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see
accounting policy k).

(ii)

Leased Assets
Leases under the terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance
leases. Assets acquired by finance leases are stated at an amount equal to the lower of their fair value and the present value of the
minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

1.

Accounting Policies continued
(iii) Subsequent Costs

The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item
when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the
cost of the item can be measured reliably. All other costs are recognised in the income statement as an expense as incurred.

(iv) Depreciation

Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of
property, plant and equipment. Land is not depreciated. Assets in the course of construction are not depreciated until the date the
assets become available for use. The estimated useful lives are as follows:

freehold buildings
short leasehold buildings
plant and fixtures
motor vehicles

25 years
period of lease
3 –10 years
4 years

The residual value, if not insignificant, is reassessed annually.

(h)

Intangible Assets
(i)

Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of
subsidiaries, associates and joint ventures. In respect of business acquisitions that have occurred since 1 July 2004, goodwill
represents the difference between the cost of the acquisition and the fair value of the assets, liabilities and contingent liabilities
acquired.

In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, which represents the amount
recorded under previous GAAP. The classification and accounting treatment of business combinations that occurred prior to 1 July
2004 were not reconsidered in preparing the Group’s opening IFRS balance sheet at 1 July 2004.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is not amortised but is allocated to cash generating
units and is tested annually for impairment.

(ii)

Research and Development Costs
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and
understanding, is recognised in the income statement as an expense is incurred.

The Group is also engaged in development activity with a view to bringing new pharmaceutical products to market. Internally
generated costs of development are capitalised in the balance sheet unless those costs cannot be measured reliably or it is not
probable that future economic benefits will flow to the Group, in which case the relevant costs are expensed to the income
statement as incurred. Due to the strict regulatory process involved, there is inherent uncertainty as to the technical feasibility of
development projects often until regulatory approval is achieved, with the possibility of failure even at a late stage. The Group
considers that this uncertainty means that the criteria for capitalisation are not met unless it is highly probable that regulatory
approval will be achieved and the project is commercially viable.

Where development costs are capitalised, the expenditure includes the cost of materials, direct labour and an appropriate
proportion of overheads.

Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses.

(iii) Acquired Intangible Assets

Intangible assets recognised as a result of a business combination are stated at fair value at the date of acquisition less
accumulated amortisation and impairment losses.

(iv) Other Intangible Assets

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses.
Expenditure on internally generated goodwill and other intangibles is recognised in the income statement as an expense is incurred.

(v)

Subsequent Expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

(vi) Amortisation

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless
such lives are indefinite. Goodwill and intangible assets with an indefinite useful life are systematically tested for impairment at each
balance sheet date. Other intangible assets are amortised from the date that they are available for use. The estimated useful lives are
as follows:

software
capitalised development costs
acquired intangibles
patent rights
marketing authorisations
product rights

5 years
5–10 years
10–15 years
Period of patent
Indefinite life
Period of product rights

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

1.

Accounting Policies continued
(i)

Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course
of business, less the estimated costs of completion and selling expenses.

(j)

(k)

The cost of inventories is based on the first-in, first-out principle and includes expenditure incurred in acquiring the inventories and
bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an
appropriate share of overheads based on normal operating capacity.

Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an
integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the
statement of cash flows.

Impairment
The carrying amounts of the Group’s assets, other than inventories and deferred tax assets, are reviewed at each balance sheet date to
determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.

The recoverable amount of assets is the greater of their net selling price and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable
amount is determined for the cash-generating unit to which the asset belongs.

For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is
estimated at each balance sheet date and when there is an indication that the asset is impaired.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
Impairment losses are recognised in the income statement.

Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill
allocated to the cash-generating units (group of units), and then to reduce the carrying amount of the other assets in the units (group of
units) on a pro-rata basis.

An impairment loss in respect of goodwill is not reversed.

In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the
recoverable amount.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have
been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(l)

Dividends
Dividends are recognised in the period in which they are approved by the Company’s Shareholders or, in the case of an interim dividend,
when the dividend is paid.

(m) Employee Benefits

(i)

(ii)

Pensions
The Company operates a Group stakeholder personal pension scheme for certain employees. Obligations for contributions are
recognised as an expense in the income statement as incurred.

Share-Based Payment Transactions
The Group operates a number of equity-settled share-based payment programmes that allow employees to acquire shares of the
Company. The Group also operates a Long Term Incentive Plan for Directors and senior Executives.

The fair value of shares or options granted is recognised as an employee expense on a straight-line basis in the income statement
with a corresponding movement in equity. The fair value is measured at grant date and spread over the period during which the
employees become unconditionally entitled to the shares or options (the vesting period). The fair value of the shares or options
granted is measured using a valuation model taking into account the terms and conditions upon which the shares or options were
granted. The amount recognised as an expense in the income statement is adjusted to take into account an estimate of the
number of shares or options that are expected to vest together with an adjustment to reflect the number of shares or options that
actually do vest except where forfeiture is only due to market-based conditions not being achieved.

The fair values of grants under the Long Term Incentive Plan have been determined using the Monte Carlo simulation model.

The fair values of options granted under all other share option schemes have been determined using the Black–Scholes option 
pricing model.

National Insurance contributions payable by the Company on the intrinsic value of share-based payments at the date of exercise
are treated as cash-settled awards and revalued to market price at each balance sheet date.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

1.

Accounting Policies continued
(n)

Revenue
(i)

Goods Sold
For both Pharmaceuticals and Services, revenue from the sale of goods is recognised in the income statement when the significant
risks and rewards of ownership have been transferred to the buyer. This is normally when the buyer takes delivery of the goods.
Appropriate provision is made, based on past experience, for the possible return of goods and discounts given to customers.

(ii)

Services Provided
Revenue is recognised when the contractual service has been provided to the customer.

(iii) Royalty and Milestone Payments

Milestone payments received from the granting of distribution and marketing rights for products are recognised in the income
statement over the period in which the Company fulfils the longer of all of its obligations and the period for which rights are granted
relating to such payments.

(o)

Expenses
(i)

Operating Lease Payments
Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease.
Lease incentives received are recognised in the income statement evenly over the period of the lease, as an integral part of the total
lease expense.

(ii)

Finance Lease Payments
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability.

(iii) Net Financing Costs

Net financing costs comprise interest payable on borrowings, interest receivable on funds invested and gains and losses on
hedging instruments that are recognised in the income statement (see accounting policy f).

Interest income is recognised in the income statement as it accrues. The interest expense component of finance lease payments is
recognised in the income statement using the effective interest rate method.

(p)

Income Tax
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except
to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method and represents the tax payable or recoverable on most temporary
differences which arise between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes (the tax base). Temporary differences are not provided on: goodwill that is not deductible for tax purposes; the initial
recognition of assets or liabilities that affect neither accounting nor taxable profit and do not arise from a business combination; and
differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of
deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using
tax rates expected to apply in the period in which the liability is settled or the asset is realised and is based upon tax rates enacted or
substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset
can be utilised. Deferred tax assets are reduced to the extent that it is not probable that the related tax benefit will be realised against
future taxable profits. The carrying amounts of deferred tax assets are reviewed at each balance sheet date.

Current and deferred tax credits received in respect of share-based payments are recognised in the Income Statement to the extent that
they do not exceed the standard rate of taxation on the Income Statement charge for share-based payments. Credits in excess of the
standard rate of taxation are recognised directly in equity.

(q)

Segment Reporting
A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in
providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards
that are different from those of other segments.

(r)

Operating Profit and Operating Cash Flow
Operating profit and operating cash flow is stated before investment income and finance costs.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

2.

Segmental Analysis
The Group’s primary reporting segment is business divisions which correspond with the way the operating businesses are organised and
managed within the Group and its secondary segment is geographical origin.

Segment results, assets and liabilities comprise those items directly attributable to particular segments as well as items which can reasonably
be allocated to those segments. Inter-segment transactions are entered into applying normal commercial terms that would be available to 
third parties.

Unallocated items comprise mainly corporate assets, expenses, loans and borrowings together with the elimination of inter-segment
transactions.

The composition of the segments is detailed in the Directors’ Business Review section of this Annual Report.

The following table analyses revenue and operating profit accordingly:

Business Segment

Revenue

Pharmaceuticals
2007
£’000

2008
£’000

Services

2008
£’000

2007
£’000

Unallocated

2008
£’000

2007
£’000

Total

2008
£’000

2007
£’000

External customers

45,187

19,736

259,184

234,067

—

—

304,371

253,803

Inter-segment

Total revenue

9,115

6,912

179

140

54,302

26,648

259,363

234,207

(9,294)

(9,294)

(7,052)

—

—

(7,052)

304,371

253,803

Adjusted operating profit

10,765

6,102

10,693

9,525

(2,316)

(1,751)

19,142

13,876

Amortisation of acquired intangibles

and rationalisation costs

(5,035)

(21)

(36)

(6)

—

—

(5,071)

(27)

Operating profit

Finance income

Finance expense

Profit before taxation

Income tax expense

Profit for the year

Assets

Intangible assets

Property, plant and equipment

Other assets

Cash offset

Total assets

Liabilities

Borrowings

Other liabilities

Cash offset

Total liabilities

5,730

6,081

10,657

9,519

(2,316)

(1,751)

14,071

13,849

1,973

1,044

(4,339)

(2,274)

11,705

12,619

(3,387)

(3,772)

8,318

8,847

86,468

6,401

9,382

3,624

3,907

1,823

3,707

2,115

35,140

15,071

80,706

70,090

—

—

650

—

—

90,375

13,089

8,224

5,739

156

116,496

85,317

—

—

—

—

(13,344)

(6,190)

(13,344)

(6,190}

128,009

28,077

86,436

75,912

(12,694)

(6,034)

201,751

97,955

(506)

(586)

(1,418)

(1,489)

(60,636)

(20,310)

(62,560)

(22,385)

(14,123)

(5,452)

(47,343)

(42,571)

(19,270)

(3,229)

(80,736)

(51,252)

—

—

—

—

13,344

6,190

13,344

6,190

(14,629)

(6,038)

(48,761)

(44,060)

(66,562)

(17,349)

(129,952)

(67,447)

Net assets/(liabilities)

113,380

22,039

37,675

31,852

(79,256)

(23,383)

71,799

30,508

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

2.

Segmental Analysis continued

Other Segment Items

Capital expenditure

— intangible assets

— property, plant and equipment

Total capital expenditure

Share-based payments charge

Depreciation and amortisation

77,238

3,448

80,686

—

3,922

4,611

549

5,160

—

569

295

232

527

—

599

1,348

595

1,943

—

552

—

—

—

759

—

—

—

—

596

—

77,533

3,680

81,213

759

4,521

Geographical Segment
The following table shows revenue based on the geographical location of customers:

UK

Rest of Europe

USA

Rest of world

2008
£’000

277,463

20,460

5,266

1,182

304,371

5,959

1,144

7,103

596

1,121

2007
£’000

247,920

4,246

1,121

516

253,803

The table below gives additional information in respect of segment revenue and segment operating profit, based on the geographical location of
the business unit supplying the goods or services. Segment assets and capital expenditure are based on the geographical location of the assets
and expenditure. Activities in the UK comprise all operating segments. Overseas operations comprise pharmaceuticals only.

