Dechra Pharmaceuticals Annual Report 2014

FY2014 Annual Report · Dechra Pharmaceuticals

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ANNUAL REPORT AND ACCOUNTS
for the year ended 30 June 2014

STRENGTHENING OUR
POSITION WITHIN THE GLOBAL
ANIMAL HEALTH MARKET

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Welcome to Dechra Pharmaceuticals PLC

Dechra is an international specialist veterinary pharmaceuticals and related products
business. Our expertise is in the development, manufacture, and sales and
marketing of high quality products exclusively for veterinarians worldwide.

Our Strategy
To continue to develop our position as an international, high margin, cash generative,
specialist veterinary pharmaceuticals and related products business with a clear
focus on key therapeutic areas: dermatology, ophthalmology, equine medicine,
anaesthesia and analgesia, endocrinology, cardiovascular disease, food producing
animal antimicrobials and pet diets through:

Pipeline
Delivery

Portfolio
Focus

Geographical
Expansion

Acquisition

Investor website
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Investor Website
We maintain a corporate website at
www.dechra.com containing a wide
range of information of interest to both
institutional and private investors including:

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• Adipiscing elit. Donec sagittis mauris

• Latest news and press releases

• Annual reports and investor presentations

Getting around the Report
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duis interdum.

Look Out For These Icons

Find out more about a specific topic

View further content on our website:
www.dechra.com

Scan the QR code with your smart
device to visit our website.

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.

23481.04 11 September 2014 10:44 AM Proof 3

Financial Highlights

Total Revenue
£193.6m

2013: £189.2m

CER*: Up 1.6%
£: Up 2.3%

6
.
3
9
1

2
.
9
8
1

3
.
4
2
1

EU Pharma Revenue
£172.4m

2013: £168.7m

CER*: Up 1.0%
£: Up 2.2%

4
.
2
7
1

7
.
8
6
1

8
.
4
0
1

2012 2013 2014

Underlying Operating Profit
£42.2m

2013: £39.1m

Underlying Diluted Earnings per Share
36.32p

2013: 29.07p

CER*: Up 7.2%
£: Up 7.9%

2
.
2
4

1
.
9
3

5
.
5
2

CER*: Up 23.9%
£: Up 24.9%

2
3
.
6
3

7
0
.
9
2

8
2
.
1
2

US Pharma Revenue
£21.2m

2013: £20.5m

CER*: Up 6.8%
£: Up 3.4%

2
.
1
2

5
.
0
6 2
.
9
1

2012 2013 2014

Dividend per Share
15.40p

2013: 14.00p

CER*: Up 10.0%
£: Up 10.0%

0
4
.
5
1

0
0
.
4
1

7
2
.
2
1

2012 2013 2014

* CER is defined as Constant Exchange Rate against prior year, whilst £ is at reported (actual) exchange rate.

A reconciliation to reported measures can be found on page 41.

Operational Highlights

• Approval of a major new equine product, Osphos®, with

• Group revenue up by 1.6% (CER); positive momentum in the

launch targeted for quarter one of the 2015 financial year in
the US and the UK.

second half with revenue growth of 4.0% (CER).

• Completed the acquisition of the trade and assets of PSPC

• Good progress on the pipeline; dossier submitted for approval

Inc., which will expand our US product portfolio.

of a novel canine endocrine product in the US and EU.

• All EU markets are showing growth, with the exception of the

Netherlands.

• Strong performance in the US driven by our key products

growing well and the Ophthalmic range relaunch, partly offset
by continuing supply issues.

• Newly established Italian subsidiary opened in March 2014.

• Significantly improved net debt position of £5.0 million (2013:
£80.8 million) following divestment of the Services Segment.

www.dechra.com Stock code: DPH

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Contents

Q&A with Ian Page and Anne-Francoise Nesmes

Our Marketplace

Chairman’s and Chief Executive Officer’s Statement

Board of Directors

Consolidated Income
Statement

121

Our Strategy

23481.04 11 September 2014 10:44 AM Design A

People, Culture and Values

Consolidated Statement
of Financial Position

123

Overview
IFC Welcome to Dechra Pharmaceuticals PLC

Financial and Operational Highlights

Contents

Strategic Report
Our Business and Strategy

Our Group at a Glance

Chairman’s and Chief Executive
Officer’s Statement

Our Business Model

Our Business Model Explained

Our Marketplace

Our Strategy

How We Develop New Products

Product Pipeline

Key Products and Specialisations

International Footprint

People, Culture and Values

Strategic Report
Our Performance

Financial Review

Key Performance Indicators

How the Business Manages Risk

Q&A with Ian Page,
Chief Executive Officer

Q&A with Anne-Francoise Nesmes,
Chief Financial Officer

Q&A with Tony Griffin,
Managing Director — DVP EU

Q&A with Mike Eldred,
President — DVP US

Strategy in Action: Case Studies

Pipeline Delivery: Osphos

Portfolio Focus: Vetoryl

Geographical Expansion: Italy

Acquisition: PSPC Inc.

Our Governance

Board of Directors

Corporate Governance

Audit Committee Report

Nomination Committee Report

Directors’ Remuneration Report

106 Social, Ethical and Environmental

Responsibilities

112 Directors’ Report – Other Disclosures

115 Statement of Directors’ Responsibilities

Our Financials

118

Independent Auditor’s Report

121 Consolidated Income Statement

122 Consolidated Statement of

Comprehensive Income

123 Consolidated Statement of

Financial Position

124 Consolidated Statement of

Changes in Shareholders’ Equity

125 Consolidated Statement of

Cash Flows

126 Notes to the Consolidated
Financial Statements

170 Company Balance Sheet

171 Reconciliation of Movements in

Shareholders’ Funds

172 Notes to the Company

Financial Statements

Financial History
179
Company Information

180 Glossary

182 Shareholder Information

184 Advisers

Our Business Model

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Strategic Report

23481.04 11 September 2014 10:44 AM Design A

Our Business and Strategy

Our Group at a Glance

Chairman’s and Chief Executive
Officer’s Statement
Our Business Model

Our Business Model Explained

Our Marketplace

Our Strategy

How We Develop New Products

Product Pipeline

Key Products and Specialisations

International Footprint

People, Culture and Values

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Our Group at a Glance

EU Pharmaceuticals
Dechra Veterinary Products EU (DVP EU)

323

Employees

Countries

DVP EU markets and sells Dechra’s veterinary products throughout
Europe and exports to over 40 countries. The business has an
operating board of eight senior managers, and is managed from
Bladel, the Netherlands, Sansaw, UK, and Uldum, Denmark. In
total, DVP EU employs 323 people. Inventory is managed through
a central distribution centre in Uldum, Denmark.

DVP EU has sales operations in 13 countries: Belgium, Denmark,
France, Finland, Germany, Ireland, Italy, the Netherlands, Norway,
Portugal, Spain, Sweden and the UK, each run by a country
manager. DVP EU also exports to other European countries
such as Austria, Czech Republic and Poland, as well as other
territories including Australia, Brazil, the Middle East and the
Far East.

The key products in the DVP EU portfolio are predominantly
Companion Animal and Equine Products; however, with the
acquisition of Eurovet® in 2012, the range expanded into the
food producing animal market.

DVP EU also markets a range of specialist, therapeutic and
maintenance pet diets, branded Specific®.

Dechra Pharmaceuticals Manufacturing (DPM)

328

Employees

Manufacturing Sites

DPM produces the vast majority of Dechra’s pharmaceuticals
and also manufactures for third parties on a contract basis.
The key strategic objectives of manufacturing are to produce
Dechra’s veterinary pharmaceutical product range efficiently and
economically, maintain a robust and reliable supply chain
for the Group and to contribute revenue and profit to the
business through third party manufacturing.

Skipton
The site at Skipton employs 220 people, and offers a
comprehensive range of pharmaceutical manufacturing
and packing services, predominantly for Companion Animal
Products. The site is dual-licensed to produce both veterinary
and human products. The site includes Pharmaceutical
Development, Routine QC (Quality Control) and Stability Testing
and Validation Laboratories.

Bladel
The site at Bladel employs 108 people. The operation
complements the Skipton site, predominantly manufacturing
products for food producing animals in large scale batches. This
site also has an aseptic manufacturing facility to produce sterile
injections, an important competence in DPM’s manufacturing
portfolio. As in Skipton, the site includes QC and Development
Laboratories.

Profit Evolution
for EU

Revenue for the EU
Pharmaceuticals Segment

Manufacturing
Volumes

49.0

45.8

60.0

50.0

40.0

30.0

28.9

20.0

10.0

m
£

t
ﬁ
o
r
P

2012 2013 2014

£172.4m

CAP 46%

Equine 7%

FAP 21%

Diets 16%

Third Party
Manufacturing 10%

Internal 54%

Contract Manufacturing 46%

Find out more about Our Business Model on
page 14.

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

US Pharmaceuticals

Product Development

Employees

Locations

Employees

Locations

Dechra Veterinary Products US (DVP US) markets and sells
Dechra’s veterinary products across the US, the world’s largest
animal health market. The business is strategically located in
Kansas City, at the heart of the ‘Animal Health Corridor’, an
area recognised globally for its concentration of animal health
businesses. DVP US expanded during this financial year with
the acquisition of PSPC Inc.’s manufacturing unit, based in
Melbourne, Florida.

Led by an operating board of four senior managers, DVP US
comprises 54 employees at year end, 28 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 markets Companion Animal and Equine
Products.

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 54 people at 30 June 2014 is 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.

Profit Evolution
for DVP US

6.0

5.9

5.6

m
£

t
ﬁ
o
r
P

6.2

6.1

6.0

5.9

5.8

5.6

5.5

5.4

5.3

Revenue for DVP US

Development Spend

£21.2m

CAP 95%

Equine 5%

8.2

8.0

5.7

m
£
d
n
e
p
s

t
n
e
m
p
o
e
v
e
D

9.0

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

2012 2013 2014

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Strategic Report Our Business and Strategywww.dechra.com Stock code: DPH

Chairman’s and Chief Executive Officer’s Statement

We are pleased to report that the Group has delivered
a solid performance with revenue and operating
margins increasing in the majority of countries in
which we trade. Following a difficult start to the year,
predominantly due to a disappointing performance in
the Netherlands and continuing supply issues in the US,
we experienced positive momentum in the second half
with improved revenue growth of 4.0% compared to a
decline of 0.7% in the first half (at CER). This creates a
strong platform for the start of our new financial year.

Following the divestment of the Services
Segment in August 2013, which created
a pure veterinary pharmaceuticals and
related products business, we have
focused on our four key growth drivers,
namely portfolio focus, pipeline delivery,
geographical expansion and acquisition:

Maximising revenues and profit
(i) Driving revenue growth
Our focus on defined therapeutic
categories and extensive marketing and
sales capabilities have enabled us to
deliver growth in almost all our target
therapeutic sectors:

• we have optimised returns from our

• within our major sector, endocrinology,

existing portfolio by achieving a higher
gross margin;

• our pipeline has delivered a major new
equine product, Osphos, and we have
received regulatory approval to relaunch
our ophthalmic range in the US;

• geographical expansion has continued

with the establishment of a new
subsidiary in Italy, whilst planning is
at an advanced stage to commence
trading in Canada; and

• we have completed a strategic
acquisition in the US, which has
both increased our critical mass and
bolstered our product portfolio.

Portfolio Focus
Our aim is to maximise revenue and
profits from our existing portfolio through
a clear focus and a strong market
position in eight therapeutic sectors:
dermatology, ophthalmology, equine
medicine, anaesthesia and analgesia,
endocrinology, cardiovascular disease,
food producing animal antimicrobials and
pet diets.

Forthyron® and Felimazole® have
seen growth in the EU, whilst in
the US, Vetoryl® and Felimazole
have increased by 24% and 19%
respectively;

• our unique market leading brands
in dermatology, Canaural® and
Malaseb™, continue to expand. The
current strong performance of our
range of medicated shampoos will
be further enhanced by the recent
launch of a new formulation in the US,
MiconaHex+Triz™;

• Cardisure®, our cardiovascular product,

the only branded, differentiated
pimobendan generic within the EU, has
delivered exceptional growth of 32%
across all our key European markets;

• our unique anaesthetic and analgesic
product, Comfortan®, is highly rated
by veterinarians and has grown by
40%. By offering a comprehensive
range of critical care products, we are
successfully retaining market share
despite strong competition; and

Michael Redmond
Non-Executive Chairman

Ian Page
Chief Executive Officer

“We have focused on
our four key growth
drivers, namely portfolio
focus, pipeline delivery,
geographical expansion
and acquisition.’’

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014Strategic Report Our Business and Strategy

We achieved a significant milestone in the year with
the approval of a major new equine product,
branded Osphos

• within ophthalmology, Fucithalmic® Vet
remains the leading first line treatment
for eye infections. We are also pleased
to report that we have successfully
re-launched Vetropolycin® and
Vetropolycin HC within the US market
following the resolution of long term
supply issues.

Our success is driven by our ability to
offer unique and specialised products
that address veterinarians’ requirements.
This, in turn, is supported by clear
branding and marketing messages,
examples of which can be found on
page 29.

(ii) Increasing profits through our own

distribution

We have brought in-house a number
of products that were acquired through
Eurovet, which were historically marketed
through distribution partners, thereby
enabling the Group to retain the full
margin and enhance sales focus.
Contracts with the previous partners
ended in December 2013, allowing us to
market Forthyron in France and Sweden,
and Atipam® and Sedator® in the
Nordics from January 2014.

(iii) Positioning Dechra as a trusted

partner to veterinarians

We provide solutions that add value to
veterinarians by supporting them in their
daily clinical work and keeping them
abreast of developments in our key
therapeutic sectors.

We have updated the Dechra Academy
online tool, a well respected platform
that can be accessed by all veterinarians
and provides certified Continuous
Professional Development in a number
of our therapeutic focus areas. We
have also conducted over 165 evening
meetings in the US, presenting
endocrinology seminars with an average
of 35 veterinarians attending each
session. This demonstrates our ability to
support veterinarians in improving their
understanding of our areas of therapeutic
expertise.

Food Producing Animal Antimicrobials
Our strategic intent is to build critical
mass over the medium to long term;
however, within the financial year, sales in
this sector declined by 7.3% at CER.

This anticipated decline was due to a
very competitive environment and a
global focus on antimicrobial reduction.
The Netherlands has seen the largest
decline and overall is our only European
market not to have shown total growth
within the year. As previously reported,
Dutch veterinarians have reduced
antibiotic usage by over 50% in the last
three years due to government pressure.

Despite the recognised benefits of some
of our water soluble products, we believe
that the Group has further exposure to the
decline in antimicrobials, predominantly in
Germany where we have a strong market
position. In the majority of other markets
in which we trade, we have low market
shares and we anticipate that we should
be able to compensate for any decline in
the market by increasing our volumes.

Pipeline Delivery
Our aim is to deliver the ongoing
development projects and ensure we
continuously refill the pipeline in order to
sustain the flow of new products.

To learn more about Osphos read the case
study on page 58.

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www.dechra.com Stock code: DPH10

Chairman’s and Chief Executive Officer’s Statement continued

Delivering the existing pipeline
We achieved a significant milestone in
April 2014 with the approval in the US
and UK of a major new equine product,
branded Osphos. We also submitted
our EU dossier in July 2014 having
completed the studies to establish a
maximum residue limit for the product.
Osphos (clodronate injection) is used
for the control of the clinical signs
associated with navicular syndrome
in horses. Navicular syndrome occurs
in approximately 6% of horses and
causes pain and lameness in the
forelimbs. Osphos is applied as an
intramuscular injection by the veterinarian
and demonstrates measurable clinical
improvement.

Following the successful registrations
reported last year, we have introduced
the following products:

• Buprenodale® Multidose Injection

launched in 16 European countries
in October 2013. Buprenodale is a
generic Buprenorphine injection which
complements our analgesics portfolio;
and

• Felimazole Tablets 1.25mg launched

in 12 European countries in
September 2013. Felimazole is our
leading endocrinology treatment for
hyperthyroidism in cats. The 1.25mg
dosage strength provides flexibility on
dosing options and was introduced to
differentiate our product from recent
generic competition.

Progress in our US pipeline is important
to continue to deliver organic growth:

• MiconaHex+Triz™ was formulated and
launched as a shampoo, topical spray
and wet wipes to complement our
dermatological range and to compete
with the market leading brand whose
patents have recently expired; and

• Vetropolycin and Vetropolycin HC
have been successfully transferred
into a new manufacturing site with the
necessary variations to the licenses
completed and approved by the
FDA. These ophthalmic products are
unique in being the only veterinary
approved products within their sector
and were relaunched at the end of

our financial year in June 2014. They
were historically sold by the Group
up until January 2010 and achieved
historic peak sales of US$2.2 million
per annum. However, manufacturing
supply issues with a third party
contractor resulted in the product
coming off the market in 2010.

Finally, to support our global expansion
strategy, registrations into new subsidiary
territories were also achieved, for example:

• Felimazole Tablets in South Korea in

October 2013;

• Felimazole Tablets 1.25mg in Canada

in September 2013; and

• Sedator and Atipam in Israel in

February 2014.

Pipeline Progress Update
The following progress has been made
on our pipeline products:

• dossiers have been submitted for both
the US and EU for a new novel canine
endocrinology product following the
completion of a successful clinical trial;

• a pivotal clinical trial is under way for a

canine endocrine opportunity;

• characterisation studies are ongoing
for canine dermatological and canine
ophthalmology products;

• clinical trials for a feline endocrinology

drug were suspended during the
third quarter of our financial year due
to concerns over the formulation.
A revised formulation is now being
assessed for suitability to recommence
the trial;

• a number of generic and range
extension dossiers have been
submitted within the EU and are
currently under review; and

• Osphos has been submitted in

Australia and Canada.

Refilling the pipeline
We are focused on continuously
identifying and evaluating new ideas
and we have screened several new
opportunities within the period. As a
result we have started new development
projects as shown on page 25.

We are of course in the early phases of
these programmes but these new projects
increase the depth of our pipeline.

Additional potential candidates are still
being assessed and we expect further
progress next year.

Geographical Expansion
We aim to expand geographically through
a strategy addressing short, medium
and long term opportunities. In the short
term we are opening subsidiaries where
we have existing critical mass. For the
medium to long term we are developing
our plans to build a presence in new
geographies where there is a recognised
market opportunity.

The start of trading in Italy on 1 March
2014 represented a major milestone for
Dechra as it is the first major territory we
have entered as a greenfield start-up since
the US in 2004. The financial justification
for setting up our own subsidiary is clear:
the value of the margins retained by
selling our own products exceeds the
incremental infrastructure costs, therefore
delivering additional profit to the bottom
line. We appointed an experienced
country manager who led the process
to establish the office and recruited a
skilled team based in Turin. Distribution
agreements with our main Italian
distributors were terminated, with our
contractual obligations ending in February
2014. Since the start of trading under our
own Dechra brand, sales have been in line
with our expectations.

We are following a similar process
in Canada with the appointment of
a country manager who has set up
an office facility in Montreal. We have
two major distributors in Canada; our
contractual obligations with one of
them will terminate in December 2014,
therefore, trading will commence in
January 2015.

We have identified other countries and
conducted thorough market reviews to
ascertain the feasibility of future greenfield
start-ups. We are currently preparing
detailed financial plans with the intention
of trading in another new territory during
the 2016 calendar year.

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014Strategic Report Our Business and Strategy

Our Export department has focused
their commercial efforts on a number of
key territories. The Regulatory team has
provided product registration support.
Our objective is to obtain enough product
registrations to build a critical mass
to support our subsidiary expansion
strategy in future years. To accelerate this
process additional regulatory support is
being recruited.

Acquisition
We aim to identify and complete
acquisitions that will increase
Dechra’s value and improve returns to
shareholders.

In May 2014 we announced the
acquisition of the trade and assets
of PSPC Inc., for a consideration of
US$8.5 million. In addition to the initial
consideration Dechra will pay royalties
on total net sales of 10.0%, which will
increase by 2.5% once annualised sales
exceed US$7.5 million with a further
increase should sales exceed US$12.5
million. Subsequent to the acquisition
of the trade and assets, in June 2014
we acquired PSPC’s facility for a further
US$3.0 million. PSPC’s principal product,
Phycox®, is a nutraceutical with historic
sales of approximately US$4.5 million
per annum. Phycox, a novel and
patented product, competes in the US
veterinary joint healthcare supplement
market, a sector estimated at US$55.0

million. The business has also developed
a new Levothyroxine product which is
in the final phase of development. We
paid a milestone of US$1.5 million for
this product which will be launched in the
first half of our new financial year (ending
June 2015). This product will strengthen
Dechra’s endocrinology therapeutic
sector and contains the same active
principal ingredient as one of our leading
European market brands. You can read
more details on PSPC in the case study
on page 61.

We are evaluating selective acquisition
opportunities. The principal selection
criteria are businesses that:

• have their own intellectual property;

• can introduce new technologies, or
complementary product ranges; or

• would provide entry into new

geographies.

We continue to have a dialogue with a
number of businesses; however, recent
transactions by big pharma in the animal
health sector have created unreasonably
high expectations. Where acquisition is
not possible, we are pursuing strategic
partnerships.

Strategic Enablers
Manufacturing
There have been notable developments
in our manufacturing capabilities
throughout the year. With a focus on
continuous improvement and efficiency
gains, significant investments have
been made in the liquids, creams and
ointments suite, tablet compression
machines and the encapsulation
production line. This investment is
important as we work towards one of our
strategic objectives for manufacturing:
the extension of our FDA compliance into
new dosage forms.

The application to the FDA for the
approval of a new canine endocrinology
product has triggered the FDA inspection
of our sterile injectables facility at Skipton
where the product will be manufactured.
A significant amount of resource and effort
has been put into ensuring that our facility
and procedures will meet the standards
required.

We have also completed the transfer of
Cardisure and Forthyron to our Skipton
facility. These key Companion Animal
Products, which came into the Group
through the Eurovet acquisition, were
previously outsourced. Bringing these
products in-house will improve margins
and provide us with greater flexibility and
control of production.

23481.04 11 September 2014 10:44 AM Design A

www.dechra.com Stock code: DPH12

Chairman’s and Chief Executive Officer’s Statement continued

Logistics
Following a €2 million investment,
our new enlarged central European
distribution centre in Uldum, Denmark
was opened on 26 November 2013. The
new facility has more than doubled our
scale to 7,400 m2 and has tripled our
pallet handling capacity to 10,500. This
facility:

• creates a logistics hub that provides
for all our current and medium term
distribution requirements;

• almost entirely eliminates third party
storage and handling costs; and

• improves logistics efficiency.

In the second half of the financial year
we started an exercise to transfer our
Specific pet diets to a new external third
party manufacturing partner to improve
overall delivery efficiency and product
quality. Following an extensive search
and due diligence, we identified a new
supplier and started to transfer products
into the new manufacturer. To date we
have transferred over 50% of our volume
requirements and are already seeing an
improvement in quality, palatability and
on time delivery.

We anticipate the transfer will be
completed by the end of December
2014, at which time we intend to re-
position and re-market this important
range of products.

Information Technology
Further progress has been made
with the Oracle ERP implementation.
Our manufacturing facility in Bladel
successfully went live on the platform
in November 2013. After a full review
of the project plan to ensure that the
Oracle implementation would support our
strategic objectives, we are now focusing
on the next phase which includes the
Group financial consolidation and the
set-up of our European subsidiaries.

Within the year we have successfully
standardised all critical non ERP software
and hardware use across the Group,
thereby reducing costs and improving
internal systems. We have also improved
communication capabilities by completing
the roll out of a new secure private network
across the majority of the business units.

Given the increasing importance of
digital technologies, we have worked to
update our customer-facing interfaces
such as the Dechra Veterinary Products

website and the Dechra Academy. The
Dechra Veterinary Products website
has been completely rewritten utilising
the latest software capabilities with an
optimised user interface pulling data from
a newly established single database of
all the Group’s products’ technical and
marketing information. Furthermore, the
Dechra Academy, with online learning
courses for our veterinary customers, has
been redeveloped to enhance its content
and functionality. The site, www.dechra.
co.uk, was launched in the UK in
July 2014 and will be translated and
rolled out across all our other trading
subsidiaries throughout the remainder of
the 2014 calendar year.

People
Senior Executive Team
Following the disposal of the Services
Segment a new Senior Executive Team
(SET) was established. The principal
objective of the SET is to develop and
implement the Group’s strategy. The
team comprises the Executive Directors
along with the Company Secretary,
US and Manufacturing Managing
Directors and the heads of Product
Development and Regulatory Affairs,
HR and IT.

We are excited about the imminent launch
of Osphos and by the potential growth
opportunities for our recent acquisition PSPC
Inc.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

23481.04 11 September 2014 10:44 AM Design A

Strategic Report Our Business and Strategy

Management and Staff
A new Group HR Director, Katy Clough,
joined us at the end of April 2014.
Working closely with senior managers and
the HR team, she has developed a people
plan that supports our strategic aims and
continues to build on the strong Values
embedded across the Group. Dechra
now employs 775 people in over 14
countries and we expect the headcount
to increase during the next financial
year. Our diverse and talented workforce
has been key to our success and we
will continue to leverage this advantage
through succession planning and ongoing
development programmes throughout the
2015 financial year.

Board Changes
At the Company’s Annual General
Meeting in October 2013 Neil Warner
stepped down as Senior Independent
Non-Executive Director and Chairman
of the Audit Committee. Upon his
retirement, Ishbel Macpherson was
appointed as Senior Independent
Non-Executive Director and Julian Heslop
stepped into Neil’s role as Chairman of
the Audit Committee. In January 2014
Ed Torr stepped down as an Executive
Director from the main Board following

17 years with the business. Ed has
entered into a Consultancy Agreement
with the Company to work on specific
projects as and when required. We would
like to express our thanks to both Neil
and Ed for the huge contributions they
have made to Dechra.

Dividend
The Board is proposing a final dividend
of 10.65 pence per share (2013: 9.66
pence). Added to the interim dividend
of 4.75 pence per share, this brings the
total dividend per share for the financial
year ended June 2014 to 15.40 pence,
representing 10% growth over the
previous year.

Subject to shareholder approval at the
Annual General Meeting to be held on
24 October 2014, the final dividend
will be paid on 21 November 2014 to
shareholders on the Register at
7 November 2014. The shares will become
ex-dividend on 6 November 2014.

Prospects
Current trading is in line with
management expectations and is
consistent, at constant exchange rates,
with the growth seen in the second half
of our prior financial year.

Looking ahead, we are confident that the
execution of our strategy will continue to
deliver growth. We have a strong balance
sheet which allows us to make strategic
investments and deliver new products
from our pipeline.

We are excited about the imminent
launch of Osphos and by the potential
growth opportunities for our recent
acquisition PSPC Inc. These factors,
together with revenue and margin growth
from geographical expansion in Italy and
Canada, and the delivery of further new
products, give the Board confidence in
the Group’s future prospects.

The Strategic Report has been approved
by the Board and signed on its behalf by:

Michael Redmond
Non-Executive Chairman
8 September 2014

Ian Page
Chief Executive Officer
8 September 2014

www.dechra.com Stock code: DPH

23481.04 11 September 2014 10:44 AM Design A

Our Business Model

Dechra has a clear business model for delivering value to all our stakeholders:

• Our market knowledge, regulatory expertise, strong reputation and management experience help us identify potential product

development targets, in-licensing deals and acquisition opportunities.

• Our skilled Product Development and Regulatory team develops new products to meet customers’ needs and achieves

international approvals and registrations.

• Manufacturing, which plays an integral part in the development of the formulation and dosage form, manufactures products as

effectively and efficiently as possible to the highest standards of quality.

• 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.

• This integrated approach of development, manufacturing and sales and marketing creates value for the business

and its stakeholders.

Product Development
& Regulatory Affairs

Integrated
Approach

Manufacturing

In-house

Outsourced

Strong Dechra
Brand

e
t
a
v
o
n
n

e
r
u
t
c
a
f
u
n
a
M

e
s

i
l

a
c
r
e
m
m
o
C

DVP EU

DVP US

European
Veterinarians
and Wholesalers

Export
Partners

US
Veterinarians
and Distributors

Export
Partners

23481.04 11 September 2014 10:44 AM Design A

C
R
E
A
T
N
G
V
A
L
U
E

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
Strategic Report Our Business and Strategy

Our Business Model Explained

Product Development and Regulatory Affairs
Our integrated and entrepreneurial approach to product
development delivers new products successfully and efficiently
in the shortest practical time frame.

A Skilled Team
The PDRA team includes skilled people
with expertise and the experience to
navigate the hurdles of the development
process. Across the four locations,
project teams operate to manage 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.

Delivering the Pipeline
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 and competitive advantage,
focusing on novel therapies to treat unmet
needs with intellectual property protection.
Our approach aims to ensure we create
sustainable growth throughout our targeted
global markets.

Find out more about Product
Pipeline on page 25.

Manufacturing
Our manufacturing facilities provide a wide range of services
which delivers the flexibility that the veterinary market requires. It
also provides a complete range of products and services (i.e. a
one-stop shop) for its external customers.

One-Stop Shop
DPM offers an end-to-end service:
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. Our objective is to deliver
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 low, medium and high
volumes of almost all dosage forms
to high quality and safety standards.
We have great flexibility in producing
to demand. Dosage forms include:
tablets, capsules, creams, ointments,
gels, sterile injectables, low and high
volume powders and pre-medicated
feeds. We can pack into sachets, tubs,
bags, blister packs, 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 batch sizes. Relative to human
pharmaceuticals, veterinary batch runs
are often very small. A number of our
licensed branded minor products 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.

23481.04 11 September 2014 10:44 AM Design A

Strategic Report Our Business and Strategy

Routes to Market
Our customers are principally
veterinarians; however, in most
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.

Routes to 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.

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.

Regulatory Environment
Our Regulatory team
understands the different
regulatory environments in
which we operate, namely
the US, Europe and all other
international regulators. The
regulatory hurdles are increasing
and we aim to ensure that
our staff are updated and
have detailed knowledge
of current legislation. We
strive to anticipate regulatory
requirements to avoid delays to
product launches or disruption
to production.

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,
contract manufacturing adds
value by making full use
of our unique capabilities
and our installed capacity.
Currently approximately 46%
of output by volume is contract
manufacturing.

The external offering includes
product development,
formulation, trial manufacturing,
validation, production and
packaging for both human and
veterinary pharmaceuticals.

DVP EU
Across all territories
DVP EU is committed to
marketing new products
and services that support
the work of veterinarians.

We are 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.

Our Expertise
We have identified eight core
therapeutic sectors where we
leverage our expertise: dermatology,
ophthalmology, equine medicine,
anaesthesia and analgesia,
endocrinology, cardiovascular
disease, food producing animal
antimicrobials and pet diets.

As well as pharmaceuticals and related
products, DVP EU sells specialist,
therapeutic and maintenance pet diets
branded, Specific.

In order to forge relationships with
customers, technical meetings
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.

DVP US
DVP US markets Dechra
products for the companion
animal and equine segments
that solve clinical problems
and help veterinarians treat
medical conditions.

Our Expertise
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.

23481.04 11 September 2014 10:44 AM Design A

Creating Value by:

Clear Strategic Focus
We have a clearly defined strategy focused on four main
drivers: portfolio focus, geographical expansion, product
pipeline delivery and targeted acquisition.

Focused Portfolio
We have a clear portfolio focus and hold strong market
positions in a number of our key therapeutic sectors
such as endocrinology, dermatology, anaesthesia and
analgesics.

Development Pipeline
We have a strong pipeline of novel pharmaceuticals,
generic pharmaceuticals and specialist pet diets and
a track record of pipeline delivery. We are proactive in
recognising and bringing new development opportunities
into the portfolio.

Recognised Brand
Dechra is recognised today as a major global animal
healthcare company with a strong and growing
reputation as a provider of high quality, specialist
veterinary medicines and related products.

Entrepreneurial and Innovative
Dechra encourages an entrepreneurial and innovative
approach from its management team which is
underpinned by appropriate internal controls and
robust systems and procedures.

Expanding International Focus
In line with our strategy we are focused on extending the
Dechra brand into new countries. We are also increasing
distribution of our products on a global basis with
selected partners, currently into over 40 countries.

Manufacturing Flexibility
Our manufacturing sites offer a wide range of dosage
forms and packaging capabilities which can be
produced in small to large scale production batches.
This flexibility is a key requirement in production of our
varied product portfolio.

People and Expertise
We have attracted and retained a qualified and skilled
workforce throughout the organisation. This stable and
motivated team has many years’ experience within the
markets we serve. Our people strategy is underpinned
by the Dechra Values.

Growing Animal Health Market
The global animal health market continues to
demonstrate growth. This is driven in developed
countries by increased medical and surgical capabilities
for companion animals. In developing countries the
increased demand for high quality meat protein drives
the FAP market.

Strong Balance Sheet
The Group maintains a prudent management of its
balance sheet and achieves strong cash flows. This
position provides flexibility to invest in drivers for long
term growth.

23481.04 11 September 2014 10:44 AM Design A

“The growth in Food

producing Animal

Products has been driven

by the rising demand

for animal protein due

to the increase in the

global population and the

need for greater farming

productivity.’’

Creating Value by:

Our Marketplace

$23bn

The global animal health market
was valued at $23 billion in 2013,
a growth of 3.6% over 2012.

“The growth in Food
producing Animal
Products has been driven
by the rising demand
for animal protein due
to the increase in the
global population and the
need for greater farming
productivity.’’

The Global Market

The global animal health market was
valued at $23 billion in 2013, a growth of
3.6% over 2012 (at constant currency).
The market is made up of two distinct
segments, Food producing Animal
Products (FAP) (i.e. livestock) and
Companion Animal Products (CAP)
(i.e. pets), which have different financial
profiles.

The FAP market is generally based on
large volumes with pressure on margins
due to high levels of competition,
whereas the CAP market delivers
higher added value especially with
specialist or niche products. Animal
health customers’ needs vary across the
world due to factors such as standards
of living, disposable income, cultural
differences (including dietary preferences
for animal protein), pet ownership,
pet care standards and veterinarians’
capabilities.

Food Producing Animal
Products Market

Market Size
This segment covers products or
services targeted at reducing the
incidence and spread of disease in
livestock. The global medicines and
vaccines market for FAP grew by an
estimated 3.7% to $13.6 billion in 2013,
representing 59% of the overall market.

Growth Opportunities
The growth in this segment has been
driven by the rising demand for animal
protein due to the increase in the global
population and the need for greater
farming productivity to maximise the use
of limited agricultural resources.

There is, however, downward pressure in
this sector in recent years as regulators
have increasingly focused on the use
of antibiotics due to the potential risk
of cross-over resistance in humans.
In particular, the EU has taken actions
to reduce the intensive use of broad
spectrum antibiotics in farm animals.
The US also issued guidance in April 2012
to phase out the use of antibiotics as
growth promoters. In the rest of the world,
the focus remains on increasing food
safety, meat quality and improving farming
efficiency.

Customers
The primary customers are veterinarians,
farmers and other major livestock
integrators. Products are sold either
directly to large integrators or through
wholesalers and distributors.

Dechra in the Marketplace
FAP represented 18% of our turnover with
sales only in EU and emerging markets.
Our range of anti-infectives and water
soluble powders, targeted mainly for
swine and poultry, supports the prudent
use of antibiotics.

23481.04 11 September 2014 10:44 AM Design A

Our key account managers have a
strong knowledge of the market and our
customers. Our existing business is small
but represents a good base from which
we can either increase market share or
enter into new territories.

Companion Animal Products
Market

Market Size
The global medicines and vaccines
market for CAP was estimated at
$9.4 billion in 2013, a growth of
3.5%. CAP represents 41% of the
overall market. Product categories in
this market are anti-parasiticides (i.e.
products against ticks, fleas, worms),
vaccines, anti-microbials and other
pharmaceuticals.

Growth Opportunities
Spending on companion animals is
growing globally and pet ownership
is increasing in both developed and
emerging markets. Advances in
diagnostics, greater emphasis on
prevention and wellness by veterinarians,
improved nutrition and the increase
in treatment of chronic diseases
contribute to an ageing pet population
which consumes more medication and
veterinary services.

Customers
Veterinarians prescribe and generally
dispense drugs themselves. In the
US alone, approximately two-thirds of
companion animal health prescriptions
are fulfilled by veterinarians in their
practices. Products are sold to
veterinarians through wholesalers and
distributors.

Dechra in the Marketplace
We offer a broad range of specialised
pharmaceutical products and do not
compete in the anti-parasiticides and
vaccines markets which are dominated
by big pharma. We continue to grow
our established brands through frequent
interaction with our customers,
up-to-date marketing campaigns
and technical support. We are also
positioning ourselves to capture the
growth opportunities in emerging
markets where pet ownership is
increasing.

Geographical Split

North America and Western Europe
account for 60% of global animal health
sales. However, other regions are
growing rapidly, notably:

• growth in Eastern Europe is fuelled by
the increase in demand for meat, in
particular poultry; and

• sales in the rest of the world continue
to increase due to economic growth
and the increased use of vaccines.

Dechra’s International Footprint
Dechra competes in the two largest
animal health markets: over 83% of our
sales are in Europe, 11% in the US with
6% being in the Rest of the World.

We have a clear strategy to expand our
geographical footprint either organically
or through acquisitions.

Strategic Report Our Business and Strategy

Sales

22.5

9.2

9.4

8.9

20.2

8.3

13.3

13.6

13.1

11.9

n
b
$
S
U
s
e
a
S

25.0

20.0

15.0

10.0

5.0

0.0

11 12

Livestock

Companion Animal

Source: Vetnosis, Company Reports

Regional Analysis

North America 34%

Eastern Europe 5%

Latin America 13%

Far East 19%

Western Europe 26%

Rest of the World 3%

Source: Vetnosis, Company Reports

$9.4bn

The global medicines and
vaccines market for CAP was
estimated at $9.4 billion in 2013.

60%

North America and Western
Europe account for 60% of
total animal health sales.

23481.04 11 September 2014 10:44 AM Design A

Strategic Report Our Business and Strategywww.dechra.com Stock code: DPH

Our Strategy

Our strategy is to develop our position as an international, high margin, cash generative,
specialist veterinary pharmaceuticals and related products business with a clear focus on
key therapeutic areas: dermatology, ophthalmology, equine medicine, anaesthesia and
analgesia, endocrinology, cardiovascular disease, food producing animal antimicrobials
and pet diets through:

Generate long term value for shareholders

International specialist veterinary pharmaceuticals
& related products business

Strategic Pillars

Pipeline Delivery

Portfolio Focus

Geographical
Expansion

Acquisition

Strategic Enablers

Manufacturing

Technology

People

Dechra Values

Dedication

Enjoyment

Courage

Honesty

Relationships

Ambition

23481.04 11 September 2014 10:44 AM Design A

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201421

Pipeline Delivery

Portfolio Focus

Strategic Priorities
• Deliver existing pipeline projects to schedule.

• Work effectively with regulators.

• Continuously refill the pipeline by identifying and evaluating

new ideas.

Strategy Description
As a pure pharma player, we must deliver our pipeline on time,
at the right costs and with the expected returns. As well as
progressing our existing pipeline it is important that we refill the
pipeline so that we get a constant flow of novel products in
future years.

Objective
We want to innovate and generate sustainable profit growth
through our pipeline delivery.

