Developing
Focusing
Delivering
Annual Report and Accounts for the year ended 30 June 2013
Stock Code: DPH
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www.dechra.com
22581-04 22/08/2013 Proof 3
®
Dechra Pharmaceuticals PLC
Annual Report and Accounts for the year ended 30 June 2013
Developing
the Business through Investment
in our Pipeline
The development of our product pipeline
is critical to our future organic growth.
Our spend has more than doubled in the
last five years with an increase of almost
39% in the last financial year, taking our
total spend to £8 million.
Research and
Development Spend
up 38.8%
at £8.0m
(2012: £5.7m)
Focusing
on our Veterinary Pharmaceuticals
Product Strategy
In July 2013 we announced the disposal of our Services Segment
namely National Veterinary Services, Dechra Laboratory Services and
Dechra Specialist Laboratory Services. This completes our evolution
and transformation from a low margin UK centric services company to
an international specialist veterinary pharmaceuticals business.
Underlying Operating Profit split by Services and Pharmaceuticals
Segments since 2005*
£ million
.
m
4
3
4
£
m
1
.
1
1
£
m
0
.
9
2
£
m
1
.
1
1
£
m
1
.
2
2
£
m
0
.
3
1
£
m
0
.
8
1
£
m
1
.
3
1
£
m
3
.
5
1
£
m
3
.
2
1
£
m
8
.
0
1
m
7
.
0
1
£
m
m £
5
.
9
£
1
.
6
£
m
3
.
4
£
m
0
.
8
£
m
9
.
4
£
m
7
.
8
£
Pharmaceuticals
Services
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
* Excludes corporate and other unallocated costs
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
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
1 July 2012 to
30 June 2013
December 2003
November 2004
July 2005
December 2006
January 2008
December 2008
November 2009
October 2010
Laboratories rebranded
European marketing
license for Felimazole
Entered into a
Granted a full EU
Received approval
to market Vetoryl in
19 major European
Acquired the
Acquired VetXX®
VetXX integrated and
Achieved mutual
intellectual property for
Holding A/S, a leading
rebranded Dechra
Equidone® Gel
developer, producer
Veterinary Products
recognition of
Malaseb® in
Acquired DermaPet®
Inc., a Florida based
dermatological
April 2003
North Western
to NationWide
Laboratories
May 2003
Entered into a sub-
license agreement
with Bioenvision® Inc
to develop Vetoryl for
future marketing in the
USA and Canada
agreement with
and granted a UK
Janssen Animal Health,
licence for a new
countries
allowing Janssen
full marketing and
distribution rights to
Felimazole and Vetoryl
in mainland Europe
2.5mg Felimazole
tablet
June 2006
April 2007
Acquired Leeds
April 2005
Signed a development
Veterinary Laboratories
and marketing
for £0.75 million
and marketer of
companion animal
products, for a total
consideration of £61.7
million
Granted a range
agreement for Vetoryl
extension for a 30mg
in Japan with Kyoritsu
Vetoryl capsule
Seiyaku
May 2007
Secured a long term
trademark license 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
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
210.3
£ million
9.7
Dividend
per Share
pence
4.78†
Underlying Profit
Before Taxation
Underlying Profit
Before Taxation
Underlying Profit
Before Taxation
Underlying Profit
Before Taxation
Revenue
£ million
179.3
£ million
6.7
Dividend
per Share
pence
3.78†
Revenue
£ million
186.8
£ million
8.1
Dividend
per Share
pence
4.32†
Underlying Profit
Before Taxation
Revenue
£ million
304.4
£ million
16.9
Dividend
per Share
pence
7.58†
Underlying Profit
Before Taxation
Revenue
£ million
253.8
£ million
12.7
Dividend
per Share
pence
6.89 †
Revenue
£ million
232.5
£ million
11.0
Dividend
per Share
pence
5.73†
17 European countries
business, for a potential
to HY-50® for a cash
consideration of
consideration of
US$64.0 million. The
8.03 million Canadian
acquisition strengthened
dollars
January 2012
Acquired the
worldwide rights
(excluding Canada)
May 2013
Announced the closure
of our manufacturing site
in Uldum, Denmark.
Skipton and Bladel sites
renamed Dechra
Manufacturing
May 2012
July 2013
Announced the disposal
of the Services Segment
to Patterson Companies,
Inc for £87.5 million,
creating a clear strategic
focus
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
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
total consideration of
£6.4 million
Dechra’s, for a potential
€135 million
approval for Vetoryl in
DVP UK’s logistics
February 2010
and finance function
integrated into a
central logistic and
shared service centre
in Uldum, Denmark
December 2008
Received FDA
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
Underlying Profit
Before Taxation
Revenue
£ million
426.0
£ million
33.0
Dividend
per Share
pence
12.27†
Underlying Profit
Before Taxation
Revenue
£ million
389.2
£ million
30.1
Dividend
per Share
pence
11.12 †
Underlying Profit
Before Taxation
Revenue
£ million
522.4
£ million
44.6
Dividend
per Share
pence
14.00†
Underlying Profit
Before Taxation
Underlying Profit
Before Taxation
Revenue
£ million
350.0
£ million
23.4
Dividend
per Share
pence
8.36†
Revenue
£ million
369.4
£ million
26.1
Dividend
per Share
pence
9.64†
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
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†
* From this point forward reported under IFRS.
† Adjusted for the bonus element of the Rights Issue.
The above financial metrics
include the results of
discontinued operations.
22581-04 22/08/2013 Proof 3
Delivering
Sustainable Growth and Value
Upon Dechra’s Stock Market Listing in 2001 the majority of the Group’s
revenue and profit was derived from National Veterinary Services (a
UK services and distribution business). Throughout our evolution,
utilising the Services Segment’s strong cash generation, the Group has
successfully evolved into a high margin, cash generative, self-funding
international specialist veterinary pharmaceuticals and related products
business.
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
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
1 July 2012 to
30 June 2013
September 2000
December 2001
Dechra listed on
the London Stock
Exchange at 120 pence
per share, with a market
capitalisation of
£60 million
December 2000
picking system
commissioned at a
cost of £0.5 million
NVS’s semi automatic
Services for a
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-
license agreement
with Bioenvision® Inc
to develop Vetoryl for
future marketing in the
USA and Canada
Vetoryl® launched in
the UK
April 2002
Acquired North
Western Laboratories
and Cambridge
Specialist Laboratory
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
November 2004
Granted a full EU
license 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
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†
Underlying Profit
Before Taxation
Revenue
£ million
170.2
£ million
7.3
Dividend
per Share
pence
3.78†
Underlying Profit
Before Taxation
Revenue
£ million
156.4
£ million
5.8
Dividend
per Share
pence
3.44†
* From this point forward reported under IFRS.
† Adjusted for the bonus element of the Rights Issue.
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
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
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 license 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
December 2008
VetXX integrated and
rebranded Dechra
Veterinary Products
November 2009
Achieved mutual
recognition of
Malaseb® in
17 European countries
February 2010
DVP UK’s logistics
and finance function
integrated into a
central logistic and
shared service centre
in Uldum, Denmark
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
May 2013
Announced the closure
of our manufacturing site
in Uldum, Denmark.
Skipton and Bladel sites
renamed Dechra
Manufacturing
July 2013
Announced the disposal
of the Services Segment
to Patterson Companies,
Inc for £87.5 million,
creating a clear strategic
focus
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
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†
Revenue
£ million
389.2
Underlying Profit
Before Taxation
£ million
30.1
Dividend
per Share
pence
11.12 †
Revenue
£ million
522.4
Underlying Profit
Before Taxation
£ million
44.6
Dividend
per Share
pence
14.00†
Revenue
£ million
350.0
Underlying Profit
Before Taxation
£ million
23.4
Dividend
per Share
pence
8.36†
Revenue
£ million
369.4
Underlying Profit
Before Taxation
£ million
26.1
Dividend
per Share
pence
9.64†
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 †
22581-04 22/08/2013 Proof 3
®
Welcome to Dechra Pharmaceuticals PLC
Dechra is an international specialist veterinary pharmaceuticals business.
Our expertise is in the development, manufacturing and sales and marketing
of high quality products exclusively for veterinarians worldwide.
Financial Highlights
Revenue
£ million
up 52.2%
0
.
6
2
4
2
.
9
8
3
4
.
9
6
3
0
.
0
5
3
)
d
e
t
a
t
s
e
R
(
3
.
4
2
1
2
.
9
8
1
Underlying
Operating Profit*
£ million
up 53.1%
Underlying Profit
Before Taxation*
£ million
up 53.7%
Underlying Earnings
per Share*
pence
up 37.1%
6
.
6
3
8
.
1
3
1
.
9
3
)
d
e
t
a
t
s
e
R
(
5
.
5
2
0
.
3
3
1
.
0
3
5
.
3
3
)
d
e
t
a
t
s
e
R
(
8
.
1
2
1
.
6
2
4
.
3
2
4
.
3
2
†
9
0
.
7
2
†
3
5
.
3
2
†
3
5
.
3
2
2
.
8
2
0
.
5
2
0
.
5
2
†
3
5
.
1
3
†
7
3
.
2
3
7
2
.
9
2
)
d
e
t
a
t
s
e
R
(
5
3
.
1
2
†
6
3
.
8
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
2
1
0
2
3
1
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
2
1
0
2
3
1
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
2
1
0
2
3
1
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
2
1
0
2
3
1
0
2
Dividend per Share
Operating Profit
Profit Before Taxation
Earnings per Share
pence
up14.1%
0
0
.
4
1
†
7
2
.
2
1
†
2
1
1
1
.
†
4
6
.
9
†
6
3
.
8
£ million
up 104.2%
.
5
8
1
7
.
7
1
8
.
6
1
3
.
8
1
.
1
6
1
.
1
6
1
£ million
up 78.5%
7
.
1
2
9
.
0
2
9
.
9
1
7
.
7
1
.
7
7
1
)
d
e
t
a
t
s
e
R
(
3
.
0
1
pence
up 31.6%
†
9
5
.
9
1
†
4
3
8
1
.
†
5
6
5
1
.
†
6
8
.
5
1
†
6
8
.
5
1
7
4
.
2
1
)
d
e
t
a
t
s
e
R
(
0
2
.
5
.
5
2
) 1
d
e
t
a
t
s
e
R
(
1
6
.
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
2
1
0
2
3
1
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
2
1
0
2
3
1
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
2
1
0
2
3
1
0
2
* Non-underlying items comprise amortisation of acquired intangibles, acquisition expenses, rationalisation costs, loss on extinguishment of debt, the
unwinding of discounts on deferred and contingent consideration and expenses related to the disposal of discounted operations (see notes 4, 5 and 29).
† Adjusted for the bonus element of the Rights Issue.
Restated to reflect continuing operations.
Forward-Looking Statements: This document contains certain forward-looking statements. The forward-looking statements reflect the
knowledge and information available to the Company during preparation and up to the publication of this document. 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 document should be construed as a profit forecast by the Company.
www.dechra.com
22581-04 22/08/2013 Proof 3
01
Contents
Strategic Report
Our Business
04 Group at a Glance
06 Chairman’s Statement
08 Reasons to Invest
09 Business Model
10 Strategy
12 DVP EU Strengths and Capabilities
14 DVP US Strengths and Capabilities
16 International Footprint
18 Key Products and Specialisations
21 Manufacturing Strengths and Capabilities
23 Product Development
25 Product Pipeline
Our Performance
26 Chief Executive Officer’s Q&A
28 Operating Review
28 Overview
30 Product Development and Regulatory Affairs
32 DVP EU Performance
34 Manufacturing Performance
36 DVP US Performance
38 Key Performance Indicators
40 Financial Review
46 Risk and Risk Management
Our Governance
48 Board of Directors
50 Corporate Governance
61 Audit Committee Report
67 Directors’ Remuneration Report
84 Corporate Responsibility, Social, Ethical and
Environmental Responsibilities
90 Other Disclosures
94 Statement of Directors’ Responsibilities
Our Strategy
To develop an international high margin, cash generative, specialist veterinary
pharmaceuticals and related products business.
Read more about our
Strategy
10
Operational Highlights
❱ Creation of a pure play pharmaceuticals business
❱ Eurovet successfully integrated and expected synergies realised
❱ Divestment of the Services Segment completed on 16 August 2013, generating
proceeds of £87.5 million. Net cash position after receipt of the proceeds is
circa £7.0 million
❱ Underlying diluted EPS for continuing operations at 29.07 pence, growth of
42.2% versus last year (at constant exchange rate)
❱ Profit before tax on continuing operations up by 59.7% (at constant exchange
rate) benefiting from a full year of Eurovet and a solid core performance
❱ Group revenue on continuing operations up by 56.6% (at constant exchange
rate) despite slow trading in the third quarter and third party supply issues in US
❱ Focus therapeutic areas in companion animal products grew by 11.2% (at
constant exchange rate)
❱
Increased investment in Research and Development to support the product
pipeline and enlarged Group post-Eurovet acquisition
❱ Dividend per share up 14.1% to 14.00 pence
Our Key Strengths
❱ Specialist products
❱ People and expertise
❱ Strategic focus
❱
International footprint
❱ Strong financial platform
❱ Development pipeline
❱ Strong market position
❱ Growing markets
❱ Customer satisfaction
❱
Innovation
Read more about
Reasons to Invest
08
Our Financials
Our Values
Our six Dechra Values: Dedication, Enjoyment, Courage, Honesty, Relationships
and Ambition reflect the best aspects of behaviour and competence in Dechra. We
embrace the Values at every level of the business.
96 Independent Auditor’s Report
98 Consolidated Income Statement
99 Consolidated Statement of Comprehensive
Income
100 Consolidated Statement of Financial Position
101 Consolidated Statement of Changes in
Shareholders’ Equity
Read more about
Our Values
102 Consolidated Statement of Cash Flows
88
103 Notes to the Consolidated Financial Statements
Getting Around
An introduction to the signposting
tools used in this report:
QR Codes
Instant access to sections of our
online report at the click of your
smartphone’s code reader app:
Read more about our
Business Model
09
Read more online
www.dechra.com
147 Company Balance Sheet
148 Reconciliation of Movements in Shareholders’
Funds
149 Notes to the Company Financial Statements
156 Financial History
Shareholder Information
157 Glossary
159 Shareholder Information
160 Advisers
22581-04 22/08/2013 Proof 3www.dechra.comStock code: DPH®Our GovernanceOur FinancialsShareholder InformationOur PerformanceOur BusinessStrategic Report 02
Strategic Report
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013 03
The Group Strategic Report provides a
review of the business for the financial
year and describes how we manage risks.
The report outlines the developments and
performance of the Group during the financial
year, the position at the end of the year and
discusses the main trends and factors that
could affect the future.
Key performance indicators are published
to show the performance and position of
the Company. Pages 9 to 11 outline the
Company’s business model and strategy.
Strategic Report
Our Business
Pages 4 to 25
Details the composition of the Group, features a
statement from the Chairman and senior management
commentary on the individual business segments.
Our Performance
Pages 26 to 47
Outlines the developments and performance of the
Group during the financial year with commentary from
the Chief Executive Officer and Chief Financial Officer.
Above:
PLC Head Office, Northwich, Cheshire
22581-04 22/08/2013 Proof 3www.dechra.comStock code: DPH®Our GovernanceOur FinancialsShareholder InformationOur PerformanceOur BusinessStrategic Report 04
Group at a Glance
EU Pharmaceuticals
Dechra Veterinary Products EU (“DVP EU”)
Sales, marketing and technical support of Dechra’s branded
veterinary products to the veterinary profession in Europe.
Dechra Pharmaceuticals Manufacturing (“DPM”)
Licensed manufacturer of veterinary and human
pharmaceuticals for DVP EU and third party customers.
US Pharmaceuticals
Dechra Veterinary Products US (“DVP US”)
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 61.0%
Operating Profit
£ million
up 58.5%
Revenue
£ million
up 2.6%
Operating Profit
£ million
down 4.7%
7
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Sales Revenue
Sales Revenue
by specialisation
Sales Revenue
Sales Revenue
by specialisation
d
a
b
c
a Third party Pharma 10%
b Export 13%
c Veterinary Wholesalers 50%
d Veterinary Practices 27%
i
a
b
c
d
h
g
f
e
a Dermatology 10%
b Opthalmology 3%
c Equine Medicine 7%
d Endocrinology 16%
e Pet Diets 18%
f Analgesia and Critical Care 4%
g Cardiovascular 2%
h Food Producing Animals 25%
i Other 15%
a
b
c
a Third party Pharma 5%
b Export 7%
c Distributors 88%
a
e
d
c
b
a Dermatology 55%
b Opthalmology 3%
c Equine Medicine 3%
d Endocrinology 38%
e Other 1%
Read more about
DVP EU
12
Read more about
DVP US
14
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Strategic ReportOur Business
05
Product Development
Product Development and Regulatory Affairs (“PDRA”)
The Product Development and Regulatory Team develops and
licenses Dechra’s own branded veterinary product portfolio of
novel and generic pharmaceuticals and specialist pet diets.
Research and Development Spend
£ million
up 38.8%
0
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8
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5
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Read more about
Product Development
23
Above:
Product Development and Regulatory team employees
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06
Chairman’s Statement
Delivering Growth in Our Focus
Therapeutic Areas in Europe
Our European Pharmaceuticals Segment
continues to show progress and achieved
sales of £168.7 million, an increase of 66.3%
(at constant exchange rates (“CER”)) over the
previous year. On a like-for-like basis, adjusting
2012 to include a full year of Eurovet revenue,
growth is 5%, despite having been affected
by slow trading in the third quarter due to bad
weather, as previously reported. Importantly,
on a like-for-like basis all key therapeutic areas
delivered a good performance:
❱ Our focus companion animal products
performed very well increasing by 18.4%
(at CER), with our key products Vetoryl,
Felimazole and Cardisure® delivering
double digit revenue growth.
❱ Despite a challenging environment for
our food producing animal products,
caused principally by pressure to reduce
antimicrobials usage due to concerns over
increasing resistance, we saw modest sales
growth of our key water soluble antibiotics.
Total sales for key products in this category
remained flat due to competition issues on
Cyclospray® (an aerosol for cattle foot rot).
with Vetoryl continuing to grow at 11.6% and
Felimazole at 16.3%.
During the year, Dechra Veterinary Products
US continued to invest in and build its sales
team in order to reinforce its marketing
activities and further strengthen relationships
with veterinarians. As a result the operating
profit for this Segment was slightly down at
£5.6 million compared to £5.9 million in 2012.
Strategic Divestment of the Services
Segment
The divestment of our Services Segment,
completed post year end on 16 August 2013,
represents a further step in the Board strategy
to create a focused pure play specialist
veterinary pharmaceuticals business. The
Board believes that the Pharmaceuticals
businesses are higher margin, cash generative
businesses, operating in a global market with
attractive long term growth prospects.
The net proceeds of the disposal will be
used initially to reduce Group’s debt but
provides the Group with additional resources
to continue its development, both organically
and through strategic acquisitions.
❱ Diets grew by 2.6% (at CER) driven by the
relaunch of our new wet diet presentation
and a new intensive support diet for
animals post-surgery.
Increased Investment in Research and
Development (“R&D”)
In 2013 our Development and Regulatory
team achieved approvals for:
The results reflect the successful integration
of Eurovet. This acquisition has met our
expectations, expanding our geographical
footprint in Europe, adding complementary
products to our companion animal product
portfolio, providing an entrance into the food
producing animal market and increasing our
manufacturing capabilities.
Operating profit for the European
Pharmaceuticals Segment increased to
£45.8 million from £28.9 million in the
prior year.
Strong US Core Performance
Revenues in the US totalled £20.5 million,
growth of 4.7% (at CER) compared to the
prior year. Third party supply issues on our
ophthalmic and dermatology ranges hampered
the US performance, as previously described in
our trading update on 10 July 2013. However,
adjusting for these unexpected circumstances,
the core sales growth was 10.3% (at CER)
❱
❱
❱
three new products;
three line extensions; and
three existing products licensed into new
territories.
At the same time, development of our novel and
generic products continued; four projects have
now reached the clinical phase of development.
We will also file imminetly in the UK and the US
for a new equine product.
As a specialist veterinary pharmaceuticals
business, the Board has decided to increase the
Group’s focus and investment in R&D as a key
driver of future growth and profitability.
Net Debt
As expected our net borrowing position
at the end of the financial year improved
compared to 2012, reducing from £86.7
million to £80.8 million.
Michael Redmond
Non-Executive Chairman
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Strategic ReportOur Business 07
“This has been a
transformational year for
Dechra. The disposal of
the Services Segment
represents a major step
forward in the Board’s
strategy to create a
specialist veterinary
pharmaceuticals
business. We expect
the quality of the
Group’s business and
its prospects to be
enhanced as a result of
the disposal.”
Read more about
Reasons to Invest
08
Above:
Visual vials inspection at DPM, Skipton
Dividend
Subject to Shareholder approval at the
forthcoming Annual General Meeting on
17 October 2013, the Board is proposing
a final dividend of 9.66 pence per share,
reflecting underlying EPS growth, and
bringing the total dividend per share to 14.00
pence for the financial year ended 2013.
The proposed final dividend shall be paid on
22 November 2013 to Shareholders on the
Register on the Register at 8 November 2013.
The shares will become ex-dividend on
6 November 2013.
Prospects
The divestment will enable management to
focus exclusively on the areas of the business
with the strongest margin, cash conversion
and growth prospects. We intend to increase
our focus on and investment in Research
and Development to ensure the value of
our pipeline is delivered and we continue to
assess selective, strategic acquisitions which
would add new products or geographies.
We will continue to refine our strategy for the
continuing Group in the next financial year.
The Board remains committed to building
a cash generative specialist veterinary
pharmaceuticals business which will:
❱ expand our geographical footprint;
❱ maximising opportunities with our existing
products; and
❱ advancing and deliver our promising
pipeline.
Current trading is ahead of last year and
in line with management’s expectations.
The Board is confident that the Group will
continue to perform well despite a challenging
environment and that our strategy will deliver
enhanced Shareholder value.
Michael Redmond
Non-Executive Chairman
3 September 2013
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Reasons to Invest
The table below summarises how our key strategic areas are linked to our risks and
key performance indicators and highlights what our mid-term priorities are. This
provides an user friendly guide on how to access further information in this report.
Our Strategy
Risks
Mid-term
Priorities
Innovate
Manufacture
Commercialise
Shareholder
Return
❱ Deliver the pipeline
❱ Focus on specialist
therapeutic areas
❱ In-license opportunities
❱ Innovative management
team
❱ Failure of clinical trials
❱ Failure to meet
regulatory requirements
under which we operate
❱ Loss of key personnel
❱ Efficient effective
❱ Experienced sales
❱ Continue to grow sales
operations
❱ Wide range of scale and
dosage forms
❱ Profitable third party
contracts
❱ End-to-end service
and marketing teams
focused on clearly
defined therapeutic
areas
❱ Expand into additional
territories
❱ Leaders in continuous
education programmes
for veterinarians
and profit
❱ Generate value by
investing in the pipeline,
maximising existing
portfolio and expanding
geographically
❱ Failure of a major
❱ Competitor products
❱ Mitigation plans are
in place to reduce the
potential impact of
the identified risks on
Shareholder value
supplier
❱ Failure to meet
regulatory requirements
under which we operate
❱ Loss of key personnel
launched against one of
our leading brands
❱ Revenue from recently
launched new products
failing to meet
expectations
❱ Prescribing pressure on
veterinarians to reduce
antibiotic use
❱ Loss of key personnel
READ MORE
❭ Pages
10–11
❭ Pages
46–47
❱ Manage four products in
❱ Drive ongoing efficiency
❱ Establish Dechra
clinical phase
improvements
❱ Complete filing on two
❱ Extend FDA approval
major products
❱ Evaluate new
opportunities
into new dosage forms
for the Skipton site
❱ Implement Oracle IT
system at the Bladel
Site
subsidiaries in new
territories
❱ Further investment in
US sales and marketing
team as the pipeline
delivers
❱ Maintain organic growth
of key products
❱ Maximise the return on
new product launches
❱ Revenue from key
pharmaceutical
products
❱ Revenue from specialist
pet diets
❱ Employees
❭ Pages
12–25
❱ Sustain growth
❱ Leverage strong
balance sheet
❱ Generate strong cash
conversion
❭ Pages
38–39
❱ Underlying operating
profit margin
❱ Cash conversion rate
❱ Return on capital
employed
KPIs (pre-
divestment of
Services)
❱ Pharmaceutical product
development pipeline
❱ Employees
❱ Health and safety
performance
❱ Employees
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Strategic ReportOur Business 09
Business Model
Dechra has a clear business model for
delivering value:
❱ Our market knowledge, regulatory expertise, strong reputation and management
experience helps us to identify potential product development targets,
in-licensing and acquisition opportunities, focusing on specialist products in
defined therapeutic areas.
❱ Our skilled Product Development and Regulatory team achieves international
approvals and registrations.
❱ Manufacturing, which plays an integral part in the formulation and dosage form
development, manufactures products as effectively and efficiently as possible.
❱ Following registration and manufacture of our products, experienced sales and
marketing teams in the EU and US market our products directly to veterinary
practices and indirectly through export partners to maximise awareness and
sales of our products to veterinarians globally.
❱ This integrated approach of development, manufacturing and sales and
marketing creates value for the business and its stakeholders.
Above:
Vetoryl for the US market is now manufactured
in-house at DPM, Skipton
Regulatory
Expertise
Specialists
Team
In-licensing
Carefully selected
acquired products
Sales and
Marketing
Growing Brand
Strength
Strong and Growing Global Sales
and Distribution Network
Product
Development and
Regulatory Affairs
Read
more
23
Full Service
Scale
Dosage Forms
Pharmaceutical Sales
DVP EU
European Wholesalers
and Distributors
DVP US
Manufacturing
Export Partners
Veterinary
Practices
US Wholesalers
and Distributors
Read
more
12
Sterile
Read
more
21
Regulatory Expertise
and FDA Approvals
Contract
Manufacturing
Value Generation
22581-04 22/08/2013 Proof 3www.dechra.comStock code: DPH®Our GovernanceOur FinancialsShareholder InformationOur PerformanceOur BusinessStrategic Report 10
Strategy
Group Strategy
The Group has a clearly defined strategy to:
❱ Develop an international high margin, cash generative, specialist veterinary pharmaceuticals and related products
business through a clear focus on key therapeutic areas: dermatology, analgesia and critical care, endocrinology,
cardiovascular, equine and food producing animal antimicrobials.
The objective is to:
❱ Maximise value from our existing product portfolio and new product pipeline through an integrated business model
which will deliver the maximum return to all stakeholders.
Product Development and Regulatory Affairs
Innovate
Manufacturing
Manufacture
The strategy is to:
❱ Quickly and effectively evaluate the feasibility of development and registration of new products;
❱ Conduct trial work as cost-effectively as possible and in-house wherever possible; and
❱ Build on the team’s skills, expertise and knowledge to ensure regulatory submissions have the
optimum chance of achieving approval upon first review.
The objective is to:
❱ Screen exploratory ideas for suitability for addition to the pipeline;
❱ Conduct clinical trials and compile safety data where necessary and to provide regulatory dossiers for submission for
approval to key global regulators; and
❱ Maintain existing product registrations and register licenses into new territories.
The strategy is to:
❱ Provide technical formulation and development expertise to support in-house product development
and third party customer requirements;
❱ Produce a wide range of dosage forms in both small and large scale; and
❱ Provide an end-to-end service with the highest levels of quality approval for our customers.
The objective is to:
standard achievable; and
❱ Produce our own branded, licensed products as effectively and economically as possible at the highest quality
❱ Provide a high quality differentiated manufacturing service to third party customers.
Pharmaceutical Sales
DVP EU
Commercialise
The strategy is to:
❱ Focus on clearly defined therapeutic sectors;
❱ Support and educate veterinary customers by taking a strong technical approach to sales and
education and by gaining key opinion leader support; and
❱ Extend our sales and marketing capabilities into additional territories.
DVP US
The strategy is to:
❱ Focus on clearly defined therapeutic sectors within the companion animal market;
❱ Support and educate veterinary customers by taking a strong technical approach to sales and
education and by gaining key opinion leader support; and
❱ Continue to develop and grow our infrastructure to create a sales and marketing team of sufficient
scale to maximise current and future pipeline product sales across North America.
Value Generation
Shareholder
Return
The strategy is to:
❱ Deliver maximum return from our integrated business model by:
— Investing in a strong development pipeline;
— Maximising sales and margin of our existing product portfolio; and
— Extending our geographical scope.
DVP EU
The objective is to:
DVP US
The objective is to:
❱ Create a sales and marketing structure which maximises both the exposure of the Dechra brand and sales of its
products to veterinarians within the EU; and
❱ Supply marketing and technical support to worldwide distributors of our products.
❱ Create a sales and marketing structure which maximises both the exposure of the Dechra brand and sales of its
products to veterinarians within the US.
The objective is to:
❱ Continue to grow sales and profit by achieving our strategic objectives; and
❱ Generate value for all stakeholders.
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Strategic ReportOur Business 11
The objective is to:
❱ Maximise value from our existing product portfolio and new product pipeline through an integrated business model
which will deliver the maximum return to all stakeholders.
The objective is to:
❱ Screen exploratory ideas for suitability for addition to the pipeline;
❱ Conduct clinical trials and compile safety data where necessary and to provide regulatory dossiers for submission for
approval to key global regulators; and
❱ Maintain existing product registrations and register licenses into new territories.
The objective is to:
❱ Produce our own branded, licensed products as effectively and economically as possible at the highest quality
standard achievable; and
❱ Provide a high quality differentiated manufacturing service to third party customers.
DVP EU
The objective is to:
❱ Create a sales and marketing structure which maximises both the exposure of the Dechra brand and sales of its
❱ Support and educate veterinary customers by taking a strong technical approach to sales and
products to veterinarians within the EU; and
❱ Supply marketing and technical support to worldwide distributors of our products.
DVP US
The objective is to:
❱ Create a sales and marketing structure which maximises both the exposure of the Dechra brand and sales of its
products to veterinarians within the US.
The objective is to:
❱ Continue to grow sales and profit by achieving our strategic objectives; and
❱ Generate value for all stakeholders.
Read more about
KPI’s
38
Read more about
Risk
46
Group Strategy
The Group has a clearly defined strategy to:
❱ Develop an international high margin, cash generative, specialist veterinary pharmaceuticals and related products
business through a clear focus on key therapeutic areas: dermatology, analgesia and critical care, endocrinology,
cardiovascular, equine and food producing animal antimicrobials.
Product Development and Regulatory Affairs
The strategy is to:
Innovate
❱ Quickly and effectively evaluate the feasibility of development and registration of new products;
❱ Conduct trial work as cost-effectively as possible and in-house wherever possible; and
❱ Build on the team’s skills, expertise and knowledge to ensure regulatory submissions have the
optimum chance of achieving approval upon first review.
Manufacturing
The strategy is to:
❱ Provide technical formulation and development expertise to support in-house product development
Manufacture
and third party customer requirements;
❱ Produce a wide range of dosage forms in both small and large scale; and
❱ Provide an end-to-end service with the highest levels of quality approval for our customers.
Pharmaceutical Sales
DVP EU
The strategy is to:
Commercialise
❱ Focus on clearly defined therapeutic sectors;
education and by gaining key opinion leader support; and
❱ Extend our sales and marketing capabilities into additional territories.
DVP US
The strategy is to:
❱ Focus on clearly defined therapeutic sectors within the companion animal market;
❱ Support and educate veterinary customers by taking a strong technical approach to sales and
education and by gaining key opinion leader support; and
❱ Continue to develop and grow our infrastructure to create a sales and marketing team of sufficient
scale to maximise current and future pipeline product sales across North America.