UK

USA

Denmark

2008
£’000

2007
£’000

2008
£’000

2007
£’000

2008
£’000

2007
£’000

Unallocated

2008
£’000

2007
£’000

Total

2008
£’000

2007
£’000

Revenue by geographical origin

280,847 253,429

4,566

374

18,958

—

—

— 304,371 253,803

18,357

15,825

450

(198)

2,651

— (2,316)

(1,751)

19,142

13,876

118,401 102,533

2,275

1,456

93,769

— (12,694)

(6,034) 201,751

97,955

Adjusted operating profit by 

geographical origin

Total assets

Capital expenditure

— intangible assets

3,584

5,959

— property, plant and equipment

787

1,141

Total capital expenditure

4,371

7,100

3.

Finance Income

Recognised in profit or loss

Finance income arising from:

— Cash and cash equivalents

— Derivatives at fair value through profit or loss

— Loans and receivables

—

17

17

— 73,949

3

3

2,876

76,825

—

—

—

—

—

—

— 77,533

5,959

—

3,680

1,144

— 81,213

7,103

2008
£’000

1,631

325

17

1,973

2007
£’000

1,018

—

26

1,044

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

3.

Finance Income continued
Finance income arising from derivatives at fair value through profit or loss relates to fair value gains on forward foreign currency contracts.

Recognised directly in equity

Foreign currency translation differences for foreign operations

Net loss on hedge of net investment in foreign operations

Recognised in foreign currency translation reserve

Fair value gains on interest rate floor and ceiling

Income tax expense on above

Amount recycled to income statement

Recognised in hedging reserve

Total recognised in equity

4.

Finance Expense

Finance expense arising from:

— Financial liabilities at amortised cost

— Derivatives at fair value through profit or loss

2008
£’000

2,415

(807)

1,608

2008
£’000

446

(125)

31

352

1,960

2008
£’000

4,281

58

4,339

2007
£’000

—

—

—

2007
£’000

—

—

—

—

—

2007
£’000

2,228

46

2,274

Finance expense arising from derivatives at fair value through profit or loss relates to fair value losses on foreign currency options and interest
rate floor and ceilings.

5.

Adjusted Operating Profit and Profit before Taxation
Adjusted operating profit is calculated as follows:

Operating profit

Operating profit

Amortisation of intangible assets acquired as a result of business combinations

Rationalisation costs arising following the acquisition of VetXX Holdings A/S

Adjusted operating profit

Adjusted profit before taxation is calculated as follows:

Profit before taxation

Profit before taxation

Amortisation of intangible assets acquired as a result of business combinations

Rationalisation costs arising following the acquisition of VetXX Holdings A/S

Write-off of unamortised arrangement fees on borrowings refinanced as a result 

of the acquisition of VetXX Holdings A/S

Adjusted profit before taxation

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2008
£’000

14,071

2,975

2,096

19,142

2008
£’000

11,705

2,975

2,096

77

16,853

2007
£’000

13,849

27

—

13,876

2007
£’000

12,619

27

—

—

12,646

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

6.

Profit before Taxation
The following items have been included in arriving at profit before taxation:

Cost of inventories recognised as an expense

Impairment of inventories included in above figure

Depreciation of property, plant and equipment

— owned assets

— under finance leases

Amortisation of intangible assets

Loss/(profit) on disposal of property, plant and equipment

Impairment of receivables

Operating lease rentals payable

Research and development expenditure as incurred

Auditors’ remuneration

Analysis of total fees paid to the auditors:

Audit of these financial statements

Audit of financial statements of subsidiaries pursuant to legislation

Other services pursuant to legislation

Other services relating to taxation

2008
£’000

247,801

548

1,065

226

3,230

15

788

2,719

2,408

278

30

139

17

92

278

2007
£’000

214,602

446

806

178

137

(7)

1,183

2,124

1,645

260

25

78

8

149

260

In addition, payments made to the auditors of £964,000 (2007: £15,000) relating to corporate finance transactions have been capitalised as
part of the acquisition cost of VetXX Holdings A/S.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

7.

Employees
The average numbers of staff employed by the Group during the year, which includes Directors, were:

Manufacturing

Distribution

Administration

The costs incurred in respect of these employees were:

Wages and salaries

Social security costs

Other pension costs

Share-based payments charge (see note 23)

Related party transactions — the remuneration of key management was as follows:

Wages and salaries (including benefits in kind)

Social security costs

Other pension costs

Share-based payments charge

2008
Number

203

411

275

889

2008
£’000

19,766

1,849

813

759

23,187

2008
£’000

1,750

224

138

510

2,622

2007
Number

147

390

210

747

2007
£’000

13,992

1,359

403

596

16,350

2007
£’000

1,499

192

111

439

2,241

Key management comprises Executive Directors, the Product Development and Regulatory Affairs Director and the Divisional Managing
Directors.

Details of the remuneration, shareholdings, share options and pension contributions of the Executive Directors are included in the Directors’
Remuneration Report on pages 38 to 44.

The Group operates a stakeholder personal pension scheme for certain employees. The Group contributed between 4% and 14% of
pensionable salaries which amounted to £813,000 (2007: £403,000).

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

8.

Income Tax Expense

Current tax — charge for current year

— adjustment in respect of prior years

Total current tax expense

Deferred tax — origination and reversal of temporary differences

— adjustment in respect of prior years

Total deferred tax expense

Total income tax expense in the income statement

2008
£’000

3,687

(29)

3,658

(300)

29

(271)

3,387

Of the current tax expense of £3,658,000, an amount of £14,000 (2007: £nil) was in respect of foreign territories.

The tax on the Group’s profit before tax differs from the standard rate of UK corporation tax of 28% (2007: 30%). The differences are

explained below:

Profit before taxation

Tax at 28% (2007: 30%)

Effect of:

— depreciation on assets not eligible for tax allowances

— disallowable expenses

— utilisation of overseas losses

— over-recovery of deferred tax on share-based payments

— research and development tax credits

— differences on overseas tax rates

— reduction in tax rate used to calculate deferred tax liability

— adjustments in respect of prior years

— adjustments due to changes in tax rate

Total income tax expense

2008
£’000

11,705

3,277

15

45

(137)

—

—

(5)

16

—

176

3,387

Additional current tax credits of £266,000 (2007: £454,000) and a deferred tax charge of £265,000 (2007: credit of £1,000) have been
recognised directly in equity.

The corporation tax rate applicable to the Company changed from 30% to 28% with effect from 1 April 2008.

2007
£’000

3,361

(69)

3,292

409

71

480

3,772

2007
£’000

12,619

3,786

47

41

58

(46)

(60)

—

(56)

2

—

3,772

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

9. Dividends

Final dividend paid in respect of prior year but not recognised as a liability in

that year 5.00p per share (2007: 4.33p)

Interim dividend paid 2.75p per share (2007: 2.50p)

Total dividend 7.75p per share (2007: 6.83p) recognised as distributions to equity holders in the period

Proposed final dividend for the year ended 30 June 2008 5.50p per share (2007: 5.00p)

Total dividend paid and proposed for the year ended 30 June 2008 8.25p per share (2007: 7.50p)

2008
£’000

2,640

1,780

4,420

3,588

5,368

2007
£’000

2,278

1,317

3,595

2,640

3,957

In accordance with IAS 10 ‘Events After the Balance Sheet Date’, the proposed final dividend for the year ended 30 June 2008 has not
been accrued for in these financial statements. It will be shown as a deduction from equity in the financial statements for the year ending
30 June 2009.

The proposed final dividend for the year ended 30 June 2007 is shown as a deduction from equity in the year ended 30 June 2008.

10. Earnings per Share

Earnings per ordinary share have been calculated by dividing the profit attributable to equity holders of the parent after taxation for each financial
period by the weighted average number of ordinary shares in issue during the period.

Basic earnings per share

— Adjusted basic

— Basic

Diluted earnings per share

— Adjusted diluted

— Diluted

The calculations of basic and diluted earnings per share are based upon:

Earnings for adjusted basic and adjusted diluted earnings per share calculations

Earnings for basic and diluted earnings per share figures

2008
Pence

20.81

14.20

20.64

14.09

£’000

12,185

8,318

No.

2007
Pence

16.89

16.86

16.66

16.62

£’000

8,866

8,847

No.

Weighted average number of ordinary shares for basic earnings per share

Impact of share options

Weighted average number of ordinary shares for diluted earnings per share

58,560,097

464,486

59,024,583

52,482,659

737,011

53,219,670

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

11.

Intangible Assets

Cost

At 1 July 2006

Additions

Disposals

At 30 June 2007 and 1 July 2007

Additions

Goodwill
£’000

Software
£’000

4,385

467

—

4,852

—

Develop-
ment
costs
£’000

826

1,680

—

2,506

1,331

261

—

10

Patent
rights
£’000

789

257

—

1,046

1,879

—

—

—

717

591

—

1,308

411

94

—

3

Acquisition through business combinations 14,397

Disposals

Foreign exchange adjustments

—

595

At 30 June 2008

Amortisation

At 1 July 2006

Charge for the year

Disposals

At 30 June 2007 and 1 July 2007

Charge for the year

Disposals

At 30 June 2008

Net book value

At 30 June 2008

At 30 June 2007 and 1 July 2007

At 1 July 2006

19,844

1,816

4,108

2,925

—

—

—

—

—

—

—

91

58

—

149

132

—

281

181

52

—

233

123

—

356

—

—

—

—

—

—

—

19,844

4,852

4,385

1,535

1,159

626

3,752

2,273

645

2,925

1,046

789

Contracted capital commitments

Software assets in the course of construction included above

Product
rights
£’000

Marketing
authori-
sations
£’000

Acquired
intangibles
£’000

278

—

(278)

—

—

—

—

—

—

18

—

(18)

—

—

—

—

—

—

260

Total
£’000

7,817

5,959

(278)

—

2,933

—

2,933

13,498

—

3,621

59,160

73,912

—

—

2,375

2,983

822

31

—

853

—

—

—

—

853

64,468

94,014

—

—

—

—

—

—

—

853

853

822

—

27

—

27

290

137

(18)

409

2,975

3,230

—

—

3,002

3,639

61,466

90,375

2,906

13,089

—

2008
£’000

—

935

7,527

2007
£’000

200

1,158

Goodwill is allocated across cash-generating units and consequently a consistent approach in assessing the carrying value of this amount is
taken. Key assumptions made in this respect are given in note 13. The addition in the year arose from the acquisition of VetXX Holdings A/S
(see note 27).

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

11.

Intangible Assets continued
Development costs are internally generated. All other additions to intangible assets were acquired outside the Group and have been measured
at cost or fair value at the time of acquisition.

The amortisation charge is recognised within administrative expenses in the income statement.