Focus in 2015 Financial Year
• Identify new development candidates.

• Achieve at least one new product approval.

• Launch Osphos successfully in the US and UK.

Strategic Priorities
• Maximise revenue and profit from existing CAP portfolio by

focusing on clearly defined therapeutic sectors.
• Develop and grow critical mass of FAP portfolio.

Strategy Description
We are a specialist veterinary pharmaceuticals business focused
on Companion Animal, Equine and Food producing Animal
Products. Our portfolio is well positioned in our therapeutic focus
sectors to ensure we maximise returns. We have recognised that
we are underweight in FAP which represents 18% of our revenue.
However, there is a clear opportunity to gain critical mass in FAP by
extending our geographical reach.

Objective
We want to maintain market leadership in defined therapeutic
areas and improve returns through our portfolio focus.

Focus in 2015 Financial Year
• Launch the new Vetoryl marketing campaign to grow sales.

• Promote the new Dechra Academy to support veterinarians.

• Increase market share in equine and dermatology sectors.

Geographical Expansion

Acquisition

Strategic Priorities
• Grow the US business and invest steadily in the

infrastructure as pipeline delivers.

Strategic Priorities
• Target strategic acquisitions that will expand our

geographical footprint and/or enhance product portfolio.

• Short term: establish subsidiaries in new territories with

existing critical mass.

• Medium term: build critical mass or enter via acquisition.

• Long term: build a presence, initially through partnerships,

where barriers to entry are high.

Strategy Description
The animal health market in emerging countries is growing rapidly
due to the demand for high quality protein and the increase in pet
ownership. We have identified a number of markets that present
both volume and profit opportunities in the medium to long term
and we are considering various entry strategies. In the US, we will
grow the business organically in the short term with the launch of
new products, including Osphos.

Objective
We want to seize growth opportunities in new markets through
geographical expansion.

Focus in 2015 Financial Year
• Commence trading in Canada.

• Plan further new territory launch.

• Strengthen distributor relationships in identified growth markets.

Strategy Description
While our strategy aims to deliver organic growth, acquisitions
could accelerate our expansion by providing entry into new
geographies, enhancing our portfolio or giving access to new
technologies. We have established well-defined criteria through
which potential acquisition targets can be screened.

Objective
We want to deliver incremental sales and earnings growth
through strategic acquisitions that enhance shareholder value.

Focus in 2015 Financial Year
• Continue to develop relationships with potential targets.

• Improve knowledge of animal health markets in emerging

markets.

23481.04 11 September 2014 10:44 AM Design A

Strategic Report Our Business and Strategywww.dechra.com Stock code: DPH22

Our Strategy continued

Manufacturing

People

Strategic Enablers
• Maintain efficient and effective in-house operations.
• Retain competitive advantage through flexible manufacturing

capabilities (wide range of scale and dosage forms).

• Extend FDA approval to new dosage forms.
• Improve supply chain capabilities.

Strategic Enablers
• Strengthen the Dechra culture and ensure our Values
encompass our business ethics and our standards.

• Attract, retain and develop talent.
• Develop effective succession plans to ensure business

continuity.

Enablers Description
Our people strategy underpins everything we do in the
business. Following the appointment of a new Group HR
Director, we have a well-defined plan to develop and build
talent, develop people and strengthen the Dechra culture.

Objective
We want to continue to be a high performing business driven by
highly skilled and committed teams.

Focus in 2015 Financial Year
• Develop the succession plans for the leadership team and the

next tier of management.

• Continue roll out of Performance Development Review.

Find out more about People, Culture and
Values on pages 32 to 34.

View further content on our website:
www.dechra.com

Enablers Description
Our current in-house manufacturing capabilities are extensive.
Our flexibility in product dosage forms and scale capabilities
combined with our ability to prioritise the supply of our own
products make manufacturing integral to the Group strategy.
We are focused on running the operations efficiently and to high
standards to maintain or improve gross margins.

Objective
We want to maintain a flexible manufacturing capability to
deliver small volumes at a competitive price and at the right
quality.

Focus in 2015 Financial Year
• Improve supply chain effectiveness.
• Continue to drive quality and efficiency.
• Achieve FDA approval for new pipeline products.

Technology

Strategic Enablers
• Improve operating efficiency and processes through the

Group-wide implementation of Oracle and other applicable
systems.

• Maximise and exploit new technologies wherever possible.

Enablers Description
We are implementing a strong technology platform to ensure
we operate efficiently and are exploring how IT can provide a
source of competitive advantage.

Objective
We want our IT strategy to improve our communication,
financial and operational capabilities.

Focus in 2015 Financial Year
• Continue roll out of Oracle with Group Finance consolidation

and DVP EU implementation.

23481.04 11 September 2014 10:44 AM Design A

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
Strategic Report Our Business and Strategy
Strategic Report Our Business and Strategy

“From beginning to end,
the development process
can take between three
and ten years before Launch.’’

How We Develop New Products

Although some products may have a slightly different
path, most novel and generic products follow a fairly
standard process containing five phases, defined as:
Exploratory, Pre-Clinical, Clinical, File/Submission and
Launch.

Dechra employs a structured process in
its development pipeline while retaining
an opportunistic and entrepreneurial
approach. Focus is given to the Group’s
therapeutic sectors. New development
opportunities and in-license opportunities
are evaluated for strategic fit within these
sectors; therapeutics outside of the key
areas are considered for inclusion in the
pipeline if they are novel and address
medical needs in the veterinary market.

A product’s return on investment can
vary: novel developments tend to have
a medium to long term realisation with
attractive high value returns; generic
developments generally have shorter
timescales with returns dependent
upon the number of other entrants
and our speed to market relative to
the competition. Dechra’s current
development pipeline is a mix of short,
medium and long term opportunities.

Generating Ideas
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.

Making the Chemistry Work
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 bioequivalence
studies.

Entering Clinical Trials
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
bioequivalence 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
File/Submission.

From beginning to end, the development
process can take between three and ten
years before Launch.

23481.04 11 September 2014 10:44 AM Design A

www.dechra.com Stock code: DPH24

How We Develop New Products continued

3–10 years

Go/
No Go

Exploratory

Pre-Clinical
Dose/formulation
Selection

Clinical

File

Launch

Indication(s) determined

CAP

Active Pharmaceutical
Ingredient (API)
manufacturer selected

Novel

(Start from scratch)

Formulation

CTR

Dose Titration

Preliminary Safety study

3 Pilot

batches

CTR

Safety
Efﬁcacy
Residues
Environmental
Risk Assessment/
Ecotoxicology
User Safety
Studies

File

Launch

CAP

FAP

Generic

(Copycat product)

Formulation

2 Pilot

batches

Bioequivalence
Study/Studies
or waiver

File

Launch

CAP Companion Animal Product

FAP Food Producing Animal

CTR Clinical Trials Required

New Formulation of products with existing
maximum residue limit (MRL)

Laboratory Studies

Chemistry
Drives timing,
needs stable
formulation

Manufacturing site
selected (finished
products)

Commercially —
Is there a customer
need?

Is it worth taking
the development idea

forward?

Find out more about Our Business Model
on page 14.

23481.04 11 September 2014 10:44 AM Design A

Product Pipeline

A key strategic priority for the Group is the delivery and strength of the pipeline.
The following chart outlines the timeline, status and progress of the major projects.
Collectively the pipeline is expected to deliver in excess of £40 million annual sales
assuming all products reach maturity.

First
Expected
Launch(1)

Therapeutic Category Species

Territory

Manufacturing

Pre-Clinical

Clinical

File

2014

Lameness(2)

2015

2016

Anti-microbials

Endocrinology(3)

Anti-microbials

Endocrinology

Anti-microbials

Endocrinology(3)

Anti-microbials

2017

Dermatology

Anti-microbials

Ophthalmology

Anti-microbials

Cardiovascular

Endocrinology

Dermatology

2018+

Horse

Several

Dogs

Poultry

Dogs

Several

Dogs

Cattle

Dogs

Poultry

Dogs

Poultry

Dogs

Cats

Dogs

International

Outsourced

International

In-house

Outsourced

In-house

International

Outsourced

In-house

International

Outsourced

International

In-house

Key: Previous Year Current Year New
(1) Calendar year

(2) Osphos

(3) Identical product with first launch in EU and subsequent launch in US

The first expected launch date is a management estimate that may not be met due to regulatory, manufacturing or other issues.

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Strategic Report Our Business and Strategy

Key Products and Specialisations

Dechra’s product range is focused on several major therapeutic categories,
predominantly for companion animals. The majority of key products are novel or
have clear marketing advantages over competitor products. Several products have
market leading positions in a number of major territories.

Dermatology and Care

Ophthalmology

Topical antimicrobial products are important to treat skin and
ear infections. We have a wide range of products that can be
used alone or as an adjuvant therapy.

Ophthalmology is an area of veterinary medicine where
we have a number of leading products including licensed
pharmaceuticals and unlicensed care products.

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®.

Fucithalmic Vet, licensed in 1993, is the only 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.

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 US. The marketing rights
for this product were acquired in May 2007. This product is
currently unavailable due to third party supply issues.

DermaPet® 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, Malaket and
MiconaHex+Triz.

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.

Why we focus on this niche area:
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 less frequently. Dechra’s product portfolio, with
its range of licensed and non-licensed topical products, is well
positioned for this approach.

Additionally, we market a range of ophthalmic products in the
US, the majority being the only veterinary licensed products in
the market. Vetropolycin and Vetropolycin HC were relaunched
at the end of our financial year after successfully completing the
transfer to a new manufacturing site.

Why we focus on this niche area:
Eye conditions are very common and can result in severe
complications. Recent evidence suggests that 7% of kittens,
2% to 3% of adult cats and 2% to 4% of dogs are presented to
veterinarians with ocular inflammation.

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.

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27

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.

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.

Why we focus on this niche area:
This is a sector in which few animal health companies specialise.
We target both performance horses and hobby horses and
have developed a comprehensive range of medically necessary
products that give us access to equine veterinarians.

Anaesthesia and Analgesia

Dechra has a wide range of products that support emergency
medicine, pain relief and sedation.

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.

Anaesthesia and analgesia are major sub-groups of critical care.
Dechra 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 cats, and Fentadon®, the only licensed
fentanyl for intra-operative analgesia and post-operative pain
management.

Sedator is licensed for sedation, analgesia and anaesthetic
pre-medication and contains the active ingredient medetomidine
hydrochloride.

Atipam is a selective a2-antagonist receptor which reverses the
sedative effects of medetomidine and dexmedetomidine in cats
and dogs.

Other products in the range include Buprenodale
(buprenorphine), Ketamin (ketamine hydrochloride) and Plegicil
(acepromazine maleate). We have also recently acquired
Phycox, a pain management nutraceutical.

Why we focus on this niche area:
Perioperative sedation and pain management are challenging
but critical for all patients and form a fundamental part of animal
welfare. Offering a comprehensive range of analgesic and
anaesthetic products allows the veterinarians to adapt their
protocols to the individual pet based on their level of discomfort,
whilst providing flexible anaesthetic procedures.

Endocrinology

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.

Vetoryl is a novel product for the treatment of Cushing’s
syndrome (excess cortisol or hyperadrenocorticism) in dogs.
It is estimated that about 0.2% of dogs suffer from Cushing’s
disease. It is marketed internationally and is the only recognised
licensed efficacious veterinary product for the treatment of
Cushing’s syndrome around the world.

Forthyron is licensed to treat the most widely recognised
endocrine disorder, canine hypothyroidism. It is the only
mutually recognised levothyroxine treatment in Europe and is
marketed in all the major European countries. It is estimated
that about 0.6% of dogs suffer from this disorder.

Felimazole was the first veterinary licensed product for
the treatment of feline hyperthyroidism, which occurs in
approximately 0.5% of cats. 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.

Why we focus on this niche area:
Endocrine disease stems from imbalance in hormone levels,
affecting cats or dogs in many ways, often requiring lifetime
medical attention. Many endocrine disorders are fatal if not
diagnosed and treated. Veterinarians place a high importance
on quality of life and often see endocrinology as a challenging
and interesting discipline.

Generics

Several generic products are sold within the EU; we are in the
process of in-licensing and registering additional products to
expand our branded generic range within this territory.

Why we focus on this niche area:
We develop generics to provide comprehensive ranges of
products in our key therapeutic sectors, where possible
providing our veterinary customers with complete solutions.

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Key Products and Specialisations continued

Cardiovascular Disease

This was 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.

Why we focus on this niche area:
As pets increasingly live longer, managing heart disease efficiently
is critical. This is our only major product in this category.

Food Producing Animal Antimicrobials

most recently in 2012, this highly soluble liquid is now marketed
in 15 EU countries. The active ingredients are sulphamethoxasol
and trimethoprim, a proven synergistic combination for
antimicrobial effectiveness against E.coli in broilers and App in
swine.

Cyclospray® is the leading antibiotic spray treatment in Europe
for claw/hoof infections, interdigital dermatitis (foot rot) in sheep
and digital dermatitis in cattle. It is widely used in the prevention
of infection of superficial traumatic or surgical wounds in
cattle, sheep and pigs. Cyclospray has been marketed since
2000 in 12 European countries. The active ingredient is
chlortetracycline.

Solacyl® is a non-steroidal anti-inflammatory drug containing
sodium salicylete. It is an effective tool to fight fever in early
disease stages.

Why we focus on this niche area:
FAP is the largest segment of the global animal health market,
accounting for almost 60% of sales. While there is pressure
on antibiotic prescribing in the EU and the US, the increased
demand for high quality protein in the rest of the world
continues to drive the demand for antibiotics.

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
solution 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. It is highly efficient
and often used in treating Dysbacteriosis in broilers and S.suis
in pigs, two diseases with high incidence levels.

Soludox®, marketed in Benelux since 2002, is a highly soluble
antibiotic powder for administration via drinking water and is
currently sold in 16 European countries as a result of approval,
in 2010, for swine and chickens. The active ingredient is
doxycycline and its main indication is for respiratory disease
in pigs.

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 approvals in 2000, 2009 and

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
62% of overall diet sales, provide optimum levels of nutrition in
areas such as diabetes, arthritis, urinary, kidney, liver and heart
problems. Life stage or maintenance diets, which represent
approximately 38% of diet sales, provide premium quality daily
nutrition for healthy dogs and cats.

Why we focus on this niche area:
Good quality nutrition leads to good quality of life for pets and
veterinarians are best placed to offer nutritional advice. Through
having a range of nutritional products, along with licensed
and non-licensed medicines, we are able to offer more holistic
solutions to the veterinarians to manage their patients in the
most appropriate manner.

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Strategic Report Our Business and Strategy30

International Footprint

We currently have our own sales and marketing organisations in 13 Western
European countries and in the US. 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 returns for the Group. The map below
shows the key products in our focused therapeutic areas in territories where we have
sales and marketing organisations.

01. United Kingdom

Key Products

Endocrinology

Dermatology

Ophthalmology

Equine

Cardiovascular Disease

Anaesthesia and Analgesia

Food producing Animal Products

Nutrition

02. Ireland

Endocrinology

Dermatology

Ophthalmology

Equine

Cardiovascular Disease

Anaesthesia and Analgesia

Food producing Animal Products

Nutrition

Key Products

03. United States

Key Products

Endocrinology

Dermatology

Ophthalmology

Equine

Nutrition

04. Portugal

Endocrinology

Dermatology

Ophthalmology

Equine

Cardiovascular Disease

Anaesthesia and Analgesia

Food producing Animal Products

Nutrition

Key Products

Country Key

Product Key

European Pharmaceuticals

Complete product range

US Pharmaceuticals

Some key products not registered

Export

Not yet active

On track to open our Canadian
subsidiary due to start trading
in January 2015

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201431

05. Norway

Endocrinology

Dermatology

Ophthalmology

Equine

Cardiovascular

Key Products

06. Sweden

Key Products

07. Finland

Key Products

Endocrinology

Dermatology

Ophthalmology

Equine

Cardiovascular

Endocrinology

Dermatology

Ophthalmology

Equine

Cardiovascular

Anaesthesia and Analgesia

Food producing Animal Products

Nutrition

New Sales and Marketing and
Technical Support organisation
was established in Italy in
March 2014

Key Products

08. Denmark

Endocrinology

Dermatology

Ophthalmology

Equine

Cardiovascular Disease

Anaesthesia and Analgesia

Food producing Animal Products

Nutrition

09. Netherlands

Key Products

Endocrinology

Dermatology

Ophthalmology

Equine

Cardiovascular Disease

Anaesthesia and Analgesia

Food producing Animal Products

Nutrition

10. Belgium

Endocrinology

Dermatology

Ophthalmology

Equine

Cardiovascular Disease

Anaesthesia and Analgesia

Food producing Animal Products

Nutrition

Key Products

11. Spain

Endocrinology

Dermatology

Ophthalmology

Equine

Key Products

12. France

Key Products

13. Germany

Key Products

Endocrinology

Dermatology

Ophthalmology

Equine

Endocrinology

Dermatology

Ophthalmology

Equine

Cardiovascular Disease

Anaesthesia and Analgesia

Cardiovascular Disease

Anaesthesia and Analgesia

Cardiovascular Disease

Anaesthesia and Analgesia

Food producing Animal Products

Nutrition

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People, Culture and Values

Our People
It is due to the hard work, commitment and talent of Dechra’s employees that the Group
continues to grow. Key to enabling our people to develop and perform is the leadership of
the Group.

Following the divestment of the Services Segment on 16 August 2013, the SET was
established to lead the development and implementation of the business strategy.
Reporting to Ian Page, Chief Executive Officer, the team comprises Anne-Francoise
Nesmes, Chief Financial Officer, Tony Griffin, Managing Director DVP EU, all of whom
are also part of the main Board, joined by Zoe Goulding, Company Secretary, Susan
Longhofer, Group Director, Product Development and Regulatory Affairs, Mike Eldred,
President North America, Mike Annice, Managing Director, Manufacturing, Allen Mellor,
Group IT Director, and Katy Clough, Group HR Director.

Susan Longhofer, Group Director,
Product Development and Regulatory
Affairs
Susan joined Dechra in 2005. A
veterinarian with over 25 years’
experience in the industry, she leads
a team of over 50 staff around the
globe responsible for a research
and development programme that
ensures we deliver our pipeline of
new international product approvals.
Balancing the strategic needs of diverse
parts of the world, Susan is well versed
in leading multi-national teams. Prior to
joining Dechra, Susan worked for Virbac
Corporation, Heska Corporation and
Merck Research Laboratories.

Susan holds an MS and DVM in
Veterinary Science and is a Diplomate,
American College of Veterinary Internal
Medicine.

She is located in Kansas, US.

Mike Annice, Managing Director,
Manufacturing
With 24 years’ experience at Dechra,
Mike has been a key member of the
senior management team having
played a role in some of the notable
events in our history including the
MBO that formed Dechra Holdings,
the flotation of the Company in 2000,
site expansion adding manufacturing
capability to our plant in Skipton and the
acquisitions of manufacturing plants in
the Netherlands and the US. He recently
oversaw FDA approval of the Skipton
manufacturing facility. Responsible for
around 42% of the Dechra workforce
across two manufacturing sites, he has
significant experience of leading and
managing multi-site teams in high quality
environments.

Mike has a BSc Hons in Pharmacy, is
a Member of the Royal Pharmaceutical
Society and has Qualified Person status.

He is located in Skipton, UK.

Mike Eldred, President US
Mike joined Dechra in 2004 and is
responsible for Dechra Veterinary
Products’ North American business.
Mike has more than 20 years’ experience
in the animal health sector, having
held senior positions in business
development, sales and operations at
Virbac Corporation, Fort Dodge Animal
Health and Sanofi Animal Health. As our
first employee in the US, he has built
the US team to 54 people and with a
strong Dechra culture has grown sales
revenue to £21 million. Mike has also
been involved in several commercial
agreements and acquisitions for the
Group including Pharmaderm, DermaPet
and Phycox Animal Health.

Mike has a BA in Business, and an MBA.

He is located in Kansas, US.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201433

Zoe Goulding, Company Secretary
and Solicitor
Zoe joined Dechra in 2007. In addition
to her Board responsibilities, she is also
responsible for a variety of areas covering
legal governance and compliance
aspects across the business.

As Company Secretary, Zoe holds a
unique position within the Company
acting as a key point of contact for the
Chairman, Senior Management and
shareholders. This allows Zoe to have a
broad understanding and insight of the
workings of the Group as a whole.

She is located at Head Office,
Northwich, UK.

Katy Clough, Group HR Director
The most recent recruit to the team, Katy
joined in April this year from AppSense
Ltd where she was the Vice President
of HR Europe and Rest of the World.
With over 15 years operating at Director
level within Software, Health, Travel and
Finance industries, Katy brings with
her a wealth of HR expertise gained in
both blue chip corporates and smaller
entrepreneurial companies. She has
strong international, leadership and M&A
experience and has taken responsibility
for driving the global people agenda for
the Dechra Group.

She is located at Head Office,
Northwich, UK.

Allen Mellor, Group IT Director
Allen joined Dechra in 2012 and has
developed and implemented a new
Group IT strategy during this time.

During the last 20 years, Allen has
gained a breadth of experience from
the implementation of diverse business
solutions across multiple industry sectors
including Justice, Education, Energy,
Distribution and Retail. Having held
several senior management positions
encompassing software development, IT
service provision and IT strategy, his last
role was as Head of IT for the BSS Group
PLC, a leading plumbing and heating
distribution company.

Allen is currently responsible for all Group
IT support to a multitude of internal
customers.

He is located at Head Office,
Northwich, UK.

www.dechra.com Stock code: DPH

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People, Culture and Values continued

Our People Plan
The appointment of Katy Clough as the Group HR Director towards the end of the 2014 financial year has prompted a review of our
HR plan to drive the delivery of the business strategy through our people.

The primary objective is to enable a company that drives innovation, customer, and shareholder value, joint accountability, and
shared success through execution of the following plan:

Develop the SET
Executive Team to provide
world class leadership to
the Group

Create simpliﬁed
access to data and
reduce manual effort

Strong SET

Scalable HR
Operations

Performance
Culture

Align employee effort and
improve execution through
effective goal setting linked
to reward

One Dechra
A great place to work

Identify succession plan and
create development plans to
secure future talent pipeline
and grow our own

Dechra Leaders
Development

Talent
Management

Attract, retain and
develop the right talent
in the right place at the
right time

Aligned
Compensation
and Beneﬁts

Develop equitable reward systems
that drive accountability and
reward high performance

Our people agenda is a key enabler to our strategy; we have a roadmap to execute our plan over the next few years. Two years
ago significant steps were taken with the establishment of a new pilot Performance Development Review. A further evolution of this
programme is currently being rolled out that cements the link between an individual’s accountability and delivery of our strategic
plans.

Work to determine the Dechra Values was carried out during the 2013 financial year; the Values are increasingly embedded into the
way we do things in the Group, and provide a stable foundation for all people related initiatives to be built upon.

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014Strategic Report Our Business and Strategy

“It is due to the hard work,
commitment and talent of
Dechra’s employees that the
Group continues to grow.’’

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Strategic Report

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Our Performance

Financial Review

38
44 Key Performance Indicators
46 How the Business Manages Risk
50 Q&A with Ian Page,

Chief Executive Officer

52 Q&A with Anne-Francoise Nesmes,

Chief Financial Officer

54 Q&A with Tony Griffin,

Managing Director — DVP EU

56 Q&A with Mike Eldred,

President — DVP US
Strategy in Action: Case Studies
Pipeline Delivery: Osphos
Portfolio Focus: Vetoryl
Geographical Expansion: Italy
Acquisition: PSPC Inc.

58
59
60
61

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Financial Review

Anne-Francoise Nesmes
Chief Financial Officer

“We delivered underlying
operating profit of
£42.2 million, representing
a growth of 7.2% compared
to the previous year.’’

Find out more about Our Financials on
pages 121 to 169.

View further content on our website:
www.dechra.com

After several years of progressive organic growth and
successful acquisitions, our 2014 financial year was
predominantly a year of consolidation during which we
implemented several improvement projects to support
the execution of our four strategic growth drivers.
During the year we achieved a balance between
revenue growth and investments to support our
strategic ambitions whilst delivering profit growth and
improved operating leverage.

When presenting our financial results,
we use a number of adjusted measures
which are used by management in
reporting and planning discussions.
These measures are reconciled to the
financial results reported under IFRS on
page 41.

• Underlying results reflect the Group’s

trading performance excluding
amortisation of acquired intangibles,
non-underlying charges and other one-
off events such as restructuring and
acquisition costs.

• All growth rates for both underlying

and non-underlying results included in
this review are at constant exchange
rates (CER) unless otherwise stated.
This shows the year-on-year growth
as if exchange rates had remained the
same as in the previous year.

• All numbers are presented on a
continuing operations basis. The
divested Services Segment is
shown as discontinued operations in
accordance with IFRS.

Overview of Underlying Financial Results
We delivered underlying operating profit of £42.2 million, representing a growth of
7.2% compared to the previous year. This was achieved through a combination of
modest revenue growth, improvement in margins and investments in strategic areas.

Revenue
Gross profit
Gross profit %
Underlying operating profit
EBIT %
Underlying EBITDA
Underlying diluted EPS (p)
Dividend per share (p)

2014
£m
193.6
107.7
55.6%
42.2
21.8%
46.2
36.32
15.40

2013
£m
189.2
100.7
53.2%
39.1
20.7%
42.8
29.07
14.00

Reported
currency
2.3%
7.0%

Constant
currency
1.6%
6.5%

7.9%

7.2%

7.9%
24.9%
10.0%

7.2%
23.9%
10.0%

A reconciliation to reported results is shown on page 41.

Revenue
Total revenue grew by 1.6% to £193.6
million. Our growth accelerated to 4.0%
in the second half from a decline in the
first half of 0.7% (compared to the same
period last year).

Revenue by Segment
European Pharmaceuticals Segment
revenue grew by 1.0% to £172.4 million
as a good performance in all markets
was offset by very disappointing sales
in the Netherlands. The decline in this
market was due to competitive pressure
and reduced use of antibiotics. We have
taken actions to address the situation.

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201439

“Our gross margins have
improved from 53.2% to
55.6% reflecting the
continued realisation of the
Eurovet synergies and
changes in our product
mix based on our sales
performance.’’

Revenue in our US Pharmaceuticals
Segment grew by 6.8% to £21.2 million.
Our key products performed strongly
with an increase of 24.3% for Vetoryl,
18.7% for Felimazole and 10.5% for
DermaPet. There were no sales of
Animax in 2014 (2013: £1.5 million) due
to previously reported supply issues.
This reduced overall US growth by
9 percentage points.

Revenue by Categories
Overall the performance across our major
product categories has been adversely
affected by a decline in FAP sales.

CAP grew by 3.7%. As stated in the
Chairman’s and Chief Executive Officer’s
Statement on pages 8 to 9, all our key
products performed well. However
Vetoryl sales momentum in Europe
slowed down compared to the prior
year due to phasing of sales in Italy
and the unavailability of a third party
drug necessary to diagnose Cushing’s
disease. It is also worth noting that our
generics defence strategy for Felimazole
proved successful, except in the
Netherlands.

Given the increasing importance of
and our focus on our Equine product
portfolio, we are pleased to report growth
of 13.6% driven by the uptake in HY-50,
a drug for lameness caused by joint
dysfunction.

FAP declined by 7.3%, mostly due
to the impact of the reduction in the
prescription of antibiotics and increased
competition in the Netherlands.

The Pet Diets franchise remained
stable compared to the prior year, a
satisfying performance as we transfer
manufacturing to a new third party

supplier (see Chairman’s and Chief
Executive Officer’s Statement on page
12). Finally, third party manufacturing
sales increased by 4.0%. The incremental
value obtained by securing several
new third party contracts was reduced
due to a delay in production in Bladel.
We expect to recover fully in the 2015
financial year.

Gross Profit
Our gross margins have improved from
53.2% to 55.6% reflecting the continued
realisation of the Eurovet synergies and
changes in our product mix based on our
sales performance.

We benefited in this financial year from a
full year of margin synergies realised by
bringing in-house third party distribution
contracts in France and Germany part
way through the prior financial year.
Additionally the impact of higher margin
CAP growth and lower margin FAP
decline resulted in a more favourable
product mix.

Selling, General and Administrative
Expenses (SG&A)
SG&A expenses grew by 6.4% to
£57.3 million as we invested in people
and targeted projects to support our
strategic ambition.

Staff costs increased faster than inflation
in a few departments as we invested
strategically to support our growth. For
instance we have continued to invest in
the US sales infrastructure which has
delivered clear benefits to the top line.

We have also incurred additional one-off
costs in relation to several significant
finance projects that will deliver future
benefits, an example of which is outlined
in the Taxation section of this report.

CAP
Equine
FAP
Subtotal Pharma
Diets
Third Party Manufacturing
Total

2014
£m
98.7
12.6
35.8
147.1
28.4
18.1
193.6

2013
£m
94.8
11.0
38.1
143.9
27.9
17.4
189.2

Reported
currency
4.1%
14.5%
(6.0%)
2.2%
1.8%
4.0%
2.3%

Constant
currency
3.7%
13.6%
(7.3%)
1.5%
0.7%
4.0%
1.6%

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Financial Review continued

EU Profit
£49.0m

2013: £45.8m

2014

2013

2012

49.0

45.8

28.9

US Profit
£6.0m

2013: £5.6m

2014

2013

2012

6.0

5.6

5.9

Research and Development Expenses
(R&D)
Our R&D spend totalled £8.2 million as
we continued to progress the pipeline.

Our spend is broadly in line with last
year. However, it is slightly lower than
expected as we suspended the clinical
trial of a feline endocrinology drug
following concerns over the formulation.
All other projects progressed as planned.

Segmental Profit
Operating leverage is improving in our EU
and US Pharmaceuticals Segments with
underlying profit as a percentage of sales
at 28.4% and 28.3% respectively.

Following the divestment of the Services
Segment, the Board reviewed our
reporting Segments and concluded that

retaining the EU Pharmaceuticals and
US Pharmaceuticals Segments reflected
the way we currently manage the Group
and they meet the criteria defined under
IFRS 8.

The operating leverage of our US
Pharmaceuticals Segment is improving
as past investment in infrastructure drives
revenue growth. Investment will continue
to support the forthcoming launch of
Osphos.

Overview of Reported Financial
Results
Including the profit from the discontinued
operations and non-underlying items,
Group’s profit after tax of £59.0 million
increased by 227.9% at CER (229.6% at
reported).

Revenue
Gross profit
Gross profit %
Operating profit
EBIT %
Profit after tax
Profit after tax including
discontinued operations
Diluted EPS (p)

2014
£m
193.6
107.7
55.6%
25.0
12.9%
19.4

59.0
67.33

2013
£m
189.2
100.7
53.2%
18.3
9.7%
10.9

17.9
20.45

Reported
currency
2.3%
7.0%

Constant
currency
1.6%
6.5%

36.6%

34.4%

78.0%

75.2%

229.6%
229.2%

227.9%
227.5%

Including the profit from the discontinued
operations and non-underlying items, the
Group’s profit after tax was £59.0 million.

23481.04 11 September 2014 10:44 AM Design A

2014
Total
reported
results
£m
193.6
107.7

A reconciliation of underlying results to reported results as at 30 June 2014 is shown in the table below:

Non-underlying items

Discontinued
operations
£m

Amortisation
of intangibles
£m

Acquisition
costs
£m

Finance
expenses
£m

Rationalisation
costs
£m

Revenue
Gross profit
Selling, General and
Administrative Expenses
Research and Development
expenses
Operating profit
Net finance costs
Profit before tax
Taxation
Profit after tax
Profit from discontinued
operations
Profit for the period
Diluted Earnings per share
(pence)

2014
Underlying
results
£m
193.6
107.7

(57.3)

(8.2)
42.2
(2.3)
39.9
(8.0)
31.9

31.9

36.32

(16.5)

(0.2)

(0.5)

(74.5)

(16.5)

(16.5)
5.7
(10.8)

(0.2)

(1.3)
(1.3)
0.2
(1.1)

(0.5)

(0.5)
0.1
(0.4)

39.6
39.6

(10.8)

(0.2)

(1.1)

(0.4)

(8.2)
25.0
(3.6)
21.4
(2.0)
19.4

39.6
59.0

67.33

The sale of the Services Segment was
completed on 16 August 2013. The
profit from the discontinued operations
was £39.6 million, of which £38.7 million
was the pre-tax profit on the disposal.
Additional details are shown in note 30 of
the accounts.

The reported diluted EPS for the year
was 67.33 pence (2013: 20.45 pence).
The growth over the previous year
reflected the profit on the sale of the
Services Segment partly offset by the lost
operating profit contribution from that
business.

Non-underlying items of £18.4 million,
excluding the discontinued operations,
are £2.7 million lower than the previous
year due to Eurovet rationalisation
costs in the prior year and favourable
foreign exchange movements on the
amortisation of acquired intangibles held
in foreign currencies. Full details are
shown in notes 4 and 5 on page 138.

Earnings per Share and Dividends
Underlying diluted EPS from continuing
operations for the year was 36.32 pence,
23.9% growth versus last year as we
benefited from interest and tax savings.
The total dividend per share is 15.40
pence.

The reduction in interest payments
following the repayment of our debt,
together with expected tax savings and
prior year tax adjustments (see note 8 on
page 141), contributed to our Earnings
per Share increase. Our tax strategy is
covered in more detail later in this report.

The Board is proposing a final dividend
of 10.65 pence per share (2013: 9.66
pence). Added to the interim dividend of
4.75 pence, it brings the total dividend
per share for the year to 15.40 pence,
representing 10% growth over the
previous year. Dividend cover based on
underlying earnings was 2.4 times.

Net Debt
Our net debt position has improved
considerably, from £80.8 million in the
prior year to £5.0 million as at 30 June
2014.

The proceeds from the divestment of
the Services Segment were used to pay
down the term loan in full and partly
pay down the revolving credit facility,
which significantly improved our net debt
position.

Covenants on the loan facilities were met
during the year.

Underlying Diluted Earnings per Share
36.32p

2013: 29.07p

2014

2013

2012

36.32

29.07

21.28

Dividend per Share
15.40p

2013: 14.00p

2014

2013

2012

15.40

14.00

12.27

Find out more about EPS in note 10 of the
Consolidated Financial Statements on
page 142.

View further content on our website:
www.dechra.com

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Financial Review continued

£75.8m

Reduction in net debt

Balance Sheet
Net assets at 30 June 2013 totalled £204.8 million, a £30.2 million increase compared
to the prior year.

Assets
Total non-current assets
Total current assets
Assets of disposal group held for sales
Total assets
Liabilities
Total current liabilities
Total non-current liabilities
Liabilities of disposal group held for sales
Total liabilities
Total net assets

2014
£m

214.4
86.3
–
300.7

(35.7)
(60.2)
–
(95.9)
204.8

2013
£m

235.7
89.6
89.8
415.1

(49.5)
(137.0)
(54.0)
(240.5)
174.6

Total non-current assets include intangibles which amounted to £196.2 million (2013:
£219.6m) as at 30 June 2014. The only significant addition relates to the product
rights to Phycox and Levothyroxine from the PSPC Inc. acquisition which was more
than offset by amortisation charges and currency translation differences.

Lower non-current liabilities reflect the repayment of borrowings following the Services
Segment divestment.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

23481.04 11 September 2014 10:44 AM Design A

“We are in a strong financial
position to execute our
strategy going forward.’’

The interest rate that is charged on the
Revolving Credit Facility is dependent
upon the Group’s Leverage ratio (defined
as the ratio of Total Net Debt to Total
Adjusted EBITDA). The minimum interest
rate payable by the Group is 1.30% over
LIBOR and the maximum interest rate
payable by the Group is 2.00% over
LIBOR.

The facilities are provided by a syndicate
of three banks: HSBC, RBS and
Barclays. We will also consolidate our
day-to-day banking operations with
these banks, thereby improving the
effectiveness of, and the controls over,
our cash management.

This will give rise to a loss on
extinguishment of debt of £386,000 in
the year ending 30 June 2015.

Summary
We have consolidated our position
in 2014 and are in a strong financial
position to execute our strategy going
forward:

• our gross margin improvements

increase our operating leverage. Profits
can be reinvested in the business
where needed to drive returns;

• the progress we have made defining

our tax and treasury strategies ensure
that we are building a scalable finance
structure; and

• we have maintained a strong balance
sheet which gives us the flexibility
to pursue strategic investment
opportunities as and when they arise.

Anne-Francoise Nesmes
Chief Financial Officer
8 September 2014

Additionally it is worth noting that total
working capital increased during the
year from £28.4 million (on a continuing
basis) to £32.2 million. £2.5 million of
this rise is due to an increase in our
trade working capital balance. The key
drivers for this were the inclusion of
the Services Segment as debtors in
working capital combined with bringing
business in-house from our distributors,
offset by favourable exchange rates. The
remainder is an increase in the non-trade
balance principally due to exchange rates
and divestment costs accruals. This has
impacted our cash conversion.

Finance Strategy
During the year we have reviewed our
tax and treasury strategies, resulting
in improvements that will make our
operations more efficient, robust and
scalable. They will deliver financial
benefits that will contribute to earnings
growth.

Taxation
We have implemented a tax strategy that
reflects the current and future Group
business model, in line with the tax policy
approved by the Audit Committee (see
page 81).

We have performed a strategic review
of our international tax affairs to ensure
we take advantage of international
government-backed incentive schemes,
such as the patent box in the UK,
innovation box in the Netherlands
and global research and development
regimes in the countries in which we
operate. We are also aiming to simplify
our operating model in order to improve
control and ensure that we are structured
in the most tax efficient manner.

Treasury
In September 2014, the Group
refinanced its existing bank facility.

Our existing bank facility was committed
until October 2016. Given the current
economic context and our strategic
ambitions, we felt it was appropriate to
refinance.

The Group’s revised borrowing facilities
comprise a committed £90 million
Revolving Credit Facility with an
‘Accordion’ facility of £30 million. The
terms apply until September 2019.

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Key Performance Indicators

The Group utilises the following KPIs to assess our progress against our strategic, financial and operational objectives.
Their relevance to our strategy and their definitions are explained below.

Some KPIs are also used as a measure in the long term incentive arrangements for the remuneration of the Executives.
These are identified with the symbol

Sales Growth
1.6%

Definition
Year-on-year sales growth including new products
but excluding revenue from acquired businesses in
the year of acquisition.

2014

2013

2012

£193.6m

£189.2m

£116.5m

Relevance to Strategy
A key driver of our strategy is to deliver sustainable sales
growth through delivering our pipeline, maximising our existing
portfolio and expanding geographically.

Performance
Sales increased by 1.6% at CER (2.3% at reported rates).
Our growth was impacted by the decline in FAP, particularly
in the Netherlands, and the slowdown in Vetoryl sales due
to the phasing of sales in Italy and the shortage of the
accompanying diagnostics drug.

Underlying diluted EPS Growth
23.9%

Definition
Underlying profit after tax divided by the diluted
average number of shares, calculated on the same
basis as note 10 of the Accounts.

2014

2013

2012

36.32p

29.07p

21.28p

Relevance to Strategy
Underlying EPS is a key indicator of our performance and
the return we generate for our shareholders. It is one of the
vesting conditions of the LTIP.