Value Generation
The strategy is to:
❱ Deliver maximum return from our integrated business model by:
Shareholder
Return
— Investing in a strong development pipeline;
— Maximising sales and margin of our existing product portfolio; and
— Extending our geographical scope.
22581-04 22/08/2013 Proof 3www.dechra.comStock code: DPH®Our GovernanceOur FinancialsShareholder InformationOur PerformanceOur BusinessStrategic Report 12
DVP EU Strengths and Capabilities
Tony Griffin
Managing Director
René Hogenkamp
Finance Director
Giles Coley
Sales and Marketing
Director, Region I
Jan Jaap Korevaar
Sales and Marketing
Director, Region II
Region I: Denmark, Finland, France,
Norway, Sweden and UK
Region II: Belgium, the Netherlands,
Germany, Portugal and Spain
“Our customers are
principally veterinarians;
however, in some
territories the route
to market is through
wholesalers and
pharmacies.”
What We Do
DVP EU markets and sells Dechra’s veterinary
products throughout Europe and exports to
over 40 countries worldwide. The business has
an operating board of six senior managers,
and is managed from Bladel, the Netherlands,
Sansaw, UK, and Uldum, Denmark. In total,
DVP EU employs 318 people. Inventory is
managed through a central distribution centre
in Uldum, Denmark.
DVP EU has sales operations in 12 countries;
Belgium, Denmark, France, Finland, Germany,
Ireland, the Netherlands, Norway, Portugal,
Spain, Sweden and the UK, each run by
regional country managers. DVP EU also
exports to other European countries such
as Austria, Italy and Poland, and across the
globe to Australia, Brazil, Canada, the Middle
East and the Far East.
The key products in the DVP EU portfolio are
predominantly companion animal products;
however, with the acquisition of Eurovet, the
range has expanded into the food producing
animal market. During the year we have
integrated the expertise and products from
Eurovet and have continued to develop the
Dechra brand across Europe. This drive to
grow the brand will continue in the future with
the launch of new products from the pipeline,
an increased technical and educational
programme, and expansion into
new markets.
Our Market
Our customers are principally veterinarians;
however, in some territories the route
to market is through wholesalers and
pharmacies. Our products are distributed
through a mixture of our own direct sales,
wholesalers and national distributor channels.
When critical mass within a country is
reached, and whenever financially beneficial,
local sales operations are established. We
look to build teams with local knowledge who
can draw from Dechra’s technical expertise
across the Group.
Our Expertise
In order to forge relationships with customers,
technical dinners and seminars are held to
provide a face-to-face programme to educate
veterinarians on our key therapeutic sectors.
Key opinion leaders, at both local and
international levels, are recruited for seminars
and presentations; additionally, webinars
and online interactive educational tools are
available on the DVP EU website.
We have identified eight core therapeutic
categories where we leverage our expertise:
endocrinology, dermatology, ophthalmology,
equine, cardiovascular, analgesia and critical
care, diets/nutrition, and antibiotics for food
producing animals. As well as novel products,
DVP EU also produces generic products and
specialist, therapeutic and maintenance pet
diets.
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Strategic ReportOur Business 13
Carsten Jeppesen
Marie-Louise Mans
Logistics Director Europe
HR Director Europe
Above:
Canaural was first launched in 1975 and is now registered in 27 countries
introduce Comfortan to veterinarians in the
UK, a total of 865 veterinarians attended,
demonstrating a strong interest in this
product.
Across all territories the business is committed
to developing new products and services that
support the work of veterinarians. We will be
expanding the Dechra brand through newly
established subsidiaries within the EU and
we will continue to develop our international
presence through strong relationships with
key partners.
Looking Forward
DVP EU is performing strongly in the three
major European markets. The UK was the
fastest growing EU market during the year,
France and Germany also saw solid growth.
DVP EU’s export business is also expanding
in markets around the world. In endocrinology,
an important therapeutic sector, Vetoryl,
Felimazole and Forthyron® are key growth
drivers as we gain marketing approval in an
increasing number of countries.
Other key products include the broad
dermatology range, including Fuciderm®,
Malaseb, Canaural ®and the DermaPet range.
Cardisure, a generic product in DVP EU’s
cardiovascular category, shows significant
potential, as does Comfortan®, a recently
approved product, in the analgesic category.
Over ten technical seminars were held to
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DVP US Strengths and Capabilities
Mike Eldred
Doug Hubert
Dana Fertig
President, US Operations
Vice-President, Sales and
Marketing
Veterinary Technical
Services Manager
Nancy Zimmerman
Director of Marketing
What We Do
DVP US markets and sells Dechra’s veterinary
products across the USA, the world’s
largest animal health market. The business
is strategically located in Kansas City, at the
heart of the ‘Animal Health Corridor’, which
is the world’s largest concentration of animal
health businesses.
Our Market
Our customers are primarily small animal
and equine veterinarians, of which there are
approximately 90,000, working in 26,000
clinics across the country. DVP US provides
products that solve clinical problems and
help veterinarians treat medical conditions,
thereby building their business.
Led by an operating board of four
senior managers, DVP US comprises 42
employees, 26 of whom are field-based
sales representatives responsible for around
1,000 clinics each. The rest of the team
consists of marketing professionals, in-house
veterinarians, field veterinarians, technical
support staff and a customer service team.
DVP US currently only markets companion
animal and equine products; it is estimated
that there are around 80 million dogs and
95 million cats in the US at present and pet
ownership is increasing. The animal health
market is approximately $15 billion, out
of a total US spend of $50 billion on pets.
Spending in the pet market is recovering
since the decline seen in the recent global
financial crisis. It is now beginning to build,
with industry experts predicting an annual
growth rate of 3% to 5%.
“Several products in the
development pipeline
will ensure the continued
organic growth of our US
business.”
See Case Study on
Continuing Education
37
Above:
DVP US provides products that solve clinical problems and help veterinarians treat medical conditions
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Strategic ReportOur Business 15
In the US, veterinarians and clinics are
primarily supplied through distributors. Our
sales representatives promote and sell
products directly, but also network and
visit clinics together with these distributors.
Becoming increasingly important are
corporate pet hospitals, such as Banfield and
Veterinary Centers of America (“VCAs”) which
are consolidating the market and delivering
good growth.
Our Expertise
To increase knowledge of Dechra
products to all key customers, technical
Continuing Education (“CE”) meetings,
attended by veterinarians, are being
leveraged. Product awareness and knowledge
is established in a face-to-face environment,
key opinion leaders and influencers then
share their increased knowledge of Dechra’s
products to a wider audience.
The product portfolio of DVP US currently
includes 11 NADA approvals (with 20 different
package sizes) and 50 products that are
non-regulated. We have niche market leading
positions in veterinary endocrinology, veterinary
dermatology and topical dermatology.
Our Dechra brand has gained momentum
in the US, building on our strong reputation
for customer service, the quality of an
expanding product portfolio, further education
programmes on our key areas of specialisation
and high quality technical support.
Looking Forward
Several products in the development pipeline
will ensure the continued organic growth of
our US business. Commensurate with this
growth, we will continue to invest in the sales
and marketing infrastructure to develop a
stronger US presence and improved contact
with veterinarians.
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International Footprint
We currently have our own sales and marketing organisations in 12 Western
European countries and in the USA. We also market products in over 40 countries
worldwide through distributors and marketing partners. A number of these countries
are currently being evaluated to assess the opportunity to extend our own sales and
marketing capabilities thereby maximising margin return for the Group.
United Kingdom
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Key
Products
Ireland
Key
Products
Key
Products
Sweden
Key
Products
Finland
Key
Products
Denmark
Key
Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Norway
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Analgesia and Critical Care
Food Producing Animal
Products
Analgesia and Critical Care
Food Producing Animal
Products
Analgesia and Critical Care
Food Producing Animal
Products
Key
Products
Key
Products
Netherlands
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Belgium
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Key
Products
Key
Products
United States
Endocrinology
Dermatology
Ophthalmology
Equine
Portugal
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Key
European Pharmaceuticals
US Pharmaceuticals
Export
Number of key products
“The majority of our
products are novel or
have clear marketing
advantages over
competitor products.”
Read more about our
Key Products and
Specialisations
18
Spain
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Key
Products
France
Key
Products
Germany
Key
Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Analgesia and Critical Care
Food Producing Animal
Products
Analgesia and Critical Care
Food Producing Animal
Products
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Strategic ReportOur Business 17
The map below shows the number of key products in our focused therapeutic areas
in territories where we have sales and marketing organisations.
United Kingdom
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Ireland
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Key
Products
Key
Products
Norway
Key
Products
Sweden
Key
Products
Finland
Key
Products
Denmark
Key
Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Netherlands
Key
Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Belgium
Key
Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Key
Products
Key
Products
United States
Endocrinology
Dermatology
Ophthalmology
Equine
Portugal
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Key
European Pharmaceuticals
US Pharmaceuticals
Export
Number of key products
Spain
Key
Products
France
Key
Products
Germany
Key
Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Analgesia and Critical Care
Food Producing Animal
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 food producing animal product market. The majority
of key products in both the companion animal and food producing animal markets are
novel or have clear marketing advantages over competitor products. Several of our branded
ranges have market leading positions in the majority of territories in which we operate.
Dermatology and Care
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. This product
is currently unavailable due to third party supply issues.
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.
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.
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 products
in the USA. There are six products in the range, with the
majority being the only veterinary licensed products in the US
market. These products are currently unavailable due to third
party supply issues; however, we anticipate relaunch in the
2013/2014 financial year.
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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.
Analgesia and Critical Care
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 paste and injection presentations. 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 US market.
Dechra has a wide range of products that support emergency
medicine, pain relief and sedation.
HY-50 is used for intra-articular and intravenous treatment of
lameness in horses caused by joint dysfunction. The acquisition
of this product, in January 2012, strengthened Dechra’s position
in equine pain management in several major European territories.
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.
Domidine® is an injectable used for the sedation and slight
analgesia of horses and cattle, to facilitate physical examinations
and treatment, such as minor surgical interventions.
Endocrinology
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.
Atipam® is a selective a2-antagonist receptor which reverses
the sedative effects of medetomidine and dexmedetomidine in
cats and dogs.
Endocrine disorders are a key focus for the business with a
number of unique licensed products treating a range of chronic
diseases. The three leading brands are Vetoryl, Forthyron and
Felimazole.
Sedator® is licensed for sedation, analgesia and anaesthetic
premedication and contains the active ingredient medetomidine
hydrochloride.
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.
Other products in the range include Buprenodale®
(buprenorphine), Ketamin (ketamine hydrochloride) and Plegicil
(acepromazine maleate).
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Key Products and Specialisations continued
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 expand our branded generic
range within this territory.
Cardiovascular
This is a new area of focus following the acquisition of Eurovet.
Cardisure is the leading product in this category. The principal
ingredient in Cardisure is pimobendan. It is a leading treatment for
canine congestive heart failure and is marketed throughout Europe.
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 approvals 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 currently sold in 16 EU countries as a result of approval,
in 2010, for swine and chickens. 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 1990s.
Following successful European procedures in 2000, 2009 and
most recently in 2012, this highly soluble liquid is marketed in 15
EU countries. 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 EU countries. The active ingredient is chlortetracycline.
Food Producing Animal
Antimicrobials
Pet Diets
Dechra has a superior range of antimicrobial treatment products
predominantly for swine and poultry. In a market where there
is increased emphasis on reducing the usage of antibiotics in
the food producing 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
Dechra has two main cat and dog diet product ranges, both
branded Specific®, which are sold exclusively through veterinary
practices. Therapeutic diets, which represent approximately
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 approximately
30% of diet sales, provide premium quality daily nutrition for
healthy dogs and cats.
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21
Mike Annice
Managing Director
Kirsty Ireland
Finance Director
Andrew Parkinson
Quality Director
Gareth Davies
Sales and Marketing
Director
Chris Ashcroft
Operations Director
What We Do
Dechra Pharmaceuticals Manufacturing
(“DPM”) produces the vast majority of Dechra’s
pharmaceuticals and also manufactures for third
parties on a contract basis. The key strategic
objective of manufacturing is to efficiently and
economically produce Dechra’s veterinary
pharmaceuticals product range, maintaining a
robust and reliable supply chain for the Group,
and to contribute revenue and profit to the
Group from third party manufacturing.
Our Sites
After the Eurovet acquisition, DPM operated
out of three sites based in Skipton, England,
Bladel, the Netherlands, and Uldum, Denmark.
Since then, the focus of DPM has been to
integrate the sites, ensuring their processes
and reporting are consistent so that the most
effective manufacturing capabilities are available
to DPM’s internal and external customers.
The small site at Uldum will be closed by the
end of the 2013 calendar year, as part of this
restructuring with its two key products being
transferred to Skipton. The Skipton and Bladel
management teams have worked closely
together to pool their skills and technical
capabilities to standardise procedures and
improve quality systems across the Group.
Work has also been ongoing in improving the
lean processes and to introduce a standard
ERP system across the whole of DPM.
Skipton
The site at Skipton employs 215 people,
and offers a comprehensive range of
pharmaceutical manufacturing and packing
services, predominantly for companion
animals. The site is dual-licensed to produce
both veterinary and human products. The
site includes a Pharmaceutical Development
Laboratory, a Routine QC (Quality Control)
Laboratory and a Stability Testing and
Validation Laboratory; these play a significant
part in the new product development
programme and are necessary for new product
introductions.
Bladel
The site at Bladel, acquired as part of
Eurovet, employs 120 people. The operation
complements the existing Dechra capabilities;
the site predominantly manufactures
products for food producing animals in large
scale batches. This site also has an aseptic
manufacturing facility to produce sterile
injections, a new competence in DPM’s
manufacturing portfolio.
Above:
Dechra Pharmaceuticals Manufacturing, Skipton
Above:
Dechra Pharmaceuticals Manufacturing, Bladel
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Manufacturing Strengths and Capabilities continued
“DPM will continue to
support new product
development and the
increasingly important
product pipeline.”
Our Expertise
DPM’s primary expertise is its ability to perform
a wide range of services which delivers the
flexibility that the veterinary market requires
and provides a one-stop shop for its external
customers. Furthermore, it offers a wide
range of dosage forms and packaging
capabilities and also supports the Group with
the Pharmaceutical Development Laboratory
which is integrated and aligned with our
manufacturing capabilities.
One-stop Shop
DPM offers an end-to-end service; from
formulation, method validation, stability
testing, licensing support, flexibility in scale
of production and packaging options to take
products to market. The supply chain for the
majority of products is short and we offer
reliable high service levels with exceptional
quality control throughout.
Production Capabilities
DPM has a wide range of capabilities in terms
of dosage form, packaging capabilities and
production scale. We can produce high,
medium and low volumes of almost all dosage
forms and have great flexibility in producing
to demand. Dosage forms include: tablets,
capsules, creams, ointments, gels, sterile
injectables, low volume and high volume
powders and pre-medicated feeds. We can
pack into sachets, tubs, bags, capsules,
tubes, bottles and jars. These capabilities are
very important for the production of veterinary
products where our licensed portfolio comes in
many dosage formats and in various scales of
batch size. Relative to human pharmaceuticals,
veterinary batch runs are often very small.
A number of our licensed branded minor
products, although highly profitable, are of such
a small scale that it would be difficult to find a
third party manufacturer to produce them at a
competitive price if we were unable to perform
the function in-house.
Product Development
The Pharmaceutical Development Laboratory
is integrated with our production capabilities.
The primary objective is to formulate and
validate products for our in-house pipeline
which is a major benefit to the Group in
order to shorten the time to get a product
to market. Our technical expertise and
development capabilities are also outsourced
to third party customers which helps to
secure new business.
Contract Manufacturing
In addition to manufacturing our own products,
both Skipton and Bladel generate income
through contract manufacturing. Although
the clear focus is on Group manufacturing,
we still seek to increase our third party sales;
currently approximately 50% of Skipton’s and
approximately 10% of Bladel’s output by value
is contract manufacturing. The external offering
includes product development, formulation,
trial manufacturing, validation, production and
packaging for both human and veterinary
pharmaceuticals.
Looking Forward
Over the coming years the in-house production
strategy will continue. There are currently no
significant capacity constraints; therefore, we
will continue to pursue profitable third party
business. DPM will continue to support new
product development and the increasingly
important product pipeline. Manufacturing
will also continue to maximise effectiveness
and efficiency and improve productivity whilst
constantly adapting our quality, health and
safety and environmental systems.
Above:
Autoclave trolley in the injection suite, DPM, Skipton
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23
Dr Susan Longhofer
Rob Joosten
Group Director, Product
Development and
Regulatory Affairs
Product Development and
Regulatory Affairs Director
Product Development and
Regulatory Affairs
The Product Development and Regulatory
Affairs (“PDRA)” team develops and licenses
Dechra’s own branded veterinary product
portfolio of novel and generic pharmaceuticals.
Additionally, the team manages post-approval
adverse event reporting, periodic product
renewals and other activities required to
maintain the product approvals.
The team of 52 people are split into
European Regulatory Affairs, US Regulatory
Affairs, Pharmaceutical Development and
Product Development. They work at four
locations: Overland Park, USA, Sansaw,
England, Skipton, England, and Bladel, the
Netherlands. The team includes veterinarians,
formulation chemists, pharmacists,
analysts, clinical trial managers and product
development managers.
Product development process
Although some products may have a slightly
different path, most novel and generic
products follow a fairly standard process
which contains five phases which Dechra
defines as: Exploratory, Pre-Clinical, Clinical,
File/Submission and Launch.
Dechra employs a structured process in
its development pipeline however retains
an opportunistic and entrepreneurial
approach. Focus is given to the Group’s
therapeutic specialisations: endocrinology,
equine medicine, analgesia and critical
care, cardiovascular, ophthalmology,
and antimicrobials for food producing
animals. New development opportunities
and in-license opportunities are evaluated
for strategic fit within these categories;
therapeutics outside of the key areas are
considered for inclusion in the pipeline if they
3 - 5 years average
Exploratory
Go/
No Go
Indication(s) determined
Active Pharmaceutical
Ingredient (“API”)
manufacturer selected
Manufacturing
site selected
(finished products)
Commercially -
Is it worth taking
the development
idea forward?
Pre-clinical
Dose / formulation
Selection
CAP
Formulation
Novel
(Start from scratch)
CAP
FAP
Generic
(Copycat product)
Dose Titration
CTR
Preliminary Safety study
Formulation
Go/
No Go
Clinical
Go/
No Go
File
Launch
3
Pilot
batches
2
Pilot
batches
CTR
CTR
CTR
Safety
Efficacy
Residues
Environmental
Risk Assessment
/Ecotoxicology
User Safety
Studies
Bio equivalency
Study/Studies
or waiver
Chemistry
Drives timing,
needs stable formulation
CAP Companion Animal Product
CTR Clinical Trials Required
FAP Food Producing Animal
New Formulation of products with
existing maximum residue level (MRL)
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Product Development continued
are novel and address unmet needs in the
veterinary market.
A product’s return on investment can vary:
novel developments tend to have a mid to
long term realisation with attractive high value
returns; generic developments generally have
shorter development timescales with returns
dependent upon the number of generic
entrants and speed to market relative to
competition. Dechra’s current development
pipeline is a mix of short, medium and long
term opportunities.
The Exploratory phase begins with identifying
a novel molecule, an opportunity to develop
a new formulation for an existing molecule, or
an in-license opportunity. Before initiating a
development programme, each opportunity
is assessed by market need, market value,
therapeutic indications, strategic fit and the
likely complexity of the regulatory pathway.
The second phase of the process is Pre-
Clinical, which involves the collection
of a range of preliminary data. When
initiating development of a novel product,
the correct dose has to be titrated and
a stable formulation, that can be reliably
and consistently manufactured, must be
developed. For a generic product, the
pioneer formulation may not meet the current
regulatory requirements and may need to
be reformulated. This phase is vital prior to
initiating the clinical phase which involves
expensive clinical trials or bio equivalency
studies.
The Clinical phase is the longest part of the
process, potentially taking two or three years.
After the formulation has been demonstrated
to be stable, two to three pilot batches are
manufactured for use in safety studies,
efficacy studies and stability testing. For
generic products, the batches are used
in one or more bio equivalency studies to
demonstrate that activity will replicate the
pioneer product. If the studies conducted
during the Clinical phase demonstrate the
required safety, efficacy and chemical stability
of the product, regulatory dossiers are
prepared for submission.
From beginning to end, this process takes on
average between three and five years.
Our Expertise
The PDRA team includes skilled people with
expertise in spotting niche opportunities,
and the experience to navigate the hurdles
of the development process. Across the four
locations, project teams operate to tackle the
wide range of projects. Investment in state-
of-the-art laboratories in Bladel and Skipton,
each with their respective dosage form
expertise, provides the resources required to
develop novel and generic formulations cost
effectively.
We believe our integrated and entrepreneurial
approach to product development successfully
delivers new products effectively and efficiently
in the shortest possible time frame.
“We believe our
integrated and
entrepreneurial approach
to product development
successfully delivers new
product effectively and
efficiently in the shortest
possible time frame.”
Above:
Dechra Development Laboratory at DPM, Skipton
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25
Our product pipeline is critical to our future success. Our novel and generics projects
are very diverse, with the majority building on our key therapy areas. We invest when
we can identify growth opportunities with a clear financial return focusing on novel
therapies to treat unmet needs with intellectual property protection. Our approach
ensures we create sustainable growth throughout our targeted global markets.
Low Risk Strategy
There are various stage gates throughout the life of a development project where progress is reviewed and decisions are taken on
whether to continue or not. Development is inherently risky and our stepped approach mitigates the risk of a costly failure.
Wide Range of Projects
In addition to the projects shown below, there are several other exploratory projects, line extensions, territory expansions and life
cycle management projects. There is also an ongoing programme that renews and redevelops the Specific range of pet diets.
Key Projects
Therapeutic
Category
Species
Territory
Manufacturing
Pre-clinical
Clinical
File
Endocrinology
Endocrinology
Dogs
Cats
International
International
In-house
Outsourced
Dogs
Endocrinology
Horses
Equine
Dogs
Dermatology
Dogs
Dermatology
Ophthalmology
Dogs
Cardiovascular Dogs
Cattle
Antimicrobials
Several
Antimicrobials
Poultry
Antimicrobials
EU
International
International
International
International
EU
EU
EU
EU
Outsourced
Outsourced
In-house
In-house
Outsourced
In-house
In-house
In-house
In-house
•
•
•
•
•
•
•
•
•
•
•
•
First Expected
Launch
2015
2017
2014 (UK)/
2016 (EU)
2014 (UK)
2017
2017
2017/2018
2017
2016
2015
2016
Future Value
The expected revenue from these projects at peak is estimated to be circa £35 million. It takes approximately four to five years after
launch for a product to reach peak sales.
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Chief Executive Officer’s Q&A
Your questions answered
with Ian Page, Chief Executive Officer
Q
How does the sale of the Services
businesses impact Group strategy going
forward?
The Group strategy has not changed at
all. If anything, the sale of the Services
businesses has allowed us to have an
even clearer focus on our core strategy;
furthermore, the proceeds of the sale have
strengthened our balance sheet considerably.
The consequences of which are that we
now have the capabilities to look at further
acquisitions if they become available to us
in the future, and also we are able to put
a little bit more investment in our product
development pipeline, which will strengthen
the opportunities for future growth.
Q
Why did Dechra decide to sell the
Services businesses?
The Group strategy has been clear for
several years; to develop a high margin,
cash generative veterinary pharmaceutical
and products business. Within this strategy
there is clearly no place for the Services
businesses. Historically, the Services
businesses were the strongest part of the
Group both in terms of turnover and profit,
but as the years have progressed, and we
have developed our pharmaceutical business,
that contribution has diminished.
What actually triggered the transaction was
a firm offer from Patterson. Patterson have a
sole focus on Services; we believe that they
will secure the future of the staff within the
Services businesses and also continue to
excel in performance at providing high levels
of service to customers. So these factors,
along with the firm offer, meant that we
believed it was a strong win-win position for
both parties.
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Q
Has the Eurovet integration progressed
according to plan and has it fulfilled all
your expectations?
It has definitely fulfilled our expectations. It
has extended our geography, particularly
into Germany; strengthened our companion
animal product portfolio; enhanced our
manufacturing capabilities and also moved
us into the livestock sector, which is a very
important area for us to be involved in,
as we look at our international expansion
opportunities.
In terms of the integration, it has delivered
all the expected synergies to date of both
revenue and cost nature; we expect it to
continue to deliver further revenue synergies
over the next couple of years.
Q
When will the product development
pipeline start to deliver significant new
products?
The product pipeline has actually delivered
products year on year now for several
years, both pharmaceuticals and diets. The
next major product was expected to be an
equine lameness product but unfortunately
this was delayed due to third party contract
manufacturing issues. However, we have
now resolved the issues and we expect
the product to appear within the next 12
months within one or two major territories.
Behind that, there is an extensive list of novel
products that we have in development, so
hopefully we should see at least one of these
products appearing per year from 2014
onwards.
Q
What are your expectations for the
business in the medium and long term?
The world’s animal health markets are
continuing to show growth. The companion
animal markets remain strong in North
America and Western Europe, and the
livestock markets continue to increase in
the developing world where there is a high
demand for animal protein. So overall we
are in a very strong position to deliver good
organic growth with our existing portfolio
but additionally, as I have already outlined,
we have a very strong product development
pipeline which will enhance that growth. We
are looking at new countries to establish a
presence; global expansion is high on our
agenda; furthermore, with our strong balance
sheet, we will hopefully be able to find one
or two acquisitions to bolster the Group as
a whole. So, all in all, we are in a very strong
position to cement ourselves as one of the
top ten global animal health companies.
Developing
Focusing
Delivering
Watch the Online Video
www.dechra.annualreport2013.com
Web link
for your
convenience
22581-04 22/08/2013 Proof 3www.dechra.comStock code: DPH®Our GovernanceOur FinancialsShareholder InformationStrategic ReportOur BusinessOur Performance The sale of the Services business is a significant step
forward in achieving our clearly defined strategic objective.
Introduction
Strategically it has been a momentous
year with the successful integration of
Eurovet, acquired in May 2012, and with
the transformational effect of the divestment
of the Services businesses. Dechra is now
entirely focused on developing, manufacturing
and marketing high margin, cash generative
veterinary pharmaceuticals and related
products across global markets. From
a trading perspective, a strong first half
performance was partially offset by a poor
third quarter, impacted by adverse weather
and ongoing third party supply problems
within the US. However, trading remained
robust, with our key branded in-house
manufactured products performing strongly.
The acquisition of Eurovet has fulfilled
our expectations. It has expanded our
geographical coverage, especially in
Germany; enhanced our manufacturing
capabilities; added complementary products
to our companion animal portfolio and
provided an entrance into food producing
animal pharmaceuticals. The food producing
animal sector is particularly important as we
look at opportunities to expand internationally.
The companion animal market is not sufficient
in scale in many countries outside of the EU
and North America to merit our own presence
solely with our current specialist product
portfolio. Furthermore, the ever increasing
demand for high quality meat protein from
emerging markets is creating a strong global
livestock market. Further details of the
Eurovet integration are provided within the EU
Pharmaceuticals Segment review.
28
Operating Review
Overview
Ian Page
Chief Executive Officer
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The Board believes this is a fair valuation for
businesses that have experienced increasing
margin pressure over recent years as the
customer base consolidates with the growth
of corporate veterinary practice groups. We
also recognise that Patterson is an ideal
company to secure the future of the staff and
take the businesses forward.
“Eurovet has fulfilled
our expectations and
provided an entrance
into food producing
animal pharmaceuticals.”
The sale of the Services businesses,
National Veterinary Services (“NVS”®) and
the Laboratories, is a significant step forward
in our clearly defined strategic objective
of developing an international specialist
veterinary pharmaceuticals business.
Historically, the strong cash generation of
NVS has helped to fund the growth of the
Pharmaceuticals Segments. However, as the
years have progressed, the Pharmaceuticals
Segments have gained sufficient critical
mass to fund their own development and the
Services businesses became strategically
less and less relevant year on year. The
businesses have been sold to Patterson
Companies, Inc. for £87.5 million on a debt
free, cash free basis.
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Operating Review continued
Product Development and Regulatory Affairs
Product Development
The product development pipeline continues
to deliver:
❱ Vetoryl, for the treatment of canine
Cushing’s syndrome, has been approved in
South Korea, Brazil and New Zealand.
1. new products for global markets:
❱ Methoxasol, an antimicrobial for swine and
poultry has been approved in the EU;
❱ Buprenodale, a multi-dose small animal
analgesic, has received authorisation
throughout the EU; and
❱ Anesketin, a generic companion animal
sedative, has been approved in seven EU
countries.
2. line extensions:
❱ Soludox, our water soluble antibiotic for
swine and poultry, has a new indication for
turkeys in the EU;
❱ Felimazole 1.25mg, a new low dose
strength to increase dosing options has
been approved throughout the EU; and
❱ Comfortan, a companion animal analgesic
has received an extension to its approval
for use in cats.
3. registrations in new territories:
❱ Libromide, used in the treatment of canine
epilepsy, has had its EU registration
extended into France, Austria, Portugal
and Switzerland;
❱ Felimazole, for feline hyperthyroidism, has
been approved in Australia; and
The Methoxasol and Soludox registrations
extend our portfolio of food producing animal
antimicrobial products which will provide
new opportunities in this competitive market.
The Comfortan, Buprenodale and Anesketin
approvals give us the widest and most
complete range of analgesics and sedatives
of any animal health company within the EU.
This further strengthens our position as a
market leader in critical care. The Felimazole
1.25mg registration increases dosing
options which allows veterinarians to better
manage feline hyperthyroidism where each
cat requires its own specific dosing regime.
The introduction also further differentiates us
from a generic version of the drug which has
recently been launched in a number of EU
territories.
There has been material progress on our
novel product pipeline. We have previously
reported that the first major product launch,
an equine lameness product, to be branded
Osphos®, had experienced delays due to
an enforced change to a new third party
manufacturer. We anticipate making a
submission for registration of this product in
the UK, Canada and Australia imminently. As
the horse, in the majority of the EU, is classed
as a food producing species we are currently
“There has been material
progress on our novel
pipeline.”
Read more about our
Product Pipeline
25
Above:
Dechra is now entirely focused on developing, manufacturing and marketing high margin, cash generative veterinary
pharmaceuticals and related products across global markets
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Above:
Dechra has a wide range of products that support emergency medicine, pain relief and sedation
conducting work to establish a maximum
residue level prior to submission for approval
throughout the rest of Europe. In the US the
product already has complete safety and
efficacy sections from the FDA. The Chemistry
and Manufacturing Controls (“CMC”) section,
the final requirement for the US submission, is
dependent upon a successful FDA inspection
of the third party manufacturing site.
site in Skipton for solid oral dosage forms,
a strategic decision was made to invest in
manufacturing in-house wherever possible.
The necessary equipment has been acquired
and validated at our Skipton site and the pilot
batch has been manufactured. The clinical trial
is at an advanced stage with all the dogs now
enrolled and initial results are very positive.
A second major product, for a canine
endocrine disorder, was originally intended to
be manufactured by a third party. However,
following ongoing external supply problems
and the successful FDA approval of our own
There are an additional six novel products
in the development pipeline, three of which
have long term patent protection: four novel
products are for the global market and two
are targeted specifically at the EU. There
are also three major differentiated generic
products for food producing animals under
development. A potential twelfth product
is at an advanced stage of assessment for
inclusion in the programme.
We anticipate a further two clinical trials to
commence within the new calendar year.
In addition to the novel products in
development we have several generics,
territory expansion and range extending
products in development. Furthermore, we
have a number of exploratory ideas to pursue.
22581-04 22/08/2013 Proof 3www.dechra.comStock code: DPH®Our GovernanceOur FinancialsShareholder InformationStrategic ReportOur BusinessOur Performance “As the enlarged product
portfolio now has
three areas of focus,
food producing animal
products, companions
animal products and
companion animal diets,
a new strategy has been
developed to give the
sales and marketing
teams across Europe
clear direction.”
