®
Annual Report and Accounts
for the year ended 30 June 2012
Stock code: DPH
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The Evolution of Dechra
21587-04 10/08/2012
Proof 3
Dechra is an international veterinary pharmaceutical
business. Our expertise is in the development,
manufacturing, distribution, sales and marketing of high
quality products exclusively for veterinarians worldwide
Highlights
Revenue
£ million
up 9.5%
0
.
6
2
4
2
.
9
8
3
4
.
9
6
3
0
.
0
5
3
0
.
4
0
3
Underlying
Operating Profit*
£ million
up 15.0%
Underlying Profit
Before Taxation*
£ million
up 9.6%
6
.
6
3
8
.
1
3
2
.
8
2
0
.
5
2
1
.
9
1
1
.
6
2
4
.
3
2
9
.
6
1
0
.
3
3
1
.
0
3
Underlying
Earnings per
Share*
pence
up 2.7%
†
9
0
.
7
2
†
3
5
.
3
2
†
1
1
.
9
1
†
3
5
.
1
3
†
7
3
.
2
3
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
Dividend per
Share
pence
up 10.3%
†
2
1
.
1
1
†
4
6
.
9
†
6
3
.
8
†
8
5
.
7
†
7
2
.
2
1
Operating Profit
£ million
Profit Before
Taxation
£ million
Earnings per
Share
pence
7
.
1
2
9
.
0
2
9
.
9
1
7
.
7
1
5
.
8
1
7
.
7
1
8
.
6
1
1
.
6
1
1
.
4
1
7
.
1
1
†
9
5
.
9
1
†
4
3
.
8
1
†
5
6
.
5
1
†
6
8
.
5
1
†
4
0
.
3
1
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
* 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
unwinding of discounts on deferred and contingent consideration (see notes 4 and 5).
† Adjusted for the bonus element of the Rights Issue.
Forward-Looking Statements: This Annual Report contains certain forward-looking statements which reflect the knowledge
and information available to the Company during preparation and up to the publication of these Accounts. By their very nature,
these statements depend upon circumstances and relate to events that may occur in the future and thereby involving a degree of
uncertainty. Therefore, nothing in this publication should be construed as a profit forecast by the Company.
21587-04 10/08/2012
Proof 3
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2012
Delivering Growth
1 July 2000 to
30 June 2001
1 July 2001 to
30 June 2002
1 July 2002 to
30 June 2003
1 July 2003 to
30 June 2004
1 July 2004 to
30 June 2005
1 July 2005 to
30 June 2006
September 2000
Dechra listed on
the London Stock
Exchange at 120 pence
per share, with a market
capitalisation of
£60 million
December 2000
NVS’s semi automatic
picking system
commissioned at a
cost of £0.5 million
December 2001
Vetoryl® launched in
the UK
April 2002
Acquired North
Western Laboratories
and Cambridge
Specialist Laboratory
Services for a
consideration of
£2.75 million, enabling
Dechra to extend its
service offering to the
veterinary profession
April 2002
Felimazole® launched
in the UK
May 2002
Acquired Anglian
Pharma Plc for a
consideration of
£2.5 million which
more than doubled
Dechra’s contract
manufacturing
revenues
December 2003
Entered into a
European marketing
agreement with
Janssen Animal Health,
allowing Janssen
full marketing and
distribution rights to
Felimazole and Vetoryl
in mainland Europe
April 2003
North Western
Laboratories rebranded
to NationWide
Laboratories
May 2003
Entered into a sub-
licence agreement
with Bioenvision® Inc
to develop Vetoryl for
future marketing in the
USA and Canada
July 2005
Received approval
to market Vetoryl in
19 major European
countries
June 2006
Signed a development
and marketing
agreement for Vetoryl
in Japan with Kyoritsu
Seiyaku
November 2004
Granted a full EU
licence for Felimazole
and granted a UK
licence for a new
2.5mg Felimazole
tablet
April 2005
Granted a range
extension for a 30mg
Vetoryl capsule
April 2005
Opened a US
operation based in
Kansas City
April 2005
Acquired Vetivex®,
a licensed veterinary
fluid therapy product,
for £0.8 million
Revenue
£ million
170.2
Underlying Profit
Before Taxation
£ million
7.3
Dividend
per Share
pence
3.78†
Revenue
£ million
156.4
Underlying Profit
Before Taxation
£ million
5.8
Dividend
per Share
pence
3.44†
Revenue
£ million
179.3
Underlying Profit
Before Taxation
£ million
6.7
Dividend
per Share
pence
3.78†
Revenue
£ million
186.8
Underlying Profit
Before Taxation
£ million
8.1
Dividend
per Share
pence
4.32†
Revenue**
£ million
210.3
Underlying Profit
Before Taxation
£ million
9.7
Dividend
per Share
pence
4.78†
Revenue
£ million
232.5
Underlying Profit
Before Taxation
£ million
11.0
Dividend
per Share
pence
5.73†
* From this point forward reported under IFRS.
21587-04 10/08/2012 Proof 3 1 July 2006 to
30 June 2007
1 July 2007 to
30 June 2008
1 July 2008 to
30 June 2009
1 July 2009 to
30 June 2010
1 July 2010 to
30 June 2011
1 July 2011 to
30 June 2012
January 2008
Acquired VetXX®
Holding A/S, a leading
developer, producer
and marketer of
companion animal
products, for a total
consideration of £61.7
million
December 2006
Acquired the
intellectual property for
Equidone® Gel
April 2007
Acquired Leeds
Veterinary Laboratories
for £0.75 million
May 2007
Secured a long term
trademark licence and
marketing agreement
with Pharmaderm
Animal Health for
a consideration of
US$5.0 million, to
supply a range of
dermatological,
ophthalmic and optic
products to the
US veterinary market
Revenue
£ million
304.4
Underlying Profit
Before Taxation
£ million
16.9
Dividend
per Share
pence
7.58†
Revenue
£ million
253.8
Underlying Profit
Before Taxation
£ million
12.7
Dividend
per Share
pence
6.89†
December 2008
VetXX integrated and
rebranded Dechra
Veterinary Products
November 2009
Achieved mutual
recognition of
Malaseb® in
17 European countries
December 2008
Received FDA
approval for Vetoryl in
the USA
May 2009
New therapeutic
canine diet developed
and marketed to
aid treatment of
osteoarthritis in dogs,
known as Specific®
CJD
June 2009
Received approval
to market Felimazole
in USA
Revenue
£ million
350.0
Underlying Profit
Before Taxation
£ million
23.4
Dividend
per Share
pence
8.36†
February 2010
DVP UK’s logistics
and finance function
integrated into a
central logistic and
shared service centre
in Uldum, Denmark
Revenue
£ million
369.4
Underlying Profit
Before Taxation
£ million
26.1
Dividend
per Share
pence
9.64†
October 2010
Acquired DermaPet®
Inc., a Florida based
dermatological
business, for a potential
consideration of
US$64.0 million. The
acquisition strengthened
Dechra’s position as a
leader in the worldwide
veterinary dermatological
market
December 2010
Acquired Genitrix®
Limited, a privately
owned veterinary
company with a
range of products
complementary to
Dechra’s, for a potential
total consideration of
£6.4 million
Revenue
£ million
389.2
Underlying Profit
Before Taxation
£ million
30.1
Dividend
per Share
pence
11.12†
January 2012
Acquired the
worldwide rights
(excluding Canada)
to HY-50® for a cash
consideration of
8.03 million Canadian
dollars
May 2012
Acquired Eurovet®
Animal Health B.V., an
expert in developing,
registering, producing
and marketing added
value, companion and
farm animal veterinary
pharmaceutical
products, for a total
cash consideration of
€135 million
Revenue
£ million
426.0
Underlying Profit
Before Taxation
£ million
33.0
Dividend
per Share
pence
12.27†
* From this point forward reported under IFRS.
† Adjusted for the bonus element of the Rights Issue.
21587-04 10/08/2012 Proof 3 Our Strategy
• To develop an international high growth, cash generative, specialist
veterinary products business; and
• To sustain growth and innovate in our Services business
Our Highlights
• €135 million acquisition of Eurovet® Animal Health B.V. (“Eurovet”)
completed, funded by successful Rights Issue and debt re-financing
• Strong performance from Pharmaceuticals in both Europe and the USA
• NVS operating margin stabilised in second half
• Investment in product pipeline increased by 10%
• Strong second half cash inflow resulted in a 92% full year conversion
rate
Our Key Strengths
• Unique Products
• Development Pipeline
• People and Expertise
• Strong Market Position
• Strategic Focus
• Growing Markets
• International Footprint
• Customer Satisfaction
• Strong Financial Platform
• Innovation
01
Contents
Our Business
02 Group at a Glance
04 Our Business Model
06 Your Questions Answered
Directors’ Report:
Our Performance
Introducing the DVP Country Managers
08 Chairman’s Statement
10 Chief Executive’s Review
14 Key Products and Specialisations
16 The Business and its Markets
17 Product Development
18 Product Pipeline
20
22 European Pharmaceuticals
25 US Pharmaceuticals
26 Services
30 HR
32 Key Performance Indicators
34 Financial Review
38 Risks and Uncertainties
Directors’ Report:
Our Governance
40 Board of Directors
42 Senior Management
44 Corporate Governance
55 Audit Committee Report
59 Directors’ Remuneration Report
71 Social, Ethical and Environmental Responsibilities
76 Other Disclosures
80 Statement of Directors’ Responsibilities
Our Accounts
81
Independent Auditor’s Report
83 Consolidated Income Statement
84 Consolidated Statement of Comprehensive Income
85 Consolidated Statement of Financial Position
86 Consolidated Statement of Changes in Shareholders’
Equity
87 Consolidated Statement of Cash Flows
88 Notes to the Consolidated Financial Statements
133 Company Balance Sheet
134 Reconciliation of Movements in Shareholders’ Funds
135 Notes to the Company Financial Statements
142 Financial History
Shareholder Information
143 Glossary
144 Shareholder Information
IBC Advisers
www.dechra.comStock Code: DPHDirectors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information21587-04 10/08/2012 Proof 3 02
Group at a Glance
Pharmaceuticals
European Pharmaceuticals
• Dechra Veterinary Products EU (“DVP EU”)
US Pharmaceuticals
• Dechra Veterinary Products US (“DVP US”)
Sales, marketing and technical support of Dechra’s branded
veterinary products to the veterinary profession in Europe
• Dechra Manufacturing
Licensed manufacturer of veterinary and human
pharmaceuticals for DVP EU and third party customers
Sales, marketing and technical support of Dechra’s branded
endocrine, ophthalmic, dermatological and equine products
to the veterinary profession in the USA
Revenue
£ million
up 17.3%
8
.
4
0
1
3
.
9
8
6
.
4
8
Operating Profit
£ million
up 28.4%
4
.
8
2
5
.
2
2
4
.
1
2
Revenue
£ million
up 26.4%
Operating Profit
£ million
up 21.2%
4
.
0
2
1
.
6
1
6
.
0
1
9
.
5
8
.
4
3
.
1
0
1
0
2
1
1
0
2
2
1
0
2
0
1
0
2
1
1
0
2
2
1
0
2
0
1
0
2
1
1
0
2
2
1
0
2
0
1
0
2
1
1
0
2
2
1
0
2
Where we Operate
European Pharmaceuticals
US Pharmaceuticals
Export
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3 03
Product Development
The Product Development and Regulatory Team
develop and license Dechra’s own branded
veterinary product portfolio of novel and generic
pharmaceuticals and specialist pet diets
Research and Development Spend
£ million
up 9.8%
7
.
5
2
.
5
7
.
4
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
• Dechra Laboratory Services (“DLS”)
Multi-disciplined independent commercial veterinary
laboratory
• Dechra Specialist Laboratories (“DSL”)
Primary and secondary referral specialist veterinary
immunoassay laboratory
Revenue
£ million
up 6.6%
7
.
5
1
3
3
.
6
9
2
7
.
5
8
2
Operating Profit
£ million
1
.
3
1
1
.
3
1
1
.
1
1
0
1
0
2
1
1
0
2
2
1
0
2
0
1
0
2
1
1
0
2
2
1
0
2
0
1
0
2
1
1
0
2
2
1
0
2
Our product pipeline
go to page 18
www.dechra.comStock Code: DPHDirectors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information21587-04 10/08/2012 Proof 3 04
Our Business Model
Key to our Business Model
Reporting Segments
Dechra Activity
Customers
Partners
PRODUCT DEVELOPMENT
AND REGULATORy
AFFAIRS
EUROPEAN
PhARMACEUTICALS
Provides products for the
Group through in-house
development of novel and
generic pharmaceutical
products, and specialist
branded pet diets. Further
products are acquired
through in-licensing and
marketing contracts with
third party suppliers
Manufacturing
Dechra Manufacturing
Manufactures the majority of our
own branded pharmaceutical
products which are marketed
through DVP EU and
DVP US. Approximately 40% of
manufacturing revenues are from
third party toll manufacturing
DVP EU Sales and Marketing
and Technical Support
Markets and sells our branded
veterinary products within
13 European countries and
manages the relationships
with our worldwide marketing
partners
US PhARMACEUTICALS
DVP US Sales and Marketing
and Technical Support
Markets and sells our own
veterinary products across the
USA and distributes a number
of our dermatological products
to Export Partners worldwide
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3 05
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 for veterinary
practices
Dechra Laboratory
Services and Dechra
Specialist Laboratories
Our laboratory businesses
are first and second referral
providers of histology,
pathology, haemotology,
chemistry and microbiology
services to veterinary
practices
Veterinary
Practices
Third Party
Pharmaceutical Companies
Export Partners
Veterinary Wholesalers
and Distributors
horse
Owners
Pet
Owners
Farms
www.dechra.comStock Code: DPHDirectors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information21587-04 10/08/2012 Proof 3 06
Your Questions Answered by Ian Page
Q how has the Group strategy developed since
you became Chief Executive?
Q What significant changes have you seen in
Dechra in the last ten years?
A Prior to my appointment as Chief Executive in November
2001, I was asked by the Non-Executive Directors to
outline my growth strategy. Although I was Managing
Director of NVS at the time, it was evident to me that the
biggest opportunity for the Group was to develop our
pharmaceutical business. The strategy was therefore
to utilise NVS’s strong cash generation to invest in
product development of specialist companion animal
pharmaceuticals. This predominantly focused on
Prescription Only Medicines (“POMs”) in therapeutic
areas for which there were inadequate products at the
time. In reality the strategy has changed little since my
appointment, although our product pipeline is now
considerably stronger and Dechra’s Pharmaceutical
segments are now self-funding and do not rely on NVS’s
cash generation.
A Historically the Group’s turnover and profitability
was driven by NVS, our Services business. With the
successful delivery of our strategy, Group profits are
now predominantly derived from our international
pharmaceuticals business, DVP. We have therefore
successfully transformed the business from being a low
margin distribution business into a high margin specialist
veterinary pharmaceuticals company. There has clearly
been enormous change throughout the period as we
have also grown from being a UK centric business to an
international pharmaceutical company with sales and
marketing teams in North America and the majority of
Western European countries. We also have marketing
partners in over 40 other countries around the globe.
From a management perspective we have developed
considerably and have attracted some highly qualified
people from the veterinary industry to strengthen our
capabilities and accelerate our development.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3 07
Q Why did you acquire Eurovet and what does it
bring to the Group?
Q What does the future hold for the Group?
A I remain very positive about the Group’s prospects.
The integration of Eurovet has delivered the expected
immediate synergies and significant additional synergies
will be realised throughout the remainder of the integration
process. The enlarged Group’s product range has also
created sufficient critical mass for us to trade through our
own subsidiaries in more geographies. Our product range
will continue to be enhanced from our robust product
pipeline and with major significant novel products on the
horizon, our portfolio will go from strength to strength.
We have delivered good growth against a background
of global recession; as the economy improves, footfall
increases in veterinary practices and world demand for
farm animal produce continues to increase, we expect this
growth to continue.
A There are very few companies that operate within
the veterinary pharmaceutical market; the majority of
the world’s veterinary pharmaceuticals are marketed
by big pharma. Eurovet was a company which had
complementary competencies and products, and
was of a scale suitable to be acquired by Dechra. We
first approached Eurovet over six years ago as it was
very clear to me that in terms of geography, products,
manufacturing capabilities and management, it was
strategically complementary to Dechra. The acquisition
has extended the Group’s capabilities into farm animal
products; it has added significant scale in Germany and
Benelux; brought sterile manufacturing capabilities to
the Group and further strengthened our management
capabilities.
Q how has the recession affected Dechra and
the veterinary market?
A The recession has had limited effect on Dechra as the
majority of our products are used to treat sick animals
which continue to be treated by veterinary practices.
Additionally, we have delivered new products and
generated good geographical expansion; therefore, we
have been able to deliver solid growth throughout the
recession. However, historic high growth rates within the
veterinary markets in the majority of our key territories
have slowed down. This slow down in growth rates is
predominantly due to reduced consumer spend in semi-
discretionary items, such as specialist pet diets (like our
Specific® branded diets) and flea products, where there is
either a cheaper retail alternative or there is a consumer
choice not to treat.
Web link for your convenience
Ian Page
Q&A Online
Video
Watch the Online Video
go to www.dechra.com
www.dechra.comStock Code: DPHDirectors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information21587-04 10/08/2012 Proof 3 08
Chairman’s Statement
“We remain confident that our strategy will continue to
deliver future solid growth and enhanced Shareholder
value”
Michael Redmond
Non-Executive Chairman
The underlying net finance expense was £3.6 million compared
to £1.8 million in 2011. The current year figure includes a
foreign exchange loss of £0.9 million (2011: gain of £1.0 million).
Excluding this, the charge was broadly consistent with last year.
Underlying profit before taxation increased by 9.6% from
£30.1 million to £33.0 million. At constant currency and
excluding foreign currency gains and losses, underlying profit
before taxation was £34.1 million, an increase of 17.3%.
Underlying earnings per share after taking into account the
bonus element of the Rights Issue increased from 31.53 pence
to 32.37 pence, up 2.7%.
Reported operating profit was £20.9 million (2011: £21.7 million)
whilst profit before taxation was £16.8 million (2011: £18.5
million). Reported earnings per share was 15.65 pence
(2011: 19.59 pence).
Net borrowings at 30 June 2012 stood at £86.7 million which
equates to 1.8 times pro-forma EBITDA of the enlarged Group.
This represents a significant reduction from the pro-forma net
borrowings of £105.2 million shown in the Eurovet Prospectus.
In order to partially fund the Eurovet acquisition, the Group
entered into a new £120 million debt facility, provided by a
syndicate of four banks. The facility matures in October 2016
and further details are shown on page 37.
Introduction
The year has proved very successful with strong underlying
growth delivered and a significant strategic acquisition
completed. The underlying growth has been generated from a
solid performance by our licensed veterinary pharmaceuticals
across all our major brands. Good revenue growth was
delivered in both our Services segment and from our third party
manufacturing. Solid progress has also been made on our
product pipeline. Furthermore, our UK based manufacturer,
Dales® Pharmaceuticals (“Dales”), has achieved a significant
milestone in gaining US Food and Drug Administration (“FDA”)
approval to manufacture Vetoryl® for the US market. The
strategic acquisition of Eurovet Animal Health B.V. (“Eurovet”)
increases the strength and depth of the countries in which we
trade; increases our manufacturing competencies; provides
complementary companion animal products and introduces
Dechra into the farm animal products sector. Eurovet will deliver
significant synergies throughout the integration process and
will be earnings enhancing in the first full year of ownership,
furthermore it will be materially earnings enhancing in the
financial year ending 30 June 2014. The acquisition was funded
by way of a fully subscribed Rights Issue and a new debt facility,
details of which are provided within the Financial Review.
Financial Highlights
Group revenue increased by 9.5% from £389.2 million to
£426.0 million. 7.9% of this growth was organic whilst 1.8% of
the growth was contributed by Eurovet. Currency movements
had a negative impact of 0.2%.
Underlying operating profit increased by 15.0% from
£31.8 million to £36.6 million with Eurovet contributing
£0.9 million to this figure. Underlying operating margin rose from
8.2% to 8.6%. This increase was due to strong pharmaceutical
sales both in Europe and the USA which more than offset the
effect of a reduction in margin at our wholesaler, NVS.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Performance 09
Dividend
People
In line with our progressive dividend policy and, after taking
into account the recent Rights Issue, the Directors are
recommending an increase in the final dividend to 8.50 pence
per share (2011: 7.72 pence per share adjusted for the bonus
element of the Rights Issue). This, together with the interim
dividend of 3.77 pence per share (2011: 3.40 pence per share),
makes a total dividend for the year of 12.27 pence per share
(2011: 11.12 pence per share), a 10.3% increase. All figures
have been adjusted for the bonus element of the Rights Issue.
The total dividend is covered 2.4 times by underlying profit after
taxation (2011: 2.8 times).
The final dividend, which is subject to Shareholder approval at
the Annual General Meeting to be held on Friday 19 October
2012, will be paid on 23 November 2012 to Shareholders on
the Register at 9 November 2012. The date shares become ex-
dividend is 7 November 2012.
The senior management team has been strengthened in the
year by the acquisition of Eurovet. Furthermore, there have
been a number of senior management appointments which
are outlined in the Chief Executive’s Review. Bryan Morton,
one of our Non-Executive Directors, has decided to step down
from his role; we are currently in the process of recruiting his
successor. On behalf of the Board and Shareholders I would like
to welcome all the Eurovet employees to the Group and wish
our new employees every success in their future roles. I would
also like to thank all employees for their continued hard work
and dedication throughout the year.
Prospects
The integration of Eurovet is progressing to plan and is
delivering the expected synergies; the enhanced product range
is robust; our pipeline is at an advanced stage to deliver future
significant products and the Group has identified other product,
geographical and service opportunities. Current trading is in
line with the Board’s expectations. We are conscious of the
ongoing global economic uncertainties, but remain confident
that our strategy will continue to deliver future solid growth and
enhanced Shareholder value.
Michael Redmond
Non-Executive Chairman
4 September 2012
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Chief Executive’s Review
“The Group continues to progress its strategic objective
of building a high margin, cash generative veterinary
products business”
Ian Page
Chief Executive
Introduction
The Group has delivered strong growth throughout the financial
year and continues to progress its strategic objective of building
a high margin, cash generative veterinary products business.
Both revenue and profit growth have been driven by the
performance of our Pharmaceutical segments; predominantly
from the solid organic growth of our licensed pharmaceuticals.
Specific branded specialist pet diets achieved modest growth
at constant currency. Third party manufacturing revenues and
profitability increased in the year; Dales, our main manufacturing
site, achieved its first FDA approval to manufacture product for
the US market. Good revenue growth was seen in our Services
segment although gross margin remained under pressure
due to product mix and increased discounting in a highly
competitive market. However, as previously reported, there was
an improvement in margin in the second half of the financial year
compared to that achieved in the first half. There have been two
acquisitions during the year (for, in aggregate £117.3 million): an
equine product, HY-50®; and a Dutch based business, Eurovet.
Both are detailed later in this report. These acquisitions will be
earnings enhancing in the first full year of ownership, Eurovet is
expected to be materially enhancing in the financial year ending
30 June 2014.
Our Strategy for Delivering and Maintaining Value
Historically the majority of the Group’s turnover and profitability
were derived from our Services segment. However, due to
our clear strategic objective to develop a high growth, cash
generative veterinary products business, Group profits are now
predominantly derived from our Pharmaceutical segments.
Products
In the Group’s Pharmaceutical segments growth will be
delivered by:
• maintaining and, where possible, increasing market share of
existing products;
• development of innovative, high margin, intellectually
protected, international novel pharmaceutical products;
• approval of pharmaceutical differentiated and standard
generic products;
• the continued development of Specific pet diets;
• in-licensing of high end products which can be marketed
through existing sales and customer channels;
• increased geographical coverage through the creation of our
own sales and marketing businesses;
• improving and developing sales growth via our export
partners in non-subsidiary territories; and
• the selective acquisition of assets which either bring new
products to the Group, or accelerate global expansion.
Services
With respect to the Services segment, specifically NVS, the
strategic objective remains:
• to continue improving logistics excellence;
• to reduce operating costs as a percentage of sales;
• to, at a minimum, maintain operating margins; and
• to deliver new innovative customer services.
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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;
• 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.
Acquisitions
HY-50
The worldwide rights (excluding Canada) to HY-50 were
acquired in January 2012 from Bexinc Limited for a cash
consideration of 8.0 million Canadian Dollars (approximately
£5.1 million), funded from the Group’s existing cash resources.
HY-50 is used for intra-articular (“IA”) or intravenous (“IV”)
treatment of lameness in horses caused by joint dysfunction.
It is unique in Europe as being the only single injection to
deliver 50mg of Sodium Hyaluronate and having both IA and IV
indications. This product acquisition strengthens our specialist
equine portfolio and will be earnings enhancing in the first full
year of ownership.
It is currently approved and marketed by various companies in
the UK, Belgium, the Netherlands, Sweden, Finland, Denmark,
Norway, Italy, Germany and Spain. Furthermore, registrations
are being considered for France and Ireland. Dechra already
markets the product in the UK as the marketing rights were
acquired as part of the Genitrix® acquisition. Marketing rights for
all other territories return to Dechra by July 2013.
Eurovet Animal Health B.V.
On 23 May 2012, Eurovet was acquired from A.U.V. Holdings
B.V. for €135 million in cash, on a debt free cash free basis. The
acquisition was funded by a £60 million Rights Issue and a new
£120 million debt facility, details of which are provided in the
financial section of this report. Eurovet is a profitable European
business, very similar in structure to DVP EU. It has targeted
niche differentiated products in both companion animals
and farm animals and has highly complementary products,
geographies, manufacturing competencies and markets to
Dechra.
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Chief Executive’s Review continued
There are a number of benefits to the acquisition:
Manufacturing Capabilities
Complementary Geographies
• It creates a strong presence in Germany where Dechra
historically sold its products through a distributor;
• It considerably strengthens our sales and marketing
infrastructure in Denmark, the Netherlands, Belgium and the
UK, where synergies have already been realised through cost
savings as duplicated sales offices have been rationalised;
and
• There will also be some margin benefit from Eurovet products
that can be distributed through Dechra’s other European
subsidiaries once Eurovet’s third party contracts are
terminated.
Product Range
• Eurovet has a successful line of specialised generics that
deliver technical or economic added value to end users;
• There is no significant overlap with Dechra’s companion
animal product portfolio with the range being complementary
and enhancing to Dechra’s own portfolio; and
• Eurovet brings a sterile facility providing a new manufacturing
competency for Dechra. The facility is modern, having been
built in 2007.
• The site, at Bladel in the Netherlands, also manufactures
oral liquids, pre-mixes and water soluble powders which are
almost entirely complementary to our existing manufacturing
competencies.
Product Development
• Eurovet has a proven track record of delivering first entrant
generics and added value generics with a new dosage
form or delivery method. They have several products at
an advanced stage of development with four already in
registration.
