Pharmaceuticals PLC
D
e
c
h
r
a
P
h
a
r
m
a
c
e
u
t
i
c
a
l
s
P
L
C
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
f
o
r
t
h
e
y
e
a
r
e
n
d
e
d
3
0
J
u
n
e
2
0
1
1
An International Veterinary
Pharmaceutical Business
Annual Report and Accounts
for the year ended 30 June 2011
20512-04 05/09/2011
Proof 15
20512-04 05/09/2011
Proof 15
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
• TosustaingrowthandinnovateinourServicesbusiness;and
• Tocontinuetodevelopahighgrowth,cashgenerative,specialist
veterinary products business
For more information on our Strategy go to page 8
Key Performance Indicators:
TheGrouputilisesKPIstoassessitsdevelopment
Risks:
TheGroupfacesrisksanduncertaintiesrelatingto
and progress against its strategy
the achievement of its strategy and objectives
TheKPIscanbefoundonpages30to31
A table setting out the main potential risk areas and
the controls in place can be found on pages 36 to 37
Our Values
Dedication: We are dedicated to delivering products and services that meet
the highest level of service and quality to our customers
Enjoyment: We will endeavour to create an environment where our people
want to come to work and feel part of Dechra
Courage:
Honesty:
Wewantabusinesswherewedaretochallengeeachother,
creating better cross-organisational solutions
We will act with integrity and fairness and treat everyone with
respect
Relationships: We see our customers and suppliers as business partners and
thereby work together to ensure common success
Ambition:
We shall deliver solid results through our energetic and resilient
approach
For more information on our Values go to page 29
Forward-LookingStatements:ThisAnnualReportcontainscertainforward-lookingstatementswhichreflecttheknowledgeand
informationavailabletotheCompanyduringpreparationanduptothepublicationoftheseAccounts.Bytheirverynature,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,nothinginthispublicationshouldbeconstruedasaprofitforecastbytheCompany.
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Business
Group at a Glance
Product Development
The Product Development and Regulatory Team develop and licence Dechra’s
own branded veterinary product portfolio of novel and generic pharmaceuticals
and specialist pet diets
European Pharmaceuticals
• Dechra Veterinary Products EU (“DVP EU”)
Sales and marketing of Dechra’s branded veterinary products 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
European Pharmaceuticals Revenue
£89.3 million
up
5.5%
(2010:£84.6million)
US Pharmaceuticals
• Dechra Veterinary Products US (“DVP US”)
Sales and marketing of Dechra’s branded endocrine, ophthalmic,
dermatological and equine products into North America
US Pharmaceuticals Revenue
£16.1 million
up
51.5%
(2010:£10.6million)
Services
• National Veterinary Services (“NVS®”)
UK market leader in the supply of pharmaceuticals, instruments, consumables,
pet products 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
£296.3 million
up
3.7%
(2010:£285.7million)
www.dechra.com
20512-04 05/09/2011
Proof 15
Where we Operate
Pharmaceuticals
Pharmaceuticals and Services
Export
Our Key Strengths
• UniqueProducts
• PeopleandExpertise
• StrategicFocus
• InternationalFootprint
• StrongFinancialPlatform
• DevelopmentPipeline
• StrongMarketPosition
• GrowingMarkets
• CustomerSatisfaction
• Innovation
Our Key Achievements
• Fifthsuccesiveyearofdoubledigitunderlyingearningspershare
growth
• Stronggrowthfrombrandedveterinaryproducts
• Investmentinproductpipelineincreased
• Highcashinflowinsecondhalf
• Twoearningsenhancingacquisitionscompletedandintegrated
•Strongbalancesheetwithnetborrowings0.98timesunderlying
EBITDA
20512-04 05/09/2011
Proof 15
20512-04 05/09/2011
Proof 15
Stock Code: DPH
Highlights
Revenue
£ million
up
5.4%
0
.
0
5
4 3
.
4
0
3
8
.
3
5
2
Underlying Profit
Before Taxation*
£ million
15.4%
up
1
.
0
1 3
.
6
2
2
.
9
8
3
4
.
9
6
3
4
.
3
2
9
.
6
1
6
.
2
1
07
08
09
10
11
07
08
09
10
11
Profit
Before Taxation
£ million
4.4%
up
5
.
8
7 1
.
7
1
1
.
6
1
6
.
2
1
7
.
1
1
Underlying Operating
Profit*
£ million
8
.
1
2 3
.
8
2
up
12.9%
0
.
5
2
1
.
9
1
9
.
3
1
07
08
09
10
11
07
08
09
10
11
Operating Profit
£ million
up
9.3%
7
.
7
1
7
.
1
9 2
.
9
1
1
.
4
1
8
.
3
1
Underlying Earnings
per Share*
pence
up
16.4%
0
5
.
9
2
1
6
.
5
2
1
8
.
0
2
9
8
.
6
1
3
3
.
4
3
07
08
09
10
11
07
08
09
10
11
Our Business
01 Highlights
02 Our Business Model
Directors’ Report:
Our Performance
04 Chairman’s Statement
08 Chief Executive’s Review
12 Key Products and Specialisations
14 Product Development
16 Product Pipeline
18
20 European Pharmaceuticals
23 US Pharmaceuticals
24 Services
28
30 Key Performance Indicators
32 Financial Review
35 Risks and Uncertainties
Information Technology and HR
Introducing the DVP Country Managers
Directors’ Report:
Our Governance
38 Board of Directors
40 Senior Management
42 Corporate Governance
50 Audit Committee Report
53 Directors’ Remuneration Report
63 Social, Ethical and Environmental
Responsibilities
69 Other Disclosures
73 Statement of Directors’ Responsibilities
Independent Auditor’s Report
Our Accounts
74
76 Consolidated Income Statement
77 Consolidated Statement of Comprehensive Income
78 Consolidated Statement of Financial Position
79 Consolidated Statement of Changes in
Shareholders’ Equity
80 Consolidated Statement of Cash Flows
81 Notes to the Consolidated Financial Statements
124 Company Balance Sheet
125 Reconciliation of Movements in Shareholders’
Funds
126 Notes to the Company Financial Statements
133 Financial History
Earnings per Share
pence
up
6.8%
3
3
.
1
2
7
9
9
1
.
7
2
7
1
.
6
8
.
6
1
0
2
.
4
1
Dividend per Share
pence
15.2%
up
.
0
5
0
1
0
1
9
.
5
2
.
8
0
5
.
7
0
1
.
2
1
Shareholder Information
134 Shareholder Information
136 Glossary
PB
www.dechra.com
* Non-underlying items comprise amortisation of acquired intangibles, acquisition expenses, rationalisation costs,
payments to acquire technology for the research and development programme, impairment charges, loss on
extinguishment of debt and the unwinding of discounts on deferred and contingent consideration (see notes 4 and 5).
01
20512-04 05/09/2011
Proof 15
07
08
09
10
11
07
08
09
10
11
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Business
Our Business Model
Key to our Business Model
Dechra in Numbers
RePORtInG SeCtORS
Dechra Activity
Customers
Partners
PRODUCt
DeVeLOPMent
AnD ReGULAtORy
AffAIRS
Provides products for the
Group through in-house
development of novel
pharmaceutcial products,
generic pharmaceutical
products, and specialist
branded pet diets. Further
products are acquired
through in-licensing and
marketing contracts with third
party suppliers
2
MANUFACTURING
lOCATIONS
4
REPORTING
SEGMENTS
5
CONSECUTIVE
YEARS OF
DOUBlE DIGIT EPS
GROWTH
DeCHRA eU
Dales and Uldum
Manufacturing
Manufactures the vast majority of our
own branded pharmaceutical products
which are marketed through DVP EU
and DVP US. Approximately 50% of
manufacturing revenues are from third
party toll manufacturing, predominantly
for human pharmaceutical companies
DVP eU Sales and
Marketing technical Support
Markets and sells our branded
veterinary products within 13
European countries and manages
the relationships with our worldwide
marketing partners
DeCHRA US
DVP US Sales and Marketing
technical Support
Markets and sells our own
veterinary products across the
USA and distributes a number of
our dermatological products to
Export Partners
02
www.dechra.com
20512-04 05/09/2011
Proof 15
03
Stock Code: DPH
14
TRADING
SUBSIDIARY
COUNTRIES
35
COUNTRIES WE
ExPORT TO
38.4
MIllION POUNDS
IN DIVIDENDS PAID
OVER 10 YEARS
200
% EARNINGS
PER SHARE
GROWTH OVER
10 YEARS
1,010
GROUP
EMPlOYEES
DeCHRA SeRVICeS
nVS Veterinary
Wholesaler
Distributes a range of over
14,000 products directly to veterinary
practices utilising its own vehicle
fleet. NVS supplies pharmaceuticals,
pet products, consumables and
accessories and has also developed
a range of IT solutions to veterinary
practices
nWL and CSLS
Laboratory Services
Our laboratory businesses are first
and second referral providers of
histology, pathology, haemotology,
chemistry and microbiology services
to veterinary practices
third Party
Pharmaceutical Companies
export Partners
Veterinary Wholesalers
and Distributors
Veterinary Practices
Horse
Owners
Pet
Owners
farms
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
02
www.dechra.com
03
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
Chairman’s Statement
“We believe that we are well positioned to ensure
future solid growth is maintained and Shareholder
value enhanced”
Michael Redmond, Chairman
Consistent Double Digit Earnings Growth
The Group has achieved its fifth successive year of double
digit underlying earnings growth and made significant strategic
progress during the year. Two acquisitions, which will be
earnings enhancing in the first full year of ownership, have
been completed and integrated into the business, our branded
products have continued to outperform the market, several
new products have been launched and our international scope
has increased. Furthermore, we have continued to make
advancements with our product development pipeline and have
increased investment in people and infrastructure to ensure
growth is sustained in the future.
Financial Highlights
Revenue increased by 5.4% from £369.4 million to £389.2
million; underlying operating profit increased by 12.9% from
£28.2 million to £31.8 million. The increase in underlying
operating margin from 7.6% to 8.2% is a reflection of
the growth of our high margin pharmaceutical business,
particularly in the USA.
The underlying net finance expense was £1.8 million
compared to £2.1 million in 2010. Additional net foreign
exchange gains of £0.8 million were partially offset by
interest on additional bank borrowings to finance the
DermaPet® and Genitrix® acquisitions.
Underlying profit before taxation increased by 15.4% from
£26.1 million to £30.1 million whilst underlying earnings per
share rose by 16.4% from 29.50 pence to 34.33 pence.
Reported operating profit was £21.7 million (2010: £19.9 million)
whilst profit before taxation was £18.5 million (2010: £17.7
million). Reported earnings per share was 21.33 pence (2010:
19.97 pence).
After a cash outflow in the first half of the financial year, there
was a strong cash inflow in the second half with net borrowings
reducing from £49.6 million at 31 December 2010 to £34.1
million at 30 June 2011. The increase from £6.7 million at
30 June 2010 is due to the acquisitions made during the year.
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 8.40 pence per share
(2010: 7.20 pence per share). This, together with the interim
dividend of 3.70 pence per share (2010: 3.30 pence per
share), makes a total dividend for the year of 12.10 pence
per share (2010: 10.50 pence per share), a 15.2% increase.
The total dividend is covered 2.6 times by profit after
taxation after adding back amortisation of acquired
intangibles (2010: 2.6 times).
The final dividend, which is subject to Shareholder approval at
the Annual General Meeting to be held on Friday 4 November
2011, will be paid on 25 November 2011 to Shareholders on
the Register at 11 November 2011. The date shares become
ex-dividend is 9 November 2011.
People
There have been no senior management changes during
the year; however, there have been a number of changes
in respect of our Non-Executive Board members. Following
ten years of service, Malcolm Diamond MBE retired as
Senior Independent Non-Executive Director and Chairman
of the Remuneration Committee in November 2010. We
would like to thank Malcolm for his valued support and
contribution to the business over this period. Dr Chris
Richards was appointed as an Independent Non-Executive
Director from 1 December 2010. Chris is currently Chairman
of Arysta LifeScience Corporation, the world’s largest
privately owned crop protection company. He brings
with him over 20 years of international management
experience. Neil Warner has undertaken the role of Senior
Independent Non-Executive Director and Bryan Morton
has assumed the role of Chairman of the Remuneration
Committee.
04
www.dechra.com
20512-04 05/09/2011
Proof 15
05
Stock Code: DPH
On behalf of the Board and our Shareholders I would like to
thank all our employees for their hard work and dedication
throughout the year.
Corporate Governance
During the year the Board has focused on consolidating the
medium to long term strategy of the business to ensure that
the Group continues to deliver and maintain value for our
stakeholders (detail in respect of this is covered on page 8
of the Chief Executive’s Review). As Chairman, one of my
prime roles is to ensure that the Board has the right mix of
skills and experience to assist the Executive Directors in the
progression and implementation of this Group strategy.
During the year a detailed internal board evaluation
programme was undertaken. The process was well received
by the Directors and a number of constructive suggestions
were highlighted which should assist in strengthening the
Board over the coming year. The evaluation highlighted the
enthusiasm and ambition of the Board to continue to grow
the business. Further detail in relation to how the evaluation
was carried out can be found in the Corporate Governance
Report on page 46.
Prospects
Although footfall through veterinary practices has declined
and the general economic climate remains uncertain we are
continuing to demonstrate solid growth in markets in which
we trade. Our branded product range, the focus of our key
strategic objective, continues to grow strongly.
To sustain this growth we have increased investment in
product development, extended the geographies in which
we operate, acquired complementary businesses and
increased the number of people within sales and marketing.
We believe, therefore, that we are well positioned to ensure
future solid growth is maintained and Shareholder value
enhanced.
Michael Redmond
Chairman
6 September 2011
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
04
www.dechra.com
05
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
Case Study
Dermatology
It is estimated that around 20% of all
small animal veterinary consultations
relate to dermatological problems, i.e.
skin diseases, allergies, otitis externa,
seborrhoeic dermatitis and surface
pyoderma are amongst the most
commonly diagnosed dermatological
conditions.
What is Seborrhoeic Dermatitis?
This is a condition where an overgrowth of the normally
present yeasts and bacteria occurs resulting in dandruff
like flaking. It is usually caused by an underlying primary
problem such as an allergy, endocrine disease or
parasites. This is a very itchy disorder with red inflamed
scaly skin; affected animals can also have a strong
unpleasant odour.
What is Otitis Externa?
It is inflammation of the skin of the external ear canal.
Many factors can contribute to this disease including
irritation caused by allergic skin disease, ear mites,
foreign bodies, and secondary infection with bacteria
or yeasts. As so many factors are involved, this disease
can be challenging to manage; some cases require
repeat treatment and/or a long term management plan.
Ear cleaning can form a vital part of the management of
this disease.
Dogs and cats with otitis externa usually show signs
of obvious pain or discomfort. They scratch and shake
their heads and there is also often a smelly discharge
from their ears. The disease is easily diagnosed by
examining the animal and inspecting the ear canal. Vets
will also often examine a swab taken from the ear (under
a microscope), before selecting the appropriate therapy.
Diagnosis of the disease is generally easy, based on
an examination of a skin sample under a microscope.
Diagnosis of the underlying disorder can be more
difficult, sometimes impossible. Treatment therefore may
need to be long term to prevent recurrence. Malaseb®
shampoo is licensed for the treatment of dogs with
seborrhoeic dermatitis.
What is Surface Pyoderma?
It is a bacterial infection on the surface of the skin,
most commonly seen in dogs. There are two distinct
types:
l Acute moist dermatitis: the root cause is
unclear, but is often a trauma, such as a flea bite,
that causes the dog to lick, scratch or chew its
skin, resulting in an intensely itchy, red inflamed
area with a sticky discharge matting the fur.
Canaural®, Dechra’s branded prescription
pharmaceutical, is licensed for the treatment of
otitis externa in both dogs and cats. It is effective
against microbes most commonly associated with
otitis externa and ear mites.
l Skin fold dermatitis: common in obese dogs and
breeds with prominent skin folds. Lesions develop
in the fold as a result of friction between the skin
surfaces often causing the skin inside the fold to be
itchy, red and malodorous.
Diagnosis is normally based on the clinical signs
identified. Clipping the hair and washing the affected
areas are important to increase skin ventilation and
remove any debris. However, appropriate antibiotic
therapy, such as Dechra’s unique pharmaceutical
Fuciderm® Gel, will target the bacterial infection.
06
www.dechra.com
20512-04 05/09/2011
Proof 15
07
Stock Code: DPH
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
06
www.dechra.com
07
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
Chief Executive’s Review
“Dechra has performed strongly, and for the fifth
consecutive year, produced double digit earnings per share
growth. This success is a reflection of the strength of the
Group and the ongoing delivery of the underlying strategy”
Ian Page, Chief Executive
Introduction
The Group has continued to make good financial and
strategic progress during the year. The markets in most of
the countries in which we trade have demonstrated growth,
although there has been a decline in footfall through veterinary
practices, especially in the companion animal sector. This
decline has been offset in the UK by reasonably strong
growth in the livestock sector and by a significant increase in
veterinary products being purchased online as price conscious
consumers look to reduce the costs of animal welfare; Dechra,
in our UK distribution business, is currently underweight in
both these low margin sectors. Within these market dynamics
and against the background of continued global economic
uncertainty, Dechra has performed strongly and, for the fifth
consecutive year, produced double digit underlying earnings
per share growth. This success is a reflection of the strength
of the Group and the ongoing delivery of the underlying
strategy. Furthermore, we have continued to invest in our
infrastructure and product development pipeline and have
made two earnings enhancing acquisitions to ensure we are
well positioned to maintain good future growth prospects.
Our Strategy for Delivering
and Maintaining Value
The Group has a clear strategy for growth by providing
novel and specialist products together with innovative
services to the veterinary profession. Additionally,
we provide contract manufacturing services to other
pharmaceutical companies.
Products
The primary strategic objective of the Group is to develop a
high growth, cash generative veterinary products business.
This is achieved by increased market shares of existing
products and increasing the depth of the product range by:
l pharmaceutical development of novel companion animal
and equine products;
l approval of pharmaceutical generic products;
l
the continued development and innovation of our
branded pet diets; and
l acquiring or in-licensing specialist pet products which
can be marketed through existing sales and customer
channels.
Furthermore, we are:
l
l
increasing geographical coverage through the creation
of our own subsidiaries in countries where we are not
currently represented; and
improving and developing sales growth through our
export partners in non-subsidiary territories.
Services
The key strategic objectives in this segment are to:
l continue improving logistics excellence;
l maintain or reduce operating costs as a percentage of
l
sales;
improve our service offerings relative to our competitors;
and
l position the businesses so that our customers and
ourselves are best placed to take advantage of a
changing marketplace.
Manufacturing
The key strategic objective of manufacturing is to
effectively and economically produce our own veterinary
pharmaceutical product range. However, we have been
successful in developing a contract manufacturing business
by strategic implementation of:
therapeutic sector specialisation;
l
l provision of a full service, from formulation and
development through to manufacturing and packaging;
and
the ability to offer our customers a wide range of scale,
dosage forms and packaging formats.
l
08
www.dechra.com
20512-04 05/09/2011
Proof 15
09
Stock Code: DPH
Acquisitions
Two acquisitions were completed in the period.
DermaPet
DermaPet, a Florida based dermatological business, was
acquired in October 2010 for a potential total consideration
of US$64.0 million. The acquisition strengthened
our position as a leader in the worldwide veterinary
dermatological market. As a result, we have been able
to significantly increase our US sales and marketing
capabilities. DermaPet has now been fully integrated
into DVP US and expected sales and cost synergies
are beginning to be realised. We have modernised the
packaging and are presenting it in Dechra livery. The Group
has also identified opportunities to increase sales and
geographical coverage of this range within Europe.
Genitrix
In December 2010 we completed the acquisition of
Genitrix, a privately owned veterinary company with a range
of products complementary to Dechra’s, for a potential
total consideration of £6.4 million. The Genitrix brands are
currently sold exclusively within the United Kingdom. The
rationalisation of the business was completed at the end of
January 2011 with the closure of their warehouse and office
facility. A number of the Genitrix sales team have been
appointed within the Dechra Group and cost synergies are
now being realised.
The main future strategic objective is to extend the Genitrix
product range into other EU territories. Libromide®, a
recently approved canine epilepsy product for the UK, is
being taken through Mutual Recognition to gain approval
throughout Europe. Two other products, Xeno® and RIP
Fleas®, are also being considered for launch in other
selected territories.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
08
www.dechra.com
09
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
Case Studies
Webinars
During 2011 we launched Felimazole® and
Vetoryl® throughout Dechra’s nordic sales and
marketing subsidiaries.
to improve the levels of diagnosis of feline
hyperthyroidism and canine Cushing’s syndrome
(for the conditions which Vetoryl and Felimazole are
used to treat, see page 11) across Denmark, finland,
norway and Sweden, we developed a programme of
webinars.
We worked with two globally renowned veterinary endocrinologists,
who led a series of Dechra branded web-based seminars. These
were attended in real time, by veterinarians from across the Nordics,
accessing the presentation via the internet from their own computers.
The audience watched the presentations and listened to the speakers
and also participated in interactive question and answer sessions.
This new service was well received by our customers. A considerable amount
of positive feedback about the quality of the presentations and the convenience
of this medium was received from veterinarians. In total, 645 participants
attended four webinars in February and March 2011. In addition, a recording
of the webcasts is available to veterinary professionals to view through the
Dechra Veterinary Products website, www.dechra.com. There have been
1,400 viewings to date.
Following the success of these initial webinars a programme
of similar events has been rolled out across Europe; there are
now several webcasts available on the website. Over 600
vets in the UK registered for a new webinar on otitis in June
this year.
10
www.dechra.com
20512-04 05/09/2011
Proof 15
11
Stock Code: DPH
endocrinology
endocrinology describes all diseases arising from
disorders of the endocrine system. these include
total failure of hormone production, underproduction
of a hormone, or overproduction of a hormone by an
endocrine gland.
What is Feline Hyperthyroidism?
It is the most common endocrine disorder in middle-aged and older cats. It is caused by the overproduction of
thyroid hormones and occurs when either one or both thyroid lobes enlarge.
Thyroid hormones (T4 and T3) regulate the body’s rate of metabolism so cats with hyperthyroidism have an
excessive amount of these hormones in the blood. This dramatically increases their metabolic rate and often
results in weight loss, despite the cat having a ravenous appetite.
Diagnosis is usually very straightforward. In the majority of cases, a veterinary surgeon will be able to feel the
enlarged thyroid lobe(s) in the neck. Blood samples taken from a cat will usually confirm the diagnosis.
Regular treatment with Dechra’s branded prescription medicine Felimazole reduces the production of thyroid
hormones, returning the cat to its normal euthyroid state.
What is Hyperadrenocorticism or Cushing’s Syndrome?
The condition is usually seen in older dogs and is one of the most commonly diagnosed canine endocrine disorders.
It occurs when a dog is exposed to high levels of the hormone cortisol in the blood.
Cortisol, which is released from the adrenal glands, is controlled by the hormone ACTH which is produced by the
pituitary gland. Dogs with Cushing’s syndrome have a tumour either in their pituitary gland or
in their adrenal glands, both of which result in excessive amounts of cortisol. Over time, the
clinical signs of Cushing’s syndrome will develop, which can include excessive drinking
and urination, a ravenous appetite, a pot belly and hair loss.
Diagnosis can be complex; blood tests that assess the capacity of a dog’s adrenal
glands to produce cortisol are routinely used to support diagnosis.
Treatment with Vetoryl, Dechra’s leading global product, reduces the level of cortisol
in a dog’s blood by inhibiting the production of cortisol. As Vetoryl does not cure
Cushing’s syndrome (the tumour is usually still present), in the majority of cases
treatment must be continued for the rest of the life of the animal.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
10
www.dechra.com
11
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
Key Products and Specialisations
The product range is unique as it is entirely focused on companion animals and horses. The majority of our key products
are novel or have clear marketing advantages over competitor products. Most of our branded range have market leading
positions in the majority of territories in which we operate.
Dermatology
equine Medicine
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®.
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
dermatology range, selling into 23 countries.
We have a wide range of licensed products supporting the
equine veterinarian. The leading product with the highest
sales is Equipalazone® which is licensed in five major EU
countries.
Equipalazone was first licensed in a sachet presentation in
1972 and subsequently in a paste and injection. It is still the
leading non-steroidal anti-inflammatory drug (NSAID) for the
treatment of musculoskeletal disorders, such as lameness
due to acute and chronic laminitis in the horse.
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.
Equidone® Gel was approved in 2010 for the treatment
of fescue toxicity in horses. This niche product is targeted
specifically at the US market.
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.
Ophthalmology
Ophthalmology is an area of veterinary medicine where
we have a number of leading products including licensed
pharmaceuticals, unlicensed care products and instruments.
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.
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.
DermaPet, acquired in October 2010, is a range of
shampoos, conditioners and ear products to treat numerous
skin and ear conditions in dogs and cats. Key brands are
Triz, Malacetic and Malaket.
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
syndrome (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 syndrome 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 has subsequently been
approved in Australia and Canada.
12
www.dechra.com
20512-04 05/09/2011
Proof 15
13
Stock Code: DPH
Critical Care
Pet Diets
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.
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.
Libromide, acquired as part of the Genitrix acquisition as
outlined earlier, was approved in 2010. It is the only licensed
product of its type which is used in combination with other
pharmaceuticals for the management of epilepsy in dogs.
Care
Generics
Several generic products are registered within the United
Kingdom; this basket of products is marketed under the
Dechra Veterinary Essentials® brand. A number of products
are also registered in Europe; we are in the process of in-
licensing and registering additional products to extend our
branded generic range within this territory.
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.
Marketing Agreements
A number of products are also sold through our global
subsidiaries under marketing agreements with:
l Eurovet to market Domidine®, Sedator® and Atipam®
in the UK and Ireland;
l Orthogen to market Irap® in the USA;
l Peptech Animal Health Pty Limited (“Peptech”) to market
Ovuplant® in the USA, Canada and EU; and
l Krka to market Rycarfa® in the EU.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
12
www.dechra.com
13
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
Product Development
“Our product pipeline continues to deliver novel pharmaceuticals,
generic pharmaceuticlas, line extensions, approvals of existing products
into new territories and new innovative pet diets”
The Business and its Markets
Dechra operates under four segments:
l Product Development;
l european Pharmaceuticals which comprises Dechra
Veterinary Products Europe (“DVP EU”) and Dales
Pharmaceuticals (“Dales”);
l US Pharmaceuticals comprising Dechra Veterinary
Products US (“DVP US”); and
l Services comprising National Veterinary Services (“NVS”)
and our Laboratories, NationWide Laboratories (“NWL”)
and Cambridge Specialist Laboratory Services (“CSLS”).
