®
An International Veterinary
Pharmaceutical Business
Annual Report and Accounts
for the year ended 30 June 2010
18000DECHRAPHCVR 11MM SPINE ALT.indd 1
13/09/2010 12:23
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Welcome to Dechra
Our Business
Dechra is an international pharmaceutical business
focused on the veterinary market with its key area of
specialisation being the development and marketing
of companion animal products
Our Strategy
• To sustain growth from our core businesses
• To deliver medium to long-term growth
through the development, organically and by
way of in-licensing and acquisition, of our
branded veterinary pharmaceutical portfolio of
both novel and generic products
• To formulate and develop specialist pet diets
• To license and market key products into
international markets
Key Performance
Indicators:
The Group utilises
KPIs to assess its
development and
progress against its
strategy
The KPIs can be found
on pages 30 to 31
Risks:
The Group faces risks
and uncertainties relating
to the achievement of its
strategy and objectives
A table setting out the
main potential risk areas
and the controls in place
can be found on pages
36 to 37
Contents
Section 1: Our Business
Section 4: Our Accounts
02 Group at a Glance
04 What Drives Dechra’s Success
Section 2: Directors’ Report:
Our Performance
06
08
Chairman’s Statement
Business Review
Section 3: Directors’ Report:
Our Governance
38
39
40
48
51
60
Board of Directors
Senior Management
Corporate Governance
Audit Committee Report
Directors’ Remuneration Report
Social, Ethical and Environmental Responsibilities
66 Other Disclosures
69
Statement of Directors’ Responsibilities
70
72
73
74
75
76
77
Independent Auditors’ Report
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Shareholders’ Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
115 Company Balance Sheet
116 Reconciliation of Movements in Shareholders’ Funds
117 Notes to the Company Financial Statements
124 Financial History
Forward-Looking Statements: This Annual Report contains certain
forward-looking statements which reflect the knowledge and information
available to the Company during the preparation and up to the publication
of these Accounts. By their very nature, these statements depend upon
circumstances and relate to events that may occur in the future and by
this very nature involve a degree of uncertainty. Therefore, nothing in this
publication should be construed as a profit forecast by the Company.
18000DECHRAPHCVR 11MM SPINE ALT.indd 2
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Stock Code: DPH
www.dechra.com
Financial Highlights
01
Key Achievements
• Solid growth in revenue and
profitability
• Increased investment in product
pipeline of 35.9%
• Strong cash flow — cash conversion
rate of 100.8%
• Significant reduction in net borrowings —
down from £15.5 million to £6.7 million
• Dividend increase of 15.4%
Revenue £ million
6%
5
.
2
3
2
4
.
4
0
8 3
.
3
5
2
4
.
9
6
3
0
.
0
5
3
Adjusted Profit
Before Taxation* £ million
11%
1
.
6
4 2
.
3
2
Profit Before
Taxation £ million
10%
7
.
7
1
1
.
6
1
9
.
6
1
6
.
2
1
0
.
1
1
6
.
2
1
7
.
1
1
0
.
1
1
06
07
08
09
10
06
07
08
09
10
06
07
08
09
10
Adjusted Earnings
per Share* pence
15%
1
8
.
0
9 2
8
.
6
1
1
7
.
4
1
0
5
.
9
2
1
6
5
2
.
Earnings per
Share pence
16%
1
7
.
4
1
7
9
.
9
1
6
8
6
1
.
7
2
.
7
0 1
2
4
1
.
Dividend per
Share pence
15%
.
0
5
4 7
2
.
6
0
5
.
0
1
0
1
9
.
5
2
.
8
06
07
08
09
10
06
07
08
09
10
06
07
08
09
10
* Adjusted for amortisation of acquired intangibles and exceptional costs
18000
13/09/2010
Proof 8
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Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Group at a Glance
Pharmaceuticals
European Pharmaceuticals
Dechra Veterinary
Products EU (“DVP EU”)
Sales and marketing of Dechra’s licensed
branded pharmaceuticals and specialist
pet foods to the veterinary profession in
Europe
Dales® Pharmaceuticals
(“Dales”)
Licensed manufacturer of veterinary and
human pharmaceuticals for DVP EU
and third party customers
US Pharmaceuticals
Dechra Veterinary
Products US (“DVP US”)
Marketing and sales organisation for
a range of Dechra branded endocrine,
ophthalmic, dermatological and equine
products into North America
European Pharmaceuticals Revenue
US Pharmaceuticals Revenue
up 9.3%
to £84.6 million (2009: £77.4 million)
up 36.7%
to £10.6 million (2009: £7.8 million)
Product Development
The Product Development and Regulatory Team develops and licenses Dechra’s own branded
veterinary product portfolio of novel and generic pharmaceuticals and specialist pet diets
internationally
Stock Code: DPH
www.dechra.com
02/03
Services
Services
National Veterinary
Services (“NVS®”)
UK market leader in the supply of
pharmaceuticals and added value
services to the veterinary profession
NationWide
Laboratories (“NWL”)
Multi-disciplined independent
commercial veterinary laboratory
Cambridge Specialist
Laboratory Services
(“CSLS”)
Primary and secondary referral specialist
veterinary immunoassay laboratory
Services Revenue
up 3.5%
to £285.7 million (2009: £276.1 million)
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Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
What Drives Dechra’s Success
Unique Products
We have a novel range of specialist veterinary pharmaceuticals and pet diets.
Many of them are market leading innovative products and a number of them
unique in their therapeutic category. All of our products are strongly branded in
Dechra livery
People and Expertise
Dechra has attracted a highly qualified and skilled workforce throughout the
organisation. This stable and motivated team, with many years of experience
and high levels of expertise within the markets we serve, has been a key factor
in the sustained growth of the business
Strategic Focus
We have continuously delivered results based on our clear strategic focus for
many years
International Footprint
The Group has highly experienced and dedicated sales teams in the majority
of the world’s key companion animal markets and has also developed strong
relationships with marketing partners around the world
Strong Financial Platform
The Group maintains a prudent balance sheet and achieves strong cash flows.
This provides flexibility to invest for the long term
Stock Code: DPH
www.dechra.com
04/05
Development Pipeline
We have developed a strong pipeline of novel pharmaceuticals, generic
pharmaceuticals and specialist pet diets. This pipeline has successfully
delivered products over the years and will be a key driver of future growth
for the business
Strong Market Position
NVS, Dechra’s distribution business, is market leader in the supply of products
and services to veterinary practices in the UK. The Dechra Veterinary Products
brand is recognised across Europe and North America for its quality, innovation
and veterinary exclusive marketing position
Growing Markets
The majority of the world’s companion animal markets continue to demonstrate
growth. This is driven by the increasing medical and surgical capabilities of
veterinary surgeons, increased life expectancy of pets and, ultimately, the
consumers’ passion for their animals
Customer Satisfaction
The key focus of our business is to deliver high levels of service and specialist,
innovative products, creating strong working relationships with our veterinary
clients. Furthermore, we provide educational and training services for our
customers including online continuing professional development courses and
educational seminars
Innovation
Dechra has for several years identified and delivered new products and services.
This innovation provides Dechra with a solid pipeline, operational efficiencies
and a strong competitive position
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Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Chairman’s Statement
“Our product development pipeline delivers new products year
on year, our international pharmaceutical and diets businesses
are delivering good growth and our established UK service
business continues to increase its profitability”
Michael Redmond, Chairman
Introduction
I am pleased to report the Group has continued to deliver against
its clear strategy and has performed solidly with increases in
revenue and profitability.
We have increased investment in our product pipeline and have
continued to strengthen our international businesses which,
combined with our established infrastructure, will ensure growth is
maintained in the future.
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 7.20 pence per share (2009: 6.10 pence per share). This,
together with the interim dividend of 3.30 pence per share (2009:
3.00 pence per share), makes a total dividend for the year of 10.50
pence per share (2009: 9.10 pence per share), a 15.4% increase.
The total dividend is covered 2.6 times (2009: 2.8 times) by profit after
taxation but after adding back amortisation of acquired intangibles.
Financial Highlights
Group revenue increased 5.5% from £350.0 million to £369.4 million.
Adjusted operating profit increased by 12.9% to £28.2 million
(2009: £25.0 million). Adjusted profit before taxation rose 11.3% to
£26.1 million (2009: £23.4 million). Operating profit after deducting
exceptional costs and amortisation of acquired intangibles was
£19.9 million (2009: £17.7 million). Profit before taxation on the
same basis was £17.7 million (2009: £16.1 million).
Adjusted basic earnings per share was 29.50 pence, up 15.2%
from the 25.61 pence achieved in 2009. Earnings per share after
exceptional costs and amortisation of acquired intangibles was
19.97 pence (2009: 17.27 pence).
Total cash investment in product development was £5.6 million
(2009: £4.2 million), of which £4.7 million was charged to the
income statement (2009: £3.4 million). In addition, a payment of
£418,000 (2009: £470,000) was made to acquire technology for
our product development programme.
During the year, Group cash flow was strong with cash flow from
operations being 134.2% of operating profit (2009: 156.0%). This
figure was 100.8% (2009: 112.5%) when amortisation of acquired
intangibles is added back. Group net borrowings were reduced
by £8.8 million in the year from £15.5 million at 30 June 2009 to
£6.7 million at 30 June 2010. The Group has committed bank
facilities totalling £47.5 million, £10 million of which is renewable
on 30 September 2010.
Net debt to EBITDA on an adjusted basis was 0.22 times (2009:
0.57 times). Interest cover on adjusted operating profit was 13.2
times (2009: 16.0 times).
The final dividend, which is subject to Shareholder approval at
our Annual General Meeting to be held on Friday 5 November
2010, will be paid on 10 December 2010 to Shareholders on
the Register at 12 November 2010. The date shares become
ex-dividend is 10 November 2010.
People
On behalf of the Board and our Shareholders I welcome all new
employees to the Group. I would also like to thank all employees
for their hard work, dedication and innovation in contributing to
our successful year.
Prospects
Although continuing to show growth, most of the markets in which
we trade remain competitive with the impact of any future general
economic weakness being uncertain. Despite this, our product
development pipeline delivers new products year on year, our
international pharmaceutical and diets businesses are delivering
good growth and our established UK service business continues to
increase its profitability. We anticipate that in the long-term market
growth will return to historic levels. We therefore remain confident
about our future growth prospects.
Michael Redmond
Chairman
7 September 2010
Stock Code: DPH
www.dechra.com
06/07
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Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Business Review
“We have completed several, and implemented
many new, licensing and registration projects and
have also advanced the development of novel
products, new generic pharmaceuticals and
specialist pet diets”
Ian Page, Chief Executive and Simon Evans, Group Finance Director
Introduction
Against a backdrop of economic uncertainty and a slowdown
The Group’s strategy is to:
in the global veterinary markets, Dechra Pharmaceuticals PLC
(“Dechra”) has once again performed in line with management’s
(cid:2) sustain growth from our core businesses;
(cid:2) deliver medium to long-term growth through the development,
expectations and has outperformed the majority of markets in
which it trades. Our continued strong growth can be attributed to
organically and by way of in-licensing and acquisition, of our
branded veterinary pharmaceutical portfolio of both novel and
the consistent long-term execution of our clear strategy, ongoing
innovation, strong effective brands and the dedication and hard
generic products;
(cid:2) formulate and develop specialist pet diets; and
work of all the Group’s employees.
(cid:2) license and market key products into international markets.
The Business and its Markets
Dechra operates under four segments:
Our branded products business, DVP, is unique in having its sole
area of specialisation in companion animal products; our product
development pipeline is focused solely on providing products for
(cid:2) European Pharmaceuticals which comprises Dechra
dogs, cats and horses, the major species within this category.
Veterinary Products Europe (“DVP EU”) and Dales
Pharmaceuticals (“Dales”);
Our Service businesses in the UK operate in the companion
(cid:2) US Pharmaceuticals comprising Dechra Veterinary Products
animal, equine and livestock sectors.
US (“DVP US”);
(cid:2) Product Development; and
(cid:2) Services comprising National Veterinary Services (“NVS”)
and our laboratories, NationWide Laboratories (“NWL”) and
Cambridge Specialist Laboratory Services (“CSLS”).
The veterinary market for companion animal products has grown
strongly over the last ten years, although growth in the last 18
months has slowed reflecting current economic trends. Prevailing
growth in the UK veterinary market, which still represents the
majority of Dechra’s overall sales, has over the years consistently
The business employs 1,029 people, operates out of 11 countries
outperformed and still remains ahead of the Retail Price Index.
and exports products globally.
Veterinary care is the fastest growing sector of the pet industry,
albeit at a lower rate than historically. There is currently minimal
volume growth; however, inflation remains at 2% – 3%. The key
drivers within the companion animal market are the increasing
medical and surgical capabilities of veterinary surgeons and
increased life expectancy of pets. The consumers’ passion for
their animals has maintained growth within the marketplace as
animal welfare is one of the last areas of a household budget to
be sacrificed.
Stock Code: DPH
www.dechra.com
08/09
The North American, Western European and Japanese markets
are the most established companion animal markets in the world,
with pet ownership in over 50% of households and with a high
level of spend per animal. The following chart provides details of
companion animal populations in the markets in which Dechra
currently has a sales and marketing operation:
Companion Animal Populations in Dechra
Territories
Territory
USA
France
UK and Ireland
Spain
Scandinavia
Netherlands
Dogs
(millions)
75
Cats
(millions)
82
Horses
(millions)
10
8
8
5.5
2.1
2
10
8.4
4
3.1
4
1
1
0.6
0.5
0.4
In addition to its established trading presence in Europe and the
USA, the business currently sells products in other countries
through marketing partners and has new products in registration
in several other important companion 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
(millions)
(millions)
Horses
(millions)
12.5
6.9
6
5.3
3.7
12
6.1
8
7.9
2.4
0.1
0.3
1
1
1.2
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Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Business Review
Case Study
Marketing Awards
At the annual Veterinary Marketing Association awards in March, DVP received four prestigious
awards for our innovative marketing campaigns, including the esteemed John O’Hara award for
outstanding contribution to marketing:
(cid:2) Best Advertising Campaign for Equipalazone®; the creative use of a common method of
improving product palatability
(cid:2) Point of Sale Category and the John O’Hara awards for the Urilin® point of sale campaign, which
features a quirky take on ‘Wet Floor’ signage to promote this urinary incontinence drug
(cid:2) Highly successful direct mail campaign designed to support the Fluids Knowledge Programme;
the innovative online CPD solution that complements the Vetivex® fluid range
Additionally, DVP’s recent Felimazole® campaign (an example of which is on the opposite page) has
won two prestigious international creative awards in April; a Silver Award in the category of Business
to Business Campaign and a Bronze Award for Business to Business Adverts.
Thousands of entries from 24 countries competed for awards in 20 different categories and winners
were selected by an international panel of judges including representatives from creative agencies
such as Saatchi & Saatchi and Ogilvy 2B Interactive.
Stock Code: DPH
www.dechra.com
10/11
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Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Business Review
Key Products and
Specialisations
Dermatology
Canaural® was first licensed
in 1975 and is still the leading
first line treatment for otitis
externa in cats and dogs
in several EU territories.
Canaural, which is now
registered in 27 countries, can
also be used in conjunction
with our leading ear cleaning
product CleanAural®.
Endocrinology
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 product for the treatment of Cushing’s Disease
(excess cortisol or hyperadrenocorticism) in dogs. It is marketed
internationally and is the only recognised licensed efficacious
veterinary product for the treatment of Cushing’s Disease around
the world.
Felimazole was the first veterinary licensed product for the
treatment of feline hyperthyroidism. Originally licensed in the UK
in 2002, Felimazole was then licensed in the EU in 2005, the US
in 2009 and was subsequently submitted for approval in new
markets.
Fuciderm®, licensed in 1995, is the only licensed product for
the treatment of surface pyoderma in dogs, such as acute
moist dermatitis and intertrigo. It is a key product within our
Equine Medicine
We have a wide range of 14 licensed products supporting the
dermatology range, selling into 23 countries.
equine veterinarian. The lead product with the highest sales is
Equipalazone which is licensed in five major EU countries.
Malaseb® was first licensed in 1996 and is still the market leading
medicated shampoo for cats and dogs. It is used to treat skin
diseases caused by Malassezia and Staphylococcal infections.
Equipalazone was first licensed in a sachet presentation in 1972
and subsequently in a paste and injection. It is still the leading
Animax®, licensed for the treatment of skin conditions in dogs
and cats, is only approved in the United States. The marketing
rights for this product were acquired in May 2007.
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
Ophthalmology is an area of veterinary medicine where we have a
number of leading products including licensed pharmaceuticals,
unlicensed care products and instruments.
Stock Code: DPH
www.dechra.com
12/13
Fucithalmic® Vet, licensed in 1993, is the only licensed product
available for the treatment of conjunctivitis associated with
Staphylococcal infections. It is highly effective because of its
unique sustained release formulation that ensures prolonged
retention within the eye. It is currently licensed in 21 countries
worldwide.
We also market a range of ophthalmic and otic products in the
USA, the long-term marketing rights of which were acquired in
May 2007. There are six products in the range, most of which are
the only veterinary licensed products in the American market.
Critical Care
Dechra has a wide range of products that support emergency
medicine including licensed pharmaceuticals, wound treatments,
consumables and instruments all predominantly sold in the UK.
The leading range of products is the Vetivex brand.
The Vetivex range of infusion fluids are licensed for the treatment
of dehydration. They are widely used to meet normal fluid and
electrolyte requirements when fluids cannot be given orally, such
as during surgery.
Generics
Several generic products are registered within the United
Pet Diets
Dechra has two main cat and dog diet product ranges, both
branded Specific®, which are sold exclusively through veterinary
practices. Therapeutic diets, which represent 70% of diet sales,
provide optimum levels of nutrition in areas such as diabetes,
arthritis and urinary, kidney, liver and heart problems. Life stage
diets, which represent 30% of diet sales, provide premium quality
daily nutrition for healthy dogs and cats.
Care
The Care range comprises unlicensed products which
complement our pharmaceutical range. They are available over
the counter within veterinary practices. The three key products
are CleanAural, a non irritant cleaner suitable for frequent use
in ears producing excess wax, Neutrale™, a range of specialist
shampoos for skin conditions in dogs, and Lubrithal®, an eye
lubricant for cats and dogs.
Kingdom; this basket of products is marketed under the Dechra
Veterinary Essentials™ brand. A number of products are also
Marketing Agreements
A number of products are also sold through our global
registered in Europe and we are in the process of in-licensing and
subsidiaries under marketing agreements with:
registering additional products to extend our generic range within
this territory.
(cid:2) Virbac Inc. to market Thyroxyl® within the UK and Ireland;
(cid:2) Eurovet to market Domidine®, Sedator® and Atipam® in the
UK and Ireland;
(cid:2) Orthogen to market Irap® in the USA; and
(cid:2) Peptech Animal Health Pty Limited (“Peptech”) to market
Ovuplant® in the USA, Canada and EU.
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Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Business Review
Product Development
The key achievements have been:
— mutual recognition of Malaseb in 17 countries in
November 2009;
Strategy
The Group focuses on solid organic growth within all its
— mutual recognition of Urilin in 20 countries in April 2010;
— the approval of Clavudale®, a generic antibiotic, in the UK
businesses.
in January 2010. This product has now been submitted for
mutual recognition in Europe; and
The key strategic aim, which has delivered excellent growth for
— the approval of Felimazole in Canada in August 2009.
several years and will continue to provide significant revenues
in the future, is through the development and acquisition of our
We have also successfully implemented the regulatory changes
own branded veterinary product portfolio of novel and generic
required to bring Felimazole sales back in-house and into Dechra
pharmaceuticals and specialist pet diets and the marketing
of these key products into international markets. Our product
livery following the termination of the licence agreements across
Europe.
development is concentrated in two areas:
— Prescription only veterinary medicines (“POMs”) for dogs,
The Vetoryl dossier has been accepted by the Japanese
authorities and we are hopeful that the product will reach the
cats and horses. Most of our projects utilise existing
pharmaceutical entities that are typically used within the
market in early 2011. In Japan the product will be branded
Adrestan.
human market and therefore the majority of product creation
is development and not research based.
— Therapeutic pet diets for dogs and cats. Products are
formulated and trialled to provide optimum nutrition for
animals diagnosed with various medical conditions.
Development Achievements
There has been a marked increase in the activity within our
Product Development Department during the year.
We have completed several, and implemented many new,
licensing and registration projects and have also advanced the
development of novel products, new generic pharmaceuticals and
specialist pet diets. Furthermore, several new opportunities have
Following last year’s successful introduction of innovative diets
within our Specific range, two new second generation therapeutic
diets for dogs have been launched: Specific CIW for digestive
support in December 2009 and Specific CKD for kidney and
heart support in March 2010. Quality, palatability and packaging
improvements have also been made.
Dechra has a proven track record of consistently delivering new
products year on year. We continue to identify and evaluate
new opportunities and have continued to make progress on
the majority of products in development. As previously notified
to Shareholders, to support this burgeoning pipeline, product
development expense has increased by 35.9% in the financial
been evaluated as we continually strengthen our product portfolio
year being reported from £3.4 million to £4.7 million.
and pipeline.
Stock Code: DPH
www.dechra.com
14/15
Case Study
Launch of our new websites
During the 2009/2010 financial year, we have re-designed and
In addition to being able to access the website through
re-launched the DVP and PLC websites.
DVP Websites
This is the first phase of an exciting project which enhances DVP’s
position as a global veterinary brand and utilises the development
of the internet as an important route to market.
The DVP websites provide customers with a valuable and up to
date source of information on our products and services. They
contain details of the full product range and information about the
therapy areas that our products treat.
www.dechra.com, each country in which we operate has its
own site where users can view all the products available in their
territory. Alternatively, they can choose to view the ‘global’
website which contains details of all products.
PLC Website
The increased use of the internet by investors and other
stakeholders and the increasing international focus of our
business has led to extensive work being undertaken to re-design
and re-develop the Dechra Pharmaceuticals PLC website.
There are now four sections to the website:
By accessing the UK website, veterinary professionals can
improve their clinical knowledge using our web-based learning
(cid:2) Investor Relations
programmes. We currently offer structured online Continuous
Professional Development (“CPD”) courses that build expertise in
fluid therapy and in feline hyperthyroidism, both programmes have
(cid:2) Corporate Governance
(cid:2) Corporate Social Responsibility
been designed specifically for veterinarians and veterinary nurses.
(cid:2) Who we are
The US website also offers online continuous education on canine
Cushing’s and also provides diagnostic checklists, technical
materials, product literature and client brochures.
DVP are continuously developing and launching online CPD
material on the European websites.
Within each section, there is a wealth of information including
the latest news and financial and product information to help
improve the understanding of our business. Additionally, the terms
of reference of all our Committees, Articles of Association and a
number of our internal policies are published on the website.
We are continuously adding to this site in order to provide up to
date information to all of our stakeholders.
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Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Business Review
Product Pipeline
Significant progress has been made on the development of our
novel product portfolio.
We have, however, added an additional feline gastrointestinal
pharmaceutical product to the novel products development list
and are at an advanced stage of creating a suitable formula to
commence trials.
The pharmaceutical pipeline has been enhanced further by the
signing of a number of development and licensing agreements
Equidone®, an equine endocrine product, is now only awaiting
with:
final approval by the FDA. The product is targeted for marketing
in time to take advantage of its peak sales opportunity in Spring
— Piedmont Pharmaceuticals LLC to develop soft chew
technology for a pharmaceuticals product;
— Peptech to extend our marketing agreement for Ovuplant into
the United States and Canada; and
— a major European generics company to in-license two
approved veterinary generics.
next year.
Priority has been given to an equine lameness product with the
efficacy trials making excellent progress with good results. We
have recently received notification that the patent application for
this product has been successful in Europe.
Following a small field-based trial of an equine respiratory
product, we have decided to terminate this project due to
inconclusive data and the resultant significant increase in the
number of horses which would need to be tested and the
accompanying unacceptable costs which would be incurred in a
clinical trial.
Stock Code: DPH
www.dechra.com
16/17
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Case Study
Development of Specific CJD Joint Support
Osteoarthritis is a degenerative joint disease affecting up to
high dietary level of EPA, our existing
20% of all adult dogs. It can be characterised by destruction of
cartilage and inflammation of the joint and causes pain and mobility
Specific’s expertise in the use of fish
oil was utilised. Another objective was
problems in affected dogs. Osteoarthritis cannot be cured, but
management is aimed at the relief of symptoms by use of medical
to provide a low energy density diet
as obesity can induce and aggravate
treatment. However, dietary management can also help to support
mobility through optimal weight management and the reduction of
osteoarthritis.
inflammation and cartilage degradation.
As the diet contains a high level of omega-3 fatty acids derived
from fish oil, an innovative way of packaging was established to
Based on the high incidence of osteoarthritis and the potential
reduce the oxygen content in the bag thereby securing freshness
benefit of dietary support, it was decided to develop a tailored
and enabling 2.5 kg, 6.5 kg and 13 kg bags to be introduced to
Specific diet for the support of joints and mobility: Specific CJD
the market.
Joint Support. Since other joint diets were already available on
the market, the aim was to develop the ‘best-in-class’ joint diet.
Prior to the launch a field study over ten weeks was set up in order
During the development phase, research on the effect of diet on
to document the effect of Specific CJD Joint Support on clinical
osteoarthritis in pets and humans was studied; this resulted in the
signs of osteoarthritis in dogs; this showed that Specific CJD Joint
formulation of the major features of the joint diet and the selection
Support significantly improved the osteoarthritis condition and the
of raw materials to fit into a basic recipe. An effective high level of
severity of clinical signs of osteoarthritis in dogs.
omega-3 fatty acids was selected as the major feature of the joint
diet, as it has been shown that Eicosapentaeomic Acid (“EPA”), a
Specific CJD Joint Support has been well received in our markets
component of omega-3 fatty acids, reduces inflammation, cartilage
and has contributed significantly to the growth of the Specific pet
degradation and clinical signs of osteoarthritis. In order to reach a
diet brand.