Read more about our
International Footprint
16
32
Operating Review continued
European Performance
European Pharmaceuticals
Revenue from this segment increased by
61.0% (66.3% at constant currency) compared
to last year. On a like-for-like basis, including
the contribution from the Eurovet business,
revenue grew by approximately 5%.
DVP EU
The initial objectives of the integration of
Eurovet have been achieved within the year:
❱ Closure and restructuring of duplicate sales
and marketing offices and teams in the UK,
Benelux and Denmark;
❱ Dechra products launched in Germany
through the newly acquired subsidiary with
a smooth transition and retention of market
share following the termination of the prior
distribution agreement;
❱ The majority of the Eurovet companion
animal products have been transferred to
Dechra’s own sales organisation in France;
❱ Eurovet’s major swine and poultry products
have been launched for the first time in
France;
❱ All Eurovet products have been
transitioned ready for launch into Norway,
Finland and Sweden in the first quarter of
the new financial year;
❱ Manufacturing rationalisation is underway,
further details of which are provided later in
this report; and
❱ Management teams have been
successfully integrated creating a new
operating board.
This first phase of integration has progressed
in line with our strategy and is delivering the
expected cost and revenue synergies.
Despite a very slow third quarter following the
prolonged bad winter weather, pharmaceutical
sales for the full year increased by approximately
5% on a comparable basis. There were big
variations in performance on a territory by
territory basis with the UK, France, Germany
and Iberia performing well, and the Netherlands
and Nordics underperforming. The underlying
performance of our key strategic licensed
veterinary products was robust. Our own
branded pharmaceuticals grew by 5.1% at
constant currency; growth was delivered across
all key therapeutic sectors. Food producing
animal antibiotic usage remains under review
in a number of EU markets due to concerns
regarding antimicrobial resistance; however, we
still saw overall growth in this sector in all markets
other than Belgium and the Netherlands. Our
Specific pet diets grew by 2.6% at constant
currency; this growth was assisted by the
relaunch of a new presentation of our wet diet
range and also by the introduction of a new
intensive support diet for animals in rehabilitation
post-surgery.
As the enlarged product portfolio now has
three areas of focus, food producing animal
products, companion animal products and
companion animal diets, a new strategy has
been developed to give the sales and marketing
teams across Europe clear direction. In our
key therapeutic areas, where Dechra has a
substantial market position, a strong reputation
and an in-depth knowledge and expertise
have been better defined and prioritised. Clear
focus on these therapeutic sectors will allow
us to target our marketing support and provide
sales team prioritisation and also provide a
structure to support key pipeline products
which fit into these therapeutic segments. Two
distinct marketing teams have been created,
one focusing on food producing animal and
equine products, the other on companion
animal products and diets. We are already
seeing the benefits of improving the alignment of
diets with companion animal pharmaceuticals.
Our allergy diet range was promoted as part
of a dermatological campaign, one of our key
therapeutic categories, which resulted in strong
sales growth. Furthermore, a key account
management structure has been implemented
to focus on swine, poultry and equine as the
veterinarians within these sectors have become
very specialised and work increasingly in a
concentrated number of practices.
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33
Felimazole European
Marketing Campaign
Felimazole was the first veterinary licensed product for the treatment of feline hyperthyroidism. Originally licensed in the
UK in 2002, it has since been approved in the EU, US and Canada, becoming a key Dechra product. However, the feline
hyperthyroidism market is now highly competitive, with Dechra’s market share coming under pressure from alternative
products.
In order to protect and strengthen Dechra’s position in this market, an international marketing campaign has been
commissioned to reposition Felimazole. The objective is to highlight the benefits of Felimazole creatively through emotionally
engaging communications, and to position Dechra as the European expert in endocrinology.
The campaign’s theme reflects the key benefit of the product, namely restoring balance to a cat by flexible dosing options.
By visualising this in dramatic imagery, the campaign draws attention to the positive effects that Felimazole can have on the
hyperthyroid cat and demonstrates that the poise and precision that hyperthyroidism can take away, can be restored.
The integrated campaign delivers a range of support for the veterinarian, pet owner and sales teams. It includes awareness
generating press and banner advertising, flowcharts for diagnosis and treatment, sales aid, booklets and a loyalty pack. Key
opinion leader-written case studies, articles and Academy learning will follow.
The campaign will be launched in Germany and the UK in September, with France, the Netherlands, Belgium, Spain and the
Nordics to follow in January 2014.
Above:
New Felimazole marketing material
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Operating Review continued
European Performance continued
systems and GMP compliance systems are
progressing well. Further efficiencies are also
being delivered; significant yield improvements
have been achieved and batch failure rates
have halved. Furthermore, there has been a
year on year improvement in accident rates
with no reported RIDDOR’s in the last 12
months.
Third party contract manufacturing continues
to perform strongly with an increase in
external sales of 12.5% at constant currency
year on year. We continue to have a high
level of new external contract manufacturing
business enquiries.
“Third party contract
manufacturing continues
to perform strongly.”
Manufacturing
Following the Eurovet acquisition our
manufacturing sites were rebranded as
Dechra Pharmaceuticals Manufacturing. After
a detailed review of our capabilities following
this acquisition, it was decided to close the
manufacturing facility in Uldum, Denmark.
This site only produced two major prescription
products which have now been successfully
transferred into Skipton. The care range of
unlicensed products, previously manufactured
at the site, are now being outsourced to a
third party supplier. This site will be closed
prior to the end of the 2013 calendar year.
We are also in the process of transferring
two Eurovet products, which were previously
manufactured by a third party, into the Skipton
tableting facility. Once the transfer of these
products is complete, the full manufacturing
synergies identified prior to the acquisition will
be delivered. The manufacturing management
teams of both businesses have been fully
integrated and programmes to standardise IT
Above:
Fuciderm manufactured at DPM, Skipton
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35
New Sterile Endocrine Product
Manufactured In-house
The Suspension is a new sterile injection product, developed for use in the treatment of Canine Hypoadrenocorticism
(Addison’s disease). It is unique within the European market and has clear benefits over the daily tablet formulation used to
treat the condition.
The product was developed by Dechra’s Pharmaceutical Development Laboratory but was outsourced to an external
manufacturer based in Swindon, UK. At the time, our injections facility was in need of significant refurbishment and we
believed that outsourcing manufacturing to a facility that had an existing FDA approval would be the quickest way to get the
product to market. The contractor produced three product registration batches in December 2011, but soon after decided to
cease operations at the site. Rather than outsourcing to another contractor Dechra decided to bring the product into Dechra
Pharmaceuticals Manufacturing’s Skipton site. In the time that had elapsed, the injection facility had gone through a major
refurbishment and we had also gained FDA approval for our solid dose manufacturing suite. Therefore, we had the confidence
in our capabilities to take the refurbished injection suite through the necessary approval process.
The unexpected change in manufacturing site
actually resulted in several benefits for Dechra.
Manufacturing in-house lowers the cost of
producing the product and increases the margin
on all future sales. Additionally, improvements
were identified to optimise the production process
which would not have been possible externally.
Finally, while Skipton’s injectables suite had
recently been refurbished, including a new
autoclave, the decision to bring the product
in-house necessitated this investment. This has
enhanced the site’s capability for both internal and
external customers and has contributed towards
the ultimate aim of having global approval of the
Skipton site for all dosage forms.
Above:
Sterile Injectable Suite at DPM, Skipton
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Operating Review continued
US Performance
US Pharmaceuticals
Revenue from this Segment delivered growth
of 4.7% in the year, hampered by third
party supply issues with the ophthalmic and
dermatological ranges. Third party supply
problems for our leading dermatological
product, Animax, persisted throughout the
year and an enforced change to a new API
supplier resulted in a complete out of stock
situation. Every effort is being made by our
supplier to produce the validation batches
required to submit a variation for the change
in API supplier. It is possible that the product
could be back in production for the end of
our current financial year. As the product is
clinically unique it is considered that we should
be able to recover the majority of historic sales
once Animax becomes available again.
We had also anticipated that at least one of
our licensed veterinary ophthalmic products
would have been back in production within
the financial year being reported. However,
the review period by the FDA was longer than
expected and we still await approval for the
change in manufacturer. If we are successful
in this first round review by the FDA, products
should be available for marketing within the
first half of the financial year ending June
2014. If a second round review is required,
the relaunch will be extended into the third or
fourth quarter.
The underlying performance within the US
remains strong with our key products, Vetoryl
and Felimazole, growing by 11.6% and 16.3%
respectively. We continue to increase our
reputation in the US with an ongoing educational
programme on the conditions which our key
products treat; within the year we held almost
100 meetings with over 3,300 veterinarians in
attendance. We have continued to strengthen
our sales team and have also appointed a new
director of marketing, Nancy Zimmerman, who is
already having a positive impact.
In December 2012 we completed an
agreement to in-license three new companion
animal products: A-Cyst, Polyglycan SA
and PolyChews. None of these products
will make a material impact; however, they
complement our existing range of specialist
companion animal products and will make a
contribution to the growth of our US business.
Development continues on the new
in-licensed generic product outlined in the
Half Yearly Report. Following an initial review
by the FDA, it is unlikely this product will
receive registration in the 2013/2014
financial year.
“The underlying
performance within the
US remains strong with
our key products, Vetoryl
and Felimazole, growing
by 11.6% and 16.3%
respectively. ”
Above:
The US animal health market is approximately $15 billion, out of a total US spend of $50 billion on pets
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Technical CE
Meetings
DVP US organises technical continuing education (“CE”) meetings
which are centred around the education of veterinarians in terms of
recognising, diagnosing, treating and managing diseases. The meetings
are designed to improve awareness of Dechra and instil the message
that Dechra is a company with state-of-the-art products, technical
knowledge and a commitment to supporting the veterinary community.
The meetings are an ongoing series of dinner seminars, with around 150
held each year across the US. Some of these events are organised by
the Veterinary Medical Association (“VMA”) and are hosted by Dechra
veterinarians. They feature guest speakers including experts and key
opinion leaders, such as specialists and university veterinary clinicians
who are respected leaders in their discipline. Dechra also sponsors
evenings that do not feature a Dechra speaker, when they cover topics
pertinent to our products. This gives Dechra independent, third party
support and adds to the Company’s reputation.
From a strategic point of view, these evenings are an inroad to markets
DVP US is targeting, and ensures attendees are aware of Dechra
products and how to use them as their first choice treatments. The
seminars are RACE (“Registry for Approved Continuing Education”)
approved, meaning that veterinarians gain educational credits for
attending, as well as increasing their knowledge on diseases and
treatments.
On average Dechra-led seminars are attended by over 500 veterinarians
a year, with this figure rising significantly when Dechra-sponsored
evenings are held at major veterinary congresses. Since Vetoryl’s launch
in 2008 it is estimated around 4,000 veterinarians have attended a
seminar specific to this product which supports the momentum DVP is
currently building in the US.
Above:
Within the year DVP US held almost 100 meetings with over 3,300 veterinarians in
attendance
37
Group Information Technology
Following the appointment of a new Group IT
Director on 2 April 2012 a new Group IT strategy
has been defined and implemented. The essence of
the proposed strategy, which commenced in August
2012, is to standardise applications and hardware
across the Group and to implement a network and
infrastructure to support the implementation of the
Oracle ERP project. The second phase of the Oracle
implementation is progressing well with Bladel
manufacturing expected to go live in the second
quarter of the new financial year. Future roll outs will
include our European and US subsidiaries as well as
Group consolidation.
People
Anne-Francoise Nesmes was appointed
to the Board as Chief Financial Officer on
22 April 2013. She joined the Group and the
Board from GlaxoSmithKline PLC (“GSK”). Anne-
Francoise is a high calibre finance professional with
international pharmaceutical, manufacturing and
commercial experience.
Tony Griffin, formerly Chief Executive Officer of the
AUV Group, was appointed as a Director of Dechra
on 1 November 2012. Tony has played a key role in
the integration of the Eurovet business into Dechra.
In addition to his PLC Board responsibilities Tony’s
principal responsibility is his role as the Managing
Director of Dechra Veterinary Products Europe
(“DVP EU”).
Two new Independent Non-Executive Directors
were also appointed to the Board. Julian Heslop
commenced his role on 1 January 2013 and Ishbel
Macpherson on 1 February 2013. Julian served
as Chief Financial Officer of GSK between 2005
and 2011, having previously held senior roles in
both GSK and Grand Metropolitan PLC. Ishbel
currently holds a number of Non-Executive roles
and has previously had 20 years’ experience as
an investment banker specialising in mid-market
corporate finance.
Neil Warner has confirmed his intention to
stand down as a Non-Executive Director at the
forthcoming Annual General Meeting. I would
like to take this opportunity to thank Neil for his
commitment to Dechra over the past ten years
and wish him well in his future. Neil is also our
Senior Independent Director and Chairman of the
Audit Committee. On his retirement from Board
Ishbel Macpherson will be appointed as the Senior
Independent Director and Julian Heslop as the
Chairman of the Audit Committee.
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Operating Review continued
Key Performance Indicators (“KPIs”)
Financial
Strategic element KPI
Method of calculation
Manufacture
Revenue from key
pharmaceutical
products
Global revenue from our top five products
Target Prior to the Disposal of the
Services Segment
To achieve annual revenue growth of
at least 10%
2013 Performance
Five Year Record
The KPI was exceeded during the year with a growth
rate of 12.6% (15.9% at constant currency) being
achieved. Vetoryl and Felimazole grew particularly
strongly
Commercialise
Shareholder
Return
Revenue from
specialist pet
diets
Commercialise
Shareholder
Return
Manufacture
Underlying
operating margin
before product
development cost
Commercialise
Shareholder
Return
Innovate
Manufacture
Cash conversion
rate
Global revenue from the Specific brand of
pet diets
To achieve annual revenue growth of
at least 6%
On a reported basis, diets declined by 0.9%. However,
we have seen a growth of 2.6% at constant currency
Underlying operating profit before product
development expenditure expressed as a
percentage of Group revenue
To achieve an underlying operating
margin before product development
costs of 10% in the medium term
Further progress towards the medium term target was
made driven by the increasing proportion of revenue
achieved from pharmaceutical products
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%
Cash conversion achieved over 100% during 2013
due to strong performance from the Pharmaceuticals
Segments
Commercialise
Shareholder
Return
Innovate
Manufacture
Commercialise
Shareholder
Return
Non-financial
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 is significantly ahead of the Group’s WACC
although it reduced slightly in absolute terms due to the
Eurovet acquisition
Strategic element KPI
Method of calculation
Target
2013 Performance
Five Year Record
Innovate
Pharmaceutical
product
development
pipeline
Number of products from the pipeline or
in-licensed into at least one major territory with
long term revenue potential of at least
£0.5 million
One new diet or range extension
launched in the EU, two new
pharmaceuticals, each launched in
at least one key market
Innovate
Manufacture
Health and safety
performance
Commercialise
Innovate
Manufacture
Commercialise
Shareholder
Return
Employees
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
Employee turnover calculated as number of
leavers during the period as a percentage of
the average total number of employees in the
period
Zero preventable accidents
Moving Annual Turnover (“MAT”) rate
of less than 15%
One new diet product has been launched during the
year in the EU.
Nine new pharmaceutical registrations have been
achieved in to a number of territories across the EU
There has been a reduction in the total number of accidents
during the year from 10 to 5. 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 84 to 89
The MAT decreased from last year’s 16.10% to
14.84%. More detail in relation to this can be found in
the Social, Ethical and Environmental Responsibilities
report on pages 84 to 89
Read More
❭ Page 40
❭ Page 41
❭ Page 42
❭ Page 44
❭ Page 45
Read More
❭ Page 30
❭ Page 86
❭ Page 87
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
£44.0m
£39.1m
£33.2m
£29.4m
£23.6m
£27.9m
£28.1m
£27.6m
£25.6m
£22.7m
11.5%
9.9%
9.5%
8.9%
8.1%
107.0%
91.7%
82.8%
100.8%
112.5%
17.7%
20.6%
21.6%
22.6%
9.4%
10 products
6 products
6 products
6 products
5 products
0.22
0.55
0.82
0.75
0.94
14.84%
16.10%
15.88%
19.03%
19.81%
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Strategic ReportOur Performance Historically we have measured a number of financial and non-financial key metrics in order to monitor our progress and assist in the
achievement of our strategic plan. Following the recent disposal of our Services Segment it is the Senior Executive Teams intention to
review the key performance indicators in order to ensure that we can adequately monitor and manage the progress of our strategy.
39
Financial
Commercialise
Shareholder
Return
Commercialise
Shareholder
Return
Commercialise
Shareholder
Return
Commercialise
Shareholder
Return
Innovate
Manufacture
Commercialise
Shareholder
Return
Non-financial
Innovate
Commercialise
Commercialise
Shareholder
Return
Revenue from key
Global revenue from our top five products
To achieve annual revenue growth of
Target Prior to the Disposal of the
Services Segment
at least 10%
Manufacture
pharmaceutical
products
Revenue from
specialist pet
diets
Strategic element KPI
Method of calculation
2013 Performance
Five Year Record
Global revenue from the Specific brand of
To achieve annual revenue growth of
pet diets
at least 6%
On a reported basis, diets declined by 0.9%. However,
we have seen a growth of 2.6% at constant currency
The KPI was exceeded during the year with a growth
rate of 12.6% (15.9% at constant currency) being
achieved. Vetoryl and Felimazole grew particularly
strongly
Underlying
Underlying operating profit before product
To achieve an underlying operating
Manufacture
development expenditure expressed as a
margin before product development
percentage of Group revenue
costs of 10% in the medium term
operating margin
before product
development cost
Further progress towards the medium term target was
made driven by the increasing proportion of revenue
achieved from pharmaceutical products
Innovate
Manufacture
rate
and interest payments as a percentage of
rate of at least 100%
Cash conversion
Cash generated from operations before tax
To achieve an annual cash conversion
operating profit before amortisation of acquired
intangibles
Cash conversion achieved over 100% during 2013
due to strong performance from the Pharmaceuticals
Segments
Return on capital
Underlying operating profit as a percentage of
To achieve a return on capital
employed
(“ROCE”)
average operating assets utilised. Operating
employed which exceeds the pre-tax
assets exclude cash and cash equivalents,
weighted average cost of capital of
borrowings, tax and deferred tax balances
the Group (“WACC”)
ROCE is significantly ahead of the Group’s WACC
although it reduced slightly in absolute terms due to the
Eurovet acquisition
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
£44.0m
£39.1m
£33.2m
£29.4m
£23.6m
£27.9m
£28.1m
£27.6m
£25.6m
£22.7m
11.5%
9.9%
9.5%
8.9%
8.1%
107.0%
91.7%
82.8%
100.8%
112.5%
17.7%
20.6%
21.6%
22.6%
9.4%
Strategic element KPI
Method of calculation
Target
2013 Performance
Five Year Record
Pharmaceutical
Number of products from the pipeline or
One new diet or range extension
product
development
pipeline
in-licensed into at least one major territory with
launched in the EU, two new
long term revenue potential of at least
pharmaceuticals, each launched in
£0.5 million
at least one key market
Innovate
Manufacture
performance
all accidents resulting in absence or the
Health and safety
Lost Time Accident Frequency Rate (“LTAFR”):
Zero preventable accidents
Innovate
Manufacture
leavers during the period as a percentage of
of less than 15%
Employees
Employee turnover calculated as number of
Moving Annual Turnover (“MAT”) rate
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
the average total number of employees in the
period
One new diet product has been launched during the
year in the EU.
Nine new pharmaceutical registrations have been
achieved in to a number of territories across the EU
There has been a reduction in the total number of accidents
during the year from 10 to 5. 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 84 to 89
The MAT decreased from last year’s 16.10% to
14.84%. More detail in relation to this can be found in
the Social, Ethical and Environmental Responsibilities
report on pages 84 to 89
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
10 products
6 products
6 products
6 products
5 products
0.22
0.55
0.82
0.75
0.94
14.84%
16.10%
15.88%
19.03%
19.81%
Read More
❭ Page 40
❭ Page 41
❭ Page 42
❭ Page 44
❭ Page 45
Read More
❭ Page 30
❭ Page 86
❭ Page 87
22581-04 22/08/2013 Proof 3www.dechra.comStock code: DPH®Our GovernanceOur FinancialsShareholder InformationStrategic ReportOur BusinessOur Performance 40
Operating Review continued
Financial Review
Our divestment of the Services Segment (announced on
10 July 2013) was a logical strategic step following the
successful acquisition of Eurovet in May 2012 and our stated
objective to deliver a focused veterinary pharmaceuticals
business. For the continuing operations in 2013, revenue and
profits continued to grow, cash generation from operating
activities was strong and investment to fund our advancing
R&D pipeline increased.
All numbers are presented on a continuing operations basis for the Pharmaceuticals Segments
and 2012 has been restated. The Services Segment is shown as a discontinued business
in both years. Growth rates are shown on a constant exchange rate basis (“CER”) and on a
reported basis.
Underlying Financial Results
Underlying results of the Group reflect its trading performance excluding amortisation on
acquired intangibles, non-underlying charges and other one-off events that are inherently
volatile. Our results, excluding non-underlying items, are summarised below.
2013
2012
Continuing
operations
£’m
Revenue
189.2
Gross profit
100.7
Gross profit % 53.2%
Underlying
operating
profit
Underlying
profit before
tax
Underlying
EBITDA
33.5
39.1
42.8
Discontinued
Total
operations
£’m
£’m
522.4
333.2
29.8
130.5
9.0% 25.0%
Continuing
operations
£’m
124.3
71.1
57.2%
Total
£’m
Continuing
Continuing
operations
operations
Reported
Constant
results
currency
440.0 +52.2% +56.6%
99.3 +41.6% +45.6%
Discontinued
operations
£’m
315.7
28.2
8.9% 22.6%
11.1
50.2
25.6
11.1
36.7 +53.1% +58.2%
11.1
44.6
21.8
11.1
32.9 +53.7% +59.7%
11.8
54.6
28.4
11.3
39.7 +51.0% +55.6%
Revenue
Total Group revenue increased by 56.6% at constant exchange and 52.2% at reported rate
compared to the year ended June 2012. The acquisition of Eurovet occurred towards the later
part of the 2012 financial year and hence revenue for that period included only five weeks of
Eurovet revenue.
Anne-Francoise Nesmes
Chief Financial Officer
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Strategic ReportOur Performance
41
)
m
£
(
e
u
n
e
v
e
R
)
m
£
(
e
u
n
e
v
e
R
200.0
180.0
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0
Revenue by Segment
As reported, European Pharmaceuticals
revenue at £168.7 million grew by 66.3%
(CER) as a result of the Eurovet acquisition
and a strong performance from our core
brands.
Revenue in the US at £20.5 million increased
by 4.7% (CER) hampered by third party
supply issues, as referred to in the Chief
Executive Officer’s report. Excluding these
issues, revenue increased approximately
by 10%.
Revenue by Categories
On a like-for-like basis (including Eurovet for
12 months in 2012).
All franchises reflected growth (at CER) versus
2012:
❱ Pharmaceuticals increased by 4.7%
— The companion animal products grew by
7.8% driven by our key products Vetoryl,
Felimazole and Cardisure
— The food producing animal products
declined by 3.2% due to pressure on
antibiotic prescriptions and competition
on Cyclospray
❱ Diets delivered growth of 2.6%
❱ Third party manufacturing had a solid
performance with 12.5% growth
European
Pharmaceuticals
US
Pharmaceuticals
Total
2012
2013
CAP
FAP
Sub-total
Pharma
Diets
Third Party
Mfg
2012
2013
22581-04 22/08/2013 Proof 3www.dechra.comStock code: DPH®Our GovernanceOur FinancialsShareholder InformationStrategic ReportOur BusinessOur Performance
42
Operating Review continued
Financial Review continued
Gross Profit
Following the Eurovet acquisition, our
pharmaceutical product mix has broadened
to include generics and food producing animal
products. Consequently, overall gross margins
have declined by 4% from 57.2% to 53.2%.
Selling, General and Administrative
expenses (“SG&A”)
The SG&A increase of £13.8 million year on year
reflects the full impact of running a combined
operation after realising the expected synergies
of the acquisition of Eurovet.
Research and Development Expenses
(“R&D”)
R&D investment has increased by £2.3
million from £5.7 million to £8.0 million. This
increase reflects not only our enlarged R&D
organisation following the Eurovet acquisition
but also our additional investment to advance
and deliver our promising pipeline.
Discontinued Businesses
Consistent with the Group’s long term policy
to focus its activities on the manufacture
and marketing of specialist veterinary
pharmaceutical products, we announced
our intention to dispose of the Services
Segment on 10 July 2013. The transaction
was completed on 16 August 2013 with sales
proceeds of £87.5 million.
The disposed businesses have been
accounted for as discontinued operations.
Transaction expenses of £1.5 million have
been recorded as non-underlying items for
the discontinued operations. See note 29.
Total Results and Non-Underlying Items
Including the profit from the discontinued
operations and non-underlying items, Group’s
profit after tax of £17.9 million increased by
60.5% (CER) and 53.4% (at reported rate).
Non-underlying items of £21.1 million for the
continuing operations for the year comprised
amortisation of acquired intangibles,
rationalisation costs following the Eurovet
acquisition and the unwinding of discounts on
deferred and contingent consideration. Full
details are shown in notes 4 and 5.
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Strategic ReportOur Performance 43
Total
£’m
440.0
(340.7)
99.3
22.6%
(56.9)
(5.7)
36.7
8.3%
(3.8)
32.9
(8.7)
26.3%
24.2
Reported
results
Constant
currency
+18.7% +20.0%
+15.0% +15.8%
+31.5% +34.4%
+27.1% +29.8%
+38.8% +38.9%
+37.3% +40.8%
+53.0% +53.5%
+35.6% +39.4%
+23.4% +27.0%
+40.0% +43.8%
(0.4)
—
(0.4)
(16.1)
3.6
(12.5)
+39.8% +40.5%
+83.0% +83.6%
+27.5% +28.2%
Revenue
Cost of sales
Gross profit
Gross profit %
Selling, General and Administrative
expenses
Research and Development expenses
Underlying operating profit
Underlying operating profit %
Net finance costs
Underlying profit before tax
Taxation
Tax rate %
Underlying profit after tax
Non-underlying items
Tax on non-underlying items
Total non-underlying items
Continuing
operations
£’m
189.2
(88.5)
100.7
53.2%
2013
Discontinued
operations
£’m
333.2
(303.4)
29.8
9.0%
(53.6)
(8.0)
39.1
20.7%
(5.6)
33.5
(8.0)
24.1%
25.5
(21.1)
6.5
(14.6)
(18.7)
—
11.1
3.3%
—
11.1
(2.7)
23.9%
8.4
(1.5)
0.1
(1.4)
Total
£’m
522.4
(391.9)
130.5
25.0%
(72.3)
(8.0)
50.2
9.6%
(5.6)
44.6
(10.7)
24.1%
33.9
(22.6)
6.6
(16.0)
Continuing
operations
£’m
124.3
(53.2)
71.1
57.2%
2012
Discontinued
operations
£’m
315.7
(287.5)
28.2
8.9%
(17.1)
—
11.1
3.5%
—
11.1
(2.9)
25.8%
8.2
(39.8)
(5.7)
25.6
20.5%
(3.8)
21.8
(5.8)
26.5%
16.0
(15.7)
3.6
(12.1)
Reported profit for the period
10.9
7.1
17.9
3.9
7.8
11.7
+53.4% +60.5%
Reported diluted EPS (pence)
Underlying diluted EPS (pence)
12.39
29.07
8.06
9.64
20.45
38.71
5.18
21.28
10.42
10.99
15.60
32.27
+31.1% +38.0%
+20.0% +23.6%
22581-04 22/08/2013 Proof 3www.dechra.comStock code: DPH®Our GovernanceOur FinancialsShareholder InformationStrategic ReportOur BusinessOur Performance 44
Operating Review continued
Financial Review continued
Taxation
The underlying tax charge from continuing
operations for the year was £8.0 million.
This reflects an effective tax rate of 24.1%
compared to 26.5% in 2012. Our effective rate
has reduced in the year as a result of changes
to tax rates in both the UK and overseas.
Earnings per Share and Dividends
Underlying diluted EPS for the year for the
Group business was 38.71 pence (2012:
32.27 pence). The underlying diluted EPS for
the continued operations was 29.07 pence,
representing 36.6% growth (at reported
rate) over 2012. For clarity, the EPS for the
financial year does not reflect any future
interest benefits or tax impact as a result of
the divestment.
The Board is proposing a final dividend of
9.66 pence per share (2012: 8.50 pence).
Added to the interim dividend of 4.34 pence
per share, this brings the total dividend per
share for the financial year ended June 2013
to 14.00 pence (2012: total 12.27 pence).
Dividend cover based on underlying earnings
was 2.8 times.
Subject to Shareholder approval at the Annual
General Meeting to be held on 17 October
2013, the final dividend will be paid on
22 November 2013 to Shareholders on the
Register at 8 November 2013. The shares will
become ex-dividend on 6 November 2013.
Cash Flow and Net Debt
The net cash inflow from the Group’s activities
increased by £17.7 million (from £19.2 million
to £36.9 million) reflecting the impact of our
enlarged operations. A strong cash inflow in
the second half of the year contributed to the
cash conversion of 107.0%. Excluding non-
underlying items, cash conversion was 98.4%.
Following the divestment, the Group expects a
moderate improvement in cash conversion.
The significant transaction to report for
investing activities during the period is the
further payment of US$16.0 million
(£10.0 million) in respect of the acquisition of
DermaPet, Inc.
The net borrowing position at the end of the
year was £80.8 million down from £86.7
million last year.
At the end of the year, the Group had the
following banking facilities;
❱ A balance of £50.0 million on the initial
£55.0 million term loan repayable in
instalments through October 2016. £5.0
million was repaid in the period; and
❱ A £65.0 million revolving credit facility until
October 2016.
There was substantial headroom on all
covenants during the year.
The Group also has an overdraft facility of
£10.0 million, none of which was utilised at
year end.
Underlying operating
profit
Non-underlying items
(excluding amortisation
on acquired intangibles)
Operating profit before
acquired intangibles
amortisation
Cash generated from
operations before tax
and interest payments
Cash conversion (%)
2013
£’m
2012
£’m
50.2
36.7
(4.0)
(4.9)
46.2
31.8
49.4
107.0
29.1
91.7
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Strategic ReportOur Performance 45
Balance Sheet
Net assets at 30 June 2013 totalled
£174.6 million, a £20.9 million increase
compared to the £153.7 million reported on
30 June 2012.
Assets
Total non-current assets
Total current assets
(excluding held for sale
assets)
Assets held for sale
Total assets
Liabilities
Total current liabilities
(excluding held for sale
liabilities)
Total non-current
liabilities
Liabilities held for sale
Total liabilities
Total net assets
2013
£’m
2012
Restated
£’m
235.7
237.1
89.6
89.8
415.1
86.9
80.4
404.4
(49.5)
(48.2)
(137.0)
(54.0)
(240.5)
174.6
(147.3)
(55.2)
(250.7)
153.7
Intangibles amount to £219.6 million as at
30 June 2013. There was no significant
movement versus 2012 other than the expected
amortisation. The strong performance in
the underlying trade associated with these
intangibles continues to support their carrying
value. Details can be found in note 11.
Total working capital for continuing operations
was £28.4 million in June 2013 compared
to £29.7 million in 2012. This reflects our
disciplined management of working capital.
Financial Risks
From a financial perspective we consider
several risks, including the following:
❱ Our foreign currency exposure: the Group
has significant sales in Europe, some
revenues in US$ and operations in Danish
Krone;
❱ Exposure to interest rate changes: the
Group has entered into an interest rate
swap on the term loan and the revolving
credit facility; and
❱ Tax to ensure we are compliant across all
territories.