During the year ended 30 June 2003, the Group entered into an agreement with Bioenvision, a Company based in the USA, to acquire the
exclusive marketing and development rights of Trilostane for animal health applications in the USA and Canada. Trilostane is the active
ingredient in the Group’s branded product Vetoryl Capsules. The first stage payment of £789,000 including legal costs was made in 2003 and
has been capitalised as a patent right. Depending upon certain milestones being achieved, the Group is committed to making two further
payments. The second stage payment of US$750,000 becomes payable on the submission of a New Animal Drug Application to the US Food
and Drug Administration (“FDA”) and the final payment of US$3,000,000 becomes payable on the FDA granting a marketing authorisation for
Vetoryl Capsules. These amounts are accrued for in these financial statements. Once a marketing authorisation has been granted and the
patent right can be applied commercially, the patent rights will begin to be amortised.

£822,000 of the marketing authorisations relate to the Vetivex range of products. The Vetivex marketing authorisations are regarded as having
indefinite useful economic lives and have not been amortised. Ownership of the marketing authorisations rests with the Group in perpetuity.
There are not believed to be any legal, regulatory or contractual provisions that limit their useful lives. Vetivex is an established range of products
which are relatively simple in nature and there are a limited number of players in the market. Accordingly, the Directors believe that it is
appropriate that the marketing authorisations are treated as having indefinite lives for accounting purposes.

Acquired intangibles comprise:

— Marketing authorisations, brands and trademarks of products recognised on the acquisition of VetXX Holdings A/S

— Customer relationships recognised on the acquisition of Leeds Veterinary Laboratories Limited

— Trademarks and brands recognised on the acquisition of Pharmaderm Animal Health

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

12. Property, Plant and Equipment

Freehold
land and
buildings
£’000

Short
leasehold
buildings
£’000

Motor
vehicles
£’000

Plant and
fixtures
£’000

Cost

At 1 July 2006

Additions

Acquisitions through business combinations

Disposals

At 30 June 2007 and 1 July 2007

Additions

Acquisition through business combinations

Disposals

Foreign exchange adjustments

At 30 June 2008

Depreciation

At 1 July 2006

Charge for the year

Disposals

At 30 June 2007 and 1 July 2007

Charge for the year

Disposals

At 30 June 2008

Net book value

At 30 June 2008

At 30 June 2007 and 1 July 2007

At 1 July 2006

Net book value of assets held under finance leases

At 30 June 2008

At 30 June 2007 and 1 July 2007

At 1 July 2006

Assets in the course of construction included above

Contracted capital commitments

13

—

—

—

13

—

2,072

—

84

2,601

27

—

—

2,628

144

—

—

—

2,169

2,772

—

—

—

—

61

—

61

2,108

13

13

—

—

—

550

147

—

697

154

—

851

1,921

1,931

2,051

84

70

77

433

—

—

—

433

—

—

(2)

—

431

433

—

—

433

—

(2)

431

—

—

—

—

—

—

7,500

1,079

38

(33)

8,584

678

786

(1,524)

32

8,556

3,969

837

(17)

4,789

1,076

(1,504)

4,361

4,195

3,795

3,531

938

1,172

1,028

2008
£’000

290

327

Total
£’000

10,547

1,106

38

(33)

11,658

822

2,858

(1,526)

116

13,928

4,952

984

(17)

5,919

1,291

(1,506)

5,704

8,224

5,739

5,595

1,022

1,242

1,105

2007
£’000

370

61

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

13.

Impairment Reviews
Goodwill, indefinite life assets and intangible assets not yet available for use are tested for impairment annually, or more frequently if there are
indications that amounts might be impaired. The impairment test involves determining the recoverable amounts of the relevant cash-generating
unit, which corresponds to the higher of the fair value less costs to sell or its value in use. Value in use calculations have been performed using
the methods and assumptions detailed below:

(a) Goodwill

The carrying amount of goodwill shown in note 11 comprises £2,621,000 (2007: £2,621,000) relating to the acquisition of North Western
Laboratories Limited and Leeds Veterinary Laboratories Limited, £2,231,000 (2007: £2,231,000) relating to the acquisition of Anglian
Pharma plc and £14,397,000 (2007: £nil) in respect of the acquisition of VetXX Holdings A/S. For the purpose of annual impairment
reviews the goodwill relating to North Western Laboratories and Leeds Veterinary Laboratories Limited has been allocated to the
Laboratories cash-generating unit, the goodwill relating to Anglian Pharma plc has been allocated to the Dales Pharmaceuticals cash-
generating unit and the goodwill relating to VetXX Holdings A/S has been allocated to the VetXX cash-generating unit. The recoverable
amount of all units is based on value in use calculations. The value in use of each of these cash-generating units has been determined by
discounting projected future cash flows by a pre-tax discount rate of 9.93%, being the Directors’ estimate of the weighted average cost
of capital of the Company.

Projected future cash flows have been derived from the annual budget for the year ending 30 June 2009 extrapolated applying a growth
rate of 5% per annum up to year five and no growth in revenues beyond year five. The strong market position of each business justifies
considering a period in excess of five years.

In all cases, the value in use is significantly higher than the carrying amount and no impairment provision is therefore required.

Indefinite Life Assets
The Directors consider that the Vetivex marketing authorisations with a carrying amount of £822,000 have an indefinite life. Their value in
use has been determined by discounting projected future cash flows by a pre-tax discount rate of 9.93%, being the Directors’ estimate of
the weighted average cost of capital of the Company. Projected future cash flows have been derived from the annual budget for the year
ending 30 June 2009 applying a growth rate of 5% per annum up to year five and no growth in revenues beyond year five.

The value in use is significantly higher than the carrying amount and no impairment provision is therefore required.

Intangible Assets not yet available for use
(i)

Vetoryl
The Group is developing an intangible asset in respect of authorisation to market our product Vetoryl Capsules in the USA. This
intangible asset will only be available for use once marketing authorisation is received from the FDA.

(b)

(c)

The carrying amount in respect of this intangible asset is as follows:

Payment to acquire patent rights to Trilostane (the active ingredient of Vetoryl Capsules)

Subsequent development costs

Further Bioenvision milestone payments

2008
£’000

789

1,869

1,879

4,537

2007
£’000

789

1,263

—

2,052

Value in use has been determined by discounting the projected cash flows by a pre-tax discount rate of 14.93%. The higher
discount rate reflects the uncertainty of the timing of future cash flows. Projected cash flows have been determined from a detailed
marketing plan covering a five year period from product launch extrapolated forward. No growth in revenues is assumed after the
fifth year following launch. The marketing plan uses data on the market size and market penetration taking into account our
experience in launching Vetoryl Capsules in other territories.

Based upon the above calculation, the value in use is significantly higher than the carrying amount and no impairment provision
is required.

(ii)

Felimazole
The Group is developing an intangible asset in respect of authorisation to market our product Felimazole Tablets in the USA. This
intangible asset will only be available for use once market authorisation is received from the FDA. At 30 June 2008, the carrying
value of this intangible asset (included within development costs) was £697,000 (2007: £344,000).

Value in use has been determined by discounting the projected cash flows by a pre-tax discount rate of 14.93%. The higher
discount rate reflects the uncertainty of the timing of future cash flows. Projected cash flows have been determined from a detailed
marketing plan covering a five year period from product launch extrapolated forward. No growth in revenues is assumed after the
fifth year following launch. The marketing plan uses data on the market size and market penetration taking into account our
experience in launching Felimazole Tablets in other territories.

Based upon the above calculation, the value in use is significantly higher than the carrying amount and no impairment provision
is required.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

14. Deferred Taxes

(a)
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:

Intangible assets

Property, plant and equipment

Inventories

Receivables

Cash and cash equivalents

Borrowings

Payables

Current tax liabilities

Trading losses

Share-based payments

Shown as:

Deferred tax assets

Deferred tax liabilities

Assets

2008
£’000

2007
£’000

—

—

53

—

—

—

248

—

1,309

788

2,398

—

—

—

30

—

—

32

—

—

856

918

Liabilities

Net

2008
£’000

(15,872)

(423)

(72)

(294)

—

—

—

—

—

—

2007
£’000

(740)

(325)

—

—

—

—

—

—

—

—

2008
£’000

(15,872)

(423)

(19)

(294)

—

—

248

—

1,309

788

(16,661)

(1,065)

(14,263)

2008
£’000

1,053

(15,316)

(14,263)

Deferred tax assets and liabilities are offset to the extent that there is a legally enforceable right to offset current tax assets against current 
tax liabilities.

(b) Unrecognised deferred tax assets

Tax losses

2008
£’000

—

Overseas tax losses brought forward at 1 July 2007 have been utilised during the current financial year.

(c) Movement in temporary differences during the year

2007
£’000

(740)

(325)

—

30

—

—

32

—

—

856

(147)

2007
£’000

—

(147)

(147)

2007
£’000

166

Balance at
1 July 2006
£’000

Acquisitions
£’000

Recognised
in income
£’000

Recognised
in equity
£’000

Balance at
30 June 2007
£’000

(193)

(311)

—

98

—

—

38

—

813

445

(113)

(434)

—

—

—

—

—

—

—

—

(14)

—

(68)

—

—

(6)

—

42

(113)

(480)

—

—

—

—

—

—

—

—

1

1

(740)

(325)

—

30

—

—

32

—

856

(147)

Intangible assets

Property, plant and equipment

Inventories

Receivables

Cash and cash equivalents

Borrowings

Payables

Current tax liabilities

Share-based payments

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Balance at
1 July 2007
£’000

(740)

(325)

—

30

—

—

32

—

—

856

(147)

14. Deferred Taxes continued

Intangible assets

Property, plant and equipment

Inventories

Receivables

Cash and cash equivalents

Borrowings

Payables

Current tax liabilities

Trading losses

Share-based payments

15.

Inventories

Raw materials and consumables

Work in progress

Finished goods and goods for resale

16. Trade and Other Receivables

Trade receivables

Other receivables

Prepayments and accrued income

17. Cash and Cash Equivalents

Cash at bank and in hand

Short-term deposits

The short-term deposits are repayable on demand.

18. Trade and Other Payables

Trade payables

Other payables

Other taxation and social security

Accruals and deferred income

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15400

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Proof 8

Acquisitions
£’000

(14,863)

(136)

56

(84)

—

—

201

—

1,257

—

Recognised
in income
£’000

Recognised
in equity
£’000

331

44

(71)

(112)

—

—

7

—

—

72

—

—

—

(125)

—

—

—

—

—

(140)

(265)

(13,569)

271

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Foreign
exchange
adjustments
£’000

Balance at
30 June 2008
£’000

(600)

(15,872)

(6)

(4)

(3)

——

——

8

——

52

—

(423)

(19)

(294)

248

1,309

788

(553)

(14,263)

2008
£’000

3,860

316

28,259

32,435

2008
£’000

43,741

1,896

1,808

47,445

2008
£’000

4,657

17,562

22,219

2008
£’000

50,177

5,412

3,894

3,113

62,596

2007
£’000

2,250

208

23,274

25,732

2007
£’000

34,029

1,368

776

36,173

2007
£’000

1,468

15,754

17,222

2007
£’000

44,019

605

1,978

2,039

48,641

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

19. Current Tax Liabilities

Corporation tax payable

20. Borrowings

Current liabilities

Bank loans and overdrafts

Finance lease obligations

Non-current liabilities

Bank loans

Finance lease obligations

Arrangement fees netted off

Total borrowings

2008
£’000

2,824

2008
£’000

20,616

602

21,218

27,500

1,507

(1,009)

27,998

49,216

2007
£’000

2,464

2007
£’000

4,000

529

4,529

10,200

1,546

(80)

11,666

16,195

The Group’s borrowing facilities comprise a term loan of £32.5 million repayable in equal instalments of £2.5 million each 30 June and 
31 December, a £15 million revolving credit facility committed until 31 December 2012, an overdraft facility of £10 million renewable on 1 July
2009 and various finance lease obligations.