Synergies
Annualised synergies of €6.0 million are targeted to be delivered
within three years, of which €2.0 million is already being
realised. These synergies will be achieved through:
• The rationalisation of the four duplicated sales and marketing
• It provides an entry to the farm animal market which has been
functions with significant cost savings;
one of Dechra’s strategic objectives.
• Revenue synergies from Dechra products being sold through
Eurovet’s German distributor;
• Revenue synergies from Eurovet products being sold through
Dechra subsidiaries;
• Cost synergies from rationalisation of administrative
expenses; and
• Margin improvement from in-house manufacturing of some
previously outsourced products.
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Key Products and Specialisations
Historically Dechra’s product range was entirely focused on companion animals and horses. However, the acquisition of Eurovet
has given the Group a significant and strategically important platform in the farm animal product market. The majority of key
products in both the companion animal and farm animal markets are novel or have clear marketing advantages over competitor
products. Several of our branded range have market leading positions in the majority of territories in which we operate.
Dermatology
Equine Medicine
The Group has 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 continues to be
the leading non-steroidal anti-inflammatory drug (NSAID) for
the treatment of musculoskeletal disorders, such as lameness
arising from acute and chronic laminitis in horses.
Equidone® Gel was approved in 2010 for the treatment of
fescue toxicity in horses. This niche product is targeted
specifically at the USA market.
HY-50 is used for intra-articular and intravenous treatment of
lameness in horses caused by joint dysfunction. The acquisition
of this product strengthened Dechra’s position in equine pain
management in several major European territories.
Endocrinology
Endocrine disorders are also a
key focus for the business with
a number of licensed products
treating a range of chronic
diseases. The three leading brands are Vetoryl, Forthyron® 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.
Forthyron is licensed to treat the most widely recognised
endocrine disorder, canine hypothyroidism. It is the only
mutually recognised levothyroxine treatment in Europe and is
marketed in all the major European countries.
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 Canada.
Dermatology represents approximately
20% of veterinarians’ clinical time and
is currently a major focus area for the
industry. Best practice and management
techniques look to adopt more topical products, as opposed
to oral treatments, with the aim of utilising antibiotics more
appropriately. Dechra’s product portfolio, with its range of
licensed and non-licensed topical products, is well positioned
for this approach.
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.
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.
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.
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.
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.
Additionally we market a range of ophthalmic and otic products
in the USA, the long term marketing rights were acquired in
May 2007. There are six products in the range, with the majority
being the only veterinary licensed products in the American
market.
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Critical Care
Farm Animal Antimicrobials
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.
Sedation and analgesia are major sub-groups of critical care.
Dechra, enhanced by the Eurovet acquisition, markets one of
the largest ranges of products in this sector. The range covers
a wide number of species, different degrees of pain intensity
management and duration of effect. Within the range there are
a number of unique licenses, Intra Epicaine®, a local anaesthetic
recommended for infiltration, nerve block, intra-articular and
epidural anaesthesia in horses, Comfortan®, the only licensed
methadone hydrochloride for analgesia in dogs and Fentadon®,
the only licensed fentanyl for intra-operative analgesia and post-
operative pain management.
Libromide® was approved in 2010 for the UK and mutually
recognised in 11 additional territories in 2011/2012. It is the only
licensed product of its type which is used in combination with
other pharmaceuticals for the management of canine epilepsy.
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 acquisition of Eurovet has significantly strengthened
this basket of products with the first differentiated generic of the
active principle ingredient, pimobendan, branded Cardisure®.
Cardisure is a leading treatment for canine congestive heart
failure and is marketed throughout Europe.
Care
The Care range comprises unlicensed
products which complement our
pharmaceutical range. They are available
over the counter within veterinary
practices. The three key products are CleanAural, a non-irritant
cleaner suitable for frequent use in ears producing excess wax,
Neutrale™, a range of specialist shampoos for skin conditions in
dogs, and Lubrithal®, an eye lubricant for cats and dogs.
A superior range of antimicrobial
treatment products for swine and poultry
has been added to the Dechra portfolio
through the acquisition of Eurovet. In a market where there is
increased emphasis on reducing the usage of antibiotics in
the farm animal sector, it is essential that reliable and effective
products are available to veterinarians to support them in the
prudent use of antibiotics. The Solustab® range has been
specifically developed to meet this need and is renowned
for its high level of solubility leading to a reliable and stable
product when added to drinking water. This reduces the need
for additional enhancing agents widely used by competitor
products.
Octacillin®, marketed since 2003 in the Netherlands, is sold in
15 European countries following approval in 2006 and 2011.
Octacillin is a highly soluble and stable antibiotic powder
containing amoxicillin which is added to drinking water in the
treatment of diseases in swine and poultry.
Soludox®, marketed in Benelux since 2002, is a highly soluble
antibiotic powder for administration via drinking water and
is being sold in 16 European Member States as a result of
approval for swine and chickens, completed in 2010. The active
ingredient is doxycycline.
Methoxasol®, is a ready to use liquid medication, which can be
easily added to the drinking water of swine and poultry, it has
been marketed in the Netherlands since the mid 1990’s. Thanks
to successful European procedures in 2000, 2009 and most
recently in 2012, this highly soluble liquid is marketed in 15
Member States. The active ingredients are sulphamethoxasol
and trimethoprim, a proven synergistic combination for
antimicrobial effectiveness.
Cyclospray® is the leading antibiotic spray treatment in Europe
for claw/hoof infections, interdigital dermatitis (foot rot) in sheep
and digital dermatitis in cattle. It is widely used in the prevention
of infection of superficial traumatic or surgical wounds in cattle,
sheep and pigs. Cyclospray has been marketed since 2000 in
12 European Member States. The active
ingredient is chlortetracycline.
Pet Diets
Dechra has two main cat and dog diet
product ranges, both branded Specific,
which are sold exclusively through
veterinary practices. Therapeutic diets, which represent 70%
of overall 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.
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The Business and its Markets
Dechra operates under four segments:
• Product Development;
• European Pharmaceuticals which comprises Dechra
Veterinary Products Europe (including Eurovet) (“DVP EU”)
and Dechra Manufacturing;
• US Pharmaceuticals comprising Dechra Veterinary
Products US (“DVP US”); and
• Services comprising National Veterinary Services (“NVS”) and
our Laboratories, Dechra Laboratory Services (“DLS”) and
Dechra Specialist Laboratories (“DSL”).
The Group employs 1,237 people, operates out of 14 countries
and exports products globally to over 40 countries.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Performance 17
Pharmaceuticals
Registrations were achieved in the year for:
• 30mg and 60mg Vetoryl in Brazil;
• Libromide, through the mutual recognition process, in 11
European countries;
• Malaseb for Switzerland; and
• 120mg Vetoryl for the USA.
Since acquisition two Eurovet products have also received
approval:
• Methoxasol, an antimicrobial for pigs and poultry for the EU;
and
• Myorelax, an equine muscle relaxant for the EU.
Diets
A number of new diet products have been developed for
the EU:
• Specific CED canine endocrine support for the treatment of
endocrine disorders;
• Specific FID and FIW feline digestive support for cats with
acute and chronic gastrointestinal disorders; and
• Specific FJD and FJW, a diet to support cats with
osteoarthritis and reduced joint function.
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 potential product for
inclusion in the development pipeline are:
• risk adjusted return on investment;
• market potential and future growth opportunities;
• geographical scope; and
• the ability to sell and market through existing distributor and
veterinary customer channels.
Our product development is concentrated in four areas:
• Novel POMs for dogs, cats and horses. We target products
in specialist therapeutic areas and focus on novel ideas using
new Active Principle Ingredients (“APIs”) 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
rather than research based.
• Development of generics in any major species, preferably
within one of our areas of therapeutic sector specialisation.
This includes standard generics for any species which are
copycat products of an original proprietary veterinary product
and differentiated generics, known as Star Products. Star
Products are generic copies of existing veterinary medicines
where a marketing advantage is found, such as an improved
delivery system, clinical advantage or improved presentation.
• Therapeutic pet diets for dogs and cats. Products are
formulated and trialled to provide optimum nutrition for
animals diagnosed with various medical conditions.
• 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 a 9.8% increase in expenditure over the
corresponding period last year. Dosage form and formulation
work is conducted in the UK and the Netherlands; regulatory
work is conducted in the UK, Denmark and the Netherlands;
safety and efficacy trials are predominantly controlled by our
USA team.
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Product Pipeline
Product Pipeline
Novel POMs
There are currently five novel products in development. A feline gastrointestinal project has been terminated prior to any significant
costs being incurred due to the market size being immaterial. A new otic product has been added to the development schedule
which has significant global potential. Two other products are at an advanced stage of review and at least one is likely to be
taken forward. As previously reported, there has been a short delay in the first novel product, an equine lameness medicine, due
to external manufacturing issues. However, it is pleasing to report that FDA completion letters have been received on safety and
efficacy for this product.
Novel
Species
Indication
Territory
Manufacturing
2013
2014
2015
2016+
Equine
Canine
Feline
Canine/Feline
Canine/Feline
Lameness
Endocrine
Endocrine
Dermatology
Otic
International
International
International
International
International
Outsourced
Own (in-house)
Outsourced
Own
Own
•
•
•
•
•
In excess of £30 million potential annual revenue and gross margin expectation in excess of 70%.
Generics
Species
Indication
Territory
Manufacturing
2013
2014
2015
2016+
Swine/Poultry
Canine
Swine/Poultry
Canine/Feline
Swine/Poultry
Canine/Feline/Equine
Canine/Feline/Equine
Dairy
Swine/Poultry
Cattle
Canine
Canine
Anti-infective
Sedative
Anti-infective
Sedative
Anti-infective
Critical care
Sedative
Anti-infective
Anti-infective
Anti-infective
Sedative
Diuretic
EU
EU
Germany
EU
EU
EU
EU
EU
EU
EU
EU
EU
Own
Own
Own
Own
Outsourced
Outsourced
Own
Own
Own
Outsourced
Own
Own
•
•
•
•
•
•
•
In excess of £10 million potential annual revenue and gross margin expectation in excess of 50%.
•
•
•
•
•
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Diets
Species
Indication
Territory
Manufacturing
2013
2014
2015
2016+
Feline
Canine/Feline
Canine/Feline
Canine/Feline
Canine/Feline
Orthopaedic
Critical care
Urinary
Dental
Allergy
EU
EU
EU
EU
EU
Outsourced
Outsourced
Outsourced
Outsourced
Outsourced
•
•
•
•
•
Development programme maintains competitive position and enhances growth.
Others
In addition, there are several other exploratory projects, line extensions, territory expansions and life cycle management projects.
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Introducing the DVP Country Managers
Dechra Veterinary Products currently operates sales, marketing and technical
support teams in 14 countries, each led by a manager who has a wealth of
knowledge and experience of the animal health market in which they operate.
These managers are integral to the growth in sales and profitability of our products
in their countries.
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 43.
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 42 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 from April 2010
to April 2012.
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 16
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 from IESE in Spain.
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 23 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.
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Denmark
Mette Trige MSc
email: info.dk@dechra.com
web: www.dechra.dk
Norway
Sverre Aasgaard
email: info@dechra.no
web: www.dechra.no
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.
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 30 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.
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
Sweden and Finland, in 1984 and 1988 respectively. Henri
has over 20 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.
Sweden
Carina Kjellberg
email: info.se@dechra.com
web: www.dechra.se
Carina Kjellberg started in 2000 and was appointed the
Country Manager of Sweden in 2005. She has over 21
years’ experience in the animal heath business, 11 of
which were working as a veterinary nurse.
Germany
Dr Gerfried Zeller Dr.med.vet
email: infor@albrecht-vet.de
email: info.de@dechra.com
web: www.albrecht-vet.de web: www.dechra-eu.com
Gerfried Zeller is the General Manager of Albrecht GmbH, the
German subsidiary of Dechra. He graduated as a veterinary
surgeon from Humboldt University of Berlin. Gerfried has more
than 21 years’ experience in the veterinary pharmaceutical
industry, experienced with Hoechst Roussel Vet, Intervet, and
since 2006, with Albrecht. Gerfried is member of the board of
Bundesverband für Tiergesundheit (BfT), the German branch
of IFAH and Chairman of the Friends Association of the
Friedrich-Loeffler-Institute (FLI), Federal Research Institute for
Animal Health.
Benelux
Kurt van der heijden
email: info.nl@dechra.com
web: www.dechra.nl web: www.eurovet-ah.com
Kurt van der Heijden was appointed as the new Country
Manager of Benelux, on the acquisition of Eurovet. He has
over 20 years of management experience in various industries,
of which the last six years have been in the animal health
business, starting at Schering-Plough as Sales Manager
Benelux and subsequently as Business Unit Manager
Companion Animal at Intervet/Schering-Plough (now Merck
Animal Health), followed by an international position as
Regional Director at Eurovet.
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European Pharmaceuticals: This segment comprises DVP EU (incorporating Eurovet) and
Dechra Manufacturing
DVP EU Management Team
Tony Griffin
Managing Director
René hogenkamp
Finance Director
Region I: Denmark, Finland, France, Norway, Sweden and UK
Region II: Benelux, Germany, Portugal and Spain
Giles Coley
Sales and Marketing Director,
Region I
Jan Jaap Korevaar
Sales and Marketing Director,
Region II
Roeland Meijers
Director of Diets
What we do
Our Market
This business unit markets and sells our own branded veterinary
products across 13 European countries and manages the
relationships with our worldwide marketing partners.
Operational Structure
The business has an operating board of seven senior managers.
The business is managed from Bladel, the Netherlands and
Sansaw, UK. Companion animal marketing is located in
Sansaw, farm animal marketing in Bladel and Specific pet diets
marketing in Uldum, Denmark.
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 and Belgium and Luxembourg
are managed out of the Netherlands.
We currently employ 73 representatives across these territories.
DVP EU, including Eurovet, employs 436 people.
Our customers are veterinary surgeons, predominantly
operating out of commercial veterinary practices. Before
acquiring Eurovet, this was entirely small animal and equine;
most European markets are demonstrating growth although,
on the whole, this is inflationary. Although consumers continue
to treat sick animals, high levels of historic growth have
declined in the current depressed global economy as spend
has reduced on discretionary items such as pet diets. However,
this has had minimal effect on DVP as most our products
are therapeutic. Internet pharmacies, predominantly in the
UK, but also increasingly in other major European territories,
are demonstrating stronger levels of growth as consumers
look to reduce the cost of pet and horse ownership. Through
Eurovet the business now supplies large animal practices;
these are predominantly pig and poultry practices which are
very specialised, and although few in number are high value.
DVP EU also sells into over 40 countries through relationships
with distribution partners who themselves sell into veterinary
practices in their own country.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Performance 23
Carsten Jeppesen
Logistics Director Europe
Marie-Louise Mans
HR Director Europe
Key Strengths
Our business is unique as the majority of our products
are either novel and are used to treat medical
conditions for which there is often no other effective
solution or have a clinical or dosing advantage over
competitor products. Our key marketing benefit,
especially on diets, is that our products are only
marketed and sold to veterinary practices. Due to the
technical nature of many of our products, we invest in
state of the art online communication tools. We are one
of the leading companies in the veterinary industry to
offer online educational webinars and also approved continued
professional development courses through our websites.
Achievements
The main achievement and ongoing priority is the integration of
Eurovet into our European operations. Rationalisation of the four
duplicated sales offices has been completed. Eurovet’s Danish
and UK offices have been closed and now operate out of
Dechra’s facilities, whilst Dechra’s Dutch and Belgian operation
has been closed and now operates out of Eurovet’s facility
in a consolidated Benelux unit. A number of key distribution
agreements have been amended as we begin to realise revenue
synergies on the marketing of Eurovet products through Dechra
subsidiaries and through Dechra products being marketed by
Eurovet’s German operation.
Like for like growth on our pharmaceuticals was 9.0% ahead of
last year with good growth seen from our key products, Vetoryl
and Felimazole, which were introduced into our own subsidiary
sales and marketing teams at the beginning of the financial
year. The DermaPet products, acquired in October 2010 to
strengthen our US business, have been launched into several
EU territories in Dechra livery with positive initial sales.
Eurovet revenue since acquisition has been in line with our
expectations and ahead of their corresponding period last year.
This was achieved despite ongoing pressure to reduce antibiotic
usage, especially in the Netherlands, one of the main markets
for this range.
Sales of our specialised pet diets grew by 1.9% at constant
currency in the financial year. We have successfully completed
the supply change of all feline dry products into our new
outsourced manufacturing facility in Sweden following the
transfer of our canine diets in the preceding year. The wet diets
have been re-optimised and introduced in new European pack
presentation with nine languages. This has improved operational
efficiency as it reduces the number of stocking units from 130 to
19. Two new diets were launched during the period,
Specific CED endocrine support and Specific FID digestive
support.
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Our BusinessDirectors’ ReportOur PerformanceDirectors’ ReportOur GovernanceOur AccountsShareholder Information 24
European Pharmaceuticals
Manufacturing Management Team
Mike Annice
Managing Director
Kirsty Ireland
Finance Director
Andrew Parkinson
Quality Director
Gareth Davies
Sales and Marketing Director
What we do
Key Strengths
We manufacture the vast majority of our own branded, licensed
pharmaceutical products which are marketed through DVP;
we also derive revenue from third party toll manufacturing for
human pharmaceutical and other veterinary companies. This is
Dechra’s only significant source of revenue not derived directly
from the veterinary market.
Operational Structure
The business has an operating board of four senior managers.
The majority of manufacturing is located at Dales in Skipton,
England and employs 209 people and at Eurovet in Bladel, the
Netherlands which employs 106 people. There is also a small
manufacturing facility in Uldum, Denmark which employs 26
people.
Our Market
The primary customer for our manufacturers is DVP EU. Our toll
manufacturing customers are, in the majority, small or mid-sized
UK based pharmaceutical companies. However, we also supply
a number of other animal health businesses.
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 sterile injectables, tablets, capsules, liquids, creams,
gels, powders and pre-medicated feeds. We have the capacity
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
The biggest single achievement at Dales in the year was the
FDA approval in November 2011 to manufacture 120mg
Vetoryl for sale in the USA market. This approval, once
extended into other dosage strengths of Vetoryl, will allow us
to improve the margin on our leading product. Work has also
commenced to extend FDA approval into other products and
dosage forms so we can manufacture other novel products
in our pipeline for the USA. A Medicines and Healthcare
Regulatory Agency (“MHRA”) audit was conducted over
the period which achieved the highest audit standard in our
history. Over £1 million of new contract business has been
gained at Dales in the year which resulted in a 6.1% increase
compared to the corresponding period last year. Service levels
have improved within the organisation, achieving 95% of
lines fulfilled on time. Furthermore, there has been continued
product mix rationalisation, whereby lower value and inefficiently
manufactured products have been deleted. This has resulted
in an increase in unit added value of 9%. Significant investment
has been made at the Dales site with an upgrade in the
injections facility, including a new replacement autoclave and
laboratory expansion in both the quality control laboratory and
the product development formulation laboratory. The key focus
of the manufacturing management team in the forthcoming
year will be the integration of the Eurovet site at Bladel into the
Group.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Performance 25
US Pharmaceuticals
DVP US Management Team
Mike Eldred
President, US Operations
Doug hubert
Vice-President, Sales and Marketing
Dana Fertig
Veterinary Technical Services
Manager
pharmacies; there has, however, been a significant amount of
publicity outlining to veterinarians the risks and lack of quality
control associated with buying products from compounding
pharmacies. Throughout the year over 100 regional meetings
have been conducted by our technical support veterinarians;
these have been attended by over 3,100 veterinarians.
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. Accounts, HR and pre-distributor logistics are all
currently outsourced. Our business is located in Kansas City,
USA and employs 36 people, 22 of whom are field based sales
representatives.
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
households own a pet which equates to 73 million homes, with
a current estimated population of 86 million cats,
78 million dogs and 7 million horses.
Key Strengths
Our key pharmaceuticals, which are the focus 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 across our US product range was approximately
26% higher than last year. Four new sales representatives and
two field veterinarians were added to the organisation within
the year. Further increases in headcount are planned for the
future as we continue to increase our one-to-one coverage of
the major US veterinary practices. Our key products, Vetoryl
and Felimazole and the DermaPet range showed good growth.
Overall revenue performance was again impacted by continual
supply issues related to our historic dermatological, ophthalmic
and otic range by a third party manufacturer. Work continues
to improve supply consistency of the licensed dermatological
products and the transfer of the sterile ophthalmic range into a
new facility is ongoing. This transfer is targeted to be completed
prior to the end of June 2013. Vetoryl sales achieved our
expectations despite the ongoing battle against compounding
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Services: This segment comprises NVS and our Laboratories; DLS and DSL
NVS Management Team
Martin Riley
Managing Director
Dan Shipman
Finance Director
Steven Williams
Operations Director
Peter Cronin
Sales and Marketing 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 stocks
a range of over 14,000 products, including pharmaceuticals,
pet products, consumables and accessories. NVS has also
developed a range of IT solutions for veterinary practices.
Operational Structure
The business is managed by an operating board of four
experienced directors. NVS employs 426 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 are received automatically without requiring
human input.
NVS Network
Aberdeen
Larkhall
Carlisle
Wetherby
Stoke-on-Trent
Mildenhall
Gloucester
Hertford
Bracknell
Swanscombe
Tiverton
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Performance 27
Our Market
Achievements
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 remained
consistent throughout the year; however, increased volumes
of unregulated products, such as diets and shampoos,
are now being purchased through internet pharmacies as
consumers look to reduce the costs of pet health spending. 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 supplied via our reliable next day national delivery
service. Additionally, NVS supplies a range of business solutions
for veterinary practices including practice management
software, benchmarking systems and marketing and business
support.
Services revenue grew by approximately 6.5% compared to
the corresponding period last year. Operating efficiencies were
gained in the period; however, operating margin declined in
the first half of the financial year at NVS due to an increase in
discount allowed and the decline in the proportion of revenue
from higher margin product groups. The increase in discount
allowed has been a feature of the highly competitive market
over recent years. The sales mix has been influenced by
consumers buying products such as pet diets from internet
pharmacies, a sector in which we are currently underweight. A
strong focus by the management team ensured that operating
margin showed a small improvement in the second half of the
financial year.
Following several years of planning, a new integrated IT system
went live at NVS on 1 July 2011, coinciding with the beginning
of the financial year being reported. This system has bedded in
and Phase I completed. This has allowed management to focus
more closely on our customer requirements and as a result
communication and services have been significantly improved.
Furthermore, the IT platform has allowed us to develop a new
range of services to practices, such as an online Web Shop and
an in-depth analytical tool for practices to monitor and manage
their business performance.
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Services
Laboratories Management Team
Dr Peter Graham
Managing Director
Paul Sandland
Finance Director
Diane Saffery
Commercial Manager
What we do
Operational Structure
DLS is a first referral veterinary laboratory. We provide histology,
pathology, haematology, chemistry and microbiology services to
veterinary practices. DSL provides secondary referral services
with our key area of expertise being endocrinology. DSL also
provides precise assays which support the dosage regimes
and patient monitoring of DVP’s key products, Vetoryl and
Felimazole.
The Laboratories, employing 73 people, are run by an
operational board of two senior managers and are supported
by the Group Financial Controller who also sits on this board.
DLS is located in Poulton-le-Fylde, Leeds and Swanscombe,
and DSL is located at Sawston. 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.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Performance 29
Our Market
Achievements
DLS’s customers are UK commercial veterinary practices.
We have historically provided support to companion animal
practices; in the last two years we have introduced an increased
range of farm animal and equine services. DSL provides some
first level support similar to DLS to UK veterinary practices; 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.
We have rebranded NationWide Laboratories to Dechra
Laboratory Services and Cambridge Specialist Laboratories
to Dechra Specialist Laboratories; the objective is to better
integrate the businesses. We have implemented a changeover
from externally provided logistics to an internal Group solution,
utilising the NVS distribution structure to collect samples from
veterinary clinics. This initiative reduces costs and improves
customer service. We are at an advanced stage of the
implementation of a new Laboratories information management,
accounting and customer relationship software package, with a
go-live targeted prior to the end of the 2012 calendar year. The
new system will significantly enhance the Laboratories customer
service offering.
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hR
The senior management team has been significantly
strengthened by the acquisition of Eurovet. The DVP EU team
has been restructured, incorporating senior managers from
both businesses. Tony Griffin, previously Eurovet and AUV
CEO, will manage this team and become DVP EU Managing
Director. Furthermore, Tony will be invited to become a PLC
Board Director and will be appointed prior to end of the 2012
calendar year. Ed Torr has stepped down from the role of
European Managing Director and reverted to his historic duties
in charge of business development, international expansion
and product development. There have been three new senior
managers recruited during the year: Allen Mellor has been
appointed to a new role as Group IT Director, Peter Cronin has
taken over the role of Sales and Marketing Director at NVS and
Diane Saffery has been appointed as Commercial Manager of
our Laboratories. Steve Williams, NVS Operations Director, has
taken responsibility for Group logistics. Bryan Morton, who was
appointed as a Non-Executive Director in January 2010, has
unfortunately decided to step down from the role due to other
work commitments. We are currently in the process of recruiting
two new Non-Executive Directors; one to replace Bryan and
the second to ensure the Non-Executive Directors are in the
majority once Tony Griffin is appointed to the PLC Board of
Directors.
Our Values
The Performance Development Review scheme which
incorporates the Dechra Values, outlined in the 2011 Annual
Report and Accounts, has been rolled out across all senior
management. The review process will be extended to all middle
management throughout 2013 and across the whole Group
thereafter, further details are provided in the Remuneration
Report on pages 59 to 70.