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Business Review
Product Pipeline continued
The development of our Specific dog and cat diet range has made excellent progress; quality, palatability and packaging
improvements are an ongoing process. Additionally, the whole feline dry range is being prepared for re-launch with
improved palatability. We have two novel products at an advanced stage of development and are also working on a full
range of both feline and canine organic products which are targeted to be launched this calendar year.
The following tables outline the major in-house development projects:
Recently
Developed
Products
Specific CIW &
Specific CKD
Two new second generation
therapeutic diets for dogs have
been launched: Specific CIW for
digestive support in December
2009 and Specific
CKD for kidney
and heart support
in March 2010
New Chemical Entities
Species
Equine
Equine
Canine
Feline
Feline
Equine
Therapeutic
Category
Endocrine
Lameness
Endocrine
Gastrointestinal
Endocrine
Respiratory
Generics/Line Extensions
Species
Therapeutic
Category
Canine/Feline
Antibiotic
Canine
Canine
Urinary Disease
Pain Management
100%
100%
100%
Urilin and Malaseb
Canine/Feline
Pain Management
75%
Malaseb for the treatment of
skin disease and Urilin for the
treatment of bitch incontinence
have been approved through
the mutual recognition process
across Europe
Canine
Canine
Feline
Dermatological
Cardiac
Endocrine
50%
25%
25%
Diets
Manufacturing
Safety
Efficacy
Regulatory
100%
100%
75%
75%
50%
100%
25%
100%
75%
25%
95%
Failed in efficacy evaluations
Target
Launch
Date
2010
2012
2013
2014
2015
Target
Launch
Manufacturing
Bioequivalence
Regulatory
Date
100%
100%
100%
25%
Launched UK
100%
100%
2011
2010
2010
2013
2013
2014
2013
Species
Product
Project
Feline
Full range
Improved palatability
Canine/Feline
Full range
New range of organic wet diets
Canine
Feline
Novel
New therapeutic category dry diet
Gastrointestinal
Second generation dry diet
Target
Launch
Date
Q1, 2011
Q4, 2010
Q3, 2011
Q4, 2011
Stock Code: DPH
www.dechra.com
18/19
Case Study
FDA Approval Process
Dr Susan Longhofer
Product Development and
Regulatory Affairs Director
US legislation requires that an animal drug may not be sold in the
country unless it is subject to a new animal drug approval.
Novel and generic products are the main types of new animal
drug applications that Dechra applies for:
(a) Novel: for new animal drugs the three key sections for the
registration process are:
i) Safety: includes a study in the target animal species that
evaluates the effects of multiples of the intended dose for
up to six months;
ii) Efficacy: includes the study(ies) in which the effects of the
drug against the targeted disease are demonstrated in
animals with naturally occurring disease; and
iii) Manufacturing: the quality and purity of the drug product
are demonstrated along with proof that the drug product
can be manufactured consistently through the production
of at least three pilot batches.
These three sections are collectively known as the dossier.
(b) Generic: approvals for a generic drug require demonstration
of in vivo bioequivalence of the proposed product to
the reference product. There are exceptions for some
classes of drugs: primarily those intended for injection. The
manufacturing section for a generic drug requires fewer pilot
batches than for a new animal drug, but the emphasis on
quality and purity is identical.
For both novel and generic applications the FDA allows the key
sections of the dossier to be filed as and when they are completed
by the sponsoring entity (whereas under the EU regulatory approval
process all sections of the dossier are filed simultaneously).
The review process in both situations is document orientated
and involves scrutiny of each individual animal’s case report form,
internal verification of statistical analysis, and FDA inspections
of trial sites. The FDA and the EU regulatory authorities conduct
inspections of the manufacturing sites to ensure compliance with
Good Manufacturing Practice regulations.
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Future Activities
• Equidone, an equine endocrine product, is now only awaiting
final approval by the FDA
• Priority has been given to an equine lameness product with the
efficacy trials making excellent progress and with good results
• A new feline gastrointestinal pharmaceutical has been added to
the development list
Future Activities
• Our generic portfolio continues to increase. New products
have been identified, in-licensing and partnerships agreed to
further extend the range
Future Activities
• We have two novel products at an advanced stage of
development
• We are working on a full range of canine organic products and
are at an advanced stage of reformulating the whole feline dry
range for re-launch with improved palatability
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Business Review
Introducing the DVP Territory Managers
Dechra Veterinary Products currently operates out of 11 territories, each of which is headed up by a country manager whose background
encompasses a wealth of animal health knowledge and experience. These managers are integral to the success of the sales and marketing
of our products in their countries.
Denmark
Mette Trige (MSc) commenced work in 2001
as a sales representative and was appointed
Country Manager of Denmark in 2006. She
specialised in molecular genetics, nutrition
and physiology at the Faculty of Life Sciences
at the University of Copenhagen, graduating
in 1994.
email: info.dk@dechra.com
website: www.dechra.dk
Finland
Henri Hilden (DVM) was appointed as the
Country Manager of Finland in December
2007. He graduated as a veterinary surgeon
in both Sweden and Finland, in 1984 and
1988 respectively. Henri has over 18 years’
experience in the animal health business, in
management positions for Orion Corporation
Animal Health, Intervet Animal Health Finland,
Veter Animal Health and Merial Norden A/S.
email: info.fi@dechra.com
website: www.dechra.fi
Spain &
Portugal
Jesper Graff (BBA MBA IESE) started work
for the Group in 1991 and was appointed
the Country Manager of Spain and Portugal
in 1998. He has over 14 years’ experience
in the animal health business. Jesper
was previously an officer in the army. He
graduated from Copenhagen Business
School and obtained an MBA IESE in Spain.
email: info.es@dechra.com
website: www.dechra.es
France
Florence Lasvergères (DVM MBA) was
appointed as the Country Manager of France
in June 2007. She graduated as a veterinary
surgeon from Alfort Vet School in 1988, and
obtained a masters in marketing from ESEC-
IMD. Florence has over 20 years’ experience in
the animal health business, in various positions
including regulatory, sales, marketing and
management, successively with SmithKline
Beecham, Upjohn and Pharmacia. She is
also an active member of the French Office of
Animal Health (SIMV) board.
email: info_fr@dechra.com
website: www.dechra.fr
Norway
Sverre Aasgaard started work with the Group
in 1980 and has worked in various roles; he
was appointed as the Country Manager of
Norway in 2005. Sverre has over 22 years’
experience in the animal health business. In
2006 he was appointed Honourable Member
of the Norwegian Veterinary Association, being
one of only two non-veterinarians to receive
this award.
email: info@dechra.no
website: www.dechra.no
The Netherlands
The DVP EU management team is in the process of re-organising
our Benelux operations and hopes to appoint a regional manager
shortly.
email: info.nl@dechra.com
website: www.dechra.nl
Stock Code: DPH
www.dechra.com
20/21
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Germany
& Austria
Michael Hemprich (MRCVS) started work
with Dechra in September 2006 as business
development manager; in addition to this role,
he has recently been appointed the Country
Manager for Germany and Austria. He has
over 15 years’ experience in the animal
health business, having worked for LAB
Development Intl in Montreal, Canada, Intervet
Innovation GmbH and Bremer Pharma
GmbH, mainly within Regulatory Affairs.
email: www.dechra-eu.com
Sweden
Carina Kjellberg started in 2000 as the
Country Manager of Sweden. She has over
19 years’ experience in the animal health
business, 11 of which were working as a
veterinary nurse.
email: info.se@dechra.com
website: www.dechra.se
UK & Eire
Bob Parmenter was appointed in July 2008
as the Country Manager of the UK and
Eire. He has over 40 years’ experience in
the animal health business, of which 38
years were spent with ICI Animal Health
(subsequently Intervet/Schering Plough). Bob
joined the board of NOAH in 2002 and was
appointed its Chairman in April 2010.
website (Eire): www.dechra-eu.com
website (UK): www.dechra.co.uk
United States
Mike Eldred was appointed as President
of the US operations in 2004. Details of his
previous professional experience can be
found on page 39.
website: www.dechra-us.com
Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Business Review
European Pharmaceuticals
DVP EU — Management Team
1 Ed Torr
Managing Director
2 Carsten Jeppesen
Chief of Logistics
3 Roeland Meijers
Director of Diets
4 Giles Coley
European Pharmaceutical
Sales & Export Director
5 Gwenda Bason
European Marketing Director
This segment comprises DVP EU and Dales.
There has been a major re-launch of the DVP websites which
Dechra Veterinary Products EU
DVP EU, with regional offices in several European countries
and its head office and logistics in Uldum, Denmark, employs
206 people. The business markets and sells our own branded,
licensed veterinary products within ten European countries and
manages the relationships with our worldwide marketing partners.
Sales Structure
France
UK
Spain
Denmark
Sweden
19 Netherlands
22 Norway
9 Finland
4 Portugal
4 Eire
7
3
2
1
2
There has been a considerable amount of activity throughout
the year. Our UK pre-wholesale warehouse in Shrewsbury was
closed in February 2010 with the products being integrated into
our central European warehouse in Denmark. A new warehouse
now provide easily accessible data and information on all of
our products, including clinical data sheets, client information,
COSHH data sheets, technical specifications and marketing
information. We have also developed online continuing
professional development (“CPD”) programmes for veterinarians.
Our Fluid Knowledge Programme, launched in April 2009, has
proved very successful with over 6,000 veterinary professionals
registering. This has played a major part in increasing sales of
our Vetivex range. An online Felimazole CPD programme is now
operational and a programme to further enhance this learning
medium into our other key therapeutic categories has been
instigated.
Pharmaceuticals
European pharmaceutical sales increased by 8.4% over the
period.
There were two major pharmaceutical launches within the year:
management IT system has been successfully implemented
— Malaseb was launched across all territories following its
at this facility to further improve our stock management and
approval through the mutual recognition procedure; and
distribution capabilities.
— Felimazole was re-launched into The Netherlands, France,
Spain, Germany and Portugal under the Dechra label
We have consolidated our distribution agreements in Italy, have
following the termination of our major European marketing
further strengthened our partnership in Germany and are in the
contract in December 2009. We have also launched a new
process of restructuring our Dutch business to create a Benelux
strength 2.5mg presentation across these territories.
unit which will take responsibility for our pharmaceutical and
diets sales into this region. We have commenced the process of
An agreement has been made for the early termination with our
implementing an ERP system across our European subsidiaries
marketing partner in Scandinavia which will allow for both Vetoryl
which is targeted to go live within two years.
and Felimazole to be marketed through our own subsidiaries from
Stock Code: DPH
www.dechra.com
www.dechra.com
22/23
1 January 2011. We have also terminated an agreement which
was in place in Germany, Belgium and Italy to bring in-house
a number of other products which were acquired through our
acquisition of VetXX® in January 2008.
All major product categories have shown growth throughout the
year. We have reversed the downward trend reported in our half
yearly report on Canaural and are now seeing growth within the
year. We have also reversed the position on Vetivex seen last
year, increasing market share from 35% to 47%. Our established
product, Equipalazone, has seen double digit growth and our
dermatological products continue to perform well.
We have continued to develop relationships with our international
partners with whom we are working closely to increase our sales
across non-subsidiary territories. We have provided expertise in
both Canada and Australia to ensure the successful launch of
Vetoryl into these countries.
Diets
Sales of both our therapeutic and life stage pet diets have
outperformed the market; therapeutics growing at 12.7% and
maintenance diets, including treats, growing at 12.2%. This
success can be attributed to new product launches, competitive
pricing, a veterinary exclusive marketing position and a focused
sales and marketing effort.
The launch of the new best in class diets, Specific CID and
Specific CKD, have proved to be successful. We have also
continued to focus closely on marketing Specific CJD, our joint
support diet which was launched at the end of the previous
financial year.
The complete Specific range has been launched into Germany
through our partner, Selectavet.
We have been successful in transferring all the canine dry diets
to a new manufacturer in Sweden and are now focusing on the
transfer of the feline diets into this facility which will be completed
by the end of the 2010 calendar year. This manufacturing
partner has worked closely with us to ensure the successful
launch of our new products and to accelerate our development
capabilities. This partnership also offers numerous other benefits
including improved quality control and modern, flexible packaging
capabilities.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Business Review
European Pharmaceuticals continued
Dales — Management Team
1 Mike Annice
Managing Director
2 Kirsty Ireland
Finance Director
3 Steve Dewar
Operations Director
4 Gareth Davies
Sales and Marketing Director
5 Andrew Parkinson
Quality Director
Dales
Dales, located in Skipton, England, employing 206 people, is
Fuciderm, a product acquired during the VetXX acquisition in
2008, which was previously outsourced, has now been fully
a fully Medicines and Healthcare Regulatory Agency (“MHRA”)
approved pharmaceutical manufacturer with multi-competence in
integrated into Dales on a new high speed production line.
Canaural, another major product from the acquisition, is now at
the stage of planning and preparation for transfer into Skipton.
The Dales Management team has taken control of our
Danish manufacturing unit and has implemented the Oracle
manufacturing IT system into this site to enable better production
control and improve management information.
Dechra’s Product Development and Regulatory team have
submitted a line extension for Vetoryl to the US FDA with
Dales named as the manufacturer. This is the trigger for an
FDA approval inspection of the site for solid oral dosage
forms. A mock audit has been completed and we believe we
are on schedule to demonstrate our compliance to all Good
Manufacturing Practice regulations.
both scale and dose form. Dales manufactures the vast majority
of our own branded licensed pharmaceutical products, which
are marketed through DVP, but also derives approximately 50%
of revenues from third party toll manufacture, predominantly
for human pharmaceutical companies. This is Dechra’s only
significant source of revenue not derived from the veterinary
market.
Dales has had another excellent year which is reflected in the
continued increase in production of our own licensed products,
11% growth from contract manufacturing and over £800,000
worth of new annualised contract business gained during the
year. We have also continued with our product rationalisation
programme and are now in a position to either increase prices
or to cease contracts which have low value return or have been
identified as inefficiently manufactured products. This can be
demonstrated by an average increase in unit added value of over
12% and through significant gains in productivity.
Dales are in the second phase of staff training in lean
manufacturing techniques. Lean techniques have been applied
to the business and have already brought about significant
improvements in working practices and efficiencies, an example
of its success being the year on year reduction of the average
processing time to manufacture a batch of product.
Stock Code: DPH
www.dechra.com
www.dechra.com
24/25
US Pharmaceuticals
DVP US — Management Team
1 Mike Eldred
President, US Operations
2 Doug Hubert
Vice-President, Sales and Marketing
3 Dana Fertig
Veterinary Technical Services Manager
This segment comprises DVP US.
have attended educational presentations. In addition,
Dechra Veterinary Products US
education on the diagnosis and treatment of Cushing’s Disease.
This business employs 18 people, 10 of whom are in sales. The
financial, logistics and HR functions are currently outsourced.
The graph on this page shows the comparative performance of
Vetoryl by territory from launch, relative to the number of animals
www.dechraCE.com has been developed to provide ongoing
US pharmaceutical sales increased by 37% over the period. The
in each territory.
main focus of activity has been on establishing Vetoryl as the
treatment of choice for Cushing’s Disease. Sales of US$6.6 million
As can be seen from the graph, the trend in the US and Canada,
were achieved in the period, as we continue to gain strong market
although marginally below that of the European territories, is
penetration. This is in a market where there is the continued sale
following the same trend. We therefore remain confident of our
of illegally compounded Vetoryl and the continued use of the
long-term targets for this unique product.
unlicensed treatment, Lysodren. Approximately 9,900 clinics,
equivalent to over 40% of companion animal practices, have now
Towards the end of 2009 Felimazole was launched into the
purchased the product and over 4,500 veterinarians
American market. Initial take-up of the product has been
MAT Vetoryl sales per dog by country from launch
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
)
€
(
o
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0
Q1
■ UK
■ Nordics
■ Canada
Q2 Q3 Q4 Q5 Q6 Q7 Q8
■ France
■ Germany
■ Italy
■ Netherlands
■ USA
promising as we educate veterinarians in the merits of prescribing
our licensed product instead of human generics which are
currently used.
Supply problems with our dermatological, ophthalmic and otic
ranges, which are outside of our control, have detracted from the
overall sales growth in the US. Our sterile ophthalmic products,
with annual sales of over US$2.0 million, have been taken off the
market following the closure of our suppliers’ sterile facility and
we are in the process of transferring these products into a new
contract manufacturer. We have also had supply problems with
Animax cream and Vetromax® throughout the year. We currently
have little control over these products as we only have a long-
term marketing agreement and are not the license holders. We
are, however, in negotiations to address this issue.
Our equine portfolio will be significantly enhanced in 2011 with the
targeted launch of Equidone and with the re-launch of Ovuplant
following the acquisition of the marketing rights from Peptech.
18000
13/09/2010
Proof 8
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Business Review
Services
NVS — Management Team
1 Martin Riley
Managing Director
2 Dan Shipman
Finance Director
3 Steven Williams
Operations Director
4 Caitrina Harrison
Sales and Marketing Director
5 Colin Higham
Buying Director
This segment comprises National Veterinary Services (“NVS”)
and our laboratories, NationWide Laboratories (“NWL”) and
Cambridge Specialist Laboratory Services (“CSLS”).
NVS
NVS, located in Stoke-on-Trent, England, employing 490 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. This business competes
with two major full line competitors on the UK mainland, Centaur
Services and Dunlops, 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 principle
objective is to collect orders electronically; 85% of NVS’s orders
arrive automatically with no human input required. 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 distributed
overnight to nine trunking depots by HGVs. Van drivers are
employed locally at these depots who distribute the goods to
our customers.
Stock Code: DPH
www.dechra.com
www.dechra.com
26/27
Although the National Office of Animal Health (“NOAH”) reported
Larkhall
that the veterinary pharmaceutical market was flat within the year,
the overall veterinary wholesale market grew by 4.6%. NVS’s
growth in the period of 3.6% was below this figure due to our
underweight market share of low margin internet pharmacy and
agricultural merchant business. NVS maintained its operating
margin throughout the year at the same level achieved in
the financial year ended 30 June 2009. This excellent cost
control and improved operational efficiencies resulted in a solid
performance from the business.
NVS
Network
Carlisle
Wetherby
Stoke-on-Trent
Mildenhall
Gloucester
Hertford
Bracknell
Swanscombe
Tiverton
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Business Review
Services continued
Services
Laboratories — Management Team
1 Dr Peter Graham
Managing Director
2 Jamie Whitwam
Business Development Manager
3 Mark Davies
Sales and Marketing Manager
4 Paul Sandland
Finance Director
A newly appointed Operations Director identified various
We are at the final stage of planning and testing for a new
additional operational efficiencies and has also instigated plans
for further changes including modifications to shift patterns which
ERP system. We intend to ‘go live’ prior to the end of the
current financial year ending June 2011.
should ensure continued operational prudence in the forthcoming
year. The renewal of our Transit and trunker fleet has also resulted
in improvements in fuel efficiency. The planned expansion of
the NVS facility has been shelved temporarily as we have found
improved methods of utilising existing available space.
NVS continues to focus on high levels of customer service
with our service level consistently achieving over 99%.
The vast majority of our dedicated vehicle fleet also
managed to make deliveries to schedule throughout
the bad weather in January when our competitors
often failed. This was very well received by
our customers.
Laboratories
NWL operates out of three UK locations, Poulton-le-Fylde,
Leeds and Swanscombe and employs 70 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 will outsource more
advanced analytical tests, often requiring expert interpretation
of results.
Stock Code: DPH
www.dechra.com
www.dechra.com
28/29
CSLS, located in Sawston, England employs seven people. It
operates as a first and second referral laboratory, with a key area
of expertise being endocrinology. The second referral work, i.e.
Human Resources
As the Group continues to grow it is important that the leadership
capability is strengthened through the continuous development
providing services for NWL and some of NWL’s competitors, is
mainly derived from a key area of specialisation in radio-immuno
of its most senior people. To this effect throughout 2009 we
embarked upon a specific programme of leadership development,
assays. The business also provides precise assays which support
the dosage regimes and patient monitoring of our key products,
where each of the senior managers underwent a 360 degree
appraisal of their leadership abilities together with an analysis
Vetoryl and Felimazole.
of their personal profiles. This was followed by a 12 month
individually tailored personal development plan which included
Sales across our laboratories were 1.6% down reflecting a
access to a personal coach.
significant account loss due to a competitor cross-selling
in-house analysers with external laboratory work. There were,
The Group first started benchmarking labour turnover in July
however, a number of achievements resulting in the year ending
on a positive note. We have secured the rights to market a Fuji
2008 and found that this figure was high, at 30.2%, compared
to national averages. During the following year, managers and
in-practice chemistry analyser which should generate additional
revenue and improve our competitive position. We have also
supervisors took part in a performance management training
programme, gaining the skills needed to better engage their staff.
successfully retained our largest account, the PDSA, for two
more years following a competitive tender. Operationally, we have
In April 2010, a Works Council was established at NVS which led
to improved communications and employee engagement. At the
unified the IT system across two of our major sites, Leeds and
end of June 2010, total labour turnover has almost halved
Poulton, and have also maintained our UKAS ISO17025 status at
to 15.9%.
these two sites.
CSLS has been relocated in the year into a new custom-built
paramount importance in ensuring strong and consistent
laboratory which provides additional space, improved facilities
leadership in the pursuit of our strategic aims. To this end only
The stability of the Group’s senior management team is of
and better working conditions.
one member of the senior management team, Tony Scott,
Operations Director at NVS, has left the business during the
financial year, retiring after serving for 16 years. Replacing him
in this role is Steven Williams, who brings with him a wealth of
logistics and supply chain experience. The senior Dechra team
has been further strengthened during the year by the appointment
of a fourth independent Non-Executive Director, Bryan Morton,
and by the creation of a new role of Group Financial Controller, to
which Paul Sandland has been appointed.
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Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Business Review
Key Performance Indicators (“KPIs”)
Financial
Method of Calculation
Target
Revenue from key
pharmaceutical products
Global revenue from Vetoryl, Felimazole, Equipalazone,
Canaural and Fuciderm
To achieve annual revenue growth
of at least 10%
Revenue from specialist
pet diets
Global revenue from the Specific brand of pet diets
To achieve annual revenue growth
of at least 6%
Adjusted operating
margin before product
development cost
Group operating profit before amortisation of acquired
intangibles, exceptional items and product development
expenditure as a percentage of Group revenue
To achieve an adjusted operating margin
before product development costs of
10% in the medium-term
Cash conversion rate
Cash generated from operations before tax and interest
payments as a percentage of operating profit before
amortisation of acquired intangibles
To achieve an annual cash conversion
rate of at least 100%
Return on capital
employed (“ROCE”)
Adjusted operating profit as a percentage of average
operating assets utilised. Operating assets exclude
cash and cash equivalents, borrowings, tax and
deferred tax balances
To achieve a return on capital employed
which exceeds the pre-tax weighted
average cost of capital of the Group
(“WACC”)
Non-Financial
Method of Calculation
Target
Pharmaceutical product
development pipeline
Number of products from the pipeline or in-licensed into
at least one major territory with long-term revenue
potential of at least £0.5 million
One new diet or range extension launched in
the EU, two new pharmaceuticals, each
launched in at least one key market
Health and safety
performance
Lost Time Accident Frequency Rate (“LTAFR”): all
accidents resulting in absence or the inability of
employees to conduct the full range of their normal
working activities for a period of more than three
working days after the day when the incident occurred
normalised per 100,000 hours worked
Zero preventable accidents
Employees
Employee turnover calculated as number of leavers
during the period as a percentage of the average
total number of employees in the period
Moving Annual Turnover (“MAT”) rate of less
than 15%
Stock Code: DPH
www.dechra.com
30/31
2010 Performance
Five Year Record
An annual growth rate of 24.5% was achieved in the year with particularly
strong growth being achieved by Vetoryl, Felimazole and Equipalazone
Revenue growth of 12.5% was achieved in the year. This growth rate was
accelerated by additions to the range as detailed on pages 14, 17 and 19
2010 showed further progress towards the medium-term goal with adjusted
operating margin increasing to 8.9% compared to 8.1% in 2009
The target was achieved for four of the last five years
ROCE reduced following the acquisition of VetXX in January 2008. In the
current year, ROCE has improved strongly and is significantly ahead of
the pre-tax WACC of the Group of 11%
2010
2009
2008
2007
2006
10.6*
8.0*
23.6
15.3*
29.4
£ million
* Canaural and Fuciderm acquired in January 2008
25.6
£ million
22.7
9.9*
2010
2009
2008
2007
n/a*
2006
n/a*
* Diets range acquired in January 2008
2010
2009
2008
2007
2006
2010
2009
2008
2007
2006
2010
2009
2008
2007
2006
7.1
6.1
6.0
22.6
19.4
23.3
8.9
%
8.1
%
%
100.8
112.5
94.2
103.3
113.7
37.5
34.9
2010 Performance
Five Year Record
Two pharmaceutical products registered and launched in EU. Two
pharmaceutical products in-licensed. Two novel diets launched
There has been a reduction in the number of accidents during the year
from 16 to 14. None of these accidents have resulted in a work-related
fatality. More detail in relation to this can be found in the Social, Ethical
and Environmental Responsibilities on pages 60 to 65
The target was nearly achieved this financial year, with the MAT rate
reducing from 19.81% to 15.88%
More detail in relation to this can be found in the Social, Ethical and
Environmental Responsibilities on pages 60 to 65
6
Products
5
3
3
3
0.75
LTAFR
0.94
2010
2009
2008
2007
2006
2010
2009
2008
n/a*
2007
n/a*
2006
n/a*
* Information not collected for these years
15.88
19.81
%
29.7
2010
2009
2008
2007
n/a*
2006
n/a*
* Information not collected for these years
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Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Business Review
Financial Review
Total revenue increased by 9.3% over last year with all core areas
achieving good growth.