Additional considerations are disclosed in
note 22.
Events after the Reporting Period
On 16 August 2013, the Group completed
the sale of the Services businesses for a
consideration of £87.5 million. The completion
accounts are yet to be finalised.
Summary
During 2013 we continued to build a
focused international specialist veterinary
pharmaceuticals business. The divestment
of the Services Segment at an attractive
valuation strengthens our Balance Sheet
giving the Group the opportunity to invest
in our pipeline and other value-enhancing
opportunities.
22581-04 22/08/2013 Proof 3www.dechra.comStock code: DPH®Our GovernanceOur FinancialsShareholder InformationStrategic ReportOur BusinessOur Performance
❱ 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
❱ Any product patents are monitored and consideration given to the formulation of a defensive strategy towards the end of the
products fulfil the identified requirements
life of the patent
❱ The Group ensures that it has detailed market knowledge and retains close contact with customers through its sales teams
which are consistently trained to a high standard
❱ Alongside the marketing plan the sales team receives training on the product, its benefits and all available technical information
46
Operating Review continued
Risk and Risk Management
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 50 to 60.
Strategic Element
Risk
Potential Impact
How we mitigate the risk
Commercialise
Shareholder
Return
Competitor product
launched against one
of our leading brands
❱ Loss of market share and revenue
❱
Increased marketing activity and expenditure
❱ Revenues and margins may be materially adversely affected upon the expiry or
early loss of patents, or by generic entrants into the market for the applicable
product
Commercialise
Shareholder
Return
Commercialise
Shareholder
Return
Revenue from recently
launched new
products failing to
meet expectations
❱ Reduced revenue and profitability which may mean we are unable to recoup
❱
In respect of all new product launches a detailed marketing plan is established. Progress against the plan is constantly monitored
the costs incurred in developing and launching the product
❱
Impairment of intangible assets
Failure of clinical trials
❱ A succession of clinical trial failures could adversely affect our ability to deliver
❱ Before major costly efficacy studies are initiated, smaller proof of concept studies are conducted to study the effects of the
Shareholder expectations
drug on target species and for the target indication
❱ Development costs have been incurred but are effectively wasted
❱ Regular review of pipeline by a cross functional project team
❱ Our reputation and relationship with veterinarians could be damaged
❱ Our positioning in the market may be affected and could reduce our leading
position in key therapeutic areas
Commercialise
Shareholder
Return
Shareholder
Return
Manufacture
Prescribing pressure
on veterinarians to
reduce antibiotic use
The failure of a major
supplier
❱
Impact our antimicrobial product range and reduce sales
❱ Regular contact is made with all relevant veterinary authorities to ensure that we have a comprehensive understanding of
❱ Our reputation could be adversely impacted if we do not respond appropriately
anticipated regulatory changes
to government pressure
❱ Development of new products that minimise antimicrobial resistance concerns
❱ This may lead to significant delays and/or difficulties in obtaining goods and
❱ Where it becomes evident that issues in relation to manufacturing/supply may arise alternative suppliers are identified and detailed
services on commercially acceptable terms
plans drafted. Where a manufacturing transfer is required stock is built up in order to avoid/mitigate an out of stock situation
❱ The subsequent delay in manufacturing and sales may result in product
❱
In respect of manufacturing, a “second sourcing” project for key materials has been established and maintained
shortages and significant delays, which may lead to lost sales
❱ The business units monitor the financial status of key customers and maintain regular contact with them (including face to face
meetings)
❱ All contracts with suppliers 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
Innovate
Manufacture
Commercialise
Shareholder
Return
Failure to meet
regulatory
requirements under
which we operate
❱ Delays in regulatory reviews and approvals could impact the timing of a
❱ The Group always strives to exceed regulatory requirements and ensures that its employees have detailed experience and
product launch
knowledge of the regulations
❱ Significant delays to anticipated launch dates of new products could have a
❱ All businesses have clearly established quality systems and procedures in place
material adverse effect on our margins
❱ Any changes made to the manufacturing, distribution, marketing and safety
surveillance processes of our products may require additional regulatory
approvals, resulting in additional costs and/or disruption to these processes
❱ Failure to achieve regulatory requirements may result in operational closures
which in turn increases expenditure and delays production
❱ 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
Innovate
Manufacture
❱
Inability to attract key personnel may weaken succession planning
❱ Succession planning is given consideration by the Board and, where deemed necessary, Key Man Insurance is in place
Loss of key personnel
❱ Loss of knowledge, skills and experience
❱ New Executives/Senior Managers are provided with a detailed induction to the business
Commercialise
Shareholder
Return
❱
Implementation of a Performance and Development Review Process is in progress
❱ Remuneration packages are reviewed on an annual basis in order to ensure that the Company can continue to retain,
incentivise and motivate its employees
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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 said risks:
Strategic Element
Risk
Potential Impact
How we mitigate the risk
Competitor product
❱ Loss of market share and revenue
Commercialise
Shareholder
Return
launched against one
of our leading brands
❱
Increased marketing activity and expenditure
❱ Revenues and margins may be materially adversely affected upon the expiry or
early loss of patents, or by generic entrants into the market for the applicable
❱ 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
product
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
❱ Reduced revenue and profitability which may mean we are unable to recoup
❱
In respect of all new product launches a detailed marketing plan is established. Progress against the plan is constantly monitored
Commercialise
Shareholder
Return
launched new
products failing to
meet expectations
the costs incurred in developing and launching the product
❱
Impairment of intangible assets
❱ The Group ensures that it has detailed market knowledge and retains close contact with customers through its sales teams
which are consistently trained to a high standard
❱ Alongside the marketing plan the sales team receives training on the product, its benefits and all available technical information
Failure of clinical trials
❱ A succession of clinical trial failures could adversely affect our ability to deliver
❱ Before major costly efficacy studies are initiated, smaller proof of concept studies are conducted to study the effects of the
Commercialise
Shareholder
Return
Shareholder expectations
drug on target species and for the target indication
❱ Development costs have been incurred but are effectively wasted
❱ Regular review of pipeline by a cross functional project team
❱ Our reputation and relationship with veterinarians could be damaged
❱ Our positioning in the market may be affected and could reduce our leading
position in key therapeutic areas
Prescribing pressure
❱
Impact our antimicrobial product range and reduce sales
❱ Regular contact is made with all relevant veterinary authorities to ensure that we have a comprehensive understanding of
Commercialise
Shareholder
Return
on veterinarians to
reduce antibiotic use
to government pressure
❱ Our reputation could be adversely impacted if we do not respond appropriately
anticipated regulatory changes
❱ Development of new products that minimise antimicrobial resistance concerns
Shareholder
Return
Manufacture
supplier
services on commercially acceptable terms
plans drafted. Where a manufacturing transfer is required stock is built up in order to avoid/mitigate an out of stock situation
The failure of a major
❱ This may lead to significant delays and/or difficulties in obtaining goods and
❱ Where it becomes evident that issues in relation to manufacturing/supply may arise alternative suppliers are identified and detailed
❱ The subsequent delay in manufacturing and sales may result in product
❱
In respect of manufacturing, a “second sourcing” project for key materials has been established and maintained
shortages and significant delays, which may lead to lost sales
❱ The business units monitor the financial status of key customers and maintain regular contact with them (including face to face
meetings)
❱ All contracts with suppliers are reviewed from both a commercial and legal perspective to ensure that assignment of the
contract is allowed should there be a change of control of either of the contracting parties
Failure to meet
regulatory
requirements under
which we operate
Commercialise
Shareholder
Return
Innovate
Manufacture
product launch
knowledge of the regulations
❱ Delays in regulatory reviews and approvals could impact the timing of a
❱ The Group always strives to exceed regulatory requirements and ensures that its employees have detailed experience and
❱ Significant delays to anticipated launch dates of new products could have a
❱ All businesses have clearly established quality systems and procedures in place
material adverse effect on our margins
❱ Regular contact is maintained with all relevant regulatory bodies in order to build/strengthen relationships and ensure good
❱ Any changes made to the manufacturing, distribution, marketing and safety
communication lines
surveillance processes of our products may require additional regulatory
approvals, resulting in additional costs and/or disruption to these processes
❱ Failure to achieve regulatory requirements may result in operational closures
which in turn increases expenditure and delays production
❱ 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
Innovate
Manufacture
❱
Inability to attract key personnel may weaken succession planning
❱ Succession planning is given consideration by the Board and, where deemed necessary, Key Man Insurance is in place
Loss of key personnel
❱ Loss of knowledge, skills and experience
❱ New Executives/Senior Managers are provided with a detailed induction to the business
Commercialise
Shareholder
Return
❱
Implementation of a Performance and Development Review Process is in progress
❱ Remuneration packages are reviewed on an annual basis in order to ensure that the Company can continue to retain,
incentivise and motivate its employees
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Board of Directors
Michael Redmond
Ian Page
Anne-Francoise Nesmes
Ed Torr
Tony Griffin
Non-Executive Chairman
Chief Executive Officer
Chief Financial Officer
Committee Membership
Committee Membership
Committee Membership
Nomination (Chairman),
Remuneration
Background
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.
External appointments
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).
Not applicable
Background
Not applicable
Background
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.
External appointments
In October 2010 Ian was
appointed as Non-Executive
Chairman of Sanford DeLand
Asset Management.
Anne-Francoise was
appointed Chief Financial
Officer in April 2013. Prior
to joining the Company,
Anne-Francoise worked at
GlaxoSmithKline (“GSK”) for
over 15 years, where she
held a number of finance
roles including Senior Vice-
President, Finance, of the
global vaccines business unit
based in Belgium. With GSK,
Anne-Francoise developed
her experience in a variety
of roles including internal
audit, corporate planning,
commercial finance and
between 2003 and 2006
was Vice-President Finance
Controller for Europe. Prior
to this Anne-Francoise held
finance roles with John
Crane, Tetra Pak, ADP and
Caterpillar UK.
External appointments
None.
Business Development
Director
Managing Director, Dechra
Veterinary Products EU
Committee Membership
Committee Membership
Not applicable
Background
Tony was appointed
Managing Director of DVP
EU in May 2012 following the
acquisition of Eurovet Animal
Health BV 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.
External appointments
None.
Not applicable
Background
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 EU in January
2008, following completion
of the acquisition of VetXX. In
May 2012 on the completion
of the acquisition of Eurovet
Animal Health BV, Ed
reverted to his historical
position within Dechra as
Business Development
Director. Prior to joining the
Group, he worked within
the animal healthcare sector
for a number of companies
including ICI, Wellcome and
Alfa Laval Agri.
External appointments
None.
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Governance Neil Warner
Dr Christopher Richards
Julian Heslop
Ishbel Macpherson
Zoe Goulding
49
Company Secretary and
Solicitor
Background
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.
External appointments
None.
Non-Executive Director
Non-Executive Director
Non-Executive Director
Committee Membership
Committee Membership
Committee Membership
Remuneration (Chairman),
Audit, Nomination
Background
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.
External appointments
Chris holds a number of
Non-Executive Directorships
including Cibus Global
Limited (appointed
November 2011), and he is
Chairman of Oxitec Limited
(appointed January 2012)
and Plant Health Care PLC
(appointed July 2012).
Audit, Nomination,
Remuneration
Background
Julian joined the Board in
January 2013. He served
as Chief Financial Officer
of GlaxoSmithKline PLC
between 2005 and 2011,
having previously been
appointed its Senior Vice
President, Operations
Controller between 2001
and 2005 and as Financial
Controller of Glaxo Wellcome
PLC between 1998 and
2000. Prior to this, Julian
had senior finance roles at
Grand Metropolitan PLC and
Imperial Brewing and Leisure.
He is a Fellow of the Institute
of Chartered Accountants in
England and Wales.
External appointments
Julian was appointed as
a Non-Executive Director
at Revolymer PLC in July
2012 and is their Audit
Committee Chairman. He is
also Chairman of the Audit
Committee of the Royal
Academy of Arts.
Audit, Nomination,
Remuneration
Background
Ishbel joined the Group as
a Non-Executive Director
in February 2013. She has
over 20 years’ experience
as an investment banker,
specialising in UK mid-market
corporate finance. She
was Head of UK Emerging
Companies Corporate
Finance at Dresdner
Kleinwort Benson from 1999
to 2005, having previously
worked at Hoare Govett and
Barclays de Zoete Wedd.
External appointments
Ishbel is currently
Non-Executive Chairman of
Speedy Hire PLC, a position
which she has held since
January 2011 (having been
appointed to the Board of
Speedy Hire in 2007). Ishbel
is also a Non-Executive
Director at Dignity plc and,
previously, at May Gurney
Integrated Services plc from
2010 to 2013.
Senior Independent Non-
Executive Director
Committee Membership
Audit (Chairman),
Nomination, Remuneration
Background
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.
External appointments
In February 2011 Neil was
appointed Non-Executive
Director and Chair of the
Audit Committee of Vectura
Group plc, a product
development company
focused on the development
of a range of inhaled
therapies, principally for
the treatment of respiratory
diseases. He is also Non-
Executive Chairman of Enteq
Upstream plc, a specialist
reach and recovery products
and technologies provider
to the upstream oil and gas
services market, a post he
has held since 26 May 2011.
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Letter from the Chairman on Governance
Dear Shareholder
On behalf of the Board I am pleased to present Dechra’s Corporate Governance report
for the year ended 30 June 2013.
The 2012/2013 financial year has seen a number of changes to the Board from both
an Executive and Non-Executive perspective. In terms of Executive Director changes,
Simon Evans tendered his resignation as Group Finance Director after 15 years’ service
with the Company. During his tenure on the Board, Dechra developed from a UK based
veterinary wholesale company into an international veterinary pharmaceuticals business.
I would like to thank Simon for his significant contribution to the growth of Dechra and
wish him well in his future.
Following Simon’s resignation, JCA Group were retained to commence the search for a high calibre finance professional
who could work alongside the Chief Executive Officer to continue to develop and progress the Group strategy. I was
delighted that in April Anne-Francoise Nesmes agreed to join Dechra as its Chief Financial Officer. Anne-Francoise has an
impressive financial career, the majority of which has been spent with GlaxoSmithKline during a 15 year period. I am sure
that her experience and financial acumen will be invaluable to Dechra. I would like to take this opportunity to thank Paul
Sandland, the Group Financial Controller, who in the interim period between Simon’s resignation and Anne-Francoise’s
appointment, fulfilled the role of acting Group Finance Director with professionalism and commitment.
I am also pleased to report the appointment of Tony Griffin as an Executive Director in November 2012. Following the
Eurovet acquisition in spring 2012, the Board identified the requirement for additional resource at Executive Director level
and considered that Tony provided the relevant experience to assist in the development and implementation of the Group
strategy, particularly given his extensive career in the veterinary pharmaceuticals industry.
In terms of new Non-Executive Director appointments, I am pleased to welcome both Julian Heslop and Ishbel Macpherson
to Dechra. Each of whom has a wealth of relevant experience, which will bring valuable insight to the Board as we take
Dechra forward into its next stage as a pure play veterinary pharmaceuticals business.
I would like to express my gratitude to Neil Warner who, after over ten years as a Non-Executive Director of Dechra, has
expressed his intention to stand down at the 2013 Annual General Meeting. Over the years Neil has provided a valuable
contribution as both a Board member and Chairman of the Audit Committee, in particular in terms of finance, risk and
governance. On behalf of the Board I wish him well in his future.
The Board is currently undertaking its 2012/2013 evaluation. Following a discussion as to process it has been agreed that an
internal evaluation will be held this year but the Board will seek to carry out an external evaluation for 2013/2014. Details of the
findings and action points arising from the 2011/2012 evaluation are detailed in the report.
Following the move to our new head office in Northwich, Cheshire it has been decided to hold this year’s Annual General
Meeting at the new premises. This Meeting provides Shareholders with the opportunity to meet with the Board on an
informal basis and I hope that you will be able to attend.
Finally, should you have any questions in relation to the report, please feel free to contact myself or the Company Secretary.
Michael Redmond
Non-Executive Chairman
3 September 2013
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51
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 except in respect of the composition of the Audit
Committee. On Bryan Morton’s resignation in July 2012, Michael Redmond, Chairman of the Board, was appointed to the Audit
Committee in order to maintain the required number of members in line with the Audit Committee Terms of Reference. Michael
Redmond stood down as a member of the Audit Committee on 21 February 2013 upon the appointment of Julian Heslop and
Ishbel Macpherson.
Leadership
The Board
The Board is led by the Chairman Michael Redmond and comprises four Executive Directors and four Non-Executive Directors. The
biographical details of the Board of Directors are shown on pages 48 and 49.
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 Officer, and works closely with him to ensure 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 Officer. 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.
As reported in the previous Annual Report, Dechra’s top ten Shareholders were consulted in August 2012 with regard to the tenure
of the Chairman and the Senior Independent Director, each having held their respective positions for in excess of nine years. It was
agreed with the Shareholders that it was deemed to be in the best interests of the Company and its stakeholders that the Chairman
should remain in position for a further three years in order to oversee the induction and development of the new Non-Executive
and Executive Directors to the Board. The Nomination Committee considers that Michael Redmond continues to lead the Board
effectively, maintaining 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 the longevity of his association with the Company.
Therefore as agreed with the Shareholders, the Chairman’s tenure will be reviewed prior to the 2014 Annual General Meeting.
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.
During the year an independent recruitment consultant, JCA Group, was retained to assist in the recruitment of two new
Non-Executive Directors. At the commencement of the recruitment process an objective role description was defined and agreed by
the Nomination Committee detailing the skills and experience required for the Board positions.
As a result, on 1 January 2013 and 1 February 2013, Julian Heslop and Ishbel Macpherson, respectively, were appointed to the
Board and also as members of the Remuneration, Audit and Nomination Committees. It is intended that Julian will be appointed
as Chairman of the Audit Committee upon Neil Warner’s retirement at the forthcoming Annual General Meeting and further detail of
this is provided in the Audit Committee Report on pages 61 to 66. It is considered that each of the newly appointed Non-Executive
Directors brings with them a breadth of experience which will add value to the decision making of the Board and the formulation and
progression of the Group strategy.
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Corporate Governance continued
Senior Independent Director
The Senior Independent Director is available to Shareholders if they have concerns which contact through the normal channels has
failed to resolve or for which such contact is inappropriate. The Senior Independent Director also carries out the annual evaluation of
the performance of the Chairman and chairs the Nomination Committee when it is considering the succession of that role.
Neil Warner has held the position of Senior Independent Director since 5 November 2010, having been appointed as a
Non-Executive Director with the Company on 2 May 2003. Following Neil’s retirement from the Board at the 2013 Annual General
Meeting it has been agreed that Ishbel Macpherson will be appointed as the Senior Independent Director.
Chief Executive Officer
The Chief Executive Officer 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 Officer
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 on pages 67 to 83.
Chief Financial Officer
The Chief Financial Officer has day-to-day responsibility for financial planning and reporting for the Group. She is also responsible for
managing the financial risks and works with the Chief Executive Officer on all strategic matters.
As well as assisting in the recruitment of two new Non-Executive Directors during the year, JCA Group was engaged in relation to
the appointment of the Chief Financial Officer following the resignation of Simon Evans. Following a rigorous recruitment process,
Anne-Francoise Nesmes was appointed to the Board in April 2013. Anne-Francoise is a high calibre finance professional who
has valuable international, pharmaceutical, manufacturing and commercial experience gained during her extensive tenure with
GlaxoSmithKline PLC over a 15 year period.
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, inter alia, 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.
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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
Financial Reporting
Internal Controls
Corporate Governance
Approval and monitoring of long term objectives and strategy
Approval of the Group’s operating and capital expenditure budgets
Major organisational changes
Regular reviews of business performance
Approval of the Annual Report and dividend policy
Approval of development expenditure
Approval of treasury policy
Review and approval of internal controls and risk management policies and processes
Board and Committee composition (including succession planning)
Corporate Governance matters
Approval of policies such as Health and Safety and the Business Code of Conduct
In addition, the Board also focuses on the financial controls operated by the Executive Directors with a view to ensuring 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 contained in the delegated authorities document. 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 with a view to ensuring that the processes remain robust.
Board Meetings
The Board is scheduled to meet nine times per year. During the year two additional meetings were required to discuss the disposal
of the Services Segment.
Attendance at the Board and Nomination Committee meetings during the year to 30 June 2013 was as follows (details of
attendance at the Audit and Remuneration Committee meetings are provided on pages 62 and 68 respectively):
Name
Mike Redmond
Julian Heslop (appointed 1 January 2013)
Ishbel Macpherson (appointed 1 February 2013)
Dr Chris Richards
Neil Warner
Bryan Morton (resigned 9 July 2012)
Ian Page
Simon Evans (resigned 18 October 2012)
Tony Griffin (appointed 1 November 2012)
Anne-Francoise Nesmes (appointed 22 April 2013)
Ed Torr
Board
(11 Meetings)
11/11
7/7*
6/6*
11/11
9/11
0/1†
11/11
2/2†
8/8*
3/3*
10/11
Nomination
(4 Meetings)
4/4
1/1*
0/0*
4/4
4/4
0/0†
n/a
n/a
n/a
n/a
n/a
Note: n/a denotes that the Director is not a member of this committee, but may attend by invitation.
* Actual attendance/maximum number of meetings Director could attend based on date of appointment.
† Actual attendance/maximum number of meetings Director could attend based on date of retirement.
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 or discussion points either through the Chairman or Company Secretary, thereby allowing their views to be fully
discussed at the meeting. Following 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.
The Company Secretary ensures that an accurate record of each Board meeting is made which is circulated to the Board as soon
as practicable 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, they have a right to provide a written statement for circulation to the Board.
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Corporate Governance continued
The Board believes in the necessity for challenge and debate at 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 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 is circulated to the Board. Every
meeting agenda comprises reports from the following individuals:
❱ Chief Executive Officer;
❱ Chief Financial Officer;
❱ Managing Director and Finance Director of each Business Unit;
❱ Group HR Director; and
❱ Product Development and Regulatory Affairs Director.
In addition, twice a year the Board receives detailed health, safety and environmental reviews encompassing all operating segments,
plus the activities of the Transport Risk and Sustainability Committees. Three times a year the Board receives a full risk assessment
review for discussion, following detailed risk reviews within each of the business units. Other ad hoc material relating to specific
projects, legal, company secretarial and regulatory matters are 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 monitor the progress of the business and provides transparency across all areas within the Group.
Each year an annual strategic agenda is drawn up and approved by the Board. This enables the Board to focus on and discuss key
strategic areas on a regular basis. 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
August 2012
December 2012
January 2013
April 2013
Presentation Subject
Group IT Strategy
DVP US update
Oracle implementation
Product Development and lifecycle
management — review of key development
projects and an outline of exploratory projects
May 2013
Manufacturing and Sourcing
Delivered by
Allen Mellor (Group IT Director)
Mike Eldred (President, DVP US)
Allen Mellor (Group IT Director)
Susan Longhofer (Group Director, Product
Development and Regulatory Affairs) and
Rob Joosten (Product Development and
Regulatory Affairs)
Mike Annice (Managing Director of Dechra
Pharmaceuticals Manufacturing)
The Chairman and the Non-Executive Directors generally meet before 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 Officer outside of the scheduled Board meetings.
The Board has formally delegated specific responsibilities to Board Committees, in particular 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.
During the year the Chief Executive Officer and Chief Financial Officer have attended 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 Officer allowing him and the Chief Financial Officer the opportunity to obtain detailed information on
the businesses’ strategic, operational and financial progress including any issues potentially preventing the achievement of their
targets. Key operational information obtained from these meetings is then reported back to the Board.
The Chief Executive Officer has also chaired a number of product development meetings during the year. Representatives from
the finance, marketing and manufacturing departments also attend these meetings thereby allowing the product pipeline to be
comprehensively reviewed.
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Following the disposal of the Services Segment a review of the operational Board meetings has taken place and it has been agreed
that six meetings a year will be held for DVP EU, DVP US, Manufacturing and Product Development. Furthermore, four Executive
Board meetings have been scheduled. It is the intention that these meetings will be attended by the four Executive Directors, the
Managing Directors of the operating businesses along with the IT and HR Directors.
The Company maintains an appropriate level of Directors’ and Officers’ insurance in respect of legal action against Directors.
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 12 months:
❱
❱
❱
❱
❱
❱
the appointment of Tony Griffin (Managing Director of DVP EU) as an Executive Director on 1 November 2012;
the appointment of Julian Heslop (Non-Executive Director) on 1 January 2013;
the appointment of Ishbel Macpherson (Non-Executive Director) on 1 February 2013;
the appointment of Anne-Francoise Nesmes as Chief Financial Officer on 22 April 2013;
the resignation of Bryan Morton (Non-Executive Director) on 9 July 2012; and
the resignation of Simon Evans as Group Finance Director on 18 October 2012.
As previously stated, Neil Warner will retire as a Non-Executive Director at the 2013 Annual General Meeting having held a position
on the Board for over ten years. As agreed with the major Shareholders the Chairman’s position will be reviewed prior to the 2014
Annual General Meeting.
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 background and experience. However, the Board does not have a formal diversity policy and is generally opposed to the
idea of stated quotas for females. The Board believes that appointments should be made solely on merit, the key criterion being
whether or not the appointee can add to or complement the existing range of skills and experience on the Board.
Notably, of the recent Board appointments, two out of the three have been female. Both of these appointments were made on
merit, and not on gender. Both appointees were by far the strongest candidates for the positions and their skill set and overall
experience fitted the objective role description approved by the Board at the outset of the recruitment process.
In terms of female representation across the Group: 22% of Board members (2012: nil); 25.0% (2012: 25.0%) of the senior
management team; and 42% (2012: 44.8%) of the overall workforce are females.
Diversity in the Board and Beyond
Board Members
— Male/Female
a
a Female 22%
b Male 78%
Senior
Management
Staff —
Male/Female
a Female 25%
b Male 75%
a
Employees —
Male/Female
a Female 42%
b Male 58%
b
a
b
b
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Corporate Governance continued
Conflicts of Interest
Pursuant to the Companies Act 2006 all Directors have a duty to avoid a situation in which they have, or could 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 or potential conflicts
have arisen.
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 maintains its 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. During the year a Board meeting was held at Dechra
Manufacturing, Skipton, and the main Eurovet facility (Bladel) in the Netherlands. The Board had an opportunity to be shown around
both of these manufacturing facilities and meet with employees.
Any newly appointed Directors are provided with comprehensive documentation aimed at providing information in relation to the
remit and obligations of the role, current areas under consideration for the Board and the latest broker reports. New Directors are
also offered the opportunity to visit the various business units in order to allow them to meet with the executive teams and to be
shown around the operations. All of the new Non-Executive Directors and Executive Directors appointed during the year visited
the facilities at both Skipton and Stoke-on-Trent prior to their respective appointments. Meetings were also arranged with the
Product Development and Regulatory Affairs Directors, the HR Director and the Managing Director and Quality Director of Dechra
Pharmaceuticals Manufacturing.
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 on the revised draft Directors’ Remuneration Report Regulations and the new
strategic report proposals. 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 or her to make informed judgements in order to adequately
discharge their 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 Michael Redmond (Chairman), Julian Heslop (appointed
1 January 2013), Ishbel Macpherson (appointed 1 February 2013), Dr Chris Richards and Neil Warner. The Chairman will not chair
the Committee meeting if it is 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. During the financial year under review three additional Nomination Committee meetings were held in order to discuss and
recommend the various Board appointments.
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 is available on the Company website at www.dechra.com. The terms of
reference 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.
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57
Other significant commitments of the Chairman and the Non-Executive Directors were disclosed to the Board before appointment,
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.
Board Evaluation
The Board undertakes an annual evaluation of its performance and that of its Committees.
❱ The 2011/2012 Board evaluation:
The evaluation process was reviewed in detail by the Chairman and the Company Secretary and discussed with the Board. It
was agreed that, given the number of changes to the Board during the review period, an internal (rather than external) evaluation
would be the most beneficial to the Company.
A detailed discussion document was then circulated to the Board covering 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 2012. Overall it was noted that no new issues of material significance had been raised during
the review, rather input revolved around progress of the previous years’ action points. The main action points were as follows:
Action
Board succession planning discussion and
implementation
Review of Board pack content and Board meeting
discussion
Further development of the Group KPIs
Post-acquisition reviews after 12 months
❱ The 2012/2013 Board evaluation
Progress
Two new Non-Executive Directors have been appointed during the course
of the year.
Furthermore, an additional Executive Director position was created by the
appointment of Tony Griffin to the Board
Following the October 2012 strategy meeting the Board agenda was
reviewed in order to increase focus on strategic matters. This was
assisted by an updated programme of strategic matters for review during
the year
This has not progressed to date but a review is now necessary given the
recent disposal of the Services Segment
This has been tabled into the rolling agenda for the PLC Board Meetings
A discussion took place at the February 2013 Board meeting as to whether or not an external evaluation should be commenced
during the 2012/2013 financial year given the Company’s move in June 2012 to the FTSE 250. It was agreed that given the
changes to the Board (as detailed above) an internal evaluation would again be carried out. However, an external evaluation will
be undertaken during the 2013/2014 financial year. The results of the 2012/2013 evaluation will be reported in next year’s Report
and Accounts.
Re-election
On appointment, Directors are required to seek election at the first Annual General Meeting following appointment. At the
forthcoming Annual General Meeting, Julian Heslop, Ishbel Macpherson, Tony Griffin and Anne-Francoise Nesmes, who were all
appointed during the financial year, will offer themselves for election. All of the remaining Directors will retire and offer themselves for
re-election, excluding Neil Warner. 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
respective elections and re-elections.
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58
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 Auditors in connection with the Financial Statements are explained in the
Statement of Directors’ Responsibilities and the Independent Auditor’s Report on pages 94, and 96 to 97 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 Strategic Report and Operating Review on pages 3 to 45. The principal risks that may affect the Group’s future performance
are set out on pages 46 and 47.
During the year being reported, trading has continued to be robust with an improvement in 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 included:
❱ a £55.0 million, 4½ year amortising term loan, repayable in eight instalments on 31 March and 30 September each year of
£5.0 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 was paid on 31 March 2013; and
❱ a £65.0 million 4½ year revolving credit facility committed until 31 October 2016.
The net proceeds from the disposal of the Services Segment to Patterson Companies, Inc. in August 2013 will be used to reduce
the Group’s debt through the prepayment and cancellation of the Group’s existing £50.0 million term loan facility and the reduction
in amounts drawn under the Group’s existing £65.0 million revolving credit facility. This revolving credit facility will be retained on an
ongoing basis to fund the development of the business.
The Group also had cash balances of £32.8 million at 30 June 2013.
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 an 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 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 risk management process was last reviewed in 2009 and it has been agreed that the process will once again undergo a review
during 2013/2014.
The Board has reviewed the operation and effectiveness of the internal controls for the year ended 30 June 2013. Further detail in
respect of the risks and uncertainties faced by the Group and the mitigating action being taken can be found on pages 46 and 47.
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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 Processes
The finance function has implemented a detailed management accounting process which is in operation and 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 function maintain a financial policies manual which covers central and divisional management. The manual is
reviewed at least annually and is also updated whenever reporting standards, legislation or internal commercial reasons dictate.
Any changes to the policies are communicated throughout the Group’s finance function. The finance function schedules two
annual internal conferences at which a technical update, tailored specifically to the Group’s commercial needs, is presented
by the Auditor. During the 2012/2013 financial year this conference took place in November and April, the former meeting
concentrated on the Senior Accounting Officer obligations and the latter provided an opportunity for the Chief Financial Officer to
meet her team to discuss future strategy.
Business unit management certify on a quarterly basis that key financial controls have been performed and that significant risks
have been identified.