The Group employs 1,010 people, operates out of 14
countries and exports products globally.
Product Development
The ongoing development of our specialist branded
veterinary exclusive products is a key part of the Group’s
future growth plans.
Development Strategy
The Group has a strategic programme to increase its
product portfolio. The main criteria for assessing a product’s
potential for inclusion in the development pipeline are:
risk adjusted return on investment;
l
l market potential and future growth opportunities;
l geographical scope;
l
l
target species; and
the ability to sell and market through existing distributor
and veterinary customer channels.
Our product development is concentrated in three areas:
l Prescription only veterinary medicines (“POMs”)
for dogs, cats and horses. We target products in
specialist therapeutic areas and focus on novel ideas in
underserved markets. Most of our projects utilise existing
pharmaceutical entities that are typically used within the
human market and therefore the majority of product
creation is development and not research based.
14
www.dechra.com
20512-04 05/09/2011
Proof 15
15
Stock Code: DPH
l Therapeutic pet diets for dogs and cats. Products are
formulated and trialled to provide optimum nutrition for
animals diagnosed with various medical conditions.
l Unlicensed medicines, shampoos and supplements for
dogs, cats and horses. These products, on the whole,
are intended for veterinary recommendation and in most
cases will complement the therapeutic areas in which
our POMs are targeted.
Development Achievements
The Group has continued to increase investment in product
development with an 11.9% increase in expenditure over
the corresponding period last year. The development team
has been increased to 25 people who are located in the
United States, United Kingdom and Denmark. Dosage form
development work is conducted in the UK; regulatory work
is conducted in the UK and Denmark and the majority of
safety and efficacy trials are controlled by our US team.
There have been several approvals within the year:
l Equidone Gel, a specialist novel equine product, in the US;
l Vetoryl, the Group’s largest product, in Japan;
l 10mg Vetoryl, which increases dosing options, in
Australia;
l Felimazole 2.5mg, low dose preparation, approved in
the Nordics;
l Malaseb, our dermatological product, recently licensed
in mainland Europe is now approved in Norway;
l Clavudale®, an antibiotic generic, throughout Europe
via the Mutual Recognition procedure;
l Urilin®, a bitch incontinence product, throughout
Europe via the Mutual Recognition procedure;
l Rycarfa, a flavoured analgesic tablet, in the EU;
l Alvegesic®, an analgesic injection, in the UK; and
l Fiprodog®, a generic flea product in the UK.
Alvegesic, Rycarfa and Fiprodog are products which
were gained through licensing agreements with European
partners.
We have also achieved a number of other regulatory
successes including:
l
l
the transfer of the Marketing Authorisations of the
Genitrix products and Vetoryl from our previous EU
marketing partners to Dechra;
the regulatory changes needed to transfer the
manufacturing of Canaural and Fuciderm in-house;
l work has begun on the difficult regulatory task of
transferring the ophthalmic products, acquired from
Nycomed for the US market last year, into a new
manufacturer.
Three new diet ranges have been developed:
l Canine Omega Support Diet: an effective support for
a number of clinical conditions including the treatment
of allergic dermatitis and for recovery from cancer and
canine heart failure;
l Feline Crystal Diet: a newly formulated cat diet
optimised for the long term prevention of struvite
crystals and prevention of recurrence of struvite crystals
and uroliths; and
l a certified organic range which are the first organic diets
targeted for sale through veterinary practices. These are
palatable and nutritionally balanced diets for healthy pets.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
14
www.dechra.com
15
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
Product Pipeline
As can be demonstrated by the achievements outlined earlier in this report, our product pipeline continues to deliver novel
pharmaceuticals, generic pharmaceuticals, line extensions, approvals of existing products into new territories and new
innovative pet diets.
New Chemical Entities
Development of new molecules to the veterinary profession is ongoing. Significant progress has been made on an equine
lameness product, with both the safety and efficacy studies being completed. Unfortunately, there has been a six month delay as
we have had to change the outsourced manufacturer. All other novel products, outlined in the following table, continue to make
progress. We have, over the period, conducted two ‘proof of concept’ studies, one of which, a canine dermatological product,
has been added to the development programme. We have reached contractual agreement for exclusive use of a novel patented
human pharmaceutical for this dermatological product and for a second application in another key therapeutic sector.
Species
Equine
Canine
Feline
Feline
Canine
therapeutic Category
target Approval
Lameness
Endocrine
Endocrine
Gastrointestinal
Dermatological
2013
2014
2015
2014
TBD
At maturity these products should cumulatively generate £25 million to £30 million revenue annually.
Generics and Unlicensed Products
A number of generic products that complement our existing range or are sold within our key therapeutic sectors are under
development. Reformulation, improvement and innovation in our unlicensed products are also ongoing.
Species
Canine
Equine/Canine
Canine/Feline/Equine
Canine/Feline
Feline
Feline
therapeutic Category
target Approval
Epilepsy
Euthanasia
Pain Management
Pain Management
Endocrine
Endocrine
2011
2012
2012
2013
2013
TBD
At maturity these products should cumulatively generate £4 million to £5 million revenue annually.
16
www.dechra.com
20512-04 05/09/2011
Proof 15
17
Stock Code: DPH
Pet Diets
Development of novel therapeutic pet diets continues and numerous formulation changes to improve efficacy and
palatability are ongoing. We have also signed a contract with Biomarine, a Norwegian government funded project, to
research the use of bioactive peptides in the treatment and prevention of diseases in pets. This project puts Dechra in the
frontline of research into innovative ingredients for the next generation of therapeutic pet foods.
A novel product Specific CED Endocrine Support is in the final stages of development. The product is an innovative
therapeutic diet to support the medical treatment of adult dogs with endocrine disorders including the treatment of diabetes
and Cushing’s syndrome.
In the autumn, a re-optimised wet food range will be introduced in flexible cans with a new design. The maintenance wet
food range will be extended with a senior wet food version (Specific CGW Senior) for dogs as well as cats (Specific FGW
Senior). The senior diets give our customers the choice to feed their pets a healthy and palatable diet which helps to
prevent geriatric diseases.
Species
Product
Project
Canine/Feline
Senior wet diets
Completion of maintenance wet food range
Canine
Feline
Feline
Endocrine
Gastrointestinal
Joint
Canine/Feline
Hypo allergenic
New therapeutic dry diet for endocrine support
New therapeutic dry and wet diet for gastrointestinal support
New therapeutic dry and wet diet for joint support
Development of new hypo allergenic diets based on
alternative protein sources
Canine/Feline
Novel
Use of bioactive peptides in therapeutic diets
target
Launch
Date
2011
2011
2011
2012
2013
2014
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
16
www.dechra.com
17
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
Introducing the DVP Country Managers
Dechra Veterinary Products currently operates out of 14
countries, 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
email: info.dk@dechra.com
web: www.dechra.dk
United States
Mike eldred
email: info@dechra.com
web: www.dechra-us.com
Mike Eldred was appointed as President of the US
operations in 2004. Details of his previous professional
experience can be found on page 41.
UK & eire
Bob Parmenter
email: info.uk@dechra.com
web (UK): www.dechra.co.uk
web (eire): www.dechra-eu.com
Bob Parmenter was appointed in July 2008 as the Country
Manager of the UK and Eire. He has over 41 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.
Spain & Portugal
Jesper Graff BBA MBA IESE
email: info.es@dechra.com
web: www.dechra.es
Jesper Graff started work for the Group in 1991 and was
appointed the Country Manager of Spain and Portugal
in 1998. He has over 15 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.
Mette Trige 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.
france
florence Lasvergères DVM MBA
email: info_fr@dechra.com
web: www.dechra.fr
Florence Lasvergères 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 ESSEC-IMD.
Florence has over 21 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.
18
www.dechra.com
20512-04 05/09/2011
Proof 15
19
Stock Code: DPH
norway
Sverre Aasgaard
email: info@dechra.no
web: www.dechra.no
Sweden
Carina Kjellberg
email: info.se@dechra.com
web: www.dechra.se
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 23
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.
Carina Kjellberg started in 2000 and was appointed as
the Country Manager of Sweden in 2005. She has over
20 years’ experience in the animal health business, 11 of
which were working as a veterinary nurse.
finland
Henri Hilden DVM
email: info.fi@dechra.com
web: www.dechra.fi
Henri Hilden 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 19 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.
Benelux
Ad van Beysterveldt
email: info.nl@dechra.com
web: www.dechra.nl
Ad van Beysterveldt was appointed as the Benelux
Country Manager (Belgium, Netherlands & Luxemburg) in
January 2011. Ad has more than 25 years’ experience in
the pharmaceutical industry, the majority of which was with
Bristol-Myers Squibb. He has also worked for Cephalon
and EUSA Pharma and has worked in several European
countries, the USA and Asia Pacific region in senior
management positions.
Germany
Dr Michael Hemprich MRCVS
Dr.med.vet
email: info.de@dechra.com
web: www.dechra-eu.com
Dr Michael Hemprich started work with Dechra in
September 2006 as Business Development Manager; in
addition to this role, in 2010 he was appointed the Country
Manager for Germany. 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, Product Development and Business Development.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
18
www.dechra.com
19
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
European Pharmaceuticals: This segment comprises DVP EU and Dales.
DVP eU Management team
ed torr
Managing Director
Carsten Jeppesen
Chief of logistics
Roeland Meijers
Director of Diets
Giles Coley
European Pharmaceutical
Sales & Export Director
Gwenda Bason
European Marketing
Director
What we do
This business unit markets and sells our own branded
veterinary products within 13 European countries and
manages the relationships with our worldwide marketing
partners.
Operational Structure
The business has an operating board of five senior managers.
Finance, IT, pre-wholesale logistics, marketing and HR are
centred in Uldum, Denmark and Hadnall, England.
We have nine country managers operating out of Denmark,
Finland, France, Germany, the Netherlands, Norway, Spain,
Sweden and the UK. Ireland and Portugal are managed out
of the UK and Spain respectively.
We currently employ 73 representatives across these
territories. DVP EU employs 214 people.
Our Market
Our customers are small animal and equine veterinary
surgeons, predominantly operating out of commercial
veterinary practices. European companion animal veterinary
markets are currently only realising inflationary growth as
footfall in most territories is declining due to the worldwide
economic difficulties. Internet pharmacies, especially
in the UK, are demonstrating stronger levels of growth
as consumers look to reduce the cost of pet and horse
ownership. Animal numbers in the major territories have
remained static in the period being reported. The UK is
currently our largest market with approximately eight million
cats, seven million dogs and one million horses.
Key Strengths
We are unique in having a veterinary exclusive range of products
with a clear focus on companion animals and horses. The
majority of our products are novel and, on the whole, are used
to treat medical conditions for which there is often no other
effective solution. Our key marketing benefit, especially on diets,
is that our products are only sold to veterinary practices.
Achievements
Third party European marketing contracts, which were
negotiated prior to the development of our own sales and
marketing infrastructure, have now been terminated. Vetoryl
and Felimazole have been marketed in-house through our
Nordic subsidiaries since January 2011 and have now been
transferred into Dechra livery for sale through our other
mainland European subsidiaries since July 2011. We will also
commence the in-house marketing of Canaural, Fuciderm
Gel and Fucithalmic Vet into Germany and Belgium and also
our Specific range of pet diets into Belgium. In Germany
these products will be distributed in Dechra livery through our
existing partner, Selectavet. In Belgium we have created a new
business unit which will be managed out of the Netherlands by
a newly appointed Benelux manager, with sales and technical
support staff being appointed within the country. The benefit of
marketing products through our own subsidiaries is a significant
increase in the retained gross margin for the Group. The full
impact of this will be realised in our financial year ending
30 June 2012.
20
www.dechra.com
20512-04 05/09/2011
Proof 15
21
Stock Code: DPH
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Following the closure last year of our pre-wholesale warehouse
in Shrewsbury, England, we have relocated our UK sales,
marketing, technical and regulatory teams to a new single site.
This environmentally sensitive office facility provides excellent
working conditions for our employees and reflects the growth
and development of our pharmaceutical business.
Pharmaceutical sales increased by 9% in the period.
There were a number of product launches through our own
subsidiaries and through our worldwide marketing partners:
l a low dose 2.5mg Felimazole launched in the Nordics;
l Alvegesic launched in Denmark, Sweden and France
following its successful introduction into the UK last year;
l Vetoryl launched in Japan through our partner Kyoritsu
Seiyaku Corporation;
l Fiprodog and Fiprocat®, generic flea products, were
launched in the UK;
l Rycarfa was launched just after the year end in the UK,
France, Germany and Spain; and
l preparations are being made to launch Clavudale and
Urilin across the EU following their recent approvals.
Our Specific pet diets have outperformed the competitors in
most territories in which we operate and have grown 8% over
the period. This has been achieved by our unique position
of veterinary exclusivity and by keeping price increases to
a minimum. Raw material costs, however, have increased
significantly over the period resulting in a margin performance
slightly below last year. The canine and majority of feline diets
have been successfully transferred into a new manufacturer,
resulting in improved quality and palatability. The Feline Crystal
diet, Canine Omega Support diet and Organic range, outlined
under Product Development, have been successfully launched.
Following an agreement to license the formulation, brands
and technical support of our Specific therapeutic diets to a US
marketing and manufacturing company, the first two products
were launched in June 2011. The products are manufactured
and sold by iVet under the Specific brand into the extensive
American market. Dechra will receive a royalty on all sales. The
therapeutic diets have also been launched through a marketing
partner in South Korea, a fast developing market. Specific
therapeutic diets are also currently being launched in the UK
and a number of major practices have agreed to market the
range. This is a pleasing opening as we begin to establish the
brand in this highly competitive market.
We have successfully integrated the new products from the
Genitrix and DermaPet acquisitions and are at an advanced
stage of introducing them in Dechra livery. The DermaPet
range, which was previously only marketed in the UK and
Nordic regions, is also being prepared for launch in other
subsidiary territories.
20
www.dechra.com
21
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
European Pharmaceuticals continued
Dales Management team
Mike Annice
Managing Director
Kirsty Ireland
Finance Director
Steve Dewar
Operations Director
Gareth Davies
Sales and Marketing
Director
Andrew Parkinson
Quality Director
What we do
Dales manufactures the vast majority of our own branded,
licensed pharmaceutical products which are marketed
through DVP, but also derives approximately 50% of its
revenues from third party toll manufacturing, predominantly
for human pharmaceutical companies. This is Dechra’s only
significant source of revenue not derived from the veterinary
market.
Operational Structure
The business has an operating board of five senior
managers. The majority of manufacturing is located in
Skipton, England and employs 200 people. There is also
a small manufacturing facility in Uldum, Denmark which
employs 26 people.
Our Market
The primary customer for Dales is DVP EU. Our toll
manufacturing customers are, in the main, small or mid sized
UK based pharmaceutical companies.
Key Strengths
Our ability to be flexible on batch size is a major advantage,
especially when introducing new pharmaceuticals. Another
key strength is our ability to produce several dosage
formats such as tablets, capsules, liquids, creams, gels
and powders and our ability to package these products in
numerous formats. We are also able to provide a full service
for third party customers including product formulation, trial
batch manufacturing, validation, production and packaging.
Achievements
Total overall production in the year increased by 1.2% over
the corresponding period last year. However, contract
manufacturing decreased by 6.5% due to a planned
reduction in production by our biggest customer. Five
new contracted products were introduced with a further
three products in formulation for future manufacturing for
third party customers. We have successfully transferred
the manufacturing of Fuciderm and are in the process of
transferring Canaural into Dales. These key DVP products
were previously outsourced. Throughout the year we have
improved our service level, increased yields, reduced
waste and have therefore exceeded productivity targets.
FDA inspections have been conducted within the year
and the control points raised have been remedied. We
hope to receive notification of compliance and be able to
manufacture Vetoryl for the US market imminently.
22
www.dechra.com
20512-04 05/09/2011
Proof 15
23
Stock Code: DPH
US Pharmaceuticals
DVP US Management team
Mike eldred
President, US Operations
Doug Hubert
Vice-President,
Sales and Marketing
Dana fertig
Veterinary Technical
Services Manager
What we do
DVP US markets and sells our own veterinary products
across the USA.
Operational Structure
The business has an operating board of three senior
managers, all of whom have in depth experience of
the American veterinary market. Finance, HR and pre-
distributor logistics are all currently outsourced. Our
business is located in Kansas City, USA and employs 33
people, 22 of whom are field based sales representatives.
Sales of Vetoryl, our key product, increased by 30% in
the year to US$8.6 million. Almost 13,000 veterinary
clinics have purchased Vetoryl. A report from an external
audit demonstrated that Cushing’s syndrome is being
under diagnosed and that education and training is
essential for future growth. During the year, 56 meetings
were conducted by our two technical veterinarians with
almost 1,600 attendees. We also sponsored ten meetings
with external key opinion leader speakers with over 400
attendees. We are in the process of hiring two additional
field veterinarians to increase our educational programme.
We continue to experience unregulated sales of Trilostane,
the active principal ingredient in Vetoryl, through illegal
compounding. We have invested a significant amount of
funds to lobby senators on Capitol Hill in an attempt to
force the FDA to take action against compounders. We are
now looking to work with other animal health companies to
continue this lobbying.
In December 2010 we successfully launched Equidone Gel
to US equine veterinarians following its full approval by
the FDA.
Supply issues remain with our otic and ophthalmic
products from our third party suppliers, having a negative
US$2 million impact on like for like sales; however, progress
is being made on the transfer, validation and re-registration
of these products into a new facility. We hope to be able to
re-launch the major products in 2012.
Our Market
Our customers are small animal and equine veterinary
surgeons, predominantly operating out of commercial
veterinary practices. The USA is the world’s largest
veterinary market and represents a significant growth
opportunity for Dechra. Over 62% of US households own
a pet which equates to 73 million homes. Additionally,
the number of pets is increasing with a current estimated
population of 86 million cats, 78 million dogs and 8 million
horses.
Key Strengths
Our key pharmaceuticals, which are the focus of the
majority of our sales and marketing efforts, are unique and
are the first licensed products to treat the conditions for
which they are recommended.
Achievements
Revenue in the year was 51.5% higher than the previous
year and includes the DermaPet acquisition completed in
October 2010. Underlying growth, on a like for like basis
at constant currency, was 3.6%. This strong growth has
allowed us to significantly increase our infrastructure with
additional marketing, operational and sales representatives
being employed in the year. Further sales and technical
support staff are also currently being recruited.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
22
www.dechra.com
23
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
Services: This segment comprises NVS and our Laboratories, NWL and CSLS
nVS Management team
Martin Riley
Managing Director
Dan Shipman
Finance Director
Steven Williams
Operations Director
Caitrina Harrison
Sales and Marketing
Director
Colin Higham
Buying Director
What we do
NVS is the UK market leader, as measured in terms of
market share, in the supply and distribution of veterinary
products to veterinary practices and other approved
outlets. NVS stock 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.
Operational Structure
The business is managed by an operating board of five
experienced directors. NVS employs 455 people across the
UK, 111 of whom are delivery drivers.
The centralised inventory held in Stoke-on-Trent, England is
picked and packed throughout the afternoon and evening
and then distributed overnight to nine trunking depots via
HGVs. Van drivers are employed locally at these depots to
distribute the goods directly to our customers. NVS has
developed an advanced communication system for its
customers and through this 85% of orders arrive at NVS
automatically with no human input required.
Our Market
Our principal customers are UK veterinary practices of all
types: small animal, equine, farm animal and mixed species
practices. Footfall through UK veterinary practices has
declined in the year, although the overall market continues
to demonstrate growth, predominantly from inflation. The
consolidation of veterinary practices into large corporate
groups seen over recent years has continued within the
period, putting pressure on margins and cash flow.
Key Strengths
NVS offers very high levels of service, a large range and
depth of stock and a reliable next day national delivery
service. It also supplies a range of business solutions for
veterinary practices including practice management software,
benchmarking systems and marketing and business support.
24
www.dechra.com
20512-04 05/09/2011
Proof 15
25
Stock Code: DPH
Achievements
NVS has retained its market share above 40%; however,
with growth of 3.9% over last year, we have slightly
underperformed market growth relative to our competitors
as we supply a smaller percentage of our sales into the
higher growth food animal production and online pharmacy
sectors. These sectors offer relatively low margins. We did,
however, outperform the market in the fourth quarter with
growth of 6.4%.
The most significant achievement in the year was the
successful implementation of a new integrated IT system
across the business which went live on 1 July 2011. Very
few problems were encountered and virtually no supply
issues were experienced by our customers. The second
phase of implementation has now commenced, which
will allow us to focus on improving management data and
providing new services to customers.
Further cost savings as a percentage of sales were
recognised in the year due to investment in new pallet
picking technology and efficiencies gained by shift changes
in the warehouse. Further efficiencies will be gained as we
increase the efficiency of the picking circuit and improve
utilisation of our distribution system.
NVS Network
Aberdeen
Larkhall
Carlisle
Wetherby
Stoke-on-Trent
Mildenhall
Gloucester
Hertford
Bracknell
Swanscombe
We have continued to develop our own label disposable
product range, branded the Valu range. Further development
in this range is planned in the new financial year.
Tiverton
Our business partnership relationship with our customers
has continued; new services have been launched such
as mystery shopping to ascertain practices customer
relationship skills, stock-taking services via vPOD, NVS
Online, which personalises self-service practice data
provision and we have developed strategies with practice
management software suppliers to improve stock control
integration and efficiencies within veterinary practices.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
24
www.dechra.com
25
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
Services continued
Laboratories Management team
Dr Peter Graham
Managing Director
Jamie Whitwam
Business Development
Manager
Mark Davies
Sales and Marketing
Manager
Paul Sandland
Finance Director
What we do
NWL is a first referral veterinary laboratory. We provide
histology, pathology, haematology, chemistry and
microbiology services to veterinary practices. CSLS
provides secondary referral services with our key area of
expertise being endocrinology. CSLS also provides precise
assays which support the dosage regimes and patient
monitoring of DVP’s key products, Vetoryl and Felimazole.
Operational Structure
The Laboratories, employing 75 people, are run by an
operational board of three senior managers and are
supported by the Group Financial Controller who also sits
on this board. NWL is located in Poulton-le-Fylde, Leeds
and Swanscombe, and CSLS is located in Sawston,
England. Samples are received on a daily basis via post,
couriers and our own collection service. Where the science
allows, a same day or next day results service is provided.
Our Market
NWL’s customers are UK commercial veterinary practices.
We have historically provided support to companion
animal practices; however, in the last two years we have
introduced an increased range of large animal and equine
services. CSLS provides some first level support similar to
NWL to UK veterinary practices; however, their major area
of specialisation is in very precise endocrine assays which
it supplies directly to veterinary practices and other first
referral laboratories.
Key Strengths
We offer a high quality service with a very experienced team
of veterinary pathologists who provide a fully interpreted
results service on all samples received.
Achievements
It has been a very difficult year for laboratory services.
As expected, expensive diagnostic procedures have
reduced significantly due to lower footfall through veterinary
practices. We have, however, recently launched the
FUJI Film Dry Chemistry Analyser which is a system that
allows simple diagnostic testing of blood within veterinary
practices. During the year, we have 24 analysers placed in
practice. The main revenue driver is the repeat orders of
disposable test slides which are used within the machines.
26
www.dechra.com
20512-04 05/09/2011
Proof 15
27
Stock Code: DPH
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
26
www.dechra.com
27
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
Information Technology and HR
Our Laboratories have identified a new IT system, Autoscribe,
which is targeted to be implemented within the current
calendar year.
Customer Solutions and Ordering Platform
We currently market two veterinary practice management
systems through our veterinary distributor, NVS. Vetcom®
Open, our most advanced system which is developed
through a partnership agreement, has made significant
programming and functionality advancements and now
has competitive benefits over other market leading
systems. Vetcom Windows, our in-house developed
introductory practice management system, has also been
modernised and developed ready for re-launch. Work has
now commenced on updating vPOD, our hand-held stock
control and ordering terminal, to allow it to operate on
android hardware.
NVS has also updated Indices, a system which allows
our veterinary customers to benchmark their performance
against comparable practices on both a regional and
national basis. The new system is faster and easier to
use and has significantly enhanced functionality allowing
veterinary practices greater access to business information.
Communication Tools
Within Dechra Veterinary Products we have continued to
invest in state of the art online communication tools. We are
one of the leading companies within the veterinary industry
to offer educational webinars. Since inception we have
conducted six online webinars in the UK with over 1,000
attendees and four in the US with over 500 attendees.
Major changes and improvements in the Group’s
technology capabilities have been implemented in the
period.
Drug Monitoring
During the period, the Regulatory team have implemented
an electronic pharmaceutical monitoring and reporting
system which can communicate adverse reactions
electronically to the FDA in the USA.
ERP Systems
NVS, our veterinary distributor, successfully implemented a
new ERP system provided by IFS on 1 July 2011. The new
system will provide enhanced management information,
improve the interface with other Group reporting systems
and create operational flexibility upon which we can develop
new services.
An Oracle system was implemented at our UK manufacturing
business, Dales, two years ago. This was also successfully
implemented at our Danish manufacturing site in November
2010. A programme has commenced to roll out Oracle
across the entirety of our European Pharmaceutical segment
businesses and eventually into DVP US.
28
www.dechra.com
20512-04 05/09/2011
Proof 15
29
Stock Code: DPH
In addition to webinars we offer online continued
professional development courses branded the Dechra
Academy. We have approximately 9,000 registrations from
veterinarians and veterinary nurses for this educational
programme.
Our Dechra Veterinary Product websites are constantly
being updated with technical and clinical information. All
of the Genitrix and DermaPet products have now been
integrated onto the DVP EU and US websites. We are
also currently updating this site into other languages. The
German site launch is imminent; the French and Spanish
translations are in progress.
An e-newsletter is now distributed monthly to over 7,000
veterinary professionals within the UK. This medium is
used to provide up-to-date product and Dechra Academy
information.