D EDICATION
We are dedicated to delivering products and services that meet
the highest level of service and quality to our customers
E NJOYMENT
We will endeavour to create an environment where our people
want to come to work and feel part of Dechra
C OURAGE
h ONESTY
We want a business where we dare to challenge each other,
creating better cross-organisational solutions
We will act with integrity and fairness and treat everyone
with respect
R ELATIONSHIPS We see our customers and suppliers as business partners and
thereby work together to ensure common success
A MBITION
We shall deliver solid results through our energetic and resilient
approach
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Performance 31
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Our BusinessDirectors’ ReportOur PerformanceDirectors’ ReportOur GovernanceOur AccountsShareholder Information 32
Key Performance Indicators (“KPIs”)
Financial
Method of Calculation
Target
2012 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 17.9% being
achieved
Revenue from specialist pet
diets
Global revenue from the Specific brand of pet diets
To achieve annual revenue
growth of at least 6%
A growth rate of 1.9% was achieved in 2012 with revenue being impacted by
difficult economic conditions in most of our markets
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 continues to be made towards the medium term target driven
by the increasing proportion of revenue achieved from pharmaceutical products
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 cash conversion rate showed an improvement compared to the previous
year although it remained slightly below the target with the Services segment
experiencing continued pressure on payment terms
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”)
ROCE significantly ahead of the Group’s WACC although it reduced slightly in
absolute terms due to the Eurovet acquisition
Non-Financial
Method of Calculation
Target
2012 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
Two new diets launched, one pharmaceutical product approved and launched
in the EU. New pharmaceutical registrations achieved in USA, Brazil and
Switzerland
There has been a reduction in the total number of accidents during the year
from 15 to 10. 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 71 to 75
2008
n/a*
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 has shown a significant improvement down to 16.10% from last year’s
19.03%. More detail in relation to this can be found in the Social, Ethical and
Environmental Responsibilities Report on pages 71 to 75
2012
2011
2010
2009
2008
2012
2011
2010
2009
2008
2012
2011
2010
2009
2008
2012
2011
2010
2009
2008
2012
2011
2010
2009
2008
2012
2011
2010
2009
2008
2012
2011
2010
2009
2012
2011
2010
2009
2008
23.6
15.3*
* Canaural and Fuciderm acquired in January 2008
39.1
£ million
33.2
29.4
28.1
£ million
27.6
25.6
22.7
9.9*
* Diets range acquired in January 2008
9.8
9.5
8.9
8.1
7.1
91.7
82.8
100.8
112.5
94.2
20.6
21.6
22.6
19.4
23.3
%
%
%
%
Products
6
6
6
5
3
0.55
LTAFR
0.82
0.75
0.94
* Information not collected for this year
16.10
15.88
19.03
19.81
29.7
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Performance 33
Financial
Method of Calculation
Target
2012 Performance
Five year Record
Revenue from key
Global revenue from our top five products
pharmaceutical products
To achieve annual revenue
growth of at least 10%
The KPI was exceeded during the year with a growth rate of 17.9% being
achieved
Revenue from specialist pet
Global revenue from the Specific brand of pet diets
To achieve annual revenue
diets
growth of at least 6%
A growth rate of 1.9% was achieved in 2012 with revenue being impacted by
difficult economic conditions in most of our markets
Underlying operating margin
Underlying operating profit before product
before product development
development expenditure expressed as a
cost
percentage of Group revenue
To achieve an underlying
operating margin before
product development costs
of 10% in the medium term
Further progress continues to be made towards the medium term target driven
by the increasing proportion of revenue achieved from pharmaceutical products
Cash conversion rate
Cash generated from operations before tax and
To achieve an annual cash
interest payments as a percentage of operating
conversion rate of at least 100%
profit before amortisation of acquired intangibles
The cash conversion rate showed an improvement compared to the previous
year although it remained slightly below the target with the Services segment
experiencing continued pressure on payment terms
Return on capital employed
Underlying operating profit as a percentage of
To achieve a return on
(“ROCE”)
average operating assets utilised. Operating assets
capital employed which
ROCE significantly ahead of the Group’s WACC although it reduced slightly in
absolute terms due to the Eurovet acquisition
exclude cash and cash equivalents, borrowings, tax
exceeds the pre-tax
and deferred tax balances
weighted average cost of
capital of the Group (“WACC”)
2012
2011
2010
2009
2008
2012
2011
2010
2009
2008
2012
2011
2010
2009
2008
2012
2011
2010
2009
2008
2012
2011
2010
2009
2008
39.1
£ million
33.2
29.4
23.6
15.3*
* Canaural and Fuciderm acquired in January 2008
28.1
£ million
27.6
25.6
22.7
9.9*
* Diets range acquired in January 2008
%
%
%
9.8
9.5
8.9
8.1
7.1
91.7
82.8
100.8
112.5
94.2
20.6
21.6
22.6
19.4
23.3
Non-Financial
Method of Calculation
Target
2012 Performance
Five year Record
Pharmaceutical product
Number of products from the pipeline or in-licensed
One new diet or range
development pipeline
into at least one major territory with long term
extension launched in the
revenue potential of at least £0.5 million
EU, two new pharmaceuticals,
Two new diets launched, one pharmaceutical product approved and launched
in the EU. New pharmaceutical registrations achieved in USA, Brazil and
Switzerland
each launched in at least
one key market
health and safety performance Lost Time Accident Frequency Rate (“LTAFR”):
Zero preventable accidents
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
There has been a reduction in the total number of accidents during the year
from 15 to 10. 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 71 to 75
Employees
Employee turnover calculated as number of leavers
Moving Annual Turnover
during the period as a percentage of the average
(“MAT”) rate of less than 15%
total number of employees in the period
The MAT has shown a significant improvement down to 16.10% from last year’s
19.03%. More detail in relation to this can be found in the Social, Ethical and
Environmental Responsibilities Report on pages 71 to 75
2012
2011
2010
2009
2008
2012
2011
2010
2009
Products
6
6
6
5
3
0.55
LTAFR
0.82
0.75
0.94
2008
n/a*
* Information not collected for this year
2012
2011
2010
2009
2008
16.10
19.03
15.88
19.81
%
29.7
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Our BusinessDirectors’ ReportOur PerformanceDirectors’ ReportOur GovernanceOur AccountsShareholder Information 34
Financial Review
“Operating profit for European Pharmaceuticals grew by
29.6% at constant currency with the operational leverage
effect of higher pharmaceutical revenue being clearly
demonstrated”
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
* Restated to reflect the impact of the bonus element of the Rights Issue.
Underlying Results
2011
£’000
389,237
88,361
22.7%
(17,659)
(33,658)
(5,221)
31,823
8.2%
30,069
(7,321)
22,748
31.53p*
25,374
82.8%
9,294
24.3%
11.12p*
34,091
2012
£’000
426,041
99,259
23.3%
(17,979)
(38,944)
(5,735)
36,601
8.6%
32,966
(8,664)
24,302
32.37p*
29,128
91.7%
7,905
26.3%
12.27p*
86,717
Change
%
9.5
12.3
(1.8)
(15.7)
(9.8)
15.0
9.6
2.7
14.8
(14.9)
10.3
Reported Results
2011
£’000
389,237
88,361
22.7%
(17,659)
(43,763)
(5,221)
21,718
5.6%
18,514
(4,380)
14,134
19.59p*
25,374
82.8%
9,294
23.7%
11.12p*
34,091
2012
£’000
426,041
99,259
23.3%
(17,979)
(54,655)
(5,735)
20,890
4.9%
16,820
(5,071)
11,749
15.65p*
29,128
91.7%
7,905
30.1%
12.27p*
86,717
Change
%
9.5
12.3
(1.8)
(24.9)
(9.8)
(3.8)
(9.1)
(20.1)*
14.8
(14.9)
10.3
Revenue, Underlying Operating Profit and Underlying Profit Before Tax at Constant Currency
Revenue
Underlying operating profit
Underlying profit before taxation
Analysis of Revenue and Underlying Operating Profit Growth
2012
£’000
426,991
36,845
34,108
2011
£’000
389,237
31,823
29,070
Change
%
9.7
15.8
17.3
Year ended 30 June 2011
Organic growth at constant currency
Impact of acquisitions
Impact of foreign currency movements
year ended 30 June 2012
Revenue
£’000
389,237
30,627
7,127
(950)
426,041
%
7.9
1.8
(0.2)
9.5
%
Underlying
Operating Profit
£’000
31,823
4,170
852
(244)
36,601
13.1
2.7
(0.8)
15.0
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Performance 35
Revenue
Gross Profit
Gross margin for the Group increased from 22.7% to 23.3%.
This was driven by increased revenue from higher margin
pharmaceuticals which was partially offset by a reduction in the
NVS gross margin caused by increased discounting and an
adverse sales mix.
Underlying Distribution Costs
Distribution costs increased by 1.8% compared to 2011, if
Eurovet is excluded, the increase was only 1.0%. This below
inflation increase was as a result of increased efficiency,
particularly in our DVP EU and NVS businesses.
Underlying Selling, General and
Administrative (“SG&A”) Expenses
SG&A expenses increased by 15.7%
(8.1% excluding Eurovet). This increase
reflects, in particular, the continued build
of sales and marketing infrastructure
within our US business and the
additional costs of marketing Vetoryl
in-house within our
DVP EU operation.
2012
£’000
2011
£’000
Change
%
At Constant Currency
European Pharmaceuticals
Own branded
pharmaceuticals
Diets
Third party contract
manufacturing
Instruments, consumables
and equipment
Total European
Pharmaceuticals
US Pharmaceuticals
Services
Veterinary wholesaling
Laboratories
Total Services
Inter-segment
Total revenue at constant
currency
Currency impact
Reported revenue
64,322
28,143
48,614
27,621
11,431
10,772
32.3
1.9
6.1
1,894
2,280
(16.9)
105,790
20,287
89,287
16,107
18.5
26.0
310,184
5,488
315,672
(14,758)
291,180
5,078
296,258
(12,415)
426,991
(950)
426,041
389,237
—
389,237
6.5
8.1
6.6
9.7
9.5
Overall Group revenue increased by 9.5% compared to
the 2011 financial year. Of this increase, 7.9% was organic
growth, the Eurovet acquisition contributed 1.8% and currency
movements had a negative impact of 0.2%.
Within European Pharmaceuticals, own branded
pharmaceuticals grew strongly with a constant currency
increase of 32.3% compared to the prior year (17.7% excluding
Eurovet). This was the first full year that the marketing of Vetoryl
came back in-house from our previous marketing partners. Our
range of specialist pet diets grew by 1.9%.
Third party contract manufacturing grew by 6.1% compared
to the 2011 financial year, returning to growth after a small
reduction in revenue last year.
Revenue from US Pharmaceuticals grew by 26.0% compared
to the prior year with Vetoryl, Felimazole and the DermaPet
range all performing strongly. As with prior reporting periods,
continued manufacturing issues with our ophthalmic and otic
range had a negative impact of US$1.1 million on revenue.
Within the Services segment, our UK veterinary wholesaler,
NVS, recorded growth of 6.5% in the financial year. This was
slightly lower than overall market growth in the period due
to NVS being underweight in internet pharmacies. Revenue
from our Laboratories business showed an increase of 8.1%,
reflecting a bounce back from the reduction in revenue seen in
the 2011 financial year.
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Our BusinessDirectors’ ReportOur PerformanceDirectors’ ReportOur GovernanceOur AccountsShareholder Information 36
Financial Review continued
Research and Development Expenses
Underlying Profit Before Taxation
Underlying profit before taxation increased by 9.6% from
£30.1 million to £33.0 million. At constant currency, the increase
was 17.3%.
Non-underlying Items
Non-underlying items in the year comprised amortisation
of intangibles acquired as a result of acquisitions together
with one off costs relating to acquisitions and subsequent
reorganisations, principally Eurovet. 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.
Taxation
The effective tax rate on underlying earnings was 26.3%
compared to 24.3% in 2011. In 2012 there were certain foreign
exchange losses for which there was no tax credit. In 2011 the
tax rate benefited from non taxable foreign exchange gains.
Earnings Per Share and Dividend
Underlying earnings per share was 32.37 pence compared to
31.53 pence in 2011, up 2.7%. Both of these figures have been
adjusted to reflect the bonus element of the Rights Issue. The
relatively small increase reflects the additional number of shares
issued in respect of the Eurovet acquisition against the small
profit contribution from Eurovet recognised in the period from
acquisition to the year end. Eurovet is expected to be earnings
enhancing in the year ending 30 June 2013.
The Board is proposing a final dividend of 8.50 pence per
share which, when added to the interim dividend of 3.77 pence
(adjusted for the bonus element of the Rights Issue), gives a
total dividend of 12.27 pence. This compares to the Rights
Issue adjusted 11.12 pence in 2011. The cash dividend
is up by 25.9% from £8.0 million to £10.1 million.
The total dividend is covered 2.4 times by
underlying profit after tax (2011: 2.8 times).
Research and development expenditure increased by 9.8%
from £5.2 million to £5.7 million. This increase supports our
product development programme which has been enlarged
following the acquisition of Eurovet. Further details are given on
pages 17 to 19.
Underlying Operating Profit
2012
£’000
2011
£’000
Change
%
29,166
5,845
11,056
(5,735)
(3,487)
At Constant Currency
European Pharmaceuticals
US Pharmaceuticals
Services
Research and development
Central costs
Underlying operating
profit at constant currency 36,845
Currency impact
(244)
Reported underlying
operating profit
36,601
22,506
4,838
13,087
(5,221)
(3,387)
31,823
—
29.6
20.8
(15.5)
(9.8)
(3.0)
15.8
31,823
15.0
Operating profit for European Pharmaceuticals grew by 29.6%
at constant currency (24.3% excluding Eurovet) with the
operational leverage effect of higher pharmaceutical revenue
being clearly demonstrated.
US Pharmaceuticals achieved a strong increase of 20.8% in
operating profit despite the build-up of sales and marketing
infrastructure noted earlier.
The Services segment showed a reduction in operating profit
compared to 2011 with the reduction in gross margin noted
above only partially mitigated by efficiency savings. Although
operating margin for the year fell from 4.4% to 3.5%, the
operating margin in the second half of the financial year showed
an improvement to 3.6% compared to the 3.4% achieved in the
first half.
Underlying Net Finance Expense
The underlying net finance expense in the 2012
financial year was £3.6 million compared to £1.8
million in 2011. However, the 2011 figure was
flattered by a £1.0 million gain on foreign
exchange whilst there was a loss of
£0.9 million in 2012. Excluding foreign
exchange gains and losses, the charge
for 2012 is broadly equivalent
to that for 2011.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Performance 37
Cash Flow
EBITDA
Share-based payments charge
Changes in working capital
Cash generated from operations
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
2012
£’000
35,238
1,001
(7,111)
29,128
(2,426)
(7,241)
(3,278)
50
(8,328)
7,905
(117,335)
61,400
59,288
(8,325)
(994)
1,939
2011
£’000
33,616
830
(9,072)
25,374
(2,629)
(5,034)
(4,090)
2
(4,329)
9,294
(33,047)
29,556
541
(7,221)
(129)
(1,006)
The cash conversion rate in 2012 was 91.7% compared to
82.8% in 2011. A strong cash inflow in the second half resulted
in an improvement of 14.8% compared to last year.
Free cash flow was slightly below the 2011 level due to higher
debt repayments in the year.
Financial Position at the Year End
Non-current assets
Intangible assets
Property, plant and equipment
Working capital
Deferred and contingent
consideration
Current tax liability
Deferred tax liability
Employee benefit obligations
Net borrowings
Net assets
2012
£’000
2011
£’000
225,872
16,720
242,592
49,531
(13,863)
(8,155)
(29,343)
(363)
(86,717)
153,682
125,098
7,721
132,819
32,494
(14,055)
(5,391)
(13,443)
—
(34,091)
98,333
The balance sheet at 30 June 2012 is enlarged due to the
acquisition of Eurovet on 23 May 2012 together with the
consequent Rights Issue.
Net borrowings at the year end represented 1.8 times
underlying pro-forma EBITDA compared to 2.3 times at the time
of the Eurovet Prospectus. Of the increase in working capital,
£11.0 million was as a result of Eurovet with the remainder
reflecting increased trading activity.
Bank Facilities
The Group’s bank facilities were re-financed and increased
during the year in order to partially fund the acquisition of
Eurovet. The new facilities have been provided by a syndicate of
four banks and comprise:
• a £55 million term loan repayable in instalments through to
October 2016. The first repayment of £5 million is due on
31 March 2013
• a £65 million revolving credit facility commenced until
October 2016
The main covenants are:
• cash flow cover no less than 1.25:1
• interest cover no less than 4:1
• the ratio of net borrowings to annualised EBITDA no higher
than 2.75:1 up until 30 June 2013 and 2.50:1 thereafter
• consolidated net worth no less than £120 million
There was substantial headroom on all covenants during
the year.
The Group also has a £10 million overdraft facility which is
currently unutilised.
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 44 to 54.
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Our BusinessDirectors’ ReportOur PerformanceDirectors’ ReportOur GovernanceOur AccountsShareholder Information 38
Financial Review continued
The table below 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 risks:
Strategy
Risk
how we mitigate the risk
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
• In respect of all new product launches a detailed marketing plan is established. Progress against the plan is constantly monitored
• The Group ensures that it has detailed market knowledge and retains close contact with customers through its sales team
• Alongside the marketing plan the sales team receives training on the product, its benefits and all available technical information
Failure of clinical trials
• Before major costly efficacy studies are initiated, smaller proof of concept studies are conducted to study the effects of the drug on target species
Prescribing pressure on veterinarians to reduce
antibiotic use
Failure to meet regulatory requirements under which
we operate
To sustain growth and innovate in our Services business
Loss of key personnel*
• Succession planning is given consideration by the Board and, where deemed necessary, Key Man Insurance is in place
The failure of a major customer or supplier*
• The business units monitor the financial status of both key customers and suppliers and maintain regular contact with them (including face to
Fuel shortage/logistics failure
• Standard operating procedures have been drafted in respect of fuel emergences to provide a daily service. Such standard operating
* These risks apply across all trading segments.
• Product improvement plans and marketing strategies are reviewed on a regular basis
• 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
• 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
• Any product patents are monitored and consideration given to the formulation of a defensive strategy towards the end of the life of the patent
and for the target indication
regulatory changes
of the regulations
communication lines
• Regular contact is made with all relevant veterinary authorities to ensure that we have a comprehensive understanding of anticipated
• Programme of development of new products that minimise antimicrobial resistance concerns
• The Group always strives to exceed regulatory requirements and ensures that its employees have detailed experience and knowledge
• All businesses have clearly established quality systems and procedures in place
• Regular contact is maintained with all relevant regulatory bodies in order to build/strengthen relationships and ensure good
• 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
• 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
• External consultants are utilised to audit our manufacturing systems prior to any major inspection
• 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
• As stated in earlier in this report a Performance and Development Review process is in the early stages of implementation
face meetings)
• All contacts with 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
procedures are regularly reviewed in order to ensure they remain effective
• Delivery routes are constantly monitored by the operations department in order to ensure that they remain effective, economic and efficient
• Routine ongoing maintenance of the automated picking circuit at NVS and ensuring that all critical components are held on site
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Performance 39
The table below 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 risks:
Strategy
To develop a high growth, cash generative
specialist veterinary products business
Risk
leading brands
Competitor product launched against one of our
• Product improvement plans and marketing strategies are reviewed on a regular basis
how we mitigate the risk
• 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
• 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
• 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
• In respect of all new product launches a detailed marketing plan is established. Progress against the plan is constantly monitored
• The Group ensures that it has detailed market knowledge and retains close contact with customers through its sales team
• Alongside the marketing plan the sales team receives training on the product, its benefits and all available technical information
• 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
Prescribing pressure on veterinarians to reduce
• Regular contact is made with all relevant veterinary authorities to ensure that we have a comprehensive understanding of anticipated
regulatory changes
• Programme of development of new products that minimise antimicrobial resistance concerns
Failure to meet regulatory requirements under which
• The Group always strives to exceed regulatory requirements and ensures that its employees have detailed experience and knowledge
of the regulations
• All businesses have clearly established quality systems and procedures in place
• Regular contact is maintained with all relevant regulatory bodies in order to build/strengthen relationships and ensure good
communication lines
• 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
• 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
• External consultants are utilised to audit our manufacturing systems prior to any major inspection
meet expectations
Failure of clinical trials
antibiotic use
we operate
To sustain growth and innovate in our Services business
Loss of key personnel*
• Succession planning is given consideration by the Board and, where deemed necessary, Key Man Insurance is in place
• 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
• As stated in earlier in this report a Performance and Development Review process is in the early stages of implementation
The failure of a major customer or supplier*
• The business units monitor the financial status of both key customers and suppliers and maintain regular contact with them (including face to
face meetings)
• All contacts with 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
Fuel shortage/logistics failure
• Standard operating procedures have been drafted in respect of fuel emergences to provide a daily service. Such standard operating
procedures are regularly reviewed in order to ensure they remain effective
• Delivery routes are constantly monitored by the operations department in order to ensure that they remain effective, economic and efficient
• Routine ongoing maintenance of the automated picking circuit at NVS and ensuring that all critical components are held on site
* These risks apply across all trading segments.
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Our BusinessDirectors’ ReportOur PerformanceDirectors’ ReportOur GovernanceOur AccountsShareholder Information 40
Board of Directors
Ian Page
Chief Executive
Aged 51, 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 48, 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
Director of Product and Business Development
Aged 52, 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. In May 2012 on the completion of the acquisition of Eurovet Animal Health B.V., Ed reverted
to his historical position within Dechra as Director of Product and Business Development. 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 68, 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). Following the resignation
of Bryan Morton, Michael has been appointed as a temporary member of the Audit Committee until
the appointment of a new Non-Executive Director.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 41
Neil Warner BA, FCA, MCT *†•
Senior Independent Non-Executive Director, Chairman of the Audit Committee
Aged 59, 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 May 2011.
Dr Christopher Richards MA, D.Phil *†•
Non-Executive Director, Chairman of the Remuneration Committee
Aged 58, Chris joined the Group as a Non-Executive Director in December 2010. He is Chairman of
Arysta LifeScience Corporation, having previously 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. Chris holds a number of Non-Executive Directorships
including Bio Products Laboratory Ltd (appointed February 2011) and Cibus Global Limited
(appointed November 2011). He is also Chairman of Oxitec Limited (appointed January 2012) and
Plant Health Care plc (appointed August 2012).
Zoe Goulding LLB (hons)
Company Secretary and Solicitor
Aged 38, Zoe was appointed as Company Secretary in July 2007. She qualified as a solicitor in
April 2000. Prior to joining the Group she worked at Eversheds LLP and Brammer plc.
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* Member of the Audit Committee
† Member of the Remuneration Committee
• Member of the Nomination Committee
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42
Senior Management
Tony Griffin
Managing Director, Dechra
Veterinary Products Europe
Tony was appointed Managing
Director of DVP EU in May 2012
following the acquisition of Eurovet
Animal Health B.V. from AUV Holding
B.V. He joined the AUV Group in
1993 as Director of Exports, having
previously worked at Norbrook Laboratories and Moy Park.
Tony was promoted to Managing Director of Eurovet in 1996
and in 2006 became the CEO of the AUV Group.
Mike Annice
BSc (hons), MRPharmS
Managing Director, Dechra
Manufacturing
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 and has subsequently assumed
responsibility for all of Dechra’s manufacturing activities as
the Group has acquired additional facilities in Denmark and
the Netherlands over recent years.
Dr Susan Longhofer
DVM, MS, DipACVIM
Product Development and
Regulatory Affairs Director
Susan joined the Group in June 2005.
She has 23 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
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
Paul was appointed as Group
Financial Controller of Dechra
and Finance Director of Dechra
Laboratory Services and Dechra
Specialist Laboratories 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.
Allen Mellor
Group IT Director
Allen joined Dechra in April 2012.
During the last 20 years, Allen has
gained a breadth of experience
from the implementation of diverse
business solutions across multiple
industry sectors including justice,
education, energy, distribution and
retail. Having held several senior management positions
encompassing software development, IT service provision
and IT departmental management, his last role was as
Head of IT for the BSS Group PLC, a leading plumbing and
heating distribution company.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 43
Rob Joosten
Product Development & Regulatory
Affairs (Eurovet)
Rob joined Eurovet in 1989 as
registration officer with responsibility
for veterinary services. In 1990
he was appointed as Head of
Regulatory Affairs and Development,
before being promoted to R&D
Director in 2009. In addition to his role at Eurovet, Rob
is cofounder and chairperson of the European Group for
Generic Veterinary Products (EGGVP) and regularly speaks
at international conferences on various topics related to the
veterinary medicinal product authorisation process in the
European Union.
Mike Eldred
BA, MBA
President, US Operations, Dechra
Veterinary Products
Mike was appointed in November
2004 to head up the Group’s sales
and marketing drive in the United
States. He has over 18 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.
Martin Riley
Managing Director, National
Veterinary Services
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.
Dr Peter Graham
BVMS, PhD, CertVR, DipECVCP, MRCVS
Managing Director, Dechra Laboratory
Services and Dechra Specialist
Laboratories
Peter was appointed Managing
Director of Dechra Laboratories in
2003. Peter graduated from the
University of Glasgow Veterinary
School in 1989 and was awarded his PhD on the
Epidemiology and Management of Canine Diabetes
Mellitus in 1995 by the same institution. 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.
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Steve Williams
Group Logistics Director
Steve joined the Group as
Operations Director for NVS in July
2009, and was appointed Group
Logistics Director in April 2012.
With over 18 years’ management
experience in logistics, Steve
has operated within both in-house and 3PL Logistics
organisations, utilising single and multi-site distribution
networks. Prior to joining Dechra, Steve worked for
Kronospan UK, TDG Logistics and Crest Medical Ltd.
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44
Corporate Governance
Michael Redmond
Non-Executive Chairman
Dear Shareholder
On behalf of the Board I am pleased to present Dechra’s Corporate Governance Report for the year ended
30 June 2012.
As you will no doubt realise, the 2011/2012 financial year has been a busy period as we completed the
acquisition of Eurovet, our biggest acquisition to date. As a result of this acquisition we have moved from being a
constituent member of the FTSE Small Cap to the FTSE 250. This transaction has re-emphasised the importance
of governance within our strategy and decision making.
This year, for the first time, all of the Board will stand down and seek re-election at the forthcoming Annual
General Meeting in line with the UK Corporate Governance Code. Further detail in relation to this is provided later
in this report. However, we have chosen to continue with our internal board evaluation process rather than seek
an externally facilitated review. As we reported last year, the internal evaluation process has been substantially
enhanced. All board members embraced the process, resulting in open and honest discussions which gave rise
to a number of action points being agreed and then taken forward by the Executive Directors; the action points
arising from the 2010/2011 board evaluation are explained later in this report. The 2012 board evaluation process
has commenced in a similar vein and I look forward to reporting the action points to you in next year’s report. The
Board will give consideration to a potential external evaluation next year.
Board diversity, not only in terms of gender but in its wider context, has also been discussed by the Board and
we are in the process of formulating our diversity policy. A recruitment process has commenced for two additional
Non-Executive Directors and if possible at least one of these will be a female appointment. I recognise that my
leadership of the Board over the forthcoming year is critical to ensuring that the new Directors settle into their
roles quickly and effectively. I will work alongside the Company Secretary to ensure that they receive a detailed
and tailored induction to the Group upon their appointments.
In July 2012 we received Bryan Morton’s resignation following an increase in his professional commitments
outside Dechra. During his tenure the Group completed a number of material acquisitions and I would like to take
this opportunity to thank him for his input and valued contribution to the Group and wish him well in the future.
Finally, I look forward to working with the Board over the coming year in order to continue to deliver growth and
progress our strategy. Should you have any questions in relation to this report, please feel free to contact myself
or the Company Secretary.