Performance
The increase of 23.9% at CER (24.9% at reported rates)
reflects the one time benefits from savings on interest after
we repaid part of our debt using the proceeds from the
Services Segment divestment. Prior year tax adjustments also
contribute to the strong performance.

Return on Capital Employed
16.4%

Definition
Underlying operating profit expressed as a
percentage of average operating assets
(excluding cash and tax assets).

2014

2013

2012

16.4%

17.6%

17.1%

Relevance to Strategy
As we look to grow the business, it is important that we use
our capital efficiently to generate returns superior to our cost
of capital in the medium to long term. It underpins the vesting
conditions of the LTIPs.

Performance
This indicator includes profit from the Services Segment for
12 months for the prior financial years but only for 11 weeks
in this financial year. As a result, the ROCE declined slightly
due to the profit dilution following the disposal. This was in line
with our expectations.

Cash Conversion
90.6%

Relevance to Strategy
Our stated aim is to be a cash generative business.

Definition
Cash generated from operations before tax and
interest payments as a % of operating profit before
amortisation of acquired intangibles.

Performance
Our cash conversion for the continuing operations ended
at 90.6%. This falls slightly below previous years due to an
increase in our working capital, which is further explained on
page 43.

2014

2013

2012

90.6%*

107.0%

91.7%

* On continuing operations basis

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201445

New Product Sales
8.6%

Definition
Revenue from new products as a % of total Group
revenue. A new product is defined as any molecule
launched in the last five financial years.

2014

2013

2012

1.0%

8.6%

6.5%

Lost Time Accident Frequency Rate (LTAFR)
0.21

Definition
All accidents resulting in the absence or 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.

2014

2013

2012

0.21

0.22

0.55

Employee Turnover
16.8%

Definition
Number of leavers during the period as a
percentage of the average total number of
employees in the period.

2014

2013

2012

16.8%

16.1%

14.9%

Relevance to Strategy
This measure shows the delivery of sales in each year from
new products launched in the prior five years, on a rolling
basis. It shows the performance of our R&D and sales and
marketing organisations when launching new products.

Performance
Sales from new products continue to increase and account
for 8.6% of our total sales in 2014. This is mostly due to the
successful launches of Forthyron and Cardisure in Europe.

Relevance to Strategy
The safety of our employees is core to everything we do.
We are committed to a strong culture of safety in all our
workplaces.

Performance
Including the Services Segment, the LTAFR remained
relatively the same as in the previous year. Considering
continuing operations only, the LTAFR fell to 0.08% as
reported in page 109, which reflects our focus on employee
safety.

Relevance to Strategy
Attracting and retaining the best employees is critical to the
successful execution of our strategy.

Performance
The increase in employee turnover to 16.8% reflects a major
change in the business as we completed the closure of the
factory in Uldum, Denmark, as previously reported. The
impact of the Services divestment has been excluded from
this calculation.

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How the Business Manages Risk

Risk Agenda
Effective risk management is key to the
achievement of our business strategy. In
October 2013 the Board commenced a
review of the Group’s risk management
process in order to assess whether there
was scope for improvement. Deloitte LLP
were retained to assist with the review,
which formed part of their wider remit to
assist in the review of the Group’s internal
financial controls. More detail in relation
to this review can be found on pages 81
to 82 of the Audit Committee Report.

The review confirmed that, overall,
the risk management process was
appropriate for the size of the Group
and provided validation of the existing
risks. However, the following areas of
improvement were suggested:

• ownership of the risks should be

created at SET level;

• amendments to both the process
and documentation, including
the introduction of half-yearly risk
interviews with the SET; and

• the proposed appointment of the
Internal Audit Function should
encompass a risk assurance remit.

It is considered by the Board that these
changes to the current risk system and
framework will ensure that:

• the SET provides a platform for

reviewing and assessing risk from both
a bottom up and top down level, and
acts as a link between the Board and
the business units ensuring that risk
management is embedded within the
business;

• any risks identified in relation to the

achievement of the Group strategy are
correctly captured and monitored;

• the risk appetite is correctly assessed

and understood; and

• there is a strong governance

framework clearly linking our risk
management and internal controls
framework. For information on the
Internal Control Framework see
pages 76 to 77.

Identify

n it s

siness U

u
B

Internal
Control
Framework

Assess

Monitor

mitte

A u d it C

Mitigate

Risk Framework
The SET is now a pivotal platform responsible for the overall risk framework. It drives
the identification of risks, establishes the owners of each of those risks and ensures
that they are correctly mitigated and monitored. The SET reports the risks to the
Board. Each SET member owns one or more of the risks and is scheduled to attend
Board meetings during the course of the financial year to conduct a detailed review of
their risks. For the purpose of the year end disclosure each SET member has met with
the Chief Financial Officer and Company Secretary to discuss their risks and controls.

The discussions have focused on a number of areas including:

• understanding the possible root causes of the risk;

• reviewing what controls are currently in place; and

• assessing whether additional controls should be added in order to ensure that the

risk is appropriately mitigated.

The SET will also ensure that ongoing monitoring is embedded in their business units
or function.

Top Down

Board
Oversight of the Group’s risk
management and internal controls

Audit Committee
Annual validation of the risk reporting process

Senior Executive Team
Owners of the risk management process and responsible
for embedding risk management into business units

Bottom Up

Business Units

Identiﬁcation, mitigation and monitoring of risks

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

The SET has identified and agreed key risks with the Board. Of these, a number are deemed to be generic risks facing every
business including failure to comply with financial reporting regulation, IT failure and non-compliance with legislation. The table below
therefore details the eight principal risks which are bespoke to our business and provides information on:

• how they link to the Group strategy;

• how they could potentially impact the business; and

• what controls have been put in place to mitigate them.

Key of trend compared
to prior year:

No Change

Increased Risk

Reduced Risk

Link to Strategy

Risk

Potential Impact

Mitigation

Trend

Competitor Risk:
Competitor products launched
against one of our leading brands (e.g.
generics or superior product profile).

We depend on data exclusivity periods
or patents to have exclusive marketing
rights for some of our products.
Although we maintain a broad portfolio
of products, we recognise that our
unique products, like Vetoryl and
Felimazole, have built a market which
may be attractive to competitors.
We need to ensure that, should
competitors enter the market, we
create additional unique selling points
which allow us to maintain our market
share.

Product Development Risk:
Failure to deliver major products
either due to pipeline delays or newly
launched products not meeting
revenue expectations.

Delivery of our pipeline is key to the
achievement of our strategy and our
future success. We commit substantial
resources to development. However,
we may be unable to develop or
get new products approved. It may
also be difficult to predict whether
newly launched products will meet
commercial expectations.

Revenues and margins may be
materially adversely affected upon the
expiry or early loss of patents, or by
generic entrants/competitors into the
market for one of our leading brands.

Costs may increase due to defensive
marketing activity.

A succession of clinical trial failures
could adversely affect our ability to
deliver shareholder expectations.

Our reputation and relationship, not
only with our shareholders, but also
with veterinarians, could be damaged.

Our positioning in the market may be
affected and could reduce our leading
position in key therapeutic areas.

Reduced revenue and profitability may
mean we are unable to recoup the costs
incurred in developing and launching
the product, resulting in impairment of
intangible assets.

We focus on lifecycle management
strategies of our key products to ensure
that our products fulfil evolving customer
requirements.

Product patents are monitored and
consideration is given to the formulation
of a defensive strategy towards the end
of the patent life or the data exclusivity
period.

We monitor market activity so that prior
to competitor products being launched,
a response strategy can be established
and executed by our marketing team.
This defence plan is intended to
minimise competitor impact.

Potential new development candidates
are assessed from a commercial,
financial and scientific perspective
by a multi-functional team to allow
senior management to make go/no go
decisions.

The pipeline is discussed regularly by
senior management, including the Chief
Executive Officer and Chief Financial
Officer. Regular updates are also
provided to the Board.

Each development project is managed
by a dedicated clinical project manager
who chairs a monthly project team
meeting.

Before major costly efficacy studies
are initiated, smaller proof of concept
studies are conducted to assess the
effects of the drug on the target species
and for the target indication.

In respect of all new product launches
a detailed marketing plan is established
and progress against that plan is
regularly monitored.

The Group ensures that it has a detailed
market knowledge and retains close
contact with customers through its
management and sales teams which are
consistently trained to a high standard.

www.dechra.com Stock code: DPH

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How the Business Manages Risk continued

Link to Strategy

Risk

Potential Impact

Mitigation

Trend

Regulatory Risk:
Failure to meet regulatory
requirements.

We perform our business in a highly
regulated environment, not only from a
manufacturing perspective but also in
respect of product approvals. Failure
to adhere to, or maintain, regulatory
standards could ultimately affect our
manufacturing capability and our ability
to deliver products to market on time.

Delays in regulatory reviews and
approvals could impact the timing of
a product launch and have a material
effect on sales and 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.

Failure to achieve regulatory
requirements may result in operational
closures which in turn increases
expenditure and delays to production.

Reduction in sales of our antimicrobial
product range.

Our reputation could be adversely
impacted if we do not respond
appropriately to government pressure.

This may lead to significant delays
and/or difficulties in obtaining goods
and services on commercially
acceptable terms potentially increasing
the cost of production.

Disruption in production may result
in product shortages and significant
delays, which may lead to lost sales.

Regulatory Risk:
Continuing pressure on reducing
antibiotic use.

The issue of the potential transfer of
increased antibacterial resistance from
food producing animals to humans
is subject to regulatory discussions.
In some countries this has led to
government recommendations on
reducing the use of antibiotics in food
producing animals.

Reliance On Third Parties Risk:
Failure of a major supplier resulting
in loss of raw materials or product
supply or delay in clinical trials.

We rely on third parties for the supply
of all our raw materials. Failure to
supply these raw materials will affect
our manufacturing and development
capabilities. It is important that we
manage our stock levels of key raw
materials and are able quickly to
identify and obtain materials from a
second source.

The Group strives to exceed regulatory
requirements and ensures that its
employees have detailed experience
and knowledge of the regulations.

Manufacturing and PDRA have
established quality systems and
standard operating procedures in place.

Regular contact is maintained with all
relevant regulatory bodies in order to
build and strengthen relationships and
ensure good communication lines.

The regulatory and legal teams remain
updated in respect of changes with a
view to ensuring that the business is
equipped to deal with and adhere to
such changes.

Where changes are identified which
could affect our ability to market and sell
any of our products, a response team is
created in order to mitigate the risk.

External consultants are utilised to audit
our manufacturing quality systems.

Regular contact is made with all
relevant veterinary authorities to
ensure that we have a comprehensive
understanding of regulatory changes.

We strive to develop new products
that minimise antimicrobial resistance
concerns.

The performance of our suppliers is
monitored. As a result, if we identify a
potential issue, we source promptly from
either an identified alternative supplier or
a new supplier. Where a manufacturing
transfer is required, stock is built up in
order to avoid/mitigate an out of stock
situation.

In respect of DPM, a ‘second sourcing’
project for key materials has established
our approach for all components. In
addition the top ten Group products
are continually risk assessed in order to
identify the key suppliers of materials or
finished products.

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.

Risk mitigation strategies are in place
such as maintenance of buffer stocks
and dual sourcing.

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201449

Link to Strategy

Risk

Potential Impact

Mitigation

Trend

Reliance On Third Parties Risk:
Loss of key third party customers
from DPM.

Contract manufacturing represents
approximately 9% of Group revenues
and 46% of our manufacturing volume.
Contract manufacturing is a significant
part of our revenue.

Loss of a key customer can impact
manufacturing revenues and lead to
an increase in the cost of goods of the
remaining portfolio.

Robust supply agreements are in place
with each of our key customers and are
regularly reviewed.

Close, regular contact is maintained
through the sales director with key
customers

Monthly service level monitoring and
reporting is in place.

We have an experienced sales team
which focuses on bringing in new
customers.

People Risk:
Failure to have robust succession
plans in place leading to gaps in
knowledge and experience in key roles
in the business.

We pride ourselves on the low turnover
of staff in senior and other key positions.
However we must ensure that we
have plans in place should we lose key
personnel on whose capabilities we
depend.

Loss of knowledge, skills and
experience could erode our competitive
advantage.

Succession planning is driven by the
Nomination Committee and the Group
HR Director.

Inability to attract and retain key
personnel may weaken succession
planning and could have an adverse
impact on results.

Where deemed necessary Key Man
Insurance is in place.

A new HR plan is being implemented to
strengthen our talent management and
succession planning.

Remuneration packages are reviewed
on an annual basis in order to ensure
that the Group can continue to retain,
incentivise and motivate its employees.

The Group HR Director is in the process
of commencing a capability study in
order to ensure that we have the correct
level of skill, knowledge and experience
internally to deliver our strategic goals,
and to identify where to attract and
recruit skills if they are not already
present in the Group.

People Risk:
Risk of failure to adequately resource
the business to meet strategic
ambitions (e.g. knowledge and
investment).

We have a clear focus on our four
strategic growth drivers. As Dechra
expands we need to ensure that we
have the necessary skills to execute our
strategy and that we allocate sufficient
resources where required.

Implementation of our strategy may
be delayed and we may not meet
shareholders’ expectations

We have failed to identify potential
capability gaps.

We may be unable successfully to
integrate acquisitions.

Resources are too stretched, leading to
potential personnel issues.

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Strategic Report Our Performancewww.dechra.com Stock code: DPHQ Revenue growth does not appear
as strong as in previous years.
Are you concerned?

A There have been a number of

headwinds in the year on revenue
growth. Firstly, Vetoryl, our lead
product, was affected by the
shortage of a diagnostic tool used
to recognise Cushing’s disease. This
resulted in it being very difficult for
veterinarians to actually prescribe the
drug for new cases. We have had
ongoing supply issues with the US,
with Animax and the ophthalmics,
and we are also constantly seeing a
pressure on antibiotic usage as
governments look to put pressure
on veterinarians to prescribe less
antibiotics because of concerns
over antimicrobial resistance.

If you look at our second half
growth, which was 4%, and was
a lot stronger than the first half
decline, then we feel that we have no
concerns at all over revenue growth
and going forward we should see an
improvement.

Q Why did you acquire PSPC?

A We have been very successful in
the US, with a business that is
growing revenues very quickly, and
is already very profitable. However,
if you look at the business it is
underweight, given the scale of
the market and in comparison with
the EU.

PSPC was a business we had
been talking to for a number of
years. We saw it as an excellent
acquisition, particularly as it has
one unique product, Phycox, which
is a patented nutraceutical that fits
ideally with our portfolio. It also has
a new endocrinology product in
development which is very similar
to our Forthyron product, which
we market very successfully within
the EU. So we are really keen
on bringing that product into our
portfolio later in this calendar year
to really enhance our position.

Looking at the acquisition as a
whole, it creates opportunities to
grow their existing products, and
it also creates the critical mass
required to continue to invest, to get
a sales team which is sufficient to
penetrate this very important market.

Q&A with Ian Page

Ian Page
Chief Executive Officer

“Our major objective is
to cement ourselves as a
leading global animal health
company.”

Find out more about Vetoryl on page 59.

Watch the Online Video
www.dechra.annualreport2014.com

Web link for your convenience

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

Q What do you see as the key

growth drivers in the next few
years?

Q What are your medium and long

term expectations for the
business?

A Our strategy is very clear, and has

been covered well in recent
communications. There are four
major pillars to our strategy: portfolio
focus, product development,
geographical expansion and
acquisition.

Of these four drivers I consider
product development to be the
most important. We have recently
submitted a dossier for a new equine
product branded Osphos, and have
had that approved in both the UK
and the USA. We also expect the
product to be approved across
the rest of Europe early in the next
calendar year.

We have also submitted an
endocrine dossier for approval in
Europe and the USA and we expect
that to be approved next year.

We have added additional resources
into the product development team,
and we have got new projects that
we are currently looking at.

A Our major objective is to cement

ourselves as a leading global animal
health company.

Looking geographically, we have
recently opened in Italy, we are
about to launch in Canada, we
are reviewing another territory to
hopefully launch next year. We are
also investing further into our export
capabilities, particularly in project
registration as we look to gain critical
mass in a number of other key target
territories.

We are also looking at acquisitions.
Recent transactions by big pharma
have been at such high multiples
that it is very difficult to find value
at the moment; however, we are
reviewing several candidates and we
will hopefully make progress.

I have already mentioned the
pipeline, which is delivering new
products and will lead to success.
We are also seeing growth, as
I mentioned at the outset of this
interview, of 4% revenue growth in
the second half of our last financial
year.

So, if we take all these factors
into consideration, we have every
confidence in our future growth
prospects.

www.dechra.com Stock code: DPH

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Q&A with Anne-Francoise Nesmes

Q You have been in the business
for over a year. What are your
thoughts about the animal
health market?

Q The year has seen a strong

increase in gross margins. Do you
expect this to continue?

A The animal health market has been
growing steadily over the last few
years, despite a tough global
economic environment. If you look at
2013, the animal health market
growth is estimated to be around
4%. There are several factors that
explain this: in the Companion
Animal Products the growth is driven
by an increase in pet ownership, but
also pets living longer; and in the
Food producing Animal Market, the
growth is driven by the increase in
the global population and the
increased demand for high quality
meat protein. And as you may know,
Dechra competes in both of those
sectors, so we are very well
positioned to seize opportunities.

Considering the animal health
market, it is quite interesting to
draw the contrast with the human
health market. Whilst there are many
common characteristics, such as
a regulated environment, there are
also some key differences. One of
the key differences is in terms of
R&D. What we do is develop existing
molecules for veterinary use and,
obviously, this is a lot less risky than
the human market. Similarly, when
we look at our product lifecycle, they
have a much longer lifespan, and
generic penetration is a lot less than
in human pharma.

So I think, all-in-all, this makes the
animal health market very attractive
for investors.

A The improvement in gross margins is

certainly one of the key drivers
behind our very strong profit
performance and, if you look at the
gross margin, you will see it has
improved by about 2.5 percentage
points.

There are two main reasons for this.
The first one is the synergies from
the Eurovet acquisition. One thing
we have done is brought ‘in-house’
sales which were previously made
through third party distributors.
And as we are now selling through
our own sales force, we retain the
margins that distributors used to
make. The second reason is the
product mix, with the split between
our companion animal sales and our
food animal sales.

Looking forward the margins will
always fluctuate and depend first on
the product mix, as I said, but also
on the success of our pipeline. We
see that Companion Animal Product
sales are higher margin, they are
higher value, whereas the Food
producing Animal Product sales are
higher volume, but lower margin.
Therefore, we will always balance the
two margins and the product mix.
Looking at our pipeline, we are about
to launch several products over the
next few years which are of high
value to us and therefore again that
will drive the margin.

So, in summary, when I look forward,
and at the margins, as a minimum I
think we should maintain the margins
where they are and try to improve
them over the next few years.

Anne-Francoise Nesmes
Chief Financial Officer

“The improvement in gross
margins is certainly one
of the key drivers behind
our very strong profit
performance.’

Find out more about Our Marketplace on
pages 18 to 19.

Watch the Online Video
www.dechra.annualreport2014.com

Web link for your convenience

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

And finally, the last area has always been
something of a key concern of mine,
that is, how to build an organisation that
is scalable as we continue to grow. For
this, it is important that we implement
the projects we have started, like the
Oracle system and the treasury strategy
I discussed earlier, because that ensures
that everything we do is scalable and can
grow with Dechra as we become a larger
organisation.

So if we do all of these, the Board, the
Senior Executive Team, Ian and myself
are very confident that it will continue to
strengthen Dechra’s position in the global
animal health market.

Q What are your priorities for 2015?

A We said last year that we would

refine our strategy, and we did. We
are now focused on four strategic
growth drivers, which are: delivering
our pipeline, maximising our returns
from the existing portfolio, expanding
geographically and acquiring if there
is a suitable opportunity.

So in 2015 the priority is to execute
and deliver on our strategy. From
a finance perspective, that means
three areas of focus in terms of our
work and our activities. The first
one is allocating resources to drive
returns. Secondly, maintaining or
improving gross margins. And finally,
building a business model that is
scalable and that can accommodate
for the growth in the future.

Taking the first point about allocating
resources, it is really about ensuring
that we put our resources, our
money, behind the projects that
will drive the growth. That means
that we need to be able to support
the product launches like Osphos;
we need to be able to fund our
geographic expansion; we need
to be able to continue to invest in
R&D, while delivering returns to
our shareholders. So that is very
important.

With our second focus on improving
or maintaining our gross margins,
we will look at both our commercial
offering but also our production
costs. We will also look at our supply
chain capabilities that we have
identified as a key enabler in our
strategy.

Q In your statement you make

reference to a number of finance
projects. Can you provide more
clarity please?

A It has been a very busy year for the
finance team in the Group, and I
would really like to recognise the
work that all the team members have
done during the year. After the
divestment of the Services Segment,
and after the redefinition of our
strategy, the finance strategy
became very clear. It was very
obvious that we had to preserve the
strength of our balance sheet in
order to execute the strategy and
finance our expansion.

We started with tax, and did a
full review of our tax strategy and
our tax position. We are taking full
advantage of government backed
incentive schemes for innovation
driven organisations like ours.

We then turned our attention to the
treasury, and once we had repaid
part of our debt, we looked at the
funding requirements we will have in
the future. We also did that because
we wanted to take the opportunity
of very favourable market conditions.
We will now operate with a syndicate
of three banks, which ensures that
our cash management operations
will be scalable for the future, and will
be more robust.

In parallel to all this, we continued
with the roll out of Oracle, our IT
system for finance, to the rest of
the business, and we continued
to improve our control framework
to make sure that it evolves as the
organisation grows.

It is true that a finance strategy is
important for any business, but I am
particularly pleased that for Dechra
it has contributed to the bottom line
this year, and it will continue to help
grow the EPS in the next few years.

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Q&A with Tony Griffin

Tony Griffin
Managing Director — DVP EU

“During 2013 we completed
an extensive search for
an alternative source for
our dry diets range and
since quarter one 2014 the
process has been started
to transfer the production
of these key products to
this new source.’’

Find out more about our Italian Subsidiary
on page 60.

supporting materials, which all
markets have used in order to retain
our market leadership position within
this segment.

We also launched an additional tablet
strength of 1.25mg, to differentiate
further our offering from that of the
generic. Despite the aggressive
pricing strategy from this generic
entrant, we were able to maintain
market share in most markets and
have grown sales revenues by 2.0%
during the fiscal year.

In recent years our Diets business
has suffered due to supply issues.
During 2013 we completed an
extensive search for an alternative
source for our dry diets range and
since quarter one 2014 the process
has been started to transfer the
production of these key products
to this new source. Alongside
ensuring continuity of supply,
cooperation with this new partner
has already delivered product quality
enhancements which will help to
drive future growth of this business.

In summary, after a relatively
challenging start to the year, we have
seen sales performance improve
in the second half and are pleased
to note that growth in constant
currency in the 13 markets where
we now have our own sales teams
was 1% with only the Netherlands
continuing to decline. Our fastest
growing product was Cardisure at
32%, which is rapidly approaching
the status of a top five product for
DVP EU, and our fastest growing
key focus therapy area was our
equine range which grew by 11%
driven by a second half recovery of
Equipalazone and a strong growth in
sales of HY50.

Q What have the key highlights for
the year been for DVP EU?

A In the previous financial year, one of
the main priorities for DVP EU was
ensuring the smooth integration of
Eurovet into the Dechra organisation
and the realisation of the potential
synergies which were identified prior
to the acquisition in May 2012.

In the financial year just ended, while
continuing to deliver the expected
synergies, one of the most significant
achievements was the creation of a
new strategic plan for the enlarged
European business, ensuring focus
for the coming years. With the
enlarged product portfolio, additional
geographic spread and combination
of CAP and FAP businesses, it was
essential to set priorities within the
business.

The plan was completed in 2013
and was created over a 12 months
period involving input from the
Country Managers and senior
marketing executives within DVP
EU. The most important outputs of
this plan were the setting of long
term objectives for the team, the
redefining of our focus therapy areas
and the identification of short to
medium term action plans which
should enhance the growth of the
business.

One of the key drivers in Dechra’s
strategy is continued geographic
expansion. In March of 2014 we
successfully set up our own sales
organisation in Italy. Based in Turin
our small, but professional team
has been busy relaunching our
extensive portfolio of both CAP and
FAP products, which were previously
marketed by distribution partners.

Our most important key therapy
area in the CAP business is
endocrinology. In 2013 we were
faced with the introduction of a
generic version of our key product
Felimazole. As part of our defence
strategy, our central marketing
team created a new positioning for
this product with award winning

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201455

pharmaceuticals available for many
years to come in order effectively to
treat infectious diseases. I believe
that the focus worldwide on the
reduction of antibiotic use in food
producing animals is the strongest in
the EU and that this will continue and
will have an effect on sales of these
products in the years to come.

The Netherlands and Denmark have
been leading the way in Europe
in recent years. However, recent
legislation in Germany and Belgium
is pushing down usage in these
markets, while the French authorities
have set reduction targets for the
next three years. In Southern Europe
we have not yet seen any significant
measures being taken; however, it
would be prudent to assume that
here too we will see authorities
taking steps to reduce overall use.
While we have to assume that
the total market for therapeutic
antibiotics in Europe will decline,
we strongly believe that we have
both products and a strategy which
can minimize the effects of these
developments on our business.

Currently Dechra’s sales of antibiotics
are mainly in Northern Europe, and
apart from the Netherlands we
have been able to realise growth in
some key markets in recent years.
However, overall FAP sales have
declined in 2014. We are only now
starting to introduce our key products
in the major swine and poultry
markets of France, Italy and Spain.
It is a challenging market; however,
thanks to our Solustab technology
which supports prudent use and the
potential to grow in certain markets
despite the pressure to reduce usage,
we are confident that we can maintain
a healthy business in this important
product segment.

Q How is Italy performing?

A It is early days yet; however,

Riccardo Data, our Italian Country
Manager, and his team have
delivered the sales and operating
profit targets we had set for the first
months of operation since 1 March
2014. The setting up of our Italian
operation was an excellent team
effort, with people from across
Europe and from different
departments working to get the legal
entity established with all regulatory
matters taken care of and the
logistics and IT support in place. All
of this was completed on time to
market our products as they came
back from several different
distribution partners as the various
contracts expired. In the coming
months the team in Italy will continue
to re-launch our wide portfolio of
products and by the end of 2014 we
will have 21 products on the Italian
market being sold by our own sales
organisation.

Q What is the outlook for the next 12
months for the animal health
market in DVP EU?

A The animal health business has

always traditionally been seen as
recession proof. This has generally
held true and especially when the
recession period was shorter than
that which we have experienced in
recent years. Having said this,
Dechra has continued to grow in
every year since 2008, despite the
fact that the European animal health
markets have seen moderately low
growth in the past two years. A
conservative return to economic
growth in the coming period will help
footfall in veterinary practices and
should have a positive effect on our
business moving forward.

Q What makes DVP EU unique?

A I believe there are a number of

factors which make us stand out
from the competition; however, I am
convinced that most important are
the people that work in Dechra
and the overriding culture of
entrepreneurial spirit and agility. In a
recent survey carried out among
European veterinarians we received
feedback, consistent across all
markets, that they appreciated
Dechra as we were seen as a
company which is close to our
customers, that listens carefully and
acts quickly.

The veterinarians in Europe find
senior managers within Dechra
approachable and available,
something they do not often
experience among the larger
companies. We are a Company
which wants employees to take
responsibility and to play an
important part in supporting the
growth of the business. This is
reflected in the quality of the people
we have been able to attract to
the business and the professional
output which is achieved using very
often the more limited resources
we can make available as a mid-
size company compared to our
much larger competitors. Combine
this quality team of people with
the Dechra culture and excellent
products and then you can
understand why we are unique.

Q What is your view of the
continuing impact of the
antimicrobial prescribing pressure
on the DVP EU markets?

A I fully support the focus on ensuring
prudent use of antibiotics in all
sectors including in the veterinary
business. Increasing antibiotic
resistance is a major concern for all
of us and we have to work together,
politicians, regulators, manufacturers,
prescribers and sellers to ensure
that we have these essential

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Q&A with Mike Eldred

Mike Eldred
President — DVP US

“We had the opportunity
last year to further expand
our US organisation by
hiring key sales, marketing
and veterinary technical
services personnel who
will all be critical to our
future success.’’

Find out more about Phycox on page 61.

Q What have the key highlights for
the year been for DVP US?

A This past year was an exciting period
for DVP US. We experienced the full
spectrum of activities you would
expect from a growing animal health
business, from solid growth on our
core product line, acquisition of a
new company, a new drug approval
from the FDA to the expansion of our
commercial team.

We continued to show double digit
sales growth for our core products,
Vetoryl, Felimazole and dermatology.
Versus previous year, Vetoryl sales
exceeded expectations and grew
24%. We continued to focus on
educating veterinarians on Cushing’s
syndrome and the importance
of FDA approved drugs over
compounded products. We held
over 165 Continuous Professional
Development (CPD) evening
meetings and had the opportunity to
educate over 5,000 veterinarians on
the importance of utilising Vetoryl to
treat this very complex disease.

Felimazole sales also remained
strong last year. Competing against
low-cost human generics, the US
team still achieved 19% growth
over previous year. Additionally, our
sales of the DermaPet range (now
marketed as Dechra Dermatology)
continued to demonstrate growth
of 10.5%. We launched a new
product, MiconaHex+Triz Shampoo,
Spray and Wipes, which further
strengthened our product line
by offering veterinarians a new
Miconazole combination product.

In addition to strong growth from
our current portfolio, we successfully
completed the acquisition of
the trade and assets of PSPC
Inc. – Phycox Animal Health. This
acquisition brought Dechra our first
US manufacturing facility, located in
Melbourne, Florida.

This facility produces the Phycox
line of products and will also
manufacture our new endocrine
product that is expected to launch
the next fiscal year. Phycox is a
patented product containing an
extract of blue-green algae that
historically achieved sales of $4.5
million with no outside sales force.
I am confident that our talented and
expanding sales force we will be
able to grow and establish Phycox
as a leading product to support
companion animal joint health.

We also received great news from the
FDA last year that our site transfer
was completed for two of our major
veterinary-approved ophthalmics,
Vetropolycin and Vetropolycin HC.
We relaunched successfully in May
2014 these two products, after two
years supply interruption, and look
forward to further expanding our line
with the approval of Vetrochloracin
and Vetro-gen® in the future. A major
achievement was accomplished
by our Product Development team
with the FDA approval of Osphos.
Osphos is indicated for the treatment
of the clinical signs associated with
navicular syndrome in horses. This
key approval is the flagship drug for
our Equine team and will be a major
focus for Dechra’s next financial year.

Finally, we had the opportunity
last year further to expand our US
organisation by hiring key sales,
marketing and veterinary technical
services personnel who will all
be critical to our future success.
Additionally, we established DVP
Canada as a legal entity and hired
our Country Manager to build the
Canadian team.

All in all, this has been an excellent
year for DVP US. We have built an
organisation based on great people
selling great products and a culture
that will allow us to continue to drive
growth in the US and Canada.

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201457

Our continued focus on CPD
evening meetings provides a venue
where we can address the risks
associated with compounded
products and hopefully convince
veterinarians to support and utilise
FDA approved products.

Q How is the Phycox integration

progressing?

A The integration of PSPC, Inc. has
been completed and all aspects of
the business are progressing as
planned. We acquired the facility in
Melbourne and have hired key
PSPC personnel to help support the
transition and drive the business
forward.

Q What is the outlook for the next 12
months for the animal health
market in DVP US?

A I am extremely optimistic about the
next 12 months for DVP US and
DVP Canada. With the launch of
Osphos, the addition of the
ophthalmics and Phycox, the
expected growth from our base
business, hiring more employees
in the US and establishing our
Canadian subsidiary, we will be
committed to expanding Dechra’s
North American footprint and
increasing our returns to enhance
shareholder value.

Q What makes DVP US unique?

A I have worked in the veterinary

industry for over 20 years. Without a
doubt, the unique factor at DVP US
is our culture. I continue to stress to
our employees there are three driving
forces to our success: great
products, great people, and our
ability to solve problems. All of these
factors are a result of the culture we
have established within Dechra. We
are a non-hierarchical organisation
that does not believe in politics,
bureaucracy, micro-management or
egos. It is the goal of the Company
to work as a team to ensure we do
our best to provide the ultimate level
of customer service to our
colleagues and external customers.
We also believe that work life
balance is essential to maintain a
resilient and motivated workforce.

Q Do compounding pharmacies
continue to impact DVP US?

A Yes, compounding pharmacies
remain a challenge for many US
veterinary pharmaceutical
companies. With the growing impact
of social media, internet pharmacies
and other media forms, everyone is
trying to capture a slice of the
growing pet industry in the US. The
key to overcoming compounding
pharmacies is to continue to educate
the veterinarians on the importance
of FDA approved products from a
safety, efficacy and product liability
standpoint. There have been various
negative events that have occurred
as a result of compounded drugs in
the US. Unfortunately, many have
led to human and animal deaths.
It is our job to ensure we help the
veterinarians understand that
compounded products are not the
same as a generic drug and are not
analysed by the FDA for safety,
efficacy and quality.

23481.04 11 September 2014 10:44 AM Design A

Strategic Report Our Performancewww.dechra.com Stock code: DPHFrom a dog once lost, a new vitality found.

In every dog with Cushing’s syndrome there is an

opportunity to bring back health and restore life.

back control. For the owners and their family, it marks

the return of the healthy dog they thought they’d lost.

A true transformation in quality of life, whether you’re on

four legs, or two.

www.dechra.com

Vetoryl contains Trilostane.

Dechra Veterinary Products A/S, Mekuvej 9, 7171 Uldum, Denmark.

Dechra Veterinary Products A/S is a trading business of Dechra Pharmaceuticals PLC.

Case Study: Osphos

Osphos (clodronate injection), a novel
equine product, has received approval
from the US FDA and the UK Veterinary
Medicines Directorate (VMD) and
is expected to be launched at the
beginning of our new financial year.

After evaluating the market potential,
our Marketing teams decided that this
product represented a strong addition
to our equine portfolio. On this basis we
reached a commercial agreement and
designed the development project.

Manufacturing presented the single
greatest challenge for the approval of
Osphos. As neither of our manufacturing
sites has FDA approval for manufacturing
aseptic fill products, manufacturing has
been contracted to an outside firm.

The product is an intramuscular injection
used to control the clinical signs of
navicular syndrome, estimated to cause
a third of all forelimb lameness in horses.
There are several benefits to the product
relating to its efficacy, safety and relative
ease of administration by the veterinarian.

Following the dose characterisation
study, we conducted a multi-site clinical
field study to evaluate the effectiveness
of Osphos. After completing all our
development activities and preparing a
registration dossier, we filed successfully
in the UK and US.

Osphos is one of many projects that
show our strategic focus on pipeline
delivery, as well as demonstrating
our ability to work effectively with the
authorities to deliver products with clinical
benefits that complement our existing
portfolio.

The opportunity was first identified by
our Business Development team who
developed a relationship with a German
veterinarian, the inventor. He had an
excellent proof of concept study, enabling
us to feel confident that the drug would
be both safe and efficacious.

However, in Europe, where horses are
considered a food-producing animal, we
required additional information about the
product’s maximum residue limit (MRL)
to establish the safety of the product for
a human consuming horse meat. The
approval application for the EU has now
been submitted.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

Our launch plans in the US and UK are
ready and Osphos will be available in the
first half of our 2015 financial year. We
are eagerly anticipating the launch of this
new major product.

23481.04 11 September 2014 10:44 AM Design A

Strategic Report Our Performance

From a dog once lost, a new vitality found.

In every dog with Cushing’s syndrome there is an
opportunity to bring back health and restore life.

back control. For the owners and their family, it marks
the return of the healthy dog they thought they’d lost.
A true transformation in quality of life, whether you’re on
four legs, or two.

www.dechra.com

Vetoryl contains Trilostane.

Dechra Veterinary Products A/S, Mekuvej 9, 7171 Uldum, Denmark.
Dechra Veterinary Products A/S is a trading business of Dechra Pharmaceuticals PLC.

Case Study: Vetoryl

Vetoryl (trilostane capsules) is the only
licenced product for the treatment of
canine hyperadrenocorticism or Cushing’s
syndrome. It is sold internationally and
recognised globally for its efficacy. With
the possibility that Vetoryl may experience
increased competition in the future, and due
to a slow down in growth in a number of
countries, it became important to strengthen
our current global market position.

In order to do this, a new international
marketing campaign has been developed to
reposition Vetoryl, aiming to create a higher
emotional engagement with veterinarians,
and strengthen Dechra’s position as the
leading experts in endocrinology.

The campaign’s theme reflects the key
end benefit of Vetoryl: restoring life at every
level. The positive effects of the treatment
are often felt by the owner as well as the

dog, helping to restore life and vitality
whether they are on four legs or two.

The integrated campaign delivers a
range of support for the vet, pet owner
and Dechra’s sales teams. It includes
advertising, flowcharts for diagnosis and
treatment, sales aids, and pet owner
booklets. Case studies are also included
that have been developed with several
European key opinion leaders.

The campaign will be launched across all
European markets over the forthcoming
months.

We have a clear campaign strategy. Our
objective is to be seen as the experts in
endocrinology. Vetoryl gives veterinarians
and pet owners complete control. It can turn
back time as a dog recovers its vitality
and its life is restored.

The values attached to the brand are very
clear: efficacy, control and innovation.
This is supported by scientific and
technical excellence.

The campaign is targeted at veterinarians
who place high importance on quality of
life and see endocrinology as a satisfying
discipline.

Our customers will feel informed and
empowered. And our people will feel
proud and motivated.

23481.04 11 September 2014 10:44 AM Design A

www.dechra.com Stock code: DPH
60

Case Study: Italy

By 2013, DVP EU had a sales and
marketing organisation in every major
European market with the exception
of one, the c.€650m Italian market.
Dechra’s product portfolio was already
established in Italy, with over 20 product
licences covering multi-species in both
CAP and FAP which were exported to
and sold by eight distribution partners.

However, to deliver on our strategic
pillar of geographical expansion, we
recognised that this market offered
unexploited potential. We believed that
with our own sales team focusing solely
on our own portfolio, we could increase
sales and capture the whole margin.

The Italian system sees independent,
self-employed sales agents work with
product manufacturers and distributors,
receiving commission as a percentage
of sales. This meant that only a small
‘back office’ team, led by a country
manager, would be needed. The costs
of establishing this team would be more
than covered by the increased sales we
believed our team could generate and
the higher margins achieved by cutting
out the distribution middle man.

We recruited a country manager and
a number of staff who had previously
worked for Janssen Pharmaceutica, a
company that had distributed Dechra
products for a number of years in Italy.

These new members of the Dechra
Italian team have excellent experience
(selling Dechra products for over ten
years) and vital knowledge of the local
market, ensuring the establishment of the
new entity was a smooth process.

Dechra’s sales and marketing team
in Italy began selling on 1 March; the
phasing out of the eight distribution
partners is ongoing.

23481.04 11 September 2014 10:44 AM Design A

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014Strategic Report Our Performance

Case Study: PSPC Inc.

In May 2014 Dechra acquired the trade
and assets of PSPC Inc., a Florida US
based business, to enhance our product
portfolio. As is often the case in business
development, the first contact was made
15 months earlier. We started the initial
discussions to acquire the business at
a world veterinary congress (NAVC) in
January 2013 as we had recognised
that PSPC’s principal product would
be an excellent addition to our portfolio
and add further critical mass to our US
business.