HR
The Group HR Director, supported by a steering group of
senior managers, has defined the principles of standards
and behaviour to achieve and promote a high performance
culture. These criteria have become known as the Dechra
Values, a summary of which are outlined in the Corporate
and Social Responsibility section of this report on pages
65 and 66. The steering group has also developed a
performance management mechanism incorporating
the Dechra Values which will be used annually to review
employees and provide a basis for future reward and
development.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
28
www.dechra.com
29
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
Key Performance Indicators (“KPIs”)
financial
Method of Calculation
target
2011 Performance
five year Record
Revenue from key pharmaceutical
products
Global revenue from our top five products
To achieve annual revenue
growth of at least 10%
The KPI was exceeded during the year with a growth rate of 12.8% being
achieved. Vetoryl and Felimazole grew particularly strongly
Revenue from specialist pet diets
Global revenue from the Specific brand of pet diets
To achieve annual revenue
growth of at least 6%
Despite increasingly competitive markets a growth rate of 8.1% was achieved
Underlying operating margin
before product development cost
Underlying operating profit before product development
expenditure expressed as a percentage of Group revenue
To achieve an underlying
operating margin before
product development costs
of 10% in the medium term
Further progress towards the medium term target was made with the increased
operating margin from our US business making a strong contribution
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%
The target rate of 100% has not been achieved this year principally due to
additional payment terms being offered to certain large NVS customers
Return on capital employed
(“ROCE”)
Underlying 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”)
Although ROCE fell slightly in 2011 due to the acquisitions made in the period
the figure is still well ahead of the WACC of the Group
non-financial
Method of Calculation
target
2011 Performance
five year Record
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
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
One new diet or range
extension launched in the
EU, two new pharmaceuticals,
each launched in at least
one key market
Zero preventable accidents
Three novel diets launched and three pharmaceutical products launched within
the EU
There has been an increase in the total number of accidents during the year
from 14 to 15. None of these accidents have resulted in a work related fatality
or disability. More detail in relation to this can be found in the Social, Ethical and
Environmental Responsibilities report on pages 64 to 68
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%
The MAT increased from last year’s 15.88% to 19.03%. A reorganisation within
our NVS warehouse and a higher than normal number (21) of retirements has
contributed to this year’s MAT target not being met. More detail in relation to this
can be found in the Social, Ethical and Environmental Responsibilities report on
pages 64 to 68
30
www.dechra.com
20512-04 05/09/2011
Proof 15
31
Stock Code: DPH
financial
Method of Calculation
target
2011 Performance
five year Record
Revenue from key pharmaceutical
Global revenue from our top five products
products
To achieve annual revenue
growth of at least 10%
The KPI was exceeded during the year with a growth rate of 12.8% being
achieved. Vetoryl and Felimazole grew particularly strongly
Revenue from specialist pet diets
Global revenue from the Specific brand of pet diets
To achieve annual revenue
Despite increasingly competitive markets a growth rate of 8.1% was achieved
2011
2010
2009
2008
2007
2011
2010
2009
2008
33.2
£ million
29.4
23.6
15.3*
10.6*
* Canaural and Fuciderm acquired in January 2008
27.6
£ million
25.6
22.7
9.9*
2007
n/a*
* Diets range acquired in January 2008
Underlying operating margin
Underlying operating profit before product development
To achieve an underlying
before product development cost
expenditure expressed as a percentage of Group revenue
operating margin before
Further progress towards the medium term target was made with the increased
operating margin from our US business making a strong contribution
Cash conversion rate
Cash generated from operations before tax and interest
To achieve an annual cash
payments as a percentage of operating profit before
conversion rate of at
amortisation of acquired intangibles
least 100%
The target rate of 100% has not been achieved this year principally due to
additional payment terms being offered to certain large NVS customers
Return on capital employed
Underlying operating profit as a percentage of average
To achieve a return on
(“ROCE”)
operating assets utilised. Operating assets exclude cash
capital employed which
and cash equivalents, borrowings, tax and deferred tax
exceeds the pre-tax
balances
weighted average cost of
capital of the Group (“WACC”)
Although ROCE fell slightly in 2011 due to the acquisitions made in the period
the figure is still well ahead of the WACC of the Group
2011
2010
2009
2008
2007
2011
2010
2009
2008
2007
2011
2010
2009
2008
2007
non-financial
Method of Calculation
target
2011 Performance
five year Record
Pharmaceutical product
development pipeline
Number of products from the pipeline or in-licensed into at
One new diet or range
least one major territory with long term revenue potential
extension launched in the
Three novel diets launched and three pharmaceutical products launched within
the EU
of at least £0.5 million
EU, two new pharmaceuticals,
each launched in at least
one key market
Health and safety performance
Lost Time Accident Frequency Rate (“LTAFR”): all
Zero preventable accidents
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
There has been an increase in the total number of accidents during the year
from 14 to 15. None of these accidents have resulted in a work related fatality
or disability. More detail in relation to this can be found in the Social, Ethical and
Environmental Responsibilities report on pages 64 to 68
2011
2010
2009
2008
2007
2011
2010
2009
2008
n/a*
2007
n/a*
* Information not collected for these years
9.5
%
8.9
8.1
7.1
6.1
82.8
%
100.8
112.5
94.2
103.3
21.6
22.6
19.4
23.3
%
37.5
Products
6
6
5
3
3
0.82
LTAFR
0.75
0.94
growth of at least 6%
product development costs
of 10% in the medium term
Employees
Employee turnover calculated as number of leavers during
Moving Annual Turnover
the period as a percentage of the average total number of
(“MAT”) rate of less than
employees in the period
15%
The MAT increased from last year’s 15.88% to 19.03%. A reorganisation within
our NVS warehouse and a higher than normal number (21) of retirements has
contributed to this year’s MAT target not being met. More detail in relation to this
can be found in the Social, Ethical and Environmental Responsibilities report on
pages 64 to 68
2011
2010
2009
2008
2007
n/a*
19.03
15.88
19.81
%
29.7
* Information not collected for these years
30
www.dechra.com
31
20512-04 05/09/2011
Proof 15
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
Financial Review
“Revenue from US Pharmaceuticals grew by 51.5% in the
year with the biggest single contributor being the DermaPet
product lines which were acquired in October 2010”
Simon Evans, Group Finance Director
Group Performance
Financial Highlights
Revenue
Gross profit
% of revenue
Distribution costs
Selling, general and
administrative expenses
Research and development
expenses
Operating profit
% of revenue
Profit before taxation
Taxation
Profit after tax
Earnings per share
Operating cash flow before
interest and tax payments
Cash conversion rate
Free cash flow
Tax rate
total dividend per share
net borrowings
Underlying Results
Reported Results
2011
£’000
2010
£’000
389,237
369,369
88,361
22.7%
80,625
21.8%
Change
%
5.4
9.6
2011
£’000
2010
£’000
Change
%
389,237
369,369
88,361
22.7%
80,625
21.8%
5.4
9.6
(17,659)
(16,242)
(8.7)
(17,659)
(16,542)
(6.8)
(33,658)
(31,527)
(6.8)
(43,763)
(39,551)
(10.6)
(5,221)
31,823
8.2%
30,069
(7,321)
22,748
34.33p
25,374
82.8%
9,294
24.3%
12.10p
34,091
(4,666)
28,190
7.6%
26,056
(6,619)
19,437
29.50p
26,662
100.8%
9,938
25.4%
10.50p
6,701
(11.9)
12.9
15.4
16.4
(4.8)
(6.5)
15.2
(5,221)
21,718
5.6%
18,514
(4,380)
14,134
21.33p
25,374
82.8%
9,294
23.7%
12.10p
34,091
(4,666)
19,866
5.4%
17,732
(4,575)
13,157
19.97p
26,662
100.8%
9,938
25.8%
10.50p
6,701
(11.9)
9.3
4.4
6.8
(4.8)
(6.5)
15.2
Analysis of Revenue and Underlying Operating Profit Growth
Year ended 30 June 2010
Organic growth at constant currency
Impact of acquisitions
Impact of foreign currency movements
year ended 30 June 2011
32
www.dechra.com
Revenue
Underlying
Operating Profit
£’000
369,369
14,574
6,558
(1,264)
389,237
%
3.9
1.8
(0.3)
5.4
£’000
28,190
1,194
2,722
(283)
31,823
%
4.2
9.7
(1.0)
12.9
20512-04 05/09/2011
Proof 15
33
Stock Code: DPH
Revenue
european
Pharmaceuticals
Own branded
pharmaceuticals
Diets
Third party contract
manufacturing
Instruments, consumables
and equipment
total european
Pharmaceuticals
48,614
44,695
27,621
25,559
8.8
8.1
10,772
11,524
(6.5)
2,280
2,859
(20.3)
89,287
84,637
US Pharmaceuticals
16,107
10,634
Services
Veterinary wholesaling
291,180 280,385
Laboratories
total Services
Inter-segment
total revenue
5,078
5,285
296,258 285,670
(12,415)
(11,572)
389,237 369,369
5.4
5.5
51.5
3.9
(3.9)
3.7
2011
£’000
2010
£’000
Change
%
in December 2010. As, previously reported, issues with a
third party supplier meant that sales of our ophthalmic and
otic ranges were approximately US$2 million lower than the
previous year.
Within our Services segment, our UK veterinary wholesaler,
NVS, achieved revenue growth of 3.9% in the financial year
with some acceleration of this growth rate achieved in the
fourth quarter. Revenue from our Laboratories business was
down by 3.9% reflecting the difficult market.
Gross Profit
Gross profit for the Group was up by 9.6% from £80.6 million
to £88.4 million with the gross margin increasing by 90 basis
points. This was predominantly driven by increased revenue
from higher margin pharmaceuticals. Diets gross margin fell
slightly as raw material costs and currency impacted results.
The gross margin achieved by our wholesaler, NVS, was
broadly stable compared to last year.
Group revenue increased by 5.4% compared to last year.
During the year the Group acquired DermaPet Inc., based
in Florida, and Genitrix Limited, based in the UK. These two
acquisitions contributed 1.8% of growth in revenue. Currency
fluctuations had a negative impact on revenue of 0.3%.
Within the European Pharmaceuticals segment, own
branded pharmaceuticals performed robustly with most of
our key brands showing solid growth. As disclosed in the
KPI table, our leading five brands achieved growth of 12.8%
compared to last year.
Diets revenues grew by 8.1% overall. Some pressure on
revenue was experienced in the second half of the financial
year as economic conditions in a number of European
countries weakened.
As expected, contract manufacturing revenues were
6.5% lower than last year due to a planned reduction
in production for our biggest single third party contract.
However total production levels increased due to higher
volumes of our own products.
Revenue from US Pharmaceuticals grew by 51.5% in the
year with the biggest single contributor being the DermaPet
product lines which were acquired in October 2010. Vetoryl
also achieved good growth whilst there was an initial
contribution from Equidone, our equine product launched
32
www.dechra.com
33
20512-04 05/09/2011
Proof 15
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
Financial Review continued
Underlying Distribution Costs
Distribution costs increased by 8.7% from £16.2 million to
£17.7 million. As well as increased volumes, the main factor
in this increase was fuel costs, which was mitigated by
efficiency savings.
Underlying Selling, General and
Administrative (“SG&A”) Expenses
Underlying SG&A expenses increased by 6.8% compared
to 2010. The majority of this increase occurred in our US
business as a result of further investment in sales people to
support the DermaPet products and in line with our growth
strategy.
Research and Development Expenses
Research and development expenditure was up by 11.9%
from £4.7 million to £5.2 million. This increased expenditure
supports our product development programme, further
details of which are given on pages 14 to 17.
Underlying Operating Profit
2011
£’000
2010
£’000
Change
%
European
Pharmaceuticals
22,506
21,412
5.1
US Pharmaceuticals
4,838
1,311
269.0
Services
Research and
development
Central costs
Underlying operating
profit
13,087
13,103
(0.1)
(5,221)
(4,666)
(3,387)
(2,970)
(11.9)
(14.0)
31,823
28,190
12.9
Underlying operating profit of European Pharmaceuticals
rose by 5.1% during the year (6.5% at constant currency).
The main driver of this increase was the performance of our
own branded pharmaceuticals although the improvement
in profit was constrained by a lower diets gross margin and
reduced contract manufacturing revenues.
Our US business’s underlying operating profit grew by
269.0% with the acquisition of DermaPet making a major
contribution to this result. The strong increase in Vetoryl
revenues also contributed.
Within Services, NVS achieved an increase in operating
profit with operating margin being maintained. This was
offset by a significant reduction in the profitability of the
Laboratories with the reduction in revenue having an
amplified impact on the bottom line.
Underlying Net Finance Expense
Underlying net finance expense was £1.8 million compared
to £2.1 million in 2010. The net finance expense benefited
from a £1.0 million gain on foreign exchange (2010: £0.2
million gain), although this was partially offset by interest on
additional borrowings to fund the acquisitions of DermaPet
and Genitrix.
Underlying Profit Before Taxation
Underlying profit before taxation rose from £26.1 million to
£30.1 million, an increase of 15.4%.
Non-underlying Items
Non-underlying items in the year comprised amortisation of
intangibles acquired as a result of business combinations
together with one off costs related to the acquisitions of
DermaPet and Genitrix including the resulting refinancing.
Full details are shown in notes 4 and 5 to the financial
statements. The Directors believe that highlighting these
items separately gives a better understanding of the
performance of the Group.
34
www.dechra.com
20512-04 05/09/2011
Proof 15
35
Stock Code: DPH
Taxation
The effective tax rate on underlying earnings was 24.3%
(2010: 25.4%). This included a credit of £0.4 million (2010:
£0.1 million) in respect of prior years. Going forward, the
Group will benefit from the planned reductions in the UK
corporation tax rate.
Earnings Per Share and Dividend
Underlying earnings per share increased by 16.4% from
29.50 pence to 34.33 pence, the fifth successive year of
double digit growth.
The Board is proposing a final dividend of 8.40 pence per
share which, when added to the interim dividend of 3.70
pence per share already paid, gives a total dividend for the
year of 12.10 pence compared to 10.50 pence in 2010.
The total dividend is covered 2.6 times (2010: 2.6 times)
by profit after taxation after adding back amortisation of
acquired intangibles.
Cash Flow
EBITDA
2011
£’000
2010
£’000
33,615
29,283
Share-based payments charge
830
817
Changes in working capital
(9,071)
(3,438)
Cash generated from operations
25,374
26,662
Net interest
Taxes paid
Capital expenditure
Proceeds of asset sales
Repayment of borrowings
Free cash flow
Acquisitions
Net new borrowings
Issue of share capital
Dividends
Foreign currency effects
net cash flow
(2,629)
(2,208)
(5,034)
(6,124)
(4,090)
(2,721)
2
—
(4,329)
(5,671)
9,294
9,938
(33,047)
29,556
541
—
—
589
(7,221)
(6,195)
(129)
353
(1,006)
4,685
The cash conversion rate in 2011 was 82.8% (2010:
100.8%) with the reduction due principally to additional
payment terms being offered to certain large NVS
customers.
Financial Position at the Year End
non-current assets
Intangible assets
2011
£’000
2010
£’000
125,098
80,371
Property, plant and equipment
7,721
7,673
Working capital
Deferred and contingent
consideration
Current tax liability
Deferred tax liability
Net borrowings
net assets
132,819
88,044
32,494
21,486
(14,055)
—
(5,391)
(4,105)
(13,443)
(12,496)
(34,091)
(6,701)
98,333
86,228
Intangible assets and net borrowings increased compared to
last year due to the two acquisitions made during the period.
The balance sheet remains strong with net borrowings having
reduced by £15.6 million since 31 December 2010. The net
borrowings at 30 June 2011 of £34.1 million are comfortably
affordable, representing only 0.98 times underlying EBITDA.
Of the increase in working capital, £1.5 million was as a result
of the acquisitions. Inventory levels were increased in the first
half of the financial year to ensure continuity of supply during
the transfer of our diet range to a new manufacturer. This was
partially reversed in the second half. The remaining increase
was due to higher revenues and additional payment terms
that NVS offered to a major customer.
Bank Facilities
Details of the Group’s bank facilities are shown in note 20
to the financial statements. These facilities were refinanced
during the year in order to fund the acquisition of DermaPet.
The new facilities run through to 2014. There was
substantial headroom on all covenants during the year.
Risks and Uncertainties
As we have stated in previous reports, the Group, like every
business, faces risks and uncertainties in both its day-to-day
operations and through events relating to the achievement
of its long term strategic objectives. The Board has ultimate
responsibility for risk management within the Group and
there is an ongoing and embedded process of assessing,
monitoring, managing and reporting on significant risks faced
by the separate business units and by the Group as a whole.
More detail in relation to this process can be found within the
Corporate Governance section on pages 42 to 49.
The table on the following page highlights the main potential
risks to the Group strategy, as identified by the Board, and
the controls put in place in order to mitigate the said risks:
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
34
www.dechra.com
35
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Performance
Financial Review continued
The main potential risk areas identified by the Board are as follows:
Strategy
Risk
How we mitigate the risk
to sustain growth from our core businesses
The failure of a major customer or supplier
l The business units monitor the financial status of both key customers and suppliers and maintain regular contact with them
(including face to face meetings)
l Where it becomes evident that issues in relation to manufacturing/supply may arise alternative suppliers are identified and detailed
plans drafted. Where a manufacturing transfer is required stock is built up in order to avoid/mitigate an out of stock situation
l
In respect of manufacturing, a “second sourcing” project for key materials has been established and maintained
l All contracts with suppliers and customers are reviewed from both a commercial and legal perspective to ensure that assignment of
the contract is allowed should there be a change of control of either of the contracting parties
l The Group always strives to exceed regulatory requirements and ensures that its employees have detailed experience and
l All businesses have clearly established quality systems and procedures in place
l Regular contact is maintained with all relevant regulatory bodies in order to build/strengthen relationships and ensure good
knowledge of the regulations
communication lines
l 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
l 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
l External consultants are utilised to audit our manufacturing systems prior to any major inspection
l Succession planning is given consideration by the Board and, where deemed necessary, Key Man Insurance is in place
l
In 2009 the Group HR Director developed and implemented a leadership development programme for the senior management
team in order to further strengthen the retention of the individuals. This programme is ongoing and includes the involvement of
personal coaches
l A Performance and Development Review process is in the early stages of implementation
ensure they remain effective
and efficient
l Delivery routes are constantly monitored by the operations department in order to ensure that they remain effective, economic
l Routine ongoing maintenance of the automated picking circuit at NVS and ensuring that all critical components are held on site
l Product improvement plans and marketing strategies are reviewed on a regular basis
l Where competitor products are launched a response strategy is established and followed by our marketing team to highlight any
unique selling points or competitive advantages or to position our products defensively to minimise competitor impact
l Market research is conducted in order to allow the marketing team to better understand customer needs and ensure that our
l Any product patents are monitored and consideration given to the formulation of a defensive strategy towards the end of the life of
products fulfil the identified requirements
the patent
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
Loss of key personnel
Fuel shortage/logistics failure
l Standard operating procedures have been drafted in respect of fuel emergencies/failures 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
to continue to develop a high growth, cash generative specialist
veterinary products business
Competitor product launched against one of our
leading brands
Revenue from recently launched new products
failing to meet expectations
l
In respect of all new product launches a detailed marketing plan is established. Progress against the plan is constantly monitored
l 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
l Alongside the marketing plan the sales team receives training on the product, its benefits and all available technical information
Failure of clinical trials
l Before major costly efficacy studies are initiated, smaller proof of concept studies are conducted to study the effects of the drug on
target species and for the target indication
36
www.dechra.com
20512-04 05/09/2011
Proof 15
37
Stock Code: DPH
The main potential risk areas identified by the Board are as follows:
Strategy
Risk
How we mitigate the risk
to sustain growth from our core businesses
The failure of a major customer or supplier
l The business units monitor the financial status of both key customers and suppliers and maintain regular contact with them
(including face to face meetings)
l Where it becomes evident that issues in relation to manufacturing/supply may arise alternative suppliers are identified and detailed
plans drafted. Where a manufacturing transfer is required stock is built up in order to avoid/mitigate an out of stock situation
In respect of manufacturing, a “second sourcing” project for key materials has been established and maintained
l
l All contracts with suppliers and customers are reviewed from both a commercial and legal perspective to ensure that assignment of
the contract is allowed should there be a change of control of either of the contracting parties
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
l The Group always strives to exceed regulatory requirements and ensures that its employees have detailed experience and
knowledge of the regulations
l All businesses have clearly established quality systems and procedures in place
l Regular contact is maintained with all relevant regulatory bodies in order to build/strengthen relationships and ensure good
Loss of key personnel
Fuel shortage/logistics failure
to continue to develop a high growth, cash generative specialist
Competitor product launched against one of our
veterinary products business
leading brands
communication lines
l 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
l 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
l External consultants are utilised to audit our manufacturing systems prior to any major inspection
l Succession planning is given consideration by the Board and, where deemed necessary, Key Man Insurance is in place
l
In 2009 the Group HR Director developed and implemented a leadership development programme for the senior management
team in order to further strengthen the retention of the individuals. This programme is ongoing and includes the involvement of
personal coaches
l A Performance and Development Review process is in the early stages of implementation
l Standard operating procedures have been drafted in respect of fuel emergencies/failures 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
l Delivery routes are constantly monitored by the operations department in order to ensure that they remain effective, economic
and efficient
l Routine ongoing maintenance of the automated picking circuit at NVS and ensuring that all critical components are held on site
l Product improvement plans and marketing strategies are reviewed on a regular basis
l Where competitor products are launched a response strategy is established and followed by our marketing team to highlight any
unique selling points or competitive advantages or to position our products defensively to minimise competitor impact
l 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
l Any product patents are monitored and consideration given to the formulation of a defensive strategy towards the end of the life of
the patent
Revenue from recently launched new products
failing to meet expectations
In respect of all new product launches a detailed marketing plan is established. Progress against the plan is constantly monitored
l
l 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
l Alongside the marketing plan the sales team receives training on the product, its benefits and all available technical information
Failure of clinical trials
l Before major costly efficacy studies are initiated, smaller proof of concept studies are conducted to study the effects of the drug on
target species and for the target indication
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
36
www.dechra.com
37
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Board of Directors
Ian Page
Chief Executive
Aged 50, 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. In October 2010 he was appointed Non-Executive
Chairman of Sanford DeLand Asset Management Limited.
Simon Evans, BCom, ACA
Group Finance Director
Aged 47, 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 51, Ed joined NVS as Sales Director in 1997 and was appointed Managing Director of Arnolds
and Dales in 1998. He was appointed Development Director in 2003 and Managing Director of Dechra
Veterinary Products Europe in January 2008, following completion of the acquisition of VetXX®. Prior to
joining the Group, he worked within the animal healthcare sector for a number of companies including ICI,
Wellcome and Alfa Laval Agri.
Michael Redmond†•
Non-Executive Chairman, Chairman of the Nomination Committee
Aged 67, 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).
38
www.dechra.com
20512-04 05/09/2011
Proof 15
39
Stock Code: DPH
Neil Warner, BA, FCA, MCT*†•
Senior Independent Non-Executive Director, Chairman of the Audit Committee
Aged 58, Neil joined the Board in May 2003. He was Finance Director at Chloride Group PLC, a position he held
for 14 years until its acquisition by Emerson Electric Co. Prior to this, Neil 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. In February 2011 Neil was appointed Non-Executive Director
and Chair of the Audit Committee of Vectura Group plc, a product development company focused on the
development of a range of inhaled therapies, principally for the treatment of respiratory diseases. He is also Non-
Executive Chairman of Enteq Upstream plc, a specialist reach and recovery products and technologies provider
to the upstream oil and gas services market, a post he has held since 26 May 2011.
Bryan Morton, BSc, MBA*†•
Non-Executive Director, Chairman of the Remuneration Committee
Aged 55, 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 Chairman of the stem cell company ReNeuron, as well as 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.
Dr Christopher Richards, MA, D.Phil*†•
Non-Executive Director
Aged 57, Chris joined the Group as a Non-Executive Director in December 2010. He is Chairman of Arysta
LifeScience Corporation, having been appointed its President and Chief Executive Officer from 2004
to 2009. Arysta is a Japan-domiciled international company, developing and marketing crop protection
products in more than 125 countries worldwide. Before joining Arysta, Chris spent 20 years in international
management and leadership roles with Syngenta Crop Protection and its predecessor companies. In
February 2011 Chris was appointed Non-Executive Director of Bio Products Laboratory Ltd, a company
which manufactures a wide range of plasma products.
Zoe Goulding, LLB (Hons)
Company Secretary and Solicitor
Aged 37, 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.
38
www.dechra.com
* Member of the Audit Committee
† Member of the Remuneration Committee
• Member of the Nomination Committee
20512-04 05/09/2011
Proof 15
39
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Senior Management
Dr Susan Longhofer, DVM, MS, DipACVIM
Product Development and Regulatory Affairs Director
Aged 53, Susan joined the Group in June 2005. She has 22 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 (AAVPT). She is
currently the Secretary of AAVPT.
Barbara Johnson, Chartered MCIPD
Group HR Director
Aged 50, 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.
Paul Sandland, MAAT, FCCA
Group Financial Controller
Aged 32, Paul was appointed as Group Financial Controller of Dechra and Finance Director of NationWide
Laboratories and Cambridge Specialist Laboratory Services in January 2010. He qualified as a Chartered
Certified Accountant in 2005. Paul spent five years post qualification at KPMG, during which time he was
part of the team which advised the Group on its acquisition of VetXX in 2008.
Martin Riley
Managing Director, National Veterinary Services
Aged 47, 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.
40
www.dechra.com
20512-04 05/09/2011
Proof 15
41
Stock Code: DPH
Mike Eldred, BA, MBA
President, US Operations, Dechra Veterinary Products
Aged 41, Mike was appointed in November 2004 to head up the Group’s sales and marketing drive in the
United States. He has over 17 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 51, 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 43, 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.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
40
www.dechra.com
41
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
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 with the UK Corporate Governance Code (the
“Code”) throughout the period under review except in respect of the composition of its Audit Committee. For the majority of
the year the Audit Committee consisted of three independent Non-Executive Directors, in line with the Code. However, from
the date of Malcolm Diamond’s retirement until the appointment of Dr Chris Richards (a period of less than four weeks) the
Audit Committee consisted of only two independent Non-Executive Directors. It should be noted that the Audit Committee
did not meet during this period.