At the year end, the Group had the following unutilised borrowing facilities:

Revolving credit facility

Bank overdraft facility

2008
£’000

—

10,000

10,000

2007
£’000

5,000

4,000

9,000

The term loan, revolving credit and overdraft facilities are secured by a fixed and floating charge on the assets of the Group. Interest is charged
at 1.25% over LIBOR for the term loan, 1% over LIBOR for the revolving credit facility and 1% above base rate for the overdraft facility.

The maturity of the bank loans and overdrafts is as follows:

Payable:

Within one year

Between one and two years

Between two and five years

Due after five years

2008
£’000

20,616

5,000

15,000

7,500

48,116

2007
£’000

4,000

5,000

5,200

—

14,200

The minimum lease payments and the present value of minimum lease payments payable under finance lease obligations are:

Within one year

Between one and two years

Between two and five years

Total minimum lease payments

Future finance charges

Present value of lease obligations

Minimum Lease Payments
2007
2008
£’000
£’000

Present Value of
Minimum Lease Payments
2007
2008
£’000
£’000

786

631

1,116

2,533

(424)

2,109

704

623

1,153

2,480

(405)

2,075

602

517

990

2,109

—

2,109

529

511

1,035

2,075

—

2,075

Further information on the interest profile of borrowings is shown in note 21.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

21. Financial Instruments and Related Disclosures

The Group’s financial instruments comprise cash deposits, bank loans and overdrafts, finance lease obligations, derivatives used for hedging
purposes and trade receivables and payables.

Treasury Policy
The Group reports in sterling and pays dividends out of sterling profits. The role of the Group’s treasury activities is to manage and monitor the
Group’s external and internal funding requirements and financial risks in support of the Group’s corporate activities.

Treasury activities are governed by policies and procedures approved by the Board of Directors.

The Group uses a variety of financial instruments, including derivatives, to finance its operations and to manage market risks from these
operations. Derivatives, principally comprising forward foreign currency contracts, foreign currency options and interest rate floors and ceilings,
are used to hedge against changes in foreign currencies and interest rates.

The Group does not hold or issue derivative financial instruments for speculative purposes and the Group’s treasury policies specifically prohibit
such activity. All transactions in financial instruments are undertaken to manage the risks arising from underlying business activities, not for
speculation.

Capital Management
The capital structure of the Group consists of net borrowings and Shareholders’ equity. At 30 June 2008, net borrowings were £27.0 million,
whilst shareholders’ equity was £71.8 million. Net borrowings have increased compared to the equivalent point last year as new borrowings were
taken on to partially finance the acquisition of VetXX Holdings A/S.

The Group manages its capital structure to maintain a prudent balance between debt and equity that allows sufficient headroom to finance the
Group’s product development programme and appropriate acquisitions.

The Group operates globally, primarily through subsidiary companies established in the markets in which the Group trades. The Group’s operating
subsidiaries are generally cash generative and none are subject to externally imposed capital requirements.

Operating cash flow is used to fund investment in the development of new products as well as to make the routine outflows of capital
expenditure, tax, dividends and repayment of maturing debt.

The Group’s policy is to maintain borrowing facilities centrally which are then used to finance the Group’s operating subsidiaries, either by way of
equity investments or loans.

Financial Risk Management
The Group has exposure to the following risks from its use of financial instruments:

— liquidity risk
— market risk
— credit risk

This note presents information about the Group’s exposure to each of the above risks, and the Group’s objectives, policies and processes for
measuring and managing risk.

Liquidity risk
Liquidity risk is the risk that the Group will not have sufficient funds to meet liabilities as they fall due. Cash forecasts identifying the liquidity
requirements of the Group are produced quarterly. These are reviewed to ensure sufficient financial headroom exists for at least a 12 month
period.

The Group manages its funding requirements through the following lines of credit:

— £32.5 million term loan
— £15 million revolving credit facility
— £10 million working capital facility
— various finance leases

The Group’s undrawn borrowing facilities at 30 June 2008 are detailed in note 20.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

21. Financial Instruments and Related Disclosures continued

Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates or interest rates, will affect the Group’s income or the value
of its holding of financial instruments.

Interest rate risk management
The majority of the Group’s borrowings bear interest at floating rates linked to base rate or LIBOR and are consequently exposed to cash flow
interest rate risk.

The Group had hedged interest rate risk on its term loan by means of an interest rate floor and ceiling arrangement whereby the Group’s
exposure to fluctuations in LIBOR is limited to a minimum rate of 4.40% and a maximum rate of 5.70%. The amount of the term loan outstanding
at 30 June 2008 was £32.5 million. The hedge is in place until 31 December 2010 and the amount hedged matches the repayment profile of
the loan.

Foreign exchange risk management
Foreign currency transaction exposure arising on normal trade flows is not hedged. The Group matches receipts and payments in the relevant
foreign currencies as far as possible. To this end, bank accounts are maintained for all the major currencies in which the Group trades.

Where foreign subsidiaries have ongoing funding requirements in the local currency, then forward contracts are used.

The Group also hedges selectively expected currency cash flows outside normal trading activities, principally using foreign currency options.

The Group hedges its net investment in major overseas subsidiaries by denominating an appropriate amount of borrowings in the local currency
to match the net assets of the subsidiary. However, translational exposure in converting the income statements of foreign subsidiaries into the
Group’s presentational currency of sterling is not hedged. Borrowings that are denominated in foreign currencies that match investments in
overseas Group assets are treated as hedges against the relevant assets.

Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations.

The Group considers its maximum credit risk to be £67,380,000 which is the total carrying value of the Group’s financial assets.

Cash is only deposited with highly rated banks.

The Group offers trade credit to customers in the normal course of business. Trade and bank references are obtained prior to extending credit.
The financial statements of corporate customers are monitored on a regular basis.

The principal customers of the Services division are UK veterinary practices. The customer base is diverse and, with the exception of the largest
corporate accounts, the failure of a single customer would not have a material adverse impact on the Group's financial results.

The principal customers of the Pharmaceuticals division are European and US wholesalers. The failure of a large wholesaler could have a material
adverse impact on the Group’s financial results.

The largest customer of the Group accounted for approximately 7.5% of gross trade receivables at 30 June 2008.

Receivables are written off against the impairment provision when management considers the debt to be no longer recoverable.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

21. Financial Instruments and Related Disclosures continued

Fair value of financial assets and liabilities
The following table presents the carrying amounts and the fair values of the Group’s financial assets and liabilities at 30 June 2008 and
30 June 2007.

The following assumptions were used to estimate the fair values:

Cash and cash equivalents — approximates to the carrying amount.

Forward exchange contracts — based on market price and exchange rates at the balance sheet date.

Currency options and interest rate floor and ceiling — based upon the amount that the Group would receive or pay to terminate the
instrument at the balance sheet date, being the market price of the instrument.

Receivables and payables — approximates to the carrying amount.

Finance lease obligations — based upon discounted cash flows using discount rates based upon the Group’s cost of borrowing at the
balance sheet date.

Analysis of Financial Instruments
The financial instruments of the Group are analysed as follows:

Financial assets

Cash and cash equivalents

Held for trading financial assets:

— derivatives designated as hedges

— other derivatives

Loans and receivables

— trade receivables

— other receivables within the scope of IAS 39

Other financial assets

Total financial assets

Financial liabilities

Bank loans and overdrafts

Finance lease liabilities

Trade payables

Total financial liabilities

Net financial assets and liabilities

2008

2007

Carrying
value

Fair
value

Carrying
value

Fair
value

22,219

22,219

17,222

17,222

446

689

1,135

43,741

285

44,026

—

67,380

(47,107)

(2,109)

(50,177)

(99,393)

(32,013)

446

689

1,135

43,741

285

44,026

—

25

25

34,029

—

34,029

—

25

25

34,029

—

34,029

——

—

67,380

51,276

51,276

(47,107)

(2,177)

(50,177)

(99,461)

(32,081)

(14,120)

(2,075)

(44,019)

(60,214)

(8,938)

(14,120)

(2,168)

(44,019)

(60,307)

(9,031)

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

21. Financial Instruments and Related Disclosures continued

Credit risk — Overdue financial assets
The following table shows financial assets which are overdue and for which no impairment provision has been made:

Overdue by:

Up to one month

Between one and two months

Between two and three months

Over three months

The movement in the impairment provision was as follows:

At 1 July 2007

Impairment provision recognised

Impairment provision utilised

At 30 June 2008

2008
£’000

2,590

930

431

1,452

5,403

2008
£’000

3,177

846

(2,440)

1,583

2007
£’000

1,541

535

319

2,676

5,071

2007
£’000

2,033

1,183

(39)

3,177

Liquidity risk — Contracted cash flows of financial liabilities
The following table shows the cash flow commitments of the Group in respect of financial liabilities excluding derivatives at 30 June 2008 and
30 June 2007. Where interest is at floating rates, the future interest payments have been estimated using current interest rates:

At 30 June 2008

Carrying value

Arrangement fees netted off

Future interest

Total committed cash flow

Payable:

Within 6 months

Between 6 months and 1 year

Between 1 and 2 years

Between 2 and 3 years

Between 3 and 4 years

Between 4 and 5 years

Over 5 years

Bank Loans
and 
overdrafts
£’000

(47,107)

(1,009)

(8,283)

(56,399)

(19,369)

(3,582)

(6,892)

(6,532)

(6,172)

(5,812)

(8,040)

Finance
Leases
£’000

(2,109)

—

(424)

(2,533)

(432)

(354)

(633)

(442)

(413)

(259)

—

Trade
Payables
£’000

(50,177)

—

—

Total
£’000

(99,393)

(1,009)

(8,707)

(50,177)

(109,109)

(50,168)

(69,969)

(9)

—

—

—

—

—

(3,945)

(7,525)

(6,974)

(6,585)

(6,071)

(8,040)

Of the bank loans and overdrafts of £19,369,000 payable within six months, £15,000,000 is available to be drawn down again.