The principal product of the business,
Phycox, is a patented nutraceutical
prescribed by veterinary surgeons as a
supplement for dogs and horses with
osteoarthritis and poor joint health.
Phycox contains glucosamine, MSM,
creatine, antioxidants and phycocyanin.

Phycocyanin is an extract from
blue-green algae that has a patent
which supports its use as a COX-2
selective agent that alleviates pain and
inflammation without the side effects
which occur with NSAID that are not
COX-2 selective. The use of phycocyanin
is unique to Phycox and provides us with
a significant marketing advantage in a
market estimated to be US$55 million.

Phycox is available in a range of
formulations suitable for dog breeds of all
ages to support healthy joints as well as
muscle and bone health. There is also a
pack presentation indicated for horses,
which is complementary to our equine
product sector. Our initial marketing
objective will be to increase the adoption
of the product by new veterinary
practices. Historically the product was

sold through approximately 3,000
practices. By including Phycox in our
basket of marketed products, we could
potentially access most US veterinary
clinics.

We were also keen on acquiring the
business as it had other products in
development, including a chewable
canine product which is comparable
to our European market leading brand,
Forthyron, for the treatment of endocrine
disorders in dogs. The product, to
be branded Levocrine™ in the US,
will be launched in the second half of
our 2015 financial year and will be an
excellent complementary product to our
successful endocrine range.

23481.04 11 September 2014 10:44 AM Design A

www.dechra.com Stock code: DPH03

Our Governance

23481.04 10 September 2014 9:43 AM Design A

Our Governance

Board of Directors
Corporate Governance
Audit Committee Report
Nomination Committee Report
Directors’ Remuneration Report

64
66
78
84
86
106 Social, Ethical and Environmental

Responsibilities

112 Directors’ Report – Other Disclosures
115 Statement of Directors’ Responsibilities

23481.04 10 September 2014 9:43 AM Design A

Board of Directors

Michael Redmond Non-Executive Chairman

Committee Membership
Nomination (Chairman), Remuneration.

Skills and Experience
Michael has extensive board level international
pharmaceutical experience, having held
Non-Executive Director and Chairman roles in a
number of healthcare related companies, both
private and public, in the UK, Germany and Canada.
Furthermore, as a result of Michael’s tenure with
the Company, he has a detailed knowledge and
understanding of Dechra.

Background
Michael joined the Company as a Non-Executive
Director in April 2001, and was appointed Chairman

Ian Page Chief Executive Officer

Committee Membership
Not applicable.

Skills and Experience
Ian has gained detailed knowledge and experience
through various positions he has held within the
pharmaceutical and veterinary arena. He has solid
understanding of how business develops both in
the UK and globally. In particular he has extensive
experience in M&A and successful delivery on
strategic plans.

in July 2002. He began his pharmaceutical career
with Glaxo and went on to hold a number of senior
positions within 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 1996 following its takeover by RPR.

External Appointments
In November 2009, Michael was appointed
Chairman of Abcam PLC, an AIM listed company,
previously having held the post of Deputy Chairman
(appointed February 2009). Michael has announced
his intention to stand down from this position at
Abcam’s 2014 Annual General Meeting.

Background
Ian joined NVS at its formation in 1989 and was
an integral part of the MBO in 1997, becoming its
Managing Director in 1998. He joined the Board in
1997 and became Chief Executive Officer in 2001.
Ian has played a key role in the development of the
Group’s growth strategy.

External Appointments
In October 2010 Ian was appointed as
Non-Executive Chairman of Sanford DeLand Asset
Management.

Anne-Francoise Nesmes Chief Financial Officer

Committee Membership
Not applicable.

Skills and Experience
Anne-Francoise has considerable experience in the
pharmaceutical industry covering all finance activities
from R&D, manufacturing and commercial finance
as well as corporate finance. Having worked in
international organisations, she brings a strong focus
on process improvements, governance, M&A and
strategy execution.

Anne-Francoise worked at GlaxoSmithKline PLC
(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 and commercial finance
and between 2003 and 2006 was Vice-President
Finance Controller for Europe. Prior to this, she held
finance roles with John Crane, Tetra Pak, ADP and
Caterpillar UK.

Background
Anne-Francoise was appointed Chief Financial
Officer in April 2013. Prior to joining the Group,

External Appointments
None.

Tony Griffin Managing Director, Dechra Veterinary Products EU

Committee Membership
Not applicable.

Skills and Experience
Tony has over 25 years’ experience in the animal
health business and has substantial international
experience as a result of living and working outside
the UK since 1993. He gained broad experience
of running an international animal health business
with teams in different European countries as Chief
Executive Officer of the AUV Group. Tony Griffin is
the Board nominated Director responsible for health,
safety and environmental matters.

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, becoming the Chief Executive
Officer of the AUV Group in 2006.

External Appointments
None.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201465

Ishbel Macpherson Senior Independent Non-Executive Director

Committee Membership
Audit, Nomination, Remuneration.

Skills and Experience
Ishbel has detailed knowledge and understanding
of the institutional investor community gained over
20 years’ experience as an investment banker,
specialising in UK mid-market corporate finance.
She has solid PLC Board experience in a variety
of roles, including Chairman, Audit Committee and
Remuneration Committee Chairman.

Background
Ishbel joined the Group as a Non-Executive Director
in February 2013. Prior to this 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 a Non-Executive Director at Dignity plc and
Galliford Try plc. She is also Senior Independent
Director at Bonmarche Holdings plc and Chairman of
Speedy Hire plc.

Dr Christopher Richards Non-Executive Director

Committee Membership
Remuneration (Chairman), Audit, Nomination.

Skills and Experience
Chris has more than 30 years’ experience of the
development and marketing of highly regulated
products for the agrochemical and related industries.
He has extensive international experience, which
includes more than ten years working in Asia and
South America.

Background
Chris joined the Group as a Non-Executive Director
in December 2010. He is Chairman of Arysta
LifeScience Corporation, having previously been
its President and Chief Executive Officer from 2004

Julian Heslop Non-Executive Director

Committee Membership
Audit (Chairman), Nomination, Remuneration.

Skills and Experience
Julian has considerable financial experience as a
result of the senior finance roles he has held in the
pharmaceutical, food, property and brewing sectors
over the last 30 years.

Background
Julian joined the Board in January 2013. He served
as Chief Financial Officer of GSK between 2005 and
2011, having previously been appointed its Senior
Vice President, Operations Controller between

Zoe Goulding Company Secretary and Solicitor

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).

2001 and 2005 and as Financial Controller of
Glaxo Wellcome PLC between 1998 and 2000.
Prior to this, Julian held 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.

Committee Membership
Not applicable.

Skills and Experience
Zoe has over 14 years’ experience as a Solicitor
having held positions both in private practice and
in-house.

Background
Zoe was appointed as Company Secretary in July
2007. Prior to joining the Group she worked at
Deloitte LLP, Eversheds LLP and Brammer plc.

External Appointments
None.

Our Governancewww.dechra.com Stock code: DPH66

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 2014.

This has been a year of strategic
transformation for Dechra, following the
divestment of our Services Segment
and subsequent refinement of our
strategy focusing on being a pure
international veterinary pharmaceutical
and related products company. The
Board understands the importance
of ensuring that there is a strong
governance framework in place, which
underpins Dechra’s ability to achieve
its strategic goals, whilst still allowing
the management of the business to
exercise their skills and experience in
an entrepreneurial manner. This report
details the Company’s governance
framework and provides an overview
of how the Company has applied the
main principles of the UK Corporate
Governance Code (the Code) throughout
the year.

Leadership
During the year there were a number of
Board changes: Neil Warner retired at the
Annual General Meeting in October 2013,
following which, Ishbel Macpherson was
appointed as the Senior Independent
Director and Julian Heslop as the Audit
Committee Chairman; at the beginning of
2014 Ed Torr stood down as an Executive
Director. Both Neil and Ed have played
an instrumental part in the evolution and
growth of Dechra and on behalf of the
Board I would like to thank them for their
commitment, loyalty and hard work for the
business over the years.

In terms of my tenure as Chairman, it
has been decided by the Nomination
Committee that, given the changes to the
Board over the past few years, it would
be prudent for me to remain in position
until the 2016 Annual General Meeting.
This will allow the newly refreshed Board
to settle into their roles and consolidate
their understanding of the Group over a
reasonable period of time. The search
for my successor will be overseen by
Ishbel Macpherson and will commence
in early 2015.

Effectiveness
During the year Independent Audit
Limited were commissioned to carry out
an independent external evaluation of the
Board and its Committees. The findings
of the evaluation and the corresponding
actions are detailed within the report.
The Board will now work together
over the coming year to implement the
evaluation’s recommendations. Overall,
the Board was considered to have the
requisite skills and experience necessary
to take the business forward.

Accountability
The Board has worked alongside
Deloitte LLP during the year to review
and strengthen the risk assessment
framework across the Group. The newly
formed Senior Executive Team (SET)
is seen as pivotal in ensuring that the
risk framework is embedded across the
Group, and the Board’s rolling agenda
now encompasses detailed reviews of
each of the risks identified. Further detail
in respect of this project can be found on
pages 46 to 49.

Michael Redmond
Non-Executive Chairman

Further detail in respect of the SET can be
found on pages 32 to 33.

View further content on our website:
www.dechra.com

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014The new Code provision requires the Directors to explain their
responsibility for preparing the Annual Report and Accounts and
confirm that they consider, taken as a whole, it is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the performance, strategy and business
model of the Group. The Audit Committee has been asked to
assist in reviewing the process undertaken by management.
Further detail in relation to this is included in the Audit Committee
Report on page 81. Following assurance from the Audit
Committee the Board is able to give this confirmation.

Relations with Shareholders
The Annual General Meeting will be held in London on
24 October and I would like to take this opportunity to
encourage our shareholders to attend. As ever, it will provide
investors with an opportunity to meet the Board and ask any
questions that you may have in respect of the Group’s activities.

Finally, should you have any questions in relation to the report,
please feel free to contact me or the Company Secretary.

Michael Redmond
Non-Executive Chairman
8 September 2014

Our Governancewww.dechra.com Stock code: DPH68

Corporate Governance

Compliance with the 2012 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. In the opinion of the Directors, the Company has
complied with the Code (June 2010 and September 2012)
throughout the period.

Leadership
The Role of the Board
The Board’s primary responsibility is to promote the long
term success of the Company by the creation and delivery
of sustainable shareholder value. The Board aims to achieve
this through the establishment and delivery of the Group’s
strategy and ongoing monitoring of its progress. Following
the divestment of the Services Segment the Board refined its
strategy around four growth drivers:

• Product Development;

• Portfolio Focus;

• Geographical Expansion; and

• Acquisition.

Accompanying KPI’s have been developed over the year in
order to monitor progress of the implementation and delivery of
the strategic plan. Further details are provided on pages 44 to
45.

Board Membership
Details of the Directors together with their biographical details
can be found on pages 64 to 65.

The Chairman
The primary role of the Chairman, Mike Redmond, 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 maintains 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 two roles
and their corresponding responsibilities, which were reviewed
and updated during the year.

The Chairman, at the time of his appointment, met and
continues to meet the independence criteria defined within the
Code. Further details in relation to the tenure of the Chairman
can be found in the Nomination Committee Report on pages 84
to 85.

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. It is
considered that each of the Non-Executive Directors brings with
them a breadth of experience which adds value to the decision
making of the Board as well as the formulation and progression
of the Dechra strategy.

Senior Independent Director
Following Neil Warner’s retirement from the Board in October
2013 Ishbel Macpherson was appointed as the Senior
Independent Director. She provides a sounding board for the
Chairman and 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. During the course of
the forthcoming year Ishbel will take the lead responsibility for
the recruitment of the Chairman’s successor.

Chief Executive Officer
The Chief Executive Officer, Ian Page, has day-to-day
responsibility for the management of the Group. Alongside the
SET, 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.

Chief Financial Officer
The Chief Financial Officer, Anne-Francoise Nesmes, 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.

Managing Director of Dechra Veterinary Products EU
The DVP EU Managing Director, Tony Griffin, has responsibility
for the majority of the Group’s turnover and roll out of the
Group’s strategy across the EU. He is also the nominated
Director for health, safety and environmental matters.

Company Secretary
The Board is assisted by the Company Secretary, Zoe Goulding.
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.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201469

Matters Reserved for the Board
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

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 and Half-Yearly Reports and dividend policy
Approval of development expenditure
Approval of budget
Approval of treasury policy

Internal Controls

Review and approval of internal controls and risk management policies and processes

Corporate Governance

Board and Committee composition
Corporate Governance matters
Approval of policies such as Health and Safety and the Anti-Bribery and Anti-Corruption Policy

Board Meetings
Directors are expected to attend all Board and Committee meetings of which they are a member. The Board is scheduled to meet
nine times per year. During the year two additional meetings were held; one in relation to the disposal of the Services Segment and
one in relation to the acquisition of the trade and assets of PSPC Inc.

Attendance at the Board and Committee meetings during the year to 30 June 2014 is set out in the table below:

Mike
Redmond

Anne-
Francoise
Nesmes

Ian
Page

Tony
Griffin

Ishbel
Macpherson

Dr Chris
Richards

Julian
Heslop

Ed
Torr‡

Neil
Warner†

Appointment
Date

19 April
2001

13 June
1997

22 April
2013

1 November
2012

1 February
2013

1 December
2010

1 January
2013

31 October
1997

2 May
2003

Board

Audit
Committee

Nomination
Committee

Remuneration
Committee

n/a

† Neil Warner attended one out of three Board meetings, two out of two Remuneration Committee meetings and one out of one Audit Committee meetings based on the number of meetings held

prior to his date of retirement.

‡ Ed Torr attended five out of six Board meetings based on his date of resignation.

Our Governancewww.dechra.com Stock code: DPH70

Corporate Governance continued

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 papers are 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.

Board Meeting Agenda and Papers
The Directors are supplied in a timely manner with all relevant
documentation and financial information to assist them in the
discharge of their duties. Prior to all Board meetings an agenda
and supporting documentation are circulated to the Board.

During the year, in addition to its routine business, the Board considered the following matters:

5 July 2013
(Northwich)

9 July 2013
(Special meeting
via telephone
conference)

29 August 2013
(Northwich)

17/18 October 2013
(Northwich)

6 December 2014
(London)

9 January 2014
(Northwich)

• Product

• Approval of

• Review year end

the disposal of
the Services
Segment

results

• Board evaluation

Development
presentation
by Susan
Longhofer

• Review of the
consolidated
budget 2014

• Services
Segment
disposal update

• Risk

Assessment
Review

• Review quarter

two results

• HR Director
recruitment
update

• Update on key

financial projects

• 5+7 re-forecast
and review of
pre-close trading
statement

• Review and
approval of
DVP EU
strategic plan

• Review and
approval of
DVP Italy
business plan

• Review quarter
one results
and approval
of amended
budget process

• Product

Development
presentation
by Susan
Longhofer

• Review and

• Update

approval of the
capex for the
Liquids, Creams
and Ointments
facilities upgrade
at Skipton

• Strategy

discussion

• Product Pipeline

review

on internal
controls/risk
management
project

• Post Eurovet
acquisition
review

• Review of
Dechra’s
Operating
Segments

• Review of
delegated
authorities

• Six monthly
health and
safety review

• HR Director
recruitment
update

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201471

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;

• Product Development and Regulatory Affairs Director; and

• Group IT Director.

In addition, a health and safety update is received at each
meeting.

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 and also
ensures that a review of the risks surrounding that area, along
with the appropriate mitigating actions, is carried out. This
provides an opportunity for each member of the SET, along
with other senior managers in the business, to present to the
Board in respect of their individual areas of responsibility. It also
ensures that the Board gains a more in-depth understanding of
the overall business and how the Group strategy is deployed
and monitored.

The Chairman and the Non-Executive Directors generally meet
the night 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.

21 February 2014
(Northwich)

3 April 2014
(Birmingham)

1 May 2014
(Northwich)

14 May 2014
(Special meeting
via telephone conference)

6 June 2014
(Sansaw, Shrewsbury)

• Review of half-yearly

• Vetoryl marketing

• Review quarter three

• Review of the

results

• IT Strategy and
Cyber Risk
presentation by
Allen Mellor

• Strategic plan

update

• Board evaluation
tender update

• Review of delegated

presentation by Giles
Coley

• DVP US Strategy
presentation by
Mike Eldred and
Nancy Zimmerman

• Review and approval

of revised KPIs

• Update on key

financial Projects

authorities

• Update on change of

• Review of PSPC Inc.
trade and assets
acquisition

Registrar

results

• Six monthly review of

strategic plan

• Review and

approval of strategic
milestones

• 8+4 re-forecast

• Review of Phycox

acquisition

acquisition of the
trade and assets of
PSPC Inc.

• Establishment of a

committee to finalise
and approve the
acquisition

• DVP Canada
Business Plan
presentation by
Mike Eldred and
Paul Ray

• DVP UK Strategy

and Product
Marketing
presentations by
Mark Floyd and
Ellie Rothnie

• Six monthly health
and safety review

• Review and approval

of treasury policy

• Review of new
banking facilities

• Review and

approval of Terms
of Reference for
the Chief Executive
Officer and the
Chairman

• Review and approval
of matters reserved
for the Board

Our Governancewww.dechra.com Stock code: DPH72

Corporate Governance continued

Board Committees
The Board has formally delegated specific responsibilities to Committees, in particular the Audit, Remuneration and Nomination
Committees. A summary of the terms of reference of each of the Committees is set out in the table below. The full terms of
reference for each of these Committees are available on the Company’s website or on request from the Company Secretary.

Committee

Role and Terms of Reference

Membership Required
under the Terms of Reference

Committee
Report on
Pages

Audit

The main responsibilities are:

• At least three Non-Executive Directors.

78 to 83

• All members should be independent

Non-Executive Directors.

• to monitor the integrity of the financial

statements of the Group, and assist the Board
in ensuring that the Annual Report, taken as a
whole, is fair, balanced and understandable;

• to review the effectiveness of the Group’s

internal financial controls systems as described
on pages 81 to 82;

• to oversee the relationship with the external
auditor, monitor their independence and
objectivity, and set the policy for non-audit work;
and

• to make recommendations to the Board on the

requirement for an internal audit function.

Remuneration

The main responsibilities are:

• At least three Non-Executive Directors.

87 to 105

• All members should be independent

Non-Executive Directors.

• to determine the remuneration, bonuses, long
term incentive arrangements, contract terms
and other benefits in respect of the Executive
Directors and the Chairman;

• to oversee any major changes in employee

benefit structures; and

• to approve the design of any employee share

schemes.

Nomination

The main responsibilities are:

• At least three.

84 to 85

• A majority of the members should be
independent Non-Executive Directors.

• 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.

The Board also appoints Committees on an ad hoc basis to approve specific projects as deemed necessary.

Director Insurance and Indemnities
The Company maintains an appropriate level of Directors’ and Officers’ insurance in respect of legal action against Directors as
permitted under the Company’s Articles of Association and the Companies Act. The Company also indemnifies the Directors under
an indemnity deed with each Director in respect of legal action to the extent allowed under the Company’s Articles of Association
and the Companies Act. As at the date of this report qualifying third party indemnity provisions are in force. A copy of the indemnity
provisions will be available for inspection at the Annual General Meeting.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014Effectiveness
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 retirement of Neil Warner as Senior Independent Director

and Chairman of the Audit Committee: 17 October 2013

• The resignation of Ed Torr as Business Development Director:

31 January 2014

As stated earlier in this report, the Chairman will stand down at
the 2016 Annual General Meeting. The search for his successor
will commence in early 2015.

Length of Tenure of Chairman and Non-Executives Directors
2

0 to 2
years

2 to 6
years

6 to 9
years

9+
years

Board Composition
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 which is integral to
the decision making process of the Board.

Non-Executive Chairman 14.28%

Non-Executive Directors 42.86%

Executive Directors 42.86%

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.

Male

Female

Executive Non-Executive

Entire
Board

SET

Overall Workforce

Male 55.6%

Female 44.4%

Male 47.6%

Female 52.4%

In terms of female representation below Board level 44.4% of
the SET and 52.4% of the overall workforce are female.

Conflicts of Interest
Pursuant to the Companies Act 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.

Our Governancewww.dechra.com Stock code: DPH
74

Corporate Governance continued

Induction and Training
In order to ensure that the Board maintains its knowledge
and familiarity with the Group’s operations 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 Veterinary
Products UK in Sansaw. This provided the Board with an
informal opportunity to meet with senior management based at
this site.

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. Field visits with
members of the UK sales team are currently being organised for
each of the Non-Executive Directors and the Chairman. This will
give them the opportunity to observe the sales teams activity
in the field and their day-to-day interaction with practising
veterinarians.

The Chairman and Company Secretary 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 Directors’ Remuneration Report Regulations,
changes to the Code and the new strategic report proposals.
In addition, the Company Secretary informs the Directors of any
external training courses which may be of relevance.

Action

Progress

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.

Board Evaluation
The Board undertakes an annual evaluation of its performance
and that of its Committees.

• The 2013 Board evaluation:

An internal evaluation was completed during 2012/2013
focusing on 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 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 at the August 2013 Board Meeting. 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 year’s action points. The main action
points were as follows:

Following the divestment of the Services Segment a
refinement of the Group strategy was required.

A refinement of the Group strategy commenced with a SET workshop
which highlighted the main areas of strategic focus. Following this the
Chief Executive Officer and Chief Financial Officer drafted a comprehensive
strategic plan for discussion with the Board at its October meeting. The
plan was approved by the Board, following which, strategic milestones and
KPI’s were established to enable that progress of the strategy could be
appropriately monitored.

More detail in relation to the strategy can be found on pages 20 to 22 and the KPI’s on
pages 44 to 45.

Review of the internal controls and risk assessment
process was to be undertaken.

Following a successful tender, Deloitte LLP was appointed in December
2013 to assist with a review and strengthening of the current controls and
risk assessment process.

More detail in relation to the project can be found in the Audit Committee Report
on page 81.

An independent specialist HR recruitment company, Frazer Jones LLP,
was retained in November 2013 to assist with the search for a new Group
HR Director. Following a successful selection process, Katy Clough was
appointed to the position at the end of April 2014.

More detail in relation to the Group HR Director’s strategic plan can be found on page 34.

Recruitment of a Group HR Director.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201475

• The 2014 Board evaluation

During the year Independent Audit Limited (Independent
Audit) was commissioned to carry out an external evaluation
of the Board and its Committees. The process undertaken by
Independent Audit involved:

• a review of the Board and Committee minutes, agenda

papers and ancillary documents; and

• one to one meetings with each member of the Board and
the Company Secretary. Prior to the meetings a list of
‘focus items’ was forwarded to each interviewee which
included the role of the Board and its Committees, focus
on strategic versus operational matters, the Chairman’s
leadership, relationships between Executive and Non-
Executive Board members along with areas for discussion
such as risk, Board composition and succession planning

Following the interviews a comprehensive report was
compiled for initial discussion with the Chairman and
Company Secretary, after which there was a presentation to
the Board in relation to the various findings and suggested
actions.

The findings were presented to the Board in July, at which it
was agreed that time be set aside at the Board meeting to be
held on 1 September to establish an implementation plan and
time frame in relation to the various findings.

The actions and progress made will be reported in next year’s
Annual Report.

The Board will perform a further external evaluation in three
years’ time. Internal evaluations will be completed during the
intervening period.

Re-election of Directors
On appointment, Directors are required to seek election at their
first Annual General Meeting following appointment. At the
forthcoming Annual General Meeting, all of the Directors will
retire and offer themselves for re-election. Each of the Directors
has been subject to a formal evaluation by the Nomination
Committee and it is considered that each Director 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 shareholders. The Board therefore
recommends that shareholders vote in favour of their respective
re-elections.

Accountability
Financial Reporting
The Board seeks to present a fair, balanced and understandable
assessment of the Group’s position and prospects.

The responsibilities of the Directors and the external auditor in
connection with the Financial Statements are explained in the
Statement of Directors’ Responsibilities and the Independent
Auditor’s Report on pages 115, and 118 to 120 respectively.

Preservation of Value
The basis on which the Group generates and preserves
value over the longer term and the strategy for delivering the
objectives of the Group are to be found in the Strategic Report.

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 on pages 6 to 61. The principal
risks that may affect the Group’s future performance are set out
on pages 46 to 49.

During the year being reported, trading has been resilient
with an improvement in profitability being achieved. The
net proceeds from the disposal of the Services Segment to
Patterson Companies, Inc. in August 2013 were used to reduce
the Group’s debt through the payment and cancellation of the
Group’s then existing £50.0 million term loan facility and the
reduction in amounts drawn under the Group’s then existing
£65.0 million revolving credit facility.

In order to ensure that the ongoing funding requirements of
the Group are aligned to its strategic objectives, the Group has
completed a refinancing and entered into a facilities agreement
in September 2014 (the Facility Agreement) with a syndicate of
banks comprising HSBC Bank plc, The Royal Bank of Scotland
plc and Barclays Bank PLC (the Banks) under which a facility
of £120.0 million was made available. The Facility Agreement
includes a committed revolving credit facility of £90.0 million,
together with an ‘Accordion’ facility of £30.0 million. The facility
is committed for five years until September 2019.

As at 30 June 2014 the Group had cash balances of
£26.8 million and net debt of £5.0 million.

The Directors have a reasonable expectation that both 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.

Our Governancewww.dechra.com Stock code: DPH76

Corporate Governance continued

Internal Control and Risk Management
The Directors are responsible for maintaining the Group’s
system of internal control and risk management and for
reviewing its effectiveness from a financial, operational and
compliance perspective. These systems aim 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.

The system of internal control is designed to mitigate rather
than eliminate risk of failure of delivery of the 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 controls for
identifying, evaluating and managing the significant risks faced
by the Group. A framework has been in place throughout the
year under review, and has continued up to the date of approval
of the Annual Report.

The Group’s control framework comprises the following tiers
and is underpinned by the Dechra Values.

Management
Structure

Policies and Procedures

Business Planning

Operational Level Controls

Quality
Assurance

Pharmacovigilance

Information
Technology

Financial
Controls

Dechra Values

• Management Structure

The Board, assisted by the SET, ultimately sets the tone in
relation to the level of risk and control which it is willing to take
in achieving the Group’s strategic goals.

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 embedded within all
of the business units.

Each business unit is represented at the SET by their
respective Managing Director, along with the Executive
Directors, Company Secretary, Group IT and HR Director.
Together they aim to ensure that the Group policies,
procedures and authority levels are consistently embedded
across the Group and reviewed on a regular basis. Any
amendments or actions arising from these reviews are then
communicated by the SET to the Board.

• Policies and Processes

There are a number of centrally defined financial, legal and
compliance policies and procedures which are embedded
across the Group:

(i) Delegated Authorities: This document establishes both
operational and financial levels of authority below Board
level and is reviewed on an annual basis along with the
schedule of matters reserved to the Board. The document
aims to ensure that the authority levels in place provide a
robust level of control but without hindering the day-to-day
administration of the business.

(ii) Anti-Bribery and Corruption: This policy has been

implemented across the Group alongside training to all
relevant employees. The policy aims to ensure that:

• no bribes or facilitation payments are made;

• all gifts and hospitality given or received are maintained
within agreed limits and are recorded by the employees;
and

• all third party arrangements are reviewed in order to

ascertain whether or not they could be deemed to be a
significant bribery risk.

(iii) Whistleblowing: This policy 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.

(iv) Code of Business Conduct: This policy sets out the

standards of conduct to be adopted by all employees when
acting on behalf of the Group. In setting these standards
the Board aims for Dechra to maintain a reputation for
acting responsibly and with integrity. More information
in relation to the Code of Business Conduct is provided
within the Social, Ethical and Environmental Responsibilities
Report on page 107.

(v) Charitable Donations Policy: This policy sets out the

authorised limits and types of charities to which charitable
donations may be made. There are strict limitations on
giving donations to businesses which Dechra may have had
a previous commercial relationship with. More information
in relation to the Charitable Donations Policy is provided
within the Social, Ethical and Environmental Responsibilities
Report on page 106.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014• Business Planning

Business Plans and Strategy Discussion: We have
established a five year strategic plan which is reviewed
and updated by the Board twice a year. This provides a
framework within which a two year budget and forecasts
are set with each business unit. The plans are reviewed by
the Executive Directors, and then by the Board for ultimate
approval. The businesses’ performance during the financial
year is monitored monthly against budget, forecasts and
previous year. Relevant KPI’s are also established which allow
transparency of progress of both the Group’s and business
units’ strategic goals.

Pipeline Review: The pipeline is reviewed on a regular basis
with a view to (i) ensuring that products within the pipeline are
progressing according to schedule; and (ii) adding new ideas
to the pipeline, after an initial exploratory review, to ensure a
consistent flow of new products in Dechra’s product portfolio;
and (iii) measuring returns.

Operational Level Controls
Quality Assurance: Across the Dechra Manufacturing sites
there is an established Quality Management System which,
at the Skipton site, is accredited to BS 9001. This system of
processes and procedures aims to ensure that all products
leaving our manufacturing facilities have been manufactured
to the highest standard.

Pharmacovigilance: Dechra has invested heavily over several
years on establishing a robust pharmacovigilance system with
a view to ensuring that any adverse event reactions related to
the use of our products are reported and dealt with promptly.

Information Technology: Dechra first established Oracle at the
Skipton site over seven years ago. Following the appointment
of a Group IT Director, in 2012, there is a schedule and plan
to implement the system across the Group.

Financial Controls: Work has been carried out during the year
to strengthen the financial controls across the Group. The
financial control element is split into three stages:

• Entity Control Levels: controls performed by Head Office

and senior management across the Group;

• Month End and Year End Procedures: controls performed

by business unit management; and

• Transactional Level Controls: Controls operated on a day-

to-day basis.

Together, these three levels of controls set the structure of
Dechra’s financial control framework which aims to prevent
and detect misstatement or fraud.

• Dechra Values

It is the Board’s aim that the Dechra Values should underpin
all actions and behaviour of the Group’s employees providing
an important role in ensuring that they understand what is
expected of them and how they can assist in achieving the
Group’s strategic objectives.

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
shareholders, analysts and the media. These meetings are in
addition to the Annual General Meeting and seek to foster a
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 all 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.

Feedback is collated by the Company’s brokers after such
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.

Constructive use of the Annual General Meeting
All members of the Board are scheduled to attend the Annual
General Meeting (the Meeting) and the Chairmen of the Audit,
Remuneration and Nomination Committees will be available
to answer shareholders’ questions at the Meeting. Notice of
the Meeting is dispatched to shareholders at least 20 working
days before the Meeting. The information sent to shareholders
includes a summary of the business to be covered, with a
separate resolution 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. Following which the results of votes lodged
for and against each resolution are announced to the London
Stock Exchange and displayed on the Company’s website. At
the Meeting there will be an opportunity, following the formal
business, for informal communications between shareholders
and Directors.

Our Governancewww.dechra.com Stock code: DPH78

Letter from the Audit Committee Chairman

We have also continued to work closely
with KPMG throughout the 2014 financial
year. In advance of the Committee’s
review of both the half-yearly and year
end results, I have held a meeting with
the Lead Audit Partner, his team and
Anne-Francoise Nesmes, the Chief
Financial Officer, to review and discuss
the key matters impacting the results and
any major audit points raised. I also met
privately with the Lead Audit Partner prior
to the Committee’s review of the year
end results. As set out in last year’s
report the Committee will undertake an
external audit tender process during
the next financial year to coincide with
the rotation of the current Lead Audit
Partner. The successful audit firm will be
responsible for all external audit work
from the commencement of the 2016
financial year.

Finally, we specifically reviewed, at
the request of the Board, whether the
2014 Annual Report was fair, balanced
and understandable and concluded
that it was. The basis supporting our
conclusion is set out on page 81.

Julian Heslop
Audit Committee Chairman

Dear Shareholder

Following my first year as Chairman of
the Audit Committee, I am pleased to
present this year’s Audit Committee
Report which fully reflects the changes
required under the UK Corporate
Governance Code (the Code) and the
Guidance on Audit Committees issued
by the Financial Reporting Council (FRC)
in September 2012. The report is split
into four sections which provide an
overview on:

• the Committee’s purpose and function;

• its major activities during the year

(including primary areas of judgement
on the financial results);

• our review of internal financial controls
and the requirement for an internal
audit function; and

• our interaction with the Company’s

external auditor and the results of our
assessment of the quality of their work
and their integrity and independence.

During the period under review we
have focused particular attention on
significant matters such as the profit on
the divestment of our Services Segment
and the valuation of intangibles. This is
particularly important where judgement
is involved and is supported by the
independent review and challenge
of our external auditor, KPMG LLP,
and our discussions with them. The
following report makes clear the specific
judgements and factors the Committee
considered in reviewing these matters on
page 80.

We appointed Deloitte LLP during the
year to review the Group’s internal
financial controls and risk framework
and management are now working
closely with Deloitte to implement
recommendations arising from their
report. The Committee will continue to
monitor progress on a regular basis.

Julian Heslop
Audit Committee Chairman

Further detail in relation to risk framework
and management can be found on pages 46
to 49.

View further content on our website:
www.dechra.com

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
79

Audit Committee Report

The Committee’s Purpose and Function
Membership, Meetings and Attendance
The membership of the Audit Committee (the Committee),
together with appointment dates and attendance at meetings is
detailed on page 69 of the Corporate Governance Report.

In accordance with the Code, the Board considers that Julian
Heslop has recent and relevant financial experience as a result
of his financial background and qualification. In addition, its
other two members, Dr Chris Richards and Ishbel Macpherson
provide different but specific skills and experience which
support the Committee in meeting its objectives as set out in its
terms of reference. The biographies of all Committee members
are detailed on pages 64 to 65. All members of the Committee
are considered to be independent, in line with the Code.

The Company Secretary, Zoe Goulding, also attends each
meeting and acts as its secretary. Zoe Goulding assists the
Chairman in ensuring that all Committee papers are provided
prior to each meeting in a timely manner and provides advice to
the Committee on all governance related matters.

The Lead Audit Partner together with the Chief Executive Officer
and Chief Financial Officer attend each meeting at the Committee’s
invitation. Other members of the Board also normally attend each
meeting together with the Group Financial Controller.

Meeting Date

Main Activities

The Committee has discussions at least twice a year with the
external auditor without management being present including
the meeting which reviews and endorses the annual results.

Neither the Company nor its Directors have any relationships
that impair the external auditor’s independence.

Role and Responsibilities
The main role and responsibilities of the Committee are set out in
the written terms of reference which are available on the Company
website at www.dechra.com. The Board reviewed the Committee’s
terms of reference during the year and amended them to reflect the
updated Code and FRC Guidance on Audit Committees. Further
details on the terms of reference are provided on page 72 of the
Corporate Governance Report.

Major Activities of the Committee during the year
The Committee met four times since the last Annual Report was
issued. The meetings are timed to coincide with the financial
reporting timetable of the Company. The Chairman and the
Company Secretary have developed an annual programme of
business, in order to ensure that standing items are appropriately
considered alongside any exceptional matters that may arise
during the course of the year. The table below provides an
overview of the main matters discussed at the meetings.

6 December 2013

• Meeting with Deloitte LLP (Deloitte), in their capacity as the newly appointed advisers in respect of the

internal risk management and assurance project

• Discussion and review of the tax strategy project update including approval of a new tax policy

20 February 2014

1 May 2014

• Review of the Group’s half-yearly report
• Consideration of the Audit Memorandum prepared by the external auditor
• Review of the Committee’s terms of reference
• Review of non-audit fee spend (including actual and projected spend)
• Consideration of the progress of the internal risk management and assurance project
• Meeting with the external auditor without management present

• Review of the audit strategy for the year ended 30 June 2014 (including timetable, scope and fees)
• Discussion in relation to the Company expectations of the external auditor and audit process
• Review of the Anti-Bribery Policy and Company’s Whistleblowing Policy
• Consideration of the progress of the internal risk management and assurance project
• Review of a new treasury policy and recommendation to the Board of its approval
• Discussion of the programme of business for 2014/2015

1 September 2014

• Review of the Group’s preliminary statement and draft Annual Report (including the Audit Committee

Report) for the year ended 30 June 2014

• Consideration of the Audit Memorandum prepared by the external auditor, including:

• review of accounting treatment of non-underlying items
• assessment of intangible assets and goodwill
• commentary on the general control environment across the Group

• Review and approval of going concern statement
• Review of the external audit effectiveness, external auditor independence and level of non-audit fees
• Meeting with the external auditor without management present
• Discussion in relation to timetable and process for the external audit tender
• Fair, balanced and understandable assessment of the Annual Report

Our Governancewww.dechra.com Stock code: DPH80

Audit Committee Report continued

All significant matters under consideration were supported by the appropriate justification paper and fully discussed in order to
ensure that due and appropriate consideration was given before any decision was approved or action proposed. Further details in
relation to a number of the matters listed are provided below:

• Financial Judgements
The Committee reviewed the annual financial statements and, earlier in the year, the half-yearly financial statements. This process
included an analysis by management of key judgements made in determining the results over matters such as the carrying value of
intangible assets; the Committee reviewed this in detail and endorsed management’s judgements.

In reviewing both the annual and half-yearly financial statements the Committee gave particular attention to significant matters
where judgement was involved, or which were complex in nature or where adjusted numbers were provided to enhance investors’
understanding of the underlying performance. These matters were well supported by briefing papers provided by management and
were specifically reviewed and agreed by the external auditor, KPMG, in their reports to the Committee and in related discussions.
The key matters so reviewed comprised:

Significant risk considered by the Committee
in relation to the financial statements

Corresponding actions taken by the Committee
to address the issues

Review of the carrying value of intangible assets and goodwill of
£196.2 million which represents 96% of the Group net assets.

The Committee reviewed the analysis provided by
management which supported the underlying carrying values.
Special attention was paid to the assumptions relating to future
growth rates in the context of current underlying performance
including the impact and calculation of terminal values. The
impact of sensitivity analysis was also considered where
relevant. In addition, the Committee focused on the expected
longevity of the intangible assets. It also reviewed the discount
rates used.

Significant judgements considered by the Committee
in relation to the financial statements

Corresponding actions taken by the Committee
to address the issues

Reporting of the impact of the completion of the disposal of the
Services Segment in August 2013.

Review of the corporate tax rate on underlying continuing
operations for the year of 20.1% (2013: 24.1%) following the
disposal of the Services Segment and a strategic review carried
out by Deloitte.

In order to assist investors with a better understanding of the
underlying performance of the business, management present
within the financial statements figures for underlying profit
and earnings. This is reconciled to the figures provided in the
financial statements and excludes matters such as intangible
amortisation, profit on business disposal and acquisition related
restructuring costs.

The disposal of the Services Segment gave rise to a post-tax
profit on disposal of £38.6 million. The Committee reviewed
the basis supporting this calculation including tax clearances
received from HMRC and supporting audit work carried out by
KPMG.

The detailed review of the Group’s tax position and strategy
moving forward, which was undertaken by Deloitte, was
reviewed. The Committee discussed the key recommendations
and risks in respect of corporate tax and considered KPMG’s
audit work and conclusions.