Michael Redmond
Non-Executive Chairman
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 45
Directors’ Report: Corporate Governance
The Financial Reporting Council’s UK Corporate Governance Code (the “Code”) establishes the principles of good governance
for companies; the following report describes how the Company has applied these principles to its activities. The Board remains
committed to maintaining high standards of corporate governance and continually strives to do so. In the opinion of the Directors,
the Company has complied with the Code throughout the period under review.
The Company became a constituent member of the FTSE 250 in June 2012; however, in line with the Code, it is classed as a small
company for this reporting period.
Leadership
The Board
The Board is led by the Chairman, Mike Redmond, and comprises three Executive Directors and, following the resignation of
Bryan Morton on 9 July 2012, two Non-Executive Directors. The biographical details of the Board of Directors are shown on pages
40 to 41.
The Chairman
The primary role of the Chairman is to:
• ensure the effectiveness of the Board in all aspects of its role;
• facilitate the effective contribution of the Non-Executive Directors, ensuring that all decisions are subject to constructive debate
and supported by sound decision making processes; and
• lead the Board in the determination of its strategy and the achievement of its objectives.
The Chairman has a strong working relationship with Ian Page, the Chief Executive, working closely with him thereby ensuring that
board decisions and strategy are implemented throughout the Group. There is a clear division of the roles and responsibilities of the
Chairman and the Chief Executive. These have been defined in writing and agreed by the Board.
The Chairman, at the time of his appointment, did meet and continues to meet the independence criteria defined within the Code.
During the 2011 board evaluation process one of the areas which the Board focused on was succession planning, particularly in
light of the fact that the Chairman, and also the Senior Independent Director, have both held their positions for in excess of nine
years. Given the changes at board level and the scale of acquisitions which have taken place over the last two years it was felt
necessary to give consideration to the Chairman remaining in position for a further three years in order to oversee the induction and
development of the new Non-Executive Directors. A letter was sent to the Company’s top ten Shareholders outlining this proposal
and, in August 2012, it was agreed by the Nomination Committee that the position of the Chairman would be reviewed again prior
to the 2014 Annual General Meeting.
The Nomination Committee will continue to rigorously review the Chairman’s position on an annual basis. At the most recent
meeting of this Committee, it was agreed that Mike Redmond continues to lead the Board effectively and maintains his
independence and integrity at all times. He provides an invaluable contribution and insight to the Board by reason of both his
previous pharmaceutical experience and detailed knowledge of the Company.
Non-Executive Directors
Throughout the year the Non-Executive Directors have provided a solid, independent element to the Board ensuring that decisions
are constructively challenged and debated.
As stated above, post year end, Bryan Morton resigned as a Non-Executive Director. Bryan resigned as he considered he could
no longer provide the requisite time commitment required for his position on the Board and as Chairman of the Remuneration
Committee due to an increase in other professional commitments. The process has now commenced to appoint a replacement
for Bryan Morton and also to appoint a further Non-Executive Director with a financial background who will replace Neil Warner as
Chairman of the Audit Committee on his proposed resignation at the 2013 Annual General Meeting. The Board understands the
benefits of a diverse membership and is committed to ensuring that, subject to having the relevant experience and skills to sit on the
Board, if possible at least one of the appointments will be female.
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Corporate Governance continued
Senior Independent Director
Neil Warner has been our Senior Independent Director since 5 November 2010. As such he will continue to be 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 Senior Independent Director also works with the Chairman on the process for the selection of a new Chairman and chairs the
Nomination Committee when it is considering the succession of that role. Furthermore, the Senior Independent Director carries out
the annual evaluation of the performance of the Chairman.
Neil Warner has held a Non-Executive Directorship with the Company since 2 May 2003. Following consultation with the Group’s
top ten Shareholders (as described above), it is likely that Neil Warner will stand down at the 2013 Annual General Meeting.
Chief Executive
The Chief Executive, Ian Page, has day-to-day responsibility for the management of the Group. He develops the Group strategy
and, once approved by the Board, implements this throughout the business.
Ian Page is also the Non-Executive Chairman of Sanford DeLand Asset Management Limited (“Sanford”). The Board fully considered
at the time of his appointment whether this would materially impact on his current time commitment as Chief Executive 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.
Company Secretary
Zoe Goulding was appointed as Company Secretary on 2 July 2007 and acts as Secretary to the Board and its committees. The
primary role of the Company Secretary is to advise the Board on matters of procedure and governance, ensuring that all required
information is made available to the Board on a timely basis. Both the appointment and removal of the Company Secretary is a
matter for the Board as a whole.
Corporate Governance Framework
The Board is collectively responsible for the success of the Company, ensuring that the Group is appropriately managed and
achieves its strategic objectives. The Board fulfils this responsibility by monitoring the performance of the Group by:
• assisting, in a challenging and constructive manner, the Executive Directors in the setting of objectives for Group operating
performance, financial goals and strategic progress;
• evaluating the progress of the achievement of the objectives and plans; and
• monitoring all significant risks which face the Group.
There is a formal schedule of matters reserved to the Board. The schedule of matters covers a number of areas including the
following:
Strategy and Management
Approval and monitoring of long term objectives and strategy
Approval of the Group’s operating and capital expenditure budgets
Financial Reporting
Approval of the Annual Report and dividend policy
Major organisational changes
Regular reviews of business performance
Approval of development expenditure
Approval of treasury policy
Internal Controls
Review and approval of internal controls and risk management policies and processes
Corporate Governance
Board and Committee composition (including succession planning)
Corporate Governance matters
Approval of policies such as Health and Safety and the Business Code of Conduct
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 47
In addition, the Board also focuses on the financial controls imposed on Executive Directors to ensure that these are at the requisite
levels so as not to hinder day-to-day administration of the business but to ensure adequate internal control. Below board level,
operational and financial controls are imposed by Delegated Authorities. This document is reviewed on an annual basis along with
the schedule of matters reserved to the Board. Where necessary these documents are updated in line with best practice ensuring
that the processes remain robust.
Board Meetings
Following a review of the number of scheduled board meetings it was agreed to reduce these from eleven to nine per year. The
board meetings are generally held at NVS, Stoke-on-Trent, with the intention that at least one meeting a year is held at another
operational site within the Group. During the year four additional meetings were required to discuss the acquisition of Eurovet.
Attendance at the board and nomination committee meetings during the year to 30 June 2012 was as follows (details of attendance
at the audit and remuneration committee meetings are provided on pages 56 and 60 respectively):
Name
Mike Redmond
Bryan Morton
Dr Chris Richards
Neil Warner
Ian Page
Simon Evans
Ed Torr
Board
(14 Meetings)
14
12
12
13
14
14
13
Nomination
(1 Meeting)
1
1
1
1
n/a
n/a
n/a
Note: n/a denotes that the Director is not a member of this committee, but may attend by invitation.
It is understood that there may be situations, either due to prior commitments or circumstances beyond their control, which mean
a Director is unable to attend a board or committee meeting. In this situation the board pack is still provided allowing the Director to
raise any queries/discussion points either through the Chairman or Company Secretary, allowing their views to be fully discussed at
the meeting. Post the meeting any Director who was unable to attend is provided with the opportunity to discuss the meeting with
either the Chairman, Company Secretary or any Executive Director.
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. 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 Board believes in the necessity for challenge and debate in board meetings and considers that the existing board dynamics and
processes encourage honest and open debate with the Executive Directors. The Board believes that the decision making process is
inclusive and is not dominated by any one individual or group of individuals.
Board Meeting Agenda and Papers
The Directors are supplied in a timely manner with all relevant documentation and financial information to assist them in the
discharge of their duties. Prior to all board meetings an agenda and supporting documentation are circulated to the Board. Every
meeting agenda comprises reports from the following individuals:
• Chief Executive;
• Group Finance Director;
• Managing Director and Finance Director of each Business Unit;
• Group HR Director; and
• Product Development and Regulatory Affairs Director.
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Corporate Governance continued
In addition, twice a year the Board receives detailed health, safety and environmental reviews encompassing all operating segments
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 within each of the business units. Other ad hoc material relating to specific
projects, legal and regulatory matters is included as necessary. The reports ensure that the Board is 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 reported in the 2011 Annual Report, after a comprehensive review of the Group strategy, it was decided to reduce the number
of board meetings attended by the senior management team from a quarterly basis to specific meetings. An annual strategic
agenda was drawn up and approved by the Board. This agenda ensures that key strategic objectives are discussed on a regular
basis. A list of operational areas such as business development, marketing, product development, human resources and IT are
now diarised as agenda items for strategic consideration at future board meetings. Additionally, every six months, a comprehensive
review of the Group strategy is carried out. This agenda provides 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 area of responsibility. During the year the following business
presentations have been made:
Date of Meeting
July 2011
Presentation Subject
Oracle implementation within Manufacturing
October 2011
Product Development Pipeline Update
December 2011
NVS — ERP system post implementation
update
Delivered by
Kirsty Ireland (Dechra Manufacturing Finance
Director)
Susan Longhofer (Product Development and
Regulatory Affairs Director)
Martin Riley (NVS Managing Director)
Barbara Johnson (Group HR Director)
January 2012
Human Resources Update (including update
on the implementation of the Performance
Development Review process and also
succession planning)
Manufacturing Update (with an additional focus
on supply chain management)
Mike Annice (Managing Director, Dechra
Manufacturing)
On a regular basis the Chief Executive and Group Finance Director attend the board meetings of the businesses which make up
the operating segments (in relation to the US these meetings are generally held by video conference). The meetings are chaired by
the Chief Executive allowing him and the Group Finance Director the opportunity to obtain detailed information on the businesses’
strategic, operational and financial progress including any issues potentially preventing the achievement of those targets. Key
operational information obtained from these meetings is then fed back to the Board.
The Chief Executive along with the Product Development and Regulatory Affairs Director also chairs 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 Chairman also meets regularly with the Chief
Executive outside of the scheduled board meetings.
The Board has also 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 Company maintains an appropriate level of Directors’ and Officers’ insurance in respect of legal action against Directors.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 49
Effectiveness
Board Balance and Independence
The Board recognises and understands the importance of balance and refreshment in terms of its composition. The following
changes have taken place at Board level over the past 24 months:
• Retirement of Malcolm Diamond (Non-Executive Director) on 5 November 2010;
• Appointment of Bryan Morton (Non-Executive Director) on 8 January 2010;
• Appointment of Dr Chris Richards (Non-Executive Director) on 1 December 2010; and
• Resignation of Bryan Morton on 9 July 2012.
The following changes are scheduled to take place over the forthcoming 24 months:
• The appointment of Tony Griffin (Managing Director of DVP EU) as an Executive Director. It is intended that he will be appointed by
no later than the end of the 2012 calendar year (once the integration of Eurovet into the Group has been fully achieved);
• The appointment of two additional Non-Executive Directors (one of whom will fill the vacancy created by Bryan Morton’s recent
resignation and one will replace Neil Warner in 2013 as Chairman of the Audit Committee); and
• The proposed retirement of Neil Warner at the 2013 Annual General Meeting at which point recruitment for a further Non-
Executive Director will commence.
As previously stated, Mike Redmond’s tenure as Chairman will be reviewed prior to the 2014 Annual General Meeting. The Board
appreciates that Mike Redmond has held the position of Chairman for over nine years but, given the number of changes to the
Board it is considered to be in the best interests of the Company and its stakeholders for him to continue in this position until
the recent (and forthcoming) board changes have settled in. This will allow the newer members of the Board to draw upon the
Chairman’s experience, whilst allowing him to oversee their induction and development.
An external executive search agency has been retained to assist the Board in the recruitment of the two new Non-Executive
Directors and it is intended that these recruitments will be completed by the end of the 2012 calendar year.
Overall, the Board considers that all the Non-Executive Directors are independent of management and free of any business or other
relationship which could materially interfere with or compromise their ability to exercise independent judgement. This independence
of mind provides them with the ability to challenge decisions and think strategically and is integral to the decision making processes
of the Board.
Diversity
The Board understands the importance of having a diverse membership and recognises that diversity encompasses not only gender
but also diversity in terms of background and experience.
Although there are currently no female board members, 25.0% (2011: 37.0%) of the senior management team, 14.3% (2011:
14.3%) of the subsidiary executive boards and 44.8% (2011: 41.7%) of the overall workforce are females. In terms of the two
Non-Executive Director positions currently being recruited female candidates have been specifically requested and if possible that
appointment of a female will be made in respect of at least one of the positions.
Conflicts of Interest
Pursuant to the Companies Act 2006 all Directors have a duty to avoid a situation in which they could have, or have, a direct or
indirect conflict of interest with the Company. The Articles of Association of the Company enable the Directors to authorise any
actual or potential conflict of interest which could arise. 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; 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 deem this to be appropriate. During the financial year under review no actual conflicts have arisen.
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Corporate Governance continued
Information and Professional Development
Detail in respect of the information provided to the Board prior to each meeting is provided earlier in this report.
In order to ensure that the Board maintain their knowledge and familiarity with the Group’s operations it is intended that at least one
board meeting per year is held at one of the Group’s operational sites (other than NVS where the board meetings are usually held).
During the year a board meeting was held at Dales, Skipton, in June, where the Board had an opportunity to be shown around the
manufacturing facility and meet with employees. Following the acquisition of Eurovet it is proposed to hold a board meeting at the
main facility in the Netherlands during 2012/2013.
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 also the latest broker reports. New Directors
are also offered the opportunity to visit the various business units in order to allow them to meet with the executive teams and to be
shown around the operations.
The Company Secretary and Chairman are aware of the ongoing requirement to review and agree with each Director their training
needs. In order to assist with these training requirements the Company Secretary provides briefings for the Directors, where
necessary, that cover a number of legal and regulatory changes and developments relevant to the Director’s areas of responsibility.
During the year these briefings included an update in respect of board diversity and the recent developments in narrative reporting.
The Company’s lawyers, DLA Piper (UK) LLP, were also invited to present a competition law update to the Board. In addition, the
Company Secretary informs the Directors of any external training courses which may be of relevance. It is currently considered that
the mixture of internal briefings and external training courses satisfies the Directors’ training 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 in order to 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.
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 Mike Redmond (Chairman), Bryan Morton (resigned
9 July 2012), Dr Chris Richards and Neil Warner. The Chairman would not chair the committee meeting if it was dealing with the
appointment of his successor. 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.
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, a copy of which is available on the Company website at www.dechra.com. They
include the following responsibilities:
• to oversee the plans for management succession;
• to recommend appointments to the Board;
• to evaluate the effectiveness of the Non-Executive Directors; 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 notified of any subsequent changes. The letters of appointment of the Non-Executive Directors are 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.
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Board Evaluation
The Board undertakes an annual evaluation of its performance and that of its Committees.
• The 2010/2011 board evaluation:
The evaluation process was reviewed in detail by the Chairman and the Company Secretary during 2010/2011. It was agreed
that, given the number of changes to the Board during the review period, an internal (rather than external) evaluation would be
most beneficial to the Company. A detailed discussion document was then developed which included the following areas: (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. One to one meetings were then held by the Chairman 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 findings of the internal
evaluation were then discussed with the Board in August 2011 and a number of action points agreed, including the following:
Action
Requirement for additional resource at
Executive Director level
Requirement for focus on Board and
senior management succession plans
Requirement for the formulation of a
Group IT strategy and for a central IT
function to be created
Carry out a review of the current PLC
meeting schedule to ensure that it utilises
the Board’s time effectively
Carry out a review of the level of
information supplied to the Board before
each meeting
• The 2011/2012 board evaluation:
Progress
Tony Griffin (Managing Director of DVP EU) has been identified as an additional
Executive Director. It is considered that he will strengthen the current Executive
team, providing the relevant experience to assist in the development and
implementation of the Group strategy
The HR Director has presented to the Board in respect of the current
succession plans and this has been scheduled as a board agenda item every
six months
Allen Mellor has been appointed as Group IT Director and has carried out a
review of the current IT capabilities and requirements within the Group. He is
scheduled to present his findings to the Board in the autumn which will provide
the basis for the Group IT strategy
The number of PLC meetings has been reviewed in line with the business
requirements of the Group. It was agreed to reduce the number of annual
meetings from eleven to nine
A review in respect of this is ongoing
Following discussion it has been agreed to once again carry out a detailed internal evaluation similar in process to the 2010/2011
evaluation. The results of this evaluation will be reported in next year’s Report and Accounts. Given the Company’s move in
June 2012 to the FTSE 250, consideration will be given to the potential additional benefits which could be derived from an
externally facilitated review.
Re-election
At the forthcoming Annual General Meeting, all Directors will retire and offer themselves for re-election. Each of the Directors
standing for re-election has been subject to a formal evaluation. Each of the Directors continues to perform effectively and
demonstrate commitment, not only in respect of their roles and responsibilities, but also in relation to the Group and its
stakeholders. The Board therefore recommends that Shareholders vote in favour of their re-election.
As stated earlier in this report, both Mike Redmond and Neil Warner have served as Chairman and Non-Executive Director
respectively for more than nine years. Their performance has been rigorously reviewed and, for the reasons set out previously in this
report, it is considered to be in the best interests of the Group and its stakeholders that they continue in office.
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Corporate Governance continued
Accountability
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 80, and 81 to 82 respectively.
Going Concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out
in the Business Review on pages 8 to 39. The principal risks that may affect the Group’s future performance are set out on pages
38 and 39.
During the year being reported, trading has continued to be robust with an improvement in underlying profitability being achieved.
Prior to the acquisition of Eurovet, the Group entered into a facilities agreement on 4 April 2012 (the “Facility Agreement”) with a
syndicate of banks comprising Lloyds TSB Bank plc, Barclays Bank PLC, Svenska Handelsbanken AB (PUBL) and HSBC Bank plc
(the “Banks”) under which a facility of £120 million was made available. The Facility Agreement includes:
• a £55 million, 4½ years amortising term loan, repayable in eight instalments on 31 March and 30 September each year of £5
million per instalment, rising to £7.5 million per instalment from and including 30 September 2015 with a final instalment of £7.5
million on 31 October 2016. The first repayment is due on 31 March 2013;
• a £65 million 4½ years revolving credit facility committed until 31 October 2016; and
• an overdraft facility of £10 million (currently unutilised) renewable on 1 April 2013.
The Group also had cash balances of £32.4 million at 30 June 2012.
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 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 teams on an ongoing basis. This framework has been in
place throughout the 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 2012. Further detail in
respect of the risks and uncertainties faced by the Group and the mitigating action being taken can be found on pages 38 and 39.
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The Group’s key systems of control include:
• Management Structure
The Group is organised into 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.
• 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 maintains 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
schedules a bi-annual internal conference at which a full technical update, tailored specifically to the Group’s commercial needs,
is presented by the Auditor. This conference did not take place during the 2011/2012 financial year due to time pressures on the
management team who were involved in the acquisition of Eurovet.
Business unit management certifies 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; performance against this 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 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 Bribery Act 2010 all current policies have been reviewed in order to ensure compliance with the legislation.
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Corporate Governance continued
Audit Committee and Auditors
Information relating to the Audit Committee is set out in the Audit Committee Report on pages 55 to 58. 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, the systems of internal control and risk
management.
The Auditor is engaged to express an opinion of the Company’s Annual Report and Accounts. They independently and objectively
review management’s reporting of the Group’s consolidated results and financial position. In addition, they review the systems of
internal control and the data contained in the Annual Report and Accounts to the level necessary for expressing their audit opinion.
Remuneration
Details of Directors’ remuneration are set out in the Directors’ Remuneration Report at pages 59 to 70. This report details the
Company’s compliance with the Code’s requirements with regard to remuneration matters.
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. The Chief Executive and Group Finance Director give annual and half-year results
presentations to Institutional Investors, analysts and media, which are also available via telephone conference. These meetings are
in addition to 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 media. The Company also organises site visits on a periodic basis.
Tony Griffin will attend a number of the Institutional Shareholder meetings to be held in September 2012, post the announcement of
the full year results. This will provide a number of our major Shareholders the chance to meet Tony Griffin before the commencement
of his appointment as an Executive Director.
Feedback is collated by the Company’s Brokers after Investor 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 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 continually updates 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 both during the meeting and afterwards. 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; this information
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.
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55
Neil Warner
Chairman of the Audit Committee
Dear Shareholder
On behalf of the Board I am pleased to present Dechra’s Audit Committee Report for the year ended
30 June 2012.
The Committee continues to monitor and assess the integrity of the Group’s financial statements and to review
the effectiveness of the Company’s internal controls and risk management systems. In carrying out these
duties the Committee relies heavily on our Auditor and we remain confident in the quality and independence of
their audit findings.
Following the Eurovet acquisition, the Committee has now formed the opinion that, given the increased size,
complexity and geographical coverage of Dechra, an internal audit function is required. Work has commenced in
relation to the scope of this appointment and recruitment will commence in the autumn.
The Committee also continues to closely monitor non-audit fees. During the year a decision has been taken to
appoint Deloitte LLP to undertake tax and compliance work in substitution of the Auditor. It is considered that this
will assist the Auditor’s independence.
Following Bryan Morton’s resignation, Mike Redmond has agreed to his temporary appointment as a member of
the Audit Committee in order to ensure compliance with our Committee’s terms of reference. I can confirm that,
once a replacement Non-Executive Director has been recruited they will be appointed as a member of the Audit
Committee and Mike Redmond will step down as a member of the Committee.
Finally, following over nine years’ service with Dechra it is likely that I will stand down as a Non-Executive of the
Group at the 2013 Annual General Meeting. The recruitment for an additional Non-Executive Director with recent
and relevant experience has commenced. This will allow the opportunity for the incoming Non-Executive to sit as
a member of the Committee for the rest of my tenure and allow a smooth and orderly handover of duties prior to
my retirement.
Neil Warner
Audit Committee Chairman
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Audit Committee Report continued
Member
Neil Warner
Bryan Morton (resigned 9 July 2012)
Dr Chris Richards
Mike Redmond (appointed 19 July 2012)*
Secretary
Zoe Goulding
Independent
Yes
Yes
Yes
Yes
Meetings eligible
to attend Meetings attended
2
1
2
N/A
2
2
2
N/A
* Mike Redmond has been appointed to the Audit Committee until a new Non-Executive Director is appointed in due course.
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 2011/2012 financial year this took place at the February meeting. Following this review no material changes to the terms
of reference were made. The main responsibilities of the Committee are:
• to monitor the integrity of the financial statements of the Company, reviewing the annual and half-year reports in detail to ensure
they present a balanced assessment of the Company’s position and prospects which is understandable to Shareholders and
potential investors;
• to review the effectiveness of the Company’s internal controls and risk management systems as described on pages 38 and 39
and, in conjunction with the Auditor, consider the accounting policies adopted by the Company;
• 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, and sets the
policy for non-audit work;
• to make recommendations to the Board on the requirement for an internal audit function;
• to review the arrangements for employees to raise concerns about wrongdoings, the Company’s systems and controls for
prevention of bribery and procedures for detecting, monitoring and managing risk of fraud.
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. Following the resignation of Bryan Morton,
Mike Redmond was appointed as a temporary member to the Audit Committee until a new Non-Executive Director is appointed
to the Company. 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 most recently Finance Director of Chloride Group PLC (a position he held from 1997 until end of December 2010)
and as Chairman of the Audit Committee of Vectura Group plc (to which he was appointed in February 2011). No members of the
Committee have links with the Auditor.
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 attended as and when appropriate. The Committee has
discussions at least once a year with the Auditor without management being present. During the year the Committee Chairman
meets informally and has access to the Group Finance Director, Group Financial Controller and the senior audit engagement team.
This group generally meets before the Committee meetings that consider the full and half-year results.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 57
Activities during 2011/2012
The Committee normally meets three times during the year, timed to coincide with the financial reporting timetable of the Company,
however, it was decided that the audit strategy meeting be deferred from May to July following the completion of the Eurovet
acquisition. The table below sets out a number of the matters which were discussed (and where necessary approved) at the three
meetings:
Meeting
August 2011
February 2012
July 2012*
Matters discussed/approved at the meeting
• Auditor’s Report on the 2010/2011 financial results
• Draft preliminary statement
• Draft Annual Report
• External audit effectiveness
• Audit Committee effectiveness review
• Auditor independence confirmation
• Level of non-audit fees
• Going concern confirmation
• Internal controls
• Proposed final dividend
• Auditor representation letter
• Auditor’s report on half-year results
• Draft half-year report and announcement
• Terms of reference
• Interim dividend
• Going concern confirmation
• Senior Accounting Officer requirement
• Auditor representation letter
• Level of non-audit fees
• Requirement for an internal audit function
• Whistle-blowing Policy
• Review of the requirement for internal audit function
• Non-Audit fee update
• IFS review update
• Audit strategy for the year ended 30 June 2012 (including timetable, scope and fees)
• Auditor independence
• Company expectations of the audit
* Meeting postponed from May 2012.
Internal Control and Internal Audit Function
The Board retains overall responsibility for establishing the systems of internal control, 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 52 to 53). The requirement for an internal audit function was discussed at the committee meeting in July 2012. In light of the
Eurovet acquisition it was agreed that the Group was now of sufficient size to warrant an internal audit function. The Committee is in
the process of defining the role and responsibilities for the function and intends to commence the recruitment process in
autumn 2012.
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Audit Committee Report continued
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 July 2012 and the Committee
remain satisfied of the Auditor’s independence.
In line with the ethical standards of the Audit Practices Board the Group Audit Engagement Director is rotated every five years.
The current Group Audit Engagement Director was appointed during the 2010/2011 financial year. The Committee has discussed
the various changes which have been proposed by the FRC to the UK Corporate Governance Code and the Guidance on Audit
Committees, in particular the recommendations relating to the expectation of external audit being put to tender every ten years and the
increased reporting obligations of the Committee. The Committee will keep this matter under review during the forthcoming year.
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. Safeguards are in place to ensure continued audit independence including
utilising separate teams to undertake the audit and non-audit work. 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. Deloitte LLP have recently been appointed to
undertake tax and compliance work in substitution for the Auditor; it is considered that this will assist the Auditor’s 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, the Auditor was commissioned to carry out extensive due diligence, working capital and reporting accountant work in
respect of the Eurovet acquisition. The Auditor was considered most appropriate to perform this work given both their knowledge of
the existing business and the requirement to report on the existing as well as the enlarged Group. This is consistent with the ethical
standard recommended by the Accounting Practices Board. The fees paid to the Auditor for this work were in excess of the limits
above, prior Board approval was therefore obtained.
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 monitored at each meeting and approved by the Committee.
Effectiveness Review
During the year, the Committee reviewed its own effectiveness as a part of the overall board evaluation process. 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
4 September 2012
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59
Dr Christopher Richards
Chairman of the Remuneration Committee
Dear Shareholder
On behalf of the Board I am pleased to present Dechra’s Remuneration Report for the year ended 30 June 2012.
Following Bryan Morton’s resignation at the beginning of July 2012 I have agreed to take on the responsibility
as Chairman of the Remuneration Committee. At a time when executive remuneration is under intense public
scrutiny, I believe that this role will be a challenging one. I am mindful that when making decisions sensitivity
is given to all stakeholders. At the same time, we need to ensure that we provide remuneration packages for
Executives which motivate them to continue to grow the Company.