The Board has discussed the various changes which have been recommended by the Code, in particular the
recommendations relating to the annual re-election of directors and the externally facilitated evaluation of the Board every
three years. As the Company is no longer a constituent member of the FTSE 350 it does not need to comply with these
two new recommendations; however, the Board will always seek to comply with the Code where it determines that to do
so would be beneficial to the Company and its Stakeholders. In relation to the annual re-election of all directors, the Board
concluded that given the changes to the board composition over the past 18 months (i.e. one Non-Executive retiring and
the appointment of two new Non-Executives) it would not be conducive to the effective management of the development
of the Company’s strategy to comply with the recommendation for annual re-election this year. The Board will however
keep the matter under review during the forthcoming year. In respect of the recommendation for an externally facilitated
evaluation of the Board every three years, the Board has reassessed its current evaluation process and a number of
changes have been made. However, a decision has been taken that an external evaluation will not be carried out this year;
this decision will be reviewed annually. Further detail in respect of these decisions is provided below.
Application of the Principles of the UK Corporate Governance Code
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 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, which covers areas such as strategy, corporate structure, financial reporting and controls, approval of material contracts,
internal controls, corporate governance and delegation of authority. The schedule was reviewed during the 2010/2011 financial
year and updated in line with best practice guidelines. In addition the Board focused on the existing financial controls imposed on
executives to ensure that these were at the requisite levels so as not to hinder day-to-day administration of the business but to
ensure adequate internal control. The Board has also begun a review of the delegated authorities within the businesses, and as a
matter of best practice the schedule of matters and delegated authorities will be reviewed on an annual basis.
At least one week prior to all board meetings an agenda and supporting documentation is circulated to the Board. Every
meeting agenda comprises reports from the following individuals:
l Chief Executive;
l Group Finance Director;
l Managing Director of each Business Unit;
l Group HR Director; and
l Product and Regulatory Affairs Director.
In addition, twice a year the Board receives detailed health, safety and environmental reviews encompassing the UK, European
and US businesses plus activities of the Transport Risk and Sustainability Committees. Three times a year the Board receives a full
risk assessment review for discussion; this is following detailed risk reviews in 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;
this allows the Board to continuously monitor the progress of the business and provides transparency across all areas within the
Group. As in previous years, the senior management team were invited to attend board meetings on a quarterly basis and in the
intervening period if required, enabling the Board to explore specific issues in detail when required.
42
www.dechra.com
20512-04 05/09/2011
Proof 15
43
Stock Code: DPH
In January the Board carried out a review of the Group strategy. As a result of the review an annual strategic agenda has
been drawn up and approved by the Board. This agenda will ensure that key strategic objectives are discussed on a
regular basis. A list of operational areas including topics such as business development, marketing, product development,
human resources and IT are now diarised as agenda items for strategic consideration at future board meetings. As a result,
members of the senior management team will be individually invited to attend specific board meetings rather than as a
group (with the number of group meetings reduced accordingly). This will provide the Board with an opportunity to speak
with the senior managers on a one to one basis and gain a more in-depth understanding of their specific business units/
area of responsibility.
Ten times a year the Chief Executive and Group Finance Director attend the board meetings of the businesses which make
up the four operating segments (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 three times a year and obtains regular updates from the DVP US President, Mike Eldred. Key
operational information obtained from these meetings is fed back to the Board.
The Chief Executive along with the Product Development and Regulatory Affairs Director also chair at least two product
development meetings per year. Representatives from marketing and manufacturing departments generally attend the
meeting thereby allowing the product pipeline to be comprehensively reviewed.
The Chairman and the Non-Executive Directors 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.
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 on an ad hoc basis to approve specific
projects as deemed necessary.
The Board is scheduled to meet 11 times per annum with additional meetings called if necessary, including two meetings
where a review of the full year and half-year results are prioritised. No additional meetings were required during the
2010/2011 financial year.
Attendance at the board and nomination committee meetings during the year to 30 June 2011 was as follows (details of
attendance at the audit and remuneration committee meetings is provided on pages 50 and 53 respectively):
Name
Michael Redmond
Malcolm Diamond
Bryan Morton
Dr Chris Richards
Neil Warner
Ian Page
Simon Evans
Ed Torr
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.
† Actual attendance/maximum number of meetings Director could attend based on date of retirement.
Board
(11 Meetings)
Nomination
(3 Meetings)
11
4/4†
11
7/7*
11
11
11
11
3
3
3
0/0*
3
n/a
n/a
n/a
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
42
www.dechra.com
43
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Corporate Governance continued
Following 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 concerns of any nature which
cannot be resolved within the board meeting, they have the right to ensure their view is recorded in the minutes. Further,
on resignation, should a Non-Executive Director have any concerns, the Chairman would invite him to provide a written
statement for circulation to the Board.
The Company maintains an appropriate level of Directors’ and Officers’ insurance in respect of legal action against Directors.
Chairman and Chief Executive
There is a clear division of responsibilities between the Chairman, Michael Redmond, and the 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 proposing strategy.
During the financial year under review, the Chief Executive was appointed Non-Executive Chairman of Sanford DeLand
Asset Management Limited (“Sanford”). The Board considered whether this would impact materially on his current time
commitment as Chief Executive of the Group and whether it could give rise to any conflict. As Ian Page is not involved in
any investment decision made by Sanford it was not considered that any conflict would arise nor would there be any impact
on his time commitment. Further details in relation to the appointment can be found in the Remuneration Report.
The Chairman, at the time of his appointment, did meet and continues to meet the independence criteria set out in the
Code. Having held a non-executive position within Dechra for over nine years the Chairman is to present himself for re-
election at the forthcoming Annual General Meeting. The Nomination Committee (excluding the Chairman) has reviewed
his appointment in detail and considers that he continues to lead the Board effectively, at all times maintaining his
independence and providing an 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 position as Chairman of Abcam plc. After consideration the Nomination Committee determined that this would
not adversely impact his time commitment as Chairman of the Group and that he would continue to fulfil his role to the
highest standards.
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.
Malcolm Diamond retired from his position as Non-Executive Director at the 2010 Annual General Meeting. On Malcolm
Diamond’s retirement, Neil Warner was appointed Senior Independent Director. He is available to Shareholders in respect of
any concerns they may have where contact through the normal channels has failed to resolve the issues or for which such
contact is inappropriate.
The Nomination Committee recognises the importance of ensuring the refreshment of the Board and of ensuring that the
Non-Executive Directors provide the right mix of skill, expertise and experience to assist the Executive Directors in achieving
the Group strategy. As reported in the 2010 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 1 December 2010,
Dr Chris Richards was appointed to the Board and as a member of the Remuneration, Audit and Nomination Committees.
At the commencement of the recruitment process an objective role description was agreed by the Nomination Committee
which encompassed the requirements of the Board and the Group not only in terms of the skill and knowledge required but
also diversity. The recruitment consultant was specifically requested to seek both female and male candidates who satisfied the
role description; unfortunately no female candidates were highlighted. It should be noted that, although neither of the two Non-
Executive Directors appointed during the past 18 months had previous PLC experience, they were appointed for their wide
ranging international experience and knowledge which is deemed a key attribute required to progress the Group strategy.
44
www.dechra.com
20512-04 05/09/2011
Proof 15
45
Stock Code: DPH
In response to the recent communication from Lord Davies in respect of women on boards it should be noted that the
Board will continue to recruit in line with the requirements of the Board and ensure that the correct mix of skills and
experience is maintained. Although there are currently no female board members, 37.0% of the senior management team,
15.8% of the subsidiary executive boards and 41.7% of the overall workforce are female. In terms of recruitment for the next
Non-Executive Director replacement (due to retirement) female candidates will be specifically requested.
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 their ability to exercise independent judgement. This
independence of mind provides them with the ability to challenge decisions and think strategically.
The details of the Board of Directors are shown on pages 38 and 39.
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 the
relevant decision, 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 to be appropriate. During the financial year under review no actual conflicts have arisen.
Nomination Committee
The Board has an established Nomination Committee to lead the process for board appointments and to make
recommendations to the Board. During the period the Nomination Committee comprised Michael Redmond (Chairman),
Malcolm Diamond (resigned 5 November 2010), Bryan Morton, Dr Chris Richards (appointed 1 December 2010) and Neil
Warner. The Chairman would not chair the committee meeting if it was 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 two additional meetings have been held during the
financial year in view of the appointment of Dr Chris Richards.
The terms of reference set out the Nomination Committee’s role and the authority delegated to it by the Board. The terms of
reference have been reviewed during the year and a copy is available on the Company website at www.dechra.com. They
include the following responsibilities:
l
l
l
l
to oversee the plans for management succession;
to recommend appointments to the Board;
to evaluate the effectiveness of the Non-Executive Directors; and
to consider the structure, size and composition of the Board generally.
Other significant commitments of the Chairman and the Non-Executive Directors were disclosed to the Board before
appointment and the Board is also notified of any subsequent changes. Of the Executive Directors only Ian Page holds a
Non-Executive Directorship (as detailed earlier in this report). The letters of appointment of the Non-Executive Directors
will continue to be available for inspection at the Company’s registered office. Both the letters of appointment of the Non-
Executive Directors and the service contracts of the Executive Directors will be on display at the forthcoming Annual General
Meeting.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
44
www.dechra.com
45
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Corporate Governance continued
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. Board meetings were held at the DVP UK offices in Shrewsbury in
January and at Dales, Skipton in June, where the Board had an opportunity to be shown around the respective facilities and
meet with employees.
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. New
Directors are also offered the opportunity to visit the various business units in order to allow them the opportunity to meet
with the executive teams and to be shown around the operations. On an ongoing basis 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 also
provides briefings where necessary for the Directors that cover a number of legal and regulatory changes and developments
relevant to the Directors’ areas of responsibility. The Company Secretary and Chairman are aware of the requirement to
regularly review and agree with each Director their training needs. It is currently considered that the briefings provided at board
meetings satisfy such needs; however this will be reviewed on an ongoing basis.
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, 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 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.
Performance Evaluation
In previous years the board evaluation process had been based on a general discussion by the Board covering a number
of topics detailed to them by the Company Secretary. However, this process has been reviewed in light of the current
sentiment in relation to performance evaluation and the need for more detailed disclosure. As a result the Chairman and
Company Secretary developed a discussion document covering areas such as (i) board composition; (ii) strategy review
process; (iii) the format of board meetings and the decision process; (iv) training and development; (v) the performance of
the Board and the individual Directors; (vi) Corporate Governance; (vii) leadership and culture; and (viii) risk assessment.
The discussion document was approved by the Board and the Chairman scheduled interviews with each of the Executive
and Non-Executive Directors and Company Secretary. The evaluation of the Chairman was undertaken by the Senior
Independent Director. The results of the internal evaluation were presented to the Board at a meeting in August 2011.
Overall, it was concluded that the Board and its committees were effective and it was agreed that the recent changes in
respect of the Non-Executive Directors had been successful in aligning the board skill set with the business and its strategy
going forward. However a number of recommendations were made in respect of the running of the Board and it was agreed
the Chairman and Company Secretary would oversee their implementation during the 2011/2012 financial year.
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 re-election every three years. At the forthcoming Annual General Meeting Dr Chris Richards, who
was appointed to the Board on 1 December 2010, will offer himself for election; both Ian Page and Neil Warner will retire
by rotation in accordance with the Articles of Association and will seek re-election. In addition, Mike Redmond who has
served as a Non-Executive Director for more than nine years will also offer himself for re-election. The Board has rigorously
reviewed the performance of Ian Page, Neil Warner and Michael Redmond and strongly supports their re-election and
recommends that the Shareholders vote in favour of these resolutions.
Remuneration
Details of Directors’ remuneration are set out in the Directors’ Remuneration Report at pages 53 to 62. This report details
the Company’s compliance with the Code’s requirements with regard to remuneration matters.
46
www.dechra.com
20512-04 05/09/2011
Proof 15
47
Stock Code: DPH
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 Auditor in connection with the Financial Statements are explained in
the Statement of Directors’ Responsibilities and the Independent Auditor’s Report on pages 73 to 75.
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 and 37.
During the year being reported, trading has continued to be robust with an improvement in profitability being achieved. On
the acquisition of DermaPet in October 2010 the Group refinanced its bank facilities which now comprise:
l a term loan of £36 million repayable over four years
l a revolving credit facility of £28 million committed until 30 September 2014
l an overdraft facility of £10 million renewable on 31 August 2012
The Group also had cash balances of £30.5 million at 30 June 2011. The overdraft facility is expected to be renewed on the
renewal date although it is not normally used for the Group’s day-to-day 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.
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, operational and compliance 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 Board has reviewed the operation and effectiveness of the internal controls for the year ended
30 June 2011. 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 and 37.
The Group’s key systems of control include:
• 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.
Key functions such as tax, treasury, insurance, legal and personnel are controlled centrally.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
46
www.dechra.com
47
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Corporate Governance continued
• 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 indicators (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;
these are then escalated to the Board for consideration and approval.
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 holds a bi-annual internal conference at which a full technical update, tailored specifically to the Group’s
commercial needs, is presented by the Auditor. During the 2010/2011 financial year a conference was held in November
and April, both of which concentrated on the upcoming IFRSs and the implications of the new Senior Accounting Officer
legislation.
Business unit management certify on a quarterly basis that key financial controls have been performed and that
significant risks have been identified.
• Business Plans
Business plans provide a framework from which annual budgets and forecasts are agreed with each business unit,
including financial and strategic targets against which business performance is monitored. The plans are reviewed by
executive management, and then by the Board for ultimate approval. Actual performance during the financial year is
monitored monthly against budget, forecast and previous year.
• 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.
• 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 is monitored on an ongoing basis. The Regulatory
Department re-evaluates all projects at least twice a year (and reports all material decisions and changes to the Board).
When evaluating projects a number of measurement criteria are considered including the products’ expected net
present value and return on investment.
• 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 which must 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.
• Business Ethics Policy
In line with the recently introduced Bribery Act 2010 all current policies have been reviewed in order to ensure
compliance with the legislation.
48
www.dechra.com
20512-04 05/09/2011
Proof 15
49
Stock Code: DPH
Audit Committee and Auditor
Information relating to the Audit Committee is set out in the Audit Committee Report on pages 50 to 52. This details the
Company’s compliance with the Code’s requirements in respect of audit matters.
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 Auditor is engaged to express an opinion on 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.
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 mutual understanding of the Company’s and
Shareholders’ objectives. Such meetings are conducted in a format 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 is continually updating the website in line with best practice,
ensuring that information relating to the Company and its activities is easily accessible.
Constructive use of the Annual General Meeting
All members of the Board are scheduled to attend the Annual General Meeting and the Chairmen of the Audit,
Remuneration and Nomination Committees will 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 will be an opportunity, following the formal business, for
informal communications between Shareholders and Directors.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
48
www.dechra.com
49
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Audit Committee Report
neil Warner, Chairman of the Audit Committee, reports on the Audit Committee’s activities during 2010/11
Independent
Meetings
eligible
to attend
Meetings
attended
Yes
Yes
Yes
Yes
3
1
3
2
3
1
3
2
Member
Neil Warner
Malcolm Diamond (retired
5 November 2010)
Bryan Morton
Dr Chris Richards (appointed
1 December 2010)
Secretary
Zoe Goulding
.
Role and Responsibilities
The main role and responsibilities of the Audit Committee (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 2010/2011 financial year this took place at the February meeting. Following this review the
terms of reference were updated in line with best practice guidelines. The main responsibilities of the Committee are:
l 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;
l to review the effectiveness of the Company’s internal controls and risk management systems as described on pages 36
and 37 and, in conjunction with the Auditor, consider the accounting policies adopted by the Company;
l to oversee the relationship with the Auditor. The Committee makes recommendations to the Board on the appointment
of the Auditor, approves their remuneration and their terms of engagement, monitors their independence and objectivity,
monitors the effectiveness of the audit process and sets the policy for non-audit work;
l 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 Auditor and is at liberty to obtain outside
professional advice as necessary. During the year, no legal or independent professional advice was sought. The Auditor also
has direct access to the Committee Chairman outside the formal committee meetings.
Membership, Meetings and Attendance
The membership of the Committee and meeting attendance is stated in the table above. Malcolm Diamond retired in
November 2010 and the Committee are pleased to welcome Dr Chris Richards as its most recent member. The Board
considers that Neil Warner has recent and relevant financial experience as recommended by the UK Corporate Governance
Code as a result of his financial background. He has held a number of financial positions throughout his career including
latterly Finance Director of Chloride Group PLC (a position he held from 1997 until end December 2010) and as Chairman
of the Audit Committee of Vectura Group plc (to which he was appointed in February 2011).
The Auditor attends 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 Auditor without management being present.
50
www.dechra.com
20512-04 05/09/2011
Proof 15
51
Stock Code: DPH
Activities during 2010/2011
The Committee met three times during the year, timed to coincide with the financial reporting timetable of the Company. The table
below sets out a number of the matters which were discussed (and where necessary approved) at the three meetings:
Meeting
Matters discussed/approved at the meeting
September 2010
February 2011
l Auditor’s report on the 2009/2010 financial results
l Draft preliminary statement
l Draft Annual Report
l External audit effectiveness
l Audit Committee effectiveness review
l Auditor independence confirmation
l Level of non-audit fees
l Going concern confirmation
l
l Proposed final dividend
l Auditor representation letter
Internal controls
l Auditor’s report on the half-year results
l Draft half-year report and announcement
l Terms of reference
l
Interim dividend
l Going concern confirmation
l Senior Accounting Officer requirement
l Auditor representation letter
l Level of non-audit fees
l Requirement for an internal audit function
May 2011
l Audit strategy for the year ended 30 June 2011 (including timetable, scope and fees)
l Auditor independence
l Group business risks
l Company expectations of audit
Internal Control and Internal Audit Function
The Board retains overall responsibility for establishing the systems of internal control and monitoring their ongoing
effectiveness and also for the identification and management of risk. The Committee monitors and reviews the effectiveness
of the Group’s internal control activities and further detail in respect of the internal controls are provided within the Corporate
Governance Section (on pages 47 and 48). The requirement for an internal audit function was discussed at the committee
meeting in February. Given the current systems of internal controls discussed within the Corporate Governance Report and
taking into consideration the present size of the Group, the Committee currently believes that an internal audit function is
not required.
Auditor Independence and Non-Audit Fees
The Auditor annually confirms their policies on ensuring audit independence and provides the Committee with a report on
their own audit and quality procedures. This report was reviewed during the audit strategy meeting held in May 2011 and
the Committee remains satisfied of the Auditor’s independence.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
50
www.dechra.com
51
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Audit Committee Report continued
During the year the Committee appointed a new Group Audit Engagement Director, Graham Neale, who succeeded Simon
Purkess. This appointment was carried out in line with the ethical standards of the Audit Practices Board which recommend
that this appointment is rotated every five years. The Committee is pleased to report that the handover to the new Group
Audit Engagement Director went smoothly and the transition was properly and effectively managed.
With respect to non-audit assignments undertaken by the Auditor, 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 the Auditor to undertake non-
audit assignments, 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 an explanation of the reasons for exceeding the limit is provided to the Committee, who
assess the qualification, expertise, independence and objectivity of the Auditor prior to granting approval.
The Committee believes that there are certain non-audit services where it is appropriate for the Group to engage the
Auditor. During the year, these primarily included acquisition due diligence and certain taxation services. This is consistent
with the ethical standard recommended by the Accounting Practices Board.
A summary of audit and non-audit fees in relation to the year is provided in note 6 to the Group’s financial statements. All
non-audit work has been approved by the Committee.
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 to perform its responsibilities. The results of the review were advised to the Board.
The performance, cost and independence of the Auditor is reviewed annually by the Committee, together with a review
of the level of service provided by the Auditor to the Group. Based on the Committee’s review of the performance of the
Auditor 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
6 September 2011
52
www.dechra.com
20512-04 05/09/2011
Proof 15
53
Stock Code: DPH
Directors’ Remuneration Report
Bryan Morton, Chairman of the Remuneration Committee, reports on the Remuneration Committee’s activities during 2010/11
The Remuneration Report is presented in accordance with the relevant
provisions of the UK Corporate Governance Code (the “Code”) and 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 60.
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 report will be submitted at the 2011 Annual General Meeting for the approval of the Shareholders.
Membership
The Committee consists exclusively of independent Non-Executive Directors and comprised during the financial year:
Member
Bryan Morton
Michael Redmond
Malcolm Diamond (retired 5 November 2010)
Neil Warner
Dr Chris Richards (appointed 1 December 2010)
Secretary
Zoe Goulding
Independent
Meetings eligible
to attend
Meetings
attended
Yes
Yes
Yes
Yes
Yes
3
3
1
3
2
3
3
1
3
2
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 are reviewed on an annual basis to
ensure that they continue to adhere to best practice guidelines. During the 2010/2011 financial year this review took place
at the February meeting. Copies can be obtained 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.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
52
www.dechra.com
53
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Directors’ Remuneration Report continued
In particular, the terms of reference authorise the Committee to:
l make recommendations to the Board on Executive remuneration;
l determine on behalf of the Board specific remuneration packages and conditions of employment for Executive Directors;
l determine targets for any performance related pay schemes operated by the Company; and
l determine the policy for and scope of any pension arrangements for the Executive Directors.
Meetings
The Committee met three times during the year and members’ attendance at the meetings can be found on page 53. The
table below sets out a number of the matters which were discussed (and where necessary approved) at the three meetings:
Date
Subject Matter
September 2010
February 2011
June 2011
l Approval of Director bonuses
l Approval of satisfaction of performance condition in respect of the LTIP
l Review of Committee effectiveness
l Discussion of the LTIP awards to be granted to Executives and Senior Management
l Discussion regarding Directors’ remuneration
l Discussion of share option allocation
l Approval of share option exercise and achievement of target
l Review of terms of reference
l Confirmation of Executive Directors’ salary
l Review and confirmation of executive bonus arrangements for 2011/2012
l Chief Executive benchmarking review
Advisers
During the year the Committee received advice on the remuneration of senior executives from the Chief Executive and the
Group HR Director. Advice was also received from the Company Secretary, Hewitt New Bridge Street and DLA Piper (UK)
LLP in relation to the operation of the Company’s share-based incentive plans. Hewitt New Bridge Street has no other
connection with the Company. DLA Piper (UK) LLP are the Company’s lawyers and were involved in the updating of the
Company Share Scheme rules which were approved by the Shareholders at the 2010 Annual General Meeting.
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. These findings were advised to the Board.
54
www.dechra.com
20512-04 05/09/2011
Proof 15
55
Stock Code: DPH
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. 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’ fees increased by 3%. Taking
into account the current market sentiment in relation to increases in Non-Executive fees and in the light of pay increases
across the Group, it has been agreed to increase the fees by 2% for the 2011/2012 financial year. The annual fee level for
2011/12 is therefore:
Office
Chairman
Non-Executive Director
Remuneration Committee Chairmanship additional fee
Audit Committee Chairmanship additional fee
2011/12
Fee
£’000
84
38
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:
l attract, retain and incentivise Executives of the calibre required to ensure that the Group is managed successfully to the
benefit of Shareholders;
l provide appropriate alignment between Dechra’s strategic goals, Shareholder returns and executive reward;
l 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
l 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.
During the period under review the HR Director, assisted by a steering group consisting of representatives from around
the Group, developed a Performance and Development Review (“PDR”) process. The PDR will measure an individual’s
performance in three distinct categories: Accountabilities, Values and Objectives. In respect of the Executive Directors the
Accountability element will provide for measurement of their ability to drive the Group strategy forward, thereby ensuring that
an element of future remuneration is aligned to strategy. The PDR process has been approved by the Board and is currently
being rolled out over a six month period to a pilot group which includes the Executive Directors and senior managers. It is
intended that Objectives for the pilot group will be agreed by the end of September 2011 and Accountabilities by the end of
December 2011. The pilot PDR will then take place from March to May 2012 and a full 12 month PDR cycle will commence
in July 2012. This will result in the 2013/2014 remuneration increases for those groups being dependent on the results of
the review.
The Committee has a policy of reviewing Executive remuneration every two years. The last review took place during spring/
summer 2010; following the review the Committee concluded that the value of the Executive Directors’ remuneration
packages remained below median. However, taking into account market sentiment and also pay increases across the
Group a 3% pay increase was awarded for 2010/2011 and a number of changes were made to the bonus arrangements.
The bonus arrangements remain unchanged for 2011/2012 and details of the parameters of the scheme are provided in the
table on the next page along with the key elements of the Executive Directors’ remuneration for 2011/2012.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
54
www.dechra.com
55
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Directors’ Remuneration Report continued
Policy
Base Salary
The Committee always considers
2011/2012
(i)
remuneration packages payable to
employees employed in comparable
companies; and
Taking into account the market sentiment at the time and the pay
increases across the Group, the Committee agreed that base
salaries be increased by 2% with effect from 1 July 2011 to
(ii) pay increases within the Group
more generally
Pensions
The Company operates a Group
Stakeholder personal pension scheme
which has been effective since
1 July 2005
Benefits in Kind
Ian Page — £375,064
Simon Evans — £235,755
Ed Torr — £225,039
The Company will contribute 14% of salary on behalf of the Executive
Directors. During the year HMRC reduced the annual allowance
to £50,000 per annum. As a result, it was agreed by the Committee
that in the case of Ian Page any employers’ contribution above this limit
will be paid in lieu
Provided on a market competitive bases
The Company provides the use of a fully expensed car, medical cover and life
assurance scheme
Annual Bonus
Due to the continuing challenging budget and market conditions the executive
The executive bonus scheme rewards
Executive Directors for achieving operating bonus scheme for 2011/12 financial year will be as in 2010/2011
efficiencies and profitable growth in the
relevant year by reference to challenging Therefore, a payment of 10% of salary is triggered on achievement of 95%
but achievable operational targets
determined at the beginning of the
financial year
of budget and payment of 90% of salary on achievement of 110% of budget.