The Committee reviewed the basis for calculating the
underlying figures and its consistency with previous year’s
figures. It also sought confirmation from the external auditor
that they were satisfied with the accuracy of these figures.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

• Going Concern
The Committee reviewed management’s forecasts for profit,
cash flow and net debt and the committed financing facilities
available to the Group. Based on this, it concluded that it
was appropriate to use the going concern principle for Group
reporting. Further detail in relation to this is provided on page 75
of the Corporate Governance Report.

• Fair, Balanced and Understandable Assessment

of the Annual Report

At the request of the Board, the Committee considered whether
the 2014 Annual Report was fair, balanced and understandable
and whether it provided the necessary information for
shareholders to assess Dechra’s performance (pages 38 to 49),
business model (page 14) and strategy (pages 20 to 22).

The Committee based its assessment on a review of the
processes and controls put in place by management. This
included the relevant senior management providing the
information for their own sections and their confirmation that
it was fair, balanced and understandable. In addition, the
final draft document was reviewed by members of the Senior
Executive Team (SET) which included the Chief Executive Officer
and Chief Financial Officer who also concluded that it met the
fair, balanced and understandable test.

An integral part of the process was the Committee’s final review;
other Board members and the external auditor were invited so
that issues could be debated and a final assessment made. The
external auditor also confirmed that in their opinion the Annual
Report was fair, balanced and understandable.

This assessment was carried out by the Committee on
1 September 2014, following which the Committee reported
to the Board that it was satisfied that, taken as a whole, the
Annual Report is fair, balanced and understandable.

• Tax:

The Committee reviewed and approved the tax policy which
sets out the standards the Board applies in respect of the
management of taxes and the governance it employs to
ensure those standards are embedded throughout the global
business. In particular, the tax policy governs how significant
decisions in respect of tax are made and the circumstances
which require Board approval.

Internal Financial Controls
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 financial control activities and the
requirement for an internal audit function. Further details
in respect of the internal controls are provided within the
Corporate Governance Report on pages 76 to 77.

Following the acquisition of Eurovet in 2012, the Committee
agreed that the Group was of sufficient size and complexity
to warrant the appointment of an internal audit function. The
Committee commenced discussions in relation to the role
specification in August 2012. However, following the resignation
of the then Group Finance Director it was agreed that the
discussions and subsequent recruitment 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, the Committee revisited the
necessity for an internal audit function and agreed that the
best approach was to seek tender invitations from a number of
accountancy firms (excluding the external auditor) for a review
of Dechra’s existing enterprise risk management and internal
financial controls and for an assessment of the resourcing of the
internal audit and risk assurance function.

• Review of Policies and Procedures
During the year the Committee reviewed the following policies:

Following a successful proposal and presentation, Deloitte were
appointed to the role. The project commenced in January 2014:

• Anti-Bribery and Whistleblowing:

(i) Assessment of the Risk Management Process:

The Committee reviewed the current documentation, as
circulated to all employees within the Group, and noted that
no further changes were required. The Company Secretary
has ensured that the Committee is updated on a regular
basis in respect of the ongoing training and monitoring of the
policies across the Group. In respect of the whistleblowing
policy, the Committee reviewed the process in place to report
issues and to follow up on them.

• Treasury:

An updated policy was discussed by the Committee. The
document establishes clear responsibilities for the treasury
operations of Dechra. In particular the policy defines what
matters are reserved for the Board.

Deloitte carried out preliminary interviews with the risk
owners from each Operating Segment and Head Office with
a view to gaining an insight into their perceptions of the key
risks and the current risk management framework. Following
these interviews a risk workshop was attended by the SET
which resulted in the validation of the existing risks and the
identification of a number of new risks. From within the SET,
owners have been identified to take responsibility for each of
these risks and the matter will remain as a standing agenda
item for all SET meetings going forward. In addition, each
SET member is scheduled to present to the Board, on a
rolling annual basis, to discuss strategic progress and risk
management within their function.

Our Governancewww.dechra.com Stock code: DPH82

Audit Committee Report continued

(ii) Review of Internal Financial Controls:

To date, Deloitte have carried out a review of the existing
internal financial controls of each Operating Segment. This
has comprised site visits to each of the finance functions
including Head Office. Deloitte interviewed all relevant
members of the finance teams in order to ascertain the
key judgemental and complex areas within the accounts
and identify the main areas of risk. Deloitte documented
the existing controls and recommended specific actions
to improve the control environment. The results of these
reviews have been presented to the Committee throughout
the process. Management are now working to embed these
recommendations across the Group. The Committee is
reviewing progress on a regular basis.

Finally the Committee reviewed the overall assessment of the
Group’s internal financial controls at its meeting on 1 September
2014. It concluded that there was reasonable assurance that
internal financial controls operated effectively as referred to
on pages 76 to 77 of the Corporate Governance Report. The
Committee also reviewed at that meeting the proposal on how
to resource the internal audit and risk assurance function going
forward. Further detail will be provided in next year’s Committee
Report.

External Auditor
Audit Plan
KPMG agreed their audit plan with the Committee which
included their audit scope, key audit risk areas and materiality.
The Committee discussed the audit plan with KPMG and
approved it together with the fees proposed.

Independence, effectiveness and objectivity of the audit process
The Committee reviews the independence, effectiveness and
objectivity of KPMG each year based on:

• its own assessment of the quality of the audit plan, the rigour
of the audit findings and conclusions and the extent to which
the Lead Audit Partner understands and constructively
challenges management;

• the results of a specific questionnaire on external auditor
effectiveness and efficiency (further detail on which is
provided below);

• a report prepared by KPMG setting out its processes to

ensure independence and its confirmation of compliance with
them;

• the level of non-audit fees as a percentage of the audit and

half-yearly review fees paid to the external auditor, which were
52.4% (2013: 127.6%).

As stated above, a specific questionnaire has been formulated
for completion by all finance directors across the Group who
provided information and assistance to the external auditor. The
questionnaire covered a number of areas, including:

• Quality of the audit team;

• Knowledge and understanding of the Group;

• Appropriateness of the areas of audit focus;

• Interaction with audit specialists; and

• Timeliness and adequacy of communication by the external

auditor.

The results of the questionnaire were reported to the Committee
at the meeting on 1 September 2014.

Based on the review set out above the Committee remains
satisfied of the external auditor’s independence, effectiveness
and objectivity.

Re-appointment of External Auditor
At the forthcoming Annual General Meeting a resolution to
appoint KPMG LLP as the external auditor and to authorise the
Directors to set their remuneration will be proposed.

There are no contractual obligations that restrict the
Committee’s capacity to recommend a particular firm as
external auditor and Dechra does not provide an indemnity to
the external auditor.

External Audit Engagement Director Rotation
In line with the ethical standards of the Audit Practices Board
the Lead Audit Partner is rotated every five years. The current
Lead Audit Partner was appointed during the 2011 financial
year and consequently will stand down following the completion
of the audit of the 2015 financial results.

External Audit Firm Tendering
KPMG (as KPMG Audit Plc and latterly as KPMG LLP) has
been appointed as the external 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 external auditor and the integrity of the
external audit process. However, the Committee is aware
of the recommendations in the Code in relation to the
expectation that the external audit is put out to tender every
ten years. Therefore, as reported in the 2013 Annual Report,
the Committee will undertake a tender process over the next
nine months in line with the rotation of the Lead Audit Partner.
This timing will 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 Lead Audit Partner stands
down.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014Non-Audit Assignments
With respect to non-audit assignments undertaken by the
external auditor, the Company has a policy of ensuring that the
provision of such services does not impair their independence
or objectivity.

Prior approval of the Committee is required before the external
auditor is appointed to carry out non-audit work and the
rationale for doing so is provided to the Committee, which
assess the qualification, expertise, independence and objectivity
of the external auditor prior to granting approval. As such, non-
audit fee expenditure is a standing item on the agenda for every
Committee meeting.

The Committee firmly believes that there are certain non-audit
services where it is appropriate for the Group to engage the
external auditor. During the year, the external auditor was
commissioned to carry out due diligence work in respect of
the acquisition and assets of PSPC Inc. The external auditor
was considered the most cost effective and appropriate firm to
perform this work given their detailed knowledge of Dechra’s
business. In such cases safeguards are in place to ensure
continued external auditor independence including the use of
separate teams to undertake the non-audit work separately
from the audit work. The Committee did not consider that the
performance of this non-audit work would affect or impair the
external auditor’s integrity. This is consistent with the ethical
standard published by the Accounting Practices Board.

The result of this policy is that:

(i) Deloitte was appointed in 2012 to undertake global tax
compliance work in substitution for the external auditor
and has subsequently been appointed during the year to
undertake (a) a strategic tax review for the Group and (b) an
enterprise risk management and internal financial controls
project;

(ii) KPMG were prohibited from tendering for both the enterprise
risk management and internal controls project and the global
tax compliance work; and

(iii) during the course of the year Deloitte and PwC have been

appointed to provide advice on employment and related tax
advice.

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 52.4% (2013: 127.6%)
of the annual audit and half-yearly review fee, and reflects the
policy set out above.

Our Governancewww.dechra.com Stock code: DPH84

Letter from the Nomination Committee Chairman

Dear Shareholder

On behalf of the Board, I am pleased to
present our first Nomination Committee
Report. In previous years, a report on
the activities of the Committee has
been incorporated in the Corporate
Governance Report. However, given
the recent Board changes and the
appointment of a new Group HR Director,
Katy Clough, the Committee has re-
focused its attention on succession
planning, leadership development and
talent management.

Dechra’s stance in relation to diversity is
detailed in the Corporate Governance
Report.

The following report provides an overview
of the work carried out during the year
under review.

Should you have any questions in relation
to this report or the Committee, please
feel free to contact me or the Company
Secretary.

Michael Redmond
Nomination Committee Chairman

Find out more about Our People Plan on
page 34.

View further content on our website:
www.dechra.com

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
85

The Committee considers that Michael Redmond

continues to lead the Board effectively and maintains his
independence and integrity at all times. He continues to
provide 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.

• A review of the initial observations of the incoming

Group HR Director
The Group HR Director provided her initial observations to
the Committee in respect of a number of areas including
succession planning, talent management planning and
leadership development. In respect of succession planning,
a review of the Board and Senior Executive Team has
commenced with a view to ensuring that the skills and
experience are maintained for the longer term. This
planning will continue on a regular basis to ensure that the
Group is managed by Executives with the necessary skills,
experience and knowledge. In addition, the Board has a
role to play in overseeing the management resources in the
Group and approved, in principle, the plans to formalise
a Group wide talent management and development
programme. This will provide a robust process for providing
information about the depth and quality of the leadership of
the Group.

• Appraisal Process and Re-appointment of Directors

Following an external evaluation, further details of which
are provided on page 75 of the Corporate Governance
Report, the Committee has concluded that each of the
Directors seeking re-election continues to be an effective
member of the Board. All of the Directors will stand down
and be proposed for re-election at the 2014 Annual General
Meeting.

Nomination Committee Report

Committee Membership and Attendance
The membership of the Committee, together with appointment
dates and attendance at Meetings during the year, is set out on
page 69 of the Corporate Governance Report. Other attendees
at the meetings include the Group HR Director, the Chief
Executive Officer and the Company Secretary (who acts as
Secretary to the Committee).

The Chairman does not chair the Committee meeting if it is
dealing with the appointment of his successor. The Senior
Independent Director, Ishbel Macpherson, takes the chair when
required.

Role and Responsibilities
The main role and responsibilities of the Committee are set
out in the written terms of reference which are available on the
Company website at www.dechra.com. The Committee’s terms
of reference are reviewed on an annual basis and during the
2014 financial year this took place at the February meeting. An
overview of the terms of reference is detailed on page 72 of the
Corporate Governance Report.

Principal Activities of the Committee during the year:
• Reviewing the Board Composition

Following Neil Warner’s decision to stand down from the
Board at the 2013 Annual General Meeting, the Committee
confirmed that Julian Heslop would be appointed as the
Chairman of the Audit Committee and Ishbel Macpherson
should be appointed as the Senior Independent Director.

Given Ed Torr’s decision to stand down from the Board at
the beginning of 2014, it was agreed that there would be
no requirement to appoint a replacement Non-Executive
Director. The Board is considered to be fully compliant with
the Code in relation to its balance of Executive and
Non-Executive Directors.

• Review of the Chairman’s Tenure

In light of the prior commitment to shareholders to review
the Chairman’s tenure prior to the 2014 Annual General
Meeting a review was carried out by the Committee, chaired
by the Senior Independent Director. It was agreed that, given
the number of changes which had taken place at Board
level over the past 18 months and the strategic position
of the Group following the divestment of the Services
Segment, it remained in the best interests of the Group and
its stakeholders for Michael Redmond to remain in position
as Chairman until the 2016 Annual General Meeting. It was
agreed that this would provide sufficient time to oversee
the continued development of the newly refreshed Board
and develop their understanding of Dechra further. The
recruitment process for a successor will commence in early
2015.

Our Governancewww.dechra.com Stock code: DPH

Letter from the Remuneration Committee Chairman

Dear Shareholder

On behalf of the Board, I am pleased to
present Dechra’s Remuneration Report
for the year ended 30 June 2014.

To reflect the requirements of the revised
remuneration reporting regulations, this
report is presented in two sections: the
Directors’ Remuneration Policy and the
Annual Report on Remuneration. The
Directors’ Remuneration Policy sets
out our forward looking remuneration
policy for Directors and will be subject
to a binding vote at the 2014 Annual
General Meeting. The Annual Report
on Remuneration provides details of
the amounts earned in respect of the
year ended 30 June 2014 and how the
Directors’ Remuneration Policy will be
implemented in the year commenced
1 July 2014. The Annual Report on
Remuneration will be subject to an
advisory vote at the 2014 Annual General
Meeting.

As described in the Strategic Report,
during the year the Group has made
progress in each of its four strategic
pillars:

• Portfolio Focus: we have shown

growth in our key therapeutic areas;

• Product Development: we have

received US and UK approval of a
major new equine product, Osphos;

• Geographical Expansion: new

subsidiaries have been established in
Canada and Italy, which means that
we can terminate existing distributor
agreements in these territories,
allowing us to retain the full margin
going forward;

• Acquisition: in May 2014 we

announced the acquisition of the trade
and assets of PSPC Inc.

As a result of the progress in our strategy,
we have delivered underlying profit before
tax during the year of £39.9 million, an
improvement of 18.8% on the prior year.
As a consequence, bonus payments to
Directors will be 80% of their maximum
payment.

In respect of the LTIP performance
conditions, relative TSR against FTSE
Small Cap (of which Dechra was a
member at the time of the grant of the
Awards) is in the upper quartile, with
the EPS underpin being achieved with
underlying diluted EPS of 19.25%. This
has resulted in a payout of 100% of the
LTIP Awards which vested, based on
performance to 30 June 2014. Further
detail in relation to the bonus payment
and LTIP vesting are contained on pages
97 and 99 of the following report.

No changes have been made to the
quantum or structure of either the annual
bonus or the LTIP parameters for the
forthcoming year.

During the year under review all Executive
Directors’ agreed to waive an increase
in their base salaries. Ian Page has also
waived his increase for the forthcoming
year. All other Executive Directors’ base
salaries have been increased by 3% with
effect from 1 July 2014, which is in line
with the range of salary increases given
to the wider workforce.

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 me or the Company Secretary.

Dr Christopher Richards
Remuneration Committee Chairman

Find out more in relation to the Directors’
Remuneration Policy on pages 87 to 95.

View further content on our website:
www.dechra.com

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
87

Directors’ Remuneration Report

Introduction — Key Principles
Dechra’s policy is to provide remuneration packages that:

• promote the long term success of Dechra, with stretching performance conditions, which are rigorously applied;

• 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 along with the Chairman of the Committee ensure
that contact is maintained with major shareholders about remuneration matters.

Directors’ Remuneration Policy
This part of the Directors’ Remuneration Report sets out Dechra’s Directors’ Remuneration Policy which, subject to shareholder
approval at the 2014 Annual General Meeting, shall take binding effect from the close of that meeting.

Policy Table for Executive Directors:

Element: Base Salary

Purpose and link to strategy
Core element of fixed remuneration reflecting the individual’s role and experience.

Operation
The Committee ordinarily reviews base salaries annually taking into account a
number of factors including (but not limited to) the value of the individual, their
skills and experience and performance.

Performance measure
Not applicable.

The Committee also takes into consideration:

• pay increases within the Group more generally; and

• Group organisation, profitability and prevailing market conditions.

Maximum opportunity
Whilst there is no maximum salary, increases will normally be in line with
the level of salary increase awarded (in percentage of salary terms) to other
employees in the Group. However, higher increases may be awarded in
certain circumstances, such as:

• on promotion or in the event of an increase in scope of the role or the

individual’s responsibilities;

• where an individual has been appointed to the Board at a lower than typical
market salary to allow for growth in the role in which case larger increases
may be awarded to move salary positioning to a typical market level as the
individual gains experience;

• change in size and complexity of the Group; and/or

• significant market movement.

Such increases may be implemented over such time period as the Committee
deems appropriate.

Our Governancewww.dechra.com Stock code: DPH88

Directors’ Remuneration Report continued

Element: Pension

Purpose and link to strategy
Help retain and recruit employees and provide appropriate income in retirement.

Operation
The Company operates a Group Stakeholder personal pension scheme that
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.

Maximum opportunity
The Company contributes up to 14% of salary to a pension scheme on behalf
of the Executive Directors, and/or as a salary supplement in lieu of pension
contributions where appropriate.

Element: Benefits

Purpose and link to strategy
Provided on a market competitive basis.

Performance measure
Not applicable.

Operation
The Company provides benefits in line with market practice and includes the
use of a fully expensed car, medical cover and life assurance scheme.

Performance measure
Not applicable.

Other benefits may be provided based on individual circumstances, which
may include relocation costs and expatriate allowances.

Maximum opportunity
Whilst the Committee has not set an absolute maximum on the level of
benefits Executive Directors may receive, the value is set at a level which
the Committee considers to be appropriately positioned taking into account
relevant market levels based on the nature and location of the role and
individual circumstances.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201489

Element: Annual Bonus

Purpose and link to strategy
The executive bonus scheme rewards Executive Directors for achieving financial and strategic targets in the relevant year by
reference to operational targets and individual objectives.

Operation
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.

The Committee has discretion to amend the pay-out should any formulaic
output not reflect the Committee’s assessment of overall business
performance.

Maximum opportunity
Maximum bonus opportunity for Executive Directors is 100% of base salary.

Performance measure
Operational targets (which may be based on
financial or strategic measures) and individual
objectives are determined at the beginning of the
financial year.

The personal objectives for the Chief Executive
Officer are set by the Chairman. The personal
objectives for other Executive Directors are set by
the Chief Executive Officer.

At least 75% of the bonus opportunity is based on
financial measures (which may include profit before
tax).

For financial measures, up to 15% of the maximum
for the financial element is earned for threshold
performance, rising to up to 50% of the maximum
for the financial element for target performance and
100% of the maximum for the financial element for
maximum performance.

Vesting of the bonus in respect of strategic
measures or individual objectives will be between
0% and 100% based on the Committee’s
assessment of the extent to which the relevant
metric or objective has been met.

For 2015, a bonus of up to 90% of salary may
be earned based on underlying profit before tax
targets and up to 10% of salary based on personal
objectives, as described on page 104.

Our Governancewww.dechra.com Stock code: DPH90

Directors’ Remuneration Report continued

Element: Long Term Incentive Plan (LTIP)

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 to shareholders’ interests.

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, as forfeitable shares or as cash settled equivalents (or may
settle in cash a share award).

An additional payment (in the form of cash or shares) may be made in
respect of shares which vest under the LTIP to reflect the value of dividends
which would have been paid on those shares during the vesting period (this
payment may assume that dividends had been reinvested in Dechra shares
on a cumulative basis).

Awards under the LTIP granted in November 2013 are subject to a ‘malus’
provision enabling the Committee to revoke awards in the event of a material
misstatement of the financial statements. For awards granted after 1 July
2014, the malus provision has been extended to provide the ability to revoke,
reduce or impose further conditions on unvested awards in the event of serious
reputational damage to the Company or if a previous annual bonus opportunity
has paid out at a higher level than would have been the case but for the
material misstatement or serious reputational damage to the Company.

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.

Performance measure
Performance measures under the LTIP will be
based on financial measures (which may include,
but are not limited to, earnings per share growth,
relative total shareholder return, return on capital
employed and free cash flow).

At least 50% of any award will be subject to a
performance measure based on earnings per
share.

Awards will vest as to 25% for threshold
performance, increasing to 100% for maximum
performance.

Where an option under the CSOP is granted as
part of an APSP award, the CSOP option will be
subject to the same performance condition as the
LTIP award.

For 2015, LTIP performance targets will be based
50% on total shareholder return (TSR) and 50%
on earnings per share (EPS), with each element
subject to an underpin based on return on capital
employed (ROCE) as described on page 100.

The Committee may at its discretion structure awards as Approved
Performance Share Plan (APSP) awards comprising both a tax qualifying
option granted under the CSOP and 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. Where an APSP award is granted, the qualifying
option under the CSOP will be subject to a ‘malus’ provision to the extent
permitted in accordance with the applicable legislation.

Maximum opportunity
The maximum award level under the LTIP in respect of any financial year is
200% of salary.

For the 2015 financial year, the following award levels will apply:

• Chief Executive Officer — 200%

• Chief Financial Officer — 150%

• Other Executive Directors — 100%

If an APSP award is granted, the option under the CSOP may be granted
over shares with a value of up to £30,000, or any other applicable HMRC limit
going forward. Because of the scale back of the LTIP element of the APSP
award, the value of shares subject to the CSOP option will not count towards
the limits referred to above.

Other than where a CSOP option is granted as part of an APSP award,
options under the CSOP will not be granted to Executive Directors.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201491

Element: All Employee Share Plans

Purpose and link to strategy
Provision of the SAYE to Executive Directors creates staff alignment with the Group and provides a sense of ownership.

Executive Directors may participate in such other all employee share plan as may be introduced from time to time.

Operation
Tax qualifying monthly savings scheme facilitating the purchase of shares at a
discount.

Performance measure
Not subject to performance conditions in line with
the HMRC qualifying operation of such plans.

Any other all employee share plan would be operated for Executive Directors
in accordance with its rules and on the same basis as for other employees.

Maximum opportunity
The limit on participation under the SAYE scheme will be that set in
accordance with the applicable tax legislation from time to time. The
contribution limit is £500 per month as at 30 June 2014.

The limit on participation under any other all employee share plan would be
determined in accordance with the plan rules (and, where relevant, applicable
legislation) and would be the same for the Executive Directors as for other
relevant employees.

The Committee may amend the terms of awards and options under its share plans in accordance with the plan rules in the event of
a variation of Dechra’s share capital or a demerger, special dividend or other similar event or otherwise in accordance with the rules
of those plans.

Explanation of Performance Metrics
Performance measures for the LTIP and annual bonus are selected to reflect the Company’s strategy. Stretching performance
targets are set each year by the Committee taking into account a number of different factors. The Committee considers that the
underlying profit before tax is closely aligned to the Group’s key performance metrics; together with annual personal objectives
linked to the achievement of strategic milestones, we consider that this encourages sustainable growth year by year. The application
of EPS and TSR targets to the LTIP aligns management’s objectives with those of shareholders for the longer term.

The Committee may vary any performance measure if an event occurs which causes it to determine that it would be appropriate to do so,
provided that any such variation is fair and reasonable and (in the opinion of the Committee) the change would not make the measure less
demanding. If the Committee were to make such a variation, an explanation would be given in the next Remuneration Report.

Policy Table for Non-Executive Directors:

Element

Fees and benefits

Purpose and link to
strategy

Operation

Opportunity

To provide fees within a
market competitive range to
recruit and retain
Non-Executive Directors of a
high calibre with the requisite
experience required to achieve
success for the Company and
its shareholders.

The fees of the Chairman
are determined by the
Committee and the fees of
the Non-Executive Directors
are determined by the Board
following a recommendation
from both the Chief Executive
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.

Non-Executive Directors may
be eligible to receive benefits
such as travel and other
reasonable expenses.

Non-Executive Directors are
paid a basic fee with additional
fees paid for the chairing of
Committees.

An additional fee is also
paid for the role of Senior
Independent Director.

Where benefits are provided
to Non-Executive Directors
they will be provided at a level
considered to be appropriate
taking into account the
individual circumstances.

Our Governancewww.dechra.com Stock code: DPH92

Directors’ Remuneration Report continued

Policy for the Remuneration of Employees More Generally:
The Group aims to provide a remuneration package that is competitive in an employee’s country of employment and which is
appropriate to promote the long term success of the Company. The Company intends to apply this policy fairly and consistently
and does not intend to pay more than is necessary to attract and motivate staff. In respect of the Executive Directors, a greater
proportion of the Directors’ remuneration package is ‘at risk’ and determined by reference to performance conditions. The
Company’s SAYE scheme encourages share ownership by qualifying employees and enables them to share in value created for
shareholders.

Illustrations of Application of Remuneration Policy:
The following charts provide an illustration, for each of the Executive Directors, of the application for the 2015 financial year of the
remuneration policy. The charts show the split of remuneration between fixed pay (i.e. base salary, benefits and employer pension
contributions), annual bonus and long term incentive pay on the basis of minimum remuneration, remuneration receivable for
performance in line with Dechra’s expectations and maximum remuneration (not allowing for any share price appreciation).

Ian Page

Anne-Francoise Nesmes

1,859

47.3%

23.7%

979
22.5%

22.5%

55.0%

29.0%

)

0
0
0
£

(

n
o
i
t
a
r
e
n
u
m
e
r

a
t
o
T

2,000

1,000

800

600

539

400

100%

200

performance

Minimum Performance Maximum
in line with
expectations

performance

Fixed Pay
Bonus
LTIP

1,141
40.6%

27.1%

32.3%

638
18.2%

24.2%

57.6%

368

100%

)

0
0
0
£

(

n
o
i
t
a
r
e
n
u
m
e
r

a
t
o
T

2,000

1,000

800

600

400

200

performance

Minimum Performance Maximum
in line with
expectations

performance

Tony Griffin
2,000

)

0
0
0
£

(

n
o
i
t
a
r
e
n
u
m
e
r

a
t
o
T

1,000

800

400

200

477
12.5%
25.0%

62.5%

298

100%

775
30.8%

30.8%

38.4%

performance

Minimum Performance Maximum
in line with
expectations

performance

Fixed Pay
Bonus
LTIP

In illustrating the potential reward, the following assumptions have been made.

Minimum performance.
Performance in line with
expectations.

Annual bonus
No bonus.
Bonus equal to 50% of
salary is earned.

Maximum performance.

Bonus equal to 100% of
salary is earned.

LTIP
No LTIP vesting.
LTIP vests as to 25% of the maximum award
(50% of salary for Ian Page, 37.5% of salary
for Anne-Francoise Nesmes and 25% of salary
for Tony Griffin).
LTIP vests in full (200% of salary for Ian Page,
150% of salary for Anne-Francoise Nesmes
and 100% of salary for Tony Griffin).

Fixed pay
Base salary (being the latest known
salary as at 1 July 2014, benefits
and employer pension contributions
as disclosed in the single figure
table on page 96 for the 2014
financial year).

Recruitment Remuneration Policy
When hiring a new Executive Director, the Committee will typically align the remuneration package with the above Policy.

When determining appropriate remuneration arrangements, the Committee may include other elements of pay which it considers
are appropriate. However, this discretion is capped and is subject to the principles set out on page 87 and the limits referred to
below.

• Base salary will be set at a level appropriate to the role and the experience of the Director being appointed. This may include
agreement on future increases up to a market rate, in line with increased experience and/or responsibilities, subject to good
performance, where it is considered appropriate.

• Pension and benefits will only be provided in line with the above Policy.

• The Committee will not offer non-performance related incentive payments (for example a ‘guaranteed sign-on bonus’).

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

• Other elements may be included in the following circumstances:

o an interim appointment being made to fill an Executive Director role on a short term basis;

o if exceptional circumstances require that the Chairman or a Non-Executive Director takes on an executive function on a short

term basis;

o if an Executive Director is recruited at a time in the year when it would be inappropriate to provide a bonus or long term

incentive award for that year as there would not be sufficient time to assess performance. Subject to the limit on variable
remuneration set out below, the quantum in respect of the months employed during the year may be transferred to the
subsequent year so that reward is provided on a fair and appropriate basis;

o if the Director will be required to relocate in order to take up the position, it is the Company’s policy to allow reasonable

relocation, travel and subsistence payments. Any such payments will be at the discretion of the Committee.

• The Committee may also alter the performance measures, performance period and vesting period of the annual bonus or LTIP,

subject to the rules of the LTIP, if the Committee determines that the circumstances of the recruitment merit such alteration. The
rationale will be clearly explained in the next Directors’ Remuneration Report.

• The maximum level of variable remuneration which may be granted (excluding ‘buyout’ awards as referred to below) is 300%

of salary.

The Committee may make payments or awards in respect of hiring an employee to ‘buyout’ remuneration arrangements forfeited on
leaving a previous employer. In doing so, the Committee will take account of relevant factors including any performance conditions
attached to the forfeited arrangements and the time over which they would have vested. The Committee will generally seek to
structure buyout awards or payments on a comparable basis to the remuneration arrangements forfeited. Any such payments or
awards are excluded from the maximum level of variable remuneration referred to above. ‘Buyout’ awards will ordinarily be granted
on the basis that they are subject to forfeiture or ‘clawback’ in the event of departure within 12 months of joining Dechra, although
the Committee will retain discretion not to apply forfeiture or clawback in appropriate circumstances.

Any share awards referred to in this section will be granted as far as possible under Dechra’s existing share plans. If necessary and
subject to the limits referred to above, recruitment awards may be granted outside of these plans as permitted under the Listing
Rules which allow for the grant of awards to facilitate, in unusual circumstances, the recruitment of an Executive Director.

Where a position is filled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed to
continue in accordance with their terms.

Fees payable to a newly appointed Chairman or Non-Executive Director will be in line with the policy in place at the time of
appointment.

Policy on Service Contracts:
Details of the Executive Directors’ service contracts/Non-Executive Directors’ letters of appointment are set out below.

Name
Mike Redmond
Ian Page
Anne-Francoise Nesmes
Tony Griffin
Ishbel Macpherson
Dr Chris Richards
Julian Heslop

Commencement date of current service contract
25 April 2001
1 September 2008
22 April 2013
1 November 2012
1 February 2013
1 December 2010
1 January 2013

Notice Period

Director
3 months
6 months
6 months
6 months
3 months
3 months
3 months

Company
3 months
12 months
12 months
12 months
3 months
3 months
3 months

There are no expiry dates applicable to either Executive or Non-Executive Directors’ service contracts. The Non-Executive Directors
are entitled to compensation on termination of their appointment confined to three months’ remuneration.

While the Committee’s policy is for the service contract of any newly appointed Executive Director to have a notice period of not
more than 12 months, the Committee retains discretion to set an initial notice period of up to 24 months, reducing to 12 months
over the initial 12 months of employment.

Our Governancewww.dechra.com Stock code: DPH94

Directors’ Remuneration Report continued

Policy on Payment for Loss of Office:
Individual Directors’ eligibility for the various elements of compensation is set out below:

Provision

Treatment upon loss of office

Base Salary/Fees

Base salary/fees and benefits based on the duration of the notice period receivable from the Company.

Payments in Lieu of
Notice

The Company has discretion to make a payment in lieu of notice at any time after notice has been
given by either the Company or the Director. Such a payment would consist of basic salary for the
unexpired period of notice and may also include benefits for that period.

Annual Bonus

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. Any bonus payment
would typically be pro-rated for time in service to termination and paid at the usual time (although the
Committee retains discretion to pay the bonus earlier in appropriate circumstances).

LTIP

If an Executive Director ceases employment with the Group for any reason within the first 12 months of
the performance period relating to an award under the LTIP, that award will lapse.

If an Executive Director ceases employment with the Group before the end of the performance period
relating to an award under the LTIP as a result of retirement, ill-health, injury, disability, redundancy,
death, transfer of his employing entity out of the Group or any other reason, at the discretion of the
Committee, the award will usually vest on the normal vesting date, although the Committee has
discretion to permit the award to vest on cessation. In either case, the award will vest to the extent
determined by reference to the relevant performance conditions and as reduced to reflect the period of
time from the start of the performance period to the date of cessation.

If an Executive Director ceases employment for any reason after the end of the performance period
relating to an award under the LTIP, that award will continue to subsist in accordance with the rules of
the LTIP.

Pension

This would be taken into account as part of the payment referred to in the base salary section.

Recruitment Awards

Anne-Francoise Nesmes was granted two recruitment awards, as referred to in the Company’s
Directors’ Remuneration Report for the year ended 30 June 2013.

The first of those Awards vested on 30 June 2014 and may be exercised until 30 December 2014. If
Anne-Francoise Nesmes ceases employment with the Group before exercise as a result of ill-health,
injury, disability, redundancy, death, transfer of her employing entity out of the Group or any other
reason, at the discretion of the Committee, the award will continue to subsist subject to its terms.

The second Award is due to vest, subject to satisfaction of performance conditions, on 30 June 2015.
That Award is subject to leaver provisions which are the same as those applying to the LTIP.

Other Payments

In appropriate circumstances, payments may also be made in respect of accrued holiday pay, and
outplacement and legal fees.

Change of Control

Options under the Company’s SAYE scheme will vest if a participant ceases employment with the
Group due to death, injury, disability, redundancy, retirement, the transfer of his employing entity out of
the Group or by reason of dismissal in circumstances constituting wrongful or unfair dismissal where
such dismissal occurs more than three years after the grant of the option.

In the event of a change of control, unvested awards under the LTIP will vest to the extent determined
by the Committee taking into account the relevant performance conditions and, unless the Committee
determines otherwise, the extent of vesting so determined shall be reduced to reflect the proportion of
the relevant performance period that has elapsed.

In the event of a change of control, the Recruitment Awards referred to above will vest in full.

Options under the SAYE scheme will vest on a change of control.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201495

Where appropriate 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.

Where a ‘buyout’ or other award is made outside Dechra’s existing share plan, as permitted under the Listing Rules as referred to
above, the leaver provisions would be determined at the time of the award.

The Committee reserves the right to make additional exit payments where such payments are made in good faith in discharge of an
existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim
arising in connection with the termination of a Director’s office or employment.

Consideration of Employment Conditions Elsewhere in the Group
The Committee does not formally consult with employees as part of its process when determining Executive Director pay. However,
as noted in the Policy table on page 87, the level of salary increases of employees within the wider Group is considered when
setting base salary for Executive Directors. The Committee is also kept informed of general decisions made in relation to employee
pay and related issues.

Consideration of Shareholders’ Views
The Committee believes that ongoing dialogue with major shareholders is of key importance. During the year, the Committee
consulted with major shareholders in relation to proposed changes to the LTIP performance conditions following the disposal of the
Services Segment, and took account of comments received during that consultation in finalising its approach to the adjustments.

Legacy Remuneration Arrangements
The Committee reserves the right to make remuneration payments and payments for loss of office notwithstanding that they are
not in line with the Policy set out above where the terms of payments were agreed: (i) before the Policy came into effect; or (ii) at a
time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not
in consideration for the individual becoming a Director of the Company. For these purposes, ‘payments’ includes the satisfaction
of variable remuneration and, in relation to an award over shares, the terms of the payment are ‘agreed’ at the time the award is
granted.

Our Governancewww.dechra.com Stock code: DPH96

Directors’ Remuneration Report continued

2014 Annual Report on Remuneration
The following section provides detail in respect of remuneration paid to the Directors during the year in line with the Remuneration
Policy detailed in the 2013 Directors’ Remuneration Report (which did not require shareholder approval). KPMG LLP have audited
pages 96 to 103 unless indicated otherwise.

Single Total Figure of Remuneration
The table below sets out the total remuneration for each person who has served as a Director in the period ended 30 June 2014. The
table shows the remuneration for each such person in the year ended 30 June 2014 and the year ended 30 June 2013:

Salaries & Fees
£’0001

Benefits
£’0002

Annual Bonus
£’0003

Long Term
Incentives
£’0004

Pension
£’0005

Total
£’000

2014
440

2013
411

2014
37

2013
33

2014
352

2013
158

2014
645

2013
541

2014
62

2013
58

2014
1,536

2013
1,201

300

232

223

134
106

39
42

230
86

16
42

13
1,347

42
1,163

10
–

–
–

–

–
95

17
–

–
–

–

–
88

240

186

107
–

–
–

–

83
–

–
–

–

302

–

294
–

–
–

–

325
–

–
–

–

19
–

–
–

–

32
–

–
–

–

901

132

477

360

564
106

39
42

687
86

16
42

–
885

–
345

–
1,241

–
866

–
151

–
123

13
3,719

42
2,585

Ian Page
Anne-Francoise Nesmes
(appointed 22 April 2013)
Tony Griffin (appointed
1 November 2012)6
Ed Torr (ceased employment
31 January 2014)
Mike Redmond
Ishbel Macpherson
(appointed 1 February 2013)
Dr Chris Richards
Julian Heslop (appointed
1 January 2013)
Neil Warner (retired
17 October 2013)
Total

Please note the following methodologies have been used in respect of the above table:

1. Salaries & Fees – this is the cash paid or received in respect of the relevant period.
2. Benefits – this represents the taxable value of all benefits paid or received in respect of the relevant period. The benefits provided
include the use of a fully expensed car (where taken), medical cover and life assurance. SAYE options granted in the year have
also been included in the benefits column. These have been valued using the fair value as per note 24 to the Group’s financial
statements. Tony Griffin’s benefits from 2013 have increased by £21,000 due to the addition of a company car benefit.

3. Annual bonus – this is the amount of cash bonus paid in respect of the relevant period.
4. Long Term Incentives – this is the value of any long term incentives vesting where the performance period ended in the relevant

period.

5. Pension – this is the cash value of the employer contribution to the Group stakeholder personal pension scheme or, in the case

of Tony Griffin, defined contribution pension plan plus the value of any salary supplement paid.

6. Tony Griffin’s remuneration is paid in Euros but reported in Sterling for the purpose of this table. The exchange rate used for
this purpose was 1.24 for 2013 and 1.20 for 2014. The difference in the 2013 and 2014 remuneration is purely in relation to
exchange rates.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201497

Additional Disclosures in Respect of the Single Figure Table:
Salaries & Fees
As disclosed in the single figure table above, no increase was made to Executive Directors’ salaries in the year ended 30 June
2014. However, Ian Page’s base salary was increased by 15% to £440,000 part way through the 2013 financial year. This increase
was made following a comprehensive review of Ian Page’s remuneration package and after consultation with Dechra’s major
shareholders. This increase reflects:

• his achievements since his appointment as Chief Executive Officer in 2001;

• his delivery of significant and sustained increase in shareholder value;

• his successful integration of a number of significant strategic acquisitions; and

• the market positioning of his salary against companies of a similar size and complexity.

Further detail in relation to this matter is detailed in last year’s Directors’ Remuneration Report.

The Committee’s approach to Executive Directors’ salaries for the year ending 30 June 2015 is summarised on page 104.

The Chairman and other Non-Executive Directors are paid a fee for their role and additional fees for chairmanship of the
Remuneration Committee and Audit Committee. As disclosed in the Directors’ Remuneration Report for the year ended 30 June
2014, the Chairman’s fee was increased in the year ended 30 June 2014 to a level more commensurate with his experience,
performance and overall contribution to the business. No other Non-Executive Director received an increase in fees for the year
ended 30 June 2014. The Non-Executive Directors’ fees for the year ended 30 June 2014 were determined on the following basis:

Office
Chairman
Non-Executive Director
Remuneration Committee Chairmanship additional fee
Audit Committee Chairmanship additional fee

2014
Fee
£’000
106
39
3
3

The approach to the Chairman and Non-Executive Directors’ fees for the year ending 30 June 2015 is summarised on page 104.