Group Performance
During the financial year being reported, the majority of markets
that we serve continued to experience a slowdown compared
Own branded pharmaceuticals grew by 8.4% compared to last
year. Global performance of our key pharmaceutical brands is
discussed later in this Review.
to the previous period. For example, in the UK, market growth
Diets performed strongly, growing by 12.5% compared to last
(measured at wholesaler level) fell from 6.8% in the prior twelve-
year. During the year there have been additions to the range and
month period to 4.6% this year.
our veterinary exclusive stance has served us well.
Despite this backdrop, the Group performed solidly during
Our contract manufacturing activity continued to expand,
the financial year driven, in particular, by continued strong
performances from our key products.
increasing by 11.1% in the period with new contract gains
contributing to this performance.
The following Review focuses on adjusted figures (before
amortisation of acquired intangibles and exceptional items) as the
Directors believe that these give a clearer indication of underlying
performance.
Group Revenue increased by 5.5% from £350.0 million to £369.4
million whilst adjusted Operating Profit increased by 12.9% from
Revenue from instruments, consumables and equipment fell by
7.9% as the market became increasingly competitive.
The adjusted operating margin of this segment showed a pleasing
increase from 23.2% to 25.3% as increased leverage of our
overseas sales and marketing resource was achieved.
£25.0 million to £28.2 million. Adjusted Pre-tax profit was £26.1
million compared to £23.4 million last year, an increase of 11.3%.
In February 2010, the logistics and finance functions of our DVP
UK operation in Shrewsbury were integrated into our central
European Pharmaceuticals
logistics and shared service centre in Uldum, Denmark. The cost
was £1.1 million which is shown as an exceptional item. This
2010
£’000
2009
£’000
rationalisation will yield significant cost savings in the future and,
equally importantly, means that we now have a fully integrated
Revenue
European operation.
Own branded pharmaceuticals
Diets
Third party contract manufacturing
44,695
25,559
11,524
Instruments, consumables
and equipment
Total revenue
Adjusted operating profit
Adjusted operating margin
2,859
84,637
21,412
25.3%
41,221
22,716
10,369
3,105
77,411
17,964
23.2%
Stock Code: DPH
www.dechra.com
32/33
US Pharmaceuticals
Revenue
Adjusted operating profit
Adjusted operating margin
2010
£’000
10,634
1,311
12.3%
2009
£’000
7,779
815
10.5%
Our US operation recorded revenue growth of 36.7% compared
Because of these cost increases, the operating margin of this
to last year. Revenue from Vetoryl increased from US$2.2 million
segment only increased from 10.5% to 12.3%. We anticipate
to US$6.6 million whilst revenue of US$0.6 million was achieved
operating margin to further improve in the medium-term as our
by Felimazole since its US launch in September 2009. As already
US operation gains critical mass.
indicated, revenue was negatively impacted by supply problems
with our dermatological, ophthalmic and otic range due to
circumstances beyond our control.
Key Pharmaceutical Brands
All of our key brands showed growth in the year with our lead
Significant investment in personnel and infrastructure has been
made since the launch of Vetoryl in January 2009 and this
product, Vetoryl, achieving revenue growth of 47.8% compared
to last year.
resulted in the cost base increasing by £1.1 million compared
to last year. In addition, there was an amortisation charge of
Felimazole continued to be under competitive pressure in the UK
but performed strongly in the rest of Europe. In most European
£537,000 (2009: £210,000) in respect of the development costs
of US Vetoryl and Felimazole.
territories, the product came back in-house from our marketing
partner in January of this year. We also achieved our first US
revenues.
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Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Business Review
Equipalazone, which is a mature product, showed extremely strong
growth whilst Canaural and Fuciderm, after poor performances in
Net Finance Expense
Although net finance expense increased from £1.6 million in
the first half of the year, recovered in the second half.
the previous year to £2.1 million this year, last year’s figure was
Services
Revenue
Veterinary wholesaling
Laboratories
Total revenue
Adjusted operating profit
Adjusted operating margin
2010
£’000
280,385
5,285
285,670
13,103
4.6%
2009
£’000
270,772
5,369
276,141
12,334
4.5%
Overall, segment revenue grew by 3.5% with NVS increasing by
3.6% and the Laboratories being flat.
flattered by a £1.1 million gain on the re-translation of foreign
currency loans and fair value gains on derivatives. The net gain
this year was just £0.2 million.
The interest payable on our bank borrowings was increased by
£0.9 million due to a floor and ceiling hedge taken out before
interest rates fell to their current low levels. This hedge unwinds in
December 2010 following which the Group will benefit from lower
interest rates.
Impact of Foreign Exchange
The major foreign currencies that the Group trades in are Danish
Krone, Euro, US Dollar and, to a lesser extent, Norwegian and
Swedish Krone. The following table shows the impact on revenue
With the wholesaling market showing a further slowdown
compared to last year and opportunities to enhance gross margin
and operating profit of movements in foreign currency in the
current year:
being fewer, NVS controlled costs extremely tightly in order to
slightly improve operating margin compared to last year. Operating
costs were, in fact, lower than last year in absolute terms.
The performance of the Laboratories reflects the current market
US Pharmaceuticals
European Pharmaceuticals
Revenue
£’000
1,387
228
Operating
profit
£’000
(112)
(117)
The Services segment has no significant foreign currency
exposure.
Taxation
The effective tax rate was 25.8% compared to 29.8% last year
and a standard UK rate of 28.0%. The reasons for the lower than
standard charge were the utilisation of trading losses in overseas
subsidiaries and adjustments in respect of prior periods. The total
charge in future years is likely to be closer to the standard UK rate.
where, due to economic conditions, veterinary practices are
sending fewer samples to external laboratories.
Product Development
Product development expenditure increased by 35.9% from £3.4
million to £4.7 million. A full description of activities during the year
can be found on pages 14 to 19.
Unallocated Central Costs
Unallocated Central costs increased from £2.7 million to £3.0
million which includes the strengthening of the Group Finance and
Legal and Secretarial functions.
Exceptional Items
The following items have been disclosed separately as
exceptional items:
— Rationalisation of our logistics and finance functions within
our European Pharmaceuticals segment (£1.1 million)
— Impairment of the carrying value of acquired patent rights and
trademarks following the termination of the development of
an equine respiratory product (£0.2 million)
— Payment to in-license technology for our research and
development programme (£0.4 million)
Stock Code: DPH
www.dechra.com
34/35
Earnings per Share and Dividend
Adjusted earnings per share increased from 25.61p to 29.50p, a
The strong cash flow of the Group has again resulted in a
substantial reduction in net borrowings, down from £15.5 million
rise of 15.2%. The Board is proposing a final dividend of 7.20p
at 30 June 2009 to £6.7 million at 30 June 2010. Net borrowings
per share which, when added to the interim dividend of 3.30p per
at 30 June 2008, following the acquisition of VetXX Holding A/S,
share already paid, gives a total dividend for the year of 10.50p, a
were £27.0 million.
15.4% increase on the 2009 figure of 9.10p.
The total dividend is covered 2.6 times (2009: 2.8 times) by profit
expect net borrowings to increase at the next reporting date of
after tax after adding back amortisation of acquired intangibles.
31 December 2010.
As normal, due to the working capital cycle of the Group, we
Cash Flow
The cash conversion rate (defined as cash generated from
Risks and Uncertainties
As we have stated in previous reports, the Group, like every
operations as a percentage of operating profit) was 134.2%
(2009: 156.0%). When amortisation of acquired intangibles
business, faces risks and uncertainties in both its day-to-day
operations and through events relating to the achievement
is added back, the cash conversion rate is 100.8% (2009:
112.5%). This was the fourth year out of the last five that the cash
of its long-term strategic objectives. The Board has ultimate
responsibility for risk management within the Group and there is
conversion rate measured on this basis has exceeded 100%.
an ongoing and embedded process of assessing, monitoring,
managing and reporting on significant risks faced by the separate
Key Performance Indicators
Financial key performance indicators are discussed on pages
business units and by the Group as a whole. More detail in
relation to this process can be found within the Corporate
30 to 31.
Governance section on pages 40 to 47.
Financial Position at the Year End
The table on the following page highlights the main potential risks
Non-current assets
Intangible assets
Property, plant and equipment
Working capital
Current tax liability
Deferred tax liability
Net borrowings
Net assets
2010
£’000
80,371
7,673
88,044
21,486
(4,105)
(12,496)
(6,701)
86,228
2009
£’000
to the Group strategy, as identified by the Board, and the controls
put in place in order to mitigate the said risks.
89,565
8,040
97,605
17,548
(4,756)
(14,184)
(15,527)
80,686
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Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Business Review
The main potential risk areas identified by the Board are as follows:
Strategy
Risk
To sustain growth from our core businesses
The failure of a major customer or supplier
Competitor product launched against one of our
leading brands
Failure to meet regulatory requirements under which we
operate thereby disrupting our operations and our product
manufacture pipeline/loss of key products due to
regulatory changes
Fuel shortage/logistics failure
Loss of key personnel
To develop veterinary pharmaceutical portfolio
Failure of clinical trials
To develop specialist diets
Failure to maintain competitive advantage in terms
of palatability and nutritional value
To license and market key products into
international markets
Increase in market cost of ingredients
Revenue from recently launched new products
failing to meet expectations
Stock Code: DPH
www.dechra.com
36/37
Controls
(cid:2) The business unit monitors the financial status of both key customers and suppliers and maintains regular contact with them
(cid:2) Where it becomes evident that issues in relation to manufacturing/supply may arise alternative suppliers are identified and detailed
plans drafted which, inter alia, ensure that where a manufacturing transfer is required existing stock is built up in order to avoid/mitigate
an out of stock situation
(cid:2) All contracts with suppliers and customers are reviewed from both a commercial and legal angle and to ensure that assignment of the
contract is allowed should there be a change of control of either of the contracting parties
(cid:2) Product improvement plans and marketing strategies are reviewed on a regular basis
(cid:2) Where competitor products are launched a response strategy is established and followed which allow the marketing team to position
our products defensively and highlight any unique selling points or competitive advantages
(cid:2) Market research is conducted in order to allow the marketing team to better understand customer needs and ensure that our products
fulfil the identified requirements
(cid:2) The Group always strives to exceed regulatory requirements and ensures that its employees have detailed experience and
knowledge of the regulations
(cid:2) All businesses have clearly established quality systems and procedures in place
(cid:2) Regular contact is maintained with all relevant regulatory bodies in order to build/strengthen relationships and ensure good
communication lines
(cid:2) The regulatory and legal teams remain constantly updated in respect of proposed/actual changes in order to ensure that the business
is equipped to deal with and adhere to such changes
(cid:2) Where any changes are identified which could affect our ability to continue to market and sell any of our products a response team is
created in order to mitigate such risk and to retain effective communication with the relevant regulators
(cid:2) Particularly in our services division standard operating procedures have been drafted in respect of fuel emergencies/failure of the
courier company (the latter in respect of the Laboratories only) to provide a daily service. Such standard operating procedures are
regularly reviewed in order to ensure they remain effective
(cid:2) Delivery routes are constantly monitored by the operations department in order to ensure that they remain effective, economic
and efficient
(cid:2) Succession planning is given consideration by the Board and, where deemed necessary, Key Man insurance is in place
(cid:2) The Group HR director has developed and implemented a leadership development course for the senior management team in order to
further strengthen the retention of the individuals
(cid:2) A competitive benefits package and salary is offered to senior management in order to assist with their motivation and retention
(cid:2) Before major efficacy studies are initiated, smaller proof of concept studies are conducted to study the effects of the drug in the
target species and for the target indication
(cid:2) Pharmacokinetics of the proposed final formulation of the drug are studied in the target species
(cid:2) Manufacturing being transferred to a new supplier with increased development and quality control procedures
(cid:2) Weekly telephone meetings are held with the manufacturing, quality and product development departments
(cid:2) Product prices are reviewed on a regular basis and all new products are evaluated from a technical perspective in order to ensure
that these advantages can be utilised to assist in selling the diet products
(cid:2) Supplier of ingredients is owned by the biggest producer of cereals in Scandinavia thereby guaranteeing competitive prices
(cid:2) The Group ensures that it has detailed market knowledge and retains close contact with customers through its sales teams
which are consistently trained to a high standard
In respect of all new product launches a detailed marketing plan is established. Progress against the plan is constantly monitored
(cid:2)
(cid:2) Alongside the marketing plan the sales team is trained in relation to the new product, its benefits and all available technical
information
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Board of Directors
1
2
3
1 Ian Page
2 Simon Evans
3 Ed Torr
4 Michael Redmond
5 Malcolm Diamond
6 Neil Warner
7 Bryan Morton
4
5
6
7
Ian Page
Chief Executive
Aged 49, Ian joined 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 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 46, 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 50, 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 DVP EU
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
Chairman of the Nomination Committee
Neil Warner BA, FCA, MCT*†•
Non-Executive Director
Chairman of the Audit Committee
Aged 66, 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. In November 2009, Michael was
appointed Chairman of Abcam PLC, an AIM listed
company, where he had previously held the post of
Deputy Chairman (appointed February 2009).
Malcolm Diamond MBE*†•
Senior Independent Non-Executive Director
Chairman of the Remuneration Committee
Aged 61, Malcolm joined the Board in August 2000.
He was appointed a Non-Executive Director of
Unicorn AIM VCT PLC in March 2010 on its merger
with Unicorn ACT II Investment Fund (“VCT II”), where
he had also held a Non-Executive position. In March
2009, Malcolm was appointed Executive Chairman
of Trifast plc; he had previously held the position of
Chief Executive at Trifast for 18 years until 2002.
In addition, Malcolm is Chairman at CWO Limited
and also advises a number of private businesses on
their strategic planning, management development
programmes and marketing initiatives.
Aged 57, 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.
Bryan Morton BSc, MBA*†•
Non-Executive Director
Aged 54, Bryan joined the Board in January
2010. Bryan has extensive experience in the
pharmaceutical industry, largely with Merck & Co.
Inc. and Bristol Myers Squibb where he has held
positions of responsibility within marketing, sales,
business development and general management. He
was previously the CEO of Zeneus Pharma, which he
founded in 2003 and which was subsequently sold in
late 2005. Bryan is the President and Chief Executive
Officer of EUSA Pharma, a specialist pharmaceutical
company, which he founded in 2006. He is also a
Non-Executive Director of the stem cell company
ReNeuron, Chairman of the medical device business
Aircraft Medical Ltd and sits on the Global Advisory
Board at Pilgrim Software Inc, which is focused on
the life sciences sector.
* Member of the Audit Committee
† Member of the Remuneration Committee
• Member of the Nomination Committee
Stock Code: DPH
www.dechra.com
Senior Management
38/39
1
2
3
4
5
6
7
1 Susan Longhofer
2 Barbara Johnson
3 Martin Riley
4 Mike Eldred
5 Mike Annice
6 Peter Graham
7 Zoe Goulding
Dr Susan Longhofer, DVM, MS,
DipACVIM
Product Development and Regulatory
Affairs Director
Aged 52, Susan joined the Group in June 2005. She
has 21 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 49, Barbara joined the Group in April 2008.
Prior to this she gained 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 Nicholl Food
Packaging Limited. Prior to joining private industry,
Barbara served for ten years in the British Army.
Martin Riley
Managing Director, National Veterinary
Services
Aged 46, Martin was appointed Managing Director
of NVS 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 40, 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 50, 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 42, 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.
Zoe Goulding, LLB (Hons)
Company Secretary and Solicitor
Aged 36, 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
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: 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 2008 FRC Combined Code on Corporate
Governance (the “Code”) except in respect of the composition of its Audit Committee. The Code requires audit committees to be composed of at
least three, or in the case of smaller companies two, independent non-executive directors. Pursuant to the Code, a smaller company is one that
is below the FTSE 350 throughout the year immediately prior to the reporting year. During the 2008/2009 reporting year the Company became a
constituent member of the FTSE 350 (subsequently becoming a smaller company once again from March 2010) but its Audit Committee consisted
of only two Non-Executive Directors. The Company entered the FTSE 350 in December 2008 and began the recruitment for a third Non-Executive
Director resulting in the appointment of Bryan Morton in January 2010. It is the Company’s intention to comply with this requirement going forward
despite the fact that it is no longer a constituent member of the FTSE 350.
The Board has noted and is aware of the recent changes in corporate governance; in particular the UK Corporate Governance Code (which will
apply to the 2010/2011 financial year). The Board will seek to comply with the new code where it determines that to do so would be beneficial to
the Company and its stakeholders. In particular, the Board is aware of the new recommendation that all directors of FTSE 350 companies should
be subject to annual re-election. As explained above, the Company is no longer a constituent member of the FTSE 350 and therefore does not
need to comply with this recommendation. However, the Board intends to fully consider, during the forthcoming year, whether adoption of the
recommendation would be beneficial to the long-term governance of the Group as a whole.
Application of the Principles of the Combined Code
Section 1 of the 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 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. The Board intends to review the current schedule of matters during the 2010/2011 financial year
and will report on any material changes in the 2011 Report and Accounts. As a matter of best practice the schedule will then be reviewed on an
annual basis.
Prior to all board meetings an agenda and supporting documentation is circulated to all Directors. Each meeting agenda comprises reports from the
following individuals:
(cid:2) Chief Executive;
(cid:2) Group Finance Director;
(cid:2) Managing Director of each Business Unit;
(cid:2) Group HR Director; and
(cid:2) Product and Regulatory Affairs Director.
In addition, twice a year the Board receives detailed health, safety and environmental reviews encompassing the UK, EU and US businesses plus
activities of the Fleet Steering and Sustainability Committees. Three times a year the Board receives a full risk assessment review for discussion; this
is following a detailed risk review by each of the business units. Other ad hoc material relating to specific projects, legal and regulatory matters are
included as necessary. The reports ensure that the Board is informed and updated on all major items of strategic planning, business performance,
personnel, investments and significant policy issues; thus allowing the Board to continuously monitor the progress of the business and providing
transparency across all areas within the Group. In addition the senior management are invited to attend board meetings on a quarterly basis (and in
the intervening period if required) enabling the Board to explore specific issues and developments in detail as necessary.
The Chief Executive and Group Finance Director also attend, on a monthly basis, the board meetings of the businesses (excluding the US). The
meetings are chaired by the Chief Executive and allow him and the Group Finance Director the opportunity to obtain detailed information into the
progress being made and any issues being faced by the individual business units. In relation to the US, the Chief Executive ensures that he meets with
the US management team at least twice a year and obtains regular updates from the DVP US President, Mike Eldred. Key operational issues obtained
from these meetings is fed back to the Board.
The Non-Executive Directors and the Chairman meet prior to each board meeting which allows them time to review and discuss any matters arising
from the agenda without the Executive Directors being present.
Stock Code: DPH
www.dechra.com
40/41
The Board has formally delegated specific responsibilities to Board Committees, including the Audit, Remuneration and Nomination Committees. The
terms of reference for each of these committees are available on the Company’s website or on request from the Company Secretary. The Board also
appoints committees to approve specific projects 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. No additional meetings were required during the 2009/2010 financial year.
Attendance at meetings during the year to 30 June 2010 was as follows:
Name
Michael Redmond
Malcolm Diamond
Bryan Morton
Neil Warner
Ian Page
Simon Evans
Ed Torr
Board
Audit
(11 Meetings)
(3 Meetings)
Remuneration
(4 Meetings)
Nomination
(2 Meetings)
11
10
5/6*
8†
11
11
11
n/a
3
1/2*
3
n/a
n/a
n/a
4
4
2/2*
2†
n/a
n/a
n/a
2
2
1/1*
2
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.
* Actual attendance/maximum number of meetings Director could attend based on date of appointment.
† Neil Warner has been unable to attend two board meetings and two Remuneration Committee meetings due to the unforeseen proposed takeover of Chloride PLC. Despite this he has made every
effort to keep updated on the activities of the Company and the matters discussed at the meetings.
It is understood that there may be situations, either due to prior commitments or circumstances beyond control, that a Director is unable to attend a
board or committee meeting. In this situation the board pack is still provided allowing the Director to raise any queries/discussion points either through
the Chairman or Company Secretary, thus allowing their views to be considered at the meeting.
Post the board meetings the Company Secretary ensures that an accurate record of the meeting is made which is circulated to the Board as soon
as possible after the meeting. 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.
Led by the Senior Independent Director, the Non-Executive Directors meet without the Chairman present, at least annually, to appraise the Chairman’s
performance.
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, Michael Redmond, and Chief Executive, Ian Page. The Chairman is responsible for
the leadership and effective working of the Board and ensures that each Director, in particular the Non-Executive Directors, is 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. The Chairman is to
retire by rotation at the forthcoming Annual General Meeting and the Nomination Committee (excluding the Chairman) has reviewed his appointment
in detail. The Nomination Committee considered the Chairman to continue to lead the Board effectively, at all times maintaining his independence
and providing invaluable contribution and insight to the Board gained from his extensive experience within the pharmaceutical sector. The Nomination
Committee also reviewed the Chairman’s current time commitments particularly in light of his appointment as Chairman of Abcam plc (previously
holding the post of Deputy Chairman). After consideration of the enhanced role it was anticipated that the Chairman’s availability for the Company
would not be reduced and that he would continue to fulfil his role to the highest standards.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Corporate Governance
Board Balance and Independence
The Board consists of the Non-Executive Chairman, three 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 during the year under review each of the Non-Executive Directors
remained independent and free from any relationships which could compromise their independent judgement.
As mentioned in the 2009 Annual Report Malcolm Diamond had served nine years as at August 2009. In line with the Code, the Nomination
Committee carried out a rigorous review of his appointment for the 2009/2010 period. Following this review the Board determined that Malcolm
Diamond remained independent notwithstanding that he had served on the Board for over nine years. The Board still considers that Malcolm Diamond
performs his duties effectively, continuing to show integrity and high ethical standards whilst maintaining sound, independent judgement in respect of
all decisions taken at Board and Committee level. However, taking into account the requirements of the Code, Malcolm Diamond has decided to retire
from his position as Non-Executive Director at the board meeting to be held prior to the forthcoming Annual General Meeting on 5 November 2010.
On Malcolm Diamond’s retirement, the Board proposes to appoint Neil Warner as Senior Independent Director and he will be available to Shareholders
if they have concerns which contact through the normal channels had failed to resolve or for which such contact is inappropriate.
The Nomination Committee recognises the importance of the refreshment of the Board and of ensuring that the board members provide the right
mix of skill, expertise and experience to assist the Executive Directors in achieving the Group strategy. As reported in the 2009 Annual Report an
independent recruitment consultant was retained to aid the Nomination Committee in the appointment of an additional Non-Executive Director. As
a result, on 8 January 2010, Bryan Morton was appointed to the Board and as a member of the Remuneration, Audit and Nomination Committees.
Bryan Morton has proved to be a valuable member of the Board and Committees, providing contribution and insight gained from his extensive
commercial and strategic experience.
The Nomination Committee has recently retained the recruitment consultants again in order to assist in the appointment of a further Non-Executive
Director and it is hoped that an appropriate and suitable appointment will be made before the end of the 2010 calendar year. An announcement to the
London Stock Exchange will be made in due course.
Overall, 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.
The details of the Board of Directors are shown on page 38 (which reflect a suitable breadth of skills, knowledge and experience).
Conflicts of Interest
At the 2008 Annual General Meeting the Shareholders approved a resolution to amend the current Articles of Association so as to enable the Directors
to authorise any actual or potential conflict of interest which could arise in line with the Companies Act 2006. There are safeguards which will apply
when Directors decide whether to authorise a conflict or potential conflict. Firstly, only independent directors (i.e. those who have no interest in the
matter being considered) will be able to take relevant decisions, and secondly, in taking the decision the Directors must act in a way they consider,
in good faith, will be most likely to promote the Company’s success. The Directors will also be able to impose limits or conditions when giving
authorisation if they think this appropriate. During the financial year under review no actual or potential conflicts have arisen.
Stock Code: DPH
www.dechra.com
42/43
Nomination Committee
The Board has an established Nomination Committee to lead the process for board appointments and to make recommendations to the Board. The
Nomination Committee comprised, during the year, Michael Redmond (Chairman), Malcolm Diamond, Bryan Morton, and Neil Warner. The Chairman
will not chair the Committee meeting when it is dealing with the appointment of a successor to the Chairman. Details of the work carried out by the
Nomination Committee during the financial year have already been detailed in this report.
The Nomination Committee normally meets once a year. However, an additional meeting has been held during the financial year in view of the
appointment of Bryan Morton and the current recruitment of a further Non-Executive Director scheduled for before the end of the 2010 calendar year.
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:
(cid:2) to oversee the plans for management succession;
(cid:2) to recommend appointments to the Board;
(cid:2) to evaluate the effectiveness of the Non-Executive Directors; and
(cid:2) to consider the structure, size and composition of the Board generally.
The terms of reference are available on the Company website at www.dechra.com.
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 also 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. In May 2010, a board
meeting was held at Dales, Skipton, where the Board had an opportunity to be shown around the manufacturing facility and meet with employees
as well as management. The meeting was scheduled at Dales in order to provide an opportunity for the Board to see, in practice, the changes which
have been made to the facility in readiness for FDA approval, a matter which has been a regular board agenda item for the past year.
Any newly appointed Directors are provided with comprehensive documentation aimed at providing information in relation to the remit and obligations
of the role, current areas under consideration for the Board and the latest broker reports. The new Director is also offered the opportunity to visit the
various business units in order to allow him the opportunity to meet with the executive team managing the business units and to be shown around
the operations. On an ongoing basis all Directors are encouraged to keep up to date on all matters relevant to the Group and attend briefings and
seminars as appropriate. The Company Secretary provides ongoing briefings where necessary for the Directors that cover a number of legal and
regulatory changes and developments relevant to the Directors’ areas of responsibility.