(56,399)

(2,533)

(50,177)

(109,109)

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

21. Financial Instruments and Related Disclosures continued

At 30 June 2007

Carrying value

Arrangement fees netted off

Future interest

Total committed cash flow

Payable:

Within 6 months

Between 6 months and 1 year

Between 1 and 2 years

Between 2 and 3 years

Between 3 and 4 years

Between 4 and 5 years

Over 5 years

Bank Loans
and 
overdrafts
£’000

(14,120)

(80)

(1,901)

(16,101)

(2,518)

(2,445)

(5,653)

(5,485)

—

—

—

Finance
Leases
£’000

(2,075)

—

(405)

(2,480)

(400)

(303)

(623)

(544)

(357)

(253)

—

Trade
Payables
£’000

(44,019)

—

—

(44,019)

(44,010)

(9)

—

—

—

—

—

Total
£’000

(60,214)

(80)

(2,306)

(62,600)

(46,928)

(2,757)

(6,276)

(6,029)

(357)

(253)

—

The contractual undiscounted cash flows in respect of derivative financial instruments are as follows:

(16,101)

(2,480)

(44,019)

(62,600)

Due:

Within 6 months

Between 6 months and 1 year

Between 1 and 2 years

2008

2007

Receivables
£’000

Payables
£’000

Receivables
£’000

Payables
£’000

2,306

2,231

2,231

6,768

1,978

1,955

2,072

6,005

—

—

—

—

—

—

—

—

At 30 June 2008, the Group had entered into forward exchange contracts to buy DKK63 million (£6,693 million translated at the closing
exchange rate) and sell £6,005 million. The fair value gain arising during the year of £325,000 is recognised within finance income (see note 3).

The Group has a contractual right to receive £75,000 under its interest rate floor and ceiling arrangement covering the period from 1 July to 
31 December 2008.

There are no contractual cash flows arising from foreign currency options as the Group has the right, but not the obligation, to purchase foreign
currency.

With the exception of the above disclosed, there are no other assets that have been impaired during the year.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

21. Financial Instruments and Related Disclosures continued

Foreign currency exposure
The sterling equivalents of financial assets and liabilities denominated in foreign currencies at 30 June 2008 and 30 June 2007 were:

At 30 June 2008

Financial assets

Trade receivables

Other receivables

Cash balances

Derivatives

Other financial assets

Financial liabilities

Bank loans and overdrafts

Finance leases

Trade payables

Derivatives

Net balance sheet exposure

At 30 June 2007

Financial assets

Trade receivables

Other receivables

Cash balances

Derivatives

Other financial assets

Financial liabilities

Bank loans and overdrafts

Finance leases

Trade payables

Derivatives

Other financial liabilities

Net balance sheet exposure

Danish
kroner
£’000

1,490

—

3,182

—

—

4,672

(20,791)

—

(2,430)

—

(23,221)

(18,549)

Danish
kroner
£’000

—

—

—

—

—

—

—

—

—

—

—

—

Euros
£’000

2,789

84

3,328

—

—

6,201

—

(1,286)

(581)

—

(1,867)

4,334

Euros
£’000

827

42

292

—

—

1,161

—

—

(91)

—

(91)

1,070

US
dollars
£’000

709

—

596

—

—

Other
£’000

761

—

388

—

—

1,305

1,149

—

—

(141)

—

(141)

—

—

(73)

—

(73)

1,164

1,076

US
dollars
£’000

257

—

27

—

—

284

—

—

(1,251)

—

(1,251)

(967)

Other
£’000

—

—

—

—

—

—

—

—

—

—

—

—

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

21. Financial Instruments and Related Disclosures continued

Sensitivity Analysis
Interest rate risk
A 1% increase in interest rates compared to those ruling at 30 June 2008 would reduce Group profit before taxation by £156,000.

Foreign currency risk
The Group has significant cash flows and net financial assets and liabilities in Danish kroner, US dollars and euros.

The following table shows the impact on the Group’s profit before taxation and net assets of a 10% appreciation of sterling against each of
these currencies:

Danish kroner

US dollars

Euros

Profit before
taxation
£’000

(529)

(23)

(1,231)

Net
assets
£’000

(3,031)

(193)

(1,231)

Hedges
Cash flow hedges
The Group has entered into an interest rate floor and ceiling on the term loan of £32.5 million and designated it a cash flow hedge. The risk
being hedged in the variability of cash flows arising from movements in interest rates. No ineffectiveness is assumed on the hedge.

The hedge is in place until 31 December 2010. The amounts recognised in equity are recycled to the income statement to offset gains and
losses in the period in which the cash flow occurs.

The amount recognised in equity in the year ended 30 June 2008 was £446,000 less related income tax of £125,000 (2007: £nil). £44,000 less
income tax of £13,000 was recycled to the income statement (2007: £nil).

Net investment hedges
Borrowings in Danish kroner taken out at the time of the acquisition of VetXX Holdings A/S have been designated as a net investment hedge in
respect of the foreign currency translation risk arising on the Group’s net investment in VetXX Holdings A/S. No ineffectiveness is assumed on
the hedge.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

22. Share Capital

Authorised

Allotted, called up and fully paid at start of year

New shares issued

Allotted, called up and fully paid at end of year

Ordinary shares of 1p each

2008

2007

£’000

1,000

528

124

652

No.

£’000

100,000,000

52,803,699

12,438,210

65,241,909

750

519

9

528

No.

75,000,000

51,915,002

888,697

52,803,699

On 8 January 2008, 11,624,544 new ordinary shares were issued by way of a Placing and Open Offer at a price of 303p per share to partially
finance the acquisition of VetXX Holdings A/S. The gross proceeds raised were £35.2 million. 

During the year, 813,666 new ordinary shares of 1p (2007: 873,889 new ordinary shares of 1p) were issued following the exercise of options
under the Executive Incentive Plan and the Approved, Unapproved and SAYE Share Options Schemes. The consideration received was
£537,000 (2007: £357,000). In the year ended 30 June 2007, 14,808 new ordinary shares of 1p were issued in part consideration for the
acquisition of Leeds Veterinary Laboratories Limited (see note 27). The market value of these new ordinary shares of 1p at the date of issue was
£50,000 and this amount was credited to merger reserve. The holders of ordinary shares are entitled to receive dividends as declared or
approved at General Meetings from time to time and are entitled to one vote per share at such meetings of the Company.

23. Share-based Payments

During the year, the Company operated the Unapproved Share Option Scheme, the Approved Share Option Scheme, the Executive Incentive
Plan and the Save As You Earn (“SAYE”) Share Option Scheme as described below:

Unapproved and Approved Share Option Schemes
Under these Schemes, options are granted to certain Executives and employees of the Group (excluding Executive Directors) to purchase
shares in the Company at a price fixed at the average market value over the three days prior to the date of grant. For the options to vest, there
must be an increase in earnings per share of at least 12% above the growth in the UK Retail Prices Index (RPI) over a three year period. Once
vested, options must be exercised within 10 years of the date of grant.

Executive Incentive Plan
Under this plan Executive Directors and selected senior Executives are awarded shares in the Company subject to a Total Shareholder Return
(“TSR”) target.

The TSR target measures the Company’s TSR performance against the FTSE Small Cap Index over a three year measurement period
(commencing at the beginning of the financial year in which the awards are made). 100% of the shares vest if the Company achieves an upper
quartile performance, 30% of the shares vest at median performance and awards vest on a straight-line basis for performance in between. No
shares vest if performance is below median.

In addition, awards will only vest if, in the opinion of the Remuneration Committee, the performance of the Company has been satisfactory.

SAYE Option Scheme
This Scheme is open to all UK employees. Participants save a fixed amount of up to £250 per month for either three, five or seven years and
are then able to use these savings to buy shares in the Company at a price fixed at a 20% discount to the market value at the start of the
saving period. The SAYE options must ordinarily be exercised within six months of the completion of the relevant savings period. The exercise of
these options is not subject to any performance criteria.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

23. Share-based Payments continued

Outstanding awards and the movement during the year are shown below:

Year ended 30 June 2008

Exercise
price
per share
Pence

At
1 July
2007
Number

Exercise
period

Exercised
Number

Granted
Number

Lapsed
Number

At
30 June
2008
Number

Unapproved Share Option Scheme

14 September 2000

2003–2010

120

51,500

(42,500)

22 April 2002

11 April 2003

19 March 2007

2 April 2008

Approved Share Option Scheme

2 April 2004

3 December 2004

5 April 2005

15 March 2006

19 March 2007

2 April 2008

Executive Incentive Plan

9 October 2004

3 October 2005

14 September 2006

29 February 2008

SAYE Option Scheme

9 April 2002

3 April 2003

15 October 2004

18 October 2005

12 October 2006

17 October 2007

Total

2005–2012

153.5

38,500

(22,000)

2006–2013

2010–2017

2011–2018

58.5

289

366

35,500

(27,000)

26,139

—

—

—

—

—

—

—

(2,000)

7,000

—

—

—

16,500

8,500

26,139

45,842

(10,000)

35,842

151,639

(91,500)

45,842

(12,000)

93,981

2007–2014

134.5

67,000

(32,000)

2007–2014

180

30,000

(3,333)

2008–2015

202.5

162,000

(88,500)

2009–2016

2010–2017

2011–2018

252

289

366

162,000

161,861

—

—

—

—

—

—

—

—

—

—

—

35,000

26,667

(8,000)

65,500

(11,000)

151,000

(11,000)

150,861

83,158

—

83,158

582,861

(123,833)

83,158

(30,000)

512,186

2007–2008

2008–2009

2009–2010

2011–2012

2005–2007

2006–2008

2007–2009

2008–2010

—

—

—

—

129

39

124

204

182,525

(182,525)

205,141

216,128

—

—

—

—

—

—

—

152,472

603,794

(182,525)

152,472

470

(470)

367,237

(362,184)

127,447

(51,493)

79,136

(1,350)

—

—

—

—

—

—

—

—

—

—

—

(5,053)

—

205,141

216,128

152,472

573,741

—

—

—

75,954

(1,806)

75,980

(6,349)

130,473

2009–2013

195.74

137,133

(311)

2010–2014

280

—

—

164,959

(7,099)

157,860

711,423

(415,808)

164,959

(20,307)

440,267

2,049,717

(813,666)

446,431

(62,307) 1,620,175

Weighted average exercise price

115.0p

65.4p

209.2p

245.0p

156.8p

www.dechra.com
stock code: DPH

15400

09/09/2008

Proof 8

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

23. Share-based Payments continued

Year ended 30 June 2007

Exercise
price
per share
Pence

At
1 July 
2006
Number

Exercise
period

Exercised
Number

Granted
Number

Lapsed
Number

At
30 June
2007
Number

Unapproved Share Option Scheme

14 September 2000

2003–2010

120

131,000

(79,500)

22 April 2002

11 April 2003

19 March 2007

Approved Share Option Scheme

2 April 2004

3 December 2004

5 April 2005

15 March 2006

19 March 2007

Executive Incentive Plan

5 December 2003

9 October 2004

3 October 2005

14 September 2006

SAYE Option Scheme

26 April 2001

9 April 2002

3 April 2003

15 October 2004

18 October 2005

12 October 2006

Total

2005–2012

153.5

87,500

(49,000)

2006–2013

2010–2017

58.5

289

82,500

(41,000)

—

—

26,139

—

26,139

301,000

(169,500)

26,139

(6,000)

151,639

—

—

—

—

—

51,500

38,500

(6,000)

35,500

2007–2014

134.5

123,000

(54,000)

2007–2014

180

30,000

2008–2015

202.5

171,000

2009–2016

2010–2017

252

289

175,000

—

—

—

—

—

—

—

—

—

(2,000)

67,000

—

30,000

(9,000)

162,000

(13,000)

162,000

161,861

—

161,861

499,000

(54,000)

161,861

(24,000)

582,861

2006–2007

2007–2008

2008–2009

2009–2010

2004–2006

2005–2007

2006–2008

2007–2009

2008–2010

—

—

—

—

158

129

39

124

204

505,000

(505,000)

182,525

205,141

—

—

—

—

—

—

—

216,128

892,666

(505,000)

216,128

—

—

—

—

—

—

182,525

205,141

216,128

603,794

28,188

(18,578)

12,570

(11,544)

496,393

(115,267)

129,127

98,330

—

—

—

—

—

—

—

—

(9,610)

(556)

—

470

(13,889)

367,237

(1,680)

127,447

(19,194)

79,136

153,545

(16,412)

137,133

764,608

(145,389)

153,545

(61,341)

711,423

2,457,274

(873,889)

557,673

(91,341) 2,049,717

2009–2013

195.74

—

Weighted average exercise price

79.9p

40.8p

151.3p

166.3p

115.0p

For options exercised during the year, the weighted average market price at the date of exercise was 409p (2007: 264p). The weighted average
remaining contractual lives of options outstanding at the balance sheet date was four years (2007: four years).