Remuneration increases for the Executive Directors over the last three years has been limited to inflation.
Over the same period, the Company has experienced annual double digit growth and completed a number of
acquisitions, including DermaPet, HY-50 and Eurovet. The latter acquisition is the largest transaction in the history
of Dechra and represents a move into new territories and new markets for Dechra Veterinary Products and
significantly increases the complexity of the Group. Given the increase in the scale and complexity of the Group
and the increase in the Directors’ responsibilities, the Committee has decided to carry out a review of Executive
remuneration. The review should be completed by the end of the current financial year and it is intended that any
proposals will be discussed with Dechra’s main Shareholders before implementing any changes.
The other focus for the year ahead will be the implementation of the Performance and Development Review
(“PDR”) process. The approach has been piloted during 2011/2012 and initial feedback has been positive. A
full 12 month PDR cycle is now underway by way of an extended group during the 2012/2013 PDR year. It is
our intention to evaluate remuneration increases against individual performance results determined by the PDR
outcome for 2013/2014. Particularly in respect of the Executives, this will provide a distinct alignment between
any remuneration changes and the performance of the Group.
Finally, I welcome the view of all Shareholders in respect of this report. I shall be at the Annual General Meeting to
discuss any queries you may have. Alternatively, I can be contacted via the Company Secretary.
Dr Christopher Richards
Remuneration Committee Chairman
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Directors’ Remuneration Report continued
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 69.
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 2012 Annual General Meeting for the approval of the Shareholders.
Membership
The Committee consists exclusively of independent Non-Executive Directors and during the financial year comprised as follows:
Member
Bryan Morton (resigned 9 July 2012)
Mike Redmond
Neil Warner†
Dr Chris Richards‡
Secretary
Zoe Goulding
Meetings eligible
Independent
Yes
Yes
Yes
Yes
to attend Meetings attended
1*
2
2
2
2
2
2
2
* Bryan Morton was unable to attend one meeting due to additional work commitments at EUSA Pharma. He was subsequently updated on the matters discussed at the
meeting.
† Appointed Chairman of the meeting which Bryan Morton was unable to attend.
‡ Appointed Committee Chairman on the resignation of Bryan Morton.
The Chief Executive attended both 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. During the 2011/2012 financial year this review took place at the May 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.
In particular, the terms of reference authorise the Committee to:
• make recommendations to the Board on Executive remuneration;
• determine on behalf of the Board specific remuneration packages and conditions of employment for Executive Directors;
• determine targets for any performance related pay schemes operated by the Company; and
• determine the policy for and scope of any pension arrangements for the Executive Directors.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 61
Meetings
The Committee met twice during the year in accordance with its terms of reference. Members’ attendance at the meetings can be
found on page 60. The table below sets out a number of the matters which were discussed (and where necessary approved) at the
two meetings:
Date
August 2011
May 2012
Advisers
Subject Matter
• Approval of Director bonuses
• Approval of satisfaction of performance condition in respect of the LTIP
• Review of Committee effectiveness
• Discussion of the LTIP awards to be granted to Executives and Senior Management
• Approval of satisfaction of Approved and Unapproved Share Options
• Confirmation of Executive Directors’ and Senior Managers’ salaries
• Confirmation of Chairman and Non-Executive Directors’ fees
• Confirmation of executive bonus arrangements for 2011/2012
• Rights issue adjustment to share option schemes and future share option grants
• Review of terms of reference
The Committee’s main advisers are set out below:
Adviser
Chief Executive
Group HR Director
DLA Piper (UK) LLP
Hewitt New Bridge Street
Deloitte LLP
Areas of advice
Remuneration of Senior Executives and senior management
Share Scheme matters (in particular in relation to the Rights Issue)
Calculation of satisfaction (or otherwise) of the LTIP performance conditions
General remuneration and incentive arrangements for Executives and general share scheme advice
DLA Piper (UK) LLP are the Company’s lawyers and Deloitte LLP have recently been appointed to provide tax and compliance
advice to the Group. Hewitt New Bridge Street has no other connection with the Company. The nature and quantum of other
services provided by DLA and Deloitte are always considered in order to ensure that no conflict of interest arises in relation to the
services they provide to the Remuneration Committee.
Effectiveness Review
During the year, the Committee reviewed its effectiveness as part of the overall board evaluation process. Following the reviews, the
Committee considered it had the skills and experience necessary to perform its responsibilities. However, following the resignation
of Bryan Morton, it was agreed that the Committee membership required strengthening once all additional Non-Executive Directors
have been appointed to the Board. The Board was advised of these findings.
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Directors’ Remuneration Report continued
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 takes 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 2%. 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
basic fee by 2% for the 2012/2013 financial year. The annual fee level for 2012/2013 is therefore:
Office
Chairman
Non-Executive Director
Remuneration Committee Chairmanship additional fee
Audit Committee Chairmanship additional fee
2012/13
Fee
£’000
86
39
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:
• attract, retain and incentivise Executives of the calibre required to ensure that the Group is managed successfully to the benefit of
Shareholders;
• provide appropriate alignment between Dechra’s strategic goals, Shareholder returns and Executive reward; and
• 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.
In defining Dechra’s remuneration policy, the Committee takes into account best practice guidelines set by institutional investor
bodies such as the Association of British Insurers. The Chairman of the Company also ensures the Company, through the
Committee and its Chairman, maintains contact with principal Shareholders about remuneration matters.
As reported in the 2011 Annual Report the HR Director continues to establish a Group PDR process. It our intention to evaluate any
Executive remuneration increases against individual performance results determined by the PDR outcome for 2013/2014.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 63
The primary elements of the Executives’ remuneration package focus on supporting different objectives, as illustrated in the
following table, which also shows the remuneration opportunities for 2011/2012 and 2012/2013 along with the remuneration
performance measures:
Policy
Base Salary
When considering base salary the Committee ensures that it
provides the basis for a market competitive package to recruit
and retain talent amongst the Executive team and that it
recognises the value of the individual, their skills and experience
and performance
The Committee also takes into consideration:
(i) remuneration packages payable to employees employed in
comparable companies; and
(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
Provided on a market competitive basis
Annual Bonus
The executive bonus scheme rewards Executive Directors
for achieving operating efficiencies and profitable growth in
the relevant year by reference to challenging but achievable
operational targets and individual objectives determined at the
beginning of the financial year
Opportunity and Performance Measures
Base salaries are reviewed annually on 1 July. In line with
the Group’s budgeted average increase in base pay for all
employees, the Committee agreed that base salaries be
increased by 2% with effect from 1 July 2012 to:
Ian Page — £382,565
Simon Evans — £240,470
Ed Torr — £229,539
The Company contributes 14% of salary on behalf of the
Executive Directors
A salary supplement is paid in lieu of amounts above the annual
allowance of £50,000 per annum
The Company provides the use of a fully expensed car, medical
cover and life assurance scheme
Details of the executive bonus scheme for the 2011/2012
financial year can be found on page 65.
The executive bonus scheme for the 2012/2013 financial year
will be as follows:
A payment of 10% of salary is triggered on achievement of 95%
of budget and payment of 90% of salary on achievement of 105%
of budget with straight line vesting for achievement between
these two parameters
A further 10% of salary can be earned based on the
achievement of personal objectives
The personal objectives for the Chief Executive, Ian Page, are
set by the Chairman. The personal objectives for Simon Evans
and Ed Torr are set by Ian Page
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Directors’ Remuneration Report continued
Policy
Long Term Incentives Plan (“LTIP”)
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 achievement of
longer term objectives aligned closely to Shareholders’ interests
Opportunity and Performance Measures
Current scheme rules permit grants up to 150% of salary (200%
of salary in exceptional circumstances)
Actual awards made to the Executive Directors in 2011/2012
were 100% of salary
For the grant during the financial year ended 30 June 2012
vesting is based on:
• an ‘underpin’ condition based on the Company’s underlying
diluted earnings per share performance; and
• the Company’s TSR performance compared to the
constituents of the FTSE SmallCap Index at the start of the
performance period
The performance measure for the 2012/2013 awards is currently
being reviewed by the Committee. Any proposed change to the
performance measure for the LTIP will be discussed with the
Company’s major Shareholders before being implemented
Balance of Remuneration
Just under two-thirds of each Executive Director’s total remuneration is variable and is linked to corporate performance. The
following chart illustrates the proportions of the Executive Directors’ remuneration packages comprising fixed (i.e. base salary and
employer pension contributions) and variable elements of pay, assuming maximum annual bonus and long term incentives are
achieved.
Fixed vs Variable Pay at Maximum Performance
Base Salary
Pension
Cash Bonus
LTIPBase Salary
Pension
Cash Bonus
LTIP
Base Salary
During the last four years (2008/2009 to 2011/2012) salary increases for the Executive Directors have been in line with average
salary increases for the wider employee population (approximately 2% to 3%).
At the last review of Executive remuneration that took place during spring/summer 2010, the Committee concluded that the value
of the Executive Directors’ remuneration packages continued to be positioned at the lower end of the market. At the Committee
meeting in May 2012, it was agreed that the Executive Directors would be awarded a 2% pay increase for 2012/2013 but that a
review of their enhanced roles and responsibilities would be completed following the recent acquisition of Eurovet. Any proposed
above inflationary increase will be discussed with the Company’s major Shareholders before being implemented.
Annual Bonus
The Company operates an annual cash incentive scheme for the Executive Directors. Annual bonuses were awarded by the
Committee in respect of 2011/2012 having regard to the performance of the Group and personal performance objectives for the
year. Details of the 2012/2013 annual bonus scheme can be found in the table on page 63.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 65
The amount achieved for the year ended 30 June 2012 against targets for 2011/2012 is as follows:
2011/2012 Targets
Underlying profit before tax 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
Amount Achieved for the year Ended 30 June 2012
The profit before tax target was £35.0 million on a constant
currency basis; actual profit before tax was £34.8 million (at
constant currency based on budgeted exchange rates) reflecting
99.6% of the profit target resulting in a payment worth 50% of
salary
Personal objectives — up to an additional 10% of salary
was payable to Executive Directors upon the achievement of
personal objectives
Actual performance resulted in payment worth 10% of salary.
The objectives are based on key aspects of delivering the
Group’s strategy
Total Annual Bonus Earned for the year Ended
30 June 2012
60% of Salary
Long Term Incentive Arrangements and Share Schemes
Long Term Incentive Plan
Awards, equal to 100% of salary, were granted to the Executive Directors on 7 September 2011.
Vesting of the awards will normally occur provided:
(a) that 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 2012 are:
(1) an ‘underpin’ condition based on the Company’s underlying diluted earnings per share performance — no awards will vest
if the Company’s underlying 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
Between median and upper quartile
Vesting Percentage
0%
25%
Pro-rata vesting based on the Company’s ranking in the
comparator group
Upper quartile
100%
To the extent that the performance targets are not met over the three year performance period, awards will lapse, i.e. there is no
retesting of the performance conditions.
As set out on page 69 for the three year period to 30 June 2012 the Company’s TSR performance fell below the median of the FTSE
Small Cap Total Return Index. Therefore, although the ‘underpin’ condition has been met no awards will vest on their maturity date.
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 66
Directors’ Remuneration Report continued
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 currently to
participate in the Approved Share Option Scheme or the Unapproved Share Option Scheme by reason of their participation in the
LTIP. The Committee has the discretion to amend this going forward but would ensure that any such amendment would not result in
an increase in the total pre-tax value delivered to participants.
Rights Issue
Following the Rights Issue completed in May 2012, the Committee approved adjustments to the LTIP, Approved Share Option
Scheme, Unapproved Share Option Scheme and the SAYE in accordance with the rules of each of the relevant schemes. The
adjustments, where necessary, were approved by HM Revenue & Customs and the effect of these adjustments on the outstanding
LTIP and SAYE awards are shown on pages 69 and 70 respectively. The total value of outstanding awards under the Company’s
share plans was not increased as a result of these adjustments.
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:
Name
Ian Page
Simon Evans
Ed Torr
Ordinary
Shares
No.
859,751
1,032,104
472,767
Ordinary
Shares
£’000*
4,178
5,016
2,298
% of
Salary
1,114%
2,127%
1,021%
* Calculated using the share price as at 30 June 2012.
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 base 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
Mike Redmond
Bryan Morton (resigned 9 July 2012)
Dr Chris Richards
Neil Warner
* Calculated using the share price as at 30 June 2012.
Ordinary
Shares
No.
73,417
3,645
7,400
5,448
Ordinary
Shares
£’000*
357
18
36
26
% of
Salary
424.8%
43.2%
94.6%
64.6%
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 67
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 only permitted to accept external appointments
with the approval of the Board.
The only Executive Director to hold an external appointment is Ian Page. He is Non-Executive Chairman of Sanford DeLand Asset
Management Limited, a position which he has held since 7 October 2010. During the year Ian Page received no remuneration for
this appointment.
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. In June 2012 the Company moved from being a constituent member of the
FTSE Small Cap Index to the FTSE 250; as the move to the FTSE 250 took place during the final month of the financial year being
reported it was not considered necessary to reflect Dechra’s performance against the constituent members of the FTSE 250.
Total Shareholder Return — 2007 to 2012
DECHRA TSR
FTSE SMALL CAP
)
£
(
l
e
u
a
V
200
180
160
140
120
100
80
60
40
20
0
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
1
1
c
e
D
2
1
e
n
u
J
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information
68
Directors’ Remuneration Report continued
Directors’ Shareholdings
The beneficial interests of the Directors and their families in the share capital of Dechra Pharmaceuticals PLC as at 30 June 2012
were as follows:
Name
Mike Redmond
Ian Page
Simon Evans
Ed Torr
Bryan Morton (resigned 9 July 2012)
Dr Chris Richards
Neil Warner
Ordinary
Shares
No.
2012
73,417
859,751
1,032,104
472,767
3,645
7,400
5,448
Ordinary
Shares
No.
2011
56,475
726,282
882,689
411,381
—
4,000
4,191
There have been no changes in the holdings of the Directors between 30 June and 4 September 2012.
Contracts of Services
Details of the Executive Directors’ service contracts/Non-Executive Directors’ letters of appointment are set out below.
Name
Mike Redmond
Ian Page
Simon Evans
Ed Torr
Bryan Morton (resigned 9 July 2012)
Dr Chris Richards
Neil Warner
Commencement
date
25 April 2001
1 September 2008
6 February 2009
6 February 2009
8 January 2010
1 December 2010
2 May 2003
Notice Period
Director
12 months
6 months
6 months
6 months
12 months
12 months
12 months
Company
12 months
12 months
12 months
12 months
12 months
12 months
12 months
There are no expiry dates applicable to either Executive or Non-Executive Directors’ service contracts. The Company may, in its
absolute discretion at any time after written notice has been given by either party, lawfully terminate the service contract by paying
to the Director an amount equal to his basic salary entitlement for the unexpired period of notice (subject to a deduction at source of
income tax and National Insurance contributions). In the event that the service contract is terminated before the end of any financial
year, the Director shall not be entitled to any bonus in respect of that financial year. Non-Executive Directors have a service contract
for an initial 12 month period which is thereafter terminated by either party giving 12 months’ notice. Non-Executive Directors’
compensation is confined to 12 months’ fee.
Individual Directors’ eligibility for the various elements of compensation is set out below:
Name
Mike Redmond
Ian Page
Simon Evans
Ed Torr
Bryan Morton (resigned 9 July 2012)
Dr Chris Richards
Neil Warner
Salary
12 months
12 months
12 months
12 months
12 months
12 months
12 months
Bonus
n/a
Nil
Nil
Nil
n/a
n/a
n/a
Benefits
n/a
12 months
12 months
12 months
n/a
n/a
n/a
Where applicable, payment of this compensation would be in full and final settlement of all claims other than in respect of share
options or awards and pension arrangements. In an appropriate case the Directors would have regard to the departing Director’s
duty to mitigate loss, except in the event of dismissal following a change of control of the Company. Other than as described above,
there are no express provisions within the Directors’ service contracts for the payment of compensation or liquidated damages on
termination of employment. No compensation payments were made to Executive or Non-Executive Directors during the year.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 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
Mike Redmond
Malcolm Diamon (resigned 5 November 2010)
Bryan Morton (resigned 9 July 2012)
Dr Chris Richards
Neil Warner
Salaries
& Fees
£’000
Bonuses
£’000
Other
Benefits
£’000
377*
236
225
84
—
41
38
41
1,042
225
141
135
—
—
—
—
—
501
30
26
15
—
—
—
—
—
71
Total
2012
£’000
632
403
375
84
—
41
38
41
1,614
* This includes a salary supplement of £2,509 paid in lieu of employers’ pension contribution in excess of the £50,000. Therefore the base salary is £375,064.
The performance conditions attaching to the annual bonus for 2011/2012 are explained on page 65.
Long Term Incentive Plan
Awards made under the LTIP are as follows:
Ian Page
Simon Evans
Ed Torr
Award
date
19 Nov 2008
24 Sept 2009
22 Dec 2010
7 Sept 2011
19 Nov 2008
24 Sept 2009
22 Dec 2010
7 Sept 2011
19 Nov 2008
24 Sept 2009
22 Dec 2010
7 Sept 2011
Number of
shares at
30 June
2011
92,593
86,861
72,241
—
251,695
58,201
54,599
45,409
—
158,209
55,556
52,117
43,344
—
151,017
Granted
during
the year
—
—
—
85,241
85,241
—
—
—
53,580
53,580
—
—
—
51,145
51,145
Rights Issue
adjustment*
Lapsed
during
the year
— (26,751)
—
—
—
(26,751)
— (16,815)
—
—
—
(16,815)
— (16,051)
—
—
—
(16,051)
7,714
6,415
7,570
21,699
4,848
4,032
4,758
13,638
4,628
3,849
4,542
13,019
Exercised
during
the year
(65,842)
—
—
—
(65,842)
(41,386)
—
—
—
(41,386)
(39,505)
—
—
—
(39,505)
Number
of shares
at 30
June
2012
94,575
78,656
92,811
266,042
Performance
period
— 2008-2011
2009-2012
2010-2013
2011-2014
— 2008-2011
2009-2012
2010-2013
2011-2014
59,447
49,441
58,338
167,226
— 2008-2011
2009-2012
2010-2013
2011-2014
56,745
47,193
55,687
159,625
69
Total
2011
£’000
619
396
368
82
15
40
22
40
1,582
Share
Price at
date of
award
Pence
391.75
404.10
514.00
455.50
391.75
404.10
514.00
455.50
391.75
404.10
514.00
455.50
* Outstanding awards were subject to an adjustment following the Rights Issue to reflect the bonus element of the transaction as explained on page 66.
The performance conditions attached to the LTIP are explained on page 65.
Independent verification has also recently been sought from Hewitt New Bridge Street in respect of the satisfaction of the
performance targets for awards vesting in September 2012. The ‘underpin’ condition (the Company’s underlying earnings per share
has grown by at least RPI plus 3% per annum over the performance period) has been met, however, it has been confirmed that the
Company’s TSR performance for the three year period to 30 June 2012 fell below the median of the FTSE Small Cap Total Return
Index. Therefore no awards will vest on their maturity date.
The aggregate gain made by the Executive Directors on share options exercised during 2012 was £729,997 (2011: £408,459).
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 70
Directors’ Remuneration Report continued
SAYE Scheme
Directors’ entitlements under the SAYE Scheme are as follows:
Ian Page
Simon Evans
Ed Torr
Award date
13 Oct 2008
13 Oct 2008
13 Oct 2008
12 Oct 2009
17 Oct 2011
Market
price at
date of
grant
Pence
387
387
387
445
478
Exercise
Exercise
Price
Pence
dates
315.02* Dec 2013
315.02* Dec 2013
315.02 Dec 2011
304.92* Dec 2012
365.59* Dec 2014
At 30
June
2011
Number
4,883
4,883
1,119
1,640
—
12,525
Exercised
Number
—
—
(1,119)
—
—
(1,119)
Granted
Number
—
—
—
—
904
904
Rights
Issue
adjust-
ment*
433
433
—
145
80
1,091
Lapsed
Number
At 30
June
2012
Number
— 5,316
— 5,316
—
—
— 1,785
—
984
— 13,401
* Outstanding awards were subject to an adjustment following the Rights Issue to reflect the bonus element of the transaction as explained on page 66.
Share Price
The middle market price for the Company’s shares on 30 June 2012 was 486p and the range of prices, which have been adjusted
to take into account the bonus element of the Rights Issue, during the year was 392.5p to 524.82p.
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:
Ian Page
Simon Evans
Ed Torr
Contributions
2012
£’000
50
33
30
113
Contributions
2011
£’000
51
32
31
114
Age
51
48
52
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
Dr Christopher Richards
Chairman — Remuneration Committee
4 September 2012
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 71
Social, Ethical and Environmental Responsibilities
A responsible approach to our stakeholders and the wider community is considered by the Board to be fundamental to the
business. The conduct of the business towards social, environmental, ethical and health and safety issues is recognised to have an
impact on our reputation and therefore 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 that create and maintain long term value for all stakeholders. 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. It has terms of reference which were approved
by the Board in July 2010, copies of which 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 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.
As reported in the 2011 Annual Report the Committee has reviewed the way in which donations (either in the form of money or
stock) are made by the business units to charities and as a result has established a Group Donations Policy, which became effective
1 July 2011. From this date, the Group will donate annually an aggregate of £10,000 to be split between an animal welfare charity,
an environmental charity and an employee nominated charity. All employees within the Group are entitled to nominate a charity or a
non-commercial organisation. All 2011 nominations were considered by the Board and the chosen charities were as follows:
Nominated Animal Charity (£2,500)
• The French employees of DVP nominated the LFPC (French League for Protection of Horses): This charity is managed in
co-operation with the French Association of Equine Veterinarians. It creates a network of sentinel veterinarians caring for horses in
difficult situations.
Far left:
Liz Rawlings, Marketing Communications
Manager at DVP UK, presenting a cheque for
£2,000 to Mr Len Curtis, MBE, Founder of
Donna’s Dream House.
Left:
Melinda Poole and Bryan Toliver, employees of
DVP US taking part in the Dog and Jog event
organised by the company in June 2012.
Environmental Charity (£3,000)
• The employees of Dechra Pharmaceuticals PLC nominated Staffordshire Wildlife Trust: As in previous years Dechra has
maintained its investment in the Corporate Membership Scheme for the Staffordshire Wildlife Trust (the “Trust”). The continued
support provided by the Company has assisted the Trust to continue with their education, conservation and community projects
throughout Staffordshire including the installation of a new play trail at the Wolseley Centre, maintaining and improving the habitat
at Highgate Common and the Churnet Valley Living Landscape Project.
• The UK employees of DVP nominated the People Trust for Endangered Species (“PTES”): Since 1977, PTES has been helping
to secure a future for many endangered species throughout the world. This trust focuses on specific problems and works to
preserve endangered species in their natural habitats. The donation was utilised to help fund trials of hedgehog footprint tunnels
that PTES is developing to monitor these animals thereby allowing this trust to evaluate their efforts in improving their habitat.
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 72
Social, Ethical and Environmental Responsibilities
continued
Employee Charity (£4,000)
• An employee at NVS nominated Savana: This Staffordshire based charity supports anyone who has experienced or is affected
by any form of sexual violence including rape, sexual, domestic or honour related violence and childhood sexual abuse whether
recently or in the past. The donation was spent in full on providing counselling sessions and equated to 50 individual face to face
counselling sessions for victims of sexual abuse.
• The UK employees of DVP nominated Donna’s Dream House: This charity in Blackpool provides free holiday experiences for
children and teenagers with life-threatening illnesses and their families, as well as recently bereaved siblings and their families. The
home was closed in December 2011 due to an arson attack so we are pleased that the donation is being utilised to assist with
the rebuild.
In addition to the annual Group donation, each business unit has discretion to allocate funds to local community groups, employee
nominated charities and/or animal welfare charities. Below is a selection of what has taken place during the 2011/2012 financial
year.
Animal Welfare
• As in previous years, many of our 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 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 Atipam, Canaural, Cleanaural, Fucithalmic and Sedator. In addition, DVP UK has
provided assistance to GSPCA, an animal charity based in Grenada, which offers free veterinary care to domestic animals on
the island with an ongoing neutering programme, by providing supplies of Clavudale, Fiprodog and Fiprocat. NVS donated bird
feeders and bird food to local schools and conservation organisations.
Environment
• DVP EU has continued 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
• Each year DVP EU nominates a Danish charity. This year they donated DKK2,500 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.
• Dechra Laboratory Services has maintained its links with local schools by offering a number of work experience placements to
eight children from local schools and three veterinary students.
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:
• all third parties are treated fairly, openly and honestly;
• our employees do not accept or offer bribes, facilitation payments or other inducements; and
• 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).
A whistle-blowing policy is also in place whereby employees report, in confidence, any suspected wrongdoings within the business
where they feel unable to discuss directly with local management. Details of the whistle-bowing policy are detailed on the Company
website at www.dechra.com.
The Dechra Values were launched in June 2011 across the business. A summary of which can be found on page 30. Further
information can be obtained via the Company’s website at www.dechra.com. The Board fully endorses these values and believes
that they encapsulate Dechra’s business ethics and set standards that all employees wish to achieve and ultimately exceed.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 73
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. In terms of fuel, waste and travel we can report the following changes:
Fuel
Dechra has recently reviewed the Company Car Scheme and amalgamated the two lower car bands where employees previously
had a choice of over 20 car variants. This scheme change will result in over 55% of the Company car fleet converting to a vehicle
with emissions of less than 119 CO2/km over the next two years. A further 19% of the fleet are vehicles of less than 160 CO2/km.
The light commercial fleet of over 130 delivery vans has now integrated an alternative range of vehicles including small VW Caddy
vans returning over 46 mpg, as opposed to the previously standard vehicle that delivered only 32 mpg. The HGV fleet has been
limited to 53 mph and has subsequently delivered an improvement in fuel efficiency from 9.60 mpg to 9.92 mpg.
Dechra has chosen to maintain its 36 month lease term policy across both the Commercial and Company car fleets to ensure that
the business has access to the continued developments in engine technology. Ongoing trials with a single deck trailer to replace
double deck trailers are showing promising results. In addition, tractor units are being trialled with the view of replacing two of the
existing units during 2012/2013; some of these have returned in excess of 10.5 mpg. The average miles per gallon as at the end of
June 2012 and June 2011 were as follows:
HGV Fleet
Transit
2012
9.92
32.64
2011
9.60
32.57
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.
Travel
In respect of travel, use of the video conference facilities is recommended as priority over travel. Video conference facilities are
installed at NVS, DVP UK, DVP US, Dales and Uldum, Denmark. On the acquisition of Eurovet, video conference facilities were
also installed at Bladel, the Netherlands. Whilst the Company appreciates that face to face meetings are beneficial the use of video
conference facilities substantially reduces the amount of travel by car and aeroplanes.