In between these two parameters the achievement of budget triggers a
payment equivalent to 50% of base salary as indicated in the graph below
100
90
80
70
60
50
40
30
20
10
)
y
r
a
a
s
l
f
o
%
(
d
e
n
r
a
e
s
u
n
o
B
0
90
95
100
105
110
115
% achievement of budgeted adjusted profit before tax
A further 10% of salary can be earned based on the achievement of personal
objectives
56
www.dechra.com
20512-04 05/09/2011
Proof 15
57
Stock Code: DPH
Policy on External Appointments
The Company recognises that Executive Directors may be invited to become Non-Executive Directors of other companies
and that this can help broaden the skills and experience of a Director. Executive Directors are normally permitted to accept
external appointments with the approval of the Board.
The only Executive DIrector to hold an external appointment is Ian Page. He was appointed Non-Executive Chairman of
Sanford DeLand Asset Management Limited, an asset management company, on 7 October 2010. He has agreed to waive
his fee for the first year of appointment.
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 22 December 2010 were granted to a value equivalent to 100% of their base salary. The annual
award is generally granted in September/October; however, by reason of a close period imposed due to the acquisitions of
DermaPet Inc. and Genitrix Limited the grant was delayed until December.
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 2011 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 Index 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
Vesting Percentage
0%
25%
Between median and upper quartile
Pro-rata vesting based on the Company’s ranking in the comparator group
Upper quartile
100%
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; details of the remaining options exercised during the financial year pursuant to the EIP and
the attaching performance conditions can be found on page 61 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 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. As reported in the 2010 Annual Report each of these share option schemes expired in autumn 2010.
A resolution in respect of the renewal of the three schemes was approved by the Shareholders at the 2010 Annual General
Meeting and initial awards under the schemes were made during the financial year.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
56
www.dechra.com
57
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Directors’ Remuneration Report continued
Total Shareholder Return Graph
The graph 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. Throughout the 2010/2011 financial year the Company
has been a constituent member of the FTSE Small Cap Index; for this reason it is considered that the TSR performance of
the FTSE Small Cap Index be represented in this report.
Total Shareholder Return — 5 Years
DECHRA TSR
FTSE SMALL CAP
260
240
220
200
180
160
140
120
100
80
60
40
20
0
)
£
(
l
e
u
a
V
6
0
e
n
u
J
6
0
c
e
D
7
0
e
n
u
J
7
0
c
e
D
8
0
e
n
u
J
8
0
c
e
D
9
0
e
n
u
J
9
0
c
e
D
0
1
e
n
u
J
0
1
c
e
D
1
1
e
n
u
J
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 2011 were as follows:
Name
Michael Redmond
Ian Page
Simon Evans
Ed Torr
Bryan Morton
Dr Chris Richards
Neil Warner
Ordinary
Shares
no.
2011
56,475
726,282
882,689
411,381
—
4,000
4,191
Ordinary
Shares
No.
2010
56,475
707,731
860,537
401,489
—
—
2,691
There have been no changes in the holdings of the Directors between 30 June and 6 September 2011.
58
www.dechra.com
20512-04 05/09/2011
Proof 15
59
Stock Code: DPH
Share Ownership Guidelines
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):
Name
Ian Page
Simon Evans
Ed Torr
* Calculated using the share price as at 30 June 2011.
Ordinary
Shares
No.
726,282
882,689
411,381
Ordinary
Shares
£’000*
3,564
4,332
2,019
Salary
£’000
368
231
221
In September 2010, the Board adopted formal share ownership guidelines for Non-Executive Directors, whereby Non-
Executive Directors are required to acquire the equivalent of 50% of their annual fee by the third anniversary of their
appointment to the Board. With the exception of Bryan Morton, the Non-Executive Directors’ shareholdings equate to over
50% of their annual fee.
Name
Michael Redmond
Bryan Morton
Dr Chris Richards
Neil Warner
Ordinary
Shares
No.
56,475
—
4,000
4,191
Ordinary
Shares
£’000*
27
—
20
21
% of
Salary
338.0
—
53.1
51.4
* Calculated using the share price as at 30 June 2011.
Contracts of Services
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
Dr Chris Richards
Neil Warner
Notice Period
Commencement date
25 April 2001
1 September 2008
6 February 2009
6 February 2009
8 January 2010
1 December 2010
2 May 2003
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.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
58
www.dechra.com
59
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Directors’ Remuneration Report continued
Individual Directors’ eligibility for the various elements of compensation is set out below:
Name
Michael Redmond
Ian Page
Simon Evans
Ed Torr
Bryan Morton
Dr Chris Richards
Neil Warner
Salary & Fees
Bonus
12 months
12 months
12 months
12 months
12 months
12 months
12 months
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.
Audited Information
The Auditor is required to report on the information contained in the remainder of this report.
Summary of Remuneration
executive Directors
Ian Page
Simon Evans
Ed Torr
non-executive Directors
Michael Redmond
Malcolm Diamond (retired 5 November 2010)
Bryan Morton
Dr Chris Richards (appointed 1 December 2010)
Neil Warner
Salaries
& Fees
£’000
Bonuses
£’000
Other
Benefits
£’000
total
2011
£’000
Total
2010
£’000
368
231
221
82
15
40
22
40
221
139
132
—
—
—
—
—
1,019
492
30
26
15
—
—
—
—
—
71
619
396
368
82
15
40
22
40
543
349
323
80
39
17
—
39
1,582
1,390
Executive bonuses for the year ended 30 June 2011 (as reflected in the table above) were determined as follows:
l 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 100% of the profit target
resulting in a payment worth 50% of salary.
l Personal objectives — up to an additional 10% of salary was payable to Executive Directors upon the achievement of
personal objectives.
l Actual performance resulted in total bonus payments worth 60% of salary.
60
www.dechra.com
20512-04 05/09/2011
Proof 15
61
Stock Code: DPH
Executive Incentive Plan
Awards made under the Executive Incentive Plan are as follows:
Number
of shares
Award at 30 June
2010
date
Granted
during
the year
number
Exercised of shares
during at 30 June Performance
period
2011
the year
at date
Share price Share price
at date
of award of exercise
pence
pence
Ian Page
2008
37,975
Simon Evans
2008
22,152
Ed Torr
2008
20,253
—
—
—
(37,975)
(22,152)
(20,253)
— 2007–2010
— 2007–2010
— 2007–2010
386
386
386
509.50
509.50
509.50
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 further options have been granted under the EIP.
During the financial year awards granted in 2008 became exercisable. Independent verification by Hewitt New Bridge Street
showed that the Company’s TSR performance for the three year period to 30 June 2010 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. There are now no further
awards under the EIP to be exercised.
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
2010
date
19 Nov 2008
24 Sept 2009
22 Dec 2010
92,593
86,861
—
Granted
during
the year
—
—
72,241
179,454
72,241
19 Nov 2008
24 Sept 2009
22 Dec 2010
58,201
54,599
—
—
—
45,409
112,800
45,409
19 Nov 2008
24 Sept 2009
22 Dec 2010
55,556
52,117
—
—
—
43,344
107,673
43,344
number
Exercised of shares
during at 30 June Performance
period
2011
the year
Share price
at date
of award
pence
—
—
—
—
—
—
—
—
—
—
—
—
92,593 2008–2011
86,861 2009–2012
72,241 2010–2013
391.75
404.10
514.00
251,695
58,201 2008–2011
54,599 2009–2012
45,409 2010–2013
391.75
404.10
514.00
158,209
55,556 2008–2011
52,117 2009–2012
43,344 2010–2013
391.75
404.10
514.00
151,017
60
www.dechra.com
61
20512-04 05/09/2011
Proof 15
The performance conditions attaching to the Long Term Incentive Plan are explained on page 57.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Directors’ Remuneration Report continued
Independent verification has also recently been sought from Hewitt New Bridge Street in respect of the satisfaction of the
performance targets for awards which will vest in November 2011. The ‘underpin’ condition (the Company’s adjusted
earnings per share has grown by at least RPI plus 3% per annum over the performance period) has been met and it has
been confirmed that the Company’s TSR performance for the three year period to 30 June 2011 falls between the median
and upper quartile of the FTSE Small Cap Total Return Index. The awards therefore will partially vest on their maturity date.
The aggregate gain made by the Executive Directors on share options exercised during 2011 was £408,459
(2010: £461,663).
SAYE Scheme
Directors’ entitlements under the SAYE Scheme are as follows:
Market price
Ian Page
Simon Evans
Ed Torr
Award
date
13 Oct 2008
13 Oct 2008
13 Oct 2008
12 Oct 2009
at date Exercise
of grant
pence
pence
Price Exercise
dates
2010 Exercised Granted
number
number
number
At
30 June
387
387
387
445
343 Dec 2013
343 Dec 2013
343 Dec 2013
332 Dec 2014
4,883
4,883
1,119
1,640
12,525
—
—
—
—
—
—
—
—
—
—
At
30 June
Lapsed
2011
number 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 2011 was 490.75p and the range of prices during the year
was 382.0p to 551.0p.
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
2010
£’000
2011
£’000
Age
Ian Page
Simon Evans
Ed Torr
50
47
51
51
32
31
114
50
31
30
111
From 6 April 2011, the annual allowance for tax relief on pension savings for individuals reduced to £50,000. Since this
became effective Ian Page has elected to receive a salary supplement in lieu of the employer contribution over and above
the £50,000 limit.
By order of the Board
Bryan Morton
Chairman – Remuneration Committee
6 September 2011
62
www.dechra.com
20512-04 05/09/2011
Proof 15
63
Stock Code: DPH
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.
The Sustainability Committee (the “Committee”) was set up in October 2009 and has its own terms of reference, which
were approved by the Board in July 2010. Copies can be obtained from the Company Secretary or via the Company’s
website at www.dechra.com. The Committee is chaired by Ed Torr, the nominated Director responsible for environmental
policy, and its members are representatives from each of the business units. The Company Secretary is secretary to the
Committee. The Committee has met twice this year.
The Committee is responsible for establishing and maintaining the Group social, ethical and environmental policy. The
following report details how we have applied the main principles of this policy, a full copy of which can be obtained from the
Company Secretary or via 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.
The Committee had reviewed the way in which donations (either in the form of money or stock) are made by the business
units to charities and as a result has established a Group Donations Policy, which became effective 1 July 2011. From
this date, each business unit has discretion to allocate funds to local community groups, employee nominated charities
and/or animal welfare charities. In addition, the Group will donate annually to three charities, being an animal welfare charity,
an environmental charity and an employee nominated charity. We will provide details in respect of these donations in next
year’s report.
Below is a selection of what has taken place during the 2010/2011 financial year:
Animal Welfare
l NVS has teamed up with The Blue Cross; one of the UK’s leading animal charities, collecting bags of clothing and
bric-a-brac from participating veterinary practices throughout the UK and delivering them to The Blue Cross shops.
During the year, this joint venture has raised £100,000 worth of income towards helping sick and homeless animals in
the care of The Blue Cross.
l As in previous years, the businesses have donated obsolete and/or short dated stock, damaged products and
consumables to various charities, ensuring that such stock is not provided to charities where the donation-in-kind could
be sold to third parties. DVP UK donated over £11,000 worth of medical supplies to the Worldwide Veterinary Service,
a UK registered charity committed to improving the treatment and welfare of all animal species throughout the world.
In addition DVP continued to provide assistance to a charity called Help the Street Cats of Morocco which it has been
involved with since 2006 providing supplies of Sedator, Alvegesic and Atipam.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
62
www.dechra.com
63
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Social, Ethical and Environmental Responsibilities continued
Race for Life
Tracy Beech, Melanie Vanhuls, Rachel Horton, Carol Allen,
Claire Owen and Helen Hall all took part in the ‘Race for
Life’ event on 22 May at the agricultural showground in
Shrewsbury. They completed the 5k course generating
sponsorship of £515 and with DVP UK matching
sponsorship, making a grand total of £1,031.
Donna Louise Trust Foundation
Danny Roberts of NVS handing over a cheque for £540
to the ‘Donna Louise Trust Foundation’, the donation was
raised from the sale of damaged goods to NVS employees.
Environment
l As in previous years Dechra has maintained its investment in the Corporate Membership Scheme for the Staffordshire
Wildlife Trust (the “Trust”) donating £2,000. The continued support provided by the Company has assisted the Trust to
continue with their education, conservation and community projects throughout Staffordshire. As in the previous year
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.
l DVP EU has agreed to donate DKK0.02 for every kilowatt per hour used for the period 2011 to 2015 to Energreen ApS
for the construction of new green energy production facilities within Denmark.
Other
l Each year DVP EU nominates to a Danish charity. This year they donated DKK3,000 to the Danish Cancer Foundation.
Furthermore, as reported in the previous Annual Report, DVP EU has continued its sponsorship of three children through
SOS Children’s Villages, and in addition DVP EU has provided sponsorship to the University of Munich, totalling €3,000.
l NWL has continued its links with local schools by offering a number of work experience placements to four children from
local schools and two veterinary students.
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.
64
www.dechra.com
20512-04 05/09/2011
Proof 15
65
Stock Code: DPH
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 number of
accidents has increased from 14 to 15. None of these accidents have resulted in a work related fatality or disability. It is
hoped to reduce the number of accidents during the 2011/2012 financial year. More detail in relation to this and other non-
financial key performance indicators can be found on pages 30 and 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 Group fleet and establishes control procedures, including
regular licence checks of all individuals who are able to drive company vehicles, investigations into all accidents and a
disciplinary procedure for speeding offences. During 2010 this committee introduced an online driver risk assessment for all
company car and commercial vehicle drivers. The results of the assessment enabled the Company to identify any drivers at
risk and to provide further training to those drivers. The drivers identified as requiring driver development training have now
undertaken the training and this has been positively received. All new company car and commercial vehicle drivers as part of
their induction must complete the online driver risk assessment. All company car and commercial drivers will be reassessed
every three years. The Transport Risk Committee has reviewed the company car policy during the year with the aim of
reducing its impact on the environment, resulting in a reduction in the selection of cars to be made available to employees
and reducing the overall CO2 limit for all cars to 160 CO2/km. This committee has met four times during the year. All 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 Health and Safety policy.
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 the 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
5 100
The Group has established a target of no more than 15% Moving Annual Turnover; during the 2010/2011 financial year
we achieved 19.03% (2010: 15.88%). The main cause of this increase is attributed to the restructure of the warehouse
operation within NVS where numbers of hourly paid employees have dropped from 387 to 349 over the financial year, a
reduction of 38 posts.
In October 2010 a steering group was established to review how the management of both individual and team performance
is undertaken throughout the Group, with a view to establishing a process that adds value to the business. The steering
group was chaired by the Group HR Director and consisted of representatives from around the Group. They considered
ways of improving performance, developing individuals and teams and managing behaviour that is consistent across the
Group and providing support to managers.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
64
www.dechra.com
65
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Social, Ethical and Environmental Responsibilities continued
The group determined the underlying principles and standards of behaviour that are needed to achieve and promote a
high performance culture and as a result have developed a performance and development review (PDR) process that
incorporates:
l a set of behavioural standards that are linked to Group core values;
l a mechanism to annually review team members; and
l a route for team member development.
As a result, the Dechra Values were launched in June 2011 throughout the business, a summary of which can be found on
the inside front cover and further information can be obtained via the Company’s website at www.dechra.com. Further detail
in relation to the PDR process can be found in the Remuneration Report on page 55.
The Board fully endorses these values and believe that they encapsulate Dechra’s business ethics and set standards that all
employees wish to achieve and ultimately exceed.
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 one further
apprentice has been employed and is currently studying for the NVQ Level 2 Business and Administration. In addition the
following qualifications have been obtained during the current financial year; NVQ Level 2 in Performing Manufacturing
Operations and Team Leading, Diploma in Operations Management and A Level Chemistry.
At NVS, one employee has completed NVQ Level 3 in Team Leading and one employee has gained CIM Professional Diploma
in Marketing, whilst two employees are studying for NVQ Level 2 in Customer Services and three for Level 2 in Business and
Administration.
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 17.38% of the UK workforce participating in the 2010 grant (2009:
18.83%); the decrease in participants this year can be explained by HMRC’s decision to reduce the three year scheme interest rate
to nil. The SAYE Scheme has been established for over ten years and has a consistently high take up rate. The graph below shows
the percentage of employees who have taken up the SAYE Scheme over the last five years.
Percentage take-up (Eligible Employees)
25.00
20.00
15.00
10.00
5.00
0.00
p
u
-
e
k
a
t
e
g
a
t
n
e
c
r
e
P
13/10/2006
17/10/2007
13/10/2008
Grant Dates
12/10/2009
13/12/2010
66
www.dechra.com
20512-04 05/09/2011
Proof 15
67
Stock Code: DPH
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:
l all third parties are treated fairly, openly and honestly;
l our employees do not accept or offer bribes, facilitation payments or other inducements; and
l 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. 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 were tasked with collating data relating to the KPIs internally for a 12 month
period with a view to gaining an understanding of whether or not these were the correct KPIs for the Group. The Committee
has yet to meet to discuss these in detail and any decision will be reported in next year’s report. In terms of fuel, waste and
travel we can report the following changes:
Fuel
In respect of fuel, the number of company car vehicles with a CO2 limit of more than160 CO2/km has been reduced. 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. During the year the HGV fleet speed limiters
have been fixed to 53 miles per hour 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 as at the end of June 2011 and June 2010 were as follows:
HGV Fleet
Transit
2011
9.60
32.57
2010
9.32
32.07
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.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
66
www.dechra.com
67
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Social, Ethical and Environmental Responsibilities continued
Travel
In respect of travel, use of the video-conference facilities is recommended as priority over travel. During the previous
financial year, video-conference facilities were installed in NVS, Denmark and Dales with a satellite function at Shrewsbury. In
the US video-conference facilities are provided by a third party. 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.
Waste Recycling
In respect of waste, 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
25) 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. Dales also actively monitors its recycling rates. 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.
Glass
(tonnes)
Cardboard
(tonnes)
Plastic
(tonnes)
Aluminium cans
(tonnes)
2011
8.7
—
—
2010
10.4
—
—
2011
30.6
276.1
18.5
2010
28.6
280.3
15.5*
2011
15.8
18.4
9.1
2010
15.6
16.5
9.0*†
2011
—
0.03
—
2010
—
0.5
—
Dales
NVS
DVP EU
* Data collated on a calendar year basis.
† Plastic and metal.
DVP EU also monitors:
l Annual energy consumption: In 2010 energy consumption totalled 1,748 MWh (compared to 1,519 MWh in 2009). The
increase is primarily due to an increase in energy consumption processes in manufacturing.
l Water: In 2010 water usage totalled 2,372 m3 (compared to 2,382 m3 in 2009). Although there has been a slight
decrease in usage compared to the previous year, over a five year period the usage has remained relatively stable.
During 2008/2009 Dales 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 during the financial year from an average of 19 to 16 days. Currently 20 employees are working towards a
certificate in Lean Manufacturing (Business Improvement Techniques), which will bring the total trained at the business to
200. 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.
68
www.dechra.com
20512-04 05/09/2011
Proof 15
69
Stock Code: DPH
Other Disclosures
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 comprise three segments:
l 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.
l US Pharmaceuticals: markets and sells a range of endocrine, ophthalmic, dermatological and equine products into
North America.
l Research and 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 4 to 37 and include:
l a description of the principal risks and uncertainties faced by the Group;
l an analysis of the development and performance of the Company’s business during the financial year;
l the position of the Company’s business at the end of the financial year;
l main trends and factors likely to affect the future development, performance and position of the Company’s business;
and
financial and non-financial key performance indicators used to measure the Group’s performance.
l
Results and Dividends
The results for the year and financial position at 30 June 2011 are shown in the Consolidated Income Statement on page 76
and Consolidated Statement of Financial Position on page 78. The Directors recommend the payment of a final dividend of
8.40 pence per share which, if approved by Shareholders, will be paid on 25 November 2011 to Shareholders registered at
11 November 2011. The date the shares will become ex-dividend is 9 November 2011. An interim dividend of 3.70 pence
per share was paid on 7 April 2011, making a total dividend for the year of 12.10 pence (2010: 10.50 pence). The total
dividend payment is £8,039,000 (2010: £6,953,000).
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 17. The expense on this activity for the year ended 30 June
2011 was £5,221,000 (2010: £4,666,000) and a further £1,025,000 (2010: £955,000) 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 2011, the Group had an average of 60 days (2010: 71 days) purchases outstanding in creditors. The
Company has an average of nil days (2010: nil days) purchases outstanding in creditors.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
68
www.dechra.com
69
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Other Disclosures continued
Acquisitions
The acquisitions during the year under review are as follows:
Date of
Acquisition
Detail
October 2010
DermaPet Inc.
Florida based business
which develops and markets
a range of dermatological
preparations for the US and
overseas companion animal
markets
December 2010 Genitrix Limited
Privately owned veterinary company
with a range of equine and companion
animal products complementary
to Dechra’s
Consideration
The maximum cash consideration
for the acquisition is as follows:
l US$43.2 million paid on completion;
l Payments of US$1.0 million due on the
second and fourth anniversaries of the
completion date;
l US$15.0 million payable between the
second and sixth anniversaries of
completion if DermaPet achieves
revenues in excess of US$15.0 million
in any rolling 12 month period
commencing on the first anniversary of
completion;
If revenues on the same criteria exceed
l
US$20.0 million, a further US$5.0
million will become due
Initial cash consideration of £5.4 million.
A further £0.8 million is payable on
achievement of specific milestones
Share Capital
The issued share capital of the Company for the year is set out in note 22 to the Accounts on page 114. As at the end of
the financial year, 66,449,659 fully paid ordinary shares were in issue which included 359,584 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.
At the Annual General Meeting of the Company held on 5 November 2010, the Company was authorised to purchase up
to 6,611,045 of its ordinary shares, representing 10% of the issued share capital of the Company as at 30 June 2010.
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 2010 Annual General Meeting and
resolutions to renew these authorities will be proposed at the 2011 Annual General Meeting.
Substantial Interests in Voting Rights
In accordance with the requirements in the Listing Rules and the Disclosure Rules and Transparency Rules of the Financial
Services Authority, the Company had been notified of the following interests exceeding the 3% notification threshold as at the
end of the financial year and a date not more than one month before the date of the notice of the Annual General Meeting.
70
www.dechra.com
20512-04 05/09/2011
Proof 15
71
Stock Code: DPH
Schroder Investment Management
Legal & General Investment Management
Aberdeen Asset Management
Invesco Perpetual
Rathbones
Newton Investment Management
Threadneedle Investments
BlackRock Investment Management
30 June 2011
16 August 2011
Aggregate
Voting
Rights Percentage
Aggregate
Voting
Rights Percentage
15,580,099
4,074,728
3,011,807
2,941,957
2,657,311
2,236,125
2,226,900
2,138,083
23.45 15,260,483
6.13 4,048,028
4.53 3,095,914
4.43 2,927,796
4.00 2,612,411
3.37 2,442,947
3.35 2,258,900
3.22 2,136,819
22.97
6.09
4.66
4.41
3.93
3.68
3.40
3.22
Change of Control/Significant Agreements
As detailed in the Going Concern Statement on page 47 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 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.
The Directors consider that there are no contracted or other arrangements, such as those with major suppliers, which are
likely to influence, directly or indirectly, the performance of the business and its values. Furthermore, there are no contracts
of significance subsisting during the financial year between any Group undertaking and a controlling Shareholder or in which
a Director is or was materially interested.
Directors
The constitution of the Board and its committees, together with biographical notes on the Directors, is shown on pages 38
and 39. Details of Directors’ attendance at board and committee meetings and a statement on board evaluation are set out
in the Corporate Governance Report, Audit Committee Report and Remuneration Report on pages 42 to 49, 50 and 53.
During the financial year Malcolm Diamond retired from his position as Non-Executive Director. Dr Chris Richards was
appointed to the Board as a Non-Executive Director on 1 December 2010, under the Company’s Articles of Association he
will offer himself for re-election as a Director at the forthcoming Annual General Meeting.
Under the provisions of the UK Corporate Governance Code, Mike Redmond who has served as a Non-Executive Director
for more than nine years will offer himself for re-election as a Director at the forthcoming Annual General Meeting.
The Company Articles of Association require one-third of the Board to retire by rotation at the Annual General Meeting and
also if they have held office for more than 36 months since appointed or last elected. Therefore, Ian Page and Neil Warner
retire by rotation and, being eligible, offer themselves for re-election. Further detail in respect of the proposed re-elections
can be found in the enclosed Circular to Shareholders.
The interests of the Directors in the share capital of the Company are shown in the Remuneration Report on page 58.
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.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
70
www.dechra.com
71
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Directors’ Report: Our Governance
Other Disclosures continued
The Articles of Association also state that the Board of Directors is responsible for the management of the business of the
Company and in doing so may exercise all the powers of the Company subject to the 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 73.
Charitable Contributions
Charitable donations made during the year in support of charitable causes in the local communities in which the Group
operates and those of interest to its employees amounted to £6,234 (2010: £6,695). Further details of donations made by
the Group are given on pages 63 to 68.
Political Donations and Expenditure
No political donations were made during the year ended 30 June 2011. 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.
Auditor
A resolution to reappoint KPMG Audit Plc as Auditor 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 Auditor is 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
Auditor is aware of that information.
Annual General Meeting
The 2011 Annual General Meeting of the Company will be held at 1.00 pm on 4 November 2011 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
6 September 2011
72
www.dechra.com
20512-04 05/09/2011
Proof 15
73
Stock Code: DPH
Statement of Directors’ Responsibilities in respect
of the Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year.
Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the
EU and 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:
l select suitable accounting policies and then apply them consistently;
l make judgements and estimates that are reasonable and prudent;
l
for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by
the EU;
for the Parent Company financial statements, state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the Parent Company financial statements; and
l
l 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 the applicable set of accounting standards, 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:
72
www.dechra.com
73
Ian Page
Chief Executive
6 September 2011
Simon Evans
Group Finance Director
6 September 2011
20512-04 05/09/2011
Proof 15
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Independent Auditor’s Report to the Members of
Dechra Pharmaceuticals PLC
We have audited the financial statements of Dechra Pharmaceuticals PLC for the year ended 30 June 2011 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 Auditor’s report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a
body, for our audit work, for this report, or for the opinions we have formed.
Respective Responsibilities of Directors and Auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 73, 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, and express an opinion on, 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/private.cfm.