❱ Business Plans
Business plans provide a framework from which annual budgets and forecasts are agreed with each business unit, including
financial and strategic targets against which business performance is monitored. The plans are reviewed by executive
management, and then by the Board for ultimate approval. Actual performance during the financial year is monitored monthly
against budget, forecast and previous year.
❱
Investment Approval
The Group has clear requirements for the approval and control of expenditure. Strategic investment decisions involving both
capital and revenue expenditure are subject to formal detailed appraisal and review according to approval levels set by the Board.
Capital expenditure is controlled within each business with approval levels determined by the Board.
❱ Development Expenditure
The Group has a transparent and established process for evaluating and monitoring the level of development expenditure
incurred. As with all other business units the Product Development and Regulatory team agrees an annual budget which receives
approval from the Board; performance against this is monitored on an ongoing basis. The Product Development and Regulatory
team 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’ net present value and return on investment.
❱ Whistle-blowing and Business Ethics 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.
The Business Ethics Policy is currently undergoing a review and it is intended that an updated policy is rolled out across the
Group during 2013/2014.
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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 61 to 66. 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-Yearly 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 67 to 83. 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 Officer and Chief Financial Officer give annual and
half-yearly 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 protect 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 other parties such as financial analysts, brokers and media. The Company also organises site visits on a periodic basis.
Tony Griffin and Anne-Francoise Nesmes separately attended a number of the Institutional Shareholder meetings held in September
2012 and February 2013 respectively, post the announcement of the full and half yearly results. This provided a number of
Dechra’s major Shareholders with the chance to meet Tony Griffin and Anne-Francoise Nesmes before the commencement of their
appointment as Executive Directors.
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. Where material changes in respect of remuneration or governance are proposed the Board seeks to consult
with its major Shareholders before implementing such changes.
The annual and half-yearly results presentations are available to private investors via the Company’s website. The Company views
the website as an important investor relations tool, and 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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Letter from the Audit Committee Chairman
Dear Shareholder
On behalf of the Board I am pleased to present Dechra’s Audit Committee Report for
the year ended 30 June 2013.
Last year I advised that, following over nine years’ service with Dechra, I would be
standing down as a Non-Executive of the Group at the 2013 Annual General Meeting
and that the recruitment for a replacement Non-Executive Director, with recent and
relevant financial experience, had commenced. I am pleased to report that Julian
Heslop was appointed as a Non-Executive Director and also a member of the Audit
Committee in January 2013 and that Julian has accepted the role of Chairman of the
Audit Committee upon my retirement in October 2013.
Julian Heslop brings to the Committee a wealth of experience gained from serving as Chief Financial Officer of
GlaxoSmithKline PLC between 2005 and 2011, having previously been appointed its Senior Vice President, Operations
Controller between 2001 and 2005 and as Financial Controller of Glaxo Wellcome PLC between 1998 and 2000.
Since Julian’s appointment in January 2013, he and I have worked closely together on all Audit Committee matters so that
he is aware of any key issues in relation to audit matters and also to ensure a smooth and orderly handover of duties prior
to my retirement.
I am also pleased to welcome Ishbel Macpherson as a member of the Audit Committee. Further details in respect of both
Ishbel and Julian are provided in the Corporate Governance Report.
Last year you will recall that I reported that the Committee was in the process of defining the scope of an internal audit
function with a view to commencing recruitment by the end of 2012. Following the resignation of the Group Finance
Director, Simon Evans, in October 2012 it was agreed that the recruitment process be placed on hold until the new
Chief Financial Officer, Anne-Francoise Nesmes, had taken up her role with the Company. Following Anne-Francoise’s
appointment, and a number of discussions in relation to the potential remit of an internal audit function within Dechra, it
has been decided that the best approach to take at the current time is to outsource the function for an interim period whilst
consideration can be given to the longer term view of the remit and responsibilities of an internal audit function. More details
in relation to the tender process are provided within the following report.
Finally, I would like to take this opportunity to thank the Board of Dechra for their support during my tenure as both a
Non-Executive of the Company and also Chairman of the Audit Committee. I firmly believe that Julian Heslop is well suited
to guiding the Audit Committee forward and I wish him well with this role.
As always, should you have any questions in relation to this report, please feel free to contact me or the Company
Secretary.
Neil Warner
Audit Committee Chairman
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Audit Committee Report
Member
Neil Warner
Dr Chris Richards
Bryan Morton (resigned 9 July 2012)
Mike Redmond (appointed 19 July 2012/resigned 21 February
2012)*
Julian Heslop (appointed 1 January 2013)
Ishbel Macpherson (appointed 1 February 2013)
Independent
Yes
Yes
Yes
Yes
Yes
Yes
Meetings eligible
to attend
4
4
1
1
Meetings attended
4
3
0
1
2
2
2
2
Secretary
Zoe Goulding
* Following the resignation of Bryan Morton from the Board, Mike Redmond was appointed as a member of the Audit Committee until the appointment of a new
Non-Executive Director.
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 2012/2013 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 remain:
❱
❱
❱
❱
❱
to monitor the integrity of the financial statements of the Group, reviewing the annual and half-year reports in detail to ensure they
present a balanced assessment of the Group’s position and prospects which is understandable to Shareholders and potential
investors;
to review the effectiveness of the Group’s internal controls and risk management systems as described on pages 58 to 59 and, in
conjunction with the Auditor, consider the accounting policies adopted by the Group;
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 Group’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.
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Membership, Meetings and Attendance
The membership of the Committee and meeting attendance is stated on the previous page. Following the resignation of Bryan
Morton in July 2012, Mike Redmond was appointed as a temporary member of the Audit Committee to ensure adherence to the
Committee’s terms of reference and in particular to ensure that Committee membership consisted of three Non-Executive Directors.
This appointment was terminated on 21 February 2013 following the appointment of Julian Heslop as a Non-Executive Director.
The Committee is pleased also to welcome Ishbel Macpherson as its most recent member.
The Board considers that the current Committee Chairman, 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 the end of December
2010) and also as Chairman of the Audit Committee of Vectura Group plc (to which he was appointed in February 2011).
Neil Warner will be standing down as a Non-Executive Director of the Company and as the Chairman of the Audit Committee at the
forthcoming Annual General Meeting. It is intended that Julian Heslop will replace Neil as the Committee Chairman. As detailed in
the Chairman’s Letter on page 61, Julian worked for GlaxoSmithKline from 1998, latterly as its Chief Financial Officer from 2005 to
2011. It is therefore considered that Julian Heslop also has sufficient recent and relevant financial experience as required under the
UK Corporate Governance Code.
Details of the members’ financial and accounting experience are contained in the biographical details of the Board of Directors on
pages 48 to 49.
The Auditor attends meetings of the Committee other than when their appointment or performance is being reviewed. The Chief
Executive Officer, Chairman, Chief Financial Officer and other senior finance staff attend as and when appropriate. The Committee
has discussions at least once a year with the Auditor without management being present; during the financial year this took place
at the end of the August meeting. Furthermore, during the year the Committee Chairman meets informally and has access to the
Chief Financial Officer, Group Financial Controller and the senior audit engagement team. This group generally meets before the
Committee meetings that consider the annual and half-yearly results.
Neither the Company nor its Directors have any relationships that impair the Auditor’s independence.
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Audit Committee Report continued
Activities during 2012/2013
The Committee met four times during the 2012/2013 financial year, timed to coincide with the financial reporting timetable of the
Company. The table below sets out a number of the matters which were discussed (and where necessary approved) at the four
meetings:
Meeting
July 2012*
August 2012
February 2013
May 2013
Internal controls
Matters discussed/approved at the meeting
❱ 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
❱ Auditor’s Report on the 2011/2012 financial results
❱ Draft preliminary statement
❱ Draft Annual Report
❱ External audit effectiveness
❱ Audit Committee effectiveness review
❱ Auditor independence confirmation
❱ Non-audit fee update
❱ Going concern confirmation
❱
❱ Proposed final dividend
❱ Auditor representation letter
❱
❱ Auditor’s report on half-yearly results
❱ Draft half-yearly report and announcement
❱ Terms of reference
❱
Interim dividend
❱ Going concern confirmation
❱ Senior Accounting Officer requirement
❱ Auditor representation letter
❱ Non-audit fee update
❱
Internal audit function
❱ Non-audit fee update
❱
IFS review update
❱ Audit strategy for the year ended 30 June 2013 (including timetable, scope and fees)
❱ Auditor independence
❱ Company expectations of the audit
❱ Senior Accounting Officer
Internal audit function
* Meeting postponed from May 2012 due to the Eurovet acquisition.
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Internal Control and Internal Audit Function
The Board retains overall responsibility for establishing the systems of internal control and monitoring their ongoing effectiveness
and also for the identification and management of risk. The Committee monitors and reviews the effectiveness of the Group’s
internal control activities and further detail in respect of the internal controls are provided within the Corporate Governance Section
(on pages 58 to 59). As reported in the 2012 Annual Report, 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 discussed the role specification at the August meeting.
Following the resignation of the Group Finance Director, Simon Evans, in October 2012 it was agreed that the recruitment process
be placed on hold until the new Chief Financial Officer, Anne-Francoise Nesmes, had taken up her role within the Company.
Following Anne-Francoise’s appointment, discussions in relation to the role took place between the Committee Chairman and Chief
Financial Officer and it was decided that the best approach to take in the current circumstances was to outsource the function
for the short term so that a longer term view could be taken on the remit and responsibilities of an internal audit function. Tender
invitations have been forwarded to a number of accountancy firms (excluding the Auditor, KPMG) for an enterprise risk management
and internal support control function. Proposals are expected back by 27 September 2013 with presentations to be held mid-
October. The timeframe will therefore allow the project to be initiated at the beginning of January 2014. It is anticipated that this
ongoing support will continue for between 12 and 18 months until a firm decision can be made regarding insourcing compared to
outsourcing in relation to the function.
Auditor
Audit Engagement Director Rotation
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 next rotation is scheduled to take
place during 2015/2016.
Independence
The Auditor annually confirms their policies on ensuring audit independence and provides the Committee with a report on their own
audit and quality procedures. This report was reviewed during the audit strategy meeting held in May 2013 and the Committee
remain satisfied of the Auditor’s independence.
Effectiveness
The performance of the Auditor is reviewed annually by the Committee at the end of the annual audit cycle taking into account
feedback from financial directors and managers of the Group involved in the audit process, together with a review of the level of
service provided by the Auditor to the Group. The Committee are satisfied with the current Auditor’s effectiveness.
Audit Firm Tendering
The Committee are aware of the recommendations in the FRC UK Corporate Governance Code in relation to the expectation of the
external audit being put out to tender every ten years.
KPMG Audit Plc has been appointed as the Auditor since the Company’s formation in 1997 and their performance has been
reviewed annually by the Committee since that time. The Committee has remained consistently satisfied with the level of
independence of the Auditor and the integrity of the audit process. However, given the recent changes in best practice the
Committee has considered whether an audit firm tender should be undertaken during the 2013/2014 financial year. Given the
appointment of a new Chief Financial Officer in April 2013 the Committee believes that it would not be in the best interests of the
audit process or indeed in respect of risk management to undertake a tender so soon after this appointment.
The Committee does, however, intend to undertake a tender process and will seek to align this with the rotation of the Audit Director
Engagement scheduled for 2015/2016. The timing of this would therefore allow the successful audit firm (not disallowing for the fact
that this could be the incumbent firm) to take up its appointment when the current Audit Director stands down.
Re-appointment of Auditor
In the light of organisational changes within KPMG, the Directors have agreed that KPMG Audit Plc, a wholly owned subsidiary of
KPMG LLP, will step down as Auditor at the forthcoming Annual General Meeting and that a resolution to appoint KPMG LLP as
Auditor and to authorise the Directors to set their remuneration will be proposed at the Annual General Meeting.
There are no contractual obligations that restrict the Committee’s capacity to recommend a particular firm as Auditor.
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Audit Committee Report continued
Non-Audit Assignments
With respect to non-audit assignments undertaken by the Auditor, the Company has a policy to ensure that the provision of such
services does 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 Officer and Chief Financial Officer do at all times give consideration to the provisions
of the FRC Guidance on Audit Committees with regard to the preservation of independence. To assist the Auditor’s independence
Deloitte LLP was appointed in 2012 to undertake tax and compliance work in substitution for the Auditor.
Audit Fee Review
The fee proposals for the external audit and half-yearly results were considered and agreed in the May 2013 meeting.
Non-Audit Fees
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 firmly 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 working capital and reporting accountant work in respect of the
disposal of the Services Segment. The Auditor was considered the most cost effective and appropriate firm to perform this work
given both their knowledge of the existing business and the requirement to report on the existing as well as the reduced Group.
The Committee did not consider that the performance of this non-audit work would affect or impair the Auditor’s integrity. This is
consistent with the ethical standard recommended by the Accounting Practices Board.
A summary of audit and non-audit fees in relation to the year is provided in note 6 to the Group’s financial statements. This shows
that non-audit work represented 135% of the annual audit fee and, in line with the above stated policy, reflects the Committee’s
prior approval of the fees paid to the Auditor in respect of the disposal of the Services Segment. Excluding the costs relating to the
disposal, non-audit work represented 39% of the annual audit fee.
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.
Neil Warner
Audit Committee Chairman
3 September 2013
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67
Dear Shareholder
On behalf of the Board I am pleased to present Dechra’s Remuneration Report for the
year ended 30 June 2013.
During the year the Remuneration Committee:
❱
❱
reviewed the Chief Executive Officer’s remuneration package;
reviewed the Long Term Incentive Plan (“LTIP”) performance metrics; and
❱ determine remuneration for the new Chief Financial Officer, Anne-Francoise Nesmes.
In respect of Ian Page’s remuneration package the Committee believed that a repositioning was required in order to reflect
his experience, performance and overall contribution to the Group. With regards to the proposed changes to the LTIP
performance metrics, the Committee was of the opinion that the introduction of another performance measure (alongside
relative TSR) would allow for a more balanced assessment of success and reward of long term shareholder value.
The Committee consulted with the Company’s major Shareholders on the proposed changes and, taking into account
feedback from investors, a number of changes were made to both Ian Page’s remuneration package and the LTIP
performance criteria. Detail in respect of these changes are contained within the following report. The Committee believes
that these changes align and focus remuneration to reward longer term, sustainable performance.
During the year Dechra appointed a new Chief Financial Officer, Anne-Francoise Nesmes. Details of her remuneration
package are provided in the following report including details of the one-off recruitment reward which it was agreed to grant
her as partial compensation for the loss of share options granted to her by her previous employer. The Board considers
Anne-Francoise as pivotal in assisting Ian Page to direct the Group to its next strategic stage and considers that it was in
the best interests of the Company to create an overall recruitment package that would attract her to the role within Dechra
and to incentivise and motivate her going forward during her career with the Company.
It should be noted that all the Executive Directors and Non-Executive Directors have agreed to waive an increase to
their respective salaries and fees for the 2013/2014 financial year. An above inflation fee increase has been made to the
Chairman and the reasons for this are detailed in the following report. Below Board level the average pay increase across
the Group was 1.5%.
During the coming months, the Committee will review LTIP performance metrics in light of the disposal of the Services
Segment and will consult with major Shareholders as appropriate.
Finally, the Committee and I believe that ongoing dialogue with our major Shareholders is of key importance, should you
have any queries in relation to this report please do not hesitate to contact myself or the Company Secretary.
Dr Christopher Richards
Remuneration Committee Chairman
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Directors’ Remuneration Report
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 81. As outlined above, Dechra has structured this report to incorporate a number of the key
principles of the new Directors’ Remuneration Report regulations. For Dechra the new regulations will apply in full for the financial
year ending 30 June 2014.
Governance
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 for advisory vote at the 2013 Annual General Meeting.
Membership
The Committee consists exclusively of independent Non-Executive Directors and during the financial year comprised as follows:
Member
Dr Chris Richards*
Bryan Morton (resigned 9 July 2012)
Julian Heslop (appointed 1 January 2013)
Ishbel Macpherson (appointed 1 February 2013)
Mike Redmond
Neil Warner
Secretary
Zoe Goulding
* Appointed Committee Chairman on the resignation of Bryan Morton.
Independent
Yes
Yes
Yes
Yes
Yes
Yes
Meetings eligible
to attend
5
0
2
2
5
5
Meetings attended
5
0
2
1
5
4
The Chief Executive Officer attended all meetings held during the financial year in order to assist on matters concerning
remuneration of other senior executives within the Group; however, the Chief Executive Officer 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 2012/2013 financial year this review took place at the June 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.
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Meetings
The Committee met five times during the 2012/2013 financial year. Members’ attendance at the meetings can be found on the
previous page. The table below sets out a number of the matters which were discussed (and where necessary approved) at the five
meetings:
Date
August 2012
October 2012
December 2012
February 2013
June 2013
Subject Matter
❱ Approval of pilot scheme of the Performance Development Review (“PDR”)
❱ Review of benchmarking exercise
❱ Bonus scheme rules review
❱ Approval of Executive Director bonuses
❱ Discussion of the performance condition in respect of the LTIP granted in 2009
❱ Review of Committee effectiveness
❱ Consideration of the grant of LTIP awards and performance conditions
❱ Approval of grant of Approved and Unapproved Share Options to senior managers
❱ Proposed changes to Chief Executive Officer’s remuneration package
❱ Proposed changes to the LTIP performance conditions
❱ Update on Shareholder consultation in relation to the proposed changes to Chief
Executive Officer’s remuneration package
❱ Discussion of Chief Financial Officer’s proposed remuneration package and recruitment
award
❱ Approval of amendments to LTIP performance conditions and grant of awards
❱ Chief Financial Officer’s recruitment award
❱ PDR update
❱ Confirmation of Executive Directors’ and Senior Managers’ salary for 2013/2014
❱ Confirmation of Chairman’s fees for 2013/2014
❱ Confirmation of Executive bonus arrangements for 2013/2014
❱ Arrangements for conforming to the new legislation in respect of Directors’
Remuneration Report
❱ Review of terms of reference
❱ PLC Chairman’s remuneration
Advisers
The Committee’s main advisers are set out below:
Adviser
Chief Executive Officer
and Group HR Director
DLA Piper (UK) LLP
Deloitte LLP
Areas of advice
Remuneration of senior executives and senior management
Share scheme matters
General remuneration and incentive arrangements for Executives and general share scheme advice
Calculation of satisfaction (or otherwise) of the LTIP performance conditions
DLA Piper (UK) LLP are the Company’s lawyers and Deloitte LLP provide tax and compliance advice to the Group. 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 review, the
Committee considered it had the necessary skills and experience to perform its responsibilities, which was strengthened by the
appointment of two Non-Executive Directors during the financial year. The Board was advised of these findings.
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Directors’ Remuneration Report continued
Remuneration Policy and Practice
Summary of the Remuneration Policy
Dechra’s policy on 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 major Shareholders about remuneration matters.
Key Elements of Remuneration
The key elements of the Directors’ remuneration package are illustrated in the following table. The policy details below apply from
1 July 2013.
Policy table
Element
Base Salary
Performance measures
None, although
performance of the
individual is one of the
considerations in setting
salary levels.
Purpose and link to strategy
Core element of fixed
remuneration reflecting
the individual’s role and
experience.
When considering
base salary levels the
Committee ensures
that it provides the
basis for a market
competitive package to
recruit and retain talent
amongst the Executive
Directors.
Operation
The Committee reviews
base salaries annually
and in doing so
recognises the value of
the individual, their skills
and experience and
performance.
The Committee also
takes into consideration:
(i) pay increases within
the Group more
generally; and
(ii) Group organisation,
profitability and prevailing
market conditions.
Opportunity
Salary increases will
normally be in line with
the wider Group and the
Committee considers
any increase out of line
with this very carefully.
Higher increases may be
awarded in exceptional
circumstances, taking
into account all relevant
commercial factors.
These could include:
increase in scope and
responsibility, falling
considerably below
market positioning or
promotional increase.
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Pension
Purpose and link to strategy
Help retain and recruit
employees.
Ensure adequate income
in retirement.
Taxable Benefits
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
operational targets and
individual objectives.
Operation
The Company operates
a Group Stakeholder
personal pension scheme
which has been effective
since 1 July 2005. All
Executive Directors
excluding Tony Griffin are
members of this scheme.
Tony Griffin participates
in a defined benefit
pension plan which has
been established in the
Netherlands. This is a
funded career average
pay arrangement, where
pensionable salary is
subject to a €50,000
cap. Salary over this cap
is paid into a defined
contribution pension plan.
The Company provides
benefits in line with
market practice and
includes the use of a fully
expensed car, medical
cover and life assurance
scheme.
Other benefits may
be provided based on
individual circumstances.
Targets are reviewed
annually and any pay-out
is determined by the
Committee after the year
end based on targets set
for the financial period.
Opportunity
The Company contributes
14% of salary to the
Group stakeholder
personal pension scheme
on behalf of the Executive
Directors, excluding Tony
Griffin.
A salary supplement is
paid in lieu of amounts
above the annual
allowance of £50,000
per annum with respect
to Ian Page.
The Company contributed
12.4% of Tony Griffin’s
base salary. into the
defined benefit pension
plan up to the value of
€50,000 of his salary
and over this cap into
the defined contribution
pension plan.
Set at a level which the
Committee considers
appropriate and provides
sufficient level of benefit
based on individual
circumstances.
Maximum bonus
opportunity for Executive
Directors is 100% of
base salary.
71
Performance measures
Not applicable.
Not applicable.
Challenging but
achievable operational
targets and individual
objectives are determined
at the beginning of the
financial year.
The personal objectives
for the Chief Executive
Officer, Ian Page, are set
by the Chairman. The
personal objectives for
Anne-Francoise Nesmes,
Tony Griffin and Ed Torr
are set by Ian Page.
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Directors’ Remuneration Report continued
Element
Long Term
Incentive Plan
Purpose and link to strategy
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.
SAYE
Provision of the SAYE
to Executive Directors
creates staff alignment
with the Group and
provides a sense of
ownership.
Operation
The Committee intends
to make long term
incentive awards under
the existing LTIP.
Under the LTIP, the
Committee may grant
awards as conditional
shares, as nil cost options
or as forfeitable shares.
The Company also has in
place a Company Share
Option Plan (“CSOP”).
Awards under the CSOP
take the form of options
to acquire shares, with a
per share exercise price
equal to the market value
of a share at the date of
grant.
The Committee may at
its discretion structure
awards as Approved
Performance Share
Plan (“APSP”) awards
comprising both an
HMRC approved option
granted under the CSOP
and a LTIP award, with
the vesting of the LTIP
award scaled back to
take account of any
gain made on exercise
of the approved option.
Other than to enable the
grant of APSP awards,
the Company does not
intend to grant awards
under both the LTIP and
CSOP in the same grant
period.
HMRC approved
monthly savings scheme
facilitating the purchase
of shares at a discount.
Opportunity
Current scheme rules
permit grants up to
150% of salary (200%
of salary in exceptional
circumstances).
Shareholder approval
is being sought at the
forthcoming Annual
General Meeting to
increase the award
opportunity to 200%.
Performance measures
Vesting of the awards will
normally occur provided
that:
(a) the participant is still
employed by the Group
at the end of the vesting
period; and
(b) to the extent that the
pre-set performance
targets have been
satisfied over the three
year performance period.
❱ 50% on the
Company’s EPS
growth;
❱ 50% on the
Company’s total
shareholder
return (“TSR”)
performance relative
to an appropriate
comparator group;
and
❱ an ‘underpin’ condition
based on the
Company’s underlying
financial performance.
Contribution limit of
£250 per month.
Not subject to
performance conditions
in line with the HMRC
approved operation of
such plans.
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Opportunity
Not applicable.
Performance measures
Not applicable.
Element
Shareholding
Guideline
Purpose and link to strategy
Provides alignment
of Executive
Directors’ interests
with Shareholders
and promotes share
ownership.
Operation
In line with best practice,
there are formal share
ownership guidelines for
Executive Directors. By
the third anniversary of
their appointment to the
Board they are required
to have acquired and
retained a holding of
Dechra shares equivalent
to the value of at least
100% of their base salary.
Non-Executive Directors
Element
Non-Executive Director
Fees
Purpose and link to strategy
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.
Operation
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
Officer and the Chairman.
Non-Executive Directors are
not eligible to participate in
any of the Company’s share
schemes, incentive schemes
or pension schemes.
Opportunity
Non-Executive Directors are
paid a basic fee with additional
fees paid for the chairing of
Committees.
By the third anniversary of their
appointment to the Board,
Non-Executive Directors are
required to have acquired and
retained a holding of Dechra
shares equivalent to the value
of 50% of their base fee.
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Directors’ Remuneration Report continued
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.
Balance of Remuneration
The following charts illustrate 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.
Ian Page
Anne-Francoise Nesmes
Ed Torr and Tony Griffin
a Base Salary 24%
b Pension 4%
c Cash Bonus 24%
d LTIP 48%
d
d
a
c
b
a
b
c
a Base Salary 27%
b Pension 4%
c Cash Bonus 27%
d LTIP 42%
d
a Base Salary 32%
b Pension 4%
c Cash Bonus 32%
d LTIP 32%
a
b
c
Recruitment Remuneration Policy
When hiring a new Executive Director, the Committee will typically seek to use the Policy detailed on pages 70 to 73 to determine
the Executive Director’s ongoing remuneration package.
To facilitate the hiring of candidates of the appropriate calibre required to implement the Group’s strategy, the Committee retains the
discretion to make remuneration decisions which are outside the Policy. In determining appropriate remuneration, the Committee will
take into consideration all relevant factors (including the quantum and nature of remuneration) to ensure the arrangements are in the
best interests of Dechra and its Shareholders.
The Committee may make an award in respect of hiring an employee to “buyout” incentive arrangements forfeited on leaving a previous
employer. In doing so the Committee will take account of relevant factors including any performance conditions attached to these
awards and the time over which they would have vested. The Committee would seek to incorporate buyout and recruitment awards to
be in line with the Company’s remuneration framework so far as is practical. The Committee may consider other components including
cash or shares awards, restricted stock awards and share options where there is a strong commercial rationale for doing so.
Reasonable costs and support will be covered if the recruitment requires relocation of the individual. Expat allowances may also be
paid in these circumstances.
The Company recruited a new Chief Financial Officer, Anne-Francoise Nesmes, during the financial year, following the departure
of Simon Evans. The Committee positioned the overall package for the new Chief Financial Officer at a level that was sufficient to
recruit and retain a Chief Financial Officer of the required calibre and quality. Further details in respect of this can be found on
page 79.
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Service Contracts and Policy on Payment for Loss of Office
Details of the Executive Directors’ service contracts/Non-Executive Directors’ letters of appointment are set out below.
Name
Mike Redmond
Ian Page
Tony Griffin
Anne-Francoise Nesmes
Ed Torr
Julian Heslop
Ishbel Macpherson
Dr Chris Richards
Neil Warner
Commencement date
25 April 2001
1 September 2008
1 November 2012
22 April 2013
6 February 2009
1 January 2013
1 February 2013
1 December 2010
2 May 2003
Notice Period
Director
3 months
6 months
6 months
6 months
6 months
3 months
3 months
3 months
3 months
Company
3 months
12 months
12 months
12 months
12 months
3 months
3 months
3 months
3 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. In December 2012 the Non-Executive Directors
agreed to an amendment to their respective service contracts reducing the notice period after the initial 12 month period from
12 months to three months’ termination by either party. The Non-Executive Directors are entitled to compensation on termination of
their appointment confined to three months’ remuneration.
Individual Directors’ eligibility for the various elements of compensation is set out below:
Provision
Base Salary/Fees
Annual Bonus
Long Term Incentives
Pension
Treatment upon loss of office
Base salary/fees and benefits based on the duration of the notice period receivable
from the Company.
This will be reviewed on an individual basis and the decision whether or not to award
a bonus in full or in part will be dependent upon a number of factors including the
circumstances of their departure and their contribution to the business during the
bonus period in question.
Determined in line with the provisions of the relevant plan rules.
This would be taken into account as part of the payment referred to in the base
salary section.
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.
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Directors’ Remuneration Report continued
Annual Report on Remuneration
Base Salary
Salary effective from
Ian Page
Tony Griffin
Anne-Francoise Nesmes
Ed Torr
1 January
2013
£440,000
€278,208
£300,000*
£229,539
1 July
2013
£440,000
€278,208
£300,000
£229,539
* Anne-Francoise Nesmes’ base salary on the date of appointment
In the last five years, salary increases for the Executive Directors have been in line with average salary increases for the wider
employee population (approximately 2% to 3%).
During the 2012/2013 financial year, a comprehensive review of Ian Page’s remuneration was undertaken, which highlighted that
his base salary had fallen behind that of his peers. Our policy on base salary continues to be to provide a fixed remuneration
component which reflects the experience and capabilities of the individual in the role, the demonstrated performance of the
individual in the role, and which is competitive in the market we operate. Following the comprehensive review of Ian Page’s
remuneration package, and after consultation and support from the major Shareholders, the Committee unanimously concluded
that a significant step up in salary was appropriate. This reflects a number of factors:
❱ his achievements since being appointed to Chief Executive Officer in 2001, in particular his energetic leadership of the business
and the contribution he has made to the Group’s significant strategic and financial progress;
❱ his delivery of significant and sustained increases in Shareholder value in what has been a very difficult environment for most
businesses. In a period where many companies have had to settle for navigating through a crisis, our business has grown in size,
both in terms of its complexity and geography;
❱ his successful integration of a number of significant strategic acquisitions, most recently the acquisition of Eurovet; and
❱
the market positioning of the salary against companies of a similar size and complexity.
The increase in base salary in January to £440,000 represented an increase of 15%. This positions his salary around the median
levels compared to companies of a similar size and complexity.
All the Executive Directors have agreed to waive an increase in salary for the 2013/2014 financial year.
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Governance 77
Non-Executive Director Fees
Since 2008 the Chairman and the Non-Executive Directors have been awarded inflationary increases only in respect of their fees.
Furthermore, they waived any increase in 2009 and 2010. During the year a review of the Chairman’s remuneration during the year
identified that his fee was substantially lower than that of other Chairmen of companies of comparable size and complexity. After
due consideration, the Committee decided to increase his fee to a level more commensurate with his experience, performance and
overall contribution to the business. The remaining Non-Executive Directors have agreed to waive an increase in their fees for the
2013/2014 financial year.
Office
Chairman
Non-Executive Director
Remuneration Committee Chairmanship additional fee
Audit Committee Chairmanship additional fee
2012/13
Fee
£’000
86
39
3
3
2013/14
Fee
£’000
106
39
3
3
Annual Bonus
The Company operates an annual cash incentive scheme for the Executive Directors. Annual bonuses were awarded by the
Committee in respect of 2012/2013 having regard to the performance of the Group and personal performance objectives for the
year. Details of the annual bonus scheme can be found in the table on page 71.
The amount achieved for the year ended 30 June 2013 against targets for 2012/2013 is as follows:
2012/13 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
Personal objectives: up to an additional 10% of salary was
payable to Executive Directors upon the achievement of personal
objectives
Total Annual Bonus Earned for the Year Ended
30 June 2013
Amount Achieved for the Year Ended 30 June 2013
The underlying profit before tax target was £47.0 million on a
constant currency basis. Actual underlying profit before tax was
£45.5 million reflecting 97% of the profit target resulting in a
payment worth 26% of salary
Actual performance resulted in payment worth 10% of salary.