Annual Bonus
The Company operates an annual cash incentive scheme for the Executive Directors. Annual bonuses were awarded by the
Committee in respect of the 2014 financial year having regard to the performance of the Group and personal performance objectives
for the year.

The amount achieved for the year ended 30 June 2014 against targets for the 2014 financial year is as follows:

2014 Financial Year Targets

Amount Achieved for the Year Ended 30 June 2014

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.

The underlying profit before tax target was £38.5 million. Actual
underlying profit before tax was £39.9 million reflecting 105% of the
profit target when translated at constant exchange rate resulting in a
payment worth 70% of salary.

Personal objectives: up to an additional 10% of salary was payable to
Executive Directors upon the achievement of personal objectives.*

Actual performance resulted in payment worth 10% of salary. The
objectives are based on key aspects of delivering the Group’s strategy.*

Total Annual Bonus Earned for the Year Ended 30 June 2014

80% of salary

* The Committee considers that the actual objectives are commercially sensitive as they give our competitors insight into our business plans and therefore they are not detailed in this report.

The Committee’s approach to Executive Directors’ annual bonus opportunities for the year ending 30 June 2015 is summarised on
page 104.

Our Governancewww.dechra.com Stock code: DPH98

Directors’ Remuneration Report continued

Pension:
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 a defined pension plan in the Netherlands. Contributions made
by Dechra Pharmaceuticals PLC on behalf of the Executive Directors during the year equated to no more than 14% of pensionable
salary.

The annual allowance for tax relief on pension savings for individuals reduced from £50,000 to £40,000 from 6 April 2014. Since
this became effective, Anne-Francoise Nesmes has elected to receive a salary supplement in lieu of the employer contribution over
and above the £40,000 limit. Ian Page has received a salary supplement for the entire period under review. Both have committed to
invest this supplement appropriately.

Tony Griffin is a member of the Basispensioen, a defined benefit scheme established in the Netherlands. His normal retirement age
is 67. The table below sets out the arrangements for Tony Griffin for the period under review:

Accrued benefit at 1 July 2013
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 July 2013
Transfer value at 30 June 2014
Increase in transfer value over the period after member contribution

Chief Executive Officer Remuneration for Five Previous Years:

Year ended

30 June 2014

30 June 2013

30 June 2012

30 June 2011

30 June 2010

€8,861

€9,520

€9,704

€26,000

€127,000

€154,000

€27,000

Total single
figure
remuneration
£’000

Annual bonus
payout (%
of maximum
opportunity)

LTIP vesting (%
of maximum
number of
shares)

1,536

1,201

682

984

768

100%

71.1%

100%

Percentage Change in Chief Executive Officer Remuneration:
The table below sets out in relation to salary, taxable benefits and annual bonus the percentage change in pay for Ian Page and
the average percentage change for all UK based employees comparing pay in respect of the year ended 30 June 2013 and the
year ended 30 June 2014. For these purposes, UK employees were chosen as a comparator group reflecting that Ian Page is UK
based and the number of UK employees was sufficiently large to provide a robust comparison. Employees outside the UK were not
included in the comparator group since country specific differences could distort the comparison.

Salary1
Taxable benefits
Annual bonus

Chief Executive Officer
2013
£000
411
33
158

Increase
%
7.1
3.0
122.2

2014
£000
440
34
352

Average per all UK based Employees
Increase
%
1.5
8.7
49.8

2013
£000
29
1.5
1.9

2014
£000
29
1.6
2.8

1. The difference reflects an increase in Ian Page’s salary as of 1 January 2013, details of which can be found on page 97. Ian Page elected to waive his salary increase for the 2014 and 2015

financial years.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201499

Relative Importance of Spend on Pay
The following table sets out the percentage change in distributions to shareholders by way of dividend and share buyback and
total remuneration paid to or receivable by all Group employees comparing the year ended 30 June 2013 and the year ended
30 June 2014.

Distributions to shareholders by way of dividend and share buyback

Overall expenditure on pay — continuing operations

Overall expenditure on pay — discontinued operations

Year ended
30 June
2013
£’000

12,199

39,834

11,118

Year ended
30 June
2014
£’000

13,500

41,625
1,4601

% change

10.7

4.50

(86.9)

1. The Services Segment was divested during August 2013. The 2014 pay therefore includes 1.5 months of Services compared to 12 months in 2013.

Long Term Incentive Arrangements and Share Schemes:
LTIP Awards Vesting in Respect of the Year Ended 30 June 2014
Ian Page and Ed Torr were granted LTIP Awards on 7 September 2011, the performance targets for which are as follows:

1. an ‘underpin’ condition based on Group underlying diluted earnings per share performance: no awards would vest if the

Company’s underlying diluted earnings per share has not grown by at least RPI + 3% per annum over the performance period;

2. the Company’s TSR performance: assuming that the underpin is achieved, vesting of the awards was determined by the

Company’s TSR performance compared to the constituents of the FTSE Small Cap Index over the period of three financial years
ended on 30 June 2014. Vesting is 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%

Ed Torr ceased to be employed by the Company part way through the performance period and, in line with the LTIP Scheme rules,
was treated as a good leaver in respect of this Award. In accordance with the terms of the Award, the TSR performance was
measured up to the date of cessation of employment, 31 January 2014. The Company’s TSR performance was 67% compared
with a 65% TSR for live companies in the top quartile comparator group. The EPS underpin was measured on the basis of whether,
in the opinion of the Committee, the EPS underpin was on course to be satisfied at the end of the original Performance Period.
The Committee, after taking advice in relation to this element, considered that the EPS underpin was satisfied and that the Award
would have vested as to 100%. A time pro-rating reduction was then applied to reflect Ed Torr’s reduced length of service in the
performance period, resulting in 86.1% of the shares vesting. In the single figure table on page 96, the value attributable to this
Award is calculated by multiplying the number of shares in respect of which the Award vested (47,946) by £7.015 (being the mid
market quotation of a share on 31 January 2014).

Ian Page’s Award vested on 7 September 2014. In respect of the performance conditions, the Company’s TSR performance
was over 68% compared with a 65% TSR for all companies in the top quartile of the comparator group. In addition, the Group’s
underlying diluted EPS increased by 19.25% over the performance period. As a result Ian Page’s Award vested in full. In the single
figure table on page 96, the value attributable to this Award is calculated by multiplying the number of shares in respect of which the
Award vested (92,811) by £6.95 (being the average market value of a share over the last quarter of the Company’s financial period
ending on 30 June 2014).

The aggregate gain made by the Executive Directors on share options exercised during 2014 was £883,249 (2013: £5,187). In
addition Ed Torr exercised his outstanding SAYE options and LTIP option granted on 7 September 2011. The gain made on these
share option exercises was £338,755.

Our Governancewww.dechra.com Stock code: DPH100

Directors’ Remuneration Report continued

Recruitment Award for Anne-Francoise Nesmes Vesting in Respect of the Year Ended 30 June 2014
As disclosed in the Company’s Directors’ Remuneration Report for the year ended 30 June 2013, on her appointment the
Committee agreed to award Anne-Francoise Nesmes two LTIP Awards, each to the value of 100% of her base salary.

The vesting of the first of those Awards was subject to a performance condition based on the Chief Executive Officer’s assessment
of her performance in the period from her date of joining the Company (22 April 2013) until 30 June 2014. Based on the
Chief Executive Officer’s assessment of her performance over this period, the Award vested as to 100% on 30 June 2014. In the
single figure table on page 96 the value attributable to this Award is calculated by multiplying the number of shares in respect of
which the Award vested (41,739) by £7.235 (being the mid market value of a share on 30 June 2014).

The details of the LTIP Awards granted during the year ended 30 June 2014 are set out below. The Committee’s approach to
Executive Directors’ LTIP Awards for the year ending 30 June 2015 is summarised on page 104.

LTIP Awards Made During the Year Ended 30 June 2014
Awards were granted to the Executive Directors on 27 November 2013, on the following basis:

Ian Page

Maximum
opportunity
Nil cost option under the LTIP 200% of salary

Type of award

Number of
shares
129,221

Face value at
grant1
£879,995

Anne-Francoise Nesmes

Nil cost option under the LTIP 150% of salary

66,079

£449,998

Tony Griffin

Nil cost option under the LTIP 100% of salary

34,129

£232,418

Ed Torr2

Nil cost option under the LTIP 100% of salary

33,706

£229,538

% of award
vesting at
threshold
25%

25%

Performance
period
1 July 2013 –
30 June 2016
1 July 2013 –
30 June 2016
1 July 2013 –
30 June 2016
1 July 2013 –
30 June 2016

1. For these purposes, the face value of the Award is calculated by multiplying the number of shares by £6.81 (being the average share price used to determine the number of shares comprised in

the Awards).

2. Lapsed on Ed Torr’s cessation of employment on 31 January 2014.

50% of each Award is subject to a performance condition based on the Company’s TSR performance over the performance period
relative to the constituent companies of the FTSE 250 index (excluding investment trusts) over the performance period as follows:

TSR Performance
Below median
Median
Between median and upper quartile

Upper quartile

Vesting Percentage
0%
25% of the TSR portion will vest
Pro-rata vesting between 25% and 100% based on the Company’s ranking in
the comparator group
100% of the TSR portion will vest

50% of each Award is subject to a performance condition based on the growth in the Company’s EPS over the performance period
as follows:

EPS compound annual growth rate
<8% CAGR
8% CAGR
CAGR between 8% and 13%
13% CAGR

Vesting Percentage
0%
25% of the EPS portion will vest
Pro-rata vesting between 25% and 100%
100% of the EPS portion will vest

Each of the TSR element and the EPS element is subject to an additional ROCE performance measure. Unless the Company’s
ROCE is 10% or more in the final year of the performance period, the Awards will lapse in full regardless of TSR and EPS
performance. The percentage vesting will be reduced by 10% by every 1% that ROCE falls below 15%.

100

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014101

Recruitment Award for Anne-Francoise Nesmes
As disclosed in the Company’s Directors’ Remuneration Report for the year ended 30 June 2013, on appointment the Committee
agreed to award Anne-Francoise Nesmes two LTIP Awards, each to the value of 100% of her base salary. These Awards were
granted on 27 September 2013 as follows:

Recruitment Award 11
Recruitment Award 22

Type of award
Nil cost option
Nil cost option

Maximum
opportunity
100% of salary
100% of salary

Number of
shares
41,739
41,739

Face value
at grant2
£296,556
£296,556

% of award
vesting at
threshold
100%
25%

Performance period
22 April 2013 – 30 June 2014
1 July 2012 – 30 June 2015

1. This Award vested on 30 June 2014 as disclosed on page 100.

2. For these purposes, the face value of the award is calculated by multiplying the number of shares by £7.105 (being the mid market quotation of a Dechra share on the date of grant).

Recruitment Award 1 was subject to a performance condition based on the Chief Executive Officer’s assessment of Anne-Francoise
Nesmes’ performance in the period from her date of joining the Company (22 April 2013) until 30 June 2014. Upon vesting, the
Award will be subject to claw back should Anne-Francoise Nesmes not remain in employment with the Company until 30 June
2015. This Award vested on 30 June 2014 (details of which have been provided earlier in this report).

Recruitment Award 2 is scheduled to vest on 30 June 2015 and is subject to performance conditions which are the same as those
applying to the LTIP Awards granted on 5 March 2013:

50% of the Award is subject to a performance condition based on the Company’s TSR performance over the performance period
relative to the constituent companies of the FTSE 250 index (excluding investment trusts) over the performance period as follows:

TSR Performance
Below median
Median
Between median and upper quartile

Upper quartile

Vesting Percentage
0%
25% of the TSR portion will vest
Pro-rata vesting between 25% and 100% based on the Company’s ranking in
the comparator group
100% of the TSR portion will vest

50% of the Award is subject to a performance condition based on the growth in the Company’s EPS over the performance period
as follows:

EPS
<33p
33p
Between 33p and 40p
40p

Vesting Percentage
0%
25% of the EPS portion will vest
Pro-rata vesting between 25% and 100%
100% of the EPS portion will vest

As reported in the Directors’ Remuneration Report for the year ended 30 June 2013 the performance conditions attaching to the
LTIP Award made on 5 March 2013 were rebased following the disposal of the Services Segment in August 2013. A consultation
with major shareholders was undertaken at the beginning of November 2013 following which the above performance conditions
were rebased as detailed above.

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Directors’ Remuneration Report continued

SAYE Options Granted in the Year
The following Directors were granted SAYE options on 7 April 2014:

Ian Page
Anne-Francoise Nesmes

Payments to Past Directors (Unaudited):
There were no payments made to past Directors during the period.

Payments for Loss of Office (Unaudited):
A payment for loss of office was made to Ed Torr during the financial year and equated to:

• 12 months of his salary at £229,539;

• pro-rated bonus for the financial year of £107,118;

• pension of £32,158; and

Number
of options

1,630
1,630

Option
price

£5.52
£5.52

Exercise
date

May 2017
May 2017

• 12 months’ private medical cover to Ed Torr and his family and the provision of a fully insured car for 12 months.

In addition, Ed Torr was treated as a ‘good leaver’ for the purposes of his SAYE options and LTIP option granted on 7 September
2011 which vested on cessation of employment. Further details in relation to the LTIP can be found on page 99.

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

Shareholding Guidelines and Statement of Directors’ Shareholdings and Interests:
Executive Directors
By the third anniversary of their appointment to the Board, Executive Directors are required to have acquired and retained a holding
of Dechra shares equivalent to the value of at least 100% of their base salary. The holdings of the Executive Directors and their
families as at 30 June 2014 are as follows.

Name

Ian Page

Anne-Francoise Nesmes (appointed 22 April 2013)

Tony Griffin (appointed 1 November 2012)

* Calculated using the share price as at 30 June 2014.

Ordinary
shares
No.

906,643

—

20,077

Ordinary
shares
£’000*

6,560

N/A

145

% of
salary

1,491%

N/A

63%

The above numbers represent Executive Directors’ total interest in shares in the Company as at 30 June 2014, other than Anne-
Francoise Nesmes’ whose first LTIP Award vested on 30 June 2014. However, she is prohibited from exercising the Award due to
the imposition of a close period, scheduled to end on 8 September 2014. On exercise she will hold 41,739 shares. The value of
these shares at 30 June 2014 equated to 101% of her salary. However, this does not take into account any potential sale of shares
to cover the tax liability arising on exercise.

Non-Executive Directors

Name

Mike Redmond

Ishbel Macpherson

Dr Chris Richards

Julian Heslop

* Calculated using the share price as at 30 June 2014.

Ordinary
shares
No.

Ordinary
shares
£’000*

73,417

5,848

7,400

10,000

531

% of
base fee

501%

110%

138%

186%

The above numbers represent the Non-Executive Directors’ total interest in shares in the Company as at 30 June 2014. There have
been no changes in the holdings of the Directors between 30 June and 8 September 2014.

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014103

Executive Directors’ Interests under Share Schemes
Long Term Incentive Plan
Awards held under the Long Term Incentive Plan by each person who was a Director at 30 June 2014 are as follows:

Ian Page

Award date
22 December 2010
7 September 2011
5 March 2013
27 November 2013
Anne-Francoise Nesmes 27 September 20131
27 September 20131
27 November 2013
5 March 2013
27 November 2013

Tony Griffin

Number of
shares at
30 June
2013
78,656
92,811
94,420
—
—
—
—
34,401
—

Granted
during the
year
—
—

Lapsed
during the
year
—
—
—

Exercised
during the
year
(78,656)
—
—

129,221
41,739
41,739
66,079
—
34,129

—
—

Number of
shares at
30 June
2014
—
92,811
94,420
129,221
41,739
41,739
66,079
34,401
34,129

Status
Vested
Vested
Unvested
Unvested
Vested
Unvested
Unvested
Unvested
Unvested

Performance
period
2010-2013
2011-2014
2012-2015
2013-2016
2013-2014
2012-2015
2013-2016
2012-2015
2013-2016

1. These Awards are the Recruitment Awards granted to Anne-Francoise Nesmes as referred to on page 100. They were granted outside the rules of the LTIP.

SAYE Scheme
Options held under the SAYE Scheme by each person who was a Director at 30 June 2014 are shown on page 102.

Total Shareholder Return (TSR) 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 financial year ended 30 June 2014 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.

300

250

200

150

100

x
e
d
n

n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S

a
t
o
T

2009

Dechra

FTSE 250

2010

2011

2012

2013

2014

103

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104

Directors’ Remuneration Report continued

Implementation of the Directors’ Remuneration Policy in the Year Ending 30 June 2015:
The Directors’ Remuneration Policy outlined on pages 87 to 95 will be implemented in the year ending 30 June 2015 in line with the
way in which it has been implemented in the year ended 30 June 2014.

Salary and Fees
Excluding Ian Page, Executive Directors’ base salaries have been increased by 3% with effect from 1 July 2014. This is broadly in
line with the average increase awarded to employees in the wider Group. Ian Page has elected to waive a review of his salary for the
year ended 30 June 2015.

In respect of the Chairman, following the benchmarking exercise that was undertaken during the 2013 financial year, it was agreed
to award him an increase over a two year period. The second increase will take effect from 1 July 2014, taking his fee to £126,000
per annum (an increase of 18%). It is considered that this now brings the Chairman’s fee to a level more commensurate with his
experience, performance and overall contribution to the business together with that paid for chairmen of companies of a similar size
and complexity to Dechra.

In terms of the remaining Non-Executive Directors, it has been agreed to increase their base fee to £40,000 per annum (an increase
of 2.56%). A review was also undertaken in respect of the fees paid for the Chairmen of the Remuneration and Audit Committees.
The additional fee was increased from £3,000 to £5,000 per annum. It is considered that Dechra remains in the lower quartile in
respect of such payments and it has been agreed to increase these additional fees over the medium term to bring them in line with
the median of FTSE 250 companies. In addition, it was agreed that a fee should be introduced for the Senior Independent Director
role, at the rate of £3,000 per annum.

Annual Bonus
No changes have been made to the bonus structure. Executive Directors, therefore, will have a bonus opportunity of 100% of salary
for the year ending 30 June 2015, on the same basis as for the year ended 30 June 2014. Details of the bonus structure can be
found on page 97.

LTIP
The Committee proposes that LTIP awards for the year ended 30 June 2014 will be made at the level of 200% of salary for Ian
Page, 150% of salary for Anne-Francoise Nesmes and 100% of salary for other Executive Directors. The performance measures
remain as per the grant of LTIP Awards made on 27 November 2013, details of which can be found on page 100.

Consideration by Directors of Matters Relating to Directors’ Remuneration:
Governance
The Board has overall responsibility for the Group’s remuneration policy and the setting of the Non-Executive Directors’ fees. The
task of determining and monitoring the remuneration packages of the Executive Directors and agreeing the Chairman’s fee level has
been delegated to the Committee.

Membership
Details of each member’s attendance at the Committee meetings is detailed on page 69.

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, he was not present during the part of the meetings where his
own remuneration was discussed. The Group HR Director, Katy Clough, has attended all meetings since her appointment.

Responsibilities
The Committee has defined 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 2014 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.

An overview of the Committee’s terms of reference is provided on page 72.

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.

104

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014105

Advisers
The following people have provided advice to the Committee during the year in relation to its consideration of matters relating to
Directors’ remuneration.

• Chief Executive Officer, Chief Financial Officer, Group HR Director and Company Secretary

• Deloitte LLP

Deloitte is retained to provide independent advice to the Committee as required. Deloitte is a member of the Remuneration
Consultants Group and, as such, voluntarily operates under the Code of Conduct in relation to executive remuneration consulting
in the UK. Deloitte’s fees for providing remuneration advice to the Committee were £24,360 for the year ended 30 June 2014. The
Committee assesses from time to time whether this appointment remains appropriate or should be put out to tender and takes into
account the Remuneration Consultants Group Code of Conduct when considering this. Deloitte was appointed by the Committee
and has provided share scheme advice and general remuneration advice to the Company. Details of additional services which
Deloitte provide to Dechra are detailed on page 83.

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 17 October 2013:

Resolution
Approve Remuneration Report

Votes for
64,850,115

% of vote
98.83

Votes
against
769,256

% of vote
1.17

Votes
withheld
4,092,105

This report was approved by the Board on 8 September 2014 and signed on its behalf by:

Dr Christopher Richards
Remuneration Committee Chairman

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Social, Ethical and Environmental Responsibilities

A responsible approach to our stakeholders and the wider community is considered by the Board to be important 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.

Tony Griffin is the nominated Director responsible for health, safety and environmental matters. However, the Board takes ultimate
responsibility for Corporate Social Responsibility 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.

Social Responsibilities
The Board recognises that the Group has a responsibility to its stakeholders and therefore encourages the business units to
contribute to the social and economic welfare of the local communities in which they operate. It recognises that by taking voluntary
action in this area it is helping to protect and develop its own business.

The Group operates a Donations Policy, which allocates up to £10,000 a year to be split between animal welfare charities,
environmental charities and employee nominated charities. All employees within the Group are entitled to nominate a charity or a
non-commercial organisation. During the financial year, £2,000 was donated to each of the chosen charities below:

Type of Charity

Charity

Description

Animal

Hillbrae Rescue
Kennels

Roleystone
Horse and Pony
Sanctuary

A family run concern based in Telford, Shropshire providing boarding kennels which
cater for dogs, cats, small pets and birds. They also have rescue kennels where stray
and abandoned dogs from Telford and Newport stay while waiting for their owners to
reclaim them or until new homes are found.

A charity based near Dechra Pharmaceuticals Manufacturing Skipton that helps
horses and ponies in need.

Employee

St George’s Day
Festival 2014

In support of the ABF The Soldiers’ Charity, a charity which assists in the recovery
and rehabilitation of injured war heroes.

Pendleside
Hospice

A hospice for terminally ill patients to ease the pressure on families and make their
final weeks/months more comfortable for both the patient and their families.

Manorlands
Hospice,
Oxenhope

Specialist palliative care providers in medical, nursing, and psychological care and
treatment of people living with or affected by a serious or terminal illness. They focus
on helping to resolve these problems whilst supporting family, carers and close
friends.

Daniel Smith from Severn Hospice receives a cheque for £932 from Bob
Parmenter ex DVP UK Country Manager.

Julie Sessford, a DPM employee, presenting a cheque to Roleystone Horse and
Pony Sanctuary.

106

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014107

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 2014 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, with the proviso that such stock is not provided to charities where the donation-in-kind could be
sold to third parties. Dechra Veterinary Products UK (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 in 2014 of Alvegesic, Atipam and Sedator.

Environment
• Dechra Veterinary Products EU (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 DKK2,200 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.

• DVP UK employees celebrated the Best of Shropshire at a social event at their offices to raise money for Severn Hospice. The

funds raised were matched by the Company and totalled £932.00 (see picture on previous page).

Business Ethics
The Board expects all of the Group’s business activities to be conducted in accordance with the highest ethical standards 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 these expectations into a policy known as the Code of Business Conduct
which applies throughout the Group. This code was translated and circulated around the business along with the Anti-Bribery and
Anti-Corruption Policy. The Code of Business Conduct was reviewed in March 2014.

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Social, Ethical and Environmental Responsibilities continued

A separate Anti-Bribery and Anti-Corruption Policy was launched during the year (previously included in the Code of Business
Conduct). The policy, training documents and guidance have been translated and rolled out across all of the Dechra territories.

A whistleblowing 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 whistleblowing policy are detailed on the Company
website at www.dechra.com.

The Dechra Values (Values) were launched in June 2011 across the business. Further information can be found on 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.

All business units have implemented the Values into their operations. Both Dechra Veterinary Products UK and Dechra
Pharmaceuticals Manufacturing (DPM) Skipton recognise an employee each month who has demonstrated the Values in their
individual roles. Employees are nominated by their co-workers, with the chosen employee receiving an award. Every three months a
winner is chosen from the previous three months’ winners and receives an additional award.

Bill McGranaghan, a warehouse employee at DPM Skipton, receiving the quarterly
award from David Needham.

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014109

Employees
We recognise that the success of the Group is dependent on our ability to attract, develop, motivate and retain skilled employees.
For a number of years the Group has reported labour turnover as a non-financial KPI using a standard formula as follows:

Total number of leavers over a period
Average total number employed over period

× 100

The Group has established a target of no more than 15% Moving Annual Turnover; during the 2014 financial year we reported
16.8% (2013: 16.1% (restated to exclude the Services Segment)). This represents an increase over the previous year and is
attributed to the closure of the manufacturing facility at Uldum, Denmark.

DPM 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 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.

Ensuring our teams are kept informed of key business issues is of paramount importance to the Company and we have multiple
channels of communication internally to provide both formal and informal updates and feedback mechanisms. The Company also
operates an internal Intranet site which is used to update employees on Group news. Dechra also actively encourages employee
involvement in the Company’s performance through an SAYE Sharesave Scheme. This Scheme has continually had high levels of
engagement from our UK based employees.

Human Rights
Dechra is committed to upholding and respecting human rights both within our business and from our suppliers. However, Dechra
does not currently have a separate human rights policy.

Health and Safety Policy
The Group attaches great importance to the health and safety of its employees and the public. The management are responsible for
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.

Any material health and safety issues or incidents that occur are discussed in detail at both the 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.

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. During the financial year the Health and Safety
Managers at the Bladel and Skipton Manufacturing sites have been working together to produce standardised documentation and
processes as well as sharing best practices.

Skipton is now commencing the process for OHSAS 18001:2007 which is the British Standard for occupational health and safety
management best practice and hopes to implement it fully within three years.

For a number of years the Group has reported Lost Time Accident Frequency Rates (LTAFR) as a non-financial key performance
indicator (see page 45). 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 2 to 1 (the previous year’s figure has been restated to
exclude the disposed Services Segment), none of which resulted in a work-related fatality or disability.

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. Due to the disposal of the Services Segment the size of the fleet has reduced and there is no
longer a commercial fleet. This has led to the committee’s terms of reference being reassessed during the year and the number of
meetings reduced to two a year.

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Social, Ethical and Environmental Responsibilities continued

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. Since the 2013 Annual Report DPM, Skipton has achieved the ISO 14001:2004 Environmental
Standard Certification. This standard requires that organisations have an environmental policy and an action plan for managing
their impact on the environment. Once certified, the business is committed to a programme of continuous improvement which is
reviewed annually with a view to ensuring that progress is maintained.

The independent assessment of Dechra, which was conducted by the leading certification body, the British Assessment Bureau,
confirmed that the site at Skipton demonstrates good environmental controls that have reduced its impact on the environment. As
a result, DPM can now display the prestigious British Assessment Bureau ISO 14001 Certification Mark which demonstrates its
conformity with the standard.

The award has revealed that Skipton’s ‘back-office’ activities, which are not always evident to our customers, are environmentally
friendly, from quotation to delivery of our products and services. There have been extensive benefits of obtaining the ISO 14001
standard which have included:

• Streamlining the business waste management procedures and reducing the amount of waste that goes to landfill with the

resulting cost reductions to the business;

• Increasing the amount of recycling and re-use of materials, for example 15 tonnes of metal have been recycled and the business

is in the process of appointing a contractor to recycle all of its non-landfill waste; and

• Reducing the organisation’s overall carbon footprint.

The award also means that DPM is clearly established as one of the leaders in its field and it is anticipated that having this
accrediation will improve Skipton’s ability to attract more international pharmaceutical manufacturing business.

Waste
In respect of waste, the Group is a registered member of the Waste Packaging Obligations Regulations compliance scheme. The
general waste is sorted for collection by third party waste management companies. DPM Skipton monitors its waste management
as part of the site’s commitment to improve its recycling rates and direct waste into its correct waste streams with a view to
ensuring compliance with regulatory requirement and to protect the environment. The site has set a target to increase its recycling
rate by 10%, reducing waste to landfill by end of the 2015 financial year and the introduction of a further recycling project. 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 provide 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.

110

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014111

Greenhouse Gas Emissions
This is the first year that Dechra has collated and reported on its Greenhouse Gas Emissions.

Methodology
In order to determine our emissions, we have used the GHG Protocol Corporate Accounting and Reporting Standard and have
reported on Greenhouse Gas Emissions arising from those sources over which we have operational control. The disclosures below
encompass:

• Scope 1: includes emissions from combustion of fuel and operation of facilities (excluding combustion of fuel from Company

cars);

• Scope 2: includes emissions from purchased electricity, heat, steam and cooling; and

• Vehicle emissions.

The UK Government’s Conversion Factors for Company Reporting 2013 for the period 1 July 2013 to 31 May 2014 and the UK
Government’s Conversion Factors for Company Reporting 2014 for June, have been used to convert Dechra’s usage into a carbon
dioxide equivalent, and Dechra has selected ‘Tonnes of CO2e per total £m sales revenue’ as the intensity ratio as this is a relevant
indicator of the Group’s growth.

As this is the first year Dechra has reported on Greenhouse Gas Emissions there is no prior year’s data to compare. The figures
(excluding the Services Segment) provided below will be used as the baseline data for future reporting.

Greenhouse Gas Emissions (including the Services Segment) for the period 1 July 2013 to
30 June 2014 from:

Scope 1 (including HGV and Commercial vehicles)

Scope 2

Vehicle emissions
Total Carbon Footprint (tonnes of CO2e)
Intensity ratio (tonnes of CO2e per £m)

Greenhouse Gas Emissions (excluding the Services Segment) for the period 1 July 2013 to
30 June 2014 from:

Scope 1

Scope 2

Vehicle emissions
Total Carbon Footprint (tonnes of CO2e)
Intensity ratio (tonnes of CO2e per £m)

The intensity ratio is higher for the continuing operations due to the dilution impact of the Services Segment divestment.

Tonnes of
CO2e
1,007

1,547

1,267

3,821

15.8

Tonnes of
CO2e
609

1,438

1,244

3,291

17.0

111

Our Governancewww.dechra.com Stock code: DPH
112

Directors’ Report – Other Disclosures

The Directors present their annual report on the affairs of the Group, together with the audited Group financial statements for the
year ended 30 June 2014. Certain disclosure requirements which form part of the Directors’ Report are included elsewhere in
this Annual Report. Therefore this report should be read in conjunction with the Strategic Report on pages 6 to 61 along with the
Corporate Governance Report, Board Committee Reports, and Social, Ethical and Environmental Responsibilities Report. They are
incorporated by reference into this Directors’ Report and include:

• Details in respect of the Board of Directors (and changes made during the year);

• Directors’ Indemnities;

• Statement of Directors’ Responsibilities;

• Review of the Group’s business during the year and any likely future developments;

• Employees with disabilities and employee involvement; and

• Greenhouse Gas Emissions.

Information in relation to post-balance sheet events and details of the Group’s financial risk management objectives (including the
exposure to price, credit and liquidity risk) can be found on pages 153 to 169 of the Financial Statements.

The Board reviews its work on corporate governance, including its statement of compliance, in the Corporate Governance Report
on pages 66 to 77.

Acquisitions and Disposals
On 20 May 2014 Dechra acquired the trade and assets of PSPC Inc. (PSPC) for a consideration of up to US$14.2 million, of which
US$8.5 million was paid in cash, US$1.5 million was contingent upon the successful registration of a new product (which was
achieved in June 2014), and US$4.2 million which is contingent on future sales. Furthermore, in June 2014 Dechra acquired PSPC’s
facility for a further US$3.0 million. Further detail in relation to this acquisition can be found on pages 11 and 61 of the Strategic
Report.

The disposal of the Services Segment was completed on 16 August 2013. Further detail in relation to this can be found at note 30
of the Accounts.

Amendment of the Articles of Association
The Company’s Articles of Association may be amended by a special resolution of its shareholders.

Change of Control/Significant Agreements
As detailed in the Going Concern Statement on page 75 the Group has entered into a new facilities agreement with a syndicate
of banks comprising HSBC Bank plc, The Royal Bank of Scotland plc and Barclays Bank PLC (the Banks). Under the terms of
these facilities the Banks can give notice to the Company to repay all amounts outstanding under the facilities and cancel the
commitments where there is a change of control of the Company. No other agreements that take effect, alter or terminate upon a
change of control of the Company following a takeover bid are considered to be significant in terms of their potential impact on the
business as a whole.

The Company does not have agreements with any director or employee that provides compensation for loss of office or
employment resulting from a takeover, other than the Company share schemes. Under such schemes outstanding options and
awards normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions at
that time. The 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. In relation to the recruitment award granted to Anne-Francoise Nesmes
(further details of which can be found on page 100 of the Directors’ Remuneration Report) the Remuneration Committee has
confirmed that it will exercise its discretion and allow full vesting of the award should there be a change of control of the Company
prior to the vesting date.

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 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.

112

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014113

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.

Overseas Branches
The Company has no overseas branches.

Political Donations and Expenditure
No political donations were made during the year ended 30 June 2014. 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.

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 2014
was £8,248,000 (2013: £7,961,000) and a further £1,065,000 (2013: £1,584,000) was capitalised as development costs.

Results and Dividends
The results for the year and financial position at 30 June 2014 are shown in the Consolidated Income Statement on page 121 and
Consolidated Statement of Financial Position on page 123. The Directors recommend the payment of a final dividend of 10.65
pence per share which, if approved by shareholders, will be paid on 21 November 2014 to shareholders registered at 7 November
2014. The shares will become ex-dividend on 6 November 2014. An interim dividend of 4.75 pence per share was paid on 8 April
2014, making a total dividend for the year of 15.40 pence (2013: 14.00 pence). The total dividend payment is £13,500,000
(2013: £12,199,000).

Share Capital
The issued share capital of the Company for the year is set out in note 23 to the Consolidated Financial Statements on page 160.
As at the end of the financial year 87,712,564 fully paid ordinary shares were in issue which included 555,120 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. The only exception to this being the Trustees of the Dechra Employee Benefit Trust, who hold 83,478
shares and have waived their rights to dividends and in accordance with ABI guidelines they abstain from voting at general
meetings.

At the Annual General Meeting of the Company held on 17 October 2013, the Company was authorised to purchase up to
8,715,744 of its ordinary shares, representing 10% of the issued share capital of the Company as at 16 September 2013. 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 2013 Annual General Meeting and resolutions to renew these
authorities will be proposed at the 2014 Annual General Meeting.

113

Our Governancewww.dechra.com Stock code: DPH114

Directors’ Report – Other Disclosures continued

Substantial Interests in Voting Rights
In accordance with the requirements in the Listing Rules and the Disclosure Rules and Transparency Rules of the Financial 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.

Schroders
Fidelity Management & Research
Aberdeen Group
Legal & General Group
Norges Bank
BlackRock Inc
Aviva plc
Rathbone plc
Neptune Investment Management

30 June 2014

20 August 2014

Aggregate
voting rights
9,022,410
8,566,217
8,149,643
4,158,087
3,520,489
3,382,050
3,025,919
2,997,616
2,981,023

Percentage
10.29
9.77
9.29
4.74
4.01
3.86
3.45
3.42
3.40

Aggregate
voting rights
9,136,910
8,338,300
8,133,896
4,158,087
3,471,309
3,373,421
2,996,127
2,812,164
3,260,041

Percentage
10.42
9.51
9.27
4.74
3.96
3.85
3.42
3.21
3.72

Auditor
A resolution to re-appoint KPMG LLP as external 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 external 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
external auditor is aware of that information.

The Directors’ Report has been approved by the Board and signed on its behalf by:

Zoe Goulding
Company Secretary
8 September 2014

114

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014Statement of Directors’ Responsibilities

115

Directors’ Responsibility Statement
We confirm to the best of our knowledge:

1. The financial statements, prepared in accordance with the
International Financial Reporting Standards as adopted by
the EU, 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;

2. The Strategic Report includes a fair review of the

development and performance of the business and the
position of the Company and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they
face; and

3. The Annual Report and financial statements, taken as a

whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the
Company’s performance, business model and strategy.

Approved by the Board and signed on its behalf by:

Ian Page
Chief Executive Officer
8 September 2014

Anne-Francoise Nesmes
Chief Financial Officer
8 September 2014

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.

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 Strategic Report, 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.

115

Our Governancewww.dechra.com Stock code: DPH04

Our Financials

Company Information

118

Independent Auditor’s Report

171 Reconciliation of Movements in

180 Glossary

182 Shareholder Information

184 Advisers

121 Consolidated Income Statement

Shareholders’ Funds

172 Notes to the Company Financial

Statements

179

Financial History

122 Consolidated Statement of

Comprehensive Income

123 Consolidated Statement of

Financial Position

124 Consolidated Statement of

Changes in Shareholders’ Equity

125 Consolidated Statement of

Cash Flows

126 Notes to the Consolidated
Financial Statements

170 Company Balance Sheet

118

Independent Auditor’s Report to the Members
of Dechra Pharmaceuticals PLC

Opinions and conclusions arising from our audit

1 Our opinion on the financial statements is unmodified
We have audited the financial statements of Dechra Pharmaceuticals PLC for the year ended 30 June 2014 set out on pages 121 to
178. 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

2014 and of the Group’s profit for the year then ended;

• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as

adopted by the European Union;

• the Parent Company financial statements have been properly prepared in accordance with UK Accounting Standards; and

• 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.

2 Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements the risk of material misstatement that had the greatest effect on our
audit was as follows:

Valuation of Goodwill and Acquired Intangible Assets (£187.9 million)
Refer to page 80 (Audit Committee Report), notes 1(g) and 1(j) (accounting policies) and note 13 (financial disclosures) of the
Consolidated Financial Statements.

The risk:
• The Group balance sheet includes a significant amount of goodwill and other acquired intangible assets that have arisen as a

result of acquisitions. There is a risk that below forecast performance of the business, or the cash generating unit (CGU), to which
the assets are allocated will result in impairment. This could be due to weaker than forecast demand, product obsolescence or
other factors.

• The recoverable amounts of the CGU’s to which these intangible assets are allocated is determined on the basis of value

in use calculations. Due to the inherent uncertainty involved in forecasting future cash flows and in determining appropriate
discount rates, which are the basis of the assessment of recoverability, this is one of the key judgemental areas that our audit is
concentrated on.

Our response — Our audit procedures in this area included, among others:
• Performing certain procedures to identify indicators for impairment of amortising intangible assets. These included reviewing
Board meeting minutes, reviewing forecast performance and enquiring of management as to whether they are aware of any
indicators of impairment;

• Checking that the valuation methodology, including the mathematical accuracy, used and allocation of cash flows between cash

generating units is consistent year-on-year;

• Agreeing the cash flows in the models to detailed forecasts prepared by the Group and assessing the appropriateness of the

assumptions used in the forecasts in light of historical results;

• Assessing whether the growth rates and the assumed asset lives used in the models are reasonable in light of historical growth

rates and ensuring long term growth rates in the models do not exceed industry published data;

• Performing our own assessments of the key estimates and assumptions used to estimate the discount rate applied and

challenging the Group’s judgements if there are differences; and

• Performing a number of sensitivities to the key assumptions including growth and discount rates to challenge the Group’s

judgements.