Opinion on Financial Statements
In our opinion:
l
l
l
l
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 2011 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
the Parent Company financial statements have been properly prepared in accordance with UK Generally Accepted
Accounting Practice;
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:
l
l
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006; and
the information given in the Directors’ Report for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
l the information given in the Corporate Governance statement set out on pages 42 to 49 with respect to internal control
and risk management systems in relation to financial reporting processes and about share capital structure is consistent
with the financial statements.
74
www.dechra.com
20512-04 05/09/2011
Proof 15
75
Stock Code: DPH
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:
l adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not
l
been received from branches not visited by us; or
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
l certain disclosures of Directors’ remuneration specified by law are not made; or
l we have not received all the information and explanations we require for our audit; or
l a Corporate Governance statement has not been prepared by the Company.
Under the Listing Rules we are required to review:
l
l
the Directors’ statement, set out on page 47, in relation to going concern;
the part of the Corporate Governance Statement on pages 42 to 49 relating to the Company’s compliance with the nine
provisions of the UK Corporate Governance Code specified for our review; and
l certain elements of the report to Shareholders by the Board on Directors’ remuneration.
G Neale (Senior Statutory Auditor)
For and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
6 September 2011
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
74
www.dechra.com
75
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Consolidated Income Statement
For the year ended 30 June 2011
Note
2
2011
Non-
underlying
items*
Underlying (notes 4 & 5)
£’000
—
—
—
—
(10,105)
(10,105)
—
(1,450)
(11,555)
2,941
£’000
389,237
(300,876)
88,361
(17,659)
(38,879)
31,823
2,144
(3,898)
30,069
(7,321)
2
3
4
6
8
2010
Non-
underlying
items*
(note 5)
£’000
—
—
—
(300)
(8,024)
(8,324)
—
—
(8,324)
2,044
Total Underlying
£’000
£’000
369,369
389,237
(288,744)
(300,876)
80,625
88,361
(16,242)
(17,659)
(36,193)
(48,984)
28,190
21,718
1,632
2,144
(3,766)
(5,348)
26,056
18,514
(6,619)
(4,380)
Total
£’000
369,369
(288,744)
80,625
(16,542)
(44,217)
19,866
1,632
(3,766)
17,732
(4,575)
22,748
(8,614)
14,134
19,437
(6,280)
13,157
10
10
9
21.33p
21.26p
12.10p
19.97p
19.89p
10.50p
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)
* Non-underlying items comprise amortisation of acquired intangibles, acquisition expenses, rationalisation costs,
payments to acquire technology for the research and development programme, impairment charges, loss on
extinguishment of debt and the unwinding of discounts on deferred and contingent consideration.
76
www.dechra.com
20512-04 05/09/2011
Proof 15
77
Stock Code: DPH
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2011
Profit for the period
Other comprehensive income:
Effective portion of changes in fair value of cash flow hedges
Cash flow hedges recycled to income statement
Foreign currency translation differences for foreign operations
Net loss on hedge of net investment in foreign operations
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
2011
£’000
14,134
2010
£’000
13,157
(684)
670
3,411
—
—
(4)
17,527
593
—
(1,949)
(1,300)
(512)
249
10,238
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
76
www.dechra.com
77
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Consolidated Statement of Financial Position
At 30 June 2011
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
Deferred and contingent consideration
Current tax liabilities
Total current liabilities
Non-current liabilities
Borrowings
Deferred and contingent consideration
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Issued share capital
Share premium account
Hedging reserve
Foreign currency translation reserve
Merger reserve
Retained earnings
Total equity attributable to equity holders of the parent
Note
2011
£’000
2010
£’000
11
12
15
16
17
20
18
27
19
20
27
14
22
125,098
7,721
132,819
80,371
7,673
88,044
40,760
66,293
30,496
137,549
270,368
34,819
51,162
31,502
117,483
205,527
(8,502)
(74,559)
(500)
(5,391)
(88,952)
(20,441)
(64,495)
—
(4,105)
(89,041)
(56,085)
(13,555)
(13,443)
(83,083)
(172,035)
98,333
(17,762)
—
(12,496)
(30,258)
(119,299)
86,228
664
63,559
(294)
4,751
1,770
27,883
98,333
661
63,021
(276)
1,340
1,770
19,712
86,228
The financial statements were approved by the Board of Directors on 6 September 2011 and are signed on its behalf by:
Ian Page
Director
Simon Evans
Director
Company number: 3369634
78
www.dechra.com
20512-04 05/09/2011
Proof 15
79
Stock Code: DPH
Consolidated Statement of Changes in Shareholders’ Equity
For the year ended 30 June 2011
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
Cash flow hedges recycled to income
statement, net of tax
Total comprehensive income
Transactions with owners
Dividends paid
Share-based payments
Shares issued
Total contributions by and
distributions to owners
At 30 June 2010
Year ended 30 June 2011
At 1 July 2010
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
Cash flow hedges recycled to income
statement, net of tax
Total comprehensive income
Transactions with owners
Dividends paid
Share-based payments
Shares issued
Total contributions by and
distributions to owners
At 30 June 2011
Issued
share
capital
£’000
656
—
Share
premium
account
£’000
62,437
—
—
—
—
—
—
—
—
5
5
661
661
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
584
584
63,021
63,021
—
—
—
—
—
—
—
538
Attributable to owners of the parent
Foreign
currency
translation
reserve
£’000
4,686
—
Hedging
reserve
£’000
(703)
—
Merger
reserve
£’000
1,770
—
Retained
earnings
£’000
11,840
13,157
—
—
—
Total
£’000
80,686
13,157
427
(2,041)
(936)
—
13,157
(369)
10,238
(6,195)
910
—
(6,195)
910
589
—
—
—
—
—
—
—
—
—
1,770
1,770
—
(5,285)
19,712
(4,696)
86,228
19,712
14,134
86,228
14,134
—
—
—
—
—
—
—
—
—
(506)
3,411
—
14,134
488
17,527
(7,221)
1,258
—
(7,221)
1,258
541
427
—
—
—
(2,041)
(936)
—
427
(369)
(3,346)
—
—
—
—
(276)
(276)
—
—
—
—
—
1,340
1,340
—
(506)
—
—
3,411
488
(18)
—
3,411
—
—
—
—
—
—
3
664
538
63,559
—
(294)
—
4,751
—
1,770
(5,963)
27,883
(5,422)
98,333
78
www.dechra.com
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.
79
20512-04 05/09/2011
Proof 15
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Consolidated Statement of Cash Flows
For the year ended 30 June 2011
Cash flows from operating activities
Profit for the period
Adjustments for:
Depreciation
Amortisation and impairment
Loss 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 in inventories
Increase in trade and other receivables
Increase in trade and other payables
Cash generated from operating activities before interest and taxation
Interest paid
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Interest received
Acquisition of subsidiaries
Purchase of property, plant and equipment
Capitalised development expenditure
Purchase of other intangible non-current assets
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from the issue of share capital
New borrowings
Expenses of raising new borrowings
Repayment of borrowings
Resetting of foreign currency borrowings
Dividends paid
Net cash inflow/(outflow) from financing activities
Net (decrease)/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 (decrease)/increase in cash and cash equivalents
Repayment of borrowings
New borrowings
Expenses of raising new borrowings
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
80
www.dechra.com
20512-04 05/09/2011
Proof 15
Note
2011
£’000
2010
£’000
14,134
13,157
1,535
10,362
1
(2,144)
5,348
830
4,380
34,446
(4,814)
(12,408)
8,150
25,374
(3,586)
(5,034)
16,754
2
957
(33,047)
(1,280)
(1,025)
(1,785)
(36,178)
541
68,000
(944)
(41,829)
320
(7,221)
18,867
(557)
31,502
(449)
30,496
(557)
41,829
(68,000)
944
(449)
254
(1,411)
(27,390)
(6,701)
(34,091)
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
4,788
5,671
—
—
(103)
(1,230)
(300)
8,826
(15,527)
(6,701)
24
81
Stock Code: DPH
Notes to the Consolidated Financial Statements
1. Accounting Policies
Dechra Pharmaceuticals PLC is a company domiciled in the United Kingdom. The consolidated financial statements of
the Group for the year ended 30 June 2011 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 124 to 132.
(b) Basis of Preparation
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 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 the annual financial
statements.
The consolidated financial statements are presented in Sterling, rounded to the nearest thousand. They are
prepared on a going concern basis and under the historical cost convention, except where International Financial
Reporting Standards require an alternative treatment. The principal variations relate to derivative financial
instruments, cash settled share-based transactions and contingent consideration that are stated at fair value.
The preparation for consolidated financial statements in conformity with IFRSs requires the use of accounting
estimates and for management to exercise its judgement in the process of applying the Group’s accounting
policies. These judgements and estimates are based on historical experience and management’s best knowledge
of the amounts, events or actions under review and the actual results may ultimately differ from these estimates.
Areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are
significant to the consolidated financial statements, are, where necessary, disclosed separately.
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, 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.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
80
www.dechra.com
81
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
1. Accounting Policies continued
Valuation of Intangible Assets
Product rights and customer relationships that are acquired by the Group as part of a business combination are
stated at fair value at the date of acquisition less accumulated amortisation and impairment losses.
Fair value at the date of acquisition reflects management’s judgement of the fair value of the individual intangible
asset calculated by reference to the net present value of future benefits accruing to the Group from the utilisation
of the asset, discounted at an appropriate discount rate.
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.
Contingent Liability
Please refer to note 28.
Adoption of New and Revised Standards
The following standards and interpretations are applicable to the Group and have been adopted in 2011 as they
are mandatory for the year ended 30 June 2011.
l
l
l
l
Amendments to IFRS 8 ‘Operating segments’ — removes the requirement to present segment information
for total assets unless regularly reported to the chief operating decision-maker. Since the changes are
presentational only there has been no impact on profit or net assets.
Amendment to IAS 17 ‘Leases’ — allows a lease of land with an indefinite economic life to be classified as a
finance lease when relevant criteria are met. This amendment has not had a material impact on the Group’s
2011 consolidated financial statements.
Amendments to IAS 32 ‘Classification of Rights Issues’ — requires that rights, options or warrants to
acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency are equity
instruments if the entity offers the rights options or warrants pro-rata to all of its existing owners of the same
class of its own non-derivative equity instruments. This amendment has not had a material impact on the
Group’s 2011 consolidated financial statements.
IFRIC 19 ‘Extinguishing Financial Liabilities with Equity Instruments’ — deals with how entities should
measure equity instruments issued in a debt for equity swap. This amendment has not had a material
impact on the Group’s 2011 consolidated financial statements.
In addition to the above, amendments to a number of standards under the annual improvements project to
IFRS, which are mandatory for the year ended 30 June 2011, have been adopted in the year. None of these
amendments have had a material impact on the Group’s financial statements.
82
www.dechra.com
20512-04 05/09/2011
Proof 15
83
Stock Code: DPH
1. Accounting Policies continued
New Standards and Interpretations not yet Adopted
The following standard and interpretation has been published, endorsed by the EU, and is available for early
adoption, but has not yet been applied by the Group in these financial statements.
l
IAS 24 ‘Related Party Disclosures (revised 2009)’ — makes changes to the definition of a related party.
Application of this standard is required for periods starting on or after 1 January 2011. The amendments
are not expected to have a material impact and will become mandatory for the Group’s 2012 consolidated
financial statements.
(c) Basis of Consolidation
Subsidiary Undertakings
Subsidiary undertakings are fully consolidated from the date on which control is transferred to the Group. They cease to
be consolidated from the date that the Group no longer has control. All subsidiary undertakings have been consolidated.
Inter-company transactions, balances and unrealised gains and losses on transactions between Group
companies are eliminated on consolidation.
The financial statements of all subsidiary undertakings are prepared to the same reporting date as the Company.
(d) Foreign Currency Translation
(i) Functional and Presentational Currency
The consolidated financial statements are presented in Sterling, which is the Group’s presentational currency
and are rounded to the nearest thousand, except where it is deemed relevant to disclose the amounts to the
nearest pound. 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, with the exception of differences on transactions that are subject to
effective cash flow hedges, which are recognised in other comprehensive income.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
82
www.dechra.com
83
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
1. Accounting Policies continued
(iii) Foreign Operations
The assets and liabilities of foreign operations are translated to Sterling at the closing rate at the reporting
date. The income and expenses are translated to Sterling at the average rate for the period being reported.
Foreign currency differences are recognised in other comprehensive income in the foreign currency
translation reserve, a separate component of equity.
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 previously recognised in other comprehensive income are recognised in the income
statement in the same period in which the gain or loss on disposal is recognised.
(e) Accounting for Financial Assets, Derivative Financial Instruments and
Hedging Activities
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 determine 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.
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.
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.
84
www.dechra.com
20512-04 05/09/2011
Proof 15
85
Stock Code: DPH
1. Accounting Policies continued
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.
Cash Flow Hedges
Changes in the fair value of derivative financial instruments designated as cash flow hedges are recognised in
other comprehensive income to the extent that the hedge is effective. To the extent that the hedge is ineffective,
changes in fair value are recognised immediately in the income statement.
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 other comprehensive income remains there until the forecast transaction occurs. When the hedged
item is a non-financial asset, the amount recognised in other comprehensive income is transferred to the carrying
amount of the asset when it is recognised. In other cases, the amount recognised in other comprehensive
income is transferred to the income statement in the same period that the hedged item affects profit or loss.
Trade Receivables
Trade receivables are recognised and carried at original invoice amount less provision for impairment. A provision
for impairment of trade 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 provision is
recognised in the income statement in operating expenses.
Trade and Other Payables
Trade and other payables are initially recognised at fair value and subsequently at amortised cost.
Borrowings and Borrowing Costs
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.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
84
www.dechra.com
85
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
1. Accounting Policies continued
Borrowing costs directly attributable to the acquisition, construction, or production of qualifying assets, which are
assets that take a substantial period of time to get ready for their intended use or sale, are added to the cost of
those assets, until such time as the assets are substantially ready for their intended use. All other borrowing costs
are recognised in the income statement in the period in which they are incurred.
(f) Property, Plant and Equipment
Owned Assets
Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and
impairment losses (see accounting policy (j)).
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.
Depreciation
Depreciation is charged to the income statement on a straight-line basis over the estimated useful life of each
part of an item of property, plant and equipment. Land is not depreciated. Assets in the course of construction
are not depreciated until the date the assets become available for use. The estimated useful lives are as follows:
freehold buildings
short leasehold buildings
plant and fixtures
l
l
l
l motor vehicles
25 years
period of lease
3–10 years
4 years
The residual value, if not insignificant, is reassessed annually.
(g) Intangible Assets
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 separable 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.
For acquisitions prior to 1 July 2009, costs directly attributable to business combinations formed part of the
consideration payable when calculating goodwill. Adjustments to contingent consideration, and therefore the
consideration payable and goodwill, are made at each reporting date until the consideration is fully determined.
Acquisitions after this date fall under the provisions of ‘Revised IFRS 3 Business Combinations (2009)’. For these
acquisitions, transaction costs, other than share and debt issue costs, are expensed as incurred and subsequent
adjustments to the fair value of consideration payable are recognised in the income statement.
86
www.dechra.com
20512-04 05/09/2011
Proof 15
87
Stock Code: DPH
1. Accounting Policies continued
Contingent consideration is measured at fair value.
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.
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 consolidated statement of financial
position 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.
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.
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.
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.
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 consolidated statement of financial position date. Other intangible
assets are amortised from the date that they are available for use. The estimated useful lives are as follows:
software
capitalised development costs
patent rights
l
l
l
l marketing authorisations
l
l
product rights
customer relationships
5 years
5–10 years or period of patent
Period of patent
Indefinite life
Period of product rights
10 years
20512-04 05/09/2011
Proof 15
87
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
86
www.dechra.com
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
1. Accounting Policies continued
(h) 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.
(i) 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.
(j)
Impairment
The carrying amounts of the Group’s assets are reviewed at each consolidated statement of financial position
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 consolidated statement of financial position 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.
(k) 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.
88
www.dechra.com
20512-04 05/09/2011
Proof 15
89
Stock Code: DPH
1. Accounting Policies continued
(l) Employee Benefits
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.
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 over the vesting period on a straight-
line basis in the income statement with a corresponding movement to equity reserves. Fair values are determined by
use of an appropriate pricing model and are determined by reference to the fair value of the options granted. The
amount to be expensed over the vesting period is adjusted to reflect the number of awards for which the related
service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised
as an expense is based on the number of awards that meet the related service and non-market performance
conditions at the vesting date.
At each consolidated statement of financial position date, the Group revises its estimates of the number of share
incentives that are expected to vest. The impact of the revisions of original estimates, if any, is recognised in the
income statement, with a corresponding adjustment to equity reserves, over the remaining vesting period.
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 consolidated statement of
financial position date.
(m) Revenue recognition
Revenue comprises the fair value of goods sold and services provided to external customers, net of value added
tax, rebates, promotions and returns. 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.
For services provided, revenue is recognised when the contractual service has been provided to the customer.
No revenue is recognised where the recovery of the consideration is not probable or where there are significant
uncertainties regarding associated costs or the possible return of goods.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
88
www.dechra.com
89
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
1. Accounting Policies continued
(n) Leases
Operating Leases
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.
Finance Leases
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding
liability using the effective interest method.
(o) Net Financing Costs
Net financing costs comprise interest payable on borrowings, unwinding of discount on provisions, interest
receivable on funds invested, gains and losses on hedging instruments that are recognised in the income statement
(see accounting policy (e)) 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 Group capitalises
borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of
the cost of that asset. The interest expense component of finance lease payments is recognised in the income
statement using the effective interest rate method.
(p) Basis of Charge for Taxation
Income tax expense comprises current and deferred tax. Current and deferred taxes are recognised in the
income statement except to the extent that it relates to a business combination or items recognised directly in
equity or in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or
substantively enacted at the consolidated statement of financial position date, and any adjustment to tax payable
in respect of previous years.
Deferred tax is provided using the consolidated statement of financial position 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, and is based upon tax rates enacted or
substantively enacted at the consolidated statement of financial position date.
90
www.dechra.com
20512-04 05/09/2011
Proof 15
91
Stock Code: DPH
1. Accounting Policies continued
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 consolidated statement of financial position 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) Earnings per Share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is
calculated by dividing the profit attributable to ordinary Shareholders of the Company by the weighted average
number of ordinary shares in issue during the period. Diluted EPS is determined by adjusting the profit
attributable to ordinary Shareholders and the weighted average number of ordinary shares in issue, for the effects
of all potential dilutive ordinary shares, which comprise share options granted to employees.
The Group has also chosen to present an alternative EPS measure, with profit adjusted for non-underlying items.
A reconciliation of this alternative measure to the statutory measure required by IFRS is given in notes 4 and 5.
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. Several operating segments which
have similar economic characteristics have been aggregated into the reporting segments.
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 Pharmaceuticals. Dales
manufactures the vast majority of our own branded licensed pharmaceutical products, which are marketed through
DVP EU. 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.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
90
www.dechra.com
91
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
2. Operating Segments continued
Reconciliations of reportable segment revenues, profit or loss and liabilities and other material items:
Revenue by segment
Services — total
— intersegment
European Pharmaceuticals — total
US Pharmaceuticals
— intersegment
Operating profit/(loss) by segment
Services
European Pharmaceuticals
US Pharmaceuticals
Pharmaceuticals research and development
Segment operating profit
Corporate and other unallocated costs
Underlying operating profit
Amortisation of acquired intangibles
Rationalisation costs
Acquisition 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 liabilities by segment
Services
European Pharmaceuticals
US Pharmaceuticals
Pharmaceuticals research and development
Segment liabilities
Corporate loans and revolving credit facility
Corporate accruals and other payables
Current and deferred tax liabilities
Additions to intangible non-current assets by segment
Services
European Pharmaceuticals
US Pharmaceuticals
Pharmaceuticals research and development
2011
£’000
2010
£’000
296,258
(190)
89,287
(12,225)
16,107
389,237
285,670
(195)
84,637
(11,377)
10,634
369,369
13,087
22,506
4,838
(5,221)
35,210
(3,387)
31,823
(8,938)
(474)
(693)
—
—
21,718
2,144
(5,348)
18,514
13,103
21,412
1,311
(4,666)
31,160
(2,970)
28,190
(6,580)
(1,096)
—
(230)
(418)
19,866
1,632
(3,766)
17,732
(58,337)
(14,465)
(13,837)
(654)
(87,293)
(63,814)
(2,094)
(18,834)
(172,035)
(51,386)
(11,954)
(557)
(567)
(64,464)
(37,156)
(1,078)
(16,601)
(119,299)
158
8,244
40,056
1,212
49,670
136
497
—
845
1,478
92
www.dechra.com
20512-04 05/09/2011
Proof 15
93
Stock Code: DPH
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
2011
£’000
280
874
63
86
1,303
438
9,091
1,961
407
11,897
2010
£’000
142
813
288
—
1,243
448
8,251
182
306
9,187
Geographical Information
The following table shows revenue based on the geographical location of customers:
UK
Rest of Europe
USA
Rest of World
2011
2011 Non-current
assets
£’000
29,156
66,954
36,709
—
132,819
Revenue
£’000
305,737
56,452
16,107
10,941
389,237
2010
2010 Non-current
assets
£’000
20,981
67,033
30
—
88,044
Revenue
£’000
305,992
49,451
10,634
3,292
369,369
No customer accounted for more than 10% of total Group revenues.
3. Finance Income
Recognised in profit or loss
Finance income arising from:
— Cash and cash equivalents
— Loans and receivables
— Foreign exchange gains
2011
£’000
1,113
32
999
2,144
2010
£’000
894
112
626
1,632
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
92
www.dechra.com
93
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
4. Finance Expense
Underlying
Finance expense arising from:
— Financial liabilities at amortised cost
— Derivatives at fair value through profit or loss
Underlying finance expense
Non-underlying
Loss on extinguishment of debt
Unwinding of discounts on deferred and contingent consideration
Non-underlying finance expense
Total finance expense
5. Non-underlying Items
Non-underlying items comprise:
Amortisation of intangible assets acquired as a result of business combinations
Rationalisation costs
Expenses of the acquisition of DermaPet Inc.
Expenses of the acquisition of Genitrix Limited
Payment to acquire technology for research and development programme
Impairment of intangible asset
2011
£’000
3,898
—
3,898
1,256
194
1,450
5,348
2011
£’000
8,938
474
585
108
—
—
10,105
2010
£’000
3,365
401
3,766
—
—
—
3,766
2010
£’000
6,580
1,096
—
—
418
230
8,324
Rationalisation costs in 2011 relate to the integration of DermaPet Inc. and Genitrix Limited.
Rationalisation costs in 2010 relate to the closure of our pharmaceutical warehouse in Shrewsbury and transfer of all
pre-wholesale logistics to our facility in Uldum, Denmark.
94
www.dechra.com
20512-04 05/09/2011
Proof 15
95
Stock Code: DPH
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
Loss on disposal of property, plant and equipment
Impairment of receivables
Operating lease rentals payable
Research and development expenditure as incurred
Auditor’s remuneration
Analysis of total fees paid to the Auditor:
Audit of these financial statements
Audit of financial statements of subsidiaries pursuant to legislation
Other services pursuant to legislation
Other services relating to taxation
Other services relating to acquisitions
2011
£’000
298,105
558
2010
£’000
285,609
292
1,288
247
10,362
—
1
573
3,905
5,221
1,087
42
185
51
237
572
1,087
1,202
307
7,678
230
—
280
3,150
4,666
409
51
212
14
132
—
409
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
Non-Executive Directors’ fees
2011
Number
221
409
375
1,005
2010
Number
238
432
351
1,021
2011
£’000
27,712
3,036
1,552
948
33,248
2011
£’000
2,569
337
190
586
200
3,882
2010
£’000
26,137
2,792
1,340
910
31,179
2010
£’000
2,136
273
182
537
175
3,303
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
94
www.dechra.com
95
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
7. Employees continued
Key management comprises the Board and the senior management team.
Details of the remuneration, shareholdings, share options and pension contributions of the Executive Directors are
included in the Directors’ Remuneration Report on pages 53 to 62.
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
£1,552,000 (2010: £1,340,000).
8.
Income Tax Expense
Current tax
— UK corporation tax
— overseas tax at prevailing local rates
— 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
2011
£’000
4,551
2,134
(728)
5,957
(1,874)
297
(1,577)
4,380
2010
£’000
3,678
2,626
(92)
6,212
(1,637)
—
(1,637)
4,575
The tax on the Group’s profit before tax differs from the standard rate of UK corporation tax of 27.5% (2010: 28%).
The differences are explained below:
Profit before taxation
Tax at 27.5% (2010: 28%)
Effect of:
— depreciation on assets not eligible for tax allowances
— disallowable expenses
— (over)/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
— non-taxable income
Total income tax expense
2011
£’000
18,514
5,091
2010
£’000
17,732
4,965
8
450
(28)
(50)
(165)
(431)
(495)
4,380
8
48
40
(60)
(334)
(92)
—
4,575
96
www.dechra.com
20512-04 05/09/2011
Proof 15
97
Stock Code: DPH
8.
Income Tax Expense continued
Tax 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 transactions
Total tax recognised in equity
2011
£’000
(4)
—
—
—
(4)
193
166
355
2010
£’000
(166)
364
(92)
143
249
313
(220)
342
The 2011 Budget on 23 March 2011 announced that the UK corporation tax rate will reduce to 23% over a period of
four years from 2011. The first reduction in the UK corporation tax rate from 28% to 27% (effective from 1 April 2011)
was substantively enacted on 20 July 2010, and further reductions to 26% (effective from 1 April 2011) and 25%
(effective from 1 April 2012) were substantively enacted on 29 March 2011 and 5 July 2011 respectively.