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 Chairman for ensuring
that all board and committee meetings are properly conducted and that Directors receive all appropriate information prior to meetings to enable them
to make an effective contribution. Both the appointment and removal of the Company Secretary is a matter for the Board as a whole.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Corporate Governance
Performance Evaluation
The Board has developed a process of reviewing its own effectiveness and the effectiveness of the 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. The Board recognises the current sentiment in relation to
performance evaluation and the need for more detailed disclosure and the recommendations in the UK Corporate Governance Code for the FTSE 350
Companies to ensure that external board evaluation is carried out every three years. Although the Company is in the FTSE Small Cap, and therefore
below the recommendation threshold, the Board intends to review its current evaluation process bearing the recommendations in mind. Any changes
made will be disclosed along with any issues/recommendations resulting from the review.
Re-election
On appointment, 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 election every three years. At the
forthcoming Annual General Meeting Bryan Morton, who was appointed to the Board on 8 January 2010, will offer himself for election; both Michael
Redmond and Ed Torr will retire by rotation in accordance with the Articles of Association and will seek re-election. The Board has reviewed the
performance of Michael Redmond and Ed Torr and strongly supports their re-election and recommends that the Shareholders vote in favour of these
resolutions. Michael Redmond has held office for over nine years; however, the test of independence is not appropriate in relation to the Chairman
post his appointment.
Remuneration
Details of Directors’ remuneration are set out in the Directors’ Remuneration Report at pages 51 to 59. This report 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.
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
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 Independent Auditors’ Report on pages 69 and 70 to 71 respectively.
Going Concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the Business
Review on pages 8 to 37. The principal risks that may affect the Group’s future performance are set out on pages 36 to 37.
During the year being reported, trading has continued to be robust with an improvement in profitability and a reduction in net borrowings being
achieved. As described in notes 20 and 21 of the Consolidated Financial Statements, the Group had the following bank facilities at 30 June 2010:
(cid:2) a term loan of £22.5 million repayable in instalments of £2.5 million each 30 June and 31 December
(cid:2) a revolving credit facility of £15 million committed until December 2012
(cid:2) an overdraft facility of £10 million renewable on 30 September 2010
The Group also had cash balances of £31.5 million at 30 June 2010. The overdraft facility is expected to be renewed on the renewal date although it is
not normally used for the Group’s daily cash requirements
The Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing these annual financial statements.
Stock Code: DPH
www.dechra.com
44/45
Internal Control and Risk Management
The Directors are responsible for maintaining the Group’s system of internal control and for reviewing its effectiveness from both a financial and
operational perspective. 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 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. Every four months the Board carries out a 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 the
business units’ executive team on an ongoing basis. This framework has been in place throughout this year under review, and has continued up to the
date of approval of the Annual Report. The current review was prepared to 30 June 2010. Further detail in respect of the risks and uncertainties faced
by the Group and the mitigating action being taken can be found on pages 36 to 37.
The Board has reviewed the operation and effectiveness of the internal controls for the year ended 30 June 2010.
The Group’s key systems of control include:
(cid:2) Management Structure
The Group is organised into four operating segments within which there are a number of business units. Each business unit has its own managing
director and executive team; there are clear reporting lines and delegated authorities in place. Each business unit has its own scheduled agenda
of meetings throughout the year. In respect of the UK and EU business units the Chief Executive and Group Finance Director meet with each
executive team circa ten times a year to discuss strategy, business operation and financial performance. In respect of Regulatory and DVP US the
Chief Executive keeps informed by means of regular/weekly briefings with the managing directors plus face to face meetings four times a year. The
executive management are responsible for the identification, evaluation and management of the significant internal and external risks applicable
to their business areas. The top three business risks are reviewed on a monthly basis, with a full risk review taking place every four months, all of
which is escalated to the Board.
Key functions such as tax, treasury, insurance, legal and personnel are controlled centrally.
(cid:2) Management Accounting Systems
The finance department has ensured that a detailed management accounting system is in operation which allows the Board and management
transparency in terms of financial and operational performance, measured against key performance indictors (set at both business unit and Group
level). Detailed management accounts are prepared on a monthly basis covering all areas of the business; these are reviewed by the relevant
business units at their management meetings and by the Board on a monthly basis thereby allowing any material variances to be discussed and
any necessary action taken on a timely basis. Detailed forecasts are prepared and discussed in detail on a quarterly basis.
The finance department maintain a financial policies manual which covers central and divisional management. The manual is reviewed at least
annually and is also updated whenever reporting standards, legislation or internal commercial reasons dictate. Any changes to the policies are
communicated throughout the Group’s finance department. The finance department also hold an annual internal conference at which a full
technical update, tailored specifically to the Group’s commercial needs, is presented by the Auditors.
Business unit management certify on a quarterly basis that key financial controls have been performed and that significant risks have been
identified.
(cid:2) Business Plans
Business plans provide a framework from which annual budgets and forecasts are agreed with each business, including financial and strategic
targets against which business performance is monitored. The plans are reviewed by executive management, and then by the Board for ultimate
approval. Actual performance during the financial year is monitored monthly against budget, forecast and previous year. Full year forecasts are
updated quarterly.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Corporate Governance
(cid:2) 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. Capital expenditure is controlled
within each business with approval levels determined by the Board.
(cid:2) Development Expenditure
The Group has a transparent and established process for evaluating and monitoring the level of development expenditure incurred. As with all other
business units the Regulatory Department agrees an annual budget which receives approval from the Board and performance against which it is
monitored on an ongoing basis. The Regulatory Department re-evaluates all projects at least twice a year. When evaluating projects a number of
measurement criteria are considered including the products’ net present value and return on investment.
(cid:2) Whistle-blowing Policy
The Company has a whistle-blowing policy in place which establishes a confidential channel of communication for employees to bring matters
of concern about the running of the business to the attention of senior management. Upon being notified of such a concern, the policy sets out
a defined process to be followed which allows a full investigation to take place and, where necessary, corrective action to be taken. The Audit
Committee reviews the whistle-blowing policy on an annual basis.
(cid:2) Business Ethics Policy
A business ethics policy was introduced during the 2009/2010 financial year. This has been circulated group-wide and all relevant employees
are asked to return signed confirmation to the Company Secretary that they agree to adhere to the policy. It is intended that employees will be
requested to sign such confirmation on an annual basis. The Group is aware that the policy will require reviewing to ensure that it adheres to
the Bribery Act 2010 and will also need to review its current procedures to ensure that they are deemed “adequate” in line with this Act and the
guidance to be released by the Ministry of Justice in early 2011.
Audit Committee and Auditors
Information relating to the Audit Committee is set out in the Audit Committee Report on pages 48 to 50. This details the Company’s compliance
with the 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 half-
year 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, this has been carried
out during the financial year under review and a decision taken that an internal audit function is not currently required.
The 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.
Stock Code: DPH
www.dechra.com
46/47
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
are held throughout the year. These meetings are in addition to the annual and half-year results presentations and the Annual General Meeting and
seek to foster a 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.
Feedback is collated by the Company’s brokers after both the annual and half-year results and presentations. The feedback is then circulated to the
Board for review and consideration; in addition, the Board is provided with a monthly market summary report which reports on share price movements
and share register movements.
The annual and half-year results presentations are available to private investors via the Company’s website. The Company views the website as an
important investor relations tool, and has during the financial year undertaken a project to update the website making it clearer and easier to access
information relating to the Company and its activities. The Company will endeavour to ensure that it is continuously updated in line with best practice.
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 Accounts, 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. The notice of meeting and an announcement relating to the total number of shares in respect of
which Shareholders are entitled to exercise voting rights are made available on the Company’s website the day after the notice of meeting is posted
to Shareholders. At the Annual General Meeting there is also an opportunity, following the formal business, for informal communications between
investors and Directors.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Audit Committee Report
Membership
The members of the Audit Committee (“the Committee”) are currently:
Neil Warner (Chairman of the Committee)
Malcolm Diamond (Non-Executive Director)
Bryan Morton (Non-Executive Director, appointed 8 January 2010)
The members of the Committee are deemed by the Board to be independent; further explanation of the reasons for this can be found in the Corporate
Governance section on pages 40 to 47. The Board also considers that Neil 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 “Code”). The Company
Secretary acts as secretary to the Committee.
As described in the Corporate Governance section, the Nomination Committee is in the process of appointing a further independent Non-Executive
Director. It is likely that on appointment to the Board he/she will also be appointed as a member of 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 Committee’s terms of reference are reviewed on an annual basis and during the 2009/2010 financial year this took place at the
February meeting. Following this review the Committee agreed that no amendments were required to the terms of reference.
The main responsibilities of the Committee are:
(cid:2) 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;
(cid:2) to review the effectiveness of the Company’s internal controls and risk management systems as described on pages 45 and 46 and, in conjunction
with the Auditors, consider the accounting policies adopted by the Company;
(cid:2) to review the Company’s whistle-blowing arrangements;
(cid:2) to oversee the relationship with the Auditors. The Committee makes recommendations to the Board on the appointment of the 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; and
(cid:2) to make recommendations to the Board on the requirement for an internal audit function.
In the performance of its duties the Committee has access to the services of the Auditors and is at liberty to obtain outside professional advice as
necessary. During the year, no legal or independent professional advice was sought. Further, the Auditors have direct access to the Committee
Chairman outside the formal Committee meetings.
The Committee also monitors and reviews the effectiveness of the Group’s internal control activities. Given the systems of internal control discussed
on pages 45 and 46, and due to the present size of the Group, the Committee currently believes that an internal audit function is not currently
required.
Meetings
The Committee met three times during the year, timed to coincide with the financial reporting timetable of the Company. Members’ attendance at the
meetings held during the year can be found on page 41.
Stock Code: DPH
www.dechra.com
The schedule below sets out a number of the matters which were discussed (and where necessary approved) at the three meetings:
Meeting
August 2009
Matters discussed/approved at the meeting
(cid:2) Auditors’ report on 2008/2009 financial results
48/49
(cid:2) Draft preliminary statement
(cid:2) Draft annual report
(cid:2) External audit effectiveness
(cid:2) Audit committee effectiveness review
(cid:2) Auditor independence confirmation
(cid:2) Level of non-audit fees
(cid:2) Going concern confirmation
Internal controls
(cid:2)
(cid:2) Requirement for internal audit function
(cid:2) Proposed final dividend
Impact of IFRS 8
(cid:2)
(cid:2) Auditor representation letter
February 2010
(cid:2) Auditors’ report on half-year results
(cid:2) Draft half-year report and announcement
(cid:2) Terms of reference
(cid:2) Whistle-blowing policy
(cid:2)
Interim dividend
(cid:2) Going concern confirmation
(cid:2) Senior Accounting Officer requirement
(cid:2) Auditor representation letter
July 20101
(cid:2) Audit strategy for the year ended 30 June 2010 (including timetable, scope and fees)
(cid:2) Audit Partner Rotation
(cid:2) Auditor independence
(cid:2) Group Capitalisation Policy Review
(cid:2) Company expectations of audit
1 Meeting postponed from May 2010
The 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 and when appropriate. The Committee has discussions at least once a year with the
Auditors without management being present.
Auditor Independence
With respect to non-audit assignments undertaken by the Auditors, the Company has a policy to ensure that the provision of such services do not
impair their independence or objectivity. When considering the use of Auditors to undertake non-audit services, the Chief Executive and Group
Financial Director do at all times give consideration to the provisions of The FRC Guidance on Audit Committees with regard to the preservation of
independence.
The policy in respect of non-audit fees was reviewed and amended during the year ended 30 June 2009, whereby it was agreed that the non-audit fee
be capped at 50% of the audit fee. Prior approval of the Committee is required should non-audit fees exceed the cap and a detailed explanation of the
reasons for exceeding the limit provided in this report. In all cases, other potential providers are adequately considered.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Audit Committee Report
In respect of the year under review the audit fee has been approved at £262,756 (2009: £266,000) and non-audit fees amount to £146,000 (2009:
£96,733), representing 56% of the audit fee (2009: 36%). During the current year, the Auditors have been commissioned to carry out a number
of non-audit projects including tax advisory and compliance work, and verification of satisfaction of the performance conditions in relation to the
Approved and Unapproved Company Share Option Schemes. The 50% non-audit fee cap was breached by reason of work in relation to a number of
historical research and development claims; on the basis that KPMG Audit Plc (“KPMG”) has completed the original tax computations it was deemed
suitable for KPMG to carry out this work.
The Auditors annually confirm their policies on ensuring audit independence and provide the Committee with a report on their own audit and quality
procedures. This report was reviewed during the Audit Strategy meeting held in July 2010. In line with the ethical standards of the Audit Practices
Board (“APB”) the Group Audit Engagement Director is rotated every five years. The current Group Audit Engagement Director was appointed during
the 2005/2006 financial year and in accordance with the APB, is due to stand down prior to the 2010/2011 audit. The Committee has already
commenced discussions with KPMG regarding the rotation so as to ensure an orderly handover and maintain the current high audit standard.
Effectiveness Review
During the year, the Committee reviewed its own effectiveness through a process led by the Committee Chairman. The Committee considered
that it acted transparently and given the number of committee and board meetings scheduled throughout the financial year, maintained a thorough
understanding of the Group and its business. The Committee also considered it had the skills necessary to perform its responsibilities, particularly
through Neil Warner’s financial and audit experience by reason of his position as Financial Director of Chloride PLC. The results of the review were
advised to the Board.
The performance, cost and independence of the Auditors is reviewed annually by the Committee, together with a review of the level of service
provided by the Auditors to the Group. Based on the Committee’s review of the performance of the Auditors and on the planning and execution of
the annual audit, the Committee has recommended to the Board that a resolution to reappoint KPMG be proposed at the forthcoming Annual
General Meeting.
Neil Warner
Chairman — Audit Committee
7 September 2010
Stock Code: DPH
www.dechra.com
Directors’ Report: Directors’ Remuneration Report
50/51
The Remuneration Report is presented in accordance with the relevant provisions of the Combined Code on Corporate Governance (the “Code”) and
Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (the “Regulations”). In accordance with
the Regulations the Report is divided into two sections, unaudited and audited information. The audited information commences on page 58.
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
Remuneration Committee (the “Committee”).
This Remuneration Report will be submitted at the 2010 Annual General Meeting for the approval of the Shareholders.
The Remuneration Committee
Membership
The Committee consists exclusively of independent Non-Executive Directors and comprises:
Malcolm Diamond (Chairman)
Bryan Morton (appointed 8 January 2010)
Michael Redmond
Neil Warner
As reported, Malcolm Diamond will be retiring as a Non-Executive Director of the Company; on his retirement Bryan Morton will be appointed
chairman of the Committee.
The Chief Executive attended all meetings held during the financial year 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.
Responsibilities
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 Code. Copies can be obtained from the Company Secretary or via the Company website at www.dechra.com. The Committee Chairman and the
Company Secretary are available to Shareholders to discuss the remuneration policy.
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.
In particular, the terms of reference authorise the Committee to:
(cid:2) make recommendations to the Board on Executive remuneration;
(cid:2) determine on behalf of the Board specific remuneration packages and conditions of employment (including pension rights) for Executive Directors;
(cid:2) determine targets for any performance related pay schemes operated by the Company; and
(cid:2) determine the policy for and scope of any pension arrangements for the Executive Directors.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Directors’ Remuneration Report
Meetings
The Committee met four times during the year and members’ attendance at the meetings can be found on page 41. In accordance with the
Committee terms of reference any two members of the Committee form a quorum. The schedule below sets out a number of the matters which were
discussed (and where necessary approved) at the four meetings:
Date
July 2009
August 2009
February 2010
June 2010
Subject Matter
(cid:2) Review of incentive arrangements
(cid:2) Approval of Director bonuses
(cid:2) Approval of satisfaction of performance condition in respect of the LTIP
(cid:2) Review of Committee effectiveness
(cid:2) Discussion of the LTIP awards to be granted to Executives
and Senior Management
(cid:2) Discussion regarding Directors’ remuneration
(cid:2) Discussion of share option allocation
(cid:2) Approval of share option exercise and achievement of target
(cid:2) Review of terms of reference
(cid:2) Confirmation of Executive Directors’ salary
(cid:2) Review and confirmation of executive bonus arrangements for
2010/2011
(cid:2) Discussion of the renewal of the SAYE, Approved and Unapproved
Share Option Scheme Rules
Advisers
During the year the Committee received advice on the remuneration of Senior Executives from the Chief Executive; this was supplemented by
advice given by KPMG and Hewitt New Bridge Street in relation to a number of potential incentive arrangements. Advice was also received from the
Company Secretary and Hewitt New Bridge Street in relation to the operation of the Company’s share-based incentive plans. Hewitt New Bridge
Street has no other connection with the Company. KPMG are the Company’s Auditors; the fee incurred in respect of their advice has been taken into
account when calculating the total amount of non-audit fees incurred during the financial year.
Effectiveness Review
During the year, the Committee reviewed its effectiveness through a process led by the Committee Chairman. The Committee considered it had the
skills and experience necessary to perform its responsibilities, which was strengthened by the appointment of an additional Non-Executive Director
during the year. These findings were reported to the Board.
Remuneration Policy and Practice
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.
Stock Code: DPH
www.dechra.com
Non-Executive Directors are paid a basic fee with additional fees paid for the chairing of Committees. During the financial year under review the Non-
Executive Directors agreed to waive an increase in their fees. In addition, the structure of the fees was reviewed and amended (as shown in the table
below) but this did not change the overall fees paid to the Non-Executive Directors.
52/53
Office
Chairman
Non-Executive Director
Senior Non-Executive additional fee
Remuneration Committee Chairmanship additional fee
Audit Committee Chairmanship additional fee
New fee
structure
£’000
Original fee
structure
£’000
80
36
—
3
3
80
31
3
5
8
Taking into account current market sentiment in relation to Non-Executive fees increases and also the level of pay and employment conditions
throughout the Group, it has been agreed to increase the fees by 3% for the 2010/2011 financial year.
The annual fee level for 2010/11 is therefore:
Office
Chairman
Non-Executive Director
Remuneration Committee Chairmanship additional fee
Audit Committee Chairmanship additional fee
2010/11
fee
£’000
82
37
3
3
Non-Executive Directors are not eligible to participate in any of the Company’s share schemes, incentive schemes or pension schemes.
Executive Directors
Dechra’s policy on Executive Directors’ remuneration is to provide remuneration packages that:
(cid:2) attract, retain and incentivise Executives of the calibre required to ensure that the Group is managed successfully to the benefit of Shareholders;
(cid:2) provide appropriate alignment between Dechra’s strategic goals, Shareholder returns and Executive reward;
(cid:2) 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; and
(cid:2) are consistent with corporate governance best practice guidelines so long as the Committee believes that compliance with such guidelines is in the
best interest of Shareholders.
The Committee has a policy of reviewing Executive remuneration every two years. The Committee therefore reviewed the Executive Directors’ current
benefits and salary over the course of a number of meetings held during Spring/Summer 2010. Although no overall independent advice was obtained
during the course of the review the Committee were mindful of remuneration studies and surveys which had been carried out during 2009/2010 by
various remuneration consultants and accountancy firms. It should be noted, however, that specific advice was taken in relation to the bonus scheme
from Hewitt New Bridge Street.
Overall, the Committee concluded that the value of the Executive Directors’ existing remuneration packages remained below median, however market
sentiment remained conservative in respect of material increases to Executive Directors’ remuneration and any pay increases should be reflective
of those paid across the Group; it was therefore agreed that a 3% pay increase would be awarded for 2010/2011. When considering the bonus
arrangements paid to the Executive Directors the Committee noted that the maximum potential of 100% of base salary was in line with median market
practice for FTSE Small Cap companies. However, the payment of 37% of base salary for achieving budgeted adjusted profit before tax (out of a
maximum 90% of salary) was low compared to Directors within the FTSE Small Cap in accordance with a number of remuneration surveys, particularly
taking into account the challenging nature of the budget. The Committee therefore agreed to seek additional advice in respect of the current bonus
scheme from Hewitt New Bridge Street. After reviewing this additional advice it was agreed that the outlying parameters of the bonus scheme would
remain as per the previous year (i.e. payment of 10% of salary on achievement of 95% of budget and payment of 90% of salary on achievement of
110% of budget), however there would no longer be a straight line in between the two parameters; instead achievement of budget would trigger a
payment equivalent to 50% of base salary (in line with median market practice). The table on the next page sets out the changes made following
the review.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Directors’ Remuneration Report
Policy
Base Salary
2009/2010
2010/2011
The Committee always considers
Taking into account the then economic climate
Taking into account the current market sentiment
(i)
remuneration packages payable to
and the pay increases across the Group, the
and the pay increases across the Group, the
employees employed in comparable
Committee agreed that base salaries were to
Committee has agreed that base salaries should
companies; and
be increased by 2% with effect from 1 July
be increased by 3% with effect from 1 July
(ii) pay increases within the Group
2009 to:
2010 to:
more generally
Pensions
Ian Page — £357,000
Simon Evans — £224,400
Ed Torr — £214,200
Ian Page — £367,710
Simon Evans — £231,132
Ed Torr — £220,626
The Company operates a Group
The Company will contribute 14% of salary on behalf of the Executive Directors
Stakeholder personal pension scheme
which has been effective since 1 July 2005
Benefits in Kind
Provided on a market competitive basis
Annual Bonus
The Company provides the use of a fully expensed car, medical cover and life assurance scheme
The Executive Bonus Scheme rewards
Executive Directors for achieving operating made up as follows:
Annual cash bonus potential up to 100% of salary
efficiencies and profitable growth in the
relevant year by reference to challenging
(cid:2) Up to 90% of salary could be earned based
on the achievement of Group budget set
After taking into account a challenging budget and
the current market conditions, the Committee
decided to make a slight change to the
Executive Bonus Scheme for the 2010/2011
but achievable operational targets
determined at the beginning of the
at the beginning of the financial year (with
payments as outlined in Chart A below)
(cid:2) Up to 10% of salary could be earned
based on achievement of personal
objectives. The personal objectives of
the Chief Executive were set by the
Chairman, and those of the other
Executive Directors were set by the
financial year, in order to allow 50% of salary
to be paid on achievement of budget (as
explained on page 53). The percentage
of salary paid on achieving 95% and 110%
of budget respectively remains the same as
previous years. Therefore, as in previous years,
up to 90% of salary can be earned based
on achievement of Group budget set at the
Chief Executive. This element of the
bonus is payable at the sole discretion
beginning of the financial year. This is outlined
in Chart B below. As in previous years, up
of the Remuneration Committee
to 10% of salary can be earned based on
achievement of personal objectives
Actual performance equated to a bonus of 44%
of base salary (including the achievement of
personal objectives) resulting in a total payment
to Executive Directors of £350,064, to be paid
in September 2010
Chart B
100
90
80
70
60
50
40
30
20
10
)
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0
90
95
100
105
110
115
95
100
105
110
115
% achievement of budgeted adjusted profit before tax
% achievement of budgeted adjusted profit before tax
financial year
Chart A
100
90
80
70
60
50
40
30
20
10
)
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90
Stock Code: DPH
www.dechra.com
54/55
Long Term Incentive Arrangements and Share Schemes
Long Term Incentive Plan (“LTIP”)
Awards under the LTIP have been made since 2008. The Committee considers that the LTIP provides 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
Total Shareholder Return (“TSR”).
The LTIP allows 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). Options granted to the Executive Directors on 24 September 2009 were
granted to a value equivalent to 100% of their base salary.
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 grant during the financial year ended 30 June 2010 are:
(1) an ‘underpin’ condition based on the Company’s adjusted diluted earnings per share performance — no awards will vest if the Company’s
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 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
25%
Pro-rata vesting based on the Company’s ranking in the comparator group
100%
Vesting Percentage
0%
Executive Incentive Plan (“EIP”)
Prior to the adoption of the LTIP in November 2008, the Company operated an Executive Incentive Plan. No further options can be granted under the
EIP; however, a number of prior year grants have yet to be exercised (subject to the achievement of performance conditions and confirmation from the
Committee that the underlying financial performance of the Company has been satisfactory during the relevant measurement period). Details of the
options yet to be exercised pursuant to the EIP and the attaching performance conditions can be found on page 58 of this report.
Company Share Option Scheme and Savings Related Share Option Scheme
The Company also operates an Approved Share Option Scheme, an Unapproved Share Option Scheme and 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 LTIP and EIP.
Each of these share option schemes expires in Autumn 2010. The Committee has requested that the schemes be renewed and updated in order to
take into account legislative changes and best practice. Further details of the changes to the three share option schemes are provided in the enclosed
Circular to Shareholders for the 2010 Annual General Meeting. A resolution in respect of each of the three schemes will be put to the Shareholders at
that meeting. Subject to Shareholder approval, initial awards under the schemes will be made during the 2010/2011 financial year.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Directors’ Remuneration Report
Total Shareholder Return Graphs
The graphs below shows the TSR performance of the Company over the past five financial years compared with the TSR over the same period for the
FTSE Small Cap Total Return Index and FTSE 250 Index. During the 2009/2010 financial year the Company moved from the FTSE 250 to become a
constituent member of the FTSE Small Cap Index; for this reason it is considered that the TSR performance of both sectors be represented in
this report.
)
£
(
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300
250
200
150
100
50
0
Total Shareholder Return — 5 Years
Total Shareholder Return — 5 Years
DECHRA TSR
FTSE SMALL CAP
DECHRA TSR
FTSE 250 TSR
)
£
(
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300
250
200
150
100
50
0
5
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5
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6
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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 2010 were
as follows:
Shareholdings
Michael Redmond
Ian Page
Simon Evans
Ed Torr
Bryan Morton
Malcolm Diamond
Neil Warner
Ordinary
Shares
No.
2010
56,475
707,731
860,537
401,489
—
10,007
2,691
Ordinary
Shares
No.
2009
56,475
679,856
830,274
390,793
n/a
10,007
2,691
There have been no changes in the holdings of the Directors between 30 June 2010 and 7 September 2010.
Share Ownership Guideline
In line with best practice, there are formal share ownership guidelines for Executive Directors requiring them to retain at least half of any 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 (please see table below):
Shareholdings
Ian Page
Simon Evans
Ed Torr
* Calculated using the share price as at 30 June 2010.