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15400DECHRA:Layout 1  9/9/08  17:39  Page 85

Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

23. Share-based Payments continued

As allowed by the transitional provisions of IFRS 1 and IFRS 2, included above are options over shares that have not been recognised in
accordance with IFRS 2 as the options were granted before 7 November 2002.

The fair values for shares granted under the Unapproved, Approved and SAYE Option Schemes have been calculated using the Black–Scholes
option pricing model. The fair values of shares awarded under the Executive Incentive Plan have been calculated using a Monte Carlo simulation
model which takes into account the market-based performance conditions attaching to those shares.

The assumptions used in calculating fair value are as follows:

Executive Incentive Plan
Date of grant
Number of shares awarded
Share price at date of grant
Exercise price
Expected life
Risk-free rate
Volatility
Dividend yield
Fair value per share

Unapproved and Approved Share Option Schemes
Date of grant
Number of shares awarded
Share price at date of grant
Exercise price
Expected life
Risk-free rate
Volatility
Dividend yield
Fair value per share

2/4/08
129,000
367p
366p
5 years
4.08%
36%
2.04%
116p

Save as You Earn Option Scheme
Date of grant
Number of shares awarded
Share price at date of grant
Exercise price
Expected life
— three year scheme
— five year scheme
— seven year scheme
Risk-free rate
— three year scheme
— five year scheme
— seven year scheme
Volatility
Dividend yield
Fair value per share
— three year scheme
— five year scheme
— seven year scheme

19/3/07
188,000
289p
289p
5 years
4.98%
36%
2.36%
92p

17/10/07
164,959
357.5p
280p

3.25 years
5.25 years
7.25 years

5.07%
5.04%
5.02%
36%
2.09%

130p
147p
158p

29/2/08
152,472
386p
Nil
3 years
4.20%
36%
1.94%
259p

15/3/06
177,000
252p
252p
5 years
4.32%
36%
2.15%
79p

12/10/06
153,545
257.25p
195.74p

3.25 years
5.25 years
7.25 years

4.85%
4.75%
4.65%
36%
2.43%

94p
104p
110p

14/9/06
216,128
250.75p
Nil
3 years
4.70%
36%
2.49%
162p

5/4/05
181,000
212p
202.5p
5 years
4.61%
36%
2.40%
69p

18/10/05
111,078
255p
204p

3.25 years
5.25 years
n/a

4.25%
4.31%
n/a
36%
2.04%

88p
101p
n/a

3/10/05
205,141
251p
Nil
3 years
4.21%
36%
2.07%
169p

3/12/04
30,000
179.32p
180p
5 years
4.53%
36%
2.61%
54p

15/10/04
144,147
160p
124p

3.25 years
5.25 years
n/a

4.56%
4.64%
n/a
36%
2.92%

55p
61p
n/a

9/10/04
210,739
164p
Nil
3 years
4.69%
36%
2.95%
105p

2/4/04
147,000
136p
134.5p
5 years
4.76%
36%
3.19%
40p

3/4/03
1,034,938
54p
39p

3.25 years
5.25 years
n/a

3.78%
4.14%
n/a
36%
7.63%

14p
14p
n/a

Expected volatility was determined by calculating the historical volatility of the Group’s share price over its entire trading history.

National Insurance contributions are payable by the Company in respect of some of the share-based payments. These contributions are
payable on the date of exercise based on the intrinsic value of the share-based payments and are therefore treated as cash-settled awards. The
Group had an accrual at 30 June 2008 of £229,000 (2007: £181,000), of which £123,000 (2007: £38,000) related to vested options. The total
charge to the Income Statement in respect of share-based payments was:

Equity-settled share-based transactions

Cash-settled share-based transactions

The above charge to the Income Statement was included within administrative expenses.

www.dechra.com
stock code: DPH

15400

09/09/2008

Proof 8

2008
£’000

603

156

759

2007
£’000

479

117

596

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15400DECHRA:Layout 1  9/9/08  17:39  Page 86

Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

24. Analysis of Net (Borrowings)/Cash

Bank loans and overdraft

Finance leases and hire purchase contracts

Cash and cash equivalents

Net (borrowings)/cash

2008
£’000

(47,107)

(2,109)

22,219

(26,997)

2007
£’000

(14,120)

(2,075)

17,222

1,027

25. Operating Leases

At the balance sheet date the Group had outstanding commitments for future minimum rentals payable under non-cancellable operating leases
as follows:

Within one year

Between one and five years

In five years or more

Land and buildings

Other assets

Total

2008
£’000

1,081

3,943

3,343

8,367

2007
£’000

1,008

3,975

4,284

9,267

2008
£’000

1,670

1,708

—

3,378

2007
£’000

826

697

11

2008
£’000

2,751

5,651

3,343

2007
£’000

1,834

4,672

4,295

1,534

11,745

10,801

26. Foreign Exchange Rates

The following exchange rates have been used in the translation of the results of foreign operations.

Danish krone

US dollar

At
acquisition

9.80

n/a

Average
rate

9.5957

2.0044

Closing rate
at 30 June
2008

9.4136

1.9954

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15400DECHRA:Layout 1  9/9/08  17:39  Page 87

Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

27. Acquisition of Subsidiary

On 15 January 2008 the Company acquired the entire share capital of VetXX Holdings A/S, a Danish company. The assets and liabilities
acquired are allocated as follows:

Intangible assets (see note 11)

Property, plant and equipment (see note 12)

Deferred tax assets

Inventories

Trade and other receivables

Trade and other payables

Current tax

Deferred tax liabilities

Net assets

Goodwill (see note 11)

Consideration (including costs)

Satisfied by:

Cash

Expenses of acquisition

Cash flow on acquisition

Book
value
£’000

261

2,946

1,094

2,699

7,268

(7,295)

(11)

—

6,962

Fair value
adjustments
£’000

59,254

(88)

—

—

—

(711)

—

(14,663)

43,792

Fair
value
£’000

59,515

2,858

1,094

2,699

7,268

(8,006)

(11)

(14,663)

50,754

14,397

65,151

63,658

1,493

65,151

The fair value adjustments may be amended in the year ending 30 June 2009 if information not currently available comes to light.

Goodwill represents the present value of synergies expected to arise following the acquisition.

The fair value adjustment in relation to intangible assets recognises marketing authorisations, brands and trademarks in accordance with 
IFRS 3. The deferred tax adjustment reflects the tax effect of the fair value adjustments. Other adjustments reflect the estimated realisable 
value of the assets and liabilities.

For the 12 month period ended 30 June 2008, VetXX Holdings A/S made a consolidated adjusted operating profit of £5,818,000, of which
£2,651,000 was recognised in the period following acquisition.

If the acquisition had occurred on 1 July 2007, management estimates that consolidated revenue would have been £323.2 million and adjusted
operating profit for the period would have been £22.31 million.

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stock code: DPH

15400

09/09/2008

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15400DECHRA:Layout 1  9/9/08  17:39  Page 88

Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Consolidated Financial Statements continued

27. Acquisition of Subsidiary continued

On 26 April 2007 the Company acquired the entire share capital of Leeds Veterinary Laboratories Limited. The assets and liabilities acquired are
allocated as follows:

Intangible assets

Property, plant and equipment (see note 12)

Inventories

Trade and other receivables

Cash and cash equivalents

Borrowings

Trade and other payables

Current tax

Deferred tax

Goodwill (see note 11)

Total consideration

Satisfied by:

Cash

Issue of ordinary shares

Transfer of freehold property

Expenses of acquisition

Total consideration

Less: 

issue of ordinary shares (see note 22)

transfer of freehold property

cash acquired

Cash flow on acquisition

Book
value
£’000

—

67

38

691

13

(55)

(140)

(16)

—

598

Fair value
adjustments
£’000

377

(29)

—

—

—

—

—

—

(113)

235

Fair
value
£’000

377

38

38

691

13

(55)

(140)

(16)

(113)

833

467

1,300

673

50

520

57

1,300

(50)

(520)

(13)

717

Intangible assets recognised on acquisition represent customer relationships.

Goodwill represents the expertise and technical knowledge of the Company’s staff and the long-term strategic benefit of expanding the

geographic coverage of the Group’s Laboratories business.

For the 12 month period ended 30 June 2007, Leeds Veterinary Laboratories Limited made a profit of £44,000 (before exceptional income of

£237,000), of which £28,000 was recognised in the period following acquisition.

If the acquisition had occurred on 1 July 2006, management estimates that consolidated revenue would have been £254,617,000 and

consolidated profit for the period would have been £8,863,000 (before exceptional income of £237,000).

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15400DECHRA:Layout 1  9/9/08  17:39  Page 89

Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

28. Critical Accounting Judgements and Key Sources of Estimation Uncertainty

Critical Judgements in applying the Group’s Accounting Policies
In the process of applying the Group’s accounting policies as described in note 1, the Directors have made the following judgements that
have the most significant effect on the amounts recognised in the Financial Statements.

Intangible Asset — Vetoryl Capsules USA
As described in note 13, the Group is carrying a total amount of £4,537,000 in respect of Vetoryl Capsules USA. Recoverability of this amount is
dependent upon obtaining FDA approval to market Vetoryl Capsules in the USA. Based upon positive discussions with the FDA (evidenced by
the product being granted expedited review status) and the obtaining of marketing approval in the European Union, the Directors concluded
that the obtaining of marketing authorisation in the USA is highly likely and that the criteria for recognising an intangible asset have been met.