The objectives are based on key aspects of delivering the
Group’s strategy
36% of salary
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Directors’ Remuneration Report continued
Long Term Incentive Arrangements and Share Schemes
Long Term Incentive Plan (“LTIP”)
LTIP Awards Vesting During the Year Ended 30 June 2013
With respect to the awards granted on 22 December 2010, the performance targets are:
1) an ‘underpin’ condition based on Group underlying diluted earnings per share performance: no awards will vest if the Group’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
Upper quartile
Vesting Percentage
0%
25%
Pro-rata vesting based on the Company’s ranking in the
comparator group
100%
As set out on page 82 for the three year period to 30 June 2013 the Company’s TSR performance was over 98% compared with an
84% TSR for live companies in the top quartile of the comparator group. In addition the Group’s underlying diluted EPS increased by
44.09% over the performance period as a result the LTIPs awarded in December 2010 will vest fully.
LTIP Awards Made During the Year Ended 30 June 2013
Awards were granted to the Executive Directors on 5 March 2013, on the following basis:
❱ 150% of salary for Ian Page; and
❱ 100% of salary for the other Executive Directors.
In various consultations with our major Shareholders, we have received strong support for the introduction of another performance
measure alongside relative TSR under the LTIP to allow for a more balanced assessment of success and to reward the delivery
of long term Shareholder value. Following consultation, the Committee resolved that 50% of the LTIP award will continue to be
based on the Company’s relative TSR performance (relative to the FTSE 250) and 50% will be based on stretching EPS targets.
Furthermore, to ensure the quality of earnings and delivery of other key financial performance indicators the vesting of awards under
the LTIP will be subject to an additional Return on Capital Employed (“ROCE”) underpin.
Following the disposal of the Services Segment, and in line with the LTIP scheme rules, the Committee are in the process
of reviewing the performance targets attaching to the LTIP awards granted in March 2013 and intends to consult with major
Shareholders by the end of the calendar year in respect of the same.
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Governance 79
Recruitment Award for Anne-Francoise Nesmes
On appointment the Committee agreed to award Anne-Francoise Nesmes two LTIP awards to the value of 100% of her base salary:
❱ 100% to be subject to a performance period ending 30 June 2014 with a further one year’s continued employment subject to
claw back; and
❱ 100% to be subject to a performance period ending 30 June 2015. This tranche will be subject to the same performance
conditions as those attaching to the LTIP awards granted to the Executive Directors on 5 March 2013.
In the event of a change of control of the Company prior to the vesting dates stated above, the Remuneration Committee has
confirmed that it will exercise its discretion to allow the two LTIP awards to vest in full and that the performance conditions would
be waived.
The rationale behind the additional LTIP grants was as an offer of partial compensation for the loss of Performance Share Plan
and Share Value Plan awards which Anne-Francoise Nesmes had been granted by her previous employer and which lapsed
on the cessation of her employment with them. When Anne-Francoise Nesmes commenced her appointment with Dechra the
Company was deemed to be in a close period by reason of the disposal of the Services Segment and therefore unable to grant
the recruitment award. It is therefore proposed that both awards will be granted as a nil-cost option in early September (once the
Company has announced its year end results). The grant will be made outside of the LTIP scheme rules and will be satisfied using
market purchase shares.
LTIP Awards for the Year Ending 30 June 2014
To align and focus Ian Page’s total remuneration package to reward longer term, sustainable performance the Committee granted
a LTIP award to Ian Page of 150% of his salary in March 2013 and has proposed, after due consultation with major Shareholders,
to award 200% of salary in respect of future financial years. Shareholder approval will be sought at the Annual General Meeting for
the increase in long term incentive opportunity to 200% of salary. However, for the avoidance of doubt this level of award will not be
a guaranteed entitlement. Whilst the Committee intends to make awards up to 200% of salary to Ian Page in the future, in line with
best practice the Committee will review the level of award to be made each year and this level of award will be dependent on the
Committee’s assessment of the continued growth and financial success of the Group and Ian Page’s personal performance.
The Committee intends to make awards of 150% of base salary to Anne-Francoise Nesmes on an annual basis.
LTIP awards for the other Executive Directors will remain at 100% of base salary.
Payments to Past Directors
There were no payments made to past Directors during the period.
Payments for Loss of Office
A compensation payment was made to Simon Evans during the financial year and equated to 12 months of his salary and benefits
plus the use of a company car until the expiry of the lease (31 March 2015). A compensation payment was also made to Bryan
Morton during the financial year which equated to two months of his salary. No other compensation payments were made to
Executive or Non-Executive Directors during the year.
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Directors’ Remuneration Report continued
Statement of Directors’ Shareholdings and Interests:
Executive Directors
Name
Ian Page
Tony Griffin (appointed 1 November 2012)
Anne-Francoise Nesmes (appointed 22 April 2013)
Ed Torr
* Calculated using the share price as at 28 June 2013.
Non-Executive Directors
Name
Mike Redmond
Julian Heslop (appointed 1 January 2013)
Ishbel Macpherson (appointed 1 February 2013)
Dr Chris Richards
Neil Warner
* Calculated using the share price as at 28 June 2013.
Ordinary
Shares
No.
859,751
20,077
—
424,552
Ordinary
Shares
No.
73,417
5,000
2,987
7,400
5,448
Ordinary
Shares
£’000*
5,932
138
—
2,929
Ordinary
Shares
£’000*
507
35
21
51
38
% of
Salary
1,348%
61.9%
—
1,276%
% of
Salary
589%
88%
52%
131%
96%
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 250 Total Return Index. Throughout the 2012/2013 financial year the Company has been a constituent
member of the FTSE 250; for this reason it is considered that the TSR performance of the FTSE 250 Index be represented in
this report.
)
£
(
l
e
u
a
V
Dechra
FTSE 250
250
230
210
190
170
150
130
110
90
70
50
2008
2009
2010
2011
2012
2013
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Governance
81
Statement of Voting at Last Annual General Meeting
The Company remains committed to ongoing Shareholder dialogue and takes an active interest in voting outcomes. The following
table sets out actual voting in respect of the resolution to approve the Directors’ Remuneration Report at the Company’s Annual
General Meeting on 19 October 2012:
Resolution
Approve Remuneration Report
Votes for
68,162,190
% of vote
99.09
Votes against
623,458
% of vote
0.91
Votes withheld
20,759
Directors’ Shareholdings
The beneficial interests of the Directors and their families in the share capital of Dechra Pharmaceuticals PLC as at 30 June 2013
were as follows:
Name
Mike Redmond
Ian Page
Tony Griffin (appointed 1 November 2012)
Anne-Francoise Nesmes (appointed 22 April 2013)
Ed Torr
Julian Heslop (appointed 1 January 2013)
Ishbel Macpherson (appointed 1 February 2013)
Dr Chris Richards
Neil Warner
Ordinary
Shares
No.
2013
73,417
859,751
20,077
—
424,552
5,000
2,987
7,400
5,448
Ordinary
Shares
No.
2012
73,417
859,751
12,077
—
472,767
—
—
7,400
5,448
There have been no changes in the holdings of the Directors between 30 June and 3 September 2013.
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 (resigned 18 October 2012)
Tony Griffin (appointed 1 November 2012)
Anne-Francoise Nesmes (appointed 22 April 2013)
Ed Torr
Non-Executive Directors
Mike Redmond
Bryan Morton (resigned 9 July 2012)
Julian Heslop (appointed 1 January 2013)
Ishbel Macpherson (appointed 1 February 2013)
Dr Chris Richards
Neil Warner
Salaries
& Fees
£’000
419*
317†
223
94
230
86
7†
19
16
42
42
1,495
Bonuses
£’000
Other
Benefits
£’000
158
—
83
21
83
—
—
—
—
—
—
345
33
21
7
10
17
—
—
—
—
—
—
88
Total
2013
£’000
610
338
313
125
330
86
7
19
16
42
42
1,928
Total
2012
£’000
632
403
—
—
375
84
41
—
—
38
41
1,614
* This includes a salary supplement of £7,580 paid in lieu of employers’ pension contribution in excess of £50,000. Therefore the base salary is £411,283.
† This includes compensation for loss of office. In relation to Bryan Morton’s fees the entire amount stated above related to compensation for loss of office. In relation to
Simon Evans’s salary a total of £241,000 related to compensation for loss of office.
The performance conditions attaching to the annual bonus for 2012/2013 are explained on page 77.
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Directors’ Remuneration Report continued
Long Term Incentive Plan
Awards made under the Long Term Incentive Plan are as follows
Ian Page
Simon Evans
(resigned 18 October
2012)
Tony Griffin
(appointed
1 November 2012)
Ed Torr
Award date
24 September 2009
22 December 2010
7 September 2011
5 March 2013
Number of
shares at
30 June
2012
94,575
78,656
92,811
266,042
Granted
Lapsed
during the
during the
year
year
— (94,575)
—
—
—
—
—
— 94,420
(94,575)
94,420
Number of
shares at
30 June
2013
Exercised
during the
year
—
— 78,656
— 92,811
— 94,420
— 265,887
Performance
period
— 2009-2012
2010-2013
2011-2014
2012-2015
Share price
at date of
award
pence
404.10
514.00
455.50
715.00
24 September 2009
22 December 2010
7 September 2011
59,447
49,441
58,338
167,226
— (59,447)
— (49,441)
— (58,338)
— (167,226)
—
—
—
—
— 2009-2012
— 2010-2013
— 2011-2014
—
404.10
514.00
455.50
5 March 2013
24 September 2009
22 December 2010
7 September 2011
5 March 2013
56,745
47,193
55,687
— 34,401
— 34,401
—
—
— (56,745)
—
—
—
—
—
— 32,838
(56,745)
32,838
159,625
— 34,401
— 34,401
—
— 47,193
— 55,687
— 32,838
— 135,718
2012-2015
715.50
— 2009-2012
2010-2013
2011-2014
2012-2015
404.10
514.00
455.50
715.50
The performance conditions attaching to the Long Term Incentive Plan are explained on page 78.
Independent verification has recently been sought from Deloitte in respect of the satisfaction of the performance targets for awards
which will vest in December 2013. The ‘underpin’ condition (the Group’s adjusted earnings per share has grown by at least RPI plus
3% per annum over the performance period) has been met; and the Group’s TSR performance for the three year period to
30 June 2013 was in the top quartile of the FTSE Small Cap Total Return Index. The ‘underpin’ condition was tested by the Group
and was not verified by Deloitte. Therefore the awards will vest in full.
The aggregate gain made by the Executive Directors on share options exercised during 2013 was £5,187 (2012: £727,997).
SAYE Scheme
Directors’ entitlements under the SAYE Scheme are as follows:
Ian Page
Simon Evans
(resigned 18
October 2012)
Ed Torr
Market price
at date of
grant
Pence
387
Exercise
price
Pence
Exercise
dates
315.02* Dec 2013
Award date
13 October 2008
13 October 2008
12 October 2009
17 October 2011
16 October 2012
387
445
478
315.02* Dec 2013
304.92* Dec 2012
365.59* Dec 2014
471.00 Dec 2015
At
30 June
2012
Number
5,316
5,316
1,785
984
—
13,401
Exercised
Number
—
Granted
Number
—
Lapsed
Number
—
—
(1,785)
—
—
(1,785)
—
—
—
1,146
1,146
(5,316)
—
—
—
(5,316)
At
30 June
2013
Number
5,316
—
—
984
1,146
7,446
* Outstanding awards were subject to an adjustment following the Rights Issue to reflect the bonus element of the transaction.
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Governance 83
Share Price
The middle market price for the Company’s shares on 30 June 2013 was 690p and the range of prices during the year was
473p to 780p.
Pension Entitlement
All Executive Directors (excluding Tony Griffin) were members of the Dechra Pharmaceuticals PLC Group Stakeholder personal
pension scheme throughout the year. Tony Griffin is a member of the defined pension plan in the Netherlands. 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
Anne-Francoise Nesmes
Tony Griffin
Ed Torr
Contributions
2013
£’000
50
45
7
26
32
160
Contributions
2012
£’000
50
33
—
—
30
113
Age
52
49
42
50
53
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.
Tony Griffin is a member of the Basispensioen, a defined benefit scheme established in the Netherlands. The table below sets out
the arrangements for Tony Griffin for the period from 1 November 2012 to 30 June 2013.
Accrued benefit at 1 November 2012
Increase in accrued benefit excluding inflation allowance
Increase in accrued benefit including inflation allowance
Transfer value of benefit accrued during the period less member contributions
Transfer value at 1 November 2012
Transfer value at 30 June 2013
Increase in transfer value over the period after member contribution
By order of the Board
€8,260
€494
€601
(€8,000)
€134,000
€127,000
(€7,000)
Dr Christopher Richards
Remuneration Committee Chairman
3 September 2013
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Corporate Responsibility, 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. The Company
Secretary is secretary to the Committee. The Committee is responsible for establishing and maintaining the Group’s 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 established a Group Donations Policy, which became effective
1 July 2011. From this date, the Group will donate up to £10,000 a year 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. During 2012 the chosen charities were:
Environmental Charity
❱ 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.
Employee Charity
❱ An employee at DVP EU took part in the Vatternrundan, an organised cycle race in Sweden which has been held over the last
48 years. This year there were over 23,000 cyclists who started the 300km circuit around Lake Vattern. The employee raised
£2,500 which was matched by the Company, and the funds donated to Cancer Research UK.
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 2012/2013
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. NVS donated dog food to
City Dogs Home.
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 DKK2,000 to the Danish Cancer Foundation. Furthermore
as reported in the previous Annual Report, DVP EU has continued its sponsorship of three children through SOS Children’s
Villages.
❱ Dechra Laboratory Services has maintained its links with local schools by offering a number of work experience placements to six
children from local schools and four veterinary students.
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Governance 85
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
which 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. Further information can be found on pages 88 to 89 and 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 should strive to achieve and ultimately exceed.
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. Dechra has commenced collating the data to comply with the forthcoming Companies Act 2006
(Strategic Report and Directors’ Report) Regulations 2013, which requires all UK quoted companies to report on their greenhouse
gas emissions as part of their annual Directors’ Report. This will be included in the 2014 Annual Report and Accounts.
In terms of fuel, travel and waste we can report for the 2012/2013 financial year the following changes:
Fuel
With respect to the 2012/2013 financial year, Dechra, as reported in the 2012 Report, has undertaken a review of the Company
Car provision with the view of standardising the offering and reducing CO2 emission. The two lower car bands, which account for
over 55% of the Company Car fleet, have been amalgamated and the choice of car has been reduced to two models from the
same manufacturer which are generating between 108 and 116 CO2g per km. In addition band three has been capped at 160
CO2/km, which account for a further 22% of the car fleet. The light commercial fleet of over 130 delivery vans now integrate 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 53mph and the Gloucester and Tiverton trunking routes have been
amalgamated allowing the release of one HGV tractor unit and trailer which has resulted in a saving of least 200 miles per day.
The average miles per gallon as at the end of June 2013 and June 2012 were as follows:
HGV Fleet
Transit
2013
10.71
32.34
2012
9.92
32.64
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.
Following the disposal of the Services Segment in August 2013, Dechra will have a reduced car fleet and no commercial vehicles
in the UK.
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Corporate Responsibility, Social, Ethical
and Environmental Responsibilities continued
Travel
In respect of travel, use of the video conference facilities is recommended as priority over travel. Video conference facilities are
installed at PLC, DVP UK, DVP US, Skipton, Bladel, Netherlands and Uldum, Denmark. 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 the Waste Packaging Obligations Regulations compliance scheme.
The general waste is then sorted for collection by third party waste management companies. Dechra Manufacturing Skipton also
actively monitors its recycling rates. This facility 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 environmental impact report to the Danish
Ministry of Environment on an annual basis.
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 are responsible
and committed to the maintenance, monitoring and promotion of a policy of health and safety at work to ensure the care and
well-being of its employees and on-site visitors.
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 38 to 39). 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. The Company reports 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 10 to 5, none of which resulted in a work-
related fatality or disability. It is hoped to reduce this further during the 2013/2014 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.
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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 undertaken by all new Company car and commercial
vehicle drivers as part of their induction. The results of the assessment enables the Company to identify any drivers at risk and to
provide further training to those drivers. 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. Due to the disposal of the Services Segment this committee has met once during the
year and its terms of reference will be reassessed in light of this disposal. All issues raised by this committee are reviewed by the
Board as part of the bi-annual health and safety review.
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
x 100
The Group has established a target of no more than 15% Moving Annual Turnover; during the 2012/2013 financial year we achieved
14.84% (2012: 16.10%).
Dechra Pharmaceuticals Manufacturing Skipton 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.
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 December 2012 grant was 21.59%
(December 2011: 15.34%). The graph below shows the percentage of employees who have taken up the SAYE Scheme over the
last five years.
Percentage Take-up
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2008
2009
2010
2011
2012
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Dechra Values
“Values play a vital role
in enabling all employees
to be aware of what is
expected of them”
An effective values system aims to provide
the Dechra Group with many benefits, from
committed and happy employees to the
best possible relationships with suppliers
and customers. The Values play a vital role
in bringing consistency to all the businesses
across the Group, enabling all employees to
be aware of what is expected of them and
how they can achieve that.
The initiative to define and communicate the
Dechra Values began over two years ago.
At the time, 75% of FTSE 100 companies
had published sets of values, and Dechra
recognised that there were many benefits to
be drawn from creating and disseminating
their own values across the Group. A
steering group was formed in 2011 with HR
and senior management involvement from
each business within the Group. One of the
aims of this group being to define a set of
values which reflected the best aspects of
personality and behaviour in Dechra, whilst
also providing standards that could be
used as a tool in managing and measuring
employee performance.
The discussions of the steering group led
to the creation of the six Dechra Values:
Dedication, Enjoyment, Courage, Honesty,
Relationships and Ambition (conveniently
spelling Dechra), which were launched Group
wide in July 2011. Within a year of the launch
all employees across Dechra had received a
Standards Guide along with training on the
Values, explaining what each Value meant for
them individually and how it should be applied
alongside examples of behaviour that (i) did
not meet the standard, (ii) met the standard,
and (iii) exceeded the standard.
The Values have rolled out across all territories
within which we have a legal entity, being
initially translated into Danish, Spanish and
French, and subsequently being integrated
into newly acquired companies. Dutch and
German translations will soon follow to
allow for the Values to be rolled out to the
more recently acquired Eurovet business.
To demonstrate the ongoing commitment
to these ideals, they have also become part
of the recruitment and induction process,
ensuring new recruits reflect and embrace the
Values at every level of the business.
Over the last 12 months, work has been
ongoing to solidify the use of the Values
across the Group with a number of
developments in progress, most notably a
pilot programme for the Performance and
Development Review (“PDR”) process. This
pilot, which came to an end in June 2013,
trialled Dechra’s first universal appraisal
scheme to 100 people, and met with very
positive feedback from those involved.
The PDR process involves three elements,
with employees being measured against
(i) their own role or Accountabilities, (ii)
personal objectives (created uniquely for
each employee) and (iii) the Dechra Values.
Following the success of the pilot, it is
intended that the PDR process will be spread
further throughout the Group, demonstrating
the integral part that the Values will play in
career development at Dechra.
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“By improving
performance at an
individual and team
level, the financial and
operating performance
can only benefit from the
Group wide investment
in the Values that has
taken place so far and
that will continue to
increase”
The PDR process is just one of a number of
ways in which we can focus on “making the
Values live”. A branded marketing campaign is
about to launch with the aim of increasing the
visibility of the Values, and all employees will
be made aware of the progress of the initiative
to date.
Other future activity will see the Values become
more prominent in everyday team briefings,
workshops held to delve deeper and increase
understanding of the Values, a growing
presence on the intranet, and general activities
to keep team members engaged with the
Values in their day-to-day working life.
There is also the ambition for a recognition
scheme to reward exceptional employees
in future, reflecting the positive effects that
the Values initiative has had on individuals
and on the business as a whole. Whilst not
measurable at its current stage, by improving
performance at an individual and team level,
the financial and operating performance can
only benefit from the Group wide investment
in the Values that has taken place so far and
that will continue to increase.
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Directors’ Report: Other Disclosures
Principal Activities and Strategic Report and Operating Review
The Company acts as a holding company to all the Group’s subsidiaries. Following the disposal of the Services Segment on
16 August 2013 to Patterson Companies, Inc. the Group now operates under three segments:
❱ European Pharmaceuticals: markets and sells 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; and
❱ Research and Development: develops and licenses Dechra’s own branded veterinary product portfolio of novel and generic
pharmaceuticals and specialist pet diets.
The Chairman’s Statement and the Directors’ Strategic Report and Operating Review can be found on pages 3 to 47 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 2013 are shown in the Consolidated Income Statement on page 98 and
Consolidated Statement of Financial Position on page 100. The Directors recommend the payment of a final dividend of 9.66 pence
per share which, if approved by Shareholders, will be paid on 22 November 2013 to Shareholders registered at 8 November 2013.
The shares will become ex-dividend on 6 November 2013. An interim dividend of 4.34 pence per share was paid on 9 April 2013,
making a total dividend for the year of 14.00 pence (2012: 12.27 pence restated for the bonus element of the Rights Issue). The
total dividend payment is £12,199,000 (2012: £10,125,000).
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 strengthen further the Group’s competitive position. Further information in
relation to product development can be found on pages 23 to 25. The expense on this activity for the year ended 30 June 2013
was £7,961,000 (2012: £5,735,000) and a further £1,584,000 (2012: £447,000) 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
2013, the Group had an average of 49 days (2012: 71 days) purchases outstanding in creditors (including assets held for sale). The
Company has an average of nil days (2012: nil days) purchases outstanding in creditors.
Acquisitions
There have been no acquisitions during the year under review.
Disposals
The disposals of the Services Segment was completed on 16 August 2013. Refer to note 29 to the Accounts on page 145 for
further details.
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Share Capital
The issued share capital of the Company for the year is set out in note 23 to the Accounts on page 137. As at the end of the
financial year, 87,157,444 fully paid ordinary shares were in issue which included 287,268 ordinary shares issued during the year in
connection with the exercise of options under the Company’s share option schemes.
The holders of shares are entitled to receive dividends when declared, to receive the Company’s Report and Accounts, to attend
and speak at general meetings of the Company, to appoint proxies and to exercise voting rights. There are no restrictions on
transfer or limitations on the holding of shares in the Company, nor are there any requirements to obtain prior approval in respect
of any transfer of shares. The Directors are not aware of any agreements which limit the transfer of shares or curtail voting rights
attached to those shares.
At the Annual General Meeting of the Company held on 19 October 2012, the Company was authorised to purchase up to
8,687,017 of its ordinary shares, representing 10% of the issued share capital of the Company as at 10 September 2012. 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 2012 Annual General Meeting and resolutions to renew these
authorities will be proposed at the 2013 Annual General Meeting.
Substantial Interests in Voting Rights
In accordance with the requirements in the Listing Rules and the Disclosure Rules and Transparency Rules of the Financial Conduct
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
Fidelity Investments
Legal & General Investment Management
NBIM
Invesco Perpetual
Threadneedle Investments
Aberdeen Asset Management
BlackRock
Rathbones
30 June 2013
20 August 2013
Aggregate
voting
rights
10,393,209
6,071,481
4,468,376
4,419,600
3,807,459
3,709,746
3,635,456
3,447,401
3,083,776
Aggregate
voting
rights
10,218,133
6,718,524
4,321,271
4,321,540
3,813,206
3,849,921
4,129,749
3,434,649
N/A
Percentage
11.93
6.97
5.13
5.07
4.37
4.26
4.17
3.96
3.54
Percentage
11.72
7.71
4.96
4.96
4.38
4.42
4.74
3.94
Below 3%
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Directors’ Report: Other Disclosures continued
Change of Control/Significant Agreements
As detailed in the Going Concern Statement on page 58 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 “Bank”). Under the terms
of these facilities the Bank can give notice to the Company to repay all amounts outstanding under the facilities and cancel the
commitments where there is a change of control of the Company. No other agreements that take effect, alter or terminate upon a
change of control of the Company following a takeover bid are considered to be significant in terms of their potential impact on the
business as a whole.
The Company does not have agreements with any director or employee that provides compensation for loss of office or
employment resulting from a takeover, other than the Company share schemes. Under such schemes outstanding options and
awards normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions at
that time. With the exception of Anne-Francoise Nesmes the Remuneration Committee has confirmed that it would exercise its own
discretion to vest in full should a change of control of the Company occur before the LTIP awards vest.
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 48 to
49. 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 50 to 60, 62 and 68.
During the financial year under review the following Board changes occurred:
❱ Bryan Morton resigned from his position as Non-Executive Director;
❱ Julian Heslop and Ishbel Macpherson were appointed to the Board as Non-Executive Directors on 1 January and 1 February
2013 respectively; and
❱ Tony Griffin and Anne-Francoise Nesmes were appointed to the Board as Executive Directors on 1 November 2012 and 22 April
2013 respectively.
As at May 2013 Neil Warner has served 10 years as a Non-Executive Director and has expressed an intention to retire from the
Board at the forthcoming Annual General Meeting.
Under the Company’s Articles of Association Julian Heslop, Ishbel Macpherson, Tony Griffin and Anne-Francoise Nesmes will
offer themselves for election as Directors at the forthcoming Annual General Meeting. Under the provisions of the UK Corporate
Governance Code, all the remaining Directors will retire at the forthcoming 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 67 to 83. 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.
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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.
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 94.
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 £7,250 (2012: £17,796). Further details of donations made by the Group are
given on page 84.
Political Donations and Expenditure
No political donations were made during the year ended 30 June 2013. 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.
Events After the Reporting Period
On 10 July 2013 the Company entered into a conditional agreement for the sale of its Services Segment, namely, NVS, Dechra
Laboratory Services and Dechra Specialist Laboratories to Patterson Companies, Inc for a total effective consideration of
£87.5 million. The sale completed on 16 August 2013.
Auditor
In light of organisational changes within KPMG, the Directors have agreed that KPMG Audit Plc, a wholly owned subsidiary of
KPMG LLP, step down as Auditor of the Company at the Annual General Meeting and that a resolution to appoint KPMG LLP as
Auditor 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 or she is aware,
there is no relevant audit information of which the Auditor is unaware, and each Director has taken all steps that he or she ought to
have undertaken as a Director to make himself or herself aware of any relevant audit information and to establish that the Auditor is
aware of that information.
Annual General Meeting
The 2013 Annual General Meeting of the Company will be held at 4.00 pm on 17 October 2013 at its offices at 24 Cheshire
Avenue, Cheshire Business Park, Lostock Gralam, Northwich CW9 7UA. 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
3 September 2013
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Statement of Directors’ Responsibilities in Respect of the
Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and 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 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 and the Directors’ Strategic Report and Operating Review,
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 Officer
3 September 2013
Anne-Francoise Nesmes
Chief Financial Officer
3 September 2013
22581-04 22/08/2013 Proof 3Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Governance Financials Contents
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement
of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes
in Shareholders’ Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
Accounting Policies
Operating Segments
Finance Income
Finance Expense
Non-underlying Items
Profit Before Taxation
Employees
Income Tax Expense
Dividends
Earnings per Share
Intangible Assets
Property, Plant and Equipment
Impairment Reviews
Deferred Taxes
Inventories
Trade and Other Receivables
Cash and Cash Equivalents
Trade and Other Payables
Current Tax Liabilities
Borrowings
Employee Benefit Obligations
Financial Instruments and Related
Disclosures
Share Capital
Share-based Payments
Analysis of Net Borrowings
Operating Leases
Foreign Exchange Rates
Acquisitions
Discontinued Operations
Related Party Transactions
Off Balance Sheet Arrangements
Events after the Reporting Period
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
95
147
148
149
149
151
151
152
152
152
153
153
154
154
154
155
156
Company Balance Sheet
Reconciliation of Movements
in Shareholders’ Funds
Notes to the Company Financial Statements
Principal Accounting Policies
(i)
of the Company
Directors and Employees
Fixed Asset Investments
Intangible Assets
Tangible Assets
Debtors
Creditors
Borrowings
Deferred Tax
Called up Share Capital
Reserves
Subsidiary Undertakings
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
Financial History
96
98
99
100
101
102
103
103
112
114
115
115
116
116
118
119
119
120
122
123
124
125
125
125
125
125
126
127
130
137
138
143
143
143
144
145
146
146
146
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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 2013 which comprise the
Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company
Statement of Financial Position, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Shareholders’
Equity, 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 94, 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 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 Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate.
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
2013 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.
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Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Financials 97
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.
Under the Listing Rules we are required to review:
❱
❱
the Directors’ statement, set out on page 58, in relation to going concern;
the part of the Corporate Governance Statement on pages 50 to 60 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.
Graham Neale (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
3 September 2013
22581.04
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www.dechra.comStock code: DPH®Our GovernanceShareholder InformationOur PerformanceStrategic ReportOur BusinessOur Financials 98
Consolidated Income Statement
For the year ended 30 June 2013
2013
Non-
underlying
items*
(notes
4 & 5)
£’000
—
—
—
Note
2
Underlying
£’000
189,176
(88,470)
100,706
Total
£’000
189,176
(88,470)
100,706
Underlying
£’000
124,330
(53,220)
71,110
2012 (Restated)‡
Non-
underlying
items*
(notes
4 & 5)
£’000
—
—
—
Total
£’000
124,330
(53,220)
71,110
(53,637)
(20,772)
(74,409)
(39,830)
(15,273)
(55,103)
(7,961)
39,108
196
(5,757)
33,547
(8,083)
—
(20,772)
—
(297)
(21,069)
6,455
(7,961)
18,336
196
(6,054)
12,478
(1,628)
(5,735)
25,545
80
(3,805)
21,820
(5,791)
—
(15,273)
—
(435)
(15,708)
3,584
(5,735)
10,272
80
(4,240)
6,112
(2,207)
2
3
4
6
8
25,464
(14,614)
10,850
16,029
(12,124)
3,905
29
8,449
(1,386)
7,063
8,273
(429)
7,844
33,913
(16,000)
17,913
24,302
(12,553)
11,749
10
10
9
20.59p
12.47p
8.12p
20.45p
12.39p
8.06p
14.00p
15.65p†
5.20p
10.45p
15.60p†
5.18p
10.42p
12.27p†
Revenue
Cost of sales
Gross profit
Selling, general and administrative
expenses
Research and development
expenses
Operating profit
Finance income
Finance expense
Profit before taxation —
continuing operations
Income tax expense
Profit for the year — continuing
operations
Profit for the year — discontinued
operations
Profit for the year attributable to
owners of the parent
Earnings per share
Basic
— continuing operations
— discontinued operations
Diluted
— continuing operations
— discontinued operations
Dividend per share (interim paid
and final proposed for the year)
* Non-underlying items comprise amortisation of acquired intangibles, acquisition expenses, rationalisation costs, loss on extinguishment of debt, the unwinding of
discounts on deferred and contingent consideration, and expenses related to the disposal of discontinued operations.
† Restated to reflect the impact of the bonus element of the Rights Issue.
‡ Restated for discontinued operations.