There are currently no formal share ownership guidelines for Non-Executive Directors.
Ordinary
Shares
No.
707,731
860,537
401,489
Ordinary
Shares
£’000*
2,725
3,313
1,546
Salary
£’000
357
224
214
18000DECHRAPH.indd 56
18000DECHRAPH.indd 56
18000
13/09/2010
Proof 8
01/10/2010 13:09
01/10/2010 13:09
Stock Code: DPH
www.dechra.com
56/57
Contracts of Services
The Executive Directors entered into a new rolling service contract during 2008/2009. The service contracts contain details regarding remuneration,
restrictions and disciplinary matters.
Details of the Executive Directors’ service contracts/Non-Executive Directors’ letters of appointment are set out below.
Name
Michael Redmond
Ian Page
Simon Evans
Ed Torr
Bryan Morton
Malcolm Diamond
Neil Warner
Commencement date
25 April 2001
1 September 2008
6 February 2009
6 February 2009
8 January 2010
1 July 2008
2 May 2003
Notice Period
Director
12 months
6 months
6 months
6 months
12 months
12 months
12 months
Company
12 months
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.
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 basic salary entitlement for the unexpired period of notice (subject 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 have a service contract for an initial 12 month period which is thereafter terminated by either party giving 12 months’ notice.
Non-Executive Directors’ compensation is confined to 12 months’ remuneration.
Individual Directors’ eligibility for the various elements of compensation is set out below:
Name
Michael Redmond
Ian Page
Simon Evans
Ed Torr
Bryan Morton
Malcolm Diamond
Neil Warner
Salary
12 months
12 months
12 months
12 months
12 months
12 months
12 months
Bonus
n/a
Nil
Nil
Nil
n/a
n/a
n/a
Benefits
n/a
12 months
12 months
12 months
n/a
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.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Directors’ Remuneration Report
Audited Information
The Auditors are required to report on the information contained in the remainder of this report.
Summary of Remuneration
Executive Directors
Ian Page (Chief Executive)
Simon Evans
Ed Torr
Non-Executive Directors
Michael Redmond (Chairman)
Bryan Morton
Malcolm Diamond
Neil Warner
Salaries
& Fees
£’000
Bonuses
£’000
Other
Benefits
£’000
357
224
214
80
17
39
39
970
157
99
94
—
—
—
—
350
29
26
15
—
—
—
—
70
Total
2010
£’000
543
349
323
80
17
39
39
1,390
Total
2009
£’000
665
425
397
80
—
39
39
1,645
Executive bonuses for the year ended 30 June 2010 (as reflected in the table above) were determined as follows:
(cid:2) Profit performance — 10% of salary payable upon the achievement of 95% of Group profit target rising to 90% of salary payable upon the
achievement of 110% of Group profit target. Actual performance reflected 99.4% of the profit target resulting in a payment worth 34% of salary.
(cid:2) 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:
Ian Page
Simon Evans
Ed Torr
Award
date
2006
2008
2006
2008
2006
2008
Number
of shares
at 30 June
2009
47,412
37,975
85,387
30,263
22,152
52,415
28,245
20,253
48,498
Granted
during
the year
—
—
—
—
—
—
—
—
—
Exercised
during
the year
(47,412)
—
(47,412)
(30,263)
—
(30,263)
(28,245)
—
(28,245)
Number
of shares
at 30 June
2010
—
37,975
37,975
—
22,152
22,152
—
20,253
20,253
Performance
period
2006–2009
2007–2010
2006–2009
2007–2010
2006–2009
2007–2010
Share price
at date
of award
pence
250.75
386
250.75
386
250.75
386
Share price
at date
of exercise
pence
435.86
—
435.86
—
435.86
—
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. Following the
approval of the Long Term Incentive Plan at the 2008 Annual General Meeting no options have been granted under the EIP.
During the financial year awards granted in 2006 became exercisable. Independent verification by Hewitt New Bridge Street showed that the
Company’s TSR performance for the three year period to 30 June 2009 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 Hewitt New Bridge Street in respect of the satisfaction of the performance targets for
awards which vested as at 30 June 2010. It has been confirmed to the Committee that the Company’s TSR performance for the three year period
to 30 June 2010 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 become capable of exercise.
Stock Code: DPH
www.dechra.com
58/59
Long Term Incentive Plan
Awards made under the Long Term Incentive Plan are as follows
Ian Page
Simon Evans
Ed Torr
Number
of shares
Award
at 30 June
date
19 Nov 2008
24 Sept 2009
19 Nov 2008
24 Sept 2009
19 Nov 2008
24 Sept 2009
2009
92,593
—
92,593
58,201
—
58,201
55,556
—
55,556
Granted
during
the year
—
86,861
86,861
—
54,599
54,599
—
52,117
52,117
Exercised
during
the year
—
—
—
—
—
—
—
—
—
Number
of shares
at 30 June
2010
92,593
86,861
179,454
58,201
54,599
112,800
55,556
52,117
107,673
Share price at
Performance date of award
pence
391.75
period
2008–2011
2009–2012
404.10
2008–2011
2009–2012
2008–2011
2009–2012
391.75
404.10
391.75
404.10
The performance conditions attaching to the Long Term Incentive Plan are explained on page 55.
The aggregate gain made by the Executive Directors on share options exercised during 2010 was £461,663 (2009: £330,979).
SAYE Scheme
Directors’ entitlements under the SAYE Scheme are as follows:
Market price
Ian Page
Simon Evans
Ed Torr
Award
date
13 October 2008
13 October 2008
13 October 2008
12 October 2009
at date
of grant
pence
387
387
387
445
At
30 June
Exercise
Exercise
2009 Exercised
Granted
Lapsed
Price
dates
343 Dec 2013
343 Dec 2013
343 Dec 2013
332 Dec 2014
number
4,883
4,883
1,119
—
10,885
number
—
—
—
—
—
number
—
—
—
1,640
1,640
number
—
—
—
—
—
At
30 June
2010
number
4,883
4,883
1,119
1,640
12,525
Share Price
The middle market price for the Company’s shares on 30 June 2010 was 385.00p and the range of prices during the year was 375.00p to 505.00p.
Pension Entitlement
All Executive Directors were members of the Dechra Pharmaceuticals 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:
Contributions Contributions
2009
2010
£’000
50
31
30
111
£’000
49
31
29
109
Age
49
46
50
Ian Page
Simon Evans
Ed Torr
By order of the Board
Malcolm Diamond
Chairman — Remuneration Committee
7 September 2010
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: 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
and improvement of policies and systems is ongoing.
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.
As mentioned in the 2009 Annual Report the Company was in the process of establishing an Environmental Committee. At the inaugural meeting the
members agreed to widen the remit of the committee to deal with matters beyond the environment so as to encompass all elements of CSR. The
committee was subsequently renamed the Sustainability Committee (the “Committee”).
The Committee is chaired by Ed Torr, the nominated Director responsible for environmental policy; its members are representatives from each of the
business units and the Company Secretary is secretary to the Committee. The Committee has met twice this year, and its terms of reference are
available on the Company website www.dechra.com.
The Committee primarily focused on establishing a social, ethical and environmental policy and this was approved by the Board during the financial
year. The following report details how we have applied the main principles of this policy. A full copy of the policy is available from the Company
Secretary and the Company website.
Social Responsibilities
The Board recognises that the Group has a responsibility to its stakeholders and therefore encourages the business units to contribute to the social
and economic welfare of the local communities in which they operate. It recognises that by taking voluntary action in this area it is helping to protect
and develop its own business.
As in previous years Dechra has maintained its investment in the Corporate Membership Scheme for the Staffordshire Wildlife Trust (the “Trust”)
throughout the financial year. The continued support provided by the Company has assisted the Trust in a number of local community programmes.
During the year under review head office employees and representatives from NVS assisted the local community in a litter pick at Parrot’s Drumble, an
area of ancient woodland situated adjacent to the NVS warehouse in Talke Pits.
“Dechra Pharmaceuticals has continued to
increase its support of Staffordshire Wildlife
Trust and this has helped us to improve the
quality of habitat at local nature reserves
such as Parrot’s Drumble. The work we do
on nature reserves not only helps protect
wildlife, but also supports the local community
by improving their environment and helping
support their efforts to conserve Staffordshire’s
wild places for future generations”
Dechra and NVS employees assisted the local community in a litter pick
Yvonne Stevens — Staffordshire Wildlife Trust
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The business units also provide support to community based charities and projects in their respective areas as well as to animal related charities
further afield. Below is a selection of what has taken place during the 2009/2010 financial year:
European Pharmaceuticals
Employees at Dales have organised a number of charitable events supporting both local and national charities. In October 2009 a dress down day
was organised along with a Halloween party, both in aid of Jeans for Genes, a national children’s charity which raises money for the care of children
and families who are affected by genetic disorders. The two events raised a total of £675. In June 2010, four employees took part in the 10 km run at
Harewood House, Leeds. The participating employees raised £393; this was increased to £500 by a company contribution from Dales. The money
raised was donated to Yorkshire Air Ambulance, a charity chosen by the Dales employees as their nominated charity for 2010.
“DVP UK was one of the very first to agree to
support and sponsor the Horsepower CPD
bike ride round the UK Veterinary Schools.
This charity initiative was set up to provide
financial stability for a small disabled riding
centre for orphans and abandoned children
in Mali. DVP UK played a major role in both
the preparation and the events themselves.
Apart from the direct sponsorship DVP UK
confirmed their commitment to the project and
to the profession as a whole by having a stand
at each of the seven venues”
Professor Derek C Knottenbelt OBE, BVM&S, DipECEIM,
MRCVS, RCVS & European Recognised Specialist in Equine
Internal Medicine — University of Liverpool
Dales employees Richard Burton, Mike Annice, Emma Todd and Kevin Myers after
completing the 10 km run at Harewood House, Leeds
DVP UK donated £2,000 towards the British Equine Veterinary Association’s CPD roadshow which took place in July 2010. The roadshow was
organised by ten equine veterinarians who rode their motorbikes between seven British veterinary schools within seven days delivering an intensive
CPD programme at each veterinary school en route. The roadshow started in Liverpool and finished in Glasgow, all money raised being donated to
the Society for the Protection of Animals Abroad (“SPANA”) linked disabled riding school in Bamako, Mali. SPANA is a UK based animal welfare charity
focused on improving the life of working horses and donkeys in Saharan Africa.
DVP UK also donated over £14,000 worth of short dated, obsolete medical supplies to the Worldwide Veterinary Service (“WVS”), a UK registered
charity committed to improving the treatment and welfare of all animal species throughout the world. WVS provides sustainable veterinary resources in
the form of volunteer veterinary teams, drugs, equipment and advice to assist animal welfare charities and non-profit organisations around the world.
As reported in the 2009 Annual Report DVP UK sponsors a charity called Help the Street Animals of Morocco (“HSAM”) which it has been involved
with since 2006. HSAM is a UK based charity which aims to improve the welfare of street animals in Morocco and also to reduce the feral population.
During the 2009/2010 financial year HSAM carried out its fourth neutering and treatment trip to Morocco. In order to assist with their work and
treatment whilst in Morocco DVP UK provided supplies of Cleanaural, Canaural, Sedator and Atipam.
During the year, DVP France sponsored two veterinary students from the Toulouse Vet School, helping them raise the funds to participate in the 4L
Trophy, a 600 km car rally from Bordeaux to Morocco. The 4L trophy was established in 1997, and its objective is to provide humanitarian aid in the
form of the provision of school supplies to 3,000 Moroccan children. The 4L Trophy also has a partnership with CO2 Solidarity which aims to make up
for the CO2 emissions by funding a programme for environmental protection in order to improve the living conditions of Moroccan people.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Social, Ethical and
Environmental Responsibilities
Each year DVP EU nominates a Danish charity to which they donate DKK2,500. For the year under review DVP EU chose to donate the money to
the Foundation for Families with Children Suffering from Cancer. Furthermore, as reported in the previous Annual Report, DVP EU has continued its
sponsorship of three children through SOS Children’s Villages. The three children sponsored live in Kenya, India and the Philippines. DVP EU donates
DKK150 a month to the charity for the sole purpose of providing care, food and schooling for the children.
Services
NWL has, for a number of years, forged links with local schools by offering a number of work experience placements to students. During the financial
year the Laboratories have offered work experience to fourteen children from local schools and six veterinary students from Liverpool Vet School. NWL
feels that by offering such placements to pupils it provides the opportunity for students to understand and appreciate working life whilst allowing the
schools to strengthen ties with local businesses.
NVS has donated medical supplies to a number of medical charities, including:
(cid:2) PhaNgan Animal Care Thailand, a nursing clinic providing nursing and veterinary care for the Island’s stray and unwanted animals; and
(cid:2) Skiathos Dog Shelter, which aims to help street dogs on the Greek Island of Skiathos through care and shelter.
NVS also distributes, free of charge, dog and cat food to a number of charities each year. During the financial year approximately 38 tonnes of dog
and cat food has been supplied to charities free of charge. A number of local dog and cat charities are identified by NVS each year for inclusion in the
distribution, these are generally charities involved directly with the care of animals. It is ensured that such stock is not provided to charities where the
damaged product would be sold on to third parties.
The Committee has reviewed the way in which donations (either in the form of money or stock) are made by the business units to charities and is in
the process of creating a policy whereby employees’ views are taken into account when deciding which charities are chosen. Subject to receiving
board approval, it is intended that the policy be rolled out across the Group and further detail will be provided in the 2010/2011 Annual Report.
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 promotion 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 UK 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.
The Group commenced reporting Lost Time Accident Frequency Rates (“LTAFR”) as a non-financial key performance indicator during the 2008/2009
reporting year. The LTAFR is a calculation of all injuries that would be statutorily reportable under Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations (“RIDDOR”), normalised per 100,000 hours worked. This measure provides information to help monitor and control
accidents and injuries to the workforce and is widely used as a key performance indicator throughout industry. Over the course of the last twelve
months the Group has managed to reduce the number of accidents from 16 to 14 and it is hoped to reduce this further during the 2010/2011 financial
year. More detail in relation to this and other non-financial key performance indicators can be found on pages 30 to 31.
Any material health and safety issues or incidents which occur are discussed in detail at both the monthly business unit board meetings and the PLC board
meetings. The discussions include details of the incident that took place and also details of any remedial action which has been taken in order to mitigate or
prevent a recurrence of the incident. Twice a year a comprehensive health and safety report is presented at each of the business unit board meetings and
then reported to the PLC board meeting the following month for discussion and review by the Directors.
The transport risk committee assesses risks relating to the vehicle fleet and establishes control procedures, which include a regular licence check of all
individuals who are able to drive company vehicles, an investigation into all accidents and a disciplinary procedure for speeding offences. During 2010
this committee introduced an online driver assessment for its entire company car and commercial vehicle drivers; the results of the assessment have
enabled the Company to identify drivers at risk and to provide further training to those drivers. The online driver assessment is rolled out to all new
company car and commercial vehicle drivers as part of their induction. The transport risk committee is currently reviewing the company car policy with
the aim of reducing its impact on the environment. This committee meets four times a year and issues raised by this committee are reviewed by the
Board as part of the bi-annual health and safety review.
Simon Evans is the nominated Director responsible for the Health and Safety Policy.
Stock Code: DPH
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Employees
We recognise that the success of the Group is dependent on our ability to attract, develop, motivate and retain skilled employees. The Group
commenced reporting labour turnover as a non-financial KPI during 2008/2009 reporting year, and this is measured using the standard formula:
Total number of leavers over a period
Average total number employed over period
× 100
The Group has established a target of no more than 15% moving annual turnover; during the 2009/2010 financial year we achieved 15.88%
(2009: 19.81%). A number of projects have been carried out during the year which has contributed to this reduction.
In September 2007 we provided the outcome of our benefits review to all of our UK based employees, which recommended improvements on our
standard benefits offering and more closely aligned us with our employees across Europe. These improvements were implemented in January 2010,
enabling standardisation and updating of our employee contracts in line with current legislation and practice. The improvement of our core benefits
places us in a favourable market position and has resulted in a higher retention rate with less than one in ten leavers citing ‘better pay and benefits’
as their reason for leaving. We have continued to improve the people management skills of our line managers and have improved our employee
involvement through the introduction of a Staff Information Consultation Committee at our NVS business adding to our existing works council
elsewhere in the Group.
Dales is registered with ‘Investors in People’ and takes on a number of apprentices each year via the Modern Apprenticeship Scheme. Such
employees are assisted in achieving National Vocational Qualifications (“NVQ”) as part of their apprenticeship, usually work-based but also involving
literacy and numeracy modules. During the year two apprentices have completed an NVQ in Management. Two further apprentices have been
employed and are currently studying for the NVQ Level 2 Team Leading. In addition one employee has successfully completed both HNC and HND
since 2007, gaining an HND in Quality and Project Management and Business Operation during the current financial year.
At NVS, 11 employees have completed Level 2 of Institute of Leadership and Management (“ILM”) award during the 2009/2010 financial year, four
employees are near completion of ILM Level 3 award and 28 employees are studying for NVQ Level 2 in Warehousing and Distribution.
It is the Company’s policy to provide equal recruitment and other opportunities for all employees, regardless of age, sex, sexual orientation, 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. The SAYE
Scheme is offered to UK employees only, with 19.33% of the UK workforce participating in the 2009 grant. The SAYE Scheme has been established
for ten years and has a consistently high take-up rate compared to our sector. The graph below shows the percentage of employees who have taken
up the SAYE Scheme over the last four years.
Percentage take-up (Eligible Employees)
25.00
20.00
15.00
10.00
5.00
0.00
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17/10/2007
13/10/2008
12/10/2009
Grant Dates
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Social, Ethical and
Environmental Responsibilities
Business Ethics
The Board expects all of the Group’s business activities to be conducted in accordance with the highest standards of ethical conduct and in full
compliance with all applicable national and international legislation; in doing so we aim to maintain a reputation for acting responsibly and
with integrity.
The Board has formalised its expectations in respect of business conduct into a policy known as The Code of Business Conduct (the “Code”). The
Code aims to set a standard of conduct which applies throughout the Group and ensures, amongst other things, that:
(cid:2) all third parties are treated fairly, openly and honestly;
(cid:2) our employees do not accept or offer bribes, facilitation payments or other inducements; and
(cid:2) employees must avoid direct and indirect conflicts of interest (and where this is not possible, the employee must follow the procedure set out in
the Code in order to ensure that the employee is removed from the position of conflict as soon as possible).
Written confirmation of adherence to the Code and notification of any conflicts, by all relevant employees, takes place annually.
A whistle-blowing policy is also 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 during the year by the Audit Committee. Details of
the whistle-bowing policy are contained within the Dechra Pharmaceuticals PLC Employment Handbook and on the Company website at
www.dechra.com.
Environmental Policy
The Group recognises the importance of good environmental controls. It is the Group’s policy to comply with environmental legislation currently in
place, adopt responsible environmental practices and give consideration to minimising the impact of its operations on the environment. During 2010
the Committee confirmed the Group KPIs as energy consumption, fuel, travel and waste. The Committee members are tasked with collating data
relating to the KPIs with the objective of reporting on these in future Report and Accounts. It is proposed to collate the data for internal purposes
initially in order to gain a better understanding of the KPIs which will enable relevant targets to be set and reported on in the future.
During 2010 the Company has made an information disclosure under the CRC Energy Efficiency Scheme (previously known as the Carbon Reduction
Commitment), a new mandatory scheme that aims to improve energy efficiency and reduce the amount of carbon dioxide (CO2) emitted in the UK.
The Company was required to make an information disclosure as it consumed less than 6,000 MWh of electricity through all of its half hourly meters.
The Company’s half hourly meters will be monitored during 2010 and the results will be submitted to the Committee for its review.
NVS fleet policy ensures that CO2 emissions are taken into consideration when procuring new delivery vehicles in order to ensure that low emission
vehicles are sourced. Generally, delivery vehicles are replaced every three years via leasing agreements and alternative fuel vehicles are always
considered on the replacement anniversary; in the past year LPG and electric vehicles have been considered. During 2008/2009 NVS procured a
number of new delivery vehicles which have been fitted with speed limiters which will assist in reducing the amount of fuel consumed by the fleet
and should also assist in reducing carbon emissions. The average miles per gallon in respect of the HGV fleet as at the end of June 2010 was 9.32
compared with 9.27 for the end of June 2009. In respect of the Transit fleet, average miles per gallon at the end of June 2010 was 32.07 compared
with 32.6 for the end of June 2009.
The HGV fleet complies with the Euro 5 standard, a European regulation which sets emission limits for each category of pollutant emissions, such as
carbon monoxide, nitrogen oxides and combined emissions of hydrocarbons and nitrogen oxides. The HGV fleet complied with this regulation prior
to the mandatory date of 1 October 2009 resulting in each vehicle qualifying for a life-long reduced pollution certificate. This has resulted in a vehicle
excise duty cost saving of approximately £500 per vehicle for this financial year.
Stock Code: DPH
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During the financial year under review, video-conference facilities have been installed in NVS, Denmark and Dales with a satellite function at
Shrewsbury. Video-conference facilities will be provided by a third party with respect to the US operation. Whilst the Committee appreciates that
face to face meetings are beneficial it is hoped that the use of the video-conference facilities can reduce the number of flights. The Committee will be
monitoring the use of the conference facilities during the forthcoming financial year with a view to reporting the reduction in the number of flights and
car journeys.
The Group is a registered member of a compliance scheme in respect of the Waste Packaging Obligations Regulations. In addition, NVS operates a
recycling programme which ensures that all trunking depots (see page 27) return their general waste to the main depot at Stoke-on-Trent. The general
waste is then sorted for collection by third party waste management companies. During the 2009/2010 financial year approximately 280.3 tonnes of
cardboard were recycled, as were 16.5 tonnes of plastic, 12.0 tonnes of paper and 0.5 tonnes of aluminium cans.
Dales also actively monitors its recycling rates and during the 2009/2010 financial year recycled approximately 10.4 tonnes of glass (2009: 13 tonnes),
28.6 tonnes of cardboard (2009: 42.0 tonnes) and 15.6 tonnes of plastic (2009: 7.0 tonnes). Dales continues to comply with, and exceed, effluent
discharge standards into local water supplies, which is regularly monitored by Yorkshire Water Authority. Standard operating procedures are in place to
ensure that all contaminated waste is disposed of under strict controls. Furthermore, all exhaust air is fully filtered from the manufacturing unit before
discharge.
DVP EU is legally obliged to submit an annual report to the Danish Ministry of Environment in respect of its environmental impact. DVP EU therefore
monitors a number of impacts including:
(cid:2) Annual energy consumption: In 2009 energy consumption totalled 1,207 MWh (compared to 1,471 MWh in 2008). The decrease is primarily due to
a decrease in overall energy consumption processes in manufacturing.
(cid:2) Water: In 2009 water usage totalled 2,607 m3 (compared to 2,584 m3 in 2008). Although there has been a slight increase in usage compared to the
previous year, over a five year period the usage has remained relatively stable.
(cid:2) Waste: During 2009 a total of 9.0 tonnes of plastic and metal was recycled (compared to 11.1 tonnes during 2009) and 15.5 tonnes of paper and
cardboard recycled (compared to 13.7 tonnes in 2008).
During 2008/2009 Dales has implemented and embedded the lean manufacturing strategy into its operations, thereby assisting the business in
achieving a decrease in the time between placement of the customer order and end product shipment. The implementation of the lean manufacturing
strategy into the business has provided concrete results to date; specifically the time taken for a product to travel through the manufacturing cycle
(from raw materials to stores as a finished product) has reduced from an average of 20 days to 19 days. Dales continues to work towards achievement
of its ISO 140001 status.
The Group continues to review its environmental controls and encourage its own staff, suppliers and customers to achieve similar standards.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Other Disclosures
The Directors present their report and audited financial statements for the year ended 30 June 2010.
Principal Activities and Business Review
The Company acts as a holding company to all the Group’s subsidiaries. The Group operates under four segments split between Pharmaceuticals and
Services.
Pharmaceuticals comprises three segments:
(cid:2) European Pharmaceuticals — markets and sells licensed branded pharmaceuticals and specialist pet foods to the veterinary profession in Europe. It
is a licensed manufacturer of both Dechra’s own branded products and products for third party customers.
(cid:2) US Pharmaceuticals — markets and sells a range of endocrine, ophthalmic, dermatological and equine products into North America.
(cid:2) Product Development — develops and licenses Dechra’s own branded veterinary product portfolio of novel and generic pharmaceuticals and
specialist pet diets.
The fourth segment, Services, distributes veterinary products, including pharmaceuticals, specialist pet diets and instruments to veterinary practices
within the United Kingdom. It also provides histology, pathology, haematology, chemistry and microbiology services to veterinary practices.
The Chairman’s Statement and the Directors’ Business Review can be found on pages 6 to 37 and includes:
(cid:2) a description of the principal risks and uncertainties faced by the Group;
(cid:2) an analysis of the development and performance of the Company’s business during the financial year;
(cid:2) the position of the Company’s business at the end of the financial year;
(cid:2) main trends and factors likely to affect the future development, performance and position of the Company’s business; and
(cid:2) financial and non-financial key performance indicators used to measure the Group’s performance.
Results and Dividends
The results for the year and financial position at 30 June 2010 are shown in the Consolidated Income Statement on page 72 and Consolidated
Statement of Financial Position on page 74. The Directors recommend the payment of a final dividend of 7.20p per share which, if approved by
Shareholders, will be paid on 10 December 2010 to Shareholders registered at 12 November 2010. The date the shares will become ex-dividend is
10 November 2010. An interim dividend of 3.30p per share was paid on 1 April 2010, making a total dividend for the year of 10.50p (2009: 9.10p).
The total dividend payment is £6,953,000 (2009: £5,965,000).