Waste
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 26) 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 subject to random monitoring 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 into the environment. 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)
2012
8.2
—
—
2011
8.7
—
—
2012
34.2
261.1
18.4
2011
30.6
276.1
18.5
2012
14.6
13.1
13.1†
2011
15.8
18.4
9.1†
2012
—
0.002
—
2011
—
0.03
—
Dales
NVS
DVP EU*
* data collated on a calendar year basis
† plastic and metal
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 74
Social, Ethical and Environmental Responsibilities
continued
DVP EU also monitors:
• Annual energy consumption: In 2011, energy consumption totalled 1,474 MWh (compared to 1,748 MWh in 2010). The decrease
is primarily due to an increase in outside temperature.
• Water: In 2011, water usage totalled 2,533 m2 (compared to 2,372 m2 in 2010). Although there has been a slight increase in
usage compared to the previous year, over a five year period the usage has remained relatively stable.
Dales has implemented and embedded a 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 these lean
manufacturing principles 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 16 to 15 days. Currently 22 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.
Health and Safety Policy
The Group attaches great importance to the health and safety of its employees and the public. The management is 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.
For a number of years the Group has reported Lost Time Accident Frequency Rates (“LTAFR”) as a non-financial key performance
indicator (see pages 32 to 33). The LTAFR is a calculation of all injuries that would be statutorily reportable under the 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. Although the UK reporting requirement for over-three day injuries to workers changed to over-seven
day injuries with effect from 6 April 2012, the Company is still obliged to keep a record of any accident if the worker has been
incapacitated for more than three consecutive days. Therefore for this reason and for consistency the Company will continue to
report LTAFR on the same basis as in previous years, that is over-three day incidents. Over the course of the last 12 months the
number of accidents has decreased from 15 to 10, none of which resulted in a work-related fatality or disability. It is hoped to
reduce this further during the 2012/2013 financial year.
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 subsequently 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 the year an online driver risk assessment was introduced for all Company car and Commercial vehicle
drivers. The results of the assessment enables the Company to identify any drivers at risk and to provide further training to those
drivers. All new Company car and Commercial vehicle drivers must complete the online driver risk assessment as part of their
induction. It is intended that all drivers will be reassessed every three years. The investment so far in respect of the online driver
assessments has had a positive impact on the number of insurance claims with both the frequency and severity of accidents having
been reduced. This committee has met three 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.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 75
Employees
We recognise that the success of the Group is dependent on our ability to attract, develop, motivate and retain skilled employees.
For a number of years the Group has reported labour turnover as a non-financial KPI using a standard formula as follows:
Total number of leavers over a period
Average total number employed over period
× 100
The Group has established a target of no more than 15% Moving Annual Turnover; during the 2011/2012 financial year we achieved
16.10% (2011: 19.03%). This figure includes fixed term contract workers, of which there were six leavers during the year. Excluding
these six leavers, the MAT for permanent staff is 15.5%, which is slightly over our target of 15% but below the national CIPD figure
of 16.10%.
Dales is registered with ‘Investors in People’ and has continued in its commitment to people development through a number of
apprentices embarking on 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. The
business continues to support several employees in attaining NVQ Level 2 Performing Manufacturing Operations and Certificate in
Process Technology as well as Level 3 in Business Administration. Additionally, two employees are undertaking Foundation Degrees
in Chemical Science and another individual is about to complete a Chartered Institute of Purchasing & Supply Level 6 Advanced
Diploma. Training in Lean Techniques continues to be rolled out across the workforce and up-skilling key personnel continues with
Team Leader and Management Training scheduled over the next financial year.
At NVS, one employee has completed the Institute of Payroll Professionals Degree, two employees have completed NVQ Level 2
in Customer Services and two members of the Transport Department have completed the International Certificate of Professional
Competence (“CPC”) course.
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 continues to encourage employees to share in the growth of the Company through eligibility to participate in the SAYE
Scheme. The SAYE Scheme is currently offered to UK employees only; the take-up for the 2011 grant was 15.34% (2010: 17.38%).
Overall 29.45% of UK employees participate within the SAYE Scheme. 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
01/01/2007
01/01/2008
01/01/2009
01/01/2010
01/01/2011
Grant Dates
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information
76
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:
• 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.
• US Pharmaceuticals: markets and sells a range of endocrine, ophthalmic, dermatological and equine products into North
America.
• 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 8 to 39 and includes:
• a description of the principal risks and uncertainties faced by the Group;
• an analysis of the development and performance of the Company’s business during the financial year;
• the position of the Company’s business at the end of the financial year;
• 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.
Results and Dividends
The results for the year and financial position at 30 June 2012 are shown in the Consolidated Income Statement on page 83 and
Consolidated Statement of Financial Position on page 85. The Directors recommend the payment of a final dividend of 8.50 pence
per share which, if approved by Shareholders, will be paid on 23 November 2012 to Shareholders registered at 9 November
2012. The date the shares will become ex-dividend is 7 November 2012. An interim dividend of 3.77 pence per share (restated to
take into account the bonus element of the Rights Issue) was paid on 10 April 2012, making a total dividend for the year of 12.27
pence (2011: 11.12 pence restated for the bonus element of the Rights Issue ). The total dividend payment is £10,125,000 (2011:
£8,039,000).
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 17 to 19. The expense on this activity for the year ended 30 June 2012
was £5,735,000 (2011: £5,221,000) and a further £447,000 (2011: £1,025,000) 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 2012, the Group had an average of 71 days (2011: 60 days) purchases outstanding in creditors. The Company has an
average of nil days (2011: nil days) purchases outstanding in creditors.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 77
Acquisitions
The acquisitions during the year under review are as follows:
Date of
Acquisition
January 2012
Detail
HY-50
May 2012
Eurovet Animal
Health B.V.
The worldwide rights (excluding
Canada) to HY-50 were acquired from
Bexinc Limited. HY-50 is used for
intra-articular or intravenous treatment
of lameness in horses caused by joint
dysfunction
An expert in developing, registering,
producing and marketing added value,
own label companion and farm animal
veterinary pharmaceutical medicines
Consideration
A cash consideration of 8.03 million Canadian Dollars.
The consideration was funded from the Group’s
existing cash resources
Consideration of €135 million on a cash free debt free
basis. The consideration was funded from the Rights
Issue and additional debt facilities
Rights Issue and Share Capital
The issued share capital of the Company for the year is set out in note 23 to the Financial Statements on page 122. As at the end of
the financial year, 86,870,176 fully paid ordinary shares were in issue which included 379,864 ordinary shares issued during the year
in connection with the exercise of options under the Company’s share option schemes. 20,040,653 ordinary shares (“New Ordinary
Shares”) were offered by way of a Rights Issue at an issue price of 300 pence per share, raising approximately £58.2 million (net of
underwriting commission). The Rights Issue was made on the basis of 3 New Ordinary Shares for every 10 existing ordinary shares.
The New Ordinary Shares were issued on 16 May 2012 fully paid and rank pari passu in all respects with the existing ordinary
shares.
The New Ordinary Shares represented less than one-third of the issued share capital prior to the Rights Issue and were issued
under an authority given at the Annual General Meeting held on 4 November 2011.
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 4 November 2011, the Company was authorised to purchase up to
6,645,665 of its ordinary shares, representing 10% of the issued share capital of the Company as at 15 September 2011. 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 2011 Annual General Meeting, and also at the General Meeting
held in May 2012. Resolutions to renew these authorities will be proposed at the 2012 Annual General Meeting.
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 78
Other Disclosures continued
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.
Schroder Investment Management
Legal & General Investment Management
Fidelity Investments
Invesco Perpetual
Aberdeen Asset Management
Threadneedle Investments
Rathbones
Newton Investment Management
Scottish Widows
Change of Control/Significant Agreements
30 June 2012
16 August 2012
Aggregate
Voting
Rights
15,657,586
5,193,548
4,815,763
4,536,329
4,236,400
3,685,285
3,440,853
3,077,095
2,988,981
Aggregate
Voting
Rights
15,357,586
5,062,024
4,820,934
4,420,925
4,546,900
3,666,737
3,436,888
2,942,895
2,817,651
%
18.02
5.98
5.54
5.22
4.88
4.24
3.96
3.54
3.44
%
17.68
5.83
5.55
5.09
5.23
4.22
3.96
3.39
3.24
As detailed in the Going Concern Statement on page 52 the Group has bank facilities with a syndicate of banks comprising
Lloyds TSB Bank plc, Barclays Bank PLC, Svenska Handelsbanken AB (PUBL) and HSBC Bank Plc (the “Banks”). Under the terms
of these facilities the Banks 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 40 to 41.
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 44 to 54, 56 and 60.
Under the provisions of the UK Corporate Governance Code, all the Directors will retire at the Annual General Meeting and offer
themselves for re-election.
The interests of the Directors in the share capital of the Company are shown in the Remuneration Report on pages 66 to 68. During
the year no Director had a disclosable material interest in any contract or arrangement with the Company or any of its subsidiaries.
Information in relation to the Directors’ remuneration is disclosed in the Remuneration Report.
The Articles of Association state that a Director may be appointed by an ordinary resolution of the Shareholders or by the Directors,
either to fill a vacancy or as an addition to the existing Board but so that the total number of Directors does not exceed the
maximum number of Directors allowed pursuant to the Articles of Association. The maximum number of Directors currently allowed
pursuant to the Articles of Association is ten.
The Articles of Association also state that the Board of Directors is responsible for the management of the business of the Company
and 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.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 79
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 80.
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 £17,796 (2011: £6,234). Further details of donations made by the Group are
given on pages 71 to 72.
Political Donations and Expenditure
No political donations were made during the year ended 30 June 2012. 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 2012 Annual General Meeting of the Company will be held at 10.00 am on 19 October 2012 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
4 September 2012
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 80
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:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
• for the Parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject to
any material departures disclosed and explained in the Parent Company financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent
Company will continue in business.
The Directors are responsible for keeping 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:
Ian Page
Chief Executive
4 September 2012
Simon Evans
Group Finance Director
4 September 2012
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201221587-04 10/08/2012 Proof 3Directors’ Report: Our Governance 81
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 2012 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 80, 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:
• 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
2012 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:
• 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
• the information given in the Corporate Governance statement set out on pages 44 to 54 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.
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 82
Independent Auditor’s Report to the Members
of Dechra Pharmaceuticals PLC
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:
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• 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
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit; or
• a Corporate Governance statement has not been prepared by the Company.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 52, in relation to going concern;
• the part of the Corporate Governance Statement on pages 44 to 54 relating to the Company’s compliance with the nine
provisions of the UK Corporate Governance Code specified for our review; and
• 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
4 September 2012
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts 83
Consolidated Income Statement
For the year ended 30 June 2012
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit
Finance income
Finance expense
Profit before taxation
Income tax expense
Profit for the year attributable to
owners of the parent
Earnings per share
Basic
Diluted
Dividend per share (interim paid
and final proposed for the year)
Note
2
2
3
4
6
8
10
10
9
2012
Non-
underlying
items*
(notes 4 & 5)
£’000
Total
£’000
— 426,041
— (326,782)
—
99,259
(17,979)
—
(60,390)
(15,711)
20,890
(15,711)
219
—
(4,289)
(435)
16,820
(16,146)
(5,071)
3,593
Underlying
£’000
426,041
(326,782)
99,259
(17,979)
(44,679)
36,601
219
(3,854)
32,966
(8,664)
2011
Non-
underlying
items*
(notes 4 & 5)
£’000
Total
£’000
— 389,237
— (300,876)
88,361
—
(17,659)
—
(48,984)
(10,105)
21,718
(10,105)
2,144
—
(5,348)
(1,450)
18,514
(11,555)
(4,380)
2,941
Underlying
£’000
389,237
(300,876)
88,361
(17,659)
(38,879)
31,823
2,144
(3,898)
30,069
(7,321)
24,302
(12,553)
11,749
22,748
(8,614)
14,134
15.65p†
15.60p†
12.27p†
19.59p†
19.53p†
11.12p†
* Non-underlying items comprise amortisation of acquired intangibles, acquisition expenses, rationalisation costs, loss on extinguishment of debt and the unwinding of
discounts on deferred and contingent consideration.
† Restated to reflect the impact of the bonus element of the Rights Issue.
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Consolidated Statement of Comprehensive Income
For the year ended 30 June 2012
Profit for the year
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
Income tax relating to components of other comprehensive income
Total comprehensive income for the period attributable to owners of the parent
2012
£’000
11,749
2011
£’000
14,134
(419)
429
(8,434)
(2)
3,323
(684)
670
3,411
(4)
17,527
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts Consolidated Statement of Financial Position
At 30 June 2012
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
Employee benefit obligations
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
85
Note
2012
£’000
2011
£’000
11
12
15
16
17
20
18
28
19
20
28
2121 21
14
23
225,872
16,720
242,592
57,281
72,113
32,435
161,829
404,421
(5,106)
(79,863)
(10,337)
(8,155)
(103,461)
(114,046)
(3,526)
(363)
(29,343)
(147,278)
(250,739)
153,682
869
122,642
(286)
(3,683)
1,770
32,370
153,682
125,098
7,721
132,819
40,760
66,293
30,496
137,549
270,368
(8,502)
(74,559)
(500)
(5,391)
(88,952)
(56,085)
(13,555)
—
(13,443)
(83,083)
(172,035)
98,333
664
63,559
(294)
4,751
1,770
27,883
98,333
The financial statements were approved by the Board of Directors on 4 September 2012 and are signed on its behalf by:
Ian Page
Chief Executive
4 September 2012
Company number: 3369634
Simon Evans
Group Finance Director
4 September 2012
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 86
Consolidated Statement of Changes in Shareholders’
Equity
For the year ended 30 June 2012
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
year ended 30 June 2012
At 1 July 2011
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 2012
Issued
share
capital
£’000
661
—
Share
premium
account
£’000
63,021
—
Attributable to owners of the parent
Foreign
currency
translation
reserve
£’000
1,340
—
Hedging
reserve
£’000
(276)
—
Merger
reserve
£’000
1,770
—
—
—
—
—
—
—
538
538
63,559
63,559
—
—
—
—
—
—
—
59,083
(506)
—
—
3,411
488
(18)
—
—
—
—
(294)
(294)
—
(335)
—
3,411
—
—
—
—
4,751
4,751
—
—
—
(8,434)
343
8
—
—
—
—
(8,434)
—
—
—
—
—
—
—
—
—
3
3
664
664
—
—
—
—
—
—
—
205
205
869
Retained
earnings
£’000
19,712
14,134
—
—
Total
£’000
86,228
14,134
(506)
3,411
—
14,134
488
17,527
(7,221)
1,258
—
(7,221)
1,258
541
—
—
—
—
—
—
—
—
1,770
1,770
—
(5,963)
27,883
(5,422)
98,333
27,883
11,749
98,333
11,749
—
—
—
—
—
—
—
—
—
—
11,749
(8,325)
1,063
—
(335)
(8,434)
343
3,323
(8,325)
1,063
59,288
59,083
122,642
—
(286)
—
(3,683)
—
1,770
(7,262)
32,370
52,026
153,682
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.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts Consolidated Statement of Cash Flows
For the year ended 30 June 2012
Cash flows from operating activities
Profit for the period
Adjustments for:
Depreciation
Amortisation and impairment
Loss on disposal of intangible assets
(Gain)/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
(Decrease)/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
Share issue expenses
New borrowings
Expenses of raising new borrowings
Repayment of borrowings
Resetting of foreign currency borrowings
Dividends paid
Net cash inflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at start of period
Exchange differences on cash and cash equivalents
Cash and cash equivalents at end of period
Reconciliation of net cash flow to movement in net borrowings
Net increase/(decrease) in cash and cash equivalents
Repayment of borrowings
New borrowings
Expenses of raising new borrowings
New finance leases
Exchange differences on cash and cash equivalents
Retranslation of foreign borrowings
Other non-cash changes
Movement in net borrowings in the period
Net borrowings at start of period
Net borrowings at end of period
87
Note
2012
£’000
2011
£’000
11,749
14,134
12
11
6
6
3
4
24
8
28
12
11
11
23
23
9
17
17
25
25
1,584
12,762
47
(45)
(219)
4,289
1,001
5,071
36,239
(4,846)
(1,827)
(438)
29,128
(2,645)
(7,241)
19,242
50
219
(112,221)
(1,645)
(447)
(6,300)
(120,344)
60,575
(1,287)
120,000
(2,600)
(64,328)
(327)
(8,325)
103,708
2,606
30,496
(667)
32,435
2,606
64,328
(120,000)
2,600
(1,010)
(667)
(429)
(54)
(52,626)
(34,091)
(86,717)
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)
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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 2012 comprise the Company and its subsidiaries.
(a) Statement of Compliance
These 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 133 to
141.
(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 39. 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.
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.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
89
1. Accounting Policies continued
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 22, 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.
Adoption of New and Revised Standards
The following standards and interpretations are applicable to the Group and have been adopted in the current period as
they are mandatory for the year ended 30 June 2012 but either have no material impact on the result or net assets of the
Group or are not applicable.
• IAS 24 (revised) ‘Related Party Disclosures’ — clarifies disclosure requirements for government related entities and
amends the definition of a related party.
• Amendment to IFRS 7 ‘Disclosures — Transfers of Financial Assets’ — the amendments require additional disclosures
about transfers of financial assets. The amendments also require additional disclosures if a disproportionate amount of
transfer transactions are undertaken around the end of a reporting period.
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 2012, have been adopted in the year.
The adoption of these standards and amendments has not had a material impact on the Group’s financial statements.
New Standards and Interpretations not yet Adopted
The following standards and interpretations have been published, endorsed by the EU, and are available for early
adoption, but have not yet been applied by the Group in these financial statements.
• Amendment to IAS 1 ‘Presentation of Items of Other Comprehensive Income’ — effective for annual periods beginning
on or after 1 July 2012.
• Amendment to IAS 19 ‘Employee Benefits’ — effective for annual periods beginning on or after 1 January 2013.
The Group does not anticipate that the adoption of the above amendments will have a material effect on its financial
statements on initial adoption.
(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 with the
exception of the recently acquired Eurovet companies, whose reporting dates will be brought in line with the Company
over the course of the 2012/2013 financial year.
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90
Notes to the Consolidated Financial Statements
continued
1. Accounting Policies continued
(d) Foreign Currency Translation
(i)
(ii)
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).
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.
(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 determines the classification of its financial assets at initial recognition in accordance with IAS 39 Financial
Instruments: Recognition and Measurement and re-evaluates this designation at every reporting date for financial assets
other than those held at fair value through the income statement.
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.
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91
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.
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.
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92
Notes to the Consolidated Financial Statements
continued
1. Accounting Policies continued
(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
• 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.
Contingent consideration is measured at fair value and re-measured at each reporting date.
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.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
93
1. Accounting Policies continued
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
• marketing authorisations
• product rights
• customer relationships
5 years
5–10 years or period of patent
Period of patent
Indefinite life
10–15 years
10 years
(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.
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94
Notes to the Consolidated Financial Statements
continued
1. Accounting Policies continued
(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.
(l) Employee Benefits
Pensions
The Group operates a 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.
The Group sponsors defined benefit arrangements in certain countries, the most material being a defined benefit pension
plan in the Netherlands. This is a funded career average pay arrangement, where pensionable salary is subject to a cap. The
arrangement is financed through an insurance contract.
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95
1. Accounting Policies continued
The Group’s net obligation in respect of defined benefit pension plans is calculated by estimating the amount of future benefit
that employees have earned in return for their service in the current and prior periods.
That benefit is discounted to determine its present value, and the fair value of any plan assets is deducted. The liability
discount rate is the yield at the Statement of Financial Position date using AA rated corporate bonds that have maturity dates
approximating to the terms of the group’s obligations. The calculation is performed by a qualified actuary using the projected
unit credit method.
All actuarial gains and losses that arise in calculating the Group’s obligation in respect of a scheme are recognised
immediately in reserves and reported in the consolidated Statement of Comprehensive Income. Where the calculation results
in a benefit to the group, the asset recognised is limited to the present value of any future refunds from the plan or reductions
in future contributions to the plan.
Share-based Payment Transactions
The Group operates a number of equity settled share-based payment programmes that allow employees to acquire shares
of the Company. The Group also operates a Long Term Incentive Plan for Directors and Senior Executives.
The fair value of shares or options granted is recognised as an employee expense 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 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.
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96
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.
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.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
97
1. Accounting Policies continued
(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.
There was a Rights Issue during the year ended 30 June 2012 and EPS figures have been restated to reflect the bonus
element of this issue.
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, Dechra Laboratory Services and Dechra Specialist Laboratories.
This segment services UK veterinary practices in both the companion animal and livestock sectors.
The European Pharmaceuticals segment comprises Dechra Veterinary Products EU, Eurovet and Dechra Manufacturing.
Dechra Manufacturing manufactures the vast majority of our own branded licensed pharmaceutical products, which are
marketed through DVP EU and Eurovet. This segment operates internationally and is unique in having its sole area of
specialisation in companion animal products.
The US Pharmaceuticals segment consists of Dechra Veterinary Products US which sells companion animal pharmaceuticals
into that territory.
The Pharmaceuticals research and development segment includes all of the Group’s pharmaceutical research and
development activities.
There are varying levels of intersegment trading. Intersegment pricing is determined on an arm’s length basis.
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98
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
— total
— 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
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
2012
£’000
2011
£’000
315,672
(518)
104,764
(13,443)
20,363
(797)
426,041
11,056
28,904
5,863
(5,735)
40,088
(3,487)
36,601
(10,871)
(2,525)
(2,315)
20,890
219
(4,289)
16,820
(55,244)
(22,058)
(14,221)
(685)
(92,208)
(118,229)
(2,804)
(37,498)
(250,739)
211
121,140
—
447
121,798
296,258
(190)
89,287
(12,225)
16,107
—
389,237
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
(58,337)
(14,465)
(13,837)
(654)
(87,293)
(63,814)
(2,094)
(18,834)
(172,035)
158
8,244
40,056
1,212
49,670
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
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
99
2012
£’000
484
10,469
10
136
11,099
700
10,524
2,800
322
14,346
2011
£’000
280
874
63
86
1,303
438
9,091
1,961
407
11,897
Geographical Information
The following table shows revenue based on the geographical location of customers and non-current assets based on the
country of domicile of the entity holding the asset:
UK
Rest of Europe
USA
Rest of World
No customer accounted for more than 10% of total Group revenue.
3. Finance Income
Recognised in profit or loss
Finance income arising from:
— Cash and cash equivalents
— Loans and receivables
— Foreign exchange gains
— Return on employee benefit scheme assets
2012
Non-
current
assets
£’000
24,164
180,654
37,774
—
242,592
2011
Revenue
£’000
305,737
56,452
16,107
10,941
389,237
2011
Non-
current
assets
£’000
29,156
66,954
36,709
—
132,819
2012
Revenue
£’000
322,063
72,358
25,857
5,763
426,041
2012
£’000
120
89
—
10
219
2011
£’000
1,113
32
999
—
2,144
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Notes to the Consolidated Financial Statements
continued
4. Finance Expense
Underlying
Finance expense arising from:
— Financial liabilities at amortised cost
— Interest cost in relation to employee benefit obligations
— Foreign exchange losses
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 acquisitions
Rationalisation costs
Expenses of the acquisition of DermaPet Inc.
Expenses of the acquisition of Genitrix Limited
Expenses of the acquisition of Eurovet Animal Health B.V.
2012
£’000
2,944
12
898
3,854
2012
£’000
158
277
435
4,289
2011
£’000
3,898
—
—
3,898
2011
£’000
1,256
194
1,450
5,348
2012
£’000
10,871
2,525
—
—
2,315
15,711
2011
£’000
8,938
474
585
108
—
10,105
Rationalisation costs in 2012 relate to the integration of Eurovet Animal Health B.V. This consists primarily of the costs incurred
in relation to the rationalisation of the four duplicated sales offices and associated sales teams.
Rationalisation costs in 2011 relate to the integration of DermaPet Inc. and Genitrix Limited.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts 6. Profit Before Taxation
The following items have been included in arriving at profit before taxation:
Cost of inventories recognised as an expense
Impairment of inventories included in above figure
Depreciation of property, plant and equipment
— owned assets
— under finance leases
Amortisation of intangible assets
Loss on disposal of intangible assets
(Profit)/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
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 24)
101
2012
£’000
323,478
942
2011
£’000
298,105
558
1,381
203
12,762
47
(45)
207
4,064
5,735
1,073
50
225
29
103
666
1,073
1,288
247
10,362
—
1
573
3,905
5,221
1,087
42
185
51
237
572
1,087
2012
Number
237
394
411
1,042
2011
Number
221
409
375
1,005
2012
£’000
30,797
3,483
1,757
977
37,014
2011
£’000
27,712
3,036
1,552
948
33,248
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Notes to the Consolidated Financial Statements
continued
7. Employees continued
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
2012
£’000
2,766
354
208
757
204
4,289
2011
£’000
2,569
337
190
586
199
3,881
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 59 to 70.
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 and operates defined benefit schemes in some countries. Total
pension contributions amounted to £1,757,000 (2011: £1,552,000).
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
2012
£’000
5,034
2,937
126
8,097
(3,695)
669
(3,026)
5,071
2011
£’000
4,551
2,134
(728)
5,957
(1,874)
297
(1,577)
4,380
The tax on the Group’s profit before tax differs from the standard rate of UK corporation tax of 25.5% (2011: 27.5%). The
differences are explained below:
Profit before taxation
Tax at 25.5% (2011: 27.5%)
Effect of:
— depreciation on assets not eligible for tax allowances
— disallowable expenses
— over 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 foreign exchange losses/(gains)
— change in UK tax rate
Total income tax expense
2012
£’000
16,820
4,289
2011
£’000
18,514
5,091
—
369
—
(181)
(175)
795
304
(330)
5,071
8
450
(28)
(50)
(165)
(431)
(495)
—
4,380
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
103
2012
£’000
(2)
(2)
143
(77)
(1,682)
(1,618)
2011
£’000
(4)
(4)
193
166
1,140
1,495
8.
Income Tax Expense continued
Tax Recognised Directly in Equity
Deferred tax on effective portion of changes in fair value of cash flow hedges
Tax recognised in statement of comprehensive income
Corporation tax on equity settled transactions
Deferred tax on equity settled transactions
Deferred tax movement on foreign currency translation
Total tax recognised in equity
The Budget on 21 March 2012 announced that the UK corporation tax rate will reduce to 22% by 2014. A reduction in the
rate from 26% to 25% (effective from 1 April 2012) was substantively enacted on 5 July 2011, and further reductions to 24%
(effective from 1 April 2012) and 23% (effective from 1 April 2013) were substantively enacted on 26 March 2012 and
3 July 2012 respectively.
This will reduce the Group’s future current tax charge accordingly and further reduce the deferred tax liability at 30 June 2012
(which has been calculated based on the rate of 24% substantively enacted at 30 June 2012) by £100,000.