22581.04
10 September 2013 1:31 PM Proof 3
Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Financials Consolidated Statement of Comprehensive Income
For the year ended 30 June 2013
Profit for the year
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Actuarial loss on defined benefit pension scheme
Items that may be reclassified subsequently to profit or loss:
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
99
2013
£’000
17,913
2012
£’000
11,749
(772)
(772)
—
—
(185)
557
12,789
(86)
13,075
30,216
(419)
429
(8,434)
(2)
(8,426)
3,323
22581.04
10 September 2013 1:31 PM Proof 3
www.dechra.comStock code: DPH®Our GovernanceShareholder InformationOur PerformanceStrategic ReportOur BusinessOur Financials 100
Consolidated Statement of Financial Position
At 30 June 2013
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
Assets of disposal group held for sale
Total current assets
Total assets
LIABILITIES
Current liabilities
Borrowings
Trade and other payables
Deferred and contingent consideration
Current tax liabilities
Liabilities of disposal group held for sale
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
Note
2013
£’000
2012
£’000
11
12
15
16
17
29
20
18
28
19
29
20
28
21
14
23
219,596
16,074
235,670
29,199
27,682
32,791
89,784
179,456
415,126
(9,750)
(28,483)
(957)
(10,368)
(53,961)
(103,519)
(103,840)
(4,971)
(996)
(27,184)
(136,991)
(240,510)
174,616
872
123,485
—
9,106
1,770
39,383
174,616
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
The financial statements were approved by the Board of Directors on 3 September 2013 and are signed on its behalf by:
Ian Page
Chief Executive Officer
3 September 2013
Anne-Francoise Nesmes
Chief Financial Officer
3 September 2013
Company number: 3369634
22581.04
10 September 2013 1:31 PM Proof 3
Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Financials Consolidated Statement of Changes in Shareholders’ Equity
For the year ended 30 June 2013
101
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
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
Year ended 30 June 2012
At 1 July 2012
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
Actuarial loss on defined benefit pension scheme
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 2013
Attributable to owners of the parent
Issued
share
capital
£’000
664
—
—
—
—
—
—
—
205
205
Share
premium
account
£’000
63,559
—
Hedging
reserve
£’000
(294)
—
Foreign
currency
translation
reserve
£’000
4,751
—
—
—
—
—
—
—
59,083
59,083
(335)
—
—
(8,434)
343
8
—
(8,434)
—
—
—
—
—
—
—
—
Merger
reserve
£’000
1,770
—
Retained
earnings
£’000
27,883
11,749
Total
£’000
98,333
11,749
—
—
—
—
—
—
—
—
—
(335)
—
(8,434)
—
11,749
343
3,323
(8,325)
1,063
—
(7,262)
(8,325)
1,063
59,288
52,026
869
122,642
(286)
(3,683)
1,770
32,370
153,682
(3,683)
—
1,770
—
32,370
17,913
153,682
17,913
869
—
122,642
—
—
—
—
—
—
—
—
—
—
—
(286)
—
(140)
—
—
—
12,789
—
426
286
—
12,789
—
—
—
—
—
—
(140)
—
(772)
12,789
(772)
—
17,141
426
30,216
—
—
3
3
872
—
—
843
843
123,485
—
—
—
—
—
—
—
—
—
9,106
—
—
—
—
1,770
(11,170)
1,042
—
(10,128)
39,383
(11,170)
1,042
846
(9,282)
174,616
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.
22581.04
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Consolidated Statement of Cash Flows
For the year ended 30 June 2013
Cash flows from operating activities
Profit for the period
Adjustments for:
Depreciation
Amortisation and impairment
Loss on disposal of intangible assets
Loss/(profit) on sale of property, plant and equipment
Expenses related to disposal of discontinued operations, net of tax
Finance income
Finance expense
Equity settled share-based payment expense
Income tax expense
Operating cash flow before changes in working capital
Decrease/(increase) in inventories
Increase in trade and other receivables
Increase/(decrease) 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 (outflow)/inflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of period
Exchange differences on cash and cash equivalents
Cash and cash equivalents at end of period
Reconciliation of net cash flow to movement in net borrowings
Net (decrease)/increase in cash and cash equivalents
Repayment of borrowings
New borrowings
Expenses of raising new borrowings
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
22581.04
10 September 2013 1:31 PM Proof 3
Note
2013
£’000
2012
£’000
17,913
11,749
12
11
6
6
29
3
4
24
8
28
12
11
11
23
23
9
17
17
25
25
2,795
19,876
—
462
1,357
(196)
6,054
821
4,167
53,249
1,299
(9,456)
4,302
49,394
(4,788)
(7,741)
36,865
11
74
(10,333)
(3,665)
(1,584)
(3,871)
(19,368)
846
—
—
—
(5,653)
(2,289)
(11,170)
(18,266)
(769)
32,435
1,125
32,791
(769)
5,653
—
—
(190)
1,125
687
(588)
5,918
(86,717)
(80,799)
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)
Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Financials Notes to the Consolidated Financial Statements
103
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 2013 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 147 to 155.
(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 Strategic Report and Operating Review on pages 3 to 47. 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. Refer to the Corporate
Governance Report on page 58 for details.
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.
Discontinued Operations
A discontinued operation is a component of the Group’s business that represents a separate major line of business or
geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a
view to resale. Classification of a discontinued operation occurs upon disposal or when the operation meets the criteria to
be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative income
statement is presented as if the operation had discontinued from the start of the comparative period. The disposal of the
Services Division, as described in note 29, gives rise to a discontinued operation and restatement of comparatives.
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.
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104
Notes to the Consolidated Financial Statements continued
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 for continuing operations.
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 2013 but either have no material impact on the result or net assets of the Group or
are not applicable.
❱ Amendments to IAS 1 ‘Presentation of Items of Other Comprehensive Income’ — amends how components of other
income are presented. The amendments require the grouping of other comprehensive income into items that might be
reclassified to the income statement in subsequent periods and items that will not be reclassified to the income statement in
subsequent periods.
❱ Amendment to IAS 12 ‘Income Taxes — Deferred Tax: Recovery of Underlying Assets’ — introduces a presumption for
deferred tax purposes that recovery of the carrying amount of an investment property will normally be through sale.
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 2013, 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.
❱
❱
❱
❱
❱
IFRS 10 ‘Consolidated Financial Statements’ — effective for annual periods beginning on or after 1 January 2014.
IFRS 11 ‘Joint Arrangements’ — effective for annual periods beginning on or after 1 January 2014.
IFRS 12 ‘Disclosure of Interests in Other Entities’ — effective for annual periods beginning on or after 1 January 2014.
IFRS 13 ‘Fair Value Measurements’ — effective for annual periods beginning on or after 1 January 2013.
IAS 27 (Revised) ‘Separate Financial Statements’ — effective for annual periods beginning on or after 1 January 2014.
❱ 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.
22581.04
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Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Financials 105
1. Accounting Policies continued
(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. During the
2012/2013 financial year the reporting dates of the previously acquired Eurovet companies have been brought in line with the
Company.
(d) Foreign Currency Translation
(i) Functional and Presentational Currency
The consolidated financial statements are presented in Sterling, which is the Group’s presentational currency and are
rounded to the nearest thousand, except where it is deemed relevant to disclose the amounts to the nearest pound.
Items included in the financial statements of each of the Group’s entities are measured using the currency of the
primary economic environment in which the entity operates (the functional currency).
(ii) Foreign Currency Translation
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and
from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the income
statement, with the exception of differences on transactions that are subject to effective cash flow hedges, which are
recognised in other comprehensive income.
(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.
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106
Notes to the Consolidated Financial Statements continued
1. Accounting Policies continued
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.
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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107
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 based on an estimate of the expected future payments.
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.
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Notes to the Consolidated Financial Statements continued
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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1. Accounting Policies continued
(i)
(j)
Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and
form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.
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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Notes to the Consolidated Financial Statements continued
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
in 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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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.
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112
Notes to the Consolidated Financial Statements continued
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. On 10 July
2013, the Group announced its intention to dispose of the Services businesses. The disposal is consistent with the Group’s
long term policy to focus its activities on the manufacture and marketing of pharmaceutical products. The Segment was not
a discontinued operation or classified as held for sale at 30 June 2012 and the comparative consolidated income statement
has been represented to show the discontinued operation separately from continuing operations. Refer to note 29 for further
details, and segmental analysis in relation to the Services Division.
The European Pharmaceuticals Segment comprises Dechra Veterinary Products EU, Eurovet and Dechra Pharmaceuticals
Manufacturing. Dechra Pharmaceuticals 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
specialises in companion animal products and has expanded into the food producing animal market following the acquisition of
Eurovet.
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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2. Operating Segments continued
Reconciliations of reportable segment revenues, profit or loss and liabilities and other material items:
Revenue by segment
European Pharmaceuticals — total
— total
US Pharmaceuticals
— intersegment
Operating profit/(loss) by segment
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 — continuing operations
Total liabilities by segment
Services (classified as held for sale in 2013)
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 (classified as held for sale in 2013)
European Pharmaceuticals
US Pharmaceuticals
Pharmaceuticals Research and Development
113
2013
£’000
2012
£’000
168,684
20,889
(397)
189,176
45,819
5,585
(7,961)
43,443
(4,335)
39,108
(18,195)
(2,577)
—
18,336
196
(6,054)
12,478
(53,961)
(24,985)
(6,602)
(804)
(86,352)
(113,110)
(3,496)
(37,552)
(240,510)
88
1,132
3,143
1,092
5,455
104,764
20,363
(797)
124,330
28,904
5,863
(5,735)
29,032
(3,487)
25,545
(10,833)
(2,125)
(2,315)
10,272
80
(4,240)
6,112
(55,244)
(22,058)
(14,221)
(685)
(92,208)
(118,229)
(2,804)
(37,498)
(250,739)
211
121,140
—
447
121,798
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Notes to the Consolidated Financial Statements continued
2. Operating Segments continued
Additions to Property, Plant and Equipment by segment
Services (classified as held for sale in 2013)
European Pharmaceuticals
US Pharmaceuticals
Pharmaceuticals Research and Development
Corporate and central costs
Depreciation and amortisation by segment
Services (included within discontinued operations)
European Pharmaceuticals
US Pharmaceuticals
Pharmaceuticals Research and Development
Corporate and central costs
2013
£’000
733
2,622
18
69
223
3,665
757
18,360
3,112
426
16
22,671
2012
£’000
484
10,469
10
136
—
11,099
700
10,524
2,800
322
—
14,346
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
Germany
Rest of Europe
USA
Rest of World
3. Finance Income
Finance income arising from:
— Cash and cash equivalents
— Loans and receivables
— Return on employee benefit scheme assets
2013
Non-
current
assets
£’000
17,651
2,399
176,674
38,946
—
235,670
2013
Revenue
£’000
51,259
36,376
71,976
19,428
10,137
189,176
2012
Non-
current
assets
£’000
24,164
2,304
178,350
37,774
—
242,592
2012
£’000
5
65
10
80
2012
Revenue
£’000
20,352
7,572
64,786
25,857
5,763
124,330
2013
£’000
2
71
123
196
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Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Financials 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 Eurovet Animal Health B.V.
115
2012
£’000
2,873
12
920
3,805
2012
£’000
158
277
435
4,240
2013
£’000
5,150
124
483
5,757
2013
£’000
—
297
297
6,054
2013
£’000
18,195
2,577
—
20,772
2012
£’000
10,833
2,125
2,315
15,273
Rationalisation costs in 2012 and 2013 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.
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Notes to the Consolidated Financial Statements continued
6. Profit Before Taxation
The following items have been included in arriving at profit before taxation of continuing operations:
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
Loss/(profit) on disposal of property, plant and equipment
(Release of impairment)/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 tax advisory services
Other services relating to transactions
Discontinued operations
Audit of financial statements of subsidiaries pursuant to legislation
Total fees paid to Auditor
7. Employees
The average numbers of staff employed by the Group during the year, which includes Directors, were:
Continuing operations
Manufacturing
Distribution
Administration
Discontinued operations
Manufacturing
Distribution
Administration
Total
2013
£’000
72,946
1,191
2,265
110
19,539
—
472
(7)
2,341
7,961
676
50
217
30
89
290
676
36
712
2012
£’000
38,493
190
1,108
88
12,450
47
(47)
86
1,983
5,735
1,038
50
190
29
103
666
1,038
35
1,073
2013
Number
2012
Number
289
72
406
767
60
336
124
520
1,287
184
56
285
525
53
338
126
517
1,042
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Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Financials 7. Employees continued
The costs incurred in respect of these employees were:
Continuing operations
Wages and salaries
Social security costs
Other pension costs
Share-based payments charge (see note 24)
Discontinued operations
Wages and salaries
Social security costs
Other pension costs
Total
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
117
2012
£’000
21,311
2,643
1,516
977
26,447
9,486
840
241
10,567
37,014
2012
£’000
2,766
354
208
757
204
4,289
2013
£’000
32,152
4,279
2,389
1,014
39,834
10,004
871
243
11,118
50,952
2013
£’000
3,284
391
278
598
211
4,762
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 67 to 83.
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 £2,632,000 (2012: £1,757,000).
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Notes to the Consolidated Financial Statements continued
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 - continuing operations
Tax on discontinued operations
Total income tax expense in the income statement
2013
£’000
675
5,871
(800)
5,746
(4,502)
384
(4,118)
1,628
2,539
4,167
2012
£’000
2,148
2,937
126
5,211
(3,590)
586
(3,004)
2,207
2,864
5,071
The tax on the Group’s profit before tax differs from the standard rate of UK corporation tax of 23.75% (2012: 25.5%). The
differences are explained below:
Profit before taxation
Tax at 23.75% (2012: 25.5%)
Effect of:
— disallowable expenses
— research and development tax credits
— differences on overseas tax rates
— adjustments in respect of prior years
— non-taxable foreign exchange (gains)/losses
— change in tax rates
Total income tax expense — continuing operations
Tax on discontinued operations
Total income tax expense in the income statement
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
Total tax recognised in equity
2013
£’000
12,478
2,964
286
(39)
553
(415)
(137)
(1,584)
1,628
2,539
4,167
2013
£’000
(86)
(86)
152
70
136
2012
£’000
6,112
1,558
325
(181)
(175)
712
304
(336)
2,207
2,864
5,071
2012
£’000
(2)
(2)
143
(77)
64
The Budget on 20 March 2013 announced that the UK corporation tax rate will reduce to 20% by 2015. A reduction in the
rate from 24% to 23% (effective from 1 April 2013) was substantively enacted on 3 July 2012, and further reductions to 21%
(effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 17 July 2013.
This will reduce the Group’s future current tax charge accordingly and further reduce the deferred tax liability at 30 June 2013
(which has been calculated based on the rate of 23% substantively enacted at 30 June 2013) by £3.4 million.
It has not yet been possible to quantify the full anticipated effect of the announced further rate reductions, although this will
further reduce the Group’s future current tax charge and reduce the Group’s deferred tax liability accordingly.
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2013
£’000
7,390
3,780
11,170
8,419
2012
£’000
5,584
2,741
8,325
7,384
12,199
10,125
9. Dividends
Final dividend paid in respect of prior year but not recognised as a liability in that year:
8.50p* per share (2012: 7.72p*)
Interim dividend paid: 4.34p per share (2012: 3.77p*)
Total dividend 12.84p per share (2012: 11.49p*) recognised as distributions to equity
holders in the period
Proposed final dividend for the year ended 30 June 2013: 9.66p per share (2012: 8.50p*)
Total dividend paid and proposed for the year ended 30 June 2013: 14.00p per share
(2012: 12.27p*)
* Restated to reflect the impact of the bonus element of the Rights Issue.
In accordance with IAS 10 ‘Events After the Balance Sheet Date’, the proposed final dividend for the year ended 30 June 2013
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 2014. The final dividend for the year ended 30 June 2012 is shown as a deduction from equity in
the year ended 30 June 2013.
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*
— continuing operations
— discontinued operations
— Basic
— continuing operations
— discontinued operations
Diluted earnings per share
— Underlying*
— continuing operations
— discontinued operations
— Diluted
— continuing operations
— discontinued operations
The calculations of basic and diluted earnings per share are based upon:
Earnings for underlying basic and underlying diluted earnings per share
— continuing operations
— discontinued operations
Earnings for basic and diluted earnings per share
— continuing operations
— discontinued operations
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.
22581.04
10 September 2013 1:31 PM Proof 3
2013
Pence
38.98
29.27
9.71
20.59
12.47
8.12
38.71
29.07
9.64
20.45
12.39
8.06
£’000
33,913
25,464
8,449
17,913
10,850
7,063
2012
Pence
32.37†
21.35
11.02
15.65†
5.20
10.45
32.27†
21.28
10.99
15.60†
5.18
10.42
£’000
24,302
16,029
8,273
11,749
3,905
7,844
No.
87,011,352
587,258
87,598,610
No.
75,082,169
224,690
75,306,859
www.dechra.comStock code: DPH®Our GovernanceShareholder InformationOur PerformanceStrategic ReportOur BusinessOur Financials 120
Notes to the Consolidated Financial Statements continued
11. Intangible Assets
Cost
At 1 July 2011
Additions
Acquisitions through
business combinations
Disposals
Foreign exchange
adjustments
At 30 June 2012 and
1 July 2012
Additions
Disposals
Transferred to held for
sale
Foreign exchange
adjustments
At 30 June 2013
Amortisation
At 1 July 2011
Charge for the year
Disposals
At 30 June 2012 and
1 July 2012
Charge for the year
Disposals
Transferred to held for
sale
At 30 June 2013
Net book value
At 30 June 2013
At 30 June 2012 and
1 July 2012
At 30 June 2011
Development
costs
£’000
Patent
rights
£’000
Marketing
authorisations
£’000
Acquired
intangibles
£’000
Total
£’000
Goodwill
£’000
24,249
—
36,348
—
Software
£’000
3,548
1,186
74
—
(2,676)
(152)
57,921
—
—
4,656
728
(234)
7,102
447
3,680
—
—
(61)
(48)
7,440
1,584
—
—
—
—
3,680
—
—
(2,621)
(1,836)
—
—
3,055
58,355
—
—
—
—
—
—
—
—
98
3,412
1,070
551
—
1,621
451
(234)
(891)
947
47
9,071
2,115
1,005
(14)
3,106
857
—
—
3,963
—
3,680
798
335
—
1,133
335
—
—
1,468
853
—
—
—
—
853
—
—
—
—
853
—
—
—
—
—
—
—
—
115,002
5,114
154,434
6,747
78,629
—
115,051
(61)
(5,339)
(8,215)
193,406
3,143
—
267,956
5,455
(234)
(377)
(4,834)
8,658
204,830
11,858
280,201
25,353
10,871
—
36,224
18,233
—
(230)
54,227
29,336
12,762
(14)
42,084
19,876
(234)
(1,121)
60,605
58,355
2,465
5,108
2,212
853
150,603
219,596
57,921
24,249
3,035
2,478
4,334
4,987
2,547
2,882
853
853
157,182
89,649
225,872
125,098
Contracted capital commitments
Software assets in the course of construction included above
2013
£’000
6
2,279
2012
£’000
616
638
Included in contracted capital commitments is £6,000 relating to assets held for sale.
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.
22581.04
10 September 2013 1:31 PM Proof 3
Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Financials 121
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 2011
Additions
Acquisitions through business combinations
Foreign exchange adjustments
At 30 June 2012 and 1 July 2012
Additions
Transfer to assets held for sale
Foreign exchange adjustments
At 30 June 2013
Amortisation
At 1 July 2011
Charge for the year
At 30 June 2012 and 1 July 2012
Charge for the year
Transfer to assets held for sale
At 30 June 2013
Net book value
At 30 June 2013
At 30 June 2012 and 1 July 2012
At 30 June 2011
Acquired
development
costs
£’000
Product
rights
£’000
Customer
relationships
£’000
—
—
24,080
(1,635)
22,445
—
—
2,475
24,920
—
—
—
2,243
—
2,243
22,677
22,445
—
114,625
5,114
54,549
(3,704)
170,584
3,143
—
6,183
179,910
25,199
10,833
36,032
15,952
—
51,984
127,926
134,552
89,426
377
—
—
—
377
—
(377)
—
—
154
38
192
38
(230)
—
—
185
223
Total
£’000
115,002
5,114
78,629
(5,339)
193,406
3,143
(377)
8,658
204,830
25,353
10,871
36,224
18,233
(230)
54,227
150,603
157,182
89,649
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 2013 was £141.6 million with a remaining amortisation period of 4½ years, 12½ years, 7½ years
and 9 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 2013 was £1.5 million and £4.4 million
with a remaining amortisation period of 10 years and 8½ years respectively.
During the year the Company has completed a licensing, supply and distribution agreement for a branded veterinary generic
pharmaceutical product from a US pharmaceutical development company. Under the terms of the agreement Dechra has paid
US$1.5 million upon signing and will pay a further US$1.5 million on approval. There is a potential further contingent payment
of US$2.0 million based on achieving US$20.0 million cumulative sales.
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 2013 was
£1.2 million with a remaining amortisation period of 5½ years. The rights to Equidone, which was launched in the US during
2011, has a carrying value of £0.9 million with an amortisation period of 8 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.
22581.04
10 September 2013 1:31 PM Proof 3
www.dechra.comStock code: DPH®Our GovernanceShareholder InformationOur PerformanceStrategic ReportOur BusinessOur Financials 122
Notes to the Consolidated Financial Statements continued
12. Property, Plant and Equipment
Cost
At 1 July 2011
Additions
Acquisitions through business combinations
Disposals
Foreign exchange adjustments
At 30 June 2012 and 1 July 2012
Additions
Disposals
Transfer to assets held for sale
Foreign exchange adjustments
At 30 June 2013
Depreciation
At 1 July 2011
Charge for the year
Disposals
At 30 June 2012 and 1 July 2012
Charge for the year
Disposals
Transfer to assets held for sale
At 30 June 2013
Net book value
At 30 June 2013
At 30 June 2012 and 1 July 2012
At 30 June 2011
Net book value of assets held under finance
leases
At 30 June 2013
At 30 June 2012 and 1 July 2012
At 30 June 2011
Freehold
land and
buildings
£’000
2,447
34
6,749
—
(353)
8,877
1,442
(168)
—
432
10,583
471
176
—
647
772
(78)
—
1,341
9,242
8,230
1,976
—
—
—
Short
leasehold
buildings
£’000
Motor
vehicles
£’000
3,382
77
—
—
—
3,459
45
—
(349)
—
3,155
1,456
219
—
1,675
224
—
(198)
1,701
1,454
1,784
1,926
—
32
40
205
—
14
(2)
—
217
—
(82)
(135)
—
—
201
2
—
203
—
(70)
(133)
—
—
14
4
—
—
—
Contracted capital commitments
Assets in the course of construction included above
Included in contracted capital commitments is £55,000 relating to assets held for sale.
Plant and
fixtures
£’000
11,427
1,534
2,691
(218)
(158)
15,276
2,178
(2,503)
(4,706)
179
10,424
7,612
1,187
(215)
8,584
1,799
(2,134)
(3,203)
5,046
5,378
6,692
3,815
163
371
568
2013
£’000
68
1,290
Total
£’000
17,461
1,645
9,454
(220)
(511)
27,829
3,665
(2,753)
(5,190)
611
24,162
9,740
1,584
(215)
11,109
2,795
(2,282)
(3,534)
8,088
16,074
16,720
7,721
163
403
608
2012
£’000
366
—
22581.04
10 September 2013 1:31 PM Proof 3
Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Financials 123
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 3%
(2012: 5%) per annum up to year five and thereafter a growth rate of 0% (2012: 0%) per annum into perpetuity which is
considered to be conservative compared to 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 2013 for the following assets:
Cash generating unit
Dechra Veterinary Products EU
Dermapet
Dales
Dechra Veterinary Products EU
Dermapet
Laboratories
Dales
Goodwill
carrying
value
£’000
55,794
330
2,231
Indefinite life
assets carrying
value
£’000
822
—
—
2013
2012
Goodwill
carrying
value
£’000
52,749
320
2,621
2,231
Indefinite life
assets carrying
value
£’000
822
—
—
—
Total
value
£’000
56,616
330
2,231
Total
value
£’000
53,571
320
2,621
2,231
Pre-tax
discount
rate
%
8.8
10.4
8.7
Pre-tax
discount
rate
%
8.9
9.5
9.9
8.7
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.
22581.04
10 September 2013 1:31 PM Proof 3
www.dechra.comStock code: DPH®Our GovernanceShareholder InformationOur PerformanceStrategic ReportOur BusinessOur Financials 124
Notes to the Consolidated Financial Statements continued
14. Deferred Taxes
(a) Recognised Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are attributable to the following:
Intangible assets
Property, plant and equipment
Inventories
Payables
Share-based payments
Employee benefit obligations
Assets
Liabilities
Net
2013
£’000
—
—
1,067
212
964
17
2,260
2012
£’000
—
—
1,178
435
813
74
2,500
2013
£’000
(27,548)
(1,896)
—
—
—
—
(29,444)
2012
£’000
(29,984)
(1,691)
—
(168)
—
—
(31,843)
2013
£’000
(27,548)
(1,896)
1,067
212
964
17
(27,184)
2012
£’000
(29,984)
(1,691)
1,178
267
813
74
(29,343)
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 (2012: £nil). The estimated unprovided deferred tax liability in relation to these temporary
differences is £nil (2012: £nil). Deferred tax assets in relation to losses amounting to £75,000 (2012: £368,000) have not been
recognised due to uncertainty over their recoverability.
(c) Movements During the Year
Intangible assets
Property, plant and equipment
Inventories
Receivables
Payables
Employee benefit obligations
Share-based payments
Intangible assets
Property, plant and equipment
Inventories
Payables
Employee benefit obligations
Share-based payments
Balance at
1 July
2011
£’000
(14,204)
(550)
478
41
(69)
—
861
(13,443)
Balance at
1 July
2012
£’000
(29,984)
(1,691)
1,178
267
74
813
(29,343)
Recognised
in income
£’000
2,826
(389)
700
(41)
(99)
—
29
3,026
Recognised
in income
£’000
4,240
(117)
(112)
19
(58)
81
4,053
Acquisitions
£’000
(20,205)
(835)
—
—
435
74
—
(20,531)
Acquisitions
£’000
—
—
—
—
—
—
—
Recognised
in equity
£’000
—
—
—
—
—
—
(77)
(77)
Recognised
in equity
£’000
—
—
—
(86)
—
70
(16)
Foreign
exchange
adjustments
£’000
1,599
83
—
—
—
—
—
1,682
Foreign
exchange
adjustments
£’000
(1,804)
(88)
1
12
1
—
(1,878)
Balance at
30 June
2012
£’000
(29,984)
(1,691)
1,178
—
267
74
813
(29,343)
Balance at
30 June
2013
£’000
(27,548)
(1,896)
1,067
212
17
964
(27,184)
Amounts recognised in income relating to continuing operations total £4,118,000 (2012: £3,004,000).
22581.04
10 September 2013 1:31 PM Proof 3
Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Financials 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
125
2012
£’000
7,732
1,661
47,888
57,281
2012
£’000
69,596
965
1,552
72,113
2013
£’000
6,698
2,224
20,277
29,199
2013
£’000
25,296
922
1,464
27,682
2013
£’000
32,791
2012
£’000
32,435
2013
£’000
11,859
6,973
15
2,729
6,907
28,483
2012
£’000
63,559
6,745
387
3,402
5,770
79,863
2013
£’000
10,368
2012
£’000
8,155
22581.04
10 September 2013 1:31 PM Proof 3
www.dechra.comStock code: DPH®Our GovernanceShareholder InformationOur PerformanceStrategic ReportOur BusinessOur Financials 126
Notes to the Consolidated Financial Statements continued
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
2013
£’000
10,000
338
(588)
9,750
105,073
142
(1,375)
103,840
113,590
2012
£’000
5,000
695
(589)
5,106
115,757
246
(1,957)
114,046
119,152
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 renewable on 30 September 2013
and various finance lease obligations.
At the year end, the Group had the following unutilised borrowing facilities:
Bank overdraft facility
2013
£’000
10,000
2012
£’000
10,000
The term loan, revolving credit and overdraft facilities are secured by a fixed and floating charge on the assets of the Group.
Interest is charged at 2.50% 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 2013.
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
2013
£’000
2012
£’000
10,000
10,000
95,073
115,073
5,000
10,000
105,757
120,757
22581.04
10 September 2013 1:31 PM Proof 3
Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Financials 127
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
2013
£’000
361
137
8
506
(26)
480
2012
£’000
730
217
36
983
(42)
941
2013
£’000
338
134
8
480
—
480
2012
£’000
695
210
36
941
—
941
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 £98,000
(2012: £61,000) for employees in the Netherlands and Germany and early retirement plan provisions in Germany of £nil
(2012: £2,000) are recognised within other payables in the statement of financial position as at 30 June 2013.
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
2013
3.90%
3.90%
1.90%
2.40%
1.30%
0.00%
0.00%
2012
4.60%
4.60%
1.90%
2.40%
1.90%
0.00%
0.00%
22581.04
10 September 2013 1:31 PM Proof 3
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Notes to the Consolidated Financial Statements continued
21. Employee Benefit Obligations continued
In valuing the liabilities of the pension scheme at 30 June 2013 and 30 June 2012, mortality assumptions have been made as
indicated below.
The mortality assumption follows the AG Prognosetafel 2012-2062 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 beginning of the period
Defined benefit obligation at acquisition
Service cost
Interest cost
Employee contributions
Actuarial loss
Foreign exchange difference on translation
Defined benefit obligations at end of the period
Movements in Fair Value of Scheme Assets
Fair value of scheme assets at beginning of the period
Fair value of scheme assets at acquisition
Expected return on scheme assets
Additional charges
Employer contributions
Employee contributions
Actuarial gain
Foreign exchange difference on translation
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
Additional charges
Net pension expense
22581.04
10 September 2013 1:31 PM Proof 3
2013
£’000
(4,722)
3,726
(996)
2012
£’000
(2,801)
2,438
(363)
2013
£’000
2,801
—
446
124
107
1,076
168
4,722
2013
£’000
2,438
—
123
(289)
897
107
304
146
3,726
2013
£’000
446
(123)
124
289
736
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
Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Financials 21. Employee Benefit Obligations continued
Analysis of the Amount Charged to the Other Statement of Consolidated Income
Amounts charged in previous periods
Actuarial loss on defined benefit pension scheme
Net pension expense
129
2013
£’000
—
772
772
2012
£’000
—
—
—
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
2013
£’000
3.90%
3,726
123
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 the year end. 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 has a contract with the insurance company Nationale-Nederlanden to cover the committed pension benefits.
The employer contributions expected to be paid into the scheme for the next financial period amount to £571,000
(2012: £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
2013
£’000
(4,722)
3,726
(996)
2012
£’000
(2,801)
2,438
(363)
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Notes to the Consolidated Financial Statements continued
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 2013, net borrowings were
£80.8 million, whilst Shareholders’ equity was £174.6 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.
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 2013 and 2012. 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.
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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 2013 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 0.83% on the term loan
and 0.88% on the revolving credit facility. The amount of the term loan and revolving credit outstanding at 30 June 2013
was £115.1 million (2012: £120.8 million). The hedge is in place until 31 October 2016 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.
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Notes to the Consolidated Financial Statements continued
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 £59,009,000 (2012: £102,996,000) 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 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 (excluding assets relating to discontinued operations) accounted for approximately 2.0% of
gross trade receivables at 30 June 2013 (2012: 1.5%). 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
2013 and 30 June 2012.
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 2012 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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Carrying
value
£’000
32,791
32,791
25,296
922
26,218
59,009
2013
2012
Fair
value
£’000
32,791
32,791
25,296
922
26,218
59,009
Carrying
value
£’000
32,435
32,435
69,596
965
70,561
102,996
Fair
value
£’000
32,435
32,435
69,596
965
70,561
102,996
(115,073)
(115,073)
(120,757)
(120,757)
(15)
(480)
(11,859)
(6,973)
(5,928)
(140,328)
(81,319)
(15)
(480)
(11,859)
(6,973)
(5,928)
(140,328)
(81,319)
(387)
(941)
(63,559)
(13,222)
(13,863)
(212,729)
(109,733)
(387)
(938)
(63,559)
(13,222)
(13,863)
(212,726)
(109,730)
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
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 2013
Derivative financial liabilities
Deferred and contingent consideration
Total
30 June 2012
Derivative financial liabilities
Deferred and contingent consideration
Total
Level 1
£’000
—
—
—
Level 1
£’000
—
—
—
Level 2
£’000
(15)
—
(15)
Level 2
£’000
(387)
—
(387)
Level 3
£’000
—
(5,928)
(5,928)
Level 3
£’000
—
(13,863)
(13,863)
Total
£’000
(15)
(5,928)
(5,943)
Total
£’000
(387)
(13,863)
(14,250)
At 30 June 2013, the deferred consideration balance is made up of £3.8 million in relation to the Dermapet acquisition and
£2.1 million for a US generic pharmaceutical product. Movements in deferred and contingent consideration consists of a
£0.3 million payment made under the terms of the Genitrix acquisition, a £10.0 million payment offset by a £0.3 million
unwinding of discount and £0.1 million decrease due to foreign exchange differences in relation to the DermaPet acquisition,
and a £2.1 million addition for a US generic pharmaceutical.