Research and Development
The Group has a structured development programme with the aim of identifying and bringing to market new pharmaceutical products. Investment
in development is seen as key to further strengthen the Group’s competitive position. Further information in relation to product development can be
found on pages 14 to 19. The expense on this activity for the year ended 30 June 2010 was £4,666,000 (2009: £3,443,000) and a further £955,000
(2009: £785,000) was capitalised as development costs.
Payment to 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 2010, the Group had
an average of 71 days (2009: 65 days) purchases outstanding in creditors. The Company has an average of nil days (2009: nil days) purchases
outstanding in creditors.
Acquisitions
There have been no acquisitions during the year under review.
Share Capital
The authorised and issued share capital of the Company for the year is set out in note 22 to the Accounts on page 108. As at the end of the financial
year, 66,090,075 fully paid ordinary shares were in issue which included 508,151 ordinary shares issued during the year in connection with the
exercise of options under the Company’s share option schemes.
The holders of shares are entitled to receive dividends when declared, to receive the Company’s Report and Accounts, to attend and speak at general
meetings of the Company, to appoint proxies and to exercise voting rights. 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 transfer of shares. The Directors are not aware of any
agreements which limit the transfer of shares or curtail voting rights attached to those shares.
Stock Code: DPH
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66/67
At the Annual General Meeting of the Company held on 6 November 2009, the Company was authorised to purchase up to 6,558,192 of its ordinary
shares, representing 10% of the issued share capital of the Company as at 30 June 2009. No shares were purchased under this authority 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. Under the proposed authority shares purchased may be either cancelled or held in treasury.
The Directors require authority from Shareholders to allot unissued share capital to the Company and to disapply shareholders’ statutory pre-emption
rights. Such authorities were granted at the 2009 Annual General Meeting and resolutions to renew these authorities will be proposed at the 2010
Annual General Meeting.
Substantial Interests in Voting Rights
In accordance with the Disclosure Rules and Transparency Rules of the Financial Services Authority, as at 24 August 2010 the Company had been
notified of the following interests exceeding the 3% notification threshold.
Schroder Investment Management
Artemis Investment Management
Legal & General Investment Management
Aberdeen Asset Management
Rathbone Unit Trust Management
Threadneedle Investments
BlackRock Investment Management
Invesco Perpetual
Aggregate
Voting Rights
15,028,585
4,723,915
3,656,272
3,231,893
2,583,339
2,148,110
2,079,732
2,062,865
Percentage
22.74
7.15
5.53
4.89
3.91
3.25
3.15
3.12
As at 7 September 2010 the Company had not been notified of any further changes in holdings.
Change of Control/Significant Agreements
As detailed in the Going Concern Statement on page 44, the Group has bank facilities with the Lloyds Banking Group (the “Bank”). Under the terms
of these facilities the Bank can give notice to the Company to repay all amounts outstanding under the facilities and cancel the commitments where
there is a change of control of the Company.
No other agreements that take effect, alter or terminate upon a change of control of the Company following a takeover bid are considered to be
significant in terms of their potential impact on the business as a whole. The Directors consider that there are no contractual or other arrangements,
such as those with major suppliers, which are likely to influence, directly or indirectly, the performance of the business and its value.
The Company does not have agreements with any director or employee that provides compensation for loss of office or employment resulting from a
takeover, other than the Company share schemes. Under such schemes outstanding options and awards normally vest and become exercisable on a
change of control, subject to the satisfaction of any performance conditions at that time.
Directors
The constitution of the Board and its Committees, together with biographical notes on the Directors, is shown on page 38. 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 40 to 47.
Bryan Morton was appointed to the Board as a Non-Executive Director on 8 January 2010; under the Company’s Articles of Association he will offer
himself for election as a Director at the forthcoming Annual General Meeting.
As at August 2010 Malcolm Diamond has served ten years as a Non-Executive Director, it is intended that Malcolm Diamond will retire from the Board
following the conclusion of the board meeting to be held prior to the Annual General Meeting. During his ten years as a serving Non-Executive Director
Malcolm Diamond has provided invaluable support and guidance to both the Company and the Board, maintained high ethical standards and always
acted with integrity and professionalism. The Board wishes to thank Malcolm Diamond for his contribution and wish him well for the future.
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 appointment or election. Therefore, Michael Redmond and Ed Torr 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.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Directors’ Report: Other Disclosures
The interests of the Directors in the share capital of the Company are shown in the Remuneration Report on pages 51 to 59. 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.
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 on doing
so may exercise all the powers of the Company subject to the provision 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.
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 2006. The Directors also benefited from qualifying third party indemnity provision in place during the
financial year and at the date of this report. A copy of the indemnity provision will be available for inspection at the Annual General Meeting.
The contracts of employment or letters of appointment of the Directors and employees of the Company do not provide for compensation for loss of
office that occurs because of a takeover.
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 69.
Charitable Contributions
Charitable donations made during the year amounted to £6,695 (2009: £2,291). Further details of donations made by the Group are given on pages
60 to 65.
Political Donations and Expenditure
No political donations were made during the year ended 30 June 2010. The Group has a policy of not making any donations to political organisations
or independent election candidates or incurring political expenditure anywhere in the world as defined in the Political Parties, Elections and
Referendums Act 2000.
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.
Audit Information
Each of the Directors who held office at the date of the approval of the 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 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.
Annual General Meeting
The 2010 Annual General Meeting of the Company will be held at 3.00 pm on 5 November 2010 at Investec Bank plc, 2 Gresham Street, London,
EC2V 7QP. The notice of meeting, which includes special business to be transacted at the Annual General Meeting, is included within the Circular
accompanying this Annual Report, together with an explanation of the resolutions to be considered at the meeting.
By order of the Board
Zoe Goulding
Company Secretary
7 September 2010
Stock Code: DPH
www.dechra.com
Statement of Directors’ Responsibilities in respect
of the Annual Report and Financial Statements
68/69
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 applicable law and have elected to prepare
the Parent Company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting
Practice).
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state
of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial
statements, the Directors are required to:
(cid:2) select suitable accounting policies and then apply them consistently;
(cid:2) make judgements and estimates that are reasonable and prudent;
(cid:2) for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
(cid:2) 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
(cid:2) 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 adequate accounting records that are sufficient to show and explain the Parent Company’s transactions and
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 2006. 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 complies 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.
Directors’ Responsibility Statement Required under the Disclosure and Transparency Rules
We confirm to the best of our knowledge:
1 The financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as
a whole; and
2 The management report, which comprises the Directors’ Report, includes a fair review of the development and performance of the business and
the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks
and uncertainties that they face.
Approved by the Board and signed on its behalf by:
Ian Page
Chief Executive
7 September 2010
Simon Evans
Group Finance Director
7 September 2010
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Independent Auditors’ Report to the Members of
Dechra Pharmaceuticals PLC
We have audited the financial statements of Dechra Pharmaceuticals PLC for the year ended 30 June 2010 which comprise the Consolidated
Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated
Statement of Changes in Shareholders’ Equity, the Consolidated Statement of Cash Flows, the Parent Company Balance Sheet, the Parent Company
Reconciliation of Movements in Shareholders’ Funds and the related notes. The financial reporting framework that has been applied in the preparation
of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial
reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and UK Accounting
Standards (UK Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 auditors’ 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
As explained more fully in the Directors’ Responsibilities Statement set out on page 69, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s
(APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/UKP.
Opinion on financial statements
In our opinion:
(cid:2) the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 June 2010 and of the
Group’s profit for the year then ended;
(cid:2) the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
(cid:2) the Parent Company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice;
(cid:2) the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
(cid:2) the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
(cid:2) the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial
statements.
Stock Code: DPH
www.dechra.com
70/71
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
(cid:2) adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches
not visited by us; or
(cid:2) the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
(cid:2) certain disclosures of Directors’ remuneration specified by law are not made; or
(cid:2) we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
(cid:2) the Directors’ statement, set out on page 44, in relation to going concern; and
(cid:2) the part of the Corporate Governance Statement on pages 40 to 47 relating to the Company’s compliance with the nine provisions of the June
2008 Combined Code specified for our review.
SJ Purkess (Senior Statutory Auditor)
For and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
7 September 2010
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Consolidated Income Statement
For the year ended 30 June 2010
2010
Amortisation
of acquired
intangibles and
exceptional
items
(note 5)
£’000
—
Adjusted
£’000
369,369
(288,744)
80,625
(16,242)
(36,193)
28,190
1,632
(3,766)
26,056
(6,619)
—
—
(300)
(8,024)
(8,324)
—
—
(8,324)
2,044
2009
Amortisation
of acquired
intangibles and
exceptional
Total
£’000
369,369
(288,744)
80,625
(16,542)
(44,217)
19,866
1,632
(3,766)
17,732
(4,575)
Adjusted
£’000
349,964
(276,292)
73,672
(15,981)
(32,720)
24,971
3,211
(4,776)
23,406
(6,647)
items
(note 5)
£’000
—
—
—
—
(7,303)
(7,303)
—
—
(7,303)
1,847
Total
£’000
349,964
(276,292)
73,672
(15,981)
(40,023)
17,668
3,211
(4,776)
16,103
(4,800)
19,437
(6,280)
13,157
16,759
(5,456)
11,303
19.97p
19.89p
10.50p
17.27p
17.13p
9.10p
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
owners 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
Stock Code: DPH
www.dechra.com
Consolidated Statement of
Comprehensive Income
For the year ended 30 June 2010
Profit for the period
Other comprehensive income:
Effective portion of changes in fair value of cash flow hedges
Foreign currency translation differences for foreign operations
Net loss on hedge of net investment in foreign operations
Recycled to intangible assets
Recycled to income statement
Income tax relating to components of other comprehensive income
Total comprehensive income for the period attributable to owners of the parent
72/73
2010
£’000
13,157
593
(1,949)
(1,300)
—
(512)
249
10,238
2009
£’000
11,303
(1,423)
4,568
(1,532)
40
(256)
697
13,397
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Consolidated Statement of Financial Position
At 30 June 2010
Assets
Non-current assets
Intangible assets
Property, plant and equipment
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 owners of the parent
Note
2010
£’000
2009
£’000
11
12
15
16
17
20
18
19
20
14
22
80,371
7,673
88,044
34,819
51,162
31,502
117,483
205,527
(20,441)
(64,495)
(4,105)
(89,041)
(17,762)
(12,496)
(30,258)
(119,299)
86,228
661
63,021
(276)
1,340
1,770
19,712
86,228
89,565
8,040
97,605
31,534
47,717
26,817
106,068
203,673
(19,263)
(61,703)
(4,756)
(85,722)
(23,081)
(14,184)
(37,265)
(122,987)
80,686
656
62,437
(703)
4,686
1,770
11,840
80,686
The financial statements were approved by the Board of Directors on 7 September 2010 and are signed on its behalf by:
Ian Page
Director
Simon Evans
Director
Company number: 3369634
Stock Code: DPH
www.dechra.com
Consolidated Statement of Changes in
Shareholders’ Equity
74/75
For the year ended 30 June 2010
Year ended 30 June 2009
At 1 July 2008
Profit for the period
Issued
share
capital
£’000
652
—
Effective portion of changes in fair
value of cash flow hedges, net of tax
—
Foreign currency translation differences
for foreign operations, net of tax
Net loss on hedge of net investment
in foreign operations, net of tax
—
—
Recycled to intangible assets, net of tax —
Recycled to income statement, net of tax —
Total recognised income and
expense for the period
Dividends paid
Share-based payments
Shares issued
At 30 June 2009
Year ended 30 June 2010
At 1 July 2009
Profit for the period
Effective portion of changes in fair value
of cash flow hedges, net of tax
Foreign currency translation differences
for foreign operations, net of tax
Net loss on hedge of net investment
in foreign operations, net of tax
—
—
—
4
656
656
—
—
—
—
Recycled to income statement, net of tax —
Total recognised income and
expense for the period
Dividends paid
Share-based payments
Shares issued
At 30 June 2010
—
—
—
5
661
Attributable to equity holders of the parent
Share
premium
account
£’000
62,166
—
—
—
—
—
—
—
—
—
271
62,437
62,437
—
—
—
—
—
—
—
—
584
63,021
Foreign
currency
Hedging
translation
reserve
£’000
281
—
(1,024)
—
—
40
—
reserve
£’000
1,608
—
—
4,552
(1,290)
—
(184)
(984)
3,078
—
—
—
(703)
(703)
—
427
—
—
—
427
—
—
—
(276)
—
—
—
4,686
4,686
—
—
(2,041)
(936)
(369)
(3,346)
—
—
—
1,340
Merger
reserve
£’000
1,770
—
—
—
—
—
—
—
—
—
—
1,770
1,770
—
—
—
—
—
—
—
—
—
1,770
Retained
earnings
£’000
5,322
11,303
—
—
—
—
—
11,303
(5,565)
780
—
11,840
11,840
13,157
—
—
—
—
13,157
(6,195)
910
—
19,712
Total
£’000
71,799
11,303
(1,024)
4,552
(1,290)
40
(184)
13,397
(5,565)
780
275
80,686
80,686
13,157
427
(2,041)
(936)
(369)
10,238
(6,195)
910
589
86,228
Hedging Reserve
The hedging reserve represents the cumulative fair value gains or losses on derivative financial instruments for which cash flow 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 and exchange gains or losses on the translation of liabilities that hedge the Company’s net investment in foreign subsidiaries.
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
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Consolidated Statement of Cash Flows
For the year ended 30 June 2010
Cash flows from operating activities
Profit for the period
Adjustments for:
Depreciation
Amortisation and impairment
Gain on sale of property, plant and equipment
Finance income
Finance expense
Equity-settled share-based payment expense
Income tax expense
Operating cash flow before changes in working capital
(Increase)/decrease in inventories
Increase in trade and other receivables
Increase/(decrease) 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
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
Repayment of borrowings
Movement of foreign currency borrowings
Dividends paid
Net cash from financing activities
Net increase 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
Reconciliation of net cash flow to movement in net borrowings
Net increase in cash and cash equivalents
Repayment of borrowings
New finance leases
Exchange differences on cash and cash equivalents
Retranslation of foreign borrowings
Other non-cash changes
Movement in net borrowings in the period
Net borrowings at start of period
Net borrowings at end of period
Note
24
2010
£’000
2009
£’000
13,157
11,303
1,509
7,908
—
(1,632)
3,766
817
4,575
30,100
(3,126)
(3,833)
3,521
26,662
(3,214)
(6,124)
17,324
—
1,006
(1,243)
(955)
(523)
(1,715)
589
(5,671)
456
(6,195)
(10,821)
4,788
26,817
(103)
31,502
2010
£’000
4,788
5,671
—
(103)
(1,230)
(300)
8,826
(15,527)
(6,701)
1,477
7,427
(33)
(3,211)
4,776
643
4,800
27,182
1,340
(593)
(372)
27,557
(3,996)
(3,227)
20,334
42
2,145
(881)
(785)
(2,010)
(1,489)
288
(5,658)
(3,473)
(5,565)
(14,408)
4,437
22,219
161
26,817
2009
£’000
4,437
5,658
(248)
161
1,821
(359)
11,470
(26,997)
(15,527)
Stock Code: DPH
www.dechra.com
Notes to the Consolidated Financial Statements
76/77
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 2010 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 115 to 123.
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 year, the Group has applied IAS 1 Presentation of Financial Statements (revised 2007) which has introduced a number
of terminology changes (including titles for the financial statements) and has resulted in a number of changes in presentation and
disclosure. The revised standard has had no impact on the reported results or financial position of the Group. In addition, the Group has
adopted IFRS 2 Amendment regarding Vesting Conditions and Cancellations, IAS 23 Borrowing Costs (revised 2007) and Amendments
to IAS 32 Financial Instruments: Presentation, none of which have had a significant effect on the reported results or financial position of
the Group.
In addition, the Group has adopted IFRS 8 Operating Segments, with effect from 1 July 2009 and this has resulted in a change to the
segmental information reported by the Group. Comparative information has been presented on a consistent basis.
The Group’s operating segments are being reported based on the financial information provided to the Board of Directors.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
1. Accounting Policies continued
The following have been issued but have not yet been adopted by the Group:
— Revised IFRS 3, Business Combinations.
— Amendments to IAS 32, Financial Instruments: Presentation.
— Amendments to IAS 39, Financial Instruments: Recognition and Measurement.
—
—
—
IFRIC 13, Customer Loyalty Programmes.
IFRIC 16, Hedges of a Net Investment in a Foreign Operation.
IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments.
— Amendments to IAS 24, Related Party Disclosures.
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 the revisions to IFRS 3 which become effective for periods on or
after 1 July 2010.
(c) Basis of Consolidation
(i) Subsidiaries
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) 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 identifiable
assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the
acquisition date.
(e) 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) 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.
Stock Code: DPH
www.dechra.com
78/79
1. Accounting Policies continued
(iii) Foreign Operations
The results and financial position of all the Group entities that have a functional currency different from the Group presentation
currency 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 and loans and receivables. 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.
Held for trading financial assets are recognised and subsequently carried at fair value. Loans and receivables 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.
The Group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is
impaired. 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.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
1. Accounting Policies continued
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. (A monetary
item receivable or payable with a foreign operation where settlement is neither planned or likely to occur in the foreseeable future can
be considered to be in substance a part of the Company’s net investment in the foreign operation). 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, or the monetary
item no longer meets the criteria for net investment hedge accounting, the associated cumulative amount in equity is recycled 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.
Stock Code: DPH
www.dechra.com
80/81
1. Accounting Policies continued
(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.
(iii) 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:
(cid:2) freehold buildings
(cid:2) short leasehold buildings
(cid:2) plant and fixtures
(cid:2) 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.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
1. Accounting Policies continued
(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:
(cid:2) software
(cid:2) capitalised development costs
(cid:2) acquired intangibles
(cid:2) patent rights
(cid:2) marketing authorisations
(cid:2) product rights
5 years
5–10 years
10–15 years
Period of patent
Indefinite life
Period of product rights
(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.
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.
(j) 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.
Stock Code: DPH
www.dechra.com
82/83
1. Accounting Policies continued
(k) 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) 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.
Dechra Veterinary Products SAS and Dechra Veterinary Products BV participate in State run pension arrangements. These
are not considered to be material to the Group financial statements and are accounted for as defined contribution schemes, with
contributions being recognised as an expense in the income statement as incurred.
(ii) 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 and an Executive 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.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
1. Accounting Policies continued
The fair values of grants under the Long Term Incentive Plan and the Executive 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.
(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, gains and losses on hedging
instruments that are recognised in the income statement (see accounting policy f) and gains or losses on the retranslation of
financial assets and liabilities denominated in foreign currencies.
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.
Stock Code: DPH
www.dechra.com
84/85
1. Accounting Policies continued
(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
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to transactions with any of the Group’s other components.
(r) Operating Profit and Operating Cash Flow
Operating profit and operating cash flow is stated before investment income and finance costs.
2. Operating Segments
The Group has four reportable segments, as discussed below, which are based on information provided to the Board of Directors, which is
deemed to be the Group’s chief operating decision maker.
The Services segment comprises National Veterinary Services, Nationwide Laboratories and Cambridge Specialist Laboratory Services. The
segment services UK veterinary practices in both the companion animal and livestock sectors.
The European Pharmaceuticals segment comprises Dechra Veterinary Products EU and Dales. Dales manufactures the vast majority of own
own branded licensed pharmaceutical products, which are marketed through DVP. The segment operates internationally and is unique in
having its sole area of specialisation in companion animal products.
The US Pharmaceuticals segment consists of Dechra Veterinary Products US which sells companion animal pharmaceuticals into that
territory.
The Pharmaceuticals research and development segment includes all of the Group’s pharmaceutical research and development activities.
There are varying levels of intersegment trading. Intersegment pricing is determined on an arm’s length basis.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
2. Operating Segments continued
Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items:
Revenue by segment
Services
— total
— intersegment
European Pharmaceuticals — total
— intersegment
US Pharmaceuticals
Operating profit/(loss) by segment
Services
European Pharmaceuticals
US Pharmaceuticals
Pharmaceuticals research and development
Segment operating profit
Corporate and other unallocated costs
Amortisation of acquired intangibles
Rationalisation costs
Impairment of intangible assets
Payment to acquire technology for research and development programme
Total operating profit
Finance income
Finance expense
Profit before taxation
Total assets by segment
Services
European Pharmaceuticals
US Pharmaceuticals
Pharmaceuticals research and development
Unallocated
Total liabilities by segment
Services
European Pharmaceuticals
US Pharmaceuticals
Pharmaceuticals research and development
Unallocated
Additions to intangibles by segment
Services
European Pharmaceuticals
US Pharmaceuticals
Pharmaceuticals research and development
2010
£’000
2009
£’000
285,670
(195)
84,637
(11,377)
10,634
369,369
13,103
21,412
1,311
(4,666)
31,160
(2,970)
(6,580)
(1,096)
(230)
(418)
19,866
1,632
(3,766)
17,732
103,324
117,741
5,472
1,958
(22,968)
205,527
(51,386)
(11,954)
(557)
(567)
(54,835)
(119,299)
136
497
—
845
1,478
276,141
(266)
77,411
(11,101)
7,779
349,964
12,334
17,964
815
(3,433)
27,680
(2,709)
(6,833)
—
—
(470)
17,668
3,211
(4,776)
16,103
93,385
123,783
5,296
2,448
(21,239)
203,673
(48,607)
(12,422)
(389)
—
(61,569)
(122,987)
84
396
—
888
1,368
Stock Code: DPH
www.dechra.com
2. Operating Segments continued
Additions to Property, Plant and Equipment by segment
Services
European Pharmaceuticals
US Pharmaceuticals
Pharmaceuticals research and development
Depreciation and amortisation by segment
Services
European Pharmaceuticals
US Pharmaceuticals
Pharmaceuticals research and development
Geographical Information
The following table shows revenue based on the geographical location of customers:
86/87
2010
£’000
142
813
288
—
1,243
448
8,251
182
306
9,187
2009
£’000
300
724
33
29
1,086
578
7,954
197
175
8,904
UK
Rest of Europe
USA
Rest of World
2010
2010 Non-current
assets
£’000
20,981
67,033
30
—
88,044
Revenues
£’000
305,992
49,451
10,634
3,292
369,369
2009
Revenues
£’000
300,081
39,017
7,779
3,087
349,964
2009
Non-current
assets
£’000
21,550
76,024
31
—
97,605
Details of the largest customer of the Group can be found in note 21. There are no significant revenue streams other than from the sale
of goods.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
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
— Foreign exchange gains
2010
£’000
894
—
112
626
1,632
2009
£’000
1,854
38
291
1,028
3,211
Finance income arising from cash and cash equivalents and loans and receivables is not at fair value through profit or loss. Finance income
arising from derivatives at fair value through profit or loss relates to fair value gains on forward foreign currency contracts.
Recognised in other comprehensive income
Foreign currency translation differences for foreign operations
Net loss on hedge of net investment in foreign operations
Amount recycled to income statement*
Income tax credit on above
Recognised in foreign currency translation reserve
Fair value gains/(losses) on interest rate floor and ceiling
Income tax (expense)/credit on above
Amount recycled to intangible assets
Recognised in hedging reserve
Total recognised in other comprehensive income
2010
£’000
(1,949)
(1,300)
(512)
415
(3,346)
2010
£’000
593
(166)
—
427
(2,919)
2009
£’000
4,568
(1,532)
(256)
298
3,078
2009
£’000
(1,423)
399
40
(984)
2,094
* Gains and losses previously included in equity as a result of net investment hedging are recycled to the Income Statement to the extent
that the hedged item is disposed of.
4. Finance Expense
Finance expense arising from:
— Financial liabilities at amortised cost
— Derivatives at fair value through profit or loss
2010
£’000
3,365
401
3,766
2009
£’000
4,776
—
4,776
Finance expense arising from financial liabilities at amortised cost is not at fair value through profit or loss. Finance expense arising from
derivatives at fair value through profit or loss relates to fair value losses on forward foreign currency contracts.
Stock Code: DPH
www.dechra.com
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
Payment to acquire technology for research and development programme
Impairment of intangible asset
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
Payment to acquire technology for research and development programme
Impairment of intangible asset
Adjusted profit before taxation
88/89
2010
£’000
19,866
6,580
1,096
418
230
28,190
2010
£’000
17,732
6,580
1,096
418
230
26,056
2009
£’000
17,668
6,833
—
470
—
24,971
2009
£’000
16,103
6,833
—
470
—
23,406
Rationalisation costs relate to the closure of our pharmaceutical warehouse in Shrewsbury and transfer of all pre-wholesale logistics to our
facility in Uldum, Denmark.
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
Impairment of patent rights
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
2010
£’000
285,609
292
2009
£’000
272,876
326
1,202
307
7,678
230
—
280
3,150
4,666
409
51
212
14
132
409
1,216
261
7,427
—
(33)
1,080
3,171
3,433
363
50
216
5
92
363
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
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
2010
Number
238
432
351
1,021
2010
£’000
26,137
2,792
1,340
910
31,179
2010
£’000
1,745
223
159
537
2,664
2009
Number
237
438
337
1,012
2009
£’000
26,061
2,481
1,262
741
30,545
2009
£’000
2,108
270
151
503
3,032
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 51 to 59.
The Group operates a stakeholder personal pension scheme for certain employees and contributed between 4% and 14% of pensionable
salaries. The Group also participates in State run pension arrangements for certain employees in Dechra Veterinary Products SAS and
Dechra Veterinary Products BV. Total pension contributions amounted to £1,340,000 (2009: £1,262,000).