This will reduce the Company’s future current tax charge accordingly and further reduce the deferred tax liability at
30 June 2011 (which has been calculated based on the rate of 26% substantively enacted at 30 June 2011) by £14,000.
It has not yet been possible to quantify the full anticipated effect of the announced further 2% rate reduction, although this will
further reduce the Company’s future current tax charge and reduce the Company’s deferred tax liability accordingly.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
96
www.dechra.com
97
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
9. Dividends
Final dividend paid in respect of prior year but not recognised as a liability in
that year: 7.20p per share (2010: 6.10p)
Interim dividend paid: 3.70p per share (2010: 3.30p)
Total dividend 10.90p per share (2010: 9.40p) recognised as distributions to equity holders
in the period
Proposed final dividend for the year ended 30 June 2011: 8.40p per share (2010: 7.20p)
Total dividend paid and proposed for the year ended 30 June 2011: 12.10p per share
(2010: 10.50p)
2011
£’000
4,764
2,457
7,221
5,582
2010
£’000
4,000
2,195
6,195
4,758
8,039
6,953
In accordance with IAS 10 ‘Events After the Balance Sheet Date’, the proposed final dividend for the year ended
30 June 2011 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 2012.
The proposed final dividend for the year ended 30 June 2010 is shown as a deduction from equity in the year ended
30 June 2011.
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
— Underlying*
— Basic
Diluted earnings per share
— Underlying*
— Diluted
The calculations of basic and diluted earnings per share are based upon:
Earnings for underlying basic and underlying diluted earnings per share
Earnings for basic and diluted earnings per share
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
2011
Pence
34.33
21.33
34.22
21.26
2010
Pence
29.50
19.97
29.39
19.89
£’000
22,748
14,134
£’000
19,437
13,157
No.
No.
66,253,477 65,896,462
241,438
66,474,490 66,137,900
221,013
* Underlying measures exclude non-underlying items as defined on the consolidated income statement.
98
www.dechra.com
20512-04 05/09/2011
Proof 15
99
Stock Code: DPH
11. Intangible Assets
Goodwill
£’000
Software
£’000
Develop-
ment
costs
£’000
Marketing
authori-
sations
£’000
Patent
rights
£’000
Acquired
intangibles
£’000
Total
£’000
Cost
21,105
At 1 July 2009
—
Additions
—
Disposals
Foreign exchange adjustments
(609)
At 30 June 2010 and 1 July 2010 20,496
Additions
—
Acquisitions through business
combinations
Disposals
Foreign exchange adjustments
At 30 June 2011
Amortisation
At 1 July 2009
Charge for the year
Impairment loss
At 30 June 2010 and 1 July 2010
Charge for the year
At 30 June 2011
Net book value
24,249
At 30 June 2011
At 30 June 2010 and 1 July 2010 20,496
21,105
At 30 June 2009
2,171
—
1,582
24,249
—
—
—
—
—
—
2,097
447
(1)
(21)
2,522
964
—
—
62
3,548
497
257
—
754
316
1,070
2,478
1,768
1,600
4,914
955
—
(13)
5,856
1,025
184
—
37
7,102
623
611
—
1,234
881
2,115
4,987
4,622
4,291
2,783
76
—
—
2,859
821
—
—
—
3,680
111
230
230
571
227
798
2,882
2,288
2,672
Contracted capital commitments
Software assets in the course of construction included above
853
—
—
—
853
—
—
—
—
853
—
—
—
—
—
—
68,879
—
—
(2,120)
66,759
—
100,631
1,478
(1)
(2,763)
99,345
2,810
44,505
—
3,738
115,002
46,860
—
5,419
154,434
9,835
6,580
—
16,415
8,938
25,353
11,066
7,678
230
18,974
10,362
29,336
853
853
853
89,649
50,344
59,044
125,098
80,371
89,565
2011
£’000
609
857
2010
£’000
948
1,031
Goodwill is allocated across cash-generating units that are expected to benefit from that business combination. Key
assumptions made in this respect are given in note 13.
98
www.dechra.com
99
20512-04 05/09/2011
Proof 15
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
11. Intangible Assets continued
In accordance with the disclosure requirements of IAS 38 ‘Intangible Assets’ the components of acquired intangibles
are summarised below:
Cost
At 1 July 2009
Acquisitions through business combinations
Disposals
Foreign exchange adjustments
At 30 June 2010 and 1 July 2010
Acquisitions through business combinations
Disposals
Foreign exchange adjustments
At 30 June 2011
Amortisation
At 1 July 2009
Charge for the year
At 30 June 2010 and 1 July 2010
Charge for the year
At 30 June 2011
Net book value
At 30 June 2011
At 30 June 2010 and 1 July 2010
At 30 June 2009
Product Customer
Rights Relationships
£’000
£’000
68,502
—
—
(2,120)
66,382
44,505
—
3,738
114,625
9,757
6,542
16,299
8,900
25,199
89,426
50,083
58,745
377
—
—
—
377
—
—
—
377
78
38
116
38
154
223
261
299
Total
£’000
68,879
—
—
(2,120)
66,759
44,505
—
3,738
115,002
9,835
6,580
16,415
8,938
25,353
89,649
50,344
59,044
100
www.dechra.com
101
20512-04 05/09/2011
Proof 15
Stock Code: DPH
11. Intangible Assets continued
The amortisation charge is recognised within administrative expenses in the income statement.
The principal assets within acquired intangibles are the product rights recognised on the acquisitions of Dechra
Veterinary Products Holding A/S, DermaPet Inc. and Genitrix Limited. The carrying value of these assets at 30 June
2011 was £87.6 million with a remaining amortisation period of 6½ years, 14½ years and 9½ years respectively. The
other significant assets within acquired intangibles are the product rights recognised on the acquisition of Pharmaderm
Animal Health. The carrying value at 30 June 2011 was £1.9 million with a remaining amortisation period of 11 years.
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 was recognised based on a value in use calculation and represents full
impairment of the intangible. This impairment is classified within ‘non-underlying 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 2011 was £1.7 million with a remaining amortisation period of 7½ years. The addition during the year
comprised a payment for the rights to Equidone which was launched in the US during the year. The amortisation
period is 10 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.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
100
www.dechra.com
101
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
12. Property, Plant and Equipment
Freehold
land and
buildings
£’000
Short
leasehold
buildings
£’000
Motor
vehicles
£’000
Plant and
fixtures
£’000
Cost
At 1 July 2009
Additions
Disposals
Foreign exchange adjustments
At 30 June 2010 and 1 July 2010
Additions
Acquisitions through business combinations
Disposals
Foreign exchange adjustments
At 30 June 2011
Depreciation
At 1 July 2009
Charge for the year
Disposals
At 30 June 2010 and 1 July 2010
Charge for the year
Disposals
At 30 June 2011
Net book value
At 30 June 2011
At 30 June 2010 and 1 July 2010
At 30 June 2009
Net book value of assets held under finance leases
At 30 June 2011
At 30 June 2010 and 1 July 2010
At 30 June 2009
2,326
—
—
(70)
2,256
1
—
—
190
2,447
196
138
—
334
137
—
471
1,976
1,922
2,130
—
—
—
2,932
395
—
—
3,327
65
—
(10)
—
3,382
1,019
231
—
1,250
216
(10)
1,456
1,926
2,077
1,913
40
47
55
Assets in the course of construction included above
Contracted capital commitments
201
—
—
—
201
—
4
—
—
205
201
—
—
201
—
—
201
4
—
—
—
—
—
9,524
848
—
(31)
10,341
1,214
19
(240)
93
11,427
5,527
1,140
—
6,667
1,182
(237)
7,612
3,815
3,674
3,997
568
751
970
2011
£’000
—
77
Total
£’000
14,983
1,243
—
(101)
16,125
1,280
23
(250)
283
17,461
6,943
1,509
—
8,452
1,535
(247)
9,740
7,721
7,673
8,040
608
798
1,025
2010
£’000
104
382
102
www.dechra.com
103
20512-04 05/09/2011
Proof 15
Stock Code: DPH
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 amount 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 business plan for the three years ending 30 June 2014
extrapolated by applying a growth rate of 5% (2010: 5%) per annum up to year five and thereafter a growth rate of 0%
(2010: 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 2011 for the following assets:
(a) Goodwill
Cash-generating unit
Dechra Veterinary Products EU
Dechra Veterinary Products US
Laboratories
Dales
(b) Indefinite Life Assets
Asset
Vetivex licences
2011
2010
Carrying
value
£’000
19,085
312
2,621
2,231
Pre-tax
discount
rate
%
9.87
10.65
10.83
9.62
Carrying
value
£’000
15,644
—
2,621
2,231
Pre-tax
discount
rate
%
10.95
—
11.15
11.14
2011
Pre-tax
discount
rate
%
9.87
2010
Pre-tax
discount
rate
%
10.98
Carrying
value
£’000
822
Carrying
value
£’000
822
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.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
102
www.dechra.com
103
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
14. Deferred Taxes
(a) Recognised Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are attributable to the following:
Intangible assets
Property, plant and equipment
Inventories
Receivables
Payables
Share-based payments
Assets
Liabilities
Net
2011
£’000
—
—
478
41
161
861
1,541
2010
£’000
—
—
548
49
173
600
1,370
2011
£’000
(14,204)
(550)
—
—
(230)
—
(14,984)
2010
£’000
(13,217)
(556)
—
—
(93)
—
(13,866)
2011
£’000
(14,204)
(550)
478
41
(69)
861
(13,443)
2010
£’000
(13,217)
(556)
548
49
80
600
(12,496)
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
The aggregate amount of temporary differences associated with investments in subsidiaries for which deferred tax
liabilities have not been recognised is £nil (2010: £295,000). The estimated unprovided deferred tax liability in relation
to these temporary differences is £nil (2010: £73,000).
There are no unrecognised deferred tax assets in relation to losses.
(c) Movements 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
Share-based payments
Balance at Recognised
1 July 2009
£’000
(15,391)
(521)
520
(98)
427
91
788
(14,184)
in income Acquisitions
£’000
—
—
—
—
—
—
—
—
£’000
1,643
(35)
28
240
(180)
(91)
32
1,637
Recognised
exchange
in equity adjustments
£’000
531
—
—
—
—
—
—
531
Foreign Balance at
30 June
2010
£’000
(13,217)
(556)
548
49
80
—
600
(12,496)
£’000
—
—
—
(93)
(167)
—
(220)
(480)
Balance at Recognised
1 July 2010
£’000
(13,217)
(556)
548
49
80
600
(12,496)
in income Acquisitions
£’000
(1,546)
—
—
—
—
—
(1,546)
£’000
1,699
6
(70)
(8)
(145)
95
1,577
Recognised
exchange
in equity adjustments
£’000
(1,140)
—
—
—
—
—
(1,140)
Foreign Balance at
30 June
2011
£’000
(14,204)
(550)
478
41
(69)
861
(13,443)
£’000
—
—
—
—
(4)
166
162
104
www.dechra.com
105
20512-04 05/09/2011
Proof 15
Stock Code: DPH
15. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
16. Trade and Other Receivables
Trade receivables
Other receivables
Prepayments and accrued income
17. Cash and Cash Equivalents
Cash at bank and in hand
Short term deposits
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
2011
£’000
5,170
371
35,219
40,760
2011
£’000
62,212
2,492
1,589
66,293
2010
£’000
4,129
336
30,354
34,819
2010
£’000
48,293
1,524
1,345
51,162
2011
£’000
30,496
—
30,496
2010
£’000
26,502
5,000
31,502
2011
£’000
63,213
4,770
397
3,827
2,352
74,559
2010
£’000
56,465
2,991
573
2,707
1,759
64,495
2011
£’000
5,391
2010
£’000
4,105
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
104
www.dechra.com
105
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
20. Borrowings
Current liabilities:
Bank loans
Finance lease obligations
Non-current liabilities:
Bank loans
Finance lease obligations
Arrangement fees netted off
Total borrowings
2011
£’000
2010
£’000
8,000
502
8,502
55,746
339
—
56,085
64,587
20,000
441
20,441
17,500
729
(467)
17,762
38,203
On 21 October 2010, the Group refinanced its existing bank facility, which gave rise to a loss on extinguishment of
debt of £1,256,000. The Group’s revised borrowing facilities comprise a term loan of £40 million payable over four
years, a £28 million revolving credit facility committed until 30 September 2014, an overdraft facility of £10 million
(currently unutilised) renewable on 31 August 2012 and various finance lease obligations.
At the year end, the Group had the following unutilised borrowing facilities:
Bank overdraft facility
Revolving credit facility
2011
£’000
10,000
254
2010
£’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 2.75% over LIBOR in respect of the term loan and revolving credit facility and 2.75% over
base rate in respect of the overdraft facility. No covenants have been breached during the year ended 30 June 2011.
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
2011
£’000
2010
£’000
8,000
8,000
47,746
—
63,746
20,000
5,000
12,500
—
37,500
106
www.dechra.com
107
20512-04 05/09/2011
Proof 15
Stock Code: DPH
20. Borrowings continued
The minimum lease payments and the present value of minimum lease payments payable under finance lease
obligations are:
Within one year
Between one and two years
Between two and five years
Total minimum lease payments
Future finance charges
Present value of lease obligations
Minimum Lease
Payments
Present Value of
Minimum Lease
Payments
2011
£’000
543
343
4
890
(49)
841
2010
£’000
510
488
283
1,281
(111)
1,170
2011
£’000
502
335
4
841
—
841
2010
£’000
447
453
270
1,170
—
1,170
Further information on the interest profile of borrowings is shown in note 21.
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 swaps, 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 prohibits 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 2011, net
borrowings were £34.1 million, whilst Shareholders’ equity was £98.3 million.
The Group maintains a strong capital base so as to maintain investors’, creditors’ and market confidence and to
sustain future development of the business. The Group monitors both the demographic spread of Shareholders, as
well as the return on capital, which the Group defines as total Shareholder return.
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.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
106
www.dechra.com
107
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
21. Financial Instruments and Related Disclosures continued
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.
There are financial covenants associated with the Group’s borrowings which are cash flow cover, interest cover, net
debt to EBITDA and consolidated net worth. The Group comfortably complied with these covenants in 2011 and
2010. There were no changes in the Group’s approach to capital management during the year.
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:
l
liquidity risk
l market risk
l
credit risk
This note presents information about the Group’s exposure to each of the above risks, and the Group’s objectives,
policies and processes for measuring and managing risk.
Liquidity Risk
Liquidity risk is the risk that the Group will not have sufficient funds to meet liabilities as they fall due. Cash forecasts
identifying the liquidity requirements of the Group are produced quarterly. These are reviewed to ensure sufficient
financial headroom exists for at least a 12 month period.
The Group manages its funding requirements through the following lines of credit:
l
l
l
l
£36 million term loan
£28 million revolving credit facility
£10 million working capital facility
various finance leases
The Group’s undrawn borrowing facilities at 30 June 2011 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.
108
www.dechra.com
109
20512-04 05/09/2011
Proof 15
Stock Code: DPH
21. Financial Instruments and Related Disclosures continued
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 swap arrangement whereby the
Group’s exposure to fluctuations in LIBOR is fixed at a rate of 1.6875% on the term loan and 1.185% on the revolving
credit facility. The amount of the term loan and revolving credit outstanding at 30 June 2011 was £63.7 million. The
hedge is in place until 31 December 2013 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. Translational exposure in converting the income statements of foreign
subsidiaries into the Group’s presentational currency of Sterling is not hedged.
The Group also hedges selectively expected currency cash flows outside normal trading activities, principally using
foreign currency options.
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 £92,708,000 (2010: £79,795,000) 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 13.1% of gross trade receivables at 30 June 2011
(2010: 9.4%). No customer accounted for more than 10% of total Group revenues.
Receivables are written off against the impairment provision when management considers the debt to be no longer
recoverable.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
108
www.dechra.com
109
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
21. Financial Instruments and Related Disclosures continued
Fair Value of Financial Assets and Liabilities
The following table presents the carrying amounts and the fair values of the Group’s financial assets and liabilities at
30 June 2011 and 30 June 2010.
The following assumptions were used to estimate the fair values:
l Cash and cash equivalents — approximates to the carrying amount.
l Forward exchange contracts — based on market price and exchange rates at the balance sheet date.
l 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.
l Receivables and payables — approximates to the carrying amount.
l Bank loans and overdrafts — based upon discounted cash flows using discount rates based upon facility rates
l
renegotiated after the 30 June 2010 year end.
Finance lease obligations — based upon discounted cash flows using discount rates based upon the Group’s cost
of borrowing at the balance sheet date.
Analysis of Financial Instruments
The financial instruments of the Group are analysed as follows:
Financial assets
Cash and cash equivalents
Held for trading financial assets
— derivatives designated as hedges
— other derivatives
Loans and receivables
— trade receivables
— other receivables within the scope of IAS 39
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
2011
2010
Carrying
value
£’000
Fair
value
£’000
Carrying
value
£’000
Fair
value
£’000
30,496
30,496
31,502
31,502
—
—
—
—
—
—
—
—
—
—
—
—
62,212
—
62,212
92,708
62,212
—
62,212
92,708
48,293
—
48,293
79,795
48,293
—
48,293
79,795
(63,746)
(62,026)
(37,033)
(36,155)
(397)
—
(841)
(63,213)
(128,197)
(35,489)
(397)
—
(799)
(63,213)
(126,435)
(33,727)
(384)
(189)
(1,170)
(56,465)
(95,241)
(15,446)
(384)
(189)
(1,260)
(56,465)
(94,453)
(14,658)
110
www.dechra.com
111
20512-04 05/09/2011
Proof 15
Stock Code: DPH
21. Financial Instruments and Related Disclosures continued
Fair Value Hierarchy
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been
defined as follows:
l Level 1 — quoted prices (unadjusted) in active market for identical assets or liabilities.
l 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).
l Level 3 — inputs for the asset or liability that are not based on observable market data (unobservable inputs).
30 June 2011
Derivative financial liabilities
30 June 2010
Derivative financial liabilities
Level 1
£’000
—
Level 1
£’000
—
Level 2
£’000
(397)
Level 3
£’000
—
Level 2
£’000
(573)
Level 3
£’000
—
Total
£’000
(397)
Total
£’000
(573)
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 start of period
Impairment provision recognised
Impairment provision utilised
At end of period
2011
£’000
3,731
1,276
1,005
1,764
7,776
2011
£’000
2,383
716
(188)
2,911
2010
£’000
2,403
613
419
730
4,165
2010
£’000
2,502
87
(206)
2,383
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
110
www.dechra.com
111
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
21. Financial Instruments and Related Disclosures continued
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 2011 and 30 June 2010. Where interest is at floating rates, the future interest payments have
been estimated using current interest rates:
At 30 June 2011
Carrying value
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
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
£’000
(63,746)
(2,825)
(66,571)
Finance
Trade
Leases Payables
£’000
(63,213)
—
(63,213)
£’000
(841)
(49)
(890)
(4,532)
(4,573)
(8,932)
(12,645)
(35,889)
—
—
(66,571)
Bank Loans
and
Overdrafts
£’000
(37,033)
(467)
(958)
(38,458)
(17,744)
(2,659)
(5,258)
(5,178)
(5,100)
(2,519)
—
(38,458)
(271)
(271)
(344)
(4)
—
—
—
(890)
(63,213)
—
—
—
—
—
—
(63,213)
Finance
Leases
£’000
(1,170)
—
(111)
(1,281)
Trade
Payables
£’000
(57,482)
—
—
(57,482)
(271)
(248)
(488)
(274)
—
—
—
(1,281)
(57,482)
—
—
—
—
—
—
(57,482)
Total
£’000
(127,800)
(2,874)
(130,674)
(68,016)
(4,844)
(9,276)
(12,649)
(35,889)
—
—
(130,674)
Total
£’000
(95,685)
(467)
(1,069)
(97,221)
(75,497)
(2,907)
(5,746)
(5,452)
(5,100)
(2,519)
—
(97,221)
The contractual undiscounted cash flows in respect of derivative financial instruments are as follows:
2011
Receivables Payables Receivables
£’000
£’000
£’000
2010
Payables
£’000
Due:
Within 6 months
Between 6 months and 1 year
Between 1 and 2 years
112
www.dechra.com
20512-04 05/09/2011
Proof 15
—
—
—
—
108
114
175
397
—
—
—
—
384
—
—
384
113
Stock Code: DPH
21. Financial Instruments and Related Disclosures continued
The Group has a contractual obligation to pay £108,000 (2010: £384,000) under its interest rate swap arrangement
covering the period from 1 July to 30 September 2011.
With the exception of the above disclosed, there are no other assets that have been impaired during the year.
Foreign Currency Exposure
The Sterling equivalents of financial assets and liabilities denominated in foreign currencies at 30 June 2011 and
30 June 2010 were:
At 30 June 2011
Financial assets
Trade receivables
Other receivables
Cash balances
Derivatives
Other financial assets
Financial liabilities
Bank loans and overdrafts
Finance leases
Trade payables
Other financial liabilities
Net balance sheet exposure
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
Danish
Krone
£’000
1,877
168
1,675
—
480
4,200
—
—
(3,225)
(3,286)
(6,511)
(2,311)
Danish
Krone
£’000
4,542
—
1,367
—
—
5,909
—
—
(9,734)
—
(9,734)
(3,825)
Euro
£’000
3,514
30
786
—
103
4,433
US
Dollar
£’000
4,320
—
1,163
—
—
5,483
(3,997)
(406)
(1,141)
(1,479)
(7,023)
(2,590)
(27,746)
—
(167)
—
(27,913)
(22,430)
Euro
£’000
3,033
—
737
—
—
3,770
(744)
(862)
(858)
—
(2,464)
1,306
US
Dollar
£’000
1,374
—
948
—
—
2,322
(1,595)
—
(462)
—
(2,057)
265
Other
£’000
5,858
232
2,622
—
133
8,845
—
—
(284)
(1,090)
(1,374)
7,471
Other
£’000
1,267
532
475
—
—
2,274
—
—
(1,001)
—
(1,001)
1,273
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
112
www.dechra.com
113
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
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 2011 would reduce Group profit before taxation
by £281,000 (2010: £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
Profit before
taxation
£’000
(2,195)
(2,504)
(723)
Net
assets
£’000
(5,926)
(2,287)
(723)
Hedges
Cash Flow Hedges
The Group has entered into an interest rate swap on the term loan of £40.0 million and the revolving credit facility of
£28 million. The Group has designated this 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 30 September 2013. The amounts recognised in equity are recycled to the income
statement to offset gains and losses in the period in which the cash flows occurs.
The amount recognised in equity in the year ended 30 June 2011 was a liability of £294,000 including an income tax
credit of £103,000 (2010: £276,000 including an income tax credit of £107,000).
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
2011
2010
£’000
No.
661 66,090,075
359,584
664 66,449,659
3
£’000
No.
656 65,581,924
508,151
661 66,090,075
5
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 359,584 new ordinary shares of 1p (2010: 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 Options
Schemes. The consideration received was £542,000 (2010: £589,000). 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.
114
www.dechra.com
115
20512-04 05/09/2011
Proof 15
Stock Code: DPH
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 ten
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 underlying 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.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
114
www.dechra.com
115
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
23. Share-based Payments continued
Year ended 30 June 2011
Exercise
price
per share
Pence
At
1 July
2010
Number
Exercise
Period
Exercised
Number
Granted
Number
Lapsed
Number
Unapproved Share Option Scheme
22 April 2002*
11 April 2003*
19 March 2007*
2 April 2008*
10 October 2008
30 March 2009
1 March 2010
28 February 2011
2005–2013
2006–2013
2010–2017
2011–2018
2011–2018
2012–2019
2013–2020
2014–2021
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
28 February 2011
2007–2014
2007–2014
2008–2015
2009–2016
2010–2017
2011–2018
2011–2018
2012–2019
2013–2020
2014–2021
153.50
58.50
289.00
366.00
397.00
415.00
456.00
503.00
134.50
180.00
202.50
252.00
289.00
366.00
397.00
415.00
456.00
503.00
3,500
2,500
21,135
45,038
33,500
54,921
52,854
—
213,448
19,000
16,667
31,000
61,000
105,665
67,962
2,500
23,079
33,146
—
360,019
Executive Incentive Plan and Long Term Incentive Plan
29 February 2008
19 November 2008
24 September 2009
22 December 2010
2011–2012
2011–2012
2012–2013
2013–2014
—
—
—
—
152,472
327,272
277,758
—
757,502
SAYE Option Scheme
18 October 2005
12 October 2006
17 October 2007
13 October 2008
12 October 2009
13 December 2010
2008–2010
2009–2013
2010–2014
2011–2015
2012–2016
2013–2017
Total
Weighted average exercise price
204.00
195.74
280.00
343.00
332.00
409.00
19,410
27,681
139,562
109,435
137,993
—
434,081
1,765,050
183.3p
* Total share options exercisable at 30 June 2011 are 240,154.
(2,000)
—
(3,549)
(6,155)
—
—
—
—
(11,704)
(9,000)
(15,000)
(8,000)
(25,000)
(43,764)
(12,845)
—
—
—
—
(113,609)
(152,472)
—
—
—
(152,472)
(18,779)
—
(63,020)
—
—
—
(81,799)
(359,584)
150.9p
—
—
—
—
—
—
—
60,688
60,688
—
—
—
—
—
—
—
—
—
23,312
23,312
—
—
—
235,841
235,841
—
—
—
—
—
112,743
112,743
432,584
204.3p
At
30 June
2011
Number
1,500
2,500
17,586
35,883
33,500
54,921
52,854
60,688
259,432
10,000
1,667
23,000
36,000
58,901
53,117
2,500
23,079
33,146
23,312
264,722
—
327,272
277,758
235,841
840,871
—
—
—
(3,000)
—
—
—
—
(3,000)
—
—
—
—
(3,000)
(2,000)
—
—
—
—
(5,000)
—
—
—
—
—
(631)
—
—
27,681
(7,251)
69,291
(4,294)
105,141
(20,567)
117,426
(7,343)
105,400
(40,086)
424,939
(48,086) 1,789,964
336.1p
190.8p
116
www.dechra.com
117
20512-04 05/09/2011
Proof 15
Stock Code: DPH
23. Share-based Payments continued
Year ended 30 June 2010
Exercise
price
per share
Pence
At
1 July
2009
Number
Exercise
Period
Exercised
Number
Granted
Number
Lapsed
Number
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
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
Executive Incentive Plan and Long Term Incentive Plan
14 September 2006
29 February 2008
19 November 2008
24 September 2009
2009–2010
2011–2012
2011–2012
2012–2013
—
—
—
—
216,128
152,472
327,272
—
695,872
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
69,025
20,357
118,794
144,291
115,440
—
467,907
1,801,946
169.3p
(7,000)
(3,000)
—
(5,004)
(3,000)
—
—
—
(18,004)
(9,000)
—
(18,500)
(48,000)
(39,196)
—
—
—
—
(114,696)
(216,128)
—
—
—
(216,128)
(69,025)
—
(89,274)
(518)
(506)
—
(159,323)
(508,151)
63.4p
—
—
—
—
—
—
—
52,854
52,854
—
—
—
—
—
—
—
—
33,146
33,146
—
—
—
277,758
277,758
—
—
—
—
—
147,522
147,522
511,280
172.5p
At
30 June
2010
Number
—
3,500
2,500
21,135
45,038
33,500
54,921
52,854
213,448
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
—
—
(1,000)
—
—
—
—
—
(1,000)
(2,000)
—
(5,000)
(3,000)
(5,000)
(2,000)
—
—
—
(17,000)
—
—
—
—
—
—
—
(947)
19,410
(1,839)
27,681
(4,211)
139,562
(5,499)
109,435
(9,529)
137,993
(22,025)
434,081
(40,025) 1,765,050
276.2p
183.3p
116
www.dechra.com
117
20512-04 05/09/2011
Proof 15
The weighted average exercise price of options eligible to be exercised at 30 June 2011 was 293.2p (2010: 240.3p).