It has not yet been possible to quantify the full anticipated effect of the announced further 1% rate reduction, although this will further
reduce the Group’s future current tax charge and reduce the Group’s deferred tax liability accordingly.
9. Dividends
Final dividend paid in respect of prior year but not recognised as a liability in
that year: 7.72p* per share (2011: 6.61p*)
Interim dividend paid: 3.77p* per share (2011: 3.40p*)
Total dividend 11.49p* per share (2011: 10.01p*) recognised as distributions to equity holders
in the period
Proposed final dividend for the year ended 30 June 2012: 8.50p per share (2011: 7.72p*)
Total dividend paid and proposed for the year ended 30 June 2012: 12.27p* per share
(2011: 11.12p*)
* Restated to reflect the impact of the bonus element of the Rights Issue.
2012
£’000
5,584
2,741
8,325
7,384
2011
£’000
4,764
2,457
7,221
5,582
10,125
8,039
In accordance with IAS 10 ‘Events After the Balance Sheet Date’, the proposed final dividend for the year ended 30 June 2012
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 2013.
The final dividend for the year ended 30 June 2011 is shown as a deduction from equity in the year ended 30 June 2012.
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 104
Notes to the Consolidated Financial Statements
continued
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
* Underlying measures exclude non-underlying items as defined on the consolidated income statement.
† Restated to reflect the impact of the bonus element of the Rights Issue.
2012
Pence
2011
Pence
32.37†
15.65†
32.27†
15.60†
31.53†
19.59†
31.43†
19.53†
£’000
24,302
11,749
£’000
22,748
14,134
No.
No.
75,082,169 72,138,011†
240,643†
75,306,859 72,378,654†
224,690
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts 105
11. Intangible Assets
Cost
At 1 July 2010
Additions
Acquisitions through business
combinations
Disposals
Foreign exchange adjustments
At 30 June 2011 and 1 July 2011
Additions
Acquisitions through business
combinations
Disposals
Foreign exchange adjustments
At 30 June 2012
Amortisation
At 1 July 2010
Charge for the year
At 30 June 2011 and 1 July 2011
Charge for the year
Disposals
At 30 June 2012
Net book value
At 30 June 2012
At 30 June 2011 and 1 July 2011
At 30 June 2010
Goodwill
£’000
Software
£’000
20,496
—
2,171
—
1,582
24,249
2,522
964
—
—
62
3,548
Develop-
ment
costs
£’000
5,856
1,025
184
—
37
7,102
Patent
rights
£’000
2,859
821
—
—
—
3,680
—
1,186
447
—
36,348
—
(2,676)
57,921
—
—
—
—
—
—
57,921
24,249
20,496
74
—
(152)
4,656
754
316
1,070
551
—
1,621
3,035
2,478
1,768
—
(61)
(48)
7,440
1,234
881
2,115
1,005
(14))
3,106
4,334
4,987
4,622
—
—
—
3,680
571
227
798
335
—
1,133
2,547
2,882
2,288
Contracted capital commitments
Software assets in the course of construction included above
Marketing
authori-
sations
£’000
Acquired
intangibles
£’000
Total
£’000
853
—
—
—
—
853
—
—
—
—
853
—
—
—
—
—
—
853
853
853
66,759
—
99,345
2,810
44,505
—
3,738
115,002
46,860
—
5,419
154,434
5,114
6,747
78,629
—
(5,339)
193,406
115,051
(61)
(8,215)
267,956
16,415
8,938
25,353
10,871
—
36,224
18,974
10,362
29,336
12,762
(14)
42,084
157,182
89,649
50,344
225,872
125,098
80,371
2012
£’000
616
638
2011
£’000
609
857
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.
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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 2010
Acquisitions through business combinations
Foreign exchange adjustments
At 30 June 2011 and 1 July 2011
Additions
Acquisitions through business combinations
Foreign exchange adjustments
At 30 June 2012
Amortisation
At 1 July 2010
Charge for the year
At 30 June 2011 and 1 July 2011
Charge for the year
At 30 June 2012
Net book value
At 30 June 2012
At 30 June 2011 and 1 July 2011
At 30 June 2010
Acquired
Development
Costs
£’000
Product
Rights
£’000
Customer
Relationships
£’000
66,382
—
44,505
—
—
3,738
— 114,625
5,114
—
54,549
24,080
(3,704)
(1,635)
170,584
22,445
—
—
—
—
—
16,299
8,900
25,199
10,833
36,032
22,445
—
—
134,552
89,426
50,083
377
—
—
377
—
—
—
377
116
38
154
38
192
185
223
261
Total
£’000
66,759
44,505
3,738
115,002
5,114
78,629
(5,339)
193,406
16,415
8,938
25,353
10,871
36,224
157,182
89,649
50,344
The amortisation charge is recognised within administrative expenses in the income statement.
The principal assets within acquired intangibles are the development costs and product rights recognised on the acquisitions
of Dechra Veterinary Products Holding A/S, DermaPet Inc., Genitrix Limited and Eurovet Animal Health B.V. The carrying value
of these assets at 30 June 2012 was £145.1 million with a remaining amortisation period of 5½ years, 13½ years, 8½ years
and 10 years respectively. The other significant assets within acquired intangibles are the product rights recognised on the
acquisition of Pharmaderm Animal Health and HY-50. The carrying value at 30 June 2012 was £1.7 million and £4.9 million
with a remaining amortisation period of 11 years and 9½ years respectively.
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 2012 was
£1.5 million with a remaining amortisation period of 6½ years. The rights to Equidone, which was launched in the US during
2011, has a carrying value of £0.7 million with an amortisation period of 9 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.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts 12. Property, Plant and Equipment
Cost
At 1 July 2010
Additions
Acquisitions through business combinations
Disposals
Foreign exchange adjustments
At 30 June 2011 and 1 July 2011
Additions
Acquisitions through business combinations
Disposals
Foreign exchange adjustments
At 30 June 2012
Depreciation
At 1 July 2010
Charge for the year
Disposals
At 30 June 2011 and 1 July 2011
Charge for the year
Disposals
At 30 June 2012
Net book value
At 30 June 2012
At 30 June 2011 and 1 July 2011
At 30 June 2010
Net book value of assets held under finance leases
At 30 June 2012
At 30 June 2011 and 1 July 2011
At 30 June 2010
Contracted capital commitments
Freehold
land and
buildings
£’000
Short
leasehold
buildings
£’000
Motor
vehicles
£’000
Plant and
fixtures
£’000
2,256
1
—
—
190
2,447
34
6,749
—
(353)
8,877
334
137
—
471
176
—
647
8,230
1,976
1,922
—
—
—
3,327
65
—
(10)
—
3,382
77
—
—
—
3,459
1,250
216
(10)
1,456
219
—
1,675
1,784
1,926
2,077
32
40
47
201
—
4
—
—
205
—
14
(2)
—
217
201
—
—
201
2
—
203
14
4
—
—
—
—
10,341
1,214
19
(240)
93
11,427
1,534
2,691
(218)
(158)
15,276
6,667
1,182
(237)
7,612
1,187
(215)
8,584
6,692
3,815
3,674
371
568
751
2012
£’000
366
107
Total
£’000
16,125
1,280
23
(250)
283
17,461
1,645
9,454
(220)
(511)
27,829
8,452
1,535
(247)
9,740
1,584
(215)
11,109
16,720
7,721
7,673
403
608
798
2011
£’000
77
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Notes to the Consolidated Financial Statements
continued
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 and extrapolated by applying a growth rate of 5% (2011:
5%) per annum up to year five and thereafter a growth rate of 0% (2011: 0%) 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 2012 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
2012
2011
Carrying
value
£’000
52,749
320
2,621
2,231
Pre-tax
discount
rate
%
8.90
9.52
9.87
8.70
Carrying
value
£’000
19,085
312
2,621
2,231
Pre-tax
discount
rate
%
9.87
10.65
10.83
9.62
2012
2011
Carrying
value
£’000
822
Pre-tax
discount
rate
%
8.90
Carrying
value
£’000
822
Pre-tax
discount
rate
%
9.87
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% and a reduction in the growth rate to nil would still not result
in the requirement for an impairment provision.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts 109
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
Employee benefit obligations
Assets
Liabilities
Net
2012
£’000
—
—
1,178
—
435
813
74
2,500
2011
£’000
—
—
478
41
161
861
—
1,541
2012
£’000
(29,984)
(1,691)
—
—
(168)
—
—
(31,843)
2011
£’000
(14,204)
(550)
—
—
(230)
—
—
(14,984)
2012
£’000
(29,984)
(1,691)
1,178
—
267
813
74
(29,343)
2011
£’000
(14,204)
(550)
478
41
(69)
861
—
(13,443)
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 (2011: £nil). The estimated unprovided deferred tax liability in relation to these temporary
differences is £nil (2011: £nil). Deferred tax assets in relation to losses amounting to £368,000 (2011: £nil) have not been
recognised due to uncertainty over their recoverability.
(c) Movements During the Year
Intangible assets
Property, plant and equipment
Inventories
Receivables
Payables
Share-based payments
Intangible assets
Property, plant and equipment
Inventories
Receivables
Payables
Employee benefit obligations
Share-based payments
Balance at
1 July
2010
£’000
(13,217)
(556)
548
49
80
600
(12,496)
Balance at
1 July
2011
£’000
(14,204)
(550)
478
41
(69)
—
861
(13,443)
Recognised
in income
£’000
1,699
6
(70)
(8)
(145)
95
1,577
Acquisitions
£’000
(1,546)
—
—
—
—
—
(1,546)
Recognised
in equity
£’000
—
—
—
—
(4)
166
162
Foreign
exchange
adjustments
£’000
(1,140)
—
—
—
—
—
(1,140)
Balance at
30 June
2011
£’000
(14,204)
(550)
478
41
(69)
861
(13,443)
Recognised
in income
£’000
2,826
(389)
700
(41)
(99)
—
29
3,026
Acquisitions
£’000
(20,205)
(835)
—
—
435
74
—
(20,531)
Recognised
in equity
£’000
—
—
—
—
—
—
(77)
(77)
Foreign
exchange
adjustments
£’000
1,599
83
—
—
—
—
—
1,682
Balance
at
30 June
2012
£’000
(29,984)
(1,691)
1,178
—
267
74
813
(29,343)
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 110
Notes to the Consolidated Financial Statements
continued
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
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
2012
£’000
7,732
1,661
47,888
57,281
2012
£’000
69,596
965
1,552
72,113
2011
£’000
5,170
371
35,219
40,760
2011
£’000
62,212
2,492
1,589
66,293
2012
£’000
32,435
2011
£’000
30,496
2012
£’000
63,559
6,745
387
3,402
5,770
79,863
2011
£’000
63,213
4,770
397
3,827
2,352
74,559
2012
£’000
8,155
2011
£’000
5,391
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts 111
2012
£’000
5,000
695
(589)
5,106
115,757
246
(1,957)
114,046
119,152
2011
£’000
8,000
502
—
8,502
55,746
339
—
56,085
64,587
20. Borrowings
Current liabilities:
Bank loans
Finance lease obligations
Arrangement fees netted off
Non-current liabilities:
Bank loans
Finance lease obligations
Arrangement fees netted off
Total borrowings
On 4 April 2012, the Group refinanced its existing bank facility, which gave rise to a loss on extinguishment of debt of
£158,000. The Group’s revised borrowing facilities comprise a term loan of £55 million payable over 4½ years, a £65 million
revolving credit facility committed until 31 October 2016, an overdraft facility of £10 million (currently unutilised) renewable on
1 April 2013 and various finance lease obligations.
At the year end, the Group had the following unutilised borrowing facilities:
Bank overdraft facility
Revolving credit facility
2012
£’000
10,000
—
2011
£’000
10,000
254
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 2.50% over LIBOR in respect of the term loan and revolving credit facility and 2.50% over base rate in
respect of the overdraft facility. No covenants have been breached during the year ended 30 June 2012.
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
2012
£’000
2011
£’000
5,000
10,000
105,757
—
120,757
8,000
8,000
47,746
—
63,746
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 112
Notes to the Consolidated Financial Statements
continued
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
2012
£’000
730
217
36
983
(42)
941
2011
£’000
543
343
4
890
(49)
841
2012
£’000
695
210
36
941
—
941
2011
£’000
502
335
4
841
—
841
Further information on the interest profile of borrowings is shown in note 22.
21. Employee Benefit Obligations
The Group sponsors defined benefit arrangements in certain countries, the most material being a defined benefit pension
plan in the Netherlands. This is a funded career average pay arrangement, where pensionable salary is subject to a cap. The
arrangement is financed through an insurance contract.
The other defined benefit pension arrangements operated by the Company are unfunded: Jubilee awards of £61,000 for
employees in the Netherlands and Germany and early retirement plan provisions in Germany of £2,000 are recognised within
other payables in the statement of financial position as at 30 June 2012.
The pension cost relating to the defined benefit pension arrangement in the Netherlands is assessed in accordance with the
advice of an independent qualified actuary using the projected unit method.
The major actuarial assumptions used by the actuary were:
Discount rate
Expected return on assets
Inflation assumption
Salary growth
Rate of increase in accrued pensions of active members
Rate of increase in pensions in payment
Rate of increase in pensions in deferment
2012
4.60%
4.60%
1.90%
2.40%
1.90%
0.00%
0.00%
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts 113
21. Employee Benefit Obligations continued
In valuing the liabilities of the pension scheme at 30 June 2012, mortality assumptions have been made as indicated below.
The mortality assumption follows the AG Prognosetafel 2010-2060 mortality tables with an experience adjustment in line with
the ES-P2 tables as published by the Dutch Alliance of Insurers.
The assumptions used by the Group are the best estimates chosen by the Directors from a range of possible actuarial
assumptions which, due to the timescale covered, may not necessarily be borne out in practice.
Present value of funded defined benefit obligations
Fair value of scheme assets
Net pension scheme deficit
Movements in Present Value of Defined Benefit Obligations
Defined benefit obligation at acquisition
Service cost
Interest cost
Employee contributions
Defined benefit obligations at end of the period
Movements in Fair Value of Scheme Assets
Fair value of scheme assets at acquisition
Expected return on scheme assets
Additional charges
Employer contributions
Employee contributions
Fair value of scheme assets at end of the period
Analysis of the Amount Charged to the Income Statement
Service cost
Expected return on assets
Interest on liabilities
Insurance charges
Net pension expense
2012
£’000
(2,801)
2,438
(363)
2012
£’000
2,745
37
12
7
2,801
2012
£’000
2,404
10
(23)
40
7
2,438
2012
£’000
37
(10)
12
23
62
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 114
Notes to the Consolidated Financial Statements
continued
21. Employee Benefit Obligations continued
Scheme Assets
The Group’s defined benefit pension scheme in the Netherlands is financed through an insurance contract. Under this contract,
a market price for the assets in respect of this insurance contract is not available. In accordance with IAS 19 for such insurance
policies, an asset value has been calculated by discounting expected future cash flows. The discount rate used for this
calculation reflects the risk associated with the scheme assets and the maturity or expected disposal date of those assets.
The fair value of the scheme’s assets is as follows:
Discount rate used to value assets
Total fair value of assets
Actual return on scheme assets
2012
£’000
4.60%
2,438
10
The long term rate of return on pension plan assets is determined by aggregating the expected return for each asset class over
the strategic asset allocation as at 30 June 2012. This rate of return is then adjusted for any expected profit sharing based on
market related returns on notional loans.
The scheme’s assets do not include any of the Group’s own financial instruments or any property occupied by or other assets
used by the Group.
The employer contributions expected to be paid into the scheme for the next financial period amount to £480,000.
History of Amounts in the Current Period
Present value of funded defined benefit obligations
Fair value of scheme assets
Deficit in the scheme
2012
£’000
(2,801)
2,438
(363)
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts 115
22. 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 policy
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 2012, net borrowings were
£86.7 million, whilst Shareholders’ equity was £153.7 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.
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 2012 and 2011. 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.
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 116
Notes to the Consolidated Financial Statements
continued
22. Financial Instruments and Related Disclosures continued
Financial Risk Management
The Group has exposure to the following risks from its use of financial instruments:
• liquidity risk
• market risk
• credit risk
This note presents information about the Group’s exposure to each of the above risks, and the Group’s objectives, policies and
processes for measuring and managing risk.
Liquidity Risk
Liquidity risk is the risk that the Group will not have sufficient funds to meet liabilities as they fall due. Cash forecasts identifying
the liquidity requirements of the Group are produced quarterly. These are reviewed to ensure sufficient financial headroom
exists for at least a 12 month period.
The Group manages its funding requirements through the following lines of credit:
• £55 million term loan
• £65 million revolving credit facility
• £10 million working capital facility
• various finance leases
The Group’s undrawn borrowing facilities at 30 June 2012 are detailed in note 20.
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates or interest rates, will affect the Group’s
income or the value of its holding of financial instruments.
Interest Rate Risk Management
The majority of the Group’s borrowings bear interest at floating rates linked to base rate or LIBOR and are consequently
exposed to cash flow interest rate risk.
The Group has hedged interest rate risk on a proportion of its term loan and revolving credit facility 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 2012 was
£120.8 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 hedges selectively expected currency cash flows outside normal trading activities, principally using foreign currency
options.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
117
22. Financial Instruments and Related Disclosures continued
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations.
The Group considers its maximum credit risk to be £102,996,000 (2011: £95,200,000) 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 13.4% of gross trade receivables at 30 June 2012 (2011:
13.1%). 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.
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
2012 and 30 June 2011.
The following assumptions were used to estimate the fair values:
• Cash and cash equivalents — approximates to the carrying amount.
• Forward exchange contracts — based on market price and exchange rates at the balance sheet date.
• Interest rate swaps — based upon the amount that the Group would receive or pay to terminate the instrument at the
balance sheet date, being the market price of the instrument.
• Receivables and payables — approximates to the carrying amount.
• Bank loans and overdrafts — based upon discounted cash flows using discount rates based upon facility rates renegotiated
after the 30 June 2011 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.
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Notes to the Consolidated Financial Statements
continued
22. Financial Instruments and Related Disclosures continued
Analysis of Financial Instruments
The financial instruments of the Group are analysed as follows:
Financial assets
Cash and cash equivalents
Loans and receivables
— trade receivables
— other receivables
Total financial assets
Financial liabilities
Bank loans and overdrafts
Held for trading financial liabilities
— derivatives designated as hedges
Finance lease liabilities
Trade payables
Other payables
Deferred and contingent consideration
Total financial liabilities
Net financial liabilities
2012
2011
Carrying
value
£’000
Fair
value
£’000
Carrying
value
£’000
Fair
value
£’000
32,435
32,435
32,435
32,435
30,496
30,496
30,496
30,496
69,596
965
70,561
102,996
69,596
965
70,561
102,996
62,212
2,492
64,704
95,200
62,212
2,492
64,704
95,200
(120,757)
(120,757)
(63,746)
(62,026)
(387)
(941)
(63,559)
(13,222)
(13,863)
(212,729)
(109,733)
(387)
(938)
(63,559)
(13,222)
(13,863)
(212,726)
(109,730)
(397)
(841)
(63,213)
(7,122)
(14,055)
(149,374)
(54,174)
(397)
(799)
(63,213)
(7,122)
(14,055)
(147,612)
(52,412)
Fair Value Hierarchy
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined
as follows:
• Level 1 — quoted prices (unadjusted) in active market for identical assets or liabilities.
• 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).
• Level 3 — inputs for the asset or liability that are not based on observable market data (unobservable inputs).
30 June 2012
Derivative financial liabilities
Deferred and contingent consideration
Total
30 June 2011
Derivative financial liabilities
Deferred and contingent consideration
Total
Level 1
£’000
—
—
—
Level 1
£’000
—
—
—
Level 2
£’000
(387)
—
(387)
Level 2
£’000
(397)
—
(397)
Level 3
£’000
—
(13,863)
(13,863)
Level 3
£’000
—
(14,055)
(14,055)
Total
£’000
(387)
(13,863)
(14,250)
Total
£’000
(397)
(14,055)
(14,452)
Movements in deferred and contingent consideration consists of a £0.5 million payment made under the terms of the Genitrix
acquisition and a £0.3 million increase in relation to the DermaPet acquisition due to unwinding of discount.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
119
22. Financial Instruments and Related Disclosures continued
Credit Risk — Overdue Financial Assets
The following table shows financial assets which are overdue and for which no impairment provision has been made:
Overdue by:
Up to one month
Between one and two months
Between two and three months
Over three months
The movement in the impairment provision was as follows:
At start of period
Impairment provision recognised
Impairment provision utilised
At end of period
2012
£’000
5,810
983
644
2,649
10,086
2012
£’000
2,911
231
(265)
2,877
2011
£’000
3,731
1,276
1,005
1,764
7,776
2011
£’000
2,383
716
(188)
2,911
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 2012 and 30 June 2011. Where interest is at floating rates, the future interest payments have been estimated using
current interest rates:
At 30 June 2012
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
Deferred and
Contingent
Consideration
£’000
(13,863)
—
(467)
(14,330)
Bank Loans
and
Overdrafts
£’000
(118,211)
(2,546)
(6,056)
(126,813)
Finance
Leases
£’000
(941)
—
(42)
(983)
Trade and
other
payables
£’000
(76,781)
—
—
(76,781)
—
(10,336)
—
(3,994)
—
—
—
(14,330)
(756)
(6,760)
(11,666)
(11,315)
(15,921)
(80,395)
—
(126,813)
(365)
(365)
(217)
(36)
—
—
—
(983)
(76,781)
—
—
—
—
—
—
(76,781)
Total
£’000
(209,796)
(2,546)
(6,565)
(218,907)
(77,902)
(17,461)
(11,883)
(15,345)
(15,921)
(80,395)
—
(218,907)
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 120
Notes to the Consolidated Financial Statements
continued
22. Financial Instruments and Related Disclosures continued
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
Deferred and
Contingent
Consideration
£’000
(14,055)
(839)
(14,894)
Bank Loans
and
Overdrafts
£’000
(63,746)
(2,825)
(66,571)
—
(500)
(10,096)
—
(4,298)
—
—
(14,894)
(4,532)
(4,573)
(8,932)
(12,645)
(35,889)
—
—
(66,571)
Finance
Leases
£’000
(841)
(49)
(890)
(271)
(271)
(344)
(4)
—
—
—
(890)
Trade and
other
payables
£’000
(70,335)
—
(70,335)
(70,335)
—
—
—
—
—
—
(70,335)
Total
£’000
(148,977)
(3,713)
(152,690)
(75,138)
(5,344)
(19,372)
(12,649)
(40,187)
—
—
(152,690)
The contractual undiscounted cash flows in respect of derivative financial instruments are as follows:
Due:
Within 6 months
Between 6 months and 1 year
Between 1 and 2 years
2012
2011
Receivables
£’000
Payables
£’000
Receivables
£’000
Payables
£’000
—
—
—
—
81
94
212
387
—
—
—
—
108
114
175
397
The Group has a contractual obligation to pay £81,000 (2011: £108,000) under its interest rate swap arrangement covering
the period from 29 June to 28 September 2012.
With the exception of the above disclosed, there are no other assets that have been impaired during the year.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
121
22. Financial Instruments and Related Disclosures continued
Foreign Currency Exposure
The Sterling equivalents of financial assets and liabilities denominated in foreign currencies at 30 June 2012 and
30 June 2011 were:
At 30 June 2012
Financial assets
Trade receivables
Other receivables
Cash balances
Other financial assets
Financial liabilities
Bank loans and overdrafts
Finance leases
Trade payables
Other financial liabilities
Net balance sheet exposure
At 30 June 2011
Financial assets
Trade receivables
Other receivables
Cash balances
Other financial assets
Financial liabilities
Bank loans
Finance leases
Trade payables
Derivatives
Net balance sheet exposure
Danish
Krone
£’000
6,666
147
2,766
242
9,821
—
—
(1,794)
(3,921)
(5,715)
4,106
Danish
Krone
£’000
1,877
168
1,675
480
4,200
—
—
(3,225)
(3,286)
(6,511)
(2,311)
Euro
£’000
9,902
284
4,900
49
15,135
(17,264)
(248)
(2,333)
(1,902)
(21,747)
(6,612)
Euro
£’000
3,514
30
786
103
4,433
(3,997)
(406)
(1,141)
(1,479)
(7,023)
(2,590)
US
Dollar
£’000
4,019
20
7,372
—
11,411
(28,675)
—
(1,210)
—
(29,885)
(18,474)
US
Dollar
£’000
4,320
—
1,163
—
5,483
(27,746)
—
(167)
—
(27,913)
(22,430)
Other
£’000
2,222
73
3,042
171
5,508
—
—
(142)
(1,669)
(1,811)
3,697
Other
£’000
5,858
232
2,622
133
8,845
—
—
(284)
(1,090)
(1,374)
7,471
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 122
Notes to the Consolidated Financial Statements
continued
22. Financial Instruments and Related Disclosures continued
Sensitivity Analysis
Interest Rate Risk
A 2.0% increase in interest rates compared to those ruling at 30 June 2012 would reduce Group profit before taxation and
equity by £168,000 (2011: £281,000).
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
(4,077)
36
210
Net
assets
£’000
(5,925)
(323)
(1,989)
Hedges
Cash Flow Hedges
The Group has entered into an interest rate swap on the term loan of £55.0 million and the revolving credit facility of
£65.0 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 2012 was a liability of £286,000 including an income tax credit of
£101,000 (2011: £294,000 including an income tax credit of £103,000).
23. Share Capital
Allotted, called up and fully paid at start of year
Rights issue
New shares issued
Allotted, called up and fully paid at end of year
Ordinary shares of 1p each
2012
2011
£’000
664
201
4
869
No.
66,449,659
20,040,653
379,864
86,870,176
£’000
661
—
3
664
No.
66,090,075
—
359,584
66,449,659
The Companies Act 2006 abolishes the requirement for a company to have an authorised share capital. At the 2009 Annual
General Meeting the 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 379,864 new ordinary shares of 1p (2011: 359,584 new ordinary shares of 1p) were issued following the
exercise of options under the Long Term Incentive Plan, and the Approved, Unapproved and SAYE Share Options Schemes.
The consideration received was £452,782 (2011: £542,000). 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.
The Company issued 20,040,653 shares of 1p each by way of a 3 for 10 Rights Issue at an issue price of 300p per share
on 16 May 2012. The rights issue generated net proceeds of £58,835,110 after costs of £1,286,849. The issue price
represented a discount of 35.3% to the closing price of 464p per share on 4 April 2012, being the last business day before the
announcement of the Rights Issue.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
123
24. Share-based Payments
During the year, the Company operated the Unapproved Share Option Scheme, the Approved Share Option Scheme, the Long
Term 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.