Stock Code: DPH
www.dechra.com
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
90/91
2010
£’000
6,304
(92)
6,212
(1,637)
—
(1,637)
4,575
2009
£’000
5,707
(53)
5,654
(1,008)
154
(854)
4,800
Of the current tax expense of £6,212,000, an amount of £2,940,000 (2009: £139,000) 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% (2009: 28%). The differences are
explained below:
Profit before taxation
Tax at 28% (2009: 28%)
Effect of:
— depreciation on assets not eligible for tax allowances
— disallowable expenses
— overseas trading losses
— under-recovery of deferred tax on share-based payments
— research and development tax credits
— differences on overseas tax rates
— adjustments in respect of prior years
Total income tax expense
Tax Asset/(Liability) Recognised Directly in Equity
Deferred tax on effective portion of changes in fair value of cash flow hedges
Corporation tax on net loss on hedge of net investment in foreign operations
Deferred tax on currency translation
Corporation tax on amount recycled to income statement
Tax recognised in statement of comprehensive income
Corporation tax on equity settled transactions
Deferred tax on equity settled transaction
Total tax recognised in equity
2010
£’000
17,732
4,965
2009
£’000
16,103
4,509
8
48
—
40
(60)
(334)
(92)
4,575
2010
£’000
(166)
364
(92)
143
249
313
(220)
342
53
144
39
14
(200)
140
101
4,800
2009
£’000
398
242
(15)
72
697
180
(43)
834
The Emergency Budget on 22 June 2010 announced that the UK corporation tax rate will reduce from 28% to 24% over a period of four
years from 2011. The first reduction in the UK corporation tax rate from 28% to 27% was substantively enacted on 20 July 2010 and will be
effective from 1 April 2011. This will reduce the Company’s future current tax charge accordingly. If the rate change from 28% to 27% had
been substantively enacted on or before the balance sheet date it would have had the effect of reducing the deferred tax liability recognised
at that date by £7,000.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
9. Dividends
Final dividend paid in respect of prior year but not recognised as a liability in
that year: 6.10p per share (2009: 5.50p)
Interim dividend paid: 3.30p per share (2009: 3.00p)
Total dividend 9.40p per share (2009: 8.50p) recognised as distributions to equity holders in the period
Proposed final dividend for the year ended 30 June 2010: 7.20p per share (2009: 6.10p)
Total dividend paid and proposed for the year ended 30 June 2010: 10.50p per share (2009: 9.10p)
2010
£’000
4,000
2,195
6,195
4,758
6,953
2009
£’000
3,600
1,965
5,565
4,000
5,965
In accordance with IAS 10 “Events After the Balance Sheet Date”, the proposed final dividend for the year ended 30 June 2010 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 2011.
The proposed final dividend for the year ended 30 June 2009 is shown as a deduction from equity in the year ended 30 June 2010.
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
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
2010
Pence
29.50
19.97
29.39
19.89
£’000
19,437
13,157
2009
Pence
25.61
17.27
25.40
17.13
£’000
16,759
11,303
No.
65,896,462
241,438
66,137,900
No.
65,431,902
550,580
65,982,482
Stock Code: DPH
www.dechra.com
92/93
Develop-
ment
costs
£’000
4,108
785
—
21
4,914
955
—
(13)
5,856
356
267
623
611
—
1,234
Patent
rights
£’000
2,925
310
(452)
—
2,783
76
—
—
2,859
—
111
111
230
230
571
Marketing
authori-
sations
£’000
853
—
—
—
853
—
—
—
853
—
—
—
—
—
—
Acquired
intangibles
£’000
64,468
—
—
4,411
Total
£’000
94,014
1,368
(452)
5,701
68,879
100,631
—
—
(2,120)
66,759
3,002
6,833
9,835
6,580
—
16,415
1,478
(1)
(2,763)
99,345
3,639
7,427
11,066
7,678
230
18,974
11. Intangible Assets
Goodwill
£’000
Software
£’000
Cost
At 1 July 2008
Additions
Disposals
19,844
—
—
Foreign exchange adjustments 1,261
At 30 June 2009 and
1 July 2009
Additions
Disposals
Foreign exchange adjustments
At 30 June 2010
Amortisation
At 1 July 2008
21,105
—
—
(609)
20,496
—
Charge for the year
—
At 30 June 2009 and 1 July 2009 —
—
—
—
Charge for the year
Impairment loss
At 30 June 2010
Net book value
At 30 June 2010
At 30 June 2009 and
1 July 2009
At 30 June 2008
1,816
273
—
8
2,097
447
(1)
(21)
2,522
281
216
497
257
—
754
20,496
1,768
4,622
2,288
853
50,344
80,371
21,105
19,844
1,600
1,535
4,291
3,752
2,672
2,925
853
853
59,044
61,466
Contracted capital commitments
Software assets in the course of construction included above
2010
£’000
948
1,031
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.
89,565
90,375
2009
£’000
302
943
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
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 course of 2010 management abandoned one of their equine development projects due to disappointing results from clinical trials.
This resulted in management assessing the carrying value of acquired patent rights relating to the project. An impairment loss of £230,000
has been recognised based on a value in use calculation and represents full impairment of the intangible. This impairment is classified within
‘exceptional items’ in the income statement.
The principal asset within patent rights comprises payments to acquire the right to develop and market Trilostane, the active ingredient of
Vetoryl Capsules, for animal health applications in the USA and Canada. The carrying value at 30 June 2010 was £1.9 million with a remaining
amortisation period of 8½ years.
£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 Dechra Veterinary Products Holding A/S
(formerly VetXX Holding A/S)
— Customer relationships recognised on the acquisition of Leeds Veterinary Laboratories Limited
— Trademarks and brands recognised on the acquisition of Pharmaderm Animal Health
The principal assets within acquired intangibles are the marketing authorisations, brands and trademarks of products recognised on the
acquisition of Dechra Veterinary Products Holding A/S. The carrying value of these assets at 30 June 2010 was £48.1 million with a remaining
amortisation period of 7½ years. The other significant assets within acquired intangibles are the trademarks and brands recognised on the
acquisition of Pharmaderm Animal Health. The carrying value at 30 June 2010 was £2.0 million with a remaining amortisation period of
12 years.
Stock Code: DPH
www.dechra.com
94/95
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 2008
Additions
Disposals
Foreign exchange adjustments
At 30 June 2009 and 1 July 2009
Additions
Disposals
Foreign exchange adjustments
At 30 June 2010
Depreciation
At 1 July 2008
Charge for the year
Disposals
At 30 June 2009 and 1 July 2009
Charge for the year
Disposals
At 30 June 2010
Net book value
At 30 June 2010
At 30 June 2009 and 1 July 2009
At 30 June 2008
Net book value of assets held under finance leases
At 30 June 2010
At 30 June 2009 and 1 July 2009
At 30 June 2008
Assets in the course of construction included above
Contracted capital commitments
2,169
—
—
157
2,326
—
—
(70)
2,256
61
135
—
196
138
—
334
1,922
2,130
2,108
—
—
—
2,772
160
—
—
2,932
395
—
—
3,327
851
168
—
1,019
231
—
1,250
2,077
1,913
1,921
47
55
84
431
—
(230)
—
201
—
—
—
201
431
—
(230)
201
—
—
201
—
—
—
—
—
—
8,556
926
(17)
59
9,524
848
—
(31)
10,341
4,361
1,174
(8)
5,527
1,140
—
6,667
3,674
3,997
4,195
751
970
938
2010
£’000
104
382
Total
£’000
13,928
1,086
(247)
216
14,983
1,243
—
(101)
16,125
5,704
1,477
(238)
6,943
1,509
—
8,452
7,673
8,040
8,224
798
1,025
1,022
2009
£’000
221
269
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
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 asset or 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 are performed by forecasting the future cash flows attributable to the asset being tested (or the relevant cash-
generating unit in respect of goodwill). The forecast cash flows are discounted at an appropriate rate as described below.
Projected future cash flows have been derived from the three year business plan year ending 30 June 2013 extrapolated by applying a growth
rate of 5% (2009: 5%) per annum up to year five and thereafter a growth rate of 1% (2009: 1%) per annum into perpetuity which is considered
to be consistent with the long-term average growth rate for the industry.
The business plan has been formulated based on various factors, including market growth forecasts, the experience of the impact of previous
recessions and existing product growth. These factors reflect past experience of the Group and where applicable are consistent with external
sources of information.
The pre-tax discount rates have been estimated using the Group’s weighted average cost of capital, which is adjusted for consideration of
market information, and risk adjusted dependent upon the specific circumstances of each asset or cash-generating unit.
Value in use calculations were performed at 30 June 2010 for the following assets:
(a) Goodwill
Cash-generating unit
Dechra Veterinary Products EU
Laboratories
Dales
(b) Indefinite Life Assets
Asset
Vetivex licences
2010
2009
Carrying
Pre-tax
value discount rate
£’000
%
10.95
15,644
11.15
2,621
11.14
2,231
Carrying
value
Pre-tax
discount rate
£’000
16,253
2,621
2,231
%
11.73
10.42
10.42
2010
2009
Carrying
Pre-tax
value discount rate
%
£’000
10.98
822
Carrying
value
Pre-tax
discount rate
£’000
822
%
11.73
In all cases there was significant headroom between the carrying value and the value in use and no impairment provision is therefore required.
An increase in the pre-tax discount rate of 1% would still not result in the requirement for an impairment provision.
Stock Code: DPH
www.dechra.com
96/97
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
Payables
Trading losses
Share-based payments
Assets
Liabilities
Net
2010
£’000
—
—
548
49
173
—
600
1,370
2009
£’000
—
—
520
44
427
91
788
1,870
2010
£’000
(13,217)
(556)
—
—
(93)
—
—
(13,866)
2009
£’000
(15,391)
(521)
—
(142)
—
—
—
(16,054)
2010
£’000
(13,217)
(556)
548
49
80
—
600
(12,496)
2009
£’000
(15,391)
(521)
520
(98)
427
91
788
(14,184)
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 Liabilities
The aggregate amount of temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not been
recognised is £295,000 (2009: £2,230,000). The estimated unprovided deferred tax liability in relation to these temporary differences is
£73,000 (2009: £558,000).
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
14. Deferred Taxes continued
(c) Movement in Temporary Differences During the Year
Intangible assets
Property, plant and equipment
Inventories
Receivables
Payables
Trading losses
Share-based payments
Intangible assets
Property, plant and equipment
Inventories
Receivables
Payables
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
Derivative financial instruments
Prepayments and accrued income
Balance at
Recognised
Recognised
exchange
Balance at
1 July 2008
in income
in equity
adjustments 30 June 2009
Foreign
£’000
(15,872)
(423)
(19)
(294)
248
1,309
788
(14,263)
£’000
1,585
(84)
539
71
(95)
(1,205)
43
854
£’000
—
—
—
125
258
—
(43)
340
£’000
(1,104)
£’000
(15,391)
(14)
—
—
16
(13)
(521)
520
(98)
427
91
—
(1,115)
788
(14,184)
Balance at
1 July 2009
Recognised
in income
Recognised
in equity
£’000
(15,391)
(521)
520
(98)
427
91
788
(14,184)
£’000
1,643
(35)
28
240
(180)
(91)
32
1,637
£’000
—
—
—
(93)
(167)
—
(220)
(480)
Foreign
exchange
Balance at
adjustments 30 June 2010
£’000
(13,217)
£’000
531
—
—
—
—
—
—
531
2010
£’000
4,129
336
30,354
34,819
2010
£’000
48,293
1,524
—
1,345
51,162
(556)
548
49
80
—
600
(12,496)
2009
£’000
3,493
412
27,629
31,534
2009
£’000
44,950
1,064
205
1,498
47,717
Stock Code: DPH
www.dechra.com
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
Derivative financial instruments
Other taxation and social security
Accruals and deferred income
19. Current Tax Liabilities
Corporation tax payable
20. Borrowings
Current liabilities:
Bank loans
Finance lease obligations
Non-current liabilities:
Bank loans
Finance lease obligations
Arrangement fees netted off
Total borrowings
98/99
2010
£’000
26,502
5,000
31,502
2009
£’000
26,817
—
26,817
2010
£’000
56,465
2,991
573
2,707
1,759
64,495
2010
£’000
4,105
2010
£’000
20,000
441
20,441
17,500
729
(467)
17,762
38,203
2009
£’000
49,191
4,643
977
3,862
3,030
61,703
2009
£’000
4,756
2009
£’000
18,648
615
19,263
22,500
1,231
(650)
23,081
42,344
The Group’s borrowing facilities comprise a term loan of £22.5 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
30 September 2010 and various finance lease obligations.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
20. Borrowings continued
At the year end, the Group had the following unutilised borrowing facilities:
Bank overdraft facility
2010
£’000
10,000
2009
£’000
10,000
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 0.85% over LIBOR in respect of the term loan and revolving credit facility and 2.5% over base rate in respect of the overdraft
facility. No covenants have been breached during the year ended 30 June 2010.
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
2010
£’000
20,000
5,000
12,500
—
37,500
2009
£’000
18,648
5,000
15,000
2,500
41,148
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
Further information on the interest profile of borrowings is shown in note 21.
Minimum Lease
Payments
Present Value of
Minimum Lease
Payments
2010
£’000
510
488
283
1,281
(111)
1,170
2009
£’000
724
533
816
2,073
(227)
1,846
2010
£’000
447
453
270
1,170
—
1,170
2009
£’000
615
461
770
1,846
—
1,846
Stock Code: DPH
www.dechra.com
100/101
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 2010, net borrowings were £6.7 million,
whilst shareholders’ equity was £86.2 million.
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. Current economic conditions mean that it is more difficult and
expensive to obtain finance via borrowings. It is therefore the policy of the Board to reduce borrowings over time.
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.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
21. Financial Instruments and Related Disclosures continued
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:
— £22.5 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 2010 are detailed in note 20.
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 has 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 2010 was £22.5 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.
However, translational exposure in converting the income statements of foreign subsidiaries into the Group’s presentational currency of
Sterling is not hedged.
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.
Stock Code: DPH
www.dechra.com
102/103
21. Financial Instruments and Related Disclosures continued
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 £79,795,000 (2009: £71,972,000) 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 segment 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 segments 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 9.4% of gross trade receivables at 30 June 2010 (2009: 8.0%).
Receivables are written off against the impairment provision when management considers the debt to be no longer recoverable.
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 2010 and
30 June 2009.
The following assumptions were used to estimate the fair values:
(cid:2) Cash and cash equivalents — approximates to the carrying amount.
(cid:2) Forward exchange contracts — based on market price and exchange rates at the balance sheet date.
(cid:2) 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.
(cid:2) Receivables and payables — approximates to the carrying amount.
(cid:2) Bank loans and overdrafts — based upon discounted cash flows using discount rates based upon facility rates renegotiated after the
30 June 2009 year end.
(cid:2) Finance lease obligations — based upon discounted cash flows using discount rates based upon the Group’s cost of borrowing at the
balance sheet date.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
21. Financial Instruments and Related Disclosures continued
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
Total financial assets
Financial liabilities
Bank loans and overdrafts
Held for trading financial liabilities
— derivatives designated as hedges
— other derivatives
Finance lease liabilities
Trade payables
Total financial liabilities
Net financial liabilities
2010
2009
Carrying
value
£’000
Fair
value
£’000
Carrying
value
£’000
Fair
value
£’000
31,502
31,502
26,817
26,817
—
—
—
48,293
—
48,293
79,795
—
—
—
48,293
—
48,293
79,795
—
205
205
44,950
—
44,950
71,972
—
205
205
44,950
—
44,950
71,972
(37,033)
(36,155)
(40,498)
(39,233)
(384)
(189)
(1,170)
(56,465)
(95,241)
(15,446)
(384)
(189)
(1,260)
(56,465)
(94,453)
(14,658)
(977)
—
(1,846)
(49,191)
(92,512)
(20,540)
(977)
—
(1,976)
(49,191)
(91,377)
(19,405)
Fair Value Hierarchy
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
(cid:2) Level 1 — quoted prices (unadjusted) in active market for identical assets or liabilities.
(cid:2) Level 2 — inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices).
(cid:2) Level 3 — inputs for the asset or liability that are not based on observable market data (unobservable inputs).
30 June 2010
Financial assets designated at fair value through profit or loss
Derivative financial liabilities
Net
30 June 2009
Financial assets designated at fair value through profit or loss
Derivative financial liabilities
Net
Level 1
£’000
Level 2
£’000
Level 3
£’000
—
—
(573)
(573)
Level 1
£’000
205
205
(977)
(772)
—
—
—
—
Level 2
£’000
—
—
—
—
—
—
—
—
Level 3
£’000
—
—
—
—
Total
£’000
—
—
(573)
(573)
Total
£’000
205
205
(977)
(772)
Stock Code: DPH
www.dechra.com
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 2009
Impairment provision recognised
Impairment provision utilised
At 30 June 2010
104/105
2010
£’000
2009
£’000
2,403
2,520
613
419
730
569
365
710
4,165
4,164
2010
£’000
2,502
87
(206)
2,383
2009
£’000
1,583
1,080
(161)
2,502
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 2010 and
30 June 2009. Where interest is at floating rates, the future interest payments have been estimated using current interest rates:
At 30 June 2010
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
Finance
Leases
£’000
(37,033)
(467)
(958)
£’000
(1,170)
—
(111)
Trade
Payables
£’000
(57,482)
—
—
Total
£’000
(95,685)
(467)
(1,069)
(38,458)
(1,281)
(57,482)
(97,221)
(17,744)
(2,659)
(5,258)
(5,178)
(5,100)
(2,519)
—
(271)
(248)
(488)
(274)
—
—
—
(57,482)
(75,497)
—
—
—
—
—
—
(2,907)
(5,746)
(5,452)
(5,100)
(2,519)
—
(38,458)
(1,281)
(57,482)
(97,221)
Of the bank loans and overdrafts of £17,744,000 payable within six months, £15,000,000 is available to be drawn down again.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
21. Financial Instruments and Related Disclosures continued
At 30 June 2009
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
(40,498)
(650)
(1,779)
(42,927)
(16,523)
(2,755)
(5,434)
(5,332)
(5,229)
(5,128)
(2,526)
(42,927)
Finance
Leases
£’000
(1,846)
—
(227)
Trade
Payables
£’000
(49,191)
—
—
(2,073)
(49,191)
Total
£’000
(91,535)
(650)
(2,006)
(94,191)
(393)
(334)
(534)
(505)
(307)
—
(49,191)
(66,107)
—
—
—
—
—
(3,089)
(5,968)
(5,837)
(5,536)
(5,128)
(2,526)
(94,191)
—
(2,073)
—
(49,191)
The contractual undiscounted cash flows in respect of derivative financial instruments are as follows:
Due:
Within 6 months
Between 6 months and 1 year
Between 1 and 2 years
2010
2009
Receivables
£’000
Payables
£’000
Receivables
£’000
Payables
£’000
—
—
—
—
384
—
—
384
3,305
1,721
—
5,026
3,464
1,800
—
5,264
The Group has a contractual obligation to pay £384,000 (2009: £442,000) under its interest rate floor and ceiling arrangement covering the
period from 1 July to 31 December 2010.
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.
Stock Code: DPH
www.dechra.com
106/107
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 2010 and 30 June 2009 were:
At 30 June 2010
Financial assets
Trade receivables
Other receivables
Cash balances
Derivatives
Other financial assets
Financial liabilities
Bank loans
Finance leases
Trade payables
Derivatives
Net balance sheet exposure
At 30 June 2009
Financial assets
Trade receivables
Other receivables
Cash balances
Derivatives
Other financial assets
Financial liabilities
Bank loans
Finance leases
Trade payables
Derivatives
Net balance sheet exposure
Danish
Krone
£’000
4,542
—
1,367
—
—
5,909
—
—
(9,734)
—
(9,734)
(3,825)
Danish
Krone
£’000
—
—
—
—
—
—
(22,018)
—
(21)
—
(22,039)
(22,039)
Euro
£’000
3,033
—
737
—
—
3,770
(744)
(862)
(858)
—
(2,464)
1,306
Euro
£’000
2,825
157
4,214
—
—
7,196
(1,038)
(1,209)
(694)
—
(2,941)
4,255
US
Dollar
£’000
1,374
—
948
—
—
2,322
(1,595)
—
(462)
—
(2,057)
265
US
Dollar
£’000
—
—
872
—
—
872
—
—
(136)
—
(136)
736
Other
£’000
1,267
532
475
—
—
2,274
—
—
(1,001)
—
(1,001)
1,273
Other
£’000
1,001
—
178
—
—
1,179
—
—
(50)
—
(50)
1,129
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
21. Financial Instruments and Related Disclosures continued
Sensitivity Analysis
Interest Rate Risk
A 2% increase in interest rates compared to those ruling at 30 June 2010 would reduce Group profit before taxation by £300,000.
Foreign Currency Risk
The Group has significant cash flows and net financial assets and liabilities in Danish Krone, US Dollar and Euro.
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 Krone
US Dollar
Euro
Hedges
Profit before
taxation
£’000
(4,188)
(1,129)
(945)
Net
assets
£’000
(4,188)
(1,129)
(945)
Cash Flow Hedges
The Group has entered into an interest rate floor and ceiling on the term loan of £22.5 million and designated it a cash flow hedge. The risk
being hedged is the variability of cash flows arising from movements in interest rates. No ineffectiveness arose 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 2010 was a liability of £276,000 including an income tax credit of £107,000
(2009: £703,000 including an income tax credit of £274,000).
Net Investment Hedges
Borrowings in Danish Krone taken out at the time of the acquisition of Dechra Veterinary Products Holding A/S (formerly VetXX Holding A/S)
were designated as a net investment hedge in respect of foreign currency translation risk arising on the Group’s net investment in Dechra
Veterinary Products Holding A/S. No ineffectiveness arose on the hedge. The Danish Krone borrowings were repaid on 30 December 2009
causing the hedge to cease.
22. Share Capital
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
2010
No.
65,581,924
508,151
66,090,075
£’000
656
5
661
2009
No.
65,241,909
340,015
65,581,924
£’000
652
4
656
The Companies Act 2006 abolishes the requirement for a company to have an authorised share capital. At the 2009 Annual General Meeting
Shareholders approved a resolution whereby all provisions relating to the Company’s authorised share capital were removed from the
Company’s constitutional documents.
During the year 508,151 new ordinary shares of 1p (2009: 340,015 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
£589,000 (2009: £275,000). 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.
Stock Code: DPH
www.dechra.com
108/109
23. Share-based Payments
During the year, the Company operated the Unapproved Share Option Scheme, the Approved Share Option Scheme, the Long Term Incentive
Plan, 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 have previously been awarded shares in the Company subject to a Total
Shareholder Return (“TSR”) performance target. No awards have been made under this plan since 30 June 2008.
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). One hundred per cent of the shares on plans set up prior
to 30 June 2008 will 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.
Long Term Incentive Plan
For awards granted after 30 June 2008 under this plan, vesting is dependent firstly on an earnings per share target. No awards will vest
unless adjusted diluted earnings per share has grown by at least 3% per annum above the retail prices index over the three year measurement
period. Provided this condition is met, then the number of shares that vest depends on the Company’s TSR performance against the FTSE
Small Cap Index over the three year measurement period. One hundred per cent of the shares vest if the Company achieves an upper quartile
performance, 25% 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.
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 savings 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
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
Exercise
price
per share
At
1 July
2009
Pence
Number
Exercised
Number
Granted
Number
Lapsed
Number
23. Share-based Payments continued
Year ended 30 June 2010
Exercise
period
Unapproved Share Option Scheme
14 September 2000
22 April 2002
11 April 2003
19 March 2007
2 April 2008
10 October 2008
30 March 2009
1 March 2010
2003–2010
2005–2012
2006–2013
2010–2017
2011–2018
2011–2018
2012–2019
2013–2020
Approved Share Option Scheme
2 April 2004
3 December 2004
5 April 2005
15 March 2006
19 March 2007
2 April 2008
10 October 2008
30 March 2009
1 March 2010
2007–2014
2007–2014
2008–2015
2009–2016
2010–2017
2011–2018
2011–2018
2012–2019
2013–2020
120.00
153.50
58.50
289.00
366.00
397.00
415.00
456.00
134.50
180.00
202.50
252.00
289.00
366.00
397.00
415.00
456.00
Executive Incentive Plan and Long Term Incentive Plan
14 September 2006
29 February 2008
19 November 2008
2009–2010
2011–2012
2011–2012
24 September 2009
2012–2013
SAYE Option Scheme
15 October 2004
18 October 2005
12 October 2006
17 October 2007
13 October 2008
12 October 2009
2007–2009
2008–2010
2009–2013
2010–2014
2011–2015
2012–2016
Total
Weighted average exercise price
—
—
—
—
124.00
204.00
195.74
280.00
343.00
332.00
7,000
6,500
3,500
26,139
48,038
33,500
54,921
—
(7,000)
(3,000)
—
(5,004)
(3,000)
—
—
—
179,598
(18,004)
30,000
16,667
54,500
112,000
149,861
69,962
2,500
23,079
—
458,569
216,128
152,472
327,272
—
695,872
69,025
20,357
118,794
144,291
115,440
—
(9,000)
—
(18,500)
(48,000)
(39,196)
—
—
—
—
(114,696)
(216,128)
—
—
—
(216,128)
(69,025)
—
(89,274)
(518)
(506)
—
467,907
1,801,946
(159,323)
(508,151)
—
—
—
—
—
—
—
52,854
52,854
—
—
—
—
—
—
—
—
33,146
33,146
—
—
—
277,758
277,758
—
—
—
—
—
147,522
147,522
511,280
169.3p
63.4p
172.5p
At
30 June
2010
Number
—
3,500
2,500
21,135
45,038
33,500
54,921
52,854
—
—
(1,000)
—
—
—
—
—
(1,000)
213,448
(2,000)
—
(5,000)
(3,000)
(5,000)
(2,000)
—
—
—
(17,000)
—
—
—
—
—
—
(947)
(1,839)
(4,211)
(5,499)
(9,529)
19,000
16,667
31,000
61,000
105,665
67,962
2,500
23,079
33,146
360,019
—
152,472
327,272
277,758
757,502
—
19,410
27,681
139,562
109,435
137,993
(22,025)
(40,025)
276.2p
434,081
1,765,050
183.3p
Stock Code: DPH
www.dechra.com
110/111
23. Share-based Payments continued
Year ended 30 June 2009
Exercise
period
Unapproved Share Option Scheme
14 September 2000
22 April 2002
11 April 2003
19 March 2007
2 April 2008
10 October 2008
30 March 2009
2003–2010
2005–2012
2006–2013
2010–2017
2011–2018
2011–2018
2012–2019
Approved Share Option Scheme
2 April 2004
3 December 2004
5 April 2005
15 March 2006
19 March 2007
2 April 2008
10 October 2008
30 March 2009
2007–2014
2007–2014
2008–2015
2009–2016
2010–2017
2011–2018
2011–2018
2012–2019
120
153.5
58.5
289
366
397
415
134.5
180
202.5
252
289
366
397
415
Executive Incentive Plan and Long Term Incentive Plan
3 October 2005
14 September 2006
29 February 2008
19 November 2008
2008–2009
2009–2010
2011–2012
2011–2012
SAYE Option Scheme
15 October 2004
18 October 2005
12 October 2006
17 October 2007
13 October 2008
2007–2009
2008–2010
2009–2013
2010–2014
2011–2015
—
—
—
—
124
204
195.74
280
343
Total
Weighted average exercise price
1,622,174
156.8p
Exercise
price
per share
At
1 July
2008
Pence
Number
Exercised
Number
Granted
Number
Lapsed
Number
7,000
16,500
9,500
26,139
48,038
—
—
107,177
35,000
26,667
65,500
152,000
150,861
70,962
—
—
500,990
205,140
216,128
152,472
—
573,740
75,954
75,980
130,473
157,860
—
440,267
—
(10,000)
(6,000)
—
—
—
—
(16,000)
(5,000)
(10,000)
(11,000)
(40,000)
—
—
—
—
(66,000)
(205,140)
—
—
—
(205,140)
—
(52,875)
—
—
—
(52,875)
(340,015)
80.7p
—
—
—
—
—
33,500
54,921
88,421
—
—
—
—
—
—
2,500
23,079
25,579
—
—
—
327,272
327,272
—
—
—
—
120,137
120,137
561,409
156.5p
—
—
—
—
—
—
—
—
—
—
—
—
(1,000)
(1,000)
—
—
(2,000)
—
—
—
—
—
(6,929)
(2,748)
(11,679)
(13,569)
(4,697)
(39,622)
(41,622)
236.9p
At
30 June
2009
Number
7,000
6,500
3,500
26,139
48,038
33,500
54,921
179,598
30,000
16,667
54,500
112,000
149,861
69,962
2,500
23,079
458,569
—
216,128
152,472
327,272
695,872
69,025
20,357
118,794
144,291
115,440
467,907
1,801,946
169.1p
The weighted average exercise price of options eligible to be exercised at 30 June 2010 was 240.3p (2009: 108p).