For options exercised during the year, the weighted average market price at the date of exercise was 503p (2010:
443p). The weighted average remaining contractual lives of options outstanding at the consolidated statement of
financial position date was four years (2010: four years).
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
23. Share-based Payments continued
Outstanding options on all Executive Incentive, Approved and Unapproved plans prior to 30 June 2008 were
exercisable at 30 June 2011.
No options issued under SAYE plans were exercisable at 30 June 2011.
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
Number of shares awarded
Share price at date of grant
Exercise price
Expected life
Risk-free rate
Volatility
Dividend yield
Fair value per share
Unapproved and Approved Share Option Schemes
Date of grant
Number of shares awarded
Share price at date of grant
Exercise price
Expected life
Risk-free rate
Volatility
Dividend yield
Fair value per share
22/12/10
235,841
514.00p
Nil
3 years
1.60%
39%
2.04%
322p
24/9/09
277,758
404.10p
Nil
3 years
1.91%
31%
2.25%
236p
28/2/11 1/3/10
84,000 86,000
455p
507.5p
456p
503p
5 years 5 years
2.65% 2.84%
33%
2.07% 2.00%
124p
149p
36%
118
www.dechra.com
119
20512-04 05/09/2011
Proof 15
Stock Code: DPH
23. Share-based Payments continued
Save as You Earn Option Scheme
Date of grant
Number of shares awarded
Share price at date of grant
Exercise price
Expected life
— three year scheme
— five year scheme
— seven year scheme
Risk-free rate
— three year scheme
— five year scheme
— seven year scheme
Volatility
Dividend yield
Fair value per share
— three year scheme
— five year scheme
— seven year scheme
22/12/10 12/10/09
147,522
445p
332p
112,743
507p
409p
3.25 years 3.25 years
5.25 years 5.25 years
7.25 years 7.25 years
1.46%
2.24%
2.90%
36%
2.07%
165p
181p
201p
1.87%
2.55%
3.03%
33%
2.04%
134p
156p
148p
Expected volatility was determined by calculating the historical volatility of the Group’s share price over its entire
trading history.
National Insurance contributions are payable by the Company in respect of some of the share-based payments. These
contributions are payable on the date of exercise based on the intrinsic value of the share-based payments and are
therefore treated as cash settled awards. The Group had an accrual at 30 June 2011 of £229,000 (2010: £142,000),
of which £15,000 (2010: £80,000) 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.
2011
£’000
830
118
948
2010
£’000
817
93
910
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
118
www.dechra.com
119
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
24. Analysis of Net Borrowings
Bank loans
Finance leases and hire purchase contracts
Cash and cash equivalents
Net borrowings
25. Operating Leases
2011
£’000
(63,746)
(841)
30,496
(34,091)
2010
£’000
(37,033)
(1,170)
31,502
(6,701)
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
2010
2011
£’000
£’000
1,200
1,219
4,159
4,062
1,582
3,472
6,941
8,753
Other assets
Total
2011
£’000
1,278
1,234
—
2,512
2010
£’000
1,512
1,494
5
3,011
2011
£’000
2,497
5,296
3,472
11,265
2010
£’000
2,712
5,653
1,587
9,952
The Group leases properties, plant, machinery and vehicles for operational purposes. Property leases vary in length up
to a period of 25 years. Plant, machinery and vehicle leases typically run for periods of up to 5 years.
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
2010
9.0983
1.2214
1.4961
Closing rate
Average at 30 June
2011
8.256
1.1070
1.6073
rate
8.614
1.1556
1.5745
120
www.dechra.com
121
20512-04 05/09/2011
Proof 15
Stock Code: DPH
27. Acquisitions
Acquisition of DermaPet Inc.
On 22 October 2010, the Group acquired 100% of the share capital of DermaPet Inc., a Florida based business which
develops and markets a range of dermatological preparations, including shampoos, conditioners and ear products, for
the US and overseas companion animal markets. These veterinary products are marketed and distributed through the
same channels as Dechra’s current US product portfolio.
The acquisition of DermaPet Inc. increases Dechra’s US presence and complements its EU range in this key strategic
therapeutic category.
Recognised amounts of identifiable assets acquired and liabilities assumed
Identifiable assets
Trade and other receivables
Inventory
Identifiable intangible assets
Identifiable liabilities
Overdraft
Trade and other payables
Net identifiable assets
Goodwill
Total consideration
Satisfied by:
Cash
Deferred consideration
Contingent consideration arrangement
Total consideration transferred
Net cash outflow arising on acquisition
Cash consideration
Add: bank overdraft
Book value
£’000
Provisional
fair value
£’000
1,084
384
—
(1)
(216)
1,251
1,084
384
38,909
(1)
(216)
40,160
326
40,486
27,519
1,163
11,804
40,486
27,519
1
27,520
The fair values shown above are provisional and may be amended if information not currently available comes to light.
The fair value of the financial assets includes trade receivables with a fair value of £1,076,000.
The fair value adjustment in relation to intangible assets recognises product rights in accordance with IFRS 3.
The goodwill of £326,000 arising from the acquisition consists of the assembled workforce and increased geographical
presence in the US. The goodwill and identified intangibles are expected to be deductible for income tax purposes.
The deferred consideration arrangement requires payments of US$1,000,000 to be paid on the second and fourth
anniversaries of the completion date. The contingent consideration arrangement requires that if DermaPet Inc. achieve
revenue in excess of US$15,000,000 in any rolling 12 month period commencing on the first anniversary of completion
and ending on the sixth anniversary of completion, contingent consideration of US$15,000,000, which has been
reassessed between the date of acquisition and the year end and remains unadjusted, will become payable. If revenue
on the same criteria exceed US$20,000,000, a further US$5,000,000 will become due.
Acquisition related costs (included in non-underlying operating expenses) amounted to £585,000.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
120
www.dechra.com
121
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Consolidated Financial Statements continued
27. Acquisitions continued
DermaPet Inc. contributed £4,993,000 revenue and £1,986,000 operating profit to the Group’s profit for the period
between the date of acquisition and the balance sheet date.
DermaPet Inc. has now been fully integrated into DVP US and its results are reported within the US Pharmaceuticals
segment.
Acquisition of Genitrix Limited
On 1 December 2010, the Group acquired 100% of the share capital of Genitrix Limited. The acquisition of Genitrix
Limited, a veterinary pharmaceuticals company based in Billingshurst, UK, is consistent with our strategy to grow our
domestic and international pharmaceutical business.
Recognised amounts of identifiable assets acquired and liabilities assumed
Identifiable assets
Intangible assets
Property, plant and equipment
Trade and other receivables
Inventory
Cash and cash equivalents
Identifiable intangible assets
Identifiable liabilities
Trade and other payables
Deferred tax liabilities
Net identifiable assets
Goodwill
Total consideration
Satisfied by:
Cash
Contingent consideration arrangement
Total consideration transferred
Net cash outflow arising on acquisition
Cash consideration
Less: cash and cash equivalent balances acquired
Book value
£’000
Provisional
fair value
£’000
184
27
326
217
59
—
(318)
(36)
459
184
23
326
217
59
5,596
(318)
(1,546)
4,541
1,845
6,386
5,586
800
6,386
5,586
(59)
5,527
The fair values shown above are provisional and may be amended if information not currently available comes to light.
The fair value of the financial assets includes trade receivables with a fair value of £290,000.
The fair value adjustment in relation to intangible assets recognises product rights in accordance with IFRS 3.
The goodwill of £1,845,000 arising from the acquisition consists of the assembled workforce and associated technical
expertise. None of the goodwill is expected to be deductible for income tax purposes.
The contingent consideration arrangement, which has been reassessed between the date of acquisition and the year
end and remains unadjusted, requires payment of £800,000 to be paid on the achievement of specific milestones.
Genitrix Limited has now been fully integrated into DVP EU and its results are reported within the European
Pharmaceuticals segment.
122
www.dechra.com
123
20512-04 05/09/2011
Proof 15
Stock Code: DPH
27. Acquisitions continued
Acquisition related costs (included in non-underlying operating expenses) amounted to £108,000.
Genitrix Limited contributed £1,565,000 revenue and £736,000 operating profit to the Group’s profit for the period
between the date of acquisition and the balance sheet date.
If the acquisitions of DermaPet Inc. and Genitrix Limited had been completed on the first day of the financial year,
Group revenues for the period would have been £393,754,000 and underlying pre-tax profit would have been
£31,263,000.
28. Contingent Liability
The Danish tax authorities are continuing their 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.
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 page132.
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 53 to 62. 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.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
122
www.dechra.com
123
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Company Balance Sheet
At 30 June 2011
Fixed assets
Investments
Current assets
Debtors (includes amounts falling due after more than one year of £2,417,000
(2010: £2,961,000))
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Hedging reserve
Profit and loss account
Total equity Shareholders’ funds
Note
2011
£’000
2010
£’000
iii
iv
v
v
viii
ix
ix
ix
132,119
132,119
114,188
114,188
39,873
2
39,875
(43,866)
(3,991)
128,128
(55,746)
72,382
664
63,559
(294)
8,453
72,382
20,726
5,007
25,733
(49,775)
(24,042)
90,146
(17,101)
73,045
661
63,021
(276)
9,639
73,045
The financial statements were approved by the Board of Directors on 6 September 2011 and are signed on its behalf by:
Ian Page
Director
Simon Evans
Director
Company number: 3369634
124
www.dechra.com
125
20512-04 05/09/2011
Proof 15
Stock Code: DPH
Reconciliation of Movements in Shareholders’ Funds
For the year ended 30 June 2011
At start of period
Profit for the financial year
Effective portion of changes in fair value of cash flow hedges
Cash flow hedges recycled to profit and loss account
Share-based payments charge
Dividends paid
New shares issued
At end of period
2011
£’000
73,045
5,132
(506)
488
903
(7,221)
541
72,382
2010
£’000
75,801
1,606
427
—
817
(6,195)
589
73,045
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
124
www.dechra.com
125
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Company Financial Statements
(i) Principal Accounting Policies of the Company
Accounting Principles
The Company Balance Sheet has been prepared under the historical cost convention except for derivatives which are
stated at fair value in accordance with applicable UK accounting standards and the Companies Act 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 £5,132,000 (2010: £1,606,000). Fees paid to
KPMG Audit Plc and its associates for audit and non-audit services to the Company itself are not disclosed in the
individual Financial Statements of Dechra Pharmaceuticals PLC because the Group Financial Statements are required
to disclose such fees on a consolidated basis.
Investments
Investments held as fixed assets are stated at cost less any impairment losses. Where the consideration for the
acquisition of a subsidiary undertaking includes shares in the Company to which the provisions of section 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 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.
126
www.dechra.com
127
20512-04 05/09/2011
Proof 15
Stock Code: DPH
(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 29 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.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
126
www.dechra.com
127
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Company Financial Statements continued
(i) Principal Accounting Policies of the Company continued
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.
Foreign Currency
Foreign currency transactions are translated into Sterling using the exchange rates prevailing at the dates of the
transactions. Monetary assets and liabilities are translated at the closing rate at the reporting date. Foreign exchange
gains and losses are recognised in the profit and loss account.
Taxation
The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing
differences between the treatment of certain items for taxation and accounting purposes. Deferred tax is measured
on a non-discounted basis at the tax rates that are expected to apply in the periods in which the timing differences
reverse and is provided in respect of all timing differences which have arisen but not reversed by the balance sheet
date, except as otherwise required by FRS 19 ‘Deferred Tax’.
Financial Guarantee Contracts
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within
its Group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect,
the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the
Company will be required to make a payment under the guarantee.
(ii) Directors and Employees
Total emoluments of Directors (including pension contributions) amounted to £1,696,000 (2010: £1,501,000).
Information relating to Directors’ emoluments, share options and pension entitlements is set out in the Directors’
Remuneration Report on pages 53 to 62.
128
www.dechra.com
129
20512-04 05/09/2011
Proof 15
Stock Code: DPH
(iii) Fixed Asset Investments
Cost
At 1 July 2010
Additions
At 30 June 2011
Net book value
At 30 June 2011
At 30 June 2010
Shares in
Subsidiary
Undertakings
£’000
114,188
17,931
132,119
132,119
114,188
A list of principal subsidiary undertakings is given in note (x).
Additions represent the acquisition of Genitrix Limited and a further investment in Dechra Investments Limited (a
subsidiary company).
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.
(iv) Debtors
Amounts owed by subsidiary undertakings
Group relief receivable
Deferred taxation (see note (vii))
Other debtors
Prepayments and accrued income
2011
£’000
36,836
2,248
639
98
52
39,873
2010
£’000
18,319
1,658
574
63
112
20,726
Included in debtors are amounts of £639,000 (2010: £574,000) due after more than one year relating to deferred
tax assets. Of the amounts owed by subsidiary undertakings, £1,778,000 is due after more than one year (2010:
£2,387,000).
(v) Creditors
Bank loans and overdrafts (see note (vi))
Amounts due to subsidiary undertakings
Other creditors
Derivative financial instruments
Other taxation and social security
Accruals and deferred income
Falling due
within one year
2011
£’000
31,564
9,930
868
397
79
1,028
43,866
2010
£’000
48,150
503
44
383
72
623
49,775
In accordance with FRS 21 ‘Events after the Balance Sheet Date’, the proposed final dividend for the year ended
30 June 2011 of 8.40p 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 2012. The total cost of the proposed final dividend is £5,582,000.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
128
www.dechra.com
129
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Company Financial Statements continued
(v) Creditors continued
Bank loans (see note (vi))
Other creditors
(vi) Borrowings
Borrowings due within one year
Bank overdraft
Bank loan
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
Total borrowings
Falling due after
more than one year
2010
2011
£’000
£’000
17,033
55,746
68
—
17,101
55,746
2011
£’000
2010
£’000
23,564
8,000
31,564
28,150
20,000
48,150
8,000
47,746
—
55,746
—
55,746
87,310
5,000
12,500
—
17,500
(467)
17,033
65,183
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 2.75% over LIBOR on the bank loan and revolving credit facility and 2.75% over base
rate on the bank overdraft. No covenants have been breached during the year ended 30 June 2011.
The Company guarantees certain borrowings of other Group companies, which at 30 June 2011 amounted to
£773,000 (2010: £1,058,000).
(vii) Deferred Tax
At 1 July 2010
Transfer to profit and loss account
Transfer to equity
At 30 June 2011 (included in debtors)
The amounts provided for deferred taxation at 26% (2010: 28%) are as follows:
Short term timing differences
£’000
574
65
—
639
2010
£’000
574
2011
£’000
639
130
www.dechra.com
131
20512-04 05/09/2011
Proof 15
Stock Code: DPH
(viii) Called up Share Capital
Issued share capital
Allotted, called up and fully paid at 1 July 2010
New shares issued
Allotted, called up and fully paid at 30 June 2011
Ordinary Shares
of 1p each
£’000
No.
661 66,090,075
359,584
664 66,449,659
3
During the year, 359,584 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
£542,000.
Share Options
Details of outstanding share options over ordinary shares of 1p at 30 June 2011 under the various Group share option
schemes are shown in note 23 to the Consolidated Financial Statements.
(ix) Reserves
At 1 July 2010
New shares issued
Profit for the financial year
Effective portion of changes in fair value of cash flow hedges
Cash flow hedges recycled to profit and loss account
Dividend (see note 9 to the consolidated financial statements)
Share-based payments charge
At 30 June 2011
Share
premium
account
£’000
63,021
538
—
—
—
—
—
63,559
Hedging
reserve
£’000
(276)
—
—
(506)
488
—
—
(294)
Profit
and loss
account
£’000
9,639
—
5,132
—
—
(7,221)
903
8,453
130
www.dechra.com
131
20512-04 05/09/2011
Proof 15
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Our Accounts
Notes to the Company Financial Statements continued
(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
England & Wales
Dechra Veterinary Products A/S
Denmark
Dechra Veterinary Products Limited¶
Dechra Veterinary Products OY¶
Dechra Veterinary Products SAS¶
Dechra Veterinary Products AS¶
Dechra Veterinary Products SLU¶
Dechra Veterinary Products AB¶
Dechra Veterinary Products BV¶
Dechra Veterinary Products LLC**
England & Wales
Finland
France
Norway
Spain
Sweden
The Netherlands
USA
Other Subsidiaries
Anglian Manufacturing Chemists Limited# England & Wales
Anglian Pharma Manufacturing Limited‡ England & Wales
England & Wales
Anglian Pharma Limited
Arnolds Veterinary Products Limited*
England & Wales
Cambridge Specialist Laboratory
Services Limited†
Dales Pharmaceuticals Limited*
Dechra Investments LimitedΩ
Genitrix Limited
Leeds Veterinary Laboratories Limited
National Veterinary Services Limited*
North Western Laboratories Limited
Veneto Limited
DermaPet, Inc.††
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
USA
Principal Activity
Wholesaler, marketer and manufacturer of
pharmaceuticals; Wholesaler and marketer of
veterinary products, instruments and equipment;
Provider of veterinary laboratory services
Marketer and manufacturer of veterinary
pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Distributor of veterinary products
Non-trading
Holding Company
Holding Company
Non-trading
Non-trading
Non-trading
Holding Company
Non-trading
Non-trading
Non-trading
Holding Company
Holding Company
Non-trading
Except where indicated the share capital held by the Company consists of ordinary shares only
* 100% of ordinary share capital held by Veneto Limited. Voting preference shares held by Dechra Pharmaceuticals PLC Employee Benefit Trust.
Ω 100% of both ordinary and preference share capital is held by Dechra Pharmaceuticals PLC.
§ 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.
** 100% of ordinary share capital held by Dechra Limited.
†† 100% of ordinary share capital held by Dechra Veterinary Products LLC.
132
www.dechra.com
133
20512-04 05/09/2011
Proof 15
Stock Code: DPH
Financial History
Consolidated income statement
Revenue
Underlying operating profit
Underlying profit before taxation
Underlying profit after taxation
Underlying earnings per share — basic (pence)
— diluted (pence)
Dividend per share (pence)
Average number of employees
Consolidated statement of financial position
Non-current assets
Working capital
Deferred and contingent consideration
Current tax liabilities
Deferred tax liabilities
Net (borrowings)/cash
Shareholders’ funds
Consolidated cash flow
Cash flow from operating activities
Net interest paid
Tax paid
Capital expenditure
Acquisitions
Equity dividends paid
Financing
Changes in cash in period
2011
£’000
2010
£’000
2009
£’000
2008
£’000
2007
£’000
389,237
31,823
30,069
22,748
34.33
34.22
12.10
1,005
369,369
28,190
26,056
19,437
29.50
29.39
10.50
1,021
349,964
24,971
23,406
16,759
25.61
25.40
9.10
1,012
304,371
19,142
16,853
12,185
20.81
20.64
8.25
889
253,803
13,876
12,646
8,866
16.89
16.66
7.50
747
132,819
32,494
(14,055)
(5,391)
(13,443)
(34,091)
98,333
88,044
21,486
—
(4,105)
(12,496)
(6,701)
86,228
97,605
17,548
—
(4,756)
(14,184)
(15,527)
80,686
25,374
(2,629)
(5,034)
(4,090)
(33,047)
(7,221)
26,090
(557)
26,662
(2,208)
(6,124)
(2,721)
—
(6,195)
(4,626)
4,788
27,557
(1,851)
(3,227)
(3,634)
—
(5,565)
(8,843)
4,437
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
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)
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
’
s
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
132
www.dechra.com
133
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Shareholder Information
Visit us at our website
www.dechra.com
Financial Calendar
Interim Management Statement
2011 Annual General Meeting
Final Dividend Ex Div Date
4 November 2011
4 November 2011
9 November 2011
Final Dividend Record Date
11 November 2011
Final Dividend Payment Date
25 November 2011
Annual General Meeting
The 2011 Annual General Meeting of the Company will be
held at 1.00 pm on 4 November 2011 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.
Registrar
Dechra’s Registrar is Computershare Investor Services PLC.
Computershare should be contacted for any matters relating
to your shareholding, including:
l Notification of change in name and address
l Enquiries about dividend payments
l 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:
Company Website
The Dechra website (www.dechra.com) is the best source
of useful and up-to-date information about Dechra and its
activities, including the latest news, financial and product
information to help improve understanding of our business.
Additionally, the terms of reference of all our Committees,
Articles of Association, our recently launched Values and a
number of our internal policies are published on the website.
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
Registrar’s Shareholder Helpline for Dechra:
0870 889 4030.
Please have your Shareholder Reference Number to hand
whenever you contact the Registrar; this can be found on
your share certificate.
134
www.dechra.com
135
20512-04 05/09/2011
Proof 15
Stock Code: DPH
Share Dealing Service
Computershare offers 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.
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:
Fee (on value of
transaction)
Minimum Charge
Stamp Duty Charge
(Purchases only)
Telephone
Share Dealing
Internet
Share Dealing
l Make sure you get the correct name of the person and
organisation
1%
£25.00
0.5%
£15.00
l Check that they are properly authorised by the FSA
before getting involved by visiting www.fsa.gov.uk/
register/
0.5%
0.5%
l Report the matter to the FSA either by calling 0845 606
1234 or visiting www.moneymadeclear.fsa.gov.uk
If the calls persist, hang up
l
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
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.
Computershare Investor Services PLC and its agents are
authorised and regulated by the Financial Services Authority
(“FSA”).
Please note that the price of shares can go down as well
as up, and you are not guaranteed to get back the original
amount you originally invested. If you are in any doubt you
should contact an independent financial adviser.
Warning to Shareholders
In recent years, many companies have become aware that
their Shareholders have received unsolicited phone calls
or correspondence concerning investment matters. These
are typically from overseas 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 investments.
These operations are commonly known as ‘boiler rooms’.
These ‘brokers’ can be very persistent and extremely
persuasive, and a 2006 survey by the FSA has reported that
the average amount lost by investors is around £20,000.
i
s
s
e
n
s
u
B
r
u
O
e
c
n
a
m
r
o
f
r
e
P
r
u
O
:
t
r
o
p
e
R
s
'
r
o
t
c
e
r
i
D
e
c
n
a
n
r
e
v
o
G
r
u
O
:
t
r
o
p
e
R
s
'
r
o
t
c
e
r
i
D
s
t
n
u
o
c
c
A
r
u
O
n
o
i
t
a
m
r
o
f
n
I
l
r
e
d
o
h
e
r
a
h
S
134
www.dechra.com
135
20512-04 05/09/2011
Proof 15
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2011
Glossary
The following is a glossary of a number of the terms and
acronyms which can be found within this document.
Bioequivalence
The demonstration that the proposed formulation has the
same biological effects as the pioneer product to which
it is being compared. This is usually demonstrated by
comparing blood concentrations of the 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
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 Syndrome
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.
Euthyroid
Euthyroid is the state of having normal thyroid gland function.
FDA
US Food and Drug Administration; a federal agency of the
US Department of Health and Human Services.
Malassezia
Yeasts that cause a secondary inflammatory skin disease.
Malassezia is often found in otitis externa.
MHRA
Medicines and Healthcare products Regulatory Agency; an
executive agency of the Department of Health.
NSAID
Non-Steroidal Anti-Inflammatory Drug; essentially drugs
which relieve pain, swelling, stiffness and inflammation.
Equipalazone is the leading NSAID for the treatment of
musculoskeletal disorders in the horse.
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:
l 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).
l Safety — the part of the dossier which documents the
effects of the final formulation at above normal dosage
levels in the intended species.
l 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.
l Regulatory — the period of time that regulatory agencies
take to review the various sections of the dossier.
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.
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.
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.
136
www.dechra.com
20512-04 05/09/2011
Proof 15
PB
Advisers
Auditor
KPMGAuditPlc
OneSnowhill
SnowHillQueensway
Birmingham
B46GH
Stockbroker & Financial Advisers
InvestecBankplc
2GreshamStreet
London
EC2V7QP
Principal Bankers
LloydsBankingGroup
2nd Floor
125ColmoreRow
Birmingham
B33SF
Lawyers
DLAPiperUKLLP
VictoriaSquareHouse
VictoriaSquare
Birmingham
B24DL
Registrars
ComputershareInvestorServicesPLC
POBox82
ThePavilions
Bridgwater Road
Bristol
BS138AE
Financial PR
Citigate Dewe Rogerson Limited
1 Wrens Court
LowerQueenStreet
Birmingham
B721RT
Trademarks
Trademarksappearthroughoutthisdocumentinitalics.DechraandtheDechra“D”logoareregisteredtrademarksof
DechraPharmaceuticalsPLC.TheMalasebtrademarkisunderlicencefromDermcare-VetPty.Ltd.
20512-04 05/09/2011
Proof 15
20512-04 05/09/2011
Proof 15
D
e
c
h
r
a
P
h
a
r
m
a
c
e
u
t
i
c
a
l
s
P
L
C
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
f
o
r
t
h
e
y
e
a
r
e
n
d
e
d
3
0
J
u
n
e
2
0
1
1
DechraHouse
JamageIndustrialEstate
Talke Pits, Stoke-on-Trent
Staffordshire, ST7 1XW
England
T:+44(0)1782771100
F:+44(0)1782773366
E:corporate.enquiries@dechra.com
RegisteredinEnglandNo.3369634
www.dechra.com
20512-04 05/09/2011
Proof 15
20512-04 05/09/2011
Proof 15