We also assessed whether the Group’s disclosures in respect of the impairment review and the sensitivity of the outcome of the
impairment review to changes in key assumptions reflected the risks inherent in the valuation.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014119

3 Our application of materiality and an overview of the scope of our audit
The materiality for the Group financial statements as a whole was set at £1,709,000. This has been determined with reference
to a benchmark of Group profit before taxation, which we consider to be one of the principal considerations for members of
the Company in assessing the financial performance of the Group. Materiality represents 8.0% of Group profit before tax from
continuing operations and 4.5% of Group profit before tax adjusted for amortisation of acquired intangibles as disclosed in the non-
underlying note (note 5).

We agreed with the Audit Committee to report to it all corrected and uncorrected misstatements we identified through our audit with
a value in excess of £85,000, in addition to other audit misstatements below that threshold that we believe warranted reporting on
qualitative grounds.

Audits for Group reporting purposes were performed by component auditors at the key reporting components in the following
countries: the UK, US, Netherlands, Denmark and Germany. These audits covered 97% of total Group revenue from continuing
operations; 95% of Group profit before taxation from continuing operations; and 97% of total Group assets. The segment
disclosures in note 2 sets out the individual significance of a specific country.

The audits undertaken for Group reporting purposes at the key reporting components of the Group were all performed to materiality
levels set by the Group audit team. These materiality levels were set individually for each component and ranged from £400,000 to
£1,500,000.

Detailed audit instructions were sent to all the auditors in these locations. These instructions covered the significant audit areas that
should be covered by these audits and set out the information required to be reported back to the Group audit team. The Group
audit team visited the following locations: the UK, US, Netherlands and Denmark. Telephone meetings were also held with the
auditors at these locations and the majority of the other locations that were not physically visited.

4 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion:

• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies

Act 2006;

• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are

prepared is consistent with the financial statements.

5 We have nothing to report in respect of the matters on which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have
identified other information in the Annual Report that contains a material inconsistency with either that knowledge or the financial
statements, a material misstatement of fact, or that is otherwise misleading.

In particular, we are required to report to you if:

• we have identified material inconsistencies between the knowledge we acquired during our audit and the Directors’ Statement
that they consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Group’s performance, business model and strategy; or

• the Audit Committee Report does not appropriately address matters communicated by us to the Audit Committee.

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:

www.dechra.com Stock code: DPHOur Financials120

Independent Auditor’s Report to the Members
of Dechra Pharmaceuticals PLC

• the Directors’ Statement, set out on page 75, in relation to going concern; and

• the part of the Corporate Governance Statement on pages 68 to 77 relating to the Company’s compliance with the nine

provisions of the UK Corporate Governance Code specified for our review.

We have nothing to report in respect of the above responsibilities.

Scope of report and responsibilities
As explained more fully in the Directors’ Responsibilities Statement set out on page 115, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. 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. This
report is made solely to the Company’s members as a body and is subject to important explanations and disclaimers regarding our
responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2013a, which are incorporated into this report as
if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the
basis of our opinions.

Graham Neale (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
8 September 2014

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014Consolidated Income Statement
For the year ended 30 June 2014

121

2014

Non-
underlying
items*
(notes
4 & 5)
£000
—
—
—

(17,172)
—
(17,172)
—
(1,247)

(18,419)
5,986

Underlying
£000
193,571
(85,863)
107,708

(57,292)
(8,248)
42,168
302
(2,609)

39,861
(8,012)

Total
£000
193,571
(85,863)
107,708

(74,464)
(8,248)
24,996
302
(3,856)

21,442
(2,026)

Underlying
£000
189,176
(88,470)
100,706

(53,637)
(7,961)
39,108
73
(5,634)

33,547
(8,083)

2013

Non-
underlying
items*
(notes
4 & 5)
£000
—
—
—

(20,772)
—
(20,772)
—
(297)

(21,069)
6,455

Total
£000
189,176
(88,470)
100,706

(74,409)
(7,961)
18,336
73
(5,931)

12,478
(1,628)

31,849

(12,433)

19,416

25,464

(14,614)

10,850

1,020

38,611

39,631

8,449

(1,386)

7,063

32,869

26,178

59,047

33,913

(16,000)

17,913

67.57p
22.22p
45.35p
67.33p
22.14p
45.19p

15.40p

20.59p
12.47p
8.12p
20.45p
12.39p
8.06p

14.00p

Note
2

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)

2
3
4

6
8

* 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 profit and related expenses on the disposal of discontinued operations.

www.dechra.com Stock code: DPHOur Financials122

Consolidated Statement of Comprehensive Income
For the year ended 30 June 2014

Profit for the year

Other comprehensive income:

Items that will not be reclassified subsequently to profit or loss:
Remeasurement of 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

2014
£000
59,047

2013
£000
17,913

(136)

(772)

(341)
180
(18,128)
29
(18,260)
40,651

(185)
557
12,789
(86)
13,075
30,216

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014Consolidated Statement of Financial Position
At 30 June 2014

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
Own shares
Hedging reserve
Foreign currency translation reserve
Merger reserve
Retained earnings
Total equity attributable to equity holders of the parent

123

Note

2014
£000

2013
£000

11
12

15
16
17
30

20
18
29
19
30

20
29
21
14

196,182
18,258
214,440

29,673
29,888
26,773
—
86,334
300,774

(103)
(27,365)
(1,784)
(6,463)
—
(35,715)

(31,660)
(6,025)
(1,070)
(21,498)
(60,253)
(95,968)
204,806

877
124,429
(606)
(132)
(9,022)
1,770
87,490
204,806

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

The financial statements were approved by the Board of Directors on 8 September 2014 and are signed on its behalf by:

Ian Page
Chief Executive Officer
8 September 2014

Anne-Francoise Nesmes
Chief Financial Officer
8 September 2014

Company number: 3369634

www.dechra.com Stock code: DPHOur Financials124

Consolidated Statement of Changes in Shareholders’ Equity
For the year ended 30 June 2014

Year ended 30 June 2013
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
Remeasurement of 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
Year ended 30 June 2014
At 1 July 2013
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
Remeasurement of 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
Own shares purchased
Total contributions by and distributions to
owners
At 30 June 2014

Attributable to owners of the parent

Issued
share
capital
£000
869
—

Share
premium
account
£000
122,642
—

Own
shares
£000
—
—

Hedging
reserve
£000
(286)
—

Foreign
currency
translation
reserve
£000
(3,683)
—

Merger
reserve
£000
1,770
—

Retained
earnings
£000
32,370
17,913

Total
£000
153,682
17,913

—

—
—

—
—
3

3
872

872
—

—

—
—

—
—
5
—

—

—
—

—
—
843

843
123,485

123,485
—

—

—
—

—
—
944
—

5
877

944
124,429

—

—
—

—
—
—

—
—

—

—
—

—
—
—
(606)

(606)
(606)

(140)

—

426
286

—
—
—

—
—

12,789

—

—
12,789

—
—
—

—
9,106

9,106
—

(312)

—

(18,128)

—

180
(132)

—
(18,128)

—
—
—
—

—

—
—

—
—
—

—
1,770

1,770
—

—

—
—

—
—
—
—

—

(140)

12,789

(772)

—
17,141

426
30,216

(11,170)
1,042

—

(11,170)
1,042
846

(10,128)
39,383

(9,282)
174,616

39,383
59,047

174,616
59,047

—

(312)

(18,128)

(136)

—
58,911

180
40,651

(12,579)
1,775
—
—

(12,579)
1,775
949
(606)

—
(132)

—
(9,022)

—
1,770

(10,804)
87,490

(10,461)
204,806

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

Foreign Currency Translation Reserve
The foreign currency translation reserve contains exchange differences on the translation of subsidiaries with a functional currency
other than Sterling and exchange gains or losses on the translation of liabilities that hedge the Company’s net investment in foreign
subsidiaries.

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

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014Consolidated Statement of Cash Flows
For the year ended 30 June 2014

Cash flows from operating activities
Profit for the period
Adjustments for:
Depreciation
Amortisation and impairment
Loss on sale of property, plant and equipment
(Profit)/related expenses on 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
(Increase)/decrease in inventories
Increase in trade and other receivables
(Decrease)/increase in trade and other payables
Cash generated from operating activities before interest and taxation
Interest paid
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Interest received
Acquisition of subsidiaries
Proceeds from disposal of discontinued operations
Expenses related to the disposal of discontinued operations
Purchase of property, plant and equipment
Capitalised development expenditure
Purchase of other intangible non-current assets
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Proceeds from the issue of share capital
Own shares purchased
Repayment of borrowings
Resetting of foreign currency borrowings
Dividends paid
Net cash outflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at start of period
Exchange differences on cash and cash equivalents
Cash and cash equivalents at end of period
Reconciliation of net cash flow to movement in net borrowings
Net decrease in cash and cash equivalents
Repayment of borrowings
New finance leases
Exchange differences on cash and cash equivalents
Retranslation of foreign borrowings
Other non-cash changes
Movement in net borrowings in the period
Net borrowings at start of period
Net borrowings at end of period

125

Note

2014
£000

2013
£000

59,047

17,913

12
11
6
30
3
4
25

29
30
30
12
11
11

23
24

20
9

26
26

2,197
18,340
—
(38,611)
(302)
3,856
1,616
2,322
48,465
(2,811)
(21,100)
(1,159)
23,395
(2,444)
(9,479)
11,472

—
260
(5,938)
91,202
(1,576)
(4,927)
(1,065)
(1,381)
76,575

949
(606)
(81,470)
1,558
(12,579)
(92,148)
(4,101)
32,791
(1,917)
26,773

(4,101)
81,470
—
(1,917)
1,935
(1,578)
75,809
(80,799)
(4,990)

2,795
19,876
462
1,357
(73)
5,931
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)

www.dechra.com Stock code: DPHOur Financials126

Notes to the Consolidated Financial Statements

1. Accounting Policies

Dechra Pharmaceuticals PLC is a company domiciled in the United Kingdom. The consolidated financial statements of the
Group for the year ended 30 June 2014 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 (IFRSs) 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 170 to 178.

(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 on pages 6 to 61. 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 75 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 of 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 Segment, as described in note 30, gives rise to a discontinued operation.

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.

(i)

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.

(ii) Valuation of Intangible Assets

Product rights and customer relationships that are acquired by the Group as part of a business combination are
stated at fair value at the date of acquisition less accumulated amortisation and impairment losses.

Fair value at the date of acquisition reflects management’s judgement of the fair value of the individual intangible asset
calculated by reference to the net present value of future benefits accruing to the Group from the utilisation of the
asset, discounted at an appropriate discount rate.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
127

1. Accounting Policies continued

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 2014.

• Amendments to IAS 19 ‘Employee Benefits’ — the amendments require immediate recognition of actuarial gains and
losses in other comprehensive income and eliminate the corridor method. The principal amendment that has affected
the Company is the requirement to calculate net interest income or expense using the discount rate used to measure the
defined benefit obligation. The adoption of this standard has no significant impact.

• IFRS 13 ‘Fair Value Measurements’ — replaces existing guidance on fair value measurement in different IFRSs with a

single definition of fair value, a framework for measuring fair values and disclosures about fair value measurements. This
standard applies to assets, liabilities and the Company’s own equity instruments that, under other IFRSs, are required or
permitted to be measured at fair value or when disclosure of fair value is provided. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The adoption of this standard has no significant impact.

There are no other new standards, amendments to standards or interpretations mandatory for the first time for the year ended
30 June 2014.

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.

• IAS 27 (Revised) ‘Separate Financial Statements’ — effective for annual periods beginning on or after 1 January 2014.

The Group does not anticipate that the adoption of the above amendments will have a material effect on its financial
statements on initial adoption.

www.dechra.com Stock code: DPHOur Financials128

Notes to the Consolidated Financial Statements continued

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 2013 financial year the reporting dates of the previously acquired Eurovet companies were 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.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

129

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 and other receivables are initially recognised at fair value and subsequently stated at amortised cost less appropriate
allowances for amounts which are expected to be non-recoverable. 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.

www.dechra.com Stock code: DPHOur Financials

130

Notes to the Consolidated Financial Statements continued

1. Accounting Policies continued

(f) Property, Plant and Equipment

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

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

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

• freehold buildings
• short leasehold buildings
• plant and fixtures
• motor vehicles

25 years
period of lease
3 to 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.

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.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

131

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. 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. Internally generated costs of development are capitalised, once the criteria
are met, 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.

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

(h) Inventories

5 to 7 years
5 to 10 years or period of patent
period of patent
indefinite life
10 to 15 years
10 years

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.

www.dechra.com Stock code: DPHOur Financials

132

Notes to the Consolidated Financial Statements continued

(i)

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

(j)

Impairment
The carrying amounts of the Group’s assets are reviewed at each consolidated statement of financial position date to
determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is
estimated.

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

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

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

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

An impairment loss in respect of goodwill is not reversed.

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

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

(k) Dividends

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

(l)

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

Dechra Veterinary Products SAS and Dechra Veterinary Products BV participate in state-run pension arrangements.
These are not considered to be material to the Group financial statements and are accounted for as defined contribution
schemes, with contributions being recognised as an expense in the income statement as incurred.

The Group sponsors defined benefit arrangements in certain countries, the most material being a defined benefit pension
plan in the Netherlands. This is a funded career average pay arrangement, where pensionable salary is subject to a cap.
The arrangement is financed through an insurance contract.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

133

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, as performed by a qualified third party valuation expert.

The fair values of options granted under all other share option schemes have been determined using the Black–Scholes
option pricing model, as performed by a qualified third party valuation expert.

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 is recognised in the income statement when goods are supplied to external customers against orders, title and
risk of loss are passed to the customer, reliable estimates can be made of relevant deductions and all relevant obligations
have been fulfilled, such that the earnings process is regarded as being complete.

Revenue represents net invoice value after the deduction of discounts and allowances given and accruals for estimated
future rebates and returns. The methodology and assumptions used to estimate rebates and returns are monitored and
adjusted regularly in the light of contractual and legal obligations, historical trends, past experience and projected market
conditions. Market conditions are evaluated using wholesaler and other third party analysis, and internally generated
information. Value added tax and other sales taxes are excluded from revenue.

www.dechra.com Stock code: DPHOur Financials

134

Notes to the Consolidated Financial Statements continued

1. Accounting Policies continued

(n) Leases

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

Finance Leases
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability using
the effective interest rate method.

(o) Net Financing Costs

Net financing costs comprise interest payable on borrowings, unwinding of discount on provisions, interest receivable on
funds invested, gains and losses on hedging instruments that are recognised in the income statement (see accounting
policy (e)) and gains or losses on the retranslation of financial assets and liabilities denominated in foreign currencies.
Interest income is recognised in the income statement as it accrues. The Group capitalises borrowing costs directly
attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The interest
expense component of finance lease payments is recognised in the income statement using the effective interest rate
method.

(p) Basis of Charge for Taxation

Income tax expense comprises current and deferred tax. Current and deferred taxes are recognised in the income
statement except to the extent that it relates to a business combination or items recognised directly in equity or in other
comprehensive income.

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

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

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

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

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

135

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.

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 IFRSs is given in notes 4 and 5.

2. Operating Segments

The Group has three reportable segments (four including the divested Services Segment), 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.

On 16 August 2013, the Group completed the disposal of the Services Segment. This Segment comprised National Veterinary
Services, Dechra Laboratory Services and Dechra Specialist Laboratories. This Segment serviced UK veterinary practices in
both the companion animal and livestock sectors. The Segment is a discontinued operation and was classified as held for sale
at 30 June 2013. Refer to note 30 for further details and segmental analysis in relation to the Services Segment.

The European Pharmaceuticals Segment comprises Dechra Veterinary Products EU and Dechra Pharmaceuticals
Manufacturing. This Segment operates internationally and manufactures and markets Companion Animal, Equine and Food
producing Animal Products. This Segment also includes third party manufacturing sales.

The US Pharmaceuticals Segment consists of Dechra Veterinary Products US which sells companion animal pharmaceuticals
into that territory. The Segment expanded during this financial year with the acquisition of PSPC Inc.’s manufacturing unit
based in Melbourne, Florida.

The Pharmaceuticals Research and Development Segment includes all of the Group’s pharmaceutical research and
development activities. From a Board perspective, this Segment has no revenue income.

www.dechra.com Stock code: DPHOur Financials

136

Notes to the Consolidated Financial Statements continued

2. Operating Segments continued

Reconciliations of reportable segment revenues, profit or loss and liabilities and other material items:

Revenue by segment
European Pharmaceuticals

US Pharmaceuticals

— total
— inter segment
— total
— inter segment

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

Revenue by product category
CAP
Equine
FAP
Diets
Third party manufacturing

Additions to intangible non-current assets by segment (including through business combinations)
Services (classified as held for sale in 2013)
European Pharmaceuticals
US Pharmaceuticals
Pharmaceuticals Research and Development
Corporate and central costs

2014
£000

2013
£000

172,449
(35)
21,215
(58)
193,571

49,016
5,980

(8,248)
46,748
(4,580)
42,168
(16,543)
(479)
(150)
24,996
302
(3,856)
21,442

—
(23,615)
(8,884)
(633)
(33,132)
(31,653)
(3,222)
(27,961)
(95,968)

98,747
12,585
35,865
28,372
18,002
193,571

—
1,356
7,567
1,065
25
10,013

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
73
(5,931)
12,478

(53,961)
(24,985)
(6,602)
(804)
(86,352)
(113,110)
(3,496)
(37,552)
(240,510)

94,714
11,003
38,073
27,941
17,445
189,176

88
1,132
3,143
1,092
—
5,455

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

2. Operating Segments continued

Additions to Property, Plant and Equipment by segment (including through business combinations)
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

137

2013
£000

733
2,622
18
69
223
3,665

757
18,360
3,112
426
16
22,671

2014
£000

—
2,979
2,185
55
26
5,245

—
17,684
1,987
816
50
20,537

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

* £2,309,000 has been reclassified from UK to Rest of Europe due to customer reclassification.

3. Finance Income

Finance income arising from:
— Cash and cash equivalents
— Loans and receivables
— Foreign exchange gains

2014
Revenue
£000
49,412
38,599
71,918
21,242
12,400
193,571

2014
Non-
current
assets
£000
17,752
2,260
152,158
42,270
—
214,440

2013
Non-
current
assets
£000
17,651
2,399
176,674
38,946
—
235,670

2013
£000

2
71
—
73

2013
Revenue*
£000
48,950
36,376
74,285
19,428
10,137
189,176

2014
£000

80
61
161
302

www.dechra.com Stock code: DPHOur Financials138

Notes to the Consolidated Financial Statements continued

4. Finance Expense

Underlying
Finance expense arising from:
— Financial liabilities at amortised cost
— Net interest on net defined benefit obligations
— Foreign exchange losses
Underlying finance expense

Non-underlying
Loss on extinguishment of debt (note 20)
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 related to the acquisition of Phycox

2014
£000

2,561
48
—
2,609

2014
£000
1,213
34
1,247
3,856

2014
£000
16,543
479
150
17,172

2013
£000

5,150
1
483
5,634

2013
£000
—
297
297
5,931

2013
£000
18,195
2,577
—
20,772

Rationalisation costs relate to the integration of Eurovet Animal Health B.V. and the ensuing senior management team
restructure.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
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/(profit) on disposal of property, plant and equipment
Impairment/(release of 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 assurance services
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

139

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

2014
£000
80,632
672

2,185
12
18,340
—
48
2,486
8,248
477

50
230
33
29
34
101
477

—
477

2014
Number

2013
Number

258
72
433
763

—
42
23
65
828

289
72
406
767

60
336
124
520
1,287

www.dechra.com Stock code: DPHOur Financials140

Notes to the Consolidated Financial Statements continued

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 25)

Discontinued operations
Wages and salaries
Social security costs
Other pension costs

Total

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

Short term employee benefits
Post-employment benefits
Share-based payments charge

2014
£000

32,939
4,256
2,435
1,994
41,624

1,327
101
33
1,461
43,085

2014
£000
3,606
215
1,543
5,364

2013
£000

32,152
4,279
2,389
1,014
39,834

10,004
871
243
11,118
50,952

2013
£000
3,886
278
598
4,762

Key management comprises the Board and the Senior Executive Team.

Details of the remuneration, shareholdings, share options, pension contributions and payments for loss of office of the
Executive Directors are included in the Directors’ Remuneration Report on pages 86 to 105.

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 £2,468,000 (2013: £2,632,000), of which £33,000 (2013: £243,000) related to discontinued
operations. Contributions to defined benefit pension schemes included in the above figures total £731,000 (2013: £897,000).

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
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 Consolidated Income Statement — continuing operations
Tax on discontinued operations
Total income tax expense in the Consolidated Income Statement

141

2013
£000
675
5,871
(800)
5,746
(4,502)
384

(4,118)
1,628
2,539
4,167

2014
£000
646
6,097
(910)
5,833
(2,428)
(1,379)

(3,807)
2,026
396
2,422

The tax on the Group’s profit before tax differs from the standard rate of UK corporation tax of 22.5% (2013: 23.75%). The
differences are explained below:

Profit before taxation — continuing operations
Tax at 22.5% (2013: 23.75%)
Effect of:
— disallowable expenses
— innovation related tax credits
— differences on overseas tax rates
— adjustments in respect of prior years
— non-taxable foreign exchange gains
— change in tax rates
Total income tax expense — continuing operations
Tax on discontinued operations
Total income tax expense in the Consolidated Income Statement

Tax Credit Recognised Directly in Equity

Deferred tax on effective portion of changes in fair value of cash flow hedges
Tax recognised in Consolidated Statement of Comprehensive Income
Corporation tax on equity settled transactions
Deferred tax on equity settled transactions
Total tax recognised in equity

2014
£000

21,442
4,824

98
(832)
331
(2,289)
—
(106)
2,026
396
2,422

2014
£000
29
29
250
(91)
188

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

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 23% to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on
2 July 2013.

The deferred tax balance at 30 June 2014 has been calculated based on the rate of 20% which was substantively enacted
at the balance sheet date. The future rate reductions will affect the Group’s future current tax charges.

www.dechra.com Stock code: DPHOur Financials

142

Notes to the Consolidated Financial Statements continued

9. Dividends

Final dividend paid in respect of prior year but not recognised as a liability in that year:
9.66p per share (2013: 8.50p)
Interim dividend paid: 4.75p per share (2013: 4.34p)
Total dividend 14.41p per share (2013: 12.84p) recognised as distributions to
equity holders in the period
Proposed final dividend for the year ended 30 June 2014: 10.65p per share (2013: 9.66p)
Total dividend paid and proposed for the year ended 30 June 2014: 15.40p per share
(2013: 14.00p)

2014
£000

8,420
4,159

12,579
9,341

2013
£000

7,390
3,780

11,170
8,419

13,500

12,199

In accordance with IAS 10 ‘Events After the Balance Sheet Date’, the proposed final dividend for the year ended 30 June 2014
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 2015. There are no income tax consequences. The final dividend for the year ended 30 June 2013
is shown as a deduction from equity in the year ended 30 June 2014.

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 in the Consolidated Income Statement.

2014
Pence

37.61
36.45
1.16
67.57
22.22
45.35

37.48
36.32
1.16
67.33
22.14
45.19

2014
£000
32,869
31,849
1,020
59,047
19,416
39,631

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

2013
£000
33,913
25,464
8,449
17,913
10,850
7,063

No.
87,385,689
312,771
87,698,460

No.
87,011,352
587,258
87,598,610

At 30 June 2014, there are 799,997 options that are excluded from the EPS calculations as they are anti-dilutive for the period
presented but may become dilutive in the future.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014

11. Intangible Assets

Goodwill
£000

Software
£000

Development
costs
£000

Patent
rights
£000

Marketing
authorisations
£000

Acquired
intangibles
£000

Cost
At 1 July 2012
Additions
Disposals
Transferred to assets held
for sale
Foreign exchange
adjustments

At 30 June 2013 and
1 July 2013
Additions
Acquisitions through
business combinations
Foreign exchange
adjustments
At 30 June 2014
Amortisation
At 1 July 2012

Charge for the year

Disposals
Transferred to assets held
for sale
At 30 June 2013 and
1 July 2013
Charge for the year
At 30 June 2014
Net book value
At 30 June 2014
At 30 June 2013 and
1 July 2013
At 30 June 2012

57,921
—
—

4,656
728
(234)

(2,621)

(1,836)

3,055

58,355
—

(3,461)
54,978

—

—
—
—

54,978

58,355
57,921

3,412
1,381

—

(187)
4,606

1,621

451

(234)

(891)

947
341
1,288

3,318

2,465
3,035

7,440
1,584
—

—

9,071
1,065

—

(67)
10,069

3,680
—
—

—

3,680
—

—

—
3,680

3,106

1,133

857

—

3,963
1,122
5,085

4,984

5,108
4,334

335

—

1,468
334
1,802

1,878

2,212
2,547

Contracted capital commitments
Software assets in the course of construction included above

853
—
—

—

853
—

—

—
853

—

—
—
—

853

853
853

143

Total
£000

267,956
5,455
(234)

193,406
3,143
—

(377)

(4,834)

8,658

11,858

204,830
—

280,201
2,446

7,483

7,567

(11,372)
200,941

(15,087)
275,127

36,224

18,233

—

42,084

19,876

(234)

(230)

(1,121)

54,227
16,543
70,770

60,605
18,340
78,945

130,171

196,182

150,603
157,182

219,596
225,872

2014
£000
—
2,856

2013
£000
6
2,279

Included in contracted capital commitments is £nil (2013: £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.

www.dechra.com Stock code: DPHOur Financials144

Notes to the Consolidated Financial Statements continued

11. Intangible Assets continued

In accordance with the disclosure requirements of IAS 38 ‘Intangible Assets’ the components of acquired intangibles are
summarised below:

Cost
At 1 July 2012
Additions
Transferred to assets held for sale
Foreign exchange adjustments
At 30 June 2013 and 1 July 2013
Acquisitions through business combinations
Foreign exchange adjustments
At 30 June 2014
Amortisation
At 1 July 2012
Charge for the year
Transferred to assets held for sale

At 30 June 2013 and 1 July 2013
Charge for the year
At 30 June 2014
Net book value
At 30 June 2014
At 30 June 2013 and 1 July 2013
At 30 June 2012

Acquired
development
costs
£000

Product
rights
£000

Customer
relationships
£000

22,445
—
—
2,475
24,920
—
(1,583)
23,337

—
2,243
—

2,243
2,191
4,434

18,903
22,677
22,445

170,584
3,143
—
6,183
179,910
7,483
(9,789)
177,604

36,032
15,952
—

51,984
14,352
66,336

111,268
127,926
134,552

377
—
(377)
—
—
—
—
—

192
38
(230)

—
—
—

—
—
185

Total
£000

193,406
3,143
(377)
8,658
204,830
7,483
(11,372)
200,941

36,224
18,233
(230)

54,227
16,543
70,770

130,171
150,603
157,182

The amortisation charge is recognised within administrative expenses in the Consolidated 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 2014 was £114.7 million with a remaining amortisation period of 3½ years, 11½ years, 6½ years
and 8 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 2014 was £1.3 million and £3.9 million
with a remaining amortisation period of 9 years and 7½ years respectively.

In May 2014, the Company completed the purchase of product rights to Phycox, a patented nutraceutical which competes
in the US veterinary joint health supplement market, as well as a new product in the final phase of development. The carrying
value of these assets at 30 June 2014 is £7.4 million, with a remaining amortisation period of 10 years.

During the prior year the Company 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 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 2014 was
£1.0 million with a remaining amortisation period of 4½ years. The rights to Equidone, which was launched in the US during
2011, has a carrying value of £0.8 million with an amortisation period of 7 years.

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

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
12. Property, Plant and Equipment

Freehold
land and
buildings
£000

Short
leasehold
buildings
£000

Motor
vehicles
£000

Plant and
fixtures
£000

Cost
At 1 July 2012
Additions
Disposals
Transferred to assets held for sale
Foreign exchange adjustments
At 30 June 2013 and 1 July 2013
Additions
Acquisitions through business combinations
Disposals
Foreign exchange adjustments
At 30 June 2014
Depreciation

At 1 July 2012

Charge for the year
Disposals
Transferred to assets held for sale
At 30 June 2013 and 1 July 2013
Charge for the year
Disposals
At 30 June 2014
Net book value
At 30 June 2014
At 30 June 2013 and 1 July 2013
At 30 June 2012
Net book value of assets held under finance leases
At 30 June 2014
At 30 June 2013 and 1 July 2013
At 30 June 2012

Contracted capital commitments
Assets in the course of construction included above

8,877
1,442
(168)
—
432
10,583
2,958
—
—
(614)
12,927

647

772
(78)
—
1,341
697
—
2,038

10,889
9,242
8,230

—
—
—

3,459
45
—
(349)
—
3,155
767
—
—
—
3,922

1,675

224
—
(198)
1,701
196
—
1,897

2,025
1,454
1,784

—
—
32

217
—
(82)
(135)
—
—
19
—
(2)
(1)
16

203

—
(70)
(133)
—
—
—
—

16
—
14

—
—
—

15,276
2,178
(2,503)
(4,706)
179
10,424
1,183
318
(270)
(247)
11,408

8,584

1,799
(2,134)
(3,203)
5,046
1,304
(270)
6,080

5,328
5,378
6,692

—
163
371

2014
£000

52
—

Included in contracted capital commitments is £nil (2013: £55,000) relating to assets held for sale.

145

Total
£000

27,829
3,665
(2,753)
(5,190)
611
24,162
4,927
318
(272)
(862)
28,273

11,109

2,795
(2,282)
(3,534)
8,088
2,197
(270)
10,015

18,258
16,074
16,720

—
163
403

2013
£000

68
1,290

www.dechra.com Stock code: DPHOur Financials146

Notes to the Consolidated Financial Statements continued

13. Impairment Reviews

Goodwill, indefinite life assets and intangible assets not yet available for use are tested for impairment annually, or more
frequently if there are indications that amounts might be impaired. Acquired intangible assets that are being amortised are
effectively tested for impairment by virtue of their inclusion in the carrying value of the cash generating units to which goodwill
is allocated. 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%
(2013: 3%) per annum up to year five and thereafter a growth rate of 0% (2013: 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 competitive and
legislative environments 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 a market participant rate, 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 2014 for the following assets:

Cash generating unit
Dechra Veterinary Products EU

Dechra Veterinary Products US

Dechra Pharmaceuticals Manufacturing — Skipton

Cash generating unit
Dechra Veterinary Products EU

Dechra Veterinary Products US

Dechra Pharmaceuticals Manufacturing — Skipton

2014

2013

Indefinite
life assets
carrying
value
£000
822

—

822

Indefinite
life assets
carrying
value
£000
822

—

822

Total
value
£000
53,190

379

2,231

55,800

Total
value
£000
56,616

330

2,231

59,177

Goodwill
carrying
value
£000
52,368

379

2,231

54,978

Goodwill
carrying
value
£000
55,794

330

2,231

58,355

Pre-tax
discount
rate
%
11.4

12.2

11.3

Pre-tax
discount
rate
%
8.8

10.4

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.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
147

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
Losses

Employee benefit obligations

Assets

Liabilities

Net

2014
£000
—
—
477
303
719
90

292
1,881

2013
£000
—
—
1,067
212
964
—

17
2,260

2014
£000
(21,738)
(1,641)
—
—
—
—

—
(23,379)

2013
£000
(27,548)
(1,896)
—
—
—
—

—
(29,444)

2014
£000
(21,738)
(1,641)
477
303
719
90

292
(21,498)

2013
£000
(27,548)
(1,896)
1,067
212
964
—

17
(27,184)

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

(b) Unrecognised Deferred Tax
The aggregate amount of temporary differences associated with investments in subsidiaries for which deferred tax liabilities
have not been recognised is £nil (2013: £nil). The estimated unprovided deferred tax liability in relation to these temporary
differences is £nil (2013: £nil). Deferred tax assets in relation to losses amounting to £6,000 (2013: £75,000) have not been
recognised due to uncertainty over their recoverability.

Intangible assets
Property, plant and equipment
Inventories
Payables
Share-based payments
Employee benefit obligations

Intangible assets
Property, plant and equipment
Inventories
Payables
Share-based payments
Losses
Employee benefit obligations

Balance at
1 July
2012
£000
(29,984)
(1,691)
1,178
267
813
74
(29,343)

Balance at
1 July
2013
£000
(27,548)
(1,896)
1,067
212
964
—
17
(27,184)

Recognised
in income
£000
4,240
(117)
(112)
19
81
(58)
4,053

Recognised
in income
£000
4,147
(42)
(596)
71
(154)
94
287
3,807

Recognised
in equity
£000
—
—
—
(86)
70
—
(16)

Recognised
in equity
£000
—
—
—
29
(91)
—
—
(62)

Foreign
exchange
adjustments
£000
(1,804)
(88)
1
12
—
1
(1,878)

Foreign
exchange
adjustments
£000
1,629
104
6
(9)
—
(4)
(12)
1,714

Balance at
30 June
2013
£000
(27,548)
(1,896)
1,067
212
964
17
(27,184)

Balance at
30 June
2014
£000
(21,738)
(1,641)
477
303
719
90
292
(21,498)

Disposals
£000
—
—
—
—
—
—
—

Disposals
£000
34
193
—
—
—
—
—
227

Amounts recognised in income relating to continuing operations total £3,807,000 (2013: £4,118,000).

www.dechra.com Stock code: DPHOur Financials148

Notes to the Consolidated Financial Statements continued

15. Inventories

Raw materials and consumables
Work in progress
Finished goods and goods for resale

16. Trade and Other Receivables

Trade receivables
Other receivables
Prepayments and accrued income

17. Cash and Cash Equivalents

Cash at bank and in hand

18. Trade and Other Payables

Trade payables
Other payables
Derivative financial instruments
Other taxation and social security
Accruals and deferred income

19. Current Tax Liabilities

Corporation tax payable

2014
£000
7,031
2,507
20,135
29,673

2014
£000
28,325
857
706
29,888

2014
£000
26,773

2014
£000
12,867
8,682
161
680
4,975
27,365

2014
£000

6,463

2013
£000
6,698
2,224
20,277
29,199

2013
£000
25,296
922
1,464
27,682

2013
£000
32,791

2013
£000
11,859
6,973
15
2,729
6,907
28,483

2013
£000

10,368

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
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

149

2014
£000

—
103
—
103

32,039
7
(386)
31,660
31,763

2013
£000

10,000
338
(588)
9,750

105,073
142
(1,375)
103,840
113,590

At 30 June 2014, the Group’s borrowing facilities comprise a £65.0 million revolving credit facility committed until 31 October
2016, of which £32.0 million was drawn down at 30 June 2014, and various finance lease obligations. In September 2013, the
proceeds from the divestment of the Services Segment were used to pay down the term loan in full and partly pay down the
revolving credit facility. This gave rise to a loss on extinguishment of debt of £1,213,000.

Resetting of foreign currency borrowings within the Consolidated Statement of Cash Flows relates to the cash adjustment
required to ensure the movements in foreign exchange rates do not result in the committed revolving credit facility being
exceeded.

In September 2014, the Group refinanced its existing bank facility, which will give rise to a loss on extinguishment of debt of
£386,000 in the year ending 30 June 2015. The Group’s revised borrowing facility comprises a £90.0 million revolving credit
facility and a £30.0 million Accordion facility committed until September 2019 and various finance lease obligations.

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

Bank overdraft facility

2014
£000
—

2013
£000
10,000

The current revolving credit facility is secured by a fixed and floating charge on the assets of the Group. Interest is charged at
2.50% over LIBOR or the applicable base rate. All covenants were met during the year ended 30 June 2014.

The revised borrowing facility is not secured on any assets of the Group but is supported by a joint and several cross-
guarantee structure. Interest will be charged at 1.30% over LIBOR.

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

2014
£000

—
32,039
—
32,039

2013
£000

10,000
10,000
95,073
115,073

www.dechra.com Stock code: DPHOur Financials150

Notes to the Consolidated Financial Statements continued

20. Borrowings continued

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

Within one year
Between one and two years
Between two and five years
Total minimum lease payments
Future finance charges
Present value of lease obligations

Minimum lease
payments

Present value of
minimum lease
payments

2014
£000
103
7
—
110
—
110

2013
£000
361
137
8
506
(26)
480

2014
£000
103
7
—
110
—
110

2013
£000
338
134
8
480
—
480

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 £182,000
(2013: £98,000) for employees in the Netherlands are recognised within other payables in the Consolidated Statement of
Financial Position as at 30 June 2014.

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
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

2014
3.40%
1.80%
2.30%
1.20%
0.00%
0.00%

2013
3.90%
1.90%
2.40%
1.30%
0.00%
0.00%

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
151

21. Employee Benefit Obligations continued

In valuing the liabilities of the pension scheme at 30 June 2014 and 30 June 2013, 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
Service cost
Interest cost
Employee contributions
Remeasurement 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
Interest income
Additional charges
Employer contributions
Employee contributions
Remeasurement 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
Net interest cost
Additional charges
Net pension expense

2014
£000
(5,927)
4,857
(1,070)

2014
£000
4,722
590
207
152
619
(363)
5,927

2014
£000
3,726
159
(99)
731
152
483
(295)
4,857

2014
£000
590
48
99
737

2013
£000
(4,722)
3,726
(996)

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
1
289
736

www.dechra.com Stock code: DPHOur Financials152

Notes to the Consolidated Financial Statements continued

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

2014
£000
772
136

908

2013
£000
—
772

772

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

2014
£000
3.40%
4,857
159

2013
£000
3.90%
3,726
123

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 £694,000 (2013:
£571,000).

History of Amounts in the Current Period

Present value of funded defined benefit obligations
Fair value of scheme assets
Deficit in the scheme

2014
£000
(5,927)
4,857
(1,070)

2013
£000
(4,722)
3,726
(996)

2012
£000
(2,801)
2,438
(363)

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
153

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.

The Board of Directors has approved a policy which governs all Treasury activities.

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 2014, net borrowings were
£5.0 million (2013: £80.8 million), whilst shareholders’ equity was £204.8 million (2013: 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 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. There were no changes in the Group’s
approach to capital management during the year.

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 2014 and 2013.

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

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

www.dechra.com Stock code: DPHOur Financials154

Notes to the Consolidated Financial Statements continued

22. Financial Instruments and Related Disclosures continued

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

• liquidity risk

• market risk

• credit risk

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

Liquidity Risk
Liquidity risk is the risk that the Group will not have sufficient funds to meet liabilities as they fall due. Cash flows and covenants
of the Group are monitored 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:

• £65.0 million revolving credit facility, of which £32.0 million was drawn down at 30 June 2014; and

• various finance leases

The Group’s undrawn borrowing facilities at 30 June 2014 and details of its revised facility 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 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 0.85% on the revolving credit facility.
The amount of the revolving credit outstanding at 30 June 2014 was £32.0 million (2013: £115.1 million). The hedge is in place
until 31 October 2016 and the amount hedged matches the repayment profile of the facility.

Foreign Exchange Risk Management
Foreign currency transaction exposure arising on normal trade flows is not hedged. The Group matches receipts and payments
in the relevant foreign currencies as far as possible. To this end, bank accounts are maintained for all the major currencies in
which the Group trades. Translational exposure in converting the income statements of foreign subsidiaries into the Group’s
presentational currency of Sterling is not hedged.

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

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
155

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 £55,955,000 (2013: £59,009,000) which is the total carrying value of the
Group’s financial assets.