For options exercised during the year, the weighted average market price at the date of exercise was 443p (2009: 400p). The weighted
average remaining contractual lives of options outstanding at the balance sheet date was four years (2009: four years).
Outstanding options on all Executive Incentive, Approved and Unapproved plans prior to 30 June 2007 were exercisable at 30 June 2010.
No options issued under SAYE plans were exercisable at 30 June 2010.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
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 and the Long Term 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 and Long Term Incentive Plan
Date of grant
19/11/08
24/9/09
Number of shares awarded
Share price at date of grant
Exercise price
Expected life
Risk-free rate
Volatility
Dividend yield
Fair value per share
277,758
404.10p
Nil
3 years
1.91%
31%
2.25%
236p
327,272
391.75p
Nil
3 years
2.78%
29%
2.11%
221p
29/2/08
152,472
386p
Nil
3 years
4.20%
36%
1.94%
259p
14/9/06
216,128
250.75p
Nil
3 years
4.70%
36%
2.49%
162p
3/10/05
205,140
251p
Nil
3 years
4.21%
36%
2.07%
169p
9/10/04
210,739
164p
Nil
3 years
4.69%
36%
2.95%
105p
Unapproved and Approved Share Option Schemes
Date of grant
Number of shares awarded
1/3/10 30/3/09 10/10/08 2/4/08 19/3/07 15/3/06 5/4/05 3/12/04 2/4/04 11/4/03
86,000 78,000 36,000 129,000 188,000 177,000 181,000 30,000 147,000 124,000
Share price at date of grant
Exercise price
455p
456p
415p
415p
397p
397p
367p
366p
289p
289p
212p 179.32p
252p
252p 202.5p
136p
180p 134.5p
59p
58.5p
Expected life
Risk-free rate
Volatility
Dividend yield
5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years
4.12%
2.84%
4.13%
4.08%
4.98%
4.53%
4.61%
2.46%
4.32%
4.76%
33%
2.00%
36%
2.03%
36%
2.12%
36%
2.04%
36%
2.36%
36%
2.15%
36%
2.40%
36%
2.61%
36%
3.19%
36%
7.04%
Fair value per share
124p
120p
124p
116p
92p
79p
69p
54p
40p
11p
Save as You Earn Option Scheme
Date of grant
12/10/09
13/10/08
Number of shares awarded 147,522
120,137
Share price at date of grant
Exercise price
Expected life
445p
332p
387p
343p
17/10/07
12/10/06
164,959
357.5p
280p
153,545
257.25p
195.74p
18/10/05
111,078
255p
204p
15/10/04
3/4/03
144,147
1,034,938
160p
124p
54p
39p
— three year scheme
3.25 years
3.25 years
3.25 years
3.25 years
3.25 years
3.25 years
— five year scheme
5.25 years
5.25 years
5.25 years
5.25 years
5.25 years
5.25 years
— seven year scheme
7.25 years
7.25 years
7.25 years
7.25 years
n/a
n/a
3.25 years
5.25 years
n/a
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
1.87%
2.55%
3.03%
33%
2.04%
134p
156p
148p
4.08%
4.38%
4.58%
36%
2.13%
105p
140p
155p
5.07%
5.04%
5.02%
36%
2.09%
130p
147p
158p
4.85%
4.75%
4.65%
36%
2.43%
94p
104p
110p
4.25%
4.31%
n/a
36%
2.04%
88p
101p
n/a
4.56%
4.64%
n/a
36%
2.92%
55p
61p
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.
Stock Code: DPH
www.dechra.com
112/113
23. Share-based Payments continued
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 2010 of £142,000 (2009: £220,000), of which £80,000 (2009: £6,000) 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 is included within administrative expenses.
24. Analysis of Net Borrowings
Bank loans
Finance leases and hire purchase contracts
Cash and cash equivalents
Net borrowings
25. Operating Leases
2010
£’000
817
93
910
2009
£’000
643
98
741
2010
£’000
(37,033)
(1,170)
31,502
(6,701)
2009
£’000
(40,498)
(1,846)
26,817
(15,527)
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
2009
2010
£’000
1,200
4,159
1,582
6,941
£’000
1,146
3,982
2,116
7,244
Other assets
Total
2010
£’000
1,512
1,494
5
3,011
2009
£’000
1,624
1,921
27
3,572
2010
£’000
2,712
5,653
1,587
9,952
2009
£’000
2,770
5,903
2,143
10,816
26. Foreign Exchange Rates
The following exchange rates have been used in the translation of the results of foreign operations.
Danish Krone
Euro
US Dollar
Closing rate
at 30 June
Closing rate
Average
at 30 June
2009
8.7572
1.1760
1.6520
rate
8.4693
1.1379
1.5810
2010
9.0983
1.2214
1.4961
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Consolidated Financial Statements
27. Contingency
The Danish tax authorities have opened an investigation into the tax return of Dechra Veterinary Products Holding A/S (formerly VetXX Holding
A/S) for the period ended 31 December 2005, a period prior to the acquisition of the company. They are seeking to reduce the tax losses
arising in this year by DKK17.5 million. They have also indicated that they will be investigating the tax returns for 2006, 2007 and 2008. The
Directors believe that there are strong arguments to resist this claim. However, should the dispute be lost, the deferred tax asset recognised
on acquisition would be reduced by approximately £1.3 million.
28. Critical Accounting Judgements and Key Sources of Estimation Uncertainty
Critical Judgements in applying the Group’s Accounting Policies and Key Sources of
Estimation Uncertainty
In the process of applying the Group’s accounting policies as described in note 1, the Directors have made the following judgements and
estimates that have the most significant effect on the amounts recognised in the Financial Statements. The key sources of estimation
uncertainty which may cause a material adjustment to the carrying amount of assets and liabilities are also 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.
Capitalisation of Development Costs
The Group applies judgement when assessing the probability that regulatory approval will be achieved for development projects and that
those projects are commercially viable. This enables management to ascertain whether the criteria for the capitalisation of development costs
have been met.
Contingency
Please refer to note 27.
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 123.
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 51 to 59. The remuneration of key management is disclosed in note 7.
30. Off Balance Sheet Arrangements
The Group has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.
Stock Code: DPH
www.dechra.com
Company Balance Sheet
114/115
At 30 June 2010
Fixed assets
Investments
Current assets
Debtors (includes amounts falling due after more than one year of £2,387,000 (2009: £21,792,000))
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current (liabilities)/assets
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
iii
iv
v
v
viii
ix
ix
ix
2010
£’000
114,188
114,188
20,726
5,007
25,733
(49,775)
(24,042)
90,146
(17,101)
73,045
661
63,021
(276)
9,639
73,045
2009
£’000
94,366
94,366
45,925
7
45,932
(42,536)
3,396
97,762
(21,961)
75,801
656
62,437
(703)
13,411
75,801
The financial statements were approved by the Board of Directors on 7 September 2010 and are signed on its behalf by:
Ian Page
Director
Simon Evans
Director
Company number: 3369634
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Reconciliation of Movements
in Shareholders’ Funds
For the year ended 30 June 2010
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
2010
£’000
75,801
1,606
427
817
(6,195)
589
73,045
2009
£’000
78,219
3,213
(984)
643
(5,565)
275
75,801
Stock Code: DPH
www.dechra.com
Notes to the Company Financial Statements
116/117
(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 2006.
Basis of Preparation
No Profit and Loss Account is presented for the Company as permitted by Section 408(2) and (3) of the Companies Act 2006. The profit dealt
with in the accounts of the Company was £1,606,000 (2009: £3,213,000).
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 612 of the Companies Act 2006 apply, cost represents
the nominal value of the shares issued together with the fair value of any additional consideration given and costs. Where investments are
denominated in foreign currencies they are treated as monetary assets and revalued at each balance sheet date.
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.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Company Financial Statements
(i) Principal Accounting Policies of the Company continued
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 is exempt from the requirement to disclose related party transactions with other Group undertakings as they are all
wholly owned within the Group and are included in the Dechra Pharmaceuticals PLC Consolidated Financial Statements.
Transactions with Key Management Personnel
There were no material transactions with key management personnel except for those relating to remuneration (see notes 7 and 23 of the
Consolidated Financial Statements) and shareholdings.
Transactions with Other Related Parties
There are no controlling Shareholders of the Company. There have been no material transactions with the Shareholders of the Company.
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.
(ii) Share-based Payment Transactions
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 an Executive Incentive Plan and 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 Executive Incentive Plan and 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.
Where the Company grants options over its own shares to the employees of its subsidiaries it recharges the expense to those subsidiaries.
Stock Code: DPH
www.dechra.com
118/119
(i) Principal Accounting Policies of the Company continued
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.
Finance Lease Payments
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability.
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 £1,501,000 (2009: £1,754,000). Information relating to Directors’
emoluments, share options and pension entitlements is set out in the Directors’ Remuneration Report on pages 51 to 59.
(iii) Fixed Asset Investments
Cost
At 1 July 2009
Additions
At 30 June 2010
Net book value
At 30 June 2010
At 30 June 2009
Shares in
Subsidiary
Undertakings
£’000
94,366
19,822
114,188
114,188
94,366
A list of principal subsidiary undertakings is given in note x.
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.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Company Financial Statements
(iv) Debtors
Amounts owed by subsidiary undertakings
Group relief receivable
Deferred taxation (see note vii)
Other debtors
Prepayments and accrued income
2010
£’000
18,319
1,658
574
63
112
20,726
2009
£’000
44,519
561
667
40
138
45,925
Included in debtors are amounts of £574,000 (2009: £667,000) due after more than one year relating to deferred tax assets. Of the amounts
owed by subsidiary undertakings, £2,387,000 is due after more than one year (2009: £21,125,000).
(v) Creditors
Bank loans and overdrafts (see note vi)
Finance lease obligations
Amounts due to subsidiary undertakings
Other creditors
Derivative financial instruments
Other taxation and social security
Accruals and deferred income
Falling due
within one year
2010
£’000
48,150
44
503
—
383
72
623
2009
£’000
40,072
39
444
14
977
49
941
49,775
42,536
In accordance with FRS 21, Events after the Balance Sheet Date, the proposed final dividend for the year ended 30 June 2010 of 7.20p 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 2011.
The total cost of the proposed final dividend is £4,758,000.
Bank loans (see note vi)
Finance lease obligations
Falling due
after more than one year
2010
£’000
17,033
2009
£’000
21,850
68
17,101
111
21,961
Stock Code: DPH
www.dechra.com
(vi) 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
Total borrowings
120/121
2010
£’000
28,150
20,000
44
48,194
5,000
12,500
—
17,500
(467)
17,033
50
18
68
65,295
2009
£’000
21,424
18,648
39
40,111
5,000
15,000
2,500
22,500
(650)
21,850
44
67
111
62,072
The bank loans, revolving credit and overdraft facilities are secured by a fixed and floating charge on the assets of the Group. Interest is
charged at 0.85% over LIBOR on the bank loan and revolving credit facility and 2.5% over base rate on the bank overdraft. No covenants
have been breached during the year ended 30 June 2010.
The Company guarantees certain borrowings of other Group companies, which at 30 June 2010 amounted to £1,058,000 (2009:
£1,696,000).
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Notes to the Company Financial Statements
(vii) Deferred Tax
At 1 July 2009
Transfer to profit and loss account
Transfer to equity
At 30 June 2010 (included in debtors)
The amounts provided for deferred taxation at 28% (2009: 28%) are as follows:
Short-term timing differences
(viii) Called up Share Capital
Issued share capital
Allotted, called up and fully paid at 1 July 2009
New shares issued
Allotted, called up and fully paid at 30 June 2010
£’000
667
74
(167)
574
2009
£’000
(667)
2010
£’000
(574)
Ordinary Shares
of 1p each
£’000
656
5
661
No.
65,581,924
508,151
66,090,075
During the year, 508,151 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 £589,000.
Share Options
Details of outstanding share options over ordinary shares of 1p at 30 June 2010 under the various Group share option schemes are shown in
note 23 to the Consolidated Financial Statements.
(ix) Reserves
At 1 July 2009
New shares issued
Profit for the financial year
Movement in hedging reserve
Dividend (see note 9 to the Consolidated Financial Statements)
Share-based payments charge
At 30 June 2010
Share
premium
account
£’000
62,437
584
—
—
—
—
63,021
Hedging
reserve
£’000
(703)
—
—
427
—
—
(276)
Profit
and loss
account
£’000
13,411
—
1,606
—
(6,195)
817
9,639
Stock Code: DPH
www.dechra.com
122/123
(x) 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
Operating Subsidiaries
Dechra Limited§
Country of
Incorporation
Principal Activity
England & Wales
Wholesaler, marketer and manufacturer of
pharmaceuticals; Wholesaler and marketer of
veterinary products, instruments and equipment;
Provider of veterinary laboratory services
Dechra Veterinary Products A/S
Denmark
Marketer and manufacturer of veterinary
pharmaceuticals and pet diets
Dechra Veterinary Products Limited¶
England & Wales
Marketer of veterinary pharmaceuticals
and pet diets
Dechra Veterinary Products OY¶
Finland
Marketer of veterinary pharmaceuticals
Dechra Veterinary Products SAS¶
France
Marketer of veterinary pharmaceuticals
and pet diets
Dechra Veterinary Products AS¶
Norway
Marketer of veterinary pharmaceuticals
and pet diets
Dechra Veterinary Products SLU¶
Spain
Marketer of veterinary pharmaceuticals
Dechra Veterinary Products AB¶
Sweden
Marketer of veterinary pharmaceuticals
and pet diets
Dechra Veterinary Products BV¶
The Netherlands
Marketer of veterinary pharmaceuticals
Dechra Veterinary Products LLC
USA
Distributor of veterinary products
and pet diets
and pet diets
and pet diets
Other Subsidiaries
Anglian Manufacturing Chemists Limited#
Anglian Pharma Manufacturing Limited‡
Anglian Pharma Limited
Arnolds Veterinary Products Limited*
Cambridge Specialist Laboratory Services Limited†
Dales Pharmaceuticals Limited*
Dechra Investments Limited
Leeds Veterinary Laboratories Limited
National Veterinary Services Limited*
North Western Laboratories Limited
Veneto Limited
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Non-trading
Holding Company
Holding Company
Non-trading
Non-trading
Non-trading
Holding Company
Non-trading
Non-trading
Holding Company
Holding Company
* 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.
‡ 100% of ordinary share capital held by Anglian Pharma Limited.
# 100% of ordinary share capital held by Anglian Pharma Manufacturing Limited.
¶ 100% of ordinary share capital held by Dechra Veterinary Products A/S.
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Financial History
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
2010
£’000
369,369
28,190
26,056
19,437
29.50
29.39
10.50
1,021
88,044
21,486
(4,105)
(12,496)
(6,701)
86,228
26,662
(2,208)
(6,124)
(2,721)
—
(6,195)
(4,626)
4,788
2009
£’000
349,964
24,971
23,406
16,759
25.61
25.40
9.10
1,012
97,605
17,548
(4,756)
(14,184)
(15,527)
80,686
27,557
(1,851)
(3,227)
(3,634)
—
(5,565)
(8,843)
4,437
2008
£’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
2007
£’000
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
14,328
(1,169)
(2,895)
(5,325)
(717)
(3,595)
(3,124)
(2,497)
2006
£’000
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
13,997
(1,218)
(2,618)
(1,492)
—
(2,777)
(97)
5,795
Stock Code: DPH
www.dechra.com
Shareholder Information
124/125
Financial Calendar
Interim Management Statement
2010 Annual General Meeting
Final Dividend Ex Div Date
Final Dividend Record Date
Final Dividend Payment Date
5 November 2010
and regulated by the Financial Services Authority.
Computershare Investor Services PLC and its agents are authorised
5 November 2010
10 November 2010
Please note that the price of shares can go down as well as up, and
12 November 2010
you are not guaranteed to get back the original amount you originally
10 December 2010
invested. If you are in any doubt you should contact an independent
financial adviser.
Annual General Meeting
The 2010 Annual General Meeting of the Company will be held at
3.00 pm on 5 November 2010 at Investec Bank plc, 2 Gresham Street,
Warning to Shareholders
In recent years, many companies have become aware that their
London, EC2V 7QP. The notice of meeting, which includes special
shareholders have received unsolicited phone calls or correspondence
business to be transacted at the Annual General Meeting, is included
concerning investment matters. These are typically from overseas
within the Circular accompanying this Annual Report, together with an
explanation of the resolutions to be considered at the meeting.
based ‘brokers’ who target UK shareholders, offering to sell them
what often turn out to be worthless or high risk shares in US or UK
Registrar
Dechra’s Registrar is Computershare Investor Services PLC.
Computershare should be contacted for any matters relating to your
shareholding, including:
(cid:2) Notification of change in name and address
(cid:2) Enquiries about dividend payments
(cid:2) Submission of proxy form for voting at the Annual General Meeting
Computershare offers a facility whereby shareholders are able to
access their shareholdings in Dechra (and other companies for which
Computershare acts as registrar) via their website
(www-uk.computershare.com/Investor/default.asp).
Alternatively, Computershare can be contacted at
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
investments. These operations are commonly known as “boiler rooms”.
These “brokers” can be very persistent and extremely persuasive, and
a 2006 survey by the Financial Services Authority (“FSA”) has reported
that the average amount lost by investors is around £20,000.
It is not just the novice investor that has been duped in this way;
many of the victims had been successfully investing for several years.
Shareholders are advised to be very wary of any unsolicited advice,
offers to buy shares at a discount or offers of free company reports. If
you receive any unsolicited investment advice:
(cid:2) Make sure you get the correct name of the person and organisation
(cid:2) Check that they are properly authorised by the FSA before getting
involved by visiting www.fsa.gov.uk/register/
(cid:2) Report the matter to the FSA either by calling 0845 606 1234 or
visiting www.moneymadeclear.fsa.gov.uk
(cid:2) If the calls persist, hang up
If you deal with an unauthorised firm, you will not be eligible to receive
payment under the Financial Services Compensation Scheme. The FSA
can be contacted by completing an online form at www.fsa.gov.uk/
pages/doing/regulated/law/alerts/overseas.shtml
Registrars’ Shareholder Helpline for Dechra: 0870 889 4030
Details of any share dealing facilities that the Company endorses will be
included in Company mailings.
More detailed information on this or similar activity can be found on the
CFEB website www.moneymadeclear.fsa.gov.uk
Please have your Shareholder Reference Number to hand whenever
you contact the Registrar; this can be found on your share certificate.
Share Dealing Service
Computershare offer a Share Dealing service, to buy or sell shares.
Further information can be obtained from www-uk.computershare.com/
Investor/ShareDealing.asp or by telephoning 0870 703 0084.
Telephone
Internet
Share Dealing Share Dealing
Fee (on value of transaction)
Minimum Charge
Stamp Duty Charge (Purchases only)
1%
£25.00
0.5%
0.5%
£15.00
0.5%
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Glossary
The following is a glossary of a number of the terms and acronyms
which can be found within this document.
Adjusted Operating Profit
Profit before interest, tax, amortisation of acquired intangibles
and exceptional costs.
Intertrigo
Refers to a bacterial, fungal or viral infection that has developed at the
site of broken skin due to inflammation of body folds. This infection is
common in dogs with folds such as Pugs or Shar Peis.
Malassezia
Yeasts that cause a secondary inflammatory skin disease. Malassezia is
Adjusted Pre-Tax Profit
Profit before tax, amortisation of acquired intangibles and exceptional
often found in otitis externa.
costs.
Bioequivalence
The demonstration that the proposed formulation has the same
MHRA
Medicines and Healthcare products Regulatory Agency; an executive
agency of the Department of Health.
biological effects as the pioneer product to which it is being compared.
This is usually demonstrated by comparing blood concentrations of the
NSAID
Non-Steroidal Anti-Inflammatory Drug; essentially drugs which relieve
active over time, but can be compared using a clinical endpoint (e.g.
lowering of a worm count) for drugs that are not absorbed or for which
pain, swelling, stiffness and inflammation. Equipalazone is the leading
NSAID for the treatment of musculoskeletal disorders in the horse.
blood levels cannot be determined.
Cortisol
A hormone which is made by the adrenal glands. Its production is
increased during episodes of stress and it has many effects on the
body. It helps regulate blood pressure, the immune system and helps
balance the effect of insulin to keep the blood sugar at normal levels.
Cushing’s Disease
A condition caused by excess cortisol (see above) and is named after
the physician who first described the condition in humans in the early
twentieth century.
EBITDA
Earnings before interest, tax, depreciation and amortisation.
Exceptional Items
Significant items of income or expense which, due to their nature
Otitis Externa
A condition which causes inflammation of the external ear canal (the
tube between the outer ear and the ear drum).
Product Pipeline
This involves four stages which are as follows:
(cid:2) Manufacturing — the part of the dossier which documents the quality,
purity and physical characteristics of both the active ingredient and
the final formulation (e.g. tablets, capsules, liquid).
(cid:2) Safety — the part of the dossier which documents the effects of
the final formulation at above normal dosage levels in the intended
species.
(cid:2) Efficacy — the part of the dossier which documents the effectiveness
of the final formulation in the intended species. The studies may
be controlled model studies or studies in animals with the naturally
occurring disease.
(cid:2) Regulatory — the period of time that regulatory agencies take to
or the expected infrequency of the events giving rise to them, are
review the various sections of the dossier.
shown separately on the face of the income statement to give a better
understanding of underlying performance.
FDA
US Food and Drug Administration; a federal agency of the US
Department of Health and Human Services.
Hyperthyroidism
Occurs when the thyroid glands produce excessive amounts of thyroid
hormone. This causes an increase in the animal’s metabolism (the rate
at which energy is burnt up).
Staphylococcal Infections
Communicable conditions caused by the Staphylococcus type of
bacteria and generally characterised by pyoderma or the formation of
abscesses.
Surface Pyoderma
Pyoderma is the medical term used to denote infections of the skin
caused by bacteria. Surface Pyoderma is a bacterial infection which
is confined to the surface of the skin; one of the commonest types
is known as Pyotraumatic Dermatitis (acute moist dermatitis, or “hot
spots”). It is typified by localised itching, moist, reddened skin patches
and ulcerated lesions.
Stock Code: DPH
www.dechra.com
Shareholder Notes
126/127
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Dechra Pharmaceuticals PLC
Dechra Pharmaceuticals PLC
Annual Report and Accounts
for the year ended 30 June 2010
Shareholder Notes
www.dechra.com
128/IBC
Advisers
Auditors
KPMG Audit Plc
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
Lawyers
DLA Piper UK LLP
Victoria Square House
Victoria Square
Birmingham
B2 4DL
Stockbroker & Financial Advisers
Investec Bank plc
Registrars
Computershare Investor Services PLC
2 Gresham Street
London
EC2V 7QP
Principal Bankers
Lloyds Banking Group
2nd Floor
125 Colmore Row
Birmingham
B3 3SF
PO Box 82
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Financial PR
Citigate Dewe Rogerson Limited
1 Wrens Court
Lower Queen Street
Birmingham
B72 1RT
Trademarks
Trademarks appear throughout this document in italics. Dechra and the Dechra “D” logo are registered trademarks of
Dechra Pharmaceuticals PLC. The Malaseb trademark is under licence from Dermcare-Vet Pty. Ltd.
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www.dechra.com
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
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