Intangible Asset — Felimazole Tablets USA
As described in note 13, the Group is carrying a total amount of £697,000. Recoverability of this amount is dependent upon obtaining FDA
approval to market Felimazole Tablets in the USA. Based on positive discussions with the FDA and the obtaining of marketing approval in the
European Union, the Directors concluded that the obtaining of marketing authorisation in the USA is highly likely and that the criteria for
recognising an intangible asset have been met.

Key Sources of Estimation Uncertainty
The key sources of estimation uncertainty which may cause a material adjustment to the carrying amount of assets and liabilities are
discussed below:

Impairment of Goodwill and Indefinite Life Intangible Assets
The Group determines whether goodwill and indefinite life assets are impaired at least on an annual basis. This requires an estimation of the
value-in-use of the cash-generating units to which they are allocated. Estimating the value-in-use requires the Group to make an estimate of
the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present
value of those cash flows. Further detail on the assumptions used in determining value-in-use calculations is provided in note 13.

Impairment of Receivables
The Group has estimated impairment of receivables by assessing recoverability of amounts due on a customer by customer basis. As
described in note 21, credit risk is not highly concentrated with the exception of corporate veterinary practices and veterinary wholesalers. If
the receivables due from one of these large customers proved to be irrecoverable then an additional impairment provision may be required.

29. Related Party Transactions

Subsidiaries
The Group’s ultimate Parent Company is Dechra Pharmaceuticals PLC. A listing of all principal subsidiaries is shown within the financial
statements of the Company on page 99.

Transactions with Key Management Personnel
The details of the remuneration, long-term incentive plans, shareholdings, share options and pension entitlements of individual Directors are
included in the Directors’ Remuneration Report on pages 38 to 44. The remuneration of key management is disclosed in note 7.

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15400DECHRA:Layout 1  9/9/08  17:39  Page 90

Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Financial History

2008*
£’000

2007*
£’000

2006*
£’000

304,371

19,142

16,853

12,185

20.81

20.64

8.25

889

99,652

17,284

(2,824)

(15,316)

(26,997)

71,799

16,053

(2,802)

(3,041)

(2,112)

(65,151)

(4,420)

66,500

5,027

253,803

13,876

12,646

8,866

16.89

16.66

7.50

747

18,828

13,264

(2,464)

(147)

1,027

30,508

232,471

12,312

11,044

7,557

14.71

14.36

6.24

691

13,567

11,774

(2,505)

—

1,079

23,915

14,328

13,997

(1,169)

(2,895)

(5,325)

(717)

(3,595)

(3,124)

(2,497)

(1,218)

(2,618)

(1,492)

—

(2,777)

(97)

5,795

Income statement

Revenue

Adjusted operating profit

Adjusted profit before taxation

Adjusted profit after taxation

Adjusted earnings per share — basic (pence) 

— diluted (pence)

Dividend per share (pence)

Average number of employees

Balance sheet

Non-current assets

Working capital 

Current tax liabilities

Deferred tax liabilities

Net (borrowings)/cash

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

* Reported under IFRS
† Reported under UK GAAP

2005*
£’000

210,267

11,255

9,701

7,027

13.77

13.54

5.20

679

12,391

12,127

(2,057)

—

(4,859)

17,602

13,549

(1,667)

(1,996)

(1,925)

—

(2,473)

11,760

17,248

2004†
£’000

186,843

9,184

8,060

5,751

11.28

11.12

4.70

643

10,398

11,318

(1,275)

(174)

(10,110)

10,157

10,576

(1,012)

(1,864)

(546)

—

(2,192)

(2,588)

2,374

The main differences between the information under UK GAAP and IFRS relate to classification of sale of trading data to suppliers, goodwill
amortisation, capitalisation of development expenditure, share-based payments charges, treatment of lease incentives, income tax, deferred tax and
dividends. These are fully explained in the Annual Report and Financial Statements for the year ended 30 June 2006.

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15400DECHRA:Layout 1  9/9/08  17:39  Page 91

Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Company
Financial Statements

Contents

92 Company Balance Sheet
93 Reconciliation of Movements
in Shareholders’ Funds

94 Notes to the Financial Statements

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09/09/2008

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15400DECHRA:Layout 1  9/9/08  17:39  Page 92

Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Company Balance Sheet

At 30 June 2008

Fixed assets

Investments

Current assets

Debtors

Cash at bank and in hand

Creditors: (amounts falling due within one year)

Net current assets/(liabilities)

Total assets less current liabilities

Creditors: amounts falling due after more than one year

Net assets

Capital and reserves

Called up share capital

Share premium account

Hedging reserve

Profit and loss account

Total equity Shareholders’ funds

Note

iv

v

vi

vi

x

xi

xi

xi

2008
£’000

94,366

94,366

47,574

7

47,581

(37,087)

10,494

104,860

(26,641)

78,219

652

62,166

281

15,120

78,219

2007
£’000

54,658

54,658

12,366

7

12,373

(23,348)

(10,975)

43,683

(10,120)

33,563

528

28,041

(71)

5,065

33,563

The financial statements were approved by the Board of Directors on 2 September 2008 and are signed on its behalf by:

Ian Page Director

Simon Evans Director

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15400DECHRA:Layout 1  9/9/08  17:39  Page 93

Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Reconciliation of Movements in Shareholders’ Funds

For the year ended 30 June 2008

At start of period

Profit for the financial year

Movement in hedging reserve

Share-based payments charge

Dividends paid

New shares issued

At end of period

2008
£’000

33,563

13,872

352

603

(4,420)

34,249

78,219

2007
£’000

32,397

3,925

—

479

(3,595)

357

33,563

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Financial Statements

(i)

Principal Accounting Policies of the Company
Accounting Principles
The Company Balance Sheet has been prepared under the historical cost convention except for derivatives which are stated at fair value in
accordance with applicable UK accounting standards and the Companies Act 1985.

Basis of Preparation
No Profit and Loss Account is presented for the Company as permitted by Section 230(4) of the Companies Act 1985. The profit dealt with in the
accounts of the Company was £13,872,000 (2007: £3,925,000).

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.

Derivative Financial Instruments
The Company uses derivative financial instruments to manage its exposure to foreign exchange and interest rate risks. In accordance with its
treasury policy, the Company does not hold or issue derivative financial instruments for speculative purposes. However, derivatives that do not
qualify for hedge accounting are accounted for as trading instruments.

Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative financial instruments are stated at
fair value. The gain or loss on remeasurement to fair value of instruments that do not qualify for hedge accounting is recognised immediately in
the profit and loss account.

The fair value of interest rate swaps, floors and ceilings, is the estimated amount that the Group would receive or pay to terminate the
instrument at the balance sheet date. The fair value of forward exchange contracts and options is their quoted market price at the balance
sheet date, being the present value of the quoted forward price.

Hedging
Cash flow hedges
Changes in the fair value of derivative financial instruments designated as cash flow hedges are recognised directly in equity to the extent that the
hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised as profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting
is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast transaction occurs.
When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is
recognised. In other cases, the amount recognised in equity is transferred to profit or loss in the same period that the hedged item affects profit
or loss.

Cash Flow Statement
As the ultimate holding company of the Dechra Pharmaceuticals PLC Group, the Company has relied upon the exemption in FRS 1 (Revised)
not to present a cash flow statement as part of its financial statements.

Dividends
Dividends are recognised in the period in which they are approved by the Company’s Shareholders or, in the case of an interim dividend, when
the dividend is paid.

Dividends receivable from subsidiaries are recognised when either received in cash or applied to reduce a creditor balance with the subsidiary.

Interest-Bearing Borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-
bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income
statement over the period of the borrowings on an effective interest basis.

Related Parties
Under FRS 8 the Company has relied upon the exemption not to disclose related party transactions with other Group undertakings as they are
all included in the Dechra Pharmaceuticals PLC Consolidated Financial Statements.

Employee Benefits
(i)
Pensions
The Company operates a Group stakeholder personal pension scheme for certain employees. Obligations for contributions are recognised as
an expense in the profit and loss account as incurred.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

(i)

Share-Based Payment Transactions

Principal Accounting Policies of the Company continued
(ii)
The Company operates a number of equity-settled share-based payment programmes that allow employees to acquire shares of the Company.
The Company also operates a Long Term Incentive Plan for Directors and senior Executives.

The fair value of shares or options granted is recognised as an employee expense on a straight-line basis in the profit and loss account with a
corresponding movement in equity. The fair value is measured at grant date and spread over the period during which the employees become
unconditionally entitled to the shares or options (the vesting period). The fair value of the shares or options granted is measured using a
valuation model, taking into account the terms and conditions upon which the shares or options were granted. The amount recognised as an
expense in the profit and loss account is adjusted to take into account an estimate of the number of shares or options that are expected to vest
together with an adjustment to reflect the number of shares or options that actually do vest except where forfeiture is only due to market-based
conditions not being achieved.

The fair values of grants under the Long Term Incentive Plan have been determined using the Monte Carlo simulation model.

The fair values of options granted under all other share option schemes have been determined using the Black-Scholes option pricing model.

National Insurance contributions payable by the Company on the intrinsic value of share-based payments at the date of exercise are treated as
cash-settled awards and revalued to market price at each balance sheet date.

Foreign currency
Foreign currency transactions are translated into sterling using the exchange rates prevailing at the dates of the transactions. Monetary assets
and liabilities are translated at the closing rate at the reporting date. Foreign exchange gains and losses are recognised in the profit and loss
account.

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 FRS 19 “Deferred Tax”. 

Financial Guarantee Contracts
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the Company
considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a
contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.

(ii) Directors and Employees

Total emoluments of Directors (including pension contributions) amounted to £1,378,000 (2007: £1,055,000). Information relating to Directors’
emoluments, share options and pension entitlements is set out in the Directors’ Remuneration Report on pages 38 to 44.

Including Directors, the average number of staff employed during the year solely in an administrative function was 8 (2007: 8). The costs
incurred in respect of these employees were:

Wages and salaries

Social security costs

Other pension costs

Share-based payments charge

At 30 June 2008, outstanding pension contributions of £11,000 (2007: £7,000) were included in creditors.

(iii) Auditors’ Remuneration

Audit of the Parent Company financial statements

2008
£’000

1,251

151

94

269

1,765

2008
£’000

20

2007
£’000

1,042

125

80

195

1,442

2007
£’000

15

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Amounts paid to the Company’s auditors in respect of services to the Company, other than the audit of the Company’s financial statements,
have not been disclosed as the information is required instead to be disclosed on a consolidated basis.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Financial Statements continued

(iv) Fixed Asset Investments

Cost and net book value

At 1 July 2007

Additions

At 30 June 2008

Shares in Subsidiary
Undertakings
£’000

54,658

39,708

94,366

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

During the year, the Company acquired VetXX Holdings A/S.

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.

(v) Debtors

Amounts owed by subsidiary undertakings

Group relief receivable

Deferred taxation (see note ix)

Other debtors

Prepayments and accrued income

Included in debtors are amounts of £228,000 (2007: £275,000) due after more than one year.