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Notes to the Consolidated Financial Statements continued
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 (released)/recognised
Transferred to held for sale
Impairment provision utilised
At end of period
2013
£’000
4,052
415
11
—
4,478
2013
£’000
2,877
(7)
(2,667)
(55)
148
2012
£’000
5,810
983
644
2,649
10,086
2012
£’000
2,911
231
—
(265)
2,877
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 2013 and 30 June 2012. Where interest is at floating rates, the future interest payments have been estimated using
current interest rates:
At 30 June 2013
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
(5,928)
—
(318)
(6,246)
—
(986)
(3,945)
(1,315)
—
—
—
(6,246)
Bank loans
and
overdrafts
£’000
(113,110)
(1,963)
(3,761)
(118,834)
(6,203)
(5,639)
(11,053)
(13,233)
(82,706)
—
—
(118,834)
Finance
leases
£’000
(480)
—
(26)
(506)
(354)
(7)
(137)
(8)
—
—
—
(506)
Trade and
other
payables
£’000
(18,832)
—
—
(18,832)
(18,832)
—
—
—
—
—
—
(18,832)
Total
£’000
(138,350)
(1,963)
(4,105)
(144,418)
(25,389)
(6,632)
(15,135)
(14,556)
(82,706)
—
—
(144,418)
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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)
—
(10,336)
—
(3,994)
—
—
—
(14,330)
Bank loans
and
overdrafts
£’000
(118,211)
(2,546)
(6,056)
(126,813)
(756)
(6,760)
(11,666)
(11,315)
(15,921)
(80,395)
—
(126,813)
Finance
leases
£’000
(941)
—
(42)
(983)
(365)
(365)
(217)
(36)
—
—
—
(983)
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
Between 2 and 5 years
135
Total
£’000
(209,796)
(2,546)
(6,565)
(218,907)
(77,902)
(17,461)
(11,883)
(15,345)
(15,921)
(80,395)
—
(218,907)
2012
£’000
81
94
212
—
387
Trade and
other
payables
£’000
(76,781)
—
—
(76,781)
(76,781)
—
—
—
—
—
—
(76,781)
2013
£’000
83
(12)
(25)
(31)
15
The Group has a contractual obligation to pay £83,000 (2012: £81,000) under its interest rate swap arrangement covering the
period from 30 June to 30 September 2013.
With the exception of the above disclosed, there are no other assets that have been impaired during the year.
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Notes to the Consolidated Financial Statements continued
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 2013 and 30 June 2012
were:
At 30 June 2013
Financial assets
Trade receivables
Other receivables
Cash balances
Financial liabilities
Bank loans and overdrafts
Trade payables
Net balance sheet exposure
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
Danish
Krone
£’000
52
3
2,903
2,958
—
(34)
(34)
2,924
Danish
Krone
£’000
6,666
147
2,766
242
9,821
—
—
(1,794)
(3,921)
(5,715)
4,106
Euro
£’000
6,063
39
5,338
11,440
(11,990)
(1,181)
(13,171)
(1,731)
Euro
£’000
9,902
284
4,900
49
15,135
(17,264)
(248)
(2,333)
(1,902)
(21,747)
(6,612)
US
Dollar
£’000
4,055
23
3,499
7,577
(29,567)
(1,389)
(30,956)
(23,379)
US
Dollar
£’000
4,019
20
7,372
—
11,411
(28,675)
—
(1,210)
—
(29,885)
(18,474)
Other
£’000
5,844
211
2,081
8,136
—
(124)
(124)
8,012
Other
£’000
2,222
73
3,042
171
5,508
—
—
(142)
(1,669)
(1,811)
3,697
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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 2013 would reduce Group profit before taxation and
equity by £621,000 (2012: £168,000).
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
50
(111)
(3,195)
Net
assets
£’000
(15)
(359)
(12,286)
Hedges
Cash Flow Hedges
The Group has entered into an interest rate swap on the term loan of £55 million and the revolving credit facility of
£65 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 31 October 2016. 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 2013 was a liability of £nil including an income tax credit of
£15,000 (2012: £286,000 including an income tax credit of £101,000).
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
2013
No.
86,870,176
—
287,268
87,157,444
£’000
869
—
3
872
2012
No.
66,449,659
20,040,653
379,864
86,870,176
£’000
664
201
4
869
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 287,268 new ordinary shares of 1p (2012: 379,864 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 £845,674 (2012: £452,782). 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.
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Notes to the Consolidated Financial Statements continued
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
For awards granted before 5 March 2013: Vesting is dependent on an underpin condition based on the Company’s adjusted
diluted earnings per share performance. No awards will vest unless adjusted diluted earnings per share has grown by at least
3% per annum above the retail prices index over the three year measurement period. Provided this condition is met, then the
number of shares that vest depends on the Company’s TSR performance against the FTSE Small Cap Index over the three
year measurement period. 100% 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.
For awards granted on and after 5 March 2013: Vesting is dependent on two performance targets which must be satisfied over
a three year performance period commencing from the start of the financial year within which the award is granted. 50% of the
award will vest dependent on the Company’s TSR performance against an appropriate comparator group. 50% of the award
will vest subject to a performance condition based on the annual earnings per share growth.
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 or five
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. Prior to 16 October 2012 participants were able to save for a seven year period. The
SAYE options must ordinarily be exercised within six months of the completion of the relevant savings period. The exercise of
these options is not subject to any performance criteria.
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At
30 June
2013
Number
—
7,120
17,201
20,142
34,355
29,672
52,683
90,772
251,945
—
8,709
14,151
30,845
23,334
2,722
5,922
21,486
15,888
17,228
140,285
—
207,339
245,722
279,323
732,384
At
1 July
2012
Number
2,722
14,615
27,029
33,752
52,862
52,314
60,361
—
243,655
10,887
22,862
23,949
54,918
37,363
2,722
12,454
30,413
21,273
—
216,841
302,421
256,780
304,060
—
863,261
Exercised
Number
Granted
Number
Lapsed
Number
(2,722)
(7,495)
(9,828)
(13,610)
(18,507)
(16,302)
—
—
(68,464)
(10,887)
(14,153)
(9,798)
(24,073)
(14,029)
—
(6,532)
(5,470)
—
—
(84,942)
—
—
—
—
—
—
—
93,772
93,772
—
—
—
—
—
—
—
—
—
17,228
17,228
—
—
—
—
—
(6,340)
(7,678)
(3,000)
(17,018)
—
—
—
—
—
—
—
(3,457)
(5,385)
—
(8,842)
—
—
—
—
—
— (302,421)
(49,441)
—
(58,338)
—
—
279,323
(410,200)
279,323
3,909
76,022
42,588
114,713
95,020
100,126
—
432,378
1,756,135
172.47p
—
(55,777)
—
(78,085)
—
—
—
(133,862)
(287,268)
294.39p
—
—
—
—
—
—
125,715
125,715
516,038
231.11p
—
(11,699)
(6,166)
(8,814)
(2,729)
(11,981)
(10,656)
(52,045)
3,909
8,546
36,422
27,814
92,291
88,145
115,059
372,186
(488,105) 1,496,800
205.61p
61.10p
24. Share-based Payments continued
Year ended 30 June 2013
Exercise
Period
Unapproved Share Option Scheme
11 April 2003†
19 March 2007†
2 April 2008†
10 October 2008†
30 March 2009†
1 March 2010†
28 February 2011
10 September 2012
2006-2013
2010-2017
2011-2018
2011-2018
2012-2019
2013-2020
2014-2021
2015-2022
Approved Share Option Scheme
2 April 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
10 September 2012
2007-2014
2008-2015
2009-2016
2010-2017
2011-2018
2011-2018
2012-2019
2013-2020
2014-2021
2015-2022
Long Term Incentive Plan
24 September 2009
22 December 2010
7 September 2011
5 March 2013
SAYE Option Scheme
12 October 2006
17 October 2007
13 October 2008
12 October 2009
13 December 2010
17 October 2011
16 October 2012
2012-2013
2013-2014
2014-2015
2016-2016
2009-2013
2010-2014
2011-2015
2012-2016
2013-2017
2014-2018
2015-2019
Total
Weighted average exercise price*
Exercise
price
per share*
Pence
53.73
265.43
336.15
364.62
381.15
418.81
461.97
541.00
123.53
185.98
231.45
265.43
336.15
364.62
381.15
418.81
461.97
541.00
—
—
—
—
179.77
257.16
315.02
304.92
375.64
365.54
471.00
* 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 2013 are 215,659.
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Notes to the Consolidated Financial Statements continued
24. Share-based Payments continued
Year ended 30 June 2012
Exercise
price
per share
Pence
140.98
53.73
265.43
336.15
364.62
381.15
418.81
461.97
123.53
165.32
185.98
231.45
265.43
336.15
364.62
381.15
418.81
461.97
—
—
—
—
179.77
257.16
315.02
304.92
375.64
365.54
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†
2007-2014
3 December 2004† 2007-2014
2008-2015
5 April 2005†
2009-2016
15 March 2006†
2010-2017
19 March 2007†
2011-2018
2 April 2008†
2011-2018
10 October 2008†
2012-2019
30 March 2009†
2013-2020
1 March 2010
2014-2021
28 February 2011
Long Term Incentive Plan
19 November 2008 2011-2012
24 September 2009 2012-2013
22 December 2010 2013-2014
2014-2015
7 September 2011
SAYE Option Scheme
2009-2013
12 October 2006
2010-2014
17 October 2007
2011-2015
13 October 2008
12 October 2009
2012-2016
13 December 2010 2013-2017
2014-2018
17 October 2011
Total
Weighted average exercise price*
At
1 July
2012
Number
1,500
2,500
17,586
35,883
33,500
54,921
52,854
60,688
259,432
10,000
1,667
23,000
36,000
58,901
53,117
2,500
23,079
33,146
23,312
264,722
327,272
277,758
235,841
—
840,871
27,681
69,291
105,141
117,426
105,400
—
424,939
1,789,964
175.24p
Exercised
Number
Granted
Number
Adjusted
for Rights
Issue*
At
30 June
2012
Number
—
2,722
14,615
27,029
33,752
52,862
52,314
60,361
243,655
10,887
—
22,862
23,949
54,918
37,363
2,722
12,454
30,413
21,273
216,841
—
302,421
256,780
304,060
863,261
Lapsed
Number
—
—
(611)
(3,000)
—
(2,800)
(4,790)
(5,231)
(16,432)
—
—
—
(4,000)
(3,389)
(3,000)
—
(6,200)
(5,210)
(3,769)
(25,568)
(94,555)
—
—
—
(94,555)
—
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
—
24,663
20,939
24,797
70,399
318
6,731
3,563
9,508
7,716
8,127
35,963
145,945
—
—
—
(4,300)
(12,221)
(18,096)
(5,487)
(40,104)
3,909
76,022
42,588
114,713
95,020
100,126
432,378
(176,659) 1,756,135
167.92p
172.47p
(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)
(232,717)
—
—
—
(232,717)
(24,090)
—
(61,816)
—
—
—
(85,906)
(379,864)
111.35p
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
279,263
279,263
—
—
—
—
—
97,486
97,486
376,749
94.59p
* 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.
The weighted average exercise price of options eligible to be exercised at 30 June 2013 was 341.8p (2012: 302.5p).
For options exercised during the year, the weighted average market price at the date of exercise was 629p (2012: 461p). The
weighted average remaining contractual lives of options outstanding at the consolidated statement of financial position date
was four years (2012: four years).
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24. Share-based Payments continued
Outstanding options on all Long Term Incentive Plan, Approved and Unapproved plans prior to 30 June 2010 were exercisable
at 30 June 2013.
No options issued under SAYE plans were exercisable at 30 June 2013.
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
05/03/13
279,323
699p
Nil
3 years
0.34%
28%
1.72%
590p
10/09/12
111,000
558.5p
541p
5 years
0.66%
34%
2.20%
141p
07/09/11
279,263
455.5p
Nil
3 years
0.85%
38%
2.66%
276p
28/02/11
84,000
507.5p
503p
5 years
2.65%
36%
2.07%
149p
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Notes to the Consolidated Financial Statements continued
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
16/10/12
125,715
591p
471p
17/10/11
97,486
478p
398p
3.25 years
5.25 years
3.25 years
5.25 years
— 7.25 years
0.41%
0.84%
—
34%
2.08%
171p
192p
—
0.98%
1.58%
2.11%
34%
2.53%
140p
147p
161p
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 2013 of £260,000 (2012: £73,000), of which £39,000
(2012: £18,000) 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.
2013
£’000
821
193
1,014
2012
£’000
1,001
(24)
977
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2013
£’000
(113,110)
(480)
32,791
(80,799)
2012
£’000
(118,211)
(941)
32,435
(86,717)
25. Analysis of Net Borrowings
Bank loans
Finance leases and hire purchase contracts
Cash and cash equivalents
Net borrowings
26. Operating Leases
At the balance sheet date the Group had outstanding commitments for future minimum rentals payable under non-cancellable
operating leases as follows:
Within one year
Between one and five years
In five years or more
Land and buildings
Other assets
Total
2013
£’000
1,362
2,775
2,787
6,924
2012
£’000
1,301
3,300
2,927
7,528
2013
£’000
2,432
2,357
49
4,838
2012
£’000
2,279
2,414
—
4,693
2013
£’000
3,794
5,132
2,836
11,762
2012
£’000
3,580
5,714
2,927
12,221
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 five years. Commitments relating to
discontinued operations included in the above amount to £4,384,000 (2012: £5,046,000).
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
2012
9.21
1.2389
1.5681
Average
rate
9.0445
1.2135
1.5687
Closing rate
at 30 June
2013
8.7146
1.1687
1.5208
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Notes to the Consolidated Financial Statements continued
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
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 value of the financial assets includes trade receivables with a fair value of £5,669,000.
The 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.
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.
The remaining £300,000 contingent consideration outstanding for this acquisition was paid in the period.
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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.
During the period the Group paid a further US$16,000,000 (£10,033,000) in respect of the acquisition of DermaPet, Inc.
A payment of US$15,000,000 was made which related to the achievement of a contingent milestone target, the remaining
US$1,000,000 related to deferred consideration which was paid on the second anniversary of the completion date.
The maximum further consideration payable is US$6,000,000 of which US$1,000,000 is payable on the fourth anniversary of
the completion date. The remaining US$5,000,000 is contingent upon revenue exceeding US$20,000,000 in any rolling 12
month period ending on the sixth anniversary of the completion date.
29. Discontinued Operations
On 10 July 2013, the Group announced its intention to dispose of the Services businesses. However, the Group was
committed to a plan to sell the businesses prior to 30 June 2013, therefore the assets have been classified as held for sale.
The disposal is consistent with the Group’s long term policy to focus its activities on the manufacture and marketing of
pharmaceutical products.
The Services businesses constitutes a reporting segment in accordance with IFRS 8.
The divestment was completed on 16 August 2013 for sale proceeds of £87.5 million. The costs to sell are £1.5 million (with an
associated tax deduction of £0.1 million). Tax on the profit on disposal is expected to be £0.4 million. The completion accounts
are yet to be finalised.
The Group has not recognised any impairment losses in respect of the Services businesses, neither when the assets and
liabilities of the operation were reclassified to held for sale nor at the end of the reporting period.
The results of the discontinued operations included in the profit for the year are set out below. The Segment was not a
discontinued operation or classified as held for sale at 30 June 2012. The comparative consolidated income statement has
been represented to show the discontinued operation separately from continuing operations.
Profit for the Year from Discontinued Operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Non-underlying expenses*
Operating profit
Net finance (expense)/income
Profit before taxation from operating activities
Income tax expenses
Profit for the year
Expenses related to disposal
Tax on expenses related to disposal
2013
£’000
333,244
(303,389)
29,855
(12,540)
(6,203)
(38)
11,074
(5)
11,069
(2,649)
8,420
(1,467)
110
2012
£’000
315,672
(287,523)
28,149
(11,853)
(5,240)
(438)
10,618
90
10,708
(2,864)
7,844
—
—
Profit for the year from discontinued operations
7,063
7,844
* Non-underlying items comprise amortisation of acquired intangibles and rationalisation costs.
See note 10 for the Earnings per ordinary share split between continued and discontinued operations.
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Notes to the Consolidated Financial Statements continued
29. Discontinued Operations continued
Cash Flows from Discontinued Operations
Net cash inflows from operating activities
Net cash inflows from investing activities
Net cash outflows from financing activities (including repayment of intercompany funding)
2013
£’000
1,305
(810)
(508)
2012
£’000
4,510
(534)
(30,603)
Assets Held For Sale
The major classes of assets and liabilities of the Services businesses at the end of the reporting period are set out below:
Goodwill
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Assets of Services businesses classified as held for sale
Trade and other payables
Liabilities of Services businesses classified as held for sale
Net assets of Services businesses classified as held for sale
2013
£’000
2,621
1,092
1,656
28,269
56,146
89,784
(53,961)
(53,961)
35,823
30. 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 155.
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 67 to 83. The remuneration of key management is
disclosed in note 7.
31. Off Balance Sheet Arrangements
The Group has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.
32. Events after the Reporting Period
On 16 August 2013, the Group completed the sale of the Services business for a consideration of £87.5 million. Refer to
note 29 for further details of the discontinued operations.
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Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Financials Company Balance Sheet
At 30 June 2013
Fixed assets
Investments
Intangible assets
Tangible assets
Current assets
Debtors (includes amounts falling due after more than one year of £579,000
(2012: £571,000))
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
147
Note
2013
£’000
2012
£’000
iii
iv
v
vi
vii
vii
x
xi
xi
xi
251,104
4,390
207
255,701
251,104
4,901
—
256,005
40,978
—
40,978
(50,331)
(9,353)
246,348
(103,698)
142,650
872
123,485
—
18,293
142,650
21,306
1,052
22,358
(35,916)
(13,558)
242,447
(113,800)
128,647
869
122,642
(286)
5,422
128,647
The financial statements were approved by the Board of Directors on 3 September 2013 and are signed on its behalf by:
Ian Page
Chief Executive Officer
3 September 2013
Anne-Francoise Nesmes
Chief Financial Officer
3 September 2013
Company number: 3369634
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Reconciliation of Movements in Shareholders’ Funds
For the year ended 30 June 2013
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
2013
£’000
128,647
23,220
(140)
426
821
(11,170)
846
142,650
2012
£’000
72,382
4,293
(335)
343
1,001
(8,325)
59,288
128,647
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149
(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 £23,220,000 (2012: £4,293,000). 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 30 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
(i)
Pensions
The Company operates a Group stakeholder personal pension scheme for certain employees. Obligations for contributions
are recognised as an expense in the profit and loss account as incurred.
(ii) Share-based Payment Transactions
The Company operates a number of equity settled share-based payment programmes that allow employees to acquire
shares of the Company. The Company also operates 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.
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151
(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 £2,088,000 (2012: £1,727,000). Information
relating to Directors’ emoluments, share options and pension entitlements is set out in the Directors’ Remuneration Report on
pages 67 to 83.
(iii) Fixed Asset Investments
Cost
At 1 July 2012
At 30 June 2013
Net book value
At 30 June 2013
At 30 June 2012
A list of principal subsidiary undertakings is given in note (xii).
Shares in
subsidiary
undertakings
£’000
251,104
251,104
251,104
251,104
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Notes to the Company Financial Statements continued
(iv) Intangible Assets
Cost
At 1 July 2012
At 30 June 2013
Amortisation
At 1 July 2012
Charge for the year
At 30 June 2013
Net book value
At 30 June 2013
At 30 June 2012
(v) Tangible Assets
Cost
At 1 July 2012
Additions
At 30 June 2013
Depreciation
At 1 July 2012
Charge for the year
At 30 June 2013
Net book value
At 30 June 2013
At 30 June 2012
(vi) Debtors
Amounts owed by subsidiary undertakings
Group relief receivable
Deferred taxation (see note (ix))
Other debtors
Prepayments and accrued income
Intangible assets
£’000
5,114
5,114
213
511
724
4,390
4,901
Tangible Assets
£’000
—
223
223
—
16
16
207
—
2013
£’000
36,119
3,951
579
176
153
40,978
2012
£’000
18,735
1,699
571
301
—
21,306
Included in debtors are amounts of £579,000 (2012: £571,000) 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 (2012: £nil).
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Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Our Financials (vii) Creditors
Bank loans and overdrafts (see note (viii))
Amounts due to subsidiary undertakings
Other creditors
Derivative financial instruments
Other taxation and social security
Accruals and deferred income
153
Falling due
within one year
2013
£’000
15,221
32,226
—
15
105
2,764
50,331
2012
£’000
4,411
28,557
18
387
—
2,543
35,916
In accordance with FRS 21 ‘Events after the Balance Sheet Date’, the proposed final dividend for the year ended 30 June
2013 of 9.66p per share (2012: 8.50p 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 2014.
The total cost of the proposed final dividend is £8,419,000 (2012: £7,384,000).
Bank loans (see note (viii))
(viii) 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
Arrangement fees netted off
Total borrowings
Falling due after
more than one year
2013
£’000
103,698
103,698
2011
£’000
113,800
113,800
2013
£’000
5,809
10,000
(588)
15,221
10,000
95,073
105,073
(1,375)
103,698
118,919
2012
£’000
—
5,000
(589)
4,411
10,000
105,757
115,757
(1,957)
113,800
118,211
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 2013.
The Company guarantees certain borrowings of other Group companies, which at 30 June 2013 amounted to £480,000
(2012: £923,000).
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Notes to the Company Financial Statements continued
(ix) Deferred Tax
At 1 July 2012
Amounts recognised in profit and loss
Amounts recognised in equity
At 30 June 2013 (included in debtors)
The amounts provided for deferred taxation at 23% (2012: 24%) are as follows:
Short term timing differences
Accelerated capital allowances
(x) Called up Share Capital
Issued share capital
Allotted, called up and fully paid at 1 July 2012
New shares issued
Allotted, called up and fully paid at 30 June 2013
£’000
571
93
(85)
579
2012
£’000
571
—
571
2013
£’000
576
3
579
Ordinary shares
of 1p each
£’000
869
3
872
No.
86,870,176
287,268
87,157,444
Details of new ordinary shares issued following the 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 2013 under the various Group share option
schemes are shown in note 24 to the Consolidated Financial Statements.
(xi) Reserves
At 1 July 2012
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 2013
Share
premium
account
£’000
122,642
843
—
—
—
—
—
123,485
Hedging
reserve
£’000
(286)
—
—
(140)
426
—
—
—
Profit
and loss
account
£’000
5,422
—
23,220
—
—
(11,170)
821
18,293
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(xii) Subsidiary Undertakings
Dechra Pharmaceuticals PLC is the ultimate parent and controlling party of the Group.
The principal subsidiary undertakings of the Company, all of which are wholly owned, are:
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
Wholesaler and provider of laboratory services***
Marketer of veterinary pharmaceuticals and pet diets
Non-trading
Holding Company
Holding Company
Non-trading
Non-trading
Non-trading
Non-trading
Holding Company
Non-trading
Non-trading
Holding Company
Holding Company
Non-trading
Company
Operating Subsidiaries
Albrecht GmbH∞
Country of
Incorporation
Germany
Dechra LimitedΩ
England & Wales
Dechra Development LLC**
Dechra Veterinary Products A/S
USA
Denmark
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∞
National Veterinary Services Limited**
Scanimal Health ApS∞
Other Subsidiaries
Anglian Manufacturing Chemists Limited‡
Anglian Pharma Manufacturing Limited†
Anglian Pharma Limited
Arnolds Veterinary Products Limited*
Broomco 4263 Limited*
Cambridge Specialist Laboratory Services
Limited§
Dales Pharmaceuticals Limited*
Dechra Investments Limited
Farvet Laboratories BV∞
Leeds Veterinary Laboratories Limited
North Western Laboratories Limited
Veneto Limited
DermaPet, Inc.¶
Finland
France
Norway
Spain
Sweden
The Netherlands
England & Wales
USA
Belgium
The Netherlands
England & Wales
England & Wales
Denmark
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
The Netherlands
England & Wales
England & Wales
England & Wales
USA
100% of ordinary share capital held by Veneto Limited.
100% of ordinary share capital held by Dechra Investments Limited.
100% of ordinary share capital held by North Western Laboratories Limited.
100% of ordinary share capital held by Anglian Pharma Limited.
100% of ordinary share capital held by Anglian Pharma Manufacturing Limited.
100% of ordinary share capital held by Dechra Veterinary Products A/S .
100% of ordinary share capital held by Dechra Veterinary Products LLC.
*
Ω
§
†
‡
#
¶
** 100% of ordinary share capital held by Dechra Limited.
∞ 100% of ordinary share capital held by Eurovet Animal Health B.V.
*** Sale of subsidiary completed on 16 August 2013. Refer to note 32 for details.
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Financial History
Consolidated income statement
Revenue
Underlying operating profit
Underlying profit after taxation
Underlying earnings per share
— basic (pence)
— diluted (pence)
Dividend per share (pence)
Consolidated statement of financial
position
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets held for sale
Shareholders’ funds
Consolidated cash flow
Net cash inflow from operating activities
Net cash outflow from investing activities
Net cash (outflow)/inflow from financing
activities
2013
£’000
189,176
39,108
25,464
29.27
29.07
14.00
2012
(Restated)†
£’000
124,330
25,545
16,029
2012
£’000
2011
£’000
2010
£’000
2009
£’000
426,041
36,601
24,302
389,237
31,823
22,748
369,369
28,190
19,437
349,964
24,971
16,759
21.35*
21.28*
12.27*
32.37*
32.27*
12.27*
31.53*
31.43*
11.12*
27.09*
26.99*
9.64*
23.52*
23.33*
8.36*
235,670
89,672‡
(49,558)‡
(136,991)
35,823
174,616
237,132
86,863‡
(48,217)‡
(147,278)
25,182
153,682
242,592
161,829
(103,461)
(147,278)
—
153,682
132,819
137,549
(88,952)
(83,083)
—
98,333
88,044
117,483
(89,041)
(30,258)
—
86,228
97,605
106,068
(85,722)
(37,265)
—
80,686
36,865
(19,368)
(18,266)
—
—
—
19,242
(120,344)
16,754
(36,178)
17,324
(1,715)
20,334
(1,489)
103,708
18,867
(10,821)
(14,408)
* Restated to reflect the impact of the bonus element of the Rights Issue.
† Restated to reflect the Services Segment as discontinued operations.
‡ Excluding net assets held for sale.
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157
The following is a glossary of a number of the terms and
acronyms which can be found within this document.
Executive Directors
The Executive Directors of the Company, currently Ian Page,
Anne-Francoise Nesmes, Ed Torr and Tony Griffin
API
Active Principal Ingredient
Bio equivalence
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.
CAP
Companion animal products
CE
Continuing Education
CMC
The Chemistry and Manufacturing Controls
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.
FAP
Food animal producing products
FDA
US Food and Drug Administration; a federal agency of the US
Department of Health and Human Services.
FRS
Financial Reporting Standards
FTSE250/350 Index
An index comprising of the 101st to 350th largest companies
listed on the London Stock Exchange in terms of their market
capitalisation
FTSE Small Cap Index
An index comprising of the 351st to 619th largest listed
companies on the London Stock Exchange in terms of their
market capitalisation
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 utilised).
IAS
International Accounting Standards
IFRS
International Financial Reporting Standards
Dechra Values or Values
Dedication, Enjoyment, Courage, Honesty, Relationships and
Ambition
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.
DPM
Dechra Pharmaceuticals Manufacturing
LIBOR
The London inter-bank offered rate
DVP EU
Dechra Veterinary Products EU
DVP US
Dechra Veterinary Products US
EBITDA
Earnings before interest, tax, depreciation and amortisation.
Euthyroid
Euthyroid is the state of having normal thyroid gland function.
Malassezia
Yeasts that cause a secondary inflammatory skin disease.
Malassezia is often found in otitis externa.
MHRA
Medicines and Healthcare products Regulatory Agency; an
executive agency of the Department of Health.
MRL
Maximum residue level
NADA
New Animal Drug Application
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Glossary continued
Non-Executive Directors
The Non-executive Directors of the Company, currently Michael
Redmond, Neil Warner, Dr Chris Richards, Julian Heslop and
Ishbel Macpherson
RIDDOR
Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations
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.
Ordinary Shares
An ordinary share of 1 pence in the share capital of the
Company
Rights Issue
The three for ten rights issue of 20,040,653 shares, details of
which are set out in the prospectus of the Company dated 25
April 2012.
SAYE
Save as You Earn Share Scheme
Shareholder
Holder of ordinary shares in Dechra
Otitis Externa
A condition which causes inflammation of the external ear canal
(the tube between the outer ear and the ear drum).
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.
VCA
Veterinary Centres of America
PDRA
Dechra’s Product Development and Regulatory Affairs team
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.
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Dechra Pharmaceuticals PLCAnnual Report and Accounts for the year ended 30 June 2013Shareholder Information Shareholder Information
Financial Calendar
Interim Management Statement
2013 Annual General Meeting
Final Dividend Ex Div Date
Final Dividend Record Date
Final Dividend Payment Date
17 October 2013
17 October 2013
6 November 2013
8 November 2013
22 November 2013
Annual General Meeting
The 2013 Annual General Meeting of the Company will be
held at 4.00 pm on 17 October 2013 at the offices of the
Company at 24 Cheshire Avenue, Cheshire Business Park,
Lostock Gralam, Northwich CW9 7UA. 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.investorcentre.co.uk).
159
Alternatively Computershare can be contacted at:
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
Registrars’ 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 Conduct Authority.
Please note that the price of shares can go down as well as up,
and you are not guaranteed to get back the original amount you
originally invested. If you are in any doubt you should contact an
independent financial adviser.
Warning to Shareholders
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 to be boiler room scams.
These types of calls are typically from overseas based ‘brokers’
who target UK shareholders and are commonly referred to
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.
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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:
❱ check the FCA Register at www.fca.org.uk/firms/systems-
reporting/register to ensure they are authorised;
❱ confirm that the firm is genuine by asking them for their firm
reference number and contact details. Always use the details
on the FCA Register to contact the firm. You should only
access the Register from the FCA website at www.fca.org.uk;
❱ call the FCA Consumer Helpline on 0800 111 6786 if there
are no contact details on the Register or you are told they are
out of date;
❱ make additional checks to confirm that you are dealing with
the firm direct for example checking the details on the firm’s
website with directory enquiries or Companies House;
If you are approached about a share scam you should tell the
FCA by contacting their Consumer Helpline on 0800 111 678. If
you have been offered, bought or sold shares you can use the
share fraud reporting form at http://www.fca.org.uk/consumers/
scams/investment-scams/share-fraud-and-boiler-room-scams/
reporting-form.
If you have already paid money to share fraudsters or suspect
fraud 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;
❱ search the FCA unauthorised firms list; and
❱ notify the Registrar of bank account detail changes in writing
❱
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.
of via their website; and
❱
if you decide to sell or buy shares use only brokers registered
in your own country or the UK.
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
Principal Bankers continued
Barclays Bank PLC
One Snowhill
Snow Hill Queensway
Birmingham
B3 2WN
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
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.
22581.04
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22581-04 22/08/2013 Proof 3 ®
Dechra Pharmaceuticals PLC, 24 Cheshire Avenue, Cheshire Business Park, Lostock Gralam, Northwich, CW9 7UA
T: +44 (0) 1606 814730 F: +44 (0) 1606 814731 E: corporate.enquiries@dechra.com
Registered in England No. 3369634
www.dechra.com
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