Cash is only deposited with highly rated banks in line with our treasury policy.

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 8.4% of
gross trade receivables at 30 June 2014 (2013: 2.0%). 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
2014 and 30 June 2013.

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 2014 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.

www.dechra.com Stock code: DPHOur Financials156

Notes to the Consolidated Financial Statements continued

22. Financial Instruments and Related Disclosures continued

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

Financial assets
Cash and cash equivalents

Loans and receivables
— trade receivables
— other receivables

Total financial assets
Financial liabilities
Bank loans and overdrafts
Held for trading financial liabilities
— derivatives designated as hedges
Finance lease liabilities
Trade payables
Other payables
Deferred and contingent consideration
Total financial liabilities
Net financial liabilities

Carrying
value
£000

26,773
26,773

28,325
857
29,182
55,955

2014

2013

Fair
value
£000

26,773
26,773

28,325
857
29,182
55,955

Carrying
value
£000

32,791
32,791

25,296
922
26,218
59,009

Fair
value
£000

32,791
32,791

25,296
922
26,218
59,009

(32,039)

(115,073)

(161)
(110)
(12,867)
(8,682)
(7,809)
(61,668)
(5,713)

(15)
(480)
(11,859)
(6,973)
(5,928)
(140,328)
(81,319)

Fair Value Hierarchy
The table below analyses the Group’s financial instruments carried at fair value, by valuation method. Where possible, quoted
prices in active markets are used (Level 1). Where such prices are not available, the asset or liability is classified as Level
2, provided all significant inputs to the valuation model used are based on observable market data. If one or more of the
significant inputs to the valuation model is not based on observable market data, the instrument is classified as Level 3.

30 June 2014
Derivative financial liabilities
Deferred and contingent consideration for business combinations
Total

30 June 2013
Derivative financial liabilities
Deferred and contingent consideration for business combinations
Total

Level 1
£000
—
—
—

Level 2
£000
(161)
—
(161)

Level 2
£000
(15)
—
(15)

Level 3
£000
—
(7,809)
(7,809)

Level 3
£000
—
(5,928)
(5,928)

Total
£000
(161)
(7,809)
(7,970)

Total
£000
(15)
(5,928)
(5,943)

At 30 June 2014, the deferred and contingent consideration balance is made up of £3.4 million in relation to the DermaPet
acquisition, £1.9 million for a US generic pharmaceutical product, and £2.5 million in relation to the Phycox acquisition.
Movements in deferred and contingent consideration consist of a £0.1 million unwinding of discount and £0.4 million decrease
due to foreign exchange differences in relation to the DermaPet acquisition, £0.1 million discount and £0.2 million decrease
due to foreign exchange differences in relation to the US generic pharmaceutical, and a £2.5 million addition for Phycox.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
22. Financial Instruments and Related Disclosures continued

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

Overdue by:
Up to one month
Between one and two months
Between two and three months
Over three months

The movement in the impairment provision was as follows:

At start of period
Impairment provision recognised/(released)
Transferred to held for sale
Impairment provision utilised
At end of period

2014
£000

5,206
270
324
11
5,811

2014
£000
148
48
—
(20)
176

157

2013
£000

4,052
415
11
—
4,478

2013
£000
2,877
(7)
(2,667)
(55)
148

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 2014 and 30 June 2013. Where interest is at floating rates, the future interest payments have been estimated using
current interest rates:

At 30 June 2014
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
(7,809)
—
(1,952)
(9,761)

Bank loans
and
overdrafts
£000
(31,653)
(386)
(202)
(32,241)

(773)
(183)
(4,221)
(403)
(423)
(445)
(3,313)
(9,761)

(202)
—
(32,039)
—
—
—
—
(32,241)

Finance
leases
£000
(110)
—
—
(110)

(73)
(30)
(7)
—
—
—
—
(110)

Trade and
other
payables
£000
(21,549)
—
—
(21,549)

(21,549)
—
—
—
—
—
—
(21,549)

Total
£000
(61,121)
(386)
(2,154)
(63,661)

(22,597)
(213)
(36,267)
(403)
(423)
(445)
(3,313)
(63,661)

www.dechra.com Stock code: DPHOur Financials158

Notes to the Consolidated Financial Statements continued

22. Financial Instruments and Related Disclosures continued

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)

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

Trade and
other
payables
£000
(18,832)
—
—
(18,832)

(18,832)
—
—
—
—
—
—
(18,832)

2014
£000

34
34
69
24
161

Total
£000
(138,350)
(1,963)
(4,105)
(144,418)

(25,389)
(6,632)
(15,135)
(14,556)
(82,706)
—
—
(144,418)

2013
£000

83
(12)
(25)
(31)
15

The Group has a contractual obligation to pay £34,000 (2013: £83,000) under its interest rate swap arrangement covering the
period from 30 June to 30 September 2014.

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

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
159

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 2014 and 30 June
2013 were:

At 30 June 2014
Financial assets
Trade receivables
Other receivables
Cash balances

Financial liabilities
Bank loans and overdrafts
Trade payables
Other payables
Derivatives

Net balance sheet exposure

At 30 June 2013
Financial assets
Trade receivables
Other receivables
Cash balances

Financial liabilities
Bank loans and overdrafts
Trade payables

Net balance sheet exposure

Danish
Krone
£000

1,530
48
409
1,987

—
(630)
—
—
(630)
1,357

Danish
Krone
£000

52
3
2,903
2,958

—
(34)
(34)
2,924

Euro
£000

4,825
110
5,300
10,235

(6,258)
(1,444)
—
(86)
(7,788)
2,447

Euro
£000

6,063
39
5,338
11,440

(11,990)
(1,181)
(13,171)
(1,731)

US
Dollar
£000

349
—
721
1,070

(28,321)
(503)
(2,457)
(75)
(31,356)
(30,286)

US
Dollar
£000

4,055
23
3,499
7,577

(29,567)
(1,389)
(30,956)
(23,379)

Other
£000

8,377
234
3,940
12,551

—
(97)
—
—
(97)
12,454

Other
£000

5,844
211
2,081
8,136

—
(124)
(124)
8,012

Sensitivity Analysis
Interest Rate Risk
A 2.0% increase in interest rates compared to those ruling at 30 June 2014 would reduce Group profit before taxation and
equity by £138,000 (2013: £621,000).

www.dechra.com Stock code: DPHOur Financials160

Notes to the Consolidated Financial Statements continued

22. Financial Instruments and Related Disclosures continued

Foreign Currency Risk
The Group has significant cash flows and net financial assets and liabilities in Danish Krone, US Dollar and Euro. The Group
does not hedge either economic exposure or the translation exposure arising from the profits, assets and liabilities of non-
Sterling businesses.

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
(136)
(248)
(3,029)

Net
assets
£000
(136)
(248)
(3,029)

The sensitivities above represent the Directors view of reasonably possible changes in each risk variable, not worst case
scenarios or stress tests. The outputs from the sensitivity analysis are estimates of the impact of the effect of changes in
market risks assuming that the specified changes occur at the year end and are applied to the risk exposures at that date.
Accordingly they show the impact on the balance sheet of an instantaneous shock.

Actual results in the future may differ materially from these estimates due to commercial actions taken to mitigate any potential
losses from such rate movements, to the interaction of more than one sensitivity occurring and to further developments in
global financial markets. As such this table should not be considered as a projection of likely future gains and losses.

Hedges
Cash Flow Hedges
The Group has entered into an interest rate swap on the revolving credit facility of £32.0 million. The Group has designated
this a cash flow hedge. The risk being hedged is the variability of cash flows arising from movements in interest rates. No
ineffectiveness arose on the hedge.

The hedge is in place until 31 October 2016. The amounts recognised in equity are recycled to the Consolidated Income
Statement to offset gains and losses in the period in which the cash flows occur.

The amount recognised in equity in the year ended 30 June 2014 was a liability of £132,000 including an income tax credit of
£29,000 (2013: £nil including an income tax credit of £15,000).

23. Share Capital

Allotted, called up and fully paid at start of year
New shares issued
Allotted, called up and fully paid at end of year

Ordinary shares of 1p each

2014

No.
87,157,444
555,120
87,712,564

£000
872
5
877

2013

No.
86,870,176
287,268
87,157,444

£000
869
3
872

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 555,120 new ordinary shares of 1p (2013: 287,268 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 £949,503 (2013: £845,674). 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.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
24. Own Shares

Acquired in the period
At end of period

161

2014
£000
606
606

2013
£000
—
—

The own shares reserve represents the cost of shares in Dechra Pharmaceuticals PLC purchased in the market and held by
the Group’s Employee Benefit Trust to satisfy options under the Group’s share options schemes (see note 25 for details). The
number of ordinary shares held by the Employee Benefit Trust at 30 June 2014 was 83,478 (2013: nil).

25. 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 conditions 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. Each of the TSR and
EPS elements is subject to an additional ROCE underpin. Unless the Company’s ROCE is 10% or more in the final year of the
performance period, the award will lapse in full.

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.

www.dechra.com Stock code: DPHOur Financials162

Notes to the Consolidated Financial Statements continued

25. Share-based Payments continued

Year ended 30 June 2014

Exercise
Period

2010–2017
2011–2018
2011–2018
2012–2019
2013–2020
2014–2021
2015–2022
2016–2023
2017–2024

2008–2015
2009–2016
2010–2017
2011–2018
2011–2018

2012–2019
2013–2020
2014–2021
2015–2022
2016–2023

2013–2014
2014–2015
2016–2016
2014–2015
2016–2017

2009–2013
2010–2014
2011–2015
2012–2016
2013–2017

2014–2018

2015–2019
2017–2019

Unapproved Share Option Scheme

19 March 2007†
2 April 2008†
10 October 2008†
30 March 2009†
1 March 2010†
28 February 2011†
10 September 2012
16 September 2013
5 March 2014

Approved Share Option Scheme
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
16 September 2013

Long Term Incentive Plan

22 December 2010
7 September 2011
5 March 2013
27 September 2013
27 November 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
7 April 2014

Total

Weighted average exercise price*

Exercise
price
per share*
Pence

265.43
336.15
364.62
381.15
418.81
461.97
541.00
721.00
698.00

185.98
231.45
265.43
336.15
364.62

381.15
418.81
461.97
541.00
721.00

—
—
—
—
—

179.77
257.16
315.02
304.92
375.64

365.54

471.00
552.00

At
1 July
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

3,909
8,546
36,422
27,814
92,291

88,145

115,059
—
372,186
1,496,800

205.61p

Exercised
Number

Granted
Number

Lapsed
Number

(7,120)
(7,286)
—
(7,141)
(8,998)
(12,526)
(1,307)
—
—
(44,378)

(8,709)
(14,151)
(23,225)
(13,568)
(2,722)

(5,922)
(13,976)
(4,550)
—
—
(86,823)

(207,339)
(68,878)
(4,047)
—
—
(280,264)

(3,909)
(6,694)
(30,909)
(6,321)
(61,906)

(23,852)

(10,064)
—
(143,655)
(555,120)

171.04p

—
—
—
—
—
—
—
54,842
2,000
56,842

—
—
—
—
—

—
—
—
—
15,158
15,158

—
—
—
83,478
309,718
393,196

—
—
—
—
—

—

—
111,078
111,078
576,274

195.40p

—
—
—
—
—
(3,238)
(24,221)
(3,000)
—
(30,459)

—
—
—
—
—

—
—
(861)
(6,472)
—
(7,333)

—
(15,803)
(49,108)
—
(33,706)
(98,617)

—
(1,852)
(207)
(2,070)
(14,006)

(22,683)

(45,014)
—
(85,832)
(222,241)

254.63p

At
30 June
2014
Number

—
9,915
20,142
27,214
20,674
36,919
65,244
51,842
2,000
233,950

—
—
7,620
9,766
—

—
7,510
10,477
10,756
15,158
61,287

—
161,041
226,168
83,478
276,012
746,699

—
—
5,306
19,423
16,379

41,610

59,981
111,078
253,777
1,295,713

207.91p

* 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 2014 are 191,976.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
163

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

3,909
8,546
36,422
27,814

92,291

88,145
115,059
372,186
1,496,800

25. Share-based Payments continued

Year ended 30 June 2013

Exercise
Period

2006–2013
2010–2017
2011–2018
2011–2018
2012–2019
2013–2020
2014–2021
2015–2022

2007–2014
2008–2015
2009–2016
2010–2017
2011–2018
2011–2018
2012–2019
2013–2020
2014–2021
2015–2022

2012–2013
2013–2014
2014–2015
2016–2016

2009–2013
2010–2014
2011–2015
2012–2016

2013–2017

2014–2018
2015–2019

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

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

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

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

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

3,909
76,022
42,588
114,713

95,020

100,126
—
432,378
1,756,135

172.47p

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

—
—
—
—
—

—
—
—
279,323
279,323

—
(55,777)
—
(78,085)

—

—
—
(133,862)
(287,268)

294.39p

—
—
—
—

—

—
125,715
125,715
516,038

231.11p

—
—
—
—
—
(6,340)
(7,678)
(3,000)
(17,018)

—
—
—
—
—
—
—
(3,457)
(5,385)
—
(8,842)

(302,421)
(49,441)
(58,338)
—
(410,200)

—
(11,699)
(6,166)
(8,814)

(2,729)

(11,981)
(10,656)
(52,045)
(488,105)

* 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.

The weighted average exercise price of options eligible to be exercised at 30 June 2014 was 312.8p (2013: 341.8p).

For options exercised during the year, the weighted average market price at the date of exercise was 694p (2013: 629p). The
weighted average remaining contractual lives of options outstanding at the Consolidated Statement of Financial Position date
was four years (2013: four years).

61.10p

205.61p

www.dechra.com Stock code: DPHOur Financials164

Notes to the Consolidated Financial Statements continued

25. Share-based Payments continued

Outstanding options on all Long Term Incentive Plan, Approved and Unapproved plans prior to 30 June 2011 were exercisable
at 30 June 2014. 41,739 options of the 27 September 2013 Long Term Incentive Plan were exercisable at 30 June 2014.

No options issued under SAYE plans were exercisable at 30 June 2014.

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

27/11/13
309,718
681p
Nil
2.58 years
0.73%
25%
2.05%
461p

27/09/13
83,478
715p
Nil
1-2 years
0.38%
25%
1.97%
617p

16/09/13 and
05/03/14
72,000
738p
721p
5 years
1.69%
33%
1.90%
197p

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

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
25. 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
Risk-free rate
— three year scheme
— five year scheme
Volatility
— three year scheme
— five year scheme
Dividend yield
Fair value per share
— three year scheme
— five year scheme

165

07/04/14
111,078
675p
552p

16/10/12
125,715
591p
471p

3.25 years
5.25 years

1.21%
1.87%

24%
27%
2.13%

158p
193p

0.41%
0.84%

34%
34%
2.08%

171p
192p

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 2014 of £429,000 (2013: £260,000), of which £50,000
(2013: £39,000) 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.

2014
£000
1,616
378
1,994

2013
£000
821
193
1,014

www.dechra.com Stock code: DPHOur Financials166

Notes to the Consolidated Financial Statements continued

26. Analysis of Net Borrowings

Bank loans
Finance leases and hire purchase contracts
Cash and cash equivalents
Net borrowings

27. Operating Leases

2014
£000
(31,653)
(110)
26,773
(4,990)

2013
£000
(113,110)
(480)
32,791
(80,799)

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
2013
£000
1,362
2,775
2,787
6,924

2014
£000
785
2,735
2,254
5,774

Other assets

Total

2014
£000
1,264
1,217
—
2,481

2013
£000
2,432
2,357
49
4,838

2014
£000
2,049
3,952
2,254
8,255

2013
£000
3,794
5,132
2,836
11,762

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 £nil (2013: £4,384,000).

28. 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
2013
8.7146
1.1687
1.5208

Average
rate
8.9378
1.1981
1.6259

Closing rate
at 30 June
2014
9.3051
1.2480
1.6938

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
167

29. Acquisitions

Acquisition of Phycox
On 20 May 2014, the Group acquired certain trade and assets of PSPC Inc. for a maximum total consideration of US$14.2
million. PSPC’s principal product is Phycox, a patented nutraceutical which competes in the US veterinary joint health
supplement market. Additionally, a new product is in the final phase of development. The acquisition enhances our US product
portfolio and adds further critical mass to our US business. US$8.5 million of the consideration was payable on completion,
US$1.5 million was contingent upon the successful registration of the new product, which occurred in June 2014, and US$4.2
million is contingent on future sales.

Recognised amounts of identifiable assets acquired and liabilities assumed
Identifiable assets
Property, plant and equipment
Trade and other receivables
Inventory
Identifiable intangible assets
Net identifiable assets
Goodwill
Total consideration
Satisfied by:
Cash
Contingent consideration arrangement — paid on 20 June 2014
Contingent consideration
Total consideration transferred
Net cash outflow arising on acquisition
Cash consideration
Contingent consideration arrangement — paid on 20 June 2014

Book value
£000

Fair value
£000

701
86
617
—
1,404

319
86
436
7,483
8,324
84
8,408

5,047
891
2,470
8,408

5,047
891
5,938

The fair value adjustments mostly relate to harmonisation with the Group IFRS accounting policies, including the application
of fair values on acquisition, principally the recognition of product rights in accordance with IFRS 3. No deferred tax has been
recognised on the identifiable intangible assets as no temporary differences arise between the carrying amounts of the assets
for financial purposes and the amounts used for taxation purposes (the tax base).

The book value of receivables in the table above represents the gross contractual amounts receivable.

The goodwill of £84,000 arising from the acquisition consists of the assembled workforce and technical expertise. None of the
goodwill is expected to be deductible for income tax purposes.

Acquisition related costs (included in operating expenses) amounted to £150,000. Phycox’s results are reported within the US
Pharmaceuticals Segment.

Contingent consideration of US$1.5 million was paid on 20 June 2014 following the successful registration of the new product.
The remaining contingent consideration of US$4.2 million (£2.5 million) represents royalties payable of 10% of future global net
sales (with a further 2.5% payable on sales over US$7.5 million, and a further 2.5% payable on sales over US$12.5 million).

Phycox contributed £nil revenue and £nil to the Group’s underlying pre-tax profit for the period between the date of acquisition
and the balance sheet date. If the acquisition of Phycox had been completed on the first date of the financial year, Group
revenues for the period would have been £196.4 million and the Group underlying pre-tax profit for continuing operations
would have been £40.1 million.

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 prior period.

www.dechra.com Stock code: DPHOur Financials168

Notes to the Consolidated Financial Statements continued

29. 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 prior 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 (being 22 October 2014). 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.

30. Discontinued Operations

The divestment of the Services Segment was completed on 16 August 2013 for sale proceeds of £91.2 million. The costs to
sell were £1.6 million (of which £1.5 million was incurred in the prior year), with an associated tax deduction of £0.1 million.

The Services businesses constitute a reporting segment in accordance with IFRS 8.

The results of the discontinued operations included in the profit for the year are set out below. The Segment was classified as
discontinued operations and as held for sale at 30 June 2013. The Consolidated Income Statement has been presented to
show the discontinued operations 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
Profit before taxation from operating activities
Income tax expenses
Profit for the year from operating activities
Profit on disposal and related expenses
Tax on profit on disposal and related expenses
Total profit for the year from discontinued operations attributable to owners of the parent

* Non-underlying items comprise amortisation of acquired intangibles and rationalisation costs.

See note 10 for the Earnings per Share split between continued and discontinued operations.

2014
£000
48,259
(44,519)
3,740
(1,669)
(755)
—
1,316
—
1,316
(296)
1,020
38,711
(100)
39,631

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
7,063

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
169

30. Discontinued Operations continued

Cash Flows from Discontinued Operations

Net cash (outflow)/inflow from operating activities
Net cash inflow/(outflow) from investing activities
Net cash outflow from financing activities (including repayment of intercompany funding)

2014
£000
(14,210)
89,626
—

2013
£000
1,305
(810)
(508)

As completion occurred half way through the month, the working capital position on 16 August 2013 was significantly higher
than at year end. This increase in the Services Segment working capital affected our operating cash flow before interest
and tax payments, generating a cash inflow of £11.5 million at 30 June 2014 compared to £36.9 million at 30 June 2013.
Excluding the Services’ operating cash outflow of £14.2 million (the majority of which relates to trade and other receivables),
cash generated from operations before interest and tax payments for the continuing operations was £25.7 million.

Effect of the disposal on the financial position of the Group

Goodwill
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Net assets sold

Consideration received
Working capital adjustment
Expenses related to disposal (including those accrued in the prior year)

Net cash inflow

31. Related Party Transactions

2014
£000
(2,621)
(1,049)
(1,677)
(29,274)
(73,330)
55,569
(52,382)

87,500
3,702
(1,576)

89,626

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 178.

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 86 to 105. The remuneration of key management is
disclosed in note 7.

32. Off Balance Sheet Arrangements

The Group has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.

33. Events after the Reporting Period

In September 2014 the Group refinanced its borrowing facility. Refer to note 20 for further details.

www.dechra.com Stock code: DPHOur Financials170

Company Balance Sheet
At 30 June 2014

Fixed assets
Investments
Intangible assets
Tangible assets

Current assets
Debtors (includes amounts falling due after more than one year of £501,000 (2013: £579,000))
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
Own shares
Hedging reserve
Profit and loss account
Total equity shareholders’ funds

Note

iii
iv
v

vii

x
xi
xi
xi
xi

2014
£000

242,065
3,879
208
246,152

16,560
—
16,560
(48,841)
(32,281)
213,871
(31,653)
182,218

877
124,429
(606)
(132)
57,650
182,218

2013
£000

251,104
4,390
207
255,701

40,978
—
40,978
(50,331)
(9,353)
246,348
(103,698)
142,650

872
123,485
—
—
18,293
142,650

The financial statements were approved by the Board of Directors on 8 September 2014 and are signed on its behalf by:

Ian Page
Chief Executive Officer
8 September 2014

Anne-Francoise Nesmes
Chief Financial Officer
8 September 2014

Company number: 3369634

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
Reconciliation of Movements in Shareholders’ Funds
For the year ended 30 June 2014

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
Own shares purchased
At end of year

171

2014
£000
142,650
50,320
(273)
141
1,616
(12,579)
949
(606)
182,218

2013
£000
128,647
23,220
(140)
426
821
(11,170)
846
—
142,650

www.dechra.com Stock code: DPHOur Financials172

Notes to the Company Financial Statements

(i) Principal Accounting Policies of the Company

Accounting Principles
The Company Balance Sheet has been prepared under the historical cost convention except for derivatives which are stated at
fair value in accordance with applicable UK accounting standards and the Companies Act 2006.

Basis of Preparation
No profit and loss account is presented for the Company as permitted by Section 408(2) and (3) of the Companies Act 2006.
The profit dealt with in the accounts of the Company was £50,320,000 (2013: £23,220,000). Fees paid to KPMG LLP 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 Financial Reporting Standard
(FRS) 1 (Revised) not to present a cash flow statement as part of its financial statements.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
173

(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 31 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.

Where the Company grants options over its own shares to the employees of its subsidiaries it recharges the expense to
those subsidiaries.

www.dechra.com Stock code: DPHOur Financials

174

Notes to the Company Financial Statements continued

(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 £3,061,000 (2013: £2,088,000). Information
relating to Directors’ emoluments, share options and pension entitlements is set out in the Directors’ Remuneration Report on
pages 86 to 105.

(iii) Fixed Asset Investments

Cost

At 1 July 2013

Additions
At 30 June 2014
Impairment
At 1 July 2013
Charge for the period
At 30 June 2014
Net book value
At 30 June 2014
At 30 June 2013

Shares in
subsidiary
undertakings
£000

251,104

3,205
254,309

—
12,244
12,244

242,065
251,104

A list of principal subsidiary undertakings is given in note (xii).

During the course of the year management transferred the trade and assets of certain operating subsidiaries to other
subsidiaries within the Group all of which are wholly owned. On 16 August 2013, the entire share capital of National Veterinary
Services Limited was sold. This resulted in management assessing the carrying value of its investments and an impairment of
£12,244,000 was recognised.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
(iv)

Intangible Assets

Cost

At 1 July 2013
At 30 June 2014
Amortisation
At 1 July 2013
Charge for the year
At 30 June 2014
Net book value
At 30 June 2014
At 30 June 2013

(v) Tangible Assets

Cost

At 1 July 2013
Additions
At 30 June 2014

Depreciation
At 1 July 2013
Charge for the year
At 30 June 2014
Net book value
At 30 June 2014
At 30 June 2013

(vi) Debtors

Amounts owed by subsidiary undertakings
Group relief receivable
Deferred taxation (see note (ix))
Other debtors
Prepayments and accrued income

175

Intangible
assets
£000

5,114
5,114

724
511
1,235

3,879
4,390

Tangible
assets
£000

223
51
274

16
50
66

208
207

2013
£000
36,119
3,951
579
176
153
40,978

2014
£000
14,072
1,975
501
11
1
16,560

Included in debtors are amounts of £501,000 (2013: £579,000) 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 (2013: £nil).

www.dechra.com Stock code: DPHOur Financials176

Notes to the Company Financial Statements continued

(vii) Creditors

Bank loans and overdrafts (see note (viii))
Amounts due to subsidiary undertakings
Derivative financial instruments
Other taxation and social security
Accruals and deferred income

Falling due
within one year

2014
£000
3,485
42,642
161
129
2,424
48,841

2013
£000
15,221
32,226
15
105
2,764
50,331

In accordance with FRS 21 ‘Events after the Balance Sheet Date’, the proposed final dividend for the year ended 30 June
2014 of 10.65p per share (2013: 9.66p per share) has not been accrued for in these financial statements. It will be shown in
the financial statements for the year ending 30 June 2015. The total cost of the proposed final dividend is £9,341,000 (2013:
£8,419,000).

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
2014
£000
31,653
31,653

2013
£000
103,698
103,698

2014
£000

3,485
—
—
3,485

32,039
—
32,039
(386)
31,653
35,138

2013
£000

5,809
10,000
(588)
15,221

10,000
95,073
105,073
(1,375)
103,698
118,919

The current 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 2014. No interest has been capitalised during the
year (2013: £nil).

In September 2014, the Company refinanced its existing bank facility. The Company’s revised borrowing facility comprises a
£90 million revolving credit facility and a £30.0 million Accordion facility committed until September 2019. Refer to note 20 to
the Consolidated Financial Statements for further details.

The Company guarantees certain borrowings of other Group companies, which at 30 June 2014 amounted to £110,000
(2013: £480,000).

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
(ix) Deferred Tax

At 1 July 2013
Amounts recognised in profit and loss
Amounts recognised in equity

At 30 June 2014 (included in debtors)

The amounts provided for deferred taxation at 20% (2013: 23%) 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 2013
New shares issued
Allotted, called up and fully paid at 30 June 2014

177

£000
579
(107)
29

501

2013
£000
576
3
579

2014
£000
503
(2)
501

Ordinary shares
of 1p each

£000
872
5
877

No.
87,157,444
555,120
87,712,564

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 25 to the Consolidated Financial Statements.

Share Options
Details of outstanding share options over ordinary shares of 1p at 30 June 2014 under the various Group share option
schemes are shown in note 25 to the Consolidated Financial Statements.

(xi) Reserves

At 1 July 2013
New shares issued
Own shares purchased
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 2014

Share
premium
account
£000
123,485
944
—
—
—
—
—
—
124,429

Own
shares
£000
—
—
(606)
—
—
—
—
—
(606)

Hedging
reserve
£000
—
—
—
—
(273)
141
—
—
(132)

Profit
and loss
account
£000
18,293
—
—
50,320
—
—
(12,579)
1,616
57,650

The net assets of the Employee Benefit Trust have been included in the Company balance sheet in accordance with FRS.
Refer to note 24 to the Consolidated Financial Statements for details of the shares held by the Employee Benefit Trust.

www.dechra.com Stock code: DPHOur Financials178

Notes to the Company Financial Statements continued

(xii) Subsidiary Undertakings

Dechra Pharmaceuticals PLC is the ultimate parent and controlling party of the Group.

The principal subsidiary undertakings of the Company, all of which are wholly owned, are:

Company
Operating subsidiaries
Albrecht GmbH∞

Dechra LimitedΩ

Dechra Development LLC**
Dechra Veterinary Products Inc**
Dechra Veterinary Products A/S
Dechra Veterinary Products OY#
Dechra Veterinary Products SAS#
Dechra Veterinary Products Srl**
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∞

Country of
Incorporation

Germany

England & Wales

USA
Canada
Denmark
Finland
France
Italy
Norway
Spain
Sweden
The Netherlands
England & Wales
USA
Belgium
The Netherlands

England & Wales
England & Wales
Denmark

Principal Activity

Marketer of veterinary pharmaceuticals and distributor of
veterinary pharmaceuticals and equipment
Developer, regulatory, manufacturer and marketer of veterinary
pharmaceuticals
Regulatory and product development
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
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Manufacturer of veterinary pharmaceuticals and marketer of
veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Wholesaler and provider of laboratory services***
Marketer of veterinary pharmaceuticals and pet diets

Other subsidiaries
England & Wales
Anglian Manufacturing Chemists Limited‡
England & Wales
Anglian Pharma Manufacturing Limited†
England & Wales
Anglian Pharma Limited
England & Wales
Arnolds Veterinary Products Limited*
Broomco 4263 Limited*
England & Wales
Cambridge Specialist Laboratory Services Limited§ England & Wales
England & Wales
Dales Pharmaceuticals Limited*
England & Wales
Dechra Finance Limited
England & Wales
Dechra Investments Limited
The Netherlands
Farvet Laboratories BV∞
England & Wales
Leeds Veterinary Laboratories Limited
England & Wales
North Western Laboratories Limited
England & Wales
Veneto Limited
USA
DermaPet, Inc.¶

Non-trading
Holding Company
Holding Company
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Holding Company
Non-trading
Non-trading
Holding Company
Holding Company
Non-trading

†

‡

∞

***

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.

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 30 to the Consolidated Financial Statements for details.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
179

2013
£000

189,176
39,108
25,464

38.98
38.71

29.27
29.07
14.00

235,670

89,672‡
(49,558)‡

(136,991)
35,823
174,616

36,865
(19,368)

(18,266)

2012

(Restated)†

£000

124,330
25,545
16,029

—
—

21.35*
21.28*
12.27*

237,132

86,863‡
(48,217)‡

(147,278)
25,182
153,682

—
—

—

2012
£000

426,041
36,601
24,302

32.37*
32.27*

—
—
12.27*

242,592
161,829
(103,461)
(147,278)
—
153,682

19,242
(120,344)

103,708

2011
£000

2010
£000

389,237
31,823
22,748

369,369
28,190
19,437

31.53*
31.43*

—
—
11.12*

27.09*
26.99*

—
—
9.64*

132,819
137,549
(88,952)
(83,083)
—
98,333

88,044
117,483
(89,041)
(30,258)
—
86,228

16,754
(36,178)

18,867

17,324
(1,715)

(10,821)

Financial History

Consolidated income statement
Revenue
Underlying operating profit
Underlying profit after taxation
Underlying earnings per share
— basic (pence)
— diluted (pence)
Continuing 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

2014
£000

193,571
42,168
31,849

37.61
37.48

36.45
36.32
15.40

214,440
86,334
(35,715)
(60,253)
—
204,806

11,472
76,575

Net cash (outflow)/inflow from financing activities

(92,148)

* 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.

www.dechra.com Stock code: DPHOur Financials
180

Glossary

The following is a glossary of a number of the terms and
acronyms which can be found within this document:

DPM
Dechra Pharmaceuticals Manufacturing

API
Active Principal Ingredient

APP
Actinobacillis pleuropneumonia (APP) is a bacterial infection that
affects the respiratory system of pigs

APSP
Approved Performance Share Plan

Bioequivalence
The demonstration that the proposed formulation has the same
biological effects as the pioneer product to which it is being
compared. This is usually demonstrated by comparing blood
concentrations of the active over time, but can be compared
using a clinical endpoint (e.g. lowering of a worm count) for
drugs that are not absorbed or for which blood levels cannot be
determined

CAGR
Compound Annual Growth Rate

CAP
Companion Animal Products

CapEx
Capital Expenditure

CE
Continuing Education

CER
Constant Exchange Rate

CMC
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

CPD
Continuous Professional Development

CSOP
Company Share Option Plan

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

DVP EU
Dechra Veterinary Products EU

DVP US
Dechra Veterinary Products US

Dysbacteriosis
A microbial imbalance on or inside the body

EBIT
Earnings before interest and tax

EBITDA
Earnings before interest, tax, depreciation and amortisation

E.Coli
Escherichia coli is a bacterium of the genus Escherichia that
is commonly found in the lower intestine of warm-blooded
organisms

EPS
Earnings Per Share

Euthyroid
Euthyroid is the state of having normal thyroid gland function

Executive Directors
The Executive Directors of the Company, currently Ian Page,
Anne-Francoise Nesmes and Tony Griffin

FAP
Food producing Animal Products

FDA
US Food and Drug Administration; a federal agency of the US
Department of Health and Human Services

FRC
Financial Reporting Council

FRS
Financial Reporting Standards

FTSE250/350 Index
An index comprising 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 the 351st to 619th largest listed
companies on the London Stock Exchange in terms of their
market capitalisation

GAAP
Generally Accepted Accounting Practices

Dechra Values or Values
Dedication, Enjoyment, Courage, Honesty, Relationships and
Ambition

GHG
Greenhouse Gas

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
Company Information

181

HGV
Heavy Goods Vehicle

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

Otitis Externa
A condition which causes inflammation of the external ear canal
(the tube between the outer ear and the ear drum)

PDRA
Dechra’s Product Development and Regulatory Affairs team

QC
Quality Control

RIDDOR
Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations

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

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

KPI
Key Performance Indicator

LIBOR
The London Inter-Bank Offered Rate

LTAFR
Lost Time Accident Frequency Rate

LTIP
Long Term Incentive Plan

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

Maximum residue limit (MRL)
The maximum acceptable concentration of a substance that
may be found in a food product obtained from an animal that
has received a veterinary medicine

NADA
New Animal Drug Application

Non-Executive Directors
The Non-Executive Directors of the Company, currently
Michael Redmond, Dr Chris Richards, Julian Heslop and Ishbel
Macpherson

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

ROCE
Return On Capital Employed

ROI
Return On Investment

RPI
Retail Price Index

SAYE
Save As You Earn Share Scheme

SET
Senior Executive Team

S.suis
Streptococcus suis is a bacterial infection which occurs
primarily in nursing or recently weaned pigs

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

TSR
Total Shareholder Return

VCA
Veterinary Centers of America

VMD
Veterinary Medicines Directorate

www.dechra.com Stock code: DPH182

Shareholder Information

Financial Calendar
Interim Management Statement
2014 Annual General Meeting
Final Dividend Ex Div Date
Final Dividend Record Date
Final Dividend Payment Date

24 October 2014
24 October 2014
6 November 2014
7 November 2014
21 November 2014

Annual General Meeting
The 2014 Annual General Meeting of the Company will be
held at 10.00 am on 24 October 2014 at Investec Bank plc,
2 Gresham Street, London EC2V 7QP. The notice of meeting
(the Notice), which includes special business to be transacted at
the Annual General Meeting together with an explanation of the
resolutions to be considered at the meeting, is made available
on the Company website or mailed to shareholders, if they have
elected to receive the Notice in paper format.

Electronic Communications
Shareholders now have the opportunity to receive shareholder
communications electronically, e.g. Annual Reports, Notice of
the Annual General Meeting and Proxy Forms. You can elect
to receive email notifications of shareholder communications
by registering at www.shareview.co.uk where you can also set
up a bank mandate to receive dividends directly to your bank
account and to submit proxy votes for shareholder meetings.
Receiving the Company’s communications electronically allows
the Company to communicate with its shareholders in a more
environmentally friendly, cost effective and timely manner.

Registrar
Dechra’s Registrar is Equiniti Limited.

Equiniti should be contacted for any matters relating to your
shareholding, including:

Share History
Dechra floated on the London Stock Exchange in September 2000
at £1.20 per share, with a market capitalisation of £60 million.

• Notification of change in name and address

• Enquiries about dividend payments

In relation to the acquisition of VetXX Holdings A/S, on 15 January
2008, Dechra undertook a placing and open offer on the basis of
11 Open Offer shares for every 50 existing shares held on
10 December 2007 at an issue price of 303 pence. On 9 January
2008 11,624,544 shares were issued.

On 5 April 2012, a Rights Issue was announced on the basis of
3 new ordinary shares for every existing 10 shares held on
23 April 2012 at a subscription price of £3.00 per share. The
Rights Issue resulted in 20,040,653 shares being issued with
dealings commencing on 16 May 2012.

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

• Submission of proxy form for voting at the Annual General

Meeting

Equiniti offers a facility whereby shareholders are able to access
their shareholdings in Dechra via their website
(www.shareview.co.uk).

Alternatively Equiniti can be contacted at:

Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA

Registrars’ Shareholder Helpline for Dechra: 0871 384 2030 or
+44(0) 121 415 7047, if calling from the outside of the UK.

Please have your Shareholder Reference Number to hand
whenever you contact the Registrar; this can be found on your
share certificate.

Share Dealing Service
Equiniti Financial Services Limited offer a Share Dealing Service,
to buy or sell shares. Further information can be obtained from
www.shareview.co.uk/dealing or by telephoning 0845 603 7037.

Fee (on value of transaction)
up to £50,000
over £50,000

Minimum charge
Stamp duty charge
(purchases only)

Telephone
share
dealing

1.5%
0.2%

£50.00

Internet
share
dealing

1.5%
0.2%

£45.00

Postal
share
dealing

1.75%
0.5%

£50.00

0.5%

Equiniti Financial Services Limited 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.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014
Company Information

183

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 on page 182);

• consider having your dividend paid directly into your bank
account to eliminate the risk of a lost dividend cheque;

• notify the Registrar of bank account detail changes in writing

or via their website; and

• if you decide to sell or buy shares use only brokers registered

in your own country or the UK.

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.
Previously 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.

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;

• search the FCA unauthorised firms list; and

• remember: if it sounds too good to be true, it probably is!

If you use an unauthorised firm to buy or sell shares or
other investments, you will not have access to the Financial
Ombudsman Service or Financial Services Compensation
Scheme if things go wrong.

www.dechra.com Stock code: DPH184

Advisers

Auditor
KPMG LLP
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
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA

Financial PR
TooleyStreet Communications
Regency Court
68 Caroline Street
Birmingham
B3 1UG

Principal Bankers
Lloyds Bank plc
2nd Floor
125 Colmore Row
Birmingham
B3 3SF

Principal Bankers continued
Barclays Bank PLC
One Snowhill
Snow Hill Queensway
Birmingham
B3 2WN

Svenska Handelsbanken AB (publ)
Island Reach
Festival Way
Stoke-on-Trent
ST1 5SW

HSBC Bank plc
Midlands Corporate Banking Centre
4th Floor
120 Edmund Street
Birmingham
B3 2QZ

Trademarks
Trademarks appear throughout this document in italics. Dechra and the Dechra ‘D’ logo are registered trademarks of
Dechra Pharmaceuticals PLC. The Malaseb trademark is used under licence from Dermacare-Vet Pty. Ltd.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2014www.dechra.com Stock code: DPH

23481.04 11 September 2014 10:44 AM Design A

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

www.dechra.com

Stock Code: DPH

23481.04 11 September 2014 10:44 AM Proof 3