(vi) Creditors

Bank loans and overdrafts (see note vii)

Finance lease obligations

Amounts due to subsidiary undertakings

Other creditors

Other taxation and social security

Accruals and deferred income

2008
£’000

45,048

1,655

228

508

135

2007
£’000

10,724

1,218

275

61

88

47,574

12,366

Falling due
within one year

2007
£’000

10,190

—

12,540

9

54

555

23,348

2008
£’000

33,960

35

1,962

11

40

1,079

37,087

In accordance with FRS 21, Events after the Balance Sheet Date, the proposed final dividend for the year ended 30 June 2008 of 5.50p per
share has not been accrued for in these financial statements. It will be shown in the financial statements for the year ending 30 June 2009. The
total cost of the proposed final dividend is £3,588,000.

Bank loans (see note vii)

Finance lease obligations

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Falling due after
more than one year

2008
£’000

26,491

150

26,641

2007
£’000

10,120

—

10,120

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

(vii) Borrowings

Borrowings due within one year

Bank overdraft

Bank loan

Finance lease obligations

Borrowings due after more than one year

Aggregate bank loan instalments repayable:

between one and two years

between two and five years

after five years

Arrangement fees netted off

Finance lease obligations repayable:

between one and two years

between two and five years

2008
£’000

13,344

20,616

35

33,995

5,000

15,000

7,500

27,500

(1,009)

26,491

39

111

150

2007
£’000

6,190

4,000

—

10,190

5,000

5,200

—

10,200

(80)

10,120

—

—

—

Total borrowings

60,636

20,310

The bank loans and overdrafts are secured by a fixed and floating charge on the assets of the Group. Interest is charged at between 1% and
1.25% over LIBOR. 

The Company guarantees certain borrowings of other Group companies, which at 30 June 2008 amounted to £1,924,000 (2007: £2,075,000).

(viii) Financial Instruments

Changes in fair value (charged)/credited to profit and loss

2008
£’000

(58)

2007
£’000

(46)

Details of valuation techniques and fair values of each category of financial instruments are given in note 21 to the Consolidated Financial
Statements in the section headed ‘Financial Instruments and Related Disclosures’.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Notes to the Financial Statements continued

(ix) Deferred Tax

At 1 July 2007

Transfer to profit and loss account

Transfer from equity

At 30 June 2008 (included in debtors)

The amounts provided for deferred taxation at 28% (2007: 28%) are as follows:

Short term timing differences

Total

(x) Called up Share Capital

Issued share capital

Allotted, called up and fully paid at 1 July 2007 

New shares issued

Allotted, called up and fully paid at 30 June 2008

Authorised share capital

At 30 June 2008

At 30 June 2007

£’000

275

78

(125)

228

2007
£’000

(275)

(275)

Ordinary Shares 
of 1p each

No.

52,803,699

12,438,210

65,241,909

100,000,000

75,000,000

2008
£’000

(228)

(228)

£’000

528

124

652

1,000

750

During the year, 813,666 new ordinary shares of 1p were issued following the exercise of options under the Executive Incentive Plan and the
Approved, Unapproved and SAYE share option schemes. The consideration received was £537,000 (2007: £357,000).

In addition, 11,624,544 new ordinary shares of 1p were issued in part consideration for the acquisition of VetXX Holdings A/S. The gross
proceeds raised were £35.2 million.

Share Options
Details of outstanding share options over ordinary shares of 1p at 30 June 2008 under the various Group share option schemes are shown in
note 23 to the Consolidated Financial Statements.

(xi) Reserves

At 1 July 2007

New shares issued

Share issue expenses

Profit for the financial year

Movement in hedging reserve

Dividend (see note 9 to Consolidated Financial Statements)

Share-based payments charge

At 30 June 2008

Share
premium
account
£’000

28,041

35,636

(1,511)

—

—

—

—

62,166

Hedging
reserve
£’000

(71)

—

—

—

352

—

—

281

Profit
and loss
account
£’000

5,065

—

—

13,872

—

(4,420)

603

15,120

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

(xii)

Subsidiary Undertakings
Dechra Pharmaceuticals PLC is the ultimate parent and controlling party of the Group.

The principal subsidiary undertakings of the Company, all of which are wholly owned, are:

Company

Dechra Limited§

Country of
Operation

Country of
Incorporation

UK

Great Britain

Dechra Investments Limited

National Veterinary Services Limited*

Arnolds Veterinary Products Limited*

Dales Pharmaceuticals Limited*

Veneto Limited

North Western Laboratories Limited

Cambridge Specialist Laboratory
Services Limited†

Anglian Pharma Manufacturing Limited‡

Anglian Pharma Limited

Dechra Veterinary Products LLC

Leeds Veterinary Laboratories Limited

VetXX Holdings A/S

VetXX A/S#

VetXX OY¶

UK

UK

UK

UK

UK

UK

UK

UK

UK

USA

UK

Denmark

Denmark

Great Britain

Great Britain

Great Britain

Great Britain

Great Britain

Great Britain

Great Britain

Great Britain

Great Britain

USA

Great Britain

Denmark

Denmark

Finland

Finland

Dechra Veterinary Products SAS¶

France

France

VetXX DV¶

VetXX AS¶

Holland

Holland

Norway

Norway

VetXX Animal Health SLU¶

Spain

Spain

VetXX AB¶

VetXX Ltd¶

Sweden

Sweden

UK

Great Britain

Principal Activity

Wholesaler, marketer and manufacturer
of pharmaceuticals; Wholesaler and marketer of
veterinary products, instruments and equipment;
Provider of veterinary laboratory services

Holding company

Non-trading

Non-trading

Non-trading

Holding company

Non-trading

Non-trading

Non-trading

Holding company

Distributor of veterinary products

Non-trading

Holding company

Marketer and manufacturer of veterinary 
pharmaceuticals and pet diets

Marketer of veterinary pharmaceuticals
and pet diets

Marketer of veterinary pharmaceuticals
and pet diets

Marketer of veterinary pharmaceuticals
and pet diets

Marketer of veterinary pharmaceuticals
and pet diets

Marketer of veterinary pharmaceuticals
and pet diets

Marketer of veterinary pharmaceuticals
and pet diets

Marketer of veterinary pharmaceuticals
and pet diets

*

§

†

100% of ordinary share capital held by Veneto Limited. Voting preference shares held by Dechra Pharmaceuticals PLC Employee Benefit Trust.

100% of ordinary share capital held by Dechra Investments Limited.

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

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

‡
# 
¶  100% of ordinary share capital held by VetXX A/S.

100% of ordinary share capital held by VetXX Holdings A/S.

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Dechra Pharmaceuticals PLC 
Annual Report and Accounts for the year ended 30 June 2008

Glossary of Terms

The following is a glossary of a number of the terms and acronyms

Intertrigo

which can be found within this document.

Refers to a bacterial, fungal or viral infection that has developed at the

Adjusted operating profit

Profit before interest, tax, amortisation of acquired intangibles 

site of broken skin due to inflammation of body folds. This infection is

common in dogs with folds such as Pugs or Shar Peis.

and rationalisation costs relating to the acquisition of VetXX

Malassezia

Holdings A/S.

Adjusted pre-tax profit

Yeasts that cause a secondary inflammatory skin disease. Malassezia

is often found in otitis externa.

Profit before tax, amortisation of acquired intangibles and

MHRA

rationalisation costs relating to the acquisition of VetXX Holdings A/S.

Medicines and Healthcare products Regulatory Agency; an

Cortisol

executive agency of the Department of Health.

A hormone which is made by the adrenal glands. Its production is

NSAID

increased during episodes of stress and it has many effects on

Non-Steroidal Anti-Inflammatory Drug; essentially drugs which relieve

the body. It helps regulate blood pressure, the immune system

pain, swelling, stiffness and inflammation. Equipalazone is the leading

and helps balance the effect of insulin to keep the blood sugar at

NSAID for the treatment of musculoskeletal disorders in the horse.

normal levels.

Cushing’s Disease

Otitis Externa

A condition which causes inflammation of the external ear canal

A condition caused by excess cortisol (see below) and is named

(the tube between the outer ear and the ear drum).

after the physician who first described the condition in humans in

the early twentieth century.

FDA

Staphylococcal Infections

Communicable conditions caused by the Staphylococcus type of

bacteria and generally characterised by pyoderma or the formation of

US Food and Drug Administration; a federal agency of the US

abscesses.

department of Health and Human Services.

Surface Pyoderma

Hyperthyroidism

Pyoderma is the medical term used to denote infections of the skin

Occurs when the thyroid glands produce excessive amounts of

caused by bacteria. Surface Pyoderma is a bacterial infection which is

thyroid hormone. This causes an increase in the animal’s metabolism

confined to the surface of the skin; one of the commonest types is

(the rate at which energy is burnt up).

known as Pyotraumatic Dermatitis (acute moist dermatitis, or “hot

spots”). It is typified by localised itching, moist, reddened skin patches

and ulcerated lesions.

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15400DECHRAcover:Layout 2  9/9/08  18:33  Page 2

Welcome to Dechra
Group Strategy

To sustain growth from our core businesses.
To continue to develop our veterinary pharmaceutical portfolio.
To increase our pharmaceutical penetration into international markets.

Services

Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2008

Advisers

Merchant Bank & Financial Advisers

NM Rothschild & Sons Limited

New Court

St Swithins Lane

London

EC4P 4DU

Stockbroker & Financial Advisers

Dresdner Kleinwort

30 Gresham Street

London

EC2P 2XY

Principal Bankers

Bank of Scotland

55 Temple Row

Birmingham

B2 5LS

Auditors

KPMG Audit Plc

2 Cornwall Street

Birmingham

B3 2DL

Lawyers

DLA Piper UK LLP

Victoria Square House

Victoria Square

Birmingham

B2 4DL

Registrars

Computershare Investor Services PLC

PO Box 82

The Pavilions

Bridgwater Road

Bristol

BS13 8AE

Financial PR

Citigate Dewe Rogerson Limited

9 The Apex

6 Embassy Drive

Edgbaston

Birmingham

B15 1TP

Pharmaceuticals

Trademarks

Trademarks appear throughout this document in italics. Dechra and the Dechra “D” logo are registered trademarks of Dechra Pharmaceuticals PLC.

Contents

01 Financial Highlights
02 Operational Review
08 Chairman’s Statement
10 Directors’ Business Review
28 Board of Directors
29 Senior Management
30 Directors’ Report
33 Corporate Governance
37 Audit Committee Report
38 Directors’ Remuneration Report

45 Social, Ethical and

Environmental Responsibilities

47 Statement of Directors’

Responsibilities in respect of
the Annual Report and the
Financial Statements

48 Independent Auditors’ Report
49 Consolidated Financial Statements
91 Company Financial Statements

100 Glossary of Terms
101 Advisers

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

t: +44 (0)1782 771100
f: +44 (0)1782 773366
e: corporate.enquiries@dechra.com

Registered in England No. 3369634

www.dechra.com

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An International Veterinary Pharmaceutical Business

Annual Report and Accounts for the year ended 30 June 2008