Long Term Incentive Plan
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.
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 124
Notes to the Consolidated Financial Statements
continued
24. Share-based Payments continued
Year ended 30 June 2012
Exercise
price
per share*
Pence
At
1 July
2011
Number
Exercise
Period
Exercised
Number
Granted
Number
Adjusted
for Rights
Issue*
Lapsed
Number
At
30 June
2012
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
2005-2012
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
Long Term Incentive Plan
19 November 2008
24 September 2009
22 December 2010
7 September 2011
2011-2012
2012-2013
2013-2014
2014-2015
140.98
53.75
265.43
336.15
364.63
381.15
418.81
461.97
123.53
165.32
185.98
231.45
265.43
336.15
364.63
381.15
418.81
461.97
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
(1,500)
—
(3,809)
(8,585)
(2,500)
(3,876)
—
—
(20,270)
—
(1,667)
(2,000)
(10,443)
(5,156)
(15,784)
—
(5,921)
—
—
(40,971)
—
—
—
222
—
1,449
—
2,731
—
2,752
—
4,617
—
4,250
4,904
—
— 20,925
887
—
—
—
1,862
—
2,392
—
4,562
—
3,030
—
222
—
1,496
—
2,477
—
1,730
—
— 18,658
—
—
(611)
(3,000)
—
2,722
14,615
27,029
— 33,752
52,862
52,314
60,361
243,655
(2,800)
(4,790)
(5,231)
(16,432)
— 10,887
—
—
— 22,862
23,949
54,918
37,363
2,722
12,454
30,413
21,273
216,841
(4,000)
(3,389)
(3,000)
—
(6,200)
(5,210)
(3,769)
(25,568)
— (94,555)
(232,717)
—
—
— 279,263
279,263
—
— 24,663
— 20,939
24,797
70,399
(232,717)
—
— 302,421
— 256,780
— 304,060
863,261
(94,555)
SAyE Option Scheme
12 October 2006
17 October 2007
13 October 2008
12 October 2009
13 December 2010
17 October 2011
2009-2013
2010-2014
2011-2015
2012-2016
2013-2017
2014-2018
179.77
257.16
315.02
304.92
375.64
365.54
Total
Weighted average exercise price*
27,681
69,291
105,141
117,426
105,400
—
424,939
1,789,964
175.24p
—
(24,090)
—
—
—
(61,816)
—
—
—
—
— 97,486
97,486
376,749
94.59p
(85,906)
(379,864)
111.35p
318
6,731
3,563
9,508
7,716
8,127
35,963
145,945
—
3,909
— 76,022
42,588
114,713
95,020
100,126
432,378
(176,659) 1,756,135
172.47p
(4,300)
(12,221)
(18,096)
(5,487)
(40,104)
— 167.92p
* Adjusted to reflect the bonus element of the Rights Issue — there has been no impact on the overall fair value of options in issue.
† Total share options exercisable at 30 June 2012 are 296,135.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
125
24. Share-based Payments continued
Year ended 30 June 2011
Exercise
price
per share
Pence
Exercise
Period
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
2005–2012
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
At
1 July
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
Exercised
Number
Granted
Number
Lapsed
Number
(2,000)
—
(3,549)
(6,155)
—
—
—
—
(11,704)
(9,000)
(15,000)
(8,000)
(25,000)
(43,764)
(12,845)
—
—
—
—
(113,609)
—
—
—
—
—
—
—
60,688
60,688
—
—
—
—
—
—
—
—
—
23,312
23,312
—
—
—
(3,000)
—
—
—
—
(3,000)
—
—
—
—
(3,000)
(2,000)
—
—
—
—
(5,000)
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
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
—
(152,472)
—
—
—
—
— 235,841
235,841
(152,472)
—
—
— 327,272
— 277,758
— 235,841
— 840,871
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
204.00
195.74
280.00
343.00
332.00
409.00
Total
Weighted average exercise price
* Total share options exercisable at 30 June 2011 are 240,154.
19,410
27,681
139,562
109,435
137,993
—
434,081
1,765,050
183.3p
—
(18,779)
—
—
—
(63,020)
—
—
—
—
— 112,743
112,743
432,584
204.3p
(81,799)
(359,584)
150.9p
(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
The weighted average exercise price of options eligible to be exercised at 30 June 2012 was 302.5p (2011: 293.2p).
For options exercised during the year, the weighted average market price at the date of exercise was 461p (2011: 503p). The
weighted average remaining contractual lives of options outstanding at the consolidated statement of financial position date
was four years (2011: four years).
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 126
Notes to the Consolidated Financial Statements
continued
24. Share-based Payments continued
Outstanding options on all Long Term Incentive Plan, Approved and Unapproved plans prior to 30 June 2009 were exercisable
at 30 June 2012.
No options issued under SAYE plans were exercisable at 30 June 2012.
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 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:
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
07/09/11
279,263
455.5p
Nil
3 years
0.85%
38%
2.66%
276p
22/12/10
235,841
514.00p
Nil
3 years
1.60%
39%
2.04%
322p
28/02/11
84,000
507.5p
503p
5 years
2.65%
36%
2.07%
149p
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
127
17/10/11
97,486
478p
398p
13/12/10
112,743
507p
409p
3.25 years 3.25 years
5.25 years 5.25 years
7.25 years 7.25 years
0.98%
1.58%
2.11%
34%
2.53%
140p
147p
161p
1.46%
2.24%
2.90%
36%
2.07%
165p
181p
201p
24. 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
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 2012 of £73,000 (2011: £229,000), of which £18,000
(2011: £15,000) 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.
2012
£’000
1,001
(24)
977
2011
£’000
830
118
948
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 128
Notes to the Consolidated Financial Statements
continued
25. Analysis of Net Borrowings
Bank loans
Finance leases and hire purchase contracts
Cash and cash equivalents
Net borrowings
26. Operating Leases
2012
£’000
(118,211)
(941)
32,435
(86,717)
2011
£’000
(63,746)
(841)
30,496
(34,091)
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
2011
2012
£’000
£’000
1,219
1,301
4,062
3,300
3,472
2,927
8,753
7,528
Other assets
Total
2012
£’000
2,279
2,414
—
4,693
2011
£’000
1,278
1,234
—
2,512
2012
£’000
3,580
5,714
2,927
12,221
2011
£’000
2,497
5,296
3,472
11,265
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.
27. 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
2011
8.256
1.1070
1.6073
Closing
rate
at 30 June
2012
9.21
1.2389
1.5681
Average
rate
8.7165
1.1716
1.5686
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
129
28. Acquisitions
Acquisition of Eurovet Animal Health B.V.
On 23 May 2012, the Group acquired 100% of the share capital of Eurovet Animal Health B.V. obtaining control of Eurovet.
Eurovet is a veterinary pharmaceuticals business based in mainland Europe with its head office, manufacturing facility, research
and development team and central sales and marketing office located in the Netherlands. Additionally, it has operations in
Germany, Belgium, Denmark and the United Kingdom.
It has highly complementary products, geographies, manufacturing competencies and is similar in structure to Dechra
Veterinary Products.
Recognised amounts of identifiable assets acquired and liabilities assumed
Identifiable assets
Property, plant and equipment
Trade and other receivables
Inventory
Cash and cash equivalents
Indentifiable intangible assets
Identifiable liabilities
Trade and other payables
Employee benefit obligations
Current tax
Deferred tax
Net identifiable assets
Goodwill
Total consideration
Satisfied by:
Cash
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
9,454
6,600
12,795
3,989
14,620
(8,354)
(341)
(1,041)
(858)
36,864
9,454
6,596
12,507
3,989
78,703
(8,825)
(341)
(1,690)
(20,531)
79,862
36,348
116,210
116,210
116,210
116,210
(3,989)
112,221
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 £5,669,000.
The provisional fair value adjustments principally relate to harmonisation with Group IFRS accounting policies, including the
application of fair values on acquisition, principally the recognition of product rights in accordance with IFRS 3.
The goodwill of £36,348,000 arising from the acquisition consists of the synergies, assembled workforce, technical expertise and the
increased geographical presence in Germany and the Netherlands. None of the goodwill is expected to be deductible for income tax
purposes.
Acquisition related costs (included in operating expenses) amounted to £2,315,000. Eurovet’s results are reported within the
European Pharmaceuticals segment.
Eurovet contributed £7,127,000 revenue and £852,000 to the Group’s underlying pre-tax profit for the period between the date of
acquisition and the balance sheet date. If the acquisition of Eurovet had been completed on the first day of the financial year, Group
revenues for the period would have been £500,775,000 and the Group underlying pre-tax profit would have been £40,898,000.
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130
Notes to the Consolidated Financial Statements
continued
28. Acquisitions continued
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
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 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. An amount of
£500,000 was paid during the year ended 30 June 2012 leaving a remaining potential payment of £300,000.
Acquisition related costs (included in non-underlying operating expenses) amounted to £108,000.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
131
28. Acquisitions continued
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
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
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 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. achieves
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
exceeds 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.
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132
Notes to the Consolidated Financial Statements
continued
29. Related Party Transactions
Subsidiaries
The Group’s ultimate Parent Company is Dechra Pharmaceuticals PLC. A listing of all principal subsidiaries is shown within the
financial statements of the Company on page 141.
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 59 to 70. 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.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
Company Balance Sheet
At 30 June 2012
Fixed assets
Investments
Intangible assets
Current assets
Debtors (includes amounts falling due after more than one year of £571,000
(2011: £2,417,000))
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
133
Note
2012
£’000
2011
£’000
iii
iv
v
vi
vi
ix
x
x
x
251,104
4,901
256,005
132,119
—
132,119
21,306
1,052
22,358
(35,916)
(13,558)
242,447
(113,800)
128,647
869
122,642
(286)
5,422
128,647
39,873
2
39,875
(43,866)
(3,991)
128,128
(55,746)
72,382
664
63,559
(294)
8,453
72,382
The financial statements were approved by the Board of Directors on 4 September 2012 and are signed on its behalf by:
Ian Page
Chief Executive
4 September 2012
Simon Evans
Group Finance Director
4 September 2012
Company number: 3369634
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134
Reconciliation of Movements in Shareholders’ Funds
For the year ended 30 June 2012
At start of year
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 year
2012
£’000
72,382
4,293
(335)
343
1,001
(8,325)
59,288
128,647
2011
£’000
73,045
5,132
(506)
488
903
(7,221)
541
72,382
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts 135
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 £4,293,000 (2011: £5,132,000). 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.
Intangible Assets
Product rights that are acquired by the Company are stated at cost less accumulated amortisation and impairment losses.
Product rights are amortised over the period of their useful lives.
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 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.
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Notes to the Company Financial Statements
continued
(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 to 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
Pensions
(i)
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 a Long Term Incentive Plan for Directors and senior executives.
The fair value of shares or options granted is recognised as an employee expense on a straight-line basis in the profit and
loss account with a corresponding movement in equity. The fair value is measured at grant date and spread over the period
during which the employees become unconditionally entitled to the shares or options (the vesting period). The fair value
of the shares or options granted is measured using a valuation model, taking into account the terms and conditions upon
which the shares or options were granted. The amount recognised as an expense in the profit and loss account is adjusted
to take into account an estimate of the number of shares or options that are expected to vest together with an adjustment to
reflect the number of shares or options that actually do vest except where forfeiture is only due to market-based conditions
not being achieved.
The fair values of grants under the Long Term Incentive Plan have been determined using the Monte Carlo simulation
model. The fair values of options granted under all other share option schemes have been determined using the Black-
Scholes option pricing model.
National Insurance contributions payable by the Company on the intrinsic value of share-based payments at the date of
exercise are treated as cash settled awards and revalued to market price at each balance sheet date.
Where the Company grants options over its own shares to the employees of its subsidiaries it recharges the expense to
those subsidiaries.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
137
(i) Principal Accounting Policies of the Company continued
Foreign Currency
Foreign currency transactions are translated into Sterling using the exchange rates prevailing at the dates of the transactions.
Monetary assets and liabilities are translated at the closing rate at the reporting date. Foreign exchange gains and losses are
recognised in the profit and loss account.
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 and have been substantively enacted 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 £1,727,000 (2011: £1,696,000). Information
relating to Directors’ emoluments, share options and pension entitlements is set out in the Directors’ Remuneration Report on
pages 59 to 70.
(iii) Fixed Asset Investments
Cost
At 1 July 2011
Additions
At 30 June 2012
Net book value
At 30 June 2012
At 30 June 2011
Shares in
Subsidiary
Undertakings
£’000
132,119
118,985
251,104
251,104
132,119
A list of principal subsidiary undertakings is given in note (xi).
Additions represent the acquisition of Eurovet Animal Health B.V. 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.
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Notes to the Company Financial Statements
continued
(iv) Intangible Assets
Cost
At 1 July 2011
Additions
At 30 June 2012
Amortisation
At 1 July 2011
Charge for the year
At 30 June 2012
Net book value
At 30 June 2012
At 30 June 2011
Acquired
Intangibles
£’000
—
5,114
5,114
—
213
213
4,901
—
On 31 January 2012 the Company acquired the worldwide rights (excluding Canada) to HY-50, an equine lameness product.
The total consideration was 8.0 million Canadian Dollars (£5.1 million) which was paid in cash on completion.
(v) Debtors
Amounts owed by subsidiary undertakings
Group relief receivable
Deferred taxation (see note (viii))
Other debtors
Prepayments and accrued income
2012
£’000
18,735
1,699
571
301
—
21,306
2011
£’000
36,836
2,248
639
98
52
39,873
Included in debtors are amounts of £571,000 (2011: £639,000) due after more than one year relating to deferred tax assets. Of
the amounts owed by subsidiary undertakings, £nil is due after more than one year (2011: £1,778,000).
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts (vi) Creditors
Bank loans and overdrafts (see note (vii))
Amounts due to subsidiary undertakings
Other creditors
Derivative financial instruments
Other taxation and social security
Accruals and deferred income
139
Falling due
within one year
2012
£’000
4,411
28,557
18
387
—
2,543
35,916
2011
£’000
31,564
9,930
868
397
79
1,028
43,866
In accordance with FRS 21 ‘Events after the Balance Sheet Date’, the proposed final dividend for the year ended 30 June
2012 of 8.50p per share (2011: 7.72p per share restated to take into account the bonus element of the Rights Issue) has not
been accrued for in these financial statements. It will be shown in the financial statements for the year ending 30 June 2013.
The total cost of the proposed final dividend is £7,384,000 (2011: £5,582,000).
Bank loans (see note(vii))
(vii) Borrowings
Borrowings due within one year
Bank overdraft
Bank loan
Arrangement fees netted off
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
2011
£’000
55,746
55,746
2012
£’000
113,800
113,800
2012
£’000
—
5,000
(589)
4,411
10,000
105,757
—
115,757
(1,957)
113,800
118,211
2011
£’000
23,564
8,000
—
31,564
8,000
47,746
—
55,746
—
55,746
87,310
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 2.5% over LIBOR on the bank loan and revolving credit facility and 2.5% over base rate on the bank
overdraft. No covenants have been breached during the year ended 30 June 2012.
The Company guarantees certain borrowings of other Group companies, which at 30 June 2012 amounted to £923,000
(2011: £773,000).
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Notes to the Company Financial Statements
continued
(viii) Deferred Tax
At 1 July 2011
Transfer to profit and loss
At 30 June 2012 (included in debtors)
The amounts provided for deferred taxation at 24% (2011: 26%) are as follows:
Short term timing differences
(ix) Called up Share Capital
Issued share capital
Allotted, called up and fully paid at 1 July 2011
Rights issue
New shares issued
Allotted, called up and fully paid at 30 June 2012
£’000
639
(68)
571
2011
£’000
639
2012
£’000
571
Ordinary Shares
of 1p each
£’000
664
2002000 201
4
869
No.
66,449,659
20,040,653
379,864
86,870,176
Details of new ordinary shares issued following the Rights Issue, exercise of options under the Long Term Incentive Plan and
the Approved, Unapproved and SAYE share option schemes are shown in note 23 to the consolidated financial statements.
Share Options
Details of outstanding share options over ordinary shares of 1p at 30 June 2012 under the various Group share option
schemes are shown in note 24 to the Consolidated Financial Statements.
(x) Reserves
At 1 July 2011
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 2012
Share
premium
account
£’000
63,559
59,083
—
—
—
—
—
122,642
Hedging
reserve
£’000
(294)
—
—
(335)
343
—
—
(286)
Profit
and loss
account
£’000
8,453
—
4,293
—
—
(8,325)
1,001
5,422
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts 141
(xi) 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
Albrecht GmbH∞
Country of
Incorporation
Germany
Dechra LimitedΩ
England & Wales
Dechra Development LLC**
Dechra Veterinary Products A/S
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 Limited#
Dechra Veterinary Products LLC**
Eurovet NV∞
Eurovet Animal Health BV
Eurovet Animal Health Limited∞
Scanimal Health ApS∞
Other Subsidiaries
Anglian Manufacturing Chemists Limited‡
Anglian Pharma Manufacturing Limited†
Anglian Pharma Limited
Arnolds Veterinary Products Limited*
Cambridge Specialist Laboratory Services
Limited§
Dales Pharmaceuticals Limited*
Dechra Investments Limited
Farvet Laboratories BV∞
Genitrix Limited
Leeds Veterinary Laboratories Limited
National Veterinary Services Limited*
North Western Laboratories Limited
Veneto Limited
DermaPet, Inc.¶
USA
Denmark
Finland
France
Norway
Spain
Sweden
The Netherlands
England & Wales
USA
Belgium
The Netherlands
England & Wales
Denmark
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
The Netherlands
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
USA
Principal Activity
Marketer of veterinary products and distributor of
veterinary products and equipment
Developer, regulatory, manufacturer and marketer of
veterinary products; wholesaler; provider of veterinary
laboratory services
Regulatory and product development
Manufacturer of veterinary products and marketer of
veterinary products 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
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Manufacturer of veterinary products and marketer of
veterinary products and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Non-trading
Holding Company
Holding Company
Non-trading
Non-trading
Non-trading
Holding Company
Non-trading
In-liquidation
Non-trading
Non-trading
Holding Company
Holding Company
Non-trading
100% of ordinary share capital held by Veneto Limited. Voting preference shares held by Dechra Pharmaceuticals PLC Employee Benefit Trust.
100% of ordinary share capital held by Dechra Investments Limited.
100% of ordinary share capital held by North Western Laboratories Limited.
*
Ω
§
† 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 Veterinary Products LLC.
** 100% of ordinary share capital held by Dechra Limited.
∞ 100% of ordinary share capital held by Eurovet Animal Health B.V.
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 142
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
Employee benefit obligations
Net borrowings
Shareholders’ funds
Consolidated cash flow
Cash flow from operating activities
Net interest paid
Tax paid
Net capital expenditure
Acquisitions
Equity dividends paid
Financing
Changes in cash in period
* Restated to reflect the impact of the bonus element of the Rights Issue.
2012
£’000
2011
£’000
2010
£’000
2009
£’000
2008
£’000
426,041
36,601
32,966
24,302
32.37*
32.27*
12.27*
1,042
242,592
49,531
(13,863)
(8,155)
(29,343)
(363)
(86,717)
153,682
29,128
(2,426)
(7,241)
(3,228)
(117,335)
(8,325)
112,033
2,606
389,237
31,823
30,069
22,748
31.53*
31.43*
11.12*
1,005
369,369
28,190
26,056
19,437
27.09*
26.99*
9.64*
1,021
349,964
24,971
23,406
16,759
23.52*
23.33*
8.36*
1,012
304,371
19,142
16,853
12,185
19.11*
18.96*
7.58*
889
132,819
32,494
(14,055)
(5,391)
(13,443)
—
(34,091)
98,333
25,374
(2,629)
(5,034)
(4,090)
(33,047)
(7,221)
26,090
(557)
88,044
21,486
—
(4,105)
(12,496)
—
(6,701)
86,228
26,662
(2,208)
(6,124)
(2,721)
—
(6,195)
(4,626)
4,788
97,605
17,548
—
(4,756)
(14,184)
—
(15,527)
80,686
27,557
(1,851)
(3,227)
(3,634)
—
(5,565)
(8,843)
4,437
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
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Our Accounts
143
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:
• 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).
• Safety — the part of the dossier which documents the effects
of the final formulation at above normal dosage levels in the
intended species.
• 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.
• Regulatory — the period of time that regulatory agencies take
to review the various sections of the dossier.
Staphylococcal Infections
Communicable conditions caused by the Staphylococcus type
of bacteria and generally characterised by pyoderma or the
formation of abscesses.
Surface Pyoderma
Pyoderma is the medical term used to denote infections of the
skin caused by bacteria. Surface Pyoderma is a bacterial infection
which is confined to the surface of the skin; one of the commonest
types is known as Pyotraumatic Dermatitis (acute moist dermatitis,
or “hot spots”). It is typified by localised itching, moist reddened
skin patches and ulcerated lesions.
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.
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).
Intertrigo
Refers to a bacterial, fungal or viral infection that has developed
at the site of broken skin due to inflammation of body folds.
This infection is common in dogs with folds, such as Pugs or
Shar Peis.
Malassezia
Yeasts that cause a secondary inflammatory skin disease.
Malassezia is often found in otitis externa.
www.dechra.comStock Code: DPH21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information 144
Shareholder Information
Financial Calendar
Interim Management Statement
2012 Annual General Meeting
Final Dividend Ex Div Date
Final Dividend Record Date
Dividend Payment Date
Alternatively Computershare can be contacted at:
19 October 2012
19 October 2012
7 November 2012
9 November 2012
23 November 2012
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
Annual General Meeting
The 2012 Annual General Meeting of the Company will be held
at 10.00 am on 19 October 2012 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.
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 Values and a number of our internal
policies are published on the website.
Visit us at our website
www.dechra.com
Registrar
Dechra’s Registrar is Computershare Investor Services PLC.
Computershare should be contacted for any matters relating to
your shareholding, including:
• Notification of change in name and address;
• Enquiries about dividend payments;
• 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).
Registrar 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.
Share Dealing Service
Computershare offer a Share Dealing service, to buy or
sell shares. Further information can be obtained from
www-uk.computershare.com/sharedealingcentre or by
telephoning 0870 703 0084.
Fee (on value of transaction)
Minimum Charge
Stamp Duty Charge
(Purchases only)
Telephone
Share
Dealing
1%
£25.00
Internet
Share
Dealing
0.5%
£15.00
0.5%
0.5%
Computershare Investor Services PLC and its agents are
authorised and regulated by the Financial Services Authority.
Please note that the price of shares can go down as well as
up, and you are not guaranteed to get back the amount you
originally invested. If you are in any doubt you should contact an
independent financial adviser.
Warning to Shareholders
Share fraud includes scams where investors are called out of
the blue and offered shares that often turn out to be worthless
or non-existent, or an inflated price for shares they own. During
the year we were alerted by some of our Shareholders to cold
calls which they had received. The callers purport to represent
various entities, including Drexel-Bearns, a US based firm. The
callers stated that they were seeking to gain control of investor
shareholdings held in the Company and/or personal financial
information. We believe these are boiler room scams.
These types of calls are typically from overseas based ‘brokers’
who target UK shareholders. These operations are commonly
known as ‘boiler rooms’. These ‘brokers’ can be very persistent
and extremely persuasive. While high profits are promised,
those who buy or sell shares in this way usually lose their
money. The Financial Services Authority (“FSA”) has found
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2012Our Business21587-04 10/08/2012 Proof 3Shareholder Information www.dechra.com
Stock Code: DPH
Shareholder Information continued
most share fraud victims are experienced investors who lose an
average of £20,000, with around £20 million lost in the UK each year.
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 are offered unsolicited investment advice, discounted shares,
a premium price for shares you own, or free company or research
reports, you should take these steps before handing over any
money:
• Get the name of the person and organisation contacting you;
• Check the FSA Register at www.fsa.gov.uk/fsaregister/
to ensure they are authorised;
• Use the details on the FSA Register to contact the firm;
• Call the FSA Consumer Helpline on 0845 606 1234 if there are no
contact details on the Register or you are told they are out of date;
• Search the FSA list of unauthorised firms and individuals to avoid
doing business with them; and
• Remember: if it sounds too good to be true, it probably is!
If you use an unauthorised firm to buy or sell shares or other
investments, you will not have access to the Financial Ombudsman
Service or Financial Services Compensation Scheme if things go
wrong.
If you are approached about a share scam you should
tell the FSA using the share fraud reporting form at
www.fsa.gov.uk/scams, where you can find out about the
latest investment scams. You can also call the Consumer Helpline
on 0845 606 1234.
If you have already paid money to share fraudsters you should
contact Action Fraud on 0300 123 2040.
Protecting your Identity
Suggestions for safeguarding your shares:
• ensure all your share certificates are kept in a safe place or
hold your shares electronically in CREST via a nominee;
• keep all correspondence relating to your shares in a safe
place or destroy the correspondence by shredding;
• notify the Registrar of a change of address in writing or via
their website (as detailed above);
• consider having your dividend paid directly into your bank
account to eliminate the risk of a lost dividend cheque;
• notify the Registrar of bank account detail changes in writing
or via their website;
• if you decide to sell or buy shares use only brokers registered
in the UK or your own country.
Advisers
Auditor
KPMG Audit Plc
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
Stockbroker & Financial Advisers
Investec Bank plc
2 Gresham Street
London
EC2V 7QP
Lawyers
DLA Piper UK LLP
Victoria Square House
Victoria Square
Birmingham
B2 4DL
Registrars
Computershare Investor Services PLC
PO Box 82
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Financial PR
TooleyStreet Communications
Regency Court
68 Caroline Street
Birmingham
B3 1UG
Principal Bankers
Lloyds TSB Bank plc
2nd Floor
125 Colmore Row
Birmingham
B3 3SF
Principal Bankers continued
Barclays Bank PLC
One Snowhill
Snow Hill Queensway
Birmingham
B3 2WN
Svenska Handelsbanken AB (PUBL)
Island Reach
Festival Way
Stoke-on-Trent
ST1 5SW
HSBC Bank Plc
Midlands Corporate Banking Centre
4th Floor
120 Edmund Street
Birmingham
B3 2QZ
Trademarks
Trademarks appear throughout this document in italics. Dechra and the Dechra “D” logo are registered trademarks of
Dechra Pharmaceuticals PLC. The Malaseb trademark is used under licence from Dermacare-Vet Pty. Ltd.
21587-04 10/08/2012 Proof 3Directors’ ReportOur PerformanceOur BusinessDirectors’ ReportOur GovernanceOur AccountsShareholder Information
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www.dechra.com
®
Dechra House
Jamage Industrial Estate
Talke Pits, Stoke-on-Trent
Staffordshire, ST7 1XW
England
T: +44 (0) 1782 771100
F: +44 (0) 1782 773366
E: corporate.enquiries@dechra.com
Registered in England No. 3369634
21587-04 10/08/2012
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